EXHIBIT 2
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STOCKHOLDERS' AGREEMENT
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This Stockholders' Agreement (this "Agreement") is entered into as of the
31st day of December, 1999, by and between those certain trusts set forth on
Schedule A (the "Xxxx Trusts") and those certain trusts set forth on Schedule B
(the "Xxxxx Trusts"), constituting all of the stockholders of Equity Group
Investments, Inc., an Illinois corporation ("EGI" or the "Company"). The "Xxxx
Trusts" are sometimes herein collectively referred to as the "Xxxx Stockholder"
and the "Xxxxx Trusts" are sometimes herein collectively referred to as the
"Xxxxx Stockholder". The Xxxx Stockholder and the Xxxxx Stockholder are
sometimes collectively referred to herein as the "Stockholders". Capitalized
terms used and not otherwise defined in this Agreement shall have the meaning
ascribed to them in Section 1 hereof.
RECITALS
Immediately prior to the execution and delivery of this Agreement, the
Company and Equity Group Investments, L.L.C., a Delaware limited liability
company ("L.L.C.") entered into, and consummated the terms of, an agreement (the
"Operations Transfer Agreement") relating to, among other things, the transfer
of certain assets of the Company to, and the assumption of certain liabilities
of the Company by, L.L.C. The Stockholders desire to set forth herein
provisions regarding, among other things, corporate governance, restrictions on
transferability of Shares and various other related matters with respect to the
Company.
THEREFORE, in consideration of the foregoing, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
Section 1. Certain Definitions. In addition to certain terms defined
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elsewhere in this Agreement, the following terms shall have the following
meanings:
"Affiliate" shall mean (a) with respect to an individual, any member of his
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"immediate family", or any partnership, corporation or limited liability company
in which he or his immediate family own a "majority interest"; or (b) with
respect to a trust, corporation, partnership or limited liability company, (i)
any individual who, together with members of his immediate family, owns a
majority interest in such entity and (ii) any other trust, corporation,
partnership or limited liability company in which such individual and/or members
of his immediate family own a majority interest. "Immediate family" of an
individual means his spouse, descendants (including descendants by adoption or
the descendants of a spouse) and parents and any trusts for the benefit of any
one or more of such individual and some or all such persons. A "majority
interest" is owned (a) in a corporation, partnership or limited liability
company when the designated people, or trusts for the benefit of said people,
own, directly or indirectly, fifty percent (50%) or more of the beneficial or
equity interests in such entity and (b) in a trust when an individual and
members of said individual's family are a majority of the current beneficiaries
of such trust.
"Asset" shall mean any asset held by a Subsidiary.
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"Asset Disposition" shall mean the sale of any Asset (including but not
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limited to a deemed sale under Section 1259 of the Code) to a buyer other than
EGI or one of EGI's 100% owned subsidiaries (whether owned directly or
indirectly). It is understood and agreed that an Asset Disposition may occur
over time, but in any event must be completed within the Permitted Sale Period
provided for in Section 3(b) or 3(c) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
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to time, and the regulations and rulings thereunder, as from time to time in
effect.
"Company Accountants" shall mean Xxxxxx Xxxxxxxx, or such other public
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accounting firm as is selected by the Company's Board of Directors.
"Disposition Date" shall mean the date upon which an Asset Disposition
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occurs or is completed, as the case may be.
"Distributable Tax Amount" shall be equal to the product arrived at by
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multiplying:
(i) the difference between the taxable income as reported on Schedule
K of Form 1120 S for EGI for a calendar year (taking into account
the character of such taxable income) less the amount of taxable
income that would have been reported on Schedule K of Form 1120 S
for EGI for such calendar year if the taxable gain or loss
resulting from an Asset Disposition for such calendar year is
disregarded, and
(ii) the sum of the highest federal income tax rate applicable under
the Code to such taxable income (taking into account the
character of such taxable income, including capital gains rates)
and the highest marginal income tax rate applicable thereto for
trusts resident in the State of Illinois for such calendar year.
"EGI Fair Market Value" shall mean the total fair market value as of the
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Valuation Date of the assets recorded on the books of account of EGI and all of
EGI's 100% owned subsidiaries (whether owned directly or indirectly) less the
sum of the following, calculated on a non-duplicative basis: (i) all recorded
liabilities on the books of account of EGI and all of EGI's 100% owned
subsidiaries (whether owned directly or indirectly), plus (ii) the EGI Tax
Amount calculated for the applicable Asset Disposition, plus (iii) any federal,
state and local income tax liability that would be payable by EGI and all of
EGI's 100% owned subsidiaries (whether owned directly or indirectly) if all of
the assets owned by EGI and EGI's 100% owned subsidiaries, other than the Assets
subject to the Asset Disposition, were disposed of on the Valuation Date at the
fair market values thereof at such date, plus (iv) the Distributable Tax Amount
calculated for the applicable Asset Disposition. For purposes of determining
EGI Fair Market Value: (i) all Marketable Securities shall be valued at the
Market Price for same as of the Valuation Date, except that the value of a
Marketable Security whose sale gave rise to the need to determine EGI Fair
Market Value shall be the average gross sales price received by the Subsidiary
from the applicable Asset Disposition; (ii) all other assets shall be valued
based upon
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a good faith determination of the Company's Board of Directors as of the
immediately preceding December 31 (unless there has since been a transaction or
other event applicable to a particular asset that objectively establishes a
different, updated value, in which case the updated value shall be used); and
(iii) all liabilities and any contingent assets shall be valued at the amount
thereof on the books of EGI as of the Valuation Date. Any disagreement(s) with
respect to a determination of EGI Fair Market Value shall be promptly submitted
to the Company's Accountants for resolution within ten (10) days of submission,
and the decision(s) of the Company Accountants with respect thereto shall be
final and binding, unless within ten (10) days of the rendering of such decision
either or both of the Xxxx Stockholder or the Xxxxx Stockholder notifies the
other in writing (such notice being the "Dispute Notice") that it intends to
dispute such determination. Such disputing Stockholder shall appoint one of the
five largest nationally recognized public accounting firms to confer with the
Company Accountants in an effort to resolve such dispute. The decision of said
firm, rendered within twenty (20) days of its appointment shall, absent fraud or
manifest error, be final and binding. The Company shall bear the expenses of
both such accounting firms.
"EGI Tax Amount" shall mean the total amount of federal, state, and local
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income taxes payable by EGI and the applicable Subsidiary by reason of an Asset
Disposition (including but not limited to income taxes resulting from the
application of Section 1374 of the Code), which shall be equal to the difference
between:
(i) the amount of federal, state, and local income taxes payable by
EGI and the applicable Subsidiary for the calendar year in which
the Asset Disposition occurs, less
(ii) the amount of federal, state, and local income taxes that would
have been payable for such calendar year if the taxable gain or
loss resulting from the Asset Disposition is disregarded.
"EGIL" shall mean EGIL Investments, Inc. an Illinois corporation.
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"Fair Market Value Per Share" shall mean the EGI Fair Market Value divided
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by the total number of Shares outstanding as of the applicable Disposition Date.
"Holdings" shall mean EGI Holdings, Inc. an Illinois corporation.
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"Marketable Securities" shall mean securities that are (or are convertible
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into securities that are) traded on an established U.S. or foreign securities
exchange, reported through the National Association of Securities Dealers, Inc.
Automated Quotation System or comparable foreign established over-the-counter
trading system, otherwise traded over-the-counter or traded on PORTAL (in the
case of securities eligible for trading pursuant to Rule 144A under the
Securities Act or any successor rule thereto ("Rule 144A")); provided that any
such securities shall be deemed Marketable Securities only if they are (or are
convertible into securities that are) freely tradable by the holder or are the
subject of immediately exercisable demand registration rights under applicable
securities laws. Freely tradable for this purpose shall mean securities that
either are (A) transferable by a holder pursuant to a then effective
registration statement under
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the Securities Act (or similar applicable statutory provision in the case of
foreign securities), (B) transferable by a holder subject only to (i) a
contractual "lock-up" or other similar restriction on transferability with a
term not exceeding 12 months, (ii) a holding period arising under applicable
securities laws not exceeding 12 months, or (C) transferable by a holder
pursuant to Rule 144A which shall include (x) a covenant by the issuer of such
security to comply with the reporting and informational requirements under Rule
144A and (y) eligibility for trading such Securities on PORTAL.
"Market Price" shall mean the average closing price of the relevant
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security (or the security into which it is convertible) during the 10-trading
day period preceding the date of determination if traded on an exchange, or if
traded over the counter, the average between the "bid" and the "ask" price for
such security (or the security into which it is convertible) during such 10-
trading day period.
"Net Proceeds" shall mean the amount of Proceeds available to a Subsidiary
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from an Asset Disposition after taking into account the payment of any sales
commissions, underwriting fees, legal fees or other transaction expenses (other
than tax liability) associated with an Asset Disposition.
"OP Units" shall mean limited partnership interests in an operating
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partnership of a real estate investment trust.
"Permitted Transferee" shall mean an Affiliate of a transferor of Shares
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provided the Transfer to such Affiliate does not result in the termination of
the S Corporation Election.
"Person" shall mean an individual, a corporation, a partnership, a limited
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liability company, a joint venture, an association, a joint-stock company, a
trust, a business trust, a government or any agency or any political
subdivision, any unincorporated organization or any other entity.
"Proceeds" shall mean the total amount of consideration, received by a
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Subsidiary, in the form of cash, notes, or securities, from an Asset
Disposition.
"Public Sale" shall mean a bona fide sale of shares either in "broker's
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transactions" within the meaning of Section 4(4) of the Securities Act of 1933,
as amended, or in transactions directly with a "market maker" as that term is
defined in Section 3(a)(38) of the Securities Exchange Act of 1934, as amended.
"Redeemable Proceeds" shall mean Net Proceeds less the sum of the EGI Tax
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Amount and the Distributable Tax Amount, but not less than zero.
"Redeemable Shares" shall mean the number of Shares calculated by dividing
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the Redeemable Proceeds by the Fair Market Value Per Share, with the number of
Redeemable Shares not to exceed the total number of shares held by the Xxxxx
Stockholder (if the Asset Disposition giving rise to the Redeemable Proceeds was
made by EGIL) or by the Xxxx Stockholder (if the Asset Disposition giving rise
to the Redeemable Proceeds was made by Holdings) as of the applicable
Disposition Date.
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"S Corporation Election" shall mean the election made by the Company and
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the Stockholders to be an S Corporation pursuant to Section 1362 of the Code.
"Shares" means all shares of capital stock of the Company, whether now
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owned or hereafter acquired.
"Subsidiary" means either or both of Holdings or EGIL, as the context may
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require.
"Subsidiary Shares" means the equity securities held from time to time by
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Holdings or EGIL, as the case may be, including OP Units and securities issued
upon a conversion of OP Units.
"Transfer" means any voluntary or involuntary, direct or indirect,
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transfer, sale, assignment, donation, pledge, hypothecation, issuance, grant of
a security interest in or other disposition or attempted disposition of shares
of capital stock or other equity securities or any right or interest whatsoever
therein, including, without limitation, by operation of law or otherwise,
whether with or without consideration or value, and whether for cash, other
securities or other property and specifically including any share for share or
similar exchange, but shall not include the conversion into shares of OP Units.
"Valuation Date" shall mean the date immediately preceding a Disposition
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Date.
Section 2. Restrictions on Transfer of Shares and Related Matters;
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Permitted Transferees.
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(a) The Stockholders shall not, and shall not permit any of their
Affiliates, to Transfer any Shares except for a Transfer to a Permitted
Transferee pursuant to Section 2(b) or in compliance with the provisions of
Section 3 hereof. If any Transfer is made or attempted contrary to the
provisions of this Agreement, such purported Transfer shall be void ab initio,
and, without limitation, the Company shall refuse to recognize any such
purported transferee of Shares as a holder of such Shares for any purpose.
(b) Notwithstanding anything to the contrary in Section 2(a) hereof,
but subject to the provisions of Section 5 hereof, for purposes of this
Agreement, any Stockholder may Transfer Shares to a Permitted Transferee of such
Stockholder; provided that in no event may any Stockholder Transfer Shares in a
transaction if the effect of such Transfer is to cause a termination of the S
Election or a violation of any applicable federal or state securities laws. As
a condition to the effectiveness of any Transfer of Shares to a Permitted
Transferee, the Permitted Transferee shall execute a counterpart to this
Agreement, whereupon the Permitted Transferee shall hold Shares subject to all
of the provisions of this Agreement, as if the Permitted Transferee were the
Person who transferred the Shares actually held by the Permitted Transferee.
Section 3. Right of First Offer.
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(a) General. It is acknowledged that pursuant and subject to the
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provisions of Section 4(c) hereof, the Xxxx Stockholder will maintain sole
control of the Transfer of the
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Subsidiary Shares of Holdings and the Xxxxx Stockholder will maintain sole
control of the Transfer of the Subsidiary Shares of EGIL. The Stockholders
desire to provide each other with certain rights of first offer in connection
with any such proposed Transfer (it being understood and agreed that no such
Transfer shall be to EGI or any subsidiary thereof). For purposes of this
Section 3: (i) the term "Transferring Subsidiary" shall mean, as applicable,
Holdings with regard to a proposed Transfer of all of a portion of the
Subsidiary Shares held by Holdings, or EGIL with regard to a proposed Transfer
of all of a portion of the Subsidiary Shares held by EGIL; (ii) the term
"Non-Transferring Stockholder" shall mean the Xxxx Stockholder if EGIL is the
Transferring Subsidiary, and the Xxxxx Stockholder if Holdings is the
Transferring Subsidiary; and (iii) the term "Transfer" shall not include a bona
fide pledge or hypothecation of the Subsidiary Shares or a transfer of
Subsidiary Shares in realization upon any such a pledge or hypothecation.
(b) Right of First Offer on Private Transfer. In the event that a
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Subsidiary desires to Transfer to any Person (whether or not such Person has
made an offer to purchase or otherwise acquire) all or any portion of the
Subsidiary Shares for cash or other consideration in a bona fide transaction,
other than in a Public Sale, the Subsidiary shall first notify the Non-
Transferring Stockholder in writing (the "Notice of Intended Sale") of the
number of Subsidiary Shares for Transfer by the Transferring Subsidiary (the
"Offered Shares") and the proposed price and other terms of Transfer. The Non-
Transferring Stockholder thereupon shall have the right to purchase (or
designate a purchaser, other than the Company or any subsidiary thereof, of) all
(but not less than all) of the Offered Shares at the proposed price in cash or
other consideration and on the other proposed terms of Transfer all as specified
in the Notice of Intended Sale. In order to exercise its purchase right, within
thirty (30) business days after receiving the Notice of Intended Sale from the
Subsidiary, Non-Transferring Stockholder shall deliver to the Subsidiary a
binding written election (the "Election Notice") agreeing to purchase (or
designating a purchaser of) all of the Offered Shares. If Non-Transferring
Stockholder does not exercise its purchase right with respect to all (and not
less than all) of the Offered Shares within the time period as provided herein,
or fails to deliver the Election Notice within the time period provided, the
Subsidiary shall be free for a period of ninety (90) days thereafter (a
"Permitted Sale Period") to complete a Transfer of the Offered Shares to any
Person or Persons at or above the price and pursuant to the other terms
specified in the Notice of Intended Sale in one or more bona fide transactions
(other than Public Sales) consummated within the Permitted Sale Period. If such
a Transfer is not consummated within the Permitted Sale Period, the Offered
Shares shall again be subject to a right of first offer under the provisions of
this Section 3. In the event Non-Transferring Stockholder (or its designee as
aforesaid) exercises its rights of first offer hereunder, the parties shall, as
promptly as practicable and as a condition to their respective obligations with
respect thereto, enter into such agreements and deliver such documents to one
another as shall be reasonably necessary for the sale of the Offered Shares to
Non-Transferring Stockholder (or its designee as aforesaid) as contemplated
hereby, free and clear of all liens, claims, or encumbrances, other than those
arising under applicable securities laws, it being the intention of the
Stockholders that such sale would be consummated within 90 days following
delivery of the Election Notice.
(c) Right of First Offer on Public Sale. In the event that a
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Subsidiary desires to Transfer for cash in a Public Sale all or any portion of
the Subsidiary Shares, the Subsidiary
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shall first notify the Non-Transferring Stockholder in writing (the "Notice of
Intended Sale") of the number of Subsidiary Shares for Transfer by the
Transferring Subsidiary (the "Section 3(c) Offered Shares") and the proposed
price and other terms of Transfer. The Non- Transferring Stockholder thereupon
shall have the right to purchase (or designate a purchaser, which shall not be
the Company or any subsidiary thereof, of) all or a portion of the Section 3(c)
Offered Shares at their Market Price, as determined as of the day prior to the
date of receipt of the Notice of Intended Sale. In order to exercise its
purchase rights, within ten (10) business days after receiving the Notice of
Intended Sale from the Subsidiary, the Non-Transferring Stockholder shall
deliver to the Subsidiary a binding written election (the "Section 3(c) Election
Notice") agreeing to purchase (or designating a purchaser of) all of or a
portion the Section 3(c) Offered Shares. If Non-Transferring Stockholder does
not exercise its purchase rights with respect to all (and not less than all) of
the Section 3(c) Offered Shares within the time period as provided herein, or
fails to deliver the Section 3(c) Election Notice within the time period
provided, the Subsidiary shall be free for a period of ninety (90) days
thereafter (a "Section 3(c) Permitted Sale Period") to complete a Transfer of
the Section 3(c) Offered Shares not agreed to be acquired to any Person or
Persons in one or more Public Sales consummated within the Permitted Sale
Period. If such a Transfer is not consummated within the Section 3(c) Permitted
Sale Period by the Transferring Subsidiary, the Section 3(c) Offered Shares
shall again be subject to a right of first offer under the provisions of this
Section 3. In the event Non-Transferring Stockholder (or its designee as
aforesaid) exercises its rights of first offer hereunder, the parties shall, as
promptly as practicable and as a condition to their respective obligations with
respect thereto, enter into such agreements and deliver such documents to one
another as shall be reasonably necessary for the Transfer of the Section 3(c)
Offered Shares to Non-Transferring Stockholder (or its designee as aforesaid) as
contemplated hereby, free and clear of all liens, claims, or encumbrances, other
than those arising under applicable securities laws, it being the intention of
the Stockholders that such sale would be consummated within 90 days following
delivery of the Section 3(c) Election Notice.
(d) Joint Sale. The provisions of this Section 3 shall not apply to
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sales of Subsidiary Shares effected jointly and equally by, and with the mutual
agreement of, all Stockholders.
Section 4. Governance; Voting
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(a) General. It is expressly understood and agreed that although the
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Xxxxx Stockholder holds, in the aggregate, 50.027088% of the Shares and the Xxxx
Stockholder holds, in the aggregate, 49.972912% of the Shares, control over the
Company has always been and shall continue to be deemed shared 50/50 as between
the Xxxxx Stockholder and the Xxxx Stockholder. Subject to the provisions of
Section 4(c) below, unless and until there shall occur an event, including a
redemption pursuant to Section 6 hereof, (the date of such an event, should it
occur, is herein referred to as the "Adjustment Date") the result of which is
that the number of Shares held by the Xxxx Stockholder or its Permitted
Transferees, on the one hand, and the Xxxxx Stockholder or its Permitted
Transferees, on the other hand, shall no longer be equal to the number of Shares
held by each as of the date of this Agreement (i) all material decisions
relating to the management of the business, assets and operations of the Company
shall be made by the board of directors of the Company consisting of not less
than two (2) members, with the same
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number of directors being appointed by the Xxxxx Stockholder and by the Xxxx
Stockholder; and (ii) all committees of the board of directors of the Company
and all boards of directors of subsidiaries of the Company (other than Holdings
and EGIL) shall have equal numbers of representatives designated by each of the
Xxxx Stockholder and the Xxxxx Stockholder. Following an Adjustment Date, the
representation on the aforesaid boards of directors (other than for Holdings and
EGIL) shall be adjusted based on the Stockholders voting their Shares in
accordance with their respective ownership interests therein or as may be
otherwise agreed by the parties.
(b) Administrative Matters. Prior to the first Adjustment Date, the
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day-to-day corporate and administrative matters of the Company (for example,
maintaining books and records, and preparation of financial statements and tax
returns) shall be handled by an Affiliate of the Xxxx Stockholder, which shall
be entitled to reimbursement for all out-of-pocket third-party expenses
reasonably incurred in the performance of such duties, provided that, for a
period of two (2) years (that is, for 2000 and 2001), the amount of such
expenses on a per item or category basis shall not exceed the amount thereof for
1999. The out-of-pocket expenses for 1999 are identified on attached Schedule
C. During such two-year period, the Xxxx Stockholder Affiliate responsible for
the day-to-day corporate and administrative matters as aforesaid shall not be
entitled to collect or receive a fee for services thus rendered (but shall be
entitled to do so thereafter), but may contract to have such services performed
by third parties and, subject to the foregoing provisions of this Section 4(b),
be entitled to reimbursement for the cost reasonably incurred in doing so.
After the first Adjustment Date, such day-to-day corporate and administrative
matters shall be handled at the direction of the Board of Directors of the
Company.
(c) Management of Holdings and EGIL. Notwithstanding the other
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provisions of this Section 4, the Stockholders agree as follows with respect to
the management of the Subsidiaries:
(i) Directors of Holdings shall be appointed solely by the Xxxx
Stockholder and the directors of EGIL shall be appointed solely by the
Xxxxx Stockholder.
(ii) The Xxxx Stockholder shall have the sole right to make all
decisions respecting the Subsidiary Shares held by Holdings, including the
voting or Transfer thereof, and the Xxxxx Stockholder shall have the sole
right to make all decisions respecting the Subsidiary Shares held by EGIL,
including the voting, or Transfer thereof; provided, however that (A) any
Transfer of Subsidiary Shares shall be subject to, and must be in
accordance with the terms of, Section 3 above, (B) a Subsidiary may
consummate only one Asset Disposition in any 90-day period, (C) each Asset
Disposition must be for Subsidiary Shares having a value of not less than
$5,000,000, and (D) the Net Proceeds of each Asset Disposition must be at
least equal to the sum of the EGI Tax Amount and the Distributable Tax
Amount arising by reason of the Asset Disposition.
(iii) Any and all decisions relative to any Transfer of any
shares representing the ownership interests in EGIL or Holdings, any
Transfer of any Asset other than Subsidiary Shares, and any non-cash
dividend or non-cash distribution to the
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Company of the assets of EGIL or Holdings, whether by reason of merger,
liquidation or otherwise and including any distribution of Subsidiary
Shares, shall each require the approval of all of the members of the Board
of Directors of the Company.
(iv) All cash dividends or cash distributions received in
respect of Subsidiary Shares shall be distributed by the Subsidiary to the
Company and, after establishing by action of the board of directors of the
Company reasonable reserves for taxes and operating expenses and other
working capital requirements of the Company and its Subsidiaries, shall be
loaned or distributed to the Stockholders as determined by the Board of
Directors of the Company.
(v) OP Units shall not be converted to shares of capital stock
unless such shares are sold for cash prior to the due date of any tax
liability arising in connection with such conversion and the Proceeds are
applied in accordance with Section 6 hereof.
(vi) All proceeds of any financing or refinancing of, Subsidiary
Shares shall be retained by the applicable Subsidiary and not distributed
to the Company, but shall be simultaneously loaned on a demand basis to any
Affiliate of the Xxxx Stockholder or the Xxxxx Stockholder, as the case may
be, with interest payments and any other debt service or payment
requirements being identical to the terms of the third party financing;
provided that prior to any other Transfer of Subsidiary Shares, any loans
secured by such Subsidiary Shares, or loans which would by contract be
required to be repaid as a condition to the distribution of the proceeds of
a sale of such Subsidiary Shares, shall be fully repaid and any loans by
Holdings or EGIL to their respective Affiliates shall be called as
necessary to permit such repayment to occur. Each Subsidiary shall submit
to the Company, which in turn will promptly distribute to the Stockholders,
within ten (10) business days of each such financing or refinancing, a
statement certifying to the compliance by such Subsidiary with the
provisions of this Section 4(c)(vi), containing sufficient detail to enable
the recipient to verify such compliance.
(d) Implementation Procedures. The Stockholders agree to vote their
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Shares, and to take all action, (and to cause their respective designated board
representatives, to take all action) as may be necessary to effectuate the
purpose and intent of this Section 4, including executing and delivering written
consents consistent with the provisions hereof. Any director of the Company,
EGIL or Holdings, may be removed at anytime, with or without cause, but only by
the Stockholder or Stockholders entitled to designate such director. In the
event any designated director ceases for any reason to serve as a board
representative of the Company, Holdings or EGIL, the resulting vacancy shall be
filled promptly by the Stockholder or Stockholders which designated such
director and the board of directors of the applicable corporation shall cease to
take corporate action until such vacancy is filled.
(e) Current Designations. The members of the Board of Directors of
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the Company shall be:
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Xxxx Xxxxxxxxxxx designee: Xxxxx Xxxxxxxxx
Xxxxx Stockholder designee: Xxxx Xxxxxx
Unless and until otherwise determined by the Board of Directors of the
Company, the officers of the Company shall be:
Xxxxx Xxxxxxxxx: President
Xxxx Xxxxxx: Vice President and Treasurer
Xxx Xxxxxxxxxxx: Vice President
Xxxx Xxxxxxx: Vice President
Xxxxx Xxxxxxxxxx: Vice President and Secretary
Xxxx Xxxxxxxxxx: Assistant Secretary
The directors of Holdings (designated by the Xxxx Stockholder) shall
be unless and until otherwise designated:
Xxx Xxxx and Xxxxx Xxxxxxxxx
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The directors of EGIL (designated by the Xxxxx Stockholder) shall be
unless and until otherwise designated:
Xxx Xxxxx and Xxxx Xxxxxx
Section 5. S Corporation Status
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5.1 Termination of S Corporation Election.
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(a) By Consent or Revocation. Neither the Company nor any
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Stockholder, by any act or failure to act, shall terminate, or have the effect
of terminating, the S Corporation Election, unless the Company, by written
resolution of its Board of Directors, first directs or consents to such act or
failure to act, and Stockholders holding at least fifty-two percent (52%) of the
Shares shall consent to such action or failure to act. Thereafter, each
Stockholder shall promptly act or fail to act as may be necessary or advisable
to terminate the S Corporation Election as and when the Company so directs or
consents. In addition, in the event that both a majority of the Board of
Directors and the Stockholders, by the affirmative vote of holders of at least
fifty-two percent (52%) of the Shares, determine to terminate the Company's
status as an S Corporation, each Stockholder, if requested, will execute a
consent to such revocation in the form prescribed by the Internal Revenue
Service ("IRS") and shall deliver such consent to the Company.
(b) Prohibited Corporate Actions. So long as an S Corporation
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Election is in effect, the Company shall not take any action or engage in any
transaction which would result in the termination of the S Corporation Election,
including, but not limited to:
(i) any action or transaction resulting in the Company becoming an
"ineligible Company" under Section 1361(b)(2) of the Code;
(ii) the creation of a class of Shares (other than non-voting common
capital Shares) in addition to the Company's authorized shares
of common Shares as of the date hereof; and
(iii) the borrowing of funds from any person or entity, other than a
lender which is actively and regularly engaged in the business
of lending, unless the following conditions are met: (A) the
loan is in writing and contains an unconditional promise to pay
on demand or on a specific date; (B) the interest rate and
payment dates are not contingent on profits, the discretion of
the Company, the payment of dividends with respect to the Shares
or other similar factors; (C) the loan is not convertible into
capital Shares of the Company; and (D) the lender is a qualified
S Corporation Stockholder.
(c) Inadvertent Termination. In the event of a termination of the
-----------------------
Company's status as an S Corporation other than pursuant to Section 5.01(a)
above, if the Company and the Stockholders remaining after such termination
desire that the Company's status as an S Corporation be continued, the Company
and such Stockholders agree to use their best efforts to
11
obtain from the IRS a ruling that the termination was inadvertent and that the
Company shall continue to be treated as an S Corporation during the period from
and after the terminating event or any other period designated by the IRS. The
Company and such Stockholders further agree to take such steps, and make such
adjustments, as may be required by the IRS pursuant to Sections 1362(f)(3) and
(4) of the Code. In addition to the indemnification provided pursuant to Section
5.4 hereof, the Stockholder or Stockholders, jointly and severally, who caused
the terminating event to occur shall cooperate in taking all such steps and
making all such adjustments required by the IRS and shall pay all costs and
expenses of procuring the ruling, including but not limited to the legal,
accounting and tax costs of taking such steps and making such adjustments.
5.2 Prohibitions on Transfer.
------------------------
Notwithstanding anything in this Agreement to the contrary, and in addition
to the restrictions on transferability set forth in Section 2 hereof, except to
the extent authorized pursuant to Section 5.1 hereof, no Stockholder shall
Transfer any Shares, now owned or hereafter acquired, unless prior thereto (i)
the Company's attorney shall have given a written opinion that the Transfer will
not have the effect of terminating the S Corporation Election and (ii) the
proposed transferee shall have agreed to execute any documents necessary at any
time the Company's attorney deems necessary to the continuation of such
election. Any transfer of Shares in violation of this Section 5.2 shall be void.
5.3 Reporting S Corporation Items in the Event of Termination. On the
---------------------------------------------------------
termination of the S Corporation Election or on the complete termination of a
Stockholder's interest in the Company, to the extent permitted by law, the
Stockholder's hereby elect and agree to execute all documents necessary to cause
the Company's items of income, loss, deduction and credit to be allocated as if
the taxable year of such termination consisted of two taxable years, in
accordance with the method of allocation described in Section 1377(a)(2) and
Section 1362(e)(3) of the Code. The Company Accountants shall determine the
items so allocable and reportable to the Stockholders, and their determinations
shall bind all concerned parties.
5.4 Indemnification Relating to Maintenance of the S Corporation Election.
---------------------------------------------------------------------
(a) Indemnification. If any Stockholder breaches any term of this Agreement
---------------
and such breach has the effect of terminating the S Corporation Election, the
breaching Stockholder (the "Indemnitor") shall indemnify the other Stockholders
(each individually the "Indemnitee" and collectively the "Indemnitees") for the
"loss of federal and state income tax benefits," as defined below, reasonably
expected to result from such termination. In addition, the Indemnitor shall
indemnify each Indemnitee for all federal and state income taxes payable by the
Indemnitee as a result of the receipt of any indemnification payment required by
this subsection. The Indemnitor shall make the indemnification payments required
by this subsection to each Indemnitee no more than ninety (90) days after the
later of (i) the date notice of such breach is given to the Indemnitor by the
Company or by an Indemnitee or (ii) the last day of the Indemnitee's first
taxable year within which ends the first taxable year of the Company for which
such termination is effective.
12
(b) "Loss of Federal and State Income Tax Benefits" Defined. For purposes
-------------------------------------------------------
of the preceding subsection, "loss of federal and state income tax benefits"
means the excess of: (i) the sum of (A) the Indemnitee's pro rata share of the
Company's federal and state income and replacement tax liabilities for the
Indemnification Period and (B) the Indemnitee's individual federal and state
income tax liabilities for his taxable years within which the taxable years of
the Indemnification Period end, with both (A) and (B) computed as if the S
Corporation Election had not been in effect and as if the Company had
distributed its taxable income as a dividend on the last day of each taxable
year of the Indemnification Period, over (ii) the sum of such liabilities, with
both (A) and (B) computed as if the S Corporation Election had been in effect
and as if the Company had distributed its entire taxable income as a dividend on
the last day of each taxable year of such period. In addition, using similar
principles, the following shall be taken into account in determining the loss of
federal and state income tax benefits: (i) any built-in gain tax to which the
Company would be subject as a result of termination of the S Corporation
Election in violation of this Agreement, followed by a subsequent S Corporation
Election taking effect for any of the taxable years in the Indemnification
Period, and (ii) any tax under Section 1375 of the Code to which the Company
would be subject as a result of termination of the S Corporation Election in
violation of this Agreement. For each taxable year which has already ended by
the time an indemnification payment is required under the preceding subsection,
such loss of benefits shall be computed by using the actual tax liabilities of
the Company and the Indemnitee. For each taxable year which has not ended, such
loss shall be computed by using hypothetical tax liabilities derived by applying
the federal and state tax laws in effect for the year of the indemnification
payment to the average of the items of taxable income, loss, deduction and
credit of the Company and of the Indemnitee for the taxable years of the
Indemnification Period which have ended. The Company Accountants shall determine
the indemnification payments required by this Section 5.4 and their
determinations shall be binding on all concerned parties. Each Indemnitee shall
provide the Company Accountants with the individual tax return and other
information necessary to make such determinations.
(c) Other Definitions. The term "Indemnification Period" means the period
-----------------
beginning on the first day of the first taxable year for which termination of
the S Corporation Election is effective and ending with the first to occur of
(i) the first day for which the S Corporation Election becomes effective after
such termination and (ii) the last day of the fourth taxable year ending after
such first taxable year. The term "Indemnitee's pro rata share of the Company's
federal and state income and replacement tax liabilities" means that proportion
of such liabilities from time to time during the Indemnification Period which
the number of the Indemnitee's Shares bears to the total number of the Company's
outstanding Shares.
(d) Duty to Mitigate. The Company and the Stockholders shall make
----------------
reasonable efforts to mitigate the loss of federal income tax benefits under
this Section 5.4 as and to the extent permitted by Sections 1362(f) and 1362(g)
of the Code.
5.5 Distributions From Earnings and Profits. Upon the determination by a
---------------------------------------
majority of the Board of Directors that it is in the best interests of the
Stockholders that the Company make the election described by Section 1368(e)(3)
of the Code, the Company shall make such election, and each Stockholder hereby
agrees that he or she shall take all steps
13
necessary to indicate his or her consent to such election in the manner provided
by the Code or federal income tax regulations.
Section 6. Use of Proceeds Upon Asset Disposition.
--------------------------------------
(a) Distribution of Net Proceeds. Upon the consummation of an Asset
----------------------------
Disposition, the Subsidiary which effected the Asset Disposition shall, within
ten (10) days after the Disposition Date, so notify the Company and the Non-
Transferring Stockholder (providing each with reasonable details as to the
transaction(s) involved), and shall also distribute the Net Proceeds to EGI
within such 10-day period.
(b) Redemption of Shares. Within ten (10) days after receiving notice
--------------------
of the consummation of an Asset Disposition, the Company will estimate the EGI
Tax Amount and the Distributable Tax Amount with respect thereto and (i) retain
such estimated EGI Tax Amount for payment of the underlying taxes, and (ii)
distribute such estimated Distributable Tax Amount pro rata to the then
Stockholders of record. Also within ten (10) days after receiving notice of the
consummation of an Asset Disposition, the Company will estimate the EGI Fair
Market Value, the Fair Market Value Per Share, the Redeemable Proceeds and the
Redeemable Shares, in each case using the estimated EGI Tax Amount and the
estimated Distributable Tax Amount. Within five (5) business days after the
aforesaid calculation, EGI will pay the estimated Redeemable Proceeds to the
Xxxxx Stockholder (if EGIL effected the Asset Disposition) or the Xxxx
Stockholder (if Holdings effected the Asset Disposition), in redemption of the
estimated Redeemable Shares, and such Stockholder shall deliver to EGI
certificates representing the estimated Redeemable Shares, endorsed in blank or
accompanied by executed stock powers, free and clear of any liens, claims or
encumbrances, which Shares shall be cancelled.
(c) Final Tax Amounts. Upon the filing of the federal, state and local
-----------------
income tax returns for EGI and for the Subsidiary which has effected the Asset
Disposition for the tax year in which the Asset Disposition occurred, EGI will
finally calculate the EGI Tax Amount and the Distributable Tax Amount applicable
thereto. EGI shall make payment of federal, state, and local income taxes of EGI
and the Subsidiary which has effected the Asset Disposition for the tax year for
which the EGI Tax Amount is calculated, based on the final EGI Tax Amount.
(d) Adjustment of Estimated Distributable Tax Amount. In the event the
------------------------------------------------
final Distributable Tax Amount is more than $250,000 greater or less than the
amount of the estimated Distributable Tax Amount previously distributed, such
Stockholders and the Company shall reimburse each other, as appropriate, to
equalize such excess or deficient payments within fifteen (15) days after the
final calculation.
(e) Adjustment of Proceeds and Share Redemptions. Within fifteen (15)
--------------------------------------------
days after the final calculation of the EGI Tax Amount and the Distributable Tax
Amount, the Company will recalculate EGI Fair Market Value, Fair Market Value
Per Share, the Redeemable Proceeds and the Redeemable Shares and provide notice
to the Stockholders of such recalculated amounts. Within fifteen (15) days of
receipt of such final calculations, the Company and each Stockholder shall take
all such action, pay or receive all such amounts, and issue or redeem such
number of additional Shares as may be necessary to place the Company and each
Stockholder in
14
the position such party would have been in with respect to the Redeemable
Proceeds and Redeemable Shares, had such final calculations been available at
the time of the redemption and payments made pursuant to Section 6(b) hereof.
Notwithstanding the foregoing, the adjustments contemplated by this Section 6(e)
shall not be made if the aggregate value of the adjustments required to be made
(whether in cash or in Shares based on Fair Market Value Per Share) is less than
$250,000.00.
Section 7. Cooperation. The Stockholders shall cooperate in good faith to
-----------
prepare all necessary tax and securities filings relating to the Company and its
various holdings.
Section 8. Notices. All notices, and other communications hereunder shall
-------
be in writing and shall be deemed given if delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
facsimile, to the appropriate address or facsimile number set forth below (or at
such other address or facsimile number for a party as shall be specified by like
notice):
if to the Xxxx Stockholder:
c/o Equity Group Investments, L.L.C.
Two Xxxxx Xxxxxxxxx Xxxxx - Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxxxx
Fax: (000) 000-0000
15
if to the Xxxxx Stockholder:
c/o Lurie Investments
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx Xxxxxx
Fax: (000) 000-0000
Section 9. Termination. This Agreement shall terminate and its provisions
-----------
shall be of no further force and effect if either the Xxxx Stockholder or the
Xxxxx Stockholder shall cease to own Shares of the Company, or upon completion
of the final liquidation and dissolution of the Company; provided, the
provisions of Section 5 shall survive such termination.
Section 10. Remedies. Any party having rights under this Agreement may
--------
enforce such rights specifically to recover damages caused by reason of any
breach of any provision of this Agreement and to exercise all other rights
granted by law. The parties agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and,
accordingly, in addition to all other remedies available to any party, such
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce, or prevent any violation of, the provisions of this Agreement.
Section 11. Legend. During the term hereof each stock certificate
------
representing the Shares shall bear a legend as follows:
"The sale, assignment, transfer, gift, pledge, other disposition and
voting of any of the securities represented by this certificate is restricted by
the terms of a certain Stockholders' Agreement, dated as of December 31, 1999.
The securities represented by this certificate have not been registered under
the Securities Act of 1933 (the "Act"), as amended, or applicable state
securities laws and may not be sold, assigned, transferred, pledged or otherwise
disposed of except in compliance with the requirements of the Act and until the
Company shall have received the written opinion of counsel satisfactory to the
Company to that effect."
Section 12. Entire Agreement; Binding Effect; Amendment. This Agreement and
-------------------------------------------
the Articles and Bylaws of the Company and its subsidiaries, together with the
Operations Transfer Agreement, as the same may be amended by their terms from
time to time, constitutes the entire agreement between the parties with respect
to EGI and its subsidiaries and shall be binding upon and inure to the benefit
of the parties hereto and their respective legal representatives, successors and
permitted assigns. Any amendments, or alternative or supplementary provisions to
this Agreement must be made in writing and duly executed by an authorized
representative or agent of each of the parties hereto. Except as contemplated by
this Agreement, no Person who is not an original party to this Agreement may
become a party hereto without the written consent of each of the parties hereto.
16
Section 13. Non-Waiver. The failure in any one or more instances of a party
----------
to insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party. A breach of any
representation, warranty or covenant shall not be affected by the fact that a
more general or more specific representation, warranty or covenant was not also
breached.
Section 14. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
Section 15. Severability. The invalidity of any provision of this Agreement
------------
or portion of a provision shall not affect the validity of any other provision
of this Agreement or the remaining portion of the applicable provision.
Section 16. Applicable Law. This Agreement shall be governed and controlled
--------------
as to validity, enforcement, interpretation, construction, effect and in all
other respects by the internal laws of the State of Illinois applicable to
contracts made in that State.
Section 17. Allocation Among Stockholders. The rights and obligations
-----------------------------
hereunder of the Xxxx Stockholder shall be allocated among the Stockholders
comprising the Xxxx Stockholder, and the rights and obligations hereunder of the
Xxxxx Stockholder shall be allocated among the Stockholders comprising the Xxxxx
Stockholder, in each case in accordance with the relative number of Shares held
by such Stockholder as a percentage of all Shares held by all Stockholder's
comprising the Xxxx Stockholder or the Xxxxx Stockholder, as applicable.
Section 18. Headings. The headings contained in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
17
IN WITNESS WHEREOF, the undersigned have executed this Stockholders'
Agreement as of the day and year first above written.
SZ XXXXXX TRUST SZ JOANN TRUST
By: Chai Trust Company, as Trustee By: Chai Trust Company, as Trustee
By: /s/ Xxxxxx X. Xxxxxxxxxxx By: /s/ Xxxxxx X. Xxxxxxxxxxx
----------------------------- --------------------------------
Xxxxxx X. Xxxxxxxxxxx, as Vice Xxxxxx X. Xxxxxxxxxxx, as Vice
President President
SZ XXXXXXX TRUST ZELL EGI TRUST
By: Chai Trust Company, as Trustee
By: /s/ Xxxxx X. Xxxxxxxxx
-----------------------------------
Xxxxx X. Xxxxxxxxx, as Trustee
By: /s/ Xxxxxx X. Xxxxxxxxxxx
-----------------------------
Xxxxxx X. Xxxxxxxxxxx, as Vice
President
ZFT XXXXXX TRUST ZFT XXXXXXX TRUST
By: Chai Trust Company, as Trustee By: Chai Trust Company, as Trustee
By: /s/ Xxxxxx X. Xxxxxxxxxxx By: /s/ Xxxxxx X. Xxxxxxxxxxx
----------------------------- -------------------------------
Xxxxxx X. Xxxxxxxxxxx, as Vice Xxxxxx X. Xxxxxxxxxxx, as Vice
President President
ZFT JO XXX TRUST ZFT GRANDCHILDREN TRUST
By: Chai Trust Company, as Trustee By: Chai Trust Company, as Trustee
By: /s/ Xxxxxx X. Xxxxxxxxxxx By: /s/ Xxxxxx X. Xxxxxxxxxxx
----------------------------- -------------------------------
Xxxxxx X. Xxxxxxxxxxx, as Vice Xxxxxx X. Xxxxxxxxxxx, as Vice
President President
18
XXXXX TRUST XXXX TRUST
By: /s/ Xxx Xxxxx By: /s/ Xxx Xxxxx
--------------------------- -------------------------
Xxx Xxxxx, as Trustee Xxx Xxxxx, as Trustee
XXXXXX TRUST ABIGAIL TRUST
By: /s/ Xxx Xxxxx By: /s/ Xxx Xxxxx
--------------------------- -------------------------
Xxx Xxxxx, as Trustee Xxx Xxxxx, as Trustee
XXXXXXXX TRUST XXXXXXXXX TRUST
By: /s/ Xxx Xxxxx By: /s/ Xxx Xxxxx
--------------------------- -------------------------
Xxx Xxxxx, as Trustee Xxx Xxxxx, as Trustee
AOQ TRUST AGQ TRUST
By: /s/ Xxxx Xxxxxx By: /s/ Xxxx Xxxxxx
--------------------------- --------------------------
Xxxx Xxxxxx, as Co-Trustee Xxxx Xxxxxx, as Co-Trustee
AJQ TRUST ADQ TRUST
By: /s/ Xxxx Xxxxxx By: /s/ Xxxx Xxxxxx
--------------------------- --------------------------
Xxxx Xxxxxx, as Co-Trustee Xxxx Xxxxxx, as Co-Trustee
ACQ TRUST AAQ TRUST
By: /s/ Xxxx Xxxxxx By: /s/ Xxxx Xxxxxx
--------------------------- --------------------------
Xxxx Xxxxxx, as Co-Trustee Xxxx Xxxxxx, as Co-Trustee
ABQ TRUST ASQ TRUST
By: /s/ Xxxx Xxxxxx By: /s/ Xxxx Xxxxxx
--------------------------- --------------------------
Xxxx Xxxxxx, as Co-Trustee Xxxx Xxxxxx, as Co-Trustee
ANQ TRUST AEQ TRUST
By: /s/ Xxxx Xxxxxx By: /s/ Xxxx Xxxxxx
--------------------------- --------------------------
Xxxx Xxxxxx, as Co-Trustee Xxxx Xxxxxx, as Co-Trustee
19
Schedule A
----------
Stockholders comprising the Xxxx Stockholder
SZ Xxxxxx Trust
SZ JoAnn Trust
SZ Xxxxxxx Trust
Zell EGI Trust
ZFT Xxxxxx Trust
ZFT Xxxxxxx Trust
ZFT Jo Xxx Trust
ZFT Grandchildren Trust
20
Schedule B
----------
Stockholders comprising the Xxxxx Stockholder
Xxxxx Trust
Xxxx Trust
Xxxxxx Trust
Abigail Trust
Xxxxxxxx Trust
Xxxxxxxxx Trust
AOQ Trust
AGQ Trust
AJQ Trust
ADQ Trust
ACQ Trust
AAQ Trust
ABQ Trust
ASQ Trust
ANQ Trust
AEQ Trust
21
Schedule C
----------
Company Administrative Expenses for 1999
Xxxxxx Xxxxxxxx & Co. Accounting and Tax Expenses:
Equity Group Investments, Inc. 268,308
EOP of Illinois, Inc. 6,939
Equity Hotel Properties, Inc. 6,939
Equity Realty Inc. 11,565
S/Biz, Inc. 2,313
ZM Inc. 6,939
Xxxx/Xxxxxxx XX Inc. 6,939
Xxxx/Xxxxxxx III Inc. 6,939
Xxxx/Xxxxxxx XX Inc. 6,939
-------
323,820
=======
22
