Project Hound

1
DRAFT
Project THEME
Summary Overview of Potential Acquisition
May 2007
CONFIDENTIAL
PRELIMINARY DRAFT FOR INTERNAL USE ONLY
2
Confidentiality Notice and Disclaimer
This Confidential Information Memorandum (this
Memorandum) and any supplementary materials
(the Memorandum) have been prepared by RABBIT
Electronics, Inc. ( referred to herein as
codename RABBIT). This Memorandum has been
prepared solely for purposes of evaluating
possible acquisition of Myer-Emco, Inc. (referred
to herein as codename FOX). This potential
acquisition is referred to herein as the
Transaction, and also under the codename
Project Theme). By accepting this Memorandum
you agree to keep confidential the information
included in this Memorandum (including any
analyses, compilations, studies or other
documents prepared by you or your Representatives
which contain or otherwise reflect such
information) not already in the public domain,
and to not share it with anyone other than your
affiliates, officers, directors, employees,
agents, and representatives (collectively
Representatives) without RABBITs prior
consent. In consideration of your being provided
with this Memorandum and being offered the
opportunity to evaluate the business of RABBIT,
you agree to comply with the terms of the
foregoing and you agree to be responsible for any
breach thereof by you or your Representatives. W
ithout the prior written consent of RABBIT,
neither you nor your Representatives will
disclose to any person the fact that this
Memorandum has been made available to you, that
discussions or negotiations are taking place
concerning a possible transaction with RABBIT, or
any of the terms, conditions or other facts with
respect to any such possible transaction,
including the status thereof. You will not use or
allow the use of this Memorandum for any purpose
except to evaluate the Transaction.
Specifically, at no time will you or your
Representatives use the information contained in
this Memorandum to the detriment of RABBIT.
You acknowledge that you are in possession of
material non-public information concerning
RABBIT, a U.S. publicly traded company, and that
you are aware (and that your Representatives who
are apprised of this matter have been or will be
advised by you) that the United States securities
laws restrict the purchase and sale of securities
by persons who possess certain nonpublic
information relating to the issuer of such
securities. You agree that for a period of one
year following the date hereof (the Standstill
Period), none of you, or your Representatives
(or any person acting on behalf of or in concert
with you or any of your Representatives) will,
directly or indirectly, without RABBITs prior
written consent, (a) acquire, agree to
acquire, propose, seek or offer to acquire, or
facilitate the acquisition or ownership of, any
voting securities or direct or indirect rights to
acquire any voting securities assets or
liabilities of the RABBIT
3
Confidentiality Notice and Disclaimer

• enter, agree to enter, propose, seek or offer to
  enter into or facilitate any merger, business
  combination, recapitalization, restructuring,
  investment in or other extraordinary transaction
  involving the RABBIT, FOX or any of their
  subsidiaries, or any of their current or
  prospective competitors
• make, or in any way participate or engage in, any
  solicitation of proxies to vote, or seek to
  advise or influence any person with respect to
  the voting of any voting securities of the
  RABBIT, FOX, or any of their current or
  prospective competitors
• form, join or in any way participate in a group
  (within the meaning of Section 13(d)(3) of the
  Securities Exchange Act of 1934, as amended) with
  respect to any voting securities of the RABBIT,
  FOX, or any of their current or prospective
  competitors
• otherwise act, alone or in concert with others to
  seek to control or influence the management or
  the policies of the RABBIT, FOX, or any of their
  current or prospective competitors
• disclose any intention, plan or arrangement
  prohibited by, or inconsistent with, the
  foregoing
• make, or in any way participate, directly or
  indirectly, in any solicitation of "proxies" to
  vote (as such terms are used in the rules under
  the Securities Exchange Act of 1934 (the
  "Exchange Act")), or seek to advise or influence
  any person or entity with respect to the voting
  of any voting securities of the RABBIT
• (h make any public announcement with respect to
  any transaction or proposed or contemplated
  transaction between the RABBIT or any of its
  security holders and you or any of your
  affiliates, including, without limitation, any
  tender or exchange offer, merger or other
  business combination or acquisition of a material
  portion of the assets of the RABBIT
• disclose any intention, plan or arrangement
  regarding any of the matters referred to in
  clauses (a), (b) or (c)
• solicit for employment any person who is an
  officer of the RABBIT or any of its subsidiaries
  or an employee of the RABBIT or one of its
  subsidiaries with whom you have had contact or
  who was specifically identified to you during the
  period of your investigation of the RABBIT or
• (k) advise, assist or encourage or enter into any
  discussions, negotiations, agreements or
  arrangements with any other persons in connection
  with the foregoing

4
Confidentiality Notice and Disclaimer
None of the information contained in this
Memorandum has been verified by RABBIT. No
representation or warranty, express or implied,
is or will be made by RABBIT, FOX or any of its
Representatives, and no responsibility is or will
be attributed to RABBIT or any of its
Representatives as to or in relation to the
accuracy or completeness of the information
contained in this Memorandum and any liability
therefore is hereby expressly disclaimed. In
particular, no representation or warranty is
given as to the reasonableness of or ability of
RABBIT or FOX to achieve any projections. Any
forecasts or projections included in the
Memorandum or otherwise provided are necessarily
based on assumptions of future circumstances, and
may not accurately reflect future performance.
This Memorandum does not constitute an offer to
participate in the sale or purchase of
securities. This Memorandum contains
proprietary and confidential information with
respect to RABBIT and FOX and is based upon
information provided by the management of each.
This Memorandum does not purport to describe
fully either RABBITs or FOXs business or
operations or the industry in which they operate.
Accordingly, you are expected to conduct your
own independent investigation and verification of
the information, opinions and beliefs contained
herein. It is therefore imperative for you to
carefully review due diligence materials supplied
by RABBIT, FOX or any of their representatives so
as to make an independent analysis of RABBITs
and FOXs current business and future business
prospects. In furnishing this Memorandum,
RABBIT undertakes no obligation to provide you
with access to additional information or to
update this Memorandum or any additional
information or to correct any inaccuracies
therein. You agree that RABBIT would be
irreparably injured by a breach of the foregoing
by you or your Representatives and that, in such
event, RABBIT and/or FOX shall be entitled, in
addition to any and all other remedies, to
injunctive relief and specific performance. RABBI
T reserves the right to negotiate with one or
more prospective participants at any time and to
enter into an agreement without prior notice to
you. Also, RABBIT reserves the right to
terminate, at any time, further participation by
any party without assigning any reason therefore.
You agree not to contact FOX, its directors,
management, or employees, without the express
written consent of RABBIT. By accepting this
Memorandum, you agree, upon request, to return
promptly all material provided by or on behalf of
RABBIT relating to RABBIT, FOX, or the
Transaction (including this Memorandum) and
destroy all internal notes and analyses you have
made relating to RABBIT, FOX, and the Transaction
without retaining any copies or computer files.
5
Table of Contents
6
I. Summary Overview
7
Introduction
This presentation summarizes the acquisition of
FOX by RABBIT. The combination of RABBIT and FOX
would create the 1 high-end consumer electronics
retailer and custom installer in the Northeast
corridor

• PRICE
• Acquisition of FOX for a total transaction value
  of approximately 11.1 million (or 3.1x FOXs
  2007 Pro Forma EBITDA including operating
  synergies)
• The consideration would consist of
• 10 million for Jon Meyers equity
• 800 thousand repayment of an off-Balance Sheet
  note to Ed Meyer (Jons father)
• 320,000 for acquisition of 50 of COOs equity
  (remainder to be paid in options at strike prices
  between 4.00 and 7.00)
• FINANCING
• We expect the financing to include some
  combination of
• 9.0 million of Senior Subordinated Debt
• 3.5 million of Convertible Preferred Stock
• Assumption of an estimated 2.4 million of
  borrowing under FOXs asset-backed line
• COMBINATION ANALYSIS
• This presentation summarizes our preliminary due
  diligence on
• Strategy and competitive position
• Financial performance
• Potential synergies

8
Transaction Structure Overview
9
Potential Benefits of Acquiring FOX

• RABBIT and FOX possess highly complimentary
  capabilities
• RABBIT is strong in custom installation, FOX is
  strong in retail
• Dramatically improves RABBITs profitability
• Integrating these companies would generate
  approximately 4.0 million of synergies
• The vast majority of these synergies would be
  realized within 9 months of closing the
  transaction and are primarily derived from
  cutting duplicative overhead
• We plan to right-size our retail footprint,
  generating an additional 2.1 million of
  annualized savings
• Significantly increases projected free cash flow
  for reinvesting in growth
• Provides 2007 projected free cash flow of 4.8
  million
• Adds consistently profitable, consistently
  growing chain that is a proven competitor to Best
  Buy / Magnolia and Tweeter
• FOXs stores would be among the most profitable,
  fastest growing in the chain
• Expands growth potential in current and adjacent
  markets
• Combined company would be the leading high-end
  retailer / installer of consumer electronics from
  Richmond, VA to Garden City, NY with expansion
  opportunities along the entire Northeast Corridor
  from Raleigh / Durham, NC to the Hamptons
• Contributes strong retail operations personnel in
  merchandising, sales, and management in
  particular
• Leverages RABBITs excellent financial management
  capabilities
• Allows for more robust, unified advertising and
  marketing effort
• Potential Tax Benefits
• Present value of the tax benefits of the
  transaction are estimated by our accountants, BDO
  Seidman, to exceed 2.0 million (which is not
  included in our analysis)
• Enhances RABBITs importance to key vendors
• Increases availability of new products as
  combined company would be included in suppliers
  own forecasting models.

10
Estimated Total Integration Synergies and Cost
Savings
11
Integration Timetable First Twelve Months
Post-Closing
1) Lower synergies than in prior quarter due to
seasonality.
12
Right-sizing the Retail Concept - Detail

• Implementing the plan initiatives will
• Reduce total retail square footage from
  approximately 45,000 sq. ft. to 25,000 sq. ft.
  and average store size from 5,000 sq. ft. to
  2,700 sq. ft.
• Lower average occupancy costs from 10 of revenue
  to 6

13
Investments in Growth
The combined companies are budgeting an
annualized investment of over 5.9 million in
FY2007 initiatives designed to fuel growth. We
forecast these initiatives to grow Revenues by
2.8 million (3.8) in fiscal 2007.
5,914,000
14
Estimated Pro Forma Liquidity (1)
( in thousands)
Estimated Excess Availability Under Asset-Backed
Line
15
Credit Ratios
16
II. Preliminary Valuation
17
Preliminary Valuation Illustration
An acquisition of FOX has the potential to be
highly accretive to Rabbits public market
valuation. Estimated number of shares calculated
using the Treasury-method of dilution.
19.20
Rabbit Fox Combined
18.52
_at_ Magnolia acquisition multiple
13.12
12.88
10.80
11.48
Estimated Share Price (1)
6.92
6.64
4.60
4.24
Rabbits Current Share Price (1.33)
(2)
(3)
2007E
2008E
2007E
2008E
See page 21 for footnotes.
18
Normalized Comparable Company Valuations

24.3x
Tweeters recovery quarters
19.6x
15.2x
15.1x
13.3x
13.3x
13.3x
EV/EBITDA Multiple
10.6x
10.0x
9.1x
10.2x
8.7x
8.7x
8.2x
8.5x
8.4x
6.8x
5.9x
4.5x
4.1x
(1a)
(1b)
(3)
(4)
(5)
(6)
(7)
(2)
(8)
Recent Trading Range of Comps
19
Comparable Public Companies
Share prices as of April 24, 2007
20
Comparable Transactions
21
Notes to Normalized Comparable Company
Valuations Page

• EV/EBITDA multiples were selected for periods of
  normal earnings for the respective companies.
• (1a) EV/EBITDA multiple computed for 6 quarters
  between FYE 9/30/2000 and the quarter ending
  3/31/2002.
• (1b) EV/EBITDA multiple for Q4 of FY 2005
  computed using average share price over the
  quarter. EV/EBITDA multiple for Q1 of FY 2006
  computed using February 2, 2006 closing share
  price.
• (2) EV/EBITDA multiple computed for 10 quarters
  between FYE 1/31/2000 and the quarter ending
  4/30/2003.
• (3) EV/EBITDA multiple computed for 5 quarters
  between the quarter beginning 11/1/2002 and FYE
  1/31/2004. In quarter beginning 2/1/2003, this
  multiple fell from 8.5x in the previous quarter
  to 4.5x, before rising to 9.0x in the next
  quarter. This quarter is not included in the
  computation of the average multiple for the
  period selected.
• EV/EBITDA multiple computed for 6 quarters
  between the quarter beginning 5/1/2003 and FYE
  1/31/2005. In the quarter beginning 11/1/2003,
  this multiple fell from 9.1x in the previous
  quarter to 4.1x, before rising to 7.9x in the
  following quarter. This quarter is not included
  in the computation of the average multiple for
  the period selected.
• EV/EBITDA multiple computed between FYE
  12/31/2000 and FYE 12/31/2004.
• EV/EBITDA multiple computed between FYE 1/31/2001
  and FYE 1/31/2005.
• EV/EBITDA multiple computed between FYE 1/31/2001
  and FYE 1/31/2005.
• Valuation as of 4/24/2007. Public comps include
  Tiffany, Radioshack, MarineMax, Zale, and
  Williams Sonoma
• High growth is the highest year-over-year growth
  rate achieved in the quarters for the respective
  companys selected period.
• Low growth is the lowest year-over-year growth
  rate achieved in the quarters for the respective
  companys selected period.
• Average annual growth rate is the average of the
  year-over-year growth rates for the quarters in
  the selected period.
• High and low EBITDA margin are the highest and
  lowest EBITDA margins, respectively, for the
  selected period described above.

22
Footnotes to Preliminary Valuation Chart on Page
16

• Estimated number of shares calculated using the
  Treasury-method of dilution. Actual options and
  warrants are likely exercised on a full physical
  settle basis. Assumes subordinated debt
  investors receive 15 in warrants with strike
  price of 2.80
• Valuation range of 6.0x to 10.0x EBITDA reflects
  the high and low multiples of the public comps
  selected. Public Comp Multiples are calculated on
  a LTM basis as of the close of market on April
  24, 2007. The comparable companies used are
  Tweeter, Radioshack, Tiffany Co., Williams
  Sonoma, Sharper Image, Zale Corp and MarineMax.
• Valuation range of 6.8x to 10.4x EBITDA reflects
  the high and low multiples of the transaction
  comps selected. Transaction Comps used are
  Brookstone (acquired by JW Childs and Temasek in
  2005) at 7.2x Sound Advice (acquired by Tweeter
  in 2001) at 10.1x Future Shop (acquired by Best
  Buy in 2001) at 6.8x and Neiman Marcus (acquired
  by TPG in 2005) at 10.4x.

23
III. FOX Standalone Summary
24
Summary Overview of FOX
Founded in 1955, FOX is the leading retailer and
custom installer of high-end home video and audio
systems in the Washington DC area
FOX Standalone
Revenue

• FOX has ten-stores with corporate offices in
  Gaithersburg, Maryland. This 25,000 sq-ft
  facility also houses the main warehouse, design
  centers, training rooms and acts as the
  distribution hub for FOXs stores and Custom
  Installation division.
• Stores are located primarily in the affluent DC
  and Virginia suburbs outside the Beltway as well
  as 3 stores within Washington D.C. in locations
  such as Georgetown.
• Similar to RABBIT, FOX focuses primarily on
  upper-mid priced and high-end audio and video
  products from leading manufacturers such as Sony,
  Pioneer, Sharp, Samsung, BW, Yamaha, and
  Definitive Technology. FOXs brand perception in
  its markets appears to be very similar to
  RABBITs (i.e. the premier high-end retail/custom
  install chain).
• Since 1978, FOX has been named Retailer of the
  Year by Audio-Video International magazine a
  total of 25 times. Over the recent years, its
  total custom installation business has grown to
  represent approximately 45 of sales.
• An important component of FOXs Custom
  Installation strategy is the integration of
  Pro-Line Systems (today known as FOX Security
  Systems), one of Washingtons leading residential
  and commercial security companies. Acquired in
  1998, Pro-Line allowed FOX to provide a total
  turn-key solution to customers from multi-room
  audio/video systems, dedicated home theaters and
  security systems, to home telephones, lighting,
  and networking systems
• FOX competes successfully with either Tweeter or
  the Magnolia division of Best Buy (or both) in
  most of its locations.
• FOXs stores have an average square footage of
  around 7,000 sq-ft (compared with 5,000 sq-ft
  average for Rabbit), with rents averaging 25 per
  sq-ft or 6 of sales (vs. Rabbits 70 per sq-ft
  and 8 of sales). Revenues are over 400 per
  sq-ft on average (compared with 900 per sq-ft
  for Rabbit)
• FOXs stores average a 16.9 contribution margin
  vs 8.6 for Rabbit. Same store sales growth is
  4.9 year-to-date, compared with -15.4 for
  Rabbit.
• Return on invested capital has consistently
  exceeded 20 per year.
• FOX has 152 employees, including 10 store
  managers and 65 sales associates at its retail
  locations, and 3 Project Managers and 35 custom
  installers in its Custom Installation Division.
  The employees are not part of a union and only
  one employee, the President and COO, has an
  employment contract with severance provisions.
• FOX is owned by Jon Myer, who is also CEO of the
  Company. Approximately 19 months ago, Jon turned
  over day-to-day operations of the Company to Gary
  Yacoubian, the President and COO.

Custom Labor 5
Custom Product 40
Retail Audio / Video 43
Car Audio 7
Including service and installation.
Warranties 3
Security Systems 2
FOX Summary Financials
(1) Includes security monitoring income,
non-recurring charges of 170K and expenses that
would be capitalized in a public company (2) See
page 8 for details on operating synergies
25
Strategic Positioning
FOX is well-positioned to remain the premier
high-end competitor in the D.C. metro home
entertainment market
26
Store Locations of FOX and Competitors
To Frederick
Snowden
Anapolis
Bethesda
Sterling
Reston
Tysons Corner
FOX AudioVideo Best Buy Magnolia Home
Theater Best Buy (w/o Magnolia) Tweeter Home
Entertainment
Circuit City Rising Competitor Costco
Rising Competitor
5 miles
27
Effect of Competitor Locations
FOX successfully competes head-to-head with both
the Magnolia Home Theater division of Best Buy
and with Tweeter, as well as the single-location,
Mom Pop custom installers.

• Nine out of ten FOX locations are within five
  miles of a Tweeter or a Magnolia store two
  stores are within five miles of both Tweeter and
  Magnolia, and five others are near a Tweeter and
  a regular Best Buy
• Interestingly, the sales growth and profitability
  at FOX stores does not appear to be highly
  correlated to the presence of either Tweeter or
  Magnolia.

1) Total Company includes sales not made through
specific stores. Through September 9, 2006.
28
Elements of Competition
FOX appears to successfully compete with Tweeter
and Magnolia because it does a very good job of
location selection, merchandising, and marketing
to create a strong retail and service concept.

• FOX stores are larger in format (almost twice the
  size of RABBITs) and have more foot traffic than
  RABBITs stores, in spite of such close proximity
  to discount competitors
• Although a lower percentage of sales at FOXs
  stores are for custom installations, the
  merchandising and design of the stores tends to
  be focused more explicitly on home theater than
  those of RABBIT
• Management seems to have made a large investment
  in leasehold improvements, creating an attractive
  retail environment specifically focused on home
  theaters
• FOXs newspaper and radio advertising has a more
  traditional retail focus than the custom
  installation focus of RABBIT
• FOX focuses heavily on customer retention
  management (CRM) communicating 9 or more times
  per year to former customers with compelling
  direct mailings as well as invitation only
  private sales

29
FOX Standalone Financial Summary
30
Store Performance
Although FOXs revenue per square foot on average
is below Rabbits, this is due to relatively
larger-format stores that average 25 per sq. ft.
of rental expense vs. 70 per sq. ft. for Rabbit.

Sales by Store 2005 ( million)
Sales per Square Foot 2005
Rabbit Average
Rabbit Average
EBITDA Contribution by Store 2005 ( million)
EBITDA Contribution per Square Foot 2005
Rabbit Average (before Rent)
Rabbit Average (before Rent)
Rabbit Average (after Rent)
Rabbit Average (after Rent)
31
FOX Standalone Operating Structure
FOXs operating structure is very similar to
RABBITs, creating potential for synergies
CEO (Jon Myer)
PRESIDENT (Gary Yacoubian)
DIR. OUTSIDE SALES (Scott Miller)
VP RETAIL OPERATIONS (JR Stocks)
DIR. CUSTOM INSTALL. (Dave Wynn)
CFO (Gary Rosenfeld)
VP MERCH. (Dave Glassman)
CONTROLLER
INVENTORY MANAGER
IT MANAGER
VP TRAINING
5 Outside Sales Associates
3 Project Managers
3 Admin Support
Payroll Manager
Accounting Manager
10 Store Managers
35 Custom Installers
Accounts Payable
General Admin
Accounts Receivable
Warehouse and Service Mgr (Bill Lichtman)
10 Sales Associates
5 Warehouse Personnel
5 Service Techs
2 Service Admin
3 Delivery Drivers
32
FOX SWOT Analysis
33
Porter Five Forces Analysis
Bargaining Power of Customers
Threat of New Entrants

• Barriers to entry in the relatively new and
  fast-growing custom installation market are
  somewhat low
• Better access to vendor products have allowed
  trunk slammer types to compete with companies
  like FOX, Tweeter and RABBIT on product choice
  and availability
• The lack of fixed overhead and low capital
  requirements has also allowed these store-less
  competitors to operate on a lower cost basis

• Customers shopping for traditional box consumer
  electronics have seen their bargaining leverage
  increase, primarily because of big box
  retailers (e.g. Best Buy, Circuit City,
  Radioshack) competing on price and choice and the
  advent of e-commerce and the Internet
• As a result, price sensitivity for these box
  products has gone up, particularly in the flat
  panel TV space

• By contrast, the price of custom installation
  services (as measured in / hr. of labor) is
  rising. This appears to be happening because (i)
  customers understand the value of having the job
  done correctly (ii) are willing to pay for the
  peace-of-mind associated with a quality when
  making a large investment in a home theater and
  (iii) are intimidated by the complexity of the
  systems, and therefore willing to pay-up for
  expertise.
• Switching costs are also high once a customer has
  purchased an installed system with a particular
  merchant

• However, because of high switching costs and the
  complexity of the purchase, customers look beyond
  price in their purchases
• Brand equity, if translated to mean reputation,
  reliability and excellence of service is
  therefore a powerful barrier to entry

Competitive Rivalry within the Industry
Bargaining Power of Suppliers
Threat of Substitute Products

• Supplier power varies according to the strength
  of their brand as well as the volume of business
  involved
• Bargaining power is higher for large vendors with
  must-have brands, such as Sony, Pioneer Elite
  and, to a lesser extent Fujitsu and Sharp.
  However, niche brands such as Marantz, Runco,
  Crestron rely more heavily on high-end specialty
  retailers like FOX and RABBIT to sell the
  features of their products
• Niche vendors also have less leverage because of
  the relative substitutability of their products
  e.g. Speaker brand A is relatively switchable
  with Speaker brand B

• Substitutability of retailers/installers is
  relatively high in the nascent custom
  installation market because of the low barriers
  to entry
• The maturity of the industry will increase the
  importance of brand equity as a potent
  differentiator, if the brand represents quality
  service, reliability (i.e. experience), and a
  reputation for technical excellence. The FOX and
  RABBIT type of retailer will increasingly be
  required to convince customers of the
  differentiated value proposition they offer
• Customers are likely to do price comparisons
  between retailers before committing but once an
  installed system is in place, high switching
  costs will mean the customer will prefer to stick
  with his initial choice of a retailer FOX
  appears to do CRM well and it must be a focus of
  the combined group in the future

• Fragmented competition among generic custom
  installers selling a complex product creates an
  opening for the emergence of a dominant branded
  retailer in this industry
• FOXs position and reputation in the Washington
  DC area sets it apart and is a great platform for
  the further consolidation of brand perception in
  customers minds
• Competition at the big box level is intense
  with dominant players like Best Buy and Circuit
  City out-selling many of the regional retailers
  that had previously to dominated consumer
  electronics retailing
• FOX competes successfully with the Big Box
  merchants

34
IV. RABBIT Standalone Summary
35
RABBIT Summary Overview
RABBIT Standalone

• Rabbit is the leading retailer and custom
  installer of high-end home video and audio
  systems in the New York metropolitan area the
  countrys most important market for consumer
  electronics.
• By virtue of its nine store locations and 75
  year history, Rabbit is well positioned to
  capitalize on the extraordinary growth taking
  place in the premium end of its core retail and
  custom installation market segments.
• Rabbit holds the 4 position nationally in the
  this 8.4 billion market, which is projected to
  grow at a 24 CAGR through 2010.
• Rabbits average revenue of 900 per square foot
  of retail space ranks it among the most
  productive of all U.S. retailers, and meets or
  exceeds benchmarks of other premier luxury goods
  retailers, such as Tiffany.
• The Company focuses primarily on upper-mid priced
  and high-end audio and video products from
  leading manufacturers such as Bang Olufsen,
  Bose, Marantz, Sony, Pioneer, and Fujitsu.
• Approximately 60 of Rabbits sales come from
  custom home installations. These projects have
  high price tags and generate gross profit margins
  on the labor and accessories portions of the
  installation of approximately 70 and 53,
  respectively.
• In recent years, the Company has benefited from
  i) the explosive growth in flat-screen television
  sales ii) the highly profitable custom
  installation of home theaters and audio systems
  in the 25,000 and up price range, and iii) its
  position as the exclusive vendor of a number of
  premium audio products.
• Rabbit provides an attractive platform from which
  to consolidate its highly fragmented market
  place.
• For example, there are over 3,000 custom
  installers in the U.S.
• In 1996 the current management team was installed
  to pull Rabbit out of bankruptcy protection.
  This team has grown revenues from 9 million at 4
  stores to 40 million at 9 locations, while
  pursuing a strategy based on financial prudence
  and a commitment to differentiate Rabbits brand
  and services from the discount end of the market.

Revenue
Extended Warranties 3
Custom Installation Product 51
Retail 38
Custom Installation Labor 8
RABBIT Summary Financials
36
Competitive Advantages
Rabbit has a number of key competitive advantages
from which it can build
37
Store Overview
Rabbits retail productivity as measured by
revenue per square foot is 100 to 200 higher
than most other comparable U.S. retailers

• The flagship store at 45th Street off 5th Avenue
  in Manhattan accounts for 22 of total revenue
  and 22 of total profit contribution
• Rabbits most profitable store, as a percentage
  of sales, is its store-within-a-store at ABC
  Carpet Home on Broadway and 19th Street in
  downtown Manhattan, where profit contribution
  margins before rental expense are 20.5 580 bps
  above the Companys average
• The Greenwich, CT BO store was consolidated into
  its neighboring Rabbit location

Sales by Store -2005 ( million)
Sales per Square Foot - 2005
Profit Contribution(1) and Margin by Store 2005
( million)
Profit Contribution(1) per Square Foot 2005 (
in thousands)
15.0
margin (before Rent)
15.8
20.5
14.8
10.4
14.4
17.2
14.1
-12.1
1) Store profit contribution includes interest,
depreciation, and amortization allocated by
management (based on of sales).
38
V. Strategic Combination
39
Overview of Combined Business Mix
FOX
RABBIT
PRO FORMA COMBINED
Custom Labor 5
Custom Labor 8
Custom Labor 10
REVENUE
Custom Product 40


Custom Product 48
Custom Product 53

• Including estimated 1.1MM of 1.9 MM annualized
  net synergies realized in 2007
• Includes security monitoring income
• Including 1.5MM of 4.3 MM in annualized savings
  from estimated overhead reductions and store
  downsizings

40
Business Review by Product (Jan June 2006)
( in millions)
RABBIT
FOX

COMBINED

• Includes car audio of 838 thousand. 72
  thousand of car cable included in Cable.
• Other category includes furniture, security
  business, and other.

41
Business Review by Vendors (Jan June 2006)
The combination of FOX and RABBIT would increase
the combined Companys importance to key vendors,
particularly those of flat-panel televisions (in
BOLD below), while also lowering the Companys
dependence on any single vendor.
Both RABBIT and FOX are on the cusp of being
included in several of their suppliers own
revenue forecasting models. The combined company
should be able to increase profitability,
bargaining power, and share of market development
and co-op advertising dollars with these vendors.
1) DM Holdings includes Denon, Marantz,
McIntosh, Boston Acoustic, and Escient product
lines.
42
Advertising Comparison
RABBIT spends approximately 7.0 of revenue, in
total, on advertising, including co-op spending,
compared with 3.0 for FOX.

• RABBIT has focused past advertising efforts on
  New York Times print ads and local radio spots
• FOX spends significantly less on advertising but
  has run successful direct marketing campaigns
  including private sales to existing customers
• Newspaper print ads have been the most effective
  advertising channel for FOX
• RABBIT 2005 co-op advertising income was 2.0
  million, approximately 73 of total ad spending
  FOX 2005 coop income was 657 thousand,
  approximately 60 of total spending N.B. each
  may account for co-op income differently TBD
• Both companies could benefit from a combined
  advertising campaign, especially a coordinated
  online marketing strategy
• The combined company would also be a larger
  client for an ad agency, meriting greater
  attention and a more important customer for
  vendors, resulting in larger co-op advertising
  income

Estimated Effective Advertising Range
RABBIT Radio, estimated
RABBIT Print, estimated
FOX Print, estimated
Historical Gross Advertising Spending (
millions)
5.7
5.4
6.2
6.1
5.0
5.2
4.7
FOX Radio, estimated
RABBIT FOX
PF of Combined Co. Revenue
43
Advertising Spending Comparison (Jan June 2006)
Note Excludes some portion of ad agency
retainers TBD
44
Pro Forma Combined Income Statement

• See page 8 for details on operating synergies
• Savings from downsizing of stores and
  consolidation of corporate headquarters and
  warehouse
• Return on Invested Capital calculated as the sum
  of net income and tax-affected interest divided
  by the sum of all interest bearing liabilities
  and equity. Synergies are added back on an
  after-tax basis

45
Store Contribution Comparison
FOXs stores would also be the most profitable in
the group with average contribution margins of
15.4 vs. 8.6 for Rabbit.
46
VI. Appendices
47
RABBIT Shareholder Ownership Table
48
RABBIT Share Ownership Roll-out
(Shares in thousands)
49
FOX Financials 2006 Reconciliation of EBITDA
50
2007 Monthly Cash Flow Projections
51
2007 Monthly Cash Flow Projections
52
2007 Monthly Cash Flow Projections
53
2008 Monthly Cash Flow Projections
54
2008 Monthly Cash Flow Projections
55
2009 Monthly Cash Flow Projections
56
2009 Monthly Cash Flow Projections
57
RABBIT Board of Directors Bios
58
RABBIT Board of Directors Bios (continued)
59
THEME Management Bios