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APPRAISAL OF PRIVATELY HELD COMPANIES

HH ADVISORS LLC

PRESENTATION OVERVIEW 2    Reasons for Business Valuation Levels of Value Approaches to V l A h Value  Appraisal Discounts  Components of an Appraisal Report R  Process of Valuation HH ADVISORS LLC .

Ta Planning/Compliance  Financial Reporting  Employee Stock Ownership Plan  Fairness Opinions  Buy/Sell Agreements  Litigation Support Consulting & S pport Cons lting Appraisal  Issuance of Stock Options  Restricted Stock Discount Studies  Merger & Acquisition Consulting HH ADVISORS LLC .REASONS FOR BUSINESS VALUATION 3  Estate Gift and Income Tax Estate.

Minority valuation by applicator of Marketability Discount Non-marketable.LEVELS OF VALUE 4 Obtain directly by reference to freely tradable values via Control Premiums Obtain directly by reference to actual change of control transactions or other control methodologies. Minority Interest Basis HH ADVISORS LLC . which d l th d l i hi h develop capitalization rates by estimating required rates of return in relation to public markets Obtain directly from actual transactions Obtain indirectly from Marketable. Minority Interest Basis Marketability Discount Obtain directly by reference to “freely tradable” comparable companies or by “build up” methodologies. Minority Interest Discount Controlling Interest Basis Control Premium Obtain indirectly by reference to control valuation via a Minority Interest Discount Marketable.

THREE APPROACHES TO VALUE 5  INCOME-BASED APPROACH • Discounted Cash Flow (“DCF”) Method • Capitalization of Earnings Method  ASSET-BASED APPROACH • Adjusted Net Tangible Asset Value Method  MARKET-BASED APPROACH • Public Company Guideline Method • Guideline T G id li Transaction Method i M h d • Past Transactions in Company Stock • Buy/Sell Agreement Provisions HH ADVISORS LLC .

through discussions with Management and their own independent analysis. HH ADVISORS LLC .INCOME-BASED APPROACH 6  DISCOUNTED CASH FLOW METHOD • • • 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 reach stabilized growth.  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.

MARKET-BASED APPROACH 7  PUBLIC COMPANY GUIDELINE METHOD  GUIDELINE TRANSACTION METHOD  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 HH ADVISORS LLC .

p y g ) g g .ASSET-BASED APPROACH 8  NET ASSET VALUE METHOD  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. iii) an orderly disposition. or iv) a forced liquidation. Understand the appraisal’s “Level of Value” • Control versus Minority • Prerogatives of Control HH ADVISORS LLC . ) g . ii) an assemblage of assets.

APPRAISAL DISCOUNTS 9  Discount for Lack of Control • • 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 HH ADVISORS LLC .

USPAP etc.COMPONENTS OF AN APPRAISAL REPORT 10  Report • • • • Standard of Value Defined Consider All three Approaches to value Discounts: Correctly identified level of value. AICPA. Industry and Economic Overview  Citations of Relevant IRS rulings. ( y Appraisers. business valuation standards (American Society of g . and explained Company.)  Qualifications of Appraiser HH ADVISORS LLC . supported.

tax returns. shareholder agreement. buy/sell agreement.  Analysis of the Information and Data  Management Interview & Site Visit  Prepare the Report and Exhibits  Deliver the Report HH ADVISORS LLC . projections. etc.THE PROCESS 11  Gather and Provide Information and Data • Financial statements.

consulting. HH ADVISORS LLC . Iowa Professional Designations • Public Accountant. Accounting. Hoekstra is the President of HH Advisors LLC. an Atlanta based local public accounting firm from 2003-2005. licensed in Iowa 1997-2003. chemical production. He has provided expert witness services in connection with patent and other intangible asset litigation. litigation support and investment banking services. g employed by RSM McGladrey. family limited partnership valuations. Georgia Society of CPA’s • Member. employee stock ownership plans. Prior to Bennett Thrasher.A. tender offers and mergers and acquisitions. Iowa as a manager in their valuation services group from 1997 to 1999 and from 2000 to 2003. He has performed valuations in a variety of industries. commercial real estate. Hoekstra was p y y y. distribution. including technology. estimated damages in connection with intellectual property damage claims and provided testimony in litigation matters including dissolution of marriage actions. American Society of Appraisers • Member. Georgia firm Applied Economics. From 1994 to 1997 he provided financial audit and attest services and tax services for McGladrey & Pullen. Central College. Pella. . Atlanta Chapter of the American Society of Appraisers Mr. in Des Moines. Mr. Hoekstra was a Manager in the business valuation and litigation support services group of Bennett Thrasher PC. The firm’s financial advisory services include business and intangible asset valuation. LLP in Cedar Rapids. agriculture. Georgia. licensed in Georgia 2003 • Accredited in Business Valuation from the American Institute of CPAs since 1999 • Accredited Senior Appraiser from the American Society of Appraisers since 2002 Organizations • Member.. Hoekstra worked in a public accounting firm environment from 1994 to 1999 and 2000 to 2004. Inc. family limited partnership valuations. manufacturing. retailing and telecommunications. Prior to Applied Economics Mr. food service. He worked at Applied Economics from 2005-2007. lodging. transfer pricing analysis. financial services. construction. He prepared business valuation opinion reports for federal gift and estate tax and estate planning. Education • B. Mr. .12 PROFESSIONAL BACKGROUND OF PRESENTER Chad Hoekstra. Iowa. American Institute of Certified Public Accountants • Member. His greater than ten years of cumulative experience includes seven years of full time experience providing business valuation. fairness and solvency opinions and litigation support services. Prior to co fo nding HH Ad isors he was a Director at a corporate finance and financial ad isor co-founding Advisors. as advisory services firm at an Atlanta. a financial advisory services firm located in Atlanta Georgia Atlanta. transportation. LLC. ASA CPA/ABV/CFF ASA.

dissolution. Business Administration. financial advisory services firm located in Atlanta. design and implementation of contract manufacturing structures. SFAS 142 goodwill impairment tests. lodging. determination of the transfer prices for re-engineered supply chain structures. commercial real estate. HH ADVISORS LLC . estate gift and corporate tax planning. implementation of royalty structures. technology transfers and cost sharing arrangements. Hillegass has managed valuation and transfer pricing engagements for both smaller privately held companies and larger multinational clients in the following industries: agriculture.13 PROFESSIONAL BACKGROUND OF PRESENTER Timothy K Hill Ti th K.S. here orked seven years. telecommunications. Mr. distribution. Mr. retailing. and transportation. Prior to HH Advisors. American Society of Appraisers • Member. Hillegass’ appraisals have been used for a variety of purposes. MBA ASA MBA. Hillegass. Georgia. A b Ad i i t ti Auburn University Professional Designations • Accredited Senior Appraiser from the American Society of Appraisers since 2002 Organizations • Member. such as mergers and acquisitions. Atlanta Chapter of the American Society of Appraisers Tim Hillegass is a Managing Director and co-founder f i l d i i of HH Ad i Advisors LLC a fi LLC. consumer foods industries. construction. Hillegass was a partner with Applied Economics. financial reporting. application of cost allocation methodologies for head office expenses. University of Georgia • BS B i B. an Atlanta financial advisory and corporate fin n e firm where he worked for se en orpor te finance firm. Hillegass leads HH Advisors’ transfer pricing practice and his assignments have been used for a variety of purposes including: economic analysis support for clients facing challenges g gy from the United States and international taxing authorities. consulting. and ESOP administration. and development of coordinated transfer pricing policies and procedures for compliance purposes in numerous jurisdictions. financial services.. automotive. manufacturing. Mr. litigation support. corporate planning. reorganizations. Mr. marital estate. information technology. Education • Master of Business Administration.

he helped early-stage technology companies develop their business and strategic plans. a venture-funded wireless Internet service company.A. y g HH ADVISORS LLC . build-out their senior teams. Previously. Chapel Hill. and raise various rounds of capital. a financial advisory services firm located in Atlanta. Walter was a j g . Mr.14 PROFESSIONAL BACKGROUND OF PRESENTER Perry D. Walter. W Senior Consultant and Business Plan expert for inCode Telecom (2007-2009). as well as Private Equity firms. a computer forensics firm focused on civil litigation and financial fraud cases. 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 (19931996) in St. HH Advisors completes over 150 business appraisals a year. Georgia.. with approximately 40% involving trusts and estates. Walter was also one of four co-founders and CFO of WireFree Connect LLC. as a general partner at Valiant Ventures (2001-2005). a venture consulting company. Economics and Communications University of Virginia. VA Professional Designations • Chartered Financial Analyst (CFA) • Accredited Senior Appraiser from the American Society of Appraisers since 2002 Organizations • CFA Institute • Atlanta Society of Financial Analysts • Member. Walter founded Digital Media Investigations (2005-2006). Walter is a Managing Director of HH Advisors LLC. Mr. he was recognized as an All Star Analyst and top stock picker by The Wall Street Journal and received an “Honorable Mention” by Institutional Investor in its analyst rankings.. over 700 hours of service Perry D. CFA Education • Master of Business Administration-Finance University of North Carolina. Inc. Florida. Atlanta Chapter of the American Society of Appraisers • Georgia Aquarium Volunteer Diver with Diver. which was acquired by Limelight Networks in 2010 for $110 million. NC • B. Petersburg. While at Robinson-Humphrey. Mr. Mr. Valiant invested in Eyewonder. Prior to joining HH Advisors LLC. Charlottesville. a strategy and management consulting firm focused on providing advisory and consulting services for telecommunications and technology companies.

and Industry Overview  Fin n i l An l i Financial Analysis  Report Deliverable HH ADVISORS LLC .APPENDIX 15  WACC and Components  WACC/Cost of Equity  Company. Economic.

at market value Percentage T=The firm's effective income tax rate  • • RELATIVE PERCENTAGES Industry Based Company Based HH ADVISORS LLC .WACC AND COMPONENTS 16  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.

if relevant Economic General Overview and Indicators Consumer Spending and Inflation Business/Manufacturing Conditions Financial Markets Fi i lM k t Housing Markets Unemployment Inflation Rates HH ADVISORS LLC Industry Correct SIC or NAICS Code Description & Market Characteristics Supply/Demand Determinants Product/Service S P d t/S i Segmentation t ti Industry Performance Industry Outlook . ECONOMIC AND INDUSTRY OVERVIEW 17 AT APPRAISAL DATE. NOT REPORT DATE Local Conditions.COMPANY.

FINANCIAL ANALYSIS 18 Growth Rates Profitability Gross Margin Analysis Cash Flow (EBITDA) Analysis Turnover Analysis Working Capital Analysis Capital Structure Industry Specific Financial Analysis HH ADVISORS LLC .

REPORT DELIVERABLE 19 Company Overview Financial Analysis Economic Overview Industry Overview Strengths & Weaknesses HH ADVISORS LLC Appraisal Approaches Income Approach Market Based Approach Asset Based Approach Summary & Conclusion .