HowtoValueaBusiness: AnIntroduction

MeasuringtheEconomicValue ofTripleBottomLineBusinesses

ServicesHempsteadProvides
BusinessAppraisals FairnessOpinions PurchasePriceAllocations IntangibleAssetAppraisals SolvencyAnalyses EconomicDamagesAnalyses FinancialConsultingandAdvisoryServices

WhyValueaBusiness?
Prudent: Benchmarking& Planning BuyingorSelling ObtainingFinancing DesigningPartnerships Buy&SellAgreements Required: Estate&GiftTaxes FinancialReporting (PublicCompanies) Divorce&Litigation IssuingStockOptions ESOPs

ValuationintheNews

PhiladelphiaNewspapers SalePrices($millions)
$600 $500

$515MM, McClatchysellstoPhila MediaHoldings

$400

$300

$200

$139MM,Hedgefunds: Adlen Global&Gordon buyafterbankruptcy

$100

$55,NorcrossandKatz, nowindisputeand paperslistedforsale

$ Apr06 Apr07 Apr08 Apr09 Apr10 Apr11 Apr12 Apr13 Jul06 Jul07 Jul08 Jul09 Jul10 Jul11 Jul12 Jul13 Oct06 Oct07 Oct08 Oct09 Oct10 Oct11 Oct12 Oct13 Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14

DateofTransactions

MichaelJacksonEstate
IRSpresentedJacksonEstatewithabillfor$702million BiggestpointofcontentionwasovertherightstoMichaelJacksons imageandlikeness,anintangibleasset Estate $2,105vs.IRS $434million

Questionforaudience: Doesanyonehaveanythoughtsonwhytheestimatesofthe valueofMichaelJacksonsimageandlikenessareso different?

HowtoValueaBusiness CaseStudy:ValuingaBrewery

Breweries&RelatedBusinessesin thePhiladelphiaRegion
MembersofSBN:PBC&Yards Newer:DoGoodBrewing&St.Benjamins BrewingCompany Upto20breweriesforecasttoopenin2014 throughoutthePhiladelphiaRegion(philly.com) DiscussionofformingaBrewingCoOp PhiladelphiaHomeBrewingClub
http://www.phillyhbc.org/ Mtgs.3rd Fridays,Monthly

ThreeApproaches toValuingaBusiness
AssetBasedApproach MarketBasedApproach
GuidelinePrivateTransactions GuidelinePubliclyTradedCompanyMethod IncomeBasedApproach
CapitalizationofEarnings DiscountedFutureNetCashFlows

AssetBased ApproachestoValue
Generallyfocusedonassetintensiveentities
Manufacturers,wholesalers

Generallynotforusewithassetlightentities
Technology,professionalservices

Generallyprovidesavaluefloor

ConsidersConditionandQualityof TangibleAssets
Questionforaudience:Whataresomeofthe assetsthatbrewerieshave? FixedAssets CurrentAssets OtherAssets Furnitureand Other Cash Fixtures Investments Receivables Machinery Non Inventory and Operating OtherCurrent Equipment Assets Assets RealEstate

MendocinoBrewing(BlueHeron) AdjustedNetAssetValue
($000) Actual Sept 30, 2013 Realization Pro forma January 1, 2014 ASSETS Current Assets Cash, Cash Equiv. and Short-term Invest. Total Receivables, Net Inventories, Net Deferred Income Taxes, Current Prepaid Expenses Total Current Assets Fixed Assets Property, Plant & Equipment, Net Total Assets Total Liabilities 11,834 $19,024 ($17,859) 100% Adjusted, per Appraisal 12,000 $18,434 ($17,859)

$41 4,394 2,144 611 7,190

100% 95% 75% 100% 100%

$41 4,174 1,608 611 6,434

Adjusted Net Asset Value

Notes: (1)Basedonanticipatedcollectionofreceivables,conversationswithManagement (2)Basedonappraisal (3)BasedonRealEstateandM&EAppraisals ThisNetAdjustedAssetexampleisfordiscussionpurposesonly

$575

MarketApproach TransactionMethod
Reviewtransactionsinvolvingcompaniessimilartosubject company Reviewpasttransactionsinsubjectcompanysstock Reviewsourcesofacquiredcompanytransactiondata. Transactionscanbefrombusinessbrokers,CPAs, investmentbankers,etc Privatesubscriptiondatabasesandnewsreports(consider reliabilityandcompletenessoftransactiondata)

EBITDA Definition
Earningsbeforeinterestexpense,taxes, depreciationandamortization Netincome +interestexpense +incometaxes +depreciationandamortization EBITDA

EnterpriseValue Definition
Enterprisevalueiscalculatedasmarketcap(or totalequity)plusdebtminuscash. EnterpriseValue=EquityValue+Debt Cash Thinkofenterprisevalueasthetheoretical takeoverprice.Intheeventofabuyout,an acquirerwouldhavetotakeonthecompany's debt,butwouldpocketitscash.

Breweries GuidelineTransaction BeverageManufacturers

Transaction Summary 5 Transactions 2005 to 2013 Average Purchase Price (MVIC): $46.7 MM Financial Data Average Revenue: $88.3 million EBITDA margin: 13.3% Average TTM Growth Rate: 11.0% Transaction Multiples MVIC/Revenue: 0.8x MVIC/EBITDA: 6.1x

Source: GF Database, Middle Market Companies ($25MM$250MM)

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Breweries GuidelineTransaction KonaBrewingCo.,Inc.

Buyer: Craft Brewers Alliance, Inc. Sellers: Kona Brewing Co., Inc. Date: October 31, 2010 Company Location: Kona, Hawaii Purchase Price (MVIC): $19 MM ($11.7 MM in stock, $6.2 MM cash & debt assumed of $1.1 MM) Note: Transaction did not include real estate; included 5 year noncompete agreement Financial Data Net Sales: $13.4 million Operating Profit: $578,149 (4.3% margin) EBITDA: $760,221 Book Value: $3.7 million Transaction Multiples MVIC/Revenue: 1.42x MVIC/EBITDA: 25x

MarketApproach GuidelineCompanyMethod
SelectComparable(Guideline)Companies Developappropriatecomparablecriteria Industrycharacteristics Sizeofcompanies,profitability,growth Frequencytraded;Availabilityofinformation Questionforaudience: Whataresomepubliclytradedbeercompanies?

SearchBreweryCompanies PubliclyTraded
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Company Anheuser Busch InBev Appalachian Mountain Brewery Boston Beer Co Craft Beer Alliance Diageo PLC Grupo Modelo Heineken N.V. Mendocino Molson Coors Brewing SABMiller Ticker Symbol BUD NCNE SAM BREW DEO GPMCF HINKY MENB TAP SBMRY Exchange ADR OTC NYSE NASDAQ ADR ADR ADR OTC NYSE ADR Comment Belgian/Brazilian New USA Start Up USA USA Start Up British Mexico Dutch USA USA South African Brands Stella Artois, Bud, Michelob Honey Badger, Black Gold Sam Adams Red Hook, Omission Guiness, Liquor Corona, Modelo Heineken, Amstel Blue Heron, Red Tail Ail Coors, Blue Moon, Molson Miller Lite, Grolsch

Breweries GuidelineCompanies SummaryFinancialData(1/1/2014)

Company Name Ticker Symbol Exchange Enterprise Value (MVIC) % Net Debt Income Statement Net Sales Operating Profit Margin EBITDA Financial Ratios MVIC to Sales MVIC to Operating Profit MVIC to EBITDA Boston Beer Co SAM NYSE $3 Billion (1.4%) Sept 30, 2013 $686.7 million 16.2% $132.9 million Molson Coors Brewing TAP NYSE $13.8 Billion 25.2% Sept 30, 2013 $4.2 Billion 19.4% $966.6 million Craft Brewers Alliance BREW NASDAQ $319 Million 2.4% Sept 30, 2013 $177 Million 1.9% $11.1 million Mendocino Brewing MENB OTCPK $11.5 Million 66.4% Sept 30, 2013 $36.4 Million 0.0% $1 million Median 2.5 22.2 18.6 Exchange

ADR

4.4 27.4 22.8

3.3 17.0 14.3

1.8 93.5 28.7

0.3 (934.9) 10.9

ReviewingGPCMultiples overtime
EV/Revenue Boston Beer Co Craft Beer Alliance Mendocino Molson Coors Brewing Dec 31, 2008 1x 0.6x 0.3x 1.4x Dec 31, 2008 15x -1.9x 7.1x 3.8x Dec 31, 2009 1.3x 0.5x 0.4x 2.1x Dec 31, 2009 5.6x 6.9x 21.7x 4x Dec 31, 2010 2.6x 1.3x 0.4x 3.1x Dec 31, 2010 13.2x 15.4x 23.4x 9.5x Dec 31, 2011 2.6x 0.8x 0.3x 2.5x Dec 31, 2011 11.8x 9.9x 5.1x 8.1x Dec 31, 2012 2.8x 0.8x 0.3x 3x Dec 31, 2012 15x 10.3x 6x 18.8x Dec 31, 2013 na na na 3.3x Dec 31, 2013 na na na 23.4x 2008-2012 Median 2.6x 0.8x 0.3x 3x 2008-2012 Median 13.2x 9.9x 7.1x 8.1x

EV/EBITDA Boston Beer Co Craft Beer Alliance Mendocino Molson Coors Brewing na = not available

MarketBasedApproach ResultsSummarized
MVIC/ Revenue (a) Guideline Transactions (b) Kona Brewing Co. (c) Guideline Publicly Traded Companies - 5 Yr. Medians (2008-2012) 0.8x 1.42x 0.3x - 2.6x MVIC/ EBITDA 6.1x 25x 7.1x - 13.2x

Questionforaudience: Doesanyonehaveanyreactiontothedatawehave reviewedonmarketbasedtransactionsofbreweries?

MarketBasedApproach SelectionofMultiples
Determineappropriatepricingmultiples Comparesubjectcompanytoguidelinegroup Size(Sales/TotalAssets) Growthrates Margins Applymultiplestosubjectentity

QualitativeFactorsCanImpact MultipleSelection
Relevanteconomicdata(Global,National,Local) Industryfactors Competition Regulation Supplierrelationships Marketposition Managementandemployees
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MarketBasedApproachtoValue ApplicationofMultiples
Subject Brewing Company Revenue EBITDA $36,440,300 $1,051,200 Select Market Multiple 0.3x 10.9x Implied Enterprise Value $11,499,807 $11,499,807 $11,500,000

Preliminary Market-Based Indication of Value (Results Averaged) - calculation for discussion purposes only

EarningsBasedApproach CapitalizationofEarnings
Subjectvaluebasedonanticipatedfuturefinancial benefits
CapitalizationofEarnings
Singleestimateofearnings Maturecompanies,e.g.Manufacturing

DiscountedCashFlow
Multiperiodestimateofearnings Earlystage,fastgrowingcompanies,e.g.Technology, pharmaceuticals

EarningsBasedApproachtoValue CapitalizationofEarnings
Calculatingthecapitalizationfactor(e.g.multiple) (1+g)/(i g)
i =discountratetoreflectrisk g=growthrateinperpetuity E=FutureEarnings Value=FutureEarnings/CapitalizationRate

Value

E0 (1 + g) (i - g)

CashFlowiswhatmatters
Revenues EBIT(Op.Income) Less:CorporateTaxes TaxAffectOp.Income Add:Depreciation Deduct:CapEx Deduct:ChangeinNWC DebtFreeCashFlow Note: NetWorkingCap Dec31 2008 $36,735 401 5 396 Dec31 2009 $35,002 Dec31 2010 $34,976 Dec31 2011 $41,211 Dec31 2012 $40,336 935 3 933 5YearAvg. (478) (545) 492 7 10 7 (485) (554) 485 161 155

1,077 1,086 1,085 1,488 1,048 (770) (435) (394) (1,026) (1,503) 446 1,855 (8,610) 6,783 705 1,148 2,022 (8,473) 7,730 1,182 722

(3,651) (1,796) (10,405) (3,623) (2,918)

NetWorkingCapitalisoftencalculatedasCurrentAssetslessCurrentLiabilities

DeterminingaConstantGrowthRate
CompanyHistoricalFinancialData IndustryData U.S.orWorldEconomicData

DiscountRatesandCostofFinancing ReflectRisksofBusinessVenture
40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

CapitalizationofEarningsExample
Value = E0(1+g) (Ig) Value = $1,500,000 (1+4%) (20%4%) x 6.5

Value Value

= =

$1,500,000 $9,750,000

ValueassumetobeEnterpriseValue E=EstimatedOngoingEarningsCapacity(CashFlow) g=growthrate i=discountrate(reflectsriskorexpectedinvestorrateofreturn)

IncomeApproach DiscountedCashFlowMethod (DebtFree)

ProjectionofFutureFreeCashFlow(~3 10years) GrowthRateinTerminalYear DiscountRatethatreflectsrisks Thedeterminationofvalueforthesubject companysmarketvalueoftotalinvestedcapitalor EnterpriseValue

Discounted Cash Flow Analysis ($ in 000's) Discrete Projection Period (2014 - 2016) January 1, 2014 Total Revenues % Change Adjusted Earnings before Interest & Taxes (EBIT) Corporate Income Taxes (Imputed at 40%) After-Tax Income Add: Depreciation Less: Increase (Reduction) in Net Working Capital Less: Capital Expenditures Cash Flows Discount Interval (t) Present Value Factor = 1/(1 + i)^t Present Calue of Cash Flows Sum of Present Values (Discrete Projection Period) Terminal Value Calculation Long-Run Growth Rate Discount Rate (i) Capitalization Factor Terminal Cash Flow [5] Terminal Value [6] Present Value Factor Present Value of Terminal Value 20.0% 2014 $ 38,262 5.0% 765 306 459 1,148 1,455 (957) $ 1,108 0.50 0.91 1,012 4,146 1.2% 3.0% 3.8% (2.5%) 2.9% 100.0% 2015 $ 40,175 5.0% 804 321 482 1,205 918 (1,205) $ 1,974 1.50 0.76 1,502 1.2% 3.0% 2.3% (3.0%) 4.9% 100.0% 2016 $ 41,782 4.0% 836 334 501 1,253 643 (1,462) $ 2,574 2.50 0.63 1,632 1.2% 3.0% 1.5% (3.5%) 6.2% 100.0%

2.0%

2.0%

2.0%

4% 20.0% 6.5 2,574 16,734 0.63 10,608

Implied Multiples September 30, 2013 EBITDA $ 1,051 Implied MVIC/2013 EBITDA 7.7 Implied MVIC/2014 EBITDA 14.0

Total Present Value ( Enterprise Value) Total Interest Bearing Debt Total Equity Value, rounded [8] - this discounted cash flow model was developed for discussion purposes only.

14,754 7,682 $ 7,100

SummaryofValuationApproaches
Finalconclusionofvalue
Reconciliationofapproaches
Whatindicationsofvaluesappearreasonable? Weightingofapproaches

Controlvs.noncontrol AdjustmentsforDLOCand/orDLOM Enterprisevaluevs.Equityvalue NonOperatingAssets?

QUESTIONS?

807N.HaddonAvenue Suite214 Haddonfield,NJ08033 (856)7956026 www.hempsteadco.com MichaelCunningham,ASA mcunningham@hempsteadco.com DavidRoutzahn,ASA droutzahn@hempsteadco.com