Selling an ESOP Company New South Chapter of the ESOP Association October 22, 2009 Perimeter Center Marriott - Atlant

1. 1 Selling an ESOP Company New South Chapter of the ESOP AssociationOctober 22, 2009Perimeter Center Marriott - Atlanta, GA

2. Selling an ESOP Company 2 Goals For Presentation Discuss the process of selling an ESOP company using the real life example of Medical Doctor Associates Discuss the issue of sustainability in the context of an ESOP

3. Selling an ESOP Company 3 Sale of Medical Doctor Associates Medical Doctor Associates (“MDA”) is a Norcross based medical staffing company which was Acquired by Cross Country Healthcare in September of 2008. MDA had established an ESOP in December of 2004. The ESOP acquired 100% of the company stock from its founder in a largely seller financed transaction. MDA had intended to remain an independent employee owned firm indefinitely.

4. Selling an ESOP Company 4 Sale of MDA (Continued) The buyer first expressed interest informally between managers. MDA advised the trustee and its advisors as soon as it determined that there was a serious possibility of a transaction. MDA then hired appropriate advisors (investment banker and lawyer) to work on its behalf. A letter of intent was received from the buyer. A transaction was negotiated and closed

5. Selling an ESOP Company 5 Sale of MDA (Continued) The MDA sale was completed at a very significant premium to the ESOP value. It included a base price and two “earn outs” based on future MDA performance. The transaction was at a very significant premium to the ESOP valuation. The transaction resulted in 38 MDA employees with more than $1 million in their accounts and another 40 with account balances between $500M and $1 million.

6. Selling an ESOP Company 6 ESOP Company Sale Process Senior Management Receives Offer Senior Management Confirms Offer is “Bona Fide” Management Notifies Board of Directors of Offer Due Diligence Negotiation and Documentation Closing Post-Closing

7. Selling an ESOP Company 7 Senior Management Receives Offer Treat “Real” Offers Seriously No Duty to Inform Board if Offer is Not Bona-Fide

8. Selling an ESOP Company 8 Senior Management Confirms Offer is “Bona Fide” Can Purchaser Pay Purchase Price? Is Offer Fair? Price Terms

9. Selling an ESOP Company 9 Management Notifies Board of Directors of Offer Board Considerations (“Business Judgment Rule”) Effect on Employees, Community, Customers and Vendors Alternative Buyers (“Auction”) Effect on Company’s Business Effect on Shareholders (Are Price and Terms Fair?) Committee of Board May be Appointed to Conduct Analysis

10. Selling an ESOP Company 10 Due Diligence Reciprocal Due Diligence Advisors Board Retains Advisors Confidentiality Agreements Primary Analysis Price “Acquisition Currency” (Stock v. Cash) Structure and Tax Effect of Same (Sale of Stock, Sale of Assets, Merger) Effect on ESOP Use of Advisors

11. Selling an ESOP Company 11 Due Diligence (Continued) Notify ESOP Trustees Trustee Considerations (“Exclusive Benefit Rule” Under ERISA): Obtain Best Value for Participants Analyze Sale Now vs. Continued Holding of Shares Financial Fairness-”Relative” vs. “Absolute” Fairness Employment Agreements Non-compete Agreements “Bonuses” Severance Agreements Liability of ESOP Under Representations and Warranties Contingent Payments Escrows “Earn Outs”

12. Selling an ESOP Company 12 Negotiation and Documentation Role of ESOP Trustee Use of Financial and Legal Advisors Size of ESOP’s Ownership (“Minority” v. “Control”) Can ESOP Have “Seat at the Table?”) Review of Terms Valuation/Financial Fairness Issues Independence/Conflict of Interest Issues Letter of Intent vs. Definitive Agreement Determine Price and Terms Cash vs. Purchaser’s Stock Sale of Stock vs. Sale of Assets

13. Selling an ESOP Company 13 Negotiation and Documentation Continued Identify Technical Issues Identify and Resolve Financial Issues (Board and Trustee) Structure Issues Which Affect ESOP Disclosure to Participants Pass-Through Voting (Merger/Sale of Assets vs. Sale of Stock) Disposition/Allocation of Gain of Sale of ESOP “Suspense Account” Shares Effect of Loss by ESOP on Sale of “Suspense Account” Shares Disposition of ESOP Termination Merger

14. Selling an ESOP Company 14 Closing Opinions from legal and financial advisors. Pass through voting disclosure.

15. Selling an ESOP Company 15 Post-Closing Escrow Disposition of ESOP.

16. Selling an ESOP Company 16 Evaluating the Offer Does the unsolicited offer exceed fair market value? (This is absolute fairness) Would the ESOP receive its “fair share” in the transaction relative to other parties to the transaction? (This is relative fairness) Was a thorough process used to reach a proposed transaction? What about the buyer? Ability to carry out the acquisition Time in its business cycle History of other acquisitions? Synergies available to the buyer? Any of these shared with the target?

17. Selling an ESOP Company 17 Evaluating the Offer – Absolute Fairness Does the offer exceed fair-market value? After considering everything like earn outs, escrows, etc. are the proceeds to the ESOP at a level that would be greater than fair market value? Fairness from a financial point of view Fair market value barrier Process used to reach a deal Is the ESOP being treated fairly relative to other parties to the transaction (relative fairness)

18. Selling an ESOP Company 18 Evaluating the Offer – Relative Fairness Are parties to the transaction other than the ESOP receiving consideration that is more than or different than the ESOP receives? Employee agreements? Equity plans to keep executives in place? Payment to the executives for bringing about the sale? Other “side” deals?

19. Selling an ESOP Company 19 Evaluating the Offer - Process Did the company just react? Did the board hire an investment banker? Was an auction process used? Was the contract with the investment banker structured to ensure the best deal possible for the company? Are the company decision makers motivated to get the best deal possible? Or just to get a deal done?

20. Selling an ESOP Company 20 Evaluating the Offer – What About the Buyer? Where is the buyer in its business cycle? Could it make a better offer at a different time? Does the buyer have the financial strength to carry through the transaction, including honoring any earn outs or escrow payments? Has the buyer done other acquisitions and how does this one compare? What synergies is the buyer likely to get? Is any of that shared in with the target?

21. Selling an ESOP Company 21 Sustainability Should ESOP companies have as a goal “sustaining” their independent employee owned structure into perpetuity?