APPRAISAL OF

PRIVATELY HELD COMPANIES

HHADVISORS LLC

PRESENTATION OVERVIEW

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Reasons for Business Valuation

Levels of Value

A h V l

Appraisal Discounts

Components of an Appraisal

R Approaches to Value Report

Process of Valuation

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REASONSREASONS

FOR BUSINESS VALUATION

Estate Gift and Income Ta Litigation S pport Cons lting &

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Estate, Gift and Income Tax Planning/Compliance

Litigation Support Consulting & Appraisal

Financial Reporting Issuance of Stock Options

Employee Stock Ownership Plan Restricted Stock Discount Studies

Fairness Opinions Merger & Acquisition Consulting Fairness Opinions Merger & Acquisition Consulting

Buy/Sell Agreements

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LEVELS OF VALUE

Obtain directly by reference to Obtain directly by reference to actual change of control

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ControllingInterest Basis

Minority Interest DiscountControl Premium

freely tradable values via Control Premiums

actual change of control transactions or other control methodologies.

Marketable, MinorityInterest Basis

Obtain directly by reference to “freely tradable” comparable companies or by “build up”

th d l i hi h d l

Obtain indirectly by reference to control valuation via a

Control Premium

Interest Basis

Marketability Discount

methodologies, which develop capitalization rates by estimating required rates of return in relation to public markets

Minority Interest Discount

Non-marketable, Minority

Interest Basis

Obtain indirectly from Marketable, Minority valuation by applicator of Marketability Discount

Obtain directly from actual transactions

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THREETHREE

APPROACHES TO VALUE

INCOME-BASED APPROACH ASSET-BASED APPROACH

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• Discounted Cash Flow (“DCF”) Method• Capitalization of Earnings Method

• Adjusted Net Tangible Asset Value Method

MARKET-BASED APPROACH

• Public Company Guideline MethodG id li T i M h d• Guideline Transaction Method

• Past Transactions in Company Stock• Buy/Sell Agreement Provisions

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INCOME-BASED APPROACH

DISCOUNTED CASH FLOW METHOD

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• Relies on the present value of projected future cash flows• Should be used when a company has not yet achieved stabilized growth• Appraiser should determine the number of projection periods necessary to• Appraiser should determine the number of projection periods necessary to

reach stabilized growth, through discussions with Management and their own independent analysis.

CAPITALIZATION OF EARNINGS METHOD

• Relies on historical cash flows• Should only be used when steady growth is expected• Growth rate should not deviate too far from expected inflation.

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MARKET-BASED APPROACH

PUBLIC COMPANY GUIDELINE METHOD

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GUIDELINE TRANSACTION METHOD

PAST TRANSACTIONS IN COMPANY STOCK PAST TRANSACTIONS IN COMPANY STOCK

BUY/SELL AGREEMENT PROVISIONS

KEY CONSIDERATIONS IN USING THIS APPROACH

• Adequate comparability of guideline companies and transactions• Ensure past transaction in company stock occurred at arm’s-length

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ASSET-BASED APPROACH

NET ASSET VALUE METHOD

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ADJUSTED NET TANGIBLE ASSET VALUE METHOD

KEY CONSIDERATIONS IN USING THIS APPROACH

• Understand the appraisal’s “Premise of Value”

• Company being valued as: i) a going concern; ii) an assemblage of assets; p y g ) g g ; ) g ;iii) an orderly disposition; or iv) a forced liquidation.

• Understand the appraisal’s “Level of Value”

• Control versus Minority• Control versus Minority• Prerogatives of Control

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APPRAISAL DISCOUNTS

Discount for Lack of Control

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• Empirical Evidence and Studies• Mergerstat/Shannon Pratt’s Control Premium Study

Discount for Lack of Marketability

• Empirical Evidence and Studies• FMV Opinions’ Restricted Stock Study

Discount for Lack of Voting Rights

• Empirical Evidence and Studies

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COMPONENTS OF

AN APPRAISAL REPORT

Report

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Report

• Standard of Value Defined

• Consider All three Approaches to value

• Discounts: Correctly identified level of value, supported, and explained

• Company, Industry and Economic Overview

Citations of Relevant IRS rulings, business valuation standards (American Society of g , ( yAppraisers, AICPA, USPAP etc.)

Qualifications of Appraiser

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THE PROCESS

Gather and Provide Information and Data

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• Financial statements, tax returns, projections, shareholder agreement, buy/sell agreement, etc.

Analysis of the Information and Data

Management Interview & Site Visit

Prepare the Report and Exhibits

Deliver the Report

HH ADVISORS LLC

PROFESSIONALMr. Hoekstra is the President of HH Advisors LLC, afinancial advisory services firm located in Atlanta Georgia

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PROFESSIONAL

BACKGROUND OF

PRESENTER

Chad Hoekstra ASA CPA/ABV/CFF

financial advisory services firm located in Atlanta, Georgia.The firm’s financial advisory services include business andintangible asset valuation, transfer pricing analysis, familylimited partnership valuations, fairness and solvency opinionsand litigation support services.

Chad Hoekstra, ASA, CPA/ABV/CFF

Education • B.A., Accounting, Central College, Pella,

Iowa

Mr. Hoekstra worked in a public accounting firmenvironment from 1994 to 1999 and 2000 to 2004. Hisgreater than ten years of cumulative experience includesseven years of full time experience providing businessvaluation, litigation support and investment banking services.

Professional Designations• Public Accountant, licensed in Iowa

1997-2003, licensed in Georgia 2003• Accredited in Business Valuation from the

American Institute of CPAs since 1999

He prepared business valuation opinion reports for federal gift and estate tax and estate planning,employee stock ownership plans, family limited partnership valuations, tender offers and mergersand acquisitions. . He has provided expert witness services in connection with patent and otherintangible asset litigation, estimated damages in connection with intellectual property damage claims1999

• Accredited Senior Appraiser from the American Society of Appraisers since 2002

Organizations

and provided testimony in litigation matters including dissolution of marriage actions. He hasperformed valuations in a variety of industries, including technology, consulting, manufacturing,chemical production, construction, commercial real estate, lodging, food service, distribution,agriculture, transportation, financial services, retailing and telecommunications.

Prior to co fo nding HH Ad isors he as a Director at a corporate finance and financial ad isor• Member, American Institute of Certified Public Accountants

• Member, Georgia Society of CPA’s• Member, American Society of

Appraisers

Prior to co-founding HH Advisors, he was a Director at a corporate finance and financial advisoryservices firm at an Atlanta, Georgia firm Applied Economics, LLC. He worked at AppliedEconomics from 2005-2007. Prior to Applied Economics Mr. Hoekstra was a Manager in thebusiness valuation and litigation support services group of Bennett Thrasher PC, an Atlanta basedlocal public accounting firm from 2003-2005. Prior to Bennett Thrasher, Mr. Hoekstra wasemployed by RSM McGladrey, Inc. in Des Moines, Iowa as a manager in their valuation services

• Member, Atlanta Chapter of the American Society of Appraisers

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p y y y, , ggroup from 1997 to 1999 and from 2000 to 2003. From 1994 to 1997 he provided financial auditand attest services and tax services for McGladrey & Pullen, LLP in Cedar Rapids, Iowa.

PROFESSIONALTim Hillegass is a Managing Director and co-founder

f HH Ad i LLC fi i l d i i

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PROFESSIONAL

BACKGROUND OF

PRESENTERTi th K Hill MBA ASA

of HH Advisors LLC, a financial advisory servicesfirm located in Atlanta, Georgia.

Prior to HH Advisors, Mr. Hillegass was a partner withApplied Economics, an Atlanta financial advisory andorpor te fin n e firm here he orked for se enTimothy K. Hillegass, MBA, ASA

Education • Master of Business Administration,

University of GeorgiaB S B i Ad i i t ti A b

corporate finance firm, where he worked for sevenyears. Mr. Hillegass’ appraisals have been used for avariety of purposes, such as mergers and acquisitions;financial reporting; SFAS 142 goodwill impairmenttests; corporate planning, reorganizations; litigationsupport; estate gift and corporate tax planning; marital• B.S., Business Administration, Auburn

University

Professional Designations• Accredited Senior Appraiser from the

American Society of Appraisers since

support; estate, gift and corporate tax planning; maritaldissolution, and ESOP administration.

Mr. Hillegass leads HH Advisors’ transfer pricing practice and his assignments have been usedfor a variety of purposes including: economic analysis support for clients facing challengesfrom the United States and international taxing authorities; technology transfers and costAmerican Society of Appraisers since

2002

Organizations• Member, American Society of

Appraisers

g gysharing arrangements; determination of the transfer prices for re-engineered supply chainstructures; application of cost allocation methodologies for head office expenses; design andimplementation of contract manufacturing structures; implementation of royalty structures;and development of coordinated transfer pricing policies and procedures for compliancepurposes in numerous jurisdictions.Appraisers

• Member, Atlanta Chapter of the American Society of Appraisers

Mr. Hillegass has managed valuation and transfer pricing engagements for both smallerprivately held companies and larger multinational clients in the following industries:agriculture, automotive, commercial real estate, construction, consulting, consumer foodsindustries, distribution, financial services, information technology, lodging, manufacturing,retailing, telecommunications, and transportation.

HH ADVISORS LLC

PROFESSIONALPerry D. Walter is a Managing Director of HH AdvisorsLLC, a financial advisory services firm located in Atlanta,

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PROFESSIONAL

BACKGROUND OF

PRESENTERPerry D. Walter, CFA

LLC, a financial advisory services firm located in Atlanta,Georgia.

HH Advisors completes over 150 business appraisals ayear, with approximately 40% involving trusts and estates.

Prior to joining HH Advisors LLC, Mr. Walter was aPerry D. Walter, CFA

Education • Master of Business Administration-Finance

University of North Carolina, Chapel Hill, NC

j g , WSenior Consultant and Business Plan expert for inCodeTelecom (2007-2009), a strategy and managementconsulting firm focused on providing advisory andconsulting services for telecommunications andtechnology companies, as well as Private Equity firms.NC

• B.A., Economics and CommunicationsUniversity of Virginia, Charlottesville, VA

Professional Designations• Chartered Financial Analyst (CFA)

Mr. Walter founded Digital Media Investigations (2005-2006), a computer forensics firm focused oncivil litigation and financial fraud cases. Mr. Walter was also one of four co-founders and CFO ofWireFree Connect LLC, a venture-funded wireless Internet service company.

• Chartered Financial Analyst (CFA) • Accredited Senior Appraiser from the

American Society of Appraisers since 2002

Organizations

Previously, as a general partner at Valiant Ventures (2001-2005), a venture consulting company, hehelped early-stage technology companies develop their business and strategic plans, build-out theirsenior teams, and raise various rounds of capital. Valiant invested in Eyewonder, Inc., which wasacquired by Limelight Networks in 2010 for $110 million.

Organizations• CFA Institute • Atlanta Society of Financial Analysts • Member, Atlanta Chapter of the American

Society of Appraisers• Georgia Aquarium Volunteer Diver with

Mr. Walter served as Senior Telecom Analyst with The Robinson-Humphrey Company (1996-2001)(a division of Smith Barney) and he held a similar position with Raymond James Financial (1993-1996) in St. Petersburg, Florida. While at Robinson-Humphrey, he was recognized as an All StarAnalyst and top stock picker by The Wall Street Journal and received an “Honorable Mention” byInstitutional Investor in its analyst rankings.• Georgia Aquarium Volunteer Diver, with

over 700 hours of service

y g

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APPENDIXAPPENDIX

WACC and Components

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WACC and Components

WACC/Cost of Equity

Company, Economic, and Industry Overview

Fin n i l An l i Financial Analysis

Report Deliverable

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WACC AND COMPONENTS

WACC – WEIGHTED AVERAGE COST OF CAPITAL

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WACC WEIGHTED AVERAGE COST OF CAPITAL

WACC = (RE X WE) + (RD [1-T] X WD) WHERE:

• Re =Cost of equity capital• Rd =Cost of debt capital• We =Percentage of equity capital, at market value• Wd =Percentage of debt capital, at market valueWd Percentage of debt capital, at market value• T=The firm's effective income tax rate

RELATIVE PERCENTAGES• Industry Based• Company Based

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COMPANY ECONOMIC AND INDUSTRYCOMPANY, ECONOMIC AND INDUSTRY

OVERVIEW

AT APPRAISAL DATE, NOT REPORT DATE

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Local Conditions, if relevant

Economic Industry

General Overview and Indicators Correct SIC or NAICS Code

Consumer Spending and Inflation Description & Market Characteristics

Business/Manufacturing Conditions Supply/Demand Determinants

Fi i l M k t P d t/S i S t tiFinancial Markets Product/Service Segmentation

Housing Markets Industry Performance

Unemployment Industry Outlook

Inflation Rates

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FINANCIAL ANALYSIS

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Growth Rates Turnover AnalysisProfitability Working Capital AnalysisProfitability Working Capital AnalysisGross Margin Analysis Capital StructureCash Flow (EBITDA) Industry SpecificCash Flow (EBITDA) Analysis

Industry SpecificFinancial Analysis

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REPORT DELIVERABLE

19

Company Overview Appraisal ApproachesFinancial Analysis Income ApproachFinancial Analysis Income ApproachEconomic Overview Market Based ApproachIndustry Overview Asset Based ApproachIndustry Overview Asset Based ApproachStrengths & Weaknesses Summary & Conclusion

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