SHAREHOLDER AGREEMENT
[Name] (Shareholder), [name] (Shareholder), and [name of corporation] (Corporation) agree to the following:
1. Stock Purchase. On a Shareholder’s death or termination of employment, Corporation shall within six months purchase all of the shares of its stock held by that Shareholder.
2. Purchase Price. The purchase price under paragraph 1 shall be net book value per share at the end of the month preceding the date of death or employment termination. The accountant regularly retained by Corporation shall determine the net book value per share by applying the accounting principles consistently followed in preparing the financial statements of Corporation. This determination of net book value per share shall be final and binding on all persons. The purchase price shall be reduced by the amount of any indebtedness of the selling Shareholder to Corporation, and that indebtedness shall be canceled to the extent of the reduction.
3. Payment. Corporation may pay the purchase price in a lump sum or in five equal annual installments. The lump sum or the first installment shall be paid at the time the endorsed stock certificates are delivered to Corporation. Any remaining installments shall be evidenced by a promissory note bearing interest at an annual rate the greater of [percentage] or the minimum rate required by the Internal Revenue Code to avoid unstated interest or original issue discount. The note shall permit prepayment at any time without penalty and shall provide for immediate payment of the balance due on default in payment of principal or interest.
Payment of any promissory note shall be secured (subordinate to secured debt to financial institutions) by recorded security instruments covering the assets of Corporation, and remaining Shareholder of Corporation shall guarantee payment of the note.
If Corporation should (a) fail to purchase the stock within the time required, (b) fail for 30 days to make any payment due on a promissory note given as part of the purchase price, or (c) otherwise materially violate any of the provisions of this agreement, in addition to other remedies, Corporation shall be dissolved.
While any balance on any promissory note remains unpaid, Corporation must receive the selling Shareholder’s written consent before increasing compensation of the other Shareholder or employees related to [him / her] (except for increases proportionate to any increase in the U.S. government consumer price index for metropolitan Detroit), hiring new employees related to the other Shareholder, increasing rental payments under any lease between Corporation and any Shareholders or persons related to them, lending or advancing funds to officers or employees, selling all or substantially all of its assets, merging or consolidating with another corporation, or taking any action outside the ordinary course of business.
Each promissory note shall provide that within 60 days after each fiscal quarter Corporation shall send to the holder a balance sheet and income statement of Corporation and that failure to send the financial statements shall be a default.
Each Shareholder shall vote (as a shareholder or director) to create, to the extent possible, sufficient surplus for Corporation’s purchase of the selling Shareholder’s shares. To the extent Corporation’s surplus is insufficient to purchase the selling Shareholder’s shares, the other Shareholder shall purchase the shares.
4. Dual Option Stock Purchase. At any time before [his / her] death or termination of employment, either Shareholder may give written notice to the other Shareholder stating irrevocably for 60 days the price per share [he / she] is willing either (a) to have Corporation pay for the other Shareholder’s shares in Corporation or (b) to accept for [his / her] shares if the other Shareholder so elects.
The other Shareholder must elect in writing within 60 days of receipt of the notice either (a) to sell [his / her] stock to Corporation or (b) to have Corporation purchase the shares of the Shareholder giving notice for the price per share specified in the notice.
If the other Shareholder fails to elect within the time limit, the Shareholder giving notice must elect within 30 days either to sell [his / her] shares to Corporation or to have Corporation purchase the shares of the other Shareholder for that price.
All of the provisions of paragraph 3 shall apply to a purchase under this paragraph.
The selling Shareholder shall resign as officer, director, and employee when [his / her] shares are transferred, with no further liability by Corporation to [him / her].
The closing on the stock purchase shall take place 30 days after the identity of the selling Shareholder has been determined. Between the date of the Shareholder’s written notice and closing, no other stock purchase under paragraph 1 shall occur.
5. Stock Transfer Restriction. A Shareholder may not transfer any of [his / her] shares of Corporation stock without the prior written consent of Corporation. This applies to any disposition or encumbrance, whether voluntary, involuntary, or by operation of law. Any transfer in violation of this agreement is void. Shares transferred with consent shall be held by the transferee subject to the provisions of this agreement or any other agreement Corporation deems appropriate.
6. Other. Each Shareholder irrevocably appoints the other Shareholder as attorney-in-fact to sign and deliver all documents necessary to assign all rights to the appointing Shareholder’s stock according to this agreement and to vote [his / her] shares to create sufficient surplus for Corporation’s purchase. This power is coupled with an interest, shall constitute an irrevocable proxy to vote stock, shall not expire on the death or incapacity of any appointing Shareholder, and may not be revoked while this agreement is in effect.
If a dissolution is required under this agreement, the other Shareholder irrevocably appoints the selling Shareholder [his / her] attorney-in-fact to vote [his / her] shares and to sign and deliver all documents necessary to dissolve Corporation. This power is coupled with an interest, shall constitute an irrevocable proxy to vote stock, shall not expire on the death or incapacity of any appointing Shareholder, and may not be revoked while this agreement is in effect. On dissolution, the amount due to the selling Shareholder shall be paid by Corporation before any distributions are made to the other Shareholder.
If the selling Shareholder has guaranteed any obligation of Corporation, Corporation and the remaining Shareholder shall either arrange for the release of the guaranty or indemnify the selling Shareholder for any loss, claim, expense, or damages that [he / she] may suffer because of the guaranty.
Corporation has the right to purchase any shares of its stock that a person acquires an interest in by foreclosure, attachment, levy, judgment award, or bankruptcy. The purchase price shall be determined under paragraph 2 by reference to the end of the month preceding the date of acquisition. The payment terms of paragraph 3 shall apply.
This agreement shall apply to stock now owned or later acquired by a Shareholder; contains the entire agreement between the parties; cannot be modified except in writing and signed by Corporation and the Shareholders; shall be binding on the parties and their legal representatives, heirs, successors, and assigns; can be specifically enforced; and shall be governed by Michigan law, without giving effect to conflict-of-law principles therein. Each stock certificate shall bear a legend referring to this agreement.
Dated: ______/ [Name of corporation]By:/s/______
[Typed name], President
/s/______
[Typed name]
/s/______
[Typed name]