This presentation was delivered by Jeff Fialky of Bacon & Wilson, P.C. and Michael Vann of the Vann Group. The presentation covers the various elements of a transaction and identifies all the things someone interested in buying the company they work for. The presentation is broken down into four sections: 1) emotion; 2) knowledge; 3) strategy; and 4) tactics.

1. Buying Out the Boss How to Acquire the Company You Work For

4. The Elements of a Deal

5. Emotion Are You Prepared for the Ride? Emotion (Rollercoaster)

6. Who is the Boss That you want to buy? Emotion

7. Mom & Dad My Mentor and Friend Emotion

8. The Looking Glass Once you step in, everything changes Emotion

9. Are You Willing To Risk Everything? Its gut check time Emotion

10. Experience it all in 60 Seconds or less Emotion

11. There is no place for it in a deal Emotion

12. Knowledge Knowing is more than half the battle. Knowledge (Makes Deals Work)

13. Knowledge

14. When it comes to valuation Perception is easily altered Knowledge

15. The Typical Seller Thinks What the Buyer Thinks Business is unique; its there baby Inflated Sense of Value Wants All Cash Glosses Over Flaws Wants to be Paid for the Opportunity Not Interested in History Doesn't’t Want to Pay Market Value Wants Seller to Take A Lot of Paper Over Analyzes Weaknesses The typical buyer and seller start with unrealistic expectations Knowledge

16. The Seller is Selling Because they want to cash out Knowledge

17. Perceptions of Value The Seller Sees The Buyer Sees Knowledge

18. Legacy Knowledge Continuity Security Love/Giving Cash Flow

19. You can’t always get what you want But you can get what you need Knowledge

20. What reality means The Nine Commandments of a Insider Deal What is good for the buyer is not good for the seller The buyer probably doesn’t have enough money to do the deal Seller financing (more than they want) is necessary Good advisors who know how to close deals are critical to success The sale price doesn’t matter, its all about what the seller nets out Numbers don’t lie, you can only do so much with them when it comes to financing Banks are not investors and they are not risk takers There is no such thing as a win/win deal Be wicked smart – know everything you can Knowledge

21. Remember the deal killers Knowledge

22. The test of a first rate intelligence is the ability to hold two opposing ideas in mind and still retain the ability to function. One should be able to see a situation as hopeless yet be determined to make it otherwise - F. Scott Fitzgerald Knowledge

23. Strategy Without a plan there is no attack, no attack, no victory. Strategy Winning, Duh!

24. Strategy

25. Buyer Equity+What can be financed+Seller’s Commitmentcreative solutions=Purchase Price Strategy

26. Stock or Asset Deal What is a Stock Deal The Buyer purchases the Seller’s stock (e.g. ownership) interest owned by Seller; Result: Buyer steps into shoes of Seller (as majority stockholder); Transaction is between selling stockholder and purchasing individual (Corp. not necessarily a party) Buyer acquires all assets and liabilities What is an Asset Deal Transaction between selling corp. and purchasing entity Buyer purchases the (discreet) assets only; Buyer chooses which, if any, liabilities to assume; Buyer elects employees to retain; and Buyer elects contracts to assume Strategy

27. Generally favors the seller: Buyer inherits all assets (including those Buyer may not necessarily want or need); Buyer inherits all liabilities of the Seller entity (incl. lawsuits, debt, historical wage issues, unknown claims); Tax considerations: Buyer- basis of entity’s assets may retain their depreciated values (thus, no stepped-up basis); Seller- may get capital gains vs. ordinary income treatment Sellers like stock sales Because it works best for them Strategy

28. Common stock sale situations include: Employee buyouts, family dealsand when contracts need to be inherited Strategy

29. Buyers get to choose What they buy Who/what they keep Tax considerations: Seller- must pay tax on difference between tax basis of the assets sold and the Purchase Price The buyer gets a stepped up basis Greater write-offs for Buyer; Buyers like asset deals Because they work best for them Strategy

30. Phased asset transaction Price may be agreed upon in advance May be funded with insurance Assets purchased into a separate entity to avoid liability Stepped stock transaction Tied to time and benchmarks Employee granted stock each year based on benchmarks Employee receives bonus comp to purchase stock Employee gets stock grants that vest over time Funded via bonuses, loans from corp or life insurance Continuous employment tied with termination & change of control provisions Put/call options essential Price terms agreed upon in advance The phased transaction When selling 100% isn’t possible Strategy

31. Where do you get the money? Oh, let me count the ways Strategy

32. Some places include Your own money, family/friends/fools, your bank, the seller, creative instruments and non-traditional sources Strategy

33. Traditional loan relationship; borrow it, collateralize it, amortize it, pay it Once its paid, the lender relationship ends Advantages include: Retain maximum control over business Loan terms are objective and determinable; Early prepayment; The interest on debt financing may be tax deductible; Disadvantages include: Have to be bankable Financial covenants/reporting Risk of default Debt financing Other peoples money: part I Strategy

34. Third parties provide capital in exchange for equity Can be institutional or family, friends and fools Advantages include: No traditional debt service; banks considers it subordinate Investor is a partner; incentivized to be successful Allows for spreading risk among multiple parties Disadvantages include: Others have a say in decision making; autonomy is affected Investors have a say on the board and influence They have stockholder rights Terms may be onerous Equity money Other peoples money: Part II Strategy

35. Seller is the bank Secures position on assets and with personal guarantee Promissory note with interest at or below prime rates Provides an opportunity to get a better price & cash flow Benefits of seller financing Assures the seller will live up to their reps/warranties Demonstrates their confidence in the business/buyer Increases the likelihood of seller being cooperative and helpful to the buyer Purchaser gets a right of setoff for breaches Seller financing Because it’s a reality of a sale today Strategy

36. Other creative solutions Earnouts Leases Employment/Consulting Agreements Extension of benefits Minority positions Life insurance Closing adjustments Rent Gift cards and other liabilities that will be redeemed Discounts for assumption of receivables Inventory adjustments and terms What else exists? Other financing arrangements/issues Strategy

37. Choosing an Entity Types of Entities for Asset Deals Sole proprietorship General partnership Corporation S-Corp C-Corp Limited Liability Company Considerations Composition of equity structure Preferred tax treatment Nature of limitation of liability (e.g. sole prop. Versus LLC) Legal limitations Preferred stock required? Non-resident aliens? Self-employment tax exposure? Strategy

38. Tactics The destination means nothing without knowing how to get there Tactics Execution Matters

39. A business plan that: Shows you know what your talking about Doesn’t brag/boast Explains the deal and the details concisely Answers the questions before they are asked Projections that Are reasonable and reflective of the past Are complete with income statement and balance sheet Three years projected forward Are annotated with notes Don’t forget All the documents for the business and you personally Financing The ABC’s of what you need Tactics

40. Letter of Intent Broadly outlines the deal Non-binding Purchase & Sale Agreement Is the details of the deal Legally binding Consulting Agreement Defines terms of how a seller will be engaged as a non-employee Employment Agreement Defines the terms of how a seller will be employed Non-Compete Agreement Restrictions on sellers post deal activities Promissory Note Terms and conditions of seller financing The documents Is where the devil lives Tactics

41. Third party consents Most contracts require prior consent to assignment: equipment leases real property leases Sales contracts Failure to obtain consent invalidates agreement Requesting consent can (unintended) open renegotiation Non-Compete/Solicitation Prevent seller from opening competing business and calling on customers (and key employees) of purchased company; Must be reasonable in scope and duration The Devil is always in the details Deal considerations that make/break a deal Tactics

42. Representations & Warranties Most negotiated part of a deal Method of obtaining disclosure from Seller; Assets free and clear of encumbrance Due authority/good standing Compliance with laws Proper payment of employees Basis for the indemnification obligations; Frame the Seller’s closing conditions Reps & Warranties Ensuring the parties do what they say Tactics

43. Indemnification is the obligation of Seller to pay Buyer for claims, losses and damages incurred: Who is the indemnifying party: Seller entity and/or shareholders Nature of indemnification: Acts or omissions of Seller prior to sale; Breach of reps./warranties; Duration of indemnity Do what you say Indemnification is the deal enforcer Tactics

44. Reps and warranties are true and correct Parties have due authority for transaction Transaction in accordance with applicable laws All third party consents received Any governmental approvals obtained Employment arrangements with employees have been finalized No material adverse change in assets or the business Getting to close Closing conditions to be aware of Tactics