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LEGAL AND PROCEDURAL ASPECTS OF ADVISING
CLOSELY HELD CORPORATIONS
SHAREHOLDER RELATIONS/VOTING & CONTROL ISSUES
(c)Copyright 1991 by Keith H. Berk. All rights reserved.
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LEGAL AND PROCEDURAL ASPECTS OF ADVISING
CLOSELY HELD CORPORATIONS
SHAREHOLDER RELATIONS/VOTING & CONTROL ISSUES
Keith H. Berk
Horwood, Marcus & Braun Chartered
I. VOTING AND CONTROL ISSUES
A.
Shareholder Control Issues
1.
Major corporate actions (i.e., mergers (see Ill.
BCA §11.20), sale of substantially all assets,
dissolution (see Ill. BCA §12.15), etc.).
2.
Election of directors.
3. Absent special provisions in articles of
incorporation and except for certain major
corporate actions such as mergers, dissolution,
etc., majority rules.
4. Majority rule frequently is not satisfactory for
closely held businesses.
(a) minority shareholders involved with operation
of business.
(b) non-active shareholders.
(C)
family groups and/or other affiliated groups.
(d) creditors and others need for continuity of
management.
5.
B.
Shareholder deadlocks.
Charter Provisions
1. Cumulative Voting
(a) Illinois Business Corporation Act grants
cumulative voting rights (see Ill. BCA §7.40).
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I.
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(i) Corporate charter may limit or eliminate
such rights.
(b) Delaware General Corporation Law does not
statutorily grant cumulative voting rights
(see Del. Gen. Corp. Law §214).
(C)
Cumulative voting may guarantee certain
directorships to minority shareholders.
(d) Formula for ascertaining the minimum number of
shares required to make certain of the
election of desired number of directors:
Total number of
shares entitled
to vote
Number of
Directors desired
X
+1
Total number of
directors + 1
A person or group holding the resulting number of shares can elect
the number of directors set forth in the numerator.
2.
Quorum Requirements.
(a) increased quorum requirements may insure
participation from different families or
control groups.
(b) provide minority shareholders forum.
3.
Voting Requirements.
(a) increased shareholder approval.
(1) mergers, dissolutions, etc.
(ii) capital and financing matters.
(iii) business expansion/capital expenditures.
(iv) key management compensation.
(b) multiple classes of stock.
(i) certain classes of stock electing
directors with super voting rights. See
example of charter provisions - Exhibit
A
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3
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(ii) certain classes of stock electing
directors with veto powers.
(iii) certain classes of stock with super
voting rights on some or all issues.
C. Contractual Arrangements Among Shareholders
1.
Shareholder Agreements.
(a) restrictions on transfer of stock.
(i) S corporation election.
(ii) legend on stock certificates.
(b) Intra-family transfers.
(i) voting trusts.
(ii) permitted transfers.
(C)
rights of first refusal.
(d) cross buy/sell agreement.
of
employment
(e) voluntary
termination
(resignation, termination without cause,
etc.).
(i) mandatory/optional sale of stock.
(ii) purchasing party
corporation/remaining shareholders.
(iii) valuation of stock.
(iv) payment terms.
(f) involuntary termination of employment (death,
disability, retirement).
(i) mandatory/optional sale of stock.
(ii) purchasing party
corporation/remaining shareholders.
(iii) valuation of stock.
(iv) payment terms.
(g) put/call provisions.
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2.
Voting Trusts (see Ill. BCA §7.65, Del. Gen. Corp.
Law §218).
(a) separates value of equity and rights to
dividends from voting rights.
(b) Statutory limitations.
(i) not to exceed 10 years.
(ii) disclosure requirements to corporation,
public filing, etc.
(C)
3.
See example of Voting Trust Agreement Exhibit B.
Voting Agreements (see Ill. BCA §7.70, Del. Gen.
Corp. Law §218).
(a) generally limited to certain matters.
(i) election of certain directors.
(ii) certain business
limitations.
opportunities
or
(b) if too general or too broad in scope may not
be enforceable because deemed to be a
statutorily defective voting trust.
(C)
should limit duration and scope.
(d) see example of Shareholder Voting Agreement Exhibit C.
4.
Irrevocable Proxies (see Ill. BCA §7.50, Del. Gen.
Corp. Law §212).
(a) separates voting power from stock rights.
Similar to a voting trust but generally for a
more limited duration.
(1) Ill. BCA limits duration to 11 months,
unless otherwise provided in the proxy.
(b) irrevocability requires proxy to be "coupled
with an interest " (i.e., proxy held by a
pledgee, purchaser, creditors, etc.).
(c) principal/agent relationship.
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5. Management Control
(a) Board of Directors
(i) super voting rights
directors.
for certain
(ii) veto rights for certain directors.
(iii) super quorum requirements.
(iv) super voting requirements.
(v) director voting agreements.
-
not favorably received by courts
because of "fiduciary
responsibility" of directors and
assumption that directors have a
duty "to exercise their own best
judgement."
(b) Officers
(i) expansion and/or limitation of duties.
D. Creditor and Third Party Control Issues
1.
Positive and/or negative loan covenants.
(a) capital expenditures.
(b) hiring/firing of key personnel.
(c) financial covenants.
2.
Contractual obligations.
3. Judgements and other governmental and/or court
orders.
II. INDEMNIFICATION
A.
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Business Risks
1.
Shareholder derivative suits and other direct
shareholder suits.
2.
Third party claims.
B.
C.
Director and Officer Insurance.
1.
Difficult to obtain for closely held corporations.
2.
If obtainable, expensive and not necessarily all
inclusive.
Statutory Indemnification (see Ill. BCA 8.75, Del. Gen.
Corp. Law 1451.
1.
Mandatory v. optional indemnification (i.e., "may"
v. "shall").
2.
Standards for indemnification.
3.
Advance of expenses.
D. Hold harmless and other agreements among shareholders.
III. DIVIDENDS AND DISTRIBUTIONS.
A.
B.
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Cash.
1.
Board of directors discretion.
2.
Courts generally do not intervene unless power is
used to oppress minority shareholders.
3.
Most states corporate law limits the payment of
dividends if it renders the corporation insolvent
or its net assets would be less than zero or less
than the maximum amount payable to shareholders
See
having preferential rights in liquidation.
Ill. BCA §9.10, Del. Gen. Corp. Law §173.
4.
Personal liability may be imposed upon directors
who authorize illegal dividends.
Stock.
1.
Generally a corporation must have sufficient
authorized and unissued shares and sufficient paid
in capital or surplus.
2.
Illinois BCA does not use traditional concepts of
par value and stated value. Therefore,
restrictions on transfers on the corporation’s
books from surplus to par value do not apply.
3.
Stock dividends generally have little significance
in closely held corporations.
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IV. MERGERS
A.
(Ill. BCA §11.05, etc., Del. Gen. Corp. Law
Mergers.
§251, etc.)
i.
controlling shareholder obligations.
(a) fiduciary duties.
(b) squeeze outs.
(C)
business purpose of corporation required (see
Singer v. Magnavox Co., 380 A.2d. 969 (Del.
1977)) as compared to business purpose of
V.
majority shareholders (See Tanzer
International General Industries Inc., 379
A.2d 1121 (Del.Sup.Ct. 1977).
(d) Singer decision overruled in Weinberger v.
IJOP, Inc. 457 A.2d 701, 715 (Del. 1983).
Delaware Supreme Court in Weinberger overruled
business purpose requirement of Singer and
held minority shareholders limited to
appraisal remedies.
(e) Coggins v. New En g land Patriots Football Club,
Inc., 397 Mass. 525, 492 N.E.2d 1112 (1986),
the Supreme Judicial Court of Massachusetts
held that a freeze out merger is a violation
of the majority’s fiduciary duties unless it
serves both a legitimate corporate purpose and
is fair to minority shareholders.
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Explicitly rejected Weinberger.
Recision of merger is the ordinary
remedy.
(f) Rule 10b-5 requires full and fair disclosure
of financial and other matters affecting the
merger.
2.
Defenses again oppression.
(a) see voting and control issues above.
(b) should be addressed at corporate formation.
V.
PRE-EMPTIVE RIGHTS (ILL. BCA §6.50, DEL. GEN. CORP. LAW
§102(b) (3)).
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A.
Illinois BCA does not statutorily provide for re-emptive
rights nor does the Del. Gen. Corp. Law.
1.
Charter or other shareholder agreement should
address.
2.
Alternative is proportionate dilution agreement or
charter provision.
VI. OTHER
A.
B.
Piercing the Corporate Veil.
1.
Capitalization.
2.
Corporate formalities.
3.
Separation of corporate and personal
finances.
Securities Matters
1.
lO(b) of the Securities Exchange Act of 1934 and
Rule lOb-5 thereunder.
(a) must include element of deception or
manipulation with respect to the purchase or
sale of securities.
C. Stockholders rights to inspect books and records
MSBAP.DOC
TH 15 lORM IS IOR INiORA’iIuNAJ,
PURPOSES ONLY AND SHOULD NOT BE
RELIED UPON WITHOUT REVIEW OF
LEGAL COUNSEL
EXHIBIT A
Charter Provision Granting Super Voting
Rights to Certain Directors
The holders of the Class A Common Stock, constituting a
separate class, shall have the sole right to vote for and elect
five directors of the corporation, who shall be known as Class A
directors, to remove any Class A directors at any time with or
without cause and to fill all vacancies of any Class A directors.
The holders of the Class B Common Stock, constituting a
separate class, shall have the sole right to vote for and elect
one directors of the corporation, who shall be known as the Class
B director, to remove the Class B director at any time with or
without cause and to fill all vacancies of the Class B director.
The following provisions are inserted for the management of
the business and for the conduct of the affairs of the
corporation, and for further definition and regulation of the
powers of the corporation and of its directors and stockholders:
(1) The Board of Directors of the corporation shall consist
of six (6) directors. Each director elected by the holders of
Class A Common Stock pursuant to Article FOURTH hereof shall have
one (1) vote on any matter submitted to the Board of Directors of
the corporation for its action or approval. The director elected
by the holders of Class B Common Stock pursuant to Article FOURTH
hereof shall have - three (3) votes on any matter submitted to the
Board of Directors of the corporation for its action or approval.
(c) Copyright 1991 by Keith H. Berk. All rights reserved.
4.
Every reference in this Restated Certificate of Incorporation, in
the by-laws of the corporation or in any other act, document or
resolution of the corporation to a majority or other proportion
of the directors shall refer to a majority or other proportion of
the votes of such directors. Election of directors need not be
by ballot unless the by-laws so provide.
(2) The Board of Directors shall have power without the
assent or vote of the stockholders to make, alter, amend or
repeal the by-laws of the corporation.
(3) In addition to the powers and authorities hereinbefore
or by statute expressly conferred upon them, the directors are
hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the corporation;
subject, however, to the provisions of the laws of the State of
Delaware, of this Certificate, and of the by-laws of the
corporation.
I.ISJ..L
It
EXHIBIT B
SHAREHOLDER AGREEMENT
day of ____
THIS SHAREHOLDER AGREEMENT is made this
, an
1991, at Chicago, Illinois, by and among
C" _ H )
Illinois corporation (the "Company") ,
(I’
(hereinafter
sometimes referred to collectively as the "
Shareholders" and
") and
severally as a "
Shareholder"), and
Shareholders and
(the
("
_U )
are hereinafter sometimes
referred to collectively as the "Shareholders" and severally as a
"Shareholder")
ARTICLE I
Recitals and Certain Definitions
1.1 Present Owners. The Shareholders currently own all of
the issued and outstanding shares of the no par value common stock
of the Company, which stock, together with all other shares of
stock of the Company now or hereafter issued, is hereinafter
referred to collectively as the "Stock". As of the date hereof,
the Stock is held as follows:
Shares
Shares
Shares
Shares
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(c) Copyright 1991 by Keith H. Berk. All rights
reserved.
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1.2 Purpose of Agreement. The Shareholders desire to promote
their mutual interests, the interests of the Company and the
interests of any future Shareholders by imposing certain
restrictions and obligations on the Shareholders, the Company and
the Stock, all as herein provided and hereby agreed to.
1.3 Stock Covered by Agreement. This Agreement is intended
to, and shall, apply to all shares of the Stock, now and hereafter
issued to the Shareholders.
1.4 Definitions.
(a) "Bankruptcy".
The term "Bankruptcy" shall mean the
attachment of the Stock of a Shareholder, the Stock of a
Shareholder being taken in execution, an assignment by a
Shareholder for the benefit of his creditors, an adjudication
of a Shareholder’s bankruptcy or insolvency by a court of
competent jurisdiction, the filing of a voluntary petition in
bankruptcy by a Shareholder; the filing of a petition or
answer by a Shareholder seeking for himself any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute,
law, or regulation, the filing of an answer or other pleading
by a Shareholder admitting or failing to contest the material
allegations of a petition filed against him in any bankruptcy
10-003.A\5533-000\01
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proceeding, a Shareholder seeking, consenting to, or
acquiescing in the appointment of a trustee, receiver, or
liquidator of the Shareholder or of all or any substantial
part of his properties, the commencement of any proceeding
against the Shareholder seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, if the proceeding
has not been dismissed within 90 days, or the appointment
without a Shareholder’s consent or acquiescence of a trustee,
receiver, or liquidator of the Shareholder or of all or any
substantial part of his properties if the appointment is not
vacated within 90 days.
(b) "Book Value". The term "Book Value" shall mean the
book value of the Company on the close of the fiscal year
immediately preceding the date of the Termination multiplied
by a fraction, the numerator of which is the number of shares
of the Terminating Shareholder’s or Shareholders’ Stock (and
the Stock of any direct or indirect Permitted Transferees) and
the denominator of which is the number of shares of all of the
Stock. The book value of the Company shall be determined by
the Company’s independent certified public accountants
("CPAs") in accordance with generally accepted accounting
principles consistently applied. Such determination shall be
final and binding upon the parties.
10-003.A\5533-000\01
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A,
(C)
"Cause". The term "Cause" shall mean:
(1) commission of any dishonest act by a Shareholder in
connection with his employment by the Company or
any act which can be reasonably expected to
adversely affect the business or reputation of the
Company, including, but not limited to,
embezzlement, drunkenness or intoxication on the
job or the use of drugs or alcohol in a manner
which adversely affects job performance; or
diversion of any corporate opportunity of the
Company for the Shareholder’s direct or indirect
benefit; or
failure of the Shareholder to use his best efforts
to perform the duties consistent with his position
with the Company; or
(iv)
commission by the Shareholder of any act which
constitutes cause for dismissal of a corporate
officer or employee under company policy or
applicable law.
(d) "Deliver". The term "Deliver" shall mean a Transferring
Shareholder’s delivery to the transfer agent of the Company of
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the Transferring Shareholder’s certificate or certificates for
the shares of Stock being transferred or sold, together with
the certificate or certificates for shares of Stock held by
any direct or indirect Permitted Transferee of the
Transferring Shareholder, duly endorsed in blank so that valid
legal title can be effectively transferred.
(e) "Grout,".
The term "Group" shall mean the RKF
Shareholders. The term "Group Members" or "Members" shall
mean all of the Shareholders within the Group.
(f) "Permanent Disability". The term "Permanent Disability"
shall mean the inability of a Shareholder (the "Disabled
Shareholder"), by reason of any medically determinable
physical or mental impairment for a period of ninety ( 90)
days, to carry out and perform the duties and obligations
ordinarily required of him as a director, officer or employee
of the Company or to actively participate in the management of
the business of the Company. The existence of a Permanent
Disability shall be determined following notice ("Initiating
Notice") of the remaining Shareholders or the Disabled
Shareholder to the other(s), as follows:
(i) by written agreement of the remaining Shareholders
and the Disabled Shareholder; or
(ii)
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by a single physician jointly agreed to in writing
by the remaining Shareholders and the Disabled
Shareholder within three (3) days after the
Initiating Notice; or
(iii)
in the event no single physician is agreed upon, by
the majority vote of three physicians, one chosen
by the Disabled Shareholder, one chosen by the
remaining Shareholders (both appointments to be
made by notice to the other within five (5) days
after the Initiating Notice), and the third chosen
by the first two (2) appointed physicians by notice
to the Disabled Shareholder and the remaining
Shareholders within five (5) days after the
appointment of the later of the first two (2)
appointed physicians. In the event of the failure
to timely appoint a physician pursuant to this
subparagraph (iii), the sole determination of the
one timely appointed physician shall be final and
conclusive upon all parties.
(g) "Permitted Transferee". The term "Permitted Transferee"
shall mean a Shareholder’s lineal descendants and a trust or
trusts for the benefit of a Shareholder, his lineal
descendants and/or any combination thereof, as the trust’s
sole beneficiary or beneficiaries. A legally adopted child is
a lineal descendant.
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(h) "Representative". The term "Representative" shall mean
the legally appointed guardian of a mentally incapacitated
Shareholder or the legally appointed and qualified executor or
personal representative of the estate of a deceased
Shareholder. In the event no such guardian, executor or
personal representative is appointed, then the Representative
shall mean the spouse of such incapacitated or deceased
Shareholder, or if such Shareholder did not have a spouse or
the spouse is not then living, such Shareholder’s then living
lineal descendants, one at a time in descending order of age
but in no event younger than 21 years of age, or if none, such
Shareholders then-living lineal ancestors, one at a time and
in ascending order of age.
(i) "Resignation". The term "Resignation" shall mean the
voluntary termination by a Shareholder, either directly or
indirectly and not by reason of Bankruptcy, Permanent
Disability, Retirement or termination of employment with the
Company with or without Cause.
(j) "Retirement".
The term "Retirement" shall mean the
voluntary resignation of employment with the Company by a
Shareholder on or after the date on which the Shareholder
attains age 65.
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"Termination".
The term "Termination" shall mean a
Shareholder’s Resignation, Bankruptcy, Permanent Disability,
Retirement or termination of employment with the Company with
or without Cause.
(1) "Transferring Shareholder".
The term "Transferring
Shareholder" shall mean a Shareholder, or the Representative
of such Shareholder, who transfers his shares of Stock
pursuant to Articles IV, V, VI or VII herein.
ARTICLE II
Restrictions on Transfer of Stock
2.1 Prohibition on Transfer. No Shareholder shall sell,
assign, give, transfer, hypothecate, grant a security interest in,
mortgage, pledge or in any other way dispose of or encumber any
shares of Stock except as permitted or required by this Agreement.
The terms "dispose of" and "transfer", as used in this Agreement,
mean and include any disposition or encumbering of the Stock by any
of the foregoing means. Any attempted transfer of Stock not
permitted by this Agreement shall be void and of no effect, and
shall not be recorded in the stock transfer book of the Company.
Nothing contained in this Section 2.1 shall in any manner or
respect prohibit
from entering into the Voting Trust
Agreement set forth on Exhibit A attached hereto (the "Trust
Agreement"); provided, however, that all of the provisions of this
Agreement, including, without limitation, this Section 2.1 shall
10-003.A\5533-000\01
8
apply to the voting trust certificate or certificates now or
hereafter issued to
pursuant to the Trust Agreement in the
same manner as they would apply to Stock owned by
and,
further provided, that for the purposes hereof, the Stock of
shall be deemed to include Stock transferred to ____, as
trustee, pursuant to the Trust Agreement, and ____, as trustee
under the Trust Agreement, shall be subject to all of the
provisions hereof relating to the Stock of
2.2 S Corporation Election.
(a) In addition to the prohibition on transfer set forth
in Section 2.1 above, no Shareholder shall transfer all or any
part of his Stock at any time if the Company has elected to be
treated as an S Corporation, as from time to time defined by
the Internal Revenue Code of 1986, as amended, and such
transfer would terminate or jeopardize the Company’s election
to be treated as an S corporation. The Company may require
evidence that a transfer of Stock does not terminate or
jeopardize the Company’s election to be treated as an
S Corporation, including an opinion of counsel satisfactory to
it to that effect.
(b) Subject to the limitations in the Illinois Business
Corporation Act of 1983, as amended ("IBCA"), the Shareholders
agree to take all necessary action to cause the Company to pay
10-003.A\5533-000\01
9
dividends equal to the amount of tax payable by the
Shareholders each year on account of the Subchapter S
election.
2.3 Lecend on Stock Certificates. In furtherance of the
restrictions upon transfer of the Stock and the representations and
warranties of the Shareholders set forth in Section 8. 1, each
certificate representing shares of Stock shall bear the following
legend:
THE SHARES REPRESENTED HEREBY (i) ARE SUBJECT
TO THAT CERTAIN SHAREHOLDER AGREEMENT DATED
1991, A COPY OF WHICH IS ON FILE AT
THE OFFICE OF THE COMPANY, AND MAY NOT BE
TRANSFERRED EXCEPT IN ACCORDANCE WITH THAT
AGREEMENT AS THE SAME MAY BE AMENDED OR
MODIFIED FROM TIME TO TIME AND (ii) WERE
AND HAVE NOT
ACQUIRED ON
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO TRANSFER OR OTHER
DISPOSITION MAY BE MADE OF THESE SHARES UNLESS
THEY ARE REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE COMPANY MAY
REQUIRE EVIDENCE THAT REGISTRATION IS NOT
REQUIRED, INCLUDING AN OPINION OF COUNSEL
SATISFACTORY TO IT TO THAT EFFECT.
2.4 Conflicts. Simultaneously with the execution of this
Agreement, the Company and
have entered into a Stock Purchase
Agreement (the "Purchase Agreement") which provides, among other
things, that based upon certain events the Company shall purchase
Non-Vested Stock (as defined in the Purchase Agreement) upon
the terms and conditions set forth in the Purchase Agreement (the
"Repurchase Right"). In the event of a conflict between any of the
provisions hereof and the Repurchase Right, the Repurchase Right
10-003.A\5533-000\01
10
shall control. Whenever this Agreement shall refer to "
Stock" or the "Stock of
" such reference shall be deemed to
mean only those shares of Stock which have vested in
pursuant
to the Purchase Agreement and shall not include Non-Vested Stock.
ARTICLE III
Intra-Family Transfers
3.1 Intra-Family Transfer Permitted. Any Shareholder may at
any time and from time to time during his lifetime, subject to the
restrictions set forth in Articles II and VIII, transfer all or any
part of his Stock to a Permitted Transferee; provided, however,
that any Shareholder desiring to transfer any Stock to a Permitted
Transferee shall first give notice thereof to the other
Shareholders and shall, at the time of such transfer, if so
requested by
within fifteen (15) days after such notice, enter
into a voting trust agreement reasonably satisfactory to
his legal counsel.
and
Such voting trust shall provide that the
Shareholder transferring such Stock shall have exclusive voting
power with respect to such Stock as trustee of the voting trust
created by such agreement.
3.2 Conditions on Such Transfers. All Stock transferred
pursuant to the preceding Section 3.1 shall nevertheless remain
subject to the terms and conditions of this Agreement and the
Permitted Transferee shall execute an appropriate instrument
agreeing to be bound by the terms and conditions of this Agreement.
10-003.A\5533-000\01
11
Any Permitted Transferee (immediate or remote) of a Group Member
shall be a member of the Group. Any such Permitted Transferee
(immediate or remote) shall be obligated to sell such Stock
concurrently with, and on the same terms and conditions as, Stock
being sold by the Shareholder who originally transferred the Stock,
or his Representative, as appropriate, under Articles IV, V, VI or
VII and such Permitted Transferee, by executing an instrument
agreeing to be bound by the terms and conditions of this Agreement,
appoints such Shareholder of such Stock or his Representative, as
appropriate, as the Permitted Transferee’s true and lawful attorney
to act on his behalf for the sale of Stock.
ARTICLE IV
Disposition of Stock to Third Parties
4.1 Third-Party Offer. Any Shareholder may at any time
dispose of all, and not less than all, of his Stock and, in
accordance with Section 3.2, the Stock of any direct or indirect
Permitted Transferee of such Shareholder, pursuant to a bona fide
offer (the "Third-Party Offer") in writing signed by the person or
entity to whom the disposition is to be made, which Third-Party
Offer shall identify the offeror and fully set forth the terms and
conditions of such Third-Party Offer.
4.2 Condition Precedent to Such Transfer. Any Shareholder (a
"Disposing Shareholder") desiring to transfer all of his Stock
pursuant to the preceding Section 4.1
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shall first offer (the
"Disposing Shareholder’s Offer") such Stock in writing to the
remaining RXF Group Member or RKF Group Members and then to
, in that order. A Disposing Shareholder’s Offer shall be
for a consideration determined on a per share basis equal to the
same consideration offered in the Third-Party Offer, adjusted as
provided in the second sentence of the succeeding Section 4.3. The
right to receive the Disposing Shareholder’s Offer may be waived in
writing by any one or more of the then remaining Shareholders, such
waiver to be effective only against the waiving party.
4.3 Terms of Offer. The Disposing Shareholder’s Offer shall
be accompanied by a copy of the Third-Party Offer and shall be
irrevocable and remain in effect for a 30-day period, unless
sooner terminated by agreement of the Company and all of the
remaining Shareholders. If the Third-Party Offer is not a cash
offer, the Disposing Shareholder’s Offer shall state a
substantially equivalent cash price. Unless the Disposing
Shareholder’s Offer is sooner rejected by all of the RKF Group
Members, the RXF Group Members shall have the exclusive right to
accept the Disposing Shareholder’s Offer during the first 15-day
period. If none of the RKF Group Members, within the first 15-day
period, accept the Disposing Shareholder’s Offer, then
shall have the exclusive right to accept the Disposing
Shareholder’s Offer for the second 15-day period. In the event
that more than one Group Member accepts the Disposing Shareholder’s
Offer, then unless otherwise agreed to, each accepting Group Member
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may purchase that number of shares of the Disposing Shareholder’s
Stock as is equal to his proportionate ownership of all of the
accepting Group Members’ then respective shares of Stock. Any
acceptance of the Disposing Shareholder’s Offer shall be by written
notice to the Disposing Shareholder.
4.4 ClosincT. Payment and Delivery. The closing of a purchase
of Stock purchased under the preceding Section 4.3 shall occur
within thirty (30) days after the acceptance of the Disposing
Shareholder’s Offer under the preceding Sections 4.2 and 4.3. The
entire purchase price shall be paid by cash or certified or
cashier’s check. Upon receipt by the Disposing Shareholder of the
purchase price, the Disposing Shareholder shall Deliver his Stock.
4.5 Transfer to Third Party. If all of the Shareholders fail
to accept the Disposing Shareholder’s Offer within the 30-day
period, subject to Articles II and VIII hereof, the Disposing
Shareholder may then transfer his Stock during the 30-day period
following the earlier of the rejection of said Offer by all
offerees or the expiration of said Offer without acceptance by any
offerees, but only strictly in accordance with the terms and
conditions of the Third-Party Offer and to the person or entity
named in the Third-Party Offer.
4.6 Conditions on Such Transfers. Any Stock transferred
pursuant to the preceding Section 4.5 shall nevertheless remain
10-003.A5533-000\01
14
subject to the terms and conditions of this Agreement and the
transferee shall execute an appropriate instrument agreeing to be
bound by the terms and conditions of this Agreement.
4.7 Transfers by
to
. Nothing contained in this
Article IV shall in any way prohibit or impair
transferring shares of his Stock to
and
from freely
shall have no
obligation hereunder to make a Disposing Shareholder’s Offer in
connection with such transfers. Any Stock transferred by
to
pursuant to this Section 4.7 shall thereafter be subject to
this Agreement. This Section 4.7 shall not be deemed to constitute
a limitation or waiver of any rights of
under, or an
amendment of, any agreement, note or other document between the
Company and
ARTICLE V
Option to Sell and Purchase
5.1 Resignation, Bankruptcy, Permanent Disability, Retirement
or Termination With or Without Cause. Subject to Section 5.5, in
the event of the Termination of a Shareholder (hereinafter,
together with all Permitted Transferees (immediate or remote) of
such Shareholder, collectively referred to as the "Terminating
Shareholder"), the remaining RXF Group Members or RXF Group Member
shall have the right, but not the obligation, within thirty (30)
days after the final determination that an event of Termination has
occurred, to purchase all, and not less than all, of the Stock
owned by the Terminating Shareholder and the Terminating
10-003.A\5533-00001
15
Shareholder shall have the obligation, if so requested by any RKF
Group Member, to sell all, and not less than all, of the Stock
owned by the Terminating Shareholder to the requesting Group
Members of the RKF Group. If the Group Member or Members of the
RXF Group, within the 30-day period, fail to exercise the right to
purchase, then _ shall have the right, but not the
obligation, within the second 30-day period after a final
determination that an event of Termination has occurred, to
purchase all, and not less than all, of the Stock owned by the
Terminating Shareholder and the Terminating Shareholder shall have
the obligation, if so requested by
to sell all, and not
less than all, of the Stock owned by the Terminating Shareholder to
In the event that more than one Group Member of the Group
exercises the right to purchase, then unless otherwise agreed to,
each accepting Group Member, as applicable, may purchase that
number of the shares of the Terminating Shareholder’s Stock as is
equal to his proportionate ownership of all of the exercising Group
Members’ then respective shares of Stock. Any exercise of the
right to purchase the Terminating Shareholder’s Stock must be by
written notice to the Terminating Shareholder, or his
Representative, as applicable. The voting rights of a Terminating
Shareholder’s Stock shall be suspended beginning on the date that
a final determination that an event of Termination has occurred and
continuing until the Stock has been transferred pursuant to this
Article V or pursuant to Articles IV or vi hereof.
10-003.A\5533-000\01
16
5.2 Purchase Price. The price of the Stock sold under the
preceding Section 5.1 shall equal:
(a) In the event of a Shareholder’s Termination for a
reason other than his Resignation or termination of employment
for Cause, the greater of (i) the purchase price paid to the
Company for such Stock by the Terminating Shareholder or (ii)
(A) sixty percent (60%) of the average gross profit (as set
forth on the income statement of the Company) for the three
(3) full fiscal years ending immediately prior to the date of
sale, as determined by the Company’s regularly retained
certified public accountants in accordance with generally
accepted accounting principles, consistently applied,
multiplied by (B) a fraction, the numerator of which is the
number of shares of the Terminating Shareholder’s or
Shareholders’ Stock (and the Stock of any direct or indirect
Permitted Transferees) and the denominator of which is the
number of shares of all of the Stock.
(b) In the event of the Terminating Shareholder’s
Resignation or the Terminating Shareholder’s
termination of
employment with the Company with Cause, the lesser of (i) the
Acquisition Price or (ii) the Book Value of such Stock on the
date of the final determination that such an event of
Termination has occurred.
10-003.A\5533-000\01
17
5.3 ClosincT. Payment and Delivery. The closing of a purchase
of Stock purchased under the preceding Section 5.2 shall occur
within thirty (30) days after the exercise of the right to purchase
the Stock under the preceding Section 5.1. The entire purchase
price for the Stock shall be paid, at the purchasing Shareholder’s
or Shareholders’ option, by check, by delivery of a non-negotiable
installment note (the "Note") or by a combination thereof. If all
or a part of the purchase price is paid by the Note, the Note shall
be in the form attached hereto as Exhibit B, shall be self
amortizing with equal monthly principal installments, shall bear
interest at an annual rate not less than the prime rate announced
on the date of the Note by the First National Bank of Chicago,
Chicago, Illinois plus one percent (1%) and shall be for a term not
exceeding sixty (60) months. The purchasing Shareholder or
Shareholders shall have the right to prepay any portion of the
principal or interest on the Note at any time and from time to time
without penalty. All such prepayments shall be credited first
against accrued and unpaid interest and any excess against
principal payments in the reverse order of maturity. Upon receipt
by the Terminating Shareholder or his Representative, as
applicable, of the purchase price by check and/or Note, the
Terminating Shareholder or his Representative, as applicable, shall
Deliver the Terminating Shareholder’s Stock.
10-003.A\5533-000\01
18
5.4 Terminating Shareholder’s Incapacity. If the Terminating
Shareholder lacks legal capacity, due to the
Terminating
Shareholder’s Permanent Disability, to carry out the actions
required of the Terminating Shareholder under this Article V, his
Representative shall carry out such actions.
5.5
Status. The parties hereto acknowledge that
is a director of the Company but is not currently an
employee of the Company and it is not anticipated that
will
become an employee of the Company at some future date.
Accordingly, the provisions of this Article V regarding
Resignation, Retirement or Termination with or without Cause shall
not be applicable to
unless and until he becomes an
employee of the Company. The Company,
and
acknowledge that _______ is a principal in
which
engages in marketing services activities and nothing hereunder
shall preclude
from continuing such affiliation or
& Company from engaging in its business.
ARTICLE VI
Sale of Stock on Death
6.1 Purchase of Shareholder’s Stock. Upon the death of a
Shareholder, other than a Permitted Transferee, the decedent
Shareholder’s Representative shall forthwith offer in writing to
sell all, and not less than all, of such Shareholder’s Stock and,
10-003.A\5533-000\01
19
in accordance with Section 3.2, the Stock of any direct or indirect
Permitted Transferee of such Shareholder, to the Company, and the
Company shall be obligated to purchase all of said Stock on the
terms and conditions stated in this Article VI. The voting rights
of a decedent Shareholder’s Stock shall be suspended beginning on
the death of the Shareholder and continuing until the Stock has
been sold and transferred pursuant to this Article VI.
6.2 Purchase Price. The price of the Stock sold under the
preceding Section 6.1 shall equal the amount determined in
accordance with Section 5.2(a) except that the relevant fiscal
years shall be the three (3) fiscal years ending immediately
preceding the deceased Shareholder’s death.
6.3 Closinc. Payment and Delivery. The closing of a purchase
of Stock purchased pursuant to this Article VI shall occur within
thirty (30) days after the receipt by the Company of the insurance
proceeds pursuant to Section 6.4, but in no event shall such
closing occur later than one-hundred eighty (180) days after the
date of the death of the Shareholder regardless of whether or not
the Company has received the
insurance proceeds pursuant to Section
6.4. The purchase price, to the extent of the greater of (i) the
insurance proceeds received on the death of a Shareholder or (ii)
Ten Thousand Dollars ($10,000), shall be paid by check at the time
of closing. To the extent that the insurance proceeds, if any, are
inadequate to fully satisfy the purchase price, the Company shall
10-003.A5533-000\01
20
pay the balance of the purchase price by delivering the Note for
the balance of said purchase price (the difference between the
actual purchase price and the amount paid pursuant to the preceding
sentence). The Note shall be in the form attached hereto as
Exhibit B (except for
which shall be in the form attached
hereto as Exhibit Bi), shall be self amortizing with equal monthly
principal installments, shall bear interest at the prime rate of
interest announced on the date of the Note by the First National
Bank of Chicago, Chicago, Illinois plus one percent (1%) and shall
be for a term of thirty-six (36) months. In the event that any
insurance proceeds on the death of a Shareholder are received
subsequent to the closing date pursuant to Section 6.4, all such
amounts, up to the principal and accrued interest due on the Note,
shall be promptly paid to the Representative as a prepayment on the
Note. The Company shall have the right to prepay any portion of
the principal or interest on the Note at any time and from time to
time without penalty. All such prepayments shall be credited first
against accrued and unpaid interest and any excess against
principal payments in the reverse order of maturity. Upon receipt
by the Representative of the purchase price (by check or Note), the
Representative shall Deliver the decedent Shareholder’s Stock.
6.4 Insurance. The Company shall purchase insurance on the
lives of all of the RXF Group Members and, at the discretion of the
Company, on the life of . Each
insurance policy shall name
the Company as the sole beneficiary, and shall be in an amount to
10-003.A\5533-00001
21
be determined and adjusted by the Board not less often than
annually.
In all events the amount of insurance purchased on
behalf of the Group shall be no less than sixty percent (60%) of
the average gross profit of the Company (as determined in
accordance with Section 5.2(a)) multiplied by a fraction, the
numerator of which is the number of Shares owned by the Group (and
the Stock of any direct or indirect Permitted Transferees of the
Group) and the denominator of which is the number of shares of all
of the Stock. The Company shall pay all premiums due on the
policies purchased by it and shall provide proof of payment to the
other Shareholders within five (5) days after the due date of each
premium payment. If such proof is not provided within the said 5day period, then any Shareholder may immediately pay the premium in
question, and the Company shall reimburse such Shareholder
immediately for such payment.
6.5 Rights of Ownership in Policies. The Company shall be
the sole owner of policies purchased by it, and, to the extent not
in conflict with or affecting any provision of this Agreement, may
exercise all rights under such policies.
6.6 Use of Insurance Proceeds. The life insurance proceeds
paid upon the death of a Shareholder to the Company shall be used
for the purchase of the Stock of the decedent Shareholder as
provided in this Article vi.
All amounts received by the Company
shall be promptly paid to the Representative. If insurance
10-003.A\5533-00001
22
purchased by the Company has paid proceeds in an amount greater
than that required to purchase the Stock of the decedent
Shareholder, then the Company may retain such excess proceeds.
6.7 Death’s Priority. If a Shareholder dies at a time when
a disposition of his Stock under Articles IV, V or VII hereof is
pending but not yet closed, all of his Stock shall nevertheless be
sold and purchased under this Article VI and the pending
disposition shall not be consummated.
6.8 Purchase of Permitted Transferee’s Stock. Upon the death
of a Permitted Transferee, his Representative shall sell, assign,
transfer, gift or bequeath any Stock owned by such Permitted
Transferee or in which he has a right to direct the ownership of
pursuant to a trust established for his benefit, to either another
Permitted Transferee of the Shareholder who directly or indirectly
transferred the Stock to him or to the Shareholder who directly or
indirectly transferred the Stock to him. Any persons or entities
receiving such Stock shall execute an instrument agreeing to be
bound by the terms and conditions of this Agreement as a condition
precedent to any transfer of the Stock.
ARTICLE VII
Option to Purchase and Sell
Stock
7.1 Purchase Option. Provided that the promissory note from
the Company to
10-003.A\5533-000\01
_ dated August 30, 1991 in the initial
23
principal amount of 1
.
(
.
the "Company Note") has been paid in
full, during the period commencing on the earlier of (a) the fifth
Resignation
anniversary of the execution hereof and (b)
("Commencement Date"),
and the Company shall have the right to
purchase all, and not less than all, of the Stock owned by
(fl___
as hereinafter provided
Option"). Further, at any time
after the earlier of (a) default under the Company Note and (b) the
Commencement Date,
either
shall have the right to demand that
or the Company purchase all, and not less than all, of
the Stock owned by
Option").
as hereinafter provided ("
and the Company shall have the right, but not the
obligation to purchase all, and not less than all, of the Stock
owned by
by notifying
his or its exercise of the
as hereinafter provided of
Option and
obligation, if so requested by
shall have the
or the Company, to sell all and
not less than all of the Stock owned by _______ to
Company.
right to purchase
exercised by written notice to
or the
Stock must be
delivered between November
1st and November 30th of each year. In the event
exercise his right to purchase
fails to
Stock in any year, then
for that year, the Company may exercise its right to purchase all
and not less than all of
Stock by written notice to
delivered between December 1st and December 30th of each
year.
shall have the right, but not the obligation to
demand that either
or the Company purchase of all, and not
less than all, of the Stock owned by
10-003.A\5533-000\01
24
by notifying
and
the Company in writing at any time after the Commencement Date of
his exercise of the
Option, and
and the Company shall
have the joint and several obligation to purchase all and not less
than all of the Stock owned by
.
and the Company may
determine, in their sole discretion, which of them will purchase
Stock.
7.2 Purchase Price. The price of the Stock sold under the
preceding Section 7.1 shall equal the amount determined in
accordance with Section 5.2(a) except that the relevant fiscal
years shall be, for purposes of the
Option the three (3)
years immediately preceding the date of the notice of the exercise
of the
Option, and for purposes of the ____ Option, the
three (3) consecutive fiscal years concluding with the year during
which notice of the exercise of the ____ Option is given.
7.3 Closing, Payment and Delivery. The closing of a purchase
of Stock purchased pursuant to this Article VII shall occur within
thirty (30) days after the determination of the purchase price of
the Stock under the preceding Section 7.2. Twenty-five percent
(25%) of the purchase price shall be paid by certified or cashier’s
check at the time of closing and the balance of the purchase price
by delivery of a non-negotiable secured installment note in the
form of Exhibit C attached hereto (the "Secured Note"). The
Secured Note shall be self-amortizing with equal monthly principal
installments, shall bear interest at the prime rate of interest
10-003.A\5533-000\01
25
announced on the date of the Secured Note by the First National
Bank of Chicago, Chicago, Illinois plus one percent (1%) payable
monthly and shall be for a term of thirty-six (36) months. The
purchasing party shall have the right to prepay any portion of the
principal or interest on the Secured Note at any time and from time
to time without penalty. All such prepayments shall be credited
first against accrued and unpaid interest and any excess against
principal payments in the reverse order of maturity. The Secured
Note shall be secured by a Security Interest in the Stock of
sold pursuant to this Article VII. The term "Security
Interest" shall mean the right of
attorneys, Wildman
Harrold Allen & Dixon, as escrow agent (the "Escrow Agent’) to hold
_ Stock as security for the payment of the Secured Note.
So long as no default exists under the Secured Note, the purchasing
party, if ____, shall be entitled to vote the Stock and receive any
and all cash dividends on the Stock. Upon the occurrence of any
default under the Secured Note, the Escrow Agent shall deliver the
Stock to
and
will be entitled to vote the Stock and
receive any and all cash dividends on the Stock. In addition,
is authorized to sell, assign or otherwise dispose of the
Stock, or any part thereof, in the event of any default under the
Secured Note, at public or private sale, provided
shall
give the purchasing party at least five days’ prior written notice
of the time and place of any public sale or of the time after which
any private sale or any other intended disposition thereof is to be
made.
10-003.A\5533-000\01
may buy the Stock at any public sale. Proceeds
26
realized upon any such disposition, after deduction for the
expenses of holding, preparing for sale, selling or reasonable
attorney’s fees and legal expenses incurred by _______, shall be
applied to the payment of the liabilities and obligations under the
Secured Note, credited first against accrued and unpaid interest
and any excess against principal payments in reverse order of
maturity, _______ will account to the purchasing party for any
surplus realized on such disposition.
shall immediately
terminate his Security Interest in and the Escrow Agent shall
deliver to the Purchasing Party twenty-five percent (25%) of the
number of shares of Stock of
and any Permitted Transferees
(immediate or remote) sold pursuant to this Article VII upon
receipt from time to time of principal payments equal to,
in the aggregate, twenty-five percent (25%) of the initial
principal amount of the Secured Note; provided, that once a
principal payment is applied toward the partial termination of the
Security Interest such payment shall not be applied toward
subsequent partial terminations of the Security Interest.
Notwithstanding anything to the contrary, if the purchase of Stock
is pursuant to the
Option on account of a default under the
Company Note, the entire purchase price shall be paid by certified
or cashier’s check at the time of closing.
10-003.A\5533-000\01
27
ARTICLE VIII
Shareholder Acknowledgements. Re p resentations and Warranties
8.1 Rights as a Shareholder. Each Shareholder acknowledges
that by becoming a Shareholder and entering into this Agreement he
is not entering into or forming a partnership relationship and that
the other Shareholders shall not owe to one another the same or
substantially the same fiduciary duties that partners owe to one
another. Accordingly, except as expressly provided in this
Agreement or in any other agreements between any of the parties
hereto, each Shareholder acknowledges that he shall not, solely by
virtue of his acquisition or ownership of Stock, be entitled among
other things (i) to employment by the Company; (ii) to serve as a
director or officer of the Company; (iii) to receive dividends or
other distributions on his Stock, except as the same may be
declared from time to time by the directors in their sole
discretion; (iv) to have shares of his Stock redeemed by the
Company when shares of Stock of other Shareholders are being
redeemed if the directors shall have determined in good faith that
there exists special circumstances for redeeming shares of Stock
from such other Shareholders; or (v) to sell his shares of Stock
when another Shareholder is selling shares of Stock.
8.2 Compliance with the Securities Act. Each Shareholder
represents and warrants that he acquired his Stock for his own
account for investment and not with a view to any distribution
10-003.A\5533-000\01
28
thereof so as to cause a violation of the Securities Act of 1933,
as amended (the "Act"), or any rules or regulations thereunder, and
agrees that he will not sell, transfer, distribute or otherwise
dispose of any shares of Stock except (i) pursuant to an effective
registration statement under the Act as then in effect covering
such shares of Stock and such proposed distribution or (ii) upon
first furnishing to the Company an opinion of counsel satisfactory
to it stating that the proposed sale, transfer, distribution or
other disposition is not in violation of the registration
requirements of the Act or of any registration requirements of
applicable state law and such undertakings and agreements with the
Company by the proposed transferee as the Company may reasonably
require to insure continued compliance with the Act.
Each Shareholder acknowledges that his shares of Stock are
restricted securities that are unregistered, and that he must hold
them indefinitely unless they are subsequently registered under the
Act or an exemption from such registration is available; that one
such exemption, Rule 144 under the Act, will not provide a
meaningful way of disposing of the Stock should he decide to do so
at some future date since the procedure under Rule 144 pre-supposes
the existence of an independent public market for the Stock; and
that the Company is under no obligation to register the Stock or to
comply with any such exemption.
10-003.A\5533-000\01
29
ARTICLE IX
General and Miscellaneous
9.1 Closing. Any closing of the purchase of Stock pursuant
to this Agreement shall be at the offices of the Company, Chicago,
Illinois or at such other place determined by the parties.
9.2 Action by Board of Directors. Any action by the Company
hereunder, including any action to amend, modify or terminate this
Agreement on behalf of the Company shall be taken only upon due
authorization or approval by the Board.
9.3 Eauitable Relief.
The parties acknowledge that the
shares of Stock are unique chattels or choses, and also that there
is no ready market for such shares, and that accordingly the breach
of any covenant or obligation hereunder would, or might well,
result in irremediable or incalculable damage. It is therefore
agreed that any such breach or threatened breach shall be
cognizable in a court of equity, in addition to whatever other
remedies may be available therefor.
9.4 Successors and Assigns Bound. This Agreement shall be
binding on the parties hereto and upon their respective heirs,
personal representatives, successors and permitted transferees.
9.5 Implementation of Agreement. The Shareholders and the
Company shall perform all acts, including the execution and
10-003.A\5533-00001
30
delivery of all documents, which may be necessary or appropriate in
order to consummate and make fully effective the objectives of this
Agreement.
9.6 Notice. Any notices and other communications required
hereunder shall be in writing and deemed to have been given when
personally delivered or three (3) days after being mailed by
registered or certified mail, postage prepaid:
or to such other address as any party hereto may request by notice
given as aforesaid to the other parties hereto.
9.7 Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Illinois.
9.8 Termination. This Agreement and all restrictions on the
transfer of any shares of Stock shall terminate on the occurrence
of any of the following events:
(a) The dissolution of the Company; or
(b) A single Shareholder becoming the owner of all the
shares of Stock of the Company which are then subject to this
Agreement; or
10-003.A\5533-000\01
31
(C)
The execution of a written instrument by the Company
and all of the Shareholders who then own shares of Stock
subject to this Agreement.
9.9 Amendment. This Agreement may be amended or modified
only by a written instrument signed by the Company and all of the
then Shareholders.
9.10
Counterparts.
This Agreement may be executed in
identical counterparts, each of which shall constitute an original
instrument and all of which together constitute one original
Agreement.
9.11 Headings. Headings are inserted herein for convenient
reference only, and are to be ignored in construing this Agreement.
9.12 Pronouns. As used herein, all pronouns shall include
the masculine, feminine, neuter, singular and plural thereof
wherever the context and facts require such construction.
10-003.A\5533-000\01
32
IN WITNESS WHEREOF, this Shareholder Agreement has been signed
and entered into by the parties hereto on and as of the day and
year first above written.
The undersigned hereby agrees to act
in accordance with the provisions of
Section 7.3 herein.
By:
10-003.A\5533-000\01
33
THIS FORI! IS FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT B]
RELIED UPON WITHOUT REVIEW OF
LEGAL COUNSEL
EXHIBIT
VOTING TRUST AGREEMENT
THIS VOTING TRUST AGREEMENT ("Agreement"), made this
day of
, 1990, by and among
common stockholder of
hereinafter referred to as "
hereinafter referred to as "
"), and said
(hereinafter referred to as "the company").
WHEREAS,__ is the owner of shares of the common stock,
no par value, of the Company in the amount set opposite his
signature hereto (hereinafter referred to as "the Shares"); and
WHEREAS,
is a stockholder of the Company; and
WHEREAS,
_ desires to allow
to exercise
control over the election of directors and other matters which
are presented for the voting of the Shares owned by
NOW, THEREFORE, it is agreed as follows:
1.
Transfer of Stock to
.
hereby
transfers all of his right, title and interest in and to the
Shares to
and
agrees to immediately
deposit with
the certificate representing the Shares
(the "Stock Certificate").
The Stock Certificate shall be
properly endorsed or accompanied by such instruments of transfer
as to enable
to cause the Stock Certificate to be
transferred into the name of
on the Company’s books
and records.
2.
Aareement.
Copies of this Agreement and of every
agreement amending this Agreement shall be filed by
immediately upon execution thereof in the principal office of the
Company in Chicago, Illinois, and shall be open for inspection by
any shareholders of the Company or any beneficiary of the trust
created hereby daily during business hours.
Neither this
Agreement nor any agreement amending this Agreement shall become
effective until so filed.
(c) Copyright 1991 by Keith H.Berk. All rights reserved.
3.
to Hold Subject to Agreement.
shall hold the Shares so transferred to him for the benefit of
, under the terms and conditions hereinafter set
forth.
4.
. As
Issuance of New Stock Certificate to
soon as practicable, the Stock Certificate shall be cancelled by
the Company and in its stead a new stock certificate (the
"Reissued Certificate") shall be issued to
as trustee
under this Agreement. The Reissued Certificate shall bear a
legend to the effect that, and the Company’s stock ledger book
shall state that, the Reissued Certificate is issued pursuant to
this Agreement.
5.
Voting Trust Certificate.
As soon as practicable,
a voting trust
shall be issue to
certificate for the number of Shares represented by the Stock
Certificate transferred by
to
. The
trust certificate shall be in form and substance as set forth in
Exhibit A attached hereto.
6.
Lost Certificates.
In case any voting trust
certificate shall become mutilated or be destroyed, stolen or
lost,
in his discretion may issue a new voting
trust certificate of like tenor and denomination in exchange and
substitution for and upon cancellation of such mutilated voting
trust certificate, or in lieu of and in substitution for the
voting trust certificate so destroyed, stolen or lost.
The
applicant for such substituted voting trust certificate shall
furnish to
evidence of the destruction, theft, or
loss of such voting trust certificate satisfactory to
in his discretion. Such applicant shall comply with such other
reasonable regulations, including, but not limited to, furnishing
a surety bond or a personal indemnity agreement, and
shall pay such reasonable charges as
may prescribe.
7.
to Vote Stock. It shall be the duty of
and he is hereby fully empowered and authorized, to
represent
and the Shares transferred to
as aforesaid, and to vote upon the said Shares (in person or by
proxy) as in the sole judgment of
may be in the best
interests of the Company and
at all meetings of
the stockholders of the Company in the election of directors and
upon any and all matters and questions which may be brought
before such meetings, as fully as
might do if
personally present.
2
8.
Liability.
shall use his best judgment in voting
(a)
upon the Shares, but shall not be liable for any vote cast or
consent given in good faith and in the absence of gross
negligence.
(b)
shall not incur any responsibility or
liability by reason of any error of judgment or mistake of law or
other mistake, or for any misconstruction of this Agreement, or
for any action of any kind taken or omitted hereunder or believed
by him to be in accordance with the provisions and intent hereof,
except for his own individi lal willful misconduct.
9.
Dividends; Additional Shares,
shall collect
and receive all dividends that may accrue upon the Shares subject
to this trust, or other dividends of any nature whatsoever, and
shall distribute the same to . If any dividend in respect
of the Shares is paid, in whole or in part, in stock of the
Company having general voting powers,
shall hold such
stock subject to the terms of this Agreement and
shall be
entitled to receive a voting trust certificate for the number of
shares received as such dividend. Further, any stock of the
Company hereinafter acquired by
shall be subject to
the terms of this Agreement and
shall be entitled to
receive a voting trust certificate for such additional stock.
10.
shall serve as
Indemnity,
trustee hereunder without compensation, but shall be entitled to
be fully indemnified out of the dividends coming to his hands
against all reasonable costs, charges, expenses and other
liabilities properly incurred by him in the exercise of any power
conferred upon him by this Agreement, and
hereby
covenants with
that in the event the monies and
securities in his hands are insufficient for that purpose,
will save harmless and keep indemnified
of and from all loss or damage which he may sustain or be put to
by reason of anything he may lawfully do in the execution of this
trust, and
shall, upon demand in writing by
pay the costs, charges or other expenses as aforesaid to
11. Sale or Transfer of Trust Certificates. The voting
trust certificates issued by
pursuant to this
Agreement, and the rights represented thereby, may be sold,
assigned, pledged, mortgaged, transferred or encumbered, but only
in accordance with the terms of any shareholder agreement to
which the shareholders of the Company and the Company are
parties. Such certificates must be surrendered to
by the registered owner thereof (in person or by duly authorized
attorney), who will transfer the certificates on his books and
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thereafter treat the transferee as owner thereof for all
purposes.
12. Termination of Trust. The trust created hereby shall
continue to and shall terminate upon the earlier of:
(a) ten (10) years from the date of execution hereof;
(b) a complete liquidation or dissolution of the
Company;
(C)
the sale of all or substantially all of the assets
of the Company; or
(d) the resignation of
as Stockholder and Director.
13.
is a shareholder of the Company and may act as a director,
officer, agent or member of any committee of the Company and he
may, to the extent permitted by law, be or become pecuniarily
interested in any matter or transaction involving the Company as
fully as though he were not the trustee hereunder.
- may employ counsel
14. Employment of Agents.
and agents whose reasonable expenses and compensation shall be
paid in accordance with Article 10 hereof.
shall deem it
15. Amendment. If at any time
advisable to amend this Agreement, he shall submit his such
_ shall
amendment in writing to
for his approval,
have ten (10) days after his receipt of notice of a proposed
amendment to accept or reject such amendment by written advice to
within
If
fails to respond to
said 10-day period, he shall be deemed to have accepted such
proposed amendment. Upon approval of a proposed amendment by
the proposed amendment shall be and become a part of
this Agreement with like force and effect as if originally
incorporated herein. Nothing in this Agreement or the voting
the
trust certificate shall be construed to confer upon
right or power in any manner to initiate any amendment of this
Agreement, but every such amendment shall be initiated by
and shall have the right only to approve or disapprove
such amendment in the manner prescribed in this Article 15.
-shall not be required to
16.
Bond or Security,
give any bond or security for the discharge of his duties.
may at any time
.
17. Resignation of
resign as trustee hereunder by delivering his resignation in
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to take effect no later than ten (10) days
writing to
thereafter. In the event of such resignation the provisions of
Article 12 hereunder shall apply.
18. Law Governing the Agreement. This Agreement and all
rights of the parties hereunder shall be interpreted, construed
and governed in all respects by the laws of the State of
Illinois.
19. Notices. All notices to be given by or to
_______ or the Company, shall be given in writing and shall be
deemed delivered (i) when personally delivered, (ii) one (1) day
after deposit with Federal Express or other overnight courier
with guaranteed next-day delivery, charges prepaid, or (iii)
three (3) days after deposited in the U.S. mail, certified mail,
return receipt requested, first class postage prepaid, and
addressed to the parties at their respective addresses as
reflected in the records of the Company.
20. Severability. If any provision of this Agreement shall
be determined by a court of competent jurisdiction to be
unenforceable as to any person or circumstance, such provision
shall be ineffective as to such person or circumstance and the
remaining substance of such provision, as well as the remaining
provisions of this Agreement, shall be enforced according to
their terms.
21. Heirs and Assigns. This Agreement shall inure to the
benefit of and be binding upon the heirs, legal representatives,
administrators, executors, successors, and assigns of
and the Company.
The headings herein are solely for
22. Headings.
convenience of reference and shall not be deemed a part hereof,
nor have any bearing on the interpretation or construction of
this Agreement.
This Agreement may be executed in
23. Counterparts.
several counterparts, each of which so executed shall be deemed
to be the original, and such counterparts shall together
constitute one and the same instrument.
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have signed
__ and
IN WITNESS WHEREOF,
this Agreement and the company has caused this Agreement to be
executed by its proper officers, all on the day and year first
above written.
STOCKHOLDER:
By:
TRUSTEE:
N.
SHARES:
RELIED UPON Wi’riiJur
KLVJ.C.Tf
LEGAL COUNSEL
EXHIBIT D
SHAREHOLDERS VOTING AGREEMENT
day of
Agreement made as of this
- on Schedule I hereto
by and between the individuals listed
(the
(the "Purchasers’),
a Delaware
"Founders") and
corporation (the "Company").
WITNES SETH:
the Founders have organized an Illinois
and
corporation known as
WHEREAS,
WHEREAS, prior to the execution of this Agreement
has merged into the Company, with the Company being the
surviving corporation; and
WHEREAS. the Founders have received shares of Common
into the
Stock in the Company pursuant to the merger of
Company, and are officers, directors and shareholders of the
Company; and
Purchasers have this date purchased shares of
Convertible Preferred Stock in the Company, each of which is
entitled to one vote per share, as of the date hereof, pursuant
to a Preferred Stock Purchase Agreement (the "Agreement"); and
WHEREAS.
WHEREAS, Purchasers have this date purchased shares of
Redeemable Preferred Stock in the Company, none of which is
entitled to a vote, pursuant to the Agreement; and
Founders have this date purchased shares of
Redeemable Preferred Stock in the Company each of which is not
entitled to vote, pursuant to the Agreement; and
WHEREAS,
WHEREAS, the Purchasers and the Founders are desirous
of providing for the voting of their Common Stock and
Convertible Preferred Stock on certain matters, and for certain
other courses of conduct.
NOW, THEREFORE, in consideration of the premises and
of the mutual covenants and agreements herein contained, the
parties hereto agree as follows:
(c) Copyright 1991 Keith H. Berk. All rights reserved.
ur
1. Election of Directors. Pursuant to the Amended
Certificate of Incorporation of the Company, the number of
directors comprising the Company’s Board of Directors has been
fixed at five. Immediately upon execution of this Agreement
the parties hereto shall convene a duly constituted Board of
Directors meeting and the Founders and their transferees, shall
vote for two (2) directors, each of whom is a designee of the
Purchasers, each selected by a majority of the holders of the
shares of the Convertible Preferred and for whom the holders of
the Convertible Preferred may substitute, at any time, one or
more equal numbers of replacements. The two designees of the
Purchasers shall initially be
The Purchasers and their respective transferees shall
vote for two (2) directors each of whom is a designee of the
Founders, each selected by a majority of the holders of the
shares of the Common Stock and for whom the holders of the
Common Stock may substitute one or more equal number of
replacements. Initially, the two designees of the Founders
. During the term of
shall be
this Agreement, the Purchasers and their respective transferees
shall vote for the Founders’ designees as members of the Board
of Directors and the Founders and their transferees shall vote
for the Purchasers’ designees as members of the Board of
Directors. The Purchasers’ designee directors and Founders’
designee directors shall nominate a fifth director and during
the term of this Agreement the Purchasers and the Founders and
their respective transferees shall vote for such nominee to
serve as a member of the Board of Directors of the Company.
In the
Such director will initially be
event the four designee directors are unable to nominate a
fifth director and such deadlock lasts at least ten (10) days
after the election of the four directors, the fifth director
shall be selected by a majority vote of all of the Common Stock
and Covertible Preferred shareholders of the Company voting at
a shareholders meeting and there shall be no obligation for
Founders and Purchasers to vote their shares for any particular
candidate.
The terms of the above paragraph shall continue until
such time as the Purchasers hold less than 5% of the issued and
outstanding securities of the Company purchased by the
Purchasers on the date hereof. If at any time the Purchasers
hold less than 5% but more than 1% of the Common Stock of the
Company after giving effect to the conversion of the
Convertible Preferred, the parties hereto shall vote their
shares of Common Stock and Convertible Preferred Stock (or
Common Stock received upon conversion of the Convertible
Preferred Stock), and their respective transferees shall vote
for the election of one director who shall be designated by the
Purchaser or their transferees.
2. Additional Directors. If 50% in interest of the
Purchasers (or their transferees) give written notice to the
2000ss
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Founders and the Company that the Company has materially
breached any of the covenants set forth in the Agreement and
Amended Certificate of Incorporation, within ten days of
receipt thereof the parties hereto agree to cause the number of
directors to be increased by one, such director to be
designated by holders of a plurality in interest of the shares
of the Convertible Preferred Stock. In such event, the
Founders agree to vote for the director so designated by the
holders of the Convertible Preferred Stock.
3. Meetings of Directors. At any time (so long as
the Purchasers hold more than 5% of the Common Stock of the
Company after giving effect to the conversion of the
Convertible Preferred) upon the request of the holders of 51%
of the shares of Convertible Preferred Stock, a meeting of the
Board of Directors of the Company may be called for any purpose
so deemed by such holders of the Convertible Preferred Stock.
4. Additional Purchasers. The parties hereto agree
to use their best efforts to cause the Company, and the Company
shall require each purchaser of the Company’s capital stock, or
securities convertible into capital stock to agree to be bound
by this Agreement as if such additional purchaser had executed
this Agreement on the date hereof.
5. Termination. This Agreement shall terminate on
the first closing of a sale of the Company’s securities
pursuant to a registration statement filed under the Securities
Act of 1933 with the Securities and Exchange Commission
relative to the Company’s securities, with an aggregate
offering price to the public of not less than $8,500,000 and
five dollars ($5.00) per share (such price to be adjusted if
additional shares of Common Stock are issued pursuant to a
stock dividend, stock distribution, reclassification,
combination or subdivision).
6. Miscellaneous. All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective successors and assigns
of the parties hereto, whether so expressed or not. This
Agreement may be executed and will be consummated in the State
of Illinois and is to be governed by and interpreted under the
laws of that state, without giving effect to the principles of
conflicts of laws thereof.
This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter
hereof and no amendment, alteration or modification of this
Agreement shall be valid unless in each instance such
amendment, alteration or modification i s expressed in a written
instrument executed by each of the part ies hereto. No waiver
of any provision of this Agreement shal 1 be valid unless it is
expressed in a written instrument duly executed by the party or
-30 00$S
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022S/67
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parties making such waiver. The failure of any party to
insist, in any one or more instances, on performance of any of
the terms and conditions of this Agreement shall not be
construed as a waiver or relinquishment of any rights granted
hereunder or of the future performance of any such term,
covenant or condition but the obligation of any party with
respect thereto-shall continue in full force and effect.
All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed first
class registered, return receipt requested, with postage
prepaid as follows:
(i) If to Purchaser,
(ii) If to a Founder,
Alternatively, to such other address as a party hereto
supplies to each other party in writing.
This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and
the same instrument.
The headings of the sections of this Agreement have
been inserted for the convenience of reference only and shall
in no way restrict or modify any of the terms or provisions
hereof.
IN WITNESS HEREOF, the undersigned have set their
hands as of the above date.
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022S87
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