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A shareholder agreement is a document stating that a """"new shareholder"""" has been officially adapted as a member of the current body of shareholders. It contains the names of the signatory of the Deed, if there authorized representative, the official name of the company and its office address. By affixing the signature into this writing, both parties are now bound by the terms and provisions that are stipulated in the merger agreement. There is a complementary agreement that is separately documented from this specific form, which may be annexed to this agreement. There may also be mutual agreement that are not stipulated in this deed. However,this contract supersedes them in part as serves as the seal of all the negotiations and mutual tests that were or may have been executed prior to the founding of the agreement. A document such as this does not necessarily require the material presence of both the signing parties. It may be delivered to office by the each of the issuer's legal representative.""
THIS IS NOT A DRAFT AGREEMENT, IT IS A SAMPLE OF THE TYPES OF PROVISIONS THAT CAN BE INCLUDED IN A SHAREHOLDER’S AGREEMENT. BUY/SELL FUNDING ARRANGEMENTS ARE COMMONLY DEALT WITH IN A SEPARATE DOCUMENT AND OFTEN THE CLAUSES SET OUT IN THIS DOCUMENT DEALING WITH THE EVENT OF DEATH OR DISABILITY ARE TRANSFERRED TO THE SEPARATE DOCUMENT. DATE: ______________________________________________________________________ NEW CO PTY LIMITED ACN SHAREHOLDERS AGREEMENT ______________________________________________________________________ SAMPLE SHAREHOLDER AGREEMENT COMMENTS THE PARTIES & INTRODUCTION THIS AGREEMENT is made this 2002 Date of Agreement BETWEEN SHAREHOLDER ‘A’ of (Shareholder A); Parties to Agreement AND SHAREHOLDER ‘B’ of (Shareholder B). (jointly and severally called Shareholders) RECITALS: A The Shareholders between them hold all the issued shares in the capital of the New General Co Pty Limited (ACN ) (the “Company”), are the description of Directors of the Company and each hold the following number of ordinary shares of agreement $1.00: between the parties. Member Number of Shares Held Number of Shareholder ‘A’ ## ( Shareholder ‘A’ Shares) shares held by Shareholder ‘B’ ## (Shareholder ‘B’ Shares) each party. B The Shareholders wish to regulate their respective rights as shareholders on the following terms and conditions. DEFINITIONS & INTERPRETATION NOW THE PARTIES AGREE AS FOLLOWS: 1 DEFINITIONS AND INTERPRETATION 1.1 In this Agreement (including the recitals), unless a contrary intention appears: Accounting Standards means the Australian Accounting Standards and, if and to All definitions the extent that any matter is not dealt with in the Australian Accounting Standards, can be altered means generally accepted accounting principles. to suit your requirements Address for Service means, in relation to each Shareholder, the postal and electronic mail addresses and the facsimile numbers shown below for that Shareholder (or any other address or number notified in writing to the Company by that Shareholder): Name Address Email Fax No SAMPLE SHAREHOLDER AGREEMENT COMMENTS Adverse Trading Event means any of the following events: (a) At the end of any financial year (starting with the financial year ending 30 June ____) the cumulative Free Cash Flow from Operations (calculated from the beginning of the ____/____ financial year) adversely varies by more than ____ % from the cumulative amount forecast in the Business Plan for the corresponding period; Cash Flow (b) At the end of any financial year, the Free Cash Flow from Operations for significantly that financial year, as stated in the Management Accounts, is at least ___ different from % less than the forecast Free Cash Flow from Operations for that financial that forecasted year as set out in the Annual Operating plan; (c) At the end of any financial year, the Operating Expenditure for that financial Operating year, as stated in the Management Accounts, is at least ___ % more than Expenditure is the forecast Operating Expenditure for that financial year as set out in the significantly Annual Operating Plan; different from that forecasted (d) The Management Accounts for any month project a negative Free Cash Flow from Operations within the next __ month period, which cannot be met Projected from the Company’s existing sources of committed finance. negative Cash Flow Agreement means this agreement, and includes all the schedules to this agreement. Annual Operating Plan means a plan setting out the forecast financial performance of the Company for a financial year including the following information on a month by month basis: (a) profit and loss account, balance sheet and cash flow projections; and (b) detailed sales projections and operating and capital expenditure budgets. Board means the Board of Directors of the Company from time to time. Business Day means any day other than a Saturday or Sunday on which Australian banks are generally open for business in Sydney. Business Plan means a business plan incorporating an Annual Operating Plan to be prepared within  months of the date of this Agreement by Management and approved by the Board and thereafter, as amended from time to time and approved in accordance with this Agreement. Note: this could be amended to require Shareholder approval - see clause 5(a) in this regard. Chairman means the Chairman of the Board. Company means New Co Pty Limited (ACN ) of [Registered address] Confidential Information means: (a) all ideas, concepts and information concerning the business and affairs of the Company, including software codes, specifications and details of functionality, drawings, designs, models and plans whether in tangible form 3 SAMPLE SHAREHOLDER AGREEMENT COMMENTS or not; (b) all financial or other business information about the Company; (c) the identity of the clients of the Company; and (d) research and development information, financial data and information business plans, marketing materials and strategies and any other information about the Company or its services, other than information which is generally available in the public domain, except where that is as a result of disclosure in breach of this Agreement. Confidentiality Undertaking means the document by that name to be signed by senior employees of the Company (as defined by the Board from time to time), and which is in the form approved by the Board from time to time. Note: Alternatively, we can draft a standard Confidentiality Undertaking and annexe it to this Agreement – see clause 17. Constitution means the constitution of the Company as set out in the Company’s original articles of association, as amended. Control, in respect of a Shareholder which is or may in the future be a corporation, and in relation to its Controlling Party, means: (a) the beneficial ownership (directly or indirectly) of more than one half of the issued equity share capital of that Shareholder; (b) the ability to procure the passing of ordinary resolutions of that Shareholder; or (c) the right to appoint more than one half of the directors of that Shareholder, and controlling has a corresponding meaning. Corporations Act means the Corporations Act 2001 (Cth). Deed of Restraint means the document by that name to be signed by the persons identified in clause 18(b). Note: Again, we can draft a standard Deed of Restraint and annex it to this Agreement – see clause 18. Director means a director of the Company. Entity means entity as defined in section 64A of the Corporations Act. Externally-Administered Body Corporate has the meaning defined in Section 9 of the Corporations Act. Free Cash Flow from Operations means aggregate net cash provided by operating activities of the Company for a financial period minus aggregate net cash used in investing activities for the same period, calculated in accordance with Accounting Standards and in particular AASB 1026. 4 SAMPLE SHAREHOLDER AGREEMENT COMMENTS majority of Shareholders means a simple majority in number unless otherwise specified. Management means the senior executive staff of the Company. Management Accounts means financial accounts of the Company and its related bodies corporate prepared monthly by Management in accordance with generally accepted accounting principles in a form approved by the Board from time to time and will include monthly projections of Free Cash Flow from Operations and Operating Expenditure for the following twelve (12) months. Operating Expenditure, in relation to a particular financial period, means the aggregate amount expended by the Company on operating activities during that period. Shareholder means a shareholder in the Company. Shareholder ‘A’ Director means a Director nominated by Shareholder ‘A’. Shareholder ‘B’ Director means a Director nominated by Shareholder ‘B’. Shareholder’s controlling party in respect of: (a) a corporate Shareholder means (whether or not acting as trustee of a trust): (i) any party which holds the beneficial ownership (directly or indirectly) of one half or more of the issued equity share capital of that Shareholder; (ii) any party which has the ability to procure the passing of ordinary resolutions of that Shareholder; or (iii) any party which has the right to appoint more than one half of the directors of that Shareholder; (b) a Shareholder which holds Shares as trustee of a trust means: (i) if a unit trust: (A) any party which holds the beneficial ownership (directly or indirectly) of one half or more of the issued equity units in the trust; or (B) any party which has the ability to procure the passing of ordinary resolutions of the unit holders; (ii) any party has the power to remove, replace or appoint the trustee of the trust or whose consent is required to do so. Shares means, unless otherwise expressly stated in this Agreement, ordinary $1 par value shares in the capital of the Company. Transfer means give, sell, assign, transfer, convey, exchange, mortgage, grant a security interest in, encumber, pledge, hypothecate or otherwise dispose of 5 SAMPLE SHAREHOLDER AGREEMENT COMMENTS whether directly or indirectly, voluntarily, involuntarily or by operation of law. 1.2 In this Agreement, unless the context indicates otherwise: (a) reference to a party includes that party's successors and permitted assigns; (b) words expressed in the singular include the plural and vice versa; (c) words expressed in any gender include every gender; (d) if any word or phrase is given a defined meaning, any other part of speech or grammatical form in respect of that word or phrase has a corresponding meaning; (e) headings are inserted for convenience only and do not affect interpretation; (f) the words “person” includes a partnership and a body whether corporate or otherwise; (g) all references to dollars are to Australian dollars; (h) reference to any statute, statutory provision or other legislation (whether primary or subordinate) is to a statute or other legislation as amended or replaced from time to time; (i) the Schedule and any attachments form part of this Agreement; (j) if any conflict arises between the terms and conditions contained in the clauses of this Agreement and any part of the Schedule (and attachments if any), the terms and conditions of the clauses prevail; (k) if any conflict arises between any part of the Schedule and any part of an attachment, the Schedule prevails; (l) reference to the Schedule (or an attachment) is a reference to the Schedule (or an attachment) to this Agreement, including as amended or replaced from time to time by agreement in writing between the parties; and (m) any term or item which is defined in the Recitals or elsewhere in this Agreement will have the meaning there defined. 1.3 Headings and underlinings are for the purpose of identifying sections and must be disregarded in the construction of this Agreement. FUNDING OF THE COMPANY & USE OF FUNDS 2 FUNDING OF THE COMPANY and ADVERSE TRADING EVENTS 2.1 Any capital or other funds required for the financial operations of the Company will Capital funds as far as possible be borrowed from financiers which are prepared to provide funds borrowed - or facilities to the Company and the Shareholders will co-operate in the provision of shareholders the funding or facilities (including the giving of whatever security, guarantees to give security and/or undertakings may be reasonably necessary to complete the additional if necessary funding or facility). 6 SAMPLE SHAREHOLDER AGREEMENT COMMENTS Note: Alternatively you may exclude any obligation to give any security, guarantee and/or undertaking. 2.2 If the Company makes a loss in any financial year or there is an Adverse Trading Financial Event then unless the Shareholders all agree to liquidate the Company, the losses – Shareholders will, within one (1) month of the accounts being prepared, lend to the shareholders Company an amount of money equal to the amount of the loss. The amount to be to contribute = contributed by each Shareholder will be in proportion to his/her percentage loss, in Shareholding in the Company. For the purposes of this Agreement, this amount proportion to will not be treated as due or owing to the Company by any Shareholder who does shareholding not pay it when requested to do so. 2.3 In the event that: (a) one or more of the Shareholders agree to or is required to contribute or lend money to the Company; and (b) one or more of the Shareholders fails to contribute the amount of their agreed or required loan; and (c) one or more of the Shareholders is obliged to or agrees to contribute more than his/her agreed or required amount, Excess loan by then, to the extent that a Shareholder or Shareholders has to make up the shareholder deficiency of the others agreed or required contributions, that amount will be repaid given priority to the contributing Shareholder by the Company in priority to repayment of any repayment contributions or other loan funds due to the other Shareholders. OR Note: Alternatively, you could provide that “to the extent that a Shareholder or Shareholders make up the deficiency of another’s agreed or required contribution, Excess loan by that amount will be treated as a loan by the contributing Shareholder(s) to the shareholder defaulting Shareholder(s) and that amount will be repayable on demand and will treated as loan carry interest calculated at a rate which is one percent (1%) above the rate being by other paid by the contributing Shareholder(s) for the funds and if those funds have not shareholders been borrowed by the contributing Shareholder(s) then at a rate which is one percent (1%) above the rate the contributing Shareholder(s) would be paying if the money had been borrowed from the Company's bank at overdraft rates. Interest will be calculated and adjusted monthly and paid monthly on the date on which the funds were advanced to the Company.” 2.4 The Shareholders will procure that the Company pay interest on all and any money Interest lent to it by any Shareholder. That interest will be calculated and payable monthly payable on and the interest rate will be: shareholder loans: (a) a rate agreed by all the Shareholders from time to time, but, in the absence - as agreed; or of agreement; (b) a rate which is one percent (1%) above the rate being paid by the - 1% above contributing Shareholder(s) for the funds and, if those funds have not been own interest borrowed by the contributing Shareholder(s), then a rate calculated as one rates percent (1%) above the rate the contributing Shareholder(s) would have payable, or had to pay if they had borrowed it from the Company's bank at overdraft 1% above rates. Interest will be calculated and adjusted monthly and paid monthly on Company the day of the month on which the funds were advanced to the Company. overdraft rates 2.5 If any of the Shareholders or their controllers provide goods or services to the Company: Shareholders 7 SAMPLE SHAREHOLDER AGREEMENT COMMENTS providing (a) those parties must render an invoice to the Company within fourteen (14) goods or days of the end of the month in which the goods or services were provided, services to the and failure to do so will disentitle the claim; company – invoice (b) all invoices which are received by the Company in accordance with 2.5(a) rendered, paid and are approved by the Board as legitimate claims within the terms of the in normal party’s contract with the Company will be paid in the normal course except course. that, if the Company has insufficient funds to pay that invoice, the sum due will be recorded as a loan owed to the Shareholder and will be payable If co. can’t pay when the Board determines the Company has sufficient funds available to invoice– loan pay the amount due. When funds become available to pay those sums, all to Shareholder Shareholders who are owed money for the provision of goods and services will be paid equal pari passu instalments. Employ 2.6 The Company may only employ a person or contract the services of a person persons only (including the Shareholders and their controllers) pursuant to a written agreement by approved in a form approved by the Board. written agreement 3 USE OF FUNDS 3.1 The parties must procure that the Company utilises any equity capital subscribed Must apply by any party, investment funds, joint venture funds and any loans funds in funds in accordance with the Business Plan and the relevant Annual Operating Plan. This accordance will include: with Business Plan & (a) recruitment and salary of staff; Operating Budget (b) research and development expenses; (c) operating expenses; and (d) payment of amounts outstanding to creditors. 3.2 The Shareholders agree that the most important long term priority of the Company This type of is . provision is optional. You Eg: The diversification and development of its business operations. may include an outline of 3.3 The parties agree that the most important short term priorities of the Company are: agreed medium & long (a) __________; term goals eg; JV’s, sale of (b) __________. shares, float. DIRECTORS & SHAREHOLDER MEETINGS All provisions 4 MEETINGS - DIRECTORS & SHAREHOLDERS are by way of example only Composition of Board and can be deleted or varied to suit 4.1 For a period of twenty-eight (28) days from the date of this Agreement or for any your particular longer period a majority of the Shareholders may agree, the Board will comprise requirements Shareholder ‘A’ and Shareholder ‘B’ and an independent Chairperson, after which 8 SAMPLE SHAREHOLDER AGREEMENT COMMENTS period the following provisions will apply. or concerns. 4.2 The Board will comprise a maximum of ___ Directors. They have been drafted 4.3 Initially, the Board will comprise: provocatively to demonstrate how you may (a) up to  unanimously agreed Directors who are not Shareholders and ‘play around’ who are not representatives of any Shareholder, one of whom will be the with what Chairman with a term of two (2) years unless the Shareholders from time to many investors time in general meeting determine otherwise; assume are inflexible standards. (b) up to  nominees of Shareholder ‘A’; (c) up to  nominees of Shareholder ‘B’; and (d) the Company’s Chief Executive Officer from time to time, the first of whom will be [name], and each Shareholder agrees that each Director will be chosen or nominated only after consultation with the other Shareholders and Chief Executive Officer. 4.4 The Shareholders in general meeting must unanimously approve any changes to the Directors referred to in clause 4.3(a). 4.5 Shareholder ‘A’ and Shareholder ‘B’ must approve the appointment of the Chairman. 4.6 Shareholder ‘A’ and Shareholder ‘B’ may, from time to time, by written notice to the Company require any of its nominee Directors to be removed as a Director and nominate a replacement Director, but only after consultation with the other Shareholders. 4.7 A quorum of the Board will comprise at least  Directors, one of whom must be a Shareholder ‘A’ Director and one of whom must be a Shareholder ‘B’ Director. Shareholder ‘A’ and Shareholder ‘B’ will also have the right to appoint one (1) observer to attend any Board meeting. 4.8 A Shareholder ‘A’ Director, and a Shareholder ‘B’ Director will have the right to appoint an alternate Director to attend, participate in and vote at board meetings in his or her place. 4.9 Unless otherwise specified in this Agreement, decisions of the Board will be by 9 SAMPLE SHAREHOLDER AGREEMENT COMMENTS simple majority vote. The Chairman will [not] have a casting vote. Board Meetings 4.10 The Board will hold meetings every three (3) months (or at any other shorter These rules intervals it may determine) at the Company's registered office or at any other are detailed. convenient place nominated by the Secretary of the Company. They can be varied as to 4.11 The Secretary of the Company or his/her delegate will procure that at least detail, or some fourteen (14) days notice of the time, date and venue of every Board meeting is or all can be given to all Directors together with an agenda and, if appropriate, the available removed. information and background relating to any matter to be considered at such meeting. Some companies 4.12 Clause 4.11 does not apply if all of the Directors consent to a meeting of the Board prefer to allow to be convened and held on short notice, or no notice, and with some or none of the board to the information referred to in clause 4.11. determine how it manages its Note: This could be changed to require a majority of all Directors or simply all business whilst those present at the meeting if they constitute a quorum. others prefer minimum standards to 4.13 The Secretary of the Company will convene a special meeting of the Board in the be specified. manner specified in clause 4.11 at the request of any Director promptly after having received a request. 4.14 No business will be transacted at any Board meeting unless a quorum of Directors is present in person at the time the meeting proceeds to business and is present at all times during that meeting. 4.15 If within thirty (30) minutes after the time appointed for the meeting a quorum is not present the meeting will stand adjourned for the same day in the following week at the same venue and time and, if at the adjourned meeting a quorum is not present within thirty (30) minutes after the time appointed, the Directors present will then constitute a quorum. Minutes of Board meetings 4.16 (a) The Chairman will arrange for minutes to be kept of all proceedings of Board meetings. (b) A copy of the minutes will be provided to each Director within thirty (30) days after each Board meeting for approval or disapproval by the Directors who were present at the Board meeting. (c) Any Director who fails to indicate his disapproval of the minutes prepared for any Board meeting at which he was present within seven (7) days after the date of service will be deemed to have approved them. (d) Approval or disapproval of the minutes of any Board meeting will not affect the validity of any decisions duly made. Shareholders Meetings 4.17 For the purpose of considering matters arising under this Agreement: 10 SAMPLE SHAREHOLDER AGREEMENT COMMENTS (a) the Chairman or any Shareholder may upon giving reasonable notice to Shareholders Shareholders, convene a meeting of Shareholders. to elect a Chairman – no (b) Shareholders must from time to time elect a person to act as chairman of casting vote their meetings and, until otherwise agreed, the chairman of Shareholders’ meetings will be the Chairman. The chairman of a Shareholders meeting will [not] have a casting or second vote at any meeting. Note: Alternatively, the Chairman may be given the power to have a casting or second vote. (c) A quorum at a Shareholders meeting will comprise at least  Shareholders, one of whom must be Shareholder ‘A’ or Shareholder ‘B’. Note: Optional: Each Shareholder (whether their nominee is attending in person or by proxy) will also have the right to appoint one (1) observer to attend any Shareholders meeting. (d) Unless otherwise specified in this Agreement, decisions of meetings of the Shareholder Shareholders must be by majority of Shareholders present and voting decisions by whether in person or by proxy. Any Shareholder or their representative majority may call for a poll when the result of a vote is declared, and if a poll is called each Shareholder present and voting will be entitled to one vote for each share held and a poll will be determined by majority. In all other respects a poll will be conducted in accordance with the provisions of the Constitution. Note: This can be changed to require a unanimous agreement or alternatively, 75% agreement or any other percentage you desire. (e) To the extent that an inconsistency occurs between this clause and the This provisions of the Constitution, the provisions of this Agreement will prevail. Agreement prevails over (f) Clauses 4.14, 4.15 and 4.16 will apply to Shareholders meetings as if the Company’s reference to Board Meetings therein were a reference to Shareholders Constitution meetings and reference to the Chairman of the Board therein were a reference to the chairman of Shareholders meetings. Note: As currently drafted Clause 4 only regulates issues arising under this Agreement. Other shareholder issues are left to be regulated by the company’s Constitution. Most of these meeting provisions are already covered by the Constitution in substantially the same form, although the question of quorum and use of the chairman’s vote are 2 examples of variation from the Constitution. They are included here so the shareholders have a single document they can refer to. Some companies prefer not to duplicate satisfactory provisions and leave it to the Constitution, or merely include those provisions which make changes eg; re chairman’s casting vote and quorum CONTROL OF BOARD BY SHAREHOLDERS 5 MATTERS REQUIRING SHAREHOLDERS APPROVAL 5.1 A majority of the Shareholders must approve in writing before any of the following Matters which matters are agreed or given effect to: MUST be approved by Note: This could be changed to require a resolution of the Shareholders. As resolutions Shareholders: 11 SAMPLE SHAREHOLDER AGREEMENT COMMENTS are passed by those present at a meeting, the necessary number of shareholders giving approval may be less than is required by reference to a majority of all the Shareholders. Again, you can refer to a simple majority (ie. 50:50) or a special majority (ie. 75%) or any other percentage. (a) the adoption by the Board of any Annual Operating Plan, or Business Plan; - Business Plans (b) subject to clauses 4.5, 4.6, 4.7 & 4.8, the appointment or removal of any - Appointment/ Directors (including the Chairman); Removal Directors (c) remuneration or other compensation payable to the Chairman, all Directors - Wages and the top [three (3)] executives, and any changes to this remuneration or compensation; (d) the issue of any new Shares, options or other securities in the Company - Issue of including employee share incentive plans (unless that issue is specifically shares contemplated in the Business Plan current at that time); (e) any amendment to the rights of existing Shares or any change to the capital - Change structure of the Company; capital structure (f) any borrowing by the Company (unless the borrowing is specifically - Company contemplated in the Annual Operating Plan current at that time); loans (g) the Company granting any mortgage, charge or other encumbrance over all - Company or any of its assets (unless that mortgage, charge or other encumbrance is securities specifically contemplated in the annual Operating Plan current at that time); - Significant (h) any transaction or dealing where the value exceeds $ ; transactions (i) the acquisition or disposal by the Company of securities in any other Entity; - Company securities (j) the Company entering into or terminating any joint venture or strategic alliance (unless that course of action is broadly contemplated in the - Joint venture Business Plan current at that time); (k) the merger or amalgamation of the Company or any of its related bodies - Merger corporate with any other Entity; - Annual (l) the adoption of the annual accounts of the Company; accounts (m) any material change to the accounting principles applied in the preparation - Accounting of the accounts of the Company or its related bodies corporate; principles (n) the winding up or appointment of a controller, receiver or administrator to - Winding up the Company or any of its related bodies corporate; (o) the commencement or settlement of any litigation, arbitration or other legal - Litigation proceedings to which the Company or any of its related bodies corporate is a party and which is material to the business of the Company or any of its related bodies corporate; (p) the provision of any loan, guarantee or indemnity by the - Provision Company or any of its related bodies corporate; loans, etc. (q) 12 SAMPLE SHAREHOLDER AGREEMENT COMMENTS (q) the adoption or amendment of any employee incentive scheme which - Employee involves shares in the capital of the Company or options; incentive schemes (r) the cessation of any material aspect of the business of the Company or any - Material other material change to the business of the Company; change to business (s) other than expressly provided for in this Agreement, any amendment to the - Amending Constitution. Constitution 5.2 The above sub-clause applies no matter what is stated elsewhere in this Agreement or in the Constitution. Note: Under the Corporations Act, shareholders have very little control over the day-to- day activities of the board. Their rights are mainly limited to hiring and firing directors and other limited rights exercisable at AGM’s or Extraordinary General Meetings. In two principal ways this Agreement overrides those restrictions and provides shareholders a more direct say in what occurs. The first way is to allow certain shareholders to nominate and change directors, the second is to require certain issues to be referred to the shareholders for approval - akin to a veto vote. This clause contains the second such control. Again it is optional, and again it can be varied in any way you desire. RESTRICTIONS ON DEALINGS WITH SHARES No share 6 SHARE TRANSFERS disposal unless in 6.1 A Shareholder may only Transfer all or any part of their Shares as set out in this accordance Agreement. with this agreement 6.2 No transfer of any Share will be registered unless the proposed transferee has New share entered into a deed in the form of Annexure A agreeing to be bound by the terms holders must of this Agreement as amended from time to time (or an agreement in substantially sign Deed of the same terms as this Agreement), as if the transferee had been a party to this Adherence Agreement (“Deed of Adherence”). All 6.3 If a Shareholder (Offeror) wishes to Transfer all or part of their Shares (Offered shareholders Shares) the Offeror will first offer them to the other Shareholders (Remaining have first right Shareholders) by delivering to the Remaining Shareholders a written notice of refusal to (Transfer Notice) specifying the number of Offered Shares and the price payable purchase for them (Transfer Price). The Transfer Price will be determined as follows: shares (a) where the Offeror has received a bona fide offer (the onus of proving which will be on the Offeror) from a non-Shareholder to purchase his or her Price of shares Shares - the price specified in that bona fide offer; as per valid offer or in (b) otherwise, a sum per share calculated in accordance with the formula set accordance out in clauses 8.2 and 8.3, except that reference to the date of the Right with formula in Notice in clause 8.4 will, for the purpose of this clause, be read as the date 8.2 and 8.3 of the Transfer Notice. The Remaining Shareholders will have thirty (30) days after the Transfer Notice is No notice = deemed to be delivered to elect to accept Transfer of the Offered Shares at the deemed price set out in the Transfer Notice. Any Shareholder that fails to deliver notice of rejection of acceptance to the Offeror within the thirty (30) day period will be deemed to have offer 13 SAMPLE SHAREHOLDER AGREEMENT COMMENTS rejected the offer. 6.4 If more than one of the Remaining Shareholders elect to accept the Transfer of the Right to Offered Shares, then the number of Shares that each Remaining Shareholder will acquire is be entitled to acquire will be X. Where X is calculated according to the formula: proportional X= NxY Z Where: N = the number of Shares shown in the Transfer Notice. Y = the number of Shares held by the Remaining Shareholder as at the date of the Transfer Notice. Z = the total number of Shares owned by all Remaining Shareholders electing to accept transfer as at the date of delivery of the Transfer Notice. New shareholder qualification 6.5 If the Remaining Shareholders do not elect to accept, either individually or If all together, transfer of all of the Offered Shares, the Offeror may, for a period of Shareholders ninety (90) days immediately following the expiration of the thirty (30) day perioddon’t take up specified in clause 6.3, Transfer all of the Offered Shares as follows: right to acquire – can transfer (a) where the Offeror has received a bona fide offer from a non-Shareholder - to an approved to that non-Shareholder; (b) in any other case - to any other person, BUT ONLY, in either case, if the Remaining Shareholders have first aproved the transferee pursuant to clause 6.6 (which approval will not be unreasonably withheld) and ONLY, in either case, if the price paid by the transferee is no less than the price specified in the Transfer Notice. Note: Default provision: this is a ‘drop dead’ solution that is designed to promote a negotiated solution. You might prefer another alternative such as locking the shareholder in. Re: 3rd party offers: You might prefer to remove reference to 3rd party offers in this clause and deal with them separately eg; with the provisions dealing with ‘majority sales’ - see clause 11. Provisions Qualifying Proposed New Shareholders Where approval is sought for third 6.6 An Offeror which seeks the Remaining Shareholders’ approval of a party which party may take a transfer of any Shares pursuant to this Agreement, must submit to the purchaser, Remaining Shareholders a written request for approval together with: must give details of the third party. (a) If the proposed transferee or one of the proposed transferees as the case may be (Purchaser) is a natural person, the following: (i) name, address and principal occupation or business activity of the 14 SAMPLE SHAREHOLDER AGREEMENT COMMENTS Purchaser; (ii) any other reasonable and relevant information the Remaining Shareholders require, including, but without limitation, financial statements, credit references, business and personal references and qualifications of the Purchaser; Incoming Purchaser to (iii) a deed of agreement in the form required by the Remaining enter into a Shareholders signed sealed and delivered by the Purchaser and the Deed of Offeror by which: Agreement to pay all moneys (A) the Purchaser covenants to enter into the Deed of due to Adherence; and Company (B) the Purchaser and the Offeror covenant to pay the Company or the Remaining Shareholders out of any money payable by the Purchaser to the Offeror, any moneys then due to the Company or the Remaining Shareholders by the Offeror. (b) In the case of the Purchaser or one of the Purchasers being a corporation, the following: (i) name, address and principal occupation of each director, secretary and principal executive officer (if any) of that Purchaser; (ii) the name, address and principal occupation of all shareholders and beneficial owners of shares in the Purchaser; (iii) a deed in the form required by the Remaining Shareholders signed sealed and delivered by a person being a director of that Purchaser (with his successors called Principal) the Purchaser and the Offeror by which: (A) the Purchaser covenants to enter into the Deed of Adherence; (B) the Purchaser and the Offeror covenant to pay the Company or the Remaining Shareholders out of any money payable by the Purchaser to the Offeror, any moneys then due to the Company or the Remaining Shareholders by the Offeror; (C) the Principal : (aa) agrees to guarantee the performance by the Purchaser of its obligations under any agreement it enters into with the Remaining Shareholders; (bb) agrees to indemnify the Remaining Shareholders in respect of any breach by the Purchaser of that agreement. (iv) Any other reasonable and relevant information the Remaining Shareholders require, including, but without limitation, financial statements, credit, business and personal references and qualifications as the case may be of that Purchaser and of the Principal. Note: These provisions have 2 purposes: 1) To provide a yardstick by which continuing shareholders might assess a proposed incoming shareholder in a case where a shareholder wishes to dispose of his/her shares. 15 SAMPLE SHAREHOLDER AGREEMENT COMMENTS 2) To assist a shareholder who wants to ‘get out’ by providing some objective criteria by which he/she can satisfy remaining shareholders that a sale should be approved. Can’t purchase (c) Except as otherwise agreed by the Remaining Shareholders in writing, a the shares if person will not be eligible to be a Purchaser if: you compete (i) in the case of the Purchaser being a natural person, that person; or with the Company (ii) in the case of the Purchaser being a corporation, a person who is the, or one of the, directors of the Purchaser: (A) is or may be in competition with the Company; or (B) is an associate of an industry player or competitor. 6.7 The Remaining Shareholders will (by notice in writing to the Offeror) grant or refuse Existing their consent, within thirty (30) days of their receipt of the documents and Shareholders information set out above and, if that notice is not given, their consent will be to approve or deemed to have been refused. refuse the sale to the third party 6.8 At any time prior to the winding up of the Company as provided for in clause 6.9, if the Offeror fails to find an approved purchaser for its Shares and: If Offeror can’t (a) a Remaining Shareholder finds a purchaser for the Offeror's Shares; and find a Purchaser, but (b) a majority of the Shareholders (excluding the Offeror) approve of the an existing purchase of the Offeror's Shares by the purchaser; Shareholder finds a (c) the purchaser agrees to pay the Offeror the price requested for its Shares, Purchaser, or in the absence of that agreement, a sum calculated in accordance with must transfer clauses 8.2 and 8.3; and the shares to that Purchaser (d) the purchaser enters into a deed under which it covenants: if reasonable price. (i) to enter into a Deed of Adherence; and (ii) to pay the Company or the Remaining Shareholders out of any money payable by the purchaser to the Offeror, any moneys then due to the Company or the Remaining Shareholders by the Offeror, the Offeror will Transfer its Shares to the purchaser and upon the purchaser tendering payment for or securing payment of the purchase price according to the provisions of this clause 6.8 to the reasonable satisfaction of the Offeror any obligation upon the remaining Shareholders to further comply with a notice issued pursuant to clause 6.6 will be at an end. 6.9 If only part of a shareholding is transferred, the Transferor and the Transferee must agree, before the Shares are transferred, on the number of Directors each will have the right to appoint to the Company and must inform the Company in writing of their decision. The total number of these Directors will not exceed the number of Directors which the Transferor is entitled to appoint under clause 4 of this Agreement. 16 SAMPLE SHAREHOLDER AGREEMENT COMMENTS If no suitable 6.10 If no suitable purchaser can be found for the Offered Shares pursuant to the Purchaser can provisions of this clause or otherwise within seven (7) months of the service of the be found, the Transfer Notice (the “Initial Period”) the Offeror may within twenty-one (21) days of Offeror can the expiry of the Initial Period serve written notice on the Remaining Shareholders request the requiring that: sale of (a) the assets and undertaking of the Company be sold within twelve (12) Company months of the date of service of the notice (with terms of sale to include the assets and for purchase price to be paid in cash on completion) and the Company be at the Company once wound up upon completion of the sale; or to be wound up. (b) if the assets and undertaking of the Company are not sold within twelve (12) months that upon expiry of the twelve (12) month period the Company be at once wound up, and the Shareholders must do or cause to be done all things reasonably necessary to comply with that notice. PROVISIONS WHICH TRIGGER THE RIGHT OF SHAREHOLDERS TO Compulsory COMPULSORILY BUY OUT A SHAREHOLDER sale of shares: 7 COMPULSORY BUY OUT TRIGGERS 7.1 A Shareholder will cease to be eligible to remain a Shareholder of the Company Can’t be a (Defaulting Shareholder) if the Shareholder, or, in the case of a corporate shareholder if: Shareholder, the Shareholder’s controlling party: (a) is in breach of any provision of this Agreement, except where the breach is - breach of this capable of being remedied and is remedied within twenty-one (21) days of Agreement the Shareholder being served with a notice by the Board or a majority of the other Shareholders requiring it to provide the remedy; -is insolvent (b) (i) enters into any form of insolvency administration whether voluntarily or otherwise; or (ii) appoints a controller (as that term is defined in the Corporations Act) or Company entering into possession of any part of a Shareholder’s or a Shareholder’s controlling party’s assets; (c) is convicted of an indictable criminal offence which, in the reasonable - is a criminal opinion of a majority of the remaining Shareholders, will adversely affect the business of the Company; - dies (d) where a Shareholder is an individual, dies or becomes mentally incapable; or - becomes insane (e) where the Shareholder is a corporation, that Shareholder’s controlling party dies or becomes mentally incapable. 7.2 A majority of Shareholders (on a poll conducted in accordance with the Constitution allowing one (1) vote for each full paid ordinary share held but not including the defaulting Shareholder(s) in the calculation of the majority) may by notice (Default Notice) given to the other Shareholder(s) terminate this Agreement insofar as it applies to a Defaulting Shareholder(s). Note: These provisions enable ongoing shareholders to compulsorily acquire the shares of a shareholder in certain circumstances. That is, the owner of the shares is 17 SAMPLE SHAREHOLDER AGREEMENT COMMENTS forced to sell. Additional Comments: 1) Compulsory acquisition of shares – The agreement can be altered to include a compulsory obligation on continuing shareholders to acquire shares of an outgoing shareholder in certain circumstances, eg. In the event of death or retirement. If you intend forcing ongoing shareholders to purchase shares then you must turn your mind to the funding of the acquisition. In the case of death, the purchase moneys could be funded by using the proceeds of a life policy set up for that purpose. If permanent disability were an issue this could also be insured against. In other cases you could build in an acceptable time payment arrangement, eg. 20% within 60 days of the event and the balance within 2 years or by instalment over ___ years. 2) As currently drafted, if continuing shareholders elect to acquire a defaulting shareholder out in circumstances where the buy out is triggered by a default (ie. Breach of agreement) the ongoing shareholders get to acquire the shares at a discount (See 8.1(a) below). We can also add a provision that in these circumstances ongoing shareholders also have time to pay. PROVISIONS DEALING WITH THE AMOUNT TO BE PAID FOR SHARES IF THEY ARE PURCHASED BY CONTINUING SHAREHOLDERS 8 PERCENTAGE ENTITLEMENT DEPENDING ON CIRCUMSTANCES GIVING RISE TO BUY OUT 8.1 Upon service of a Default Notice under clause 7, the non-defaulting Shareholders Right to will have the right (Right) to purchase in the portions specified in clause 6.4, all purchase the Defaulting Shareholder’s Shares (Right Shares) then for the time being shares of beneficially owned by the Defaulting Shareholder at a price (in default of Defaulting agreement between the parties) calculated as being equal to: Shareholders. (a) where the Default Notice is issued consequent upon clause 7.1(a), (b) or (c), ___ percent (__%) of the value of that proportion of the Net Worth of the Company as the shareholding in question is in proportion to the total issued Shares in the Company at that time; (b) in all other cases the value of that proportion of the Net Worth of the Company as the shareholding in question is in proportion to the total issued Shares in the Company at that time. Note: Full value is payable in some cases (eg; death) whereas less than the full value is payable if the buy out is necessitated by a default by a shareholder. 18 SAMPLE SHAREHOLDER AGREEMENT COMMENTS Share Valuation Method 8.2 For the purpose of clause 8.1, Net Worth will be calculated in accordance with the Method of following formula: calculating the sum payable The value of the assets of the Company (including all borrowing by to a Defaulting Shareholders) minus liabilities of the Company (including all loans from Shareholder Shareholders); Any formula WHERE: can be specified. This the value of “goodwill” as an asset is calculated by multiplying the is a sample maintainable pre tax profits by a factor of ____. only to provoke 8.3 When calculating the Net Worth of the Company, the multiplication factor used to thought. determine goodwill, the value of goodwill, the value of the assets of the Company and the market value of the business of the Company (in the absence of agreement between a majority of the Shareholders, but not including the Defaulting Shareholder in the calculation of the majority) will be the average value of three (3) valuations obtained from three (3) independent valuers, with experience in valuing businesses similar to the business of the Company, appointed by agreement between the Shareholders (or, failing agreement within fourteen (14) days, appointed by the President for the time being of the Institute of Chartered Accountants in Australia at the request of any Shareholder) acting as experts and not as arbitrators, that determination to be final and binding on the parties. Note: Alternatively, it can be left to agreement between the parties at the time and in default of agreement as determined by a independent expert or the average value of 3 independent experts. Procedural Steps to Exercise Option - Notices etc. Can purchase 8.4 The non-defaulting Shareholders may exercise their Right to acquire the Right Defaulting Shares by giving written notice of that intention to the Defaulting Shareholders or Shareholders to their personal legal representative (Right Notice), at any time before the shares upon expiration of thirty (30) days from the date of service of the Default Notice referred notice to them. to in clause 7.2. Upon receipt of the Right Notice, and upon payment of the Upon payment determined value of the Right Shares, the beneficial owner(s) of those Shares will the Defaulting at once execute and deliver (together with the relevant Share certificate) transfers Shareholder of the Right Shares to the non-defaulting Shareholder in the numbers, and to the must execute non-defaulting Shareholders as specified in the Right Notice. If the Defaulting share Shareholder or his personal legal representative fails to execute and deliver the certificates and certificates and transfers, the non-defaulting Shareholders will be empowered and transfers. If authorised to execute those transfers as attorney(s) of the defaulting Shareholder. not, the The Shareholders each covenant with each other that they will each do all things existing and sign all things necessary to register the power of attorney granted if shareholders registration is required by law. are authorised to do it for them. 8.5 If more than one of the Remaining Shareholders elect to purchase a portion of the Right to Right Shares then in absence of agreement, the number of Right Shares which acquire is each of the Remaining Shareholders will be entitled to acquire will be determined proportional. in accordance with the formula in clause 6.4. If all shares 8.6 If the Remaining Shareholders fail to elect to purchase all the Right Shares within not purchased, thirty (30) days of the service of the Right Notice then the Defaulting Shareholder Defaulting or its personal legal representative or in the case of an individual, next of kin Shareholder 19 SAMPLE SHAREHOLDER AGREEMENT COMMENTS (whichever the case may be) shall be at liberty to sell the Right Shares to any can offer to person who is first approved by the Remaining Shareholders in accordance with third party and subject to clauses 6.2, 6.5, 6.6, 6.7 and 6.8. subject to approval. Terms of payment 8.7 Where one or more Shareholders exercise their right to acquire a Shareholder’s Terms of Shares or a portion of them pursuant to clause 6.4, each purchaser must, in the payment for absence of agreement, pay their respective purchase monies as follows: shares being transferred (a) twenty percent (20%) of the purchase price within sixty (60) days of the from Offeror service of the relevant Right Notice; and (b) the balance within twelve (12) months of the service of the relevant Right Notice. Terms of 8.8 Where one or more Shareholders exercise their right to acquire a Shareholder’s payment for Shares or a portion of them under clause 8.1, each purchaser must, in the absence shares from a of agreement, pay their respective purchase monies as follows: Defaulting (a) twenty percent (20%) of the purchase price within sixty (60) days of the Shareholder service of the relevant Right Notice; and (b) the balance within thirty-six (36) months of the service of the relevant Right Notice. Interest is payable 8.9 Moneys payable under clauses 8.7 or 8.8 will, until paid, carry interest calculated at a rate equal to the rate the Company would be paying if the money had been borrowed from the Company’s bank at overdraft rates. Interest will be calculated and adjusted on monthly rests and paid monthly on the date of service of the relevant Right Notice. Alternate death provisions 8.10 The Shareholders may enter into a separate deed, which provides for insurance Insurance funded buy-outs in the event of the death of a Shareholder or Shareholder’s funded buy- controlling party. outs Note: Again, we can draft such a Deed and annexe it to this Agreement if required. In simple terms, each Shareholder is required to take out life insurance, the beneficiaries of which are the remaining Shareholders who use this money to purchase the deceased’s shares. 9 ASSIGNMENT No assignment of rights and The rights, liabilities and obligations conferred and imposed by this Agreement are liabilities personal to the parties and may not be assigned or transferred without the prior without written written consent of the parties. The transferee upon entering into any agreement or consent. other documentation referred to in clause 6.2, will be entitled to exercise all the rights of the transferor under this Agreement as though it were the transferor. 20 SAMPLE SHAREHOLDER AGREEMENT COMMENTS EVENTS TRIGGERING COMPULSORY ACQUISITION & INDEMNITIES Each shareholder 10 SHAREHOLDER ELIGIBILITY & INDEMNITIES indemnifies the other against Each of the Shareholders indemnifies the other Shareholders against all losses breach and expenses resulting from or arising out of any breach by it, of any provision or condition of this Agreement or the Constitution. PROVISIONS BINDING ALL PARTIES TO A SALE OF ALL SHARES TO A THIRD PARTY IF A MAJORITY WISH TO SELL 11 MAJORITY SALE Offer to 11.1 purchase ALL If at any time a written offer (Offer) is made by any other person (Offeror) to purchase all of the Shares in the Company, at a price and on terms and conditions which are shares of the company, acceptable to a majority of the Shareholders, (on a poll conducted in accordance with the Constitution allowing one (1) vote for each fully paid ordinary share held) majority agrees to sale (Majority), the Shareholder(s) not in favour of accepting the offer (Minority), will have an option to purchase (Purchase Option) the Shares held by the Majority, at the same– minority has price and on the same terms and conditions as are contained in the Offer. the option of purchasing all 11.2 The Purchase Option may be exercised by a Minority Shareholder giving notice of of the acceptance in writing to the Majority during the period within twenty-one (21) days majority’s after their receipt of a copy of the Offer (Option Period). shares on the same terms as the original offer. Minority to give 11.3 Each Minority Shareholder must notify the Majority in writing of their acceptance or notice to rejection of the offer within the Option Period. If the Minority Shareholder fails to Majority that provide that notice, then it will be taken to have rejected the Offer. going to purchase 11.4 If a Purchase Option is exercised, completion of the sale will take place in accordance with the terms and conditions set out in the Offer or on any other terms Sale in all Shareholders may agree in writing. The Shareholders representing the Majority accordance will then transfer their shares in the Company to, or at the direction of, the Minority. with terms of original offer. 11.5 If a Purchase Option is not exercised within the Option Period, the Minority will be obliged at the written request of the Majority to sell their Shares to the Offeror at the If Minority fail price and on the terms set out in the Offer, provided that the Majority sell their Shares to purchase, to the Offeror in the same manner. MUST sell their shares to Note: Compare to a situation if only one shareholder is offered money for his/her original offeror shares - see clause 6.3 12 OBLIGATIONS OF SHAREHOLDER ON TRANSFER (a) On or before the day when it Transfers all its Shares, a Shareholder must: Shareholder to cause (i) cause any person solely appointed by it to resign from office as a resignation of Director or other officer of the Company and release the Company its Directors from all liability in relation to any office held by that person (except for liability which has accrued before the date of resignation of the officer); Return books (ii) return to the Company all original books and records relating to the and records 21 SAMPLE SHAREHOLDER AGREEMENT COMMENTS Company, including any part or any copy which may have been Shareholder incorporated in an updated work for the Shareholder’s use; and must cause resignation of (iii) at the Company’s request, provide the Company with written Directors to confirmation that it has complied with this clause. which it is no longer entitled (b) On or before the day on which it Transfers some but not all of its Shares, a Shareholder must, comply with the provisions of clause 6.9 and, if it is then no longer entitled to appoint as many Directors as are at that date appointed at its nomination, cause the requisite number of Directors appointed by it to: (i) resign from office as a Director; and (ii) release the Company from all liability in relation to Directorship (except for liability which has accrued before the date of resignation of the Director). FINANCIAL MANAGEMENT ISSUES 13 REPORTING BUDGETS AND PLANS 13.1 The parties must ensure that: (a) the Board causes Management Accounts to be prepared quarterly within Management fourteen (14) days after the end of each quarter to which they relate; accounts to be provided to (b) each set of Management Accounts is accompanied by a commentary on the Directors accounts, a report from the general manager and any documentation of material significance to the Company's operations during the period to which the accounts relate; and (c) the Management Accounts and the accompanying material referred to in paragraph (b) above are provided to each of the Directors not later than three (3) days before each Board meeting. 13.2 The parties must ensure that the Board causes an Annual Operating Plan to be Annual prepared and updates the Business Plan by 31 May each year for the following Operating Plan financial year and circulates the Annual Operating Plan and the updated Business & Business Plan to the Board for discussion and approval at the meeting of the Board held in Plan each year June of each year. 13.3 The parties must ensure that the Board promptly provides to each Director any Provided to information concerning the Company that a Director may, from time to time, Directors reasonably require. 14 DIVIDEND POLICY Dividend policy preference to 14.1 The Shareholders must, on or before 30 June each year, unanimously determine be their preference for the Company’s dividend policy for the following financial year of unanimously the Company, and must notify the Board of those preferences in writing, provided determined by that the Board will be guided by, but is not bound to adopt the preferences so Shareholders notified. each year. 14.2 In default of agreement referred to in the sub-clause above, the dividend policy of If no the Company will be to distribute, in respect of each financial year of the Company, agreement, not less than the amount calculated in accordance with the following formula: calculated by 22 SAMPLE SHAREHOLDER AGREEMENT COMMENTS formula a = % of [b - c] where a = the minimum amount to be distributed b = the profits of the Company in relation to the relevant financial year, as disclosed in the accounts of the Company for that year c = any reasonable provision for working capital requirements the Board may consider appropriate 15 AUDITORS Board to ensure co. Unless the Shareholders all otherwise agree in writing, within thirty (30) days of the accounts are close of each financial year, the Board must ensure that the accounts of the audited each Company are audited for the financial year just ended. year MISCELLANEOUS 16 GENERAL UNDERTAKINGS Each 16.1 Each of the Shareholders agree to do all things necessary to give full effect to this Shareholder to Agreement. do all things necessary: 16.2 Without limiting the generality of the preceding clause, each Shareholder must: - vote (a) exercise the voting rights attached to the Shares held by it and ensure that its nominees on the Board (or their alternate directors) vote in a manner which gives full effect to and is consistent with the terms of this Agreement; - pass (b) if a corporation, pass all necessary resolutions of its directors or its resolutions shareholders, duly execute all relevant documents and tender all appropriate monies in order to give full effect to the terms of this Agreement; (c) ensure that all entities which it controls from time to time refrain from acting - ensure in a manner which hinders or prevents the Company from carrying on its entities act business in a proper and reasonable manner; and properly (d) generally use its best endeavours to promote the business and interests of - use best the Company. endeavours 16.3 Each Shareholder undertakes: (a) to use its best endeavours to ensure it sends a person (authorised or - attend approved) to attend all general meetings of the Company and all meetings meetings of the Board, which have been properly convened, so that a quorum may be constituted; (b) that the person notified by the party to the Company as representing the - rep’s have Shareholder at any general meeting or meeting of the Board, will have the authority to power to act on their behalf, unless the Shareholder or that representative act specifies otherwise. 16.4 The Shareholders each agree to co-operate with each other and do all things and sign all documents necessary to give effect to the provisions of this Agreement, - cooperate including (but without limiting the generality of this obligation), causing the 23 SAMPLE SHAREHOLDER AGREEMENT COMMENTS appointment or removal of directors as required and, causing any Director nominated by them to act in accordance with the terms set out in this Agreement. CONFIDENTIALITY RESTRAINTS & SERVICE AGREMENTS 17 CONFIDENTIALITY Shareholders 17.1 Each of the Shareholders agree: to maintain confidentiality (a) to treat the Confidential Information as confidential; (b) not to disclose to any person, other than those employees of the Company who need to have that information in order to carry out their duties on behalf of the Company, any of the Confidential Information; and (c) not to use any of the Confidential Information for their own purposes, or for the benefit of any third party, except as expressly authorised by this Agreement or pursuant to any requirement of the Corporations Act. 17.2 The Shareholders must maintain absolute confidentiality concerning the terms of this Agreement, and no public announcement or communication relating to the negotiations of the parties or the terms of this Agreement may be made or authorised by a Shareholder without the prior approval of the Board. 17.3 Sub-clauses 17.1 and 17.2 will not prevent a Shareholder from disclosing information or material: (a) to its professional advisers, bankers, financial advisers and financiers upon those persons undertaking to keep confidential any information so disclosed; or (b) to comply with any applicable law or requirement of any regulatory body; or (c) to its senior executives, provided they are the subject of a Confidentiality Undertaking. 17.4 The above provisions of this clause will continue to apply to a Shareholder Confidentiality notwithstanding that the Agreement has been terminated or the Shareholder has to be ceased to be a party to this Agreement. maintained even if 17.5 The Shareholders must ensure that each Director, alternate Director, company Agreement is Secretary, observer at Board meetings, employee and consultant of the Company terminated, or executes a Confidentiality Undertaking in a form first approved by the Board. no longer a party to it Note: Again, we can draft a standard Confidentiality Undertaking and annexe it to this Agreement. 18 POST TERMINATION RESTRAINTS Each of the Participating Parties must: (a) execute a Deed of Restraint in a form approved by a majority of the Shareholders; (b) ensure that each of the senior executives and employees of the Company enters into a Deed of Restraint in a form approved by a majority of the Shareholders; and 24 SAMPLE SHAREHOLDER AGREEMENT COMMENTS (c) if a body corporate, ensure that each of its officers and its senior executives and employees enter into a Deed of Restraint in a form approved by a majority of the Shareholders. Note: Again, we can draft a standard Deed of Restraint and annex it to this Agreement if required. 19 TERMINATION OF SERVICE AGREEMENTS If Shareholders 19.1 If any Shareholder enters into a service(s) agreement with the Company which is Service validly terminated by the Company then: Agreement is terminated: (a) the Shareholder or its nominee (as the case maybe) will no longer be - cease to be eligible to serve as a Director; and Director (b) the Shareholder or its related Entity’s voting rights (as the case may be), in - voting rights relation to its Shares, will be suspended until the date on which the services are or service agreement would have expired in the normal course. suspended 19.2 The provisions of the above sub-clause do not apply if the service(s) agreement is Doesn’t apply terminated: if: - cease due to (a) by agreement between the Company and the Shareholder; or agreement - Shareholder (b) as a result of death, illness or injury. dies 19.3 In the event of a dispute regarding the termination of a Shareholder’s voting rights, Parties to use the parties will use their best efforts to resolve that dispute within three (3) months best efforts to after it arises. resolve dispute GENERAL PROVISIONS & BOILERPLATE PROVISIONS 20 CONSTITUTION 20.1 If there is any inconsistency between the provisions of this Agreement and the Agreement Constitution, the provisions of this Agreement will prevail. prevails over Constitution – 20.2 To the extent necessary, the Shareholders must cause any necessary amendment can amend to the Constitution to be made to ensure that the Constitution is consistent with this Constitution Agreement and so that full effect can be given to the provisions of this Agreement. 21 TERM 21.1 This Agreement remains in full force and effect until the earlier of: Agreement stays on foot (a) the times when all of the issued Shares are held by one person; or until: - one person (b) the parties agree, in writing, to terminate this Agreement. holds all shares; or 21.2 Subject to the above sub-clause, the Shareholders agree that when a person - agreement ceases to be a Shareholder of the Company: (a) this Agreement will, by that very fact, be terminated with respect to that Termination of former Shareholder; this Agreement when person 25 SAMPLE SHAREHOLDER AGREEMENT COMMENTS (b) this Agreement will continue, without termination, with respect to all the ceases to be a current Shareholders of the Company; and Shareholder, but will (c) the rights and obligations between a former Shareholder and the other continue for Shareholders which accrued before the termination or are expressed to remaining apply after termination will continue to apply but otherwise the former Shareholders Shareholder(s) will cease to have any rights and obligations under this Agreement. 22 REPRESENTATIONS AND WARRANTIES Each Shareholder warrants and represents to each other Shareholder that: (a) (Legally binding obligation): this Agreement constitutes a valid and legally binding obligation of that Shareholder in accordance with its terms; (b) (Execution, delivery and performance): the execution, delivery and performance of this Agreement by that Shareholder does not breach or conflict with any statute or law, or any document or agreement (including where that Shareholder is a body corporate, its constitution, or other constituent documents) to which that Shareholder is a Shareholder, or which is binding on it or on any of its assets; (c) (Authorisation): all consents, licences, approvals and authorisations of every government authority required to be obtained by that Shareholder in connection with the execution, delivery and performance of this Agreement have been obtained and are valid and subsisting; (d) (Due registration): if a body corporate, it is duly registered or incorporated in its jurisdiction of registration or incorporation; (e) (Corporate power): if a body corporate, it has the power, and has taken all corporate action required, to execute and deliver this Agreement, and perform its obligations under this Agreement; (f) (No external administration): if a body corporate, it is not an Externally- Administered Body Corporate and to the knowledge of that Shareholder, no liquidator, receiver, receiver and manager, administrator or similar officer has been threatened to be, or has been, appointed to that Shareholder or any of its property; (g) (No pending administration): if a body corporate, no event or conduct has occurred which could result in that Shareholder becoming an Externally- Administered Body Corporate; (h) (No bankruptcy): if a natural person, that Shareholder has not committed an act of bankruptcy, no bankruptcy notice has been issued to that Shareholder, that Shareholder has not entered into any arrangement under Part X of the Bankruptcy Act 1966 (Cth), no petition has been presented for the making of a sequestration order against the estate of that Shareholder which has not been dismissed or withdrawn and/or no sequestration order against the estate of that Shareholder has been made and not been discharged or annulled; and (i) (No insolvency): they are not, nor have been deemed under any applicable law to be, insolvent or unable to pay their debts as and when they become due and payable. 26 SAMPLE SHAREHOLDER AGREEMENT COMMENTS 23 GOODS AND SERVICES TAX (GST) Any price or other specified amount which is payable under this Agreement is GST inclusive. 24 RELATIONSHIP, RIGHTS AND OBLIGATIONS The Shareholders agree that their rights and obligations under this Agreement are several and: (a) nothing in this Agreement creates or constitutes a Shareholder the partner, Agreement not agent, employee or representative of any other Shareholder; to constitute partnership, agency etc. (b) except as specifically provided in this Agreement: No authority to act for any (i) no Shareholder may hold itself out as having authority to act on other behalf of any other Shareholder; shareholder (ii) no Shareholder may incur obligations on behalf of any other Shareholder; (iii) no Shareholder may assume any responsibility for any other Shareholder; (c) no Shareholder will be responsible for the performance by any other Shareholder of any obligation under this Agreement; and (d) no Shareholder will be relieved of any of their obligations under this Agreement because any other Shareholder fails to perform their obligations. 25 WAIVER Failure or Any failure, delay or omission by a Shareholder to exercise a power or right delay in conferred on them by this Agreement will not operate as a waiver of that power or exercising right, and any single exercise of a power or right will not preclude another exercise power does of that power, or the exercise of another power or right under this Agreement. not mean cannot later exercise it 26 VARIATIONS Parties can modify this This Agreement may only be varied by a document signed by or on behalf of each Agreement, of the Shareholders. but must be written and signed by all shareholders 27 SEVERABILITY If one clause is 27.1 Any provision in this Agreement, which is prohibited or unenforceable in any unenforceable, jurisdiction will, as to such jurisdiction, be ineffective to the extent of that prohibition void or or unenforceability without invalidating the remaining provisions or affecting the prohibited, this validity or enforceability of that provision in any other jurisdiction. does not mean that the rest of 27.2 If any offending provision is capable of being read down so that it will not be void, the Agreement voidable, unenforceable or illegal, that provision will be read down accordingly. is also 27 SAMPLE SHAREHOLDER AGREEMENT COMMENTS unenforceable, prohibited or void. 28 COUNTERPARTS Every party does not have This Agreement may be executed in any number of counterparts and all to sign the one counterparts when executed and taken together will constitute this Agreement. document, they can each sign their own copy. 29 ENTIRE AGREEMENT 29.1 This Agreement and the Constitution and the other documents specifically referred This to in this Agreement constitute the entire agreement between the Shareholders in Agreement, its relation to the conduct and management of the Company and their relationship as annexures and Shareholders and any warranty, representation, guarantee or other term or the condition of any nature not contained or recorded in these documents is of no force Constitution or effect. make up the whole of the 29.2 This Agreement replaces all prior agreements and understandings between the Shareholders or any of them concerning the matters referred to in this Agreement, agreements and, if the terms of this Agreement and the Constitution are inconsistent in any way, between the the provisions of this Agreement will prevail to the extent that law or equity permits. parties. 30 GOVERNING LAW 30.1 This Agreement is governed by and must be construed according to the laws in If need be, this effect in New South Wales. Agreement will be interpreted 30.2 Each party submits to the non-exclusive jurisdiction of the courts of New South by NSW Wales in relation to all matters arising under or relating to this Agreement. Courts 31 DISPUTE RESOLUTION Court and arbitration proceedings 31.1 A Shareholder must follow all the dispute resolution procedures set out in this All dispute clause before commencing Court or arbitration proceedings relating to a dispute, resolution except where the Shareholder seeks urgent interlocutory relief. procedures must be Negotiation followed before 31.2 (a) Any Shareholder seeking to resolve a dispute arising out of or relating to litigation or this Agreement must notify the other in writing, detailing the matters in arbitration, dispute and their suggested means of resolution. except seeking injunction. (b) Within fourteen (14) days of the date the notice is given under subclause (a) the Shareholders must meet to attempt to resolve the dispute. That meeting must be arranged by the Shareholder sending the Notice. Mediation Disputes are to 31.3 (a) If the parties are unable to resolve the dispute by negotiation, as set out in be mediated the above sub-clause, they must endeavour to settle it by mediation by an agreed administered by the Australian Commercial Disputes Centre (“ACDC”) independent before having recourse to arbitration or litigation. mediator 28 SAMPLE SHAREHOLDER AGREEMENT COMMENTS (b) The mediation must be conducted in accordance with ACDC Mediation Guidelines, which set out the procedures to be adopted, the process of selection of the mediator and the costs involved. 32 NOTICES 32.1 Notices under this Agreement may be given personally or by post, facsimile Notice may be transmission or electronic mail at the Address for Service of each Shareholder. given personally or 32.2 If a notice is: by post, fax or email at the (a) personally served on the party or an officer of the party to whom it is given, it address or will be deemed to be received immediately upon delivery if delivered before number show 5.00pm on a Business Day or on the next Business Day if delivered after in the 5.00pm; Definitions. (b) mailed to the party, it will be deemed to be received on the second Business Day following the date of posting; or (c) sent by facsimile or electronic mail, it will be deemed to be received on the date the facsimile machine or computer displays or records confirmation that despatch has been completed to the party to whom it was sent, unless the record shows a time later than 5.00pm on that date, when receipt will be deemed to be on the next Business Day. 33 COSTS AND EXPENSES The Shareholders acknowledge that they are jointly and severally liable for and agree to ensure that the Company pays the legal expenses incurred in connection with the negotiation, drafting and execution of this Agreement and all associated transaction documentation 34 STRATEGIES AND OBJECTIVES The parties agree that the first Business Plan reflects the strategies and objectives of the Company, namely to _________________ and ___________. Note: Can include objective to float or sell. EXECUTED as an Agreement. Signed for and on ) behalf of the company ) by its duly authorised ) officer in the presence of ) …………………………………….. …………………………………. Witness 29 SAMPLE SHAREHOLDER AGREEMENT ANNEXURE A DATE: 2002 DEED OF ADHERENCE TO NEW CO PTY LIMITED (ACN ) SHAREHOLDERS AGREEMENT SAMPLE DEED OF ADHERENCE CUNICH BUSINESS LAWYERS 41 Market Street WOLLONGONG NSW 2500 Tel: (02) 4229 5545 Fax: (02) 4229 9688 31 SAMPLE DEED OF ADHERENCE This Deed is made on the day of BETWEEN: ( “new shareholder”) AND: ( “current shareholders”) AND: New Co. Pty Limited (ACN ) ( “company”). WHEREAS: A The current shareholders are subject to and bound by the terms and provisions of the Shareholder Agreement dated day of 2002 (“Shareholder Agreement”). B The new shareholder has recently acquired or will acquire [all]/[part of] the interests of Shareholder [ ] in the company. C The new shareholder and each of the current shareholders wish to preserve the benefits that accrue to each of them by reason of their interests in the company being held subject to the Shareholder Agreement. Now in consideration of the parties executing this Deed and the exchange of mutual promises the parties severally for themselves, their legal personal representatives, heirs, executors, administrators, beneficiaries, successors and permitted assigns by this Deed agree as follows: 1 With effect from the date of this Deed the new shareholder acknowledges and agrees to be bound by the terms and provisions of the Shareholder Agreement as though and to the effect that the new shareholder originally executed that Agreement. In witness to their agreement to the terms of this Deed the parties have signed sealed and delivered their consent. SIGNED SEALED AND DELIVERED by ) in the presence of: ) ………………………………………………… Signature of New Shareholder …………………………………………….. Witness 32 SAMPLE DEED OF ADHERENCE THE COMMON SEAL of ) ……………………………………………… ) is affixed in accordance with its Articles ) of Association ) ……………………………………………….. Signature of authorised person ……………………………………………… Witness 33
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