Strategic Analysis #1: Assuming the owners want to sell to a corporate acquirer, make acounter offer to John Deere. Based on your counter offer, what would be the financial outcome to the individual owners of HMC relative to the original offer?

See Hoosier+Manufacturing+Spring+2015.pdf

Hoosier Manufacturing Corporation Case D ate: D ecember 3 1, 2 014 The Dynamics of Transitioning a Family Business Hoosier Manufacturing Corporation Hoosier Manufacturing Corporation Situation Overview When Brendon Morris arrived early at his office on the morning of January 10, 2015, he knew he would have only a couple hours of time to himself to collect his thoughts and prepare for the Company's annual Board of Directors meeting later that afternoon. As the President of The Hoosier Manufacturing Corporation (\"HMC\"), the 45 year-old was responsible for the Company's day-to-day operations and also managed the Company's largest customer account. Having been recruited to join HMC upon his graduation from the MBA program at Indiana University in 1999, Brendon knew that this afternoon's annual Board meeting would be unlike any other he had seen in his 15-year tenure with the Company. During this afternoon's Board meeting the Company's Chairman, David DeWitt, had invited the investment bank Riverdale Partners to give a presentation regarding the potential sale of the business. A few weeks prior, David had received an unsolicited bid to buy the Company from John Deere. Additionally, Brendon had known of David's desire to sell HMC since his health scare six months prior, but was unsure how a company such as HMC would be perceived by a potential buyer. He wondered if Riverdale Partners would be able to deliver a premium price for the 50 year-old family business. Was a sale to John Deere in the best interest of HMC's stakeholders? Furthermore, having been privy to previous Board meetings and family politics, he knew there would be significant challenges to the sale process as other members of the DeWitt Family may not be emotionally prepared to relinquish majority ownership and control of HMC. The Business In 1962 brothers Abraham and David DeWitt returned home from service in the Vietnam War to their small family farm in the outskirts of Bloomington, Indiana. After their return, they hoped to resume normal life and quickly began looking for work that suited their engineering backgrounds. Few available jobs appealed to Abraham and David so they decided to go into the family business of running the farm. Life on the farm presented new challenges than they were used to before leaving for college and the war. A field hand explained that in the last 4 harvests that up to 40% of the crop was lost due to increasing presence of invasive species of insects and plants. Using their experience of flying Huey helicopters in Vietnam to conduct aerial herbicide spraying, the brothers set out to design a large and efficient sprayer that could cover their vast amounts of farm land at a reasonable cost. Over the course of the next year the brothers worked out of their barn to engineer a sprayer that would fit their needs. Then in 1964 the DeWitt's founded The Hoosier Manufacturing Corporation to market their large crop sprayers to the vast farming and agricultural industry of the Midwest. Having started from the humble beginnings of a 'back yard' workshop, the DeWitt brothers had managed to grow Hoosier Manufacturing into a business with annual revenues of $10 million by the beginning of 1980. After years of profitable growth the DeWitt brothers decided that they had outgrown their original location, so HMC relocated to an 180,000 square foot greenfield facility, which opened in the fall of 1980. Situated on 25 acres of land 1 | P a g e at the edge of downtown, the new Burnham Road Facility (situated on 10 acres of the 25 total acres of land) would allow for substantial manufacturing growth and flexibility in the years to come. Unfortunately, during the spring of 1981 tragedy struck the DeWitt family as older brother Abraham was killed in an unfortunate automobile accident while leaving the plant late one evening. With the death of his brother, closest friend, and business partner David decided to ask his oldest son Gregory, who was graduating from the engineering program at Purdue University, to join the family business in hopes of filling Abraham's void. Although he had no previous business training, after a short deliberation Gregory enthusiastically accepted his father's offer. In an effort to alleviate the financial stress that Abraham's untimely death had placed on his family, David generously offered and completed the purchase of half of his late brother's ownership in the business from his widow Mabel. Additionally, in order to provide Mabel with a source of continual income, it was decided that she would retain 22% ownership in the business and be entitled to a modest annual salary, although not technically employed by the Company. From 1981 to 2000 HMC took active steps to grow the business through vertical integration. David DeWitt sought to expand the business by bringing dealership of HMC sprayers \"in-house\" and therefore looked at some of the Company's current dealers as potential targets for acquisition. David aggressively pursued a series of three small acquisitions that would generate significant synergies for the business. By the end of 2000 HMC was successfully manufacturing and retailing its sprayers with its own salesforce and was realizing substantial increases in profit margins. In early 2001 business seemed to be looking up for HMC. The Company had successfully integrated into retail of its products; management had recently reported a record fiscal year; and the Company's robust order backlog coupled with a strong Manufacturing economy pointed towards another record year. Given the strength in his business and having recently celebrated his 78th birthday, David DeWitt decided it was time to hang up his entrepreneurial spurs and pass the reigns of the Company onto the next generation. In January 2002, David retired from the day-to-day operations of the business and named his son Gregory, President of HMC. Additionally, recognizing the numerous contributions made over his years of service to HMC; David promoted Brendon Morris to the newly created position of Executive Vice President and awarded him with a 5% percent ownership stake in the business. This newly created position made Brendon the second non-family member to own shares in HMC and solidified his position as the Company's \"Second- in- Command\". With his succession plan in place, David transitioned to the title of Chairman of the Board, modified his work schedule to a part-time consulting role and began to enjoy his retirement at the youthful age of 78 years-old and spends most of his time at his vacation home in Florida. 2 | P a g e Horizontal Expansion \"Sprayers are not enough!\" Having recently assumed the helm of the growing Sprayers business, Gregory was eager to make his mark on the Company and transition the business to the next level. Following several solid years of financial performance, HMC was flush with cash. After a routine visit from the Company's long time commercial banker Danielle Adams of Old National Bank, Gregory learned that even the traditionally conservative Evansville, Indiana based bank seemed poised to extend HMC a new credit facility with aggressive terms. Throughout the Company's history, David DeWitt, a child of the Great Depression, had shunned the use of leverage for growth; however, Gregory saw the current market conditions for credit as a way to modernize HMC's capital structure. With a \"cash-rich\" balance sheet and a new credit facility at his disposal, Gregory began to look at diversifying the Company from sprayers and growing the business through acquisition. Moreover, he wanted to diversify the business from the domestic agricultural industry by expanding into automotive. Gregory thought the components currently manufactured and assembled by HMC we so similar to those in cars and trucks that it should be fairly easy to break into this sector. Many of the board members were wary of the idea and fought Gregory on his plan. The Company was performing miraculously. Why would it want to stray from its core competency? Brendon advised Gregory not to push the matter. Having worked with a few companies in the automotive sector prior to his MBA, Brendon knew that it was a consolidating industry with declining margins. However, the more information Brendon lent in opposition of horizontal expansion, the harder Gregory pushed back. Although he initially objected to the idea of straying from HMC's core competency of sprayer production, Brendon ultimately agreed to help Gregory in the search for a suitable acquisition target, more to minimize a mistake than to look for a grand opportunity. After an exhausting six month search, Gregory and Brendon had identified Wolverine Automotive, Inc., a Detroit, Michigan based automotive aftermarket manufacturer, as an attractive acquisition target. Wolverine Automotive, Inc., founded in 1970, was solely owned by the Yahska Family. Wolverine Automotive specialized in the manufacture of a wide variety of automotive parts. Through a network of sales representatives, the Company sold its products primarily to large national distributors nationwide. In recent years, the Company had recorded record sales and profitability as their network of loyal customers placed orders at an astonishing rate. Wolverine Automotive was led by Bernie Yahska, who had immigrated to the United States in the late 1960's. Having built a successful business over the last four decades, Bernie now in his late 60's, decided it was time to enjoy some of his success, retire and move full-time to his vacation home in 3 | P a g e Naples, Florida where he could escape the harsh Michigan winters once and for all. Although they had been encouraged multiple times by their father, none of Bernie's three children had ever displayed an interest in joining the family business. Thus, when it came time for Bernie to move to the fairer climate and daily golf games of Florida, he had no choice but to sell the business. Not long after Bernie had made the decision to look for a buyer he was introduced to Gregory DeWitt by Samantha Left, a local corporate attorney and board member of HMC. Soon after Bernie and Gregory's initial meeting, the two agreed on an acquisition price of $14.3 million for Wolverine, which represented a 7.5x enterprise valuation multiple to the Company's 2003 EBITDA. The transaction would be subject only to board approval at HMC's upcoming annual meeting. During the December 2003 Board meeting, several board members expressed concern regarding the acquisition. Long time board member Daniel Michaelson strenuously bolstered an objection to the transaction saying \"Look we know a lot of things about sprayers and sure while we are car owners, we don't know the first thing about selling to automotive giants and OEMs! If we want to grow by acquisition, why don't we just wait until we can find another sprayer company? If the money is really burning a hole in your pocket, why don't we look at putting an expansion onto the plant or taking a special dividend?\" Brendon chimed in arguing that, \"the purchase price was far too high given comparable transactions and industry multiples.\" Despite the strenuous objections voiced by some members of the board Brendon was able to coerce his father, the controlling shareholder, with the promise of big payout in the future and with a vote of six to one the Board of Directors approved the $14.3 million acquisition, which successfully closed on December 31, 2003. Due to Daniel's objection to the acquisition, HMC created a wholly owned subsidiary to purchase Wolverine and financed the purchase utilizing an equity investment of $4.3 million with non-recourse bank loans of $10 million from Old National Bank. The Great Recession and Recovery (2008 to 2013) Following the close of the Wolverine acquisition, business resumed as normal for HMC. It was agreed that in order to fill the void left by Bernie's retirement that Brendon would remotely manage the automotive business from HMC's Bloomington office, making bi-weekly trips to Detroit to inspect the Manufacturing operations. For the first few years of ownership Wolverine performed well as U.S. automotive sales reached peak levels in the mid 2000's. Things took a turn for the worst just a few years later. In late 2008, not long after the Wolverine transaction closed, oil prices began rising, hitting a peak in 2008 and taking a huge toll on auto sales. Late in the first quarter of 2008, automotive sales began to slow causing the subsidiary's backlog to weaken. Automotive giants, General Motors and Chrysler filed for bankruptcy reorganization and were bailed out with loans and investments from the federal government's Trouble Asset Relief Program. By June of that year, Wolverine reported a 15% decline in sales from the prior year, creating significant alarm amongst the HMC Board of Directors. As a result of the declining performance, Brendon had increased his visits to the Wolverine subsidiary, allocating significantly more 4 | P a g e of his attention to the automotive business. By the end of 2008, he found himself spending up to three days a week at the Detroit facility, struggling to turn the subsidiary's failing financial performance back to profitable. Tempers began to flair during the December 2008 Annual Meeting as the Board vented their frustrations surrounding HMC's declining financial performance. In addition to the weakened performance of the Wolverine subsidiary, the broader economic situation in the United States had resulted in a decrease in demand for HMC's sprayers. The decreased order volume coupled with the increased debt load from the Wolverine acquisition had created a perfect storm for HMC, making 2008, and later 2009, the worst fiscal years in Company history. The Board's frustrations where largely directed towards Gregory who had championed the Wolverine acquisition as a turning point for HMC. By the end of the meeting Gregory had been relieved from managerial duties as President and was demoted to Executive Vice President. It was decided that Gregory's role would revert to a sales position and that Brendan Morris would take over the daily operations of the Company as HMC's new President. Over the next three years, Brendon, with the help of his management team, charted and executed a plan for reversing the Company's losses. Brendon had successfully identified a number of operational improvements and cost cutting measures that improved the Company's margins. In addition to the profitability improvements put in place, by 2011 the economy had begun to show signs of improvement and the Company's backlog had shown improvement. Unfortunately, the Wolverine subsidiary did not recover fast enough and in 2009 the subsidiary was out of covenant with Old National Bank. In early 2010, Old National Bank required HMC, or the family owners, to invest another $4 million into the Wolverine subsidiary in order to be within covenant (use of proceeds of the $4 million would be to repay part of the remaining loans to Old National Bank). At a very heated board meeting, the Board of HMC decided not to invest the additional $4 million into the subsidiary believing that in its current condition the equity in the subsidiary was worthless. In the words of Daniel Michaelson \"it makes no sense to throw good money after bad money\". Old National Bank promptly sold their $10 million loan (at a discount) to a private equity firm who then promptly foreclosed on the assets of the Wolverine subsidiary in October of 2009. All activities of the Wolverine subsidiary were completed by December 31, 2009 and the $4.3 million investment by HMC was written off as a complete loss. Refocusing the Business After exiting the failed investment in Wolverine, the Brendon was determined to get the Company back to its former success by refocusing on its core competency, sprayers. For many decades HMC sold variations of a single model of sprayer. Although there was the ability to customize some aspects of the sprayer it was not capable of serving every customer. Brendon has spent the last year and half working with engineers to design the Precision Sprayer, a larger model better suited for big commercial farms with far more acreage to cover than the traditional family or small community farm. The Precision 5 | P a g e Sprayer will be unveiled and available for sale on early 2015. Also in the pipeline is the Focus series, a line of smaller sprayers for the individual gardener and backyard farmer. This model is currently in the works but experiencing engineering challenges, but HMC plans to have the kinks worked out and have the product ready for rollout sometime late in 2015. The Plant Prior to receiving the offer from John Deere the most significant item on the 2014 Annual Meeting agenda had been to discuss the potential relocation of HMC from their Burnham Road Facility. The facility sits on a substantial reserve of valuable buff limestone. The Company has received an offer from Indiana Limestone Company to purchase the property for $28 million. This will leave the board with a lot to think about regarding what to do with the facility. (The offer from Indiana Limestone is detailed in Exhibit IX.) The challenge would be to move the manufacturing operations to a new facility with minimal disruption. The 2014 Annual Meeting Brendon took the last sips of his morning coffee, got up from his desk and began to walk down the hall to the Board Room. As he stopped at his assistant's desk to grab a handful of Skittles candy to satisfy his sweet tooth, Brendon could not help but worry about how the impending meeting would play out. Having never been through a process like this, Brendon asked himself: 6 | P a g e How could he be sure that all of HMC's stakeholders' objectives where met? Should HMC still entertain the sale of the Burnham Road Facility? If so, how disruptive would a move be for the Company? Should HMC build a new facility or lease available space? Was John Deere's offer fair or should we see what other potential buyers are willing to pay? Do we have time to market the Company to other prospective buyers and still respond to the John Deere offer considering their stated deadline? Can the business remain, independent of John Deere? Was now the right time to sell the Company? How would the Board react to John Deere's offer & to Riverdale's recommendation? If the Company was sold, would he still have a job? Exhibits I. Historical Income Statement of Hoosier Manufacturing ($ in thousands) Actual Year Ended December 31, 2010 2011 2012 2013 2014 $73,355 $68,228 $65,810 $68,017 $71,044 51,644 21,710 29.6% 49,776 18,453 27.0% 47,733 18,077 27.5% 48,659 19,358 28.5% 50,702 20,342 28.6% 14,671 7,040 9.6% 14,018 4,435 6.5% 13,512 4,566 6.9% 13,909 5,448 8.0% 14,404 5,938 8.4% 446 22 6,571 446 22 3,967 386 22 4,158 327 22 5,100 267 22 5,649 Income Taxes Net Income 2,300 $4,271 1,389 $2,579 1,455 $2,702 1,785 $3,315 1,977 $3,672 Depreciation & Amortization EBITDA EBITDA Margin 927 $7,967 10.9% 881 $5,316 7.8% 856 $5,421 8.2% 884 $6,333 9.3% 924 $6,861 9.7% Income Statement Sales Cost of Sales Gross Profit Gross Margin SG&A Expense Operating Income Operating Margin Interest Expense Amortization of Deferred Financing Fees Pretax Income 7 | P a g e II. Historical Balance Sheet of Hoosier Manufacturing ($ in thousands) Actual Year Ended December 31, 2010 2011 2012 2013 2014 $0 6,029 13,757 1,834 $21,620 $1,854 5,608 13,264 1,706 $22,432 $3,670 5,409 12,724 1,645 $23,447 $5,161 5,590 12,968 1,700 $25,420 $6,703 5,839 13,510 1,776 $27,829 23,469 176 23,717 154 23,894 132 24,137 110 24,453 88 $45,264 $46,303 $47,473 $49,666 $52,369 $4,952 878 1,291 $7,121 $4,773 846 1,244 $6,864 $4,577 811 1,193 $6,582 $4,666 827 1,216 $6,710 $4,862 862 1,268 $6,991 33 10,000 1,000 250 $18,404 0 8,750 1,000 250 $16,864 0 7,500 1,000 250 $15,332 0 6,250 1,000 250 $14,210 0 5,000 1,000 250 $13,241 Total Equity $26,860 $29,439 $32,141 $35,456 $39,128 Total Liabilities and Equity $45,264 $46,303 $47,473 $49,666 $52,369 Balance Sheet Cash Accounts Receivable, net Inventory Other Current Assets Total Current Assets PP&E, net Deferred Financing Fees Total Assets Accounts Payable Accrued Expenses Other Current Liabilities Total Current Liabilities Revolving Credit Facility Senior Term Debt Deferred Income Taxes Other Long-Term Liabilities Total Liabilities 8 | P a g e III. ($ in thousands) Projected Income Statement and Balance Sheet of Hoosier Manufacturing Actual Year Ended December 31, Projected 2015 2016 2017 2018 ($ in thousands) Actual Year Ended December 31, $78,326 $82,242 $86,354 $90,672 53,187 21,409 28.7% 55,768 22,558 28.8% 58,474 23,768 28.9% 61,312 25,043 29.0% 64,377 26,295 29.0% 14,695 6,714 9.0% 15,509 7,049 9.0% 16,366 7,402 9.0% 17,271 7,772 9.0% 18,134 8,160 9.0% 234 22 6,458 193 22 6,835 151 22 7,229 110 22 7,640 69 0 8,092 Income Taxes Net Income 2,260 $4,198 2,392 $4,443 2,530 $4,699 2,674 $4,966 2,832 $5,260 Depreciation & Amortization EBITDA EBITDA Margin 938 $7,652 10.3% 953 $8,002 10.2% 966 $8,368 10.2% 987 $8,759 10.1% 999 $9,159 10.1% Gross Margin SG&A Expense Operating Income Operating Margin Interest Expense Amortization of Deferred Financing Fees Pretax Income 2017 2018 2019 $9,464 6,073 14,050 1,865 $31,452 $12,410 6,315 14,612 1,958 $35,296 $15,547 6,568 15,197 2,056 $39,368 $18,891 6,831 15,805 2,159 $43,685 $22,432 7,104 16,437 2,267 $48,240 PP&E, net Deferred Financing Fees 24,649 66 24,887 44 25,171 22 25,497 0 25,876 0 $56,167 $60,227 $64,561 $69,182 $74,116 $5,105 905 1,331 $7,342 $5,360 950 1,398 $7,709 $5,628 998 1,468 $8,094 $5,910 1,048 1,541 $8,499 $6,205 1,100 1,618 $8,924 0 4,250 1,000 250 $12,842 0 3,500 1,000 250 $12,459 0 2,750 1,000 250 $12,094 0 2,000 1,000 250 $11,749 0 1,250 1,000 250 $11,424 Total Equity $43,326 $47,768 $52,467 $57,433 $62,692 Total Liabilities and Equity* $56,167 $60,227 $64,561 $69,182 $74,116 Capital Expenditures $1,134 $1,191 $1,250 $1,313 $1,378 Weighted Average Cost of Capital 15.50% 2019 $74,596 Cost of Sales Gross Profit 2016 Balance Sheet Cash Accounts Receivable, net Inventory Other Current Assets Total Current Assets Total Assets Income Statement Sales Projected 2015 Accounts Payable Accrued Expenses Other Current Liabilities Total Current Liabilities Revolving Credit Facility Senior Term Debt Deferred Income Taxes Other Long-Term Liabilities Total Liabilities IV. 1 2 3 4 5 6 7 8 9 10 Name David'DeWitt Mabel'DeWitt Gregory'DeWitt Daniel'Michaelson Brendon'Morris Samantha'Left,'Esq. James'Sherriff Scott'Rolston Ryan'Williams Jennifer'Nichols Hoosier*Manufacturing*Corporation's*Board*of*Directors* Title Chairman'&'Founder Board'Member Executive'Vice'President Board'Member President Board'Member Board'Member Controller Vice'President'of'Engineering Vice'President'of'Manufacturing Age 88 79 55 62 45 52 56 54 50 48 Ownership2% 51.0% 22.0% 15.0% 7.0% 5.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% Year2Joined2Board 1945 1981 1981 1996 2006 1995 2010 NA NA NA Salary2and/or2 Board2Fee $300,000 $150,000 $300,000 $7,500 $250,000 $7,500 $7,500 $150,000 $150,000 $150,000 Relationship2to2Company Founder Abe'DeWitt's'Widow,'never'worked'at'HMC David's'Son,'Executive'Vice'President Local'entrepreneur'and'private'investor President'since'2008 Company's'Corproate'Attorney'since'1995 Former'management'consultant Controller'since'2005,'joined'HMC'in'1998 VPE'since'2007,'joined'HMC'in'2000 Mabel's'daughter,'with'HMC'since'1990 % # Management#Structure# The%Board%of%Directors%meets%quarterly.%%Twice%a%year,%the%board%meets%in%Sanibel%Island,%Florida%where% the%Company%owns%a%beach%home%worth%$1%million.%%The%beach%house%is%available%for%use%of%the%DeWitt% family%and%the%board%members,%both%of%whom%use%it%as%a%perk%whenever%they%want.%%The%annual%costs% associated%with%the%house%which%includes%expenses%for%automobiles,%local%club%memberships,%and%travel% to%and%from%Sanibel%Island%are%$260,000.% % Brendon% holds% weekly% management% team% meetings% with% his% direct% reports,% Gregory,% Scott,% Ryan,% and% Jennifer.% The% team% has% been% working% together% consistently% for% a% number% of% years.% % They% function% effectively% as% a% team,% and% get% along% well.% % Brendon% and% his% management% team% look% forward% to% a% long% tenure%managing%HMC,%and%if%there%is%a%buyer%of%the%Company%all%four%managers%wish%to%remain%in%their% current%positions.% Board%of% Directors% Brendon% Morris% President% Gregory% DeWiO% ExecuQve%VP% % # # 10#|#P a g e # % ScoO%Rolston% Controller% Ryan%Williams% VP%of%Engineering% Jennifer% Nichols% VP%of%Manufacturing% David DeWitt David, an Indianapolis native, founded HMC with his older brother Abraham in 1964. David served as the Company's Executive Vice President until Abraham's death in 1981. From 1981 until his retirement in 2002, David served as HMC's President overseeing the Company's daily operations and managing key customer accounts. Prior to founding HMC, David was enlisted in the United States Air Force where he received the Air Force Cross for heroic acts during combat in the Vietnam War. Currently, David serves as HMC's Chairman and remains the largest shareholder of the Company. Mabel DeWitt Mabel is a retired schoolteacher and the widow of Abraham DeWitt. Although she has never worked at HMC, she has been familiar with its operations since its foundation. Upon her husband's untimely death in 1981, she assumed his seat on the Company's Board of Directors. She is an active participant in company Board meetings. Mabel relies on her income from HMC as a supplement to her pension from the local school district. Gregory DeWitt Gregory joined HMC in 1981 following the completion of his undergraduate studies. Currently, Gregory serves as HMC's Executive Vice President where he focuses primarily on sales. Prior to assuming this roll in 2008, Gregory served as the Company's President, a position he assumed from his father in 2002. Despite his failed attempt to run the company Gregory remains the sole heir to his father's controlling interest in HMC and he will inherit these shares upon David DeWitt's passing. With the exception of summer internships during college, all of Gregory's work experience has been with HMC. Gregory has a B.S. in Engineering from Purdue University. Gregory's reputation not only has been minimized with the officers and directors of the business, rank and file employees of HMC have lost respect for Gregory as a result of the Wolverine acquisition. Gregory is the sole heir to his father's estate. Regardless of who HMC might be sold to it is doubtful that Gregory will continue on the management team. Should Gregory leave the management team, HMC would need to replace him with a Sales Manager with an estimated compensation package of $150,000. Daniel Michaelson Daniel is a successful local entrepreneur, having started and sold three manufacturing businesses of his own. Daniel is a highly respected within the Indianapolis business and civic communities, as he serves as a Director on multiple corporate and non-profit boards. Daniel decided to invest $500,000 in HMC in 1996 after meeting David through a mutual friend. The proceeds from his investment were used to purchase new equipment. Typically Daniel targets a 16% annual return on private investments he makes and is concerned that his investment in HMC is underperforming.\\ Brendon Morris Brendon joined HMC in 1996 after completing his graduate studies. During his tenure with HMC, Brendon has held multiple positions across various departments, making him uniquely familiar with the operations of the Company. He currently is the President of HMC and acts in a general management role for all operating aspects of the Company. Prior to business school, Brendon worked as an operations manager with two manufacturing companies within the automotive industry.. Outside of his 11 | P a g e equity ownership in HMC, Brendon has accumulated a modest savings. Brendon and his wife currently have a daughter enrolled in college who is considering law school and two other children who are in high school. Brendon has a B.A. from Syracuse University and an M.B.A. from Indiana University. Samantha Left, Esq. Samantha has served as the Company's Corporate Attorney since 1995. Recently Samantha was named Managing Partner of her law firm, one of the largest in the State of Indiana employing over 200 attorneys. As a highly respected member of the local legal community, Samantha is often asked to join corporate boards although rarely accepts. Currently she serves on the board of two other local companies and is the Chairman of the Board of Trustees for the local Children's Hospital. Samantha brings a unique perspective on legal and business issues to the Board. James Sherriff James recently retired as a partner from a leading regional management-consulting firm. During his career as a consultant, James advised numerous companies on a variety of strategic issues including: management succession planning, market entry strategies and turn around management. Although his tenure on the Board is significantly less than his counterparts, James has become very familiar with the Company's operations. Scott Rolston Scott joined HMC in 1998 in the accounting department, and was promoted to Controller in 2005. Prior to joining HMC, Scott worked for KPMG as an auditor. Scott received a B.S. and M.S. in Accounting from Indiana University. Scott has a long social history with the local community and services on numerous boards for local charities including the Local YMCA. Ryan Williams Ryan became Vice President of Engineering in 2007, after working his way up through the department. Prior to joining HMC in 1993, he spent a time at Cummins in their engine business. Ryan is a graduate of Purdue University with a B.S. in Mechanical Engineering. Although Ryan has had numerous opportunities to join larger companies in executive roles, he appreciates the control he has in a smaller business and has developed extensive friendships with employees of HMC. Jennifer Nichols Jennifer is Mabel's daughter, and has spent most of her career at HMC. After spending a ten years at General Motors, Jennifer joined HMC in 1994. She has moved up through the Manufacturing department, and became VP of Manufacturing in 2003. Jennifer has a B.S. in Mechanical Engineering from Purdue University. The employees of HMC look to Jennifer as one of the key strengths of the management team, particularly since she is also family to the primary owners of the Company. Jennifer has one brother who is a high school teacher in Chicago. Jennifer and her brother are joint heirs to their mother's estate. 12 | P a g e V. Land Value Exhibits Comparable Recent Land Sales (per acre) Burnham Road Comparable Industrial Park $1,000,000 to $1,500,000 $300,000 to $500,000 Average Construction Cost for Industrial Property $25 to $35 per sq. ft. Average Time of Construction 8 to 10 months Average Cost of Business Disruption Due to a Move Probability of a Business Disruption Due to a Move Loss of $5 million in Revenue 25% Alternative Lease Cost of Facility Comparable to Burnham Road $350,000 to $370,000 per Year VI. ($in millons) Transaction Transaction #1 Transaction #2 Transaction #3 Transaction #4 Transaction #5 Transaction #6 Transaction #7 Transaction #8 Transaction #9 Transaction #10 Transaction #11 Transaction #12 Date 7/31/2010 3/31/2011 4/30/2012 12/31/2012 8/30/2013 10/3/2013 12/31/2013 3/31/2014 6/30/2014 9/30/2014 11/31/2014 12/31/2014 Precedent Transactions for the Agricultural Industry Enterprise Value $54.5 $16.5 $20.0 $282.0 $29.0 $96.0 $14,525.1 $1,503.8 $205.6 $162.4 $45.6 $413.0 Revenues $136.0 $51.1 $41.1 $560.1 $64.0 $163.3 $17,616.9 $4,796.7 $321.3 $235.9 $98.0 $132.6 EBITDA $12.1 $3.8 $4.2 $53.2 $5.6 $17.2 $1,708.8 $72.0 $40.2 $27.1 $9.2 $46.4 EBITDA Margins 8.9% 7.4% 10.2% 9.5% 8.8% 10.5% 9.7% 1.5% 12.5% 11.5% 9.4% 35.0% Enterprise Value To Revenue 0.4x 0.3x 0.5x 0.5x 0.5x 0.6x 0.8x 0.3x 0.6x 0.7x 0.5x 3.1x Enterprise Value to EBITDA 4.5x 4.3x 4.8x 5.3x 5.2x 5.6x 8.5x 20.9x 5.1x 6.0x 5.0x 8.9x VII. Current Debt Capital Markets Conditions Senior Debt Senior Secured Revolving Credit Facilities Senior Secured Term Debt (5 Yeear Term, Fully Amortizing) Senior Debt Leverage Multiples* Rate 4.50% 4.80% 2.25x Subordinated Debt Subordinated Debt (5 year Note, Bullet Repayment) Subordinated Debt Leverage Multiples* 12.00% 1.00x - PE Targeted IRR (Hurdle Rates) 22% *Midwest Small Manufacturing Companies 13 | P a g e - - Financing Fee 2.00% 1.75% 2.75x 3.50% 1.25x 25% VIII. John Deere Offer Letter December 1, 2014 David DeWitt Chairman Hoosier Casting Corp. 5881 Burnham Rd. Indianapolis, IN Dear David, We are pleased to submit to you our Letter of Intent setting forth the terms and conditions under which John Deere proposes to acquire 100.0% of the fully-diluted common stock of Hoosier Casting Corp. (\"HMC\" or the \"Company\"). The terms and conditions of our offer are as follows: Purchase Price: John Deere will offer the HMC owners $32 million cash for the business. Our purchase price will be subject to a net working capital adjustment, using the October 31, 2014 financial statements as a baseline. The purchase price excludes the real estate owned by HMC including the land and building. However, we expect to negotiate a lease of the building at a lease rate of $200,000 per year with a 3-year term plus three 1-year options. Escrow and Indemnification: We would require a 24-month escrow of $3 million. The escrow will be used to pay damages arising from breach of representations or warranties by the Company. The aggregate liability of the seller for damages arising from breach of representations or warranties will not commence until such liability exceeds the sum of $100,000 and shall not exceed the aggregate sum of the escrow. Due Diligence & Integration Period: We would anticipate closing the proposed transaction by April 30, 2015, following a typical due diligence investigation. During our due diligence process, we would require a guarantee of exclusivity. During our due diligence process we intend to identify the representations or warranties which we will require of the Company. Post-closing, we plan to operate HMC as a fully integrated subsidiary of John Deere. We would expect the integration process between HMC and John Deere to take approximately six to nine months. In order to close this transaction by April 30, 2015, it is imperative that we receive a response from you no later than January 15, 2015. Should we not receive your response by then, our offer will expire. Having long competed with HMC, my management team and I at John Deere have a tremendous amount of respect for HMC and are excited about the possibility of having you join our \"family.\" Please do not hesitate to contact me personally with questions regarding our offer. We look forward to hearing from you by January 15, 2015. Sincerely, Samuel Allen Chairman & CEO 14 | P a g e IX. Indiana Limestone Offer Letter December 15, 2014 David DeWitt Chairman Hoosier Casting Corp. 5881 Burnham Rd. Indianapolis, IN Dear David, The purpose of this letter is to set forth some the basic terms and conditions of the proposed purchase by the undersigned (the \"Indiana Limestone\") of certain real estate owned by you (the \"Seller\") The terms set forth in this Letter will not become binding until a more detailed \"Purchase Agreement\" is negotiated and signed by both parties, as contemplated below by the section of Letter entitled \"Non-binding.\" I. DESCRIPTION OF PROPERTY. The property proposed to be sold is located at 5881 Burnham Rd. Bloomington, Indiana and is comprised of 25 acres of land of which 10 acres are occupied by a large manufacturing facility. II. PRICE. The proposed purchase price is $28,000,000, of which $1,000,000 would be deposited to HMC as earnest money, the Seller, or Seller's agent, upon acceptance of a binding Purchase Agreement. Indiana Limestone would pay the balance to the Seller at closing. III. POSSESSION. Possession would be relinquished access immediately upon signing of a binding Purchase Agreement with the mandate to vacate the land in 90 days or sooner by mutual agreement. Settlement would be made at closing, immediately prior to possession. IV. INSPECTION. After the final acceptance of a binding Purchase Agreement, Indiana Limestone may have the Real Estate inspected by a person of the Indiana Limestone's choosing, to determine if there are any hazardous conditions and for inspection for other conditions that are customary to the locality and / or that are required by law. This offer is valid until January 15, 2015 at which time it will expire unless accepted and both parties have signed a binding purchase agreement. Buyer's Agent Cindy Morrison Buyer Represented Indiana Limestone 15 | P a g e