June 29, 2009

THE WALL STREET TRANSCRIPT

Connecting Market Leaders with Investors Volume CLXXXIII Number 16

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“We have been in a seven-year bull market but production today is actually lower than when we entered. With the closures in South Africa, the rest of the world hasn’t made up for the difference. We’ve had a lot of significant delays on projects because of a longer permitting process, skilled labor shortages, equipment delays. The permitting process takes much longer than in previous rallies.” Heather Douglas Investing in Gold

June 29, 2009

“While we’ve seen a lot of restructuring announcements dating back to the fourth quarter of 2008, unlike past recessions, companies have taken a much different tack in that companies have progressively been changing their cost structure to be more variable than fixed. Whether that is a sourcing model, an outsourcing model, or whatever the case may be, there isn’t as much fixed asset investment by a lot of these companies.” James C. Lucas Industrial Equipment & Process Improvement “Other things being equal, high and rising interest rates are negative for gold. Low interest rates, particularly negative rates, are very positive for gold. But you can have rising interest rates. If rising interest rates are lagging inflation, then that’s not necessarily negative for gold at all.” Adrian Day, Gold & Precious Metals

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Gold & Precious Metals

Analyst Interview & Money Manager Interviews

From a business perspective the gold stocks have enjoyed a good six months. There was a rally in the price of gold and the inflationary influences on costs have been abating. More recently, there has been some input price increase, but in the interim the companies have been able to raise money to support their balance sheets and advance their projects. Heather Douglas of Thomas Weisel Partners Canada Inc. covers large cap North American and international gold mining companies, and her colleague Andrew Mikitchook looks primarily at the smaller cap advanced developers and explorers, including gold, silver and platinum. In evaluating trends in this sector she focuses more on the movement of inventories. The big holders of gold are central banks, jewelry holders and private investors. She expects private investors to increase their holdings going forward and that will continue to push up the gold price. The most interesting players right now are the central banks, particularly China as it moves away from its reliance on the US dollar as a reserve currency. They are aware that the early summer months are usually a sideways period for the commodity and pullbacks are seen as opportunities for investors to re-enter. They identify some interesting developers who, even if the gold price doesn’t move, have the opportunity of showing price appreciation as they advance their projects, have exploration success, and bring the projects into actual production. We also interview two money managers who invest in gold and precious metals: Ken Gerbino of Kenneth J. Gerbino & Company, and Adrian Day of Adrian Day Asset Management.

Industrial Equipment Analyst Interviews

The main story about this sector is how quickly things came to a screeching halt at the end of 2008. Companies have been aggressively right-sizing the business levels for volumes 10% to 20% lower than what they had experienced over the past year. The volumes are simply not there, and while it does appear that this is a bottoming phase, as evidenced by some of the recent economic data, the bottom is still not here. James C. Lucas of Janney Montgomery Scott LLC has always tried to identify good business models, looking for companies with good management, leading market position, strong cash flow and a track record on capital allocation. The companies he recommends are well positioned to emerge from this current downturn in a much stronger position. He likes high quality businesses with somewhat defensive positions, good track records on making acquisitions, and a lot of liquidity at their disposal to take advantage of the M&A activity that will occur when the market opens up again. Charles Brady of BMO Capital Markets Corp. thinks the first real growth in this arena won’t be seen until the second half of 2010 when companies will be getting the benefit of their cost reductions and also demand will have caught up to the expected economic recovery. John Collopy of Briggs-Ficks Securities, LLC says that most of the companies in this sector have expanded into non-US markets in a significant way and are banking on the developing economies for growth, particularly in China and India.

THE WALL STREET

TRANSCRIPT

To Our Readers: Our special focus this week is on Gold & Precious Metals, including two dozen company interviews as well as featured interviews with a couple of money managers and industry analysts. Gold, which has never gone bankrupt and has never defaulted and has always had a reputation as a safe monetary substitute and an inflation hedge, has now become a major focus in the minds of all investors for a portion of their wealth or investment funds. Ken Gerbino of the investment management firm Kenneth J. Gerbino & Company believes the next big move in gold will occur because of inflation because of all the new money being minted to bail out the financial institutions around the world. The bottom line is more money equals higher prices. He expects to see a lot of consolidation in the industry going forward and also a lot of new companies emerging, particularly in Canada and Australia, as the gold price goes ever higher. Adrian Day of Adrian Day Asset Management specializes in global diversification and gold equities. He is very bullish for the mid- and longer term. He expects the dollar will continue its slide and the price of gold will rise since it acts contrary to the dollar. Also, the supply of gold is very constrained. Large undeveloped gold deposits are scarce and it is difficult to find these deposits in friendly jurisdictions. He is currently overweighted in gold and silver stocks and is trimming positions, but he expects better opportunities going forward as the price of gold continues its ascent. Our second focus is on Industrial Equipment. In terms of the cycle, the worst is probably over for this sector. There appears to be some stabilization in terms of end market demand and incoming orders. Many companies, however, have limited visibility in terms of how far they can see out for their order intake. The question is, where and when will this group see growth? Charles Brady of BMO Capital Markets thinks the back half of 2010 is when we will see better growth and 2011 looks to be a good year for most of the diversified industrial equipment companies. Right now, the companies that are well managed and have healthy margins, that have continued reduced costs in this down cycle, are the ones likely to benefit most. John Collopy of Briggs-Ficks Securities looks at metrics like unleveraged return on equity to see how companies have performed in good periods and then to see how they are going to fare in down cycles, and return on equity is something that can’t be relative. He says you have to buy these stocks when they are so out of favor that it looks like they have extreme multiples because their earnings have collapsed. We also interview James C. Lucas of Janney Montgomery Scott, who says that the four things he looks for in companies are management, leading market position, strong cash flow and a track record of capital allocation. As a result, his companies are well placed to emerge from this environment in a much stronger position. We hope that you enjoy this issue of The Wall Street Transcript.

Paul M. Smith Editor, The Wall Street Transcript

The Wall Street Transcript — June 1, 2009   3

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Investing in Gold H E AT H E R D O U G L A S & A N D R E W M I K I T C H O O K — T H O M A S W E I S E L PA R T N E R S C A N A D A I N C . HEATHER DOUGLAS is a Research Analyst at Thomas Weisel Partners, covering largecapitalization North American and international gold mining companies. She joined the firm in 2008 and is based in Toronto. She has 10 years of experience in gold mining research, having worked throughout this period with a Canadian investment bank in New York and Toronto. She received a BSc (Honours) degree in Geological Sciences from Queen’s University at Kingston, Ontario and an MS degree in Mineral Economics from Pennsylvania State University. She is a CFA charterholder.

ANDREW MIKITCHOOK is a Research Analyst at Thomas Weisel Partners, covering the precious metals sector, including gold, silver and platinum exploration and mining. He came to Thomas Weisel Partners in January 2008 as part of the Westwind Partners acquisition, after joining that firm in 2005. Prior to that he worked for five years at Haywood Securities and two years in international exploration in the FSU and Africa. He is based in Toronto and received a B.Ap.Sc. degree in Geological Engineering from the University of Toronto and he is a CFA charterholder.

SECTOR – PRECIOUS METALS (AAJ801) TWST: Heather, are you mainly focusing on the gold stocks or are you covering a broader swath than that? Ms. Douglas: I’m focused on gold, in particular the large cap gold miners. My colleague Andrew Mikitchook looks primarily at the smaller cap advanced developers and explorers. TWST: As we look back, how would you characterize the first half of the year for these companies from a business perspective? Ms. Douglas: From a business perspective, it’s been a good six months for them. They’ve had a rally in their metal price for the first six months. The inflationary influences on their costs have been abating. More recently we are seeing some input price increase, but in the interim they’ve been able to raise money to shore up their balance sheets and advance their projects. The tone of their recent earnings conference calls are quite positive. TWST: That’s a pleasant change, I guess, from the recent past. 4 The Wall Street Transcript — June 29, 2009

Ms. Douglas: A year ago, certainly, companies were seeing significant capital increases and delays of projects because of the tightness of labor markets and that sort of thing. TWST: Is the change really reflective of what’s going on in the world economies? Ms. Douglas: No. I think that there has been an oasis for gold producers in that other companies are facing far more dire situations. Fewer customers, increasing unemployment — these issues would be negative for a lot of other businesses. TWST: What has driven up the price of gold? Ms. Douglas: We need to step back and think of what was happening at the end of last year. Near the end of last year, gold had fallen post-Lehman on a lot of deleveraging of financial positions and also from liquidity-seeking selling. Gold tested $700 an ounce, and then started to recover. As we started this year, gold continued to recover. I think that was safe-haven buying, a recognition of concerns with the overall economy, concerns with the market. Gold became negatively correlated with the S&P 500. I think

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TWST: You mentioned South Africa. What’s going on we had a lot more generalists looking at gold for the first time. So in that key market at this point? we saw the gold price rising and in particular we saw the ETF volMs. Douglas: The gold companies are in negotiations ume of gold, which is a proxy for investment demand, surge. In the with the NUM (National Union of first quarter it grew from 465 Mineworkers). They have these tonnes to 1,387 tonnes. So it was Highlights negotiations every two years. The really a big move in the gold inworkers are asking for 15%, I think vestment demand. Heather Douglas focuses on large cap gold mining the companies have offered 6%, so However, since March, companies and Andrew Mikitchook covers the they need to come to an agreement. we have had a bit of a malaise. smaller cap advanced developers and explorers. I don’t expect any strike action will Now inflation concerns seem to be This year to date, the gold companies have seen occur until August, and I don’t coming in. There is more interest a rally in the price of gold and the inflationary think that that would have a longin gold as an inflation hedge and influences on their costs have been abating. They term impact on the gold price. The less as a safe-haven because over have been able, for the most part, to raise money companies really struggled a year the last three months, we’ve had a to shore up their balance sheets and advance ago with Eskom and its electrical recovery in the S&P 500. their projects. There is more interest in gold shortages, but it appears that presTWST: So people among investors as an inflation hedge and less as sure is abating and the companies looked away again as the general a safe haven because of the recovery in the S&P are getting smarter at working with markets recovered. 500 in recent weeks. The industry, however, less. South Africa is not an indusMs. Douglas: Yes, the continues to struggle in delivering growth. At the try in growth by any means. broader markets started to repeak last year, ball mill delivery times had TWST: You mentioned cover, but investors are still lookextended to three years. This has now eased early on that a lot of projects ing at the gold sector thinking that because of the delays in construction projects, in have been scaled back. Is that there are long-term structural particular non-gold projects. When Ms. Douglas pretty much across the industry? problems that won’t resolve themevaluates a trend in this market, she focuses not Ms. Douglas: They were selves in weeks or months. And so much on the supply and demand factors, but scaled back, but now they are coming one gets reminded again that there rather the movement of inventories. As for the back on. At the peak of the financial is still a budget deficit in the US, smaller companies, the high quality downstream crisis of last year when they saw the there is still a larger debt position, names, the high quality developers and up-andgold price going back down to $700, so there is still a prospect of decoming producers are now getting market companies realized that they might valuation of the US dollar. traction, but there is more room to go. not be able to fund their growth projTWST: What’s going Companies include: Kinross Gold (KGC); ects and they slowed a lot of work. I on in the industry from a proIAMGOLD (IAG); Red Back (RBI:TSX); Centamin guess the case in point is Goldcorp duction point of view at this (CEE:TSX); Osisko Mining (OSK:TSX). (GG). It slowed its work on Cochenjuncture? our at Red Lake and Eleonore in Ms. Douglas: The inQuebec. But in May, it announced dustry is struggling to deliver that because the cash flows have been better, it has actually ramped up growth. We have been in a seven-year bull market but production spending. So at this point, big gold producers haven’t shelved any projtoday is actually lower than when we entered. With the closures in ects or stopped construction like producSouth Africa, the rest of the world ers of other commodities have. hasn’t made up for the difference. Douglas: We have been in a seven-year Moreover, in the meantime, Barrick We’ve had a lot of significant delays bull market but production today is (ABX) has announced in quite a big on projects because of a longer peractually lower than when we entered. flashy way in May that it is going ahead mitting process, skilled labor shortWith the closures in South Africa, the with Pascua-Lama. ages, equipment delays. The rest of the world hasn’t made up for the TWST: So things that permitting process takes much longer difference. We’ve had a lot of significant were put on the back burner are than in previous rallies. A company delays on projects because of a longer being brought forward again? can take two or three years just getting permitting process, skilled labor Ms. Douglas: They are a bit its permits. At the peak last year, ball shortages, equipment delays. The more confident now. The volatility in mill delivery times had extended to permitting process takes much longer than in previous rallies. the gold price has come down and the three years. Now, this has eased in the gold price is higher. last six months, because of delays in TWST: Do the companies construction projects, in particular non-gold projects. have the balance sheets to support the pickup in projects? TWST: But now it’s come back a bit? Ms. Douglas: We have to evaluate it on a case-by-case Ms. Douglas: It’s come back in gold’s favor and gold basis, but the general answer is I think everyone is well-placed right miners’ favor. now to fund their projects. The Wall Street Transcript — June 29, 20099 5

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TWST: So there are opportunities. TWST: With the capital markets still in tough shape, Ms. Douglas: Yes. For instance, another example is Kinross’ are they able to access capital if they need it? purchase of Lobo-Marte, which upgraded its project pipeline. Ms. Douglas: To date, everyone has been able to access TWST: Historically, has this kind of activity worked the equity markets and also the debt market. We’ve seen Newmont for the majors? (NEM) raise equity and debt, Kinross (KGC) has raised equity, Ms. Douglas: It’s a mixed record. Sometimes they could while Barrick and Goldcorp have raised debt. So the gold compabe accused of overpaying, but I think we have successful stories as nies are, as I mentioned earlier, in a sweet spot. well. TWST: We are hearing a TWST: So they will conlot of rumbles about M&A activity tinue what’s really been the story in in mining in general. What’s the Mikitchook: Red Back has got a strong track record of exploration, the past? story on the gold sector? development, and delivery on the two Ms. Douglas: Yes. Ms. Douglas: We are seeing existing assets and now is taking a TWST: Where are the big some M&A. Unfortunately, I think a tentative step into the Congo with an opportunities now for the industry lot of great opportunities were missed acquisition. The acquisition is not closed in terms of exploration? at the end of last year. Junior and adyet. There is a lot of growth at Red Back Ms. Douglas: I think that vanced developers were hit harder already in the existing assets, but this some really interesting projects are than the seniors because they didn’t proposed acquisition would be a big step appearing now that the cycle is seven have existing cash flow and there for this company. years in. Early in the cycle, we had were concerns about access to financmostly what we call retreads — old ing. The valuations for the advanced projects that were dusted off and redevelopers fell a lot, but I think the evaluated. But more recently there have been some new projects. seniors didn’t have enough confidence in their own situation to act This falls more to my colleague Andrew Mikitchook. He tends to at that point. focus on large projects that have more than 5 million ounces of re1-Year Daily Chart of IAMGOLD source. The two that we look at are Centamin (CEE:TSX) with its Sukari project in Egypt and Osisko (OSK:TSX) with Malartic in Quebec. Seven years ago, these deposits weren’t really known of. So if anything, the M&A is getting a little bit more interesting. TWST: Egypt is a name I don’t think I’ve ever heard mentioned in terms of the gold industry. Ms. Douglas: The Pharaohs mined it, targeting the easy placer mineralization, and then the Romans and then even the British mined in Egypt. TWST: It’s a name that doesn’t come to mind right off the bat, but history says there is opportunity. Ms. Douglas: Yes. You can go back and revisit the old mining camps. Chart provided by www.BigCharts.com TWST: What’s your view on gold prices as we look out over the balance of this year and into the next? Ms. Douglas: Directionally, I think that the trend will be The most recent transaction though was actually a reverse positive. We’re using $965/oz for 2009 — we had Yamana (AUY) sell assets and $1,000/oz for 2010, but we’re not to a junior. This shows that now the Douglas: Directionally, I think that the fixated on specific numbers. It’s mostly juniors themselves are able to access trend will be positive. We’re using $965/ to show a positive trend because of the capital to pick up assets. oz for 2009 and $1,000/oz for 2010, but issues that I mentioned earlier. From our perspective, we’re not fixated on specific numbers. When we are evaluating a M&A is one of the important conWhen we are evaluating a trend, we tend trend, we tend to not focus as much on tributors to seniors’ long-term viabilto not focus as much on the snapshot of the snapshot of the supply and demand ity. They have to do exploration to the supply and demand situation for situation for gold, but instead we focus replace reserves, but they also have to gold, but instead we focus on the on the movement of inventories. The big do M&A. So it’s always going to be a movement of inventories. holders of gold are central banks, jewtheme in the industry. Right now we elry holders and private investors. And think that companies will be looking as I mentioned earlier, in the first three to upgrade some of their projects, months of 2009, we really saw private investors increasing their holdsome of the low IRR, long lead-time projects that are being kept on the back burner, with something more exciting. An example that we ings of gold. We think that that trend will continue, and it will continue have is IAMGOLD’s (IAG) purchase of Essakane. to push up the gold price. We’ll probably see jewelry remain weak. 6 The Wall Street Transcript — June 29, 2009

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Ms. Douglas: Yes. In our view, the most interesting players right now are the TWST: I gather that the jewelry market is just ecocentral banks. We believe that the Chinese announcement that it had nomically sensitive. increased its gold holdings by over 43% to just over 1,000 tonnes is Ms. Douglas: The World Gold Council put together an very important. It shows that they may be moving away from their interesting piece a couple of years ago. Their research shows that reliance on the US dollar in their foreign reserve. Even more rethe key jewelry markets of India and the Middle East are very sensicently, we had announcements from Russia looking to diversify tive to volatility, in addition to price and income levels. Because away from the US dollar as a reserve currency. So I think the central we’ve had a doubling of the volatility in the gold price, many playbanks are now realizing the value of gold as a diversifier. That ers have exited the market. But if we look back to 2004, we saw a should also help the gold price. rebound in jewelry demand despite TWST: Are the central higher prices once volatility declined. banks likely to become buyers Douglas: We believe that the Chinese So we just need prices to stabilize to rather than sellers? announcement that it had increased its see jewelry demand improve. Ms. Douglas: I think China gold holdings by over 43% to just over The World Gold Council and Russia will be buyers. The Euro1,000 tonnes is very important. It shows also reported that scrap sales in Q1 peans have quite a lot of exposure to that they may be moving away from were actually bigger than jewelry degold already, but are not likely to sell their reliance on the US dollar in their foreign reserve. mand. Putting this into the context of as much anymore. We’ve already seen inventory movements, in Q1, we had that; for the last three years they have all the gold leaving the jewelry holdnot sold the total Central Bank Gold ings in Turkey and India, from under the beds so to speak, going Agreement quota, and I think they are more likely just to stay put. over to the ETFs. 1-Year Daily Chart of Red Back TWST: Has that been wrapped up now? Ms. Douglas: The imports have resumed into the key markets of India and Turkey. There hasn’t been a strong rebound. It will be very interesting as we go into seasonally the strong periods of August and September because I think all the jewelry inventories have been drawn down. As we go into the traditional gold giving festivals, we might actually see some more upward pressure on gold because the jewelers don’t have the inventories that they would have previously. TWST: They have run them down like everybody else? Ms. Douglas: Yes. TWST: We’ve gotten a lot of positive influences. Is the Chart provided by www.BigCharts.com industry going to be able to meet the demand from a supply point of view? Ms. Douglas: The plain truth is that they don’t have to. All the gold that has ever been produced is essentially still out there. TWST: How about on the private side? We had a huge So it will come from some source. If it’s not the miners, it will be run-up in ETFs, which affected this market. Where do they jewelry scrap sales. Ultimately, if the stand and are they likely to be out of price is good enough, central banks the market because of general ecoDouglas: The imports have resumed into will sell too. So there is gold out nomic concerns? the key markets of India and Turkey. There there, it’s just right now more players Ms. Douglas: I believe that hasn’t been a strong rebound. It will be are hoarding than selling. The price the ETF investments are not going in very interesting as we go into seasonally will just move until that’s equalized. as short-term trades but as diversifiers the strong periods of August and TWST: So things will baland insurance. September because I think all the jewelry ance out and that’s where we get a TWST: So they are going inventories have been drawn down. As we little positive price movement? to be a factor, but not as big a factor go into the traditional gold giving festivals, we might actually see some Ms. Douglas: Yes. as they have been? more upward pressure on gold because TWST: As you talk with Ms. Douglas: Rainy-day the jewelers don’t have the inventories investors at this point, what’s the selling was a negative factor obviously that they would have previously. interest level in the space? in Q4, but then gold investment turned Ms. Douglas: I think it’s positive in Q1. I think that the newer good. We are talking to more generalholders are going to be more long ists. People who had never considered gold before, I think, are getterm. The pressure is still on the economy. ting interested. Last week it was reported that Northwestern, the big TWST: So again, a positive influence. The Wall Street Transcript — June 29, 20099 7

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Ms. Douglas: It depends on the investor. The GLD ETF insurance company, had bought gold for the first time in its 150is obviously one way, but there are other ways for them to get only year history. So new players are considering gold, yet it is still not the gold exposure diversification they a big part of the financial market. are seeking without the additional opTWST: What’s attracted erating and country development risks a company like Northwestern to Douglas: Among the seniors, we have associated with each of the companies. step up for the first time and parbeen recommending Kinross Gold. They’ve delivered two key projects in the TWST: In terms of compaticipate in this market? last year, Kupol and Paracatu. They are in nies, who do you like at this point? Ms. Douglas: It’s an insurthe process of delivering growth and now Ms. Douglas: Among the ance company, and they would’ve they are re-establishing an interesting seniors, we have been recommending been focused on some interest-bearpipeline with Fruta del Norte in Ecuador Kinross Gold. ing investments but interest rates are and Lobo-Marte in Chile. Kinross has a TWST: Why Kinross? very low. So the opportunity cost of very nice operating margin, so their cash Ms. Douglas: They’ve delivholding gold has diminished. costs are quite attractive, and their ered two key projects in the last year, TWST: As you say, it’s valuation in our view is attractive relative Kupol and Paracatu. They are in the attracting new investors. Is that to their peers. process of delivering growth and now good news or bad news? they are re-establishing an interesting Ms. Douglas: Both. When pipeline with Fruta del Norte in Ecuador new players come in, they’re not used and Lobo-Marte in Chile. Kinross has a very nice operating margin, so to the volatility and the noise, and they can be spooked very easily. their cash costs are quite attractive, and their valuation in our view is 1-Year Daily Chart of Kinross Gold attractive relative to their peers. Also I believe that their country risks in Russia and Ecuador are well managed. 1-Year Daily Chart of Centamin

Chart provided by www.BigCharts.com

TWST: So one thing is, you get players that really don’t have the background? Ms. Douglas: Right, but the good news is, if more players enter, we get more players. TWST: What are you telling investors to do in this space at this point? Ms. Douglas: Our 12-month expectations are positive for gold. We are aware that the early summer months are usually a more sideways period for the commodity, and we view pullbacks as opportunities to re-enter. We’ve identified some interesting developers who, even if the gold price doesn’t move, have the opportunity of showing price appreciation as they advance their projects, have exploration success, and bring projects into production. So that’s our June 2009 view. TWST: It sounds more positive than anything else. Ms. Douglas: Still positive. For the generalists, I do recommend exposure to gold first and then extra work to look at the companies, to be familiar with the specific risks with each of the companies. TWST: When you say gold first, how do you recommend they play it? 8 The Wall Street Transcript — June 29, 2009

Chart provided by www.BigCharts.com

TWST: Where are Kinross’ opportunities? Is it opening some of these new projects? Ms. Douglas: I think it’s their exposure in Chile and the Andes; those are their most exciting opportunities right now. Also, they’re continuing their work at Paracatu. TWST: Where does that project stand at this point? Ms. Douglas: It’s still ramping up. In Q2, they have neared 100%. So by Q3, I would expect we will see some better recoveries and costs out of the project. It’s a big project. They’ve tripled the plant throughput at this mine. TWST: Are the problems behind them now? Ms. Douglas: Mostly behind. TWST: Andrew, we were talking about where investors have opportunities at this point and Heather is indicating Kinross as one of the prime ones. You cover some of the smaller names. Should investors be paying attention to them now? Mr. Mikitchook: I think so. In my opinion we are actually seeing it in the market already; the higher quality downstream

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mine life. I divide the resource potential by 10 to get an initial idea names, the highest quality developers and up and coming producers of production capacity; if that number is too small to make an imare now getting market traction. And this is not something that we pact on a senior or intermediate company, then in turn that’s not saw even maybe as early as three months ago, but definitely six, really going to be of interest to the general market and it won’t get nine months ago, they weren’t getting recognition in the market. So the types of valuations that investors should be looking for. You they are starting to get some recognition now, but there’s more room think about 5 million ounces — 5 million ounces makes an impact to go. on most people’s inventories of resources or reserves and 5 million TWST: What’s changed and is bringing focus on ounces over 10 years, that’s 500,000 ounces. Again that makes an them? impact in a standalone intermediate Mr. Mikitchook: Across producer or within a larger producer. the whole sector we are getting more Douglas: IAMGOLD is in the process of TWST: But in the context investor interest in equities and more transforming itself. The company has of a bigger company, yes, it’s got to of it is now spilling downstream into been gaining more operating credibility, be of some size. smaller names as opposed to only it’s also re-established a growth profile Mr. Mikitchook: Yes exlooking at the seniors. I think one of with an acquisition and some expansions actly, but there are always excepthe main things is that there are just of its existing assets. When I look at its tions to rules with smaller more investors and more money in the valuations compared to its peers, It’s exceptional assets. sector reflecting all the main macro attractive from that point. TWST: We’ve seen some investment drivers: the US dollar isM&A activity, but what’s going to sues, and inflation, and flight to qualget more of it to occur? Is it just ity type things. time? 1-Year Daily Chart of Osisko Mining Ms. Douglas: I think we will continue to see a steady stream of M&A activity, but it won’t be rushed because seniors still have to do due diligence. Mr. Mikitchook: The seniors aren’t fast by any stretch of the imagination. That’s one thing to be aware of. Ms. Douglas: Sometimes the seniors will wait for key moments — for permits to have been achieved, for mining laws to be in place. They will have to talk to the governments and increase their comfort level. So there are things that can hold them back. Mr. Mikitchook: The seniors have time on their hands. They can wait for these risk reduction milestones or events and they always have their premium market valuations applied to any assets they acquire. Chart provided by www.BigCharts.com TWST: There really is no need on their part to rush. Mr. Mikitchook: Their goal is to maintain or grow their production profiles, but historically the majority of the seniors have not rushed. I think that the pace of transactions will maintain TWST: Are there any names in the smaller space that and/or grow slightly, because there is continual depletion of operyou like at this point? ating assets. Mr. Mikitchook: Our top three picks right now are a TWST: Where is the money being spent at this point near-term significant size producer, Centamin, and two advanced in terms of exploration? Is it in traditional markets or are there developers, Osisko Mining, which is soon starting construction, some non-traditional ones as well? and Guyana Goldfields (GUY:TSX), which is fast-tracking engiMr. Mikitchook: Just judging by the current availability neering to complete feasibility early in 2010. of drill rigs and geologists, I would say that there is surplus capacity TWST: Are these the kind of names that the bigger in those services just about everywhere. So I’d say the pace of excompanies are likely to be attracted to as they build up a bit? ploration spending is not very high compared to recent peaks. From Mr. Mikitchook: This is one of our main coverage a geographical point of view, there is money being spent more or themes: assets of interest to investors should be assets that the seless across the world, but not at peak rates. niors would like to have in their portfolios. From that point of view TWST: Is it likely to pick up as these smaller compawe look at names that have significant resources, significant pronies get more active? duction capacity and in our coverage we try to steer clear of smaller Mr. Mikitchook: Yes, but it’s all a question of money names that would not meet that category. being available. We have been seeing more financings in the interTWST: So it has got to have some size and be of intermediates and coming down to smaller names in developers and est to majors? explorers, but I would suggest that it’s not gotten all the way Mr. Mikitchook: My rule of thumb when I approach a through to the bottom yet. resource drilling situation is that you have to think of 10 years of The Wall Street Transcript — June 29, 20099 9

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TWST: Heather, you mentioned Kinross. Is that the main name that you like in the majors? Ms. Douglas: The intermediate that I like is IAMGOLD. It is in the process of transforming itself. They have Joe Conway as CEO, but he hired a new COO, Gordon Stothart, and a new CFO, Carol Banducci, and these hires occurred over a year and half ago. Since then the company has been gaining more operating credibility, it’s also re-established a growth profile with an acquisition and some expansions of its existing assets. When I look at its valuations compared to its peers, I think it’s attractive from that point. Andrew actually also covers an intermediate name. Mr. Mikitchook: The one I like among the intermediates is Red Back (RBI:TSX). It’s got a strong track record of exploration, development, and delivery on the two existing assets and now is taking a tentative step into the Congo with an acquisition. The acquisition is not closed yet. There is a lot of growth at Red Back already in the existing assets, but this proposed acquisition would be a big step for this company. TWST: Are there any names in this space that you worry about, that are having financial issues or don’t have the resource base to participate?

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Ms. Douglas: We have focused our coverage universe on higher quality producers, developers, and explorers, so we don’t have any strong concerns. TWST: It sounds like everything is very positive at this point. What’s the risk? What can go wrong in this scenario? Mr. Mikitchook: We didn’t really get any significant free-cash flow out of most of 2008. Should inflationary pressures re-appear to reduce margins, that would be a bit of a setback for the equities. TWST: Thank you. (TJM) Note: Opinions and recommendations are as of 6/22/09. HEATHER DOUGLAS ANDREW MIKITCHOOK Thomas Weisel Partners Canada Inc. 79 Wellington Street West 21st Floor Toronto, Ontario M5K 1B7 Canada (416) 815-3108

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JEFFREY M. CHRISTIAN is Managing Director and Founder of CPM Group, a New York Precious Metals and Commodities Research, Consulting and Asset Management firm. CPM Group provides a wide range of consulting services on the management of commodities price exposure. The firm publishes annual yearbooks on gold, silver and platinum group metals. Mr. Christian has been a prominent analyst and advisor on precious metals and commodities markets since the 1970s. He is most known for his work on financial engineering in commodities, including central bank gold lending, the use of gold leases for mine project financing, commodity indexed notes, and managed accounts for institutional and high net worth individual investors. He is the author of Commodities Rising: The Reality Behind the Hype — How to Really Profit in the Commodities Market.

tory. This is over the last eight years. The bull market really SECTOR — PRECIOUS METALS started in 2001. (AAJ811) TWST: Please discuss the performance of the gold TWST: You say investors are buying more gold than price this year and how it’s reacted to the global economic crisis? ever before. Are you talking about the physical metal? Mr. Christian: The price of gold started the year around Mr. Christian: Right. They $880 an ounce. It had fallen to that level are also buying gold derivatives: gold during the financial crisis. It rose to Highlights futures, forwards, options, gold-backed about $1,007 on an intra-day basis in notes and all sorts of other gold assets, February, which was probably the worst Jeffrey M. Christian discusses the too. Just talking about the physical metal part of the recession. There was an extrends driving the bull market for over the last eight years, we have seen treme amount of economic uncertainty gold, which is now in its ninth year. investors buy more gold over a longer and fear about the stability of banks. As Between 2001 and 2008, investors period of time than ever before. This is the year progressed, the gold price purchased an unprecedented amount not your garden variety bull market. backed off. It’s basically traded beof physical gold — about 320 million I like to think about it from a tween $870 and $990 since February. ounces. Mr. Christian believes this is long-term perspective. I think there are two So it came down to about $870 in symptomatic of investors’ and central major, fundamental trends that are shifting March and then it rose back to about banks’ restoration of gold to its in the gold market. One is a real sea change $990 in May. Today it’s around $926. traditional role as a monetary reserve in the way investors work, which is causing TWST: This is still a relaasset. He expects gold to trade them to buy more gold on a sustained basis tively high gold price. Would you talk between $800 and $1,100 an ounce for than ever before. The other is a major shift about the factors driving it? the next five to 10 years, and to in central bank attitudes toward gold. CenMr. Christian: Well, let’s experience significantly higher spikes tral banks have been sellers of gold for start in the center and work our way in the face of negative economic or about the last 40 years. But they seem to be out. If you look at the gold market political developments and inflation. moving toward becoming buyers of gold. itself, the single most important In addition, he predicts a continuation TWST: These are central fundamental that’s been driving the of strong investment demand for gold banks worldwide? Or from any parprice up has been very strong inas well as a shift in central banks ticular country? vestment demand. Investors have toward becoming large net buyers of Mr. Christian: Worldwide, yes. been buying more gold in more gold rather than large net sellers. TWST: Worldwide, inparts of the world for a longer peCompanies include:AngloAmerican (AAUK). cluding the US? riod of time than ever before in his-

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20 to 30 million ounces of gold per year. Then after a year or two, Mr. Christian: No. The US is not buying or selling its things would get better, and investors would forget about gold and gold. And the Europeans have been selling gold over the last 20 or return to investing in stocks and bonds. This was the pattern from so years. Where we are really seeing gold buying is in Asia, the 1968 to 2000. Middle East, the former Soviet Union and Latin America. In other This changed after 2000. We haven’t had a single sustained words, the buying is coming from parts of the world with net trade crisis. We’ve had a series of economic, political and financial market surpluses that have been collecting and accumulating US dollars. crises that have gotten worse and worse over the last eight years. InTWST: This, obviously, is to hedge against a decline in vestors have sort of thrown up their the value of the US dollar? hands and said, “I really need to have Mr. Christian: That’s part of it, yes. gold on a long-term, sustained basis TWST: And the other part? as a portfolio diversifier.” Mr. Christian: It’s also a Christian: If you look at the gold market TWST: So the convenhedge against economic uncertainty, naitself, the single most important tional wisdom that gold would no fundamental that’s been driving the tionalism, political problems and inflaprice up has been very strong longer be the traditional hedge tion. Gold is a portfolio diversifier for investment demand. Investors have been against inflation is being disproved? sovereign wealth funds and other entibuying more gold in more parts of the Mr. Christian: For 5,000 ties that have stocks and bonds in their world for a longer period of time than years, gold was an integral part of the portfolios. It’s a safe haven. ever before in history. This is over the monetary system and it was the major TWST: Are these institulast eight years. financial asset. And then for 40 years tional investors? — 1968 to 2008 — it had been deniMr. Christian: Not exclugrated as an asset that only the crazies sively. One of the things we are seeing got involved in. Gold really had no role is more investors from across demoin a modern portfolio or in a modern monetary reserve system run by a graphic groups, from institutions to individuals around the world, central bank. In contrast, over the last several years investors and central buying more gold for a longer period of time than ever before in banks have begun looking back at the past 40 years and thinking they history. Between 2001 and 2008, investors added an estimated 320 may have been an aberration; and they are restoring gold, if not to its million ounces of physical gold to their portfolios. monetary role, to its financial role. 1-Year Daily Chart of Anglo American TWST: Will we ever return to a gold standard? Mr. Christian: I don’t think that we will see a gold standard. I think we will see a restoration of gold as a monetary reserve asset. But it doesn’t make economic sense to fix the currency exchange rates to the price of gold. So I don’t think that we will see that. TWST: Can you tell us exactly when the five previous gold bull markets occurred? Mr. Christian: Yes, the first one was from 1967 to 1968. It wasn’t just a matter of pushing the price of gold up. The price of gold was fixed at $35 per ounce at the start of this period. Investment demand was so strong at that price that it caused the US to abandon a fixed gold price and to close the window allowing people to exchange dollars for gold. This happened in April 1968. The Chart provided by www.BigCharts.com second gold bull market was from 1973 to 1974. And the third was from 1979 to 1980. The fourth was from 1986 to 1987, and the fifth was in 1993. TWST: So we are now in the midst of the sixth? TWST: How does this compare to previous periods? Mr. Christian: Right. Each of the earlier bull markets Mr. Christian: Well, you have to step back and look at the lasted one or two years. The current one is now in its ninth year. We gold market. Prior to 1968, it was controlled by governments that have data on gold demand going back only to 1950. So we don’t used gold as a monetary base. As a result, the gold price tended to be know exactly what happened during World War II. But we do know fixed. Prior to 1968, the history is relatively meaningless. You will that our predecessors in the gold research business — the Anglo find that the price of gold would be fixed at $22 an ounce for a peAmerican Corporation (AAUK), the Oppenheimer family’s minriod; then inflationary pressures would build up, and governments ing company — did a study in the 1960s in which they estimated would free the gold price; it would go to $35, and they would re-fix that the world’s private stocks of gold for investment purposes had it. So it makes sense to look at the gold market from 1968 forward. risen to about 333 million ounces in 1950. In other words, private And you will find that there have been five previous bull markets investors had accumulated around 333 million ounces of gold in the since the middle of the 1960s. Each one lasted one or two years. preceding 5,000 years up to 1950. If that were the case, as it appears Each one coincided with a currency crisis, a round of inflation, poto have been, then the 320 million ounces accumulated and added litical unrest, or financial instability. And each one saw investors buy

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can’t hold the physical commodity. You have to invest in either futo the collective private stash of gold between 2001 and 2008 most tures or options, which expire. Or you invest in some sort of derivaprobably was unprecedented. tive product. A major bank, for example, might write a five-year, Most likely, this recent gold stock building has exceeded the oil-indexed bond for institutional investors. This is an important facamount of gold purchases made during World War II by a wide margin. tor that affected gold and silver last year, although to a lesser extent TWST: What is the significance of this? than other commodities. Mr. Christian: We are slowly coming around to seeing In the second half of last year, we witnessed this massive that gold is being restored as a financial asset. Prior to 1968, gold credit freeze. A lot of institutional and represented about 5% of the world’s high net worth individual investors financial wealth. Between 1968 and who were holding heavily leveraged 2006, this percentage withered away to Christian: We are looking for a commodity-linked derivatives had about 0.2% of the world’s wealth. It’s continuation of strong investment their credit lines pulled. The banks not so much that the value or volume demand for gold and a big shift on the that were writing these things also had of gold assets had fallen — in terms of part of central banks away from being their credit lines contracted and had to both value and volume, investors’ gold large net sellers of gold to being large net buyers. We anticipate relatively close out their positions. So you had a rose during this period — but the crestable mining production and relatively lot of participants who until the midation of paper wealth so far exceeded stable jewelry demand. So, we expect dle of 2008 were invested in comthe creation of gold wealth that gold the gold market to be driven by investors modities because they thought it was was diminished as a percentage of inand central banks. the right place to be. And then regardvestment portfolios. Gold has recently less of the reality of the market, they come back up to a point where it repgot stopped out by the credit crunch. resents about 0.8% of the world’s This is important for a couple of reasons. One is that we are seeing wealth. This represents to us the beginning of a restoration of gold that as investors come back in to the markets, they are buying purer, as a financial asset on the part of individual and institutional invesunleveraged instruments, so they don’t have to worry about losing tors, excluding central banks and monetary authorities. Investors are their positions at an awkward time in the future. saying that they want to have much more exposure to gold than they TWST: So there is more interest in the physical metal? had over the last four years. Mr. Christian: Right. 1-Year Daily Chart of Kinross Gold TWST: And that is a result of current derivatives crisis and increased risk controls? Mr. Christian: Exactly. TWST: How have gold stocks reacted to the change in the physical gold price? Mr. Christian: I don’t follow the gold stocks too closely, but they seem to be rising to some extent with gold. But they have lagged gold and underperformed gold. TWST: Is that to be expected? Mr. Christian: I think so. I think it is because there are a lot of issues related to gold stocks that aren’t risks for physical gold. Physical gold is an unleveraged play on the basic commodity. When you get involved in gold equities, you have exposure to management Chart provided by www.BigCharts.com issues, country risk, performance risks, and the risk that the ore grade is not there. And even if it is, there is the risk that for some metallurgical reason you can’t effectively refine it out of the ore. So there TWST: Is this happening with other metals as well? are all kinds of performance risks that apply to a mining company Mr. Christian: It is to some extent. Investors have bethat do not apply to physical gold. come re-enamored with raw materials. From 2003 until mid-2008, TWST: What is your outlook for the gold price? we saw a lot institutional and some individual money going in to Mr. Christian: We are looking for a continuation of other commodities — base metals, silver, platinum group metals and strong investment demand for gold and a big shift on the part of the energy markets. A lot of this money, however, was pulled out central banks away from being large net sellers of gold to being large during the financial crisis. net buyers. We anticipate relatively stable mining production and TWST: Due to expected decrease in industrial demand? relatively stable jewelry demand. So, we expect the gold market to Mr. Christian: That was part of it. But I think a more be driven by investors and central banks. important factor is that a lot of that money went in to gold and to TWST: How will that affect the price of gold? some extent silver and platinum. You can invest in the physical metal Mr. Christian: Our view is that the gold price will stay and get an unleveraged, pure play. The thinking is: I have metal, above $750 for the next decade. Our main scenario is based on a relawhich is in my vault, it’s in my bank, in my safe deposit box. In other tively sanguine economic outlook. We see gold trading between $800 commodities — such as copper, lead, oil or natural gas — you really

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TWST: Back to the current financial crisis. This isn’t and $1,100 an ounce for most of the next five to 10 years—with the going to be corrected overnight? proviso that the downside seems limited below $800, but the upside, on Mr. Christian: Our forecast for the gold price is based on spikes, could be very large if there are more negative economic develour expectation that the US and world economies will come out of the opments in the future than we expect in this scenario. In other words, recession in 2010 and recover to pre-recession levels by 2012 or 2013. the downside may be relatively limited by current market fundamentals. So we are looking at several years of economic stringency on a global But a deterioration in the economic, financial, or political expectations basis. For the US, we think the period of economic stringency will be already built in to our relatively sanguine long-term economic outlook even longer. This is because we think the dollar will remain under could drive gold prices much higher than they are today. long-term pressure. The US will have much higher interest rates comTWST: How large can the spikes be? pared to the rest of the world. It also will have somewhat higher inflaMr. Christian: They could be enormous. Gold bugs will tion and a relatively lower standard of living growth rate. People in talk about going to $2,000, $4,000 and even $10,000. These numthe US will be paying down the debt bers are actually doable — not on a for a longer period of time. If we are sustainable basis — but in a spike. You lucky, we will get to do this over 20 can draw all kinds of scenarios. There is or 30 years. In this environment, news about Al Qaeda saying it wants to Christian: Gold has recently come back people are going to think, “Gee, I reuse Pakistan’s nuclear bomb on the up to a point where it represents about ally should have some of my assets in United States. Osama bin Laden said in 0.8% of the world’s wealth. This gold. We believe this will help to his speech in 1998 that there were two represents to us the beginning of a keep the gold price up.” big prizes he was looking for. One is restoration of gold as a financial asset on the part of individual and TWST: So that brings Saudi Arabia because it has the oil; the institutional investors, excluding central you to a gold price of about $800? other is Pakistan because it has the banks and monetary authorities. Mr. Christian: Yes. bomb. That’s one scenario. Say that Al TWST: Thank you. (LK) Qaeda overthrows Pakistan and uses its bombs against Israel and the United Note: Opinions and recommendaStates. Maybe it sets one off in Europe. tions are as of 6/23/09. In that kind of scenario, the price of gold could go to $4,000 or $5,000 on a spike. It probably won’t stay there. You can draw other JEFFREY M. CHRISTIAN possible scenarios: For example, the collapse of the US dollar — a CPM Group possibility that market participants are very focused on right now. 30 Broad Street, It’s highly unlikely in the next couple of years, because so many 37th Floor people own so many dollars. They have a vested interest in keeping New York, NY 10028 the dollar alive and trying to manage a smooth transition to a new (212) 785-8320 international currency regime over the next 10 to 30 years. But if (212) 785-8325 — FAX something goes terribly wrong, you could easily have a financial www.cpmgroup.com crisis that sends gold to $5,000. There are all kinds of scenarios you e-mail: [email protected] can draw that would cause gold prices to rise very sharply.

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KEN GERBINO is head of Kenneth J. Gerbino & Company, an investment management firm now in its 34th year. The company manages private equity accounts as well as the Gerbino Gold Group, LLC (GGG), a private fund that invests in precious metal mining stocks. He was also the precious metal mining consultant to $2 billion ICM Capital Management. The GGG has been ranked in certain past years as one of the top performing hedge funds in the United States.Mr. Gerbino was the Founder and Chairman of the American Economic Council (AEC), a nationwide economic reform group that was credited with the passage of the United States Gold Coin Act of 1984, which established the United States Gold Eagle coin. AEC seminars included participation by Alan Greenspan, Noble Laureate F. A. Hayek and Robert Bleiberg, Editor-in-Chief of Barron’s. Ken is on the Board of Directors of Titan Oil Recovery, Inc. He was previously a Director of the Los Angeles Unified School District Annuity Reserve Board, the Apple School, Athena Gold Corporation and Fortress Technologies, Inc. He was editor of The Kenneth J. Gerbino Investment Letter, an international investment and economic newsletter, for 15 years. His views have appeared in such publications as The Wall Street Journal, Worth magazine, Investor’s Business Daily, The Asian Wall Street Journal, Money magazine, The New York Times, USA Today, The Chicago Tribune and many others. A former financial analyst for Litton Industries and Republic Corporation, he has a BS in Business Administration from Ithaca College and an MBA from Syracuse University. SECTOR – PRECIOUS METALS (AAJ507) TWST: What is the status of the precious metals market right now? Mr. Gerbino: The status is as follows; money managers, sovereign wealth funds, and investors globally have lost some or a majority of the faith and trust that they have had in major financial institutions, politicians and governments regarding economics and the future. Therefore, gold, which has never gone bankrupt and has never defaulted and has always had a reputation as a safe monetary substitute and an inflation hedge, has now become in the forefront of everyone’s minds for a portion of their wealth or investment funds.

Highlights Ken Gerbino says the next big move in gold will occur because of inflation because of all the new money being created to bail out the banks throughout the world. The bottom line is more money equals higher prices. He expects to see a lot of consolidation going forward and also a lot of new companies in Canada and Australia as the price of gold rises higher. He thinks silver is probably a good place to put money. With investment demand, supplies are going to become very tight. He is currently recommending a couple of leading gold companies as well as a silver producer and a platinum producer. Companies include: Yamana Gold (AUY); Eastern Platinum (ELR:TSX); Goldcorp (GG); Silver Wheaton (SLW); Franco Nevada (FNV:TSX); NovaGold (NG).

Also, I might add, gold allows investors a piece of mind from an insurance standpoint in the event their monetary and economic events get out of hand. Even though that is a low probability, one also doesn’t cancel one’s insurance policy if you feel having an accident while driving would be low probability. Now, when one adds in the possibility of just 4% to 5% inflation rate taking place, and extends 4% or 5% increase in the price of gold — which at these price levels is somewhere between $50 and $60 an ounce — year-after-year, mining companies benefit from this dramatically because once the capital has been expended to put a

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ketplace and let’s say, they buy all the coconuts. They give the guy, coconut seller, they give the guy $4, they get four coconuts. Now, you have $4 extra in the economy along with the $8 that’s already there. So, now you’ve got $12 floating around on the island that day and when everyone else gets up to go to the “So, I think over a longer trend, you can bet that the marketplace, there are no coconuts, the guy who got the prices of these monetary substitutes/investment/ money first on the dock bought the coconuts but there is inflation hedges, which will be gold and silver, will go now $12 in circulation and there are only four fish left. up. So, I think over the next five or ten years, you will The price of fish is going up to $3 and that is the horrifying thing about printing money. The guy at the dock gets see much higher prices of both metals.” the money first and hurts the purchasing power of everyone else in the marketplace. In the modern economy, the people at the dock are the 1-Year Daily Chart of Yamana Gold banks, the big corporations and very wealthy people. They get the benefit by borrowing or getting the motorboat money first or by the privilege from the government (who own the motorboat and the printing press on the boat) as leveraged bank credit or loans and they get the benefit of the old prices early. The middle class and the lower income earners get annihilated and this is horrifying for two reasons. It destroys free enterprise and capitalism and it brings on the worst enemy anyone could ask for, which would be socialism, because politicians, academics, intellectuals, the editorial boards of famous newspapers don’t understand this simple concept that I’m explaining to you and they don’t understand economics and they say, “Gee. People are getting poorer, the richer are getting richer. We have to re-distribute this Chart provided by www.BigCharts.com wealth, we have to have socialism, higher taxes or whatever,” and this is not a good solution. The solution is, no more motorboats, no more printing presses. You cannot print wealth, you have to produce TWST: Do you think the precious metals market is wealth and you can’t be wealthier as a nation by going into more going to continue doing well over the next year or so? and more debt. That’s it. Mr. Gerbino: I think gold will be in a trading range of somewhere between $850 and $1,250, probably for the next year or two or three. The next big move up in gold will occur because of inflation coming back from all the money that’s been created to bail out “My suggestion for anyone investing in the the banking institutions in most countries in the world. The bottom mining sector is as follows; most of your line is more money equals higher prices. That is a trend that history investment should be in large, multi-mine attests to over thousands of years. companies with their geographic presence TWST: Are you talking about governments printing more money? spread out in safe political areas. Then, after Mr. Gerbino: Yes. Printing more money, creating more that, you might have some mid-tier companies, money makes gold prices higher. It’s very simple. If you have an and then you may have a few smaller companies island and an economy on an island where four coconuts come that are close to production or an obvious down from the trees everyday, and there are four dollar bills on the island, the cost of coconuts is a dollar. takeover candidate. They are called advanced Every day the people get up, they go to the marketplace, exploration or developmental companies.” it’s four dollars and four coconuts, they exchange. Now, you could have in an advanced island, where four fish are caught every day, and four coconuts are produced every day, and let’s say have eight dollars on the island and everybody likes coconuts and they like fish TWST: Are the actions of the current Administration roughly the same, so the price of everything is a dollar, and that goes going to keep prices of precious metals high? on for months and months and years on the island. Mr. Gerbino: First of all, it didn’t matter who got elected. It didn’t matter if he was a conservative, a liberal, a Democrat or Then someone comes to the island with a motorboat and Republican. Whoever got in that office had no choice. They were a printing press and prints an extra $4. Now, the motorboat comes going to have to borrow and print, etc. to bail out the system. But to the dock and there is someone on the dock. Somebody gets that because of that, precious metals should be in everyone’s portfolio. $4 first. They take that $4, that extra $4, and they go into the margold mine in production, the next 20 years or so is strictly extraction costs. Therefore, this major capital expense is fixed and one can benefit from the higher price of gold going forward where the margins are increasing.

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TWST: Is that always true that when countries start printing money, gold and precious metals become more valuable? Mr. Gerbino: They should, but there is a lot of lead and lag times involved in this. So, I think over a longer trend, you can bet that the prices of these monetary substitutes/investment/inflation hedges, which will be gold and silver, will go up. So, I think over the next five or 10 years, you will see much higher prices of both metals. In fact, you are going to see higher prices of just about everything because not only did a motorboat show up at the island, but a flotilla arrived and they have these high-speed printing presses on this flotilla. So the islanders are in for a big surprise.

Number five would be the capital expense. You could have a lot of gold way up in the Andes mountains and because of the altitude, there are a lot of problems up there with no oxygen. Machines don’t work as well, people don’t work as well, there may not be enough water etc. So, you have to have a lot of different things lined up. My suggestion for anyone investing in the mining sector is as follows: most of your investment should be in large, multi-mine companies with their geographic presence spread out in safe political areas. Then, after that, you might have some mid-tier companies, and then you may have a few smaller companies that are close to production or an obvious takeover candidate. They are called advanced exploration or develop“I think the mining industry has probably been mental companies. responsible for more infrastructure being built in rural You would want companies that are undervalued based on net present value when they go into production. areas in many countries than a lot of these foreign The way we manage our portfolios is that we have investgovernments. So, miners should be thanked for that. Of ments in those three sectors. I do not recommend anyone to course, they will do anything to get the gold out, but invest in any exploration companies, grassroots, unless you they are pretty good guys.” are an expert, and even then, the risks are so high that I don’t believe it’s worth it. It’s a very, very difficult area, filled with danger, and very volatile stocks. TWST: There has been a lot of talk about gold lately. 1-Year Daily Chart of Goldcorp Is silver also a good investment right now? Mr. Gerbino: Yes. Silver is the poor man’s gold, and since 98% of the population of earth is poor, it’s probably a good place to have some money. With more investment demand in silver, I think supplies are going to become very tight. Also, silver doesn’t have any political enemies, whereas gold does. You can have the IMF and the central banks trying to run gold down, etc. to protect their currencies and paper money that they survive on, but silver doesn’t have that problem. TWST: What do you look at when you are looking at mining companies? Are there things that investors should take a hard look at? Chart provided by www.BigCharts.com Mr. Gerbino: Yes. There are certain factors that should be on top of the list. The number one criterion for investing in a mining company is the richness of the ore body, or in mining terms, it’s called the grade. In other words, you have a ton of rock; TWST: What is the reason for the volatility in those stocks? how much gold or silver or copper or zinc or lead are you going Mr. Gerbino: For a small company, the fact that they to get out of that ton? If it’s very low grade, the deposit could be often have only a single property that is worth anything, you have a marginal producer, and during a recession, when prices come environmental issues, your engineering problems are all ahead of down, they could actually lose money. Number one is the grade of you and unknown mostly, you may have trouble with the local the deposit. towns people. A lot of these mining companies in foreign countries do get their permits, but they have to build the church, a Number two, in my mind it has to be a large deposit. In hospital, a school and put a couple of water wells in and then the other words, 2 million, 3 million, 4 million ounces minimum. locals are very happy. It’s pretty interesting. I think the mining Number three, of course, management. You could argue industry has probably been responsible for more infrastructure this should be higher but if you have a large, high grade deposit being built in rural areas in many countries than a lot of these with the very competent state of mining engineering and consultforeign governments. So miners should be thanked for that. Of ing firms, it would be very hard to screw that potential mine up if course, they will do anything to get the gold out, but they are the grade and size are way above average. pretty good guys. They also have strict environmental guidelines Number four would be location because of political unwhich make any “green” protests usually more political than about rest and problems in certain countries. The US, Mexico, Australia, the environment. It is very sad that the very important environGhana, Burkino Faso, Argentina and Peru are places where most mental movement was taken over by the socialists after the Berlin of the time the mining tradition has worked. There are always Wall came down. exceptions though. The Wall Street Transcript — June 29, 2009   13

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TWST: Are international communities, governments generally receptive to mining companies coming in? Mr. Gerbino: Yes, they are, because as long as the environmental issues are taken care of, there is usually not too much of a problem. It’s good for the economy, it’s necessary, it creates jobs. In today’s world, when you have a mining area, you have both abandonment costs and reclamation costs. Mining companies set aside $0.10 a ton, $0.15 a ton, or whatever, and when you are done mining 20 years from now, you have to plant trees and do all sorts of other stuff to that area. So, the environmentalists have got their arms around these mining guys. They are not strangling them, but they are strangling them with paper work, a lot of which is unnecessary.

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not need is billions of wasted money on bureaucratic paper pushers. TWST: What are your top mining companies right now and why? Mr. Gerbino: Okay. I will give you my top three. We own all three in the Gerbino Gold Group, LLC fund. One is Yamana Gold (AUY). They have a very robust growth profile, they are profitable, they have huge reserves in the ground, 19 million ounces. They are a very low cost producer, $297 an ounce and they also have copper credits against some of their mining activities. The copper credits allow them to produce gold very inexpensively. As copper goes higher, they could actually end up producing all the gold for free. Yamana Gold is a low cost producer producing more than a million ounces annually; this is going to go two million ounces in three years. They own the great Aqua Rica copper gold property in Argentina from their Northern Orion acquisition. “Silver Wheaton is a royalty company. Royalty This is one of the future great mines of South America. The stock is selling at approximately 7 times 2010 cash flow. companies have no operational problems, they have no Good value in the ground, good growth, low costs, diversienvironmental problems. All they do is collect money fied portfolio of properties. every month or quarter. Silver Wheaton, without doing Next is a silver company called Silver Wheaton. (SLW). anything at all, will triple its royalty in the next three This is a royalty company. Royalty companies have no operational problems, they have no environmental problems. years. This is based on contracts they already have with All they do is collect money every month or quarter. Silver mining companies that are either expanding mines or Wheaton, without doing anything at all, will triple its royalty in the next three years. This is based on contracts they already going into new production.” have with mining companies that are either expanding mines or going into new production. Silver Wheaton has 1.4 billion ounces of silver reserves. Half their production comes from mines that The problem with the environmental movement is that it’s are over 100 years old. That’s called confidence. The average mine life been taken over by socialists who hate corporations, who hate progof their portfolio of 15 mines (11 in production and four coming on ress and have no idea that even a pencil that they use or a pen that stream in 2009) is 22 years. Excellent. Franco Nevada (FNV:TSX) they use probably has 3,000 or 4,000 different companies that have another quality mining royalty company, sells for 2.5 net present value done something to something that’s part of that pencil. The ink from versus SLW at 1.2 times. So the upside is obvious. They made $111 somewhere, the guys who make the vat that mixes the ink from million cash flow in 2008 and have plenty of cah and bank credits to somewhere. The guys who make the metal that goes into the vat, the expand even more in the future. guys who make the coating for the vat come from somewhere else. This is just for the ink. And then it goes on and on and on. We have to thank the environmental people for making 1-Year Daily Chart of Silver Wheaton sure chemical companies are not dumping chemicals into rivers anymore. Thank God for that. I don’t think there is anyone who doesn’t love that. But the environmental industry now has become a business. If you are an environmental consultant, the more problems that you can create or your customer has with the locals, the better it is for you, because instead of charging them for 1,000 hours worth of work, you are going to be able to charge him 10,000 hours of work to get that permit. This is nothing more than a bureaucratic nightmare. To put a mine in production should require let’s say, 5,000 pages of technical work, not 500,000 pages. It should require maybe a year or two of studies, not five years of studies. Everything else in between is a waste of Chart provided by www.BigCharts.com economic resources. This is not only going on in the mining business, it is going on everywhere else. So it’s a real problem. So once again, I want to thank the environmentalists for their good work they have done, but they have to wake up, get rid of the The third, I would have to say, would be Goldcorp. (GG). A socialists that are among them and people who are causing a lot of unlow cost producer, lots of cash flow. They have some really great properties necessary expense and unethical problems for all industries. Mankind and they are well diversified mostly in the Americas. It will be a go-to stock needs industry to survive. It also needs the environment. What it does for institutions and sovereign wealth funds.

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very small companies that either don’t have anything, that’s a dream I would say those three are probably your best as far as the in a geologist’s eye, or that actually have a good property, but nobig guys go. I will give you one small one, that’s a platinum producer body believes them. So they have to really exaggerate everything that we own. This is called Eastern Platinum (ELR:TSX). They have just to try to get funding. It’s an experts market. $150 million in the bank. They are going to be the fourth or fifth largest platinum company in the world in the next five years. They have outstanding properties very close to the surface “Eastern Platinum is going to be the fourth or fifth in South Africa, they are in production. But the new mines largest platinum company in the world in the next five they will be putting in production will be very low capital years. They have outstanding properties very close to cost, because they are very close to the surface considering the other platinum companies have to go down 1-2 miles to the surface in South Africa, they are in production. But get to the platinum. The richness, (grade) of Eastern the new mines they will be putting in production will be Platinum’s new mines, is about 30% to 40% higher than very low capital cost, because they are very close to the the other big platinum companies that are trading on the surface considering the other platinum companies have New York Stock Exchange. They have 740 million shares outstanding fully diluted. The market cap is decent at $400 to go down 1-2 miles to get to the platinum.” million and it trades a lot each day. The stock is selling around $0.55 and was $4 in 2008 before the crash. I think it goes to $8 to $12 with a good platinum market. TWST: What kind of trends do you think we are going to see in the mining companies? Now when we shift over to platinum, you’ve got to realize that because the catalytic converters that are used on cars and trucks Mr. Gerbino: You are definitely going to see consolidafor pollution control have to use anywhere between two and three tion. The large mining companies can’t compete with the junior and grams of platinum per vehicle. When you consider how many new mid-tier companies as far as exploring and finding solid ore deposvehicles are going to come on the road from China and India and its. So what they do is, they let the juniors do it and then they just Brazil and also the new standards that are continually going higher take them over at one point. When they are mid-tier, the large comin Europe, that means a lot of platinum. 80% of the platinum is in panies take over the mid-tier producers, because they want more South Africa. It’s a very rare metal. Another nice thing about ounces in the ground to replenish their reserves that have been deEastern Platinum is that one of their big deposits is 10% rhodium, pleted and they want growth. Most of the time they can’t do it interand that’s a real nice sweet kicker for a platinum property. Rhodium nally, so they will do it externally. Also miners are like anyone else, is a very very rare metal. At one point, it was almost $10,000 an when they see a fantastic long range quality property they just have ounce. And so as the world turns, we think Eastern Platinum has to buy it from someone. NovaGold (NG) is a good example. They plenty of upside. own Donlin Creek which will be the largest gold mine in the world someday and you can bet someone besides Barrick (ABX) (which own 50%) will be making overtures in the future at much higher 1-Year Daily Chart of Eastern Platinum prices for the other 50%. There is going to be a lot of consolidation coming forward. Now, as far as new companies being formed, yes, the higher the price of gold goes, you are going to have a lot of activity in Canada and Australia probably to have a lot more companies come into being. TWST: What do you think is in store for the US and the global economy over the next year? Mr. Gerbino: I think we are going to bottom out here. When you print enough money and pump enough credit into an economy, it is going to pick up. I mean, it’s not going to be efficient, it’s going to come back to haunt you. But you are going to get numbers that start to go up. I think we are probably going Chart provided by www.BigCharts.com to have a sideways economy here with high unemployment and then with all the new money coming in, it’s going to bubble through the system and I think we are going to just go forward at a certain level but with plenty of inflation in the cards. We TWST: Are there companies that are over-hyped right may have a minus 1% or plus 1% growth for a year or two. The now? Do you think that they are getting attention and aren’t renew Administration should be encouraging people to save ally that great? more, not spend more. The economy was overextended and a Mr. Gerbino: Yes. I don’t want to talk about it here, but cleaning out was needed. We will be forever in bad shape if we there is more hype and hoopla in the mining industry than probably try to keep failing businesses afloat when the dynamic and anywhere else. So you have to be careful, but there are plenty of great natural forces of economies say otherwise. The path we are on mining companies out there. There is a lot of good merchandise sellis inflationary, I am sorry to say. ing at low cash flow multiples. Usually, the hype and hoopla is for the The Wall Street Transcript — June 29, 2009   15

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Then I think inflation is going to come back in two to three years at a dramatic level, and then that’s going to create interest rates to go much higher, which it always does. When that happens, the economy will get slowed down again, and if inflation and interest rates go high enough, then the economy and stock market will take a big hit again in three to four years. That’s sort of my prognosis. We are not going into a depression where everybody is out of a job and world stops — it’s not going to happen. TWST: Give us some background on you and your company. Mr. Gerbino: I have been an investment adviser since 1973. I manage a hedge fund right now called the Gerbino Gold Group, LLC. We invest exclusively in gold, silver and some base metal mining stocks. I was a financial analyst before this for Litton Industries and Republic Corporation back in the late 1960s, early 1970s. I enjoy golf, I like Hawaii. My favorite city in the world is London and I always enjoy going to Switzerland, because

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everything works in Switzerland and my advice to all governments in the world is to hire the Swiss and to hire the executives who run Disneyland to run your country, and everything will work. You will have low inflation, you will have productivity, you will have trains on time, you will have a high savings rate, you will have very little crime, and that’s my suggestion, Disneyland and the Swiss. So it comes down to people who can make good chocolate and Mickey Mouse’s managers can do a far better job running a country than governments seem to. . TWST: Thank you. KEN GERBINO Kenneth J. Gerbino & Company 9595 Wilshire Boulevard Suite 303 Beverly Hills, California 90212 (310) 550-6304

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ADRIAN DAY is a British-born writer and money manager, a graduate of the London School of Economics, who has made a name for himself searching out unusual opportunities around the world, with two books on the subject. His money management firm, Adrian Day Asset Management, specializes in global diversification and gold equities for individual and institutional clients. He is a frequent speaker at international seminars and is a frequent guest on CNBC and The Wall Street Journal Radio network, and has been interviewed by Money, Straits Times, “Good Morning America” and others. You may learn more about his services at www.AdrianDayAssetManagement.com, or via email AssetManagement@ AdrianDay.com.

SECTOR – PRECIOUS METALS TWST: What do you mean by “safe-haven buying?” (AAJ508)TWST: What is the Mr. Day: Investors and current status of the precious others looking for some asset Highlights metals market? class that will protect their assets, if the financial assets fall Mr. Day: A couple of Adrian Day thinks that gold and gold stocks are going apart. And that really started things are important to recogto be one of the best performing asset classes over the at the end of September/benize about gold’s move, parnext several years and all investors should have some ginning of October. We really ticularly gold but also silver. It position in gold as a hedge, a diversifier in their saw that kind of buying comhas been driven primarily by portfolios. He advises investors to be selective and also ing in. There is always some investment buying and safeto take profits on occasion. He is very bullish on the of that, of course. It is a very haven buying. Now, typically mid- and longer term. He believes the dollar will traditional thing in Europe for of course, the primary demand continue its long-term slide and the price of gold will large portfolios to have 5% of for gold comes from jewelry rise. Gold acts contrary to the dollar; it’s priced in dollar their assets in bullion as a perdemand. The jewelry demand terms. Also, the supply of gold is very constrained. manent hedge on the rest of worldwide has been very, very There is a scarcity of large undeveloped gold deposits the portfolio. But we’ve cerweak, particularly in the and it is difficult to find major deposits that are in tainly seen much more of that Western market. So this is not a friendly jurisdictions. Currently, he is overweighted in buying in the last nine months normal market in that sense. gold and silver stocks and is actually trimming positions than we typically do. Instead, it’s being driven by because of a pullback. He expects better prices going investment buying and safe TWST: You also said forward. The senior producers peak in the summer haven buying. It is also importhere is less hedge buying than months and the juniors tend to be weaker because they tant to realize that on the what we usually see. Why is are more retail investor oriented and they generally supply side, one of the factors that? weigh in during the summer. He thinks there will be that is offsetting the market Mr. Day: Two things rebetter opportunities to buy going forward. that has been absent has been ally. Typically companies Companies include: Goldcorp (GG); Royal Gold hedging from producers; we’ve hedge for two reasons. They (RGLD); Franco-Nevada (FNV:TSX); Allied Nevada had very little of that. And in hedge when they are building a (ANV); Midland (MD:TSX); Virginia Mines (VGQ:TSX). fact, we had a little bit of hedge new mine to raise capital upbuying back. I see both of those factors continuing.

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inflation, deflation, instability. It is not just a hedge on inflation, but really on instability, and the next few years are going to continue this financial instability and financial uncertainty in my view. It is not just a question of concern about the dollar, but there is concern about all fiat currencies, all paper currencies around the world, because pretty much all central banks have been creating money like crazy in the last nine months in an effort to get us out of this financial crisis. Inflation obviously is something that boosts the price of gold, and we remember the last big gold bull market we had in the 1970s was an inflation-driven bull market. With all the money creation that we’ve had, not just in the US, but around the world, it seems highly probable, let’s say, that if the economy recovers it will be accompanied by higher inflation. I am more in the camp that thinks the economy is going to be weak for a while, I know you wanted to ask where that leads us, and in that scenario, we may in fact not see inflation come back for another couple of years. But when the economy recovers, because of the money creation, it will be accompanied by inflation. The last reason why gold is really very posi“The jewelry demand worldwide has been very, very tive right now, as with a lot of the resources, not just gold weak, particularly in the Western market. So this is not but as with a lot of them, it is extremely supply constrained. I mean, you can look around the world and a normal market in that sense. Instead, it’s being there is a scarcity of large undeveloped gold deposits. driven by investment buying and safe-haven buying.” And it is becoming increasingly difficult to find largescale gold deposits and frequently those that are found are subject to environmental, political or social issues that cause delays in bringing them into production and in many TWST: The corollary question here is, what do you see cases postpone production for many years. Look at the two largest as the outlook for the precious metals market? Let’s talk both undeveloped gold deposits in the world, also two of the largest about the near-term outlook and the risk associated with that discoveries in the last decade. One is Rosia Montana in Romania, and the longer-term outlook. which is undeveloped because of environmental and social con Mr. Day: Maybe if we start with the longer term first: I cerns and the other one is Las Cristinas in Venezuela, which is am extremely bullish on the medium and longer term, and by medelayed because of political issues. So it is very difficult to find dium I guess, past the next several months, and we’ll come to that big deposits that are viable and even more so to find big deposits in a second. Several factors, number one, other things being equal, that are in friendly jurisdictions. gold acts contrary to the dollar; it’s priced in dollar terms. So other things being equal, if the dollar goes down, the price of gold goes 1-Year Daily Chart of Goldcorp up, although the relationship, of course, is a little more subtle than that, because gold is seen as a hedge on currency devaluation. In my view, the dollar is going to continue its long-term slide; it will have rallies along the way, but over the next three to five years, I see the dollar significantly lower, and there are a lot of reasons for that. But one reason we’d just mention now perhaps is that central funds around the world hold about 70% of their foreign currency reserves in the dollar. In recent months, we’ve seen increasing concern from some of these large holders such as China, Russia, Brazil, as well as others about the safety of holding so many of your reserves in a single asset. So we’re seeing increasing concern at that issue. Over time, you will see central banks diversify their assets away from such a predominance of dollar and toward other assets. Chart provided by www.BigCharts.com I am not suggesting that one day Russia is going to dump all their dollar reserves, or something like that, but over time they will buy less dollars and that will have the effect of diversifying their assets, which will reduce the demand for the dollar and therefore we will For all of those reasons, I think gold remains, despite the see the dollar moving down. That is the most important factor that rally we’ve had not just in the last six months but really since the bull I see in the long-term. The other couple of major reasons, if I may, market since 2001, relatively cheap. It remains cheap relative to the why gold is going up is: gold is a crisis hedge and it is a hedge on money supply, it remains cheap relative to financial assets, it remains profitable in its early years, etc. The other one, frankly, that we saw a lot of in the 1990s and early 2000s, was really more speculative hedging, companies which wanted a sell forward because they thought the price was high and it was a good time to lock in the price and so on. But they didn’t need to do it; it wasn’t because they were building a new mine or anything like that. You’ve seen very, very little of that recently. Typically, you get that type of hedging when people are cautious on the market; when people are bullish on gold. Obviously, you are not going to lock in the price if you think it is going higher. So, in this kind of environment, we’ve had very little of that. The other thing is that investors buy gold mining stocks because they think the price of gold is going up. They certainly don’t want the mining company locking in a price if they think the price is going higher. And companies heard from a lot of angry shareholders when they were selling their gold at $650 or $700 when the price was $850 or $900.

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cheap relative to many other assets. For all of those reasons, I see gold Mr. Day: There is something about people who follow doing very well over the medium and longer term. I am very congold that they always think it should be higher than it is. It’s really cerned about the near term. I’ll just give quick reasons why. Number critical to understand gold’s role. Gold’s primary role is to preserve one, the commodities generally, including gold, have just moved too assets. It’s not to give us incredible capital gains let alone to give us far, too fast. In particular with gold, remember that most of that buygood dividend income — in fact, it gives us no dividend income. Its ing has been driven by safe-haven buying. Now, if the current optiprimary role is to preserve assets against fluctuating and devaluing mism about economic “green shoots” continues for a little while, currency and it has performed that function remarkably well. It is then that buying goes away, the perceived need for that buying goes performing that function since the crisis. If you go back to the end away. Certainly the dollar is due for a short-term recovery. The of September, when this credit crisis began, when Lehman Brothers strength in some of the foreign currencies like the euro, the Canadian went broke, you see that gold has performed well in terms of predollar, the Japanese yen are hurting those economies and causing serving assets and certainly preserving assets relative to the dollar, political issues there. A temporary recovery in the dollar would hurt relative to stocks, relative to bonds. It has performed its task. And I gold. Lastly, we shouldn’t forget that typically, not always, but typithink people frequently are looking for too much from gold. cally, the summer is a weak period for gold and particularly the gold stocks. For all of those reasons, I think there is “The restrictions on actual mining are not getting near-term risk for gold and I would look for better opportuworse, what is getting worse are two things; one, the nities over the next few months to buy frankly. environmental protests that happen, and then the other TWST: You mentioned environmental and political restrictions for mining companies. Are the thing which goes along with that is the permitting. The environmental restrictions getting tougher for compaenvironmental review process and permitting are nies right now? becoming more and more time consuming. So the time Mr. Day: I would say no on environmental refrom discovery to bringing on a mine is much longer strictions. I think the truth is that most Western companies today — when I say Western, I mean whether the US or today than it was say 20 years ago, partly because of Canadian or Australian — have very good environmental those environmental reviews and controversy that often practices. They all live up to the pretty tough World Bank happens with mines.” environmental standards even if they don’t borrow money from the World Bank. The restrictions on actual mining are not getting worse. What is getting worse are two things: one, the en TWST: Where are precious metals in contrast with vironmental protests that happen, and then the other thing which goes other commodities right now? along with that is the permitting. The environmental review process Mr. Day: Many of the other commodities have actually and permitting are becoming more and more time consuming. So the rallied significantly more than gold in the last three, four months. time from discovery to bringing on a mine is much longer today than But having said that, they also dropped a lot more than gold last it was, say, 20 years ago, partly because of those environmental reyear. The other commodities, of course, across the board, even silviews and controversy that often happens with mines. ver, particularly the base metals and oil, they rely much more on the global economy. So higher prices in those resources are dependent 1-Year Daily Chart of Virgina Mines much more on an economic recovery than gold prices for a sustained rally. Now what we have seen with some of these other commodities, particularly in the last sort of three, four months are two things. One is, some optimism about the economy, all this talk about green shoots of spring. All the discussions of green shoots and a optimism about hitting bottom in the economy, of course, investors always discount. So even though for the normal Joe on the street, it doesn’t look like the economy is getting much better, investment markets tend to discount the future. And of course if you have optimism on the economy going forward, then you want to be investing in the base metals, less so in gold. And then the other factor that’s been very powerful for the base metals in particular is restocking. Inventories were run down completely at the beginning and the Chart provided by www.BigCharts.com middle of last year. Then you had the credit crisis where nobody wanted to be holding copper and uranium and so on. Now with the renewed optimism, you’ve had some restocking. When you get that restocking of inventories, it is a one-off effect. But it doesn’t mean TWST: You mentioned that gold is still relatively that prices won’t respond quickly because the demand comes in a cheap right now. Some pundits are saying it is unreasonably lot quicker than does any increased supply. 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of the future then? Well, an awful lot depends on what your view of global scale and, again, Economics 101, if you like, create more the economy is. If you are bullish on the economy, if you’re conmoney and then mines produce less gold, then gold becomes worth vinced we’ve hit bottom, then the base metals will probably conmore in terms of the money you’re creating. I think the other fact of tinue to outperform gold. I tend not to be bullish on the economy. it perhaps is more fundamental on a longer-term basis, is this move Having seen this one-off, one-time restocking, I think the base metal we talked about earlier, the move away from the dollar is reserve prices will begin to flatten out and decline in the near term. currency or the sole reserve currency of the world. China has floated the idea of new reserve currency, that wouldn’t be the US dollar but TWST: Would you give us a basic tutorial on what would be a basket of currencies, similar to the old IMF Drawing economic conditions impact the price of gold? Rights, and including gold incidentally. Both of those reasons are Mr. Day: Several things really. I think for a strong susgoing to see gold move ahead of other currencies. tained move or even a sharp, short-term move, the biggest factors are always instability. Concern of financial economic instability as well as geopolitical instability will tend to be what drives the price of gold in the near-term. And as I “Gold’s primary role is to preserve assets. It’s not to alluded to earlier, it doesn’t have to be strong inflation. give us incredible capital gains let alone to give us good Gold can do well in periods of inflation, but also in periods of deflation, provided it’s unstable and a sort of crisis dividend income, of course, it gives us no dividend atmosphere. We had deflation in Europe from 1815, end of income. Its primary role is to preserve assets, against the Napoleonic Wars all the way through to 1914, the First fluctuating and devaluing currency and it has performed World War. It was a century of deflation, but it was a mild that function remarkably well.” deflation, a positive deflation, as you got more goods created and so on, without the increase in the money supply and so currencies generally did not depreciate that much. But other periods of more dramatic deflation, when accompanied by crisis, such as much of the 14th century or indeed the TWST: Let us move on to mining stocks in general. 1930s Great Depression, is good for gold. This is a long subject, of What do you look at when you are evaluating mining stocks? course. The key is that it’s a crisis rather than whether it’s inflation Mr. Day: We’ll talk about juniors in a second but I think or deflation that helps gold. Two other factors help gold: One is, we it’s important to distinguish between the seniors and the juniors. By should never forget that economic growth is positive for jewelry seniors, I mean companies that are actually producing gold and then demand, which can be the primary use for gold. And then the secthe juniors which are explorers or companies that maybe have one ond, a bit of the last thing that’s important to look at, is interest rates. small mine and are trying to build into a bigger company. With the Other things being equal, high and rising interest rates are negative larger, producing companies, clearly the price of the commodity itfor gold, low interest rates, particularly negative rates, are very self is a prime determinant, and the horrible truth in this business is positive for gold. But you can have rising interest rates, if rising it doesn’t matter how good all your stock picking skills are, if the interest rates are lagging inflation — then that’s not necessarily price of gold goes from $1,000 to $500, you aren’t going to make negative for gold at all. We saw that in the 1970s. money. Now beyond that, if you are looking at which stocks to buy and which to avoid, there are three main factors with the producers. 1-Year Daily Chart of Royal Gold One is the balance sheet, because you need money for ongoing capital expenses, to acquire new reserves, you need money to explore. Second is to look at the reserves in the ground rather than current production because that tells us whether they can sustain their current production and what the growth profile is likely to be over a period of time. We shouldn’t forget that for the large mining companies, say Newmont producing 5.2 million ounces, it is very difficult to replace gold they take out of the ground. These are depleting assets. It’s not like having a widget machine that throws out widgets every year. Once you had mined that ounce of gold it’s gone, you have to find another ounce just to stay where you are. The undeveloped reserves and resources that a company has is key. Lastly, I like to see a company with some sort of diversification of Chart provided by www.BigCharts.com assets. I’m talking primarily geographic diversification because the problem with mining is that if you don’t like the way the politics are going, you can’t just pick up the mine and go somewhere else. So mining companies are susceptible to whether it is confiscation at the TWST: Do you see gold continuing to lead over curextreme or just higher taxes and higher regulations and generally rency in the next few years? higher take from the host government. So I like to see some kind of Mr. Day: Yes, I think so. I think so for two reasons really. diversification of assets, so they are not so vulnerable. One is, as I say, you’ve had this massive monetary creation on a 20   The Wall Street Transcript — June 29, 2009

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TWST: What factors have been driving the price of mining shares and what about in the future? Mr. Day: With gold stocks, we should never forget that they are stocks as well as gold assets. In other words, they will move both to the price of gold but also to what’s happening in the broad stock market. We saw gold stocks sell off dramatically in September and October along with the broad stock market, and that is not untypical, it doesn’t always happen but it’s certainly not at all untypical. In the last few months, we’ve had gold stocks do remarkably well based on three factors. One is recovery in the broad stock market, two is the higher price of gold, and then the third — well, there are four really, but the third one is that some of their input costs like the price of oil and so on until recently had been lower and that means that margins are higher. Lastly, we shouldn’t forget the gold stocks were remarkably cheap at the end of last year. The producing stocks were at the lowest valuations in 20 years at the end of last year in terms of price earnings, price to book, price to production, price to reserve and so on, their lowest valuations in 20 years. So we’ve had a recovery from those valuations as well.

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TWST: And again, back to your previous point, no diversification either, usually. Mr. Day: Well, that’s a good point because, let’s say, frequently no diversification, but if you were to ask me what types of juniors one looks at, or what are the issues you look at with junior companies, diversification is certainly one of the main factors that I would look at. The traditional model for an exploration company was — and this is with the good ones, not with the promotions or the scams — but even with the good ones, some grizzly geologist would find something that gave him an expectation that there might be gold there, and he would go to Bay Street in Toronto or Howe Street in Vancouver and raise a little bit of money, he’d hire some drills and drill some holes and he would either find something or not find something. Now, either way, he had to go back and raise more money. If he had success, he could raise money at a higher stock price on better terms. If he didn’t have a notable success, it was more difficult to raise money, but the point is that he had to raise more money just to keep going, and he’d have to do that over and over again. As an investor, when you know that there is a financing coming up, your immediate thought is to sell the stock because the financing would be dilutive and maybe buy “Other things being equal, high and rising interest back afterward, and that’s what people did. Frequently rates are negative for gold. Low interest rates, you had a situation where even if a mining company was particularly negative rates, are very positive for gold. a success, the early investors didn’t necessarily benefit But you can have rising interest rates, if rising interest from it because it was so heavily diluted. Let’s not forget that exploration is a very high-risk business. The odds are rates are lagging inflation -- then that’s not necessarily remarkably long. It’s frequently said that only one in negative for gold at all.” 3,000 properties ever leads to a discovery, one in 3,000. So the odds are remarkably long. How do you mitigate those risks? Well, you have a busi TWST: We talked about the senior companies. Now ness model that mitigates this risk, and a business model that I like let’s talk about the juniors. What are the pros and cons of hava lot is what’s called the prospect generator model, where compaing those in your portfolio? nies will generate a prospect, spend a little money doing early ex Mr. Day: Junior companies give you more leverage, more ploration, then they bring in a joint venture partner to spend their exposure to the price of gold. Typically, if producing gold stocks money on the property in return for 50%, 60%, 70% of the property might move 2 to 3 times the price of gold itself in a bull market, the if it becomes successful. Now that of course is also dilution, but it’s juniors in a strong market will move even more. It is not rare in a dilution on the particular property. It means that the company itself strong market to get returns of five or 10 to one on exploration doesn’t have to keep diluting itself by raising more money; it can go companies, particularly those that make a discovery. That’s the apout, generate more prospects and find more partners. And if there is peal, and that’s why people look for juniors. As a group, juniors failure on a property — as there often is — it can live to fight anright now are undervalued. They have had a bit of a recovery as well other day because it preserved its balance sheet. I liken it to having in the last few months, but there are many junior gold and resource a small piece of lots of lottery tickets instead of just one lottery stocks that are selling barely above cash, but many more that are ticket. Some of these companies have been remarkably successful. selling below net asset value. Generally speaking, the exploration It does not guarantee success, the odds remain long. But the comsector today is much better financed with much better management pany has spread the risk and lowered the odds. So I like that kind of than they had in previous cycles where a lot of them were little more business model very much. than promotions, frankly. That’s not the case today. Whereas 10 or TWST: What are your top mining companies right 20 years ago, it was often the promoter who ran the company, today now and why? it’s a geologist who runs the company and he hires finance and IR Mr. Day: I guess the first thing to say is that we are people to help him. Having said that, we should never forget that loaded up with gold and silver stocks right now, and we are actually exploration companies generally have much, much higher risk than trimming positions right now. The advice always has to be tailored senior companies if only because they have no revenue. You are lookto an individual; we are buying very little right now because I exing for something, and until you find it, you don’t have any revenue. pect this pullback. I expect better prices. Typically the senior gold That means they have to constantly raise capital in one way or another stocks, peak in May and are weak in June and July, and the juniors in order just to keep going. So they do have higher risk. tend to be weak in July and August because they are more retail The Wall Street Transcript — June 29, 2009   21

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ration budget on several properties of over $8.5 million in the curoriented and retail people are weighing in during those months. I rent year (less than half of it their own dollars). They get paid to run think we’re going to get better opportunities to buy. most of these programs using other people’s money. This is a superb First of all, my top mining company will be Goldcorp, company with very strong people, and remarkably undervalued. (GG). And I like that because it has got a super-strong balance (Our firm owns over 5% of the shares in the company.) sheet; it’s in politically safe jurisdictions by and large, it’s in Canada, US and Latin America, Chile primarily, which are safe jurisdictions for mining. Strong balance sheet, diversified assets, and a good growth profile; you can see “Let’s not forget that exploration is a very high-risk where the growth is coming in the next several years. business. The odds are remarkably long. It’s frequently The second type of company I like would be the said that only one in 3,000 properties ever leads to a royalty companies. These are companies that instead of discovery, one in 3,000. So the odds are remarkably long.” developing the mines themselves, will acquire royalties on mines. And in addition, they will fund development of a mine in exchange for a royalty, they create the royalty. My two favorites in that area, two large companies, one is Royal Gold (RGLD) and then the other one is Franco-Nevada TWST: What catches your attention in the small, up (FNV:TSX), which was a spin-off from Newmont, and they are and coming companies? both super companies, both with similar attributes. They both have Mr. Day: Again it comes back to several things. very good managements, very strong balance sheets, diversified Management is number one, followed by balance sheet. The two juportfolios of royalties in terms of everything from production to niors I mentioned—Virginia and Midland—have no need to ever pure exploration and around the world. Royal Gold is more a pure raise more money if they chose not to. I am not a geologist, so for me, gold royalty company (though they did pick up some copper royalthe properties themselves come next. For me as a value investor, a ties in a recent acquisition), while Franco-Nevada is more diversinon-geologist, I’ll always take good management with a strong balfied with significant oil and gas assets as well, along with platinum ance sheet over any particular property anytime. I don’t care how and a little in base metals. Following recent gold acquisitions, howgood the property is, if you have bad management — and bad manever, by the end of the year, Franco will probably be up to about agement can be technically bad, it can be dishonest, it can be promo70% gold. An up and coming company is Allied Nevada (ANV). tional management whatever — but if you have bad management, Allied is developing a potentially huge deposit in Nevada. It’s curand a weak balance sheet, it doesn’t matter how good the property is, rently producing from the oxides, the easier, lower-cost ore at the you are not going to do very well as an investor in a company. There top of the deposit. It’s comparably valued with their peers just on is a saying in this business that mines are found. Someone has to go the oxides. But if you add in the sulphides, that are typically deeper, out and find it, and that takes good people and money. more expensive but longer lasting, Allied suddenly becomes very TWST: What trends do you see in mining companies undervalued. As they develop that larger deposit, then we’ve got in the next few years? Do you see consolidation? about 15 million ounces at that one mine, which makes it huge. And Mr. Day: I think we are going to see a renewed interest in it has top management and a strong balance sheet. consolidation. Not just in the gold area, but in all of the metal stocks, we had a lot of consolidation at the end of the 1990s and the I also like a lot of very small exploration stocks. I really beginning of this decade. That declined a little in the last couple of hesitate to put those in print because prices can change so dramatiyears (with some obvious huge exceptions) for two reasons, one is cally. As an example, I’ll just mention one I like, Midland all the obvious mergers that are being done. You were starting to get (MD:TSX.V), but purely as an example, it’s a $0.75 Canadian mergers with no reason other than just to get bigger, with no synerstock. It traded 33,000 shares today, which is a large volume for that gies of any type, and the market didn’t really like that. And the other stock; yesterday, it traded just 1,500 shares. The market cap is C$16 thing was, of course, that with the credit crisis it became difficult to million. So this is a small company, and a thin stock, and I hate to raise money to fund an acquisition. With the easing in the credit sort of recommend stocks like that because it only takes one person market and the fact that it is still cheaper for a mining company to buying $10,000 or $20,000 worth who doesn’t know what they are go out and buy their reserves from another company than it is to doing and the price goes up 20%, which doesn’t do them any good actually discover a mine I think you are going to see more of that in because then it comes right back again. You always have to exercise the gold area. But I expect the bigger trend in the next few years, patience in buying these stocks. One I’ll recommend, my favorite rather than mergers of more-or-less equals, will be larger companies exploration company, is a company called Virginia Mines buying the exploration companies. It has been true for a long time (VGQ:TSX). At the current price, that is about 115 million market now that most mines are found by junior companies, not by the big cap, It follows the prospect generator model, it’s the most advanced companies, and the senior companies are starved for new resources; of the prospect generator companies and can afford to do a little that is one of the fundamental keys of this business. As I mentioned, more of its own exploration. It’s got cash of nearly $40 million, and a big company that produces 4 million, 5 million, 6 million ounces owns a royalty that has a value of about $90 million. So you can a year has to find that number of ounces every single year just to see that between the cash and this royalty (a very marketable asset, stay flat, and that’s not easy. Just to give you, if I may, a couple of by the way), you get the rest of the company free. After developing statistics. When this bull market basically started in 2001, we’ve a large zinc deposit, they are now refocused on gold, with an explo22   The Wall Street Transcript — June 29, 2009

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seen the price of gold quadruple more or less, $250 up to a $1,000, we’ve seen the exploration expenditures quintuple over that period, and yet production has actually declined while the number of new discoveries in this last decade is significantly below what it was in a decade or two decades before that. Now, if you said to somebody, the price of this commodity will quadruple and the expenditures looking for new deposits will go up by five fold, you would expect production to go up and it hasn’t. That is a reflection of just how difficult it is to find big deposits. So increasingly, these big companies are going to buy deposits from junior companies and that to me is the big major trend for the next few years. 1-Year Daily Chart of Franco-Nevada

Chart provided by www.BigCharts.com

TWST: What do you think is in store for the US and global economy over the next year? Mr. Day: What we are going through at the moment is not a normal cyclical recession, but it is a deleveraging contraction. And that is a completely different animal, and it has different consequences. Now, in a normal cyclical recession, it’s not necessary how deep it is, 1973, 1974 was a pretty deep recession, but it was a cyclical recession, the economy gets overheated, inflation starts picking up and the monetary authorities deliberately try to cool the economy by raising interest rates and by tightening money. This triggers a slowdown. Because we know what caused the recession, we know how to get out of it; that is, you lower rates and you ease money, and eventually that works its way through and the economy recovers. This is something different, this is a deleveraging contraction, it was not caused by rates going up and by money being tightened, but on the contrary, it was caused by rates that were abnormally low, it was caused by excesses that came about because rates were abnormally low and money was abnormally loose. So, we don’t get out of that by lowering rates and by easing — by creating more money. The two big deleveraging contractions of the past century were the depression in the 1930s, and the Japanese contraction that began in 1990. If you look at both of those two, I think the critical lesson from both of those two is how long it takes to get out of it. In the 1930s, we had some economic and stock market recoveries along the way, but we should never forget that in 1941 when the US went to war with Japan, more than a decade after the depression started, the US economy was still weak, unemployment was still 15%. So it took a long time to get out of that depression, the same with Japan.

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1990 is when the bubble burst in Japan and 17, 18 years later, the Japanese economy is still fluctuating between recession and deflation, and of course it’s in a recession. So 18 years and counting in the case of Japan and for 12 years in the case of the Great Depression, ended by world war, which is not a very optimistic scenario. These are long events, and that’s the way that I am approaching both the economic outlook and the markets. It could be a protracted, sluggish economy. It takes time to repair balance sheets. Overseas, again big picture, we are already seeing that emerging markets are taking a lead over developed markets, not all of them, but the leading emerging markets, China, Brazil are taking a lead over the developed markets. And the other major theme is an ongoing major shift from the US as the dominant player in the world toward the east, and particularly China. That is something that is ongoing over decades, but it’s the way I am approaching markets. That is bullish for resources because as China and the rest of Asia emerges, the demand for resources continues to go up dramatically. It’s very, very bullish for resources generally, including gold. TWST: Do you think that this current Administration is doing the right things to help improve the economy? Mr. Day: No. First of all, anything I say does not in any way suggest that I think the last Administration would have been any better. But having said that, no, I think they are going about this completely the wrong way. They are predictable both in terms of the monetary and fiscal stimuli that we’ve had, but also — and this is much more important fundamentally — and that is in the interventionist way that the Administration is behaving towards the economy. I mean, the Chrysler bankruptcy is a perfect example. We have a legal system in this country, we have a rule of law and senior bondholders are supposed to come ahead of unions in a bankruptcy. In this particular case, we have the government just saying no, its not going to be that way this time, and that is just fundamentally wrong and dangerous. What’s likely to happen is that even now in the short term and in specific instances, it will appear that the Administration policy was successful, GM comes out of bankruptcy and survives and everybody says, “Well, good, thank goodness, the government did something about it.” In the longer term, however, it will have the effect of prolonging the recovery because it makes the USA a less attractive place for global money. TWST: Tell us about yourself, about your background and about your company. Mr. Day: I’m from England. It’s interesting because 15 years ago, if I said anything remotely, remotely critical of the US, I would get boos from the audience. That does not happen anymore, simply does not happen anymore, which I think is a good thing. It means people are willing to be a little more critical. I’ve lived in this country now 35 years. I started my money management business in 1991. I’m a long-term value investor, that’s my fundamental approach. We manage money mostly for relatively high net worth individuals and small institutions. And we invest both in global markets and also in resources. TWST: How did you become a money manager? Mr. Day: It was a progression from politics and political research in England, to writing on economics, and then on investments. I was in the investment newsletter business for a while, and the truth is that I got so many letters from people who wanted me to The Wall Street Transcript — June 29, 2009   23

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manage their money, people making the most horrible, basic, fundamental errors, but I mean it sounds a bit corny, but I kind of felt I was just helping little old ladies by managing their money for them, and then one thing led to another and now that money management business is my business. The sort of mistakes I’m talking about, I mentioned earlier, that I don’t like recommending small stocks because one or two guys buying $10,000 worth can push the price up, and then it just comes back again. So, that’s how I got into it. TWST: Is there anything you’d like to add? Mr. Day: The only thing I would say to people is that number one, I think gold and gold stocks are going to be one of the best performing asset classes over the next three, five years, number one, and number two, I certainly think that all investors should have some position in gold as a hedge, a diversifier in their

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portfolios. We should never forget that these are risky assets, and volatility is perfectly natural in these asset classes. And we should not forget that missing an opportunity is nowhere near as bad as actually losing money. I would advise people, particularly retail investors or novices to this sector, not to go overboard, but to pick the time and the price to buy carefully and also not to forget to take profits occasionally. TWST: Thank you. ADRIAN DAY 801 Compass Way Suite 207 Annapolis, MD 21401 (410) 224-2037

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ECU Silver Mining Inc. (ECU:TSX) STEPHEN ALTMANN, President of ECU Silver Mining Inc., is a former investment banker where he provided financial and strategic advice to a large selection of domestic and international public mining companies. Mr. Altmann’s experience includes over 15 years of corporate finance and M&A experience with involvement in over $1.5 billion in equity financings and $20 billion in strategic advisory assignments. Mr. Altmann has comprehensive experience in capital markets, financial advisory, valuations, project finance, debt financing and financial derivative products.  Mr. Altmann holds a Master of Business Administration degree from McMaster University and an Honors Bachelor of Science (Geophysics) degree from the University of Western Ontario.

SECTOR – PRECIOUS METALS (AMX604) TWST: Would you begin with a brief historical sketch of the company and a picture of the things that you’re doing at the present time? Mr. Altmann: We have recently increased our resource size to a point where it’s now one of the industry’s largest undeveloped gold and silver resources in Mexico. We’ve identified a measured and indicated resource of 40 million ounces of silver equivalent and another 390 million ounces of inferred silver equivalent, which gives an inventory of 430 million ounces of silver equivalent or, on a gold basis, that’s 6.5 million ounces. We have augmented the profile of the company by the acquisition recently of a new oxide plant, which effectively allows us to pour gold and silver ore bars that can be sold directly to refineries. To date, we’ve produced about 80 to 100 of those bars, essentially worth $1.5 million in value over the past six weeks. So the strengths of the company are, we have assets that are generating revenue, backstopped with a very large gold and silver resource, and today we are trading at a very attractive valuation relative to our peer group. TWST: Is Mexico historically friendly to mining? Mr. Altmann: Absolutely. There has been a significant amount of mining activity in all of Mexico, particularly along the Silver Belt. Mexico is one of the largest producers of silver on the planet, along with Peru. Basically, everybody else is a distant second or third. We’re very fortunate in that we don’t have any environmental or political challenges, there’s a strong geological environment and mining culture, as well as strong mining laws. I would argue that Mexico remains one of the few areas in the world where you have both the opportunity for very large deposits and an environment that is friendly to the mining industry. So Mexico is a very, very good environment for mining. TWST: What are the market dynamics today for silver? What are the variables that you are keeping your eyes on?

Mr. Altmann: We think the opportunity for silver prices is going to be absolutely huge. Silver has the same investment fundamentals as gold.  However, what it does have, unlike gold, are the industrial applications, that is, being essentially a superconductor. People don’t really realize the abundance of silver in their environment, for example, in light switches, TVs,  cellular phones and a tremendous amount of medical applications, just to name a few. So as the economy starts to rebound, we’ll see a huge demand for silver, against the backdrop of low inventory levels for silver. Whereas silver usually tracks gold from an investment point of view, I think the supply/demand fundamentals for silver will be such that we see a much more leveraged price increase with silver, as we return to a strong economy. TWST: Tell us about the logistics, infrastructure and access to the deposit, as far as the ability to produce and getting it out there, into the commodities market? Mr. Altmann: We have a very strategic location in that we’re literally two miles away from a major four-lane highway that runs essentially north to south and links up with Mexico City. Along this highway are major power lines, so we have fantastic infrastructure in terms of a four-lane highway right next to our property. We have ownership of our mineral claims. So really from an infrastructure and ownership point of view, we have no major encumbrances to being able to extract our mineral resource. Just simply put it on a truck, get it on the highway and we are basically linked to anywhere we wish to transport our product. TWST: What would you expect ECU to look like in about three to four years? Mr. Altmann: I think we have an excellent opportunity to grow our production milling operations. Our model basically is to be able to deliver on what we say we would deliver on. For example, we have consistently said that we were going to grow the size of the mineral resource and we have, from 25 million ounces to 400 million ounces. We’ve established our credibility in being able to deliver and now what we want to do is deliver on the production milling side. So with the acquisition of this new mill, that is the The Wall Street Transcript — June 29, 2009 25

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platform for which we will grow to become a large production zone. Two or three years from now, we intend to increase our production milling operations by threefold as a first phase of our growth and then the next phase of our growth will be to increase our production milling operations tenfold from where we are today. TWST: Turning back to Mexico for a moment, are there any problems there with getting good personnel? Mr. Altmann: Not at all. As I indicated earlier, Mexico has been involved in mining for centuries and particularly in our area. We are in a mining district, so there are a lot of very highly qualified personnel who are attracted to the mining industry. Right now we have a workforce of 420 and 60% of those employees have been with us for the past 10 years; the others have been hired recently to increase throughput and operate the new mill.

“We have recently increased our resource size to a point where it’s now one of the industry’s largest undeveloped gold and silver resources in Mexico. We’ve identified a measured and indicated resource of 40 million ounces of silver equivalent and another 390 million ounces of inferred silver equivalent, which gives an inventory of 430 million ounces of silver equivalent or, on a gold basis, that’s 6.5 million ounces.”

TWST: Introduce us to your top-level management team, two or three of your key individuals. Mr. Altmann: Michel Roy, our Chairman and CEO, has been involved with ECU for the past 10 years. He actually moved his family from northern Quebec to Mexico so that he could be an hour away from the mine site, to oversee the progress of the exploration program and now production milling operations. He has been a career-long geologist, extremely bright in his field and we attribute the success of both our exploration and production program to Michel. I joined the company two and a half years ago and formerly, I was an investment banker. The company needed access to the financial markets, and opportunities for mergers and acquisitions, in order to funds its growth profile. So in my role, I have raised over $50 million for the company to fund our growth and we also acquired the oxide plant, in order to get us to a mode where we’re generating higher revenues. Dwight Walker is our CFO, and he is a career accountant who has been involved in several different public companies. He is focused on the proper accounting methodology that we need to apply as a public company. Also, we have two main guys, Armando Lujan and Joaquin Rodriguez, who are our key guys in Mexico. In any country you need to have the persons who understand the culture of the people, geology, and environment, in order to be successful. Those two individuals are our main assets in growing this company. TWST: As you look at the staff on hand and where ECU is headed, are there particular areas or positions to add? 26

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Mr. Altmann: Definitely. As we grow with our production profile, our team needs to grow. So in the future we will be definitely looking for opportunities to grow our mining and milling team as we expand our facilities. I think the mining industry is going to become stronger and there’d be huge opportunities for mining companies with little financial risk, that can basically withstand the current economic environment. Our plan is to go the distance and to increase our production milling operations and with that we will be looking to add personnel over the long run. TWST: Looking for additional assets, M&A activities, where do they stand on the list of priorities today for the company? Mr. Altmann: We constantly are looking at M&A opportunities. As you can imagine, the current environment has given rise to many more opportunities than in the past and there are several opportunities at which we are looking. However, we are very careful in how we approach M&A in that we don’t want to increase the size of the company, just to increase resources or the market cap of the company. We are looking for complementary assets. Complementary assets will either be resources that can enhance production or other operations that we can pack on and build our profile, with similarly sized production milling operations that we know, we understand and with which we’re comfortable. TWST: What historically has been the shareholder base with the company? Has that base itself undergone any changes or transitions? Mr. Altmann: We originally were a very highly retailheld company. With the past financings that we’ve undertaken, we’ve had several institutions buy into the company — several institutions from the US and Canada now understand the story and our shareholders. So we’ve grown our institutional base over the past two years and we want to maintain a capital structure that’s well balanced among retail holders and institutional holders. Our retail shareholders, both in Canada and the US, have been extremely loyal. We have, I think, a fantastic base of shareholders who understand the company and who have been with the company for several years. TWST: In your discussions with analysts and shareholders, are there any misconceptions that you encounter? Is the ECU story understood the way you’d like it to be? Mr. Altmann: That’s a good question. I think people at first didn’t appreciate that we had a very large deposit. There were questions about the size of this deposit. I think those questions are no longer raised. People are very comfortable that this is a very large resource that has a very large potential to get much bigger. I think what we want to get the market to understand is that this will be a very large and profitable operation down the road and we will look to finance that growth through minimal dilution. So the misconceptions about the company right now are, will we be able to achieve this production growth? I think we’ve shown the market that we can produce and we are doing it — we did it in record time. We did it for a very low price and our actions and our successes are speaking for themselves. I think that will continue going forward and the market will begin to realize this will be the next large mine in Mexico.

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TWST: Do you see any need to improve the company’s capital structure at this time? Mr. Altmann: Not at this time. We did a financing to acquire this recent oxide mill and are very sensitive to issuing equity and diluting our shareholders. So we will do everything we can to minimize future equity issues, unless it’s for a bona fide use of proceeds. In our case right now, we are looking to maximize revenues that we generate from our oxide mill and with that, we will develop the company with the cash generated from this operation. TWST: As President of the company, what most occupies your own attention on a day-by-day basis? Mr. Altmann: I think I want to be able to ensure two things. Firstly, the market appreciates the value in the resource, in that it has the best chance of becoming the next largest mine versus other comparable or less comparable exploration companies. I want to get the word out that we are turning the corner in becoming a company that can generate revenues and we are focused on that effort. Secondly, my focus is to look for opportunities on the M&A front that will bolster the value of the company through enhanced production or very strategic resource acquisitions. We are, by the way, not particularly interested in acquiring resources outside of the Americas. Our strength is in Latin America, North America and South America. We will focus on M&A activities in those areas to bolster the company. TWST: What would be the two or three best reasons you’d give a long-term investor to look very closely at ECU Silver Mining?

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Mr. Altmann: I think we have one of the largest undeveloped resources that can go the distance. This is a situation where there’s a credible path to large-scale production. Our valuation is extremely compelling. Generally, in the past we have traded above the industry group average because of the quality of our asset. Recently with our financings we’ve been hit on our share price. Who hasn’t? When I do my analysis we are trading below our peer group, so there’s a short-term opportunity, I think, for tremendous value — tremendous opportunity to acquire valuable stock at a relatively inexpensive share price. But the thing with us is, there’s a short-term opportunity and there’s a long-term opportunity. So the investment in ECU is a strong investment because we have the near-term opportunity and the credible path to creating value over the long-term. TWST: Thank you. (KL) STEPHEN ALTMANN President ECU Silver Mining Inc. 87 Front Street East Toronto, Ontario M5E 1B8 Canada (416) 366-2428 (416) 366-8131 – FAX www.ecu.ca

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Klondex Mines Ltd. (KDX:TSX) WILLIAM SOLLOWAY, President of Klondex Mines Ltd., is a barrister/solicitor and investor. Having invested in the early equity of Klondex Mines Ltd., he became President in 1997, shortly before the death of Klondex’s Founder. Mr. Solloway currently manages his family’s extensive mining and oil properties, and interests in many natural resource public companies in Canada and abroad. Previously he practiced law with Buell, Ellis, Sargent & Russell, later joining Canadian Bechtel and working for Trans Mountain Pipeline and Westcoast Transmission projects. He also served as an acquisition lawyer at the Union Tank Car Co., and he founded the Colorguard Corporation, a manufacturer of coated steel wire products in New Jersey. Mr. Solloway was a principal in Charles Jacquin et Cie Inc., distillers of Philadelphia; White Shield Corporation, Minbanco Corporation, Camino Gold Mines, Standard Forms Inc. and The Marshal Plan, money managers affiliated with CALPERS in California. He earned his Bachelor of Arts and Faculty of Law degrees from the University of British Columbia, and became a member of the Law Society of British Columbia and the Law Society of Upper Canada.

SECTOR — PRECIOUS METALS (AMX609)TWST: Would you give us a brief description of your company’s history? Mr. Solloway: In 1979 two of us put $150,000 in Klondex Mines, and we staked the first of the 10,000 acres that we now have. Our focus was on a property called Fire Creek, which is in north central Nevada in the heart of gold mining country — between Carlin and Battle Mountain. Since that time, we farmed it out to a big Canadian company and to various other companies for many years. They did a lot of near surface drilling but never went down deeper than 500 feet. In 2003 and 2004, using a new geologic model, we began a deeper drilling program, and we hit some great high-grade gold. Now we have 1.6 million ounces of gold on an indicated basis, and another 500,000 ounces on an inferred basis on our claims — that’s over 2.1 million ounces and we’re still exploring with plenty of room in each direction. TWST: What are your primary properties? Mr. Solloway: We have one main property and three other properties also in the same vicinity. TWST: Are they all in Nevada? Mr. Solloway: Yes, we are focused on Nevada exclusively because of the concentration of mineral resources, the availability of infrastructure, a stable government, ease of access via highway year round and a favorable regulatory climate. TWST: Are you looking at expanding into additional properties at this time? Mr. Solloway: Not at this time. We really have been very fortunate with what we have found at Fire Creek. Also, it’s hard to raise money now, so I don’t want to diversify until Fire Creek is fully established and our underground program is well underway. TWST: Would you tell us about the private placement you did in March? 28

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Mr. Solloway: We needed some working capital but the market was not very cooperative as far as price. Fortunately, a small group of friends of the company stepped in to support the company. We offered the deal to a range of investors but it was very tough. Fortunately, the stock has more than doubled since then. TWST: Are you looking at other financing opportunities at this time as well? Mr. Solloway: Yes, we are. We are looking to raise US $20 million to go underground, perform infill drilling to better define our resource and to initiate the extraction of some of our highgrade ore via a bulk sampling program. TWST: What about mergers or acquisitions, or partnerships? Are you considering anything like that? Mr. Solloway: We are continually being approached. Currently, we are talking to major companies with the idea of them making an investment in us or even merging. But we are not very anxious to merge now because our our valuation — like those across the gold exploration industry — is very low. Because of the incredible good luck we have had in developing our property, we have discovered over 2 million ounces of gold resource so far. We reported the new estimates on March 31 of this year in our 43-101 resource update, which was filed with the Canadian security regulators and the Toronto Stock Exchange. With gold today being $986 per ounce, that is roughly $2 billion worth of gold there and our market cap is approximately $30 million. TWST: Why is that? Mr. Solloway: Micro-cap stocks — and resource exploration companies in particular — have been terribly depressed. The reason ours also falls in this category is because we have been very prudent in managing our capital. For instance, I don’t take any money out of the company. I haven’t for a year, and I pay my own expenses and everything else because we have to conserve our capital and focus it on adding ounces to the resource and moving our underground program forward. We have to make this company go. As a result, we

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have very, very few shares outstanding. When the shares are depressed, our valuation just goes to nothing. Most of these companies have 3 times or 4 times the number of shares out than we have. So we are definitely hurt by that, as investors aren’t always paying attention to that critical factor. They also don’t seem to pay enough attention to the location of the resource; so hard to get to deposits in politically unstable countries can be valued in the same way as our high-grade deposit in Nevada — accessible by US highway. TWST: Are you going to release more shares? Mr. Solloway: Yes. In raising the US $20 million, we’re going to have to give up some stock. But we are looking at prudent ways to raise the capital to minimize the dilution and preserve our shareholders upside in the project.

”Investors also don’t seem to pay enough attention to the location of the resource; so hard to get to deposits in politically unstable countries can be valued in the same way as our high-grade deposit in Nevada — accessible by US highway."

TWST: You announced first quarter results a few weeks ago. What were the highlights from the first quarter? Mr. Solloway: The major highlight was our updated 43101 resource estimate, which showed we have grown our “indicated” resource to 1.6 million ounces versus slightly over a million ounces in the prior estimate, in September 2006. As I had said, we also reported another 0.5 million ounces of inferred gold resource, bringing us to over 2 million ounces. The inferred resource is not as well-defined as the indicated resource, so it is ascribed a lower category. Through additional exploration work we would look to move the inferred resource to the indicated category. That takes time and money. At current gold prices, our Fire Creek resource represents the potential for an enormous amount of money, even if you make very conservative estimates on the costs of extracting the gold. $900 gold leaves plenty of profit margin. TWST: Is your next primary objective to dig deeper to remove the ore? Mr. Solloway: No, it’s two things: You have to conduct additional diamond core drilling to find additional high-grade veins and also to better prove out the ones we have already found. Drilling on closer spacings provides greater certainty of the resource and increases the value of the resource (and reduces risk) for us and any potential acquirer. Then you have to secure the proper permits from a variety of entities including the Bureau of Land Management. We have spent over $1 million and over two years in seeking the required permits. It is a huge job to get permitting to go underground. We believe we are now about 98% there in getting the permits. We are working on securing additional capital so that as soon as we secure the permits, we would be in a position to start the extensive operation to go underground

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Under the permit we are seeking, we will be able to produce 36,500 tons of ore per year, up to a total of 120,000 tons of ore over three to five years. We are targeting ore with a grade of 1-2 ounces per ton, so we are looking at 40-60,000 ounces per year – which approaches $40 million or more per year. Using the cash flow from this effort, we would then pursue full-scale mining permits and be in a position to generate $50 million or more per year for at least eight to 10 years, or longer. So it’s all worth the trouble and investment. The returns could be enormous. TWST: How does the next year look for you? Mr. Solloway: We virtually have the permitting. We’re going to bring electricity from the highway up to the portal and then we have to go about 5,000 feet underground via an angled tunnel or decline to get down to our main ore body. You’ve got to get the water permit, environmental permit for the waste rock, and a permit to bring in electricity. Additionally, we need to complete a small archeological study on the site as we have found a few Native American artifacts, and we need to ensure we don’t disturb that area. But, fortunately, given the economic potential of the property, these are relatively small investments to initiate the bulk sampling effort. TWST: What challenges and opportunities do you see for your company in the next year or so? Mr. Solloway: What’s obviously going to happen is that we have a very desirable high-grade deposit in an extremely interesting area. We are surrounded by several mines; including one with a $1 billion mill just 31 miles from us via a paved federal highway. And then there is Barrick. Barrick has a beautiful new mill and a project about 40 miles down the highway. So our mine is in a terrific address — I say it’s the Park Avenue of gold mining. Accordingly, a lot of people are approaching us because of our grade, resource and location. Today most major mining companies are mining more ore than they are finding and with our depressed price. I think they feel that instead of having to go through with the trouble of discovering new ore bodies, it’s more cost effective and lower risk to purchase a smaller company with a resource. As a result, I’m fighting them off, telling them that if you want to buy us, you have to pay a healthy premium. I don’t think our shareholders are interested in selling at these prices after all they have been through and the higher valuations our stock has seen in the past. I refuse to sell at the cost of providing full value to our shareholders. I want value for our amazing success in drilling up these high-grade deposits. We have one spot where we hit 411 grams, now that’s about 13 ounces per ton — amazingly rich ore. So, 13 ounces per ton would equal over $12,000 per a ton in gold value. Newmont, with their $1 billion mill, is processing gold rock containing as little as $50 a ton — and making money. So you can see what a difference it is and how fortunate we were to find this very high-grade ore. It can be enormously profitable and it’s economic at really any gold price. TWST: Has permitting been your biggest challenge? Mr. Solloway: It has been because it’s very expensive, very complicated, involves a number of entities and is really hard to control. The process has delayed us in being able to initiate our underground program. Fortunately, we have a fabulous consultant working on the permits under the watchful eye of our senior geologist, James Balagna, in Nevada. But I’ve learned that you have to be dedicated to get it all done, and that you have to keep raising money. The Wall Street Transcript — June 29, 2009 29

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TWST: Including yourself, who are the main decision makers and would you give us a quick bio on each of them? Mr. Solloway: We have a good, experienced Board of Directors. They’re all mining people. Ronald Shorr is a Harvard MBA and former top mining analyst for Bear Stearns. He now runs his own gold company called Maudore, which trades on the Toronto Venture Exchange. We also have John Pollock, a veteran mining engineer who has brought in five different mines in his life. And Bob Sibthorpe has worked as a geologist and a mining analyst so he knows the rocks and the numbers very well. Bob is also instrumental in our phase two underground plan, and in evaluating opportunities. Finally, we have a couple of large shareholders who have long supported the company and also sit on the Board TWST: What types of acquisitions are you considering? Mr. Solloway: They would be small mining properties that are producing small amounts of ore but are profitable. They could also be companies that are profitable in the mining business, from the trucking business to mill operators, to half a dozen other associated industries. We are also looking for companies that could greatly enhance our market value or generate cash flow. TWST: Is there anything you would like to add? Mr. Solloway: I think our Website is very well done and really tells you what our story is and where we want to go. I also think the fact that we are in Nevada, which I think is the best place

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in the world to have a gold mine, deserves a premium valuation. The fact that we are so close to other successful mines and that the value of our stock in the marketplace is so low makes Klondex a very compelling buy for investors. TWST: Thank you. (LMR) Editor’s Note: Subsequent to our interview, on June 8, 2009, Silvercorp Minerals made an unsolicited takeover bid for Klondex, offering Klondex shareholders 0.5 shares of Silvercorp for each Klondex share; representing a substantial premium to the price at which Klondex shares had been trading. Klondex is currently reviewing the Silvercorp bid as well as a range of other potential opportunities that have been in various stages of discussion. WILLIAM SOLLOWAY President Klondex Mines Ltd. 580 Hornby Street Suite 750 Vancouver, British Columbia V6C 3B6 Canada (604) 638-3273 (604) 602-4936 — FAX www.klondexmines.com

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Minefinders Corporation Ltd. (MFN) MARK H. BAILEY, President and CEO of Minefinders Corporation Ltd. has had a very successful 30-year career in exploration, development and management in the mining industry. His exploration expertise includes work throughout North America, Latin America and overseas. He has served as Director, President and CEO of Minefinders since 1995. Mr. Bailey is highly respected for his technical competence and aptitude for maximizing the effectiveness of exploration and development programs and budgets. He is a registered professional geologist in Washington State and has professional affiliations with the Society of Economic Geologists, Geological Society of America, Northwest Mining Association, BC Chamber of Mines and the Prospectors and Developers Association of Canada. Mr. Bailey has Master of Science and Bachelor of Science degrees in Geology from Oregon State University and the University of Washington respectively

SECTOR – PRECIOUS METALS (AMX618) TWST: Tell me about the company. What do you do? Mr. Bailey: Minefinders is now a production company, we’re producing gold and silver at the Dolores Mine. Some of our exploration properties are in Mexico and in the States, in Nevada, but our main asset is Dolores which is now in production. We will continue ramping up the rest this year. By the end of the year, we’ll be at a steady stage of full production for both gold and silver; this year probably around 100,000 ounces of gold and 2 million ounces of silver. Next year, close to 130,000 ounces of gold and about 3 million to 4 million ounces of silver would be at steady state for 15 years. TWST: Would you give us a brief history about how you got from a relatively small junior company in the early 1990s with no properties to where you are today? Mr. Bailey: I got involved with the company in 1994. We started adding properties to the grassroots exploration properties, which all of our properties are, and we advanced some through exploration from grassroots discovery to production. So, Dolores and our La Bolsa property and the other properties that we’re currently working on are all grassroots. We did not acquire an advanced property where someone else had drilled out a deposit and there was no known mineralization on these when we started. We advanced them to the exploration phase, development phase, and then built the mine. In the case of Dolores, it’s now in production. Over that period we invested well over $250 million in both exploration and construction, and now the mine is going to start paying back to the shareholders with very profitable gold and silver operations. TWST: What are your major properties? Mr. Bailey: Dolores is the flagship. There is still some exploration there, there will be an underground operation, we are looking at the addition of a mill to improve recoveries from the high-grade portion of the deposit, and we’ll continue developing the other structures that are not currently in our mine plan; but there is a fair amount of upside at Dolores itself. La Bolsa is the other more advanced project. We are doing a pre-feasibility study on that right now that will be

done this fall sometime and based on those results, we’ll go forward with that project. Right now, we are drilling some additional step-out drill holes and those will be incorporated into the resource model and then we’ll get the pre-feasibility done this fall. The other properties are in various stages of advancement through drill stages and we hope to make another grassroots discovery like Dolores. TWST: Why did you choose the sites where you are? How did you come upon them? Mr. Bailey: We staked most of them. Dolores did have a historical mine there that hadn’t been worked since 1920 so there had been no activity out there for 70 years, and the project did have some historical production. I looked at it in 1994 and saw a potential for both mineable mineralization in some of the sampling I did, and then when we started working on the property in earnest in late 1995 and in 1996 with mapping and sampling, we came up with a model or a target and we started drilling. We drilled the first drill hole in September 1996 and that was a discovery hole. So, from that first discovery hole, we drilled over 200,000 meters of drilling and 1,000 drill holes to find the deposit and then build the mine, so it really was a grassroots discovery from the first drill hole on. Same for La Bolsa. We staked that property after doing some reconnaissance mapping and sampling, again in 1994, and started drilling on La Bolsa in 1995. TWST: Are you looking at any completely new properties outside these areas? Mr. Bailey: Yes, we’ve been. We have a team together that’s looking at additional projects to acquire. Now that we have cash flow and we’re a producing company, we’re looking to grow. So we have been going through a series of due diligence examinations on properties in South America as well as Mexico, and we’ll also look in the US and Canada. We’re not going to get out of the Americas, but we have been actively looking at projects since late last year and we continue to do that. TWST: Do you feel that you face unique challenges in dealing with international governments? The Wall Street Transcript — June 29, 2009 31

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Mr. Bailey: They’re all challenging. I mean, we think we have a pretty good 15-year experience in Mexico so we understand how it works down there pretty well. We’ve been recently successful in exploration and in our dealings digging out the Dolores mine belt. They all have their own little idiosyncrasies, even the US and Canada, so we have to deal with the various local governments and federal governments and local populations to try to mitigate the risk and make sure that the projects that actually do work are successful. We do stay out of certain areas. We don’t go to some countries for both the financial and political risk and also the safety risk for our employees. We won’t work in Venezuela, for example, and there are actually certain areas in Mexico we won’t work because I don’t perceive them to be worth the risk.

“By the end of the year, we’ll be at a steady stage full production for both gold and silver; this year probably around 100,000 ounces of gold and 2 million ounces of silver. Next year, close to 130,000 ounces of gold and about 3 million to 4 million ounces of silver would be at steady state for 15 years.”

TWST: Is the Mexican government supportive of your activities? Mr. Bailey: I think they see the value of mining. The federal government is very supportive, the state governments are on a state-by-state basis, but they are reasonably supportive. They see the potential of investment. We’ve been investing in Mexico for 15 years. We’ve spent well over $250 million in just construction and exploration, we’ll have a mine that will generate and spend another $900 million in operational expense over the next 15 years, which is basically salaries and consumables, and we’ll pay $300 million to $400 million in taxes. So it’s a benefit to the country. We took a property that had no value whatsoever; it was a very remote area, very poor area, there had been no activity in this region for over 74 years, and we invested our shareholders’ money and were successful in making the discovery. At the end of the day, we will spend well over $1 billion in that one small area of Mexico, which generates several thousand jobs directly and indirectly, and it’s good for the economy. I think in Mexico, they realized at the government level that mining is a good thing and that it creates good paying jobs, it creates taxes, it creates new infrastructure and opportunities for people who don’t have opportunities. So I think they are very pro-mining and that’s a good thing. Some of the other countries are not. A good example is Venezuela, which is going to not have any mines soon and they will eventually lose all the investment in their country. TWST: Late last year you raised $40 million. Are you looking at raising additional capital at this time? Mr. Bailey: No, we’ve been cash flow positive since February. The mine is generating more money than we’re spending, and right now we’ve got $20-plus million in the bank and we don’t expect to go below that. We’re starting to pay back our revolving 32

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line of credit. With these gold and silver prices right now, we’re making a lot of money at Dolores, and we’re not even at full production yet, we’re still ramping up on our leach curve. By the fourth quarter of this year we should be generating very strong cash flow.

“We’re not a group of ex-bankers and brokers and hedge fund managers and heads of businesses who decided mining was a good place to be; almost all of us have been in the business for 30 years or longer.”

TWST: What about acquisitions or mergers? Are you looking at anything like that? Mr. Bailey: Yes, we are looking at advanced projects, and there are some junior companies that have assets that we are looking at. We’re doing a serious due diligence process looking at potential targets we’ve identified that we think might be attractive acquisitions for the company, but we’re going to be very thorough in our due diligence. If we can’t see upside or see where we can add value, then we won’t make a proposal. If we see something that we think we can add value and it would be a good fit, we’ll make an offer, and if it’s not successful we’ll walk away and go do something else. TWST: Why were first quarter losses wider than the same quarter last year? Mr. Bailey: We were capitalizing all of our operations. We are in full operations with 300 employees mining and processing and spending all that cost; but we were capitalizing, we were not expensing those. So our capital costs were high in the first quarter because our production was just starting and we were not commercially producing yet so we were capitalizing those costs. It’s a little hitch in accounting, but we became cash flow positive in February, which I think people need to focus on. We didn’t start pouring gold and silver until November 2008 and we didn’t sell any until December 2008, and yet by February, virtually three months later, we were cash flow positive. So I think that should be very indicative of the value of this deposit. TWST: What does this next year look like for you? Mr. Bailey: We’re looking at expanding Dolores through the addition of a mill in the underground operations, so we’re doing a pre-feasibility study on that right now. We’re doing a prefeasibility study on our La Bolsa property, looking to bring that to production. We’re advancing our other exploration properties to the drill stage and we’re looking at potential acquisitions. So it’s a very busy year. We hope that by the end of this year we’ll have a couple other projects that are advancing to production or in production through our own efforts and that the company will continue to grow up until we’re about a 0.5 million-ounce-a-year producer, which is our target. TWST: Do you feel that the market accurately reflects the status of your company right now? Mr. Bailey: No, not at all. I’m sure most companies say the same thing. We don’t have a lot of shares and we try hard not to dilute our shareholders. Having advanced the projects as far as we have and

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invested as much money as we have in building a world class mine, we still only have 59 million shares outstanding. So we’ve done very well not to dilute our shareholders and we’re not getting that leverage yet. We probably need a couple more quarters of production and this second quarter will be very good. That should open up the eyes of most of the investment community and the third quarter will be even better. We expect that two more quarters of production here will wake the market up and we’ll see a re-rating. We’re not trading at the premium net producers trade at, we’re trading at a discount, and most of our peers and companies that are trading as producers trade at between 1.5 to 2 times NAV and we’re trading at about one times ours, or less depending on how we calculate it. We do have a lot of upside and we’re underrated. We’re trading at about $100 an ounce for our proven and probable reserves, most of our peers trade between $250 and $600 an ounce for their P&P reserves in the ground. There’s a lot of ways to look at it, but we should achieve those same sort of valuations here in the next few quarters. TWST: Would you tell us about the main decision makers in the company? Mr. Bailey: At the company, we’re all professional mining executives. Most of us have technical degrees like myself, I have a Master’s degree in Geology. Our other senior management are all highly qualified mining executives. Our Chief Operating Officer, Gregg Bush, is responsible for completing construction at Dolores and bringing it into production. Tench Page has got a Master’s degree in Geology, he’s our VP of Exploration. Greg Smith, our CFO, is a very highly qualified Chartered Accountant. Our Board of Directors are all technical people, except for Robert Leclerc who is a mine executive, worked as Chairman and CEO of Echo Bay Mines, he is a lawyer by training. The rest of the Board are all either engineers or geologists. We are very heavily weighted toward the profession. We’re not a group of ex-bankers and bro-

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kers and hedge fund managers and heads of businesses who decided mining was a good place to be; almost all of us have been in the business for 30 years or longer.

“We expect that two more quarters of production here will wake the market up and we’ll see a re-rating.”

TWST: Is there anything else you would like to add? Mr. Bailey: I just think as everybody thinks in this market with gold and silver at these prices, our stocks should be substantially higher, I would say double what it currently is, and we’ll get there over the next three quarters as the market starts to realize that we’re a significant producer and we don’t have any disruptions in our operations. So we’ve been patient for 15 years and I think we can be patient for a couple more quarters. TWST: Thank you. (LR) MARK H. BAILEY President & CEO Minefinders Corporation Ltd. 1177 W. Hastings St. Suite 2288 Vancouver, British Columbia V6E 2K3 Canada (604) 687-6263 (604) 687-6267 — FAX www.minefinders.com

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Silver Dragon Resources Inc. (SDRG) MARC M. HAZOUT founded Silver Dragon Resources Inc. and currently serves as a Director, President and CEO. Mr. Hazout brings over 10 years of experience in public markets, finance and business operations to Silver Dragon Resources Inc. Over the past several years, he has been involved in acquiring, restructuring and providing management services as both a Director and an officer to several publicly traded companies. In 1998 Mr. Hazout founded Travellers International Inc., a private investment banking firm headquartered in Toronto and of which he is still President and CEO. Travellers has been involved in a multitude of successful capital market transactions and, over the past few years, has focused on building relationships in China with the objective of participating in that country’s tremendous growth opportunities. Mr. Hazout attended York University in Toronto, studying International Relations and Economics. He attended The Canadian Securities Institute, after which he traded equities with a securities firm in Toronto. Mr. Hazout speaks English, French, Hebrew and Arabic, as well as some Spanish and Italian.

SECTOR — PRECIOUS METALS (AMX612) TWST: Would you begin with a brief historical sketch of Silver Dragon Resources, and give us a picture of the things that you’re doing at the present time? Mr. Hazout: Silver Dragon Resources was originally formed as a vehicle for equity investors that are looking to capture the upside in silver. The company began in 2005 to vend in silver assets, both in China and Mexico. The Chinese have been driving the demand for silver for the last decade and are currently looking to backdoor resources outside of China, including exporting their own silver assets, and they’re using Silver Dragon as a vehicle. Mexico is the number one silver producer in the world, and China is the number one silver consumer in the world. Therefore, our objective is to develop these properties with the world’s leading producer of silver on the one hand, and the world’s major consumer on the other. TWST: What is the silver production industry today in China? What are the risks and some of the advantages? Mr. Hazout: For the first time, in September 2008, China became a net importer of silver as opposed to a net exporter of silver. Historically, China produced enough silver to feed its own internal demand, but from what we understand, there’s approximately 24,000 tons of silver reserve that remains in China. That country is now consuming 4,000 tons per year, so in the next several years, China will be running out of silver. So they have to develop and explore the properties and produce silver in their own backyards, and of course look at and identify outside sources to fill that demand. Their smelters are starving for concentrates and the idea is to ship concentrates or dore bars from our production in Mexico to the smelters in China. TWST: What is your perspective on how the silver markets did in the past six months and where you think they may be going in the next six to 12 months? 34

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Mr. Hazout: As the CEO of a silver company, it’s very difficult to really predict where silver is going, but I can certainly tell you that with the new spectrum of applications, silver is now shifting from not simply being a storage of wealth, but to becoming an industrial metal. There are new applications for silver, anything from putting silver nanotechnology — silver into athletic wear to kill bacteria, to using silver in milk cartons to kill bacteria. Lead is no longer being used in Europe and it’s now being substituted by silver. So the demand for silver worldwide is definitely increasing and we have to capture the upside, and that’s what we are seeing a trend. Also historically, the ratio between silver and gold is probably the lowest it’s ever been. Historically, it should be 16-to-1, meaning 1 ounce of gold to 16 ounces of silver, but with today’s prices, we’re looking at more like a 60-70-to-1 ratio. So either gold comes down or silver comes up, and it looks like with the demand, silver will continue to trend up. TWST: What impact will these industry-wide trends have on what Silver Dragon is trying to accomplish? Mr. Hazout: Silver Dragon has strategic partners in China. That country uses silver in electronics and currently, China is manufacturing approximately 90% of the world’s electronics. So Silver Dragon is being used as a vehicle for the Chinese to backdoor these resources outside of China because the supply in China is just not being met. Silver Dragon has focused on obtaining silver from Mexico, where we are strategically located, that is, a mere two hours from the port. We ship concentrates from Mexico across the Pacific to any port in China, and we plan to ship the dore bars as well. So we will benefit from the price of silver increasing because not only do the margins grow exponentially when the price of silver rises, there are fixed costs for production, cash cost. As silver trends up, the bottom line increases as well. So Silver Dragon will capture this and it will be translated into an appreciation of the share price. TWST: Would you sketch out the things that you expect to accomplish over the next two to three years?

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Mr. Hazout: Increasing production. In the third and fourth quarters of this year, we are shifting to a revenue model. First, our property in Mexico is beginning production. We have toll mills, we’ve been stockpiling ore from our property on the surface and now toll milling it off-site. We expect our environmental compliance permits to be issued at the end of July, and then we will be able to run the ore through our own mill that we purchased late last year. In China we have eight properties; one of those properties is a worldclass deposit. We have been releasing results on all the properties, and we will be putting one of those properties into production in the second or third quarter of next year. Our partners in China, the Shengda Group, is one of the largest top-500 privately held companies, and they also own the Bairendaba, which is the largest silver mine in China adjacent to our properties. So they were a very aggressive partner, and they’re looking to monetize our assets. In the next two to three years, we’re going to increase our proven resources through our exploration program and then, of course, shift to a revenue model by monetizing the assets and putting them into production. So we’ll have earnings per share over the next two to three years.

”As the CEO of a silver company, it’s very difficult to really predict where silver is going, but I can certainly tell you that with the new spectrum of applications, silver is now shifting from not simply being a storage of wealth, but to becoming an industrial metal."

TWST: What is economically feasible as you ramp up the production process? Is it dependent on today’s prices? Mr. Hazout: It is. I mean, there is a breakeven point for us in terms of silver per ounce. Right now, the cost in Mexico is approximately $5.50 an ounce, in China, above $5 per ounce. So as silver continues to trend up, the margins grow exponentially and we expect to see silver break out over the next 18 months. If it does so, it just means a more profitable bottom line and higher earnings per share for a public company like Silver Dragon. TWST: What about possible challenges or problems? Mr. Hazout: The only concern, of course, is the price of silver. When we first started in 2005, silver was trading at $5.50 an ounce, so the timing was right. We could see that the worldwide silver supply was depleting, and that’s why Silver Dragon was formed; and now over the last several years, silver has trended up to a high of $20. It has pulled back now to approximately $15. So that’s the only risk that we can foresee, if for some reason, the silver market has not continued to trend up. But because of the new spectrum of applications, we’re very confident that the price of silver will continue to trend up because of the demand, and China is certainly driving that demand and will continue to do so. TWST: What is your vision for Silver Dragon? What do you envision the company looking like in three to four years? Mr. Hazout: We’re anticipating a $400 million to $500 million market capitalization for this company, and that’s based on

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increasing the proven reserves and, of course, increasing production on a quarterly basis. The plan is to produce dore bars, ore concentrates for the marketplace, and as silver continues to trend up, we will capitalize on that. And again, that will be cleared in the undervalued share price which most juniors are now facing; and as a pure silver play, I strongly believe that as silver continues to trend up, we will see a company like Silver Dragon capitalize on the upside of silver. TWST: What might be some year-by-year milestones that investors could be looking for? Mr. Hazout: We like to increase our daily tonnage in terms of production, at least 50% every second quarter. So in two to three years from now, we will become a multi-million ounce producer. Generating that type of revenue for a company like Silver Dragon would be very significant, and the share price would certainly be impacted very positively. TWST: What about recruiting and training the local people in the various places that you’re working? Mr. Hazout: Mexico, historically, has been known as the prolific silver belt. It is a mining country and we have no problem finding miners. In China, as well, for centuries they’ve been mining both gold and silver, and other base metals. As a matter of fact, we’ve been very fortunate because the local labor force is very much available, and towns and small cities have been formed strictly to cater to mining companies like Silver Dragon. So we’ve been very fortunate in finding labor and also geologists — very qualified personnel, operations mangers and so forth. As a pure silver play and a mining company, we basically bring the workforce — we have found that labor has not been a problem in the areas that we’ve been focusing on in terms of our assets. TWST: Would you tell us about your own background and expertise, and those of a couple of your colleagues? Mr. Hazout: My background is in capital markets. We identified 10 years ago that China was going to drive the demand for silver and that’s why Silver Dragon was formed. The other Board members are highly experienced in mining. Our other Directors have built multi-billion dollar market cap companies, incubated them, and one of the Directors is on the the North China Geological Bureau. So we have been fortunate enough to have a very experienced Board, mostly in mining and the capital markets. TWST: As CEO of Silver Dragon, what occupies your own attention most on a day-by-day basis? Mr. Hazout: I am focused on making certain that the operations managers and the management meet milestones, and I’ll make certain that we continue to invest in the development of the properties, exploration of the properties to ultimately monetize the properties. This is my objective to monetize these properties and maximize shareholder value. TWST: Please describe your current investor base. Mr. Hazout: I believe that most of our investor base is sophisticated. Investors are looking for a blue sky and a situation like Silver Dragon. We are very close to certain discoveries in silver, both in China and Mexico, through our exploration programs, and we’re undervalued. So our investor base is made up of investors that are looking to capture the upside in silver, and most I believe are sophisticated investors that are looking to invest in precious metals, and silver is certainly one of those metals. The Wall Street Transcript — June 29, 2009 35

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TWST: How do you feel about your current stock price? Mr. Hazout: It is certainly undervalued and over-sold. At one time we had a market capitalization of almost $200 million, and I believe that we will see that again in the very near future. TWST: What capital requirements do you see over the next two to three years? How will you meet those needs? Mr. Hazout: At this time, we’re fully funded both in China and in Mexico, and as we shift to a revenue model, we don’t see very much dilution in terms of any type of equity financing. I think at this point, we’re well financed. Should we decide to increase our exploration activity, then we would look at equity financing, but obviously at much higher levels than we’re at now. And I think we’ll see that once our proven resource reports are made public, our net asset value will certainly change based on that and, in turn, our share price will increase. Then we may look at doing equity financing if we decide to increase our exploration program. TWST: How could the investment community improve its perception of Silver Dragon Resources? Do you feel there are areas or concepts that are misunderstood? Mr. Hazout: I think that North American investors are still very cautious about investing in China. I think that once North American investors become comfortable with China, and as they continue to do so, I think it will become apparent that that country is driving the demand for silver. A company like Silver Dragon, which is one of only three North American companies licensed to mine silver in China, I think the investors will see that there is huge opportunity with a company that is undervalued. I also think that we are going to be one of those companies that will capitalize once the investors come back into the junior market, junior PM market. As silver continues to trend up, they will see Silver Dragon as a great value play. TWST: What is the essential message that you would convey to investors over the next two to three years? What should investors see as the three or four strengths that distinguish Silver Dragon as an investment today?

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Mr. Hazout: Silver Dragon is focused on China being the number one silver consumer in the world and in Mexico, the number one silver producer in the world. These two countries have historically shown that mining silver has been successful and that’s why we’re focusing on those two countries. Also, the reason we’ve chosen Mexico is because our mines are situated just hours away from the port, and we can ship to China to meet the demand, so these are advantages that we have. Our equity partners are a private Chinese company and a state-owned company, HIC. So our relationships in China are very strong and our equity partners are very wealthy, and they also have equity in Silver Dragon. So I think that certainly should assist us in our long-term objectives. Of course, Silver Dragon being one of only three licensed North American companies to mine silver in China, that is a great advantage. So just to re-state, Silver Dragon was formed as a vehicle for equity investors that are looking to capture the upside in silver. And if you believe that silver will continue to trend up, and I will continue to develop these properties and monetize these assets in order to maximize shareholder value, then Silver Dragon is a great investment. TWST: Thank you. (KL) MARC M. HAZOUT President & CEO Silver Dragon Resources Inc. 5160 Yonge Street Suite 803 Toronto, Ontario M2N 6L9 Canada (416) 223-8500 (866) 512-7374 — TOLL FREE (416) 223-8507 — FAX www.silverdragonresources.com e-mail: [email protected]

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Victoria Gold Corp. (VIT:TSX.V) CHAD WILLIAMS, President and Chief Executive Officer of Victoria Gold Corp., is a Professional Mining Engineer who spent 13 years as a successful gold mining analyst. Prior to joining Victoria as its CEO he was the head of Mining Investment Banking at Blackmont Capital Inc. Mr. Williams is uniquely positioned to lead Victoria’s growth with his advanced understanding of the gold industry and his background as a mining engineer.

SECTOR – PRECIOUS METALS (AMX602) TWST: Tell us about Victoria Gold.  Mr. Williams: Victoria Gold is a rapidly growing gold company. In fact, in many respects, Victoria may be considered the fastest growing gold company on the planet. Just under two years ago, Victoria had one good drill hole in Nevada, five properties in that state, and basically no money in the bank. Today we have 14 good drill holes in that property in Nevada so we’ve confirmed that it’s a major discovery. In fact, we think it’s the best discovery by a junior, in Nevada, in two decades. In addition, we have 4.4 million ounces of gold in the ground in the National Instrument (“NI”) 43-101 category, of which about 70% is in the indicated category, so it’s a high quality resource. We’ve got over $10 million in the bank with more expected from the exercise of in-the-money warrants. We have three independent mining analysts who cover our stock. We’ve got about 20 institutions that own our stock. The remarkable thing is though that we’re still trading at a very low valuation, $9 per ounce in the ground. But we believe that with the continued rally in gold and gold stocks, we will get re-rated upward. Our peers are trading currently around $32 per ounce. So there should be a natural re-rating in Victoria’s share price and this could occur very shortly once our acquisition of StrataGold Corp. closes in early June. Our assets are located in areas of low political risk, that is, in the Yukon, in Nevada and in Guyana. One of our key drivers in terms of growth is to ensure that we mitigate risk and one of the risks is political risk. So we are targeting areas that have lower than average political risk.  TWST: What’s the production industry in Guyana? What are the risks and what are some of the advantages to being involved there?  Mr. Williams: Guyana is very prospective geologically. It has the same rocks as several other countries in the northeastern part of South America that are the host of many multi-million ounce deposits. Some of those deposits are located in Suriname, some of them are in Venezuela, some of them are located in Guyana. So it’s the same belt of rocks, but Guyana has been traditionally underexplored for a variety of reasons. One reason is that the prospects are relatively remote and the access is relatively difficult, but those challenges mean that it’s still very under-explored. Of course, it’s

English speaking, we understand the laws, and something that we consider very important is that mining is a very important part of their culture, especially gold mining. It’s something well known to the locals, which should facilitate exploration and the construction of a mine, in due course. TWST: What is the agenda at this point and what are your priorities over the next 12 to 18 months?  Mr. Williams: Priority number one is to make money for our shareholders. I am a significant shareholder, our management is a significant shareholder as a group, and we’re in this business to advance our share price and make money for all of our shareholders. We will take our existing assets, which as I mentioned earlier, are very undervalued, and through a series of activities add value to those projects and get our stock re-rated upward, while constantly keeping an eye on mitigating risks. Our goal is to be the very best quality gold company for our peer group. We can’t compete with a Barrick, Kinross or Newmont. We’ve got quality assets, quality people, and a low risk profile so that when investors seek a smaller cap gold name to own, we want to ensure that Victoria comes to mind first. In terms of generating value, our strategy is primarily two-fold. First of all, we will continue exploring. We’ve got a suite of very promising exploration properties, notably in Nevada where we are next to some of the largest gold mines in the world; we’ve got a tremendous land position there, which would be impossible today to recreate. So activity number one is exploration. Activity number two is development. On some of our core properties, we’ll be completing engineering studies with the goal of providing clarity to investors as to exactly what the capacity is, in terms of production and what the cost is to put those assets into production. We believe that once we deliver that clarity, investors will realize that our assets are capable of generating substantial ounces of gold production in a timely manner. The third one, which is a lot less important in the short-term, would be to continue looking at acquisition opportunities and also, possible divestiture activities. For example, joint venturing some of our lower priority projects or even selling them outright or keeping a royalty, but effectively trying to extract the most value from some of our assets that perhaps we wouldn’t get to in terms of either exploration or development for the next year or two. Because we’ve effectively put three companies together in just over a year, we’re blessed with a very good suite of The Wall Street Transcript — June 29, 2009 37

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projects and properties. Last year, while our peers were sitting in the corner and crying like babies while the market meltdown was happening, because we had a very strong conviction in a higher gold price, we were aggressive on acquisitions, which probably made us the most active company for our size in the world. We’d like to think that those transactions were well timed and represent very good value because we bought 4.4 million ounces in attractive locations at a cost of about only $3 per ounce in stock.

“We have an unparalleled growth profile for a company of our size. We claim to be the fastest growing gold company on the planet, but we’re only just getting started. We’ve got a pipeline of gold projects in good jurisdictions and that should be able to produce very substantial amounts of gold.”

TWST: Are mergers and acquisitions part of your strategy and near-term agenda? Mr. Williams: There are only two ways for a gold company to add gold ounces to inventory. One way, which happens to be the most cost-effective way if you are successful, is to find it through exploration, but it’s also the lowest probability way. The only other way is to buy those ounces. Our finding cost is roughly about $5 per ounce, which is very low, but because of the market malaise we were able to acquire multi-million ounces at $3 per ounce in stock. So that’s why we really focused over the last six to nine months on M&A. I would say that today, we’re somewhat indifferent because the valuations have come up and, when I say indifferent, we’re just as likely to drill as we are likely to buy something else in terms of an economic rationale. The reality is we’ve just made two major transactions and it’s going to take a while for us to digest those transactions and to make sure that we extract the most value from them. So M&A transactions are not high on our agenda at the current time. However, if something else comes along that’s attractive that could make money for shareholders, then we’ll have to look at it, of course.  TWST: What is economically feasible as you go through the production formula? Is it dependent on today’s prices and are those mines generally workable economically?  Mr. Williams: One of the interesting things about Victoria is that our two top assets — one is called the Eagle Zone in the Yukon and the other one is called Cove in Nevada — are very different in that the Eagle Zone is large but lower grade and so obviously more leveraged to the gold price, while Cove is a smaller but much higher grade zone, which is much more insensitive to the gold price. We have a barbell approach where, if the gold price were to go down drastically, we could still likely economically justify the construction of some higher grade zones like Cove; if the gold price were to remain where it is, or continue to rise, then we can certainly justify the construction of our large project up in the Yukon. Just to be clear to your readers, however, we do not have any up-to-date economic studies on both of those assets, so what I’ve just men38

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tioned is management’s view that we can put those two projects into production. We plan on delivering those economic studies to prove to investors that we can put those two projects into production. If we indeed can, those two projects could yield very substantial amounts of gold at what may be an attractive cost and therefore make us a very desirable company not only for current and future investors, but also for other mining companies. It’s fine to be optimistic about gold and we are. Don’t forget, I was one of the topranked gold mining analysts for well over 10 years and I have an appreciation for gold and an understanding of gold that very few CEOs have. I believe and our management believes that our assets are economic at the current gold price, but if gold goes higher, even better. But one thing that is very important for your readers to understand is, it almost doesn’t matter where the gold price goes. The existing gold producers have a big problem in that when they go to bed at night, their mills continue processing gold ore and they’re going through their reserves at an ever increasing rate and they need to replace those reserves. The reality is, there aren’t that many quality gold projects out there and we happen to have a lot of projects. So if gold were to really go back down to $250 or $300, then all bets are off; but if gold happens to be down to even to $500 or $600, then the larger gold companies will still seek our assets out. Our assets will be attractive to producers even at that level of gold price because of the quality of the assets that we have. TWST: What about challenges and problems? What can go wrong?  Mr. Williams: What did go wrong last year — the general market malaise — can certainly go wrong again. The reality is that certain events remain out of our control. Victoria was very successful in identifying and making a brand new discovery, the best discovery by a junior in Nevada in two decades. We completed a very attractive acquisition. We also picked the right industry to be in and that was gold and the gold price did okay last year. But we just picked the wrong place in the market to be, which is the small cap segment. We just got sold off with reckless abandon like so many other smaller companies. So certainly that’s something that could happen again. If the general market were to roll over and investors pulled their money out of the market again, the small cap names may get hit hard again much more than the large cap gold names because they have a lot less liquidity. We had at least one institution liquidate a massive amount of stock last year at the very worst time, which really hurt our share price and that could happen again; I don’t see it, but that’s a risk. In terms of other risks, we are dependent on permits both in the Yukon and Nevada. We believe that we are in absolutely the two very best jurisdictions to be in, in terms of gold assets, but we are still reliant on the permitting authorities to grant us our mining permits. I would say the final risk is we’ve grown extremely fast and rapid growth always causes challenges. However, offsetting that is a hugely talented Board, a very qualified management group, very senior people who have seen many things and built many mines and companies so we feel that we are amply qualified to basically pull this off, to put three companies together in such a short time.  TWST: What would you reasonably expect Victoria to look like in about three years and what might be some year-byyear milestones that investors could look for? 

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Mr. Williams: That’s a great question. Our goal, and we have a lot of hard work to do, is to produce 200,000 to 300,000 ounces of gold over the next two to three years. If we can do that, we will be valued in the market at least at $100 per ounce of resources. That’s the value that 100,000 to 300,000 ounce per year producers are trading at in the market currently. Incidentally, that is half of what they were trading for in previous positive gold cycles. So if we’re able to put our assets into production like we think we can, not only will we get an upgrade from the low $9 an ounce currently to $32 per ounce in-situ like our non-producing peers are trading at, but we should get a value of $100 to $200 per ounce, which is a significant bump in value.  TWST: Would you tell us about your own background and your expertise and do the same for one or two of your colleagues?  Mr. Williams: I was a gold mining analyst and I worked at several firms, most notably TD Bank, UBS, and my latest posting was at Blackmont Capital. I was top ranked for two reasons. One is identifying opportunities early, mostly exploration opportunities, and I was either the first or the only analyst on, at last count, over 20 such discoveries and part of that is having an innovative way of looking at things and doing things a little bit differently. The second reason that I got such a high ranking was because of my views on gold. Gold doesn’t obey traditional supply/demand characteristics and gold behaves simply as a mirror reflection of other financial assets. My appreciation for gold’s potential plus the belief that we had made a significant discovery at Cove gave me the impetus two years ago to quit my job as head of mining investment banking at Blackont, take an 85% pay cut and put well over $1 million of hardearned, after-tax money and buy almost 2 million shares of Victoria in the market.  There are two other members on our team that I would like to mention. Our Executive VP who is effectively our COO, is John McConnell and he is certainly one of the best mining engineers in the business today. As an example, John was in charge of building the billion dollar Snap Lake Mine for De Beers and therefore he is an extremely good project builder and developer, and he’s also a very good mine operator. We’re extremely fortunate to have him as part of our management group. The other person who I would like to mention is Raul Madrid who has found numerous gold deposits in his career. For a geologist to find one gold deposit is rare; for that person to find two or three is extremely rare; there are only a handful of individuals who have done so and Raul is one of them. He’s got innovative and proprietary exploration techniques that allow him to vector in on areas that have a higher chance of hosting gold. He calls it Structural Systematics. His techniques have found gold in the past and it’s certainly something that should allow us to find gold in the future as well. One of the reasons that we’re able to attract such highly talented people is because we have Kinross Gold Corporation as a 21% shareholder. So people joining Victoria have the comfort of knowing that a major, quality gold company is a significant shareholder while also having the upside and the group dynamic of working in a very small company. TWST: What historically has been the shareholder base and how has it changed as far as institutional interest versus retail holders? 

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Mr. Williams: Before the new management and Board took over less than two years ago, Victoria was a retail-owned stock and it had no institutional ownership or analyst coverage whatsoever. About 30% of Victoria was owned by Bema Gold Corporation and the latter was acquired by Kinross and that’s why Kinross today is still a significant shareholder in Victoria. Since that time, we’ve gone on a very aggressive marketing campaign and we’ve managed to attract about 20 of the very best institutions that own gold stocks to become shareholders, plus three independent mining analysts. Today we’re probably about 40% owned by institutions, 21% by Kinross and the rest is retail. Of note, we’ve increased the stock’s liquidity; previously, on a good day, the stock used to trade 20,000 shares; now it’s closer to 300,000 shares. 

“We believe that we currently are the very best quality company of our size in the market. We have a substantial amount of gold ounces on our books, are in the best jurisdictions, and have extremely qualified people, a sound balance sheet, very strong support on the Street, analyst coverage, institutional investors.”

TWST: In your discussions with the investor community, are there any misperceptions that you encounter? Do they understand what Victoria is doing and your timetable and abilities to perform?  Mr. Williams: Some people question our ability to put our assets into production. In a way it’s a legitimate concern because Victoria has never been a producer before and many junior companies have failed when it came time to go into production, and furthermore, as I noted earlier, we need to provide optics as to the economic viability of our two large projects. So it’s up to us to deliver the data to the market. I look at Romarco as a very good example. Romarco is an excellent company and they have an outstanding project in South Carolina called Haile. The stock was completely under-appreciated and under-followed by investors for the longest time until January 2009 when they released an economic study on Haile and it woke everybody up, because it quantified the size, the cost and so forth of the project. We have a handful of those studies to deliver to the market and I’m highly confident that when we do that we will get re-rated upward. Romarco went from $0.15 to $0.75 or $0.80 where it is today. I can’t promise that kind of performance of course, but I am confident that we have the potential to wake up the Street. A feasibility study was done on the Eagle project in the Yukon in 1997 when gold was only $350 per ounce and it showed that the project was economic. The study was done by a very qualified firm and it’s a topnotch feasibility study, but the reality is, it predates NI 43-101 requirements so it hasn’t been made public. It’s up to us to spend a little bit more money to make it current. Once we announce that information to the market it may lead to a very significant positive re-rating. I would say those are the main misconceptions. The Wall Street Transcript — June 29, 2009 39

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TWST: What is your personal view of the general outlook for gold?  Mr. Williams: My personal view is that the very best time to buy gold is when the US Federal Reserve stops lowering interest rates. If you look at the last 30 years of history and you compare the Fed funds rate versus the gold price, you’ll see very clearly that, when the Fed stops easing, gold always takes off. The reason is because when the Fed stops easing it means that the economy is starting to recover. We are commonly hearing about “green shoots” in the economy; that’s when the economy starts to recover and commodity prices rise and that’s when the inflationary fears are at their highest. That’s when gold does its best. It’s a little bit more difficult this time to judge where we are on this timeline because the Fed’s already at a zero percent Fed Funds rate. They are now doing something called quantitative easing, which is still easing. But if you look at many economic indicators — the stock market, the Baltic freight index, commodity prices — many leading indicators are showing that there is some sort of recovery going on in the global economy and that traditionally is when gold does its best. It has nothing to do with gold on a fundamental basis, it has nothing to do with its supply/demand. Incidentally, the time to start selling gold is when the Fed Fund rate rises because that acts like a headwind not only to gold, but obviously to the general economy. So basically when the Fed starts raising rates is when you want to start liquidating some gold stocks. I think this cycle we won’t be rushed to sell our gold stocks because the Fed will have injected so much liquidity, in fact the highest liquidity ever, that many rate increases will be required to dampen gold’s momentum. Gold may continue to rise even after the first, two, three, four or more tightenings. So in many ways there is every reason to believe that there may be an incredibly strong positive move in the gold price in the future. The risks are that the economy actually starts to falter again and sputter and that would be disinflationary or even deflationary and gold actually doesn’t do well in that situation. So there is risk that the economy doesn’t come out of this mess quickly enough and gold just struggles in the short term, but that’s likely only a temporary problem because the economy will eventually recover and gold will ultimately go up as the economy recovers. So even if gold were to correct, I would not be concerned because the only solution to the financial mess is to basically liquefy the economy. They are doing so at unprecedented levels and that will translate into higher inflationary fears, which will lead to higher gold price. Curiously

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enough, inflation doesn’t have to materialize for gold to rise, just inflationary fears.  TWST: Would you give us the three or four best reasons why a long-term investor should be looking at Victoria Gold Corp.?  Mr. Williams: Thank you for saying “long-term”. We’ve put three companies together, we’re working flat out and as hard as we possibly can, but stories like Victoria take some time to develop and therefore require a little bit of patience on the part of investors. That’s a footnote, but the three main reasons to buy Victoria are as follows. The first one is, we have an unparalleled growth profile for a company of our size. We claim to be the fastest growing gold company on the planet, but we’re only just getting started. We’ve got a pipeline of gold projects in good jurisdictions and that should be able to produce very substantial amounts of gold. So, a very strong growth pipeline, that’s point number one. Point number two is that we are going to be doing many activities internally at Victoria to generate value per share. I talked about exploration, I talked about economic studies, and there are many other things that we’re going to do; activities that we can control, as well as the timeline we can control, that are going to add value per share. In another words, that’s a complicated way of saying we’re going to be generating a ton of news in the future, especially from here until the end of this year. The third one is quality. We believe that we currently are the very best quality company of our size in the market. We have a substantial amount of gold ounces on our books, are in the best jurisdictions, and have extremely qualified people, a sound balance sheet, very strong support on the Street, analyst coverage, institutional investors, and so on and so forth. We have a very strong little company here. So, to recap, the three reasons to own Victoria are: growth, news and quality.  TWST: Thank you. (KL) CHAD WILLIAMS President & CEO Victoria Gold Corp. 80 Richmond Street West Suite 303 Toronto, Ontario M5H 2A4 Canada (416) 866-8800 (416) 866-8801 – FAX www.vitgoldcorp.com

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Agnico-Eagle Mines Limited (AEM) DAVID GAROFALO, Senior Vice President, Finance and Chief Financial Officer of Agnico-Eagle Mines Limited, has been with the company since 1998. Before joining Agnico-Eagle, Mr. Garofalo served as Treasurer of Inmet Mining Corporation, an international mining company. He serves on the Boards of Directors of Agnico-Eagle and Stornoway Diamond Corporation. Mr. Garofalo is a graduate of the University of Toronto (B.Comm.) and a Chartered Accountant.

SECTOR – PRECIOUS METALS (AMX601) TWST: Would you begin with a brief summary and historical sketch of your company and then bring us up to date? Mr. Garofalo: Agnico-Eagle has been an established gold producer since the early 1970s, and a mining company since the 1950s. We are in the midst of completing a very large-scale build-up of our portfolio of assets and opening five new mines, all of which will be producing within a year. This will lead to a fivefold increase in production from the 2007 levels to over 1.2 million ounces per annum by 2010. TWST: Over the next two to three years, what do you see as key opportunities and challenges for Agnico-Eagle? Mr. Garofalo: The key opportunity for us is to further scale up our operations. Our deposits continue to grow geologically and they remain wide open. This gives us an opportunity to size up the operations and realize further economies of scale. TWST: Would you give a short perspective on what the gold market did in the past six months or so and where you think it may be going in the next six to 12 months? Mr. Garofalo: I think the rise in gold prices over the last year has been largely a function of fear, which stems from the volatility in general equity markets. There really have been few asset classes that have performed well with tremendous value destruction within the general equity markets. Gold is seen as a preserver of capital in that environment. Going forward, I think what is going to drive gold prices upwards further is the prospect of inflation. There has been a massive amount of stimulus introduced across all the global industrialized nations, on a coordinated basis. Underpinning this has been the printing of paper currency. More paper is chasing fewer hard assets, which, in turn, will inevitably inflate the value of the assets, particularly commodities. For millennia, gold really is the only currency that cannot be printed. TWST: Are there any current trends or issues that will have an impact on you? Mr. Garofalo: Certainly. I think like everybody else the tightness of the capital markets, particularly the credit markets, has affected everybody. It has driven up the cost of capital for everybody, not just struggling businesses but even growing businesses like ourselves. It costs more to raise money, access credit markets and access bank financing. Fortunately, we are in

an industry that has actually performed well financially with increasing gold prices. That allows us to generate better returns for our shareholders on our projects, despite the fact that the cost of capital has increased. TWST: Would you bring us up-to-date on what is happening to the Kittila and Lapa properties? What prospects do the properties hold in terms of reserves? Mr. Garofalo: Kittila has evolved into a tremendous success story in that since we started construction three years ago, the size of that gold deposit has doubled in size to 6 million ounces of gold reserves and resources and continues to grow geologically. Furthermore, based on its 150,000 ounce production rate, that is sufficient for 40 years of mine life. So, scaling up the size of operations is inevitable. Lapa has actually just started production, with the first gold poured in early May. We expect to achieve commercial production sometime later in the second quarter, TWST: How strong financially is Agnico-Eagle? What areas of the balance sheet are you focused on for improvement? Mr. Garofalo: Last year we went on a fairly extensive capital-raising program. We raised about $1 billion of bank and equity financing to help bolster the balance sheet to take forward our very aggressive capital growth program through to completion. We have always had good access to capital in the marketplace because we have been together as a management team for many years and our shareholders are happy to provide us with additional capital when we have a well defined use of proceeds. TWST: In March of this year, you were named Canada’s CFO of the Year. Would you tell us about on your career with Agnico-Eagle? Mr. Garofalo: I have been with the company for 11 years, and really that award was a function of the company’s industry-leading growth profile. It also helped that the gold sector tends to be a counter-cyclical story in a poor environment for the rest of the equity markets. TWST: Would you suggest some benchmarks or milestones that investors might use to judge the company’s performance over the next two to three years? Mr. Garofalo: I think what the market is looking for is completion of our mine-building program. Four of our six mines are The Wall Street Transcript — June 29, 2009 1

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now physically complete, and the other two will complete construction over the course of 2009. We also have four opportunities within that portfolio of six mines to further expand the production rates. We are now preparing studies on those four projects that will be rolled out to the market over the course of this year. These potential expansions could add a further 20% in production growth over the next three to five years, leveraging off of existing infrastructure and labor forces at these mines.

“We are in the midst of completing a very largescale build-up of our portfolio of assets and opening five new mines, all of which will be producing within a year. This will lead to a fivefold increase in production from the 2007 levels to over 1.2 million ounces per annum by 2010.”

TWST: Are there any worries or areas of concern? Mr. Garofalo: Certainly, when you are commissioning five new mines, there is always the risk of commissioning delays and short-term bumps in the road. But I think the big picture remains intact. All of these deposits remain open geologically. We are investing $50 to $60 million a year in exploration, largely around these deposits and we have had tremendous success over a long period of time of adding new gold inventory around these deposits. In fact, our reserves have increased fourteenfold over the last 10 years, while our shares outstanding have only gone up three times. So we have had a tremendous per share growth in terms of our gold leverage for our shareholders.

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TWST: Do you feel the investment community understands Agnico-Eagle as well as you would like it to? Mr. Garofalo: I think the opportunity for further share price out-performance is in these internal growth opportunities. All we are doing is leveraging off our existing infrastructure and labor pools within our existing portfolio of mines. That generally tends to be a very significant value proposition for our shareholders with relatively little incremental capital in order to generate significant rates of return. TWST: Would you give us the three or four best reasons why a long-term investor should be looking closely at Agnico-Eagle? Mr. Garofalo: I think any long-term investor should be looking at us for our gold production growth profile and increasing gold leverage for our shareholders on a per share basis in terms of both production and gold reserves. In a rising gold price environment, we believe investors will look increasingly to stories where they can count on getting increasing per share leverage to gold. TWST: Thank you. (KL) DAVID GAROFALO SVP, Finance & CFO Agnico-Eagle Mines Limited 145 King Street East Suite 400 Toronto, Ontario M5C 2Y7 Canada (416) 947-1212 (888) 822-6714 – TOLL FREE (416) 367-4681 – FAX www.agnico-eagle.com e-mail: [email protected]

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Genco Resources Ltd. (GGC:TSX) WAYNE R. MOORHOUSE, Chief Financial Officer and Corporate Secretary of Genco Resources Ltd., graduated from the University of British Columbia with a Bachelor of Arts degree and completed the academic requirements for his Chartered Financial Analyst designation. Mr. Moorhouse has considerable experience in project planning, budgeting, administration and corporate finance. He has held senior management positions with a variety of public and private companies, and has conducted business in Mexico for over a decade.

SECTOR – PRECIOUS METALS (AMX603) TWST: Would you begin with a brief historical sketch of Genco Resources and then give us a picture of the things you are doing now?  Mr. Moorhouse: Genco Resources Ltd. is a mining company, and our primary project is a silver-gold property located in Mexico. In 2003, we took a shell and bought La Guitarra Mine from Wheaton River, which eventually became Goldcorp. At the time, Wheaton River had recently purchased the assets of Luismin, a Mexican mining company, which had three properties: La Guitarra, San Martin and Tayoltita. La Guitarra was the smallest of the assets acquired by Wheaton River as far as the production profile goes, producing roughly 700,000 ounces of silver equivalents a year. We purchased the project for $5 million and paid $1 million in Genco shares upfront, with eight payments of $500,000 scheduled to complete the transaction, payable in shares or cash at Genco’s option. We obtained the existing underground and surface infrastructure, which had a 320-ton per day flotation mill, rolling stock and a trained workforce already in place. We also acquired direct ownership of and leases to approximately 7,200 hectares of mining concessions. When we got the property, there really had not been a lot of money invested in it; Luismin simply did not have the money to put into the property and Wheaton River knew they were going to sell it. Initially, we did a little bit of exploration drilling to give us some new areas that we could develop. We instilled our own corporate culture, which meant changing the way some things were being processed and replacing some of the existing people. In 2006, we thought we had things pretty much under control. Up until that point, we had been producing at approximately the same rate that Luismin had been producing, that is, between 600,000 and 800,000 ounces of silver equivalents a year. I say silver equivalents because by dollar value, our sales are about two-thirds silver and about one-third gold. We are not a pure silver play, because we have a gold by-product, which is nice because it is another precious metal and not just a base metal. Also in 2006, we brought in a new President who saw value in expanding our holdings in the Temascaltepec District. At that time, we had about 4 million ounces of reserves and about 40 million ounces of resources. In that same year, we initiated a drill program and prioritized our targets, based on their proximity to the existing mill, infrastructure and the ability to develop the target into a mine in the near future. We now have about 39,000 hectares of concessions that we either own or lease, with Genco owning the

majority and leasing only around 700 hectares. Within the 39,000-hectare concession block, the main mineralized corridor we are looking at right now is 15km long and 4km wide. In some areas, we have only one vein expressed at surface, and yet in other areas, we see parallel veins with the mineralized corridor up to 4km wide. Due to the exploration program we started in 2006, we currently have over 11 million silver equivalent ounces of reserves and 175 million silver equivalent ounces of resources.  TWST: Give us a sense of the market dynamics today for silver. What are the variables that you are keeping your eyes on?  Mr. Moorhouse: I guess there are two trends that we have been seeing. First, a weakening of the US dollar has resulted in an increase in the price of silver. Part of the silver price is driven by the strength or weakness of the US dollar. We are confident that the upward trend in the silver price will continue, given that we see continued weakening in the US dollar. Second, I think for metals in general, you have to look at the supply and the demand. Only about 30% of the world’s silver production comes from primary silver mines. Traditionally, silver is by-product of mining something else, such as gold, copper, lead, zinc or some other metal. Usually when the economy goes into a recession such as it is now, and general consumption and demand falls, base metal mines cease production or they cut production entirely. Essentially, there is less silver produced as a by-product while at the same time, the falling dollar increases investment demand for silver as a store of wealth. I think any of the precious metals are a very good place to be right now, particularly silver.  TWST: Give us some idea of what the Genco agenda is for the next 12 to 24 months. What would make that time frame a success?  Mr. Moorhouse: Over the next 12 to 24 months, we are really concentrating on completing the Feasibility Study for our mine expansion at La Guitarra, and putting together the necessary financing. Genco has over 11 million ounces of silver equivalents in reserves, and we have grown our resources to about 175 million ounces. As you can see, we have a very substantial resource and we have only really drilled about 5% of our identified drill targets. In other words, we are just scratching the surface! We strongly believe that we have enough information from the drills to go ahead with a major expansion at La Guitarra, which is why The Wall Street Transcript — June 29, 2009 1

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we commissioned the Feasibility Study before the markets collapsed. Unfortunately, with the collapse in the markets, there was a lot of turmoil regarding pricing of precious metals. More significantly, there was a great deal of instability in the costs of construction and operating inputs for a larger mine, which made it difficult to nail down some of the actual costs for the Feasibility Study. Now that we see stability regarding the prices of steel, concrete, labor and other things that we use in construction, we are working to finalize the Feasibility Study. We are looking at scenarios up to around 3,000 tons a day for La Guitarra, which will be a tenfold increase from where we are now. We could likely end up producing somewhere between 4 million and 6 million ounces of silver equivalents a year, on average. Genco has focused the next 12 to 24 months on getting our Feasibility Study completed. Once Genco releases our Feasibility Study, we can work on securing financing. As a precaution, Genco has mapped out a production strategy at La Guitarra where we can be very nicely cash flow positive until we can finance on comfortable terms. 

“Over the next 12 to 24 months, we are really concentrating on completing the Feasibility Study for our mine expansion at La Guitarra, and putting together the necessary financing. Genco has over 11 million ounces of silver equivalents in reserves, and we have grown our resources to about 175 million ounces. We have a very substantial resource and we have only really drilled about 5% of our identified drill targets.”

TWST: In your discussions with the investment community, are there any recurring questions or misconceptions that you are encountering? Is the Genco story understood?  Mr. Moorhouse: No, it is not. One of the first questions I usually encounter asks whether this is an exploration story or a production story, and the answer is, it is both. We have a producing mine in a district that has incredible exploration potential, which we have seen with the drilling we have done to date. Our exploration success has given us the confidence to go forward with work on a major expansion. There is a prospective gain to the shareholder through production expansion, and I think the investor can have the best of both worlds. We have identified the potential to expand production at La Guitarra, so there is the benefit of being a producer. In addition, we still have huge upside potential in the exploration area. The analysts who have been onsite at La Guitarra definitely understand Genco’s story better than the people who have never been to visit. It is quite impressive when you get down to Genco’s property in Mexico and see what we have managed to assemble for a land package, what we have discovered so far and what tremendous potential exists for a new discovery.  TWST: What milestones should investors focus on as they track your performance?  Mr. Moorhouse: In the next three to six months, the biggest milestone for Genco will be the completion of the Feasibility Study, which will give us a good indication of where we can go in the next three to five years. After that, the next big milestone would be putting the financing in place to fund the mine expansion. The final milestone would be the completion of the mine expansion at La Guitarra. 2

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TWST: What historically has been the shareholder base and what does the shareholder base look like now? Has it undergone any changes?  Mr. Moorhouse: We currently have about 1,400 or 1,500 shareholders, with the majority of our shares largely held by insiders or institutions. Prior to closing Genco’s most recent financing, insiders held about 20% of the shares and about another 25% to 30% were held institutionally in North America; some shares were held institutionally in Europe, but I am not sure of the percentages. Upon the completion of the financing, insiders will hold over 30% and the institutions will hold over 30% — probably closer to 35% — so the company’s shares remain very tightly held. We would like to get more retail shareholders, which is something we have identified that we need to work on. TWST: What would compel investors to include Genco Resources as part of their current portfolio and their long-term investment strategies?  Mr. Moorhouse: I think that an investor should have a diversified portfolio and this should include mining stocks. Genco is not a mature company yet, so the potential run-up in the stock price largely has not happened. If you look at our stock price historically, there were times where it was much higher than it is now and the fundamentals remain largely unchanged. Based on just the reserves and resources that we have identified so far, Genco is under-valued compared to other silver producers. Therefore, we have the potential, even if we get the average valuation of other silver producers based on production and reserves and resource, for a significant price increase. As we expand production, we should have significant positive cash flow and be able to fund all our anticipated operations, exploration and other programs from cash flow. Once Genco secures financing for mine expansion, there should not be any need to go back to market to fund programs at La Guitarra, which means there is the potential for expanded production with limited dilution. What should drive the stock price is getting recognition for the value, relative to our industry peers. Furthermore, expanded production should drive the share price. Exploration gives a third potential driver for the share price. In other words, several variables can drive our share price beyond what it is today.  TWST: Thank you. (KL) WAYNE R. MOORHOUSE CFO Genco Resources Ltd. 999 W. Hastings Street Suite 550 Vancouver, British Columbia V6C 2W2 Canada (604) 682-2205 (604) 682-2235 – FAX www.gencoresources.com Investor Relations: Ms. Jada Soomer (604) 682-2205 ext. 227 [email protected]

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Aurelio Resource Corporation (AULO) FRED W. WARNAARS, Chairman of Aurelio Resource Corporation, has a proven track record of precious and base metal discoveries in Alaska, Western  Australia, Mexico,  Central and South America (in particular Chile and Peru), and the USA. He gained corporate and management experience with Cyprus Minerals, Exxon Minerals and Kennecott Copper.  He oversaw the development of Exxon’s world-class Los Bronces deposit in Chile. His companies have acquired, explored, developed, joint ventured or sold 15 gold, silver and copper properties in Mexico and Central America. He formed Aurelio Resources in 2005 with Stephen B. Doppler and David C. Jonson.  He received his PhD and Master’s degree in Petrology and Geochemistry at Leyden University in the Netherlands.

SECTOR – PRECIOUS METALS (AMX626) TWST: Why don’t we begin with a brief historical sketch of Aurelio Resources and a picture of the things you are doing at present?   Dr. Warnaars: Aurelio Resource Corporation was formed in August 2006 with three individuals who are still with the company. They are: Steve Doppler, who is currently our President and CEO; Dave Jonson, the Chief Geologist; and myself. Initially, our focus was on a large copper deposit that we discovered in southeast Arizona, the Hill Copper project. There we have a database including the results of 314 drill holes, partly drilled by us and before that by Newmont (a large gold company based in Denver), as well as six other companies. We have estimated a large resource, on the order of 2 billion pounds of copper, close to the surface, so it is open-pittable. One-fifth of this is heap-leachable and the other part, underlaying that, is an open-pittable sulfide deposit that can be mined by conventional mining. This consists of mining, milling and flotation which produces a high grade concentrate which is a sellable product. This project we sold to European investors that were very keen in joining us. They were very concerned about short sellers that were bringing our share price down and they rescued us. They put in significant capital and are now owners of our Arizona subsidiary, Bolsa Resources. That transaction was completed in February whereby Aurelio keeps a 3% overriding royalty. Aurelio is now focusing on gold and silver. We have a large gold project in Mexico, in the western part of the State of Durango in a favorable gold belt in northwestern Mexico. Last week we completed the acquisition of 10 gold properties in Nevada. So Aurelio is aggressively pursuing the gold markets because, as you know, gold prices show no sign of falling even in the long term.    TWST: Would you give us your perspective on what the commodities markets did in the past six months or so and where you think they may be going in the next six to 12 months?        Dr. Warnaars: One of our concerns was the price of copper. When we outlined our copper resources the price was about $4/ pound and that was in June 2008, and then it dropped to $1.20 later

in the year. Fortunately, it’s inching up again and is $2.20 already. We anticipate that copper prices will reach much higher levels in a couple of years. With the urbanization going on in China, India, Latin America and other parts of Asia, there is a need for copper. It is an excellent commodity for the future. As mentioned earlier, I don’t see any sign of recession in relation to gold, notwithstanding all the difficulties in the financial markets. So we are pursuing good commodities at the moment and we see a bright future for the company. We are traded as AULO on the Bulletin Board and also in Germany. We hope to move to Canada in the near future, since there is a lot of interest from Canadians to invest in the natural resource business. So, hopefully we will be traded in Canada, US and Europe.  TWST: Could you bring us up to date as to what is happening with the Gavilanes and the Hill Copper-Zinc project? What prospects do these properties hold in terms of reserves?  Dr. Warnaars: Hill Copper is now called the Hill CopperGold deposit, given that we have found a lot more gold than anticipated during our own drilling and in analyzing old drilling core. It is now the Hill Copper-Gold deposit with byproducts of zinc and silver. There are about 2 billion pounds of copper, open-pittable and close to the surface. In-house estimations indicate additionally a gold resource of nearly 1 million ounces of gold and 13 million ounces of silver. We are planning to develop the project first into a pre-feasibility stage and later into a bankable feasibility stage. At the Gavilanes gold property, we took over 900 surface samples. It is really a large hydrothermal system. It’s over a mile long and about a half a mile wide with spectacular yellow, brown and red colors at the surface due to the weathering of the mineralization. It’s a typical disseminated gold deposit and we are planning a drilling program once the rainy season is over.   TWST: What is the agenda at this point and what are your priorities over the next 12 months?   Dr. Warnaars: Our priority is Gavilanes. We have prepared seven strategically located drill platforms. Our initial budget is for $400,000 and assuming that we will be successful, we will The Wall Street Transcript — June 29, 2009 1

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keep on drilling there to define the outline of an economically mineable gold deposit. In addition, we are aggressively going to explore some of the gold deposits in Nevada. The best one is Iron Butte, that has a drill-indicated resource of at least 300,000 ounces of gold, and we are confident that further exploration will increase that to half a million ounces. The deposit is close to the surface and we envision an open pit mine. Concurrently we have to carry out metallurgical testing and start the permitting process. We can’t explore and drill all the 10 gold properties ourselves. We have to farm out more than half of them. We already have been approached by quite a few companies that want to join us or take them over. In addition, we are looking at another Mexican gold property with favorable drilling intercepts. Beyond this, Dave Jonson, our Chief Geologist, has identified attractive gold properties in Idaho and in Montana. So we are aggressively pursuing the gold route. I would also like to mention that our team is excellent, with geologists who have a track record of having discovered economically viable deposits in the past. This gives us a competitive edge over most other juniors.    

“Mining is not like oil and gas where you discover it and then start pumping and can develop it in a short period of time. Developing a mine is very complicated — the permitting is complicated, the water resources are always a problem, the metallurgical testing is elaborate. So mine development is a time-consuming affair.”

TWST: What is the financial status of the company at this point? Are there any funding or financing needs that have to be met?     Dr. Warnaars: Communicating with the Europeans has always been critical. There are several powerful investors that want to invest in our companies, both the private company Bolsa for the Hill Copper-Gold project in Arizona, and Aurelio, the public company, to advance our precious metal properties. We will be going on a road show, talking to investors in Europe in July. Then we have some serious inquiries from people in the US and Canada who want to invest in our companies. So we anticipate also a US road show.         TWST: What is economically feasible as you go through the protection formula? Is it dependent on today’s prices and are those mines generally workable, economically?        Dr. Warnaars: Both our copper and gold deposits, even at today’s price, are economically feasible. Let’s say at $2.20/pound of copper, there is an anticipated internal rate of return on the order of 30% to 35% for the Hill Project. We have significant capital requirements for the Hill Project, about $100 million to $110 million for the heap-leachable part and with the underlying sulfide deposits, something on the order of $300 million. However, I don’t think they will be difficult to finance once we complete our bankable feasibility studies. Copper is quite a good commodity and I think gold at above $900/ounce does not seem to fall in price, and so I don’t think there is any difficulty in putting the Hill Deposit into production. 2

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As to the Nevada properties we have to decide which deposits will be developed by us and which are being farmed out. We are a small team of professionals and plan to stay focused on the best economically robust properties. Putting a mine in production in the US is at least three, four, sometimes five years. Mining is not like oil and gas where you discover it and then start pumping and can develop it in a short period of time. Developing a mine is very complicated — the permitting is complicated, the water resources are always a problem, the metallurgical testing is elaborate, so mine development is a time-consuming affair. That is why we must have properties with robust economics so that you can weather the ups and downs of commodity prices.        TWST: What role will technology play as you look at your current and future operations?        Dr. Warnaars: At the moment we are focusing on just standard procedures of mining copper and gold. We don’t want to reinvent the wheel and so we will use the techniques that have been proven to be successful. There is one interesting new processing technique. The Germans developed a selective method to visually separate ore from the waste, by laser scanning. It has proven to be successful, especially if the deposit contains coarse gold, which you can’t heap-leach. This is a relatively new technology that we want to explore further. Another relatively new technique is for leaching copper, which requires sulfuric acid which is expensive. We are looking at buying native sulfur and from that producing the sulfuric acid ourselves. That’s really a cost saving process that we are investigating at the moment.        TWST: Would you tell us about the backgrounds of key members of your management team and your Board?         Dr. Warnaars: At the moment, we have three Directors, Steve Doppler being one and Maarten Tjaden in Rotterdam who represents the European investors. He has a lot of contacts in the investment world in Europe. And then I am the third Director. I’m the Chairman and there are three other individuals going to join our Board from C3, the private company from which we acquired the 10 gold deposits in Nevada. David Knight is a well-known geologist with many years of experience in Newmont Mining; he discovered quite a few gold deposits in Nevada. He is a big asset when he joins us as a Director. The other two new Directors are William Oppenheimer and Richard Perry. Richard Perry has been Vice President for Newmont Mining in North America and also was General Manager of Newmont’s Batu Hijau, a large gold/copper deposit in Indonesia. So his expertise in operations is very welcome to our team. I would also like to mention Dave Jonson, and Earl Detra. They are our Chief Geologist and our Vice President of Exploration. Dave is one of the most successful geologic consultants in the US with over 100 clients. Earl has 30 years of experience in major and small companies with a distinctive track record. Also, Dave Johnson, who is our Legal Counsel, worked with different mining companies in the past, such as Duval, Amselco and the Castle Groups. He has a lot of entrepreneurial leadership in large and small companies. He is a vital element on our team.     TWST: What about challenges, obstacles or problems? What could go wrong here?        Dr. Warnaars: The greenies. We are fortunately in a remote area in Arizona and there are no retirement communities

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sprouting up. If we were in the corridor between Tucson, Phoenix and Flagstaff, there are so many new communities sprouting up objecting to any form of mining. But we don’t have any of that. Of course, the greenies, no matter what you do, are always a challenge. And as long as you stick by the rules, I don’t see any difficulties. We have favorable town meetings with all the villages around our deposit in Arizona to tell them who we are, and to let them know that we want to be part of their community. So we have good communication with the local people also in villages near our Gavilanes deposit in Mexico. They welcome us, they see our activities and anticipate working for the company in the future. The infrastructure is relatively good at all of our locations, although water could be a problem in Nevada. One of our properties is adjacent to an Indian reservation. We plan on speaking with the local people early to get their thinking as to how they view miners and our participation in the development of their communities.    TWST: Can you suggest some benchmarks or milestones that investors might be able to use to judge your progress over the next two to three or four years?     Dr. Warnaars: The result of the drilling in the Gavilanes property in Mexico will be a good benchmark. The development of Iron Butte in Nevada, once we do additional drilling and metallurgical testing to see how we can successfully process the various minerals. Then of course, in Bolsa, the copper-gold deposit in Arizona, we have a budget of $15 million to bring it to a pre-feasibility stage which would include 129 additional drill holes. This will increase our resources, it will increase our confidence in the metallurgical extraction of the commodities. These are the benchmarks that people should be looking at. We intend to be more aggressive in this upcoming period with frequent news releases.         TWST: Would you comment on your current stock price?        Dr. Warnaars: Terrible. This does not reflect what we have. I have been told it is due to short-sellers. Initially, we were trying to buy back stock, but it did not work. We sank to about $0.02 or $0.03 per share and we were really scared that somebody would

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take us over. We are now in the $0.09 to $0.07 range, so we anticipate that price will go up, especially with the good news coming out.         TWST: What would be the two or three best reasons for a long-term investor, institutional as well as individual, to look closely at Aurelio Resource Corporation as an investment?        Dr. Warnaars: The people are essential. We have a very good, experienced team and that is, I think, our most important asset. If you have a good team you can get good properties. Fortunately, we have acquired good properties as well. So we don’t want to acquire marginal properties. We are very selective and those two items: the people — the team — and good properties give us a bright future.   TWST: Is there anything you would like to add?        Dr. Warnaars: No, these are the things I want to bring out. We will list the bios of new Directors that are coming on our Board on our next news release and on our new Website. We have now as Directors six seasoned people in the mining industry, persons with extensive exploration expertise, with track records of discoveries, many contacts in the financial world and experience in mine development, like Dr. Richard Perry and myself. I was heavily involved in the development of the huge Los Bronces copper deposit in Chile while working for Exxon Minerals. So I know how to bring a project from a relatively early stage to large production. In short, our main assets are our people.        TWST: Thank you. (KL)  FRED W. WARNAARS Chairman Aurelio Resource Corporation 12345 West Alameda Parkway Suite 202 Lakewood, Colorado 80228 (303) 795-3030 (800) 803-1371 ­— TOLL FREE (303) 945-7270 — FAX www.aurelioresources.com

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Gold Star Resources Corp. (GXX:TSX.V) PATRICK MORRIS, President, Chief Executive Officer and Director of Gold Star Resources Corp., has enjoyed success in the corporate finance, business development and investor relations arenas for a number of public and private companies. He has served as both officer and director of several corporations. Most recently, Mr. Morris was a director of both Skybridge Development Corp. and Lucrum Capital Corp. Mr. Morris also spent five years specializing in financial programming and advertising in the media.

SECTOR – METALS & MINING (AMX616) TWST: Would you begin with a brief historical sketch of the company followed by a picture of things as they are now?   Mr. Morris: Gold Star Resources is a junior resource exploration company. Traditionally, the company has taken the direction of mining exploration. We are in coal in Saskatchewan and followed a sulfur trend in British Columbia and Alberta, while always looking for something that would work for the investors and, at the same time, create shareholder value. About six months ago, we had an opportunity in Liberia, West Africa, and began shifting all of our focus to that country. We developed a relationship with a company we had known, while building relationships with the government. Also, we have financial partners looking for prospects in oil and gas in West Africa, because it’s a very hot area now.         TWST: In West Africa, what technical advantages does the company have in the processes that you are going to employ?        Mr. Morris: There are technical advantages as far as doing the exploration work to see what’s there. Technology has come a long way since the last company explored anywhere in that region, which was over 30 years ago. So if you could imagine technology which utilizes aeromag and seismic — this would make a huge difference in terms of exploration.          TWST: In light of the business model, how do you assess the risk in West Africa, so to speak?         Mr. Morris: The risk assessment in our mind is basically to put together a portfolio of blocks of land that are onshore, bordering major discoveries by large oil and gas companies. Given the current political stability in Liberia, the government is marketing itself to the world, and because no one has gone onshore in the last 30 years, we believe that our risk is minimized.  Also, with Addax Petroleum, Heritage Oil and Tullow all in discussion as potential takeout targets that will create a huge void in the marketplace for a company such as Gold Star.       TWST: Would you lay out your strategies and plans going forward, over the next year or so?        Mr. Morris: Starting with Liberia, phase one was to obtain the onshore reconnaissance permit. The plan is to carry out our agreements with the government’s NOCAL (National Oil Company of Liberia), and to spend a certain amount of money over the next

12 months on exploration. In addition, we have commitments toward humanitarian efforts, which is a big part of what Gold Star is doing over there as well. Next, would be Cote d’Ivoire, where we currently have a 1,000-square-kilometer exploration permit, which we are seeking to expand. There is no historical data, so using new technologies, as I mentioned previously, we will undertake our exploration work along with humanitarian efforts. Beyond these two countries, we are looking at Ghana, which would be the logical next step.         TWST: Is there a particular scenario that would lead to Gold Star substantially exceeding expectations in the future?        Mr. Morris: Yes, definitely. All these areas that we are looking at are onshore and run within the same sedimentary basin as offshore discoveries. The sedimentary basin runs onshore, over and beyond our current blocks of land. If, in our exploration, data show a valuable resource, that would definitely create some upswing.        TWST: What trends or issues do you see over the next two to three years within the industry that you will have to confront? And what impact will those trends have on what Gold Star is trying to accomplish?        Mr. Morris: In a way we are starting a trend, being the first junior exploration company onshore in all three of these countries. Given that no onshore exploration has taken place over the last 30 years, this makes us a bit of a trendsetter. We are front-running the whole onshore exploration and we hope that the majors will see what we are doing and join us.        TWST: What capital requirements do you see and how would you meet any of those needs over the next two- to three-year time frame?        Mr. Morris: It would be tough to give you a figure. We believe that with the impact plays that we are looking at and have currently, that we can raise whatever capital is necessary to move forward. We are hoping the market continues to do what it’s doing, that the price of oil continues to rise or at least levels out somewhere around where it is currently. However, we feel that oil will continue to rise, more capital will be made available for companies such as ours, which are doing good things. Being first onshore, and having a humanitarian element will also help us raise capital.        TWST: How many employees do you currently have?        Mr. Morris: Right now, we have around 20.        The Wall Street Transcript — June 29, 2009 1

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TWST: What about recruiting and training the local people in Liberia?  What are your plans in that regard?         Mr. Morris: We have our lead consulting geologist, Dr. Martin Keeley, who is from London. He has vast experience as a guest professor teaching geology and knows the area very well. He has already spoken with a lot of the locals who are showing great interest in what we are doing. Martin is a great speaker and teacher, so he will be our conduit for that.        TWST: Would you tell us about your own background and expertise, and the same for a couple of your key colleagues?        Mr. Morris: My expertise is in establishing and sourcing creative ways that could provide value added. It’s just going out and sourcing entrepreneurial ideas that are trendsetting and are cutting edge. As far as others within our group, we have someone on the finance side. We have our CFO, who has worked in the industry for over 25 years, and we have a host of other people that have their own expertise within the industry.       

"We have an opportunity to undertake major onshore exploration in close proximity to some large offshore oil and gas discoveries. We are the first junior company in 30 years to be onshore, bordering these major discoveries."

TWST: As CEO, what occupies your own attention most on a day-by-day basis?        Mr. Morris: Mostly putting together a strategic plan, and managing people locally, as well as on site in West Africa. I work closely with the corporate team and the geologists, the CFO and the investment community. There’s a lot going on and I am very busy.        TWST: Would you describe your current investor base? Mr. Morris: We are a junior company and there is always a level of risk with junior companies going after new and exciting things. I would say that a good percentage of investors are institutional buyers, and then there’s a lot of retail, local and insiders who believe in what we are doing.         TWST: How do you feel about your current stock price?

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Mr. Morris: I think it’s pretty good right now. Of course we would like to see it higher. We had a high of $0.76 last year and today we are trading at $0.165. But of course everything was a little inflated before the crash hit. The price of our stock today, I think, is a good thing in that we are entry level and we are just getting started in this part of the world, and I think it’s a great entry-level investment.        TWST: How could the investment community improve its perception of Gold Star Resources? Do you feel that there are areas or concepts that are misunderstood?         Mr. Morris: We are developing our program and process now on how to present ourselves to the world, and it’s really starting to come together. We are utilizing our Website and peripheral materials and I think that people will have a pretty good picture of us now, if they were to go to our Website.         TWST: What is the essential message, the summary statement that you would like convey to investors over the next three to five years? What are the four or five strengths of Gold Star that an investor should see as an investment today?        Mr. Morris: First and foremost, GXX wants to be a stepping stone into Africa for any player that wants to enter into Africa. Secondly, we have an opportunity to undertake major onshore exploration in close proximity to some large offshore oil and gas discoveries. We are the first junior company in 30 years to be onshore, bordering these major discoveries. Thirdly, given the political stability in these countries, and the fact that the governments are opening up to the rest of the world, I think that our timing is just great. And finally, securing some of these concessions with oil prices currently around $40 a barrel as opposed to $130, I think is ideal. TWST: Thank you. (KL) PATRICK MORRIS President & CEO Gold Star Resources Corp. 789 West Pender St. Suite 1130 Vancouver, British Columbia, V6C 1H2 Canada (604) 641-4450 (866) 669-9377 — TOLL FREE www.goldstarresources.com e-mail: [email protected]

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Geovic Mining Corp. (GMC:TSX) ANDREW C. HOFFMAN, CFA, is Vice President, Investor Relations at Geovic Mining Corp. He has a diverse history in the financial markets, specializing for the past decade in the energy and precious metals sectors.  From 1996 to 1998, he worked as a buyside analyst, specializing in small cap companies across a variety of business sectors. From 1998 through 2005, he was a sellside analyst covering oilfield service equities at Salomon Smith Barney.  Since 2005, he has managed an extensive portfolio of small to micro-cap mining equities, and performed investor relations consulting for junior mining companies.  In 2007 through early 2008, he held the title of Vice President, Corporate Development, for EXMIN Resources, a precious metal mining company.

SECTOR – PRECIOUS METALS (AMX600) TWST: Would you start with an introduction to Geovic, including a brief historical sketch of the company?   Mr. Hoffman: In 1995, the founder of our company, Bill Buckovic, learned of a potentially major cobalt discovery in Cameroon. It occurs in an extremely rare nickel laterite formation, because unlike 95% of the cobalt that’s produced worldwide, it represents a primary cobalt resource. In other words, due to its unique chemistry, cobalt is the primary product that comes out of it, with nickel and manganese occurring as byproducts. It’s a very shallow project, so you find nearly all the cobalt in the first 20 meters below the surface, and it’s essentially in dirt rather than rock. Over a 15-year period, Bill developed relationships with the Cameroonian government, raised capital and started Geovic Mining. Since that time, we’ve been working to increase our resources and develop the project, and we are getting pretty close right now. Geovic expected to start constructing the project last November, but unfortunately the economic meltdown occurred simultaneously, causing a temporary delay. Currently, we are just fine tuning project economics and completing an updated NI 43-101 reserve report while waiting for the capital markets to improve.   TWST: Are you folks comfortable with the political environment in Cameroon?  Mr. Hoffman: Yes. This is actually the first major mining project by an international company in Cameroon, although they have done smaller natural resource projects previously. Cameroon has been one of the more stable countries in West Africa in recent decades. They have had the same President for 26 years, and have been very cooperative with Geovic in all aspects of the project. Our main competition for future cobalt supply comes from the Democratic Republic of Congo (DRC), a neighboring country. That’s where 70% or so of projected cobalt supply is projected to emanate from over the next decade or so. However, the DRC has had major political problems for decades, including last year when disputes cropped up with international mining companies at the same time military activity has been stepped up by rebel groups. As I mentioned earlier, Geovic’s

project is a primary cobalt source, whereas roughly 95% of all the other cobalt resources are byproducts from expensive nickel and copper mines, many in the DRC. So there appear to be many positives going for our project, politically and economically.  TWST: This is the Nkamouna project?  Mr. Hoffman: Yes. Actually, Geovic Mining owns 60% of Geovic Cameroon, which we call GeoCam, while the other 40% is owned by the Cameroonian government and Cameroonian investors. GeoCam owns the entire cobalt mining district in Cameroon, which is basically seven properties within close geographic proximity in the Eastern Province. Nkamouna (pronounced ka-moon-ah), the smallest of the properties, as well as the adjacent Mada property, are the ones we aim to initially develop.  The seven properties appear to be nearly identical in geologic composition, and consequently we believe our permitted area contains many decades worth of cobalt resources. So once Nkamouna and Mada are depleted, we expect to move to the other five properties and repeat the same process.  TWST: How far down the line are you with the project? Are you in production or close to it?   Mr. Hoffman: Yes. We finished the feasibility study in December 2007, and then in September 2008 optimized that study. At the same time, we achieved proven and probable reserves of 54 million tons of cobalt and another 224 million tons in resources, not including the nickel and manganese. Additionally, we finished a 55,000 meter drilling program in early 2009, and thus anticipate a significantly increased 43-101 reserve/resource update around September of this year. We were expecting to start construction of the processing plant last November, and to complete financing of the project simultaneously. Then the economic meltdown occurred and we couldn’t get a financing completed with reasonable terms. So we’ve been working on ways to significantly improve the project economics, such as optimizing the leach chemistry, simplifying the processing plant and exploring methods to upgrade the ore grades further. We expect to finish these tests around September, around the same time as the 43-101 update, at which point we aim to move forward toward financing and constructing the mine.   The Wall Street Transcript — June 29, 2009 1

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TWST: What is the mining method?  Mr. Hoffman: As I said earlier, it’s a very unique property, unlike any nickel laterite discovered to our knowledge. Essentially, the cobalt is found in the soil at and just below the surface. You don’t need to blast it, just dig it out and amazingly you can upgrade the ores by a simple washing and sizing process. So the cobalt grade in the ground is around 0.25%, but when you put it inside the “washing machine,” it comes out closer to 0.70%. Moreover, we believe that, with the tests we are currently undertaking, it may be possible to further upgrade the ore grades. Thus, it’s a very simple and relatively cheap process compared to nearly all other laterite projects, which, again, are all typically nickel-dominant compared to our cobalt-dominant project. Right now, our last feasibility study estimated that construction of a 4,000 tonne/year production facility could be completed for $379 million, compared to the multi-billion variety for most other laterite projects. That said, we think the costs — engineering, materials, and mining — can be lowered due to the generally weaker economy and because we aim to simplify the chemical processes.  

“Geovic’s project is a primary cobalt source, whereas roughly 95% of all the other cobalt resources are byproducts from expensive nickel and copper mines, many in the DRC. So there appear to be many positives going for our project, politically and economically.”

TWST: What’s your assessment of the pricing and supply/demand environment for cobalt, nickel and manganese?  Mr. Hoffman: In our case, cobalt is the primary product, and it’s the only one that really matters. Yes, nickel and manganese byproducts contribute to the bottom line, but 70% or more of the project revenues are going to be cobalt-related in nearly all price scenarios. Just to give you an idea of the size of the cobalt market, on an annual basis, global demand is only about 60,000 tonnes per year compared to about 1.4 million tonnes for nickel and 19 million tonnes for copper. So, it’s a very small niche market. It’s been growing at about 8% annually for the last 15 years, up until 2008 when the economic contraction took hold. About half that demand comes from rechargeable batteries, such as, hybrid cars and laptops, and steel strengthening properties for products like jet turbine blades. So it’s a very limited market and, again, most of the supply is expected to come from the DRC, which has had a history of political problems. With the anticipated growth of rechargeable batteries, among other things, the expectation is that growth will be above average compared to many commodities for the foreseeable future.  TWST: Give us a sense of the news flow that a potential investor should be monitoring.  Mr. Hoffman: I think we have done a good job communicating exactly where we stand, and right now two key events are anticipated in the second half of 2009. One is the completion 2

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of the processing tests, which we expect to have done around September. Geovic believes they will show the project can be done with a much simpler concept at a cheaper price, potentially lowering both the cost and risks of the project. Also in September, we expect to put out an updated 43-101 report.  Based on the 55,000 meter drilling program we recently completed, which more than doubled the database at Nkamouna and quadrupled the database at Mada, Geovic expects a significant increase in resources and reserves. Those are the two key things to look for, and they are only a few months away. Afterward, the key news flow will relate to how we go about financing and construction. Currently, we are talking to multiple parties, from governments to institutions to individual investors, about the various options we have for constructing and producing the project.  TWST: How receptive is the investment community to the company? Are you content that the story and the potential are well recognized?  Mr. Hoffman: I think the story is relatively well known. The company was taken public in late 2006 with the support of Frank Giustra, a well-known Canadian investor, and as a result of that connection and additional marketing we have done, Canadian investors have been made well aware of Geovic. Additionally, we got listed on the NASDAQ Bulletin Board last summer and have done significant marketing in the United States as well. We are a US company and a fully filing, SEC reporting company. So I think the American investment community is also aware of our story.   TWST: What do you see as the main challenge at this point? Mr. Hoffman: The key challenge is going to be financing. I think we have proven that Nkamouna is economically feasible right now, and are currently attempting to make it even more so. The project as it stands has a projected cap ex of $379 million project, and Geovic owns 60% with $59 million in the bank right now. So we will need to do a significant financing in the future, be it of the debt or equity variety. If the capital markets remain closed to smaller mining companies, it’s going to be a significant hurdle to overcome. Conversely, I believe political risk is limited while economically, we think Nkamouna is going to be a good project if the financing comes through.   TWST: Would you provide an insight into the skills and experience that Geovic has on its management team and its abilities to meet the financial and operational challenges?  Mr. Hoffman: Bill Buckovic, who founded the company and the deposits in Cameroon, worked with several members of the senior management team in the 1960s and 1970s for Unocal on a variety of projects, including uranium, oil and gas, and metals. Between this team of individuals, we have more than 150 years of experience in exploring for, developing and putting into production mining projects of all sorts. Thus, I think it’s difficult to find a deeper management team, as far as experience goes, in the sector.  TWST: What are the three or four best reasons that you would give a potential investor to take a closer look at Geovic? Mr. Hoffman: To start with, I’d say, cobalt is a very small market, which grew steadily for many years until 2008, a unique year for obvious reasons. Further, based on its properties as a steel strengthener and its unique usage in rechargeable batteries, the

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likelihood is cobalt demand will continue to grow at a reasonable pace into the foreseeable future. Plus, close to three-quarters of anticipated future supply is projected to come from the DRC, from very expensive copper projects. As the DRC is having major political and financial problems, there is a significant risk related to global cobalt supply. In turn, cobalt buyers like the Chinese and other Far Eastern groups tend to get a little scared when their primary sources are from unstable countries like the DRC. So we think the odds are they will come to us to buy cobalt, because it’s more secure. We believe there’s perhaps a century’s worth of resources, so it’s just a matter of building the project and fitting the supply into the market. Number three is, we have a very deep team from the financial to the operational side of the business, and thus the experience necessary to make this project work. We also have a very deep-seeded relationship with the government of Cameroon, which is very interested in making this project work so other international mining companies will come in and do other projects. And then there is the valuation. We’ve seen the junior mining sector hit very hard this past year, harder than almost any other. Consequently, right now our stock is trading at about three-quarters the value of

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our cash in the bank, and less than 1% of our in situ resources/reserves, not including the 43-101 update we are going to put out this year, which should take it much higher. So I think there are a lot of reasons to look at Geovic right now. I expect interest to pick up measurably late in the summer when we approach the release of the process test results and the 43-101 update. Right now, you have a stock trading at a very low price compared to most other mining companies, as well as its own historical range.  TWST: Thank you. (KL) ANDREW C. HOFFMAN VP, Investor Relations  Geovic Mining Corp. 1200 17th Street Suite 980 Denver, CO 80202 (303) 476-6455 (303) 476-6456 – FAX www.geovic.net e-mail: [email protected]

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Great Panther Resources Limited (GPR) ROBERT A. ARCHER, President, Chief Executive Officer and a director of Great Panther Resources Limited, is responsible for the company's day-to-day operations and for the development of its strategic direction. Also the President of the company's Mexican subsidiary, he is responsible for the management and supervision of Great Panther's affairs and business in Mexico. Mr. Archer has more than 30 years experience working for mining companies throughout North America, including Newmont, Rio Algom, Placer Dome and Noranda. He is a co-founder of Great Panther and has worked in Mexico since 1996.

SECTOR — PRECIOUS METALS (AMX617) TWST: Could we begin with a brief historical sketch of the company and a picture of the things you're doing at the present time? Mr. Archer: Great Panther is about five years old, and we are a primary silver producer with two 100%-owned operating mines in Mexico. Silver is produced as a primary product, but we have byproducts like gold, lead and zinc. Our flagship operation is the Guanajuato Mine, located in the City of Guanajuato in Central Mexico. Guanajuato is a world-class silver-gold deposit. Historically, it's the second largest silver district in Mexico, and that country is the second largest silver producer in the world. So, it's quite a substantial operation historically, and it's been operating since 1600. It's right in the City of Guanajuato, which is a UNESCO World Heritage Site because of the Colonial architecture. TWST: Could you bring us up-to-date as to what is happening with the Topia and Guanajuato mines? Mr. Archer: Both Guanajuato and Topia are now operating profitably again. With metal prices being high in the first part of last year, things were going well and both mines were profitable. But then metal prices started to drop and, around the same time, we saw our smelter charges going up by about 150%, which put a real strain on our operating costs. That put both mines into a negative cash position towards the end of last year. As a consequence, we had to institute a very strict cost control program and change smelter contracts, along with a number of other measures, all aimed at reducing our operating costs. Subsequently, both mines were brought back to an operating profit by the first quarter of 2009 and, with metal prices rising again, the company is now generating a positive corporate cash flow. TWST: Can you give us your perspective on the silver market over the past six months or so, and where you think it may be going in the next six to 12 months? Mr. Archer: Silver is a complex commodity given that it is used in several areas — in industry, jewelry and as well as a monetary kind of metal, much like gold, and so it's impacted by markets on both sides. When the market crashed last year, people were concerned about the global economy; silver was negatively impacted and the silver-to-gold ratio changed quickly in favor of gold. We

saw silver prices drop from a high of about $21 in March last year down to a low of just under $9 by October. Since that time, things have rebounded, the outlook for the general economy is a little stronger, commodity prices in general are coming back up, and so we are seeing that ratio change back again. This said, silver prices are being largely driven by investments. What we see now is that gold prices are pushing closer to $1,000 and, at the same time, silver prices are rising and getting close to $15. TWST: What are the greatest opportunities over the next several years for Great Panther? Is there a particular scenario that will lead to the company substantially exceeding expectations in the future? Mr. Archer: Now that we've got ourselves on a firm footing by attaining profitability, and our operations are both going smoothly and generating positive operating cash flow, we're looking at about a 20% year-on-year increase from our existing production. However, where we anticipate seeing potential buildup in production and our growth profile is through mergers and acquisitions, and we're actively looking for additional mines that we can add to our portfolio right now. We're very keen on this now, and there are some tremendous opportunities from which, should they eventuate, we would see some pretty significant growth in the future. TWST: What do you see as trends or issues over the next two to three years within the industry? What impact will those trends have on what Great Panther is seeking to accomplish? Mr. Archer: The one that we've seen most recently is that, with the downturn in the markets last fall, there are a number of companies that have fallen on hard times and are finding it difficult to raise cash. Some of these companies are at a point where the company, itself, is vulnerable to takeover. In other cases, they're letting go of some of their better assets, and they're available for acquisition. For a company like ours that's been able to weather this storm better than some others, it puts us in a strong position to be able to take advantage of these developments. So, the downturn has actually worked in our favor and presented us with a lot of opportunities going forward. In terms of challenges, the biggest one would be the uncertainty of metal prices and the volatility of markets in general. TWST: Would you sketch out the key elements on The Wall Street Transcript — June 29, 2009 1

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your agenda and tell us what you expect to accomplish over the next two to three years? Mr. Archer: We're anticipating about 20% growth from existing production in the mines we have now. We have a third project on the table, and we're just re-running the numbers and reviewing the economics of it. This is our Mapimi project. The fall in commodity prices last year and the higher smelting costs made the economics of this project negative. With the rising metal prices and new smelting contracts, we are running the numbers once more to determine whether or not we should move ahead. In addition to that, we're looking for possibilities to merge with other companies or acquire another mine over the next year or two. There are mines available in Mexico and there are other opportunities out there. TWST: What about possible challenges or problems? What might you be worrying about? Mr. Archer: I guess the main thing right now is just the metal prices. We've got our costs under control, so we can continue to operate above profitably at this level. There is certainly competi”For a company like ours that's been able to weather this storm better than some others, it puts us in a strong position to be able to take advantage of these developments. So, the downturn has actually worked in our favor and presented us with a lot of opportunities going forward. In terms of challenges, the biggest one would be the uncertainty of metal prices and the volatility of markets in general." tion for other projects and so, if we are to grow through acquisition, we will be competing with other companies that are looking for good projects. As regards mergers, it's not an easy thing to do. The silver sector is very small with only a handful of companies amongst the junior producers, and each of those companies has their own strategy, their own agenda, and it's not as simple as just looking at a list of companies, seeing what is best to combine with and so on. If the management doesn't see eye-to-eye on how they're going to run things or if there are other synergies, then it's difficult to make it work. So, those are the biggest challenges. TWST: What might be some year-by-year milestones that investors could be looking for? Mr. Archer: I would say making sure that we maintain the profitability that we have now achieved. That's certainly one of our goals, so investors can measure that on a quarterly basis. We're basically watching for continued growth from our two mines and also for new opportunities coming along, and we are currently looking at several projects. The exact time frame on these projects is a bit different, but I'd like to think that we can acquire one new mine this year and another one next year. Of course, this is outside of any potential mergers that we might be able to conclude on a corporate level. TWST: Could you tell us about your own background and expertise, and the same for a couple of your colleagues? Mr. Archer: I'm a geologist by training, and I graduated in 1981 from Laurentian University in Sudbury, Ontario, which is the nickel capital of the world. I've been in this business for about 30 2

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years, and I spent the first 15 years after graduating in major mining companies such as Newmont and Placer Dome. Subsequently, I moved to the junior sector in 1996 and since then, I've been in senior management with junior companies. I'm one of the co-founders of Great Panther. We started this initially as a private venture and then went public in February 2004, building the company essentially from scratch. In terms of our key people, we've got a great Board of Directors — a highly experienced team in mining and financing. There are five individuals, including myself, in Vancouver as well as internationally. Our chief operating officer, Charles Brown, is a 30year veteran of the industry and a successful mining engineer. On the financial side, Chief Financial Officer Raakel Iskanius has done a tremendous job in streamlining the company's operations and helping attain profitability. In Mexico, I would say that everyone from our vice presidents on down are Mexicans. We don't have any expatriates working in Mexico. In terms of our relationships with local communities and governments, we clearly have an excellent relationship with everybody we work with down there. TWST: As CEO of Great Panther, what occupies your own attention most on a day-by-day basis? Mr. Archer: I guess just making sure that everything is running smoothly, and working on and implementing strategies for the company, as well as continuing to build the exposure of the company in markets through talking to persons like yourself and doing some presentations, doing trade shows and one-on-one meetings with fund managers — those types of things. It keeps me occupied 110% of my time. TWST: Would you describe your current investor base? Mr. Archer: Our current investor base has changed quite a bit in the last six to eight months. We used to be about 50% held by institutions, but after the market downturn last fall, a lot of those were facing redemptions that needed cash, and so we had a lot of selling coming from some of those institutions. This has brought our institutional holding down to about 20% currently, and we're trying to build that back up again, given that a lot of these guys are returning to the junior sector now. We are about 5% held by management and insiders, and the balance would be retail. TWST: Would you care to comment on your current stock price? Mr. Archer: Most companies would tell you these days that the shares of their companies are undervalued. We've seen a nice little run-up in the last few days, in part because we've been getting excellent coverage from a couple of newsletter writers like Jay Taylor in New York, Brien Lundin in New Orleans and Tom Colandra in San Francisco. We have been building our exposure particularly in the US, just getting the word out and we're seeing tremendous volume in trading of our stock. This week already, we've traded over 3.5 million shares. So, it's been a great few days for us. TWST: What capital requirements do you see and how would you meet any of those needs over the next two to three years? Mr. Archer: In terms of capital, a lot of that will depend on the acquisitions that we might be able to complete. So, that's a little bit speculative. In terms of our own projects, we could increase our production fairly substantially with an injection of anywhere from $3 million to $10 million over a period of a few years, and that would continue to feed the growth of our existing operations on a

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regular basis. If our development project in Mapimi was to go into production, then there obviously should be some capital expenditures required; but the level of those expenditures is really not known at this point in time, and it depends on the size of the operation. So, it's quite variable. TWST: At this point, how could the investment community improve its perception of Great Panther? Do you feel that there are any areas that are not understood? Are there any insights that need more sunshine or more attention? Mr. Archer: I think we need to continue to build our exposure in general. But perhaps one of the things that some people don't appreciate is why we may not have as much in the way of resources published as some other companies, and there is good reason. Both our mines are underground and we are mining quite deep at the Guanajuato mine, at a level of at about 400 meters. It's very expensive and time consuming to drill off a large resource base at that depth. At Guanajuato the mine has been in production for more than 400 years, and the work that we have done has demonstrated that it can go for another 50% beyond what has been mined already — and that's more than a billion ounces of silver. When I said earlier that this is a world-class project, it truly is. So, we think we have the potential at Guanajuato to keep going there for many more decades. However, it's not the sort of project where you can just go in and drill a lot and get 100 million ounces. What the mine does for us is provide tremendous longevity and stability. These two mines give a very solid base to develop from. And now that we have achieved profitability, this really positions us to continue to grow. I think some people tend to undervalue us because we have a smaller resource base.

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TWST: In conclusion, what is the essential message or summary statement that you would convey to investors, both individual and institutional investors? What should investors see as the three important strengths and advantages that distinguish Great Panther as an investment today? Mr. Archer: I think given that the company is only five years old, it has really established itself as a solid company and within that period, it has built an excellent management team. It's got tremendous assets, a very strong foundation for future growth, and we are profitable at this point. We have one of the lowest operating costs of our peers within our locations in Mexico. For the first quarter, this was around $6.49 per ounce of silver net of byproducts and, with silver priced around $15, that gives a reasonable profit margin. Moving forward, we are going to build on that base to prove we can get the job done. And there's just tremendous opportunity, both organically, and through mergers and acquisitions going forward. TWST: Thank you. (KL) ROBERT A. ARCHER President & CEO Great Panther Resources Limited Suite 2100 1177 W. Hastings Street Vancouver, BC V6E 2K3 Canada (604) 608-1766 (604) 608-1744 — FAX www.greathpanther.com e-mail: [email protected]

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Kenrich-Eskay Mining Corp. (KRE:TSX.V) WALLY E. BOGUSKI, President and Director of Kenrich-Eskay Mining Corp., has been at the company’s helm as Director since August 1997, taking over as President in October 2002. Mr. Boguski is a private businessman and corporate consultant with a background in finance and mining. He has 15 years of management experience at public companies and has directly participated in all phases of the mining sector, including prospecting, land acquisition and mineral exploration. Mr. Boguski also spent 25 years as a key player in mining and resource projects in Canada, the USA and Latin America.

SECTOR — PRECIOUS METALS (AMX613) TWST: Would you begin with a brief historical sketch of the company followed by a picture of its current situation? Mr. Boguski: Kenrich-Eskay Mining has been in existence since 1989. It’s a junior exploration company whose principle goal is dedicated to finding another Eskay Creek-type deposit. The original Eskay deposit was discovered in northern British Columbia, Canada, by two companies, Calpine and Stikine. This discovery prompted the two-penny stock companies to go from approximately $0.40 to $0.50, to a final buyout of about $72 a share. There was tremendous appreciation in the stock price and many people got very wealthy as this mine proved to be one of the richest mines in the world. The Eskay Creek mine was ultimately bought out by Barrick and was Barrick’s jewel up to about a year ago when they finished mining out the property. The Barrick Mine site, which our property encompasses — KRE has control of about a 120,000 acres surrounding this former mine — has the same prospective Eskay Rift, as well as the same type of massive sulphide intrusions that are very rare to any area. Our geologists have mapped this particular event, or “rift” they call it, over about a 32-kilometer distance, that’s approximately 22 miles, with 20 miles of this rift mapped right through the middle of the Kenrich property. This Eskay rift is very significant as this type of Eskay deposit almost always occurs in multiple deposits or clusters, and so far only one was found. Because of the tremendous history in the area, this northern area is known as the Golden Triangle. Currently, our property borders Seabridge, which states it has one of the largest gold deposits in the world. Seabridge trades on the Toronto and USA stock exchanges. TWST: Would you lay out the business strategy and key objectives that you intend to accomplish over the next two years? What are the greatest opportunities for Kenrich-Eskay? Mr. Boguski: The company undertook a regional program throughout the KRE property to determine the best potential discoveries for another Eskay Creek-type deposit. We’ve drilled some of the targets, but because of the sheer size of the property, we certainly haven’t been able to explore much of it at all. However, we

currently have at least two to three specific targets that our geologists feel are highly prospective targets. We plan in the next year to focus on drilling these particular targets. What our geologists are finding is the same type of rocks and the same age of rocks that Eskay Creek has. We plan to drill these targets out to see if we can discover a notable deposit comparable to Eskay Creek. TWST: Is there a particular scenario that would lead to Kenrich-Eskay substantially exceeding expectations in the future? Mr. Boguski: We’re mine hunters. Our goal is to find a minable deposit. We’re still in the exploration stage, but if we’re fortunate in our efforts to find another ore body, that would be our success. The extent of success would depend on the size and the grade of the ore body. Now, if this is comparable to another Eskay Creek, history will tell you the numbers. So basically we’re in a position where our business plan or our goal is to gather information and drill the best possible targets. The stock price will reflect what we find in the ground. TWST: What do you see as potential industry issues over the next two to three years? What impact could these trends and issues have on your goals? Mr. Boguski: We are in an era now that is probably the most challenging in recent history for junior exploration companies like ourselves. We’re in an era where obtaining investment money for exploration companies has been a real challenge as far as obtaining the financing necessary to do a proper program. Many stocks have really devalued in price from, say, two years ago. For example, for junior companies like us to do a proper drill program, that would entail another large financing. At current low stock levels, this would mean issuing millions of shares, diluting of company stock and value. Alternatives have to be considered. Right now, we’re in discussions with some possible joint venture companies that are interested. We’re just going to have to weigh the merits and basically do the math as far as raising money on our own at a certain level to dilute the stock, or adopting a strategy of bringing in a reputable joint venture partner to earn a percentage by spending an agreed upon amount of dollars on the property. TWST: Give us your perspective on the commodities markets in the past six months or so, and where you think they The Wall Street Transcript — June 29, 2009 1

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are going in the next six to 12 months? Mr. Boguski: Inevitably, the commodity market is like a yo-yo. It was up and down hitting lows from, say, 2.5, three years ago, especially in the copper, zinc, nickel area. Iron ore prices were at an all-time high and they’re down now, and obviously there are a lot of challenges for some of the bigger companies to lock in prices with the main buyers, which are from Asia. It’s a good question. I think from what I hear from analysts in the industry, the general feelings are predicting copper to be a good investment at this level. Copper is used in everything from houses to cars to, you name it. We have middle classes emerging

”We are fortunate that 10 years of assessment work has being filed on our main property, so the property is not in jeopardy. There are always concerns with people who invest in the company and expect work programs to be done every year. It’s just not feasible to do a work program without doing a financing at a low level and diluting the stock tremendously.”

from China, India and countries in Latin America, possibly 100 million people, and we haven’t seen such growth as far as demand for commodities is concerned since the Second World War In North America, for example, in the 1950s to the 1980s, we had a middle class of maybe 50-60 million that emerged. That industrial revolution lasted for 40 years. Currently, when you have about 100,000 million people that want houses, cars, conveniences, you are going to have huge demand on commodities for the production of these items. In order to meet this increased demand, there must be supply, and if you are short of the supply, the prices are going to go up. So, I think that’s the sort of scenario we are facing now, and I can only see commodity prices going up. TWST: What is the financial status of the company at this point? Are there any funding or financing needs that have to be met? Mr. Boguski: Right now, corporately, we are fine and can survive a couple of years. As far as our field drill program that is needed for another discovery, we are definitely going to have to look into further funding or joint ventures. Now at this price level, which is almost our lowest level since the inception of the company, we are reluctant to issue many shares currently at this level. Our basic plan is to let the markets improve a little bit, let the stock price increase, and then do a financing and drill some of our hot targets. TWST: Tell us about the background and experience of some of the key people in the company, including yourself? Mr. Boguski: I’ve been involved in mining from the exploration to the production stage for over 25 years in North and Central America. There are a couple of Board members who have been involved in mining for many, many years, both on the corporate side and the production side. The company has a strong geological Advisory Committee presence as far as expertise on the geological side. They work with our geologists, they get all the 2

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data, they interpret it together and then a conclusion is reached. The Board then looks at what the recommendations are, and then we make a decision corporately, as a Board. The goal is to find another ore body by drilling the right target and add shareholder value to the company.  TWST: What problems could arise for you? What might you worry about? Mr. Boguski: There is always the economy and right now that’s a worry — when your stock price is down and there’s very little new capital available for exploration companies. We are fortunate that 10 years of assessment work has been filed on our main property, so the property is not in jeopardy. There are always concerns with people who invest in the company and expect work programs to be done every year. It’s just not feasible to do a work program without doing a financing at a low level and diluting the stock tremendously. There are always tough decisions that have to be made by management responsible for a junior public company, especially during these challenging times.

”Our management team has years of experience in mineral exploration, and we have an excellent geological team. We’ve discovered many multiple volcanic massive sulfide zones and mapped the Eskay rift. We’ve been successful in acquiring the property all around the Barrickowned Eskay Creek Mine, and almost tripled the company’s land position, all which is excellent prospective ground.”

TWST: Does the investment community understand the Kenrich-Eskay story? Are there any misperceptions that you have to guard against? Mr. Boguski: We give out accurate information through press releases. We have our Website that tells the story of the company’ potential — huge blue sky potential. About 50% of our shares are held by institutions, simply for the enormous blue sky potential of a major gold discovery that we have next to our property. We have had some success with good drill values discovered on our Corey property; values of almost three ounces of gold over a meter and a half, in one of our zones. I think right now the timing is good for anyone wanting to get involved with us because we are near an all-time low stock price, and we have excellent potential. We do have the personnel, the property and we have a bunch of dedicated people whose goal is to find another ore body and to benefit all the shareholders of the company. TWST: What should investors see as the four or five strengths and advantages that distinguish Kenrich-Eskay as an investment today?  Mr. Boguski: Our management team has years of experience in mineral exploration, and we have an excellent geological team. We’ve discovered many multiple volcanic massive sulfide zones and mapped the Eskay rift. We’ve been successful in acquiring the property all around the Barrick-owned Eskay Creek Mine, and almost tripled the company’s land position, all which is excel-

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lent prospective ground. And we as a corporate team believe that the Eskay end prize is well worth a concentrated multiyear effort. Our team is determined to find another world-class, Eskay-type deposit.  TWST: Is there anything you’d like to add? Mr. Boguski: That’s the summary. The management team is dedicated, as we have good people and we have a great property with incredible history all around us, and it’s a matter of making a decision as to whether we are going to bring in a joint venture partner or two, or do another financing to continue our program. TWST: Thank you. (KL)

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WALLY E, BOGUSKI President Kenrich-Eskay Mining Corp. 9801 King George Highway Suite C206 Surrey, British Columbia V3T 5H5 Canada (604) 582-0559 (866) 204-3223 — TOLL FREE (604) 580-6805 — FAX www.kenrich-eskay.com e-mail: [email protected]

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New Gold, Inc. (NGD) ROBERT GALLAGHER has worked in the mining industry for over 30 years. He spent 15 years with Placer Dome and seven years with Newmont Mining Corporation, most recently as Vice President Operations, Asia Pacific. Mr. Gallagher brings a wealth of experience in the mining industry to New Gold. Prior to the merger of Peak Gold, Metallica Resources and New Gold Inc., Mr. Gallagher was the President and Chief Executive Officer of Peak Gold Ltd.

SECTOR – PRECIOUS METALS (AMX627) TWST: Can you give us a brief historical sketch of the company? Mr. Gallagher: The company, NewGold, really started as a single asset company in the late ‘90s. They had one property, the old Afton mine, that was a former producer held by what’s now Teck Corp. New Gold picked that property up and basically delineated an underground ore body. They were going along fine, but didn’t have enough money to develop the mine. In June of last year, three companies came together, including New Gold. They were Peak Mines, which had a couple of operating assets; one in Brazil and one in Australia; and the third company was Metallica Resources, which had just started up a new mine in Mexico and had a large development project in Chile. So the three companies came together a year ago. The strategy was to form a new intermediate producing gold company that would continue to grow by developing our organic assets and by consolidating single mine producing companies.. We would be specific as to where the operations and development projects would be, in what we call mining friendly jurisdictions, low political risk, lack of difficult social situations to deal with. TWST: What made it happen? What was the force behind the merger? Mr. Gallagher: There was one significant investor, a gentleman by the name of Pierre Lassonde. If you follow the gold industry, you will have heard of Pierre Lassonde. He was the founder of Franco- Nevada, and has been a very successful investor in both gold and oil and gas, and it turned out he was a significant shareholder in all three companies. What he saw over the last three or four years, was that the price of gold was climbing steadily and strongly from the $300 range in ‘02 to as high as $1,000 in March of last year. During that strong climb and improvement in the gold price, you saw the share prices of senior producing companies, the Barricks and the Newmonts, and the Goldcorps, who were appreciating with the gold prices as profit margins and cash flows all improved with the stronger gold price. When you looked at the single asset gold miners, the juniors if you will, that wasn’t happening, they weren’t getting a run-up in the share price. There wasn’t a great increase in value to the shareholders associated with

that increasing gold price. I can talk to why that is, but just carrying on this chain what Pierre’s idea was, “Well, let’s get the single mine producing assets into one. Let’s consolidate them into an intermediate-size company, and eliminate the issues with the small mining company so that our shareholders can enjoy the improved gold price environment.” TWST: Why weren’t the junior companies benefiting as much? Mr. Gallagher: There are a number of reasons. First of all, common to all of them was that they generally have small market caps and so the big investors that have sizeable amounts of money to invest can’t get involved in them because they don’t have the required liquidity with the small market caps. So you have a whole number of large investment funds or pension funds, and other fund managers out there who just won’t go into the small caps because they are looking to invest $1 billion, say, in the gold sector. If they are going to invest $30 million or $40 million into the little companies, that’s just too many companies, too many things that matter to think about. They look at companies where they can put in the hundreds of millions of dollars of investment. They are out of the junior companies and it is detrimental to their share performance. Secondly, the junior single asset mining companies, they’ve obviously grown out of exploration companies, which are usually managed by exploration people, and they have difficulty attracting operators. Good mining operators are different than good mine finders and builders, and operating people like other professionals, like to see a good career path in front of them. If you have a company with a single mine it’s not likely to provide an attractive career trajectory, so they struggle to get good operators. Mining is a tough business and as much as we like to think we know everything about the rock before we start; mine operations are characterized by temporary upsets. It means that if you only have one mine in your company, there is sure to be a temporary upset in your operation; it’s going to flow through directly to, and upset, the financials and your operating results of your company. You end up with these single mine companies that have very erratic earnings and cash flows, and lot of investors just don’t like that. Whereas if you have a company that’s got four or five mines in it, if one of the mines has a problem, usually two or three of the other ones, maybe even one of the other The Wall Street Transcript — June 29, 2009 1

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ones can pick up the slack and you can maintain the predictable results that investors like to see. At the end, the single mine companies are somewhat unattractive to a lot of people, and hence the reason they didn’t perform well in the big market run-up we’ve enjoyed. TWST: Western Goldfields is your most recent acquisition. Were they a single property company? Mr. Gallagher: They were, absolutely. It’s interesting in that our strategy was to continue to grow through consolidation of single mine producers in mining friendly juristictions. Western Goldfields was exactly that, a single mine company. The mine is located in Southeastern California, strong solid cash-generating asset, so it met the criteria perfectly. What was very interesting as we got to know the Western Goldfields people better, is their strategy was similar to ours. They were looking at staying in politically stable mining areas, they were looking at growing and they were looking at consolidating. It’s interesting in that more than just delivering on a strategy, this particular merger, the New Gold/ Western Goldfields merger, delivered on more than that. I mentioned that one aspect of our strategy was to grow through the development of our existing organic projects, and our big one is the original New Afton project that came in with New Gold at the beginning. We have about $400 million left to spend on that to get it up in to operation, and with the difficulties in the financial markets that occurred last year, the continued difficulty with debt funding, we did not have the finances available. The cash from our operations and our cash on hand would not have covered the cost to develop that mine. With the addition of the Mesquite mine, which comes to us through Western Goldfields, the added cash that will be generated over the next three years during the construction of the New Afton mine is now sufficient. The merger with Western Goldfields delivered on our growth strategy through consolidation and it very much enables us to deliver on getting the New Afton project constructed and growing organically. "The strategy was to form a new intermediate producing gold company that would continue to grow by developing our organic assets and by consolidating single mine producing companies.. We would be specific as to where the operations and development projects would be, in what we call mining friendly jurisdictions, low political risk, lack of difficult social situations to deal with." TWST: What is going to be the next acquisition for you? Mr. Gallagher: We just finished this one! Obviously, with both companies having the same strategy, we’ve been looking at a number of things. One of the other advantages of this combination is that it greatly strengthens our management team. From the New Gold side, you would characterize us as being very strong operationally. Most of us come from operating backgrounds, so we know how to run mines well. We know how to look at other mines and assess how well they are being run and how to improve their operations. Western Goldfields has very financially 2

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sophisticated mining executives. So we’ve put together a very much superior management team than either one of us had before that. We’ve both been looking at a number of opportunities. Some of them overlap, in other words we both had them on our radar. There are a couple other ones that each of us had explored that were a little bit off the radar of most people. It is an interesting mix. When are we going to do our next one? Our new company has a stated goal of growing from our current production level of about 330,000 ounces a year, to be producing a million ounces by 2012. This merger, plus being able to now fully fund and develop the New Afton mine, gets us half way there to about 0.5 million. So we will need to do two or three similar transactions between now and 2012. When you look at the pace we’re at so far, we did the first three-way consolidation a year ago. One year later, we’ve added this one. I think that getting to a million with three or four more of these transactions by 2012 is very achievable. M&A activity is very opportunistic in nature. There has to be something that’s valueadding to your shareholders, and that’s something that people have to be amenable to and understand why it makes sense to their shareholders as well as ours, so you can’t just say well, by June or by September of this year we are going to get another one done, like a cookie cutter, but I think you will see a steady flow. In the meantime, we will continue to report good development process on getting the New Afton project built. TWST: Do you think that there’s going to be a move towards this kind of consolidation in the industry? Do you see that happening? Mr. Gallagher: Everybody in the gold industry is talking about it. The companies themselves talk about it. After we announced this, we got out and talked to all our major shareholders, most of the fund managers and others. We’ll be visiting New York. We’ll see our major shareholders there and we’ll see other shareholders or other investors that aren’t shareholders. Everybody likes the consolidation for the reasons I expounded on earlier. But it’s not easy to do. There’s been a couple of little ones recently, but in terms of a meaty size and reputation, we are the guys that are doing it. There are a number of reasons for that. First of all, we’ve got a Board of Directors that is outstanding. I mentioned Pierre Lassonde who built Franco- Nevada, chaired the World Gold Council, who up until 2008 was Vice President, Director and President of Newmont. Newmont at that time was the largest gold company in the world, now the second. So this is a well-respected mining executive who knows everybody. In a similar light, Ian Telfer, who built Goldcorp, which is I think the third or fourth largest gold company, second largest in Canada, built it basically from scratch over the last five or six years. He sits on our Board. With us, we’ve got Craig Nelsen who is an explorationist, ran Goldfields’ worldwide exploration efforts for a number of years, etc. We’ve got mine builders, we’ve got financial people. James Estey who was President of UBS in Canada for a number of years, built that franchise up here. So, a very high powered Board of Directors. When you have a strategy of consolidation, they certainly have expertise and can optimize how you are going to finance these things. They know most of the players that you are dealing with. Oftentimes, the biggest hurdle to overcome on a merger and acquisition is what we call the social issues. What’s my job going to

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be? What about this guy? Maybe we should just wait, my share price will get better in six months, etcetera. When you get a group of well-respected, influential people that have done these before, they bring that all-together. They get people on the right track, as well as great financial backup for us, they are great at getting through the social issues. That is one of the reasons we do better than others. We are considered the go-to company if you want to consolidate. We have a great Board of Directors; secondly, we have a great balance sheet with lots of cash; we have debt, but it’s well out in the future. We have three assets that are cash flow positive producing assets, a very solid foundation of our fundamental business of production of gold. We’ve got a tremendous growth project, the New Afton project up in Kamloops, we are constructing, I referred to earlier. That mine alone when it’s finished in 2012 will double our cash flow or cash flow from operations when it is up in operations. So, people look at a company that has got a great Board, producing assets, a solid balance sheet, growth and a proven track record of getting consolidations done. I believe we are the go-to company and you will see more of that activity.

"From the New Gold side, you would characterize us as being very strong operationally. Most of us come from operating backgrounds, so we know how to run mines well. We know how to look at other mines and assess how well they are being run and how to improve their operations. Western Goldfields has very financially sophisticated mining executives. So we’ve put together a very much superior management team than either one of us had before that."

TWST: You mentioned the New Afton project. What are your other major projects? Mr. Gallagher: Okay. Let me run through the three producing assets first of all, and I’ll just tell you where they originally came from. The Cerro San Pedro mine is in Mexico. It came into the organization with Metallica. It’s located in Central Mexico. It’s what we call an open pit, run-of-mine heap leach, which started operation in 2007. It produces about 100,000 ounces of gold a year and about 1.25 million ounces of silver. It has a life of mine cash cost of about $420 an ounce. So, this mine came into operations as I mentioned in ‘07, ramped up very quickly to full production. We’ve got a great team assembled down there. In their first year of operation, they won the safest mine in its category in Mexico. They just got ISO 14001 certification for their environmental systems on the site. They are doing a tremendous job down there. That mine has got a nine-year life. The second of the three parties that came together was a company called Peak Gold, which incidentally is where I originated from. They have two assets, the Amapari project in Brazil, which was put on care and maintenance earlier this year when the treatable ore was exhausted. The second

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one they had is the Peak mine, which is in Australia. The Peak Mine is still operating. It’s an underground gold, copper deposit with surface milling facilities. It produces about 100,000 ounces a gold a year, and they are currently producing 13 million to 15 million pounds of copper. Using copper revenue as a credit to costs, in other words, reporting costs on a byproduct basis, they have this year a cash cost of around little under $400 an ounce and life of mine as they go forward around $480 an ounce. It is an underground mine. They are about 1,200 meters under the surface. You could see costs go up somewhat as they go deeper. The life of the mine, we’ve got about five years of reserves on our books, but these underground mines that have a vertical orientation, you really can’t drill off the reserves until you’ve actually developed down on them, they are just too far from surface. They have a history from year-in, year-out of replacing the reserves and we are confident saying the expected mine life there is eight years. The Peak mine was started up by Rio Tinto in 1992, and they had a million ounces of reserves and resources. The mine just produced its 2 millionth ounce last year. We’ve still got 1.5 million in reserves and resources. So this one will be around for a number of years, and again good solid cash flow coming out of the Peak mine. TWST: Obviously, some of your properties are international. Do you face unique challenges because you have to deal with international governments? Mr. Gallagher: Yes, absolutely, there are unique problems, and there are unique approaches. I am an operating guy who spent 21 years oversees. I’ve worked in Honduras, Philippines, Chile, Venezuela, Indonesia and Australia; kind of covered the ring of fire. There are challenges that happened over a quite a number of years. What has been of tremendous assistance and has impacted everything we do has been the improved ability to communicate, transfer information, talk to people all over the world. So it is not as difficult and people don’t feel as isolated by any means as they used to. It is very important when you are operating in foreign jurisdictions that you take the attitude that you are a guest in that country. You have to remember that particularly in developing countries where there is a culture of valuing the land, where your primary possession, your safety for life is your land, and that your natural resources are part of your land, so we you have to be very conscious of that attitude and that culture. You have to develop good relationships with the local people where you work and with the government officials both locally and centrally. These developing countries, they are very centralistic, but that being said, where you are creating the greatest impact is where your operation is, which typically is nowhere near the capital of the country. And you really have to focus on developing people. Typically, what you will do is if you’ve built a big mine, you will have a number of expats around there. You pick the right expats, they’ll quickly bring their national counterparts up to speed and they then will get out of the country. TWST: Are most of the governments pretty amenable to you being there? Mr. Gallagher: One of the things I mentioned is we like to go to mining friendly jurisdictions. One of the biggest challenges is that one government may be friendly and you may develop a great relationship with that government, and when the government changes, The Wall Street Transcript — June 29, 2009 3

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how ever it changes, you may now be riding the wrong horse. Again, you have to manage your business and set up your relationships with that kind of consideration in mind. Experience is very important, how you treat your people and if you do have expats, your operations, particularly how they treat the national people around there are all very important. This goes anywhere, you cannot over-estimate the importance and having your employees understand the importance of what we call your social responsibilities, because people know that the mine is only going to be there for a while and people know that the existence of that mine is going to change things and change things forever and you want those people when that mine is over to say, “Well, I am sure glad they were here for a while.” There are things you’ve got to do, they’re the right things to do. One of the big changes when you go into these jurisdictions and build a mine is that you are something they’ve never seen. Like if you build a mine in Nevada, it’s one more mine, and the President of your company will never go talk to the Governor of Nevada, but if you go down to Brazil and build a mine, the Governor of the state of Brazil is going to want to see you and then you have to respect that. One thing that a lot of people used to hear more than you do now is that North American mining companies like to go overseas because they run mines and get away with stuff that they can’t in North America. The fact of the matter is, again going back to the communications, everybody knows what everybody is doing in every corner of the earth within about 30 seconds of you doing it and all mining companies now, ourselves included, all operate, at least try their hardest to operate to the First World standards. You can say that, but you’ve got to demonstrate that and earn your stripes. Again that comes back to our strategy of somewhat restricted geography in which we operate. We do look for opportunities to grow our business restricted to areas where we know people down there and people know us, we have relationships, people can readily come to our mines and see that our mines truly are the most environmentally, economically and socially responsible mines that you’ll see anywhere. As I say, I’ve lived in those countries for 21 years. And you know what’s really exciting, what I like about it, is you go in there and you change people’s lives for the better. You’ll take a guy that used to be a farmer or used to drive a motorcycle taxi and you bring him into the mine, and after four years, the guy has got an Australian diploma as a pipe fitter or as an electrician, I mean he can take that anywhere. You would have these graduations – I don’t know if the graduation ceremonies were more for the guys getting their certificates or their families, but it sure made all of us feel good to see these guys and to know that their lives have changed and they’ve changed for the better, and those guys, as I say, after the mine has gone, those guys have got something to take with them. All the mining companies focus on education and they focus on health and that’s what we call sustainable development. If we do those things the right way, they will continue to exist after you are gone and that’s the sustainability part of mining. TWST: You’re talking about creating a community around the mine. Mr. Gallagher: Yes, that’s a good way to put it. The New Afton project is on the traditional grazing lands of two bands of first nations. Last year, we finalized what has been characterized not by us, but by others, as a ground breaking agreement with the first 4

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nations groups where we really have established a relationship with them and we formalized it in writing. It says that we will provide training and we will provide assistance and give preference and if all other things are equal, we will use their small businesses that they’ve developed in supporting the operation of the mine. It’s been a great process, and it was started long before we got involved a year ago, but they’ve done a tremendous job, and it’s being used as an example with other local governments, and the province in moving forward with first nations issues.

"When you look at the pace we’re at so far, we did the first three-way consolidation a year ago. One year later, we’ve added this one. I think that getting to a million with three or four more of these transactions by 2012 is very achievable."

TWST: Several analysts are currently touting you as a hot stock. Why do you think that is? Mr. Gallagher: Actually, the share price has been on bit of a tear as well. I think people like our strategy, they see that we can do it, we can deliver on that strategy. They see the strong management and the strong Board of Directors we have, the fact that we’re now fully funded, we have the cash coming in over the periods it’s going to take to build the New Afton project. They see that we are creating that intermediate company. When you look in the longer range, the five to ten-year range at the gold mining industry, the gold mining companies and you say to yourself, “so where has all the wealth been created, where is all the value been created for shareholders?” For the majors, yes, the majors their share price will go up and down, with the gold price, but their biggest challenge is just discovering enough gold and bringing it into mines or to acquire big companies so that they can maintain their size, and that’s why you don’t see any intermediate companies. Now they have all been swallowed up or they’ve grown to big ones. There aren’t a lot of intermediate companies out there and so the investment community is hungry for them. We’re proving that we are growing to be that, one of those intermediate companies, and I think that gets people excited about us. TWST: You mentioned the money, that you are in a good cash position now. Are you looking to raise more money at this time? Mr. Gallagher: No. As far as going out and issuing equity to put money in the bank, we don’t need to do that. We are fully funded, as I say, to get our big growth project completed, the New Afton project, which will, as I said, double our cash flow. There should be lot more cash flow and we’re not diluting our shares. TWST: We talked about the Board of Directors. Can you just give me briefly a little bit about your management team? Mr. Gallagher: Yes, our executive chairman is Randall Oliphant, and Randall spent most of his career with Barrick Gold. Barrick is the largest gold company in the world. He

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joined Barrick Gold when it was about a $200 million market cap company; it’s now I think somewhere around $30 billion. He has a finance background and his last two jobs were Chief Financial Officer and Chief Executive Officer of Barrick. He has built a big company. He is just a tremendous mining executive. I am the President and Chief Executive Officer. I spent the biggest chunk of my career with Placer Dome, which is a Vancouverbased gold company that was acquired by Barrick Gold a couple of years ago, which leaped Barrick over Newmont Mining as the biggest, and I worked for Newmont for seven years in Indonesia and Australia. In fact, my last job before coming home to Vancouver was as Vice President Operations for what Newmont called Asia Pacific. I took care of Indonesia, Australia, New Zealand; we had seven mines down there. Our Chief Financial Officer, Brian Penny, comes from Western Goldfields as Randall did. Most of his career was spent with a company called Kinross Gold, which started up with a couple of small assets and grew to now – I think people would say it has transitioned from the intermediate to the senior size; so again another mining executive

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who has grown companies, not just for growth’s sake but to create value, and is very sophisticated in the financial matters of the mining industry. Finally, our Chief Operating Officer, Jim Currie, he comes from the New Gold side on this last merger. I hired Jim about a year ago when we did the three-way, I’d known Jim over the years – for some 30 years. He is a mining engineer by background, operated mines, built mines; has been around the industry a lot, so very seasoned mining professional. TWST: Is there anything else that you would like to add? Mr. Gallagher: No. I think I’ve covered just about all the highlights. TWST: Thank you. (LR) ROBERT GALLAGHER New Gold, Inc. 3110-666 Burrard Street, Vancouver British Columbia, Canada, V6C 2X8 604 639 0023   604 696 4110 – FAX

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New Jersey Mining Company (NJMC) GRANT BRACKEBUSCH, Vice President and Director of the New Jersey Mining Company, is a professional mining engineer who supervises the company’s daily mining and mill operations, performs engineering tasks and coordinates environmental permitting. He is also a co-principal of Mine Systems Design, Inc. and conducts laboratory testwork for MSD’s paste backfill clients. With a BS in Mining Engineering from the University of Idaho, Mr. Brackebusch previously served as a mine planning engineer and shift supervisor at Newmont Gold Co., where he worked on the Carlin Trend in open pit mine planning and pit supervision for three years.

SECTOR — PRECIOUS METALS (AMX637) TWST: Has the formula for being a successful small mining company changed irrevocably in the past year? Mr. Brackebusch: I don’t know if it’s changed irrevocably, but it’s certainly changed for the time being. Whereas prior to the past year we had been able to raise money through equity offerings of private placements, primarily with individual investors, that market dried up after the stock market crash. So we’ve had to focus on other ways of generating money or raising funds, and one of those is joint ventures. We’ve acquired or staked a lot of mineral properties in the last four or five years, and for which we’re now pursuing joint venture partners. We already have a big exploration project called the Toboggan Project, which covers a little over 7,000 acres with Newmont Mining Corporation, and they are spending the money on the exploration right now. The deal has allowed us to take a broader approach to exploration in this area, and we’ve identified a large area of gold mineralization as a result. We are doing the drilling this summer, and once we get those results, I expect it will be reason for further encouragement. On another property, the Golden Chest Mine, you can see the flip side of this market. We have about six months worth of development work to do with a cost of about a million dollars, to drive a new ramp to some reserves. That’s a case where the current market is going to cause a delay. We just didn’t have the money to get it done, so we’ve suspended operations until we can raise the money. It’s definitely one of the projects high on our list to get done, but we didn’t have the money and we needed to conserve the cash. We would like to do quite a bit of diamond drilling there and try to increase the resources to, say, a quarter of a million ounces, where we could justify building a larger mill on site. The top priority never changes, though. To find a major deposit in the northwestern part of the US in the Belt Basin, that’s our number one priority, and we make adjustments with the rest of the portfolio to make that happen. TWST: What’s happened in the past year that has caused such a drastic shift in financing opportunities, even in an area like gold where prices have held up reasonably well?

Mr. Brackebusch: I think mining was just caught up in the general market downturn. I mean, we are gold-focused, we also look for silver, but we are a gold-focused exploration company and gold prices haven’t really been all that bad. So if you look at it from that perspective, you wouldn’t think it’s a tough spot for us, but the macro-investing atmosphere has hurt us because I don’t think investors have the money they used to have to spend on these more speculative investments. TWST: Is it joint venture or die in the junior mining world right now? Mr. Brackebusch: I am not sure if it’s joint venture or die, but it’s probably, if you want to make any progress or do any work, you will have to joint venture, at least we are thinking that way. We’ve got another joint venture that we are looking at for our Silver Strand mine, where we have some small-scale production in association with exploration drilling, and the way we’re selling that to the joint venture partner is that, with this production, we can generate some income from the property while we are exploring it. So the cost of the exploration in the end is very small. Most exploration projects, you put the money into it and you never get it out. At least on this one at the Silver Strand, we will generate enough money to more or less probably break even with the exploration. That makes it a unique asset and has helped in a search for a joint venture partner. We expect to place some additional properties in the deal also. And interestingly, it is a smaller-sized company, a Canadian junior, so the joint venture focus requires majors like Newmont and companies with a profile closer to our profile also. TWST: Did the Newmont joint venture come into place in 2008 as a result of financing stress? Mr. Brackebusch: It was getting tougher, but it was not as if we looked into a crystal ball and saw how quickly conditions would deteriorate and how severely. By signing the joint venture with Newmont we were able to raise well above $1.7 million and, in retrospect, I am not sure we would have been able to raise that money without signing the joint venture. However, the primary reason we went to Newmont is because we have at least three large zones of gold mineralization, and it was going to take somebody with more resources than us to get this project moving quickly. So that’s why we went to Newmont. The Wall Street Transcript — June 29, 2009 1

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TWST: If joint ventures are critical for most juniors now, is there a fine line between finding a strong partner and giving away too much control of an entrepreneurial exploration company? Mr. Brackebusch: I suppose, but probably each company will have its own fine line. A lot of times these agreements will have work commitments, and we weren’t concerned about placing the work commitment at a high level. We were more concerned about keeping as much of the property as we could. If it does go into a feasibility or production stage, to have a big piece of the project was our goal, and the Newmont agreement will let us have 30%. That was our goal. It’s important to us to maintain as much ownership in the project as we can, but you have to balance that too. Sometimes a lot of these joint ventures can turn into a situation where you have joint funding calls, both partners will have to put up the money. So you have to budget for a day when there is going to be a cash call on one of these projects, and you won’t be able to afford your portion of the cost. So the way the agreements work, your ownership will be diluted out. So you have to be careful about that, too.

”I think as far as putting money into drilling, the focus has to be precious metals, but it might be a good time to keep your eyes opened for any properties that may come up that could be really cheap, possibly base metal properties."

TWST: What would the Silver Stand joint venture allow you to do that otherwise might be delayed? Mr. Brackebusch: We expect to sign a letter of intent with our joint venture partner at the Silver Strand site next week. The plan at the Silver Strand would be to advance development so we can put in some diamond drill stations underground and try to increase the resource, and also mine the reserves we have already identified and that we have access to. Silver Strand, as a gold and silver occurrence, is kind of unique for this district. It runs about 344 grams per ton of silver, so that’s about 10 ounces per ton of silver, and about 5 grams per ton gold, and the gold content is quite unique as compared to the silver value of the Coeur d’Alene District, and it’s got nice grades. So that’s one of the things that is attractive to us and to our joint venture partner. And hopefully production could be reached by the third quarter of this year. So things are looking busier now than they did a month ago. A month ago, it didn’t look like we were going to have much going, except the Toboggan Project with Newmont, but it looks like we will be able to pick up our exploration pace with the joint venture at Silver Strand. TWST: You mentioned that the new joint venture partner is a junior company. Do you think the day has arrived for junior companies across the board to pool expertise and resources as a road to success? Mr. Brackebusch: I am not sure which way it’s going to go. It’s probably going to be a mixture of both major mining com2

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pany and junior company partners in our case. Some of the properties that we have aren’t as attractive to the large major companies. They don’t think they can find a major mine, but a smaller joint venture partner can see more value in these smaller properties. It depends on the size of the deposits and the geology of the specific property as to what type of partner you could attract to it. TWST: Your company mentioned in your most recent quarterly report that you expected all the mines and the mineral processing plant to be idle in the second quarter of 2009, and remain idle indefinitely. Is that something you would have expected to say a year ago? Mr. Brackebusch: We would have never expected to make that statement. It has been surprising how fast we went from a boom to bust. It’s just amazing. I don’t think in the recent history there has been anything that’s happened that fast. That’s what made this one unique. As far as how to play it for the future, I think what we will be looking for is possible properties that may come up during this downturn where companies can’t raise money and maybe they can’t retain properties. So we will just keep our ears to the ground and try and find some new opportunities. This doesn’t mean acquiring existing companies. Our favorite strategy is to go out and stake claims on US public domain lands because it’s a pretty cheap way to gain positions. But we are also looking at another attractive situation, properties on private property where the environmental permitting requirements are much less. The one drawback in taking on public land is dealing with the federal bureaucracy. So we will also be looking at private land situations, and mineral reserves that we could ship to our mill facility in Kellogg. So we can execute a regional strategy because we’ve got this processing plant in Kellogg where we could leach gold and silver concentrates, and try to find some properties that are not too far away, where we could use the mill as leverage to help secure a deal. I think as far as putting money into drilling, the focus has to be precious metals, but it might be a good time to keep your eyes opened for any properties that may come up that could be really cheap, possibly base metal properties. TWST: You’ve outlined what your company would be able to do achieve on its own, but a lot does depend on the willingness of the majors to ante up, so are there indications that the really conservative stance from the past year is changing? Mr. Brackebusch: I think they are still in conservative down market mode, and I think they got pretty spooked last autumn with the capital markets freezing, and that’s when they did a lot of rebudgeting, cutting back on a lot of their exploration budgets, and I am not sure that they are completely done with that exercise yet. The bigger companies are still hunkered down and just peeking out right now. I haven’t seen any real change in that atmosphere, and I think it’s going to take gold prices either staying where they are or moving up, and as long as fuel prices and consumables don’t get too high, these companies should be making pretty good money again, and once they start to rebuild their treasuries, they will get more confidence. TWST: Even if prices go up in gold again and other metals continue on the comeback trail from recent lows, is the biggest boom in metals behind us or right out ahead in the foreseeable future?

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Mr. Brackebusch: I don’t know about base metals, how much of a boom there is going to be for that, but I’m more positive on the price of gold, simply because of US dollar weakening. That is what will drive prices. It will drive base metal prices up as well, but I am not sure how much demand increase there is going to be for those base metals. I don’t see a boom in the foreseeable future, but I think we will have stable prices. TWST: The last year was really tough for metals companies in terms of the market psychology hitting public stock prices hard. Your company was trading as high as $0.75 and is now down to around $0.25. Does that type of movement in the markets make you even more reluctant with public financing? Mr. Brackebusch: Yes, there is no question. I mean, the stock price is another reason, which I didn’t mention earlier, behind our joint venture initiative. It makes a hell of a lot more sense for us to sell an interest in our properties than to sell a big chunk of the whole company because we are trading around $0.25 right now. So I don’t know what sort of discount we’d have to take to get a deal done at the moment, but we don’t want to dilute our existing shareholders, and that’s one of the biggest drivers of this joint venture philosophy. Another financial wrinkle playing into this move is that while private investors have always been a good source of capital for mining, they are going to be harder to find because there is going to be more competition for them. One thing we have to do is be competitive with all these other junior companies out there and produce some results so that investors are attracted to us. TWST: Can junior mining companies ever get back to really being out on their own and fully funding their own operations? Mr. Brackebusch: Yes, they could turn around pretty quick, I would imagine. If the market is there for the financing of these companies, the JV model may become a lot less popular. It just depends on the ability to raise capital, and I think it could happen pretty quickly, just like the crash happened. However, I think investors probably have learned some lessons in this recent crash, and it might take a while for that kind of change to come because investors are going to be more careful with their money. A lot of investors were spread too thin in too many different companies, or they expected the stocks to behave differently when there was a crash in the financial markets, such as gold exploration companies going up in value during a bear market. So I think a lot of investors were surprised by how the junior markets got nailed at the same time as the broader financial market. In the late 1990s, when the technology stocks led a market boom, gold prices were plummeting and that was a tough period for junior mining companies, too. Maybe investors thought that would reverse somehow, but it didn’t. TWST: Earlier you alluded to the mill that you own and it being an attractive asset. Has it become a more important part of the financial equation in terms of raising some short-term cash? Mr. Brackebusch: Yes, it’s definitely helped us. For example, at the Golden Chest, where we suspended driving the ramp, we mined out some old pillars that we had access to and that kept us going for six months. That’s something we wouldn’t have been able to do without the mill. So we need to pursue production possibilities with our mill. I think the mill and leach plant facility

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is pretty critical for the company. We’ve got a fully permitted mill. It may not be a large mill, it’s 100 tons a day, but it can be easily expanded to about 250 tons a day. So that’s another thing that attracts joint venture partners as they see a property with some ore on it, some core reserves. They can see their path to generating some income from that property, a million dollars in annual income, roughly. So the major point is that you are going to make some profit that will cover your exploration costs, which you are incurring to find a larger deposit, which is what everybody is looking for.

“Another financial wrinkle playing into this move is that while private investors have always been a good source of capital for mining, they are going to be harder to find because there is going to be more competition for them."

TWST: What’s your forecast for the price of gold? Mr. Brackebusch: I think gold reasonably can get up to around $1,200 an ounce in the next 12 months, that’s what I would project. Silver I imagine will follow along. Silver has been acting better lately, and I think gold will pull it up to some extent, may be to around $20 an ounce. TWST: What’s been the biggest sacrifice you’ve had to make during this down market? Mr. Brackebusch: We had to lay off employees; that wasn’t fun. That was probably the biggest thing, and by doing that we sacrificed the pace of exploration and things just slowed down. We didn’t have money to get the exploration done and everybody has had to take a pay cut, management included. And so it’s just been a tough period. I don’t know if it’s over, but it’s looking a little better right now anyway. From our perspective, the fact that other companies are interested in our properties as joint ventures, and the prices of gold and silver holding up like they have has been encouraging. TWST: What are the biggest metals and mining industry risks right now that could really keep companies under financial strain for a longer period? Mr. Brackebusch: I think in the US it could be too much government intervention or the rewriting of the mining laws pertaining to royalty structures specifically, that would make properties unattractive. There are some guys in Congress affiliated with the West Virginia coal mining industry who like to propose high royalty structures out on lands in the western US because it doesn’t hurt their districts and makes them more popular with environmental concerns. I am just concerned that kind of tactic might have traction now with the Democrats in charge. Before the last year, I would have given it low odds, but I don’t know anymore. There have been some bills drafted in the Congress. I think Congressman Nick Rahall of West Virginia proposes a lot of these bills to kill hard rock mining on public land. But on the other hand, Harry Reid is a friend of the mining industry, so that may help. The Wall Street Transcript — June 29, 2009 3

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TWST: Any other facets of the company that you think are important for investors to understand and which we have not covered specifically? Mr. Brackebusch: The only thing that I didn’t mention, and which I am pretty proud of, is our technical expertise as a small company. We do a lot of different things. We do our own diamond drilling, we do our own mining and we do our own milling. We go all the way from the diamond drill to the near-final product inhouse. So I am proud of that fact. That’s particularly important in a tough financing environment. On the Toboggan Project we are acting as the drill contractor, so we are getting paid to drill our own joint venture, which is a pretty good deal. It’s not a lot, but it pays the bills. We are driven to drill as many holes for the lowest cost as we can, but we still have

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to cover our costs, so it’s a good deal for us. It’s not a big part of the long-term economic viability of the company, but at a time like this, every little bit counts. TWST: Thank you. (EPR) GRANT BRACKEBUSCH Vice President New Jersey Mining Company 89 Appleberg Road Kellogg, ID 83837 (208) 783-1032 (208) 783 -3331 — FAX www.newjerseymining.com email: [email protected]

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Osisko Mining Corporation (OSK) SEAN ROOSEN, President & Chief Executive Officer & Director of Osisko Mining Corporation, has over 20 years experience in international mining and development projects. Sean has worked extensively in West Africa with groups including Hansa Geomin, Echo Bay and Placer Dome, and was Operations Manager for Etruscan Resources during the development phase of the Samira Hill mine. Sean is a founding shareholder and director of Eurasia Holding AG, a German-based private resource fund that is one of Osisko’s largest shareholders. Mr. Roosen is a recipient of the Prospector of the Year Award - 2006 (Association de l’exploration minière du Québec) and Prospector of the Year Award - 2008 (Prospectors and Developers Association of Canada), both awards shared with the Osisko team. Mr. Roosen is a graduate of the Haileybury School of Mines.

SECTOR – PRECIOUS METALS (AMX633) TWST: Let’s begin with a brief history of the company and what your focus is on now. Mr. Roosen: Osisko was a junior TSX Venture listed company that we got involved with in 2002. We refocused the company onto later stage exploration projects, acquired the Canadian Malartic project in 2004, and began exploration on the project in March of 2005. We’ve been drilling 24 hours a day seven days a week pretty much ever since then, and have drilled over 600,000 meters. In four short years our work has developed the Canadian Malartic deposit to reserve status, and most recently the company has also released the measured and indicated resource on a second new deposit called South Barnat, which is contiguous and to the northeast of the Canadian Malartic deposit. In-pit reserves on Canadian Malartic are now 6.3 million ounces and Barnat’s measured and indicated resource is over 2 million ounces at an average rate of about 1.65g/t gold. It’s been a very aggressive development of the Canadian Malartic projects and in aggregate right now the global resource stands north of 10.5 million ounces in all resource categories. The focus of our initial feasibility study published in November of 2008 was the main Canadian Malartic deposit. It was actually a definitive feasibility study or bankable feasibility study. We defined 6.28 million ounces of in-pit reserves in that feasibility study to give us about 5.9 million ounces recovered gold at a cash cost of $319 an ounce, which is in the lowest quartile of the sector. Our focus at present is the final permitting process and construction of the Canadian Malartic mine, and then by the end of this year to integrate the Barnat deposit into our mine schedule. This will allow us to move it to the reserve category and hopefully add roughly two million ounces to our reserves this year. Looking forward, we’re one of the best-financed companies in the development sector. We raised $403 million in February this year in addition to the previously raised $275 million of equity, and we have in-the-money warrants that could bring in another $243 million this fall. Assuming the exercise of

those warrants, we will have over $1 billion in equity raised since 2005 for the development of the Canadian Malartic project. In addition to that, we also have several debt facilities. One’s a fully funded lease for the mining fleet for US$83 million or about $100 million Canadian, and the second is an unsecured debt facility from the FTSQ fund in Quebec for another $20 million. We are probably the best financed in the development sector at this point in time for a non-producer. We continue to focus on putting Canadian Malartic into production for April 2011 and we hope to produce about 590,000 ounces a year in average although less mined within the earlier years going over 620,000 ounces a year at cash cost of $319, which would put us in the lowest quartile of the sector worldwide. TWST: Is it $403 million in equity financing? Mr. Roosen: That was completed in February, yes. $403 million Canadian was completed in one single equity financing. I think it was the largest equity financing ever completed on the TSX by a non-producing company. TWST: How will that affect the company, and what will you be using the money for? Mr. Roosen: The overall capital cost to build the Canadian Malartic mine is US$789 million. The money goes towards building the mine. Assuming November warrants come in, we could have net zero debt on our balance sheet with 620,000 ounces a year mine built out, which would place us solidly in the mid-tier producer category with no debt on our balance sheet. TWST: How has your company been affected by the recession? Mr. Roosen: I think we’ve benefited from the stronger gold price and the weaker supply costs. We’ve seen steel prices, fuel prices, chemical costs, labor costs, and construction labor availability all work to our favor. When we originally did a feasibility study in November of ‘08, we were using Q3 2008 numbers, which were near the peak of the market for milling equipment and for steel costs. Now we’re seeing that most of those costs are between 10% to 30%. As we head into the mine build we’re going to benefit from the lower cost base that will underpin the mine construction. The Wall Street Transcript — June 29, 2009 1

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TWST: What about the fluctuations in the commodities market? Mr. Roosen: Gold has been strong. We’re a gold producer with only about $10 an ounce of silver credit, and we don’t have any exposure to base metals. We have relatively little exposure to hydrocarbon costs, we’re about $50 an ounce in fuel costs. We’ve actually benefited from a time when the commodity price for gold is almost at an all-time high and our consumables, steel, chemicals, fuel, and energy are almost at an all-time low relative to the gold price. There’s never really been a better time for us in the gold space to build mines and certainly the margins have never been stronger than they are at present.

"If you’re investing in a pure gold play and you don’t want exposure to base metals, we’re a straight up simple company that gives investors leverage on one of the few giant deposits in the gold space that’s in a safe jurisdiction."

TWST: What are your priorities over the next four to eight quarters? Mr. Roosen: Right now we’re focused on the final segment of the mine permitting, we began our final permitting process in September of 2008. We are within a couple of months of having finished the permitting process, which would move us into the gold development space, one of the only companies that’s actually permitted and ready for a mine build this year and one of the only significantly large projects looking to produce more than 600,000 ounces a year that would come online in 2011. So, really driving for the finish line on the construction of the Canadian Malartic and to integrate the Barnat into our reserve category by the end of this year is our main priority. We continue to be the most aggressive driller in the gold space worldwide on an exploration basis. We’ve drilled over 130,000 meters or about 600,000 feet so far this year and we will continue to be aggressive at the drill bit in both exploration and development. We are looking at the possibility of acquisitions and we’ve increased our corporate development team by four senior people. We continue to look at other opportunities within the space as well. Being the best financed developer we are in the unique position to take advantage of the equity pullback that we’ve seen in most of the explorers and we’re planning to be very active on the front to continue to build the company. We’ve averaged 2 million ounces a year for the last two years in added resource and reserve and we’re hoping that we can continue on with that. We’re one of the largest market caps of any non-producer in the world and we believe that there is a spot for us in the marketplace to deliver shareholders an opportunity to invest in pure gold projects in a low political risk environment. Quebec is rated Number 1 in the world as the best jurisdiction to carry out mining investment and we want to continue to take advantage of that. 2

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TWST: What were your priorities a year ago and have they been achieved? Mr. Roosen: The number one priority a year ago was to finish the feasibility study on the Canadian Malartic, which we did ahead of schedule and ahead of budget by completing that in November 2008. Subsequent to that, we had hoped that we were going to have another discovery, we did so with Barnat. We found it about 11 months ago and we’ve now drilled it sufficiently to move it to the measured and indicated category. We’ve continued to be very aggressive on the foundation aspects of the mine build such as the relocation of the town houses that we had underway, which we’re now at about 90% complete, and to make sure that our mine building team had all of the financing and all of the people that were required to carry out such a large project. TWST: What were the main findings of the feasibility study? Mr. Roosen: Operating cost of $319 an ounce, 84.5% recovery based on $70 an oil barrel, 25.5% internal rate of return after taxes based on $775 gold price. At $900 gold, where we sit currently, we would be north of 32% internal rate of return after taxes so very robust numbers. In addition to that, we would be milling 55,000 tons per day or about 20 million tons of processed material on an annual basis. The overall capital cost is about US$789M, which spread over the internal resource right now means Capex of about $90 an ounce in total for the entire project, which is probably top five in the world at the moment for large projects.

"Operating cost of $319 an ounce, 84.5% recovery based on $70 an oil barrel, 25.5% internal rate of return after taxes based on $775 gold price. At $900 gold, where we sit currently, we would be north of 32% internal rate of return after taxes so very robust numbers."

TWST: What would you consider your competitive advantage? Mr. Roosen: We have a very robust project in terms of where it’s located, its on infrastructure between Val-d’Or and Rouyn-Noranda, two traditional mining camps. We have access to excellent services. We draw from a well-trained labor pool. There are over 30 operating mines in Quebec and most of them are focused in the region within which we find ourselves. I think the big competitive advantage we have against most parts of the world is our power costs. We have a power contract with Hydro-Quebec for the life of the mill, which is longer than the life of mine, for CDN$0.043 kilowatt-hour, which is about US$0.039 kilowatt-hour. So, we have very low energy costs and we have a very safe jurisdiction to carry out this project in. I think probably the biggest thing given the volatility of the markets right now is that we’re fully financed from an equity point of view and one of the few companies

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that enjoys a balance sheet that is able to put forth over two-thirds of the project costs in equity. TWST: Can you give me a bit of information about your background and that of a couple of other top executives? Mr. Roosen: The senior executives of the company are all industry veterans who average between the ages of 40 and 50. My background is the Haileybury School of Mines, 13 years in West Africa, mainly involved in low-grade bulk-tonnage work, and including companies such as Etruscan, Echo Bay and Placer Dome. Prior to that I was in Canada in exploration and development. Senior VP of Exploration Bob Wares is an award-winning geologist who has spent his entire career in Quebec, has in-depth experience on large porphyry systems and has shown all his talents on Canadian Malartic. John Burzynski, VP of Corporate Development, also spent a lot of time on low-grade bulk tonnage projects in Africa and Quebec. Bob, John and I kick-started Osisko back in 2003. We recruited Bryan Coates, our CFO, in early 2007, and Bryan has over eight mine financings and permitting projects behind him, including Rosebel and Omai, and has worked with or for the likes of Cambior, Iamgold and Lac Minerals. Bryan was key in helping us collect the mine building team, which has over ten mine builds behind them. Luc Lessard, our VP of Construction and Engineering, most recently built the Rosebel Mine for IAMGOLD Cambior. Our team has built four mines in Quebec and we continue to attract top talent. Our processing engineer, Denis Cimon, is based out of RouynNoranda, which is next door to our project. He is our general manager onsite and was also the process operator at Rosebel for Cambior. Paul Johnson likewise comes from Quebec and he was the mine-pit operator at the Rosebel Mine. So, pretty much everybody on the team has worked together on large projects and have a history of delivering projects on time and on budget.

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TWST: What are the couple of reasons for investors to look very closely at your company right now? Mr. Roosen: I think the primary thing you want to look at given the volatility is the ability to raise funds in this market. We’ve been fortunate to be one of the companies that the investment community has been willing to stand behind for mine development and investment so we enjoy a cash position of over $420 million, not including about $200 million spent on our project to date. I think that investors should be cognizant of investing in projects that are financeable so the projects are not going to get stalled. We’re also located in Quebec, the best place in the world right now to carry out mining investment. If you’re investing in a pure gold play and you don’t want exposure to base metals, we’re a straight up simple company that gives investors leverage on one of the few giant deposits in the gold space that’s in a safe jurisdiction. TWST: Is there anything else that you’d like to add? Mr. Roosen: We do enjoy a bit of a scarcity value within the marketplace right now as we are on the verge of being one of the few world-class projects that’s permitted, fully financed and will come online in 2011. TWST: Thank you. (MR) SEAN ROOSEN, President, CEO, and Director Osisko Mining Corporation 155 University Ave., Suite 1440 Toronto, ON M5H3B7 (416) 363-8653 (416) 363-7579 – FAX www.osisko.com/en/

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Pelangio Exploration Inc. (PX:TSX.V) INGRID HIBBARD, a trained lawyer, is President and CEO of Pelangio Exploration, Inc., a spinoff of Pelangio Mines Inc. Formerly the President and CEO of Pelangio Mines, Ms. Hibbard was the driving force behind the company’s acquisition of the Detour Lake deposit from Placer Dome in 1998, the sale of the deposit to Detour Gold in 2007, and the subsequent merger of PDX Resources (which held Pelangio Mines’ interest in Detour Gold) and Detour Gold in early 2009. She remains on Detour Gold’s Board as a Director. Recently, Ms. Hibbard has spent significant amounts of time in Ghana while negotiating the option agreements in respect of the Obuasi Property, and maintaining Pelangio’s excellent working relationships with local communities and businessmen. Prior to joining Pelangio Mines in 1996, she was a mining and securities lawyer with Noranda and Hemlo.

SECTOR — PRECIOUS METALS (AMX607) TWST: Would you start with a brief history of the company and tell us what your focus is on now? Ms. Hibbard: Pelangio Exploration is an unusual company. The company dates back, in one form or another, to 1937 and was founded in Northern Ontario. Over the years, it has never consolidated and we have many original shareholders. Some of the original founding families, the Pelangios and the Loughs, still own share positions in the company. As you can imagine, there have been a number of management teams over the years. My father ran, or was involved with, Pelangio Mines, our predecessor, in the late 1980s, and I took over when he passed away in 1996. At that time, we had a property adjoining the Detour Lake mine in Northern Ontario, which was operated by Placer Dome. The mid-1090s were a roaring time for gold exploration; unfortunately, they were followed very quickly by the downturn of 1998. In 1998 we saw an opportunity when the Detour Lake mine was nearing the end of its mine life and gold was bottoming. We acquired the mine and a major land package on an underexplored portion of the Abitibi Greenstone Belt for approximately $1.5 million, which we borrowed from Franco-Nevada on the agreement that we would conduct $1.5 million in exploration on the property and grant Franco-Nevada a 2% NSR on the property. The acquisition illustrates our ability to recognize and creatively execute on opportunity. We conducted a drilling program on the area surrounding the mine and brought the deposit up to a 3.4 million ounce near-surface gold resource. The deposit is now held by Detour Gold, which purchased the deposit from Pelangio Mines in early 2007. Through the sale we took a 50% equity interest in Detour Gold, which IPO’d at $3.50 and hit a peak of $25 in mid-2008. In September 2008, we spun off our exploration assets to our shareholders by issuing them shares in a new company, the current Pelangio Exploration, and left most of the Detour Gold shares in Pelangio Mines, which was renamed PDX Resources. PDX Resources merged with Detour Gold in March 2009, and its shareholders now hold shares of Detour Gold directly. Detour Gold now trades at around $13. Effectively, our shareholders

saw the deposit grow from 3.4 million ounces to over 10 million ounces and the value of our investment in Detour Gold increase from $70 million to $320 million, all while retaining an interest in an early-stage exploration play, Pelangio Exploration. This complex of transactions exemplifies our strategy, which we’ll try to duplicate in Pelangio Exploration. We focus on early recognition of opportunity and early stage exploration. If you look at the life cycle of a mine, the greatest potential upside for shareholders is at that early discovery stage. That’s what this management team enjoys most, and we’re big believers that you do best what you love most. With the Detour transaction we found a way to leverage off of others’ work and expense in increasing a resource while maintaining a significant interest in the project. Detour focused on increasing the resource while we could focus on our next opportunity in Obuasi, Ghana, West Africa. Our property there, like the Detour project, is a large land package, 290 square kilometers, located on one of the most prolific gold belts in the world, the Ashanti Gold Belt. We are located directly adjacent to the largest vein-hosted gold deposit in the world, the Obuasi mine, which has produced about 30 million ounces since 1897 and has another 30 million ounces in resources and reserves. TWST: Until 2005 the company was exclusively based in Canada. What were the reasons behind moving so far away to Africa? What was the impetus behind that from a strategic standpoint? Ms. Hibbard: You raise a good point, as it is true that Pelangio explored solely in Canada from 1937 to 2005. The land package in Ghana, however, was the opportunity of a lifetime in our estimation. Ghana is also a very stable country, it has a long mining history and local mining expertise. In fact, the Fraser Institute recently ranked Ghana as the number three mining jurisdiction in the world in terms of policy and mineral potential for exploration. So it was a place where we were comfortable to work. I went, myself, to negotiate and to get a sense of the country. We won’t acquire property in a country unless I personally feel comfortable working there. I have no concerns about Ghana in that respect and visit regularly to keep in touch with our team and the local residents. The Wall Street Transcript — June 29, 2009 1

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TWST: How are the resources of your company currently broken down now, Canada versus Ghana? Ms. Hibbard: Our Ghanaian asset is, far and away, our premier asset given where it’s located and our recent work. I suggest that readers should visit our Website at www.pelangio.com to review the 3-D animation of the property, which illustrates some of our recent work and the property’s location in relation to the Obuasi mine. The mine comprises a series of shallow plunging ore shoots that are hosted in a graphitic structure, which we have been able to trace onto our property with a VTEM aerial survey conducted in 2007. We’ve also mapped the mafics associated with the gold mineralization at the mine onto our property. The ore shoots average 3 to 5 million ounces of gold, each. Finding one within our property boundary will be the focus of our exploration on the property this year. Of our $2 million budget for this year, about three-quarters will be spent in Ghana. We’ll target our drilling using the VTEM results, mapping and geochemical surveying. The 2007 VTEM survey covered approximately 30% of the property and focused on the area closest to the mine. This year, we’ve conducted a further VTEM survey over approximately 95% of the rest of the property, the results of which should be back later this year. Because of its location, potential and our work to date, it is clearly our premier project. That being said, we do have a number of smaller projects in Ontario. The next priority project would be our Birch Lake project in the Red Lake district of northwestern Ontario. It’s another former Placer Dome property, and a previous optionee spent over $1 million in exploration on it before we got the property back in September 2008. The optionee encountered multi-ounce intersects. We are doing some groundwork there this summer, and we hope to be drilling it during winter 2009/2010. TWST: Do you have plans for further expansion beyond Ghana and Canada at the moment? Ms. Hibbard: No, we are focused on Canada and Ghana. We are a small exploration company by design. One of the things about exploration and, particularly, what we do, which is recognizing opportunity and leaping on it, is that you do need to stay a little bit lean and mean. So we intend to stay smaller and we intend to focus because it would be easy to get scattered all over the world. Two continents are plenty. TWST: How has the turmoil in the commodities market affected your company? Ms. Hibbard: We are in good shape. We completed a small financing recently, so as of the end of March, we had $1 million in cash and 300,000 shares of Detour Gold, which is trading in the $13 range, so we certainly have enough money to carry us forward for the next year. Commodity price fluctuations are something we’re used to, and part of the reason for my story about Detour is to underline that some of the biggest opportunities come at the bottom of the market. We would never have been able to acquire the Detour land package as a small junior had it not been the bottom of the market in 1998. I often say that companies like Pelangio, which has survived and, in fact, grown during the bad times, deserve a little gold star beside their stock quote so that people can recognize them. 2

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TWST: What will your priorities be over the next four to eight quarters? Ms. Hibbard: Our priority will be Ghana, and we will probably be drilling throughout that period, starting this fall. One of the things about exploration is that it’s a treasure hunt and you can’t predict when you’re going to find the treasure. We believe it’s there, and we believe that we’re going to be the ones who find it, but predicting when that is going to happen is difficult to do. That being said, we expect to have the same strategy. So, with a little luck, within a few years our aim and strategy would be to have located one or a few of these ore shoots, at which point we would be looking to replicate the strategy used at Detour and find a team that would focus on building that resource while we maintained an ownership stake. We could then focus on early stage on another portion of the Ghana property while they were developing a resource on what we had found so far.

”The land package in Ghana, however, was the opportunity of a lifetime in our estimation. Ghana is also a very stable country, it has a long mining history and local mining expertise."

TWST: What would you consider to be your competitive advantage? Ms. Hibbard: I think in our case, people. We have a proven management team, we have a record of success, we have a proven strategy, and I’ve worked with most of the Board of Directors for more than a decade. We work well together, we all share the same vision, and I think that is clearly our competitive advantage. TWST: You mentioned that many of the investors in your company have been involved since its inception in 1937. What are two or three reasons new investors should look closely at Pelangio right now? Ms. Hibbard: For one, the price. With the spinoff, we’re now back as an early stage exploration company so our share price is under $0.50. We have the price, we have the people, we have a worldclass exploration property, and we have a proven strategy. One of the interesting things about Pelangio, as well, is that the stock has never consolidated from 1937. So we have staying power and a track record of protecting shareholders’ investment. TWST: Would you tell us about one or two other members of your senior management? Ms. Hibbard: I am a lawyer by training, working with both major mining companies and small prospectors. Now I am full-time with Pelangio, but it fits with our strategy a little bit as our strategy is founded not only on exploration, but also transactions. Being a lawyer has certainly been an advantage in that respect. My father was a prospector, he ran the company before me.

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One of the other things that is important in the mining industry is relationships, and Pelangio can draw on the fact that most of our management team and Board of Directors have been in mining for decades and have a multitude of relationships in the industry. Warren Bates is our Senior VP, Exploration and brings with him about 25 years of experience, both at producers and at the exploration level. It’s important when you’re exploring to know what it takes to make a producer. He has worked as a mine geologist and in exploration. Of our Board members, I would point out Peter Crossgrove, in particular, a member of the Order of Canada, a Harvard MBA and a Director of Barrick. In short, it’s a very talented Board. TWST: Is there anything you would like to add? Ms. Hibbard: As an investment, Pelangio is at the right stage in terms of price, it has a proven management team with a strategy that’s been shown to work, and it has an opportunity that is

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outstanding. It really is a once-in-a-lifetime opportunity in Ghana and we are looking forward to the drill program this fall. TWST: Thank you. (MR) INGRID HIBBARD President & CEO Pelangio Exploration Inc. 440 Harrop Drive 2nd Floor Milton, Ontario L9T 3H2 Canada (905) 875-3828 (877) 746-1632 – TOLL FREE (905) 875-3829 — FAX www.pelangio.com e-mail: [email protected]

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Solitario Exploration & Royalty Corp. (XPL) CHRISTOPHER E. HERALD is CEO, President and Director of Solitario Exploration & Royalty Company. With over 30 years of experience in the mining industry, Mr. Herald was responsible for the formation of Solitario in 1992 and has directed the company ever since. He was instrumental in discovering the 1.5 million ounce high-grade Buckhorn Mountain gold deposit and its subsequent sale to Kinross Gold for approximately $240 million in 2006. He has also held various exploration geology positions in Anaconda Minerals and Echo Bay Mines, as well as management positions in Crown Resources during his career. Herald currently serves as Chairman of the Denver Gold Group, a not-for-profit industry association. He has also served as a director of TNR Gold Corp. since 1998.

SECTOR — GOLD & PRECIOUS METALS (AMX620) TWST: The metal market rose the commodities boom and bull market, but in the past year, a lot has changed. How significant have the changes been to the health of the industry? Mr. Herald: A lot has changed in the last year in commodities generally, and in gold and silver in particular, and base metals. For us, we are a diversified exploration and royalty company. We're focused on exploration of precious metals, and we think that has the best upside. The market over the past 12 months has supported that concept, and we feel very strongly that gold and silver are going to outperform the other metals moving forward and probably the financial markets moving forward. On the base metal side, over the next couple years there will be supply destruction; and emerging economies are still relatively robust, though growing slower than they were in the past five years, but still besting the developed world. So we transition from the entire world in a boom market to more selected areas. Even base metals that have slowed down are going to come back over the next six to 18 months and have, in the least, a growth profile. It may not be as high it was, but we are consuming metals every day and we are going to be a part of the supply chain. TWST: With regards to the supply destruction issue, is it true that conditions have been so bad over the past year that mining companies have gone out of business? Is that a good thing or a bad sign of the state of the industry? Mr. Herald: The base metal we're most connected with is zinc, and certainly there have been a quite a few small to midsize mines that have either shutdown or curtailed production. There has been virtually a halt to any new mine construction for zinc. And if you go to copper, although there have been less shutdowns, you're certainly seeing growth projects being delayed. When it comes to the exploration side, we are seeing opportunities out there in base metals that we haven't seen in years, mainly because some of the big producers simply don't have the appetite to expand right now. So this is a void that we hope to fill. TWST: At a time of focusing on core value proposi-

tions, can you really fill the void in other metals that are riskier than gold and silver? Mr. Herald: We are focused really on the gold and silver. However, I think there are other metals that could be of interest moving into the future. With the green theme, electric cars and batteries, rare earth metals have had a little bit of play and generated some excitement, so we see those markets emerging. But to be realistic, for us right now gold and silver are the focus. TWST: Are all other metals like zinc, platinum and palladium bound to be neglected as part of strategic positioning? Mr. Herald: We have probably seen even a stronger focus on gold and silver than we had in the past. Still, we have an important project in platinum and palladium in Brazil. It's being funded by Anglo Platinum, the largest platinum producer in the world. And that plays into the green environmental theme. PGMs are extensively used for emission controls in cars. Consumption is down right now, and there is such a reduction in interest in some of the base metals that we can’t focus our exploration efforts there. Still, some existing projects come across our desk that look interesting and the owners simply don't have the cash to move that forward or the desire to do it. So, we may strategically acquire base metals when we see a lot of value for a very cheap price. It's been something we have done in the past, and I would say we have intensified that effort because we are seeing the opportunities. We have not yet pulled the trigger, but we are giving potential deals more scrutiny. Copper is another base metal that I think is going to be a good place to be, and we have seen some opportunities in last six to 12 months, but this is all secondary to the precious metals theme. TWST: Earlier in the year, Newmont Mining had to pull out of your joint venture in the Pachuca Real project due to their own strategic repositioning. Has that loss of a joint venture partner shifted focus away from Pachuca? Mr. Herald: No, we are really excited about Pachuca right now. It's a silver-gold property in Central Mexico, about 75 miles north of Mexico City. Historically, it produced 1.4 billion ounces of silver, making it the largest silver district in the world, The Wall Street Transcript — June 29, 2009 1

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and 7 million ounces of gold, significant gold producer. Newmont did pull out late last year for budget reasons. They cut a lot of their exploration out of the entire company. So we have 100% of the property back and a database from Newmont which had been advancing the project for two and half years, putting several million dollars into it. They were still building drill roads when their senior management pulled out of the project. We think it's one of the highest-quality silver-gold projects in North America, and we are finding some areas that we didn't know about, that Newmont hadn't found in the records that have existing indications of strong mineralization from drill holes back in the 1930s. Our excitement level on that project has increased over the last five or six months, and we are talking to several companies about the potential for a joint venture. So, I think we very well could get a deal done in the next

” A lot of companies have just run out of money, or they were just focused on one or two projects. Our belief is there are still good deposits to be found out there, and we'd rather be looking for really good deposits that are harder to find than trying to kid ourselves that marginal existing deposit might be economic."

couple of months. But if not, I think you will see Solitario out with its own drill rigs testing this very interesting project. TWST: Has overall exploration been hit hard by the pullback of joint venture partners and the general drop in metals pricing across the board? Mr. Herald: Luckily, we are well-capitalized. We have about $20 million today in either cash or marketable securities. But times being as they are, we did prioritize our projects. We reduced our exploration expenditures in Brazil. But at the same time, we slightly increased those expenditures in both Peru and Mexico, where we think we have at this time better opportunities. One project, Chonta, will have drill rigs starting late next week. It's a silverzinc-lead district that has never been drill tested. It's a very large area of mineralization about a square kilometer in size. That's going to be a pretty intensive effort on our part. Another project that I'm really excited about is La Promesa. It's a discovery that we made late last year, a very highgrade silver-lead-zinc vein system. We have one vein at approximately 3 meters of width that grades right at 1 kilogram of silver, which is over 30 ounces per ton, and in the area of the 20-30% zinc and 5-10% lead. We have multiple veins that are showing these very high-grade numbers. That's a project that we hope to begin drilling in late summer this year, but we are still doing work there to define our drill targets. So even though we are more focused in the current market, those are two exceptional silver projects that we think could be very interesting to our shareholders. TWST: Given the tight financing environment, do you need joint venture partners for these projects? Mr. Herald: No. These are projects, Chonta and La Promesa, that we are going to finance 100% on our own to start. At 2

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some point, we may want to joint venture it if we can see better value. But right now we think the odds are good that we can create substantially more value by testing it ourselves. Pachuca Real in Mexico, on the other hand, is potentially too big for us to handle. That's one where we are looking for a joint venture help finance it and to more aggressively advance the project than we can probably do on our own. TWST: Four projects in the most recent quarter didn't have any exploration budget. These were much smaller budgets to begin with, but with no exploration budget devoted to them. Are they likely to be dormant for a long time? Mr. Herald: Mercurio is one for which we are very actively trying to get a joint venture partner. It's in Brazil and, as I mentioned, we are trying to trim our costs in Brazil. But Mercurio is a gold-only project with potential, and where we have had good success on drilling, but it would be best for us to joint venture with a company that is active in Brazil. We’ve had interest already from some companies, and I think we will be able to joint venture it. Other projects in our portfolio are lower-priority, but it's an ongoing process of evaluating our portfolio, and it can change when even a little work on a property turns up something unexpected. We are always picking new properties up and dropping properties as we evaluate them, and they don't live up to expectations. TWST: Can the current business model remain unchanged given all that has happened in the past year? Mr. Herald: I like our current business model. We already went through a name change to recognize that our business model involves a mix of projects. For instance, our most advanced and our most valuable project is our Bongara zinc project. There we have Votorantim Metais as a joint venture partner, which is a giant Brazilian private company at $13 billion in revenues in 2007. They are spending a lot of money at Bongara advancing our zinc project, and they have a zinc smelter in Peru. It's in the advanced exploration stage, and we are really comfortable that we have the right partner doing the right things to advance the project. Whereas some of the new things that we find, they look like they are more manageable for us, a mix of some projects that we advance on a 100% basis, and others with the right partner and a minority interest for us allows us to preserve capital while still participating in significant upside. We don't dilute our shareholders by having to go out to the market every six months or so and raise new capital because we already have right now 29.7 million shares outstanding, and for a smaller-sized exploration and royalty company with 16 years of history, we consider that a remarkable feat. TWST: The Bongara project in Peru was one the company hoped would reach the feasibility stage in 2008? Did it happen? Mr. Herald: It has not reached feasibility yet. Zinc prices substantially decreased in 2008. I think it started the year at about a dollar, and by the end of the year it was in the $.45-$.50 range. It has since recovered up to $.65-.$70. Votorantim slowed the project down, and I think for good reason in the second half of 2008. However, they cut back a tremendous amount of their worldwide exploration and yet they are still funding this project strongly. It is the highest-priority and highestspending project that they have worldwide in terms of exploration. I think that speaks to the quality of the project and also their intention to

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move it forward as fast as market conditions will allow them to do so. TWST: Pedra Branca was also slated to move into development and production in 2008. How was it hit by the poor market conditions? Mr. Herald: I think it's kind of in the same boat as Bongara. Even though platinum prices are high, palladium is down, and so Anglo Platinum is taking a little slower approach to exploration. Again, when you looked at their worldwide budget, they cut a bunch of projects worldwide completely, just stopped funding them. Pedra Branca received full funding for 2009, $1.5 million to be invested in that project. We hope to begin drilling there in the next month. We are very optimistic, I can even say confident, that Bongara will be a mine in the next several years, maybe a little more than that, given the right price for zinc. At the Pedra Branca project, although we have substantial mineralization to find and drill, we still have to grow that project somewhat, I'd say we have to grow it 40% or 50% to make it of economic interest, and I think Anglo agrees with that assessment. So, we are still in the advanced exploration phase at Pedra Branca, but with any good luck this year maybe we will cross that threshold. TWST: You also have another project with Votorantim, the Chambara project. Is that getting any focus or in the short term is it outside of the selective project focus? Mr. Herald: I would say it's outside. It's a project that both Solitario and Votorantim see as strategically important in the future, but we both want to keep advancing Bongara as aggressively as possible. Chambara is more of the cookie jar for the future. I think we'll probably have a marginal effort there in 2009, but I think that could easily change for 2010 and get back into a more aggressive program. TWST: In the past, the company talked about Pachuca Real becoming a flagship asset and a big buoy for the stock price. Is Pachuca Real going to be a much more long-term story without the financing from Newmont? Mr. Herald: I think Pachuca is going to be very high profile, not necessarily over the next 60 days, but certainly over the next 12 months. We think the more we've been able to consolidate the information that Newmont generated along with historical information that wasn't available to us until the last couple of months, our read on potential joint venture partners is good interest. Whether or not we reached the finish line in a joint venture I can't really say right now, but even if we don't, I know we are going to be very interested in spending our own money advancing our projects. So, I don't see a diminishing of the effort there over the next 12 months. The next couple of months there will be a focus on talking to potential joint venture partners. We are doing less work, ourselves, just because of these discussions, but once those discussions have either met with a deal being struck or not, there is going to be a lot of work there either by us or joint venture partner. TWST: Two sites didn’t receive any funding in the March-end calendar quarter, Purica and Cerro Azul. Are these projects likely to be dormant for a while to come? Mr. Herald: Purica was a copper prospect in Mexico that was very interesting to us. We drilled, I believe, about a half a dozen holes. We had anomalous copper in most of them. But we didn't have enough to really keep our interest, and so that's a project that is under

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consideration to possibly be dropped and, at least certainly, reduce our budget there. Cerro Azul is one that is an early-stage exploration project. We are going to continue to conduct work there. We've had encouraging surface sampling results and our view of that project remains positive. It is in the priority chain of our properties, a fairly high priority, but not quite as high as Chonta or La Promesa. If the results are good, I think drilling in 2010 could be achievable. TWST: How many total projects can a company reasonably expect to finance at a time when the majors are pulling out of financing arrangements? Mr. Herald: We have a staff of 12 geologists that are full time, that are continuously evaluating either existing projects or new ones. The ones that we're actually going to drill or sell in advance, I'd have to say that is a handful. But beyond that, there are probably a dozen projects where we are doing work to see if we do want to drill them in subsequent years. Every week we are looking to find that new special project and its continuous activity of evaluation, and either moving projects forward or putting them on the back burner, or even terminating any interest in them. I think we're probably spending slightly more right now on exploration than at the same time last year. We're one of the few companies left that has a strong, independent what we call, "grass roots reconnaissance-style exploration." A lot of companies have just run out of money, or they were just focused on one or two projects. Our belief is there are still good deposits to be found out there, and we'd rather be looking for really good deposits that are harder to find than trying to kid ourselves that marginal existing deposit might be economic. So, we're going to

“We're focused on exploration of precious metals, and we think that has the best upside. The market over the past 12 months has supported that concept, and we feel very strongly that gold and silver are going to outperform the other metals moving forward and probably the financial markets moving forward.”

continue on the exploration front. We think we are going to spend just north of $4 million this year and two-thirds of that is strictly exploration dollars. We don't see the overall amount changing that much unless, and this is a good unless, some of our initial drilling efforts at properties like La Promesa and Chonta merit stepped-up exploration spending. We have capacity to do that, to fund it, and that would be a very nice choice for us to make. TWST: Where do you put the risk of a longer-term downturn in the metal sector? Mr. Herald: I guess I'm fairly confident that the future of gold and silver is going to be pretty strong over the next three years at a minimum. The base metals are somewhat more problematic because they are more tied to economic activity. And if economic activity remains subdued or even contracts more, I think that would certainly be negative for the base metals. But with all the new The Wall Street Transcript — June 29, 2009 3

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money creation and growth in a number of the countries in the world, China and India in particular, I think we're at least at a stability range in the base metals. So, I'm somewhat favorable that with time, we're going to see higher prices on the base metals. They've already recovered quite a bit from their lows, and I think there's more work to do on that recovery, but we'll get there.

” When it comes to the exploration side, we are seeing opportunities out there in base metals that we haven't seen in years, mainly because some of the big producers simply don't have the appetite to expand right now. So this is a void that we hope to fill."

TWST: You're obviously focused on Latin America, and there are political risks in the region with players like Hugo Chavez in Venezuela and Eva Morales in Bolivia nationalizing industries. Do you have concerns about that trend as it relates to mining interests? Mr. Herald: Yes, we keep a pretty close eye on that. And so far, we're very pleased with the government policies in the three principle countries we work in, Mexico, Peru and Brazil. Mining is extremely important to all three of those countries and their economies. We think they have a fair tax regime that promotes exploration and mining. Also, with the high commodity prices that we had seen in the last couple years, the mining industry has paid substantial amounts of taxes into the national and provincial or state treasuries, so the people of the country are benefiting. We also employ lots of people there, for instance, virtually all of our employees in these countries are nationals. We have only one expat working in all of our efforts there. We have some property interest in Bolivia under care and maintenance, but we're spending virtually no money there until we see the political situation improve. In our opinion, it will come some day, it may be years away, but in the meantime we just don't spend much money there, but we do keep an eye on potential opportunities. We understand the political situation in these countries, we understand the cultures, and we like the policies. TWST: The company's stock price went from a 52week high of nearly $6 down to $1.55-1.60. What do you make of the market psychology and the slide in metals? Mr. Herald: 2008 was just a wild ride. We saw a 52-week high rate at the $6 range, and I think we got down as low as maybe $1 or $1.05. So we've had a 40% or 50% bounce off that low and, just recently, we have been building some good momentum in terms of the share price. I think there are a couple of factors that are going

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to provide stability and good price appreciation in the future. First of all, we have a strong reserve, like I said, $20 million in cash and securities. Our partners are spending serious money on really good projects. I think that provides us with a foundation for industrial expectations. And then we have these new projects that come on that really could be the catalyst for major stock moves, which is what we hope, but that's going to be dependent on drilling results. So I think drilling is going to be the real key for us in 2009, and hopefully achieving some new discoveries particularly in silver and gold. TWST: You own a considerable amount of shares in gold producer Kinross. How important is that to enabling you to fund your strategic projects? Mr. Herald: It's going to be equally as important as it has been in the last couple of years. We own about little over 1.1 million shares of Kinross, one of the world's larger gold producers, essentially a pure gold play. So we like owning those shares, but we also see a risk in that because virtually all of our $20 million in reserve is in Kinross stock. We want to make sure that we have some hedges but also as much upside as possible when we do have to sell Kinross shares. We'll make sales of Kinross periodically over the next three or four years, so it's going to remain an important source of funding. Yet, we don't want to be an aggressive seller to Kinross because we think it's going to appreciate when gold prices are up. We plan to use that as leverage to gold prices. TWST: Are current pressures in the market going to force you to consider deals that in the past would not have been considered? Mr. Herald: I don't see any pressure that's unique to us today as compared to in years past. We certainly have no aversion to selling assets at the right price. That's part of our mandate to maximize value. And so if the right deal came along for one of our assets, we'd certainly look at it. It's not a primary focus for us right now, though. I think we are still in the phase of building and maturing assets versus disposing and selling of them. One of the predecessor companies that started Solitario was called Crown Resources, and we sold that company three years ago to Kinross for essentially $230 million, so we are not averse to selling projects or companies, but it has to be the right time. TWST: Thank you. (EPR) CHRISTOPHER E. HERALD CEO, President & Director Solitario Exploration & Royalty Corp. 4251 Kipling Street Suite 390 Wheat Ridge, CO 80033 (303) 534-1030 (303) 534-1809 — FAX www.solitariorxr.com

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Thunder Mountain Gold, Inc. (THMG.OB) ERIC JONES has more than 22 years of varied mining, financial and start-up experience. Currently Vice President of Investor Relations and Business Development, and Chief Financial Officer of Thunder Mountain Gold, Inc., Mr. Jones previously served as President and CEO of Mountain West Capital Group. There he managed the daily trading operations for $35M to $50M privately traded equity capital. Mr. Jones also worked as General Manager of the open pit/heap leach operations at Dakota Mining Corporation's Stibnite Mine (Idaho). His career trajectory includes stints as Project Manager and Mine Engineer for various projects at Hecla Mining Company, including Stibnite, Idaho, Mojave California and the Rosebud Mine in Nevada.

SECTOR — GOLD & PRECIOUS METALS (AMX619) TWST: With the prices of so many metals declining in the past year and your sole focus on the South Mountain Project, is it all about gold right now in terms of your plans to move from exploration to production and profitability? Mr. Jones: I think it's entirely gold. The previous owners of this South Mountain Mine were focused on this polymetallic core to the mine, but we went in with a little different model and we looked with this thought in mind: "Okay, this is symptomatic, this high-grade, this core of multi-metals. It's symptomatic of a larger system." So in 2008, we acquired more property and we’re out exploring, and we find an intrusive breccia unit that's next to the core part of the mine; and so it looks as though there is a large gold potential in a halo around this core, which is what we had suspected when we acquired this property for its gold potential and large multi-million ounce potential. The majors that are interested in bringing new projects into their pipeline, that's what's going to get them interested, and that's really what they need to sustain their gold output, a project that has multi-million ounce potential around a highly mineralized core. TWST: What’s the history of this site that is now the crux of your strategic plan? Mr. Jones: 90% of South Mountain is all on private land, which is really a benefit for us as it relates to permitting the mine. The mine is an old historic mine, polymetallic with copper, lead, zinc, gold and silver. When we first picked up and purchased the property, we noticed that the gold and silver values were increasing with depth, and also along strike and to the outer extent. So our goal for exploration in 2008 was really two-fold: to expand our reach in our property position and also do some core drilling to test the real deeper limits of the polymetallic mineralization below what was known with the previous work at the mine. So, we did that and we were very successful on the first drill hole right out of the gate. We hit one of the main polymetallic ore zones 300 feet below the known working level of the mine. It's very predictable, so we hit within 4 feet of where our Vulcan model said we would, which was comforting. So it was money well-spent and we took that section of core, we assayed it, and it proved our concept, which was that ,of course,

this polymetallic mineralization, these zones extend a depth below the known workings of the mine. There is no known cutoff. There is no structural or geochemical cutoff to this mineralalization. We don't know how deep it goes. The history in this part of Southern Idaho, in Owyhee County, is that it was really prospected and explored primarily for silver until around the turn of the century, and found to have strategic metals — copper, lead and zinc, as well as gold and silver. So, a couple different groups staked it and patented the main part of the ore discovery there, the mineral discovery, and actually attracted the federal government. The Defense Minerals Exploration Administration came in and put some money into the mine to develop the drifts underground and the workings. That continued through the early 1950s. But during the 40s, there was about 8,000 feet of drift that was developed, and there was over 50,000 tons of high-grade ore mined out of the mine. That was directly shipped to Anaconda, which had a smelter in Tooele, Utah It probably had a gross value of about $30 million at today's prices or more. They also built a mill and a little smelter onsite before they mothballed the entire project in the early 50s, when metal prices sank and really declined. TWST: With the encouraging drilling results, are you now dependent on lining up financing partners to reach production? Mr. Jones: You are exactly right. It would depend on the future strategic relationships. We would likely not put it into production ourselves. The scope of it would be so big that a major producer would have to come in and capitalize that production effort. So we are advancing it to the point where we are going to maximize the value of the site and then we are going to look to a partnership from one of the majors to come in and really take it to the next step. Naturally, part of our business model here at Thunder Mountain Gold is bringing those high-value projects into the mainstream and the focus of the major producers. TWST: In 2009, what have you been doing and will continue to do to improve the attractiveness of the project to the majors who are sitting on cash in this market? Mr. Jones: As we crunched our data and assimilated the data from 2008 into our model, it was apparent that there is a larger The Wall Street Transcript — June 29, 2009 1

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system, and right now guys are up on the site laying on a sampling grid for the intrusive breccia that extends off away from the core of the old mine. We are going to be surface sampling and also drilling some reverse circulation holes into this intrusive breccia to really see the depth and scope to this thing because in 2008 we found surface mineralization that's really ore grade or high ore grade at some sites. It’s gold mineralized right at the surface, and this needs to be really explored at greater depths to see how big and broad this thing is, and just looking at the surface it looks like it could be pretty huge. We'll take all the assay data, plug it back into our model and model that for trends, both structural and geochemical trend analysis, and get a handle on some of these unexplored or under-explored areas that are apart from the main polymetallic deposits.

” We are looking at a good equity market for metal companies, particularly in Canada. There has been a lot of private placement financings completed, both from the investing banking side and from the larger producers’ coffers, who are coming in and funding up some of these now."

TWST: The company noted in recent shareholder reports that the current tight financing environment means limited reconnaissance is about as much as can be expected. Can you go further? Are the rest of your projects likely to be dormant in 2009? Mr. Jones: No, actually in 2009, in January and February, we did a little work on some of our Arizona properties, follow-up mapping and sampling, but that doesn't take a lot of capital and a lot of resources to do. So, to that extent we can advance some of those in that manner and not exhaust a lot of capital. But the main capital expenditure for us, the main focus will be South Mountain, just simply because of its potential and its size. I guess one way to answer this question is to say that we are looking for partners on a couple of the other properties. We are in discussions with larger companies who have an interest in those, and it’s likely we would venture those in some manner and just let them expend their capital in a partnership fashion and in exploring them. We’ve done that before with success. Our original property, Thunder Mountain in Central Idaho, ultimately had Coeur d'Alene Mines, a precious metals producer in Northern Idaho, come in and mine out a couple oxide deposits with the heap leach there. In the current market, we would be looking for partnerships on our other Idaho property, which is called Clover Mountain, where there has been no drilling, no undersurface exploration, and then one of our other Nevada properties, likely Trout Creek. These properties not only fit our geologic model for large type discoveries, but they fit other companies' models as well. So, they are on the radar screen of other companies, and we just happen to own them. There are potential partners out there with claims in the same area or along the same trend, and where their exploration teams have 2

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said, "Yes, you know, that fits our model as well. Let’s look at doing something with those guys." We would joint venture initially with a larger company doing an earn-in, where they would have to pay us some cash and spend so much money within a certain period of time, as well as have specific work commitments and a resource estimate. If they completed these goals, they would probably buy us out and, at most, leave us with a small carried interest in the property, a royalty interest. So that's where our shareholders will benefit, either from a total buyout on that property or a carried interest with earnings off of that property for years to come. TWST: How much cash is needed to advance these three projects, and is it even available in the current market? Mr. Jones: Our best three, including South Mountain, need about $1.5 million in the next year. As far as putting South Mountain into production, we have internally scoped it to have a capital requirement of about $25 million, including all the infrastructure upgrades and with a mine life of about 12 years and a net present value of about $40 million. That's just on the main part of the ore body, which is the smaller part of the mine. That's the polymetallic part. We haven't really got our hands around the multimillion ounce potential that we think surrounds the mine. That still is yet to be determined. We are in a good market for metals right now, with precious metals where they are and base metals even picking up. So from start to build-out of the facility at South Mountain, we are estimating 18 months, that includes all the permitting, about 18 months until we could be running ore through the mill. We are looking at a good equity market for metal companies, particularly in Canada. There has been a lot of private placement financings completed, both from the investing banking side and from the larger producers’ coffers, who are coming in and funding up some of these now. We’ve actually extended a current private placement offering expected to close in April because additional participants came in and are still completing some due diligence on us. We didn't really have a good feel for the market at the time of setting the original private placement terms. That was in February and early March, at that time the market was very slow, with investment capital there but in wait-and-see mode. So it's been slower than anticipated, although it seems here in the last three weeks, things are waking up. From metal producers who see that prices have stabilized and are even trending up in both base metal and precious metals, to banks who have their own capital plus private capital to invest, and private investors, they are all looking for hedges against the pretty high inflation they expect. We opened the offering at $250,000 to 1 million and it looks like it will come in at about $500,000 to $600,000. So that's going to fall into our business plan that directs most of that attention towards South Mountain for the summer, for the exploration season, and that's why we are looking to venture Clover Mountain and Trout Creek with another entity. TWST: And other properties, like the Portland Claim Group and the Gold Gill Claim Group, are those dormant for the time being? Mr. Jones: That's right, yes, and that’s just from our data gathering and exploration activities to date. We are not going to

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focus on those too much at this time, although, like I said, we were down there in January and February doing some additional mapping with a consulting geologist who knows the area very well. Right now they are not particularly attractive to potential acquirers, either. Although there are some deals happening in Arizona, it has really been for large multi-million ounce gold potential, and these other projects of ours aren't going to catch the eye of some of the majors right now. However, if we found an opportunity out there that we feel adds more value than putting another drill hole in South Mountain, we would definitely go for that and aggressively pursue that. At the end of the day, it's all about adding as much value as we can for the lowest cost that we have to expend. And, in fact, we are looking at a couple of those opportunities right now. TWST: Is the tightening of the belts at some of the major producers indicative of a sea-change in the industry that will influence the fortunes of all junior companies? Mr. Jones: We view their conservative approach, the tightening, as good for us because in some cases those larger companies have let go their exploration people along with trying to pull in their exploration budget. So they're looking to exploration companies like ours to bring them the projects, and they are going to use our work to advance their strategy and pipeline and not necessarily the work of their own folks. Also over the last couple of months, since the end of the first quarter, we've see budgets loosening up a great deal, and we've seen a renewed willingness on the part of some of these large producers to really go out and extend a hand to the juniors. They understand the critical nature of filling up their pipeline, their funnel of projects to ultimately make mines. When we heard they were cutting back on their exploration budgets and letting some exploration geologists go, we really saw renewed interest in companies like ours from those majors, them reaching out to us and asking what projects we had underway and wanting to get on- site and take a look. TWST: Is that all gold focused in terms of the interest from majors? Mr. Jones: I think it is, gold is primarily the target, although we are seeing a little interest from some of these major producers to hedge their gold production with some base metals. Now is a great time to be exposing your company to base metals because we think there is going to be a great upturn as global economies recover. There is going to be a huge appetite again for base metals. We are not exploring for base metals, but with South Mountain, it just so happens that the polymetallic core includes base metals and they could have value as a hedge, as an offset of production expenses when you are after the precious metals. But those base metals will only be interesting as part of a larger, bigger system that’s mineralized. TWST: So what's the likelihood that by the end of 2009, Thunder Mountain is going to look very different since now is an opportune moment to take advantage of the needs of the majors? Mr. Jones: I think you hit it on the head. I think that what you are going to see with our company here in six to eight months is a completely different looking company with projects linked to

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larger companies. It's just the right time to be stepping on the gas and putting some of these projects together in partnerships with these larger players. It's the absolute right time to be doing that. We’ve also carried a $7 million plus tax credit from the sale donation of our main holding in 2005, and that would be a huge benefit for some producer who has taxable revenue they need to offset, and we are carrying that for the next couple years. That would be a great play for some major who had taxable revenue they needed to offset. Thunder Mountain was donated in 2005 to a conservation group and we immediately went out and purchased South Mountain, which had been out of the public domain for years. I think you'll see a completely different complexion on our company here in about six months or going into early 2010.

“Now is a great time to be exposing your company to base metals because we think there is going to be a great upturn as global economies recover. There is going to be a huge appetite again for base metals.”

TWST: If a deal can't get done, how long until your current burn rate makes existing budget needs unfeasible? Mr. Jones: You've always got to weigh your treasury against your burn rate and what your business plan is for your different properties, but all companies are faced with a similar issue. You are constantly looking for capital and business relationships. I would just say that, without being specific, right now I see more opportunities than I had seen really in a year. Things got really bad over the course of last fall through the third and fourth quarter, but things are really coming alive right now. I think we will see over the next 18 months M&A activity pick up more, and it won’t necessarily require the majors to open up their wallets. There are something like 1,600 junior exploration companies in the world, and about half of those or maybe two-thirds of those are traded publicly on some exchange. Along with that listing of their stock comes a high overhead, which geologists and explorers don't like to expend. They would rather put the money into the ground. So where it's feasible, where it makes sense, companies are going to merge to share that reporting requirement overhead, and they might merge so that they are on an exchange that caters to potential investors, and where the reporting requirements, auditing, those kinds administrative items, are not as onerous. I think you will see a lot of that streamlining. I think you might see M&A activity that involves not only two companies, but maybe three companies with some good properties and some good geologists. That's a sign of the times right now, and what will happen is if you are not part of that sort of movement you might get left behind, and you might not have much investment capital put behind your company and your ideas. We can’t devote our current capital to acquisitions, but that could change if we came up with the right scenario and the right The Wall Street Transcript — June 29 2009 3

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story that generated interest from banks and other financial institutions, or industry players that have the capital. Investment banks and the majors are looking to guides out in the field, on the ground, to bring opportunities to the forefront. We are always looking at Canada, I mean you’ve got to in this industry. That's where a majority of the deals are getting done. So, you’ve always got to keep your eye on opportunities north of the border. We are talking right now to some German investors who are actively looking for opportunities in North America for gold a exploration company. TWST: Have you worked with European partners before or would this be the first investment from a European? Mr. Jones: Yes, this would be the first time. This would be the first investment and, of course, I'm working through a group here in the US who has good ties there in Europe. TWST: Every company in this sector is off 52-week highs but has recovered somewhat from 52-week lows. What’s your feeling about the battering the metals stocks took in the general market rout? Mr. Jones: We don't pay a lot of attention to our stock price because it doesn't move a lot. During the downturn last year, our stock price held really just where it is today. So I would tell investors that I'm talking to, I've got a lot of our company stock in my IRA, and my IRA really hasn't gone down or up, but that's good because a lot of IRA values fell off the cliff. What I saw generally in our industry, with the huge pullback late last year, was that it hit a lot of junior exploration companies with one to two properties, either in Canada or in the US, and their stock dropped as low as a nickel. But now, at least in the cases of the companies with good properties and good management, you've seen their stock recover nicely. After the panic selling in those juniors, investors came back in; and companies with good management, properties and a solid business plan should have stable stock prices. TWST: Are you still in expense reduction mode? Mr. Jones: We are pretty lean as it is. Our president takes a partial salary. I take a three-quarter times salary. We really only have three employees and then we outsource any of our exploration for days or weeks at a time as we need to, but what would really reduce costs and increase value would be, as we talked that earlier, if we partnered up with another company that has the same kind of reporting requirements and overhead to streamline administrative type functions while bolstering the properties portfolio, resources and reserves. That would be a very meaningful business move, a very strategic business move. And, like I said, I think you're going to see a lot of that type of M&A activity happening over the next, say, nine to 18 months. Do they have an asset that would be complementary to us, whether it's a stock listing or operational capital, but lack of management? In some cases management teams have departed but there is a good board in place. You just have to look at all of those things and see if it is a fit. If they have any assets in the ground,

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are there any areas that fit our business model, where we're out actively exploring stable regions where you can permit a mine and actually develop it. We are not out looking to land-grabbing prospects in countries where ultimately your assets are going to be nationalized, or in areas where there are issues of environmental sensitivity. Our management here is all from operations. In our history and in our experience, we've gone out and explored, developed, permitted properties, and even managed them and closed them. So we have experience through all aspects of precious metals company development. TWST: What’s the overall strength of the precious metals market? Has it already peaked? Jones: I think gold and precious metals will continue to be strong over the next several years. I don't think we are at all coming off this super cycle. I think that the gold price has built a nice range at $750 to $950, and I think you're going to see a lot more attention paid to other base metals. I hate to put a number on it, but I see a good base built into the metal at a time when production of the metal is at 25-year lows in Australia and in South Africa, and a jewelry market that has crashed. India's purchasing of the metal right now is sort of on hold until they see where the price goes. So, when you see that coupled with inflation and the realization that our mines in North America are aging and not producing as much, I think $2,000 gold is not unreasonable, really. In the next two to three years, I think you'll see that, and I think you might see it bounce around there and hang there for a while. As we come out of the recession globally and you see inflation start to take hold, I think you're going to see not only central banks, but the governments and other institutions really look to metals, particularly gold and silver, to really stabilize the value of currencies to which they are exposed. Given the fact that our government is printing a lot of money and has a lot of debt, you could see inflation just really skyrocket, and there's going to be nowhere else for people to go to hang on to the value of their currency other than precious metals. There are a lot of different ways investors can get involved in gold now, not only through companies, but exchange-traded funds, and you're seeing other countries like Dubai really develop trading mechanisms and exchanges around the gold market. So that's pretty exciting to see. So I think it's a great time for the metals industry, and for M&A and financing activity specifically, particularly in Canada. TWST: Thank you. (EPR) ERIC JONES VP of Investor Relations & Business Development and CFO Thunder Mountain Gold, Inc. 5248 W. Chinden Boulevard Boise, ID 83714 (208) 658-1037 (208) 322-5626 — FAX www.thundermountaingold.com

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TNR Gold Corp. (TNR:TSX.V) GARY SCHELLENBERG, President and CEO of TNR Gold Corp., has managed and financed public and private resource-based companies for the past 22 years. His past accomplishments in leading early-stage companies to the buyout stage include Golden Coast, which eventually developed into Providence Energy Trust, and Winspear Resources, which was bought out by De Beers for $306 million. Mr. Schellenberg’s public company experience and leadership talents are also evident through his many directorship roles, which include Colorado Goldfields, Latin American Minerals, Aurifer Capital Corp., New World Resource Corp. and Avion Resources Corp. Additionally, he found and manages a profitable and well-known geology consulting firm that employs over 60 geologists and provides contract geologists for mining firms all over the world. Through this venture, Mr. Schellenberg strategically provides TNR Gold with direct access to direct exploration resources and networks for future property acquisition and joint venture contacts

SECTOR — PRECIOUS METALS (AMX628) TWST: Let’s begin with a brief historical sketch of the company and a picture of what it’s presently doing. Mr. Schellenberg: The company has been around since 1987, and we’ve gone through various phases. We have been a project generator for the last 20 years and have had a number of successes along the way. We have a very technical group consisting of entrepreneurs, financiers and geologists. We’ve been generating projects throughout the Americas as an early-stage company that develops concepts through to resources and then moves the latter off to other mining companies. As a junior exploration company, you have to always be moving forward with projects as we are all competing for the same dollar out there. There are over 2,000 competing junior exploration companies in Canada listed on the TSX Venture, so you have to be unique to stand out to investors. I truly believe TNR brings a unique and compelling story to our investors. TWST: Would you describe some of your exploration projects and then tell us about your current focus on Lithium? Mr. Schellenberg: As I mentioned earlier, we are a project-generating company with over 21 projects worldwide. We have some 15 projects in Argentina, primarily in base metals and in gold, two projects in Alaska and a host of Lithium projects which we have just embarked on. Some of our successes in Argentina include being instrumental in making the initial discovery of the Los Azules property, which is currently being developed by Minera Andes. We have 25% optional back-in on that deposit — currently an inferred resource of 11.2 billion pounds of copper in situ by National Instrument 43-101 Standards. Furthermore, it has a favorable scoping study which can produce copper at $0.85 a pound for over 23 years. Further, we are also currently in early-stage development on our El Salto Copper-Gold-Molybdenum property in Argentina, which is strategically located in the town of Calingastas. We’ve completed some 12 dry holes there so far with some very encouraging results.

In addition, we have El Tapau, our copper/gold project, which has a number of past producers, and our goal is to continue to refine our copper and gold properties over the course of the next year or so. Confirming TNR’s strategy to generate projects, most of our 12 projects in Argentina are all joint ventures with quality JV partners who then spend the money and take the risk. We are also developing three of our own projects, the El Salto, El Tapau and the Eureka property, which are all unique exotic copper deposits in the northern part of Argentina. We continue to look for new projects and are always looking at which way the minerals trends are going. Our current market conditions caused us to start looking at what would be the next market trend, and we decided about six months ago to start our foray into Lithium. We believe that it is a commodity of the future, so we have been undertaking a lot of research and have surrounded ourselves with some very good experts in the field. We are now beginning to see the fruits of those labors as we have a number of Lithium projects that we are announcing that consist of open hard rock spodumene pegmatite deposits as well as lithium brine. Where we have had successes in the past came from being the pioneer as opposed to following trends into the market after there is a real property acquisition frenzy for the various commodities. The next big wave for commodities will be in Lithium, and I believe TNR is well-positioned to take advantage of this trend. TWST: What are the greatest opportunities for TNR over the next several years? Is there a particular scenario that will lead to the company substantially exceeding expectations? Mr. Schellenberg: A significant part of our business plan is to continue to generate good projects in commodities. In the near term with the current market conditions, our business plan has worked. We generate good-quality projects that bring in high-quality partners who in turn develop them further. As a result, we minimize our dilution for our shareholders while getting maximum exposure to the commodities that are being sought after. That said, The Wall Street Transcript — June 29, 2009 1

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we think Lithium is a valuable strategic position to hold. We still love gold as it’s a great opportunity, especially in the current economic crisis, so I think investors can expect TNR to continue project generation approaching both gold and lithium, as well as other commodities. I think the potential shareholder can look for continued innovative acquisitions in addition to further value creation for some of our assets that we already have in our company.

”Where we have had successes in the past came from being the pioneer as opposed to following trends into the market after there is a real property acquisition frenzy for the various commodities. The next big wave for commodities will be in Lithium, and I believe TNR is wellpositioned to take advantage of this trend."

TWST: What do you see as potential challenges and what impact could those issues have on TNR’s goals? Mr. Schellenberg: It’s been very difficult to raise capital since last summer, and that’s one of the biggest problems challenging the industry. Venture capital has virtually dried up, and the competition for such funds requires further development of our business plan. Fortunately, we have found that there are still pockets of capital available for the right projects, and that corresponds to our new Lithium and clean energy initiatives. This implies that we would need to present to the marketplace a product that is unique and will be a direct product in the near future. That’s something TNR has an attractive record of delivering on, and I think we are on the right track with our Lithium projects. Also, with the depressed commodities prices of copper, lead and zinc, among others, it will take a little more innovation to bring value to our shareholders. We focus on what the commodity of the future is going to be one and two years down the road, not the short term. One of our recent strategies in bringing shareholder value was through a recent announcement that we would be spinning off 75% of our Lithium and rare metal assets into a company called International Lithium Corporation that has been incorporated as a wholly owned subsidiary that we plan to take public. Current shareholders of TNR will end up with one share of International Lithium Corp plus three tradable warrants for every four shares of TNR. TWST: What capital requirements do you see or anticipate, and how would you meet those needs over the next two to three years? Mr. Schellenberg: Our goal is still to bring in partners to develop a lot of our newly generated projects. We have a very strong shareholder base in Europe. Our major shareholder, Mr. Kirill Klip, is a Director of the company as well as a successful entrepreneur. He has a wealth of experience and contacts over a wide array of dynamic industries, including telecommunications, banking, transportation and Internet. One of his recent successes includes building an industrial holdings group to over $1 billion assets under management. We are on the same wavelength and have his full support. We are very fortunate to have a loyal base of reli2

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able investor groups who are proactive believers in the Green Energy initiatives, and their contacts and insights can open a lot of doors for us when the time is right. They currently hold about 30% of our shares, so they can back-stop us, thus ensuring the development of these assets. In order to develop these assets, we’ll be somewhat reliant upon our ability to bring in joint venture partners as well as going back to the capital markets. I think by offering the marketplace something unique and desirable, we will be able to recapture some of these equity markets as they are improving. Regarding our current capital position, we’ve been able to amass a very good portfolio of projects with very little capital by primarily investing in research and capitalizing on opportunities that present themselves. To sum things up, we are going to be relying upon the capital markets over the next two to three years, but in a limited fashion. Most of our capital will come from our existing shareholders and supporters, as well as joint venture partners. TWST: What’s your broad vision for the company? What will it look like in three to four years, and what might be some year-by-year milestones that investors can look for? Mr. Schellenberg: In about three years, I could see International Lithium Corp. becoming a very successful standalone major player in Lithium exploration. Furthermore, I think TNR will continue to develop properties that host a variety of different commodities. In addition to TNR having a major shareholding in International Lithium, we could see the Los Azules project of Minera Andes become a copper-producing mine, which again will be a tremendous milestone for us. We also have a gold project in Alaska with NovaGold, which has about 1 million ounces that I can see us either spinning off to another venture or continuing to develop into a world-class deposit. The key focus in these bad markets is that we have to be innovative and seize opportunities, which I feel we are doing to bring further value to our shareholders. I think within the next year, we will complete our spin off of International Lithium as well as enter into joint ventures that will further develop our portfolio of properties to either a production stage and/or a resource stage. TWST: As the top manager and CEO, what occupies your own attention mostly on a day-by-day basis? Mr. Schellenberg: Opportunities — we are always looking at new opportunities for the company and how to capitalize on our existing assets. As always, our primary concern is how do we bring value to our shareholders, and that’s what we do here on a day-to-day basis. As leader of the company, we really need to look at new opportunities and, as I mentioned earlier, not just opportunities only in the near term, but opportunities that we might be able to capitalize on one or two years down the road. TWST: What is your feeling about your current stock prices? Mr. Schellenberg: I am sure everybody you’ve interviewed has said the same thing, and it’s that TNR is tremendously undervalued. On a brighter note, since Christmas our stock is up threefold, and I still believe the entire junior marketplace has been oversold due to the lack of confidence in the marketplace now. As confidence comes back in the market, all the base metals are lifting up off the bottom; Gold is consistently over 850, which I think is a key indicator of investors’ beliefs in tangible assets. It is also very positive that people are out there starting to make exploration plans,

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and as we have a large amount of news that we are generating on a daily basis, we are going to be one of the more active juniors out there. I think this year, by virtue of generating projects in Lithium and copper, we will be very active. The market will come back and because we are active, I think the value of the stock will climb once we start showing that our activity is bearing fruit. TWST: Would you describe your current investor base? Mr. Schellenberg: We have a group of strong European investors that controls between 30% and 35% of the company, with the rest being controlled by approximately 4,000 shareholders. Of these 4,000 shareholders, most of them are located in the eastern US and in Canada, and are relatively long-term players. We constantly get calls from people that have been with us for five or 10 years, and they like what we are doing. Our stock, quite sensibly, has made money for investors over the years, which has helped to develop a very good network of shareholders. We’ve also got a number of institutions that own a large portion of our company, which has given us a nice stable base for financing. TWST: At this point, how could the investor community improve its perception of TNR Gold? Do you feel there are any areas or concepts that are misperceived? Mr. Schellenberg: We are always striving to clearly get our message out. I think one of the things that markets don’t really understand is the fact that we have so many projects. They are used to investing in one project, one company scenario. Being an innovator and project developer means that we are going to wind up dealing with many projects, and in our case we currently have 21. Our goal is to generate projects and bring in partners, which is something that the marketplace doesn’t really understand, so I feel it could be explained a little bit better. I can say this business plan survived through the last downturn and we were able to actually make money from all of our joint venture partners, and we can see that same opportunity developing now. This is something that I think makes us a whole lot different from other companies in the industry. TWST: What should an investor see as the three or

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four strengths and advantages that distinguish TNR Gold as an investment today? Mr. Schellenberg: First strength is, no doubt, TNR’s technical ability to generate good quality projects. I am also the President of a geological consulting firm which has been trusted with mineral explorations projects worlwide for the last 23 years. With both major and junior mining clients and over 60 employees worldwide, we know our properties and this adds a tremendous network from which TNR can source projects. Secondly, our foresight about the future has been proven time after time. Within our group we have had a number of successes in the past, and we see that market condition again. In this downturn, there are opportunities, and that’s something we are well poised to take advantage of. Fortunately, through the support of our backers, we’ve been able to avail ourselves of opportunities when the market is bad, that will make us a preferred stock moving forward. Again, you have to be active to get market attention, and we are poised for that opportunity. The Lithium spin off that we are bringing forward is innovative and we are ahead of the curve on this. It’s a great opportunity for potential and current TNR shareholders, and they will be able to capitalize on this project later in 2009. TWST: Thank you. (KL) GARY SCHELLENBERG President & CEO TNR Gold Corp. 650 West Georgia Street Suite 620 Vancouver, British Columbia V6B 4N9 Canada (604) 687-7551 (800) 667-4470 — TOLL-FREE (604) 687-4670 — FAX www.tnrgoldcorp.com e-mail: [email protected]

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USCorp (USCS.OB) ROBERT DULTZ, Chairman, CEO and acting CFO of USCorp, is also the company's principal stockholder. He is responsible for coordinating and directing USCorp's Board of Directors, in addition to chairing the direction of the company. Specializing in finance, Mr. Dultz has acted as an investor and consultant for 35 years. He has served on the boards of a number of publicly traded companies, including American Metals and Minerals, Inc., as well as on the boards of numerous privately held companies.

SECTOR — GOLD & PRECIOUS METALS (AMX621) TWST: The big mining companies have pulled back exploration budgets with the drop-off in metals prices over the past year. Is there more urgency than there had been in the past to get to the production stage because financing from larger partners is harder to come by now? Mr. Dultz: I think as compared to a year or two years ago, a lot of the little companies have either stopped entirely or they’re in a sort of suspended animation. As far as availability of financing, availability has been nil, to put it technically. But we have enough financing to go forward. We have a commitment for financing that will handle the rest of what we need, or most of the rest of what we need to do, not counting building the plant and going into actual production, but exploration-wise. What happened to the financial markets last September screwed up a lot of things, and although we got some financing in September and October, we were supposed to have some subsequent funding but that has been on hold. It now looks like that pipeline may finally be getting back on track, and by momentarily I mean immediately in the $2 million neighborhood. On the other side, there are a couple of companies that we're interested in that are fully permitted on patented or private property, and one was in production as recently as two years ago and could be in production in 60 to 90 days. Because of the tight financing that you mentioned, that could be a great opportunity to make an acquisition that would exponentially speed up our being a producing company. Their production was shut down due to legal arguments among partners or among participants, not for mining reasons. If we can work out that situation, it would be an outright acquisition, and we would be able to put the site back in production almost immediately. The profits from a producing mine would, of course, eliminate the need to obtain other financing for our two main sites, Twin Peaks in Arizona and Picacho Salton in California. We would probably make enough from the production to be able to self-finance. The question is not whether the acquisition could be put into production and generate the finances to spur our other projects, but whether we can make an acquisition, and that is strictly a timing opportunity, timed to what's going on right now. If the financial status of the country and the world were different, we wouldn’t have the opportunity despite the legal differences between the owners

because they would settle it themselves if they could obtain the financing to do so. TWST: The company just announced drilling results confirming the presence of gold, silver and uranium at the Twin Peaks property in California. How important is this property and these drilling results in terms of moving down the road to production? Mr. Dultz: Number one, we were looking to identify this quartz body that is a mineralized structure on the property, and we have identified that it appears to go about 2 miles, a mineralized trend going east and west, and from the northwest to the southeast. We drilled 41 holes for 5,000 feet and partly by luck, I think, we happened to hit another end of the quartz dike that was a complete surprise for the geologists. It extended the quartz dike in both directions, so we have about 1.5 miles and suspect that it may actually extend by 2 miles, and it is also about 300 yards wide, which is like three football fields. In that quartz body is a lot of mineralized structure, and the exciting part of that is that on both ends we had gold findings, so that indicates that the gold goes the whole length. TWST: Is there a timeline for when commercial production would be possible? Mr. Dultz: We’re much closer. Here are the next steps, just speaking on the Twin Peaks property. The next step is to do Phase III, which is permitted and we are ready to start drilling. We hope to start that in June or July, I like to say July to be on the safe side. Anyway, we will be doing 8,000 feet and primarily what we are doing there is we are going to do a pattern, but it’s a big pattern if you picture it, a chessboard or a checkerboard, and whereas the large companies that have millions to spend would do holes 30, 50, 60 feet apart, and do it like a pincushion all across the properties, we are going to do a much wider one, hitting the corners of the checkerboard sections, and then we’ll hit the middle. And we're going to go down 1,000 feet in drilling, and here is why that is important. In Carlin, Nev., there was a lot of mining activity that took place there for years and finally all the little guys kind of gave up and the majors came in, and they started drilling and they were drilling deep holes or what's considered deep in metals mining. They hit the bonanza — something like 750 and 850 feet in that area is where they really found out that they had a bonanza-type situation. The Carlin The Wall Street Transcript — June 29, 2009 1

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Gold District in Nevada catapulted the United States in the 1980s from, I think, number 17 in worldwide gold production to number two. Currently, I think the US is number three behind China and South Africa. If we look at the mining operation of Freeport-McMoRan as an example, which is 4 miles away from us, with copper and byproducts, gold, silver, molybdenum and magnetite, they are mining in a big open pit at below 2,000 feet and are doing 100,000 tons or more a day, and their geology or their mineralization is still constant and they are down 2,000 feet. So, my point is that the indication from that is that on our property the mineralization would continue at a very deep level and possibly increase at a deeper level. The historic mining in our claims areas were from 200 feet to 400 feet of depth in the old mines, and they were still mining. The Second World War shut them down. Our holes have only been drilled to 100 feet, and 200 feet to 350 feet, so we'd like to try some holes down to 1,000 feet and see what we come up with.

”I believe that precious metals are going to end up having a frenzy bubble market, regardless if there is hyperinflation, deflation, no inflation, little inflation, whatever it is; I still think speculation-wise, there will be a run-up in the precious metals market."

That will allow us to complete our final mining plan of operations and submit that and get various approvals or permits, and then it would be time to build the plant and to actually go into production. From all of that, we can then structure a bankable feasibility study, and the key word there is bankable. With a bankable feasibility study I am sure that we can get the money to build the actual plant and go into production. Actually, at that point, I think there will be a line of suitors wanting to acquire the company. If all goes well, we are figuring that in October 2010 Twin Peaks could be in production. TWST: Does that mean you’re placing less emphasis on your other site, the Picacho Salton project in California? Mr. Dultz: We are timing both properties together for commercial production. The California property should go much faster. We are waiting for the permit from the BLM in California. It took us over a year to get the permit, which is supposed to be a two-week process and we’re now at the one-year point in California. So we had some meetings recently and we came up with, basically, a memorandum of understanding of who’s going to do what and how things are going to be done, and a lot of other things. So we feel that our permit is about to be issued there, and as soon as that happens, we have the drillers lined up to go and do the drilling. In California, because of the time we have lost in waiting for the permit, we are just going to go straight through and do all of our drilling, Phase I, II and III consecutively. We are going to send our results to the lab daily and put them on basically express requests for results so that we can alter or adjust our drilling program as we go along. 2

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We treat the properties equally and I am pleased that we’ve had interest from other mining companies for both properties. These talks have not been of an advanced staged, but rather, early indications of interest, some thinking along the lines of outright acquisition, while others are interested in joint ventures. TWST: With metals prices really depressed since the commodities bust, even though many have since come back from lows, is it all about gold right now? Mr. Dultz: In terms of our sites, with the California property it’s almost exclusively gold. I think there may be a little silver, but it is just basically gold. The Arizona property has a whole bunch of metals, but we have focused on gold and silver primarily because it is easier to mine. That’s not going to change based on our current operations, but if we ultimately work with a joint venture partner or if we get acquired by some larger companies, I believe that they probably would look into other metals on the property. And with the potential acquisitions we discussed are in our same geographical zone, between California, Arizona and Nevada, where everything is within a couple of hundred miles, smaller in total land area than our current sites and also with some silver, but again, it’s primarily gold. TWST: If you can’t see a production-oriented acquisition through to fruition given the tight financing environment, is the company at risk of not being able to finance exploration? Mr. Dultz: Our financing was on hold for many months, but as I said, it does seem back on schedule, and we'll proceed with Twin Peaks and Picacho Salton as planned, with acquisitions a separate matter. The important clarification is that if we could get into production on an acquired property in a matter of months, those profits would enable us to not have to seek financing to get into production on the Twin Peaks or the Picacho Salton properties. But as far as the exploration budgets, I expect the commitments made to USCorp to be honored, and we will go along with our scheduled exploration program, which requires this year approximately $2.2 million. So I think between our own shareholders, and Swiss investors who are also shareholders and whose commitment is expected, I think that we are probably covered. Anecdotally, the financing options look better of late. We have had new interest from another European group that we are going to follow through on with a trip to Europe, potential investment in the neighborhood of $2 million to $5 million, so after the complete drying up of the market, there are small signs that the tightening of the belts is loosening. TWST: Has the roller coaster of the past year forced you to alter your overall strategic positioning? Mr. Dultz: Well, we probably would have stayed outside of the opportunity for an acquisition, but otherwise we’ve stayed on pretty much a straight trajectory and we've been undeterred and without detours; we are going straight ahead. The one thing that we haven't done that we had intended to do was more with the public face of the company — branding, if you will, and all that goes with it, public relations and an investor relations program, however you want to term it. We had intended to, and we designed, an extensive plan, but we just haven't had the budget to do that. It requires about

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$350,000 in cash and probably stock options of up to $1 million. Although we followed the usual mining exploration pattern, we haven't done a lot of things that a lot of the more promotional-type companies have done, making deals rather than actually mining. The positive aspect of that approach is that we've always proceeded with the intent to mine rather than just make decisions based on promoting the company. Still, I want to publicize USCorp to the marketplace for the reason that I would like our stock to better-reflect what we and the company believe it is worth. I think it should be a lot better than it is. So in that sense, we would like to tap the public market. TWST: It's obviously been a difficult market for metals stocks other than gold after the huge run-up, so how do you feel about how the market has treated your shares? Mr. Dultz: We've had bubbles in real estate, we've had bubbles in technology, we’ve had a zooming stock market, great run-ups and then all these bubbles. We've had a bull market in metals, but if you look at a lot of other commodities other than precious metals, the run-up has been greater, far greater. I don’t think metals have had their bubble. I think all the markets are entitled to a bubble and, joking aside, where can you put your money right now to make money? Rhetorically speaking, there is hardly any place to put your money where you could say, "Okay, I am going to make some money if I put my money here." That's why I believe that precious metals are going to end up having a frenzy bubble market, regardless if there is hyperinflation, deflation, no inflation, little inflation, whatever it is; I still think speculation-wise, there will be a run-up in the precious metals market. Some investors look at junior mining companies as a much greater opportunity than the majors. If a junior goes from $1 to $10 a share, that’s a 10-fold increase. TWST: How about the stock price specifically, which has traded in the last 52 weeks from a high of $0.45 down to $0.06-0.08? Mr. Dultz: I think the $0.50-0.60 mark should be easily achievable with any kind of dissemination of good news and information. We should easily be able to achieve $0.50 or $0.60. Back to my bubble scenario, as I say, with a junior that could go from $0.10 to $1 or to $10, whereas if you have a major at $60, it would have to go to $600 to have a 10-times increase. The juniors are in a much better position to make people some fantastic returns. And there are no good places to speculate now, and it's a matter of momentum. Once the momentum starts, the precious metals market is actually a very small market when you really analyze it against other markets. So, putting money into mining stocks would be like trying to put 5 pounds in a 1-pound bag, and it's not going to work, it's going to explode. How long would that last? I don't know, but it could go on for a while like bubbles generally do. I had said in 2001 when gold was at $250, that I thought gold was going to $1,000 and I thought silver would go to $50, and I think silver is still way underpriced. Look at how the dollar has depreciated since, let's say, the Depression years in the 30s, and how much gold has appreciated in comparison, which was $20 back then, and silver which was $1 and now $15. It's out of proportion. Silver is underpriced, undervalued, and some people call it the poor man’s gold, but I think that's one of the reasons that speculation could get real wild. Any kind of specula-

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tion like that would definitely benefit our market, our shareholders and, of course, the price of our stock. I think that we're one of the more interesting opportunities among the junior mining companies out there. And I think the major mining companies will be among these speculators gobbling up as much as they can because they need the reserves and reserves have been shrinking.

“Most of the players are frozen in place, they are sitting on their hands and they actually don't have a clue what to do, and that's why there is literally trillions of dollars on the sidelines right now.”

TWST: But the majors have been, if anything, pulling back on investment in junior companies in many cases. This seems contradictory. Mr. Dultz: Yes, they have been pulling back, but they have the money, they are just sitting on it. So it's not from a lack of funds. Most of the players are frozen in place, they are sitting on their hands and they actually don't have a clue what to do, and that's why there is literally trillions of dollars on the sidelines right now. TWST: How about a deal like the recently completed acquisition by New Gold of Western Goldfields. Does that indicate an M&A trend? Mr. Dultz: Actually, New Gold is one of the companies that, let’s say, we have talked to about potential strategic relationships, and they are right next door to our Picacho property. So I would say there is a possibility that something might work out between us and them. In general, from an expansion viewpoint, USCorp’s Picacho Salton property could make a very good prospective acquisition to them because of the proximity, and because of their existing operations and the economy of it. TWST: Do you think your company is more likely to be an acquisition target now than in past years? Mr. Dultz: I think the likelihood of us being an acquisition target has increased, not so much because of macroeconomic factors, but just because of the progress that we have made. We like the people at New Gold, who are some of the people that used to be with Western Goldfields, and we like the proximity and the way they work. So that one would be one of our preferred options. There are so many options here. Each of our properties could be acquired separately while we acquire the other properties that I talked about and put them into production. We could have the best of both worlds. In the meantime, USCorp just keeps going forward toward production so that we are not some of those people who are sitting on their hands. TWST: How do you feel about the cash position of the company in the current market? The Wall Street Transcript — June 29, 2009 3

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Mr. Dultz: The current cash position is definitely lower than is desirable, or than we desire it to be anyway, but we're very optimistic about going forward and about availability of funding. I mean that our progress has not been hampered by lack of funds to this point. And we don't expect to have our progress hampered by lack of funding going forward from here, although at this very moment, we definitely need some funding in the company. TWST: In your most recent report to the Securities and Exchange Commission you said USCorp had received about $400,000 of the $2.19 million you would need this year. Does the gap, even if it is filled in the immediate future, put the brakes on exploration? Mr. Dultz: Right now where we are as a company, I would describe, like, the final thrust of the exploration program and mining companies never quit exploration frankly. They're always exploring because they are always looking for more reserves, at least in terms of exploration prior to production. Since this is our final thrust, the losses we’ve averaged in past quarters, I guess that’s the only way you can really say it, should remain in a similar range until

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production, which we hope to be in October 2010. TWST: And other than the financing environment, what would be the biggest risk to your blueprint for moving from exploration to production? Mr. Dultz: The biggest risk is the world economy — the situation in the world markets and the bigger risk that US government policies regarding mining and the environment become more stringent or restrictive. But that’s a consistent risk in any market. TWST: Thank you. (EPR) ROBERT DULTZ Chairman, CEO and Acting CFO USCorp 4535 W. Sahara Drive Suite 200 Las Vegas, NV 89102 (702) 933-4034 (702) 933-4035 — FAX www.uscorpnv.com

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Ventura Gold Corporation (VGO) ERIC EDWARDS is President and Chief Executive Officer of Ventura Gold Corporation, as well as Chief Financial Officer and a Vice President of International Minerals Corporation.  Prior to joining Ventura and International Minerals in July 2007, Mr. Edwards was Chief Financial Officer, Vice President of Finance, and Corporate Secretary for the former Queenstake Resources Ltd. from 2005 to 2007. He was instrumental in finalizing the merger of Queenstake with YGC Resources to form Yukon-Nevada Gold Corporation. From 1995 to 2007, Mr. Edwards served as Chief Financial Officer for a number of publicly traded gold companies, including Viceroy Resource Corporation and Ivanhoe Mines.  As CFO for Ivanhoe Mines, he completed the initial public offering of the company.  Mr. Edwards has over 25 years of experience in the gold mining sector.

SECTOR – PRECIOUS METALS (AMX631) TWST: Ventura Gold has its own exploration effort, joint ventures with other companies, and a private portfolio of early stage mining investments, so you see the industry from a lot of different perspectives. How have relationships between different stage mining companies changed in the past year? Mr. Edwards: The major companies have recently increased their activities to acquire junior and mid-sized companies. While gold prices are up, share prices for juniors exploration, earlystage development and smaller producers, have lagged behind the relative increase in gold through 2008. Many of these companies are basically healthy, are still relatively cheap. Equity financing is still fairly difficult to come by, so junior exploration companies in particular, are finding that their traditional source of financing is no longer available. They must realistically assess how they are going to grow, be acquired or combine with another company who may have cash or who may be able to otherwise further their business interest. How does this relate to Ventura? We are fortunate in that we have almost $2 million in cash, which gives us flexibility to be able to be cautious and patient if we need to. We’ve chosen to advance our Inmaculada early-stage development project in southern Peru as quickly as we can in order to add to resources and value. TWST: What sets Ventura apart from the competition and what is the long-term outlook for your company? Mr. Edwards: Ventura has a two part strategy. We have our own exploration properties and we have a private equity, strategic investment portfolio. On our exploration properties we have demonstrated that we can effectively permit, explore and efficiently conduct our activities leading to discoveries like the Inmaculada gold-silver project. We have a very good team operating out of Peru made up largely of Peruvian nationals, who have excellent exploration skills, are well connected throughout South America, are very motivated to have exploration success and deliver value to our shareholders. That sets us apart on the exploration side.

Our strategic investments of small equity positions in five private and four public exploration companies have created opportunities for us that will continue to give Ventura exposure to projects, people and potential new discoveries worldwide. Ventura is also unique in that we have a supportive, longterm buy and hold shareholder base that believes in the upside for both Ventura and the price of gold. I am very grateful for their support and their continued ability to finance us when we need it. This past February 2009, Ventura announced a new gold discovery and published the first National Instrument 43-101 resource report on the Inmaculada Project. In this NI 43-101 compliant resource estimate, we published an initial inferred resource of 483,000 ounces of gold and 16.6 million ounces of silver contained in 3.7 million tons at an average grade of four grams per tonne gold and 139 grams per tonne silver. We are quite excited about that given the early stage of exploration on the project. In the near-term, I would encourage people to watch Ventura’s resource drilling results. Ventura is now on the radar screen with the Inmaculada discovery and the market is waiting for results to increase confidence in the discovery. This is going to be a very key couple of months for us. We are currently drilling, and the initial results will be out within two or three months. TWST: What are the specific characteristics of the Inmaculada Project? Mr. Edwards: The Inmaculada Project is in the highlands of Southern Peru. It is in a well-known area of historic mining for Hochschild, and if you expand the circle out a hundred kilometers, you get into districts of other majors. The 14,700-hectare Inmaculada district is located about 35 kilometers southwest of Hochschild’s Selene process facility and a slightly shorter distance southwest of the Hochschild-International Minerals Pallancata silver mine. Geology of the district is characterized by high-grade gold and silver mineralization in steeply dipping high-sulphidation and lowsulphidation veins ranging from one to seven meters in width. We’ve identified the Angela Vein discovery to be over a kilometer in length and still open in both directions and at depth in some The Wall Street Transcript — June 29, 2009 1

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feeder shoots. The Angela is only one of nine known mineralized veins in the immediate area that we have yet to drill. In addition to the high-grade vein systems, there are some low-grade, potentially open pittable targets of about two grams per tonne gold that we’ve identified. They are in the vicinity and are nice sweeteners as potential incremental ore sources. With the initial discovery of an inferred resource at the Inmaculada Project’s Angela Vein, it is significant to note it is a low-sulphidation, epithermal vein system with mineralization that is generally vertically constrained. We find most of the high grademineralization confined to a 200 meter or so vertical band. There are some feeder veins that come in at depth that we will be exploring this year, and we don’t know the extent of those depths. The Inmaculada Project is primarily a gold resource. If we use a typical 65 to one gold-silver ratio, those 16.6 million ounces of silver equates to about 255,000 ounces of gold. So in terms of value, it’s about two-thirds gold and one-third silver. The project is significantly exposed to silver price leverage and is well positioned to participate in and add value should silver prices rise. As the vein systems at Inmaculada are steeply dipping and should we advance to positive feasibility, mining on Inmaculada should be very straight forward. The Angela Vein outcrops in the valley to the West so the main zones could be accessed via adit and ramp.

“Ventura is now on the radar screen with the Inmaculada discovery and the market is waiting for results.”

TWST: What’s the impact to Ventura at the Inmaculada Project in the wake of Hochschild’s not exercising its option to take majority control? Mr. Edwards: Whether Hochschild backed in or didn’t, it was a win-win for Ventura. We have the opportunity right now to add significantly to resources at the Inmaculada Project as majority partner and operator. Having just discovered the project, we are in the ideal position of being able to efficiently and quickly add to resources and so we will be doing that as soon as possible. With the positive news of the discovery and the intent to go to 70% interest, Ventura shares or VGO on the TSX Venture Exchange, are trading at around Cdn $0.27 is up 170% from its 52-week low. Our core competency is exploration. Our team members are good explorationists and good developers, which is exactly what Inmaculada needs to advance. We have been involved with Hochschild Mining for a couple of years, and we have a very good working relationship with them. Hochschild had a one-time right earlier this year to take a 60% ownership and operatorship interest in the project. They let that deadline lapse without exercising their back-in right, which has now positioned Ventura with having control and the option to increase our interest to 70%. Why didn’t Hochschild exercise their back-in right? There are a number of considerations, some of which they have 2

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verbally expressed to us, and some of which we can only look at in terms of what was happening in their world. During the time when the back-in right was open, Hochschild sought to acquire Minera Andes which was met with some resistance. Shortly after the Minera Andes bid, Hochschild made a general tender offer for all the shares in Southwestern Resources, which was successful. Hochschild has also been in the process of making significant reorganizational changes throughout the company. Among other changes, they cut back one-third of the staff at their Lima, Peru office and had announced fairly broad cuts in exploration Ventura’s contract with Hochschild specified that they had to pay Ventura three times its exploration expenditures in order to be able to acquire the additional 11%. Ventura has spent about $4 million so the back-in price would have been about $12 million. That price was quite expensive to Hochschild on the current resource ounce basis. They elected to stay at their current interest and we are contining forward on a very cooperative joint venture arrangement. TWST: Does having more ownership make Venture aim for an acquisition by another major over a quicker period of time to maximize the increased investment? Mr. Edwards: That’s a really interesting option. If I looked forward five years, which is what we try to do with strategic planning, with an eventual 70% interest in Inmaculada, we have a number of options that would not have been available had Hochschild backed in and Ventura was only at 40%. At 70%, Ventura is firmly in control of exploration spending and that’s a real advantage. Our exploration group has demonstrated that it is very effective and efficient, and I think one of the best in South America. With a 70% interest in Inmaculada, we can look at bringing in other partners besides Hochschild. We can deal in a number of different ways and with any of the majors. Hochschild as a then 30% partner, certainly will factor into any option we consider. There are number of very good mine operators in Peru and in our general area of the High Andes.. With a 70% interest in Inmaculada, Ventura will become interesting to a number of majors, especially when we show growth of resources and advancement towards feasibility. I don’t want to dismiss the idea of Ventura possibly becoming an operator in the future. It’s not something that we can contemplate right now, but under the right circumstances, the Inmaculada Project lends itself very well to possible contract mining and processing. There is at least one process plant in the area that we know to be hungry and that could possibly toll process material. While Inmaculada is still in early stage development, and without any benefit of a scoping study, it appears that the transport distance is not insurmountable. The area is not extreme in terms of the topography and elevation and is a well-supported mining area, with good infrastructure. So I can’t rule out Ventura becoming an operator as a result of our eventual bigger stake. One final point, a 70% interest in Inmaculada will provide our shareholders with a substantial improvement to their leverage and exposure to our exploration success. TWST: Along with the pluses associated with having more control, is obviously having more of the expenses too, and with exploration, it is obviously high risk and can be high

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expense. Is it harder than ever before to see how these two conflicting dynamics are going to converge in a sweet spot? Mr. Edwards: That’s the question that some of our more knowledgeable investors are asking us. Ventura has to deliver by October 2013 a feasibility study. I estimate that the feasibility to require about $11 million, to complete the necessary in-fill drilling, assay, modeling and engineered economic assessment. We do need to finance a feasibility study over next four years, however, we have already made a discovery of great and, we believe, growing value. In our resource expansion drilling, we expect to add to resources this year. Resource expansion drilling is significantly lower risk with a higher success rate than pure exploration drilling. About 30% of our drill program in 2009 is focused on following up on other mineralized veins in the area. TWST: Inmaculada is not Ventura’s only project. There are Del Oro and Cottonwood Peak in Nevada, and Gold Gulch in Arizona,. Do these other projects not have enough potential in comparison to Inmaculada to make any investment right now? Mr. Edwards: These North American properties are in early stage exploration where any investment is considered higher risk capital. And so while I believe in those projects, we are focusing on Inmaculada because it presents a lower risk, high return ratio for us. There are a number of other companies that are well established in Nevada, that have staff, facilities, resources, and contractors available to them and that can move these projects ahead better than us. So while I still like them, particularly the Del Oro project, with Ventura being mainly focused in South America and mainly operating out of Lima, Peru, we are looking for partners that are U.S.-based, particularly Nevada-based, that may be able to advance those projects. TWST: Complete acquisitions or joint ventures? Mr. Edwards: We will look at any structure. It would be interesting to keep a small royalty position and sell the projects outright. It would also be interesting to have an earn-in and keep a joint venture arrangement perhaps. It really would depend upon the partner and the success that they have demonstrated in Nevada. TWST: With the higher profile for Inmaculada and the interest in selling U.S.-based properties, would you define the company in a different way than you would have a year ago? Mr. Edwards: Our business strategy has not changed. However, a year ago, I was categorizing Ventura as an advanced exploration company. Today, I consider Ventura to be an early stage development company with NI 43-101 resources. We now have a discovery, and we have a district that we are adding resources on. So how do we deal with our exploration properties? We will remain active in the exploration business, which means we will acquire more exploration projects to fill our pipeline, and we will try to divest those projects that we don’t have an ability to effectively address. The general strategic view of the company has remained the same but, with our success at Inmaculada, we’ve now jumped up a tier. Exploration is our research and development. It is our future. So we will continue to search for and identify the next project that can have the same kind of success as Inmaculada and

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bring it into development. As we advance Inmaculada through feasibility stage, we believe and anticipate that it will go into production in the future, whether by us or by someone else. Ventura will be able to report and demonstrate to the market and investors that we can advance these projects to development. We can discover them, and we can advance them. That’s something that very few exploration

“We are now at the beginning of the steepest part of the value-added curve. Our investors are expecting us to spend that money wisely and deliver the maximum value.”

companies can claim. TWST: For potential investors, is there still a pretty tight hold on the wallet at this point or are you seeing a change versus even six months ago? Mr. Edwards: I don’t see a significant change now as compared to six months ago. For Ventura, our core investors are a concentrated group and they are happy with the return that we’ve been able to provide. We are up over 45%, year-to-date. But largely, other potential investors are taking a wait-and-see attitude. A year ago, we would have been grouped with other early-stage exploration properties. Now potential investors are seeing that we are different, we are having success, but they are still going to wait a while and see how we execute. This year is a very key year for us. We must deliver both in terms of resource expansion and exploration success, and really move forward with Inmaculada. Right now we are emerging onto the radar screen and getting some notice for our projects and accomplishments. TWST: Recently a research firm, Fundamental Research, added coverage of Ventura Gold, primarily because of this Inmaculada project and its potential. However, they believe current cash isn’t going to be sufficient and the company is going to have to raise another, in their estimate, $1.43 million to fund the capital expenditure and the working capital for the next 12 months. Is this an accurate picture of the current financial gap? Mr. Edwards: Ventura has, as of its last published filings, about $2 million in cash. We have now embarked on our 2009 exploration program and have just mobilized drills into the field with a $1.6 million drilling program for this summer. So we do need to raise some capital in a fairly short time frame. We are in advanced discussions for a credit facility, which we may need to draw upon, but that is not our preferred option. It would be a financial backstop. We believe we do have equity cash funding sources available to us so we are being encouraged to embark on this $1.6 million resource expansion program. Our ability to finance is going to largely depend upon our drilling success to deliver significant positive news and positive results on the resource. If we are able to come back with the kind of success The Wall Street Transcript — June 29, 2009 3

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that I expect, then we will find support among our existing shareholders and we’ll be able to raise sufficient capital this year to be able to keep going and maintain a cash reserve. TWST: Is there a greater risk today than there had been in the past that Ventura, even with a property like Inmaculada, won’t be a going concern 12 months from now? Mr. Edwards: When you are an early development company as Ventura is now, we have a substantial resource asset in Inmaculada. The likelihood of us being able to raise capital and go forward has been significantly improved. We now have a discovery, something that has tremendous upside potential. So in terms of being able to attract additional financing, we can present a picture to investors very clearly

"We are building value by advancing the project and delivering the feasibility study. While there is a lot of focus on cash burn rates and the speculative nature of mining companies, and for good reason, it is important to remember that Ventura is now on a different risk-reward curve than an early exploration company."

of what we are planning to do and where the money is going. We have greatly reduced the level of risk going forward for Ventura and for Ventura shareholders. The estimated inferred mineral resource gives us a tangible asset of greater value. Right now our plan is to complete our resource drilling program this year, go out for financing based on those results, and continue forward and deliver a feasibility study by 2013, which is required to satisfy the commitment for Ventura’s earn-in of 70% interest in Inmaculada. We are building value by advancing the project and delivering the feasibility study. While there is a lot of focus on cash burn rates and the speculative nature of mining companies, and for good reason, it is important to remember that Ventura is now on a different risk-reward curve than an early exploration company. When you look at the typical value-added curves for stages of a project, you see that once a discovery is made, the leverage increases substantially with the value added per dollar of expenditure. We are now at the beginning of the steepest part of the value-added curve. Our investors are expecting us to spend that money wisely and deliver the maximum value. TWST: Which way are gold prices headed? Mr. Edwards: We look at projects and price estimates on two levels. We look at the long-term analysts’ consensus of $750 per ounce and we look at the current $950 per ounce. (Editor’s note: reference to June 2009 price levels.) And if we see projects that make sense based on that range, we move forward with them. We are positioning ourselves to be able to survive and grow at a lower gold price. If we have higher prices, that would be tremendous, but we don’t need that. It’s hard to build the fundamentals of the business on a requirement of higher gold prices. That being said, we 4

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have our exploration projects and our portfolio of equity investments give us tremendous exposure to higher metals’ prices. Ventura is positioned to be able to take advantage of high metals prices, but in meantime, our projects are of sufficient quality that they can be advanced at substantially lower prices. TWST: Is the strategy of buying up high-risk exploration companies probably going to go by the wayside? Mr. Edwards: Ventura, primarily as an exploration and development company and being quite small, can’t afford and it’s not efficient for us to maintain a team of geologists worldwide, doing project evaluation, project review and grass roots exploration. So we have elected to give our shareholders broader exposure through the private equity portfolio. Our management has been in the business for a long time, we know a lot of these people, districts and countries. To the extent that they demonstrate that they can have success in their jurisdictions, that they have been in country for a long time, and that they have proven technical people- that’s our primary criteria, investing in the people. The private equity portfolio is our feeder system; our intelligence system, or our early stage exploration arm, if you will. We keep in touch with these people, we participate in some cases, we may sit on the boards of these companies and we share ideas, projects, and opportunities. That’s one aspect of it. A second aspect is financial. In the event that any of the private companies do go public and there is typically a tremendous multiplier, we enjoy a financial return as well. But long-term, we are not that exposed to any one particular company. As to my long-term view of the financial value of the equity portfolio, I don’t see any of them going public this year and having a ten-fold multiplier right out of the box. But those relationships still have tremendous value and that value component is largely unchanged from when we first entered into those investments. Right now, we have to focus on Inmaculada. We don’t have sufficient cash to be able to make substantial investments into the private equity portfolio. We have stepped back and we have not made an investment in more than a year, and I don’t expect that we will making one in the near-term. When we have the cash available, we will again involve ourselves materially in this business. TWST: Were profits from the IPO market expected to make up a portion of the $11 million funding needed in the foreseeable future? Mr. Edwards: We are not relying on the equity portfolio to provide significant cash proceeds to Ventura this year. We had entered into the investments with one of the criteria being that they have an exit strategy of going public within 18 months. I no longer have that expectation. Many of them have come back to us and said they have to extend the timeframe that they expect to go public by another year or maybe another 18 months until market become more conducive, and I am fully supportive of that. TWST: Since so much of Ventura’s success rests on Inmaculada do you have concerns about the political atmosphere? Mr. Edwards: Peru has a history of maintaining a stable federal political environment. Recently the federal government in Peru has suspended two existing decrees related to native rights

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and balancing land and water management in the Amazon basin – this suspension has no effect on Ventura, our projects nor our land title and access rights. These events evidence a working system of democracy and respect for laws and rights. That being said, a company like ours needs to pay attention to local social/community issues. We do that. We are very active in working with local people to understand their issues and provide jobs and assistance in areas like education, medical, roads and other local infrastructure to be a good neighbor, working in their community. Peru has demonstrated a stable rule of law, and a stable economy attractive for substantial foreign investment. I don’t expect that to change. We operate in the high Andes, where there are local villages of indigenous people within 10

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or 15 kilometers. Our actual work area is largely unpopulated, and has been unpopulated for a long time. We still look to provide employment and medical care to the populations whose support we will require in our exploration activities and permitting. TWST: Thank you. (ER) ERIC EDWARDS, CEO Ventura Gold Corporation 7950 E. Acoma Drive, Suite 211 Scottsdale, AZ 85260 (303) 357-4861 Fax: (303) 357-4865 Email: [email protected] www.venturagold.com

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Queenston Mining, Inc. (QMI) CHARLES E. PAGE, President and CEO, has been a director of Queenston Mining, Inc. since 1990. First serving as the company’s Vice President of Exploration for six years, Mr. Page didn’t assume his current role at Queenston until 1996. During his tenure, Mr. Page has guided and focused Queenston’s exploration activity in the Abitibi, where the company continues to be one of the most active juniors in the region. Currently he is also President of C.E.P. Consulting, a private geological consulting firm, as well as Director of two additional resource companies, Thundermin Resources, Inc. and Alexandria Minerals Corporation. With more than 30 years’ experience in the mineral exploration and mining industry, Mr. Page has been a director and/or senior officer of 15 public companies. A professional geologist, he holds a master’s degree in Earth Sciences from the University of Waterloo and is a member of the APGO.

SECTOR — PRECIOUS METALS (AMX646) TWST: Would you provide me a brief history of your company and what your focus is now? Mr. Page: The company is a past gold producer and its roots go back to the 1950s; its current form dates back to 1990. I’ve been involved in the company for about 20 years. I am a professional geologist and since 1995 the President and CEO of the company. Our primary focus is exploring for gold on proven mine trends, and our primary asset is a massive land package located in the historical Kirkland Lake gold camp located in Northern Ontario, Canada. TWST: What were your company’s goals a year ago and have these expectations been achieved? Mr. Page: One year ago, our focus was to advance our projects from more of an exploration stage towards a production scenario or development stage. We hit some milestones last year by coming up with 700,000 new ounces of gold in one of our projects called the Upper Beaver. We continue to drill that project at depth and continue to encounter very high-grade intersections of gold with associated copper. We also encountered very positive results on the McBean and joint venture South Claims property with partner Kirkland Lake Gold. I would say by all means we’ve met our goals for 2008 and are well on our way to exceeding our goals for 2009 as well. TWST: Has your company been affected by the drop in gold prices? Mr. Page: Not so much. We are not in production at this point in time and our focus is advancing our projects through toward a development-production scenario. The current gold price in the $940 ranges is just fine with us. That’s close to C$1,000 per ounce in Canadian dollars, and we view production costs in the order of C$450 to C$500 per ounce. So at current prices this represents a healthy profit margin. I don’t have any concern with the gold price whatsoever. TWST: Has the recession affected tyour company’s outlook? Mr. Page: Not so much in our sector. It’s one of the few metal commodities that’s still very much in demand. Some of the other metals like zinc and nickel have experienced some

downturn because of a decrease in demand due to the economy. The gold, our price is almost at an all-time high in Canadian dollars. In 2008 mine supply for gold has decreased by about 3% and the overall demand has increased by 4%. So I just think that there is a stronger demand and opportunity for new gold projects going forward. TWST: Have you developed any new mines recently? Mr. Page: No, but that’s our focus. As I mentioned earlier, the company was a past gold producer, and our focus right now is on four 100%-owned deposits that we feel over the next two to three years will be advanced to the pre-feasibility stage with the intention of leading to a production decision. The preliminary plan is to build a central milling facility in the Kirkland Lake area and produce 150,000 to 200,000 ounces of gold per year. So hopefully in the next three years or so, we could be looking at building that brand new mining facility in the Kirkland Lake Gold Camp, but at the same time, continue with the deep drilling that has been so successful for us over the past two years. TWST: What are your priorities for the next four to eight quarters? Mr. Page: In addition to advancing our projects through development, we believe our exploration efforts in the camp could turn up considerably more ounces of gold. As we continue with deeper exploration on our projects, we really feel positive that these deposits can possibly double in size towards a combined 4 million ounces. That is what we are going to be doing for the next year or so, continue with a very aggressive deep drilling program to turn up more ounces. We have eight drill rigs on the property planned for this summer’s drilling campaign; currently five rigs are operating on four projects, Upper Beaver, McBean, Upper Canada and AK. We are going to continue with the exploration on our projects trying to discover as many ounces of gold as we can in the shortest period of time. TWST: As a geologist, have you done any research to identify where these deposits might be, or are you doing a more general exploration?

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Mr. Page: It’s pretty well-known where these deposits are in the Kirkland camp. The camp itself has been producing gold for almost 100 years. The properties we are drilling have either past production or underground workings where exploration drilling is ongoing beneath the deposits that were previously mined down to certain depths. So what’s allowed us to go deeper into these gold systems and explore their roots really is the gold price. With a gold price nearing C$1,000, it allows us to look deeper in these systems. So in addition to just basically drilling at depths, we have completed some deeper geophysical work as well. We can see now down to about 1 kilometer below surface with a survey called Titan 24. This has been very, very beneficial for us in guiding our deeper drilling programs. So going forward, we intend to continue with this deeper exploration approach, and certainly the geophysics and the new drilling tools we have available to our industry will assist us.

”Compared with other companies of our size, I believe our advantage is that we saw very early the value of holding a significant land package in the Kirkland Mining camp. The camp is regarded as Canada's second largest camp, with production to date of almost 40 million ounces of gold."

TWST: What tools do you use and find most valuable to your drilling projects? Mr. Page: There are two main tools. The geophysics Titan 24 survey has identified some deeper sulfide targets at the Upper Beaver project, and the gold appears to be associated to these types of targets. And what I was getting to in terms of tools with the drilling industry are the new directional drilling techniques, where we can use large drill rigs to drill a pilot hole down to a depth of say, 2,000 meters, and from there we can cut off a series of shorter directional drill holes. It’s somewhat of a similar technology to what they have been using for years in the oil industry. TWST: What do you consider your competitive advantage to be over other gold companies? Mr. Page: Compared with other companies of our size, I believe our advantage is that we saw very early the value of holding a significant land package in the Kirkland Mining camp. The camp is regarded as Canada’s second largest camp, with production to date of almost 40 million ounces of gold. We have the largest land package ever assembled in the camp that covers about 30 kilometers along a major gold structure. A second advantage is that when our peer group was looking in other parts of the world for new gold opportunities, we focused in Canada on the old major mine trends that have considerable infrastructure already in place. As a result of this infrastructure, our discovery costs per ounce are considered some of the lowest in the in the world. In fact, at a discover cost of $15 per ounce, it is considered world class. And the third point I want to bring up with respect to the competitive advantage we have is the fact that our projects are in a proven mining camp, in an area that has already produced 40 million ounces of gold. I believe that

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as a result of our location, the risks of finding new deposits are limited. We don’t have to prove to the world that there is gold here, as we already know it’s a proven gold camp. What we are doing is effectively expanding existing gold deposits and, at the same time, taking the risk out of exploration for the investor. TWST: What are some additional reasons why investors should look closely at your company right now? Mr. Page: In addition to a great land package, the advancement of 100%-owned gold projects toward a development decision and continued successful deep exploration, another advantage we have is the five joint venture properties we share with gold producer Kirkland Lake Gold, Inc. They are producing gold at the Macassa Mine and have forecasted in the next two years to increase production to 200,000 ounces of gold, largely from the new, highgrade, South Mine Complex discovery. The prime joint venture property is the South Claims where we have recently discovered the continuation of the new, high-grade gold zone. To date there has been 140,000 ounces of gold outlined and continues to grow. So the advantage of having Kirkland Lake Gold as a partner is that they already have the underground mining infrastructure in place to generate cash flow for the company in the next couple of years. TWST: What is the division of responsibilities? Mr. Page: The joint venture is a 50%-50% ownership with Kirkland Lake Gold as the operator. They develop the exploration programs and carry them out, as they control the underground infrastructure. We have joint committee meetings to approve budgets and at the end of the day, it’s up to Kirkland Lake Gold in terms of getting the job done. TWST: Any profits or revenue generated? How will that be divided? Mr. Page: To date no profits from production have been generated; however, we anticipate cash flow to begin to be generated over the next two years. That’s going to be divided 50-50. We will pay our 50% share of costs associated to the mining and processing the ore plus any exploration. TWST: What previous developments led to that venture? Mr. Page: The development that led to the joint venture was the bold new South Mine Complex discovery that Kirkland Lake Gold made about four years ago. The bulk of the past production in the old mines to the north were trending east or west, and their geologists were allowed to think outside of the box. That led to drilling a series of holes to the south of the main producing trend. This resulted in the new, high-grade discovery that was quickly developed from an underground tunnel on the 5,300-foot level of the Macassa Mine. As a result of this work, they have already outlined in this deposit nearly 1.5 million ounces. It’s open in all directions and we believe it has the potential to expand upwards toward 5 million ounces of gold. TWST: What led the two companies to engage in a joint venture? Mr. Page: What evolved there was all the key land in the Kirkland Lake area was all previously owned by Kirkland Lake Gold, Queenston or a number of private individuals. There were some very important claims surrounding the Macassa Mine property. Queenston initially engaged in discussions with the owners of those properties, came up with a purchase structure with the owners

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and, at that point in time, brought in Kirkland Lake Gold as a partner in further discussions with the vendors. It was important to participate with Kirkland Lake Gold as they controlled the underground infrastructure to effectively explore the property. TWST: Please describe your background and those of several other key executives at Queenston. Mr. Page: Myself, I’m a professional geologist. I’ve been in the business for 35 years and have been involved with Queenston for 22 years. I was initially VP of Exploration and spent the past 14 years as President and CEO. I’m very familiar with Canadian exploration and development projects, that’s my forte — particularly in the Canadian Shield area, which is the major metal productive region in Canada. The Chairman of the company, Hugh Harbinson, he has been involved in the mining sector as an executive for the last 30 years. Our VP of Exploration, William McGuinty, joined us this year; he has the experience of advancing projects to the feasibility stage and is managing our development strategy. TWST: Is there anything else that you would like to add? Mr. Page: In 2008 we achieved a number of milestones for the company that have encouraged us to advance to the next level of development. We are bringing a long-term gold story back to life. When the price of gold was in the $300 to $400 per ounce range, our projects didn’t make economic sense in the Kirkland Lake area. At

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that time we diversified into other metals knowing that at some point in time, the assets in Kirkland Lake would become valuable. Today they are, and that’s largely a result of the gold price combined with the deep drilling success we are experiencing. We are a well-financed company with approximately $30 million cash, no debt; there’s less than 60 million shares issued. We are going to continue with a very aggressive drilling program this year and next with a minimum of eight diamond drill rigs operating on our properties. Assuming the exploration results continue to remain strong and our development plans continue to advance, Queenston is on track to become a significant gold player in the Kirkland Lake Gold camp. TWST: Thank you. (MR) CHARLES E. PAGE President & CEO Queenston Mining, Inc. 133 Richmond Street West Suite 201 Toronto, Ontario M5H 2L3 Canada (416) 364-0001 www.queenston.ca e-mail: [email protected]

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Pan American Silver Corp. (PAAS) GEOFFREY A. BURNS, President and CEO of Pan American Silver Corp., joined the company in 2003 after serving as Senior Vice President and Chief Financial Officer of Coeur d’Alene Mines Corp. He became CEO of Pan American in May 2004. With over 25 years’ experience in the precious metals mining industry, Mr. Burns has focused much of his profesional activity on financial management. Formerly the Chief Financial Officer of Prime Resources Group, he has also led numerous capital market transactions, including equity, debt and convertible debt placements. In addition, Mr. Burns has extensive experience throughout North and South America in mine operations and project development. He participated in numerous mine construction projects, from feasibility study through start-up and into continuous operation. Mr. Burns holds a Bachelor of Science degree in Geology and an MBA.

SECTOR — PRECIOUS METALS (AMX647) TWST: Would you start with a brief history of your company and what your current focus is? Mr. Burns: Pan American Silver was formed in 1994 with the mission to become the premier silver equity trad­ing company in North America. Pan American’s founder and current chairman, Mr. Ross Beaty, believed there was a fundamental deficit between new mine supply and actual physical demand for silver, and that a longterm vehicle that provided exposure to the price of silver offered a significant opportunity for value creation. The company’s initial strategy was to acquire silver mining assets throughout the world that were either closed or undercapitalized, and either bring them back into production or expand them to optimize their potential. Pan American bought its first asset, the Quiruvilca Mine in Peru, in 1995 and has since grown to become the second largest publically traded, primary silver producer in the world, with eight mining operations in Latin America. This strategy has given Pan American a growth profile that is second to none in the industry. Over the last couple of years, we have benefited from our original strategy as silver rallied from the $4 and $5 per ounce range in the late 1990s to a high of $20 per ounce in March of last year. During the financial turmoil that gripped markets in the summer and fall of 2008, we saw the price of silver fall to just below $9 in October, but since then silver has outperformed gold and climbed back to the current range we are now experiencing of approximately $14 per ounce. We have recently completed construction of our eighth mine, Manantial Espejo in Argentina, and are currently ramping up production at our San Vicente expansion project in Bolivia. This year we expect to pro­duce 21.5 million ounces of silver. With our latest growth leg completed, we are now focused on refilling our development project pipeline and consolidating our leadership position in the silver mining sector. TWST: Would you discuss your recent venture with Orko Silver in Mexico? Mr. Burns: About two months ago, we signed a joint venture arrangement with Orko Silver where we will become the

operator and will fund the continued exploration and development of the La Preciosa silver property. La Preciosa is located in Mexico, just outside the city of Durango. It is a very extensive property at over 30,000 hectares and already hosts over 130 million ounces of silver in the resource category. It contains numerous veins which have been identified but remain untested and are highly, highly prospective. I very much like the opportunity. It’s 100% silver as opposed to some of our other operations, which are combinations of base metals as well as silver. It’s in a great jurisdiction and it possesses huge upside. TWST: What is the business arrangement with Orko Silver? Mr. Burns: We have formed a joint venture where essentially we will operate the property and, over the next three years, we will prepare and pay 100% for the cost of doing a complete feasibility study. At that point, if there is a decision to proceed, we will then fund 100% of the capital required to build a mining operation on the site. And for that we will have earned a 55% direct interest in the project. TWST: How will you use the US$103 million dollars raised in the public offering that closed last February? Mr. Burns: Primary use for the proceeds of our equity offering is to look for additional acquisitions to continue to grow Pan American. Right now there has been a lot of revaluation within the silver sector due to the volatility of the silver price, and opportunities that were not available to us in terms of value a year ago have now been revalued by the market in such a way that they now present a better value proposition for Pan American’s shareholders. So the primary use of those funds will be to make additional acquisitions to expand operations or build operations from the assets that may be acquired using stock. TWST: How has your company been affected by fluctuations in the commodities market? Mr. Burns: We had a very difficult fourth quarter last year when we saw silver prices and base metal prices collapse, and we quickly went from generating significant positive earnings and cash flows to generating neutral cash flows and a bottom line loss in just

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three months. As a result, we had to take some pretty drastic and immediate measures to reduce our cost base and reduce our overheads in order to remain profitable. We cut over 10% of our staff worldwide, almost 1,000 people; we re-engineered our mining plans to mine the most profitable ores that were available to us and successfully changed the direction of the company such that we returned to profitability and again generated healthy cash flows in Q1 2009. TWST: Would you say that you fundamentally changed your business model? Mr. Burns: Yes, we fundamentally had to change to respond. You know, one day we are happily mining ore based on a certain set of price assumptions and that ore made good money based on our cost structure. Then the prices we were receiving fell below our cost base so we had to adjust that cost base. This required us to mine higher-grade materials, which in turn required a complete reengineering of almost all mine plans throughout the entire company.

“By far our competitive advantage is our experience as mine operators, and mine builders and developers. There’s no one else in the silver sector that runs eight separate mines in four separate countries.”

TWST: Going forward, how will fluctuations in the commodities market and the recession affect your company? Mr. Burns: First of all, on the price side, things seem to have stabilized, as have our re-engineering efforts and we have reestablished very solid operating margins again. As I mentioned, in Q1 of 2009 we again generated very good profits and generated very good net cash flows. So from that perspective, we are fairly comfortable. We’ve done the things that were necessary to combat the erosion in the price environment. In terms of the recession, it has actually been beneficial because it has actually reduced our input costs. For example, oil going from $140 a barrel to $70 a barrel is actually a benefit. Unfortunately, more unemployed workers actually help reduce pressure on wages. Very simply, if you have a job, it is much better to keep your job than it is to fight for a 10% increase and to put your job at risk. So while it is difficult to be happy about it, the recession actually has had a positive impact on our cost structure. On the revenue side, the recession and the US government’s attempts to halt its effects have put significant downward pressure on the US dollar and, as a consequence, our primary product, which is obviously silver, has benefited from a rising price. So indirectly, the recession and financial crisis which precluded it has actually been a positive thing for Pan American. TWST: What are your priorities for the next four to eight quarters? Mr. Burns: I think our number one priority will continue to be to operate our mines in a profitable and safe manner, and continue to identify new opportunities at those mines. And within the asset base, we already have to grow our business and/or cut

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costs and/or increase productivity. Our second priority is very much looking for additional assets to grow our business even further. We have built-out the majority of our pipeline of internal growth opportunities and La Preciosa and the deal with Orko Silver is the first of what I hope to be a series of deals that the company will make over the coming months to add new production and new opportunities to our pipeline. Pan American has grown our production base for 13 consecutive years. And going into 2009, we see a 14th consecutive year of growth ahead. I would very much like to keep this streak alive, but in order to do that, we are going to have to find assets that are not currently owned by Pan American. TWST: You mentioned that the recession has, in some ways, positively affected your company because the costs of doing business have decreased. But given current instability around the price of oil, costs may very well go up again. Mr. Burns: Gee, I don’t really like to think about oil at $140 per barrel again. TWST: But how do you deal with that kind of uncertainty going forward? Right now it’s positively affected you, but the price of oil isn’t stable right now. Mr. Burns: You manage your business to a certain set of assumptions and parameters that you estimate for what the future is going to look like, both in the short term and the long term. The estimates we use for planning purposes — both on the prices received for our product side and what our costs will look like — are very conservative. For example, our long-term silver reserves are calculated using an $11 per ounce silver price. Silver today is trading at $14. Our long-term prices for our other key products — gold and zinc — are also well below current market levels. Similarly, we estimate our long-term inputs for costs, and I can say we are certainly not estimating oil at $140 a barrel, but we are estimating it at slightly above current levels, as well as our other major inputs, which would be labor, energy and other consumables. We run our business plans and our engineering based on those sort of primary inputs; and if you have been conservative with your assumptions, you de facto have built in a fair bit of leeway should we see shortterm fluctuations in any of our actual costs or the prices. I think we are in a very good position to ride through any further short-term price dislocates or conversely to take advantage should the current price volatility turn positive. If there is another market disruption of the magnitude we saw last year, we would probably have to go back and re-engineer one more time. But you don’t plan for that to happen four to six quarters from now. I personally hope we don’t ever see the kind of financial and market disruption that we witnessed last year ever again. It was a first in my career and I hopefully won’t have to see something like that again. But if we did, Pan American would do the same thing; we would go back and re-tune our business plan one more time. TWST: What is your competitive advantage? Mr. Burns: By far our competitive advantage is our experience as mine operators, and mine builders and developers. There’s no one else in the silver sector that runs eight separate mines in four separate countries. That gives us a depth of expertise and a depth of knowledge that’s second to none in our sector, and it certainly gives us an advantage looking at new opportunities. We already have the teams and the people in place to develop new as-

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sets if they are at development stage. If they are operating mines, we have the people in place to make them more productive. That is by far our single biggest competitive advantage. Our second advantage is probably our balance sheet. I am not sure that anyone else in the sector is sitting with almost $200 million in working capital and no debt, which is a pretty favorable position to find yourself in having come through one of the largest market disruptions and commodities price declines that we’ve ever seen. TWST: What are some reasons why investors should look closely at your company right now? Mr. Burns: First and foremost, investors need to look at the price of silver. I continue to be very optimistic about the future price. I think we’ve seen silver, much like gold, trading very much like a precious metal as a hedge against worries about the stability of the US Dollar and the Euro. We’ve seen huge investment flows out of currencies and out of equities looking for “safe havens” where people can have a reasonable expectation of maintaining or increasing value. I don’t believe this situation has changed much. I think the economic stimulus that governments have introduced and — why don’t we call it what it really is — the printing of money on a worldwide basis at rates never seen before is going to eventually put severe downward pressure on the value of paper currencies. In my opinion, gold and silver are going to do exceedingly well during future periods when people get less and less comfortable holding paper that is bound to depreciate in value. TWST: Are you referring to inflation? Mr. Burns: Certainly, that’s where it’s going to end up. TWST: You think so? Mr. Burns: There’s just no doubt. It’s kind of like finding out one day that your limited edition one in 1,000 prints just became one in 1 trillion prints, and then realizing that it’s probably not worth what it was when it was just one in 1,000. Whereas 1 ounce of silver or 1 ounce of gold is still going to be 1 ounce of silver or 1 ounce of gold because governments can’t just “print” them. TWST: The focus does tend to be on gold more than silver as the alternative form of currency. How do you anticipate silver playing out in this? Mr. Burns: I think it’s going to trade very similar to gold. Gold is certainly the first thing people look towards. Having said that, the silver ETF, which is a relatively new vehicle that allows investors to invest directly in physical metal, has grown remarkably since it was first launched about three years ago in the spring of 2006. In total the ETFs hold more than 300 million ounces of silver. So I think investors have spoken to how they think about silver. They are buyers in a big way and ,in fact, over the last six months, during the peak of the financial meltdown, they’ve been buying into

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the ETFs at rates that are similar to the rates we saw when the ETF was first launched. So I see silver trading very much like gold. It certainly isn’t the same stone value as gold, but it still is very much a precious metal.

“In terms of the recession, it has actually been beneficial because it has actually reduced our input costs. For example, oil going from $140 a barrel to $70 a barrel is actually a benefit.”

TWST: Please briefly describe your background and those of several other key executives? Mr. Burns: I am a geologist with an MBA and 25-plus years of experience in precious metals mining. The first 15-plus years of my career was in gold and the last 10-plus years has been in silver. I’ve spent my entire career in mining, always in operating mining environments in North America, Central America and South America. I am going to make a general comment: If you look at our senior operating group, you will find an interesting commonality. Most of us are in our mid- to late-40s and have been in the mining business for 20 to 30 years in the varying specialties, be it operations, be it engineering, be it metallurgy, be it mining finance or exploration. The group we have as senior leaders in our company all have that level of experience; right in their wheelhouse of economic contribution. Old enough that we’ve experienced a lot, but young enough that we have a lot left in the tank to make use of that experience. TWST: Is there anything else you would like to add? Mr. Burns: Offhand, I think we’ve given you a pretty good overview of Pan American. TWST: Thank you. (MR) GEOFFREY A. BURNS President & CEO Pan American Silver Corp. 1500-625 Howe Street Vancouver, British Columbia V6C 2T6 (604) 684-1175 (604) 684-0147 — FAX www.panamericansilver.com e-mail: [email protected]

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North American Palladium Ltd. (PAL) BILL BIGGAR is President and CEO of North American Palladium Ltd., one of North America’s largest producers of platinum group metals and nickel. He has extensive experience in a broad range of other industries, including mining. Mr. Biggar previously held senior positions with Barrick Gold Corporation, Horsham Corporation and Magna International. He has over 12 years’ experience as an investment banker and private equity investor. He joined North American Palladium in October 2008 with a mandate to grow the company into a diversified precious metals producer with multiple mines in mining friendly jurisdictions.

SECTOR — PRECIOUS METALS (AMX648) TWST: Can you give us a brief historical sketch of North American Palladium? Mr. Biggar: North American Palladium is a public company listed on the Toronto Stock Exchange and the NYSE Amex. Our operations at our flagship Lac des Iles mine — LDI for short — located just north of Thunder Bay, Ontario, commenced in 1993 as a large open pit mine. Then in 2004, we added an underground operation just underneath the existing pit. We’re a PGM producer. PGM stands for platinum group metals. We produce palladium and platinum, but we are principally a palladium producer. We’ve invested about a half a billion dollars in the mine infrastructure at the property. TWST: Where did the half a billion come from? Mr. Biggar: We did public capital raisings in the 1990s. We also did a major raise with Merrill Lynch in 2000 and another raise with Merrill in 2007. TWST: This is all equity? Mr. Biggar: That’s right. We have no debt. We tend to be financially conservative. We’ve used debt from time to time but we usually like to see it retired fairly quickly. Our LDI mine is currently on care and maintenance. With the plunge in palladium prices from US$400 to US$200 an ounce last fall, we decided to shut it down. We didn’t want to deplete our valuable resources at loss-making prices. Just prior to shutdown, we were producing about 270,000 ounces of palladium, 20,000 ounces of platinum and about 20,000 ounces of gold a year. We also produced significant nickel and copper byproducts. We’ve retained all the senior mine management. They’re currently working through an aggressive exploration program to drill further below the existing underground mine to increase reserves and resources and to extend mine life. TWST: Was the principal reason for putting the mine on care and maintenance to make improvements to your operations or to prevent from selling to the weak palladium market? Mr. Biggar: It’s really both. Palladium prices are low, but the silver lining is that we’re able to look at how we want to shape our future. The big, open pit mine that I referenced earlier was al-

most depleted. It would have been gone in maybe another nine months. So we’re now looking at ways to improve our overall mining and milling efficiencies, and lower our ongoing costs when we restart as an underground-only operation. We’re actually working through what’s known as a prefeasibility study for the next 10 years of mining. We have a zone that’s right below our current underground mine. It’s called the Offset Zone. A scoping study performed a couple of years ago showed that it would add another ten years of mine life. We’ve been doing more drilling there now. It’s easier to do when you’re not operating. We’re getting very encouraging results. So that will be factored into our plans for how we are going to mine at LDI over the next 10 years. We hope to have the pre-feasibility study available in the third quarter of this year. TWST: Is the pre-feasibility study a form of business plan or is it actually a feasibility study? Mr. Biggar: It’s really both. It’s a form of business plan that becomes a road map for how we’re going to operate our mine. We are working closely with a third party who does the analysis. Our senior management is assessing how we’re going to reconfigure the mill. We see it as a lower-tonnage operation than we’ve run historically. We’re looking to determine the most efficient way to mine the Offset Zone. At the moment, we have a ramp access underground. It may make more sense, however, to put in a shaft. That is currently under consideration. TWST: I hear the term feasibility study used specifically in your industry but not in others. Mr. Biggar: The term is unique to the mining business. Typically, you have a feasibility study written by a third party engineering expert with input from the company. It’s commonly used to obtain financing; it maps out how you are going to mine and process the ore. And it has an economic component indicating all the capital expenditures and operating costs, the kind of returns you’re expecting to earn and the projected cash flows. The feasibility study is frequently taken to a lender who is going to provide project financing to fund some or all of the required capital.

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TWST: What caused the palladium price to collapse? Mr. Biggar: I will give you a little bit of background on the palladium market and then put it in context. The first thing to know is that palladium is a precious metal. The four precious metals are gold, silver, palladium and platinum. But unlike gold, palladium is a very rare metal. The annual global production of palladium is only about 6.5 million ounces, as compared to 90 million ounces of gold produced annually. In terms of who produces palladium, it’s relatively concentrated. About 45% comes out of Russia. Norilsk is the big Russian nickel producer. When it mines nickel, it gets palladium as a byproduct. Another 40% of global palladium production comes out of South Africa. There are several South African producers. But, of course, there are many challenges in South Africa around infrastructure — principally electricity — and social issues. The remainder of palladium is produced in North America, mostly by Stillwater, a public company that operates out of Montana and is listed on the New York Stock Exchange, and us. So supply of palladium is very concentrated.

“My mandate when I joined North American Palladium last October was to diversify the company away from dependence on a single mine operation. So in terms of our vision for where we are going, our objective is to build a diversified mid-tier precious metals company.”

Now, let’s look on the demand side. Where does this 6.5 million ounces of palladium production go every year? About 50% goes into catalytic converters for automobiles. About 15% is used in electronics. Another principal use is for jewelry, primarily in Asia. It is very common to set diamonds in platinum. But in the past few years, the Chinese figured out that you can set them in palladium. It’s about a quarter of the cost of platinum, and it looks exactly the same. So there is rising demand for jewelry as well. And, because palladium is a precious metal, it is also purchased for investment purposes. Investors tend to view it like gold. There are two palladium ETFs, one trades in Zurich and the other trades in London. But to go back to your question about why palladium prices plunged, the primary factor was the decline in automotive demand, which just fell off a cliff. Vehicle production in North America is way down because of the global economic crisis and the GM bankruptcy. On the other hand, if you look to the future, we’re very optimistic about the price of palladium because we expect to get through this. It’s a relatively short-term phenomenon, which is really just taking capacity out of the global automotive industry. As the economy recovers and with low interest rates, people will continue to buy cars. Besides, our enthusiasm for palladium was never really based on growth in the mature economies in Europe and North America. It’s primarily driven by the expected growth in automobile purchases in the BRIC economies — Brazil, Russia, India, and China — where we are seeing emerging affluence. The first

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thing people like to do is buy a car. They do this before they buy a home. The penetration of vehicles per capita in these economies is very small compared to North America and Europe. When you look at some of the leading global automotive forecasters, they are quite bullish about the outlook for growth in global vehicle production over the next three, five and seven years. That’s why we’re quite optimistic about the future. For example, China has very low vehicle sales per capita. But they have a current run-rate of over 10 million vehicles expected to be produced this year, which may exceed that of the United States for the first time. The US is probably running at around 9 million vehicles this year. Before the economic crisis, vehicle sales in the US were running at about 16 million vehicles a year. I think there is a strong expectation we’ll get back to this level in the US. TWST: What do you think will get us there? Mr. Biggar: Coming out of the recession. As things stabilize while interest rates stay low, it will be a huge driver of consumerism and people’s ability to afford cars. The last two US. recessions in the early 1980s and early 1990s were much more difficult because we had 10% to 12% interest rates. When you have to finance a car at 12%, it’s a killer. But we’ve got very low interest rates now. So, I think that’s going to be a big positive. TWST: Are you making any plans to increase production quantities? Mr. Biggar: As we work through the feasibility study, for the re-start of the LDI mine, we are focusing on being able to ramp up to about the same levels as before we shut down. But we are going to be mining higher-grade ore. So our expectation is that we will have lower cash costs per ounce. This is a key metric in the mining business, along with your selling price per ounce. TWST: Can you discuss your cash costs per ounce? Mr. Biggar: We can’t be specific at this time because we’re still working it through and it’s part of the feasibility study. But recently we were quite profitable. In the first quarter of 2008, for example, our cash costs were about C$16 per ounce. TWST: And this is palladium? Mr. Biggar: Yes, per ounce of palladium. A year ago February, palladium was selling for US$582 an ounce and we were producing it for US$16 an ounce. So it’s a pretty good margin. TWST: It doesn’t get much better than that. Mr. Biggar: No, it doesn’t. Going forward, we hope we can continue to be a low-cost producer. This is part of the economics we will be working through in the feasibility study. TWST: Would you backtrack for a minute to make sure we understand your competitive advantages? Mr. Biggar: We have three key competitive advantages. First and foremost, we’re producing about 4% to 5% of the annual global palladium production. Second, we operate in a miningfriendly, politically stable jurisdiction. Innovation and excellence in mining is the hallmark of our Canadian industry. Third, we have a very experienced operational team with both open pit and underground mining capabilities. We also have a lot of experience implementing corporate initiatives to build shareholder value. TWST: Such as? Mr. Biggar: Such as the gold company acquisition that we just completed a few weeks ago. This brings us to a key element

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of our strategy. My mandate when I joined North American Palladium last October was to diversify the company away from dependence on a single mine operation. So in terms of our vision for where we are going, our objective is to build a diversified mid-tier precious metals company. TWST: Would you explain your the term “mid-tier.” Mr. Biggar: I look at it in terms of market capitalization. I’d like to build this company to a C$2 billion market capitalization. TWST: What is your market cap currently? Mr. Biggar: Today, it is about C$250 million. You may think, “Wow! That’s a big leap from C$250 million to C$2 billion.” But a year ago, when palladium was US$580, our market cap was C$800 million and there is no reason it shouldn’t return to at least that level when the price of palladium recovers. And the way I expect we’re going to achieve additional growth is by adding gold production to augment our core palladium operations at LDI. I think we’ll be unique in offering both palladium and gold in one vehicle. A couple of weeks ago, we completed an acquisition of a junior company called Cadiscor. It had optioned a gold property from IAMGOLD, a large Canadian company with a market cap of C$3 billion They operated the Sleeping Giant Mine in the Abitibi region in Quebec, a region that has produced over 20 million ounces of gold over 18 years. It’s a pretty prolific region. IAMGOLD was mining out the remaining known reserves and was planning to shut down the mine at the end of last year. But Cadiscor, the junior that we bought, had optioned the property and was allowed to perform underground drilling for the last two years. It found more gold. So we bought the company and we expect to have the Sleeping Giant gold mine in operation in the fourth quarter of this year. Our annual production is expected to be about 50,000 ounces of gold. Our cash costs are anticipated to be about C$450 an ounce. That’s a pretty good margin with gold at US$930 an ounce today. But our corporate objective is to get our gold production up to up to 250,000 ounces, and this will require further acquisitions. In the gold business, if you are producing 250,000 ounces, you are considered a mid-tier producer. If we can marry this with 250,000 ounces of palladium per year from our LDI mine, I believe we will be a solid mid-tier producer of both palladium and gold. TWST: What milestones should we look for to assess whether you are on track toward achieving your goals? Mr. Biggar: I would say there are several. First, you should monitor our exploration success at LDI. Although we are temporarily shut down, we have a large, ongoing exploration program around the mine. We also have a large property — about 21,000 acres — that is underexplored. The company historically has viewed itself as an operator, and a good operator, and never really did much in the way of exploration. And, of course, the best place to find more palladium is right next to where you are currently mining. So to answer your question, I think investors should watch for progress on that front. I also think you should watch to see what the feasibility study for LDI tells us when it is completed in the third quarter. And finally, you should watch to see if we can deliver on our plans to restart the Sleeping Giant mine in the fourth quarter. TWST: What is your outlook for palladium? Mr. Biggar: There are many prognosticators on commodity prices, whether it is gold or silver, palladium or platinum.

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The group that we tend to rely on is the CPM Group in New York. They do bottom-up research on all the fundamentals driving the palladium market. They advise institutional investors who are looking to invest in precious metals and give them views on palladium, platinum, gold and silver. The firm’s analysts expect palladium to average US$350 an ounce in 2010 and US$400 an ounce in 2011, and to continue to rise after that. Palladium is currently about US$250 an ounce.

“As we work through the feasibility study, for the re-start of the LDI mine, we are focusing on being able to ramp up to about the same levels as before we shut down. But we are going to be mining higher-grade ore. So our expectation is that we will have lower cash costs per ounce. This is a key metric in the mining business, along with your selling price per ounce.”

TWST: Is inflation or industrial demand the key driver? Mr. Biggar: It is industrial demand. The other interesting dynamic is the investment demand for exchange-traded funds (ETFs). Between Zurich and London there is about 1 million ounces of palladium in ETFs. The ETFs have applied for listing on the New York Stock Exchange. I expect this to be in place by the end of the summer. It could be very significant. As I’ve already said, only 6.5 million ounces of palladium are produced on a global basis each year. So if ETF demand starts building, it could be a very positive support factor for the palladium price. TWST: That’s very critical. So it would be a good idea to keep an eye on ETF demand for palladium? Mr. Biggar: Yes. TWST: You must also have a view on the price of gold, as you are looking to build a gold business? Mr. Biggar: We are bullish on gold. It is the only asset class that withstood the economic crisis. Nothing else did. The amount of stimulus that’s being put out by nations globally — not just the US, but also Canada, Europe and elsewhere — is huge. And it’s going to have to be financed, and that’s going to be inflationary. So we think there is a good chance that inflation will start to come back, and that’s historically very positive for gold. The other thing is that people are concerned about the US dollar; it’s still the world’s reserve currency, but a lot of advisors are now saying that institutions should have 5% to 10% of assets in precious metals as a hedge against a devaluation of the US dollar. So putting all of this together, our view is that the bias for the gold price is up. Whether it goes to US$1,500 or US$2,000, we don’t know. We think gold is well-supported in the range of US$800 to US$1,000. We can make good money in that range. And if it goes higher, that will create more value for our shareholders. TWST: What challenges do you face in achieving your strategic objectives? Mr. Biggar: The key challenge for any company in the mining industry is that you need a favorable commodity price environment. You can do everything right — internally and operation-

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ally. But if you get a tough commodity price environment, you can’t make money. So that’s a challenge that everyone faces. But in the case of palladium, we believe we are currently at the bottom of the cycle. The other real challenge is attracting and retaining experienced miners. We have been fortunate in that the LDI mine is close to Thunder Bay, which is a great place for miners to live. But hiring and keeping experienced miners is always a challenge. We are hiring miners now as we reopen our Sleeping Giant gold mine in Quebec. We are up to about 80 miners; we are going to need about 125. TWST: How do you overcome the difficulty of attracting and retaining miners? Mr. Biggar: It’s a number of things. Safety comes first. The miners look at your track record. We’ve been operating now for over 15 years, so we’ve got a long history. But the track record is really key, and that’s where we are fortunate. TWST: What is your track record for safety?

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Mr. Biggar: We have an excellent track record with no major injuries or fatalities at our mine. Safety in mining conditions and how we treat our employees is really the key. TWST: Thank you. (LK) BILL BIGGAR President & CEO North American Palladium Ltd. 2116-130 Adelaide Street W Toronto, Ontario M5H 3P5 Canada (416) 360-7590 (888) 360-7590 — TOLL FREE (416) 360-7709 — FAX www.napalladium.com e-mail: [email protected]

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A. GARY SHILLING is President of A. Gary Shilling & Co., Inc., economic consultants and investment advisors, and publisher of INSIGHT, a monthly report of economic forecasts and investment strategy. He has also been a Forbes magazine columnist since 1983 and writes the “Financial Strategy” column. He graduated from Amherst College with an AB in Physics, magna cum laude, Phi Beta Kappa, and earned his MA and PhD in Economics at Stanford University. While on the West Coast, he served on the staffs of the Federal Reserve Bank of San Francisco and the Bank of America. Before establishing his own firm in 1978, Dr. Shilling was Senior Vice President and Chief Economist of White, Weld & Co. Earlier he set up the Economics Department at Merrill Lynch at age 29 and served as the firm’s first Chief Economist. Prior to Merrill Lynch, he was with Standard Oil Co. NJ (now ExxonMobil). A frequent contributor to the financial press, he appears frequently on radio and television business shows. His fourth book is Deflation - Why it's Coming, Whether it's Good or Bad, and How it Will Affect Your Investments, Business, and Personal Affairs (June 1998) and its sequel is Deflation: How to Survive and Thrive in the Coming Wave of Deflation (McGraw Hill, July 1999). His latest book is Letting Off Steam - A Collection of Commentaries on Matters Great and Small, Complex and Mundane, Serious and Frivolous. Twice, Institutional Investor magazine ranked Dr. Shilling as Wall Street’s top economist and Futures magazine rated him the country’s number one commodity trading advisor. In 2003, MoneySense magazine named him the third best stock market forecaster in the world, right behind Warren Buffett. He is on a number of corporate and charitable boards and is an avid beekeeper.

SECTOR – GENERAL INVESTING (AAJ505) TWST: Gary, tell us what has been happening over the past year since we talked to you. In last year’s interview, your forecasts seemed to happen exactly in the order you said they would. Dr. Shilling: It was a very lucky year for us. In January of each year in our monthly newsletter Insight, we publish our investment strategies for the year. In January 2008, our lists stretched to 13 and all 13 worked. That’s highly unusual, but all 13 actually performed and if you were to consider that on a strictly random basis, if you said what are the odds of flipping a coin and getting heads 13 times out of 13, it’s 1 in 8,192. So I would like to think there is something other than just random luck involved. But it was a good year. We had forecast that stocks would be down, the dollar would be strong, that emerging market debt and equities

would decline, that housing prices would fall along with housingrelated stocks. So you go right down the list and they all worked. TWST: Consumer retrenchment? Dr. Shilling: Consumer retrenchment, absolutely. Yes, that was a big item too and obviously, all the retailers were very negatively affected as were producers. You look at what happened to the auto industry — that’s a very clear big, postponable item and between the end of the SUV pickup truck fad and people deciding they can run their own cars for another six months or a year, that industry collapsed and that, of course, was the death knell for both Chrysler and GM. TWST: Since we talked, there has been an election and a change of Administration, and different policies adopted by Wall Street and by the government. How do you see things as they stand today? The Wall Street Transcript — June 29, 2009   41

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that. As a matter of fact, we’ve had 11 recessions since World War II Dr. Shilling: Obviously, we’re now in an era of much and in eight of them, including the current one, you’ve had at least more government involvement in the economy and much more reguone quarter with a rise in real lation, which probably isn’t GDP. Recessions don’t start at the going to end any time soon. Highlights top and go straight to the bottom Obama campaigned on the idea and then it’s over. Sure, what we of moving income from higher Dr. A. Gary Shilling believes that the recession will have seen lately in terms of less income people to lower income extend into the first half of next year. He considers the concern by the consumers, maybe people and on more government recent market rally to be a bear market rally and we are some stabilization here and there involvement. The financial mess probably in a false start regarding the economy and in the economy, maybe that is the certainly gave him the opportuthe stock market. He is expecting a very sluggish bottom of the recession and those nity, because it’s easy to blame recovery when the economy does make a move; it may who are forecasting it to be over Wall Street, big banks, etc., for be years before we really know that we are out of the this summer may be correct. But all the problems that are now afrecession. One positive note is that if consumers are history suggests that we probably fecting almost everybody in the on a savings spree and they continue to increase their are simply in one of these false country, as unemployment leaps saving rate over the next decade, it will go a long way starts both in terms of the econand consumers find that their toward financing the enormous government deficits. omy and the stock market. houses are worth a lot less and He thinks there will be deflation for the duration of the I believe there are they can’t refinance them and as recession for the following reasons: the commodity three reasons why the recession they lose their jobs, they can’t price declines; excess inventories; wage cuts and will extend into the first half of make their mortgage payments. reductions in hours; and the excess of supply over next year. One is, we’ve got They are more underwater, demand. He thinks that stocks are vulnerable and there huge excess inventories of meaning their mortgages exceed are more disappointments ahead as the bear market houses. We estimate that there the value of their houses. All of rally comes to a close.Those who have been anticipating are still about 2 million extra these things, I think, made it very a recovery will be frustrated and there will be another houses over and above normal easy for, in effect, the people to substantial selloff in stocks at some point in the near working levels, a result of the come in and push for much more future. He says that as recession fears on a global big boom from the mid-1990s to government involvement in the basis return, there will probably be a stronger dollar the middle of this decade, and economy and more regulations. because it will be regarded as a safe haven. In fixed that’s a lot of extra houses. We So that’s where it is and it’s probincome, his advice is to buy high-grade munis and normally build about 1.5 million ably going to be around for some corporate bonds, which have already rallied nicely in a year and so 2 million is just a time. The history of this is that recent weeks. huge inventory overhang — and government regulation, once it’s excess inventories are the mortal introduced, does not tend to enemy of prices. As long as you leave any time soon. have those excess inventories, you get downward pressure on prices, and lower prices, of course, mean more people “In a recession, it’s very normal to have at least one are underwater on their mortgages, more people are walkquarter of increase in real (meaning inflation-adjusted) ing away, people have less equity in their houses that they can use to finance anything. That creates more financial GDP and usually there is a bear market rally accompanying problems; it’s a very serious difficulty, and unless somethat. As a matter of fact, we’ve had 11 recessions since thing comes along to take those houses off the market, our World War II and in eight of them, including the current estimate is that this problem will last at least through the one, you’ve had at least one quarter with a rise in real end of next year. The second problem, which is related to it, is GDP. Recessions don’t start at the top and go straight to consumer retrenchment. Consumers are now in a selfthe bottom and then it’s over.” feeding downward spiral. They are cutting back on their spending because they’ve run out of borrowing power. They suffered huge losses on stocks, despite the rebound rally, and, of course, their house prices are continuing to decline. TWST: Do you see the market rally since March as a They had been using these two assets to fund oversized spending, bear market rally or do you think these green shoots really are spending over and above their normal income from wages, salaries, showing light at the end of tunnel? rents, interest, dividends, transfer payments like pension fund payDr. Shilling: I don’t know if there is going to be a late ments and the like. Well, those income sources are gone, so they spring frost that will kill them all, but what we’ve observed repeatedly have no option but to retrench. However, as they cut back on their in our monthly Insight newsletter is that in a recession, it’s very norspending, that means there is less demand for goods and services, mal to have at least one quarter of increase in real (meaning inflationthere is lower production, there is less need for people to produce it. adjusted) GDP and usually there is a bear market rally accompanying 42   The Wall Street Transcript — June 29, 2009

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supply; there may be shortages.” So they bid up the prices. There’s been So layoffs mount, and now we are getting cuts in wages, furloughs, a tremendous amount of refinancing that is coming due in tough markets. shorter hours in effect, and that means less consumer income, furSo it’s a matter of refinancing, high prices and weak demand, which is ther depressing people’s willingness to spend. The whole thing causing price declines of 30% or more, and probably a lot more pain and feeds on itself. suffering in that area. Now, of course, the $787 billion fiscal stimulus program was supposed to offset this. We estimate that only about $200 billion of that is likely to have any effect via infra“What we are seeing is that even when the money does structure spending, tax cuts, unemployment benefit increases, etc. The rest is Obama’s social agenda, which is get out there, people are saving it, not spending it. People probably going to be very slow in getting into the spendsaved 87% of the tax cuts in the first quarter. Bear in ing stream; even that $200 billion is getting out there very mind that it’s only middle and lower income people that slowly. The President has been complaining recently to his got the tax cuts. Higher income people didn’t, and they cabinet, saying, “Hey, what’s going on here?” His popularity is slipping and so he worries about the stimulus not are normally the big savers.” getting out there. There are also financial problems with people who are increasingly treating their monthly payments on “In the financial area, especially with all the junk credit cards, student loans, auto loans and home equity securities, there is big anticipation of defaults, but the loans as discretionary. In other words, they get to the end defaults are only beginning to happen and they will of the month and they say, it’s either a matter of putting cause a lot of anxiety because I don’t think a lot of the bread on the table and gas in the tank or making a credit holders of leveraged loans and junk bonds have fully card payment, and what are they are doing is throwing their financial responsibility in the waste basket. There’s a reserved for what could be some pretty big write-downs lot of that debt that’s owned by financial institutions. The because of defaults and difficulties.” TALF program is designed to deal with it, but it’s only slowly coming out and I assume they will change the specifications to make sure they bail that out, just like they are probably going to use that to bail out commercial real estate, but On top of that, what we are seeing is that even when the money those problems have yet to be dealt with. does get out there, people are saving it, not spending it. People saved 87% And finally in the financial area, especially with all the of the tax cuts in the first quarter. Bear in mind that it’s only middle and junk securities, there is big anticipation of defaults, but the defaults lower income people that got the tax cuts. Higher income people didn’t, and are only beginning to happen and they will cause a lot of anxiety they are normally the big savers. And in April, the results were even more because I don’t think a lot of the holders of leveraged loans and junk devastating. People actually cut their spending, despite the big increase in bonds have fully reserved for what could be some pretty big writetheir aftertax income because of tax cuts, and, in effect, they saved 108% downs because of defaults and difficulties. So those are the things I of their tax cuts. So it’s very difficult, even with what little money is getting think have to happen before this recession is over, and my judgment into circulation there, to see it turn into anything but savings. It’s really a is that that’s going to take until the first half of next year, roughly a bookkeeping entry with an increased government deficit matching an inyear from now. crease in consumer saving. What I’m really getting at is, I think there’s going to have to be an awful lot more stimulus and they will probably come back with additional programs to try to get “The evidence is obvious, the economy is still going money into people’s hands in the hope that they will spend it. Again, additional stimulus could happen soon, but I don’t think down. So the government stimulus is being more than it’ll do much to arrest this downward spiral of consumer reoffset by private sector weakness and after we get out of trenchment until early next year. And by the way, we are looking this recession, we’re going to see not only a slow for a very sluggish recovery; it may be years before you really recovery, but slower growth for probably the next know you’re out of the recession. Then there’s a third problem that has to be dealt with decade, a very big contrast to what we have had in the before we can end this recession. The third area is the financial 1980s and 1990s.” problems beyond the current ones, and the current ones have largely being involved with residential real estate. But now TWST: It’s ironic — you mentioned the savings, we’re seeing commercial real estate in big trouble. It wasn’t so much which has been one of your constant complaints — that our overbuilding as it was weak demand for mall space, for hotels, for office savings rate has been declining for 25 years and now the govbuildings, plus the fact that the price of commercial real estate was bid up ernment is giving us money to spend and we are suddenly in recent years. Ironically, there wasn’t a lot of overbuilding except in starting to save. hotels. So a lot of investors said, “Hey, this is great. There isn’t an overThe Wall Street Transcript — June 29, 2009   43

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Dr. Shilling: It is ironic and, of course, Lord Keynes first dubbed this back in the 1930s as the Paradox of Saving. In other words, saving is very commendable for individuals to prepare for retirement, for contingencies, for kids’ educations and so on. But when everybody saves, nobody is spending and it is tough on the overall economy, and that’s exactly where we are now. That’s something that hasn’t been of any concern. For many, many years, consumers were going quite the other way. And it’s interesting that the Administration, of course, cannot and has not told people to go out and spend, spend, spend, because they are fully aware the backlash would be tremendous because excess spending is one of the problems that got us into this mess. But by the same token, they sure are not pumping all that money out there with the expectation that it’s just going to go into savings. Otherwise, why incur the government deficit?

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This is the condition that Japan has been in forever. They’ve had huge government deficits because they have been trying to stimulate that economy really since the early 1990s, but it’s been offset by consumers being very cautious, not being too willing to spend money, but at the same time as consumers save, it makes it very easy for Japan to finance its deficit, and they still have money left over because they are exporting it. That’s a counterpart of their current account surplus, their trade surplus. I don’t think we are going to be in that position at least for a few years. But we are seeing our current account deficit decline. Why? Because as US consumers retrench, they buy less of everything, notably imports. For every 1% decline in consumer spending, our analysis shows that imports decline 2.8%. It’s almost a 3 per 1 effect and that obviously means that more of the deficit is being financed and will be financed by consumer saving. Money does commingle as it moves through the economy, and it will probably end up one “We are seeing our current account deficit decline. Why? way or the other financing more and more of that govBecause as US consumers retrench, they buy less of ernment deficit. TWST: One of the things that you first foreeverything, notably imports. For every 1% decline in saw last year is the rollout of the recession to the rest of consumer spending, our analysis shows that imports the world economies, and certainly that’s happened. Do decline 2.8%. It’s almost a 3 per 1 effect and that you see any hope for the global economies improving? Dr. Shilling: Not really, because you do have obviously means that more of the deficit is being financed specific problems in many countries. You have had housand will be financed by consumer saving.” ing bubbles that have collapsed in the UK, Ireland, Spain, Australia and China. You’ve had financial problems that really spread globally from the US, but I think there are two really important factors here that are going to drive an extended TWST: That’s another big problem. What are your recession and then slower growth on a global basis. The first is US views on the enormous deficits that are building up? They were consumers switching from 25 years of borrowing and spending to a bad enough in the Bush years, but now they have gone way, way saving spree. That more than anything is probably the most imporbeyond that. tant factor driving the US economy and the world because the US Dr. Shilling: Yes, they have truly gone ballistic. I think the consumer has been the buyer of first and last resort for goods and only thing you can say is that despite the massive monetary and fiscal services that the rest of the world has no other place to sell. In other ease we have had so far, the contraction of the private sector has more words, the effects of consumer retrenchment are much worse on the than swamped it. The evidence is obvious, the economy is still going rest of the world than they are in the US. down. So the government stimulus is being more than offset by private sector weakness and I happen to believe that after we get out of this recession, we’re going to see not only a slow recovery, “There was a conviction on the part of many institutions but slower growth for probably the next decade, a very big and individual investors that commodities were indeed contrast to what we have had in the 1980s and 1990s. Probably an asset class. In other words, they already had 5%, 10%, as a result, we’re going to have a heavier government involvement in the economy to combat what otherwise would be very 15%, whatever, of their portfolio in commodities. Of high unemployment. It’s a political issue. course, what happened was that with the global recession, The one thing you can say about this, though, is that if the demand fell a lot faster than anybody could shrink consumers are on the saving spree that I have been looking for and supply, so prices went off the cliff. A lot of these investors that now appears to be unfolding — and if they continue to increase their saving rate over the next decade, which is my forecast learned that commodities are not an asset class, they are — that’s going to go a long way toward financing these governa speculation — always have been — which is what we ment deficits. For example, if you assume over 10 years that the were saying a year ago.” saving rate increases 1 percentage point a year — now it’s jumped up a lot faster, it’s gone from zero to 5.7% in April, but that’s with the tax cuts so I think that’s an artificial spike — but if it goes up, The second factor is the similar retrenchment, deleveragin effect, 1 percentage point a year, if you just do the math and say cumulaing if you will, in the financial sector and that is a global phenomtively how much increased savings does that generate over 10 years, it’s $5.5 enon. But that not only means the end of things like the housing trillion. That’s a lot of money. 44   The Wall Street Transcript — June 29, 2009

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TWST: There is a lot of concern about inflation rearing its ugly head. What are your views on the Fed and interest rates rising? Dr. Shilling: For the duration of the recession, I don’t think there is anything but deflation and there is not a lot of argument about that. I would say it’s for four reasons. One is the followthrough of commodity price declines earlier. Sure, gasoline at the pump reflects oil prices pretty quickly, but when you get to petrochemicals, for example, if they are made into plastics and then made into components that ultimately end up in your TV sets, that takes time to work its way through the system. The second factor is the excess inventories. We are seeing that with consumer retrenchment. Retailers are marking down apparel, for ex“As far as the fiscal stimulus goes, consumers are saving ample, before they even get it out of the boxes and on the shelves. These are not end-of-the-season clearance sales, and I think, as in Japan, they’re going to finance a lot of these are sales to begin with. those continuing government deficits out of increased The third factor and most interesting one to me saving. It’s interesting that we have been relying on that I’ve been pushing extensively, and now other people foreigners to finance our government deficits for decades, are beginning to pick up on, is that we are seeing for the first time since the 1930s wage cuts and reductions in hours. but now I think we’re going to be reliant more on US Now, you can argue that this is better for morale than layconsumers. It’s a safer financing, you don’t have to worry offs, which had been the principal way of reducing excess labor since the 1930s, in that shorter hours and wage cuts that much about what foreigners may or may not do.” hold together morale, that people realize that their job is safe, they may be getting paid less and the company also is better prepared for a recovery and a pickup in demand. But I think the TWST: What do you foresee for commodities and cydriving force behind it is simply that we don’t have any inflation now. clicals? If you have inflation and somebody is overpaid, it’s pretty easy to Dr. Shilling: Commodity prices, as I pointed out a year ago reduce their compensation to the appropriate size. You just don’t give when we talked about this, were really driven on the upside by two him an increase and inflation brings down their salary in real terms, factors. One was strong global demand, and that came in many cases whereas if you don’t have inflation, that doesn’t work, so you have to with commodities that simply could not expand their supply fast take explicit action. So these wage cuts are increasing in frequency enough. This was in the 1990s and in the early years of this decade. and they are obviously deflationary. It takes a while to open a copper mine, for example, or to discover and develop new sources of iron ore and some of these basic industrial commodities. So that was a factor. And the second factor was a conviction on the “I don’t think there’s a lot of argument there that we’ll part of many institutions and individual investors that continue to see deflation. It’s what happens beyond that commodities were indeed an asset class. In other words, because you had this massive fiscal stimulus, you have they already had 5%, 10%, 15%, whatever, of their portfolio in commodities. Of course, what happened was that had all the monetary stimulus, but so far the money isn’t with the global recession, the demand fell a lot faster getting outside the banks. It’s basically a matter that the than anybody could shrink supply, so prices went off the reserves are there, but the banks don’t want to lend and cliff — and oil was the poster boy on this, going from the creditworthy borrowers don’t want to borrow.” $145 a barrel to below $40 at one point. But then on top of that, a lot of these investors learned that commodities are not an asset class, they are a speculation — always Then the fourth factor is there is simply an excess of suphave been — which is what we were saying a year ago. And ply over demand. When you have got weak demand and ample they’ve learned the hard way that these are not things that those supply, it puts downward pressure on prices. Now that’s for the who are running other people’s money, pension funds, endowment duration of the recession. As I said, I don’t think there’s a lot of arfunds and so on, should be in. Individual investors learned the gument there that we’ll continue to see deflation. It’s what happens same bitter lesson. beyond that because you had this massive fiscal stimulus, you have So I think that with what looks like slower global growth had all the monetary stimulus, but so far the money isn’t getting as we go forward, we are probably going to see ample supply of outside the banks. It’s basically a matter that the reserves are there, most commodities. Some things are tricky, though. Grains, for exbut the banks don’t want to lend and the creditworthy borrowers ample, depend very much on the weather as does honey production, don’t want to borrow. Normally, if the Fed gives the banks $1 in but most things are pretty much driven by supply and demand. sprees of various countries where they were, in the US and elsewhere, financed by fairly easy credit. In Eastern Europe and the Baltics, those countries enjoyed huge growth after the demise of the Soviet Union, but it was financed by Western banks. They did what Asia did in the 1990s and it came to grief there — they bought a lot of money in hard currencies and then when their currencies collapsed, they had to pay back even a lot more. Well, that’s what happened in the case of Eastern Europe and the Baltics and, of course, those countries are in dire shape. With the retrenchment in the financial area, I think their growth is going to be very, very muted over the next 10 years.

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you don’t need the safe haven of Treasuries, but I think both will do reserves, they turn it into $70 of M2, which is about 70 times bank better if we resume the recession fears on a global basis and reserves, but now they’re not even getting 1 for 1, much less 70 to Treasuries and the dollar look, as they did late last year and early 1. Of course, you say, well, what happens later when that money this year, like the safe havens. does get lent? Well, that means you are going to have a fairly robust economy, which I don’t expect, but even if you did and the banks suddenly decided it was safe to lend and borrowers wanted to borrow, I think the Fed would be very, very ag“I like munis. It’s interesting that normally in the gressive in yanking those reserves back. They’ve said so municipal area a general obligation, something backed pretty clearly, from Bernanke on down. Central bankers by the full faith and credit of a municipality, a state or are congenital inflation worriers. I don’t think there would city, is considered a safer, higher credit than a revenue be much question of their retrenching. As far as the fiscal stimulus goes, as I mentioned obligation, something backed by a toll road or a bridge earlier, consumers are saving and I think, as in Japan, or something like that. But now, even with people cutting they’re going to finance a lot of those continuing governback on their travel by car, etc., some of these revenue ment deficits out of increased saving. It’s interesting that bonds, ironically, are probably safer than the GOs.” we have been relying on foreigners to finance our government deficits for decades, but now I think we’re going to be reliant more on US consumers. It’s a safer financing, you don’t have to worry that much about what foreigners may or TWST: What about the fixed income market? may not do. Dr. Shilling: One of our investment themes for this year is to buy high-grade munis and corporate bonds, and they have rallied very nicely. Again, there was sort of “One of our investment themes for this year is to buy high- a panic in those late last year, but that has largely, though grade munis and corporate bonds, and they have rallied not entirely, subsided. You have to be selective there though, because first of all, the rating agencies are really very nicely. You have to be selective there though, because not of much value and we saw that with their fiasco with first of all, the rating agencies are really not of much value rating these mortgage-backed securities, rating all of and we saw that with their fiasco with rating these them, big tranches of them, AAA when they really were mortgage-backed securities. I think the same is true with just garbage. I think the same is true with their ratings of municipals and corporates — they are not to be trusted. It their ratings of municipals and corporates — they are not makes it difficult for an individual investor who doesn’t to be trusted.” have the resources or skills or inclination to look at them in detail because the risk I think is not defaults, as in mortgages, but downgrades. And if you look back a year ago, TWST: Considering all this, what advice would you there were seven AAA rated industrial corporations in this country, give to investors about how to invest in the market? and now there are five. It tells you something. Dr. Shilling: Right now, I think that stocks are vulnerable. TWST: You said that municipals would be under exThis recent rally, I think, is a bear market rally. I rather suspect that treme stress and heading into trouble last year. What are your we are going to see disappointments as the recession drags on. We views on municipals? are looking for $40 per share in S&P and operating earnings this Dr. Shilling: Again, there still are problems there. We year. I have had that view since late last year, and I must say that are looking at many municipalities that are faced with unpreceboth the top-down strategists and bottom-up Wall Street analysts are dented pressure on their revenues and, of course, they have a great coming closer to that number. But even if you put a generous, and I deal of difficulty cutting costs. They face municipal unions with do mean generous, 15 price/earnings ratio on $40, you end up with contracts and the ability to close down essential public services, 600 on the S&P versus where are we now — about 938 as we speak. which gives them a lot of bargaining power. So it does create seriSo that would be about a one-third decline in stock prices from here ous problems for municipalities and I think the net result is probto a bear market bottom. And I think that’s probably in the cards ably a lot more downgrades. If you look at California, which is sometime later this year, with recovery not coming until late in the always the extreme, California’s bond rating is now at the absolute year in anticipation of an end to the recession, say sometime in the bottom, rivaled only by Louisiana. And of course they are facing first half of 2010. a serious deficit and with Proposition 13 passed back in 1978, they So I think in terms of investments right now, one has to be can’t increase local property taxes, so the state has to provide a lot very cautious about US stocks, and stocks on a global basis, but if of education funding to the municipalities and the electorate wants we are right and the recession continues and it continues to be a more and more goodies, but is less and less willing to pay for them global downturn, I think we probably will see a stronger dollar — — it’s a California syndrome. that’s one of our themes. The dollar has gotten beat up lately beThat’s writ large, but it’s writ smaller in many other areas. cause people figure, oh, you don’t need a safe haven with the dollar, I mean, I like munis. It’s interesting that normally in the municipal 46   The Wall Street Transcript — June 29, 2009

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area a general obligation, something backed by the full faith and credit of a municipality, a state or city, is considered a safer, higher credit than a revenue obligation, something backed by a toll road or a bridge or something like that. But I think now, even with people cutting back on their travel by car, etc., some of these revenue bonds, ironically, are probably safer than the GOs. TWST: What advice would you give to investors about the market now? Are there challenges ahead that they should be wary of at this time? Dr. Shilling: I think there are. I rather suspect that the economy is going to continue in recession. It’s in the hands of the US consumer more than any other single entity, and if it stretches on and we see these very weak earnings and continued problems, getting rid of excess inventories, which

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tend to reduce economic activity, if that whole process continues, then I think we will probably see a disappointment over stocks. Those who have been anticipating a nearby recovery will be frustrated, and we will see a substantial selloff in stocks at some point. TWST: Thank you. (PS) Note: Opinions and recommendations are as of 6/9/09. A. GARY SHILLING A. Gary Shilling & Co. 500 Morris Avenue Springfield, NJ 07081 (973) 467-0070

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JORDAN KIMMEL is Market Strategist at National Securities Corp. and the Managing Member of The Magnet Investment Group LLC. He developed the MAGNET® Stock Selection Strategy, subject of the widely acclaimed book, Magnet® Investing, which includes an introduction by John Downes, co-author of Beating the Dow. Mr. Kimmel is responsible for the portfolio management for all of the partnership’s various funds. The Magnet Investment Group LLC has previously licensed its stock selection process to John Nuveen and Co. John Nuveen & Co. has issued unit investment trusts applying the MAGNET stock selection process to several different indexes. The product was marketed under the name “GEMS.” Prior to launching The Magnet Investment Group, Mr. Kimmel was a First Vice President at Dean Witter. Earlier in his career, he was an account executive at Paine Webber and A.G. Edwards. A graduate of the State University of New York at Stony Brook, he holds a BA in Economics and an MS in Urban Policy Sciences. He is also a graduate of The Bronx High School of Science. Mr. Kimmel appears regularly on ABC, CNBC and Fox Business News, and hosts his own weekly radio show, “Profitable Investing with Jordan Kimmel,” on the VoiceAmerica Business Network. He is quoted frequently in national newspapers.

SECTOR – GENERAL INVESTING (AAJ502) TWST: Please give us a brief introduction to The Magnet Investment Group. Mr. Kimmel: Following 10 years in the brokerage business with the bigger firms, I established The Magnet Investment Group to manage all equities portfolios based upon a stock selection process that was developed over many years of research. I am proud to say, after 12 years in the asset management business, The Magnet Investment Group remains focused on finding the best companies in each sector and market cap. We do not get caught up in politics and have less of an interest in market timing than most other managers, understanding that in every market cycle, there are always a small, select group of companies dominating their niche industry — we call them “Magnets.” For several years we functioned as a subadviser to some larger firms. I have recently finalized a relationship with one of the oldest and largest independent broker/dealer firms in the country, National Securities Corp. In this relationship, I will integrate the Magnet Stock Selection Process into their asset management division and work with both institutions and high net worth individuals. TWST: So you are still finding superlatives even in this market turmoil? 48   The Wall Street Transcript — June 29, 2009

Mr. Kimmel: Yes, what you have to realize in the market is that when you look at average returns over years, almost no given years actually show those average returns. The market is full of cycles of over or underperformance. I believe the key to an investor is to have an edge, understand the edge, and not to become a growth investor one day and a value investor the next day. You must recognize that processes need to work over market cycles. So while almost nobody was spared in the 2008 bear market, we have already seen a dramatic recovery in the highest ranked companies according to the Magnet model, bringing us back faster than a broadly diversified strategy could do. TWST: How were you positioned before September, how have you been impacted by the market, and how has the investment process shifted in emphasis? Mr. Kimmel: Let me say that 2008 was an unusual year for us in particular as I was brought into the endowment and nonprofit world. We were asked to simply follow our model, fully invested, regardless of any market signals. Clearly around October 2008, the market dislocation was affecting all companies, all sectors, all investment styles, and although, like many others, we saw the danger, it was a decision made by our clients to see it through fully invested. Interestingly, the very folks who claimed they were incredibly long term and thought long term like sovereign funds,

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all reporting companies and narrowing it down to the very became very nervous and began questioning their own investment few top-ranked Magnet companies — we call them the style. So the good news for everybody else, I think, is the plan for Magnets. I was extremely The Magnet Investment Group busy all throughout 2008 fito go back to its core business of nalizing my next book, The handling managed accounts, Highlights Magnet Method of Investing, using not only the Magnet Stock which is due out in August of Selection process, but also using Jordan Kimmel says that the market is full of cycles of this year. Throughout last timing to combine the “what to over or underperformance. The key to investing well is year, I was spending a tremenbuy” with the “when to buy it.” to have an edge and recognize that processes need to dous amount of time with the What I feel very strongly right work over market cycles. So while nobody was spared top portfolio managers, invesnow is that we have had a second in the 2008 bear market, he has already seen a tors and authors of this era — generational bear market within dramatic recovery in the highest ranked companies and it was amazing. The the same decade, leaving invesaccording to his Magnet model, bringing him back market carnage that took place tors scared, scarred and really at faster than a broadly diversified strategy could do. For last year only reinforced how a moment of disbelief in Wall a company to be a Magnet stock it has to have a much the focus needs to be on Street and the stock market. This simultaneous acceleration in both revenues and profit individual securities, not an is how extreme value is created, margins, which leads to an acceleration in cash flow. over-reliance on the complex and it is my belief that right now The secret then is to buy those companies at the best formulas that allowed both dithis is not a bear market rally, but valuations possible. He is open to every sector in versification and asset allocainstead a new bull market that every corner of the world because you never know tion to become the main was born in early March 2009. where growth will emerge. The overriding theme that drivers for much of Wall TWST: That’s differremains consistent is that he simply looks for the Street. If you want an average ent from the herd. Most people strongest, healthiest companies generating free cash return, it is absolutely a good just think this is another shortflow. The only thing that makes a business robust is idea to use a low cost index lived rally. What are your reaits after-expense net free cash flow, which is why so fund. But most people do not sons for this thinking? many of the smaller companies he identifies end up get heavily involved in the Mr. Kimmel: I think becoming great acquisition targets for the larger market for average returns. If that you have to look at a combicompanies that are not able to continue their old you are looking for above avnation of factors. While the growth rates. erage returns, there is an absoMagnet Stock Selection process lute necessity to use tools to is overwhelmingly fundamental, isolate the best of the best and that is what we continue to do you cannot ignore how much of a role psychology plays in the mar— whether it is in large cap, mid-cap or small cap companies. ket. We are seeing a combination of the most cash on the sidelines, TWST: So the key is selectivity? coupled with an over-focus on the day-to-day economic numbers. Mr. Kimmel: Right. This is the premise really of the new Many investors are just not aware how loosely the stock market is book. One day in graduate school I saw the bell curve and for the correlated to the economy in the short term. So while people are first time really understood that roughly 90% of everything measurfocused on the US consumer as the driver, sometimes we forget that able is average. Understand that below average is what gets the only 5% of the world’s population are Americans. I believe that the media’s attention. My entire focus over a 20-year study became growth engine for the next several years is going to remain the what makes the best investment, what makes the best company and growth of the international consumer. how do you tie them together. The same way you would “The Magnet Investment Group remains focused on never have 500 players on a Ryder Cup team or a Davis Cup team, there needs to be a process where you get down finding the best companies in each sector and market to 12, 15 or 20 of the best of the best, and then using your cap. We do not get caught up in politics and have less of knowledge of them, put the best players on the field at the an interest in market timing than most other managers, right time at the right moment. I believe you can think understanding that in every market cycle, there are about the stock market in these terms as well. We recognize that the difficulty for many investors is the tendency always a small select group of companies dominating to fall in love with old names and not realize when their their niche industry — we call them ‘Magnets.’” day has passed. Just like sports, just like the entertainment industry, the stock market remains very much the same and is always led by new names in each cycle. The tools, and the ability, to find those names early in the cycle is what has set TWST: So taking into account that we’re now entering Magnet apart and has always been our core strength. a bull phase, what are you doing with your portfolio? TWST: What are the criteria that you are looking for Mr. Kimmel: What we will always do at The Magnet in a Magnet company? Investment Group is stay true to the discipline of evaluating The Wall Street Transcript — June 29, 2009   49

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development stage, but after they begin to actually produce and profitably Mr. Kimmel: Let me say, as a reminder, that Wall sell their products and begin to accelerate their financial results. So we are Street, despite all that has been learned over the last few years, not focused entirely on large caps. What we do is we take the entire uniremains focused almost exclusively on bottom-line earnings. At verse, break it down by market cap and look for the top-ranked Magnet Magnet, we take a much more rigorous approach. We do not take companies in each market cap and sector level. the approach that earnings do not matter at all and we are not willing to fall into those “buy at any price” traps, as many did in the dot-com era of the late 1990s. What we are saying instead is, for a company to really be a Magnet “What I feel very strongly right now is that we have had stock, it has to have a simultaneous acceleration in both a second generational bear market within the same revenues and profit margins, which leads to an acceleradecade leaving investors scared, scarred, and really at a tion in cash flow. The secret then is to buy those companies at the best valuations that are possible. Following a moment of disbelief in Wall Street and the stock market. Warren Buffett approach, we would rather buy a great This is how extreme value is created, and it is my belief company at a good price rather than a fair company at a that right now this is not a bear market rally, but instead great price. It is the blend of value, growth and momena new bull market that was born in early March 2009.” tum, and we insist on all of those factors being currently present. It is a blend of fundamentals primarily, and then we use momentum as a confirming factor. TWST: And you have seen these emerging market Now, as a new bull market cycle takes place, it is often the fact leaders even in this market downturn, so that what you are that the first companies that double in price are actually the first to double looking at now is different from the group of superlative comagain. And in a very tough market environment like we saw, it is very easy panies that you looked at last year? actually to see the new market leaders emerge. So while a lot of people are Mr. Kimmel: Very clearly, what we will see is that in any going to continue to bottom-fish or to focus on what went down the most given year, there will be a couple of names that survive from the and what is the most over-sold, it has always been Magnet’s strategy to see prior year. What is difficult for some investors to understand is that who, if anybody, remains healthy. Back when we were finalizing the first the “best companies to invest in at any given time” continues to edit of the new book coming out, we did go and isolated the Top 40 ranked change. We would rather pay our taxes and continue to rotate into Magnet stocks at that time. We then provided our second round of analysis the new top names than sit there and say, “But this ranked up last to bring it down to the Top 20. I will leave the names for the book, but we year and we liked it then.” This is not a matter of day trading, and are really happy to see several of those names already emerging as potenit is not swing trading either. It is a matter of identifying the leaders tially the next market leaders. in a given cycle. The best we ever hope for is that a topranked Magnet company will stay on the top list for a “Many investors are just not aware how loosely the stock two-year period. That is usually more than we ever get. So market is correlated to the economy in the short term. So we are willing to rotate names, we do not want to defend while people are focused on the US consumer as the companies if they have lost their edge and average down into a declining issue. In fact, one of our strengths here is driver, sometimes we forget that only 5% of the world’s refusing to be painted into a corner, not having an overpopulation are Americans. I believe that the growth reliance on a Magnet score to the point where we will not engine for the next several years is going to remain the begin to fight with the market. I think that is what we saw take place last year, and it will be an important lesson. Too growth of the international consumer.” many people felt that they were immune to declines and as a result took on way too much margin and leverage. They had an over-dependence on their quantitative models. The margin and leverage were the straws that broke the camel’s back last TWST: So to be a market leader means that you are a year for those investors. Instead I believe in being flexible, underlarge cap? Are you only focused on the large cap stocks? standing there is no Holy Grail. Our Magnet process clearly gives Mr. Kimmel: No. Let me correct that. By market leader we us a huge edge, but we are careful not to become too full of ourmean the companies actually going up the most in price. And interestselves. Through the use of stop losses, we attempt to mitigate risk, ingly, while some of our clients restrict us to large cap, my love and my understanding no model can only pick winners. interest has always been in smaller companies. Usually each bull market TWST: So your exit strategy is as important as your is led by new names. One of the things that makes me so much more entry strategy? bullish than most other market observers is that too many are focused on Mr. Kimmel: Correct. I learned a word years ago — huold, broken-down companies. I have read a study showing that 40% of bris. I saw hubris show up in some overleveraged strategies a few Americans are now working in industries that did not even exist 20 years years ago, where some of the most brilliant investors at the time lost ago. So there will be continued innovation, continued new industries; the all their money very quickly. This happens because of, again, this leaders in those industries are going to be the most opportunistic compaterrible tendency to average down into a declining issue, to defend nies to invest in and Magnet will find them — not when they are in the 50   The Wall Street Transcript — June 29, 2009

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involved!” — that was the outcry. What we have now seen is the US government making tremendous equity investments in US companies, but not at all in the superlative companies. All of the money that we are seeing invested by these government bailouts isl going into the companies that are either on the verge of failing or teetering on bankruptcy. We have a lot to learn from the sovereign funds approach of thinking 30 to 50 years ahead. Unfortunately I have been in the business for over 20 years, and I cannot remember the last long-term investor I have actually met. TWST: Do you have any views on the econ“For a company to really be a Magnet stock, it has to have omy or the market as we look out to 2010? Mr. Kimmel: I think that there, again, a novice a simultaneous acceleration in both revenues and profit investor will watch the economy to try to determine what margins, which leads to an acceleration in cash flow. The the stock market will do. Remember back to the fall of secret then is to buy those companies at the best valuations 2007 when the world economy was firing on all engines, that are possible. Following a Warren Buffett approach, and you could not even take quick delivery of a crane? we would rather buy a great company at a good price Every ship was full. At that moment there was so much optimism in the market that there was very little cash on rather than a fair company at a great price.” the sidelines. There was also very little attention to risk management at that moment, and some people, as the market began to climb, didn’t connect that usually the market will predict rather than react. TWST: Jordan, you have an issue about how risk is measured. Would you elaborate on that? Mr. Kimmel: I have argued for years that the United States would not be in this position with under“As a new bull market cycle takes place, it is often the fact funded pensions, as well as individuals with too little savthat the first companies that double in price are actually the ings, had we not seen such a narrow measurement and first to double again. And in a very tough market environment counseling with regard to risk. Risk, according to many like we saw, it is very easy actually to see the new market consultants, focuses on the day-to-day or month-to-month volatility of a portfolio. Warren Buffett has talked about leaders emerge. So while a lot of people are going to using time to offset volatility, being willing to work with continue to bottom-fish, it has always been Magnet’s a much more concentrated portfolio, which means at times strategy to see who, if anybody, remains healthy.” you look much different from the market. your positions, or think that you know more than the marketplace. This can often be a critical mistake. So if you start out with the best stock selection strategy you can possibly have, couple it with the best entry point you can possibly find and then use a stop-loss (because you never know what the future brings), that strategy is going to allow you to capitalize when you are right and avoid disasters when you are wrong. And I believe that’s one of the biggest keys to long-term profitability.

“One of the things that makes me so much more bullish than most other market observers is that too many are focused on old, broken-down companies. I have read a study showing that 40% of Americans are now working in industries that did not even exist 20 years ago. So there will be continued innovation, continued new industries; the leaders in those industries are going to be the most opportunistic companies to invest in and Magnet will find them.” Now, across the world we have seen sovereign funds with billions of dollars investing in companies. They understand that for years at a time, they may look like poor investments. However, over the next 30 and 40 years those investments are probably going to create a tremendous amount of wealth for those international sovereign funds. Domestically, we have always shied away whenever there was a discussion of even a portion of the Social Security funds going into the stock market. It could not be done because “Too much risk was

Now we are seeing improvement in the markets in the midst of clearly the worst recession we have seen in over 20 years, the worst employment statistics and a declining housing market. How is it possible that the market begins to just lift up and up? This is where novice investors really get the most confused. So I think that we have to remember the capital markets, the fixed income markets, are actually significantly larger than the stock market and need to be watched carefully. There has not been a time — for generations now — where a very steep yield curve did not lead to growth. So while everybody has heard the expression “Don’t fight the Fed,” we need to actually up that statement nowadays to “Don’t fight a globally co-coordinated Fed.” We are seeing so much stimulus, so much liquidity being added to this market that that is when risk should and does get taken. That is when factories are built and when entrepreneurs that do expand in a recession actually make a fortune. It is my expectation that the actions of our Fed, along with other central banks, will clearly lead to a period of growth. It will also lead to a period of inflation. What each investor has to recognize is there are literally only two choices to invest your money. One choice is The Wall Street Transcript — June 29, 2009   51

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require companies to report quarterly. As a result, some of the largest companies in the world do not report quarterly. Over time, as the financial markets continue to globalize, as foreign companies desire capital from the US, they will begin reporting quarterly. We are open to every sector in every corner of the world because you never know where growth will emerge. The over-riding theme that remains consistent within Magnet is that we are simply looking for the strongest, healthiest companies generating strong free cash flow. All “We have to remember the capital markets, the fixed other metrics, whether it is EBITDA or whether it is eyeballs on the Internet — the only thing that makes a income markets, are actually significantly larger than the business robust is its after expense net free cash flow. stock market and need to be watched carefully. There has That is why so many of the smaller companies we not been a time — for generations now — where a very identify end up becoming great acquisition targets for steep yield curve did not lead to growth. We are seeing so the larger companies that are not able to continue their old growth rates. The bigger companies are always much stimulus, so much liquidity being added to this looking for faster growing companies to acquire and to market that that is when risk should and does get taken.” add onto their platform. to lend your money and determine at what interest rates and with what creditor you feel comfortable. The other choice is the ownership market, whether it is through real estate or through owning companies and owning properties. The fact is the only way to keep pace with inflation after taxes is though the ownership market. If you take that premise one step farther, if you desire higher returns, rather than over-diversifying, you need to make an effort to isolate the best companies.

TWST: Do you look at international stocks? “It is my expectation that the actions of our Fed, along Is that part of your portfolio? with other central banks, will clearly lead to a period of Mr. Kimmel: Clearly, we are as interested in growth. It will also lead to a period of inflation. What international companies as we are domestic, the same way we are as interested in quality companies regardeach investor has to recognize is there are literally only less of size. The Magnet process does not care what two choices to invest your money. One choice is to lend sector companies come from, or where they are headyour money and determine at what interest rates and quartered. I clearly believe that we will continue to see with what creditor you feel comfortable. The other choice consumerism continue to spread globally. Despite the growth, most foreign stock markets fell even more than is the ownership market, whether it is through real estate our markets did during this last bear market. The opor through owning companies and owning properties.” portunities for growth, while there are clearly still plenty domestically, are clearly global. You want to open yourself up to regions where there is a growing TWST: Does M&A activity impact your investing? population that is increasing their standard of living, that wants Mr. Kimmel: While we do not actively seek buyout to try to live the American dream. Even though the American candidates, we have clearly benefited in the past from M&A activdream is not easy to achieve, much of the global population, if ity. Let me share with you that the market got so emotional that they could, would jump at the opportunity to enter our country people forgot how much cash remained in the corporate coffers. If and enjoy our economic environment. you eliminate the financial sector, which was overleveraged to begin with, cash on balance sheets at the corpo“We are open to every sector in every corner of the world rate level remains at historically high levels. As soon as because you never know where growth will emerge. The a little stability entered the market, you began to see a over-riding theme that remains consistent within Magnet rash of M&A activity. You saw the unemotional corporations with access to each others’ balance sheets begin to is that we are simply looking for the strongest, healthiest acquire entire entities or portions of business from othcompanies generating strong free cash flow. That is why ers. I expect to see a further acceleration in M&A activity so many of the smaller companies we identify end up and I think we are going to see it across several sectors. becoming great acquisition targets for the larger companies Once you begin to see the M&A activities begin to accelerate, investors become more confident, thinking “If that are not able to continue their old growth rates.” these companies are willing to buy others at these levels, why shouldn’t we do the same thing?” It is, in fact, already part of the current resurgence of investor confidence — the already significant increase in M&A activity, which The one critical factor for the Magnet model to invest in I think is going to continue, and will probably accelerate over the foreign companies is that they have data that is reported quarterly, next couple of years. and they provide enough of the data we look for. Not all countries 52   The Wall Street Transcript — June 29, 2009

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TWST: What about the resurgence in venture capital, private equity, IPOs? Mr. Kimmel: We have seen the IPO windows almost completely close for the better part of a year. We are starting to see some movement there. I believe that with venture capital money there is still money for good ideas that can show ways to generate cash flow. I do see the capital markets, the venture capital money, the IPOs all coming back over time, but we have to recognize that what we just experienced on Wall Street spread to Main Street and all over the world. This was not a pullback; this was a severe bear market. It crushed the confidence and the trust in both Wall Street and the management of public companies. Until the venture capitalists feel their investments can be resold to the public through IPOs, I expect this area to remain somewhat quiet. The bigger talk today is in buying distressed assets.

I do not want to be painted as having an always bullish, rosy scenario. There have been times, and it has not been for a while, when we have seen over-exuberance by the public, very little cash on the sidelines, and an expectation that things could only get better. When those times come and valuations are rich, we will not be as overly bullish. At that time, we will still look for the very best companies to see if any of them belong in our portfolio. At this time, we are finding more opportunities than we normally would. TWST: Your book is coming out at a propitious time. What’s the name and how do we get it? Mr. Kimmel: The name of the book is The Magnet Method of Investing. The publisher is John Wiley and the book is actually already on the major Internet Websites for purchase. We have included in the book an extensive back-test on our strategy, along with the companies that, as of the publish date, were our topranked companies. The book has received significant endorsements from the top institutions to the top traders, as “I do not want to be painted as having an always bullish, well as from renowned investors of this era. I am honored rosy scenario. There have been times, and it has not been not only by their endorsements but also by their input. I for a while, when we have seen over-exuberance by the spent a great part of the year personally interviewing and spending time with folks who are simply known as the public, very little cash on the sidelines, and an expectation best of breed. The only way you can become one of the that things could only get better. When those times come best is to learn from those who have come before you and and valuations are rich, we will not be as overly bullish. At see what part of their strategies make sense to you and that time, we will still look for the very best companies to what you can integrate yourself. It was a wonderful process of writing the book, and in fact it is coming out at an see if any of them belong in our portfolio.” interesting time, but remember, in the stock market it always feels like we are living in interesting times.

TWST: You’ve painted a pretty bright prospect looking ahead, but are there any challenges in the “We are not seeing a huge wave of defaults on a lot of distance that investors should be wary of? financial products. We saw a forced process of Mr. Kimmel: Let me remind you, despite my deleveraging occur at many financial firms due to their sounding more bullish than most, you should recognize that I understand there are going to be plenty of casualties and own liquidity issues. That is why I believe with all the continued bad news. In fact, even through a fairly bright liquidity being created by the central banks around the period in our country’s history, there are only a handful of world that this bear market has ended and a new bull companies that remain in the S&P 500 that were in the market has already begun.” Index 30 years ago. Now, I often talk about looking at new industries emerging and identifying the new leaders in those industries. So the message here is that there is a tremendous TWST: So the buy and hold and long-term investment amount of challenge ahead both for individual companies and the processes are really outdated these days? economy. We are still not sure how actually levered the whole system Mr. Kimmel: You need to combine two concepts — by was and how much deleveraging still needs to take place. But when investing in the best companies at the time and holding them only you invest in companies that, even over the last year, have been able as long as they stay healthy, tremendous wealth can be achieved. to increase their revenues dramatically while increasing their margins Going back to my analogy of the sports world, there are often fivedramatically, well, you are able to think differently. Despite their own and 10-year stretches where individuals, and the same with compachallenges of the year, and despite their own health issues or shortnies, can dominate their field and create exceptional wealth. Even comings this year, you understand that LeBron James and Tiger the healthiest and best athlete eventually succumbs to age and Woods had pretty good years financially. This is what the Magnet decay, and cannot remain on top forever. So it is a blend between model is all about — recognizing there are tens of thousands of pubisolating the best and then being willing to change names when it is lic companies and you should only be willing to own 15 or 20 at the appropriate. Buy and hold clearly has been exposed as flawed, but most. If you do your work or you have a process, you can find them so also has the short-term leveraged approach that really broke the and you should also have a way of detecting which one of them is hands of many last year. What I am saying is, if you are willing to beginning to break down. The Wall Street Transcript — June 29, 2009   53

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isolate your capital into the superlatives and remain unleveraged — not allow leverage to force your hand — you could ride out most storms with healthy companies. TWST: Do you believe this bear market was created by valuations or a liquidity crisis? Mr. Kimmel: This bear market emerged through a liquidity crisis and not an “overvaluation realization” that took place in early 2000. We heard about all the toxic assets on the balance sheets of banks and financial institutions, and remember if you’re leveraged 30 to 1, a 3% decline in a Treasury becomes toxic to you. We are not seeing a huge wave of defaults on a lot of financial products. We saw a forced process of deleveraging occur at many financial firms due to their own liquidity issues. That is why I believe with all the liquidity being created by the central banks around the world that this bear market has ended and a new bull market has already begun. TWST: Is there anything that you would like to add? Mr. Kimmel: I do want to share an exciting development for me personally. For a couple of years now, I was brought away from the individual investor, but I have recently become the Market

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Strategist for National Securities Corp., which is one of the oldest and largest independent broker/dealers in the United States. They have an extensive, managed account platform where The Magnet Investment Group will be offered for the first time in years to the individual investor. It is my belief right now that the individual needs to understand the inflation that is coming and the impact it will have on their purchasing power. Investors need to understand the importance of outpacing inflation, and you can only do it through the ownership market. I am really looking forward to offering our Magnet services to individuals again. TWST: Thank you. (PS) Note: Opinions and recommendations are as of 6/16/09. JORDAN KIMMEL The Magnet Investment Group LLC 1201 Sussex Turnpike Randolph, NJ 07869 (973) 895-4200

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GARY M. FLAM is Managing Director and a Portfolio Manager at Bel Air Investment Advisors LLC. He joined the company in 2004. Previously, he held positions as an analyst at William O’Neil & Co. and a portfolio manager at Wells Fargo Bank, where he managed equity and fixed income portfolios for high net worth individuals. He was also a member of Wells Fargo's Fixed Income Investment Policy Committee. He has been a CFA charterholder since 2000 and is a member of the CFA Institute and the Los Angeles Society of Financial Analysts. He received his BA degree magna cum laude from the University of Rochester and his MBA degree from The Wharton School at the University of Pennsylvania.

with clients, the firm is committed to minimizing potential SECTOR – GENERAL INVESTING conflicts of interest and operates with complete transparency. I (AAJ500) TWST: Would you start with an overview of Bel Air head a team at Bel Air that manages our two internal equity Investment Advisors and what you do there? strategies — one is a large cap core portfolio and the other is a Mr. Flam: Bel Air Investment Advisors was founded concentrated portfolio of in 1997 and is a 100% emroughly 15 to 25 stocks that ployee-owned independent adrepresent our highest convicvisory firm catering Highlights tion ideas. exclusively to the needs of TWST: How do you high net worth clients. We are Gary M. Flam says that Bel Air has two equity strategies, develop an investment stratan industry leader in providing a large cap core portfolio and a concentrated portfolio egy for your clients and how customized wealth manageof about 15 to 20 stocks that represents the firm’s do you then move on to implement services and investment highest conviction ideas. He uses a top-down approach menting them from the equity advice exclusively to individthat focuses on identifying broad multi-year tailwinds side of the equation? ual families and foundations and avoids headwinds that he sees in the marketplace. Mr. Flam: From a with $20 million or more in From the bottom up, he looks for industry leaders that broader sense, what we’re investable assets. are poised to benefit from the tailwinds, that have striving to do on both of the The firm distinsuperior return on invested capital criteria as well as strategies that we manage inguishes itself from the finanstrong management teams that are good shepherds of ternally is use a top-down cial conglomerates through an capital. The overriding theme and how he invests today approach that focuses on open architecture investing is sticking with quality companies, almost what could identifying broad multi-year platform, which allows for a be called a new Nifty Fifty. He stresses the need to tailwinds and avoid headdiverse mix of proprietary and focus on great companies that also have solid balance winds that we see in the marexternal services and stratesheets and generate free cash flow. These businesses ketplace. Then from the gies. In servicing the firm’s will survive in a tough economic environment for bottom up, we’re looking for high net worth clients, its several years and will also be in a position to strengthen leaders in industries that we founders established many intheir competitive position. Some of the themes or think are poised to benefit dustry-wide best practice contailwinds that he currently sees in the marketplace are from these tailwinds, that cepts at Bel Air, concepts that the growth of emerging economies and the urbanization have superior return on inthey first pioneered while at that is going on in these countries; the aging population vested capital characteristics, Goldman Sachs prior to estabin developed countries; the rising trend of data as well as strong managelishing Bel Air. These include digitalization and its mobilization to access that data; ments that are good shepdiscretionary brokerage and environmentalism or green technologies; consumer herds of capital. While we fee-based private client serretrenchment; genetic research; and the aging don’t feel that there’s any vice offerings. In working infrastructure in the US. The Wall Street Transcript — June 29, 2009   55

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of landmines out there. I talked about themes and tailwinds earlier, silver bullet in investing, we focus our attention on the return and I’d say our overriding theme throughout our portfolios, and how on invested capital metric. Basic economics tells you that we’re investing these days, is staying with quality companies, alwhere excess returns are earned, money or capital will flow most what I would call the rise of a new Nifty Fifty. You have had into that industry and drive down returns. So if a company is the opportunity over the last six months to buy these great compaable to earn high returns on invested capital over time, it’s nies and great franchises at great valuations. Now, where we stand proving that there is some sort of barrier to entry that’s entoday on June 1, in a market not only up significantly from lows of abling them to do so, and then beyond that, it shows managethe year, but now up for the year, some of those great opportunities ment is a good shepherd of the capital that the business have passed. Will they present themselves again in the future — or generates. There’s a lot of talk about investing in companies will there be some other opportunities? I think so, I don’t think it’s with lots of free cash flow, which is very important and somethe time to be closing shop. I think it’s a time to be doing your thing that we do, but it is also very important to understand homework so you can be in a position to identify existing opportuwhat management chooses to do with that cash flow. So a renities or to take advantage when those good investments present turn on invested capital metric will demonstrate whether themselves again. they’re reinvesting wisely. TWST: The last 10 months or so have been extremely difficult for equity investors. How has that impacted your investments? “We saw trends that had been building up over several Mr. Flam: We have not been spared the difdecades in terms of consumer leverage, their spending ficult market environment, but we have been able to, I relative to their wage growth, and so we got defensive in feel, do well for our clients by applying the broader macro view that we formulate and that, over two years our portfolios about two years ago in the sense that we ago, basically had us concerned about what was going went toward lower beta or high quality large cap on in the housing market, the financial system, and companies, we reduced our exposure to financials as with the consumer. We saw trends that had been buildwell as consumer discretionary sectors, and boosted our ing up over several decades in terms of consumer leverage, their spending relative to their wage growth, overweights in sectors that were less exposed to the and so we got defensive in our portfolios about two economy such as consumer staples and health care.” years ago in the sense that we went toward lower beta or high quality large cap companies, we reduced our exposure to financials as well as consumer discretionSo just going back to our theme of staying with great ary sectors, and boosted our overweights in sectors that were quality companies in this environment, I used the phrase “the new less exposed to the economy such as consumer staples and Nifty Fifty.” If you think back to the early 1960s, the original Nifty health care. So that positioning a couple of years ago has Fifty came about with one-decision stocks — purchase or buy great helped us perform well, given the circumstances, but clearly companies and you never have to think about their ownership again. we would rather be making money for our clients versus just By no means do I think you buy these stocks and then you never losing less than the indices. have to worry about them again — I don’t think that was true in the 1960s and I don’t think it’s true today. What I “Roughly 85% of the world’s population is in the do think is true is that we’re in a period where great comemerging world, yet they are responsible for only 30% of panies are great stocks and that is not necessarily always true. There’s the old adage that great companies aren’t global GDP. As you look out over the next five, 10, even necessarily great stocks. However, we are in a period now 15 years; the stronger growth, will come from these where you are able to find great companies that are great emerging economies. I don’t believe the US, Western stocks because of the downdraft in the market last fall and Europe, and Japan are going to show the strongest this spring, as well as low valuations. These are what I would consider generational opportunities to buy some economic growth over a sustained period going forward, great franchises at great prices. There is one key caveat I it is going to be in the emerging economies.” would add though; it’s not just about buying great franchises, it’s about buying great businesses with solid balance sheets. If we look back over the last year at some of the companies, you’ve seen there have been several iconic American TWST: From your top-down perspective, how have names that have run into trouble because of their balance sheets. you been looking at the market over this period? Has it been a We’re talking on the day General Motors has declared bankruptcy. time of opportunity or have you just been sort of closing shop, So we would stress the need to focus on great companies that also waiting on the sidelines for a better economy? have solid balance sheets and generate free cash flow. Those are Mr. Flam: This has been a time of tremendous opportunigoing to be the companies and the businesses that are not only in a ties and while there are tremendous opportunities, there are also lots 56   The Wall Street Transcript — June 29, 2009

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January when we were in the throes of, quite possibly, the worst economic environment since the Depression, the demand for bandwidth from people watching the Obama inauguration video on their desktops was enormous, and that’s a trend that’s going to continue — this digitalization of data. And then the mobi“We believe the consumer retrenchment that has occurred lization — no matter where people are, they want to be able to access that data. Regardless of the economy, that over the last 12 months will continue. Consumer spending trend is continuing, as the heightened demand for bandgrowth over the last couple of years has been well beyond width during the Obama inauguration showed. It’s also in their income growth. There are avenues of credit that health care as medical records are becoming digitalized will not be available to consumers going forward, such with the rise of electronic medical records, or in the utility industry with the rise of smart meters. as reduced credit lines. So even if they wanted to go back Another theme we see is what we refer to as a to spending the way they have been, they’re not going to green theme or environmental theme. Consumers clearly be able to. So consumer retrenchment is something we have an increased awareness of the environmental impact their actions are having, and are changing their habits and will see for several more years till it truly normalizes.” consumption patterns accordingly. This manifests itself in various ways but one example is people are bringing their own bags to the grocery store now. There’s also a lot of talk of a charge for carbon — cap and trade or an outright tax. It’s not TWST: What areas of the economy has your tailwind certain what the ultimate format will be, but I am confident that in a theme led you to increase exposure to? few years there will be a charge for carbon and that will have implicaMr. Flam: Some of the tailwinds that we see in the martions on businesses both on the cost side, as they will have to focus ketplace now from a macro standpoint, ones I would highlight, on their emission levels, and also for those that are poised to benefit would be the growth of emerging economies and the urbanization from a sales side, by providing emission reducing products. So those that is going on in these economies. Roughly 85% of the world’s are four broad themes that we’ve had in place for a couple of years population is in the emerging world, yet they are responsible for and we believe will be in place for the next couple of years. only 30% of global GDP. As you look out over the next five, 10, even 15 years, the stronger growth will come from these emerging economies. I don’t believe the US, Western Europe and Japan are going to show the strongest eco“The rise of genetic research is something that we believe nomic growth over a sustained period going forward, I will continue. We’re seeing continued advances in believe it is going to be in the emerging economies. We personalized medicine, but we’re also seeing genetics are domestic investors, but we want to look toward comgrow in terms of applicability to areas such as agriculture panies that have exposure to these faster growing areas of the economy, and so that could come from those that are (seeking better yields from crops) and energy (alternative in several sectors from energy to industrial or even to the energy research such as cellulosic ethanol). So the rise consumer, as you have a rising middle class and consumer of genetic research is something we see benefits from.” class in these economies. Another broad theme or tailwind that we see is an aging population. The aging baby boomers here in the Then there are some more narrow themes. For instance, US get a lot of press. There’s also Western Europe and Japan that we believe the consumer retrenchment that has occurred over the have an aging population as well. It’s not just a healthcare implicalast 12 months will continue. Our macro research has showed us tion, but it’s how these people save for their retirement or how that consumer spending growth over the last couple of years has their asset allocation within their retirement savings changes as been well beyond their income growth. Obviously it’s been well they retire and how they spend their retirement years from a concovered that consumers have taken money out of their homes and sumer discretionary and consumer staple standpoint. So as you used their house as an ATM, but there are also other avenues of can see, these themes are very broad and purposely so. These are credit that will not be available to consumers going forward, such as themes that touch on four or five different broad S&P sectors, so reduced credit lines. So even if they wanted to go back to spending they touch on as much of our portfolio as possible. These are not the way they have been, they’re not going to be able to. So conthemes that we change from one quarter to the next; these are sumer retrenchment is something we will see for several more years themes we’ve had in place for years and we anticipate having in till it truly normalizes. It will grow at a much more modest pace and place for several more years. be a much smaller driver of economic activity. I’ll just briefly go through a couple of others. One is this The rise of genetic research is something that we believe rising trend of digitalization of data and the mobilization of that will continue. We’re seeing continued advances in personalized data. E-mail has transferred mail to an electronic version and music medicine, but we’re also seeing genetics grow in terms of applicaas well as movies have become digitalized. If you think back to position to survive in the tough economic environment we see for the next several years, but to be in a position to strengthen their competitive position.

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home and on the go. Clearly from the cell phone standpoint, the rise of 3G changes what traditionally had been a cell phone into a multipurpose device or almost a handheld computer; it not only makes telephone calls but you can access the Internet, read email, send pictures and download files or watch videos. So “Just looking at the emerging economies and we’re interested in the companies that are enabling that urbanization, companies are poised to benefit from that — either through the handset or providing the bandwidth that all this data is utilizing. standpoint. As these economies grow and become a Just going through genetic research, there are much greater driver of economic activity globally, several companies that are, in a sense, selling pickaxes they’re going to be driving incremental demand for to gold miners. Those are companies that make the commodities and energy, and so we are looking for equipment that scientists and researchers are using as they’re doing their genetic research in genotyping and companies that are poised to benefit in the energy and gene sequencing without having to make a bet on a commodity space from that increased demand.” certain discovery. Within infrastructure, it’s the companies that are doing the engineering and the construction, providing the architects, the scientists to do the water studies and environmental Lastly is the aging infrastructure here in the US. While studies that are poised to benefit from that. there has been a boost to infrastructure spending from the stimulus On the consumer retrenchment theme, as we see it, it’s program, the needs across our entire infrastructure in the US are going to be that consumers, instead of eating out several nights a tremendous. This is not limited to roads and bridges, but also our week, start to eat more at home, and we’re interested in the food electrical system (think back to the blackout about five years ago in companies that benefit from that eat-at-home trend. Or it could be the Northeast), and our water infrastructure. Many people are surstores that benefit from consumers looking to save versus finding prised to find out that there are areas of this country that still have the latest fashion trend. water running through wooden pipes. So that’s just an example of how decrepit the infrastructure here is in the US, and it is going to take many years and billions of dollars of re“Within the financial sector there are companies that are placement, and we see that as a long-term tailwind. Those are all different areas we’re investing in and positioning poised to benefit from consumers approaching retirement our portfolio in during this tough economic environment. and increasing their retirement savings and changing TWST: Would you give us a rough idea about how they allocate it. Clearly when people are younger in how you are exploiting these themes? their life and earnings cycle, their asset allocation is Mr. Flam: From a broad standpoint just looking at the emerging economies and urbanization, if you think more toward stocks, but as they get closer to retirement of all these cities going up in these emerging economies or enter retirement, they look for more fixed income, — you put up tall buildings, you clearly have to put in air whether that’s from annuities or bonds. So we focus on conditioning and elevators. So it’s companies that are companies that are poised to benefit from that standpoint poised to benefit from that standpoint. As these economies grow and become a much greater driver of economic acand gain assets within the financial sector.” tivity globally, they’re going to be driving incremental demand for commodities and energy, and so we are lookTWST: What other areas are you avoiding or undering for companies that are poised to benefit in the energy and comweighting at this time? modity space from that increased demand. Mr. Flam: It’s interesting to bring that up because up to From an aging population standpoint, clearly there are this point we’ve talked primarily about the tailwinds. One headwind healthcare implications, but just to look beyond the obvious, we see clearly is the housing market. The decline in house prices has within the financial sector there are companies that are poised to clearly been in the news over the last couple of years. Whether it’s benefit from consumers approaching retirement and increasing bottomed or not, or is bottoming from a broader standpoint, is intheir retirement savings and changing how they allocate it. Clearly consequential because we see housing as a poor place to invest over when people are younger in their life and earnings cycle, their the next several years. That’s because if you go back to the early asset allocation is more toward stocks, but as they get closer to 1980s when this bull market in stocks began, you had interest rates, retirement or enter retirement, they look for more fixed income, fed funds, as well as Treasury bonds interest rates, in the high teens. whether that’s from annuities or bonds. So we focus on companies So what happened from the early 1980s to where we are today is that are poised to benefit from that standpoint and gain assets that we had a huge bull market in bonds that drove interest rates within the financial sector. from the high teens down to where fed funds is today, which is esWithin digitalization/mobilization, it’s the increasing sentially zero, and that’s benefited housing prices because the rate need for bandwidth or ways that people access information both at bility to areas such as agriculture (seeking better yields from crops) and energy (alternative energy research such as cellulosic ethanol). So the rise of genetic research is something we see benefits from.

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economic activity in 2007, pulls back on consumption and starts building back up their savings, the effect will be a muted economic recovery as they drive so much of economic activity. In a muted economic recovery, I don’t see economic cyclicals leading the market; it goes back to quality that leads the market, “One headwind we see clearly is the housing market. whether they’re in economically cyclical sectors or they’re The decline in house prices has clearly been in the news in traditionally defensive sectors. I think we’re in a market where primarily invesover the last couple of years. Whether it’s bottomed or tors need to be focused on investing in companies that not, or is bottoming from a broader standpoint, is have a leadership position. I spoke with the management inconsequential because we see housing as a poor place of a company today that was talking about how it’s the second tier companies — the number three and number to invest over the next several years.” four players — in their industry that are getting hurt the most and are continuing to get hurt, even though the economy is showing signs of stabilization. I see that with the companies I speak to, whether they’re in health care and conAlso what’s benefited the housing market over the last 20 sumer staples or whether they’re in industrials or technology, there years is that we have had a baby boomer population that was in the are more and more instances where the number one and number two prime earnings power of their lifecycle and now they’re winding players are strengthening their competitive positioning and that that down as they get into their late 50s and 60s, meaning that the seems to be the overriding theme. You’re seeing many industries trend of baby boomers starting families, growing their families, bifurcate where it’s either the number one or number two players or growing their income, and therefore trading up to larger and larger the low cost provider, the generic player, that is benefiting. So early houses, that now, if not reversing, has at the very least peaked. So cyclicals, I don’t think, as a broad sector or a broad play, is where I you have two very strong secular tailwinds off of the housing marwant to be making bets. ket over the last 25 years that are no longer in place. If you bought From a commodities standpoint, I do think the commodia house in 1980, chances were any year since then, interest rates ties will do well over an extended period of time. At present, I think were lower or there was another baby boomer that was trading up to the run that we’ve seen in energy, in particular, over the last month buy your house — until now. That’s no longer the case and therefore or so is ahead of itself. If you see a little slowing of economic indiwe don’t think that residential real estate is going to be an attractive cators, it can pull right back in. But over the longer term, over a place to invest for several years and that’s outside of whether it’s two- or three-year time horizon, I do think energy prices will be bottomed now or not. Too many headwinds are in place right now much higher and companies within the energy space are poised to from a residential standpoint. benefit from that. But there will be better opportunities to increase Also there’s the headwind of the consumer retrenchment. energy exposure over the next year. I believe over the last 20 years we’ve built up too many stores and too many restaurants in this country; we’re overstored, we’re over-restauranted. You’re having examples of very well known retailers that are not going into Chapter 11 and “We will have a very meager economic recovery. As the then coming out of it, they are going away and ceasing to consumer, who was driving 70% of the economic activity exist. We’ve seen it in consumer electronics, we’ve seen it in 2007, pulls back on consumption and starts building in retailers of home furnishings, and I think that’s going to continue. I think you’re going to see stores and retailers back up their savings, the effect will be a muted economic that are going to get their growth, not from adding square recovery as they drive so much of economic activity. In a footage, not from adding more stores, but from getting muted economic recovery, I don’t see economic cyclicals more return on the assets on their balance sheet — going leading the market; it goes back to quality that leads the back to my earlier point of focusing on improving returns on capital invested. market whether they’re in economically cyclical sectors TWST: What are your views on the cyclically or they’re in traditionally defensive sectors.” sensitive stocks and the commodities for example? Mr. Flam: I think there are two different questions here. From a cyclical standpoint, the early cycle TWST: You have a core portfolio and a concentrated names — there is the portfolio manager playbook that says buy the portfolio. What triggers an exit from your portfolios? What is early cyclical names at the first signs of a bottom, and we’ve seen a the sell process you implement? little bit of that run since March. I do believe this time is different, Mr. Flam: That’s a great question. While we have a dishowever. Many people say it’s unprecedented, but I think that’s just ciplined risk process in place, it’s not a hard rule that if a stock’s a fancy way of saying this time is different. What we’re going down 20% we sell it. We are not quantitatively driven. We go through is different and I think we will have a very meager ecothrough a qualitative process, but we are very aware of the quantitanomic recovery. As the consumer, who was driving 70% of the of financing a home has declined over the last 25 to 30 years. With fed funds at zero it’s hard to see how mortgage rates can decline significantly from today’s levels.

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Mr. Flam: We’re domestic investors. Whatever we purchase has to trade on a United States exchange. So we look primarily to get our international exposure from domestic companies. We do own a few foreign companies in isolated circumstances, but it’s really not our goal; it just became an obvious place for us when there were no other alternatives. So it’s not a big part of what we do. TWST: What do you think gives Bel Air Investment Advisors its edge? What differentiates your approach compared with other peer firms? Mr. Flam: I think there are a couple of things that add to our “secret sauce.” One of the key things is that we’re a small team where everybody is involved in both the macro as well as the bottom-up work in developing all aspects of what we “From a commodities standpoint, I do think the do. I think you get some larger firms that have larger commodities will do well over an extended period of time. staffs, more headcount, where you have a dedicated Over the longer term, over a two- or three-year time economist who is saying this is my view and dictates it to the stock analysts and when they do stock research it’s horizon, I do think energy prices will be much higher very hard for them to internalize what’s being told to them and companies within the energy space are poised to from an economic viewpoint or a macro viewpoint. But benefit from that. But there will be better opportunities to since everybody here is involved in that, it helps reduce cognitive dissonance or two conflicting ideas where an increase energy exposure over the next year.” analyst could sit there and go, “Well, you know the economy is supposed to do poorly, but I talked to this management and everything is supposed to be great, so I say let’s buy it.” In our group dynamic, it’s much harder for that to occur Conversely, we might sell if something has changed our because that analyst has an economic opinion of their own; they thought process on their products or whether there will be mass don’t have one thrust on them, they’re involved from that standadoption in that cycle. I talked earlier about the increasing capabilipoint. So I think it is the thorough integration of both the top-down ties of cellular handsets. If there is something that occurs that would and the bottom-up. We’re not in silos. So that’s one thing what I change our thinking on whether smartphone adoption has stalled, think is key to a Bel Air advantage. then that would change our thesis on several companies we own. So that would be a reason we would look to exit. So it’s not if a company misses earnings for a quarter, you’ve seen that time and time again over the “One of the key things is that we’re a small team where last couple of years — commodity costs were a little everybody is involved in both the macro as well as the higher than many had anticipated, so a company misses bottom-up work in developing all aspects of what we do.” earnings expectations — that’s not why we would exit a position. If anything, that actually would be more of a reason why we would add to a position; if the stock Also I think from a bottom-up standpoint many equity pulled back and the risk/reward was compelling, we would use investors are focused on the income statement and the growth of the those short-term opportunities to increase positions rather than income statement and they don’t really pay attention to what’s going sell, as they don’t change our longer-term thesis, they’re just more on on the balance sheet or how much capital it’s taking to grow the of a correction in near-term expectations. income statement. A very simple example is if you put $1,000 into a business and you get $100 back after one “We focus on the return on the capital that’s invested to year, you have 10% return on invested capital. Now let’s help us identify good businesses. It’s not just the growth say in year two you put another $1,000 in and you get of the income statement, but it’s the growth of the balance $150 back on that combined $2,000 investment. If you sheet as well. What capital is involved in growing and is just look at the income statement and you say you went from $100 to $150, that’s 50% earnings growth, and one management investing that capital wisely? So I think it’s would think that’s great. But if you look at the capital that the marriage of those two.” was involved and look at a return on the invested capital, you went from 10% to 7.5%, which shows you it’s not really sustainable and that’s really where we focus. We focus on the return on the capital that’s invested to TWST: What about the international stocks? Do you help us identify good businesses. It’s not just the growth of the ininvest in overseas companies? tive aspects of it. So if a stock has lagged the market or its sector over a certain period of time or if it’s losing its position, that does trigger a fundamental review. In the broader sense, what will trigger us to exit a position is if the broad fundamental story has changed or has played out. Or if our thesis for why we would own a company is that they have a product or a series of products that should gain from mass adoption over a three-year period, and if after the threeyear period that mass adoption has played out, then our thesis, all else equal, has played itself out, and we will exit the position. Now there could be additional drivers that have layered in over that threeyear period and we might maintain a position, but if that’s the main driver and that driver is played out, we will exit the position.

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come statement, but it’s the growth of the balance sheet as well. What capital is involved in growing and is management investing that capital wisely? So I think it’s the marriage of those two. Can the company earn a good return on invested capital, is management investing it wisely from a bottom-up standpoint, and then making sure that’s integrated with our top-down viewpoint and making sure the entire team is involved in formulating our macro viewpoint on tailwinds and constantly re-evaluating them. TWST: Looking ahead from your macro viewpoint, are there any challenges ahead that investors should be wary of now? Mr. Flam: From a broader standpoint, I think emotion is something that people need to be cognizant of. If you think back to where we were at the lows in March and what the investor psychology was and their emotion was then versus where we are today with a market up at roughly 950 on the S&P, the psychology has shifted dramatically. I think outperformance will come from keeping investor psychology in check and realizing that when things look bad and it’s all over the headlines, it’s usually priced into stocks or close to being priced into stocks, and that’s why it comes back to my earlier comment. Investors should be doing their homework now on what are great businesses they want to own and what’s a fair value to own them, because I foresee a volatile market, so if we do get a pullback, you’ll have a list of companies at what you believe are good prices and you take the emotion out of the equation. I think emotion is probably one of the most detrimental things to investing, so the more you can do to take that out, the better. And then conversely, if you asked most investors back in March, “If you could sell your portfolio for 35% more, would you do it,” I think 90% of them would have taken it without hesitation and here we are 35% higher, yet they’re thinking, “Oh, I’m missing out, let me buy more stocks.” I think it’s more along the lines that this psychology should be shifting now to thinking, “What are valuations at which I’d want to trim posi-

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tions or exit positions as the risk/reward is not in my favor” versus getting caught up in “Stocks are going up, I don’t want to be left behind, I need to buy.” So I really do think looking forward it’s managing expectations or managing emotions that will be key. TWST: You have close relationships with your clients, for managing their concerns and expectations. Do you consider that a strength of your firm also? Mr. Flam: Absolutely. One of the fundamental things that differentiates us from our competitors is a low adviser-to-client ratio. We have one adviser to about every 25 clients. This allows us to spend the time necessary with our clients and their other advisers to really understand what they are trying to accomplish. Like many firms, we spend a lot of time with prospective clients of the firm. Yet, unlike many firms, our relationships only strengthen over time. This can be attributed to several factors. First is our structure, as we are a boutique investment management firm that only has one line of business; managing money for wealthy families. Second, we have built Bel Air to be client-focused instead of a distribution channel for high-margin, illiquid, internal products. Next I would point out our experience. Between the partners of the firm, we have over 150 years of investment experience. Lastly, clients like ours deserve to have first class service, as our business is highly competitive and there is no shortage of advisers out there. We believe the service provided to our clients is incomparable. TWST: Thank you. (PS) Note: Opinions and recommendations are as of 6/1/09. GARY M. FLAM Bel Air Investment Advisors LLC 1999 Avenue of the Stars Suite 2800 Los Angeles, CA 90067 (310) 229-1545

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KEN STEBEN is the Founder, President and Chief Executive Officer of Steben & Company, Inc. He started his career as a stockbroker in 1981 and became a licensed commodities broker in 1983 when he recognized the value of adding managed futures as a diversification tool to his clients’ portfolios. He is viewed as a pioneer in the commodity pool business and as such, serves as a Member of the CPO/CTA Advisory Committee to the NFA. He has been a Principal and an Associated Person since 1989 and is a General Securities Principal of Steben & Company, Inc. He is also registered with the CFTC as an Associated Person and with FINRA as a General Securities Principal. He holds his Series 3, 5, 7, 24, 63 and 65 FINRA and NFA licenses.

Managed futures, as the name implies, are funds where SECTOR – GENERAL INVESTING investors’ money is pooled together and a professional manager or (AAJ504) TWST: Ken, please start with an overview of your managers are hired to trade for firm and then we’ll go on to the that fund in exchange-traded Aspect Global Diversified futures as well as currency forFund. Highlights wards. These funds have Mr. Steben: I’d like to monthly liquidity, daily valuatalk about managed futures as an Ken Steben creates and operates managed futures tion and transparency. We don’t investment class, and about our funds. As a manager of managers he researches and invest our funds into other company and what we do, as opmonitors futures trading advisers, and allocates funds, but rather our funds are posed to specifically focusing on investors’ money to be traded by those advisers. As an managed directly. one of the funds we offer. We are investment category, managed futures is unique The managed futures not able to make what may appear because there is just as much potential to profit from a investment category is unique, to be a solicitation of interest in a down market as from a rising market. He is able to buy because we have just as much particular fund, due to regulatory or sell a wide range of items, including global currency potential to profit from a declinrestrictions. Anyone wanting full markets, agricultural commodities, energy fuels, etc. ing market as from a rising information on our publicly ofThe trading advisers use systematic trading models for market. We are not a bull marfered fund can contact us and we around 140 different contracts that can be traded ket bet like most traditional inare happy to send out a copy of globally, and these models attempt to take advantage vestments; we are able to either the offering kit, which includes all of directional price trends, either up or down. buy or sell a wide variety of difthe details. Let’s talk about our Historically, the managed futures indices have done ferent items, including global specialty, managed futures, which quite well in bear market periods for stocks. History currency markets, global interare an amazing, unique and valualso shows that adding an investment in managed est rates, global stock indices, able diversification tool for infutures funds to a portfolio can potentially lower your agricultural commodities, prevestment portfolios. overall portfolio risk and increase your overall longcious and industrial metals and TWST: First, please term rates of return. He hires some of the world’s best energy fuels like oil and heating tell us about your firm. trading advisers to manage the trading in his firm’s oil, natural gas and things like Mr. Steben: Steben & funds. He watches closely what they are doing and can that. So it’s a very broad range Company is a manager of manchange the manager if a better manager would be a of some 140 different contracts agers and we create and operate better choice. that we could trade around the managed futures funds. We reworld, and our advisers trade search and monitor futures tradthese in a systematic, computer-driven way. Our trading advisers ing advisers, and allocate our investors’ money to be traded by those use systematic trading models that attempt to take advantage of diadvisers. We have 20 years of experience doing this. 62   The Wall Street Transcript — June 29, 2009

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allocate our investors’ money to those managers and then carefully monitor what they are doing. We do not give the money to the managers. We do not invest in other funds. We hold the assets in our funds and we give the trading adviser or manager a power of attorney to trade that account. We closely monitor the trading every day, so we have 100% transparency. We are able to “It’s a very broad range of some 140 different contracts terminate the power of attorney and close out the positions, should we deem it to be in the best interests of the that we could trade around the world, and our advisers fund. We can change the trading adviser we are allocating trade these in a systematic, computer-driven way. Our the money to. What an investor is buying in a managed futures trading advisers use systematic trading models that fund is manager skill, since it is an ongoing trading proattempt to take advantage of directional price trends, gram. In this investment category the selection of the tradeither up or down.” ing adviser is all important. It’s very important to use a manager of managers like Steben & Company because we know which trading advisers to use. Most people just don’t know what to look for when they’re analyzing a futures tradThe way that we do this has a lot of risk control built into ing adviser. Our experience shows us that simply looking at recent it. Our trading advisers are only risking a small percentage of the annual profit numbers is not a good means of selecting a trading total portfolio on any single contract. They are constantly adjusting adviser. You need to look much more comprehensively at the comthe positions based on what the market is doing. Our trading advispany and at the elements of their track record in terms of how ers are very disciplined about following the rules of their systems. they’ve controlled risk in what they’ve been trading. By carefully Their trading models follow a rules-based model that will adjust the selecting the right mangers, you can do much better in terms of risk based on what’s going on in the marketplace. The managed long-term results. futures investment class is largely trend-following in nature, and it has a long history of profitability. Very importantly, the returns from this investment class historically had virtually no long-term correlation to other investment categories, includ“Historically, the managed futures indices have done ing stocks, bonds, REITS and hedge funds. quite well in bear market periods for stocks. If you look Managed futures funds are really quite a unique at the S&P 500 and look at every period of time since animal. Historically, the managed futures indices have done quite well in bear market periods for stocks. If you look at the 1980 that the S&P 500 has declined by 20% or more, the S&P 500 and look at every period of time since 1980 that the managed futures indices have been profitable.” S&P 500 has declined by 20% or more, the managed futures indices have been profitable. You can look at the CASAM CISDM, Commodity Trading Advisor Index, or the Fund/ TWST: You’ve said that you can still do well even in Pool Index or the Barclay CTA Index and see very similar data. weaker market conditions. What about the volatility? Is that There have been many white papers done on this topic, all pointing something that you work with when you are dealing with these to the same results. We are happy to direct those who are interested managed futures? to where they can find these research papers. Mr. Steben: There are a number of ways we could look What all this means is that history shows that adding an at volatility. One is overall market volatility and two is volatility of investment in managed futures funds to a portfolio can potentially our funds (or of the managed futures investment indices). The volalower your overall portfolio risk and increase your overall longtility of the markets can be good for us if it’s directional price volaterm rates of return. Of course, as with all growth investments, past tility, meaning trending markets, either up or down. For example, performance is not indicative of future results and where there is the type of things we had going on in the markets last fall in 2008 potential for profit there is risk of loss. With so much data on the were very profitable for us, because there were significant price managed futures industry — going back to the beginning of 1980 trends. Government bonds were going up in price. The US dollar and in some cases longer — managed futures is not an experiment. was going up in price against a basket of foreign currencies, pretty The trading advisers we use trade the world’s futures much against all the currencies except the Japanese yen. Oil prices markets using about 18 global futures exchanges. We don’t invest in were falling. The stock indices were falling and the metals, both other funds, but rather we hire some of the world’s best futures tradindustrial and precious metal prices, were falling. All of those were ing advisers to manage the trading in our funds. We watch what they significant directional price trends that our trading advisers’ comare doing closely and can change the manager if, in our opinion, a puter systems were picking up on and participating in. So it was a better manager would be a better choice. very profitable period for us, even though for most investors in We do extensive quantitative and qualitative due dilitraditional portfolios, it was really a devastating time. So that type gence before we ever allocate to a trading adviser. We don’t allocate of volatility is good for managed futures. to new emerging advisers. We use experienced managers only. We rectional price trends, either up or down. We tend to profit when more of the markets we are using are trending either up or down, and our down months occur when more markets are reversing or are in range-bound patterns.

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Mr. Steben: We select the managers and decide on the percentage allocation to those managers. Then the managers decide on the trades and the allocation between markets. The trading adviser uses a model or trading program that we’ve analyzed carefully and that trading program or model is making its own decisions as to how to allocate between the different markets. As it happens right now, all of our trading advisers are trading across a broad range of virtually all the markets. Our overall portfolios are broadly diversified, with a slightly higher “History shows that adding an investment in managed weighting in currencies and global interest rates. The futures funds to a portfolio can potentially lower your range of trading pretty much covers the whole gamut, overall portfolio risk and increase your overall long-term including stock indices around the world, the metals, energy and agricultural commodities as well. We are rates of return.” broadly diversified. Investors in these programs are getting access and opportunities in some 140 different contracts globally in some six different major market sectors. Internally the funds are heavily diversified, and the investAn example from last year is crude oil. From the beginment itself is a diversifying influence on your total portfolio. The ning of the year we were long oil, as it was in a big uptrend. For characteristics of the diversification are quite unique. the first half of the year through the end of June, oil prices had TWST: Do you invest in bonds? been rising dramatically, going up to something like $147 a barrel. Mr. Steben: We don’t invest in individual bonds, but our In July, after peaking, oil prices began to fall. They fell all the way trading advisers trade government bond futures around the world. eventually down to something like $35 a barrel. In July and There are exchange-traded futures on government bonds of most August, we were giving back profit on what had been very profitdeveloped countries, including Germany, England, United States, able long positions. But eventually, the models got us completely Australia, Japan and so on. As they are government bonds, the priout of that and by the time we were at the end of August or beginmary cause of change in price of those bonds is the interest rates in ning of September, we were short oil. From then it was a very the underlying country. They are pretty much a pure play on interest profitable trade through the end of the year as oil fell all the way rates. We also trade short-term interest rate instruments in many into the $30s. countries, like Treasury bills and their equivalent in other countries, So volatility can be good for us when it’s directional as well as eurodollars. volatility. It can be bad for us when there are reversals or when Of course, holding bonds denominated in foreign currenmarkets are simply whipsawing in a tight trading range. Whipsawing cies means the models must also take into account currency trends markets can either give us no profit opportunity or can actually versus the US dollar, which our funds are denominated in. We may cause losing periods. have a signal to go long Japanese government bonds, but at the same Coming back to your question about volatility, now let’s time, the yen is going down against the dollar. Then there may be a talk about the volatility of our funds, or of the managed futures inseparate trade going on where we may be, say, long the dollar and vestment class in general. The volatility of managed futures funds short the yen. There are a lot of inter-relationships. We could be tradis actually historically somewhere close to the volatility of the S&P ing government bonds and also trading the currency relationships. 500. It’s not an outrageous level of volatility. Of course, volatility varies a lot depending upon the particular fund and its trading adviser(s). Sometimes people think we must be wildly volatile. The better trading advisers are not. With so “Volatility can be good for us when it’s directional many managed futures funds out there, there will be some volatility. It can be bad for us when there are reversals or with really high volatility, but the average is not much when markets are simply whipsawing in a tight trading higher than the S&P 500. Much more important, when you add managed futures funds to a typical investment portforange. Whipsawing markets can either give us no profit lio, the overall portfolio volatility has historically gone opportunity or can actually cause losing periods.” down, and the long-term rates of return have gone up. This is because of the non-correlation and the ability to sell short as well as go long. As I said, there have been many TWST: Would you give us an overview of the diversistudies on that. Even as an individual investment, many managed fication you have? And tell us about the currency trading and futures funds are not much more volatile than many things that the metals and the energy aspect. people are already comfortable having in their portfolio. Comparing Mr. Steben: A recent percentage in a typical portfolio the history of worst declines and recovery periods can also show was 18% currencies, including currency cross rates, i.e., relationvery favorable comparisons. ships between currencies other than the US dollar; 15% global stock TWST: Is it your firm that decides on the allocation indices; 13% short-term interest rates; 18% bonds (government aspect of diversifying across the markets? The type of volatility that’s bad for us is when markets are whipsawing or reversing their trends, since we take positions in the direction of the overall market trend. When we are in a position and then that market turns around and goes the other way, we’ll be giving back profit on those positions. Eventually, if that market keeps going against the earlier trend, we’ll get out of the positions and if it goes far enough, we’ll get into positions in the other direction.

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The liquidity provided in the contracts we trade means that investors in our funds have true liquidity. Investors can get in and out of our funds on a monthly basis. New investors can get into the funds at the beginning of any month and out of the funds at the end of any month, with five business days advance notice. Managed futures funds are generally in the legal form of a limited partnership. A true managed futures fund “We select the managers and decide on the percentage cannot exist in the form of a ‘40s Act mutual fund, beallocation to those managers. Then the managers decide cause the type of trading is prohibited for mutual funds. This is similar to hedge funds, but unlike hedge funds, on the trades and the allocation between markets. The which are funds of funds, the liquid and transparent nature trading advisor uses a model or trading program that of most managed futures funds means that K-1’s for tax we’ve analyzed carefully and that trading program or reporting purposes can be prepared and sent out usually by model is making its own decisions as to how to allocate late February or early March. Sometimes people confuse what we are trading between the different markets.” with the over-the-counter derivatives that big corporations have been involved with, including the problems at AIG, Lehman Brothers and other companies. What those companies entered into were over-the-counter derivative contracts. The trading programs used by our advisers monitor the Those contracts were not liquid, had no ready valuation and had no correlations between different market sectors and data like the relaregulation or margin requirements. That is very different from what tionships between interest rates in various countries’ currencies we trade. As I mentioned, we are trading exchange-traded futures. versus other currencies. Some of the models will have signal sysThese are regulated type contracts, where there are margin requiretems based upon that data. All of the trading of these things is acments. All of the participants in exchange traded futures contracts cording to systematic rules-based, computer-driven models. are held accountable for all of their obligations. The ultimate counThe trading models are modeled to do what a good investerparty for an exchange traded futures contract is the exchange ittor should do. A good investor should not trade based on their emoself, backed by all its member firms. These systems have worked tions. A good investor should let profits run and cut losses short. very well, going all the way back into the founding of the Chicago Unfortunately, we as human beings tend with our emotions to do the futures exchanges in the 1860s. wrong thing. We tend to get excited about a profit and sell and get out of it too early. We tend to allow the losses to increase and get worse, thinking that it is going to come back. The computer models are much more objective and emotion“The historical profitability of good managed futures free than that. Many of them are created by scientists who funds is very attractive to experienced investors today. are structuring the model to take advantage of statistically Having experienced the reality of the markets, people are significant probabilities. They are designed to do what very happy with 8% to 12% net long-term potential they should be doing and this is why they are so consistent over the long term. The model only needs to be profitable returns, especially when they are not correlated to their on 55% to 60% of the trades, as long as the average profit other investments. The long-term record of managed is substantially higher than the average loss. In the short futures is very good.” term, we have down months or down periods, but over the long term, managed futures have been very profitable. Again, I would add the legal disclaimer that past perforManaged futures funds are required by law to produce full mance is not indicative of future results and where there is opportufinancial statements for investors each month, and to be annually nity for profit, there is risk of loss. audited. Our funds are audited by the fifth largest auditor in the US, The historical profitability of good managed futures funds McGladrey & Pullen. We are also public reporting. We are under is very attractive to experienced investors today. Having experienced Sarbanes-Oxley; we have to file 10-Ks and 10-Qs with the SEC. We the reality of the markets, people are very happy with 8% to 12% net are also members of FINRA, which is our US securities self-regulong-term potential returns, especially when they are not correlated to latory entity, and we are registered with the SEC as a broker-dealer their other investments. The long-term record of managed futures is and as an investment adviser. We are registered with the Commodity very good. Trend-following systems, applied in a sophisticated way Futures Trading Commission (CFTC) as a commodities introducing by a good trading adviser, have been shown to work over the last 30 broker and as a commodity pool operator. We are a member of the plus past years. While that past history doesn’t guarantee future reNational Futures Association, the self-regulatory entity for the US sults, the evidence is very strong. The important thing is to allocate futures industry. Unlike hedge funds, we have very heavy regulayour money to the right managers. That is our job at Steben & tions and are under significant scrutiny. In this world of Madoff and Company, to get our investors allocated into top quality trading advisStanford and other frauds and scandals, it’s important for people to ers and to monitor and, if need be, change those managers. bond futures around the world); 14% energy fuels, (heating oil, crude oil, natural gas and different types of energy fuels), 13% agricultural commodities (like wheat, soybeans, cattle, coffee, sugar, etc.); and 9% metals (precious metals like gold, silver, platinum, and industrial metals like copper, aluminum or zinc).

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realize that we don’t have those problems. We are using very credible outside auditors who are constantly looking at us. We’ve been doing this for over 20 years. We have active transparency and liquidity and constant reporting.

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TWST: What about investment category correla-

Mr. Steben: That is a good question. We have virtually no correlation to just about any other category. In fact, looking historically at recent numbers, anything under 0.2 is a virtual noncorrelation in the long term. For example, looking at the “Managed futures funds are generally in the legal form trading advisery programs of some of the advisers that we of a limited partnership. A true managed futures fund use in various funds to the Lehman Bond Index, over the cannot exist in the form of a ‘40s Act mutual fund, last 10 years it was a 0.15, which is a virtual non-correlation. The NAREIT Index of real estate investment funds, because the type of trading is prohibited for mutual which was a 0.04, is about as close to zero correlation as funds. This is similar to hedge funds, but unlike hedge you can get. The HFRI hedge fund index was a 0.06. The funds, which are funds of funds, the liquid and transparent MSCI EAFE, or Europe, Australasia Far East Index was a nature of most managed futures funds means that K-1’s negative 0.10. The S&P 500 was a negative 0.23 over the last 10 years. As you look at very short-term pieces of time, for tax reporting purposes can be prepared and sent out just 2008, for example, we would have been strongly negausually by late February or early March.” tively correlated to these stock indices, REITs, the longonly commodity funds and pretty much every area, because we were profitable and they were losing. It’s important to not confuse non-correlation with negaThe assets in our fund are held at some of the world’s tive correlation. Negative correlation means always doing the oplargest clearing and securities firms. We monitor those clearing posite. Long term, it is a non-correlation, meaning that we just firms carefully on an ongoing basis. marched to our own drummer. Sometimes people think that it Our publicly offered fund is using Newedge, the second would mean that every month the stock market was down, we largest futures clearing firm in the world, which is owned jointly by would be up, and that is just not the case. It’s really sort of random two of the largest French banks, which are Societe Generale and and non-correlated, meaning that what the stock market is doing is Credit Agricole, both of which are in good financial shape. We not dictating in any way what we are doing. In fact, over a recent monitor that closely. The fund also uses UBS for holding cash man10-year period, comparing the stock market on a monthly basis, agement accounts to optimize interest income on our funds. using the S&P 500, to a managed futures fund, about 32% of the Another very interesting point about managed futures time one was up and one was down. About 49% of the time, both funds is that we can earn interest income on the funds’ assets, even were up, and about 19% of the time, both were down in a given while we are engaging in trading the futures markets. Most of the month. So it’s really random and truly non-correlated, and that is money is actually not tied up by that trading. Only a good faith dewhat you want in a portfolio. posit has to be held at the clearing firm to back up the trading, which is called our margin requirement. Most futures trading advisers only trade 15% to 25% on average of the total that could be traded with the particular amount of money in the “Another point about managed futures funds is that we can account, and only 15% to 25% of the fund’s assets need to earn interest income on the funds’ assets, even while we are be applied toward margin requirements. The balance of the engaging in trading the futures markets. Most of the money cash in the fund can be invested in short-term, interest bearing instruments that produce interest income for the fund. is actually not tied up by that trading. Only a good faith Even the amount held for margin gets credited with T-bill deposit has to be held at the clearing firm to back up the rates of interest in our funds. This interest income can help trading, which is called our margin requirement.” to offset management fees on the overall portfolio. Currently, we are investing the free cash primarily in government-backed or US agency type, short-term, under oneNon-correlation has the potential to lower overall portfoyear investments. Some day, short-term investment grade commercial lio volatility. To examine this historically, you can take the managed paper markets will stabilize and we will be able to also include some futures indices like the CISDM, Fund/Pool Index, and add that to a money market type instruments — like we used to. portfolio of stocks and bonds using the S&P 500 and the Lehman These features of managed futures funds — liquidity, Brothers Bond Index. As you incrementally add 5% allocations of transparency, regulation, accountability and non-correlation — give managed futures, the portfolio returns go up, and the standard demanaged futures funds significant advantages over many other viation, a measure of volatility or risk, goes down. As you continue kinds of alternative investments. It makes us quite different from adding, there’s some sort of sweet spot (the efficient frontier) dethings like hedge funds, which do not have the degree of liquidity pending on the number of years of your data. If you were to just pick or transparency that we have and which are not regulated the way the last 10 years, it would be a little misleading, because it would we are. The managed futures industry is quite unique in the alternawant something like 40% managed futures in the portfolio, but tive investment field. 66   The Wall Street Transcript — June 29, 2009

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Second, we have been doing research in recent years that’s really unprecedented, even for us. Our Senior VP of Research, Michael Bulley, who has an undergraduate degree in Electrical Engineering and an MBA in Finance from Johns Hopkins, has been spearheading our research on refining and improving our methods of evaluating trading advisers’ track “We find that many growth oriented investors who are records and trading styles. We did a lot of research, lookfamiliar with managed futures allocate from 10% to 15% in ing at what the important elements are in a track record. In their portfolio. A typical investor is anybody who’s investing the historical track record, what elements had statistical for long-term growth, who has a net worth and/or income significance and what elements did not? As I mentioned earlier, we discovered that the annual profit number had that qualifies for the particular fund, and who can accept no statistical significance going forward. It was not useful, the level of risk in stock or equity mutual funds.” and that is what people tend to use. The average investor and even most financial advisers will simply say, “Well, over the last three years, this manager had the highest returns, so that’s where we should go.” We find that doesn’t have We find that many growth oriented investors who are fastatistical significance. It actually doesn’t in equities either, but in miliar with managed futures allocate from 10% to 15% in their portmanaged futures this is even truer. folio. A typical investor is anybody who’s investing for long-term In managed futures, what you are really buying is the skill growth, who has a net worth and/or income that qualifies for the of the manager, since you are buying a trading system that can go particular fund, and who can accept the level of risk in stock or equity long or short many different markets with varying degrees of levermutual funds. Publicly offered managed futures funds usually have a age. When we looked at track records we began to develop our own minimum of $5,000 to $10,000, and suitability requirements in most internal proprietary quantitative ratios for what we found to be stastates of $70,000 income and $70,000 net worth, exclusive of home, tistically significant indicators. This research has improved our autos and furnishings. Investors should check the prospectus for full abilities to find top quality trading advisers who are more likely to details. Requirements vary in different states. exhibit long-term success. The only way to protect against risk these days is to be truly diversified. Back in the 1990s many people thought they were diversified because they had a variety of stocks and equity mutual funds. Maybe they also had some bonds or bond mu“We are a manager of managers. Many times, people tual funds in the portfolio. Recent market behavior has shown will invest directly with a trading adviser through a fund that more diversification is needed. Investors should have they may offer. The typical investor doesn’t have a way of some investments that are not just bull market bets. properly analyzing or doing due diligence on a particular Many people don’t understand managed futures funds and what we don’t understand, we’re afraid of. The trading adviser. Our firm has over 20 years of experience regulators require warnings on managed futures funds’ doing that for investors. We know what we are looking prospectuses that accentuate people’s fears. The regulators for and we watch the trading of our trading advisers require boilerplate warnings on the prospectus that plays to every day.” the worst-case possible risk rather than looking at the disciplined trading models and systems of the professional trading advisers that we use. We encourage potential investors Beyond these quantitative screens, that is, once we’ve to read the fund prospectus and to ask us questions and to learn about looked at hundreds of trading advisory programs and we’ve culled this. For most people, the more you understand about managed fuit down to a very short list of maybe 20 or 30, then we go individutures, the more comfortable you become with it. ally into their offices and we do a lot of qualitative research. Our TWST: What gives Steben & Company its edge over search is global and we are currently using more trading advisers other managed futures firms? What differentiates your firm from Europe than from the US, just because that’s where we were from peer companies? finding the talent. Twenty years of experience has taught us a lot of Mr. Steben: The first thing is that we are a manager of lessons about what we are looking for. managers. Many times, people will invest directly with a trading Among the things we look at are the principals, who they adviser through a fund they may offer. The typical investor doesn’t are, their compliance background and their reputation. We look at have a way of properly analyzing or doing due diligence on a parwhat markets they’ve been trading and why they were profitable. ticular trading adviser. They have no way of really monitoring the We look at their backoffice operations. We look at their ownership changes going on in that manager to know when they should be structure. We look at how much money they were managing. We getting out or moving to another manager, should that become apdon’t put money with new emerging managers who don’t have real propriate. Our firm has over 20 years of experience doing that for track records. We don’t buy hypothetical track records. We look for investors. We know what we are looking for and we watch the tradmanagers that have $100 million or more under management and ing of our trading advisers every day. that’s simply because it has been a devastating period for stocks. But longer-term studies would call for somewhere between 20% and 30%, depending upon the time period.

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have managed customer money for five years or more. That’s a typical level for us. There might be some exceptions where a manager had that experience at another firm and then started a new firm, and then we can analyze their past record at the other firm, but we are not looking for the new guys on the block. There are not good odds in that type of approach. So we are going with some of the most experienced, best managers worldwide. That’s another element of our edge — we search for managers globally. In fact, next week I’ll be off in Europe visiting managers again. My associate, Michael Bulley, also frequently travels and visits the trading advisers. We do not pick managers because they shoot the lights out of performance. In most cases, the risk is too high in those scenarios. We are looking for steady, risk controlled, well-diversified traders that have shown quality over the long term and whose models exhibit the kind of risk control we consider to be essential for long-term success. TWST: Is there anything that you would like to add? Mr. Steben: Yes. One element I would say that sometimes turns investors off from managed futures is fees or expenses. I would like to address that issue. What investors should focus on is the net result after fees. All managed futures funds are expensive when compared to mutual funds. They are a different animal. The normal fees for trading advisers in this field are a 2% management fee annually (paid monthly) and an incentive fee on new high profits of 20%. Sometimes it’s 1% and 25% or it’s 0% and 30% or other variations on this theme. But nowhere have we found really good futures trading advisers where the management and incentive fees are not pretty substantial. The advisers (or their principals) that we use have track records that go back 10 or 20 years. We’ve even had advisers that have gone back over 30 years. And while past performance is not

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indicative of future results, the net returns to investors for those long track records have been very attractive numbers. Managed futures funds are heavily regulated and the regulators actually, I think, over the long term, caused an increase in expenses as well. We have to do so much reporting and so much auditing. The prospectus and filings are so expensive. Our company has to get paid for what we do, and we get 1% to 2% per year for creating and operating the fund, and hiring and monitoring the trading advisers. If there is a broker involved in bringing in the investor, they also get paid. But the net returns are what investors should focus on, the net benefit to them. The benefits are unique and unlike any other type of investment. Sometimes I’ll see people who are very attracted to the whole concept of managed futures but then they see the fees and they say, “I can’t stand paying a manager 2% and 20%,” or something similar. When we find the best advisers in the world, we are happy to pay them that. We know we can’t get them for anything less than that. We know that there is no way we could get that caliber of manager without paying for it. So we are willing to do that and it’s well worth it, and that would be a point I would add into all of this. TWST: Thank you. (TJM) Note: Opinions and recommendations are as of 6/17/09. KEN STEBEN Steben & Company, Inc. 2099 Gaither Road Suite 200 Rockville, MD 20850 (301) 208-1228

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Investing in Opportunistic Special Situations RICHA R D E . L A N E , RI C H A R D J . W H I T I N G , A A R O N J. GARCIA & JAMES M. WENZLER, BROADVIEW ADVISORS LLC RICHARD E. LANE, CFA, is a Managing Member and President at Broadview Advisors LLC. He has over 20 years of investment experience, and has previously worked at Fiduciary Management, Inc., Cleary Gull Reiland & McDevitt, Inc., and Stein Roe & Farnham, Inc. He received his MS and BA degrees from the University of Wisconsin.

RICHARD J. WHITING is the Director of Trading at Broadview Advisors LLC. He’s worked in investing since 1982 at Fiduciary Management, Inc., Vector Securities International, Inc. and Cleary Gull Reiland & McDevitt, Inc. He received his BA degree from Lawrence University.

AARON J. GARCIA, CFA, is a Research Analyst at Broadview Advisors LLC. He's been working in investing since 2002, and has worked previously at Stifel Nicolaus & Co. He received his BA from Rice University.

JAMES M. WENZLER, CFA, is the Director of Marketing and Client Services at Broadview Advisors LLC. He has over 20 years of investment experience. Previously, he has worked at Alpha Investment Consulting Group, A.O. Smith Corporation, and Associated Trust Company. He received his BBA degree from University of Wisconsin – Milwaukee.

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are currently either misunderstood or out of favor, thereby allowing SECTOR – GENERAL INVESTING you to buy a good, well-managed company at a bargain price. The (AAJ506) TWST: Please start with an overview of Broadview third group would be cyclicals, where you would have a company Advisors. that is simply going through the bottom of its particular cycle and Mr. Wenzler: Rick Lane and Glenn Primack originally has been overly depressed and as you anticipate an improvement in worked at Fiduciary Management back in the late 1990s, managing either their particular industry or the the FMI Focus Fund. Rick and economy as a whole, you get an opGlenn started Broadview Advisors Highlights portunity to buy good companies at in May 2001 and continue to subreally depressed prices because inadvise the FMI Focus Fund. The Richard E. Lane, Richard J. Whiting, Aaron J. Garcia vestors tend to overreact on the FMI Focus Fund is predominantly and James M. Wenzler are opportunistic, special downside. So those would be the a small to mid-cap portfolio. We situation investors. They believe that companies of three areas where we typically find also manage separate accounts for all sizes and characteristics are periodically bargain prices and yet companies institutions. The rest of the firm has mispriced for a variety of reasons. Applying that offer good two- to three-year been built out over the last six years Broadview Advisors’ time-tested investment earnings per share growth. with the people who we just menprocess, together with a valuation sensitive sell The companies that we tioned — Aaron Garcia, Rick discipline, they identify the best opportunities in evaluate go through our rigorous Whiting, Faraz Farzam, Paul the small- to mid-cap arena for superior riskfive pillar process. Those five pilBaures, Owen Hill, Ethan Hill — adjusted returns over a market cycle. In addition to lars are first, a discount to private and we’ve had no turnover in the looking for the businesses with significant growth market value. We maintain a datafirm. That’s the brief background. potential that are selling at a discount to market base by industry and then get down TWST: Tell us about value, they also want to see quality management to the company level of transacyour investment philosophy and and a strong niche position. In their search for tions, so we keep track of what priyour style of investing. bargains they spend a good deal of time looking at vate market values are that would Mr. Lane: On the hisprivate market value. They only buy companies at a be pertinent to the companies that torical side of our firm, on fairly substantial discount, perhaps as much as 25% we’re analyzing. December 16 this year, we will and even higher, but that offer good two to three Second, there has to be enjoy the 13th anniversary of the year earnings growth prospects. attractive growth potential. This FMI Focus Fund, so it’s been Companies include: Fiserv (FISV); Associated gets back to that bridging of the through a number of cycles now. I Banc-Corp (ASBC); Sapient (SAPE); PartnerRe value world to the growth world in will break it into a couple of differ(PRE); Reinsurance Group of America (RGA); that though we are picky bargain ent pieces. From a philosophical HealthSouth (HLS); Borg-Warner (BWA). hunters, at heart we still need to see standpoint we consider ourselves strong earnings growth potential or opportunistic investors. I am alwe are not going to invest in that ways reminded of Warren Buffett’s company, because earnings do drive stock prices. So we need to famous saying, “growth and value are joined at the hip.” As you come up with a pretty strong thesis that shows us how this particular know, there is a tremendous focus on the part of consultants in our company is going to have strong earnings per share growth. industry to put you in either the growth or the value categories. The third pillar is a defendable market niche. Another way We consider ourselves to bridge both of those camps in to think about that is, again to use Warren Buffett’s phraseology, we that we look for good, well-managed companies that are selling at want to invest in companies that have wide moats around their busibargain prices. We spend a lot of time looking at private market nesses. Another way to think about that is that those companies ocvalue; we want to buy companies at a fairly substantial discount, cupy a strategic position within an industry that other players in that perhaps 20%, 25%, often much more than that, but that offer good, industry would covet, and so if the management doesn’t deliver, two- to three-year earnings growth prospects. That’s like wanting to often your downside is protected because that company could get have your cake and eat it too. acquired by one of the industry players. Here is how we are typically able to find companies that The fourth pillar is that we do think a lot about cycles. are selling at bargain prices and yet offer strong earnings growth Every company in every industry has its own unique cycle. It took potential. Typically, our investments would fall into one of three a lot of years for us to really understand that subtlety and we try to camps. One would be undiscovered opportunities, and this is perunderstand where a company is in a particular cycle such that we are haps the easiest group to understand what we are trying to find. Here investing new money in the early part of that industry cycle. For a typical company would be one that is either underfollowed or is years, people thought Cisco was just a one-direction growth stock going through an overlooked change; perhaps it could be an IPO, and the Internet bubble laid waste to that claim. That was just a reperhaps it could be a spinoff, perhaps it could be a restructuring minder that even companies with the strongest growth prospects are where the fundamentals of the company are either strong and not subject to industry cycles, and we try to understand that so that we seen by investors for, let’s say, lack of Wall Street sponsorship or the can invest in the earlier stages of that cycle and perhaps harvest our company’s going through some major change that investors have investments in the latter parts of that cycle. not understood. The second category would be strong franchises that 70   The Wall Street Transcript — June 29, 2009

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Now, of course, our discipline also got us back into the The fifth pillar is that we engage management. This is market as the market was declining in the fall. When the market first very important. We spend a lot of time getting to know our managestarted to unravel after Lehman and then essentially throughout the ments and we want to see managements completely aligned with balance of the fourth quarter, we were buying a lot of stocks. Of investors’ interests through a number of different ways, one of course, in retrospect, it might have been better if we’d waited a little which is we want management owning a lot of the stock. It is albit longer, but our discipline was if companies fell sufficiently ways a balancing act between equity ownership on the part of manbelow private market value and there was satisfaction with the other agement and current compensation, and we spend a lot of time criteria we evaluate, we were going to buy those companies. Now thinking about that, so that management is truly aligned with investhis year we are glad we did that because those holdings have done tors’ interests. That’s not always the case. In fact, very often it’s not pretty well. the case these days. So we spend a lot of time thinking about that and measuring the effectiveness of managements. We write letters to the Boards of Directors if we don’t like a compensation plan, or if that compensation plan perhaps Lane: Fiserv is a Milwaukee-based firm that does changes during our ownership to something that we don’t processing for banks generally on an outsource basis buy into, we will be actively engaged with Boards of Directors. We are not activist investors per se. We are pasbut they also have a software product that is a small sive investors. part of their business. It is one of the great businesses Those are the five principal pillars. There are in America. They are the leading market share player. sub-criteria. We like to see double-digit operating marThey have three- to five-year contracts, 80% to 85% gins; we like to see high return on invested capital and other aspects that show that a business is a good profitable recurring revenue. growing business. And, again, we are trying to buy those types of companies at the bargain basement, which again pertains to typically the undiscovered opportunities, The strong franchise is currently in the “out-of-favor” strong franchises and cycles. That is our philosophy and strategy. bucket. You might guess that there were quite a few opportunities there and there were, and I’ll start out with one of our holdings, 1-Year Daily Chart of Fiserv Fiserv (FISV). Fiserv is a Milwaukee-based firm that does processing for banks generally on an outsource basis but they also have a software product that is a small part of their business. It is one of the great businesses in America. They are the leading market share player. They have three- to five-year contracts, 80% to 85% recurring revenue. That is a great business. They have operating margins in the low 20%. The reason that this company fell into the bargain basement is pretty obvious. Investors became very concerned that some 3,500 banks for which Fiserv processes — and it’s not just banks, it’s credit unions, it’s financial services companies across the board — but investors became very concerned that the state of the banking industry was such that there would have a number of their customers perhaps even go bankrupt or get consolidated into other Chart provided by www.BigCharts.com banks, given the state of the financial health of the banking industry. This is a company that I’ve known since it went public in the late 1980s. In fact, when I was on the sell side of the Street some TWST: How have you been doing this past year in this years ago, I covered this company and we have a very close reladifficult environment. tionship with the management. The key to understanding Fiserv is Mr. Lane: We managed to survive 2008 in relatively not so much the number of banks for which they process, but undergood shape. Our small/mid-cap composite finished about 400 basis standing that they charge per account. So if a bank in one quarter points ahead of the Russell 2000 Index, and year to date we conhas financial difficulty and has to get absorbed or, let’s say, goes out tinue to outperform the Russell 2000 Index. I would say that in 2008 of business, the people that bank at that bank or the account will we had a relatively high cash position for much of the year as a transfer to a different bank, and because Fiserv has a sufficiently byproduct of our philosophy. We do have serious sell targets on large market share they’re going to pick up as many accounts as each one of our portfolio holdings that pertain to closing that gap they lose. That has been the long-term history of the firm. So notbetween where the stock price is selling and what we deem to be its withstanding their customer base being in turmoil, the number of true inherent private market value. That discipline caused us to sell accounts continues to grow, the number of people — it’s essentially many of our stocks in the early part of 2008. Essentially, many of population in the United States times the number of accounts that our holdings came to fruition and approached private market value each individual has and that’s been growing at, let’s say, 4% to 5% so we harvested those names. The Wall Street Transcript — June 29, 2009   71

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What, of course, is weak is the credit cycle flowing through the industry. The key right now, and it can’t be answered because we don’t know, is that we need to see some more cards turned up, but the million dollar question is, are we in the eye of the hurricane or is it largely over, because if you recall, the first part of the credit cycle had to do with construction, consumers and of course the mortgage debacle. Those credit issues are now well understood. It doesn’t mean they’re necessarily over but investors have already discounted that into the stock prices and they pretty much understand how it is going to play out. However, the next two sectors of banking, commercial real estate (CRE) and basic business lending, which in the industry is known as C&I lending, those two loan categories are earlier on in their credit deGarcia: Sapient is a consulting company, interactive ad velopment. I don’t think they’re going to be nearly as seagency and has an important, strong franchise in trading vere as the first half of the credit cycle was in mortgage lending, construction lending and general consumer lendand risk management, which has been a driver for their ing, but we don’t know yet and that’s what keeps us from growth. The CEO, Alan Herrick, had come from the otherwise getting very excited about this being kind of a company’s European division, which had been growing classic bargain basement area to pick through. The reason I say that it is bargain basement is at a 20% plus top-line rate even while the company was that, using Associated as an example, it is a $13.50 stock going through these accounting issues. Here he has built and if I look out to 2011 when I think the credit cycle will out a strong, young franchise in trading and risk have finally run its course and I just apply standard metmanagement. These two franchises now represent about rics to their loan book, again understanding that they will three-fourths of Sapient’s total business, whereas before be benefiting from wider net interest margins driven by their steep yield curve and wider lending spreads, they represented less than 40%. Associated should be able to earn somewhere around $2 a share to $2.25 per share, even assuming they have to dilute the share base by another 20% through an equity raise to help absorb further credit losses, which are likely to happen Now I’m going to spend just a second on the banks and still, as I said, on the commercial real estate and the C&I lending then I’m going to turn another example over to Aaron Garcia. The book. If you apply a historical 12.5 multiple that the banking indusbanking industry is something that we’re very interested in. I’ve try has had through a very, very long period to $2 to $2.25, you can been doing banks since I got into the business in 1981 and we see you can get to a $25 to $30 stock pretty easily. haven’t done much there yet. Now remember, our focus is on small, medium-sized companies. So we don’t look at the money center 1-Year Daily Chart of Associated Banc-Corp banks like JPMorgan at all. We’re looking at the smaller banks and I take a two-pronged approach to this. I’ll give you an example of a bank that we own right now, Associated Banc-Corp (ASBC), which is a Wisconsin-based bank and is the second largest bank in the State of Wisconsin that’s domiciled here. Associated has credit issues just like all banks and I would characterize their credit quality as middle of the road, but of course middle of the road these days is pretty bad. However, things are changing rapidly in the banking business, in that we have a very steep yield curve and most financial institutions still benefit from a steep yield curve. They’re still primarily borrowing short and lending long. It is not entirely true and much of the loan book does float, but they still benefit from a steep yield curve. Secondly, credit Chart provided by www.BigCharts.com spread or lending spreads are starting to come back to the industry and one of the issues that got the banks into trouble in the first place is that they not only got sloppy with credit, but they were falling all However, having said that, we still haven’t done a lot here over themselves to compete for loans and so lending spreads narbecause I want to see a couple of more cards turn up on this credit rowed dangerously. Now, of course, in reaction to all the credit cycle situation. But you can see, it offers a very exciting upside poproblems, the opposite is happening. You’re getting a combination tential. We’ve made a couple of small investments there but we really of a steeper yield curve and expanding credit spreads, so the basic haven’t moved there to any great extent, but that is one of the last bread-and-butter of the banking industry is very strong right now. a year. So investors got overly concerned with the health of their customer base per se and didn’t understand the essence of the business, which is really an account-by-account business. So here is a stock that generates 20% more free cash flow than its reported earnings, with three- to five-year contracts, 80% to 85% recurring revenue with low-20 as the operating margin. That is a great business. In the heart of the downturn in the fourth quarter, Fiserv got down to the high-$20s, which put the stock at something like 6 times after tax, after capital spending free cash flow. That is a phenomenal bargain for a great business and it is the epitome of the type of situation that we look for.

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operating margins from the low-single digits to the low-double digits and we feel they can go higher. Yet most of the analysts on the Street are focused on the IT consulting piece in which Sapient is a relatively minor player. Sapient also fits in with our investment philosophy because it’s at the proper point in the cycle. Presently interactive advertising is growing even while traditional ad spending contracted almost 20% in the first quarter. There is a share Lane: Associated Banc-Corp is a Wisconsin-based bank shift going on from traditional ad spend to online ad spend and is the second largest bank in the State of Wisconsin that we feel Sapient is best poised to capture. Finally we view Sapient’s margin improvement that’s domiciled here. The reason I say that it is bargain as particularly positive, which has been masked by obvibasement is that, using Associated as an example, it is a ously a very poor performing market and so even though $13.50 stock and if I look out to 2011 when I think the the company’s fundamentals have improved and we feel credit cycle will have finally run its course and I just they can get to 15% operating margins, the stock has moved from about $10 to $5 a share. I believe that they apply standard metrics to their loan book, again can do peak earnings per share of $0.85 within two to understanding that they will be benefiting from wider net three years, which would imply a mid-teens price target. The other reason we were particularly attracted interest margins driven by their steep yield curve and to Sapient’s interactive ad agency business is we were wider lending spreads, Associated should be able to earn also shareholders of aQuantive, which as you may know somewhere around $2 a share to $2.25 per share. was a digital ad agency, a high flying growth stock that also started with some operational issues when we became involved with it through the acquisition of another agency. This company was eventually bought out by Microsoft Mr. Garcia: I’ll speak first about Sapient (SAPE), which (MSFT) two years ago for $6 billion or $66.50 a share after moving is a name we own currently and are very excited about for its two- to from $8 a share just 24 months before that. That was another situathree-year outlook. Sapient is a consulting company, interactive ad tion where we looked at the interactive ad agency and thought there agency and has an important, strong franchise in trading and risk were operational issues but we felt comfortable with the managemanagement, which has been a driver for their growth. Sapient ment. We felt they were mature and would fix the business and then was, as we like to view it, somewhat misunderstood by the Street in it also was well positioned in the secular cycle of online advertising that it had an issue with options backdating that resulted in managegrowth, which drove the stock from a value multiple to a growth ment turnover. The existing founder of the company stepped aside multiple before its acquisition. and an unknown management team was internally promoted to handle the challenging accounting restatement, as well as improve 1-Year Daily Chart of Sapient margins at the company. The Street completely wrote off Sapient at that point. We went out and visited with the new management team and what we found was that even though Sapient was viewed by many analysts as an IT consulting company, they had actually shifted much of their business into interactive advertising and trading and risk management. They had de-emphasized traditional IT consulting, SAP implementation, things of that nature. They bought a small, interactive ad agency, gave it some resources so it was able to grow in a very fast growing industry and tied in a very strong Web development franchise that they had internally developed in order to create a full-service advertising agency for online advertising. Further, the CEO, Alan Herrick, had come from the comChart provided by www.BigCharts.com pany’s European division, which had been growing at a 20% plus top-line rate even while the company was going through these accounting issues. Here he has built out a strong, young franchise in Mr. Lane: Sapient is an example of really almost the trading and risk management. These two franchises now represent Holy Grail of what we look for in terms of an undiscovered opabout three-fourths of Sapient’s total business, whereas before they portunity combined with overlooked change in that Sapient represented less than 40%. doesn’t get much attention from Wall Street and yet it has the rarWe like this shift because these new services are higher est of characteristics in a mature time in the United States, terrific margin and less commoditized, and the strength of these businesses growth prospects. It’s still at the bargain basement level because it has helped the management improve their operations and grow their

areas of the market that really hasn’t moved off the bottom. Regional bank stocks are still closer to their lows than any other equity group and of course as a result of that and our bargain mentality, naturally we’re going to be attracted to at least doing the work on that group. So that’s an area of focus. I don’t know when we’ll beef up that category, but we’ve been spending a lot of time in that area.

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MONEY MANAGER INTERVIEW — RICHARD E. LANE, RICHARD J. WHITING, AARON J. GARCIA & JAMES M. WENZLER

own problems, while they try to hold onto their book of business, they have been unnecessarily discounting their business to hold on to their client base. AIG is likely to take some units public sometime later this year, and once that event happens, I think it will take some of the pressure off what otherwise would have been a very strong pricing cycle. But both of these stocks sell at extremely low p/e ratios, 6 and 7 times respectively, so below tangible book, and yet have very strong earnings prospects and are very capably managed and fit all of our investment criteria. Garcia: The reason we view HealthSouth as an attractive In both of those cases we don’t have to worry investment is we believe the company is very well about the credit cycle that’s still hurting the rest of the fipositioned to outperform Wall Street expectations over nancial industry, in fact they are benefiting from it. In fact Reinsurance Group’s prospects were so large they actuthe next few years. A management team that we very ally did an equity raise so that they will have more capital much admire took control of the company and spent to avail themselves of the opportunity. That’s pretty much three years selling off non-core assets, renegotiating the opposite of what’s going on in the rest of the financial debt, improving the operations of the company, restating services industry. Those are two very special situations where they were sitting there in the bargain basement and previous results and getting a significant refund from the also, I guess, to use another analogy, they were classic IRS. Now that they’ve cleaned up the balance sheet and examples of the babies being thrown out with the bathwater. Those stocks got killed right along with all the other cleared those non-operating hurdles. financials, even though not only did they not have any issues like the rest of the financial industries, but they stood to actually benefit from the turmoil, a very interesting situation. TWST: What is next? Mr. Lane: Within the financial services area, I’d mentioned that we’re still cautious on banks, although we are doing a 1-Year Daily Chart of PartnerRe tremendous amount of work there. One area that I do like is the reinsurance arena, and there we have two investments, PartnerRe (PRE) and Reinsurance Group of America (RGA). Both of them are reinsurers. PartnerRe is a classic property/casualty reinsurer. Reinsurance Group of America is strictly a life reinsurer. The reason I like both of these stocks is that they hit our valuation requirements after the financial industry selloff. They were both selling below tangible book value and, going forward, have very interesting growth prospects. They are actually beneficiaries of the financial disaster in that both their primary customers — in PartnerRe’s case the primary insurance companies and in Reinsurance Group’s case, the primary life insurance companies like MetLife (MET) or Prudential (PRU) — had serious problems Chart provided by www.BigCharts.com with their own investment portfolios, and they became capital constrained. They needed financial relief. One of the ways that you can Mr. Garcia: HealthSouth (HLS) is another idea I would get that financial relief is through using more reinsurance, laying off like to highlight. It’s a recent investment. We’d been following the more risks to the reinsurers. Concomitantly, both of their competicompany for several years before actually initiating the position. tors within the reinsurance world were equally hurt by their own They are the largest provider of inpatient rehab facilities that are portfolio mistakes. Whether or not those companies had over-inprimarily located in the southeastern part of the United States. The vested in mortgage securities, they became capital impaired. At the reason we view HealthSouth as an attractive investment is we bevery time the demand for reinsurance went up in both property/calieve the company is very well positioned to outperform Wall Street sualty and life reinsurance, there was less capacity to address that expectations over the next few years. As you may recall, issue because the reinsurers were wounded as well. HealthSouth was the casualty of a very well publicized accounting As it turned out, PartnerRe and Reinsurance Group had scandal where former CEO Richard Scrushy and poor internal convery conservative portfolios and strong capital positions. There they trols nearly brought the company down. A management team that were to take advantage of a very interesting cycle. Particularly in we very much admire took control of the company and spent three the life reinsurance side, I would say more than the property/casuyears selling off non-core assets, renegotiating debt, improving the alty reinsurance side, pricing has been very strong as a result of this. operations of the company, restating previous results and getting a The property/casualty reinsurance pricing cycle has been slower to significant refund from the IRS. develop for one principal reason, AIG (AIG). As AIG works out its really hasn’t been recognized by Wall Street that their business mix is increasingly toward the digital advertising business, which is growing very fast. Because it doesn’t get much coverage overall, valuation is still very attractive and yet it has fantastic growth prospects. It’s probably our most exciting opportunity. It will be incumbent on management to execute on this game plan. But they have a wonderful opportunity.

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MONEY MANAGER INTERVIEW — RICHARD E. LANE, RICHARD J. WHITING, AARON J. GARCIA & JAMES M. WENZLER

enormously attractive franchise in that not only were their compoNow that they’ve cleaned up the balance sheet and nents essential to the build but they were playing into the maincleared those non-operating hurdles, the management team is actustream in the direction that the manufacturers needed to go both ally focused on operating the business and can allocate most of their from a green technology standpoint and also from a fuel efficiency talents day-to-day performance. CEO Jay Grinney was the previous standpoint — lower emissions from what you burn and you burn President of Eastern Group for Hospital Corporation of America. He less of it. is an excellent manager, in our view. The management team has recently implemented a best practices process called TeamWorks for their patient recruitment and enrollment Lane: PartnerRe and Reinsurance Group of America process. We believe that’s going to enable them to grow faster than their markets as they take share. HealthSouth are reinsurers. PartnerRe is a classic property/casualty also has other opportunities to expand geographically eireinsurer. Reinsurance Group of America is strictly a life ther through acquisition or through new facility construcreinsurer. The reason I like both of these stocks is that tion. This is a very good business from a return on capital they hit our valuation requirements after the financial perspective as inpatient rehab facilities don’t have near the capital requirements that hospitals do in equipment industry selloff. They were both selling below tangible and personnel. However, they do provide a vital service in book value and, going forward, have very interesting the healthcare industry in that they get patients who are growth prospects. recovering from strokes or fractured hips or other serious injuries back on their feet and back home where they can resume their normal daily lives. 1-Year Daily Chart of HealthSouth The business also has strong free cash flow which we view as crucial, considering there is still a significant amount of debt on the balance sheet, $1.8 billion to be exact. Management intends to use the high free cash flow dynamics of their business to pay down debt over the next few years. That debt is high cost, so its pay-down also drives earnings growth. In the past, we’d always viewed HealthSouth as a little bit expensive because it traded around $20 a share. We also felt it was a little risky due to its high leverage profile. With the decline of both the stock price and the company’s debt, it came into our price range. 1-Year Daily Chart of Borg-Warner Chart provided by www.BigCharts.com

Chart provided by www.BigCharts.com

pany?

TWST: Rick Whiting, do you want to mention a com-

Mr. Whiting: BorgWarner (BWA) is a marvelous franchise. It’s an auto parts supplier. It supplies drivetrain systems, variable valve, cam timing systems and most importantly turbocharger systems to the auto OEMs both in Europe and in the US. As the auto industry became dysfunctional in the United States and slowed dramatically in Europe, the automakers caught a cold and the auto suppliers got pneumonia. At the same time, BorgWarner was an

Tangential to that, their technology development is probably second to none in the automotive supply industry. One of the appeals to BorgWarner’s technology development was that they would come up with some very innovative products, most notably their dual-clutch transmission technology, which allows for more fuel efficient, easier driving in small lightweight four-cylinder cars. When you couple their transmission technology with their turbocharger technology, you can see their ability to produce very low cost, fuel efficient, small, lightweight cars that were perfect for the growing markets in India, China and Asia in general. Unfortunately, with the crosscurrents that were going on in the automotive industry and people bringing down their car build numbers both in the US and Europe dramatically, the stock was under pressure. We started buying at around $18 and continued to buy it down to $16. Most people thought we were early. The world was still going very short the stocks and supplying the volume for us to buy. And then Armageddon didn’t happen. Detroit didn’t fall into the abyss. The build started to flatten out and improve in Europe and shorts were forced to cover. BorgWarner had put together an extraordinarily effective cost management program. Their earnings weren’t as bad as many had perceived on the Street and the The Wall Street Transcript — June 29, 2009   75

MONEY MANAGER INTERVIEW — RICHARD E. LANE, RICHARD J. WHITING, AARON J. GARCIA & JAMES M. WENZLER

ket value, the relative opportunity is gone, it’s fully valued and we move on to the next idea. The second reason that we would sell a stock would be if there was a material change in the investment thesis. The third is the industry cycle begins its Whiting: BorgWarner is a marvelous franchise. It’s an decline and you fear it might be a worse decline than normal. As I said at the onset, we spend a lot of time thinking auto parts supplier. It supplies drivetrain systems, variable about the unique industry cycle that every company is in. valve, cam timing systems and most importantly The fourth of course would be fundamental disappointturbocharger systems to the auto OEMs both in Europe ment — either management disappoints or you are simply and in the US. Their technology development is probably wrong about the prospects for that company or industry. Those are the four reasons we would sell a stock. second to none in the automotive supply industry.When TWST: What about the risk management you couple their transmission technology with their techniques that you incorporate within your process at turbocharger technology, you can see their ability to the portfolio level and at the individual stock level? Mr. Lane: By far the most important is really produce very low cost, fuel efficient, small, lightweight understanding the business model and understanding busicars that were perfect for the growing markets in India, ness model risk. We all have a heightened awareness of that China and Asia in general. because we have a significant amount of our own capital at risk with our client base. The way we go about investing ostensibly mitigates that risk in that, in addition to trying to understand the unique cycle that that particular company or industry It is a name I would very much like to come back to if the is in, the fact that we are very careful about the valuations we pay for Street decides to change its mind. They are a very well managed comcompanies because we are very sensibly buying companies selling pany and they are in the unique position that while their overall industry well below the private market value, we are also looking for compadoes not have to grow exponentially, they still can because they are nies with a strong strategic position within an industry such that if its growing both on a content basis and frankly on a need basis. They supmanagement doesn’t deliver, very often another industry player will ply what that industry needs as it strives for fuel efficiency, as clean buy them out. All those things serve to mitigate risk. You’ve got to diesel technology becomes a replacement technology for current endifferentiate true risk from volatility in the stock market. Modern day gines and they’re in the drivetrain, the all wheel drive systems that have manager research does a disservice to our business in using notional become so popular both from a safety and efficiency standpoint. It is a items like beta or volatility as a measure of a stock’s risk. We view beautifully positioned company, one that I wish we’d had a little more volatility as an opportunity, not as a risk. We spend so much time disaster in the auto industry to give us a little bit bigger window to get upfront analyzing a company before we invest in it that we feel pretty more fully committed to the name. We have a history here of not walkstrongly about the inherent private market value of the company ing away from a company or a management team once we’ve sold a we’re buying into such that that very volatility can work to our favor, stock. If cycles or circumstances change, the core of our work has been indeed creating that bargain in the first place for us to buy into. done and it’s a question of refreshing in our minds where the company is and what the fundamentals are. We are very happy to come back to a situation we know at some point down the road, and I would clearly 1-Year Daily Chart of Reinsurance Group of America put this on the list of names that we might return to. TWST: Would you tell us about the sell process? What triggers an exit from your portfolio? Mr. Whiting: I would think that, as a firm, both on the buy side and the sell side, we are an incrementalist. When we buy the first tranche of the stock, we are not terribly alarmed if this should go down a level and we can buy more and buy it at a better price. I think the same thing happens on the exit round where as positions approach the private market valuation, we don’t eliminate a position in a day, we’re more likely to scale out of it. Mr. Lane: As a follow-up on that, generally speaking, new investments are in companies whose stocks are under pressure for some reason, thus, creating the element of a bargain. The excepChart provided by www.BigCharts.com tion to that, of course, would be the undiscovered opportunities. As we walked through the Fiserv example, that was kind of a classic, I would say our strategy and our philosophy and our proand so we buy in on the initial weakness and then we typically cess all lend themselves to analyzing the risk side of the equation as round out the position as the stock continues under pressure. well as the reward side of the equation, and then of course layered Now on the sell side, there are four reasons we’ll sell a on top of that is really understanding business model risk. stock. The first is the company achieves or exceeds the private marstock ran through our price target before we got completely committed to the position.

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MONEY MANAGER INTERVIEW — RICHARD E. LANE, RICHARD J. WHITING, AARON J. GARCIA & JAMES M. WENZLER

TWST: What do you think gives Broadview Advisors its edge? What are the differentiators that distinguish your investment approach from that at other peer companies? Mr. Lane: There are a couple of things. One, we are relatively small, that’s a big advantage. Remember, we are often buying fairly small companies that may not have lot of trading and because we are smaller in size it makes us definitely more nimble. The overwhelmingly important factor I think is that our general process of looking for bargains while looking through, let’s say, either misunderstood situations or cyclical situations or overlooked situations where we can take a two- to three-year time horizon and look through the valley and understand the earnings power of a company at a time when that very earnings power is under question, I think really is just a terrific way to invest money. We don’t worry about short-term results. I think that’s a fool’s game. But our industry, as you know, is and can be very often very short-term focused and it leads to investors and investment managers either chasings fads or chasing short-term performance. We don’t do that. We really do take a two- or three-year outlook and because of our patience, it allows us to accumulate some really strong, well-managed companies at real bargain prices just simply because they are currently out of favor, and then we have the patience to see those through. I think that patience really works to our benefit. Mr. Wenzler: I have another note to make on why we think we stand out. We employ a very repeatable process. Our process is something that we can use through many different cycles, and as Rick talked about at the very beginning of this discussion, we’ve been managing with this strategy for almost 13 years now through many cycles, and the fundamental process that we go through is very repeatable. I think the other point to be made here is that, although I wouldn’t call it rocket science, there is an art to it and it’s the execution of the process that has made us different and I think when we say different in this business, our performance speaks for itself — we have been able to execute better than others.

Mr. Whiting: The other point that’s probably harder to quantify but nonetheless important is Broadview is a fairly small team and it is a small team of people who genuinely like what they do and like the people they work with. Perhaps the most interesting time of day around here is after the markets close and the conference calls have ended and the ticker is no longer flowing. We sort of filter in and gather in Rick’s office at the end of the day and just talk — talk about stocks, talk about markets, share observations, kick around ideas and insights — and it’s from that informal, but very purposeful process that people are continually being put under the microscope to re-underwrite the names we are already in and to find new names. Mr. Lane: I would just summarize it by saying I think we have a great process for unearthing companies. I think we execute well, but it’s also that we’re very well disciplined. I think that the biggest problem that most investors have is that they never really arrive at an investment process and philosophy that a) they really believe in; and b) they really stick to through thick and thin with self-discipline. TWST: Thank you. (PS) Note: Opinions and recommendations are as of 6/22/09. RICHARD E. LANE RICHARD J. WHITING AARON J. GARCIA JAMES M. WENZLER Broadview Advisors LLC 100 East Wisconsin Avenue Suite 22 Milwaukee, WI 53202 (414) 918-3960

The Wall Street Transcript — June 29, 2009   77

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NITIN N. KUMBHANI is the Founder, CIO and Principal at Apex Capital Management. He started Apex in 1987 and has over 23 years of investment management experience. He has been CIO since the firm’s inception. Prior to launching Apex, he started Source Data Systems, a software company that pioneered ATM software. He sold SDS and started Kumbhani and Co. (now Apex) in 1987. His background as a developer of technology working with the financial services industry has served him well as a growth stock portfolio manager. He received his BS degree in Electrical Engineering and Economics and did graduate studies in Computer Sciences at West Virginia University.

SUNIL M. REDDY is a Portfolio Manager at Apex Capital Management. He brings more than 18 years of diverse investment management experience. His background includes stints in portfolio management, equity analysis and in corporate debt underwriting, trading and syndication roles. He joined Apex from Fifth Third where he co-managed the Fifth Third Quality Growth Fund and was the sole manager for the Fifth Third Technology fund. In addition, he was an integral member of the Growth team covering the technology and financial sectors. He also has extensive fixed income experience, having managed a $6 billion fixed income portfolio at Fifth Third. At Keycorp, he was involved in various funding and interest rate risk management strategies for the Funds Management group. Mr. Reddy is a Chartered Financial Analyst and has an MBA degree from Weatherhead School of Management, Case Western Reserve University and an undergraduate degree in Electrical Engineering from The Ohio State University.

SECTOR – GENERAL INVESTING (AAJ501) TWST: Please start with an overview of Apex Capital Management and your investment philosophy there. Mr. Kumbhani: Apex is a long-only, growth equity manager. The company was founded in 1987. I’m the Founder and CIO of the company. Sunil Reddy, a portfolio manager and Investment Committee member is here with me. Our SMID growth product has consistently remained in the top decile over the last seven years. We’re getting a lot of traction; in fact, we are on as a Tier 1 manager on most of the platforms nationally, like Merrill

Lynch, Smith Barney and Morgan Stanley. The bulk of the assets are still in the Large Cap Growth product, but our small and mid-cap product is beginning to take off. We also have an All-Cap product beginning to grow with increasing institutional interest. As for the investment philosophy, we at Apex use a combination of both a top-down and a bottom-up approach to construct our portfolios. The top-down process primarily involves looking at secular growth and identifying emerging trends, especially with a global mindset. We think the majority of growth today comes from emerging markets and we have a heavy focus on companies The Wall Street Transcript — June 29, 2009   79

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TWST: What are the criteria that you look for specifipositioned to benefit from those trends. The bottom-up process cally in potential holdings? basically involves a lot of quantitative and fundamental analysis. Mr. Kumbhani: We Unlike many managers who use identify companies that are leada funnel process to filter stocks, Highlights ers in their fields and that possess our approach is different. I’ve the growth characteristics we developed several models that Nitin N. Khumbani and Sunil M. Reddy say the firm’s mentioned before. Where we difreally try to understand the SMID growth portfolio has consistently remained in fer from many of the managers growth cycles and where in the the top decile over the last seven years. Year to date is, we don’t use a funnel apgrowth cycles various companies they are about 600 basis points ahead of the benchmark. proach; we have designed screens are. Our screens are designed to They combine a top-down approach, which includes to take advantage of companies find companies that are emerging developing secular themes, with bottom-up analysis in different stages of their growth growth, early growth, midinvolving rigorous multi-factor analysis of individual cycles. An example would be to growth or late growth cycles. stocks. They have designed screens to take advantage have high emphasis on revenue Once we have identified securities of companies in different stages of their growth cycles. growth for emerging growth that have these characteristics, They place emphasis on revenue growth for emerging companies. We have high emour focus turns to rigorous growth companies, EPS growth consistency for phasis on EPS growth consisvaluation and fundamental companies, that are past their emerging stage and EPS tency for companies that are analysis. A company’s global growth for companies in the early to mid-stage of their already past their emerging stage strategy, presence and positioning growth. For businesses that are stable growth and both revenue and EPS growth as well as the quality of companies they look at various aspects of the company’s for companies in the early to management, earnings consistency of earnings and growth, the quality of mid-stage of their growth. sustainability and uniqueness of management, how they are managing the cash flow And finally, for comtheir product niche are analyzed. and other factors. Valuation is a critical component of panies that are stable growth TWST: There has their process. Price to sales is a relevant metric but for companies, we look at various been much turmoil in the marmore established companies they look at the quality of aspects of the company’s consiskets and the economy since we the balance sheet, earnings growth and cash flow tency of earnings and growth, the last talked. How has the smid generation metrics. quality of management, how they growth arena been faring durCompanies include: Aeropostale (ARO); priceline.com are managing their cash flow and ing this difficult year? (PCLN); Cree (CREE); ARM Holdings (ARMH); Intuitive many other factors internally. Mr. Kumbhani: Surgical (ISRG). Once we have identified the We’ve done extremely well. Year group of companies that meet to date, we are about 600 basis these criteria, we perform further points ahead of the benchmark. fundamental analysis to choose the appropriate company to fit into the portfolio. Mr. Reddy: Essentially our approach is this: we Kumbhani: We think that growth is still going to be an are growth investors and now we want to combine our illusion as far as high growth areas are concerned. We top-down approach wherein we are investing in compaare much more focused on how companies are nies with the wind behind their backs from secular themes managing their bottom line. This market is really we have developed, which need confirmation from comgoing to tell us which companies invested smartly in pany fundamentals. Confirmation from company fundamentals can come from a variety of aspects, depending on their business intelligence. if it’s an emerging company or if it’s a stable company. In other words, some of the more stable companies are companies which have been there forever; they’ve gone through different economic cycles. There is a different way of lookTWST: How do you account for this successful ing at those versus some of the emerging companies that have the growth? ability to increase the revenue growth, potential for taking share and Mr. Kumbhani: Consistent investment discipline and in for introducing new products. depth in-house research has helped us through this. TWST: What about the valuation metrics, since all the TWST: Tell us about your investment process in sevaluations of the companies have fallen over the last several lecting the smid stocks for your portfolio. months? Mr. Kumbhani: Our basic mindset is totally global. We Mr. Reddy: Valuation is a critical component of our apuse a combination of a top-down and a bottom-up approach. Topproach. The way we look at valuation is a little bit different from the down includes developing secular themes and also looking at the traditional valuation approach. This is how we differ — for the current macroeconomic environment, and the bottom-up involves emerging growth companies, we believe top-line growth is imporrigorous multi-factor analysis of individual stocks. 80   The Wall Street Transcript — June 29, 2009

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developing throughout the economy. The financial markets were also beginning to function. As we saw different data points, we essentially increased our weighting in some of the early cyclicals, mainly consumer discretionary and technology areas. Now, at the same time, in the middle of February, you had talk about the whole healthcare industry changing with the Obama plan of more government intervention and that made us a little wary of that sector so we pared back some. Reddy: The way we look at valuation is a little bit Keep in mind that we don’t make big sector different from the traditional valuation approach. This is bets. More often than not we want to look for the right how we differ — for the emerging growth companies, we company, and if it fits our short-term macro theme, that’s believe top-line growth is important and the companies’ great. A lot of our sector positioning is driven by company-specific work and our secular mindset. addressable markets are important. There you won’t see TWST: What would you say is different as much emphasis on traditional p/e ratios, because about your portfolio construction today from what it they’re not as relevant to this group of companies. Is a was in September when all these events started to take company investing in the right manner, is a company place in the market? Mr. Reddy: When the fixed income market generating the top line growth? Price to sales is a more was essentially in a state of disarray, throughout relevant metric. 2008, we went through our portfolio and made sure the companies did not have refinancing needs. In other words we made sure the companies’ debt was 1-Year Daily Chart of Aeropostale not coming due in the next one or two years. We wanted to make sure the organic cash flow characteristics were desirable. There was a lot of uncertainty about future growth prospects; clearly analysts are human and the tendency to overshoot or undershoot was there. In most of 2008, especially in the second half of 2008, we relied on organic cash flow characteristics, balance sheet trends, and whether there was a need for refinancing of debt, because the capital markets were essentially shut down. Now, having said that, things are perking up now about six to nine months later, and here we are looking for more normalized earnings. Clearly the cash flow characteristics are important all the time. But now, our focus is on a company’s normalized Chart provided by www.BigCharts.com earnings potential that is going to be driving some of the investment decisions. tant and the companies’ addressable markets are important. There you won’t see as much emphasis on traditional p/e ratios, because they’re not as relevant to this group of companies. Is a company investing in the right manner, is a company generating the top line growth? Price to sales is a more relevant metric. But then for some of the more established companies, we look at the quality of the balance sheet, earnings growth and cash flow generation metrics.

The way we look at companies is also different Kumbhani: Aeropostale has always focused on the by sector. Many people refer to valuation as being the bottom line rather than creating the high fashion. It’s same across the board, but we tend to look at sector-specific company valuation metrics. also in the thin apparel area, which is the more consistent TWST: Have you been overweighting or insector within the retail universe. This is an environment creasing your exposure in certain areas and conversely that is going to tell us a lot about how this technological reducing it in others? revolution that started in the early 1990s has benefited Mr. Reddy: Yes. Going back to 2008, we were in some of the most stable areas. We were uncompanies. We are focusing on companies that are derweight energy at the beginning of 2008 and overmanaging their bottom lines quite well in this cycle. weight health care, but even within health care, there are a lot of unique companies that comprised our health care overweight. The underweight in energy Mr. Kumbhani: A couple of things that we’ve done since kind of hurt us in the first half of 2008. But it helped us later last year — early in February and early March, we started increasin the year. We were a little bit early on that call. Now, as we ing our exposure in the financial sector a little bit because we progressed into 2009, we were of the opinion that the early thought there were some exceptional opportunities in some of the cyclicals were poised to perform well, given the green shoots The Wall Street Transcript — June 29, 2009   81

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Mr. Kumbhani: A company that we’ve liked and we had invested in last year is priceline.com (PCLN) in the e-commerce area. The company has made tremendous inroads in the European markets. Their business model actually works better in a slow growth economy, where people are looking for better deals on hotel rooms and things like that. It has done quite well relative to the entire consumer discretionary space. We think that a game-changing event is happening in lighting technology. If you go to the stores now and look at the store shelves, you’ll notice that the traditional light bulbs are no longer there; you’re seeing more and more LED lighting. One of the companies we’d invested in early is called Cree (CREE). They are the leading company in light-emitting diodes technolKumbhani: priceline.com has made tremendous inroads ogy. We bought it last February and the stock has already in the European markets. Their business model actually doubled. Currently it may be slightly stretched in terms of works better in a slow growth economy, where people are valuation, but it has a tremendous long-term future. Mr. Reddy: The lighting situation is similar to looking for better deals on hotel rooms and things like the transition that happened with televisions, where you that. It has done quite well relative to the entire consumer had the cathode ray tubes — the entire world was going to discretionary space. the CRT type technology and that’s kind of shifted to more flat panel. Now you can’t give away CRT technology. That similar analogy would apply in the whole lighting area, wherein the traditional light bulbs are going to go away, we We think that growth is still going to be an illusion as far think, over the next few years. Devices that consume less power and as high growth areas are concerned. We are much more focused on emit a lot more luminescence will replace them. This secular theme how companies are managing their bottom line. This market is reis happening and Cree, one of our holdings, is the leader in supplyally going to tell us which companies invested smartly in their busiing the technology for LEDs. ness intelligence. They will come out of the downturn. I believe you will see that especially in some of the retailers. In the 1980s and 1-Year Daily Chart of Intuitive Surgical 1990s, the retail industries used to go through boom-and-bust cycles. If you look at the industry now, many of the companies that have invested wisely in their business intelligence, like inventory management, floor space optimization, price optimization, things like that, are beginning to show remarkable earnings consistency even in this kind of dull market. As an example we really like Aeropostale (ARO). The company has always focused on the bottom line rather than creating the high fashion. It’s also in the thin apparel area, which is the more consistent sector within the retail universe. This is an environment that is going to tell us a lot about how this technological revolution that started in the early 1990s has benefited companies. We are focusing on companies that are managing their bottom lines quite well Chart provided by www.BigCharts.com in this cycle. financial stocks. We also increased our exposure in consumer discretionary. We have been underweight in the industrial sector because we don’t think we are at a point where major ticket items or cap ex is expanding. We’ll be moving slowly in the industrial sector. If you look at the past historic cycles, two sectors that have the best batting average recovering from this kind of a bear market are consumer discretionary and technology. Today, there is more emphasis on the cyclical portion of the portfolio. We reduced our exposure to health care at the time of Obama’s first State of the Union speech. That’s where we are currently.

Mr. Kumbhani: This is a game-changing event because it’s a low power device; the power consumption is tremendously low, and it has huge implications for emerging markets power requirements. We actually think that the point of inflection is here and the company has substantial chance to grow further. Mr. Reddy: Another one would be a company called ARM Holdings (ARMH) based in England. They supply the intellectual property that is used by the entire electronics industry. They give you these software cores, which companies in the semiconductor industry or a lot of the electronics companies take and use to develop various devices. Any digital device can use their technology, and they are especially strong in the mobile handset area. For instance, if you

Reddy: ARM Holdings supplies the intellectual property that is used by the entire electronics industry. They give you these software cores, which companies in the semiconductor industry or a lot of the electronics companies take and use to develop various devices. Any digital device can use their technology, and they are especially strong in the mobile handset area. TWST: Would you give us some other examples of the type of company that you’ve found attractive in this environment? 82   The Wall Street Transcript — June 29, 2009

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our expectations; that would be simply just trimming a position if we continue to like the company. For a company to totally exit, a few things need to happen — either we decide that our investment thesis is no longer valid, the company is consistently starting to underperform its peer group, the comKumbhani: Cree is the leading company in light- pany has internal accounting issues, or we find better emitting diodes technology. We bought it last February alternative investment. TWST: Has the turnover been more this year and the stock has already doubled. Currently it may be than in previous years for your portfolio? slightly stretched in terms of valuation, but it has a Mr. Kumbhani: The turnover in our SMID tremendous long-term future. product usually ranges 70% to 125% annually. When you have such dramatic moves in the market, as we have had recently, the turnover may go up slightly, but not dramatically. Mr. Kumbhani: ARM Holdings is a leader in making low-power RISC processors and application and development tools 1-Year Daily Chart of priceline.com that go with that, along with embedded software applications. Most of the major cell phone manufacturers use their technology. This is an indirect way of participating in the entire growth of the hand-held devices market without having to pick one winner. Whether it’s Sony, Ericsson, Nokia or Apple, they all use ARM Holdings technology in some fashion. Mr. Reddy: The neat thing about it is that they are delivering financially. Their operating margins have expanded from the mid-20s to high 30s during this downturn. That tells you the strength of their business model and we like that for the long haul. Mr. Kumbhani: Another one of our holdings in the medical device area is Intuitive Surgical (ISRG), which makes the Da Vinci robotic surgical system. It is the fastest growing company Chart provided by www.BigCharts.com in the entire healthcare spectrum. We bought it earlier this year when the stock had come down from the $300 level to below $100, and it has moved up about 50% in last month or so. That is an exTWST: How do you incorporate risk management ample of the kind of company that we continuously look for. Their techniques within your investment selection at the portfolio growth is mostly in developed countries, but their market potential level? in other countries is enormous. This is high-priced equipment, so it Mr. Kumbhani: At the portfolio level we have estabmay take a little more time for growth to re-accelerate, but they are lished certain parameters as far as how much sector exposure we totally dominant in their field and they are continuously spending would take and also diversification within the sectors. Also at the R&D money to expand the robotic surgery into other areas. portfolio level, one of the things we are extremely mindful of is Currently, it’s mostly used in gynecology, but the potential to get what we call unintended overlap. We want to make sure that we into other areas of surgery is enormous also. have a lot of uniqueness in our sector makeup, so that any overlaps that we have in securities or stocks within a secKumbhani: Intuitive Surgical makes the Da Vinci tor is by design and it doesn’t happen inadvertently. TWST: What do you think gives Apex its robotic surgical system. It is the fastest growing company edge? What differentiates your investment approach in the entire healthcare spectrum. We bought it earlier or style from that of the other peer companies? Mr. Kumbhani: Let me go again top-down. this year when the stock had come down from the $300 One of the advantages we have is, three of us on the level to below $100, and it has moved up about 50% in Investment Committee have tremendous knowledge of the last month or so. That is an example of the kind of global markets, and especially the emerging growth areas company that we continuously look for. of the world. We always travel every year and go visit different countries and see what’s happening. It is a unique experience that we bring because lots of money managers sitting here in US develop a tunnel vision or don’t have any idea of TWST: What is the sell discipline? What triggers an what is happening globally. exit from the portfolio? As an example, if you are a money manager sitting here Mr. Kumbhani: There are a number of factors. We may in the US looking for a consumer staples company, the first thing trim a position if it moves up too rapidly and reaches or goes beyond look at your smartphone, there are many components that use ARM Holdings’ technology.

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that would come to your mind would be Procter & Gamble. But we believe it is essential to understand how Procter & Gamble enters and competes in the various emerging markets. If you go to India for example, it’s not Procter & Gamble because Unilever there has 200 homegrown products, and it’s the current jewel of Unilever’s business. It’s very important to understand how these Commonwealth countries have certain companies that have the advantage of being there early. Certain nuances that we understand give us an edge.

ers, we will make sure that the companies that we invest in have tremendous opportunities in those markets. We think China, India and parts of Latin America will have the better growth prospects once things get normalized. TWST: And the same for the United States — what is your outlook going forward particularly in the small and midcap arena that you invest in? Mr. Kumbhani: We have products across all market capitalizations in Apex’s product mix. We have Large Cap Growth, we have SMID growth also, and All-Cap growth. Currently we think the small/mid-cap area will do better coming out Kumbhani: We are still focused on handheld devices of this than the large cap. In our large cap product, we are beginning to reduce our market cap exposure. within the technology space; everything is moving more TWST: Are there any challenges ahead that and more toward cloud computing and smartphones and investors should be wary of now? Mr. Kumbhani: The financial system is still smart devices, moving from desktop to laptop to netbook beginning to recover, so it’s good to be prepared for large computers, so these are important secular themes to hiccups, but we think we will improve and we are of the continuously watch for. opinion that we saw the bottom in the first week of March. Having said that, there will be 5% to 10% corrections, but we will view those as buying opportunities.

1-Year Daily Chart of CREE 1-Year Daily Chart of ARM Holdings

Chart provided by www.BigCharts.com Chart provided by www.BigCharts.com

The other advantage is the way we screen for stocks. We don’t use a funnel approach, we try to understand the growth cycles and where individual companies or some industry groups are in the growth cycle. Rather than mixing too many parameters, we try to preserve the integrity of the most important parameter for that particular growth cycle, and that has served us extremely well. TWST: You talked about your expertise in emerging markets and the global economies. Would you give us your view on how they are going to be faring through 2009 and then into next year? Mr. Kumbhani: It’s very important to talk about this. The bear market started because of the financial problems in the developed countries. We had massive problems in our financial institutions, whereas China and India, for example, the biggest emerging markets, have managed their finances better and the companies in those countries in the financial field have pretty much avoided the problem. Therefore we think when the global growth resumes again, the emerging markets will be an important component in such growth. Even though we are US-based manag84   The Wall Street Transcript — June 29, 2009

TWST: Is there anything that you wish to add? Mr. Reddy: Clearly the global economies have gone through some pretty tough times, but our view is there is a cyclical upturn coming; the worst is probably behind us. Having said that, it is not a one-day shot up. I have a couple of comments about the emerging markets. Clearly they have managed their finances in terms of deficits or surpluses extremely well. There has been a lot of leveraging in the developed countries for a variety of reasons; the housing bubble, the financial engineering going on in Europe and United States, the leveraging of balance sheets in this country, that hasn’t happened in some of the emerging countries. In fact, a lot of the companies in the United States are looking to the BRIC countries (Brazil, India, China) for that incremental growth, and I think that’s going to present us some exciting opportunities to invest. With the kind of mindset we have, we identify global secular themes and combine that with bottom-up, earnings-driven investment in companies.

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Mr. Kumbhani: I’d like to close this with some thoughts in our secular thinking. We are still focused on handheld devices within the technology space; everything is moving more and more toward cloud computing and smartphones and smart devices, moving from desktop to laptop to netbook computers, so these are important secular themes to continuously watch for. As we look at the biotechnology space, many of the companies with strong cancer franchises are beginning to look attractive; that is also a continuous growth theme and not to be ignored. As far as cyclical sectors are concerned, we want to make sure that companies have invested well in business intelligence and are benefiting in this tough environment. That would be one the key tests. What we are seeing, like I explained, is that it’s happening in some of the retailers, which are managing their businesses quite well. We will also be looking for the improve-

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ment of business intelligence within the industrial companies. The companies that have invested heavily in their supply chain area will tend to come out on top in this environment. So those are our focus areas. TWST: Thank you. (PS) Note: Opinions and recommendations are as of 6/16/09. NITIN N. KUMBHANI SUNIL M. REDDY Apex Capital Management 8163 Old Yankee St. Suite E Dayton, OH 45458 (937) 428-9222

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JEFF DONLON is the Managing Director of the Technology Sector at Manning & Napier Advisors, Inc.. In this capacity, he is responsible for analyzing investment opportunities within the technology sector, with an emphasis on semiconductors and semiconductor capital equipment, enterprise hardware and software, storage and peripherals, digital media technologies, and photography and imaging. He is a member of the Senior Research Group and also an employee owner. Prior to joining Manning & Napier in 1998, he worked as an associate with the Industrial Bank of Japan Trust Company. He earned his BS degree in Finance from Canisius College, an MBA degre from Duke University, and holds the distinction of Chartered Financial Analyst.

down individuals is to provide broad macroeconomic overSECTOR – GENERAL INVESTING views and identify areas of risk and opportunity in the markets, (AAJ503) TWST: Would you start with an overview of Manning which our bottom-up analysts then in turn factor into their & Napier and tell us what your responsibilities are there? company and industry analysis. Mr. Donlon: Manning & Napier is an investment I joined the firm back manager with approximately $18 in 1998, and I’m currently a billion in assets under manageHighlights Senior Analyst and the ment. We were started in 1970 as Jeff Donlon says he has had a technology overweight Managing Director of the a separate account manager, throughout the market downturn. The companies did Technology Equity Research building blended portfolios, prinot have the capacity or the supply issues like they team. I’m also an employee marily of stocks and bonds, to did during the technology bubble a few years back. owner and member of the meet specific client objectives. There is evidence of many bottlenecks, quality of firm’s Senior Research Group. Over time, we’ve complemented service and compliance issues if IT spending were to I graduated from Canisius our separately managed account be turned off for too long. The balance sheets of College with a Bachelor’s in focus with a series of collective technology companies were comparably healthy Finance. I also have an MBA investment trusts and mutual heading into this downturn, which was a favorable from Duke University and hold funds, including life cycle funds, backdrop to support continued R&D investments, the CFA distinction. The of which Manning & Napier is a targeted M&A and share repurchases with little need Technology Equity research pioneer. On the equity side, our to access credit markets at a time when it was nearly team is responsible for the traanalysts are divided into six botimpossible to do so. His team looks for strong Profile ditional IT industries, includtom-up sector groups and three companies with long-term secular opportunities and ing semiconductors and semi top-down oriented groups. The also at industries where the credit crisis has reduced cap equipment, data networkbottom-up groups are responsithe financial flexibility of high-cost producers, which ing, telecom equipment, hardble for populating our portfolios are strong Hurdle Rate opportunities. The key is to ware, software, storage, IT and all the bottom-up analysts focus on the supply exiting the system, creating services and all other related cover their industries on a global improved industry health and returns for the sub industries. all-cap basis. The top-down survivors as well as improved market opportunities. TWST: How has the groups provide informational Companies include: EMC (EMC); Cerner (CERN); turmoil in the market and the support to the bottom-up anaNordstrom (JWN); Dick’s Sporting Goods (DKS); weakened economy impacted lysts to factor into their industry Autodesk (ADSK); FedEx (FDX); UPS (UPS); your investment this past year? and company analysis. Southwest Airlines (LUV). Mr. Donlon: Essentially, the job of the top86   The Wall Street Transcript — June 29, 2009

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There is a lot of disruptive innovation in that area that is facilitating a Basically, from a broad-based macroeconomic point of view, the secular shift to converged networks based on Internet Protocol (IP) in market environment was really shaped by the credit crisis, and it has both the enterprise and telecommunications service providers. The been the gradual thawing of the credit markets in recent months that trend toward all-IP networks favors companies like Cisco (CSCO) and has led to the better numbers we have seen lately. Essentially, the Juniper (JNPR), which are pure plays on that trend. credit markets really choked up all enterprise IT spending growth and consumer-related spending growth. As far as its impact on technology, there are certainly a lot of investing “We saw many reasons to be fully invested in technology headwinds with enterprises and consumers having less stocks. They did not have the capacity or the supply access to credit for IT projects and big ticket purchases. The cost of capital was rising, which impacted technology issues associated with the technology bubble earlier this demand and stock valuations. The financial vertical, in decade. We saw evidence of a lot of bottlenecks, quality particular, was frozen and consolidating, and it represents of service, and compliance issues in certain areas if IT 10% to 20% of IT spending. spending were to be turned off for too long. We thought We saw slowing technology spending outside of the United States and Europe, as the credit crisis spread. technology companies were comparably healthy heading Emerging markets had previously been picking up the into this downturn.” slack, and then we also saw an impact of the stronger dollar toward the end of 2008. That did not deter us from having an overweight in technology and pursuing that overweight through the market downturn. We saw many reasons to 1-Year Daily Chart of EMC be fully invested in technology stocks. They did not have the capacity or the supply issues associated with the technology bubble earlier this decade. We saw evidence of a lot of bottlenecks, quality of service and compliance issues in certain areas if IT spending were to be turned off for too long. We thought technology companies were comparably healthy heading into this downturn. The technology sector didn’t have a lot of the structural issues related to the consumer and financials, and the bubble hangover really had refocused management teams on profitability versus growth at all costs. What we saw was a very proactive capital efficiency and cost structure on the part of management teams. Technology company balance sheets were very healthy compared to prior downturns and we thought that this was a favorable backdrop Chart provided by www.BigCharts.com to support continued R&D investments, targeted M&A and share repurchases with really little need to access credit markets at a time when it was nearly impossible to do so. We also like the storage space, in that, even during a credit crisis, data is still being created and growing quite substantially. While there certainly has been a cutback in overall IT spending by CIOs, storage spending is “Technology company balance sheets were very healthy something that can’t really be turned off for too long with compared to prior downturns and we thought that this the amount of information growing like it is. Storage was a favorable backdrop to support continued R&D boxes are run a little bit hotter than normal, and companies investments, targeted M&A and share repurchases with are going to have to come back to the market and spend on capacity at some point. really little need to access credit markets at a time when The other trend that we’ve looked at quite it was nearly impossible to do so.” closely is the trend toward virtualization. Today virtualization is focused on the server market and getting more utilization and functionality out of existing TWST: How have you been adjusting your portfolio to physical boxes by turning one physical box into multiple virtake this impact into account? tual machines, but we think in the future, virtualization is going Mr. Donlon: We have purposely taken a more enterprise IT to apply to really anything, including desktops, handsets, comoriented bent in our stock selection. Our macroeconomic overview sugplete data centers and storage. We believe that’s going to be a gests that the US consumer is going to have several years of rebuilding growth trend and we’ve invested in that area through our intheir balance sheet, and so that has given us more of an enterprise IT vestment in EMC (EMC). bent in our positions in the portfolio as it relates to technology. One of TWST: What about the broader portfolio and how has the areas that we’re focused on includes the data networking space. that been shifting in emphasis over the last year or so? The Wall Street Transcript — June 29, 2009   87

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tinue to rise and charge-offs are going to continue to get Mr. Donlon: We are still overweight technology, but worse. We’re really focused right now on trying to find finanwe’ve been underweight in energy, financials and consumer staples. cial institutions that are going to be survivors of even the The reasons for our underweight in energy are really driven by the worst case scenarios and taking advantage of that when the magnitude of the impact of the recession on demand. The energy industry conditions are more stable. area is one that we looked at through the lens of our Hurdle Rate strategy, which is a strategy for inherently cyclical industries where we are focused on the supply and demand pa“One of the areas that we’re focused on includes the data rameters. Right now we are seeing oil inventories spike as a result of the curtailment of demand, and this has led to networking space. There is a lot of disruptive innovation an environment where oil prices have been below their in that area that is facilitating a secular shift to converged marginal cost of production. We expect capacity is and networks based on Internet Protocol in both the enterprise will continue to come out of the system through depletion and telecommunications service providers. The trend and reductions in capital spending, and we estimate that non-OPEC supply should fall. As the economy gradually toward all-IP networks favors companies like Cisco and improves, demand will be met with less supply and a Juniper, which are pure plays on that trend.” lower pipeline of projects. We believe this will eventually trigger higher oil prices. They need to rise above the marginal cost of production in order to induce exploration and TWST: Tell us about your style and strategies. production, but we don’t think we are quite there yet, and that’s inMr. Donlon: We build our portfolios on a bottom-up fluenced our portfolio positioning. basis, so we invest across geographies and market capitaliza1-Year Daily Chart of Cerner tions. The idea is not to limit our investment universe, but to maintain flexibility across environments and simply focus on identifying companies that are well positioned within their industries. The analysts have three investment strategies in their toolbox. Each stock that is recommended and approved for our investment portfolio has to fit one of these three strategies. Our bread-and-butter strategy is referred to as our Profile strategy. Here, we are looking for companies with strong competitive advantage in their industry, that are gaining market share and are expanding their competitive edge by creating high barriers to entry and switching costs. Generally strong Profiles also have secular growth opportunities and business model advantages that allow for product service differentiation, a degree of Chart provided by www.BigCharts.com pricing power and a situation where market share begets market share. We’ve also been underweight in the financial sector, and again, this is another area that we “Our analysts have really been drilling down on two look at through the lenses of our Hurdle Rate strattypes of investment opportunities that are centered on egy. If you think about it, it’s difficult to suggest any thinking in terms of winners and losers. The first is lending institution has a competitive advantage, belooking for strong Profile companies with long-term cause at the end of the day, we really don’t know the level of risk that’s being taken inside a bank’s portsecular growth opportunities. The second type of folio. There is really no way to monitor that, so we investment opportunity is looking in industries where the basically have found it to be most advantageous to credit crisis in particular has reduced the financial look at the banks cyclically, where capital entering flexibility of high-cost producers, which are real strong and exiting the system is the governing mechanism for industry returns. Our underweight in financials Hurdle Rate opportunities.” heading into last year and throughout 2008 and even so far in 2009 is not surprising, given the fact that we The second strategy we already touched on, which is what are coming off a period of substantial growth for banks, subwe refer to as the Hurdle Rate strategy. This strategy, again, is apstantial returns, and we are still working our way through the plied to industries that are inherently cyclical and we look to recomprocess of getting the banks healthy. Delinquency rates are mend stocks under this strategy when industry profitability and still rising, and given the backdrop of unemployment and returns are low, high cost producers are having trouble staying in other economic data, we think loan losses are going to con88   The Wall Street Transcript — June 29, 2009

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first is looking for strong Profile companies with long-term secular business and capacity is coming out of the system. The idea is that growth opportunities. These are the types of companies that you the supply and demand will come back into balance, affording betwant to own over the long run, that are using their competitive ter industry returns and profitability which in turn will benefit the muscle and financial flexibility in the current environment to extend stocks of the companies that survive a downturn. We generally look their competitive advantage. We’re really looking for strong Profile to invest in the low cost producers that have characteristics that will names in this particular environment. allow them to not only survive the downturn, but gain share through the downturn and emerge on the other side in a much better competitive position. Then our last strategy we call Bankable Deal, “EMC is a leader in network storage. It’s a pure play in and this is really a deep value strategy where we look to network storage and there’s a secular shift away from invest in companies whose market value is severely destorage that is directly attached or resident internally pressed relative to the break-up value of the assets or the within a server. Once it’s entrenched in the IT fabric, it’s sustainable long-term free cash flow that can be generated by the company. We generally will scrutinize potential very hard to replace it. EMC has the most comprehensive Bankable Deals in a way similar to how an LBO shop will portfolio of hardware, software and services, and is the approach investment opportunities. The key is identifying R&D leader.” a catalyst to unlock the value the analyst sees in these companies, as they are generally cheap for a reason. In order to compensate for the risk associated with the comThe second type of investment opportunity is looking in panies that fit this strategy, we’re really looking to buy at a substanindustries where the credit crisis in particular has reduced the finantial discount to fair value, which generally we define as $0.55 on the cial flexibility of high-cost producers, which are real strong Hurdle dollar, and we actually look to sell our position before the stock Rate opportunities. The key is to focus on the supply exiting the reaches the fair value estimate. system, creating improved industry health and returns for the survi1-Year Daily Chart of Autodesk vors as well as improved market share opportunities. TWST: Have you been finding opportunities? Are there any strong Profile companies in this current environment? Mr. Donlon: We have. There are a number of them that I’d bring to your attention. The first one is a company called Cerner (CERN), which is a healthcare information technology company (HCIT). The secular drivers behind HCIT we think are really just starting to pick up some steam with government, employers, managed care all increasingly supporting HCIT adoption. There’s a groundswell of bipartisan support in Washington. The stimulus still has a $20 billion HCIT provision and Cerner is number one in the hospital HCIT area with sales of over $1.6 billion. Customer penetration overall is obviously still quite low. Chart provided by www.BigCharts.com The company has unmatched R&D investment and the broadest product line and customer base. We think as they continue to grow their business and penetrate new cus“We are actually finding some very strong Hurdle Rate tomer accounts, the return on investment case is going opportunities in the retail sector, in particular, US to come to light, leading to additional opportunities and department stores and sporting goods retailers. We’ve high switching costs. Another company that we like from a Profile been able to invest in that area through, again, industry position is a company called EMC. EMC, as I mentioned leaders that we think are going to emerge stronger on the before, is a leader in network storage. It’s a pure play in other side as the economy strengthens. Nordstrom and network storage and there’s a secular shift away from storDick’s Sporting Goods have been two very strong age that is directly attached or resident internally within a server. Their core market is taking share of the overall performers in our portfolio.” storage pie. In healthier economic times, storage exhibits strong capacity growth, 50% to 60% terabyte growth per year. Storage also has high switching costs and barriers to entry. If you think about it, storage is controlling a company’s most As it relates to the current environment, our analysts have important asset, which is its information and data. Once it’s enreally been drilling down on two types of investment opportunities trenched in the IT fabric, it’s very hard to replace it. EMC has the that are centered on thinking in terms of winners and losers. The The Wall Street Transcript — June 29, 2009   89

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crisis really gripped the market, we were really presented with a most comprehensive portfolio of hardware, software and services, once in a lifetime buying opportunity of really focusing on the best and is the R&D leader. What I really think is a strong differing companies that were available. So our analysts upgraded the portfoperspective that we have on EMC is that it’s leveraging its incumlio around our strongest Profile and Hurdle Rate opportunities. bency in storage and information management to lead in highly complementary areas that are becoming more important, things like the next-generation data center and cloud com“Within our portfolio we have three or four of these puting. Through its subsidiary, VMware, it’s the leader in trucking companies, as opposed to maybe just one virtualization; through its security subsidiary RSA, it’s a leader in data encryption and identity and access managetrucker. We are seeing a lot of bankruptcies within the ment. It’s also building a very strong content management mom-and-pop trucking industry and as the economy franchise. All of these markets have a heavy software improves, freight is going to have to be moved by component and EMC is devoting a lot of time and energy someone, and those benefits are going to accrue to the to software R&D. We think that the company’s Profile position is getting stronger. strongest trucking companies like J.B. Hunt, Knight From a Hurdle Rate perspective, in spite of our Transportation, Heartland Express. We think these macroeconomic overview on the consumer, we believe companies are well positioned to benefit from the we are in a multi-year process of deleveraging and reliqtrucking Hurdle Rate.” uefying. We are actually finding some very strong Hurdle Rate opportunities in the retail sector, in particular, US department stores and sporting goods retailers. 1-Year Daily Chart of Southwest Airlines We’ve been able to invest in that area through, again, industry leaders that we think are going to emerge stronger on the other side as the economy strengthens. Nordstrom (JWN) and Dick’s Sporting Goods (DKS) have been two very strong performers in our portfolio. TWST: What triggers an exit from your portfolio? Do you set targets at which you let them go? Mr. Donlon: Correct. Our valuation discipline is one of absolute return focus, which means our primary objective is ensuring that we don’t pay too much for the companies that we identify as being well positioned. Our analysts determine a fair value for each of the stocks that fit our strategies and then they look to buy those stocks at a discount to that fair value. We will sell a stock from Chart provided by www.BigCharts.com the portfolio when it reaches its estimated fair value. TWST: Getting back to technology, you’ve told us what areas you think have growth potential, but what about the underweights at this time? Have you sold any stocks in technology areas? Mr. Donlon: The names that we’ve held in the portfolio have been pretty much the names that we’ve held going into the downturn and through the downturn. What we’ve done is trim these names on the way up, because the market has gone up so much, so fast. We’ve purposely steered away, as I mentioned earlier, from consumer-oriented technology stocks, just given the fact that there will be pressures on consumer spending we expect for a while, and consumers are really just going to have to make more choices about what they can afford. The other thing that’s going on in consumer technology that is of concern is a mix shift to low-end products. We’ve seen things like netbooks and low-end handsets pressure average selling prices and margins for a lot of the equipment manufacturers in these areas. This also has ripple effects up the supply chain through the software providers, and the component suppliers who are really sell-

“Autodesk is the de facto industry standard, if you will, in computer aided design software. They have the largest installed base, a huge distribution channel, and low cost solutions — this, even through the downturn, is allowing them market share gains and increased market penetration.” TWST: Have you had a larger turnover because of the turmoil in the market this past year? Mr. Donlon: What we saw was not necessarily a spike in our average turnover, which averages around 40% or 50% a year, but rather a refocusing of the portfolio around those strong Profile and Hurdle Rate opportunities that I mentioned earlier. We did have some companies in our portfolio under the Bankable Deal strategy that might have had a little bit more uncertainty around them because they may be cheap for a reason in terms of a need to restructure or a need to execute some sort of a turnaround. When the credit 90   The Wall Street Transcript — June 29, 2009

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cheap relative to our estimates of fair value and our expectations of long-term fundamentals. We were able to shift our weighting quite aggressively from underweight to a meaningful overweight during that time, and that helped our overall portfolio returns. Similarly, when oil prices were hovering in the mid $20s, we started investing in oil services stocks to the point where we were approximately double the “We have meaningful investments in both FedEx and weight of the index by the end of 2004. The overweight UPS. We’ve seen supply exit the system with the exit of positioning in oil services paid off as the price of oil rose DHL from the US marketplace last year and the to induce the investment in exploration and production. continued troubles of the United States Postal Service. In the 2004 to 2008 time frame, energy allowed us to outperform the market by a substantial amount. I think We think that as the economy gradually improves, FedEx the fact that we don’t handcuff ourselves in any way with and UPS should see a volume benefit.” regard to our universe, with regard to sector and industry weightings, with regard to investment style is our core competitive edge. TWST: What about risk management techniques? 1-Year Daily Chart of FedEx How do you attempt to control risk at the portfolio and at the individual security level? Mr. Donlon: Our risk management is very much focused on leveraging the bottom-up focus of our analysts. If you think about it in terms of our absolute return focus, our analysts are not compensated in a way that allows them to take an extraordinary amount of risk in the portfolio, if there is a risk of loss. Historically, we have found that our best risk adjustment mechanism is the number of ideas that our analysts bring for consideration to the portfolios. It’s a combination of how we compensate our analysts and the focus on absolute returns. It’s not a relative return focus basically. TWST: How many stocks do you have in your portfolio generally? Chart provided by www.BigCharts.com Mr. Donlon: On average it’s 45 to 55 names. It gravitates toward the higher end of that range, usually in times when we are playing a more thematic basket as opposed to the rifle-shot apTWST: You’ve mentioned your top-down approach to proach. For example, we currently have a basket of truckers in our complement your bottom-up stock selection. From that macro equity portfolios under the Hurdle Rate strategy. Within our portfopoint of view, what is the outlook of your firm for the stock lio we have three or four of these trucking companies, as opposed market through the rest of this year and into 2010? to maybe just one trucker. We are seeing a lot of bankruptcies within Mr. Donlon: We feel that the market environment has the mom-and-pop trucking industry and as the economy improves, been more or less shaped by the credit crisis and that it has been the freight is going to have to be moved by someone, and those benefits thawing of the credit markets in recent months that has led to the are going to accrue to the strongest trucking companies like J.B. “less bad” numbers that we’ve seen — the green shoots phenomeHunt (JBHT), Knight Transportation (KNX), Heartland Express non. The credit crisis was basically a brick wall that economies (HTLD). We think these companies are well positioned to benefit around the world went into and that effect was so severe that a from the trucking Hurdle Rate. bounce from extraordinarily bad economic levels was really ineviTWST: What do you think gives your firm its edge? table. What we’ve seen with stock markets off of the March lows is What distinguishes your investment approach, compared with really a recovery off of almost depression-like valuation levels and other peer companies? a reflection to a degree of the necessary inventory restocking and Mr. Donlon: I think one way we are different is through firming demand from the global economy, as well as stimulus efour bottom-up investment approach in that sector bets are common. forts by the likes of US and China. We are most concerned with finding the most attractive investment However, despite the improvement in the credit markets opportunities. We are not limited by having a sector or industry we are not as optimistic on economic growth, because there remain weight driven by what the benchmark says. We look for opportunisome real economic issues that we think need to be addressed. We ties globally, across capitalization. are of the opinion that we are still early on in the retrenchment of For example, we had very little exposure to technology the US consumer. Rising unemployment will likely serve as a seback in the late 1990s, as the stocks simply did not meet our valuavere headwind to disposable personal income growth. Tight lending tion discipline. However, toward the end of 2002 we began to agstandards and bank balance sheet problems will persist and are gressively invest in the technology sector as the stocks became ing a scaled down version of their goods at a cheaper price. It’s questionable whether or not they’re going to be able to achieve the future margin expectations that are out there for these companies with this headwind.

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whether it’s driven by regulatory and compliance issues, or whether likely to restrain debt growth and force net debt reduction, which is they’ve reached a certain utilization rate and don’t have enough going to impact personal consumption. There is still the likelihood spare capacity. We believe there will be a healthier environment in of higher taxes and the potential for energy and food cost pressures, the back half of this year as opposed to the first half of this year but driven by developing country demand and tight supplies; we’re I don’t think we are off to the races. I think a lot of optimism is likely to be talking about a subdued consumer being a headwind to priced into the technology sector to an extent. I think a lot of what economic growth for an extended period. we have seen has been inventory replenishment in nature and what As far as deflation/inflation is concerned, we are really really remains to be seen is what end demand turns out to be in the more in the low inflation camp at this point. While we are aware of key technology end markets, such as PCs and handsets. the monetarist argument of the potential for hyperinflation given the massive stimulus and money injections, there is an awful lot of slack in the domestic economy pressuring wage “Southwest Airlines goes to this Hurdle Rate strategy, growth, cost growth and asset inflation, for example, in where we have seen a massive amount of capacity exit the housing sector. We think there is room to see some the system in the airline industry through merger activity, growth-induced commodity inflation with a weaker dollar and foreign demand, but this is really healthy against the bankruptcy, and existing carriers shutting down routes backdrop of economic prospects firming up globally, and and parking planes in the desert. As a low-cost producer, this wouldn’t derail the equity markets. Southwest Airlines should expand into new markets, From a stock market point of view, even though allowing them the opportunity to gain market share.” the market has run quite a bit off of the March lows, we still believe there are solid long-term opportunities out there, and the risk/reward of equities versus bonds is TWST: Are there any more companies that you would clearly in the equity camp. like to mention? Our analysts have been trimming some of their positions Mr. Donlon: Another company that’s worth highlighting as the market has gone up, but our portfolio is still constructed of in our portfolio is a company called Autodesk (ADSK). They are several names for which we think the appreciation potential for fair the de facto industry standard, if you will, in computer aided design value is still 30% plus. That doesn’t mean that we are going to get software. They have the largest installed base, a huge distribution there and see that tomorrow. The environment remains fragile, with channel and low cost solutions — this, even through the downturn, consumers still working off their excesses, but taking a longer-term is allowing them market share gains and increased market penetraperspective, there is still a lot of value in equities. tion. What we’ve seen is the credit crisis really shutting off the 1-Year Daily Chart of UPS amount of construction projects that have occurred both here in the United States and overseas, and this has filtered back into demand for Autodesk solutions. The fact of the matter is that there is a lot of infrastructure growth yet to be had in the emerging markets. Not only are they seeing similar fiscal or monetary easing, but they have stronger savings and balance sheets versus the United States or Europe. We see a lot of opportunities overseas where many countries are undergoing their equivalence of our industrial revolution. Autodesk is going to be a beneficiary of that when it occurs. They are also going to benefit from a secular shift from 2D to 3D computer-aided-design software, leading to higher average selling prices and higher margins for the company. I would say another area worth highlighting is the transporChart provided by www.BigCharts.com tation and freight sectors. I’ve already talked a little about truckers, but we also have meaningful investments in both FedEx (FDX) and UPS (UPS). We’ve seen supply exit the system with the exit of DHL from the US marketplace last year and the continued troubles of the TWST: Tell us what you see in technology for the rest United States Postal Service. We think that as the economy gradually of this year. improves, FedEx and UPS should see a volume benefit. Also, as the Mr. Donlon: Technology has outperformed the market by demand returns, we should see higher pricing because there will be a substantial amount since the beginning of 2009 and that’s really a less capacity with less choice for how goods can be shipped. function of it not having the structural issues that banks and conSimilarly, we have an investment in Southwest sumers have had. Having said that, we are in an environment where Airlines (LUV), which again goes to this Hurdle Rate strategy, enterprise IT spending and capital spending is still constrained. where we have seen a massive amount of capacity exit the sysCompanies are very focused on profitability, efficiencies and intem in the airline industry through merger activity, bankruptcy creasing the utilization rates of what they have. At some point, we and existing carriers shutting down routes and parking planes think that the markets are going to have to come back and spend, 92   The Wall Street Transcript — June 29, 2009

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in the desert. As a low-cost producer, Southwest Airlines should expand into new markets, allowing them the opportunity to gain market share. TWST: Do you have any advice for investors? Are there any challenges ahead that they should be wary of? Mr. Donlon: My advice to the investors would be to not limit yourself in your possible investment set. Keep an open mind, really let the data speak to you and go where the opportunities are. As far as challenges are concerned, I think we’ve already talked about consumer reliquification. Another challenge I think that is going to have to come up on the radar screen here shortly in earnest is the likelihood of higher taxes. The massive amounts of government spending and government stimulus are going to have to be paid for somehow, and it’s likely that it’s going come from higher taxation. That’s going to be higher taxation on individuals and corporations, and a lot of that is going to impact individual stock valuations as well as the amount of disposable personal income that consumers will have in their pockets. So it’s going to be, in our opinion, a more protracted period of slower economic growth than what we are used to and that will likely impact how high the stock markets can go up and how fast. The other thing that we are watching pretty closely is rising interest rates. While part of the backup in Treasury yields may be due to inflation concerns or indebtedness concerns, in low inflation periods, it is pretty common to see a backup in government bond yields as economic prospects firm up and investors are willing to take more risk. However, this time around there is a risk that ris-

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ing Treasury yields filter into areas like mortgage rates and so forth, which may choke off and prolong the domestic recovery in the housing markets and in the consumer. There is some concern that if interest rates go up too fast and start feeding into other areas of the market, that this could negatively impact the economic recovery. TWST: Do you have anything else that you’d like to add? Mr. Donlon: I think the key thing for us to convey to your readers is that our investment philosophy is very much focused on the Profile and Hurdle Rate strategies at this time. There are plenty of secular growth opportunities and industries where we are seeing a dramatic reduction in supply that should lead to firming returns and improved profitability as things gradually improve. That’s how it kind of dovetails into our macroeconomic overview, which is playing around in the minds of our analysts. We don’t believe we are in a V-shaped recovery, even though we certainly have had a bounce here, but it is probably more along the lines of a protracted economic recovery at this point going forward. TWST: Thank You. (PS) Note: Opinions and recommendations are as of 6/17/09. JEFF DONLON Manning & Napier Advisors, Inc. 290 Woodcliff Drive Fairport, NY 14450 (585) 325-6880

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JAMES C. LUCAS joined Janney Montgomery Scott LLC in March 1998. His research approach is that of an old-fashioned “tire kicker” with a focus on visiting facilities and developing a better understanding of companies with a particular emphasis on process improvement. Prior to joining Janney, he worked at NatWest Securities and Raymond James & Associates. He received a BS degree in Accounting and an MBA degree from Tampa College. In addition, he has completed the three-day Executive Orientation of the Danaher Business System, participated in a week-long kaizen event conducted by Shingijutsu at a Stanley Works facility, and attended a management symposium at Six Sigma Qualtec.

of monthly order data that we’ve seen from a handful of compaSECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS nies and then you take a few of the companies that are on a differ(AAJ800) TWST: Jim, how has business in the industrial equipent fiscal year, not a calendar year, ment sector been so far this year, and see their results, I would say given the lousy economy? that the calendar second quarter Highlights Mr. Lucas: The busiwould be similar to the first with ness itself is not faring too well James C. Lucas says that while the industrial volumes down somewhere around these days and that’s not a terrible equipment sector appears to be in a bottoming the 20% level. surprise, given how quickly things process, as seen in recent economic data, the TWST: With that kind came to a screeching halt at the bottom is still not here. During the first quarter, of a decline, have they been able end of 2008. Companies have volumes were down anywhere from 10% to to adjust or is that still a process been aggressively right-sizing the 25%. He expects the second quarter this year to that’s underway? business levels for volumes 10% show volumes around 20% down. He has always Mr. Lucas: I would say to 20% lower than what they had tried to identify good business models, looking that a fair amount of the heavy liftexperienced over the past year, for companies with good management, leading ing has been done at this point in and when we look at order trends market position, strong cash flow, and a track terms of facility rationalization and and sales trends, really, volume is record on capital allocation. The companies he headcount reduction. What’s interjust not there. While it does apfavors are actually well positioned to emerge esting is that while we’ve seen a lot pear that we are in a bottoming from this current environment in a much of restructuring announcements process, as evidenced by some of stronger position. He recommends some high dating back to the fourth quarter of the recent economic data, the botquality names with somewhat defensive 2008, unlike past recessions, comtom is still not here. positions, good track records on making panies have taken a much different TWST: You said acquisitions, and a lot of liquidity at their tack in that companies have prothey’re getting prepared for disposal to take advantage of the M&A activity gressively been changing their cost business down 10% or 20%. Is that will occur when the market opens back up. structure to be more variable than that what they have been seeing He also likes a couple of value contrarian fixed. Whether that is a sourcing or do they just expect it to get companies that have interesting prospects. model, an outsourcing model, or that bad? Companies include: ITT (ITT); Snap-On (SNA); whatever the case may be, there Mr. Lucas: That is genDanaher (DHR); Roper (ROP); AMETEK (AME). isn’t as much fixed asset investerally what companies have been ment by a lot of these companies. seeing at this point. If we look at Generally, industrial companies the first quarter, volumes were are mature by definition and generate a fair amount of cash flow. down anywhere between 10% and 25%. If you look at a number The Wall Street Transcript — June 29, 2009 95

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cess industry, the chemical industry, or general manufacturing, Now, one of the things that these companies do are acquithose cap ex budgets across the board have come down. sitions and when you acquire a company, that in effect allows you TWST: So they are being just prudent at this point. to do some restructuring as well as facility consolidation, and it is a Mr. Lucas: That’s right. way to make what traditionally would One of the terms that has come up is be viewed as cap ex. The need for “While we’ve seen a lot of restructuring dynamic resource allocation and what bricks and mortar isn’t necessarily announcements dating back to the fourth that essentially means is that you’ve there, but the capital spending tends to quarter of 2008, unlike past recessions, got fewer dollars to spend, so you betbe more on tooling for new products. companies have taken a much different ter be smart about how you’re going While a lot of spending has been done tack in that companies have progressively to invest them. in terms of rightsizing the cost strucbeen changing their cost structure to be TWST: With this sharp ture, companies have not taken their more variable than fixed. Whether that is a sourcing model, an outsourcing model, drop in demand, what’s going on foot off the pedal from an R&D standor whatever the case may be, there isn’t from a pricing perspective? point. What we are seeing is that as much fixed asset investment by a lot Mr. Lucas: Surprisingly, generally the strong companies are of these companies.” pricing has held in relatively well. It getting stronger by being able to inseems hard to believe, but it was only vest throughout the downturn. But three quarters ago that we were still when we look at this recession, what talking about rampant commodity inflation and then when the is different from those in the past is the severity; a perfect example Lehman collapse happened, that was essentially when demand just is one company that was on a November fiscal quarter had a busidried up overnight — the credit markets collapsed. Subsequently, ness that grew 10% in its November quarter and in the subsequent while commodity prices have returned from the stratosphere, there February quarter that same business that just grew at 10% was down still is a fair amount of that higher priced inventory that is being 25%. So they saw the business go from plus 10% to minus 25% in worked through the system because while companies had bought one quarter, the kind of peak to trough move that historically would the raw materials, they obviously, when their demand disappeared, occur over an 18-month period. So I don’t care how well managed weren’t doing any manufacturing. They’re still working through an organization is, nobody has a playbook for how to deal with that. that higher priced inventory and while their customers are rightly 1-Year Daily Chart of ITT starting to push back, trying to get some price back, as of now we have not seen prices going down, but I think as we get to the second half of the year we could see some potential price erosion. TWST: If you look across the segment, what’s the inventory situation? Are they in pretty good shape at this point? Mr. Lucas: Inventories have been worked down dramatically across the board. I think you really have to look at two separate areas though. First, what has led to a lot of the demand disappearing has been a great amount of inventory destocking in the distribution channel. What we saw that was really pervasive across multiple channels is that as the credit markets dried up, a lot of the smaller distributors who were unable to get access to their credit lines were in the position of needing to raise money somehow and Chart provided by www.BigCharts.com that led to the early stages of the inventory destocking, and it became somewhat self-perpetuating after that. When you look at the comTWST: Are the companies pany level, on the manufacturing side cutting back on capital spending? “If I look at a company like an Ametek or when your revenues are down 20%, Mr. Lucas: I think they are a Danaher or even an IDEX and see that your net income is down at amounts being more prudent with regard to their cap ex budgets are being reined in greater than that, and the one thing capital spending. When looking at a 10% or 20%, that tells me that their companies have rightly focused on is broad array of industrial companies customers are ultimately reining their cap their working capital management. that tend to be more suppliers necesex budgets in, and whether that be in the We’ve seen companies really batten sarily than consumers, I’ve always rail industry, the process industry, the chemical industry, or general down the hatches, whether it be on rewatched their cap ex levels. If I look at manufacturing, those cap ex budgets ceivable collection — and surprisingly a company like an AMETEK (AME) across the board have come down.” there are not nearly as many bad reor a Danaher (DHR) or even an ceivables as you might think in this IDEX (IEX) and see that their cap ex type of environment — or on the inbudgets are being reined in 10% or ventory side. Inventory levels have actually been brought down at a 20%, that tells me that their customers are ultimately reining their faster rate than the sales decline. So in general, inventories are in cap ex budgets in, and whether that be in the rail industry, the pro96 The Wall Street Transcript — June 29, 2009

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From talking to a broad array of managers across a multitude of good shape, and I think it will be interesting from a general economic industries, most managers feel like we are in a bottoming process standpoint — while I don’t subscribe to a recovery in 2010, I think and that term comes up because things that we will see a couple of head fakes are just not sequentially getting worse. as inventory restocking begins. “The reasons that you haven’t seen At the same time, however, what TWST: So you’re not excompanies make acquisitions are the seems to be going on is that there is no pecting a pickup this year or next. same reasons you haven’t seen them sign of a rebound any time soon, and Mr. Lucas: Not at all. I make divestitures at this point and that’s it just means that instead of being hold to what I have been subscribing because there is a wide spread between down 30%, we are only down 20% or to for the last six months — as we get bids and asks of what people are willing 15%, but that’s still down. to the fourth quarter, we’re at least to pay these days. If you’ve got a TWST: Given that kind of bouncing up against easier comparibusiness that’s down 20%, you don’t an outlook, are the companies taksons and as we look to 2010, I think want to sell it at the bottom and ing an opportunity to rationalize we will be bouncing along the bottom necessarily get nothing for it.” their businesses? and then eventually see a modest reMr. Lucas: I guess I would covery in 2011. While the demand ask you to expand on what you mean levels have come down precipitously, by rationalize. inventory levels have also come down rather dramatically. It’s not TWST: Doing a house cleaning and getting all the as if there is a lot of pent-up demand out there in any particular area parts of their business they want to be in long term in order — and that’s why I don’t necessarily foresee any sort of meaningful kind of reshuffling what they’re doing. recovery. People toil around, “Will it be a V-shaped or a W-shaped Mr. Lucas: That will come eventually, but the reasons recovery?” The term that I think sums it up better is more of a that you haven’t seen companies make acquisitions are the same square root sign. reasons you haven’t seen them make divestitures at this point and 1-Year Daily Chart of AMETEK that’s because there is a wide spread between bids and asks of what people are willing to pay these days. If you’ve got a business that’s down 20%, you don’t want to sell it at the bottom and necessarily get nothing for it. So the old adage of putting some lipstick on the pig may hold true for some businesses, but there are a lot of good businesses that may not be strategic to certain organizations. I think that a lot of companies that have held on to businesses that were viewed more as legacy businesses were more the result of having a low tax rate and therefore it would be a big hit if the business was sold, so it stayed in the portfolio as a solid cash generator. Companies are now beginning to say, “Do we really want to be in this longer term?” I would expect at the same time we start to see these companies begin to put their balance sheets to work and make acquisitions, they’ll start to also look and say, “Here is a product line Chart provided by www.BigCharts.com or two or three that we’re going to look to get rid of.” TWST: For any number of reasons, just not a strategic fit or too small or… TWST: Is that what Mr. Lucas: Not strategic. you’re hearing from the companies Just to expand on that a little more, a as well, that they’re not expecting “As liquidity has returned, companies conversation that I’ve had with quite a much? are beginning to look more proactively at acquisitions, and we have seen a few investors of late is focusing on Mr. Lucas: The companies couple actually raise dividends. Most companies learning lessons each busiare usually the last ones to know beshare repurchase programs have been ness cycle. If you go back to the 1970s cause they’re still very gun-shy from shelved at this point, at least put on the and 1980s, acquisitions were generwhat they’ve been going through, and back burner, but from an acquisition ally financial-driven; for instance, you it’s not fun when you have to go in standpoint, there are more war chests could look at the old ITT as probably and close down 10% of your facilithat are being built and it’s just a the poster child for this — where they ties, take out 20%-25% of your headmatter of when, not if, the pace of were doing everything from manufaccount. Some people may look at it as acquisitions accelerates.” turing to hotels to insurance to telejust numbers, but it is people’s lives phone equipment, where the that are involved and it’s not a fun businesses had no correlation whatsothing to do, and so you’re focused on ever and putting the portfolio together had been more financially playing defense while still needing to look forward to have the driven. Then after the junk bonds bubble burst in the late 1980s and company positioned to come out of the downturn in better shape. The Wall Street Transcript — June 29, 2009 97

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Now what we have is that, as liquidity has returned, companies were left struggling through the recession in the early companies are beginning to look more proactively at acquisitions, 1990s, they began to focus a lot more closely on, well, maybe inand we have seen a couple actually raise dividends. Most share stead of just doing financial deals, maybe we should look at things repurchase programs have been that are more strategic. shelved at this point, at least put on While this was going on, it “The wild card for a lot of companies is the back burner, but from an acquisiwas coinciding with the productivity going to be when these balance sheets tion standpoint, there are more war boom. When you combined more straget put to work and how they’re put to chests that are being built and I think tegic acquisitions with an increased work because if you take a company like it’s just a matter of when, not if, the focus on productivity, you really Danaher, if you take the free cash they’re pace of acquisitions accelerates. But began to see the cost structures of generating this year and next year plus companies in general are kind of companies go more toward variable just put a normal leverage on the balance sheet, they’ve got $6 billion sitting there holding tight at this point, just waitthan fixed. Historically a manufacturto be invested somewhere, and $6 billion ing for that bid-ask spread on acquiing company’s cost structure was can move the needle.” sitions to close as valuations become more like 60/40 fixed/variable; that more reasonable. was reversed throughout the 1990s. As TWST: So they’re ready, we got to the 2001-2002 recession, but nobody is stepping out and doing anything. companies then began to say, well, acquisitions are still important, Mr. Lucas: There is not a rush to do anything right now, but organic growth makes a lot more sense because we get a lot especially if you don’t think a recovery is forthcoming. more bang for our buck, so why don’t we reinvest more internally. That began to change the overall mix of investment and acquisitions 1-Year Daily Chart of Roper have tended to be more along the lines of strategic growth platforms at a variety of companies. We’ve gone from financial-driven deals to ones that are a little more strategic to more of a focus on growth platforms while complementing a stronger focus on internal growth. That’s where we stand today. Different companies take different approaches. The bigger a company, the larger a deal it has to do to move the needle. But one of the reasons that I’ve always liked the small and mid-cap space in particular is that if you’re a $4 billion company, you can do four or five different $50 million, $100 million deals in a year, and that’s going to significantly move the needle, which in effect allows the company to control the risk it is taking a lot more. It’s also generally a less competitive process because the bigger a deal, the more Chart provided by www.BigCharts.com parties that are bidding on it (usually) and therefore the higher the end valuation on that deal tends to be. TWST: What should investors keep an eye on here to TWST: Companies, I guess even in this environment hopefully get a sense that things are beginning to change in the in general, still have pretty good cash flow. What are they doing space? with it? Mr. Lucas: There are a number of different data points to Mr. Lucas: Right now, I would say that the focus is on track. Companies like Grainger three things: liquidity, liquidity and (GWW) and Fastenal (FAST) in the liquidity. If we go back and look at the distribution space provide their sales end of last year, clearly there was no “From irrigation to drinking to waste data and watching those month-tovisibility, banks had stopped lending; water and on down the line, ITT is the month trends gives an indication of fortunately, a lot of the companies I largest pump manufacturer in the world, what’s going on because they tend to follow were forward-looking and had but they also have a lot of other be MRO-related products, so it’s more been going and locking in their fixed technologies coupled together and their of the day-to-day handling within a rates, given the favorable environtag line is “everything but the pipes” and that’s where they play.” business. Kennametal (KMT) in the ment that was here last summer. machine tools space, Illinois Tool Therefore there really have not been a Works (ITW), which tends to be little lot of issues with most of the compabit more consumer and commercial related, and Emerson (EMR), nies that I actively follow. A couple had some outstanding commerwhich gives you some network power, technology, and is very cial paper lines. When the CP market began to dry up at the end of heavy on the process oil and gas side, also give their monthly numthe year and early this year, they were again focused on cash; even bers. When you take those five, it gives you a pretty good crossthough they had the credit lines to back up the CP facility, it became section of the overall economy to get an idea of what’s going on out a little more challenging. As a result, they again were holding off on there. But I think it really comes down more to sentiment at this any investments. 98 The Wall Street Transcript — June 29, 2009

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Mr. Lucas: It really depends on your economic outlook. point. More of what we pick up talking with companies and disIf you think there is going to be a V-shaped recovery, then maybe tributors is how they’re feeling about business. At the end of the day they’re not ahead of themselves. I think the wild card for a lot of it comes down to, are they just thinking about doing things or are companies is going to be when these balance sheets get put to work they actually starting to write the checks? and how they’re put to work because TWST: At this point, I asif you take a company like Danaher, sume it’s largely thinking about “Snap-on has the most comprehensive if you take the free cash they’re genthings. library of aftermarket repair codes out erating this year and next year plus Mr. Lucas: There is a lot of there. They’ve done a good job of just put a normal leverage on the balthinking going on these days, I think positioning themselves as a total solution ance sheet, they’ve got $6 billion sitthat’s a fair statement. provider to automotive technicians, ting there to be invested somewhere, TWST: Not a whole lot of whether it’s the diagnostics equipment and $6 billion can move the needle. writing checks. and software to diagnose the problem or You take a smaller scale company like Mr. Lucas: Correct. the actual tools to repair it or the boxes AMETEK or Roper (ROP), each of TWST: As you talk to into store the tools in or even helping the those has at least $500 million to put vestors, given that environment, is technicians finance their purchases of the to work. All three of these companies there any interest in the space? tools. So it is truly a one-stop shop.” have proven track records of not only Mr. Lucas: There is quite a being smart, paying the right price for lot of interest actually. When you look acquisitions, buying the right type of companies, but more imporat the broad-based rebound in the stock market and how much cash tantly effectively integrating the acquisitions. That has been always has been sitting on the sidelines, one of the reasons that there has a challenge in valuing names like that, but even when you begin to been a lot of interest is people don’t want to be left behind. They look at maybe some of the consumer or housing related names, it’s look across the board and see all these stocks going up and they’re interesting to see how far some of those names have run. I may not saying, “Okay, it doesn’t necessarily match the fundamentals, but be a housing analyst, but I look at the statistics that are coming out the market is forward-looking.” But how far ahead is the market and it still doesn’t seem as if the housing market is going to level looking? Investors are trying to get a grasp on fundamentals versus off — and definitely not recover — any time soon. valuation today, given that there still is really no visibility out there. Stocks continue to go up and investors are trying to understand 1-Year Daily Chart of Snap-on which companies are positioned to benefit better. Interestingly, if you look at the companies that are viewed as somewhat more defensive in nature, given the quality of the portfolios, companies that generally have track records of being able to manage their way through this type of environment historically better than others and that possess strong balance sheets — those are the names that are actually lagging a little bit. It’s the names that have more leverage in them, that had gone down further, that have rebounded faster. There is definitely an inverse relationship there. TWST: Do the stocks normally move this far in advance of a recovery? Mr. Lucas: Given that nothing seems normal these days (neither how quickly we went into this nor how we are going to Chart provided by www.BigCharts.com recover out of it), I don’t know if there is really a historical precedent. We’ve seen these stocks rebound sharply, valuations going back TWST: Given your view, to levels that are more in the mid- to “Every conversation I ever have about are there any areas or names that upper end of historical ranges, but if management always starts with Danaher. Within my universe of coverage, it’s one you’re pointing investors to at this you believe the forecasts that are out of the more unique business models I’ve juncture? there for the next 12 to 18 months, it come across over the last 15 plus years Mr. Lucas: There are a few begs the question of what exactly is that I’ve been doing this now, and it is a names. As I mentioned AMETEK, being priced in. I’ve heard some anatruly unique culture that they’ve been Danaher, and Roper are the three lysts out there recommending stocks able to create at the company.” high quality names in my universe of based on a 2012 forecast; my favorite companies with a bit more defensive was somebody that recommended a positioned portfolios, good track restock based on what they thought the cords on making acquisitions, and more importantly, a lot of liquidcompany was going to earn in 2014. That’s forward-looking. ity at their disposal to take advantage of this environment, TWST: Are the stocks ahead of themselves, given eventually, when the M&A market opens back up. Also from a qualwhat’s going on in the general economy? The Wall Street Transcript — June 29, 2009 99

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outlook, but the fact that the valuation is intriguing. While it may be ity standpoint, one company that’s still at a reasonable valuation is at the upper end of defense stocks, it’s trading well below what I ITT (ITT). Another name that I will put more in the value contrarthink should be its true peer group of multi-industry companies, and ian camp that I think is equally interesting is Snap-on (SNA). So that multiple expansion should get the stock closer to $60. right now the two names that probably I’m focusing on the most are TWST: What’s holding it back? Is it this view of invesITT and Snap-on. tors that it’s a defense company? TWST: What appeals to you at ITT? Mr. Lucas: It’s one of the challenges you have with any Mr. Lucas: ITT is a name that, through a series of acquimulti-industry company — I call it sitions, today has half of their portfothe lowest common denominator eflio derived from defense sales and the “I’ve always called Ametek my favorite fect — whichever industry is out of other half derived from commercial get rich slow scheme, which is meant as favor, no matter how big or small that sales, most of which is into the water a very high compliment. What Ametek business is for a company, that’s space. If you take defense and water does better than a lot of companies is where people automatically look. representing 75%-80% of sales, those fundamental blocking and tackling at the Rather than looking at the glass as are two markets that have long-term end of the day.” half full or half empty, investors think secular positive trends in their favor. there’s a hole in the bottom. When What has worked against ITT is that you look at how some people view when defense stocks were in favor a ITT today, I think that they do get hung up hearing the word decouple of years ago, ITT was “never in the right type of defense,” fense, especially with a new administration in Washington and talks whatever that’s supposed to mean, but now that defense stocks are of budget cuts forthcoming. This isn’t a company that is building out of favor, people are quick to say, “Oh, ITT is in defense so we ships or planes, it is a company that is providing valuable services don’t want to touch the stock.” The reality is when you look where that protect our troops. At the end of the day, whether Democrat or the DoD spending is taking place, in areas like sensing, surveillance Republican, liberal or conservative, it doesn’t matter who is coming and communication, all are at the sweet spot of where ITT plays. at it, that’s not something that they’re going to look to take away. When you think about protecting the troops on the battlefield, from TWST: How about Snap-on, another great name of night vision goggles to SINCGARS radios, ITT is well positioned. yesteryear? 1-Year Daily Chart of Danaher Mr. Lucas: Another oldie but a goodie. When you say the name Snap-on to investors, generally what comes to mind is either automotive or consumer, yet if you say Snap-on to the people who actually use the tools on a daily basis, the two words that generally come to mind are innovation and quality. This is one of the premier industrial tool brands around the globe and the key here is industrial. These aren’t tools that are being sold in Home Depot or Lowe’s, but they’re being sold to professionals that make their living using the tools every day. While people know Snap-on because of the big red toolboxes or the mechanics tools, this is a company that actually is much more diversified than that. About half of sales come in what they call their Commercial & Industrial segment, which could be equipment that’s being sold in a garage such as wheel balancers or wheel alignment machines, but a fair amount of Chart provided by www.BigCharts.com that business is actually more geared to industrial end markets, so that’s anything from general manufacturing to oil rigs to the aerospace industry to even tools that are used for manufacturing and If you look on the services side, from GPS satellite payrepair of wind turbines. So anywhere you need to have a tool, loads to NOAA, ITT is once again very well positioned in providwhether it’s in repairing or manufacturing, Snap-on has some sort ing satellite payloads for that type of information. On the water side of offering there. of the portfolio, we’ve got more people on the planet, we’ve got less Then you’ve got the other half of the business, which is water to use, but we’ve got to figure out how to get water because geared more to serving the automotive repair market; this isn’t necat the end of the day, if we have no water, we’re not going to be essarily new cars. Snap-on has always positioned themselves in the here. From irrigation to drinking to waste water and on down the line, ITT is the largest pump manufacturer in the world, but they post-warranty repair area so it is serving the individual technicians also have a lot of other technologies coupled together and their tag and not the dealerships. While you will find their tools and their line is “everything but the pipes” and that’s where they play. So if diagnostic equipment in dealerships, it’s really focusing more on you take a company that has a long-term secular trend going in their that independent technician. When people think of Snap-on, they favor, a valuation not reflective of the growth potential, not to menthink of the vans driving around and that’s very important to their tion a balance sheet that is in very good shape, it’s a name that I business, but at the same time it’s not just tools they’re selling, but think still has some room to go, not only based on the fundamental diagnostic equipment and the associated software for it. When the 100 The Wall Street Transcript — June 29, 2009

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“check engine” light comes on in your car, it’s not as if you can go and fix it yourself. The days of the shade tree mechanic are gone; you need to have not only the right equipment, but the right software to process where the error code is being generated to know what to fix. Snap-on has the most comprehensive library of aftermarket repair codes out there. They’ve done a good job of positioning themselves as a total solution provider to automotive technicians, whether it’s the diagnostics equipment and software to diagnose the problem or the actual tools to repair it or the boxes to store the tools in or even helping the technicians finance their purchases of the tools. So it is truly a one-stop shop. When you hear financing and credit, that doesn’t necessarily paint the rosiest picture these days, but the thing to remember here is that the Snap-on franchisee, that van dealer, is not only out there every week selling tools to the technicians, but he is also collecting a payment every week and that’s a very important aspect of the model that I think is sometimes overlooked. Also, Snap-on has spent the last five years aggressively right-sizing its cost structure. This is a company that throughout the 1990s had grown through a series of acquisitions that they never effectively integrated, and it’s hard enough to integrate a deal in the first year, let alone do it 10 years later and that’s exactly what Snapon has had to do. They have aggressively gone after getting their internal house in order, rightsizing their cost structure and as a result, we have seen some dramatic margin improvement. The good news is there is a lot of room for improvement despite how far they’ve come. You’ve got a balance sheet that’s in very good shape, no pressing needs any time soon, and that allows them a lot of flexibility to weather the storm. And where a lot of companies are just now doing the heavy lifting from the restructuring standpoint of facility rationalization or headcount reduction, Snap-on still has opportunities to do that, but they aren’t having to play as much catch-up as some other companies because they were

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so proactive going back and cleaning up all the residual effect of the 1990s growth and getting the cost structure more in line. TWST: Are there any names in the space that worry you, Jim, that aren’t going to make it through this tough period? Mr. Lucas: One of the things that I’ve been able to do luckily through the years is pick and choose my coverage, and I’ve always tried to identify good business models. The four things I look for in companies are management, leading market positions, strong cash flow and a track record on capital allocation. As a result, it’s left me with a list of companies that are actually very well positioned to come out of this environment in a much stronger position. TWST: You touched on management. Who would you identify as good management in this space at this point? Mr. Lucas: Every conversation I ever have about management always starts with Danaher. Within my universe of coverage, it’s one of the more unique business models I’ve come across over the last 15 plus years that I’ve been doing this now, and it is a truly unique culture that they’ve been able to create at the company. After Danaher, the other company that I often highlight is AMETEK. I’ve always called AMETEK my favorite get rich slow scheme, which is meant as a very high compliment. What AMETEK does better than a lot of companies is fundamental blocking and tackling at the end of the day. TWST: Thank you. (TJM) Note: Opinions and recommendations are as of 6/22/09. JAMES C. LUCAS Janney Montgomery Scott LLC 1801 Market Street Philadelphia, PA 19103 (215) 665-6196

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CHARLES BRADY is a Director and senior analyst in BMO Capital Markets’ Equity Research Group, covering the capital goods group with a focus on the industrial and machinery sectors. Prior to joining BMO Capital Markets, he covered diversified industrial and machinery companies with Hibernia Southcoast Capital in New Orleans, where StarMine named him the top stock picker among machinery category analysts in 2004. During his prior six years at Credit Suisse First Boston Corp., he initially covered the engineering & construction and flow control industries, and later the global capital goods sector. In 2001, Institutional Investor cited him as the top-ranked global capital goods analyst. He joined BMO Capital Markets in 2005. He holds a Bachelor of Science degree in Finance from the University of Florida.

everything from the oil and gas and energy markets to semiconducSECTOR – INDUSTRIAL EQUIPMENT tor manufacturing to heavy mining equipment. & COMPONENTS TWST: What is the status of the sector right now? (AAJ802) TWST: Tell us about your background and about Mr. Brady: We recently hosted an investor field trip out your coverage in the industrial equipment sector. in Wisconsin, which included plant Mr. Brady: I’ve been with tours and meetings with the senior BMO Capital Markets a little over four management of about eight diversified years, and prior to that was at SouthHighlights industrial companies. In terms of where coast Capital in New Orleans and Credit we are in the cycle, overall, we believe Suisse. My coverage universe consists Charles Brady covers a group of diversified the worst is probably over. There apof about 15 diversified industrial group industrials, manufacturing a wide range of pears to be stabilization in terms of end companies. There’s very little direct products that serve a large number of market demand and incoming orders, one-to-one overlap with most of the different end markets. He doesn’t expect although they’re stabilizing at a lower companies with the exception of one or any real growth in the sector this year or rate and the visibility is still pretty low. two. Pieces of one will overlap the the first half of 2010, but the latter half of Many of these companies have limited pieces of another, but it’s a pretty diver2010 and into 2011 is when he thinks there visibility in terms of how far they can sified universe of companies. will be some better growth as the see out for their order intake. It can be TWST: Because it is so dicompanies will be getting the benefit of as little as 30-60 days and in some versified, how do you define the sectheir cost reductions and also demand will cases 24-48 hours. The heavy mining tor? What makes up the industrial have caught up to the expected economic equipment and crane companies can equipment sector? recovery. Companies that are well generally see out 9-12 months or beMr. Brady: We look at the managed and have healthy margins, that yond, same thing with the crane manuend markets they’re selling into and the have continued to take cost down in this facturers. Some of the shorter cycle types of equipment they’re selling; if down cycle are certainly the ones likely to diversified companies don’t have that it’s something that is engineered, that is benefit. The group is probably getting to a visibility and so there’s a little bit of fabricated, that goes into an industrialpoint where the valuations are beginning uncertainty as to whether the stability is type application regardless of the varito look quite attractive. going to stay with us, but the general ous end markets they go into, we Companies include: Joy Global (JOYG); feeling is that it probably is. We think consider it industrial equipment. There Bucyrus (BUCY); IDEX (IEX); Nordson the question is where and when we are really is a wide range of products that (NDSN); Graco (GGG). going to see growth. Certainly in 2009, serve a large number of end markets, 102 The Wall Street Transcript — January 5, 2009

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their manufacturing is located. So one of the wildcards, we think, is we don’t think there is any expectation of really seeing a pickup in the extent of how much Europe declines and how quickly it comes growth. Even if we do get an economic pickup in the US in the latter out of the downturn once the US is out of the downturn. That’s part of this year, we don’t believe it’s going to translate into immedisomething that we’re keeping an eye on. ate growth for diversified industrial companies. There’s likely going TWST: Is it your view that things are getting better to be a lag time. Even in the first part of 2010, it’s uncertain how for the sector for two reasons: One is the economy is improving, much growth we’re going to see; if we do see any, it’ll probably be and two is because companies in the sector are taking actions a bit anemic. The back half of 2010 we think is when you’ll start such as restructuring and cutting back on costs really seeing some better growth, and 2011 looks to probably be a Mr. Brady: We think that’s what’s going to help them. pretty good year for most of these companies. Companies continue The restructuring will certainly help to go through restructuring and taking the margins stabilize and improve in costs out of the business. When the the next upturn. We believe what’s downturn first happened, it came with “In terms of where we are in the cycle, causing and helping some of the stasuch speed and velocity that compaoverall, we believe the worst is probably bilization right now is a moderation in nies weren’t able to pull cost out quick over. There appears to be stabilization in the destocking of inventory at the enough to match the underabsorbtion terms of end market demand and distributor level. Distributors experiof their factories. We believe there has incoming orders, although they’re enced a downturn in their business, been a stabilization such that the cost stabilizing at a lower rate and the visibility is still pretty low.” and were selling down their inventory reductions are catching up to the unwithout replenishing it and letting the derabsorption. That should help marinventory run down to a lower level gins stabilize somewhat. Also in the than they might otherwise carry in a next upturn, as always, cost takedowns good market. That destocking obviously feeds back into the compaand restructuring should probably benefit margins because while nies that are manufacturing that equipment for the distributors and some costs are likely to creep back in when volumes return, a lot of hurts sales. We think what we’ve seen out from the distributor level the costs aren’t going to come back. There are permanent restructurin broad terms is that the order levels at distributors are now matching activities that are unrelated to volume, such as moving of plants ing the sales levels, so they’ve stabilized out their inventory to a from North America to Mexico or other low-cost countries. We belevel where they’re comfortable with. If they get an order from a lieve that margins in the next upcycle are probably going to be customer, then they will order a piece of equipment to replace that higher than at the peak of the last cycle. order in their own in-stock inventory. What could help on the next 1-Year Daily Chart of Bucyrus upturn is if inventory levels have in fact been taken down too low, which is quite possible given the severity of the downturn we had. In the next upturn, demand may come back such that distributors may feel as though they don’t have enough inventory to keep up with the uptick in demand. This could cause, at least initially, a surge of orders as those distributors take their inventory levels up to a more normal level from the current run rate level. 1-Year Daily Chart of IDEX

Chart provided by www.BigCharts.com

TWST: When you talk about the next up cycle, are you saying somewhere around 2011? Mr. Brady: Our view is you start seeing it in the second half of 2010 and then as you get into 2011, you’ll be getting the full benefit of these cost reductions, but you’ll also get the lag effect from an economic pickup; demand will have caught up to the economic pickup. We think one of the concerns is what happens with Europe. Europe lagged the US going into the downturn; we believe it’s likely to lag the US in coming out of the downturn. A lot of these companies for the past five, 10 years have become more non-US focused in terms of where they generate their revenues and where

Chart provided by www.BigCharts.com

TWST: You mentioned the trend toward being less USfocused in terms of production/facilities. What other trends do you expect to see in the sector in the next three to five years? The Wall Street Transcript — June 29, 2009 103

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that as we move out into 2010 and beyond there is likely to be inMr. Brady: We believe we’ll continue to see companies creased electricity usage, which drives coal demand, which in turn moving into developing markets: China, India, Eastern Europe. drives demand for coal mining and coal mining equipment, which You’ll continue to see companies increase the amount of low-cost should help orders going into 2011. The expectation is that 2010 is country sourcing they’re doing, sourcing components from counprobably a down year for both these companies, but we think that tries like China. In terms of M&A work and consolidation, right that expectation is embedded in the now there is not a whole of that current valuation of the stocks. We going on. That’s probably going to think the question people have is, pick back up again when the cycle “We’ve got outperform ratings on what happens in 2011, do you trough returns and balance sheets are in a Bucyrus and Joy Global. Joy Global and in 2010 and get a pickup in 2011 or do little bit better shape and confidence Bucyrus manufacture heavy mining you end up troughing in 2011 and equipment and have the majority of has come back. The trend in M&A is market share for the products that they having two years down? Our position likely to start back up again and produce. This is very heavy mining is that 2010 ends up being a trough continue as long as the companies equipment mostly used in coal mining, year and you get a pickup in 2011 and feel that they’re doing well and have but also in copper and iron ore mining as so I think that there is probably still enough liquidity. well as the oil sands in Canada.” considerable upside for both of these TWST: What does a names, Joy and Bucyrus, over the move to developing areas like next 12 to 24 months. China or India do to/for the sector? Mr. Brady: There are two facets to it. There is moving the physical manufacturing to a low1-Year Daily Chart of Nordson cost country and then there are sourcing components from that lowcost country, sourcing it into wherever your manufacturing factory is located. A company may have a manufacturing facility in the United States, and as they look through their supplier base and work on their supply chain management, companies are finding places to obtain materials in other, lower-cost countries, where they can get similar or same components, but at a lower cost. They would then source those to the low-cost countries, bring them back into the manufacturing plant in the US, and complete the process there. That is as opposed to the other component, which is physically moving manufacturing to a low-cost country. Some of that move to low-cost country manufacturing is due to a desire on the part of these companies to get closer to their customers. As larger customers migrate Chart provided by www.BigCharts.com overseas to different parts of the world, having facilities there to serve those customers and be close to the customer, that can reduce shipping costs, transportation costs; it can increase the speed at TWST: Are there any out there that are up-and-comwhich you’re able to supply aftermarket parts and components to ers that we should keep an eye on? customers. There is a competitive non-cost incentive for companies Mr. Brady: We’ve got also to have manufacturing located in market perform ratings on IDEX parts of the world, maybe where they (IEX) and Nordson (NDSN) and “I do think we are going to probably start haven’t been as well entrenched. Graco (GGG). Those are three comseeing a recovery in the fourth quarter of TWST: Are there any panies that are very well managed this year. We think it’ll be slow. We don’t specific companies that you’re with good margins that have leading see any kind of v-shaped recovery and watching right now that investors market positions for the products they believe it will be a slow pickup over time. should be aware of? produce, and they’ve been feeling the When we get into the latter part of 2010 Mr. Brady: We’ve got outeffects of some soft end markets. into 2011, we believe the US is probably perform ratings on Bucyrus (BUCY) on a more normalized GDP growth rate When those end markets start turning and Joy Global (JOYG). Joy Global and then looking out that will probably be around, these are companies that are where things go for three to five years. I and Bucyrus manufacture heavy well positioned to really see a benefit wouldn’t expect any super growth.” mining equipment and have the maof a cyclical upturn perhaps sooner jority of market share for the products than some other longer lead time that they produce. This is very heavy companies. So companies that are mining equipment mostly used in well-managed, good margin companies that have been continuing to coal mining, but also in copper and iron ore mining as well as the take cost down in this downcycle we think are certainly the ones to oil sands in Canada. As commodity pricing has improved, there has benefit. Our feeling is it’s perhaps a little bit too soon because a lot of been some stability in demand in coal pricing, and an expectation the industrial companies have had a pretty good run off the bottom, 104 The Wall Street Transcript — June 29, 2009

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feeling is that’s probably not going to have a real meaningful impact but I would say that we’re probably getting closer to a point where on the companies that we’re followthe valuations on these companies ing. There is a lot of equipment on the begin to look pretty attractive. sidelines right now that could be put TWST: You mentioned “We’ve got market perform ratings on back to work, so that doesn’t necesmargins and good management. I asIDEX and Nordson and Graco. Those are sarily mean that new equipment is sume those are two of the factors you three companies that are very well going to be purchased because of the look at when weighing factors that managed with good margins that have stimulus money that comes out. It make a good company. What else do leading market positions for the products could help companies involved in you look at? they produce, and they’ve been feeling road building and in bridgework and Mr. Brady: You’re correct; the effects of some soft end markets. When those end markets start turning heavy lift work maybe on the crane those are two important factors. In adaround, these are companies that are well side, but I don’t think it will have a dition, cash flow generation and how a positioned to really see a benefit of a real meaningful move-the-needle efcompany manages its working capital cyclical upturn perhaps sooner than some fect. Some of the other companies we are certainly key factors. We also look other longer lead time companies.” cover have energy exposure so to the at how a company’s manufacturing extent of what the Administration’s operations are structured; do they have energy policy is going to do with relean manufacturing or Six Sigma or gard to where drilling is allowed or not allowed could have an imsome form of that embedded into their corporate culture to continupact. We’re really not baking any significant impact either good or ally drive costs out of the manufacturing process. We also look at the bad into our assumptions. geographic footprint; are they geographically concentrated or are they a little more diversified geographically, and then certainly the market share, the brand recognition, and the leadership position of their prod1-Year Daily Chart of Joy Global ucts that they sell. Generally, we prefer companies that have number one, number two, maybe number three market position, depending on how many competitors there are. We also favor companies that are producing engineered or highly value-added products as opposed to a product that is a commoditized product that can be easily replicated by someone else as commoditization leads to margin erosion over time as more competitors try to steal business away. Another factor we look at is the percentage of aftermarket sales to original equipment sales. Generally aftermarket carries higher margins than original equipment and so companies that have a good aftermarket position capture it on their own installed base, we view that as a favorable attribute when we look at companies. Chart provided by www.BigCharts.com

1-Year Daily Chart of Graco

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TWST: Are the economic policies the Obama Administraiton is putting into place likely to impact the sector at all? Mr. Brady: It’s hard to say. I think it’s a bit too early to really tell what the impact is going to be. If you look at the stimulus package that’s being pushed through for infrastructure spend, our

TWST: How do you see the US economy going in the next year to five years? Mr. Brady: I do think we are going to probably start seeing a recovery in the fourth quarter of this year. We think it’ll be slow. We don’t see any kind of v-shaped recovery and believe it will be a slow pickup over time. When we get into the latter part of 2010 into 2011, we believe the US is probably on a more normalized GDP growth rate and then looking out that will probably be where things go for three to five years. I wouldn’t expect any super growth. We think we’ll just moderate back to a normalized growth rate for the next several years to the extent that the non-US economies, Europe and China — I mean a lot of what goes on there drives revenues and sales and orders for US-based companies, which in turn feeds back into the US economy. So, I think that also bears watching. If we look in terms of employment, in this downturn we’re seeing just massive amounts of headcount reductions at these companies as they try to pull costs out and consolidate facilities. I think when the cycle does come back up and the economy does pick up we’re going to see a lot of this The Wall Street Transcript — June 29, 2009 105

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whether it’s a chemical plant or petrochemical plant or mine headcount come back. Certainly some of it will come back, but the operation or something like that,, headcount levels probably do not get credit still remains tight for a lot of back up to the same level that they these projects and for equipment fiwere, so I think structurally proba“There is a lot of equipment on the nancing. In many instances, it’s difbly, at least in the industrial sector, sidelines right now that could be put ficult for customers to get their we’ve permanently reduced headback to work, so that doesn’t necessarily equipment financing. We believe count somewhat. mean that new equipment is going to be there needs to be more improvement TWST: Is there anything purchased because of the stimulus in the credit markets to allow some that you’d like to add? money that comes out.” of these projects to get financed and Mr. Brady: In terms of the equipment to build the projects the restructuring that we’ve talked to get financed. It has improved, but about, we don’t believe we’re finit’s still really not at the level it opished yet, and we’ve seen announcetimally ought to be. ments of companies where they’ve been accelerating restructuring TWST: Thank you. (LR) or adding to it, and we think there is still more of that to come into the rest of this year, maybe even into the first part of 2010. Note: Opinions and recommendations are as of 6/19/09. By and large, we’re more optimistic on the sector than we were two or three months ago, but again we’re still a bit cautious. CHARLES BRADY Another point I’d make is in terms of the credit market and the BMO Capital Markets Corp. availability of credit. That’s a factor that continues to weigh in a 175 Federal Street bit on some of these companies in terms of project financing and Boston, MA 02110 equipment financing. If you look at large projects and the ability, (617) 960-2363 particularly outside the US, to get those projects financed,

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JOHN COLLOPY joined Briggs-Ficks Securities, LLC, as Director of Research in 2005. Mr Collopy holds a NYSE Series 1 and NASD Series 4,24,27,53,63,86,87. Before joining BriggsFicks, he founded and served as the CEO of Collopy & Company Inc. from 1992 to 2004. Prior to that, he worked as Vice President of Institutional Services for Loewi & Co. and was Founder, President and CEO of Cleary, Gull, Reiland, McDevitt & Collopy Inc. Mr. Collopy also spent time as First Vice President, Institutional Services of Robert W. Baird & Co. He holds a BA from Marquette University.

(MOD), National Presto (NPK), to some extent an industrial SECTOR ­– INDUSTRIAL EQUIPMENT & COMPONENTS equipment company, Oshkosh (OSK), Regal Beloit (RBC), (AAJ803) TWST: Tell us about your background and about Rockwell Automation (ROK), AO Smith (AOS) is considered your coverage of the industrial equipment sector? by some to be in industrial equipMr. Collopy: I’ve been ment, Snap-on Tools (SNA), and following the group individually and Twin Disc (TWIN). as a member of a group from time to Highlights TWST: The companies time since 1970. And going back in in this group do a little bit of evtime, it’s taken on several different John Collopy says the recovery of the industrial erything. Is it possible even to say iterations. Industrial equipment used equipment market depends on year-end what the status is of this sector, or to be known as the machinery group markets. The sector will not improve until credit are they too diversified? and then capital goods, and now inmarkets get healthier and the unemployment Mr. Collopy: The group is dustrial equipment, none of which market declines. Most of the companies have diversified but if you look back into really makes any difference. I was expanded into non-US markets and are banking 2008, the fundamentals of the group with Robert Baird for years and inon the developing economies for growth, were uniformly pretty good, when dustrial equipment was one of our particularly in China and India. He looks at compared with other sectors, until the mainstays, if you will, from a remetrics like unleveraged return on equity to see third quarter or early fourth quarter, search standpoint, because we had how a company has performed in good periods when fundamentals deteriorated such a concentration of it out in our and then to see how they are going to be in a rather quickly and sharply – with the area. Now to bring you forward to down cycle, and return on equity is something exception perhaps of Bucyrus Intertoday, Briggs-Ficks Securities is a that can’t be relative. You have to buy these national and Joy Global. Joy very small firm here in Milwaukee stocks when they are out of favor, so much so Global reported a very good second and I follow a group of industrial that it looks like they have extreme multiples quarter recently (JOYG is on an equipment stocks concentrated in because their earnings have collapsed. That is October year) and we estimate it will Wisconsin, or at least its borders. So when investors should get involved. report $3.90 a share for fiscal 2009 that’s our background. And as far as Companies include: Bucyrus International compared with $3.45 a share last my pedigree, I have both the Series (BUCY); Joy Global (JOYG); Manitowoc (MTW); year. However, management cau86 and 87 of the NASD, or research National Presto (NPK); Rockwell Automation tioned in its Q2 conference call that it principal, which doesn’t make me (ROK); Oshkosh (OSK); Snap-on Tools (SNA); is managing the business as if 2011 any better or worth any more, it’s Ladish (LDSH); Twin Disk (TWIN). revenues will be down some 40%. just a matter of having them. Management will not offer a revenue Here are some of the estimate for 2010 — it will let the names I follow: Actuant (ATU), analyst community work on that. Management is suspicious of Bucyrus International (BUCY), Briggs & Stratton (BGG), Joy worldwide demand for industrial commodities over the next two Global (JOYG), Ladish (LDSH), Manitowoc (MTW), Modine The Wall Street Transcript — June 29, 2009 107

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TWST: Are some of them looking at further losses in years, and consequently demand for both suface and underground the next year? mining equipment may contract. We should emphasize that it isn’t a Mr. Collopy: I don’t want to say they are going to have certainty that this scenario will develop, just that management is taklosses, but it appears it’s going to be a very sluggish recovery. ing a prudent course at this time. Bucyrus International, on the other TWST: How long do you think it will take for the sechand, has not altered its 2009 guidance and, as of April, has stuck to tor to recover? its previous estimate of $475 million of Mr. Collopy: Again, it deEBITDA which we translate into about pends on year-end markets. If your $3.10 a share of earnings versus $3.14 “The group is diversified but if you look output is tied to housing or other in 2008. We will be interested in manback into 2008, the fundamentals of the building-related, that’s almost unanagement’s guidance when they report group were uniformly pretty good, when swerable. But certainly it doesn’t look Q2 (ended June 30) in late July. We compared with other sectors, until the like it’s going to bounce back next suspect it will not be unlike Joy Globthird quarter or early fourth quarter, year. There could be some recovery, or al’s outlook. when fundamentals deteriorated rather you are seeing some fits and starts TWST: Why are they anquickly and sharply.” right now, but that’s it. You come back ticipating a 40% contraction? to Oshkosh, which bought JLG a Mr. Collopy: They are just couple of years ago, which makes lifta little bit concerned about what deing equipment that goes into construcmand for industrial commodities is tion and industrial applications. Their markets just collapsed and you going to look like over the next 18 months or so. don’t know where the recovery is. Oshkosh also has a big exposure 1-Year Daily Chart of Manitowoc Company, Inc. to construction through truck-mounted concrete mixers and that business has stopped, and it’s hard to see when that’s going to improve. You have got to have credit conditions improve, and you’ve got an employment problem right now, which doesn’t bode well for the consumer and probably for the residential real estate market, except I suppose in certain pockets, in certain price ranges, but I don’t think you are going to see an explosion in housing starts, which is important to these kind of businesses. TWST: Is it difficult to characterize this sector because of the diversification? Mr. Collopy: They all have their own personality, their own profile, and they all have somewhat different end markets. But they are all making capital equipment and the markets they serve Chart provided by www.BigCharts.com aren’t identical. So there aren’t 15 companies, as an example, in our universe chasing the same customer. TWST: Are you seeing a trend toward moving out of the US? TWST: As a whole, has the sector been impacted by Mr. Collopy: Yes. Most of this economic downturn? these companies have expanded quite Mr. Collopy: Absolutely. well into non-US markets, and they Let’s look at Manitowoc as an example. "As a group, it is still not seeing a each have great expectations — espeTheir historically large market is what recovery. And so that would lead one to cially for the developing markets in we call lifting equipment, cranes in other believe that this is going to be a long eastern Europe and Asia. Western words. They did $3.10 in 2008 and tough slog coming out of this Europe is certainly not going to be though the numbers get a little bit murky, environment we are in right now and it any better than the US, I think, by any it looks like they’ll do maybe $0.55 for could be several years before we are stretch of the imagination, and so they this year, and maybe less than that next really coming back, and I don’t know if are banking on these developing econyear. Now that’s not etched in stone, but we are going to get back to the kind of recovery in GDP and profits that we are omies for growth, particularly China those are possibilities. Oshkosh is anused to." and India. other one. They did $3.37 last year, and TWST: Within your group they are going to lose money this year. of companies, which ones are you But part of that are some write-offs; they watching right now? are writing down goodwill and other inMr. Collopy: You can’t say that one company is being tangibles, but their basic business lost money in the last quarter. Rockmanaged less well than another because the macro picture has bewell Automation did $4.11 in 2008. They are on a September year and come so difficult. So you have to look at history to anticipate which are probably going to do like $1.50 this year. I can keep going through a whole host of our names but that’s the kind of earnings shortfall that you companies might bounce back. Rockwell Automation’s underlying are seeing as we get deeper into 2009. numbers are very good, but their end markets have deteriorated as 108 The Wall Street Transcript — June 29, 2009

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But I come back to these mining equipment guys as an everybody’s has. If you look at their return on equity and their return example. You have somebody like Joy on invested capital and their cost of which is a little bit leveraged. Their capital and so forth, I think they will debt-to-total cap is 47% as of my most come back relatively well when the "Most of these companies have recent quarter and their return on eqeconomy does. Now they aren’t expanded quite well into non-US uity is almost 57%. Now that’s highly highly leveraged — 38% debt to cap markets, and they each have great expectations – especially for the leveraged. A more normal debt-to-total trades — so ROK’s comeback should developing markets in eastern Europe cap number in this industry is probably be solid if not subdued. Look at comand Asia. Western Europe is certainly in the mid-30s. So a 35% debt-to-total panies that are a little bit off the not going to be any better than the US, cap would be the standard. It can be a beaten path. Snap-on Tools makes by any stretch of the imagination, and little higher or a little lower. So that capital equipment for the industrial so they are banking on these developing 57% that Joy Global is doing is a little and automotive markets. SNA sells to economies for growth, particularly bit exaggerated, but they certainly manufacturing plants and to automoChina and India." would be doing 40% with less levertive OEMs, to the automotive afterage. Bucyrus International, I should market and to merchants. You say, has a return on equity of about probably are familiar with their vans 27% and their debt-to-total cap right now is just about 35%. So parked at filling stations with mechanics bays. Snap-on is very well that’s a very well run company and what I tend to look at is what managed and will probably come back quite well from a fundamentheir return on equity is and has been and if it’s above average, that’s tal standpoint. I think the mining equipment guys, as I say Bucyrus where you want to spend some time. and Joy, have strong futures. It’s getting over this valley, this ravine if you will, to get them from here to there, there are some question 1-Year Daily Chart of Rockwell Automation marks. But I think the long-term, because the need for raw materials in developing markets, mining machinery markets are going to be strong over the course of the next 10 years. 1-Year Daily Chart of Oshkosh

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Chart provided by www.BigCharts.com

TWST: What do you look at when you are evaluating these companies? Mr. Collopy: I tend to look at things like unleveraged return on equity, as an example, to see how a company has done in good periods and then to see how they are going to be in a down cycle, and return on equity is something that can’t be relative. Right now the bogey is a 20% unleveraged return on equity. With a 20% ROE, you are probably running your company pretty well. But that doesn’t mean that a company that doesn’t have a 20% return on equity is not being run well, you have to look at it in relation to the risk-free rate of return. The risk-free return right now is the 10 year Treasury, or the benchmark Treasury, which is yielding 3.80%. So if you are running a 12% unleveraged return on equity or between 12% and 15%, you are probably managing very well. It’s in relation to your risk-free rate of return and so 12% can be very good in this market.

TWST: Is there much investor interest in this sector right now? Mr. Collopy: The investor interest in this group waxes and wanes, probably about as much as any group I think that you will talk to. It has a very loyal following, both on the buy and sell side, but commitments are very erratic as these companies are very cyclical. TWST: Because of the diversification of the sector and the issues that impact on stock price, it sounds like it may not be a good place for investors to be. Mr. Collopy: It isn’t. You have to buy them when they are out of favor, which they were, of course, three or four months ago, as was the whole market. Some of our group are still out of favor. Manitowoc yesterday was about five and three quarters, it had a two year high of $50. Oshkosh Truck is $14, its high was $65. Rockwell Automation is $30 and it was $70. Ladish, which is another very good small cap company selling at $14 at a high of $58. Twin Disc, which is another good small cap company was $40 and it’s $7. That’s the kind of damage that’s been done to these issues. The only stock in our universe that has hung together is National The Wall Street Transcript — June 29, 2009 109

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ment interventions that could impact investor sentiment and I Presto Industries, and is only partially industrial products. Its twothink that’s what one has to be very year high was $84 and yesterday it careful of. was $82. So it’s sort of hung in there "Bucyrus and Joy have strong futures. TWST: How do you see the but they have a defense component, It’s getting over this valley, this ravine industrial equipment sector going in they have two consumer components. if you will, to get them from here to the near term and as we move forJoy, which is trading in the mid-30s, there, there are some question marks. ward? and had a high of $90. Bucyrus had a But I think the long-term, because the Mr. Collopy: As a group, it high of $77, it’s now $30, but it reneed for raw materials in developing is still not seeing a recovery. And so bounded from the teens. So you want markets, mining machinery markets are that would lead one to believe that to get involved when you have to hold going to be strong over the course of this is going to be a long, tough slog your nose because they get so out of the next 10 years." coming out of this environment we favor that it looks like they have exare in right now and it could be sevtreme multiples because their earneral years before we are really comings have collapsed, but that’s when ing back, and I don’t know if we are going to get back to the kind you have to get involved. of recovery in GDP and profits that we are used to. A cyclical reTWST: Are we at the hold-your-nose point of the cycle? covery may mean 1%–2% growth, not the 4%–5% growth we are Mr. Collopy: We are a little bit off that. I mean, you might used to in a recovery. need a handkerchief now, but that’s where you are from a fundaTWST: Thank you. mental standpoint right now, absolutely. TWST: Are the policies of the Obama Administration Note: Opinions and recommendations are as of 6/19/09. impacting this sector? Mr. Collopy: That’s a problem. I am very concerned JOHN COLLOPY about their overall economic policies. They have flooded the Briggs-Ficks Securities, LLC system with liquidity that I don’t know if much, any, some, or 250 East Wisconsin Aveune none of it is going to spill into the fundamentals of the economy Milwaukee, WI 53202 at this point. I am afraid these policies might dampen multiples (414) 273-2112 going forward because people are going to be leery of govern-

110 The Wall Street Transcript — June 29, 2009

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DANIEL WHANG joined B. Riley & Co. in 2008 as a Senior Equity Research Analyst covering the Industrial sector. Prior to joining B. Riley & Co., he followed the industrial sector for eight years at Lehman Brothers, Inc., most recently serving as Vice President, Senior Analyst. Earlier in his career, he was a management consultant to Fortune 500 companies, as well as worked in industrial sales and environmental engineering. He earned a BS and MS in Mechanical Engineering from Columbia University, and his MBA in Finance and Marketing from the University of Chicago.

well. Since early March, the stocks that I cover are up anywhere SECTOR – INDUSTRIAL EQUIPMENT from about 30% to more than 80%. I think one of the drivers of that & COMPONENTS performance is the shift to a more positive sentiment. There was a (AAJ804) TWST: Tell us about your background and your covperiod starting late last year and going into the early months of this erage of the industrial equipment sector. How long have you year where there was just tremendous uncertainty. It felt like you been covering the sector? were on a roller coaster ride in the dark and you were free falling Mr. Whang: I’ve been covering this space for about nine and not really knowing when that free years. I’ve been with B. Riley for a fall was going to stop. I think that was year, focusing on small cap stocks. I how investors felt back then. It was was an engineering major in college Highlights really the early March period when and worked in the industrial sector in you started seeing a number of encourthe past, either in sales or consulting. Daniel Whang sees Small Cap Industrial Equipment stocks aging data around housing and about For me, it was a natural prorebounding dramatically from the "tremendous uncertainty" of the economy. I believe that may have gression. Before I became an analyst, I fourth quarter 2008 through first quarter 2009. The drop in triggered some of the optimism that set was a consultant working with manuvaluation has also triggered a significant increase in mergers in as we gained better clarity and comfacturing companies, and I wanted to and acquistion activity. fort around the worst-case scenario of delve more deeply into the financials Companies include: General Electric (GE); Honeywell (HON); this recession and its earnings impact, and become more specialized. When I Regal-Beloit (RBC); Columbus McKinnan (CMCO) further ruling out concerns about a posstarted as an associate, I initially helped sible depression outcome. Now indicover the large cap stocks, like GE viduals are reflecting over the last few (GE) and Honeywell (HON). The anamonths and trying to label it a bear lyst that I worked for was also previmarket rally or a bull run. I think many market strategies have called ously an engineer, and one of my consulting projects was at GE, for a correction, that hasn’t fully materialized. I know markets have which helped. I was working at Lehman Brothers for most of my been weak over the last week or so. career and I joined B. Riley last year. For the industrial companies, the rapid rate and severity TWST: Can you give us an overview of the sector? of the slowdown in demand are unprecedented. If you go back to Mr. Whang: Almost by definition on these industrial the third quarter of 2008, most companies saw positive organic stocks, they typically manufacture or distribute durable goods that growth and then things really started to slow down during the last are sold to customers who are professional users in the industrial or couple of months of 2008. Now many of these firms are seeing commercial space. So these businesses are usually dependent on the volumes down 20%-plus. economy. With the economy so weak, these companies are facing TWST: So what’s going to happen for the rest of the difficult times; end demand is quite soft. We saw a marked decline in year? demand late last year and currently demand is down significantly Mr. Whang: What’s happening is that in reaction to a year-over-year. However, business has stabilized over the last few significant drop in demand, the companies are reducing costs, trimmonths, and that has certainly been a positive. ming back overhead, labor, consolidating plants, essentially trying From a stock standpoint, they weakened late last year, to resize their operations so that they can operate more profitably. and then starting in March, stocks have actually performed very The Wall Street Transcript — January 5, 2009 1

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I think some generalizations about small caps are that Typically, the products that these industrial companies manufacture relative to large caps, they may have 1) less diversification in busi— at least the ones that I follow — are fairly ubiquitous and deness/product mix, 2) less exposure to mand for these products will not go international markets, and 3) less fiaway permanently (i.e., electric monancial resources. These assumptions tors, batteries, cranes and hoists, etc.). "Actually all of the companies that I are not always valid. We like to Demand for these products has curcover have been active acquirers, and focus on companies that are typically rently dropped off, but once economic they are likely to continue to be a one of the leaders in the industry, recovery shows through, demand will participant in the consolidation trend. In have strong management with a good bounce. Once that happens, these comthe near-term some companies may track record, and have a healthy or panies will see top-line growth and are place greater emphasis on further improving balance sheet. These compositioned for accelerating earnings shoring up their balance sheets, but panies should be well positioned for growth driven by a much more streamothers are very actively pursuing a recovery scenario. lined cost structure. The companies acquisition opportunities." TWST: Is acquisition a that I follow are among the market significant trend? leaders and they should generally outMr. Whang: Actually all perform the smaller peers. of the companies that I cover have been active acquirers, and they I think there is a lot of discussion going on presently reare likely to continue to be a participant in the consolidation trend. garding the economy. Have we seen the worst? Are we going to have In the near-term, some companies may place greater emphasis on a W-shaped recovery, meaning, could we see another step down in the further shoring up their balance sheets, but others are very actively economy before it improves? Has the market gone ahead of itself? pursuing acquisition opportunities. While valuation continues to be Could there be further volatility and risk arising from the financial an issue, we think it has become more reasonable of late. institutions? I think investors are rightfully still nervous, so there is a lot of discussion, while the market is trying to find clearer direction. 1-Year Daily Chart of Columbus McKinnon Corp. TWST: What about trends? What trends are we seeing in the small caps in this sector right now? Mr. Whang: Year-to-date, from an overall market trend, S&P 500 is flat. The Russell 2000, to take that as a proxy for small caps, has performed similarly year-to-date. However, since early March, the S&P is up about a third, while the Russell is up 45%. So the Russell has performed better in recent months after lagging the early part of the year. The small cap industrial stocks that I cover are up on average 18% YTD and gained 65% since early March. The larger cap industrial stocks on average are up about 2% YTD and increased 39% since early March. 1-Year Daily Chart of Regal-Beloit Corp. Chart provided by www.BigCharts.com

Chart provided by www.BigCharts.com

I’ve read that the number of stocks under sell-side coverage has decreased over the last couple of years due to market trends and consolidation in the financial industry, with small cap coverage affected more than mid and large cap stocks. But, we’ve seen that small cap stocks can provide strong returns, which investors seek. With less stock coverage, I think that provides opportunities. 2 The Wall Street Transcript — January 5, 2009

TWST: So what are some of the interesting companies you are watching and what makes them interesting? Mr. Whang: A couple of companies that I will mention: the first company is called Regal-Beloit (RBC). Regal-Beloit is a leading manufacturer of electric motors, motion control products, and generators. They have a strong brand. One of the things that I like about them is that they have significant exposure to early cycle demand. Roughly about 40% of their revenue is coming from residential, what they call HVAC or Heating, Ventilation, and AirConditioning motors. As the economy starts to bottom out and show improvement, I think they could be one of the early beneficiaries of that. In the industry, they have a reputation of producing high quality products. They have a management team with a good track record. In the current environment, the company is reducing their costs while they continue to invest in the business. They are benefiting from the increased demand for energy-efficient products. The stimulus plan and related infrastructure spending will be positives

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for them with the greater focus on energy efficiency. Regal-Beloit is one of the stocks that we continue to like. TWST: Any others stand-out? Mr. Whang: A company called Columbus McKinnon, (CMCO). They manufacture a category of products called material handling, which includes hoists, cranes and other rigging and lifting tools that are used to move equipment and products around in industrial facilities. Material handling equipment is used to lower operating costs by maximizing worker productivity and providing worker safety. They are a leading player in that segment, particularly in the US. The company is looking to further penetrate domestic accounts while expanding their international operations (currently about 40% of sales) through organic means as well as acquisitions. Good management team and a solid balance sheet. Although not as early cycle, I think once the economy does show improvement, there will certainly be growing demand for their products, and when combined with the cost reductions that are being implemented, their earnings profile will improve over the long-term. TWST: Are investors interested in the sector right now? Mr. Whang: Yes. If you look at the last few months, we’ve had significant gains in the stocks. Over the long-term, these stocks could see more upside, dependent on how well management executes. How quickly we’ll see the stock gains is somewhat dependent on the discussions that are taking place currently — what will the profile of the economic recovery look like, particularly over the near-to-mid term? I think longer-term, people are in agreement that we will see GDP growth and it’s a matter of how strong a recovery we see.

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We started seeing negative US GDP in the second half of 2008, with GDP declining sharply in the mid-single digits during the fourth quarter of last year and the first quarter of this year. I think the general view is that although the economy could continue to contract in the second quarter, there is some optimism that the second half of 2009 could potentially bring flat to positive trends with progressively better numbers going into 2010. Easier year-over-year comparisons would certainly help the second half of 2009. At a high level, I think that’s the general view. The market is obviously forward-looking and reflects some of this positive outlook. Some people may be looking for a more modest versus a stronger recovery towards the middle or latter part of 2010. So there is some variability there. With all the improvements currently taking place in the operations of the industrial companies and the investment dollars that are being committed to innovation and new products, I think the longer-term prospects for the sector are quite positive. TWST: Thank you. (LMR) DANIEL WHANG B. Riley & Co., Inc. 275 Madison Ave. Suite 610 New York, NY 10016 (212) 561-5981 [email protected]

The Wall Street Transcript — January 5, 2009 3

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EDWARD (NED) BORLAND is a Managing Director and Senior Research Analyst at Next Generation Equity Research, LLC, covering the Machinery and Electrical Equipment industries. Mr. Borland was recognized by Starmine in 2009 as both the top stock picker and top earnings estimator for the Electrical Equipment industry.

Mr. Borland: Companies that have exposure to utilities SECTOR – INDUSTRIAL EQUIPMENT and the power generation market, are doing better. Order trends & COMPONENTS have still declined, but at least there is a growing need out there to (AAJ805) TWST: Tell me about your background and your invest in the power infrastructure in this country and overseas in coverage of the industrial equipment sector. some developing countries. That’s an area where I have seen posiMr. Borland: I’ve been with Next Generation since tive signs in some companies that I cover like Valmont Industries 2005, covering industrials. Before that, I was on the buy side and I (VMI), which makes utility transmission poles. At year-end, they covered industrials, among other groups, for about four years. So I saw a doubling of their backlog in that business. That’s definitely a have pretty good working knowledge about the companies I cover. positive trend for that subgroup within the economy. There are other It is a broad sector, and there are a lot of different things to keep an pockets that are not as bad; aerospace is an area — especially supeye on. pliers to military aircraft, that are still TWST: How did you pick doing pretty well. The commercial industrial equipment sector? Highlights downturn will come later — people are Mr. Borland: It’s a diverse pretty much expecting that to turn sector. Basically, industrial equipment Ned Borland sees demand for industrial downward next year. touches all sectors of the economy. equipment as challenged well into the TWST: How has the ecoThere is consumer exposure with stocks middle of 2010. Some restocking of invennomic downturn impacted the sector? like AO Smith (AOS) and Briggs & tory has supported the market recently, Stratton (BGG), which are making Mr. Borland: Orders are and companies that are suppliers to utiliproducts that basically are tied to housdown dramatically, and that’s kind of ties are a bright spot. Supplier to the housing. But then, there is also federal and an indicator of the economic climate. ing market are still struggling to regain state government exposure in stocks like There is a lot of fear out there just to sales. Federal Signal (FSS), which sells street spend — spend on an upgrade of a sweepers and sewer-cleaning trucks and certain machine, a plant; upgrade on Companies include AO Smith (AOS); Briggs products like that to municipalities. It’s anything capital spending-wise. Capi& Stratton (BGG); Federated Signal (FSS); not a one-size-fits-all sector. It’s not Valmont Industries (VMI); Lindsay Corp. tal spending is way down, and that’s healthcare, where you are worried about (LNN); IDEX Corp. (IEX); Graco (GGG). the biggest driver. Capital spending rethe latest FDA ruling; there are a lot of ally has to come back. And capacity different facets to this group. utilization in existing manufacturing TWST: Can you give us an overview of the sector? facilities has to come back in order for order trends to get healthier, Mr. Borland: Overall, capital spending is down, and that’s affecting basically MRO spending (maintenance repair and and that’s the biggest issue here. overhaul spending), and also capital projects are kind of slow to go TWST: What about the credit tightening? Has that forward. Inventories are low — there is quite a bit of de-stocking. hurt this sector? Order trends are way down across the board, and that’s not specific Mr. Borland: It has. It’s hurt in pockets of the economy. to any end market; that’s just in general. I think a lot of companies Last year, it definitely took its toll on the housing market and bornow are in the restructuring mode and getting their cost structures rowing for capital projects. But there are even places where you just right. wouldn’t expect it; like farmers. I cover two companies that sell into TWST: Within the sub-sectors, are there any areas the agriculture market, Valmont Industries and Lindsay Corp. that are doing better than others right now? (LNN). You are starting to see rural banks, which weren’t really The Wall Street Transcript — June 29, 2009 1

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Mr. Borland: I think that there has always been this trend affected in the fall last year, start to get affected in terms of lending to take advantage of lower cost labor, locating more production in into the farm community. So it has definitely had a toll. Mexico and China. There are logistical challenges that go on with TWST: What is the general mood of the companies? locating in China. If you are going to ship anything out of China for Mr. Borland: There is guarded optimism. There is a the US market, it’s got to really be in high volume in order to make sense out there that the second quarter is going to be better than the it worthwhile. For example, AO Smith — they make water heaters. first quarter, but the first quarter was pretty much a train wreck. I They are one of the largest water get the sense that the second quarter will heater manufacturers in the US. be a little bit better than the first quarter, They only sell the ones they manubut that can be partially explained in “Basically, industrial equipment touches facture in China to the Chinese terms of some business seasonality; a lot all sectors of the economy... It’s not a market because to transfer them more industrial activity seems to happen one-size-fits-all sector. It’s not back here just doesn’t make any in the second quarter than the first. The healthcare, where you are worried economic sense because they are recovery is going to be very, very slugabout the latest FDA ruling; there are a large cans of air shipped that take gish and very slow going. And I think lot of different facets to this group.” up too much space. I think that they are bracing for that. there is going to continue to be a TWST: When is this sector trend for US companies, industrial looking to recover? companies, to serve international Mr. Borland: I think you are going to see some inventory geographic areas. A lot of my companies, through acquisition, have restocking between now and the end of the year, perhaps that’s albuilt up presence in Europe. They have entered the Asian markets, ready started to happen because inventories have been pretty razoralso where it makes sense, and I think you are going to continue to thin in some markets. But in terms of sustainable demand coming see that. back, we are probably looking at the middle of next year for companies to really feel comfortable going out and spending again. And I 1-Year Daily Chart of AO Smith Corporation think even when they do start to feel comfortable, it’s not going to come back to 2007 levels automatically; it’s just going to be a little more gradual. 1-Year Daily Chart of Valmont Industries, Inc.

Chart provided by www.BigCharts.com

Chart provided by www.BigCharts.com

TWST: What are the trends in the sector right now? Mr. Borland: Outside of restructuring, debt reduction is definitely something we are seeing a lot of in my companies. Balance sheets weren’t really in bad shape to begin with overall. There are obviously some select cases where balance sheets are more challenging than others, but if you compare it to the 2003 downturn, if you look at the average industrial companies’ debt-to-cap, it’s not as bad now as it was then. But nevertheless, companies are definitely hoarding cash and paying down debt, and M&A activity is definitely muted recently. TWST: Are you seeing companies moving out of the US? 2 The Wall Street Transcript — June 29, 2009

TWST: What are the challenges and opportunities for this sector that are going to be coming up in the near term? Mr. Borland: There is some optimism surrounding some of the stimulus money that was announced earlier in the year. To date, that hasn’t really flowed through yet. The companies that are associated with road construction that I talked to have not really seen any effect of that yet. But they do expect in the second half that there will be more of it flowing throughout the system. The fed is pumping up liquidity into the system. Eventually all that money is going to be able to stimulate some kind of demand. So I think that things will gradually get better. But in terms of sizeable opportunities, I think there is a lot of infrastructure opportunity out there, particularly in the power markets like I said, and even in road construction, when they start to take up the highway bill, which will probably be taken up next year. But other than that, there is nothing really concrete outside of general economic activity that’s going to lift things. TWST: In terms of specific companies, who are the

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leaders in the sector? Mr. Borland: There is a group of, say, bellwether mid and small cap industrial companies that I cover that, I think, are good economic indicators. IDEX Corp. (IEX) is one. They make industrial pumps, and they make some rescue tool equipment. They serve a wide variety of different end markets, and their backlogs are basically about six weeks long. They are one of the ones that I watch closely as they are the ones that are going to start to see improved results first. And then there are other ones like Graco 1-Year Daily Chart of IDEX Corp.

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TWST: You talked about the stimulus money. Are there other things that the administration is doing that will impact this sector? Mr. Borland: In terms of the auto sector, the involvement of the federal government in GM and Chrysler removes a little uncertainty for the suppliers, so I guess that’s a positive in terms of companies that are selling into the auto space. But the things that are being considered on Capitol Hill I’m a little wary of — the Employee Free Choice Act, I think, would be pretty harmful to a lot of my companies because that would open the door to increased unionization, and that’s just going to make the cost structures of these guys more burdensome. The cap-and-trade legislation that’s out there may have a negative impact in terms of the cost structures of some of the companies that I cover as well. TWST: Is there much union activity in these companies? Mr. Borland: For a lot of the companies that manufacture in the US, there are a fair amount of plants that have some union exposure to them. There has been a lot of facility rationalization that has caused a lot of those jobs to kind of go away, but there still is some union labor out there for some of my companies. TWST: What do you think the outlook is over near term/

Chart provided by www.BigCharts.com

long term? How long is this recovery going to take for this sector?

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will start to get better, or at least they

(GGG), which makes various types of are going to run to easier comparisons, dispensing equipment. Paint sprayers starting in the fourth quarter of this are one of their most well-known “There is guarded optimism. There is a products, and that will start to pick up year. That’s when sales and earnings sense out there that the second quarter once you see some stabilization in the is going to be better than the first really started to turn sharply negative housing market. quarter, but the first quarter was pretty versus the fourth quarter of 2007. So much a train wreck.” There are others that are at least you’ve got easier comparisons more on the infrastructure side. Valstarting in the fourth quarter of this mont Industries, as I said before, year, and I think it will kind of accelthey make utility transmission line structures, they make highway light1-Year Daily Chart of Graco Inc. ing structures, and they make irrigation equipment. So Valmont represents both an infrastructure play as well as an agricultural play, and we believe irrigation equipment for farmers should show a healthy rebound next year after having a down year this year, as farmers are still in decent financial shape and the credit environment should improve heading into 2010. TWST: Is there much investor interest in this sector right now? Mr. Borland: Right now, it’s been pretty quiet, given the economy, and there hasn’t been a ton of investor interest. A lot of clients definitely feel they have to have the presence in the space. But I think that most portfolios are pretty well under-weighted in industrial equipment. The sense out there is that they don’t want to Chart provided by www.BigCharts.com miss the rebound, and so you got to have a foothold in the space because these would be one of the first stocks to show a rebound in the results. In the last few months, there was a sense that there will erate from there. Probably starting in the second half of 2010, I be this inventory restocking, and stocks were pretty much fairly think, you will start to see things really kind of act like a traditional valued, but in the last week it seems that people are coming around recovery. So I think, longer term, three to five years out, I think to a sense that the recovery is going to take a little longer than expected, and so the stocks were kind of reacting negatively.

things are going to be fine. I do think that there will be increased

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of the targets out there. And I think once that happens, it will re-

establish pricing and I think it will end up being a healthier recovery once it happens. But I just think it’s a little early yet to say that things are hunky-dory again. TWST: Is there anything else that you would like to add? Mr. Borland: No, I think that’s probably about it.

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TWST: Thank you. (LR) EDWARD BORLAND Next Generation Equity Research, LLC 1 East Wacker Drive Suite 2920 Chicago, IL 60601 (312) 334-4401 [email protected]

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Baldwin Technology Company, Inc. (BLD) KARL S. PUEHRINGER has served as a Director of Baldwin Technology Company, Inc. since June 2006. He was elected Chief Executive Officer of the company on July 1, 2007. He also currently serves as President of the company, an office he has held, together with that of Chief Operating Officer, since July 2005. From November 2001 through June 2005, Mr. Puehringer was a Vice President of the company, responsible primarily for the company’s European operations. Prior to joining Baldwin, Mr. Puehringer served as a Manager at A.T. Kearney in Munich, where he was responsible for project management from 1999 to 2001. From 1996 to 1998, he was President and a Director of Voest-Alpine MCE, Indonesia, and from 1993 to 1996 he was Managing Director of Voest-Alpine Ice, Mexico.

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX606) TWST: Please begin with a brief historical sketch of the company and a picture of the things you are doing right now. Mr. Puehringer: We celebrated our company’s 90th anniversary last year as a global leader in process automation equipment for the print media market. We were founded in 1918 and we’re headquartered in Shelton, Connecticut. Our fiscal year runs through the end of June; fiscal year 2008 revenues were $236 million. We had a $14 million EBITDA during that fiscal year. We’re proud of the number of patents that we have and the products we have been able to develop over the decades. At the moment, we have 548 employees and since 1987, we’ve been a public company. We currently trade on the NYSE Amex Exchange under the ticker symbol BLD. I’ll give you a quick overview of our current sales mix. More than 50% of our sales during our last fiscal quarter were recurring revenues derived from consumables, service, parts, and our US food blends operation, and consequently less than 50% of our revenue during Q3 FY09 came from equipment. By region, 26% of our revenues are in the Americas. Our largest region is Europe, which accounts for slightly less than half of our business, and the second largest region is Asia, with Japan being the other most important country for Baldwin. The geographic balance in sales is major strength of Baldwin. TWST: What are the principal products that you sell? Mr. Puehringer: Our principal products are what we call process automation equipment for the printing process and related consumables. We sell equipment that’s attached to printing presses. Our products make the printing process more effective and more efficient; they make the machines more productive and improve the quality of print while reducing the environmental footprint of that press equipment. Our US-based food blends operation blends and packages dry ingredients for food companies. That operation originated from our corn starch powder used in the graphics arts industry. TWST: What are the differences between your equipment and equipment that is provided by other companies? Mr. Puehringer: We are a first mover in many product categories within our industry. The range of equipment we offer is unparalleled. There is no other company that can provide the same

range of solutions to our customers. We offer the best solution for each specific application. With applications, I am referring to the different market segments that we serve — sheet fed, commercial-web or newspaper and semi-commercial — and also the different operations that a printer might be running, depending on what paper stock and what ink he is using and what kind of print job he is running. TWST: Could you give us a broad profile of the kinds of customers you have? Mr. Puehringer: Less than half of our revenue is from direct sales to press manufacturers. Those are the companies that sell press equipment to printers and publishers, and they have selected Baldwin products as standard equipment on their presses. Three major press manufacturers are based in Germany. Another important country for press equipment is Japan. We also have one important US-based customer. In addition, there are a number of press manufacturers in China and India that are looking more and more at Baldwin-type of process automation equipment. We’re really excited about opportunities from those emerging countries. The other half of our revenues comes directly from printers and publishers. This is mainly revenues from our consumables, parts and service operations, as well as retrofit services. We sell, promote and service our equipment directly with those printers and publishers who are looking to improve their installed base of printing presses by investing in Baldwin equipment. TWST: What is the outlook for the industry in general and for your company in particular? Mr. Puehringer: We make a distinction between short term and mid-to-long term. Short term, our industry has been significantly impacted by the current economic environment. Our industry reacts very quickly to changes in GDP because a decline in GDP means a decline in advertising dollars spent and a decline in advertising dollars results in less investment in press equipment. So in the short term, we have seen a significant decline in demand for new press equipment and a resulting decline of revenues as just now reported by Baldwin. So what we’re doing in the short term is adjusting our capacity and our cost structure. And as we reported during our last earnings conference call following Q3 of fiscal 2009, The Wall Street Transcript — June 29, 2009 111

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I’m proud we have reacted very quickly and aggressively to the circumstances. In the short term, we benefit from those 50% recurring revenues because those revenues are less impacted and show much less cyclicality compared to revenue from the equipment side. When we look at mid/long term, we are excited about the opportunities we see ahead. Several trends within the printing industry favor Baldwin’s services and products. Shorter runs of print jobs, increased demand for product quality, the drive toward efficiency and productivity, and the demand to reduce the environmental footprint are in line with the value proposition of our services. We have identified several growth opportunities: First is the opportunity in emerging markets. We have operations in China and in India. Those countries — even in this current financial downturn — show very solid GDP growth rates, they have increasing literacy rates and a growing middle class. These are fundamentally good indicators for growth of demand for print and therefore for growing demand for print equipment. Additionally, printers in those emerging countries are looking more and more to automate their print equipment and reduce the environmental impact of their operations. All of that plays in favor of Baldwin products.

“While newspapers in North America are a challenged industry and the newspaper tonnage will be reduced significantly, that only represents 2% of a $600-plus billion global print market.”

The number two growth area for Baldwin is from alliances. Baldwin has an unparalleled global brand and infrastructure. We have been around for 90 years. We have been in Japan for 41 years and in Germany for 38 years. We have presence in all major markets for print. Smaller companies that have marketable technologies but don’t have a global reach are now looking to partner with Baldwin. We have signed several alliance agreements in recent years and we will continue to look for further opportunities to do so. That’s a great value proposition for the partners, for Baldwin, and for our customers. We have also identified further growth opportunities in digital printing and flexography. Our food blend operation here in the US also provides us with solid growth. We look to further expand our revenue through the press manufacturers because they are looking to outsource. We also have an organic growth component mainly driven through our consumables, spare parts and services. We have the unique benefit that our award-winning and patentprotected consumable offerings are gaining market share driven by environmental demands to lower the VOC (volatile organic compound) emission in the printing process. In total, we identified potential growth opportunities of close to $110 million in additional revenues on an annual run rate in the next three to five years. TWST: What are the key elements in your strategy as you look out over the next two to three years? Mr. Puehringer: Short term, our focus is clearly on managing our working capital. We successfully reduced our inventory levels in managing our accounts receivable levels. We consistently generated cash over the years and in recent quarters. Secondly, we have adjusted our capacity 112

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and cost structure to fit the current market reality. Thirdly, we are looking for new opportunities through new alliances. Mid-to-long term, our strategy is to leverage what has been built over the last 90 years — and that’s the strong, well-known Baldwin brand and a strong global presence — to leverage our technology and our position in the emerging countries and be a consolidator in a very significant market for print. Print volume globally is more than $600 billion. Printers and publishers are looking to increase productivity. They are looking to increase, improve efficiency, they are looking to improve the quality of print and they are looking to reduce the impact on the environment. All of those things can be addressed and accomplished with our equipment and the related consumables. TWST: What about possible challenges or problems? Mr. Puehringer: We are facing a fairly high degree of volatility in demand for our type of equipment. We experienced that in 2001 and 2002 and we see it now again. Volatility in demand for press equipment is undoubtedly a challenge. But we have proven we are able to adjust very quickly to that environment. There are certain segments that will not show growth going forward. One example, most often cited when people talk with us, is the North American newspaper industry. The tonnage for newsprint will significantly decline over the next few years. However, in the short term, the newspaper segment actually represents an opportunity because the publishers must improve their efficiency and we have technology that helps them to achieve exactly that. It’s important for investors to understand that newspapers in North America represent only 2% of the total world market for print and that the decline in North American newsprint is being offset to some degree by growth in emerging countries. TWST: What would you reasonably expect the company to look like in about three years? Mr. Puehringer: As we did over the last years before the world economic crises also hit our industry segment, we want to continue to show consistent profitable growth. We want to expand our position in recurring revenue such as consumables, service and spare parts. We will build an even stronger presence and a stronger revenue base in emerging countries. We will prove to our alliance partners that they made the right choice to join forces with Baldwin. And finally, we will further strengthen our relationships with the OEM press manufacturers. TWST: What might be some year-by-year milestones that investors could be looking for? Mr. Puehringer: A key milestone will be growth in market share. With the exception of organic growth in our recurring revenue components, we are not relying on organic growth for press equipment. One aspect of this is we are looking to consolidate the industry. So the growth of market share in the equipment segment is important. A second indicator is the growth of our recurring revenue stream. Our consumables are the answer for environmental pressure that the printers are facing. We see a growing market share with our consumables. That’s one of the reasons why more than 50% of our revenue stream was from recurring revenues in the last quarter. Investors also need to look at the consistent cash generation, top-line growth and growth in profits. TWST: Would you tell us about your own background and expertise and the same for one or two of your colleagues?

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Mr. Puehringer: I’m Austrian. I studied physics at the Technical University in Vienna, then joined forces with an Austrian industrial firm and managed their operations in Mexico and Indonesia where we built and installed power plants. Later I attended Stanford University for an Executive MBA, served two and a half years in management consulting and then joined Baldwin. That was almost eight years ago. I initially managed global manufacturing and then managed the European business. I became President and COO of Baldwin Technology in the summer of 2005 and became President and CEO in the summer of 2007. I have been living with my family for the last three years in the United States. I have two children. Dr. Steffen Weisser, our general manager of Baldwin’s German operations, joined us in September 2007. His managerial background from the German textile machinery industry has come in very handy in our recently implemented restructuring initiatives at our German operations. Steffen consolidated our operations in Germany to improve the cost structure. We just completed that process in March 2009 and I am pleased with Steffen’s leadership role during that process.

“We have operations in China and in India. Those countries – even in this current financial downturn – show very solid GDP growth rates, they have increasing literacy rates and a growing middle class. These are fundamentally good indicators for growth of demand for print and therefore for growing demand for print equipment.”

TWST: When you became CEO, did you institute any changes in how things were done? Mr. Puehringer: I became CEO in the summer of 2007. The focus at the beginning when I became CEO was the integration of two acquisitions that we had just concluded, Oxy-Dry and Hildebrand. The integration of those two businesses was a primary focus. I also strengthened our leadership structure. I hired a new Chief Financial Officer, a new President for our important Japanese operations, and a new President for our German operations. We also have been highly focused on leveraging our global position through alliances and we have been able to strengthen our position in the emerging countries. Since last October, we have had to deal with the current economic situation. TWST: In integrating these other companies into your structure, what were the key factors? Mr. Puehringer: At the beginning, it was undoubtedly communications, both internally as well as externally. We needed to communicate to our customers the logic of why we acquired those two companies. This was actually a fairly easy task because they were very logical acquisitions, a very sensible bolt-on expansion of our technology in segments that we serve. It was very reassuring that customers warmly welcomed the two acquisitions. Communication on the internal side was very, very important in explaining to the employees of the acquired companies what their

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future would be like with us and how we intended to integrate their operations into our company. We also had to do some initial restructurings. We had some layoffs, but we did those fairly quickly and efficiently. So communication was first, restructuring was second. The third area of focus was product development. We updated their technology and introduced new versions of their products. TWST: Do you see any need to improve the company’s capital structure? Mr. Puehringer: No. I believe the capital structure of our company is strong. Our current net debt is around $15 million, which I view as the right level for a company our size. TWST: Do you feel that Baldwin is sufficiently well understood by the investment community or are there things they might be missing? Mr. Puehringer: I believe investors are failing to appreciate Baldwin’s growth opportunities. What we are often fighting here in the United States is the current stream of bad news about the US newspaper industry. Whenever investors talk to us, they point to the slowdown in the US newspaper business, which they interpret to mean that print is going away. That’s absolutely not the case. I want to emphasize that while newspapers in North America are a challenged industry and the newspaper tonnage will be reduced significantly, that only represents 2% of a $600 plus billion global print market. The largest segment of print is packaging — 33% of print volume is driven by packaging and the packaging segment is growing both in developed as well as in emerging countries. So the image problem we have been continuously struggling with over the last 12 to 24 months is that Baldwin, as a company that serves the global printing industry, is identified with the gloomy news coming from North American newspaper publishers. TWST: What would be the two or three best reasons for the long-term investor to look closely at Baldwin Technology? Mr. Puehringer: The best reason to buy Baldwin shares is our stock price. Our current share price does not represent the substantial current and future value of the company. Therefore we believe Baldwin represents a great investment opportunity. The second reason is cash. We have been a consistent cash generator for years by being profitable and by managing our working capital in a very professional and successful manner. Investors should look at the opportunities for this group. Look at our strong global brand. Look at our highly efficient and effective global infrastructure. Look at the unique suite of technologies we offer and the corresponding opportunities. We have communicated to our investors that going forward we see further growth potential. TWST: Is there anything that you would like to add or re-emphasize? Mr. Puehringer: I would re-emphasize that we believe our current stock price does not reflect the true value of the company. I also want to stress Baldwin’s consistent cash generation capability, with consistent earnings over the past years, a cash tax rate at or below 20%, and strong working capital management all contributing to positive cash flows. Thirdly, we are building our future on a strong set of assets. We will further leverage those going forward. We are really excited about our opportunities. We have a great management team. We have strong technologies. We have a solid, efficient infrastructure and The Wall Street Transcript — June 29, 2009 113

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we now have the right cost structure for a market that has experienced a significant downturn. We look forward to the time when market demand returns to more normal levels and we can take full advantage of the leverage we have in a print market that is clearly not going away. TWST: How has your training in physics and in the MBA program at Stanford benefited you as you look across the length of your career? Mr. Puehringer: My studies of technical physics at the Technical University in Vienna were invaluable. I gained significant knowledge of engineering and science fundamentals so I feel at home when it comes to design of products and processes within the printing industry. The five years in Vienna gave me a very solid basis for my professional career. The Stanford Master’s degree at the business

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school involved understanding and managing financial statements, the importance of the balance sheet, cash flow and management-related processes. I learned management tools that I apply every day in my position as President and CEO of a public company. TWST: Thank you. (MC) KARL S. PUEHRINGER President & CEO Baldwin Technology Company, Inc. 2 Trap Falls Road Suite 402 Shelton, CT 06484 (203) 402-1000 www.baldwintech.com

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CIRCOR International, Inc. (CIR) WILLIAM HIGGINS is the President and Chief Executive Officer of CIRCOR Interational, Inc. He joined the company in January 2005 as Executive Vice President and Chief Operating Officer, responsible for implementing the company-wide Lean Manufacturing initiative and was promoted to President in November 2006. He was elected to the Board of Directors on February 20, 2008, and became Chief Executive Officer on March 1, 2008. Prior to joining CIRCOR, he held a variety of senior management positions with Honeywell International and AlliedSignal, serving in general management leadership roles in their automation, aerospace, and electronics manufacturing and service businesses in the Americas and Asia. He began his career with United Technologies Pratt & Whitney Aircraft. He holds advanced degrees from Rensselaer Polytechnic Institute and Columbia University, and obtained his undergraduate degree from Middlebury College.

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX624) TWST: Would you begin with a brief history of the company and what your focus is on now? Mr. Higgins: CIRCOR was created in 1999 when the company was spun out of Watts Water Technologies, Inc. We were established to operate the former industrial oil and gas businesses of Watts. So although we are relatively new, we consist of a number of businesses that were acquired over the years and which have long histories and solid reputations in their markets. We are a global, diversified manufacturer. In CIRCOR’s early years we were focused primarily on manufacturing valves and specialty valves using all kinds of different applications and serving many different industries. Since the spinout in 1999, we have expanded the company, mostly through acquisitions. CIRCOR is currently composed of more than 30 companies, businesses, and product lines, which we group into three major areas: Energy, Aerospace and Industrial. Our Energy group represents about half of our company and serves the oil and gas industries. CIRCOR’s Aerospace group serves both commercial and military aerospace programs. Our Aerospace and Energy groups are very industry-specific. Our Industrial group services a wide range of industries, including industrial process, power generation and steam/HVAC. TWST: With the current focus on energy and energy efficiency, do you expect that the energy component of your company is going to expand? Mr. Higgins: The Energy group services the oil and gas industry, so right now it is a very cyclical industry and most of what we service is natural gas-related. About 70% of our energy-related business is natural gas and about 30% is oil-related. Even though we’re in a down cycle right now, longer-term, we believe that natural gas is a very good place to be. TWST: What is the division of your holdings between domestic and foreign?

Mr. Higgins: Our revenue breakdown is about 50% domestic and 50% international. TWST: Do you have holdings in Asia and Europe? Mr. Higgins: We do. The majority of our businesses are located in North America and Europe. Also, we have a manufacturing plant in China and sales globally. TWST: How has the recession affected your business? Mr. Higgins: In the energy market the slowdown in upstream production and natural gas has decreased significantly since the high of those markets, which was around September of last year from a production standpoint. Businesses that are related to capital investments around the world, industrial processes, also have slowed down. We have some other businesses where we provide an after-market product for an MRO-type application, which seem to be holding up well. We service the power generation industry, which globally seems to be okay. So the recession has had a mixed effect on CIRCOR, but considering that a large percentage of CIRCOR’s end-markets are related to the oil and gas industry, we are seeing the greatest impact on our Energy segment. TWST: With the cyclical slowdown combined with the recession, it’s maybe a little slower than it would be without the recession? Mr. Higgins: Absolutely. This is probably the most significant slowdown we’ve seen in industrial markets in a long, long time. TWST: What are your priorities over the next four to eight quarters? Mr. Higgins: There are three key priorities that we are driving across the entire company. We’re in very good shape from a balance sheet standpoint. We have cash and we have done a nice job in the past few years improving the operational performance and profitability of our business units. So our first priority is to continue to maintain the improvements we’ve made and to generate a high quality of earnings. Our second priority is to protect our cash flow and continue to generate cash. Our third priority is to The Wall Street Transcript — June 29, 2009 115

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invest in strategic initiatives that we’ve identified across the corporation. By investing in these critical strategic initiatives, we can come out of the recession not only as a much stronger company than we have been historically but also stronger than our competitors and peers. TWST: Would you give us a couple of examples of these strategies? Mr. Higgins: One of our key strategies is developing CIRCOR’s global supply chain and global manufacturing capability. We have invested in China in the past few years and we are investing in building an operation in India this year. As a company, we have a strategic initiative to build a core competency around global supply chain management and global manufacturing. That’s new for CIRCOR. TWST: I understand that your strategy is two-pronged at the moment: acquisitions and internal product development. Is this an additional segment to your strategy or is this something you expect to be incorporating over the long term? Mr. Higgins: Our strategy also includes an organic-based initiative. A key part of this initiative is the Lean implementation that we have been successfully implementing during the past few years. We’ll continue to aggressively build a culture that’s based on efficiency and Lean flow throughout our businesses. Our Lean improvements enable us to reposition product lines in our plants, consolidate facilities and easily drop in newly acquired businesses or product lines into our existing plants.

"For a company of our size, we have a very good presence in both Boeing and Airbus. We have built a good reputation and we are doing more and more work for them."

TWST: What are a couple of your most exciting product lines right now? Mr. Higgins: The power generation marketplace is very interesting right now, and we service that space through a number of different types of valves that are used in power plants. We also have a valve product line that is being used on the Navy’s new aircraft carrier. That product line has been a real success for us. Our aerospace business has done a very good job of expanding their products’ range and capability with both the US aerospace and European aerospace industries. TWST: You have contracts within both segments, within the US aerospace industry and within different European segments of the aerospace industry? Mr. Higgins: Yes, we do. For a company of our size, we have a very good presence in both Boeing and Airbus. We have built a good reputation and we are doing more and more work for them. TWST: What are a couple of reasons for investors to look closely at your company right now? Mr. Higgins: First, we have a great balance sheet with virtually no debt. And our strong cash position allows us to con116

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tinue to invest in product development and acquisitions. Second, we have demonstrated during the past several years that we have been able to improve our businesses. And finally, we have entered this down cycle a much stronger company than we have been historically, and we expect to emerge a much stronger company when the economy rebounds. TWST: At the moment, are you planning on acquiring anything else or are you waiting for the recession to turn before you do so? Mr. Higgins: We are continuing to seek acquisitions as we have during the past couple of years. We didn’t complete any larger acquisitions in the past two years, primarily because prices were so high that we didn’t see the return on the investment. We believe that the market dynamic is changing and now is a good time to look at companies that would strategically fit with CIRCOR. TWST: What is your competitive advantage? Mr. Higgins: We have strength in particular niche markets where we have a high value-added engineering capability. We are also developing a very strong operational excellence culture with Lean. That combination enables us to provide not only an excellent product, but also deliver great service. TWST: How do you enforce the operating culture internationally? Mr. Higgins: We are implementing Lean transformation around the world. Each CIRCOR operation has leadership in place today that embraces and is implementing Lean. We continue to teach our employees about the benefits of Lean; we have people responsible for it and we monitor our progress very closely. TWST: Would you give us a bit of information about your background and that of several other key executives? Mr. Higgins: I’ve spent most of my career years with what was AlliedSignal and then became Honeywell, running different businesses. Much of this time I was in Asia, working and living in Japan as well as developing businesses throughout Asia. I have a lot of experience with Six Sigma and Lean in manufacturing and engineering businesses. This includes diversified businesses like CIRCOR. Our CFO, Fred Burditt, was recruited from Danaher. Fred brings the Danaher know-how that they’re recognized for. This know-how is a combination of successfully integrating acquisitions as well as improving businesses through the Danaher Business System. During the past couple of years, CIRCOR has developed the beginning of a business system approach with Danaher being a role model. Also, during the six months after I joined the company, we recruited an executive HR leader, Susan McCuaig, who is responsible for helping us develop talent as part of our strategy to invest in the best people we can possibly find. We’re focused on not only rebuilding the company’s processes, but our people and leadership teams. We have done a lot of work there. TWST: How big is your R&D team? Mr. Higgins: We have R&D in each of our businesses. It is not centralized, but spread throughout the company. We have a greater investment in R&D in those parts of our businesses with custom-designed products and systems than some of our more basic product businesses.

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TWST: Is there anything that you’d like to add? Mr. Higgins: I would like to reinforce that we have redesigned a lot of our basic manufacturing processes and we continue to implement Lean. Additionally, we have recruited great talent to CIRCOR and we continue to develop that talent within the company. As a result, we have a solid foundation, coupled with a great balance sheet. We’ve got a lot of room to grow. TWST: Thank you. (MR)

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WILLIAM HIGGINS

Chairman, President & CEO CIRCOR International, Inc. 25 Corporate Drive

Burlington, MA 01803 (781) 270-1200

(781) 270-1299 — FAX www.circor.com

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Snap-on Incorporated (SNA) NICHOLAS PINCHUK became Chief Executive Officer of Snap-on,Incorporated in 2007. He joined the company in 2002 as Senior Vice President and President of Snap-on’s Worldwide Commercial and Industrial Group. Before Snap-on, Mr. Pinchuk was President of global refrigeration operations at Carrier Corporation, a subsidiary of United Technologies Corp. Mr. Pinchuk holds an MBA from Harvard, and Master and Bachelor of Science degrees in Engineering from Rensselaer Polytechnic Institute.

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX629) TWST: Would you start with a brief overview of your company? Mr. Pinchuk: Snap-on has a pretty strong history. The company was founded in 1920, almost 90 years ago, and it was founded on an innovation. A young engineer saw a need in the fledgling automotive industry. About that time, there were probably only 7 to 8 million cars around the United States. But what he saw was that there was a growing need for a versatile tool because the cars were all slightly different. Mechanics needed something to address the varying physical dimensions of an automobile. So what he did was take 10 turning sockets of various sizes to handle the various sizes of the fasteners that were in the car. Then he fashioned five different handles to address the varying configurations and geometries on an automobile and he made them interchangeable. So he made 50 possible tools out of the 10 sockets and five different handles. He went on the road displaying those tools on green felt, saying, “These are special tools, we treat them like jewels.” He used what was a productivity-based selling point that said, “Look, five handles do the work of 50 different tools.” And they snapped together. Thus, the name Snap-on. The company moved on from there, it grew with the automotive repair industry. In 1939, we declared our first dividend and we have paid one every quarter since and we have never reduced it. We survived a depression and the wars. There are numerous legends around all of those. Most important, after World War II, we established what has been the nameplate of the corporation, the franchisee van distribution model. Now, we have 3,446 franchised vans that move around the United States from garage to garage calling on technicians. I believe that distribution model is one of the strongest anywhere today. So the vans worked out well. Over time, the corporation built the Snap-on brand into a workingman’s icon. I regularly will be in a public place, such as on an airplane or in a restaurant, and get favorable comments about our product. Just the other day, a flight attendant came up to me and asked, “Are you the Snap-on guy? You guys make good stuff.” And on that same plane, a guy behind me leaned up and said, “My grandfather willed me his 118

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Snap-on tools, I love them.” It really is an icon for the workingman. It’s a very strong brand. It’s a brand that not only creates productivity in the workplace, but it also has evolved into a badge of professionalism. Some people will tell you, if you don’t use Snap-on tools in an automobile repair garage, you’re not really a professional. By the way, I can’t claim any ownership for this, because I have only been here seven years. So the people who established this brand did it long before I showed up. They built it up with almost 90 years of hard work. I start every day by thanking my good fortune for having inherited those strengths. Over the decades, we’ve acquired other strong brands. In the late 1990s, we added a brand called Bahco. In Europe that name is synonymous with adjustable wrenches. If they want an adjustable wrench on the continent, they say, “Give me the Bahco.” We acquired Sioux Power Tools and John Bean car aligners, SUN Diagnostic System and Hofmann tire balancers. So, Snap-on has evolved over the last, say, couple of decades, from sort of a branded house into what it is today, which I think is a house of fairly strong brands. Just another point, I think, we did grow with the original hand tool automotive repair business. That original 7 to 8 million vehicles became 250 million vehicles in North America and we grew along with that expansion. But then we discovered that we could extend out into mission-critical industries like oil and gas or power generation or aerospace and provide productivity solutions for those customer segments. So now, only about a third of the business is generated by the original van model. We also extended geographically. Now, over 40% of the business is outside the United States. Often, when people think of Snap-on, they envisage the white franchised vans crisscrossing the country, selling wrenches, screwdrivers and other tools. Today, however, that represents about 30% of business. TWST: How are the recession in general and the trouble in the auto industry specifically impacting the business? Mr. Pinchuk: Actually, we are not tied to the auto industry in a big way. When you say auto industry, I believe you mean auto manufacturing. We mostly operate in the auto repair industry. And in this period, there is quite a bit of divergence between the health of those two segments. The auto industry after all has hit a relative low in terms of number of new cars sold. The total number

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of cars on the road or at least registered in North America is still pretty high — 250 million — and they are getting older. TWST: So that’s really a boon for you? Mr. Pinchuk: It actually helps. In fact, 43% of the cars today are over 10 years old and two-thirds are off of warranty. So in effect, the fewer new cars, the older the overall car parc. As people have decided not to buy new cars, the alternative is to put more money into repairing their existing car. That’s a favorable trend for Snap-on. There was an eye-catching article the other day in one of the national newspapers. The headline read, “Economy Glum, Repair Shops Hum.” It makes sense. Auto sales are down; the vehicle part is aging, repair activity increases. In the United States, people need to drive just to buy groceries. So it’s not so likely that the current demand for vehicles, old and new, will change greatly. It can tweak up and down a little bit, but generally vehicle numbers will remain in about the same level as today. The result is that repair remains stable and with the aging of the car parc will actually increase. Snap-on, however, is not only in automotive repair.

“Some people will tell you, if you don’t use Snap-on tools in an automobile repair garage, you’re not really a professional.”

Regarding the current recession, our base industry, automotive repair, remains robust and the sale of hand tools via our van remains reasonably strong. Snap-on hand tools make work easier, help the auto technician make more money, and represent a purchase with a reasonably short payback. But, we also sell, what I call, big-ticket items, almost a capital investment. An example of this is our tool storage boxes. Some of these units are very large, very elaborate, and sell for five figures. So the sales of these have been in decline because technicians view them as capital purchases. Although the techs are busy and have cash, they’re reluctant to commit to these big-ticket items in this time of uncertainty. So sales in that category are down. We also sell other big-ticket items, like car lifts, aligners, and wheel balancers, all of which require a larger investment. People appear to be cutting back on their capital purchases in this time of uncertainty even if they’re generating cash. Repair shops are doing well, but they are being conservative with their cash. We’re seeing this clearly in sales of our big-ticket items. We also have business in Europe, where we sell in a variety of industries. Europe is down substantially, much worse than the USA. The German GDP numbers were devastating in the first quarter, and we see some of that impacting us. Our emerging markets businesses, in China and India, are still humming. Other parts of Asia, however, are a little bit down associated with currency and other events. If you go across Southeast Asia you will see Thailand has political unrest, Malaysia is facing an election, Vietnam has inflation, and Indonesia has currency issues. So Asia is mixed, but China and India are still strong.

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Finally, the tool business is quite immature in emerging markets. The automotive repair business and, in fact, the repair business in general, is immature throughout the emerging markets. If we were talking about appliances today, and we were saying, let’s penetrate China, I would say, “I think the keep-out signs are already up.” But the tool business and the repair business in general, whether it is about automotive or aerospace or oil and gas, is very much in a primitive state. But it’s growing rapidly and it is unclaimed. There are no big players. So we believe we can take advantage. We can wield our strengths to advantage in those places. I like to recall my trip to Shanghai in 2003. It’s a city of 18 million people, and when I arrived the only people who worked for Snap-on in that huge city came with me on the plane. So we had little resources in Asia, two offices: one in Singapore, one in Beijing. By the end of this year, we will have 30 offices, four factories and a fairly full product line locally manufactured. And we’re doing the same kind of thing in Eastern Europe. In the next couple of quarters, we will complete a plant in Minsk in Belarus, and another facility in Shanghai. So, even in the downturn, we’re working hard to create the physical presence necessary to pursue the rapid growth in the emerging markets.

“Every time technology changes in the automotive repair business or any other business, they need new tools to deal with the revisions. We’re ready to accommodate."

facility.

TWST: Would you tell us about the Innovation Works

Mr. Pinchuk: I believe I’ve already mentioned that Snap-on was founded on an innovation. When we define who we are in our corporate mission, we say “We’re the people who provide the most valuable productivity solutions in the world.” And that value is based on innovation. When a technician gets on a truck, he often says, “What’s new Snap-on?” Our number of SKUs is about 65,000. It is a large number, but it’s put to good use. If you think about it, an independent repair garage probably operates on 15 to 20 badges, different kinds of cars, Chevy, Ford and so on. They can see 20 to 30 different model years. And there are about five new models per badge per year. There is extraordinary variety in the repair challenges, just in the different physical configurations of the vehicles. And if you put computers, vehicle diagnostics and electronics on top of that, it becomes a dizzying array. And, each new model year brings new challenges. So, there is a lot of opportunity for innovation and for years we’ve been providing new solutions. But the innovation was a kind of a cottage industry within Snap-on. It wasn’t really organized in terms of process. Despite the fact we have a strong tradition of innovation, we didn’t really have an organized repeatable process. We do, however, have about 3,500 or so vans on the road, serving technicians. We also have 3,000 direct sales reps feeding information from customer contacts. But we didn’t have it in an organized process. 120

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So, recently, we’ve organized a structured innovation process, feeding multiple ideas from all those customer interactions at the beginning of the process. They’re gradually eliminated as development and testing proceed. In the end, we finish with one or two products which have a great chance of success. We find it to be a process which is repeatable and efficient. We’ve also established better linkage with our customer input. Now that’s where the new Innovation Works plays an essential part. For the first time, we’re placing customer observation in the same physical location as prototyping and development. That’s the power of our Innovation Works. We have real-life work spaces for vehicles, for heavy trucks and for those mission-critical applications. We have rooms where we can observe customers working in those areas. Our engineers can see firsthand how to improve productivity. And, right next door, we have both two-dimensional modeling and three-dimensional modeling rooms. We also have design areas where we can brainstorm an idea and training areas where we familiarize customers and sales reps with Snap-on systems. So I think the one sound byte for Innovation Works is, “bringing customer observation up close and personal to modeling and development.” TWST: What are the types of products that you expect to come out of there? Is it primarily focused on the auto repair segment? Mr. Pinchuk: Not exclusively in automotive repair. We do have the vehicle garage set up specifically for that. We expect it will create innovation for car repair. But we also have equipped an industrial/heavy duty area. It will lead to advancements in heavy trucks, airplane engines, and a variety of large industrial-type applications. In that regard, wind power appears to be a segment of some promise. There are a large number of fasteners in every windmill, and therefore, a lot of maintenance. It’s estimated that for every five turbines, two technicians are required. Over the next 10 years, 75,000 new turbines are projected to be installed in the United States. Match that to the 55,000 in Europe and another 60,000 in Asia. It all adds to about 200,000 turbines. In our terms, that’s 80,000 new technicians that we can tool up with special equipment focused on wind power. We’re now developing that product line. We’re doing it in our Innovation Works. So the new facility will provide advancements in auto repair, but it’s also aimed at a much broader array of applications. It will support hand tool development, which is what most people envision when they think of Snap-on. But, it’ll also be pivotal in developing groundbreaking power tools, vehicle diagnostic devices, and undercar equipment. Regarding undercar equipment, Snap-on is the leader in an exciting new technology called imaging. It has broad application, but let’s discuss tire balancing. You may not realize this, but most tires are out of balance, asymmetric in shape and weight. Every tire is not round. You have to get your tires balanced or you’ll have a very rough ride. To balance the tire and correct the asymmetry, an old-style balancer will physically spin the tire until it can measure the forces created by mismatch. They experiment with that. Weights are placed at specific places on the rim to offset the asymmetry. If you look at your tires, you will find the weights placed near the rims. The balance eliminates the vibration when rolling down the road. This procedure, in fact, is becoming more important as fuel economy concerns drive cars to become lighter. Snap-on performs the balance faster, easier, and more accurately

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using its imaging technology. We profile the tire with a laser to aid the balance, making it more effective. So that’s the kind of technology being developed and extended in the Innovation Works. So, those are the kinds of things we’re doing. TWST: Do you expect Snap-on to gain any benefits from the federal stimulus package? Mr. Pinchuk: We’ll gain in a couple of areas. To the extent there is construction on highways with heavy equipment, we provide maintenance for those rigs. We provide tools for the factories and construction of that heavy equipment as well. So we get those two benefits. In addition, to the extent the stimulus package gets directed to changing the face of the vehicle population, driving for lighter cars or more fuel-efficient vehicles, this helps us. Every time technology changes in the automotive repair business or any other business, they need new tools to deal with the revisions. We’re ready to accommodate. So such changes tend to give us a boost.

“We have paid a dividend every quarter since 1939 and we’ve never reduced it. That’s probably one of the longest such records."

TWST: You mentioned in your first-quarter earnings call that you anticipate some restructuring this quarter. Would you talk about what you’ve already done, what is in the works, and the restructuring that is planned for the rest of the year? Mr. Pinchuk: I think I can only reiterate what was said in the quarter call. Restructuring is going to be about $8 million to $12 million in the quarter and some of that has been accomplished and some of it still hasn’t been. We’ve done some in Europe and we’re probably going to do some more in the United States as well. But that’s still on track. For the year, I believe we said we’d do between $14 million and $18 million worth of restructuring. So I think that’s about all I can say about our activity in that area. TWST: Also in that call you talked about how cash flows were down quite a bit in first quarter. Would you talk about plans to restore cash flows and where you are on that? Mr. Pinchuk: There were some special items which impacted the cash flow comparisons. I believe the numbers were something like, net cash provided by operating activities was something like $15 million. And that compared with $74 million last year, if I recall. But actually, the apples to apples numbers were more like $33 million versus $51 million. As I said, there were some specials in the cash. For example, we settled some foreign exchange hedge payments in the first quarter of 2009 that didn’t occur last year. And last year, we had a significant favorable release of escrow for an acquisition that was accomplished in 2007. So, if you adjust for all that, you are back to the $33 million versus $50 million I mentioned previously. And most of that can be accounted for by the year-over-year change in net earnings. Having said that, I believe you will continue to see strong cash flow going forward for Snap-on.

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TWST: What are the top reasons that investors would want to take a closer look at your company? Mr. Pinchuk: I think one is that we operate in robust markets. Automotive repair is not automotive manufacturing. Automotive repair is a very stable and strong market. It’s vibrant in recession and boom. We also are in a good position in other attractive markets, which I think over the long-term will be very strong. These are mission-critical markets such as aerospace and oil and gas and heavy trucks and government. We’re building our position in those places. So I would say that we operate in attractive segments. Secondly, I believe in those industries, we wield considerable strength. Our brand is among the strongest. A sales leader for one of the major automotive manufacturers told me that when he goes into one of the dealership garages, if the technician does not use Snap-on tools, he starts by rationalizing why he doesn’t. The brand strength is backed up by strong processes. If you’ve held a Snap-on tool, you’d know that it was better. Bahco is our European-based brand and a Bahco saw cuts faster and lasts longer than any other. John Bean aligners work more accurately, faster and simpler than any competitor. So we have strong products and strong brands. And they are backed by real and unique capabilities. We have unusually broad customer connections because of the 3,500 vans crisscrossing the US and our 3,000 direct sales reps. Behind all that, we have some exceptional technical know-how. Our people, whether in Europe or the United States, are experts in workplace ergonomics. We have some world-class engineers working on advancements such as the imaging technology I mentioned earlier. Thirdly, if you look at our record, I believe you’ll see that – improvement, our robust processes have been driving encouraging performance. I’ve said in the past that the last time Snap-on had comparable sales to the most recent period was the first quarter of 2006. Our volume in that period was about the same as recorded in the first quarter of this year. But the 2009 operating profits were over 400 basis points higher than in 2006, just three years ago. I believe that’s encouraging improvement and it’s been authored by a suite of processes we call Snap-on value creation. So, the third reason to invest in us is our strong processes. Activities such as what we call rapid continuous improvement, the customer connection, and innovation and user insight. All powerful and enabling processes that help our corporation make the most of the environment. Then finally, I believe it’s worth noting that Snap-on, over all the years of the history of stability and improvement, we have paid a dividend every quarter since 1939 and we’ve never reduced it. That’s probably one of the longest such records and another reason to invest. TWST: What are your top goals for the business this year that investors could look at to say, “Okay, this is what they said their goals are, are they are accomplishing them by X point in time?” Mr. Pinchuk: We expect a limit to the damage against whatever sales downturn we encounter. We expect to cut into difficulties with our improvement processes. Secondly, we expect to make progress in these four decisive areas. We expect the health of our vans to maintain or get better; we expect our share in missioncritical industries to increase; we expect our position in the repair garages of the world, in terms of product and share, to get stronger. The Wall Street Transcript — June 29, 2009 121

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Fourthly, we expect our physical capabilities, in terms of manufacturing capabilities, sales networking, and product lines in emerging markets, to expand. TWST: How would you describe your management style? Mr. Pinchuk: My task is to drive strategy. That’s my main focus. It’s particularly tailored to Snap-on. It’s a company with great advantages. So what I do is work with my management team to find ways to capitalize on those advantages, to try to put our businesses in places where it is easy to make money and because our advantages are decisive in that space. And then, certainly, behind that drive for strategic positioning, we want to keep tuning and driving our Snap-on value creation suite of processes so that we

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give the organization tools to improve. Then finally, I think part of my job is to make sure that we create an atmosphere, where we are proud of who we are, but unsatisfied because of who we could be. So we keep driving for improvement and to make the most of the abundant opportunities before us. TWST: Thank you. (MES) NICHOLAS PINCHUK CEO Snap-on Incorporated 2801 80th Street Kenosha, WI 53143 (262) 656-5200 www.snapon.com

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TriMas Corporation (TRS) DAVID WATHEN, President and Chief Executive Officer of TriMas Corporation, began his career in 1977 at General Electric Company, where he served in various capacities for 12 years, including several leadership roles. He later became Senior Vice President, Group Executive and President of CutlerHammer, Inc., an independent subsidiary of Eaton Corporation, where he successfully completed the integration of the $1 billion Westinghouse electrical business, reorganized the company, led five acquisitions and created a new service business that produced incremental revenues of $100 million in its first year. Mr. Wathen also spent time at Emerson Electric Company as President of its U.S. Electrical Motors Division. Most recently, he served as President and Chief Executive Officer of the North American Operations of Balfour Beatty Inc., a leading, publicly traded UK-based engineering, construction, services and investment business, where he ran a business with over $1 billion in revenues and approximately 4,000 employees. Mr. Wathen obtained an MBA from St. Francis College and a BS in Mechanical Engineering from Purdue University.

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX610) TWST: Would you give us a brief historical sketch of your company? Mr. Wathen: What is now TriMas has been around for decades. Originally, it was part of another corporation, but TriMas has always operated as a set of independent businesses. The common thread between our past and now is our focus on industrial and commercial customers. TriMas has been headquartered in the Detroit area for a long time, but we have very minimal exposure to the automotive industry. The other common theme over time is that we produce — we did and we still do produce — engineered and applied products. The company became a public company in the early 1990s. And then, like a lot of other companies, in 1998 TriMas was taken private. We re-emerged a decade later, in May 2007, with an IPO and sold 11 million shares of common stock at $11 per share. The real significance of that is that the IPO was substantially about paying down debt. We are still in the process of paying down debt. Today we trade on the NYSE. While there has certainly been some focus on what businesses we want to be in and which ones we don’t want to be in, TriMas continues to operate 10 diverse businesses. The common themes for each of our businesses are: technologically differentiated products; engineered applied products that are quite focused on specific customers; and we’d like to think that all of our customers are in growing markets. For 2008 our revenues were approximately $1 billion dollars. We are now at about 4,000 employees. We have 70 facilities in 11 different countries. TWST: You mentioned that you have 10 businesses currently. What are they? Mr. Wathen: We operate as 10 business units, which roll up into the five segments that we actually report. But we do operate

as 10 separate businesses, and I have 10 divisional Presidents who report directly to me. We have a Packaging Systems segment, an Energy Products segment, Industrial Specialties, RV & Trailer Products is the fourth and Recreation Accessories is the fifth. TWST: Whom do you sell to? Mr. Wathen: We sell almost exclusively to manufacturers who use our products either in what they build or in their plants. For example, we have a business that sells components used in plant rebuilds, gaskets, fasteners and that sort of thing. So when Exxon or Dow is rebuilding a refinery or a chemical plant, for example, they use our components. We do have some products that wind up in consumers’ hands, but we generally sell through another manufacturer or a distributor. So in the scheme of things, you could call us an industrial/ commercial set of businesses. We do think a lot about what markets we’re in, but also about what customers we serve. As I mentioned earlier, we like to serve customers who are in growing markets. We have quite a few medical products and it’s easy to say we want to be there. But we want to be with the right customers, too. It is important that you pick the right horses to ride. We are not all things to everybody, we are pretty focused. TWST: Are there specific growth initiatives that you currently have under way? Mr. Wathen: Yes, there are. We actually just finished our 2009 strategic planning process. As you know, I started here at the beginning of the year, and we have installed a new set of structured processes since then. I am a fan of structured processes — the way you look at your strategic plans; how you put operating plans together; how you tie your incentive systems to them; and how you make sure you have the right people in place. We have installed all those processes, including a strategic planning process. This year, my primary goal was to decide what projects and programs we are going to work on for the next three years. The Wall Street Transcript — June 29, 2009 123

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That’s definitely one of the levers that a CEO can control. I really wanted to reach an agreement with each of the 10 business units on what they are, and are not, going to work on. That way, we are not working on other things. With that set of plans for the businesses, there are two messages to convey: First, that the plan covers 150 total programs for the 10 business units, which are to be executed over the next three years. This is a reasonable number. We were quite thoughtful about which businesses we want to spend more money on and those we want to spend less on. Also whether we want to add more people or not, and where we would want to do bolt-on acquisitions. The plan includes all of that and adds up to 150 specific projects that require resources, goals, spending commitments and people. These projects are kind of split, with two-thirds involving what I call, “new products that expand what we already have or add features.”

”We do really try to stick to our intent to be number one or number two in our markets. And that isn’t in huge, broad markets — we’d never be number one in medical or number one in energy, but in the spaces that we go after, we make sure we are real good at what we do."

For example, we have a business that sells under the brand name Monogram Aerospace. It makes the blind fasteners used in aircraft construction. Their two biggest end-customers are Boeing and Airbus. They also sell to others, from military to business jets. But that business has already started — and is ready to do a whole lot more — with special titanium screws, collars and other fasteners that are used in assembling aircraft. As you can imagine, assembling aircraft, which are made out of multiple kinds of materials, and some composite materials requires being able to fasten parts under high-stress and different-temperature situations. It requires technically complex fasteners. This is where you have an opportunity to think about how you can differentiate your products, where can you solve a problem for a customer — are you doing something for a customer who will value it, want it and need it? After all, it is the customer who will do the work to get our new products applied. So far, so good — the Monogram business has done a good job, and will continue to spend money and hire people to do that. We’ve also got a pretty good-sized packaging systems business. Most of it is sold under our brand name, Rieke. If you operated in that world, you’d recognize Rieke for sure. That business makes about everything you can imagine in packaging except commodity products. It started with industrial closure products but has really been growing in the specialty areas of pharmaceuticals and medical. Of course, medical is growing for lots of reasons and Rieke is working hard to roll out a whole lot of products — such as applicators used in surgical procedures. In the pharmaceutical area there are a lot of interesting new products — even in consumer markets — new kinds of dispensers that measure how much comes 124

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out with every pump. None of that is particularly difficult technology to think about, but to actually design it, build it and make sure every one of them works when it gets filled is actually more challenging, and Rieke is good at it. So that’s one of the things we will keep spending money on. The last example I want to comment on involves one of our energy products businesses, Arrow. If you are in an oil field or the gas industry, you would recognize Arrow engines. For years it has been just an engine business — these products are used to move the pumps that are at a well site. But we are in a pretty rapid expansion, adding to what we can provide at these sites. If you went through a well and looked around — this is always my test for the people who are in the business. That is, if I stood at a gas well or an oil well, a new one just coming in, and looked at everything that is going to get used — not just the pumps, but all the metering devices and the connectors, sensors and electrical devices, and all that — we need to be asking ourselves: How much of that we can make? We need to measure ourselves on our content, on how much we can provide for the well, whether it is new or old. Arrow is doing a nice job of growing that business. Again, it is not easy. It takes certified welders; it takes X-ray machines after you have assembled the tubing device with a meter in it. But again, that’s our thing. And it’s another example of how we identify the need for new products. In addition to the products we are planning for, the balance of the strategic plan is really about expanding geography. A good example of what I mean is that just in the last month, actually, we have started shipping out of our new Lamons facility in Rotterdam. We’ve had our facilities, which provide the gaskets and fasteners for refineries and oil services in lots of places, but not in Europe. We are serving the customers that are there and it’s, again, kind of natural to follow them. It’s not a trivial thing to start a new supply base right next to a major oil area like the North Sea. But we were willing to spend the money, hire the people and fly the trainers back and forth to get it going. We still need to do more of this in Asia and other places in the world. So we will carefully spend money and deploy our people and resources to continue to follow our customers. Rieke, for example, has got a design center in Europe designing products configured for the European market. Sometimes you could say European customers are out in front of US customers, and sometimes it’s the other way around. We just want to be sure we are where the most progressive customers are. TWST: What is the nature of the competition you face currently? And what do you see as your key competitive advantage? Mr. Wathen: First of all, because we are a diversified industrial technical business, we have no single competitor. The competitors exist at the business-unit level. Again, we don’t sell our products as TriMas, we sell under a variety of brand names — whether it be Rieke or Monogram, or Arrow or Lamons — and each brand has its competitors. That said, we do really try to stick to our intent to be number one or number two in our markets. And that isn’t in huge, broad markets — we’d never be number one in medical or number one in energy, but in the spaces that we go after, we make sure we are real good at what we do. So, again, our competitors are specific to each of the businesses, and we aren’t always number one and

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number two, but that’s sure our strategic goal in the businesses that we are in. We are focused on these business segments, and we will spend the money and resources to be a leader. We try to differentiate ourselves through technology. That means new products and different applications. We are aggressive in intellectual property, both in making sure we’ve got the right intellectual property and, when we have patents and if we think we need to, we defend them. We are aggressive about it because it is core to us. I guess the last thing I would say, I’m sure if you talk with people in our businesses here about what does Dave keep after, I always talk about cycle time and one of my sayings is that I would always rather compete on cycle time than price. I want to be the first one there, be the fastest to replenish orders, be the fastest to roll out a new product. So, another sustained competitive advantage that we are really trying to establish is cycle time. It’s not just talking about it. It’s every tool, it’s every tactic, it’s what kind of design programs we use and it’s how we manage the supply chain — it’s all of that. So I would say it’s our underlying technical skills and responsive cycle times that we are using to compete.

”I don’t think any of us can count on consumers ultimately buying as much as they did before. And, of course, the consumers aren’t going to be able to keep taking money out of their houses in the form of home equity loans like they were before. So, we all have to be realistic about what that means."

TWST: What kind potential industry or economic problems or challenges do you anticipate in the near term? Mr. Wathen: We’re certainly in the middle of the worst recession any of us have seen. I have been through several cycles, and this one happened faster and went deeper than we have ever seen before. That said, I think right now, looking at what’s going on, I would say the question is: Have we found bottom? Everybody has continued to strip inventory out of the channel. I have mentioned that we tend to serve other businesses and, because we have seen lots of people take inventory out just like we have, we really have been focused on ours. The question is: How much longer is it going to go on? So sitting here right now, I actually think that we are nearing the low-water mark. That’s kind of a broad statement about the economy. There are lots of pluses and minuses going on, but it does feel to me like we’re at least nearing the bottom and, I expect, will then be bumping along. If so, now the question is: When does it turn back up? I don’t want to kid myself, I don’t believe it will bounce back to the way it was a few years ago, but it will turn up some. The challenge has been making the right call about cost containment so that we stay profitable enough without cutting so far that we damage ourselves permanently for the future. Of course, that’s what people in business, me included, have to constantly think about — finding that balance. And I will share that we are already carefully adding back in a few places, underline “carefully.” But we are care-

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fully adding back in some product development areas — we want to try some experiments with some service businesses where we have strong product positions. We decided to do this this year, even though we are still experiencing tough times. TWST: You mentioned that you have about 4,000 employees. Has that been fairly stable throughout the economic downturn? Mr. Wathen: No, we had 5,000 employees two years ago. So we are no different from anybody else regarding reductions. TWST: Do you think that your markets have been permanently altered or is the economic disruption temporary? Mr. Wathen: There has been some permanent alteration. I don’t think any of us can count on consumers ultimately buying as much as they did before. And, of course, the consumers aren’t going to be able to keep taking money out of their houses in the form of home equity loans like they were before. So we all have to be realistic about what that means. We still have mighty strong economies that will get better. And the money is flowing in the financial circles, which we all have to have. So, yes, it will get better. But if I have to predict — and I do have to in order to think about how we will run our business — I do not see the economy popping back up to where it was. We’re going to run at a little bit lower levels than before. TWST: You had mentioned earlier that the IPO helped to reduce debt. Would you tell us about the kind of debt that you’re carrying currently, and about any problems that debt may be causing you? Mr. Wathen: A personal comment on industrial manufacturing companies in general: What looked like “okay” debt levels four or five years ago doesn’t look okay now. So be it. We’ve got to deal with it. We’ve been paying debt down substantially thanks to operating improvements. By the end of the first quarter (2009), we had paid down over $80 million of debt from the year before. In the first quarter alone, we paid down over $40 million of debt. That put us under $600 million of debt, which is a significant improvement from where we had been in the past. But by our measures, it’s still too much. We will continue to work toward reducing it. In our earnings announcements, we’ve been open about that. The guidance that I’ll provide — if you’re worried about how we’re going to meet our covenants — my guidance is: We will keep a cushion. I’ve been using the number “0.4 times.” People who track us know exactly what that means. They all know that our covenants drop down in the future again, like most debt situations do for most companies. And, of course, we know exactly what they are, and we have actions in place to make sure we keep a cushion. It is important to note that we have no significant debt expiration until 2012. Some companies have had a pretty tough time in the last year due to expirations. It was just the luck of the draw. We are on the lucky side of that, in that almost all of our debt isn’t due to expire until 2012. So, right now, it’s more about managing the level of debt on our maturities we have to pay, and making sure we’ve got a cushion with our covenants. That’s what we’re doing. TWST: Do you have any specific capital improvement programs underway that you didn’t mention earlier? Mr. Wathen: Yes, and, of course, again, every company has reduced their capital expenditure during the recession, just like they’ve reduced the number of people working in programs. That said, we have continued to spend some money. We bought a pretty The Wall Street Transcript — June 29, 2009 125

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expensive set of grinders. One of our businesses makes a drill and customers needed longer ones; that took a whole different type of grinder. I will tell you the other capital story is that we have actively sought buying from distressed companies. We’ve bought molding machines from a bankrupt competitor — you’ve got to take advantage of such a situation when it’s there. I feel like we’ve been fortunate in finding some bargains on the capital equipment we tend to use in our facilities. We use a lot of precision equipment. So, yes, we’re spending capital carefully. TWST: What is your attitude toward M&A activities? Do you foresee opportunities increasing or decreasing in the near term within your industry? Mr. Wathen: I’m hesitating because I don’t know whether it is increasing or decreasing. Prices have come down, but money is expensive. So, while we keep our ear to the ground, I am personally quite cautious. I am really only comfortable with the idea of bolt-on acquisitions in areas we are quite familiar with, rather than making a jump into something new. It’s a risk profile thing. Speaking for times like this, I’m always going to try to keep the risk profile down in an acquisition. When we find them, we are willing and we have some financial capability to do some bolt-on acquisitions. Going the other way, if you look at our history, we have for many years, once in a while, divested a business. If we feel we have a better use for the money that could happen again. We’re not actively doing it right now, but in the next year, a company that has 10 separate businesses, well, that’s a constant question that you think about in your planning processes. So we’re not finding any great deals, but there are a few things we’re actually looking at right now that could happen. TWST: What do you expect your company to look like in the next three to four years? Mr. Wathen: Certainly our balance sheet will look better. We will have, conservatively speaking, less debt and leverage. I mentioned earlier that we have 150 programs and we will do a pretty decent job of implementing these. They won’t all come in. But those that do will tend to drive our topline in the high single-digit area. They are also expected to drive our bottom line by double digits. If so, we will continue to improve operationally from that standpoint. We will continue to improve our balance sheet, therefore pay less interest. Business is about constant improvement. Since I’ve been here, we have gotten very serious about what I call “total cost productivity,” year in and year out. This means doing big projects and keeping after every part of our cost. I’ll share that in our most recent planning process, we’ve convinced ourselves that going forward, we can double the rate in which we achieved productivity in the past three years. We are not quite where we want to be, but we will be running at higher productivity rates, which is all about providing returns that we can turn right around, and invest in new products and in our geographic expansion. So it is just a constant goal of continuously looking for areas where we can realize improvement, and then using that improvement and the returns you get from it to invest in the businesses. This is easier to say than do — the devil is in the details. TWST: Are there any year-to-year milestones that investors should be looking for when they look at your company? 126

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Mr. Wathen: They certainly should look at our debt and leverage ratios. We’re very focused on improving them. It will come from working capital reductions and from cash flow improvement. I believe that our investors can expect us to grow our top and bottom lines, as I mentioned — I think our investors deserve to expect us to generate productivity that allows us to invest in the businesses. In a broader sense, we will grow our non-US revenue faster than our US revenue, simply from a product-mix standpoint and an opportunity standpoint. I intend, over the course of several years, to get our leverage ratio to 2 times.

“Business is about constant improvement. Since I’ve been here, we have gotten very serious about what I call ‘total cost productivity,’ year in and year out. This means doing big projects and keeping after every part of our cost.”

TWST: Where is it currently? Mr. Wathen: A little bit over 4 times. So half of what it currently is would leave us much more agile and flexible for big acquisitions or big investments. TWST: You’ve already touched on your balance sheet strength. Is there anything else you want to add about that? Mr. Wathen: Of course, there are a lot of things going on. Like any large business, we have assets that are under-employed. We own pieces of property from a business we used to own, or something we moved. We’ve gotten busier about disposing of things that we should dispose of. After all, they all kind of add up. But I would call that more day-to-day work than a substantial change in the balance sheet. Still, they are positives when they occur. TWST: How do you approach the topic of investor relations? Do you have any set objectives in that area? Mr. Wathen: Yes, of course, part of my role is to effectively communicate what we’re doing, what we’re seeing and what our investors can expect from that. I listen to our investors. In my time here, I’ve seen that our investors have some good ideas. We will always listen to those. I owe them an understanding of what our key goals and metrics are. I mentioned 0.4 times of cushion, previously. I had heard coming into this from analysts that they wanted to understand what we saw our debt cushions as being. So, that’s why I’ve been using a specific number. TWST: Would you identify the best reasons as to why a longterm investor should look closely at your company for investment? Mr. Wathen: I would say that first is that we’re in 10 businesses. That gives us some natural diversity across markets. A good example is with oil prices. Oil prices are climbing right now. Our businesses that use resin don’t like it a bit. But our businesses that serve the oil field love it. We’ve got quite a bit of that sort of natural counterbalance within TriMas. We are also making sure we’re serving customers in growing markets; due to our diverse products and the technological edge we bring to bear within each business line, we’re large enough to get some leverage across our

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businesses, even just in the way we purchase things. So we are better positioned than any single stand-alone business would be. Then I would submit that we have proven we can pay down debt even in a recession. Even in a recession, we have been able to pay down debt in big-enough numbers that it matters. Going forward, we will do even better as we climb out of this recession. TWST: Is there anything else you think our readers would want to know? Mr. Wathen: I would emphasize that running a set of businesses to its maximum potential requires processes, and it requires well-structured incentive systems; but it also requires people to run the business units that are very good at what they do. They need to know when they need to come to me and, more important, when they don’t, because agility makes or breaks businesses nowadays. Most of my career has been as what you call a division President — at GE and at Emerson. Those are great training grounds. Both companies are

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very good at establishing and maintaining the processes that allow each division to run itself with minimal intrusion, except when it is needed. That’s what I am trying to accomplish here by bringing structured processes to bear on the way we run this company. TWST: Thank you. (GBR) DAVID WATHEN President & CEO TriMas Corporation 39400 Woodward Avenue Suite 130 Bloomfield Hills, MI 48304 (248) 631-5450 (248) 631-5502 www.trimascorp.com

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A. Schulman, Inc. (SHLM) JOSEPH GINGO joined A. Schulman, Inc. as CEO in January 2008. Prior to joining the company, he worked for Goodyear Tire & Rubber Company for more than 40 years, most recently serving as vice president of quality systems and chief technical officer. Mr. Gingo has a bachelor’s degree in chemical engineering from Case Western Reserve University, a law degree from the University of Akron and a master’s degree in business management from the Massachusetts Institute of Technology.

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX630) TWST: Can you start by giving me a brief overview of your company and a little about its history? Mr. Gingo: The primary business of A. Schulman is in the area of plastic compounding. We literally do not make any final product. We make plastic compounds that are provided to people who make final products. There are two categories Masterbatch and Engineered Plastics and there is really no difference in terms of how you make these materials. Overall, we use the same equipment and use raw materials. Compounding is essentially taking a plastic resin and another ingredient and mixing them together to create a plastic compound. For example, if we have polyethylene we might put a flame-retardant in it. For polypropylene, we may add an ultraviolet resistant ingredient. So that’s what I mean by compounding. We add ingredients to give plastic resin specific properties. Now here is the difference between Engineered Plastics and Masterbatch. In Engineered Plastics, we sell this compound to someone who makes a final product, 100% out of the material we provide them. So they might make a gear-housing for an automobile or a refrigerator front panel, and it’s all out of the one plastic compound we provide. In Masterbatch, we provide materials that are used at 10% of the total mix or less. It may be they want to add color to their product, and you wouldn’t add color at a 100% so you have to add some dilutive factor that gives you the color you want. So Masterbatch is a plastic compound which is added to another plastic resin. TWST: Give me the kind of breakdown of how the business works here. I was looking at some of your recent releases and I read about the merger that you had with Add Flavor. What’s that all about, when you are adding flavor to plastics? I was very curious about that. Mr. Gingo: To clarify, that’s not a merger. Polyflav™ is a new product and stemmed from an individual in Minnesota. He was a college student and asked, “Could we add a flavor to plastic?” He played sports so what he had in mind was mouth guards. You can buy mouth guards now that have a coating on them, such as mint. This coating is on top of the mouth guard but it wears out as you’re out on the field biting your teeth. The

student wondered if a company could disburse this flavor throughout the whole plastic mouth guard to create a product with a flavor that would last longer. Over time it will fade a little but it will last longer than traditional flavorings. So we created a patented solution by incorporating these flavors all the way throughout the plastic. One of the things we are talking about is incorporating negative tastes into products. For instance, babies bite the plastic on cribs. If you put a flavor that is not exciting to bite it would discourage potentially dangerous behaviors. Could it be applied to something like insulation? Will there be a possibility of putting something on the plastic insulation that would discourage a rat from biting into it? So it’s not just the positive tastes, it could be a negative. Our strategic alliance came out of a collaborative effort - a man with a great idea and a group of people that could implement it for him. It’s a great example of what we call our New Product Engine. We are continually seeking to drive product innovation from the market. One of my jobs in the past was Chief Technical Officer for The Goodyear Tire & Rubber Company and I learned that scientists often have good ideas but great ideas come not from scientists, but from the market; however, most products ideas don’t get their start that way. Most products are just improvements on existing product lines however our New Product Engine drives innovation from the marketplace. The marketplace asks, “Wouldn’t it be nice if I had a mouth guard with a taste that would last longer?” Then your technical people get to work on that concept versus the technical guy sitting in a lab asking, “What does the market want?” He is really a poor market indicator. Historically speaking, the company was founded in the 1930s and it began as a reprocessor of rubber. The company converted scrap tires into rubber that was sold back into the tire industry or any kind of rubber application such as rubber mat, rubber flooring, essentially anything that was reprocessed from primarily tire rubber. In the 1950s, the company migrated into plastics distribution and as part of that move, they began making and providing plastic compounds. During the 1950s this private company went from being a rubber reprocessor and distributor to a plastics distributor and compounder. Also during this time period, the company went public. Up until that time, it actually The Wall Street Transcript — June 29, 2009 1

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was owned by a gentleman named Alex Schulman. TWST: The next thing I want to talk about, which is of course on the top of all our minds, is how is the recession impacting the business? Mr. Gingo: It’s interesting because it goes back to the two primary products we have, Masterbatch and Engineered Plastics. Masterbatch mostly goes into the packaging and agriculture industries and those are the primary markets for our Masterbatch products. And what we are beginning to see, ever since the dramatic decline that occurred in November, followed by an extremely poor December and January, is a gradual uptick. In the packaging end of our business, it’s been picking up very slowly. But every month is just a little bit better than the previous month. In Engineered Plastics, we are focused on durable goods such as automobiles, refrigerators, panels for trucks, RVs and kayaks. That business was down last year. In United States, it actually went down last July and in Europe it went down in December. We lost about 35% of our volume in our Engineered Plastics business and it has stayed there. So I’ve not seen any kind of significant recovery in our Engineered Plastics business. As I mentioned, we have seen recovery in our Masterbatch business, which also dropped around 35% in November and stayed relatively flat for three months, but it’s now gradually improving. So in comparison with last year, in November we were down 35% to a year-ago in both of our product lines on average. And now in Masterbatch, we are probably down 20% but still down 35% on our Engineered Plastics.

“Latin America is actually moving up quicker into the value-added end of the business than in Asia. So we are also looking for potential acquisitions, or a Greenfield site in Latin America.”

We are also a plastic resin distributor. This is a third arm of our business. And it’s not core, but it has been extremely supportive for us. We tend to call on mid- to smallsized customers and we also sell these customers polyethylene, polypropylene, nylon, resins. And why do we sell it to them? Because the big companies such as Exxon, SABIC don’t really have the apparatus in place to deal with small- and mid-sized customers. They ship in rail cars. We get that rail car with resin and we break it down into a truck load or even a box. We can even break it into a bag and we sell that because the people that we deal are much smaller in size and demand smaller quantities. Now why is this an advantage to our company? Obviously it’s an advantage because we already have the SG&A in place for the sale of our plastic compounds. Our salesman is already calling on this account and can provide the customer full-service with additional resin sales along with our plastic compound. The other important aspect is that we buy a lot of these resins. So we are able to aggregate the numbers in our purchasing bid. We have 2

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more volume leverage. TWST: Given what’s going on in the macroeconomic environment, in which industry segments and/or geographic markets right now do you see the greatest opportunities/challenges? Mr. Gingo: We operate in a truly global economy and fundamentally, I’ve not seen much difference in terms of performance across the world. Our Engineered Plastics is down 35% in Europe, it’s down 35% in North America. Our Masterbatch is down 20% in Europe, it’s down 20% in North America. I’m not seeing any huge discrepancies, but I do think there are some timing issues to recovery. A rebound is going to be timed more so around a product line versus a geographic area. The only place I’ve seen a slightly stronger recovery is in Asia. It seems to be coming back quicker than the other two major regions. But we have limited operations there with one plant in China and one in Indonesia. TWST: So are you thinking about beefing up operations in Asia? Mr. Gingo: We’ve looked into that but we are in primarily value-added products and Asia is largely a commodity market. We do want a presence in Asia which is why we have a plant in China and Indonesia. We are also going to strongly consider a plant in India. But until Asia evolves from a commodity line to a higher performance value-added line, there’s not going to be much need for what we make. Whereas in Europe and in North America - that’s really where we do well. Latin America is actually moving up quicker into the value-added end of the business than in Asia. So we are also looking for potential acquisitions, or a Greenfield site in Latin America. TWST: What about industry segments, doing some of these interesting kind of partnerships, like adding flavor that you talked about earlier, are you going to start looking at more of those types of things to diversify the business even more? Mr. Gingo: Our European operation is primarily in the Masterbatch business, and 20% of the total business in Europe is in Engineered Plastics with only half of that business in automotive. The balance of our business is in Distribution. In Mexico, which is our biggest Latin American operation, there was stronger diversification. The company probably had 10% in Engineered Plastics with half in automotive, and the rest in Masterbatch and distribution. However, in the United States the company was almost 80% to 90% dedicated to Engineered Plastics and almost of that 80% to 90% of that business was tied to automotive. And within the automotive business, almost all of that was the “Big Three.” When I joined in February of 2008 and became the CEO of the company, one of the first things I did was diversify that base. I had a strong belief that we were way too dependent upon automotive and the company was also too dependent on the “Big Three.” So we cut capacity. We had four plants but we sold one and closed another to cut our capacity dramatically in the Engineered Plastics segment of our USA operations and then we built our first Masterbatch plant in USA. So, to your point, we are diversified. Right now we are the number one Masterbatch company in Europe in terms of market share. And we are also the number one Masterbatch company in Mexico. Our goal is to become the number one Masterbatch company in the world. And to do that, we have to do two things – we have to establish a presence in the United States market and we have to build a decent market share, most likely

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through acquisition. I doubt that we’ll do any more Greenfield plants at this time. We did a Greenfield plant in the USA to convince customers we were serious, but anything further would probably be through acquisition. Our focus right now is to be number one globally in Masterbatch. And the reason we can achieve that is my competitors in Masterbatch are about my size. One of my biggest competitors is Ampacet. Ampacet is the privately-held company based in Connecticut. The other major competitor is Clariant. Clariant is a Swiss company and the Masterbatch division is one of their largest divisions. Wherever I go in the world, these are the two companies we primarily meet in the Masterbatch business. They are about our size and they are very good competitors but no one company dominates the market. Even if you add all three of us up, we are never 50% of the market. And so, it allows small companies to thrive in this business because they can do very specific types of products. So we want to be number one in that business, there is no reason in the world that we can’t be and I already know that we are number one in Mexico and number one in Europe where I face the same competitors. They are no different in the United States or India or China - these are my competitors. Now in Engineered Plastics it is a much tougher business because my competitors are the big resin manufactures such as SABIC, Exxon, DuPont, but we can play well in the niche market. We can be the specialist where the volumes are small and/ or where we have specialized expertise. Big companies are not nimble or fast, they just aren’t. So there are certain primary areas of Engineered Plastics that are very attractive to us. We are just mindful that we don’t grow them too big because if we did, they will become attractive to a larger player. So the interesting thing is, in the area of the Engineered Plastics, the size of the niche market is probably as big as the entire Masterbatch market. So you could actually have an Engineered Plastics business as big as your Masterbatch business, but who you play with and how you play is totally different. You must be very nimble, very quick, a lot of new product applications. Your new product engines have to be very robust because what you know is in about two to three years, if you grow this product enough it’s going to be attractive to someone else. So you really have to drive new products in Engineered Plastics. You have to drive new products in Masterbatch, but it is not quite the same. TWST: Other than the recession, what would you say is the biggest challenge you are facing right now? Mr. Gingo: To be very frank, if you look at our balance sheet, you are going to see that we have a lot of cash. In a very bad environment, we have done okay. Although we are profitable, our income is nothing to write home about, but our cash position is very good. So the biggest challenge I’m facing now? I am looking aggressively at acquisitions but the problem is that in this environment it is very difficult for companies to want to sell now. It’s sort of surprising, but if you look at values they had a year ago they say, “I don’t want to sell today at this depressed value.” The two problem we have is what every shareholder has - how long before the company can get back to that value and is their cash position strong enough to survive that long? And I think when that’s going to start to show up is in the recovery. Not now because we can generate a lot of cash during recession because as

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inventories go down, receivables go down, payables also go down, but the other two go down faster. So you generate cash. The problem is that companies are beginning to violate covenants, covenants based primarily on net income or operating income or EBITDAs. And so the basic covenant, as you are well aware, the banks are just putting in different and tighter rules. So when the recovery starts to come, I think some of these companies are going to be stressed for cash to try to buy inventory, to try to meet the demand and I think one of the pluses we’ll have at that time is we are sitting on the cash. Now, I think that might also be an

“We are a company that is number one in Masterbatch in one of the biggest markets in the world, Europe, and very excellent in Mexico as part of the North American market.”

opportune time for an acquisition. TWST: I believe it was in your second fiscal quarter press release, you talked about how you had reduced European operations and said this quarter you may have to undergo some further restructuring in Europe. Can you talk about where you stand in Europe at this point? Mr. Gingo: The timing of the recovery will determine how fast we can do any further restructuring. Engineered Plastics is staying about minus 35%, I will probably do some restructuring in Engineered Plastics in Europe. But it is really more product or application dependent than anything else right now and I hope to see a reversal. If an upswing comes, we are prepared but if things get worse, we will move to next steps. We have contingency plans and we are watching the market very closely and are able react quickly to stay balanced. In Masterbatch, we have contingency plans but I am doubtful we’d need to implement them. In Engineered Plastics, we have contingency plans, and most likely we will have to implement them. TWST: I also want you to talk a little bit about the Invision business line, which I guess is the flip side, that business that you are trying to get rid of or look for a strategic partner, where do you stand with that? Mr. Gingo: The process is continuing to progress, it’s a tremendous technical product. The problem was the way the company dedicated their initial efforts. It was a US product and they dedicated it toward the automotive markets with the “Big Three” in mind. It was the wrong way to go. When I came in January of ‘08, we redirected Invision to non-automotive. It was beginning to get some foothold there but in the fourth quarter of last year, as you know, the world changed. We are working very hard to find a strategic partner, I don’t know if that’s going to come about. If we couldn’t find a strategic partner, probably we’ll be looking at just selling this plastic compound through our Engineered Plastics division. We won’t abandon it, it’s too good technically. A strategic partner might give us a faster time to market. It could provide accelerated growth, but the product is The Wall Street Transcript — June 29, 2009 3

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going to make it without a partner as well as it’s a super product. TWST: What would you say are the top two or three reasons that an investor would want take a closer look at your company right now? Mr. Gingo: The top reason is our cash position. I mean, we are in a good position to weather a storm, and for a long time, and to make acquisitions. We are a company that is number one in Masterbatch in one of the biggest markets in the world, Europe, and very excellent in Mexico as part of the North American market. So with competitors who are in all the same markets, there is no reason in the world that this company can’t achieve its strategy of being number one globally. We are implementing that – I am not going to tell you that’s easy. But we do have the cash. I would say look at the performance of our organization since December ‘08 and the progress we’ve made. We are a proactive group. We haven’t sat on our laurels, we move fast and we believe in moving fast, and it means that we’ve improved. We create three, four plans, take a look at those plans, implement one immediately with contingencies available to go to parts of the other two plans. I think we are a strategic organization. I worked with a lot of consultants over the years. And we called in a group called CRAI, this was known before as Charles River Associates based in Cambridge, Massachusetts. They are outstanding consultants for the chemical industry. I had them work with my people on our strategy. It took us a 12-month period to really get the granularity, the strategy that we wanted. We know where we are going, we know what we are capable of and we know what our problems are. I think it’s equally important to know what your problems are. For example in Engineered Plastics, don’t get too big, be careful about what product lines you are in. You have to understand your problems, in Masterbatch, no presence in a huge market like the USA, we have to have the presence in one of the largest global markets. TWST: The final question I want to ask you is, how would you describe your own management style? Mr. Gingo: There is a chart on my wall that describes what I hope my management style is - open, honest, and listen and that’s what I am trying to convey through the organization as the kind of culture that I would like to have. I want this is because we

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don’t want people afraid to talk with each other about issues. I want employees to be open. I want my employees to be honest, let’s not fool around, let’s put the issues on the table, let’s talk about our problems, talk about them in a constructive manner, not a destructive manner. And the other thing that I believe is very important, particularly with management, is listening. When I articulated my view of the strategy, CRAI came back to my team and thought we missed some things. Getting totally out of automotive would be a mistake because that area drives innovation and the company could take that innovation and use it in other areas. The second thing that they discovered for me is a segment of plastic compounding called rotomolding. And this is a kind of plastic compound where you make hollow tanks which hold liquids. You know, if you think about plastic tanks that you see, for example, water containers, gasoline containers and as it turns out, we are very outstanding in this business in USA, but we’ve never applied it internationally. I can not be closed minded to the facts whether or not they support my opinion. I think that’s important from my standpoint, it’s certainly important from my team’s standpoint, it’s important all the way down to the first level of management. I really believe that the person doing the job knows better how to do the job than the person managing it. If you don’t listen to this person, you are not going to get the best results. They might not be a strategic thinker and they might not know how to resolve the problem, but more times than not, they can tell you with a lot of accuracy what their problems are. It’s management’s role to help them solve that problem. So if I follow those three words, that’s my management style, I hope. TWST: Thank you. (MS) JOSEPH GINGO CEO A. Schulman, Inc. 3550 West Market Street Akron, OH 44333 (330) 666-3751 www.aschulman.com e-mail: [email protected]

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DANIEL WHANG joined B. Riley & Co. in 2008 as a Senior Equity Research Analyst covering the Industrial sector. Prior to joining B. Riley & Co., he followed the industrial sector for eight years at Lehman Brothers, Inc., most recently serving as Vice President, Senior Analyst. Earlier in his career, he was a management consultant to Fortune 500 companies, as well as worked in industrial sales and environmental engineering. He earned a BS and MS in Mechanical Engineering from Columbia University, and his MBA in Finance and Marketing from the University of Chicago.

well. Since early March, the stocks that I cover are up anywhere SECTOR – INDUSTRIAL EQUIPMENT from about 30% to more than 80%. I think one of the drivers of that & COMPONENTS performance is the shift to a more positive sentiment. There was a (AAJ804) TWST: Tell us about your background and your covperiod starting late last year and going into the early months of this erage of the industrial equipment sector. How long have you year where there was just tremendous uncertainty. It felt like you been covering the sector? were on a roller coaster ride in the dark and you were free falling Mr. Whang: I’ve been covering this space for about nine and not really knowing when that free years. I’ve been with B. Riley for a fall was going to stop. I think that was year, focusing on small cap stocks. I how investors felt back then. It was was an engineering major in college Highlights really the early March period when and worked in the industrial sector in you started seeing a number of encourthe past, either in sales or consulting. Daniel Whang sees Small Cap Industrial Equipment stocks aging data around housing and about For me, it was a natural prorebounding dramatically from the "tremendous uncertainty" of the economy. I believe that may have gression. Before I became an analyst, I fourth quarter 2008 through first quarter 2009. The drop in triggered some of the optimism that set was a consultant working with manuvaluation has also triggered a significant increase in mergers in as we gained better clarity and comfacturing companies, and I wanted to and acquistion activity. fort around the worst-case scenario of delve more deeply into the financials Companies include: General Electric (GE); Honeywell (HON); this recession and its earnings impact, and become more specialized. When I Regal-Beloit (RBC); Columbus McKinnan (CMCO) further ruling out concerns about a posstarted as an associate, I initially helped sible depression outcome. Now indicover the large cap stocks, like GE viduals are reflecting over the last few (GE) and Honeywell (HON). The anamonths and trying to label it a bear lyst that I worked for was also previmarket rally or a bull run. I think many market strategies have called ously an engineer, and one of my consulting projects was at GE, for a correction, that hasn’t fully materialized. I know markets have which helped. I was working at Lehman Brothers for most of my been weak over the last week or so. career and I joined B. Riley last year. For the industrial companies, the rapid rate and severity TWST: Can you give us an overview of the sector? of the slowdown in demand are unprecedented. If you go back to Mr. Whang: Almost by definition on these industrial the third quarter of 2008, most companies saw positive organic stocks, they typically manufacture or distribute durable goods that growth and then things really started to slow down during the last are sold to customers who are professional users in the industrial or couple of months of 2008. Now many of these firms are seeing commercial space. So these businesses are usually dependent on the volumes down 20%-plus. economy. With the economy so weak, these companies are facing TWST: So what’s going to happen for the rest of the difficult times; end demand is quite soft. We saw a marked decline in year? demand late last year and currently demand is down significantly Mr. Whang: What’s happening is that in reaction to a year-over-year. However, business has stabilized over the last few significant drop in demand, the companies are reducing costs, trimmonths, and that has certainly been a positive. ming back overhead, labor, consolidating plants, essentially trying From a stock standpoint, they weakened late last year, to resize their operations so that they can operate more profitably. and then starting in March, stocks have actually performed very The Wall Street Transcript — January 5, 2009 1

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I think some generalizations about small caps are that Typically, the products that these industrial companies manufacture relative to large caps, they may have 1) less diversification in busi— at least the ones that I follow — are fairly ubiquitous and deness/product mix, 2) less exposure to mand for these products will not go international markets, and 3) less fiaway permanently (i.e., electric monancial resources. These assumptions tors, batteries, cranes and hoists, etc.). "Actually all of the companies that I are not always valid. We like to Demand for these products has curcover have been active acquirers, and focus on companies that are typically rently dropped off, but once economic they are likely to continue to be a one of the leaders in the industry, recovery shows through, demand will participant in the consolidation trend. In have strong management with a good bounce. Once that happens, these comthe near-term some companies may track record, and have a healthy or panies will see top-line growth and are place greater emphasis on further improving balance sheet. These compositioned for accelerating earnings shoring up their balance sheets, but panies should be well positioned for growth driven by a much more streamothers are very actively pursuing a recovery scenario. lined cost structure. The companies acquisition opportunities." TWST: Is acquisition a that I follow are among the market significant trend? leaders and they should generally outMr. Whang: Actually all perform the smaller peers. of the companies that I cover have been active acquirers, and they I think there is a lot of discussion going on presently reare likely to continue to be a participant in the consolidation trend. garding the economy. Have we seen the worst? Are we going to have In the near-term, some companies may place greater emphasis on a W-shaped recovery, meaning, could we see another step down in the further shoring up their balance sheets, but others are very actively economy before it improves? Has the market gone ahead of itself? pursuing acquisition opportunities. While valuation continues to be Could there be further volatility and risk arising from the financial an issue, we think it has become more reasonable of late. institutions? I think investors are rightfully still nervous, so there is a lot of discussion, while the market is trying to find clearer direction. 1-Year Daily Chart of Columbus McKinnon Corp. TWST: What about trends? What trends are we seeing in the small caps in this sector right now? Mr. Whang: Year-to-date, from an overall market trend, S&P 500 is flat. The Russell 2000, to take that as a proxy for small caps, has performed similarly year-to-date. However, since early March, the S&P is up about a third, while the Russell is up 45%. So the Russell has performed better in recent months after lagging the early part of the year. The small cap industrial stocks that I cover are up on average 18% YTD and gained 65% since early March. The larger cap industrial stocks on average are up about 2% YTD and increased 39% since early March. 1-Year Daily Chart of Regal-Beloit Corp. Chart provided by www.BigCharts.com

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I’ve read that the number of stocks under sell-side coverage has decreased over the last couple of years due to market trends and consolidation in the financial industry, with small cap coverage affected more than mid and large cap stocks. But, we’ve seen that small cap stocks can provide strong returns, which investors seek. With less stock coverage, I think that provides opportunities. 2 The Wall Street Transcript — January 5, 2009

TWST: So what are some of the interesting companies you are watching and what makes them interesting? Mr. Whang: A couple of companies that I will mention: the first company is called Regal-Beloit (RBC). Regal-Beloit is a leading manufacturer of electric motors, motion control products, and generators. They have a strong brand. One of the things that I like about them is that they have significant exposure to early cycle demand. Roughly about 40% of their revenue is coming from residential, what they call HVAC or Heating, Ventilation, and AirConditioning motors. As the economy starts to bottom out and show improvement, I think they could be one of the early beneficiaries of that. In the industry, they have a reputation of producing high quality products. They have a management team with a good track record. In the current environment, the company is reducing their costs while they continue to invest in the business. They are benefiting from the increased demand for energy-efficient products. The stimulus plan and related infrastructure spending will be positives

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for them with the greater focus on energy efficiency. Regal-Beloit is one of the stocks that we continue to like. TWST: Any others stand-out? Mr. Whang: A company called Columbus McKinnon, (CMCO). They manufacture a category of products called material handling, which includes hoists, cranes and other rigging and lifting tools that are used to move equipment and products around in industrial facilities. Material handling equipment is used to lower operating costs by maximizing worker productivity and providing worker safety. They are a leading player in that segment, particularly in the US. The company is looking to further penetrate domestic accounts while expanding their international operations (currently about 40% of sales) through organic means as well as acquisitions. Good management team and a solid balance sheet. Although not as early cycle, I think once the economy does show improvement, there will certainly be growing demand for their products, and when combined with the cost reductions that are being implemented, their earnings profile will improve over the long-term. TWST: Are investors interested in the sector right now? Mr. Whang: Yes. If you look at the last few months, we’ve had significant gains in the stocks. Over the long-term, these stocks could see more upside, dependent on how well management executes. How quickly we’ll see the stock gains is somewhat dependent on the discussions that are taking place currently — what will the profile of the economic recovery look like, particularly over the near-to-mid term? I think longer-term, people are in agreement that we will see GDP growth and it’s a matter of how strong a recovery we see.

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We started seeing negative US GDP in the second half of 2008, with GDP declining sharply in the mid-single digits during the fourth quarter of last year and the first quarter of this year. I think the general view is that although the economy could continue to contract in the second quarter, there is some optimism that the second half of 2009 could potentially bring flat to positive trends with progressively better numbers going into 2010. Easier year-over-year comparisons would certainly help the second half of 2009. At a high level, I think that’s the general view. The market is obviously forward-looking and reflects some of this positive outlook. Some people may be looking for a more modest versus a stronger recovery towards the middle or latter part of 2010. So there is some variability there. With all the improvements currently taking place in the operations of the industrial companies and the investment dollars that are being committed to innovation and new products, I think the longer-term prospects for the sector are quite positive. TWST: Thank you. (LMR) DANIEL WHANG B. Riley & Co., Inc. 275 Madison Ave. Suite 610 New York, NY 10016 (212) 561-5981 [email protected]

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A. Schulman, Inc. (SHLM) JOSEPH GINGO joined A. Schulman, Inc. as CEO in January 2008. Prior to joining the company, he worked for Goodyear Tire & Rubber Company for more than 40 years, most recently serving as vice president of quality systems and chief technical officer. Mr. Gingo has a bachelor’s degree in chemical engineering from Case Western Reserve University, a law degree from the University of Akron and a master’s degree in business management from the Massachusetts Institute of Technology.

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX630) TWST: Can you start by giving me a brief overview of your company and a little about its history? Mr. Gingo: The primary business of A. Schulman is in the area of plastic compounding. We literally do not make any final product. We make plastic compounds that are provided to people who make final products. There are two categories Masterbatch and Engineered Plastics and there is really no difference in terms of how you make these materials. Overall, we use the same equipment and use raw materials. Compounding is essentially taking a plastic resin and another ingredient and mixing them together to create a plastic compound. For example, if we have polyethylene we might put a flame-retardant in it. For polypropylene, we may add an ultraviolet resistant ingredient. So that’s what I mean by compounding. We add ingredients to give plastic resin specific properties. Now here is the difference between Engineered Plastics and Masterbatch. In Engineered Plastics, we sell this compound to someone who makes a final product, 100% out of the material we provide them. So they might make a gear-housing for an automobile or a refrigerator front panel, and it’s all out of the one plastic compound we provide. In Masterbatch, we provide materials that are used at 10% of the total mix or less. It may be they want to add color to their product, and you wouldn’t add color at a 100% so you have to add some dilutive factor that gives you the color you want. So Masterbatch is a plastic compound which is added to another plastic resin. TWST: Give me the kind of breakdown of how the business works here. I was looking at some of your recent releases and I read about the merger that you had with Add Flavor. What’s that all about, when you are adding flavor to plastics? I was very curious about that. Mr. Gingo: To clarify, that’s not a merger. Polyflav™ is a new product and stemmed from an individual in Minnesota. He was a college student and asked, “Could we add a flavor to plastic?” He played sports so what he had in mind was mouth guards. You can buy mouth guards now that have a coating on them, such as mint. This coating is on top of the mouth guard but it wears out as you’re out on the field biting your teeth. The

student wondered if a company could disburse this flavor throughout the whole plastic mouth guard to create a product with a flavor that would last longer. Over time it will fade a little but it will last longer than traditional flavorings. So we created a patented solution by incorporating these flavors all the way throughout the plastic. One of the things we are talking about is incorporating negative tastes into products. For instance, babies bite the plastic on cribs. If you put a flavor that is not exciting to bite it would discourage potentially dangerous behaviors. Could it be applied to something like insulation? Will there be a possibility of putting something on the plastic insulation that would discourage a rat from biting into it? So it’s not just the positive tastes, it could be a negative. Our strategic alliance came out of a collaborative effort - a man with a great idea and a group of people that could implement it for him. It’s a great example of what we call our New Product Engine. We are continually seeking to drive product innovation from the market. One of my jobs in the past was Chief Technical Officer for The Goodyear Tire & Rubber Company and I learned that scientists often have good ideas but great ideas come not from scientists, but from the market; however, most products ideas don’t get their start that way. Most products are just improvements on existing product lines however our New Product Engine drives innovation from the marketplace. The marketplace asks, “Wouldn’t it be nice if I had a mouth guard with a taste that would last longer?” Then your technical people get to work on that concept versus the technical guy sitting in a lab asking, “What does the market want?” He is really a poor market indicator. Historically speaking, the company was founded in the 1930s and it began as a reprocessor of rubber. The company converted scrap tires into rubber that was sold back into the tire industry or any kind of rubber application such as rubber mat, rubber flooring, essentially anything that was reprocessed from primarily tire rubber. In the 1950s, the company migrated into plastics distribution and as part of that move, they began making and providing plastic compounds. During the 1950s this private company went from being a rubber reprocessor and distributor to a plastics distributor and compounder. Also during this time period, the company went public. Up until that time, it actually The Wall Street Transcript — June 29, 2009 1

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was owned by a gentleman named Alex Schulman. TWST: The next thing I want to talk about, which is of course on the top of all our minds, is how is the recession impacting the business? Mr. Gingo: It’s interesting because it goes back to the two primary products we have, Masterbatch and Engineered Plastics. Masterbatch mostly goes into the packaging and agriculture industries and those are the primary markets for our Masterbatch products. And what we are beginning to see, ever since the dramatic decline that occurred in November, followed by an extremely poor December and January, is a gradual uptick. In the packaging end of our business, it’s been picking up very slowly. But every month is just a little bit better than the previous month. In Engineered Plastics, we are focused on durable goods such as automobiles, refrigerators, panels for trucks, RVs and kayaks. That business was down last year. In United States, it actually went down last July and in Europe it went down in December. We lost about 35% of our volume in our Engineered Plastics business and it has stayed there. So I’ve not seen any kind of significant recovery in our Engineered Plastics business. As I mentioned, we have seen recovery in our Masterbatch business, which also dropped around 35% in November and stayed relatively flat for three months, but it’s now gradually improving. So in comparison with last year, in November we were down 35% to a year-ago in both of our product lines on average. And now in Masterbatch, we are probably down 20% but still down 35% on our Engineered Plastics.

“Latin America is actually moving up quicker into the value-added end of the business than in Asia. So we are also looking for potential acquisitions, or a Greenfield site in Latin America.”

We are also a plastic resin distributor. This is a third arm of our business. And it’s not core, but it has been extremely supportive for us. We tend to call on mid- to smallsized customers and we also sell these customers polyethylene, polypropylene, nylon, resins. And why do we sell it to them? Because the big companies such as Exxon, SABIC don’t really have the apparatus in place to deal with small- and mid-sized customers. They ship in rail cars. We get that rail car with resin and we break it down into a truck load or even a box. We can even break it into a bag and we sell that because the people that we deal are much smaller in size and demand smaller quantities. Now why is this an advantage to our company? Obviously it’s an advantage because we already have the SG&A in place for the sale of our plastic compounds. Our salesman is already calling on this account and can provide the customer full-service with additional resin sales along with our plastic compound. The other important aspect is that we buy a lot of these resins. So we are able to aggregate the numbers in our purchasing bid. We have 2

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more volume leverage. TWST: Given what’s going on in the macroeconomic environment, in which industry segments and/or geographic markets right now do you see the greatest opportunities/challenges? Mr. Gingo: We operate in a truly global economy and fundamentally, I’ve not seen much difference in terms of performance across the world. Our Engineered Plastics is down 35% in Europe, it’s down 35% in North America. Our Masterbatch is down 20% in Europe, it’s down 20% in North America. I’m not seeing any huge discrepancies, but I do think there are some timing issues to recovery. A rebound is going to be timed more so around a product line versus a geographic area. The only place I’ve seen a slightly stronger recovery is in Asia. It seems to be coming back quicker than the other two major regions. But we have limited operations there with one plant in China and one in Indonesia. TWST: So are you thinking about beefing up operations in Asia? Mr. Gingo: We’ve looked into that but we are in primarily value-added products and Asia is largely a commodity market. We do want a presence in Asia which is why we have a plant in China and Indonesia. We are also going to strongly consider a plant in India. But until Asia evolves from a commodity line to a higher performance value-added line, there’s not going to be much need for what we make. Whereas in Europe and in North America - that’s really where we do well. Latin America is actually moving up quicker into the value-added end of the business than in Asia. So we are also looking for potential acquisitions, or a Greenfield site in Latin America. TWST: What about industry segments, doing some of these interesting kind of partnerships, like adding flavor that you talked about earlier, are you going to start looking at more of those types of things to diversify the business even more? Mr. Gingo: Our European operation is primarily in the Masterbatch business, and 20% of the total business in Europe is in Engineered Plastics with only half of that business in automotive. The balance of our business is in Distribution. In Mexico, which is our biggest Latin American operation, there was stronger diversification. The company probably had 10% in Engineered Plastics with half in automotive, and the rest in Masterbatch and distribution. However, in the United States the company was almost 80% to 90% dedicated to Engineered Plastics and almost of that 80% to 90% of that business was tied to automotive. And within the automotive business, almost all of that was the “Big Three.” When I joined in February of 2008 and became the CEO of the company, one of the first things I did was diversify that base. I had a strong belief that we were way too dependent upon automotive and the company was also too dependent on the “Big Three.” So we cut capacity. We had four plants but we sold one and closed another to cut our capacity dramatically in the Engineered Plastics segment of our USA operations and then we built our first Masterbatch plant in USA. So, to your point, we are diversified. Right now we are the number one Masterbatch company in Europe in terms of market share. And we are also the number one Masterbatch company in Mexico. Our goal is to become the number one Masterbatch company in the world. And to do that, we have to do two things – we have to establish a presence in the United States market and we have to build a decent market share, most likely

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through acquisition. I doubt that we’ll do any more Greenfield plants at this time. We did a Greenfield plant in the USA to convince customers we were serious, but anything further would probably be through acquisition. Our focus right now is to be number one globally in Masterbatch. And the reason we can achieve that is my competitors in Masterbatch are about my size. One of my biggest competitors is Ampacet. Ampacet is the privately-held company based in Connecticut. The other major competitor is Clariant. Clariant is a Swiss company and the Masterbatch division is one of their largest divisions. Wherever I go in the world, these are the two companies we primarily meet in the Masterbatch business. They are about our size and they are very good competitors but no one company dominates the market. Even if you add all three of us up, we are never 50% of the market. And so, it allows small companies to thrive in this business because they can do very specific types of products. So we want to be number one in that business, there is no reason in the world that we can’t be and I already know that we are number one in Mexico and number one in Europe where I face the same competitors. They are no different in the United States or India or China - these are my competitors. Now in Engineered Plastics it is a much tougher business because my competitors are the big resin manufactures such as SABIC, Exxon, DuPont, but we can play well in the niche market. We can be the specialist where the volumes are small and/ or where we have specialized expertise. Big companies are not nimble or fast, they just aren’t. So there are certain primary areas of Engineered Plastics that are very attractive to us. We are just mindful that we don’t grow them too big because if we did, they will become attractive to a larger player. So the interesting thing is, in the area of the Engineered Plastics, the size of the niche market is probably as big as the entire Masterbatch market. So you could actually have an Engineered Plastics business as big as your Masterbatch business, but who you play with and how you play is totally different. You must be very nimble, very quick, a lot of new product applications. Your new product engines have to be very robust because what you know is in about two to three years, if you grow this product enough it’s going to be attractive to someone else. So you really have to drive new products in Engineered Plastics. You have to drive new products in Masterbatch, but it is not quite the same. TWST: Other than the recession, what would you say is the biggest challenge you are facing right now? Mr. Gingo: To be very frank, if you look at our balance sheet, you are going to see that we have a lot of cash. In a very bad environment, we have done okay. Although we are profitable, our income is nothing to write home about, but our cash position is very good. So the biggest challenge I’m facing now? I am looking aggressively at acquisitions but the problem is that in this environment it is very difficult for companies to want to sell now. It’s sort of surprising, but if you look at values they had a year ago they say, “I don’t want to sell today at this depressed value.” The two problem we have is what every shareholder has - how long before the company can get back to that value and is their cash position strong enough to survive that long? And I think when that’s going to start to show up is in the recovery. Not now because we can generate a lot of cash during recession because as

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inventories go down, receivables go down, payables also go down, but the other two go down faster. So you generate cash. The problem is that companies are beginning to violate covenants, covenants based primarily on net income or operating income or EBITDAs. And so the basic covenant, as you are well aware, the banks are just putting in different and tighter rules. So when the recovery starts to come, I think some of these companies are going to be stressed for cash to try to buy inventory, to try to meet the demand and I think one of the pluses we’ll have at that time is we are sitting on the cash. Now, I think that might also be an

“We are a company that is number one in Masterbatch in one of the biggest markets in the world, Europe, and very excellent in Mexico as part of the North American market.”

opportune time for an acquisition. TWST: I believe it was in your second fiscal quarter press release, you talked about how you had reduced European operations and said this quarter you may have to undergo some further restructuring in Europe. Can you talk about where you stand in Europe at this point? Mr. Gingo: The timing of the recovery will determine how fast we can do any further restructuring. Engineered Plastics is staying about minus 35%, I will probably do some restructuring in Engineered Plastics in Europe. But it is really more product or application dependent than anything else right now and I hope to see a reversal. If an upswing comes, we are prepared but if things get worse, we will move to next steps. We have contingency plans and we are watching the market very closely and are able react quickly to stay balanced. In Masterbatch, we have contingency plans but I am doubtful we’d need to implement them. In Engineered Plastics, we have contingency plans, and most likely we will have to implement them. TWST: I also want you to talk a little bit about the Invision business line, which I guess is the flip side, that business that you are trying to get rid of or look for a strategic partner, where do you stand with that? Mr. Gingo: The process is continuing to progress, it’s a tremendous technical product. The problem was the way the company dedicated their initial efforts. It was a US product and they dedicated it toward the automotive markets with the “Big Three” in mind. It was the wrong way to go. When I came in January of ‘08, we redirected Invision to non-automotive. It was beginning to get some foothold there but in the fourth quarter of last year, as you know, the world changed. We are working very hard to find a strategic partner, I don’t know if that’s going to come about. If we couldn’t find a strategic partner, probably we’ll be looking at just selling this plastic compound through our Engineered Plastics division. We won’t abandon it, it’s too good technically. A strategic partner might give us a faster time to market. It could provide accelerated growth, but the product is The Wall Street Transcript — June 29, 2009 3

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going to make it without a partner as well as it’s a super product. TWST: What would you say are the top two or three reasons that an investor would want take a closer look at your company right now? Mr. Gingo: The top reason is our cash position. I mean, we are in a good position to weather a storm, and for a long time, and to make acquisitions. We are a company that is number one in Masterbatch in one of the biggest markets in the world, Europe, and very excellent in Mexico as part of the North American market. So with competitors who are in all the same markets, there is no reason in the world that this company can’t achieve its strategy of being number one globally. We are implementing that – I am not going to tell you that’s easy. But we do have the cash. I would say look at the performance of our organization since December ‘08 and the progress we’ve made. We are a proactive group. We haven’t sat on our laurels, we move fast and we believe in moving fast, and it means that we’ve improved. We create three, four plans, take a look at those plans, implement one immediately with contingencies available to go to parts of the other two plans. I think we are a strategic organization. I worked with a lot of consultants over the years. And we called in a group called CRAI, this was known before as Charles River Associates based in Cambridge, Massachusetts. They are outstanding consultants for the chemical industry. I had them work with my people on our strategy. It took us a 12-month period to really get the granularity, the strategy that we wanted. We know where we are going, we know what we are capable of and we know what our problems are. I think it’s equally important to know what your problems are. For example in Engineered Plastics, don’t get too big, be careful about what product lines you are in. You have to understand your problems, in Masterbatch, no presence in a huge market like the USA, we have to have the presence in one of the largest global markets. TWST: The final question I want to ask you is, how would you describe your own management style? Mr. Gingo: There is a chart on my wall that describes what I hope my management style is - open, honest, and listen and that’s what I am trying to convey through the organization as the kind of culture that I would like to have. I want this is because we

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don’t want people afraid to talk with each other about issues. I want employees to be open. I want my employees to be honest, let’s not fool around, let’s put the issues on the table, let’s talk about our problems, talk about them in a constructive manner, not a destructive manner. And the other thing that I believe is very important, particularly with management, is listening. When I articulated my view of the strategy, CRAI came back to my team and thought we missed some things. Getting totally out of automotive would be a mistake because that area drives innovation and the company could take that innovation and use it in other areas. The second thing that they discovered for me is a segment of plastic compounding called rotomolding. And this is a kind of plastic compound where you make hollow tanks which hold liquids. You know, if you think about plastic tanks that you see, for example, water containers, gasoline containers and as it turns out, we are very outstanding in this business in USA, but we’ve never applied it internationally. I can not be closed minded to the facts whether or not they support my opinion. I think that’s important from my standpoint, it’s certainly important from my team’s standpoint, it’s important all the way down to the first level of management. I really believe that the person doing the job knows better how to do the job than the person managing it. If you don’t listen to this person, you are not going to get the best results. They might not be a strategic thinker and they might not know how to resolve the problem, but more times than not, they can tell you with a lot of accuracy what their problems are. It’s management’s role to help them solve that problem. So if I follow those three words, that’s my management style, I hope. TWST: Thank you. (MS) JOSEPH GINGO CEO A. Schulman, Inc. 3550 West Market Street Akron, OH 44333 (330) 666-3751 www.aschulman.com e-mail: [email protected]

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Carlisle Companies, Inc. (CSL) DAVID A. ROBERTS, Chairman, President and Chief Executive Officer of Carlisle Companies, Inc., joined the company in 2007 and established a strategic vision of growing sales, improving operating margins, and globalizing Carlisle's business. Prior to joining Carlisle, he was Chairman, President and Chief Executive Officer at Graco, Inc. During his tenure, Graco grew to be recognized as a world leader in fluid handling systems and components. Prior to joining Graco, he served as a Group Vice President for the Marmon Group where he managed 15 companies. Roberts holds a BS in Technology from Purdue University and an MBA from Indiana University.

SECTOR – INDUSTRIAL EQUIPMENT (AMX614) TWST: Please begin with a brief historical sketch of the company and a picture of the things you are doing at the present time. Mr. Roberts: The company was founded in the early 1900s in Carlisle, Pennsylvania, as a bicycle tire manufacturer. We have become quite diversified since then and now cover a wide variety of industries, including commercial construction, aerospace, food service, trailer equipment and a range of specialized tire and wheel businesses. From our original factory in Carlisle, Pennsylvania, we have grown to become a global company over the past 90-plus years, with 60 manufacturing facilities spread across the world. TWST: What have been the principal reasons for the company’s success over the years? Mr. Roberts: We’ve always focused on markets where we can be a number one or two player relative to market share. We’ve been a product innovator and a skilled acquirer and that has driven our success for nearly 100 years. TWST: How strongly have you been affected by the current economic situation? Mr. Roberts: Like most manufacturing companies, our revenue in the first quarter was down 22%. Unfortunately, a slowdown in the economy has required us to adjust our cost base and reduce our workforce. We have reduced our total workforce by approximately 25% worldwide over the past 6 months. Looking at our served markets it appears that we have reached the bottom of the economic downturn. TWST: Do you think you will be able to bring some of these people back? Mr. Roberts: Absolutely. As the economy improves, we’ll be hiring people, but I’m not certain when that will be. I think this is going to be a more protracted economic downturn than what we have seen in the past. TWST: What are your plans for the next two to three years? Mr. Roberts: We hope we’ll start to see the economy turn either later this year or early next year, which will drive growth in all of our businesses. Over the next two to three years, the business should be growing at our historical growth rate of 10% to 15% a

year as it was before the economy slowed. With that in mind, we have continued our plans to expand globally and invest in new product development. We feel strongly that these will be the growth engines in the future. TWST: You mentioned Asia; how much of your manufacturing is done in Asia? Mr. Roberts: We currently have five manufacturing plants in China: two tire factories, a food service factory, a brake facility, and a wire and cable factory. Our food service factory is in the beginning stages of production, while we are closing one of our tire plants and moving the production to our other China facility and our plants in the US. In November of this year, we will have four factories in total manufacturing products for our tire, braking, food service, and wire and cable businesses in China. TWST: How decentralized are your operations; to put it another way, what is the common thread that unites them all? Mr. Roberts: The common thread that pulls us together is that we are a manufacturing company. We have developed the skills over the past 90-plus years to be very good at manufacturing. As we have acquired companies we utilize a standardized manufacturing structure and system that allows us to improve their overall profitability. We call this the Carlisle Operating System or COS. TWST: What are your main criteria for acquisitions? Mr. Roberts: First, we look for a company that is in an adjacent space which can be bolted on to an existing business. Last year we bought two companies, one in food service and one in wire and cable. The food service company, Dinex, provides products to healthcare, which enabled Carlisle to break into this new foodservice market. The wire and cable business we purchased, a company ironically named Carlyle, broadened our product offering and gave us the opportunity to expand our served market to include Airbus. TWST: Aside from the general economic situation, are there any other challenges or problems that might emerge for you over the next few years? Mr. Roberts: Outside the current economic situation, I see challenges rather than problems. With the administration’s focus on green energy, we see this as an opportunity for a number of our businesses. As an example, our construction materials business has The Wall Street Transcript — June 29, 2009 1

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developed significant insulation manufacturing capacity over the past decade and we are in a very good position to capitalize on the energy conservation effort that is being driven by Washington, D.C. We recently signed a partnership agreement with a photovoltaics manufacturer and, while a challenging market today, we feel there will be a tremendous sales opportunity for this technology in the future. On the manufacturing and marketing front, we will be threatened by low-cost manufacturers. Some of our businesses are already competing against products from Asia. The Carlisle Operating System positions us to be competitive with these low-cost manufacturers. "The investment community understands our business but occasionally they may say Carlisle is more complicated than we need to be for our size. At times I agree with them, which is one reason we are focused on simplifying the business." TWST: Is it possible that the current economic crisis will in the long run be, as it were, an education for you and that it may have forced you to rethink certain things? Mr. Roberts: Yes, there is no question. I think these cycles make us all better managers. As we come out of this economic crisis, Carlisle will be a much more profitable business. We continue to implement COS, which uses lean and six sigma manufacturing techniques throughout the company. We’ve seen progress in our operating margins and cash flow as a result. TWST: What might be some year-by-year milestones that the potential investor could start looking for? Mr. Roberts: We’ve established a vision that we call our 5/15, 30/15, 100 strategy. Simply put, this equates to $5 billion in sales with 15% operating margins, 30% of our sales outside North America with a 15% return on invested capital and 100% free cash conversion rate. We were well on our way to $5 billion in sales until the economy slowed. We’re making nice progress with operating margins and our cash conversion rate has actually been higher than our 100% goal. We’ve reduced our inventory, and we are better managing our working capital. Looking forward, the Street is going to see a better operating margin and higher cash flow, followed by increased revenue growth and higher returns on invested capital. TWST: For yourself as CEO, what occupies your own attention most day by day? Mr. Roberts: It varies by the day. I feel the role of a CEO is to ensure the company is managed ethically, while protecting and increasing shareholder value, along with establishing a viable strategic plan and insuring there is a succession planning process in place, all while focusing on our customers, employees, and communities. TWST: How well understood are you by the investment community? Mr. Roberts: The investment community understands our business but occasionally they may say Carlisle is more complicated than we need to be for our size. At times I agree with them,

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which is one reason we are focused on simplifying the business. It is our long-term goal to have four or five large, highly profitable segments which are counter-cyclical to each other. That way, when we go through economic down cycles our overall business is minimally impacted. Currently our construction materials business is our largest segment and our company goes the way the construction materials business goes. We want to see larger businesses in each segment to soften the downturns. TWST: Do you see any need to improve the company’s capital structure? Mr. Roberts: At this point, no. Because of the cash flow Carlisle has generated over the last 12 months we’ve paid down $201 million of debt the last two quarters. We plan to continue this pattern. Overall, I don’t envision us changing the capital structure of the business. TWST: Then to sum up the things you’ve been saying, what would be the two or three best reasons for the long-term investor to look closely at Carlisle? Mr. Roberts: Investors are going to see Carlisle become a larger, simplified manufacturing company with each of our segments focused on profitability and cash flow that is in the top quartile of manufacturing businesses. TWST: Is there anything that you’d like to add or reemphasize, especially regarding strategies, long-term objectives, and reasons for the investor to look at the company? Mr. Roberts: I think investors should look at our 5/15, 30/15, 100 vision. Carlisle will be a larger, more profitable company generating healthier cash flows, all of which will be accomplished as we globalize the business. TWST: What do you see as your future in Asia? Mr. Roberts: Over the last 12 months we’ve hired a sales force in Asia to sell our foodservice, tire, braking and transportation products. We view this sales force, in addition to our manufacturing plants in China, as a growth platform over the next four or five years to globalize the business. TWST: In dealing with Asia, do you see significant differences in the cultures of various countries there which cause you to operate slightly differently from one country to the other? Mr. Roberts: From a business perspective, the cultural difference is reflected in their buying patterns. Asia generally buys products that have less features than the products we sell in the US, yet they want US quality. I feel it is important to tailor products for the buying tendencies in each country, while still maintaining the quality standards that our customers in the US or Europe expect. TWST: Thank you. (MC) DAVID ROBERTS Chairman, President & CEO Carlisle Companies 13925 Ballantyne Corp Place Charlotte, NC 28277 (704) 501-1100 www.carlisle.com

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EnerSys (ENS) MICHAEL T. PHILION, CPA, is the Executive Vice President of Finance and Chief Financial Officer of EnerSys, where he is responsible for all financial aspects, including mergers and acquisitions, financial reporting, treasury, credit, general and cost accounting, and financial analysis. Mr. Philion has been ENS’ top financial executive since 1994. He has over 35 years of extensive financial expertise, including roughly 15 years as a banking and merger and acquisition specialist with Ernst & Young, and approximately 10 years as the senior financial executive for a major regional food service management company. Mr. Philion is active in civic matters and is presently in several volunteer leadership capacities for the Reading and Berks County United Way.

SECTOR — INDUSTRIAL EQUIPMENT & COMPONENTS (AMX608) TWST: Would you give us a brief historical overview of the company and then a sense of what’s going on now? Mr. Philion: We are the world’s largest industrial battery company, New York Stock Exchange-listed since July 2004. For our most recent year ending on March 31, 2009, sales were approximately $2 billion, with record earnings! EnerSys goes back over 100 years when you trace its genealogy, and it began with the original electric storage battery business of Thomas A. Edison. It is a company with a long history, with lead acid having been the principal battery technology for over 100 years. In 1991, a Japanese public company called Yuasa Corporation bought the North American industrial battery division of Exide, which was approximately a $200 million business at that time. In the late 1990s, Yuasa Corporation decided to sell significant assets as part of a comprehensive restructuring plan. We had grown the North American business substantially during the 1990s and it was approaching $500 million in revenue with strong earnings. Our division was the Yuasa business that was put up for sale. Our CEO, John Craig, myself and three of the other senior executives partnered with Morgan Stanley Capital Partners and bought the company from Yuasa in November 2000. That platform is the beginning of what is EnerSys today. In early 2002, we bought the $600 million industrial battery business known as the Energy Storage Group from Invensys. This transaction created a $1 billion global company that formed the core of today’s EnerSys. Over the past five years, we have experienced tremendous growth and financial success. However, we were not immune to the current global recession. Broadly over the last nine months, we’ve seen a significant reduction in our end-market demand due to the recession. We remain very optimistic about the long-term future of industrial batteries in general, and we’re very bullish about the prospects for our company extending its leadership position when we exit this global economic downturn. TWST: Between March 2008, when you did your last interview with us, and now, how have the company’s goals and

expectations changed, and what remains consistent in them? Mr. Philion: I believe very little has changed in terms of our long-term goals and expectations. As the leader in our industry, we remain highly focused on providing exceptional customer service, being innovative in terms of new products and new applications, and consistently deliver to our customers the best value in the industry. Obviously, we remain fully committed to these goals. We’ve also remained focused on several other basic tenets. First, to continuously reinvent ourselves as markets and customer requirements evolve. Second, continuously work on reducing our costs by improving operational efficiencies and productivity — what we call cost reduction initiatives. Certainly reducing our costs has received even more emphasis lately due to the weak global economic environment. And third, we remain active in looking for attractive acquisition opportunities throughout the world. TWST: You’ve made a number of acquisitions over the past year and a half or so. Is that a new part of your business model? Mr. Philion: No, it isn’t. I’ve been with the company for 15 years, and when I joined the company we were about a $200 million revenue, North American-only business. During that 15-year period, we’ve completed 23 acquisitions, and in the last nine years since EnerSys was formed in 2000, we’ve done 13. So our strategy to continue to grow, both from organic growth of our industry and through financially sound acquisitions, has been at the core of what we’ve done now for 15 years. Roughly two-thirds of our revenue today comes from our acquisitions. TWST: Looking ahead, what are your priorities for the next four to eight quarters? Mr. Philion: Other than the obvious, weathering the economic storm, we remain highly focused on taking care of our customers, introducing new products and looking at acquisition opportunities. As to the recession, I am pleased with our quick response and solid performance. We have maintained our profitability and stockpiled a significant amount of liquidity. We commented in our quarterly shareholder/analyst call on June 2 that The Wall Street Transcript — June 29, 2009 1

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we had over $160 million in cash and short-term investments at March 31, 2009. Certainly we are going to keep our attention on cash management and sound cash flow while maintaining profits during this recessionary period. I think there is no question that we are going to continue to do a very good job there. I believe it’s also a unique opportunity to further grow our business through acquisitions. The current economic tsunami will pass and when it does, I believe we will benefit from the normal consequences of a very serious recession. There will likely be further consolidation within our industry. The old expression “the strong get stronger” is anticipated to hold true. And we believe we will most likely benefit. Our CEO, John Craig, frequently comments that, “We plan to exit this recession a stronger company than when we entered it.” I certainly believe we will!

”As the leader in our industry, we remain highly focused on providing exceptional customer service, being innovative in terms of new products and new applications, and consistently deliver to our customers the best value in the industry."

TWST: What are you looking out for in terms of potential M&A activities? Mr. Philion: Really, nothing different than we have over the past decade. We are very disciplined and stay focused on four M&A areas, all of which require a sound return on investment. The four areas are: first, our core lead based battery business, specifically our motive power, reserve power and aerospace and defense businesses. Second, we look in areas of the world where we believe there are strong growth prospects, where we are also underweight in terms of presence. China is a prime example of this. Third, we look for acquisitions that will save costs, in other words, vertical integrations. Those come along infrequently. The fourth and certainly not the last is in advanced battery technology such as lithium and nickel-based products. Those four basic themes remain at the core of our M&A strategy. But they all come down to one common denominator. If we don’t believe there is a good return on an investment prospect, we will pass on any given transaction. So it’s all about a good return in the four strategic areas noted. I’m proud of the success we’ve had over the almost two decades that I’ve been at EnerSys. Our track record of successfully buying at the right price, integrating effectively and delivering the financial results that we promise has been very good. TWST: Would you give us a couple of recent examples of M&A activities? Mr. Philion: I’m happy to, but we’ve not completed any transaction recently that I would characterize as a large acquisition since FIAMM in 2005. That doesn’t mean we’ve not been active, but in all honesty, there have not been many good value opportunities over the past couple years, particularly larger scale transactions. Seller valuation expectations were broadly too high. In June 2

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2008 we completed a joint venture in Tunisia (EnerSys-Assad), in May 2008 we purchased a Bulgarian manufacturing company (Energia), in January 2007 we purchased a Swiss distribution company (LeClanche), in August 2006 we purchased a China manufacturing facility (Chaozhou Xuntong Power Source Limited [CFT]), and during the balance of 2006 and in 2005, we completed five additional transactions, including the FIAMM Motive Power acquisition in June 2005. As I mentioned, the last large deal was the FIAMM Motive Power acquisition. That was about a $100 million business that we had our eye on for many years. It was and remains the market leader in the Italian market for motive power, which is the third-largest motive power market in Western Europe. Since the 2005 acquisition, it has been fully integrated, delivered significant synergies and we’ve far exceeded our financial expectations. That’s a prime example of the type of opportunities we target, and we believe good opportunities like FIAMM may occur in the current M&A environment. You can never be sure, but one thing we are seeing now, is that with the severity of the recession and extraordinarily tough credit markets, seller valuation expectations seem to be coming down to levels more consistent with our sense of where you need to be to deliver solid returns. TWST: What is your competitive advantage? Mr. Philion: I think there are a number of factors. Our financial performance remains among the best of any major battery company in the world, with strong growth, consistent profitability, a strong capital position and plenty of liquidity. In fact, we refinanced all our major debt facilities in May 2008 and have no significant maturities until 2014. As a result, we have the financial capacity to invest for the future in new products and technology, make acquisitions, and provide consistent and high quality service to our customers. We believe we offer our customers the broadest product offering in the industry. We also believe that we are continuously improving service levels to them. So I think it’s more of the same basic principles that have led to our past success: take care of customers, run a sound company financially, and have sufficient capital and liquidity to nurture our existing businesses and grow for the future. TWST: What are a couple of reasons for investors to look very closely at your company right now, particularly given the economic climate? Mr. Philion: I would like to think that our successful track record should give investors ongoing confidence that we will deliver on our commitments and achieve what we say we will! I’m very proud of our historical performance in this regard. We work very hard at this and will continue to do so in the future. I also believe, but can’t be certain, the worst of the global recession may be near, with our business now at or near the bottom. As we look forward, we are confident that solid growth will resume in our markets and, when it does, we will extend upon our industry leading position. We are continuing to focus heavily on further reducing our costs. In fact, since Fiscal Year 2008, we have had three major restructuring initiatives that, when all three are fully completed by the end of our current Fiscal Year 2010 year, will save on an annualized basis approximately $32 million per year, largely from the permanent elimination of roughly 650 positions. As I mentioned, we think we’ll see success in the M&A environment. I truly believe

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that when this recession does end, we will come out of the other end a much stronger company, with significantly lower costs. TWST: What are your strategies or tactics for reducing costs? Mr. Philion: I’ve been with the company since 1994 and our current CEO and Chairman also joined that same year, John Craig. John has been tireless in his emphasis in terms of being more cost-effective — productivity, efficiencies, capital spending for automation, etc. So this has been part of our culture and DNA for 15-plus years. Our focus is to reduce all of our costs, manufacturing, SG&A, purchased raw materials, interest, taxes and so on. It’s a disciplined culture that is very committed on continuously improving, and we’re thrilled to have that kind of process and support from our employees all over the world. TWST: What is your strongest product right now? Mr. Philion: We are the leader in all, but of our two basic business segments, motive power, which is essentially batteries for industrial forklift trucks, is the weakest part of our current global business in this recessionary environment. It’s the cyclical part of our business. Our motive business has been particularly weak over the past 6-plus months, in fact, at unprecedented levels. In the modern history of motive power batteries, we’ve never seen a recession that has been this sudden and this severe. So the good news is we’ve weathered the worst motive power market and still come through very well. And we believe history will repeat itself. In past recessions, when motive power growth resumed, it remained at double-digits for several years. Our reserve power business has also been hurt, but not nearly to the same proportion. Reserve power battery products are used for backup mission critical applications such as telecom, UPS, utilities, military and aerospace. That business has held up much better, but it is still down meaningfully when you look at year-over-year orders and revenue comparisons. There is one exception in the world currently, and that’s our China business, where we are still seeing growth in the telecom reserve markets. So in short, motive is very weak with reserve holding up much better. TWST: How are you planning to develop that growth in China so that it turns into profit? Mr. Philion: We’ve been in China for over a decade and have a stable and profitable business there today. We remain fully committed to that market. In August 2006, we added a third plant with the CFT acquisition. And, of course, it remains an important area of focus to grow by acquisitions. It’s an exciting region of the world, and we are going to continue to grow there as quickly as we can, but with a very important caveat, growth with profitability. TWST: Would you tell us about your background and that of one or two other key company executives? Mr. Philion: I’ve been privileged to be a part of this company for 15-plus years. I joined in 1994 as CFO, when we were the North American division of Yuasa. It’s been an outstanding professional experience for me. As I’ve mentioned, we bought the company in 2000, became a $1 billion company in 2002 with the ESG acquisition and now we are roughly a $2 billion public company. It’s been an exciting experience in every professional

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sense. Prior to that, I was CFO of a major US food service company for approximately 10 years, and then prior to that, for almost 15 years, I was with Ernst & Ernst, which is now Ernst & Young. It has been an exciting and rewarding 35-year plus career. Our CEO is John Craig. John and I joined the company the same year, 1994. John, prior to being at EnerSys, had major leadership responsibilities for several manufacturing companies, including Whirlpool as the most notable. John really brought an incredible breadth of experience to EnerSys in manufacturing, and obliviously that has continued to be very evident as he has successfully led the company for many years.

“Our track record of successfully buying at the right price, integrating effectively and delivering the financial results that we promise has been very good.”

TWST: We ask because a lot of companies have high turnover, and it’s a question that people often want to know. Mr. Philion: It’s a fair question. One of our strengths has been very low turnover in the leaders. The core of our management leadership is very stable and has been with the company for a long time. I truly believe that consistent and steady management has contributed to our success. We’re a great company to work for, and I am extremely proud of its leadership group and believe we have the best people in our industry. TWST: Why do your top executives have such impressive staying power? Mr. Philion: I believe it’s largely because of our consistent success. You retain and attract the very best with success, which breeds more and more success. We are the world’s largest industrial battery company. We’ve consistently grown market share to our current 29% number one position. Our financial results have led the industry, our products and services are outstanding. Clearly, we are fortunate that the best talent in our industry seeks us out. We’ve been in an enviable position in retaining and attracting great people. TWST: Thank you. (MR) MICHAEL T. PHILION EVP of Finance & CFO EnerSys 2366 Bernville Road Reading, PA 19605 (610) 208-1991 (610) 372-8457 — FAX www.enersys.com

The Wall Street Transcript — June 29, 2009 3

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TNR Gold Corp. (TNR:TSX.V) GARY SCHELLENBERG, President and CEO of TNR Gold Corp., has managed and financed public and private resource-based companies for the past 22 years. His past accomplishments in leading early-stage companies to the buyout stage include Golden Coast, which eventually developed into Providence Energy Trust, and Winspear Resources, which was bought out by De Beers for $306 million. Mr. Schellenberg’s public company experience and leadership talents are also evident through his many directorship roles, which include Colorado Goldfields, Latin American Minerals, Aurifer Capital Corp., New World Resource Corp. and Avion Resources Corp. Additionally, he found and manages a profitable and well-known geology consulting firm that employs over 60 geologists and provides contract geologists for mining firms all over the world. Through this venture, Mr. Schellenberg strategically provides TNR Gold with direct access to direct exploration resources and networks for future property acquisition and joint venture contacts

SECTOR — PRECIOUS METALS (AMX628) TWST: Let’s begin with a brief historical sketch of the company and a picture of what it’s presently doing. Mr. Schellenberg: The company has been around since 1987, and we’ve gone through various phases. We have been a project generator for the last 20 years and have had a number of successes along the way. We have a very technical group consisting of entrepreneurs, financiers and geologists. We’ve been generating projects throughout the Americas as an early-stage company that develops concepts through to resources and then moves the latter off to other mining companies. As a junior exploration company, you have to always be moving forward with projects as we are all competing for the same dollar out there. There are over 2,000 competing junior exploration companies in Canada listed on the TSX Venture, so you have to be unique to stand out to investors. I truly believe TNR brings a unique and compelling story to our investors. TWST: Would you describe some of your exploration projects and then tell us about your current focus on Lithium? Mr. Schellenberg: As I mentioned earlier, we are a project-generating company with over 21 projects worldwide. We have some 15 projects in Argentina, primarily in base metals and in gold, two projects in Alaska and a host of Lithium projects which we have just embarked on. Some of our successes in Argentina include being instrumental in making the initial discovery of the Los Azules property, which is currently being developed by Minera Andes. We have 25% optional back-in on that deposit — currently an inferred resource of 11.2 billion pounds of copper in situ by National Instrument 43-101 Standards. Furthermore, it has a favorable scoping study which can produce copper at $0.85 a pound for over 23 years. Further, we are also currently in early-stage development on our El Salto Copper-Gold-Molybdenum property in Argentina, which is strategically located in the town of Calingastas. We’ve completed some 12 dry holes there so far with some very encouraging results.

In addition, we have El Tapau, our copper/gold project, which has a number of past producers, and our goal is to continue to refine our copper and gold properties over the course of the next year or so. Confirming TNR’s strategy to generate projects, most of our 12 projects in Argentina are all joint ventures with quality JV partners who then spend the money and take the risk. We are also developing three of our own projects, the El Salto, El Tapau and the Eureka property, which are all unique exotic copper deposits in the northern part of Argentina. We continue to look for new projects and are always looking at which way the minerals trends are going. Our current market conditions caused us to start looking at what would be the next market trend, and we decided about six months ago to start our foray into Lithium. We believe that it is a commodity of the future, so we have been undertaking a lot of research and have surrounded ourselves with some very good experts in the field. We are now beginning to see the fruits of those labors as we have a number of Lithium projects that we are announcing that consist of open hard rock spodumene pegmatite deposits as well as lithium brine. Where we have had successes in the past came from being the pioneer as opposed to following trends into the market after there is a real property acquisition frenzy for the various commodities. The next big wave for commodities will be in Lithium, and I believe TNR is well-positioned to take advantage of this trend. TWST: What are the greatest opportunities for TNR over the next several years? Is there a particular scenario that will lead to the company substantially exceeding expectations? Mr. Schellenberg: A significant part of our business plan is to continue to generate good projects in commodities. In the near term with the current market conditions, our business plan has worked. We generate good-quality projects that bring in high-quality partners who in turn develop them further. As a result, we minimize our dilution for our shareholders while getting maximum exposure to the commodities that are being sought after. That said, The Wall Street Transcript — June 29, 2009 1

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we think Lithium is a valuable strategic position to hold. We still love gold as it’s a great opportunity, especially in the current economic crisis, so I think investors can expect TNR to continue project generation approaching both gold and lithium, as well as other commodities. I think the potential shareholder can look for continued innovative acquisitions in addition to further value creation for some of our assets that we already have in our company.

”Where we have had successes in the past came from being the pioneer as opposed to following trends into the market after there is a real property acquisition frenzy for the various commodities. The next big wave for commodities will be in Lithium, and I believe TNR is wellpositioned to take advantage of this trend."

TWST: What do you see as potential challenges and what impact could those issues have on TNR’s goals? Mr. Schellenberg: It’s been very difficult to raise capital since last summer, and that’s one of the biggest problems challenging the industry. Venture capital has virtually dried up, and the competition for such funds requires further development of our business plan. Fortunately, we have found that there are still pockets of capital available for the right projects, and that corresponds to our new Lithium and clean energy initiatives. This implies that we would need to present to the marketplace a product that is unique and will be a direct product in the near future. That’s something TNR has an attractive record of delivering on, and I think we are on the right track with our Lithium projects. Also, with the depressed commodities prices of copper, lead and zinc, among others, it will take a little more innovation to bring value to our shareholders. We focus on what the commodity of the future is going to be one and two years down the road, not the short term. One of our recent strategies in bringing shareholder value was through a recent announcement that we would be spinning off 75% of our Lithium and rare metal assets into a company called International Lithium Corporation that has been incorporated as a wholly owned subsidiary that we plan to take public. Current shareholders of TNR will end up with one share of International Lithium Corp plus three tradable warrants for every four shares of TNR. TWST: What capital requirements do you see or anticipate, and how would you meet those needs over the next two to three years? Mr. Schellenberg: Our goal is still to bring in partners to develop a lot of our newly generated projects. We have a very strong shareholder base in Europe. Our major shareholder, Mr. Kirill Klip, is a Director of the company as well as a successful entrepreneur. He has a wealth of experience and contacts over a wide array of dynamic industries, including telecommunications, banking, transportation and Internet. One of his recent successes includes building an industrial holdings group to over $1 billion assets under management. We are on the same wavelength and have his full support. We are very fortunate to have a loyal base of reli2

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able investor groups who are proactive believers in the Green Energy initiatives, and their contacts and insights can open a lot of doors for us when the time is right. They currently hold about 30% of our shares, so they can back-stop us, thus ensuring the development of these assets. In order to develop these assets, we’ll be somewhat reliant upon our ability to bring in joint venture partners as well as going back to the capital markets. I think by offering the marketplace something unique and desirable, we will be able to recapture some of these equity markets as they are improving. Regarding our current capital position, we’ve been able to amass a very good portfolio of projects with very little capital by primarily investing in research and capitalizing on opportunities that present themselves. To sum things up, we are going to be relying upon the capital markets over the next two to three years, but in a limited fashion. Most of our capital will come from our existing shareholders and supporters, as well as joint venture partners. TWST: What’s your broad vision for the company? What will it look like in three to four years, and what might be some year-by-year milestones that investors can look for? Mr. Schellenberg: In about three years, I could see International Lithium Corp. becoming a very successful standalone major player in Lithium exploration. Furthermore, I think TNR will continue to develop properties that host a variety of different commodities. In addition to TNR having a major shareholding in International Lithium, we could see the Los Azules project of Minera Andes become a copper-producing mine, which again will be a tremendous milestone for us. We also have a gold project in Alaska with NovaGold, which has about 1 million ounces that I can see us either spinning off to another venture or continuing to develop into a world-class deposit. The key focus in these bad markets is that we have to be innovative and seize opportunities, which I feel we are doing to bring further value to our shareholders. I think within the next year, we will complete our spin off of International Lithium as well as enter into joint ventures that will further develop our portfolio of properties to either a production stage and/or a resource stage. TWST: As the top manager and CEO, what occupies your own attention mostly on a day-by-day basis? Mr. Schellenberg: Opportunities — we are always looking at new opportunities for the company and how to capitalize on our existing assets. As always, our primary concern is how do we bring value to our shareholders, and that’s what we do here on a day-to-day basis. As leader of the company, we really need to look at new opportunities and, as I mentioned earlier, not just opportunities only in the near term, but opportunities that we might be able to capitalize on one or two years down the road. TWST: What is your feeling about your current stock prices? Mr. Schellenberg: I am sure everybody you’ve interviewed has said the same thing, and it’s that TNR is tremendously undervalued. On a brighter note, since Christmas our stock is up threefold, and I still believe the entire junior marketplace has been oversold due to the lack of confidence in the marketplace now. As confidence comes back in the market, all the base metals are lifting up off the bottom; Gold is consistently over 850, which I think is a key indicator of investors’ beliefs in tangible assets. It is also very positive that people are out there starting to make exploration plans,

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and as we have a large amount of news that we are generating on a daily basis, we are going to be one of the more active juniors out there. I think this year, by virtue of generating projects in Lithium and copper, we will be very active. The market will come back and because we are active, I think the value of the stock will climb once we start showing that our activity is bearing fruit. TWST: Would you describe your current investor base? Mr. Schellenberg: We have a group of strong European investors that controls between 30% and 35% of the company, with the rest being controlled by approximately 4,000 shareholders. Of these 4,000 shareholders, most of them are located in the eastern US and in Canada, and are relatively long-term players. We constantly get calls from people that have been with us for five or 10 years, and they like what we are doing. Our stock, quite sensibly, has made money for investors over the years, which has helped to develop a very good network of shareholders. We’ve also got a number of institutions that own a large portion of our company, which has given us a nice stable base for financing. TWST: At this point, how could the investor community improve its perception of TNR Gold? Do you feel there are any areas or concepts that are misperceived? Mr. Schellenberg: We are always striving to clearly get our message out. I think one of the things that markets don’t really understand is the fact that we have so many projects. They are used to investing in one project, one company scenario. Being an innovator and project developer means that we are going to wind up dealing with many projects, and in our case we currently have 21. Our goal is to generate projects and bring in partners, which is something that the marketplace doesn’t really understand, so I feel it could be explained a little bit better. I can say this business plan survived through the last downturn and we were able to actually make money from all of our joint venture partners, and we can see that same opportunity developing now. This is something that I think makes us a whole lot different from other companies in the industry. TWST: What should an investor see as the three or

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four strengths and advantages that distinguish TNR Gold as an investment today? Mr. Schellenberg: First strength is, no doubt, TNR’s technical ability to generate good quality projects. I am also the President of a geological consulting firm which has been trusted with mineral explorations projects worlwide for the last 23 years. With both major and junior mining clients and over 60 employees worldwide, we know our properties and this adds a tremendous network from which TNR can source projects. Secondly, our foresight about the future has been proven time after time. Within our group we have had a number of successes in the past, and we see that market condition again. In this downturn, there are opportunities, and that’s something we are well poised to take advantage of. Fortunately, through the support of our backers, we’ve been able to avail ourselves of opportunities when the market is bad, that will make us a preferred stock moving forward. Again, you have to be active to get market attention, and we are poised for that opportunity. The Lithium spin off that we are bringing forward is innovative and we are ahead of the curve on this. It’s a great opportunity for potential and current TNR shareholders, and they will be able to capitalize on this project later in 2009. TWST: Thank you. (KL) GARY SCHELLENBERG President & CEO TNR Gold Corp. 650 West Georgia Street Suite 620 Vancouver, British Columbia V6B 4N9 Canada (604) 687-7551 (800) 667-4470 — TOLL-FREE (604) 687-4670 — FAX www.tnrgoldcorp.com e-mail: [email protected]

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Exousia Advanced Materials, Inc. (EXOU) WAYNE RODRIGUE, JR., founder of Exousia Advanced Materials, Inc., has over 25 years of business experience. He began working for Exousia in May 2005 and has served as its Chief Executive Officer ever since. In October 2007, he was appointed the company’s president. Prior to joining Exousia, he was president of Re-Engineered Composite Systems, LLC. He is also a member of the Society of Plastics Engineers.

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX625) TWST: Can we begin with a brief history of your company and what your focus is on now? Mr. Rodrigue: Exousia Advanced Materials is an amalgamation of my technology work over the last 14 years. We became a publicly traded company on December 31, 2006, through a reverse merger. We began trading under EXOU over-the-counter on February 14, 2007, Valentine’s Day. We spent 2007 as a developmental stage company, refining our two core technologies. One is a rubber/plastic alloy we call RPA. The other is our VISTAMER Engineered Particles, our performance enhancer into adhesives, urethanes, and epoxies. We did that in end of 2007. Last week of October, first week in November 2007, I went to China, came back with letters of interest to put a plant in China. January 29, 2008, we signed a ten-year distribution agreement with Northern International Group out of Tianjin, China. It’s approximately 200,000 gallons a year for ten years, which is approximately 8 million to 10 million a year for ten years. Based upon that and an acquisition of a domestic coatings company in March 2008, we became a commercial public company; we moved from the developmental stage to the commercial stage. We spent all of 2008 getting everything in place. We opened a plant in China on September 15, 2008, to go get our people trained and get raw materials inspected and validated and get ready for 2009. We are in a very sales rich environment in China for our coatings. We have what we call our Power Shield brand that we sell throughout Asia. We’ve got contracts with Northern International Group, Bohai Shipbuilding, and China United, which is an engineering and construction company all over China and Asia. Domestically, we ran concurrently. We have a domestic coatings company which sells under the AEGEON brand. So, we’ve been pushing our coatings business unit very strongly. Additionally, for the last five years, we’ve been getting our rubber/plastic alloy positioned to commercialize that business unit. About first quarter of this year, we signed a distribution agreement with Universal Forest Products to be the exclusive distributor of our TRUSS CORE panels for North America, and we are launching that. We take our rubber/plastic alloy and we turn it into a core, then we laminate our

product to skins on that core. If you hold it vertical, it’s a wall; if you hold it horizontal, it’s a floor as a composite to displaced wood and aluminum and steel in the transportation industry, particularly cargo boxes and trailers. We have outstanding weight-to-strength characteristics. We’ve got a truck that has been out on the road for two-and-a-half years and over 50,000 miles in a lease fleet, so we have real-world data. We weigh about 30% less than wood, so we get a good savings on diesel fuel; that, or you could carry more payload, and we’re bringing that business unit up. This is our year to execute. Last year, it was transitioning from a developmentalstage company to a commercial-stage company, and focus this year is on executing. We’ve been hampered in terms of our deliverables like everybody else with the crash in the equities market and in the credit markets, but we’ve weathered that and the last half of this year is going to be great for us. We are a well-run manufacturing company with a global footprint and a very market-rich environment where infrastructure needs and environmental and cost savings needs are there. TWST: How is your market divided right now between domestic and international — predominantly, it sounds like Asia? How do you see that changing over the next couple of years? Mr. Rodrigue: Right now, 70% of our revenues in 2009 will be international-based, 30% domestic. I think in a two-year period, you’ll see that change to about 50-50, and that’s where we really would like to see it be kind of balanced. The Chinese market will be predominantly coatings where the domestic market will be coatings and our composite walls. TWST: What are a couple of products that have attracted the most interest, that you find have the most appeal right now? Mr. Rodrigue: Right now, the biggest product that we manufacture, that’s getting the most buzz domestically, is our TRUSS CORE panels, and if you go to our website you can see what one looks like. That’s domestically. Internationally, it’s our Power Shield brand of coatings because we bring a new level of innovation to the Chinese coatings market, which they haven’t had historically; they’re using old technology. TWST: What would you say your competitive advantage is over the other people working in industrial equipment industry? The Wall Street Transcript — June 29, 2009 1

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Mr. Rodrigue: In the industrial coatings arena, our VISTAMER particles, which we own the patents on, we don’t sell it to anybody else; we use it for our own coatings. VISTAMER is a differentiator for us in a level playing field, plus a competitive advantage in the marketplace against the big boys. So, our VISTAMER is one of them. The other thing is that technical support is something that’s just getting very hard. Most of the large companies are having trouble giving large amounts of technical support because of their overhead. Technical support, innovation, customer service, as well as the VISTAMER particles is where we’re able to shine and beat our competitors. We have a philosophy that the big don’t eat the small; the fast eat the slow. TWST: What do you see your company developing into in the next four to eight quarters? Mr. Rodrigue: In the next four to eight quarters you’ll see us solidify all of our sales contracts, you’ll see our revenues growing quarter-over-quarter, year-over-year. In 2007 we did $65,000 in revenue, in 2008 we did $1.3 million. So, in 2009 we’re going to grow from that. So, you’re going to see revenue growth, you’re going to see a continued focus, you’re going to see a profitability and an ability to forecast and put meat on the bones with this company. TWST: What is your background and the background of a couple of other key executives? Mr. Rodrigue: My background is a serial entrepreneur. I’m 55 years old and I’ve been starting things up for 36 years. Commercializing ventures is my specialty, I’ve done that primarily all my career. Our CFO/COO, Bob Roddie, has 30 years of international experience in growing and managing international companies. Tom Moccia, our VP of Sales, has 30 years in the plastics industry; spent about 13 years with GE Plastics as a strategic planner. Head of our China facility, Paul Crozier, has been making coatings consecutively in Houston since 1959. So, we’re all a bunch of gray beards and guys with a lot and lot of miles and experience on us. TWST: What exactly is the China facility concerned with? What exactly is the scope of its operations? Mr. Rodrigue: We manufacture coatings. We have a 30,000-square foot facility. We manufacture our Power Shield brand of coatings, we have nine different series of coatings from general magnets to very high-end coatings and insulative coatings.

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So, it’s a full service facility where we manufacture coatings for the marine industry in China, the petrochemical industry in China, bridge building, shipbuilding, petrochemical, pipelines, as well as construction industry. TWST: What would be the one or two reasons for investors to look very closely at your company right now? Mr. Rodrigue: We know that we are very undervalued as a lot of small companies are right now. We are in a very sales-rich environment. Our revenue and our EBITDAs are going to be strong in 2009, but really breaking out in 2010. Anybody who comes in and buys us to hold us will be very pleased that they did. We’re a company that’s defying all odds in the marketplace, continuing to pick up new business, new customers on nearly a daily basis. We have innovation, which separates us, and we’re in markets that are very large. The anti-corrosion coatings market globally is $1 trillion a year; the plastics industry particularly is over $1 trillion a year. The engineered resin space that we are in just in China alone is $4.2 billion a year; here in the States, it’s about $9 billion a year. So, we are in large industry segments where you don’t have to have a big market share to do real well. I mean, 1% global market share is huge. TWST: Is there anything else you would like to add? Mr. Rodrigue: What you can do is go to our website and see my video. That might add a couple of little ideas to you. Other than that, we’re a good solid company that’s going up, up, and up. We are like 2,000 other companies that are small public companies that are vying for recognition, but we are worthy of a strong look from the investor community. We are well run and we are very profitable, our margins are good, we’re not in the commodity businesses to where we’re getting just beat to death on price. And we are a good play. TWST: Thank you. (MR) J. WAYNE RODRIGUE Exousia Advanced Materials, Inc 200 Soldiers Field Drive Suite 200 Sugar Land, TX 77479 (281) 313-2333 www.exousiacorp.com

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Exousia Advanced Materials, Inc. (EXOU) WAYNE RODRIGUE, JR., founder of Exousia Advanced Materials, Inc., has over 25 years of business experience. He began working for Exousia in May 2005 and has served as its Chief Executive Officer ever since. In October 2007, he was appointed the company’s president. Prior to joining Exousia, he was president of Re-Engineered Composite Systems, LLC. He is also a member of the Society of Plastics Engineers.

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX625) TWST: Can we begin with a brief history of your company and what your focus is on now? Mr. Rodrigue: Exousia Advanced Materials is an amalgamation of my technology work over the last 14 years. We became a publicly traded company on December 31, 2006, through a reverse merger. We began trading under EXOU over-the-counter on February 14, 2007, Valentine’s Day. We spent 2007 as a developmental stage company, refining our two core technologies. One is a rubber/plastic alloy we call RPA. The other is our VISTAMER Engineered Particles, our performance enhancer into adhesives, urethanes, and epoxies. We did that in end of 2007. Last week of October, first week in November 2007, I went to China, came back with letters of interest to put a plant in China. January 29, 2008, we signed a ten-year distribution agreement with Northern International Group out of Tianjin, China. It’s approximately 200,000 gallons a year for ten years, which is approximately 8 million to 10 million a year for ten years. Based upon that and an acquisition of a domestic coatings company in March 2008, we became a commercial public company; we moved from the developmental stage to the commercial stage. We spent all of 2008 getting everything in place. We opened a plant in China on September 15, 2008, to go get our people trained and get raw materials inspected and validated and get ready for 2009. We are in a very sales rich environment in China for our coatings. We have what we call our Power Shield brand that we sell throughout Asia. We’ve got contracts with Northern International Group, Bohai Shipbuilding, and China United, which is an engineering and construction company all over China and Asia. Domestically, we ran concurrently. We have a domestic coatings company which sells under the AEGEON brand. So, we’ve been pushing our coatings business unit very strongly. Additionally, for the last five years, we’ve been getting our rubber/plastic alloy positioned to commercialize that business unit. About first quarter of this year, we signed a distribution agreement with Universal Forest Products to be the exclusive distributor of our TRUSS CORE panels for North America, and we are launching that. We take our rubber/plastic alloy and we turn it into a core, then we laminate our

product to skins on that core. If you hold it vertical, it’s a wall; if you hold it horizontal, it’s a floor as a composite to displaced wood and aluminum and steel in the transportation industry, particularly cargo boxes and trailers. We have outstanding weight-to-strength characteristics. We’ve got a truck that has been out on the road for two-and-a-half years and over 50,000 miles in a lease fleet, so we have real-world data. We weigh about 30% less than wood, so we get a good savings on diesel fuel; that, or you could carry more payload, and we’re bringing that business unit up. This is our year to execute. Last year, it was transitioning from a developmentalstage company to a commercial-stage company, and focus this year is on executing. We’ve been hampered in terms of our deliverables like everybody else with the crash in the equities market and in the credit markets, but we’ve weathered that and the last half of this year is going to be great for us. We are a well-run manufacturing company with a global footprint and a very market-rich environment where infrastructure needs and environmental and cost savings needs are there. TWST: How is your market divided right now between domestic and international — predominantly, it sounds like Asia? How do you see that changing over the next couple of years? Mr. Rodrigue: Right now, 70% of our revenues in 2009 will be international-based, 30% domestic. I think in a two-year period, you’ll see that change to about 50-50, and that’s where we really would like to see it be kind of balanced. The Chinese market will be predominantly coatings where the domestic market will be coatings and our composite walls. TWST: What are a couple of products that have attracted the most interest, that you find have the most appeal right now? Mr. Rodrigue: Right now, the biggest product that we manufacture, that’s getting the most buzz domestically, is our TRUSS CORE panels, and if you go to our website you can see what one looks like. That’s domestically. Internationally, it’s our Power Shield brand of coatings because we bring a new level of innovation to the Chinese coatings market, which they haven’t had historically; they’re using old technology. TWST: What would you say your competitive advantage is over the other people working in industrial equipment industry? The Wall Street Transcript — June 29, 2009 1

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Mr. Rodrigue: In the industrial coatings arena, our VISTAMER particles, which we own the patents on, we don’t sell it to anybody else; we use it for our own coatings. VISTAMER is a differentiator for us in a level playing field, plus a competitive advantage in the marketplace against the big boys. So, our VISTAMER is one of them. The other thing is that technical support is something that’s just getting very hard. Most of the large companies are having trouble giving large amounts of technical support because of their overhead. Technical support, innovation, customer service, as well as the VISTAMER particles is where we’re able to shine and beat our competitors. We have a philosophy that the big don’t eat the small; the fast eat the slow. TWST: What do you see your company developing into in the next four to eight quarters? Mr. Rodrigue: In the next four to eight quarters you’ll see us solidify all of our sales contracts, you’ll see our revenues growing quarter-over-quarter, year-over-year. In 2007 we did $65,000 in revenue, in 2008 we did $1.3 million. So, in 2009 we’re going to grow from that. So, you’re going to see revenue growth, you’re going to see a continued focus, you’re going to see a profitability and an ability to forecast and put meat on the bones with this company. TWST: What is your background and the background of a couple of other key executives? Mr. Rodrigue: My background is a serial entrepreneur. I’m 55 years old and I’ve been starting things up for 36 years. Commercializing ventures is my specialty, I’ve done that primarily all my career. Our CFO/COO, Bob Roddie, has 30 years of international experience in growing and managing international companies. Tom Moccia, our VP of Sales, has 30 years in the plastics industry; spent about 13 years with GE Plastics as a strategic planner. Head of our China facility, Paul Crozier, has been making coatings consecutively in Houston since 1959. So, we’re all a bunch of gray beards and guys with a lot and lot of miles and experience on us. TWST: What exactly is the China facility concerned with? What exactly is the scope of its operations? Mr. Rodrigue: We manufacture coatings. We have a 30,000-square foot facility. We manufacture our Power Shield brand of coatings, we have nine different series of coatings from general magnets to very high-end coatings and insulative coatings.

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So, it’s a full service facility where we manufacture coatings for the marine industry in China, the petrochemical industry in China, bridge building, shipbuilding, petrochemical, pipelines, as well as construction industry. TWST: What would be the one or two reasons for investors to look very closely at your company right now? Mr. Rodrigue: We know that we are very undervalued as a lot of small companies are right now. We are in a very sales-rich environment. Our revenue and our EBITDAs are going to be strong in 2009, but really breaking out in 2010. Anybody who comes in and buys us to hold us will be very pleased that they did. We’re a company that’s defying all odds in the marketplace, continuing to pick up new business, new customers on nearly a daily basis. We have innovation, which separates us, and we’re in markets that are very large. The anti-corrosion coatings market globally is $1 trillion a year; the plastics industry particularly is over $1 trillion a year. The engineered resin space that we are in just in China alone is $4.2 billion a year; here in the States, it’s about $9 billion a year. So, we are in large industry segments where you don’t have to have a big market share to do real well. I mean, 1% global market share is huge. TWST: Is there anything else you would like to add? Mr. Rodrigue: What you can do is go to our website and see my video. That might add a couple of little ideas to you. Other than that, we’re a good solid company that’s going up, up, and up. We are like 2,000 other companies that are small public companies that are vying for recognition, but we are worthy of a strong look from the investor community. We are well run and we are very profitable, our margins are good, we’re not in the commodity businesses to where we’re getting just beat to death on price. And we are a good play. TWST: Thank you. (MR) J. WAYNE RODRIGUE Exousia Advanced Materials, Inc 200 Soldiers Field Drive Suite 200 Sugar Land, TX 77479 (281) 313-2333 www.exousiacorp.com

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Nordson Corporation (NDSN) EDWARD CAMPBELL joined Nordson Corporation in 1988 and has served as the company’s CEO since 1997. Prior to beginning his career at Nordson, Mr. Campbell worked for 11 years in operating and financial management positions in the petroleum industry. He holds a Bachelor’s Degree in Electrical Engineering from the University of Notre Dame and a master’s degree in Business Administration from Harvard University.

SECTOR — INDUSTRIAL EQUIPMENT & COMPONENTS (AMX622) TWST: Would you start with a brief overview of the company and some highlights from its history? Mr. Campbell: Nordson is a manufacturer of factory equipment used by our customers to provide value-added steps associated with assembly, coating, packaging, testing and inspection. We were founded in Amherst, Ohio, in 1954 with product lines that were associated with industrial painting processes but have since expanded around those original core technologies of spraying or dispensing materials to a wide array of advanced technologies in many global markets. We operate with direct operations in 30 countries through a network of wholly owned sales and service organizations, and through a network of value-added distributors. We have 14 factories located in the United States, Germany, the United Kingdom, Netherlands and China. TWST: How many employees worldwide? Mr. Campbell: The most recent number from our most recent press release is 3,800 employees. TWST: How is the recession impacting the business and what strategies have you been employing to get through it? Mr. Campbell: The global recession which we are in today was originally caused by a financial crisis that limited the availability of credit to both industrial borrowers as well as consumers. The inability of Nordson customers to avail themselves of commercial credit caused widespread reactions that not only influenced the appetite of customers to invest in additional capabilities, it caused many sectors of the global economy to constrict or contract rapidly. Since that time, the actions taken by many companies to curtail spending and reduce employment have produced secondary impacts as consumer demand has shrunk substantially. We now find ourselves in a circumstance where there is a lack of confidence in the economy and higher rates of unemployment. Continuing challenges in the financial community have caused substantial portions of the industrial economy to be operating at fractions of the rate they were just 12 months ago. The impact on Nordson has caused our revenue for the first half of 2009 to decline by 30% from the levels we saw in the same period last year, and we, like many of our customers, have reacted by curtailing spending, reducing employment, and tak-

ing actions to conserve cash and to manage the changing relationship between revenue and expenses. We started to implement some of these actions as early as September 2008, and we’ve been able to continue to be very profitable in these very challenging times. TWST: Is that because you reacted quickly and made the necessary changes before things got even worse? Mr. Campbell: Correct. TWST: Considering the changed landscape, where do you see the greatest opportunities for growth? Mr. Campbell: The short-term focus by Nordson management, as well as many of our customers and peers, has been to respond to the changing revenue environment by controlling costs and managing liquidity so that the corporation remains strong and preserves its capability to serve our markets as they begin to show signs of recovery. Once we can look beyond the current environment, we expect that East Asia and other emerging economies will show the first signs of recovery and provide very interesting rates of growth. TWST: You’ve got two new factories in China. Do you have any other mid- to longer-term plans for expansion in Asia? Mr. Campbell: We serve the commercial opportunities in Asia primarily by exports from our US and, to a lesser degree, Western European factories. The opportunities from a sales and revenue point of view in Asia can be well-served by that continuing source of supply. However, I expect that we will continue the program that we’ve been on for the past few years of shifting a greater portion of our products from both our own factories and from supply sources in low-cost countries such as China. TWST: Do you expect the company to benefit at all from the federal stimulus package? Mr. Campbell: First of all, I’d say that the steps that the Administration, as well as the Treasury Department and Federal Reserve have taken to support the financial system and ensure the continuing availability of credit have been the most vital aspects of actions taken by the government. The federal stimulus package will have less-direct effects on Nordson’s business but, to the extent that the broader economy has greater confidence and begins recovery, our customers will begin to have the confidence to again make investments closer to the pace that we’ve seen in the years before 2009. The Wall Street Transcript — June 29, 2009 1

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TWST: What are the advantages you believe you have over your competitors? Mr. Campbell: Nordson operates with three segments and is the global leader in the sale of the products in each of those segments. We have succeeded in sustaining these leading market shares based on the philosophy of premium quality and after-sale customer support. We expect that that formula combined with continued innovation will enable us to sustain that market leadership for years to come.

”Once we can look beyond the current environment, we expect that East Asia and other emerging economies will show the first signs of recovery and provide very interesting rates of growth."

TWST: Other than the recession, what is the biggest obstacle the company is facing right now? Mr. Campbell: Nordson has the advantages of a strong balance sheet, market-leading position and an outstanding network of international operations that positions us to serve customers in those markets where investment will occur. The growth and performance of this organization is strictly limited by our imagination and ability to build on these longstanding advantages to identify new markets and new customer applications where the strengths of Nordson can be brought to bear. TWST: Acquisitions have been a part of the company’s growth strategy. When things start to loosen up a bit in the economy, what kind of strategic partnerships or acquisitions might be attractive to you? Mr. Campbell: We have long used acquisitions as a means to provide access to new customer markets that we would like to enter and to obtain technology that could complement the existing strengths that we have. We expect to continue to pursue selective investments to fill these needs. At the current time, influenced largely by the challenges in the business markets, the opportunities to acquire companies are limited. This is due not just to the high cost of credit in this environment, but also by an unwillingness by many business owners to consider sale of a company at a time when their performance and, as a result their value, might be depressed. Specifically, we believe that there are many end-market opportunities where we would like to expand our presence. These include consumer nondurable markets where the strength of

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Nordson’s distribution network would add value to smaller product lines, perhaps regional in scope, owned by private owners. Other areas would include the rapidly growing field of life sciences and, in particular, medical products where Nordson manufacturing technologies would enable customers to achieve better quality and precision. Lastly, we continue to believe that the rapidly growing technology end-markets will continue to demand precision dispensing and other technologies that we can offer. TWST: What are some of the top reasons that you think Nordson is attractive to investors? Mr. Campbell: Investors are interested in organizations that have sustainable competitive advantages, that operate with leading market positions in product and geographic markets, that offer sustained long-term growth, and that have organizational breadth and talent that can enable them to win in the competitive markets in which they operate. I believe that Nordson is an organization that has that record, the capabilities and the end-market exposures to provide those benefits to investors. TWST: What are the top two or three key goals that investors can expect you to achieve over the next 12 months? Mr. Campbell: In the short term, we’re focusing on sustaining the appropriate set of relationships between revenue and expenses, maintaining a strong balance sheet and the liquidity that we need to retain during these challenging times. But looking through this period, which I expect to show clear signs of recovery within the next 12 months, this organization is focused upon accelerating the rate of revenue growth through the pursuit of opportunities in new markets and new applications within existing markets, and secondly, to move toward a best-in-class operating organization. TWST: What is your personal management process? Mr. Campbell: Nordson is an organization that is relatively complex with many product lines being sold through 30 international organizations. The degree to which we can operate as a single global team building upon the end-market opportunities in support of global customers will define our success. So we operate with a philosophy that teamwork, excellence and a passion about the way in which we support our customers will define our success. TWST: Thank you. (MES) EDWARD CAMPBELL CEO Nordson Corporation 28601 Clemens Road Westlake, OH 44145 (440) 892-1580 (440) 892-9507 — FAX www.nordson.com

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industry. If you want to call it a renaissance, that’s fine, but the future looks reasonably bright for a rail industry that is efficient, green and capable of competing rail with the truckers. TWST: You last spoke with TWST a year ago. What’s changed over that year? Have you had to make adjustments to deal with the economy? Mr. Jarosinski: Last year, we had a record year. Our public results would certainly indicate that. Through the first quarter of 2009, we were down approximately 10%, both on top line and bottom line. And the bottom line here is that, we took a lot of time in 2008 to continue to look at our cost structure, making sure that even in good times that we were as we could get. We also spent time, effort and money in developing some new niche products. We are starting to see in 2009, in a tougher economy, that sales of some of the R&D items we came up with are beginning to add to the bottom line. That’s been very important for us, so we’re continuing spending on R&D. We’re continuing to reduce costs at the client level and operational level, and we’re looking hard at two other things. One is expanding our business into markets in Asia, Australia and South America. We’ve had some very interesting trips over the past six to eight months that we believe will generate some business in the future, trying to position ourselves well in those countries. We also are looking for strategic acquisitions. We have a very keen eye and an active eye looking for what makes sense to either add to our existing product lines or get into some new areas where the railroads are looking to spend.

"I think that road congestion, fuel prices, safety issues on the roads, all that will really lean towards giving railroads more opportunities."

TWST: Have acquisition opportunities become more attractive with the down market? Mr. Jarosinski: Right now, we have identified a lot of opportunities. We came close on a couple of occasions last year and through the due diligence, we backed off, but we have a very long laundry list. We believe that there are good opportunities out there. I wouldn’t necessarily say that the acquisition list is longer, or includes more opportunities in the last year. A lot of people are skeptical that they may be selling in worst possible time, which wouldn’t yield them the best price. But the bottom line is we believe there are good opportunities out there and we are constantly looking for them. TWST: Does your confidence tie into the idea that trains offer a greener transportation system than trucks? Is that a big part of what you see over the longer-term? Mr. Jarosinski: Yes. And it’s not just about being green. It’s just being more efficient. The railroads are not going to be good, I do not believe, at short hauls. They can’t have rail service serving every industry, everywhere the trucks go. But partnerships with trucking companies, where the railroads take longer hauls by moving freight for the trucking companies as well as modal traffic from 2

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port to port and port to distribution center and so forth – all that makes all kinds of sense and I believe that the trucking industry also realizes that. And as a result, I think that road congestion, fuel prices, safety issues on the roads, all that will really lean towards giving railroads more opportunities. Now, they obviously have to do a good job. They have to still continue to get better, making sure they track their shipments, that they are on-time that when shippers call for information they can get in a timeless fashion. But I also believe the railroads have made tremendous gains in those areas in the last 10 years or so. TWST: Has the intermodal taken off to the extent that the industry hoped or expected? Mr. Jarosinski: Relatively speaking, intermodal traffic has been very good. Obviously with the downturn in the economy, intermodal traffic has suffered just as much as the commodity groups – coal and a few other things. The bottom line is that intermodal is anticipated to be a very, very large part of the railroads’ business. By intermodal, I mean not just containers, but working with trucking companies to haul some of the trailers on flat cars over distances that are more efficient than trucks. TWST: There was also a lot of talk about an infrastructure play when the Obama Administration announced its recovery plans. How does the rail industry fit into that and Portec in particular? Mr. Jarosinski: We’ve really tried to be diligent, trying to follow the money and where it’s going. To date, we have identified some opportunities that were specifically applied to existing quotations we have out there. But quite frankly, most of this money is going to go to areas that we don’t necessarily participate in. If they build or upgrade train stations and they just upgrade their fleets, that won’t necessarily transform directly into our products. However, having said that, in the big picture, as long as those transits are getting better and provide more ridership, our products that service the rail industry for the transits — such as our insulated joint business and our friction management business — can have nothing but an uptick in terms of opportunities. But to translate it directly into an equation that parallels certain monies being spent is, quite frankly, very difficult for us to do at the present time. TWST: What’s the competitive landscape like in these niche product areas that you’ve mentioned? Mr. Jarosinski: On the track component side, which typically represents somewhere around 40% to 45% of our business, this year it’s as much as our 47% of our business through April. The bottom line is it generally has been a commodity-based, low-margin business. However, with the railroads asking for better component life and so forth, we have been able to do our R&D efforts, and improve some products within that commodity group. They’re now yielding respectable margins and providing longer service life for the railroads. A couple of the major Class I’s have converted to these newer designs, and I believe it’s been a win-win situation for both the end user and us. On our friction management group, the competition is very active, because it’s the hardest area of cost reduction for the railroads, trying to improve lateral force reductions, minimize rail wear and wheel wear, saving fuel. Those things entice a barrage of competitors. The landscape has not changed significantly over the past year. I think everybody, includ-

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ing us, is continuing to put forth the best efforts we can to stay ahead of each other. It’s a very active environment. It’s going to take continued R&D effort and good service and marketing efforts to stay ahead. But we believe that we have a very, very strong position not only in North America but in other markets, and we’re proving that. Our products and services have stood out. TWST: How important are the Class I railroads to your business? Mr. Jarosinski: 50% to 60% of our business is Class I-related in North America and it’s the key sector for our overall business. We are clearly trying to minimize that exposure in terms of getting to more markets in Europe and Asia, and we have been — I think — fairly successful in China in less than a year and half. We see nice things happening in that area. We also have some very, very good activity going on in Australia and South America for many of our product groups. We’re trying to minimize our overall exposure by expanding into markets that we just haven’t served as well as we do in North America. TWST: You just mentioned things have gone well in China over a short period of time. What’s the latest on your international operations and your strategies? Mr. Jarosinski: The biggest product group we’re pushing is our friction management product group. We consider the China market in particular a virgin market, from what we have found, for that kind of technology. South America and Australia are not virgin markets, but we have made some significant inroads there. We also believe that another product group, our wayside data collection systems — which measure the wheel impact loads relative to keeping the damage control for flat wheels and out-of-round wheels and so forth — have significant potential in areas of South America in particular, Australia as well as China. And we believe that those technologies are very good. Those markets need them. There has been a lot of activity from those markets attending North American conferences, technical conferences to get used to what that technology is all about and we’ve had some very, very good results from those customers inquiring about our products and services. Many are actually doing trials and establishing cost-benefit values. TWST: Do you see a lot of growth and a lot of challenges in those areas? What’s your outlook as you look to your international markets? Mr. Jarosinski: The China situation clearly is cultural and language issues. We’ve been very careful to make sure we have boots on the ground, Chinese-born and speaking people. We believe that a local presence will be required to compete well in those markets. We feel pretty much the same way for the other areas. Our types of products aren’t like a retail type of thing where you just sell a washer or dryer, and most of the time everything just works fairly well and you can do a little bit of long-distance service. This kind of product line requires attention and a quick response for customers to really obtain the benefits that they need. So we’re building that local presence. TWST: You recently said that about 40% of sales came from track components and 32% from friction management, and a smaller percentage from other areas. Where do you see the growth coming from in that regard and where do you see challenges?

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Mr. Jarosinski: The biggest growth we see is from two product groups: the friction management, because it can be exported to many parts of the world without too much re-engineering; and our wayside data management systems from our Salient Systems group, also because it can be exported fairly easily. We do not anticipate major growth in our track components in these other countries. It’s just not practical to consider exporting heavy steel products from North America into those countries. If we see growth in our track components in those countries, it will either be through an acquisition or setting up an operation to manufacture those items from a local steel source.

We are penetrating other areas like China, Australia, Japan, Indonesia, Malaysia – in all those areas, we have had sales and exposure for the past couple of years. If you look at our company, you’ll see we’re not sitting still; we’re looking forward to expansion.

TWST: You also mentioned, in speaking about your revenue mix, that 8% of your sales come from something called non-rail material handling. Would you explain that and how it fits into your plans? Mr. Jarosinski: We inherited the operation in Leicester, England when our business broke away from the old Portec Inc. and when we became Portec Rail Products Inc. That particular group handles material handling product lines such as conveyors, overhead conveyors, fixed conveyors, and belt-type conveyors. It’s a material handling business that is project-related in many industries, and it has been self-sufficient for many years. In an ideal world, we want to continue to build the value of that particular group and one of these days, we will try to make the most strategic decision about it. For now, the intent is to build value, make it the best we can, and then decide whether we blend it in with other material handling business or fit something in our rail industry into that area to make it part of the core business. That’s to be decided later. TWST: How is the company’s capital structure? Mr. Jarosinski: Our Chairman is a self-made millionaire in the banking industry. He has contacts and we have current relations with a couple of our key banks in Canada, the UK, and the United States. Our business has been sound, and our relationships are good. We have absolutely no problems with getting capital for expansion or anything that we need at this point, including acquisitions. TWST: How about investor relations. Are you doing anything to get your message out? Do you feel that investors understand what Portec is all about? Mr. Jarosinski: Yes, we have been very active over 2008 and the first quarter of 2009. We had three “road shows” with our stock analysts, and a WebEx with analysts and quite a few investors. So we have been very active in the last six months, and yes, we do feel the story is getting out. There has been a lot of interest generated in the company over the past year and we directly attribute that to the The Wall Street Transcript — June 29, 2009 3

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Portec Rail Products, Inc. (PRPX) RICHARD J. JAROSINSKI was appointed President and Chief Executive Officer of Portec Rail Products, Inc., in October 2006. Prior to this, he was a Group Vice President, with management oversight responsibility over the company’s largest division, Railway Maintenance Products, along with oversight of Salient Systems and Kelsan Technologies. Mr. Jarosinski began his career with Portec in 1975 as a Design Engineer and has held various positions designing track machinery, culminating as Manager of Engineering and Research and Development. He later became Manager of Marketing, Sales and Service for nine years prior to being appointed President of the RMP Division in 1997. Mr. Jarosinski is a Mechanical Engineer and has been a registered Professional Engineer in the State of Pennsylvania since 1979. He also has served as a Board Member of the REMSA (Railway Engineering-Maintenance Suppliers Association) trade association and is a member of ASME and the National Society of Professional Engineers. Mr. Jarosinski is also an active member of the Entrepreneurial Fellows Center Alumni Association that is part of the Institute for Entrepreneurial Excellence at the University of Pittsburgh. 

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX634)TWST: Let’s begin with a brief historical sketch of the company. Mr. Jarosinski: The company has been in existence for approximately 100 years, with five very strong product groups that continue to have major market-share presence. Over the past five or 10 years, we’ve evolved as we’ve tried to move the company from a equipment supply house in our friction management business to a business that offers more packaging of value for the customers. We now not only offer equipment, but we’ve evolved to offering substance that the equipment supplies such as the friction modifiers that are used on top of the rail, as well as niche products on the rail curve grease such as TempFlex is the trademark name, a soybean-based rail curve grease. Then, we’ve also evolved to where we not only give the engineering reasons where you should place the units from a strategic location position, but we also install, service and provide feedback to customers concerning rail friction control. We believe that packaging all these values for the customer, which really encompasses from A to Z what they are looking for, puts us in a strategic position to not only provide them the products and services but also prove that the products and services are working. TWST: How would you describe the outlook for the industry in general and for your company right now? Has it changed dramatically with the economic environment? Mr. Jarosinski: If you read a lot of press in the past, let’s say starting in late fourth quarter 2008, the rail industry succumbed to tremendous volume drops in traffic patterns, to the tune of 27% in both intermodal and freight in North America. There were also major drops in traffic across the world. Ironically, on the passenger side with fuel prices going up, the industry started to see extra record ridership, but since most of our businesses are still weighted heavily towards freight, the rail industry started to see some pretty

significant drops even through the first quarter of 2009 – about 15% to 20% in overall car traffic. The good news is that even though they are experiencing the drop in traffic from the past year, the bottom line is that they’re doing something uniquely different from what they’ve done in years past, at least in North America. The Class I railroads, which represent approximately 50% to 60% of our business, started to talk late last year that even in an economic downturn, they were going to change their philosophy and continue investment in their infrastructure. So far, they have held true to their word. They are still producing and are still spending at reasonable levels to upgrade their infrastructure, with the intentions that they will be in a better position to handle an economic recovery than they have been in the past. In the past, they were very susceptible. As the wind shifted and changed economically, they immediately dropped their budgets and cut back significantly. They seem to be doing that much different this year and we have seen, as a result, a reasonable business environment. I think our results to the first quarter would indicate that they are reasonably acceptable to most people. TWST: The term Rail Renaissance was a big one 18 months ago. Where does that stand right now? Mr. Jarosinski: I believe there are a lot of signs out there indicating that the rail industry still feels very optimistic looking forward. The economy goes up and down through the years, and we’re hitting a big low spot — certainly in my lifetime — but the truth is, the industry is positioned pretty well, in terms of infrastructure and rolling stock (meaning the locomotives and cars) to handle an upturn in the business or in the economy. And we really believe that with the price of fuel looking like it will continue to rise, the efficiency of what a rail system can do, the fact that the rail systems are looking more and more towards partnerships with their competitors — the trucking industry — I do believe and many people believe that there really will be a continued resurgence of the rail The Wall Street Transcript — June 29, 2009 1

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fact that we are being more active. We’re trying to put the information out there. We also have recently posted all of our public investor road shows on our Website, and we’ve already got numerous calls about that and it’s been a very good thing. TWST: What might be some year-by-year milestones that investors can be looking for? Mr. Jarosinski: I believe that we are a sound company, striving to do the best we can in this kind of economy for the top line and bottom line. Our first quarter results are an indication of that. Investors will see a company with a product group that is well-positioned for handling growth on the railroads. It’s tough to argue that the railroads, both passenger and heavy haul freight, will not want products that significantly contribute savings to their operating costs — reducing their rail wear and wheel wear, improving their fuel efficiency, and reducing noise for many of their transit systems in wellpopulated areas. And, when you look at some of our other product groups like the wayside data management systems, it would be hard to argue that those product lines aren’t going to be needed in a very heavy way going forward, with rail expansion on both the freight and passenger side. We also pay a good dividend. We’ve been around a long time. We hold significant market share with most of our product groups. We are penetrating other areas like China, Australia, Japan, Indonesia, Malaysia — in all those areas, we have had sales and exposure for the past couple of years. If you look at our company, you’ll see we’re not sitting still; we’re looking forward to expansion. TWST: Do you have a vision of how you expect things to develop for your customers when the economy does recover? Mr. Jarosinski: Yes. I believe there are a few hundred thousand cars in North America, between the Class I’s and short lines and everything else that are revenue-ready, that are in storage. I believe the railroads are continuing to build their infrastructure and maintenance needs as they always do, even in this downturn. They’ve got revenueready cars ready to respond. The most scary part for all of us is whether or not Congress is going to push hard on regulating the industry. If they do, the Class I chief engineers and CEOs are saying, “If you are going to regulate us, we will stop spending.” As a supplier to the industry, that’s probably the biggest issue I see as a threat to both the supply side and the end-user side. If re-regulation doesn’t come back to this industry, I think that railroads, with their continued spending, their revenue cars, the new technologies they are putting in locomotives and so forth, and the relationships they are building with their trucking companies, I think they will be in a real good position. If they’re not regulated, can compete well, they’ll provide the North American market with a very good transportation system that will benefit everybody, every consumer out there.

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TWST: Is that debate going on now in Congress? Mr. Jarosinski: Yes, right now. Some consumer groups are saying that the captive hauling of chemicals and coal leads to higher prices for consumers. They say that because there is no competition, that they are a monopoly. There are obviously a lot of opinions on that, and there’s a major debate going on, especially with Congress shifted the way it has through this last election. The AAR (American Association of Railroads) is fighting very hard to make sure that the pendulum doesn’t swing too far the other way. The railroads are willing to talk and negotiate prices and so forth, but to fully re-regulate it, like in the 1960s and early 1970s, could be very devastating to the whole industry. The country would be losing the real benefit of transportation if they do that. TWST: What are the two or three best reasons for longterm investors to look closely at Portec. Mr. Jarosinski: One, we have a couple of product groups, friction management and wayside data control systems, that are in a hot sector of spending for the railroads, because those products help with important issues that the railroads have in terms of costs, their infrastructure. Those two product groups are very capable of being exported to many parts of the world without a lot of re-engineering. We pay a solid dividend. We are a very well established company, with good shelf space with the end-users in many parts of the world. We’ve got a good solid group of people in the company. We have a very high percentage of people with 15 to 20 years or more of experience with others coming up from behind, and we have good solid support from the Board. And I think we’re in an industry that can’t be doom-and-gloom in the future, when you look at economic growth over time and the fact that roads are congested. So, from that perspective, I think if somebody is in this industry to invest for just short-term gains, six months or one year, that might be a mistake. They need to be thinking a little longer term. For a long-term investor, for a number of years out, I think it could be a very nice fit. TWST: Thank You. (MW) RICHARD J. JAROSINSKI, President & CEO Portec Rail Products, Inc. 900 Old Freeport Road Pittsburgh, PA 15238 (412) 782-6000 (412) 782-1037 – FAX www.portecrail.com e-mail: [email protected]

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RADVISION Ltd. (RVSN) BOAZ RAVIV was appointed CEO of RADVISION in 2005. Prior to becoming CEO, Mr. Raviv served as the General Manager of the RADVISION Technology and Networking Business Units. He previously served as the Vice President of Business Development and Marketing at Elron TeleSoft. Mr. Raviv holds a B.S. from the Technion, Israel’s Institute of Technology in Haifa.

BOB ROMANO is RADVISION’S vice president of enterprise marketing. He is fourteen year veteran in the conferencing industry. Mr. Romano has held positions at IBM, GM, VTEL, VCON, Inc. and First Virtual Communications.  He holds a B.A. in Business Administration/Account from the University of Washington in Seattle.

SECTOR – INDUSTRIAL EQUIPMENT & COMPONENTS (AMX632) TWST: Please start with a brief overview of the company and some of the highlights from its history? Mr. Romano: RADVISION was founded in 1992 with the mission of providing technology for video conferencing over IP networks. Up until 1992, all video conferencing was being done over ISDN lines. But there was a move to the IP network and RADVISION was very early in the market providing technology to allow video over IP to happen. What we build are network infrastructure products that allow video conferencing over IP and that manage and provide advanced video conferencing capabilities to enterprise networks. This phone call right now is connected to RADVISION technology allowing all of us to be able to hear each other. It’s exactly the same thing if we were on video devices, we’d all be able to see each other. So RADVISION builds infrastructure that goes into the network and allows multiparticipant video conferencing. We also build advanced software to manage distributed networks of video conferencing equipment as well as a software desktop application that allows remote participants to be able to join in a video conference from virtually anywhere and almost any device. One thing that we don’t do, we don’t build video conferencing room systems. So when you go into a conference room and you see a Polycom, or a Tandberg, or a LifeSize, we support all of that equipment. We build the network infrastructure. We feel that as video conferencing is becoming more common and more prevalent and as the industry grows, the intelligence is really in the network. Managing video conferencing networks is becoming much more

critical, especially given that video is ending up in so many different places – in rooms, in telepresence suites, in unified communication applications, on mobile devices – and so the need to allow all of those to connect and inter-operate is becoming much greater. That’s what RADVISION does. We provide the network infrastructure to allow that to happen. Mr. Raviv: With our focus on networking, our strategy is to enable everyone to make a conference call by using video wherever he or she is – whether using a mobile video phone, a desktop/video telephone, or a video telephony system embedded on the desktop – in exactly the same convenient way that we are using a phone for this call now. So this week is historic for RADVISION in a real sense. Over the last two years, we have invested substantial resources in focusing our company on the right market with the right product and the right solution. This week, we announced a suite of products that clearly state to the market our strategy. This is a very important week for RADVISION and I hope a very important week for the video conferencing industry. The most important thing that we announced this week is a new server platform architected for today’s HD systems to allow anyone to connect and give the luxury of high-definition, high-quality video. Another of our announcements was a unique technology that we added to our SCOPIA desktop solution that protects the quality of a video call and enables everyone using a mobile laptop to connect and get high-definition video quality, and have a great experience even when they are connected over the open internet. Another important announcement was made regarding a new partnership The Wall Street Transcript — June 29, 2009 1

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with Samsung. Samsung is a company that has expertise in taking high-quality products and commoditizing them, by which I mean making them affordable for the mass market. Samsung is number one in producing LCD monitors and TVs in the world. We actually embedded our technology in an LCD monitor created by Samsung – the product is called the VC240. By adding RADVISION technology to the product, we are bringing the luxury of executive level telepresence to everyone. We demonstrated this amazing product at InfoComm this week and it will be available beginning in September. From now on, everyone is an executive and will be able to do a video conference call, just like we are doing this phone call now. Everyone can have an LCD monitor, which is also a video telephony system fully integrated with our SCOPIA infrastructure solution. I was amazed by the reaction of our partner channel and end-user customers when they saw a product for $1999 that until now costs as much as four times that amount and was a real luxury for only a CEO or a top level executive. We are also partnering with Cisco on the networking side – in fact, we’ve been a long time partner of Cisco’s. By having two strong partners like these, I truly believe we are in the right time with the right technology to change the market.

“You can connect remote workers to the data network, you can connect them to the phone network, but what really is difficult is keeping them connected to the social network and that’s what video does.”

TWST: What do you see as the most important trends in the industry and how do you stay ahead of those trends? Mr. Romano: I think there are two major trends going on in the industry right now. One is the movement to highdefinition video conferencing. What that has done is dramatically improve the quality of the experience from what had been little more than TV resolution for the most of the industry’s history. Moving to high-definition has provided such better clarity and such a better experience that it really spurred the industry and we’ve seen dramatic industry growth rates in the last couple years. In 2007, the industry grew about 40%. Last year it grew about 20 to 25% or so, impacted a little bit by the economic situation towards the end of the year. But we are still seeing some very good strength in the industry and I think high definition is a big reason for this. One of the things that we have done, as we announced this week, was introduce a new network infrastructure platform that supports high-definition at very good price points. So we now have support for high-definition all the way up to 1080p resolutions, the highest resolution there is, at price points that now are much better than the competition, really making this fully functional and very affordable. The second major trend that we see in the industry is that for the bulk of the history of the industry, it’s been relatively small companies that are providing video conferencing equipment and that have been in the video 2

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conferencing game. Now, we are seeing large companies getting involved. Two years ago, Cisco entered the video conferencing business in a big way with a product they call TelePresence. TelePresence has an immersion experience, you go into a room where the lighting is controlled, the sound is controlled, the cameras are fixed to make the remote participants look exactly life size. It’s the highest resolution and it really provided a dramatic revolution in the industry in providing extremely high-quality video conferencing. John Chambers, the CEO of Cisco, is the biggest salesman for Telepresence and video and they are spending a lot of money on advertising and really promoting and highlighting video conferencing. I think the announcement that Samsung made yesterday that they are entering the video conferencing market really is dramatic – and we at RADVISION are excited to be working with them. Samsung is a company with enormous reach and they have the ability to build high quality, high-volume, and low-cost products. It means that this is an industry that they are now interested in and they have the potential to dramatically change it. TWST: How has the global economic slowdown impacted the business and also what strategies are you using to get through it? Mr. Romano: It is interesting. One of the things that video conferencing can do is save money on travel expenses and allow people to be able to meet without having to physically fly and travel with all the costs associated with that. We are seeing a couple of things in the industry, as a result. As companies look to save money, they are outsourcing their workforce; they are doing a lot more teleworking. It’s estimated there will be a 100 million teleworkers in the United States by next year. It’s a dramatic number of people who will work from home for some portion of their workweek. All of these trends are efforts to try to save money. But in reality, company employees still need to be able to communicate with each other. You can connect remote workers to the data network, you can connect them to the phone network, but what really is difficult is keeping them connected to the social network and that’s what video does. In addition, there’s a tremendous opportunity to save money on travel expenses – in fact, we are doing it in our own company. Cisco actually came out and said they were going to save 20% of their travel bill by the use of video conferencing technology, TelePresence technology, and the ability to keep remote workers and customers and suppliers connected through collaboration that includes video for a much better experience. So while the economic situation is a downturn and companies are looking to save money, this actually is a technology and a solution that can help them save money. So we are seeing some resilience in the marketplace and some counter recessionary effects in this economic situation. TWST: Are there any business segments or customer types or geographic markets that represent the biggest opportunities for growth for you right now? Mr. Romano: There are certain vertical markets right now that are good for us. We do a lot of business in the Federal government market. A lot of the programs that the government is doing to stimulate the economy are also benefiting collaboration technologies like video conferencing. We were strong in that

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vertical market already and we are seeing that vertical market hold up very nicely. On the other hand, there are certain industries that have been strong in video conferencing before that have been impacted, especially financial services, where spending has really been curtailed. But in general, video conferencing tends to be a very horizontal type of an application and so it’s beneficial to virtually everyone. But because of the current economic situation, I would say that probably federal and education continue to be strong because of the focus of stimulus money that’s going into them. Mr. Raviv: I may add to that, all the global companies involved in R&D and with subsidiaries all over the world. They need this tool to communicate and to be efficient. We see more and more large and global companies looking and trying to upgrade their communication system to what we call unified communications, to unify all the audio, video, and data with high quality of video. TWST: What are your advantages that you believe you have over competitors, especially with more companies entering the market? Mr. Romano: In a lot of ways, we are unique because we really are the only independent infrastructure vendor in the market today. As I mentioned to you, we build hardware infrastructure to support video conferencing, management software to build controlled distributed networks, and desktop software. We compete against companies like Polycom and Tandberg who also build endpoints, which is really their predominant business. They also build their own infrastructure to support that. But as an independent infrastructure vendor, we think we are in a unique position because as video is getting deployed across so many different platforms, customers want a solution that they feel will give them investment protection and support all of those different environments. We are Cisco’s OEM partner. We provide them their video conferencing infrastructure technology. We are partners with LifeSize Communications, really the first market mover in high definition video endpoints. We provide Sony with infrastructure. We provide Aethra with infrastructure, and we provide IBM plug-ins, we go into the IBM Same-Time environment. We recently just did a deal with Cisco’s WebEx to provide high-definition video into the WebEx environment. So we think we are in a very unique position in that we provide video capability to so many and support for so many different platforms that are now adding video to them. That gives customers a unique opportunity to buy an infrastructure solution that they feel confident will allow them to be able to use any of these solutions without being locked into a particular vendor. From a pure product perspective, we feel that with the announcements that we’ve made this week, we now have market leadership in desktop video conferencing and clearly have features and functionalities and capabilities that our competitors don’t have. We feel the advancements that we announced in our desktop technology this week have extended our lead significantly. One of them is in a technology that provides error resiliency so that if you’re in a network that has packet loss, you still have great quality. It’s a unique technology that we brought to the market and we are the first major vendor to do so. It is called Scalable Video Coding, or SVC. The second thing we’ve done in desktop is we have added the capability to have much more scalability in point-to-point calls. In our infrastructure platform, we now believe we have the best high-

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definition platform in the market at the best price. We invested a lot of money and a lot of effort in the last two years in development cycles to bring these solutions to market, to be able to support the very rapidly growing market of high-definition video conferencing. And so now we think we have the best high-definition platform at the best price in the marketplace.

“Over the last two years, we have invested substantial resources in focusing our company on the right market with the right product and the right solution.”

TWST: Would you tell me more about what the structure of those partnerships will look like and is that the direction that you will be going, pursuing other strategic partnerships like that? Mr. Romano: RADVISION’s relationship with Cisco is over ten years old. So we’ve had a very long and very mutually beneficial relationship with them. At the beginning, we were providing Cisco with just one or two infrastructure components that they would provide to their enterprise customers. Now it’s much broader. Video is a huge initiative for them. As John Chambers says, video is the killer app in the Web 2.0 era and video is a very strategic focus for them in their business. They have TelePresence solutions, they have video integrated into their telephony solution and they have video integrated into their call center application. As I mentioned to you, they now have integrated high-definition video into WebEx, their web conferencing application. They have video in their audio conferencing and scheduling application called MeetingPlace. We are the core video engine underneath all of those solutions allowing all of those solutions to interoperate. So Cisco is our largest partner and the relationship with them has grown over the last ten years to be much broader and much deeper across their business units and their product line. The relationship with Samsung is brand new. We have a business unit within RADVISION that provides technology components for companies that want to build advanced audio and video devices and services. RADVISION and Samsung got together to build this product called the VC240. VC240 is very highpowered, low-cost desktop device. It’s a monitor with a microphone, speakers, high-definition camera and video conferencing, all built into the unit at about one-quarter of the price of any comparable products on the market. The arrangement we have with Samsung is that they will be able to take that product to market as will RADVISION. We will focus on the traditional video conferencing markets and expand that into all the relationships that we have with our existing partners and new partners also. With the product at that price point and that functionality, we believe it will open new markets for us. Samsung will take the VC240 to market through some of their channels. We think it’s going to greatly change the whole marketplace because of its price point functionality and the distribution capabilities that Samsung has. The Wall Street Transcript — June 29, 2009 3

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TWST: Another thing I want to touch on is this tender offer from Mr. Zisapel. Can you talk about the impact that could have on the company? Mr. Raviv: The tender offer is based on a technical requirement under Israeli law. Zohar Zisapel is a shareholder; he is also our Chairman. Over the years, he has purchased shares in RADVISION and now owns close to 25% of the company. In order for him to purchase more, he must acquire additional shares through a tender offer. The tender offer is something between him and the other shareholders. If he succeeds, it’s good for him and if not, it’s also good. The only effect on the company if he does not succeed is that it might restrict our buyback program because we are not permitted to force him to be a 25% shareholder. TWST: What are some of the key goals that investors can look for you to achieve over the next, say twelve months? Mr. Romano: I think what’s important is to take a look at RADVISION and where we are. We decided two years ago to increase and accelerate our development of our high definition platform that we announced this week, called the SCOPIA Elite series. We found that the high definition market was maturing very quickly and that the need for a powerful, affordable product in the marketplace was going to be required. And so we told the investment community that we were going to increase our R&D to do that and that it was going to have some impact on our profitability. We did that, we are through that development cycle, and we’ve announced the product to great response from the marketplace. We believe we are now in a very good position in that we have the right product-set in our core infrastructure and we have increased our functionality and our market leadership in our desktop application. We also believe that we now we have the right partners in place, including the addition of Samsung, which will dramatically change the distribution and marketability of the product set that we have. And, as the economic environment improves, we think we are in a great place to drive revenues and return to and grow profitability. TWST: If you want talk individually or as a team, how would you describe your management philosophy? Mr. Raviv: I think you should be here with us during this week during the InfoComm show in Orlando to see our team. Not only the management, but everyone, and see the excitement of everyone.

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You can see the light in their eyes and see the enthusiasm, the feeling that we are doing something that really can change the way people are communicating. And this is the key for everyone that works at RADVISION – this enthusiasm and the feeling that we can do something that can really affect the way that in one or two years from now, we and you and everyone will communicate and, by the end of the day, to see video as the way to communicate. I see this as the key management factor – that everyone is taking part in this revolution at RADVISION, not only the executives – it’s all of us. Mr. Romano: I want to add something to that. It’s very interesting and I think somewhat unique about RADVISION. We are a company of 400 employees, but we are very geographically dispersed and do business virtually all around the world. We have three development centers, one in Tel Aviv, doing our hardware, one in Bedford, New Hampshire that does our desktop software development, and one in Beijing, China that does our management software development. We have sales offices throughout the world and we have employees that work from home as I do. I work out of my home office in Austin, Texas. We use our technology all day, every day, and it’s remarkable to see an organization that works as well as it does and as cohesively as it does, given how geographically dispersed we all are. So it’s a great testament to the potential of this technology and, because we use it everyday, we are very firm believers in how this can change the way people work and allow them to work much more effectively across distance. TWST: Would like to add anything else? Mr. Raviv: I hope you keep following the progress that we are making and the change we are bringing to the market. I think that RADVISION has the right strategy, the right products, and the right people, and we are executing very well right now. TWST: Thank you. (MES) BOAZ RAVIV, CEO BOB ROMANO, VP Marketing Radvision Ltd. 24 Raoul Wallenberg Street Tel Aviv, Israel 69719 972 3 767 9300 www.radvision.com

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Southwall Technologies Inc. (SWTX) DENNIS CAPOVILLA, CEO of Southwall Technologies Inc., joined the company in 2003, taking on the initiative to turn around declining revenues by rebuilding the sales organization, focusing on customer relationships, and improving visibility and predictability. He was promoted to CEO in May 2008. Prior to joining Southwall, Mr. Capovilla served as Vice President of European Sales for Palm, Inc., a handheld computer device provider. He also held positions with Fatbrain, LLC, Apple Computer and Xerox. Mr. Capovilla has a BS in Marketing from Santa Clara University.

SECTOR — INDUSTRIAL EQUIPMENT & COMPONENTS (AMX623) TWST: Would you give us a brief overview of your company and how it got to where it is now? Mr. Capovilla: Southwall is a pure-play energy efficiency company. That means we focus on one thing — improving the energy efficiency of glass. We participate in two big markets: the automotive market as well as the architectural market, and all of it worldwide. We are an analog to Intel Inside. We are the technology that goes inside the glass of a car and the glass of a building to improve performance. We participate at an OEM-level, a retrofit level and an after-market level across all of those areas. Southwall was founded in the 1970s in response to the oil embargo to bring a significant energy saving glass technology to the market. Our initial product, Heat Mirror, a heat-reflective film mounted inside insulating glass, was characterized at the time by the San Francisco Examiner as the first improvement in window glass since insulating glass was patented in 1865. We enhanced the energy-saving performance of Heat Mirror to the extent that in 1999, Popular Science selected it as one of the most significant 100 inventions of the millennium. Over the course of the last 30 years, we have been selling high-end energy-efficient film and glass products. In the last two years, the demand for energy efficient glass has increased our opportunity to mainstream our products beyond the high-end niche to the broader market. TWST: How does the recession impact your business? Mr. Capovilla: We’re definitely not immune to the recession, though we see the architectural marketplace as stabilizing. In the automotive marketplace, there’s such a dramatic decrease in automotive sales that when you sell into that marketplace it will impact you. We saw a dramatic decline in Q4 of last year, but things are stabilizing this year though we’re clearly not out of the woods yet. TWST: What types of things are you doing to survive this recession? Have you had any operational shutdowns? Are you looking into new markets? Mr. Capovilla: My new management team took over a couple of years ago and in 2007 we did a lot of the heavy lifting. Anticipating the economic downturn, we shut down facilities that were no longer necessary and terminated R&D projects that were not focused on our core business. Right-sizing the company in 2007,

we’ve reduced OpEx north of 30% in just that year. We took our remaining R&D dollars and focused everything on energy efficiency, everything. So that was a very important year for the company that ended being profitable. In 2008, which was the first full year of the new management team and repositioning the company back to our roots, we had a very good year with double-digit growth in our energy products. We finished the year approximately $42 million in top line, we had double-digit operating income and we had double-digit net income. So we right-sized the company and saw growth in volume year-on-year. Even with an anemic economic environment, it was a very good year, except in Q4 when we got hit pretty hard. The two areas that I think are worth noting to the investment community are that as a company, we spent a lot of time and energy cleaning up our balance sheet. We improved our debt-to-asset ratio — before we took over in 2006, it was around 37%, and we’re now around 13% to 14%. So I think that’s really positive. That’s number one. We are, for a company our size, in good shape when it comes to cash. And to get to the specific question you asked earlier, we weather this economic situation by conserving cash, and we’re doing everything possible as a company to do that. With that said, we are continuing to invest in growth areas for the longer term. So we are not chopping off our growth opportunities to try to survive. It’s just the reverse. TWST: Do you expect to get any benefit from the federal stimulus package? Mr. Capovilla: Absolutely. An example of this is a tax credit on buying energy-efficient windows. The window-makers who purchase our glass anticipate that the tax credit will certainly motivate consumers to purchase the most energy-efficient products available. In addition, we work directly with the Department of Energy to determine if there are opportunities for funding directly related to the stimulus program to help us continue to innovate. We work with other government agencies and are well-positioned to pursue additional public sector R&D funding. TWST: What joint ventures or customer agreements are you pursuing right now? Mr. Capovilla: We have an agreement with a distribution partner in China that is ontrack and doing very well. We have a major joint venture in Chicago focused on forward verticalizing The Wall Street Transcript — June 29, 2009 1

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Southwall films to window fabricators. In that business we are selling a finished insulating glass unit to the window marketplace. Again, back to the Intel Inside analogy, our joint venture makes the insulating glass unit that is the key component of high-performance windows. Our effort in Chicago is to continually push the envelope and innovate, and improve how we manufacture this higher-performing energy-efficient product. In the process of doing that, we are seeing interest on the part of larger branded window companies in the use of our glass technology.

”In the last two years, the demand for energyefficient glass has increased our opportunity to mainstream our products beyond the high-end niche to the broader market.”

TWST: Are there any other industry segments or geographic markets in which you see a lot of opportunity right now? Mr. Capovilla: Opportunities are truly all over the world, moreso in the United States and Europe, but dramatically increasing in Asia. One factor driving the worldwide increase in better-performing windows is the Department of Energy’s ENERGY STAR program that is in the midst of increasing its window performance standards. What’s important in the window world today is insulating performance, commonly understood by consumers in the United States as a measurement of R-value. The higher the R-value number, the better the performance, with a typical wall having an R-value of 19 or more. Southwall’s top-of-the-line Heat Mirror insulating glass enables windows to equal the R-value of an insulated wall. If I were to ask you what consumes more energy or pollutes the environment more from a carbon emissions perspective, cars or buildings, what would you think the answer of that would be? TWST: Well, I’d say cars, but I am guessing it is buildings. Mr. Capovilla: It is about 40% related to buildings and homes, and cars are in the 30% range. TWST: Window performance sounds like a sure bet as this requirement gets raised. Mr. Capovilla: Codes regulating energy conservation in both the automotive and architectural markets are getting tougher. We see countries in Europe that are mandating energy performance that a traditional window can’t meet today. In the US there is discussion about changing the energy code so that by 2013, traditional dual-pane windows are not going to be able to meet the energy requirement. TWST: So that could be really exciting for you? Mr. Capovilla: Yes. And on the automotive side, again, there is growing consumer awareness on fuel efficiency. We have demonstrated that with our reflective technology it is possible to keep heat out of a car, lighten the air-conditioning load and improve fuel efficiency 3% to 5% while reducing greenhouse gases released into the environment. 2

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TWST: What would you say are your top three goals for the rest of 2009? Mr. Capovilla: Goal one is to continue to maintain financial discipline in the company. In addition, I think it’s really important right now to be close to our customers. Equally important is to execute on our growth initiatives, and to continue to focus on that in both markets, automotive and architectural. A sub-bullet there is successfully executing on our joint venture in Chicago. We think that is a big opportunity for the company to migrate from a niche product to a mass-market product and really change the landscape of the window industry. Additionally, we will work with government agencies in the US and elsewhere to bring to the market commercially viable products and solutions at a reasonable cost with reduced greenhouse gases and improved energy efficiency. TWST: What are the two-year benchmarks for your company? Mr. Capovilla: I think the key thing is to ask, “Are we growing or not?” It’s all about growth. In that regard, we are landing some larger business partners that will significantly contribute to the company’s increased revenue and leadership role in the markets we serve. TWST: What are the top reasons investors should want to take a closer look at Southwall? Mr. Capovilla: I think we’re significantly undervalued at this stage. That would be number one. Last year our EBITDA was $8 to $9 million. Our market cap is less than $20 million, so we are significantly undervalued at this time. I think the other thing from an investor perspective is fundamentally we are a company that has been successfully enhancing our proven core technology for 30 years. We are a classic example of how to cost-effectively innovate. We can point to buildings that, thanks to our glass technology, have been saving considerable energy and operating expense over the past quarter century. We can point to 20 million cars on the road equipped with our energy-saving glass. As a company, Southwall is more disciplined and focused on what we do best. Investors should appreciate that at a consumer level and at a government level, people care significantly more about energy efficiency today than they did as recently as a couple of years ago. TWST: How would you describe your management style? Mr. Capovilla:. I bring to the company a very Silicon Valley collaborative management style and a sense of urgency not typical of the markets we participate in. The automotive and architectural industries tend to measure time by the calendar, while we measure time with a stopwatch. As the world demands greater energy efficiency in buildings and vehicles, our ability to quickly implement proven, time-tested energy saving technologies will definitely be an asset in providing solutions to our architectural and automotive customers. TWST: Thank you. (MES) DENNIS CAPOVILLA CEO Southwall Technologies Inc. 3788 Fabian Way Palto Alto, CA 94303 (650) 798-1200 (800) 365-8794 — TOLL FREE (650) 798-1406 — FAX www.southwall.com

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Sun Hydraulics Corporation (SNHY) ALLEN J. CARLSON joined Sun Hydraulics Corporation in March 1996 and served as Vice President from January 2000 until May 2000, when he was named President and Chief Executive Officer. From October 1977 to March 1996, Mr. Carlson held various engineering, marketing and management positions for Vickers Incorporated, a wholly-owned subsidiary of Trinova Corporation. He is a graduate of the Milwaukee School of Engineering and the Advanced Management Program at the Harvard Business School. Mr. Carlson is First Vice Chair and a member of the executive committee of the board of directors of the National Fluid Power Association, and he serves on the board of regents of the Milwaukee School of Engineering. Mr. Carlson has over 35 years experience in the fluid power industry.

SECTOR — INDUSTRIAL EQUIPMENT & COMPONENTS (AMX615) TWST: Would you give us a brief historical sketch of your company — where it started and where it is today? Mr. Carlson: Sun was founded in 1970 in Sarasota, Florida, to design and manufacture screw-in hydraulic cartridge valves and manifolds. We continue to make the same types of products today. Our earliest international expansions were to Europe in the late 1970s and early 1980s. We started a company in England in 1982 and one in Switzerland in 1983. From there, we built a manufacturing facility in the UK in 1986 and one in Germany in 1997. Our Far East expansion started in the mid-1980s. In 1998, we acquired our Korean distributor and also started a joint venture in Shanghai, China, with our Taiwanese distributor. Most recently, we opened a sales office in France in 2003. We are currently engaged in India to evaluate the market for our products. TWST: Who do you sell to? What types of companies buy your products? Mr. Carlson: We have a very diverse end market. That end market is typically companies that make capital goods equipment. So any kind of capital goods equipment. This includes steel mills, oil exploration and extraction, mining, mineral exploration, or utilities — trucks, manlifts — any kind of piece of industrial machinery that uses some form of force and motion to make it move. Most of our sales, at least in North America, go through independent distributors. So our sales channel is an independent dealership network, similar to the auto industry where the end customer goes to the dealer to buy the product. In our case, the end customer would go to our distributors, which are applied engineering companies that do application work in conjunction with their customers and with our own engineering people. TWST: What are the growth initiatives that you currently have underway? Mr. Carlson: There are really five areas that have been important for our growth in the past, and we will continue to see investments made in those five areas. The first three areas fall into categories of products and services; new products, including electrically-actuated new products; and integrated packages, which for us

mean solenoid valves, electrically-actuated valves and other kinds of valves that are embedded into a manifold or perhaps even the machine itself to create an integrated circuit. We provide both the cartridges and the manifolds (both catalog and custom). The fourth area is our Website. We have invested quite heavily in this technology. It allows our customers to configure a product and take a look at it, usually in a 3D environment. So it’s a configuring Website. The fifth area we continue to invest in is our global footprint. In addition to our US operations, we have operations, as I said earlier, in Germany, the UK, France, Korea, China, and we are working in India as we speak. TWST: What is the nature of the competition you face and what do you see as your key competitive advantage? Mr. Carlson: Let’s start by saying that the competitive landscape has changed a great deal in the last decade. Ten years ago, there were 20 or 30 independent cartridge valve competitors. Today, there are only a handful. Most of the independents that have been acquired, have been acquired by the large multinational companies in the hydraulics industry, namely Parker Hannifin, Eaton, Bosch Rexroth, SauerDanfoss. Now those formerly independent companies are more part of a system sale, and we don’t necessarily go head-to-head with them anymore. Of the remaining independents, HydraForce is the largest. They are in Chicago and have been around since the mid-‘80s. They make very good products and do a good job in the integrated package arena. Their channel-to-market involves more direct OEM sales, and our channel-to-market is more through a distributor network. So, there is some difference as to the markets that we go after and how we go after them. But they have good products and are a good competitor. Our competitive advantages are in the areas of product breadth, product performance, reliability and delivery. Sun’s products are able to operate reliably at higher pressures. This gains us interest in markets that others can’t approach. Our product is physically smaller because it is a completely different design premise than our competitors'. Therefore, our products are not commoditized. They are seldom bought on price, but on the differentiation of the product. As a result, our customers tend to remain our customers for a very long time. TWST: What are the main items on your strategic The Wall Street Transcript — June 29, 2009 1

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agenda as you look out over the next few years? Mr. Carlson: Pretty much to do the same things that we have been doing. If you’ve got a playbook that works, you don’t necessarily need to change it. It is all about providing products that customers want, looking for differentiation. We are expanding our capabilities in the electronics area to complement the other initiatives we have already started. Two years ago, we made an equity investment in an electronics integrator named High Country Tek out in California. As part of the investment, we have the ability to purchase the entire company in early 2010. Increasingly, hydraulic systems are being specified from the electronic control side. As electronics take on more and more importance in the overall personality of equipment and machinery, it is important that our hydraulic products are able to communicate in that environment. It is important that we have a way to speak with the electrical people at OEMs and High Country Tek gives us that voice. TWST: What potential industry or economic prob-

"If you’ve got a playbook that works, you don’t necessarily need to change it. It is all about providing products that customers want, looking for differentiation."

lems or challenges do you anticipate in the near-term? Mr. Carlson: In the near-term, we are preparing for the capital goods markets to rebound. There is not much you can do when your customers don’t have any customers, and that is happening all over the world. I just came back from China, for example, and two weeks before that I was in Germany; the situation that we are seeing in the US is pretty much a worldwide situation. Things like credit availability, global production capacity, and finished goods inventories have got to come back into balance before we start to see demand rise. I believe we are halfway through this current economic situation, and I think we are going to start seeing a light at the other end of the tunnel. There are some positive things out there. Relative to many other people in our industry or around the world, we are fortunate to have a very strong financial foundation. It allows us to weather storms like this, without compromising our long-term strategy. We finished 2008 with $35 million in cash and no long-term debt, so we are in good shape financially. That allows us to invest in our own company as well as to look for opportunities to invest in other companies going forward. These are difficult times economically around the world, but if you are positioned well and financially sound, you can continue to invest and prepare for the future. I would like to address something unique that we are doing within our company. While our situation is not so much tied to the financial difficulties other companies may be facing, fundamentally we have too many production people for the amount of production business we have. As a result, it is discouraging for employees to not have any work to do. We’ve had people working 2

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on special programs and moving things around and painting and cleaning and all the things that you don’t have time to do when you are busy. But sooner or later you run out of things and you can only paint the fence so many times. Our prime goal is to maintain our workforce readiness. We know from past business cycles that once the economy turns around, it typically turns around very quickly. So what we have done to address this problem is a work furlough program. Our production employees will work two weeks on and one week off. In the one week they are off, they are eligible for unemployment benefits. We have assisted them with the financial impact of living off of unemployment benefits by initiating a one-time upfront bonus that will help carry them through this for some period of time. Six months ago, when we were sure that business was going to deteriorate, we started using attrition, not replacing people. But we are a great employer in the area so we don’t lose a lot of people through attrition. So we implemented this furlough program and our salaried people and people not affected by the furlough are taking a salary reduction, because we are all in this together, not just our production employees. TWST: Have the employees been fairly agreeable to this? Mr. Carlson: Yes, absolutely they were. When you are standing around for two, three, four months waiting for work to show up and you have looked around for things to do just to keep busy, employees are bound to start asking: “Well, how long can we do this before we have a layoff?” So the employees were relieved to know that there was a plan and nobody will lose their job or a significant amount of income. The employees are elated. They are going to get one week off every three weeks to go fishing or clean the house or garage or do whatever they want to do. And from our standpoint, it solves the overcapacity problem, which I believe is just a near-term problem. A year from now, we will be saying “We are thankful to have all of the production people back and ready to go.” Our production employees will probably maintain 95% to 97% of their income. So they are going to take a slight amount of reduction in take-home pay, but it is very slight. TWST: Is this throughout your offices globally or just in the US? Mr. Carlson: We are looking at what we are going to do in the other locations. Each location has a little different situation. The majority of our production is coming out of Sarasota, Florida, from a worldwide standpoint. So our problem is not that we have too many engineers and marketing and customer service and sales people. That is not the problem. We have too many production people because our incoming orders dropped so quickly and significantly. So in other locations around the world, we do have some production people, but it is not as heavily loaded with production people as the Sarasota operations are. Nonetheless, our operations that do have production people in other locations are taking a look at what we did in Florida. It is a local decision as to how they want to handle it. We just set the wheels in motion in Sarasota. We tell them what we are doing and we have great people around the world that can take that lead and decide what is best for them to do locally. We don’t mandate it from corporate headquarters that you have to

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have a 10% cut, since we really don’t have any idea of what the local situation is. It is a local decision. TWST: Do you have any capital improvement programs underway? Mr. Carlson: Yes, typically Sun does about $7 million to $10 million in capital improvement programs every year. We’ve done this for more than 10 years. This year is going to be no different. Right now, we are planning to do about $7.5 million in capital improvements. We have a heat treat furnace going in right now that is going to improve our quality and capacity as well. It is going to allow us to do some heat treating in-house that we were currently sending to the outside with some delays in lead times. So that heat treat furnace is probably somewhere around a $2 million investment, and we’ve got some other investment projects going on as well. Our approach to capex is to identify constraints, both currently and those projected in the future, and to address those constraints by process improvements, quality improvements and capacity improvements. TWST: Would you elaborate on your attitude toward M&A activity in your industry? Mr. Carlson: Sun’s approach to M&A is perhaps a little different than other companies. We don’t have an M&A team that is out there looking for M&A opportunities per se. We take an opportunistic approach. We are always looking. Myself and a number of other people are always curious about opportunities in the M&A area, even though we don’t have a dedicated team to do M&A. I don’t know if the opportunities are going to increase or decrease in the future, but as I said, we have our eyes and our ears open. We look for opportunities that fit our long-term strategy. I already mentioned the High Country Tek arrangement, where we are buying a California-based company. We really don’t have a laundry list of companies or anything that says we have to add X amount of sales via acquisition every year. Our approach is more holistic. We also take a look at opportunities when they arrive to see if there is a fit — not just from a product standpoint or market standpoint, but are we culturally compatible? We know that most M&A activities are successful, or not successful, due to the fit of the two organizations with each other. TWST: How do you expect the company to change over the next three to four years? Will it look any different than it is? Mr. Carlson: That’s a very challenging question given the current economic situation. So I guess to answer the question you have to make a few assumptions as to how strong the wind is going to be blowing and in which direction. Dating back to the early 1970s, we’ve had a compound annual growth rate of more than 20%. That includes times of robust growth like the last five years, and times of slower, or decline, in growth, like we are seeing now. 2009 is going to be challenging, and I doubt things will start to pick up until about 2010. But perhaps by early 2010, I think we are going to start seeing the wind blowing in the right direction. This means we’re going to have to play catch-up to get back to where we were. We closed 2008, our best year ever in almost every category, at $178 million in revenue and a very significant improvement in the bottom line. Our stock price did well as a result. And I would hope that in the next five or seven years we will again double in size like we did in the last five years. But, we are starting with a very strong headwind against us in the current economic environment. In sum-

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mary, our next step is to get up over the $200 million mark in sales, profitable sales with a nice geographic footprint, and then continue on from there to the $300 million category. We are structuring the company to do this and, we are making the corresponding investments. The environment that we are in now definitely will change, and we’ll be ready to take advantage of it when it does.

"What happens from year-to-year is very, very difficult to project and not in our control and not a part of our philosophy. We don’t even have annual budgets or forecasts."

TWST: Are there any year-to-year milestones that investors should be looking for? Mr. Carlson: No. We really don’t look at a year-to-year time frame. The business cycle is not year-to-year. Typically, our business cycles are five, six, seven, eight, even 10-year business cycles. So we are all about looking at the long term and looking at growing through business cycles. What happens from year-to-year is very, very difficult to project and not in our control and not a part of our philosophy. We don’t even have annual budgets or forecasts. We have learned that the ability to project next month, next quarter is difficult. The ability to project next year or three years — I’d say is impossible. We run our company much closer in. I would also add that our approach is to attract investors that have the same mindset. There is a difference between an investor and a speculator. If you are a speculator, and you want to speculate about what might happen a year from now and the impact of the stimulus package and what it is going to do for a company’s balance sheet or whatever — as far as I am concerned, that is speculation. If you want to play that game, there are plenty of companies you can probably do that with. Many of them are going bankrupt right now. Our approach is much more of an investment approach and a longterm approach. As I said, when we look at the business cycles for the businesses that we are in, it’s a five-year period we are thinking about. You have to position for the long term, not to run the next six months, next quarter or next four quarters. I would also add, we have been very successful since we went public in 1997 in attracting the investors that have this investment approach. We have done that by being very open and very honest. In fact, one of our largest outside investors has been with us since we went public in 1997 and they have benefited from our success through the business cycles. I would like to add that our CFO (Tricia Fulton) has been with the company for 12 years. I have been with the company 13 years and the whole management team has a number of years with the company. I think when you are looking at a company, any company, as an investor, you ought to be looking at the management team’s experience. Not only experience in the industry, but experience within the company. And I say that because the management team doesn’t do everything right all the time; my decisions have never been 100% right. So a good management team will have to address some of the decisions that they’ve made over time and live The Wall Street Transcript — June 29, 2009 3

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with those decisions and move on. I think longevity of service and the number of areas you’ve worked within the company are important things for investors to look at. So our CFO, as I said, has done a number of different assignments within the company, all very successfully. She is well-rounded not just from a financial perspective, but a business perspective as well. Her current assignment besides being the CFO is to be the interface with our company in Korea. So now she is currently gaining international experience. TWST: You did allude to the strength of your balance sheet previously. Would you expand on that? Mr. Carlson: Sure. Our balance sheet is very strong, but besides it being strong, it’s very clean. Just recently, we received a Forbes Most Trustworthy Company award. This is primarily due to our transparency, the balance sheet, the financial statements and the auditing statements that we have had over the last number of years. We were very pleased to be included in that list. Over the last five years, we have been fortunate to have been selected by Fortune, Forbes, and BusinessWeek as a notable growth company. It’s really nice to be recognized as being trustworthy, especially in this kind of environment, where there are some issues out there with public company trustworthiness. So our balance sheet is not only strong, it’s clean, with no debt, lots of cash and our financial strength allows us to invest in the company to do the right things to grow our business for the long term regardless of the day-today current economic situation.

"Go talk to the average guy making $12 an hour and you are going to get a lot more information about the company than talking to the CEO or the CFO. So that is what we do."

TWST: How do you approach the topic of investor relations? Do you have any specific objectives there? Mr. Carlson: Yes, we do. Let me just say first of all that our investor relations strategy and approach varies a little bit from time to time. It kind of depends upon whether or not we need to get out in front, or if we just need to be seen, or just be kind of quiet. We do everything that we are legally obligated to do, that’s the first premise. We currently don’t have a lot of outbound effort, but we have a lot people that find us and come and take a look at us. There are some very sophisticated investor tools out there, where the smart, savvy investor can slice and dice financial information of public companies, to look at return on capital employed, who are the top 10 companies, return on whatever — there are all kinds of ways they can find us. So we want to be found. Usually investors who find us tend to be longer term, better-educated. It is better that way than if we are out in front, trying to sell ourselves to the investment community. When they find us, we encourage them to come and visit us, spend a day with us, shadow us, job-shadow us if you want. In fact we have got someone coming tomorrow who’s going to spend some time with us. This is his second visit. He had spent three or four hours visiting with us in the conference room and he said, “Well, you guys are an interesting company, I want to learn 4

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more,” and we said, “Why don’t you come and job-shadow us for a day, and see what we do and how we operate, and meet our employees, and go out on the factory floor and talk to employees.” Our investor relations group and myself are trained to look good. Go talk to the average guy making $12 an hour and you are going to get a lot more information about the company than talking to the CEO or the CFO. So that is what we do. We get a lot of people who come down here. But we know that the ones who come in the summertime are more serious than the ones who come to Sarasota in March. We keep it simple, keep it open, transparent, honest and we don’t do a lot of investor marketing. Having said that, we have participated in the Baird Industrial Conference in Chicago over the last three or four years. We can piggyback it with visiting customers and suppliers, so we are not spending $3,000 just to go to an investor conference; we are getting other benefit out of it as well. TWST: What are the three best reasons you can offer as to why a long-term investor should look closely at your company? Mr. Carlson: First off, I would say that it would be almost impossible for a competitor to match our offering. The breadth and depth of our product offering, coupled with performance and reliability, ensures that we have a space in the industry. We have to continue to work at carving out a bigger space, but you get a bigger space by having products that people want that are differentiated, that are readily available and work out of the box. Second, we are very fiscally sound. As I said earlier, we were recognized by Forbes magazine as one of the 100 most trustworthy companies. From a pool of more than 8,000 companies, we were deemed to be one of the most trustful in regard to transparency and fiscal responsibility. That is a great recognition. Forbes has done a pretty good job of going through the numbers and identifying the 100 best out of 8,000. I didn’t even know that we were under consideration. I picked up the magazine and read it, and there we were on the list. Another important point is our track record. Our trajectory — you compare our total cumulative returns versus just about any index or stock over the last 10-year period and you will find that we outperformed by a huge margin. So if an investor has three to five years and some patience to go through the business cycles with us, we believe we are an excellent investment opportunity. When we went public in 1997, we didn’t have a track record. So the first question an investor would ask us is, who are you guys? We could give them some information as a privately held company, but that wasn’t the type of information they were looking for. And there was this question about, well, how are you guys going to really perform being a public company, are you going to give in to the quarterly earnings report or are you going to continue to do the right things for the longterm? So it wasn’t until we were a public company for five or six years that we could point to our track record as a public company. Now, after being a public company for nearly 12 years, I think the number one thing that an investor should look at is our track record and how we run the company. I know the investors who come down here to take a look at us, that’s what they are interested in. The hard numbers are readily available. As I said earlier, the management team is a critical piece. I use the term management team, probably it’s the wrong term; the leadership team is better. We have a strong distinction between managers and leaders, and the leadership team at Sun — how long they have been here, and where they have been

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within our company, how they have responded to mistakes they have made — I think that’s also an important ingredient, and that’s why people want to come down and visit us and shadow someone for a day to see what life is like in the company in Sarasota. TWST: Is there anything else that you think that investors would want to know about your company? Mr. Carlson: I’d just like to leave a parting thought — go back to the investor versus speculator concept. We are very, very much interested in building an investor base that is looking long term, with a three- to five-year horizon. So if you have to do something with your money for the next six months and are more in a speculative mood, we are probably not the right investment. It’s important for people who are

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considering Sun as an investment to ask themselves: are they an investor with that horizon or are they a speculator? TWST: Thank you. (GB) ALLEN J. CARLSON President & CEO Sun Hydraulics Corporation 1500 West University Parkway Sarasota, Florida 34243 (941) 362-1200 (941) 355-4497 — FAX www.sunhydraulics.com e-mail: [email protected]

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Kickfire, Inc. BRUCE ARMSTRONG is a database industry veteran who brings 25 years of technologyspecific development, marketing and sales expertise to his position as Chairman and Chief Executive Officer of Kickfire, Inc. Armstrong began his career at data warehousing giant Teradata Corporation, where he spent 15 years as part of the team that established the company as the leader in the market. After the company’s successful initial public offering and acquisition by AT&T/NCR, he was named Vice President and General Manager of the $500 million Enterprise Solutions Division, President of the Teradata subsidiary, and a company officer of AT&T. Following Teradata, Armstrong held the position of Vice President and General Manager of the Server Products Group at Sybase.

SECTOR – DATA STORAGE (AMX611) TWST: Give us a quick overview of Kickfire, a sense of where the company is right now, and some of the things you’re doing.  Mr. Armstrong: Kickfire provides a data warehouse appliance for the MySQL market. We focus on helping other businesses analyze information.   I was one of the first 20 employees at Teradata, a multibillion dollar public company. Teradata became a leader in data warehousing by providing the high performance needed to handle large amounts of data and helping people analyze that data. The problem with this model however, is that it’s very expensive to implement one of those solutions.   Our aim is to create a more affordable and easily deployable solution for the data warehousing mass market. We’ve developed an appliance that incorporates a new type of chip — the SQL chip. Our SQL chip brings high-end data warehousing performance into a mass market appliance.  At Kickfire, we sell our product primarily to companies doing online analytics. Most of those businesses were started with the help of the MySQL database, a very popular, free, and easily accessible open source database. As a result, MySQL has very quickly become the third most deployed database in the world. However, what MySQL is not good at is data warehousing or analyzing data that is captured by those companies. That’s where Kickfire comes in. We created our appliance specifically for the MySQL data warehousing world, which is enabling the mass market segment of the data warehousing industry.  TWST: Do you believe your SQL chip or technology is disruptive, with the potential to leapfrog the current market solutions?  Mr. Armstrong: Yes, definitely. If you look at the data warehousing market started by Teradata, people have bought into a couple of key facts: First, that data warehousing is best delivered through the appliance business model — that is, pre-configured hardware, software, and storage optimized for report-

ing and analytics; And secondly, that data warehouse appliances must be able to process queries and information in parallel — that is, using parallel processing. At Kickfire, we have built parallel processing into a single SQL chip. So instead of buying many different computers and stringing them together with a proprietary interconnect, you only have to buy one appliance and it packs the power of dozens of standard CPUs into a single and special-purpose SQL chip. As a result, Kickfire can now make data warehousing affordable for the rest of the market.   According to the industry analysts, only 10% of the world can afford a high-end database solution like Teradata or its competitors. This leaves 90% who are looking for a more affordable data warehousing solution. We meet the data warehousing needs of the 90%.  TWST: Critics would say the data warehouse market is very crowded as IT spending has declined along with the rest of the economy. Will the Kickfire appliance do anything to change the demand dynamics of data warehousing?  Mr. Armstrong: Yes. Now that we’ve packed parallel processing into an SQL chip, we are bringing data warehousing to a large segment of the market that just couldn’t do it before.   We actually think we’re going where the competition isn’t because they just haven’t been able to provide a solution for this end of the market. Most of the competition is at the high end. That’s where the money has been and so that’s where they’ve gone, but we’ve stayed away from that. Instead, we followed the MySQL open source model and created new projects and new opportunities, making the competition less relevant. Kickfire enables projects and data warehousing success stories in a sector of the market that, prior to our company, couldn’t even get in the game.  TWST: What would you say are your strengths and advantages? Is it the technology and cost benefit of a terabyte?  Mr. Armstrong: First, it’s the technological breakthrough of the SQL chip and the resulting price performance advantage. We own the world’s record for price performance with the well The Wall Street Transcript — June 29 2009 1

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established data warehouse benchmark called TPC-H (your audience can go to www.tpc.org to see our benchmark results).   Second, we enable a very low total cost of ownership. In the traditional data warehousing market, you may have several $150,000 DBAs tuning your data warehouse. In the market we are going after, those expensive database administrator performance tuning resources just don’t exist. Because our solution is a true plug-and-play appliance, we are able to dramatically lower the costs to deploy, manage, and maintain a data warehouse solution. You literally plug our appliance into a standard commodity rack, point it at an existing MySQL database, copy the information over, and it runs 10 to 1,000 times faster — no changes to the database, no changes to the customer’s application. That’s a very compelling value proposition.   We actually think we’re going where the competition isn’t because they just haven’t been able to provide a solution for this end of the market. Most of the competition is at the high end. That’s where the money has been and so that’s where they’ve gone, but we’ve stayed away from that. I’d say the third breakthrough is simply that we’re running all of this on a de facto open source database standard in MySQL, the third most deployed database in the world. Some people think now that MySQL has combined with Oracle, there is even greater access to this mass market. With the MySQL open source database, there exists an open community we can tap into and share our customer successes and it sort of takes off from there, almost virally.  TWST: How are you approaching marketing and sales requirements for your SQL chip? What are your strategies?  Mr. Armstrong: First, we are focused on leveraging our relationship with MySQL. We have a global multi-year relationship with MySQL. Our number one go-to-market strategy is to have a very close relationship with the MySQL open source database and the community associated with that. We were diamond sponsors at both the 2008 and 2009 MySQL user conferences, and I was a keynote speaker at this year’s conference. Thus, a lot of our marketing dollars and lead generation comes from the MySQL user community because they like to share success stories with each other.   Secondly, there are our relationships with open source business intelligence tool providers like Pentaho, JasperSoft, and Talend. There are a number of open source BI suites being formed who are going after the same market as Kickfire, but with a complementary value proposition. We partner with these companies and then focus on where MySQL started — in web businesses that have collected enough information and now need to analyze it in order to improve their operations. They need to analyze their data quickly so Kickfire provides the necessary performance capability that they’re not 2

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going to get out of MySQL running on a general purpose computer.   TWST: What’s your biggest challenge as you look into the future? What worries you the most besides the current economy?  Mr. Armstrong: We actually think if you look at the Gartner Group survey over the last four years, business intelligence is the number one spending priority for CIOs. So we think business intelligence is fairly recession-proof, especially now that people need to analyze their spending even more to get a high return on investment. We also think analytics are even more important in a declining market. More affordable, lower TCO solutions, like Kickfire, are critical to all markets in a recessionary environment.  In terms of our challenges, Kickfire is a small but rapidly growing company. As such, we have to focus our limited resources on the most compelling channels to market and develop a set of production customer references we can turn into a repeatable and scalable sales and marketing story. We have a fantastic team of data warehousing systems experts and we are well capitalized with toptier venture capitalists. In fact, we raised $20 million last August just before the downturn hit. I think we’ve got the resources we need to overcome the difficult challenges any start-up would face in this economy.  TWST: Can you tell us about some of the key members of your management team and your faith in their ability to help Kickfire execute the way it has to?  Mr. Armstrong: The founders of the company, Raj Cherabuddi and Joe Chamdani, worked together at Sun as SPARC architects. They then left Sun to create a storage area networking start-up — Sanera — and sold that company to McDATA. Following the acquisition of McDATA, they generated $300 million worth of sales in their product.   I worked for 15 years at Teradata and several years at Sybase running its database group. I was co-founder of a company called Broadbase, another analytic application company, and CEO of KNOVA Software, a public company. I have also sat on over 25 start-up boards, so I feel pretty comfortable and confident running a start-up.   After arriving at Kickfire, I hired Rich Nieset as VP of sales. I knew Rich from KNOVA and he was the original vice president of sales at Agile. I also brought on Tom Muise, the former CFO of KNOVA, who also spent 12 years at Tandem—another database company. Most recently, I promoted Karl Van den Bergh, who spent seven years at Business Objects (now a division of SAP), to vice president of marketing. Overall, I feel confident that we’ve got strong technology systems and database/data warehousing experience at the management team level.  TWST: Can you tell us a little bit about the funding history of Kickfire? Who were the investors up to this point?  Mr. Armstrong: Sure. The investors are Greylock, Accel, Mayfield, and Pinnacle, all of whom are very successful, top-tier venture capitalists in Silicon Valley. They’ve invested in some very successful start-ups, notably Facebook and JBoss, among others.  TWST: What are your thoughts about a possible IPO at some point down the road? 

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Mr. Armstrong: That’s definitely our goal. We would like to create a $100 million revenue company in the next four years and if we can make it happen, we believe an IPO would be very attractive.  TWST: If you were to sit down with a group of investment bankers, what are the two or three top reasons you’d give them to take the company public?  Mr. Armstrong: The number one reason? The fact that we’d hit the $100 million mark in just four years. We will have grown so quickly as a mass market volume player in data warehousing that we’d be able to show a very repeatable and scalable business model.   Today we’re focused on direct sales, but we’ll very quickly get into channel relationships. Take Riverbed and Data Domain for example, two very successful and rapidly growing public appliance companies. We try to emulate those two businesses, both of which Greylock and Accel — two of our own investors — have invested in.   TWST: What key factors would you want folks to pay attention to as they watch Kickfire’s progress?  Mr. Armstrong: I’d like people to measure our success through the success of our customers. We really are enabling an under-served market and are going to begin announcing, quarter-

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over-quarter, new customer wins, with many of those customers going public. These folks are primarily web-based, online businesses who have used MySQL at their core and who are growing rapidly enough to want to analyze and optimize their businesses. They will be able to quickly deploy Kickfire into their data warehousing process and, as a result, grow their businesses more rapidly, effectively, and efficiently.   TWST: Have we missed anything or left anything out? Is there anything you would want to add?  Mr. Armstrong: I think we have hit all the core areas.   TWST: Thank you.  (KL) BRUCE ARMSTRONG Chairman & CEO Kickfire, Inc.  2055 Laurelwood Road  Suite 150  Santa Clara, CA 95054  (408) 450-5400  (408) 450-5436 www.kickfire.com

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Marquis Jet KEN AUSTIN has been President of Marketing and Business Development for Marquis Jet since its inception. Mr. Austin is a seasoned executive with a broad range of general management skills and entrepreneurial talent. Prior to joining Marquis Jet, He was Senior Vice President at The Seagram Beverage Company based in New York City. Reporting to the company President, this newly created position had full responsibility for US sales, regional marketing, finance and operations. Prior to joining Seagram, Mr. Austin held various positions of increasing responsibility for the E&J Gallo Winery and Price Waterhouse International Tax Group. At Marquis Jet, he oversees business development, marketing, sales support and is a member of the company Board. Mr. Austin received his undergraduate degree from The Binghamton University School of Management. He also received an Executive MBA from Fairleigh Dickinson University and currently sits on several company Boards.

SECTOR – TRANSPORTATION (AMX605) TWST: Please begin with a brief historical sketch of Marquis Jet and a picture of the things you are doing right now. Mr. Austin: Marquis Jet was founded in 2001. We actually sold our first Marquis Jet Card in August 2001. We are going into our ninth year of business. I’ll give you the quick snapshot history of the company. Basically, our two founders saw a gap in the marketplace. You had folks who owned their own airplanes, and you had folks who were buying fractions of airplanes through companies like NetJets, owned by Warren Buffett and Berkshire Hathaway. There were also people who were chartering sort of one-off. In the world of charter, the products and services were and remain very, very lumpy. There are times when you get good aircraft. There are times you could get aircraft that are not as desirable. There are times you get pilots with lots of experience, and there are times you get pilots with not as much experience and so on. So our founders saw a void between fractional buying of an asset, a longer-term commitment, and the lumpy product and service of charter. They came up with the concept of what we call today the fractional Jet Card. It’s like a Starbucks card, a prepaid, stored-value card of jet time. There’s a major difference between what they came up with and what other companies have done since Marquis Jet launched. We provide access to a fractional fleet; in the case of Marquis Jet, we offer exclusive access to NetJets, a Berkshire Hathaway company. NetJets has about a 90% share of the Fortune 500 that flies fractionally. Basically, the 800 pound gorilla in private aviation was and is NetJets. Our founder, Kenny Dichter, came up with the concept to go to NetJets. We wanted to purchase product from them and become, for lack of a better word, a value added reseller of the NetJets product by buying the shares and subleasing those shares into 25-hour walk-away Jet Cards. There were many meetings back and forth, and a great deal of due diligence on the part of NetJets. Since the company is owned by Berkshire Hathaway, its brand is paramount. After serious consideration, Mr. Santulli at NetJets gave us the opportunity to purchase NetJets shares

and brand the product the Marquis Jet Card, Fleet by NetJets — a powerful platform from which to launch a business. Since that time, we have sold thousands of Jet Cards. Marquis Jet owns over 100 NetJets aircraft. We are obviously their largest customer and have over 4,000 active Marquis Jet Card Owners, giving us roughly an 80% market share of the fractional Jet Card space. So in less than nine very short years, we have built a brand in North America that has certainly become a household name in private aviation. We’ve developed many incredible business partnerships and business development partnerships along with some pretty, I dare to say, savvy but truthful marketing. And today, we basically dominate the Jet Card space. We are the brand and the product that all consumers buying Jet Cards aspire to own. This is not to say that we have every customer. However, certainly every person who is flying around privately using a Jet Card or a jet membership program would love to fly with Marquis Jet and NetJets. Not all do; there are certain people who for some reason look for the lowest priced product versus the greatest value product, that being the Marquis Jet Card. Yet we have attained about an 80% market share. We are obviously the dominant player based on that share, and we pinch ourselves every day that we’ve been able to get there. We work tirelessly to stay there and to continue to grow. TWST: Would you tell us about the price structure and the different kinds of aircraft? Mr. Austin: Within the Marquis Jet Card program, we have 10 aircraft types to choose from. We also have what we call combination cards. By the way, when you purchase a 25-hour card, you are buying 25 hours of what we call occupied flight time. Wheels up to wheels down time, and all Marquis Jet charges is six minutes on each side for basically the ground time, which is standard in a fractional program such as NetJets. As an example, if at Teterboro it takes 20 minutes to take off, you are only paying for six minutes. So The Wall Street Transcript — June 29, 2009 1

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you know exactly what you are going to be charged based on the hours in the air and those six minutes. People love that. There’s nothing hanging over you that says if I’m on the ground for an hour, and the engines are running, I’m paying for that. But just to get back to the question, there are 10 aircraft types, and we also have combination cards where you can purchase 12.5 hours of one particular jet type. As an example, you can buy 12.5 hours of, let’s say, a Citation Excel and then you can purchase 12.5 hours on a Citation X, coast to coast the fastest business jet in the world. It’s actually the fastest jet in the world barring military aircraft. So we have lots of flexibility. When you buy a certain type of Jet Card, let’s say you buy a Citation or Hawker 800XP, if you have a mission that requires a larger aircraft, you can upgrade, or what we call exchange to a larger aircraft. If you have a trip that doesn’t require a mid-size or large cabin jet, you can exchange down within the fleet. So you have flexibility to use any aircraft within the entire NetJets fleet. Within the NetJets family of operating companies, there are more than 800 aircraft globally, making it equivalent to being the second largest airline in the world based on the number of aircraft. So when you buy a card, you do buy a jetspecific card but you have the flexibility to use any airplane globally, depending on the mission.

“Marquis Jet owns over 100 NetJets aircraft. We are obviously their largest customer and have over 4,000 active Marquis Jet Card Owners, giving us roughly an 80% market share of the fractional Jet Card space. So in less than nine very short years, we have built a brand in North America that has certainly become a household name in private aviation.”

TWST: Are there any extra fees or hidden fees? Mr. Austin: Do you remember the old commercials for the Hebrew National hot dogs? It said, “We are held to a higher authority.” When you are dealing with a company like NetJets, Warren Buffett and Rich Santulli, being transparent to your customer is everything. And we all know that in marketing there is often fine print that you need to read. There are many private aviation companies that have lots of fine print regarding additional charges that they don’t state clearly in their marketing materials. You receive your bill and you sort of say, holy cow! I didn’t realize I was paying for that empty leg, or I didn’t realize I was going to pay for all the time using the airplane’s phone. And now I’m being charged $6 a minute, and I receive a bill for $1,000. Marquis Jet does not do that. We’re totally transparent; when you pay for your Marquis Jet Card it’s all-inclusive. The only thing that we don’t include that’s part of the aviation experience is potentially a fuel surcharge. The fuel surcharge is the equivalent to the water delivery guy. When he comes to your house, he is charging you an extra $2 per case to deliver it, based on the prices of fuel. At one point, we were looking at fuel 2

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close to $150 a barrel. We’re now at about 60% of or maybe even 40% of that. The potential fuel surcharge applies to each occupied hour. It changes every month based on the price of fuel and we ensure our customers are aware. But the potential of fuel cost ebbing and flowing with the market makes sense, and our customers totally understand it, because they are treated like an owner. Owners obviously have to pay — if fuel goes up they pay. It was one of the debacles with the major airlines when they couldn’t charge their customers fuel surcharges. They all got hurt pretty badly when fuel went up. And for some reason, the commercial airlines didn’t have the pricing power to raise their prices at the beginning, and so customers actually pay for the fuel variable. The Marquis Jet Card includes catering, and there are no dead-head and no positioning fees. NetJets and Marquis Jet have something called the Ferry Free program, which is if you fly from here, as an example, to Anguilla, you don’t pay to reposition the airplane back into the United States. It’s a very powerful program that saves people lots of money over, for example, chartering. With charter, you are going to pay for that plane to be repositioned and dead headed. We don’t charge for pilot overnights, for crew overnights; basically our price includes everything. We are very transparent. Sometimes that actually does hurt us when we are competing. But when we get on the phone with people or we meet them, we can explain to them what our price includes versus others. The fact is that our Card Owners are getting the greatest value in terms of product, the best fleet, the best pilots and the best safety records in the world. They do understand the value equation very well. Yet many other Jet Card programs sell against us and say, well we don’t have this, we don’t have that. Well, they also don’t have NetJets. If you walked into a high-end store, the service level you expect is a lot different from walking into — pick the store — which you’ve gone into where you’ve gotten horrible service. TWST: What about flying to and within Europe? Mr. Austin: NetJets and the Marquis Jet Card last year flew to over 170 countries. Flying to Europe is absolutely, positively possible. You just have to fly on larger aircraft such as Falcons and Gulfstreams, in most cases. You don’t necessarily want to stop. You could stop on the way to Europe with a smaller aircraft, but nobody really does that. We have the Falcon 2000EX, Gulfstream 450s (“G4”), Gulfstream 550s (“G5”) and Boeing Business Jets (“BBJ”) available for intercontinental travel. Flying from, as an example, New York to London, happens literally every day. As part of the Ferry Free program, if you were flying there one way on a G4, you are not paying for that airplane to come back to the U.S. empty. Other companies charge for that. When you charter an airplane, they are going to charge you for that plane to come back empty. Or if the plane is going to wait on the ground for you four days, you are going to pay all the fees for that plane to sit there. We don’t have that in our program. You fly there, you are paying wheels up to wheels down plus the six minutes on each side to London, and you’re done. TWST: What about the current economy? What is the outlook?

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Mr. Austin: There is no question that the biggest issue we have right now is that people are not flying as much as they were. I don’t think that that is any surprise to anyone. The other day, I read in The Wall Street Journal, I don’t remember the airline, but it’s a European airline that actually is pulling out all of their first class seats and going to coach-only, because first class and business class passengers are not flying. Business people are not flying to destinations whereas they were in mass before. I think a lot of bankers are just not going anymore. The bottom line is that the issue that we are facing right now in private aviation is that people are just not flying as much; they are staying home more. So what’s happening is that the occupied hours are actually down. Totally understandable. The good news for us and for NetJets is that we have a very strong balance sheet. If we fly fewer hours, so be it, you can’t force consumers to actually get on airplanes. You can’t force them to get into cars. We see people getting in their cars less frequently based on fuel prices and the economy, in general. So we’ve been exposed to that. Our flight activity at Marquis Jet is down about 15% in terms of occupied hours based on what I call sort of same-store sales. So the same individual that flew last year is flying about 15% less this year. But we are seeing that pick up right now. Things are getting better. Our flight activity has increased dramatically over the last 30 to 45 days. It ties in very well with consumer confidence and also ties in very well to the stock market. We’re definitely tied to the Dow. But I would tell you in the charter world, the one-off charter or the charter companies that we compete with are down about 50%. The reason for that is their customers are really the ones that have been impacted. They are the one-off kind of flyer, the guys who go to Vegas, and the guy who is into the bling. That’s not really our customer. The Marquis Jet Card Owner is much more sophisticated and much better established. They are not hedgers in life. They don’t sort of try to hedge it out and look for the cheapest thing they can find. And in private aviation, the companies that are actually appealing to people who bottom-fish any category are really suffering. So even though our flight activity is down, we’ve been taking market share very nicely and that’s why we continue to advertise. We continue to have events for our Owners. We continue to spend against our customer service and our Owner service as NetJets and Marquis Jet. We feel very good about where we are. Although I hate to say I feel good about being down 15% from a flight perspective, given the overall market and relatively speaking, we are doing phenomenally well. We are entrepreneurs. We are business people. We never want to be down, but somebody said last year that flat is the new up. I would say to be down 15% in flight activity in this market right now means we’re the equivalent of at least 15% to 20% up versus our competitors who are down by 35%-50%, if not more. TWST: What are the key elements in your business plan for the next few years? Mr. Austin: We are asked that question all the time. I would love to tell you that we have plans to expand to four or five other countries and so on. The bottom line is we have a business that is global in nature, and the course that we are on right now is steady as you go. We are looking to improve our bench here always. There is lots of great talent out there right now that can be had at a very fair price. We are not the type of folks that actually go out and bottom-fish for people who have great jobs and are making big

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money and try to low-ball them. But there is great talent out there that is available. So we are looking at that very carefully. We’ve brought in some people recently who are of the best caliber. We are going to continue to market our business and remain steady as we go, continuing on the same course. The most important thing is we will not do anything to tarnish our brand. What’s interesting to me is that there are many brands out there, which I won’t name, that are taking the high road and keeping the integrity of their products and their service. There are many, many more that are panicking, are in their foxholes and doing things to tarnish their brands. We will never tarnish the brand, no matter what. We will continue to take the high road and just stay steady as we go. I feel incredibly bullish about what Marquis Jet and NetJets are doing right now. I can tell you my partners and I talk all the time. About two years from today, we think that we’ll be right back where we were at the end of 2007, the first half of 2008. We’ll get it all back and then some. It’s just a matter of being patient, not wavering and not panicking. But lots of people are panicking, which creates lots of opportunity for people who are calm and continue to think like business people versus people who are worried only about cash and cash flow, which we know is critical. As I said, the good news is we have an incredibly strong balance sheet. When you are in that position, if you invest in your business, brand and people, you are going to come out stronger. So that’s our course right now.

“The good news is we have an incredibly strong balance sheet. When you are in that position, if you invest in your business, brand and people, you are going to come out stronger. So that’s our course right now.”

TWST: Is it possible that there could be some new wrinkles or new services added, as time goes by? Mr. Austin: We’re constantly looking for ways to enhance the service. NetJets has a project that is underway right now, which is really to take their service level up, and indeed NetJets delivers the equivalent of Four Seasons or Ritz-Carlton level service. You pick the brand of hotel that you think gives the best service, and that’s the service NetJets delivers and then some. Richard Santulli, the Founder and Chairman of NetJets, who sold this business to Warren Buffett, still runs the business today and is adamant about improving the service to even higher levels. When you fly in a NetJets aircraft, which obviously Marquis Jet Card Owners do exclusively, and you’ve flown on other private aircraft, you feel different. The product — beginning with your flight crew — is different, the way you’re treated, the service level is different, the food is different and the way everything is presented is different. It all adds up and substantiates NetJets’ motto — “Only NetJets.” Everything about the experience is different, and we think it’s much better. And, it’s going to get even better. Mr. Santulli is The Wall Street Transcript — June 29, 2009 3

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making major investments today in a down market and major investments on the service side of the business. We’re working very closely with him to make the experience as seamless as possible for our Card Owners. That will be very visible as time goes on, but we’re focused on the customer experience and just making it better. I can tell you now, there is no company in our space, and I challenge anyone — I can’t take the credit for it — like NetJets and Marquis Jet. NetJets, obviously, is the Intel inside of Marquis Jet. Marquis Jet is sort of the Apple, the sales and marketing arm for the Marquis Jet Card. With NetJets, the infrastructure is unmatched, and it will continue to get better and the barriers to entry will continue to get higher. Service is really the focus, but we also have different products that sometimes need to be approached accordingly. We sell 25 hours a year in a prepaid format, and the bottom line is, will it change? I don’t think so. It will only change if the consumer basically dictates that it has to change, because their habits change dramatically. We haven’t seen a dramatic shift. It used to take 10 months for one of our Card Owners to fly through their card. In 10 months a Marquis Jet Card Owner, on average, would go through their 25 hours. Today, we’re looking at roughly 12 months for them to go through that same 25 hours, based on the slowdown of their personal business flying. If the market changes and that declined to 18 months, then we would obviously have to consider a change to our product. But we don’t envision that happening at all; I can’t foresee us changing. Our product will have exciting new aircraft types available as they are added to NetJets’ fleet. We will offer enhanced value on the aircraft and for being a Card Owner, but today I can’t predict. Again, it’s all about the customer. If enough of them say that there are certain things that they want, then you have to strongly consider it. But we haven’t heard that, and we know our model is very, very solid. TWST: What about getting to the airport? Mr. Austin: We have made it seamless. Through our ground transportation provider, Savoya Transportation, every Marquis Jet Card Owner receives four complimentary hours when they buy their first card. It’s like a “welcome to the program.” For example, the Marquis Jet Owner Services team, located within NetJets’ operations in Columbus, Ohio, is 24/7/365 and boasts a very large staff of people. When you book your flight, they take your catering order and inquire about any other items you may want on the aircraft, all included in the price. Concerning the ground transportation, we have a program with Avis Chairman’s Club, enabling all Marquis Jet Card Owners to receive membership in the Avis Chairman’s Club, which is invitation only and their highest level of service available. If you want a rental car, an Avis car will be waiting for you at the aircraft when you get off. If you want ground transportation via town car or SUV, Savoya will provide a car for you. They will come to your home, come to your office or will be waiting at the airport for you. Again, it’s all seamless. It’s all done with one phone call. When you check in with Avis, you are billed directly for the car. And when you use our ground transportation provider, such as Savoya for a town car, they bill us, and we then bill the customer. There are no up-charges, but obviously that’s not included in the price of the jet card because it’s a variable expense. TWST: When a customer shows up at the airport via Savoya, how long does it take them to be airborne? 4

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Mr. Austin: It depends on the airport. In most cases, I would say if you have a flight at 8 AM., we recommend that you get to the airport by about 7.45 AM., about 15 minutes before the flight. If you get to the airport about 15 minutes before your flight, your aircraft should be rolling out at roughly 8 AM. For example, when I fly out of Republic Airport in Farmingdale, New York, I typically will pull in about 15 minutes before the flight takes off. I would typically be in the air by 8:05 AM. TWST: Would you tell us about the backgrounds of some of the key people in the company, yourself included? Mr. Austin: Prior to being one of the original partners in Marquis Jet, I worked for the Seagram Company, for the Bronfman family, for 13 years. I ran the Seagram Beverage Company, the company’s low alcohol and non-alcohol business in North America. I had corporate experience, and prior to that I worked for the Gallo Winery and also in the tax department of Price Waterhouse, when there was the Big 8. Our two founders, Kenny Dichter and Jesse Itzler, came from the sports and entertainment business. They actually sold their company, Alphabet City, to SFX, the sports and promotion talent agency then owned by Bob Sillerman. Bob then sold SFX to Clear Channel Communications for several billion dollars. That was when a billion dollars was a lot of money. I think it is again, actually. Henry Schachar is our President and Chief Operating Officer. Previously, he ran a commodities business and also worked for Salomon Brothers. He is really the true brain behind Marquis Jet. He is at his post all day long, working 24 hours a day, and he is the elder statesman in our company. We are a fairly young and dynamic group.

“We have a great brand. Marquis Jet, the brand, is a very well respected household name in our industry. Because NetJets is a Berkshire Hathaway Company, I don’t have to comment any further on what that means to consumers. They deliver, because they never compromise on safety, they never compromise service.”

TWST: How many employees do you have? Mr. Austin: Marquis Jet has roughly 120 employees. Keep in mind that NetJets has over 7,000 employees to support the infrastructure. Marquis Jet is primarily focused on sales and marketing. Our CFO’s name is Carl Thorsberg. He was actually our CFO at Seagram, and I convinced him to come over here when Seagram was sold. That was one of the reasons why I made the career change; I was able to convince Carl to come over here and be the CFO at Marquis. He’s been here for many years. TWST: Are you open to or looking for new investors? Mr. Austin: The answer is we’re not. We’re a privately held company. Our management and employees own 100% of the company. We did have investors in the very early days of Marquis Jet, but after about 18 months of being in business, those investors were looking to monetize, and so we bought all of their shares back. They

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did very, very well on their investment. And we are very happy that they did very well on their investment. That was about five or six years ago, and now we own 100% of the company. We don’t need cash. We are in very, very good shape as a company. Obviously, we work exclusively with NetJets and Berkshire Hathaway, and we are held to very high standards that they dictate. The bottom line is, as we sit here today, we’re not looking for investors. TWST: It doesn’t sound as if you are looking toward an IPO. Mr. Austin: I can’t respond to that besides to say that I think that is an option down the road along with many others. We are here today singularly focused on driving our business. TWST: If it did take place, what would be the two or three best reasons for a long-term investor to consider the company? Mr. Austin: I am not going to give you two or three reasons. What I would tell you is that investors look at companies that actually have really great things. Those great things are typically great brands and products and great people. We work with NetJets. We have a great brand. Marquis Jet, the brand, is a very well respected household name in our industry. Because NetJets is a Berkshire Hathaway Company, I don’t have to comment any further on what that means to consumers. They deliver, because they never compromise on safety, they never compromise service; they’re held to a much higher authority because of Mr. Buffett and Berkshire Hathaway. Rich Santulli is obsessed with safety. I mean truly obsessed with safety. Everything in NetJets is really like a military operation there, which is amazing. I would say also the other side is the people. We have incredibly talented people. We don’t have B’s; the B’s don’t make it at Marquis Jet. We have A’s across the board. We have people who are incredibly passionate about what they do. Everyone feels like an Owner here, which is very, very important. No one punches in and punches out here. If there are people like that, they don’t last here, and we typically don’t hire people like that. But, as I said before, we’re not looking for investors. We’re not IPO-ing the company next week. TWST: Is there anything that you would like to add? Mr. Austin: One thing that I just wanted to mention, because we didn’t talk about it, is that there are lots of companies that actually will come out and make claims. You know the old saying, “when you are number one, everybody is trying to knock you off the hill,” and there are many companies in our space that are copycats from a marketing perspective and don’t advertise fairly. They sell in

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a different manner than we sell. The one thing that I would say for anyone who is looking to buy into a private aviation solution is that they should really do their due diligence. Price will dictate because you definitely get what you pay for within the Jet Card category. It’s a very low margin business and not a retail kind of margin. It’s a 15% to 20% margin business, total gross profit. So if someone says they can be 15% less than you, they have a darned good reason why they are. You’re finding their planes are old, their service is sub-par, and their pilots aren’t trained to the standard that NetJets holds their pilots, and so on. I think it’s important that people do their due diligence and really make a determination based on that analysis. And when you are at 40,000 feet, when you are next to a business associate or your significant other, you shouldn’t reach over to them as you are bumping along in bad weather and say don’t worry, we saved 15%. It’s not the way you should be judging private aviation. It really shocks us how many very well educated, very successful people literally will open up the phonebook and order an airplane knowing nothing about it, its crew, its maintenance, its age and the quality. Yet when they stumble and fall in Central Park and hurt their knees, they rush to call their friend and ask who is the best doctor to take care of the little scratch I have on my knee. If little Johnny gets a pebble in his eye, then you need the best eye surgeon or need the best of anything in health care for your family. If they get in an airplane, almost blindly choosing operators, it really blows our mind. So due diligence is everything, and we believe the cream rises to the top. And the bottom line is, we are the cream, NetJets and Marquis Jet are the cream. We typically win the deals, but the bottom line is people should really do their due diligence. TWST: Anything else to add? Mr. Austin: For us, it’s an honor to be doing business with gentlemen like Richard Santulli and Warren Buffett. We’ve been blessed to have this exclusive partnership. TWST: Thank you. (MC) KEN AUSTIN President, Marketing & Business Development Marquis Jet 230 Park Avenue Suite 840 New York, NY 10169 (212) 499-3700 (212) 499-3710 – FAX www.marquisjet.com e-mail: [email protected]

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International Packaging & Logistics Group, Inc. (IPLO) STEVEN WESTLUND has been the Chief Executive Officer and a director of International Packaging & Logistics Group, Inc. (previously Kaire Holdings, Inc.) since May 1995. He was elected Chairman of the Board in December 1995 and has been Acting Chief Financial Officer since April 2007. Mr. Westlund was Chairman of the Board and Chief Executive Officer of Vitafort International Corporation from May 1993 through May 1995. From January 1991 to May 1993, Mr. Westlund was Chief Executive Officer of Lorenz/Germaine, Inc. and concurrently, from January 1991 to June 1992, he acted as Chairman and Chief Executive Officer of Auto Giant. Mr. Westlund specializes in corporate restructuring and the development and marketing of specialized products and services.

ALLEN LIN, Director of International Packaging & Logistics Group, Inc., has over 17 years’ packaging industry and financial venture investment experience. Mr. Lin has been instrumental in successful startups such as 1989’s H & H Glass, Inc., where he continues to play a key role in global manufacturing, outsourcing for rigid packaging material (including but not limited to glass containers) and creating packaging distribution solutions for North American customers. Mr. Lin recently earned a Master of International Law from a national university in Germany, and he also holds an MBA with honors from a Chicago university. He has gained international exposure through is work identifying merger and acquisition candidates in the packaging distribution network, and promoting his packaging business in North America, South America and Europe. Born and raised in Taiwan, Mr. Lin is fluent in both Chinese and English.

SECTOR — INDUSTRIAL EQUIPMENT & COMPONENTS (AMX649) TWST: Would you provide us with a brief historical sketch of your company? How long you’ve been public, and what it is that you do? Mr. Westlund: We’ve been in business under different names since 1986, most recently as Kaire Holdings. We are now International Packaging & Logistics Group, Inc. As part of our group, we have H&H Glass. We also have a recent acquisition called EZ-Link Corporation, which is a logistics company based in Taiwan. Our primary business has been, and is, as the manufacturer representative of packaging and glass containers for various industries in North America and Canada. That includes packaging for food products, condiments, health and beauty products, medical products and things of that nature. We have been in that business through H&H Glass for some 18-plus years. Over that time, the company has been operating profitably with a positive cash flow. More recently as part of our plan to provide the best possible service we can for our customers, we acquired — effective July 2009 — EZ-Link Corporation. Their primary business is shipping containers by land, sea, air, by any method possible. We are in that business because it provides our clients with improved service via better de-

livery times. That tightens the length of time between the manufacturer and the distributor, which reduces overall their costs. That translates right to the bottom line for our clients. Approximately 30% of the cost of every glass product manufactured relates to shipping. If we can reduce the shipping costs for our clients by 10% or something like that, then we can save them close to 3% on the bottom line. It makes a big difference. In addition to that, we have at our manufacturing sites, what we refer to as a total solution package. Basically this means a manufacturer can come to us and say, “I need a so-and-so for some condiments that we’re producing. I only need a short run because it’s a new product; I don’t want to spend a lot of money on inventory.” We take care of that for them. We can supply the very best product. We have the molds. We have the in-house manufacturing. We have the designers, the whole thing to produce a product for a customer that’s a high-quality product delivered on time for the right price — in fact, probably the lowest price. Our company is really based and built on a customer service mentality. Each of the things that we will do going forward is intended to implement and improve service. TWST: Are there any other growth initiatives underway or are you solely focused on EZ-Link at the moment?

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Mr. Westlund: No, we’re focused across the board. EZLink is a tool. It is an implement that we can use to help our customers reduce their costs. Within the EZ-Link operation, we’re also able to manage inventory. We’re able to deliver that inventory in the shortest possible time frame for our distributor. That way they’re not maintaining huge levels of inventory. Our focus will continue across the board in an effort to try to provide the customer with the best possible solution. The ideal situation would be, if you’re a glass manufacturer and you need products, you think of no one else except our company to come to because we can take care of everything for you from the beginning to the absolute end. If necessary, our logistics company will deliver you the check for the products you just sold. That’s our overall focus. We’re very customer-oriented.

“The next step in the short term will be to try to find a better solution or technology to produce glass products. In some way we need to lower the costs involved in manufacturing. All of that comes back to benefit us.”

TWST: Are there other growth initiatives underway that you want to mention? Mr. Westlund: Yes, there are a number of challenges that are going on now in the global economic environment. Obviously, we’re all very well aware of that. The impact that that’s had on companies varies from industry to industry. In our particular area, glass manufacturers were hit pretty hard last year. First of all, there is a shortage of glass, the actual product itself. So a lot of distributors began hoarding product and building inventories so they wouldn’t run out. Then along comes this economic crisis and catches these companies with huge inventories that aren’t moving because nobody is buying anything now. So going forward, we continually will be looking for ways to improve the business cycle for our customers — our distributors — and that includes doing things like making them not have to carry large inventories, delivering an inventory to them the day before it needs to ship out and finding alternative energy sources going forward that will enable our manufacturers to produce products at significantly reduced manufacturing costs. So these are the growth initiatives that we see. We believe that by helping our customer grow, we in turn grow. Again it falls back on our primary goal, which is customer service. TWST: Would you describe who your customers are? You said they are manufacturers. Mr. Westlund: Al, why don’t you go ahead and take that one because you deal with those folks daily. Mr. Lin: Most of our customers are basically in North America. We use channel distributors. These distributors have warehouses and when a customer needs the product, we ship to the distributor. They don’t need to wait to ship from overseas. They just call our distributor to get it. Most of our customers are manufactur-

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ers of food products, body care products, and vitamin and health food. There are also some smaller medical products. So basically, the end users are the people who need to use packaging, and they get it through our distributors. TWST: How would you describe your competition? Mr. Westlund: What we’ve been seeing recently emerging actually over the last couple of years and intensifying as time goes forward is competition from Chinese companies. These companies are importing directly into the US market. But they are also gaining more ability to do that through exposure to the US markets through various other methods. Therefore, people in the United States are becoming more and more aware of the Chinese factories as an alternative manufacturing source. The problem that we see with that, and I think it’s probably rather widely known, is that in many cases product quality is inconsistent. You may get a fine product one day from a company and order the same thing the next time and it’s different and not what you’re looking for. One of our key advantages is that we have 18 years of experience in this area and a reputation for delivering consistently high-quality products. So the challenge that we’ve got is keeping that news — or keeping that information — in the customer’s mind, which we’re doing a good job at. Essentially, we’ve got the credibility. But the threat still exists, and it will probably get worse because I believe that some of these companies will improve and will produce better products as time goes forward. TWST: Are there any other main items on your strategic agenda as you look out the next few years? Are there any specific initiatives you want to talk about? Mr. Westlund: Yes, there are a couple of areas. One, we got into a year and a half ago. We began to focus some of our energy in the logistics area. We now have both feet in the door, and we’re working very well in that area. We’ve integrated that operation into our own operations, and we’ve begun to deliver the benefits to our customers in the form of reduced shipping costs, on-time delivery, inventory management, etc. The next step in the short term will be to try to find a better solution or technology to produce glass products. In some way, we need to lower the costs involved in manufacturing. All of that comes back to benefit us. So another of our focuses will be to find an alternative energy source and/or technology application that utilizes existing energy more efficiently, or a new technology using a different energy source, which will enable our customers, the manufacturers, to produce products at a greatly reduced price as far as components are concerned. I think that we will also continue to grow the business organically from within by providing innovative products and solutions to problems rather than having to tell someone, “No, you can’t do a short run because it’s too expensive,” which many companies hear in the United States. Most US manufacturers won’t do it. We can do short runs because we source through dozens and dozens of companies, literally, on a global scale. Those are the kinds of areas that we will continue to look into. Again, energy and new technology as far as it relates to manufacturing is a big focus for us. TWST: Are there any other industry or economic problems or challenges that you’re anticipating in the near term? Mr. Westlund: Well first of all, just the general economic condition, although it seems to be stabilizing and may be solidifying

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a little bit. But the main thing is the increased competition that we’re going to see more and more of through Chinese direct importers. They are gaining more confidence as they improve their product quality ability, manufacturing ability and things of that nature. That’s a huge emerging country with — I can’t even imagine their future capabilities. I think that’s going to be an issue. But for us, we’re not specifically focused on one thing. We don’t just sell jellybeans or whatever it is. We sell services. And we sell integrated programs, and we have a 20-year head start. If we keep our nose to the grindstone, I think we’re going to be okay. TWST: Do you have any capital improvement programs underway? Mr. Westlund: No, we are operating profitably; we’ve got good, positive cash flow. We did have a dip in the first quarter and it was a significant dip, but we’ve almost recovered from that. We’re doing very well. We do not see any need at this point to go out and raise capital either through selling stock or incurring debt; we want to keep a very clean and strong balance sheet. TWST: Would you give me just a general idea of what your balance sheet looks lie at the moment? Mr. Westlund: Right now our balance sheet is very strong. We have virtually no debt. And of course our assets are mainly receivables and we’re cash strong. So we’re very liquid on the balance sheet, which allows us to grow the business organically as well as allows us to grow through acquisitions without having to seek outside funding. So our balance sheet right now is very strong, and it has been historically. TWST: What is your firm’s attitude toward M&A? Do you see increasing opportunities in your industry? Mr. Westlund: The current economic conditions have changed the level of the playing field; there are a lot of things going on. Overall we believe that M&A, that acquisitions are a very important tool in the overall growth of a company. Finding the right one and having the ability to integrate the operation and benefit from it is also key, and we’re quite good at that. So we believe strongly in it, it’s a very valuable and important tool in the overall growth of a company. TWST: What do you expect your company to look like three to four years from now? Mr. Westlund: Hopefully the economic cycle will have moved on to the next phase, and we’ll be coming out of the valley going up the side of the hill. That being said, we anticipate we will find a solution in energy or technology, or a combination of both, which will further help our customer produce products at cheaper prices. We also expect further integration of our logistics operations, and the continued development of our unique and proprietary product programs and services. I see the company having expanded significantly in those areas with logistics playing a very important part of the overall operation, both in terms of cost savings and in management benefits for our customers. TWST: Is the logistics element a service you’re planning to sell to other firms or provide only to your customers? Mr. Westlund: EZ-Link is, and was, an existing company based in Taiwan since that’s where the majority of our manufacturing and sourcing of raw materials occurs. It made the most sense to look in that area. But EZ-Link has a number of other cus-

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tomers besides us. They have a proprietary software program, which enables customers to track their shipments globally. Let’s say it is a Toyota Motor Company or someone who has got a number of containers on a transatlantic ship; they can easily find out where that ship is, what the estimated arrival times are, etcetera, etcetera. So, yes, they do business with other people, and we’re going to continue to encourage that.

“Going forward, one of the milestones that investors might be interested in watching is how we proceed and implement an energy solution for our customers and, of course, the widening and growth of the logistics business. Those are a couple of areas that they may want to pay attention to.”

TWST: Are there any year-to-year milestones that investors should be looking for? Mr. Westlund: Yes, a couple have already passed, and that has been the acquisition of a logistics company, which was an earlier milestone for us. The shifting of some of our customer base to other manufacturing channels due to the shortage of raw materials last year had a tremendous impact on a lot of distributors and a lot of end users, food manufacturing companies, etc. We have worked through that nicely. Going forward, one of the milestones that investors might be interested in watching is how we proceed and implement an energy solution for our customers and, of course, the widening and growth of the logistics business. Those are a couple of areas that they may want to pay attention to. Mr. Lin: EZ-Link is not just a company, it is a platform. We will use it and also start to get involved more through a continued acquisition of different logistic companies throughout the whole of China. Logistics is very important to our business and also to many other industries. And logistics can help us reach out into different marketplaces. As an international company, currently our majority focus is in the United States, but we will continue to grow our business packing-wise as well as logistics-wise, bringing it to Australia and to Europe as well. And that’s our next milestone. TWST: How do you approach the topic of investor relations, do you have certain objectives there? Mr. Westlund: Yes, I think more or less that I can distill that down to a single word: communication. Having recently formed IPLO and brought on board H&H and EZ-Link, we now have the basic tools from which to build a much larger company. And the key factor to doing that now is through communications with the financial communities. We’ve begun that process. We’ve introduced a Website for IPLO, and we’ve introduced Websites for EZ-Link; and we’re now starting to step out, as you will, of the development phase and explain to people who we are and what we are doing. So communication is very important, and there will be quite a bit of that going forward to give the potential investor — be it an individual or a firm — a good, basic understanding of who we are, what we’ve done, what we plan to do and how we’ve accomplished it.

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TWST: What are the three best reasons you can offer as to why a long-term investor would want to look closely at your company? Mr. Westlund: We’ve been in business, all of us, in various areas for a number of years. We’ve all had successful track records. The H&H Glass Company has been in business for 20 years; EZ-Link has been around for a while. We offer an opportunity to invest in a company that’s developing quickly and still at a very embryonic development stage. In the long term, we expect this to translate into good possibilities for investors. Secondly, we have a very clear focus. We know exactly where we’re going and we’re implementing that one step at a time. Also we’re accomplishing the goals that we set. The market right now, in my opinion, is still a little bit up and down. I believe that we are very undervalued in terms of the market, primarily because most people don’t know about us and perhaps, to some extent, the conditions of the market themselves. So in terms of why an investor should step in, we’re focused, we’re experienced, we’re profitable, we’ve got positive cash flow, we’re in a strong financial position — these are all of the things that really, I think, signal a positive future for a company. TWST: Is there anything else that you think investors want to know about your company? Mr. Westlund: I think what Al mentioned before was the expansion into the European and Australian markets should be emphasized. I think that, again, that’s a milestone that people can start to look for. They can watch as we approach that, to see how we implement it and how successful we will be. And again, I believe that we’re a strong company, albeit a little bit small. But we’re growing, and we’re growing at a fairly good rate, not too fast, not too slow, but solidly. TWST: How healthy are your customers? Do you feel you are hedged to growing areas? Mr. Westlund: We deal with mid- to small-sized companies. You are going to get a lot of “drama” as it were in that category. But we’re not focused entirely on one specific business channel. In other words, we don’t just focus on food products, or we don’t just focus on medical products. What’s key to our business is in each of those industries — regardless of whether it’s food, cosmetics, beauty, whatever — components play a key part in marketing of their products. There will always be a demand for that. It’s never going to go away. I seriously doubt that there will be virtual

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products. There needs to be something tangible on the shelf you can put your hand on, which means it has to be in something. So that’s going to continue. The challenge and the creativity and the fun will come in trying to find new and innovative ways to accomplish that and to save our customers money at the same time. So I think that we’re fine as far as that is concerned. Products still need to be shipped, whether it is a completed product, filled, packaged, sealed, crated, ready-to-go or whether or not it’s something that’s a raw material that needs to be shipped. Any way you look at it, we’re okay in that area, the logistics area, too. Mr. Lin: This is a very interesting industry. I wouldn’t particularly call it recession-proof, but it’s a very, very funny business. When the economy is up and down, we are affected. But it is more a product mix situation. Just to give an example, when the economy is bad, then people will eat out less and stay at home more. They will shop more cost-effectively at like a Costco. So we will make more packaging for the industry that makes food on a large scale and sells to Costcos. So people will buy more at a Costco and they eat less outside. And reversely when the economy is good, and the people eat out more, then customers will come to us looking for different packaging — packaging to restaurants. So it’s always about the mix. When the economy is good, people will also spend additional money on healthcare and beauty care. So we will have more packaging for that industry probably than food. That’s the beauty of our business, we deal with a manufacturer and that manufacturer is always giving us a different product order for packaging that serves the customer needs today — that’s our basic advantage. TWST: Thank you. (GBR) STEVEN WESTLUND CEO & CFO ALLEN LIN Director International Packaging & Logistics Group, Inc. 7700 Irvine Center Drive Suite 870 Irvine, CA 92618 (949) 861-3560 (949) 861-3562 — FAX http://iplgroupinc.com e-mail: [email protected]

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