Advanced Valuation Analytics

Advanced Valuation Topics:Warrant Financing

Barry GoodmanCFA, ASA, CPA/ABV, CBA, CFP

Advanced Valuation Analytics, Ltd.

Advanced Valuation Analytics

Assumptions

Purchase Price of Stock $500,000,000Paid in Cash $5,000,000Amount Financed $495,000,000Warrants Issued 1,000,000

Advanced Valuation Analytics

Rate of Return To SellersPeriod Date

Investment/ Warrants Value Payments Net Benefit

0 July-11 -$500,000,000 $5,000,000.00 -$495,000,000.001 February-12 23,387,732.97 23,387,732.972 May-12 23,387,732.97 23,387,732.973 August-12 23,387,732.97 23,387,732.974 October-12 23,387,732.97 23,387,732.975 February-13 23,387,732.97 23,387,732.976 May-13 23,387,732.97 23,387,732.977 August-13 23,387,732.97 23,387,732.978 November-13 23,387,732.97 23,387,732.979 February-14 23,387,732.97 23,387,732.97

10 May-14 23,387,732.97 23,387,732.9711 August-14 23,387,732.97 23,387,732.9712 November-14 23,387,732.97 23,387,732.9713 February-15 23,387,732.97 23,387,732.9714 May-15 23,387,732.97 23,387,732.9715 August-15 23,387,732.97 23,387,732.9716 November-15 23,387,732.97 23,387,732.9717 February-16 23,387,732.97 23,387,732.9718 May-16 23,387,732.97 23,387,732.9719 August-16 24,205,219.70 24,205,219.7020 November-16 24,205,219.70 24,205,219.7021 February-17 24,205,219.70 24,205,219.7022 May-17 24,205,219.70 24,205,219.7023 August-17 24,205,219.70 24,205,219.7024 November-17 24,205,219.70 24,205,219.7025 February-18 24,205,219.70 24,205,219.7026 May-18 24,205,219.70 24,205,219.7027 August-18 24,205,219.70 24,205,219.7028 November-18 24,205,219.70 24,205,219.7029 February-19 24,205,219.70 24,205,219.7030 May-19 24,205,219.70 24,205,219.7031 August-19 24,205,219.70 24,205,219.7032 November-19 $340,950,000.00 24,205,219.70 365,155,219.70

Internal Rate of Return 17.21%

Advanced Valuation Analytics

Present Value To Sellers

Mezzanine Discount Rate 18%Net Present Value of Payments to Sellers $435,309,244Amount paid for shares $500,000,000

Advanced Valuation Analytics

Breakdown of Debt

Tax Shield - 30%

Value of Warrants - 10.8%

Net Value of Debt - 59.2%

Advanced Valuation Analytics

Things To Consider

• Option valuation method• Dilution effect from warrants• Volatility factor• Exercise terms/redemption

Advanced Valuation Analytics

What Accountants Need From Appraisers

Advanced Valuation Analytics

The Chicken and Egg Dilemma• ESOP compensation expense (asc 718-40)• Expense from synthetic equity (asc 718-10)• Expense related to warrants

Advanced Valuation Analytics

Who Can the Appraiser Talk To? When?

• ESOP committee• ESOP trustee(s)• Seller(s)• Seller/participants• Participants• Investment bankers• Commercial bankers• Others