November 10, 2006

Brad GevurtzHead of Investment BankingD.A. Davidson & Co.Two Centerpointe Dr, Ste 400Lake Oswego, OR 97035503.603.3060bgevurtz@dadco.com

                                                                               

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The investment banking market has evolved into three distinct tiers

Large, multinational banks predominately based in New York City

Midsize, full-service broker dealers with a regional presence

Small, boutique firms with one or two offices

Large investment banks are acting like mini hedge funds, generating most of their profits on proprietary trading and competing with private equity funds for deals

The trend is to use the firm’s balance sheet to get deals, often tying loans or investments to advisory services

Midsize, full-service broker dealers have mostly disappeared due to: (a) past mergers; and (b) the difficulty in creating new full-service investment banks given the cost of research and the narrowing of commissions on trades

As a result, there is a lack of competition in the full-service middle tier of investment banking

But clients still need investment banks with sales and trading, institutional and retail distribution, and research

Small, boutique firms are proliferating

Most offer only one product (M&A) and a large percentage are unlicensed

General Investment Banking Trends

                                                                               

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The M&A market is booming National M&A activity in 2006 year-to-date has eclipsed $1.0 trillion, a 23.1% increase

over the same period in 2005

Strategic Buyers have large amounts of cash and are under pressure to use the funds Mature markets are consolidating Competitive and rapidly changing markets are forcing old line companies to acquire new

products or channels

Huge supply of private equity, senior financing, and mezzanine capital is driving up valuations Many funds are underinvested and are aggressively seeking new opportunities Hedge funds emerging as bona fide buyers or participants in deals Aggressive lending by senior banks driving higher valuations

Size has a significant impact on premium/discount

Process for quality companies is highly competitive

Great time to be a seller

Merger & Acquisition Trends

                                                                               

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M&A ActivityU.S. M&A Deal and Dollar Volume, 2000 – YTD September 30, 2006

Source: Thomson Financial

M&A volume on four-year upswing

YTD 2006 deal and dollar volumes on pace to exceed 2005 levels

Dollar VolumeDeal Volume

11,135

7,7027,041

7,740

8,5589,217

7,768

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Buyout EnvironmentU.S. Buyout and Mezzanine Funds Raised, 2000 – YTD June 30, 2006

Source: Buyouts Magazine

Funds continue to raise record amounts

Hedge funds emerging as full-fledged participants in private equity/buyout market

$54

$36

$10$21

$42

$174$165

$54

$36

$21

$42

$174

$82

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2000 2001 2002 2003 2004 2005 YTD6/30/06

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Bil

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(Est.)

                                                                               

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2003 2004 2005 YTD 9/30/06 Cash 55.6% 58.8% 65.7% 75.7% Stock 23.6% 19.2% 16.3% 10.9% Seller Note 1.2% 1.6% 0.4% 0.2% Combination 19.7% 20.3% 17.6% 13.2%

Transaction Consideration

Stock as consideration has declined dramatically since 2003

Changes in composition reflect seller preference for cash

Buyout market strength contributing to increased use of cash

Seller financing/earnouts declining as quality sellers have greater negotiating leverage

Consideration Composition, 2003 – YTD September 30, 2006

Source: Bloomberg

Cash

Stock

Combination

Seller Note

0%

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40%

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2003 2004 2005 YTD 9/30/06

                                                                               

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Regional M&A ActivityM&A Data by Selected Western State – 2001- 2006 YTD

Source: Bloomberg LP., announced transactions.

Regional M&A activity remains strong for the third consecutive year

(in millions) Value # Value # Value # Value #

California $98,675 1,112 $108,834 1,400 $164,115 1,553 $139,578 1,221Colorado 12,855 142 16,302 182 43,682 250 36,232 207Idaho 126 23 3,950 19 1,221 35 16,666 24Montana 476 13 64 12 558 19 862 19Oregon 1,502 56 1,219 53 10,444 61 1,012 61Utah 675 63 931 73 640 94 3,159 81Washington 6,359 100 54,579 130 23,511 191 12,778 152Wyoming 607 8 457 12 244 25 552 27

Regional $121,275 1,517 $186,336 1,881 $244,415 2,228 $210,840 1,792

9/30/20062003 2004 2005

                                                                               

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Public Equity Market Trends

Unrelenting pressure on commissions and spreads

Dis-aggregation of execution and research

Timely and proprietary research has become more important as more services are commoditized

New reality of public offerings: Splits are less equal Gross spreads are under pressure

Sarbanes Oxley has affected the decision to exit via an IPO Technology industry is seeing more activity in M&A

                                                                               

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Demand for IPOs has been volatile in 2006 with total IPOs priced down 12% year-over-year

IPO filings have been steady, backlog is increasing

SEC review and level of scrutiny have increased dramatically in the past 24 months, resulting in extended time-to-pricing

Public Offerings Environment

Source: Equidesk

2005 2006

Total IPOs Priced 181 159

Total IPOs Filed 275 248

IPO Backlog as of October 1st 129 152

Year-to-Date

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Dollar Volume # of deals

*Q4 2006 reflects one month of data

                                                                               

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IPOs – Why Times Have Changed

Increased costs of being a publicly traded company

Sarbanes-Oxley - initial cost between $2 - $3 million, ongoing cost of $1+ million

Increased difficulty getting research coverage

Cost of providing research has escalated

Narrowing of commissions on trades

Research analysts can not be paid by investment bankers

38% of the companies listed on NASDAQ don’t have research coverage

Increased scrutiny surrounding public companies and corporate governance

Corporate scandals such as options backdating and fraud have significantly increased the spotlight on corporate executives

Intense pressure on companies to meet or beat quarterly revenue and earnings estimates

Companies can no longer set up “cookie jar” accounts to smooth earnings

                                                                               

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Alternative Investment Market (AIM)

Since the founding of AIM in 1995, over 2,400 companies have listed on the exchange

Approximately 275 technology-related companies are traded on the AIM, of which 9 are U.S. based companies

Over 50% of companies on the exchange trade at market capitalizations between $10 and $95 million

Provides visibility and builds brand value

Provides capital to fund growth

Creates liquidity opportunities for existing shareholders

Provides stock-based currency for acquisitions

Facilitates access to capital markets for future use

Increases the company’s reserves in the

event the market or economy deteriorates

Benefits U.S. IPO

Must have Nominated Advisor

No minimum size of company

No minimum proportion of shares to be in public hands

No trading record required

No prior shareholder approval for the majority of transactions

No restrictions on the transferability of the company’s shares

No requirement to be incorporated in the United Kingdom

Admission Criteria AIM IPO

                                                                               

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Private Equity Trends – VC/Minority Interest Funds

Trend toward Mega Funds with rich management fees Necessitates larger investments and later stage focus Decision to back less risky companies with more well-defined exits

1999 – 2000 vintage funds need exits Necessitates later stage investing plus buyouts

Hedge funds and Angels stepping in to fund Series A and B rounds

Name brand funds have no problem raising more capital, others starve The rich get richer

Tech companies boot-strapping and selling out vs. taking VC money, due to cheaper startup costs and web services

                                                                               

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The Crash in Seed CapitalU.S. Seed Funding as a Percent of All Venture Funding

Source: Venture One, Ernst & Young

0.0%

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1980 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

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Buyout Funds Overabundance of capital and cheap debt causing deal frenzy Raising restructuring funds Making a major push into tech Teaming up on deals

Hedge Funds Getting more active in private equity and buyouts – moving away from stock market

arbitrage Returns are falling and/or becoming more correlated with overall markets

Result: trying to grow bigger to profit on management fees and locking up money over longer periods

Fraud and disasters are becoming more prevalent Regulators are long on talk, short on action

Private Equity Trends – Buyout and Hedge Funds

                                                                               

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Regional Private Equity ActivityPrivate Equity Data by Selected Western State

Source: PWC Moneytree Survey

California continues its lead in private equity investments Washington and Colorado also have high levels of activity

(in millions) Volume ($M) # of Deals Volume ($M) # of Deals Volume ($M) # of Deals Volume ($M) # of DealsCalifornia $2,779 332 $2,584 328 $3,030 334 $3,127 389Colorado 176 21 127 18 146 26 89 22Idaho 0 0 0 0 0 0 0 0Montana 23 1 5 1 0 0 0 0Oregon 38 7 26 6 26 5 50 9Utah 31 6 28 5 60 10 28 5Washington 186 28 279 35 269 31 326 44Wyoming 0 1 1 1 7 1 0 0

Regional $3,233 396 $3,050 394 $3,538 407 $3,620 469

Q2 2006Q1 2006Q4 2005Q3 2005Last Twelve Months

                                                                               

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How to Choose an Investment Banker

Full-service capabilities: Public offerings, merger and acquisition advisory, valuation and private placement capabilities

Allows the banker to offer non-biased, objective advice

Industry expertise

Allows the banker to offer higher value added service

Reputation, Integrity, and Longevity

Clients want an investment bank that has been in business for 10+ years, and will be around when needed in the future

Experienced professionals

Bankers must have significant investment banking experience and have witnessed Wall Street boom and bust cycles

Regional commitment

Facilitates long-term relationships and close interaction

Strong aftermarket support on public equity deals

Research coverage, sales and trading

                                                                               

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Conclusion

M&A market is hot

Private equity fundraising at record highs

Valuations are very strong

VC/private equity/hedge funds are extremely active

Increased difficulty and costs of becoming a publicly traded company

Choosing the right investment bank is critical to achieving a successful outcome

                                                                               

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D.A. Davidson & Co. - Full Service Investment Bank

Established in 1935; privately owned by officers and employees

One of the largest independent full service brokerage firms in the country

865+ employees

$20 billion in total client assets under management

52 offices in 16 states including Oregon, Washington, Colorado, Montana, and Utah

Full service sales, trading, research and investment banking

Market maker in 290 stocks

Provide research coverage on 180 companies