CORPORATE BUY AND SELL AGREEMENTS
WHAT THEY ARE, WHY HAVE THEM AND PITFALLS TO AVOID
A well drafted buy and sell agreement is one of the most valuable tools a company can have to
protect its value in the event of death, disability or divorce striking one or more of the owners
and can also provide vital business saving methods to handle both voluntary sale of shares or
bankruptcy of a shareholder.
Absent such an agreement, any of the events described above can destroy even a healthy
business or force the owners to work with strangers with no expertise within their business. With
such an agreement, not only is the business protected, but the family of a deceased
shareholder is fairly compensated for their loved one’s ownership interest without draining the
company of needed reserves.
Indeed, it is such a valuable and intelligent tool that one would expect each and every
company to prepare one from inception. However, most companies fail to draft such a critical
device. The reason? Probably the same reason that most people neglect to create a well
thought out estate plan. Like a well drafted estate plan, most people do not take the time,
trouble (and money) to draft an appropriate buy and sell, preferring to let such unpleasant
matters as death, divorce and disability remain in the background while concentrating on the
immediate matters of business operations.
This is ill advised for many reasons. First, many of the important provisions of such an agreement
are relatively easy to negotiate only before a party becomes disabled or deceased and almost
impossible thereafter. Such issues as developing a fair method to value stock are easy to
compromise before it is needed since no one knows who will be buying and who will be selling.
Terms of the sale and security for same are likewise easily negotiated but certainly in the event
of divorce, it is often impossible to engage in useful discussions once emotions become aroused.
Second, such accessory tools as life or disability insurance, which can be quite useful, are only
available to fund the agreements prior to the need arising.
Third, it is not uncommon for a party who is becoming elderly or ill to find him or herself unable to
convince the other party, at that stage, to agree to reasonable terms since the other party may
feel that a “waiting” tactic will force the increasingly desperate elderly or ill shareholder to
accept any terms at all.
It is thus critical for the sophisticated business person to create the buy and sell as soon as
practicable and definitely long before it is likely to be needed.
This article shall discuss the basics of the variations of buy and sell agreements available to a
nonpublic California corporation, recommend certain provisions, briefly describe how insurance
may (or may not) be a good idea for funding portions of the agreement, and close with a
generic example of a typical buy and sell agreement.
As always, the reader is advised to obtain legal counsel prior to implementing any of the
suggestions contained in this article or using the form included.
WHY HAVE ONE?
1. Protection against Divorce and Creditors
Stock held by the owners of a company is like any other asset: it can be bought, sold, willed to
third parties, given away, pledged, and is subject to creditor claims and bankruptcy. It can also
be claimed by disgruntled spouses in a divorce proceeding. This fact becomes critically
important to a company in that if the wrong person is able to seize the stock, what was once a
close working relationship can be utterly destroyed.
For instance, if a hostile creditor seizes the stock, one can have an uninformed and
uncooperative co-owner suddenly whose only interest in the company is to sell the assets and
divide the spoils. Another example is what occurs in the typical contested divorce: the spouses
fight over the stock, and either the stock must be bought by one at tremendous premium, or
both husband and wife split the stock, attending the shareholder’s meetings, arguing at board
meetings, and, in general, making life a misery for the other shareholders.
Such split ownership of stock often destroys the company even if the divorcing shareholder seeks
to save it. He or she is distracted, his or her ability to vote in the meetings is split with a hostile
ex-spouse, and the other shareholders, seeing the power split, can often end up effectively
running the company.
2. Protection of Your Family And You in the Event of Death or Disability
Even more common is the unfortunate result of a failure to have a buy and sell agreement when
an owner dies or becomes so disabled as to not be able to contribute to the company any
In the event of death, it is important to note that it is unlikely that the family, now owning stock in
a nonpublic company, will find a buyer willing to purchase it for any real value. Conversely, the
remaining shareholders face family members who clammer for income while the company now
no longer has the services of the now deceased shareholder who was often responsible for
much of the past business success and income. In short, at the moment the family wants
income, the company is least able to afford it. This often leads to rancor within the business and
struggles for control of the board of directors...or leads to guilty surviving shareholders not able to
buy the stock for any realistic sum from the now suspicious family and watching long
relationships deteriorate into bitter resentment.
Disability can also lead to extremely tense situations. The disabled shareholder often can no
longer serve the company, is desperate to keep the income stream going, as is his family, but
the remaining owners find themselves having to replace the now disabled shareholder with an
expensive employee performing the same duties and are often no longer able to continue
payments to the disabled owner. The value of the stock plummets due to the very disability that
may force the disabled shareholder to sell, thereby making sale of the stock now unrealistic.
Quite often a family or disabled shareholder ends up with holdings of stock of almost no realistic
worth. There are no ready buyers available, the remaining shareholders no longer need their
services, and stock once thought valuable by the owner is now worth nothing. There is no legal
requirement for other shareholders to either buy stock or declare dividends, so the deceased
shareholder’s family finds themselves owning worthless stock though the company may still be
generating income. Death or disability, absent a good buy and sell agreement, can make
owning a valuable company of almost no value.
HOW THE BUY AND SELL SOLVES THE PROBLEM
Put simply, a buy and sell agreement is a binding contract that requires someone to buy and
another person to sell their stock for a given price if certain events occur. It is vital to note that it
is binding not only to sell...but to buy. If X occurs, then someone is required to buy and someone
is required to sell and failure to consummate the transaction allows legal action to enforce the
The most common instances of forced buy and sell are in the event of death or disability. The
typical provisions state that if a shareholder dies, the other shareholders much buy, pro rata, all
of the shares from the estate, usually twenty percent down, five years to pay the rest, the
obligation secured with the stock being purchased and personally binding on the various
shareholders who buy.
The price can be set by the Board annually, by the shareholders annually, computed pursuant
to a formula, or even stated in the agreement. The key provision is that the price IS set ahead of
time so that there is no bickering or arguing as to price or terms. Our own recommendation is to
create a formula that sets the value and simple have the regular CPA of the company compute
it once the death or disability occurs. In that manner, the price is fair regardless of the time it
takes for the agreement to actually be needed. A typical formula is book value plus a multiple
of net earnings or gross income, averaged over the three years prior to application of the
Once the death occurs, the formula is applied and the sale occurs within a few months
thereafter. In that manner, the remaining shareholders retain effective control, but have time to
pay off the entire obligation and the family of the deceased shareholder does not have to worry
about participating in the running of the business since they have sold their stock and have an
assured source of income.
The same method can be used if a shareholder becomes personally disabled...or to buy out the
stock of a spouse who is not involved in the company but suing for divorce. As to disability, to
avoid costly litigation, it is a good idea to have the regular physician of the stockholder have
discretion to determine if the stockholder is truly disabled, but to set firm guidelines in the
agreement, such as unable to perform his or her regular duties for two or more years.
Divorce, of course, leads quite often to bitter litigation between spouses and absent a buy and
sell agreement a key question often presented to the divorce court is how to divide the stock
between the spouses or how to value it if one spouse is to “buy” the other out. Normally, the
provision allows the remaining shareholders to buy the divorcing spouse’s stock and resell it for
the same price to the remaining spouse in the corporation. The key is to avoid having the
corporation dragged into the court dispute and to achieve that the price must be fair as well as
the terms. We have found that using the precise same pricing method and terms as the buy out
in the event of death or disability is a good idea and we normally provide for binding arbitration
in the agreement so that the divorce court does not even have jurisdiction on the issue of the
The spouses of the shareholders must all execute the buy and sell to make such a provision
enforceable and the example attached to this article should give the reader an idea of the
cautionary clauses needed to assure enforceability of the clause. This office has had to defend
such clauses in numerous divorce courts as the divorce lawyers try to avoid cheap and easy
arbitration so that they may gain tactical advantage by having the stock be one more asset in
dispute in the divorce. Provided the spouses executed the Buy and Sell, the courts almost always
ignore such tactics and order the entire issue of stock evaluation and buy out to go to
arbitration, thereby saving time and money for both the corporation and the divorcing spouses.
It is important to note that one is NOT obligated to have the buy and sell apply in all events and
one can have it apply for death and disability but not divorce...or any other combination. We
do recommend having it apply in as many circumstances as possible.
First Right of Refusal and Right to Sell Stock Upon Termination of Employment are
also common clauses in a buy and sell. The former allows the other shareholders or the
corporation to match any outside offer to buy stock prior to a shareholder being able to sell. The
latter allows or requires a terminated or quitting employee-shareholder to sell the stock upon the
end of employment. Such clauses are useful if an employee is to go work for a competitor or if
the remaining shareholders only want active shareholders in the company. There are all sorts of
variations on these types of provisions: some require the company to buy but are not binding on
the departing shareholder; some require the company to buy and the employee to sell; some
require the employee to sell only if the company elects to buy. Which variation works for your
company depends on many factors which should be discussed with legal counsel.
CORPORATE REPURCHASE VERSUS SHAREHOLDER CROSS PURCHASE OF STOCK
The sale of the shares may be accomplished in two very different ways. First, each shareholder
can agree to purchase, pro rata or otherwise, all the stock being sold. This is called a “cross
purchase” of stock. Each shareholder is thus personally liable for the payment of the stock and
the disabled or deceased shareholder’s estate is actually selling to as many people as there are
surviving shareholders. It is important to note that the purchase is not a tax deductible expense
for the buyers. They must use after tax dollars, just as if they were buying any other asset. For the
selling party, there may be capital gains to pay.
A second method to achieve the same result is a corporate repurchase agreement by which the
corporation and the shareholders all enter into an agreement whereby the corporation buys all
the stock being sold. The result is the redemption (repurchase) of all the shares owned by the
departing shareholder. The remaining shareholders increase their own shareholdings
automatically since the number of shares outstanding is reduced. (For example, if there are three
equal shareholders and one dies, the corporation repurchases the stock and the remaining two
shareholders automatically increase their holdings from one third to one half of he stock
outstanding...without buying any stock on their own account.)
The advantages of a cross purchase is that the individual remaining shareholders do not use their
own after tax dollars to increase their holdings. (Note, however, that the corporation cannot
deduct the expense of buying the stock either...but may be in a different tax bracket or have
adequate reserves to make the payments.) In repurchase agreements, it is normal to have the
remaining shareholders guarantee the payments over time of the corporation so as to assure
security to the estate or disabled (or divorcing) exshareholder.
INSURANCE: WHY TO USE
Both life insurance and disability insurance are often used to fund part or all of the buyout in the
event of death or disability. In the case of a corporate repurchase, the corporation owns it; in the
case of a stock cross purchase, each shareholder owns it on the other’s lives. The advantages are
obvious: one need not go into reserve to buy all or part of the stock, the estate or disabled
shareholder receives the money, and in the case of corporate repurchase, it is the corporation
which pays for it.
The problems arise when one or more of the shareholders is either elderly or of poor health, thus
causing the premiums to be high or making the other shareholders resent the extra cost of the
premium. Typically, an elderly shareholder will want the life insurance regardless of cost to
protect his or her estate while the younger shareholder, anxious to put all the monies into growing
the business, detests the high premiums.
Life insurance companies sell a large variety of policies honed to the various requirements of buys
and sells and were one of the earliest proponents of this type of contract since they saw the buy
and sell market as a new one to exploit. Even if the company can not afford insurance when
the buy and sell is first executed, insurance can always be added later when the monies are
available. See the form contract attached.
Certain clauses are especially useful in buy and sell agreements. Clearly an arbitration clause is
useful for such a business contract as are clearly worded warnings to all spouses exeucuting the
contract so that they understand that the divorce court will lose jurisdiction at to the agreement if
the agreement is executed by them.
But by far the most critical clauses pertain to evalutation of the stock and terms of sale. To
create an acceptable formula and acceptable terms is usually the most difficult task facing the
shareholders but, overall, the most important. Keep in mind that each stockholder must face the
fact that he or she (or their estate) may be selling...or buying the stock. Thus a fair formula that
takes into account both the changes in business climate and a realistic evaluation of hard assets
is essential. While CPAs and attorneys can assist in creating such formulas, ultimately it is the
business people who are most familiar with the value of their own company and best suited to
choose between the various possible methods.
The contract can cover death; disability; divorce; voluntary termination; involuntary termination;
desire to sell; bankruptcy; and a myriad other events that can trigger mandatary or voluntary
buyouts. The reader is advised to consult with experienced counsel to determine which of the
many clauses available seem worthwhile.
A typical contract with various optional clauses is attached. Please note that it is a corporate
repurchase contract...AND IT SHOULD NOT BE USED WITHOUT RECEIVING COMPETENT LEGAL AND
a California Corporation
CORPORATE REPURCHASE AGREEMENT
Article I. PREAMBLE
1.01 This Agreement is entered into this _____ day of _________________, ______, by
and between __________________________ INC., a California Corporation hereafter termed
"Corporation", with its principal executive office at __________________________, California,
and ______________________________________, hereafter termed "Shareholders", and
1.02 The Shareholders own all of the outstanding shares of the Corporation as follows:
. percent ( _____ shares of
_0%) common stock
, percent _____ shares of
as community (__%) common stock
percent _____ shares of
, as his separate (__%) common stock
1.03 The purpose of this Agreement is to provide for the continuity in the management
and policies of the Corporation by providing for the purchase of the shares of any deceased or
permanently disabled Shareholder or held by the Trust after the death of the primary beneficiary
designated in the Trust by the Corporation and giving the Corporation and the Shareholders first
option to purchase any shares attempted to be sold by a Shareholder during his/her lifetime.
Article II. SALE OF SHARES UPON DEATH OR DISABILITY
BUY AND SELL
2.01 Upon the death or permanent disability of a Shareholder, or upon the death of the
primary beneficiary of the Trust, the Corporation, cognizant of the desirability of maintaining
continuity of management and of retaining as Stockholders only those persons who are actively
engaged in the conduct of its business shall buy, and the decedent's estate or the disabled
Stockholder or the Trust shall sell, all the stock of the deceased or disabled Shareholder, or held
by the trustee, which is subject to this Agreement, to the extent that the Corporation may legally
purchase same. The price will be equal to the value of such stock as provided in this
Agreement. The Corporation and the Stockholder, or his/her legal representative or the trustee of
the Trust, shall give such instruments as may be necessary to complete the sale. Additional stock
subsequently acquired by a Stockholder shall be subject to this Agreement.
2.02 The price of such stock will be determined as follows: The Corporation shall pay
to the disabled Shareholder or his/her estate or to the Trust the appropriate proportional stock
interest of the Shareholder in the total value of the Corporation. The total value of the
Corporation shall be the book value of the Corporation at the date of death or disability
2.03 Upon the death or permanent disability of one of the Shareholders, or the death of
the primary beneficiary of the Trust, the Corporation may, at its option, pay the full purchase
price in cash. In any event, not less than twenty (20) percent of the consideration required under
Section 2.02 shall be paid in cash and for the balance promissory notes shall be given with
provision for annual payments on the unpaid principal over a period not to exceed ten (10) years
from the date of the Shareholder's death or disability or the death of the primary beneficiary of the
Trust with interest at prime plus three (3) percent per annum. The notes shall provide for
optional acceleration of maturity in event of a default in payment of principal or interest and at the
option of the Shareholder or his/her estate or the trustee of the Trust shall be additionally secured
by a pledge of all of the stock being purchased. If the Corporation does not settle in the manner
required in this paragraph within the period of sixty (60) days from the decedent's death or
disability, or the death of the beneficiary of the Trust, the Shareholder or his/her estate or the
trustee of the Trust may rescind this Agreement. Conversely, the Corporation shall have the
privilege of prepaying, without penalty, any note issued, in whole or in part, at any time.
a. Each and every remaining Shareholder shall execute a personal guarantee
of payment to secure the indebtedness, said guarantee to be identical to the form attached hereto
as Exhibit "A" and made a part hereof.
b. Interest shall be adjusted every twelve (12) months to conform to the then
existing prime rate.
2.04 All relevant valuation terms shall be computed by the Corporation's regular
accountant within thirty (30) days of death or disability, utilizing generally accepted accounting
principles. Should there be a dispute concerning valuation pursuant to the formula among the
Shareholders, the following methods shall be utilized to resolve the issue.
a. Any Shareholder disputing the computation and application of the agreed
formula shall select an accountant of his/her own choice. That accountant and the corporate
accountant shall, in turn, within ten (10) days, select a third accountant who, at corporate expense,
will conclusively determine all evaluations required to generate application of the formula. The
decision of the third accountant will be binding on all Shareholders or their estates.
b. Should there be no corporate accountant, one shall be selected by majority
vote of the Board of Directors.
c. Should more than one Shareholder dispute the corporate accountant's
computation and application of the formula, each Shareholder shall select an accountant who will
then, in conjunction with the corporate accountant and any other accountants selected by other
Shareholders, determine the identity of an appropriate accountant to conclusively determine
application of the formula as described in this Article.
2.05 "Permanent disability" of a Shareholder shall be defined as the Shareholder being
unable to perform a substantial portion of his/her regular duties for the Corporation for a period of
two (2) years. The opinion of the regular physician of the Shareholder shall conclusively
determine whether a Shareholder is permanently disabled pursuant to this Agreement.
a. Should a Shareholder become permanently disabled, the Shareholder will
sell and the Corporation purchase all of the shares of the disabled Shareholder, utilizing the price
as determined in Section 2.02, and the terms as described in Section 2.03.
b. Date of commencement of permanent disability shall be conclusively
determined by the disabled Shareholder's regular physician.
c. If a disabled Shareholder dies during an installment paying period, the
Corporation shall use any proceeds from any life insurance policies on the disabled Shareholder
to prepay all remaining unpaid installments. Any excess of proceeds over unpaid installments
shall belong to the Corporation.
d. Each shareholder herewith irrevocably authorizes and directs his/her
physician to respond in writing to the corporate Board of Directors, no more often than twice a
year, as to the physical disability of said Shareholder, at corporate expense.
e. This provision shall not apply to the primary beneficiary of the Trust.
Article III. SALE OF SHARES WITHOUT DEATH OR DISABILITY
SALE OF SHARES DURING SHAREHOLDER'S LIFE
3.01 In the event any Shareholder, desires to dispose of any of his/her/its shares in the
Corporation during his/her/its lifetime, he/she/it shall first offer to sell such shares to the
Corporation and the other Shareholders by giving them written notice to that effect, such notice to
specify the number of shares offered for sale and to be given in the manner prescribed in Section
5.06. The Corporation shall have the option for sixty (60) days after receipt of such notice to
purchase any or all of the offered shares at the price established in accordance with Section 2.02
of this Agreement, but in cash payment. At the end of its option period, the Corporation shall
notify the Shareholders of the number of shares it has elected not to purchase, if any, and the
Shareholders shall have the option for thirty (30) days after such notification to purchase all of the
shares offered for sale not purchased by the Corporation.
Each Shareholder shall have the right to purchase such portion of the shares offered for
sale as the number of shares owned by him/her/it at such time shall bear to the total number of
shares owned by all the other Shareholders excluding the selling Shareholder; provided, however,
that if any Shareholder does not purchase his/her/its full proportionate allotment of the shares, the
unaccepted shares may be purchased by the other Shareholders.
If all of the offered shares are not purchased by the Corporation and/or the
Shareholders before the expiration of the second time period above, the offering
Shareholder shall be under no obligation to sell any of the offered shares to the Corporation
or other Shareholders, but may dispose of such shares in any lawful manner, except that
he/she/it shall not sell any such shares to any other person without first giving the
Corporation and the other Shareholders the right to purchase them at the price and on the
terms offered by such other person.
RESTRICTION ON TRANSFER
3.02 To accomplish the purpose of this Agreement, any transfer, sale, assignment,
hypothecation, encumbrance, or alienation of any of the shares of the Corporation other than
according to the terms of this Agreement is void and transfers no right, title, or interest in or to
said shares, or any of them, to the purported transferee, buyer, assignee, pledgee, or encumbrance
LEGEND ON SHARE CERTIFICATES
3.03 The Shareholders agree, immediately, upon execution of this Agreement, to
present the certificates representing the shares in the Corporation presently owned, or hereafter
acquired by him/her to the Secretary of the Corporation and cause the Secretary of the
Corporation to stamp on the certificate in a prominent manner the following legend:
"The ownership and transfer of this certificate is subject to the terms
and limitations contained in a buy sell agreement between the
shareholders of this corporation, which defines who may be the
owners of such shares, affects the transferability of these shares on
death or during life, and the prices to be paid for such shares on
certain transfers. A copy of this agreement is available for
inspection at the offices of the corporation and of the attorney for
Article IV. SALE OF SHARES UPON DISSOLUTION OF MARRIAGE
4.01 Certain Shareholders at the time of execution of this Agreement are married and
are holding all of their shares now owned as community property. To provide for continuity in
management and policies, in the event of a dissolution of the marriage of any Shareholder, the
Corporation shall purchase, and the spouse of any Shareholder whose marriage is being dissolved,
shall sell to, or offer for repurchase by, the Corporation any and all interest in the shares of the
Corporation owned by the spouse in the event of dissolution of the existing marriage of such
Shareholder, upon the same terms and conditions, and for the same price, as if such spouse was
the seller of such stock interest pursuant to Article II hereof. Upon issuance of additional stock,
any married persons purchasing the stock shall designate which community property owner is the
"spouse" whose interest shall be purchased. Should no election be made, the Shareholder not
employed by the Corporation shall be considered the "spouse" under this provision.
4.02 For the purposes of this Agreement, "dissolution of marriage" shall include the
terms "separate maintenance", "divorce", and "annulment", and shall be considered as occurring
when a Shareholder is named either Petitioner or Respondent in a filed dissolution, annulment,
separate maintenance, or divorce proceeding.
4.03 Pursuant to Section 4.01, in the event the spouse of a Shareholder shall be required
to sell his/her stock interest to the Corporation, the provisions contained in this Agreement shall
constitute the sole means for determining the total price and terms of sale, purchase or repurchase,
to be paid to a Shareholder's spouse for all interest, rights, or claims, if any, which such spouse
may possess or claim to possess in shares of the Corporation. By executing this Agreement all
Shareholders and each spouse of a Shareholder shall be waiving any and all other interests
and rights, both in law and equity, which said spouse may possess in stock of the
Corporation, and any community property interest said spouse may possess in said stock
shall be governed hereby.
4.04 Upon the entry of a decree of separate maintenance or of dissolution of marriage of
a Stockholder and his/her spouse, or, should the Corporation elect, any time after the filing of a
Petition to Dissolve by Shareholder or Shareholder's Spouse, the Corporation shall purchase the
Shareholder's spouse's entire interest in stock of the Corporation pursuant to the evaluation
method and terms contained in Article II of this Agreement.
4.05 Any Shareholder whose former spouse's stock interest has been purchased by the
Corporation pursuant to Section 4.04 shall have, dating from purchase of spouse's stock by
Corporation, a ninety (90) day nontransferable option to purchase from the Corporation shares in
a number equal to those redeemed by the Corporation from his/her former spouse pursuant to
Section 4.04. The price and terms to be paid for said shares shall be identical to the sums paid by
the Corporation to the former spouse on his/her order to redeem the shares. The term "former
spouse" shall include a spouse who has been party to a proceeding for separate maintenance.
4.06 Any Shareholder marrying or remarrying after the execution of this Agreement
shall either require the new spouse to execute this Agreement, or enter into a written agreement
with the new spouse declaring the stock to be and to remain separate property of the Shareholder,
delivering an executed copy of said Agreement to Corporation prior to marriage to the new
spouse. Failure to abide by this provision shall give Corporation a ninety (90) day option to
purchase all Shareholder's stock on the price and terms at §§ 2.02, 2.03 and 2.04, said option
commencing from date of marriage. Alternatively, Corporation may elect to rescind this
Agreement and shall have the right to rescind within ninety (90) days of such marriage. The
Shareholder so marrying shall not participate in making election as to which remedy the
Corporation may choose.
4.07 The provisions of Article IV shall not apply to the primary beneficiary of the Trust.
Article V. ENFORCEMENT; MISCELLANEOUS PROVISIONS
5.01 This Agreement shall be interpreted in accordance with the laws of California.
5.02 Any and all disputes relating to this Agreement or its breach shall be settled by
arbitration, in San Francisco, California, in accordance with the then-current rules of the
American Arbitration Association ("AAA"), and judgment upon the award entered by the
Arbitrator may be entered in any Court having jurisdiction hereof. Costs of arbitration, including
reasonable attorney's fees incurred in arbitration, as determined by the Arbitrator, together with
any reasonable attorney's fees incurred by prevailing Party in Court enforcement of the arbitration
award after it is rendered by the Arbitrator, must be paid to the prevailing Party by the Party
designated by the Arbitrator or Court. Said arbitration shall be conducted in the English
language and the award rendered in United States dollars. Service of the Petition to Confirm
Arbitration and written notice of the time and place of hearing on the Petition to Confirm the
Award of the Arbitrator shall be complete on personal delivery or the deposit of the Petition and
notice in the United States mail. The Arbitrator shall strictly adhere to California law in making
his or her decision. The Arbitrator is empowered to grant any remedy or relief available to a
party in a court of law in this jurisdiction.
Should one party either dismiss or abandon his/her claim or counterclaim before hearing
thereon, the other Party shall be deemed the "prevailing Party" pursuant to this Agreement.
Should both Parties receive judgment or award on their respective claims, the Party in whose
favor the larger judgment or award is rendered shall be deemed the "prevailing Party" pursuant to
this Agreement. The parties understand and agree that arbitration acts as a waiver of the Parties'
right to trial by jury.
At any time after the initiation of arbitration and not less than twenty (20) days prior to the
arbitration hearing, any Party may serve an offer in writing upon any other Party to the action to
allow an arbitration award to be made in accordance with the terms and conditions stated in the
written offer. If the offer is accepted, the offer, together with written acceptance, shall be
submitted to the Arbitrator and an award made thereon without further hearing between those
Parties. If the offer is not accepted in writing, prior to five (5) days before the hearing or within
ten (10) days of mailing of offer, whichever first occurs, it shall be deemed withdrawn and cannot
be given in evidence at the hearing. If the Party to whom said written offer was made fails to
obtain a larger or more beneficial monetary judgment than the offer from the Arbitrator after
hearing, the Party to whom the offer was made must pay to the offering Party the offering Party's
costs of arbitration, including, but not limited to, AAA administrative fees, Arbitrator's fees and
the costs of experts necessarily incurred in preparation for the arbitration, as well as all attorneys
fees incurred by the prevailing Party. The attorney's fees so incurred shall form part of the
judgment and shall not be reduced by the Arbitrator unless the Arbitrator determines that clear
and convincing evidence has been presented that such fees are unconscionable.
5.03 This Agreement may be altered or amended in whole or part at any time by a
written instrument setting forth such changes signed by the Corporation and all Shareholders.
5.04 This Agreement shall terminate upon the occurrence of any of the following
a. Cessation of the Corporation business or enterprise during the lifetime of
the Stockholders, if prior to disability sale date;
b. Bankruptcy or receivership of any one or more to the Stockholders;
c. Bankruptcy, receivership or dissolution of the Corporation;
d. Death or disability of all the Stockholders during a period of thirty (30)
e. Mutual agreement of termination between all the Stockholders.
5.05 Any and all notices or other communications required or permitted by this
Agreement or by law to be served on, given to, or delivered to any party hereto by any other party
to this Agreement shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the party or to an officer of the party, or in lieu of such personal delivery,
when deposited in the United States mail, first-class postage prepaid, addressed to the Corporation
at its principal executive office or to a Shareholder at the address then appearing for him/her/it on
the books and records of the Corporation. The Corporation may change the address of its
principal executive office in the manner required by law for purposes of this paragraph by giving
notice of the change, in the manner required by this paragraph, to each of the Shareholders.
5.06 Should any provisions or portion of this Agreement be held unenforceable or
invalid for any reason, the remaining provisions and portions of this Agreement shall be
unaffected by such holding.
COMMUNITY PROPERTY WAIVERS
5.07 It is expressly understood by all parties hereto that in the event of death or
dissolution of marriage that this Agreement and its method of evaluation of stock shall be binding
on all parties hereto, their assigns and their estates. The parties hereto waive any right they may
have to claim community property interests which would interfere in any way with the terms and
evaluation of this Agreement.
a. Any party having questions concerning this provision or any portion of this
Agreement is advised to consult independent counsel prior to execution of the Agreement.
SOLE AND ONLY AGREEMENT
5.08 This instrument constitutes the sole and only Agreement of the parties hereto
respecting the sale and purchase of their shares in the Corporation and correctly sets forth the
rights, duties, and obligations of each to the other in relation thereto as of its date. Any prior
agreements, promises, negotiations, or representations concerning its subject matter not expressly
set forth in this Agreement are of no force or effect.
BINDING ON HEIRS
5.09 This Agreement shall be binding on the parties hereto and on each of their heirs,
executors, administrators, successors, and assignees.
, President DATE: ____________________, 20__
________________________________ DATE: ____________________, 20__
________________________________ DATE: ____________________, 20__
________________________________ DATE: ____________________, 20__
The undersigned, being the spouses of the Shareholders, hereby declare that they have read each
and every provision of this Agreement, understand the terms thereof, and agree to be bound by its
provisions, including, but not limited to those provisions concerning the lack of community
property interest in the Corporation, and agree that any and all disputes concerning the
community property nature of this property shall be subject to arbitration as described in §5.03
hereof. They also understand that execution of this Agreement binds them to arbitration and
waiver of the right to trial by jury as to the matters covered by this Agreement. IF YOU HAVE
ANY QUESTIONS CONCERNING THE EFFECT OF THIS AGREEMENT YOU SHOULD
CONSULT WITH LEGAL COUNSEL OF YOUR OWN CHOOSING PRIOR TO EXECUTING
THIS DOCUMENT. ONCE EXECUTED, IT FULLY BINDS YOU.
________________________________ DATE: ____________________, 20__
________________________________ DATE: ____________________,20__