RCNE

Royalty Capital New England, LP is an investment fund
that uses a unique, royalty based methodology that
selects investments with an intrinsically lower risk profile,
while providing investors with the potential for early cash
returns, liquidity, and substantial profits.

The Fund will utilize a unique approach to venture capital
investing that was created and successfully developed by
Mr. Arthur L. Fox in 1992 and implemented in two highly
successful royalty based investment funds. Over the past
eleven years of operational experience, the Royalty
Capital methodology has been refined and validated.

The Fund will be managed by Royal Capital
Management, LLC. The principal officers are Arthur L.
Fox, Chairman, Edward T. Paslawski, President and
CEO, and Holly D. Fletcher, Executive Vice President.

Royalty Based Financing Explained

Royalty Based Financing is an exciting alternative to
traditional equity venture capital investing. It provides
superior risk-adjusted returns, has tremendous repayment
flexibility and features a built-in exit strategy.

How does it work?

Royalty Based Financing creates a favorable trade-off
between investors and business owners. Instead of giving
investors a traditional equity ownership stake, business
owners agree to return the original principal investment
plus a multiple of that investment, over a specified period of
time, based on regular periodic payments (royalties) equal
to an agreed upon percentage of the gross receipts of the
company. In some cases the royalty is based on a
percentage of sales of an individual product or set of
products.

Investors deploying Royalty Based Financing do not push
business owners to be acquired or to launch an IPO.
Rather, business owners are encouraged to maintain
ownership and to grow and develop successful, long-lasting
enterprises with solid, profitable revenue streams. For the
investor, this prosperity translates into quick and regular
royalty payments.

What are the benefits?

For the investor, Royalty Based Financing
ends the conflict over valuation and the need for a single
event “exit strategy” (IPO or sale);

Provides regular payment distributions to investors from
royalty receipts;

Earns superior risk adjusted rates of return;

Offers access to diversified and profitable deals with
industry leaders; and

Provides support & guidance throughout the life of the
investment with the Royalty Capital New England, LLC
(“RCNE”) Advisory Board.

For the business owner/entrepreneur, Royalty Based
Financing…

Minimizes ownership dilution, promoting management &
employee ownership;

Provides access to growth capital with flexible repayment
terms;

Ends conflict over valuation - eliminates disruptive exit
strategy;

Enhances effectiveness of management team through
industry contacts;

Reduces capital cost through interest deductibility by up to
40%;

Requires no personal guarantees;

Contributes to building more durable businesses and
communities.

Why is Royalty Based Financing increasingly
popular?

Royalty Based Financing has been a successful investment
model for decades in mining, intellectual property, movies,
music and other industries. Its flexibility makes it an ideal
vehicle for deploying mid-sized loans through an investment
fund. The need for such flexibility and access to growth
capital is apparent everywhere.

According to the Bank Administration Institute, more than
30,000 commercial loan applications are declined every
day in the United States. Those who do receive loans must
provide personal guarantees, and are usually subject to
other restrictive covenants in order to obtain credit
enhancements. Borrowers then must make fixed monthly
payments regardless of whether the company has revenue
to cover those payments.

Individual investors/angels typically don’t invest more than
$100,000 on a single investment and entrepreneurs seldom
receive more than $1 million via organized small angel
investor groups.

On the larger scale, fewer than one percent of businesses
looking for venture capital ever get it – and many venture
capital firms seek minimum investments of $5,000,000 or
more. Recent data from “Venture Economics” indicate that
the average new venture capital investment in the first
quarter of 2001 was over $14,000,000.

This “opportunity gap” – the difference between what
individual investors will finance and what venture capital
firms will consider – is the perfect niche for Royalty Based
Financing.

What sorts of companies fit the Royalty Based
Financing profile?

Royalty Based Financing can serve a wide range of
businesses previously ignored by more traditional funding
sources. The typical Royalty Based Financing investor is
looking for industry-leading businesses with an existing
annual revenue stream, or a revenue stream that will be
activated with a new capital infusion. These companies
should have substantial gross profit margins, sufficient to
pay royalties. Qualified companies will also demonstrate the
potential for rapid profitable growth through the addition of
new capital and ongoing management assistance.

Some of the ways in which these companies will use Royalty
Based Financing include:

Expansion from regional to national/international
marketing/sales strategy or new product roll out

Equity substitute for a management led leveraged buyout

Equity substitute for intra-family generation ownership
transfer

Buyouts of stranded venture capital equity investments with
conversion to Royalty Based Financing investment mode.

What are the mechanics?

Based on formulas unique to each situation, the investment
principal repayment and the agreed upon multiple will
commence via a stream of royalty payments derived from
gross sales. The process assumes that investors and
business owners agree on four fundamental items:

The principal amount of the investment and overall multiple
to be returned

The time frame for returning the original principal
investment (typically, 18 to 48 months)

The time frame for providing the remaining investment
return (typically 4 to 6 years) and

The maximum contractual time to provide the total
investment return (typically 8 to 13 years).

Royalty Based Financing can be structured either on a
secured or an unsecured basis, but is typically positioned
as long term-subordinated debt with warrants. Payments
exceeding original principal are deductible expenses for the
company, with the principal amount normally recorded as a
long-term liability on the company’s balance sheet.

Investments are typically disbursed through one or more
staged drawdowns. These staged disbursements may
correspond with specific business activities, revenue growth
milestones, working capital requirements, or other special
events or achievements.