NirvanaSESSION THREE WORKBOOKDecisions and Notes for Modules 1 – 6

BSMARTer Business Simulation Management and Relationship Training

Executive Summary

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Over the last few years, we have started to see great growth and the employees are energized . To continue this success, we have focused on a few key issues and initiatives over the past year:

1. Consideration of Curtis as an equity partner with a 2% +/- stake in the company.

2. Establish a Board of Directors.

3. Create a succession plan that insures the firm will live on well after the founders have moved on.

Throughout the following pages, we have addressed the firm’s valuation to help answer the question, “Is an internal succession plan a viable option, or should we look to merge or get acquired by another firm?” This question came to the forefront upon reviewing the results from Christine and Kurt’s Succession Evaluator tool. However, after much discussion and taking into consideration our size, it did not seem viable that an outside firm in the Pacific Northwest would have the capital required to purchase our firm. Thus, we focused on establishing the criteria for partners and internal succession. Starting with Curtis, who can financially take on 2% of the firm immediately, then making equity available to other over the coming years, we hope to address concerns of the partners that they will have the ability to sell their equity in the future.

From there, we looked at how to modify our Partnership Agreement to allow for the formation of a Board of Directors and allow for a more focused decision making process, with clearly defined roles and responsibilities throughout the firm.

Next, we focused in on the succession plan for our two primary owners, Kurt and Christine. Through the use of several Practice Management tools, provided to us by Fidelity Investments, we looked at our long-term financial and participatory goals to determine the best future steps for Kurt and Christine. We also looked to address what could be the ancillary effects on the other partners, like Danielle and address her concerns of bringing on new partners as well as business continuity.

Time is not our ally. We recognize that 10 years will likely go by very quickly, and that it is essential that we identify ways to effectively transition a concentrated ownership position in a relatively short period of time. While it is prudent to be aware of and evaluate potential external candidates for succession, Nirvana has confidence in its’ pursuit of the internal transition plan documented in this workbook.

Finally, we looked at what other initiatives we want to address in the next five years. With Danielle’s background and proficiency in working with smaller tech companies in the area, we looked to expand business models by providing 401k and retirement services to start-ups and small-mid size companies in the area. We feel this will diversify our revenue streams and provided added levels of responsibility for Daniele to excel.

Fundamentals of Equity

MODULE ONE

Changes in Equity

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The partner group met collectively and outlined the firm’s criteria for new partners. The aforementioned criteria is detailed under Module #3 “New Partner Admission” and will be applied to new partners going forward. In addition, Nirvana has decided to guarantee a $2,000,000 credit line to support the financing needs of new partners.

Equity financing will require new partners to pay 10% of the total equity purchase up front. Nirvana will allow equity purchases to be financed over a 7-10 year period based on the value of shares at the time of purchase (evaluated every 2 years by an outside independent third party). Equity financing can be satisfied at any time but may not exceed the determined payback period.

The agreed upon partnership criteria was applied to Curtis Love, COO, and it was determined that Curtis should be invited into the partner group. Curtis has proven to be an asset to the organization and strongly reflects the firms vision, values and culture. His contributions to the organization have resulted in better workflow processes, enhanced efficiency & scale and have been integral to the firms long term success. We believe that Curtis will continue to add value to the organization and make even greater contribution as a Partner.

Curtis Love - 2% Equity Acquisition (Kurt Kobin and Kristine Novich will each sell 1%):

1. Kurt Kobin and Kristine Novich will each sell 1% of equity to Curtis Love

2. 2% equity in Nirvana amounts to $538,636 at current firm valuation

3. Curtis will pay $54,000 to satisfy 10% required upfront

4. Curtis will finance remaining $484,636 over 7 years ($69,233 due annually)

5. Annual Dividend payout (before Fed Income Tax) for 2% ownership will be as follows over the next 7 years:

a. $88,000

b. $101,000

c. $116,000

d. $134,000

e. $154,000

f. $177,000

g. $203,000

6. After taxes, assuming 35% Fed Income taxes on the annual dividend (No state income tax in WA), Curtis will be approximately $12,000 and $3,000 short of his debt payment in 2015 and 2016 respectively. This calculation only considers the dividend payments being used to satisfy the annual loan payment. Curtis will realize a significant pay increase in 2015 and will be able to subsidize the short fall in the first two years of the pay back period through his salary/savings. If we miss growth projections, enter a challenging market environment or have to consider a reduction in dividend payments, we remain confident that Curtis will be in a position to manage the debt obligation. The firm also maintains a strong cash position and credit line that can be leveraged should we need to support financing needs.

Valuation Principles and Experience

MODULE TWO

Firm Value

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Nirvana’s current projected cash flow (EBITDA) for 2015 of $3.9M has been measurably helped by strong contributions in growth of new clients and net new contributions from existing clients relative to distributions. This net increase in 2015, we believe is sustainable for the next several years, and as seen in 2015 would drop directly to the bottom line (net improvement in EBITDA of $1.4M)

See exhibit on page 7 highlighting the valuation model which shows the growth of the firm and the impact of that growth on the cash flow. Additionally, we have projected out using the net increase in NNA from 2014-2015 as an assumption how the next several years might look. Significant risks to this cash flow is driven by client concentration risk ($600M AUM in three clients) and concentration in Microsoft executives. We do believe this risk is offset by the marketing engine we have developed and delivered to the market to help support the growth opportunity in this sector. Additionally, Daniele is starting to come into her own as a key contributor to this strategy, and her connections are starting to payoff. With these strong marketing efforts we believe we can continue the growth beyond Microsoft to help reduce down the long term risk of our cash flow. Additionally, our efforts to look at alternate revenue diversification opportunities while likely not immediate (next 2-3 years), such as the purchase of a 401(k) book will help us over the long term with potential market volatility. On page 9 we outline some of the risks to the firm and some things we believe mitigate the risk to the firm as we think about our future risk of future cash flows.

As we looked at the value of Nirvana we consulted with various industry experts to arrive at a starting place for a multiple of 7x EBIDTA. We believe we would formally engage a valuation consultant to more formally construct a discount cash flow model, and better understand the risks inherent in our firm to arrive with a more accurate multiple over time as we continue to evolve the ownership process and governance. For now, we have developed the offering for Curtis based on this multiple of 7x EBITDA.

We have also decided to determine the value of the firm at the time of the purchase. (assuming the buy-in would happen over multiple years). We looked at the option of perhaps re-evaluating the value of the firm each year, and the pros and cons are outlined on page 8 and ultimately believe that initial value of the firm at buy-in would drive the right behavior and be equitable to both the buyer and sellers.

We evaluated the impact of a 5-year payback vs. a 7-year or 10 year payback and determined to go with a 7-year assumption for the default payback, due to the high difference in the amount of contributions required for Curtis in the first few years: (see page 8 for a pros and cons of the various time periods evaluated for Curtis)

We also decided that for the payback, Curtis would pay 10% upfront immediately. We believe this is an important commitment that should be made for all future owners. Additionally, we believe a 2% initial purchase is reasonable, given the size of the firm and the amount of the payment over the 7-year time period.

We decided to take a $2MM line of credit to help with funding if seller financing was not an option. Current situation will have Curtis paying 5.25% over the 7 years, based on Prime + 2% and leveraging the note. See 9 page for pros/cons of seller financed vs. leveraging this line of credit to pay for the initial buy-in.

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Totals5-year ($55,438) ($46,842) ($36,956) ($25,588) ($12,514) ($177,337)7-year ($27,231) ($18,635) ($8,750) $2,619 $15,692 $30,727 $48,017 $42,43710-year ($6,237) $2,359 $12,244 $23,613 $36,686 $51,721 $69,011 $88,894 $111,760 $138,056 $528,107

Net Payment or Credit from Curtis For Buy-In (5-year vs. 7 -year vs 10 year)

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Valuation Model

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022AUM $1,540,094,323 $1,540,094,323 $1,627,799,511 $2,002,193,398 2,087,245,923$ 2,400,332,811$ 2,760,382,733$ 3,174,440,143$ 3,650,606,164$ 4,198,197,088$ 4,827,926,652$ Revenue $10,318,632 $10,472,641 $10,454,050 $11,978,977 13,775,823$ 15,842,197$ 18,218,526$ 20,951,305$ 24,094,001$ 27,708,101$ 31,864,316$ YoY Rev Growth 1% 0% 15% 15% 15% 15% 15% 15% 15% 15%Rev BPS 67 68 66 66 66 66 66 66 66 66 66Op Income $3,129,032 $2,801,189 $2,408,071 $3,847,400 $4,408,263 $5,069,503 $5,829,928 $6,704,418 $7,710,080 $8,866,592 $10,196,581YoY Op Income -10% -14% 60% 15% 15% 15% 15% 15% 15% 15%Op Margin 30% 27% 23% 32% 32% 32% 32% 32% 32% 32% 32%Dividend based on ownership of new principal $62,581 $56,024 $48,161 $76,948 $88,165 $101,390 $116,599 $134,088 $154,202 $177,332 $203,932Tax on dividends $30,858 $35,487 $40,809 $46,931 $53,971 $62,066 $71,376Net Proceeds on Dividends (after tax) $57,307 $65,904 $75,789 $87,157 $100,231 $115,266 $132,556

Past Years Future Years

YoY Rev/AUM Growth Future: 15% Based on 2015, and new marketing initiativesFuture Op Margin Assumption 32% Based on 2015 and scale moving forward with operating model and implementation of new compensation that drives scaleable growthRate for loan 5.25% Assumed prime + 2% (prime currently at 3.25%); assumed fixed rate for duration of payments# of years for payback of loan 7 Varied and modeled to help drive what might be reasonable for payment for a 2% buy-in% upfront payment 10% As part of governance we believe that 10% initial upfront payment shows a level of commitment on the part of the potential ownerMultiple of EBITDA 7 Based on estimates from various industry experts for a $1B+ firm% ownership buy-in 2% Amount potential owner will buy-in; amount was based on what was a reasonable amount to be seen for an initial purchaseTax Rate 35% Tax rate: Assumed federal tax rate, and no state income tax for Washington

Model Assumptions:

Output of modelValue of firm in 2015 $26,931,801

Ownership buy-in value $538,636Upfront payment $53,864Outstanding value for buy-in financed $484,772Annual payments $84,539 $84,539 $84,539 $84,539 $84,539 $84,539 $84,539 $84,539Difference between annual payments and net proceeds of dividend (negative indicates payment by new principal) ($27,231) ($18,635) ($8,750) $2,619 $15,692 $30,727 $48,017

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Valuation Model (Continued)

Pros Cons

Value every year • Existing owners obtain higher potential ownership;

• Sellers end up with more potential value

• Buyers don’t truly own their stake immediately, and does that drive different behavior?

• Buyers as they help the firm grow are discentivized, since it would drive higher buy-in

• Buyers are already paying interest for a “loan” to buy-in for the firm at initial purchase price

Value at time of purchase

• Buyers are making the purchase immediately, but are financing the remainder and are paying in the form of debt

• Requires sellers to be comfortable with seller financing approach and assumptions implicit around the debt covering future cost of ownership

Approach and considerations for when valuation should be done during purchase

Pros Cons

5 years Possibly enables Curtis to buy-in future ownership sooner

Higher upfront payments in the first few years, that might not be possible for Curtis personally.

7 years Provides a healthy balance of Curtis contributing and not personally feeling financially strapped

Compared with 5-year, delays the ability for Curtis to potentially buy-in future ownershipLonger time period also increases risk of interest volatility

10 years Curtis has minimal negative financial impact personally.

Potential interest risk to Curtis. Potential future buy-in implications, pending structure of future buy-ins.

Options for payment schedule

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Valuation Model (Continued)Approach and considerations for when valuation should be done during

purchase

Potential risk factors for Nirvana currently that need to be considered for valuation:• Non-compete is not in place, and should be put in place for all employees on a partnership track, or

that have significant relationships with clients• Asset concentration risk: $600M with 3 clients• Risk to the tech sector: given high exposure in some clients for concentrated positions, if there was

another .com bubble, it could be a potential risk• Regulatory risk: the industry continues to evolve

Current positive elements that might mitigate risk:• Healthy demographics: tech executives are in the 40s/50s, few older clients• Established a process recently to engage the next generation through various financial seminars and

“fun” events such as the recent: Salmon & Stein (beer) night for young professionals that are the next generation of current clients. Next event is Pizza and Pinot night.

• Broad dependency on business development, including increasingly Daniele.• Development of a continuity plan

Pros Cons

Seller financed No firm credit line neededFirm will not need to guarantee loan

Tax consequences of loan/interest repaymentPotential conflict between partners if loan defaults

Leverage credit line to finance

Removes need for partners to finance equity transactionsProvides access to capital for new partners and/or additional equity purchasesRemoves firm and partners from transaction Favorable loan rates backed by organization

Firm takes on liability of guaranteeing loans

New Partnership Admission

MODULE THREE

Criteria for New Partners

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With our guiding principle of leadership, collaboration and commitment, Nirvana will consider adding new partners to the firm based on the following criteria:Internal Associates

• Served in various capacities at Nirvana for 5+ years with proven management skills

• Direct client experience with a working knowledge of operational aspects of the business

• Contribution to firm’s overall success through asset acquisition and revenue

• Contribute to new processes / create new processes to gain scale and efficiency

• Demonstrated commitment to firm’s mission, culture and long term success through collaboration with internal business partners, active participation in quarterly “think space” session and involvement in community related events

• Generate referral business through personal and/or COI contacts

• Commitment to ongoing education and mentoring

• Strong character and work ethic

For External Candidates

• Use Talent Assessment for Succession to allow for common assessment of key qualities of each candidate:

• Management acumen

• Leadership and people skills

• Business development skills

• Character assessment – understanding of self, trustworthiness and strong work ethic

• Understand and believe in Nirvana’s long term vision and successStructure

• 7 year duration

• Payment Plan – Balloon Payment

• % ownership – 2% initial purchase by Curtis

• Funding source – Nirvana firm backed credit line

Partnership Agreements

MODULE FOUR

Partnership Agreements

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Nirvana strongly believes in establishing a thorough partnership agreement that specifies how revenues are to be shared, how the revenue arrangement may be amended, and how any changes in ownership will take place. In reviewing our current partnership agreement, we feel there are four main areas that need to be addressed:1.) Curtis is perhaps overdue to be a partner – how will he buy in? Whose shares will he get? The partners of the firm are in unanimous agreement that Curtis is deserving of immediate partnership status, and has voted to grant him the opportunity for as much as a 10% ownership stake. Previous slides showed this large of a purchase was not realistic for Curtis , therefore we are proceeding with an initial 2% purchase. Kurt and Christine are each currently 32.5% owners., and both are willing to reduce their ownership share by 7.5% each, thus making 15% of the firm available for transition to eligible partners. This will set a path in place for Kurt and Christine to retire in 7-10 years. This also prevents the dilution of David and Dannielle’s current ownership, which is something the partners agreed upon.Note: The partners considered having two classes of ownership, but ultimately decided against this structure as they felt this might create internal friction, and also would be prohibitive in attracting qualified buyers that would likely want more participation in firm control and decisions.2.) A Board of Directors is NOT currently in place. Nirvana intends to establish a formal Board of Directors. The board will consist of 5 - 7 members, with a couple seats up for election with an opportunity to rotate roles. This board will consist of the partners with a 5% or greater ownership stake. The briefing document references Kurt/Christine’s concerns with losing control, however Kurt and Christine both understand that selling their ownership allows for a more realistic succession plan. We believe a Board of Directors is our answer to Kurt and Christine maintaining control as they sell their majority ownership over time. Nirvana considered offering a board seat to one of their UHNW customers, however we chose not to pursue this due to the awkward nature of “having clients see behind the curtain”. Further explanation for this decision is documented in the Succession Planning section of this workbook.

Continued next page…

Partnership Agreements (cont.)

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Each board member will have one vote. While we considered proxy voting, we believe this voting structure will be the most reassuring to ownership candidates as one member will be unable to dominate any decision making. In addition, this structure allows for Kurt and Christine to play an important role within the firm as their ownership decreases.3.) Partners can retire at any age by selling their shares to the firm at 5x EBOC. The partners have chosen an alternative valuation method of 7xEBITA. A valuation will be performed by an outside auditor annually from this point forward, and will be the basis for valuation when shares are bought/sold. The partners have also agreed to look at a discounted cash flow methodology as an alternative valuation method, but have not chosen to implement at this time.The Partners have also chosen to protect themselves by restricting retirement age to a minimum of 55 years, and also requiring a 2 year advanced notice of retirement. We feel this is an important step that will protect the firm and its’ remaining owners. The requirement for 2 years advanced notice will allow the firm to properly notify and prepare clients for any transitions, and will also allow for a natural and efficient transfer of responsibilities. The partners have identified an important area of focus prior to Kurt and Christine’s retirement. Regardless of long term internal/external succession, the partners feel is important to evaluate and document their current responsibilities, and determine an action plan for how best to transition those over time.4.) Managing committee – operating with consensus; clearly defined operational responsibilities; will report to the Board of Directors – President, CEO, CIO, CFO, COO

Founder Succession

MODULE FIVE

Succession Plan

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For our succession plan, we have taken the following steps to set our firm up for continued success:1. We have chosen DeVoe & Company to provide a detailed valuation and analysis (see attached

Nirvana Asset Management Succession Plan.pdf ) of our firm to create a starting point for the value of the equity in Nirvana Asset Management. We provided to DeVoe & Co. the necessary documents for such an evaluation:

1. P&L statements for the past three years.2. Current balance sheet.3. Budget and financial forecast for current year.4. Client demographic and fee information by household.5. Payroll register for the last two months.6. Detailed breakdown of all owner compensation, organization chart and all agreements &

policies with key employees.2. Kurt initial objectives, based on the Succession Evaluator tool (see attached Succession Evaluator

output), wanted to review to possibilities of merging but staying involved, which we tried to address in the Nirvana Asset Management Succession Plan.pdf.

3. Christine, based on the Succession Evaluator (see attached Succession Evaluator output), wanted to look at a slightly different path of Internal Transition which we also addressed in the Nirvana Asset Management Succession Plan.pdf. (next page)

4. We have established the following goals for succession:1. Financial Goals:

1. Annual new revenue growth of 15% over the next five years, and a gross profit margin of 55%.

2. Internal distribution of equity for non-founders with a multiyear plan (up to 7 years) for employees to buy-in.

2. Participatory Goals are very different for each of the partners and potential candidates. Please refer to the Nirvana Asset Management Succession Plan.pdf to view the long-term transition goals for each of our partners.

Succession Plan (cont.)

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ResponsibilitiesPerson(s)

taking over

dutiesY1 Y2 Y3 Y4 Y5 Time

Impact

Client Management for Kurt's client accounts

D. PetersM. George, N. Higgins,

Transfer for 10% accounts

Transfer for 10% accounts

Transfer for 10% accounts

Transfer for 10% accounts

Transfer for 10% accounts

Reduce workload by 50% at end of Y5

Client Management for Christine's client accounts

D. Ramsey, K. Sims, J. Ross

Transfer for 10% accounts

Transfer for 25% accounts

Transfer for 25% accounts

Transfer for 25% accounts

Transfer for 15% accounts

Reduce workload by 100% at end of Y5

Hurdles%

OwnershipRelinquish

Y1

%OwnershipRelinquish

Y2

%OwnershipRelinquish

Y3

%OwnershipRelinquish

Y4

%OwnershipRelinquish

Y5Total

Successor(s) effectively takes on 50% of Kurt's client relationships and 9% of his equity.Successors(s) displays know-how when assisting with the business strategy and

1% 2% 2% 2% 2% 9%

Successor(s) effectively takes on 50% of Christine’s client relationships.Successors(s) displays know-how when assisting with the business strategy

1% 5% 5% 5% 5% 21%

Succession Plan (cont.)

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In order to identify the necessary traits that a successor will need to lead and take over ownership in Nirvana Asset Manager, we have identified the criteria for New Partners previously in the document. At a high-level we:1. Outlined the skills and experiences that are critical to run our business and assessed our current

employees to see if any have what it takes to our successors.2. Talked with several potential successors to determine if they have the interest and financial

means to take over the transition. Curtis has demonstrated such desire and has the financial means to purchase 2% in the firm over a 7 year period.

3. Worked with third party HR firms to outline the skills and training programs needed for further develop and build those capabilities.

Levers:In order to assist Curtis, and potentially future equity owners in the firm, from a financial perspective we have decided that a Nirvana Firm Backed Credit Line (refer to Valuation Model section) would be best from a tax perspective, as well as easing the distribution of equity. Nirvana will take out a credit line backed by the firm from which the acquiring partner will draw against the loan and repay the bank directly. The firm would be responsible should the acquiring partner default. We have determined that a $2mm credit line would be reasonable for Nirvana to attain and sufficient to support equity purchases over time.Structure: After long conversations between Christine and Danielle the issues Danielle had in the past, along with an Executive Leadership program have established Danielle as a prime candidate, both financially and participatory, to take over additional leadership in the firm. Offering 7% or more ownership, over-time, with the same purchase structure as offered to Curtis.

Succession Plan (cont.)

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Governance Issues:To address any Governance issues, we have consulted with Corey Kupfer. We have discussed several options:- Spreading ownerships across the firm with different share classes to purchase equity.- Offering a “market place” for owners to place their equity up for sales.- While not something we want to focus on, we did consider allowing outside clients and

executives to purchase into the firm. In discussions with our attorney, Corey Kupfer, regarding adding one of our highest network clients to the board of directors, he stated that , “ In terms of the advisory board, I do not see any legal or compliance issues with having the client on the advisory board. An advisory board has no legal authority. If client would have access to any client confidential information for other firm clients, you would need to address that person becoming an access person of the firm – but this level of access would be very unusual for a board of advisor member, so you likely to not need to worry about that. Any risks are more practical in terms of the transparency into the firm and any issues that the client may see. Having said that, if the firm has a very close relationship with the client and there is a high-level of trust, this type of client can be an excellent addition to an advisory board – based upon the knowledge they have of your firm, the insight they can provide from the client point of view and the additional level of vesting in the success of the firm that becoming an advisor may trigger.”

Business Continuity:We realize that while we are building a formal succession plan, we are also looking to protect the firm from possible business risk in putting in place a business continuity plan for the potential sudden departure of an owner. The elements of the process will include the following components for any owner in the firm:- Limited power of attorney: ensure there are not issues from a governance and control

perspective for the firm- Drafting up a buy-sell agreement, to ensure the firm is protected and the individuals are

compensated for their ownership. This will be tied to the value of the firm discussed in the valuation section.

- Conduct an audit of our operating documents and procedures to identify any potential risk areas to the firm

Other Initiatives

MODULE SIX

Other Initiatives

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Describe any other initiatives your firm will undertake.

Notes

Initiative Explanation

1. Provide 401k and other retirement plan services. We do feel it important to develop this knowledge and expertise using a outside expert which will ultimately help to diversify our business’s revenue streams; key considerations include succession and ownership implications of possible 3rd party partnerships or acquisitions.

Currently, while we have a significant amount of small business owners as clients and strong relationships through Daniele, we do not have the knowledge internally so we would look to Fidelity and/or other firms that focus on this business model to formalize the offering.

This initiative was brought to the forefront due to Danielle’s experience and knowledge of the small technical and start-up companies along the west coast. We feel with her contacts and background, we can grow this portion of our business. In addition, we can utilize the business owners and highly compensated employees to forge future growth in our wealth management offering.