Shareholder Agreement - Illinois

SHAREHOLDER AGREEMENT — [CORPORATION NAME], an Illinois corporation

TABLE OF CONTENTS

1. Definitions
2. Purpose & Statutory Authorization
3. Transfer Restrictions
4. Buy-Sell (Triggering Events; Mandatory and Optional Purchase)
5. Valuation & Payment Terms
6. Voting Agreement; Board; Officers
7. Drag-Along & Tag-Along Rights
8. Preemptive Rights
9. Protective Provisions / Supermajority
10. Information Rights
11. Restrictive Covenants
12. Deadlock Resolution
13. Certificate Legend
14. Term & Termination
15. Dispute Resolution & Governing Law
16. General Provisions
17. Signatures
18. Sources & References

RECITALS AND PARTIES

THIS SHAREHOLDER AGREEMENT (this "Agreement") is made and entered into as of [__/__/____] (the "Effective Date") by and among [CORPORATION NAME], an Illinois corporation (the "Corporation"), and the persons listed on the Share Schedule below and who execute this Agreement (each, a "Shareholder" and, collectively, the "Shareholders").

RECITALS

A. The Corporation is a corporation organized and existing under the Business Corporation Act of 1983, 805 ILCS 5/1.01 et seq. (the "Act"), having its registered office in [COUNTY] County, Illinois. The Corporation [is / is not] a close corporation under Article 2A of the Act (805 ILCS 5/2A.05 et seq.).

B. As of the Effective Date, the authorized capital of the Corporation consists of [____] shares of [CLASS/SERIES] stock, par value [$____] per share (or [without par value]), of which [____] shares are issued and outstanding and held of record by the Shareholders as set forth in the Share Schedule.

C. The Corporation is a closely-held corporation whose shares are not publicly traded. The Shareholders desire to provide for the management, ownership, and continuity of the Corporation; to restrict the transfer of its shares; to provide an orderly mechanism for the purchase and sale of shares upon certain events; to coordinate the voting of their shares and the composition of the Board; and to otherwise set forth their respective rights and obligations.

D. The Shareholders intend that this Agreement constitute, and be enforceable as, a shareholder agreement under 805 ILCS 5/7.71, a voting agreement under 805 ILCS 5/7.70, and a transfer-restriction agreement under 805 ILCS 5/6.55, and — to the extent the Corporation is or becomes a close corporation — a written agreement under 805 ILCS 5/2A.40, in each case to the fullest extent permitted by Illinois law.

E. The persons executing this Agreement constitute all of the persons who are shareholders of the Corporation as of the Effective Date, so that this Agreement satisfies the unanimity requirement of 805 ILCS 5/7.71(a) (and, where applicable, § 2A.40(a)).

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows.

Share Schedule (Ownership as of the Effective Date)

1. DEFINITIONS

For purposes of this Agreement, the following terms have the meanings set forth below. Other terms are defined where they first appear.

"Act" means the Business Corporation Act of 1983, 805 ILCS 5/1.01 et seq., as amended.

"Affiliate" means, as to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with such Person.

"Agreed Value" has the meaning set forth in Section 5.1.

"Board" means the board of directors of the Corporation.

"Business Day" means any day other than a Saturday, Sunday, or legal holiday in the State of Illinois.

"Close Corporation" means a corporation that has elected close-corporation status under Article 2A of the Act (805 ILCS 5/2A.05 et seq.).

"Disability" means a Shareholder's inability, by reason of physical or mental illness or injury, to perform substantially all of the duties such Shareholder customarily performs for the Corporation for a continuous period of [____] days or for [____] days in any [twelve (12)]-month period, as determined under Section 4.2(b).

"Fair Market Value" has the meaning set forth in Section 5.2.

"Immediate Family" means a Shareholder's spouse, children (natural or adopted), grandchildren, parents, and siblings, and a trust established solely for the benefit of any of them or the Shareholder.

"Permitted Transferee" has the meaning set forth in Section 3.3.

"Person" means an individual, corporation, partnership, limited liability company, trust, estate, association, or other entity.

"Purchase Price" means the price determined under Section 5 for shares purchased under this Agreement.

"Shares" means all shares of capital stock of the Corporation now owned or hereafter acquired by a Shareholder, and any security convertible into or carrying a right to subscribe for or acquire shares.

"Transfer" means any sale, assignment, gift, pledge, hypothecation, encumbrance, or other disposition of Shares or any interest therein, whether voluntary or involuntary, by operation of law or otherwise.

"Triggering Event" has the meaning set forth in Section 4.1.

2. PURPOSE & STATUTORY AUTHORIZATION

2.1 Purpose

The purpose of this Agreement is to promote the Shareholders' mutual interests and the interests of the Corporation by imposing certain restrictions and obligations on the Shareholders and the Shares, and by providing for the continuity, governance, and orderly transfer of ownership of a closely-held Illinois corporation.

2.2 Statutory Basis

This Agreement is entered into under and is intended to be enforceable pursuant to Illinois law, including:

(a) Shareholder agreements. 805 ILCS 5/7.71 provides that shareholders may unanimously agree in writing as to matters concerning the management of the corporation, provided no fraud or apparent injury to the public or creditors is present and no clearly prohibitory statutory language is violated; that such an agreement is not invalid as between the parties on the ground that it treats the corporation like a partnership or interferes with the discretion of the board; that the agreement is specifically enforceable in accordance with the principles of equity; and that this authority is cumulative with other applicable law. The Shareholders intend that this Agreement be a shareholder agreement under § 7.71, executed unanimously.

(b) Close-corporation agreements (if applicable). If the Corporation is or becomes a Close Corporation, 805 ILCS 5/2A.40 expressly authorizes all shareholders to enter a written agreement relating to any phase of the corporation's affairs, including management of the business, declaration of dividends, who shall be officers or directors, restrictions on transfer of shares, voting requirements (including unanimous voting), employment of shareholders, and arbitration of deadlocks; and validates such agreements notwithstanding that they treat the corporation as a partnership or interfere with board discretion. The Shareholders acknowledge that, under § 2A.40(c), shareholders who, by such an agreement, manage the corporation assume the liability for managerial acts that Illinois law imposes on directors.

(c) Transfer restrictions. 805 ILCS 5/6.55 authorizes a written restriction on the transfer or registration of transfer of securities to be imposed by the certificate of incorporation, the bylaws, or an agreement among security holders or between such holders and the corporation, enforceable against the holder and successors/transferees if noted conspicuously on the certificate (or contained in the § 6.35 notice for uncertificated securities). Restrictions to maintain Subchapter S status or any other tax advantage are conclusively presumed reasonable. The transfer restrictions in Section 3 are imposed under § 6.55.

(d) Voting agreements. 805 ILCS 5/7.70 provides that shareholders may provide for the voting of their shares by signing an agreement for that purpose, and that a voting agreement so created is specifically enforceable. Section 6 constitutes a voting agreement under § 7.70.

(e) Voting trusts. To the extent the Shareholders elect to implement a voting trust, 805 ILCS 5/7.65 governs and is incorporated by reference.

2.3 Coordination with Charter Documents

Because Illinois does not validate, against later or non-signatory shareholders, all departures from corporate norms the way an MBCA § 7.32 statute would, the Shareholders agree: (i) to obtain unanimous written assent to this Agreement; (ii) where this Agreement restricts the discretion or powers of the Board, governs distributions, or otherwise departs from the default governance rules of the Act, to consider electing Close Corporation status under Article 2A and to cause corresponding provisions to be adopted in the Articles of Incorporation and/or Bylaws; and (iii) to take all action necessary to give such provisions effect. In the event of a conflict between this Agreement and the Bylaws, the Shareholders shall, as among themselves, be bound by this Agreement and shall vote to conform the Bylaws to this Agreement.

3. TRANSFER RESTRICTIONS

3.1 General Prohibition

No Shareholder shall Transfer all or any portion of such Shareholder's Shares except in strict compliance with this Agreement and applicable law. Any purported Transfer in violation of this Agreement shall be void ab initio, shall not be recognized on the books of the Corporation, and shall confer no rights upon the purported transferee.

3.2 Right of First Refusal

(a) Offer Notice. A Shareholder who receives a bona fide written offer from a third party to purchase any of such Shareholder's Shares and who desires to accept it (the "Selling Shareholder") shall first deliver written notice (the "Offer Notice") to the Corporation and the other Shareholders. The Offer Notice shall identify the prospective transferee, the number of Shares offered (the "Offered Shares"), the price, and all material terms.

(b) Corporation's Option. The Corporation shall have [thirty (30)] days after receipt of the Offer Notice to elect, by written notice, to purchase all or any portion of the Offered Shares on the same terms set forth in the Offer Notice.

(c) Shareholders' Option. To the extent the Corporation does not elect to purchase all of the Offered Shares, the other Shareholders shall have an additional [thirty (30)] days to elect to purchase the remaining Offered Shares, pro rata in proportion to their respective holdings (with rights of over-allotment among electing Shareholders).

(d) Sale to Third Party. If the Corporation and the Shareholders do not collectively elect to purchase all of the Offered Shares within the option periods, the Selling Shareholder may, within [sixty (60)] days thereafter, Transfer the Offered Shares to the identified third party at a price not less than, and on terms no more favorable to the transferee than, those in the Offer Notice, provided the transferee first executes a joinder agreeing to be bound by this Agreement. Any Shares not so transferred again become subject to this Agreement.

3.3 Permitted Transfers

The right of first refusal in Section 3.2 shall not apply to, and a Shareholder may make, the following Transfers (each, a "Permitted Transfer"; each transferee, a "Permitted Transferee"), provided the transferee executes a joinder agreeing to be bound by this Agreement and the Shares remain subject hereto:

(a) a Transfer to the Corporation or to another Shareholder;

(b) a Transfer to a member of the Shareholder's Immediate Family or to a trust or entity wholly owned for estate-planning purposes, provided the transferring Shareholder retains voting control of the Shares during such Shareholder's lifetime;

(c) a Transfer upon death by will or intestacy, subject to Section 4; and

(d) any Transfer approved in writing by Shareholders holding at least [____]% of the outstanding Shares.

3.4 Prohibited Transfers

No Shareholder shall pledge, hypothecate, or grant a security interest in any Shares, or Transfer any Shares to a competitor of the Corporation, without the prior written consent of Shareholders holding at least [____]% of the outstanding Shares. Any restriction designed to maintain the Corporation's Subchapter S election or any other tax advantage is, under 805 ILCS 5/6.55(d), conclusively presumed to be for a reasonable purpose.

4. BUY-SELL: TRIGGERING EVENTS

4.1 Triggering Events

The occurrence of any of the following with respect to a Shareholder (a "Triggering Event"; such Shareholder, the "Affected Shareholder," or such Shareholder's estate or representative) gives rise to the purchase rights and obligations in this Section 4:

(a) Death of a Shareholder who is an individual;

(b) Disability of a Shareholder who is an individual;

(c) Termination of Employment of a Shareholder employed by the Corporation, whether voluntary or involuntary, with or without cause;

(d) Bankruptcy or Insolvency of a Shareholder, including the filing of a voluntary or involuntary petition, an assignment for the benefit of creditors, or the appointment of a receiver;

(e) Divorce of a Shareholder, to the extent any Shares (or marital interest therein) would be awarded to a non-Shareholder spouse;

(f) Involuntary Transfer by operation of law, levy, or attachment; and

(g) Voluntary Withdrawal by a Shareholder who delivers a written notice of intent to withdraw and sell.

4.2 Mandatory and Optional Purchase

(a) Death. Upon the death of a Shareholder, the Corporation [shall (mandatory) / may (optional)] purchase, and the deceased Shareholder's estate shall sell, all of the deceased Shareholder's Shares at the Purchase Price determined under Section 5. To the extent the Corporation does not purchase all such Shares, the surviving Shareholders [shall / may] purchase the balance pro rata.

(b) Disability. Disability shall be determined by a licensed physician selected by the Corporation (or, if the Affected Shareholder disputes the determination, by a third physician jointly selected by the Corporation's and the Shareholder's physicians). Upon a determination of Disability, the purchase mechanics in Section 4.2(a) apply.

(c) Termination of Employment. Upon Termination of Employment of a Shareholder, the Corporation and the other Shareholders shall have the option (and, if the parties so elect by completing the bracketed term, the obligation) to purchase the terminated Shareholder's Shares. The parties shall complete: purchase is [mandatory / optional]; in the case of termination [for cause], the Purchase Price shall be [Fair Market Value / __% of Fair Market Value / Agreed Value].

(d) Bankruptcy, Divorce, Involuntary Transfer, Voluntary Withdrawal. Upon any such Triggering Event, the Corporation (first) and the other Shareholders (second) shall have the option to purchase all of the Affected Shareholder's Shares (or the Shares subject to the involuntary transfer or divorce award) at the Purchase Price determined under Section 5. A non-Shareholder spouse or transferee is bound only to the extent applicable law and an enforceable joinder or restriction so provide. Under 11 U.S.C. § 541(c)(1), nothing in this Agreement excludes the ownership interest from a bankruptcy estate, binds a bankruptcy trustee beyond applicable law, or limits a trustee's statutory powers.

4.3 Closing

The closing of any purchase under this Section shall occur within [sixty (60)] days after the later of the Triggering Event or the final determination of the Purchase Price, at the Corporation's principal office. At closing, the seller shall deliver the certificates (or transfer instructions for uncertificated shares) duly endorsed, free of liens, and the buyer shall deliver the consideration in accordance with Section 5.3.

5. VALUATION & PAYMENT TERMS

5.1 Agreed Value

The Shareholders [may] establish an agreed value per Share (the "Agreed Value") by executing a Certificate of Agreed Value attached as Exhibit A, to be reviewed and updated at least annually. If a Certificate of Agreed Value has been executed within [twenty-four (24)] months before a Triggering Event, the Agreed Value shall be the Purchase Price.

5.2 Formula / Appraisal (Fair Market Value)

If no current Agreed Value exists, the Purchase Price shall be the "Fair Market Value" of the Shares, determined as follows (the parties shall select one method):

(a) Formula. [Describe formula — e.g., [____] times trailing twelve-month EBITDA, less indebtedness, multiplied by the selling percentage]; or

(b) Appraisal. Fair Market Value shall be determined by an independent appraiser. The Corporation and the seller shall each select one qualified appraiser within [fifteen (15)] days; if the two appraisals are within [ten percent (10%)] of each other, the Fair Market Value is their average; otherwise, the two appraisers shall select a third, whose determination (within the range of the first two) is binding. The appraisal shall [apply / not apply] minority and marketability discounts.

5.3 Payment Terms

(a) Cash / Insurance Proceeds. At closing, the buyer shall pay [____]% of the Purchase Price in cash, including any life-insurance proceeds applied under Section 5.4.

(b) Promissory Note. The balance shall be evidenced by a promissory note payable in [____] equal [monthly / quarterly / annual] installments over [____] years, bearing interest at [the applicable federal rate / ____% per annum], secured by a pledge of the purchased Shares, with the right to prepay without penalty.

(c) Distribution Limits. Any purchase by the Corporation is subject to the limitations on distributions in 805 ILCS 5/9.10. If a payment by the Corporation would violate § 9.10, the obligation shall be suspended to the extent necessary and the remaining Shareholders may (but need not) purchase the balance.

5.4 Life-Insurance Funding

(a) The Corporation [and/or the Shareholders] may purchase and maintain life-insurance policies on the lives of the Shareholders to fund the purchase obligations on death. The Corporation shall be the [owner and beneficiary] of such policies.

(b) The policies and beneficiaries are listed on Exhibit B. Upon a Shareholder's death, the proceeds shall be applied first to the Purchase Price for that Shareholder's Shares. Proceeds exceeding the Purchase Price shall belong to the Corporation.

(c) A Shareholder whose Shares are purchased (or such Shareholder's estate) shall have the option to purchase any policy on such Shareholder's life for its interpolated terminal reserve (cash surrender) value.

6. VOTING AGREEMENT; BOARD; OFFICERS

6.1 Voting Agreement

Each Shareholder agrees to vote all Shares now or hereafter owned by such Shareholder, and to take all other action within such Shareholder's control (including executing written consents under § 7.10 of the Act), so as to give effect to the provisions of this Section 6. This Section is a voting agreement under 805 ILCS 5/7.70 and is specifically enforceable.

6.2 Board Composition

(a) The Board shall consist of [____] directors. [If the Corporation is a Close Corporation managed without a board, this Section is modified accordingly and the Shareholders assume director-level liability under § 2A.40(c).]

(b) Each Shareholder (or group of Shareholders) holding at least [____]% of the outstanding Shares shall be entitled to designate [one (1)] director, and the Shareholders shall vote their Shares to elect each such designee. A designating Shareholder may remove and replace its designee at any time, and the Shareholders shall vote accordingly.

(c) A vacancy created by a designated director shall be filled only by the Shareholder entitled to designate that director.

6.3 Officers

The Shareholders shall cause the Board to elect the following officers, who shall serve until removed in accordance with the Bylaws: [President / CEO: ____; Secretary: ____; Treasurer/CFO: ____].

6.4 Voting for Directors

The parties acknowledge the default rules of the Act regarding voting for directors (805 ILCS 5/7.40 governs cumulative voting). The Shareholders agree to vote so as to implement the designation rights in Section 6.2, and the Articles of Incorporation [shall / shall not] authorize or limit cumulative voting as permitted by the Act.

7. DRAG-ALONG & TAG-ALONG RIGHTS

7.1 Drag-Along

If Shareholders holding at least [____]% of the outstanding Shares (the "Dragging Shareholders") approve a bona fide arm's-length sale of the Corporation (whether by sale of shares, merger, or sale of substantially all assets) to an unaffiliated third party, the Dragging Shareholders may require each other Shareholder to (a) vote all Shares in favor of the transaction, (b) sell the same proportion of Shares on the same per-share terms, and (c) execute reasonable transaction documents, provided that no Shareholder shall be required to give representations other than as to title, authority, and ownership, and that liability shall be several (not joint) and capped at the proceeds received.

7.2 Tag-Along

If one or more Shareholders (the "Transferring Shareholders") propose to Transfer, in one transaction or a series, Shares representing more than [____]% of the outstanding Shares to a third party (other than a Permitted Transfer), each other Shareholder may elect to participate in the sale on the same terms, selling a pro rata portion of its Shares. The Transferring Shareholders shall give at least [twenty (20)] days' written notice of the proposed sale, and each electing Shareholder shall respond within [ten (10)] days.

8. PREEMPTIVE RIGHTS

8.1 Grant

Except for Exempt Issuances, before the Corporation issues any new Shares or securities convertible into Shares, it shall offer each Shareholder the right to purchase such Shareholder's pro rata portion (based on then-current ownership) on the same price and terms, so as to maintain such Shareholder's percentage ownership.

8.2 Procedure

The Corporation shall deliver written notice of the proposed issuance describing the securities, price, and terms. Each Shareholder shall have [twenty (20)] days to elect to exercise its preemptive right. Shares not subscribed for may be issued to the proposed purchaser within [ninety (90)] days on terms no more favorable than those offered to the Shareholders.

8.3 Exempt Issuances

"Exempt Issuances" means issuances (a) under a board-approved equity-incentive plan, (b) upon conversion or exercise of outstanding securities, (c) in connection with a bona fide acquisition or strategic transaction approved under Section 9, or (d) approved by Shareholders holding at least [____]% of the outstanding Shares.

9. PROTECTIVE PROVISIONS / SUPERMAJORITY

Notwithstanding any contrary provision of the Bylaws, the Corporation shall not take any of the following actions without the approval of Shareholders holding at least [____]% of the outstanding Shares (or the unanimous consent where indicated):

(a) amending the Articles of Incorporation or Bylaws;

(b) issuing additional Shares or securities (other than Exempt Issuances) or creating a new class or series;

(c) declaring or paying any dividend or distribution other than pro rata;

(d) merging, consolidating, converting, or selling all or substantially all assets;

(e) dissolving, liquidating, or filing for bankruptcy;

(f) incurring indebtedness in excess of [$____] or granting liens on material assets;

(g) entering into any transaction with a Shareholder, director, officer, or Affiliate other than on arm's-length terms;

(h) materially changing the nature of the Corporation's business; and

(i) approving annual compensation of any officer in excess of [$____].

The parties may also establish greater quorum or voting requirements for shareholder or director action in the Articles of Incorporation or Bylaws as permitted by the Act (see 805 ILCS 5/7.60 and 5/8.15).

10. INFORMATION RIGHTS

The Corporation shall deliver to each Shareholder: (a) annual financial statements within [one hundred twenty (120)] days after fiscal year-end; (b) quarterly unaudited statements within [forty-five (45)] days after each fiscal quarter; and (c) upon written demand stating a proper purpose, reasonable access during normal business hours to the books and records the Corporation is required to maintain, in accordance with the shareholder inspection rights of 805 ILCS 5/7.75, subject to a confidentiality undertaking.

11. RESTRICTIVE COVENANTS

11.1 Non-Competition

During the period each Shareholder owns Shares and for [two (2)] years thereafter, no Shareholder who is also an employee, officer, or director shall, within [geographic area], directly or indirectly engage in or own an interest in any business that competes with the Corporation, except for passive ownership of less than [two percent (2%)] of a publicly traded company.

11.2 Non-Solicitation

During the same period, no such Shareholder shall solicit (a) any employee or contractor of the Corporation to terminate their relationship, or (b) any customer or supplier to cease or reduce business with the Corporation.

11.3 Confidentiality

Each Shareholder shall hold in confidence all Confidential Information of the Corporation and shall not use or disclose it except for the benefit of the Corporation, both during and after the period of share ownership.

11.4 Remedies; Reformation

The Shareholders acknowledge that breach of this Section would cause irreparable harm and agree that the Corporation shall be entitled to injunctive relief in addition to other remedies. If any covenant is held overbroad, a court may, to the extent permitted under Illinois law and the Freedom to Work Act, reform it to the maximum enforceable scope.

12. DEADLOCK RESOLUTION

12.1 Deadlock Defined

A "Deadlock" exists if the Board or the Shareholders are unable, after [two (2)] properly noticed meetings held at least [fifteen (15)] days apart, to reach the vote required to act on a material matter, and the inability materially impairs the Corporation's business.

12.2 Escalation; Mediation

Upon a Deadlock, the matter shall first be referred to the senior representatives of the disputing Shareholders for good-faith negotiation for [thirty (30)] days, and then, if unresolved, to non-binding mediation under Section 15. If the Corporation is a Close Corporation, the parties may also invoke the arbitration-of-deadlocks mechanism contemplated by 805 ILCS 5/2A.40(a)(7).

12.3 Buy-Sell Shotgun

If a Deadlock remains unresolved [sixty (60)] days after mediation begins, any Shareholder (or 50% group) (the "Offeror") may deliver a written notice to the other (the "Offeree") stating a price per Share. The Offeree shall, within [thirty (30)] days, elect either (a) to sell all of its Shares to the Offeror at that price, or (b) to buy all of the Offeror's Shares at that same price. Failure to elect within the period shall be deemed an election to sell. The resulting purchase shall close under Section 4.3 and be paid under Section 5.3.

12.4 Other Remedies

The buy-sell procedure is in addition to, and not in lieu of, the parties' statutory rights, including the remedies for shareholder oppression and judicial dissolution under 805 ILCS 5/12.56 (close-corporation / non-public-corporation remedies, including court-ordered buyout) and 805 ILCS 5/12.50.

13. CERTIFICATE LEGEND

Each certificate representing Shares (and any notice for uncertificated Shares under 805 ILCS 5/6.35) shall bear the following conspicuous legend, consistent with 805 ILCS 5/6.55(a) and 5/7.71(b):

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TRANSFER RESTRICTIONS, VOTING AGREEMENT, AND OTHER TERMS OF A SHAREHOLDER AGREEMENT DATED [__/__/____], ENTERED INTO UNDER 805 ILCS 5/7.71, 5/7.70, AND 5/6.55 [AND, IF APPLICABLE, 805 ILCS 5/2A.40], A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION. SUCH SHARES MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THAT AGREEMENT. THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED ABSENT REGISTRATION OR AN EXEMPTION THEREFROM.

Unless the restriction (and the existence of this Agreement) is noted conspicuously as required, it is ineffective except against a shareholder with actual knowledge at the time of becoming a shareholder (805 ILCS 5/6.55(a), 5/7.71(b)). If the Corporation is a Close Corporation, every certificate must also conspicuously set forth the close-corporation statement required by the Act.

14. TERM & TERMINATION

14.1 Term

This Agreement becomes effective on the Effective Date and continues until terminated under Section 14.2.

14.2 Termination

This Agreement terminates upon the earliest of: (a) the written agreement of all Shareholders; (b) the dissolution, bankruptcy, or liquidation of the Corporation; (c) a single Shareholder coming to own all outstanding Shares; or (d) the closing of an initial public offering or listing of the Corporation's shares on a national securities exchange.

14.3 Effect of Termination

Termination does not affect rights or obligations that accrued before termination, including any closing of a purchase already triggered. The confidentiality obligations of Section 11.3 survive termination.

14.4 Amendment

This Agreement may be amended only by a writing signed by [all persons who are Shareholders at the time of the amendment / the Corporation and Shareholders holding at least ____% of the outstanding Shares]. Because § 7.71 and § 2A.40 contemplate unanimity, the parties should ordinarily require unanimous written consent for amendments that alter management or transfer terms. Any amendment that disproportionately and adversely affects a Shareholder shall also require that Shareholder's written consent.

15. DISPUTE RESOLUTION & GOVERNING LAW

15.1 Governing Law

This Agreement is governed by and construed in accordance with the laws of the State of Illinois, without regard to conflict-of-laws principles, and the internal affairs of the Corporation are governed by the Act.

15.2 Mediation

Before commencing arbitration or litigation (other than for injunctive relief), the parties shall attempt in good faith to resolve any dispute through non-binding mediation administered by [mediation provider] in [COUNTY] County, Illinois.

15.3 Arbitration

Any dispute not resolved by mediation shall be finally resolved by binding arbitration administered by the [American Arbitration Association] under its Commercial Arbitration Rules, before [one (1) / three (3)] arbitrator(s), seated in [CITY], Illinois, consistent with the Illinois Uniform Arbitration Act, 710 ILCS 5/. Judgment on the award may be entered in any court of competent jurisdiction.

15.4 Forum; Injunctive Relief

Notwithstanding Section 15.3, any party may seek temporary or preliminary injunctive relief or specific performance (including to enforce Sections 3, 6, and 11) from the state or federal courts located in [COUNTY] County, Illinois, to which the parties submit to jurisdiction and venue.

15.5 Attorneys' Fees

The prevailing party in any proceeding to enforce this Agreement is entitled to recover reasonable attorneys' fees and costs to the extent permitted by Illinois law.

15.6 Jury Trial Waiver

EACH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF THIS AGREEMENT NOT SUBJECT TO ARBITRATION.

16. GENERAL PROVISIONS

16.1 Specific Performance

The parties agree that the Shares are unique, that monetary damages are inadequate for breach of this Agreement, and that the non-breaching parties are entitled to specific performance, consistent with 805 ILCS 5/7.70 and 5/7.71(d).

16.2 Further Assurances

Each party shall execute such further documents and take such further actions as may be reasonably necessary to carry out this Agreement.

16.3 Notices

All notices shall be in writing and delivered personally, by nationally recognized overnight courier, or by certified mail (return receipt requested) to the addresses on Exhibit C, and are effective upon receipt (or refusal).

16.4 Successors and Assigns; Joinder

This Agreement binds and inures to the benefit of the parties and their respective heirs, personal representatives, successors, and permitted assigns. No Person shall acquire Shares unless such Person first executes a joinder agreeing to be bound by this Agreement.

16.5 Severability

If any provision is held invalid or unenforceable, it shall be reformed to the minimum extent necessary, and the remaining provisions shall remain in full force and effect.

16.6 Entire Agreement

This Agreement, together with its Exhibits, constitutes the entire agreement among the parties regarding its subject matter and supersedes all prior understandings.

16.7 Counterparts; Electronic Signatures

This Agreement may be executed in counterparts and by electronic signature, each of which is deemed an original and all of which together constitute one instrument.

16.8 No Third-Party Beneficiaries

Except as expressly provided, this Agreement is solely for the benefit of the parties and their permitted successors and assigns.

17. SIGNATURES

IN WITNESS WHEREOF, the parties have executed this Shareholder Agreement as of the Effective Date.

THE CORPORATION:

[CORPORATION NAME], an Illinois corporation

By: [________________________________]

Name: [____________________]

Title: [____________________]

Date: [__/__/____]

THE SHAREHOLDERS:

[________________________________]
Name: [____________________]
Date: [__/__/____]

[________________________________]
Name: [____________________]
Date: [__/__/____]

[________________________________]
Name: [____________________]
Date: [__/__/____]

18. SOURCES & REFERENCES

• Business Corporation Act of 1983, 805 ILCS 5/1.01 et seq.
• 805 ILCS 5/7.71 — Shareholder agreements (unanimous; management matters; specifically enforceable in equity; cumulative; binds non-signatory only with actual knowledge or conspicuous certificate reference).
• 805 ILCS 5/6.55 — Restriction on transfer of securities (authorization; conspicuous-legend requirement; S-corp/tax-advantage restrictions conclusively reasonable).
• 805 ILCS 5/6.35 — Notice for uncertificated securities.
• 805 ILCS 5/7.70 — Voting agreements (specifically enforceable).
• 805 ILCS 5/7.65 — Voting trust.
• 805 ILCS 5/2A.05 et seq. — Article 2A, Close Corporations (formation, election, status).
• 805 ILCS 5/2A.40 — Written agreements as to conduct of certain affairs of a close corporation (management, dividends, officers/directors, transfer restrictions, voting, employment, arbitration of deadlocks; § 2A.40(c) imposes director-level liability on managing shareholders).
• 805 ILCS 5/6.50 — Preemptive rights (opt-in via articles).
• 805 ILCS 5/7.40 — Voting of shares; cumulative voting.
• 805 ILCS 5/7.60, 5/8.15 — Greater quorum/voting requirements (shareholders; directors).
• 805 ILCS 5/7.75 — Corporate records; shareholder inspection rights (proper purpose).
• 805 ILCS 5/9.10 — Distributions to shareholders (limitations).
• 805 ILCS 5/12.50, 5/12.56 — Judicial dissolution; remedies in non-public/close corporations (including court-ordered buyout).
• 820 ILCS 90/ — Illinois Freedom to Work Act (restrictive covenants).
• 710 ILCS 5/ — Illinois Uniform Arbitration Act.