legal and procedural aspects of advising ... and procedural aspects of advising closely held...
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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. Shareholder deadlocks.
B. Charter Provisions
1. Cumulative Voting
(a) Illinois Business Corporation Act grants cumulative voting rights (see Ill. BCA §7.40).
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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 Number of shares entitled Directors desired to vote 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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(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.
(e) voluntary termination of employment (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) See example of Voting Trust Agreement - Exhibit B.
3. 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 opportunities or limitations.
(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 for certain directors.
(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. Business Risks
1. Shareholder derivative suits and other direct shareholder suits.
2. Third party claims.
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B. Director and Officer Insurance.
1. Difficult to obtain for closely held corporations.
2. If obtainable, expensive and not necessarily all inclusive.
C. 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. 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 having preferential rights in liquidation. See Ill. BCA §9.10, Del. Gen. Corp. Law §173.
4. Personal liability may be imposed upon directors who authorize illegal dividends.
B. 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. Mergers. (Ill. BCA §11.05, etc., Del. Gen. Corp. Law §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 majority shareholders (See Tanzer V.
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 gland 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.
- 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. Piercing the Corporate Veil.
1. Capitalization.
2. Corporate formalities.
3. Separation of corporate and personal finances.
B. 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
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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.
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.
4.
It
I.ISJ..L M
EXHIBIT B
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT is made this day of ____
1991, at Chicago, Illinois, by and among , an
Illinois corporation (the "Company") , C"_H )
") and (I’ (hereinafter
sometimes referred to collectively as the " Shareholders" and
severally as a " Shareholder"), and ("_U ) (the Shareholders and 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
10-003.A\5533-000\01
(c) Copyright 1991 by Keith H. Berk. All rights reserved.
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 2
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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 ’I
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) by a single physician jointly agreed to in writing
10-003.A\5533-000\01
A
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.
10-003.A\5533-000\01
(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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VA
M "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 ACQUIRED ON AND HAVE NOT 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 and
his legal counsel. 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 shall first offer (the
10-003.A\5533-000\01 12
"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
10-003.A\5533-000\01 13
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 from freely
transferring shares of his Stock to and 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 5-
day 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 _ dated August 30, 1991 in the initial
10-003.A\5533-000\01 23
principal amount of 1. .
(the "Company Note") has been paid in
full, during the period commencing on the earlier of (a) the fifth
anniversary of the execution hereof and (b) Resignation
("Commencement Date"), and the Company shall have the right to
purchase all, and not less than all, of the Stock owned by
as hereinafter provided (fl___ Option"). Further, at any time
after the earlier of (a) default under the Company Note and (b) the
Commencement Date, shall have the right to demand that
either or the Company purchase all, and not less than all, of
the Stock owned by as hereinafter provided ("
Option"). 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 as hereinafter provided of
his or its exercise of the Option and shall have the
obligation, if so requested by or the Company, to sell all and
not less than all of the Stock owned by _______ to or the
Company. right to purchase Stock must be
exercised by written notice to delivered between November
1st and November 30th of each year. In the event fails to
exercise his right to purchase 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 by notifying and
10-003.A\5533-000\01 24
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. may buy the Stock at any public sale. Proceeds
10-003.A\5533-000\01 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 presentations 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 ç
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. Issuance of New Stock Certificate to . As 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, shall be issue to a voting trust
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.
(a) shall use his best judgment in voting 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. Indemnity, shall serve as 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
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
13. as Stockholder and Director. 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.
14. Employment of Agents. - may employ counsel and agents whose reasonable expenses and compensation shall be paid in accordance with Article 10 hereof.
4
15. Amendment. If at any time shall deem it advisable to amend this Agreement, he shall submit his such amendment in writing to for his approval, _ shall have ten (10) days after his receipt of notice of a proposed amendment to accept or reject such amendment by written advice to
If fails to respond to within 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 trust certificate shall be construed to confer upon the 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.
16. Bond or Security, -shall not be required to give any bond or security for the discharge of his duties.
17. Resignation of . may at any time resign as trustee hereunder by delivering his resignation in
4
writing to to take effect no later than ten (10) days 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.
22. Headings. The headings herein are solely for convenience of reference and shall not be deemed a part hereof, nor have any bearing on the interpretation or construction of this Agreement.
23. Counterparts. This Agreement may be executed in 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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IN WITNESS WHEREOF, __ and have signed 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: SHARES:
By:
TRUSTEE:
N.
RELIED UPON Wi’riiJur KLVJ.C.Tf ur LEGAL COUNSEL
EXHIBIT D
SHAREHOLDERS VOTING AGREEMENT
Agreement made as of this -
day of by and between the individuals listed on Schedule I hereto (the "Purchasers’), - (the "Founders") and a Delaware
corporation (the "Company").
WITNES SETH:
WHEREAS, the Founders have organized an Illinois corporation known as and
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 Stock in the Company pursuant to the merger of into the Company, and are officers, directors and shareholders of the Company; and
WHEREAS. 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, 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
WHEREAS, 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, 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.
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 shall be . During the term of 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. Such director will initially be In the 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
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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
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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 communi-cations 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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