Soft

Chapter 25 - The bad-leaver clause

Warren’s operating agreement contained a clause Ethan had helped draft.

If an employee-shareholder was terminated for cause following a felony involving dishonesty in company affairs, Warren could repurchase certain employment-acquired shares at 85% of appraised fair value.

Not all shares.

Only incentive shares granted under 2019 plan.

Ethan’s retained 9% after divorce included:

5% pre-marriage founder/executive grant outside plan.

4% from 2019 incentive plan.

Company exercised option on 4%.

Ethan objected.

Why?

His conviction was based on deceptive transaction, but appeal window remained and he argued clause required final conviction after appeals.

He also argued 15% discount was punitive and formula ambiguity.

Board had to decide without me dominating.

I recused.

Independent committee proceeded.

Appraisal of 4% stake:

$1.72 million gross under agreed standard.

85%:

$1.462 million.

Ethan wanted full $1.72m.

Gap:

$258,000.

Would company spend more litigating?

Potentially.

Mediation.

Then Ethan’s lawyer threatened appeal of criminal conviction? He had right. Did he plan?

He filed notice preserving appeal.

Could use as leverage.

No problem.

Then company proposed:

Repurchase at 92.5% fair value.

$1.591m.

Ethan withdraws employment arbitration claims already lost? Those done. Waives share dispute.

Keeps remaining 5%.

No board role while on probation.

He accepted.

Why?

Liquidity.

Closure.

No certainty on clause.

Warren paid cash/short note under covenants.

No personal revenge.

Then his stake:

5%.

Passive.

No management.

Would he eventually sell?

Maybe.

Not necessary.

Then criminal appeal.

After counsel review, Ethan chose not to pursue beyond preserved notice.

Conviction became final.

Why?

He said:

“I’m done spending money proving the signature count I was already acquitted of should erase the count I was convicted on.”

Reasonable.

Then my relationship with him as co-parent.

Still tense.

But no new financial entanglement.

Company.

Marriage.

Paris.

Cole.

All separating.

One final thing remained.

May you like

Ethan wanted Lily’s surname hyphenated? No, unnecessary.

Maybe he wanted unsupervised extended parenting time sooner after custody. Family court review in Ch26. Good.

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