Business Section of the Utah Bar Association The Exit Planning Executive Briefing February 9, 2011

1. Business Section of the Utah Bar AssociationThe Exit Planning Executive BriefingFebruary 9, 2011 Presented by Gregory W. Williams

2. Ingredients of a Successful Exit An Exit Plan based on the owner�s objectives. An experienced team of advisors to design and implement the plan. Cash flow and a quantified business value. A strong management team in place. Time.

3. The Seven Step Exit Planning Process� What is exit planning? Well, it�s pretty simple. We follow a systematic process. We have seven steps and these seven steps do not necessarily occur in this order but we do need to ensure that we accomplish all of them. The one step that must happen first is Identifying Exit Objectives. In this step, it is our job to determine exactly what you want to accomplish in leaving your business, and that oftentimes goes far beyond the basic objectives - when you want to leave, how much money you will need, and so forth to - to other objectives. Once we understand your objectives in leaving your business, our next step is to Quantify your Business and Personal Resources, in terms of your objectives. In other words, the value we place on the business and what you take from the business financially may be two different things. Our job with the valuation step is to control the tax consequences. Our third step, Maximizing and Protecting Value, is an equally important step. Here, this is the place where we preserve value from the grasp of your silent business partner, the IRS. We need to protect value from current and future creditors and we also need to and most importantly need to promote value, grow value in your business throughout this transition process, and we�ll talk quite a bit about that today. Steps four and five really go together. Are we selling this business to a third party for cash? Are we selling this business to a insider, family member, key employee, key employee group? Are we selling it an insider for a note? Our sixth step is Business Continuity Planning, or the �what happens if you gets hit by a bus� step. Here we ensure that your family will benefit from your life�s work if, if something should happen to you. Finally, we have our Personal Wealth and Estate Planning step, and this is where we ensure that the wealth your have accumulated and the wealth you take from the business accomplishes your goals and those of generations to come. Quite honestly, what we�re doing here is trying to minimize the tax consequences to both the owner and your family in the transfer of that wealth. So, let�s dive in and take a look at each of these steps independently and get a better grasp on the kinds of things that you should do if you are going to successfully, and I mean successfully under your terms, leave your business (NEXT SLIDE) What is exit planning? Well, it�s pretty simple. We follow a systematic process. We have seven steps and these seven steps do not necessarily occur in this order but we do need to ensure that we accomplish all of them. The one step that must happen first is Identifying Exit Objectives. In this step, it is our job to determine exactly what you want to accomplish in leaving your business, and that oftentimes goes far beyond the basic objectives - when you want to leave, how much money you will need, and so forth to - to other objectives. Once we understand your objectives in leaving your business, our next step is to Quantify your Business and Personal Resources, in terms of your objectives. In other words, the value we place on the business and what you take from the business financially may be two different things. Our job with the valuation step is to control the tax consequences. Our third step, Maximizing and Protecting Value, is an equally important step. Here, this is the place where we preserve value from the grasp of your silent business partner, the IRS. We need to protect value from current and future creditors and we also need to and most importantly need to promote value, grow value in your business throughout this transition process, and we�ll talk quite a bit about that today. Steps four and five really go together. Are we selling this business to a third party for cash? Are we selling this business to a insider, family member, key employee, key employee group? Are we selling it an insider for a note? Our sixth step is Business Continuity Planning, or the �what happens if you gets hit by a bus� step. Here we ensure that your family will benefit from your life�s work if, if something should happen to you. Finally, we have our Personal Wealth and Estate Planning step, and this is where we ensure that the wealth your have accumulated and the wealth you take from the business accomplishes your goals and those of generations to come. Quite honestly, what we�re doing here is trying to minimize the tax consequences to both the owner and your family in the transfer of that wealth. So, let�s dive in and take a look at each of these steps independently and get a better grasp on the kinds of things that you should do if you are going to successfully, and I mean successfully under your terms, leave your business (NEXT SLIDE)

4. Step One: Identify Exit Objectives Universal Objectives How much longer does the owner want to work in the business before retiring or moving on? _________ years What annual after-tax income does the owner want during retirement (in today�s dollars)? $_________ To whom does the owner want to transfer the business? Family? Co-Owner? Key Employee(s)? Outside party? ESOP?

5. Step One: Identify Exit Objectives Working with a Team of Advisors No one professional has all the answers. Diverse skills and talents are necessary. Team approach minimizes time and cost. If properly facilitated and led.

6. Step One: Identify Exit Objectives Who is on the Advisor Team?

7. Business Value Benefits to the Owner Provides a baseline value by projecting cash flow. Measures business and personal resources both today and as a basis for future projections. Allows you to monitor progress toward the stated objectives.

8. Step Two: Quantify Business and Personal Financial Resources Role of the Attorney Assist in determining appropriate type of valuation. Help select valuation advisor depending on owner's objective (sale to third party or transfer to insider). Evaluate methods of reducing business value (e.g. Unfunded Non-Qualified Deferred Compensation Plan). Opportunity: Provide new services and value to existing clients.

9. Step Three: Maximize and Protect Business Value Benefits to the Owner Grow business value and intangible value of the business. Reduce income taxes upon sale of business. Protect assets from potential business and personal creditors. Create ability to sell the business. Motivate and keep Key Employees.

10. Step Three: Maximize and Protect Business Value Promote Value Through Value Drivers Focus on increasing cash flow. Develop operating systems that improve sustainability of cash flows. Solidify and diversify customer base. Implement strategies to grow the company. Improve company performance as measured by industry metrics. Build a solid management team and groom a successor.

11. Step Three: Maximize and Protect Business Value Role of the Attorney Conduct Annual Planning Meeting with all Advisory Team members present. Periodically review entity status (C vs S). Identify tools to protect business value during periods of growing or flat performance. Analyze federal and state law implications of proposed strategies. Draft legal documents necessary to implement recommended strategies. Opportunity: Meet with client, typically 3-15 hours. Draft summaries of recommended documents, as well as final documents. Fees

12. Step Four: Ownership Transfer to Third Parties Benefits to the Owner Cash at closing. Eliminate financial risk. No family succession issues. Speed of exit.

13. Step Four: Ownership Transfer to Third Parties Third Party Sales � Not Just About the Business Ability to sell and business value are determined by: Intrinsic Value: the value drivers. Extrinsic Value: the value the market places on the business. Effectiveness of the sale process.

14. Step Four: Ownership Transfer to Third Parties Role of the Attorney Tax analysis related to the proposed sale of company. Legal due diligence. Preparation and review of all transaction documents. Negotiation of a definitive agreement. Design and draft Sale Bonus plan for important employees. Opportunity: Representation of owner/business in sale (generating fees). Respond to post-closing indemnification claims.

15. Step Five: Ownership Transfer to Insiders Benefits to the Owner Achieves Exit Objective of: Selling to Key Employee Group (KEG). Transferring to a Child. Motivates and retains key employees. Planning reduces risk and increases amount of money received.

16. Step Five: Ownership Transfer to Insiders Role of the Attorney Analyze legal issues related to proposed transactions (state, federal and tax law compliance with documents). Draft summaries of proposed agreements. Draft and implement agreements and other documents implementing transfer/s. Draft documents providing incentives to key employees not receiving ownership. Opportunity: Generate revenue from creation of documents that implement one or more ownership transfers. Generate fees on a flat or hourly fee basis for document drafting, implementation and follow-up.

17. Step Six: Business Continuity Planning Benefits to the Owner Objectives can still be achieved if you don�t survive your exit. Retains ownership and control of company if co-owner departs. Can force non-contributing owners to leave the business. Provides consistency between lifetime and death objectives. Ensures survival of the business for the benefit of others. Results in family receiving value of owner�s interest, in cash.

18. Step Six: Business Continuity Planning Role of the Attorney Prepare legal business and estate planning documents. Prepare Stay Bonus Agreement. Assist owner in positioning business to operate independently if owners is unable to remain involved. Opportunity: Prepare business continuity documents generating fees. Implementation of documents and agreements if a death or disability occurs.

19. Step Seven: Personal Wealth and Estate Planning Benefits to the Owner Preserve wealth, minimize taxes using both lifetime and death planning tools. Coordinates and integrates lifetime exit objectives wishes with estate plan. In effect, estate planning becomes part of business planning.

20. Step Seven: Personal Wealth and Estate Planning Role of the Attorney Perform overall estate planning. Revise and update estate plan as circumstances change. Coordinate planning for business and non-business assets when a child is the proposed successor owner. Educate owner on structure and function of estate planning strategies. Transfer business interests to children prior to a third party sale. Create related entities to be partly owned by children. Perform charitable income/estate tax planning.

21. Step Seven: Personal Wealth and Estate Planning Role of the Attorney Opportunity: Collect fees for creating and updating estate planning documents (Fees generally between $5K and $25K). Collect hourly fees for family meetings to explain planning to beneficiaries. Collect probate and estate administration fees. Manage personal asset protection and transfers.

22. Of course, you may decide that this long process is a little bit too long and you have something that is important and urgent for you to do. As part of this Executive Briefing, we've handed out a workbook for you to fill out, and if you take a minute to look through that, you will see that the purpose of the workbook is to have you identify why is most important to you in this entire process, and secondly, what is most urgent. What needs to be addressed sooner, rather than later? So it may be important that you develop a business continuity plan; but it may be urgent, as well, that you do something to keep your key employees, because they're threatening to leave or you're concerned that they might leave. That's Step�Three, or the Maximizing and Protecting Business Value, discussion that we should have. So you can either approach Exit Planning as a whole, and do the entire planning process � which is what most owners do � or you can address what is most concerning to you first, resolve that, and then move on to the rest of the planning process. The choice is really yours. Now, as an aside, some of you may not even want to use this slide because you may want to insist, as I did when I practiced law, that every client go through the entire Exit Planning process. But that may be a little short-sighted, because some of the clients may really not be willing to do that until we solve a burning issue with them and I think for that reason it's probably good to use this slide, so that if they do have that concern they can express it to you at the very outset of the planning process. Of course, you may decide that this long process is a little bit too long and you have something that is important and urgent for you to do. As part of this Executive Briefing, we've handed out a workbook for you to fill out, and if you take a minute to look through that, you will see that the purpose of the workbook is to have you identify why is most important to you in this entire process, and secondly, what is most urgent. What needs to be addressed sooner, rather than later? So it may be important that you develop a business continuity plan; but it may be urgent, as well, that you do something to keep your key employees, because they're threatening to leave or you're concerned that they might leave. That's Step�Three, or the Maximizing and Protecting Business Value, discussion that we should have. So you can either approach Exit Planning as a whole, and do the entire planning process � which is what most owners do � or you can address what is most concerning to you first, resolve that, and then move on to the rest of the planning process. The choice is really yours. Now, as an aside, some of you may not even want to use this slide because you may want to insist, as I did when I practiced law, that every client go through the entire Exit Planning process. But that may be a little short-sighted, because some of the clients may really not be willing to do that until we solve a burning issue with them and I think for that reason it's probably good to use this slide, so that if they do have that concern they can express it to you at the very outset of the planning process.

23. The Exit Planning Executive Briefing At some point, every owner leaves his or her business - voluntarily or otherwise. At that time, every owner wants to receive the maximum amount of money in order to accomplish personal, financial, income and estate planning goals

24. Thank You Gregory W. Williams, MSFS, CFP Certified Family Business Specialist Exit Strategy Specialists, LLC 6340 S. 3000 E., Suite 500 Salt Lake City, Utah 84121 (801) 453-2271 gwwilliams@finsvcs.com