Form 16-4

This agreement describes two transactions, a stock “redemption” and a recapitalization under tax law. The transactions are separate; neither is required for, or at the same time as, the other.

Type E Reorganization—Agreement for Redemption of
Shares and Recapitalization

This Agreement for Redemption of Shares and Recapitalization (this “Agreement”), dated [date], is made by and among [name of shareholder A], [name of shareholder B], [name of shareholder C], and [name of corporation], a Texas corporation (the “Corporation”). [Name of shareholder A], [name of shareholder B], and [name of shareholder C] are collectively the “Shareholders”; and the Shareholders and the Corporation are collectively the “Parties.”

Recitals

A.The Shareholders own all the issued and outstanding, $[amount] par value, voting com­mon stock of the Corporation (“Common Stock”), as follows:

B.The certificate of formation of the Corporation has been amended to authorize issuance of a total of [number] shares of [percent] percent noncumulative, nonvoting, preferred stock, $[amount] par value, of the Corporation (“Preferred Stock”).

C.The Parties now desire the Corporation to repurchase or redeem [number] shares of Common Stock owned by [name of shareholder C] and to issue shares of Preferred Stock in exchange for the remaining shares of Common Stock owned by [name of shareholder C] and all the shares of Common Stock owned by [name of shareholder B] pursuant to a plan of recapitalization.

Agreement

THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants, and agreements contained herein, the Parties agree as follows:

Article 1 

Redemption

1.1Redemption of Shares. The Corporation will redeem [number] shares of Common Stock owned by [name of shareholder C] and will issue to him [a secured/an unsecured] prom­issory note, payable to the order of [name of shareholder C], in the principal amount of $[amount], bearing interest at [percent] percent per year, payable in equal quarterly install­ments of [principal and interest together/principal, plus accrued interest], over [number] years (the “Note”). The performance of the Corporation’s obligations under the Note will be secured by [a security interest in the property of the Corporation/a lien on certain real estate owned by the Corporation] described in Schedule 1.1 attached hereto.

1.2Tax Rulings—Redemption. Consummation of the transaction described in section 1.1 of this Agreement is contingent on receipt of rulings from the Internal Revenue Service (the “IRS”) that—

(a)under sections 302(a) and 302(b)(2) of the Internal Revenue Code of 1986, as amended (the “IRC”), the redemption of the [number] shares of Common Stock owned by [name of shareholder C] in exchange for the Note will be treated as a distribution in full payment in exchange for those shares of Common Stock; and

(b)under section 1001 of the IRC, gain or loss will be realized by [name of shareholder C] on the redemption, measured by the difference between the cost or other basis of the shares of Common Stock surrendered by him and the fair market value of the Note received in exchange.

1.3Implementation of Redemption. Promptly after the Corporation’s receipt of the tax rulings described in section 1.2 of this Agreement, the Corporation will give notice to [name of shareholder C] of a closing to consummate the transactions described in section 1.1. The Corporation and [name of shareholder C] will conduct that closing within [number] days after the Corporation’s notice at the Corporation’s executive offices. At that closing, [name of shareholder C] will deliver to the Corporation the stock certificate or certificates representing his [number] shares of Common Stock, either endorsed or accompanied by a stock assignment form signed by [name of shareholder C], and the Corporation will deliver to [name of share­holder C], in exchange, the Note and a security agreement necessary to grant the security interests referred to in section 1.1 of this Agreement.

Article 2 

Recapitalization

2.1Recapitalization. Immediately after the transaction described in section 1.1 of this Agreement has been consummated, the Corporation will be recapitalized as follows:

(a)The Corporation will issue to [name of shareholder C], in exchange for his remaining [number] shares of Common Stock, [number] shares of Preferred Stock.

(b)The Corporation will issue to [name of shareholder B], in exchange for his [number] shares of Common Stock, [number] shares of Preferred Stock.

2.2Tax Rulings—Recapitalization. Consummation of the transactions described in section 2.1 of this Agreement is contingent on receipt of rulings from the IRS that—

(a)the exchange by [name of shareholder C] and [name of shareholder B] of shares of Common Stock for shares of Preferred Stock will constitute a recapitalization or reorganiza­tion within the meaning of section 368(a)(1) of the IRC;

(b)under section 354(a)(1) of the IRC, no gain or loss will be recognized by [name of shareholder C] and [name of shareholder B] on the exchange of Common Stock for Preferred Stock;

(c)as provided in section 358(a)(1) of the IRC, the basis of the Preferred Stock received by [name of shareholder C] and [name of shareholder B] will be the same as the basis of the Common Stock surrendered by [name of shareholder C] and [name of shareholder B] in exchange; and

(d)under section 1223(1) of the IRC, the holding period for the Preferred Stock received by [name of shareholder C] and [name of shareholder B] will include the period during which the Common Stock exchanged was held if the Common Stock was a capital asset in the hands of [name of shareholder C] and [name of shareholder B] at the time of the exchange.

2.3Implementation of Recapitalization. Promptly after the Corporation’s receipt of the tax rulings described in section 2.2 of this Agreement, the Corporation will give notice to [name of shareholder C] and [name of shareholder B] of a closing to consummate the transac­tions described in section 2.1. The Parties will conduct that closing within [number] days after the Corporation’s notice at the Corporation’s executive offices. The following will occur at that closing:

(a)[Name of shareholder C] will deliver to the Corporation the stock certificate or certifi­cates representing his [number] shares of Common Stock, either endorsed or accompanied by a stock assignment form signed by [name of shareholder C]. The Corporation will deliver to [name of shareholder C], in exchange, one or more stock certificates (as requested by [name of shareholder C]) issued in the name of [name of shareholder C] representing [number] shares of Preferred Stock.

(b)[Name of shareholder B] will deliver to the Corporation the stock certificate or certifi­cates representing his [number] shares of Common Stock, either endorsed or accompanied by a stock assignment form signed by [name of shareholder B]. The Corporation will deliver to [name of shareholder B], in exchange, one or more stock certificates (as requested by [name of shareholder B]) issued in the name of [name of shareholder B] representing [number] shares of Preferred Stock.

Once the Corporation has given the notice described in the first sentence of this section 2.3, the stock certificates representing shares of Common Stock issued in the name of [name of shareholder C] and in the name of [name of shareholder B] will no longer represent any out­standing shares of Common Stock but will be deemed to represent only the right to receive one or more stock certificates representing the shares of Preferred Stock to which [name of shareholder C] and [name of shareholder B] are entitled under section 2.1 of this Agreement.

2.4Common Stock Received. On the transfer by [name of shareholder C] and [name of shareholder B] of shares of Common Stock in exchange for shares of Preferred Stock, the Corporation will [hold those reacquired shares of Common Stock in treasury, for subsequent sale or cancellation, as determined by the Corporation’s board of directors/, as soon as reason­ably practicable, cause those reacquired shares of Common Stock to be canceled in accor­dance with the Texas Business Organizations Code].

Article 3 

General Provisions

3.1Applications for Rulings. The Corporation will prepare the application or applica­tions for the private letter rulings from the IRS described in sections 1.2 and 2.2 of this Agree­ment and submit it or them to the IRS promptly after all Parties execute this Agreement. The Corporation will bear the entire cost of preparing, submitting, and obtaining the private letter rulings, though the Shareholders will, at their own expense, cooperate with all reasonable requests of the Corporation in its efforts to obtain those rulings.

3.2Relationship of Transactions. Consummation of the transactions described in Arti­cle 2 of this Agreement is contingent on consummation of the transaction described in Article 1 of this Agreement, but consummation of the transaction described in Article 1 is in no way contingent on consummation of the transactions described in Article 2.

3.3Binding Effect. Nothing in this Agreement, express or implied, is intended to con­fer on any party, other than the Parties hereto and their respective permitted assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, and no per­son who is not a party to this Agreement may rely on the terms except as otherwise set out. This Agreement (a) constitutes the entire agreement between the Parties relating to the subject matter hereof and (b) supersedes all previous understandings and agreements between the Par­ties relating to the subject matter hereof, both oral and written. This Agreement is binding on and inures to the benefit of the Parties and their respective successors, representatives, heirs, legatees, and assigns (as applicable).

3.4Assignment. No party to this Agreement may assign its rights or delegate its obliga­tions hereunder without the prior written consent of each party. Any such attempted assign­ment will be void ab initio. Subject to the preceding sentences, this Agreement will be binding on and inure to the benefit of the Parties and their respective successors and assigns.

3.5Amendment and Termination. This Agreement may be amended, and any provision of it may be waived, only by a document signed by the Parties. This Agreement will termi­nate, and be of no further force or effect, if the private letter ruling described in section 1.2 above is not obtained from the IRS [include if applicable: within [number] days after the date of this Agreement].

3.6Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will consti­tute one and the same instrument.

3.7Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof, the legality, validity, and enforceability of the remaining provisions of this Agreement will not be affected thereby, and in lieu of the illegal, invalid, or unenforceable provision, there will be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be legal, valid, and enforceable.

3.8Notices. All notices, communications, and deliveries made under this Agreement will be made in writing signed by or on behalf of the party, will specify the section of this Agreement under which it is given or made, and will be delivered personally, by facsimile transmission, by registered or certified mail (return receipt requested), or by any courier ser­vice, with postage or other fees prepaid, as follows:

If to [name]:
[Address]
[Fax no.]
Attention: [name]

Any such notice, communication, or delivery may also be made to any other address or person designated in writing by the party. Such addresses may be changed from time to time by writ­ten notice to the other party. Any notice, communication, or delivery will be deemed given or made (a) on the date of delivery if delivered in person or by courier service, (b) on transmis­sion by facsimile if receipt is confirmed by telephone, or (c) on the fifth business day after it is mailed by registered or certified mail.

3.9Waiver. No term or provision of this Agreement may be waived or modified unless the waiver or modification is in writing and executed by all the Parties hereto. Any waiver by any party hereto of a breach or failure to perform will not constitute a waiver of any subse­quent breach or failure.

3.10Further Assurances. The parties agree to take further actions and execute and deliver other documents, certificates, agreements, and other instruments as may be reasonably necessary or desirable to implement transactions contemplated by this Agreement.

3.11Section Headings. The headings contained in this Agreement are for reference pur­poses only and will not affect in any way the meaning or interpretation of this Agreement.

3.12Gender and Number of Words. When the context requires, the gender of all words used in this Agreement includes the masculine, feminine, and neuter, and the number of all words includes the singular and the plural.

3.13Applicable Law. This Agreement is made pursuant to, will be construed under, will be enforced by, and will be conclusively deemed for all purposes to have been executed and delivered under the laws of the state of Texas without reference to conflicts of laws.

IN WITNESS WHEREOF, this Agreement has been signed by the Parties to be effec­tive as of the date stated in the first paragraph of this Agreement.

[Name of corporation]

   
[Name of officer], [title]

   
[Name of shareholder A]

   
[Name of shareholder B]

   
[Name of shareholder C]