Law 514 Corporations Instructor: Dwight Drake Basic Organization Documents Corporations Pre-incorporation agreement Articles of Incorporation Bylaws Organization Resolutions: Officers, Directors, stock issuance, employment agreements, bylaws, bank account, transactions, etc. Shareholder Agreement (Buy-Sell) (23B ) Employment Agreements Stock certificates and record Asset and liability transfer documents Required government and tax filings LLCs and Partnerships LLC Operating Agreement or Partnership Agreement Asset and liability transfer documents Required government and tax filings Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

Law 514 Corporations Instructor: Dwight Drake Key Article’s Issues (23B ) Incorporator identity? 23B Corporate name? 23B Registered agent/office? 23B Authorized shares? Par Value? 23B – 020 Purpose and Perpetual Existence? 23B – 020 Initial directors? Number of directors or delegate to board? 23B Preemptive rights? 23B Cumulative voting? 23B Shareholder consent voting? 23B Majority voting overriding 2/3 requirements? 23B (3) Limited liability for directors? 23B Maximum director indemnification and expense advance? 23B Special stock classes or voting restrictions? 23B Authorized “blank check” preferred stock? 23B

Law 514 Corporations Instructor: Dwight Drake Mandatory Preemptive Right Problems Exceptions and dashed expectations. Timing problems and delays. New investor hurdles and mixed messages. Enhanced security law complexities. A weapon for trouble makers. It can happen even if not required.

Law 514 Corporations Instructor: Dwight Drake Cumulative Voting Formula A = B x C + 1 D + 1 A = Total shares needed by minority B = Total shares voted by all C = Number of directors minority to elect D = Total directors to be elected Example: Minority want to elect 1 of 4 directors and 1000 shares outstanding. Minority would need 201 shares per formula.

Law 514 Corporations Instructor: Dwight Drake Key Bylaw Issues (23B ) Number of directors? Electronic Transmission shareholder notice? 23B Shareholder annual meeting time and place? Special meeting notice requirements? Director annual meeting time and place? Proxies authorized? Participation by communication equipment? Action by Board without meeting? Board compensation authorization? Officer titles, duties, and special authorizations Stock Certificates and legends? Stock Transfer restrictions? Indemnification of officers and directors? Fiscal year of entity? Amendment of bylaws? Special tax elections?

Law 514 Corporations Instructor: Dwight Drake Director Organization Resolutions (23B ) Approve Articles and direct insertion in minute book Ratify and approve all actions of incorporator. Adopt Bylaws and direct insertion into minute book. Ratify and approve appointment of registered agent. Adopt and approve fiscal year of corporation. Authorize payment of organizational expenses. Fix number of directors. Elect officers. Approve form of stock certificate. Authorize issuance of stock and terms. Authorize and direct securities law compliance. Authorize establishment of bank accounts and bank resolutions. Authorize tax registrations. Authorize key tax elections (i.e. S election). Blanket authorization for officers. Approval of company accountants or auditors.

Law 514 Corporations Instructor: Dwight Drake Private Business Owner Classifications Soloist Toilers Golfers Hybrid Big Fish Family Affair Personal Service Organization Emerging Public Company Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

Law 514 Corporations Instructor: Dwight Drake Client Non Buy-Sell Planning Process Step One: Layout Potential Issues Step Two: Identify Client’s Hot Issues Step Three: Determine Key Facts that Impact Hot Issues Step Four: Identify Potential Solution Techniques Step Five: Select Best Solution Technique(s) Step Six: Develop Rationale for Convincing Co-Owners Step Seven: Present to Co-Owners (Lawyer’s role may range from passive advising, to strategic negotiation, to hardcore sales). Depends of client identity and objectives. Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

Law 514 Corporations Instructor: Dwight Drake Important Non Buy-Sell Owner Issues Scope of Enterprise - liability exposure, “Tag along” issues Business Plan Changes - diversion, expansion, speed-ups Debt - Changing, expanding, personal guarantees Additional Capital - dilution risks, mandatory New Equity Owners - disruption, dilution, synergies Owner Roles - service commitments, inner circle Owner Employment Rights - tie to equity, expulsion Business Location - headquarters, changes Outside Owner Activities - competitors, supplies, customers Related Party Transactions - conflicts, disclosures, prohibitions Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

Law 514 Corporations Instructor: Dwight Drake Important Non Buy-Sell Owner Issues Tax Elections - cost recovery, inventories, fiscal yr, etc. Confidentiality Covenants - extent to owners? AP Management - discount fast or normal slow? Cash Distributions - priority or no or low expectations? Loss Allocations - deficit restoration obligation, three hurdles Professionals - selection process and criteria Indemnification - words vs. reality, insurance Dispute Resolution Procedures - fast, cheap vs. slow, costly Life After Rights - fast, easy restarts Sell-Out Options - who and how many must bless Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com

Law 514 Corporations Instructor: Dwight Drake Solution Techniques Definitive Contract Supermajority Vote Designated Board or Management Committee Specified Conditions Individual Veto Right Opt-Out Rights Buy-Out Trigger Cumulative Voting Preemptive Rights Different Equity Interests Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Debt Levels

Law 514 Corporations Instructor: Dwight Drake Solution Techniques Definitive Contract Supermajority Vote Designated Board or Management Committee Specified Conditions Individual Veto Right Opt-Out Rights Buy-Out Trigger Cumulative Voting Preemptive Rights Different Equity Interests Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com New Owner

Law 514 Corporations Instructor: Dwight Drake Solution Techniques Definitive Contract Supermajority Vote Designated Board or Management Committee Specified Conditions Individual Veto Right Opt-Out Rights Buy-Out Trigger Cumulative Voting Preemptive Rights Different Equity Interests Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com Cash Distributions