"Law Firm Stockholder Agreement"
MEMBER PRICE: $ 30.00 Non-Member Price: $ 300.00 Quantity Discounts Available A Dealers Guide to Succession Planning First Edition Wisconsin Automobile & Truck Dealers Association www.watda.org This checklist and guide can provide a dealer with valuable help in starting a cussession plan and in choosing a professional planning team. While the guide is a valuable reference tool, it is not intended to provide tax and legal advice. Tax laws and franchise laws may change and vary from state to state. Opinions and interpretations expressed in this manual are those of the Wisconsin Automobile &Truck Dealers Associa- tion. These opinions and interpretations are intended to be general in nature and should not be used as a substitute for the advice of your own legal counsel or other professional counsel. Further explanations of any aspect of this checklist and guide can be obtained by calling WATDA: Wisconsin Automobile & Truck Dealers Association 150 East Gilman Street, Suite A P. O. Box 5345 Madison, WI 53705 (608) 251-5577 FAX: (608) 251-4379 The Wisconsin Automobile & Truck Dealers Association, Inc. would like to thank members of the Successor/Key manager Task Force for making this Succession Planning Checklist and Guide possible. We believe that this handbook is one of the most informative publications on succession planning currently available to automobile and truck dealers. The Successor/Key Manager Task Force wishes to thank the following individuals for their extensive contribution of material, help and input: David A. Duryee, Moss Adams, LLP Paul Norman, Boardman Law Firm, LLP Tim Christen, Virchow Krause & Company, LLP April 1997 SUCCESSION PLANNING GUIDE STOCKHOLDER AGREEMENT (Cross Purchase) On [date], William Jones, Frank Jones, and Judith Jones Smith entered into this Agreement with Ajax, Inc., a California corporation (hereinafter referred to as “AI”). RECITALS: A. The Stockholders each own those shares of AI’s Common Stock indicated on Schedule A; and B. The Stockholders wish to provide a market for their shares of Stock on their deaths; and C. The Stockholders wish to restrict ownership of the Stock to the present Stockholders and to persons with whom they may comfortably and easily deal; and D. The Stockholders believe that they will be able to deal easily and comfortably with each other and that it is in their best interests and in AI’s best interests that all corporate activities be controlled by persons who deal comfortably with each other; and E. The Stockholders and AI, to accomplish these objectives, wish to arrange for certain restrictions on the Transfer of the Stockholders' shares of the Stock to persons other than the parties to this Agreement. AGREEMENTS: SECTION 1 Stock Transfers 1.1 General Restrictions. The parties do not want shares of the Stock to be made generally available to persons other than the present Stockholders. Therefore, the parties agree that no Stockholder will Encumber, Transfer, or permit to be Encumbered or Transferred all or any portion of his or her shares of the Stock, whether now or hereafter acquired, except in accordance with the terms of this Agreement. No attempted Encumbrance or Transfer of any shares of the Stock not in accordance with the terms of this Agreement shall be reflected on AI’s books or records. 1.2 Encumbrance. No Stockholder may Encumber any or all of his or her shares of the Stock in connection with any debt. 1.3 Termination of Employment. The parties desire to limit the ownership of the stock to Employee-Stockholders, it being in the best interests of AI and the Stockholders. Therefore, it is agreed that any Stockholder who, at any time, ceases to be an Employee- Stockholder as a result of voluntary termination of employment, termination of employment by the mutual consent of the Stockholder and AI, termination of employment by AI for Adequate Cause, or because the Stockholder is a Disabled Stockholder, shall be deemed to have offered to sell all of his or her shares of the Stock to AI and the other Stockholders for the Agreement Price and on the Agreement Terms. Such offer shall be deemed made on the date on which such Stockholder ceased to be an Employee-Stockholder. 1.3.1 The other Stockholders shall have sixty (60) days from such offer in which to elect to buy all, nut not less than all, of the Offered Stock. The other Stockholders may elect to buy such shares of the Offered Stock in proportion to their respective ownership of the Stock (excluding the Offered Stock), or in such other proportion as they shall agree upon. 1.3.2 If the other Stockholders shall decline to buy all of the Offered Stock within such sixty (60)-day period, AI shall accept such deemed offer and buy all of the Offered Stock that the other Stockholders did not elect to buy. 1.3.3 Nothing in this Agreement imposes any obligation on AI to employ any Stockholder. 3/97 APPENDIX F 1 SUCCESSION PLANNING GUIDE 1.4 Voluntary Lifetime Transfers. No Stockholder may make any Voluntary Lifetime Transfer, except pursuant to this section. Any Stockholder who wishes to make any Voluntary Lifetime Transfer must promptly send a notice to AI and be deemed to have offered to sell his or her shares of the Stock, otherwise to be Transferred, to AI at the Agreement Price and on the Agreement Terms. Such notice shall include a statement of the type of proposed Transfer, the name, address (both home and office), and business or occupation of the person to whom such shares of the Stock would be Transferred, and any other facts that are or would reasonably be deemed material to the proposed Transfer. 1.4.1 AI shall have sixty (60) days from such notice in which to elect to buy all, but not less than all of the Offered Stock. 1.4.2 If AI does not agree to buy all of the Offered Stock within such option period, such Lifetime Transfer may be completed. If a Lifetime Transfer is not consummated within thirty (30) days after the expiration of such option period, the provisions of this Agreement will again apply to such Offered Stock as of no such Lifetime Transfer had been contemplated and no notice has been given. A Lifetime Transfer is consummated when AI has been given notice that legal title to the shares of the Stock has been Transferred, subject to recordation on its books. 1.5 Shareholder Bankruptcy. Any Stockholder who has been adjudicated bankrupt or has any other information that would reasonably lead him or her to expect that an Involuntary Lifetime Transfer is foreseeable must promptly send a notice to AI and be deemed to have offered to sell his or her shares of the Stock, otherwise to be Transferred, to AI at the Agreement Price and on the Agreement Terms. Such notice shall include a statement of the type of proposed Transfer, the name, address (both home and office), and business or occupation of the person or bankruptcy estate to whom such shares of the Stock would be Transferred, and any other facts that are or would reasonably be deemed material to the proposed Transfer. 1.5.1 AI shall have sixty (60) days from such notice in which to elect to buy all, but no less than all, of the Offered Stock. 1.5.2 If AI does not agree to buy all of the Offered Stock within such option period, the other shareholders shall have thirty (30) days in which to elect to buy all, but not less than all, of the Offered Stock. 1.5.3 In the event neither AI nor the other shareholders elect to purchase the Offered Stock, such Involuntary Lifetime Transfer may be completed. If an Involuntary Lifetime Transfer is not consummated within thirty (30) days after the expiration of the option periods, the provisions of this Agreement will again apply to such Offered Stock as if no such Involuntary Lifetime Transfer had been contemplated and no notice had been given. An Involuntary Lifetime Transfer is consummated when AI has been given notice that legal title to the shares of the Stock has been Transferred, subject to recordation on its books. 1.6 Dissolution. Should any shares owned by an Employee-Stockholder be awarded to a non-employee spouse in the event of a divorce of the Employee-Stockholder, the non- employee spouse shall be deemed to have offered to sell all of his or her shares of the Stock so awarded to the Employee-Stockholder for the Agreement Price and on the Agreement Terms. Such offer shall be deemed made on the date on which the divorce is declared to be final. 1.6.1 If the Employee-Stockholder shall decline to buy all of the Offered Stock, AI and/or the other Stockholders shall accept such deemed offer and buy all of the Offered Stock that the Employee-Stockholder did not elect to buy. The other Stockholders shall buy such Stock based upon their respective percentage ownership (prior to the purchase), or as they may determine by mutual agreement. 2 APPENDIX F 3/97 SUCCESSION PLANNING GUIDE 1.7 Transfers at Death. On the death of any Stockholder, his or her Personal Representative will immediately be deemed to have offered to sell to the remaining shareholders all of the deceased Stockholder’s shares of the Stock at the Agreement Price and on the Agreement Terms, and the remaining shareholders shall accept such offer and agree to buy such shares of the Offered Stock. 1.8 Consent to Certain Corporate Actions. Each Stockholder agrees to vote (directly or by proxy) as a Stockholder and as a director, in favor of AI’s purchase of any shares of the Offered Stock pursuant to this section and in favor of any amendment to AI’s Articles of Incorporation, Charter, or By-Laws, reduction of its capital, reappraisal of its assets, or any other action required to permit AI to buy such shares on the Offered Stock. SECTION 2 Agreement Price 2.1 Agreement Price. The Agreement Price shall be the book value of the Offered Stock on the last day of the month most recently ended prior to the date of any deemed offer. 2.2 How Computed. The book value of the shares of the Offered Stock will be determined by the independent certified public accountant (“CPA”) regularly employed by AI, or, if AI has no regularly employed independent CPA, by an independent CPA selected by AI for this purpose. The book value of the Offered Stock shall be the net book value of the Offered Stock, based on the information shown of AI’s books on the last day of the month ending most recently before the date of any deemed offer. 2.2.1 The book value of the Offered Stock shall be determined in accordance with the regular financial statements prepared by AI and in accordance with generally accepted accounting principles consistently applied. 2.2.2 In making this determination, book value shall be adjusted to reflect the valuation of all inventory on the FIFO (first-in, first-out) method, less the income tax liability on the LIFO (last-in, first-out) reserve, if any, at the highest marginal state and federal income tax rates. 2.2.3 The book value will not include the proceeds, if any, of life insurance on the life of the deceased shareholder. 2.2.4 AI will provide such data as the CPA deems necessary or useful to make such determination of the fair market value of the Offered Stock. 2.3 Cost of Determination. The fees and reimbursed expenses charged by the CPA in the valuation under this section shall be borne solely by AI. SECTION 3 Agreement Terms 3.1 Type of Payment. 3.1.1 Payment on death The Agreement Price paid for the Stock of a Deceased Stockholder shall, to the extent of life insurance proceeds, be paid in cash as a down payment. The balance of the Agreement Price shall be paid in sixty (60) equal monthly payments of principal and interest. Such payments shall begin on the month following the closing and shall include interest compounded annually at the prime rate as listed in the Wall Street Journal plus one percent (1%). The prime rate shall be determined as of the date of the transaction and amended, as appropriate, on annual anniversaries of the date of the transaction. The buyer(s) shall prepare and give the seller a negotiable promissory note(s) as evidence of this debt. Such note(s) shall permit the buyer(s) to prepay all or any part of the principal balance of the note(s) at any time without penalty or premium. 3/97 APPENDIX F 3 SUCCESSION PLANNING GUIDE 3.1.2 Payment other than death In the event of a lifetime Transfer, the buyer(s) agrees to pay twenty percent (20%) of the purchase price in cash in the form of a down payment. The balance of the Agreement Price shall be paid in one hundred twenty (120) equal monthly payments of principal and interest. Such payments shall begin on the month following the closing and shall include interest compounded annually at the prime rate as listed in the Wall Street Journal plus one percent (1%). The prime rate shall be determined as of the date of the transaction and amended, as appropriate, on annual anniversaries of the date of the transaction. AI or any other buyer shall prepare and give the seller a negotiable promissory note(s) as evidence of this debt. Such note(s) shall permit the buyer(s) to prepay all or any part of the principle balance of the note(s) at any time without penalty or premium. 3.1.3 Authorized Suspension of Payment In the event that AI is the buyer of shares under this agreement, and in the event that AI experiences losses that are causing serious financial harm to AI, it is expressly agreed that payments under this agreement will be suspended until they can be resumed without causing harm to the capital or working capital of AI. Determination under this provision will be made solely by the board of directors of AI. In the event of a disagreement on this decision by the seller(s), both parties agree to submit the matter to arbitration by a qualified arbitrator, and agree to be bound by such decision. Interest at the then prevailing rate shall continue to accrue during the suspended period and be added to the principal amount due, when payments are resumed. The term of the agreement shall be extended by the length of the term of the suspended payments, and equal monthly payments will be recalculated accordingly. 3.2 The Closing The purchase of the Offered Stock pursuant to this Agreement will take place at a closing help at 1:00 P.M. on the thirtieth (30th) day after the date on which the last option to buy is exercised or lapses, or after the date on which a buyer last becomes obligated to buy, at AI’s primary place of business, or at any other place to which the parties agree. 3.2.1 At the closing, the buyer or buyers will pay for the Offered Stock as provided for in paragraph 3.1 and the seller will deliver certificates representing all of the shares of the Offered Stock, duly endorsed, free and clear of all Encumbrances, and with evidence of payment of all necessary transfer taxes and fees. 3.2.2 If the seller does not deliver the certificates at the closing, then: 126.96.36.199 The buyer or buyers shall deposit the purchase price by check or by check and note, as this Agreement requires, with the Escrow Agent; 188.8.131.52 The Escrow Agent shall deposit such funds with any bank with which AI has a bank account on the date of the closing, to be paid to the seller as soon as is reasonable practicable, less an appropriate fee to AI (not to exceed five hundred dollars ($500.00)) to pay for the additional administrative costs; and 184.108.40.206 AI will adjust its transfer books to reflect that these shares of the Stock have been transferred. 3.2.3 Each Stockholder appoints AI, through its Secretary, or such other office as its Board of Directors may designate, as his agent and attorney-in-fact to execute and deliver all documents needed to convey his or her shares of the Stock, if such selling Stockholder is not present at the closing. This power of attorney is coupled with an interest and does not terminate on the Stockholder’s disability or death, and continues for as long as this agreement is in effect. 4 APPENDIX F 3/97 SUCCESSION PLANNING GUIDE SECTION 4 Endorsement of Shares 4.1 Endorsement. Each Stockholder will deliver to AI’s Secretary promptly after the date the Stockholder becomes a party to this Agreement, all of his or her certificates of the Stock, and AI’s Secretary will endorse them as follows: Sale, assignment, transfer, pledge, or other disposition of the shares of Stock represented by this certificate is restricted by the provisions of an Agreement dated [date], between the Stockholders of AI and AI. 4.2 Return of Shares. After this endorsement has been placed on the certificates, AI will return them to the Stockholders. 4.3 New Stock. All certificates for shares of Stock issued to any Stockholder while this Agreement is in effect must also bear this endorsement. SECTION 5 Continuation of Restrictions This agreement shall continue to apply to shares of the Stock Transferred by any Stockholder, and any other Stockholder may require as a condition of such a Transfer that the transferee execute an Agreement substantially identical in for to this one (which may be accomplished by a certificate of acceptance and adoption of this Agreement), to which all of the Transferee’s shares of the Stock will be subject, and which Agreement will be treated as a part of this Agreement. SECTION 6 Attorney’s Representations The parties all acknowledge that AI’s counsel, prepared this Agreement on behalf of and in the course of his representation of AI, and that: (1) THE PARTIES HAVE BEEN ADVISED BY MR./MS. THAT A CONFLICT EXISTS AMONG THEIR INDIVIDUAL INTERESTS; AND (2) THE PARTIES HAVE BEEN ADVISED BY MR./MS. TO SEEK THE ADVICE OF INDEPENDENT COUNSEL; AND (3) THE PARTIES HVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT COUNSEL; AND (4) THE PARTIES HAVE RECEIVED NO REPRESENTATIONS FROM MR./MS. ABOUT THE TAX CONSEQUENCES OF THIS AGREEMENT; AND (5) THE PARTIES HAVE BEEN ADVISED BY MR./MS. THAT THIS AGREEMENT MAY HAVE TAX CONSEQUENCES; AND (6) THE PARTIES HVE BEEN ADVISED BY MR./MS. TO SEEK THE ADVICE OF INDEPENDENT TAX COUNSEL; AND (7) THE PARTIES HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT TAX COUNSEL. SECTION 7 Definitions 7.1 “Adequate Cause.” “Adequate Cause” for termination of a Stockholder’s status as an Employee-Stockholder is limited to conviction of or a plea of guilty to a felony or a misdemeanor, dishonesty, any other criminal conduct against AI, a continued breach of the Employee-Stockholder’s duties and obligations arising under an employment 3/97 APPENDIX F 5 SUCCESSION PLANNING GUIDE contract with AI or of any written policy, rule, or regulation of AI, for a period of at least five (5) days following his or her receipt of written notice from any officer of AI specifying such breach. 7.2 “Agreement.” The “Agreement” is this contract and all modifications or amendments thereto. 7.3 ”Agreement Price.” The “Agreement Price” is the price at which, pursuant to the terms of this Agreement, a Stockholder must offer to sell all or any of his or her shares of the Stock. 7.4 “Agreement Terms.” The “Agreement Terms” are the terms and conditions under which the sale of a Stockholder’s shares of the Stock is conducted, including (but not limited to) the form of consideration to be paid, the time of the closing, and the steps to be taken at the closing. 7.5 “Code.” The “Code” is the Internal Revenue Code of 1986, as amended. 7.6 “Days,” Any reference in this Agreement to “days” means all calendar days, whether or not such days are legal holidays under the laws of the United States or any State. 7.7 “Disabled Stockholder.” A Stockholder is a “Disabled Stockholder” if he or she: 7.7.1 Is under a legal decree of incompetency (the date of such decree being deemed to be the date on which such disability occurred); 7.7.2 Submits any claim for disability insurance benefits or for early distribution of any amounts from a qualified pension or profit-sharing plan maintained by AI on account of more than fifty percent (50%) disability (the date of the earliest of such claims shall be the date on which such disability shall be deemed to have occurred); or 7.7.3 Is subject to a medical determination that the Stockholder, because of medically determinable disease, injury, or other mental or physical disability, is unable to perform substantially all of his or her regular duties, and that such disability is determined or reasonably expected to last at least twelve (12) months, based on then available medical information. 220.127.116.11 A medical determination of disability will exist upon the receipt by AI of the written opinion of a physician who has examined to Stockholder whose disability is in question. 18.104.22.168 If AI disagrees with the opinion of such physician (the “First Physician”), it may engage at its own expense another physician (the “Second Physician”) to examine the Stockholder whose disability is in question. The Second Physician shall confer with the First Physician and, if they together agree in writing that the Stockholder is or is not disabled, their written opinion shall be conclusive as to such disability. If the First and Second Physicians do not agree, they shall choose a third consulting physician (the expense of which shall be borne by AI), and the written opinion of a majority if these three (3) physicians shall be conclusive as to such disability. The date of any written opinion that is conclusive as to such disability is the date on which such disability, if that is the conclusion, will be deemed to have occurred. 22.214.171.124 In signing this Agreement, each Stockholder consents to such examination, to furnish any medical information requested by any examining physician, and to waive any applicable physician-patient privilege that may arise because of such examination. All physicians except the First Physician selected hereunder must be board certified in the specialty most closely related to the nature of the disability alleged to exist. 7.8 “Employee-Stockholder.” An “Employee Stockholder” is a Stockholder who is also an officer, employee, or director (or some combination thereof) of AI. 6 APPENDIX F 3/97 SUCCESSION PLANNING GUIDE 7.9 “Encumber” or “Encumbrance.” To “Encumber” includes to pledge, hypothecate, or otherwise secure any type of debt or obligation with shares of the Stock, whether incurred voluntarily or involuntarily, and in any manner whatsoever. An “Encumbrance” in any type of security or surety interest created by such Encumbering. 7.10 “Escrow Agent.” An “Escrow Agent” is any attorney or certified public accountant regularly employed by AI, or any other person acceptable to all Stockholders, who shall hold checks and certificates of the Stock to effect a purchase or sale pursuant to this Agreement. 7.11 “Offered Stock” The “Offered Stock” is all of the share of the Stock that are deemed to have been offered for sale to the other stockholders or to AI, pursuant to this Agreement. 7.12 “Offering Stockholder.” The “Offering Stockholder” is the Stockholder (or his or her Personal Representative) who is deemed to offer to sell some or all of his or her shares of the Stock to the other Stockholders, pursuant to this Agreement. 7.13 “Personal Representative.” A Stockholder’s “Personal Representative” includes any administrator, executor, trustee, or other personal representative who is vested with the responsibility for administering the disposition of any Stock on account of a deceased Stockholder’s death, and equally any individual who holds such Stock as a legatee, distributee, or successor in interest, or trustee where no executor, administrator, or similar fiduciary is appointed or where any appointed executor, administrator, or fiduciary does not have control over any of the deceased Stockholder’s shares of the Stock. 7.14 “Stock.” The “Stock” is the ten thousand (10,000) issued and outstanding shares of AI’s Common Stock and any additional shares of the Stock of AI issued or sold by AI to any person, including (but not limited to) shares issued as a stock dividend, stock split, reverse stock split, recapitalization, or reorganization of any type. All such additional shares of the Stock shall be issued bearing the restrictive endorsement required by this Agreement. 7.15 “Stockholders.” The “Stockholders” include all owners of shares of the Stock (other than any shares of the Stock held as treasury stock by AI), each of whom is a “Stockholder”. The initial Stockholders are the parties named in the introductory paragraph of this Agreement. 7.16 “Transfer,” Etc. A “Transfer” is any sale, pledge, Encumberance, gift, bequest, or other transfer of any shares of the Stock, whether or not for value and whether or not made to another party to this Agreement. An “Involuntary Lifetime Transfer” is any Transfer made on account of a court order or otherwise by operation of law, including any Transfer incident to any divorce or marital property settlement or any Transfer pursuant to applicable community property, quasi-community property or similar state law. A “Voluntary Lifetime Transfer” is any Transfer made during a Stockholder’s lifetime that is not an Involuntary Lifetime Transfer. Unless the context indicates otherwise, “Transfer” includes both Voluntary and Involuntary Lifetime Transfers. A Transfer made to a trust that is wholly revocable by the Transferor shall not be a Transfer for purposes of this Agreement, but any subsequent Transfer by the trustee of such trust shall be deemed to have been made by the trust’s grantor. SECTION 8 Miscellaneous 8.1 Binding Agreement. This Agreement is binding in and enforceable by and against the parties, their successors, legal representatives, and assigns. 8.2 Governing Law. This Agreement will be governed by and construed according to the laws of the State of [state]. 3/97 APPENDIX F 7 SUCCESSION PLANNING GUIDE 8.3 Severability. No part of this Agreement will be affected if any other part of it is help invalid or unenforceable. 8.4 Notices. All notices required or permitted to be given under this Agreement must be given in writing, and will be deemed given when personally delivered or, if earlier, when received after mailing by registered or certified U.S. mail, postage prepaid, with return receipt requested. Notice to any Stockholder is valid id sent to him or her at such Stockholder’s address as it appears in AI’s records. 8.5 Voting. On the date of the closing with respect to the sale of any shares of the Stock, the Stockholder who offered (or who has been deemed automatically to have offered) such shares of the Stock for sale will cease to have the right to vote such shares. 8.6 Specific Performance. The parties agree that the Stock is unique and that failure to perform the obligations under this Agreement will result in irreparable damage to the other parties and that specific performance of these obligations may be obtained by a suit in equity. 8.7 Waiver. Any party’s failure to insist on compliance or enforcement of any provision of this Agreement shall not affect its validity or enforceability or constitute a waiver of future enforcement of that provision or of any other provision of this Agreement. 8.8 Copies. More than one (1) copy of this Agreement may be executed, and all parties agree and acknowledge that each executed copy shall be a duplicate original. 8.9 Gender and Number. Whenever the context of this Agreement requires, the masculine gender includes the feminine and neuter, and the singular number includes the plural and vice versa. 8.10 Termination. This agreement may be terminated at any time by mutual consent of all of the Employee-Stockholders. Agreed to by each of the undersigned on the date first noted above. William Jones Frank Jones Ajax, Inc. by Judith Jones Smith Agreed and acknowledged by the following persons who are not themselves parties to this Agreement, but who are the spouses of parties to this Agreement, and who themselves have read this Agreement and who agree that they will be bound by all of its provisions, including (but not limited to) restrictions on Transfer and establishment of the value of the Stock for all purposes. [Signature of spouses] Schedule A List of stockholders 8 APPENDIX F 3/97