SHAREHOLDERS’ AGREEMENTS,

BUY/SELL AGREEMENTS, AND VOTING TRUSTS

JOHN R. WILLIFORD

JACKSON WALKER L.L.P.

1100 Louisiana, Suite 4200
Houston, Texas 77002

REPRESENTING START-UPS AND

NEW COMPANIES

Dallas, Texas
September 14-15, 2000

Houston, Texas
September 21-22, 2000
 TABLE OF CONTENTS

I. SCOPE OF OUTLINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-

A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
B. Choice of Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
C. Overview of Outline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-

II. STATUTORY ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-

A. Shareholders Agreements - Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
B. Voting Agreements and Trusts - Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
C. Shareholder Agreements - Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
D. Voting Agreements and Trusts - Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . -10-

III. ANATOMY OF SHAREHOLDERS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . -11-

A. Purpose and Client’s Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
B. How to paper: Articles, Bylaws or Contract? . . . . . . . . . . . . . . . . . . . . . . . . -12-
1. Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2. Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
3. Written Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
C. The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
1. Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2. Buyers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
3. The Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
D. Triggering Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
1. Voluntary transfers for value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
2. Pledges & Foreclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
3. Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
4. Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
5. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
6. Divorce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
7. Incapacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
8. Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
E. Obligation or Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
F. Determining Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
G. Financing Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
H. Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
I. Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-

IV. Anatomy of Voting Agreements and Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-

A. Control Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
B. The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
C. Voting Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
D. Duration, Termination and Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
 E. Remedies for Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-

V. Marital Property Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-

VI. Ethical Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-

VII. Federal Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-

A. C Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
B. S Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-

VIII. The Venture Capital Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-

IX. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-

Appendix A Checklist for Shareholders Agreement A-1

Appendix B Buy-Sell Agreement Employee-Owned Company (Texas) B-1

Appendix C Voting Trust Agreement (Texas) C-1

Appendix D Venture Capital Voting Agreement (Del) D-1

Appendix E Venture Capital Shareholder Agreement (Del) E-1

Appendix F Venture Capital Buy-Sell (Del) F-1

I. SCOPE OF OUTLINE

A. Introduction

This outline focuses on the use of shareholders’ agreements and voting control
agreements in the context of the start-up or venture capital funded company.
Conceptually, shareholder agreements and voting control mechanisms are contractual
modifications of two fundamental principals of the legal business entity: (i) the right
to transfer ownership interests in the entity, and (ii) management control of the entity
proportionate to economic ownership.

As between shareholder agreements (that modify and restrict the right to transfer
ownership) and voting control agreements (that re-arrange voting power
disproportionately to economic ownership), shareholder agreements are more
prevalent and generally requested by business entity owners. In a majority of start-up
businesses, most owners are comfortable with the concept that each owner’s vote is
directly proportionate to the owner’s percentage ownership of the equity in the
enterprise and will seek to structure the equity ownership in a way that results in
majority control through straight voting. On the other hand, in the early stages of
start-up and emerging companies, the tolerance of the owners to allow ownership
participation to be transferred outside of an initial core group is very limited or non-
existent, even insofar as spouses, relatives and fiduciaries are concerned. As a result
of this understandable ostracism of outsiders, the existing owners of the business
entity will desire that the shareholder agreement restrict transfer of stock ownership
in every conceivable fact situation.

B. Choice of Entity

This outline and the accompanying sample agreements focus exclusively on the
business corporation as the selected entity to conduct the business of the start-up
enterprise. In the latter part of the twentieth century, the business law statutes of all
states have undergone major transformations to allow business entity owners wider
ranges of choices: general partnerships, limited partnerships, limited liability
companies, registered limited liability partnerships and statutory close corporations
are all now on the menu. Furthermore, the adoption by the Internal Revenue Service
in 1997 of the “check-the-box” regulations has spurred even greater creativity of
lawyers and accountants in structuring start-up entities and relationships among
entities. To a large degree, however, the concepts and techniques of restricting
transfer of equity ownership retain similar characteristics among all the entities, even
though the semantics and “papering” of the transactions are superficially very
different. For example, an option or obligation of a limited partnership or general
partner to buy out the interest of a limited partner will be cloaked in the verbiage of
partnership law and will likely be documented inside the limited partnership agreement

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 (as opposed to a corporate shareholders agreement, which is more typically a stand-
alone contract). But at its core, the same concepts must be analyzed and then drafted
with particularity: (1) what events trigger the buy-sell transaction; (2) who/what is the
identity of the purchaser; (3) how is price determined; (4) what are the mechanics of
giving notice and closing the transaction; (5) how will the purchase be financed; (6)
what are the remedies in the event of a breach or default; (7) how are the remaining
owners of the entity affected; (8) what are the federal and state tax consequences to
the entity, the selling owner and the remaining owners; (9) how is the agreement to
be modified or terminated under future circumstances; (10) what notice and
information is to be given third parties so that the desired transaction is binding upon
them; and (11) how are disputes to be resolved.

C. Overview of Outline

The principal focus of this outline is to assist the lawyer to spot issues, ask the
appropriate questions of clients and draft, re-draft, and re-draft. This is an area in
which freedom of contract reigns supreme. While the statutory background and case
law background is essential, it is short and readily easily digestible. Most all of the
reported Texas cases interpreting shareholder-type agreements–particularly rights of
first refusal-- would have turned out differently if the disputed issues in the contract
had been identified and drafted with specificity. Consequently, the thrust of this
outline centers on samples of shareholder and voting agreements, rather attempting
an exhaustive analysis of the nuances of statutes and cases.

To assist with basic issue identification, see Appendix A–Checklist for Shareholders
Agreement.

II. STATUTORY ANALYSIS

A. Shareholders Agreements - Texas

There are two Texas Business Corporation Act (TBCA) articles that should be
frequently reviewed in the context of preparing shareholder agreements.

Art. 2.22.Transfer of Shares and Other Securities and Restrictions on Transfer

A. The shares and other securities of a corporation shall be personal property

for all purposes and shall be transferable in accordance with the provisions of Chapter 8 –
Investment Securities – of the Business and Commerce Code, as amended, except as
otherwise provided in this Act.

B. A restriction on the transfer or registration of transfer of a security may be

imposed by the articles of incorporation, or by-laws, or a written agreement among any
number of the holders of such securities, or a written agreement among any number of the
holders and the corporation provided a counterpart of such agreement shall be placed on
file by the corporation at its principal place of business or its registered office and shall be

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subject to the same right of examination by a shareholder of the corporation, in person or
by agent, attorney or accountant, as are the books and records of the corporation. No
restriction so imposed shall be valid with respect to any security issued prior to the adoption
of the restriction unless the holder of the security voted in favor of the restriction or is a
party to the agreement imposing it.

C. Any restriction on the transfer or registration of transfer of a security of a

corporation, if reasonable and noted conspicuously on the certificate or other instrument
representing the security or, in the case of an uncertificated security, if reasonable and if
notation of the restriction is contained in the notice sent pursuant to Section D of Article 2.19
of this Act with respect to the security, shall be specifically enforceable against the holder
of the restricted security or any successor or transferee of the holder. Unless noted
conspicuously on the certificate or other instrument representing the security or, in the case
of an uncertificated security, unless notation of the restriction is contained in the notice sent
pursuant to Section D of Article 2.19 of this Act with respect to the security, a restriction,
even though otherwise enforceable, is ineffective against a transferee for value without
actual knowledge of the restriction at the time of the transfer or against any subsequent
transferee (whether or not for value), but such a restriction shall be specifically enforceable
against any other person who is not a transferee for value from and after the time that the
person acquires actual knowledge of the existence of the restriction.

D. In particular and without limiting the general power granted in Sections B

and C of this Article to impose reasonable restrictions, a restriction on the transfer or
registration of transfer of securities of a corporation shall be valid if it reasonably:

(1) Obligates the holders of the restricted securities to offer to the

corporation or to any other holders of securities of the corporation or to any other person or
to any combination of the foregoing, a prior opportunity, to be exercised within a reasonable
time, to acquire the restricted securities; or

(2) Obligates the corporation to the extent permitted by this Act or any
holder of securities of the corporation or any other person, or any combination of the
foregoing, to purchase the securities which are the subject of an agreement respecting the
purchase and sale of the restricted securities; or

(3) Requires the corporation or the holders of any class of securities

of the corporation to consent to any proposed transfer of the restricted securities or to
approve the proposed transferee of the restricted securities for the purpose of preventing
violations of federal or state laws; or

(4) Prohibits the transfer of the restricted securities to designated

persons or classes of persons, and such designation is not manifestly unreasonable; or

(5) Maintains the status of the corporation as an electing small

business corporation under Subchapter S of the United States Internal Revenue Code,
maintains any other tax advantage to the corporation, or maintains the status of the
corporation as a close corporation under Part Twelve of this Act.

E. A corporation that has adopted a bylaw, or is a party to an agreement,

restricting the transfer of its shares or other securities may file such bylaw or agreement as
a matter of public record with the Secretary of State, as follows:

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 (1) The corporation shall file a copy of the bylaw or agreement in the
office of the Secretary of State together with an attached statement setting forth:

(a) the name of the corporation;

(b) that the copy of the bylaw or agreement is a true and

correct copy of the same; and

(c) that such filing has been duly authorized by the board of
directors or, in the case of a close corporation that, in conformance with Part Twelve of this
Act, is managed in some other manner pursuant to a shareholders' agreement, by the
shareholders or by the persons empowered by the agreement to manage its business and
affairs.

(2) Such statement shall be executed on behalf of the corporation by

an officer. The original and a copy of the statement shall be delivered to the Secretary of
State with copies of such bylaw or agreement restricting the transfer of shares or other
securities attached thereto. If the Secretary of State finds that such statement conforms to
law and the appropriate filing fee has been paid as prescribed by law, he shall:

(a) endorse on the original and the copy the word "Filed", and
the month, day, and year of the filing thereof;

(b) file the original in his office; and

(c) return the copy to the corporation or its representative.

(3) After the filing of such statement by the Secretary of State, the
bylaw or agreement restricting the transfer of shares or other securities shall become a
matter of public record and the fact of such filing shall be stated on any certificate
representing the shares or other securities so restricted if required by Section G, Article
2.19, of this Act.

F. A corporation that is a party to an agreement restricting the transfer of its

shares or other securities may make such agreement part of its articles of incorporation
without restating the provisions of such agreement therein by complying with the provisions
of Part Four of this Act for amendment of the articles of incorporation. If such agreement
shall alter any provision of the original or amended articles of incorporation, the articles of
amendment shall identify by reference or description the altered provision. If such
agreement is to be an addition to the original or amended articles of incorporation, the
articles of amendment shall state that fact. The articles of amendment shall have attached
thereto a copy of the agreement restricting the transfer of shares or other securities, and
shall state that the attached copy of such agreement is a true and correct copy of the same
and that its inclusion as part of the articles of incorporation has been duly authorized in the
manner required by this Act to amend the articles of incorporation.

G. When shares are registered on the books of a corporation in the names of

two or more persons as joint owners with the right of survivorship, after the death of a joint
owner and before the time that the corporation receives actual written notice that parties
other than the surviving joint owner or owners claim an interest in the shares or any
distributions thereon, the corporation may record on its books and otherwise effect the
transfer of those shares to any person, firm, or corporation (including that surviving joint
owner individually) and pay any distributions made in respect of those shares, in each case

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as if the surviving joint owner or owners were the absolute owners of the shares. A
corporation permitting such a transfer by and making any distribution to such a surviving
joint owner or owners before the receipt of written notice from other parties claiming an
interest in those shares or distributions is discharged from all liability for the transfer or
payment so made; provided, however, that the discharge of the corporation from liability
and the transfer of full legal and equitable title of the shares in no way affects, reduces, or
limits any cause of action existing in favor of any owner of an interest in those shares or
distributions against the surviving owner or owners.

The second important Texas statute was recently added to the TBCA in 1997:

Art. 2-30-1. Shareholder Agreements

A. Scope of Agreement. An agreement among the shareholders of a

corporation that complies with this article is effective among the shareholders and the
corporation even though it is inconsistent with one or more provisions of this Act in that it:

(1) restricts the discretion or powers of the board of directors;

(2) eliminates the board of directors and permits management of the

business and affairs of the corporation by its shareholders, or in whole or in part by one or
more of its shareholders, or by one or more persons not shareholders;

(3) establishes the natural persons who shall be the directors or officers
of the corporation, their term of office or manner of selection or removal, or terms or
conditions of employment of any director, officer, or other employee of the corporation,
regardless of the length of employment;

(4) governs the authorization or making of distributions whether in

proportion to ownership of shares, subject to the limitations in Article 2.38 of this Act, or
determines the manner in which profits and losses shall be apportioned;

(5) governs, in general or in regard to specific matters, the exercise or

division of voting power by and between the shareholders, directors (if any), or other
persons or by or among any of them, including use of disproportionate voting rights or
director proxies;

(6) establishes the terms and conditions of any agreement for the
transfer or use of property or the provision of services between the corporation and any
shareholder, director, officer, or employee of the corporation, or other person or among any
of them;

(7) authorizes arbitration or grants authority to any shareholder or other

person as to any issue about which there is a deadlock among the directors, shareholders,
or other person or persons empowered to manage the corporation to resolve that issue;

(8) requires dissolution of the corporation at the request of one or more

of the shareholders or on the occurrence of a specified event or contingency, in which case
the dissolution of the corporation shall proceed as if all the shareholders had consented in
writing to dissolution of the corporation as provided in Article 6.02 of this Act; or

(9) otherwise governs the exercise of corporate powers, the

management of the business and affairs of the corporation, or the relationship among the

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shareholders, the directors, and the corporation, or among any of them, as if the corporation
were a partnership or in a manner that would otherwise be appropriate only among partners,
and is not contrary to public policy.

B. Procedures Required. An agreement authorized by this article shall be:

(1) set forth (a) in the articles of incorporation or bylaws and approved
by all persons who are shareholders at the time of the agreement,
or (b) in a written agreement that is signed by all the persons who
are shareholders at the time of the agreement and is made known
to the corporation;

(2) subject to amendment only by all persons who are shareholders at

the time of the amendment, unless the agreement provides
otherwise; and

(3) valid for 10 years, unless the agreement provides otherwise.

C. Notation of Existence. The existence of an agreement authorized by this

article shall be noted conspicuously on the front or back of each certificate for outstanding
shares or on the information statement required for uncertificated shares by Article 2.19 of
this Act and shall include the following: "These shares are subject to the provisions of a
shareholders' agreement that may provide for management of the corporation in a manner
different than in other corporations and may subject a shareholder to certain obligations or
liabilities not otherwise imposed on shareholders in other corporations." If at the time of the
agreement the corporation has shares outstanding represented by certificates, the
corporation shall recall the outstanding certificates and issue substitute certificates that
comply with this section. The failure to note the existence of the agreement on the
certificate or information statement shall not affect the validity of the agreement or any
action taken pursuant to it.

D. Right of Rescission. Any purchaser of shares who, at the time of purchase,

did not have knowledge of the existence of an agreement authorized by this article shall be
entitled to rescission of the purchase. A purchaser shall be deemed to have knowledge of
the existence of the agreement if its existence is noted on the certificate or information
statement for the shares in compliance with Section C of this article and, if the shares are
not represented by a certificate, the information statement noting existence of the
agreement is delivered to the purchaser at or prior to the time of purchase of the shares. An
action to enforce the right of rescission authorized by this section must be commenced
within the earlier of 90 days after discovery of the existence of the agreement or two years
after time of the purchase of the shares.

E. Cessation. An agreement authorized by this article shall cease to be

effective when shares of the corporation are listed on a national securities exchange, quoted
on an interdealer quotation system of a national securities association, or regularly traded
in a market maintained by one or more members of a national or affiliated securities
association. If the agreement ceases to be effective for any reason and the corporation does
not have a board of directors, governance by a board of directors shall be instituted or
reinstated in the manner provided in Section C, Article 12.23, of this Act. If the agreement
is contained or referred to in the corporation's articles of incorporation or bylaws, the board
of directors may adopt an amendment to the articles of incorporation or bylaws, without
shareholder action, to delete the agreement and any references to it.

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 F. Managerial Liabilities. An agreement authorized by this article that limits the
discretion or powers of the board of directors or supplants the board of directors shall relieve
the directors of, and impose on the person or persons in whom such discretion or powers
or management of the business and affairs of the corporation are vested, liability for action
or omissions imposed by this Act or other law on directors to the extent that the discretion
or powers of the directors are limited or supplanted by the agreement.

G. Limitation of Liability. The existence or performance of an agreement

authorized by this article shall not be grounds for imposing personal liability on any
shareholder for the acts or obligations of the corporation by disregarding the separate entity
of the corporation or otherwise, even if the agreement or its performance:

(1) treats the corporation as if it were a partnership or in a manner that

otherwise is appropriate only among partners;

(2) results in the corporation being considered a partnership for

purposes of taxation; or

(3) results in failure to observe the corporate formalities otherwise

applicable to the matters governed by the agreement.

H. If No Shares Issued. Incorporators or subscribers for the shares may act as

shareholders with respect to an agreement authorized by this article if no shares have been
issued when the agreement is signed. Added by Acts 1997, 75th Leg., ch. 375, § 10, eff.
Sept. 1, 199

B. Voting Agreements and Trusts - Texas

An attorney preparing a voting trust or voting agreement for a Texas

corporation should first consult TBCA art. 2.30:

Art. 2.30. Voting Trusts and Voting Agreements

A. Any number of shareholders of a corporation may enter into a written voting

trust agreement for the purpose of conferring upon a trustee or trustees the right to vote or
otherwise represent shares of the corporation. The shares that are to be subject to the
agreement shall be transferred to the trustee or trustees for purposes of the agreement, and
a counterpart of the agreement shall be deposited with the corporation at its principal place
of business or registered office. The counterpart of the voting trust agreement so deposited
with the corporation shall be subject to the same right of examination by a shareholder of
the corporation, in person or by agent or attorney, as are the books and records of the
corporation, and shall be subject to examination by any holder of a beneficial interest in the
voting trust, either in person or by agent or attorney, at any reasonable time for any proper
purpose.

B. Any number of shareholders of a corporation, or any number of

shareholders of a corporation and the corporation itself, may enter into a written voting
agreement for the purpose of providing that shares of the corporation shall be voted in the
manner prescribed in the agreement. A counterpart of the agreement shall be deposited
with the corporation at its principal place of business or registered office and shall be subject
to the same right of examination by a shareholder of the corporation, in person or by agent
or attorney, as are the books and records of the corporation. The agreement, if noted

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conspicuously on the certificate representing the shares that are subject to the agreement
or, in the ease of uncertificated shares, if notation of the agreement is contained in the
notice sent pursuant to Section D of Article 2.19 of this Act with respect to the shares that
are subject to the agreement, shall be specifically enforceable against the holder of those
shares or any successor or transferee of the holder. Unless noted conspicuously on the
certificate representing the shares that are subject to the agreement or, in the case of
uncertificated shares, unless notation of the agreement is contained in the notice sent
pursuant to Section D of Article 2.19 of this Act with respect to the shares that are subject
to the agreement, the agreement, even though otherwise enforceable, is ineffective against
a transferee for value without actual knowledge of the existence of the agreement at the
time of the transfer or against any subsequent transferee (whether or not for value), but the
agreement shall be specifically enforceable against any other person who is not a transferee
for value from and after the time that the person acquires actual knowledge of the existence
of the agreement. A voting agreement entered into pursuant to this Section B is not subject
to the provisions of Section A of this Article.

C. Shareholder Agreements - Delaware

The relevant Delaware statute governing shareholder agreements is Delaware General

Corporation Law (DGCL) Section 202:
§ 202. Restrictions on transfer and ownership of securities.

(a) A written restriction or restrictions on the transfer or registration of

transfer of a security of a corporation, or on the amount of the corporation's securities that
may be owned by any person or group of persons, if permitted by this section and noted
conspicuously on the certificate or certificates representing the security or securities so
restricted or, in the case of uncertificated shares, contained in the notice or notices sent
pursuant to §151(f) of this title, may be enforced against the holder of the restricted security
or securities or any successor or transferee of the holder including an executor,
administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the
person or estate of the holder. Unless noted conspicuously on the certificate or certificates
representing the security or securities so restricted or, in the case of uncertificated shares,
contained in the notice or notices sent pursuant to § 151(f) of this title, a restriction, even
though permitted by this section, is ineffective except against a person with actual
knowledge of the restriction.

(b) A restriction on the transfer or registration of transfer of securities of a

corporation, or on the amount of a corporation's securities that may be owned by any person
or group of persons, may be imposed by the certificate of incorporation or by the bylaws or
by an agreement among any number of security holders or among such holders and the
corporation. No restrictions so imposed shall be binding with respect to securities issued
prior to the adoption of the restriction unless the holders of the securities are parties to an
agreement or voted in favor of the restriction.

(c) A restriction on the transfer or registration of transfer of securities of a

corporation or on the amount of such securities that may be owned by any person or group
of persons is permitted by this section if it: (1) Obligates the holder of the restricted
securities to offer to the corporation or to any other holders of securities of the corporation
or to any other person or to any combination of the foregoing, a prior opportunity, to be
exercised within a reasonable time, to acquire the restricted securities; or (2) Obligates the

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corporation or any holder of securities of the corporation or any other person or any
combination of the foregoing, to purchase the securities which are the subject of an
agreement respecting the purchase and sale of the restricted securities; or (3) Requires the
corporation or the holders of any class or series of securities of the corporation to consent
to any proposed transfer of the restricted securities or to approve the proposed transferee
of the restricted securities, or to approve the amount of securities of the corporation that
may be owned by any person or group of persons; or (4) Obligates the holder of the
restricted securities to sell or transfer an amount of restricted securities to the corporation
or to any other holders of securities of the corporation or to any other person or to any
combination of the foregoing, or causes or results in the automatic sale or transfer of an
amount of restricted securities to the corporation or to any other holders of securities of the
corporation or to any other person or to any combination of the foregoing; or (5) Prohibits
or restricts the transfer of the restricted securities to, or the ownership of restricted securities
by, designated persons or classes of persons or groups of persons, and such designation
is not manifestly unreasonable.

(d) Any restriction on the transfer or the registration of transfer of the

securities of a corporation, or on the amount of securities of a corporation that may be
owned by a person or group of persons, for any of the following purposes shall be
conclusively presumed to be for a reasonable purpose: (1) Maintaining any local, state,
federal or foreign tax advantage to the corporation or its stockholders, including without
limitation: a. Maintaining the corporation's status as an electing small business corporation
under subchapter S of the United States Internal Revenue Code [26 U.S.C. § 1371 et seq.],
or b. Maintaining or preserving any tax attribute (including without limitation net operating
losses), or c. Qualifying or maintaining the qualification of the corporation as a real estate
investment trust pursuant to the United States Internal Revenue Code or regulations
adopted pursuant to the United States Internal Revenue Code, or (2) Maintaining any
statutory or regulatory advantage or complying with any statutory or regulatory requirements
under applicable local, state, federal or foreign law.

(e) Any other lawful restriction on transfer or registration of transfer of

securities, or on the amount of securities that may be owned by any person or group of
persons, is permitted by this section. (8 Del. C. 1953, § 202; 56 Del. Laws, c. 50; 56 Del.
Laws, c. 186, § 11; 64 Del. Laws, c. 112, §§ 19, 20; 72 Del. Laws, c. 123, § 4.) The
Delaware statute cited above is akin to Texas’ TBCA art. 2.22, although the Texas
counterpart is more detailed as to the requirements of legending and providing opportunity
for notice of the existence of the restrictive agreement to potential transferees.

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 D. Voting Agreements and Trusts - Delaware

The relevant Delaware corporation voting control statute is:

§ 218. Voting trusts and other voting agreements.

(a) One stockholder or 2 or more stockholders may by agreement in writing

deposit capital stock of an original issue with or transfer capital stock to any person or
persons, or corporation or corporations authorized to act as trustee, for the purpose of
vesting in such person or persons, corporation or corporations, who may be designated
voting trustee, or voting trustees, the right to vote thereon for any period of time determined
by such agreement, upon the terms and conditions stated in such agreement. The
agreement may contain any other lawful provisions not inconsistent with such purpose. After
the filing of a copy of the agreement in the registered office of the corporation in this State,
which copy shall be open to the inspection of any stockholder of the corporation or any
beneficiary of the trust under the agreement daily during business hours, certificates of stock
or uncertificated stock shall be issued to the voting trustee or trustees to represent any stock
of an original issue so deposited with such voting trustee or trustees, and any certificates
of stock or uncertificated stock so transferred to the voting trustee or trustees shall be
surrendered and cancelled and new certificates or uncertificated stock shall be issued
therefore to the voting trustee or trustees. In the certificate so issued, if any, it shall be
stated that it is issued pursuant to such agreement, and that fact shall also be stated in the
stock ledger of the corporation. The voting trustee or trustees may vote the stock so issued
or transferred during the period specified in the agreement. Stock standing in the name of
the voting trustee or trustees may be voted either in person or by proxy, and in voting the
stock, the voting trustee or trustees shall incur no responsibility as stockholder, trustee or
otherwise, except for their own individual malfeasance. In any case where 2 or more
persons are designated as voting trustees, and the right and method of voting any stock
standing in their names at any meeting of the corporation are not fixed by the agreement
appointing the trustees, the right to vote the stock and the manner of voting it at the meeting
shall be determined by a majority of the trustees, or if they be equally divided as to the right
and manner of voting the stock in any particular case, the vote of the stock in such case
shall be divided equally among the trustees.

(b) Any amendment to a voting trust agreement shall be made by a written

agreement, a copy of which shall be filed in the registered office of the corporation in this
State.

(c) An agreement between 2 or more stockholders, if in writing and signed

by the parties thereto, may provide that in exercising any voting rights, the shares held by
them shall be voted as provided by the agreement, or as the parties may agree, or as
determined in accordance with a procedure agreed upon by them.

(d) This section shall not be deemed to invalidate any voting or other
agreement among stockholders or any irrevocable proxy which is not otherwise illegal. (8
Del. C. 1953, § 218; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, § 13; 57 Del. Laws, c. 148,
§ 14; 63 Del. Laws, c. 25, § 8; 64 Del. Laws, c. 112, § 22; 69 Del. Laws, c. 263, §§ 1-6; 70
Del. Laws, c. 186, § 1; 71 Del. Laws, c. 339, § 38.)

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III. ANATOMY OF SHAREHOLDERS AGREEMENT

A. Purpose and Client’s Objectives

The starting and ending point for consulting the clients about shareholders agreements
is this: In the absence of written provisions, all shares of stock of the business
enterprise are freely transferable. Furthermore, Texas courts have consistently
construed stock transfer restrictions narrowly and require that specific situations be
covered explicitly by the restriction. See e.g., Consolidated Bearing and Supply Co
v First National Bank at Lubbock, 720 S.W.2d 647 (Tex. Civ. App.–Amarillo 1986);
Earthman’s, Inc. v Earthman, 526 S.W.2d 192 (Tex. Civ. App.–Houston [1st Dist.]
1972); Coleman v. Kettering, 289 S.W.2d 953 (Tex. Civ. App.–Galveston 1956). As
a practical matter, there will be little to no market, public or private, for stock of
closely held companies, but there is always the theoretical possibility of a sale. The
more likely client concerns about ownership changes will emanate from the major
changes that occur in life: death, divorce, insolvency and job changes.

This author’s experience has been that no shareholder group is the same and that,
after careful questioning, every shareholder group’s objectives are different, or at least
execution of the objectives is different. Among possible shareholder objectives to be
considered are:

• Restricting ownership exclusively to employees

• Restricting ownership exclusively to family members

• To provide liquidity for corporate value in certain circumstances such as

death, disability or divorce.

• To keep core management in place until value can be maximized with an

acquisition or public offering.

• To provide for dividends and other distributions.

• To preserve tax elections and status.

• To maintain proportionate ownership and/or voting control.

Thorough client counseling will eventually elicit those objectives and goals that are
most important to the shareholder group. Careful and thorough drafting of the goals
and provisions for contingencies will, in most cases, require precision writing.

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B. How to paper: Articles, Bylaws or Contract?

Art. 2.22B of the TBCA states that a restriction on transfer of a security may be
imposed by the articles of incorporation, bylaws, or a written agreement. There are
pros and cons of using these media to arrive at the ultimate shareholders agreement,
but, in the opinion of this author, the written agreement is the preferred technique.

1. Articles of Incorporation

• On file for public scrutiny

• Requires formalities and fees to amend

• Unclear as to binding effect on transferees

• Less likely to be enforced in family situations such as divorce

2. Bylaws

• Unclear as to binding effect on transferees

• Less likely to be enforced in certain family situations such as divorce.

3. Written Agreement

• Clear as to who the parties are and who assented to the provisions of
the Agreement

• For courtroom purposes, the written agreement has the appearance of

consensual contract that the average juror understands as binding on
a signatory

• The notion of restrictions coming from some unfamiliar instrument

such as Articles of Incorporation and Bylaws is more likely to be alien
to the average juror

• Complies with Family Code requirements

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C. The Parties

1. Sellers

The selection of the selling holder would seemingly be a simple task: Identify
the circumstance and name the shareholder subject to the circumstance. e.g.,
a “shareholder whose employment with the Company has terminated for any
reason... .” However, there exists certain beneficiary interests or fiduciary
interests in stock that the draftsman should be careful to bind along with the
interest of the more readily recognized shareholder.

• Spouses’s community property interests, in both death and divorce

• Executors, administrators and guardians

• Beneficiaries of trusts and estates

• Transferees who may not have yet signed an agreement

2. Buyers

The buy-sell agreement should specify the identity of the buyer or groups of
buyers. In most cases, the parties will desire to use the corporation as the
initial purchasing vehicle, although there is no legal reason why the
corporation must be a named purchaser. The reason for common selection of
the corporation is that, assuming a rational economic valuation of a
shareholder’s interest in the company, the other shareholders will perceive that
their relative ownership interest in the enterprise will remain proportionately
the same without any adverse liquidity or tax effects on their personal financial
situations.

Although the corporation is universally used as a purchaser in buy-sell

agreements, there are several caveats to be aware of:

• Can the corporation lawfully repurchase its shares?

• Will the burden of the purchase economically cripple the company?

• Is the corporation able to provide liquidity for a cash buy-out or will

it need time to generate earnings and cash?

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 • If the seller accepts a deferred payout for his or her stockholder’s
interest, how is the seller protected against the risk of a financial
downturn of the corporation’s fortunes?

• Does the purchase place the board of directors in jeopardy to other

creditors?
•
The preparer of the corporate buy-sell agreement should anticipate that the
corporation may be legally or financially incapable of purchasing its own stock.
Texas, Delaware and all U.S. jurisdictions’ corporate laws prohibit the purchase of
its stock by a corporation if the corporation does not have sufficient net worth in
excess of its capital to make the purchase or the purchase would render the
corporation insolvent. TBCA art. 2.38; DGCL § 160. While there are techniques of
reducing capital and\or revaluing assets to allow for stock repurchases, the insolvency
limit is ultimately to be reckoned with, and directors are potentially liable to the
corporation and its creditors for stock purchases by the corporation in violation of the
statutes. TBCA art. 2.41; DGCL § 172. Accordingly, it is recommended that all
obligations of a corporation to purchase shares of its own securities be qualified by
a statement to the effect that: “The Corporation shall not be required to exercise any
option with respect to, or close any purchase of any shares of its stock, pursuant to
this Agreement if the result of such transaction would be unlawful under, prohibited
by, or cause potential liability to the directors of the Corporation pursuant to, the
Texas Business Corporation Act, the Corporation’s Articles of Incorporation or
Bylaws, or other provision of law.”

In the event the corporation is unable to purchase the stock, the customary next step
is to name the remaining shareholders as the purchasers, usually pro rata in respect
of the remaining number of shares that they own as a group. Of course, there always
exists the possibility one or more of the remaining shareholders groups will either not
want to or cannot financially afford to be a purchaser. Two possible alternatives to
this situation are to provide that the other remaining shareholders may purchase more
than their pro rata shares until the purchase order is completely filled or to allow the
remaining shareholders to assign their rights or obligations to purchase to third
parties. Thought should be given to whether or not remaining shareholders have
options or obligations to purchase, and if the rights are obligatory, whether the
remaining shareholders are jointly and severally liable to the seller. It is quite
conceivable that a start up company could grow so quickly in value but be without
earnings or liquidity (such as the fabled dot-coms) that a poorly thought-out buy-sell
agreement could result in an otherwise valuable and passive investment turning into
financial ruin or bankruptcy for the named purchasers under a buy-sell agreement.

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 3. The Corporation

If the corporation is not a named buyer in the buy-sell agreement, should it

still be a party to the agreement? The above cited statues in Delaware and
Texas clearly do not require the joinder of the corporation in order to have a
valid agreement. However, sound practice dictates that the corporation
should always be a party to the shareholders agreement, if feasible, and that
its joinder to the agreement should be duly authorized and executed by proper
board and officer actions. The principal reason is that the corporation or its
transfer agent is the gatekeeper of whether stock certificates can be
transferred or not, and if the parties desire to maximize the likelihood of
enforcement of the agreement, they will want the corporation to be a party
such that it can be named in a legal proceeding to prevent or redress a transfer
of stock in violation of the agreement. As also discussed under the heading
“Ethical Considerations,” the attorney should consider having the parties sign
an engagement letter acknowledging that the corporation (as a party to the
agreement) is the sole client of the attorney.

D. Triggering Events

1. Voluntary transfers for value

The concern that a shareholder of a close corporation will sell to an outsider

is the most ubiquitous legal anxiety for a the start-up company. In most cases,
the founding shareholders of a start-up will have coalesced into a new
business enterprise with a commonality of financial goals, career interests, and
personality fits, and will fear an intruder disrupting the synergies of their
group. This fear is the most typically covered circumstance in buy-sells, and
it is not uncommon to see the “right of first refusal” used as the technique to
prevent the undesired transfer.

Rights of first refusal, in the author’s opinion, do not get the job done. For
the most part, they are intended to stifle any possible liquidity for a company’s
stock by building procedural hurdles to a purchaser ever taking title to a
would-be seller’s shares, and at the same time do not provide the seller with
any alternative for liquidating his or her investment. In addition, rights of first
refusal are only applicable in situations where a shareholder has been fortunate
enough to find a buyer at what the seller deems a decent price, and do not
cover deaths, employment termination, divorce, foreclosures and other
situations. Efforts to stretch rights of first refusal to cover these other
situations have not been successful in the courts. See “The Rights of First
Refusal in Involuntary Sales and Transfers by Operation of Law”, 48 Baylor
L. Rev. 1197 (1996). Rights of first refusal seemingly avoid one of the

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 stickiest issues in shareholder agreements–price–by setting price per share
based on the offer of the third party. Despite an agreement’s requirements
that the offers must be bona fide, there is no realistic way for the other
shareholders to police collusion between a seller and third-party buyer setting
an unrealistically high price.

Rather than run the risk of an outsider becoming part of the initial closely-
held corporate ownership group (and also the risk of a disgruntled initial
founder remaining in the group), a firm obligation or option on the part of the
corporation and\or other shareholders to buy the selling shareholder’s stock
is the most effective means to assure that the stock is not transferred and that
the group is restricted to compatible investors.

2. Pledges & Foreclosures

Pledges and foreclosures are usually prohibited without the consent of the
other shareholders or the corporation, and any attempted use of the
company’s stock as collateral will trigger obligations or options to purchase
under the buy-sell agreement. However, where a start-up has been successful
in building value and has the ability to sustain commercial lending
relationships, the consent to pledges of stock with a put by the lender against
the corporation and\or other shareholders on default is a tax efficient method
for investors to realize on the build-up in value in the company.

3. Gifts

Gifts are usually prohibited without consent, and attempts at gifting in

violation of the agreement will trigger obligations or options to purchase
under the buy-sell agreement. In cases where individual shareholders may
have estate tax considerations, thought should be given to allowing gifts to be
made but with the buy-sell agreement attaching to the donee’s shares.

4. Death

Shareholder deaths usually trigger obligations of the corporation to purchase

the deceased shareholder’s entire stock interest, particularly where the
shareholder is a key employee. Most shareholders will desire that their
families realize on the value of the investment in the closely-held company,
and the remaining shareholders probably will not want to have to deal with the
decedent’s family as investors. Furthermore, both purchase price and liquidity
for the deceased shareholder’s stock can be tied to and funded by key man
insurance purchased by the corporation. An often overlooked triggering event
is the death of the shareholder’s spouse: remember that in a community

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 property state, such as Texas, the spouse’s community interest in the
corporation’s stock doesn’t necessarily pass to the surviving spouse.

5. Bankruptcy

Bankruptcy or insolvency typically triggers obligations or options of the

corporation or other shareholders to repurchase all shares owned by the
financially troubled shareholder. The carefully drawn agreement should make
clear that it is effective as against trustees and receivers in bankruptcy.
Shareholders often want to “low-ball” a bankruptcy trustee by setting a
severely lower price for the stock in the bankruptcy triggering event as
contracted to other triggering situations. This is not advisable, and may give
the bankruptcy trustee the power to avoid the buy-sell agreement altogether
as an ipso facto provision.

6. Divorce

Of all the triggering events, divorce is probably the most commonly

encountered event in shareholder agreements. Not only do divorces occur in
more than 40% of all marriages, the entrepreneurial personality, heavily
involved in the startup business, is probably more inclined than the average
person to marital upheavals. A thorough shareholders agreement will not only
relieve the divorcing shareholder from some of the burdens and uncertainty
that a divorce can entail, but can also protect the other shareholder\investors
from the instability of a co-worker or co-investor undergoing the divorce.

One of the primary salutary effects the shareholders agreement can have is to
set a reasonable value on the shares of stock that are part of the community
estate. In the absence of a buy-sell formula or price, the valuation of a
closely-held company is subject to all ranges of experts’ opinions, which may
not match the economic reality of any party to pay. Reasonable evaluation
methods or formulas, if applied evenly and equally to all shareholders and
spouses who are parties to the agreement, should be enforceable. On the
other hand, a valuation or stock price only applicable in divorce situations and
manifestly less than the real value of the shares is apt to be set aside by the
equitable powers of the family court.

The shareholders agreement will usually grant the divorcing shareholder an

option to purchase his spouse’s interest (or if carefully drafted, will specify
that the shareholder may substitute other community and separate assets in
lieu of paying cash for the spouse’s interest). If the divorcing shareholder fails
to exercise the option, then the option will usually flip over to be exercised by
the corporation and\or other shareholders. If there are no exercisers of the

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 option, the spouse may ultimately end up as a shareholder of the company.
Careful thought should be given before structuring the divorcing shareholder’s
buy-out right as an obligation: if the value of the stock is the marriage’s most
significant asset, the divorcing shareholder could find that the division of
marital property leaves him or her with no other assets (including retirement
plan assets) or in debt to the spouse.

7. Incapacity

Incapacity is a triggering event in cases where the shareholder is a key

employees and is no longer able to contribute his or her efforts to the growth
of the enterprise. The triggering event is usually phrased in terms of a
consecutive number of days or days in a year of permanent disability that
matches the kick-in of the company’s long-term disability policy. As an aside,
while many shareholders are keenly aware of purchasing key-man life
insurance (and agents are keenly eager to sell it), disabling events tend to be
overlooked and underfunded.

8. Termination of Employment

Closely-held corporations in which all shareholders are also employees are

essentially viewed as partnerships by the owners. Cessation of employment
is usually perceived as an absolute and unconditional reason for terminating
the shareholder’s investment and returning the capital ownership exclusively
to the employees. In such cases, the corporation and\or other shareholders
will desire obligations or options to purchase all the ex-
employee\shareholder’s stock. In addition to strong feelings that non-
employees should not participate in the investment value of the ongoing
company, the remaining shareholder-employees will be concerned about the
departed employee will have access to financial and confidential information
as a shareholder and the possibility of access to that information by a
competitor. In such situations, the scrivener of the shareholders agreement
should take care to assure that the triggering event is the termination of
employment for any cause whatsoever, even going so far as to state that if the
termination is for any reason unlawful or actionable under any statute, law or
rule, that the option or obligation under the buy-sell is nonetheless triggered.
See Appendix B - Buy-Sell Agreement Employee-Owned Company (Texas).

E. Obligation or Option

When counseling the founders of a start-up company, the lawyer should carefully
distinguish those situations under which the corporation and\or other shareholders are
obligated to purchase and those situations where there is an option to purchase.

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 Obligations should be thoroughly thought out, because they will impose financial
liability on the parties named as purchasers. It is not inconceivable that an obligatory
buy-sell arrangement, especially where there is a rapid build-up of value under the
pricing mechanism, will result in the financial ruin of the corporation, the insolvency
of one or more shareholders, or a heavy debt burden that snuffs out all the
entrepreneurial incentive for the remaining shareholders.

When in doubt, structure the purchase as an option and provide for assignabilty of the
option by the remaining shareholder group or the board of directors to a third party
if they are unable to finance the exercise. At the end of the day, the worst case under
an option structure is that the options go unexercised and the other shareholders are
left with an undesirable co-investor. But that is far better than being stuck with an
unaffordable purchase price if you are not the shareholder getting out.

In this regard, be wary of granting “puts” to shareholders. Puts are options to sell,
but create obligations of the buyer to purchase. If you are representing the company
and a shareholder requests a put of his or her stock, one alternative is to suggest that
the sole remedy of the putting shareholder is removal of the transfer restrictions on
the stock if the purchaser(s) fail to honor the put.

Another creative use of options is the “evergreen” option. This involves a simple
shareholder agreement where all shares are subject to an option at any time on the
part of the corporation or a control group of shareholders to purchase one or more
designated shareholders stock, for whatever reason, after giving notice. The option
is deemed “evergreen” because the agreement provides that it attaches to all shares
of stock transferred voluntarily, involuntarily or by operation of law, by the designated
shareholder. This feature provides the corporation or control group with the
flexibility of timing the exercise of the option at a time when stock valuations or
liquidity bests suits the purchaser, and is not dependent on specific triggering events.

F. Determining Price

For the start-up company, defining the buyout price is often the most perplexing task
and one in which it is also difficult to obtain the focus of the initial shareholders in
structuring a buy-sell agreement. The desire to buy out departing shareholders
cheaply competes with the selfish desire to be enriched if you are the departed.

At the outset of a new business, it is difficult to forecast revenues and earnings,

consequently many shareholders will opt for a net book value or balance sheet
determined purchase price as a means of achieving fundamental fairness and not
burdening the corporation or shareholders with an excessive buyout price. However,
as the business matures and if it generates profits, a net worth type determination will
eventually bear no rational relationship to the true economic value of the enterprise

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 and will run the risk of losing the consensus support of a majority of shareholders and
even risking enforceability in the courts if the pricing mechanism produces an absurd
result. Consequently, it is best to factor in some amount of flexibility in setting
purchase price, including giving thought to provisions such that the entire agreement
sunsets every 12 or 24 months if some percentage of the affected shareholders cannot
agree on a new valuation methodology.

The types of pricing mechanisms are limited only by the imagination of investors,
accountants and lawyers, but a few of the most common are noted below:

• Fixed dollar price

• Fixed dollar price increased by interest rate or inflation factor

• Balance sheet determined price (GAAP accounting)

• Balance sheet determined price (tax accounting)

• Addition of goodwill factor to balance sheet price

• Appraisal by expert

• Amount of bona fide offer made by third party

• Set annually by board of directors or shareholders based on objective factors

• Formula based upon capitalization of earnings

• Formula based upon EBITDA

• Formula where employee-shareholder compensation is added back to earnings

• Appraisal of key assets held by company, such as real estate or oil and gas
interests

G. Financing Payment

If the purchaser’s liquidity is significant relative to the amount of the purchase price
for the stock under the shareholders agreement, then cash buyouts are not a problem.
However, in most cases, the corporation and its shareholders will desire the option
to use debt in lieu of cash if the buyout would impose a financial burden on the buyer.
Surprisingly, many simple form right of refusal and shareholder agreements fail to
allow for the debt option altogether or fail to document it adequately.

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 It is recommended that the purchaser be given the option of paying cash or with a
term note. The essential elements of the term note should be spelled out in the
shareholders agreement: (1) original principal amount; (2) interest rate and
calculation method; (3) amortization of principal and interest; (4) maturity date; (5)
identity of maker and any guarantors; and (6) collateral, if any. The form of the note
should be attached as an exhibit to the shareholders agreement, and the agreement
should specify that delivery of an originally signed promissory note of the buyer is
sufficient payment of the purchase price at closing.

Unlike most borrowings, the use of debt to repurchase stock diminishes capital and
adds debt service burdens to the operations of the business. Clients and their counsel
should consider techniques that would relieve the purchaser–especially if it is the
corporation–from debt service payments when profits or cash are inadequate. For
example, the debt obligation can be written such that in no year is the purchaser
obligated to ever pay a combination of principal and interest that would exceed 15 or
20 percent of operating net profits for that year, after adding back in salaries and
bonuses paid to employee-shareholders. The unpaid portion of debt service exceeding
the cap for that year is then carried over to the remaining unpaid balance for payment
at maturity or treated in whatever manner the parties desire.

Practitioners should also generally be aware that most form commercial loan
agreements prohibit dividends and repurchases of the corporation’s stock. Borrowing
companies should seek carve-outs from the lender’s covenants for payments under the
shareholders agreement. In most cases, the lender will require some form of minimal
continuing financial compliance (e.g., debt service coverage ratios, balance sheet
ratios) by the corporation after giving effect to the repurchase in order for the
purchase of stock under a buy-sell not to create a defaulted loan.

H. Amendment and Termination

Consideration should be given to allowing for amendment and termination of the

agreement by some percentage of shares constituting less than all the shares owned
by affected shareholders. Two-thirds of the shares restricted by the agreement seems
to be a popular number for Texas shareholder agreements because it matches the
shareholder vote required for amendments to the articles, merger, dissolution, etc.
In addition, many shareholder agreements provide for automatic termination upon
going public or upon being acquired by a non-affiliated company. If a payment or
some other right has vested and become unconditional under the shareholders
agreement, care should be exercised in altering or eliminating the right without the
consent of the affected shareholder.

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 I. Dispute Resolution

Arbitration clauses are desirable from the viewpoint of more speedily resolving
disputes that arise under shareholders agreements. Particularly, valuation disputes of
the determination of purchase price may be more heard before arbitrators with
accounting or investment banking backgrounds and experience. On the other hand,
clients may not want to dispense with the ability of the corporation or other
shareholders to seek specific performance in the event an errant shareholder violates
the agreement by attempting a forbidden transfer of the stock. One suggested
compromise is to make the arbitration clause only applicable to disputes arising under
the valuation section of the agreement.

IV. Anatomy of Voting Agreements and Trusts

A. Control Objectives

In many instances, the investors of a start-up company will desire that management
control be vested in persons owning less than a majority of the economic interests of
the corporation or that a minority of shareholders be given certain votes and veto
rights over the majority. Many of these concerns can be addressed in a voting
agreement or voting trust that complies with the statutory requirements. The
flexibility of a voting agreement is sometimes unfortunately ignored in favor of
creating complicated multi-class stock structures, with and without voting rights, that
often result in complicated tax and class voting situations in the future. Draftsmen
should also consider the broad-reaching authorization for agreements qualifying under
TBCA art. 2.30-1, such as providing that persons other than the board of directors
may govern the corporation or specifically designating tenured officers, to alter
heretofore standard corporate governance practices. TBCA art 2.30-1 requires that
all shareholders either vote for or enter into the agreement.

B. The Parties

The important concept is that the record owners of the corporation’s stock, absent
validly granted proxies, are the only persons entitled to vote at shareholder meetings.
Consequently, make sure that the parties to the voting agreement or the voting trust
agreement are the persons shown on the corporation’s records as the owners. Trust
and estates should consider whether joinder of beneficiaries to a voting agreement or
trust is desirable.

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C. Voting Mechanisms

Under a voting agreement, one or more record shareholders promises to vote his or
her shares in a particular manner or, more often, grants an irrevocable proxy for the
duration of the agreement to a nominee to vote the subject shares. Shareholders can
also agree to vote as blocks if the majority of shares within the block or some
designated party has determined how the members of the block are to vote. Texas
and Delaware require that copies of the voting agreements be filed with the
corporation’s principal office and be available for inspection by other shareholders.
The existence of the voting agreement needs to be conspicuously noted on the stock
certificate in order to be effective against good faith transferees for value.

For an example of a voting agreement, see Appendix D–Venture Capital Voting

Agreement (Del).

The voting trust statutes of both Texas and Delaware require adherence to a specific
procedure in order to establish a valid voting trust, and require the naming of one
or more trustees under the voting trust agreement and the surrender by the other
signatory parties of their stock certificates to the voting trustee. The voting
trustee(s), in turn, present the certificates of the beneficial owners to the corporation
or its transfer agent, and the corporation is required to issue new certificates in the
name(s) of the voting trustee(s), noting on the certificates the existence of the voting
trust agreement. The voting trust agreement is likewise required to be deposited with
the corporation at its principal office and is available for inspection by other holders.
The guts of the voting agreement lies in the language that determines how the
trustee(s) will vote on various issues. On one extreme, the trustee (usually an
influential shareholder) may be granted complete discretion to vote all shares in the
trust as the trustee deems proper. On the other extreme, the voting trustee may have
no discretion whatsoever and is directed to vote per the directions of the beneficiaries
of the trust holding a majority of shares deposited with the trustee.

For an example of a voting trust agreement, see Appendix C–Voting Trust Agreement
(Texas).

D. Duration, Termination and Amendment.

Both Texas and Delaware have eliminated the statutory requirements that voting
trusts and agreements not have a term in excess of ten (10) years. However, note that
if TBCA art 2.30-1 applies to the agreement, it is deemed to have a term of ten (10)
years unless the agreement specifies otherwise. Nonetheless, good drafting practice
would dictate that the agreement be limited by some term and that a set percentage

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 of shares covered by the agreement would have the right to amend or terminate the
agreement.

E. Remedies for Breach

There is a nuance between voting trusts and voting agreements that is important, and
that nuance relates to enforcement of breaches. Recall the basic principle that a
corporation is required to recognize only the votes of its shareholders of record.
What if a shareholder, subject to a voting agreement, votes his or her shares contrary
to the agreement at a meeting of shareholders? Although the statutes and the
agreement will provide for specific performance, what good is that language if the
corporation records the vote in the manner cast by the breaching shareholder? If the
corporation is not a party to the voting agreement, is it possible that a court will order
rescission of the corporate action taken by the shareholders? By the time the case is
heard, a remedy for economic damages may be all that is available.

These questions are unlikely to arise in the context of a voting trust agreement, for
in that situation the voting trustee is the shareholder of record and the corporation is
required to recognize the trustee’s vote as to the shares registered in the trustee’s
name. If the trustee were to violate or breach the voting trust agreement, the
complaining beneficiary’s remedy would more likely be confined to a breach of
contract of fiduciary duty claim.

V. Marital Property Considerations

Corporate lawyers preparing shareholder agreements should constantly bear in mind that
some or all of the parties to a shareholders or voting agreement may be residents of a
community property state such as Texas. It doesn’t matter if the corporation is formed under
Delaware, Nevada or Angolan law: the character of the property ownership is determined
by the jurisdiction of the marital domicile. It also doesn’t matter if the stock certificates are
in his or her sole name, or the name of a nominee, or in the name of a brokerage company.
If the stock was acquired during the marriage, other than by gift, inheritance or with the
clearly traceable proceeds of separate property, the stock is community property and the
spouse of the shareholder of record is entitled to certain marital property rights.

Under Family Code § 3.104(a), third parties-such as the corporation–are entitled to rely on
the management and control of the spouse in whose name the stock is registered. Thus the
record shareholder can vote the shares, receive dividends, and transfer the stock certificate
to a transferee. But lurking in the background are community property rights, and in certain
situations–such as divorce and death of the spouse–the corporation and other shareholders
will have to recognize and deal with the spousal interest.

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 The buy-sell provisions relating to divorce contained in a typical shareholders agreement can
be argued to constitute partition and exchange agreements subject to the requirements of the
Chapter 4 of the Texas Family Code. Such an agreement may be enforced if it is executed
voluntarily by both spouses, is not unconscionable and the spouse receives adequate
disclosure. See Texas Family Code §§ 4.104 and 4.105. For this reason, among many others,
if any shareholder group desires that the buy-sell provisions apply in divorce situations, the
documentation should (i) be in a written agreement signed by the shareholders and all spouses
(this is another reason why buy-sell provisions written into the corporation’s bylaws or
articles are not desirable), (ii) contain representations of the spouses that they have received
adequate disclosure, the opportunity to consult with separate counsel and have voluntarily
executed the agreement, and (iii) require than any future spouses of the shareholders be
required to execute a counterpart of the agreement.

Clients should also be counseled that courts deciding family law matters have wide
equitable discretion in the division of marital assets and may decide to divide other
community assets in a way that cancels out the perceived adverse affect that a buy-sell
agreement has on the shareholder’s spouse.

VI. Ethical Considerations

The attorney preparing a shareholders or voting agreement has an immediate and dangerous
concern: who does he or she represent and who thinks he or she is representing them. In the
absence of a clear engagement letter to the contrary, the attorney will find himself
representing multiple parties in a related matter and should be keenly aware of parts (b) and
(c) of Texas Disciplinary Rule 1.06:

(b) In...situations [other than litigation], and except to the extent permitted by
paragraph (c), a lawyer shall not represent a person if the representation
of that person:

(1) involves a substantially related matter in which that person’s

interests are materially and directly adverse to the interest to
another client of the lawyer or the lawyer’s firm; or

(2) reasonably appears to be or become adversely limited by the

lawyer’s or law firm’s responsibilities to another client or to a third
person or by the lawyer’s or law firm’s own interests.

(c) A lawyer may represent a client in the circumstances described in (b) if:

(1) the lawyer reasonably believes the representation of each client

will not be materially affected; and

(2) each affected or potentially affected client consents to such

representation after full disclosure of the existence, nature,
implications and possible adverse consequences of the common
representation and the advantages involved if any.

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 Even if the attorney can obtain the written consents of all parties, does any attorney
reasonably believe that a buy-sell agreement will not materially affect a shareholder’s interest?
(Moreover, do you want to stake your professional reputation before a grievance committee
or jury on this standard?) More pointedly, how can a shareholders agreement with buy-sell
provisions triggered by divorce not materially affect the spouse’s interest?

Corporate attorneys preparing these type agreements should also be aware of the ethical
doctrine of “reasonable constituent’s expectations approach.” See An Expectations Approach
to Client Identity, 106 HARV. LAW REV. 687 (1993). Without going into detail, this doctrine
is a fact-intensive test that results in a lawyer having an attorney-client relationship with a
person in the transaction that reasonably believed the attorney was acting as such on his or
her behalf. This situation may become even more complex where the attorney has previously
represented one or more of the parties on unrelated matters, such as will preparation or
employment disputes.

Admittedly, the disciplinary rules are chiefly written for litigators and do not work well for
lawyers in the start-up business situation. One can suggest that every entity and individual
obtain separate counsel to structure and negotiate an agreement, but the cost of implementing
that recommendation will break most start-up company budgets. The most practical and
prophylactic suggestion is to prepare a letter specifically tailored for your engagement that
states you are representing solely the entity and no other individual or party but the entity in
the planning, negotiating and drafting of the shareholders or voting agreement. See Texas
Disciplinary Rule 1.12. The engagement letter should state that the agreement will potentially
materially affect all the other parties, that you are not representing them or their spouses, and
that they should seek separate counsel to the extent they perceive their interests should be
represented. Before commencing work on the project, all affected shareholders and spouses
should sign and deliver a counterpart of the letter to the attorney.

VII. Federal Tax Considerations

A. C Corporations

A discussion of the tax aspects of possible transactions under shareholder buy-sell

agreements is beyond the scope of this paper. However, the corporate attorney
should generally be aware and capable of spotting salient tax issues so that tax
expertise may be recommended to the clients. Among the more prevalent tax issues:

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 • Long-term vs short-term gain to the selling shareholder.

• Treatment of deferred purchase price for stock under the installment sales
method.

• Avoiding the purchase being characterized as a dividend

– Substantially disproportionate safe harbor treatment under IRC §

302(b)(2)

–Deemed dividend where entity relieves shareholders of obligatory purchase

obligation under agreement. Rev. Rul. 69-608

–Redemption of non-common stock previously received in tax-free

transaction (Section 306 stock redemption)

–Redemption by related entity: IRC § 304(a)

• Section 83 compensation issues where stock is subject to forfeiture and\or

employee purchases stock under shareholder agreement for less than fair
value.

• Tax loss carryforward and carryback issues

• Taxation at the corporate level if entity distributes appreciated property to

purchase stock from selling holder

• Fixing the value of stock for estate and gift tax purposes. Treas. Reg.
20.2031-2(h)

B. S Corporations

While S corporations avoid the double taxation issues associated with deemed
dividends by C corporations, the shareholders agreement serves an entirely different
purpose in the context of S corporations: preserving the S corporation election. In
order to make a valid S corporation election, all shareholders and their spouses must
consent to the election on Form 2553. Tres. Reg. § 1.1362-6(b). In the absence of
an agreement, any shareholder (and possibly a spouse) may revoke the S election,
causing tax havoc to the corporation and other shareholders. Consequently, a
covenant of each shareholder and spouse not to take any action to revoke or
terminate the S election is highly recommended. As an example:

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 “Shareholder and Spouse agree that they will not
transfer any Shares to any person that would or could,
in the opinion of the Board of any affected Company,
cause such Company to lose its election as an S
corporation under the Internal Revenue Code of 1986,
as amended. Any such attempted transfer shall be null
and void, and no Company shall be required to
recognize and/or register the transfer of Shares to any
person that would cause such Company to lose such
election. Shareholder and Spouse agree that they shall
not take any action or fail to take any action the effect
or result of which would be to cause any Company’s
Subchapter S election to be terminated, including
signing or failing to sign all elections and forms
necessary to be signed by them to maintain the S
corporation election status of any Company.”

Another concern of maintaining valid S corporation elections is the Internal Revenue

Code’s requirement that an S corporation have only one class of stock. Generally
speaking, shareholder and voting agreements will not be deemed to create additional
classes of stock by reason of purchase obligations or voting provisions; however, if
the shareholders agreement purports to treat shareholders differently as to dividends
or liquidation payouts, the agreement could be viewed as creating a second class of
stock and vitiating the S corporation election. Tres. Reg. § 1.1361-l.

VIII. The Venture Capital Model

In the venture capital funded start-up company, shareholder and voting agreements become
complex because of the competing interest of three different groups:

(1) Founding shareholders who are usually the initial (but not necessarily future)
management of the enterprise;

(2) Principal shareholders who may have contributed intellectual property, special talents
or investment capital but are not actively involved in the planning and management
of the start-up enterprise; and

(3) The professional venture capital investors.

The venture capital model is predicated on the start-up receiving two or more rounds of
venture capital financing before it is financially self-sustaining and capable of realizing a full
value via a public offering or an acquisition. During these interim financing stages, the
venture capitalists will insist on certain forms of shareholder agreements, voting agreements

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 and buy-sell agreements that are aimed at the following overriding objectives from the venture
capitalists’ viewpoints: (i) to preserve the venture capitalist’s value in the company from anti-
dilution; (ii) to cause the start-up to adhere to budgets and timetables for performance in
order to receive future stages of financing; (iii) to have a significant presence on the board of
directors; (iv) to build value in the start-up company that can be publicly marketed; and (v)
to salvage as much value as possible of the venture capitalist’s investment from the downside
risk of a business failure.

The three sample agreements attached as Appendices D, E and F are venture capital oriented
voting, shareholders and buy-sell agreements. Note that these three agreements contain the
following features that favor the venture capital investor:

 Board of Director Positions. VC investors are guaranteed a certain number of board

positions by means of voting agreement

 Lock-up Agreement. Founders and principal shareholders are required to covenant

not to sell any of their shares in connection with the initial public offering and for a
certain number of days thereafter

 Demand registration rights for the VC investor

 Piggy-back registration rights for the VC investor

 Rule 144 compliance by founders and principal shareholders

 Participation in future financings. A form of contractual preemptive rights favoring

the VC investor.

 Restrictions on founders and principal shareholders (but not VC investors)

transferring their shares under most of the situations discussed in this outline.

 Co-sale (tag-along) rights of VC investors to participate in the event that founders or

principal shareholders desire to sell all or part of their stock.

Note that all agreements are designed to be binding on future shareholders and their
transferees who become founders or principal shareholders.

IX. Conclusion

Shareholder agreements and voting agreements are essential ingredients to the initial
corporate structure of the start-up company, and will most likely continue to be required by
the shareholders–with constant review and modification--throughout the life of the enterprise

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until it becomes a publicly-held reporting company or is acquired by a larger enterprise.
Without the overlay of these special contractual provisions, most start-ups will not be able
to attract the key employees and investor capital necessary to sustain the new company.
Shareholder agreements and voting agreements usually turn out to be more complicated (and
expensive) than either the clients or the attorney originally contemplate, but that is a sign the
attorney is doing a good job in focusing the shareholders on the multiple issues that need to
be faced. In conclusion, follow these recommended steps in the process:

 Clarify who you represent and don’t represent in a written engagement letter
signed by all shareholders and spouses

 Use the checklist at Appendix A to cover the basics

 Read the relevant Texas, Delaware or other jurisdiction’s statutes

 Find a good form to start with but be prepared to author significantly

complicated customized provisions

 Use agreements that all parties, their spouses and the corporation sign

 Circulate drafts of the agreement to all parties and spouses to review

 Ask lots of questions and gently force the clients to face future difficult issues

 Spot tax and accounting issues, and seek expert advice if you are not
conversant with topics

 Draft, re-draft and re-draft

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 APPENDIX A
Checklist-Shareholder
Agreement

CHECKLIST FOR
SHAREHOLDERS' AGREEMENT
(Texas)

NOTE: Determine which aspects concerning business and affairs of corporation and of relations
among shareholders will be regulated by Shareholders' Agreement (as opposed to Articles and Bylaws
or having no specific agreement), including:

N. Corporate Governance Provisions.

1. Management by:

(a) Board of Directors;

(b) Shareholders; or

(c) Other persons.

2. Designate natural persons who will be directors, if any, and officers of corporation.

3. Terms and conditions of employment of any shareholder, director, officer or other

employee.

4. Determine if there should be arbitration of any issues about which shareholders may
become deadlocked or about which directors, or others, may become deadlocked and
shareholders are unable to break that deadlock.

5. Provisions for declaration and payment of dividends and other distributions.

Determine also whether different class or series of stock should be created.

6. Restrictions on rights of transferee or assignee of shares to participate in board or

management of corporation business and affairs.

7. Right of shareholders to dissolve corporation at will or on occurrence of specified

event or contingency.

8. Restrictions on incurring debt over a certain amount.

O. Voting Rights. Exercise or division of voting power, in general or with regard to specified
matters, including:

1
 Checklist - Shareholder Agreement

1. Voting agreements and voting trusts.

2. Requiring vote of greater or lesser number of shareholders than is otherwise required

by the Texas Business Corporation Act, including action for sale of corporation.

3. Granting one or another specified number of votes for each shareholder.

4. Permitting action by directors or shareholders to be taken without a vote, except as

otherwise required by the Texas Business Corporation Act.

P. Amendments. Determine how to amend or terminate shareholders agreement. Should a super-

majority vote be required?

Q. Shareholders. Ascertain names and addresses of all shareholders, including spouses.

Determine ownership percentage and/or amount of capital to be contributed by each
shareholder.

R. Share Transfer Restrictions, which may include:

-- Mandatory corporate or other shareholder approval of a proposed transfer (or

transferee)

-- Permitted or prohibited transfers to a designated class of persons

-- Mandatory buy-sell arrangements

-- First option buy-sell arrangements

-- First refusal arrangements

-- Other restrictions

-- Tag-along rights

-- Drag-along rights

1. Determine identity of prospective purchaser:

(a) Corporation itself.

(b) Other shareholders.

(c) Third parties

2
 Checklist - Shareholder Agreement

2. Determine whether prospective purchaser should have:

(a) Option to purchase shares; or

(b) Obligation to purchase shares.

3. Determine which events will cause option or obligation to arise, such as:

(a) Death or divorce of shareholder.

(b) Offer made by third party to shareholder to purchase shares.

(c) Retirement of shareholder-employee.

(d) Resignation of shareholder-employee.

(e) Disability of shareholder-employee.

4. Ascertain whether party ultimately obligated to sell should be bound to sell all or only
part of shares held by him or her.

5. Determine at which of following prices shares will be sold:

(a) Fixed dollar price for stock.

(b) Fixed dollar price which is subject to annual review and adjustment by
shareholders or Board of Directors.

(c) Book value of shares as of:

(i) Date of transfer.

(ii) Balance sheet of corporation as of certain date prior to transfer.

(d) Addition of goodwill to book value.

(e) Fair market value according to appraisal.

(f) Amount of bona fide offer made by third party.

(g) Formula based upon capitalization of average earnings of corporation over

specified number of years prior to transfer, or any other type of formula
agreed to among the shareholders.

3
 Checklist - Shareholder Agreement

6. Determine whether purchase price of shares is to be paid in:

(a) One lump sum; or

(b) Installments.

(i) Amount of each installment.

(ii) Schedule of payment (e.g. monthly, quarterly, annually).

(iii) Due Date.

(iv) Amount of interest.

(v) Determine whether:

(A) Promissory note should be executed.

(B) Security for note should be required.

(c) Consider maximum annual obligation to pay, such as no more than 15% of
EBITDA per year + officer salaries can be used to pay debt service for
repurchases of stock; balance deferred with or without interest to future years

7. Determine whether purchase on death of shareholder should be funded by purchase

of life insurance on lives of shareholders.

(a) Determine whether purchase of life insurance or funding from any such
insurance will be:

(i) Mandatory.

(ii) Optional.

(b) Determine following:

(i) Insurer.

(ii) Insured parties.

(iii) Amount of face value of each policy.

(iv) Amount of premiums.

4
 Checklist - Shareholder Agreement

(v) Legal owner of each policy.

(vi) Party obligated to pay premiums.

(vii) Disposition of policy on lives of remaining shareholders owned by

deceased shareholder.

S. Push-Pull. Determine whether shareholders desire a mechanism to force a buy-out of a

shareholder, such as a provision that would require a shareholder to either purchase the other
shareholders shares at a certain price or sell all of his shares to the other shareholders at that
same price.

5
 APPENDIX B

Buy-Sell Agreement
Employee-Owned
Company - (Tex)

SHAREHOLDERS AGREEMENT
(Joe B. Worker)

This Shareholders Agreement (this “Agreement”), effective as of ___________, 20__, is

entered into by and among ABC Services, Inc., a Texas corporation (the “Corporation”), and Joe B.
Worker (the “Shareholder”), and is joined in by Shareholder’s spouse, Mary Jo Worker (“Spouse”).
The other shareholders of the Corporation are intended third-party beneficiaries of this Agreement.

WITNESSETH

WHEREAS, the Corporation and the Shareholder desire to enter into this Agreement for the
purposes, among others, of limiting the manner and terms by which all shares of the capital stock of
the Corporation now and hereafter owned by Shareholder , as well as any interest of Spouse in any
such shares, may be transferred and disposed of (both voluntarily and by operation of law), and of
providing certain buy-sell rights in favor of the Corporation and the Shareholder;

WHEREAS, other shareholders of the Corporation, joined by their spouses, have also entered
into shareholder agreements restricting the disposition of their shares of capital stock of the
Corporation, providing for buy-sell rights under certain conditions and making Shareholder and
Spouse intended third-party beneficiaries of the other shareholder agreements;

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

Unless otherwise defined herein or in the recitals hereto, the following capitalized terms shall
have the meanings set forth below:

1.1 Agreement means this Shareholders Agreement and all amendments hereto.

1.2 Class A Stock means the Corporation’s Class A Voting Common Stock, par value
$0.10 per share, and any and all stock splits, stock dividends or recapitalizations that may hereafter
occur with respect to the Class A Voting Common Stock of the Corporation.

1.3 Class B Stock means the Corporation’s Class B Nonvoting Common Stock, par value
$0.10 per share, and any and all stock splits, stock dividends or recapitalizations that may hereafter
occur with respect to the Class B Stock.

1.4 Common Stock means the Corporation’s Class A Stock and Class B Stock.

1
 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

1.5 Five-Year Treasury Rate means, for any date on which a promissory note is delivered
as partial consideration for a purchaser electing the Installment Alternative, the effective “asked” yield
of U.S. Treasury bills with a five (5) year maturity (or as near thereto as is reported in the “Treasury
Bonds, Notes & Bills” table in The Wall Street Journal) based on representative and indicative over-
the-counter quotations of $1 million or more, calculated on one-day settlement terms as is purchased
on such effective date by (x) the Wall Street Journal or (y) in the event The Wall Street Journal ceases
to publish the yields of such U.S. Treasury bills on a daily basis, any other nationally-recognized daily
business publication then publishing the yields of such U.S. Treasury bills.

1.6 Insolvency Event means (i) the filing of a petition in bankruptcy, receivership or other
proceeding for the discharge and/or reorganization of indebtedness by Shareholder, whether under
federal or state law, (ii) the sufferance by Shareholder of an involuntary petition of bankruptcy,
receivership or other proceeding for the discharge and/or reorganization of indebtedness which is not
dismissed within thirty (30) days of its filing, or the admission or adjudication of the Shareholder as
insolvent.

1.7 Installment Alternative means the payment for the exercise of a buy-sell option or
obligation hereunder in the form of a combination of cash and promissory note of the purchaser. To
qualify as valid consideration, payment in the form of the Installment Alternative shall meet the
following standards: (a) the cash portion of the total purchase price shall be no less than 20%; and
(b) the promissory note shall (i) be in the principal amount of the balance of the total purchase price,
(ii) bear interest at the Five Year Treasury Rate from the date of issuance, (iii) not have a maturity
greater than five years from the date of issuance, (iv) call for equal installments of principal to be paid
every six (6) months from the date of issuance, such that the principal balance will be amortized and
paid in full on the maturity date (no balloon payments permitted), (v) require that all accrued interest
be paid in full on each date that an installment of principal is due, (vi) be secured by a pledge of the
Shares being purchased, (vii) be full recourse against the maker (who shall also be the purchaser), and
(viii) contain standard provisions regarding default, acceleration, foreclosure and collection remedies.

1.8 Insurance Benefit means as defined in Section 3.1(b) of this Agreement.

1.9 Net Worth means, as of the end of the month immediately preceding the date of
determination of the purchase price under Section 3.2, the Corporation’s net worth as shown on the
Corporation’s balance sheet prepared in accordance with GAAP. Net Worth shall be based on the
monthly unaudited financial statement of the Corporation, compiled in accordance and consistent with
the Corporation’s historical and customary accounting practices; provided, however, any seller under
this Agreement may elect to use, in lieu of the monthly unaudited net worth of the Corporation, the
net worth of the Corporation as shown on the Corporation’s most recent audited year-end financial
statement.

1.10 Qualified Life Insurer shall mean a life insurance company admitted to sell life
insurance in the State of Texas and approved by the Board of Directors of the Corporation.

2
 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

1.11 Other Shareholders means, at any time, all holders of the Corporation’s Common
Stock other than Shareholder.

1.12 Outstanding Shares means, as of the date of determination, all outstanding shares of
Common Stock and all shares of Common Stock into which any options, warrants or convertible
securities could be converted or exercised by the holder thereof on a date of determination. Shares
and treasury shares shall not be counted as outstanding for purposes of this definition.

1.13 Personal Representative means the executor, administrator, guardian or conservator

of the estate of Shareholder or Spouse in the event of his/her death or incapacity.

1.14 Pro Rata means, with respect to any specific shareholder, the number of shares of
Common Stock owned by such shareholder divided by the total number of shares of Common Stock
owned by Other Shareholders.

1.15 Shareholder means Joe B. Worker and, unless the context clearly indicates otherwise,
shall also refer to and incorporate by reference Shareholder’s Spouse for the purpose of binding the
Spousal Interest in the Shares.

1.16 Shares means all shares of Common Stock now owned or hereafter acquired (whether
directly or indirectly and whether owned in record name or beneficially) by Shareholder. Unless the
context clearly indicates otherwise, the term “Shares” shall also refers to and incorporates by
reference the Spousal Interest.

1.17 Spousal Interest means any interest in the Shares owned or claimed by Spouse
pursuant to community property laws, gift, inheritance, partition or otherwise.

1.18 Spouse means Mary Jo Worker, spouse of Shareholder.

1.19 Transfer Notice means the notice referred to in Paragraph 2.2 hereof.

ARTICLE 2

RESTRICTIONS ON TRANSFER OF COMMON STOCK

2.1 Restrictions on Transfer of Common Stock. The Shareholder shall not sell, assign,
transfer, pledge, encumber, subject to lien or otherwise dispose of any Shares except in accordance
with this Agreement. The Shareholder understands that the Corporation may refuse to transfer the
Shares when such transfer would not be in compliance with the terms of this Agreement, and that any
attempted disposition of any Shares in violation hereof shall be null and void and of no force and
effect.

3
 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

2.2 Dispositions. The Shareholder agrees not to sell, transfer, assign, hypothecate, pledge,
subject to lien, encumber or otherwise dispose of any Shares, or any right or interest therein, whether
voluntarily or by operation of law, or by gift or otherwise, except with the written approval of the
board of directors of the Corporation and the Two-Thirds Majority. If Shareholder desires to sell,
transfer, assign, hypothecate, pledge, subject to lien, encumber or otherwise dispose of any Shares,
or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise,
Shareholder shall give written notice (the “Transfer Notice”) of such desire to the Corporation and
the Other Shareholders at least fifteen (15) days prior to such disposition stating the following:

(a) the nature of the proposed transfer (e.g., sale, gift, pledge, lien, encumbrance, transfer by
operation of law) and the number of shares affected;

(b) the name, address, telephone number, social security or federal tax identification number of
the proposed purchaser, creditor, lienholder, donee or other transferee;

(c) the economic terms of the proposed transfer or other disposition, including without limitation,
the amount of the per share purchase price, whether cash, indebtedness or other property,
the amount of any loan and the interest and repayment terms, and whether the Shares will be
pledged or serve as collateral for such loan;

(d) the date the proposed transfer is expected to occur; and

(e) any special arrangements between Shareholder and the proposed transferee, such as options,
buy-back rights, voting arrangements and all other contractual arrangements.

The Corporation and the other shareholders shall have fifteen (15)days after receiving the Transfer
Notice to approve or disapprove the disposition on the terms and conditions described in the Transfer
Notice. If the board of directors disapproves, or less than the Two-Thirds Majority approves, the
disposition, the disposition of the Shares shall not be made, and all Shares shall continue to be
restricted by this Agreement. In the event that such approval is granted by the Corporation and the
Two-Thirds Majority, the Shareholder shall not sell, transfer, assign, hypothecate, pledge, subject to
lien, encumber or otherwise dispose of any of the Shares at any time prior to 30 days after the date
upon which such approval was granted. Any purported transfer or disposition in violation of this
provision shall be void and ineffectual. Under no circumstances shall any sale or other disposition
of any Shares subject hereto be valid until the proposed transferee and his/her spouse shall have
executed and become a party to a shareholders agreement in favor of the Corporation and the Other
Shareholders and thereby shall have become subject to all of the provisions thereof.

2.3 Preferential Right of Purchase. In the event the Shareholder obtains the Corporation’s
and the Two-Thirds Majority’s approvals as provided in Section 2.2, then the Corporation and the
Other Shareholders shall have the option to purchase all or any portion of the Shares which the
Shareholder proposes to sell at the purchase price and on the terms specified in Section 3.2 of this
Agreement, and if such option is exercised by the Corporation and/or the Other Shareholders, the
Shareholder shall be obligated and bound to sell such Shares to the Corporation and/or the Other

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 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

Shareholders upon said terms. As between the Corporation and the Other Shareholders who have
a right to purchase such Shares, the Corporation shall have the first and prior right to purchase all or
any portion of such Shares, and the Other Shareholders shall have the right to purchase all or any
portion of the remaining Shares not purchased by the Corporation on a Pro Rata basis or as such
Other Shareholders may otherwise agree among themselves. Notice of exercise or non-exercise of
the option granted pursuant to this Section 2.3 shall be given to Shareholder within thirty (30) days
of the date on which written approval to sell the Shares was obtained by the Shareholder in
accordance with Section 2.2. If the and to the extent that the Corporation and Other Shareholders
do not purchase all Shares, then Shareholder may dispose of such Shares but only to the transferee
and on the terms described in the Transfer Notice.

ARTICLE 3

BUY-SELL AGREEMENT

3.1 Buy-Sell Agreement. The occurrence of any of the events relating to the Shareholder
and/or Spouse specified in subsections (a), (b), (c), (d) (e) or (f) of this Section 3.1 shall give rise to
the rights and obligations set forth in, and will be governed by, the provisions of this Article 3:

(a) Insolvency Event. If the Shareholder and/or Spouse shall become subject to an
Insolvency Event, then the Corporation and the Other Shareholders shall have the
exclusive right and option to purchase all or any number of the Shares at the purchase
price and on the terms specified in Section 3.2 hereof, and Shareholder and/or Spouse
(or the trustee, receiver or other fiduciary, as the case may be) shall be obligated and
bound to sell all Shares to the Corporation and the Other Shareholders upon said
terms. As between the Corporation and the Other Shareholders who have a right to
purchase such Shares, the Corporation shall have the first and prior right to purchase
all or any portion of such Shares, and the Other Shareholders shall have the right to
purchase all or any portion of the remaining Shares not purchased by the Corporation
on a Pro Rata basis or as such Other Shareholders may otherwise agree among
themselves. Notice of the exercise or non-exercise of the option granted pursuant to
this Section 3.1(a) shall be given to the Shareholder within 90 days of the date on
which the Corporation obtains knowledge of the Insolvency Event. If and to the
extent that the Corporation and/or Other Shareholders do not purchase all Shares,
then the estate or fiduciary of Shareholder may dispose of such Shares as ordered or
permitted by the court; provided, however, any transfer of such Shares to a
subsequent transferee shall not be valid until such transferee and his/her spouse shall
have executed and become a party to a shareholders agreement in favor of the
Corporation and the Other Shareholders.

(b) Death of Shareholder. Upon the death of Shareholder, the Corporation shall be
bound and obligated to purchase, and the estate of the deceased Shareholder shall be
bound and obligated to sell to the Corporation, all Shares. The purchase price for the
Shares for purposes of this subsection 3.1(b) shall be One Hundred Dollars ($100.00)

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 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

per share. Such purchase price shall be payable by the Corporation in the form of a
lump sum payment of cash due and payable within thirty (30) days of the later to
occur of the qualification of Shareholder’s Personal Representative or the payment
to the Corporation of the Insurance Benefit. The Corporation’s purchase of the
Shares be funded by a key man life insurance policy (the “Policy”) issued by a
Qualified Insurer, which shall have an insurance benefit of not less than $1,000,000
(the “Insurance Benefit”) and which shall be purchased by the Corporation on or
before the execution of this Agreement. The Corporation shall be named and
designated the sole beneficiary under the Policy. The Corporation shall be solely
responsible for maintaining all premium payments, taxes and other costs associated
with the Policy during Shareholder’s lifetime. In the event that the Corporation fails
to maintain the Policy and/or the Qualified Insurer fails to pay the Insurance Benefit
within one-hundred eighty (180) days of Shareholder’s death, then in such event the
Corporation shall have the obligation, to the extent it may be lawfully required to do
so, to purchase all Shares not funded by the Insurance Benefit at the purchase price
of One Hundred Dollars ($100.00) per share; provided, however, in such event the
Corporation may elect to make payment of the purchase price by using the Installment
Alternative. If and to the extent that the Corporation does not or cannot lawfully
purchase all Shares owned by the deceased Shareholder, then the Other Shareholders
shall have the option to purchase any portion of the remaining Shares not purchased
by the Corporation on a Pro Rata basis or as such Other Shareholders may otherwise
agree among themselves. Notice of the exercise or non-exercise of this option
granted to the Other Shareholders shall be given to Shareholder’s Personal
Representative and to Spouse within thirty (30) days following the receipt of written
notice from the Corporation to the Other Shareholders that it has not purchased or
cannot lawfully purchase all Shares. If and to the extent that the Corporation and/or
Other Shareholders do not purchase all Shares, then the Personal Representative of
Shareholder may lawfully dispose of such Shares; provided, however, any disposition
of the Shares to any subsequent transferee shall not be valid until such transferee and
his/her spouse shall have executed and become a party to a shareholders agreement
in favor of the Corporation and the Other Shareholders.

(c) Disability of a Shareholder. In the event the Shareholder becomes “disabled” (as
defined herein) as an employee or consultant of the Corporation, then the Corporation
and the Other Shareholders shall have the exclusive right and option to purchase all
or any portion of the Shares owned by such Shareholder, and the Shareholder (or the
Personal Representative) shall have the right and option to require the Corporation
to purchase all or any portion of such Share in each case at the purchase price and on
the terms specified in Section 3.2 hereof. Upon the exercise of such option, the
Shareholder (or the Personal Representative) shall be obligated and bound to sell his
Shares to the Corporation and the Other Shareholders upon such terms, and the
Corporation shall be obligated, to the extent it may lawfully do so, to purchase all
such Shares. As between the Corporation and the Other Shareholders who have a

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 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

right to purchase such Shares, the Corporation shall have the first and prior right to
purchase all or any portion of such Shares, and the Other Shareholders shall have the
right to purchase all or any portion of the remaining Shares not purchased by the
Corporation on a Pro Rata basis or as the Other Shareholders may otherwise agree
among themselves. Notice of the exercise of the option granted pursuant to this
Section 3.1(c) shall be given to or by the Shareholder (or the Personal
Representative) within one hundred eighty (180) days of the date on which the
Disabled Shareholder is determined disabled by the Board of Directors. For purposes
of this Section 3.1(c), the Shareholder will be deemed as “disabled” if the Shareholder
is unable to perform substantially all of his duties as an employee or consultant of the
Corporation and such disability either (i) remains in effect for any 91 consecutive days
or (ii) remains in effect for any combination of 180 days (whether consecutive or not)
out of any 360 day period. The determination of disability shall be made in good faith
by a majority of the Corporation’s Board of Directors. The Board of Directors’
determination shall be binding on Shareholder, and may only be set aside by a court
or arbitrator based upon a showing of bad faith of the directors by clear and
convincing evidence. If and to the extent that the Corporation and/or Other
Shareholders do not purchase all Shares, then the Shareholder (or the Personal
Representative) may lawfully dispose of such Shares; provided, however, any
disposition of the Shares to any subsequent transferee shall not be valid until such
transferee and his/her spouse shall have executed and become a party to a
shareholders agreement in favor of the Corporation and the Other Shareholders.

(d) Termination of Employment. In the event the Shareholder voluntarily terminates his
or her employment or consulting agreement with the Corporation, or in the event the
board of directors terminates Shareholder’s employment or consulting
agreement(whether with or without cause), then the Corporation and the Other
Shareholders shall have the exclusive right and option to purchase all or any portion
of the Shares held by such Shareholder at the purchase price and on the terms
specified in Section 3.2 hereof. As between the Corporation and the Other
Shareholders, the Corporation shall have the first and prior right to purchase all or any
portion of such Shares, and the Other Shareholders shall have the right to purchase
all or any portion of the remaining Shares not purchased by the Corporation on a Pro
Rata basis, or as such Shareholders may otherwise agree among themselves. Notice
of the exercise of the option granted pursuant to this Section 3.1(e) shall be given to
the Shareholder within ninety (90) days of the date on which the Shareholder
terminates his or her employment with the Corporation or is terminated by the
Corporation. If and to the extent that the Corporation and/or Other Shareholders do
not purchase all Shares, then the Shareholder (or the Personal Representative) may
lawfully dispose of such Shares; provided, however, any disposition of the Shares to
any subsequent transferee shall not be valid until such transferee and his/her spouse
shall have executed and become a party to a shareholders agreement in favor of the
Corporation and the Other Shareholders.

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 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

(e) Divorce of Shareholder and Spouse. In the event that Shareholder or Spouse shall
file a petition for divorce or institute any other legal proceeding for the termination
of their marriage, then the following procedures shall apply:

(i) Shareholder’s interest in the Shares and Spouse’s Spousal Interest therein
shall be reflected on their respective inventories of marital and separate assets
at a value not in excess of the purchase price determined under Section 3.2 of
this Agreement; and

(ii) Shareholder shall negotiate and seek, and Spouse agrees to accept, an order
for the division of marital and separate property such that Shareholder
receives the entire Spousal Interest in the Shares in exchange for awarding to
Spouse other marital and separate assets in which Shareholder has an interest
that have a value approximately equal to the Spousal Interest (as valued
under paragraph (i) above). If the court in such proceeding shall enter any
order or decree awarding any Shares or any interest therein to Spouse,
Shareholder and Spouse shall each notify the Corporation’s board of directors
and the Other Shareholders in writing of such award. For a period of ninety
(90) days after receiving such notice, the Corporation and the Other
Shareholders shall have the exclusive right and option to purchase all or any
portion of such Shares awarded to Spouse at the purchase price and on the
terms specified in Section 3.2 hereof. As between the Corporation and the
Other Shareholders who have a right to purchase such Shares, the
Corporation shall have the first and prior right to purchase all or any portion
of such Shares, and the Other Shareholders shall have the right to purchase
all or any portion of the remaining Shares not purchased by the Corporation
on a Pro Rata Basis or as such Other Shareholders may otherwise agree
among themselves, If and to the extent that the Corporation and/or Other
Shareholders do not purchase all Shares awarded to Spouse, then Spouse may
lawfully dispose of such Shares; provided, however, any disposition of the
Shares to any subsequent transferee shall not be valid until such transferee and
his/her spouse shall have executed and become a party to a shareholders
agreement in favor of the Corporation and the Other Shareholders.
Shareholder and Spouse each agree that the Corporation may intervene in
their divorce proceeding without their objection for the purpose of enforcing
the Corporation’s and Other Shareholders’ rights under this Section 3.1(e).

(f) Death of Spouse. Spouse hereby agrees to bequeath by will his or her entire Spousal
Interest to Shareholder. This promise is made with Spouse’s full knowledge, is made
for good and valuable consideration and constitutes a covenant binding upon
Spouse’s estate, Personal Representative, heirs and beneficiaries. In the event that
Spouse dies and does not leave a valid will admitted to probate bequeathing the entire
Spousal Interest to Shareholder, or if any will contest is filed by any person
challenging the validity of the bequest of the Spousal Interest to Shareholder, then

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 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

Shareholder and Spouse’s Personal Representative shall each notify the board of
directors of the Corporation of such event. For a period of ninety (90) days following
the date of the later to occur of (i) the qualification of Spouse’s Personal
Representative, (ii) the entry of the order of the probate court concluding that
Spouse’s will does not bequeath the entire Spousal Interest to Shareholder and/or (iii)
the filing of a will contest suit, then the Shareholder shall have the exclusive right and
option to purchase all or any portion of the Spousal Interest in the Shares at the
purchase price and on the terms specified in Section 3.2 hereof. If and to the extent
that Shareholder does not or cannot purchase the entire Spousal Interest in the Shares
pursuant to the foregoing provision within ninety (90) days, then the Corporation and
the Other Shareholders shall have the exclusive right and option, beginning on the first
day after expiration of the aforesaid ninety (90) day period and ending one (1) year
after the entry of a final order by the probate court disposing of the Spousal Interest
in the Shares, to purchase all or any portion of the Shares not purchased by or
awarded to Shareholder at the purchase price and on the terms specified in Section
3.2. As between the Corporation and the Other Shareholders, the Corporation shall
have the first and prior right to purchase all or any portion of the Spousal Interest in
the Shares, and the Other Shareholders shall have the right to purchase all or any
portion of the remaining Spousal Interest in such shares not purchased by the
Corporation on a Pro Rata basis or as such Shareholders may otherwise agree among
themselves. If and to the extent that the Corporation and/or Other Shareholders do
not purchase all such Shares, then the holder of the Shares may lawfully dispose of
such Shares; provided, however, any disposition of the Shares to any subsequent
transferee shall not be valid until such transferee and his/her spouse shall have
executed and become a party to a shareholders agreement in favor of the Corporation
and the Other Shareholders. Shareholder and Spouse agree that the Corporation may
intervene in any probate proceeding or will contest applicable to Spouse’s estate
without their objections for the purpose of enforcing the Corporation’s and the Other
Shareholders’ rights under this Subsection 3.1 (f).

3.2 Purchase Price and Terms. The purchase price for any shares of Common Stock to
be sold pursuant to this Agreement shall be Net Worth divided by the number of Outstanding Shares
as of the same date Net Worth is determined. The date of determination of the purchase price under
the different subsections of this Agreement shall be:

Section 2.3 Preferential Right of Purchase: the last date on which the Corporation and all
Other Shareholders receive the Transfer Notice.

Section 3.1(a) Insolvency Event: the date on which the Insolvency Event occurs.

Section 3.1(b) Death of Shareholder: the date of Shareholder’s death.

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 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

Section 3.1(c) Disability of Shareholder: the date on which the board of directors of the
Corporation makes the determination that the Shareholder is disabled as defined in this
Agreement.

Section 3.1(d) Termination of Employment: the date on which Shareholder’s employment or

consulting status with the Corporation terminates or is terminated.

Section 3.1(e) Divorce of Shareholder and Spouse: the date of initial filing of the divorce
petition or other legal proceeding seeking dissolution or termination of the marriage.

Section 3.1(f) Death of Spouse: the date of death of Spouse.

All notices of exercise of buy-sell options hereunder shall be in writing and shall be effective when
delivered in accordance with the procedures set forth in Section 4.9 of this Agreement. Such notices
shall state the number of shares being purchased, the class of stock, the determination of the purchase
price in accordance with this Agreement, the name(s) and address(es) of the purchasers and whether
the purchase price will be paid in cash or using the Installment Alternative. The closing of the
purchase and sale of a buy-sell option or obligation hereunder shall occur within ten (10) days from
the date of exercise of a buy-sell right hereunder and shall be held at the principal business office of
the Corporation in Houston, Texas, or at such other time and place in the State of Texas mutually
agreeable to the purchaser(s) and seller. At the closing, the purchaser(s) shall deliver cash (which
shall be in the form of a cashier’s check or wire transfer of immediately available funds) or the
Installment Alternative. Shareholder, Spouse or the Personal Representative, as the case may be,
shall deliver all certificate(s) evidencing ownership of the Shares or the Spousal Interest in such
Shares, duly endorsed or with a stock transfer power duly executed and attached thereto.

ARTICLE 4

MISCELLANEOUS

4.1 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the
undersigned parties, their respective heirs, personal representatives, successors and assigns; provided
that the rights of the Shareholder and Spouse under this Agreement may not be assigned without the
consent of the Corporation, the Two-Thirds Majority and the Shareholder, and any assignment in
violation of this Section 4.1 shall be null and void and of no force or effect. The Corporation’s rights
and obligations hereunder are assignable

4.2 Validity. In the event that any provisions hereof are held to be invalid or against public
policy, the remaining provisions hereof shall not be affected thereby. In such event, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties
as closely as possible with respect to those provisions which were held to be invalid or against public
policy.

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 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

4.3 Titles and Headings. Titles and headings to Sections hereof are for the purpose of
reference only and shall in no way limit, define or otherwise affect the provisions hereof.

4.4 Governing Law. This Agreement shall be governed by and construed in

accordance with the laws of the State of Texas, without regard to the conflicts of law principles
thereof.

4.5 Spouse’s Community Interest. The Spouse of the Shareholder hereby joins in the
execution of this Agreement to evidence his or her knowledge of its existence and content, to
acknowledge that this Agreement is fair, equitable and in their best interests, to bind the Spousal
Interest, if any, and the heirs, beneficiaries, administrators, executors, legal representatives and
assigns of such Spouse to the Agreement, and to evidence that the respective community interest of
Spouse, if any, in and to any of the Shares or any interest therein are covered by and embraced by the
terms and provisions of this Agreement in all respects. Spouse further specifically designates
Shareholder as manager of any and all Spousal Interest in the Shares (other than interests evidenced
by a stock certificate solely in the name of such Spouse and owned by such Spouse as a shareholder
of the Corporation) and agrees that Shareholder shall have the sole right to exercise the rights,
powers and privileges granted under this Agreement relating to all Shares and the entire Spousal
Interest. Spouse acknowledges that Spouse has been advised by the Corporation and Shareholder
to engage separate legal counsel to review this Agreement on Spouse’s behalf, that Spouse has been
adequately advised as to the legal ramifications and effects of entering into this Agreement, and that
Spouse is doing so with full knowledge and of his or her own free will and volition.

4.6 Joinder of Future Spouses. The Shareholder agrees, promptly upon his marriage or
remarriage, as the case may be, to use his best efforts to have his future spouse execute a counterpart
of this Agreement in order to evidence her intent to be bound hereby.

4.7 Entire Agreement; Amendment. This Agreement constitutes the entire agreement
among the parties concerning the subject matter hereof. Except as expressly provided herein, this
Agreement may be amended only upon the written consent of the Corporation, and Two-Thirds
Majority and the Shareholder.

4.8 Termination. This Agreement shall terminate upon the first to occur of the following
events:

(a) Written agreement of the Corporation, a Two-Thirds Majority and the Shareholder;
or

(b) Bankruptcy, receivership, dissolution, or cessation of the Corporation to do business.

4.9 Notices. All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise
delivered by hand or by messenger, including Federal Express or similar courier services, addressed
(a) if to the Shareholder, at such Shareholder’s address set forth on the signature page hereto, or at

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 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

such other address as the Shareholder shall have furnished to the Corporation and each Other
Shareholder in writing, (b) if to the Corporation, to ____________, ____________, Texas _______,
Attn: Board of Directors, or at such other address as the Corporation shall have furnished to the
Shareholder, (c) if to any of the Other Shareholders, at their last address shown on the stock transfer
records of the Corporation, and (d) if to Spouse, at Spouse’s address set forth below until Spouse
shall have delivered a written change of address notice to Shareholder, the Corporation and each of
the Other Shareholders. Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if delivered personally, or, if
sent by mail or courier, at the earlier of its receipt or three business days after the same has been
deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.

4.10 Dispute Resolution. Any dispute arising out of or relating to this Agreement or the
breach, termination or validity hereof shall be finally settled by binding arbitration conducted
expeditiously in accordance with the Commercial Arbitration Rules of the American Arbitration
Association as in effect from time to time, and judgment upon the award rendered by the arbitrators
may be entered by any court having jurisdiction thereof. The arbitration shall be held in downtown
Houston, Texas. Notwithstanding anything to the contrary contained herein, the provisions of this
Section 4.10 shall not apply with regard to any equitable remedies to which the Corporation or the
Shareholder may be entitled hereunder.

IN WITNESS WHEREOF, this Agreement has been executed effective as of the date first
set forth above.

ABC SERVICES, INC.

By:

Harry T. Golfer, Chairman of the Board

Spouse of Shareholder: Shareholder:

__________________________________
Mary Jo Worker Joe B. Worker

Address: _________________________ Address:

_________________________

Telephone No.:_____________________ Telephone No.:________________________

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 Buy-Sell Agreement
Employee-Owned
Company - (Tex)

Social Security No.:__________________ Social Security No:_____________________

Date of Signing:_____________________ Date of Signing:_______________________

13
 APPENDIX C

VOTING TRUST AGREEMENT - (TEX)

CORRUPTED SOFTWARE, INC.

VOTING TRUST AGREEMENT

THIS CORRUPTED SOFTWARE, INC. VOTING TRUST AGREEMENT (this

“Agreement”), dated as of _________________, with regard to the shares of the Common Stock,
par value $_________ per share (the “Common Shares”) of Corrupted Software, Inc., a Texas
corporation (the “Company”), by and among [Individual with voting power] (“Trustee”) and each
of the other entities and persons whose names are set forth on Exhibit A and all other parties who
shall join in and become parties to this Agreement as hereinafter provided (each of such parties other
than the Trustee and the Company being referred to hereinafter as “Subscribers”).

WHEREAS, each of the parties hereto have determined it in the best interest of the Company
that they contribute all of the Common Shares held of record by them to a voting trust (the “Trust”)
established hereby; and

WHEREAS, with a view to the professional and competent management of the Company
and to further the interest of all of the stockholders thereof, the parties hereby create the Voting Trust
for the purposes of holding and voting the Shares as provided herein; and

WHEREAS, the persons described on Exhibit A are [employees of the Company or its
subsidiaries and are also] the sole record and beneficial holders of the Common Shares subject to
this Agreement.

NOW, THEREFORE, the parties hereto agree as follows:

7. Definitions. Unless otherwise expressly set forth in this Agreement, the terms defined
in this Section 1 shall have the meanings set forth below, which definitions shall be applicable to both
singular and plural forms of any of the terms herein defined.

“Agreement” shall mean this Voting Trust Agreement.

“Common Shares” shall have the meaning set forth in the preamble hereto.

“Company” shall mean Corrupted Software, Inc., or any successor thereto by merger,
consolidation, conversion or reorganization.

“Initial Subscribers” shall mean the persons set forth on Exhibit A hereto.

“New Subscribers” shall mean any person or entity subsequently contributing shares
to the Trust pursuant to the terms of this Agreement and may include, with regard to subsequently
contributed shares, Initial Subscribers or New Subscribers.

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 VOTING TRUST AGREEMENT - (TEX)

“Securities Act” shall mean the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Securities Exchange Commission promulgated
thereunder, and any applicable state securities laws and the rules and regulations promulgated
thereunder, all as same shall be in effect at the time in question.

“Shares” shall mean the Common Shares and the shares of any other capital stock of
the Company having voting rights at annual or special meetings of stockholders.

“Subscriber” shall mean each of the Subscribers described in the recitals hereto and
any transferees thereof, together with any New Subscribers and any transferees thereof.

[“Termination Date” shall mean the first to occur of (i) _______________, (ii)
thirty (30) days following the final distribution by the Company in respect of Shares as a result
of the dissolution, liquidation or winding up of the Company or (iii) the closing and funding
of an initial public offering of the Shares pursuant to a registration statement which has
become effective under the Securities Act of 1933, as amended.]

“Trust” shall have the meaning set forth in the recitals hereto.

“Trust Certificate” shall be the certificates of interest in the Trust provided for in
Section 4 hereof.

“Trustee” shall mean _______________ or such other party or parties as may become
the Trustee or Trustees pursuant to the provisions of Section 10 hereof.

8. Contribution of Shares.

8.1 Each of the Subscribers hereby contributes to the Trust, and deposits with the
Trustee certificates representing, all of Shares held of record by them and hereby irrevocably
constitutes and appoints the Trustee their attorney-in-fact for the purpose of endorsing and delivering
certificates representing such Shares to the Company for reissuance by the Company in the name of
the Trustee, as the Trustee of the Trust. The Company shall, upon receipt of certificates representing
shares held of record by the Subscribers transfer such Shares on its books and records from the name
of such Subscriber, respectively, to the Trustee as Trustee of the Trust and shall promptly thereafter
deliver to the Trustee a certificate representing all of the Shares contributed pursuant hereto.
Following the date hereof, any New Subscriber shall be entitled to contribute Shares to the Trust by
delivering certificates representing such Shares to the Trustee, together with stock powers therefor
duly endorsed in blank. Thereafter, the Trustee shall deliver such certificates to the Company for
transfer to the Trustee as Trustee of the Trust and the Company shall transfer such Shares on its
books and records and issue a certificate to the Trustee with regard thereto.

8.2 From and after the date hereof, each of the parties hereto agrees to contribute
to the Trust in accordance with the terms hereof, any Shares which such party comes to hold of
record.

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 VOTING TRUST AGREEMENT - (TEX)

9. Eligible Stockholders. Any record owner or holder of Shares may, subject to such
regulations as may be determined by the Trustee in furtherance of the provisions of this Agreement,
become a party hereto at any time by executing this Agreement or a copy thereof and complying with
the provisions of Section 2 above with regard to the contribution of Shares to the Trust.

10. Trust Certificates. The Trustee shall hold and shall dispose of, under and pursuant
to the terms and conditions of this Agreement, all certificates representing Shares which may now or
hereafter from time to time be delivered hereunder; and the Trustee in exchange for such Shares
transferred and delivered to him hereunder and with respect to any Shares received in respect thereof,
will cause to be issued and delivered to the Subscribers or New Subscribers transferring such Shares
or the Shares in respect of which any Shares were subsequently issued to the Trustee, Trust
Certificates in substantially the form attached hereto as Exhibit B.

The Trustee may from time to time make changes in the form of the Trust Certificate,
provided that such changes shall not be inconsistent with this Agreement. The Trustee may issue
certificates representing fractions of Shares, which certificates shall be in such form and shall carry
such rights and privileges as the Trustee may determine in accordance herewith.

The Trustee, under such regulations with respect to indemnity and otherwise as he shall in his
absolute discretion prescribe, may provide for the issue and delivery of new Trust Certificate in lieu
of lost, stolen or destroyed Trust Certificates or in exchange for mutilated Trust Certificates.

11. Investment Intent. Each of the parties hereto understands and agrees that neither
the Trust Certificates nor the Shares contributed, directly or indirectly, in connection therewith have
been registered under the Securities Act, and that accordingly the Trust Certificates and the beneficial
interest in the Shares represented thereby will not be transferable except as permitted under various
exemptions contained in the Securities Act, or upon satisfaction of the registration and prospectus
delivery requirements of the Securities Act. Each of the parties hereto acknowledges that each of
them must bear the economic risk of holding the Trust Certificates and of owning a beneficial interest
in the underlying Shares which such Trust Certificates represent, for an indefinite period of time.

Each holder of a Trust Certificate hereby severally, not jointly, represents and warrants to the
Trustee that he or it is acquiring such Trust Certificate for investment purposes only, for his or its
own respective account, and not as a nominee or agent for any other person, and not with a view to,
or for resale in connection with, any distribution thereof within the meaning of that term under the
Securities Act. Each holder of a Trust Certificate represents and warrants that he or it has such
knowledge and experience in financial and business matters as to be capable of evaluating the merits
and risks of his or its investment.

12. Restrictions on Transfer. Except as provided in this Section 6, no transfer of any

Trust Certificate, or any Shares or other capital stock of the Company represented thereby, or any
beneficial interest therein, shall be effective until the transferor and the transferee thereof shall have
provided such evidence of compliance with this Agreement, the Trustee’s regulations, and the
Securities Act, as the Trustee shall, in his sole and absolute discretion, deem necessary or appropriate
with regard thereto.

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 VOTING TRUST AGREEMENT - (TEX)

No party shall acquire any interest in or to any Trust Certificate, or Shares represented
thereby, unless such party shall first execute, deliver and agree to be bound by this Agreement.

13. Trustee’s Duties, Rights and Liabilities; Indemnification.

13.1 The Trustee or his successor or successors shall possess and be entitled to
exercise all voting rights with respect to the Shares, or appoint others as proxy to exercise such
voting rights, and otherwise represent, and possess and be entitled to exercise all of the rights of a
stockholder of the Company with respect to, all of the Shares, including without limitation at any
annual or special meeting of stockholders, or in connection with a written consent of stockholders,
or otherwise. No Subscriber or New Subscriber, or any of his, her or its successors, assigns,
transferees or legal representatives, shall retain any voting rights with respect to the Shares by virtue
of ownership of a Trust Certificate issued pursuant to this Agreement. The Trustee shall not be liable
for any vote case, consent given or other action taken [in the absence of gross negligence or willful
misconduct], and in any event, will have no liability to any Subscriber or New Subscriber for or in
connection with any vote case, consent given or other action taken with the consent of such
Subscriber or New Subscriber.

13.2 Each of the Subscribers and the New Subscribers hereby agrees to indemnify
and hold harmless the Trustee from and against any and all losses, damages, costs and expenses
(including without limitation reasonable attorneys fees) incurred in connection with any claim or
action against the Trustee by such person or his legal representatives, or any other person or entity
acting on his behalf (i) as a result of any action taken or not taken by the Trustee within the scope of
his authority hereunder, (ii) challenging the validity or enforceability of this Agreement, or (iii)
otherwise in connection with this Agreement.

13.3 Each of the Subscribers and the New Subscribers, individually, hereby agrees
to indemnify and hold harmless the Trustee from and against any and all losses, damages, cost and
expenses (including without limitation reasonable attorneys’ fees) incurred in connection with any
claim by the Company, or any creditor of the Company, of any person claiming on behalf of either
of them, with respect to any unpaid subscription amounts outstanding in connection with any of the
Common Shares contributed by such Subscriber or New Subscriber.

13.4 Trustee or his guardian or executor in the event of Trustee’s disability or death
shall be a third party beneficiary of this Section 8(d) and shall be entitled to equitable enforcement
thereof.

14. Dividends. The Trustee shall, subject to any liens or encumbrances recognized by
the Trustee, in his sole and absolute discretion, receive and promptly remit to the record holders of
each of the Trust Certificates any dividends or distributions or property of any sort received by the
Trustee in respect of Shares represented by such Trust Certificate.

15. Appointment of Trustee to Fill Vacancy. In the event that Trustee shall resign,
refuse to act as Trustee or become unable (which inability shall continue for thirty (30) consecutive
days) to act as Trustee, the Subscribers shall elect a successor Trustee by a vote of the majority in
interest of them in accordance with the provisions of Section 11 below. Prior to the commencement

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 VOTING TRUST AGREEMENT - (TEX)

of his duties, any successor Trustee shall execute and agree to be bound by the terms of this
Agreement with regard to the Shares and other capital stock subject thereto and subject to this
Agreement.

[16. Continuance and Termination of Trust. The Trust hereby created shall continue
until the first to occur of (i) the Termination Date, (ii) the vote of holders of Trust Certificates
representing Shares entitled to cast in excess of fifty percent (50%) of all of the votes then held
by Shares held of record by the Trust, (iii) such time as there shall be no Shares held of record
by the Trust or (iv) such time as all of the Shares held of record by the Trust shall be
represented by a Trust Certificate or Trust Certificates held of record by a single individual
or entity (other than the Trust), whereupon the Trust shall terminate in accordance with the
provisions of Section 13 hereof.]

[17. Meetings of Subscribers; Notices; Election of Trustee. The Trustee may call a
meeting of the holders of Trust Certificates for any lawful purpose. Any such meeting shall be
called, and notice therefor given, in the manner provided for in the Texas Business
Corporation Act, or any successor statute thereto, with regard to the holding of meetings of
stockholders of corporations organized under such law. In the event that the Trustee shall die,
resign or become unwilling or unable to exercise his rights, duties and obligations hereunder
(and in the case of an inability to so exercise, such inability shall continue for thirty (30) days
or more), Trustee or Subscribers and New Subscribers, if any, as a single class, representing
one-third (1/3) of the voting power of the Shares or other capital stock subject to this
Agreement other than Shares or other capital stock represented by Trust Certificates held of
record by the Trustee, in his individual capacity, may upon not less than ten days written
notice to the Trustee and the other parties to this Agreement in accordance with the terms of
this Agreement, call a meeting for the purpose of electing a new Trustee. At any meeting called
for the purpose of electing a new Trustee, the candidate receiving the vote of a majority in
interest of the holders of Trust Certificates in accordance with Section 12 hereof, shall, upon
compliance with Section 9 hereof, succeed to all of the rights, duties and obligations of the
Trustee. Once elected and qualified pursuant to the terms of this Section 11, no Trustee shall
be replaced by any subsequent election of a Trustee except upon such Trustee’s death or
unwillingness or inability to perform his duties hereunder as provided herein.]

18. Voting. For the purposes of this Agreement, each share of capital stock of the
Company, including the Shares, shall have the voting power assigned it at any annual meeting of
stockholders of the Company with regard to the election of Directors. Any provision hereof calling
for any action by the holders of Trust Certificates of a certain percentage in interest shall refer to the
voting power of such holders described in this Section 12.

19. Distribution upon Termination.

19.1 Upon the Termination of the Trust, the Trustee, in exchange for and upon
surrender of the Trust Certificates then outstanding with regard thereto, will, subject only to the terms
hereof and applicable law with regard to withholding and payment of taxes, deliver or cause to be
delivered to the holders of Trust Certificates whose Shares have been the subject of such termination,

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 VOTING TRUST AGREEMENT - (TEX)

certificates representing Shares then held by the Trustee, in the amounts represented by the Trust
Certificates of such parties together with any proceeds of such Shares then held by the Trustee.

19.2 The Trustee shall be entitled to require any recipient of any distribution
pursuant to this Section 13 to deliver to the Trustee such guaranteed signatures, certificates,
representations or undertakings as the Trustee shall, in his or its discretion, determine to be necessary
or convenient for the purpose of assuring that such distribution, and any related transaction, complies
with this Agreement and applicable law.

20. Employment of the Trustee by the Company. The Trustee may act and receive
compensation as a director, officer, agent or member of any committee of the Company or any
subsidiary or affiliate thereof, and he, or any of his affiliates may, contract with the Company or its
affiliates or have or receive any interest in any matter or transaction to which the Company or its
affiliates may be a party as fully as though he were not the Trustee.

21. Resignations; Bond. The Trustee may resign upon thirty (30) days written notice
sent in accordance with the provisions hereof for notice to Subscribers. No Trustee shall be required
to give any bond or security for the discharge of his duties hereunder.

22. Copies; Inspection. Copies of this Agreement and of the then current names of
holders of Trust Certificates, their addresses and the beneficial ownership of Shares and other capital
stock of the Company held by each of them shall be filed in the principal office of the Company in the
State of Texas and shall be open to inspection of any stockholder of the Company or any beneficiary
of the Trust during such business hours.

23. Taxes. If at any time the Trustee is of the opinion that any tax or governmental charge
is properly payable in respect to any of the Shares subject to this Agreement, or in respect of any
dividends, distributions or other rights arising from or appurtenant thereto, the Trustee may, but shall
not be required to, pay such tax or governmental charge and upon payment thereof shall receive from
each of the record holders of Trust Certificates representing the Shares in respect of which any such
tax or government charge was paid, reimbursement for the taxes or charges paid on that party’s
behalf. The Trustee shall be entitled to retain any of the Shares and any dividends paid thereon with
respect to which he has advanced unreimbursed taxes or charges until the beneficial holder thereof
shall pay such amounts as are due, and, in the alternative, may sell such Shares upon ten (10) days
notice to the beneficial holder, to the Company or to any other party and retain the proceeds
therefrom in payment of amounts owed, remitting the remainder to such beneficial owner.

24. Severability and Reformation. The parties hereto intend for all provisions of this
Agreement to be enforceable to the fullest extent permitted by law. If, however, any provision of this
Agreement his held to be illegal, invalid and unenforceable under present or future law, such provision
shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid
or unenforceable provision were never a part thereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal, invalid and unenforceable
provision or by its severance. Furthermore, in lieu of such illegal, invalid or unenforceable provision,
there shall be added automatically, as part of this Agreement, a provision as similar in term and intent

6
 VOTING TRUST AGREEMENT - (TEX)

to such illegal, invalid and unenforceable provision as may be possible and valid, legal and
enforceable.

25. Notices. Unless otherwise specifically provided herein, all notices and other
communications required or permitted to be given hereunder shall be in writing and shall be deemed
duly given at the time of delivery against receipt at the appropriate address set forth under the name
of each of the parties hereto on the signature page hereof with respect to the Trustee, the Company,
on Exhibit A hereto with respect to the Subscribers, or at such other address as shall be specified by
any party hereto by like notice; provided, however, that the failure, after reasonable efforts, to deliver
notice to one or more of the parties hereto, shall not be deemed to render ineffective notice to any
other party hereto.

26. Governing Law. This Agreement shall be governed and construed in accordance
with the internal laws of the State of Texas without giving effect to the conflicts of laws thereof.

27. Entire Agreement. This Agreement embodies the entire agreement between the
parties hereto and supercedes all prior agreements and understandings between the parties hereto
related to the subject matter(s) hereof. The provisions of this Agreement and the other documents
delivered in connection herewith may be amended or waived only by an instrument in writing, signed
by the parties affected by such amendment or waiver.

28. Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute one and the same
instrument. Copies of this Agreement with facsimile of signatures shall be considered original
executed documents for all purposes. No rule of construction or interpretation shall be utilized as
a result of the party drafting this Agreement.

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 VOTING TRUST AGREEMENT - (TEX)

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
_______________________.

ADDRESS:

__________________, Trustee

, Texas CORRUPTED SOFTWARE, INC.

By:

Its:

SUBSCRIBERS ARE LISTED ON

EXHIBIT A HERETO

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 VOTING TRUST AGREEMENT - (TEX)

EXHIBIT A

SUBSCRIBERS

Name Subscriber’s Addresses Common Shares

9
 EXHIBIT B

FORM OF TRUST CERTIFICATE

CERTIFICATE NO. ___________ Shares of the Common Stock

CORRUPTED SOFTWARE, INC.

COMMON STOCK TRUST CERTIFICATE

This is to certify that the undersigned Trustee has received from or on behalf of ________ a
certificate or certificates, evidencing ownership of shares of the Common Stock (the “Shares”) of
Corrupted Software, Inc., a Texas corporation (the “Company”), and that such Shares are held
subject to all the terms and conditions of that certain Voting Trust Agreement, dated as of
______________, 2000, by and between [Trustee], as Trustee, and certain stockholders of the
Company (the “Agreement”). [During the period of ten years from and after _______________,
2000,] unless the Agreement shall terminate earlier in accordance with its terms, said Trustee or his
successor or successors shall, as provided in said Agreement, possess and be entitled to exercise the
vote and otherwise represent all of the Shares for all purposes, it being agreed that no voting right
shall pass to the holder hereof or any of his or her successors, assigns, transferees or legal
representatives of any sort, by virtue of the ownership of this certificate.

Upon the termination of the Trust, this certificate shall be surrendered to the Trustee by the
holder hereof and such holder shall be entitled to receive a stock certificate representing a like number
of the Shares previously deposited pursuant to the Agreement with the Trustee, or any Shares or
other proceeds received in respect thereof.

During the term of the Agreement, neither this certificate nor the Shares deposited in
connection with its issuance, or any beneficial interest in either of them, may be sold or transferred
except in accordance with the terms and conditions of the Agreement, including any agreements
referenced therein. In any event, neither this certificate nor any beneficial interest therein, nor any
beneficial interest in the Shares deposited in connection with its issuance, may be transferred except
in a transaction complying with the registration provisions of the Securities Act of 1933, as amended,
and any applicable state securities laws (“Securities Laws”), or any transaction exempt from the
registration provisions thereof. Pursuant to the terms of the Agreement, the Trustee may require an
opinion of counsel satisfactory to him as to the compliance with any such transaction with the terms
of the Agreement and the provisions of the Securities Laws.

IN WITNESS WHEREOF, the undersigned Trustee has executed this certificate as of the
_____ day of _____________.

Trustee

APPENDIX D

Venture Capital Voting Agreement - (Del)

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 VENTURE.COM, INC.
VOTING AGREEMENT

This Voting Agreement (the “Agreement”) is made as of _______________, 2000, among

Venture.com, Inc., a Delaware corporation (the “Company”), with offices at
______________________ _______________, telecopier number: ________________; the persons
whose names and addresses appear on Schedule I (individually, a “Founder” and collectively, the
“Founders”); and the persons whose names and addresses appear on Schedule II (individually, an
“Investor” and collectively, the “Investors”).

The facts underlying this Agreement are as follows:

A. The Founders have previously purchased shares of Common Stock of the Company
and may in the future acquire additional voting securities of the Company.

B. The Investors have purchased or are purchasing shares of Series A Preferred Stock
of the Company and warrants to purchase shares of Series A Preferred Stock and may in the future
acquire additional voting securities of the Company.

C. The Founders and the Investors wish to provide for the voting of all voting securities
of the Company held by them, whether now or hereafter owned, with respect to the election of
directors.

NOW, THEREFORE, the parties agree as follows:

1. Election of Directors. The number of directors constituting the Company’s Board of

Directors has been fixed by the Company’s Bylaws at ______ (__) directors, and the parties agree
not to change that number without the consent of the Founders and Investors holding two-thirds of
the then outstanding Series A Preferred Stock. Until this Agreement is terminated, the parties hereto
shall (i) vote all voting securities of the Company held by them at the time of any vote thereof
(whether such securities were held at the time this Agreement was executed or thereafter acquired)
and (ii) require each of their respective assignees and transferees of voting securities of the Company
to vote all voting securities of the Company held by such assignee or transferee to vote for the
nomination and election of the directors of the Company as follows:

(a) provided the Investors own at least ___ percent of the outstanding shares of
capital stock of the Company on a fully diluted basis, a number of individuals designated by Investors
holding a majority of the capital stock of the Company on a fully diluted basis held by Investors equal
to the greater of (i) two or (ii) the number of directors constituting the entire number of authorized
directors of the Company multiplied by a fraction the numerator of which is the number of shares of
capital stock of the Company on a fully diluted basis held by the Investors and the denominator of
which is the number of shares of capital stock of the Company on a fully diluted basis then
outstanding (with the number of individuals rounded upward to the nearest whole number); or

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 Venture Capital Voting Agreement - (Del)

(b) if clause (a) is not applicable and provided _______________________

_________________________ collectively hold at least ____________ shares of Series A Preferred
Stock (as adjusted for stock dividends, splits, combinations, recapitalizations and the like) and/or the
number of shares of Common Stock into which that number of shares of Series A Preferred stock (as
adjusted) have been converted, one individual nominated by ____________.

As used in this Agreement “capital stock of the Company on a fully diluted basis” means the
sum of the number of shares of Common Stock of the Company outstanding, the number of shares
of Common Stock into which securities or debt of the Company is convertible and the number of
shares of Common Stock issuable upon the exercise of options, warrants or other rights then
outstanding to acquire Common Stock or securities convertible into Common Stock of the Company.

2. Removal of a Director; Vacancy. Any vote taken to remove any director elected
pursuant to Section 1 above, or to fill any vacancy created by the death or resignation of a Director
elected pursuant to Section 1 above, shall be subject to the same voting requirements as are set forth
in Section 1 above. Specifically, the parties will vote their shares of Company stock to remove any
director from the Board of Directors, but only if such action is requested by (a) if the Director was
elected pursuant to clause (a) of Section 1, the holders of two-thirds of the securities entitled to
designate the director under the clause requests the removal, or (b) if the director was elected
pursuant to clause (b) of Section 1, Easton Hunt requests the removal.

3. Proxy. Only to accomplish the election and/or removal of the directors as provided
in Sections 1 and 2, each of the parties hereto (other than the Company) hereby grants to, and is
deemed to have executed in favor of ___________________________________, or his designee,
successor or assign:

(a) an irrevocable proxy coupled with an interest to vote all shares of the
Company’s capital stock which the grantor of the proxy owns or has the power to vote in favor of
such election by a written consent of shareholders held for the purpose of authorizing such election;
and

(b) an irrevocable power of attorney to sign and file any and all papers, documents
or instruments required to be signed and filed by the grantor of the power in order to effectuate such
election.

The proxy granted herein shall remain during the entire term of this Agreement.

4. Termination. This Agreement shall terminate on the earlier of (i) the automatic
conversion of the Series A Preferred Stock into shares of Common Stock pursuant to the Company’s
Certificate of Incorporation, as amended, or (ii) the date as of which to parties hereto terminate this
Agreement by written consent of the Founders holding a majority of the capital stock of the Company
on a fully diluted basis held by all Founders and Investors holding two thirds of the capital stock of
the Company on a fully diluted basis held by all Investors.

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 Venture Capital Voting Agreement - (Del)

5. Rights of Equity Holders. Except as provided by this Agreement, each party shall
retain and have the right to exercise the full rights of a shareholder with respect to the shares of
capital stock of the Company owned by it.

6. Legends. The parties hereto agree that the certificates representing the shares of
capital stock or rights to acquire capital stock owned by them in the Company shall be stamped or
otherwise imprinted with a legend in the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE

ARE SUBJECT TO CERTAIN OBLIGATIONS CONCERNING
THE ELECTION OF DIRECTORS AND TO AN IRREVOCABLE
PROXY CONTAINED IN A VOTING AGREEMENT DATED AS
OF _______________, A COPY OF WHICH IS ON FILE WITH
THE COMPANY.”

7. Benefit and Assignability. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors, personal representatives successors
and assigns and shall be binding upon any person, firm, corporation or other entity to whom any
shares of voting capital stock of the Company are transferred (even if in violation of the provisions
of this Agreement) and the heirs, executors, personal representatives, successors and assigns of such
person, firm, corporation or other entity. The rights of any party under this Agreement will attach
to all voting securities of the Company held by the party such that upon a transfer or assignment of
all or any of such securities the transferee or assignee (i) will have the rights and obligations of a
Founder or an Investor, as applicable, under this Agreement, (ii) be made a Founder or an Investor,
as applicable, hereunder by signing a counterpart hereof and (iii) its name and address will be added
to Schedule I or Schedule II, as applicable; and each of the parties hereto (other than the Company)
shall in conjunction with and as a condition to any transfer or assignment of any voting securities of
the Company require any assignee or transferee to become a party hereto by signing a joinder to this
Agreement.

8. Notices. The address of the Company is set forth at the beginning of this Agreement.
The address of each Founder is set forth on Schedule I hereto. The address of each Investor is set
forth on Schedule II. All notices permitted or required under this Agreement shall be delivered by
hand, by overnight courier, by telecopier or sent by registered or certified mail, postage prepaid, to
the respective parties at the addresses indicated herein or at such other addresses as a party shall
furnish to the other parties hereto. Notices delivered by hand shall be deemed to have been received
on the date of delivery. Notices delivered by telecopy shall be deemed to have been received on the
date on which an acknowledgment of good transmission is received by the sender’s telecopier.
Notices sent by mail shall be deemed to have been received on the third business day after mailing.

9. Enforceability. The invalidity or unenforceability of any provision of this Agreement

shall not be deemed to affect the validity or enforceability of any other provision of this Agreement.

10. Additional Purchasers. Any “Additional Purchaser” as defined in the Series A

Agreement shall become a party to this Agreement by signing a counterpart joinder hereof and shall

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 Venture Capital Voting Agreement - (Del)

thereupon be an “Investor” hereunder, and each party to this Agreement consents thereto. The
Company shall promptly deliver to each party an amended Schedule of Investors which includes the
Additional Purchaser.

11. Additional Founders. The Company shall require any person who acquires two
percent (2%) or more of the outstanding capital stock of the Company on a fully diluted basis
(“Additional Founder”) to become a party to this Agreement by signing a counterpart joinder hereof
and shall thereupon be a “Founder” hereunder, and each party to this Agreement consents thereto.
The Company shall promptly deliver to each party an amended Schedule of Founders which includes
the Additional Founder.

12. Amendment. This Agreement may not be modified or amended or any provision
waived for all parties, except upon the written consent of (a) Founders holding a majority of the
voting power of all Company voting securities then held by all Founders and (b) Investors holding
two-thirds of the voting power of all Company voting securities then held by Investors voting on an
as if converted to Common Stock basis; provided, however, that the parties agree that additional
persons, firms, corporations or other entities shall become parties hereto, as provided in Sections 7,
10 and 11 by signing joinder counterparts hereof, adding the name to the appropriate Schedule and
notifying the other parties, and all parties hereby consent thereto.

13. Event of Default; Remedies. The breach of any term or condition of this Agreement
by any party hereto shall constitute an “Event of Default.” Upon an Event of Default, the Investors
and any of them shall have any may exercise all remedies available under applicable laws. Each of
the parties further agrees that damages for a breach or default under this Agreement would be
inadequate and that in addition to all other remedies available at law or in equity the parties and their
permitted successors and assigns shall be entitled to specific performance or injunctive relief, or both,
in the event of a breach or threatened breach of the Agreement.

14. Cooperation. The parties agree that after the execution of this Agreement they will
from time to time, upon the request of any other party and without further consideration, execute,
acknowledge and deliver in proper form any further instruments and take such other action as any
other party may reasonably require to carry out effectively the intent of this Agreement.

15. Cumulative Remedies and Survival. The rights and remedies specified in this
Agreement shall not be exclusive of any other right or remedy and shall be cumulative and in addition
to every other right or remedy now or hereafter existing at law or in equity or otherwise that may be
available to the parties hereto.

16. Waiver of Breach. Neither any waiver of any breach of, nor any failure to enforce any
term or condition of, this Agreement shall operate as a waiver of any other breach of any term or
condition, nor constitute nor be deemed a waiver or release of any other rights, in law or at equity,
in claims that any party may have against any other party for anything arising out of, connected with,
or based upon this Agreement. No waiver shall be enforceable against any party thereto unless set
forth in a written instrument or agreement signed by that party.

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 Venture Capital Voting Agreement - (Del)

17. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its principles of conflicts of law.

18. Entire Agreement. This Agreement constitutes the entire understanding and
Agreement among the parties with respect to the subject matter hereof.

19. Counterparts. This Agreement may be executed in counterparts, each of which, when
so executed and delivered, shall be an original instrument, but together shall constitute a single
Agreement.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first
set forth above.

“Company”

VENTURE.COM, INC.

By:________________________
Title:______________________

5
 APPENDIX E

Venture Capital Investors - (Del)

INVESTORS RIGHTS AGREEMENT

This Investors Rights Agreement is made as of _______________, 2000 by and among

Worldo.com, Inc., a Delaware corporation (the “Company”) and the entities listed on the Schedule
of Investors attached hereto as Exhibit A (collectively referred to as the “Investors”).

RECITALS

Concurrently herewith, the Company is entering into a Series A Preferred Stock and
Warrants Purchase Agreement (the “Series A Agreement”) and issuing shares of Series A Preferred
Stock (the “Series A Preferred Stock”) and warrants to purchase shares of Series A Preferred Stock
(the “Warrants”) to the Purchasers named in the Series A Agreement. This Agreement is made by
the Company as a condition to the closing under the Series A Agreement.

NOW, THEREFORE, it is hereby agreed as follows:

1. Definitions.

“Accredited Investor” means an Investor who or which, at the time of an offer and sale
of New Securities under Section 3, (i) is an “accredited” investor within the meaning of Commission
Rule 5 01 (a) and (ii) is eligible under any and all applicable state and foreign securities laws to
purchase the New Securities without any requirement for approval by or registration, qualification
or filing (except a mere notice filing) with any governmental authority or any required furnishing of
disclosure materials (except any disclosures that may be required to avoid violation of any applicable
securities anti-fraud laws).

“Commission” refers to the United States Securities and Exchange Commission.

“Demand Registration” has the meaning ascribed in Section 2.2.

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended.

“Holder” refers to a holder of Registrable Shares.

“Initiating Holders” has the meaning ascribed in Section 2.2.

“New Securities” has the meaning ascribed in Section 3.

“Qualified Public Offering” refers to the closing of the underwritten offering of the
Company’s equity securities which results in the automatic (mandatory) conversion of the Series A
Preferred Stock into Common Stock.

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 Venture Capital Investors - (Del)

“Registrable Shares” refers to any and all (i) Common Stock issued or issuable upon
the conversion of the Series A Preferred Stock issued either pursuant to the Series A Agreement or
upon exercise of the Warrants issued pursuant to the Series A Agreement, and (ii) Common Stock
of Company issued as dividends or distributions in respect of or in any stock split, reorganization
reverse stock split or the like of Common Stock described in clause (i). Notwithstanding the
foregoing, shares of Common Stock shall cease to be Registrable Shares after they have been sold
to the public in a registered transaction or pursuant to Rule 144 or another transaction exempt from
registration under the Act so that all transfer restrictions and restrictive legends with respect thereto
are removed upon the consummation of such sale.

“Register,” “registered” and “registration” refers to a registration effected by preparing

and filing a registration statement in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such registration statement, and compliance with applicable securities
laws of such states or other jurisdictions in which Holders or the underwriters notify the Company
of their intention to offer Registrable Shares.

“Securities Act” refers to the Securities Act of 1933, as amended.

2. Registration.

2.1 Standoff (Lock-Up). Each Holder agrees in connection with the initial
underwritten public offering of the Company’s securities, upon request of the Company on the advice
of the underwriters managing such initial underwritten public offering, not to sell, make any short sale
of, pledge, grant any option for the purchase of, acquire any option to sell or otherwise dispose of
any Common Stock (other than Registrable Shares included in the registration) or otherwise to hedge
or reduce the Holder’s risk of ownership of Common Stock without the prior written consent of such
underwriters, for such period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the underwriters, provided, that all officers, directors and owners
of five percent of the Common Stock of the Company also agree to such restrictions; however,
nothing in this Section 2.1 shall prohibit the transfer by a Purchaser to its partners, members and
affiliates, provided such persons agree to be bound by this Section 2.l. Each Holder shall cause any
transferee of the Holder’s Registrable Shares in whose hands they continue to be Registrable Shares
to agree in writing to be bound by this Section 2.1, and agrees to the imposition of a legend on all
stock certificates representing the Holder’s Registrable Shares providing notice of this Section 2.1,
and further acknowledges that stop-transfer notices may be given to the transfer agent of the
Common Stock to enforce compliance with this Section 2.1.

2.2 Demand Registration.

(a) If the Company shall receive at any time a written request to register
Registrable Shares from the Holders of at least a majority of the Registrable Shares (“Initiating
Holders”), the Company shall promptly thereafter deliver notice of such request to all other Holders,
and will use its best efforts to register the sale and distribution of all or such portion of such Initiating
Holders’ Registrable Shares as are specified in their request, together with all or such portion of the
Registrable Shares of any other Holder or Holders as are specified in written requests given within 20
days after such written notice from the Company, subject to the conditions and limitations in this

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 Venture Capital Investors - (Del)

Agreement (such registration pursuant to a request under this Section hereinafter referred to as a
“Demand Registration”). However, the Company shall not be required to effect a Demand
Registration (i) prior to the earlier of (A) one year following the effective date of the first registration
of Common Stock of the Company under the Securities Act or (B) three years from the date of this
Agreement; (ii) after the Company has effected one Demand Registration pursuant to this Section 2.2
and such registration has been declared effective or have been withdrawn at the written request of
a majority in interest of the Initiating Holders; except that if the registration is withdrawn prior to the
effective date at the request of Initiating Holders and if either there has been a material adverse
change in the Company, its business, assets, or financial condition from that known by the Initiating
Holders at the time their request for registration was made or participating Holders reimburse the
Company for out-of-pocket expenses incurred in preparing the registration, such registration shall
not be deemed to have been filed for purposes of this clause (ii); or (iii) if prior to the receipt by the
Company of the request from Initiating Holders, the Company has given written notice to all Holders
of Registrable Securities of its intent to register in a proposed public offering by the Company its
securities for its account under the Securities Act (other than a registration relating solely to
employee benefit plans), then, provided thereafter the Company actively seeks to file and promptly
cause the offering to be declared or became effective, Initiating Holders may not make their request
under this Section 2, prior to the earlier of (1) one hundred eighty (180) days after the Company had
first sent out the first notice to a Holder of intent to register or (2) ninety (90) days after the effective
date of the registration statement. The Company may not give any written notice to intent to register
as provided in this clause (iii) prior to twelve months after it has previously given any such notice.

(b) Subject to the foregoing, the Company shall file a registration statement
covering the Registrable Shares so requested to be registered as soon as practical, but in any event
within 90 days, after receipt of the request or requests of the Initiating Holders; provided, however,
that if the Company shall furnish to the Initiating Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company and its stockholders for such registration statement to be filed within
such period, the Company shall have an additional period of not more than 90 days after the
expiration of the initial period within which to file such registration statement, provided that during
such time the Company may not file a registration statement for securities to be issued and sold for
its own account unless such registration is for the Company’s initial public offering or for the
acquisition of another company; and provided further, that no further delay will be permitted without
the consent of the majority in interest of the Initiating Holders.

(c) If the Initiating Holders intend to distribute the Registrable Shares

covered by their request by means of an underwriting, they shall so advise the Company as a part of
their request made pursuant to Section 2.2(a). In such event, the Company shall include such
information in the written notice referred to in Section 2.2(a). In such event, if so requested in
writing by the Company, the Holders shall sell their Registrable Shares to an underwriter or to
underwriters managed by an underwriter selected by the Company with regard to the underwriting
of such requested registration; provided that such underwriter shall be reasonably acceptable to the
Initiating Holders. The right of any Holder to registration pursuant to this Section 2.2 shall be
conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s
Registrable Shares in the underwriting, unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder. The Company shall (together with all Holders proposing to

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 Venture Capital Investors - (Del)

distribute their securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this Section 2.2, if the managing underwriter advises the
Company that marketing factors make it advisable to limit the number of shares to be underwritten,
the Company shall so advise all participating Holders, and the number of Registrable Shares that may
be included in the registration and underwriting as determined by the managing underwriter
(“underwriter cut-back”) shall be allocated among all participating Holders in proportion, as nearly
as practicable, to the respective amounts of Registrable Shares held by such Holders. No securities
may be included in the registration for the account of the Company or of holders of Company
securities other than Registrable Shares without the consent of Holders of a majority of the
Registrable Shares to be included, which consent shall specify the effect of any underwriter cut-back
on such other securities, including the relative priorities between shares offered for the account of the
Company and for the account of such other stockholders. If any Holder disapproves of the terms of
the underwriting, the Holder may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the Initiating Holders. Any Registrable Shares which are excluded from
the underwriting by reason of the underwriters cut-back or withdrawn from such underwriting shall
be withdrawn from such registration.

2.3 Piggyback Registration.

(a) Each time the Company determines to register its Common Stock, for
its own account or the account of any of its shareholders, other than (i) the Company’s initial
underwritten public offering, (ii) a registration relating solely to employee plans, (iii) a registration
relating solely to a transaction pursuant to Rule 145 promulgated by the Commission, or (iv) a
registration on any other Commission form which does not include substantially the same information
as would be required to be included in a registration statement covering the sale of Registrable
Shares, the Company will include in such registration and in any underwriting involved therein, all
the Registrable Shares specified in written requests made within 20 days (15 days if the registration
is on Form S-3) after written notice from the Company, except as set forth in Section 2.3(b).

(b) If the registration is for a public offering involving an underwriting, the

Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.3(a).
In such event the right of any Holder to include Registrable Shares in the registration shall be
conditioned upon the inclusion of such Holder’s Registrable Shares in the underwriting. All Holders
proposing to participate shall (together with the Company and any other holders distributing their
securities through such underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding
any other provision of this Section 2.3, if the managing underwriter advises the Company in writing
that marketing factors make it advisable to limit the number of shares to be underwritten or to limit
sales by persons other than the Company, the managing underwriter may limit the number of
Registrable Shares to be included in the registration and underwriting to the extent of excluding all
Registrable Shares from such underwritten offering. In the event of any such underwriter cut-back,
the Company shall so advise all Holders of Registrable Shares which would otherwise be registered
and underwritten pursuant hereto, and the number of Registrable Shares that may be included in the
registration and underwriting shall be allocated among the Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Shares held by such Holders. If the participation

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 Venture Capital Investors - (Del)

of the Holders is so limited by an underwriter cut-back, no securities shall be included in the

registration for the account of persons other than the Holders, the Company and any stockholders
exercising demand registration rights similar to those afforded to the Holders in Section 2.2 hereof.
If any Holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom
by written notice to the Company and the managing underwriter. Any Registrable Shares excluded
or withdrawn from such underwriting shall be withdrawn from such registration.

2.4 Form S-3 Registration.

(a) The Company shall use reasonable efforts to qualify for registration on
Form S-3 or its successor form. After the Company has qualified for the use of Form S-3, Initiating
Holders shall have the right to an unlimited number of registrations on Form S-3, subject to the
limitations set forth below, by so requesting registration. Such requests shall be in writing and shall
state the number of Registrable Shares to be sold and the intended plan of distribution and methods
of disposition by such Holders. The Company shall not be required to file a registration statement
pursuant to this Section 2.4:

(i) unless the Initiating Holders propose to dispose of Registrable

Shares having an aggregate sales price (before deduction of underwriting discounts and expenses of
sale of at least $ 1,000,000); and

(ii) within six months of the effective date of the last registration
filed pursuant to this Section 2.4.

The provisions of paragraph (b) of Section 2.2 shall apply to a registration pursuant to this
Section 2.4.

(b) The Company shall give written notice to all Holders of the receipt of
a request for registration pursuant to Section 2.4(a) and shall permit all Holders who elect to
participate, by notice given to the Company within fifteen days after the Company’s notice, to include
their Registrable Shares in the registration, provided that if the registration is for an underwritten
offering, the following terms shall apply to all participants in such offering. If the registration is for
a registered public offering involving an underwriting, the right of any Holder to registration pursuant
to Section 2.4 shall be conditioned upon such Holder’s participation in such underwriting and the
inclusion of such Holder’s Registrable Shares in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall (together with the
Company and the other Holders distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters selected by the
Holders with regard to the underwriting of such requested registration; provided that such
underwriter shall be reasonably acceptable to the Company. Notwithstanding any other provision of
this Section 2.4, if the managing underwriter advises the Company in writing that marketing factors
make it advisable to limit the number of shares to be underwritten, the managing underwriter may
limit the number of Registrable Shares to be included in the registration and underwriting. The
Company shall so advise all Holders of Registrable Shares which would otherwise be registered and
underwritten pursuant hereto, and the number of Registrable Shares that may be included in the
registration and underwriting shall be allocated among the Holders in proportion, as nearly as

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 Venture Capital Investors - (Del)

practicable, to the respective amounts of Registrable Shares held by such Holders. No securities may
be included in the registration for the account of the Company or of holders of Company securities
other than Registrable Shares without the consent of Holders of a majority of the Registrable Shares
to be included. If any Holder disapproves of the terms of any such underwriting, the holder may elect
to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable
Shares excluded or withdrawn from such underwriting shall be withdrawn from such registration.
Subject to the foregoing, the Company will use its reasonable best efforts to effect promptly the
registration of all Registrable Shares on Form S-3 to the extent requested by the Holder or Holders
thereof for purposes of disposition.

2.5 Expenses of Registration. All expenses incurred in connection with any

registration pursuant to this Agreement, including without limitation, all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the Company and of a
single law firm acting as counsel for the Holders, and expenses of any special audits of the Company’s
financial statements incidental to or required by such registration, shall be borne by the Company
except that the Company shall not be required to pay underwriters’ fees, discounts or commissions
relating to Registrable Shares.

2.6 Registration Procedures. If and whenever the Company is required by the

provisions of this Agreement to use its reasonable best efforts to effect the registration of any
Registrable Shares, the Company will, as expeditiously as practicable under the circumstances:

(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration statement to become and
remain effective for a period of 120 days (or until the Holders have completed the sale of the
registered shares, if earlier);

(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities covered by such
registration statement whenever the seller or sellers of such securities shall desire to sell or otherwise
dispose of the same, but only to the extent provided in this Agreement;

(c) furnish to each seller such number of copies of a prospectus, including

a preliminary prospectus, in conformity with the requirements of the Securities Act, as such seller may
reasonably request in order to facilitate the public sale or other disposition of the securities owned
by such seller;

(d) use every reasonable effort to register or qualify the securities covered
by such registration statement under such other securities or state blue sky laws of such jurisdictions
as each seller shall reasonably request, and do any and all other acts and things which may be
necessary under such securities or blue sky laws to enable such seller to consummate the public sale
or other disposition in such jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified;

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 Venture Capital Investors - (Del)

(e) before filing the registration statement or prospectus or amendments

or supplements thereto, furnish to counsel selected by the participating Holders copies of such
documents proposed to be filed, which shall be subject to the reasonable approval of such counsel;
and furnish to each Holder who is selling Registrable Shares in a registration effected under
Section 2.2, 2.3 or 2.4 a signed counterpart, addressed to the prospective seller, of (i) an opinion of
counsel for the Company, dated the effective date of the registration statement, and (ii) a “comfort”
letter signed by the independent public accountants who have certified the Company’s financial
statements included in the registration statement, covering substantially the same matters with respect
to the registration statement (and the prospectus included therein) and (in the case of the accountants’
letter) with respect to events subsequent to the date of the financial statements, as are customarily
covered (at the time of such registration) in opinions of the Company’s counsel and in accountants’
letters delivered to the underwriters in underwritten public offerings of securities.

2.7 Indemnification and Contribution.

(a) Indemnification by the Company. In the event of any registration of

any of its securities under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless each of the following parties (“Indemnified Parties”):

(i) the seller of such securities;

(ii) each underwriter (as defined in the Securities Act);

(iii) each other person who participates in the offering of such

securities; and

(iv) each other Person, if any, who controls (within the meaning of
the Securities Act) such seller, underwriter or participating Person against any losses, claims, damages
or liabilities, including any cost or expense incurred for investigating or defending same (collectively
the “Liability”), joint or several, to which such Indemnified Party may become subject under the
Securities Act or the Exchange Act or any other statute or at common law, insofar as such Liability
(or action in respect thereof) arises out of or is based upon

(1) any alleged untrue statement of any material fact

contained, on the effective date thereof, in any registration statement under which such securities
were registered under the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto,

(2) any alleged omission to state therein a material fact

required to be stated therein or necessary to make the statements therein not misleading, or

(3) any violation or alleged violation by the Company of

the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities act, the Exchange Act or any state securities law; and the Company will pay as
incurred to each of the Indemnified Parties any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such Liability.

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 Venture Capital Investors - (Del)

(b) Liability Exclusion for Company. The Company shall not be liable to
any Indemnified Party in any such case to the extent that any such Liability arises out of or is based
upon any alleged untrue statements or alleged omission made in such registration statement,
preliminary or final prospectus, or amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by such Indemnified Party specifically
for use therein.

The Company shall not be required to indemnify any person against any Liability arising from any
untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency
is corrected in the final prospectus or for any liability which arises out of the failure of any person to
deliver a prospectus as required by the Securities Act. The indemnity provided for in this subsection
shall remain in full force and effect regardless of any investigation made by or on behalf of such
Indemnified Party.

(c) Indemnification by Holders of Registrable Shares. Each Holder whose

Registrable Shares are included in a registration shall indemnify and hold harmless each other Holder
whose Registrable Shares are included in a registration, the Company, its directors and officers, each
underwriter and each other person, if any, who controls each other Holder, the Company or such
underwriter (collectively, “Indemnitee”), against any liability (including fees and expenses incurred
in investigating and defending same), joint or several, to which any Indemnitee may become subject
under the Securities Act or any other statute or at common law, in so far as such liability (or actions
in respect thereof arises out of or is based upon:

(i) the disposition by such Holder of such Registrable Shares in

violation of the provisions of this Agreement,

(ii) any alleged untrue statement of any material fact contained, on

the effective date thereof, in any registration statement under which securities were registered under
the Securities Act at the request of such holder, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto,

(iii) any alleged omission to state therein a material fact required

to be stated therein or necessary to make the statements therein not misleading, or

(iv) any violation or alleged violation by such Holder of the

Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under
the Securities Act, the Exchange Act or any state securities law; and such Holder will pay as incurred
to each of the Indemnified Parties any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Liability.

Such indemnification in the case of (ii) and (iii) applies to the extent, but only to the extent, that such
alleged untrue statement or alleged omission was made in such registration statement, preliminary or
final prospectus, amendment or supplement thereto in reliance upon and in conformity with written
information shed to Company by such Holder specifically for use therein. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on behalf of such Indemnitee
and shall survive transfer of such securities by such Holder.

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 Venture Capital Investors - (Del)

(d) Liability Exclusion for Holders. No Holder whose Registrable Shares

are included in a registration shall be required to indemnify any person against any liability arising
from any untrue or misleading statement or omission contained in any preliminary prospectus if such
deficiency is corrected in the final prospectus or for any liability which arises out of the failure of any
other person to deliver a prospectus as required by the Securities Act. However, the liability of any
Holder pursuant to this Section 2.7 as a result of its status as a selling security holder shall be limited
to an amount equal to the total public offering price, less underwriting discounts and commissions,
for the Registrable Shares sold by such Holder or, in the situation described in clause (i) of subsection
(c), limited to an amount equal to proceeds of the disposition referred to therein.

(e) Further Indemnity. Indemnification similar to that specified in

subsections (a) through (d) of this Section shall be given by the Company and each Holder whose
Registrable Shares are included in a registration (with such modifications as may be appropriate) with
respect to any required registration or other qualification of the Registrable Shares under any federal
or state securities law other than the Securities Act.

(f) Procedures; Rights to Separate Counsel. In the event an Indemnified

Party or Indemnitee (“Claimant”) receives a complaint, claim or other notice of any loss, claim or
damage, liability or action, giving rise to a claim for indemnification under this Section, the Claimant
shall promptly notify the Person against whom indemnification is sought (“Indemnifying Party”) of
such complaint, notice, claim or action, and such Indemnifying Party shall have the right to investigate
and defend any such loss; claim, damage, liability or action. The Claimant shall have the right to
employ separate counsel in any such action and to participate in the defense thereof but the fees and
expenses of such counsel shall not be at the expense of the Indemnifying Party unless the
Indemnifying Party fails to promptly defend, in which case the fees and expenses of such separate
counsel shall be borne by the Indemnifying Party; provided, however, that a Claimant shall have the
right to retain its own counsel, with the fees and expenses to be paid by the Indemnifying Party, if the
representation of such Claimant would be inappropriate due to actual or potential differing interests
between the Claimant and the other party represented by such counsel in such proceeding. In no
event shall an Indemnifying Party be obligated to indemnify any Person for any settlement of any
claim or action effected without the Indemnifying Party’s prior written consent.

(g) Contribution. In order to provide for just and equitable contribution

to joint liability under the Securities Act in any case in which either (i) any holder of Registrable
Shares exercising rights under this Section 2, or any controlling person of any such holder, makes a
claim for indemnification pursuant to this Section 2.7 but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 2.7 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such selling holder or any
such controlling person in circumstances for which indemnification is provided under this Section 2.7;
then, and in each such case, the Company and such holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution from others) in such
proportion so that such holder is responsible for the portion represented by the percentage that the
public offering price of such holder’s Registrable Shares offered by and sold under the registration
statement bears to the public offering price of all securities offered by and sold under such registration

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 Venture Capital Investors - (Del)

statement, and the Company and other selling holders are responsible for the remaining portion,
provided, however that, in any such case, (A) no such holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Shares offered and sold by such
holder pursuant to such registration statement, and (B) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

2.8 Information by Holder. The Holder or Holders of Registrable Shares included

in any registration shall furnish to the Company such information regarding such holder or holders,
the Registrable Shares held by them and the distribution proposed by such Holder or Holders as the
Company may reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.

2.9 Compliance With Rule 144. In the event that the Company (a) registers a class
of securities under Section 12 of the Exchange Act, or (b) shall commence to file reports under
Section 13 or 15(d) of the Exchange Act, thereafter, at the request of any holder of Registrable
Securities who proposes to sell the Registrable Securities in compliance with Rule 144 of the
Commission, the Company shall forthwith furnish to such holder or holders a written statement of
compliance with the filing requirements of the Commission as set forth in such Rule (at any time from
and after ninety days following the effective date of the Company’s initial Registered Public Offering),
as such Rule may be amended from time to time, and make available to the public and such holders
such information as will enable the holders to make sales of Registrable Securities pursuant to Rule
144.

2.10 Transfer of Registration Rights. The rights of a Holder under Section 2 of this
Agreement may be assigned by a Holder to a transferee or assignee of 100,000 or more Registrable
Shares (or any number if the transferee is a partner or retired partner of a Series A Purchaser or a
family member of or trust for the benefit of an individual Holder or receives shares by will or intestate
succession from such partner or individual or trust), provided, that the Company is given written
notice by the Holder at the time of or within 10 days after said transfer, stating the name and address
of said transferee or assignee and identifying the Registrable Shares with respect to which such
registration rights are being assigned, and the assignee agrees in writing to be bound by this Section
2.

2.11 Limitations on Subsequent Registration Rights. The Company shall not,

without the prior written consent of the Holders of not less than two-thirds of the Registrable Shares
enter into any agreement with any holder or prospective holder of any securities of the Company
which would give such holder or prospective holder a demand registration right exercisable prior to
fifteen months following the effective date of the first registration of Common Stock of the Company
under the Securities Act, allow such holder or prospective holder to include such securities in any
registration filed under Sections 2.2 or 2.4 hereof without the consent of the Holders as set forth in
such section, or to exclude Registrable Shares from or limit the number of Registrable Shares
included in any other registration.

3. Participation in Future Financings.

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 Venture Capital Investors - (Del)

Except as provided in Section 3(d) below, if the Company shall issue any “New
Securities” (as defined below), it shall offer to sell to each Investor and to each assignee (such
Investor or such assignee being hereinafter called the “Offeree”), but only if such Offeree is at such
time an Accredited Investor, a “Ratable Portion” (as defined below) of such New Securities on the
same terms and conditions and at the lowest price as such New Securities are issued to any person.
“Ratable Portion” shall mean that portion of such New Securities that bears the same ratio to all such
New Securities (including for this purpose all New Securities which may be purchased by all Offerees
pursuant to this Section 3) as the number of Shares held by the Offeree bears to the Outstanding
Common Shares. “New Securities” means any shares of, or securities (including convertible debt and
debt with rights to acquire any shares of any class or serve of capital stock) convertible or exercisable
or exchangeable into any class or series of capital stock of the Company, whether or not presently
authorized. “Shares” means shares of Common Stock held, shares of Common Stock into which
warrants and options then outstanding are exercisable, and shares of Common Stock into which
shares of Preferred Stock held by the Offeree are convertible. “Outstanding Common Shares” means
all shares of Common Stock then outstanding and all shares of Common Stock issuable upon
conversion of all convertible securities then outstanding and upon exercise of all warrants and options
then outstanding (except the New Securities so issued). Each time the Company proposes to offer
any New Securities, the Company shall first make an offering of such New Securities to each Investor
in accordance with the following procedures:

(a) The Company shall deliver a notice (the “Notice”) to the Founders and
the Investors stating (i) its bona fide intention to offer such New Securities, (ii) the class, series or
type of New Securities being offered and number or amount of such Securities to be offered, and (iii)
the price and terms upon which it proposes to offer such New Securities.

(b) Within fifteen (15) business days after receipt of the Notice, each
Investor may elect by written notice delivered to the Company to purchase or obtain, at the price and
on the terms specified in the Notice, up to its Ratable Portion of the New Securities being offered.
The Investors who elect to purchase New Securities shall each have a right of over subscription, such
that, if any Investor does not purchase all of its Ratable Portion, the Investors who have elected to
purchase New Securities in the manner described above may purchase all or some of these
unpurchased New Securities within five (5) business days after receipt of notice from the Company
of their availability. Purchases of remaining New Securities shall be made pro rata based upon each
participating Investor’s level of participation at the initial election level.

(c) If the Investors do not elect to purchase pursuant to paragraph (b) all
of their Ratable Portion of the New Securities being offered, the Company may, during the 120-day
period following the expiration of the period provided in paragraph (b) hereof, offer the remaining
unsubscribed portion of such New Securities to any person or person at a price not less than, and
upon terms no more favorable to the offeree than those specified in the Notice. If the Company does
not enter into an agreement for the sale of the New Securities within such period or if such sale is not
consummated within 60 days of the execution of any such agreement of sale, the right of first refusal
provided in Section 3(b) shall be deemed to be revived and such New Securities shall not be offered
unless first re-offered to the Investors in accordance herewith.

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 Venture Capital Investors - (Del)

(d) The provisions of this Section 3 shall not apply to (i) issuances of stock
options to employees, officers, directors or consultants under any plan, agreement or arrangement
approved by the Board of Directors; (ii) issuances of New Securities upon exercise, conversion or
exchange of other New Securities the issuance of which was subject to this Section 3 or exempted
herefrom by this paragraph (c); (iii) issuances pursuant to a bona fide firmly underwritten public
offering registered under the Securities Act; (iv) issuances in connection with the acquisition of
another business entity, assets thereof or majority ownership thereof; (v) issuances in connection with
a strategic financing which has been approved by the holders of a majority of the Series A Preferred
Stock; (vi) issuances of shares of Series A Preferred Stock to any “Additional Purchaser” as defined
in the [Agreement]; and (vii) issuance of up to $_________ of equity securities of the Company
during the period beginning on the day after the date of this Agreement and ending on the six-month
anniversary of the date of this Agreement, upon terms not more favorable than the terms under which
Series A Preferred Stock was sold to the Purchasers .

4. Miscellaneous.

4.1 Waivers and Amendments. With the written consent of the Company and the
holders of more than two-thirds of the Registrable Shares voting together as a single class, the
obligations of the Company and the rights of the holders of Registrable Shares under this Agreement
may be waived (either generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely), and any provision of this Agreement may be
amended. Neither this Agreement nor any provisions hereof may be amended, waived, discharged
or terminated orally, but only in writing. Any amendment or waiver shall be binding upon each
Holder and each assignee and the Company. The Company’s consent to any waiver, amendment,
discharge or termination must be approved by its Board of Directors.

4.2 Governing Law. This Agreement shall be governed in all respects by the laws
of the State of Delaware without giving effect to its principles of conflicts of law.

4.3 Successors and Assigns. This Agreement shall inure to the benefit of the
Investors and their successors and assigns, and the terms “Investor” shall include such successors and
assigns.

4.4 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects hereof and thereof

4.5 Notices. All notices and other communications required or permitted

hereunder shall be in writing and may be delivered in person, by telecopy with written confirmation,
overnight delivery service or U.S. mail, in which event it may be mailed by first-class, certified or
registered, postage prepaid, addressed (a) if to a Holder, at its address set forth on Exhibit A or to
such address as such Holder shall have shed the Company in writing, or until any such Holder so
furnishes an address to the Company, then to and at the address of the last holder of such securities
who has so furnished an address to the Company, or (b) if to the Company, at _____________
___________________, Attn: President, Telecopier: ____________. Each such notice or other
communication shall for all purposes this Agreement be treated as effective or having been given
when delivered if delivered personally; or, if sent by mail, at the earlier of its receipt or 72 hours after

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 Venture Capital Investors - (Del)

the same has been deposited in a regularly maintained receptacle for the deposit of the United States
mail, addressed and mailed as aforesaid; or if sent by telecopier with written confirmation, at the
earlier of (i) 24 hours after electronic confirmation of transmission and receipt by the sending
telecopier machine or (ii) delivery of written confirmation.

4.6 Titles and Subtitles. The titles of the paragraphs and subparagraphs, of this
Agreement are for convenience of reference only and are not to be considered in construing this
Agreement.

4.7 Counterparts. This Agreement may be executed in any number of

counterparts, each of which shall be an original, but all of which together shall constitute one
instrument.

4.8 Nominees. Securities registered in the name of a nominee for a holder shall,
for purposes of this Agreement, be treated as being owned by such holder.

IN WITNESS WHEREOF, the parties have caused this Investors Rights Agreement to be
duly executed and delivered as of the date set forth above.

COMPANY

[NAME OF COMPANY]

By:
Its:

INVESTORS

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 APPENDIX F

Venture Capital Buy-Sell (Del)

BUY-SELL AGREEMENT

THIS BUY-SELL AGREEMENT (this “Agreement”), dated as of _______________, 2000

is by and among The Company, Inc., with offices at ____________________________, _________,
_______________, telecopier number: _________ (the “Company”), the persons listed on the
attached Schedule of Investors (collectively the “Investors”), the persons listed on the attached
Schedule of Founders (collectively the “Founders”) and the persons listed on the attached Schedule
of Principals (collectively, the “Principals”). The Investors, the Founders and the Principals are
referred to collectively herein as the “Shareholders” and individually as a “Shareholder”.

RECITALS

A. The Founders and the Principals have previously purchased shares of Common Stock
of the Company and may in the future acquire additional voting securities of the Company. The
Founders are [officers/key employees] of the Company.

B. The Investors have purchased or are purchasing shares of Series A Preferred Stock
of the Company (“Series A Stock”) and warrants to purchase shares of _______________ (the
“Warrants”) and may in the future acquire additional voting securities of the Company.

C. The Shareholders desire to restrict the transfer of all shares of capital stock they
currently own or may hereafter acquire, including, without limitation, all shares of capital stock issued
or issuable upon the exercise of the Warrants (the “Shares”) , whether issued and outstanding on the
date hereof or issued from time to time hereafter, and to provide certain rights and obligations of the
parties in respect of the purchase and sale of such Shares;

D. The Shareholders desire to evidence their agreement with respect to certain other
matters in relation to the Company and their respective holdings of the Shares; and

E. The execution and delivery of this Agreement is a condition to the closing of the
transactions contemplated under the Series A Preferred Stock and Warrants Purchase Agreement
dated as of the date hereof (the “Series A Agreement”).

NOW, THEREFORE, in consideration of the premises and the respective covenants and
agreements contained herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant
and agree as follows:

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 Venture Capital Buy-Sell (Del)

ARTICLE I.
DISPOSITION OF SHARES

1.1 Restrictions on Disposition. So long as this Agreement is in effect, the Shareholders

shall not sell, assign, transfer, give, encumber, pledge, or in any other way dispose of their Shares,
except as otherwise provided in or permitted by this Agreement. Subject to the terms of this
Agreement, the Shareholders shall be entitled to exercise all rights of ownership of their Shares.

1.2 Restriction on Transfers by Founders. No Founder shall, pursuant to Section 1.3 and
Section 1.4, sell or in any other way dispose of an aggregate of more than ten percent (10%) of the
Shares held by the Founder and the Founder’s permitted transferees under Section 1.8, with the
percentage determined by taking the maximum number of Shares owned of record and beneficially
held by the Founder and such permitted transferees on the date on which that number is greatest (but
excluding any Shares evidencing options, warrants or rights to acquire capital stock).

1.3 Right of First Offer.

(a) If at any time during the term of this Agreement, any Shareholder shall desire
to sell or otherwise dispose of all or any part of its Shares pursuant to a bona fide written offer (the
“Third Party Offer”) from any third party (the “Third Party”), such Shareholder (the “Selling
Shareholder”) shall give the Company and other Shareholders (the “Non-Selling Shareholders”)
written notice (the “Notice”) of such intention. The Notice shall include an offer (the “Offer”) to sell
such Shares first to the Company and second to the Non-Selling Shareholders upon the terms and
conditions of the Third Party Offer (except that if part of the consideration is non-cash consideration,
such non-cash consideration shall be valued at its fair market value as reasonably determined by the
Board of Directors of the Company (excluding the Selling Shareholder or its representative then
serving as a director) and the offer shall be deemed to include the cash equivalent value of the non-
cash consideration. The Notice shall also include a copy of the written Third Party Offer stating
terms and conditions, including the number and price per share of the Shares to be transferred, the
method of payment (which must be by cash, promissory note, or a combination of cash and
promissory note), and the proposed closing date (which shall in no event be sooner than the end of
the 40-day period described in Section 1.3(c) below).

(b) The Company shall have 30 days from the date it receives the Notice to accept
or reject the offer in writing. The Selling Shareholder shall not take part in the Company’s decision
regarding such acceptance or rejection. If the Company accepts the offer, the acceptance shall set
forth the arrangements for closing, which shall occur sixty (60) days after the Notice was sent or, if
later, the date proposed in the Third Party offer.

(c) If the Company rejects the Offer, the Non-Selling Shareholders shall have the
remainder of the Company’s 30-day period, plus 10 additional days, or 40 days from the date they
receive the Notice, to accept or reject the offer in writing. Each Non-Selling Shareholder may
purchase that percentage of the Seller Shareholder’s Shares offered equal to the number of Shares
held by such Non-Selling Shareholder divided by the aggregate number of Shares held by all Non-
Selling Shareholders, with rights of oversubscription. Each Non-Selling Shareholder’s response to
the Offer shall specify the maximum number of Shares it would be willing to purchase. If the Non-

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 Venture Capital Buy-Sell (Del)

Selling Shareholders accept the offer, the parties involved shall make arrangements for closing, which
shall occur sixty (60) days after the Notice was sent or, if later, the date proposed in the Third Party
Offer.

(d) Upon the earlier of (i) the date the 40-day period expires, or (ii) the date the
Selling Shareholder receives a rejection of the Offer in writing by the Company and the Non-Selling
Shareholders (the “End Date”), if the Company and the Non-Selling Shareholder(s) fail to agree to
purchase all of the Shares subject to the Third Party offer, the Selling Shareholder shall then be
entitled to sell not less than the number of its Shares subject to the Third Party Offer within 105 days
from the End Date, but only pursuant to the Third Party Offer (except that any purchaser must agree
to execute a consent, in the form attached hereto as Exhibit A, to be bound as if it were the Selling
Shareholder by the terms of this Agreement). The Selling Shareholder shall remain subject to this
Agreement to the extent he or she or it retains any of his, her Shares, including those Shares subject
to the Offer.

1.4 Co-Sale Rights. A Founder or a Principal may not sell any Shares to the Third Party
pursuant to Section 1.3(d) unless the Third Party Offer is extended to each of the Investors and the
Investors have a right to sell on the terms and conditions of the Third Party Offer a number of Shares
equal to the Investor’s “Sales Percentage.” The “Sales Percentage” means the number of Shares held
by the Investor multiplied by a fraction the numerator of which is the number of Shares held by the
selling Founder or Principal that are subject to the Third Party Offer and the denominator of which
is the total number of Shares held by the selling Founder or Principal. It the selling Founder or
Principal cannot obtain the agreement of the Third Party to purchase that percentage of the Shares
held by the selling Principal and each Investor is willing to sell Shares pursuant to the Third Party
Offer which is equal to the Sales Percentage, then the selling Founder or Principal shall reduce the
number of Shares which the selling Founder or Principal proposes to sell, and allow each Investor
willing to sell Shares pursuant to the Third Party offer to sell the number of Shares represented by
such reduction, so that both the selling Founder or Principal and each selling Investor shall be entitled
to sell an identical percentage of Shares then held by each, respectively. The provisions of this
Section 1.4 shall not affect (i) the obligations of such Founder or Principal to first offer its Shares to
the Company and the other Shareholders pursuant to Section 1.3 hereof or (ii) the obligations of a
Principal under Section 1.2.

1.5 Other Transfers.

(a) (i) If a Founder or a Principal shall file a petition in bankruptcy, reorganization,

insolvency, readjustment of debt, or arrangement under any bankruptcy, insolvency, dissolution, or
liquidation law or file an answer admitting the material allegations of a petition filed against him in
any proceeding under such law or shall take any action for the purpose of effecting any of the
foregoing, or (ii) if a Founder or a Principal shall be required to relinquish all or any part of its Shares
pursuant to a divorce settlement or decree of a court pursuant to divorce proceedings, then in either
case, the Company shall have the absolute and unconditional right, but not the obligation to purchase,
for 60 days, all or any portion of such Shares from such Founder or Principal (or his or her estate or
personal representatives, as the case may be) for the Purchase Price (as defined in and determined
pursuant to Section 1.5 (c) hereof) . If the Company does not exercise its right to purchase such
Shares within the 60-day period, the other Shareholders shall have the right but not the obligation,

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 Venture Capital Buy-Sell (Del)

to purchase such Shares for 60 days thereafter at the Purchase Price. Each other Shareholder may
purchase that percentage of the Founder’s or the Principal’s Shares offered equal to the number of
Shares held by such other Shareholders divided by the aggregate number of Shares held by all other
Shareholders, with rights of oversubscription.

(b) The time periods during which the Company and/or the other Shareholders
may purchase the Shares under this Section 1.5 shall commence (i) in the case of bankruptcy or other
event set forth under Section 1.5(a)(i) above, on the date of the occurrence of any event set forth
thereunder or such later date as the Company’s Board of Directors is notified in writing by the
Principal, Founder or bankruptcy trustee of the event, or (ii) in the case of divorce, on the date the
divorce settlement or decree is entered and is filed of record or such later date as the Company’s
Board of Directors is notified in writing that the decree has been entered.

(c) The parties to this Agreement recognize and understand that the Company’s
capital stock (the “Stock”) is closely held, that no public market exists for the Stock and that,
consequently, a fair market value for the Shares is not readily determinable. Therefore, the parties
hereto agree that the “Purchase Price” for purposes of this Section 1.5 and Section 1.6 shall be the
fair market value of the Shares offered as determined by an investment bank of national or regional
recognition selected by the Company’s Board of Directors and the Shareholders holding at least two-
thirds on the then outstanding Shares. If the Company and Shareholders holding at least two-thirds
of the then outstanding Shares cannot agree on a mutually acceptable investment bank, then Company
and Shareholders holding two-thirds of the then outstanding Shares shall each choose one such
investment bank and the respective chosen firms shall jointly select a third investment bank, which
shall make the determination. The cost of the appraisal or valuation and the investment banks shall
be borne by the Company. If the Company or a Shareholder purchases any Shares pursuant to
Section 1.5(a), the purchase price shall be paid in quarterly installments of principal and interest over
a period of three years with the unpaid Purchase Price bearing interest at 10% per annum.

(d) If for any reason (other than breach of this Agreement) the available Shares
are not purchased under this Section 1.5 within the 120-day period described in Section 1.5(a) and
(b) above, then the available Shares may then be transferred pursuant to the occurrence of an event
described in Section 1.5(a), provided the transferee executes a consent, in the form attached hereto
as Exhibit A, to be bound as a Principal or Founder, as applicable, by the terms of this Agreement.
The Shareholder transferring Shares shall, nonetheless, remain subject to this Agreement to the extent
it retains any Shares, including any Shares which were to be transferred.

(e) If the Company does not have sufficient legal funds to permit it to lawfully
purchase all of the Shares it chooses to purchase under this Section 1.5, then the Shareholders (or
their estates, heirs or personal representatives, as the case may be) shall promptly take such measures
to vote their Shares to reduce the capital of the Company or to take such other actions as may be
appropriate or necessary in order to enable the Company to lawfully purchase and pay for all of the
Shares it chooses to purchase; provided, that, nothing in this Agreement shall obligate any
Shareholder to make an additional capital contribution to the Company, to purchase securities from
the Company or to loan money to the Company.

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 Venture Capital Buy-Sell (Del)

1.6 Involuntary Encumbrance. If all or any part of a Founder’s or a Principal’s Shares are
involuntarily encumbered or transferred by judicial process (other than pursuant to bankruptcy or
divorce proceedings, as provided for in Section 1.5 hereof) to any person (the “Purchaser”) other
than the Other Shareholders, then the Company shall have the option, exercisable by written notice
to the Purchaser, for a period of six months from the date of receipt by the Board of Directors of the
Company of written notice of the encumbrance or transfer by judicial process to purchase the
encumbered or transferred Shares for the Purchase Price determined pursuant to Section 1.5(c) . The
purchase shall take place on a date selected by the Purchaser within 75 days following the date the
Company gives notice of its intent to exercise the option. If the Company does not exercise the
option during the six-month period, or does not choose to purchase all of the encumbered or
transferred Shares, then the other Shareholders shall have an identical option for 30 days following
the six-month period. If all of the Shares are not purchased by the Company and/or the Other
Shareholders, the Shares shall nevertheless remain subject to the terms and provisions of this
Agreement, and the Purchaser shall succeed to the rights and obligations hereunder of the Founder
or the Principal, as applicable.

1.7 Pledges. Neither a Founder nor a Principal may pledge, hypothecate, or encumber any
of his or her Shares as collateral for a loan or for any other obligation or purpose, without the prior
written consent of the Investors holding a majority of the voting securities of the Company held by
all Investors.

1.8 Expressly Permitted Transfers. Notwithstanding anything to the contrary contained

in this Agreement, and without the provisions of Sections 1.2, 1.3, 1.4 and 1.5 hereof becoming
applicable, (a) a Founder or a Principal may (i) make a gift or donation of Shares to his or her spouse
or any of his or her lineal descendants (the term “lineal descendants” shall include adopted children)
or to his or her parents or any of their lineal descendants, or to a trust for the benefit of any such
persons and/or for the benefit of such Founder or such Principal or (ii) transfer its Shares to another
Founder; and (b) a Investor may transfer its Shares to its affiliates, partners, members, shareholders,
employees or advisors; provided, however, that any such donee, purchaser, or transferee executes
a consent, in the form attached hereto as Exhibit A, to be bound as a Principal or Founder, as
applicable, by the terms of this Agreement. Any transfer to a child who is then under 18 years old
must be conditioned upon the Founder or the Principal, as applicable, retaining and reserving for
himself or herself or some other adult or entity the right to do any act with respect to the transferred
Shares on behalf of such transferee that is permitted, authorized, or required by this Agreement.

ARTICLE 2.
MISCELLANEOUS

2.1 Endorsement on Certificates. Upon execution of this Agreement, the stock certificates
representing the Shares owned by the Shareholders shall contain substantially the following legend,
in addition to any other legends deemed appropriate or necessary by the Company:

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE

SUBJECT TO A BUY-SELL AGREEMENT DATED AS OF
[_____________, 2000], AS AMENDED OR MODIFIED FROM
TIME TO TIME, COPIES OF WHICH ARE ON FILE AT THE

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 Venture Capital Buy-Sell (Del)

PRINCIPAL OFFICE OF THE COMPANY AND WILL BE

FURNISHED TO THE HOLDER ON REQUEST TO THE
SECRETARY OF THE COMPANY. SUCH BUY-SELL
AGREEMENT PROVIDES, AMONG OTHER THINGS, FOR
CERTAIN RESTRICTIONS ON THE SALE, TRANSFER,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF
THE SECURITIES EVIDENCED HEREBY.”

2.2 Tax Stamps; Negotiable Form. Whenever any of the Shares are to be transferred
pursuant to this Agreement, the person transferring such Shares shall affix to the stock certificates
representing such Shares any necessary documentary stamp taxes and shall deliver such certificates
in negotiable form for transfer without necessity for further endorsement.

2.3 Enforcement. The Shares shall not be transferred on the books of the Company and
no sale, assignment, transfer, pledge, or other disposition thereof shall be effective unless and until
the terms and provisions of this Agreement are complied with, and in case of violation of this
Agreement by the attempted transfer of the Shares without compliance with the terms and provisions
hereof, such sale, assignment, transfer, pledge, or other disposition shall be invalid and of no effect
and the Company and/or the Shareholders who are not attempting to transfer the Shares shall have
the right to compel the Shareholder who is attempting to transfer the Shares, and/or the purported
transferee, to transfer and deliver the same in accordance with the applicable provisions of Article I
of this Agreement.

2.4 Specific Performance. The parties hereto recognize that the Shares cannot be readily
purchased or sold on the open market and that it is to the benefit of the Company and the
Shareholders that this Agreement be carried out; and for those and other reasons, the parties hereto
would be irreparably damaged if this Agreement is not specifically enforced if of a breach hereof. If
any controversy concerning the rights or obligations to purchase or sell any of the Shares arises, or
if this Agreement is breached, then the parties hereto hereby agree that remedies at law might be
inadequate and that, therefore, such rights and obligations, and this Agreement shall be enforceable
by specific performance. The remedy of specific performance shall not be an exclusive remedy, but
shall be cumulative of all other rights and remedies of the parties hereto at law, in equity, or under
this Agreement.

2.5 Failure to Deliver Shares. If a Shareholder (or his, her or its personal representative)
having become obligated to sell his, her or its Shares hereunder shall fail to deliver the certificates
representing such Shares in accordance with the terms of this Agreement, then the purchaser of such
Shares may, at his, her or its option, in addition to all other remedies he, she or it may have, send to
such Shareholder (or his, her or its personal representative) by registered mail, return receipt
requested, the applicable purchase price for such Shares. Thereupon, the Company, upon written
notice to such Shareholder (or his, her or its personal representative), shall (a) cancel on its books
the certificates representing the Shares to be sold, (b) issue in the name of the purchaser, in lieu
thereof, a new certificate representing such Shares, and (c) deliver such new certificate to the
purchaser, and thereupon all of the rights of such Shareholder (or his, her or its personal
representative) in and to said Shares shall terminate.

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 Venture Capital Buy-Sell (Del)

2.6 Transferee and Future Shareholders. The Company and the Shareholders shall cause
any transferee of any Shares and such transferee’s spouse, to execute a consent, in the form attached
hereto as Exhibit A, to be bound by the terms of this Agreement.

2.7 Additional Purchasers. Any “Additional Purchaser” as defined in the Series A

Agreement shall become a party to this Agreement by signing a counterpart hereof and shall
thereupon be an “Investor” hereunder, and each party to this Agreement consents thereto. The
Company shall promptly deliver to each party an amended Schedule of Investors which includes the
Additional Purchaser.

2.8 Additional Principals. The Company shall require a person who acquires two percent
(2%) or more of the outstanding capital of the Company on a fully diluted basis (“Additional
Principal”) to become a party to this Agreement by signing a consent in the form attached hereto as
Exhibit A to be bound by the terms of this Agreement and shall thereupon be a “Principal” hereunder.
The Company shall promptly deliver to each party an amended Schedule of Principals which includes
the Additional Principal.

2.9 Assignment of Purchase Rights. Any Investor is permitted to assign its purchase rights
under this Agreement to an assignee.

2.10 Securities Laws. The parties agree to take all reasonable steps to comply with all
applicable federal and state securities laws.

2.11 Notices. The address of the Company is set forth at the beginning of this Agreement.
The address of each Founder is set forth on the Schedule of Founders, attached hereto. The address
of each Investor is set forth on the Schedule of Investors, attached hereto. The address of each
Principal is set forth on the Schedule of Principals. All notices permitted or required under this
Agreement shall be delivered by hand, by overnight courier, by telecopier or sent by registered or
certified mail, postage prepaid, to the respective parties at the addresses indicated herein or at such
other addresses as a party shall furnish to the other parties hereto. Notices delivered by hand shall
be deemed to have been received on the date of delivery. Notices delivered by telecopy shall be
deemed to have been received on the date on which an acknowledgment of good transmission is
received by the sender’s telecopier. Notices sent by mail shall be deemed to have been received on
the third business day after mailing.

2.12 Binding Effect. This Agreement shall be binding upon/and enforceable by the parties
hereto and their respective executors, administrators, successors, personal representatives, heirs, and
assigns.

2.13 Governing Law. This Agreement and the rights and obligations of the parties hereto
shall be governed, construed, and enforced in accordance with the internal laws of the State of
Delaware without regard to the conflicts of laws principles thereof.

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 Venture Capital Buy-Sell (Del)

2.14 Severability. If any provision of this Agreement is held to be illegal, invalid, or

unenforceable under present or future laws effective during the term hereof, such provision shall be
fully severable and this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision never comprised a part hereof; and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision, there shall be added automatically as part of this Agreement, a provision as similar in its
terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and
enforceable.

2.15 Entire Agreement. This Agreement and the Exhibits hereto constitute the entire
agreement and understanding between the parties relating to the subject matter hereof and thereof
and supersede all prior representations, endorsements, premises, agreements, memoranda,
communications, negotiations, discussions, understanding, and arrangements, whether oral, written,
or inferred, between the parties relating to the subject matter hereof.

2.16 Amendments. This Agreement may not be modified, amended, rescinded, canceled,
altered, or supplemented, in whole or in part, except upon the execution and delivery of a written
instrument executed by (a) the Company, and (b) Founders, Principals and Investors holding a
majority of the voting securities of the Company held by all Founders, Principals and Investors.

2.17 Headings. The headings of the Articles and Sections of this Agreement have been
inserted for convenience of reference only and shall in no way restrict or otherwise modify any of the
terms or provisions hereof or affect in any way the meaning or interpretation of this Agreement.

2.18 Waiver. The waiver of any breach of any term or condition of this Agreement shall
not be deemed to constitute the waiver of any other breach of the same or any other term or
condition.

2.19 No Third Party Beneficiaries. Except to the extent a third party is expressly given
rights herein, any agreement contained, expressed, or implied in this Agreement shall be only for the
benefit of the parties hereto and their respective executors, administrators, successors, personal
representatives, heirs, and assigns and such agreements shall not inure to the benefit of the obligees
of any indebtedness of any party hereto, it being the intention of the parties hereto that no person or
entity shall be deemed a third party beneficiary of this Agreement except to the extent a third party
is expressly given rights herein.

2.20 Gender; Number. The use of terms denoting masculine, feminine, or neuter gender
shall include each other gender. The use of singular or plural references shall include the other where
appropriate.

2.21 Time is of the Essence. Time is of the essence with respect to all time periods and
dates referenced in this Agreement.

2.22 Termination of this Agreement. This Agreement shall continue until, and shall
terminate immediately and automatically upon (a) execution of an amendment terminating this

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 Venture Capital Buy-Sell (Del)

Agreement, (b) sale of shares of the Common Stock for the account of the Company in an
underwritten public offering pursuant to a registration statement filed under the Securities Act of
1933 with the SEC, (c) the sale, lease or disposal of all or substantially all of the assets of the
Corporation or affection of any corporate reorganization, including specifically a merger
reorganization, exchange reorganization or sale of assets reorganization, or affection of any share
exchange tender offer which has been approved by the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock of the Company, (d) the dissolution of the Company,
(e) the consummation of a sale of the Company to third party unaffiliated with any officer, director
or shareholder of the Company pursuant to a merger, stock sale, share exchange or sale of
substantially all the assets in connection with which the holders of Series A Preferred Stock will
receive at least _______ times the Liquidation Preference (as defined in the Company’s Certificate
of Incorporation, as amended) per share or (f) any time that only one Shareholder continues to own
any Shares.

2.23 Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute one and the same
instrument. The parties intend that faxed signature pages to this Agreement will be enforceable
without presentation of the manually executed signature pages.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first
set forth above.

“Company”

THE COMPANY

“Founders”

“Principals”