EXHIBIT 10.5
CONSULTING AGREEMENT
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THIS CONSULTING AGREEMENT (this "Agreement") is dated as of August 27, 1997
by and between EQUITY RESIDENTIAL PROPERTIES MANAGEMENT LIMITED PARTNERSHIP, an
Illinois limited partnership ("ERPM"), and XXXX X. XXXXXX ("Consultant").
R E C I T A L S:
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A. Consultant is currently an employee and owner of a direct and indirect
equity interest in Xxxxx Xxxxxxxxxx Residential, Inc., a Maryland corporation
("EWR"), or Xxxxx Xxxxxxxxxx Residential, L.P. ("EWR Partnership").
B. EWR and Equity Residential Property Trust, a Maryland real estate
investment trust ("EQR") and an affiliate of ERPM, have entered into an
Agreement and Plan of Merger ("Merger Agreement"), pursuant to which EWR shall
merge with and into EQR (the "Merger").
C. As a result of Consultant's equity interest in EWR and EWR Partnership,
Consultant will realize certain benefits as a result of the Merger.
D. As an inducement for EQR shareholders to approve the Merger, Consultant
agrees to terminate certain agreements previously entered into with EWR and/or
its affiliates, all on the terms and conditions set forth in this Agreement.
E. ERPM desires to retain the services of Consultant, effective as of the
time the Merger is consummated (the "Effective Time"), all on the terms and
conditions set forth in this Agreement, and Consultant desires to provide such
services.
Agreements
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In consideration of the covenants and mutual agreements set forth below and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Effective Time. This Agreement shall not become effective unless and
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until the Effective Time occurs.
2. Consulting Services. Effective as of the Effective Time, ERPM agrees
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to retain Consultant to provide consultative services, and Consultant agrees to
be so retained by ERPM, all on the terms and conditions hereinafter set forth.
3. Term. Subject to the early termination provisions contained in
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Sections 9, 10 and 11, the term of this Agreement shall be for a period
commencing on the date the Effective Time
occurs and ending on January 2, 2000. The period during which this Agreement is
in effect is referred to herein as the "Term".
4. Duties. During the Term, Consultant shall serve as a financial
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consultant to EQR providing services during the transition period following the
Merger. During the Term, Consultant shall provide consulting services to the
President and other senior executive officers of EQR with respect to the
financial operations of EWR and, as requested, with respect to strategic
investments of EQR and its subsidiaries. No projects shall be assigned to
Consultant under this Agreement which have not been accepted by Consultant, in
Consultant's sole discretion, as coming within the scope of this Agreement.
During the Term, Consultant shall devote such time as is reasonably necessary to
perform the services required of him hereunder.
5. Consulting Fees. ERPM shall pay Consultant for all services rendered
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by him under this Agreement during the Term, an aggregate of $835,610. Such fee
shall not be subject to review, increase or decrease during the Term and shall
be paid as follows:
Date Payment Amount
01/01/98 $255,540
01/01/99 $301,535
01/01/00 $278,535
6. Benefits. In addition to the fee provided for in Section 5 hereof,
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Consultant and his spouse shall be entitled to receive healthcare coverage
similar to the coverage provided to EQR employees generally which shall be
provided at EQR's expense as an additional fee for providing consulting
services; provided Consultant qualifies for such coverage and that the premium
for such insurance is reasonable.
7. Expense Reimbursement. ERPM shall reimburse Consultant for all
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reasonable and customary travel and other business expenses incurred by
Consultant in carrying out his duties under this Agreement promptly following
ERPM's receipt of the documentation then required under ERPM's expense
reimbursement policy.
8. Independent Contractor - No Withholding. Consultant shall perform all
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duties under this Agreement as an independent contractor of ERPM and ERPM shall
not retain the right to determine means or methods used by Consultant in
accomplishing assigned projects. Consultant shall be free to enter engagements
with other businesses during the term so long as such engagements do not
interfere with projects required to be completed under the terms of this
Agreement or violate Section 13 or 14 of this Agreement. Unless otherwise
required by law, no fees payable to Consultant shall be reduced by Social
Security or income taxes.
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9. Termination Due to Death or Disability.
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This Agreement shall terminate in the event of Consultant's death or upon
Consultant's disability rendering Consultant unable to perform his duties under
this Agreement. In such event, ERPM shall pay to Consultant's legal
representative Consultant's unpaid fees as set forth in Section 5 as a death or
disability benefit, as applicable, in lieu of providing life or disability
insurance coverage to Consultant.
10. Other Termination by ERPM.
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(a) In addition to the termination of this Agreement pursuant to
Section 9, ERPM shall have the right to terminate this Agreement effective upon
delivery to Consultant of written notice of termination stating the basis for
such termination as being either:
(i) for "Cause", which shall be defined as any of the following:
(A) Consultant breaches any of his covenants in Sections 13
or 14 or his representations in Section 15;
(B) Consultant engages in an act of dishonesty constituting
a felony and which results or is intended to result
directly or indirectly in his gain or personal
enrichment at the expense of EQR, ERPM or any affiliate
of either organization;
(C) Consultant is convicted of a felony or of any crime
involving moral turpitude, fraud, theft or conversion
in any of such cases against EQR, ERPM or any affiliate
of either organization; or
(ii) without "Cause".
(b) Upon a termination of this Agreement by ERPM for Cause, ERPM
shall have no further obligation to Consultant under this Agreement, except to
pay his fees and accrued expenses through the date of termination of this
Agreement.
(c) Upon a termination of this Agreement by ERPM without Cause or by
Consultant for Good Reason (as defined in Section 11(a) hereof), ERPM shall be
obligated to pay to Consultant the remaining fees for consulting services as set
forth in Section 5 of this Agreement within 30 days of termination of this
Agreement. In addition, Consultant and his spouse shall receive insurance
coverage pursuant to Section 6 of this Agreement for the remainder of the Term
of the Agreement.
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11. Termination by Consultant. Consultant may terminate this Agreement by
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providing ERPM with a written notice of termination at least one hundred twenty
(120) days prior to the effective date of such termination in the case of a
termination other than for Good Reason (as defined below) or sixty (60) days
prior to the effective date of such termination in the case of a termination for
Good Reason. As used herein, "Good Reason" shall mean the material breach by
ERPM of any of its agreements set forth in Section 5 or 6 hereof which continues
unremedied for a period of thirty (30) days after receipt by the general partner
of ERPM of a written demand for performance by Consultant, which written demand
specifically identifies in reasonable detail the manner in which Consultant
believes that ERPM has not performed its obligations. If Consultant terminates
this Agreement for Good Reason, Consultant shall be entitled to the remaining
fees provided for in Section 5 of this Agreement within 10 days after
termination of this Agreement. If Consultant terminates this Agreement without
Good Reason, ERPM shall have no further obligation to Consultant except to pay
Consultant's fees and accrued expenses earned but unpaid through the date of
termination of this Agreement.
12. Excise Tax Payment.
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(a) Except as limited by Section 18, notwithstanding anything
contained in this Agreement to the contrary, in the event it is determined
(pursuant to subsection (b)) below) or finally determined (as defined in
subsection (c)(iii) below) that any payment, distribution, transfer, benefit or
other event with respect to ERPM or its predecessors, successors, direct or
indirect subsidiaries or affiliates (or any predecessor, successor of affiliate
of any of them, and including any benefit plan of any of them), to or for the
benefit of Consultant or Consultant's dependents, heirs or beneficiaries
(whether such payment, distribution, transfer, benefit or other event occurs
pursuant to the terms of this Agreement otherwise, but determined without regard
to any additional payments required under this Section 12 (each a "Payment" and
collectively the "Payments") is or was subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, and any successor
provision or any comparable provision of state or local income tax law
(collectively, "Section 4999"), or any interest, penalty or addition to tax is
or was incurred by Consultant with respect to such excise tax (such excise tax,
together with any such interest, penalty or addition to tax, hereinafter
collectively referred to as the "Excise Tax"), then, within 10 days after such
determination or final determination, as the case may be, ERPM shall pay to
Consultant an additional cash payment (hereinafter referred to as the "Gross-Up
Payment") in an amount such that after payment by Consultant of all taxes,
interest, penalties and additions to tax imposed with respect to the Gross-Up
Payment (including, without limitation, any income and excise taxes imposed upon
the Gross-Up Payment), Consultant retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon such Payment or Payments. This provision
is intended to put Consultant in the same position as Consultant would have been
had no Excise Tax been imposed upon or incurred as a result of any Payment.
(b) Except as provided in subsection (c) below, the determination that
a Payment is subject to an Excise Tax shall be made in writing by a certified
public accounting firm selected by Consultant ("Consultant's Accountant"). Such
determination shall include the amount of the Gross-Up Payment and detailed
computations thereof, including any assumptions
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used in such computations (the written determination of the Consultant's
Accountant, hereinafter the "Consultant's Determination"). The Consultant's
Determination shall be reviewed on behalf of ERPM by a certified public
accounting firm selected by ERPM (the "ERPM's Accountant"). ERPM shall notify
Consultant within 10 business days after receipt of the Consultant's
Determination of any disagreement or dispute therewith, and failure to so notify
within that period shall be considered an agreement by ERPM with the
Consultant's Determination, obligating ERPM to make payment as provided in
subsection (a) above within 10 days from the expiration of such 10 business-day
period. In the event of an objection by ERPM to the Consultant's Determination,
any amount not in dispute shall be paid within 10 days following the 10
business-day period referred to herein, and with respect to the amount in
dispute the Consultant's Accountant and ERPM's Accountant shall jointly select a
third nationally recognized certified public accounting firm to resolve the
dispute and the decision of such third firm shall be final, binding and
conclusive upon the Consultant and ERPM. In such a case, the third accounting
firm's findings shall be deemed the binding determination with respect to the
amount in dispute, obligating ERPM to make any payment as a result thereof of
within 10 days following the receipt of such third accounting firm's
determination. All fees and expenses of each of the accounting firms referred
to this Section 12(b) shall be borne solely by ERPM.
(c) (i) Consultant shall notify ERPM in writing of any claim by the
Internal Revenue Service (or any successor thereof) or any state or local taxing
authority (individually or collectively, the "Taxing Authority") that, if
successful, would require the payment by ERPM of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 30 days
after Consultant receives written notice of such claim and shall apprise ERPM of
the nature of such claim and the date on which such claim is requested to be
paid; provided, however, that failure by Consultant to give such notice within
such 30-day period shall not result in a waiver or forfeiture of any of
Consultant's rights under this Section 5 except to the extent of actual damages
suffered by ERPM as a result of such failure. Consultant shall not pay such
claim prior to the expiration of the 15-day period following the date on which
Consultant gives such notice to ERPM (or such shorter period ending on the date
that any payment of taxes, interest, penalties or additions to tax with respect
to such claim is due). If ERPM notifies Consultant in writing prior to the
expiration of such 15-day period that it desires to contest such claim (and
demonstrates to the reasonable satisfaction of Consultant its ability to make
the payments to Consultant which may ultimately be required under this section
before assuming responsibility for the claim), Consultant shall:
(A) give ERPM any information reasonably requested by ERPM
relating to such claim;
(B) take such action in connection with contesting such claim as
ERPM shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to
such claim by an attorney selected by ERPM that is reasonably
acceptable to Consultant;
(C) cooperate with ERPM in good faith in order to effectively
contest such claim; and
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(D) permit ERPM to participate in any proceedings relating to
such claim; provided, however, that ERPM shall bear and pay directly
all attorneys fees, costs and expenses (including additional interest,
penalties and additions to tax) incurred in connection with such
contest and shall indemnify and hold Consultant harmless, on an after-
tax basis, for all taxes (including, without limitation, income and
excise taxes), interest, penalties and additions to tax imposed in
relation to such claim and in relation to the payment of such costs
and expenses or indemnification. Without limitation on the foregoing
provisions of this Section 12, and to the extent its actions do no
unreasonably interfere with or prejudice Consultant's disputes with
the Taxing Authority as to other issues, ERPM shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct
Consultant to pay the tax, interest or penalties claimed and xxx for a
refund or contest the claim in any permissible manner, and Consultant
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as ERPM shall determine; provided, however,
that if ERPM directs Consultant to pay such claim and xxx for a
refund, ERPM shall advance an amount equal to such payment to
Consultant, on an interest-free basis, and shall indemnify and hold
Consultant harmless, on an after-tax basis, from all taxes (including,
without limitation, income and excise taxes), interest, penalties and
additions to tax imposed with respect to such advance; and, further,
provided, that any extension of the statute of limitations relating to
payment of taxes, interest, penalties or additions to tax for the
taxable year of Consultant with respect to which such contested amount
is claimed to be due is limited solely to such contested amount; and,
provided, further, that any settlement of any claim shall be
reasonably acceptable to Consultant and ERPM's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and Consultant shall be entitled to settle
or contest, as the case may be, any other issue.
(ii) If, after receipt by Consultant of an amount advanced by ERPM
pursuant to Section 12(c)(i), Consultant receives any refund with respect
to such claim, Consultant shall (subject to ERPM's complying with the
requirements of Section 12) promptly pay to ERPM an amount equal to such
refund (together with any interest paid or credited thereon after taxes
applicable thereto), net of any taxes (including without limitation any
income or excise taxes), interest, penalties or additions to tax and any
other costs incurred by Consultant in connection with such advance, after
giving effect to such repayment. If, after the receipt by Consultant of an
amount advanced by ERPM pursuant to Section 12(c)(i), it is finally
determined that Consultant is not entitled to any refund with respect to
such claim, then such advance shall be forgiven and shall not be required
to be repaid and the amount of such advance shall be treated as a Gross-Up
Payment and shall offset, to the extent thereof, the amount of any Gross-Up
Payment otherwise required to be paid.
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(iii) For purposes of this Section 12, whether the Excise Tax is
applicable to a Payment shall be deemed to be "finally determined" upon the
earliest of: (A) the expiration of the 15-day period referred to in Section
12(c)(i) above if ERPM has not notified Consultant that it intends to
contest the underlying claim, (B) the expiration of any period following
which no right of appeal exists, (C) the date upon which a closing
agreement or similar agreement with respect to the claim is executed by
Consultant and the Taxing Authority (which agreement may be executed only
in compliance with this Section 12, (D) the receipt by Consultant of notice
from ERPM that it no longer seeks to pursue a contest (which notice shall
be deemed received if ERPM does not, within 15 days following receipt of a
written inquiry from Consultant, affirmatively indicate in writing to
Consultant that ERPM intends to continue to pursue such contest).
(d) As a result of uncertainty in the application of Section 4999
that may exist at the time of any determination that a Gross-Up Payment is due,
it may be possible that in making the calculations required to be made
hereunder, the parties of their accountants shall determine that a Gross-Up
Payment need not be made (or shall make no determination with respect to Gross-
Up Payment) that properly should be made ("Underpayment"), or that a Gross-Up
Payment not properly needed to be made should be made ("Overpayment"). The
determination of any Underpayment shall be made using the procedures set forth
in paragraph (b) above and shall be paid to Consultant as an additional Gross-Up
Payment. ERPM shall be entitled to use procedures similar to those available to
Consultant in paragraph (b) to determine the amount of any Overpayment (provided
that ERPM shall bear all costs of the accountants as provided in paragraph (b)).
In the event of a determination that an Overpayment was made, any such
Overpayment shall be treated for all purposes as a loan to Consultant with
interest at the applicable Federal rate provided for in section 1247(d) of the
Code; provided, however, that the amount to be repaid by Consultant to ERPM
shall be subject to reduction to the extent necessary to put Consultant in the
same after-tax position as if such Overpayment were never made.
13. Confidentiality. Consultant acknowledges that during the course of
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this Agreement, he will obtain knowledge of and access to confidential
proprietary information of ERPM and its affiliates (hereinafter referred to as
the "Confidential Information"). Such Confidential Information includes
confidential records, data, formulae, sales strategy, and other confidential and
proprietary information of ERPM and its affiliates. Consultant acknowledges that
the disclosure of any Confidential Information in contravention of this Section
13 would do irreparable damage to ERPM and its affiliates. Consultant
accordingly agrees that, unless otherwise authorized by written instrument
signed by an officer of ERPM, he will not at any time, in any manner whatsoever,
except in the regular course of performing his duties as a consultant to ERPM,
use for himself or others, or disclose, reveal or divulge to anyone, any of the
Confidential Information.
"Confidential Information" shall not include any information which now or
hereafter (a) is or becomes generally known to the public other than as a result
of breach of this Section 13 or other similar confidentiality covenant, or (b)
is or becomes readily available from or actually acquired from third parties who
are not employees of ERPM or an affiliate of ERPM
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and who did not acquire such information as a result of a breach of this Section
13 or other similar confidentiality covenant.
14. Covenant Restricting Solicitation. Consultant shall not, directly or
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indirectly, solicit, attempt to solicit for employment or employ any employee of
ERPM or any affiliate of ERPM at any time during the Term and the one year
period ending on the first anniversary of the date of the expiration or
termination of the Term.
15. Certain Representations. Each party represents and warrants to the
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other party that (i) such party is free to enter into this Agreement, and (ii)
this Agreement does not violate the terms of any agreement, instrument,
covenant, order or decree to which such party is bound.
16. Certain Provisions to Survive. The provisions of Sections 7, 9, 10,
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11, 12, 13, 14, 16 and 18 shall survive the expiration or termination of this
Agreement as to obligations which accrued prior to such expiration or
termination.
17. Waiver. Failure by either party to insist upon strict compliance with
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any of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or remedy hereunder at any one or more times be deemed a waiver or
relinquishment of such right or remedy at any other time or times.
18. Aggregate Payment Limitation. Notwithstanding any contrary provisions
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of Section 12, the aggregate value of fee payments to which Consultant shall be
entitled under all the provisions this Agreement shall not exceed $988,000.
19. Other Agreements. ERPM and Consultant do hereby acknowledge that:
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(a) The Change in Control Agreement dated June 18, 1997 by and between
Consultant and EWR, as amended by Amendment No. 1 thereto dated August 27, 1997
(the "Change in Control Agreement") shall terminate as of the Effective Time.
Consultant hereby waives any rights to receive any payments under the Change in
Control Agreement as a result of the Merger or otherwise, and any other rights
he may have under the Change in Control Agreement as a result of such
termination.
(b) Any existing Employment Agreement between EWR and Consultant shall
terminate effective as of the Effective Time, provided, that such termination
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shall not impair Consultant's right to a bonus for 1997 which shall be paid in
cash and not in stock of EWR or EQR and Consultant's right to base salary for
the pay period ending upon termination of his employment, which shall be paid
prior to the Effective Time. Except as provided in the preceding sentence,
Consultant hereby waives any rights he may have under any employment agreement
between EWR and Consultant as of the Effective Time.
20. Severability. Each section, paragraph, term and provision of this
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Agreement, and any portion thereof, shall be considered severable. If for any
reason any such portion of this
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Agreement is held to be invalid, contrary to, or in conflict with any applicable
present or future law or regulation in a final, unappealable ruling issued by a
court, agency or tribunal with competent jurisdiction in a proceeding to which
ERPM is a party, that ruling shall not impair the operation of, or have any
other effect upon, any other portions of this Agreement, which shall continue to
be given full force and effect. If any provisions hereof shall be adjudicated
to be invalid or unenforceable in whole or in part, such modifications made to
this Agreement as a result of such adjudication shall be effective only in the
particular jurisdiction in which such adjudication is made. To the extent any
provision hereof is deemed unenforceable by virtue of its scope but may be made
enforceable by limitations thereon, the parties agree that the same shall be
enforceable to the fullest extent permissible under the laws and public policies
applied in such jurisdiction in which the enforcement is sought. The parties
hereby authorize any court of competent jurisdiction to modify the restrictive
covenants to the extent necessary to make the same enforceable.
21. Assignability; Benefit. This Agreement shall inure to the benefit of
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and be binding upon ERPM and its successors and assigns. The rights and
benefits of Consultant under this Agreement are personal to him, and are not
subject to voluntary or involuntary alienation, assignment or transfer by him.
22. Entire Agreement. This Agreement contains the entire agreement
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between the parties with respect to the subject matter hereof, and may not be
modified or rescinded except by a written agreement to such effect signed by
both parties.
23. Notices. Any and all notices required or permitted to be given
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hereunder must be in writing and shall be deemed to have been properly served if
given by personal delivery, or if transmitted by telecopy, or if delivered to
Federal Express or other reputable overnight carrier for next business day
delivery, charges billed to and prepaid by shipper, or if deposited in the
United States mail, registered or certified with return receipt requested,
proper postage prepaid, addressed as follows:
To Consultant: Xxxx X. Xxxxxx
0000 Xxxxx 00xx Xxxxxx
Xxxxxxxx Xxxxxx, XX 00000
To ERPM: Equity Residential Property Management Limited
Partnership
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: President
Each notice shall be effective upon personal delivery, or upon
confirmation of receipt of the applicable telecopy, or one (1) business day
after delivery to a reputable overnight carrier in accordance with the
foregoing, or upon receipt with respect to notices deposited in the United
States registered or certified mail in accordance with the foregoing. Rejection
or other refusal
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to accept or the inability to deliver because of changed address of which no
notice was given shall not adversely impact the effectiveness of any such
notice.
Any addressee may change its address for notices hereunder by giving
written notice in accordance with this Section 23.
24. Governing Law. This Agreement and the rights and obligations of the
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parties hereunder shall be governed by and construed in accordance with the laws
of the State of Illinois, without regard to its conflict of laws provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
EQUITY RESIDENTIAL PROPERTIES
MANAGEMENT LIMITED PARTNERSHIP
By: ERP OPERATING LIMITED PARTNERSHIP,
an Illinois limited partnership,
its general partner
By: EQUITY RESIDENTIAL PROPERTIES
TRUST, its general partner
By: /s/ Xxxxx X. Xxxxxx
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Title: Executive Vice President
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/s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx
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