1. How to be a $uccessful Construction Financial Manager Knowledge. Resource. Opportunity.

2. SHAREHOLDER AGREEMENTS A KEY ASPECT OF OWNERSHIP SUSTAINABILITY IN CLOSELY HELD CONSTRUCTION COMPANIES

3. Jon Zeiler, CPA, Partner Crowe Horwath LLP Construction Services Leader Direct: 630.575.4237 jon.zeiler@crowehorwath.com TODAY’S PRESENTER Steve Andrews, CPA, Partner Crowe Horwath LLP Construction Services Leader - Tax Direct: 630.574.1647 steve.andrews@crowehorwath.com

4. I.Overview II.Advantages and Risks III.Types of Buy-Sell Agreements IV.Typical Provisions V.Valuation, Payment Terms and Other Provisions VI.Q&A Session AGENDA

5.  Set Rules Governing Stock Ownership  Plan for Contingencies – Death and Disability  Plan for Voluntary or Involuntary Withdrawals  Set Economics for Early Withdrawal OVERVIEW – PURPOSE OF AGREEMENT

6.  Treat People Fairly  Respect Prior Commitments/Stock Deals  Protect the Company (Golden Goose Theory)  Balance Risk Between Exiting Owner(s) and Remaining Owners BASICS OF THOUGHT PROCESS/PHILOSOPHY

7.  Risks with No Buy-Sell Agreement  Unwelcome business partner  “Cousins in Chaos”  Surviving spouse unwilling or ill-prepared to make decisions  Attorneys are smiling  Undesired economic outcome  Advantages of Buy-Sell Agreements  Guarantees a buyer for an asset which probably would not pay dividends to one’s heirs  Spells out the terms of payment and can usually be fully funded with life and disability insurance, if desired  Provides a smooth transition of complete control and ownership to those who are going to keep the business going  Can establish a value for Federal Estate Tax purposes, which is binding on the IRS RISKS WITH NO BUY-SELL AGREEMENT/ADVANTAGES OF BUY-SELL AGREEMENTS

8. 1.Entity Plan: The partnership (or corporation) agrees to buy the interest of the deceased /former partner (or shareholder) TWO TYPES OF BUY-SELL AGREEMENTS Partnership or Corporation Partner/ Shareholder #2 Partner/ Shareholder #1 Partner/ Shareholder #3 buy-sell

9. 2.Cross Purchase Plan: The partners (or shareholders) agree to buy the interest of the deceased/former partner (or shareholder) TWO TYPES OF BUY-SELL AGREEMENTS Partner/ Shareholder #1 Partner/ Shareholder #3 buy-sell

10.  Restrictions on Transfer – General  First option to purchase stock to Company  Section option to purchase stock to shareholders (pro rata)  If one shareholder declines, offer his share to others pro rata  Time periods  Tax implications – cost of basis shares BUY-SELL AGREEMENTS

11.  Specific Situations  Death  Disability  Retirement  Gifting among family – Allowable? Requirements?  Voluntary withdrawal  Involuntary withdrawal BUY-SELL AGREEMENTS

12.  Death  Obligation of estate to sell  Insurance funding must follow obligation – cross purchase vs. Company redemption  Insurance proceeds > Purchase price  Paid upon receipt  Company keeps excess  Insurance proceeds < Purchase price  Promissory Note for balance  Life insurance on owners  Nearly always at full value BUY-SELL AGREEMENTS

13.  Disability  Defining disability – Temporary disability – first 12 months  Evaluation of Permanent Disability  Ability to perform normal job duties  Opinion of physician  If permanently disabled, Company has the option obligation to purchase stock  Full/value purchase price BUY-SELL AGREEMENTS

14.  Retirement  Defining “retirement”  Age plus years of service > 85  “Put” stock at 55 (Company must buy)  “Call” stock at 60 (Company right to buy)  Generally full value BUY-SELL AGREEMENTS

15.  “Cause” defined – ethics, felony, ‘material’ failure to perform duties, comply with Board, personal conduct, injurious to Company  Offer but no obligation to buy  Generally full price  Offering owner may go to third party with any portion not purchased  Company has the right to match third party offer  Payment with Note by Company, all cash if bought by other owner TERMINATION WITHOUT CAUSE AND INVOLUNTARY TRANSFER

16.  Leaving owner generally much offer to sell to Company  Generally some reduction in current value  Possible restriction on payment, e.g., note payments delayed until a certain age  Penalty on price is thought to be for doing something within ‘Cause’ definition or leaving the Company early (i.e., before Retirement) VOLUNTARY TERMINATION AND TERMINATION WITH CAUSE

17.  Net book value (owners’ equity)  Formula based on earning (EBITDA and book value)  Excludes life insurance proceeds  Increase securities or real estate to FMV  Include significant contingencies if >5% of equity  Right of set-off against price for certain adjustments  Certificate of agreed upon value – (with expiration) VALUATION CONSIDERATIONS

18.  Payment Terms  20% down  Promissory Note for balance  Promissory Note Terms  Payment period – sliding scale based on size of note  Fixed interest rate – Wall Street Journal prime rate  Security for Note – Shares/Dividends paid on shares  Aggregate limitation on payments to exiting owners on notes – e.g., 25% of cash flow  Right of repayment BUY-SELL AGREEMENTS

19.  Non-compete, non-solicitation, confidentiality  Salary continuation  Benefits  Release of guarantees and indemnification ANCILLARY PROVISIONS

20.  Drag Along and Tag Along Rights  Possible retroactive adjustment of price for owners who exited earlier SALE OF COMPANY

21. Jon Zeiler, CPA, Partner Crowe Horwath LLP Construction Services Leader Direct: 630.575.4237 jon.zeiler@crowehorwath.com QUESTIONS Steve Andrews, CPA, Partner Crowe Horwath LLP Construction Services Leader - Tax Direct: 630.574.1647 steve.andrews@crowehorwath.com THANK YOU!!!!