EXIT STRATEGY PLANNING “Achieving optimum value for your business” 7/2/20151 PACE CAPITAL RESOURCES, LLC

MARKET NEED Based on a 2005 survey by PriceWaterhouseCoopers’: – More than 4.5 million business owners are 50 years old or older. – 67% of business owners of firms with revenues from $5 million to $150 million plan to leave the business within the 10 years. – More than 75% of the owners have not done much planning for what will probably be the single most significant financial event of their lives. M&A Marketplace: ―Success rate is 1 in 4 actually sells (1) ―Success rate for businesses with sales of $10 million – 1 in 3 (1) ―Success rate for businesses with sales above $10 million – (1) (1) 2005 Business Reference Guide by Tom West 7/2/2015 PACE CAPITAL RESOURCES, LLC 2

EXIT ALTERNATIVES Sell to a Strategic Buyer – 100% liquidity. Sell to a Financial Buyer – up to 100% liquidity. Sell to Management/Family– up to 100% liquidity. Recap – harvest a majority of your net worth and retain minority ownership “for a second bite of the apple” but still maintain operational control of the business. ESOP – up to 100% liquidity selling the business to the employees. IPO – initial public offering. Liquidate. Is your company positioned to consider multiple exit alternatives or are your alternatives limited? 7/2/2015 PACE CAPITAL RESOURCES, LLC 3

ISSUES LIMITING EXIT ALTERNATIVES AND VALUE Is there an heir apparent to run the business in the future? Do you have the management depth to take the business to the next level? Does your largest customer account for less than 20% of sales? Do you have multiple suppliers for product or raw materials? Do you have systems and processes to properly manage the business in the future and provide the level of service expected from your customer base? Does the business have opportunities for growth through geographic expansion, product line extensions or new channels of distribution? Do you have excess capacity to support future growth? A “NO” to any of these questions may limit your alternatives and depress the value of your business. Proper Exit Strategy Planning addressing these and other issues will produce the desired results positioning the business as an attractive investment from multiple sources. 7/2/2015 PACE CAPITAL RESOURCES, LLC 4

THE ISSUES Exit Strategy Planning involves answering "Yes" to seven questions: Do you know your exact retirement goals and what it will take, in cash, to reach them? Do you know how much your business is worth today, in cash? Do you know to position your business to maximize enterprise value? Do you know how to sell your business to a third party and pay the least possible taxes? Do you know how to transfer your business to family members, co-owners, or employees while paying the least possible taxes and enjoying maximum financial security? Do you have a continuity plan for your business if the unexpected happens to you? Do you have a plan to secure financial independence for your family if the unexpected happens to you? 7/2/2015 PACE CAPITAL RESOURCES, LLC 5

INGREDIANTS OF A SUCCESSFUL EXIT A written Exit Strategy Plan based on an owner’s objectives. Designed and implemented by an experienced team of advisors. Cash flow, maximizing value Management Team capable of running the business. Time. 7/2/2015 PACE CAPITAL RESOURCES, LLC 6

EXIT PLAN COMPONENTS 7/2/2015 PACE CAPITAL RESOURCES, LLC 7

SEVEN STEP PROCESS Step 1 – Indentify Exit Objectives Step 2 – Quantify Business and Personal Financial Resources Step 3 – Maximizing and Protecting Business Value Step 4 – Ownership Transfer - Selling to Third Parties Step 5 – Ownership Transfer - Selling to Insiders Step 6 – Business Continuity Step 7 – Personal Wealth and Estate Planning 7/2/2015 PACE CAPITAL RESOURCES, LLC 8

1. IDENTIFY EXIT OBJECTIVES The process begins with answering three questions: How much longer does an owner want to work in the business before retiring or moving on? What annual after-tax income does the owner want during retirement? To whom does the owner want to sell the business? Benefits to the Owner: Clarifies priorities. Facilitates progress by indentifying a desired outcome. Controls and defines the Exit Strategy Planning process. 7/2/2015 PACE CAPITAL RESOURCES, LLC 9

1. IDENTIFY EXIT OBJECTIVES Additional Objectives: Shift wealth to children. Provide charitable gifts or transfers. Reward employees. Receive full value for the business. Take business to the next level. 7/2/2015 PACE CAPITAL RESOURCES, LLC 10

1. IDENTIFY EXIT OBJECTIVES Advisory Team: Who is the advisory team? – Attorney – Estate, Tax, Corporate – Wealth Management Advisor, Financial Planner – CPA – Insurance Advisor – Valuation Specialist – Exit Strategy Planning Specialist No one professional has all the answers. Diverse skills and talents are necessary. Team approach minimizes time and cost. 7/2/2015 PACE CAPITAL RESOURCES, LLC 11

2. QUANTIFY BUSINESS AND PERSONAL FINANCIAL RESOURCES Perform a third party valuation of the business. Perform a “needs assessment” to determine the amount of after-tax dollars needed to lead the desired lifestyle after exiting the business. Do the combined business and personal financial resources meet your objectives? 7/2/2015 PACE CAPITAL RESOURCES, LLC 12

3. MAXIMIZING AND PROTECTING BUSINESS VALUE Benefits to the Owner: Increase enterprise value by creating and enhancing the value drivers of the business. Tax strategy -reduce income taxes upon sale of business. Protect assets from potential business and personal creditors. Motivate and keep key employees. Create ability to sell the business. 7/2/2015 PACE CAPITAL RESOURCES, LLC 13

3. MAXIMIZING AND PROTECTING BUSINESS VALUE Value Drivers: Proven management team. Reliable operating systems and processes. Effective financial controls. Realistic growth strategy. Product differentiation. Proprietary technology. Market defensibility. Established and diversified customer base. Established and diversified vendor base. 7/2/2015 PACE CAPITAL RESOURCES, LLC 14

3. MAXIMIZING AND PROTECTING BUSINESS VALUE Process: Assess industry structure, the balance of power of your business (Supplier Power, Buyer Power, Competitive Rivalry, Threat of Substitution and Threat of New Entry). Perform a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of the business. Analyze competitive position, advantages and value drivers of the business. Review operating systems and processes. Assess human resources, asset and capital requirements. Assess value creation alternatives. Develop a strategic plan to enhance the value drivers of the business and address weaknesses and threats; positioning the business to achieve optimum value on an after tax basis. 7/2/2015 PACE CAPITAL RESOURCES, LLC 15

FIVE FORCES – BALANCE OF POWER Threat of New Entry: C ompetitive Rivalry: Cost advantages Number of Competitors Economies of scale Quality differences Time and cost of entry Customer loyalty Barriers to entry Switching costs Supply Power: Number of suppliers Buyer Power: Size Number of customers Cost of Changing Price sensitivity Ability to substitute Threat of Substitute: Cost of Change Performance 7/2/2015 PACE CAPITAL RESOURCES, LLC 16 Competitive Rivalry Supplier PowerBuyer Power Threat of New Entry Threat of Substitute

SWOT ANALYSIS Strengths:Weaknesses: What do others see as your strengths?What factors lose you sales? What do you do well?What could you improve? What advantages do you have?Where do you have fewer resources? What unique resources do you have?What do others see as weaknesses? Opportunities:Threats: What opportunities are open to you?What trends can harm you? Take advantage of current trends?What is your competition doing? Can you turn your strengths into opportunities? What threats do your weaknesses expose you to? 7/2/2015 PACE CAPITAL RESOURCES, LLC 17

3. MAXIMIZING AND PROTECTING BUSINESS VALUE Possible recommendations: Management Team Development Plan. Profit margin improvements (outsourcing processes, procurement costs, pricing, production improvements, cost reductions, acquisitions). Key Employee Incentive Compensation Plan (stock bonus, stock appreciation rights, non-qualified compensation plan, cash bonus). Separation of business assets from business operations. Non- solicitation, Non-compete agreements. Wealth transfer to children during owner’s lifetime. 7/2/2015 PACE CAPITAL RESOURCES, LLC 18

4. OWNERSHIP TRANSFER – SELLING TO THIRD PARTIES Benefits to Owner: Cash at closing. Eliminate or reduce financial risk. No family succession issues. Speed of exit. 7/2/2015 PACE CAPITAL RESOURCES, LLC 19

4. OWNERSHIP TRANSFER – SELLING TO THIRD PARTIES Considerations: Ability to sell and business value determined by: ―Intrinsic Value: the value drivers ―Extrinsic Value: the value the market places on the business ―Effectiveness of the sale process M&A Marketplace: ―Success rate is one out of four actually sells (1) ―Success rate for businesses with sales of $10 million – one out of three (1) ―Success rate for businesses with sales above $10 million – (1) Positioning the business for sale, pre-sale due diligence and tax planning. (1) 2005 Business Reference Guide by Tom West 7/2/2015 PACE CAPITAL RESOURCES, LLC 20

5. OWNERSHIP TRANSFER - SELLING TO INSIDERS Benefits to the Owner: Achieves exit objective of: ―Selling to key employee group ―Transferring to a relative Motivates and retains key employees. Planning reduces risk and increases amount of cash received by minimizing the tax consequences for both the seller and buyer. 7/2/2015 PACE CAPITAL RESOURCES, LLC 21

5. OWNERSHIP TRANSFER - SELLING TO INSIDERS Sale to a Third Party for Cash: 7/2/2015 PACE CAPITAL RESOURCES, LLC 22 Fair Market Value = $10,000,000 Cash Flow = $2,500,000 Buyer Cash for purchase Owner $8,000,000 Net of Tax

5. OWNERSHIP TRANSFER - SELLING TO INSIDERS Sale to Employee for Installment Note: 7/2/2015 PACE CAPITAL RESOURCES, LLC 23 Fair Market Value = $10,000,000 Cash Flow = $2,500,000 Employee Cash flow from business $2,500,000 - $1,500,000 (net of taxes) Cash to Owner $1,200,000 (net of taxes) Owner $8,000,000 Net of Tax Timing: 7 – 9 years

5. OWNERSHIP TRANSFER - SELLING TO INSIDERS Transfer to Employee Phase 1: 7/2/2015 PACE CAPITAL RESOURCES, LLC 24 Fair Market Value = $5,000,000 - $10,000,000 Cash Flow = $2,500,000 Employee Purchased 40% for $2,000,000 ($1,000,000 of cash flow per year to employee) Owner $480,000 Net of Tax $1,440,000 After 3 Years Owner Cash flow from business $1,500,000 Owner $900,000 Net of Tax $2,700,000 After 3 Years

5. OWNERSHIP TRANSFER - SELLING TO INSIDERS Transfer to Employee Phase 2: 7/2/2015 PACE CAPITAL RESOURCES, LLC 25 Fair Market Value = $5,000,000 - $10,000,000 Cash Flow = $2,500,000 Employee Purchased 60% for $6,000,000 Owner $4,800,000 Net of Tax Timing: 3 years Owner $8,940,000 After 3 Years

5. OWNERSHIP TRANSFER - SELLING TO INSIDERS Possible recommendations: Sale of ownership interest (cash, note or bank financing). Bonus or gift of ownership interest. Grantor Retained Annuity Trust (GRAT). Non-qualified deferred compensation plan (409a). Buy back agreement for minority owner. 7/2/2015 PACE CAPITAL RESOURCES, LLC 26

FAMILY SUCCESSION ISSUES Only one third of family businesses are passed to the second generation Only 10% are passed to the third generation Reasons: Children may not get along Different career goals Inability for parents to achieve financial goals Unable to run the business 7/2/2015 PACE CAPITAL RESOURCES, LLC 27

INGREDIENTS OF SUCCESSFUL TRANSFER A written plan – Defines financial independence – Defines fairness in distribution – Timeline Only one child becomes sole successor or at least control Business transition plan is fair to all Parents achieve financial security independent of the business Business active child demonstrates the ability and willingness to run the business There is a backup Plan B 7/2/2015 PACE CAPITAL RESOURCES, LLC 28

INGREDIENTS OF SUCCESSFUL TRANSFER Reasons for backup Plan B: Value increases to a point a buyout is financially too difficult Increase in value exceeds value of other assets – “fairness” Business becomes too complex or sophisticated for one child Child losses interest or becomes ill 7/2/2015 PACE CAPITAL RESOURCES, LLC 29

6. BUSINESS CONTINUITY PLANNING Benefits to the Owner: Objectives can still be achieved if you do not survive your exit. Retains ownership and control of business if co-owners depart. 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 by: – Addressing continuity of ownership – Addressing the potential loss of financial resources – Addressing loss of key talent, customers and vendors 7/2/2015 PACE CAPITAL RESOURCES, LLC 30

6. BUSINESS CONTINUITY PLANNING Possible Recommendations: Review and update continuity guidelines. Review and update Buy-Sell (Shareholder) Agreement – Valuation – Funding mechanism – Address voluntary and involuntary termination Insurance for continuity planning. Stay bonus plan. Plan for financial independence of the business. 7/2/2015 PACE CAPITAL RESOURCES, LLC 31

7. 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 with the estate plan. In effect, estate planning becomes part of the business planning. 7/2/2015 PACE CAPITAL RESOURCES, LLC 32

7. PERSONAL WEALTH AND ESTATE PLANNING Possible Recommendations: Personal asset protection planning. Personal and family insurance. Transferring of specific non-business assets. Personal wealth management plan. 7/2/2015 PACE CAPITAL RESOURCES, LLC 33

REALITY Eventually every owner will exit their business voluntarily or otherwise. Proper Exit Strategy Planning will enable you to: transition under your time frame maximize the after-tax value of your business ensure continuity in case of an unexpected event assure financial security for you and your family 7/2/2015 PACE CAPITAL RESOURCES, LLC 34