Josh Thomas, Jack Wiley, and Will Regis are three close friends who have been offered the opportunity to invest $100,000 each and to become 10 percent shareholders each in a closely held corporation that will be controlled by their friends Leone and Teddy Battat, who will own the remaining the 70 percent of the shares. The business to be named EZStreet.com, Inc., will be an online business networking site. Leone and Teddy's plan is to amass at least 500 million users worldwide, which they estimate will take five to seven years, after which they would like to take the company public or sell it to another company, like Google. Josh is a CPA with 10 years experience in business consulting and investment management. Jack is a software engineer who has designed more than 50 websites. Will has an MBA in consumer and business marketing with 12 years experience in public relations and ad sales. Sketch the terms of the agreement that Josh, Jack, and Will should ask of Leone and Teddy to ensure that they will obtain returns on their investments while they are shareholders before the company goes public or is sold to another company. In addition, what type of agreement should they have to make sure they can obtain capital appreciation of their shares when the corporation goes public or is sold to another company? Sketch the contents of that agreement. How do you suggest the agreement determine the value of the shares?
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