MINORITY RECAPITALIZATION EXAMPLE

Scenario Objective Options

. John Sr. and his brother Bob John Jr. would like to i. Sell to private equity or a (“Uncle Bob”) started a business i. monetize some of the value strategic buyer – maximum together many years ago. John Sr. he has created immediate payout, but family owned a majority of the equity would lose control of a company (55%) historically. Bob has owned ii. buy out Uncle Bob, and they built over many years a healthy share as well. iii. pass control of the Company ii. Leveraged recapitalization – . John Jr. (John Sr.’s son) has been on to his son, John III. use the available borrowing running the company the past 20 capacity of the business to years as CEO, growing the leverage John III’s equity to Company up to $20MM EBITDA. accomplish the objective. . Over time, John Jr., and John Jr.’s son, John III have inherited / acquired some shares. John Jr. currently owns 55% of the company’s equity today. . Neither John Sr. nor Uncle Bob have been involved in the business for many years.

1 MINORITY RECAPITALIZATION EXAMPLE

Current Capitalization Sources EBITDA $20MM Senior $60 3x Multiple 6x Sub/Mezzanine $30 1.5x (4.5x) Enterprise Valuation $120MM New Equity $0

Less: Existing Debt ($20)MM Rollover Equity – John Jr. $8 Equity Value $100MM New Ownership Rollover Equity – John III $25 1.5x (6x) $123 6x John Jr. 23% Uncle Bob 0% Current Ownership Uses John III 72% Value Mezzanine Provider 5% John Jr. 55% $55 Refinance Senior Debt $20 100% Uncle Bob 20% $20 Purchase Uncle Bob’s Shares $20 Partial Purchase John Jr’s John III 25% $25 Shares $47 100% Rollover Equity $33 Fees $3 $123 Additional Thoughts . In the above example, John III could also be a management team (MBO) looking to increase its ownership in a transaction . John Jr. will be able to participate in future growth/upside of the Company via his remaining 23% ownership stake, therefore potentially earning more $ overall vs. a private equity sale today.

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