Exit planning and succession planning in a Washington limited liability company LLC

EXIT PLANNING AND SUCCESSION PLANNING

By: David C. Tingstad

Beresford Booth, PLLC

145 Third Avenue South, Suite 200

Edmonds, Washington 98020

(425) 776-4100

[email protected]

mailto:[email protected]

BERESFORD ♦ BOOTH PLLC 145 THIRD AVENUE SOUTH, SUITE 200

EDMONDS, WASHINGTON 98020

(425) 776-4100

EXIT PLANNING AND SUCCESSION PLANNING Page 1 of 18

TABLE OF CONTENTS

Exit Planning and Succession Planning

David C. Tingstad

I. INTRODUCTION II. NATURE OF THE BUSINESS AS A GUIDE FOR PLANNING III. PLANNING FOR EXIT – DRAFTING ISSUES IV. DISSOLUTION STRATEGIES A. DISSOLUTION GENERALLY

B. PROCESS - NONJUDICIAL

C. LIABILITY

V. SAMPLE PLAN OF LIQUIDATION



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I. INTRODUCTION

Each time a limited liability company is formed, the new members often focus on the

positive synergies being created and business prospects and profits that await the newly

formed venture, while blissfully ignoring unpleasant topics like potential disputes,

resolution of governance stalemates, dissolution and other exit strategies. It is often the

lawyers’ responsibility to raise these unpleasant topics and force the parties to address

them.

The following briefly outlines certain issues the members and, if applicable, the managers

of a Washington limited liability company (“LLC”) may face with respect to disputes,

governance stalemates and other exit strategies. Also included is a sample language for

the limited liability company agreement (the “LLC Agreement”) intended to deal with

certain of these issues.

II. NATURE OF THE BUSINESS AS A GUIDE FOR PLANNING

The nature of each business will serve as a useful guide in assisting the planner. For

example, a long-held family service business requires different care and planning than a

five year old asset-based business run by professional management. In this section, I have

grouped 3 major classes of businesses to discuss the nature of those businesses that serve

as a guide for planning

A. THE FAMILY-OWNED BUSINESS. 70% of all businesses fail by the

3rd generation. As a result, oftentimes the best way to maximize the value of the family-

owned business is to sell the business rather than transfer it to the next generation. The

business owner should be counseled to evaluate the family's entrepreneurial talent,

conflicts of interest amongst the family, liquidity and tax aspects (including estate tax

aspects) when considering succession planning. The "planning by crisis" method should

be avoided.

Most family-owned businesses take 3 to 5 years to prepare for sale and to

maximize the value of the business prior to sale. A qualified management team or

consultant can be helpful in this regard. Helping the family identify prospective purchaser

and structure the transaction is also critical. The typical family business is sold on an

asset sale basis so clearly identifying the assets, protecting intellectual property of the

business and maximizing goodwill will be paramount to any successful transaction.

B. THE SERVICE-BASED BUSINESS. The nature of a service-based

business requires careful thought and consideration to securing the clients of the business.

The entire valuation of the business will be based upon its cash flow and the certainty of

the continued income stream resulting from that cash flow. As such, care must be taken

to preserve the customer relationships with the business rather than individual employees.

Confidentiality and noncompete agreements are essential to securing the long-term

income stream. Most employees will be reluctant to enter into noncompete type



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agreements once they have been employed for a period of time. In addition, Washington

law requires additional consideration for enforcement of noncompete agreements once

employment has commenced. Accordingly, careful planning dictates that noncompetition

agreements be negotiated and entered into in writing at the time employment commences.

Further, the business itself must take care to establish relationships with others in addition

to a single employee or salesperson.

The business owner should always start with the end in mind.

C. THE ASSET-BASED BUSINESS. The asset-based business provides

greater flexibility for planning, because valuation techniques differ more in an asset-

based business, an asset-based business will of course have a going concern value, but

will also have a liquidation value separate and apart from a going concern value. Again,

securing the income stream is critical.

Some issues to keep in mind with all of the above types of business, include the use of

earn outs as a way to bridge the gap between the low price a purchaser will no doubt offer

and the higher price the seller believes he or she is entitled. In addition, the use of

Employee Stock Ownership Plan (“ESOP”) should not be ignored. ESOPs are complex

and allow employees to purchase a business for which they have worked for many years.

In addition, the use of an ESOP creates a market for a business where one may not

otherwise exist.

III. PLANNING FOR EXIT – DRAFTING ISSUES

A. IN GENERAL. The following is a summary of some possible solutions

should the members of the LLC encounter a governance or management stalemate (a

“Stalemate”). For purposes of this section, we will pretend that the LLC has two

members: “Member A” and “Member B”. Please note that the following is not intended

to be an exhaustive list of all solutions for a Stalemate, nor does the following set forth all

the pros and cons of each identified solution.

B. AVOIDING STALEMATES. The best way to resolve management

disputes is to avoid situations that may give rise to the same. Ways to minimize the

likelihood that a Stalemate occurs include (i) avoiding approval thresholds that may

trigger Stalemate (e.g., supermajority or unanimous approvals), (ii) limiting the number

of possible Stalemate triggers (e.g., have a limited number of matters that require

supermajority or unanimous approvals), (iii) having an odd number of managers, (iv)

limiting the restrictions on fiduciary duties to avoid situations where a member’s or

manager’s interests are in conflict with the LLC yet such member or manager does not

have to abstain from participating in decision making, and (v) avoiding approval

processes that interfere with the LLC’s operations.



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C. WAIT IT OUT & OPERATE UNDER PRIOR APPROVALS;

DISPUTE RESOLUTION.

(i) Waiting it Out and Operating Under Prior Approvals. The LLC

Agreement could simply be silent with respect to resolving Stalemates. Such silence

would require the members and managers find a way to continue operating the LLC’s

business without resolution of the Stalemate, which would likely mean that the members

and/or managers are operating under previously approved actions. After a period of time,

cooler heads may prevail and a resolution of the Stalemate could be negotiated or the

issues underlying the Stalemate could simply pass over time.

(ii) Mandatory Dispute Resolution. As an alternative to all of the

below described solutions or as an interim step before a Stalemate triggers any of the

below described solutions, the members could agree to mandatory alternative dispute

resolution (i.e., negotiation, mediation and binding arbitration) as a mechanism to resolve

Stalemates. Such a requirement may help the parties resolve any Stalemates and help

avoid a forced sale or dissolution. The following is a sample provision that contains

mandatory negotiations, followed by mandatory mediation, followed by binding

arbitration.

“(a) Negotiations. The Members, promptly and in good faith, shall attempt to

resolve any dispute arising under this Agreement by negotiation between the chief

executive officers of the Members. Either Member may give to the other Member

written notice of any dispute and, within ten (10) days after the giving of such

notice, the recipient of such notice shall give a written response to the other

Member. Each notice of a dispute and each response to any such notice shall

include a statement of the position of the party giving such notice or response in

respect of such dispute and a summary of arguments supporting such position.

Within fifteen (15) days after the giving of a notice of a dispute under this

subsection, the chief executive officers of the Members shall meet at a mutually

acceptable time and place, and thereafter as often as either of them reasonably

deem necessary, to attempt to resolve such dispute. All reasonable requests for

information made by any Member to the other shall be honored. If any dispute

has not been resolved by negotiation pursuant to this subsection within thirty (30)

days after the giving of the notice of such dispute, then the other Member may

initiate mediation of such dispute pursuant to Section 12.11(b). All negotiations

pursuant to this subsection shall be confidential and shall be treated as

compromise and settlement negotiations. Nothing said or disclosed, and no

document produced, in the course of such negotiations which is not independently

discoverable shall be offered, or received as evidence, or used for impeachment

or for any other purpose in any arbitration or litigation.

(b) Mediation. All disputes arising out of this Agreement not resolved

pursuant to Section 12.11(a), shall first be submitted to mediation, which shall

focus on the needs of everyone concerned and seek to solve problems



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cooperatively with an emphasis on dialogue and accommodation. The goal of the

mediation shall be to preserve and enhance relationships by developing a

mutually acceptable resolution that will fulfill the needs of everyone concerned.

Any Member desiring mediation may begin the process by giving the other

Members a written request to mediate (a “Request to Mediate”), describing the

issues involved and inviting the other Members to join with the requesting

Member to name a mutually agreeable mediator (“Mediator”) and a time frame

for the mediation meeting. The Members and the Mediator may adopt any

procedural format that seems appropriate for the particular dispute. The contents

of all discussion during the mediation shall be confidential and nondiscoverable

in subsequent arbitration or litigation, if any. If the Members can agree upon a

mutually acceptable resolution with respect to the dispute, it shall be reduced to

writing, signed by all Members, and the dispute shall be at an end. If the result of

the mediation is a recognition that the dispute cannot be successfully mediated, or

if a Member refuses to mediate or to name a mutually acceptable Mediator within

a period of time that is reasonable considering the urgency of the disputed matter,

then any Member who desires dispute resolution shall seek arbitration.

(c) Arbitration. Any dispute, controversy or claim among the Members

arising out of or relating to this Agreement, which has not been settled by

mediation will be settled by arbitration in accordance with the commercial rules

of the American Arbitration Association as then in effect. In any arbitration

hereunder, each Member will select one arbitrator and the two arbitrators so-

selected shall select a third. The three arbitrators selected will each have one

vote, and a majority vote of the arbitrators will be binding. The arbitration will

take place in Seattle, Washington. The arbitrators will apply the law of the State

of Washington without regard to its choice of law principles. Judgment upon the

award rendered by the arbitrators may be entered in any court for a judicial

acceptance of the award and an order of enforcement. As part of the arbitrators’

award, the arbitrators will, subject to Section 12.08, allocate the fees and costs of

the arbitration (including the arbitrators’ fees and costs and each parties’

reasonable attorneys’ fees, expenses and costs incurred preparing for and

participating in the arbitration) between the parties participating in the

arbitration as such arbitrators deem appropriate.”

D. BUY-SELL RIGHTS, CONVERSION OR DISSOLUTION. If the

members are unable to resolve a Stalemate, the LLC Agreement could include one or

more of the following purchase and sale rights, conversion right or dissolution process,

the basic structure of which is set forth below. The following also highlights certain pros

and cons of each solution.

(i) Member A Call Right at Fixed Price.

(a) Basic Structure. Upon the occurrence of a Stalemate,

Member A would have the option (but not the obligation) to purchase Member B’s



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interest in the LLC for a purchase price equal to Member B’s capital contributions, plus

interest per annum at an agreed upon coupon rate, or a purchase price based on some

other formula.

(b) Certain Pros.

Fixed price should make the transaction faster and

more efficient than other solutions.

Guaranteed, fixed rate of return on investment if

formula is based on a coupon rate.

If the coupon rate is sufficiently high, loss of

potential upside on investment may be adequately offset by protection from potential

downside.

(c) Certain Cons.

Member A controls whether or not transaction

occurs. As a result, Member B may have to sell its LLC interest at a time when it would

prefer to remain a member or be forced to stay when Member B would rather sell.

Fixed price means Member B may miss the

opportunity to see significant appreciation in value. Member B would only receive a

fixed rate of return on its investment, which rate of return may be significantly less than

50% of the then enterprise value of the LLC.

If Member A has the ability to trigger a Stalemate

without violating its obligations to Member B, Member A will be able to purchase

Member B’s interest at any time that Member A desires.

If a more complex formula is used, it may be very

difficult to select an appropriate formula and/or create a fair formula that cannot be

manipulated by those running the LLC.

(ii) Member A Call Right at Appraised Price.



interest in the LLC for a purchase price determined by one or more appraisers. The

parties would establish parameters for the appraiser to consider when appraising the LLC.

(b) Certain Pros.

Appraised value may be more fair for Member B.



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Enables Member B to benefit from any significant

increase in the enterprise value of the LLC.

(c) Certain Cons.

As with the other call right, Member A controls

whether or not transaction occurs. As a result, Member B may have to sell its LLC

interest at a time when it would prefer to remain a member or be forced to stay when

Member B would rather sell.

As compared with a coupon rate formula, Member

B would lose the protection against a devaluation of the LLC.

If Member A has the ability to trigger a Stalemate

without violating its obligations to Member B, Member A will be able to purchase

Member B’s interest at any time that it desires.

Using appraisers will take more time.

(iii) Put or Call Right at Fixed Price.



interest in the LLC or Member B would have the option (but not the obligation) to sell its

interest in the LLC to Member A, in either case for a purchase price equal to Member B’s

capital contributions, plus interest per annum at an agreed upon coupon rate, or a

purchase price based on some other formula.

(b) Certain Pros.

Same as above under Section i(b) above.

If Member A doesn’t exercise its option, Member B

can exercise its option and force a sale.

(c) Certain Cons.

Each party can trigger the transaction but never

party can stop the other from triggering the transaction. As a result, Member B may have

to sell its LLC interest at a time when it would prefer to remain a member.

Fixed price means Member B may miss the






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If either party has the ability to trigger a Stalemate

without violating its obligations to the other party, either party will be able to control

when a transaction occurs.

If a more complex formula is used, it may be very

difficult to select an appropriate formula and/or create a fair formula that cannot be

manipulated by those running the LLC.

(iv) Put or Call right at Appraised Price.



interest in the LLC or Member B would have the option (but not the obligation) to sell its

interest in the LLC to Member A, in either case for a purchase price determined by one or

more appraisers. The parties would establish parameters for the appraiser to consider

when appraising the LLC.

(b) Certain Pros.

Same as above under Section ii(b) above.

If Member A doesn’t exercise its option, Member B

can exercise its option and force a sale.

(c) Certain Cons.

Each party can trigger the transaction but never

party can stop the other from triggering the transaction. As a result, Member B may have

to sell its LLC interest at a time when it would prefer to remain a member.

As compared with a coupon rate formula, Member

B would lose the protection against a devaluation of the LLC.

If either party has the ability to trigger a Stalemate

without violating its obligations to the other party, either party will be able to control

when a transaction occurs.

Using appraisers will take more time.

(v) Shotgun Purchase and Sale.

(a) Basic Structure. Upon the occurrence of a Stalemate, either

party (the “First Party”) has the option (but not the obligation) to offer to buy the other

party’s (the “Second Party’) interest in the LLC at a price set by the First Party (the

“Purchase Price”). The Second Party then has the option to either sell its LLC interest



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to the First Party in exchange for the Purchase Price or to acquire the First Party’s LLC

interest in exchange for the Purchase Price.

(b) Certain Pros.

The Purchase Price will generally be a fair price

because the First Party won’t want to pay too much or be forced to sell for too little.

Enabling one party to fix the Purchase Price should

make the transaction faster and more efficient than other solutions.

Neither party has clear control over the process.

(c) Certain Cons.

If Member B is not willing to be a buyer, Member

A, if it is the First Party, can set a lower Purchase Price because it won’t have to worry

about Member B being a buyer.

If Member B is not a willing to be a buyer, this

solution may not provide any meaningful relief and may only benefit Member A.

It can be very difficult to pick a Purchase Price.

(vi) Equity Conversion.


Member B has the option (but not the obligation) to either (i) sell its interest in the LLC

to Member A at either a fixed price (see Section iii above) or an appraised price (see

Section iv above) or (ii) have its interest in the LLC converted into a non-voting,

preferred security with a fixed and capped rate of return, anti-dilution protections and

information rights (the “New Security”).

(b) Certain Pros.

Member B controls whether a transaction occurs

and the structure for that transaction.

If Member B elects to receive a New Security,

Member B will receive its preferred return before Member A receives its return and

Member B will retain its right and ability to learn more about the business.

(c) Certain Cons.

By giving up its management/voting rights,

Member B will not be able to participate in any decisions regarding the LLC. Thus,



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Member B’s investment will be at risk to the extent Member A fails to properly manage

the business.

A fixed return means Member B may miss the




Member B would not receive an immediate

payment on its investment.

Certain bankruptcy issues may arise.

(vii) Dissolution.

(a) Basic Structure. Upon the occurrence of a Stalemate, either

party may cause the dissolution of the LLC. The assets of the LLC would be collected

and liquidated to payoff debts and any remaining assets would be distributed to the

members pro rata based on their capital account balances.

(b) Certain Pros.

Provides significant motivation to avoid a

Stalemate.

Liquidation of the assets may be the most equitable

remedy for the parties since third party negotiations will dictate the purchase price for the

assets.

(c) Certain Cons.

Precludes either party from continuing the business

even if such party would like to continue the business.

Liquidating the assets as part of a dissolution may

not result in payment of the highest purchase price as buyers may successfully negotiate

lower prices when they know that the sale arises out of a dissolution.

(viii) Additional Issues with Such Solutions. In the event any member

attempts to exercise or successfully exercises any of the above described solutions, the

members and the LLC may encounter the following issues:

(a) the transaction may constitute a breach under agreements

binding on the members or the LLC;



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(b) third party approvals may be required to properly

implement one or more of these solutions;

(c) the other member may be unable or unwilling to perform

(e.g., lack of financing to fund purchase price, lack of appropriate corporate approval,

etc.); and

(d) members may not be able to specifically enforce rights

under the LLC Agreement for any number of reasons, including the issues listed in

clauses (a), (b) and (c) above.

IV. NON-JUDICIAL DISPUTE RESOLUTION

A. DISSOLUTION GENERALLY

An LLC may dissolve and wind up affairs for the several reasons outlined in RCW

25.25.270, which includes:

1. According to a dissolution date specified in the certificate of formation.

2. The happening of an event specified in the LLC Agreement.

3. By written consent of all of the LLC members.

4. After the passage of 90 consecutive days during which the LLC has no

members.

5. By judicial decree under RCW 25.15.275 in which dissolution will result if it

is not reasonably practicable to carry on the business in conformity with the

LLC Agreement or other circumstances render dissolution equitable. In the

case of judicial dissolution, a receiver may be appointed by the court under

RCW 7.60.025(1)(t).

6. The expiration of 5 years after the effective date of dissolution under RCW

25.15.285 without reinstatement of the LLC.

The secretary of state may also administratively dissolve an LLC under RCW 25.15.285

if the company does not pay license fees or penalties when they come due; the LLC does

not deliver its completed initial or annual report to the secretary of state when it is due;

the LLC is without a registered agent or registered office in the state for 60 days or more;

or the LLC does not notify the secretary of state within 60 days that its registered agent or

office has changed, resigned, or discontinued. When an LLC is administratively

dissolved, the company can apply to the secretary of state for reinstatement within 5

years after the effective date of dissolution.

During dissolution, a winding up of the LLC’s affairs occurs where the LLC must

prosecute and defend suits, settle and close its business, dispose or and convey property,

discharge liabilities, and distribute to members any remaining assets. RCW 25.15.295(2).

During this period, the duty of care and duty of loyalty still apply as the LLC is still

considered a business entity, but these duties may be modified somewhat by agreement.



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I have included a simple redemption agreement attached as Exhibit A.

B. PROCESS

The dissolution process may best be handled by outlining a plan for liquidation for the

LLC (see sample “Greenacre, LLC Plan of Liquidation” in Part VI). After dissolution has

begun, the LLC shall pay or make reasonable provisions to pay all claims and obligations

known to the LLC, including contingent, condition, or unmatured claims. While the LLC

statutes do not outline how to dispose of the known claims, Washington’s corporate

statute, RCW 23B et seq., provides an outline related to known claims of a dissolved

corporation. This process may be used to help guide the disposition of known claims

against an LLC.

To determine the extent of liabilities against the LLC, the LLC should send a notice and

request to all holders of known claims against the LLC to make them aware of the

dissolution and to request information regarding any claims against the LLC. The scope

of known claims should include: any matured claims, even when the amount of the claim

is not known; any unmatured, conditional, or contingent claims that may arise under an

executory contract to which the LLC is a party; any claim that the LLC has knowledge of

the identity and mailing address of the holder and has actual knowledge of existing facts

that could give rise to or indicate an intention to assert a claim.

The notice and request should ask the holder for a description of facts related to matured

and legally assertable claims or for the holder to identify the executory contract related to

any unmatured, conditional, or contingent claims. The notice and request should also ask

for the mailing address of the holder of a claim where funds can be sent and provide a

deadline of 120 days by which a written claim of the notice must be delivered to the LLC.

Upon receipt of the claims, the priority of each should be determined and then the LLC

should distribute its liquidated assets to the creditors according to their priority. The

sample “Plan of Liquidation” contemplates an LLC that will not have enough assets to

satisfy all of its creditors. However, if assets remain after all creditors have been satisfied,

then the remaining assets are to be distributed to the members of the LLC.

After all claims have been received, the assets of the LLC should be distributed as such

(unless the LLC Agreement provides otherwise):

1. Creditors, including members and managers who are creditors, in satisfaction

of liabilities of the LLC;

2. Members and former members in satisfaction of liabilities for distributions;

3. Members for their capital contributions;

4. Members in proportionate share of their membership interest.



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C. LIABILITY

Dissolution alone does not cause the LLC to cease as a legal entity separate from its

members or cause the members to be automatically personally liable for the LLC’s debts.

Instead, the LLC will continue to operate as a legal entity, but the purposes and activities

of the LLC have changed. RCW 25.15.303 provides for the remedies available to third

parties when an LLC is undergoing dissolution, stating: The dissolution of a limited

liability company does not take away or impair any remedy available against that limited

liability company, its managers, or its members for any right or claim existing, or any

liability incurred at any time, whether prior to or after dissolution, unless an action or

other proceeding thereon is not commenced within three years after the effective date of

dissolution. Such an action or proceeding against the limited liability company may be

defended by the limited liability company in its own name.

During the dissolution and winding up process, the LLC must pay or make reasonable

provisions to pay for all claims and obligations known to the LLC. This includes

contingent, conditional, or unmatured claims. Under Chadwick Farms, members of an

LLC who fraudulently attempt to use the LLC Act to avoid such liability expose

themselves to individual liability. A member may also be subject to personal liability if

he winds up an LLC improperly or does not comply with the provisions that govern the

distribution of the LLC’s assets, resulting in the possibility of a plaintiff piercing the veil

of the LLC form.

V. SAMPLE PLAN OF LIQUIDATION

GREENACRE, LLC

PLAN OF LIQUIDATION

The following is the proposed plan of liquidation (“Plan”) of Greenacre, LLC, a

Washington limited liability company (the “Company”). This Plan assumes that the

Company’s creditors will not be paid in full and that there will be no assets available for

distribution to members of the Company with respect to their ownership interests.

I. SUMMARY

The Plan can be summarized as follows:

A. Class A and Class B members consent to dissolution of the Company

(RCW 25.15.270);

B. Execute and file a Certificate of Dissolution with the Washington

Secretary of State to provide notice that the Company is dissolved (RCW

25.15.295);

B. Notice of the dissolution is given to all known creditors of the Company,



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with a “claims bar date” established;

C. 45 days prior to the claims bar date, submit a request for tax status

letter to the Washington Department of Revenue;

D. Consider all claims and determine their relative priorities;

E. Distribute assets to creditors according to the priorities; where assets

are insufficient to pay all claims of equal priority, distributions shall be

made ratably among such claims (RCW 25.15.300).

II. PLAN OF LIQUIDATION OR “WINDING UP”

A. Consent to Dissolution

The Company’s Limited Liability Company Agreement (“Agreement”) provides

for dissolution upon the written consent of a Majority in Interest of the Members coupled

with a Special Consent to dissolve the Company. The term “Majority in Interest” is not

defined in the Agreement. However, the term “Majority in Voting Interest” is defined to

mean Class B members holding more than 66 2/3% of the Class B units held by all

members. The Agreement also provides that only Class B members are voting members

of the Company. Consequently, it appears that dissolution requires the approval of Class

B members holding more than 66 2/3% of the Class B units held by all members.

In addition, the Agreement requires a Special Consent to dissolve the Company.

“Special Consent” is defined in the Agreement to mean Class A members holding 51% or

more of the percentage interests of all Class A members excluding any Class A members

which are also Class B members or an equity owner or former equity owner of MTF

USA, Inc.

Consents will be submitted to the Class A members and the Class B members for

their approval of dissolution of the Company.

C. Certificate of Dissolution

The Company will file a Certificate of Dissolution with the Washington Secretary

of State during the winding up process to provide notice that the Company is dissolved

(RCW 25.15.295). This will permit the Company to use the statutory process for

disposing of known claims (RCW 25.15.298).

D. Notice to Known Creditors

The Washington LLC statute provides that a limited liability company that has

dissolved shall pay or make reasonable provision to pay all claims and obligations,

including all contingent, conditional, or unmatured claims and obligations, known to the

LLC and all claims and obligations which are known to the LLC but for which the

identity of the claimant is unknown (RCW 25.15.300(2)). The statute does not address

unknown claims.



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After the consents described in Section A above have been obtained and the

Certificate of Dissolution described in Section B above has been filed, the Company will

send a written Notice of Dissolution and Request to File Claims to the holders of known

claims against the Company. For purposes of this notice, a “known claim” will mean any

claim or liability:

(i) that has matured sufficiently, either before or after the effective date of the

Consents described in Section A above, to be legally capable of assertion

against the Company, whether or not the amount of the claim or liability is

known or determinable; OR

(ii) is unmatured, conditional, or otherwise contingent, but may subsequently

arise under any executory contract to which the Company is a party, other

than under an implied or statutory warranty as to any product

manufactured, sold, distributed, or handled by the Company; AND

(iii) as to which the Company has knowledge of the identity and the mailing

address of the holder of the claim or liability and, in the case of a matured

and legally assertable claim or liability, actual knowledge of existing facts

that either could be asserted to give rise to, or indicate an intention by the

holder of the claim to assert, such a matured claim or liability.

The Notice of Dissolution and Request to File Claims will provide the following:

(a) A demand for the holder of the known claim to provide a description of

the facts specified in paragraph (iii) above relating to a matured and

legally assertable claim or liability, or an identification of the executory

contract with respect to which unmatured, conditional, or contingent

claims or liabilities are sought to be disposed of through this process;

(b) A demand for the holder of the claim to provide a mailing address where

any funds to be paid may be sent;

(c) the deadline, which will be 120 days from the effective date of the Notice

of Dissolution, by which a written notice of claim must be delivered to the

Company;

(d) state that the known claim will be barred if a written notice of claim

describing the known claim with reasonable particularity is not delivered

to the Company by the deadline; and

(e) state that the known claim or any executory contract on which the known

claim is based may be rejected by the Company, in which case the holder

of the known claim will have a limited period of 90 days after receipt of



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the rejection notice in which to commence a proceeding to enforce the

known claim (RCW 25.15.298).

The Company shall maintain a record of the date on which a written notice of

dissolution is sent to each holder of a known claim.

A known claim against the Company is barred if the holder of the known claim

who was given written notice of dissolution does not deliver the written notice of claim to

the Company by the deadline OR if a holder of a known claim that was rejected by the

Company does not commence a proceeding to enforce the known claim within 90 days

after receipt of the rejection notice.

D. Tax Status Letter

Washington law does not provide for the issuance of a Department of Revenue

Clearance Certificate to an LLC. However, the Company may request a Tax Status

Letter from the Washington Department of Revenue. This request will be made 30-45

days prior to the deadline for known creditors to submit their claims to the Company. A

Tax Status Letter will advise you of whether or not the Department of Revenue contends

additional taxes remain owing to the State of Washington.

E. Consideration of Claims

As claims are received, they will be reviewed by one or more employees or agents

of the Company. This review will be to determine the claim’s validity, consistency with

the Company’s records, and order of priority for payment. Not later than 30 days after

the claims deadline set forth in the Company’s written notice of dissolution, the Company

shall complete its review of submitted notices of claim and shall notify the holder of each

such claim of the Company’s acceptance or rejection of the claim. An acceptance of a

claim shall specifically exclude a promise to pay such claim since payment, if any, will

be based on the relative priority of the claim and the amount of claims of similar or

higher priority to the accepted claim. The Company shall maintain a record of the date

on which it sends notice of acceptance or notice of rejection to the submitter of a notice

of claim.

F. Priority of Claims

The Washington LLC statute provides that, upon winding up of an LLC, the

assets shall be distributed as follows:

(i) to creditors, including members and managers who are creditors, to the

extent otherwise permitted by law, in satisfaction of liabilities of the

Company (whether by payment or the making of reasonable provision for

payment) other than liabilities for which reasonable provision for payment



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has been made and liabilities for distributions to members of the

Company;

(ii) unless otherwise provided in the Agreement, to members and former

members in satisfaction of liabilities for distributions under RCW

25.15.215 or 25.15.230; and

(iii) unless otherwise provided in the Agreement, to members first for the

return of their contributions and second respecting their interests in the

Company, in the proportions in which the members share in distributions.

Management does not anticipate that any assets will be distributable under paragraphs (ii)

and (iii) above. The Washington LLC statute does not provide the priorities of the claims

of creditors. However, the Washington receivership statute, RCW 7.60.230, and the

federal bankruptcy statute, 11 U.S.C. §507, set forth priorities of claims under their

respective circumstances. A combination of these provisions appears to be reasonable in

the context of the winding up of the Company’s business. Claims shall have priority in

the following order:

(i) Holders of liens on Company property, which liens are properly perfected

under applicable law, shall receive proceeds from the disposition of their collateral,

provided that such claims shall be paid from the proceeds in accordance with their

respective priorities under otherwise applicable law;

(ii) Actual, necessary costs and expenses incurred during the winding up

process, other than those claims allowable under paragraph (a) above. Such costs and

expenses shall include wages and salaries of employees of the Company; commissions

payable for services rendered during the winding up process; taxes incurred by the

Company on and after the effective date of dissolution; and compensation for

professional services rendered by attorneys or accountants during the winding up process;

(iii) Allowed unsecured claims, to the extent of $10,000.00 for each individual,

earned within 180 days before the effective date of dissolution of the Company for

wages, salaries, or commissions earned by such individual;

(iv) Allowed unsecured claims for contributions to an employee benefit plan

arising from services rendered within 180 days before the effective date of dissolution of

the Company to the extent of the number of employees covered by each such plan

multiplied by $10,000, less the aggregate amount paid to such employees under

paragraph (c) above plus the aggregate amount paid by the Company on behalf of such

employees to any other employee benefit plan;

(v) Allowed unsecured claims of individuals, to the extent of $1,800 for each

such individual, arising from the deposit, before the effective date of dissolution, of



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money in connection with the purchase of property for the personal, family, or household

use of such individual that were not delivered or provided;

(vi) Unsecured claims of governmental units for taxes that accrued prior to the

effective date of dissolution;

(vii) Other unsecured claims.

G. Distribution of Assets

As soon as practicable after all claims of a specific priority have been finally

determined and accepted and/or have been finally resolved by a proceeding commenced

after rejection of a notice of claim or by a failure to commence a proceeding within 90

days after receipt of a rejection of a claim, the Company shall pay accepted and finally

resolved claims of such priority to the extent of assets available to pay claims of such

priority, PROVIDED, however, that no payments to holders of claims of a specific

priority shall be made until all claims of all higher priorities that have been accepted

and/or finally resolved have been paid in full. In the event all accepted and finally

resolved claims of a specific priority cannot be paid in full from the assets available for

payment of such claims, such claims shall be paid ratably. In the event an accepted or

finally resolved claim cannot be paid because the claimant is unknown, the Company

shall deliver the amount due on such claim to the Washington Department of Revenue as

unclaimed property.



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EXHIBIT A

MEMBERSHIP INTEREST REDEMPTION AGREEMENT

This Membership Interest Redemption Agreement (“Agreement”) is entered into

by and between BATMAN (hereinafter “Batman”), and WAYNE ENTERPRISES

LLC, a Washington limited liability company (“Wayne”) as of the date of mutual

execution of this Agreement as indicated by the dates set forth beneath the signatures of the

parties to this Agreement.

R E C I T A L S

A. Batman is a member of Wayne. Batman owns a ten percent (10%)

interest in Wayne, hereinafter referred to as the “Membership Interest” as

further defined in Wayne’s LLC Agreement dated January 1, 1989.

B. The parties wish to redeem Batman’s Membership Interest and to

satisfy all obligations of Wayne to Batman on the terms and conditions set

forth herein.

C. The parties wish this Agreement to resolve all disputes of any kind

or nature arising out of or relating to Batman’s interest in Wayne.

NOW, THEREFORE, IT IS AGREED AS FOLLOWS:

A G R E E M E N T

Section 1. Redemption of Interest and Satisfaction of Obligations.

1.1 Redemption and Satisfaction. Subject to the terms and conditions set

forth herein, at the Closing (as defined below) Wayne shall redeem all of Batman’s right

title and interest including his Membership Interest in full satisfaction of all obligations

of Wayne to Batman.

1.2 Price. In full satisfaction of all obligations of Wayne to Batman,

including, but not limited to, Batman’s Membership Interest and any loan or loans made

by Batman to Wayne as of the date of this Agreement, Wayne shall pay to Batman the

sum of Two Hundred Thousand and No/100 Dollars ($200,000.00) (the “Price”).

1.3 Payment of Price. The Price shall be paid in cash or cash equivalent at

Closing (as defined below).



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1.4 Allocation of Price. The price shall be deemed to apply as follows: first,

to any and all interest or other amounts that may be owing or payable under or related to

the Loan; second, to the principal amount of the Loan; and lastly, to Batman’s

Membership Interest. The parties agree that upon payment of the Price, any and all

amounts payable under the Loan shall be paid in full.

Section 2. Representations and Warranties.

2.1 Batman. As a material inducement to Wayne to enter into this

Agreement and redeem the Membership Interest and satisfy all other obligations of

Wayne to Batman, Batman hereby represents and warrants to Wayne as follows:

2.1.1 Ownership and Authority. Batman owns all right, title and

interest in and to the Membership Interest, free and clear of all liens and encumbrances.

Batman has all requisite power and authority to enter into this Agreement and perform his

obligations hereunder without the consent or approval of any third party.

2.1.2 No Conflict with Other Instruments or Agreements. The

execution, delivery and performance by Batman of this Agreement and all other

agreements contemplated hereby to which Batman is a party will not result in a breach or

violation of, or constitute a default under, any material agreement to which Batman is a

party or by which Batman is bound.

2.1.3 Disclosure. This Agreement when taken as a whole does not

contain any untrue statement of a material fact concerning Batman or omit to state a

material fact necessary in order to make the statements concerning Batman contained

herein not misleading in light of the circumstances under which they were made.

2.2 Wayne. As a material inducement to Batman to enter into this Agreement,

Wayne hereby represents and warrants to Batman as follows:

2.2.1 Wayne has knowledge and experience in financial and

business matters and is capable of (i) requesting, reviewing and understanding the

information it has acquired regarding Wayne and its operations, management and control,

and (ii) evaluating the merits and risks of an investment in Wayne and the Membership

Interest, including the risks of losing its entire investment.

2.2.2 Wayne is acquiring the Membership Interest for investment

and not with a view to any offering, sale, or distribution of all or any part of the

Membership Interest. Wayne has no present intention of selling, granting participation

in, or otherwise distributing the Membership Interest, subject, however, to any

requirement of law that the disposition of Wayne’s property shall at all times be within

the Wayne's control. Wayne does not have any contract, understanding, agreement, or

arrangement with any person to sell, transfer, or grant participation to such person, or to

any third person, with respect to all or any portion of the Membership Interest. Wayne



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realizes that the basis for the exemptions from relevant securities laws may not be present

if, notwithstanding such representations, Wayne currently has in mind merely acquiring

the Membership Interest for a fixed or determinable period in the future, or for a market

rise, or for sale if the market does not rise. Wayne does not have any such present

intention. Therefore, Wayne will not transfer or assign this Agreement, in whole or in

part.

2.2.3 Wayne understands that (i) an investment in the Membership

Interest involves certain risks, (ii) financial forecasts developed by Wayne are based on

certain assumptions regarding future events, many of which will not occur, and actual

results of operations will vary from projected results, and such variations may be

material, and (iii) there are restrictions upon the transferability of the Membership

Interest and no public market for the Membership Interest is expected to develop, and,

accordingly Wayne may not be able to dispose of the Membership Interest when desired

(even in the event of an emergency).

2.2.4 In no event will Wayne make a transfer or disposition of any

Membership Interest (other than pursuant to an effective registration statement under

federal and applicable state securities laws), unless and until (i) Wayne shall have

notified Wayne of the proposed disposition, and (ii) if reasonably requested by Wayne, at

the Wayne's expense, Wayne shall have furnished to Wayne an opinion of counsel,

reasonably satisfactory to Wayne, to the effect that such transfer may be made without

registration under federal and applicable state securities laws. Wayne understands that

nothing in this paragraph is intended to prevent the use of Rule 144 under the Securities

Act by Wayne when applicable.

2.2.5 Wayne is an entity in which all of the equity owners are accredited

investors as that term is defined under applicable federal and state securities laws.

Section 3. Mutual Releases. Effective upon Closing (as defined below), Batman

hereby releases Wayne, its managers, members, officers, management committee

members, employees, representatives and agents from all claims that Batman has or may

have against Wayne or its members, managers, officers, management committee

members, employees, representatives, attorneys and agents, including, but not limited to

unknown claims, of any kind or nature regardless of the form or source of such claim.

Effective upon Closing, Wayne hereby releases Batman and his employees,

representatives, attorneys and agents from all claims including, but not limited to

unknown claims that Wayne has or may have against Batman of any kind or nature

regardless of the form or source of such claim. This mutual release shall not release

either of the parties from any claims that arise from or relate to a breach of the terms of

this Agreement.

Section 4. Closing.



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4.1 Time, Place, and Manner of Closing. The closing (“Closing”) will be

held at the offices of Wayne Enterprises, LLC in Gotham City, or such other place as the

parties may agree, on or before December 1, 2013, or such other date as the parties may

agree upon. At the Closing, Batman shall deliver to Wayne any certificates representing

the Membership Interest properly endorsed for transfer and/or an executed assignment of

all Membership Interests, any instruments evidencing any loans made by Batman to

Wayne marked as paid or for cancellation and/or an executed instrument that denotes the

Loan as paid in full, and such other instruments and documents as Wayne may determine

to be necessary to consummate the transactions contemplated herein. At the Closing,

Wayne shall deliver to Batman one or more cashier’s checks in the aggregate amount of

the Price.

4.2 Consummation of Closing. All acts and deliveries comprising the

Closing, regardless of chronological sequence, shall be deemed to occur

contemporaneously and simultaneously upon the occurrence of the last act or delivery of

the Closing and none of such acts or deliveries shall be effective unless and until the last

of the same shall have occurred. The time of the Closing has been scheduled to

correspond with the close of business at the principal office of Wayne and, regardless of

when the last act or delivery of the Closing shall take place, the transfer of the

Membership Interest shall be deemed to occur as of the close of business at the principal

office of Wayne on the date of the Closing.

Section 5. Miscellaneous Provisions.

5.1 Amendment and Modification. Subject to applicable law, this

Agreement may be amended, modified, or supplemented only by a written agreement

signed by Wayne and Batman.

5.2 Waiver of Compliance; Consents

5.2.1 Any failure of a party to comply with any obligation, covenant,

agreement, or condition herein may be waived by the party entitled to the performance of

such obligation, covenant, or agreement or who has the benefit of such condition, but

such waiver or failure to insist upon strict compliance with such obligation, covenant,

agreement, or condition will not operate as a waiver of, or estoppel with respect to, any

subsequent or other failure.

5.2.2 Whenever this Agreement requires or permits consent by or on

behalf of a party hereto, such consent will be given in a manner consistent with the

requirements for a waiver of compliance as set forth above.

5.3 Payment of Fees and Expenses. The parties shall each pay their own fees

and expenses incurred in the negotiation, preparation and Closing of this Agreement.



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5.4 Notices. Any notice under this Agreement shall be in writing and shall be

effective when actually delivered in person or three days after being deposited in the U.S.

mail, registered or certified, postage prepaid and addressed to the party at the address stated

in this Agreement or such other address as a party may designate by written notice to the

other.

5.5 Time. Time is of the essence of this Agreement.

5.6 Survival. Any of the terms and covenants contained in this Agreement

which require the performance of a party after the Closing shall survive the Closing and

delivery of any certificates or other instruments.

5.7 Waiver. Failure of a party at any time to require performance of any

provision of this Agreement shall not limit the party’s right to enforce the provision, nor

shall any waiver of any breach of any provision be a waiver of any succeeding breach of any

provision or a waiver of the provision itself or any other provision.

5.8 Assignment. Except as otherwise provided in this Agreement, a party may

not transfer or assign this Agreement without the prior written consent of the other party.

5.9 Law Governing. This Agreement shall be governed by and construed in

accordance with the laws of the Gotham City.

5.10 Attorney Fees. In the event an arbitration, suit, or action is brought by

either party under this Agreement to enforce any of its terms, or in any appeal therefrom, it

is agreed that the prevailing party shall be entitled to reasonable attorneys fees to be fixed by

the arbitrator, trial court, and/or appellate court.

5.11 Presumption. This Agreement or any section thereof shall not be construed

against any party due to the fact that said Agreement or any section thereof was drafted by

said party.

5.12 Entire Agreement. This Agreement contains the entire understanding

between the parties and supersedes any prior understandings and agreements between them

respecting the subject matter of this Agreement.

5.13 Agreement Binding. This Agreement shall be binding upon the heirs,

executors, administrators, successors and assigns of the parties hereto.

5.14 Further Action. The parties hereto shall execute and deliver all documents,

provide all information and take or forbear from taking all such action as may be necessary

or appropriate to achieve the purposes of this Agreement.



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5.15 Good Faith, Cooperation and Due Diligence. The parties hereto covenant,

warrant and represent to each other good faith, complete cooperation, due diligence and

honesty in fact in the performance of all obligations of the parties pursuant to this

Agreement. All promises and covenants are mutual and dependent.

5.16 Intellectual Property and Confidential Information. Batman

acknowledges and agrees that he has no ownership interest in nor any right: 1) to use any

patents or other intellectual property issued to Wayne; or 2) to use the marks, logos,

trademarks, and other marks of Wayne. Batman shall not use or disclose any confidential or

proprietary information of Wayne to any third parties. The term “confidential information”

means any proprietary material or information of economic value disclosed by Wayne,

either directly or indirectly, in writing, orally or by inspection of tangible objects, including

without limitation, material or information relating to Wayne’s research, development,

products, product plans, services, customers, customer lists, markets, software

developments, inventions, processes, formulas, technology, designs, drawings, marketing,

finances, or other business information or trade secrets.

5.17 Counterparts. This Agreement may be executed in several counterparts

and all so executed shall constitute one Agreement, binding on all the parties hereto even

though all the parties are not signatories to the original or the same counterpart.

5.18 Facsimiles or Electronic Signature. A facsimile transmission or electronic

signature of any signed original hereof, and retransmission of any signed facsimile

transmission or electronic signature shall be the same as delivery of an original. At the

request of any party, the other party or parties hereto will confirm facsimile-transmitted or

electronic signatures by signing an original hereof.

5.19 Savings Clause. If any provision of this Agreement, or the application of

such provision to any person or circumstance, shall be held invalid or unenforceable, the

remainder of this Agreement, or the application of such provision to persons or circum-

stances other than those as to which it is held invalid or unenforceable, shall not be affected

thereby.

WAYNE ENTERPRISES, LLC

Batman By: Lucius Fox

Date: Date:

Exit planning and succession planning in a Washington limited liability company LLC

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Transcript of Exit planning and succession planning in a Washington limited liability company LLC