Business Law & Practice Section MCLE Meeting Attorney Resource Center

September 20. 2018

11:45 AM – Noon Welcome/Introductions Allison Cychosz, Section Chair

Noon – 1:00 PM Program

Helping Your Client Prepare the Business for Sale Nancy Fallon-Houle, Velocity Law, LLC

Nancy Fallon-Houle has been a business lawyer for 30+ years. She owns "Velocity Law”, a small boutique business law firm of 2.5 employees, in Downers Grove, IL. Velocity Law represents entrepreneurs, startups, small businesses and growth companies, in their business transactions, corporate law and securities law matters. Nancy handles:

Business Formations; Corporate Law and “corporate clean up”; Business Transactions; Contracts with Customers, Vendors and Industry Alliance Partners; Shareholder Agreements, LLC Agreements, Partner Agreements ;Adding or Removing partners; Selling the Business, or Buying another one ;Raising Capital, Investor Deal documents, and Securities Law compliance.

Nancy provides practical business law advice, suited to the business. She writes legal documents in clear, concise, Plain English, so the user and reader can understand the legal rights and obligations.

Before owning her own law firm for the past 20 years, Nancy was a corporate, securities and M&A lawyer for 12 years, at large downtown Chicago law firm, Katten Muchin & Zavis.

Velocity Law, LLC, http://velocitylaw.com/5449 Bending Oaks Place, Downers Grove, IL 60515

Presentation Summary

A discussion of the short-term and long-term preparation by a business owner to sell a business. An understanding of common deal expectations of the seller and a discussion of closing transaction expections.

Next Meeting: October 9th - “Anatomy of a Shareholder Derivative Suit” by Michael Haeberle and Peter Evans

DCBA Events: Sept. 20th – 5:30 p.m. Happy Hour Granite City, Naperville

Sept. 26th – 5:30 p.m. Fall Member Picnic, Danada House

Sept. 27th –Volunteers needed for Ask a Lawyer Help Desk 505 Building, Room 2017. 1:00 p.m. – 4:30 p.m. Oct. 18th – 5:30 p.m. Happy Hour Cooper’s Corner, Winfield

Earn CLE Online!

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Manage Profile -> Professional Development (under content & features) and choose the icon to the left of each meeting to print your certificate directly or choose to have them emailed to you to save to your computer (you MUST be logged in to view this feature)

DuPage County Bar Association

Preparing a Business For SaleAnd

Surviving Buyer Due Diligence

Wheaton, ILSeptember 20, 2018

Nancy Fallon-Houle – Velocity Law, LLC © nfallon@velocitylaw.com (630)963-0439 x 22

https://www.velocitylaw.com/

Speaker BioNancy Fallon-Houle has been a business lawyer for 30+ years. She owns "Velocity Law”, a small boutique business law firm of 2.5 employees, in Downers Grove, IL. Velocity Law represents entrepreneurs, startups, small businesses and growth companies, in their business transactions, corporate law, acquisition or sale of business, and securities law matters. Nancy handles:

Business Formations Corporate Law and “corporate clean up” Business Transactions Contracts with Customers, Vendors and Industry Alliance Partners Shareholder Agreements, LLC Agreements, Partner Agreements Adding or Removing partners Selling the Business, or Buying another one Raising Capital, Investor Deal documents, and Securities Law compliance

Nancy provides practical business law advice, suited to the business. She writes legal documents in clear, concise, Plain English, so the user and reader can understand the legal rights and obligations.

Before owning her own law firm for the past 20 years, Nancy was a corporate, securities and M&A lawyer for 12 years, at large downtown Chicago law firm, Katten Muchin & Zavis.

Velocity Law, LLC, http://velocitylaw.com/ 5449 Bending Oaks Place, Downers Grove, IL 60515630-963-0439 x 22 nfallon@velocitylaw.com

Preparing a Business for Sale - Summary Due Diligence, Who, What, Why, How Due Diligence Preparation on:

Company Principals Legal Compliance & Contracts Business Issues with Legal Implications Intellectual Property Technology and Operations Industry Physical Assets Financials; Tax Compliance

(Pages 1-8, 11 Handout, Slides 4 -16) Deal Preparation (Page 9-10, 12-13 Slides 17-20) Deal Terms & Sellers’ & Buyers’ Expectations (Deal Terms

Often Not Expected by Seller) (Page 10-11, Slides 18-22) Closing (Slide 22)

Due Diligence Applies whether: Selling Your Business, Adding Private Equity owners, Your Buyer is Borrowing Money from a Lender to Buy

Your Business, or You or Your Buyer are Raising Money from Investors

Due Diligence: Who Conducts It and Why? Buyer of Your Business (or part of it, as in Private Equity) Lenders and Banks – Before lending money to your

Buyer to buy your business Business Broker – Who Helps Sell the Business Industry Strategic Partners (for JVs, investments,

referrals, product testing or product trials) Investors (VCs, angels, funds, PEs, solo investors) if you

seek investment from them, in any investment type: 4(a)(2). Reg D 506(b) or (c), Reg D 504, Reg CF, Reg A or IPO

Co-owners, Partners – before becoming partners.

Vendors – Before extending you credit or services

Customers and Clients, larger corporate customers Portal for Reg CF Offering or Reg A Offering Broker-Dealer or Underwriter for purchase by public co, or if your company does IPO

Employees! (“investing” their career with you! Millennials check out everything online!)

Certification Boards for gov’t certification for WBE, MBE, VBE.

What is Due Diligence? Fact-checking & proving, substance checking.Documenting and document collecting. No oral statements, no handshake deals. Everything done right. = If not it decreases the price of the business.

When? Before buying or investing in the business: Buyers conduct due diligence on you, your company, your records and your business.

How to Survive the proctology exam? It is overwhelming, but: Be Organized, Be Prepared (Long Before Sale or Need Capital)

Anticipate Questions, have Answers Prepared in Writing. Provide, or Create Documents With Facts, in Writing

Where? Save docs to a Folder on Your Server or Cloud Storage; Be Prepared to Upload to DropBox or Data Room, Sign by DocuSign

What Do They Check?

Background Due Diligence on Principals: Background Checks Principals: Directors, executive officers, officers, key employees,

Control Persons (10% beneficial owner), promoter, placement agent; Criminal, fraud, SEC or regulatory actions, revoked licenses, litigation

Financial Due Diligence: Financial Statements, Records, Support Docs

Legal Due Diligence: Corporate, regulatory, litigation, contracts, insurance

Intellectual Property Due Diligence: Document Ownership of IP

Physical Property Diligence: UCC Lien Search; Asset Search; Real Estate

Technology, Cybersecurity (The tech that runs your business, not the tech you are creating for others ... well that too); Backups, Cybersecurity

Business and Industry Due Diligence: Industry check and reputation

Deal Term Due Diligence – Do financial numbers add up, sync with doc reps and term sheet reps ?

Background Due Diligence - Principals & Company Clean Backgrounds on Principals & Company are Key

Buyers or investors will walk if any issues. Run your own background checks on yourselves, avert surprises: The Company (the “Seller” or the “Issuer” if Investors) Principals: Directors, Officers, Owners, Prior business entities Affiliated entities

Background checks for: Criminal, fraud, regulatory dings, licenses revocation, for: Deal due diligence and SEC Compliance & Disclosure Document

Legal: Tax liens, UCC Liens, litigation, bankruptcy Credit Check Social Media, Google Search Business Reputation Control Freak Owner vs. Delegator (May Need Coaching)

Financial Due Diligence: Financial RecordsInvestors & Buyers Want: Financial Statements: P&L (Income Statement), Balance

Sheet, SHs Equity (Owners Equity), Cash Flows Statement, EBITDA, Statement of Changes in Financial Position, ROI, Assets List, Depreciation Sched, SH Loan Accounts. Reviewed by qualified CPA.

Run Your Own P&Ls & Review Clean up your Balance Sheet, AR, Inventory, Assets Have Your financial accountant review (not tax accountant).

Accounting Records in QuickBooks or “Zero” Double Entry Accounting System (not in Excel); Assets in Excel OK Need both Debits & Credits to run Financial Statements

Clean Financial Records: Don’t mix Money Between Business and Personal, or between two businesses.

Don’t pay personal expenses from business checking. Instead: Do paycheck or loan payment or dividend, then write a personal check.

No Check writing from one business account to another, or to pay for expense of another. Separate finances & taxes

Consistency in accounting entries and financials

Financial Due Diligence: Tax, Debt, CPAs Tax Returns and Proof of Tax Compliance:

Income Tax Returns of Business Payroll Tax Returns Sales Tax and Use Tax in IL SALT (“State and Local Tax” in other states)

Must have an accountant who knows SALT tax Industry Financial & Tax Compliance (financial

industry, oil & gas, energy, liquor, transportation)

Tax Returns by Accountants (not Biz owner), for at least annual review, and in all business transactions

Debt Records & Ownership Records Shareholder Loan Accounts Bank Debt, Credit Card Debt, Other Lenders Ownership Records Keep Limits on Debt

Legal Due Diligence: Corporate DocsBuyers don’t invest in a Company built on handshake or missing documents. Must Organize & Document:

Corporate Formalities: Articles of Formation, Tax IDs, Local Business Licenses, Corporate Records Organizing & Operating Resolutions, Transaction Resolutions Signed Corporate authority for signers & agreements, shares authorized, check signers Stock Ledger of Shares Issued or transferred: Ownership % Records, Capital

Contributions, Cap Table, Name & address of owners Authorized Shares Must be higher than issued shares State Qualifications in Other States if office, EE’s, workers, RE SH Agreement? Bylaws. LLC Agreement

Board of Directors or board of Managers elected; Officers Elected Corp Bylaws, SH Agreement, LLC Operating Agreement Corp Annual reports filed with Sec of State, Report Share changes to state Authorize in writing ownership changes and transactions Insurance Industry Regulatory Compliance, Specialty Licenses Vendor & Customer Contracts

Legal Due Diligence (2) Legal Contracts and Risk

Employees vs Contractors – Audit for Correct Conclusions Employee Contracts and NDAs Labor and Employment Compliance Contracts in writing – Customers, Vendors, JV, Partners

Contract terms complied with, and signed. Understand Breach of Contract and consequences of failure to perform, or of

untrue representations; and indemnification. “Reps & Warranties” and “Indemnification” Performance failures Insurance to cover Indemnification Clause.

Website and Cyber: No collecting credit card info on website. Or no Cards held. PCI Compliance Website , marketing and message all consistent and true Monitoring & collection of data – Legal Limitations, privacy policy, compliance with

CAN SPAM Act on emails and newsletters Data Breach prevention and protection; response plan

Environmental Compliance

Securities compliance if any shares or LLC interests have been sold or issued to any investors, employees, consultants, partners

Intellectual Property – Due Diligence Nondisclosures and NonCompete Agreements with

Employees, Partner/ Owners, Vendors, Contractors, Customers, Workers, Industry Partners - Reasonable Scope

Non-Solicitation, non-poaching of customers & employees. Intellectual Property to Run the Business – Ownership: Proof of

development of idea, and / or Licenses and Assignments to company. IP includes: Name, Ideas, Tag Lines, Trade Secrets, Customer List,

Employees, Investors, Vendors; Website, Code, Software, Scientific IP Assets, Inventions, Processes

Co-Developed IP: Assignment of rights or License Agreements in Place. Trademark Search & Filings: Company Name, Logo, Tag Line, Product

Name, (Federal and State) Copyright: Software, websites, writing, art, video, music, images,

manuals, books Patents: Scientific invention or tech invention; Business Process Patent “Trade Secrets” treated as confidential internally ? Audit IP on companies’ websites and social media, license and payment

Physical Property and Assets Diligence

Physical Property & Assets Diligence Real Estate owned. Location, title, purchase price and

date. Value and condition if known, improvements made. Lease Agreements. Is the Lease Assignable to Buyer?

Titled Rolling Assets: Vehicles, cars, trucks, forklifts, boats, larger machines or equipment or warehouse equipment

Machines and Equipment, Manufacturing, Technology

UCC Lien Search; Asset Search; Real Estate, Property

Assets Maintained in good shape and current

Technology Due Diligence, andOperations & Efficiency

Technology in place for Efficiency of your employees:(The tech that runs your business, not the tech you are creating for others … well that too):

Document management/storage and retrieval system Communications and storage of comms, system for Employees Calendaring System Contact Management System (CRM) Domain Name owned and renewed Accounting System, Billing System, Electronic Payment Mechanisms Web Presence, Social Media presence, SEO Equipment and software new (Windows 7 not cyber patched after 12/2018) Backups, daily, of Company Data, machines, systems, software. At least

one duplicate backup to cloud; Disaster Recovery. Customer data protection, and more if required like HIPPA or GDPR Cybersecurity: Virus and hacking protection; Technology Protected Software Licenses, Audit Compliance, Subscriptions, Open Source Use Automate Processes that can be automated

Business and Industry Due Diligence Business Due Diligence: Company processes Documented: Company Knowledge sits in “more than 1 head” Business Succession Persons: Good Mgmt. Team & Employees, cut the deadwood Employee List With: Titles, Roles, Salaries, Start Dates, Employment Contract

Terms, Equity Issued NDAs, Noncompetes with employees Property & Assets Lists, & well- Maintained (Real Estate, Equipment, Tech) Debt limited Risk Management; Limit Legal liability; asses legal risk; diligence on sexual

harassment; criminal actions against co. Examine any Conflicts of Interest Contracts in writing and signed; Legal counsel used Customer or User interviews Leases for Real Estate, Subscriptions

Industry Due Diligence: Science, tech due, mechanical diligence for industry Competition, and the current consumer or B2B replacement for your product Regulation in industry, barriers to entry, data on markets

Deal Preparation – Money & People Valuation:

Understand its effect on price and % to issue if partial sale. Obtain Valuation (at least “eyeball” valuation.) Buyer’s Price or

Investment, and % given up for cash, affected by valuation. Realistic Value Expectations, Seller Not Blind to Shortcomings Future Value is what Buyer Intends to accomplish with his hand,

not what you think it could be if someone bought it Past Salary Not Taken = $0 in deal terms or value.

Business Broker (Optional) - Takes % of Sale Price, Finds Buyers) Estate Planning Lawyer & Financial Advisor: On Team Successor to Seller Owner – Groomed & operating, or seller must stay. Transactional Tax Accountant on team, early (maybe not historical CPA)

Change C Corp to S Corp if CPA chooses ? if owner to avoid 2x Tax –Change 5 Years in Advance.

Asset Purchase or Stock Purchase: CPA Decides. Seller vs. Buyer

Deal Numbers: Do they run consistent with financial statements?

Deal Prep - Disclosure SchedulesLists of Everything Business Owns and Owes, Lists of Material Facts that Might be Negative

Attached to Agreement as Facts Consequences of Errors or Omissions in Disclosure

Schedule = Breach of List = Breach of Agreement If so, Buyer Can breach his end, i.e. stop payments(Page 12 in handout for extensive Disclosure lists)

List Assets and Valuation in IRS Tax Form 8594 for Asset Purchase, required to be attached to Purchase Agreement

Deal Preparation - Tasks Corporate or LLC Authorizing Resolutions or “Enabling

Resolution” required for deal “Market” Deal Terms and Conditions, Educate Yourself

(Client and Lawyer) Estate planning and Tax Considerations Exchange Contact Info of Attorneys and Accountants. Data Room. Be prepared to upload due diligence docs into a

“data room”, have people who can handle that. Buyer Will Form Entity to buy you Out Timing: Buyers or Investors can take months to complete

Due Diligence; and then more months to do deal docs. Realistic expectations as to timing, terms, professional fees. Business Broker brings multiple buyers, entertain all, multiple due

diligence processes tiring. Listen to deal failure reasons from Broker.

Deal Docs - Terms Sellers Don’t Expect

Reps and Warranties: What Are They? Statements, fact by fact, that each fact is true. If not true (breached), then financial penalties Seller pays back to Buyer. No pending or threatened litigation No unpaid tax liabilities Financials correctly state financial position Many, many more

Indemnification – Seller Indemnifies Buyer that Reps & Warranties True. Seller or Buyer buys R&W Insurance

Noncompete Agreement: Seller agrees to get out of this business altogether, will not join or start a business competing with Buyer; Legal for a sale of business, even 10 years in duration.

Deal Terms That Sellers Don’t Expect Seller Financing: Seller Does Not Receive Cash all at Closing

Staged Payments from Buyer (“Seller Note” or “Seller Take Back”)

Loan Payments from business Cash Flow: If Seller’s #’s are solid.

Interest Rate, demand feature, and conditions Buyer can’t afford Bank Loan payments + big Seller payments UCC Financing Lien Filed on Business: Seller against Borrowing Buyer

Buyer can’t skip or end payments if biz doesn’t do well, unless breach of reps & warranties

“Holdbacks” in “Escrow” or staged payments for reaching milestones or to cover unknown risk of loss

Consulting Agreement – Especially if Seller is the Biz Dev or Operations person. Part time, full time? Duration ? Free or hourly ? Continued Service part of price, or not? Rate variable after Consulting required time expires – Tax Effect

Seller “Earn Out” of part of purchase price – Tax Effect

Closing Update Disclosure Schedules List Assets and their Value in IRS Form 8594 for Asset Purchase Update Reps & Warranties, Check for Accuracy Assign Contracts & Leases Closing Adjustments to Purchase Price:

By Accountants for financial changes, and inventory changes, Working Capital Adjustments, and Sometimes by Buyer as the spirit moves them. It’s a tussle!

Closing can be by email, sign by DocuSign, wire money “Cash” means wire or check, not cash money Pay Business broker % of deal at Closing Post-Closing Adjustments to Purchase Price, Deductions from

Escrow (Seller May not get all money expected) Corporate Filings With Sec of State, IRS, IL Dept. Rev

Negotiation: Don’t be a jerk; this is not litigation. You are helping your client’s dreams come true: Get the deal done, whatever it takes

“Bad Actor” Disqualifying Rules Apply to ALL Private and Public Equity Offerings (except 4(a)(2)). No “Bad Actors” allowed under new 2013 SEC Exemptions:

Offerings with principals who are “bad actors” may not use Regulation D Rule 506, Reg D 504, Reg CF, Reg A or IPO.

Principals covered: No Bad Actors allowed: Principals, directors, officers, executive officers, key employee, managing members, 10% owners, promoters, finders, brokers, placement agents;

Bad Acts Prohibited: Financial fraud; SEC & state securities orders; bank, finance or mortgage orders; revoked license in financial industries, regulatory actions or litigation for financial disclosure failures or fraud, mail fraud, others.

If Bad Act occurred before 9/23/13, principal can participate in the Issuer’s offering, but Bad Act must be disclosed in PPM. SEC Waivers possible, if petition to SEC.

[skip]Securities Law Due Diligence (If Selling Part of Company to Investor or if Public Company Buying)

Any equity rounds sold with out securities compliance, filings and disclosure document ? Any money finders used ? First steps in raising capital, if don’t without compliance, will effect subsequent rounds.

Were any equity shares, interests, ownership, or profits interest, in company, in exchange for cash, property, services, future services, or a supplier contract?

Notice Filing Required with SEC and States + Disclosure Document - No disclosure exemptions.

Public solicitation on website “invest here” button ? (Not permitted) Exemptions Readily Available, but Require notice filings, even in small

deal. Illinois 4.G; Federal 4(a)(2) or Reg D + No disclosure exemptions, even if no filing required. Need PPM or

abbreviated version Consequence if Security Issued? File for exemption and provide

investor disclosure; or risk “rescission” (return money); or investors can call SEC or IL on You. Or investors backing out of later deal!

DuPage County Bar Association

Preparing a Business For SaleAnd

Surviving Buyer Due Diligence

Wheaton, ILSeptember 20, 2018

Nancy Fallon-Houle – Velocity Law, LLC © nfallon@velocitylaw.com (630)963-0439 x 22

https://www.velocitylaw.com/

1

September 5, 2018

Velocity Law, LLC Law Firm for Business

5449 Bending Oaks Place, Downers Grove, Illinois 60515 (Chicago Suburbs) nfallon@velocitylaw.com 630-963-0439 x 22 www.velocitylaw.com

© Nancy Fallon-Houle 1998 - 2018

Selling a Business, Buying a Business or Business Acquisition

(M & A Transaction for Small Business, or Mergers & Acquisitions)

For Business Owners Contemplating a Business Sale or Business Purchase (Asset Purchase or Stock Purchase)

Business Owner’s Planning & Due Diligence Response Checklist to Buyer

or Buyer’s Preparation for Due Diligence Inquiry to Seller

(Seller: Anticipate These Questions, Discussions & Negotiations From Buyer)

(Buyer: Use This List to Conduct Initial Due Diligence on Seller)

__________________________________________________

I. Company Legal Preparation; Business Prep With Legal Implications A. Company and Principal Information – Legal Due Diligence

Seller to provide a list of, or copies of these corporate law items: 1. Legal Name of Business, date and state of incorporation. 2. FEIN of the business. 3. Full Names of all officers, directors with middle initials, and socials. 4. List of shareholders, and their percentages of ownership. Are the majority

shareholders active? 5. What percentage of vote is required to pass an issue of Shareholders? Can Seller

secure that vote? Directors vote required, and how many? 6. Ownership/Stock Records in order. Provide a clear stock ledger or LLC ledger of

historical ownership, and current ownership as it stands today. If one is not yet in writing, ask your lawyer for a template to prepare one

7. Address of company, addresses of other remote offices, and addresses of all property owned or rented by company.

8. Articles of incorporation and all amendments. 9. Annual Reports filed with Secretary of State: The latest one or two reflecting

shares outstanding, authorized shares, and paid-in-capital on file with the state.

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10. Corporate Record Book in order. Do not create one if none exists.

11. Resolutions electing officers and directors; approving corporate actions, authorizing signers on contracts, authorizing and financial access, authorizing sale of the business. Do not do the work of updating many years of corporate resolutions or

minutes if they are not yet completed. Instead, provide your lawyer with just a simple bullet point list of factual

things that have changed since the last minutes or since formation if no minutes written. The lawyer will do one single cumulative set of minutes for you.

12. Qualifications to do business in other states in which Company does business. 13. Trademark protection of business name, either a filing made or a common law

“commercial use” trademark. 14. County and City licenses. 15. Founders’ Shareholder Agreement, if any. (Do not create one if not.)

B. Shareholder Equity and Shareholder List. Seller to provide:

1. Shareholder List (Stock ledger or LLC ledger) (reflecting owners; % owned) 2. Stock certificate, if any, or create “Lost Certificate” Affidavit. 3. Shareholder Agreement, if any. 4. Voting percentage of shareholders required to pass an issue on which

shareholders are entitled to vote; which items require or allow shareholders’ vote. 5. Corporate Resolutions and Corporate Filings that affect share ownership (changes

to authorized or issued shares, share redemptions, new shares issued, stock splits) 6. Corporate Resolutions reflecting shareholder and director vote required to approve

sale of business, even if sole shareholder. [Item 7 only relevant if Seller raised money from investors to fund the company, or if Buyer is raising money to Buy Seller’s Business]

7. For Stock Sold to Outsiders: Offering Memo – Disclosure document Investor Agreement Shareholder Agreement SEC filing on Form D for private placement State Securities Filings

C. Permits and licenses

1. Are all business activities actions under valid permits? Federal, State, City, County 2. Copies of permits and licenses

D. Regulatory Compliance

1. Compliance with industry Regulations 2. Tax Compliance, including Sales Tax and Payroll Tax, in other states? 3. Environmental compliance

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4. Labor and employment compliance 5. Securities compliance if shares have been sold or issued to any investors

E. Intellectual Property and Business Agreements 1. Trademark filed? Alternatively, name cleared? Common law trademark rights? 2. Patents filed? Pending? 3. Trade Secrets? 4. Who owns each item of IP? Ownership documented? Assignments of IP?

Licenses? Payments made to transfer ownership? 5. Is IP protected? 6. Agreements related to IP 7. Nondisclosure and Noncompete agreements signed by employees, contractors,

and others 8. License Agreements 9. Customer List 10. Vendor List 11. Email domain names, web domain names, email addresses, web based services,

software and other, with log in credentials for them. 12. Distribution Agreements with Suppliers, Industry Alliance Partners, Customers 13. Agreements With Suppliers 14. Sales contracts 15. Other Agreements with Customers 16. Agreements with Employees and 1099 Contractors 17. Government Contracts 18. Stipulations and Legal Settlements 19. Website legal Issues

F. Legal Liability and Potential Legal Liability Provide information as to any items below, of which you have knowledge, or indication,

including any actions, pending actions, threat, or indication of actions of:

1. Lawsuits filed or pending, and status Amount at issue, and evaluation of likelihood and risk of loss.

2. Threatened law suits, litigation or regulatory action. 3. Regulatory compliance

Filings made and cleared if required Regulatory actions previously filed and resolved.

4. Cybersecurity breaches, or risk even if not breached? (See “Technology” below) 5. Tax regulator actions 6. Tax liens (property tax, payroll tax, sales tax, or income tax) filed on equipment or

property, or against the principals? If so, provide info. 7. Judgment liens filed on equipment or property? If so, provide info 8. Criminal actions against company or owners, officers, directors? 9. History of sexual harassment or discrimination by management of any employees?

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G. Real Estate, Vehicles and Titled-Assets 1. Real Estate owned. Location, title, purchase price and date. Value if known.

Condition if possible. Improvements made. Landlord if rented. 2. Titled Assets (larger assets for which titles exist: Vehicles, cars, trucks, forklifts,

boats, larger machines or equipment or warehouse equipment)

H. Lease Agreement Obligation (Office, Plant or Warehouse): Seller to provide Real Estate Lease info and copy of Lease.

1. May only be relevant if Buyer is assuming the Lease. However, Lease does affect net worth and general market value of company.

2. Location, title, term, duration, obligation, property owner’s name and contact information. Length of lease? Time remaining? Penalty for breaking lease, even if sale? What is security Deposit? Refundable? Monthly rent? Escalating rent rate clause in Lease? Rent payment amount expected in next lease term? Is Lease assignable? Default provisions, timing? Delayed payments permitted, and under what

circumstances? Personal Guarantee required for assignee. Is your personal guarantee still

required? What options are property owner considering as lease waivers for Seller? Who pays utilities under existing lease? Under a new lease? If Lease is for a building owned by the Seller, provide research on market

rate for rent, to confirm that lease rate is within market range.

I. Cyber-Security Audit and Update. 1. Have a cyber-security audit done by IT firm (your law firm can recommend one),

and make needed repairs and take needed precautions. 2. If you have been breached or hacked, fix the leak. Address legal liability going

forward for leak consequences, including notification to customers and vendors. 3. Lack of cyber-security can detract from your company’s value, netting a lower

selling price.

J. Contracts. Provide a list of contracts, agreements and arrangements of every type, whether in written contact form, or in email discussion form, or as in informal hand-shake deal, including:

1. Customer 2. Vendor 3. Employees 4. Financial, loans

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5. Licenses for Use (both as a licensee or licensor) 6. Joint Venture, Revenue Sharing, partnership agreements 7. Distribution Agreements 8. Supplier Agreements 9. Every type of contract or agreement listed in this schedule. 10. List terms of obligations under Contracts, and what dates, time duration, $ amount

in an excel sheet or other contract management list.

K. Debt & Uniform Commercial Code (UCC) Lien Filings. Seller to provide list of:

1. Debt, loans, lines of credit, credit cards, credit agreements, factoring arrangements, merchant cash advance agreements, loans from Shareholders to Company, loans from Company to Shareholders, outstanding or aging vendor /supplier payments, and other liabilities.

2. Uniform Commercial Code (UCC) financing statements or liens. Before putting company up for sale, do a UCC Lien search on your own

company name, any d/b/a or assumed name, and on all the owners’ and officers’ names. If you have ever borrowed for the company in your personal name, then certainly do a UCC lien search on your personal name.

Bank and lenders typically file a UCC lien against the company when they lend the company money to buy: Equipment, fixtures, property, inventory, leasehold improvements, leased property, personal property and more.

Are any UCC Financing Liens Filed against the Company or the Owners?

3. Clear any lingering UCC Financing Liens for debts previously paid. Lender should have filed a discharge of UCC lien when debt paid, or when lien is no longer active. However, many lenders fail to discharge or cancel liens they filed against you. Allow weeks of time working with lender to get old liens cleared. Cannot sell the business until liens are cleared, even if liens are filed in

error. Buyer will deduct amount of liens from your Closing proceeds. Find and clear liens before Buyer’s due diligence and well before Closing

4. Documentation of Debt, such as loan agreements, if any.

L. Employees List 1. List of Employees, titles, roles, responsibilities, compensation including owners’

compensation. 2. Clean house, and terminate ineffective people. They detract from the value of

Company (Do not leave them around for Buyer to address). 3. Employment Agreements and noncompete agreements or nonsolicitation

agreements in place with key employees and those who are key employees, or those who work with trade secrets

4. Decision on who will stay, and who will go, after Closing 5. Benefits information

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6. Retirement contributions 7. Employee Benefit Plan and Trust documents 8. Union information, if applicable

M. Assets & Equipment List. Seller, to provide list of:

1. Assets, equipment, tools, computers, and leases that run the business.

2. Equipment, leasehold improvements, and other assets list with acquisition dates or

refurbishment dates, and supporting documentation. 3. Vehicles owned by, or paid for by, the business

4. Depreciation Schedules from tax returns (For equipment & improvements).

5. Warranty documents on equipment and improvements. 6. Inventory: Take inventory, organize and document inventory. Be realistic about

obsolete inventory and consider removing it from balance sheet or inventory list. Or consider a realistic price Buyer should pay for it

7. Supplies Inventory: (Same as “Inventory”).

8. Intellectual property (“IP”): General description of IP to transfer at Closing, such as

customer lists or trade secrets.

9. Trademarks: Identify Common law or filed Trademarks; Document first use and filing dates if filed; provide issued mark info.

10. Patents: Filed Patents if any; Documentation and description, document first use

and filing dates if filed; provide issued patent info.

11. Debt on assets or company? Prepare a list of debt in the company name or in personal name against company assets. Are any UCC Financing Liens Filed?

N. Financial Statements & Tax Returns. Seller to provide to Buyer, and to Sellers and Buyers Accountants and Lawyers:

1. Financial Statements for past [ # ] years. Ask Buyer’s accountant, or Buyer’s Lender, how many years needed], Balance Sheet Income Statement Statement of Changes in Financial Condition [may be optional] Statement of Shareholders or Owners’ Equity EBITDA

Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company's operating performance; evaluates

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company's performance without factoring in financing decisions, accounting decisions or tax environments.

Salary info on employees all, both those who are staying and those who are leaving

Salary + K-1 + Dividend info on selling shareholder (s), plus personal expenses charged to business

Assets List Depreciation Schedules

2. Business Tax Returns for [ # ] years. Buyer’s accountant or Buyer’s Lender will dictate number of years.

O. Revenue and Cost of Sales 1. Customer Lists 2. Order Backlog 3. Sales in pipeline 4. Leads 5. Cost of Sales 6. Obtain detailed list from accountant, and have your own accountant review for

items the Buyer may request in due diligence. 7. Marketing efforts and plans, and other Revenue generators. 8. Website, e-Commerce, Portals, Social Media

P. Technology

1. Web presence 2. e-commerce capability if appropriate 3. Electronic payment mechanism 4. Operational Systems 5. Operational software 6. IT strength and Use of technology internally and externally 7. Interview IT staff and outside IT firm 8. Back Ups / Disaster Recovery 9. Does IT Increase Revenue, Decrease Costs, Increase Productivity, Increase

Information about Company 10. Social Media Presence 11. Cloud-based services 12. Architectural design and review 13. Technology and Software Subscriptions 14. List of Software Licenses; examine license compliance 15. How well are open source fundamentals managed

Accurate real time inventory of the open source components in use Policies for open source use and processes for selecting, approving and

tracking Identify and remediate vulnerabilities

16. Cybersecurity Understand Due Diligence on Cybersecurity in M&A Culture of Security

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https://www.wsj.com/articles/companies-sharpen-cyber-due-diligence-as-m-a-activity-revs-up-1520226061

Analyze risk Threat protection in place https://www.wsj.com/articles/where-the-cybersecurity-threats-are-1513653001

17. Other Tech issues 18. Post-acquisition planning to integrate technology….is it possible?

Q. Company Processes and Documentation

1. Document processes = create transferrable institutional knowledge. Draw out of owners’ head, or from heads of employees. If institutional knowledge is “all in 1 or 2 heads”, especially if the heads are leaving, then business will take a significant reduction in value for undocumented processes.

2. Train others in Processes and Documentation. Replace employees resistant to helping create or follow processes.

3. Be prepared to provide documentation to Buyer for due diligence review.

4. Have processes in place that streamline Company’s business.

5. Hire, groom and train your replacements.

6. Involve Company’s accountant, involve an M&A Accountant, and your company’s acquisitions counsel (M&A counsel), at the beginning, well before starting the Sale transaction process.

If your professionals do not have experience on a business sale transaction,

then hire specialty accountant and counsel who have expertise in selling or buying businesses, before signing LOI.

Terms in the LOI can “stick”, and purchase price terms must allow for deductions from PP for various issues.

NFH can recommend good accountants.

R. Management In Place 1. Have excellent Management in place to fill Seller’s shoes. 2. Keep only great employees in “line positions”, and in management. 3. Houseclean employees before company up for sale. 4. Buyer will meet management, key employees, and supervisors. 5. Buyer will request list of Officers, Managers and Key employees, and their roles 6. Legal – Employment and Noncompete Agreements in Place

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__________________________________________________________

II. Transaction Preparation, Common Deal Terms, and Expectations A. Valuation – Seller’s Expectations & Action Items

1. Realistic Value: Have realistic expectations as to fair market value of the Business. Sellers

can be blinded to wear & tear, shortcomings, outdated aspects, peeling paint, need for “facelift”.

Have a person in place, groomed to replace business owner, unless Buyer will be that person. Company will experience an immediate drop in value when owner leaves, if :

Owner has not transferred knowledge to another employee or owner, Owner’s processes not documented for Buyer. Buyer will pay less than your perceived value if owner(s) not staying

and business does not have flawless documentation.

The future value is what the Buyer intends to accomplish by paying you a lower price and growing it to a higher price. Seller cannot value it on what it “could be, if grown” (that was your job, or now is the Buyer’s job).

“Past salary not taken” does not accumulate value, and Seller will not likely

be able to draw that out when Seller leaves.

2. Use a professional valuation expert. Do not use your own accountant to value, except to determine “Book Value”

or as an initial screening tool of value. However, to determine the deal pricing value, use a valuation expert.

Valuation is a specialty, even among accountants. (One can even earn a valuation certification, CVA.).

Third party, objective, valuation is required for credibility of valuation.

3. Understand and accept the valuation “deductions” for issues such as: Privately held company, Minority Discount (Percentage Ownership of less than 100%), Company has only one business development person, creative person, or

operational person, who is leaving. “All Infor in 1 or 2 heads” phenomenon. (Protect from this by placing others into management.)

Your “accrued, but unpaid, salary”, or your “below market salary”, does not add value to, or allow add-backs to, financial statements or value of Company.

Other deductions, discuss with your accountant or your valuation expert.

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4. If selling to other shareholders, check Shareholder Agreement, LLC Agreement, or Buy Sell Agreement, for any mandated valuation method, and might even be something odd like “book value”.

5. Make the valuation happen in advance, by doing everything to maximize value!

B. Consulting Agreement for Seller Staying on With Buyer; Earn Out Agreement

1. Seller Employment at Company after Closing: Will Seller work part-time or full-time for this company after Closing? Alternatively, full-time for a limited duration, then part-time? Alternatively, will Seller bow-out altogether?

2. Is Seller one of the Business Development people? If so, can historical business revenues be maintained (or will they be emaciated) without Seller and Seller’s relationships? Alternatively, can Buyer assume the Biz Development Role? In addition, can Seller continue Biz Development role during consulting period….this affects valuation of Company.

3. Determine how long is realistic for Seller to stay to make the hand over to Buyer:

Not too long. If Seller stays too long, can generate tension to Buyer. Not too short. If Seller stays too short, the business might suffer from lack of

sufficient “graceful handoff” consulting.

4. Consulting Fee to Seller would be reasonably commensurate for future work (not necessarily the same as prior salary, likely less than prior salary).

5. Earn-Out for Seller? Discuss Price and Duration.

6. Noncompete for Seller? Scope and Duration (See item earlier in this outline).

C. Seller Financing - Installment Loan Agreement How will Buyer Pay for the Purchase Price? Options after Earnest Money Deposit:

1. Cash at Closing. Alternatively, Cash Deposit, and remaining Cash at Closing.

2. Installment Loan Payments. Loan payments referred to as a “Seller Note” or “Seller Take Back Note”.

Buyer, keep in mind:

The Loan Payments are separate from Consulting Payments. Loan payments are due regardless of whether Seller stays onboard,

consults, or otherwise helps the Company, or leaves, or continues to generate business; because these Loan Payments are the payment for the purchase of the business.

Buyer withholding the Loan Payments is a violation of the Purchase Agreement, and can trigger litigation.

Seller, keep in mind:

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You likely will not receive all your money at once, instead in the form of Loan Payments, in a “Seller Note”.

Buyer will likely request hold backs from your Purchase Price o Buyer Pays hold backs after conditions met or evaluated.

Buyer might request conditions on Buyer payments, based on financial or other milestones. Payments over time.

3. Length of extended payments from Buyer to Seller for Business Purchase Price: Related to cash flow, in order to make payments. Can be based on profits, but should be a fixed amount. Personal guarantee required by Buyer With UCC Financing Lien filed by Seller to protect Seller’s security interest in

the Note paid by Buyer. Buyer cannot skip or terminate payments if Business does not do as well as

expected, unless there is a condition to payment to this effect.

4. Discuss interest rate, fairness to parties, and appropriateness of rate to transaction.

D. Noncompete Agreement - Buyer Will Impose on Seller after Closing

1. Seller: Expect to agree to a noncompete agreement, nonsolicitation agreement (non-raiding), nondisclosure of trade secrets, and NonDisparagement agreement. Goal that Seller cannot emaciate the business he or she is selling to Buyer.

2. Scope of noncompete will differ if Seller is retiring, versus moving out of state, versus going into another business, versus “staying around and consulting”.

3. Noncompete must be reasonable in scope and duration; however, a much

stronger, stricter and longer noncompete is permitted where Seller selling business to Buyer (compared to a normal employee-employer situation).

E. Buyer’s Due Diligence on the Company. Due Diligence is key!

1. Seller run your own background check on yourself before Buyer runs one on you, in advance of Buyer starting due diligence.

2. Seller, do a Uniform Commercial Code (UCC) Lien search and Tax Lien search on your company and yourself: Assure there are not any unknown filed liens on Company or owners.

3. Seller run a background check on potential Buyer. (I use Aurico Investigations in Arlington Heights, Illinois, a national firm that does background checks for business transactions. Contact Jeff Hovland.)

4. Seller check business sites for your business name, and correct issues. 5. Corporate due diligence, legal due diligence, accounting due diligence,

marketing/sales/revenue due diligence, customer and vendor due diligence, industry due diligence.

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F. Disclosure Schedules Required for Sale Transaction Closing For an Asset Purchase Transaction or a Stock Purchase Transaction Seller to provide:

o List of all assets and liabilities Company owns and owes o List of assets included in the sale o List of assets excluded from the sale o List of liabilities included in the sale o List of liabilities excluded from the sale o Other assets o Insurance Policies o Litigation o Retirement ERISA, Benefits o Regulatory compliance o Accounting AICPA, best practices o List of contracts, written and oral, into which Company has entered o List of officers, directors, and owners (and how much the owners each own) o List of locations of the business, o List of employees, List of Subcontractors o Intellectual property o Disaster Recovery Plan (Recovery of the technology, and recovery of the owner) o Information technology, risk management, Setup IT Plan, cyber security, exposure

to threats, threat intelligence enough policies and processes, firewall, security breaches, collecting customer or patient data must be confidential you are liable;

o Privacy, Security policy for internal and external threats o Learn where are your risk profiles, revenue risk o IT Scalable? o Representations and warranties in Purchase Agreement o Risk shifting, exposure o Relying too much on 1 or 2 heads o Internal and external threat management o Labor policies book, and signed o Insure to protect valuation o List of property owned, even if fully depreciated and not otherwise listed on asset

schedule o List of intellectual property owned, trade secrets, patents o List of customers o List of vendors o List of litigation cases against Company, pending and threatened o List of cases you have brought against others

G. Reps and Warranties Can Seller comply with typical Seller Reps and Warranties? And Buyer? Understand your liability if Reps and Warranties are breached later, even years after the contract

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H. Closing Adjustments and Post-Closing Adjustments to Purchase Price Buyer will impose financial adjustments to the Purchase Price, at and after closing, based on financial changes to the company between Purchase Agreement and Closing.

I. Escrow Hold Backs Buyer may impose an escrow hold back from the purchase price.

J. Estate Planning and Tax Considerations to Business Owners Discuss With Your Tax Adviser and your Financial Adviser. Seller will be receiving a large

one-time payment and likely payments over time. Have a plan in place to address tax issues and to invest the money. By: Nancy Fallon-Houle © 2018

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Business Valuation Firms and Business Valuation / Investment Banking Firms

Referred by Nancy Fallon-Houle of Velocity Law, LLC

nfallon@velocitylaw.com (630) 963-0439 x 22 This Document in Two Sections: (1) Valuation-Only Firms (or Valuation-Only Practice in a CPA Firm) (Pages 1 to 4) and (2) Valuation Firms Also Offering Investment Banking for the Transaction (Pages 5 to 8)

______________________________________________________________ 1. Valuation Only – Small to Mid-Sized Firms (No Investment Banking) ______________________________________________________________ Small-Sized Valuation Firms: Sanli Patore & Hill (20 Employees) (1 - 2 Employees in Chicago) Henry Kaskov, AM, Senior Associate, Manager – Chicago hkaskov@sphvalue.com 1770 S. Randall Rd., Ste. A #271, Geneva, IL 60134 (630) 457-9200 www.sphvalue.com http://www.sphvalue.com/services/business-valuations-appraisals-overview.html Business Valuations | Forensic Accounting | Fairness & Solvency Opinions | Forensic Finance & Economics | Expert Testimony | Brand & IP Valuations | SVEC SPH since 1992. 20 employees in 4 US cities, Los Angeles | San Diego | Sacramento | Chicago | Istanbul. California based, with an office in Chicago (Geneva), Illinois. Small to middle market businesses; Approx. 1/3 of work is in business valuations; 1/3 in litigation support and expert witness testimony; remaining 1/3 in Transactions M & A, Estate and Gift Tax valuations, Purchase price allocations for financial reporting, Valuation of Intellectual Property SP&H Business Valuations | Business Appraisals Overview At SP&H, we understand that a well-researched business valuation can be a cornerstone of a business owner’s success. Our attention to detail, methodology and extensive analytical tools result in business valuations of unparalleled quality that withstand third-party scrutiny from investors, creditors, tax authorities and courts of law. Extensive Industry Expertise SP&H leverages our experience for your valuation. Our skilled research and financial analysts utilize our broad access to financial, statistical, and transactional databases, industry contacts, and extensive in-house library. Customized Reports Based on Specific Needs SP&H will customize any report for exact business needs. With a full range of reporting options, we focus on providing you with research in the most easily communicated format. § Verbal reporting § Estimated range of value based on limited scope of work

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§ Full narrative reporting Types of Valuations & Appraisals § Estate Planning and Estate & Gift Taxes § Financial Reporting - ASC 805/350 (FASB 141/142) § ESOPs § 409A/ASC 718 (FASB 123R) § Mergers & Acquisitions § Bankruptcy Valuations § Marital Dissolution § Shareholder Disputes § Goodwill Loss § Solvency Litigation § Bankruptcy Court § Strategic Valuation Economic Consulting SM § Valuation Analysis for Fairness Opinions

___________________________________________________ Brandi Ruffalo, CPA Valuation and Forensic Partners, LLC Brandi L. Ruffalo, MBA, CVA, CBA, CDFA, AIFA

1375 E. Woodfield Rd., Suite 240 Schaumburg, Illinois 60173 Phone: 847-805-1910 Fax: 847-805-1911 E-mail: bruffalo@thebdc.com Websites: http://www.valuation-forensic.com

Valuation and Forensic Partners, LLC, an affiliate of The Business Development Company, is located in Schaumburg and Chicago, Illinois. We provide business valuation, litigation support, and forensic and fraud analysis and join a team of nationally recognized valuation and forensic professionals. Our team has the experience and credentials to fulfill most valuation or forensic needs. Many situations warrant an appraisal or forensic review of your company or its assets, and understanding these situations and choosing the right professional can save you and your clients time and money. We combine “big firm” skills and experience with a personalized touch that gives you flexibility and answers that you need for your clients. Our assignments range from a simplistic analysis of another professional’s work to the completion of complex valuation and forensic engagements — we excel at engagements with difficult or usual circumstances.

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Business Appraisal and Litigation Support Practice Services · M&A / Transactions · Estate & Gift Tax · Marital Dissolution / Divorce · Financial Forensics · Asset Tracing · Shareholder & Contract Disputes · Commercial Litigation · Damages & Lost Profits · Fairness Opinions · FLP / Holding Companies

Professional Certifications · Certified Divorce Financial Analyst, November 2016 · Certified Business Appraiser (CBA); Institute of Business Appraisers, October 2011 · Certified Valuation Analyst (CVA); National Association of Certified Valuators & Analysts, July 2001 · Accredited Investment Fiduciary Analyst Designee (AIFA), FI 360, November 2011 · Series 7, 63, 65 Licenses; FINRA, July 2001; Licenses held through Independent Financial Group, LLC

Professional Activities · Member of the National Association of Certified Valuators & Analysts (NACVA) · Member of the Institute of Business Appraisers · Member of the Institute of Divorce Financial Analysts (IDFA)

_____________________________________________________ Marty Staniszweski, President Reliance Accounting (<10 Employees, 1 Valuation Expert) 10335 W. Lincoln Highway Frankfort, IL 60423 779-324-5454 mstan@relianceaccounting.com www.relianceaccounting.com Small accounting firm in south suburbs of Chicago; Marty is the valuation expert in the CPA firm, and he focuses his role in the practice on M&A transactional tax work and valuations. _______________________________________________________________ Crandall & Brackett, Ltd. (1.5 people) – Formerly Chicago Suburbs, Now on West Coast Robert Brackett robert@crandall-brackett.com 630-653-7922 2100 Manchester Rd, Suite 900, Wheaton, IL http://www.crandall-brackett.com (Moved to west coast, visits Chicago periodically.) Services

Valuation opinions

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Valuation consulting Small business acquisition consulting Business valuation assistance with respect to estate tax, gift tax and other issues

Business valuation results are very dependent on what type of value is determined, and the independence in mind and practice of the actual valuator. Gift and estate valuations use something referred to as the fair market value (described in Revenue Ruling 59-60), while divorce and other valuations use a different measure of value, often referred to as fair value. Often this fair value is different in different states, and different types of courts. Your business valuator works with your attorney and accountant/tax preparer to identify the correct measure of value (fair value, fair market value, etc. [there are many others]). Then the valuator must remove any desire to reach a value which would be in the favor of you the client (high, or low), and be neutral, developing the value that reflects only the correct measure of value. The effective valuation date and time also impact the result as businesses often have good years, bad years, good press and bad press, all of which may impact value. Small to Mid Sized Rushton Atlantic http://www.rushtonatlantic.com/ Richard P. Meyer (“Rick”), Managing Director Office: 630-797-5699 in St. Charles, IL Cell: (847) 682-2357 rick.meyer@rushtonatlantic.com http://www.rushtonatlantic.com/author/rickmeyer/ 200 S. Wacker Drive, 31st Floor, Chicago, IL 60606 Ken Kramer (646) 290 5069 info@rushtonatlantic.com Chicago, New York, London, Manchester Rushton Atlantic is your valuation partner. Valuing very small to larger companies. Valued Union Station; and the Chicago Parking Meter Deal; numerous small and closely held businesses. Rick Meyer is cofounder and Managing Director of Rushton Atlantic. As the US arm of Rushton Partners Group, we have designed our business to be responsive to the needs of our clients, drawing on our global experience, and that of our UK group partner, Rushton International Ltd., to anticipate issues arising in the valuations of assets, facilities and portfolios for structured finance, insurance and other applications. Based on our past work with financiers, lessors, insurers, corporations and governments on five continents, we structure our services for each type of engagement to focus on the client’s requirements in a cost-effective manner. The additional resources of Rushton International in the UK provide specialized knowledge and the flexibility to staff large cross-border engagements with seasoned professionals. We are pleased to offer complimentary consultations regarding our services. Multi-industry expertise. We serve all major industries and the public sector with valuation needs related to financing, insurance and financial reporting. Background Rick has been in the valuation business since 1979. He is in charge of the technical staff located in the Chicago, Illinois office. Rick and Ken Kramer began their partnership over ten years ago at a global valuation firm where they built the world’s leading structured finance valuation practice. Together with Rushton International, Rick and Ken established Rushton Atlantic to continue to build a leading practice

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in structured finance, infrastructure and insurance valuation and are developing the establishment of new emerging global markets within the international leasing industry. Rick holds a BS in Industrial Engineering from the Industrial Engineering College of Chicago. He is a frequent speaker at industry conferences and has written and published numerous articles on appraisal issues associated with leasing transactions. ________________________________________________________________________ Mid-to-Large Sized CPA Firms With a Valuation Department ________________________________________________________________________ Porte Brown LLC, CPAs (100 accountants) www.portebrown.com Jeffrey R. Smiejek, CPA, CVA, Partner jrs@portebrown.com 845 Oakton Street, Elk Grove Village, IL 60007 (847) 956-1040 http://www.portebrown.com/jeff-smiejek.html http://www.portebrown.com/valuation---transition-planning.html http://www.portebrown.com/valuation.html Jeff is the partner focusing on Valuations. Porte Brown is a full service accounting and consulting firm in Chicago suburb Elk Grove Village. Mid-sized firm with global reach. Traditional accounting services, tax planning and preparation, audit, business valuations, retirement plan administration, strategic consulting, and technology implementation for cloud and non-cloud environments. Valuation & Transition Planning Knowledge is power to understand the value of a business or property, whether it is for a business acquisition, an exit strategy for retirement, or a divorce property settlement. Porte Brown’s highly qualified CPAs can assist you when making one of the most critical and complex decisions of your life. Our Valuation and Transition Planning Practice Group offers the following services: http://www.portebrown.com/valuation.html Valuation Services. Understanding the worth. As a business owner, you may be concerned about preserving the value of your closely held business, whether for the next generation or for a potential future sale. Understanding what your company is worth, through a business valuation, is the first step toward accomplishing that task. Our CPAs have the extensive experience with accounting, financial statement analysis and tax issues related to valuation. Services include: Estate and Gift Tax Planning; Buying and Selling Businesses; Marital Dissolutions; Share Holder Disputes; Buy/Sell Agreements; Strategic Planning; Obtaining Third Party Financing Acquisition Assistance. Successful acquisitions depend on the guidance of experts in order to fully uncover the values, risks, and liabilities involved in a potential transaction. Full range of acquisition assistance services, including rigorous due diligence. We take pride in looking at the business case in its entirety and analyse the strategic synergies that predict value creation. Service include: Due Diligence; Risk Assessment; Compliance and Regulatory Issues; Tax Implications; Accounting & Financial Analysis; Business Valuations; Financial Structuring & Planning; Budgeting & Forecasting; Post-closing Audit; Post-acquisition Integration Plans _____________________________________________ Digiovine Hnilo Jordan & Johnson, Ltd (60 employees, including 45 CPAs) CPAs & Business Consultants 184 Shuman Blvd, Suite 200, Naperville, IL 60563

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Mary Lynn Hoffer, CPA, CFF, CVA, Principal. Team Leader, Business Valuation and Forensics (630) 420-1360 (main) mhoffer@dhjj.com and www.dhjj.com http://www.dhjj.com/about-dhjj/our-team/13-mary-lynn-hoffer Valuations: http://www.dhjj.com/specialty-services/business-valuations Business Valuation and Forensic Practice, Accounting for Intangibles, Bankruptcy, Buy/Sell Agreements, Estate and Gift Taxes, Gifting Programs, Litigation, Liquidation or Reorganization, Mergers or Acquisitions, Sale of Business, Shareholder Transactions/Disputes, Succession Planning. ___________________________________________________ Mid-to-Larger Size CPA Firm With Valuation, Acquisition Advisory, Investment Banking For the Transaction Sikich Gardner 1415 W. Diehl Rd. Suite 400, Naperville, IL 60563 http://www.sikich.com/ Mary O'Connor, Partner, Valuation Expert (312) 648-6652 (630) 566-8400 708-646-8737 Cell moconnor@sikich.com http://www.sikich.com/about/sikich-partners/oconnor http://www.sikich.com/advisory/business-valuation Valuations: Venture capital and private equity valuation; Valuation for sale or funding; Fund manager valuation; Litigation, Plaintiff and Defendant side; Intangible asset and intellectual property valuation (IP assets, tech valuation); Early stage investor deals valuation and LP valuation; Litigation of same; Dissolution Valuations; Process and Disclosure; Valuation for public held securities Litigation Mary O'Connor, ASA, CFE, has worked exclusively in the field of valuation and financial forensics since 1979. She specializes in business valuation and the appraisal of tangible and intangible assets for litigation with special focus in health care, intangible assets in property tax appeal, securities, subrogation and insurance matters. She also possesses extensive experience with fairness and solvency opinions. Mary has provided opinions to a wide variety of public and private clients in a range of industries including health care, governmental entities, agricultural businesses and food companies, senior living, technology, financial services, automotive, hospitality/gaming, manufacturing, natural resources, retail, utilities, waste management/recycling and real estate development. Mary has provided litigation consulting and expert witness testimony to federal, state and local jurisdictions (including U.S. Tax Court, Delaware Chancery and Property Tax Appeals Boards) nationally and internationally in cases related to business valuation, lost profits damage analysis, diminution of business value, fraudulent conveyance, shareholder dispute, intangible assets in property assessment, breach of contract, fraud, estate taxation, marital dissolution, sale/leaseback, subrogation, ability to pay, insurance defense, condemnation and bankruptcy matters for both Plaintiffs and Defendants. Business Valuation http://www.sikich.com/advisory/business-valuation What’s it worth—the business, the equity interest, the intangible asset? The heart of this question is the notion of fair market value and its unique forms in the world of tax, healthcare regulatory compliance, litigation, financial statement

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reporting, corporate planning and financing. Sikich valuation professionals are experts in the nuances and purposes of fair market value, whether they serve as independent experts, testifiers or consultants. Taxation: Estate and gift tax, Family Limited Partnerships, Intangibles in property tax, C Corp conversions Corporate Planning and Financing: Strategic planning, Estate planning, Shareholder agreements, Succession planning; Exit strategy, Staging a business for maximum value upon sale, ESOP valuation, Collateral analysis, Fairness and solvency opinions

Financial Statement Reporting: Goodwill impairment; Fair value presentation; Purchase price allocation; Option valuation

Business valuations as part of a merger or acquisition, please visit our investment banking page. http://www.sikich.com/ib Sikich Investment Banking & Corporate Finance Chicago-based investment banking firm offering expert M&A and capital markets advisory services tailored to the middle market. Knowing when to raise capital, fuel growth through acquisitions, or pursue partnership opportunities will have a significant impact on your business. Without an experienced advisor, the complex decisions that business leaders will face can be daunting. When is the right time to buy or sell a business? How much capital is needed to facilitate necessary growth? Is this the right partner? You want to ensure that any decision you make will maximize financial potential while minimizing transactional risk. Executing M&A and capital raising transactions requires the counsel of advisors with firsthand knowledge of the costs and value drivers associated with these transactions. Our senior principals are all former business owners who have been charged with similar decisions and have lived with the results in a way few investment banking advisors have. We will evaluate timeframe, expectations, current market conditions and viable alternatives. We understand that each situation is unique and deserves its own distinct strategy. With headquarters in Chicago and offices nationwide, you will find that Sikich Investment Banking advisors understand how to optimize value and employ strategies that align with your specific business interests and objectives. Together, we will discover creative ways to leverage additional value and achieve superior economic performance. You will experience confidence and peace of mind that your strategic objectives remain within reach. We bring decades of combined experience across all major industry segments. Firms with Valuation, Acquisition Advisory and Investment Banking - for Transaction Caber Hill Advisors – Small Sized Firm Peter J. Holton, Managing Director Caber Hill Advisors 820 W. Jackson Blvd, #805 Chicago, IL 60607 (312) 618-0715 peter@caberhill.com www.caberhill.com 2 man firm valuation and investment banking. Specializing in medical practices and in construction and trades related industries.

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Caber Hill Advisors is committed to working with business owners so they can successfully fulfill their personal and professional legacies. We serve small and middle market companies, in very specific verticals, who want to either sell their business or make an acquisition. Our firm's innovative approach combines the best elements of the local business brokerage community and the large, very expensive investment banks. The result is that our clients receive individualized attention and expert guidance specific to their industries. Our professionals have all worked in the markets we now serve, and while each individual has a strong track record of successful transactions, we're not just "deal guys". In fact, each of us has either owned a business, grown up in a family business, or personally invested in small companies. This gives us a deeper understanding of the challenges facing business owners and allows us to focus on more than just closing the deal. Our clients report that they rely on us for our industry depth and willingness to supply analysis that is necessary but often unavailable to them. Additionally, many of our clients are very much concerned with their legacies - in addition to the returns they generate. We understand that and work with them to make certain they achieve the intangibles as well as the desired financial results. ___________________________________________________ The Christman Group – Mid-Sized Firm 200 East Randolph, 24th Floor Chicago, IL 60601 http://www.christmangroup.com/ Jim Bates, Managing Director http://www.christmangroup.com/jim-bates-vice-president-transaction-support/ (847) 303-6554 (312) 957-6061 Cell: (847) 404-4566 Valuation and Business Consulting http://www.christmangroup.com/jim-bates-vice-president-transaction-support/ Business Services – Business Valuation, Buy-side Advisory & Financing, Merger & Acquisition Advisory & Financing, Executive Compensation Studies, Fairness Opinions. Business Planning – “SET” for Life Program, Strategic Planning in a Box, ESOP Feasibility Studies, Value Enhancement Strategies & Execution As a transaction specialist, Jim prepares comprehensive exit plans, business valuations, offering memoranda, industry research, identifying and contacting buyers, and a helping with virtually every other aspect of serving clients. Jim is also a regular speaker on exit planning and valuation at seminars and national trade conventions: § Taking Care of Business, Dealer Conference for Nationwide Manufacturer/Distributor of Commercial and Residential Overhead Doors § Maximizing Value, Northern Trust, Family Business Breakfast Series § Valuing A Cash Business, Midwest Business Brokers & Intermediaries Seminar How to Buy & Sell Businesses § Business Appraisal 101, Masonry Contractors Association of America, MCAA Showcase, Chicago, IL § Business Appraisal 101, Refrigeration Services Engineering Society, RSES National Convention, Nashville, TN § Business Appraisal 101, Masonry Contractors Association of America, MCAA Showcase, Phoenix, AZ

In addition, he is the co-author of Business Valuation for Dummies (Wiley Publishing May 2009). He holds a Bachelor of Business – Economics and a Masters of Business Administration with concentrations in Finance and Marketing from Western Illinois University.

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Houlihan Capital – Larger Firm 500 West Madison Street |Suite 2600 | Chicago, IL 60661 (312) 450-8600 www.houlihan.com www.solvency-opinion.com www.fairnessopinion.com http://www.houlihan.com/capital/overview.htm Andrew D. Smith, President (312) 450-8610 asmith@houlihan.com http://www.houlihan.com/capital/andrew-smith.htm Michael E. Norton Vice President, Business Development Houlihan Capital 500 West Madison Street, Suite 2600 Chicago, IL 60661 (312) 450-8628 mnorton@houlihan.com www.houlihan.com http://www.houlihan.com/capital/michael-norton.htm www.solvency-opinion.com www.fairnessopinion.com Michael Norton is Houlihan Capital's Vice President of Business Development responsible for building and maintaining client relationships throughout the Midwest. His strong leadership experience allows him to quickly understand a client's situation and provide recommendations to achieve their strategic goals. Prior to joining Houlihan Capital, Mr. Norton was an Associate at Jackson Lewis, P.C. He is a licensed attorney and has represented corporations throughout the country on a variety of matters ranging from corporate governance issues to labor and employment. Dominic Zanfardino Business Development Associate dzanfardino@houlihan.com (312) 450-8634 Paul A. Clark, CFA, Managing Director Direct Phone Chicago: 312-450-8656 Paul Clark pclark@houlihan.com Houlihan Capital is a leading, solutions-driven valuation, financial advisory and boutique investment banking firm committed to delivering superior client value. We pride ourselves on being thought leaders in an ever-changing landscape. Houlihan Capital is a FINRA and SIPC member, committed to the highest levels of professional ethics and standards. Services: Fairness Opinions; Solvency Opinions; Portfolio Valuations; Employee Stock Ownership Plans (ESOP); AIFMD & Valuation; Valuations for Financial Reporting and Tax Compliance (ASC 805, IRC 409A); Corporate Valuations & Asset Appraisals; Consulting Services - Specialty Valuations; Valuation in support of Family Offices; Financial Advisory Services; Valuations of Complex and Illiquid Securities (Level 3). Valuation and Financial Advisory: We provide an array of services that range from fairness & solvency opinions, Level 3 portfolio valuations, tax & financial reporting valuations, external value for AIFMD and a wide variety of

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consulting services through our Financial Advisory group. Houlihan Capital has extensive valuation experience providing companies with objective, independent, and defensible valuation opinions that meet accounting, regulatory, and corporate governance requirements. Our analyses and reports are transparent, supportable, and clearly outline the assumptions and projections incorporated into our financial models. We consistently apply sound valuation methodologies and unbiased perspective in our work product that enables management teams and fiduciaries to make confident, informed decisions Investment Banking: Through our Investment Banking group, we offer sell side/buy side advisory, private placement and capital raises. Houlihan Capital offers an integrated financial advisory approach that draws upon strategic and technical expertise, industry knowledge, transactional and financing experience, and an expansive network of institutional and private investors to guide management teams and investors through the complexities of valuation. Understanding the time sensitivity of many of our assignments, we work diligently to meet these demands and minimize operational disruption.

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Business Law Section Council – LEGAL UPDATE – September 2018

Case Law Update

McGinley Partners, LLC v. Royalty Properties, LLC, et al., 2018 IL App (1st) 171317

HOLDING: The court affirmed the trial court’s entry of summary judgment in favor of the Plaintiff.

The Plaintiff is an assignee of a note and guaranty given by the Defendants as part of a seller-financed loan for the Defendants’ purchase of a horse farm. The assignments on which the Plaintiff relied were made almost 3 years after the date that the seller corporation dissolved. The Defendants raised three purported errors on appeal: a) the trial court should have dismissed the Plaintiff’s claims as barred by the five-year statute of limitations for claims by a dissolved corporation; b) the trial court erred in finding that the assignment of the guaranty did not materially alter the terms of the guaranty, and c) the trial court should have found that usury was an applicable defense since the judgment was based upon a 20% interest rate sought by the Plaintiff.

The McKinley Court found that section 12.80 of the Business Corporation Act is not a statute of limitations, but a statute that permits causes of action that would not otherwise exist on account of the dissolution of a corporation. Consequently, if the cause of action would exist even without Section 12.80, that cause of action is not affected by the expiration of the five-year period contained in that statute. As the subject claims were not brought by or against a corporation, Section 12.80 was inapplicable in this case. Further, the McKinley Court noted that the assignee of a fixed asset of a dissolved corporation stands in the shoes of the corporation before dissolution.

With respect to the argument that the assignment materially altered the terms of the agreement, the appellate court found nothing in the record to support such a material alteration. In addition, the right to assign was expressly contained in the guaranty and the Defendants had also consented to at least one previous assignment of the guaranty. Finally, with respect to the usury argument, the 9% interest rate limit does not apply to loans involving a mortgage or to loans to corporations, both of which were found here, and there is no applicable limit on the interest rate in such situations.

Submitted by: Desmond Curran, a partner with Sullivan Hincks & Conway in Oak Brook