C:Documents and Settingsachan33DesktopDJO Roadshow Pres

1. 0 C:\Documents and Settings\achan33\Desktop\DJO Roadshow Pres.ppt /0

2. 1 C:\Documents and Settings\achan33\Desktop\DJO Roadshow Pres.ppt /1 DJO at a Glance

3. 2 C:\Documents and Settings\achan33\Desktop\DJO Roadshow Pres.ppt /2 DJO History

4. 3 C:\Documents and Settings\achan33\Desktop\DJO Roadshow Pres.ppt /3 DJO-ReAble Transaction Overview

5. 4 C:\Documents and Settings\achan33\Desktop\DJO Roadshow Pres.ppt /4 DJO Future

6. M&A Market Update Materials for Discussion

7. M&A has become the alternative

8. The equity markets have been challenging in the midst of economic uncertainty

9. Equity new issue market

10. High correlation between M&A activity and stock market performance

11. 2007 was a record year for M&A activity

12. Private equity has been a key M&A driver over the past few years

13. Conditions have changed

14. How much capacity do tech strategic players have to acquire?

17. Market Developments in the Private Capital Market

18. The year starts poorly, as expected Headlines Leveraged loan volume goes off a cliff. During the first quarter, leveraged loan volume tumbled to a 4.5-year low of $45 billion from $78 billion during the final three months of 2007 and from a near-record $186 billion during the same period a year earlier. In the institutional segment, the drop was more severe still: to a 4.5-year low of $26 billion from $57 billion during the fourth quarter and $139 billion during the first three months of 2007 Goodbye go-go. Second-lien volume was down 87% to a 5-year low of $1.5 billion in the fist quarter. Covenant-lites, meanwhile, were absent. LBO activity scarce. PE firms completed just $20 billion of new LBO�s in the 1Q, down from $125 billion in the fourth quarter and $87 billion during the first three months of last year. As this suggests, the average LBO price tag fell to a 4-year low of $962 million during the first quarter from last year�s record high of $2.1 billion. Returns plunge. Between January 1 and March 21, the index generated a 6.47% loss, making the first quarter the worst ever for the loan market. The prior low point was a negative 1.23% return during the third quarter of last year. Defaults rise. The lagging 12-month default rate by number of loans pushed to a 2-year high of 1.83% at the end of March, from an all-time low of 0.26% at yearend. Because the defaults were concentrated among smaller loans, the default rate by principal amount didn�t climb as high to a 16-month high of 1.07% on March 31 from 0.24% at yearend. Among the scant good news of the first quarter, arrangers reduced the calendar to about $120 billion (or $105 billion if Clear Channel disappears) from $156 billion at yearend

19. Current State of the Lending Market Market Changes Beginning in the third quarter of 2007 the senior lending market experienced a significant tightening in terms of availability of capital and credit standards Due to these factors, transactions above $200 million have been increasingly difficult to arrange as lenders are reluctant to underwrite and assume the risks of a hung deal Transactions below $200 million and particularly below $100 million are seeing less difficulty in closing as banks have assumed a more active role in the market and the willingness to underwrite and if necessary to club a deal is greater Companies with cash flow less than $10 million will find greater difficulty in attracting a cash flow based structure particularly if the use of proceeds is non-organic (acquisition related or dividend recap)

20. Current State of the Lending Market Changes in Participants Regional banks have assumed a more active role in both the leveraged and non-leveraged lending market as pricing and structures have become more attractive Hedge funds continue to be active but because of a decline in absolute rates by nearly 300 basis points since January and higher relative values available in the secondary market, they have become less active in the senior secured market The number of active lenders is contracting due to consolidation, downsized operations, and tightened liquidity The market dislocation is not having the same impact on borrowers whose needs are principally related to working capital needs or capital expansion provided credit quality is acceptable The junior capital market continues to have a healthy appetite with mezzanine funds displacing second lien funds and Private Equity groups holding significant liquidity. The number of private equity groups willing to consider minority investments is increasing

21. Current State of the Lending Market Changes in Pricing, Structure, Collateral and Use of Proceeds The impact of credit tightening in the middle market is a decrease in leverage by 0.5x-1.5x , an increase in pricing by 100-150 basis points and upfront fees by 100 basis points and the institution of LIBOR floors Lenders still have an appetite for acquisition financing, particularly if sponsor supported, but they will insist on a balanced capital structure and be very cautious on add-backs. Dividend recaps (particularly non-sponsored) are virtually non-existent Due to the changing mix of lenders, amortization has increased, which will further impact leverage capacity. Term Loan B�s, which had required nominal amortization (1% p/yr), have been replaced with loans requiring initial amortization of 5% increasing over time to 10-15% Cash flow sweeps, which had been normally set at 50% of annual excess cash flow, have been stepped up to 75% and in certain cases payable on a semi-annual basis Deals requiring an underwriting should expect pricing flex of at least 75 basis points and structure flex that may require more junior capital Asset based lending has rebounded strongly with cash flow leverage multiples coming down and companies beginning to struggle. While potentially limiting in terms of leverage, pricing remains attractive at libor+2-2.50% Second lien lending has contracted dramatically and been replaced by mezzanine as the junior capital of choice. Pricing and structure has remained consistent with�previous with the exception of greater demands for call protection and warrant sweeteners

22. As Leverage Declined�

23. Pricing Increased�

25. Who is Doing What in the Capital Markets Because of liquidity, lower cost of funds and performing loan portfolios, commercial banks have become more active participants in the lending market (increased market share on new deals� from 5.8% in 2007 to 14.9% in Q1 2008). In the institutional market, banks bought 27.9% of new deals in the first quarter of 2008 versus 1.9% in the first half of 2007 While active, hedge funds have wrestled with the relative value argument and as such have targeted higher yields (10-12%) for first lien paper than would normally be the case. This has resulted in a significant pull back� 21.5% of new deals in Q1�08 versus 51% in the second half of 2007 CLO�s, which had been significant buyers of leveraged loans (upwards of 70% by some estimates) have now dropped from 63% in the first half of 2007 to 40% in Q1�08 BDC�s (Business Development Corporations) have been restricted as stocks have been trading below book value, making it impractical to tap the equity markets, resulting in liquidity limitations Due to the significant drop in LIBOR, second lien funds and hedge funds have had little appetite for second lien loans due to low yields resulting in volume declining to $1.4 billion in Q1 2008 Mezzanine funds have become very active due to the decline in appetite for second lien loans and the more patient aspect of subordinated debt� longer term, less restrictive covenants and bullet maturity. While pricing has remained fairly consistent with the recent past (14-19%), more funds are requiring warrants and instituting call protection Private Equity groups continue to have significant liquidity and the drop-off in M&A activity has led to more competition on fewer deals. Because of the tightened credit markets, some equity funds are financing transactions with all equity and plan to refinance later when the market stabilizes

26. A Changing Lender Landscape

28. 1Q08 New-Issue Loan Volume by Broad Industry

29. 1Q08 New-Issue Loan Volume by Purpose