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ASA Business Valuation Standards

200

American Society of Appraisers

ASA

Business Valuation

Standards

This release of the approved

ASA

Business Valuation Standards

of the American Society of Appraisers

contains all standards approved through

November

200

, and is to be used in conjuncti

on with the

Uniform

Standards of Professional Appraisal Practice

(USPAP) of The Appraisal Foundation and the

Principles of

Appraisal Practice and Code of Ethics

of the American Society of Appraisers.

Periodic updates to these

Standards are posted to the Bu

siness Valuation Committee’s website www.bvappraisers.org.

The

ASA Business Valuation Standards

, including Statements on Business Valuation Standards, Advisory

Opinions and Procedural Guidelines have been published and/or revised as indicated in the follo

wing Table of

Contents.

TABLE OF CONTENTS

Item

Title

Effective Date

Page

GENERAL PREAMBLE

September 1992

Revised January 1994

Revised February 2001

Revised August 2002

Revised January 2004

Revised July 2008

ASA

BUSINESS VALUATION ST

ANDARDS (BVS)

(Standards provide minimum criteria for developing and reporting on

the valuation of businesses, business ownership interests, or securities)

BVS

General Requirements for Developing a

January 1992

Business Valuation

Revised June 1993

Revised January 1994

Revised January 1996

Revised February 2001

Revised

July

2008

BVS

Financial Statement Adjustments

September 1992

Revised January 1994

Revised February 2001

Revised

July

2008

BVS

III

Asset

Based Approach to

January 1992

Business Valuation

Revised January 1994

Revised February 2001

Revised August 2002

Revised July 2008

CL-0331

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Item

Title

Effective Date

Page

BVS

Income Approach to Business Valuation

September 1992

Revised January 1994

Revise

d February 2001

Revised

July

2008

BVS

Market Approach to Business Valuation

September 1992

Revised January 1994

Revised February 2001

Revised

July

2008

BVS

Reaching a Conclusion of Value

September 1992

Revised January 1994

Revised February 2001

Revised August 2002

Revised

July

2008

BVS

VII

Valuation Discounts and Premiums

January 1996

Revised February 2001

Revised

July

2008

BVS

VIII

Comprehensive Written Business

June 1991

Valuation

Report

Revised J

anuary 1994

Revised February 2001

Revised

July

2008

BVS

Intangible Asset Valuation

July

2008

GLOSSARY

January 1989

Revised September 1992

Revised June 1993

Revised January 1994

Revised February 2001

Revised June 2002

evised

January 2004

Revised

July

2005

Revised July 2008

STATEMENTS ON

ASA

BUSINESS VALUATION STANDARDS (SBVS)

(Statements clarify, interpret, explain, or elaborate on Standards

and

have the full weight of Standards)

SBVS

Guideline

Public Co

any Method

January 1992

Revised January 1994

Revised February 2001

Revised

July 2001

Revised January 2004

Revised

July

2008

SBVS

Guideline Transactions

Method

January 2004

Revised

July

2008

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Item

Title

Effective Date

Page

VISORY OPINIONS (AO)

(Advisory Opinions illustrate the applicability of Standards and

Statements in specific situations, offer advice for the resolution of

valuation issues, and are not binding)

Financial Consultation and

February 1997

Adviso

ry Services

Rev

ised February 2001

Revised July 2008

PROCEDURAL GUIDELINES (PG)

(Procedural Guidelines suggest certain procedures that may be used in the

conduct of an assignment

and

are not binding)

Litigation S

upport:

Role of the

July 2001

Independen

t Financial Expert

Revised July 2008

Valuation of Partial Ownership

November 2009

terests

Published by:

Business Valuation Committee

American Society of Appraisers

555 Herndon Parkway, Suite 125

Herndon, V

A 20170

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American Society of Appraisers

AMERICAN SOCIETY OF APPRAISERS

ASA

Business Valuation Standards

General Preamble

The American Society of Appraisers, through its Business Valuation Committee, has adopted these

ASA Business Valuation Standards

and Definitions (“the Standards”) i

n order to maintain and

enhance the quality of business valuations for the benefit of the business valuation profession and

users of business valuations.

II.

The American Society of Appraisers, in its

Principles of Appraisal Practice and Code of Ethics

, and

he Appraisal Foundation, in its

Uniform Standards of Professional Appraisal Practice

(“USPAP”),

have established authoritative principles and a

code of professional ethics.

These Standards

incorporate the

Principles of Appraisal Practice and Code of Ethics

and the relevant portions of

USPAP, either explicitly or by reference, and are designed to clarify them and provide additional

requirements specifically applicable to the valuation of businesses, business ownership interests,

securities and intangible ass

ets

III.

These Standards incorporate all relevant business valuation standards adopted by the American

Society of Appraisers through its Business Valuation Committee.

IV.

These Standards provide minimum criteria to be followed by business appraisers in developin

g and

reporting the valuation of businesses, business ownership interests, securities

and intangible assets

If, in the opinion of the appraiser, the circumstances of a specific business valuation assignment

dictate a departure from any provision of any S

tandard, such departure must be disclosed and will

apply only to the specific provision.

VI.

These Standards are designed to provide guidance to ASA members and to provide a structure for

regulating the development and reporting of business valuations through

uniform practices and

procedures.

Deviations from the Standards are not intended to form the basis of any civil liability and

should not create any presumption or evidence that a

legal duty has been breached.

Moreover,

compliance with these Standards does

not create any special relationship between the appraiser and

any other person.

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American Society of Appraisers

AMERICAN SOCIETY OF APPRAISERS

ASA

Business Valuation Standards

BVS

I General Requirements for Developing a

Business Valuation

Preamble

This Standard must be followed i

n all valuations of businesses, business ownership interests,

securities

and intangible assets

developed by all members of the American Society of Appraisers,

be they Candidates, Accredited Members (AM), Accredited Senior Appraisers (ASA), or Fellows

(FAS

A).

The purpose of this Standard is to define and describe the general requirements for developing

the valuation of businesses, business ownership interests,

securities

and

intangible assets.

This Standard incorporates the General Preamble to the

ASA

Busin

ess Valuation Standards

II.

Appropriate definition of the assignment

Business

valuation

is the act or process of determining the value of a business enterprise or

ownership interest therein.

In developing a valuation

of a business, business ownership interes

t, security, or intangible asset

an appraiser must identify and define

, as appropriate

The client and other intended users

The purpose or intended use of the appraisal

The type of engagement as defined in

BVS

I General Requirements for Developing a

Busin

ess Valuation, Section II.C

The business enterprise to which the valuation relates

The type of entity (e.g., corporation, limited liability company, partnership or other)

The state

or jurisdiction

of incorporation, if applicable

The principal business loca

tion (or headquarters)

The business interest under consideration

The standard of value applicable to the valuation (e.g., fair market value, fair value,

investment value,

or other

)

10.

The premise of value

(

e.g., going concern, liquidation, or other

)

11.

The leve

l of value (e.g., strategic control, financial control, marketable minority,

nonmarketable minority) in the context of the standard of value, the premise of value, and

the relevant characteristics of the interest

12.

he effective (or “as of”) date of the a

ppraisal

13.

Any extraordinary assumptions used in the assig

ment

14.

Any hypothetical conditions used in the assignmen

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The nature and

type

of the

engagement

must be defined.

An acceptable

type of engagement

will

generally be one of the three types detailed belo

Other

types of engagements

should be

explained and described.

Appraisal

An Appraisal is the act or process of determining the value of a business, business

ownership interest, security, or intangible asset.

The objective of an appraisal is to express

an unambiguous opinion as to the value of a

business, business ownership interest, security

or intangible asset

which opinion is

supported by all procedures that the appraiser deems to be relevant to the valuation.

An appraisal has the following qualities:

(1)

Its conclusion of value is expressed as either a

single dollar amount or a range

(2)

It considers all relevant information as of the appraisal date available to the

appraiser at the time

of performance of the valuation

(3)

The appraiser conducts appropriate proce

dures to collect and analyze all

information expected

to be relevant to the valuation

(4)

The valuation considers all conceptual approaches deemed

to be relevant by the

appraiser

Limited appraisal

The objective of a limited appraisal is to express an estimate

as to the value of a business,

business ownership interest, security

or intangible asset

. The development of this

estimate excludes some additional procedures that are required in an appraisal.

A limited appraisal has the following qualities:

(1)

Its conclusi

on of value is expressed as either a

single dollar amount or a range

(2)

It is based upon consideration

of limited relevant information

(3)

The appraiser conducts only limited procedures to collect and analyze the

information that such appraiser considers necessar

y to support the conclus

ion

presented

(4)

The valuation is based upon the conceptual approach(es) deemed by the

ppraiser to be most appropriate

Calculation

The objective of

calculation is to provide an approximate indication of value

of a

business, business

ownership interest, security or intangible asset

based on the

performance of limited procedures agreed upon by the appraiser and the client.

A calculation

the following qualities:

(1)

It’s

result may be expressed as either a single dollar amount or a

rang

(2)

may be based upon consideration of only limited relevant information

(3)

The appraiser

collects

limited information and

performs limited analysis

(4)

The calculation

may be based upon conceptual approaches agreed upon with the

client

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III.

Information collection

and analysis

The appraiser shall gather, analyze

and

adjust the relevant information necessary to perform a

valuation appropriate to the

nature or type of the engagement

Such information shall include:

Characteristics of the business, business ownership

nterest, security or intangible asset

to be

valued, including rights, privileges, conditions, quantity, factors affecting control

and

agreements

restricting sale or transfer

The nature, history

and

outlook of the business

Historical financial information f

or the business

Assets and liabilities of the business

The nature and conditions of relevant industries that have an impact on the business

Economic factors affecting the business

Capital markets providing relevant information;

e.g.

, available rates of ret

urn on alternative

investments, relevant public stock market information

and

relevant merger and acquisition

information

Prior transactions involving the subject business,

or involving

interest

in,

the securities of, or

intangible assets in

the subject bu

siness

Other information deemed by the appraiser to be relevant

IV.

pproaches, methods

and

procedures

The appraiser shall select and apply appropriate valuation approaches, methods

and

procedures.

The appraiser shall develop a conclusion of value pursuant to

the valuation assignment as

defined, considering the relevant valuation approaches, methods

and

procedures, the information

available

and

appropriate premiums and discounts, if any.

Documentation and retention

The appraiser shall appropriately document and

retain all information relied on and the work product

used in

eaching a conclusion.

VI.

Reporting

The appraiser shall report the appraisal conclusions to the client in an appropriate written or oral

format.

Other than preliminary communications of results to

a client, reporting on valuation

calculations, or reporting on engagements that do not result in conclusions of value, the report must

meet the requirements of Standard 10 of the Uniform Standards of Professional Appraisal Practice.

the event the assig

nment results in a Comprehensive Written Business Valuation Report, the report

shall meet the requirements of BVS

VIII

Comprehensive Written Business Valuation Report

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AMERICAN SOCIETY OF APPRAISERS

ASA

Business Valuation Standards

BVS

Financial Stat

ement Adjustments

Preamble

This Standard must be followed in all valuations of businesses, business ownership interests,

securities

and intangible assets

developed by all members of the American Society of Appraisers,

be they Candidates, Accredited Member

s (AM), Accredited Senior Appraisers (ASA), or Fellows

(FASA).

The purpose of this Standard is to define and describe the requirements for making financial

statement adjustments in the valuation of businesses, business ownership interests, securities

and i

ntangible assets

This Standard applies to appraisals and may not necessarily apply to limited appraisals and

calculations as defined in

BVS

I General Requirements for Developing a Business Valuation,

Section II.C

This Standard incorporates the General Pr

eamble to the

ASA

Business Valuation Standards

II.

Conceptual framework

As a procedure in the valuation process, financial statements should be analyzed and, if

appropriate, adjusted.

Financial statements to be analyzed include those of the subject entity and

any entities used as guideline companies.

Financial statement adjustments are modifications to reported financial information that are

relevant and significant to the appraisal process. Adjustments may be appropriate for the

following reasons, among other

To present financial data of the subject and guideline

companies on a consistent basis

To adjust from reported values to current values

To adjust revenues and expenses to levels that are reasonably representative of continuing

results

To adjust for non

operating assets and liabilities, and any revenues and expenses

to the non

operating items

Financial statement adjustments are made for the sole purpose of assisting the appraiser in

reaching a

conclusion of value.

III.

Documentation of adjustments

All

adjustments made should be fully described and supported.

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AMERICAN SOCIETY OF APPRAISERS

ASA

Business Valuation Standards

BVS

III Asset

Based Approach to Business Valuation

Preamble

This Standard must be followed in all valuations of businesses, bu

siness ownership interests,

securities

and intangible assets developed by all members of the American Society of Appraisers,

be they candidates, Accredited Members (AM), Accredited Senior Appraisers (ASA), or Fellows

(FASA).

The purpose of this Standard is

to define and describe the requirements for the use of the asset

based approach (and the circumstances in which it is appropriate) in the valuation of businesses,

business ownership interests,

securities and intangible

assets, but not the reporting thereo

This Standard applies to appraisals and may not necessarily apply to limited appraisals and

calculations as defined in

BVS

I General Requirements for Developing a Business Valuation,

Section II.C

This Standard incorporates the General Preamble to the

Business Valu

ation Standards

II.

The asset

based approach

The asset

based approach is a general way of determining a value indication of a business,

business ownership interest, security, or intangible asset using one or more methods based on the

value of

the assets net of liabilities.

In business valuation, the asset

based approach may be analogous to the cost approach of other

appraisal

disciplines.

Assets, liabilities

and equity relate to a business that is an operating company, a holding

company, or a c

ombination thereof (a mixed business).

An operating company is a business that conducts an economic activity by generating and

selling, or trading in a product or service.

A holding company is a business that derives its revenues

from a

return on its asset

which may include operating companies and/or other businesses.

The asset

based approach should be considered in valuations conducted at the enterprise

level and involving:

An investment or real estate holding company

A business appraised on a basis othe

r than as a going concern

Valuations of

particular ownership interests

in an enterprise may or may not require the use of

the asset

based approach.

The asset

based approach should not be the sole appraisal approach used in assignments relating

to operating

companies appraised as going concerns unless this approach is customarily used by

sellers and buyers.

In such cases, the appraiser must support the selection of this approach.

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AMERICAN SOCIETY OF APPRAISERS

ASA

Business Valuation Standards

BVS

Incom

e Approach to Business Valuation

Preamble

This Standard must be followed in all valuations of businesses, b

usiness ownership interests,

securities and intangible

assets

developed by all members of the American Society of Appraisers,

be they Candidates, Ac

credited Members (AM), Accredited Senior Appraisers (ASA), or Fellows

(FASA).

The purpose of this Standard is to define and describe the requirements for the use of the income

approach in the valuation of businesses, business ownership interests,

securitie

s and intangible

assets,

but not the reporting thereof.

This Standard applies to appraisals and may not necessarily apply to limited appraisals and

calculations as defined in

BVS

I General Requirements for Developing a Business Valuation,

Section II.C

Thi

s Standard incorporates the General Preamble to the

ASA Business Valuation Standards

II.

The income approach

The income approach is a general way of determining a value indication of a business,

business

ownership interest,

security

, or intangible asset

by us

ing one or more methods through which

anticipated benefits are converted into value.

Both capitalization of benefits methods and discounted future benefits methods are acceptable.

capitalization of benefits methods, a representative benefit level is div

ided or multiplied by an

appropriate capitalization factor to convert the benefit to value.

In discounted future benefits

methods, benefits are estimated for each of several future periods.

These benefits are converted to

value by applying an appropriate d

iscount rate and using present value procedures.

III.

Anticipated benefits

Anticipated benefits, as used in the income approach, are expressed in monetary terms.

Anticipated benefits may be reasonably represented by such items as dividends

or distributions,

various forms of earnings or cash flow.

Anticipated benefits should be estimated by considering such items a

s the nature, capital

structure

and historical performance of the related business entity, the expected future outlook

for the business entity and r

elevant industries, and relevant economic factors.

IV.

Conversion of anticipated benefits

Anticipated benefits are converted to value by using procedures that consider the expected growth

and timing of the benefits, the risk profile of the benefits stream

and

the time value of money.

The conversion of anticipated benefits to value normally requires the determination of a

capitalization factor or discount rate.

In that determination, the appraiser should consider such

factors as the level of interest rates, the

rates of return expected by investors on alternative

investments

and

the specific risk characteristics of the anticipated benefits.

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In discounted future benefits methods, expected growth is considered in estimating the future

stream of benefits.

In capita

lization of benefits methods, expected growth is incorporated in the

capitalization factor.

The capitalization factors or discount rates should be consistent with the types of anticipated

benefits used.

For example, pre

tax factors or

discount

rates should

be used with pre

tax benefits,

common equity factors or

discount

rates should be used with common equity benefits

and

net

cash flow factors or

discount

rates should be used with net cash flow benefits.

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American Society of Appraisers

AMERICAN SOCIETY OF APPRAISERS

ASA

Business Valuati

on Standards

BVS

Market

Approach to Business Valuation

Preamble

This Standard must be followed in all valuations of businesses, b

usiness ownership interests,

securities

and

intangible

assets

developed by all members of the American Society of Appraiser

be they Candidates, Accredited Members (AM), Accredited Senior Appraisers (ASA), or Fellows

(FASA).

The purpose of this Standard is to define and describe the requirements for the use of the market

approach in the valuation of businesses, business owner

ship interests,

securities and intangible

assets,

but not the reporting thereof.

This Standard applies to appraisals and may not necessarily apply to limited appraisals and

calculations as defined in

BVS

I General Requirements for Developing a Business Val

uation,

Section II.C

This Standard incorporates the General Preamble to the

ASA Business Valuation Standards

II.

The market approach

The market approach is a general way of determining a value indication of a business,

business

ownership interest,

security

r intangible asset

by using one or more methods that compare the

subject to similar businesses, business ownership interests

securities

or intangible assets

that

have been sold.

Examples of market approach methods include the

Guideline Public Company Met

hod

(see

SBVS

and the Guideline Transactions Method (see SBVS

2).

III.

Reasonable basis for comparison

The business, business ownership interest, security

or intangible asset

used for comparison must

serve as a reasonable basis for comparison

to the subjec

Factors to be considered in judging whether a reasonable basis for comparison exists include:

A sufficient similarity of qualitative and quantitative investment characteristics

The amount and verifiability of data known about the similar investment

Whet

her or not the price of the similar investment was

observed

in an arm’s

length

transaction, or

a forced or distress

sale

IV.

Selection of valuation ratios

Comparisons are normally made through the use of valuation ratios.

The computation and use of

such

ratios should provide meaningful insight about the value of the subject, considering all

relevant factors.

Accordingly, care should be exercised with respect to issues such as:

The selection of the underlying data used to compute the valuation ratios

The

selection of the time periods and/or the averaging methods used for the underlying

data

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The computation of the valuation ratios

The timing of the price data used in the

valuation ratios

(in relationship to the effective

date of the appraisal)

How the valua

tion ratios were selected and applied to the subject's underlying data

In general, comparisons should be made by using comparable definitions of the components of

the valuation ratios.

However, where appropriate, valuation ratios based on components that a

reasonably

representative of ongoing results may be used.

Rules of thumb

Rules of thumb may provide insight

into

the value of a business, business ownership interest, security

or intangible asset

However, value indications derived from the use of rules

of thumb should not be

given substantial weight unless they are supported by other valuation methods and it can be

established that knowledgeable buyers and sellers place substantial reliance on them.

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AMERICAN SOCIETY OF APPRAISERS

ASA

Business Valuatio

n Standards

BVS

Reaching a Conclusion of Value

Preamble

This Standard must be followed in all valuations of businesses, bu

siness ownership interests,

securities and intangible

assets

developed by all members of the American Society of Appraisers,

be t

hey Candidates, Accredited Members (AM), Accredited Senior Appraisers (ASA), or Fellows

(FASA).

The purpose of this Standard is to define and describe the requirements for reaching a final

conclusion of value in the valuation of businesses, business owners

hip interests,

securities and

intangible

assets

This Standard applies to appraisals and may not necessarily apply to limited appraisals and

calculations as defined in

BVS

I General Requirements for Developing a Business Valuation,

Section II.C

This Stand

ard incorporates the General Preamble to the

ASA B

usiness Valuation Standards

II.

General

The conclusion of value reached by the appraiser shall be based upon the applicable standard of

value, the purpose and intended use of the valuation, and all relevant in

formation available as of

the valuation date in carrying out the

type of engagement

for

the assignment.

The conclusion of value reached by the appraiser will be based on value indications resulting from

one

more methods performed under one or more appra

isal approaches.

III.

Selection and weigh

ing of methods

The selection of and reliance on appropriate methods and procedures depends on the judgment of

the appraiser and not on any prescribed formula.

One or more approaches may not be relevant to

a particular s

ituation, and more than one method under an approach may be relevant.

The appraiser must use informed judgment when determining the relative weight to be accorded

to indications of value reached on the basis of various methods, or whether an indication of

value

from a single method should

be conclusive

The appraiser's judgment may be presented either in

general terms or in terms of mathematical weighting of the indicated values reflected in the

conclusion.

In any case, the appraiser should provide the rati

onale for the selection or weigh

ing

of the method or methods relied on in reaching the conclusion.

In assessing the relative importance of indications of value determined under each method, or

whether an indication of value from a

single method should dom

inate, the appraiser should

consider factors such as:

The applicable standard of value

The purpose and intended use of the valuation

Whether the subject is an operating company, a real estate or investment holding

company, or a company with substantial non

operating or excess assets

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The quality and reliability of data underlying the indication of value

Such other factors that, in the opinion of the appraiser, are appropriate for consideration

IV.

Additional factors to consider

As appropriate for the valuation

assignment as defined, and if not considered in the process of

determining and weigh

ing the indications of value provided by various procedures, the appraiser

should separately consider the following factors in reaching a final conclusion of value:

Marke

tability or lack thereof, considering the nature of the business, the business ownership

interest, security

or intangible asset

he effect of relevant contractual and

/or other

legal restrictions

he condition of the market

(

) in which the appraised interes

t might trade

The ability of

an owner of

the appraised interest to control the operation, sale, or liquidation of

the relevant business

Such other factors that,

in the opinion of the appraiser, are appropriate for consideration

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American Society of Appraisers

AMERICAN SOCIETY OF APPRAI

SERS

ASA

Business Valuation Standards

BVS

VII

aluation Discounts and Premiums

Preamble

This Standard must be followed in all valuations of businesses, bu

siness ownership interests,

securities and intangible

assets

developed by all members of the America

n Society of Appraisers,

be they Candidates, Accredited Members (AM), Accredited Senior Appraisers (ASA), or Fellows

(FASA).

The purpose of this Standard is to define and describe the requirements for the use of discounts

and premiums whenever they are app

lied in the valuation of businesses, business ownership

interests,

securities and intangible

assets

This Standard applies to appraisals and may not necessarily apply to limited appraisals and

calculations as defined in

BVS

I General Requirements for Devel

oping a Business Valuation,

Section II.C

This Standard incorporates the General Preamble to the

ASA Business Valuation Standards

This Standard applies at any time in the valuation process, whether within a method, to the value

indicated by a valuation me

thod, or to the result of weigh

ing or correlating methods.

II.

The concepts of discounts and premiums

A discount has no meaning until the conceptual basis underlying the base value to which it is

applied is defined.

A premium has no meaning until the conceptu

al basis underlying the base value to which it is

applied is defined.

A discount or premium is warranted when characteristics affecting the value of the subject

interest differ sufficiently from those inherent in the base value to which the discount or pre

mium

is applied.

A discount or premium quantifies an adjustment to account for differences in characteristics

affecting the value of the subject interest relative to the base value to which it is compared

III.

he application of discounts and premiums

The purp

ose, applicable standard of value, or other circumstances of an appraisal may indicate

the need to account for differences between the base value and the value of the subject interest.

so, appropriate discounts or premiums should be applied.

The base va

lue to which the discount or premium is applied must be specified and defined.

Each discount or premium to be applied to the base value must be defined.

The primary reasons why each selected discount or premium

applies to the appraised interest

must be sta

ted.

The evidence considered in deriving the discount or premium must be specified.

The appraiser's reasoning in arriving at a conclusion regarding the size of any discount or

premium applied must be explained.

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AMERICAN SOCIETY OF APPRAISERS

ASA

Business

Valuation Standards

BVS

VIII

Comprehensive Wr

itten Business Valuation Report

Preamble

This Standard must be followed only in the preparation of comprehensive written business

valuation reports developed by all members of the American Society of Appraiser

s, be they

Candidates, Accredited Members (AM), Accredited Senior Appraisers (ASA), or Fellows (FASA).

A business valuation report may be less comprehensive in content provided that the report

complies with the minimum content required by Standard 10.2 of

USPAP.

The purpose of this Standard is to define and describe the requirements for the written

communication of the results of a business valuation, analysis, or opinion, but not the conduct

thereof, which may reflect the three

type

of engagement

defined

BVS

I General Requirements

for Developing a Business Valuation, Section II.C

This Standard incorporates the General Preamble to the

ASA Business Valuation Standards

II.

Signature and certification

An appraiser assumes responsibility for the statements ma

de in

comprehensive written report

and accepts that responsibility by signing the report.

To comply with this Standard, a

comprehensive written report must be signed by the appraiser.

For the purpose of this Standard,

the appraiser is the individual or e

ntity undertaking the appraisal assignment under a contract

with the client.

Clearly, at least one individual is responsible for the valuation conclusion(s) expressed in a report.

A report must contain a certification, as required by Standard 10 of

USPAP

in which the

individual(s) responsible for the valuation conclusion(s) must be identified.

III.

sumptions and limiting conditions

The following assumptions and/or limiting conditions must be stated:

Pertaining to bias

A report must contain a statement that t

he appraiser has no interest in the

asset appraised, or other conflict that could cause a question as to the appraiser's independence

or objectivity; or, if such an interest or conflict exists, it must be disclosed.

Pertaining to data used

Where appropria

te, a report must indicate that an appraiser relied on

data supplied by others, without further verification by the appraiser, as well as the sources that

were relied on.

Pertaining to validity of the valuation.

A report must contain a statement that a val

uation is

valid only for the valuation date indicated and for the purpose stated.

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IV.

Definition of the valuation assignment

The precise definition of the valuation assignment is a key aspect of the report.

The following are

components of such a definition

and must be included in the report:

The business interest being valued must be clearly defined, such as “100 shares of the Class A

common stock of the XYZ Corporation” or “a 20 percent limited partnership interest in the ABC

Limited Partnership.”

The ex

istence, rights, and/or restrictions of other classes of ownership in

the subject business must also be adequately described if they are relevant to the conclusion of

value.

The purpose and use of the valuation must be clearly

stated, such as

“a determinat

ion of fair

market value for ESOP purposes” or “a determination of fair value for dissenters' rights

purposes.” If a valuation is being performed pursuant to a particular statute, the statute must be

referenced.

The standard of value used in the valuation

must be stated and defined.

The premise

or basis of value, such as valuation

on a going concern or liquidation basis, must be

defined.

The level of value, such as marketable minority or nonmarketable minority, must be defined.

The effective date and the r

eport date must be stated.

Other elements as outlined in

BVS

I General Requirements for Developing a Business Valuation,

Section II.B

, as appropriate.

Business description

A comprehensive written business valuation report must include a business descripti

on that covers

relevant factual

matters related to the business

, such as:

Form of organization (

e.g.,

corporation, partnership,

or other

)

History

Products and/or services

Markets and customers

Management

Major assets, both tangible and intangible, and maj

or liabilities

Outlook for the economy, industry, and business

Past transactional evidence of value

Sensitivity to seasonal or cyclical factors

Competition

Sources of information used

Such other factual information as may be required to present a cl

ear des

cription of the business

and the general context within which it operates

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VI.

Financial analysis

An analysis and discussion of a firm's financial statements is an integral part of a

business

valuation and must be included

in a comprehensive written business v

aluation report

Exhibits

summarizing balance sheets and income statements for a period of years sufficient to the purpose

of the valuation and the nature of the subject company must be included in the valuation report.

Any adjustments made to the reported

financial data must be fully explained.

If projections of balance sheets or income statements

are

used in the valuation, key assumptions

underlying those projections must be included and discussed.

If appropriate, the company's financial results in compar

ison to those of the industry in which it

operates must be discussed.

VII.

Valuation methodology

The valuation method or methods selected, and the reasons for their selection, must be discussed.

The steps followed in the application of the method(s) selected mu

st be described.

The

description of the methodology and the procedures followed must contain sufficient detail to

allow the intended user of the report to understand how the appraiser reached the valuation

conclusion.

The report must include explanation

f how

factors

such as discount rates, capitalization rates,

or valuation multiples were determined and used.

The rationale

nd/or supporting data for any

premiums or discounts must be clearly presented.

VIII.

Comprehensive written business valuation report forma

The comprehensive written business valuation report must clearly communicate pertinent

information, valuation methods

and

conclusions in a logical progression, and must incorporate the

other specific requirements of this Standard, including the signature

and certification provisions.

IX.

Confidentiality of the report

No copies of the report may be furnished to persons other than the client without the client's specific

permission or direction unless ordered by a court of competent jurisdiction.

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AMERICAN SOC

IETY OF APPRAISERS

Business Valuation Standards

BVS

IX Intangible Asset Valuation

Preamble

This Standard must be followed in all valuations of intangible assets developed by all members of

the American Society of Appraisers, be they Candidates, Accredit

ed Members (AM), Accredited

Senior Appraisers (ASA) or Fellows (FASA).

The purpose of this Standard is to define and describe the requirements for the valuation of

intangible assets.

This Standard applies to appraisals and may not necessarily apply to limi

ted appraisals and

calculations as defined in

BVS

I General Requirements for Developing a Business Valuation,

Section II.C

This Standard incorporates the General Preamble to the

ASA Business Valuation Standards

II.

Principles

In developing an intangible ass

et valuation, an appraiser must:

Identify the intangible asset to which the valuation relates.

Identify and define the applicable items of

BVS

I General Requirements for Developing a

Business Valuation, Section II.B

III.

Valuation methodology

In valuing an in

tangible asset, the appraiser should consider appropriate approaches and methods.

Approaches that should be considered in valuing intangible assets are as follows:

Income Approach.

The appraiser should identify the economic benefits that are reasonably att

ributable to

the subject intangible asset, and the risks associated with realizing those benefits.

The appraiser should consider the economic benefit provided by the amortization of the

asset’s value for income tax purposes, where applicable.

The appraiser

should consider whether the economic life of the intangible asset is

different from its legal or regulatory life.

Market Approach.

The appraiser should consider relevant differences between the subject and

guideline assets as well as respective market con

ditions.

Cost Approach.

The appraiser should consider direct and indirect costs associated with

reproduction or replacement, as the case may be, as well as any loss of value due to functional or

economic obsolescence, or reduced life expectancy.

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IV.

Factors

In val

ing an intangible asset, the appraiser should consider:

The bundle of legal rights, protections and limitations pertaining to the intangible asset to be

valued.

The history of the intangible asset.

The intangible asset’s expected remaining economic

(useful) and legal life.

The economic benefits, direct or indirect, that the intangible asset is expected to provide to its

owner during the asset’s life.

Previous or existing litigation involving the intangible asset.

The distinction between an undivided

interest and a fractional interest in the intangible asset

resulting from, e.g., shared ownership or a licensing agreement.

The feasibility and character of potential commercial exploitation of the intangible asset.

Additional f

actors relating to the spec

ific type of intangible asset to be valued

, as appropriate

See Appendix A below for illustrations of several intellectual property intangible assets.

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APPENDIX A

to BVS

: INTELLECTUAL PROPERTY EXAMPLES

The purpose of this Appendix is to illustrate

asset type valuation factors in the context of intellectual property,

and to provide guidance to be considered in the valuation of the indicated assets.

Patents

A patent is a published, public document that grants an inventor or assignee specific rights

such as excluding others from making, using, or selling an invention, design or discovery within a specific

jurisdiction for a term of years. For an intangible asset

such as a

patent, the appraiser should consider the

following factors, as applicable (in

addition to meeting all the other requirements of ASA Business

Valuation Standard BVS IX: Intangible Asset Valuation):

Scope of protection, such as jurisdictional coverage, status of registrations and maintenance fee

payments, breadth of patent claims

and

alternatives to the patented invention.

Risks of patent exploitation, such as infringement, invalidity, existence of technological or

economic barriers to successful commercialization, or alternative innovations that could reduce

the patent’s economic bene

fit.

Public and private information that may be available regarding the subject patent and comparable

or competing technologies, such as data from the United States Patent & Trademark Office

[USPTO],

public disclosure filed with the Securities and Exchange

Commission (“SEC”)

and

market research.

In valuing a portfolio of patents, the appraiser should consider the relevant synergies enabled by

the aggregation of rights, such as:

Elimin

ation of blocking patent rights

Obtaining design freedom, reducing

the lik

elihood of infringement

Attainment of a broader, or more versatile or desirable mix of

commercialization

possibilities

II.

Trade Secrets

A trade secret is information that a business keeps secret in order to gain an advantage

over competitors.

For an intang

ible asset in the nature of a trade secret, the appraiser should consider the

following factors, as applicable (in addition to meeting all the other requirements of ASA Business

Valuation Standard BVS IX: Intangible Asset Valuation):

The reasonableness and

effectiveness of measures taken to ensure secrecy.

The possibility that the secret could be legitimately discovered and/or developed by competitors,

such as through independent research, development or engineering.

If potentially patentable, the potential

benefits, costs

and

risks of patenting versus holding the

trade secret as a trade secret.

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III.

Trademarks

A trademark is a word, symbol or device that is used to denote a source of goods or

services. For an intangible asset in the nature of a trademark,

the appraiser should consider the following

factors, as applicable (in addition to meeting all the other requirements of ASA Business Valuation

Standard BVS IX: Intangible Asset Valuation):

The ability to extend the trademark to related products or servic

es, i.e., without infringing on the

trademarks of others.

The nature and extent of protections afforded by any registrations, including whether applicable

renewals are in effect.

Possibility of abandonment due to non

use.

Possibility of the mark becoming g

eneric.

Public and private information that may be available regarding the subject trademark and

comparable or competing marks, such as USPTO data,

public disclosure filed with the SEC

market analysis and research

and

surveys.

IV.

Copyrighted Works

A copyr

ight is a creative expression, such as a writing, recording, play, or work

of art, which is protected by law against unpermitted copying.

For an intangible asset in the nature of a

copyrighted work, the appraiser should consider the following factors, as a

pplicable (in addition to

meeting all the other requirements of ASA Business Valuation Standard BVS IX: Intangible Asset

Valuation):

Scope of protection, such as jurisdictional coverage, status of registrations and renewals, and

whether the copyright relat

es to the original work or a particular derivative

thereof

Public and private information that may be available regarding the copyrighted work, and

comparable or competing works.

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AMERICAN SOCIETY OF APPRAISERS

ASA

Business Valuation Standards

Glossary

Preamble

The American Society of Appraisers, through its Business Valuation Committee, has adopted these Definitions

(“Definitions”) to ensure the quality of valuations by defining terms whose meanings are clear and consistently

applied for the benefit of

appraisers, their clientele

and

other intended users.

These Definitions include the International Glossary of Business Valuation Terms as adopted by the

following professional societies and organizations:

American Institute of Certified Public Acco

untants

American Society of Appraisers

National Association of Certified Valuation Analysts

The Canadian Institute of Chartered Business Valuators

The Institute of Business Appraisers

The International Glossary of Business Valuation Te

rms are marked with

an asterisk

(*)

In the event that the assignment requires use of definitions that materially depart from

those

contained herein, the appraiser should fully explain the reason for departure and the implications it

may have on the valuation assignment.

The

se Definitions provide guidance to ASA members by offering uniformity and consistency in the

course of applying valuation terms used in developing and reporting the valuation of businesses,

business ownership interests, securities

and intangible assets

eparture from these Definitions is not intended to form the basis of any civil liability and should not

create any presumption or evidence that a

legal duty has been breached.

Moreover, compliance with

these Definitions does not create any special relation

ship between the appraiser and any other person.

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Definitions

Adjusted Book Value

The book value that results after asset or liability amounts are added, deleted, or

changed from their respective book amounts.

Adjusted Book Value Method

method with

in the asset approach whereby all assets and liabilities

(including off

balance sheet, intangible, and contingent) are adjusted to their fair market values (N

ote

: In

Canada on a going concern basis).

Adjusted Net Asset Method

Adjusted Book Value Met

hod

Appraisal

See

Valuation

Appraisal Approach

See

Valuation Approach

Appraisal Date

See

Valuation Date

Appraisal Method

Valuation Method.

Appraisal Procedure

Valuation Procedure

Appraised Value

The appraiser's opinion or concl

usion of value.

Arbitrage Pricing Theory

multivariate model for estimating the cost of equity capital, which

incorporates several

ystematic risk factors.

Asset (Asset

Based) Approach

general way of determining a value indication of a business, b

usiness

ownership

interest, security or intangible asset

using one or more methods based on the value of the assets net

of liabilities.

Beta

measure of systematic risk of a stock; the tendency of a stock's price to correlate with changes in a

specific

index.

Blockage Discount

n amount or percentage deducted from the current market price of a publicly traded

stock to reflect the decrease in the per share value of a block of stock that is of a size that could not be sold in a

reasonable period of tim

e given normal trading volume.

Book Value

Net Book Value

Business

See

Business Enterprise

Business Appraiser

A person who, by education, training

and

experience, is qualified to develop an

appraisal of a business, business ownership interest

, security or intangible assets.

Business Enterprise

commercial, industrial, service, or investment entity (or a combination thereof)

pursuing an economic activity.

Business Risk

he degree of uncertainty of realizing expected future returns of the

business resulting

from factors other than financial leverage. See

Financial Risk

Business Valuation

he act or process of determining the value of a business enterprise or ownership

interest therein.

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Capital Asset Pricing Model (CAPM)

model in w

hich the cost of capital for any stock or portfolio of

stocks equals a risk

free rate plus a risk premium that is proportionate to the systematic risk of the stock or

portfolio.

Capitalization

conversion of a single period of economic benefits into va

lue.

Capitalization Factor

ny multiple or divisor used to convert anticipated economic benefits of a single

period

into value.

Capitalization of Earnings Method

method within the income approach whereby economic benefits

for a representative singl

e period are converted to value through division by a capitalization rate.

Capitalization Rate

ny divisor (usually expressed as a percentage) used to convert anticipated economic

benefits of a single period into value.

Capital Structure

he composit

ion of the invested capital of a business enterprise, the mix of debt and

equity financing.

Cash Flow

ash that is generated over a period of time by an asset, group of assets, or business enterprise.

It may be used in a general sense to encompass vario

us levels of specifically defined cash flows. When the term

is used, it should be supplemented by a qualifier (

e.g.

, "discretionary" or "operating") and a specific definition

in the given valuation context.

Common Size Statements

inancial statements in

which each line is expressed as a percentage of the

total. On the balance sheet, each line item is shown as a percentage of total assets, and on the income

statement, each item is expressed as a percentage of sales.

Control

he power to direct the mana

gement and policies of a business enterprise.

Control Premium

n amount or a percentage by which the pro rata value of a controlling interest exceeds

the pro rata value of a non

controlling interest in a business enterprise, to reflect the power of cont

rol.

Cost Approach

general way of determining a value indication of an individual asset by quantifying the

amount of money required to replace the future service capability of that asset.

Cost of Capital

he expected rate of return that the market

requires in order to attract funds to a

particular investment.

Debt

Free

se of this term

is discouraged

See

Invested Capital

Discount for Lack of Control

n amount or percentage deducted from the pro rata share of value of 100

percent

of an equity

interest in a business to reflect the absence of some or all of the powers of control.

Discount for Lack of Liquidity

n amount or percentage deducted from the value of an ownership

interest to reflect the relative inability to quickly convert property

to cash.

Discount for Lack of Marketability

n amount or percentage deducted from the value of an ownership

interest to reflect the relative absence of marketability.

Discount for Lack of Voting Rights

n amount or percentage deducted from the per sh

are value of a

minority interest voting share to reflect the absence of voting rights.

Discount Rate

rate of return used to convert a future monetary sum into present value.

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Discounted Cash Flow Method

method within the income approach whereby th

e present value of

future expected net cash flows is calculated using a discount rate.

Discounted Future Earnings Method

method within the income approach whereby the present value

of future expected economic benefits is calculated using a discount ra

te.

Discretionary Earnings

arnin

that may be defined, in certain applications, to reflect earnings of a

business

enterprise

prior to the following items:

•

Income taxes

•

Nonoperating income

and

expenses

•

Nonrecurring income

and

expenses

•

Depreciation and a

mortization

•

Interest expense or

interest

income

•

Owner’s total compensation for those services, which could be provided by a sole owner/manager.

Economic Benefits

nflows such as revenues, net income, net cash flows, etc.

Economic Life

he period of t

ime over which property may generate economic benefits.

Effective Date

Valuation Date

Enterprise

Business Enterprise

Equity

he owner's interest in property after deduction of all liabilities.

Equity Net Cash Flows

hose cash flows av

ailable to pay out to equity holders (in the form of dividends)

after funding operations of the business enterprise, making necessary capital investments, and increasing or

decreasing debt financing.

Equity Risk Premium

rate of return added to a risk

free rate to reflect the additional risk of equity

instruments over risk free instruments (a component of the cost of equity capital or equity discount rate).

Excess Earnings

hat amount of anticipated economic benefits that exceeds an appropriate rate

of return

on the value of a selected asset base (often net tangible assets) used to generate those anticipated economic

benefits.

Excess Earnings Method

specific way of determining a value indication of a business, business

ownership

interest, securit

y or intangible asset

determined as the sum of a) the value of the assets derived by

capitalizing excess earnings and b) the value of the selected asset base. Also frequently used to value intangible

assets.

See

Excess Earnings

Fair Market Value

he p

rice, expressed in terms of cash equivalents, at which property would change

hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s

length in an open and unrestricted market, when neither is under co

mpulsion to buy or sell and when both

have reasonable knowledge of the relevant facts.

(

ote

: In Canada, the term "price" should be replaced with

the term "highest price"

)

Fairness Opinion

opinion as to whether or not the consideration in a transacti

on is fair from a

financial point of view.

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Financial Risk

he degree of uncertainty of realizing expected future returns of the business resulting

from financial leverage.

See

Business Risk

Forced Liquidation Value

iquidation value, at which the a

sset or assets are sold as quickly as possible,

such as at an auction.

Free Cash Flow

Use of this term is discouraged

See

Net Cash Flow

Going Concern

n ongoing operating business enterprise.

Going Concern Value

he value of a business enterpri

se that is expected to continue to operate into the

future. The intangible elements of Going Concern Value result from factors such as having a trained work

force, an operational plant, and the necessary licenses, systems, and procedures in place.

Going Co

ncern Value

efers to the intangible elements that result from factors such as having a trained

work force, an operational plant, and the necessary licenses, systems

and

procedures in place.

Also refers to

the premise of value based on the concept that a

business enterprise is expected to continue operations into

the future.

Goodwill

hat intangible asset arising as a result of name, reputation, customer loyalty, location, products,

and similar factors not separately identified.

Goodwill

hat intangi

ble asset arising as a result of elements such as name, reputation, customer loyalty,

location, products

and

related factors not separately identified and quantified.

Goodwill Value

he value attributable to goodwill.

Goodwill Value

he value attribut

able to the elements of intangible assets above the identifiable tangible

and intangible assets employed in a business.

Guideline Public Company Method

method within the market approach whereby market multiples

are derived from market prices of stock

s of companies that are engaged in the same or similar lines of

business, and that are actively traded on a free and open market.

Guideline Transaction

Method.

See

Merger and

Acquisition Method

Holding Company

n entity that derives its returns from i

nvestments rather than from the sale of

products or services.

Hypothetical Condition

hat which is contrary to what exists but is supposed for the purpose of analysis.

Income (Income

Based) Approach

general way of determining a value indication of a

business,

business ownership interest, security, or intangible asset using one or more methods that convert anticipated

economic benefits into a present single amount.

Intangible Assets

physical assets such as franchises, trademarks, patents, copyr

ights, goodwill,

equities, mineral rights, securities and contracts (as distinguished from physical assets) that grant rights and

privileges, and have value for the owner.

Internal Rate of Return

discount rate at which the present value of the future

cash flows of the

investment equals the cost of the investment.

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Intrinsic Value

he value that an investor considers, on the basis of an evaluation or available facts, to be

the "true" or "real" value that will become the market value when other investo

rs reach the same conclusion.

When the term applies to options, it is the difference between the exercise price or strike price of an option and

the market value of the underlying security.

Invested Capital

he sum of equity and debt in a business enter

prise. Debt is typically a) all interest

bearing debt or b) long

term interest

bearing debt. When the term is used, it should be supplemented by a

specific definition in the given valuation context.

Invested Capital Net Cash Flows

hose cash flows avail

able to pay out to equity holders (in the form of

dividends) and debt investors (in the form of principal and interest) after funding operations of the business

enterprise and making necessary capital investments.

Investment Risk

he degree of uncertain

ty as to the realization of expected returns.

Investment Value

he value to a particular investor based on individual investment requirements and

expectations.

(

ote

: in Canada, the term used is "Value to the Owner"

)

Key Person Discount

n amount or

percentage deducted from the value of an ownership interest to

reflect the reduction in value resulting from the actual or potential loss of a key person in a business

enterprise.

Levered Beta

he beta reflecting a capital structure that includes debt.

Limited Appraisal

he act or process of determining the value of a business, business ownership interest,

security, or intangible asset with limitations in analyses, procedures, or scope.

Liquidation Value

he net amount that would be realized if the

business is terminated and the assets are

sold piecemeal. Liquidation can be either "orderly" or "forced.”

Liquidity

he ability to quickly convert property to cash or pay a liability.

Liquidity

he ability to readily convert an asset, business, busi

ness ownership

interest, security or

intangible asset

into cash without significant loss of principal.

Majority Control

he degree of control provided by a majority position.

Majority Interest

n ownership interest greater than 50

percent

of the voti

ng interest in a business

enterprise.

Market (Market

Based) Approach

general way of determining a value indication of a business,

business ownership interest, security, or intangible asset by using one or more methods that compare the

subject to simil

ar businesses, business ownership interests,

securities or intangible

assets that have been sold.

Market Capitalization of Equity

he share price of a publicly traded stock multiplied by the number of

shares outstanding.

Market Capitalization of Investe

d Capital

he market capitalization of equity plus the market value of

the debt component of invested capital.

Market Multiple

he market value of a company's stock or invested capital divided by a company

measure (such as economic benefits, number o

f customers).

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Marketability

he ability to quickly convert property to cash at minimal cost.

Marketability

he capability and ease of transfer or salability of an asset, business, business ownership

interest, security or intangible asset

Marketabilit

y Discount

Discount for Lack of Marketability

Merger and Acquisition Method

method within the market approach whereby pricing multiples are

derived from transactions of significant interests in companies engaged in the same or similar lines of

business.

Mid

Year Discounting

convention used in the Discounted Future Earnings Method that reflects

economic benefits being generated at midyear, approximating the effect of economic benefits being generated

evenly throughout the year.

Minority Dis

count

discount for lack of control applicable to a minority interest.

Minority Interest

n ownership interest less than 50

percent

of the voting interest in a business

enterprise.

Multiple

he inverse of the capitalization rate.

Net Assets

Tot

al assets less total liabilities.

Net Book Value

ith respect to a business enterprise, the difference between total assets (net of

accumulated depreciation, depletion, and amortization) and total liabilities as they appear on the balance

sheet (synonym

ous with

hareholders

’

quity). With respect to a specific asset, the capitalized cost less

accumulated amortization or depreciation as it appears on the books of account of the business enterprise.

Net Cash Flows

form of cash flow. When the term is u

sed, it should be supplemented by a qualifier (

e.g.

quity" or "Invested Capital") and a specific definition in the given valuation context.

Net Income

Revenue less expenses and taxes.

Net Present Value

he value, as of a specified date, of

future c

ash inflows less all cash outflows (including

the cost of investment) calculated using an appropriate discount rate.

Net Tangible Asset Value

he value of the business enterprise's tangible assets (excluding excess assets

and non

operating assets) minus

the value of its liabilities.

(

ote

: in Canada, tangible assets also include

identifiable intangible assets

)

Non

Operating Assets

ssets not necessary to ongoing operations of the business enterprise.

(

ote

: in

Canada, the term used is "Redundant Asse

ts"

)

Normalized Earnings*

conomic benefits adjusted for nonrecurring, non

economic, or other unusual

items to eliminate anomalies and/or facilitate comparisons.

Normalized Financial Statements

inancial statements adjusted for non

operating assets a

liabilities and/or for nonrecurring, non

economic, or other unusual items to eliminate anomalies and/or

facilitate comparisons.

Operating Company

business that conducts an economic activity by generating and selling, or trading in

a product or servi

ce.

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Orderly Liquidation Value

iquidation value at which the asset or assets are sold over a reasonable

period of time to maximize proceeds received.

Portfolio Discount

n amount or percentage deducted from the value of a business enterprise to refle

the fact that it owns dissimilar operations or assets that do not fit well together.

Premise of Value

n assumption regarding the most likely set of transactional circumstances that may be

applicable to the subject valuation; e.g.

going concern, liq

uidation.

Present Value

he value, as of a specified date, of future economic benefits and/or proceeds from sale,

calculated using an appropriate discount rate.

Price/Earnings Multiple

price of a share of stock divided by its earnings per share.

Rate of Return

n amount of income (loss) and/or change in value realized or anticipated on an

investment, expressed as a percentage of that investment.

Redundant Assets

Non

Operating Assets

Replacement Cost New

he current cost of a similar

new property having the nearest equivalent utility to

the property being valued.

Report Date

he date conclusions are transmitted to the client.

Reproduction Cost New

he current cost of an identical new property.

Required Rate of Return

he minim

um rate of return acceptable by investors before they will commit

money to an investment at a given level of risk.

Residual Value

he value as of the end of the discrete projection period in a discounted future earnings

model.

Return on Equity

he am

ount, expressed as a percentage, earned on a company’s common equity for a

given period.

Return on Investment

Return on Invested Capital

and

Return on Equity

Return on Invested Capital

he amount, expressed as a percentage, earned on a company’s

total capital

for a given

eriod.

Risk

Free Rate

he rate of return available in the market on an investment free of default risk.

Risk Premium

rate of return added to a risk

free rate to reflect risk.

Rule of Thumb

mathematical formula devel

oped from the relationship between price and certain

variables based on experience, observation, hearsay, or a combination of these; usually industry specific.

Special Interest Purchasers

cquirers who believe they can enjoy post

acquisition economies o

f scale,

synergies, or strategic advantages by combining the acquired business interest with their own.

Standard of Value

he identification of the type of value being used in a specific engagement; e.g. fair

market value, fair value, investment value.

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Sustaining Capital Reinvestment

he periodic capital outlay required to maintain operations at

existing levels, net of the tax shield available from such outlays.

Systematic Risk

he risk that is common to all risky securities and cannot be eliminate

d through

diversification. The measure of systematic risk in stocks is the beta coefficient.

Tangible Assets

hysical assets (such as cash, accounts receivable, inventory, property, plant and

equipment, etc.)

Terminal Value

See

Residual Value

Transa

ction Method

Merger and Acquisition Method

and

Guideline Transactions Method.

Unlevered Beta

he beta reflecting a capital structure without debt.

Unsystematic Risk

he risk specific to an individual security that can be avoided through divers

ification.

Valuation

he act or process of determining the value of a business, business ownership interest, security,

or intangible asset.

Valuation Approach

general way of determining a value indication of a business, business ownership

interest,

security, or intangible asset using one or more valuation methods.

Valuation Date

he specific point in time as of which the valuator's opinion of value applies (also referred

to as "Effective Date" or "Appraisal Date"

or “as of” date

Valuation Metho

ithin approaches, a specific way to determine value.

Valuation Procedure

he act, manner, and technique of performing the steps of an appraisal method.

Valuation Ratio

fraction in which a value or price serves as the numerator and financial,

operating, or

physical

ata serves as the denominator.

Value to the Owner

Investment Value

Voting Control

e jure

control of a business enterprise.

Weighted Average Cost of Capital (WACC)

he cost of capital (discount rate) determined by the

eighted average, at market value

, of the cost of all financing sources in the business enterprise's capital

structure.

Working Capital

The amount by which current assets exceed current liabilities.

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AMERICAN SOCIETY OF APPRAISERS

Statements on ASA Busi

ness Valuation Standards

SBVS

Guideline Public Company Method

Preamble

Statements clarify, interpret, explain, or elaborate on Standards. Statements have the full weight

of Standards.

This Statement must be followed in all

valuations of businesses, bus

iness ownership interests,

securities and intangible assets developed by all

members of the American Society of Appraisers,

be they Candidates, Accredited Members (AM), Accredited Senior Appraisers (ASA), or Fellows

(FASA).

The purpose of this Statement is

to define and describe the requirements for the use of guideline

public companies

in the valuation of businesses, business ownership interests, securities and

intangible assets

, when applicable, under BVS

–

V Market Approach to Business Valuation.

This Stat

ement applies to appraisals and may not necessarily apply to limited appraisals and

calculations as defined in

BVS

I General Requirements for Developing a Business Valuation,

Section II.C

This Statement incorporates the General Preamble to the

ASA Busines

s Valuation Standards

II.

Conceptual framework

Market transactions in the securities of publicly traded companies can provide objective,

empirical data for developing valuation ratios for use in business valuation.

The development of valuation ratios from gui

deline public companies should be considered in the

valuation of businesses, business ownership interests, securities and intangible assets to the

extent that adequate and relevant information is available.

Guideline public companies are companies with sha

res traded in the public securities markets

that provide a reasonable basis for comparison to the investment characteristics of the company

(or other interest) being valued.

Ideal guideline companies are in the same industry as the subject

company; however

, if there is insufficient market evidence available in that industry, it may be

necessary to select other companies having an underlying similarity to the subject company in

terms of relevant investment characteristics such as markets, products, growth, c

yclical

variability, and other

relevant

factors.

III.

Search for and selection of guideline companies

When using the Guideline Public Company Method, a thorough, objective search for guideline

public companies is required to establish the credibility of the val

uation analysis.

The search procedure must include criteria for screening and selecting guideline public

companies.

Empirical data can be found in market

based valuation ratios of guideline public companies that

are engaged in the same business, in similar

lines of business, or in businesses that share other

relevant investment characteristics with the subject company.

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IV.

Financial data of guideline public companies

It is necessary to obtain and analyze financial and operating data on selected guideline publi

companies, as available.

Adjustments to the financial data of the subject company and guideline public companies should

be considered to minimize differences in accounting treatments when such differences are

significant.

Unusual or nonrecurring items s

hould be analyzed and adjusted as appropriate.

Valuation ratios derived from guideline public companies

Comparisons are made through the use of valuation ratios. The computation and use of such

ratios should provide meaningful insight about the value of th

e subject company, considering all

relevant factors. Accordingly, care should be exercised with respect to issues such as:

The selection of the underlying data used to compute the valuation ratios

The selection of the time periods and/or the averaging met

hods used for the underlying data

The computation of the valuation ratios, which may be derived by relating prices of the

guideline public companies to the appropriate underlying financial, operating, or physical

data of the respective guideline companies

The timing of the price data used in the valuation ratios

(in relationship to the effective date

of the appraisal)

How the valuation ratios were selected and applied to the subject’s underlying data

In general, comparisons should be made using comparable d

efinitions of the components of the

valuation ratios. However, where appropriate, valuation ratios based on components that are

reasonably representative of ongoing results may be used.

Several valuation ratios may be selected for application to the subjec

t company. These ratios may

require adjustment for differences in qualitative and quantitative factors between the guideline

public companies and the subject.

One or more indications of value may result from the use of the Guideline Public Company

Method.

The appraiser must consider the relative importance or weight accorded to each of the

indications of value used in arriving at the opinion or conclusion of value.

VI.

Other factors and considerations

Adjustment may be necessary to the ratios or values for fac

tors relating to the subject interest that

may

not have been considered earlier in the appraisal, such as:

Degree of control

Degree of marketability and liquidity

Strategic or investment value issues

Size, depth of management, diversification of markets, p

roducts and services, and relative growth

and risk

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AMERICAN SOCIETY OF APPRAISERS

Statements on ASA Business Valuation Standards

SBVS

2 Guideline Transactions Method

Preamble

Statements clarify, interpret, explain, or elaborate on Standards. Statements h

ave the full weight

of Standards.

This Statement must be followed in all

valuations of businesses, business ownership interests,

securities and intangible assets developed by all

members of the American Society of Appraisers,

be they Candidates, Accredited

Members (AM), Accredited Senior Appraisers (ASA), or Fellows

(FASA).

The purpose of this Statement is to define and describe the requirements for the use of guideline

transactions

in the valuation of businesses, business ownership interests, securities an

intangible assets

, when applicable, under BVS

–

V Market Approach to Business Valuation.

This Statement applies to appraisals and may not necessarily apply to limited appraisals and

calculations as defined in

BVS

I General Requirements for Developing a Bus

iness Valuation,

Section II.C

This Statement incorporates the General Preamble to the

ASA Business Valuation Standards

II.

Conceptual framework

Transactions involving the sale, merger or acquisition of businesses, business ownership interests,

securities and

intangible assets can provide objective, empirical data for developing valuation

ratios for use in business valuation.

The development of valuation ratios from guideline transactions of significant interests in

companies (or intangible assets, if applicab

le) should be considered in the valuation of

businesses, business ownership interests, securities and intangible assets to the extent that

sufficient and relevant information is available.

Guideline transactions are transactions involving companies

(or int

erests)

that provide a

reasonable basis for comparison to the investment characteristics of the company

(or interest)

being valued. Ideal guideline transactions are in the same industry as the subject company.

However, if there is insufficient transactiona

l information available in that industry, it may be

necessary to select transactions involving other companies having an underlying similarity to the

subject company in terms of relevant investment characteristics such as markets, products,

growth, cyclica

l variability

and

other relevant factors. Prior transactions in the company being

valued may also be considered to be guideline transactions.

III.

Search for and selection of transactions in guideline companies

When using the Guideline Transactions Method, a t

horough, objective search for transactions of

interests in companies similar to the company being valued is required to establish the credibility

of the valuation analysis.

The search procedure must include criteria for screening and selecting guideline t

ransactions.

Empirical data can be developed from guideline transactions involving controlling or minority

interests in publicly traded or closely held companies or intangible assets.

Empirical data can be developed from valuation ratios of guideline trans

actions involving

companies

(or interests)

in the same business, in similar lines of business, or in businesses that

share other relevant investment characteristics with the subject company

(or interest)

when

sufficient information is available regarding t

he transactions.

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IV.

Financial data of guideline companies

It is necessary to obtain and analyze relevant financial and operating data of the companies

involved in guideline transactions, as available.

Adjustments to the financial data of the subject company a

nd the companies in the guideline

transactions should be considered to minimize differences in accounting treatments when such

differences are significant.

Unusual or nonrecurring items should be analyzed and adjusted, as appropriate.

Valuation ratios der

ived from guideline transactions

Comparisons are made through the use of valuation ratios. The computation and use of such

ratios can provide meaningful insight about the value of the subject, considering all relevant

factors. Accordingly, care should be

exercised with respect to issues such as:

The selection of the underlying data used to compute the valuation ratios

The selection of the time periods and/or the averaging methods used for the underlying data

The computation of the valuation ratios, which m

ay be derived by relating prices in guideline

transactions to the appropriate underlying financial, operating, or physical data of the

respective companies

(or interests)

involved in the transactions

The timing of the price data used in the valuation ratio

(in relationship to the effective date

of the appraisal)

How the valuation ratios were selected and applied to the subject’s underlying data

Several valuation ratios may be selected for application to the subject company. These ratios may

require adjustm

ent for differences in qualitative and quantitative factors between the companies

(or interests)

involved in the guideline transactions and the subject.

Guideline transactions typically involve a specific buyer and a specific seller. Information

regarding

both the buyer and seller in a guideline transaction may be necessary in order to draw

valuation inferences from the transaction.

One or more indications of value may result from the use of the Guideline Transactions Method.

The appraiser must consider th

e relative importance or weight accorded to each of the indications

of value used in arriving at the opinion or conclusion of value.

VI.

Other factors and considerations

Adjustments may be necessary to the ratios or values for factors that have not been consid

ered earlier

in the appraisal, such as:

Degree of control

Degree of marketability and/or liquidity

Timing differences between market transactions and the valuation date

Strategic or investment value issues

Size, depth of management, diversification of mar

kets, products and services, and relative growth

and risk

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AMERICAN SOCIETY OF APPRAISERS

ASA

Advisory Opinions

Financial Consul

tation and Advisory Services

It is the opinion of the Business Valuation Committee that the

ASA

Business Valuation Stand

ards

and the

Uniform Standards of Professional Appraisal Practice

of T

he Appraisal Foundation, as they apply to business

valuation issues, are intended to apply to appraisals that are formally developed and presented opinions of

value performed as the prim

ary or ultimate objective of an appraisal engagement.

These standards are not

intended to apply to financial consultation or advisory services where there is no expression of

opinion

value

or the primary or ultimate objective is not to express an opini

on of value, including but not limited to,

fairness opinions, solvency opinions, pricing of securities for public offerings, feasibility studies, transfer

pricing studies, lifing studies of intangibles, estate planning or estate tax services, economic dama

ge analysis

and quantification, litigation consulting, royalty rate studies for intangibles

and

similar engagements.

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AMERICAN SOCIETY OF APPRAISERS

Procedural Guidelines

Litigation Support:

Role of

the

Independent Financial Expert

Preamble

Busine

ss valuation professionals are frequently engaged as independent financial experts for

purposes of assisting in dispute resolution, litigation, or potential litigation.

To preserve and

enhance the quality of the services of such experts, the American Socie

ty of Appraisers, through

its Business Valuation Committee, has adopted this Procedural Guideline.

This Procedural Guideline incorporates, where appropriate, all relevant Business Valuation

Standards and Statements on Standards adopted by the American Soci

ety of Appraisers through

its Business Valuation Committee.

This Procedural Guideline suggests specific procedures that may be used by experts.

It is not

binding.

This Procedural Guideline is designed to offer guidance to ASA members providing

itigation

upport

ervices.

Deviations from this Procedural Guideline are not designed to be or intended to

be the basis of any civil liability, and should not create any presumption or evidence that a legal

duty has been breached, or create any special relationship

between the expert and any other

person.

II.

Performance of

litigation support services

Litigation

upport

ervices include any professional assistance provided to a client in a matter

involving pending or potential litigation or dispute resolution proceedings

before a trier of fact.

In rendering

itigation

upport

ervices, the expert may be retained to provide an expert opinion

on the financial effects of facts and assumptions.

In addition to forming an expert opinion, the

expert may value a business, project

future financial results, analyze the performance of a

business operation, interpret financial

data, opine on an impaired stream of earnings, or render

other similar types of professional services.

n providing

itigation

upport

ervices, an independent

financial expert may play a role as:

Expert

One who is qualified by knowledge, skill, experience, training, or education in

performing business valuation services and/or related financial analyses.

Expert Witness

An expert who is engaged to explain techn

ical, scientific, or specialized

knowledge in order to assist the trier of fact in understanding evidence.

Arbitrator

An expert who serves as a trier of fact in an alternative dispute resolution

context.

Court

Appointed Expert

An expert who is engaged by

court to assist the trier of fact.

Consulting or Advisory Expert

An expert who is engaged to review another expert’s

work product or who is engaged to advise the client, lawyer or another expert witness about

technical matters relating to the subject l

itigation, but who will not be called to testify at trial,

and

may or may not be independent.

Accordingly, this Procedural Guideline may not apply to

such an expert.

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The expert should obtain a clear understanding of the

type

of the assignment.

When plannin

g the scope of work for a particular engagement, the expert should obtain a

understanding of the nature of the dispute, the events giving rise to the claim, as well as the

economic context and industry outlook impacting the business and/or individual cent

ral to the

assignment.

The expert should obtain sufficient relevant data to afford a reasonable basis for the conclusions

reached and/or recommendations made.

Sufficient information and documentation should be gathered by such means as inspection,

inquiry,

computation and analysis to ensure that the expert’s analysis and conclusion

(s)

are

properly supported.

The expert should exercise professional judgment in determining the extent

of the information and documentation necessary to support the conclusion.

e expert witness, arbitrator or court

appointed expert should maintain integrity, objectivity

and independence.

The following examples represent some of the many types of cases in which an expert may

provide

itigation

upport

ervices in the area of busin

ess valuation and related financial analysis:

Business

aluation

Determination of “fair value” of minority shares in dissenting stockholder and oppression

suits

Income, property, gift tax, and estate tax issues, including the determination of fair

market v

alue in non

arm’s length transactions, allocation of purchase price among

different categories of assets, corporate reorganizations, rollovers, stockholder benefits,

deemed dispositions, gifts and bequests, capital gains, etc.

Valuation of shares held by a

n Employee Stock Ownership Plan

Separation and divorce

Partner/shareholder disputes

Business valuations

Buy

sell agreements

Quantification of

financial loss or damages

Breach of contract and tort, including:

(1)

measuring damages for lost profits and loss of g

oodwill

(2)

defining relevant markets and calculating market share

(3)

restating or reconstructing financial records

(4)

developing profit and cost relationships

(5)

creating pro

forma financial statements

Personal injury and fatality claims, including the quantification

of impaired earnings

Insurance claims, including business interruption and disturbance losses

Condemnation/

xpropriation of business or property

Trespass and conversion

Professional malpractice

Anti

trust/unfair competition

Intellectual property

infringeme

nt damages

Bankruptcy and reorganization

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III.

Conducting the

assignment

In performing the engagement, the expert should consider the appropriate method(s) to be

adopted and procedures to be applied.

The expert should consider key assumptions and hypothetical co

nditions, determining the

reasonableness and appropriateness thereof.

The use of unwarranted assumptions may impair

the objectivity

—

actual or perceived

—

of the expert.

The expert should consider the necessity of relying on the work of a specialist.

When

there is such

reliance, the expert may wish to consider the specialist’s independence and competency.

If the

expert relies upon a specialist, the conclusions drawn should be documented.

Any written opinion

or report from a specialist should be retained on

file.

Work performed in the course of an engagement should be documented and files should be

maintained in an organized manner.

The form and extent of work papers should suit the

circumstances and needs of the engagement for which they are prepared.

The

expert should evaluate the necessity of obtaining a client representation letter and, if possible

and applicable, a representation letter from management or other representatives of the

underlying business.

The expert should either retain on file, or have

access to, all information relied upon.

When the expert has determined that an engagement letter is required, the engagement letter

should be retained on file.

When no engagement letter has been received, the expert’s file should

include a summary of the n

ature and function of the assignment.

When the expert has determined that a client representation letter and/or a management

representation letter is necessary, this (these) letter(s) should be retained on file.

The method(s) selected by the expert should

be documented along with the reasons for selection.

In addition, the specific procedures should be documented along with the reasons for selection.

The expert should document key areas considered and significant assumptions made.

A copy of

calculations, ex

planations

and

documentation supporting the final conclusion should be retained

in the file.

The expert should follow the rules of the applicable jurisdiction.

IV.

reparation of an

expert report

An expert report is often considered to constitute any communica

tion, written or oral (and not in

draft or preliminary form) that is prepared by an expert and that contains a conclusion pertaining

to a review, analysis, or quantification of business value, damages, or economic loss and that is to

be used in litigation

or arbitration proceedings.

It is recommended that the individual(s) responsible for the preparation of the expert report be

identified.

To the extent that it is both possible and appropriate, an expert report should contain, as a

minimum, the following in

formation:

Identity of

client

The expert’s client(s) should be clearly identified.

Description of

assignment

The expert report should contain a clear description as to the

specific nature of the expert’s assignment.

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Effective

date(s) or effective time pe

riod(

Value(s) or damages should be expressed

as of a specific date or time period.

In damage claims, the damages may relate to past, present

and/or future economic losses.

Intended

use

If not already included in the description of the nature of the as

signment, the

intended use of the expert report should be clearly stated, and use for other purposes should

be precluded.

Definitions

The expert report should contain the expert’s definition of key terms not

commonly defined.

The expert should define or e

xplain terms such as (but not limited to)

"damages," "economic loss," "loss of profits," "lost contribution margin."

Documents and

information

The expert report should identify significant documents

and information relied upon

and

, if applicable, those re

viewed but not relied upon.

imitations

If the expert was unable to obtain, or was otherwise denied access to,

documents, information, and/or interviews, or where the information provided was

incomplete, this limitation should be clearly disclosed in the

expert report.

It may also be

appropriate to disclose the reasons for this limitation.

To the extent that such limitation

would restrict the ability of the expert to form an opinion, it may be necessary to express a

qualified opinion, a disclaimer, or a de

nial of an opinion, depending on the specific

circumstances.

Relevant

chronology

When relevant, the expert report should summarize the chronology

of events giving rise to the claim(s) in the litigation.

The chronology of events, as set out in

the expert r

eport, should be consistent with the effective date or time period.

Relevant

context and financial analysis

When relevant, the expert report should

include an appropriate description of factors such as those listed in BVS VIII

Comprehensive

Written Busine

ss Valuation Report, Section

V, and a financial analysis such as the one

described in BVS VIII,

Section VI.

10.

Methodology

The expert report should contain a description of the method(s) adopted and

the reason(s) for their use.

11.

Analysis

The expert report sh

ould provide adequate description in clear terms of how the

expert determined value, quantified economic losses, damages, etc.

12.

Assumptions

The expert report should clearly state and identify the basis of all

assumptions, hypothetical conditions

and

limiti

ng conditions that affected the analyses,

opinions

and

conclusions (see USPAP 10

2(a)(x)).

13.

Conclusion

The expert report should clearly state the conclusions of the expert.

14.

Report

date

The expert report should be dated as of the day on which it is complet

ed or

issued.

15.

Exhibits,

appendices, graphs, charts, schedules

and

tables

The use of visual aids in

the body of, or appending, the expert report should be made in an objective, unbiased

and

professional manner, so that they can be properly interpreted by t

he trier of fact and others

connected with the litigation or arbitration.

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Retention of

work papers and report

The expert should retain fully

documented work papers for each engagement, whether in hard

copy or electronic copy.

The expert should also retai

n summaries of oral reports or testimony (or

a transcript of testimony) and all other data, information and documentation necessary to

support the expert’s opinions and conclusions.

Summaries of key meetings, discussions and

correspondence should be retain

ed on file.

The expert should maintain custody of the work papers, or make appropriate retention, access,

and retrieval arrangements with the party having custody of those work papers.

The expert should

retain the work papers for a period of at least five

(5) years after preparation, or at least two (2)

years after final disposition of any judicial proceeding (including arbitration) in which testimony

was given, whichever period expires last.

A copy of the final issued expert report should be retained on fi

le for a period of at least five (5)

years after preparation, or at least two (2) years after final disposition of any judicial proceeding

(including arbitration) in which testimony was given, whichever period expires last.

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AMERICAN SOCIETY OF APPRAISERS

Procedural Guidelines

–

Valuation of Partial Ownership Interests

Preamble

Business valuation professionals are frequently engaged as independent financial appraisers for

purposes of valuing fractional or partial ownership interests. To preserve a

nd enhance the quality

of the services of such appraisers, the American Society of Appraisers, through its Business

Valuation Committee, has adopted this Procedural Guideline.

This Procedural Guideline incorporates, where appropriate, all relevant Business

Valuation

Standards and Statements on Standards adopted by the American Society of Appraisers through

its Business Valuation Committee.

The purpose of this Procedural Guideline is to define and describe the considerations and

procedures that may be used i

n valuing partial ownership interests in businesses, securities or

other fractional interests in tangible or intangible property.

It is not binding.

Deviations from this Procedural Guideline are not designed to be or intended to be the basis of

any civil l

iability, and should not create any presumption or evidence that a legal duty has been

breached, or create any special relationship between the appraiser and any other person.

II.

General principles

Partial ownership interests are interests of an enterprise or

an asset of less than 100

percent

Partial ownership interests may exist in various business entities and assets such as corporations,

limited liability companies, partnerships, and as direct fractional ownership of certain tangible

and intangible assets.

Partial ownership interests comprise a spectrum of positions, from nearly total control (e.g., a 95

percent

stock ownership position in a corporation, or the sole general partner of a limited

partnership) to almost complete lack of control (e.g., a small

block of non

voting corporate stock).

It is not possible to categorize partial interests in simple terms.

Generally, a partial ownership position in an entity or asset that is less than 50

percent

may

be classified as a noncontrolling or minority intere

st. Similarly, an interest of greater than 50

percent

often confers control. An exact 50

percent

interest may have both control

characteristics (such as blocking power) and lack of control characteristics (such as inability

to proactively cause an action t

o be taken).

The degree of ownership does not always indicate the degree of control.

Governance documents, loan covenants, securities attributes (e.g., preferences,

voting versus non

voting, etc.) and other factors may confer control of an entity even

the interest at issue is less than 50

percent

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A 60

percent

limited partner may have no control over a partnership if removal of

the general partner requires a

two

thirds

majority vote of the limited partnership

interests.

A 2

percent

ownership position

might be in a position of limited control if there are

two other owners of 49

percent

each who are at odds with one another. The same 2

percent

owner would be in a completely different position if there was only one other

owner of 98

percent

, or 49 other o

wners each owning 2

percent

Three interests of one

third (33 1/3

percent

) each provides yet another set of

potential valuation dynamics.

A complete listing of all the different potential combinations and permutations of ownership

structure and characteri

stics is beyond the scope of this Procedural Guideline.

Development of value for a partial interest can be a very different process from valuing the

underlying entity or asset as a whole. In addition, valuation of partial interests may or may not be

a dire

ct function of the value of the underlying entity or asset as a whole.

It is the responsibility of the appraiser to determine if valuation of the underlying asset(s) or

entity as a whole is required in order to develop credible appraisal results for the pa

rtial

interest.

If ownership of a partial interest does not provide the ability to liquidate an entity, cause its

sale or gain access to any of the assets, valuation of the whole may not be relevant to the

analysis. However, if investors or market particip

ants would nonetheless consider the value

of the whole irrespective of their inability to cause liquidation or sale of the entity or assets,

then valuation of the whole, either on a going concern or liquidation premise, may be

appropriate to consider in th

e analysis.

If ownership of a partial interest does provide the ability to cause liquidation of the

underlying entity or sale of the underlying asset, and value of the entity or asset depends

primarily on the asset

based approach, it may be appropriate to

obtain qualified appraisals of

any real estate or personal property.

Valuation of partial ownership interests is often dependent on contractual provisions.

Consequently, rights and restrictions contained in documents such as articles of incorporation,

byla

ws, partnership agreements, tenant

common agreements, option agreements, buy

sell

agreements or shareholder agreements may be relevant to the analysis. Similarly, value may be a

direct or indirect function of applicable laws and regulations.

Appraisers

should be aware that the standard (type) and premise of value can have a material

effect on the value of a partial ownership interest. For example, valuation of a minority

shareholding under the “fair value” standard of value may be very different from it

s value under

the “fair market value” standard of value.

III.

Factors to consider

A number of factors may be appropriate to consider in valuing partial ownership interests. The

following list is not intended to be all

inclusive. Items on the list may or may n

ot be applicable in

specific valuation situations.

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The purpose and definition of the valuation engagement in accordance with BVS

–

I General

Requirements for Developing a Business Valuation, including the applicable standard (type) and

premise of value.

Fac

tors related to the underlying enterprise or asset, including:

The value of the underlying enterprise or asset, if applicable.

Enterprise

level or asset

level tax effects, if relevant.

Factors related to the subject partial interest, including:

Provisions

in the organizational and governance documents that affect the rights,

restrictions, marketability and liquidity of the subject interest. Documents to consider may

include partnership agreements, articles of incorporation, bylaws, operating agreements,

sell agreements, investment letter stock restrictions, option agreements, lock

requirements or others that may be relevant.

Applicable laws and regulations. Business examples include statutory rights to demand

dissolution of a corporation under state

law, restrictions on transfer pursuant to SEC Rule

144, and many others. An asset example is included the right to partition.

The existing ownership structure and configuration.

Access to, availability of, and reliability of information regarding the un

derlying asset or

entity.

The relevant pool of potential buyers, if any.

Market data on transactions in similar markets, if any. Potentially similar markets might

include private placements in publicly or privately syndicated entities (including restri

cted

stock transactions, pre

IPO transactions, and transactions in publicly traded limited

partnerships) or tenants

common arrangements, etc.

Expected holding period for an investment in the subject interest, including consideration of

such factors as:

The extent to which the expected holding period may be uncertain.

Defined expiration or termination dates contained in the governing documents, or

other external factors, that may precipitate a foreseeable liquidation or sale of the

underlying entity.

Anal

ysis of the age, health and other characteristics of the other owners and/or key

managers, which could provide information about the possible timing of a sale or

liquidation by the controlling owner(s).

The history of transactions (if any) involving partia

l (or possibly controlling)

interests of the subject enterprise or asset, including recapitalizations or stock

repurchases that have provided liquidity to shareholders.

The potential market for similar enterprises or assets (e.g., is the industry

consolida

ting?).

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The emerging attractiveness of the entity for equity offering, sale, merger or

acquisition.

Provisions in the governing documents or buy

sell agreements, or under law or

regulation either prohibiting, restricting or allowing transfer of the subject

interest.

Rights and powers attributable to the subject interest that may enable a sale of the

subject entity, asset or the interest itself, against the will of the other owners.

Historical actions of management and/or the directorate, which may provide

nformation about their policy and intentions regarding eventual sale of the entity or

asset, or receptivity to a potential sale or repurchase of partial interests.

The existence, depth and functioning of markets that might be available for interests

simila

r to the subject interest.

The appropriateness of considering a range of expected holding periods and exit

possibilities.

Expected economic benefits associated with the subject interest, which come in the form of

interim benefits (dividends or distribution

s) and a terminal cash flow when the investment is

sold or

liquidated.

Expected interim dividends or distributions to the interest, which may differ from

the expected benefits (cash flows) generated by the entity or asset as a whole.

Interest

level benefi

ts may be affected by such factors as:

(1)

The history of dividends or distributions, including both timing and amounts.

(2)

Current or expected future distribution policy.

(3)

Preferential dividend claims.

(4)

Enterprise

level and/or interest

level tax characteristics.

(5)

he outlook for one

time and/or irregular dividends or distributions.

(6)

Circumstances with controlling owners that may increase (or decrease) the

likelihood of future interim benefits.

The expected terminal cash flow at the end of the expected holding period(

s), which

may be a function of such factors as:

(1)

Possible future transactions involving the enterprise or asset as a whole, or

transactions in the subject interest itself.

(2)

Current (valuation date) value and expected growth in value of the enterprise or

ass

et to the end of the expected holding period(s).

(3)

Growth in value may be a function of expected earnings retention (distribution

policy) and the amount of and effectiveness of expected reinvestment in the

entity or asset.

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Required return for investing in t

he subject interest. The required return may consider risks

other than risks related to the enterprise or asset as a whole, including for example:

The expected length and uncertainty of the holding period.

The likelihood of dividends or distributions (i.e

., expected distribution policy).

The costs of due diligence efforts required to acquire the subject partial interest.

The costs of monitoring the investment over the expected holding period, including

issues related to the expected receipt of timely and

reliable information concerning

the investment.

Required returns on similar investments or investments with similar investment

specific liquidity and holding period characteristics.

The risk of tax liabilities from pass

through profits without guaranteed t

distributions in entities such as limited liability companies, Subchapter S

corporations or partnerships.

The difficulty and cost of marketing the subject interest.

The risk of involuntary dilution when no preemptive rights are provided in the

articles

of incorporation or bylaws of a corporation.

The degree of control conveyed by the subject interest.

10.

Ownership

level tax effects, if relevant.

11.

Prior transactions in the subject interest, entity or asset, and their relevance to a given

assignment.

Interac

tion of the factors listed above, and their cumulative impact on the degree of control,

marketability and liquidity of the subject interest.

IV.

Approaches, methods and procedures

Appraisers should consider all three approaches to value (asset

based, income an

d market) when

valuing partial interests. If an approach is excluded in an assignment the appraiser should explain

the reason for such exclusion in the appraisal report.

It may be appropriate for the appraiser to obtain the assistance of legal counsel in o

rder to gain a

reasonable familiarity and understanding of the legal and regulatory environment that may

influence or affect value. Similarly, it may be appropriate for the appraiser to obtain input from

counsel regarding governing documents and agreements

If discounts or premiums are applied at the partial ownership level the appraiser should explain

how the discounts or premiums were developed, as required by BVS

–

VII Valuation Discounts and

Premiums.

If the income approach is used at the partial ownersh

ip level the appraiser should develop and

support any assumptions concerning the expected benefits to be received, the expected or

required holding period(s) and the appropriate required rate of return on the investment given

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the risks associated with the

subject ownership position. To the extent applicable the provisions of

BVS

IV Income Approach to Business Valuation should be followed.

If the market approach is used at the partial ownership interest level, several other sections of the

Standards may be

applicable.

Discounts for lack of marketability (or discount rates) are sometimes developed, for example,

by reference to or analysis of restricted stocks of public companies, options on public

securities (such as long

term equity anticipation securitie

s), pre

IPO transactions in private

companies that later went public, or other public securities. When using such methods, the

appraiser should follow the guidance of SBVS

I Guideline Public Company Method as well as

BVS

V Market Approach to Business Val

uation and BVS

VII Valuation Discounts and

Premiums.

Similarly, appraisers using studies of transactions in the secondary market for private

partnership interests to develop discounts for lack of marketability (or discount rates) should

follow the guida

nce of SBVS

II Guideline Transactions Method, as well as BVS

V and BVS

VII.

If transactional premium studies involving public companies (e.g., control premium studies)

are utilized by the appraiser to support discounts for lack of control (minority disco

unts), the

provisions of SBVS

I and BVS

VII should also be applied.

When reconciling the final value conclusion for a partial interest, regardless of the method(s)

employed, the appraiser may wish to consider one or more tests of reasonableness for the

ncluded value of the partial interest, such as:

Calculating the implied internal rate of return for the subject interest at the concluded price

over the relevant range of expected holding periods, and comparing the implied internal rate

of return to expect

ed returns of similar investments, if available.

Calculating the implied dividend or distribution yield for the investment based on the

expected dividend or distribution policy of the enterprise, and comparing the implied

dividend or distribution yield wi

th expected yields on similar investments, if available.