Shareholder Agreement Template Delaware

SHAREHOLDER AGREEMENT TEMPLATE DELAWARE

1. DOCUMENT PREAMBLE & RECITALS

THIS SHAREHOLDER AGREEMENT (the "Agreement") is entered into and made effective as of this [Day] day of [Month], [Year] (the "Effective Date"), by and among:

1. [Company Name], a Delaware corporation (the "Company");
2. [Founder/Majority Shareholder Name], an individual / [Entity Type] having a principal place of residence / business at [Address] ("Founder"); and
3. [Minority Shareholder/Investor Name], an individual / [Entity Type] having a principal place of residence / business at [Address] ("Investor").

(Founder and Investor are hereinafter collectively referred to as the "Shareholders" and individually as a "Shareholder".)

RECITALS

WHEREAS, the Company is duly incorporated and validly existing under the General Corporation Law of the State of Delaware (the "DGCL"), with an authorized capital structure consisting of [Number] shares of Common Stock, par value [Par Value, e.g., $0.0001] per share, and [Number] shares of Preferred Stock, par value [Par Value] per share;

WHEREAS, the Shareholders own, or concurrently herewith shall acquire, shares of the capital stock of the Company in the respective amounts set forth on Exhibit A attached hereto; and

WHEREAS, the parties hereto desire to enter into this Agreement to govern certain matters relating to the governance of the Company, the management of its operations, the transfer and disposition of shares of capital stock of the Company, and certain rights and obligations of the Shareholders inter se and with respect to the Company.

NOW, THEREFORE, in consideration of the mutual covenants, promises, and conditions set forth herein, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby mutually acknowledged, the parties hereto, intending to be legally bound, covenant and agree as follows:

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2. OPERATIONAL DEFINITIONS

For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the meanings set forth below:

1. "Affiliate" means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such specified Person, including, without limitation, any general partner, managing member, officer, director, or trust of such Person.
2. "Board" or "Board of Directors" means the duly elected Board of Directors of the Company.
3. "Business Day" means any day other than a Saturday, Sunday, or any other day on which commercial banks in the State of Delaware or the State of [State] are authorized or required by law to close.
4. "Common Stock" means the common stock of the Company, par value [Par Value] per share, and any securities issued in respect thereof or in substitution therefor.
5. "Control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
6. "DGCL" means the Delaware General Corporation Law, as amended from time to time.
7. "Encumbrance" means any mortgage, pledge, lien, charge, security interest, encumbrance, restriction on transfer (other than restrictions imposed by federal or state securities laws or this Agreement), option, proxy, voting trust agreement, or adverse claim of any kind whatsoever.
8. "Original Cost" means, with respect to any Shareholder, the actual price per share paid by such Shareholder to the Company for the acquisition of Shares, as adjusted for any stock splits, stock dividends, combinations, recapitalizations, or similar events.
9. "Permitted Transferee" means: (a) with respect to any individual Shareholder, such Shareholder's spouse, lineal descendants (by blood or adoption), or a trust established solely for the benefit of such Shareholder and/or such Shareholder's spouse and/or lineal descendants; and (b) with respect to any entity Shareholder, any Affiliate of such entity Shareholder; provided, that in each case, such transferee agrees in writing to be bound by all the terms and conditions of this Agreement as a Shareholder.
10. "Person" means an individual, corporation, partnership, joint venture, limited liability company, governmental authority, unincorporated organization, trust, association, or other entity.
11. "Preferred Stock" means the preferred stock of the Company, par value [Par Value] per share, authorized from time to time.
12. "Pro Rata Share" means, with respect to any Shareholder, the ratio that the number of shares of Common Stock (calculated on an as-converted-to-common basis) held by such Shareholder bears to the total number of shares of Common Stock outstanding (calculated on an as-converted-to-common basis) at the time of the applicable calculation.
13. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
14. "Shares" means all shares of Common Stock and Preferred Stock of the Company now owned or hereafter acquired by any Shareholder, howsoever acquired.
15. "Transfer" means any direct or indirect sale, assignment, transfer, conveyance, pledge, hypothecation, encumbrance, gift, attachment, or other disposition of any Shares (or any legal or beneficial interest therein), whether voluntarily, involuntarily, by operation of law, or otherwise.

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3. SUBSTANTIVE TERMS & OBLIGATIONS

Section 3.1 Corporate Governance and Board Composition

1. Board Size: The Board shall initially consist of [Number] members. The size of the Board shall not be increased or decreased except by an amendment to this Agreement approved in accordance with Section 5.2.
2. Designation of Directors: Each Shareholder agrees to vote all Shares owned or controlled by such Shareholder, at any annual or special meeting of stockholders called for the purpose of electing directors (or by written consent in lieu thereof), to elect and maintain in office the following designees:
   • (a) [Number] representative(s) designated by the Founder, who shall initially be [Founder Name];
   • (b) [Number] representative(s) designated by the Investor, who shall initially be [Investor Designee Name]; and
   • (c) [Number] independent director(s) mutually agreed upon in writing by both the Founder and the Investor.
3. Removal and Replacement: A director may be removed from the Board only with or without cause by the Shareholder or Shareholders who designated such director pursuant to Section 3.1(2). No other Shareholder shall vote to remove any such designated director. In the event of a vacancy on the Board caused by the death, resignation, disqualification, or removal of a designated director, the Shareholder(s) entitled to designate such director shall have the exclusive right to designate a successor to fill such vacancy, and the Shareholders agree to vote their Shares to elect such successor.

Section 3.2 Restrictions on Transfer of Shares

1. General Prohibition: Except as expressly permitted pursuant to Section 3.2(2) or Section 3.3, no Shareholder shall directly or indirectly Transfer any Shares or any right, title, or interest therein without the prior written consent of the Company and the holders of a majority of the voting power of the then-outstanding Shares. Any purported Transfer in violation of this Agreement shall be null and void ab initio, shall not be recorded on the stock transfer books of the Company, and shall not confer any rights upon any purported transferee.
2. Permitted Transfers: Notwithstanding anything to the contrary contained herein, any Shareholder may Transfer any or all of its Shares to a Permitted Transferee, without the prior written consent of the Company or other Shareholders, provided that:
   • (a) The transferring Shareholder shall give written notice to the Company and the other Shareholders at least ten (10) Business Days prior to such Transfer, stating the identity of the Permitted Transferee and the number of Shares to be Transferred; and
   • (b) The Permitted Transferee delivers to the Company a written instrument in form and substance reasonably satisfactory to the Company, confirming that such transferee agrees to be bound by all terms and conditions of this Agreement as a "Shareholder."

Section 3.3 Right of First Refusal & Co-Sale Rights

1. Right of First Refusal (ROFR): If any Shareholder (the "Selling Shareholder") receives a bona fide written offer from a third party (the "Third-Party Buyer") to purchase all or any portion of the Selling Shareholder's Shares (the "Offered Shares"), and the Selling Shareholder desires to accept such offer, the Selling Shareholder shall first deliver written notice (the "Sale Notice") to the Company and the non-selling Shareholders. The Sale Notice shall set forth the identity of the Third-Party Buyer, the purchase price, the form of consideration, and all other material terms and conditions of the proposed Transfer.
   • (a) The Company shall have the primary, irrevocable right to purchase all or any portion of the Offered Shares at the same price and on the same terms as set forth in the Sale Notice, exercisable by delivering written notice to the Selling Shareholder within thirty (30) calendar days following receipt of the Sale Notice.
   • (b) If the Company declines or fails to exercise its right to purchase all of the Offered Shares within such thirty (30) day period, the non-selling Shareholders shall have the secondary right to purchase their respective Pro Rata Share of the remaining Offered Shares, exercisable by delivering written notice to the Selling Shareholder within fifteen (15) calendar days following the expiration of the Company's election period.
2. Tag-Along / Co-Sale Rights: If the Company and the non-selling Shareholders do not elect to purchase all of the Offered Shares pursuant to Section 3.3(1), the Selling Shareholder shall not consummate the Transfer of the remaining Offered Shares to the Third-Party Buyer unless, prior to such Transfer, the Third-Party Buyer offers each non-selling Shareholder the opportunity to participate in such sale on the same terms and conditions, allowing each non-selling Shareholder to sell up to its Pro Rata Share of the total shares proposed to be sold to the Third-Party Buyer.

Section 3.4 Preemptive Rights

1. New Securities: Subject to customary exceptions for equity incentive plans, acquisitions, and strategic transactions approved by the Board, if the Company proposes to issue or sell any new shares of capital stock or any securities convertible into or exercisable for capital stock ("New Securities"), the Company shall first offer to each Shareholder the right to purchase its Pro Rata Share of such New Securities on the same economic and legal terms and conditions as offered to the outside purchasers.
2. Exercise Period: A Shareholder may exercise its preemptive rights under this Section 3.4 by delivering written notice to the Company within twenty (20) Business Days after receipt of the written notice of issuance from the Company.

Section 3.5 Representations and Warranties

Each Shareholder severally, and not jointly, represents and warrants to the Company and to each other Shareholder that:

1. Authority: Such Shareholder has full power, legal capacity, and authority to execute, deliver, and perform this Agreement. This Agreement has been duly executed and delivered by such Shareholder and constitutes the valid and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms.
2. No Conflicts: The execution, delivery, and performance of this Agreement by such Shareholder does not and will not violate, conflict with, or result in a breach of any provision of the organizational documents of such Shareholder, or any material agreement, judgment, order, writ, decree, statute, rule, or regulation applicable to such Shareholder.
3. Ownership of Shares: Such Shareholder is the sole legal and beneficial owner of the Shares set forth opposite such Shareholder's name on Exhibit A, free and clear of all Encumbrances (other than those arising under applicable federal and state securities laws and this Agreement).

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4. DEFAULT, TERMINATION, AND REMEDIES

Section 4.1 Events of Default

The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Agreement:

1. Breach of Agreement: The material breach by any Shareholder of any representation, warranty, covenant, or obligation contained in this Agreement, which breach remains uncured pursuant to Section 4.2.
2. Insolvency and Bankruptcy: The filing of a petition under any bankruptcy, insolvency, or debtor relief law by or against a Shareholder; the appointment of a receiver, trustee, custodian, or liquidator for a Shareholder or a substantial portion of such Shareholder's assets; or the execution of an assignment for the benefit of creditors by a Shareholder.
3. Unauthorized Transfer: Any Transfer or attempted Transfer of Shares in direct contravention of Section 3.2 or Section 3.3.

Section 4.2 Notice and Cure Period

In the event of any alleged breach or default under Section 4.1(1), the non-defaulting party or parties (or the Company) shall provide written notice of default to the defaulting Shareholder, detailing the specific nature of the default. The defaulting Shareholder shall have thirty (30) Business Days from the date of receipt of such written notice to cure such default to the reasonable satisfaction of the non-defaulting parties. If the default is not capable of being cured within such thirty (30) Business Day period, but the defaulting Shareholder has commenced and is diligently pursuing a cure, the cure period may be extended by mutual written agreement of the non-defaulting parties, not to exceed an additional thirty (30) calendar days.

Section 4.3 Legal Recourse and Remedies

Upon the occurrence of an Event of Default that is not cured within the applicable cure period set forth in Section 4.2, the non-defaulting parties and/or the Company may, at their sole discretion and without prejudice to any other rights or remedies available at law or in equity, exercise any or all of the following remedies:

1. Specific Performance and Injunctive Relief: The parties acknowledge and agree that damages at law would be an inadequate remedy for any breach of this Agreement. Therefore, any non-defaulting party or the Company shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction, without the necessity of posting a bond or other security.
2. Suspension of Rights: The Board may suspend the voting rights, dividend rights, and information rights of the defaulting Shareholder for the duration of such default.
3. Compulsory Transfer / Buyout: The non-defaulting Shareholders shall have the option, exercisable by written notice to the defaulting Shareholder within sixty (60) calendar days after the expiration of the cure period, to purchase all (but not less than all) of the Shares owned by the defaulting Shareholder at a purchase price equal to eighty percent (80%) of the Fair Market Value of such Shares (determined by an independent certified appraiser mutually agreed upon by the parties) or the Original Cost of such Shares, whichever is lower.

Section 4.4 Termination

This Agreement shall terminate automatically and be of no further force or effect upon the earliest to occur of:

1. The consummation of a firm-commitment underwritten public offering of shares of Common Stock of the Company pursuant to an effective registration statement under the Securities Act;
2. The consummation of a merger, consolidation, sale of all or substantially all of the assets of the Company, or other Change of Control transaction pursuant to which the Company's stockholders immediately prior to such transaction own less than fifty percent (50%) of the voting power of the surviving or acquiring entity; or
3. The written agreement of the Company and the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of the then-outstanding Shares.

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5. BOILERPLATE LEGAL PROVISIONS

Section 5.1 Severability

If any provision of this Agreement is held to be invalid, illegal, or unenforceable under any applicable statute or rule of law, such provision shall be deemed modified to the minimum extent necessary to make it valid, legal, and enforceable. If such modification is not possible, such provision shall be severed from this Agreement, and the remaining provisions hereof shall remain in full force and effect and shall in no way be impaired or invalidated, provided that the fundamental economic and legal substance of the transactions contemplated hereby remains unaltered.

Section 5.2 Entire Agreement

This Agreement, together with the Exhibits attached hereto, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, of the parties. No amendment, modification, supplement, or waiver of any provision of this Agreement shall be valid unless executed in writing by the Company and the holders of at least a majority of the voting power of the then-outstanding Shares (and, if such amendment adversely affects the specific rights of a specific Shareholder in a manner disproportionate to other Shareholders, the written consent of such affected Shareholder).

Section 5.3 Force Majeure

No party shall be liable or responsible to the other parties, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay in fulfilling or performing any term of this Agreement when and to the extent such failure or delay is caused by acts of God, flood, fire, earthquake, explosion, war, terrorism, invasion, riot, national emergency, revolution, pandemic, epidemic, embargoes, or other civil unrest, strikes, lockouts, or other industrial disputes (excluding strikes or labor disputes involving members of the affected party's own workforce), or any law or any action taken by a governmental or public authority, provided that the affected party gives prompt written notice to the other parties stating the period of time the occurrence is expected to continue and uses diligent efforts to resume performance as soon as practicable.

Section 5.4 Governing Law

This Agreement, and all claims, causes of action (whether in contract, tort, or statute), or disputes that may be based upon, arise out of, or relate to this Agreement, shall be governed by, enforced under, and construed in accordance with the internal laws of the State of Delaware, without regard to its conflict of laws principles that would result in the application of the laws of any other jurisdiction.

Section 5.5 Dispute Resolution and Jurisdiction

1. Negotiation: In the event of any dispute, controversy, or claim arising out of or relating to this Agreement (a "Dispute"), the disputing parties shall first attempt to resolve such Dispute through good-faith negotiations between executive officers or principals of the parties. If the Dispute is not resolved within thirty (30) calendar days after written notice of the Dispute has been given by one party to the other, the Dispute shall be submitted to binding arbitration.
2. Arbitration: Any unresolved Dispute shall be settled by binding arbitration administered by the American Arbitration Association (AAA) in accordance with its Commercial Arbitration Rules. The arbitration shall be conducted by a single neutral arbitrator appointed in accordance with such rules. The place of arbitration shall be [City, State], and the proceedings shall be conducted in the English language. The award rendered by the arbitrator shall be final and binding on the parties, and judgment upon the award may be entered in any court having jurisdiction thereof.
3. Consent to Jurisdiction: Subject to Section 5.5(2), each party irrevocably and unconditionally submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or, only if the Court of Chancery lacks jurisdiction, the federal district court for the District of Delaware) in any action or proceeding arising out of or relating to this Agreement.

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6. FORMAL EXECUTION BLOCK

IN WITNESS WHEREOF, the parties hereto have executed this Shareholder Agreement Template Delaware as of the Effective Date first written above.

THE COMPANY:

[Company Name], a Delaware corporation

By: [Signature]
Name: [Signatory Name]
Title: [Title, e.g., Chief Executive Officer]
Date: [Date]

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FOUNDER:

By: [Signature]
Name: [Founder/Majority Shareholder Name]
Title: [Title / "Individually"]
Date: [Date]

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INVESTOR / SHAREHOLDER:

[Entity Name, if applicable]

By: [Signature]
Name: [Signatory Name]
Title: [Title]
Date: [Date]

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EXHIBIT A

Schedule of Shareholders and Share Ownership