For many, if not most entrepreneurs, life is hectic, demanding and fast paced. Indeed, for most executives, the inbox is always full, leaving very little time for personal matters such as estate planning. Yet, if the executive fails to take the time to plan for disability or death and luck runs against him, this same business that was his life's work and the family he supported through this business, will be at risk of financial catastrophe.

In the second in a series of articles discussing estate planning, business succession and exit strategies, John E. McCullough, Esq., a partner at the boutique estate planning law firm of McCullough & Nicholas, P.L.C., Alexandria, Virginia, details the basics of estate planning with clarity and precision. The subject may be somewhat painful, but the information presented in John's article is absolutely vital. Read it and learn.

McCullough & Nicholas, P.L.C. specializes in estate planning and in structuring tax-deferral and asset protection strategies for high net worth individuals. In particular, the firm focuses on helping clients manage the impact that liquidity events have on their personal assets by emphasizing pre-event planning. John is a contributing author to the book, Generations, and is a nationally known speaker on estate planning.

Please feel free to forward this newsletter to friends, colleagues, and networking contacts. (Go to www.focusbankers.com for newsletter archives.)

Active FOCUS Deals

Although our firm has over 22 years experience across many verticals, FOCUS currently has active transaction engagements in the following specific business sectors:

• Business Services
• Consulting and Government Contracting
• Distribution
• Government Contracting (multiple assignments)
• Healthcare
• Healthcare Business Services
• IT Outsourcing
• Manufacturing (multiple assignments)
• Medical Devices and Equipment (multiple assignments)
• Public Affairs Software and Services
• RFID Technology
• Security (multiple assignments)
• Software
• Specialty Flooring
• Supply Chain Management Solutions
• Systems Integration
• Video Surveillance and Network Integration

Our transaction process provides us with up-to-the-minute market knowledge in these sectors that may be corporate development of interest to you.

Inquiries should be addressed via e-mail to info@focusbankers.com, by telephone to 202-785-9404, x 341 or by fax to 202-785-9413.

Plan for the Unexpected
By John E. McCullough, Esq.

This article is intended to familiarize executives with the basics of estate planning and is intended to impart to the reader the importance of having a plan for the unexpected so that the entrepreneur's life work becomes a legacy rather than a failure for having neglected something that may seem remote but happens to individuals and families every day all over this country as a result of disability or death.

ESTATE PLANNING DEFINED

To begin, we need a definition of estate planning. In our firm we define estate planning as controlling your property while you are alive, caring for yourself and your loved ones should you be become disabled, and allowing you to give what you have to whom you want, the way you want, when you want, and, in doing so, save every last tax dollar, attorney fee, and court cost possible. With this definition in mind let's look at what happens if you fail to plan and how we can prevent the problems that result to families and businesses as a result.

If you fail to put in place an estate plan the consequences can be severe. Should you become disabled, the court, not you, your family, or trusted associates, will choose a conservator to run your business and appraise, inventory and manage all of your assets. Of course, the conservator, attorneys and others will be paid from your assets. Most importantly, a person unfamiliar with your business will be in charge, supervised by a Judge who likely has little, if any, business experience. Finally, all of the above will be a matter of public record.

If you die, your estate will be subject to probate. Again, your assets will be valued and listed in the public record. Your creditors will be notified so they may make a claim against your estate. Of course, fees will be paid to those appointed by the court and your business will again be run by an individual selected by a Judge.

After the creditors are paid, your remaining assets will be distributed pursuant to state law, which could result in your children, rather than your spouse, getting most of your estate.

TWO BASIC TYPES OF ESTATE PLANS: Will Centered or Trust Based

Obviously, any savvy entrepreneur would like to avoid the foregoing. The question then is- what is the best approach? There are two basic types of estate plans- will centered or trust based. Let's examine them both.

If your estate plan is will based, you must recognize that the will is effective only upon death. This requires you to rely on a power of attorney, naming a person you trust to manage your affairs should you become disabled. But what happens if the power of attorney is not recognized by third parties? The answer is a court will determine who is in charge and the business and your assets are then controlled by someone selected by a Judge rather than you.

In our practice and to avoid uncertainty, we recommend the establishment of a revocable living trust. We believe it is the vehicle that best assists us in meeting our definition of estate planning in that it allows you to control all your affairs and assets both during and after your life and minimizes fees and costs, thus preserving your wealth. Such a trust is a contract between yourself (the grantor) and yourself (the trustee), that provides a set of instructions concerning the holding and a ministering of trust assets. Upon death or disability a successor trustee, named in the document, takes over and manages the trust according to the instructions set forth therein. The fact that the trust is revocable allows you, but no one else, to amend or revoke the trust as you see fit.

BENEFITS OF REVOCABLE LIVING TRUSTS

A living trust can allow you to do the following:

• Provide for your disability by appointing someone to manage your affairs according to your instructions;
• Create a common trust to provide for your minor children or a special needs trust to provide for a handicapped child;
• If your heirs are poor at handling money, you can name an independent successor trustee and include spendthrift provisions so your heirs are not at risk in the event of lawsuit or divorce;
• You can avoid both a conservatorship if you become disabled and probate at death;
• Your affairs will not become a matter of public record.

These are but a few examples of the things you can accomplish with a living trust centered estate plan. Of course, such a trust has limitations and if your estate exceeds the value of your federal estate tax credits (currently 1.5 million per person), other vehicles may be employed for tax planning purposes.

While this is but a cursory overview of basic estate planning, it is our hope that it prompts you to make an appointment with a qualified estate planning attorney to begin the process of creating a plan designed to protect you, your business and your family.

John E. McCullough, Esq., a partner at McCullough & Nicholas P.L.C., can be reached at jem@mntaxlaw.com.

FOCUS Completes Three Transactions in First Quarter:
M&A Activity Expected to Grow

There are many signs that we are entering a substantially more active M&A market in 2004. At FOCUS, for example, following a robust fourth quarter, we closed three deals in the first three months of 2004. Two of the closed M&A transactions are described below (the third must remain private):

RFID Wizards Inc. Was Sold to TRAXUS Technologies, Inc.
FOCUS initiated the transaction, acted as financial advisor to and assisted with the negotiations as the representative of TRAXUS Technologies, Inc., a leading consulting and systems integration company focusing on RFID technology. RFID Wizards, Inc. offers a broad range of RFID services ranging from ROI analysis and business process mapping to RFID systems installation and integration. The RFID Wizards transaction is the first of several acquisition transactions TRAXUS Technologies is planning, with FOCUS the investment banking firm representing TRAXUS for these planned acquisitions.

Strategic Management Initiatives, Inc. Was Sold to CALIBRE Systems, Inc.
We initiated the transaction, acted as financial advisor to and assisted with the negotiations as the representative of CALIBRE Systems, Inc., an employee-owned government information technology and management services firm headquartered in Alexandria, VA. Prior to this transaction, CALIBRE had 350 employees and revenues of more than $50 million. Strategic Management Initiatives, Inc., a small business management consulting firm, provides strategic management and engineering analyses and solutions to the problems facing the government and Fortune 500 companies.

FOCUS Has Over 15 Active M&A Engagements
FOCUS currently has over 15 active M&A engagements. In two cases, clients who recently closed acquisitions are already working with us on their next deal. We also are receiving more frequent inquiries about new potential engagements. Reasonable valuations, consistent signs of an economic recovery, attractive interest rates, and a desire to grow via acquisition are the key "drivers" that we sense at work.

Below are short excerpts from an excellent article entitled "M&A Rebounds as Financial and Strategic Buyers Return" published in the Fleet Capital "Capital Eyes" e-mail newsletter on middle market leveraged finance. Here is a link to the full article: www.fleetcapital.com/resources/capeyes/a03-04-213.html [Note that Fleet's definition of "middle market" is a market capitalization of under $1 billion. Nevertheless, the data discussed reveals some trends that apply to transactions for companies in the under $100 million revenue range, too.]

"Overall, growth in M&A activity last year included broader industry participation than in the previous year. According to Mergerstat, 21 of the 49 industries it tracks posted increases in the number of transactions last year, three times as many as the seven it reported in 2002. The industries with the greatest increases included broadcasting, banking and finance, leisure, retail and wholesale/distribution. Along with continued activity in financial services, there's considerable opportunity for consolidation in manufacturing and healthcare this year."

"Valuations, which have been depressed for the past several years, now have begun to improve, albeit modestly. While valuations vary widely by industry and transaction, in general, they've increased between one-half to one turn of EBITDA. Middle-market companies with good growth prospects, strong market share, excellent management teams and a demonstrated ability to de-leverage are commanding purchase price multiples in excess of seven times EBITDA."

“Because of their high quality, these companies are easier to finance and private equity sponsors are competing aggressively with strategic buyers for these properties. However, there also are many good companies with weaker business value characteristics that are being acquired at valuations in the range of four to five-and -a-half times EBITDA."

As we often remind our clients, it is never too early to plan a potential M&A transaction. Even if your time horizon for a transaction is 2005 or 2006, there are steps you should be taking NOW to prepare. Contact any FOCUS Partner to learn more.

Realizing and Preserving Value--A Workshop for Business Owners
U.S. Chamber of Commerce Co-Sponsors Four Workshops in Series

To help business owners and CEOs assess the risks and opportunities of selling a business, FOCUS Enterprises, along with four other firms -- Shared Equity Strategies; McCullough & Nicholas, P.L.C.; Bernstein Investment Research and Management and Planning and Strategic Solutions, L.L.C. -- is hosting ten private Workshops from March through November in six different East Coast and two Midwestern locations.

Business Owners and CEOs Gain a Wealth of Valuable Information

Whether you're driving your business to the next level, considering corporate finance options or M&A activity or simply planning your personal finances, this new Workshop supplies excellent take-home value. Workshop participants will learn how to:

• Position a company to maximize the valuation multiple
• Prepare a company to maximize the sale price
• Time when to begin preparing for the sale
• Minimize personal taxation on the transaction
• Determine exactly how much is needed to retire comfortably
• Execute the process successfully

You'll gain useful and actionable information in intense, interactive half-day Workshops meeting from 7:30 am through 1:30 pm. In the Washington DC area, the program also is being presented in two shorter breakfast sessions from 7:30 to 9:15 am.

The Program and Format Ensure Value for Participants

We can't over-emphasize the value of careful advance planning, even for events that may be two or three years away. For example, you need to set up trust structures well in advance of a transaction. Also, in order to understand the right "threshold value" for an M&A transaction, pre-transaction planning on income is required.

As a Workshop participant, you'll receive five concise worksheets that supply the tools you need to assess your own specific situation, opportunities and needs during the course of the workshop. In each of the five sessions, you'll also have ample opportunity for Q&A, plus, at the close of the Workshop, a panel discussion features a general Q&A session. Presenters also are available for informal discussion during breaks and at the end of the workshop.

Each Presentation Contributes to Your Understanding of How to Maximize, Realize and Extend Value:

BUILDING VALUE
Discover the Factors that Drive Up the Value of a Business
Doug Rodgers, Managing Partner; Mark Capaldini, Partner; and George Shea, Partner; FOCUS Enterprises, Inc. (www.focusbankers.com), will outline both operating and transaction drivers that build the value of a business. A scorecard for the Twelve Value Drivers in a business will be shared with workshop participants. Various transaction types, including negotiated transactions, the auction, mini-auction and the partial sale will also be discussed.

CONVERTING VALUE
Advantages of a Leveraged ESOP Transaction for Privately Held Companies
James F. Higgins, Jr., a principal and shareholder of SES Advisors (www.sesadvisors.com), will explain the ESOP process with special emphasis on the advantages to a privately held company and its shareholders. You will learn about ESOP feasibility analysis, transaction design and execution, raising debt capital, and plan record keeping ensuring that your ESOP transactions are optimally structured to address your ownership transition objectives.

SHIELDING VALUE
Strategies to Manage the Tax Impact of Liquidity Events
John E. McCullough, Esq., and Stefan C. Nicholas, Esq., partners at McCullough & Nicholas P.L.C. (www.mntaxlaw.com), will introduce a variety of legal strategies important to business owners: (a) Selling Your Company and Preserving Your Wealth: Tax-Deferral Strategies for Sales to Third Party Buyers and ESOPs; (b) Estate Planning for Retirement; (c) Family Limited Partnerships; and (d) Other Estate Planning Vehicles.

PROTECTING VALUE
Profit from Innovative Exit and Retirement Strategies
David M. Bekenstein, Managing Director, Planning & Strategic Solutions, L.L.C. (www.pandss.com), will reveal innovative exit and retirement strategies for small to medium-size businesses designed to affect tax deferred cash withdrawal or sale of a company using insurance, investments, and annuities to manage taxes during and after exit.

PRESERVING VALUE
How Much Do You Need? A Unique Approach to Planning and Personal Wealth Management
Joseph M. Perta, Vice President and Michael A. Bono, Vice President, Bernstein Investment Research and Management (www.bernstein.com), will bring together a sophisticated understanding of the capital markets and in-depth knowledge of how various estate planning vehicles work, sharing a framework to help business owners best meet their personal financial objectives, both during and after the transaction planning process.

2004 Participants Can Select the Most Convenient Time and Location
All but two of the Workshops will begin at 7:30 am and continue through lunch until 1:30 pm. Two Washington DC breakfast Workshops (Sept. 21 and 28) split the content into two 7:30 to 9:15 am sessions.

EAST COAST

• Atlanta – May 4
• Boca Raton – May 25 & Nov. 2
• New York – Oct. 12
• Philadelphia – Sept. 14
• Richmond – May 11*
• Washington DC – June 22*
• Washington DC –Sept. 21, Breakfast Workshop Part I
• Washington DC –Sept. 28, Breakfast Workshop Part II

MIDWEST

• Grand Rapids – April 28*
• Indianapolis – April 27*

WEST COAST

• Los Angeles – June 11
• San Francisco – June 10

*U.S. Chamber of Commerce is Co-Sponsoring Four Workshops
Workshops in Richmond, Indianapolis, Grand Rapids, and the June 22nd Workshop in Washington, DC are being co-sponsored by the U.S. Chamber of Commerce. In addition, members of the U.S. Chamber of Commerce will receive a $50 discount when registering for these four Workshops.

*The U.S. Chamber of Commerce does not endorse the participating Workshop partners or their products.

Who Should Attend?

Individuals who will benefit most from this unique Workshop include presidents, CEOs and owners of companies who are considering some type of sale or recapitalization within one to five years. Relevant companies are: private companies, public companies with revenues under $100M, government contractors, venture-backed companies, individual- or family-owned companies and companies who have or are considering ESOPs.

Reserve Your Workshop Now

Participation in the half-day Workshops, strictly limited to company owners and CEOs, is $ 275 each for the first participant and $125 for each additional person from the same company, payable in advance. Participation in the September 21 and 28 Breakfast Workshops, Parts I and II, also is $275 for the first person and $125 for each additional person, payable in advance.

Register online at www.focusbankers.com, call 202-785-9404, Ext. 233, or send an email to Brad.Fleisher@focusbankers.com.

About FOCUS Enterprises, Inc.

For 22 years, FOCUS has successfully assisted clients with corporate development consulting assignments; merger, acquisition, and divestiture engagements plus capital raising and capital formation assignments. In a mixture of services uniquely beneficial to clients, FOCUS integrates consulting and transactional expertise with superb research capabilities and precise, proven methodologies.

Unlike larger investment banks, FOCUS processes are optimized and proven effective in our target marketplace -- private companies or operating units with revenues in the $5 million to $100 million range. Eleven full-time FOCUS Partners provide well over a century of C-level operating experience in a variety of industries. Operating nationally and internationally, FOCUS works with buy- and sell-side corporate clients, private equity groups, holding companies and early stage venture capital firms in the following areas:

• Aerospace
• Government Contracting
• Healthcare
• Manufacturing and Distribution
• Media and Communications
• Retail
• Technology (hardware, software and services)
• Telecommunications

Your comments, suggestions and questions are welcome and encouraged. We want to hear from you.

You are receiving this newsletter because you have had personal contact with a FOCUS Enterprises partner or principal or have requested this newsletter on our website or have been contacted by FOCUS on behalf of a buyer, seller, corporate finance client or consulting client.

• Please contact us at: info@focusbankers.com
• Visit the Focus website at http://www.focusbankers.com