SHAREHOLDERS' AGREEMENT
FOR
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
A TEXAS CORPORATION
SHAREHOLDERS' AGREEMENT
FOR
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
A TEXAS CORPORATION
TABLE OF CONTENTS
Page
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Determination Date. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Disposing Shareholder . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4 Disposition Notice. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5 Operative Event . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Effect of Purported Transfer. . . . . . . . . . . . . . . . . . . 4
Section 2.3 Beneficial Ownership. . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III Tender Requirement. . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.1 Tender for Sale . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.2 Purchase By Corporation . . . . . . . . . . . . . . . . . . . . . 4
Section 3.3 Third Party Bound . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.2 Agreed Value. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . 5
Section 6.1 Transfer And Delivery Of Stock. . . . . . . . . . . . . . . . . . 5
Section 6.2 Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII Subchapter S Provisions . . . . . . . . . . . . . . . . . . . . . 6
Section 7.1 Subchapter S Representation . . . . . . . . . . . . . . . . . . . 6
Section 7.2 Revocation of Election. . . . . . . . . . . . . . . . . . . . . . 6
Section 7.3 Inadvertent Termination of Subchapter S Election. . . . . . . . . 6
Section 7.4 Provision in Shareholder ▇▇▇▇▇. . . . . . . . . . . . . . . . . . 7
Section 7.5 Distributions to Pay Tax Liabilities. . . . . . . . . . . . . . . 7
Section 7.6 Nonrecognition of Certain Transfers . . . . . . . . . . . . . . . 8
Section 7.7 Legends on Share Certificates . . . . . . . . . . . . . . . . . . 9
Section 7.8 Election to Close Books . . . . . . . . . . . . . . . . . . . . . 9
SHAREHOLDERS' AGREEMENT i
ARTICLE VIII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.1 Shareholder Compliance and Specific Performance . . . . . . . . . 9
Section 8.2 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.3 Entirety and Modification . . . . . . . . . . . . . . . . . . . . 9
Section 8.4 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.7 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.8 Subject Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.10 Section Headings; Gender. . . . . . . . . . . . . . . . . . . . . 10
Section 8.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.12 Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.13 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8.14 Shareholders' Spouses . . . . . . . . . . . . . . . . . . . . . . 10
SHAREHOLDERS' AGREEMENT ii
SHAREHOLDERS' AGREEMENT
FOR
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
A TEXAS CORPORATION
THIS SHAREHOLDERS' AGREEMENT (hereinafter referred to as the "AGREEMENT")
is effective as of the 1st day of October, 1998 (the "EFFECTIVE DATE"), by and
between the individuals identified on EXHIBIT A (hereinafter sometimes referred
to individually as "SHAREHOLDER," and collectively as "SHAREHOLDERS"), their
respective spouses, and Independent Research Agency for Life Insurance, Inc., a
Texas corporation (the "CORPORATION").
WITNESSETH:
WHEREAS, the Shareholders own all of the issued and outstanding shares of
the common stock of the Corporation (the "STOCK"); and
WHEREAS, the Corporation has made a valid election to be taxed as an S
corporation under Subchapter S of the Internal Revenue Code of 1986, as amended,
and Treasury regulations promulgated thereunder (the "REGULATIONS"); and
WHEREAS, due to certain legal and other restrictions, the Stock may not be
placed upon the open market for sale, and the Shareholders understand that, in
accordance with Texas law pertaining to incorporated insurance agencies, each
Shareholder must be licensed as a Texas life insurance agent; and
WHEREAS, the Shareholders and the Corporation believe it to be in their
best respective interests, collectively and individually, to enter into this
Agreement to provide that the Corporation may purchase the shares of Stock owned
by a Shareholder terminating all or a portion of his or her interest in the
Corporation, and to provide for certain other matters with respect to the
business and affairs of the Corporation, in order to ensure to the greatest
degree possible the continuity of ownership of the Corporation desired by the
parties hereto; and
WHEREAS, the Shareholders' spouses join in this Agreement for the purpose
of ensuring that the provisions of this Agreement will bind and control any
community property interest such spouses may have in the Stock;
NOW, THEREFORE, in consideration of the above premises, the mutual promises
and covenants herein contained, and for other good and valuable consideration,
the full receipt and sufficiency of which are hereby expressly acknowledged, the
parties hereto agree as follows:
SHAREHOLDERS' AGREEMENT
ARTICLE I
DEFINITIONS
As used in this Agreement:
SECTION 1.1 CODE. The term "CODE" shall mean the Internal Revenue Code
of 1986, as amended from time to time.
SECTION 1.2 DETERMINATION DATE. The term "DETERMINATION DATE" shall
mean the day upon which, in the case of a purchase of Stock hereunder, the
Disposition Notice referred to in Section 3.1 has been received by the
Corporation, except that with respect to a Disposition Notice made in connection
with the death of a Shareholder or the termination of a Shareholder's marital
relationship, "DETERMINATION DATE" shall mean the date of that death or
termination.
SECTION 1.3 DISPOSING SHAREHOLDER. The term "DISPOSING SHAREHOLDER"
shall mean that Shareholder (or the surviving spouse of or estate of a deceased
Shareholder in the case of a Shareholder's death) required to tender shares of
Stock to the Corporation upon the occurrence of an Operative Event with respect
to that Shareholder.
SECTION 1.4 DISPOSITION NOTICE. The term "DISPOSITION NOTICE" shall mean
the written notice required by Section 3.1 to be made by the Disposing
Shareholder to the Corporation or allowed by Section 3.1 to be made by the
Corporation to the Disposing Shareholder.
SECTION 1.5 OPERATIVE EVENT. The term "OPERATIVE EVENT" shall mean,
with respect to any Shareholder, any of the following events:
(a) Any threatened or actual Transfer of Stock in any manner
whatsoever by that Shareholder;
(b) The death of that Shareholder;
(c) The termination of the marital relationship of that Shareholder
by death or divorce if that Shareholder does not succeed to his or her spouse's
community interest in the Stock or purchase such interest pursuant to Section
8.14 or the entering into of any property settlement arrangement or agreement in
connection therewith, pursuant to which that Shareholder's interest in his or
her Stock is to be diluted, lessened, encumbered or impaired;
(d) Any threatened or actual (i) bankruptcy or insolvency of that
Shareholder or (ii) institution of legal proceedings because or by reason of the
bankruptcy or insolvency of that Shareholder;
(e) The termination of the status of that Shareholder as a Texas life
insurance agent;
(f) The cessation of that Shareholder as a duly authorized agent of
the Corporation pursuant to a current written agency agreement, except that with
respect to an involuntary termination as a duly authorized agent of the
Corporation, such termination shall require approval by a vote of eighty percent
(80%) of the Board of Directors of the Corporation;
(g) The change in status of that Shareholder to a "nonresident alien"
as defined in the Code; or
SHAREHOLDERS' AGREEMENT 2
(h) Any threatened or actual levy by a creditor or claimant upon the
shares of Stock held by that Shareholder or any other seizure or sale by legal
process, if it is determined by legal counsel for the Corporation that such levy
is made in good faith and based upon a bona fide claim.
It shall not be a requirement hereunder that the Executive Committee of the
Board of Directors of the Corporation (the "EXECUTIVE COMMITTEE") make a
determination in every instance that an Operative Event has so occurred with
respect to any Shareholder, but such determination shall be made in those
instances in which there may be some question as to whether an Operative Event
did in fact occur. Upon such determination by the Executive Committee that an
Operative Event has in fact occurred, in order to inform the Shareholder of such
occurrence, the Corporation may deliver a written notice to the Shareholder or
his or her legal representative stating that (i) such an Operative Event has
occurred, (ii) the date thereof and (iii) the reasons for the determination. The
Shareholder affected or his or her legal representative shall thereupon be
required to tender to the Corporation for sale his or her Stock to the
Corporation upon the terms and conditions as set forth in Article III.
SECTION 1.6 TRANSFER. The term "TRANSFER" shall mean, as a noun, a
transfer, sale, assignment, exchange, gift, donation, pledge, mortgage,
hypothecation or other encumbrance or other disposition, and as a verb, to
transfer, sell, assign, exchange, gift, donate, pledge, mortgage, hypothecate or
otherwise encumber or otherwise dispose.
ARTICLE II
RESTRICTIONS ON TRANSFER
Except as otherwise expressly provided and authorized in this Agreement, a
Shareholder shall not Transfer any shares of Stock that he or she now or
hereafter owns. The parties hereto understand that the Corporation may refuse
to Transfer the shares of Stock on its books and records when that Transfer
would not be in compliance with the terms of this Agreement, and that any
attempted Transfer in violation hereof shall be null and void.
SECTION 2.1 RESTRICTIONS ON TRANSFER.
(a) No Shareholder may Transfer, and no person may acquire, the legal
or beneficial ownership of any share of Stock now or hereafter owned by him or
her if that Transfer or acquisition would cause the S corporation status of the
Corporation to terminate. Specifically, no Transfer may be made to, and no
acquisition may be made by, any person who would cause the Corporation to have
more than the maximum permitted number of shareholders under the Code as then in
effect or to any person that is not eligible to be a shareholder of an S
corporation under the provisions of the Code.
(b) In addition to the requirements of Section 2.1(a), no Transfer of
shares of Stock shall be permitted, and no purported Transfer shall be
effective, until the transferee has followed all of the requirements of Article
III.
(c) Notwithstanding Section 2.1(a) and (b), with the prior written
consent of the Executive Committee, a Shareholder may pledge, mortgage,
hypothecate or otherwise encumber his or her Stock subject to such terms,
conditions and restrictions as the Executive Committee shall determine to be
appropriate in the exercise of its sole discretion.
SHAREHOLDERS' AGREEMENT 3
SECTION 2.2 EFFECT OF PURPORTED TRANSFER. Any purported Transfer or
acquisition of shares of Stock in violation of Section 2.1 shall be null and
void. The purported transferee shall have no interest in any of the shares of
Stock purported to be transferred. Any such purported Transfer or acquisition
may and should be enjoined by the Corporation in the event that the Executive
Committee so determines.
SECTION 2.3 BENEFICIAL OWNERSHIP. Any purported Transfer in violation
of this Agreement will not affect the beneficial ownership of the shares of
Stock. Thus, the Shareholder making the purported transfer will retain the
right to vote and the right to receive distributions and liquidation proceeds
related to those shares. Additionally, a Shareholder making the purported
Transfer shall continue to report the portion of income or loss allocated by the
Corporation in accordance with the provisions of the Code.
ARTICLE III
TENDER REQUIREMENT
SECTION 3.1 TENDER FOR SALE. Upon the occurrence of any Operative Event
with respect to a Shareholder, the Disposing Shareholder, or his or her legal
representative, as the case may be, must tender for sale all shares of Stock
owned by the Disposing Shareholder. In the case of an Operative Event, the
Disposing Shareholder is required to mail a Disposition Notice to the
Corporation no less than one hundred twenty (120) days prior to the date of the
proposed Transfer. Alternatively, upon an Operative Event of a Disposing
Shareholder, the Corporation may mail a Disposition Notice to that Disposing
Shareholder. Upon the mailing of a Disposition Notice, the Corporation shall
have the exclusive right and option, exercisable at the sole discretion of the
Executive Committee, as described in Section 3.2, to buy such shares of Stock,
or any portion thereof, as provided herein. The Disposition Notice shall be
sent by certified mail, if to the Corporation, to the attention of the
president and the general counsel of the Corporation at the principal address of
the Corporation as determined pursuant to Section 8.6, or if to the Disposing
Shareholder at his or her last known address. In the event that the Operative
Event involves a proposed Transfer pursuant to an offer to purchase or sell all
or any portion of a Shareholder's Stock received or made by such Shareholder
from or to a third party, the Disposition Notice shall set forth the full
details of such proposed Transfer including, among other things, the name of the
offeror or proposed purchaser or transferee, the number of shares covered by the
offer, the purchase price per share, the terms of payment, whether for cash or
credit (and if by credit, the maturity and interest rate), any and all other
consideration being received or paid in connection with such proposed Transfer,
and any and all other terms, conditions and details of such offer.
SECTION 3.2 PURCHASE BY CORPORATION. Upon the mailing of a valid
Disposition Notice, the Corporation shall have the exclusive right and option,
exercisable at any time within one hundred twenty (120) days after the mailing
of a Disposition Notice, to purchase all or part of the Disposing Shareholder's
shares of Stock at the Purchase Price and on the terms and conditions set forth
herein. If the Corporation chooses to exercise the option (in whole or in
part), it shall give written notification (the "CORPORATE EXERCISE NOTICE") to
that effect to the Disposing Shareholder or his or her legal representative, as
the case may be, setting forth the number and type of shares being purchased and
the price and terms and conditions, in accordance with this Agreement, and such
sale and purchase shall be closed on the one hundred twentieth (120th) day after
the Corporate Exercise Notice is sent to the Disposing Shareholder or to his or
her legal representative (or, if such date is not a business day, on the first
business day thereafter).
SHAREHOLDERS' AGREEMENT 4
SECTION 3.3 THIRD PARTY BOUND. If, in accordance with this Article III,
shares of Stock are Transferred to a third party, the Disposing Shareholder
shall require, as a condition of the sale to such third party, that the
purchaser or transferee of his or her shares will become a party to this
Agreement, but only if the Corporation so desires and agrees to such purchaser
becoming subject to this Agreement in a written notice sent to the Disposing
Shareholder. All shares of Stock retained by the Disposing Shareholder shall
remain subject to all of the provisions of this Agreement.
ARTICLE IV
INSURANCE
In order to facilitate the purchase of shares of Stock upon the death of a
Shareholder, the Corporation may, but is not required to, apply for and obtain
separate policies of insurance upon the lives of each of the Shareholders
payable to the Corporation; provided, however, that the purchase price of the
shares of Stock and the manner and terms of payment therefor shall be governed
in all respects by Articles V and VI. The Corporation will pay the premiums
upon such policies and shall provide proof of payment of such premiums to any
Shareholder, upon his or her request. The Corporation shall be the sole owner,
and shall have the sole right to designate the beneficiary or beneficiaries, of
such policy or policies.
ARTICLE V
PURCHASE PRICE
SECTION 5.1 PURCHASE PRICE. In the case of all Operative Events, the
purchase price per share of Stock to be paid by the Corporation shall be the
Purchase Price, as defined in Section 5.2.
SECTION 5.2 AGREED VALUE. The Corporation, at least annually, shall
advise the Shareholders in writing of the price per share of Stock which the
Corporation will pay to any and all Disposing Shareholders for shares tendered
pursuant hereto. Each such determination of the "PURCHASE PRICE" shall become
effective on the date specified by the Corporation and shall remain effective
until the next determination of a new Purchase Price and shall be
proportionately adjusted for any subsequent increase or decrease of the number
of issued shares of Stock resulting from a subdivision or consolidation of
shares or other adjustment, or the payment of a stock dividend or other increase
or decrease in the number of shares of Stock outstanding, effective without the
receipt of consideration by the Corporation. It is specifically agreed that
this Purchase Price shall be the purchase price paid by the Corporation
hereunder to any Disposing Shareholder.
ARTICLE VI
PAYMENT OF PURCHASE PRICE
SECTION 6.1 TRANSFER AND DELIVERY OF STOCK. At the closing, or at some
other time or place designated by all of the parties, the Disposing Shareholder
or his or her legal representative shall deliver to the Corporation in exchange
for the concurrent payment of the purchase price, the certificates of shares of
the Stock being purchased, free and clear of all liens, claims, security
interests and encumbrances, duly endorsed for transfer and bearing any necessary
documentary stamps, and such assignments, certificates of authority, tax
releases, consents to transfer by a fiduciary or representative of the Disposing
Shareholder, and any instruments in evidence of the title of the Shareholder and
of the parties' compliance with this Agreement, the federal and state securities
laws, and any other agreements or regulations as may be
SHAREHOLDERS' AGREEMENT 5
recommended by counsel for the Corporation.
SECTION 6.2 METHOD. The manner of payment of the Purchase Price may be,
at the option of the purchaser, either (i) the payment of the entire Purchase
Price, by cash or by certified, bank cashier, or treasurer's check, or (ii) down
payment of twenty percent (20%) of such Purchase Price in cash at closing and
delivery of a promissory note or promissory notes for the balance of the
Purchase Price, in non-negotiable form, to the order of the Disposing
Shareholder or his or her legal representative, pursuant to which the
Corporation agrees to pay the balance in four (4) equal annual installments,
with interest on the unpaid balance at the lesser of (i) the rate of the prime
rate published in THE WALL STREET JOURNAL per annum on the date of the closing
or (ii) the highest non-usurious rate permitted by applicable law, with each
installment of principal and interest payable annually on each anniversary date
of the making of the promissory note, and with the right of the Corporation to
prepay at any time without premium or penalty. The promissory note shall be
secured by the pledge of Stock purchased thereby, with executed security
instruments covering such pledged Stock, unless such pledge arrangement is
waived by the Disposing Shareholder or his or her legal representative, as the
case may be. Notwithstanding anything herein to the contrary, in the event that
the Disposing Shareholder dies, the down payment provided for in clause (ii)
above shall not be less than the proceeds received by the Corporation under the
insurance, if any, described in Article IV.
ARTICLE VII
SUBCHAPTER S PROVISIONS
SECTION 7.1 SUBCHAPTER S REPRESENTATION. Each Shareholder acknowledges
that the Corporation has made a valid election to be treated, for federal and
state income tax purposes, as an S corporation. Each Shareholder shall provide
to the Corporation, immediately upon the Corporation's request, such properly
signed consents or other documents as, in the opinion of the Corporation, may be
necessary or useful to maintain the Corporation's status as an S corporation,
and each Shareholder covenants that he or she will do nothing to interfere with
the Corporation's maintenance of its status as an S corporation.
SECTION 7.2 REVOCATION OF ELECTION. In the event that the Shareholders,
by the affirmative vote of at least eighty percent (80%) of the votes which all
of the Shareholders are entitled to cast, determine to terminate the
Corporation's status as an S corporation, and thereafter each Shareholder is
provided with written notice of such determination, within sixty (60) days after
the delivery of such notice, each Shareholder, if requested, will execute a
consent to such revocation in the form prescribed by the Internal Revenue
Service or the any relevant state tax authority and shall deliver such consent
to the Secretary of the Corporation. If the Corporation's S status is
terminated under this Section 7.2, in the event that the Executive Committee so
determines, the Shareholders and the Corporation shall elect, if applicable, to
have Section 1362(e)(2) of the Code not apply, as provided in Section 1362(e)(3)
of the Code. Any person who was a Shareholder at any time during the S short
year (as defined in Section 1362(e)(1)(A) of the Code) or who is a Shareholder
on the first day of the C short year (as defined in Section 1362(e)(1)(B) of the
Code) shall consent to such election.
SECTION 7.3 INADVERTENT TERMINATION OF SUBCHAPTER S ELECTION. In the
event of a termination of the Corporation's status as an S corporation other
than pursuant to Section 7.2, if the Corporation and the Shareholders remaining
after such termination desire that the Corporation's status as an S corporation
be continued, the Corporation and all Shareholders as of and/or after the
terminating event shall use their best efforts to obtain from the Internal
Revenue Service a waiver of the terminating event on the ground of inadvertency.
The Corporation and the Shareholders shall take such steps, and make such
adjustments, as may be required by the Internal Revenue Service pursuant to
Section 1362(f)(3) and (4) of the Code. If a Shareholder caused the terminating
event to occur, he or she shall bear the expense of procuring the waiver,
including the legal, accounting and tax costs of taking such steps, and of
making such adjustments as may
SHAREHOLDERS' AGREEMENT 6
be required. If the inadvertent termination is not waived by the Internal
Revenue Service and the Corporation's S status is permanently terminated, in
the event that the Executive Committee so determines, the Corporation and the
Shareholders shall make the election under Section 1362(e)(3) of the Code
contemplated by Section 7.2.
SECTION 7.4 PROVISION IN SHAREHOLDER ▇▇▇▇▇. Each Shareholder shall use
his or her best efforts to include in his or her will, a direction and
authorization to his or her executor in substantially the following form:
(i) My Executor is hereby directed and authorized to hold stock of an
S Corporation, as defined in the Code (hereinafter "S STOCK"), to make an
election to have any corporation treated as an S Corporation, to enter into
agreements with other shareholders or with the corporation relating to a
transfer (including, without limitation, a sale, assignment, exchange,
gift, donation, mortgage, hypothecation or other encumbrance or other
disposition) (a "TRANSFER") of S Stock or the management of the S
Corporation, and to allocate amounts received and the tax on undistributed
income between income and principal. During the administration of my
estate, my Executor may allocate the tax deductions and credits arising
from ownership of S Stock between income and principal. In making any such
allocations, my Executor shall consider that the beneficiary is to have
enjoyment of the property at least equal to that ordinarily associated with
an income interest and in all events shall provide the required beneficial
enjoyment to the beneficiary until such time as the S Stock is distributed
to him or her.
(ii) Any beneficiary of my estate who receives stock in an S
Corporation as part of his or her distribution shall, prior to such
distribution, enter into a written agreement with said S Corporation (A) to
consent to any election to qualify the S Corporation as such; (B) to do
nothing to interfere with the S Corporation's maintenance of its status as
such; (C) not to Transfer the S Stock to any transferee who does not agree
to execute a similar consent; (D) not to Transfer the S Stock in such
manner as will cause the S Corporation to lose its status as an S
Corporation under the then applicable federal and state income tax statutes
and regulations; and (E) if S status is inadvertently terminated, to join
in any endeavor to obtain a waiver of the terminating event on the grounds
of inadvertency from the Internal Revenue Service if the S Corporation
desires that the S status should continue.
(iii) Any S Stock distributed to a beneficiary shall bear an
appropriate legend on the stock certificate stating that the Transfer of
the stock is subject to and restricted to the extent set forth in
subparagraph (ii) above.
Notwithstanding the foregoing requirement, the failure of a Shareholder so to
direct his or her executor shall not affect the validity or enforceability of
this Agreement.
SECTION 7.5 DISTRIBUTIONS TO PAY TAX LIABILITIES.
(a) For the period during which the Corporation is an S Corporation
(the "S CORP PERIOD"), the Corporation shall promptly declare and make
distributions during the S Corp Period to all Shareholders in a timely manner to
allow the federal income tax (including, without limitation, estimated tax
payments) attributable to the Corporation's taxable income during the S Corp
Period that is passed through the Corporation to the Shareholders to be paid by
such Shareholders when due (each, a "DUE DATE"). To satisfy this requirement,
during the S Corp Period, the Corporation shall pay on or before five (5) days
prior to each Due Date, an amount so that the cumulative amount of distributions
during the S Corp Period that have been designated by the Corporation as "TAX
DISTRIBUTIONS" are at least equal to the excess of (i) the sum of the products
of (A) the Corporation's positive taxable income (as determined under Section
1366(a) of the
SHAREHOLDERS' AGREEMENT 7
Code) attributed to its Shareholders during each of its taxable periods
during the S Corp Period multiplied by (B) the sum of the highest federal
individual income tax rates in effect for each such taxable period (without
regard to exemptions or phase-outs of lower tax rates, but with consideration
of the character of any item and the deductibility of state taxes for federal
income tax purposes), over (ii) the sum of the products of (A) the
Corporation's negative taxable income (as determined under Section 1366(a) of
the Code) attributable to its Shareholders during each of its taxable periods
during the S Corp Period multiplied by (B) the sum of the highest federal
individual income tax rates in effect for each such taxable period (without
regard to exemptions or phase-outs of lower tax rates, but with consideration
of the character of any item and the deductibility of state taxes for federal
income tax purposes). The Corporation's obligation to declare and make any
such distributions to the Shareholders is subject to the restrictions
governing dividends under the Texas Business Corporation Act and such other
pertinent governmental or contractual restrictions as are now or may
hereafter become effective. If the Corporation does not have sufficient
funds available to permit it lawfully to declare and pay such distributions,
the Shareholders and the Corporation shall take such action, adopt such
resolutions, and cause such certificates and other documents to be filed as
may be necessary to create sufficient funds to permit the making of such
distributions, whereupon the Corporation shall declare and pay such
distributions.
(b) No provision of this Article VII shall cause the total
distributions made with respect to any outstanding shares of stock of the
Corporation to differ from the amounts paid with respect to any other
outstanding shares of stock of the Corporation.
(c) No provision of this Article VII shall be construed to limit the
ability of the Corporation to declare and make additional distributions to
Shareholders out of the assets of the Corporation legally available for such
payment at such time or times as the Executive Committee may determine.
(d) The Corporation's payment of taxes on behalf of any Shareholder
(by means of withholding or otherwise) shall be considered a distribution for
purposes hereof, and the amount of distributions that the Shareholder is
otherwise entitled to hereunder shall be adjusted accordingly consistent with
Regulations Section 1.1361-1(l)(2)(ii).
SECTION 7.6 NONRECOGNITION OF CERTAIN TRANSFERS.
(a) The Corporation will not, nor will it be compelled to, recognize
any Transfer, or issue any certificate representing any Stock to any person who
has not delivered to the Corporation (i) a written undertaking to be bound by
the terms and conditions of this Agreement and, (ii) for so long as the
Corporation's status as an S corporation continues, a written consent to the
treatment of the Corporation as an S corporation. The Corporation will not, nor
will it be compelled to, recognize any Transfer, or issue any certificate
representing any Stock to any person or entity the Transfer to whom or to which
in the opinion of the Corporation's counsel could disqualify the Corporation as
an S corporation or disqualify it from eligibility for such status.
(b) The Corporation will not, nor be compelled to, recognize any
Transfer made other than in accordance with the terms of this Agreement, nor
will it issue any certificate representing the Stock to any person who has
received such Stock in a Transfer made other than in accordance with the terms
of this Agreement.
SHAREHOLDERS' AGREEMENT 8
SECTION 7.7 LEGENDS ON SHARE CERTIFICATES. The following legend shall
be imprinted conspicuously on the face of each certificate representing shares
of Stock:
NOTICE IS HEREBY GIVEN THAT THE TRANSFER (INCLUDING, WITHOUT LIMITATION,
THE SALE, ASSIGNMENT, EXCHANGE, GIFT, DONATION, PLEDGE, MORTGAGE,
HYPOTHECATION OR OTHER ENCUMBRANCE OR OTHER DISPOSITION) OF THE SHARES OF
CAPITAL STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO AND RESTRICTED
BY THE PROVISIONS OF A CERTAIN SHAREHOLDERS' AGREEMENT AMONG THE
CORPORATION AND THE CORPORATION'S SHAREHOLDERS, DATED AS OF OCTOBER 1,
1998, A COPY OF WHICH AGREEMENT MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF
THE CORPORATION, AND ALL OF THE PROVISIONS OF WHICH AGREEMENT ARE
INCORPORATED BY REFERENCE IN THIS CERTIFICATE, SPECIFICALLY INCLUDING BUT
NOT LIMITED TO THOSE PROVISIONS OF THE AGREEMENT RELATING TO THE
CORPORATION'S TAX STATUS AS AN S CORPORATION.
SECTION 7.8 ELECTION TO CLOSE BOOKS. The Corporation, in the event the
Executive Committee so determines, shall consent to close the books of the
Corporation pursuant to Section 1377(a)(2) of the Code whenever a Shareholder
sells all of his or her Stock on a day other than the last day of the
Corporation's fiscal year if all "affected shareholders" (as defined in Section
1377(a)(2)(B) of the Code) shall consent thereto.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 SHAREHOLDER COMPLIANCE AND SPECIFIC PERFORMANCE. The
parties hereto shall not hinder or interfere with, or cause to be interfered
with in any manner whatsoever, the purchase or sale of the shares of Stock of a
deceased or Disposing Shareholder pursuant to this Agreement, or the carrying
out of any of the terms of this Agreement to the prejudice of any Disposing
Shareholder or his or her estate, as the case may be. In the event of the
failure of the Corporation or any Shareholder to comply with the provisions of
this Agreement, this Agreement may be enforced by specific performance upon
application to any court of law or equity of competent jurisdiction.
SECTION 8.2 BINDING EFFECT. This Agreement shall be binding upon the
parties, their heirs, legal representatives, successors and assigns. The
parties hereto and their heirs, legal representatives, successors and assigns
will execute any and all instruments, releases, assignments, and do all other
things required of them or necessary to effectuate the purposes of this
Agreement.
SECTION 8.3 ENTIRETY AND MODIFICATION. This Agreement constitutes the
complete and exclusive agreement between the parties hereto with respect to the
ownership and disposition of their shares of Stock and the other subject matter
hereof.
SECTION 8.4 AMENDMENTS. This Agreement may be amended from time to time
by an instrument in writing signed by all those who are parties to this
Agreement at the time of such amendment, such instrument being designated on its
face as an "Amendment" to this Agreement.
SECTION 8.5 GOVERNING LAW. This Agreement shall be interpreted in
accordance with the laws of the State of Texas.
SHAREHOLDERS' AGREEMENT 9
SECTION 8.6 NOTICES. Whenever by law, the Articles of Incorporation,
the Bylaws, or this Agreement, notice is required to be given to the
Corporation, any director or officer thereof, or any Shareholder, it shall not
be construed to mean personal notice, but any such notice may be given (i) in
writing, by mail, postage prepaid, addressed to such person at its, his or her
address as such appears on the records of the Corporation, or (ii) by any other
method permitted by law (including, but not limited to, in the case of
Directors, by telephone). Any notice required or permitted to be given by mail
shall be deemed to be delivered and given at the time when the same is deposited
in the United States mail as aforesaid.
SECTION 8.7 TERMINATION. This Agreement shall automatically terminate
in the event of a complete disposition of all of the shares of Stock of a
Shareholder, with the result that there survives or exists only one Shareholder
who is a party to this Agreement.
SECTION 8.8 SUBJECT SHARES. The shares of Stock covered by this
Agreement shall include all shares of Stock subsequently acquired by a
Shareholder, whether pursuant to exercise of stock options granted by the
Corporation or one of the Shareholders, or otherwise.
SECTION 8.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each copy of which shall serve as an original for all purposes,
but all copies shall constitute but one and the same Agreement.
SECTION 8.10 SECTION HEADINGS; GENDER. All section headings set forth in
this Agreement are intended for convenience only and shall not control or affect
the meaning, construction or effect of this Agreement or of any of the
provisions thereof. All references in this Agreement to gender shall be
interpreted in the applicable gender of the undersigned.
SECTION 8.11 SEVERABILITY. In the event that a court of competent
jurisdiction shall determine that any provision of this Agreement or the
documents to be delivered hereto is illegal, invalid or unenforceable, such
determination shall not affect the remainder of this Agreement. The remainder
of this Agreement shall continue in full force and effect unless doing so would
clearly be contrary to the intent of the parties as expressed herein.
SECTION 8.12 VENUE. This Agreement shall be executed and performed in
Fort Worth, Texas. In the event that litigation should arise concerning the
validity or interpretation of any provision of this Agreement, venue over such
litigation shall reside in the proper district court of Fort Worth, Texas.
SECTION 8.13 ASSIGNMENT. Neither this Agreement nor any portion hereof
may be assigned by either party hereto without the express written consent of
the other parties hereto.
SECTION 8.14 SHAREHOLDERS' SPOUSES. Each spouse of a Shareholder is
fully aware of, understands, and fully consents and agrees to, the provisions of
this Agreement and its binding effect upon any community property interests such
spouse may now or hereafter own, and agrees that (i) the termination of the
marital relationship with any Shareholder for any reason shall not have the
effect of removing any Stock of the Corporation otherwise subject to this
Agreement from the coverage hereof and (ii) such spouse's awareness,
understanding, consent and agreement are evidenced by such spouse's signing this
Agreement. Each spouse of a Shareholder agrees that if such spouse predeceases
or becomes divorced from the Shareholder to whom such spouse is married and the
Shareholder does not succeed to such spouse's interest in the Stock, the
Shareholder shall purchase all of the spouse's interest in the Stock, pursuant
to the terms set forth in Articles V and VI. This purchase must be completed
within sixty (60) days after such divorce or death. If the Shareholder fails to
purchase the spouse's interest in the Stock within such sixty (60) day period,
such failure shall constitute an Operative Event, and the provisions of Article
III shall apply. Notwithstanding the failure of the Shareholder to purchase the
spouse's interest in the Stock, all of the Stock owned by such Shareholder
SHAREHOLDERS' AGREEMENT 10
or which may become owned by a spouse of a Shareholder shall remain subject to
all of the restrictions contained in this Agreement.
SECTION 8.15 ABSOLUTE AND SOLE DISCRETION. All actions or consents which
any person may take and all determinations which any person may make pursuant to
this Agreement may be taken and made in the sole and absolute discretion of that
person.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE(S) FOLLOWS.
SHAREHOLDERS' AGREEMENT 11
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
CORPORATION:
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE INC,
a Texas corporation
By:
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Name:
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Title:
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[SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT FOR SHAREHOLDERS FOLLOWS.]
SHAREHOLDERS' AGREEMENT
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EXHIBIT A
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EXHIBIT A
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SHAREHOLDERS' AGREEMENT A-2