10.19 The core business of TVL Corp. is undergoing a difficult period. TVL bonds have been downgraded to BB rating in order to reflect the higher probability of default the company 24The loan contract would specify that interest for a fraction of a year would be based upon compound interest. That is, the interest rate for a fraction f of a year would be computed according to the formula

(1 + annual interest rate)f – 1.

25See previous footnote.

NetTune.com - Income and cash flow projection, 2004-2006 ($ millions)

12/31/2003 3/31/2004 6/30/2004 9/30/2004 12/31/2004 3/31/2005 6/30/2005 9/30/2005 12/31/2005 3/31/2006 6/30/2006 Revenues $2.50 $7.00 $14.50 $8.50 $10.00 $18.30 $25.60 $34.40 $18.20 $26.20 Expenses 3.20 4.80 18.80 24.00 19.80 20.50 22.00 24.00 21.10 23.10 Operating income (0.70) 2.20 (4.30) (15.50) (9.80) (2.20) 3.60 10.40 (2.90) 3.10 Interest expense to be determined Interest earned @ 1.25% 0.04 0.02 Net income before taxes (0.66) 2.22 (4.30) (15.50) (9.80) (2.20) 3.60 10.40 (2.90) 3.10 Non-cash interest to be determined Depreciation 0.10 0.25 0.85 1.25 1.40 1.90 2.10 2.30 2.40 Other non-cash 0.04 0.05 0.05 0.10 0.20 0.20 0.20 0.20 Capex and NWC incr. (1.10) (3.50) (9.30) (11.30) (6.60) (5.10) (3.50) (2.40) (4.70) (6.00)

Net IPO proceeds to be determined Financial transactions to be determined Cash surplus (deficit) 3.0 (1.8) (1.2) (13.3) (25.9) (15.1) (5.8) 2.2 10.3 (5.1) (0.3)

Cash balance 3.0 1.2 0.1 (13.3) (39.2) (54.3) (60.1) (57.9) (47.6) (52.7) (53.0)

220 Problems 221 now faces. TVL is considering a very promising (high-NPV, low-risk) capital investment project that, if successful, would get it out of its current predicament. Financing the project would require issuing more high-yield debt at a substantial cost. TVL plans to attach a call provision to its bonds.