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It has not been approved, sanctioned, or officially promulgated by the North Carolina Bar Association or the Business Law Section, nor is it necessarily intended to represent the standard of practice in North Carolina. In making this form available, neither the North Carolina Bar Association, the Business Law Section, nor the attorneys providing the form are engaged in rendering legal, tax, accounting, or other professional services to the user or the user's clients or make any representation regarding the content of the form. In addition, please note that the forms are not routinely updated (or may not be updated at all) to address changes in applicable law. Each attorney using this form as an aid in preparing a document for a client is solely responsible for the contents of such document and assumes all risks in connection with such use. INTRODUCTORY STATEMENT This form is intended to be a neutral starting point for a Shareholders’ Agreement for a North Carolina corporation. The base form is oriented towards the needs of a corporation being formed by three or more shareholders with roughly equal ownership percentages, and the attached Addendum includes Buy-Sell and Put provisions that may be used for 50/50 and other deals where there is a possibility of deadlock. The Addendum also contains examples of other alternative and additional provisions that should be considered, including provisions containing protections for minority investors and provisions that may be used in other special circumstances, such as for Subchapter S corporations and for corporations that have awarded shares to employees. SHAREHOLDERS’ AGREEMENT This SHAREHOLDERS’ AGREEMENT (this “Agreement”), dated as of ____, 20__, is made by and between ________, a North Carolina corporation (the “Company”), and each person who becomes a shareholder of the Company and executes a copy of this Agreement as provided herein (collectively, the “Shareholders,” and individually, a “Shareholder”). Capitalized terms used but not defined herein shall have the meanings set forth in Article V. BACKGROUND STATEMENT The Company was incorporated on ________, 20__. The ownership of Shares as of the date hereof is shown on Exhibit A hereto. In connection with the formation of the Company, the parties hereto set forth this Agreement regarding certain matters relating to the ownership of Shares.
STATEMENT OF AGREEMENT The parties hereto agree as follows: ARTICLE I BOARD OF DIRECTORS 1. Board of Directors
. The Company’s board of directors (the “Board of Directors”) shall be comprised of __ directors, and each Shareholder set forth on Exhibit A as of the date of this Agreement, so long as such Shareholder and such Shareholder’s Related Parties own any Shares, shall have the right to designate one member of the Board of Directors.1 2. Removal of Directors
. For so long as a Shareholder is entitled to designate a member of the Board of Directors pursuant to Section 1.1 above, any director designated by such Shareholder may only be removed by such Shareholder, and any vacancy in such position may be filled only as directed by such Shareholder; provided, however, that each such director may also be removed by the Disinterested Shareholders for Cause. A vacancy on the Board of Directors caused by the removal of a director pursuant to this Section 1.2 shall be filled by the Shareholder entitled to designate such director under Section 1.1. 3. Committees
. Each member of the Board of Directors designated by a Shareholder pursuant to Section 1.1 above shall be appointed to and be a member of each committee of the Board of Directors.2 ARTICLE II TRANSFER OF SHARES 1. Transfers Generally Prohibited
. No Shareholder shall Transfer such Shareholder’s Shares unless (a) (i) the requirements of Section 2.6 are met with respect to such Transfer, and (ii) such Transfer is made in accordance with Section 2.2, 2.3, or 2.4 below; or (b) such Transfer is made pursuant to Section
Use the alternative provision set forth in the Addendum instead if each Shareholder will not be entitled to appoint a member of the Company’s Board of Directors. Also, if representing a minority investor who is unable to obtain the right to appoint a member of the Company’s Board of Directors, consider requesting an observation right instead. A sample board observation provision is set forth in the Addendum. 2 In the event that directors will be appointed by non-employee Shareholders, consider including an expenses provision regarding Board of Directors meetings. A sample provision is set forth in the Addendum.
2.5 below.3 Any attempt to transfer Shares in violation of this Agreement shall be null and void ab initio and the Company shall refuse to register such Transfer. 2. Transfers to Related Parties
. Each Shareholder’s Shares may be Transferred (including by testamentary or intestate Transfer) to any Related Party of such Shareholder upon advance written notice to each other Shareholder. No further Transfer of such Shares may be made by such transferee except (a) back to the Shareholder who previously owned them, (b) to another Related Party of the Shareholder who previously owned them, or (c) in accordance with Section 2.3, 2.4, or 2.5 below. 3. . (a) Notice of Offer to Sell Shares. If any Shareholder (a “Selling Shareholder”) shall desire to Transfer all or any portion of such Shareholder’s Shares, such Shareholder must first receive a bona fide written offer from a third party prospective purchaser to purchase such Shares and then deliver to the Company a written notice (“Notice”) containing the following information: (i) the name and address of the prospective purchaser of such Shares, (ii) the number of Shares that the Selling Shareholder desires to Transfer, (iii) the price being offered to the Selling Shareholder and the terms of payment and any other terms and conditions of such offer and (iv) the proposed closing date for the transaction. (b) Offer to Shareholders. For a period of ____ days after the giving of the Notice by the Selling Shareholder, each of the non-Selling Shareholders (each an “Offeree”) shall have the option to purchase such Offeree’s pro rata portion of the Shares that are proposed to be sold, with such pro rata portion based on the number of Shares held by such Offeree in relation to the total number held by all Offerees, at the price and upon the terms and conditions set forth in the Notice. Such options shall be exercisable by written notice to the Selling Shareholder and to the other Offerees, as appropriate, within such ____ period. A failure by an Offeree to give written notice of exercise within such ____ period shall be deemed a rejection by such Offeree of its option to purchase. If any Offeree does not exercise its option to purchase all the Shares to which it is entitled (a “Non-participating Offeree”), the Offerees that have exercised their option to purchase the Shares that are proposed to be sold shall then have the option to purchase all or any portion of the Shares that will not be purchased by the Nonparticipating Offeree, which options shall be exercisable by notice in writing to the Selling Shareholder and the other Offerees within ____ days after the date of express rejection by the Non-participating Offeree or the expiration of the option to the Non-participating Offeree who did not elect to purchase such Shares, whichever is earlier. If more than one Offeree exercises its option to purchase the Shares which the Non-participating Offeree would be entitled to purchase, such Shares available for purchase shall be allocated pro rata among the Offerees desiring to purchase such Shares, in accordance with their Shares. Other Voluntary Transfers
Consider also allowing any Transfer approved by a specified majority of the Shareholders. A sample provision is set forth in the Addendum.
(c) Non-Cash Consideration for Shares. If any consideration to be received by a Selling Shareholder from a prospective purchaser of its Shares consists of property other than cash, then the Offerees, if such parties exercise their option(s) to purchase the Selling Shareholder’s Shares, may deliver to the Selling Shareholder, in payment of the non-cash portion of the purchase price for the Shares proposed to be sold, an amount of cash equal to the fair market value of the non-cash consideration that has been offered to the Selling Shareholder (as determined by the Board of Directors, in its discretion). (d) Closings. If the Offerees shall exercise an option to purchase granted to such parties in this Section 2.3, the closing of the purchase and sale transaction shall be held at the principal office of the Company on a date designated by the purchaser or purchasers, which date in no event shall be later than ___ days after the Selling Shareholder gives the Notice. If there is more than one purchaser of the Shares being Transferred, the Selling Shareholder may require that all purchases close concurrently on the same date. (e) Right to Transfer. If the Offerees do not elect to purchase all the Shares that a Selling Shareholder desires to Transfer, for a period of ____ days from the earlier of the date of any closing pursuant to Section 2.3(d) or the expiration of the option provided for in Section 2.3(b), the Selling Shareholder shall have the right, subject to the provisions of Section 2.6, to Transfer the Shares covered by the offer that will not be purchased by the Offerees and the Company to the prospective purchaser named in the Notice; provided however, that the Transfer is made in strict accordance with the terms and conditions (including price) set forth in the Notice. (f) Relationship to Other Provisions. The provisions of this Section 2.3 shall not apply to any Transfer of Shares to which Sections 2.2 or 2.4 apply, or to any exercise of the Drag-Along Right or Transfer pursuant to Section 2.5.4 4. Involuntary Transfers
. In the event of any Involuntary Transfer of any Shares, the Company shall have the option, for a period of ____ days from the date of receipt by the Company of notice of such Involuntary Transfer (the “Option Period”), to purchase all (but not less than all) of such Shares at the Book Value Per Share of the Company multiplied by the number of such Shares.5 If the Company declines to exercise such right, it shall give notice thereof to the other Shareholders not less than ____ days prior to the expiration of the Option Period, and each such other Shareholder shall have the right to purchase that percentage of the Transferred Shares determined by dividing (a) the total number of Shares then owned by such Shareholder by (b) the total number of Shares then owned by all Shareholders (excluding the Shares subject to such purchase right). If any Shareholder does not fully subscribe for the number or amount of Shares it is entitled to purchase, then each other Shareholder shall have the pro rata right to purchase such unsubscribed Shares. At the closing of any purchase of Shares pursuant to this Section 2.4,
An alternative Right of First Refusal provision, giving the first right to purchase to the Company, is set forth in the Addendum. 5 Consider requiring that such purchase be at fair value, as determined by an appraiser, or at a value determined in accordance with an agreed-upon formula. Consider also the possibility of requiring a post-transfer adjustment to the purchase price. Sample valuation provisions are set forth in the Addendum. Also set forth in the Addendum is an alternative involuntary transfer provision.
which closing shall occur within ____ days after the expiration of the Option Period, each purchaser at such closing shall pay the entire purchase price of the Shares being purchased by such purchaser in cash to the selling Shareholder.6 5. Drag-Along Right
. In the event that Shareholders constituting a Qualified Majority elect to effect a Sale of the Company (other than to any of their Related Parties), the Qualified Majority shall have the right (the “Drag-Along Right”), but not the obligation, to require all Shareholders to Transfer their Shares to the purchaser in such Sale of the Company on the same terms and conditions as the Qualified Majority. If the Drag-Along Right is exercised, all other Shareholders shall take such actions as may be reasonably requested by the Qualified Majority to consummate the Sale of the Company, including but not limited to waiving any dissenter’s, appraisal and other similar rights in connection with the Sale of the Company and making any representations, covenants, and indemnitees to the purchaser as are made by the Qualified Majority.7 6. Additional Requirements.8
(a) Execution of this Agreement. Any transferee of Shares shall (a) become a party to this Agreement by executing a copy of the Shareholders’ Agreement Certification Page attached hereto as Exhibit B; and (b) execute and acknowledge such other documents and instruments as the Board of Directors may deem reasonably necessary or desirable in connection with such Transfer. (b) legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SHAREHOLDERS’ AGREEMENT, DATED AS OF _____, 20__, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE COMPANY. (c) Legal Opinion Requirement. No Shares may be Transferred unless the Company shall have first been provided with a written opinion of counsel for the Company or of other counsel acceptable to the Board of Directors (a) that the Transfer shall not cause the
Legend. Each certificate representing Shares shall bear the following
Consider allowing for payment by note. A sample provision is set forth in the Addendum. Minority investors should consider more extensive protections regarding the transactions they may be required to participate in under this provision. An alternative provision more favorable to minority investors is set forth in the Addendum. In 50/50 deals, the Drag-Along Provision will be inapplicable and should be removed. 8 Set forth in the Addendum are additional Transfer and other provisions that should be considered in the event that the Company is a Subchapter S corporation.
Company to become subject to any additional regulatory requirements or restrictions of any nature, (b) that the Transfer shall not cause a violation of applicable law (including federal and state securities laws) or this Agreement, and (c) as to such other matters requested by the Board of Directors. This requirement, or any portion hereof, may be waived by the Board of Directors in its discretion. (d) Application to Drag-Along Right. The provisions of this Section 2.6 shall not apply to any Transfer of Shares pursuant to Section 2.5 hereof. ARTICLE III INFORMATION RIGHTS9 1. Financial Statements
. The Company shall deliver to each Shareholder as soon as practicable, but in any event within ____ days after the end of each fiscal year of the Company, (i) a balance sheet as of the end of such year; (ii) statements of income and of cash flows for such year; and (iii) a statement of stockholders’ equity as of the end of such year, which financial statements shall be prepared in accordance with GAAP.10 2. Inspection Right
. The Company shall permit each Shareholder, at such Shareholder’s expense, to visit and inspect the Company’s properties; examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Shareholder; provided, however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information that it reasonably considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
In addition to information rights, consider including limitations on the Company’s ability to take certain fundamental actions. A sample provision is set forth in the Addendum. 10 Minority shareholders should consider requesting audited financial statements, together with quarterly and other reporting. An example of a more extensive reporting provision is set forth in the Addendum.
ARTICLE IV MISCELLANEOUS11, 12, 13, 14, 15 1. Applicability of Terms To Shares
. The restrictions, terms and conditions of this Agreement shall remain in effect as to all Shares Beneficially Owned now or in the future by any Shareholder, whether or not disposed of in accordance with the terms and conditions of this Agreement and whether or not such Shares are in the hands of an original Shareholder or an assignee or new Shareholder permitted under this Agreement. 2. Notices
. All notices or requests provided for or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed given if hand delivered or if deposited in the United States mail, addressed to the party to be notified at such party’s last known address as reflected in the Company’s records, postage paid and registered or certified, return receipt requested. 3. Amendment. This Agreement may be amended, in whole or in part, only with the consent of the Company and each Shareholder party hereto. Notwithstanding the foregoing, the Company shall have the authority to amend Exhibit A to reflect any change in the information set forth therein without the approval of any Shareholders. All amendments to this Agreement must be in writing. 4. Confidentiality
. Each Shareholder (i) shall protect, and shall use its reasonable best efforts to cause its Related Parties, Affiliates, owners, directors, managers, officers, employees, accountants, representatives, agents, and financial advisors to protect, the confidentiality of all proprietary and confidential information relating to the assets and business of the Company (the “Confidential Information”), (ii) shall use such Confidential Information solely for the purpose of managing its investment in and operation of the Company, and (iii) agrees not to disclose, and to use its reasonable best efforts to cause its Related Parties, Affiliates, owners, directors, managers,
In 50/50 deals, and sometimes others where deadlock is a possibility, a Buy-Sell provision should be added to prevent deadlock. Example Buy-Sell provisions are set forth in the Addendum. 12 In the event that Shares are being issued to employees of the Company (including if all of the owners of the Company will also be employees of the Company), it may be appropriate to make such Shares subject to a Call Right in favor of the Company (or a right to purchase in favor of the other Shareholders) on the termination of employment. Such provisions are often included in the award agreement awarding such shares, but are sometimes also included in the Shareholders’ Agreement. Example provisions are set forth in the Addendum. 13 Consider including a Put provision to allow Shareholders or their descendants to require the Company to repurchase their Shares. This may be especially important for very closely-held Companies, including 50/50 deals. An example is set forth in the Addendum. Also in 50/50 deals consider including an insurance provision to help fund the Put (or other Transfers under the Agreement). An example is set forth in the Addendum. 14 Minority investors should also consider requesting a Tag-Along Right. Sample Tag-Along provisions are set forth in the Addendum. 15 Consider including a non-competition agreement among the shareholders. See the Business Law Section’s form non-competition agreement for sample language.
officers, employees, accountants, representatives, agents, and financial advisors not to disclose, such Confidential Information to any other Person other than such Person’s accountants, representatives, agents, and financial advisors who are advised of such Person’s obligations hereunder and who are under a professional obligation to use such information solely for such Person’s benefit; provided; however, that each such Person may disclose such information to the extent that such disclosure is pursuant to or in connection with (A) a subpoena or court order, (B) any investigation or audit by a governmental authority, (C) any suit or proceeding with respect to this Agreement, or (D) the filing of any tax returns. In all such cases, each such Person shall disclose such information only to the extent required to fulfill such purpose or legal requirement. If any such Person intends to disclose any Confidential Information pursuant to the exceptions set forth in (A), (B), or (C) above, prior to such disclosure such Person shall promptly notify the Company of such intention so that it may seek an appropriate remedy to prevent such production, and request the Person demanding such production to allow the Company a reasonable period of time to seek such remedy. Each Shareholder shall be responsible for any disclosure of Confidential Information by its Related Parties and Affiliates in violation of this Section 4.4. 5. Section Titles
. The headings herein are inserted as a matter of convenience only and do not define, limit or describe the scope of this Agreement or the intent of the provisions hereof. Except as otherwise expressly provided herein, or unless the context otherwise requires, (a) references to “Sections” without reference to a document or statute are to the designated Sections of this Agreement, (b) references to “subsection” without reference to a particular Section are to the Section in which such subsection reference is contained, (c) the words “herein,” “hereof,” “herewith,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision, and (d) “include,” “including” and other words of similar import mean without limitation. 6. Governing Law
. This Agreement shall be governed by the internal laws and judicial decisions of the State of North Carolina, without reference to conflicts of laws principles. 7. Jurisdiction, Venue, and Service of Process
. If any party commences a lawsuit or other proceeding relating to or arising from this Agreement, the parties hereto agree that the United States District Court for the ________ District of North Carolina, ________ Division, shall have sole and exclusive jurisdiction over any such proceeding. If all such courts lack federal subject matter jurisdiction, the parties agree that the courts of the State of North Carolina in ________ County shall have sole and exclusive jurisdiction. The parties (a) agree that any of these courts shall be proper venue for any such lawsuit or judicial proceeding, (b) waive any objection to such venue, (c) consent to and agree to submit to the jurisdiction of any of the courts specified herein and agree to accept service of process to vest personal jurisdiction over them in any of these courts, and (d) agree that process in any action or proceeding referred to herein may be served on any party anywhere in the world.
. If any provision of this Agreement or the application thereof to any Person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 9. Third-Party Beneficiary
. No provision in this Agreement is intended to be for the benefit of or enforceable by any third party, including any creditor of the Company. 10. Counterparts
. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature, and may be appended, to any other counterpart. 11. Integration; Entire Agreement
. This Agreement, as amended hereafter from time to time in accordance with the terms hereof, sets forth the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersedes all prior written and oral statements, including any prior representation, statement, condition or warranty. 12. Specific Performance
. The parties recognize that irreparable injury will result from a breach of any provision of this Agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this Agreement, any party that may be injured (in addition to any other remedies which may be available to that party), shall be entitled to one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach. 13. Duration of Agreement
. The rights and obligations of a Shareholder under this Agreement shall terminate at such time as such Shareholder no longer is the Beneficial Owner of any Shares. 14. Binding Provisions
. This Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors and permitted assigns.
ARTICLE V DEFINED TERMS As used herein, the following terms shall have the following meanings: “Affiliate” means, with respect to any Person, each other Person that directly, or indirectly through one or more intermediaries, owns, controls, or is controlled by or under common control with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies or affairs of a Person, whether through ownership of voting securities, by contract or otherwise, as executor, trustee or otherwise. “Agreement” has the meaning set forth in the introductory paragraph. “Beneficially Own,” “Beneficial Owner” or “Beneficial Ownership” has the meaning set forth in Rule 13d-3 under the Securities and Exchange Act of 1934, as amended. “Board of Directors” has the meaning set forth in Section 1.1. “Book Value” means, as of any date of determination, (1) the assets shown on the balance sheet of the Company at the end of the most recently closed calendar month, less (2) the liabilities shown on such balance sheet, less (3) an amount equal to the net income of the Company (determined under the accrual method of accounting) for the portion of its fiscal year ending at the end of the most recently closed calendar month times the maximum individual federal and state income tax rates then in effect. Book Value shall be determined by the Company in its good faith and reasonable discretion and in accordance with GAAP.16 “Book Value Per Share” shall mean the Company’s Book Value divided by the number of authorized and outstanding Shares at the time of calculation. “Cause” means, with respect to the removal of a director for Cause under Section 1.2, an adjudicated legal determination, without further opportunity for appeal, that such Person has committed an act or omitted to commit an act in connection with such Person’s duties as a director of the Company that constitutes fraud, gross negligence, or willful misconduct. “Company” has the meaning set forth in the introductory paragraph. “Confidential Information” has the meaning set forth in Section 4.4. “Controlling Shareholders” means ________. “Disinterested Shareholders”, with respect to the removal of a director for Cause pursuant to Section 1.2, means all Shareholders other than (a) the Shareholder entitled to designate such director pursuant to Section 1.1, and (b) such Shareholder’s Related Parties. “Drag-Along Right” has the meaning set forth in Section 2.5.
An alternative definition of Book Value is set forth in the Addendum.
“GAAP” means accepted accounting principles as recognized by the American Institute of Certified Public Accountants, consistently applied. “Involuntary Transfer” means any transfer, proceeding or action by or in which a Shareholder shall be deprived or divested of any right, title or interest in or to any of its Shares including, without limitation, any seizure under levy of attachment or execution, any transfer in connection with bankruptcy (whether pursuant to the filing of a voluntary or an involuntary petition under the United States Bankruptcy Code of 1978, or any modifications or revisions thereto) or other court proceeding to a debtor in possession, trustee in bankruptcy or receiver or other officer or agency, any transfer to a state or to a public officer or agency pursuant to any statute pertaining to escheat or abandoned property and any transfer pursuant to a divorce or separation agreement or a final decree of a court in a divorce action. “Non-participating Offeree” has the meaning set forth in Section 2.3(b). “Notice” has the meaning set forth in Section 2.3(a). “Offeree” has the meaning set forth in Section 2.3(b). “Option Period” has the meaning set forth in Section 2.4. “Person” means and includes an individual, corporation, partnership, association, limited liability company, trust, estate, or other entity. “Qualified Majority” means Shareholders holding __% of the Shares. “Related Party” with respect to a Shareholder means (a) a trust for the sole benefit of such Shareholder and/or any of such Shareholder’s Relatives, or (b) a corporation, partnership, limited liability company, or other entity owned entirely by such Shareholder and/or such Shareholder’s Relatives or one or more trusts established for the sole benefit of such Persons; provided that in each case described in clauses (a) and (b) such trust or such entity is controlled by such Shareholder. “Relative” of a Shareholder means a spouse (other than a spouse living separate and apart from such Shareholder with the intention by either spouse to cease their matrimonial cohabitation), any issue, spouse of issue, or ancestor of the Shareholder. “Sale of the Company” means (a) any Transfer of Shares, merger, corporate reorganization or other transaction or series of transactions pursuant to which the holders of a majority of the Shares immediately prior to the transaction (or the first transaction of a series of related transactions) own, directly or indirectly, less than a majority of the Shares immediately after such transaction; or (b) any sale of all or substantially all of the assets of the Company. “Selling Shareholder” has the meaning set forth in Section 2.3(a). “Share” means a share of the common stock of the Company, par value $____ per share. “Shareholder” has the meaning set forth in the introductory paragraph.
“Transfer” means any sale, conveyance, pledge, donation, hypothecation, encumbrance, disposition, transfer (including, without limitation, a transfer by will or intestate distribution), gift or attempt to create or grant a security interest in any security or interest therein or portion thereof, whether voluntary or involuntary, by operation of law or otherwise, and any contract to do any of the foregoing. [remainder of page intentionally left blank]
IN WITNESS WHEREOF, this Agreement is hereby executed the day and year first above written.
[Company] By: Name: Title:
EACH SHAREHOLDER SHALL BECOME A PARTY TO THIS AGREEMENT BY EXECUTING THE SHAREHOLDERS’ AGREEMENT CERTIFICATION PAGE ATTACHED HERETO AS EXHIBIT B, WHICH PAGE SHALL BE ATTACHED TO THIS AGREEMENT AND CONSTITUTE A PART HEREOF.
EXHIBIT A Shareholders Shareholder Shares
EXHIBIT B SHAREHOLDERS’ AGREEMENT CERTIFICATION PAGE [certification page follows this page]
SHAREHOLDERS’ AGREEMENT CERTIFICATION PAGE [COMPANY] (a North Carolina corporation) By signing this Shareholders’ Agreement Certification Page, the undersigned accepts and agrees to be a party to and bound by and perform all the terms and provisions of that certain Shareholders’ Agreement of ________, dated as of ________, 20__, as it may be amended from time to time, as a Shareholder thereunder. Dated this ______________________, 20___.
PLEASE SIGN BELOW IF AN INDIVIDUAL: _________________________________________ _ Printed Name: ______________________________
PLEASE SIGN BELOW IF AN ENTITY: _________________________________________ _ Name of Entity By: ____________________________________ Name: ____________________________________ Title: ____________________________________
ADDENDUM Alternative Board of Directors Provision Board of Directors. The Company’s board of directors (the “Board of Directors”) shall be comprised of __ directors, chosen as follows: (a) ________, for so long as such Shareholder and such Shareholder’s Related Parties continue to hold at least ___ Shares, shall designate ___ members of the Board of Directors; (b) ________, for so long as such Shareholder and such Shareholder’s Related Parties continue to hold at least ___ Shares, shall designate ___ members of the Board of Directors; and (c) All members of the Company’s Board of Directors not chosen pursuant to Section __ or __ above shall be chosen by the holders of a majority of the Shares held by all Shareholders.
Sample Board Observation Provision Observation Rights. For so long as ________ holds at least ____ Shares, the Company shall permit one representative of ________ (the “Observer”), to be designated by ________ and who shall initially be ________, to attend all meetings of the Board of Directors (whether in person, telephonic or otherwise) and to attend all meetings of the committees of the Board of Directors, if and when created (whether in person, telephonic or otherwise), both in a non-voting, observer capacity. In addition, the Company shall provide to the Observer, concurrently with the members of the Board of Directors or the committees thereof, as applicable, and in the same manner, notice of any meeting and a copy of all materials provided to such members, including all materials provided to such members in connection with any action to be taken by the Board of Directors or the committees thereof, as applicable, without a meeting. Notwithstanding the foregoing, the Company shall be permitted to exclude the Observer from meetings of the Board of Directors or any committee of the Board of Directors, and shall be permitted to withhold materials provided to members of the Board of Directors from the Observer, in each case to the extent necessary (a) to preserve the attorney-client privilege or (b) to protect highly confidential information of the Company. The Company shall reimburse ________ for all reasonable expenses incurred by the Observer in attending meetings of the Board of Directors.
Sample Board Expenses Provision Expenses. The Company shall pay all reasonable travel expenses and other out-of-pocket disbursements incurred by any director who is not an employee of the Company to attend meetings of the Board of Directors.
Sample Provision Permitting Transfers Approved by Qualified Majority Transfers Generally Prohibited. No Shareholder shall Transfer such Shareholder’s Shares unless (a) the requirements of Section __ are met with respect to such Transfer, and (b) such Transfer is either (i) made in accordance with Section __ below or (ii) approved in writing by a Qualified Majority, after the terms of such arrangement are fully disclosed in advance by written notice to each Shareholder, including copies of all relevant documents if requested by any Shareholder. Any attempt to transfer Shares in violation of this Agreement shall be null and void ab initio and the Company shall refuse to register such Transfer.
Alternative Right of First Refusal Provision Right of First Refusal. (a) In the event that a Shareholder (referred to herein as a “Transferring Shareholder”) desires to Transfer any of such Shareholder’s Shares, such Transferring Shareholder shall give written notice thereof to the Company specifying the identity of the proposed transferee and the terms and purchase price of such proposed Transfer, and the Company shall have the option to purchase such Shares for a period of ____ days from its receipt of such notice for the purchase price specified in such written notice under the same terms and conditions contained in the offer. The option may be exercised by the Company only as to all of such offered Shares. (b) If the Company does not exercise its option to purchase such Shares, then the Transferring Shareholder shall offer such Shares to the remaining Shareholders under the same terms and conditions contained in the offer, who shall have the option to purchase such Shares for a period of ____ days from receipt of such notice. (c) If neither the Company nor any remaining Shareholder exercises their option to purchase such Shares, then the Transferring Shareholder may sell all, but not less than all, such Shares to the proposed transferee specified in the initial notice and on the same terms and for the same price as specified in the initial notice to the Company pursuant to this Section __; provided that if such sale does not take place within ____ days of such Transferring Shareholder’s delivery of the initial notice to the Company, as set forth above, then all such Shares shall once again be subject to the requirements of this Section __.
Sample Valuation Provisions First Sample Provision: Fair Market Value of Transferred Shares. For purposes of this Agreement, the “Fair Market Value” of Transferred Shares shall be determined as follows: (a) The Transferring Shareholder and the Company shall jointly appoint an investment banking or appraisal firm of recognized standing (an “Appraiser”), whose decision of the Fair Market Value of the Transferring Shareholder’s Shares as of the applicable date shall be binding on the Company and the Shareholders. (b) If the Transferring Shareholder and the Company are unable to agree on an Appraiser within ____ days of the related Transfer, then each such Person shall select an Appraiser within ____ days thereafter, each of whom shall determine the fair market value of the Transferring Shareholder’s Shares as of the applicable date, and the Fair Market Value of the Transferring Shareholder’s Shares shall be the average of the two appraisals, provided that the value of the higher of such two appraisals is not more than __% higher than the value of the lower of such two appraisals. If the appraisals of the two Appraisers differ by more than such __ %, the two Appraisers shall jointly select a third Appraiser, who shall determine the fair market value of the Transferring Shareholder’s Shares being sold as of the applicable date. In such event, the Fair Market Value of the Selling Persons’ Shares shall equal [the average of the two closest values determined by the three Appraisers] [the average of the values determined by the three Appraisers] [the amount of such third appraisal, if such third appraisal is an amount between the amounts of the prior two appraisals. If such third appraisal is greater than or less than the amount of both of the prior two appraisals, then the Fair Market Value of the Transferring Shareholder’s Shares will equal the amount of the initial appraisal that is closer to the third appraisal.] (c) No Appraiser may confer with or provide information to any other Appraiser in connection with the determination of the Fair Market Value of the Transferring Shareholder’s Shares. Each Appraiser’s determination must be delivered to the Transferring Shareholder and the Company within ____ days of being appointed. The costs of conducting each appraisal shall be paid by and divided equally between the Transferring Shareholder, on the one hand, and the Company, on the other hand. Second Sample Provision: Purchase Price. In the event that the Company or the other Shareholders elect to exercise their rights under this provision, the purchasers shall, as consideration for the purchased Shares, pay the selling Shareholder an amount equal to the product of (a) the percentage determined by dividing the purchased Shares by the total number of the Company’s outstanding Shares, and (b) an amount equal to the product of __ and the Company’s Applicable Earnings as of the last day of the month ending immediately prior to the related Involuntary Transfer (the “Measurement Date”). The Company’s “Applicable Earnings” for such purpose shall equal the Company’s net income for the 12-month period ending on the Measurement Date, plus the sum of (i) the Company’s cash interest expenses during such period, (ii) federal, state, local and other income
taxes of the Company for such period, and (iii) depreciation of tangible assets and amortization of intangible assets of the Company for such period, all as determined in accordance with GAAP. Third Sample Provision: Purchase Price. The price of each Share to be sold under this Agreement is hereby stipulated to be $____, subject to adjustment as follows: (a) Review of Price. At the annual meeting of Shareholders each calendar year, the parties shall review the stipulated price. Upon such review and after considering the then existing business and financial condition of the Company, the parties may agree upon a new stipulated price or they may stipulate that there is no change in the price last stipulated. Each such decision shall be noted in the attached Appendix A and shall be endorsed by each of the parties. (b) Adjustments to Price. If, at the annual meeting of Shareholders, the parties are unable to agree upon a new stipulated price or are unable to stipulate upon maintaining the last stipulated price, then the price for each Share to be sold under this Agreement shall be determined as follows: the offeror and the Company shall each select an independent qualified appraiser, and those two appraisers shall then conduct realistic appraisals of the fair market value of the Shares. The price per share shall be the average of the price per Share resulting from the two appraisals.
Sample Post-Transfer Price Adjustment Provision Trailing Purchase Price Obligation. If a Shareholder’s Shares (such Shareholder hereinafter the “Original Shareholder”) are purchased by the Company or by any of the remaining Shareholders pursuant to this Agreement and, within a period of _____ from the closing date of such purchase, the Company and/or any of the remaining Shareholders enters an agreement or agreements for the sale of a controlling interest in the Company or its business (through a merger, sale of stock or assets, or otherwise), then a comparison of the purchase price paid to the Original Shareholder and the purchase price under the new agreements shall be made. If the purchase price under the new agreements, viewed on an appropriate per Share basis, exceeds the price paid to the Original Shareholder, then the purchase price paid to the Original Shareholder shall be recalculated using the “per Share” price under the new agreements. After calculating the increase to the purchase price resulting from the subsequent transaction, the parties shall calculate the amount that the Original Shareholder would have received had such Original Shareholder owned the Shares at the time of the subsequent transaction. One fourth of the amount calculated shall be paid to the Original Shareholder in cash at the time of the closing of the transfer of Shares under the new agreements. For example, if the Original Shareholder initially sold such Shareholder’s Shares for $50, and the subsequent transaction would yield $100 for such Shares, the Original Shareholder shall be entitled to receive an additional $25, or one half of the appreciation since the initial sale.
Alternative Involuntary Transfer Provision Involuntary Transfers. (a) In the event that any Shareholder is required to involuntarily Transfer of any part of such Shareholder’s Shares during the term of this Agreement to any person other than an existing Shareholder (including, without limitation, a Transfer in any action for equitable distribution or upon division of marital property as a consequence or arising out of a divorce or in connection with an Event of Bankruptcy or other involuntary Transfer), such Shareholder shall first offer to sell all of such Shares to the Company at the Purchase Price specified in Section __ and on the terms specified in Section __ hereof. The Shareholder shall submit to the Company a document stating the name of the proposed transferee, the terms of the proposed Transfer, and the reason such Shareholder is being required to make such Transfer. If the Company elects to exercise such option, it shall purchase all, and not less than all, of such Shareholder’s Shares. If such Shares not purchased by the Company within _______ days after the later of: (i) receipt of such notice in writing; and (ii) determination of the Purchase Price specified in Section __, such Shares shall thereupon be offered by such transferring Shareholder for sale to the remaining Shareholders at the same price and upon the same optional terms. If the remaining Shareholders elect to exercise such option, they shall purchase all, and not less than all, of such Shares. If such Shares are not purchased by the remaining Shareholders within _______ days after receipt of such offer in writing, then within the following _______days the Shareholder required to sell such Shares may sell such Shares to the party identified in the notice to the Company, free and clear of this restriction on the terms described in the notice to the Company; provided that at the end of such _______ day period or in the event the terms of such required disposition changes, such Shares, if not sooner sold, shall again be subject to the restrictions set forth in this Agreement. (b) If more than one of the remaining Shareholders wish to purchase the selling Shareholder’s Shares and properly exercise such option, they shall each purchase such Shares prorated among them according to the Shares which they then hold, unless otherwise mutually agreed between all of such purchasing Shareholders. If and when all the Shares of a Shareholder shall have been transferred in accordance herewith, such Shareholder shall cease to be a Shareholder. (c) For the purposes hereof, “Event of Bankruptcy” as to any Person means (a) the Person's making an assignment for the benefit of creditors; (b) the Person's filing a voluntary petition in bankruptcy; (c) the Person's being adjudged bankrupt or insolvent or having entered against him an order for relief in any bankruptcy or insolvency proceeding; (d) the Person's filing a petition or answer seeking for such Person any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law or regulation; (e) the Person's seeking, consenting to, or acquiescing in the appointment of a trustee or receiver for or liquidation of the Person or all or any substantial part of such Person's properties; (f) the Person's filing an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Person in any proceeding described in subparagraphs (a) through (e) of this definition; or (g) the continuation of any proceeding against the Person seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law or regulation for _______ days after the Add.-9
commencement thereof or the appointment of a trustee, receiver, or liquidator for the Person or all or any substantial part of the Person's properties without the Person's agreement or acquiescence, which appointment is not vacated or stayed for _______ days or, if the appointment is stayed, for _______ days after the expiration of the stay during which period the appointment is not vacated.
Sample Provision Allowing for Payment by Note Payment of Purchase Price. In consideration for such conveyance, the purchasing parties shall (i) make a cash payment to the selling Shareholder on the closing date of such Transfer in an amount equal to __% of the Purchase Price and (ii) issue one or more promissory notes to the selling Shareholder on such date providing for the payment of the remainder of Purchase Price in ________ equal payments of principal on each of the next ________ anniversaries of such closing date, plus interest accrued on the outstanding balance of such note(s) at a rate of __% per annum from the Closing Date to the date of payment. The payment of any promissory note issued in accordance with this Section __ shall be secured by the pledge of the Shares being acquired with such note.
Alternative Drag-Along Provision Drag-Along Right. In the event that Shareholders constituting a Qualified Majority determines to effect a Sale of the Company in a bona fide negotiated transaction to a nonAffiliate (any such sale, an “Approved Sale”, such non-Affiliate purchaser, a “Purchaser”, and such Qualified Majority, a “Majority Shareholder Group”), the Majority Shareholder Group shall give notice (a “Drag-Along Notice”), not less than __ days prior to the Approved Sale, to each of the remaining Shareholders (the “Minority Shareholders”) setting forth in reasonable detail the name of the Purchaser, the terms and conditions of the Approved Sale, including the purchase price, and the proposed closing date of the Approved Sale. Each Shareholder hereby agrees that, upon the receipt of a Drag-Along Notice, such Shareholder will (i) consent to, vote for, and raise no objections against the Approved Sale, (ii) waive any dissenters’, appraisal and similar rights with respect to the Approved Sale, (iii) if the Approved Sale is a sale of Shares, sell to the Purchaser such Person’s Shares on the same terms and conditions, including price and type, applicable to the Majority Shareholder Group, and (iv) execute and deliver such instruments of conveyance and transfer and take such other action, including executing any purchase agreements, merger agreements, indemnity agreements, escrow agreements or related documents, as the Majority Shareholder Group or Purchaser may reasonably require in order to complete the Approved Sale. The right set forth in this Section __ is referred to herein as the “Drag-Along Right”. Notwithstanding the foregoing, the obligations of the Minority Shareholders under this Section __ are subject to the following conditions: (a) each holder of Shares shall receive the same proportion of the aggregate consideration from an Approved Sale under this Section __ that such holder would have received if such aggregate consideration had been distributed by the Company in a complete liquidation of the Company; (b) if any Shareholder is given an option as to the form of consideration to be received, all Shareholders will be given the same option; (c) no Minority Shareholder shall be required to make any out-of-pocket expenditure prior to the consummation of the Approved Sale and no Minority Shareholder shall be obligated to pay more than its pro rata share of reasonable expenses incurred in connection with a consummated Approved Sale; (d) no Minority Shareholder shall be required to pay any expenses with respect to an Approved Sale that are not incurred for the benefit of all Shareholders and that have not otherwise been paid by the Company or the Purchaser; (e) no Minority Shareholder shall be required to make any representations or warranties or to provide any indemnities in connection such Approved Sale other than with respect to title to such Shareholder’s Shares; and (f) a Minority Shareholder’s total liability for any breach of the representations and warranties made by the Company or a Shareholder in connection with such Approved Sale shall not exceed the total consideration received by such Shareholder in connection with such Approved Sale.
Sample Provisions for Subchapter S Corporations First Sample Provision: Legal Opinion Requirement. Notwithstanding anything to the contrary set forth in this Agreement, no Shares may be Transferred without the Company first having been provided a written opinion of counsel for the Company or of other counsel acceptable to the Board of Directors (a) that the Transfer shall not cause the election of the Company under Section 1362 of the Code to terminate, (b) that the transferee is not ineligible as a shareholder of an S corporation under the Code, and (c) that the Transfer would not cause the total number of shareholders of the Company to exceed the number of shareholders permitted for an S corporation under the Code. Second Sample Provision: S Corporation Transfer Restriction. Notwithstanding anything herein to the contrary, for so long as the Company has in effect an election to be taxed as an S corporation under Section 1362 of the Code, no Shares may be Transferred to any Person if such Transfer would cause such election to terminate. Third Sample Provision: S Corporation Status. Each Shareholder hereby acknowledges that the Company has made an election to be taxed as an S corporation under Section 1362 of the Code. In the event of any inadvertent termination of the Company’s Subchapter S status, each Shareholder shall seek the reinstatement of such status and shall execute any documents necessary for such reinstatement. Fourth Sample Provision: Distributions to Pay Taxes. (a) specified below: For the purposes hereof, the following terms shall have the meaning
(i) “Taxable Income” with respect to any fiscal year of the Company or any other relevant period shall mean those amounts and items described in Code Section 1366(a)(1)(A) and (B) combined into a single net amount of the Company for such fiscal year or other relevant period which are required to be taken into account by the Shareholders of the Company, as a group, in determining their federal income tax liability for such fiscal year or other relevant period pursuant to Code Section 1366. The term “Taxable Income” shall exclude any life insurance proceeds received by the Company and otherwise included in such Taxable Income. (ii) “Minimum Distributions” with respect to a fiscal year of the Company or any other relevant period shall mean a minimum of __% of the Taxable Income of the Company for such fiscal year or other relevant period. The Shareholders by a majority vote of the outstanding Shares of the Company may agree to a greater percentage distribution and the Shareholders by the affirmative vote of not less than __% of the outstanding Shares may agree to a lesser percentage distribution. Add.-13
(b) On or before April 15 of each fiscal year of the Company, the Company shall use its best efforts to make a cash distribution to its Shareholders (or former Shareholders as hereinafter set forth) with respect to the immediately preceding fiscal year in an amount equal to the Minimum Distributions less amounts previously distributed to its Shareholders with respect to such fiscal year. (c) In the event that a change in the ownership of the Shares of the Company shall occur during any fiscal year, the aggregate amount of the Minimum Distributions to be made to each Shareholder or a former Shareholder with respect to such fiscal year shall be apportioned among each such Shareholder or former Shareholder in that amount which shall be equal to the Minimum Distributions for such fiscal year to be made to all of the Shareholders times a fraction, the numerator of which is the Taxable Income allocated to such Shareholder (or former Shareholder) for such fiscal year and the denominator of which is the Taxable Income allocable to all Shareholders of the Company for such fiscal year, said Minimum Distributions to be made as set forth in the immediately preceding paragraph with appropriate adjustments for distributions previously made with respect to such fiscal year. (d) Notwithstanding any provisions hereof, the distributions hereunder shall be made at such time and in such a manner as to comply with Code Section 1361(b)(1)(D) and the regulations promulgated thereunder. Fifth Sample Provision: Subchapter S Status; Distributions to Shareholders. (a) S-Corporation Status. The Shareholders acknowledge that the Company and its shareholders have made an election to have the Company treated as a “small business corporation” subject to the provisions of subchapter S of the Code. The Shareholders agree to take all appropriate steps to maintain such S-corporation election, unless the Shareholders unanimously agree to terminate that election. Notwithstanding any other provision of this Agreement, each Shareholder agrees that, regardless of whether such an election is in effect at the time of a proposed transfer of any Shares by the Shareholder, such Shareholder will not make such transfer if it would for any reason render the Company ineligible to elect to be treated as a subchapter S-corporation or would result in the loss of subchapter S status if the Company had previously made such election, and each Shareholder further agrees that any such transfer made in violation of this provision shall be void. (b) Certain Duties of the Company. For any taxable year in which the Company has in effect an election of S-corporation status under Code Section 1362, the Company shall: (i) not issue more than one class of stock within the meaning of Code Section 1361; (ii) use its best efforts to avoid a termination of its S-corporation status under Code Section 1362; and (iii) in the event that the Company’s S-corporation election is inadvertently terminated as provided in Code Section 1362(f), take such steps or actions as necessary to enable the Company to be treated by the Internal Revenue Service as continuing to be an S-corporation during the period of any such inadvertent termination.
(c) Distributions to Shareholders. Unless otherwise unanimously agreed upon by the Board of Directors, the Company shall, on an annual basis for each fiscal year of the Company, within _____ days after the end of each such fiscal year, distribute a cash amount to its Shareholders equal to the lesser of (i) the Company’s taxable income for federal income tax purposes for such fiscal year, or (ii) its Net Cash Flow (as defined below) for such fiscal year. All such distributions to the Company’s Shareholders shall be made on a per-share, per-day basis in accordance with the calculation of allocations of income and gain to the Shareholders for federal income tax purposes. (d) Definition of Net Cash Flow. For purposes of this Agreement, “Net Cash Flow” shall mean, with respect to any fiscal year, all funds of the Company, whether derived from revenues or otherwise, on hand or in bank or other financial accounts of the Company as are legally available for distribution to the Shareholders, minus (1) the amount of all operating expenses of the Company as of such time, (2) the amount of all outstanding and unpaid current obligations of the Company as of such time, and (3) an amount equal to $_____________ estimated for reserves for Company operations for the subsequent fiscal year. Such Net Cash Flow shall not be reduced by payments of any amounts described in the preceding clauses (1) and (2) made from the proceeds of any loans or directly from any reserve, or by depreciation and amortization taken into account for federal income tax purposes.
Sample Provision Restricting Certain Company Actions Restrictions on certain Company Actions. The Company will not take any of the following actions, whether by amendment, merger, consolidation or otherwise, without the affirmative vote or consent of a Shareholder Majority, given in writing or by resolution adopted at a meeting called for such purpose: (a) liquidate, dissolve or wind-up the business and affairs of the Company or any of its subsidiaries, or consent to any of the foregoing; (b) amend, alter or repeal any provision in the Company’s Articles of Incorporation or bylaws or, with respect to any subsidiary, the Articles of Incorporation or Organization, as the case may be, bylaws, operating agreement or similar organizational documents (in each case, as the same may be amended from time to time) of such subsidiary; (c) create (by reclassification, recapitalization or otherwise), or authorize the creation of, any new class or series of the Company’s capital stock; (d) authorize or issue (or obligate itself to issue) any (i) shares of capital stock of the Company or any subsidiary of any class or (ii) equity-linked securities or any options, warrants, or rights to purchase the capital stock of the Company or any subsidiary of any class or (iii) securities convertible into capital stock of the Company or any subsidiary of any class; (e) (i) recapitalize the outstanding capital stock of the Company or any subsidiary (excluding stock dividends, combinations and splits), (ii) reorganize the affairs of the Company or any subsidiary, (iii) materially change the business strategy of the Company or any subsidiary; (iv) acquire any of the assets of, capital stock of, or any other interest in, another business or corporation, (E) create or hold capital stock in any subsidiary that is not whollyowned or (F) take any action which results in any of the foregoing; or (f) make a capital expenditure, or series of related capital expenditures, or enter into operating leases or financing arrangements in an amount in excess of $________.
Alternative Reporting Provision Reporting. The Company shall deliver to each Shareholder: (a) as soon as practicable, but in any event within ____ days after the end of each fiscal year of the Company, (i) a balance sheet as of the end of such year; (ii) statements of income and of cash flows for such year; and (iii) a statement of stockholders’ equity as of the end of such year, which financial statements shall be audited and certified by independent public accountants of nationally recognized standing selected by the Company and shall include a comparison between (x) the actual amounts set out on each of (i) – (iii) above as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Budget for such year, with an explanation of any material differences between such amounts and a schedule of the sources and applications of funds for such year; (b) as soon as practicable, but in any event within ____ days after the end of each of the first three quarters of each fiscal year of the Company, unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that the financial report may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP) and including a comparison between (x) the actual amounts as of and for such quarter, and (y) the comparable amounts for the prior year and as included in the Budget for such quarter, with an explanation of any material differences between such amounts and a schedule of the sources and applications of funds for such quarter; (c) as soon as practicable, but in any event ____ days before the end of each fiscal year of the Company, a budget and business plan for the next fiscal year (collectively, the “Budget”), prepared on a quarterly basis, including balance sheets, income statements, and statements of cash flow for each quarter of the next fiscal year and a discussion of the assumptions underlying such projections and a qualitative description by the Company’s CEO of the Company’s plan in support of the Budget; and (d) as soon as practicable, but in any event within __ days after the discovery of any material adverse event with respect to the Company, a statement outlining such default or event, and management's proposed response. If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
Sample Deadlock/Buy-Sell Provisions First Sample Provision: Buy-Sell Arrangement. (a) Submission of Offer. For so long as there are only two Shareholders, each Shareholder (for purposes of this Section __, the “Offeror”) shall have the right, which may be exercised at any time, to give to the other (the “Offeree”) a written notice (the “Offer”) stating that the Offeror wishes to implement the provisions of this Section __ with respect to the purchase and sale of the Shares held by the Offeree. The Offer shall specify the purchase price (the “Buy-Sell Price”) at which the Offeror would be willing to purchase all of the assets of the Company, assuming such assets are free and clear of all debts, liens, claims and encumbrances. The Offer shall be a binding offer in respect of the Offeror to purchase the Shares of the Offeree, or to sell the Shares of the Offeror to the Offeree, until an Election is made or deemed to have been made pursuant to Section __. (b) The Offeree’s Election. Upon receipt of the Offer, the Offeree shall have the obligation to elect (the “Election”) to either: (i) Sell its Shares to the Offeror for a cash purchase price equal to the amount such Persons would receive if the Company (A) sold all of its assets for the BuySell Price, (B) paid all its debts and liabilities, and (C) distributed the net proceeds to its Shareholders (the “Offeree Value”); or (ii) Purchase the Shares of the Offeror for a cash purchase price equal to the amount such Persons would receive if the Company (A) sold all of its assets for the Buy-Sell Price, (B) paid all its debts and liabilities, and (C) distributed the net proceeds to its Shareholders (the “Offeror Value”). The Offeree must provide the Offeror with written notice of its Election within ____ days of receiving the Offer. The failure to give such notice within such ____-day period shall be deemed to constitute an Election of the Offeree to sell its Shares to the Offeror under Section __ and shall be binding on the Offeree. (c) Closing. Once the selling and purchasing parties are determined pursuant to Section __, the closing of the purchase of any Shares under this Section __ shall occur within ____ days of the date of such determination. Subject to Section __, at the closing, the selling parties shall convey their Shares to the purchasing party free and clear of all liens, claims and encumbrances and pursuant to such instruments of conveyance and warranties as the purchasing party shall reasonably request, in exchange for cash in an amount equal to the Offeror Value or the Offeree Value, as applicable. Each party shall pay its own fees and expenses incurred in connection with the transaction. The failure of any party to satisfy the obligation to close the purchase and sale of Shares in accordance with this Section __ once an Election has been made or deemed to have been made shall entitle the other party to specific performance of such obligation, in addition to all other equitable and legal remedies available.
Second Sample Provision: Deadlock. The Company and the Shareholders agree that certain decisions of the Company are fundamental to the stability and well-being of the Company and as such should require the consent of the Shareholders in order for such corporate actions to be taken. As such, the Company and the Shareholders agree as follows: (a) Unanimous Shareholder Approval. Except as required by law, the Company shall not, without the approval by vote or written consent of the Shareholders holding all of the then outstanding Shares, take the following actions: (i) consent to any dissolution, liquidation or winding up of the Company, except as may otherwise be provided in this Agreement; (ii) $1,000,000.00; (iii) incur liabilities outside the ordinary course of business in excess of redeem any Shares of the Company;
(iv) change the Company’s current status for federal income tax purposes as an S corporation; or (v) Company. (b) Buy-Sell in the Event of a Deadlock. amend the Articles of Incorporation and/or Bylaws of the
(i) If an action requiring unanimous consent under Section __ is not taken due to the lack of a unanimous vote, the Shareholder(s) desiring to take any such action shall be entitled to make a determination as to the effect on the Company of such failure to gain a unanimous vote. If, in the good faith discretion of such Shareholder(s), the failure to take action would be material and adverse to the Company, the Shareholder(s) desiring to take such action may make a “Buy-Sell Offer” to all the other Shareholders, pursuant to the terms and provisions of this Section __. Any Shareholder who makes a Buy-Sell Offer according to the terms and provisions set forth in this Section __, shall hereinafter be referred to as the “Offeror.” The Shareholders to whom the Offeror makes a Buy-Sell Offer shall hereinafter be referred to in this Section __ as the “Offerees.” (ii) The Offerees as a whole or as a partial group may, within the time specified in the Buy-Sell Offer (which time shall be at least _____ days from the determination of the Purchase Price in accordance with Section __), elect by written notice to the Offeror to regard the Buy-Sell Offer as an offer to sell by the Offeror and elect to purchase all the Shares of the Offeror, each Offeree purchasing such Offeree’s proportionate share (based on the ratio of such Offeree’s Share holdings to the Share holdings of all the other electing Offerees); provided that this election, if made, must be as to all the Shares of the Offeror. If the election to purchase is exercised by some or all of the Offerees, the closing thereof shall be no later than _____ days after the written Add.-19
notice to exercise the right to purchase is given to the Offeror. If all of the Offerees shall make no such election and purchase prior to the expiration of the aforementioned periods or shall earlier expressly waive their right to regard the offer as an offer to sell by the Offeror, each Offeree shall sell and the Offeror shall purchase all of the Shares of each Offeree. In such event, the closing thereof shall be no later than _____ days after the expiration of the time specified in the Buy-Sell Offer. If a purchase and sale results from this procedure, the Purchase Price of the Shares to be purchased shall be determined under Section __ and payment for such Shares shall be made in cash at the time of purchase.
Sample Call Provisions First Sample Provision: Company Call Right. (a) Upon (i) the voluntary resignation of a Shareholder’s employment with the Company or any of its Affiliates, (ii) the involuntary termination of such employment without Cause, (iii) a Shareholder’s Bankruptcy, (iv) any attempted Transfer of Shares other than in accordance with Article ___ hereof, or (v) a Shareholder’s death or Permanent Disability (each a “Call Event”), the Company shall have the right, but not the obligation, to purchase all or any portion of the vested Shares of such Shareholder for a purchase price equal to the Fair Market Value of such Shares (the “Call Right”). The Company may exercise such Call Right by giving a Shareholder (or a Shareholder’s executor or legal representative with authority to act on behalf of such Shareholder) written notice (the “Call Notice”) thereof at any time within ____ days of the occurrence of a Call Event. (b) The purchase and sale of Shares pursuant to a Call Right as set forth in Section __ shall occur within ____ days of the date of the Call Notice (or such other date as agreed by the parties) (the “Closing Date”). In the event of the exercise of the Call Right pursuant to Section __, on the Closing Date, (a) the Shareholder or the Shareholder’s executor or legal representative shall convey the Shares, free and clear of all liens, claims and encumbrances and pursuant to such instruments of conveyance and warranties as the Company shall reasonably request and (b) the Company shall (i) pay to such Shareholder or such Shareholder’s executor or legal representative, cash equal to __% of the purchase price and (ii) make and deliver to the Shareholder or such Shareholder’s executor or legal representative a promissory note in the amount of __% of the purchase price payable in ____ equal installments on each of the first ____ anniversaries of the Closing Date. Such promissory note shall bear interest at the Prime Rate, but shall not be secured by any collateral and may be prepaid by the Company at any time without penalty. (c) In the event that any purchase is made by the Company pursuant to Section __ and the Company later determines that a Shareholder breached any applicable noncompetition or non-solicitation provisions set forth in such Shareholder’s Award Agreement, the Shareholder shall return to the Company an amount equal to the cash purchase price paid by the Company to the Shareholder on the Closing Date and the promissory note by the Company for the benefit of the Shareholder delivered pursuant to Section __ shall be cancelled and of no further force and effect.
Second Sample Provision: Termination of Employment. The parties desire to limit the ownership of Shares to Persons who are also officers, employees or directors (or some combination thereof) of the Company (an “Employee-Shareholder”). Therefore, it is agreed that any Shareholder who, at any time, ceases to be an Employee-Shareholder as a result of voluntary termination of employment, termination of employment by the mutual consent of the Shareholder and the Company, termination of employment by the Company for Adequate Cause, or because the Shareholder is a Disabled Shareholder, shall be deemed to have offered to sell all of such Shareholder’s Shares to the other Shareholders. The other Shareholders shall have _____ days from such offer in which to elect to buy all, but not less than all, of such Shares. Each purchasing Shareholder may purchase a proportionate share (based on the ratio of such purchasing Shareholder’s Share holdings to the Share holdings of the other purchasing Shareholders) of the Shares offered for sale in accordance with this Section __. The Purchase Price of the Shares to be purchased shall be determined under Section __ and payment for such Shares shall be made in cash at the time of purchase. Nothing in this Agreement imposes any obligation on the Company to employ any Shareholder. “Adequate Cause” for terminating a Shareholder’s status as an Employee-Shareholder is limited to conviction of or a plea of guilty to a felony or a misdemeanor, dishonesty, any other criminal conduct against the Company, a continued breach of the Employee-Shareholder’s duties and obligations arising under an employment contract with the Company or of any written policy, rule, or regulation of the Company, for a period of at least _____ days following his or her receipt of written notice from any officer of the Company specifying such breach. “Disabled Shareholder” means a Shareholder that is unable to perform substantially all the regular duties of such Shareholder’s position with the Company due to sickness or injury. In addition, a Shareholder shall be conclusively deemed to be a Disabled Shareholder if such Shareholder is determined eligible to receive disability benefits from (i) any policy of disability insurance issued by a commercial insurer, (ii) a waiver of premium benefit forming a part of any policy of life insurance, or (iii) the Social Security Administration. If there is a dispute regarding the existence or continuation of a disability, the Company may require a Shareholder to submit to an examination by a medical doctor licensed to practice medicine in North Carolina at such reasonable times as it may require but not more frequently than once in any _____ day period. The Company shall pay for such examinations. Any period of disability shall be deemed to be continuing until the Disabled Shareholder person has either died or failed to meet the definition set forth above for a period of three consecutive months.
Sample Put Provision Put Rights. (a) Put Right on Death or Permanent Disability. In the event that a Shareholder dies or becomes Permanently Disabled, such Shareholder, or in the case of death any transferee of such Shareholder’s Shares (the Shareholder or other Person exercising the right provided by this Section __ being referred to as the “Selling Person”), shall have the right, but not the obligation (a “Put Right”) to require the Company to purchase such Selling Person’s Shares on the terms and conditions set forth in this Section __. (b) Put Price. In the event that a Selling Person elects to exercise a Put Right, the Company shall, as consideration for such Selling Person’s Shares, pay such Selling Person an amount equal to the Fair Market Value of such Shares (such price, the “Put Price” of such Shares). (c) Exercise of Put Right. A Selling Person may exercise a Put Right by delivering written notice to the Company at any time within ____ days of the occurrence of the event or events giving rise to the Put Right. The closing of the purchase of such Selling Person’s Shares under this Section __ shall occur within ____ days of the Company’s receipt of such notice. On the closing date, the applicable Selling Person shall convey to the Company such Person’s Shares, free and clear of all liens, claims and encumbrances and pursuant to such instruments of conveyance and representations and warranties as the Company shall reasonably request, and the Company shall issue to the Selling Person a promissory note with a principal amount equal to the Put Price, with such amount being payable on the ____ anniversary of the date of such conveyance and bearing interest at the Applicable Federal Rate. The failure of any party to satisfy an obligation to close the purchase and sale of Shares in accordance with the terms of this Section __ shall entitle the other party to specific performance of such obligation, in addition to all other equitable and legal remedies available.
Sample Insurance Provision Insurance Policies. (a) Each Shareholder shall purchase and maintain a policy or policies of life insurance on the life of the other Shareholder in an amount equal to ________. No Shareholder shall possess any incidents of ownership in any such policy insuring such Shareholder’s life. The policies will be the sole property of the owner. No Shareholder nor any successor, transferee, assignee, or personal representative of any Shareholder shall have any collateral interest in any such policy insuring such Shareholder’s own life. (b) Each Shareholder shall pay every premium on any life insurance policy that such Shareholder is required to maintain under this Section __, and give the other Shareholder proof of such payment within _____ days of the date the premium was due. If either Shareholder fails to supply such proof, the other Shareholder may pay the premium and be reimbursed for such Shareholder’s payment by the Shareholder who failed to supply such proof of premium payment. All dividends on any such policies shall be applied to the payment of premiums. (c) A Shareholder who cannot be insured at standard rates shall be deemed to have offered such Shareholder’s Shares to the other Shareholder. Such offer shall be deemed made on the date on which the transferor Shareholder shall first be deemed not to be insurable at standard rates. The other Shareholder shall have _____ days from such offer in which to elect to buy all, but not less than all, of the stock of the offering Shareholder. If the other Shareholder declines to buy all of the Shares of the offering Shareholder, the Shares may be retained by the offering Shareholder, but such Shares shall remain subject to all provisions of this Agreement, other than this Section __. (d) If all the Shares of any living Shareholder are Transferred pursuant to this Agreement, and if all the obligations of the purchasing party or parties for payment of the purchase price have been fully satisfied, then the said living Shareholder may purchase from the owner any policy of insurance owned by the other Shareholder insuring Such Shareholder’s life, for a price equal to the interpolated terminal reserve of such policy plus any prepaid premiums, less any policy indebtedness. (e) Upon the death of any Shareholder, the surviving Shareholder may purchase and, in the event the surviving Shareholder elects such option, the estate of the deceased Shareholder shall sell any policy of life insurance owned by such deceased Shareholder insuring the life of the other living Shareholder, for a price equal to the net cash surrender value of such policy plus any prepaid premiums, less any policy indebtedness.
Sample Tag-Along Provisions First Sample Provision: Tag-Along Right. In the event that any Controlling Shareholder elects to Transfer such Shareholder’s Shares to any Person, the selling Shareholder shall deliver to the Company and the other Shareholders a written notice (a “Tag-Along Notice”) identifying the proposed purchaser or purchasers in such sale, the number of Shares being Transferred, the purchase price to be paid therefore, and a summary of the other material terms and conditions of the proposed sale. Each such other Shareholder shall have the right (the “Tag-Along Right”), but not the obligation, to sell up to such Shareholder’s pro rata share of the Shares being Transferred, with such share determined by dividing each such Shareholder’s Shares by the number of the Company’s total outstanding Shares, at the price per share and otherwise on the same terms and conditions set forth in the Tag-Along Notice. Each other Shareholder may exercise such Shareholder’s TagAlong Right by giving written notice to the Controlling Shareholders within ____ days of receiving the Tag-Along Notice. Upon exercise of its Tag-Along Right, a Shareholder shall be obligated to sell the pro rata portion of such Shareholder’s Shares to the proposed purchaser on the same terms and conditions set forth in the Tag-Along Notice. Exceptions. The Tag-Along Right set forth in Section __ shall not apply to Transfers by a Controlling Shareholder (a) to any of such Controlling Shareholder’s Related Parties, (b) that is an Involuntary Transfer, or (c) pursuant to the exercise of a Drag-Along Right, or with respect to which a Drag-Along Right is exercised under Section __ above. Second Sample Provision: Tag Along Rights on Voluntary Transfers by Majority Shareholder. (a) Offer to Company. In the event a Shareholder who owns 50% or more of the Shares of the Company (a “Majority Seller”) elects to voluntarily Transfer (whether pursuant to a single transfer or series of related transfers) all or part of such Shareholder’s Shares to any non-Shareholder purchaser (the “Tag Along Purchaser”) such that upon purchase of the offered Shares by the Tag Along Purchaser, the Tag Along Purchaser will own greater than fifty percent (50%) of the Shares of the Company, the Majority Seller shall submit the offer to the Company along with a document stating the name of the Tag Along Purchaser, the amount of the Majority Seller’s Shares to be Transferred, the sale price, and the terms of payment of such sale and all of the Majority Seller’s Shares shall be subject to the options to purchase described in and on the terms of Section __. (b) Tag-Along Right. In the event that the options set forth in Section __ hereof are not exercised as to all of the Majority Seller’s Shares, the Majority Seller shall then send notice to the other Shareholders (the “Tag Along Notice”) stating that the Majority Seller intends to consummate the transaction with the Tag Along Purchaser and that such Shareholders have tag along rights pursuant to this Section __. Each other Shareholder may require that all (but not less than all) of such Shareholder’s Shares also be sold to the Tag Along Purchaser in such transaction on the same terms and conditions as the Majority Seller’s Shares (as described in the Majority Seller’s notice to the Company provided pursuant to this Section). If a
Shareholder exercises such option, such Shareholder and any other Shareholders who exercise such option shall, for the purposes of this Section __, be referred to as the “Tag Along Shareholders.” A Shareholder shall exercise such Shareholder’s rights under this Section __ by giving written notice to the Majority Seller and all other Shareholders within _____ days of such Shareholder’s receipt of the Tag Along Notice. Upon exercise by a Shareholder of such Shareholder’s rights under this Section __, such Shareholder shall be obligated to sell such Shareholder’s Shares in such transaction on the same terms and conditions as the Majority Seller (as described in the Majority Seller’s notice to the Company provided pursuant to this Section). In the event the Tag Along Purchaser declines to purchase all of the Shares of each Tag Along Shareholder, the Majority Seller shall be prohibited from selling any of such Shareholder’s Shares to the Tag Along Purchaser pursuant to such transaction (or series of related transactions) unless a majority of the Board of Directors approves the sale by the Majority Seller.
Alternative Book Value Definition Provision “Book Value” means the book value, computed in accordance with GAAP, of the Company as of the end of the last full taxable year immediately preceding the year in which the applicable Transfer occurred. Notwithstanding anything contained in this Agreement to the contrary, the computation of Book Value shall be subject to the following provisions: (a) Book Value shall not include any proceeds collected or collectible by the Company under any policy or policies of life or disability insurance insuring the life or disability of a Shareholder as a result of the death or disability of a Shareholder. (b) No additional allowance of any kind shall be made for the goodwill, trade names, or any other intangible asset or assets (the "Intangible Assets") of the Company. (c) Reserves for contingent liabilities shall not be treated as a liability for purposes of determining Book Value. (d) No adjustment shall be made to Book Value as a result of any event occurring subsequent to the date as of which Book Value is to be determined. (e) Anything contained in this Agreement to the contrary notwithstanding, Book Value shall be calculated for the purposes of this Agreement on an accrual basis even if the Company shall have used a different accounting method for that or any prior period. (f) Book Value shall be determined by the accountants regularly employed by the Company. The determination of the accountants shall, for the purposes of this Agreement, be binding and conclusive upon all parties.
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