SHAREHOLDERS’ AGREEMENT
THIS SHAREHOLDERS’ AGREEMENT (called the “Agreement”) is made as of [MONTH] [DAY], [YEAR] (the “Effective Date”) by and among [NAME OF CORPORATION] (called “Company”) and [NAMES OF SHAREHOLDERS] (each of whom individually is called a “Shareholder” and, collectively, “Shareholders”); and
WHEREAS, Company and Shareholders are sometimes each also referred to herein as a “Party” and collectively as “the Parties”; and
WHEREAS, Company was duly incorporated on [MONTH] [DAY], [YEAR] under the laws of the State of [STATE OF INCORPORATION] and is in good standing in that state as of the Effective Date; and
WHEREAS, Company’s articles of incorporation authorize the Company to issue [NUMBER WRITTEN OUT] [([NUMBER IN NUMERALS]) shares of common stock (each a “Share”); and
WHEREAS [NUMBER WRITTEN OUT] ([NUMBER IN NUMERALS]) Shares have been issued to the Shareholders and are presently outstanding; and
WHEREAS, the Parties wish to memorialize their agreements and understandings concerning limitations on the transfer of Shares, the disposition of Shares upon the occurrence of certain events and certain other matters concerning the operation of the Company;
NOW, THEREFORE, in consideration of mutual promises in this Agreement, the Parties agree as follows:
1. RESTRICTIONS
A. Except as otherwise permitted by this Agreement, no Shareholder may transfer ownership of or pledge, assign or encumber in any way any of that Shareholder’s Shares.
B. Except as otherwise permitted by this Agreement, Company may not (i) transfer ownership of or pledge, assign or encumber in any way any Shares held by the Company or (ii) issue any additional Shares.
2. SALE OF SHARES
A. Any Shareholder wishing to sell to a third party any Shares (a “Transferor”) must give at least [NUMBER WRITTEN OUT] ([NUMBER IN NUMERALS]) days’ advance written notice of such proposed sale (“Sale Notice”) to Company and to the other Shareholders. The Sale Notice shall identify the proposed purchaser and state the number of Shares affected (the “Sale Shares”) and the proposed purchase price per Share (the “Purchase Price”).
B. If the Purchase Price stated in a Sale Notice is the fair market value of the sale Shares, such value will be determined in accordance with Section 6 below.
C. Within [NUMBER WRITTEN OUT] ([NUMBER IN NUMERALS] days following receipt of a Sale Notice, each of the other Shareholders may notify the Transferor and the other Shareholders of such Shareholder’s intention to purchase at the Purchase Price no fewer Sale Shares than represent the number of Shares then owned by the Shareholder.
D. If any Shareholder fails to give timely notice of such Shareholder’s intent to purchase, the number of Sale Shares that Shareholder would have been entitled to purchase may instead be purchased by Shareholders who did give such notice, pro rata in proportion to the number of Shares then owned by each such Shareholder.
E. Any purchase of Sale Shares by other Shareholders shall be completed in accordance with the terms set out in the Transferor’s notice.
F. At any time after the expiration of the required Sale Notice period in 2.A above, any Sale Shares not purchased by another Shareholder in accordance with this Section 2 may be sold by the Transferor in accordance with the terms of the Sale Notice.
3. SHAREHOLDER DEATH OR INCAPACITY
A. If a Shareholder dies or is determined by a court having jurisdiction to be legally incompetent, the personal representative of the incapacitated or deceased shareholder shall notify the Company of the Shareholder’s death or incapacity. Upon receipt of such notice, the Company may, at its option, redeem or purchase for cancellation all of the Shares owned by the deceased or incapacitated Shareholder at then-current fair market value. The Company must, however, exercise this right by giving notice to the personal representative of the incapacitated Shareholder or a deceased Shareholder’s estate not later than [NUMBER WRITTEN OUT] ([NUMBER IN NUMERALS]) days following receipt of the personal representative’s notice.
B. If there was in effect a contract of life insurance purchased by the Company insuring the life of a deceased Shareholder, any proceeds of such contract shall be used by the Company to purchase the Shares owned by the deceased Shareholder. Any excess proceeds shall be retained for the sole benefit of the Company.
C. Company may, at its sole option and within the same [NUMBER WRITTEN OUT] ([NUMBER IN NUMERALS] day period specified in 3.A. above, assign to the remaining Shareholders its right to purchase the deceased or incapacitated Shareholder’s Shares pro rata in proportion to the number of Shares then owned by each such Shareholder and upon the same terms and conditions as stated in Paragraph 3(A) above.
4. SHAREHOLDER BANKRUPTCY
A. If otherwise permitted by applicable law, in the event of the institution of voluntary or involuntary bankruptcy or other insolvency proceedings by or against a Shareholder (an “Insolvent Shareholder”), Company shall have the option to purchase the Shares of the Insolvent Shareholder by giving written notice of its election to purchase within thirty (30) days of the Company’s receipt of notice of such proceedings.
B. The purchase price for the Shares of an Insolvent Shareholder shall be the fair market value of such Shares and shall be paid to the Insolvent Shareholder promptly.
C. An Insolvent Shareholder will execute and deliver whatever instruments of conveyance, assignment, and release Company reasonably requests. Each Shareholder hereby irrevocably constitutes and appoints the Secretary of Company as attorney-in-fact to complete such execution and delivery.
D. Company may, at its sole option and within the same thirty day period described above, assign to the remaining Shareholders its right to purchase the deceased or incapacitated Shareholder’s Shares pro rata in proportion to the number of Shares then owned by each such Shareholder and upon the same terms and conditions as stated in Paragraph 4(A) above.
5. MANDATORY SALE
In the event that:
A. The Shareholders receive a bona fide, arms-length, third-party offer to purchase, for all of the Company’s then issued and outstanding Shares; and
B. The purchase price of such offer is Such offer is not less than [NUMBER] percent ([NUMERAL]%) of their aggregate fair market value of such Shares; and
C. Upon a vote of Shareholders, Shareholders owning not less than [NUMBER] of such Shares vote in favor of such purchase, then the remaining Shareholders shall be required to sell their Shares on the same terms and conditions, and will take all such actions and execute all agreements reasonably necessary to complete the sale.
6. VALUATION
A. For the purposes of any sale, purchase or other transaction involving Shares which requires a determination of fair market value (“FMV”), the parties to such transaction (which shall include Shareholders opposed to a mandatory sale initiated pursuant to Section 5 above) will, for a period of no less than thirty (30) calendar days, make a good faith effort to agree on FMV, based on Company’s then-current financial information, assets, liabilities and contracts, the markets for and marketability of Company and its products and/or services, and any other factors the parties agree are relevant to such valuation, all in accordance with generally accepted accounting principles, which principles shall be consistently applied.
B. In the event that the parties to a sale or purchase are unable to reach agreement as to FMV within the time provided in paragraph 6(A) above, they shall appoint a mutually acceptable qualified independent business valuator (the “Valuator”). The valuation arrived at by the Valuator shall be final and binding and no appeal shall lie therefrom. The fees and reasonable expenses of the Valuator will be shared equally by the parties to the transaction.
C. If the parties cannot in good faith agree upon an acceptable Valuator, then the Valuator shall be chosen by a court of competent jurisdiction upon the application of any party to the transaction.
D. Any determination of FMV, whether by the parties or a Valuator, shall be binding only upon the parties to a particular transaction.
E. If a proposed sale or other transaction is between a Shareholder or the Company and a third party who is not a party to this Agreement, the Shareholder or Company, as the case may be, shall ensure that the valuation provisions of the governing agreement are substantially consistent in substance with those in this Section 6.
7. MISCELLANEOUS
A. This Agreement constitutes the entire agreement among the Parties with respect to its subject matter and supersedes all prior agreements or understandings of any kind.
B. Any notice required or permitted by this Agreement shall be given in writing and delivered by hand delivery, overnight mail service or prepaid certified United States mail, return receipt requested, and shall be considered effective upon actual receipt:
i. In the case of Company, to: [ADDRESS];
ii. In the case of any Shareholder, to the last known address of that Shareholder as reflected in the records of Company;
C. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original. Such counterparts together shall constitute one agreement deemed to be dated as of the Effective Date.
D. Neither this Agreement nor any of its benefits or obligations may be assigned or delegated, in whole or in part, without the prior approval of all parties hereto. However, this Agreement shall inure to the benefit of and shall be binding upon the Parties respective successors, heirs, personal representatives and permitted assigns.
E. This Agreement shall be effective as of the Effective Date and will continue in effect until the earliest of the following events:
i. Termination by mutual consent of at least [NUMBER] percent ([NUMERAL]%) of the holders of all of the then-issued and outstanding Shares.
ii. Death or incapacity of all of the then-current Shareholders.
iii. Involuntary dissolution by a court of competent jurisdiction or otherwise pursuant to applicable law
F. This Agreement may only be amended in a writing signed by the holders of at least [NUMBER] percent ([NUMERAL]%) of the then-issued and outstanding Shares.
G. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue in full force and effect.
H. The Parties agree to sign such further and other documents and take such other actions as may be reasonably necessary in order to give full force and effect to the intent of this Agreement.
I. Time is of the essence of this Agreement.
J. The failure of any Party on any given occasion to exercise any right or remedy on variation of time shall not operate as a waiver of such right or remedy.
K. This Agreement shall be governed in accordance with the laws of the State of [STATE], applicable to agreements formed and intended to be wholly performed therein.
L. If legal action is instituted to enforce any of the provisions of this Agreement, the prevailing party therein shall be entitled to recover his reasonable costs and attorneys’ fees.
M. Each Shareholder acknowledges receiving and reading a copy of this Agreement prior to its execution and acknowledges that the Shareholder has had an opportunity to seek independent legal advice prior to its execution. Each Shareholder acknowledges that the Shareholder understands fully the nature and effect of this Agreement and that he or she has executed this Agreement of the Shareholder’s own free will and volition and under no compulsion to act.
IN WITNESS THEREOF, the parties have duly executed this Agreement as of the Effective Date.
COMPANY:
________________________________
By: _____________________________
Title: ____________________________
SHAREHOLDERS:
________________________________
________________________________
By: ___________________________ [Instruction: Insert the signatory’s name]
Title: Shareholder
________________________________
By: ___________________________ [Instruction: Insert the signatory’s name]
Title: Shareholder
________________________________
By: ___________________________ [Instruction: Insert the signatory’s name]
Title: Shareholder
