Exhibit 10.1

 

SHAREHOLDER AGREEMENT OF

HECTOR ACQUISITION CORP.

 

THIS SHAREHOLDER AGREEMENT (this “Agreement”) is made and entered into effective
as of November 1, 2006 (the “Effective Date”), by and among Arvig Enterprises,
Inc., Blue Earth Valley Communications, Inc. and New Ulm Telecom, Inc. (the
“Shareholders” and each individually, a “Shareholder”).

 

RECITALS

 

A.         The Shareholders are all of the shareholders of Hector Acquisition
Corp. (the “Corporation”) and own the number of shares set opposite their
respective names on Schedule A attached hereto.

 

B.          The Shareholders desire to enter into this Agreement concerning the
affairs of the Corporation, the conduct of its business, and the Shareholders’
ownership interests in the Corporation pursuant to Section 302A.457 of the
Minnesota Business Corporation Act.

 

NOW, THEREFORE, in consideration of the foregoing recited facts, the mutual
covenants and agreements contained herein and for other good and valuable
consideration, it is agreed as follows:

 

Article I

Description of Stock

 

The term “Stock” shall mean and include all of the shares of the Corporation of
every class and description. Any additional Stock of the Corporation acquired by
a Shareholder, whether by purchase, gift, reclassification, recapitalization,
merger, reorganization, new issue, stock dividend, stock split or otherwise,
shall also be subject to this Agreement. Furthermore, it is contemplated that
any additional Stock will be endorsed in accordance with Article VII and
identified by a written memorandum executed by the parties and attached to this
Agreement whereby the acquirer of the Stock agrees to be bound by the terms and
conditions of this Agreement; provided, however, that failure to endorse and
include the additional Stock in a memorandum shall not remove the Stock from the
terms and provisions of this Agreement.

 

Article II

Voting Provisions

 

2.1        Directors and General. Each Shareholder hereby agrees, on behalf of
itself and any of its successors, or assigns, to vote all shares of Stock now
owned or hereafter acquired of record or beneficially owned by each such
Shareholder and to take such other actions as are necessary, and to exercise the
rights and powers as shareholders, to ensure that:

 

(a)          the membership of the Board of Directors of the Corporation (the
“Board”) includes six individuals with two such members of the Board to be
designated by each Shareholder and each Shareholder shall vote all of its shares
of stock in the Corporation to elect each other Shareholder’s two (2) designees.

 

 

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(b)          all other terms and conditions of this Agreement required to be
paid or performed by the Corporation and/or any Shareholder are carried out.

 

2.2        Bylaws. Except as set forth in this Agreement, the Bylaws of the
Corporation shall control the governance of the Corporation. In the event of a
conflict between the provisions of this Agreement and the Bylaws, the provisions
of this Agreement shall control.

 

2.3        Other Action. Each Shareholder shall vote his, her or its Stock
and/or take such other actions as are necessary to carry out the terms of this
Agreement required to be paid or performed by the Corporation and/or any
Shareholder, including without limitation, attendance at meetings in person or
by proxy for purposes of obtaining a quorum and the execution of written records
of action and other such instruments.

 

Article III

Capitalization of the Corporation

 

3.1        Capitalization. Each of the Shareholders has made a capital
contribution in exchange for the shares described in Schedule A attached hereto
of $1,000. In addition, contemporaneous with the closing of the acquisition of
Hector Communications Corporation, each Shareholder shall make an additional
cash contribution to the surviving corporation in the amount of $17,999,000.00.
Each Shareholder shall not receive any additional shares in consideration for
this additional contribution to the surviving corporation.

 

3.2        Additional Contributions (Capital Calls). Additional contributions or
capital calls by the Corporation may be required only by a unanimous vote of the
Shareholders.

 

3.3        Consequences of Failure to Make Additional Contributions. If a
Shareholder fails to make a duly authorized capital contribution as and when
due, the other shareholders may loan money to the Corporation on an unsecured
basis up to the amount not contributed, under commercially reasonable terms and
conditions, and the amounts so loaned, shall bear interest at the rate of LIBOR
plus three percentage points (3%) above 90 day LIBOR, from the date loaned to
the Corporation, until paid in full, principal and interest.

 

Article IV

Distributions to and Loans from Shareholders

 

4.1        Distributions. All dividends and other distributions from the
Corporation whether for tax purposes, or otherwise shall be made only upon the
unanimous approval of the members of the Board of Directors.

 

4.2        Loans. Loans by shareholders to the Corporation shall be permitted if
approved unanimously by the board of directors, and on commercially reasonable
terms and conditions approved by a majority of the shareholders of the board of
directors (all such loans to be unsecured unless agreed otherwise unanimously by
the board of directors); provided, however, notwithstanding anything to the
contrary set forth in this Agreement or the bylaws, if (a) the management of the
Corporation reasonably expects the Corporation to need additional funds within
six (6) months; and (b) such additional funds are not available from the
Corporation’s then principal lender; and (c) one shareholder does not want to
contribute additional capital to the Corporation and/or to lend additional
amounts to the Corporation, then the board of directors, by the unanimous vote
of the directors other than the directors designated by the dissenting
shareholder, may authorize the Corporation to borrow the needed funds from one
or more of the other shareholders on commercially reasonable terms and
conditions approved by a majority of the directors (all such loans to be
unsecured unless agreed otherwise unanimously by the board of directors).

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Article V

Stock Transfers

 

5.1        Restrictions on Transfer of Stock. The Shareholders shall not at any
time, either voluntarily or involuntarily, directly or indirectly, whether for
consideration or not, by operation of law or otherwise, sell, assign, transfer,
make a gift of or otherwise dispose of (a “Transfer”) all or any part of their
Stock, except:

 

(a)          with the express written approval of all of the remaining
Shareholders;

 

(b)          a transfer to a wholly owned subsidiary of a Shareholder or a
parent entity which owns all of the capital stock of the Shareholder
transferring the Stock;

 

(c)          a Shareholder may grant a security interest in (or otherwise pledge
or hypothecate) all or a part of its Stock to any creditor to secure bona fide
indebtedness, provided said creditor agrees to be bound by the terms and
conditions and procedures set forth in this Agreement, including, without
limitation, this Article V as well as the right of the Corporation and the other
Shareholders to purchase such shares pursuant to Section 5.4 upon any
foreclosure of such collateral by the creditor and that any Stock held by the
creditor as transferee, shall also be subject to such rights of purchase,
provided, further, however, that the creditor shall not be bound by the terms of
this Article V or any right of the Corporation and the other Shareholders to
purchase such shares pursuant to Section 5.4 upon any foreclosure of such
collateral by the creditor (and any such pledged Stock held by the creditor as
transferee shall also not be subject to such rights of purchase) if the creditor
first provides the Corporation and the other Shareholders with thirty (30) days'
prior written notice of the creditor's intent to transfer or acquire such
pledged Stock and during such thirty-day period the creditor, the Corporation
and the other Shareholders do not agree upon a purchase price and method of
payment acceptable to each of such parties in its sole discretion (such purchase
to otherwise be on terms and conditions, including the proposed closing date,
reasonably acceptable to each of such parties); or

 

(d)          transfers pursuant to the provisions of Section 5.4 through 5.8 of
this Agreement.

 

5.2        Improper Transfer. Any attempt by a Shareholder to directly or
indirectly transfer or encumber any Stock other than in accordance with the
terms of this Agreement shall be null and void and neither the Corporation nor
any transfer agent of such Stock shall give any effect to such attempted
transfer or encumbrance in its stock records. Stock shall not be transferred
without (i) the opinion of counsel satisfactory to the Corporation that such
transfer may lawfully be made without registration under the Federal Securities
Act of 1933 and all applicable state securities regulations or (ii) the
registration of such Stock.

 

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5.3        Effect of Transfer. Any transferee or assignee to whom a Shareholder
Transfers his, her or its Stock in accordance with the terms of this Agreement
shall take such Stock subject to all of the terms, conditions, restrictions and
agreements contained in this Agreement and shall become a party signatory to
this Agreement, or such transfer shall not be permitted and shall be null and
void.

 

5.4        Right of First Refusal.

 

 

(a)

Voluntary Sale of Shares.

 

(i)           Offer to Sell. Should any Shareholder desire to transfer all or
part of its Stock, directly or indirectly, including by a transaction described
in Section 5.5, the proposed transferring Shareholder (the “Seller”) shall first
give written notice thereof (the “Notice of Transfer”) to the Corporation and
the other Shareholders of its intention to transfer, together with a copy of a
bona fide written offer identifying the precise terms and conditions of sale and
the name and address of the proposed transferee signed by the proposed
transferee, and shall offer its Stock to the Corporation and the other
Shareholders on the terms of sale set forth in Section 5.4.(b). The offer shall
include a statement of the address to which notice of acceptance may be sent.

 

(ii)          Acceptance of Offer by the Corporation. Within thirty (30) days
after receiving the Notice of Transfer, the Corporation may, at its option,
elect to purchase all or any part of the offered Stock on the terms of sale set
forth in Section 5.4.(b).

 

(iii)        Acceptance of Offer by the Other Shareholders. During the period of
thirty (30) days following the thirty (30) day period after the Corporation
receives the Notice of Transfer, the other Shareholders may elect to purchase
any offered Stock which the Corporation did not elect to purchase on a pro rata
basis among such Shareholders based on the percentage their shares of Stock bear
to all issued and outstanding Stock on the terms of sale set forth in
Section 5.4.(b).

 

(iv)         Sale of Stock Offered but not Purchased by Either the Corporation
or the Other Shareholders. If the Corporation and the other Shareholders do not
elect to purchase all Stock offered by the Seller pursuant to Section 5.4.(a)
within a period of thirty (30) days after the Corporation receives the Notice of
Transfer, the Seller may at any time during a period of six (6) months after the
expiration of the thirty (30) day period, but subject, however, to Sections 5.2
and 5.3 of this Agreement, and to applicable state and federal securities laws,
sell, or otherwise transfer or dispose of all (but not less than all) Stock that
was offered for sale. Such sale, however, cannot be on terms more favorable to
the transferee than the terms upon which the Stock was offered to the
Corporation and the other Shareholders or take place more than six months after
the expiration of the thirty (30) day period unless the Stock is first reoffered
to the Corporation and the other Shareholders in accordance with this Section.

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(v)          Voting Rights. Any decision by the Corporation regarding whether or
not to exercise any option to purchase all or any part of a Seller’s Stock
pursuant to the terms of this Agreement or to waive any of its rights hereunder
shall be made by the Shareholders other than the Seller; provided, however, that
if this provision is contrary to the Articles of Organization or Bylaws of the
Corporation, the Seller shall vote his/her or its entire Stock in the same
manner that a majority of the voting power of the stock held by the other
Shareholders is voted with regard to any of the above described decisions.

 

 

(b)

Terms of Sale.

 

(i)           Price. The price for the purchase of Stock under Section 5.4.(a)
shall be the price at which the Seller proposes to sell to the proposed
transferee.

 

(ii)          Closing. The closing of the purchase shall take place at the
Corporation’s principal office not more than 180 days after the date on which
the notice of transfer is received by the Corporation.

 

(iii)        Terms. The terms of purchase for the Stock to be sold under
Section 5.4.(a) shall be the terms as set forth in the written offer described
in Section 5.4.(a). At the closing, the Seller shall deliver to the
purchaser(s), certificates, duly endorsed for transfer and in good delivery
form, representing all Stock sold and all other documents necessary or
appropriate to transfer the Stock and to vest in the purchaser(s) good title
thereto, free of security interests, claims and equities, except those contained
in this Agreement. The purchaser(s) if other than the Corporation shall execute
such documents as the Corporation shall require to bind the purchaser(s) to the
terms and conditions of this Agreement.

 

5.5        Option to Purchase Stock.

 

(a)          Purchase Option Events. Upon the occurrence of one or more of the
following events, all of the Stock owned by a Shareholder may, but need not, be
purchased by the Corporation and the remaining Shareholders:

 

(i)          The insolvency or bankruptcy of a Shareholder;

 

(ii)          Attachment, levy, execution, foreclosure or operation of law of or
against Stock owned by a Shareholder;

 

(iii)        Any other procedure for the liquidation of the entire estate or
affairs of a Shareholder or other operation of law which serves to divest the
Shareholder of control and voting rights in Stock of the Corporation;

 

(iv)         Any attempt by a Shareholder to sell or transfer any Stock without
complying with the provisions of Section 5.5, including without limitation, by
selling, transferring or otherwise disposing of all or substantially all of the
assets of the Shareholder;

 

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(v)          Any “change in control” of any Shareholder. “Change in control”
means any sale, transfer, exchange, merger, reorganization or other disposition
of a Shareholder’s stock/equity if, immediately following the effective date of
such sale, transfer, exchange, merger, reorganization or other disposition, the
individuals and entities who were the shareholders/equity holders of the
Shareholder on the date hereof, do not directly or indirectly own more than
fifty percent (50%) of the total combined voting power of all classes of
stock/equity issued by such Shareholder;

 

(vi)         Seller engages in an enterprise, activity or business which is a
violation of the Shareholder’s obligations under Section X of this Agreement and
continues in such enterprise, activity or business after written notice by the
Corporation and the expiration of the thirty (30) day period following such
notice; or

 

(vii)      Any Shareholder subject to any of the foregoing events shall promptly
notify the Corporation and the other Shareholders of the occurrence of such
event.

 

 

(b)

Exercise of Option to Purchase.

 

Upon the occurrence of one of the events described in this Section 5.5(a), the
Corporation and/or the remaining Shareholders may elect to purchase the Stock
owned by the Seller which is subject to such an event. Within thirty day (30)
days after receiving notice of an event described in Section 5.5(a), the
Corporation may, at its option, elect to purchase all or any part of the Stock
owned by the Seller on the terms of sale set forth in this Section 5.5. During
the period of thirty (30) days following the thirty day (30) day period after
the Corporation receives notice of an event as described in Section 5.5(a), the
other Shareholders may elect to purchase any offered Stock for which the
Corporation did not elect to purchase on the terms set forth in this
Section 5.5. The Corporation and/or the remaining Shareholders, as the case may
be, shall notify the Seller in writing of the decision to purchase the Seller’s
Stock. In the event the Corporation elects to purchase some or all said Stock,
the Seller shall sell to the Corporation and the Corporation shall purchase at
the Specified Value, as determined by Section 5.5 (e), as much of the Stock
registered in the name of the Shareholder as the Corporation may lawfully
purchase at the Specified Value. Any of the Seller’s Stock which the Corporation
does not purchase shall be sold by the Seller to and shall be purchased by the
remaining Shareholders which elect to purchase some or all of the Stock at the
Specified Value. Unless the Corporation and the Shareholders in the aggregate
elect to purchase all of the Stock of the Seller subject to an event described
in Section 5.5.(a), none of the Stock of the Seller may be purchased under this
Section.

 

(i)          Closing. The closing of the purchase and sale of all of the stock
of a seller pursuant to the provisions of this section 5.5 shall take place at
the principal office of the Corporation on the date designated by the
Corporation, which date shall be not less than thirty (30) days nor more than
180 days following determination of the purchase price pursuant to section
5.5(e).

 

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(ii)        Payment of Purchase Price. Upon the occurrence of an event described
in Section 5.1 hereof, the Corporation and/or the purchasing Shareholder(s)
shall pay to the Seller the total purchase price for the Stock being purchased
by the Corporation and/or the purchasing Shareholder(s) as determined pursuant
to Section 5.5.(e) hereof, at a closing to be held at the office of the
Corporation; provided, however, that upon the occurrence of the event described
in Subsections 5.5(a)(i),(ii), or (iii) hereof (each an “Involuntary Transfer”),
the purchase price for the Stock shall be distributed in accordance with the
provisions of Section 5.5(d)(iii) hereof. Any closing shall be held within
thirty (30) days after the date on which the Corporation and/or the other
purchasing Shareholders notify the Seller of their respective elections to
purchase all of the Stock. At the closing, the Seller and any purchasing
Shareholder(s) shall execute all instruments requested by the Corporation and/or
by the purchasing Shareholder(s) for the purpose of confirming or evidencing the
transfer of the Stock. In addition, the Corporation and/or purchasing
Shareholder(s) shall pay the purchase price in the following manner: The
Corporation and/or purchasing Shareholder(s) shall offset against the purchase
price any amount due them from the Seller, including the amount of any damages
suffered by the Corporation and/or purchasing Shareholder(s) as a result of any
breach of this Agreement by the Seller.

 

(iii)       If at least twenty percent (20%) of the total purchase price (ten
percent (10%) in case of an Involuntary Transfer) is not paid in accordance with
the preceding Section 5.5.(d)(i), then the Corporation and/or purchasing
Shareholder(s) shall each pay cash in an amount sufficient to bring the
aggregate amounts paid by the Corporation and/or each purchasing Shareholder up
to twenty percent (20%) of the total purchase price.

 

(iv)       The remaining balance of the purchase price, if any, shall be
evidenced by the promissory note(s) of the Corporation and/or purchasing
Shareholder(s) bearing interest at then applicable federal rate on the date of
closing, per annum on the unpaid balance. The unpaid principal balance of the
promissory note(s) and accrued interest thereon shall be payable in sixty (60)
equal monthly installments (one hundred twenty (120) installments in case of an
Involuntary Transfer), the first installment to be paid on the first day of the
month following the closing. Said promissory note(s) shall provide for
prepayment without penalty and shall also contain a clause providing for the
acceleration of the payment of the unpaid balance of the promissory note(s) at
the option of the holder in the event a default in the payment of principal and
interest is not cured within thirty (30) days of the maker’s receipt of notice
of default. To secure the payment of the promissory note(s), the Corporation
and/or purchasing Shareholder(s) shall pledge to the Seller, the Stock purchased
from the Seller, pursuant to a mutually acceptable security agreement. In the
event of a default by the Corporation and/or the purchasing Shareholder(s) in
the payment of any principal or interest on any Promissory Note(s) issued
pursuant to Section 5.5.(d)(iii) hereof, which default is not cured within
thirty (30) days of such default, or of the transfer of all or substantially all
of the assets of the Corporation or of all or substantially all of the stock of
the Corporation by sale, exchange, merger, consolidation or any other
disposition, before the obligations of the Corporation and/or purchasing
Shareholder(s) under the promissory note(s) shall have been fully discharged,
the unpaid principal balance plus accrued interest on any such promissory
note(s) issued by the Corporation and/or the purchasing Shareholder(s) hereunder
shall become immediately due and payable, without further notice to or demand
upon the Corporation or purchasing Shareholder(s). This provision shall be
included in the promissory notes of the Corporation and purchasing
Shareholder(s).

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(c)          Notwithstanding any other provisions of this Agreement to the
contrary, in the event any purchase by the Corporation of stock pursuant to this
Agreement and/or the accompanying payments of the purchase price would result in
a default under any loan or credit agreement(s) between the Corporation and any
lender, then the purchase, or the payments if the purchase has been made, shall
be postponed up to a maximum of 180 days until the transaction can proceed or
the payments made without causing such a default. interest at the rate set forth
in section 5.5.(d)(iv) hereof shall accrue during the time that the transaction
is postponed. the parties to the transaction shall take all reasonable action to
cause the transaction to proceed within said 180 days. Upon the occurrence of
any of the events enumerated in Section 5.5, the purchase price per share of
Stock hereunder shall be determined as follows:

 

(i)          If the Seller, on the one hand, and the remaining Shareholder(s),
on the other hand, are able to mutually agree upon the purchase price, the
purchase price per share of the Seller’s Stock hereunder shall be the amount
agreed upon by the Seller, on the one hand, and the remaining Shareholder(s), on
the other hand, during the period of thirty (30) days following the date of the
occurrence of the event under Section 5.5 or the date the Corporation and the
remaining Shareholder(s) receive notice from the Seller pursuant to
Section 5.5.(a)(vii) hereof, as the case may be (the “Negotiation Period”); or

 

1)          if the seller, on the one hand, and the remaining shareholder(s), on
the other hand, are not able to mutually agree upon the purchase price within
such thirty (30) day period, then the fair market value of the Corporation as a
whole, without minority discount (“FMV”) shall be determined by the following
process of appraisal: First Appraisal. The Corporation shall appoint a qualified
independent appraiser to determine the FMV as of the date of the occurrence of
the event giving rise to the purchase and sale of the Seller’s Stock hereunder
(the “First Appraisal”). The First Appraisal should be completed within ninety
days (90) days of the appointment of the appraiser. The Corporation shall
provide the report of the First Appraisal to the Seller and the remaining
Shareholders. Second Appraisal. If the Seller does not accept the results of the
First Appraisal, the Seller may, within thirty (30) days of the date of receipt
of the report First Appraisal, notify the Corporation and each remaining
Shareholder in writing of that fact. If the notice has been timely given, the
Seller may then select a qualified independent appraiser to determine the fair
market value of the Corporation as of the date of the occurrence of the event
giving rise to the purchase and sale of the Seller’s Stock hereunder (“Second
Appraisal”). The Second Appraisal shall be completed within ninety (90) days of
the delivery of the report of the First Appraisal to the Shareholders. The
Seller shall provide a copy of the report of the Second Appraisal to the
Corporation and each of the remaining Shareholders. If the Seller does not cause
a Second Appraisal to be timely made, the First Appraisal shall conclusively
determine the FMV as of the date of the occurrence of the event giving rise to
the purchase and sale of the Seller’s Stock hereunder. If the Second Appraisal
is timely made and submitted and if, as between the First Appraisal and the
Second Appraisal, the lower appraisal is not less than 95% of the higher
appraisal, the FMV shall be the FMV determined in the First Appraisal.

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2)          Third Appraisal. If the lower appraisal is less than 8095% of the
higher appraisal, the appraisers who submitted the First Appraisal and the
Second Appraisal shall then mutually select a third qualified independent
appraiser to determine the fair market value of the Corporation as of the date
of the occurrence of the event giving rise to the purchase and sale of the
Seller’s Stock hereunder (the “Third Appraisal”). The Third Appraisal shall be
completed within ninety days (90) days of the selection of the third appraiser,
and the fair market value of the Corporation set forth in the Third Appraisal
shall be averaged with either of the First Appraisal or the Second Appraisal,
whichever of those two appraisals’ value is closest to the appraised value set
forth in the Third Appraisal. The value so determined shall be the FMV as of the
date of the occurrence of the event giving rise to the purchase and sale of the
Seller’s Stock hereunder for the purposes hereof and shall be binding on the
parties.

 

3)          Costs. The cost of an appraisal shall be borne by the party who
ordered such appraisal. If a Third Appraisal is used to determine the FMV, the
cost of such Third Appraisal shall be divided equally between the parties.

 

(ii)        The purchase price of the Seller’s Stock hereunder shall be the
amount determined by multiplying the FMV determined pursuant to Subsections (i)
or (ii) above by the percentage the Seller’s Stock bears to the total issued and
outstanding stock of the Corporation.

 

5.6        Each shareholder acknowledges that, although there are many possible
methods of determining the purchase price of the stock, the Corporation and all
of the shareholders have entered into this Agreement in reliance upon the
expectation and understanding that the method(s) contained in this Agreement for
determining the purchase price of the stock will be applied under the
circumstances and in accordance with the terms and conditions set forth in this
Agreement. Accordingly, it is the intention and expectation of the Corporation
and all of its shareholders that, in situation in which this Agreement is
applicable, the courts interpret and apply this Agreement strictly in accordance
with its terms and conditions, whether acting under section 302a.467 or 302a.751
of the act, or otherwise.

 

 

5.7

Drag-Along Rights.

 

(a)         If holders of sixty-six percent (66%) or more of the issued and
outstanding shares of the Corporation (the “Control Group”) determines to sell
or transfer all or any of the Stock held by them to an unrelated third party
(unrelated to the Corporation or any Shareholder) (and whether by way of a sale
or exchange of stock, merger or other reorganization of the Corporation or in
any public offering or tender offer), the Control Group shall give notice of the
proposed transaction (including price and other material terms and conditions)
to each other Shareholder. If requested by any of the remaining Shareholder(s)
in writing within twenty (20) days of receiving said notice, the Control Group
shall, as a condition of the sale of their Stock, also obtain from the third
party an additional offer to purchase all of the Stock of the requesting
remaining Shareholder(s) for the same purchase price/consideration per share and
on the same terms and conditions as available to the Control Group (including,
for example, consulting and non-competition payments). Failure of any of the
remaining Stockholder(s) to notify the Control Group within such twenty (20) day
period shall be deemed to be an election not to sell such remaining
Shareholder’s Stock. Notwithstanding anything to the contrary set forth in this
Agreement, the Shareholders not requesting to participate in the proposed
transaction shall not have a right of first refusal with respect to any of the
transferring Shareholders’ Stock.

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(b)        At any time after December 1, 2011, the Control Group may give notice
to the remaining Shareholders as a group of their offer to purchase all of the
outstanding Stock of the other Shareholders, which notice shall specify a price
at which the offerors shall either sell all of their respective Stock to the
offeree or purchase all of the Stock of the offeree(s). The price and the notice
shall be expressed as the amount that the offeror would be willing to pay for
all of the Stock of the offeree(s) expressed on a per share basis. The amount to
be paid to each Shareholder at the closing of the purchase of the Stock shall be
the amount specified in the notice.

 

Within sixty (60) days after receipt of the notice, the offeree(s) should give
to the offerors, their written notice of election on behalf of itself or
themselves, as the case may be, either to (x) sell all of the Stock of the
offeree(s) at the price established in accordance with the preceding paragraph
hereof, or (y) purchase all of the Stock of the offerors at the price
established in accordance with the preceding paragraph hereof. If the offeree(s)
fails to deliver such notice, then the offeree(s) shall be deemed to have agreed
to sell its or their Stock at the price and on the terms set forth in the notice
of offer.

 

The closing of any such sale and purchase shall be held at the office of the
Corporation or such other place as may be mutually agreed upon by the parties
within one hundred eighty (180) days after the date of the notice of election.
the purchase price, reduced by any amount which the Shareholders owe to the
Corporation or to the purchasing Shareholders, as the case may be, shall be
payable in full in cash at closing. In addition, the purchasers shall be
required: (i) to pay in full in cash any and all outstanding loans and other
obligations, if any, of the Corporation then owing to any of the selling
Shareholders and any amounts then owing to any selling Shareholder by way of
reimbursement, indemnification or otherwise by any purchasing Shareholder; (ii)
to pay in full in cash all outstanding loans and other obligations if, if any,
of the Corporation which are guaranteed or have been assumed by any selling
Shareholder (or to cause such guarantees or assumptions to be released), and
(iii) to pay in full in cash any and all outstanding loans and other
obligations, if any, of the Corporation as to which any selling Shareholder has
any personal liability, whether direct or contingent (or to cause such liability
to be released).

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Article VI

Breach

 

If any Shareholder breaches any provision of this Agreement (a “Breach”), such
Shareholder shall be personally liable for all damages that flow from such
Breach, without regard to whether such damages are direct, special, incidental,
consequential or punitive, or arising directly or indirectly from such Breach.
Upon a Breach of any provision of this Agreement, the Shareholder who or which
commits the Breach shall defend, indemnify and hold harmless the Corporation,
the other Shareholders and the officers and directors of the Corporation for all
costs, expenses and liabilities that arise from such Breach.

 

Article VII

Endorsement of Stock Certificates

 

Upon the execution of this Agreement, the certificates evidencing the Stock
subject hereto shall be surrendered to the Corporation and endorsed as follows:

 

Any transfer of the Stock represented by this certificate, or any interest
therein, is restricted by, and subject to the terms of a Shareholder Agreement
among the Shareholders of Hector Acquisition Corp., a copy of which is on file
in the office of the Corporation. Any sale, pledge, transfer, assignment or any
other disposition of the Stock represented by this certificate in violation of
said shareholders agreement shall be invalid.

 

The Stock represented by this certificate may not be transferred without (i) the
opinion of counsel satisfactory to this corporation that such transfer may
lawfully be made without registration under the Federal Securities Act of 1933
and all applicable state securities laws or (ii) such registration.

 

After endorsement, the certificates shall be returned to the Shareholders who
shall be entitled to exercise all rights of ownership concerning such Stock
subject to the terms, conditions and restrictions of this Agreement. The
Shareholders acknowledge that the Corporation shall not recognize any transfer
any Stock where such transfer violates this Agreement.

 

Article VIII

Termination

 

8.1        This Agreement shall terminate upon the occurrence of any of the
following events:

 

 

(a)

The mutual agreement of all Shareholders, or

 

 

(b)

The dissolution of the Corporation.

 

Upon termination of this Agreement, each Shareholder shall surrender to the
Corporation the certificates evidencing the Stock then owned by it, and the
Corporation shall issue to it in lieu thereof new certificates for an equal
number of Shares without the endorsement set forth in Article VII.

 

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Article IX

Dispute Resolution

 

9.1.       Notice of Dispute. The parties shall attempt in good faith to resolve
any dispute arising out of or relating to this Agreement or any agreement or
document in connection herewith, or the breach, termination or validity thereof
promptly by negotiation between the parties. One party may give the other
parties written notice that a dispute exists (a “Notice of Dispute”). The Notice
of Dispute shall include a statement of such party’s position. Within ten (10)
days of the delivery of the Notice of Dispute, the parties shall meet at a
mutually acceptable time and place, and thereafter as long as they reasonably
deem necessary, to attempt to resolve the dispute. All documents and other
information or data on which each party relies concerning the dispute shall be
furnished or made available on reasonable terms to the other parties at or
before the first meeting of the parties as provided by this paragraph.

 

Article X

Corporate Opportunity

 

The Corporation is being formed to acquire the businesses of Hector
Communications Corporation (“Hector”). Hector, together with its wholly owned
subsidiaries: (a) operates 9 independent telephone companies serving 28
exchanges in Minnesota, Wisconsin and North Dakota, (the “Telephone
Businesses”); (b) operates 34 cable television systems serving customers in
Minnesota and Wisconsin (the “Cable Businesses”); and (c) operates various
Internet access operations, whether such Internet access operations are by
telephone, cable or wireless transmission (the “Internet Businesses”). The
geographic territories served by the Telephone Businesses, the Cable Businesses,
and the Internet Businesses may herein be referred to as the “Hector Franchise
Areas”). One or more of the Shareholders conducts business operations (“Existing
Operations”) within the Hector Franchise Areas, which Existing Operations may be
deemed to compete, either directly or indirectly, with the Telephone Businesses,
the Cable Businesses and/or the Internet Businesses. Each Shareholder consents
to such Shareholders continuing their Existing Operations and/or expanding those
Existing Operations from time to time, regardless of whether or not the Existing
Operations conduct businesses the same as or similar to the Telephone
Businesses, the Cable Businesses and/or the Internet Businesses. In general, the
common law and statutory concept of “corporate business opportunity” shall apply
to the Shareholders of the Corporation in undertaking their duties of care and
loyalty to the Corporation as Shareholders and through their representatives as
members of the Board of Directors before any Shareholder may pursue a new
opportunity relating to a telephone company, a cable company and/or an Internet
access company which is serving areas wholly within the Hector Franchise Areas.
Notwithstanding the foregoing, any Shareholder may, without the consent of the
Corporation and the other Shareholders and without regard to whether or not such
opportunity might be considered to be a corporate opportunity, pursue any
opportunity if such opportunity is not related to a telephone company or a cable
company or an Internet access company, which company is serving areas wholly
within the Hector Franchise Areas.

 

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Article XI

Miscellaneous Provisions

 

11.1      Remedies, Specific Performance. The Corporation and the Shareholders
understand and agree that a Breach of the terms and conditions of this Agreement
shall cause the other parties irreparable harm that cannot be reasonably or
adequately compensated by receipt of money damages at law, and that the
Corporation or any Shareholder may, in its sole discretion, apply to any court
of law or equity of competent jurisdiction for specific enforcement, injunctive
relief and/or other equitable remedies to prevent or remedy a breach of this
Agreement or any part hereof. All rights and remedies herein provided are
cumulative and not exclusive of any remedy provided by law or by equity.

 

11.2      Entire Agreement, Amendment. The parties hereto agree that this
Agreement expresses all of the expectations between the Shareholders and the
Corporation and that this instrument contains the entire agreement of the
parties with respect to the subject matter hereof. No change, modification or
amendment of this Agreement shall be valid or binding unless such change,
modification or amendment shall be approved in writing by all Shareholders.

 

11.3      Waiver of Appraisal Rights. Each Shareholder hereby expressly waives
any and all rights that such Shareholder may otherwise have as a dissenting
shareholder pursuant to Minn. Stat. §§ 302A.471 and 302A.473.

 

11.4      Stock. Nothing in this Agreement limits the ability of the Corporation
to issue additional Stock to any person or entity for any reason. Any person
acquiring Stock, whether from the Corporation or from a Shareholder in
accordance with the terms of this Agreement, shall take such Stock subject to
the terms of this Agreement, and shall be bound by this Agreement as a
Shareholder and be entitled to all of the rights of a Shareholder hereunder as
fully as if such person were a signatory hereto. Upon acquiring the Stock, any
such person shall execute and deliver to the Corporation an instrument, in form
and substance satisfactory to the Corporation, evidencing the foregoing.

 

11.5      Notices. All notices, requests and demands and other communications
hereunder must be in writing and shall be deemed to have been duly given when
(i) personally delivered, (ii) when forwarded by Federal Express, Airborne or
another private carrier which maintains records showing delivery information,
(iii) when sent via facsimile transmission but only if a written or facsimile
acknowledge of receipt is received by the sending party, or (iv) when placed in
the United States mail and forwarded by Registered or Certified mail, return
receipt requested, postage prepaid, addressed to the party to whom such notice
is being given at the respective addresses shown on the signature lines below,
or to such other address as a party may hereafter designate by notice. Any
notice sent by i-iii will also require written notice as set out in iv.

 

11.6      Legal Notices received by Hector Communications. All legal notices
received by Hector Communications or it’s officers, except those received in the
normal course of business, will immediately be sent via facsimile transmission
and by United States mail to all of the Directors.

 

11.7      Execution and Delivery of Documents. Each of the parties hereto, its
legal representatives, successors and assigns, shall do all things and execute
and deliver any and all documents that may be necessary at the time to carry out
and effectuate the terms and conditions of this Agreement.

 

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11.8      Parties in Interest. Unless otherwise provided herein, this Agreement
shall be binding upon, and the benefits and obligations provided for herein
shall inure to, the parties hereto and their respective heirs, legal
representatives, successors, assigns, transferees and donees, as the case may
be.

 

11.9      Enforceability. If any provision contained herein shall be deemed or
declared unenforceable, invalid or void, the same shall not impair or invalidate
any of the other provisions contained herein, which shall be enforced in
accordance with their respective terms.

 

11.10   Construction. The headings preceding and labeling the Articles and
Sections of this Agreement are for the purpose of identification only and shall
not in any event be employed or used for the purpose of construction or
interpretation of any portion of this Agreement. No waiver by any party of any
default or nonperformance hereunder shall be deemed a waiver of any subsequent
default or nonperformance. As used herein and where necessary, the singular
imports the plural and vice versa, and masculine, feminine and neuter
expressions shall be interchangeable. To the extent that this Agreement
conflicts with any terms of the Corporation’s bylaws or any other agreement, the
terms of this Agreement shall control.

 

11.11   Applicable Law. The laws of the State of Minnesota, without regard to
its conflict of laws provisions, shall govern and be applicable to this
Agreement and any construction or interpretation thereof.

 

11.12   Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.

 

11.13   Effect of Prior Agreements. This Agreement is intended by the
Shareholders as the final and binding expression of their contract and agreement
and as the complete and exclusive statement of the terms thereof. This Agreement
supersedes and revokes all prior negotiations, representations and agreements,
whether oral or written, relating to the subject matter hereof.

 

IN WITNESS WHEREOF, the parties have executed this Shareholder Agreement
effective as of the day and year first above written.

 

 

 

ARVIG ENTERPRISES, INC.

 

 

 

Dated:_______________

By:

/s/ David R. Arvig

 

 

150 Second Street SW

P.O. Box 110

Perham, Minnesota 56573

 

 

 

 

 

 

BLUE EARTH VALLEY COMMUNICATIONS, INC.

 

 

 

Dated:________________

By:

/s/ Bill Eckles

 

 

123 West 7th Street

Blue Earth, Minnesota 56013

 

 

 

 

 

 

NEW ULM TELECOM, INC.

 

 

 

Dated:________________

By:

/s/ Bill Otis

 

 

27 North Minnesota Street

P.O. Box 697

New Ulm, Minnesota 56073-0697

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SCHEDULE A

 

Shareholder

Number of Shares

Arvig Enterprises, Inc.

300,000

Blue Earth Valley Communications, Inc.

300,000

New Ulm Telecom, Inc.

300,000

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