Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com 23B : Cumulative Voting 23B : Voting Trusts. Agreement and share transfer to trustees. 10 year max term, subject to extensions. 23B : Voting Agreements. Specifically enforceable; not subject to voting trust restrictions of 23B B : Irrevocable proxy coupled with any interest. Term 11 months unless longer term specified. Couple interest holder includes stock pledgee, contract stock purchaser, corporation creditor, employee of corporation, party to voting agreement. 23B : Shareholder Agreements – The Big One Washington Corporate Control Statutes

Law 514 Corporations Instructor: Dwight Drake Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning.com (1)Huge scope – Hard to imagine how it could be any broader. (2)Must be in writing, signed by all shareholders, valid for 10 years unless provides for longer period. (Often does) (3)Stock Certificate Legend Requirement. Failure does not invalidate agreement, buy gives new shareholder who has no knowledge (actual or constructive) rescission right or damage claim. Just do it! (4)Terminates if shares listed or publicly traded. (5)Board relieved of duties per agreement, but legal duties transferred to shareholders under agreement. The “Jerk” factor comes into play. (6)Agreement not impose personal liability on shareholders – ala general partner of partnership. Shareholder Agreements Under 23B

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