The following example of a financing that we recently completed for a buyout of a chemical manufacturer shows how the three layers of financing (debt, mezzanine or cash flow lending, and equity or venture capital) should work together. The senior debt was provided by the commercial bank (and the former owner who financed the real estate). The subordinated debt was provided by the institutional investors (mezzanine fund). The equity was provided by the buyer and the financial sponsor (venture capital groups). The senior lenders were provided a first lien on all assets of the company except for the real estate which was held by the seller. The rate charged was 200 basis points over LIBOR. The mezzanine holders of the unsecured, subordinated notes offered a 10 year maturity and a 12% coupon. The holders were allowed to purchase 5% of the chemical company's common stock at the same price as management. When these factors were blended over a 5 year holding period (expected number of years before institution will be repaid), there is a 21% internal rate of return. The venture capital or equity group invested in the form of common stock, paying no dividends, and preferred stock. The venture firm owned 70% of the company after being asked to invest 10% of the total money raised for this acquisition. The rate of return was projected to be 35%, consistent with the mid-thirty's that the industry likes to see (versus in the 20's for the mezzanine group) for this high-risk investment.