The Anatomy of Selling Your Business

1. INDUSTRIES, L.P. The Anatomy of Selling Your Business Presented By: Performance Industries, L.P. Phone: (717) 560-3704 Fax: (717) 560-3707 Web Site: www.PerformanceIndustries.com

2. Considerations for Selling Your Business • When & Why to Sell • Who Are The Buyers • Managing The Process • Valuation

3. When & Why to Sell • Sell on an Upswing • Downward Trends Depress Prices or Scare Off Buyers • Good Reasons: • Retirement/Relocation • Too much growth to manage • Capital needs for expansion • Business Continuation

4. When & Why to Sell • Bad Reasons: • Business downturn • High maintenance • Ownership dispute • Death of partner/owner • Burn-out

5. Who Are The Buyers • Corporate Strategic Buyers • Financial Buyers • Platforms • Add-ons • Turnaround/fixer-uppers

6. Synergistic Buyers Cost savings Product extensions Market extensions Market share Technology New Business Buyers Earnings accretion Public market Growth potential Profit potential Competitive leaders Who Are The BuyersCorporate Strategic Buyers Corporate buyers believe they acquire for the long term. They do not buy with a subsequent exit in mind.

7. What They Want: Clean company Strong management Scale and strong market share Growth potential internally or through acquisition Why They Want It: No-problem ownership Managers who can grow the business Public market exit potential based on growth, size, share Strategic buyer exit available Who Are The BuyersFinancial BuyersSeeking Platforms

8. Who Are The BuyersPositioning for Exit • Evaluate Your Company vs. Buyer Desires • Strengths • Shortcomings to address • Problems to fix • Identify Your Likely Buyers • Establish The Timing For Exit • Develop an Exit Action Plan

9. When To SellIf The Time to Sell is NOW • Address Potential Issues • Clean up the company legally • Clean up books, financial issues • Identify and clean up environmental issues • Give buildings, etc., a facelift • Emphasize Fit With Your Target Market • Expose and Plan to Manage Problem Areas

10. When To SellIf You Have Years to Go • Let Exit Plans Drive the Corporate Strategy • Sell or Close Businesses That Don’t Fit • Attack Problems That Undercut Value: • Management capability or age, operational financial improvements, environmental or other contingencies • Build Business in Areas Vital to Exit Story

11. When It Is Time To Sell Management Issues • Make Management Your Partner • Stock ownership or sharing in the proceeds • Gives management currency to invest in LBO • Address Severance Fears • Bonus for staying through sale, or parachute • Seriously Support an MBO—or Forbid It • Financial buyers create MBO – like opportunity • Avoid loss of focus, conflict of interest

12. When It Is Time To Sell Some Guidelines When Selecting Investment Bankers • Hire a Firm to Run Your Process • Big deals may overwhelm small firms • Big firms may not perform on smaller deals • Hire Professionals, and Check References • Hire the individuals – not the brand name • Don’t get greedy – hire realists who deliver • Focus on execution

13. Managing The ProcessDue Diligence • Buyer • Information about the business • Desirability of acquisition • Purchase price calculation • Avoid post-closing surprises • Do not rely solely on representations and warranties • Surprises • Lawsuits

14. Managing The ProcessDue Diligence • Seller • Protect trade secrets and techniques of operation • Avoid publicity and effect on employees, customers, suppliers, lenders, etc. • May need to assess financial condition, business acumen of buyer in cases with deferred compensation or stock consideration

15. Managing The ProcessConfidentiality Agreements • No Disclosure of Financial Information, Trade Secrets, etc. • Definition of Confidential Information • Exceptions • Time Period • Return of Information • Buyer generated analyses

16. Managing The ProcessLetters of Intent • After Confidentiality Agreements • Confidentiality May be Included in Letter of Intent Where Due Diligence Subsequent or Continuing • Basic Terms and Conditions of Transaction • Level of detail: move instead immediately to definitive agreement? • Additional bargaining power on definitive agreement? • Unwitting concessions? • Social issues?

17. Managing The ProcessLetters of Intent • Disadvantages • Any advantage to seller? • Merely “commits” to deal with no assurance? • Buyer • Invite competing offers especially if disclosure by public company • Advantages • Parties may be unwilling to expend time, effort and money to investigate proposed transaction without at least a non-binding LOI • Useful guide for future negotiations • Identify no meeting of the minds

18. Timing Close simultaneously? Process Drafting responsibility Business Understandings Description of stock or assets General or specific Excluded assets Calculation of purchase price Payment terms Deferred payments Security Subordination Assumed liabilities Taxes Closing Managing The ProcessAcquisition Agreements

19. Managing The ProcessRepresentations and Warranties • Categories of Representations • Legal matters as to seller • Financial statements • Historical • Absence of changes • Assets • Condition • Necessary assets • Title • Categories

20. Managing The ProcessRepresentations and Warranties • Categories • AR • Collectibility • Inventory • Accounting method and resources • M&E • Condition • Real Estate • Title • Contracts • Consents • Intellectual Property • Infringement

21. Employees Listing Compensation Benefits Customers Liabilities Litigation Environment Laws Tax ERISA Brokers 10b-5 Schedules Managing The ProcessRepresentations and Warranties

22. Managing The ProcessConditions Precedent • Bring-Down • Material Adverse Change • Third Party Consents, Lien Releases, etc. • Opinions • Fairness Opinions, Comfort Letters, etc. • Votes • Financing • Regulatory, etc. Approvals

23. Managing The ProcessOther • Closing • Termination • Drop dead date

24. Managing The ProcessAncillary Agreements • Employment/Consulting Agreements • Condition to closing for either or both parties • Induce principals of seller to remain involved • Transition • Promote relationships with customers and suppliers • Induce key employees to remain • Employee v. independent contractor • Extent of required services, time, commitment, etc.

25. Managing The ProcessAncillary Agreements • Non-Competition Agreements • May or may not be related to employment/consulting arrangements • Time, geographic scope and activities • Exceptions • Non-solicitation • Non-disclosure

26. Managing The ProcessEarnouts • Definition of Target • Separate accounting • Overhead • Management fees • Taxes • Cost of capital and loans • Degree of control • Covenants • Should be viewed as “bonus” if received