WhitestoneFinancial DealBook

No.
_______
WHITESTONE FINANCIAL LLC

Confidential Descriptive Memorandum
September 2005
Whitestone Financial
CONFIDENTIAL
Important Notices and Disclaimers

This Confidential Descriptive Memorandum (the Memorandum) has been prepared by Consilium Partners LLC (Consilium Partners) and Whitestone Financial LLC and its affiliates (Whitestone) based on information provided by Whitestone and is being furnished through Consilium Partners, as Whitestones exclusive financial advisor, solely for use by interested parties in connection with their evaluation of Whitestone in the context of a possible financial transaction. The information contained herein has been prepared to assist interested parties in making their own evaluation of Whitestone and does not purport to contain a complete analysis of all factors relevant to a financial transaction with Whitestone. All investment decisions contain a degree of risk, and interested parties should conduct their own investigation and analysis of Whitestone and the data set forth in this Memorandum. Consilium Partners has not independently verified any of the information contained herein. Neither Consilium Partners nor Whitestone makes any representation or warranty as to the accuracy or completeness of this Memorandum and shall have no liability for any representations (expressed or implied) contained in, or for any omissions from, this Memorandum or any other written or oral communications transmitted to the recipient in the course of its evaluation of Whitestone. Only representations and warranties, if any, made pursuant to a fully executed definitive agreement shall be binding upon the parties. This Memorandum may include certain statements, estimates and projections provided by Whitestone with respect to its anticipated future performance. Such statements, estimates and projections reflect various assumptions by Whitestone concerning anticipated results, which assumptions may or may not prove to be correct. No representations are made as to the accuracy of such statements, estimates or projections. By accepting this Memorandum, the recipient acknowledges and agrees that: (i) The recipient and Whitestone have executed a non-disclosure agreement (the NonDisclosure Agreement) governing the use of the information contained herein and otherwise obtained from Whitestone or Consilium Partners in connection with the recipients evaluation of Whitestone; All of the information contained herein is highly confidential and the recipient will keep all such information and all other information made available to the recipient in connection with any further investigation confidential pursuant to the terms of the NonDisclosure Agreement; none of such information will be used by the recipient or any of its employees or representatives in any manner whatsoever, in whole or in part, other than in connection with its evaluation of Whitestone;
(ii)
(iii) The recipient will not reproduce this Memorandum, in whole or in part, and will not distribute all or any portion of this Memorandum to any person other than a limited number of the recipient's employees or representatives who have a clear need to know such information for the purpose set forth above and who are informed by the recipient of the confidential nature of such information and who have agreed to abide by the terms of the Non-Disclosure Agreement;
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CONFIDENTIAL
Important Notices and Disclaimers
(iv)
If the recipient does not agree to the foregoing terms or does not wish to pursue this matter, the recipient will immediately return this Memorandum to Consilium Partners together with any other material relating to Whitestone, and all copies thereof, which the recipient may have received from Consilium Partners or Whitestone; and Any proposed actions by the recipient that are inconsistent in any manner with the foregoing agreement will require the prior written consent of Whitestone.
(v)
Whitestone reserves the right to negotiate with one or more interested parties at any time without prior notice to you or other interested parties. In addition, Whitestone reserves the right to terminate, at any time, further participation in the investigation and proposal process by any party and to amend or modify data an d other procedures without assigning any reason thereto. Whitestone intends to conduct its business in the ordinary manner during the evaluation period; however, it reserves the right to take any action, whether in or out of the ordinary course of business, which it deems necessary or desirable in the conduct of such business. All inquiries regarding Whitestone shall be made through Consili um Partners; by acceptance of this Memorandum, the recipient agrees not to contact Whitestone or any of its officers or employees regarding the proposed transaction, without the prior express written consent of Consilium Partners. All communications, inquiries and requests for information should be directed to:
Consilium Partners LLC 399 Boylston Street Boston, Massachusetts 02116 Facsimile: (617) 267-0667
Steven B. Schaepe Managing Director 617-267-0600 ext. 202 sbs@cpboston.com
Mark S. Denomme Managing Director (617) 267-0600 ext. 203 msd@cpboston.com
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CONFIDENTIAL
Table of Contents
I. Executive Summary......................................................... 1 5 6
II. Investment Considerations.............................................. III. CMBS Market ................................................................. IV. Company Profile Service Offerings ............................................................. Corporate Strategy .......................................................... Sales & Marketing ........................................................... Clients .............................................................................. Competition ..................................................................... Service Model and Key Metrics ...................................... Facilities ........................................................................... Employees ........................................................................ Management ....................................................................
12 13 15 17 21 23 25 26 28
V. Historical and Projected Financial Performance ........... 31
Appendices A. B. CMBS Industry Overview Advertisement from Commercial Mortgage Alert
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Executive Summary
_________________ Overview
Whitestone Financial LLC and its affiliate, Whitestone Financial Limited (Whitestone or the Company), is a real estate finance consulting and staff augmentation firm specializing in meeting the growing needs of financial ins titutions that participate in the Commercial Mortgage-Backed Securities (CMBS) market. The Company provides services for every part of the CMBS transaction process, including origination due diligence, securitization assistance, and investor due diligence. Whitestones services can either supplement a clients in-house staff or be outsourced to the Companys New York City, Irvine or London offices. Whitestones services enable clients to focus on core business activities, while outsourcing complex analytics and related support services to a highly skilled and cost effective partner. Whitestone is uniquely positioned to provide value to its clients through its (1) deep domain expertise for rating agency and securitization requirements associated with CMBS transactions, (2) ability to provide customized research and comprehensive reports that facilitate the review of individual loans or loan portfolios by all parties involved in the CMBS transaction process, and (3) highly flexible service model and cost-efficient pricing versus the alternatives available to its clients. The main force driving the Companys strong historical and projected growth is the global increase in CMBS issuance, combined with rising demand for high quality outsourced services by financial services firms and investors that are unable to adequately staff or lack the requisite highly trained professionals to execute profitable real estate-related transactions. Since inception, Whitestone has delivered services to 27 clients worldwide, including major multinational investment banks that issue CMBS and various investors that purchase CMBS. Approximately 70% of the work performed by Whitestone consultants is done onpremise at a clients location; the other 30% is project-related work, typically outsourced to the Companys New York City, Irvine or London offices. Whitestone has leveraged its CMBS expertise and quality and consistency of service to establish deep, long-lasting and mutually beneficial relationships with its clients. Ben Foster founded Whitestone Financial LLC in February 2002, and was joined by Drew Quigley in April 2002. Ben and Drew (the Principals) founded Whitestone Financial Limited in May 2003. The Principals have grown the Company to 68 full-time equivalents (FTEs), including a 15-person team in London, eight 1 099 contractors working at the Companys main office in New York City, and a three-person administrative staff. The Company occasionally supplements its staff with 1099 contractors, some of whom become employees of Whitestone after completing specific projects.
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CONFIDENTIAL
Executive Summary
__________________ CMBS Market
The global CMBS market has expanded substantially since the early 1990s, as shown in Table 1 below, with a 10-year compound growth rate of 25.3% and 2004 issuance reaching $127.6 billion. Table 1 Global CMBS Issuance: 1995 - 2004
$140 $120 $100
$20.8
CAGR = 25.3%
$34.5
$80
$ b i li o n s
$0.6 $9.1 $12.1 $3.6 $0.9 $74.3 $56.6 $36.8 $46.9
$22.7 $28.7
$60 $40 $20 $0 1995 1996 1997 1998

$1.1 $15.7 $26.4
$93.1 $67.1 $52.1 $77.8
1999
2000
2001
2002
2003
2004
Source: CMA
US
Non-US
Industry sources project continued strong global growth in the CMBS market in 2005. These growth expectations are based on strong market fundamentals, including historically low interest rates, rising property values and sales, improving credit quality and growing market liquidity. A Commercial Mortgage Alert survey shows industry expectations for an average 9.7% growth in global CMBS issuance in 2005 to $140 billion, based on 6.5% growth in U.S. issuance to $99 billion, and 18.8% growth in non-U.S. issuance to $41 billion. _________________ Competition
Whitestone competes primarily based on the breadth and quality of its consulting services, price, responsiveness and the flexibility of its service model. In general, Whitestone competes against the following types of competitors: (1) (2) (3) (4) Major consulting/accounting firms Smaller boutique and conduit headcount firms In-house investment banking staffs Independent consultants/sole practitioners
Whitestone generally competes favorably against these competitors due to its (1) unique, highly focused service offering, (2) flexible staffing model that accommodates both on-premise staffing needs as well as outsourced project-related needs, and (3) competitive billing rates across every experience level (from project managers to associates).
CONFIDENTIAL
Executive Summary
_________________ Summary Financials
The following table depicts the Companys historical and projected operating results. The historical financial summaries are based upon the Companys management prepared financials. The projections, prepared by the Companys management, contain forward-looking statements, which are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated.
Combined Actual 2002 2003 2004 $1.2 $3.9 $9.0
n/a 211% 131%
(1)
(FYE 12/31, $ millions)
Revenue
% Growth
Proj. 2005 $13.0

45%
Gross Profit
% Margin
0.7
55%
1.4
36%
4.7
53%
6.0
46%
EBITDA
(2)(3)
0.5 0.3 0.2

19%
(4)
0.8 0.3 0.5

14%
4.0 0.3 3.7

41%
5.0 0.3 4.7

36%
Principal Salaries Adjusted EBITDA

% Margin
1
Whitestone grew revenue from $3.9 million in 2003 to $9.0 million in 2004, representing growth of approximately 130%. Whitestone grew revenue from $1.2 million in 2002 to $3.9 million in 2003, representing growth of approximately 210%. The growth was fueled primarily by strong demand from new and existing clients, coupled with the rapidly expanding North American and European CMBS markets. The Company generated $3.7 million in adjusted EBITDA in 2004, up from $533,000 in 2003. The 2004 adjusted EBITDA margin of 41% reflects the Companys higher average billing rates and strong control of overhead expenses. The Company generated $533,000 in adjusted EBITDA in 2003, up from $242,000 in 2002. It should be noted that the Principals have historically not taken any salary, but have received distributions from the Company for tax liabilities and other needs. As of July 31, 2005, the Company has continued its strong financial performance, generating $11.4 million in latest twelve month (LTM) revenue and $4.5 million in LTM adjusted EBITDA (39% margin).
(1) Includes combined results of Whitestone Financial LLC and Whitestone Financial Limited FY 2002 reflects 11 months of WSF LLC operations; FY 2003 includes 8 months of WSF Ltd. results WSF Ltd. figures converted from GBP to US$ at average annual exchange rate (2) EBITDA = Earnings before Interest, Taxes, Depreciation and Amortization (3) Excludes inter-company management fee charges and non-recurring deal-related expenses (4) Adjusted for assumed salaries for Principals, who have received distributions in lieu of salary
CONFIDENTIAL
Executive Summary
_________________ Headquarters and Facilities
Whitestone leases approximately 5,000 square feet at its primary office location in New York City. The current lease expires in 2008. In London, the Company maintains space in a professionally run, serviced office facility. The month-to-month lease, combined with ample available capacity to increase the number of offices rented, provides the Company with maximum flexibility during the Companys increase in European business activity. The Companys Wall Street and City of London locations represent a competitive advantage for the Company given that most of the industrys major domestic and European CMBS departments are headquartered in New York City and London. In September 2005, the Company established a new 1,100 square foot office in Irvine, California under a three year lease arrangement. The office was established in order to take advantage of new business opportunities on the West Coast.
_________________ Company Ownership
Whitestone Financial LLC is a New York S tate Limited Liability Company, wholly owned in equal amounts by the Principals. Whitestone Financial Limited, an independent U.K. limited company, has the same ownership structure.
CONFIDENTIAL
Investment Considerations
_________________ Investment Considerations
Key investment considerations include the following: (1) Strong revenue growth and profitability since the Companys inception; (2) Strong demand from new and existing clients for the Companys services, driven mainly by the fast growing, global CMBS market; (3) Demonstrated ability of the Company to generate repeat business from its key clients and expand relationships by providing new services and working with different departments; (4) Strong roster of clients, including multinational investment banks that issue CMBS and a broad range o f investment-grade and below-investment-grade CMBS investors; (5) Young, energetic and entrepreneurial management team; (6) Team of highly skilled project managers and consultants; (7) Reputation for high quality services and growing brand awareness within the real estate investment banking community; (8) Identifiable, near-term growth opportunities; and (9) Historical and projected full utilization of Whitestone consultants and attractive, sustainable billing rates.
CONFIDENTIAL
CMBS Market
_________________ CMBS Market
Commercial Mortgage-Backed Securities (CMBS) are securities backed by pools of mortgage loans on commercial real estate properties. CMBS are backed by income-producing properties, and principal and interest from the individual mortgages are used to pay investors' principal and interest on the CMBS. These loan pools are structured to produce various investment-grade and non-investment-grade rated classes. Along with residential mortgage-backed securities (RMBS) and asset-backed securities (ABS), CMBS are considered structured finance.
Market Development The CMBS market primarily grew out of the successful residential mortgage-backed securities market. Several factors contributed to the growth of the CMBS market, including: 1) the early-1990s issuance of several billion dollars in CMBS by the Resolution Trust Corporation: This issuance brought investor interest and a track record to the CMBS market, helping to build market credibility. 2) lenders desire to reallocate capital: CMBS allowed banks and insurance companies to convert loans into capital, and reduce market risk by reallocating assets. Securitization also provided a vehicle for lenders to provide off-balance-sheet financing in originating commercial mortgages. 3) growing demand from CMBS buyers: Buyers demand for CMBS has been driven by increased market liquidity, CMBS superior performance relative to alternative investments and a strong commercial real estate market. Efficient deal pricing and greater involvement of rating agencies has attracted a large and diverse market of CMBS investors.
The permanent loan market (five- to 25-year loans) was historically dominated by life insurance companies and commercial banks, which also provided short-term, three- to seven-year loans. These lenders currently hold just over 50% o f the $1.6 trillion U.S commercial mortgage debt outstanding, with a growing share represented by CMBS, as shown in Table 2.
CONFIDENTIAL
CMBS Market
Table 2 $1.6 Trillion U.S. Commercial Mortgage Market

Fed-Related Mort. Pools 5%
Life Ins. Cos. 12%
GSEs 2%
CMBS 18% Other 13%
Savings Institutions 8% Commercial Banks 42%

Source: Federal Reserve Bank
The real estate market has been intensely competitive for lenders as a result of the increased sources of financing available. With this increased competition has come pressure to narrow spreads on rates on all lending sources - banks, insurance companies and CMBS issuers. However, the CMBS market provides an opportunity for banks wishing to emphasize off-balance-sheet lending and fee-based revenue to support their customer base, collect origination and perhaps servicing fees, and pass along the credit risk associated with traditional real estate lending. For borrowers, money is availa ble at lower rates, with longe r amortization terms and higher leverage on a non-recourse basis (with certain carve-outs). CMBS loans offer many advantages over traditional whole loans, but also have a number of limitations. Credit standards are reflected in standardized, inflexible documentation, and loans that do not fit the underwriting criteria are excluded from the pools of mortgages. The CMBS market severely limits the possibility of modifications after a loan is securitized, and typically permits no incremental subordinated financing.
The CMBS Market Strong market liquidity and attractive returns have driven m arket demand. The global CMBS market has expanded substantially since the early 1990s, as shown in Table 3 below, with a 10-year compound growth rate of 25.3% and 2004 issuance reaching $127.6 billion. With
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CONFIDENTIAL
CMBS Market
$100 to $200 billion of commercial debt originations each year, the potential for CMBS growth is large. Table 3 Global CMBS Issuance: 1995 - 2004
$140 $120 $100
$20.8
CAGR = 25.3%
$34.5
$80
$ b i li o n s
$0.6 $9.1 $12.1 $3.6 $0.9 $74.3 $56.6 $36.8 $46.9
$22.7 $28.7
$60 $40 $20 $0 1995 1996 1997 1998

$1.1 $15.7 $26.4
$93.1 $67.1 $52.1 $77.8
1999
2000
2001
2002
2003
2004
Source: CMA
US
Non-US
CMBS issuance is relatively non-seasonal, as shown in Table 4. Table 4 Cumulative Monthly CMBS Issuance for 2003 & 2004
$140 $127.6 $120 $100 $80
$ b i li o n s
$98.6 $93.1 $77.8
$60 $40 $20 $0 J F M A M 2003 US J J A S O N D
2004 US
2004 Global
2003 Global
Source: CMA
CONFIDENTIAL
CMBS Market
CMBS have steadily taken market share from thrifts, life insurance companies and commercial banks, helping to create greater competition and lower borrowing costs. The major source of issuance has trended toward conduit deals, which consist of loans that are originated for the sole purpose of securitization. The remainder of the market is comprised of large loans, seasonal mortgages and other loans. Conduit programs fall into four general categories: traditional conduits, which securitize a large number of small balance loans; large loan programs, which securitize a small number of approximately $50 million and larger mortgages; fusion deals, which combine a typical smallbalance conduit loan component with a large-loan component; and shortterm floating rate loan programs. Domestic CMBS issuance is shown by deal type in Table 5 below. Table 5 2004 U.S. CMBS Issuance by Deal Type
Other 7% Fusion 73%
Conduit 20%
Source: CMA
2005 Outlook Industry sources project continued strong global growth in the CMBS market in 2005. These growth expectations are based on strong market fundamentals, including historically low interest rates, rising property values and sales, improving credit quality and growing market liquidity. In addition, a cyclical increase in loan refinancing, with over $17 billion of commercial real estate loans scheduled to mature in 2005 and almost $28 billion in 2006, should contribute to CMBS growth. A Commercial Mortgage Alert survey shows industry expectations for an average 9.7% growth in global CMBS issuance in 2005 to $140 billion, based on 6.5% growth in U.S. issuance to $99 billion, and 18.8% growth in non-U.S. issuance to $41 billion.
CONFIDENTIAL
CMBS Market
Other factors that should contribute to CMBS market strength include: o Low default and loss rates for CMBS; o Continued strong interest in commercial real estate, with rising property values; o Expectation that public-market discipline and disclosure will temper cyclical swings vs. the late 1980s period when public markets had little influence; o Continuing gains in market share vs. non-securitized lending sources based on efficiencies in pricing and risk allocation; o Increased demand for commercial real estate debt products based on the sectors superior perfo rmance relative to alternative investments; and o The emergence of more investors across the entire CMBS rating spectrum. European activity is expected to drive the majority of non-U.S. market growth. European institutions have established several cond uit origination programs, and there are now more than a dozen securitization programs in Europe. Activity in Asia and Canada is also expected to expand.
Market Trends Transition toward public capital markets Traditionally, the commercial real estate market has been characterized by private ownership financed by intermediaries such as banks, thrifts and insurance companies. Inte rmediaries still hold the bulk of outstanding debt, but most of the new money flowing into commercial real estate has come from public capital market sources, including CMBS. Financial intermediaries as a group have reduced their direct holdings of commercial real estate debt, while outstanding debt either backing CMBS or held by real estate investment trusts (REITs) has increased significantly. CMBS have been issued increasingly in the public rather than in the private markets, with the majority of 2004 CMBS issued publicly versus less than 50% in the mid-1990s. Growth of loans originated for securitization As the CMBS market has matured , a growing proportion of the mortgages backing the securities have been originated specifically for securitization. The early CMBS market was dominated by Resolution Trust Corporation issuance backed by performing and nonperforming
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CMBS Market
real estate loans from failed thrift institutions and issuance by banks and insurance companies looking to restructure their balance sheets. In 1991, 98% of the collateral backing CMBS was seasoned loans. As traditional lenders withdrew from the commercial mortgage market in the early 1990s, loans originated for securitization began to represent a larger proportion of collateral. This trend has continued, with such loans representing the majority of securitized mortgages in 2004. Growing role of conduits Issuance of CMBS through conduits has come to dominate the market. Whereas they represented only 16% of the issuance in 1994, they accounted for the majority of issuance in 2004. Traditional conduits and fusion deals together represented 93% of all securitizations in 2004. Growing international use European and Asian properties are increasingly being financed through CMBS issuance. Non-U.S. issuance reached $34.5 billion in 2004, a 65.7% increase over 2003. Non-U.S. CMBS issuance is shown by location in Table 6 below. Table 6 Non-U.S. CMBS issuance
($ millions) Location 2004 Loan % # of Volume Total Loans 16 24 5 6 3 9 2 4 2 2 1 1 2 1 1 1 0 0 0 80 2003 Loan % # of Volume Total Loans $7,064 34.0% 3,173 15.3% 939 4.5% 2,421 11.6% 2,686 12.9% 1,435 6.9% 0 0.0% 75 0.4% 0 0.0% 469 2.3% 1,004 4.8% 515 2.5% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 805 3.9% 131 0.6% 86 0.4% $20,803 100.0% 14 20 3 8 4 13 0 1 0 1 2 2 0 0 0 0 1 1 1 71
U.K. $15,246 44.2% Japan 6,689 19.4% Pan-European 2,884 8.4% Canada 1,928 5.6% France 1,735 5.0% Australia 1,346 3.9% Netherlands 1,077 3.1% Singapore 968 2.8% Sweden 926 2.7% Other Global 718 2.1% Germany 352 1.0% Italy 181 0.5% Taiwan 137 0.4% South Africa 129 0.4% China 99 0.3% Mexico 57 0.2% Switzerland 0 0.0% Belgium 0 0.0% Poland 0 0.0% Total $34,470 100.0%
Source: CMA
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Company Profile _________________ Service Offerings
Whitestone has an experienced team of accomplished and highly capable consultants that provide service offerings throughout the CMBS transaction process. The Companys exceptional people, combined with its strong focus on customer service and end results, enable Whitestone to be a valuable partner to its clients. The Company provides a number of services to its investment banking clients, including: Origination: (1) Process individual broker packages and perform initial loan sizing; (2) Perform site visits for each n i dividual loan and p rovide comparable site analysis; (3) Review third party reports (title policy, environmental, appraisals, engineering/seismic); (4) Provide loan-underwriting guidance for all property types; and (5) Create credit committee presentations. Securitization: (1) Build a comprehensive database of critical details for each individual loan; (2) Update and standardize loan files; (3) Coordinate information requests for B-piece buyers (buyers of below-investment grade CMBS tranches) and rating agencies; and (4) Review rating agency pre-sale reports and create term sheets for trading floors. Distribution: (1) Analyze and re-underwrite individual properties within loan pools; (2) Perform investor site visits and interview property managers; (3) Identify potential problem loans; (4) Create presentation books for clients credit committee review; and (5) Perform surveillance of existing portfolios (e.g. properties affected by Hurricane Katrina).
The primary service offering to the Companys real estate investor clients and other CMBS periphery companies involve general due diligence services. These services are usually performed on an outsourced basis at the Companys New York City, Irvine or London offices. The services are project-oriented, with projects running for as little as three to four weeks, and as long as several months.
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Company Profile _________________ Corporate Strategy
The main tenets of Whitestones corporate strategy are as follows: Deeper penetration of existing investment banking clients across departments Whitestone often receives inquiries from other departments within its investment banking clients, reflecting the word-of-mouth benefits gained by an incumbent service provider. For example, Whitestone may have a three-person team working on-premise with the origination division of its clients real estate investment banking group. If the securitization division has a spike in deal a ctivity, this group may ask th eir counterparts in origination for names of firms that may be able to assist their group with some project-related work on a specific transaction. Given Whitestones strong reputation and high-quality service, they are often the recommended party especially given the Companys approved vendor status at many of its investment banking clients. In general, by being on-premise at many of its clients, Whitestone is afforded the opportunity to bid on most new work being outsourced by its clients. In addition, investment banks often rotate personnel between departments, allowing Whitestone to broaden its coverage by penetrating a new department through a key advocate. Whitestones objective is to penetrate every loan department within each of its major investment banking clients.
Broaden service offerings to existing investment banking clients Whitestone actively targets transitioning any project-related work to onpremise, staff augmentation assignments with its clients. The Company often secures project-related work at its clients when it has on-premise consultants. In addition, on-premise consultants often become aware of new transaction activity that could promote the need for incremental Whitestone services or new types of services. Whitestone consultants also focus on expanding the number of services they are providing by leveraging their position within a specific group. For example, if a client is using Whitestone to perform initial loan sizing reports, the Company is well positioned to expand i ts underwriting services to include outsourced due diligence services such as site visits and review of thirdparty reports. Whitestones objective is to provide all of its existing services to its current investment banking clients.
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Company Profile Provide existing service offerings to new investment banking clients Whitestone is actively seeking new inves tment banking clients, including investment banks in North America and Eu rope. The Principals drive most of the Companys outside sales efforts through targeted direct calling, attending industry trade shows and, just recently, advertising in trade journals. Key initiatives to attract new clients include: (1) broadening the sales effort beyond the Principals to include Whitestone Project Managers, and (2) bui lding out the team of consultants in Europe to capture new clients as the European CMBS market gathers momentum. Expand business with B-piece and other CMBS investors Whitestone has solid positions with thre e of the largest belowinvestment-grade, B-piece investors in North America (known as BBuyers). B-Buyers invest in the first-loss tranche of CMBS transactions. While each tranche of a CMBS transaction is rated, BBuyers are especially interested in high quality due diligence services given that they are assuming t he first-loss position of these securitizations; i.e., any loan defaults with losses affect their position first. There is a steep learning curve associated with this type of due diligence work, and Whitestone believes it can leverage the expertise gained with its early clients to significantly grow this business in 2005 and beyond. The importance of high quality due diligence is recognized by these types of investors and Whitestone is positioning itself as a preferred partner for an increasing number of B-piece investors. In 2005, the Company is expanding to provide due diligence services to investment grade CMBS investors as well. Hiring and Retention Strategy A key component to Whitestones historical and future success is its hiring and retention strategy. Given the Companys explosive growth, there is a continuous need to hire strong-performing project managers and associates. To date, the Company has hired high quality, welltrained employees primarily through former colleagues, referrals and selective mining of its pool of 1099 contractors. Whitestone regularly recruits 1099 contractors through referrals from current and former FTEs, career fairs and, occasionally, online recruiting sites. The Company provides focused training to its 1099 contractors (CMBS industry overview, Excel modeling, etc.) prior to deploying them on inhouse projects. Based on the 1099 contractors performance on these projects, the Company determines whether or not they would make an effective full-time hire. The Company is currently growing its full-time staff by drawing from its pool of 1099 contractors in order to meet the demands associated with increased business volume.
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Company Profile _________________ Sales and Marketing
The Principals lead the Companys sales and marketing efforts, targeting new clients and broadening relationships with existing clients. The Principals focus their efforts on key mid- and upper-level executives in the real estate groups at major investment banks and on key real estate investors with operations based primarily in New York City a nd London. Marketing efforts typically focus on key decision makers who oversee a variety of groups/teams involved in real estate transactions. To date, there has been minimal traditional advertising due to the highly specialized nature of Whitestones consulting services. Whitestone has a strong record of securi ng repeat business and expanding business with existing clients by acting as an extension of the client, meeting high performance standards, allowing clients to manage headcount costs proactively and allowing clients to increase transaction volume. Another crucial element of Whitestones sales and marketing for existing clients is the valuable word-of-mouth benefits across different departments within its clients. Often, Whitestone receives an inquiry from one department ba sed on another departments recommendation. This internal referral mechanism has allowed the Company to unseat competitors and expand client relationships across various departments. The Company also benefits from a vendor selection process that can make it difficult for other service providers to establish new business with an existing Whitestone client. Not only do most financial services firms prefer to work with as few outside vendors as possible, they also maintain strict guidelines for vendor insurance and use of full-time employees (versus 1099 consultants) for certain types of projects. Given Whitestones existing relationships and compliance with these internal guidelines, the Company maintains a strong competitive advantage to win additional business from its existing clients. Other essential areas of the Companys existing and future sales and marketing efforts include: o The Companys regular attendance at CMBS-related trade shows throughout North America and Europe. The key trade shows include those sponsored by the CMSA (Commercial Mortgage Securitization Association), MBA (Mortgage Bankers Association), as well as the MIPIM (an international property management conference held in Cannes, France). o The Company periodically runs an advertisement in Commercial Mortgage Alert, a weekly trade journal focused on real estate finance and securitization. See Appendix B for a copy of the advertisement.
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Company Profile o Many of the most influential p eople in New York/New Jersey/Connecticut (Tri-State) real estate and real estate banking have strong ties to the New York University (NYU) Masters in Real Estate Development (MSRED) program. Ben, a graduate of the MSRED program, is an active member of the Deans Circle Alumni group, as well as the NYU Alumni Leadership Circle. Whitestone has also been an active sponsor of many NYU alumni events and is well known throu ghout the NY/NJ real estate community for its strong support of the program. Whitestone has benefited from Bens strong relationship with NYU in two ways: (1) the Company has brought on a number of NYU/MSRED graduates as key managers, and (2) the Company has received numerous referrals for new business opp ortunities from NYU/MSRED graduates working in the real estate departments of financial services firms.
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Company Profile _________________ Clients
Since its inception, Whitestone has provided services to 27 clients across a wide variety of engagements. Of Whitestones 27 clients, 11 are investment-banking institutions that actively participate as lead agents in CMBS transactions. Other clients include investors that participate in Bpiece/first-loss and investment-grade tranches of CMBS transactions. The following table ranks the top five clients for 2004 by g lobal revenue, and shows the historical global revenue for those clients: Table 7 Top Five Clients
($ 000s)
Customer A Customer B Customer C Customer D Customer E
FY 2004 $4,092 1,193 1,144 999 625 $8,053
% Total Revenue 45.6% 13.3% 12.8% 11.1% 7.0% 89.8%
FY 2003 $1,465 856 246 404 486 $3,457
FY 2002 $352 668 0 38 8 $1,065
Based on year-to-date (YTD) figures through July 31, 2005, the top five clients from 2004 generated $5.3 million in revenue, or 79% of total YTD revenue.
Top Three Client Relationships Customer A, one of the Companys earliest clients, accounted for $4.1 million of revenue in 2004, representing 46% of total 2004 revenue and a 180% increase over the revenue generated with this client in 2003. Customer A generated $1.5 million in total revenue in 2003, and $350,000 in total revenue in 2002, the Companys first year of operation. Through July 31, 2005, Whitestone has generated over $1.8 million in YTD revenue from Customer A, representing approximately 28% of total YTD revenue. Customer A is a leading book runner for CMBS transactions in North America and Europe and one of the largest, most successful investment banking firms in the world. Of the 2004 revenue with Customer A, approximately 70% represents on-premise staff augmentation, with ten consultants located at the Companys New York City offices, and 30% represents project work. For Customer A, 90% of the work performed by the Company in 2004 was domestic, and 10% was performed in London.
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Company Profile Whitestone provides services to a diverse mix of groups and departments at Customer A, including: o Real Estate Securitization group ($1.0 million of revenue in 2004): Whitestones first project at Customer A in 2002 was with the securitization group. Whitestone is well positioned with this group given the following: (1) the Company has several consultants onpremise to assist this group, (2) Whitestone has performed its services at a high quality level as evidenced by the numerous referrals and repeat project work that Whitestone has received, and (3) there is little direct competition for this type of specialized/high level work. o Healthcare Financing group ($1.2 million revenue i n 2004): Whitestone set up a small team of consul tants to provide due diligence services for a $1 billion loan to an operator of skilled nursing facilities. The team also assisted in the simultaneous sale of the loan by working in conjunction with the securitization team. Healthcare financing is a new and growing area at Customer A, and Whitestone is well positioned to receive additional work with this team in 2005. Whitestone was referred to this opportunity by a key executive in one of Customer As real estate origination groups. o Three different Real Estate Origination groups - ($722,000 in revenue in 2004): Whitestone has strong relationships with several key originators (Managing Director/Director/VP-level) in the large loan and small balance origination groups, and has performed some limited work for the conduit g roup. Typically, Whitestones consultants perform lease abstracting, financial modeling and cash flow analysis, third-party report gathering and analysis, and other services for the origination groups. o Capital Markets - Trading Floor operation ($87,000 in 2004): Whitestone prepares one-page summaries for loan traders on securitized real estate loans that are handled on the trading floor. These one-pagers provide a quick reference for traders when investors ask about the loans in the pool. Given the increasing volume of CMBS work passing through Customer As trading floor, the Company expects to be much more active with this department in 2005. o Whitestone has also provided other services, such as an IT reengineering project for a Real Estate lending group, file management for the securitization groups and administration for a specialized lending facility with a related lender.
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Company Profile Whitestone has an excellent relationship with Customer Bs Large Loan Origination group. Customer B is a leading CMBS book runner in North America and Europe and one of the largest, most successful financial services firms in the world. Whitestone generated $1.2 million in revenue with this client in 2004, representing 13% of total 2004 revenue and 39% growth over the revenue generated in 2003. On a YTD basis through July 31, 2005, Whitestone has generated $1.1 million in revenue (or 17% of total YT D revenue), continuing its strong relationship with this client. Whitestone unseated an incumbent service provider in 2002 (one of the big four accounting firms). Whitestone consultants typically function as a filter for the real estate bankers at Customer B, with six on-premise consultants reviewing numerous broker loan requests, quickly sizing the loans and analyzing whether the individual loans should be included in the pool. This servi ce is particularly useful to Customer B given the high number of loan requests received relative to the number of loans actually funded. Whitestone has also provided some conduit and securitization due diligence services to Customer B. The Principals believe Whitestone can greatly broaden this relationship as Customer B expands its real estate banking efforts to participate in the strong growth in the European and Asian CMBS markets. Customer C is one of the most active investors in B-piece/first-loss tranches in large CMBS transactions and one of the largest financial services institutions in the world. Whitestone generated $1.1 million in revenue with this client in 2004, representing 13% of total 2004 revenue and over 365% growth vs. 2003 revenue from this client. The vast majority of work performed for Customer C is provided on an outsourced basis and is project-oriented, with projects typically running for three to four weeks. Whitestone not only performs individual site inspections and due diligence services for individual loans and loan pools, but also presents a summary findings roll-up report to Customer Cs senior managers. Based on this report, Customer C decides which loans it wants to have removed from the loan pool and/or which loans need to have a price adjustment. Whitestone is well positioned with this client, and expects business to grow with this client in line with the overall growth in the CMBS market. New Business Opportunities Healthcare: In 2004, Whitestone leveraged its long-standing CMBS relationship with Customer A by garnering an internal recommendation to provide due diligence services in a healthcare real estate transaction, representing the Companys first non-CMBS related assignment and its single largest discrete project to date (revenue of $1.2 million in 2004). Whitestone has positioned itself to be the outsourced due diligence service provider for this clients future healthcare financings and, potentially, replicate this success in healthcare at other investment banking clients.
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Company Profile Europe: The Principals are encouraged by the prospects of burgeoning growth in European CMBS. A number of the Companys existing clients are establishing or expanding real estate lending efforts in major European cities (London, Frankfurt, Paris) and have inquired whether Whitestone can assist them in penetrating the European CMBS market. Whitestone is well positioned given its existing presence in London and its strong reputation within the U.S. operations of these ma jor investment banking institutions. New clients, projects, and initiatives: In addition to new healthcare and European CMBS opportunities, the Principals have identified and are actively managing the following new opportunities: o A number of the Companys existing clients and several targeted clients have expanded their CMBS operations in Los Angeles, California. For example, Customer A has grown its real estate lending presence in its Los Angeles offices from three to 12 professionals. A manager from Customer As New York City offices has been transferred to Los Angeles and has advocated using Whitestone services to facilitate the growing transaction flow in the office. Whitestone is in active discussions with this office for additional business for the Company. In addition, a potential new client (one of the fastest growing real estate financial services firms in the country) has significantly expanded its Los Angeles presence. A key executive has indicated to Whitestone that the company has a strong need for assistance in origination and securitization. To better serve the large and growing West Coast market, Drew relocated to California and opened an office in Irvine, California in September, 2005. The Irvine office helps provide Whitestone with access to new sources of labor, and creates additional flexibility for client interaction through its location in a different time zone and shortened travel time for certain site inspections. The location also provides more efficient access to potential opportunities in the Asian market. o In early 2005, Whitestone completed an outsourced due diligence project for an existing clients securitization project in Canada, representing the Companys first CMBS transaction in Canada. The Principals feel that Canada could be a growth area for the Company. o Whitestone has learned that at least two of the leading insurance companies that participate in the CMBS industry use third party due diligence service providers to support their growing CMBS activity. Insurance companies represent a new client category for the Company.
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Company Profile _________________ Competition
Whitestone competes primarily on the basis of the breadth and quality of its consulting services, price, responsiveness and the flexibility of its service model. In general, Whitestone competes against the following types of competitors: Major consulting/accounting firms (examples: PwC and E&Y) These firms tend to lack consistency in their service offering due to staffing projects with personnel who lack a formal CMBS background or experience. In addition, these firms have higher average billing rates across all levels of experience and are generally unwilling to perform work for smaller projects, oft en presenting an opportunity f or Whitestone to establish a client relationship. These firms also face potential conflict-of-interest issues in certain situations where they may provide traditional auditing services on a transactional or corporate level. Nonetheless, these firms are well-established brand-name firms, and can issue comfort letters if required by the client. Other boutique firms (examples: Associates, and RainWine) The Situs Companies, Rosin &
These firms tend to be either (1) located outside of New York City to take advantage of less expensive rents and sources of labor, or (2) smaller boutiques with a limited scope of service. They tend to be older firms that have regional relationships with investment banking firms that date back to the early 1990s when the CMBS market was still in the early stages of formation. In todays environment, they succeed mostly in higher-volume, lower-margin services such as outsourced conduit due diligence/processing work, reflecting their lower billing rates due to their low overhead structure and lower value-add services. To date, these firms have had limited success penetrating the more sophisticated real estate groups at investment banks, and have a limited presence in the securitization process due to their narrow areas of expertise/focus. In-house investment banking staff Despite the economic benefits and flexibility of Whitestones services, some investment banking firms choose to utilize only in-house resources for CMBS work. Some of Whitestones clients only allow third parties to perform certain origination/underwriting functions, with the balance not available to outside parties. Nonetheless, with the continuing pressure on managing headcount costs at investment banks, combined with rising CMBS market activity, the Principals have seen increased demand for Whitestones services as general awareness of the Companys services increases.
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Company Profile Independent consultants/sole practitioners These sole practitioners service a limited number of clients through a narrow service offering and, generally, only one client at a time. They tend to charge less than Whitestone, but may be less able to meet quality benchmarks or to provide multiple services. These smaller firms typically do not offer the security of using a fully-insured firm, with a large and diverse support staff and strong reputation within the CMBS industry. In addition, sole practitioners face challenges for personality fit and technical skill set offerings that often lead to short-term/truncated engagements and client relationships.
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Company Profile _________________ Service Model and Key Metrics
Team structures: For most engagements, Whitestone provides a single, senior point of contact within its dedicated team to facilitate client communication and enable efficient coordination of resources to meet clients specific needs. The team structure also helps ensure that Whitestone can take advantage of opportunities to expand a relationship within a client. Contracts: Typically, contracts between the Company and its clients are cancelable by the clients at any point in time. To date, no client has cancelled an existing contract with Whitestone. For on-premise work, the assignments generally last from as little as one-to-two months, up to several years. Contract terms for project-related work range from a few weeks to several months. The Company bills its clients weekly or by project in the U.S., and monthly in Europe.
Whitestone tracks key financial metrics, including: Headcount Whitestones growth in FTEs (including t he Principals and 1099 contractors) is shown in Table 8. Table 8 Period End FTEs
FTEs Beginning of Year Net Additions End of Period 2002 24 24 2003 24 4 28 2004 28 23 51 7/05 51 17 68
Turnover Whitestone has experienced minimal turnover at the senior level. The low turnover rate is attributable to a well-trained and well-managed workforce of FTEs, and is a major contributing factor to the Companys strong profit margins. The Principals also attribute the low turnover to selective mining of the 1099 contractors and the interesting mix of onpremise and project assignments.
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Company Profile Average billing data Per-diem billing rates for Whitestone consultants range from a low of $500 to a high of $1,500, not including overtime charges. The high-end of the range is reserved for experienced Project Managers; the low-end reflects project staff typically performing administrative functions (filing, modeling). The average per diem billing rate (including overtime billing premiums) for the Company was $864 in 2004 and $736 in 2003, representing a 17.5% year-over-year increase.
Utilization rates Given the Companys explosive growth since its inception, management considers its base of FTEs fully-utilized. In fact, utilization rates can often exceed 100% due to frequent demand for overtime by a number of the Companys clients.
Receivables collection Table 9 shows the Companys accounts receivable aging summary as of December 31, 2004. Table 9 Accounts Receivable Aging Summary
$203,310 13% Under 31 Days 47% 40% $642,804 $744,513 31-60 Days Over 60 Days
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Company Profile _________________ Facilities
Whitestone leases approximately 5,000 square feet at its primary office location in New York City. The current lease expires in 2008. In London, the Company maintains space in a professionally run, serviced office facility. The month-to-month lease, combined with ample available capacity to increase the number of offices rented, provides the Company with maximum flexibility during the Companys increase in business activity in Europe. The Company intends to consider a longer-term lease as business levels in Europe expand significantly. The Wall Street and City of London locations represent a competitive advantage for the Company given that most of the industrys major domestic and European CMBS departments are headquartered in New York City and London. In September 2005, the Company established a new 1,100 square foot office in Irvine, California under a three year lease arrangement. The office was established in order to take advantage of emerging new business opportunities on the West Coast and to provide additional support to the Companys New York City operations.
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Company Profile _________________ Employees
Whitestone had 60 full-time employees and eight 1099 contractors as of July 31, 2005. Whitestones senior management and project managers have an average experience of seven years in real estate financial services. A breakdown by functional area is shown in Table 10. Table 10 FTEs by Function
US Principals & COO HR, Administration & Accounting VP Level Project Managers Senior Associates Associates Total FTEs 3 3 6 5 5 37 53 UK 15 15 Total 3 3 6 5 5 52 68
The Company is not subject to any collective bargaining agreements. The Principals believe Whitestones salaries and benefits are competitive for the industry and surrounding geographical markets. Whitestones excellent working partnership with its employees is one of the primary reasons for the Companys success. As a result of this partnership, the Principals believe Whitestone has a unique culture where quality and customer service drive all facets of the business. The high level of employee dedication has allowed Whitestone to achieve deep relationships with its clients and a reputation for high quality consulting services. Whitestone offers its full-time employees a benefit plan that includes comprehensive major medical care and a dental plan. The Company covers 70% of the membership cost to employees selecting single coverage, and 60% of the cost for employees selecting couples or family coverage. Whitestone maintains a Section 125 Premium Only Plan, which enables employees to pay their share of medical and dental insurance with pre-tax dollars. Whitestone also maintains a 401 (k) plan with open enrollments on January and July of each year, matching $.50 per $1.00 deferred (up to 6% of compensation). Employees are vested 0%, 25%, 50%, 75% and 100% in employers matching contributions after 0, 1, 2, 3 and 4 years of service, respectively.
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Company Profile The Company provides seven paid annual holidays for each employee. Paid Time Off (PTO) benefits are based on years of service and include: Years of Service Up to 3 years 3 to 6 years 6 or more years Days of Vacation 15 days 20 days 25 days
PTO days are accrued based on date of hire. For each month worked, employees accrue 1/12 of their annual PTO days. If employee does not use all of their PTO days before their anniversary date, they lose any accrued but unused days (unless given prior approval from Principals or Human Resources).
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Company Profile _________________ Management
A young, energetic and entrepreneurial management team leads Whitestone. Table 11 shows Whitestones key managers, whose bios are included below. Table 11 Key Managers
Benek Oster & Andrew Rudenstein Principals Brad Messinger Chief Operating Officer Kristen Emond Office Assistant R. Della Vecchia Bookkeeper
Ken Miller Vice President
Terrence Haas Assistant Vice President
Ben Foster, 30 Founder and Principal Over the past ten years, Ben has gathered extensive real e state experience and knowledge through engagements in a wide variety of real estate developments, investments and brokerage deals throughout the Tri-State area. With the founding of Whitestone in 2002, Ben decided to leverage the expertise he gathered in real estate debt, equity and brokerage transactions to capitalize on the growing outsourcing trends in the industry. At Whitestone, Ben and Drew share responsibility for the day-to-day operations of the Company, as well as strategic planning. In order to exploit the current positive business climate in the CMBS industry, Ben is focusing heavily on building client relationships. In coordination with Drew, Ben is responsible for representing Whitestone at all major CMBS functions to showcase the Companys broad and unique service offerings. Before founding Whitestone, Ben was Vice President at MR Consulting, a consulting company focused on Lehman Brothers conduit lending activities in New York. Previously, Ben was personally investing in and managing residential and commercial properties in Central New Jersey. Ben resides in Upper Montclair, New Jersey, with his wife and daughter. Ben received a Masters of Science degree in Real Estate Development at NYU and a BS degree from Rutgers University.
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Company Profile Drew Quigley, 30 Principal Drew co-founded Whitestone in 2002. His primary roles/responsibilities include pitching new business, managing key client relationships, training new employees and 1099 contractors, and overseeing the consistency and quality of the Companys service offerings. Drew has a rating agency background, having worked at Fitch Ratings for two and a half years. His accomplishments at Fitch include rating over $10 billio n of new CMBS issuance and reconfiguring Fitchs performing commercial mortgage rating model. Drew was then recruited to liquidate a multi-billion-dollar loan portfolio for Capital America (an affiliate of Nomura Securities) where he worked on a variety of securitizations and whole loan sales. Most recently, Drew consulted for Credit Suisse First Bostons Real Estate Finance and Securitization group, where he assisted in a number of securitization transactions. Drew resides in Newport Beach, California, with his wife and son. Drew holds a BS degree from Cornell University and attended the London School of Economics, and has been published in Frank Fabozzis Handbook of Commercial Mortgage Backed Securities. Brad Messinger, 24 Chief Operating Officer Brad has been with Whitestone since 2003. Brad works closely with the Principals in directing and managing day-to-day operations. Brad leads all HR functions, including the sourcing, recruiting, interviewing and negotiating for all of the Companys hiring (full-time employees and 1099 contractors). Additional responsibilities include: (1) acting as a liaison between management and clients, accounting, IT, staff and other key vendors; (2) creating and managing the performance appraisal system, including handling all performance/compensation reviews for employees and contractors; (3) negotiating, drafting and executing the consulting services contracts between Whitestone and key executives at the Companys investment banking clients; and (4) assisting in establishing and managing the Companys London offices. Brad also designed the Companys employee handbook, including all personnel policies and procedures. Brad has held HR positions with consulting firms and other corporations. At Proudfoot Resources (a First Advantage Corporation company), Brad was hired to add efficiency to their background screening services. More recently, Brad worked for Loews Cineplex Entertainment, where he performed an internal audit of the companys Tuition Assistance Program to uncover inefficiencies and increase the benefit offered by the program. Brad has a Masters of Arts deg ree in Industrial Organizational Psychology from New York University.
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Company Profile Kenneth A. Miller III, 29 Vice President Ken joined Whitestone in May 2002. His primary responsibility is working as a lead underwriter at client sites. Prior to joi ning Whitestone, Ken worked in an asset management group at Cushman & Wakefield, Inc. Ken represented property owners in the dail y operations of over six million square feet of commercial office and retail space nationwide. His responsibilities included managing the leasing process, maintaining building operations, valuing properties, and conducting annual budget processes, and interacting with brokers, lenders, and owners on a daily basis. Ken received a Masters of Science degree in Real Estate Development from New York University. Terrence M. Haas, 36 Assistant Vice President Terry joined Whitestone in January 2004. His responsibilities at Whitestone have included: (1) managing in-house re-underwritings for B-piece clients, (2) leading the deal team that executed the large healthcare transaction for the Companys largest client, and (3) performing due diligence site reviews. Terry has been involved in the financial services industry for the past 11 years. Before joining the Company, Terry worked in the A cquisitions Group of Sterling American Property. Prior to Sterling, Terry worked with McDonald Investments as a Vice President and Prudential Securities as a Senior Associate in their Real Estate Investment Banking Groups. During his tenure in investment banking, Terry sourced, structured, and placed over $400 million of Credit Tenant Lease financings in the private placement market. Terry also worked on several private and public equity transactions for multiple real estate companies. Terry received his BS degree in Business Administration from The University of Akron.
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Historical and Projected Financial Performance _________________ Operating Summary
The following tables summarize the historical and projected operating results for the Company. Historical results are based upon management prepared financials. The projections for fiscal 2005, also prepared by management, contain forward-looking statements, which are subject to certain risks, uncertainties, and other factors, which could cause actual results to differ materially from those anticipated.
(FYE 12/31, $ millions)
Revenue
% Growth
Combined Actual 2002 2003 2004 $1.2 $3.9 $9.0

n/a 211% 131%
(1)
LTM 7/05 $11.4

n/a
Proj. 2005 $13.0

45%
Gross Profit
% Margin
0.7
55%
1.4
36%
4.7
53%
5.8
51%
6.0
46%
EBITDA
(2)(3)
0.5 0.3 0.2

19%
(5) (4)
0.8 0.3 0.5

14%
4.0 0.3 3.7

41%
4.8 0.3 4.5

39%
5.0 0.3 4.7

36% n/a
Principal Salaries Adjusted EBITDA

% Margin
Net Operating Assets
0.4
0.4
1.5
(1)
2.7
Revenue
% Growth
BHF LLC Actual 2002 2003 2004 $1.2 $3.7 $7.9

n/a 195% 114%
LTM 7/05 $9.1

n/a
Proj. 2005 $9.5

20%
Gross Profit
% Margin
0.7
55%
1.5
40%
4.2
54%
4.9
54%
4.8
51%
EBITDA Principal Salaries Adjusted EBITDA (4)

% Margin
(2)(3)
0.5 0.3 0.2

19%
0.9 0.3 0.6

17%
3.5 0.3 3.2

41%
(1)
4.0 0.3 3.7

41%
4.0 0.3 3.7

39%
Revenue
% Growth
BHF Limited Actual LTM 2002 2003 2004 7/05 n/a $0.2 $1.1 $2.3
n/a 454% n/a
Proj. 2005 $3.5

226%
Gross Profit
% Margin
(0.1)
-36%
0.5
48%
0.9
39%
1.2
34%
EBITDA Principal Salaries

1
(2)(3)
(0.1) 0.0 (0.1)

-56%
0.5 0.0 0.5

45%
0.8 0.0 0.8

33%
1.0 0.0 1.0

29%
Adjusted EBITDA (4)

% Margin
(1) Includes combined results of Whitestone Financial, LLC and Whitestone Financial Limited FY 2002 reflects 11 months of WSF LLC operations; FY 2003 includes 8 months of WSF Ltd. results WSF Ltd. figures converted from GBP to US$ at average annual exchange rate (2) EBITDA = Earnings before Interest, Taxes, Depreciation and Amortization (3) Excludes intercompany management fee charges and non-recurring deal-related expenses (4) Adjusted for assumed salaries for Principals, who have received distributions in lieu of salary (5) Current assets (excluding cash) plus net fixed assets, less total liabilities (excluding debt)
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Historical and Projected Financial Performance _________________ Balance Sheet Summary
The following table summarizes the Companys 7/31/05 balance sheet based on management prepared financials.
($ 000s)
Assets
(1)
Combined $ 2,641 397 3,038 52 $

(1)
BHF LLC $ 1,723 397 2,120 52 $ 31 2,203
BHF Limited $ 918 918 $ 30 948
Current assets: Accounts receivable Prepaid exp. & other current Total current assets Net property, plant & equipment Other assets Total assets Liabilities & Net Investment Current liabilities: Accounts payable Accrued expenses Total current liabilities Other liabilities Total liabilities Net investment (2) Total liab. & Net investment
61 3,151
70 312 382 10 392 2,759
56 271 327 10 337 1,866
15 40 55 55 893
3,151
2,203
948
(1) Inter-company advances, receivables and payables have been eliminated for purposes of presentation Whitestone Financial Limited figures converted from GBP to US$ at period-end exchange rate (2) Net investment reflects total equity plus funded indebtedness net of cash balances
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Historical and Projected Financial Performance _________________ Managements LTM July 31, 2005 Discussion and As of July 31, 2005, the Company has generated $11.4 million in LTM Analysis: revenue and $4.5 million in LTM adjusted EBITDA, representing a 39% Historical Results EBITDA margin. The strong LTM figures through July 31, 2005 support the Companys $13 million revenue and $4.7 million adjusted EBITDA forecast for 2005, and reflect the strong demand for Whitestones services in North America and Europe.
Fiscal 2004 vs. 2003 Whitestone grew revenue from $3.9 million in 2003 to $9.0 million in 2004, representing growth of approximately 130%. The growth was fueled primarily by strong demand from existing and new clients, coupled with the rapidly expanding North American and European CMBS markets. Key elements of the Companys strong growth in 2004 included: (1) $2.6 million increase in revenue with its largest client from $1.5 million in 2003 to $4.1 million in 2004, representing a combination of additional on-premise consultants, new projects with new departments and incremental services with existing departments; (2) $0.9 million increase in revenue with the Companys third largest client, reflecting this clients growing role and activity in the Bpiece/first-loss tranche market for CMBS transactions; (3) $0.9 million increase in revenue from Whitestone Financial Limited, representing an expansion of relationships with existing clients in a new geographical region for the Company; (4) $0.4 million in incremental revenue from three new clients signed up in 2004. The Companys gross profit margin improved to 53% in 2004, reflecting the following: (1) Greater usage of lower-cost associates in client engagements, both on-going and project-related work; (2) The steep learning curve associated with due diligence services for B-piece investors; (3) Higher pricing on certain larger projects completed in 2004; and (4) The positive impact of having a better trained, and more consistent base of FTEs, which is partially attributable to the Companys low turnover experienced in 2004. To meet increased demand, headcount jumped from 28 as of 1/1/04 to 51 as of 1/1/05. The Company also increased pricing, with average daily billing rates increasing over 17% from $736 in 2003 to $864 in 2004.
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Historical and Projected Financial Performance The Company generated $3.7 million in adjusted EBITDA in 2004, up from $0.5 million in 2003. The adjusted EBITDA margin of 41% reflects the Companys higher average daily billing rates and strong control of overhead expenses. It should be noted that the Principals have historically not taken any salary, but have received distributions from the Company for tax liabilities and other needs. Combined 2004 capital expenditures were $34,000, generally consistent with past and projected expenditures. Combined 2004 depreciation was $15,000. Fiscal 2003 vs. 2002 Whitestone grew revenue from $1.2 million in 2002 to $3.9 million in 2003, representing growth of approximately 211%. Key elements of the Companys strong growth in 2003 included: (1) $1.1 million increase in revenue with its largest client from $0.4 million in 2002 to $1.5 million in 2003, representing a combination of additional on-premise consultants, new projects with new departments and incremental services with existing departments; (2) $0.8 million increase in revenue with three of the Companys existing clients, reflecting the significant expansion in projects and services across these clients real estate lending departments; (3) $0.5 million in incremental revenue from three new clients signed up in 2003. To meet increased demand in 2003, headcount jumped from 16 as of 1/1/03 to 22 as of 1/1/04. The Companys gross margin suffered in 2003 (versus 2002 and 2004) as the increase in headcount to execute the higher business levels was heavily weighted to more experienced/costly project managers and 1099 contractors. The Company generated $0.5 million in adjusted EBITDA in 2003, up from $0.2 million in 2003. The adjusted EBITDA margin of approximately 14% reflects a combination of the lower gross margins and the Companys initial $109,000 investment in its new UK operations.
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Historical and Projected Financial Performance _________________ Managements Discussion and Analysis: Projected Results
Projected Fiscal 2005 vs. 2004 The projected results for fiscal 2005 reflect those results which management believes can be attained if the Company were to remain as an independent entity and do not incorporate any benefits (synergies, investments in new markets, people, technology, etc.) associated with a potential investor or acquirer. While management considers these projections to be reasonable, based on current information a nd assumptions, these results may not be realized and can be subject to significant economic, business and competitive uncertainties. There is no assurance that these projections will actually be met and actual results could vary materially from the projections contained herein. Neither the Company nor its agents and advisors make any representation that the projections will be attained. On a combined basis, revenues are projected to increase $4.0 million in 2005 to $13.0 million, representing a 45% increase over leve ls experienced in fiscal 2004. As outlined in the Companys corporate strategy, increased US revenue ($1.6 million, 20% increase) will be driven by a combination of expansion of business with current clients coupled with a drive into new investment banking and B-piece clients. Revenue gains in the UK ($2.4 million, 226% increase) are based on expanding the Companys service offerings to the UK offices of current US investment banking clients. The $11.4 million in LTM revenue as of July 31, 2004 supports the Companys $13 million revenue forecast for 2005. The Company projects that overall gross profit margins will be lower in 2005, at approximately 46%, representing a broadened mix of business. No daily average billing rate increases are included in the projections. To further support the rapid growth of revenues in the US and UK, the Company will continue to make infrastructure investments, principally people. In 2005, the Company will add 3 administrative positions in the US (controller, HR assistant, administrative assistant) and the UK (country manager) at an estimated all-in cost of approximately $210,000 (reflecting pro rated salary plus benefits). Notwithstanding these additional investments, combined operating expenses (including the allocation for the Principals salaries) as a percent of revenue will decrease to 9.9% from 11.9% in 2004. With the projected increase in revenues in the UK, and the need for a more substantial office presence, operating expenses will increase to 9.0% in 2005 from 3.1% in 2004. Adjusted EBITDA for the combined company is projected to be $4.7 million, representing an adjusted EBITDA margin of 36%. The se figures are conservative given the Companys LTM performance through July 31, 2005, which reflect an LTM adjusted EBITDA of $4.5 million and a 39% margin. Adjusted EBITDA is up $1.0 million from the prior year, reflecting higher revenue levels and lower margins.
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Appendix A: CMBS Industry Overview

_________________ CMBS Industry Overview Characteristics of CMBS Deal size The rapid growth of the CMBS market has been accompanied by the emergence of larger deals, with the average size of a loan pool increasing from $141 million in 1993 to over $700 million in 2004. Larger deals allow issuers to lower costs by spreading certain fixed costs over a greater volume of issuance. In addition, the greater liquidity of the bigger issues attracts investors who can hold larger positions in a security without adversely affecting trading.
Property Types and Geography As deals have increased in size, they have also become more diversified, enabling expanded subordination levels and attracting a broader class of investors. In 2004, more than 75% of deals contained more than one property type vs. 45% in 1994. In 2004, properties backing new issues of CMBS were split as shown in Table A-1 below. Table A-1 Global CMBS Issuance by Property Type
($ millions) Property Type 2004 Loan % Volume Total 2003 Loan % Volume Total $31,520 33,568 15,157 6,295 5,946 3,338 1,488 932 408 $98,651 32.0% 34.0% 15.4% 6.4% 6.0% 3.4% 1.5% 0.9% 0.4% 100.0%
03-'04 % Chg. 41.7% 14.7% 2.3% 52.8% 48.9% 43.9% 121.4% -1.6% 255.4% 29.3%
Office $44,663 35.0% Retail 38,488 30.2% Multifamily 15,501 12.1% Warehouse/Industrial 9,616 7.5% Hotel 8,853 6.9% Other 4,802 3.8% Mobile-home Park 3,294 2.6% Nursing/Retirement 917 0.7% Unidentified 1,451 1.1% Total $127,584 100.0%
Source: CMA
A- 1
CONFIDENTIAL

Most deals are geographically diversified. In 2004, more than 90% of the dollar volume of securitizations was backed by properties located in more than one state. Many of the properties are located in California, New York, Texas and Florida.
Ratings The most common method of dealing with credit risk is to create multiclass securities with senior and subordinated components. This structure is also known as a waterfall structure. The junior securities have a right to principal payments only after the senior securities are paid in full. Because junior securities absorb the first losses of the pool, up to their principal amount, they provide credit protection to the senior bond classes. In exchange for this increased default risk, junior securities have higher yields than senior securities. The largest share of securities are senior, and these usually receive a triple-A or double-A rating. Junior securities receive lower ratings. Most commercial mortgages are written to include strict prepayment penalties, substantially shielding CMBS investors from prepayment risk. Pricing Rates on commercial mortgages have trended down appreciably, with spreads relative to Treasury securities also dropping. The narrower spread on mortgages reflects a decrease in the perceived risk in real estate lending due in part to the strength of the real estate market. Issuers of securitized debt also reduced their cost of funds as the yield premium on CMBS relative to comparable Treasury securities declined. This decline reflects not only the improved real estate market but also increased acceptance of CMBS as investors became more familiar with the instruments. Spreads in life companies' loans remain at about 100 basis points over U.S. Treasury securities as compared with 150 to 200 basis points for conduit loans and 200 to 250 basis points for bank loans. Market Participants Originators Key contributors of loans to CMBS include commercial and investment banks, as shown in Table A-2.
A- 2
CONFIDENTIAL

Table A-2 Contributors of U.S. Loans to Conduits
Finance/ Mortgage Company 7% Insurance Company 4%
Investment Bank 29%
Bank/Thrift 60%
Source: CMA
While some insurance companies and banks have entered the conduit business, others have shrunk their whole loan origination units and securitized their commercial real estate debt portfolios.
Conduits Conduits are companies that facilitate the origination and securitization of mortgages. They typically rely on one or more correspondents, often banks, to originate the loans, and they provide the underwri ting standards for the loans and issue the securities. The top 10 global bookrunners (underwriters that lead investment solicitation prior to the closing of an offering) for 2004 are shown in Table A-3 below. Table A-3 Top 10 Global CMBS Bookrunners
($ millions) Firm 2004 % # of Issuance Total Deals 13.1% 10.7% 9.7% 9.6% 9.2% 9.0% 8.3% 6.2% 5.9% 4.7% 13.5% 100.0% 27 21 17 16 16 15 17 8 14 13 51 165 2003 % # of Issuance Total Deals $14,241 11,336 8,120 11,105 5,596 2,713 11,072 6,717 4,678 4,627 18,447 $98,651 14.4% 11.5% 8.2% 11.3% 5.7% 2.7% 11.2% 6.8% 4.7% 4.7% 18.7% 100.0% 30 18 16 17 7 12 23 8 9 12 58 169
1. Morgan Stanley $16,729 2. CSFB 13,631 3. JP Morgan Chase 12,416 4. Lehman Brothers 12,250 5. Banc of America 11,751 6. Citigroup 11,467 7. Deutsche Bank 10,598 8. Wachovia 7,936 9. Bear Stearns 7,551 10. Merrill Lynch 6,015 Others 17,241 Total $127,584
Note: Total number of deals eliminates duplicate transactions. Source: CMA
A- 3
CONFIDENTIAL

Buyers Efficient deal pricing and greater involvement of rating agencies has attracted a large and diverse market of CMBS investors. Life insurance companies, investment advisers and banks are the primary buyers of CMBS. Life insurance companie s participate in the commercial mortgage market through both direct loans and CMBS purchases. CMBS purchases by investment advisors are driven by the high yield they offer to individual investors, mutual funds and pension funds interested in current income. Other purchasers of CMBS include hedge funds, REITs specializing in commercial mortgage assets, Federal Home Loan Banks, Freddie Mac and Fannie Mae. Buyers of below-investment grade tranches (BB and lower) are known as B-piece buyers. Primary CMBS investors are shown by rating class in Table A-4. Table A-4 Primary CMBS Investors
AAA AA-BBB Below I.G. Insurance Companies Hedge Funds High-Yield Investors REITS
Insurance Companies Insurance Companies Money Managers CDO Buyers (BBB only) Commercial Banks Commercial Paper Conduits
Rating Agencies Moodys, S&P and Fitch provide the majority of ratings for CMBS, with smaller participation by Dominion. Ratings on the securities range from AAA to NR (not rated), with investment grade securities (BBB- and above) comprising approximately 85% of the market and the balance comprised of non-investment grade and NR securities.
Loan Servicers and Trustees Institutions acting as servicers for CMBS are typically the only party with direct borrower contact, and perform functions including: collecting monthly payments from borrowers, administering escrow accounts, collecting, analyzing and disseminating borrower-provided operating statements, conducting site inspections and reporting to CMBS trustees. Leading CMBS servicers include Key Bank, Midland Loan Services and GMAC Commercial Mortgage. CMBS trustees hold mortgage collateral documents, pass funds from servicers to bondholders, distribute statements on collateral status and supervise CMBS servicers, among other duties. LaSalle and Wells Fargo dominate the CMBS trustee business.
A- 4
CONFIDENTIAL
Appendix B: Whitestone Advertisement from Commercial Mortgage Alert
B-1

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WHITESTONE FINANCIAL LLC

Important Notices and Disclaimers

Important Notices and Disclaimers

Steven B. Schaepe Managing Director 617-267-0600 ext. 202 sbs@cpboston.com

Mark S. Denomme Managing Director (617) 267-0600 ext. 203 msd@cpboston.com

V. Historical and Projected Financial Performance ........... 31

Appendices A. B. CMBS Industry Overview Advertisement from Commercial Mortgage Alert

$0.6 $9.1 $12.1 $3.6 $0.9 $74.3 $56.6 $36.8 $46.9

$60 $40 $20 $0 1995 1996 1997 1998

$93.1 $67.1 $52.1 $77.8

(FYE 12/31, $ millions)

Proj. 2005 $13.0

0.5 0.3 0.2

0.8 0.3 0.5

4.0 0.3 3.7

5.0 0.3 4.7

Principal Salaries Adjusted EBITDA

_________________ Company Ownership

Table 2 $1.6 Trillion U.S. Commercial Mortgage Market

Life Ins. Cos. 12%

CMBS 18% Other 13%

Savings Institutions 8% Commercial Banks 42%

$0.6 $9.1 $12.1 $3.6 $0.9 $74.3 $56.6 $36.8 $46.9

$60 $40 $20 $0 1995 1996 1997 1998

$93.1 $67.1 $52.1 $77.8

$98.6 $93.1 $77.8

$60 $40 $20 $0 J F M A M 2003 US J J A S O N D

Company Profile _________________ Service Offerings

Company Profile _________________ Corporate Strategy

Company Profile _________________ Sales and Marketing

Company Profile _________________ Clients

Customer A Customer B Customer C Customer D Customer E

FY 2004 $4,092 1,193 1,144 999 625 $8,053

% Total Revenue 45.6% 13.3% 12.8% 11.1% 7.0% 89.8%

FY 2003 $1,465 856 246 404 486 $3,457

FY 2002 $352 668 0 38 8 $1,065

Company Profile _________________ Competition

Company Profile _________________ Service Model and Key Metrics

Company Profile _________________ Facilities

Company Profile _________________ Employees

Company Profile _________________ Management

Ken Miller Vice President

Terrence Haas Assistant Vice President

Historical and Projected Financial Performance _________________ Operating Summary

Combined Actual 2002 2003 2004 $1.2 $3.9 $9.0

LTM 7/05 $11.4

Proj. 2005 $13.0

0.5 0.3 0.2

0.8 0.3 0.5

4.0 0.3 3.7

4.8 0.3 4.5

5.0 0.3 4.7

Principal Salaries Adjusted EBITDA

Net Operating Assets

BHF LLC Actual 2002 2003 2004 $1.2 $3.7 $7.9

LTM 7/05 $9.1

Proj. 2005 $9.5

EBITDA Principal Salaries Adjusted EBITDA (4)

0.5 0.3 0.2

0.9 0.3 0.6

3.5 0.3 3.2