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S-Corporation_Shareholders__Agreement

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					Form 5.27 Shareholders' S Corporation Agreement ^ABC INC. SHAREHOLDERS'S CORPORATION AGREEMENT THIS SHAREHOLDER'S S CORPORATION AGREEMENT (hereinafter referred to as the "Agreement") is made this ^ day of ^, 19^, by and among ^ABC INC., an Illinois corporation (the "Company"), and ^D.E.F., ^G.H.I., ^J.K.L., ^M.N.O. and ^P.Q.R. (collectively, the "Shareholders"). EXPLANATORY STATEMENT The Company wishes to file an election to be taxed as an S corporation under the Internal Revenue Code of 1986, as amended (the "Code"), and each of the Shareholders has agreed to consent to such election. In order to maintain the Company's S corporation status, each Shareholder is agreeable to certain restrictions on the transfer of the shares of voting and nonvoting Common Stock of the Company (the "Common Stock") owned by such Shareholder. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto, the parties hereto do hereby covenant and agree as follows: 1. Consent to S Election. (a) Each Shareholder hereby irrevocably consents to the election by the Company of S corporation status under the Code and agrees to execute and deliver to the Company Internal Revenue Service Form 2553 concurrently herewith. (b) Each Shareholder hereby covenants and agrees that he or she will not take any action, and will refrain from taking any action, that would be reasonably likely to, in the opinion of counsel to the Company, terminate the Company's S corporation status or jeopardize the Company's retention of its S corporation status, except as specifically provided in this Agreement. 2. Restriction on Sale of Common Stock. (a) Each Shareholder agrees that he or she shall not, during the term of this Agreement, sell, assign, encumber, pledge, hypothecate, donate or otherwise transfer (whether or not for consideration) all or any portion of the shares of Common Stock now or hereafter owned of record or beneficially by him or her, except pursuant to the terms of this Agreement or with the prior written consent of the Company, which the Company may withhold in its sole and absolute discretion. It is acknowledged that the Company will not consent to any transfer by any Shareholder or by operation of law which may, in the opinion of the Company, jeopardize or call into question as a result thereof, the status of the Company as an S Corporation. (b) Each Shareholder agrees to make, by his last will and testament or a codicil, a specific bequest of all of his shares of Common Stock to natural persons whose ownership of

such shares of Common Stock shall not result in loss by the Company of its S corporation status. 3. Restrictive Legend. Each stock certificate of the Company representing shares of Common Stock owned of record or beneficially by each of the Shareholders shall bear the following conspicuous restrictive legend: "Transfer of shares of Common Stock of ^ABC INC. evidenced by this certificate is limited by the terms and provisions of a certain Shareholders' S corporation Agreement dated ^, 19^. A copy of such Agreement is on file at the principal office of the Corporation and will be furnished to the holder of this certificate upon request and without charge." 4. Request to Transfer. (a) If any Shareholder shall wish to transfer in any manner any or all of his Common Stock to any other person, such Shareholder shall give notice to the Company not less than ^ days prior to such proposed transfer identifying the proposed transferee, and shall furnish the Company with any and all other information reasonably requested by the Company or its counsel regarding the proposed transaction and the proposed transferee. If the Company consents to the proposed transfer it shall notify the requesting Shareholder in writing of its determination within ^ days after notice of the proposed transfer has been received by the Company. The Company shall be under no obligation to consent to any proposed transfer. (b) If the Company consents to the transfer pursuant to Subsection (a) above, the requesting Shareholder shall be permitted to transfer the shares of Common Stock in accordance with the terms specified in his notice to the Company within 30 days after receipt of notice from the Company of its consent to the transfer. (c) In the event the Company does not consent to the proposed transfer, or if the Company fails to give notice to the requesting Shareholder of its consent within the time specified in Subsection (a) above, then the requesting Shareholder shall not make the transfer, and the Company shall not be required to effect the transfer on the transfer books maintained by the Company. 5. Transfer by Reason of Death. In the event of the death of a Shareholder, the Company shall not unreasonably object or withhold its consent to any transfer by reason of death of the Shareholder, provided that such transfer will not result in or be likely to result in the termination, and will not jeopardize the retention of, the Company's S corporation status. 6. Transfer in Violation of Agreement. (a) Any transfer or attempt to transfer, deal with or dispose of any shares of Common Stock by any Shareholder in violation of the terms and conditions of this Agreement shall be void and the transferee or beneficiary thereof shall not be the record or beneficial owner of such shares of Common Stock or any interest therein or entitled to any of the rights thereof. The

Company shall not transfer any such shares of Common Stock on its stock ledger books to the purported transferee or beneficiary thereof. (b) In the event of an attempt by a Shareholder to transfer any or afl of his shares of Common Stock in violation of the provisions of this Agreement, the Company may, at its option, repurchase the Common Stock then being attempted to be transferred by such Shareholder (or his or her estate, as the case may be) at a price equal to 10% of the purchase price paid by the Shareholder for such Common Stock. At any time within 60 days after actual notice that the shares of Common Stock had been allegedly transferred has actually been received by the Company, the Company may exercise its option to repurchase the Common Stock by giving notice to the transferring Shareholder that the Company is exercising its right to repurchase such Common Stock. The closing of the repurchase of the Common Stock shall take place at the principal office of the Company on the 30th day after the date such notice is given by the Company. The transferring Shareholder shall deliver to the Company the certificates representing the Common Stock so purchased, free and clear of all liens, encumbrances and other matters affecting title, duly endorsed for transfer to the Company, and the Company shall pay to the transferring Shareholder the repurchase price for the Common Stock hereinabove stated. In the event the transferring Shareholder shall fail to deliver the Common Stock in proper form, the Company may cancel the certificates representing the Common Stock upon payment of the repurchase price specified above. 7. Stock Issued or Transferred in the Future. (a) Before any additional shares of Common Stock are issued during the term of this Agreement to any person, other than a signatory to this Agreement, such person shall be required to execute, acknowledge, seal and deliver a copy of this Agreement and become a party to this Agreement as a Shareholder as if an original party signatory thereto prior to the issuance or transfer of such shares of Common Stock to him or her, and the certificates therefor shall bear the restrictive endorsement referred to in Section 3 hereof (b) Whenever any Shareholder acquires any additional shares of Common Stock such shares of Common Stock so acquired shall be subject to all terms of this Agreement, and the certificates thereof shall bear the restrictive endorsement referred to in Section 3 hereof. 8. Revocation of S Corporation Election. (a) The Company shall attempt at all times to reasonably project quarterly the net tax liability generated by operations of the Company for each of its fiscal years. At such time as the Company projects that its operations will result in a net tax liability for any fiscal year of the Company (i.e., after deducting tax losses and credits), the Company will revoke the S Corporation election provided that Shareholders owning more than one-half of the Company's outstanding stock will consent to such revocation; provided, however, that the Company shall not be obligated to revoke the S corporation election if the Company makes cash distributions to each Shareholder of an amount equal to the tax liability of each Shareholder in respect of the earnings of the Company, assuming each Shareholder is in the combined federal and state ^% income tax bracket. (b) The Company shall not be liable to any Shareholder for, and each Shareholder hereby holds the Company harmless from and against, any claim relating to or arising out of, any net tax liability of such Shareholder in respect of the earnings of the Company during any

period with respect to which the Company had projected that the Company operations would not result in a net tax liability. 9. Termination. (a) This Agreement shall continue in effect until the happening of the first to occur of any of the events listed below: (i) The agreement in writing to terminate this Agreement by Shareholders who own of record and beneficially all of the issued and outstanding shares of Common Stock. (ii) The filing by the Company of a petition commencing a voluntary case under the Bankruptcy Code; a general assignment by the Company for the benefit of creditors; an admission in writing by the Company of its inability to pay its debts as they become due; the filing by the Company of any petition or answer in any proceeding seeking for itself, or consenting to, or acquiescing in, any insolvency, receivership, composition, readjustment, liquidation, dissolution, or similar relief under any present or future statute, law or regulation, or the filing by the Company of an answer or other pleading admitting or failing to deny, or to contest, the material allegations of the petition filed against it in any such proceeding; the seeking or consenting to, or acquiescence by the Company in, the appointment of any trustee, receiver or liquidator of it or any part of its property; and the commencement against the Company of an involuntary case under the Bankruptcy Code, or a proceeding under any receivership, composition, readjustment, liquidation, insolvency, dissolution or like law or statute, which case or proceeding is not dismissed or vacated within 120 days. (iii) The voluntary dissolution of the Company. (iv) The receipt by the Company from the Securities and Exchange Commission of an order of effectiveness as to any registration statement for the sale of any capital stock of the Company, whether or not any of such capital stock shall be owned by any of the Shareholders. (v) In the event that there shall be a merger, consolidation or share exchange whereby the Company is not the surviving or successor company, as the case may be. (vi) Upon the occurrence of an event referred to in Section 7 hereof pursuant to which the Company shall revoke the S corporation election. 10. Miscellaneous. (a) Notices. All notices, offers, acceptances, exercises of rights and other communications under this Agreement shall be in writing and shall be given by delivery in person or by first-class U. S. registered or certified mail, return receipt requested, postage prepaid, or by cable, telex, or telegram and addressed to the Company as follows: ^, and addressed to the Shareholders at the addresses shown on the signature pages hereto as any of them, by written notice to the Company, may from time to time designate. Any notice required to be given hereunder to the estate of a deceased Shareholder shall be sent to the personal representative of the estate at such personal representative's address, or if no personal representative shall have been appointed, to the deceased Shareholder at his last designated address. As soon as practical after being appointed, the personal representatives of

the estate of a deceased Shareholder shall notify the Company of their address by written notice sent hereunder. Except as otherwise provided in this Agreement, time shall be counted from the date of such delivery or mailing. Any notice, offer, acceptance, exercise of rights, and other communications shall be deemed received when so delivered, mailed, called, telexed or telegrammed. (b) Each of the parties hereto agrees to take or cause to be taken further actions, to execute, acknowledge, seal and deliver or cause to be executed, acknowledged and sealed and delivered such further instruments and documents and to use his best efforts to obtain such requisite consent as any other party may from time to time reasonably request in order to fully effectuate the purposes, terms and conditions of this Agreement. (c) This Agreement contains the full, entire and integrated agreement among the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, commitments or understandings with respect to the subject matters hereof, and no modification shall be binding upon the parties affected unless set forth in writing and duly executed by each party affected. (d) All of the covenants, promises, agreements, representations and warranties of this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of their respective heirs, guardians, personal and legal representatives, successors and permitted assigns. (e) This Agreement shall be governed by and construed and enforced in accordance with, the internal laws of the State of Illinois. (f) In the event that one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. (g) This Agreement may be executed in counterparts, each of which shall be an original, but all of which shall together constitute one document. IN WITNESS WHEREOF, the parties hereunto set their hands and seals to this Agreement as of the date first above written. ^ABC INC., an Illinois corporation By: Its:

^D.E.F., a natural person

^G.H.I., a natural person

^J.K.L., a natural person

^M.N.O., a natural person

^P.Q.R., a natural person


				
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