Shareholder Agreement (00599482).DOC by P9DvF6

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									                                        DISCLAIMER

This form is a sample form intended to serve only as a general resource for the attorney
using it. It has not been approved, sanctioned, or officially promulgated by the North
Carolina Bar Association or the Business Law Section, nor is it necessarily intended to
represent the standard of practice in North Carolina. In making this form available,
neither the North Carolina Bar Association, the Business Law Section, nor the attorneys
providing the form are engaged in rendering legal, tax, accounting, or other professional
services to the user or the user's clients or make any representation regarding the content
of the form. In addition, please note that the forms are not routinely updated (or may not
be updated at all) to address changes in applicable law. Each attorney using this form as
an aid in preparing a document for a client is solely responsible for the contents of such
document and assumes all risks in connection with such use.

                             INTRODUCTORY STATEMENT

This form is intended to be a neutral starting point for a Shareholders’ Agreement for a North
Carolina corporation. The base form is oriented towards the needs of a corporation being formed
by three or more shareholders with roughly equal ownership percentages, and the attached
Addendum includes Buy-Sell and Put provisions that may be used for 50/50 and other deals
where there is a possibility of deadlock. The Addendum also contains examples of other
alternative and additional provisions that should be considered, including provisions containing
protections for minority investors and provisions that may be used in other special
circumstances, such as for Subchapter S corporations and for corporations that have awarded
shares to employees.

                            SHAREHOLDERS’ AGREEMENT


       This SHAREHOLDERS’ AGREEMENT (this “Agreement”), dated as of ____, 20__,
is made by and between ________, a North Carolina corporation (the “Company”), and each
person who becomes a shareholder of the Company and executes a copy of this Agreement as
provided herein (collectively, the “Shareholders,” and individually, a “Shareholder”).
Capitalized terms used but not defined herein shall have the meanings set forth in Article V.

                              BACKGROUND STATEMENT

        The Company was incorporated on ________, 20__. The ownership of Shares as of the
date hereof is shown on Exhibit A hereto. In connection with the formation of the Company, the
parties hereto set forth this Agreement regarding certain matters relating to the ownership of
Shares.
                                     STATEMENT OF AGREEMENT

         The parties hereto agree as follows:

                                                   ARTICLE I

                                          BOARD OF DIRECTORS

         1.1     Board of Directors. The Company’s board of directors (the “Board of
Directors”) shall be comprised of __ directors, and each Shareholder set forth on Exhibit A as of
the date of this Agreement, so long as such Shareholder and such Shareholder’s Related Parties
own any Shares, shall have the right to designate one member of the Board of Directors.1

          1.2    Removal of Directors. For so long as a Shareholder is entitled to designate a
member of the Board of Directors pursuant to Section 1.1 above, any director designated by such
Shareholder may only be removed by such Shareholder, and any vacancy in such position may
be filled only as directed by such Shareholder; provided, however, that each such director may
also be removed by the Disinterested Shareholders for Cause. A vacancy on the Board of
Directors caused by the removal of a director pursuant to this Section 1.2 shall be filled by the
Shareholder entitled to designate such director under Section 1.1.

        1.3    Committees. Each member of the Board of Directors designated by a
Shareholder pursuant to Section 1.1 above shall be appointed to and be a member of each
committee of the Board of Directors.2

                                                   ARTICLE II

                                          TRANSFER OF SHARES

          2.1     Transfers Generally Prohibited.         No Shareholder shall Transfer such
Shareholder’s Shares unless (a) (i) the requirements of Section 2.6 are met with respect to such
Transfer, and (ii) such Transfer is made in accordance with Section 2.2, 2.3, or 2.4 below; or (b)
such Transfer is made pursuant to Section 2.5 below.3 Any attempt to transfer Shares in
violation of this Agreement shall be null and void ab initio and the Company shall refuse to
register such Transfer.

         2.2    Transfers to Related Parties. Each Shareholder’s Shares may be Transferred
(including by testamentary or intestate Transfer) to any Related Party of such Shareholder upon
advance written notice to each other Shareholder. No further Transfer of such Shares may be
made by such transferee except (a) back to the Shareholder who previously owned them, (b) to

1
  Use the alternative provision set forth in the Addendum instead if each Shareholder will not be entitled to appoint a
member of the Company’s Board of Directors. Also, if representing a minority investor who is unable to obtain the
right to appoint a member of the Company’s Board of Directors, consider requesting an observation right instead. A
sample board observation provision is set forth in the Addendum.
2
  In the event that directors will be appointed by non-employee Shareholders, consider including an expenses
provision regarding Board of Directors meetings. A sample provision is set forth in the Addendum.
3
  Consider also allowing any Transfer approved by a specified majority of the Shareholders. A sample provision is
set forth in the Addendum.



                                                          2
another Related Party of the Shareholder who previously owned them, or (c) in accordance with
Section 2.3, 2.4, or 2.5 below.

         2.3    Other Voluntary Transfers.

                (a)     Notice of Offer to Sell Shares. If any Shareholder (a “Selling
Shareholder”) shall desire to Transfer all or any portion of such Shareholder’s Shares, such
Shareholder must first receive a bona fide written offer from a third party prospective purchaser
to purchase such Shares and then deliver to the Company a written notice (“Notice”) containing
the following information: (i) the name and address of the prospective purchaser of such Shares,
(ii) the number of Shares that the Selling Shareholder desires to Transfer, (iii) the price being
offered to the Selling Shareholder and the terms of payment and any other terms and conditions
of such offer and (iv) the proposed closing date for the transaction.

                 (b)    Offer to Shareholders. For a period of ____ days after the giving of the
Notice by the Selling Shareholder, each of the non-Selling Shareholders (each an “Offeree”)
shall have the option to purchase such Offeree’s pro rata portion of the Shares that are proposed
to be sold, with such pro rata portion based on the number of Shares held by such Offeree in
relation to the total number held by all Offerees, at the price and upon the terms and conditions
set forth in the Notice. Such options shall be exercisable by written notice to the Selling
Shareholder and to the other Offerees, as appropriate, within such ____ period. A failure by an
Offeree to give written notice of exercise within such ____ period shall be deemed a rejection by
such Offeree of its option to purchase. If any Offeree does not exercise its option to purchase all
the Shares to which it is entitled (a “Non-participating Offeree”), the Offerees that have
exercised their option to purchase the Shares that are proposed to be sold shall then have the
option to purchase all or any portion of the Shares that will not be purchased by the Non-
participating Offeree, which options shall be exercisable by notice in writing to the Selling
Shareholder and the other Offerees within ____ days after the date of express rejection by the
Non-participating Offeree or the expiration of the option to the Non-participating Offeree who
did not elect to purchase such Shares, whichever is earlier. If more than one Offeree exercises its
option to purchase the Shares which the Non-participating Offeree would be entitled to purchase,
such Shares available for purchase shall be allocated pro rata among the Offerees desiring to
purchase such Shares, in accordance with their Shares.

               (c)     Non-Cash Consideration for Shares. If any consideration to be received
by a Selling Shareholder from a prospective purchaser of its Shares consists of property other
than cash, then the Offerees, if such parties exercise their option(s) to purchase the Selling
Shareholder’s Shares, may deliver to the Selling Shareholder, in payment of the non-cash portion
of the purchase price for the Shares proposed to be sold, an amount of cash equal to the fair
market value of the non-cash consideration that has been offered to the Selling Shareholder (as
determined by the Board of Directors, in its discretion).

                (d)     Closings. If the Offerees shall exercise an option to purchase granted to
such parties in this Section 2.3, the closing of the purchase and sale transaction shall be held at
the principal office of the Company on a date designated by the purchaser or purchasers, which
date in no event shall be later than ___ days after the Selling Shareholder gives the Notice. If




                                                  3
there is more than one purchaser of the Shares being Transferred, the Selling Shareholder may
require that all purchases close concurrently on the same date.

                (e)    Right to Transfer. If the Offerees do not elect to purchase all the Shares
that a Selling Shareholder desires to Transfer, for a period of ____ days from the earlier of the
date of any closing pursuant to Section 2.3(d) or the expiration of the option provided for in
Section 2.3(b), the Selling Shareholder shall have the right, subject to the provisions of Section
2.6, to Transfer the Shares covered by the offer that will not be purchased by the Offerees and
the Company to the prospective purchaser named in the Notice; provided however, that the
Transfer is made in strict accordance with the terms and conditions (including price) set forth in
the Notice.

               (f)    Relationship to Other Provisions. The provisions of this Section 2.3 shall
not apply to any Transfer of Shares to which Sections 2.2 or 2.4 apply, or to any exercise of the
Drag-Along Right or Transfer pursuant to Section 2.5.4

         2.4      Involuntary Transfers. In the event of any Involuntary Transfer of any Shares,
the Company shall have the option, for a period of ____ days from the date of receipt by the
Company of notice of such Involuntary Transfer (the “Option Period”), to purchase all (but not
less than all) of such Shares at the Book Value Per Share of the Company multiplied by the
number of such Shares.5 If the Company declines to exercise such right, it shall give notice
thereof to the other Shareholders not less than ____ days prior to the expiration of the Option
Period, and each such other Shareholder shall have the right to purchase that percentage of the
Transferred Shares determined by dividing (a) the total number of Shares then owned by such
Shareholder by (b) the total number of Shares then owned by all Shareholders (excluding the
Shares subject to such purchase right). If any Shareholder does not fully subscribe for the
number or amount of Shares it is entitled to purchase, then each other Shareholder shall have the
pro rata right to purchase such unsubscribed Shares. At the closing of any purchase of Shares
pursuant to this Section 2.4, which closing shall occur within ____ days after the expiration of
the Option Period, each purchaser at such closing shall pay the entire purchase price of the
Shares being purchased by such purchaser in cash to the selling Shareholder.6

          2.5    Drag-Along Right. In the event that Shareholders constituting a Qualified
Majority elect to effect a Sale of the Company (other than to any of their Related Parties), the
Qualified Majority shall have the right (the “Drag-Along Right”), but not the obligation, to
require all Shareholders to Transfer their Shares to the purchaser in such Sale of the Company on
the same terms and conditions as the Qualified Majority. If the Drag-Along Right is exercised,
all other Shareholders shall take such actions as may be reasonably requested by the Qualified
Majority to consummate the Sale of the Company, including but not limited to waiving any
dissenter’s, appraisal and other similar rights in connection with the Sale of the Company and

4
  An alternative Right of First Refusal provision, giving the first right to purchase to the Company, is set forth in the
Addendum.
5
  Consider requiring that such purchase be at fair value, as determined by an appraiser, or at a value determined in
accordance with an agreed-upon formula. Consider also the possibility of requiring a post-transfer adjustment to the
purchase price. Sample valuation provisions are set forth in the Addendum. Also set forth in the Addendum is an
alternative involuntary transfer provision.
6
  Consider allowing for payment by note. A sample provision is set forth in the Addendum.



                                                           4
making any representations, covenants, and indemnitees to the purchaser as are made by the
Qualified Majority.7

          2.6      Additional Requirements.8

                (a)   Execution of this Agreement. Any transferee of Shares shall (a) become a
party to this Agreement by executing a copy of the Shareholders’ Agreement Certification Page
attached hereto as Exhibit B; and (b) execute and acknowledge such other documents and
instruments as the Board of Directors may deem reasonably necessary or desirable in connection
with such Transfer.

                  (b)      Legend. Each certificate representing Shares shall bear the following
legend:

          THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS.

            IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE
SHAREHOLDERS’ AGREEMENT, DATED AS OF _____, 20__, A COPY OF WHICH IS ON
FILE IN THE OFFICE OF THE COMPANY.

                 (c)    Legal Opinion Requirement. No Shares may be Transferred unless the
Company shall have first been provided with a written opinion of counsel for the Company or of
other counsel acceptable to the Board of Directors (a) that the Transfer shall not cause the
Company to become subject to any additional regulatory requirements or restrictions of any
nature, (b) that the Transfer shall not cause a violation of applicable law (including federal and
state securities laws) or this Agreement, and (c) as to such other matters requested by the Board
of Directors. This requirement, or any portion hereof, may be waived by the Board of Directors
in its discretion.

               (d)    Application to Drag-Along Right. The provisions of this Section 2.6 shall
not apply to any Transfer of Shares pursuant to Section 2.5 hereof.




7
  Minority investors should consider more extensive protections regarding the transactions they may be required to
participate in under this provision. An alternative provision more favorable to minority investors is set forth in the
Addendum. In 50/50 deals, the Drag-Along Provision will be inapplicable and should be removed.
8
  Set forth in the Addendum are additional Transfer and other provisions that should be considered in the event that
the Company is a Subchapter S corporation.



                                                          5
                                                ARTICLE III

                                       INFORMATION RIGHTS9

         3.1     Financial Statements. The Company shall deliver to each Shareholder as soon
as practicable, but in any event within ____ days after the end of each fiscal year of the
Company, (i) a balance sheet as of the end of such year; (ii) statements of income and of cash
flows for such year; and (iii) a statement of stockholders’ equity as of the end of such year,
which financial statements shall be prepared in accordance with GAAP.10

         3.2     Inspection Right. The Company shall permit each Shareholder, at such
Shareholder’s expense, to visit and inspect the Company’s properties; examine its books of
account and records; and discuss the Company’s affairs, finances, and accounts with its officers,
during normal business hours of the Company as may be reasonably requested by the
Shareholder; provided, however, that the Company shall not be obligated pursuant to this
Section 3.2 to provide access to any information that it reasonably considers to be a trade secret
or confidential information (unless covered by an enforceable confidentiality agreement, in form
acceptable to the Company) or the disclosure of which would adversely affect the attorney-client
privilege between the Company and its counsel.

                                                ARTICLE IV

                                     MISCELLANEOUS11, 12, 13, 14, 15

         4.1   Applicability of Terms To Shares. The restrictions, terms and conditions of
this Agreement shall remain in effect as to all Shares Beneficially Owned now or in the future by
any Shareholder, whether or not disposed of in accordance with the terms and conditions of this
Agreement and whether or not such Shares are in the hands of an original Shareholder or an
assignee or new Shareholder permitted under this Agreement.


9
   In addition to information rights, consider including limitations on the Company’s ability to take certain
fundamental actions. A sample provision is set forth in the Addendum.
10
   Minority shareholders should consider requesting audited financial statements, together with quarterly and other
reporting. An example of a more extensive reporting provision is set forth in the Addendum.
11
   In 50/50 deals, and sometimes others where deadlock is a possibility, a Buy-Sell provision should be added to
prevent deadlock. Example Buy-Sell provisions are set forth in the Addendum.
12
   In the event that Shares are being issued to employees of the Company (including if all of the owners of the
Company will also be employees of the Company), it may be appropriate to make such Shares subject to a Call
Right in favor of the Company (or a right to purchase in favor of the other Shareholders) on the termination of
employment. Such provisions are often included in the award agreement awarding such shares, but are sometimes
also included in the Shareholders’ Agreement. Example provisions are set forth in the Addendum.
13
    Consider including a Put provision to allow Shareholders or their descendants to require the Company to
repurchase their Shares. This may be especially important for very closely-held Companies, including 50/50 deals.
An example is set forth in the Addendum. Also in 50/50 deals consider including an insurance provision to help
fund the Put (or other Transfers under the Agreement). An example is set forth in the Addendum.
14
   Minority investors should also consider requesting a Tag-Along Right. Sample Tag-Along provisions are set forth
in the Addendum.
15
   Consider including a non-competition agreement among the shareholders. See the Business Law Section’s form
non-competition agreement for sample language.



                                                        6
          4.2     Notices. All notices or requests provided for or permitted to be given pursuant
to this Agreement shall be in writing and shall be deemed given if hand delivered or if deposited
in the United States mail, addressed to the party to be notified at such party’s last known address
as reflected in the Company’s records, postage paid and registered or certified, return receipt
requested.

        4.3     Amendment. This Agreement may be amended, in whole or in part, only with
 the consent of the Company and each Shareholder party hereto. Notwithstanding the foregoing,
 the Company shall have the authority to amend Exhibit A to reflect any change in the
 information set forth therein without the approval of any Shareholders. All amendments to this
 Agreement must be in writing.

          4.4     Confidentiality. Each Shareholder (i) shall protect, and shall use its reasonable
best efforts to cause its Related Parties, Affiliates, owners, directors, managers, officers,
employees, accountants, representatives, agents, and financial advisors to protect, the
confidentiality of all proprietary and confidential information relating to the assets and business
of the Company (the “Confidential Information”), (ii) shall use such Confidential Information
solely for the purpose of managing its investment in and operation of the Company, and
(iii) agrees not to disclose, and to use its reasonable best efforts to cause its Related Parties,
Affiliates, owners, directors, managers, officers, employees, accountants, representatives, agents,
and financial advisors not to disclose, such Confidential Information to any other Person other
than such Person’s accountants, representatives, agents, and financial advisors who are advised
of such Person’s obligations hereunder and who are under a professional obligation to use such
information solely for such Person’s benefit; provided; however, that each such Person may
disclose such information to the extent that such disclosure is pursuant to or in connection with
(A) a subpoena or court order, (B) any investigation or audit by a governmental authority,
(C) any suit or proceeding with respect to this Agreement, or (D) the filing of any tax returns. In
all such cases, each such Person shall disclose such information only to the extent required to
fulfill such purpose or legal requirement. If any such Person intends to disclose any Confidential
Information pursuant to the exceptions set forth in (A), (B), or (C) above, prior to such disclosure
such Person shall promptly notify the Company of such intention so that it may seek an
appropriate remedy to prevent such production, and request the Person demanding such
production to allow the Company a reasonable period of time to seek such remedy. Each
Shareholder shall be responsible for any disclosure of Confidential Information by its Related
Parties and Affiliates in violation of this Section 4.4.

          4.5    Section Titles. The headings herein are inserted as a matter of convenience only
and do not define, limit or describe the scope of this Agreement or the intent of the provisions
hereof. Except as otherwise expressly provided herein, or unless the context otherwise requires,
(a) references to “Sections” without reference to a document or statute are to the designated
Sections of this Agreement, (b) references to “subsection” without reference to a particular
Section are to the Section in which such subsection reference is contained, (c) the words
“herein,” “hereof,” “herewith,” “hereunder” and other words of similar import refer to this
Agreement as a whole and not to any particular provision, and (d) “include,” “including” and
other words of similar import mean without limitation.




                                                 7
          4.6    Governing Law. This Agreement shall be governed by the internal laws and
judicial decisions of the State of North Carolina, without reference to conflicts of laws principles.

         4.7     Jurisdiction, Venue, and Service of Process. If any party commences a
lawsuit or other proceeding relating to or arising from this Agreement, the parties hereto agree
that the United States District Court for the ________ District of North Carolina, ________
Division, shall have sole and exclusive jurisdiction over any such proceeding. If all such courts
lack federal subject matter jurisdiction, the parties agree that the courts of the State of North
Carolina in ________ County shall have sole and exclusive jurisdiction. The parties (a) agree
that any of these courts shall be proper venue for any such lawsuit or judicial proceeding, (b)
waive any objection to such venue, (c) consent to and agree to submit to the jurisdiction of any
of the courts specified herein and agree to accept service of process to vest personal jurisdiction
over them in any of these courts, and (d) agree that process in any action or proceeding referred
to herein may be served on any party anywhere in the world.

         4.8    Severability. If any provision of this Agreement or the application thereof to
any Person or circumstance shall be invalid or unenforceable to any extent, the remainder of this
Agreement and the application of such provision to other Persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.

        4.9      Third-Party Beneficiary. No provision in this Agreement is intended to be for
the benefit of or enforceable by any third party, including any creditor of the Company.

         4.10 Counterparts. This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed an original and all of which, when taken together,
constitute one and the same document. The signature of any party to any counterpart shall be
deemed a signature, and may be appended, to any other counterpart.

          4.11 Integration; Entire Agreement. This Agreement, as amended hereafter from
time to time in accordance with the terms hereof, sets forth the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof, and supersedes all
prior written and oral statements, including any prior representation, statement, condition or
warranty.

         4.12 Specific Performance. The parties recognize that irreparable injury will result
from a breach of any provision of this Agreement and that money damages will be inadequate to
fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or
more of the provisions of this Agreement, any party that may be injured (in addition to any other
remedies which may be available to that party), shall be entitled to one or more preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a breach or
(ii) compelling the performance of any obligation which, if not performed, would constitute a
breach.




                                                 8
        4.13 Duration of Agreement. The rights and obligations of a Shareholder under this
Agreement shall terminate at such time as such Shareholder no longer is the Beneficial Owner of
any Shares.

         4.14 Binding Provisions. This Agreement is binding upon, and inures to the benefit
of, the parties hereto and their respective heirs, executors, administrators, personal and legal
representatives, successors and permitted assigns.

                                                    ARTICLE V

                                                DEFINED TERMS

           As used herein, the following terms shall have the following meanings:

        “Affiliate” means, with respect to any Person, each other Person that directly, or
indirectly through one or more intermediaries, owns, controls, or is controlled by or under
common control with, such Person. For purposes of this definition, “control” means the
possession, directly or indirectly, of the power to direct or cause the direction of the management
policies or affairs of a Person, whether through ownership of voting securities, by contract or
otherwise, as executor, trustee or otherwise.

           “Agreement” has the meaning set forth in the introductory paragraph.

        “Beneficially Own,” “Beneficial Owner” or “Beneficial Ownership” has the meaning set
forth in Rule 13d-3 under the Securities and Exchange Act of 1934, as amended.

           “Board of Directors” has the meaning set forth in Section 1.1.

         “Book Value” means, as of any date of determination, (1) the assets shown on the
balance sheet of the Company at the end of the most recently closed calendar month, less (2) the
liabilities shown on such balance sheet, less (3) an amount equal to the net income of the
Company (determined under the accrual method of accounting) for the portion of its fiscal year
ending at the end of the most recently closed calendar month times the maximum individual
federal and state income tax rates then in effect. Book Value shall be determined by the
Company in its good faith and reasonable discretion and in accordance with GAAP.16

       “Book Value Per Share” shall mean the Company’s Book Value divided by the number
of authorized and outstanding Shares at the time of calculation.

        “Cause” means, with respect to the removal of a director for Cause under Section 1.2, an
adjudicated legal determination, without further opportunity for appeal, that such Person has
committed an act or omitted to commit an act in connection with such Person’s duties as a
director of the Company that constitutes fraud, gross negligence, or willful misconduct.

           “Company” has the meaning set forth in the introductory paragraph.


16
     An alternative definition of Book Value is set forth in the Addendum.



                                                            9
       “Confidential Information” has the meaning set forth in Section 4.4.

       “Controlling Shareholders” means ________.

        “Disinterested Shareholders”, with respect to the removal of a director for Cause pursuant
to Section 1.2, means all Shareholders other than (a) the Shareholder entitled to designate such
director pursuant to Section 1.1, and (b) such Shareholder’s Related Parties.

       “Drag-Along Right” has the meaning set forth in Section 2.5.

        “GAAP” means accepted accounting principles as recognized by the American Institute
of Certified Public Accountants, consistently applied.

        “Involuntary Transfer” means any transfer, proceeding or action by or in which a
Shareholder shall be deprived or divested of any right, title or interest in or to any of its Shares
including, without limitation, any seizure under levy of attachment or execution, any transfer in
connection with bankruptcy (whether pursuant to the filing of a voluntary or an involuntary
petition under the United States Bankruptcy Code of 1978, or any modifications or revisions
thereto) or other court proceeding to a debtor in possession, trustee in bankruptcy or receiver or
other officer or agency, any transfer to a state or to a public officer or agency pursuant to any
statute pertaining to escheat or abandoned property and any transfer pursuant to a divorce or
separation agreement or a final decree of a court in a divorce action.

       “Non-participating Offeree” has the meaning set forth in Section 2.3(b).

       “Notice” has the meaning set forth in Section 2.3(a).

       “Offeree” has the meaning set forth in Section 2.3(b).

       “Option Period” has the meaning set forth in Section 2.4.

         “Person” means and includes an individual, corporation, partnership, association, limited
liability company, trust, estate, or other entity.

       “Qualified Majority” means Shareholders holding __% of the Shares.

        “Related Party” with respect to a Shareholder means (a) a trust for the sole benefit of
such Shareholder and/or any of such Shareholder’s Relatives, or (b) a corporation, partnership,
limited liability company, or other entity owned entirely by such Shareholder and/or such
Shareholder’s Relatives or one or more trusts established for the sole benefit of such Persons;
provided that in each case described in clauses (a) and (b) such trust or such entity is controlled
by such Shareholder.

       “Relative” of a Shareholder means a spouse (other than a spouse living separate and apart
from such Shareholder with the intention by either spouse to cease their matrimonial
cohabitation), any issue, spouse of issue, or ancestor of the Shareholder.




                                                 10
        “Sale of the Company” means (a) any Transfer of Shares, merger, corporate
reorganization or other transaction or series of transactions pursuant to which the holders of a
majority of the Shares immediately prior to the transaction (or the first transaction of a series of
related transactions) own, directly or indirectly, less than a majority of the Shares immediately
after such transaction; or (b) any sale of all or substantially all of the assets of the Company.

       “Selling Shareholder” has the meaning set forth in Section 2.3(a).

       “Share” means a share of the common stock of the Company, par value $____ per share.

       “Shareholder” has the meaning set forth in the introductory paragraph.

         “Transfer” means any sale, conveyance, pledge, donation, hypothecation, encumbrance,
disposition, transfer (including, without limitation, a transfer by will or intestate distribution),
gift or attempt to create or grant a security interest in any security or interest therein or portion
thereof, whether voluntary or involuntary, by operation of law or otherwise, and any contract to
do any of the foregoing.

                            [remainder of page intentionally left blank]




                                                  11
       IN WITNESS WHEREOF, this Agreement is hereby executed the day and year first
above written.



                                       [Company]

                                       By:
                                       Name:
                                       Title:



                                       EACH SHAREHOLDER SHALL BECOME A
                                       PARTY TO THIS AGREEMENT BY
                                       EXECUTING THE SHAREHOLDERS’
                                       AGREEMENT CERTIFICATION PAGE
                                       ATTACHED HERETO AS EXHIBIT B,
                                       WHICH PAGE SHALL BE ATTACHED TO
                                       THIS AGREEMENT AND CONSTITUTE A
                                       PART HEREOF.
              EXHIBIT A

              Shareholders

Shareholder                  Shares
                     EXHIBIT B

SHAREHOLDERS’ AGREEMENT CERTIFICATION PAGE


         [certification page follows this page]
              SHAREHOLDERS’ AGREEMENT CERTIFICATION PAGE

                                        [COMPANY]
                                (a North Carolina corporation)


       By signing this Shareholders’ Agreement Certification Page, the undersigned accepts and
agrees to be a party to and bound by and perform all the terms and provisions of that certain
Shareholders’ Agreement of ________, dated as of ________, 20__, as it may be amended from
time to time, as a Shareholder thereunder.

      Dated this ______________________, 20___.



                                          PLEASE SIGN BELOW IF AN INDIVIDUAL:


                                          __________________________________________
                                          Printed Name: ______________________________




                                          PLEASE SIGN BELOW IF AN ENTITY:

                                          __________________________________________

                                          Name of Entity


                                          By:    ____________________________________
                                          Name: ____________________________________
                                          Title: ____________________________________
                                        ADDENDUM

                           Alternative Board of Directors Provision

      Board of Directors. The Company’s board of directors (the “Board of Directors”) shall
be comprised of __ directors, chosen as follows:

               (a)     ________, for so long as such Shareholder and such Shareholder’s Related
Parties continue to hold at least ___ Shares, shall designate ___ members of the Board of
Directors;

               (b)     ________, for so long as such Shareholder and such Shareholder’s Related
Parties continue to hold at least ___ Shares, shall designate ___ members of the Board of
Directors; and

               (c)   All members of the Company’s Board of Directors not chosen pursuant to
Section __ or __ above shall be chosen by the holders of a majority of the Shares held by all
Shareholders.




                                            Add.-1
                              Sample Board Observation Provision

        Observation Rights. For so long as ________ holds at least ____ Shares, the Company
shall permit one representative of ________ (the “Observer”), to be designated by ________ and
who shall initially be ________, to attend all meetings of the Board of Directors (whether in
person, telephonic or otherwise) and to attend all meetings of the committees of the Board of
Directors, if and when created (whether in person, telephonic or otherwise), both in a non-voting,
observer capacity. In addition, the Company shall provide to the Observer, concurrently with the
members of the Board of Directors or the committees thereof, as applicable, and in the same
manner, notice of any meeting and a copy of all materials provided to such members, including
all materials provided to such members in connection with any action to be taken by the Board of
Directors or the committees thereof, as applicable, without a meeting. Notwithstanding the
foregoing, the Company shall be permitted to exclude the Observer from meetings of the Board
of Directors or any committee of the Board of Directors, and shall be permitted to withhold
materials provided to members of the Board of Directors from the Observer, in each case to the
extent necessary (a) to preserve the attorney-client privilege or (b) to protect highly confidential
information of the Company. The Company shall reimburse ________ for all reasonable
expenses incurred by the Observer in attending meetings of the Board of Directors.




                                              Add.-2
                             Sample Board Expenses Provision

       Expenses. The Company shall pay all reasonable travel expenses and other out-of-pocket
disbursements incurred by any director who is not an employee of the Company to attend
meetings of the Board of Directors.




                                           Add.-3
           Sample Provision Permitting Transfers Approved by Qualified Majority

        Transfers Generally Prohibited. No Shareholder shall Transfer such Shareholder’s
Shares unless (a) the requirements of Section __ are met with respect to such Transfer, and (b)
such Transfer is either (i) made in accordance with Section __ below or (ii) approved in writing
by a Qualified Majority, after the terms of such arrangement are fully disclosed in advance by
written notice to each Shareholder, including copies of all relevant documents if requested by
any Shareholder. Any attempt to transfer Shares in violation of this Agreement shall be null and
void ab initio and the Company shall refuse to register such Transfer.




                                            Add.-4
                                 Alternative Right of First Refusal Provision

       Right of First Refusal.

               (a)     In the event that a Shareholder (referred to herein as a “Transferring
Shareholder”) desires to Transfer any of such Shareholder’s Shares, such Transferring
Shareholder shall give written notice thereof to the Company specifying the identity of the
proposed transferee and the terms and purchase price of such proposed Transfer, and the
Company shall have the option to purchase such Shares for a period of ____ days from its receipt
of such notice for the purchase price specified in such written notice under the same terms and
conditions contained in the offer. The option may be exercised by the Company only as to all of
such offered Shares.

               (b)     If the Company does not exercise its option to purchase such Shares, then
the Transferring Shareholder shall offer such Shares to the remaining Shareholders under the
same terms and conditions contained in the offer, who shall have the option to purchase such
Shares for a period of ____ days from receipt of such notice.

               (c)      If neither the Company nor any remaining Shareholder exercises their
option to purchase such Shares, then the Transferring Shareholder may sell all, but not less than
all, such Shares to the proposed transferee specified in the initial notice and on the same terms
and for the same price as specified in the initial notice to the Company pursuant to this Section
__; provided that if such sale does not take place within ____ days of such Transferring
Shareholder’s delivery of the initial notice to the Company, as set forth above, then all such
Shares shall once again be subject to the requirements of this Section __.




                                               Add.-5
                                  Sample Valuation Provisions

                                     First Sample Provision:

      Fair Market Value of Transferred Shares. For purposes of this Agreement, the “Fair
Market Value” of Transferred Shares shall be determined as follows:

               (a)    The Transferring Shareholder and the Company shall jointly appoint an
investment banking or appraisal firm of recognized standing (an “Appraiser”), whose decision of
the Fair Market Value of the Transferring Shareholder’s Shares as of the applicable date shall be
binding on the Company and the Shareholders.

                (b)    If the Transferring Shareholder and the Company are unable to agree on
an Appraiser within ____ days of the related Transfer, then each such Person shall select an
Appraiser within ____ days thereafter, each of whom shall determine the fair market value of the
Transferring Shareholder’s Shares as of the applicable date, and the Fair Market Value of the
Transferring Shareholder’s Shares shall be the average of the two appraisals, provided that the
value of the higher of such two appraisals is not more than __% higher than the value of the
lower of such two appraisals. If the appraisals of the two Appraisers differ by more than such
__%, the two Appraisers shall jointly select a third Appraiser, who shall determine the fair
market value of the Transferring Shareholder’s Shares being sold as of the applicable date. In
such event, the Fair Market Value of the Selling Persons’ Shares shall equal [the average of the
two closest values determined by the three Appraisers] [the average of the values determined by
the three Appraisers] [the amount of such third appraisal, if such third appraisal is an amount
between the amounts of the prior two appraisals. If such third appraisal is greater than or less
than the amount of both of the prior two appraisals, then the Fair Market Value of the
Transferring Shareholder’s Shares will equal the amount of the initial appraisal that is closer to
the third appraisal.]

               (c)     No Appraiser may confer with or provide information to any other
Appraiser in connection with the determination of the Fair Market Value of the Transferring
Shareholder’s Shares. Each Appraiser’s determination must be delivered to the Transferring
Shareholder and the Company within ____ days of being appointed. The costs of conducting
each appraisal shall be paid by and divided equally between the Transferring Shareholder, on the
one hand, and the Company, on the other hand.

                                    Second Sample Provision:

         Purchase Price. In the event that the Company or the other Shareholders elect to exercise
their rights under this provision, the purchasers shall, as consideration for the purchased Shares,
pay the selling Shareholder an amount equal to the product of (a) the percentage determined by
dividing the purchased Shares by the total number of the Company’s outstanding Shares, and (b)
an amount equal to the product of __ and the Company’s Applicable Earnings as of the last day
of the month ending immediately prior to the related Involuntary Transfer (the “Measurement
Date”). The Company’s “Applicable Earnings” for such purpose shall equal the Company’s net
income for the 12-month period ending on the Measurement Date, plus the sum of (i) the
Company’s cash interest expenses during such period, (ii) federal, state, local and other income



                                              Add.-6
taxes of the Company for such period, and (iii) depreciation of tangible assets and amortization
of intangible assets of the Company for such period, all as determined in accordance with
GAAP.

                                    Third Sample Provision:

        Purchase Price. The price of each Share to be sold under this Agreement is hereby
 stipulated to be $____, subject to adjustment as follows:

                (a)     Review of Price. At the annual meeting of Shareholders each calendar
year, the parties shall review the stipulated price. Upon such review and after considering the
then existing business and financial condition of the Company, the parties may agree upon a new
stipulated price or they may stipulate that there is no change in the price last stipulated. Each
such decision shall be noted in the attached Appendix A and shall be endorsed by each of the
parties.

               (b)     Adjustments to Price. If, at the annual meeting of Shareholders, the
parties are unable to agree upon a new stipulated price or are unable to stipulate upon
maintaining the last stipulated price, then the price for each Share to be sold under this
Agreement shall be determined as follows: the offeror and the Company shall each select an
independent qualified appraiser, and those two appraisers shall then conduct realistic appraisals
of the fair market value of the Shares. The price per share shall be the average of the price per
Share resulting from the two appraisals.




                                             Add.-7
                       Sample Post-Transfer Price Adjustment Provision

         Trailing Purchase Price Obligation. If a Shareholder’s Shares (such Shareholder
hereinafter the “Original Shareholder”) are purchased by the Company or by any of the
remaining Shareholders pursuant to this Agreement and, within a period of _____ from the
closing date of such purchase, the Company and/or any of the remaining Shareholders enters an
agreement or agreements for the sale of a controlling interest in the Company or its business
(through a merger, sale of stock or assets, or otherwise), then a comparison of the purchase price
paid to the Original Shareholder and the purchase price under the new agreements shall be made.
If the purchase price under the new agreements, viewed on an appropriate per Share basis,
exceeds the price paid to the Original Shareholder, then the purchase price paid to the Original
Shareholder shall be recalculated using the “per Share” price under the new agreements. After
calculating the increase to the purchase price resulting from the subsequent transaction, the
parties shall calculate the amount that the Original Shareholder would have received had such
Original Shareholder owned the Shares at the time of the subsequent transaction. One fourth of
the amount calculated shall be paid to the Original Shareholder in cash at the time of the closing
of the transfer of Shares under the new agreements. For example, if the Original Shareholder
initially sold such Shareholder’s Shares for $50, and the subsequent transaction would yield $100
for such Shares, the Original Shareholder shall be entitled to receive an additional $25, or one
half of the appreciation since the initial sale.




                                             Add.-8
                                Alternative Involuntary Transfer Provision

       Involuntary Transfers.

                 (a)      In the event that any Shareholder is required to involuntarily Transfer of
any part of such Shareholder’s Shares during the term of this Agreement to any person other than
an existing Shareholder (including, without limitation, a Transfer in any action for equitable
distribution or upon division of marital property as a consequence or arising out of a divorce or
in connection with an Event of Bankruptcy or other involuntary Transfer), such Shareholder shall
first offer to sell all of such Shares to the Company at the Purchase Price specified in Section __
and on the terms specified in Section __ hereof. The Shareholder shall submit to the Company a
document stating the name of the proposed transferee, the terms of the proposed Transfer, and
the reason such Shareholder is being required to make such Transfer. If the Company elects to
exercise such option, it shall purchase all, and not less than all, of such Shareholder’s Shares. If
such Shares not purchased by the Company within _______ days after the later of: (i) receipt of
such notice in writing; and (ii) determination of the Purchase Price specified in Section __, such
Shares shall thereupon be offered by such transferring Shareholder for sale to the remaining
Shareholders at the same price and upon the same optional terms. If the remaining Shareholders
elect to exercise such option, they shall purchase all, and not less than all, of such Shares. If
such Shares are not purchased by the remaining Shareholders within _______ days after receipt
of such offer in writing, then within the following _______days the Shareholder required to sell
such Shares may sell such Shares to the party identified in the notice to the Company, free and
clear of this restriction on the terms described in the notice to the Company; provided that at the
end of such _______ day period or in the event the terms of such required disposition changes,
such Shares, if not sooner sold, shall again be subject to the restrictions set forth in this
Agreement.

              (b)     If more than one of the remaining Shareholders wish to purchase the
selling Shareholder’s Shares and properly exercise such option, they shall each purchase such
Shares prorated among them according to the Shares which they then hold, unless otherwise
mutually agreed between all of such purchasing Shareholders. If and when all the Shares of a
Shareholder shall have been transferred in accordance herewith, such Shareholder shall cease to
be a Shareholder.

                (c)     For the purposes hereof, “Event of Bankruptcy” as to any Person means
(a) the Person's making an assignment for the benefit of creditors; (b) the Person's filing a
voluntary petition in bankruptcy; (c) the Person's being adjudged bankrupt or insolvent or having
entered against him an order for relief in any bankruptcy or insolvency proceeding; (d) the
Person's filing a petition or answer seeking for such Person any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under any statute, law or
regulation; (e) the Person's seeking, consenting to, or acquiescing in the appointment of a trustee
or receiver for or liquidation of the Person or all or any substantial part of such Person's
properties; (f) the Person's filing an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against the Person in any proceeding described in
subparagraphs (a) through (e) of this definition; or (g) the continuation of any proceeding against
the Person seeking reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any statute, law or regulation for _______ days after the


                                              Add.-9
commencement thereof or the appointment of a trustee, receiver, or liquidator for the Person or
all or any substantial part of the Person's properties without the Person's agreement or
acquiescence, which appointment is not vacated or stayed for _______ days or, if the
appointment is stayed, for _______ days after the expiration of the stay during which period the
appointment is not vacated.




                                           Add.-10
                            Sample Provision Allowing for Payment by Note

         Payment of Purchase Price. In consideration for such conveyance, the purchasing parties
shall (i) make a cash payment to the selling Shareholder on the closing date of such Transfer in
an amount equal to __% of the Purchase Price and (ii) issue one or more promissory notes to the
selling Shareholder on such date providing for the payment of the remainder of Purchase Price in
________ equal payments of principal on each of the next ________ anniversaries of such
closing date, plus interest accrued on the outstanding balance of such note(s) at a rate of __% per
annum from the Closing Date to the date of payment. The payment of any promissory note
issued in accordance with this Section __ shall be secured by the pledge of the Shares being
acquired with such note.




                                             Add.-11
                               Alternative Drag-Along Provision

        Drag-Along Right. In the event that Shareholders constituting a Qualified Majority
determines to effect a Sale of the Company in a bona fide negotiated transaction to a non-
Affiliate (any such sale, an “Approved Sale”, such non-Affiliate purchaser, a “Purchaser”, and
such Qualified Majority, a “Majority Shareholder Group”), the Majority Shareholder Group shall
give notice (a “Drag-Along Notice”), not less than __ days prior to the Approved Sale, to each of
the remaining Shareholders (the “Minority Shareholders”) setting forth in reasonable detail the
name of the Purchaser, the terms and conditions of the Approved Sale, including the purchase
price, and the proposed closing date of the Approved Sale. Each Shareholder hereby agrees that,
upon the receipt of a Drag-Along Notice, such Shareholder will (i) consent to, vote for, and raise
no objections against the Approved Sale, (ii) waive any dissenters’, appraisal and similar rights
with respect to the Approved Sale, (iii) if the Approved Sale is a sale of Shares, sell to the
Purchaser such Person’s Shares on the same terms and conditions, including price and type,
applicable to the Majority Shareholder Group, and (iv) execute and deliver such instruments of
conveyance and transfer and take such other action, including executing any purchase
agreements, merger agreements, indemnity agreements, escrow agreements or related
documents, as the Majority Shareholder Group or Purchaser may reasonably require in order to
complete the Approved Sale. The right set forth in this Section __ is referred to herein as the
“Drag-Along Right”. Notwithstanding the foregoing, the obligations of the Minority
Shareholders under this Section __ are subject to the following conditions:

               (a)    each holder of Shares shall receive the same proportion of the aggregate
consideration from an Approved Sale under this Section __ that such holder would have received
if such aggregate consideration had been distributed by the Company in a complete liquidation of
the Company;

                (b)    if any Shareholder is given an option as to the form of consideration to be
received, all Shareholders will be given the same option;

               (c)     no Minority Shareholder shall be required to make any out-of-pocket
expenditure prior to the consummation of the Approved Sale and no Minority Shareholder shall
be obligated to pay more than its pro rata share of reasonable expenses incurred in connection
with a consummated Approved Sale;

               (d)    no Minority Shareholder shall be required to pay any expenses with
respect to an Approved Sale that are not incurred for the benefit of all Shareholders and that have
not otherwise been paid by the Company or the Purchaser;

                 (e)     no Minority Shareholder shall be required to make any representations or
warranties or to provide any indemnities in connection such Approved Sale other than with
respect to title to such Shareholder’s Shares; and

               (f)    a Minority Shareholder’s total liability for any breach of the
representations and warranties made by the Company or a Shareholder in connection with such
Approved Sale shall not exceed the total consideration received by such Shareholder in
connection with such Approved Sale.



                                             Add.-12
                       Sample Provisions for Subchapter S Corporations

                                      First Sample Provision:

        Legal Opinion Requirement. Notwithstanding anything to the contrary set forth in this
Agreement, no Shares may be Transferred without the Company first having been provided a
written opinion of counsel for the Company or of other counsel acceptable to the Board of
Directors (a) that the Transfer shall not cause the election of the Company under Section 1362 of
the Code to terminate, (b) that the transferee is not ineligible as a shareholder of an S corporation
under the Code, and (c) that the Transfer would not cause the total number of shareholders of the
Company to exceed the number of shareholders permitted for an S corporation under the Code.

                                     Second Sample Provision:

        S Corporation Transfer Restriction. Notwithstanding anything herein to the contrary, for
so long as the Company has in effect an election to be taxed as an S corporation under Section
1362 of the Code, no Shares may be Transferred to any Person if such Transfer would cause such
election to terminate.

                                     Third Sample Provision:

        S Corporation Status. Each Shareholder hereby acknowledges that the Company has
made an election to be taxed as an S corporation under Section 1362 of the Code. In the event of
any inadvertent termination of the Company’s Subchapter S status, each Shareholder shall seek
the reinstatement of such status and shall execute any documents necessary for such
reinstatement.

                                     Fourth Sample Provision:

       Distributions to Pay Taxes.

               (a)     For the purposes hereof, the following terms shall have the meaning
specified below:

                        (i)     “Taxable Income” with respect to any fiscal year of the Company
       or any other relevant period shall mean those amounts and items described in Code
       Section 1366(a)(1)(A) and (B) combined into a single net amount of the Company for
       such fiscal year or other relevant period which are required to be taken into account by
       the Shareholders of the Company, as a group, in determining their federal income tax
       liability for such fiscal year or other relevant period pursuant to Code Section 1366. The
       term “Taxable Income” shall exclude any life insurance proceeds received by the
       Company and otherwise included in such Taxable Income.

                      (ii)    “Minimum Distributions” with respect to a fiscal year of the
       Company or any other relevant period shall mean a minimum of __% of the Taxable
       Income of the Company for such fiscal year or other relevant period. The Shareholders
       by a majority vote of the outstanding Shares of the Company may agree to a greater



                                              Add.-13
       percentage distribution and the Shareholders by the affirmative vote of not less than __%
       of the outstanding Shares may agree to a lesser percentage distribution.

                (b)      On or before April 15 of each fiscal year of the Company, the Company
shall use its best efforts to make a cash distribution to its Shareholders (or former Shareholders
as hereinafter set forth) with respect to the immediately preceding fiscal year in an amount equal
to the Minimum Distributions less amounts previously distributed to its Shareholders with
respect to such fiscal year.

                (c)     In the event that a change in the ownership of the Shares of the Company
shall occur during any fiscal year, the aggregate amount of the Minimum Distributions to be
made to each Shareholder or a former Shareholder with respect to such fiscal year shall be
apportioned among each such Shareholder or former Shareholder in that amount which shall be
equal to the Minimum Distributions for such fiscal year to be made to all of the Shareholders
times a fraction, the numerator of which is the Taxable Income allocated to such Shareholder (or
former Shareholder) for such fiscal year and the denominator of which is the Taxable Income
allocable to all Shareholders of the Company for such fiscal year, said Minimum Distributions to
be made as set forth in the immediately preceding paragraph with appropriate adjustments for
distributions previously made with respect to such fiscal year.

               (d)    Notwithstanding any provisions hereof, the distributions hereunder shall
be made at such time and in such a manner as to comply with Code Section 1361(b)(1)(D) and
the regulations promulgated thereunder.

                                      Fifth Sample Provision:

       Subchapter S Status; Distributions to Shareholders.

                (a)     S-Corporation Status. The Shareholders acknowledge that the Company
and its shareholders have made an election to have the Company treated as a “small business
corporation” subject to the provisions of subchapter S of the Code. The Shareholders agree to
take all appropriate steps to maintain such S-corporation election, unless the Shareholders
unanimously agree to terminate that election. Notwithstanding any other provision of this
Agreement, each Shareholder agrees that, regardless of whether such an election is in effect at
the time of a proposed transfer of any Shares by the Shareholder, such Shareholder will not make
such transfer if it would for any reason render the Company ineligible to elect to be treated as a
subchapter S-corporation or would result in the loss of subchapter S status if the Company had
previously made such election, and each Shareholder further agrees that any such transfer made
in violation of this provision shall be void.

                 (b)     Certain Duties of the Company. For any taxable year in which the
Company has in effect an election of S-corporation status under Code Section 1362, the
Company shall: (i) not issue more than one class of stock within the meaning of Code Section
1361; (ii) use its best efforts to avoid a termination of its S-corporation status under Code Section
1362; and (iii) in the event that the Company’s S-corporation election is inadvertently terminated
as provided in Code Section 1362(f), take such steps or actions as necessary to enable the




                                              Add.-14
Company to be treated by the Internal Revenue Service as continuing to be an S-corporation
during the period of any such inadvertent termination.

                (c)    Distributions to Shareholders. Unless otherwise unanimously agreed upon
by the Board of Directors, the Company shall, on an annual basis for each fiscal year of the
Company, within _____ days after the end of each such fiscal year, distribute a cash amount to
its Shareholders equal to the lesser of (i) the Company’s taxable income for federal income tax
purposes for such fiscal year, or (ii) its Net Cash Flow (as defined below) for such fiscal year.
All such distributions to the Company’s Shareholders shall be made on a per-share, per-day basis
in accordance with the calculation of allocations of income and gain to the Shareholders for
federal income tax purposes.

               (d)     Definition of Net Cash Flow. For purposes of this Agreement, “Net Cash
Flow” shall mean, with respect to any fiscal year, all funds of the Company, whether derived
from revenues or otherwise, on hand or in bank or other financial accounts of the Company as
are legally available for distribution to the Shareholders, minus (1) the amount of all operating
expenses of the Company as of such time, (2) the amount of all outstanding and unpaid current
obligations of the Company as of such time, and (3) an amount equal to $_____________
estimated for reserves for Company operations for the subsequent fiscal year. Such Net Cash
Flow shall not be reduced by payments of any amounts described in the preceding clauses (1)
and (2) made from the proceeds of any loans or directly from any reserve, or by depreciation and
amortization taken into account for federal income tax purposes.




                                            Add.-15
                     Sample Provision Restricting Certain Company Actions

       Restrictions on certain Company Actions. The Company will not take any of the
following actions, whether by amendment, merger, consolidation or otherwise, without the
affirmative vote or consent of a Shareholder Majority, given in writing or by resolution adopted
at a meeting called for such purpose:

                (a)     liquidate, dissolve or wind-up the business and affairs of the Company or
any of its subsidiaries, or consent to any of the foregoing;

               (b)     amend, alter or repeal any provision in the Company’s Articles of
Incorporation or bylaws or, with respect to any subsidiary, the Articles of Incorporation or
Organization, as the case may be, bylaws, operating agreement or similar organizational
documents (in each case, as the same may be amended from time to time) of such subsidiary;

               (c)     create (by reclassification, recapitalization or otherwise), or authorize the
creation of, any new class or series of the Company’s capital stock;

                  (d)    authorize or issue (or obligate itself to issue) any (i) shares of capital stock
of the Company or any subsidiary of any class or (ii) equity-linked securities or any options,
warrants, or rights to purchase the capital stock of the Company or any subsidiary of any class or
(iii) securities convertible into capital stock of the Company or any subsidiary of any class;

                (e)    (i) recapitalize the outstanding capital stock of the Company or any
subsidiary (excluding stock dividends, combinations and splits), (ii) reorganize the affairs of the
Company or any subsidiary, (iii) materially change the business strategy of the Company or any
subsidiary; (iv) acquire any of the assets of, capital stock of, or any other interest in, another
business or corporation, (E) create or hold capital stock in any subsidiary that is not wholly-
owned or (F) take any action which results in any of the foregoing; or

               (f)     make a capital expenditure, or series of related capital expenditures, or
enter into operating leases or financing arrangements in an amount in excess of $________.




                                                Add.-16
                                 Alternative Reporting Provision

       Reporting. The Company shall deliver to each Shareholder:

                (a)     as soon as practicable, but in any event within ____ days after the end of
each fiscal year of the Company, (i) a balance sheet as of the end of such year; (ii) statements of
income and of cash flows for such year; and (iii) a statement of stockholders’ equity as of the end
of such year, which financial statements shall be audited and certified by independent public
accountants of nationally recognized standing selected by the Company and shall include a
comparison between (x) the actual amounts set out on each of (i) – (iii) above as of and for such
fiscal year and (y) the comparable amounts for the prior year and as included in the Budget for
such year, with an explanation of any material differences between such amounts and a schedule
of the sources and applications of funds for such year;

                 (b)     as soon as practicable, but in any event within ____ days after the end of
each of the first three quarters of each fiscal year of the Company, unaudited statements of
income and of cash flows for such fiscal quarter, and an unaudited balance sheet as of the end of
such fiscal quarter, all prepared in accordance with GAAP (except that the financial report may
(i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may
be required in accordance with GAAP) and including a comparison between (x) the actual
amounts as of and for such quarter, and (y) the comparable amounts for the prior year and as
included in the Budget for such quarter, with an explanation of any material differences between
such amounts and a schedule of the sources and applications of funds for such quarter;

                 (c)  as soon as practicable, but in any event ____ days before the end of each
fiscal year of the Company, a budget and business plan for the next fiscal year (collectively, the
“Budget”), prepared on a quarterly basis, including balance sheets, income statements, and
statements of cash flow for each quarter of the next fiscal year and a discussion of the
assumptions underlying such projections and a qualitative description by the Company’s CEO of
the Company’s plan in support of the Budget; and

               (d)    as soon as practicable, but in any event within __ days after the discovery
of any material adverse event with respect to the Company, a statement outlining such default or
event, and management's proposed response.

If, for any period, the Company has any subsidiary whose accounts are consolidated with those
of the Company, then in respect of such period the financial statements delivered pursuant to the
foregoing sections shall be the consolidated and consolidating financial statements of the
Company and all such consolidated subsidiaries.




                                             Add.-17
                              Sample Deadlock/Buy-Sell Provisions

                                      First Sample Provision:

       Buy-Sell Arrangement.

                (a)    Submission of Offer. For so long as there are only two Shareholders, each
Shareholder (for purposes of this Section __, the “Offeror”) shall have the right, which may be
exercised at any time, to give to the other (the “Offeree”) a written notice (the “Offer”) stating
that the Offeror wishes to implement the provisions of this Section __ with respect to the
purchase and sale of the Shares held by the Offeree. The Offer shall specify the purchase price
(the “Buy-Sell Price”) at which the Offeror would be willing to purchase all of the assets of the
Company, assuming such assets are free and clear of all debts, liens, claims and encumbrances.
The Offer shall be a binding offer in respect of the Offeror to purchase the Shares of the Offeree,
or to sell the Shares of the Offeror to the Offeree, until an Election is made or deemed to have
been made pursuant to Section __.

                (b)     The Offeree’s Election. Upon receipt of the Offer, the Offeree shall have
the obligation to elect (the “Election”) to either:

                       (i)     Sell its Shares to the Offeror for a cash purchase price equal to the
       amount such Persons would receive if the Company (A) sold all of its assets for the Buy-
       Sell Price, (B) paid all its debts and liabilities, and (C) distributed the net proceeds to its
       Shareholders (the “Offeree Value”); or

                      (ii)    Purchase the Shares of the Offeror for a cash purchase price equal
       to the amount such Persons would receive if the Company (A) sold all of its assets for the
       Buy-Sell Price, (B) paid all its debts and liabilities, and (C) distributed the net proceeds to
       its Shareholders (the “Offeror Value”).

The Offeree must provide the Offeror with written notice of its Election within ____ days of
receiving the Offer. The failure to give such notice within such ____-day period shall be deemed
to constitute an Election of the Offeree to sell its Shares to the Offeror under Section __ and
shall be binding on the Offeree.

                (c)     Closing. Once the selling and purchasing parties are determined pursuant
to Section __, the closing of the purchase of any Shares under this Section __ shall occur within
____ days of the date of such determination. Subject to Section __, at the closing, the selling
parties shall convey their Shares to the purchasing party free and clear of all liens, claims and
encumbrances and pursuant to such instruments of conveyance and warranties as the purchasing
party shall reasonably request, in exchange for cash in an amount equal to the Offeror Value or
the Offeree Value, as applicable. Each party shall pay its own fees and expenses incurred in
connection with the transaction. The failure of any party to satisfy the obligation to close the
purchase and sale of Shares in accordance with this Section __ once an Election has been made
or deemed to have been made shall entitle the other party to specific performance of such
obligation, in addition to all other equitable and legal remedies available.




                                              Add.-18
                                    Second Sample Provision:

        Deadlock. The Company and the Shareholders agree that certain decisions of the
Company are fundamental to the stability and well-being of the Company and as such should
require the consent of the Shareholders in order for such corporate actions to be taken. As such,
the Company and the Shareholders agree as follows:

                (a)     Unanimous Shareholder Approval. Except as required by law, the
Company shall not, without the approval by vote or written consent of the Shareholders holding
all of the then outstanding Shares, take the following actions:

                    (i)    consent to any dissolution, liquidation or winding up of the
       Company, except as may otherwise be provided in this Agreement;

                     (ii)     incur liabilities outside the ordinary course of business in excess of
       $1,000,000.00;

                      (iii)   redeem any Shares of the Company;

                      (iv)   change the Company’s current status for federal income tax
       purposes as an S corporation; or

                      (v)     amend the Articles of Incorporation and/or Bylaws of the
       Company.

              (b)     Buy-Sell in the Event of a Deadlock.

                        (i)     If an action requiring unanimous consent under Section __ is not
       taken due to the lack of a unanimous vote, the Shareholder(s) desiring to take any such
       action shall be entitled to make a determination as to the effect on the Company of such
       failure to gain a unanimous vote. If, in the good faith discretion of such Shareholder(s),
       the failure to take action would be material and adverse to the Company, the
       Shareholder(s) desiring to take such action may make a “Buy-Sell Offer” to all the other
       Shareholders, pursuant to the terms and provisions of this Section __. Any Shareholder
       who makes a Buy-Sell Offer according to the terms and provisions set forth in this
       Section __, shall hereinafter be referred to as the “Offeror.” The Shareholders to whom
       the Offeror makes a Buy-Sell Offer shall hereinafter be referred to in this Section __ as
       the “Offerees.”

                       (ii)     The Offerees as a whole or as a partial group may, within the time
       specified in the Buy-Sell Offer (which time shall be at least _____ days from the
       determination of the Purchase Price in accordance with Section __), elect by written
       notice to the Offeror to regard the Buy-Sell Offer as an offer to sell by the Offeror and
       elect to purchase all the Shares of the Offeror, each Offeree purchasing such Offeree’s
       proportionate share (based on the ratio of such Offeree’s Share holdings to the Share
       holdings of all the other electing Offerees); provided that this election, if made, must be
       as to all the Shares of the Offeror. If the election to purchase is exercised by some or all
       of the Offerees, the closing thereof shall be no later than _____ days after the written


                                             Add.-19
notice to exercise the right to purchase is given to the Offeror. If all of the Offerees shall
make no such election and purchase prior to the expiration of the aforementioned periods
or shall earlier expressly waive their right to regard the offer as an offer to sell by the
Offeror, each Offeree shall sell and the Offeror shall purchase all of the Shares of each
Offeree. In such event, the closing thereof shall be no later than _____ days after the
expiration of the time specified in the Buy-Sell Offer. If a purchase and sale results from
this procedure, the Purchase Price of the Shares to be purchased shall be determined
under Section __ and payment for such Shares shall be made in cash at the time of
purchase.




                                       Add.-20
                                     Sample Call Provisions

                                     First Sample Provision:

       Company Call Right.

                (a)    Upon (i) the voluntary resignation of a Shareholder’s employment with the
Company or any of its Affiliates, (ii) the involuntary termination of such employment without
Cause, (iii) a Shareholder’s Bankruptcy, (iv) any attempted Transfer of Shares other than in
accordance with Article ___ hereof, or (v) a Shareholder’s death or Permanent Disability (each a
“Call Event”), the Company shall have the right, but not the obligation, to purchase all or any
portion of the vested Shares of such Shareholder for a purchase price equal to the Fair Market
Value of such Shares (the “Call Right”). The Company may exercise such Call Right by giving
a Shareholder (or a Shareholder’s executor or legal representative with authority to act on behalf
of such Shareholder) written notice (the “Call Notice”) thereof at any time within ____ days of
the occurrence of a Call Event.

                (b)     The purchase and sale of Shares pursuant to a Call Right as set forth in
Section __ shall occur within ____ days of the date of the Call Notice (or such other date as
agreed by the parties) (the “Closing Date”). In the event of the exercise of the Call Right
pursuant to Section __, on the Closing Date, (a) the Shareholder or the Shareholder’s executor or
legal representative shall convey the Shares, free and clear of all liens, claims and encumbrances
and pursuant to such instruments of conveyance and warranties as the Company shall reasonably
request and (b) the Company shall (i) pay to such Shareholder or such Shareholder’s executor or
legal representative, cash equal to __% of the purchase price and (ii) make and deliver to the
Shareholder or such Shareholder’s executor or legal representative a promissory note in the
amount of __% of the purchase price payable in ____ equal installments on each of the first ____
anniversaries of the Closing Date. Such promissory note shall bear interest at the Prime Rate,
but shall not be secured by any collateral and may be prepaid by the Company at any time
without penalty.

                (c)    In the event that any purchase is made by the Company pursuant to
Section __ and the Company later determines that a Shareholder breached any applicable non-
competition or non-solicitation provisions set forth in such Shareholder’s Award Agreement, the
Shareholder shall return to the Company an amount equal to the cash purchase price paid by the
Company to the Shareholder on the Closing Date and the promissory note by the Company for
the benefit of the Shareholder delivered pursuant to Section __ shall be cancelled and of no
further force and effect.

                                   Second Sample Provision:

       Termination of Employment. The parties desire to limit the ownership of Shares to
 Persons who are also officers, employees or directors (or some combination thereof) of the
 Company (an “Employee-Shareholder”). Therefore, it is agreed that any Shareholder who, at
 any time, ceases to be an Employee-Shareholder as a result of voluntary termination of
 employment, termination of employment by the mutual consent of the Shareholder and the
 Company, termination of employment by the Company for Adequate Cause, or because the



                                            Add.-21
 Shareholder is a Disabled Shareholder, shall be deemed to have offered to sell all of such
 Shareholder’s Shares to the other Shareholders. The other Shareholders shall have _____ days
 from such offer in which to elect to buy all, but not less than all, of such Shares. Each
 purchasing Shareholder may purchase a proportionate share (based on the ratio of such
 purchasing Shareholder’s Share holdings to the Share holdings of the other purchasing
 Shareholders) of the Shares offered for sale in accordance with this Section __. The Purchase
 Price of the Shares to be purchased shall be determined under Section __ and payment for such
 Shares shall be made in cash at the time of purchase. Nothing in this Agreement imposes any
 obligation on the Company to employ any Shareholder.

        “Adequate Cause” for terminating a Shareholder’s status as an Employee-Shareholder is
limited to conviction of or a plea of guilty to a felony or a misdemeanor, dishonesty, any other
criminal conduct against the Company, a continued breach of the Employee-Shareholder’s duties
and obligations arising under an employment contract with the Company or of any written
policy, rule, or regulation of the Company, for a period of at least _____ days following his or
her receipt of written notice from any officer of the Company specifying such breach.

        “Disabled Shareholder” means a Shareholder that is unable to perform substantially all
 the regular duties of such Shareholder’s position with the Company due to sickness or injury.
 In addition, a Shareholder shall be conclusively deemed to be a Disabled Shareholder if such
 Shareholder is determined eligible to receive disability benefits from (i) any policy of disability
 insurance issued by a commercial insurer, (ii) a waiver of premium benefit forming a part of
 any policy of life insurance, or (iii) the Social Security Administration. If there is a dispute
 regarding the existence or continuation of a disability, the Company may require a Shareholder
 to submit to an examination by a medical doctor licensed to practice medicine in North
 Carolina at such reasonable times as it may require but not more frequently than once in any
 _____ day period. The Company shall pay for such examinations. Any period of disability
 shall be deemed to be continuing until the Disabled Shareholder person has either died or failed
 to meet the definition set forth above for a period of three consecutive months.




                                             Add.-22
                                      Sample Put Provision

               Put Rights.

               (a)     Put Right on Death or Permanent Disability. In the event that a
Shareholder dies or becomes Permanently Disabled, such Shareholder, or in the case of death
any transferee of such Shareholder’s Shares (the Shareholder or other Person exercising the right
provided by this Section __ being referred to as the “Selling Person”), shall have the right, but
not the obligation (a “Put Right”) to require the Company to purchase such Selling Person’s
Shares on the terms and conditions set forth in this Section __.

              (b)     Put Price. In the event that a Selling Person elects to exercise a Put Right,
the Company shall, as consideration for such Selling Person’s Shares, pay such Selling Person an
amount equal to the Fair Market Value of such Shares (such price, the “Put Price” of such
Shares).

                (c)     Exercise of Put Right. A Selling Person may exercise a Put Right by
delivering written notice to the Company at any time within ____ days of the occurrence of the
event or events giving rise to the Put Right. The closing of the purchase of such Selling Person’s
Shares under this Section __ shall occur within ____ days of the Company’s receipt of such
notice. On the closing date, the applicable Selling Person shall convey to the Company such
Person’s Shares, free and clear of all liens, claims and encumbrances and pursuant to such
instruments of conveyance and representations and warranties as the Company shall reasonably
request, and the Company shall issue to the Selling Person a promissory note with a principal
amount equal to the Put Price, with such amount being payable on the ____ anniversary of the
date of such conveyance and bearing interest at the Applicable Federal Rate. The failure of any
party to satisfy an obligation to close the purchase and sale of Shares in accordance with the
terms of this Section __ shall entitle the other party to specific performance of such obligation,
in addition to all other equitable and legal remedies available.




                                             Add.-23
                                  Sample Insurance Provision

       Insurance Policies.

                (a)    Each Shareholder shall purchase and maintain a policy or policies of life
insurance on the life of the other Shareholder in an amount equal to ________. No Shareholder
shall possess any incidents of ownership in any such policy insuring such Shareholder’s life.
The policies will be the sole property of the owner. No Shareholder nor any successor,
transferee, assignee, or personal representative of any Shareholder shall have any collateral
interest in any such policy insuring such Shareholder’s own life.

              (b)     Each Shareholder shall pay every premium on any life insurance policy
that such Shareholder is required to maintain under this Section __, and give the other
Shareholder proof of such payment within _____ days of the date the premium was due. If either
Shareholder fails to supply such proof, the other Shareholder may pay the premium and be
reimbursed for such Shareholder’s payment by the Shareholder who failed to supply such proof
of premium payment. All dividends on any such policies shall be applied to the payment of
premiums.

                (c)     A Shareholder who cannot be insured at standard rates shall be deemed to
have offered such Shareholder’s Shares to the other Shareholder. Such offer shall be deemed
made on the date on which the transferor Shareholder shall first be deemed not to be insurable at
standard rates. The other Shareholder shall have _____ days from such offer in which to elect to
buy all, but not less than all, of the stock of the offering Shareholder. If the other Shareholder
declines to buy all of the Shares of the offering Shareholder, the Shares may be retained by the
offering Shareholder, but such Shares shall remain subject to all provisions of this Agreement,
other than this Section __.

               (d)     If all the Shares of any living Shareholder are Transferred pursuant to this
Agreement, and if all the obligations of the purchasing party or parties for payment of the
purchase price have been fully satisfied, then the said living Shareholder may purchase from the
owner any policy of insurance owned by the other Shareholder insuring Such Shareholder’s life,
for a price equal to the interpolated terminal reserve of such policy plus any prepaid premiums,
less any policy indebtedness.

                (e)     Upon the death of any Shareholder, the surviving Shareholder may
purchase and, in the event the surviving Shareholder elects such option, the estate of the
deceased Shareholder shall sell any policy of life insurance owned by such deceased Shareholder
insuring the life of the other living Shareholder, for a price equal to the net cash surrender value
of such policy plus any prepaid premiums, less any policy indebtedness.




                                             Add.-24
                                  Sample Tag-Along Provisions

                                     First Sample Provision:

        Tag-Along Right. In the event that any Controlling Shareholder elects to Transfer such
Shareholder’s Shares to any Person, the selling Shareholder shall deliver to the Company and the
other Shareholders a written notice (a “Tag-Along Notice”) identifying the proposed purchaser
or purchasers in such sale, the number of Shares being Transferred, the purchase price to be paid
therefore, and a summary of the other material terms and conditions of the proposed sale. Each
such other Shareholder shall have the right (the “Tag-Along Right”), but not the obligation, to
sell up to such Shareholder’s pro rata share of the Shares being Transferred, with such share
determined by dividing each such Shareholder’s Shares by the number of the Company’s total
outstanding Shares, at the price per share and otherwise on the same terms and conditions set
forth in the Tag-Along Notice. Each other Shareholder may exercise such Shareholder’s Tag-
Along Right by giving written notice to the Controlling Shareholders within ____ days of
receiving the Tag-Along Notice. Upon exercise of its Tag-Along Right, a Shareholder shall be
obligated to sell the pro rata portion of such Shareholder’s Shares to the proposed purchaser on
the same terms and conditions set forth in the Tag-Along Notice.

       Exceptions. The Tag-Along Right set forth in Section __ shall not apply to Transfers by
a Controlling Shareholder (a) to any of such Controlling Shareholder’s Related Parties, (b) that is
an Involuntary Transfer, or (c) pursuant to the exercise of a Drag-Along Right, or with respect to
which a Drag-Along Right is exercised under Section __ above.

                                    Second Sample Provision:

       Tag Along Rights on Voluntary Transfers by Majority Shareholder.

                (a)     Offer to Company. In the event a Shareholder who owns 50% or more of
the Shares of the Company (a “Majority Seller”) elects to voluntarily Transfer (whether pursuant
to a single transfer or series of related transfers) all or part of such Shareholder’s Shares to any
non-Shareholder purchaser (the “Tag Along Purchaser”) such that upon purchase of the offered
Shares by the Tag Along Purchaser, the Tag Along Purchaser will own greater than fifty percent
(50%) of the Shares of the Company, the Majority Seller shall submit the offer to the Company
along with a document stating the name of the Tag Along Purchaser, the amount of the Majority
Seller’s Shares to be Transferred, the sale price, and the terms of payment of such sale and all of
the Majority Seller’s Shares shall be subject to the options to purchase described in and on the
terms of Section __.

                (b)     Tag-Along Right. In the event that the options set forth in Section __
hereof are not exercised as to all of the Majority Seller’s Shares, the Majority Seller shall then
send notice to the other Shareholders (the “Tag Along Notice”) stating that the Majority Seller
intends to consummate the transaction with the Tag Along Purchaser and that such Shareholders
have tag along rights pursuant to this Section __. Each other Shareholder may require that all
(but not less than all) of such Shareholder’s Shares also be sold to the Tag Along Purchaser in
such transaction on the same terms and conditions as the Majority Seller’s Shares (as described
in the Majority Seller’s notice to the Company provided pursuant to this Section). If a


                                             Add.-25
Shareholder exercises such option, such Shareholder and any other Shareholders who exercise
such option shall, for the purposes of this Section __, be referred to as the “Tag Along
Shareholders.” A Shareholder shall exercise such Shareholder’s rights under this Section __ by
giving written notice to the Majority Seller and all other Shareholders within _____ days of such
Shareholder’s receipt of the Tag Along Notice. Upon exercise by a Shareholder of such
Shareholder’s rights under this Section __, such Shareholder shall be obligated to sell such
Shareholder’s Shares in such transaction on the same terms and conditions as the Majority Seller
(as described in the Majority Seller’s notice to the Company provided pursuant to this Section).
In the event the Tag Along Purchaser declines to purchase all of the Shares of each Tag Along
Shareholder, the Majority Seller shall be prohibited from selling any of such Shareholder’s
Shares to the Tag Along Purchaser pursuant to such transaction (or series of related transactions)
unless a majority of the Board of Directors approves the sale by the Majority Seller.




                                            Add.-26
                          Alternative Book Value Definition Provision

       “Book Value” means the book value, computed in accordance with GAAP, of the
Company as of the end of the last full taxable year immediately preceding the year in which the
applicable Transfer occurred. Notwithstanding anything contained in this Agreement to the
contrary, the computation of Book Value shall be subject to the following provisions:

              (a)      Book Value shall not include any proceeds collected or collectible by the
Company under any policy or policies of life or disability insurance insuring the life or disability
of a Shareholder as a result of the death or disability of a Shareholder.

              (b)     No additional allowance of any kind shall be made for the goodwill, trade
names, or any other intangible asset or assets (the "Intangible Assets") of the Company.

               (c)    Reserves for contingent liabilities shall not be treated as a liability for
purposes of determining Book Value.

              (d)     No adjustment shall be made to Book Value as a result of any event
occurring subsequent to the date as of which Book Value is to be determined.

             (e)     Anything contained in this Agreement to the contrary notwithstanding,
Book Value shall be calculated for the purposes of this Agreement on an accrual basis even if the
Company shall have used a different accounting method for that or any prior period.

              (f)    Book Value shall be determined by the accountants regularly employed by
the Company. The determination of the accountants shall, for the purposes of this Agreement, be
binding and conclusive upon all parties.




                                             Add.-27

								
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