Date International Fair Value Accounting and Other Purposes Addressee By email (__________) Subject:  _____________ (Note: Sample proposal based upon a mineral processing operation.) Dear __________, We are pleased to present our recommendations for the professional appraisal and valuation consulting services of Southeast Appraisal Resource Associates, Inc. (“Southeast Appraisal”). It is our understanding that ________________ has purchased, as of ___________, certain tangible and intangible assets of ________. PURPOSE OF THE APPRAISAL Relating to this transaction, it is our understanding that certain appraisal / valuation and fixed asset accounting services may be required as follows: • For Financial Reporting to ascertain the Fair Value of the inventory, real property, tangible personal property, and intangible assets for the requisite purchase price allocation. Further, componentization will be completed in accordance with International Accounting Standard 16, Accounting for Property, Plant and Equipment (“IAS 16”). Not included in the valuation will be the ________, which may be valued by others or the acquirer and/or seller. • For United States Federal Income Tax Reporting, to ascertain the Fair Market Value in Continued Use (of the assets appraised for financial reporting purposes) for possible reporting in accordance with applicable Internal Revenue Service code sections. • For United States Federal Income Tax Reporting, utilizing cost segregation appraisal / valuation techniques to identify and value shorter lived asset components to optimize accelerated cost recovery. • For Fixed Asset Accounting, to prepare an appropriate inventory of the subject assets for the above financial reporting and income tax reporting purposes, as well as insurance placement and property tax matters. The subject assets will be tag identified, matching the uploadable digital fixed asset record prepared utilizing Microsoft Excel. •  For Insurance Purposes, to ascertain the Insurance Replacement Cost New or Insurable Value Depreciated of the Buildings, Structures and Contents (non-inventory) for the purpose of insurance placement. Further, such information may be an element of “proof of loss” documentation in the event of an insured event. • For Ad Valorem (Property) Taxation Purposes, to restructure as appropriate the fixed asset record for proper rendition filing separating the real property and tangible personal property. This procedure may minimize possible double taxation of certain assets as real property as well as tangible personal property. Also, we will “clean” the fixed asset record of no taxable value and/or excludable assets. Further rendition preparation may be warranted. NATURE OF THE BUSINESS Describe here, usually from the internet of the subject or from the entities management. SCOPE OF STUDY Tangible Assets Relating to the tangible assets, we will appraise the real property and the tangible personal property of the facility located in ___________. Within the overall classification of tangible assets, real property includes land, land (site) improvements, and building improvements. Tangible personal property includes cranes and craneways, earth moving equipment, electronic data processing equipment, general plant equipment, handling equipment, laboratory equipment, major machinery and equipment, office furniture, office machines, rolling stock, software (purchased), special assets, and systems and utilities. Intangible Assets In accordance with accounting standards, the purchase price must be allocated among various tangible and identifiable intangible assets. The residual of the purchase price over and above the sum of the identifiable assets is considered goodwill. This allocation is to be done on a reporting unit basis. Intangible assets may include one or more of the following categories: advantageous supplier relationships; assembled workforce; covenants not-to-compete; customer lists; developed software; proprietary technology; and trade names and trademarks. In addition, it is necessary to ascertain whether the purchase price represents a “bargain purchase”, in the case that the purchase price is less than the Fair Value of the collective assets.   DEFINITIONS OF VALUE Definitions of value concepts, as well as other interrelated value and depreciation concepts, are presented below. Real Property Fair Value (for financial reporting) is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date. Fair Market Value in Continued Use (for federal income tax reporting) is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and ssuming the price is not affected by undue stimulus. With adequate economic support, Depreciated Replacement Cost considering functional obsolescence and physical depreciation represents Fair Market Value in Continued Use. Market Value (relating to land) is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Personal Property (Machinery and Equipment, Furniture and Fixtures, Etc.) Fair Value (for financial reporting) is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date. Fair Market Value in Continued Use (for federal income tax reporting) is an opinion, expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts, as of a specific date. With adequate economic support, Depreciated Replacement Cost considering functional obsolescence and physical depreciation represents Fair Market Value in Continued Use. Insurance Cost New (for insurance placement purposes under Replacement Price coverage) is the replacement or reproduction cost new as defined in the insurance policy less the cost new of the items specifically excluded in the policy, as of a specific date. Insurable Value Depreciated (for Actual Cash Value or Sound Value insurance placement) is the insurance replacement or reproduction cost new less accrued depreciation considered for insurance purposes, as defined in the insurance policy or other agreements, as of a specific date. Replacement Cost New is the current cost of a similar new property having the nearest equivalent utility as the property being appraised, as of a specific date. Reproduction Cost New is the cost of reproducing a new replica of a property on the basis of current prices with the same or closely similar materials, as of specific date. Excess Capital Cost is a type of functional obsolescence that typically results from changes in production or construction methods. (May be reflected by the difference between reproduction and replacement cost new excluding any consideration for betterment.) Depreciated Replacement Cost is the replacement cost new of an item, less accrued depreciation from all causes. Physical Depreciation is the loss in value or usefulness of a property is due to the using up or expiration of its useful life caused by wear and tear, deterioration, exposure to various elements, physical stresses, and similar factors. Functional Obsolescence is a form of depreciation in which the loss in value or usefulness of a property is caused by inefficiencies or inadequacies of the property itself when compared to a more efficient or less costly replacement property that new technology might allow. Economic Obsolescence is a form of depreciation where the loss in value or usefulness of a property is caused by factors external to the property. These may include such things as the economics of the industry; availability of financing; loss of material and/or labor sources; new legislation or ordinances; increased cost of raw material, labor, or utilities without a compensatory increase in product price; reduced demand; increased competition; inflation or high interest rates; or similar factors. Net Realized Value is the selling price less reasonably estimable costs of completion and disposal. (Applicable to management identified assets that are not in use or available for sale to others.) Intangible Assets Fair Value (for financial reporting) is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date. Fair Market Value in Continued Use (for federal income tax reporting) is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.   SERVICE METHODOLOGY General It is our understanding that the primary purpose of the appraisal is the requisite purchase price allocation for financial reporting purposes in accordance with financial reporting standards, as well as for IAS 16 componentization. Additionally, the appraisal / valuation may be utilized for federal income tax reporting purposes, insurance placement and proof of loss preparedness, as well as for fixed asset accounting system data input, asset management / information, and Ad Valorem taxation purposes. In completing the valuation of tangible and intangible assets the appraiser considers the Cost Approach, the Sales (Market) Comparison Approach and the Income Capitalization Approach. Even though all approaches are considered, one or more approaches may the selected as being applicable. Briefly, the Cost Approach indicates the Fair (Market) Value through the determination of the cost of replacing the asset considering physical deterioration and functional obsolescence. Economic obsolescence for the Cost Approach will be developed through financial analysis. The Sales (Market) Comparison Approach indicates the value through comparison of the subject asset to sales of similar assets in the marketplace. The Income Capitalization Approach is based on the capitalization of current earnings or cash flows and/or upon the discounting to present value of future cash flows. Tangible Assets Relating to the tangible assets, we will prepare a detailed asset schedule (reported in Excel) based upon a physical inventory and invoice review for incorporation of the asset data into the respective fixed asset accounting books. These reports will be structured consistent with or readily adaptable to the Company’s financial reporting and tax reporting chart of accounts and capitalization policy. Further, we will provide in our asset data departmental information (based on facility management input) if required. Specific asset reference information (tags or machine numbers) will be included in our asset schedule. As stated, the appraiser will consider all approaches to value. For each category of assets the more likely approaches to value that will be utilized are as follows: • Inventory (Cost Approach and/or Sales (Market) Comparison Approach • Real Property o Land: Sales (Market) Comparison Approach o Site (Land) Improvements: Cost Approach o Building Improvements: Cost Approach, with IAS 16 componentization • Tangible Personal Property o Cranes and Craneways: Cost Approach o Earth Moving Equipment: Sales (Market) Comparison Approach likely and/or possibly Cost Approach, with IAS 16 componentization o Electronic Data Processing Equipment: Cost Approach o General Plant Equipment: Cost Approach o Handling Equipment: Sales (Market) Comparison Approach likely and/or possibly Cost Approach, with IAS 16 componentization o Laboratory Equipment: Cost Approach o Major Machinery and Equipment: Cost Approach, with IAS 16 componentization o Office Furniture and Fixtures: Cost Approach o Office Machines: Cost Approach o Rolling Stock (Licensed Vehicles): Sales (Market) Comparison Approach likely and/or possibly Cost Approach, with IAS 16 componentization o Software: Cost Approach and possibly Income Capitalization Approach o Special Assets: Cost Approach o Systems and Utilities: Cost Approach, with IAS 16 componentization Scheduled tangible personal property assets having a Fair Value / Fair Market Value in Continued Use in excess of the capitalization policy will be individually listed and valued (say with a specific listing threshold of $5,000 to $10,000, for discussion). Assets under this value threshold will be appraised under an appropriately described group classification. The structure of the tangible asset valuation will be determined, in consultation with management, during the initial stages of the appraisal. It is important to note that the real property will be valued under a summary format, with such property assumed to continue in its current use. Intangible Assets Relating to the identifiable intangible assets, the following (and possibly other material intangible assets) will be valued and lived as appropriate: • Business Enterprise or Economic Overview Analysis (to ascertain if “bargain purchase”): valuation completed in an overview format using the Sales (Market) Comparison and Income Capitalization Approaches • Advantageous Supplier Relationships / Contracts: Income Capitalization Approach • Assembled Work Force: Cost Approach • Covenants Not-to-Compete: Income Capitalization Approach • Customer Base / Lists: Income Capitalization Approach • Developed Software: Cost Approach • Proprietary Technology (patented or unpatented): Cost Approach and/or Income Capitalization Approach • Trade Name and Trademarks: Sales (Market) Comparison Approach and Income Capitalization Approach REPORTS For financial and / or federal income tax reporting there will be separate inventory (if applicable), tangible and intangible asset reports (for clarity and ease of reading), presented in a single binder with a transmittal and summary letter. A data disc for uploading of the asset detail will be provided. Since the financial reporting valuation will be subject to external audit review, the reports will be submitted as “incomplete work product” documents. Subsequent to review and adjustments as warranted, the final reports will be completed (assuming minor changes within two weeks thereafter). For the purpose of insurance placement and proof of loss preparedness, a separate tangible asset report will be submitted an additional two weeks after the final financial reporting related valuation / appraisal is completed. For Ad Valorem taxation purposes a separate report will be submitted within 3-4 weeks depending upon redition reporting analysis and discussions with management.  STAFFING Alex Ruden, ASA, will be responsible for the overall professional completion of the project in a timely manner. Mr. Ruden is an Accredited Senior Appraiser in the Machinery and Technical Specialties Discipline, as well as Appraisal Review and Management, of the American Society of Appraisers. Further Mr. Ruden is a Certified General Real Property Appraiser and a Business Valuation services manager. Steve Noble, MAI, may be requested to assist in the valuation of the real property. Mr. Noble is also a Business Valuer. Jim Reinhardt, our primary financial valuation specialist, will be preparing the valuation of the business enterprise and specific intangible assets, as well as the inventory (if the latter is required). SERVICE SCHEDULE Assuming the timely authorization of our service recommendations by ______, and receipt of the necessary financial data, as requested the draft valuation will be completed at the end of ________. There will be Imerys and auditor reviews of our draft valuation, with completion of the final report submitted timely thereafter. SERVICE CHARGES Charges will be calculated based upon our professional service fees, plus expenses for word, data and report processing, and travel time (at half professional service fee rate). Professional service fees are charged at the rate of $___ per hour for the business valuation, inventory, and intangible asset appraisal efforts, and $___ per hour for the real property and tangible personal property valuation efforts. The expenses, including word processing and data processing, are charged at $___ per hour. Printing and binding, and miscellaneous costs are charged essentially as incurred. Travel and lodging, and meals are reimbursable as incurred or estimated. We estimated that the professional service fees (excluding expenses) will be as follows: Tangible Asset Valuation Services $___ to $___ Intangible Asset Valuation Services $___ to $___ Expenses including travel and lodging, meals, word and data processing, printing and binding and miscellaneous charges are estimated at 12% to 20% of the above professional service fees. A deposit against services to be rendered in the amount of one-third ($___) of the professional service fees is requested to proceed. A second third ($___) is requested upon completion of the major portion of the field work (estimated ___). Final payment is due upon submission of the final report, 10 days, or within 30 days of submission of our draft report, whichever is less. Interest at the rate of 1.5% simple per month may be charged against outstanding balances past thirty days. It is important to note that payment of the fees for services is not in any manner contingent upon the subject transaction, nor upon the values ascertained. Further, the charges for this service do not include the external auditor’s review discussions or additional work requirements based upon the auditor / reviewer’s request(s), with such work efforts being charged on an hourly basis at the same rate as the above referenced appraisal / valuation work. SERVICE AUTHORIZATION You may authorize acceptance of our recommendations for service by returning, with the requested deposit, a signed copy of this proposal (facsimile transmission is acceptable). Southeast Appraisal Resource Associates, Inc. appreciates the opportunity to present our recommendations for service, and we are looking forward to being of assistance in this matter. Southeast Appraisal Resource Associates, Inc. Alex Ruden Alex Ruden, ASA - President ACCEPTED BY: __________________________ ON BEHALF OF: _________________________ THIS DATE OF: __________________________