1. 354 Eisenhower Parkway Livingston, NJ 07039 973.994.9400 www.wiss.com Wiss Food Industry Group Community Food Security Coalition / FoodBIN Conference October 7, 2008 by: James T. Duffy Wiss & Company, LLP 354 Eisenhower Parkway Livingston, NJ 07039 Livingston Iselin New York www.wiss.com

2. Presentation for Community Food Security Coalition / FoodBIN Conference Structuring for Growth Your vision regarding size/nature of your business Profit/Loss projections Likelihood of a public offering The business’ vulnerability to lawsuits Tax objectives Number of investors Desired management structure Your need for access to cash out of the business for yourself Choosing the right entity structure is dependent on many factors

3. Presentation for Community Food Security Coalition / FoodBIN Conference Entity Structure Choices Advantages oLimited liability oAbility to raise capital through sale of stock oMay be preferred by many sources of credit Disadvantages oSet up is more expensive and time consuming oIncreased regulatory environment oMore formalities (issuing stock certificates, annual meetings, keeping minutes of meetings, electing directors, etc) oHarder to get money out of a corporation oDouble taxation on distributions to shareholders oReasonable compensation standards may limit deductible salaries oNo preferential tax rate for capital gains Corporations

4. Presentation for Community Food Security Coalition / FoodBIN Conference Entity Structure Choices Advantages oSimple and inexpensive to form oInformal and flexible oOwned and controlled by a single person oIncome reported directly on personal income tax return (Schedule C) Major Disadvantages oUnlimited personal liability oMay be at a disadvantage in raising capital oHarder time attracting high-caliber employees oOther vehicles such as single-member LLC are much better in comparison Sole Proprietorship

5. Presentation for Community Food Security Coalition / FoodBIN Conference Entity Structure Choices Partnerships (General, Limited, Limited Liability) Subchapter S Corporations Limited Liability Companies (LLC’s) Pass-through Entities

6. Presentation for Community Food Security Coalition / FoodBIN Conference Entity Structure Choices Partnerships Advantages oRelatively easy to establish oMore than one owner helps ability to raise capital oProspective employees attracted to business if given opportunity to become a partner Disadvantages oPartners are jointly and individually liable for actions of other partners oProfits shared oSince decisions are shared, disagreements can occur

7. Presentation for Community Food Security Coalition / FoodBIN Conference Entity Structure Choices Advantages oLimited liability of a C-Corporation, but avoid double tax on distributions oAbility to raise capital through sale of stock Disadvantages oSet up is more expensive and time consuming oSubject to “reasonable compensation” standards oOnly one class of stock permitted oCannot specially allocate income Subchapter S Corporations

8. Presentation for Community Food Security Coalition / FoodBIN Conference Entity Structure Choices Advantages oHybrid business structure oLimited liability features of a corporation oTax efficiencies of a partnership oOperational flexibility Disadvantages oSet up could become somewhat complex Limited Liability Corporation (LLC)

9. Presentation for Community Food Security Coalition / FoodBIN Conference Form of Entity Comparison Business Characteristics C-CorpS-CorpLimited Partnership LLC Limited LiabilityYES Only for Limited Partners YES Ownership Restrictions At least 1 shareholder Maximum 100 shareholders; Shareholders can only be individuals, certain trusts (no corps, partnerships, LLCs) At least 1 general partner and 1 limited partner; Any individual or entity may be a partner At least 1 member; 2 members required for partnership treatment; Any individual or entity may be a member Flexibility in stock structure Very FlexibleGenerally InflexibleVery Flexible Formation Relatively uncomplicated ComplexSingle Member – Uncomplicated; Multiple – More complex Management Board of Directors By general partnersBy all members unless managers appointed

10. Presentation for Community Food Security Coalition / FoodBIN Conference Form of Entity Comparison Tax Attributes C-Corp S-Corp Limited Partnership LLC Operations Entity-level tax on all income Generally no entity- level income tax; All entity income/loss flow through to shareholders; No special allocations permitted No entity-level tax All entity income/loss flows to the partners; Special allocations allowed subject to certain rules No entity-level tax All entity income/loss flows to the members; Special allocations allowed subject to certain rules Operating Distributions Non-deductible dividends – causing double tax Distributions generally applied to basis with no current tax Generally tax free except to the extent that cash distributed exceeds basis Liquidating Distributions Double tax – corporate tax on gain from sale + shareholders taxed on liquidating dividends Single-level shareholder tax on gain; Possible exception for built-in- gains tax on converted C-Corps Generally tax-free except to the extent that cash distributed exceeds basis

11. Presentation for Community Food Security Coalition / FoodBIN Conference The Choice Entity Choice THE LLC  Combines limited personal liability feature of a corporation with the tax advantages of a partnership/proprietorship.  Protects your personal assets from business creditors  Protects your business assets from personal creditors  Entrepreneur can retain control of business while enjoying tax benefits of a tax flow-through entity  No stock and not required to observe corporate formalities.  Has become the entity of choice over limited partnerships and S-Corps due to: LLC does not need a general partner LLC does not the costly legal maintenance of an S-Corp Easily change to other structures, particularly a C-Corp structure

12. Presentation for Community Food Security Coalition / FoodBIN Conference The Financial Crisis: Impact on Small & Emerging Business “67% of small businesses reported being “impacted” by credit crunch” (Aug 2008 National Small Business Assn Survey) “72% have responded by taking home less money” (Sept 2008 Small Business Watch Survey by Discover Fin Svcs) “1/5 th of small business owners have loans leveraged by 2 nd home mortgages” Tightening Credit

13. Presentation for Community Food Security Coalition / FoodBIN Conference The Financial Crisis: Impact on Small & Emerging Business Tightening Credit Banks are not lending or lending at high costs LIBOR rate is rising rapidly Banks are afraid to lend to each other - “TED SPREAD” at a record high- hit 3.95% on Monday (was only 1.04% on September 5 th )

14. Presentation for Community Food Security Coalition / FoodBIN Conference The Financial Crisis: Impact on Small & Emerging Business Venture Capital Also Impacted Initial Public Offerings

15. Presentation for Community Food Security Coalition / FoodBIN Conference The Financial Crisis: Impact on Small & Emerging Business Venture Capital Also Impacted In 3 rd quarter 2008, IPO’s and M&A deals were down 66% from the year-ago period Headed towards lowest number of completed M&A deals/IPOs in a decade

16. Presentation for Community Food Security Coalition / FoodBIN Conference The Financial Crisis: Impact on Small & Emerging Business Other Signs Shift in Peer-to-Peer Loan Profiles Feb 08Sept 08

17. Presentation for Community Food Security Coalition / FoodBIN Conference The Financial Crisis: Impact on Small & Emerging Business Other Signs Percentage of Ibank.com postings viewed by potential lenders

18. Presentation for Community Food Security Coalition / FoodBIN Conference Surviving the Crisis CASH IS KING! “42% of small business owners say they have temporary cash flow issues” (August 2008 Discover Financial Services Survey) “With tightening credit market, cash flow becomes even more important”

19. Presentation for Community Food Security Coalition / FoodBIN Conference Surviving the Crisis Streamline Operations Tighten up supply chain Limit over-investment in inventory Cut production costs Examine every line item for non- essential spending Hold off on non-essential capital expenditures Reevaluate pricing strategies; Consider discounts Lean & Mean

20. Presentation for Community Food Security Coalition / FoodBIN Conference Surviving the Crisis Manage Cash-Flow Tighten credit terms and policies Negotiate with customers Negotiate with suppliers Focus on collections; Closely manage A/R Lean & Mean

21. Presentation for Community Food Security Coalition / FoodBIN Conference Surviving the Crisis Be Prepared for the Credit Crunch Don’t assume that credit will be there. Look and act like a legitimate business. Communicate with credit sources; Keep in touch. Check your credit report for inaccuracies.

22. Presentation for Community Food Security Coalition / FoodBIN Conference Surviving the Crisis Seek Alternative Credit Sources Smaller commercial banks Peer-to-peer lending Factoring Take advantage of credit terms with suppliers Equipment leasing/leasebacks

23. Presentation for Community Food Security Coalition / FoodBIN Conference The Silver Lining? A Bail-Out Plan or… “A Firewall for Main Street”

24. Presentation for Community Food Security Coalition / FoodBIN Conference The Silver Lining? Some positives for small business: Provision to help local community banks clear out $36 billion of worthless government sponsored assets (Freddie Mac and Fannie Mae) Will lessen write-downs and provide more capital to lend to individuals and small businesses Increased FDIC insurance limits from $100k to $250k Provides confidence that small business banking assets are secure The Federal Rescue Plan

25. Presentation for Community Food Security Coalition / FoodBIN Conference The Silver Lining? The Federal Rescue Plan Some positives for small business: Alternative Minimum Tax patch Provides tax relief for small businesses and owners Extends R&D and Energy tax credits Will assist start-ups in the R&D phase

26. Presentation for Community Food Security Coalition / FoodBIN Conference The Silver Lining? Other Benefits Better deals out there for businesses Commercial real estate rental rates Advertising costs Vehicles Less competition Increased talent pool available for small businesses

27. 354 Eisenhower Parkway Livingston, NJ 07039 973.994.9400 www.wiss.com Wiss Food Industry Group Contact Information James T. Duffy, Partner-in-Charge jduffy@wiss.com Mike Lee, Partner mlee@wiss.com Matthew Barbieri, Manager mbarbieri@wiss.com