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Estate Transaction within a Family (Part One) e-version Introduction: We are pleased that you are planning to join the Island Inn family by purchasing or inheriting a share of Island Inn stock. Because you are a family member of an existing shareholder, we have simplified the application process, but there are certain legal requirements that must be met. This application must be accompanied by a signed letter from the current shareholder or the estate administrator requesting that your name be added to the existing shareholder’s Island Inn share certificate or advising the Inn that you are the estate’s designated or intended purchaser, beneficiary, or transferee of the share certificate. If there is to be more than one designated or intended purchaser, beneficiary or transferee of the share certificate, each individual must complete and submit a signed application. Part 3, Exhibit A, page A-2 below describes “Accredited Investors.” This is NOT an income or means test and any answer you select will not influence acceptance of your application, one way or the other. In addition, you must complete the Application form, which asks for information required by the Island Inn or that may be necessary to conform to state and federal requirements. 1. Terms and Conditions for Stock Ownership: You read, understand and accept the restrictions on ownership summarized below and as set forth more fully in the Company’s Articles of Incorporation and Bylaws, as well as the expectations relating to the perceived limited advantages to share ownership noted below. You understand that the Island Inn places great emphasis on the “next generation”, that is, what is the likelihood that your children and/or grandchildren will become legacies and continue as active guests of the Inn. You understand and agree that this process does not ensure that you will become a shareholder. This process is not a subscription agreement or a commitment by the Company to enable you to acquire a share in the Company. The Company is not hereby offering you any opportunity to purchase shares from the Company. You must have read and signed the “accredited investor” provisions as that term is defined in Regulation D of the guidance promulgated under the Securities Act of 1933, as amended and applicable laws of your state of residence. (See Island Inn Company Prospective Shareholder Representative Agreement attached at Part 3, Exhibit A.) 2. Application Form: Please complete the electronic application form in detail. Press the “Tab” key to move the cursor sequentially through the application form. Manual forms are available on request. NOTE: Most of your responses may be completed electronically. Space for essay/text information will automatically expand to accommodate all of your remarks. Signatures must be original. After completing and submitting the application you will receive a confirmation of receipt. 3. Application Process: After the VP of Administration has reviewed your application and certified that it is complete, it will be considered by the Island Inn Board of Directors. The Board will review your application and you and your sponsor will be notified as to whether or not your application has been approved by the Board in its sole discretion and no reason need be provided by the Board for its determination. The Company reserves the right to not approve an application for any reason, including, without limitation, celebrity status, security concerns, or other perceived impacts on the current atmosphere and tradition of the Inn. Pursuant to the Island Inn Bylaws, the Board of Directors will have 90 days to review and decide on the pending application, once all pertinent information has been received. As a condition of adding your name to an existing share, you will be asked to sign an agreement with the Company acknowledging the application of the Company’s Articles and Bylaws to your share as well as other items set forth therein as determined by the Board from time to time (a current copy of the required agreement will be provided to you upon request after your application has been approved by the Board). No transfer will be recognized unless or until it has been duly recorded in the books and records of the Company and a new stock certificate issued by the Company to you in your name. Ownership Considerations: Please carefully consider the following before you decide to apply to be an approved shareholder of the Company: 1. 2. Limited Advantages/No Financial Benefits. Shareholders have limited, if any, advantages, other than participating in the mission of the Company to preserve the “Olde Florida” Inn experience. a. Ownership is not required to be a guest of the Inn. Company shareholders do not receive any discounts, advantageous pricing or other such benefits. b. There are no intended or particular financial benefits to share ownership. Share ownership is not to be seen as an investment in the traditional sense of the word. The Island Inn was incorporated in 1957 by a small group of dedicated founders determined to preserve “the atmosphere and tradition of the Island Inn as we have known it.” One Island Inn director later noted the purpose of the Inn was to “maintain the warm, friendly atmosphere that pervades the Inn, and to encourage its frequent use by those who share in ownership.” The founders set up the Company for such purpose for themselves and their families. Applicants should not expect any financial return on their ownership “investment”, but should consider share ownership as entitling shareholders to serve as temporary custodians so that the Inn can be passed on to future generations as a viable business that promotes and sustains a gracious sense of Olde South Florida. Neither the Company nor the Board has any expectation of financial gain to individual shareholders, either through the operations of the Inn or the appreciation of the Company’s assets or any appreciation in Company shares or otherwise, and no potential shareholder should have any such expectations. c. A shareholder must be in a financial position to hold the share for an indefinite period of time and must be able to withstand a complete loss of the investment in a Company share. (See Island Inn Company Prospective Shareholder Representation Agreement attached at Part 3, Exhibit A.) d. The benefit to shareholders is the knowledge that they are actively supporting and maintaining a special low density environment that is not heavily developed and is being preserved for the enjoyment of their family as well as future generations. Control by the Board. The Company is run by the Board in accordance with the Company’s organizational documents and to carry out the purpose described above. -2- 3. No Market for Shares. The Company does not make or maintain a market for Company shares. Share transactions are conducted between an approved and willing buyer and a willing shareholder who wishes to sell his/her share. 4. Company’s Option Right. Article VI of the Company’s Bylaws retain an option for the Company to purchase any shares being sold, gifted or otherwise transferred by a selling shareholder (or pledged by a shareholder) at the lesser of (i) the price agreed between the shareholder and the buyer (or the amount of debt in the case of a pledge) or (ii) the “fair market value” of the shares (defined in Article VI of the Bylaws as the average price at which shares have been transferred for a valuable consideration expressed in money or its equivalent in a bona fide transaction in the twenty-four full calendar months preceding the effective date of the notice of proposed transfer). The price asked for a share by a current shareholder may be more or less than such “fair market value. NOTE: After the VP of Administration has reviewed your application and certified that it is complete, it will be considered by the Island Inn Board of Directors. Pursuant to the Island Inn Bylaws, the Board of Directors will have 90 days to review and decide on the pending application, once all pertinent information has been received. 5. Annual Shareholders Meeting. An annual shareholders meeting is held on the second Monday of January to conduct the business of the Inn and the Company and to elect members of the Board of Directors. 6. Voting. According to Article V of the Articles of Incorporation of the Company, each shareholder has only one (1) vote at any shareholders meeting regardless of the number of shares held, except in the case of any proposal to: (i) sell all, or substantially all, of the assets of the Company (ii) to liquidate the Company; (iii) to merge or consolidate with any other corporation; or (iv) to amend Article V, in any such special case, each shareholder to have one (1) vote per share owned and the vote of at least two-thirds (2/3) of the issued and outstanding shares shall be required to adopt any such proposal. Any new shareholder should not expect to have any material effect on the Company or the control of the Company due to these limited voting rights. (See Prospective Shareholder Application beginning on next page.) -3- Prospective Shareholder Application for the Island Inn (Part Two) Personal Information: (Use NA when not applicable): Full Applicant Name: First: Middle: Last: Home Address: Street & Number: Apt#: City: State/Province: Postal Code: Home Phone: Email: Married: Single: Other Are you a U.S. citizen? Yes No If naturalized, when? Where? Country: What is or was your profession? Give name of business: Nature of business: Business Title: Business Address: Full Name of Spouse: Spouse Email: Will name of spouse appear on stock certificate? What is or was your profession? Give name of business: Nature of business: Business Title: Business Address: Yes No Name of shareholder/s sponsoring/endorsing applicant: NA Primary Sponsor/Estate: Others: What is your relationship to your sponsor/s? (Estate, Mother, father, brother, sister, cousin, etc) Long-term Commitment to the Inn Other than inheritance, are there other reasons why you wish to become an Island Inn shareholder? Do you have business or organizational skills that might benefit the Inn? Are any of your children or grandchildren likely to be interested in becoming successor shareholder/s-Legacies: Yes No If yes, please identify: If no, why not: Are you an Island Inn Legacy (child, grandchild or relative of a shareholder)? Yes If yes, name of family member who is or was a shareholder: No Please check any current or past Island Inn Board of Directors with whom you have met and are acquainted. Current and Past Board of Directors: Burke Wood Bill Fuqua Pat Yankus Sam Bailey Jim Kuder Evan Stouten Merrell Rushworth Mead Treadwell Richard Johnson Other Former Board Joe Orndorff Dick Notebaert Tom Blanton Sherie Brezina Members: Betsy Jollay Ralph Scott Nan Leeming Al Paladino Rachel Brady Robin Krivanek Frank Wilk Ken Metz Other Shareholder Acquaintances: List the names of any other shareholders and non-shareholders that you have met while a guest of the Inn: -4- Certification: I have read, understood and signed the Shareholder Representation Agreement, Part 3, Exhibit A. I have read and understood the terms and conditions of share-ownership and believe the above personal information and statements of long-term commitment to the Inn to be correct and that these statements fairly represent my true intentions. __________________________________ Applicant’s Name (printed or typed) Date of Application: __________________ Signature of Applicant Signature of Joint Applicant (if any) Address Address City, State, and Zip Code City, State, and Zip Code NOTE TO PRIMARY SPONSOR: Please carefully review the entire application for completeness and all necessary signatures. Completed forms should be sent to: Vice President of Administration and Finance, The Island Inn Company P.O. Box 659 Sanibel Island, Florida 33957 -5- EXHIBIT A ISLAND INN COMPANY PROSPECTIVE SHAREHOLDER REPRESENTATION AGREEMENT (PART 3) Board of Directors Island Inn Company 3111 West Gulf Drive P.O. Box 659 Sanibel, FL 33957 Dear Sir/Madam: The undersigned, intending to be legally bound, hereby irrevocably submits the undersigned’s Island Inn Company Prospective Shareholder Application (the “Application”), and acknowledges, warrants and represents to the Island Inn Company, a Minnesota corporation (the “Company”) as follows: 1. If, as and when I become a shareholder of the Company, I understand that I will become subject for all purposes to the terms and conditions of the Company’s Articles of Incorporation and Bylaws, as amended (collectively the “Governance Documents”). I acknowledge that prior to purchasing a share in the Company, I have the opportunity to examine and obtain professional advice regarding the Company, an investment in the Company and the Governance Documents, and that I will either do so, or determine not to do so in my sole discretions. 2. I acknowledge and agree that the Company reserves the right, in its sole discretion, to accept or reject my Application or its approval or denial thereof. 3. I understand and acknowledge that no person has been authorized to give any information or to make any representations which are not set forth in the Application and that I have received no oral representations, warranties or information regarding the Company, or a prospective purchase of stock in the Company, from the Company, or its officers or directors or their respective agents or affiliates, which were inconsistent with those contained in the Application. 4. I have obtained and will obtain, to the extent I deem necessary, my own personal professional advice with respect to (i) the risks inherent in a purchase of stock in the Company; (ii) the suitability of any purchase in light of my financial condition; and (iii) legal, tax and accounting matters. 5. I acknowledge that I, either alone or with the assistance of my purchaser representatives with whom I have consulted, if any, have sufficient knowledge, skill and experience in financial and business matters to be capable of evaluating the risks and merits of my prospective purchase of stock in the Company and to make an informed decision about whether to purchase stock in the Company. 6. I RECOGNIZE (I) THAT A PURCHASE OF STOCK IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK WHICH MAY RESULT IN THE LOSS OF THE TOTAL AMOUNT OF MY PURCHASE PRICE; (II) THAT TRANSFERABILITY AND SALE OF STOCK IN THE COMPANY IS RESTRICTED IN MANY WAYS; (III) THAT THE COMPANY MAKES NO REPRESENTATIONS WHATSOEVER A-1 CONCERNING THE PRESENT OR PROSPECTIVE VALUE OF THE STOCK; AND (IV) THAT, IN THE EVENT OF DISPOSITION OF THE STOCK, I COULD SUSTAIN A TOTAL LOSS OF THE AMOUNT PAID FOR THE STOCK. 7. I intend to acquire and hold any stock in the Company for my own account as principal, and not with a view to, or for resale in connection with, the distribution thereof within the meaning of the Securities Act of 1933, as amended (the “Act”), and not directly or indirectly on behalf of, or as nominee for, any other person or entity. 8. I have adequate means of providing for my current needs and possible personal contingencies, have no need for liquidity with respect to any stock in the Company, have the financial ability to bear the substantial economic risk for an indefinite period of time and can afford a total loss of the amount paid for any stock in the Company. 9. I acknowledge that no stock of the Company has been registered (i) under the Act; or (ii) under the Minnesota Securities Act; or (iii) under the securities laws of any other states in which any stock of the Company may be offered or sold by an existing shareholder of the Company. 10. I further acknowledge that any stock I may hereafter own in the Company may not be sold, transferred or otherwise disposed of except in accordance with applicable state and Federal securities laws and the Governance Documents. As a result thereof, I may be required to hold any stock in the Company for an indefinite period of time. 11. I acknowledge and understand that the Company will rely on my representations contained herein for the purpose of determining whether or not I qualify as an Accredited Investor. By checking and initialing one or more of the lettered subparagraphs below, I, for the purpose of inducing the Company to approve my Application, hereby represent that the statement or statements initialed below are true and correct. NOTE: This is NOT a means test. A. I certify that I had an individual income in excess of $200,000 in each of the two most recent years or joint income with my spouse in excess of $300,000 in each of those years and reasonably expect to reach the same income level in the current year. B. I certify that as of the date of this document, I (either individually or jointly with my spouse) have a net worth in excess of $1,000,000 (for purposes hereof “net worth” excludes the value of the investor’s primary residence). C. I certify that I am not an accredited investor because none of the foregoing statements (A) and/or (B) are true with respect to the undersigned. (Applicants may claim non-accredited status without prejudice to their application.) 12. The provisions of this document shall be binding upon and shall inure to the benefit of the undersigned and to the successors and assigns of the Company and to the personal representatives, heirs, guardians, executors administrators, legal representatives and successors of the undersigned. If the undersigned is more than one person, the obligations of the undersigned shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his or her personal representative, heirs, guardians, executors, administrators, legal representatives and successors. A-2 13. I represent and warrant to the Company that (i) the information contained herein is complete and accurate as of the date set forth at the end hereof and may be relied upon by the Company and (ii) I will notify the Company immediately of any material change in any of such information occurring prior to the Company’s approval of my application and/or my purchase of any share of stock in the Company. 14. This document shall be governed by and construed in accordance with the laws of the State of Minnesota. 15. I agree that my Application, and this document, together with the Governance Documents, constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof; and no provisions hereof shall be waived, modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, modification, discharge or termination is sought. IN WITNESS WHEREOF, I have executed this Shareholder Representation Agreement on the ______ day of __________________, _________. Applicant’s Name Printed or Typed Name of Joint Applicant Printed or Typed (if any) Signature of Applicant Signature of Joint Applicant (if any) Address Address City, State and ZIP Code City, State and ZIP Code Social Security Number Social Security Number TYPE OF OWNERSHIP Please check appropriate box Joint Tenants with Rights of Survivorship Ownership by a single individual Each Joint Tenant with Rights of Survivorship must sign the Application and this Exhibit A. Accepted on behalf of the Company: By: Its: Updated April 26, 2013 A-3