1. You’ll Never Think About Buy-Sell Agreements the Same Way Again Z. Christopher Mercer, ASA, CFA Mercer Capital

3. 1 Do You Have a Buy-Sell Agreement?

5. What Is a Buy-Sell Agreement? Buy-sell agreements are agreements by and between the shareholders (or equity partners of whatever legal description) of a privately owned business and, perhaps, the business itself They establish the mechanism for the purchase of stock following the death (or other adverse changes) of one of the owners In the case of corporate joint ventures, they also establish the value for break-ups or for circumstances calling for one corporate venture partner to buy out the other partner

6. Buy-Sell Agreements Require agreement at a point in time Relate to transactions that will or may occur at future points in time Define the conditions that “trigger” the buy-sell provisions Determine the price(s) at which the specified future transactions will occur

11. Get Agreement. Now.

14. Fixed Price Agreements are often out of date when inked! If your client has one, update it now!

23. Recommendation Single Appraiser Agreement Select Now, Value Now

26. 2 Do You Know What Your Buy-Sell Agreement Says?

27. The Six Defining Elements of Process Buy-Sell Agreements Standard of Value Qualifications of Appraisers Level of Value Appraisal Standards The “as of” date Funding Mechanism

30. Defining Element #2 – Level of Value

31. Defining Element #2 – Level of Value Price we hope to get if we sell the company together Price the rest of us can reasonably pay if we have to buy out someone else “ Fair market value of the (minority) interest”

32. Defining Element #2 – Level of Value $100 Per Share $60 Per Share $140 Per Share

35. Defining Element #5 – Appraisal Standards to be Followed The Institute of Business Appraisers Business Valuation Standards and Rules of Professional Conduct ASA Business Valuation Standards Principals of Appraisal Practice and Code of Ethics of the ASA Uniform Standards of Professional Appraisal Practice Professional Standards of NACVA Other professional standards? Specify

37. 30 Questions Handout

40. Questions to Consider Nature, Size & Ownership of Equity Parties to consider in discussions about the buy-sell agreement? Groups of shareholders and relative ownership maintenance? Active vs. passive shareholders? Restrictions under loan agreement? Multiple classes of ownership? Age of shareholders? State law considerations? ROFRs?

45. 3 How is your Buy-Sell Agreement Funded?

47. True Story: Life Insurance What happens now? Dead

48. Funding Mechanism What about Life Insurance Treatment for Valuation Purposes?

49. Funding Mechanism What about Life Insurance Treatment for Valuation Purposes?