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 ANDNEW COMPANIES

Dallas, TexasSeptember 14-15, 2000

Houston, TexasSeptember 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

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I. SCOPE OF OUTLINE

A. Introduction

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

As between shareholder agreements (that modify and restrict the right to transferownership) and voting control agreements (that re-arrange voting powerdisproportionately to economic ownership), shareholder agreements are moreprevalent and generally requested by business entity owners. In a majority of start-upbusinesses, most owners are comfortable with the concept that each owner’s vote isdirectly proportionate to the owner’s percentage ownership of the equity in theenterprise and will seek to structure the equity ownership in a way that results inmajority control through straight voting. On the other hand, in the early stages ofstart-up and emerging companies, the tolerance of the owners to allow ownershipparticipation 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 resultof this understandable ostracism of outsiders, the existing owners of the businessentity will desire that the shareholder agreement restrict transfer of stock ownershipin every conceivable fact situation.

B. Choice of Entity

This outline and the accompanying sample agreements focus exclusively on thebusiness corporation as the selected entity to conduct the business of the start-upenterprise. In the latter part of the twentieth century, the business law statutes of allstates have undergone major transformations to allow business entity owners widerranges of choices: general partnerships, limited partnerships, limited liabilitycompanies, registered limited liability partnerships and statutory close corporationsare all now on the menu. Furthermore, the adoption by the Internal Revenue Servicein 1997 of the “check-the-box” regulations has spurred even greater creativity oflawyers and accountants in structuring start-up entities and relationships amongentities. To a large degree, however, the concepts and techniques of restrictingtransfer of equity ownership retain similar characteristics among all the entities, eventhough the semantics and “papering” of the transactions are superficially verydifferent. For example, an option or obligation of a limited partnership or generalpartner to buy out the interest of a limited partner will be cloaked in the verbiage ofpartnership 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 draftedwith particularity: (1) what events trigger the buy-sell transaction; (2) who/what is theidentity of the purchaser; (3) how is price determined; (4) what are the mechanics ofgiving 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 remainingowners of the entity affected; (8) what are the federal and state tax consequences tothe entity, the selling owner and the remaining owners; (9) how is the agreement tobe modified or terminated under future circumstances; (10) what notice andinformation is to be given third parties so that the desired transaction is binding uponthem; 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 theappropriate questions of clients and draft, re-draft, and re-draft. This is an area inwhich freedom of contract reigns supreme. While the statutory background and caselaw background is essential, it is short and readily easily digestible. Most all of thereported Texas cases interpreting shareholder-type agreements–particularly rights offirst refusal-- would have turned out differently if the disputed issues in the contracthad been identified and drafted with specificity. Consequently, the thrust of thisoutline centers on samples of shareholder and voting agreements, rather attemptingan exhaustive analysis of the nuances of statutes and cases.

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

II. STATUTORY ANALYSIS

A. Shareholders Agreements - Texas

There are two Texas Business Corporation Act (TBCA) articles that should befrequently 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 propertyfor 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 asotherwise provided in this Act.

B. A restriction on the transfer or registration of transfer of a security may beimposed by the articles of incorporation, or by-laws, or a written agreement among anynumber of the holders of such securities, or a written agreement among any number of theholders and the corporation provided a counterpart of such agreement shall be placed onfile 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 orby agent, attorney or accountant, as are the books and records of the corporation. Norestriction so imposed shall be valid with respect to any security issued prior to the adoptionof the restriction unless the holder of the security voted in favor of the restriction or is aparty to the agreement imposing it.

C. Any restriction on the transfer or registration of transfer of a security of acorporation, if reasonable and noted conspicuously on the certificate or other instrumentrepresenting the security or, in the case of an uncertificated security, if reasonable and ifnotation of the restriction is contained in the notice sent pursuant to Section D of Article 2.19of this Act with respect to the security, shall be specifically enforceable against the holderof the restricted security or any successor or transferee of the holder. Unless notedconspicuously on the certificate or other instrument representing the security or, in the caseof an uncertificated security, unless notation of the restriction is contained in the notice sentpursuant 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 withoutactual knowledge of the restriction at the time of the transfer or against any subsequenttransferee (whether or not for value), but such a restriction shall be specifically enforceableagainst any other person who is not a transferee for value from and after the time that theperson acquires actual knowledge of the existence of the restriction.

D. In particular and without limiting the general power granted in Sections Band C of this Article to impose reasonable restrictions, a restriction on the transfer orregistration of transfer of securities of a corporation shall be valid if it reasonably:

(1) Obligates the holders of the restricted securities to offer to thecorporation or to any other holders of securities of the corporation or to any other person orto any combination of the foregoing, a prior opportunity, to be exercised within a reasonabletime, to acquire the restricted securities; or

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

(3) Requires the corporation or the holders of any class of securitiesof the corporation to consent to any proposed transfer of the restricted securities or toapprove the proposed transferee of the restricted securities for the purpose of preventingviolations of federal or state laws; or

(4) Prohibits the transfer of the restricted securities to designatedpersons or classes of persons, and such designation is not manifestly unreasonable; or

(5) Maintains the status of the corporation as an electing smallbusiness corporation under Subchapter S of the United States Internal Revenue Code,maintains any other tax advantage to the corporation, or maintains the status of thecorporation 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 asa 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 theoffice 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 andcorrect copy of the same; and

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

(2) Such statement shall be executed on behalf of the corporation byan officer. The original and a copy of the statement shall be delivered to the Secretary ofState with copies of such bylaw or agreement restricting the transfer of shares or othersecurities attached thereto. If the Secretary of State finds that such statement conforms tolaw 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", andthe 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, thebylaw or agreement restricting the transfer of shares or other securities shall become amatter of public record and the fact of such filing shall be stated on any certificaterepresenting the shares or other securities so restricted if required by Section G, Article2.19, of this Act.

F. A corporation that is a party to an agreement restricting the transfer of itsshares or other securities may make such agreement part of its articles of incorporationwithout restating the provisions of such agreement therein by complying with the provisionsof Part Four of this Act for amendment of the articles of incorporation. If such agreementshall alter any provision of the original or amended articles of incorporation, the articles ofamendment shall identify by reference or description the altered provision. If suchagreement is to be an addition to the original or amended articles of incorporation, thearticles of amendment shall state that fact. The articles of amendment shall have attachedthereto a copy of the agreement restricting the transfer of shares or other securities, andshall state that the attached copy of such agreement is a true and correct copy of the sameand that its inclusion as part of the articles of incorporation has been duly authorized in themanner required by this Act to amend the articles of incorporation.

G. When shares are registered on the books of a corporation in the names oftwo or more persons as joint owners with the right of survivorship, after the death of a jointowner and before the time that the corporation receives actual written notice that partiesother than the surviving joint owner or owners claim an interest in the shares or anydistributions thereon, the corporation may record on its books and otherwise effect thetransfer of those shares to any person, firm, or corporation (including that surviving jointowner 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. Acorporation permitting such a transfer by and making any distribution to such a survivingjoint owner or owners before the receipt of written notice from other parties claiming aninterest in those shares or distributions is discharged from all liability for the transfer orpayment so made; provided, however, that the discharge of the corporation from liabilityand the transfer of full legal and equitable title of the shares in no way affects, reduces, orlimits any cause of action existing in favor of any owner of an interest in those shares ordistributions 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 acorporation that complies with this article is effective among the shareholders and thecorporation 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 thebusiness and affairs of the corporation by its shareholders, or in whole or in part by one ormore of its shareholders, or by one or more persons not shareholders;

(3) establishes the natural persons who shall be the directors or officersof the corporation, their term of office or manner of selection or removal, or terms orconditions 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 inproportion to ownership of shares, subject to the limitations in Article 2.38 of this Act, ordetermines the manner in which profits and losses shall be apportioned;

(5) governs, in general or in regard to specific matters, the exercise ordivision of voting power by and between the shareholders, directors (if any), or otherpersons or by or among any of them, including use of disproportionate voting rights ordirector proxies;

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

(7) authorizes arbitration or grants authority to any shareholder or otherperson 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 moreof the shareholders or on the occurrence of a specified event or contingency, in which casethe dissolution of the corporation shall proceed as if all the shareholders had consented inwriting to dissolution of the corporation as provided in Article 6.02 of this Act; or

(9) otherwise governs the exercise of corporate powers, themanagement 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 corporationwere 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 approvedby all persons who are shareholders at the time of the agreement,or (b) in a written agreement that is signed by all the persons whoare shareholders at the time of the agreement and is made knownto the corporation;

(2) subject to amendment only by all persons who are shareholders atthe time of the amendment, unless the agreement providesotherwise; and

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

C. Notation of Existence. The existence of an agreement authorized by thisarticle shall be noted conspicuously on the front or back of each certificate for outstandingshares or on the information statement required for uncertificated shares by Article 2.19 ofthis Act and shall include the following: "These shares are subject to the provisions of ashareholders' agreement that may provide for management of the corporation in a mannerdifferent than in other corporations and may subject a shareholder to certain obligations orliabilities not otherwise imposed on shareholders in other corporations." If at the time of theagreement the corporation has shares outstanding represented by certificates, thecorporation shall recall the outstanding certificates and issue substitute certificates thatcomply with this section. The failure to note the existence of the agreement on thecertificate or information statement shall not affect the validity of the agreement or anyaction 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 beentitled to rescission of the purchase. A purchaser shall be deemed to have knowledge ofthe existence of the agreement if its existence is noted on the certificate or informationstatement for the shares in compliance with Section C of this article and, if the shares arenot represented by a certificate, the information statement noting existence of theagreement is delivered to the purchaser at or prior to the time of purchase of the shares. Anaction to enforce the right of rescission authorized by this section must be commencedwithin the earlier of 90 days after discovery of the existence of the agreement or two yearsafter time of the purchase of the shares.

E. Cessation. An agreement authorized by this article shall cease to beeffective when shares of the corporation are listed on a national securities exchange, quotedon an interdealer quotation system of a national securities association, or regularly tradedin a market maintained by one or more members of a national or affiliated securitiesassociation. If the agreement ceases to be effective for any reason and the corporation doesnot have a board of directors, governance by a board of directors shall be instituted orreinstated in the manner provided in Section C, Article 12.23, of this Act. If the agreementis contained or referred to in the corporation's articles of incorporation or bylaws, the boardof directors may adopt an amendment to the articles of incorporation or bylaws, withoutshareholder 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 thediscretion or powers of the board of directors or supplants the board of directors shall relievethe directors of, and impose on the person or persons in whom such discretion or powersor management of the business and affairs of the corporation are vested, liability for actionor omissions imposed by this Act or other law on directors to the extent that the discretionor powers of the directors are limited or supplanted by the agreement.

G. Limitation of Liability. The existence or performance of an agreementauthorized by this article shall not be grounds for imposing personal liability on anyshareholder for the acts or obligations of the corporation by disregarding the separate entityof 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 thatotherwise is appropriate only among partners;

(2) results in the corporation being considered a partnership forpurposes of taxation; or

(3) results in failure to observe the corporate formalities otherwiseapplicable to the matters governed by the agreement.

H. If No Shares Issued. Incorporators or subscribers for the shares may act asshareholders with respect to an agreement authorized by this article if no shares have beenissued 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 Texascorporation 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 votingtrust agreement for the purpose of conferring upon a trustee or trustees the right to vote orotherwise represent shares of the corporation. The shares that are to be subject to theagreement shall be transferred to the trustee or trustees for purposes of the agreement, anda counterpart of the agreement shall be deposited with the corporation at its principal placeof business or registered office. The counterpart of the voting trust agreement so depositedwith the corporation shall be subject to the same right of examination by a shareholder ofthe corporation, in person or by agent or attorney, as are the books and records of thecorporation, and shall be subject to examination by any holder of a beneficial interest in thevoting trust, either in person or by agent or attorney, at any reasonable time for any properpurpose.

B. Any number of shareholders of a corporation, or any number ofshareholders of a corporation and the corporation itself, may enter into a written votingagreement for the purpose of providing that shares of the corporation shall be voted in themanner prescribed in the agreement. A counterpart of the agreement shall be depositedwith the corporation at its principal place of business or registered office and shall be subjectto the same right of examination by a shareholder of the corporation, in person or by agentor 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 agreementor, in the ease of uncertificated shares, if notation of the agreement is contained in thenotice sent pursuant to Section D of Article 2.19 of this Act with respect to the shares thatare subject to the agreement, shall be specifically enforceable against the holder of thoseshares or any successor or transferee of the holder. Unless noted conspicuously on thecertificate representing the shares that are subject to the agreement or, in the case ofuncertificated shares, unless notation of the agreement is contained in the notice sentpursuant to Section D of Article 2.19 of this Act with respect to the shares that are subjectto the agreement, the agreement, even though otherwise enforceable, is ineffective againsta transferee for value without actual knowledge of the existence of the agreement at thetime of the transfer or against any subsequent transferee (whether or not for value), but theagreement shall be specifically enforceable against any other person who is not a transfereefor value from and after the time that the person acquires actual knowledge of the existenceof the agreement. A voting agreement entered into pursuant to this Section B is not subjectto the provisions of Section A of this Article.

C. Shareholder Agreements - Delaware

The relevant Delaware statute governing shareholder agreements is Delaware GeneralCorporation Law (DGCL) Section 202:

§ 202. Restrictions on transfer and ownership of securities.

(a) A written restriction or restrictions on the transfer or registration oftransfer of a security of a corporation, or on the amount of the corporation's securities thatmay be owned by any person or group of persons, if permitted by this section and notedconspicuously on the certificate or certificates representing the security or securities sorestricted or, in the case of uncertificated shares, contained in the notice or notices sentpursuant to §151(f) of this title, may be enforced against the holder of the restricted securityor securities or any successor or transferee of the holder including an executor,administrator, trustee, guardian or other fiduciary entrusted with like responsibility for theperson or estate of the holder. Unless noted conspicuously on the certificate or certificatesrepresenting 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, eventhough permitted by this section, is ineffective except against a person with actualknowledge of the restriction.

(b) A restriction on the transfer or registration of transfer of securities of acorporation, or on the amount of a corporation's securities that may be owned by any personor group of persons, may be imposed by the certificate of incorporation or by the bylaws orby an agreement among any number of security holders or among such holders and thecorporation. No restrictions so imposed shall be binding with respect to securities issuedprior to the adoption of the restriction unless the holders of the securities are parties to anagreement or voted in favor of the restriction.

(c) A restriction on the transfer or registration of transfer of securities of acorporation or on the amount of such securities that may be owned by any person or groupof persons is permitted by this section if it: (1) Obligates the holder of the restrictedsecurities to offer to the corporation or to any other holders of securities of the corporationor to any other person or to any combination of the foregoing, a prior opportunity, to beexercised 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 anycombination of the foregoing, to purchase the securities which are the subject of anagreement respecting the purchase and sale of the restricted securities; or (3) Requires thecorporation or the holders of any class or series of securities of the corporation to consentto any proposed transfer of the restricted securities or to approve the proposed transfereeof the restricted securities, or to approve the amount of securities of the corporation thatmay be owned by any person or group of persons; or (4) Obligates the holder of therestricted securities to sell or transfer an amount of restricted securities to the corporationor to any other holders of securities of the corporation or to any other person or to anycombination of the foregoing, or causes or results in the automatic sale or transfer of anamount of restricted securities to the corporation or to any other holders of securities of thecorporation or to any other person or to any combination of the foregoing; or (5) Prohibitsor restricts the transfer of the restricted securities to, or the ownership of restricted securitiesby, designated persons or classes of persons or groups of persons, and such designationis not manifestly unreasonable.

(d) Any restriction on the transfer or the registration of transfer of thesecurities of a corporation, or on the amount of securities of a corporation that may beowned by a person or group of persons, for any of the following purposes shall beconclusively presumed to be for a reasonable purpose: (1) Maintaining any local, state,federal or foreign tax advantage to the corporation or its stockholders, including withoutlimitation: a. Maintaining the corporation's status as an electing small business corporationunder 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 operatinglosses), or c. Qualifying or maintaining the qualification of the corporation as a real estateinvestment trust pursuant to the United States Internal Revenue Code or regulationsadopted pursuant to the United States Internal Revenue Code, or (2) Maintaining anystatutory or regulatory advantage or complying with any statutory or regulatory requirementsunder applicable local, state, federal or foreign law.

(e) Any other lawful restriction on transfer or registration of transfer ofsecurities, or on the amount of securities that may be owned by any person or group ofpersons, 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.) TheDelaware statute cited above is akin to Texas’ TBCA art. 2.22, although the Texascounterpart is more detailed as to the requirements of legending and providing opportunityfor 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 writingdeposit capital stock of an original issue with or transfer capital stock to any person orpersons, or corporation or corporations authorized to act as trustee, for the purpose ofvesting in such person or persons, corporation or corporations, who may be designatedvoting trustee, or voting trustees, the right to vote thereon for any period of time determinedby such agreement, upon the terms and conditions stated in such agreement. Theagreement may contain any other lawful provisions not inconsistent with such purpose. Afterthe 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 anybeneficiary of the trust under the agreement daily during business hours, certificates of stockor uncertificated stock shall be issued to the voting trustee or trustees to represent any stockof an original issue so deposited with such voting trustee or trustees, and any certificatesof stock or uncertificated stock so transferred to the voting trustee or trustees shall besurrendered and cancelled and new certificates or uncertificated stock shall be issuedtherefore to the voting trustee or trustees. In the certificate so issued, if any, it shall bestated that it is issued pursuant to such agreement, and that fact shall also be stated in thestock ledger of the corporation. The voting trustee or trustees may vote the stock so issuedor transferred during the period specified in the agreement. Stock standing in the name ofthe voting trustee or trustees may be voted either in person or by proxy, and in voting thestock, the voting trustee or trustees shall incur no responsibility as stockholder, trustee orotherwise, except for their own individual malfeasance. In any case where 2 or morepersons are designated as voting trustees, and the right and method of voting any stockstanding in their names at any meeting of the corporation are not fixed by the agreementappointing the trustees, the right to vote the stock and the manner of voting it at the meetingshall be determined by a majority of the trustees, or if they be equally divided as to the rightand manner of voting the stock in any particular case, the vote of the stock in such caseshall be divided equally among the trustees.

(b) Any amendment to a voting trust agreement shall be made by a writtenagreement, a copy of which shall be filed in the registered office of the corporation in thisState.

(c) An agreement between 2 or more stockholders, if in writing and signedby the parties thereto, may provide that in exercising any voting rights, the shares held bythem shall be voted as provided by the agreement, or as the parties may agree, or asdetermined in accordance with a procedure agreed upon by them.

(d) This section shall not be deemed to invalidate any voting or otheragreement among stockholders or any irrevocable proxy which is not otherwise illegal. (8Del. 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; 70Del. 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 agreementsis this: In the absence of written provisions, all shares of stock of the businessenterprise are freely transferable. Furthermore, Texas courts have consistentlyconstrued stock transfer restrictions narrowly and require that specific situations becovered explicitly by the restriction. See e.g., Consolidated Bearing and Supply Cov 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 [1 Dist.]st

1972); Coleman v. Kettering, 289 S.W.2d 953 (Tex. Civ. App.–Galveston 1956). Asa practical matter, there will be little to no market, public or private, for stock ofclosely held companies, but there is always the theoretical possibility of a sale. Themore likely client concerns about ownership changes will emanate from the majorchanges 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 leastexecution of the objectives is different. Among possible shareholder objectives to beconsidered are:

• Restricting ownership exclusively to employees

• Restricting ownership exclusively to family members

• To provide liquidity for corporate value in certain circumstances such asdeath, disability or divorce.

• To keep core management in place until value can be maximized with anacquisition 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 aremost important to the shareholder group. Careful and thorough drafting of the goalsand 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 beimposed by the articles of incorporation, bylaws, or a written agreement. There arepros 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 ofthe Agreement

• For courtroom purposes, the written agreement has the appearance ofconsensual contract that the average juror understands as binding ona signatory

• The notion of restrictions coming from some unfamiliar instrumentsuch as Articles of Incorporation and Bylaws is more likely to be aliento 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: Identifythe circumstance and name the shareholder subject to the circumstance. e.g.,a “shareholder whose employment with the Company has terminated for anyreason... .” However, there exists certain beneficiary interests or fiduciaryinterests in stock that the draftsman should be careful to bind along with theinterest 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 ofbuyers. In most cases, the parties will desire to use the corporation as theinitial purchasing vehicle, although there is no legal reason why thecorporation must be a named purchaser. The reason for common selection ofthe corporation is that, assuming a rational economic valuation of ashareholder’s interest in the company, the other shareholders will perceive thattheir relative ownership interest in the enterprise will remain proportionatelythe same without any adverse liquidity or tax effects on their personal financialsituations.

Although the corporation is universally used as a purchaser in buy-sellagreements, 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 willit need time to generate earnings and cash?

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

• Does the purchase place the board of directors in jeopardy to othercreditors?

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

In the event the corporation is unable to purchase the stock, the customary next stepis to name the remaining shareholders as the purchasers, usually pro rata in respectof the remaining number of shares that they own as a group. Of course, there alwaysexists the possibility one or more of the remaining shareholders groups will either notwant to or cannot financially afford to be a purchaser. Two possible alternatives tothis situation are to provide that the other remaining shareholders may purchase morethan their pro rata shares until the purchase order is completely filled or to allow theremaining shareholders to assign their rights or obligations to purchase to thirdparties. Thought should be given to whether or not remaining shareholders haveoptions or obligations to purchase, and if the rights are obligatory, whether theremaining shareholders are jointly and severally liable to the seller. It is quiteconceivable that a start up company could grow so quickly in value but be withoutearnings or liquidity (such as the fabled dot-coms) that a poorly thought-out buy-sellagreement could result in an otherwise valuable and passive investment turning intofinancial 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 itstill be a party to the agreement? The above cited statues in Delaware andTexas clearly do not require the joinder of the corporation in order to have avalid agreement. However, sound practice dictates that the corporationshould always be a party to the shareholders agreement, if feasible, and thatits joinder to the agreement should be duly authorized and executed by properboard and officer actions. The principal reason is that the corporation or itstransfer agent is the gatekeeper of whether stock certificates can betransferred or not, and if the parties desire to maximize the likelihood ofenforcement of the agreement, they will want the corporation to be a partysuch that it can be named in a legal proceeding to prevent or redress a transferof stock in violation of the agreement. As also discussed under the heading“Ethical Considerations,” the attorney should consider having the parties signan engagement letter acknowledging that the corporation (as a party to theagreement) 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 outsideris 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 newbusiness enterprise with a commonality of financial goals, career interests, andpersonality fits, and will fear an intruder disrupting the synergies of theirgroup. This fear is the most typically covered circumstance in buy-sells, andit is not uncommon to see the “right of first refusal” used as the technique toprevent the undesired transfer.

Rights of first refusal, in the author’s opinion, do not get the job done. Forthe most part, they are intended to stifle any possible liquidity for a company’sstock by building procedural hurdles to a purchaser ever taking title to awould-be seller’s shares, and at the same time do not provide the seller withany alternative for liquidating his or her investment. In addition, rights of firstrefusal are only applicable in situations where a shareholder has been fortunateenough to find a buyer at what the seller deems a decent price, and do notcover deaths, employment termination, divorce, foreclosures and othersituations. Efforts to stretch rights of first refusal to cover these othersituations have not been successful in the courts. See “The Rights of FirstRefusal in Involuntary Sales and Transfers by Operation of Law”, 48 BaylorL. 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 sharebased on the offer of the third party. Despite an agreement’s requirementsthat the offers must be bona fide, there is no realistic way for the othershareholders to police collusion between a seller and third-party buyer settingan 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 initialfounder remaining in the group), a firm obligation or option on the part of thecorporation and\or other shareholders to buy the selling shareholder’s stockis the most effective means to assure that the stock is not transferred and thatthe group is restricted to compatible investors.

2. Pledges & Foreclosures

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

3. Gifts

Gifts are usually prohibited without consent, and attempts at gifting inviolation of the agreement will trigger obligations or options to purchaseunder the buy-sell agreement. In cases where individual shareholders mayhave estate tax considerations, thought should be given to allowing gifts to bemade but with the buy-sell agreement attaching to the donee’s shares.

4. Death

Shareholder deaths usually trigger obligations of the corporation to purchasethe deceased shareholder’s entire stock interest, particularly where theshareholder is a key employee. Most shareholders will desire that theirfamilies 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 thedecedent’s family as investors. Furthermore, both purchase price and liquidityfor the deceased shareholder’s stock can be tied to and funded by key maninsurance purchased by the corporation. An often overlooked triggering eventis 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 thecorporation’s stock doesn’t necessarily pass to the surviving spouse.

5. Bankruptcy

Bankruptcy or insolvency typically triggers obligations or options of thecorporation or other shareholders to repurchase all shares owned by thefinancially troubled shareholder. The carefully drawn agreement should makeclear that it is effective as against trustees and receivers in bankruptcy.Shareholders often want to “low-ball” a bankruptcy trustee by setting aseverely lower price for the stock in the bankruptcy triggering event ascontracted to other triggering situations. This is not advisable, and may givethe bankruptcy trustee the power to avoid the buy-sell agreement altogetheras an ipso facto provision.

6. Divorce

Of all the triggering events, divorce is probably the most commonlyencountered event in shareholder agreements. Not only do divorces occur inmore than 40% of all marriages, the entrepreneurial personality, heavilyinvolved in the startup business, is probably more inclined than the averageperson to marital upheavals. A thorough shareholders agreement will not onlyrelieve the divorcing shareholder from some of the burdens and uncertaintythat a divorce can entail, but can also protect the other shareholder\investorsfrom the instability of a co-worker or co-investor undergoing the divorce.

One of the primary salutary effects the shareholders agreement can have is toset a reasonable value on the shares of stock that are part of the communityestate. In the absence of a buy-sell formula or price, the valuation of aclosely-held company is subject to all ranges of experts’ opinions, which maynot match the economic reality of any party to pay. Reasonable evaluationmethods or formulas, if applied evenly and equally to all shareholders andspouses who are parties to the agreement, should be enforceable. On theother hand, a valuation or stock price only applicable in divorce situations andmanifestly less than the real value of the shares is apt to be set aside by theequitable powers of the family court.

The shareholders agreement will usually grant the divorcing shareholder anoption to purchase his spouse’s interest (or if carefully drafted, will specifythat the shareholder may substitute other community and separate assets inlieu of paying cash for the spouse’s interest). If the divorcing shareholder failsto exercise the option, then the option will usually flip over to be exercised bythe 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’sbuy-out right as an obligation: if the value of the stock is the marriage’s mostsignificant asset, the divorcing shareholder could find that the division ofmarital property leaves him or her with no other assets (including retirementplan assets) or in debt to the spouse.

7. Incapacity

Incapacity is a triggering event in cases where the shareholder is a keyemployees and is no longer able to contribute his or her efforts to the growthof the enterprise. The triggering event is usually phrased in terms of aconsecutive number of days or days in a year of permanent disability thatmatches the kick-in of the company’s long-term disability policy. As an aside,while many shareholders are keenly aware of purchasing key-man lifeinsurance (and agents are keenly eager to sell it), disabling events tend to beoverlooked and underfunded.

8. Termination of Employment

Closely-held corporations in which all shareholders are also employees areessentially viewed as partnerships by the owners. Cessation of employmentis usually perceived as an absolute and unconditional reason for terminatingthe shareholder’s investment and returning the capital ownership exclusivelyto the employees. In such cases, the corporation and\or other shareholderswill 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 ongoingcompany, the remaining shareholder-employees will be concerned about thedeparted employee will have access to financial and confidential informationas a shareholder and the possibility of access to that information by acompetitor. In such situations, the scrivener of the shareholders agreementshould take care to assure that the triggering event is the termination ofemployment for any cause whatsoever, even going so far as to state that if thetermination is for any reason unlawful or actionable under any statute, law orrule, 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 carefullydistinguish those situations under which the corporation and\or other shareholders areobligated 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 financialliability on the parties named as purchasers. It is not inconceivable that an obligatorybuy-sell arrangement, especially where there is a rapid build-up of value under thepricing mechanism, will result in the financial ruin of the corporation, the insolvencyof one or more shareholders, or a heavy debt burden that snuffs out all theentrepreneurial incentive for the remaining shareholders.

When in doubt, structure the purchase as an option and provide for assignabilty of theoption by the remaining shareholder group or the board of directors to a third partyif they are unable to finance the exercise. At the end of the day, the worst case underan option structure is that the options go unexercised and the other shareholders areleft with an undesirable co-investor. But that is far better than being stuck with anunaffordable 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 companyand a shareholder requests a put of his or her stock, one alternative is to suggest thatthe sole remedy of the putting shareholder is removal of the transfer restrictions onthe stock if the purchaser(s) fail to honor the put.

Another creative use of options is the “evergreen” option. This involves a simpleshareholder agreement where all shares are subject to an option at any time on thepart of the corporation or a control group of shareholders to purchase one or moredesignated shareholders stock, for whatever reason, after giving notice. The optionis deemed “evergreen” because the agreement provides that it attaches to all sharesof stock transferred voluntarily, involuntarily or by operation of law, by the designatedshareholder. This feature provides the corporation or control group with theflexibility of t iming the exercise of the option at a time when stock valuations orliquidity 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 taskand one in which it is also difficult to obtain the focus of the initial shareholders instructuring a buy-sell agreement. The desire to buy out departing shareholderscheaply 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 sheetdetermined purchase price as a means of achieving fundamental fairness and notburdening the corporation or shareholders with an excessive buyout price. However,as the business matures and if it generates profits, a net worth type determination willeventually 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 andeven risking enforceability in the courts if the pricing mechanism produces an absurdresult. Consequently, it is best to factor in some amount of flexibility in settingpurchase price, including giving thought to provisions such that the entire agreementsunsets every 12 or 24 months if some percentage of the affected shareholders cannotagree 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 gasinterests

G. Financing Payment

If the purchaser’s liquidity is significant relative to the amount of the purchase pricefor 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 optionto 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 toallow 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 aterm note. The essential elements of the term note should be spelled out in theshareholders agreement: (1) original principal amount; (2) interest rate andcalculation 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 noteshould be attached as an exhibit to the shareholders agreement, and the agreementshould specify that delivery of an originally signed promissory note of the buyer issufficient payment of the purchase price at closing.

Unlike most borrowings, the use of debt to repurchase stock diminishes capital andadds debt service burdens to the operations of the business. Clients and their counselshould consider techniques that would relieve the purchaser–especially if it is thecorporation–from debt service payments when profits or cash are inadequate. Forexample, the debt obligation can be written such that in no year is the purchaserobligated to ever pay a combination of principal and interest that would exceed 15 or20 percent of operating net profits for that year, after adding back in salaries andbonuses paid to employee-shareholders. The unpaid portion of debt service exceedingthe cap for that year is then carried over to the remaining unpaid balance for paymentat maturity or treated in whatever manner the parties desire.

Practitioners should also generally be aware that most form commercial loanagreements prohibit dividends and repurchases of the corporation’s stock. Borrowingcompanies should seek carve-outs from the lender’s covenants for payments under theshareholders agreement. In most cases, the lender will require some form of minimalcontinuing financial compliance (e.g., debt service coverage ratios, balance sheetratios) by the corporation after giving effect to the repurchase in order for thepurchase 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 theagreement by some percentage of shares constituting less than all the shares ownedby affected shareholders. Two-thirds of the shares restricted by the agreement seemsto be a popular number for Texas shareholder agreements because it matches theshareholder vote required for amendments to the articles, merger, dissolution, etc.In addition, many shareholder agreements provide for automatic termination upongoing public or upon being acquired by a non-affiliated company. If a payment orsome other right has vested and become unconditional under the shareholdersagreement, care should be exercised in altering or eliminating the right without theconsent of the affected shareholder.

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I. Dispute Resolution

Arbitration clauses are desirable from the viewpoint of more speedily resolvingdisputes that arise under shareholders agreements. Particularly, valuation disputes ofthe determination of purchase price may be more heard before arbitrators withaccounting or investment banking backgrounds and experience. On the other hand,clients may not want to dispense with the ability of the corporation or othershareholders to seek specific performance in the event an errant shareholder violatesthe agreement by attempting a forbidden transfer of the stock. One suggestedcompromise is to make the arbitration clause only applicable to disputes arising underthe 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 managementcontrol be vested in persons owning less than a majority of the economic interests ofthe corporation or that a minority of shareholders be given certain votes and vetorights over the majority. Many of these concerns can be addressed in a votingagreement or voting trust that complies with the statutory requirements. Theflexibility of a voting agreement is sometimes unfortunately ignored in favor ofcreating complicated multi-class stock structures, with and without voting rights, thatoften result in complicated tax and class voting situations in the future. Draftsmenshould also consider the broad-reaching authorization for agreements qualifying underTBCA art. 2.30-1, such as providing that persons other than the board of directorsmay govern the corporation or specifically designating tenured officers, to alterheretofore standard corporate governance practices. TBCA art 2.30-1 requires thatall 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, absentvalidly 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 trustagreement are the persons shown on the corporation’s records as the owners. Trustand estates should consider whether joinder of beneficiaries to a voting agreement ortrust is desirable.

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C. Voting Mechanisms

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

For an example of a voting agreement, see Appendix D–Venture Capital VotingAgreement (Del).

The voting trust statutes of both Texas and Delaware require adherence to a specificprocedure in order to establish a valid voting trust, and require the naming of oneor more trustees under the voting trust agreement and the surrender by the othersignatory parties of their stock certificates to the voting trustee. The votingtrustee(s), in turn, present the certificates of the beneficial owners to the corporationor its transfer agent, and the corporation is required to issue new certificates in thename(s) of the voting trustee(s), noting on the certificates the existence of the votingtrust agreement. The voting trust agreement is likewise required to be deposited withthe 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 thetrustee(s) will vote on various issues. On one extreme, the trustee (usually aninfluential shareholder) may be granted complete discretion to vote all shares in thetrust as the trustee deems proper. On the other extreme, the voting trustee may haveno discretion whatsoever and is directed to vote per the directions of the beneficiariesof 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 votingtrusts and agreements not have a term in excess of ten (10) years. However, note thatif 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 practicewould 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 theagreement.

E. Remedies for Breach

There is a nuance between voting trusts and voting agreements that is important, andthat nuance relates to enforcement of breaches. Recall the basic principle that acorporation 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 contraryto the agreement at a meeting of shareholders? Although the statutes and theagreement will provide for specific performance, what good is that language if thecorporation records the vote in the manner cast by the breaching shareholder? If thecorporation is not a party to the voting agreement, is it possible that a court will orderrescission of the corporate action taken by the shareholders? By the time the case isheard, 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, forin that situation the voting trustee is the shareholder of record and the corporation isrequired to recognize the trustee’s vote as to the shares registered in the trustee’sname. If the trustee were to violate or breach the voting trust agreement, thecomplaining beneficiary’s remedy would more likely be confined to a breach ofcontract of fiduciary duty claim.

V. Marital Property Considerations

Corporate lawyers preparing shareholder agreements should constantly bear in mind thatsome or all of the parties to a shareholders or voting agreement may be residents of acommunity property state such as Texas. It doesn’t matter if the corporation is formed underDelaware, Nevada or Angolan law: the character of the property ownership is determinedby the jurisdiction of the marital domicile. It also doesn’t matter if the stock certificates arein 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 theclearly traceable proceeds of separate property, the stock is community property and thespouse 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 onthe management and control of the spouse in whose name the stock is registered. Thus therecord shareholder can vote the shares, receive dividends, and transfer the stock certificateto a transferee. But lurking in the background are community property rights, and in certainsituations–such as divorce and death of the spouse–the corporation and other shareholderswill 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 canbe argued to constitute partition and exchange agreements subject to the requirements of theChapter 4 of the Texas Family Code. Such an agreement may be enforced if it is executedvoluntarily by both spouses, is not unconscionable and the spouse receives adequatedisclosure. 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, thedocumentation 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 orarticles are not desirable), (ii) contain representations of the spouses that they have receivedadequate disclosure, the opportunity to consult with separate counsel and have voluntarilyexecuted the agreement, and (iii) require than any future spouses of the shareholders berequired to execute a counterpart of the agreement.

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

VI. Ethical Considerations

The attorney preparing a shareholders or voting agreement has an immediate and dangerousconcern: who does he or she represent and who thinks he or she is representing them. In theabsence of a clear engagement letter to the contrary, the attorney will find himselfrepresenting 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 byparagraph (c), a lawyer shall not represent a person if the representationof that person:

(1) involves a substantially related matter in which that person’sinterests are materially and directly adverse to the interest toanother client of the lawyer or the lawyer’s firm; or

(2) reasonably appears to be or become adversely limited by thelawyer’s or law firm’s responsibilities to another client or to a thirdperson 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 clientwill not be materially affected; and

(2) each affected or potentially affected client consents to suchrepresentation after full disclosure of the existence, nature,implications and possible adverse consequences of the commonrepresentation and the advantages involved if any.

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Even if the attorney can obtain the written consents of all parties, does any attorneyreasonably 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 committeeor jury on this standard?) More pointedly, how can a shareholders agreement with buy-sellprovisions triggered by divorce not materially affect the spouse’s interest?

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

Admittedly, the disciplinary rules are chiefly written for litigators and do not work well forlawyers in the start-up business situation. One can suggest that every entity and individualobtain separate counsel to structure and negotiate an agreement, but the cost of implementingthat recommendation will break most start-up company budgets. The most practical andprophylactic suggestion is to prepare a letter specifically tailored for your engagement thatstates you are representing solely the entity and no other individual or party but the entity inthe planning, negotiating and drafting of the shareholders or voting agreement. See TexasDisciplinary Rule 1.12. The engagement letter should state that the agreement will potentiallymaterially affect all the other parties, that you are not representing them or their spouses, andthat they should seek separate counsel to the extent they perceive their interests should berepresented. Before commencing work on the project, all affected shareholders and spousesshould 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-sellagreements is beyond the scope of this paper. However, the corporate attorneyshould generally be aware and capable of spotting salient tax issues so that taxexpertise 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 salesmethod.

• 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 purchaseobligation under agreement. Rev. Rul. 69-608

–Redemption of non-common stock previously received in tax-freetransaction (Section 306 stock redemption)

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

• Section 83 compensation issues where stock is subject to forfeiture and\oremployee purchases stock under shareholder agreement for less than fairvalue.

• Tax loss carryforward and carryback issues

• Taxation at the corporate level if entity distributes appreciated property topurchase 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 deemeddividends by C corporations, the shareholders agreement serves an entirely differentpurpose in the context of S corporations: preserving the S corporation election. Inorder to make a valid S corporation election, all shareholders and their spouses mustconsent to the election on Form 2553. Tres. Reg. § 1.1362-6(b). In the absence ofan agreement, any shareholder (and possibly a spouse) may revoke the S election,causing tax havoc to the corporation and other shareholders. Consequently, acovenant of each shareholder and spouse not to take any action to revoke orterminate the S election is highly recommended. As an example:

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“Shareholder and Spouse agree that they will nottransfer 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 Scorporation under the Internal Revenue Code of 1986,as amended. Any such attempted transfer shall be nulland void, and no Company shall be required torecognize and/or register the transfer of Shares to anyperson that would cause such Company to lose suchelection. Shareholder and Spouse agree that they shallnot take any action or fail to take any action the effector result of which would be to cause any Company’sSubchapter S election to be terminated, includingsigning or failing to sign all elections and formsnecessary to be signed by them to maintain the Scorporation election status of any Company.”

Another concern of maintaining valid S corporation elections is the Internal RevenueCode’s requirement that an S corporation have only one class of stock. Generallyspeaking, shareholder and voting agreements will not be deemed to create additionalclasses of stock by reason of purchase obligations or voting provisions; however, ifthe shareholders agreement purports to treat shareholders differently as to dividendsor liquidation payouts, the agreement could be viewed as creating a second class ofstock 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 becomecomplex 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 talentsor investment capital but are not actively involved in the planning and managementof 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 ofventure capital financing before it is financially self-sustaining and capable of realizing a fullvalue via a public offering or an acquisition. During these interim financing stages, theventure 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 venturecapitalists’ 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 inorder to receive future stages of financing; (iii) to have a significant presence on the board ofdirectors; (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 downsiderisk of a business failure.

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

� Board of Director Positions. VC investors are guaranteed a certain number of boardpositions by means of voting agreement

� Lock-up Agreement. Founders and principal shareholders are required to covenantnot to sell any of their shares in connection with the initial public offering and for acertain 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 favoringthe 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 orprincipal shareholders desire to sell all or part of their stock.

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

IX. Conclusion

Shareholder agreements and voting agreements are essential ingredients to the initialcorporate structure of the start-up company, and will most likely continue to be required bythe 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 ableto 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 (andexpensive) than either the clients or the attorney originally contemplate, but that is a sign theattorney is doing a good job in focusing the shareholders on the multiple issues that need tobe faced. In conclusion, follow these recommended steps in the process:

� Clarify who you represent and don’t represent in a written engagement lettersigned 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 significantlycomplicated 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 notconversant with topics

� Draft, re-draft and re-draft

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APPENDIX AChecklist-Shareholder Agreement

CHECKLIST FORSHAREHOLDERS' AGREEMENT

(Texas)

NOTE: Determine which aspects concerning business and affairs of corporation and of relationsamong shareholders will be regulated by Shareholders' Agreement (as opposed to Articles and Bylawsor 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 otheremployee.

4. Determine if there should be arbitration of any issues about which shareholders maybecome deadlocked or about which directors, or others, may become deadlocked andshareholders 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 ormanagement of corporation business and affairs.

7. Right of shareholders to dissolve corporation at will or on occurrence of specifiedevent 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 specifiedmatters, including:

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1. Voting agreements and voting trusts.

2. Requiring vote of greater or lesser number of shareholders than is otherwise requiredby 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 asotherwise 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 eachshareholder.

R. Share Transfer Restrictions, which may include:

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

-- 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

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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 onlypart 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 byshareholders 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 overspecified number of years prior to transfer, or any other type of formulaagreed to among the shareholders.

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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% ofEBITDA per year + officer salaries can be used to pay debt service forrepurchases of stock; balance deferred with or without interest to future years

7. Determine whether purchase on death of shareholder should be funded by purchaseof life insurance on lives of shareholders.

(a) Determine whether purchase of life insurance or funding from any suchinsurance 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.

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(v) Legal owner of each policy.

(vi) Party obligated to pay premiums.

(vii) Disposition of policy on lives of remaining shareholders owned bydeceased shareholder.

S. Push-Pull. Determine whether shareholders desire a mechanism to force a buy-out of ashareholder, such as a provision that would require a shareholder to either purchase the othershareholders shares at a certain price or sell all of his shares to the other shareholders at thatsame price.

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APPENDIX B

Buy-Sell AgreementEmployee-Owned Company - (Tex)

SHAREHOLDERS AGREEMENT(Joe B. Worker)

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

W I T N E S S E T H

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

WHEREAS, other shareholders of the Corporation, joined by their spouses, have also enteredinto shareholder agreements restricting the disposition of their shares of capital stock of theCorporation, providing for buy-sell rights under certain conditions and making Shareholder andSpouse 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 shallhave 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 hereafteroccur 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 hereafteroccur with respect to the Class B Stock.

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

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1.5 Five-Year Treasury Rate means, for any date on which a promissory note is deliveredas partial consideration for a purchaser electing the Installment Alternative, the effective “asked” yieldof U.S. Treasury bills with a five (5) year maturity (or as near thereto as is reported in the “TreasuryBonds, 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 purchasedon such effective date by (x) the Wall Street Journal or (y) in the event The Wall Street Journal ceasesto publish the yields of such U.S. Treasury bills on a daily basis, any other nationally-recognized dailybusiness 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 otherproceeding for the discharge and/or reorganization of indebtedness by Shareholder, whether underfederal 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 notdismissed within thirty (30) days of its filing, or the admission or adjudication of the Shareholder asinsolvent.

1.7 Installment Alternative means the payment for the exercise of a buy-sell option orobligation hereunder in the form of a combination of cash and promissory note of the purchaser. Toqualify as valid consideration, payment in the form of the Installment Alternative shall meet thefollowing 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 maturitygreater than five years from the date of issuance, (iv) call for equal installments of principal to be paidevery six (6) months from the date of issuance, such that the principal balance will be amortized andpaid in full on the maturity date (no balloon payments permitted), (v) require that all accrued interestbe paid in full on each date that an installment of principal is due, (vi) be secured by a pledge of theShares 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 ofdetermination of the purchase price under Section 3.2, the Corporation’s net worth as shown on theCorporation’s balance sheet prepared in accordance with GAAP. Net Worth shall be based on themonthly unaudited financial statement of the Corporation, compiled in accordance and consistent withthe Corporation’s historical and customary accounting practices; provided, however, any seller underthis Agreement may elect to use, in lieu of the monthly unaudited net worth of the Corporation, thenet worth of the Corporation as shown on the Corporation’s most recent audited year-end financialstatement.

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

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

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

1.13 Personal Representative means the executor, administrator, guardian or conservatorof 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 ofCommon Stock owned by such shareholder divided by the total number of shares of Common Stockowned 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 theSpousal Interest in the Shares.

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

1.17 Spousal Interest means any interest in the Shares owned or claimed by Spousepursuant 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 accordancewith this Agreement. The Shareholder understands that the Corporation may refuse to transfer theShares when such transfer would not be in compliance with the terms of this Agreement, and that anyattempted disposition of any Shares in violation hereof shall be null and void and of no force andeffect.

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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, whethervoluntarily or by operation of law, or by gift or otherwise, except with the written approval of theboard 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 andthe 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 byoperation of law) and the number of shares affected;

(b) the name, address, telephone number, social security or federal tax identification number ofthe 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 bepledged 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 TransferNotice to approve or disapprove the disposition on the terms and conditions described in the TransferNotice. If the board of directors disapproves, or less than the Two-Thirds Majority approves, thedisposition, the disposition of the Shares shall not be made, and all Shares shall continue to berestricted by this Agreement. In the event that such approval is granted by the Corporation and theTwo-Thirds Majority, the Shareholder shall not sell, transfer, assign, hypothecate, pledge, subject tolien, encumber or otherwise dispose of any of the Shares at any time prior to 30 days after the dateupon which such approval was granted. Any purported transfer or disposition in violation of thisprovision shall be void and ineffectual. Under no circumstances shall any sale or other dispositionof any Shares subject hereto be valid until the proposed transferee and his/her spouse shall haveexecuted and become a party to a shareholders agreement in favor of the Corporation and the OtherShareholders 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’sand the Two-Thirds Majority’s approvals as provided in Section 2.2, then the Corporation and theOther Shareholders shall have the option to purchase all or any portion of the Shares which theShareholder proposes to sell at the purchase price and on the terms specified in Section 3.2 of thisAgreement, and if such option is exercised by the Corporation and/or the Other Shareholders, theShareholder shall be obligated and bound to sell such Shares to the Corporation and/or the Other

Buy-Sell AgreementEmployee-Owned

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Shareholders upon said terms. As between the Corporation and the Other Shareholders who havea right to purchase such Shares, the Corporation shall have the first and prior right to purchase all orany portion of such Shares, and the Other Shareholders shall have the right to purchase all or anyportion of the remaining Shares not purchased by the Corporation on a Pro Rata basis or as suchOther Shareholders may otherwise agree among themselves. Notice of exercise or non-exercise ofthe option granted pursuant to this Section 2.3 shall be given to Shareholder within thirty (30) daysof the date on which written approval to sell the Shares was obtained by the Shareholder inaccordance with Section 2.2. If the and to the extent that the Corporation and Other Shareholdersdo not purchase all Shares, then Shareholder may dispose of such Shares but only to the transfereeand 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 Shareholderand/or Spouse specified in subsections (a), (b), (c), (d) (e) or (f) of this Section 3.1 shall give rise tothe 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 anInsolvency Event, then the Corporation and the Other Shareholders shall have theexclusive right and option to purchase all or any number of the Shares at the purchaseprice 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 andbound to sell all Shares to the Corporation and the Other Shareholders upon saidterms. As between the Corporation and the Other Shareholders who have a right topurchase such Shares, the Corporation shall have the first and prior right to purchaseall or any portion of such Shares, and the Other Shareholders shall have the right topurchase all or any portion of the remaining Shares not purchased by the Corporationon a Pro Rata basis or as such Other Shareholders may otherwise agree amongthemselves. Notice of the exercise or non-exercise of the option granted pursuant tothis Section 3.1(a) shall be given to the Shareholder within 90 days of the date onwhich the Corporation obtains knowledge of the Insolvency Event. If and to theextent 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 orpermitted by the court; provided, however, any transfer of such Shares to asubsequent transferee shall not be valid until such transferee and his/her spouse shallhave executed and become a party to a shareholders agreement in favor of theCorporation and the Other Shareholders.

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

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per share. Such purchase price shall be payable by the Corporation in the form of alump sum payment of cash due and payable within thirty (30) days of the later tooccur of the qualification of Shareholder’s Personal Representative or the paymentto the Corporation of the Insurance Benefit. The Corporation’s purchase of theShares be funded by a key man life insurance policy (the “Policy”) issued by aQualified 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 orbefore the execution of this Agreement. The Corporation shall be named anddesignated the sole beneficiary under the Policy. The Corporation shall be solelyresponsible for maintaining all premium payments, taxes and other costs associatedwith the Policy during Shareholder’s lifetime. In the event that the Corporation failsto maintain the Policy and/or the Qualified Insurer fails to pay the Insurance Benefitwithin one-hundred eighty (180) days of Shareholder’s death, then in such event theCorporation shall have the obligation, to the extent it may be lawfully required to doso, to purchase all Shares not funded by the Insurance Benefit at the purchase priceof One Hundred Dollars ($100.00) per share; provided, however, in such event theCorporation may elect to make payment of the purchase price by using the InstallmentAlternative. If and to the extent that the Corporation does not or cannot lawfullypurchase all Shares owned by the deceased Shareholder, then the Other Shareholdersshall have the option to purchase any portion of the remaining Shares not purchasedby the Corporation on a Pro Rata basis or as such Other Shareholders may otherwiseagree among themselves. Notice of the exercise or non-exercise of this optiongranted to the Other Shareholders shall be given to Shareholder’s PersonalRepresentative and to Spouse within thirty (30) days following the receipt of writtennotice from the Corporation to the Other Shareholders that it has not purchased orcannot lawfully purchase all Shares. If and to the extent that the Corporation and/orOther Shareholders do not purchase all Shares, then the Personal Representative ofShareholder may lawfully dispose of such Shares; provided, however, any dispositionof the Shares to any subsequent transferee shall not be valid until such transferee andhis/her spouse shall have executed and become a party to a shareholders agreementin favor of the Corporation and the Other Shareholders.

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

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right to purchase such Shares, the Corporation shall have the first and prior right topurchase all or any portion of such Shares, and the Other Shareholders shall have theright to purchase all or any portion of the remaining Shares not purchased by theCorporation on a Pro Rata basis or as the Other Shareholders may otherwise agreeamong themselves. Notice of the exercise of the option granted pursuant to thisSection 3.1(c) shall be given to or by the Shareholder (or the PersonalRepresentative) within one hundred eighty (180) days of the date on which theDisabled Shareholder is determined disabled by the Board of Directors. For purposesof this Section 3.1(c), the Shareholder will be deemed as “disabled” if the Shareholderis unable to perform substantially all of his duties as an employee or consultant of theCorporation and such disability either (i) remains in effect for any 91 consecutive daysor (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 faithby 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 courtor arbitrator based upon a showing of bad faith of the directors by clear andconvincing evidence. If and to the extent that the Corporation and/or OtherShareholders do not purchase all Shares, then the Shareholder (or the PersonalRepresentative) may lawfully dispose of such Shares; provided, however, anydisposition of the Shares to any subsequent transferee shall not be valid until suchtransferee and his/her spouse shall have executed and become a party to ashareholders agreement in favor of the Corporation and the Other Shareholders.

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

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

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

(ii) Shareholder shall negotiate and seek, and Spouse agrees to accept, an orderfor the division of marital and separate property such that Shareholderreceives the entire Spousal Interest in the Shares in exchange for awarding toSpouse other marital and separate assets in which Shareholder has an interestthat have a value approximately equal to the Spousal Interest (as valuedunder paragraph (i) above). If the court in such proceeding shall enter anyorder or decree awarding any Shares or any interest therein to Spouse,Shareholder and Spouse shall each notify the Corporation’s board of directorsand the Other Shareholders in writing of such award. For a period of ninety(90) days after receiving such notice, the Corporation and the OtherShareholders shall have the exclusive right and option to purchase all or anyportion of such Shares awarded to Spouse at the purchase price and on theterms specified in Section 3.2 hereof. As between the Corporation and theOther Shareholders who have a right to purchase such Shares, theCorporation shall have the first and prior right to purchase all or any portionof such Shares, and the Other Shareholders shall have the right to purchaseall or any portion of the remaining Shares not purchased by the Corporationon a Pro Rata Basis or as such Other Shareholders may otherwise agreeamong themselves, If and to the extent that the Corporation and/or OtherShareholders do not purchase all Shares awarded to Spouse, then Spouse maylawfully dispose of such Shares; provided, however, any disposition of theShares to any subsequent transferee shall not be valid until such transferee andhis/her spouse shall have executed and become a party to a shareholdersagreement in favor of the Corporation and the Other Shareholders. Shareholder and Spouse each agree that the Corporation may intervene intheir divorce proceeding without their objection for the purpose of enforcingthe 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 SpousalInterest to Shareholder. This promise is made with Spouse’s full knowledge, is madefor good and valuable consideration and constitutes a covenant binding uponSpouse’s estate, Personal Representative, heirs and beneficiaries. In the event thatSpouse dies and does not leave a valid will admitted to probate bequeathing the entireSpousal Interest to Shareholder, or if any will contest is filed by any personchallenging the validity of the bequest of the Spousal Interest to Shareholder, then

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Shareholder and Spouse’s Personal Representative shall each notify the board ofdirectors of the Corporation of such event. For a period of ninety (90) days followingthe date of the later to occur of (i) the qualification of Spouse’s PersonalRepresentative, (ii) the entry of the order of the probate court concluding thatSpouse’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 andoption to purchase all or any portion of the Spousal Interest in the Shares at thepurchase price and on the terms specified in Section 3.2 hereof. If and to the extentthat Shareholder does not or cannot purchase the entire Spousal Interest in the Sharespursuant to the foregoing provision within ninety (90) days, then the Corporation andthe Other Shareholders shall have the exclusive right and option, beginning on the firstday after expiration of the aforesaid ninety (90) day period and ending one (1) yearafter the entry of a final order by the probate court disposing of the Spousal Interestin the Shares, to purchase all or any portion of the Shares not purchased by orawarded to Shareholder at the purchase price and on the terms specified in Section3.2. As between the Corporation and the Other Shareholders, the Corporation shallhave the first and prior right to purchase all or any portion of the Spousal Interest inthe Shares, and the Other Shareholders shall have the right to purchase all or anyportion of the remaining Spousal Interest in such shares not purchased by theCorporation on a Pro Rata basis or as such Shareholders may otherwise agree amongthemselves. If and to the extent that the Corporation and/or Other Shareholders donot purchase all such Shares, then the holder of the Shares may lawfully dispose ofsuch Shares; provided, however, any disposition of the Shares to any subsequenttransferee shall not be valid until such transferee and his/her spouse shall haveexecuted and become a party to a shareholders agreement in favor of the Corporationand the Other Shareholders. Shareholder and Spouse agree that the Corporation mayintervene in any probate proceeding or will contest applicable to Spouse’s estatewithout their objections for the purpose of enforcing the Corporation’s and the OtherShareholders’ rights under this Subsection 3.1 (f).

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

Section 2.3 Preferential Right of Purchase: the last date on which the Corporation and allOther 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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Section 3.1(c) Disability of Shareholder: the date on which the board of directors of theCorporation makes the determination that the Shareholder is disabled as defined in thisAgreement.

Section 3.1(d) Termination of Employment: the date on which Shareholder’s employment orconsulting status with the Corporation terminates or is terminated.

Section 3.1(e) Divorce of Shareholder and Spouse: the date of initial filing of the divorcepetition 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 whendelivered in accordance with the procedures set forth in Section 4.9 of this Agreement. Such noticesshall state the number of shares being purchased, the class of stock, the determination of the purchaseprice in accordance with this Agreement, the name(s) and address(es) of the purchasers and whetherthe purchase price will be paid in cash or using the Installment Alternative. The closing of thepurchase and sale of a buy-sell option or obligation hereunder shall occur within ten (10) days fromthe date of exercise of a buy-sell right hereunder and shall be held at the principal business office ofthe Corporation in Houston, Texas, or at such other time and place in the State of Texas mutuallyagreeable to the purchaser(s) and seller. At the closing, the purchaser(s) shall deliver cash (whichshall be in the form of a cashier’s check or wire transfer of immediately available funds) or theInstallment 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 suchShares, 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 theundersigned parties, their respective heirs, personal representatives, successors and assigns; providedthat the rights of the Shareholder and Spouse under this Agreement may not be assigned without theconsent of the Corporation, the Two-Thirds Majority and the Shareholder, and any assignment inviolation of this Section 4.1 shall be null and void and of no force or effect. The Corporation’s rightsand obligations hereunder are assignable

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

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4.3 Titles and Headings. Titles and headings to Sections hereof are for the purpose ofreference 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 inaccordance with the laws of the State of Texas, without regard to the conflicts of law principlesthereof.

4.5 Spouse’s Community Interest. The Spouse of the Shareholder hereby joins in theexecution of this Agreement to evidence his or her knowledge of its existence and content, toacknowledge that this Agreement is fair, equitable and in their best interests, to bind the SpousalInterest, if any, and the heirs, beneficiaries, administrators, executors, legal representatives andassigns of such Spouse to the Agreement, and to evidence that the respective community interest ofSpouse, if any, in and to any of the Shares or any interest therein are covered by and embraced by theterms and provisions of this Agreement in all respects. Spouse further specifically designatesShareholder as manager of any and all Spousal Interest in the Shares (other than interests evidencedby a stock certificate solely in the name of such Spouse and owned by such Spouse as a shareholderof 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 SpousalInterest. Spouse acknowledges that Spouse has been advised by the Corporation and Shareholderto engage separate legal counsel to review this Agreement on Spouse’s behalf, that Spouse has beenadequately advised as to the legal ramifications and effects of entering into this Agreement, and thatSpouse 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 orremarriage, as the case may be, to use his best efforts to have his future spouse execute a counterpartof this Agreement in order to evidence her intent to be bound hereby.

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

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

(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 shallbe in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwisedelivered 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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such other address as the Shareholder shall have furnished to the Corporation and each OtherShareholder 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 theShareholder, (c) if to any of the Other Shareholders, at their last address shown on the stock transferrecords of the Corporation, and (d) if to Spouse, at Spouse’s address set forth below until Spouseshall have delivered a written change of address notice to Shareholder, the Corporation and each ofthe Other Shareholders. Each such notice or other communication shall for all purposes of thisAgreement be treated as effective or having been given when delivered if delivered personally, or, ifsent by mail or courier, at the earlier of its receipt or three business days after the same has beendeposited in a regularly maintained receptacle for the deposit of the United States mail, addressed andmailed as aforesaid.

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

IN WITNESS WHEREOF, this Agreement has been executed effective as of the date firstset 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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Social Security No.:__________________ Social Security No:_____________________

Date of Signing:_____________________ Date of Signing:_______________________

1

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 Texascorporation (the “Company”), by and among [Individual with voting power] (“Trustee”) and eachof the other entities and persons whose names are set forth on Exhibit A and all other parties whoshall join in and become parties to this Agreement as hereinafter provided (each of such parties otherthan 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 Companythat 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 Companyand to further the interest of all of the stockholders thereof, the parties hereby create the Voting Trustfor 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 itssubsidiaries and are also] the sole record and beneficial holders of the Common Shares subject tothis Agreement.

NOW, THEREFORE , the parties hereto agree as follows:

7. Definitions. Unless otherwise expressly set forth in this Agreement, the terms definedin this Section 1 shall have the meanings set forth below, which definitions shall be applicable to bothsingular 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 sharesto the Trust pursuant to the terms of this Agreement and may include, with regard to subsequentlycontributed shares, Initial Subscribers or New Subscribers.

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“Securities Act” shall mean the Securities Act of 1933, as amended, or any similarfederal statute, and the rules and regulations of the Securities Exchange Commission promulgatedthereunder, and any applicable state securities laws and the rules and regulations promulgatedthereunder, 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 ofthe Company having voting rights at annual or special meetings of stockholders.

“Subscriber” shall mean each of the Subscribers described in the recitals hereto andany 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 resultof the dissolution, liquidation or winding up of the Company or (iii) the closing and fundingof an initial public offering of the Shares pursuant to a registration statement which hasbecome 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 inSection 4 hereof.

“Trustee” shall mean _______________ or such other party or parties as may becomethe 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 theTrustee certificates representing, all of Shares held of record by them and hereby irrevocablyconstitutes and appoints the Trustee their attorney-in-fact for the purpose of endorsing and deliveringcertificates representing such Shares to the Company for reissuance by the Company in the name ofthe Trustee, as the Trustee of the Trust. The Company shall, upon receipt of certificates representingshares held of record by the Subscribers transfer such Shares on its books and records from the nameof such Subscriber, respectively, to the Trustee as Trustee of the Trust and shall promptly thereafterdeliver 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 bydelivering certificates representing such Shares to the Trustee, together with stock powers thereforduly endorsed in blank. Thereafter, the Trustee shall deliver such certificates to the Company fortransfer to the Trustee as Trustee of the Trust and the Company shall transfer such Shares on itsbooks 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 contributeto the Trust in accordance with the terms hereof, any Shares which such party comes to hold ofrecord.

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9. Eligible Stockholders. Any record owner or holder of Shares may, subject to suchregulations 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 withthe 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 pursuantto the terms and conditions of this Agreement, all certificates representing Shares which may now orhereafter from time to time be delivered hereunder; and the Trustee in exchange for such Sharestransferred 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 Sharesor the Shares in respect of which any Shares were subsequently issued to the Trustee, TrustCertificates 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 issuecertificates representing fractions of Shares, which certificates shall be in such form and shall carrysuch 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 hisabsolute discretion prescribe, may provide for the issue and delivery of new Trust Certificate in lieuof 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 neitherthe Trust Certificates nor the Shares contributed, directly or indirectly, in connection therewith havebeen registered under the Securities Act, and that accordingly the Trust Certificates and the beneficialinterest in the Shares represented thereby will not be transferable except as permitted under variousexemptions contained in the Securities Act, or upon satisfaction of the registration and prospectusdelivery requirements of the Securities Act. Each of the parties hereto acknowledges that each ofthem must bear the economic risk of holding the Trust Certificates and of owning a beneficial interestin 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 theTrustee that he or it is acquiring such Trust Certificate for investment purposes only, for his or itsown 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 theSecurities Act. Each holder of a Trust Certificate represents and warrants that he or it has suchknowledge and experience in financial and business matters as to be capable of evaluating the meritsand risks of his or its investment.

12. Restrictions on Transfer. Except as provided in this Section 6, no transfer of anyTrust Certificate, or any Shares or other capital stock of the Company represented thereby, or anybeneficial interest therein, shall be effective until the transferor and the transferee thereof shall haveprovided such evidence of compliance with this Agreement, the Trustee’s regulations, and theSecurities Act, as the Trustee shall, in his sole and absolute discretion, deem necessary or appropriatewith regard thereto.

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No party shall acquire any interest in or to any Trust Certificate, or Shares representedthereby, 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 toexercise all voting rights with respect to the Shares, or appoint others as proxy to exercise suchvoting rights, and otherwise represent, and possess and be entitled to exercise all of the rights of astockholder of the Company with respect to, all of the Shares, including without limitation at anyannual 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 virtueof ownership of a Trust Certificate issued pursuant to this Agreement. The Trustee shall not be liablefor any vote case, consent given or other action taken [in the absence of gross negligence or willfulmisconduct], and in any event, will have no liability to any Subscriber or New Subscriber for or inconnection with any vote case, consent given or other action taken with the consent of suchSubscriber or New Subscriber.

13.2 Each of the Subscribers and the New Subscribers hereby agrees to indemnifyand 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 oraction against the Trustee by such person or his legal representatives, or any other person or entityacting on his behalf (i) as a result of any action taken or not taken by the Trustee within the scope ofhis 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 agreesto indemnify and hold harmless the Trustee from and against any and all losses, damages, cost andexpenses (including without limitation reasonable attorneys’ fees) incurred in connection with anyclaim by the Company, or any creditor of the Company, of any person claiming on behalf of eitherof them, with respect to any unpaid subscription amounts outstanding in connection with any of theCommon Shares contributed by such Subscriber or New Subscriber.

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

14. Dividends. The Trustee shall, subject to any liens or encumbrances recognized bythe Trustee, in his sole and absolute discretion, receive and promptly remit to the record holders ofeach of the Trust Certificates any dividends or distributions or property of any sort received by theTrustee 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) consecutivedays) to act as Trustee, the Subscribers shall elect a successor Trustee by a vote of the majority ininterest of them in accordance with the provisions of Section 11 below. Prior to the commencement

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

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

[17. Meetings of Subscribers; Notices; Election of Trustee. The Trustee may call ameeting of the holders of Trust Certificates for any lawful purpose. Any such meeting shall becalled, and notice therefor given, in the manner provided for in the Texas BusinessCorporation Act, or any successor statute thereto, with regard to the holding of meetings ofstockholders 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) daysor more), Trustee or Subscribers and New Subscribers, if any, as a single class, representingone-third (1/3) of the voting power of the Shares or other capital stock subject to thisAgreement other than Shares or other capital stock represented by Trust Certificates held ofrecord by the Trustee, in his individual capacity, may upon not less than ten days writtennotice to the Trustee and the other parties to this Agreement in accordance with the terms ofthis Agreement, call a meeting for the purpose of electing a new Trustee. At any meeting calledfor the purpose of electing a new Trustee, the candidate receiving the vote of a majority ininterest of the holders of Trust Certificates in accordance with Section 12 hereof, shall, uponcompliance with Section 9 hereof, succeed to all of the rights, duties and obligations of theTrustee. Once elected and qualified pursuant to the terms of this Section 11, no Trustee shallbe replaced by any subsequent election of a Trustee except upon such Trustee’s death orunwillingness or inability to perform his duties hereunder as provided herein.]

18. Voting. For the purposes of this Agreement, each share of capital stock of theCompany, including the Shares, shall have the voting power assigned it at any annual meeting ofstockholders of the Company with regard to the election of Directors. Any provision hereof callingfor any action by the holders of Trust Certificates of a certain percentage in interest shall refer to thevoting 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 uponsurrender of the Trust Certificates then outstanding with regard thereto, will, subject only to the termshereof and applicable law with regard to withholding and payment of taxes, deliver or cause to bedelivered to the holders of Trust Certificates whose Shares have been the subject of such termination,

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certificates representing Shares then held by the Trustee, in the amounts represented by the TrustCertificates 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 distributionpursuant 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 necessaryor convenient for the purpose of assuring that such distribution, and any related transaction, complieswith this Agreement and applicable law.

20. Employment of the Trustee by the Company. The Trustee may act and receivecompensation as a director, officer, agent or member of any committee of the Company or anysubsidiary or affiliate thereof, and he, or any of his affiliates may, contract with the Company or itsaffiliates or have or receive any interest in any matter or transaction to which the Company or itsaffiliates 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 noticesent in accordance with the provisions hereof for notice to Subscribers. No Trustee shall be requiredto 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 ofholders of Trust Certificates, their addresses and the beneficial ownership of Shares and other capitalstock of the Company held by each of them shall be filed in the principal office of the Company in theState of Texas and shall be open to inspection of any stockholder of the Company or any beneficiaryof the Trust during such business hours.

23. Taxes. If at any time the Trustee is of the opinion that any tax or governmental chargeis properly payable in respect to any of the Shares subject to this Agreement, or in respect of anydividends, distributions or other rights arising from or appurtenant thereto, the Trustee may, but shallnot be required to, pay such tax or governmental charge and upon payment thereof shall receive fromeach of the record holders of Trust Certificates representing the Shares in respect of which any suchtax or government charge was paid, reimbursement for the taxes or charges paid on that party’sbehalf. The Trustee shall be entitled to retain any of the Shares and any dividends paid thereon withrespect to which he has advanced unreimbursed taxes or charges until the beneficial holder thereofshall pay such amounts as are due, and, in the alternative, may sell such Shares upon ten (10) daysnotice to the beneficial holder, to the Company or to any other party and retain the proceedstherefrom in payment of amounts owed, remitting the remainder to such beneficial owner.

24. Severability and Reformation. The parties hereto intend for all provisions of thisAgreement to be enforceable to the fullest extent permitted by law. If, however, any provision of thisAgreement his held to be illegal, invalid and unenforceable under present or future law, such provisionshall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalidor unenforceable provision were never a part thereof, and the remaining provisions hereof shallremain in full force and effect and shall not be affected by the illegal, invalid and unenforceableprovision 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

VOTING TRUST AGREEMENT - (TEX)

7

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

25. Notices. Unless otherwise specifically provided herein, all notices and othercommunications required or permitted to be given hereunder shall be in writing and shall be deemedduly given at the time of delivery against receipt at the appropriate address set forth under the nameof 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 byany party hereto by like notice; provided, however, that the failure, after reasonable efforts, to delivernotice to one or more of the parties hereto, shall not be deemed to render ineffective notice to anyother party hereto.

26. Governing Law. This Agreement shall be governed and construed in accordancewith 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 theparties hereto and supercedes all prior agreements and understandings between the parties heretorelated to the subject matter(s) hereof. The provisions of this Agreement and the other documentsdelivered in connection herewith may be amended or waived only by an instrument in writing, signedby the parties affected by such amendment or waiver.

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

VOTING TRUST AGREEMENT - (TEX)

8

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

ADDRESS:

__________________, Trustee

, Texas CORRUPTED SOFTWARE, INC.

By:

Its:

SUBSCRIBERS ARE LISTED ONEXHIBIT A HERETO

VOTING TRUST AGREEMENT - (TEX)

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EXHIBIT A

SUBSCRIBERS

Name Subscriber’s Addresses Common Shares

10

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 ________ acertificate or certificates, evidencing ownership of shares of the Common Stock (the “Shares”) ofCorrupted Software, Inc., a Texas corporation (the “Company”), and that such Shares are heldsubject 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 theCompany (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 hissuccessor or successors shall, as provided in said Agreement, possess and be entitled to exercise thevote and otherwise represent all of the Shares for all purposes, it being agreed that no voting rightshall pass to the holder hereof or any of his or her successors, assigns, transferees or legalrepresentatives 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 theholder hereof and such holder shall be entitled to receive a stock certificate representing a like numberof the Shares previously deposited pursuant to the Agreement with the Trustee, or any Shares orother proceeds received in respect thereof.

During the term of the Agreement, neither this certificate nor the Shares deposited inconnection with its issuance, or any beneficial interest in either of them, may be sold or transferredexcept in accordance with the terms and conditions of the Agreement, including any agreementsreferenced therein. In any event, neither this certificate nor any beneficial interest therein, nor anybeneficial interest in the Shares deposited in connection with its issuance, may be transferred exceptin 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 theregistration provisions thereof. Pursuant to the terms of the Agreement, the Trustee may require anopinion of counsel satisfactory to him as to the compliance with any such transaction with the termsof 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)

1

VENTURE.COM, INC.VOTING AGREEMENT

This Voting Agreement (the “Agreement”) is made as of _______________, 2000, amongVenture.com, Inc., a Delaware corporation (the “Company”), with offices at______________________ _______________, telecopier number: ________________; the personswhose 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 Companyand may in the future acquire additional voting securities of the Company.

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

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

NOW, THEREFORE, the parties agree as follows:

1. Election of Directors. The number of directors constituting the Company’s Board ofDirectors has been fixed by the Company’s Bylaws at ______ (__) directors, and the parties agreenot to change that number without the consent of the Founders and Investors holding two-thirds ofthe then outstanding Series A Preferred Stock. Until this Agreement is terminated, the parties heretoshall (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 Companyto vote all voting securities of the Company held by such assignee or transferee to vote for thenomination and election of the directors of the Company as follows:

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

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(b) if clause (a) is not applicable and provided ________________________________________________ collectively hold at least ____________ shares of Series A PreferredStock (as adjusted for stock dividends, splits, combinations, recapitalizations and the like) and/or thenumber of shares of Common Stock into which that number of shares of Series A Preferred stock (asadjusted) have been converted, one individual nominated by ____________.

As used in this Agreement “capital stock of the Company on a fully diluted basis” means thesum of the number of shares of Common Stock of the Company outstanding, the number of sharesof Common Stock into which securities or debt of the Company is convertible and the number ofshares of Common Stock issuable upon the exercise of options, warrants or other rights thenoutstanding 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 electedpursuant to Section 1 above, or to fill any vacancy created by the death or resignation of a Directorelected pursuant to Section 1 above, shall be subject to the same voting requirements as are set forthin Section 1 above. Specifically, the parties will vote their shares of Company stock to remove anydirector from the Board of Directors, but only if such action is requested by (a) if the Director waselected pursuant to clause (a) of Section 1, the holders of two-thirds of the securities entitled todesignate the director under the clause requests the removal, or (b) if the director was electedpursuant 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 providedin Sections 1 and 2, each of the parties hereto (other than the Company) hereby grants to, and isdeemed 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 theCompany’s capital stock which the grantor of the proxy owns or has the power to vote in favor ofsuch 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, documentsor instruments required to be signed and filed by the grantor of the power in order to effectuate suchelection.

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 automaticconversion of the Series A Preferred Stock into shares of Common Stock pursuant to the Company’sCertificate of Incorporation, as amended, or (ii) the date as of which to parties hereto terminate thisAgreement by written consent of the Founders holding a majority of the capital stock of the Companyon a fully diluted basis held by all Founders and Investors holding two thirds of the capital stock ofthe Company on a fully diluted basis held by all Investors.

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

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

“THE SECURITIES REPRESENTED BY THIS CERTIFICATEARE SUBJECT TO CERTAIN OBLIGATIONS CONCERNINGTHE ELECTION OF DIRECTORS AND TO AN IRREVOCABLEPROXY CONTAINED IN A VOTING AGREEMENT DATED ASOF _______________, A COPY OF WHICH IS ON FILE WITHTHE COMPANY.”

7. Benefit and Assignability. This Agreement shall be binding upon and inure to thebenefit of the parties hereto and their respective heirs, executors, personal representatives successorsand assigns and shall be binding upon any person, firm, corporation or other entity to whom anyshares of voting capital stock of the Company are transferred (even if in violation of the provisionsof this Agreement) and the heirs, executors, personal representatives, successors and assigns of suchperson, firm, corporation or other entity. The rights of any party under this Agreement will attachto all voting securities of the Company held by the party such that upon a transfer or assignment ofall or any of such securities the transferee or assignee (i) will have the rights and obligations of aFounder 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 addedto 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 ofthe Company require any assignee or transferee to become a party hereto by signing a joinder to thisAgreement.

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 setforth on Schedule II. All notices permitted or required under this Agreement shall be delivered byhand, by overnight courier, by telecopier or sent by registered or certified mail, postage prepaid, tothe respective parties at the addresses indicated herein or at such other addresses as a party shallfurnish to the other parties hereto. Notices delivered by hand shall be deemed to have been receivedon the date of delivery. Notices delivered by telecopy shall be deemed to have been received on thedate 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 Agreementshall 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 AAgreement shall become a party to this Agreement by signing a counterpart joinder hereof and shall

Venture Capital Voting Agreement - (Del)

4

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

11. Additional Founders. The Company shall require any person who acquires twopercent (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 hereofand 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 includesthe Additional Founder.

12. Amendment. This Agreement may not be modified or amended or any provisionwaived for all parties, except upon the written consent of (a) Founders holding a majority of thevoting power of all Company voting securities then held by all Founders and (b) Investors holdingtwo-thirds of the voting power of all Company voting securities then held by Investors voting on anas if converted to Common Stock basis; provided, however, that the parties agree that additionalpersons, 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 andnotifying the other parties, and all parties hereby consent thereto.

13. Event of Default; Remedies. The breach of any term or condition of this Agreementby any party hereto shall constitute an “Event of Default.” Upon an Event of Default, the Investorsand any of them shall have any may exercise all remedies available under applicable laws. Each ofthe parties further agrees that damages for a breach or default under this Agreement would beinadequate and that in addition to all other remedies available at law or in equity the parties and theirpermitted 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 willfrom 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 anyother party may reasonably require to carry out effectively the intent of this Agreement.

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

16. Waiver of Breach. Neither any waiver of any breach of, nor any failure to enforce anyterm or condition of, this Agreement shall operate as a waiver of any other breach of any term orcondition, 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 setforth in a written instrument or agreement signed by that party.

Venture Capital Voting Agreement - (Del)

5

17. Governing Law. This Agreement shall be governed by and construed in accordancewith 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 andAgreement among the parties with respect to the subject matter hereof.

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

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

“Company”

VENTURE.COM, INC.

By:________________________Title:______________________

1

APPENDIX E

Venture Capital Investors - (Del)

INVESTORS RIGHTS AGREEMENT

This Investors Rights Agreement is made as of _______________, 2000 by and amongWorldo.com, Inc., a Delaware corporation (the “Company”) and the entities listed on the Scheduleof 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 andWarrants Purchase Agreement (the “Series A Agreement”) and issuing shares of Series A PreferredStock (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 bythe 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 saleof New Securities under Section 3, (i) is an “accredited” investor within the meaning of CommissionRule 5 01 (a) and (ii) is eligible under any and all applicable state and foreign securities laws topurchase the New Securities without any requirement for approval by or registration, qualificationor filing (except a mere notice filing) with any governmental authority or any required furnishing ofdisclosure materials (except any disclosures that may be required to avoid violation of any applicablesecurities 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 theCompany’s equity securities which results in the automatic (mandatory) conversion of the Series APreferred Stock into Common Stock.

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

“Register,” “registered” and “registration” refers to a registration effected by preparingand filing a registration statement in compliance with the Securities Act, and the declaration orordering of the effectiveness of such registration statement, and compliance with applicable securitieslaws of such states or other jurisdictions in which Holders or the underwriters notify the Companyof 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 initialunderwritten public offering of the Company’s securities, upon request of the Company on the adviceof the underwriters managing such initial underwritten public offering, not to sell, make any short saleof, pledge, grant any option for the purchase of, acquire any option to sell or otherwise dispose ofany Common Stock (other than Registrable Shares included in the registration) or otherwise to hedgeor reduce the Holder’s risk of ownership of Common Stock without the prior written consent of suchunderwriters, for such period of time (not to exceed 180 days) from the effective date of suchregistration as may be requested by the underwriters, provided, that all officers, directors and ownersof 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 andaffiliates, provided such persons agree to be bound by this Section 2.l. Each Holder shall cause anytransferee of the Holder’s Registrable Shares in whose hands they continue to be Registrable Sharesto agree in writing to be bound by this Section 2.1, and agrees to the imposition of a legend on allstock 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 theCommon 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 registerRegistrable Shares from the Holders of at least a majority of the Registrable Shares (“InitiatingHolders”), 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 InitiatingHolders’ Registrable Shares as are specified in their request, together with all or such portion of theRegistrable Shares of any other Holder or Holders as are specified in written requests given within 20days after such written notice from the Company, subject to the conditions and limitations in this

Venture Capital Investors - (Del)

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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 DemandRegistration (i) prior to the earlier of (A) one year following the effective date of the first registrationof Common Stock of the Company under the Securities Act or (B) three years from the date of thisAgreement; (ii) after the Company has effected one Demand Registration pursuant to this Section 2.2and such registration has been declared effective or have been withdrawn at the written request ofa majority in interest of the Initiating Holders; except that if the registration is withdrawn prior to theeffective date at the request of Initiating Holders and if either there has been a material adversechange in the Company, its business, assets, or financial condition from that known by the InitiatingHolders at the time their request for registration was made or participating Holders reimburse theCompany for out-of-pocket expenses incurred in preparing the registration, such registration shallnot be deemed to have been filed for purposes of this clause (ii); or (iii) if prior to the receipt by theCompany of the request from Initiating Holders, the Company has given written notice to all Holdersof Registrable Securities of its intent to register in a proposed public offering by the Company itssecurities for its account under the Securities Act (other than a registration relating solely toemployee benefit plans), then, provided thereafter the Company actively seeks to file and promptlycause the offering to be declared or became effective, Initiating Holders may not make their requestunder this Section 2, prior to the earlier of (1) one hundred eighty (180) days after the Company hadfirst sent out the first notice to a Holder of intent to register or (2) ninety (90) days after the effectivedate of the registration statement. The Company may not give any written notice to intent to registeras 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 statementcovering the Registrable Shares so requested to be registered as soon as practical, but in any eventwithin 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 theCompany stating that in the good faith judgment of the Board of Directors it would be seriouslydetrimental to the Company and its stockholders for such registration statement to be filed withinsuch period, the Company shall have an additional period of not more than 90 days after theexpiration of the initial period within which to file such registration statement, provided that duringsuch time the Company may not file a registration statement for securities to be issued and sold forits own account unless such registration is for the Company’s initial public offering or for theacquisition of another company; and provided further, that no further delay will be permitted withoutthe consent of the majority in interest of the Initiating Holders.

(c) If the Initiating Holders intend to distribute the Registrable Sharescovered by their request by means of an underwriting, they shall so advise the Company as a part oftheir request made pursuant to Section 2.2(a). In such event, the Company shall include suchinformation in the written notice referred to in Section 2.2(a). In such event, if so requested inwriting by the Company, the Holders shall sell their Registrable Shares to an underwriter or tounderwriters managed by an underwriter selected by the Company with regard to the underwritingof such requested registration; provided that such underwriter shall be reasonably acceptable to theInitiating Holders. The right of any Holder to registration pursuant to this Section 2.2 shall beconditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’sRegistrable Shares in the underwriting, unless otherwise mutually agreed by a majority in interest ofthe Initiating Holders and such Holder. The Company shall (together with all Holders proposing to

Venture Capital Investors - (Del)

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distribute their securities through such underwriting) enter into an underwriting agreement incustomary form with the underwriter or underwriters selected for such underwriting.Notwithstanding any other provision of this Section 2.2, if the managing underwriter advises theCompany 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 maybe 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 nearlyas practicable, to the respective amounts of Registrable Shares held by such Holders. No securitiesmay be included in the registration for the account of the Company or of holders of Companysecurities other than Registrable Shares without the consent of Holders of a majority of theRegistrable Shares to be included, which consent shall specify the effect of any underwriter cut-backon such other securities, including the relative priorities between shares offered for the account of theCompany and for the account of such other stockholders. If any Holder disapproves of the terms ofthe underwriting, the Holder may elect to withdraw therefrom by written notice to the Company, themanaging underwriter and the Initiating Holders. Any Registrable Shares which are excluded fromthe underwriting by reason of the underwriters cut-back or withdrawn from such underwriting shallbe withdrawn from such registration.

2.3 Piggyback Registration.

(a) Each time the Company determines to register its Common Stock, forits own account or the account of any of its shareholders, other than (i) the Company’s initialunderwritten public offering, (ii) a registration relating solely to employee plans, (iii) a registrationrelating solely to a transaction pursuant to Rule 145 promulgated by the Commission, or (iv) aregistration on any other Commission form which does not include substantially the same informationas would be required to be included in a registration statement covering the sale of RegistrableShares, the Company will include in such registration and in any underwriting involved therein, allthe Registrable Shares specified in written requests made within 20 days (15 days if the registrationis 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, theCompany 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 beconditioned upon the inclusion of such Holder’s Registrable Shares in the underwriting. All Holdersproposing to participate shall (together with the Company and any other holders distributing theirsecurities through such underwriting) enter into an underwriting agreement in customary form withthe underwriter or underwriters selected for such underwriting by the Company. Notwithstandingany other provision of this Section 2.3, if the managing underwriter advises the Company in writingthat marketing factors make it advisable to limit the number of shares to be underwritten or to limitsales by persons other than the Company, the managing underwriter may limit the number ofRegistrable Shares to be included in the registration and underwriting to the extent of excluding allRegistrable 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 registeredand underwritten pursuant hereto, and the number of Registrable Shares that may be included in theregistration and underwriting shall be allocated among the Holders in proportion, as nearly aspracticable, to the respective amounts of Registrable Shares held by such Holders. If the participation

Venture Capital Investors - (Del)

5

of the Holders is so limited by an underwriter cut-back, no securities shall be included in theregistration for the account of persons other than the Holders, the Company and any stockholdersexercising 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 therefromby written notice to the Company and the managing underwriter. Any Registrable Shares excludedor 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 onForm S-3 or its successor form. After the Company has qualified for the use of Form S-3, InitiatingHolders shall have the right to an unlimited number of registrations on Form S-3, subject to thelimitations set forth below, by so requesting registration. Such requests shall be in writing and shallstate the number of Registrable Shares to be sold and the intended plan of distribution and methodsof disposition by such Holders. The Company shall not be required to file a registration statementpursuant to this Section 2.4:

(i) unless the Initiating Holders propose to dispose of RegistrableShares having an aggregate sales price (before deduction of underwriting discounts and expenses ofsale of at least $ 1,000,000); and

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

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

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

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practicable, to the respective amounts of Registrable Shares held by such Holders. No securities maybe included in the registration for the account of the Company or of holders of Company securitiesother than Registrable Shares without the consent of Holders of a majority of the Registrable Sharesto be included. If any Holder disapproves of the terms of any such underwriting, the holder may electto withdraw therefrom by written notice to the Company and the underwriter. Any RegistrableShares 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 theregistration of all Registrable Shares on Form S-3 to the extent requested by the Holder or Holdersthereof for purposes of disposition.

2.5 Expenses of Registration. All expenses incurred in connection with anyregistration pursuant to this Agreement, including without limitation, all registration, filing andqualification fees, printing expenses, fees and disbursements of counsel for the Company and of asingle law firm acting as counsel for the Holders, and expenses of any special audits of the Company’sfinancial statements incidental to or required by such registration, shall be borne by the Companyexcept that the Company shall not be required to pay underwriters’ fees, discounts or commissionsrelating to Registrable Shares.

2.6 Registration Procedures. If and whenever the Company is required by theprovisions of this Agreement to use its reasonable best efforts to effect the registration of anyRegistrable Shares, the Company will, as expeditiously as practicable under the circumstances:

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

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

(c) furnish to each seller such number of copies of a prospectus, includinga preliminary prospectus, in conformity with the requirements of the Securities Act, as such seller mayreasonably request in order to facilitate the public sale or other disposition of the securities ownedby such seller;

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

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(e) before filing the registration statement or prospectus or amendmentsor supplements thereto, furnish to counsel selected by the participating Holders copies of suchdocuments 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 underSection 2.2, 2.3 or 2.4 a signed counterpart, addressed to the prospective seller, of (i) an opinion ofcounsel 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 financialstatements included in the registration statement, covering substantially the same matters with respectto 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 customarilycovered (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 ofany of its securities under the Securities Act pursuant to this Agreement, the Company shall indemnifyand 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 suchsecurities; and

(iv) each other Person, if any, who controls (within the meaning ofthe Securities Act) such seller, underwriter or participating Person against any losses, claims, damagesor liabilities, including any cost or expense incurred for investigating or defending same (collectivelythe “Liability”), joint or several, to which such Indemnified Party may become subject under theSecurities 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 factcontained, on the effective date thereof, in any registration statement under which such securitieswere registered under the Securities Act, any preliminary prospectus or final prospectus containedtherein, or any amendment or supplement thereto,

(2) any alleged omission to state therein a material factrequired to be stated therein or necessary to make the statements therein not misleading, or

(3) any violation or alleged violation by the Company ofthe Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgatedunder the Securities act, the Exchange Act or any state securities law; and the Company will pay asincurred to each of the Indemnified Parties any legal or other expenses reasonably incurred by themin connection with investigating or defending any such Liability.

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(b) Liability Exclusion for Company. The Company shall not be liable toany Indemnified Party in any such case to the extent that any such Liability arises out of or is basedupon 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 inconformity with written information furnished to the Company by such Indemnified Party specificallyfor use therein.

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

(c) Indemnification by Holders of Registrable Shares. Each Holder whoseRegistrable Shares are included in a registration shall indemnify and hold harmless each other Holderwhose Registrable Shares are included in a registration, the Company, its directors and officers, eachunderwriter and each other person, if any, who controls each other Holder, the Company or suchunderwriter (collectively, “Indemnitee”), against any liability (including fees and expenses incurredin investigating and defending same), joint or several, to which any Indemnitee may become subjectunder the Securities Act or any other statute or at common law, in so far as such liability (or actionsin respect thereof arises out of or is based upon:

(i) the disposition by such Holder of such Registrable Shares inviolation of the provisions of this Agreement,

(ii) any alleged untrue statement of any material fact contained, onthe effective date thereof, in any registration statement under which securities were registered underthe Securities Act at the request of such holder, any preliminary prospectus or final prospectuscontained therein, or any amendment or supplement thereto,

(iii) any alleged omission to state therein a material fact requiredto be stated therein or necessary to make the statements therein not misleading, or

(iv) any violation or alleged violation by such Holder of theSecurities Act, the Exchange Act, any state securities law or any rule or regulation promulgated underthe Securities Act, the Exchange Act or any state securities law; and such Holder will pay as incurredto each of the Indemnified Parties any legal or other expenses reasonably incurred by them inconnection 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 suchalleged untrue statement or alleged omission was made in such registration statement, preliminary orfinal prospectus, amendment or supplement thereto in reliance upon and in conformity with writteninformation shed to Company by such Holder specifically for use therein. Such indemnity shallremain in full force and effect regardless of any investigation made by or on behalf of such Indemniteeand shall survive transfer of such securities by such Holder.

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(d) Liability Exclusion for Holders. No Holder whose Registrable Sharesare included in a registration shall be required to indemnify any person against any liability arisingfrom any untrue or misleading statement or omission contained in any preliminary prospectus if suchdeficiency is corrected in the final prospectus or for any liability which arises out of the failure of anyother person to deliver a prospectus as required by the Securities Act. However, the liability of anyHolder pursuant to this Section 2.7 as a result of its status as a selling security holder shall be limitedto 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 insubsections (a) through (d) of this Section shall be given by the Company and each Holder whoseRegistrable Shares are included in a registration (with such modifications as may be appropriate) withrespect to any required registration or other qualification of the Registrable Shares under any federalor state securities law other than the Securities Act.

(f) Procedures; Rights to Separate Counsel. In the event an IndemnifiedParty or Indemnitee (“Claimant”) receives a complaint, claim or other notice of any loss, claim ordamage, liability or action, giving rise to a claim for indemnification under this Section, the Claimantshall promptly notify the Person against whom indemnification is sought (“Indemnifying Party”) ofsuch complaint, notice, claim or action, and such Indemnifying Party shall have the right to investigateand defend any such loss; claim, damage, liability or action. The Claimant shall have the right toemploy separate counsel in any such action and to participate in the defense thereof but the fees andexpenses of such counsel shall not be at the expense of the Indemnifying Party unless theIndemnifying Party fails to promptly defend, in which case the fees and expenses of such separatecounsel shall be borne by the Indemnifying Party; provided, however, that a Claimant shall have theright to retain its own counsel, with the fees and expenses to be paid by the Indemnifying Party, if therepresentation of such Claimant would be inappropriate due to actual or potential differing interestsbetween the Claimant and the other party represented by such counsel in such proceeding. In noevent shall an Indemnifying Party be obligated to indemnify any Person for any settlement of anyclaim or action effected without the Indemnifying Party’s prior written consent.

(g) Contribution. In order to provide for just and equitable contributionto joint liability under the Securities Act in any case in which either (i) any holder of RegistrableShares exercising rights under this Section 2, or any controlling person of any such holder, makes aclaim for indemnification pursuant to this Section 2.7 but it is judicially determined (by the entry ofa final judgment or decree by a court of competent jurisdiction and the expiration of time to appealor the denial of the last right of appeal) that such indemnification may not be enforced in such casenotwithstanding 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 anysuch 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 suchproportion so that such holder is responsible for the portion represented by the percentage that thepublic offering price of such holder’s Registrable Shares offered by and sold under the registrationstatement bears to the public offering price of all securities offered by and sold under such registration

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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 anyamount in excess of the public offering price of all such Registrable Shares offered and sold by suchholder pursuant to such registration statement, and (B) no person guilty of fraudulentmisrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled tocontribution 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 includedin 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 theCompany may reasonably request in writing and as shall be required in connection with anyregistration, qualification or compliance referred to in this Agreement.

2.9 Compliance With Rule 144. In the event that the Company (a) registers a classof securities under Section 12 of the Exchange Act, or (b) shall commence to file reports underSection 13 or 15(d) of the Exchange Act, thereafter, at the request of any holder of RegistrableSecurities who proposes to sell the Registrable Securities in compliance with Rule 144 of theCommission, the Company shall forthwith furnish to such holder or holders a written statement ofcompliance with the filing requirements of the Commission as set forth in such Rule (at any time fromand 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 holderssuch information as will enable the holders to make sales of Registrable Securities pursuant to Rule144.

2.10 Transfer of Registration Rights. The rights of a Holder under Section 2 of thisAgreement may be assigned by a Holder to a transferee or assignee of 100,000 or more RegistrableShares (or any number if the transferee is a partner or retired partner of a Series A Purchaser or afamily member of or trust for the benefit of an individual Holder or receives shares by will or intestatesuccession from such partner or individual or trust), provided, that the Company is given writtennotice by the Holder at the time of or within 10 days after said transfer, stating the name and addressof said transferee or assignee and identifying the Registrable Shares with respect to which suchregistration rights are being assigned, and the assignee agrees in writing to be bound by this Section2.

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 Sharesenter into any agreement with any holder or prospective holder of any securities of the Companywhich would give such holder or prospective holder a demand registration right exercisable prior tofifteen months following the effective date of the first registration of Common Stock of the Companyunder the Securities Act, allow such holder or prospective holder to include such securities in anyregistration filed under Sections 2.2 or 2.4 hereof without the consent of the Holders as set forth insuch section, or to exclude Registrable Shares from or limit the number of Registrable Sharesincluded in any other registration.

3. Participation in Future Financings.

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Except as provided in Section 3(d) below, if the Company shall issue any “NewSecurities” (as defined below), it shall offer to sell to each Investor and to each assignee (suchInvestor or such assignee being hereinafter called the “Offeree”), but only if such Offeree is at suchtime an Accredited Investor, a “Ratable Portion” (as defined below) of such New Securities on thesame 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 suchNew Securities (including for this purpose all New Securities which may be purchased by all Offereespursuant to this Section 3) as the number of Shares held by the Offeree bears to the OutstandingCommon Shares. “New Securities” means any shares of, or securities (including convertible debt anddebt with rights to acquire any shares of any class or serve of capital stock) convertible or exercisableor exchangeable into any class or series of capital stock of the Company, whether or not presentlyauthorized. “Shares” means shares of Common Stock held, shares of Common Stock into whichwarrants and options then outstanding are exercisable, and shares of Common Stock into whichshares of Preferred Stock held by the Offeree are convertible. “Outstanding Common Shares” meansall shares of Common Stock then outstanding and all shares of Common Stock issuable uponconversion of all convertible securities then outstanding and upon exercise of all warrants and optionsthen outstanding (except the New Securities so issued). Each time the Company proposes to offerany New Securities, the Company shall first make an offering of such New Securities to each Investorin accordance with the following procedures:

(a) The Company shall deliver a notice (the “Notice”) to the Founders andthe Investors stating (i) its bona fide intention to offer such New Securities, (ii) the class, series ortype 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, eachInvestor may elect by written notice delivered to the Company to purchase or obtain, at the price andon 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, suchthat, if any Investor does not purchase all of its Ratable Portion, the Investors who have elected topurchase New Securities in the manner described above may purchase all or some of theseunpurchased New Securities within five (5) business days after receipt of notice from the Companyof their availability. Purchases of remaining New Securities shall be made pro rata based upon eachparticipating Investor’s level of participation at the initial election level.

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

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

4. Miscellaneous.

4.1 Waivers and Amendments. With the written consent of the Company and theholders of more than two-thirds of the Registrable Shares voting together as a single class, theobligations of the Company and the rights of the holders of Registrable Shares under this Agreementmay be waived (either generally or in a particular instance, either retroactively or prospectively andeither for a specified period of time or indefinitely), and any provision of this Agreement may beamended. Neither this Agreement nor any provisions hereof may be amended, waived, dischargedor terminated orally, but only in writing. Any amendment or waiver shall be binding upon eachHolder 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 lawsof 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 theInvestors and their successors and assigns, and the terms “Investor” shall include such successors andassigns.

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

4.5 Notices. All notices and other communications required or permittedhereunder 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 orregistered, postage prepaid, addressed (a) if to a Holder, at its address set forth on Exhibit A or tosuch address as such Holder shall have shed the Company in writing, or until any such Holder sofurnishes an address to the Company, then to and at the address of the last holder of such securitieswho has so furnished an address to the Company, or (b) if to the Company, at ________________________________, Attn: President, Telecopier: ____________. Each such notice or othercommunication shall for all purposes this Agreement be treated as effective or having been givenwhen delivered if delivered personally; or, if sent by mail, at the earlier of its receipt or 72 hours after

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

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

4.7 Counterparts. This Agreement may be executed in any number ofcounterparts, each of which shall be an original, but all of which together shall constitute oneinstrument.

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 beduly executed and delivered as of the date set forth above.

COMPANY

[NAME OF COMPANY]

By: Its:

INVESTORS

1

APPENDIX F

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BUY-SELL AGREEMENT

THIS BUY-SELL AGREEMENT (this “Agreement”), dated as of _______________, 2000is by and among The Company, Inc., with offices at ____________________________, _________,_______________, telecopier number: _________ (the “Company”), the persons listed on theattached Schedule of Investors (collectively the “Investors”), the persons listed on the attachedSchedule of Founders (collectively the “Founders”) and the persons listed on the attached Scheduleof Principals (collectively, the “Principals”). The Investors, the Founders and the Principals arereferred to collectively herein as the “Shareholders” and individually as a “Shareholder”.

RECITALS

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

B. The Investors have purchased or are purchasing shares of Series A Preferred Stockof 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 theycurrently own or may hereafter acquire, including, without limitation, all shares of capital stock issuedor issuable upon the exercise of the Warrants (the “Shares”) , whether issued and outstanding on thedate hereof or issued from time to time hereafter, and to provide certain rights and obligations of theparties in respect of the purchase and sale of such Shares;

D. The Shareholders desire to evidence their agreement with respect to certain othermatters 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 thetransactions contemplated under the Series A Preferred Stock and Warrants Purchase Agreementdated as of the date hereof (the “Series A Agreement”).

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

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ARTICLE I.DISPOSITION OF SHARES

1.1 Restrictions on Disposition. So long as this Agreement is in effect, the Shareholdersshall 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 thisAgreement, 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 andSection 1.4, sell or in any other way dispose of an aggregate of more than ten percent (10%) of theShares held by the Founder and the Founder’s permitted transferees under Section 1.8, with thepercentage determined by taking the maximum number of Shares owned of record and beneficiallyheld by the Founder and such permitted transferees on the date on which that number is greatest (butexcluding 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 desireto 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 “SellingShareholder”) 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 sellsuch Shares first to the Company and second to the Non-Selling Shareholders upon the terms andconditions 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 theBoard of Directors of the Company (excluding the Selling Shareholder or its representative thenserving 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 statingterms and conditions, including the number and price per share of the Shares to be transferred, themethod of payment (which must be by cash, promissory note, or a combination of cash andpromissory note), and the proposed closing date (which shall in no event be sooner than the end ofthe 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 acceptor reject the offer in writing. The Selling Shareholder shall not take part in the Company’s decisionregarding such acceptance or rejection. If the Company accepts the offer, the acceptance shall setforth the arrangements for closing, which shall occur sixty (60) days after the Notice was sent or, iflater, the date proposed in the Third Party offer.

(c) If the Company rejects the Offer, the Non-Selling Shareholders shall have theremainder of the Company’s 30-day period, plus 10 additional days, or 40 days from the date theyreceive the Notice, to accept or reject the offer in writing. Each Non-Selling Shareholder maypurchase that percentage of the Seller Shareholder’s Shares offered equal to the number of Sharesheld 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 tothe Offer shall specify the maximum number of Shares it would be willing to purchase. If the Non-

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

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

1.4 Co-Sale Rights. A Founder or a Principal may not sell any Shares to the Third Partypursuant to Section 1.3(d) unless the Third Party Offer is extended to each of the Investors and theInvestors have a right to sell on the terms and conditions of the Third Party Offer a number of Sharesequal to the Investor’s “Sales Percentage.” The “Sales Percentage” means the number of Shares heldby the Investor multiplied by a fraction the numerator of which is the number of Shares held by theselling Founder or Principal that are subject to the Third Party Offer and the denominator of whichis the total number of Shares held by the selling Founder or Principal. It the selling Founder orPrincipal cannot obtain the agreement of the Third Party to purchase that percentage of the Sharesheld by the selling Principal and each Investor is willing to sell Shares pursuant to the Third PartyOffer which is equal to the Sales Percentage, then the selling Founder or Principal shall reduce thenumber of Shares which the selling Founder or Principal proposes to sell, and allow each Investorwilling to sell Shares pursuant to the Third Party offer to sell the number of Shares represented bysuch reduction, so that both the selling Founder or Principal and each selling Investor shall be entitledto sell an identical percentage of Shares then held by each, respectively. The provisions of thisSection 1.4 shall not affect (i) the obligations of such Founder or Principal to first offer its Shares tothe Company and the other Shareholders pursuant to Section 1.3 hereof or (ii) the obligations of aPrincipal 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, orliquidation law or file an answer admitting the material allegations of a petition filed against him inany proceeding under such law or shall take any action for the purpose of effecting any of theforegoing, or (ii) if a Founder or a Principal shall be required to relinquish all or any part of its Sharespursuant to a divorce settlement or decree of a court pursuant to divorce proceedings, then in eithercase, 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 orpersonal representatives, as the case may be) for the Purchase Price (as defined in and determinedpursuant to Section 1.5 (c) hereof) . If the Company does not exercise its right to purchase suchShares within the 60-day period, the other Shareholders shall have the right but not the obligation,

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

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

(c) The parties to this Agreement recognize and understand that the Company’scapital 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 partieshereto agree that the “Purchase Price” for purposes of this Section 1.5 and Section 1.6 shall be thefair market value of the Shares offered as determined by an investment bank of national or regionalrecognition 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-thirdsof the then outstanding Shares cannot agree on a mutually acceptable investment bank, then Companyand Shareholders holding two-thirds of the then outstanding Shares shall each choose one suchinvestment bank and the respective chosen firms shall jointly select a third investment bank, whichshall make the determination. The cost of the appraisal or valuation and the investment banks shallbe borne by the Company. If the Company or a Shareholder purchases any Shares pursuant toSection 1.5(a), the purchase price shall be paid in quarterly installments of principal and interest overa 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 Sharesare 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 eventdescribed in Section 1.5(a), provided the transferee executes a consent, in the form attached heretoas 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 extentit 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 lawfullypurchase all of the Shares it chooses to purchase under this Section 1.5, then the Shareholders (ortheir estates, heirs or personal representatives, as the case may be) shall promptly take such measuresto vote their Shares to reduce the capital of the Company or to take such other actions as may beappropriate or necessary in order to enable the Company to lawfully purchase and pay for all of theShares it chooses to purchase; provided, that, nothing in this Agreement shall obligate anyShareholder to make an additional capital contribution to the Company, to purchase securities fromthe Company or to loan money to the Company.

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

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

1.8 Expressly Permitted Transfers. Notwithstanding anything to the contrary containedin this Agreement, and without the provisions of Sections 1.2, 1.3, 1.4 and 1.5 hereof becomingapplicable, (a) a Founder or a Principal may (i) make a gift or donation of Shares to his or her spouseor 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 suchpersons and/or for the benefit of such Founder or such Principal or (ii) transfer its Shares to anotherFounder; 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 executesa consent, in the form attached hereto as Exhibit A, to be bound as a Principal or Founder, asapplicable, by the terms of this Agreement. Any transfer to a child who is then under 18 years oldmust be conditioned upon the Founder or the Principal, as applicable, retaining and reserving forhimself or herself or some other adult or entity the right to do any act with respect to the transferredShares 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 certificatesrepresenting 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 ARESUBJECT TO A BUY-SELL AGREEMENT DATED AS OF[_____________, 2000], AS AMENDED OR MODIFIED FROMTIME TO TIME, COPIES OF WHICH ARE ON FILE AT THE

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PRINCIPAL OFFICE OF THE COMPANY AND WILL BEFURNISHED TO THE HOLDER ON REQUEST TO THESECRETARY OF THE COMPANY. SUCH BUY-SELLAGREEMENT PROVIDES, AMONG OTHER THINGS, FORCERTAIN RESTRICTIONS ON THE SALE, TRANSFER,PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OFTHE SECURITIES EVIDENCED HEREBY.”

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

2.3 Enforcement. The Shares shall not be transferred on the books of the Company andno sale, assignment, transfer, pledge, or other disposition thereof shall be effective unless and untilthe terms and provisions of this Agreement are complied with, and in case of violation of thisAgreement by the attempted transfer of the Shares without compliance with the terms and provisionshereof, such sale, assignment, transfer, pledge, or other disposition shall be invalid and of no effectand the Company and/or the Shareholders who are not attempting to transfer the Shares shall havethe right to compel the Shareholder who is attempting to transfer the Shares, and/or the purportedtransferee, to transfer and deliver the same in accordance with the applicable provisions of Article Iof this Agreement.

2.4 Specific Performance. The parties hereto recognize that the Shares cannot be readilypurchased or sold on the open market and that it is to the benefit of the Company and theShareholders that this Agreement be carried out; and for those and other reasons, the parties heretowould be irreparably damaged if this Agreement is not specifically enforced if of a breach hereof. Ifany controversy concerning the rights or obligations to purchase or sell any of the Shares arises, orif this Agreement is breached, then the parties hereto hereby agree that remedies at law might beinadequate and that, therefore, such rights and obligations, and this Agreement shall be enforceableby specific performance. The remedy of specific performance shall not be an exclusive remedy, butshall be cumulative of all other rights and remedies of the parties hereto at law, in equity, or underthis 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 certificatesrepresenting such Shares in accordance with the terms of this Agreement, then the purchaser of suchShares may, at his, her or its option, in addition to all other remedies he, she or it may have, send tosuch Shareholder (or his, her or its personal representative) by registered mail, return receiptrequested, the applicable purchase price for such Shares. Thereupon, the Company, upon writtennotice to such Shareholder (or his, her or its personal representative), shall (a) cancel on its booksthe certificates representing the Shares to be sold, (b) issue in the name of the purchaser, in lieuthereof, a new certificate representing such Shares, and (c) deliver such new certificate to thepurchaser, and thereupon all of the rights of such Shareholder (or his, her or its personalrepresentative) in and to said Shares shall terminate.

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

2.7 Additional Purchasers. Any “Additional Purchaser” as defined in the Series AAgreement shall become a party to this Agreement by signing a counterpart hereof and shallthereupon be an “Investor” hereunder, and each party to this Agreement consents thereto. TheCompany shall promptly deliver to each party an amended Schedule of Investors which includes theAdditional 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 (“AdditionalPrincipal”) to become a party to this Agreement by signing a consent in the form attached hereto asExhibit 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 includesthe Additional Principal.

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

2.10 Securities Laws. The parties agree to take all reasonable steps to comply with allapplicable 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 addressof each Investor is set forth on the Schedule of Investors, attached hereto. The address of eachPrincipal is set forth on the Schedule of Principals. All notices permitted or required under thisAgreement shall be delivered by hand, by overnight courier, by telecopier or sent by registered orcertified mail, postage prepaid, to the respective parties at the addresses indicated herein or at suchother addresses as a party shall furnish to the other parties hereto. Notices delivered by hand shallbe deemed to have been received on the date of delivery. Notices delivered by telecopy shall bedeemed to have been received on the date on which an acknowledgment of good transmission isreceived by the sender’s telecopier. Notices sent by mail shall be deemed to have been received onthe third business day after mailing.

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

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

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2.14 Severability. If any provision of this Agreement is held to be illegal, invalid, orunenforceable under present or future laws effective during the term hereof, such provision shall befully severable and this Agreement shall be construed and enforced as if such illegal, invalid, orunenforceable provision never comprised a part hereof; and the remaining provisions hereof shallremain in full force and effect and shall not be affected by the illegal, invalid, or unenforceableprovision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceableprovision, there shall be added automatically as part of this Agreement, a provision as similar in itsterms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, andenforceable.

2.15 Entire Agreement. This Agreement and the Exhibits hereto constitute the entireagreement and understanding between the parties relating to the subject matter hereof and thereofand 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 writteninstrument executed by (a) the Company, and (b) Founders, Principals and Investors holding amajority 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 beeninserted for convenience of reference only and shall in no way restrict or otherwise modify any of theterms 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 shallnot be deemed to constitute the waiver of any other breach of the same or any other term orcondition.

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

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

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

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

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Agreement, (b) sale of shares of the Common Stock for the account of the Company in anunderwritten public offering pursuant to a registration statement filed under the Securities Act of1933 with the SEC, (c) the sale, lease or disposal of all or substantially all of the assets of theCorporation or affection of any corporate reorganization, including specifically a mergerreorganization, exchange reorganization or sale of assets reorganization, or affection of any shareexchange tender offer which has been approved by the holders of at least a majority of the thenoutstanding 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, directoror shareholder of the Company pursuant to a merger, stock sale, share exchange or sale ofsubstantially all the assets in connection with which the holders of Series A Preferred Stock willreceive at least _______ times the Liquidation Preference (as defined in the Company’s Certificateof Incorporation, as amended) per share or (f) any time that only one Shareholder continues to ownany Shares.

2.23 Counterparts. This Agreement may be executed in any number of counterparts, eachof which shall be deemed an original, but all of which together shall constitute one and the sameinstrument. The parties intend that faxed signature pages to this Agreement will be enforceablewithout presentation of the manually executed signature pages.

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

“Company”

THE COMPANY

“Founders”

“Principals”