AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1998
REGISTRATION NO. 333-44419
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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RECKSON SERVICE INDUSTRIES, INC.
(formerly Reckson Services Industries Inc.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6531/9999 11-3383642
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (IRS EMPLOYER
OF INDUSTRIAL IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.)
NUMBER)
225 BROADHOLLOW ROAD DONALD J. RECHLER
MELVILLE, NEW YORK 11747 225 BROADHOLLOW ROAD
TELEPHONE: (516) 719-7400 TELEPHONE (516) 719-7400
(ADDRESS AND TELEPHONE NUMBER (NAME, ADDRESS AND TELEPHONE NUMBER
OF REGISTRANT'S PRINCIPAL OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
-----------------------
Copies to:
THOMAS R. SMITH, JR., ESQ.
EDWARD F. PETROSKY, ESQ.
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as possible after the effective date of this registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act"), check the following box. (X)
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ( )
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ( )
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. ( )
================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE AS SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
PROSPECTUS
RECKSON SERVICE INDUSTRIES, INC.
COMMON STOCK
RIGHTS TO SUBSCRIBE FOR COMMON STOCK
This Prospectus is being furnished to both the stockholders of Reckson
Associates Realty Corp., a Maryland corporation ("Reckson"), and the limited
partners of Reckson Operating Partnership, L.P., a Delaware limited partnership
("Reckson Operating Partnership"), in connection with the distribution by
Reckson Operating Partnership and Reckson of 3,905,855 shares of common stock,
par value $.01 per share, of Reckson Service Industries, Inc., a Delaware
corporation ("RSI" or the "Company"). Each share of RSI common stock will be
accompanied by one Preferred Stock Purchase Right, the terms of which are
described herein.
Immediately after the distribution referred to above, RSI will grant at
no cost to its stockholders (collectively, the "Holders") non-transferable
rights (collectively, the "Subscription Rights") to purchase up to an aggregate
of 20,557,130 shares of RSI common stock (the "Rights Offering"). Each Holder
will receive one Subscription Right for each share of RSI common stock received
in the distribution. Each Subscription Right will entitle the Holder to purchase
one share of RSI common stock at a purchase price of $1.03 per share (the
"Exercise Price") and, at the election of such Holder, four additional shares
(but not less than four additional shares) at a purchase price of $1.03 per
share. Holders may exercise their Subscription Rights in respect of one share or
five shares of RSI common stock that they are entitled to purchase pursuant to
the Subscription Rights. Holders will not be permitted to purchase more than one
share and less than five shares in respect of a Subscription Right. The exercise
period for the Subscription Rights will expire at 5:00 p.m., New York City time,
on June 29, 1998, unless extended by RSI in its discretion (the "Expiration
Date"). Once made, subscriptions are irrevocable, and no alternative,
conditional or contingent rights will be accepted by RSI.
SEE "RISK FACTORS" BEGINNING ON PAGE 19 OF THIS PROSPECTUS FOR A
DISCUSSION OF MATERIAL RISKS RELEVANT TO THE OWNERSHIP OF RSI COMMON STOCK.
It is expected that the distribution of RSI common stock will be made
on June 11, 1998. The distribution of RSI common stock will be made on the basis
of one share of RSI common stock for (i) every 12.5 units of limited partner
interest in Reckson Operating Partnership held by the limited partners on May
26, 1998 (the "Record Date") and (ii) every 12.5 shares of common stock, $.01
par value, of Reckson held by Reckson stockholders on the Record Date. No
certificates representing fractional shares of RSI common stock will be issued
in connection with the distribution of RSI common stock. In lieu of such
fractional shares, American Stock Transfer & Trust Company, as Distribution
Agent, will pay to any person who would be entitled to a fractional share of RSI
common stock an amount of cash (without interest) equal to $1.03 per share.
RSI Standby LLC (the "Standby Purchaser") has entered into an agreement
(the "Standby Agreement") pursuant to which the Standby Purchaser has agreed to
purchase, and RSI has agreed to sell, any and all shares of RSI common stock
that are the subject of Subscription Rights in the Rights Offering but are not
subscribed for by the Holders thereof (the "Standby Commitment Shares") on the
Expiration Date at the Exercise Price.
As a result of certain considerations regarding Reckson's status as a
real estate investment trust under Federal tax laws, ownership by any person of
RSI common stock is limited to 9.9% of the number of shares or value of the RSI
common stock, subject to certain exceptions.
There is currently no public market for the RSI common stock and none
is expected to develop prior to the termination of the exercise period for
Subscription Rights. Subsequent to the Expiration Date, RSI anticipates that
trading of the shares of RSI common stock may occur on the OTC Bulletin Board.
However, shares of RSI common stock have not been approved for listing on any
national securities exchange or for quotation on any quotation system, and there
can be no assurance that such shares will be so approved or quoted or that a
public market will develop or, if one develops, will be sustained or provide
liquidity.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 13, 1998.
TABLE OF CONTENTS
AVAILABLE INFORMATION....................................................... 5
SUMMARY..................................................................... 6
SUMMARY CONDENSED PRO FORMA FINANCIAL INFORMATION........................... 18
RISK FACTORS................................................................ 19
LACK OF OPERATING HISTORY................................................. 19
LACK OF MANAGEMENT EXPERIENCE............................................. 19
NO ASSURANCE AS TO ABILITY TO MANAGE GROWTH............................... 19
UNCERTAINTIES RELATING TO GROWTH BY ACQUISITIONS, INCLUDING LACK OF
OPERATING HISTORY, COMPETITION AND POSSIBLE DILUTION TO EARNINGS....... 20
RESTRICTIONS ON BUSINESS AND FUTURE OPPORTUNITIES......................... 20
DEPENDENCE UPON RECKSON AND RECKSON OPERATING PARTNERSHIP................. 20
POTENTIAL GEOGRAPHIC CONCENTRATION........................................ 20
RELIANCE ON KEY PERSONNEL; ALLOCATION OF MANAGEMENT'S TIME................ 21
LIMITED FINANCIAL RESOURCES; OBLIGATIONS UNDER FINANCING
ARRANGEMENTS; LIMITED FUTURE FUNDING COMMITMENTS....................... 21
CONFLICTS OF INTEREST..................................................... 21
RELATED PARTY TRANSACTIONS................................................ 22
NO PRIOR SPONSORSHIP OF VENTURE CAPITAL VEHICLE; INVESTMENTS IN
COMPANIES IN EARLY STAGE OF DEVELOPMENT OR WITH HISTORICAL
OPERATING LOSSES....................................................... 23
OWNERSHIP THROUGH JOINT VENTURES, INCLUDING LIMITS ON ABILITY TO
CONTROL AND INABILITY OF JOINT VENTURER TO PERFORM..................... 23
STUDENT HOUSING SECTOR UNDERGOING RAPID CHANGE; DEPENDENCE OF
PROJECTS ON WELL-BEING OF RELATED SCHOOLS; COMPETITION................. 24
ABSENCE OF A PUBLIC MARKET FOR RSI COMMON STOCK; VOLATILE TRADING
PRICES................................................................. 24
ABSENCE OF DIVIDENDS ON RSI COMMON STOCK FOLLOWING THE DISTRIBUTION....... 24
RISKS OF LOW-PRICED STOCK................................................. 25
REAL ESTATE INVESTMENT RISKS.............................................. 25
POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO REAL ESTATE.................. 26
CERTAIN ANTITAKEOVER PROVISIONS........................................... 27
FEDERAL INCOME TAX RISKS.................................................. 28
RISK OF DEFAULT UNDER STANDBY COMMITMENT.................................. 28
RISK OF DILUTION IN THE RIGHTS OFFERING; ACQUISITION OF STOCK UNDER
STANDBY COMMITMENT..................................................... 28
THE DISTRIBUTION............................................................ 29
BACKGROUND OF, AND REASONS FOR, THE DISTRIBUTION.......................... 29
MANNER OF EFFECTING THE DISTRIBUTION...................................... 29
FEDERAL INCOME TAX CONSEQUENCES........................................... 30
LISTING AND TRADING OF RSI COMMON STOCK................................... 34
SHARES AVAILABLE FOR FUTURE SALE.......................................... 35
THE RIGHTS OFFERING......................................................... 35
PURPOSE................................................................... 35
EXERCISE PRIVILEGE........................................................ 36
NO FRACTIONAL RIGHTS...................................................... 36
EXPIRATION DATE........................................................... 36
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS................................ 36
METHOD OF EXERCISING SUBSCRIPTION RIGHTS.................................. 36
STANDBY AGREEMENT...................................................... 37
FEDERAL INCOME TAX CONSEQUENCES........................................... 37
USE OF PROCEEDS........................................................... 38
DIVIDEND POLICY............................................................ 38
SELECTED FINANCIAL DATA..................................................... 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................... 40
RESULTS OF OPERATIONS..................................................... 40
LIQUIDITY AND CAPITAL RESOURCES........................................... 41
IMPACT OF YEAR 2000....................................................... 42
PRO FORMA CAPITAL RESOURCES............................................... 43
PRO FORMA RESULTS OF OPERATIONS........................................... 43
BUSINESS.................................................................... 44
OVERVIEW.................................................................. 44
INITIAL ASSETS OF RSI..................................................... 46
FUNDING SOURCES FOR RSI................................................... 50
CHANGES IN INTEREST RATES................................................. 51
THE INTERCOMPANY AGREEMENT................................................ 52
PROPERTY.................................................................. 52
EMPLOYEES................................................................. 52
LEGAL PROCEEDINGS......................................................... 53
MANAGEMENT.................................................................. 53
DIRECTORS, DIRECTOR NOMINEE AND EXECUTIVE OFFICERS OF RSI................. 53
COMMITTEES OF THE BOARD OF DIRECTORS...................................... 55
COMPENSATION OF DIRECTORS................................................. 56
ANNUAL MEETING............................................................ 56
EMPLOYMENT AGREEMENTS..................................................... 56
REGISTRATION RIGHTS....................................................... 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AFTER
THE DISTRIBUTION....................................................... 56
BENEFICIAL OWNERSHIP OF RSI COMMON STOCK.................................... 57
EXECUTIVE COMPENSATION.................................................... 58
RSI STOCK OPTION PLAN..................................................... 59
CONFLICTS OF INTEREST..................................................... 61
CERTAIN TRANSACTIONS........................................................ 61
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS............ 61
ACQUISITION OF ASSETS..................................................... 61
FORMATION AND EQUITY CAPITALIZATION OF RSI; OWNERSHIP OF
RSI COMMON STOCK ...................................................... 62
THE INTERCOMPANY AGREEMENT................................................ 62
STANDBY AGREEMENT......................................................... 62
DESCRIPTION OF RSI CAPITAL STOCK............................................ 63
AUTHORIZED CAPITAL STOCK.................................................. 63
COMMON STOCK.............................................................. 63
PREFERRED STOCK........................................................... 63
SERIES A JUNIOR PREFERRED STOCK........................................... 64
RESTRICTION ON OWNERSHIP OF RSI CAPITAL STOCK............................. 65
EXCESS STOCK.............................................................. 66
RESTRICTIONS ON OWNERSHIP................................................. 66
CERTAIN ANTITAKEOVER PROVISIONS............................................. 68
STAGGERED BOARD OF DIRECTORS.............................................. 68
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES........................... 68
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS................ 68
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND
STOCKHOLDER PROPOSALS ................................................. 69
RELEVANT FACTORS TO BE CONSIDERED BY THE RSI BOARD........................ 69
AMENDMENT................................................................. 70
PREFERRED RIGHTS PLAN..................................................... 70
DELAWARE BUSINESS COMBINATION STATUTE..................................... 72
CONTROL SHARE ACQUISITIONS................................................ 73
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION...................... 74
EXPERTS..................................................................... 75
LEGAL MATTERS............................................................... 75
INDEX TO FINANCIAL STATEMENTS............................................... F-1
AVAILABLE INFORMATION
RSI has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to RSI common stock. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information, reference is made hereby to the
Registration Statement, exhibits and schedules. Statements contained herein
concerning any documents are not necessarily complete and, in each instance,
reference is made to the copies of such documents filed as exhibits to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. Copies of these documents may be inspected without charge at the
principal office of the Commission at 450 5th Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission at 7 World Trade Center,
Suite 1300, New York, New York 10048, at Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661, and at 5670 Wilshire Boulevard, Suite
1100, Los Angeles, California 90036, and copies of all or any part thereof may
be obtained from the Commission upon payment of the charges prescribed by the
Commission. Copies of such documents may also be obtained from the Commission's
Web Site (http://www.sec.gov).
Following the effectiveness of the Registration Statement, RSI will be
required to comply with the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and will file annual, quarterly
and other reports with the Commission. The Company will also be subject to the
proxy solicitation requirements of the Exchange Act and, accordingly, will
furnish audited financial statements to its stockholders in connection with its
annual meetings of stockholders.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
SUMMARY
This Summary is qualified by the more detailed information set forth
elsewhere in this Prospectus, which should be read in its entirety, including
the discussion of certain matters set forth under "Risk Factors." Unless the
context requires otherwise, references to "Reckson" herein include Reckson, its
predecessors, and its direct and indirect subsidiaries, including Reckson
Operating Partnership and, unless the context otherwise requires, references to
"RSI" or the "Company" herein include RSI and its direct and indirect
subsidiaries.
The Issuer and the Distribution
Issuer Reckson Service Industries, Inc., a Delaware
corporation.
Distributing Entities Reckson Operating Partnership will
distribute shares of RSI common stock to its
partners, including Reckson Associates
Realty Corp. (which owns approximately 84%
of the common units of limited partnership
interest in Reckson Operating Partnership),
whereupon Reckson Associates Realty Corp.
will distribute to its stockholders the
shares of RSI common stock received from
Reckson Operating Partnership (collectively,
the "Distribution").
Shares to be Distributed Approximately 3,905,855 shares of RSI common
stock, representing 95% of the outstanding
shares of RSI common stock (subject to
reduction to the extent that cash payments
are made in lieu of the issuance of
fractional shares of RSI common stock).
Distribution Ratio One share of RSI common stock will be
distributed to (i) Reckson stockholders for
every 12.5 shares of Reckson common stock
held on May 26, 1998 and (ii) limited
partners of Reckson Operating Partnership
for every 12.5 units of limited partnership
interest in Reckson Operating Partnership
held on May 26, 1998. No certificates
representing fractional shares of RSI common
stock will be issued in connection with the
Distribution. In lieu of fractional shares,
American Stock Transfer & Trust Company, as
Distribution Agent, will pay to any person
who would be entitled to a fractional share
of RSI common stock an amount of cash
(without interest) equal to $1.03 per share.
No payment need be made by, or will be
accepted from, Reckson stockholders or
limited partners of Reckson Operating
Partnership for RSI common stock to be
received by them in the Distribution.
Furthermore, Reckson stockholders will not
be required to surrender or exchange Reckson
common stock, and limited partners of
Reckson Operating Partnership will not
be required to surrender or exchange units
of limited partnership interest in Reckson
Operating Partnership, in order to receive
RSI common stock.
Background of, and Reasons
for, the Distribution RSI has been formed primarily to identify
and acquire interests in operating companies
that engage in businesses that provide
services for occupants of office, industrial
and other property types that Reckson may
not be permitted to provide under Federal
tax laws applicable to a real estate
investment trust ("REIT") or that have not
traditionally been performed by Reckson
(collectively, "Commercial Services"). RSI
will also pursue real estate or real estate
related investment opportunities through
Reckson Strategic Venture Partners, LLC
("RSVP"), a real estate venture capital fund
created as a "research and development"
vehicle for Reckson to explore and invest in
real estate sectors outside of its
traditional office and industrial sectors,
thereby providing the potential for Reckson
to incorporate one or more of these
alternative sectors into its core business.
RSVP may make or acquire (a) real estate or
real estate-related investments other than
REIT-Qualified Investments (as defined
below) and (b) investments satisfying the
Federal tax laws applicable to REITs
("REIT-Qualified Investments") made
available to Reckson Operating Partnership
that it has chosen not to pursue.
RSI will enter into an agreement with
Reckson Operating Partnership (the
"Intercompany Agreement") pursuant to which
RSI and Reckson Operating Partnership will
agree to provide each other with first
opportunity rights in respect of certain
types of transactions and activities,
thereby reducing the potential for conflicts
of interest between the parties by
formalizing their relationship at the
outset. See "Business--The Intercompany
Agreement."
Business Strategy
of RSI Service Sector Operations. RSI's primary
business is to create and manage a system of
interrelated services to be offered to the
marketplace through a centralized
infrastructure. RSI will focus on service
sectors that present opportunities to
provide Commercial Services to Reckson
Operating Partnership and its tenants and to
the tenants and customers of RSVP and RSI's
other affiliates (collectively, the "Reckson
Customer Base"), as well as to other third
parties. Currently, the Reckson Customer
Base retains third parties to provide many
services for their day-to-day operations. Of
these services, RSI may seek to offer the
Reckson Customer Base telecommunications,
document storage, document reproduction and
logistics services (i.e., inventory
services, messenger services and delivery
services), as well as with other services
that RSI determines may be utilized by the
Reckson Customer Base.
Management believes that there are
significant opportunities to provide
Commercial Services to the Reckson Customer
Base and third parties that are currently
provided by third parties in a more limited
and fragmented manner or not provided at
all. The opportunities that the Company may
determine to pursue include
telecommunications, document storage,
document reproduction and logistics
services. Management also believes that RSI
will benefit from Reckson's relationships
with its tenants and from Reckson's
reputation for providing high quality
service to its tenants. See
"Business--Overview."
Real Estate Venture Capital Fund. RSI,
through a subsidiary, is a managing member
of RSVP. RSVP's strategy is to identify and
acquire interests in established
entrepreneurial enterprises with experienced
management teams in market sectors which are
in the early stages of their growth cycle or
offer unique circumstances for attractive
investments. RSVP has made an investment in
the area of student housing and is targeting
additional market sectors. RSVP has retained
highly experienced real estate investment
professionals that will source, structure
and execute transactions within each market
sector, as well as manage the day-to-day
operations of RSVP, subject to the overall
management of RSI's executive officers. RSI
has committed to invest up to $100 million
in RSVP over a period of three years. In
addition, as further described below, RSVP
has obtained a $200 million preferred equity
facility (the "PaineWebber Equity Facility")
from PaineWebber Real Estate Securities Inc.
("PWRES"), which will be partially funded by
an investment fund that is jointly sponsored
by financier George Soros and PWRES.
Initial Assets of
RSI RSI's initial investments are comprised of
(i) convertible loans made to OnSite
Ventures, L.L.C., a company providing
advanced telecommunication systems and
services within commercial and residential
buildings, (ii) a 9.9% equity interest in
Reckson Executive Centers LLC, an executive
office suites business operated at Reckson
properties that was acquired from Reckson
Operating Partnership for $200,000, and an
option to acquire a majority equity interest
in InterOffice Superholdings Corporation, a
privately-held national executive office
suites business (the "Office Suites
Company"), and (iii) its indirect interests
in the assets of RSVP (currently interests
in American Campus Lifestyles Companies,
LLC, a student housing enterprise that
develops, constructs, manages and acquires
on-and off-campus student housing projects,
and the Dobie Center, a student housing
facility). See "Business--Initial Assets of
RSI."
Funding Sources for RSI RSI expects to establish a credit facility
with Reckson Operating Partnership (the "RSI
Facility") in the amount of $100 million for
RSI's service sector operations and other
general corporate purposes. In addition,
Reckson Operating Partnership has approved
the funding of investments of up to $100
million with or in RSVP, through (i) loans
for the funding of RSVP investments prior to
the Distribution, (ii) RSVP-controlled joint
venture REIT- Qualified Investments, or
(iii) advances made to RSI subsequent to the
Distribution under a credit facility (the
"RSVP-ROP Facility", and together with the
RSI Facility, the "Credit Facilities") with
terms similar to those of the RSI Facility.
RSVP has obtained the PaineWebber Equity
Facility which provides for PWRES to invest
up to $200 million in RSVP in the form of a
preferred equity interest, subject to
certain conditions. Such investment by PWRES
will be partially funded by an investment
fund that is jointly sponsored by financier
George Soros and PWRES. See
"Business-Funding Sources for RSI."
Management of RSI Donald J. Rechler, Scott H. Rechler and
Michael Maturo will serve as executive
officers of RSI in the capacities of
Chairman of the Board, President and Chief
Executive Officer and Executive Vice
President, Treasurer and Chief Financial
Officer, respectively. Each RSI executive
officer currently serves as an executive
officer of Reckson. Mr. Daniel A. DiSano and
Mr. Jeffrey D. Neumann will serve as Senior
Vice Presidents of RSI and will be primarily
responsible for executing the business
strategy of RSI. In addition, RSI has
established a management advisory committee
to assist RSI's executive officers in
developing investment strategies and
evaluating investment opportunities. This
committee will consist of Roger Rechler,
Mitchell D. Rechler and Gregg M. Rechler,
all of whom are executive officers of
Reckson. It is anticipated that RSI's
executive officers and members of the
management advisory committee that are also
officers of Reckson initially will not
receive base salaries from RSI. However,
they have received stock options under RSI's
stock option plan and may receive additional
options, bonuses or other incentive-based
compensation in the future. See
"Management."
Interests of Certain
Officers and Directors
and Affiliates In addition to each RSI executive officer
serving as an executive officer of Reckson,
Donald J. Rechler, Scott H. Rechler, Roger
Rechler and Mitchell D. Rechler will serve
as directors of both Reckson and RSI and
Michael Maturo and Gregg M. Rechler will
serve as directors of RSI. RSI's executive
officers and the members of the management
advisory committee also have a significant
interest in Reckson and RSI through
beneficial ownership of common stock of each
of these entities and ownership of units of
limited partnership interest in Reckson
Operating Partnership. As of April 27, 1998,
RSI's executive officers and the members of
the management advisory committee
beneficially owned approximately 9.77% of
the common equity interests of Reckson and,
as of the Distribution of RSI common stock
and consummation of the Rights Offering
(assuming the full exercise of Rights by the
Holders), are expected to beneficially own
approximately 12.56% of RSI.
Due to considerations relating to Reckson's
status as a REIT under Federal tax laws, RSI
was initially formed as a subsidiary in
which Reckson Operating Partnership owned
95% of the outstanding capital stock of RSI
in the form of non-voting common stock.
Lightpost LLC owns the remaining 5% of the
outstanding capital stock of RSI in the form
of common stock. Donald J. Rechler, Scott H.
Rechler, Michael Maturo, Roger Rechler,
Mitchell D. Rechler and Gregg M. Rechler and
trusts controlled by certain of such
executive officers own 70% of the member
interests of Lightpost LLC and the other 30%
of the member interests is owned by members
of Reckson management who are not executive
officers or directors of Reckson and a
Rechler family member who is not a member of
Reckson management. The shares of capital
stock owned by Reckson Operating Partnership
and Lightpost LLC were issued by RSI on the
same dates and at the same per share price
of $1.10. Immediately prior to the
Distribution, the shares of non-voting
common stock owned by Reckson Operating
Partnership will be exchanged by RSI for RSI
common stock.
RSI expects to obtain the Credit Facilities
from Reckson Operating Partnership and
borrowings thereunder are expected to bear
interest at the rate equal to the greater of
(i) the prime rate plus 2% and (ii) 12% per
annum, with the rate referred to in clause
(ii) increasing annually at a rate of 4% of
the prior year's rate. The Credit Facilities
are expected to be payable on an
interest-only basis from net cash flow
during its five-year term. Advances under
the Credit Facilities will be recourse
obligations of RSI. See "Business-Funding
Sources for RSI."
Jon L. Halpern, a director of Reckson, and
affiliated parties own a 39.13% interest in
OnSite Ventures L.L.C., a 331/3% interest in
a joint venture that owns 76.09% of American
Campus Lifestyles Companies, LLC, a 331/3%
interest in a joint venture that owns a 70%
interest in the Dobie Center and a 22.75%
interest in the Office Suites Company, and
may participate in the management and
operation of these companies. Management
believes that RSI's participation, or, in
the Office Suites Company's case, possible
participation, in such investments with Mr.
Halpern has been the subject of arm's-length
negotiations. See "Certain Transactions."
In addition, RSI Standby LLC, an entity
owned by Donald J. Rechler, Scott H.
Rechler, Michael Maturo, Roger Rechler,
Mitchell D. Rechler, Gregg M. Rechler,
certain non-executive officers of RSI and
Reckson and certain trusts controlled by
executive officers of Reckson, has entered
into the Standby Agreement relating to the
Rights Offering as described below under
"Rights Offering."
Organization Chart The following chart indicates the
organizational structure of the Company.
[Description of Organizational Diagram]
The organizational diagram shows that
Reckson Service Industries, Inc. (the
"Company" or "RSI") is the 100% owner of RSI
Fund Management LLC. RSI Fund Management LLC
acts as the managing member of, and owns a
100% stake in, RSVP Holdings LLC. Managing
directors of RSVP Holdings LLC have a
"carried interest" in profits through New
World Realty, LLC which also acts as a
managing member. RSVP Holdings LLC acts as
managing member of, and owns 100% of the
common ownership interest of, Reckson
Strategic Venture Partners, LLC ("RSVP").
PWRES and a fund jointly sponsored by
financier George Soros and PWRES own 100% of
the preferred equity ownership interest of
RSVP. The diagram also shows that RSI is the
100% owner of RSI-OSA Holding Inc. RSI-OSA
Holding Inc. has invested in On-Site
Ventures LLC. Such investment consists of a
$1.125 million senior convertible loan and a
commitment to loan $6.5 million in the form
of subordinated debt convertible into a
58.69% interest in On-Site.
Federal Income Tax
Consequences of the
Distribution The Distribution of RSI common stock by
Reckson will be treated as a taxable
dividend to Reckson stockholders to the
extent that it is treated as made out of
Reckson's current or accumulated earnings
and profits (as determined for federal
income tax purposes). To the extent that the
value of the RSI common stock distributed to
a Reckson stockholder exceeds the earnings
and profits of Reckson allocated to such
distribution, such excess will be treated
first as a nontaxable return of capital to
the extent of such stockholder's basis in
its Reckson common stock and thereafter as
gain from a deemed disposition of its
Reckson common stock. Reckson will recognize
gain in connection with the Distribution if
and to the extent that the value of the RSI
common stock distributed by Reckson exceeds
Reckson's basis in the RSI common stock,
which will equal Reckson Operating
Partnership's basis therein. Any such gain
will give rise to additional taxable income
for Reckson stockholders because such gain
will result in an increase in Reckson's
earnings and profits. Reckson stockholders
will receive a basis in the RSI common stock
equal to the value thereof at the time of
the Distribution. The Distribution of RSI
common stock will generally be taxable to
limited partners of Reckson Operating
Partnership only if and to the extent that
the value of the RSI common stock plus any
cash in lieu of fractional shares
distributed to them exceeds their respective
bases in their units of limited partnership
interest in Reckson Operating Partnership,
but certain limited partners may not be
required to recognize gain equal to the full
amount of such excess. Reckson will make a
determination of the fair market value of
the RSI common stock as of the date of the
Distribution. There can be no assurance,
however, that the Internal Revenue Service
(the "Service") or the courts will agree
with the fair market value determined by
Reckson. Brown & Wood LLP has rendered its
opinion that the foregoing discussion,
together with the discussion of federal
income tax consequences discussed
hereinafter, fairly summarizes the federal
income tax considerations likely to be
material to a recipient of RSI common stock
in the Distribution. A copy of the opinion
is filed as an exhibit to the Registration
Statement.
Preferred Stock Purchase
Rights Plan of RSI RSI will adopt a Preferred Stock Purchase
Rights Plan (the "Preferred Rights Plan")
prior to the Distribution after
consideration by the directors of the RSI
Board of their fiduciary duties and
applicable law. As a result, shares of RSI
common stock issued in the Distribution and
the Rights Offering will also initially
represent Preferred Stock Purchase Rights of
RSI.
Additional Antitakeover
Provisions Certain provisions of RSI's charter and
bylaws, as each will be in effect on the
date of the Distribution of the RSI common
stock, and of the Delaware General
Corporation Law (the "DGCL"), will have the
effect of making more difficult a change of
control of RSI in a transaction not approved
by the RSI Board of Directors. These
provisions include (i) a provision for a
classified Board, with only approximately
one-third of the Board to be elected in any
year, to serve for three-year terms, (ii) a
requirement that directors be removed only
for cause upon the affirmative vote of
holders of at least 80% of the total voting
power, (iii) a prohibition on the
stockholders' ability to call a special
meeting, (iv) a requirement that actions of
stockholders be taken at a meeting of
stockholders, rather than by written
consent, (v) an advance notice requirement
for stockholders to make nominations of
candidates for directors or to bring other
business before an annual meeting of
stockholders, (vi) a requirement that, under
certain circumstances, two- thirds of RSI
common stock approve any merger or similar
business combination involving RSI, (vii) a
provision that the holder of "control
shares" of RSI acquired in a control share
acquisition have no voting rights with
respect to such control shares except to the
extent approved by the vote of the holders
of two-thirds of the RSI common stock (for
an explanation of "control shares" and a
control share acquisition, see "Certain
Antitakeover Provisions--Control Share
Acquisitions"), (viii) subject to certain
exceptions, a limitation on the ownership
of RSI common stock by any person or entity
of 9.9% of the number of shares or value of
the RSI common stock and a limitation on
the ownership by any person of RSI capital
stock to 9.9% of the aggregate value of all
classes of RSI capital stock, and (ix) a
requirement that amendments to the foregoing
provisions be approved by the affirmative
vote of at least 80% of the total voting
power. The Preferred Rights Plan will also
make more difficult a change of control of
RSI in a transaction not approved by the RSI
Board of Directors.
The Preferred Rights Plan and the business
combination and control shares provisions do
not and will not apply to Reckson and its
affiliates.
Distribution Agent American Stock Transfer & Trust Company will
be the Distribution Agent for the
Distribution of the RSI common stock.
Record Date May 26, 1998.
Distribution Effective Date June 11, 1998. Commencing on or about the
date of the Distribution of the RSI common
stock, the Distribution Agent will begin
mailing account statements reflecting
ownership of RSI common stock to holders of
Reckson common stock and units of limited
partnership interest in Reckson Operating
Partnership as of the Record Date. Reckson
stockholders and Limited Partners will not
be required to make any payment or to take
any other action in order to receive the RSI
common stock to which they are entitled in
the Distribution.
Trading Market There is currently no public market for the
RSI common stock and none is expected to
develop prior to the termination of the
Rights Offering. Subsequent to the
Expiration Date, RSI anticipates that
trading of the shares of RSI common stock
may occur on the OTC Bulletin Board.
Post-Distribution Dividend
Policy Following the Distribution, RSI intends to
use its available funds to pursue investment
and business opportunities and, therefore,
does not anticipate the payment of any
dividends on RSI common stock in the
foreseeable future. Any declaration of
dividends will be subject to the discretion
of the RSI Board of Directors. In addition,
payment of dividends on RSI common stock
will be prohibited under the Credit
Facilities until all amounts outstanding
thereunder are paid in full and will also be
subject to such limitations as may be
imposed by any other credit facilities or
debt securities that RSI may obtain or
issue, as the case may be, from time to
time.
Transfer Agent and
Registrar American Stock Transfer & Trust Company will
be the Transfer Agent and Registrar for the
RSI common stock after the Distribution.
The Rights Offering
Purpose of the Rights Offering RSI is commencing a rights offering for
purposes of (i) funding certain
organizational and start-up costs (estimated
to be $1.5 million) and short-term losses of
the Company, (ii) providing RSI sufficient
initial equity capital in order to pursue
its business objectives and (iii) providing
capital towards meeting minimum capital
requirements to commence trading in the
future on an organized trading system.
Grant of Subscription Rights Immediately after the Distribution of RSI
common stock, RSI will grant to its
stockholders (collectively, "Holders") one
Subscription Right for each share of RSI
common stock. Each Subscription Right will
entitle the Holder to purchase one share of
RSI common stock at a purchase price of
$1.03 per share (the "Exercise Price") and,
at the election of such Holder, four
additional shares (but not less than four
additional shares) at a purchase price of
$1.03 per share. Holders may exercise their
Subscription Rights in respect of one or
five shares of RSI common stock that they
are entitled to purchase pursuant to each
Subscription Right. Holders will not be
permitted to purchase more than one share
and less than five shares in respect of a
Subscription Right. Holders of Subscription
Rights will have the opportunity to acquire
up to an aggregate of approximately
20,557,130 shares of RSI common stock.
Expiration Date June 29, 1998 at 5:00 p.m., New York City
time.
Non-transferability Subscription Rights will be evidenced by
non-transferable certificates that will be
exercisable by the Holder until the
Expiration Date, at which time unexercised
Subscription Rights will become null and
void and subject to the Standby Agreement.
Standby Agreement RSI and the Standby Purchaser have entered
into the Standby Agreement pursuant to which
the Standby Purchaser has agreed to
purchase, and RSI has agreed to sell, any
and all shares of RSI common stock that are
the subject of Subscription Rights in the
Rights Offering but are not subscribed for
by the Holders thereof (the "Standby
Commitment Shares") on the Expiration Date
at the Exercise Price.
Rights Agent American Stock Transfer & Trust Company will
be the Rights Agent of RSI in the Rights
Offering.
Number of shares of RSI
common stock to be
outstanding after
the Rights Offering 24,668,556 shares
Risk Factors
Reckson stockholders and Limited Partners of Reckson Operating
Partnership should consider certain matters discussed under "Risk Factors,"
including risks associated with the limited assets that RSI owns, RSI's lack of
operating history, management's lack of experience in certain sectors in which
RSI is expected to operate, potential conflicts of interest between Reckson and
its affiliates and RSI and its affiliates (including RSVP), RSI's dependence on
Reckson Operating Partnership, RSI's current limited access to the capital
markets and other funding sources, the existence of certain antitakeover
provisions applicable to RSI, the limited trading of the RSI common stock and
RSI's intention not to pay any dividends in the foreseeable future.
SUMMARY CONDENSED PRO FORMA FINANCIAL INFORMATION
The following table sets forth certain unaudited summary pro forma
condensed combined financial information for RSI after giving effect to the
acquisition of (i) through its interest in RSVP, a 331/3% interest in a joint
venture that owns a 76.09% interest in American Campus Lifestyles Companies, LLC
("ACLC"), (ii) through its interest in RSVP, a 331/3% interest in a joint
venture that owns a 70% interest in the Dobie Center, (iii) convertible loans to
OnSite Ventures L.L.C. ("OnSite") and (iv) a 9.9% equity interest in Reckson
Executive Centers LLC (collectively the "Acquired Investments"), as if they had
been consummated, with respect to statement of operations data for the year
ended December 31, 1997, as of January 1, 1997, or, with respect to balance
sheet data as of December 31, 1997. The information presented is derived from,
should be read in conjunction with, and is qualified in its entirety by
reference to, the historical financial statements and the notes thereto and the
unaudited pro forma condensed combined financial data and the notes thereto
appearing elsewhere in this Prospectus. The unaudited summary pro forma
condensed combined financial information has been included for comparative
purposes only and does not purport to be indicative of the results of operations
or financial position which would have been obtained if the acquisition of the
Acquired Investments had been effected at the dates indicated or of the
financial position or results of operations which may be obtained in the future.
See "RSI Pro Forma Financial Statements."
<TABLE>
<CAPTION>
Pro Forma Historical
------------------------- --------------------
Period from
Year Ended Inception to
December 31, 1997(1) December 31, 1997
------------------------- --------------------
<S> <C> <C>
Operations Summary:
Equity in earnings of RO Partners
Management, LLC $ 397,922 $ 245,593
Equity in earnings (loss) of ACLC 123,886 (22,156)
Interest income 162,565 30,383
Total revenues 675,245 253,820
Interest expense 331,222 24,380
Corporate operating expenses 579,113 479,113
Net (loss) (243,304) (257,887)
Pro Forma Historical
December 31, 1997 December 31, 1997
----------------------- --------------------
Financial Position:
Investment in RO Partners Management, LLC $ 3,868,093 $ 3,868,093
Investment in ACLC 1,652,165 1,652,165
Investment in Reckson Executive Centers,
LLC 200,000 --
Loans receivable 1,125,000 325,000
Organization and pre-acquisition costs 681,694 681,694
Total assets 8,519,695 7,519,695
Loans payable to Affiliates 4,177,857 3,177,857
Total liabilities 4,297,241 3,297,241
Shareholders' equity 4,222,454 4,222,454
</TABLE>
---------------
(1) The above historical information is presented from the date of
inception of RSI, July 15, 1997.
RISK FACTORS
Reckson stockholders and limited partners of Reckson Operating
Partnership ("Limited Partners") should carefully consider and evaluate all of
the information set forth in this Prospectus, including the risk factors listed
below. All statements, other than statements of historical facts, included in
this Prospectus that address activities, events or developments that RSI
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, dividends, acquisitions (including the
amount and nature thereof), expansion and other development trends of the real
estate or other industries, business strategies, expansion and growth of the
operations of RSI and its affiliates and other such matters, are forward-looking
statements. These statements are based on certain assumptions and analyses made
by RSI in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate. Such statements are subject to a number of assumptions, risks
and uncertainties, including the risk factors discussed below, general economic
and business conditions, the business opportunities that may be presented to and
pursued by RSI and its affiliates, changes in laws or regulations and other
factors, many of which are beyond the control of RSI and its affiliates. Reckson
stockholders and Limited Partners are cautioned that any such statements are not
guarantees of future performance and that actual results or developments may
differ materially from those anticipated in the forward-looking statements.
LACK OF OPERATING HISTORY
RSI was formed in July 1997 and has sustained operating losses since
its inception. The financial information relating to RSI and its subsidiaries
and their respective assets presented elsewhere in this Prospectus is not
necessarily indicative of the future consolidated financial condition or results
of operations of RSI and its subsidiaries.
LACK OF MANAGEMENT EXPERIENCE
RSI is likely to pursue investments in sectors, either directly or
through RSVP, in which RSI's management has little or no experience. Although
RSI's acquisitions of businesses may include retaining management of such
businesses, it is anticipated that in most cases RSI's management will be
actively involved in overall management and control of the strategic direction
of such businesses. However, with the exception of certain officers retained by
RSI that are not officers of Reckson and management retained from acquired
businesses in the future, if applicable, RSI's management is comprised primarily
of officers of Reckson whose primary experience, unlike that of RSI, is
acquiring, developing, and re-developing suburban office and industrial
properties in the New York "Tri- State" area.
NO ASSURANCE AS TO ABILITY TO MANAGE GROWTH
RSI intends to expand its operations through the acquisition of
Commercial Services businesses. In addition, RSVP may also expand rapidly
through the acquisition of real estate and real estate operating companies. The
success of RSI's and RSVP's growth strategies will depend, in large part, on
their ability to identify attractive business opportunities and effectively
operate and integrate any newly acquired businesses, as to which there can be no
assurance. The growth plans of RSI and RSVP will require the participation of,
and place demands upon, their management and operating personnel. The ability to
manage future growth effectively will require the development of operational,
financial and management information systems. If RSI or RSVP is unable to manage
its growth effectively, RSI's business, results of operations and financial
condition may be adversely affected.
UNCERTAINTIES RELATING TO GROWTH BY ACQUISITIONS, INCLUDING LACK OF OPERATING
HISTORY, COMPETITION AND POSSIBLE DILUTION TO EARNINGS
A significant source of RSI's growth will be through acquisition. There
can be no assurance that suitable acquisition opportunities will be available to
RSI or its affiliates or that RSI or its affiliates will not overpay for
acquisitions or that such acquisitions will be efficiently and adequately
integrated. There may be significant competition for targeted acquisitions. Some
of the companies in which RSI or its affiliates acquire an interest may have
little or no operating histories, may have historical operating losses, and have
competitors that are larger and more well capitalized. Certain of the
acquisitions of RSI or its affiliates may be involved in sectors that are
subject to increasing competition. As a result, the costs incurred to acquire or
reposition companies may be significant and may not be recovered. Furthermore,
there can be no assurance that acquisitions will not be dilutive to RSI's
earnings.
RESTRICTIONS ON BUSINESS AND FUTURE OPPORTUNITIES
RSI will be prohibited under the Intercompany Agreement from making
REIT- Qualified Investments unless Reckson Operating Partnership has been given
the right of first opportunity in respect thereof and has failed to pursue such
investments. In addition, in the event that any such investment becomes
available to an affiliate of RSI, including RSVP, such affiliate will be
required to allow Reckson Operating Partnership to participate in such
investment to the extent of RSI's interest, if any, therein. RSI's charter
provides that one of the corporate purposes of RSI is to perform its obligations
under the Intercompany Agreement. See "Business--The Intercompany Agreement."
RSI also will be required to assist Reckson Operating Partnership in structuring
and consummating any REIT-Qualified Investment presented to Reckson Operating
Partnership which Reckson Operating Partnership has elected to pursue, on terms
determined by Reckson Operating Partnership. As a result, the business and
future opportunities of RSI and its affiliates are significantly restricted.
DEPENDENCE UPON RECKSON AND RECKSON OPERATING PARTNERSHIP
RSI will rely significantly on Reckson for the provision of management
expertise and for the financing of its operations. As a result, if Reckson is
unable to access the financial markets, RSI's ability to finance its operations
may be severely restricted. The Credit Facilities will prohibit advances
thereunder to the extent such advances could, in the determination of Reckson,
endanger Reckson's status as a REIT. In addition, if in the future Reckson
should fail to qualify as a REIT or have a decline in its condition (financial
or other) or earnings, affairs or prospects, there is likely to be a substantial
adverse effect on RSI's business opportunities, financial condition and results
of operations.
POTENTIAL GEOGRAPHIC CONCENTRATION
RSI will seek to provide various Commercial Services to the Reckson
Customer Base and third parties. In light of the geographic concentration of
Reckson's properties in the New York tri-state metropolitan area, in providing
services to the Reckson Customer Base, RSI will be subject to economic factors
impacting such area. The New York tri-state metropolitan area has experienced
periodic economic fluctuations and a future decline in its economy may adversely
impact the results of operations and financial condition of RSI. To the extent
RSI acquires interests in companies that are concentrated geographically, it
will be subject to similar risks in respect of such acquisitions.
RELIANCE ON KEY PERSONNEL; ALLOCATION OF MANAGEMENT'S TIME
The success of RSI and its affiliates depends to a significant degree
upon the contribution of its executive officers and senior management referred
to under "Management", its management advisory committee and other key personnel
that they retain, including the investment professionals employed by RSVP. None
of RSI's executive officers or members of its management advisory committee has
an employment agreement with RSI; two of the investment professionals of RSVP
(the "RSVP Managing Directors") have entered into employment contracts with
RSVP. See "Business--Overview--Real Estate Venture Capital Fund." Conversely,
each of RSI's executive officers have employment agreements with Reckson
pursuant to which they have agreed to spend such time as may be necessary in
carrying out their duties thereunder. These executive officers will not have
similar obligations to RSI. Furthermore, there can be no assurance that RSI and
its affiliates will be able to retain their key managerial and other personnel
or to attract suitable replacements or additional personnel if required. Neither
RSI nor any of its affiliates has obtained key-man insurance for any of its
executive officers, members of its management advisory committee or other key
personnel.
LIMITED FINANCIAL RESOURCES; OBLIGATIONS UNDER FINANCING ARRANGEMENTS; LIMITED
FUTURE FUNDING COMMITMENTS
RSI initially will rely primarily on funds raised in the Rights
Offering and amounts to be provided to it by Reckson Operating Partnership in
connection with the formation and capitalization of RSI, including the Credit
Facilities, in order to finance its operations. In connection with the formation
and capitalization of RSI, RSI anticipates that under the Credit Facilities it
will have the right, subject to certain conditions, to borrow from Reckson
Operating Partnership up to an aggregate of $100 million in respect of the
RSVP-ROP Facility and $100 million in respect of the RSI Facility. The Credit
Facilities will have a term of five years and advances thereunder will be
recourse obligations of RSI. Interest will accrue on advances made under the
Credit Facilities at a rate equal to the greater of (i) the prime rate plus 2%
and (ii) 12% per annum, with the interest rate referred to in clause (ii)
increasing annually at a rate of 4% of the prior year's rate. Prior to maturity,
interest will be payable quarterly but only to the extent of available net cash
flow and on an interest-only basis and will be prepayable without penalty at the
option of RSI. As long as there are outstanding advances under either of the
Credit Facilities, RSI will be prohibited from paying dividends on any shares of
its capital stock. The Credit Facilities will be subject to certain other
covenants and will prohibit advances thereunder to the extent such advances
could, in the determination of Reckson, endanger Reckson's status as a REIT.
There can be no assurance that RSI will be able to satisfy all of its
obligations under the Credit Facilities. RSI has obtained the PaineWebber Equity
Facility which provides for PWRES to invest $200 million in RSVP in the form of
a preferred equity interest, subject to certain conditions. RSI has not received
any commitment with respect to any additional borrowings. Other than under the
Credit Facilities, Reckson Operating Partnership is not currently obligated to
provide any additional funds to RSI or to assist it in obtaining additional
financing.
CONFLICTS OF INTEREST
Donald J. Rechler will serve as Chairman of the Board and Chief
Executive Officer of Reckson and Chairman of the Board of RSI, Scott H. Rechler
will serve as the President and Chief Operating Officer of Reckson and President
and Chief Executive Officer of RSI and a director of Reckson and RSI and Michael
Maturo will serve as Executive Vice President, Treasurer and Chief Financial
Officer of Reckson and RSI and a director of RSI. Although each of them is
committed to the success of RSI, they are also committed to the success of
Reckson. None of Donald J. Rechler, Scott H. Rechler or Michael Maturo is
committed to spending a particular amount of time on RSI's affairs, nor will any
of them devote his full time to RSI. As a result, such officers may spend more
time acting in their positions with Reckson, particularly if Reckson encounters
operating difficulties or is engaged in significant transactions. Donald
Rechler, Roger Rechler, Scott Rechler, Michael Maturo, Gregg M. Rechler and
Mitchell D. Rechler are members of the RSI Board of Directors and will also be
either insiders of RSI or members of the Reckson board of directors. In
addition, it is anticipated that the RSI Board will include only two members who
are unaffiliated with RSI and Reckson. As noted below in "--Related Party
Transactions," Jon L. Halpern, a director of Reckson, has an interest in certain
entities in which RSI has made an investment.
Officers and directors of a corporation owe fiduciary duties to the
stockholders of that corporation. There is a risk that the common membership of
management and members of the Boards of Directors of RSI and Reckson will lead
to conflicts of interest in the fiduciary duties owed to stockholders by common
directors and officers in connection with transactions between the two
companies. However, RSI was formed with the specific purpose of entering into
and performing the Intercompany Agreement with Reckson Operating Partnership in
an effort to avoid conflict of interest issues by identifying at the outset
which types of opportunities will be pursued by each company. See
"Management--Conflicts of Interest."
In respect of services to be provided to Reckson Operating Partnership
by RSI, management will have a conflict of interest in determining the market
rates that Reckson Operating Partnership may be charged for such services. In
addition, management will have a conflict of interest in determining whether a
REIT-Qualified Investment opportunity outside of Reckson's core business
strategy should be pursued by RSI or Reckson.
In addition, RSVP has been formed as a "research and development"
vehicle for Reckson to identify and invest in operating companies in real estate
sectors outside of its traditional office and industrial sectors. Under the
terms of the PaineWebber Equity Facility, it is contemplated that Reckson
Operating Partnership and RSVP will form a joint venture in respect of any such
investments and that Reckson Operating Partnership would fund the common equity
component of such investment in lieu of RSI. However, RSVP Holdings LLC, the
entity through which RSI holds an interest in RSVP, will continue to be entitled
to the carried interest component of its interest in RSVP. Furthermore, Reckson
will be entitled to integrate such investments into its core business if such
investment's platform reaches the maximum investment allocation of RSVP (i.e.
25% of RSVP's initial capital).
Finally, in respect of the Rights Offering, RSI Standby LLC, an entity
owned by Donald J. Rechler, Scott H. Rechler, Michael Maturo, Roger Rechler,
Mitchell D. Rechler, Gregg M. Rechler, certain non-executive officers of RSI and
Reckson and certain trusts controlled by executive officers of Reckson, has
agreed to purchase, and RSI has agreed to sell, any and all shares of RSI common
stock that are the subject of Subscription Rights in the Rights Offering but are
not subscribed for by the Holders thereof. To the extent the Standby Purchaser
fails to perform under the Standby Agreement, management will have a conflict of
interest in enforcing such arrangement.
RELATED PARTY TRANSACTIONS
Jon L. Halpern, a former executive officer and current director of
Reckson, beneficially owned substantially all of the OnSite business prior to
RSI's acquisition of an interest therein (and will own beneficially a 25.97%
interest in OnSite after giving effect to RSI's acquisition of the OnSite
business, assuming RSI converts its subordinated convertible note into a 58.69%
interest), and owns a 331/3% interest in a joint venture that owns a 70%
interest in the Dobie Center, a 331/3% interest in joint venture that owns a
76.09% interest in ACLC, and a 22.75% interest in the Office Suites Company, and
may participate in the operation of such entities. Based upon its understanding
of the market generally and discussions with third parties specifically,
management believes that RSI's participation, or, in the Office Suites Company's
case, possible participation, in such investments with Mr. Halpern has been the
subject of arm's-length negotiations.
Related party transactions involve the risk that the related party is
in a position to obtain transaction terms, including price and other terms, that
are more favorable than the terms that an unrelated party would obtain in an
arm's- length negotiation. It had been anticipated previously that Mr. Halpern
would have an ongoing role with respect to RSI's real estate venture capital
fund. However, it was subsequently determined that the two individuals retained
as managing directors for RSVP would serve in such capacity. As a result, RSI
and Mr. Halpern entered into an arrangement regarding the projects that the real
estate venture capital fund pursued during the time Mr. Halpern was involved
with such fund. RSI and Mr. Halpern were represented by separate counsel in
determining the arrangement between the parties regarding such projects. Mr.
Halpern has also agreed that he will discontinue serving as a member of the
Board of Directors of Reckson at the request of the Board of Directors of
Reckson at any time after July 1998.
In addition, RSI Standby LLC, an entity owned by Donald J. Rechler,
Scott H. Rechler, Michael Maturo, Roger Rechler, Mitchell D. Rechler, Gregg M.
Rechler, certain non-executive officers of RSI and Reckson and certain trusts
controlled by executive officers of Reckson, has entered into the Standby
Agreement relating to the Rights Offering as described below under "Rights
Offering."
NO PRIOR SPONSORSHIP OF VENTURE CAPITAL VEHICLE; INVESTMENTS IN COMPANIES IN
EARLY STAGE OF DEVELOPMENT OR WITH HISTORICAL OPERATING LOSSES
RSVP is a real estate venture capital fund formed to invest in real
estate and real estate-related operating companies. RSI has committed to invest
up to $100 million in RSVP, and a subsidiary of RSI will serve as the managing
member of RSVP. Neither Reckson nor RSI has previously sponsored a real estate
venture capital fund. Investments of RSVP may include, among other things,
investments in companies in an early stage of development that have historical
operating losses. In addition, decreases in values in the property markets,
volatility in the securities markets, interest rate increases and unfavorable
conditions in the economy generally, and in the real estate industry in
particular, may have a negative impact on the performance of RSVP.
RSVP has obtained the $200 million PaineWebber Equity Facility from
PWRES, which will be partially funded by an investment fund that is jointly
sponsored by financier George Soros and PWRES. Under the terms of the
PaineWebber Equity Facility, RSVP is subject to various covenants and events of
default and related remedies. Such remedies include increased control rights of
PWRES over the operation of RSVP under certain circumstances. In addition, PWRES
and such investment fund, if applicable, will receive a priority or preferred
distribution from the operations of RSVP prior to the distribution of cash to
the subsidiary of RSI serving as the managing member of RSVP. The RSVP Managing
Directors will be entitled to a portion of the profits of the managing member of
RSVP after RSI has obtained a return of its capital plus a minimum return
thereon. As a result, no assurance can be given that the RSVP Managing Directors
will not pursue investments involving greater risk in seeking higher profits.
Any investments identified by the RSVP Managing Directors are subject to the
approval of RSI.
OWNERSHIP THROUGH JOINT VENTURES, INCLUDING LIMITS ON ABILITY TO CONTROL AND
INABILITY OF JOINT VENTURER TO PERFORM
It is anticipated that RSI and RSVP may hold a significant portion of
their assets through joint ventures. Joint venture investments may, under
certain circumstances, involve risks not otherwise present, including the
possibility that the partners or co-venturer might become bankrupt, that such
partners or co- venturer might at any time have economic or other business
interests or goals which are inconsistent with the business interests or goals
of RSI and its affiliates, and that such partners or co-venturer may be in a
position to take action contrary to their instructions or their requests and
contrary to their policies or objectives. Such investments may also have the
potential risk of impasse on decisions, such as a sale, because neither RSI or
its affiliates nor the partner or co-venturer would have full control over the
partnership or joint venture. Consequently, actions by such partner or
co-venturer might result in subjecting properties owned by the partnership or
joint venture to additional risk. RSI and its affiliates will, however, seek to
maintain sufficient control of such partnerships or joint ventures to permit
their business objectives to be achieved. There is no limitation under RSI's
organizational documents as to the amount of available funds that may be
invested in partnerships or joint ventures.
STUDENT HOUSING SECTOR UNDERGOING RAPID CHANGE; DEPENDENCE OF PROJECTS ON WELL-
BEING OF RELATED SCHOOLS; COMPETITION
The student housing business is a fragmented sector undergoing rapid
development and change. In addition to traditional real estate risks, risks in
respect of student housing include economic, social, governmental and
demographic factors as they relate to the number of students attending colleges
and universities in need of student housing. Student housing facilities are to a
large extent reliant upon the well-being of the colleges or universities to
which such facilities relate and may be subject to competition from such
colleges and universities as well as other providers of student housing. In
addition, the maintenance and insurance costs of student housing may exceed the
costs typical of multifamily housing. Furthermore, due to the nature of student
housing, turnover of tenants is significant and such housing is less utilized
during summer months.
ABSENCE OF A PUBLIC MARKET FOR RSI COMMON STOCK; VOLATILE TRADING PRICES
There is currently no public market for the common stock of RSI, par
value $0.01 per share (the "RSI Common Stock"), and none is expected to develop
prior to the termination of the Rights Offering. Subsequent to the termination
of the Rights Offering, RSI anticipates that trading of the shares of RSI Common
Stock may occur on the OTC Bulletin Board. However, shares of RSI Common Stock
have not been approved for listing on any national securities exchange or for
quotation on any quotation system, and there can be no assurance that such
shares will be so approved or quoted, or that a public market will develop, or,
if a public market develops, will be sustained or provide liquidity.
Furthermore, there can be no assurance as to the prices at which trading in RSI
Common Stock will occur after the Distribution. Until the RSI Common Stock is
fully distributed and if and until a regular trading market develops, the prices
at which trading in the RSI Common Stock occurs may fluctuate significantly. In
the event a regular trading market fails to develop for the RSI Common Stock,
holders of the RSI Common Stock may not be able to sell their shares promptly at
a desired price. Accordingly, holders of the RSI Common Stock should consider an
investment therein to be long-term.
ABSENCE OF DIVIDENDS ON RSI COMMON STOCK FOLLOWING THE DISTRIBUTION
Following the Distribution of RSI Common Stock, RSI intends to use its
available funds to pursue investment and business opportunities and, therefore,
does not anticipate the payment of any dividends on RSI Common Stock in the
foreseeable future.
Payment of dividends on RSI Common Stock will be prohibited under the
Credit Facilities until all amounts outstanding thereunder have been paid in
full and will also be subject to such limitations as may be imposed by any other
credit facilities and debt securities that RSI may obtain or issue, as the case
may be, from time to time. See "Dividend Policy."
RISKS OF LOW-PRICED STOCK
Since RSI's Common Stock is not expected to be listed on any national
securities exchange or quoted on any quotation system, such stock could become
subject to Rule 15g-9 under the Exchange Act, which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors" (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, such rule may adversely affect the ability of
broker-dealers to sell RSI's Common Stock and may adversely affect the ability
of purchasers to sell such stock in the secondary market.
Commission regulations define a "penny stock" to be any equity security
that is not traded on a national securities exchange or quoted on NASDAQ and
that has a market price (as therein defined) of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain rules.
The Commission's penny stock regulations require delivery, prior to any
transaction in a penny stock, of a disclosure schedule prepared by the
Commission relating to the penny stock market. Disclosure is also required to be
made about commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.
The foregoing penny stock restrictions will not apply to RSI's Common
Stock if such securities are eventually listed on Nasdaq and have certain price
and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the RSI Common Stock will qualify for exemption from these
restrictions. In any event, even if the RSI Common Stock were exempt from such
restrictions, such stock would remain subject to Section 15(b)(6) of the
Exchange Act, which gives the Commission the authority to prohibit any person
that is engaged in unlawful conduct while participating in a distribution of a
penny stock from associating with a broker-dealer or participating in a
distribution of a penny stock, if the Commission finds that such a restriction
would be in the public interest. At any time that the RSI Common Stock is
subject to the rules on penny stocks, the market liquidity for the RSI Common
Stock is likely to be severely adversely affected.
REAL ESTATE INVESTMENT RISKS
RSI may invest in real estate, particularly through its holdings in
RSVP. Investments in real estate are subject to the risks incident to the
ownership and operation of real estate. The following information discusses the
material risks relating to the real estate investments of RSI. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. RSI, through RSVP, has made an initial
investment in the area of student housing. RSVP will likely make additional
investments in commercial real estate, although it has not yet determined the
types of real estate that RSVP will pursue. The revenues received by RSI from
RSVP's real estate investments and the value of such investments may be
adversely affected by the national, state and local economic climate and real
estate conditions (such as oversupply of or reduced demand for space and changes
in market rental rates). The rents which properties may command and the ability
to re-let space are dependent upon the perceptions of prospective tenants of the
safety, convenience and attractiveness of the properties. The cash flow received
from real estate investments may be negatively effected by the inability to
collect on a timely basis all rent from tenants, the expense of periodically
renovating, repairing and reletting spaces, and increasing operating costs
(including real estate taxes and utilities) which may not be passed through to
tenants. Each of the foregoing factors may ultimately result in decreases in
cash flows from real estate properties and losses for RSI's real estate
investments, or may cause such investments to be less profitable than they
otherwise would be. Certain significant expenditures associated with investments
in real estate (such as mortgage payments, real estate taxes, insurance and
maintenance costs) are generally not reduced when circumstances cause a
reduction in rental revenues from the property. If a property is mortgaged to
secure the payment of indebtedness and if the owner is unable to meet its
mortgage payments, a loss could be sustained as a result of foreclosure on the
property or the exercise of other remedies by the mortgagee. In addition, the
value of RSVP's real estate investments and income from such investment are also
affected by such factors as compliance with laws, including tax laws, interest
rate levels and the availability of financing. Also, the rentable square feet of
commercial property is often affected by market conditions and may therefore
fluctuate over time. In addition, equity real estate investments are relatively
illiquid and, as a result, RSVP may not be able to realize the full value of its
real estate investments if it has to dispose of such investments at inopportune
times.
RSI and its affiliates, including RSVP, may engage in the selective
development and construction of real estate properties. Development and
construction activities include the risk that development opportunities may be
abandoned after expending resources to determine feasibility, in which case RSI
will incur losses from pursuing such opportunities. In addition, RSI's
construction and development activities may generate less net income or losses
for RSI as a result of construction costs of a project exceeding original
estimates; occupancy rates and rents at a newly completed property being
insufficient to make the property profitable; financing not being available on
favorable terms for development of a property; and construction and lease-up not
being completed on schedule, resulting in increased debt service expense and
construction costs. Development activities are also subject to risks relating to
the inability to obtain, or delays in obtaining, all necessary zoning, land-
use, building, occupancy and other required governmental permits and
authorizations. Each of these factors may lead to losses or less income for RSI.
In addition, new development activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention.
POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO REAL ESTATE
Under various federal, state and local laws, ordinances and regulations
(including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Occupational Safety and Health Act,
the Resource Conservation and Recovery Act and federal, state and local laws
governing the management of asbestos abatement), an owner of real estate is
liable for the costs of removal or remediation of certain hazardous or toxic
substances on or in such property. These laws often impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances. The cost of any required
remediation and the owner's liability therefor as to any property is generally
not limited under such enactments and could exceed the value of the property
and/or the aggregate assets of the owner. The presence of such substances, or
the failure to properly remediate such substances, may adversely affect the
owner's ability to sell or rent such property or to borrow, using such property
as collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at a disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition, or in the event of
renovation or demolition. Such laws impose liability for release of ACMs into
the air and third parties may seek recovery from owners or operators of real
properties for personal injury associated with ACMs. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, RSI and its affiliates may be considered an owner or operator of
such properties or as having arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, potentially liable for removal or
remediation costs, as well as certain other related costs, including
governmental fines and injuries to persons and property.
CERTAIN ANTITAKEOVER PROVISIONS
RSI's charter and bylaws, the Preferred Rights Plan and applicable
sections of the DGCL may make more difficult the acquisition of control of RSI
without the approval of the RSI Board of Directors. Certain provisions of RSI's
charter and bylaws, among other things: (i) classify the RSI Board of Directors
into three classes, each of which serves for staggered three-year terms; (ii)
provide that a director of RSI may be removed by the affirmative vote of
stockholders having at least 80% of the total voting power only for cause; (iii)
provide that only the Chairman of the Board, President or the RSI Board of
Directors may call special meetings of the stockholders; (iv) provide that the
stockholders may take action only at a meeting of RSI stockholders, not by
written consent; (v) provide that stockholders must comply with certain advance
notice procedures in order to nominate candidates for election to the RSI Board
of Directors or to place stockholders' proposals on the agenda for consideration
at meetings of the stockholders; (vi) provide that, under certain circumstances,
the affirmative vote of the holders of two-thirds of the RSI Common Stock is
required to approve any merger or similar business combination involving RSI;
(vii) provide that the holder of "control shares" of RSI acquired in a control
share acquisition have no voting rights with respect to such control shares
except to the extent approved by the vote of the holders of two-thirds of the
RSI Common Stock (the "control shares provision"); (viii) subject to certain
exceptions, limit the ownership by any person of RSI Common Stock to 9.9% of the
number of shares or value of the RSI Common Stock and limit the ownership by any
person of RSI capital stock to 9.9% of the aggregate value of all classes of RSI
capital stock; and (ix) provide that the stockholders may amend or repeal any of
the foregoing provisions of the charter or bylaws only by a vote of at least 80%
of the stock entitled to vote generally in the election of directors. With
certain exceptions, Section 203 of the DGCL ("Section 203") imposes certain
restrictions on mergers and other business combinations between RSI and any
holder of 15% or more of the RSI Common Stock. The charter provides that the
control shares provision, the Preferred Rights Plan and Section 203 do not apply
to Reckson and its affiliates. Accordingly, Reckson and its affiliates will be
in a position to effect a business combination or other transaction with RSI in
situations where others would be restricted from effecting a similar
transaction. RSI's charter authorizes the Board of Directors to issue up to 25
million shares of preferred stock, par value $.01 per share, in series, and to
establish the rights and preferences (including the exchange of such shares of
preferred stock into shares of RSI Common Stock) of any series of preferred
stock so issued. The issuance of certain types of preferred stock could have the
effect of delaying or preventing a change in control of RSI, even if such a
change in control were in the best interests of some, or a majority, of RSI's
stockholders. See "Description of RSI Capital Stock" and "Certain Antitakeover
Provisions."
The Preferred Rights Plan would cause substantial dilution to a person
or group that attempts to acquire RSI on terms not approved in advance by the
RSI Board of Directors. Under the Preferred Rights Plan, until 10 business days
following such time as a person or group has acquired beneficial ownership of,
or has proposed a tender offer or exchange offer that would result in such
person or group owning, 10% or more of the outstanding shares of RSI Common
Stock (the "Preferred Rights Distribution Effective Date"), the Preferred Rights
will be transferred only with the RSI Common Stock. Following the Preferred
Rights Distribution Effective Date, separate certificates evidencing the
Preferred Rights will be mailed to each holder of record on the Preferred Rights
Distribution Effective Date. Thereafter, each holder of a Preferred Right (other
than the person or group) will have the right to receive, upon exercise of such
Preferred Right, that number of shares of RSI Common Stock having a market value
equal to two times the exercise price of the Preferred Right. Similar provisions
apply in the event of a merger or other business combination as a result of
which an acquiring person or group will own 10% or more of the outstanding
shares of RSI common stock. Prior to the time that any such person or group
acquires 10% or more of the outstanding shares of RSI Common Stock, the RSI
Board of Directors may redeem the Preferred Rights in whole for $.01 per
Preferred Right. After the time that any such acquiring person or group acquires
10% or more, but less than 50%, of the outstanding shares of RSI Common Stock,
the RSI Board of Directors may exchange the Preferred Rights, in whole or in
part, at an exchange ratio of one share of RSI Common Stock, or one-hundredth of
a share of Series A Junior
Preferred Stock, per Preferred Right. See "Description of RSI Capital
Stock--Series A Junior Preferred Stock."
FEDERAL INCOME TAX RISKS
On the Distribution Effective Date, in the opinion of Brown & Wood
LLP, counsel to RSI and Reckson ("Tax Counsel"), Reckson will recognize gain
measured by the excess, if any, of the value of the RSI Common Stock distributed
by Reckson over the basis of Reckson in such stock, which will depend in turn on
the basis of Reckson Operating Partnership in such stock. Any such gain will
give rise to additional taxable income for Reckson stockholders because such
gain will result in an increase in Reckson's earnings and profits. In addition,
the Distribution will be taxable to a Limited Partner if and to the extent that
the value of the RSI Common Stock and any cash received in lieu of fractional
shares exceeds the Limited Partner's basis in his unit of limited partner
interest in Reckson Operating Partnership, but certain Limited Partners may not
be required to recognize gain equal to the amount of such excess. Because of its
factual nature, Tax Counsel is unable to render an opinion with respect to the
value of the RSI Common Stock to be distributed by Reckson. Reckson will make a
determination of the fair market value of the RSI Common Stock as of the date of
the Distribution. There can be no assurance, however, that the Service or the
courts will agree with the amount determined by Reckson. See "The
Distribution--Federal Income Tax Consequences."
RISK OF DEFAULT UNDER STANDBY COMMITMENT
Under the terms of the Standby Agreement, the Standby Purchaser will be
obligated to purchase any and all shares of RSI Common Stock that are the
subject of Subscription Rights in the Rights Offering but are not subscribed for
by Holders thereof. However, the obligations of the Standby Purchaser under the
Standby Agreement are not secured by any collateral or letters of credit. As a
result, there can be no assurance that the Standby Purchaser will perform its
obligations under the Standby Agreement.
RISK OF DILUTION IN THE RIGHTS OFFERING; ACQUISITION OF STOCK UNDER STANDBY
COMMITMENT
Holders not subscribing for shares of RSI Common Stock pursuant to
Subscription Rights will be subject to dilution of their ownership interest in
RSI. Such dilution may be significant.
The Rights Offering involves the offering of 20,557,130 shares (or
approximately 83%) of the 24,668,556 shares of RSI that will be issued and
outstanding after the Distribution and the Rights Offering. As a result of the
Standby Agreement, to the extent a large number of Holders do not exercise their
Subscription Rights, the Standby Purchaser may acquire a significant portion of
the issued and outstanding shares of RSI Common Stock.
THE DISTRIBUTION
BACKGROUND OF, AND REASONS FOR, THE DISTRIBUTION
RSI has been formed primarily to identify and acquire interests in
operating companies that engage in businesses that provide Commercial Services.
RSI will also pursue real estate and real estate related investment
opportunities through RSVP, a real estate venture capital fund created as a
"research and development" vehicle for Reckson to explore and invest in real
estate sectors outside of its traditional office and industrial sectors, thereby
providing the potential for Reckson to incorporate one or more of these
alternative sectors into its core business. RSI will enter into the Intercompany
Agreement pursuant to which RSI and Reckson Operating Partnership have agreed to
provide each other with first opportunity rights in respect of certain types of
transactions and activities thereby reducing the potential for conflicts of
interest between the parties by formalizing their relationship at the outset. In
this regard, management believes that by identifying the opportunities to be
offered to the other party and establishing the process by which such
opportunities will be offered, the potential conflicts of interest are reduced.
For information regarding the types of such transactions and activities, see
"Business--The Intercompany Agreement."
RSI intends to (i) provide various Commercial Services to the Reckson
Customer Base and third parties, (ii) invest in and manage RSVP and (iii) make
or acquire (a) real estate or real estate-related investments other than REIT-
Qualified Investments and (b) REIT-Qualified Investments made available to
Reckson Operating Partnership that it has chosen not to pursue. RSI, directly or
through its affiliates, may also act as a lessee and operator of real estate
owned by Reckson Operating Partnership and others.
Due to considerations relating to Reckson's status as a REIT under
Federal tax laws, RSI was initially formed as a subsidiary in which Reckson
Operating Partnership owned 95% of the outstanding capital stock of RSI in the
form of non-voting common stock. Lightpost LLC owns the remaining 5% of the
outstanding capital stock of RSI in the form of voting common stock. The shares
of capital stock owned by Reckson Operating Partnership and Lightpost LLC were
issued by RSI on the same dates and at the same per share price. Immediately
prior to the Distribution, the shares of non-voting common stock of RSI owned by
Reckson Operating Partnership will be exchanged by RSI for RSI Common Stock.
The Distribution will afford investors who own both common stock of
Reckson, par value $0.01 ("Reckson Common Stock") and RSI Common Stock the
opportunity to participate in the benefits of the REIT operations of Reckson
(including ownership of real property) and the non-REIT operations of the
Company. A small number of REITs, operating under tax provisions that no longer
are available to other REITs, have shares that are "paired" or "stapled" with
shares of an operating company that is liable for regular corporate income tax.
The shares of RSI Common Stock and the Reckson Common Stock are not, and will
not be, paired or stapled in any manner and may be owned and transferred
separately and independently of each other. However, investors who choose to own
both shares of RSI Common Stock and Reckson common stock will, in effect, have
the economic equivalent of a "stapled" investment in the Company and Reckson.
MANNER OF EFFECTING THE DISTRIBUTION
It is expected that the date of the Distribution will be June 11, 1998
(the "Distribution Effective Date"). At the time of the Distribution, share
certificates for RSI Common Stock will be delivered to the Distribution Agent.
Commencing on or about the date of the Distribution, the Distribution Agent will
begin mailing account statements reflecting ownership of RSI Common Stock to
holders of Reckson Common Stock and units of limited partnership interest in
Reckson Operating Partnership (the "Units") as of the Record Date. The
Distribution will be made on the basis of one share of RSI Common Stock for
every 12.5 shares of Reckson Common Stock held by Reckson stockholders on the
Record Date and one share of RSI Common Stock for every 12.5 Units held by
Limited Partners on the Record Date. No certificates representing fractional
shares of RSI Common Stock will be issued in connection with the Distribution.
In lieu of fractional shares, the Distribution Agent will pay to any person who
would be entitled to a fractional share of RSI Common Stock an amount of cash
(without interest) equal to $1.03 per share. All shares of RSI Common Stock will
be fully paid and nonassessable. See "Description of RSI Capital Stock."
Prior to the Distribution Effective Date, inquiries relating to the
Distribution should be directed to the Distribution Agent at American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005, or by
telephone at (718) 921-8200 (telecopier (718) 234-5001)), Monday through Friday,
9:00 a.m. to 5:00 p.m. (New York City time). After the Distribution Effective
Date, inquiries may be directed to the Distribution Agent or RSI Investor
Relations, at 225 Broadhollow Road, Melville, New York 11747, or by telephone at
(516) 719-7400, Monday through Friday, 9:00 a.m. to 5:00 p.m. (New York City
time).
NO HOLDER OF SHARES OF RECKSON COMMON STOCK OR UNITS WILL BE REQUIRED
TO MAKE ANY PAYMENT FOR THE SHARES OF RSI COMMON STOCK TO BE RECEIVED IN THE
DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF RECKSON COMMON STOCK OR UNITS
OR TO TAKE ANY OTHER ACTION IN ORDER TO RECEIVE RSI COMMON STOCK TO WHICH SUCH
HOLDER IS ENTITLED IN THE DISTRIBUTION.
FEDERAL INCOME TAX CONSEQUENCES
Introduction. The following is a summary of the material federal income
tax considerations associated with the Distribution. This discussion is based
upon the laws, regulations and reported rulings and decisions in effect as of
the date of this Prospectus, all of which are subject to change, retroactively
or prospectively, and to possibly differing interpretations. This discussion
does not purport to deal with the federal income or other tax consequences
applicable to all investors in light of their particular investment
circumstances or to all categories of investors, some of whom may be subject to
special rules (including, for example, insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States). No ruling on
the federal, state or local tax considerations relevant to the operation of
Reckson or RSI or to the Distribution is being requested from the Service or
from any other tax authority. Brown & Wood LLP ("Tax Counsel") has rendered
certain opinions discussed herein, which Tax Counsel believes address the
material issues with respect to the Distribution and with respect to the
qualification of Reckson as a REIT which are raised by the structure and
currently anticipated activities of RSI. Such opinion is filed as an exhibit to
the Registration Statement. Tax Counsel believes that if the Service were to
challenge the conclusions of Tax Counsel, such conclusions would prevail in
court. However, opinions of counsel are not binding on the Service or on the
courts, and no assurance can be given that the conclusions reached by Tax
Counsel would be sustained in court.
ALL RECKSON STOCKHOLDERS AND RECKSON OPERATING PARTNERSHIP LIMITED PARTNERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF
THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN
TAX LAWS.
Taxation of Reckson in General. Reckson has made an election to be
treated as a real estate investment trust under Sections 856 through 860 of the
Code (as used in this section, a "REIT"), commencing with its taxable year ended
December 31, 1995. Reckson believes that it was organized and has operated in
such a manner so as to qualify as a REIT, and Reckson intends to continue to
operate in such a manner, but no assurance can be given that it has operated in
a manner so as to qualify, or will operate in a manner so as to continue to
qualify as a REIT.
The sections of the Code relating to qualification and operation as a
REIT are highly technical and complex. In the opinion of Tax Counsel, commencing
with its taxable year ended December 31, 1995, Reckson has been organized in
conformity with the requirements for qualification as a REIT, and its proposed
manner of operation will enable it to meet the requirements for qualification as
a REIT in the future. It must be emphasized that this opinion is based on
various assumptions relating to the organization and operation of Reckson and
Reckson Operating Partnership and is conditioned upon certain representations
made by Reckson as to certain relevant factual matters, including matters
related to the organization, expected operation, and assets of Reckson and
Reckson Operating Partnership. Moreover, continued qualification as a REIT will
depend upon Reckson's ability to meet, through actual annual operating results,
the distribution levels, stock ownership requirements and various qualification
tests and other requirements imposed under the Code, as discussed below. Tax
Counsel will not review Reckson's operations. Accordingly, no assurance can be
given that the actual stock ownership of Reckson, the mix of its assets, or the
results of its operations for any particular taxable year will satisfy such
requirements.
Tax Counsel has also addressed what Tax Counsel believes to be the
material issues with respect to the qualification of Reckson as a REIT which are
raised by the structure and currently anticipated activities of RSI. In
particular, Tax Counsel has opined that Reckson and RSI will be treated as
separate corporate entities, that RSI will not be treated as an agent of Reckson
and that Reckson and RSI will not constitute stapled entities under Section 269B
of the Code.
Taxation of RSI. RSI will not seek to qualify for taxation as a real
estate investment trust. Accordingly, RSI will be taxed as a C corporation,
subject to regular corporate income tax rates.
Income Recognition by Reckson as a Result of the Distribution. On the
Distribution Effective Date, Reckson will, in the opinion of Tax Counsel,
recognize gain on the Distribution if and to the extent that the value of the
RSI Common Stock distributed by Reckson exceeds the basis of Reckson in such
stock, which will equal Reckson Operating Partnership's basis therein. Because
of the factual nature of the valuation issue, Tax Counsel is unable to render an
opinion on it. Reckson will make a determination of the fair market value of the
RSI Common Stock as of the Distribution Effective Date. There can be no
assurance, however, that the Service or the courts will agree with the amount
determined by Reckson. The amount of gain, if any, will increase Reckson's
earnings and profits.
Taxation of Taxable Domestic Stockholders of Reckson as a Result of the
Distribution. The Distribution will be treated as a distribution whose amount
equals the value of the RSI Common Stock distributed plus any cash in lieu of
fractional shares. As described above under "--Income Recognition by Reckson as
a Result of the Distribution," the amount of gain, if any, to be recognized by
Reckson as a result of the Distribution will increase Reckson's earnings and
profits. As a result the Distribution will give rise to additional taxable
income for Reckson stockholders to the extent of any such gain.
Reckson stockholders will receive a basis in RSI Common Stock equal to
the value thereof at the time of the Distribution. A Reckson stockholder's
holding period in the RSI Common Stock will not include any period during which
such stock was held by Reckson or Reckson Operating Partnership. As long as
Reckson qualifies as a REIT in the year of the Distribution, the portion of the
Distribution made to Reckson's taxable U.S. stockholders out of Reckson's
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by such U.S. stockholders as ordinary
income and, for corporate stockholders, will not be eligible for the dividends
received deduction. The portion of the Distribution in excess of current and
accumulated earnings and profits allocable to the Distribution will not be
taxable to a stockholder to the extent that such portion does not exceed the
adjusted basis of the stockholder's Reckson Common Stock, but rather will reduce
the adjusted basis of such shares. To the extent that the portion of the
Distribution in excess of current and accumulated earnings and profits allocable
to the Distribution exceeds the adjusted basis of a stockholder's Reckson Common
Stock, the Distribution will be included in income as capital gain (taxable at
the short-term, mid-term or long-term rates depending on the period of time that
the stockholder has held the shares) assuming the shares are a capital asset in
the hands of the stockholder.
To the extent that Reckson designates a portion of the Distribution as
a capital gain dividend, such portion will be taxable to Reckson stockholders as
gain from the sale of a capital asset held for more than one year, without
regard to the period for which the stockholder has held its Reckson Common
Stock. U.S. stockholders that are corporations may, however, be required to
treat up to 20% of certain capital gain dividends as ordinary income.
Preferred Rights Plan. Based on a published ruling of the Service,
since at the time of the adoption of the Preferred Rights Plan the exercise of
the Rights at any time will likely be both remote and speculative, the adoption
of the Preferred Rights Plan should not constitute the distribution of stock or
property by RSI to its stockholders or an exchange of property or stock by such
stockholders and, therefore, should not result in any income tax consequences to
the holders of the RSI Common Stock.
Taxation of Tax-Exempt Stockholders of Reckson as a Result of the
Distribution. Most tax-exempt employees' pension trusts are not subject to
federal income tax except to the extent of their receipt of "unrelated business
taxable income" as defined in Section 512(a) of the Code ("UBTI"). The
Distribution to a stockholder that is a tax-exempt entity should not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its Reckson Common Shares with "acquisition indebtedness" within the meaning of
the Code and the Reckson Common Shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity. In addition, certain pension trusts
that own more than 10% of a "pension-held REIT" must report a portion of the
dividends that they receive from such a REIT as UBTI. Reckson has not been and
does not expect to be treated as a pension-held REIT for purposes of this rule.
Taxation of Foreign Stockholders of Reckson as a Result of the
Distribution. The rules governing United States federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign stockholders (collectively, "Non-U.S. Stockholders") are complex,
and no attempt will be made in this Prospectus to provide more than a summary of
such rules. Non-U.S. Stockholders should consult with their own tax advisors to
determine the impact of federal, state and local tax laws with regard to the
Distribution, including any reporting requirements. In general, as is the case
with domestic taxable stockholders of Reckson, the Distribution is treated as a
distribution whose amount equals the value of the RSI Common Stock distributed
plus any cash in lieu of fractional shares, and Reckson stockholders will
receive a basis in RSI Common Stock equal to the fair market value thereof at
the time of the Distribution.
The Distribution will be treated as an ordinary income dividend to the
extent that it is made out of current and accumulated earnings and profits of
Reckson and is neither attributable to gain from sale or exchange by Reckson of
United States real property interests nor designated by Reckson as a capital
gain dividend. The portion of the Distribution that will be treated as an
ordinary income dividend ordinarily will be subject to a withholding tax equal
to 30% of the gross amount thereof, unless an applicable tax treaty reduces or
eliminates that tax. Reckson expects to withhold U.S. income tax at the rate of
30% on the gross amount of the Distribution made to a Non-U.S. Stockholder
unless (i) a lower treaty rate applies and the Non-U.S. Stockholder has filed
the required IRS Form 1001 with Reckson or (ii) the Non-U.S. Stockholder files
an IRS Form 4224 with Reckson claiming that the distribution is effectively
connected with the Non-U.S. Stockholder's conduct of a U.S. trade or business.
The portion of the Distribution that is in excess of Reckson's current and
accumulated earnings and profits allocable to the Distribution will be subject
to a 10% withholding requirement but will not be taxable to a stockholder to the
extent that such excess does not exceed the adjusted basis of the stockholder's
Reckson Common Shares, but rather will reduce the adjusted basis of such shares.
To the extent that the portion of the Distributions in excess of current and
accumulated earnings and profits allocable to the Distribution exceeds the
adjusted basis of a Non-U.S. Stockholder's shares, the Distribution will give
rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to
tax on any gain from the sale or disposition of the Reckson Common Shares.
Provided that Reckson is a "domestically controlled REIT" for federal
income tax purposes, a Non-U.S. Stockholder would be subject to taxation on gain
from the sale or disposition of Reckson Common Shares only if (i) the investment
in the Reckson Common Shares were treated as effectively connected with the
Non-U.S. Stockholder's U.S. trade or business, in which case the Non-U.S.
Stockholder would be subject to the same treatment as U.S. stockholders with
respect to such gain, or (ii) the Non-U.S. Stockholder were a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and either the individual has a "tax home" in the United States or
the gain is attributable to an office or other fixed place of business
maintained by the individual in the United States, in which case the gain would
be subject to a 30% tax. RSI believes that Reckson is and will continue to be a
domestically controlled REIT.
As Reckson will not be able to determine, at the time that the
Distribution is made, the portion of the Distribution, if any, that will be in
excess of the current and accumulated earnings and profits allocable to the
Distribution, the Distribution will be subject to withholding as though the
entire Distribution (apart from any portion designated as a capital gain
dividend) were an ordinary income dividend. However, a Non-U.S. Stockholder may
seek a refund of such amounts from the Service if it is subsequently determined
that a portion of the Distribution was, in fact, in excess of Reckson's current
and accumulated earnings and profits allocable to the Distribution.
Management believes that the RSI Common Stock may constitute a United
States real property interest. However, because management anticipates that any
gain to be recognized by Reckson as a result of the Distribution will be
nominal, as described above under "--Income Recognition by Reckson as a Result
of the Distribution," management does not anticipate that a significant portion
of the Distribution will be treated as attributable to gain upon the disposition
of United States real property interests. To the extent that a portion of the
Distribution were to be treated as attributable to gain upon the disposition of
a United States real property interest, a non-U.S. Stockholder would be subject
to tax on such portion as though it were gain that was effectively connected
with a United States trade or business of such Non-U.S. Stockholder. Thus,
Non-U.S. Stockholders would be taxed on such portion of the Distribution at the
normal capital gain rates applicable to U.S. stockholders. Reckson is required
under applicable Treasury Regulations to withhold 35% of any distribution to a
Non-U.S. Stockholder that could be designated by Reckson as a capital gain
dividend. The amount so withheld is creditable against the Non-U.S.
Stockholder's U.S. tax liability.
Amounts required to be withheld from payments to Non-U.S. Stockholders
will be collected by converting a portion of the Common Stock to be distributed
into cash.
Taxation of Limited Partners of Reckson Operating Partnership as a
Result of the Distribution. The Distribution will generally result in the
recognition of gain by a Limited Partner of the Operating Partnership to the
extent that the sum of the value of the RSI Common Stock plus any cash in lieu
of fractional shares received by him exceeds his basis in his Units. The basis
of a Limited Partner in the RSI Common Stock he receives will generally equal
such value and the holding period of a Limited Partner in the RSI Common Stock
he receives should include the period that the RSI stock was held by Reckson
Operating Partnership. However, a Limited Partner who has not contributed
appreciated property to the Operating Partnership, or who has contributed
appreciated property where the excess of the value of such property over its
basis at the time of the contribution (the "Precontribution Gain") was less than
the excess of the value of the RSI Common Stock he received in the Distribution
over the Operating Partnership's basis in such stock immediately before the
Distribution, will not recognize gain on the Distribution in the full amount
described above. Such a Limited Partner will generally recognize gain in an
amount not greater than the sum of (i) the excess of (x) the Operating
Partnership's basis in the RSI Common Stock received by him plus the amount of
any cash received by him in lieu of fractional shares over (y) his basis in his
Units and (ii) the amount of taxable gain that would have been allocated to him
as Precontribution Gain if the Operating Partnership would have sold, in a
taxable transaction prior to the Distribution, all of the property that he had
contributed to it. Such a Limited Partner's basis in the RSI Common Stock
received in the Distribution will be equal to not less than the sum of the
Operating Partnership's basis in such stock immediately before the Distribution
plus any gain recognized by the Limited Partner upon the Distribution.
LISTING AND TRADING OF RSI COMMON STOCK
There is currently no public market for RSI Common Stock and none is
expected to develop prior to the termination of the Rights Offering. Shares of
RSI Common Stock have not been approved for listing on any national securities
exchange or for quotation on any quotation system, and there can be no assurance
that such shares will be so approved or quoted. There can be no assurance as to
the prices at which trading in RSI Common Stock will occur after the
Distribution. Until RSI Common Stock is fully distributed, the Rights Offering
terminates and if and when a regular trading market develops, the prices at
which trading in such stock occurs may fluctuate significantly. There can be no
assurance that a regular trading market in RSI Common Stock will develop or, if
a public market develops, will be sustained or provide liquidity.
The prices at which RSI Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
performance and prospects of RSI and its affiliates, the depth and liquidity of
the market for RSI Common Stock, investor perception of RSI and its affiliates
and of the sectors in which they operate and economic conditions in general,
RSI's dividend policy, and general financial and other market conditions. In
addition, financial markets have experienced extreme price and volume
fluctuations that have affected the market price of many stocks and that, at
times, could be viewed as unrelated or disproportionate to the operating
performance of such companies. Such fluctuations have also affected the share
prices of many newly public issuers. Such volatility and other factors may
materially adversely affect the market price of RSI Common Stock.
At the time of the Distribution, RSI will have approximately 455
stockholders of record, based on the number of record holders of Reckson Common
Stock and the number of Limited Partners on the Record Date. The Transfer Agent
and Registrar for the RSI Common Stock will be American Stock Transfer & Trust
Company.
SHARES AVAILABLE FOR FUTURE SALE
RSI Common Stock issued in the Distribution and the Rights Offering
will be freely transferable, except for securities received by persons who may
be deemed to be "affiliates" of RSI under the Securities Act. Persons who may be
deemed to be affiliates of RSI after the Distribution generally include
individuals or entities that control, are controlled by, or are under common
control with, RSI and may include certain officers and directors of RSI as well
as principal stockholders of RSI. Persons who are affiliates of RSI will be
permitted to sell their shares of RSI Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act. RSI has granted certain demand
and "piggyback" registration rights to Donald J. Rechler, Scott H. Rechler,
Michael Maturo, Roger Rechler, Mitchell D. Rechler and Gregg M. Rechler in
respect of shares of RSI Common Stock received by them in the Distribution and
the Rights Offering or owned by them through Lightpost LLC. RSI is not able to
predict whether substantial amounts of RSI Common Stock currently not freely
transferable will be sold in the open market following the Distribution. Sale of
substantial amounts of RSI Common Stock in the public market, or the perception
that such sales might occur, could adversely affect the market price of RSI
Common Stock.
THE RIGHTS OFFERING
PURPOSE
RSI has determined to proceed with the Rights Offering as a means for
RSI to (i) fund certain organizational and start-up costs (estimated to be $1.5
million) and anticipated short-term losses of the Company, (ii) provide RSI
sufficient initial equity capital in order to pursue its business objectives,
and (iii) provide capital towards meeting minimum capital requirements to
commence trading in the future on an organized trading system. There can be no
assurance that the Rights Offering will be successful or, even if it is
successful, that it will enable the Company to achieve the foregoing purposes.
Prior to the Distribution and the Rights Offering, there has been no
public market for the RSI Common Stock or the Subscription Rights, and there can
be no assurance that a public market for the RSI Common Stock will develop
following completion of the Rights Offering. Since the Subscription Rights are
not transferable, no public market will develop for the Subscription Rights.
Immediately after the Distribution, RSI will grant to Holders of RSI
Common Stock received in the Distribution Subscription Rights to purchase up to
an aggregate of approximately 20,557,130 shares of RSI Common Stock.
Each Holder will receive one Subscription Right for every share of RSI
Common Stock received in the Distribution. Each Subscription Right will entitle
the Holder to purchase one share of RSI Common Stock at a purchase price of
$1.03 per share and, at the election of such Holder, four additional shares (but
not less than four additional shares) at a purchase price of $1.03 per share.
The Exercise Price was determined based upon the fair market value of a share of
RSI Common Stock, which was determined to be its book value. Holders may
exercise their Subscription Rights in respect of one share or five shares of RSI
Common Stock that they are entitled to purchase pursuant to each Subscription
Right. Holders will not be permitted to purchase more than one share and less
than five shares in respect of a Subscription Right.
At the time of the Distribution, there will be approximately 4,111,426
shares of RSI Common Stock, based on the outstanding shares of Reckson Common
Stock and Units of Reckson Operating Partnership as of the Record Date.
Accordingly, a total of 4,111,426 Subscription Rights with respect to an
aggregate of 20,557,130 shares of RSI Common Stock will be issued in the Rights
Offering.
EXERCISE PRIVILEGE
Each Subscription Right will entitle the Holder thereof to receive one
share of RSI Common Stock upon the payment of the Exercise Price of $1.03 per
share and four additional shares of RSI Common Stock (but not less than four
additional shares) upon the payment of $1.03 per share, subject to the
restrictions described herein (the "Exercise Privilege").
NO FRACTIONAL RIGHTS
No fractional Subscription Rights will be issued in the Rights
Offering.
EXPIRATION DATE
The Rights Offering will terminate, and the Subscription Rights will
expire, at 5:00 p.m., New York City time, on June 29, 1998, unless extended by
the Company (the "Expiration Date"). After the Expiration Date, unexercised
Subscription Rights will be null and void, subject to the provisions of the
Standby Agreement.
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS
The Subscription Rights are not transferable by the Holders thereof,
and may only be exercised on or prior to the Expiration Date by the Holders
thereof.
METHOD OF EXERCISING SUBSCRIPTION RIGHTS
Subscription Rights may be exercised by completing and signing the
relevant information appearing on the back of each Subscription Rights
certificate. The completed and signed certificate, accompanied by payment in
full of the Exercise Price for all shares for which the Exercise Privilege has
been exercised, must be delivered by hand or sent by mail to American Stock
Transfer & Trust Company (the "Rights Agent"), and must be received by the
Rights Agent on or before the Expiration Date. The Company will not be obligated
to honor any purported exercise of Subscription Rights received by the Rights
Agent after the Expiration Date, regardless of when the documents relating to
such exercise were sent.
The Company recommends, for the Holders' protection, that exercised
Subscription Rights, if applicable, be delivered to the Rights Agent by hand,
overnight or express mail courier, or, if mailed, by registered mail. The
Subscription Rights certificate and Exercise Price should be mailed or delivered
to the Rights Agent as follows:
By First Class Mail, Hand or Overnight/Express Mail Courier:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
Payment of the Exercise Price must be made in U.S. dollars by cash, check or
money order payable to "American Stock Transfer & Trust Company." American Stock
Transfer & Trust Company will serve as the escrow agent of the RSI Escrow
Account.
A Holder of Subscription Rights who purchases less than all the RSI
Common Stock represented by the related Subscription Rights certificate will
receive from the Rights Agent a new Subscription Rights certificate representing
the balance of the unexercised Subscription Rights, to the extent that the
Rights Agent is able to reissue a Subscription Rights certificate prior to the
Expiration Date.
Certificates representing the RSI Common Stock purchased by exercising
the Exercise Privilege will be issued as soon as practicable after the
Expiration Date. All funds received by the Rights Agent in payment of the
Exercise Price will be retained in escrow by the Escrow Agent and will not be
delivered to the Company until the certificates representing RSI Common Stock
have been issued.
Record holders of shares of Reckson Common Stock who hold such shares
for the account of others (e.g., brokers or depositories for securities), and
who thus receive shares of RSI Common Stock in the Distribution and Subscription
Rights certificates representing Subscription Rights for the account of more
than one beneficial owner, should provide such beneficial owners with copies of
this Prospectus and should ascertain and execute on their behalf the intentions
of such beneficial owners as to the exercise of such Subscription Rights.
All questions as to the validity, form, eligibility (including times of
receipt and beneficial ownership) and acceptance of subscription forms and the
Exercise Price will be determined by the Company, whose determination will be
final and binding. Once made, subscriptions are irrevocable, and no alternative,
conditional or contingent subscriptions will be accepted. The Company reserves
the absolute right to reject any or all purchases not properly submitted or the
acceptance of which would, in the opinion of its counsel, be unlawful. The
Company also reserves the right to waive any irregularities (or conditions) and
its interpretations of the terms (and conditions) of the Rights Offering shall
be final and binding. Any irregularities in connection with purchases must be
cured within five business days of the giving of notice of defect by the Rights
Agent, but not later than the Expiration Date, unless waived by the Company. The
Company and the Rights Agent are not under any duty to give notification of
defects in such subscriptions and will not have any liability for failure to
give such notifications. Exercises will not be deemed to have been made until
such irregularities have been cured or waived, and rejected exercises and the
Exercise Price paid therefor, without interest, will be returned promptly by the
Rights Agent to the appropriate holders of the Subscription Rights.
STANDBY AGREEMENT
RSI and the Standby Purchaser have entered into the Standby Agreement
pursuant to which the Standby Purchaser has agreed to purchase, and RSI has
agreed to sell, any and all shares of RSI Common Stock that are the subject of
Subscription Rights in the Rights Offering but are not subscribed for (the
"Standby Commitment Shares") on the Expiration Date at an Exercise Price of
$1.03 per share.
The Company has entered into the Standby Agreement to provide
additional assurance that the Company would, with the sale of the Standby
Commitment Shares, sell all of the shares of RSI Common Stock that are the
subject of Subscription Rights in the Rights Offering and thereby achieve its
stated purposes.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the material federal income tax consequences
affecting Holders of RSI Common Stock receiving Subscription Rights in the
Rights Offering under the Code is based upon current law:
Distribution of Subscription Rights to Holders of RSI Common Stock.
Pursuant to Section 305(a) of the Code, holders of RSI Common Stock will not
recognize taxable income in connection with the distribution of the Subscription
Rights.
Basis and Holding Period of Subscription Rights. If either (i) the fair
market value of the Subscription Rights on the date of the Distribution is 15%
or more of the fair market value (on such date) of the RSI Common Stock with
respect to which the Subscription Rights are received, or (ii) a Rights Holder
elects, in its federal income tax return for the taxable year in which the
Subscription Rights are received, to allocate part of the basis of such RSI
Common Stock to the Subscription Rights, then upon exercise of any of the
Subscription Rights, the Rights Holder's basis in such RSI Common Stock will be
allocated between such RSI Common Stock and the Subscription Rights exercised in
proportion to the fair market values of each on the date the Subscription Rights
are issued. If neither of the foregoing applies, the basis of Subscription
Rights received by a holder of RSI Common Stock will be zero. In any event, no
allocation of basis will be made to the Subscription Rights if the Subscription
Rights are not exercised (e.g., if the Subscription Rights expire unexercised).
Lapse of Subscription Rights. Upon the lapse of any Subscription Rights
received by Rights Holders, such Rights Holders will not recognize any gain or
loss and, as indicated above, no allocation of basis in such Rights Holders' RSI
Common Stock will be made to the Subscription Rights.
Exercise of Subscription Rights; Basis and Holding Period of the Common
Stock Acquired Through Exercise. Rights Holders will not recognize any gain or
loss upon the exercise of Subscription Rights. The basis of the RSI Common Stock
acquired upon the exercise of Subscription Rights will be equal to the sum of
the Exercise Price therefor and the Rights Holder's basis in the Subscription
Rights exercised. The holding period for the RSI Common Stock acquired through
the exercise of Subscription Rights will begin on the day following the date on
which the Subscription Rights are exercised.
USE OF PROCEEDS
The net proceeds from the Rights Offering are estimated to be
approximately $21.1 million (the "Net Proceeds"). The Company intends to use the
Net Proceeds to acquire interests in operating companies providing Commercial
Services, including the funding of a portion of its $6.5 million commitment to
OnSite, and to fund investments in RSVP. To the extent not utilized for the
foregoing, the Net Proceeds will be used by the Company for working capital and
general corporate purposes, including the funding of certain organizational and
start-up costs (estimated to be $1.5 million) and short-term losses.
DIVIDEND POLICY
Following the Distribution, RSI intends to use its available funds to
pursue investment and business opportunities and, therefore, does not anticipate
the payment of any cash dividends on RSI Common Stock in the foreseeable future.
The declaration of dividends will be subject to the discretion of the RSI Board
of Directors. In addition, payment of dividends on RSI Common Stock will be
prohibited under the Credit Facilities to be provided to RSI by Reckson
Operating Partnership until all amounts outstanding thereunder are paid in full,
and will also be subject to such limitations as may be imposed by any other
credit facilities or debt securities that RSI may obtain or issue, as the case
may be, from time to time.
SELECTED FINANCIAL DATA
The selected financial information set forth below has been derived from
the historical financial statements of Reckson Service Industries Inc. The
financial information for the period from July 15, 1997 (date of inception) to
December 31, 1997 is not necessarily indicative of results for subsequent
periods or the full year. This selected financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" of Reckson Service Industries, Inc. and the
historical financial statements and related notes thereto of Reckson Service
Industries, Inc. contained herein.
<TABLE>
<CAPTION>
Period from
July 15, 1997
through
December 31, 1997
<S> <C>
Operations Summary:
Equity in earnings of RO Partners Management, LLC $ 245,593
Equity in (loss) of ACLC (22,156)
Total revenues 253,820
Corporate operating expenses 479,113
Net loss $ (257,887)
Financial Position:
Investment in RO Partners Management, LLC $ 3,868,093
Investment in ACLC 1,652,165
Loan receivable 325,000
Organization and pre-acquisition costs 681,694
Total assets 7,519,695
Loans payable to affiliates 3,177,857
Total liabilities 3,297,241
Shareholders' equity 4,222,454
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Summary Condensed Pro Forma Financial Information," "Selected Financial Data"
and the financial statements appearing elsewhere in this Prospectus.
This discussion is based on an analysis of the historical financial
statements of RSI and the pro forma financial statements of RSI. The RSI
historical financial statements include RSI's investment in RO Partners
Management, LLC, which is the general partner of the predecessor to RSVP. The
RSI pro forma financial statements include the pro forma effects of the
acquisition of interests in Dobie Center, ACLC and Reckson Executive Centers LLC
which are accounted for under the equity method of accounting and working
capital convertible loans to OnSite.
RSI was formed on July 15, 1997, to identify and acquire interests in
operating companies that engage in businesses that provide certain services
primarily directed towards occupants of office, industrial and other property
types and to invest in and manage a real estate venture capital fund. On June 4,
1997, the Company formed and acquired a 331/3% equity interest in RO Partners
Management LLC ("RO"). RO is the general partner of Reckson Opportunity
Partners, L.P. ("Opportunity Partners"), predecessor to RSVP. The Company,
through a subsidiary, acts as the managing member of RSVP and PWRES is a non-
managing member. RSVP was formed on January 23, 1998, to succeed to the
operating activities of Opportunity Partners. On July 15, 1997, the Company
invested approximately $3.62 million in RO, which then acquired a 70% interest
in Dobie Center, a 27-story off-campus student housing project located directly
opposite the campus of the University of Texas at Austin. On October 17, 1997,
the Company invested approximately $1.51 million to acquire a 331/3% interest in
RFG Capital Management Partners, L.P. ("RFG Capital"), which acquired a 76.09%
interest in ACLC, a student housing enterprise which develops, constructs and
acquires on- and off-campus student housing projects.
RSI financed the acquisitions of its indirect interests in Dobie Center
and ACLC with proceeds from initial capital contributions and loans from Reckson
Operating Partnership. RSI anticipates financing certain short-term working
capital requirements of OnSite with working capital loans from Reckson Operating
Partnership. In addition, RSI is commencing the Rights Offering and anticipates
making borrowings under the Credit Facilities for purposes of meeting its
investment commitment to RSVP, making additional investments and providing
working capital for operations (see "Liquidity and Capital Resources").
RESULTS OF OPERATIONS
For the period from July 15, 1997 (commencement of operations) to
December 31, 1997 the Company reported total revenues of $253,820. Total
revenues include (i) equity in earnings of RO of $245,593 and substantially
represent RO's 331/3% interest in a joint venture that owns a 70% interest in
Dobie Center (i.e., for the period July 15, 1997 through December 31, 1997,
Dobie Center reported total revenues of $4.4 million, operating income of $2.1
million and net income of $.8 million), (ii) equity in loss of ACLC of $22,156
(i.e., for the period from October 17, 1997 (date of Company's investment)
through December 31, 1997 ACLC reported total revenues of $1.5 million,
operating income of $.6 million and a net loss of $87,354) and (iii) interest
income of $30,383 relating to loans made to certain affiliates. The Company also
reported total operating expenses of $479,113 which substantially represents
payroll and office costs. The following represents summarized historical
operations of Dobie Center and ACLC for the year ended December 31, 1997 and for
the period from the investment acquisition date through December 31, 1997.
<TABLE>
<CAPTION>
For the Period from For the Period
July 15, 1997 from October 17,
Year Ended through 1997 through
Description December 31, 1997 December 31, 1997 December 31, 1997
- ----------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Dobie Dobie
Center ACLC Center ACLC
Total Revenues $9,276,908 $5,414,054 $4,395,907 $1,484,654
Total Operating 5,050,591 2,925,395 2,280,857 867,252
Expenses
Operating Income 4,226,317 2,488,659 2,115,050 617,402
Non-operating 2,795,934 2,000,213 1,337,506 704,756
--------- ---------- --------- -------
Expenses
Net Income $1,430,383 $ 488,446 $ 777,456 ($87,354)
========== ========== ========= =========
Company's share -- -- $ 181,406 ($22,156)
========== ==== ========= =========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
In connection with the formation and capitalization of RSI, Reckson
Operating Partnership contributed $4,256,324 to RSI for a 95% non-voting equity
interest. Simultaneously, certain officers of Reckson contributed $224,017 of
notes to RSI in exchange for a 5% voting equity interest, which notes were
subsequently paid off. RSI will rely primarily on funds raised in the Rights
Offering and on Reckson through borrowings under the RSI Facility for the
financing of RSI's operations.
RSI will commence the Rights Offering as a means for RSI to raise
sufficient capital to (i) fund certain organizational and start-up costs and
fund anticipated short-term operating losses of the Company, (ii) provide RSI
sufficient initial equity capital in order to pursue its business objectives,
and (iii) provide capital towards meeting minimum capital requirements to
commence trading in the future on an organized trading system.
RSI expects to establish the RSI Facility with Reckson Operating
Partnership in the amount of $100 million for RSI's service sector operations
and other general corporate purposes. In addition, Reckson Operating Partnership
has approved the funding of investments of up to $100 million with or in RSVP,
through (i) loans for the funding of RSVP investments prior to the Distribution,
(ii) RSVP-controlled joint venture REIT-Qualified Investments, or (iii) advances
made to RSI subsequent to the Distribution under the RSVP-ROP Facility. Advances
under the RSVP-ROP Facility in excess of $25 million in respect of any single
platform will be subject to approval by Reckson's board of directors, while
advances under the RSI Facility in excess of $10 million in respect of any
single investment in Commercial Services, as well as advances for investments in
opportunities in non-Commercial Services, will be subject to approval by
Reckson's board of directors, or a committee thereof. It is expected that the
Credit Facilities will each have a term of five years and advances thereunder
will be recourse obligations of RSI. Interest will accrue on advances made under
the Credit Facilities at a rate equal to the greater of (i) the prime rate plus
2% and (ii) 12% per annum, with the rate referred to in clause (ii) increasing
annually at a rate of 4% of the prior year's rate. Prior to maturity, interest
will be payable quarterly but only to the extent of net cash flow and on an
interest-only basis and will be prepayable without penalty at the option of RSI.
As long as there are outstanding advances under the Credit Facilities, RSI will
be prohibited from paying dividends on any shares of its capital stock. The
Credit Facilities will be subject to certain other covenants and will prohibit
advances thereunder to the extent such advances could, in the determination of
Reckson, endanger Reckson's status as a REIT. Additional indebtedness may be
incurred by subsidiaries of RSI.
Additionally, RSVP has obtained the PaineWebber Equity Facility from
PWRES which provides for the investment by PWRES of up to $200 million in RSVP
in the form of preferred equity, subject to certain conditions. Amounts
available under the PaineWebber Equity Facility will be used by RSVP to make
investments consistent with its business objectives and to fund working capital.
Under the terms of the PaineWebber Equity Facility, RSVP is subject to various
covenants and events of default and related remedies. Such remedies include
increased control rights of PWRES over the operation of RSVP under certain
circumstances. Advances under the PaineWebber Equity Facility will be partially
funded by an investment fund that is jointly sponsored by financier George Soros
and PWRES. In addition, PWRES and such investment fund will receive a priority
or preferred distribution from RSVP prior to the distribution of cash to RSI.
The Company will use the proceeds from the Rights Offering and the RSI
Facility to support its capital requirements, as described above. The Company
will use the proceeds from the Rights Offering and advances under the RSI
Facility primarily to make investments in operating companies that provide
services directed towards occupants of office, industrial and other property
types. The Company may make additional investments in these operating companies
to accommodate their respective growth plans. The Company's investments in
interests in operating companies are anticipated to produce net cash flow as a
result of their operating activities. Although the level and timing of net cash
flow for each investment in the short term and long term may vary based upon the
stage of the respective operating companies growth cycle. The Company will
target investments in operating companies that will produce net cash flow in the
long term. Net cash flow produced by the Company's investments will be used for
debt service under the RSI Facility and for the Company's operating costs. The
Company expects to meet its short term liquidity requirements generally through
its net cash flow produced by its operations along with the proceeds from the
Rights Offering and advances under the RSI Facility. The Company expects that it
will refinance indebtedness under the RSI Facility at maturity or retire such
debt through the issuance of debt securities or equity securities, although
there can be no assurance that the Company will be able to refinance or retire
such indebtedness. The Company anticipates that cash on hand, from proceeds of
the Rights Offering and net cash flows from operating activities, together with
cash available from borrowings under the RSI Facility, will be adequate to meet
the capital and liquidity requirements of the Company in both the short and long
term.
The Credit Facilities will bear interest at the greater of the Prime
Rate plus 2% or 12% (increasing 4% per year, as described above). The rate of
interest on the Credit Facilities will be influenced by changes in short term
rates and is sensitive to inflation and other economic factors. A significant
increase in interest rates may have a negative impact on the earnings of the
Company due to the variable interest rate under the Credit Facilities.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
The Company has completed an assessment to modify or replace portions
of its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. Currently, the entire property
management system is year 2000 compliant and has been thoroughly tested. Since
the Company's accounting software is maintained and supported by a third party,
the total year 2000 project cost is estimated to be minimal.
The project is estimated to be completed not later than September 30,
1998, which is prior to any anticipated impact on its operating systems. The
Company believes that with modifications to existing software and conversions to
new software the year 2000 issue will not pose significant operational problems
for its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the year 2000 issue could have a material
impact on the operations of the Company.
The costs of the project and the date on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and costs of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
PRO FORMA CAPITAL RESOURCES
RSI has entered into a letter of intent to purchase an interest in
OnSite. Financing for this acquisition is expected to be provided through either
proceeds from the Rights Offering or a loan from Reckson Operating Partnership
under the RSI Facility. RSI has no other external sources of financing except as
described above in "Liquidity and Capital Resources." RSI's ability to make
additional investments will be dependent upon availability under the RSI
Facility and the PaineWebber Equity Facility and securing additional financing
on adequate terms as required. Recently the Clinton administration has made
legislative proposals regarding the tax advantages enjoyed by "paired" or
"stapled" REITs. As currently proposed, such legislative initiatives would not
impact the operations of the Company. RSI is not aware of any material
unfavorable trends in either capital resources or the outlook for long-term cash
generation, nor does it anticipate any material change in the availability and
relative cost of such capital resources.
PRO FORMA RESULTS OF OPERATIONS
For the year ended December 31, 1997 on a pro forma basis, after giving
effect to the completion of the formation and initial capitalization of RSI, the
acquisition of the Dobie Center interest, and the making of the working capital
loans to OnSite and the ACLC interest, RSI would have incurred a net loss of
$243,304. This pro forma net loss reflects (i) the historical operating results
of RSI for the period from July 15, 1997 (inception) to December 31, 1997, which
includes RSI's equity in earnings of RO Partners Management, LLC of $245,593,
primarily attributable to RSVP's interest in Dobie Center, (ii) $152,329 of
equity in earnings related to the pro forma results of Dobie Center for the
preacquisition period, (iii) the $146,042 equity in earnings related to the pro
forma results of ACLC for the preacquisition period, (iv) the $9,128 equity in
loss related to the pro forma results of Reckson Executive Centers LLC for the
preacquisition period, and (v) the $132,182 interest income related to RSI's
convertible working capital loans to OnSite. The pro forma net loss also
reflects the pro forma increase in interest expense on borrowings from Reckson
Operating Partnership in connection with the financing of the acquisitions of
the ACLC interest and the working capital loans to OnSite and incremental
corporate general and administrative expenses of $100,000.
BUSINESS
OVERVIEW
Service Sector Operations. RSI's primary business is to create and
manage a system of interrelated services to be offered to the marketplace
through a centralized infrastructure. RSI's growth strategy is to acquire
primarily established businesses within each of its targeted service sectors,
and, where appropriate, to retain the existing management of such businesses
("Service Platforms"). Specifically, RSI will seek opportunities for which there
is broad demand in the Reckson Customer Base, strong entrepreneurial management,
a reputation for high quality services and growth potential. Such platform
investment will serve as a basis for future acquisitions in such sectors. RSI
will establish a platform position in service sectors (each, a "Service
Platform") that present significant opportunities to provide Commercial Services
to the Reckson Customer Base and other third parties. Currently, the Reckson
Customer Base retains third parties to provide many services for their
day-to-day operations. Of these services, the Company may seek to provide the
Reckson Customer Base with telecommunications, document storage, document
reproduction and logistics services (i.e., inventory services, messenger
services and delivery services), as well as with other services that the Company
determines may be utilized by the Reckson Customer Base. RSI will seek growth in
each Service Platform by (i) accessing the Reckson Customer Base as an anchor
for growth opportunities in Reckson's markets, (ii) integrating each Service
Platform into RSI's centralized infrastructure and (iii) acquiring similar
businesses or making additional investments within such Service Platform.
Management believes that there are significant opportunities to provide
Commercial Services to the Reckson Customer Base and third parties that are
currently provided by third parties in a more limited and fragmented manner or
not provided at all. The opportunities that the Company may determine to pursue
include telecommunications, document storage, document reproduction and
logistics services. Management also believes that RSI will benefit from
Reckson's relationships with its tenants and from Reckson's reputation for
providing high quality service to its tenants. RSI will offer to the marketplace
Commercial Services at a uniformly high quality level and on competitive market
terms which RSI shall facilitate through its centralized infrastructure. In
support of this arrangement, the Intercompany Agreement will require Reckson
Operating Partnership to provide RSI with a right of first opportunity in
respect of Commercial Service opportunities that it develops or that otherwise
become available to it, as well as to provide RSI with access to its tenants so
that RSI may offer Commercial Services directly to such tenants; provided,
however, that RSI must offer to provide such Commercial Services to Reckson
Operating Partnership at market rates and on terms and conditions as attractive
as the best available for comparable services in the market or those offered by
RSI to third parties. Such market rates and terms will be determined based upon
a review of the services provided by competitors in the markets. RSI will
provide this information to Reckson Operating Partnership in connection with
Reckson Operating Partnership's review of whether to retain RSI to perform such
services.
Real Estate Venture Capital Fund. RSI, through a subsidiary, is a
managing member of RSVP, a real estate venture capital fund formed to invest in
real estate and real estate-related operating companies outside of Reckson's
core office and industrial focus. RSVP's strategy is to identify and acquire
interests in established entrepreneurial enterprises with experienced management
teams in market sectors which are in the early stages of their growth cycle or
offer unique circumstances for attractive investments as well as platforms for
future growth. RSVP has established a platform in the area of student housing
and is targeting additional market sectors. RSVP has retained highly experienced
investment professionals who will source, structure and execute transactions
within each platform as well as manage the day-to-day operations of RSVP,
subject to the overall management of RSI's executive officers.
RSI's investments in RSVP will occur in the following manner: Reckson
Operating Partnership has approved the funding of investments of up to $100
million with or in RSVP. This $100 million will be invested at the early stages
of establishing platforms in real estate and real estate-related sectors in
which RSVP determines to make investments. Although RSVP has reviewed
opportunities in certain sectors, it has not yet determined the sectors in which
it may seek to invest, other than the student housing sector. Reckson Operating
Partnership will fund such investments (i) indirectly through advances to RSI
under the RSVP-ROP Facility or (ii) directly in joint ventures with RSVP in
REIT- Qualified Investments. Under the terms of the PaineWebber Equity Facility,
RSVP may invest up to 25% of its capital into a single platform. After a
platform has reached this limit, RSVP may not make any further investment
therein and Reckson may determine to incorporate that platform into its core
business and make additional investments in other opportunities within such
platform; any such investments would be in addition to the RSVP-ROP Facility.
Reckson Operating Partnership and/or RSI may make investments managed by RSVP in
which RSVP has no ownership interest. It is anticipated that Reckson Operating
Partnership and RSI will pay an asset management fee to RSVP Holdings LLC equal
to 1% and 0.50%, respectively, of such investments. In addition, as further
described below, RSVP has obtained the $200 million PaineWebber Equity Facility
from PWRES, which will be partially funded by an investment fund that is jointly
sponsored by financier George Soros and PWRES. RSI will be required to comply
with the terms of the PaineWebber Equity Facility, including the funding
requirements and covenants thereof. See "--Funding Sources for RSI."
RSVP Holdings LLC, the managing member of RSVP, has retained Mr. Seth
B. Lipsay and Mr. Steven H. Shepsman (the "RSVP Managing Directors") to manage
the day-to-day operations of RSVP, subject to the strategic direction of RSI.
Mr. Lipsay previously served as a Managing Director of PaineWebber Real Estate
Securities Inc. and Mr. Shepsman served as regional managing partner of the E&Y
Kenneth Leventhal Real Estate Group of Ernst & Young LLP. Each of the RSVP
Managing Directors has entered into an employment agreement with RSVP Holdings
LLC which provides for an annual base salary of $500,000 and has a term of the
earlier of seven years or the term of RSVP, but not less than five years. Each
of the RSVP Managing Directors has received from RSI a $3 million grant of
common stock of Reckson that will vest over a five-year period. New World
Realty, LLC ("New World"), an entity owned by Messrs. Lipsay and Shepsman, acts
as a managing member of RSVP Holdings LLC. The RSVP Holdings LLC operating
agreement (the "Managing Member Operating Agreement") provides for the payment
to New World of distributions out of the cash flow of RSVP Holdings LLC, after
RSI and affiliated persons have received a return of their capital contributions
to RSVP investments plus a 12% internal rate of return ("IRR") thereon, of $15
million and, thereafter, a share of cash flows ranging from 15% to 27.75% based
upon the IRR of RSI and affiliated persons in respect of RSVP investments. New
World will also be entitled to one-half of any asset management fee earned by
RSVP Holdings from Reckson Operating Partnership and RSI. Additionally, it is
anticipated that New World will receive transaction fees of up to $1 million a
year for identifying investment opportunities for RSVP.
The Managing Member Operating Agreement provides New World with certain
rights regarding major capital decisions of RSVP, including the making or
disposition of RSVP's investments (except for dispositions at an independently
determined fair value), unless one of the RSVP Managing Directors approves of
such decision. The Managing Member Operating Agreement obligates RSI to
contribute 100% of the capital contributions to be made by RSVP Holdings LLC to
RSVP in an amount up to $100 million. In the event that RSI defaults in making
its capital contributions, among other things, distributions of cash to RSI will
be subordinated to certain distributions to New World and RSI's management
rights will be reduced and RSI will be obligated to purchase, at the election of
New World, a portion of New World's interest in RSVP Holdings LLC for a minimum
of $15 million. At the termination of RSVP, New World has a right of first
refusal to purchase any RSVP investment proposed for sale.
The foregoing is only a summary of the material aspects of the
referenced documents. Copies of such documents have been filed as exhibits to
the Registration Statement on file with the Securities and Exchange Commission,
of which this Prospectus is a part.
INITIAL ASSETS OF RSI
RSI's initial investments are comprised of (i) convertible loans made
to OnSite Ventures, L.L.C. ("OnSite"), a company providing advanced
telecommunications systems and services within commercial and residential
buildings and/or building complexes, (ii) a 9.9% equity interest in Reckson
Executive Centers LLC, an executive office suites business operated at Reckson's
properties that was acquired from Reckson Operating Partnership for $200,000,
and an option to acquire a majority equity interest in InterOffice
(Superholdings) Corporation (the "Office Suites Company"), a joint venture that
owns 100% of InterOffice (Holdings) Corporation, a national executive office
suites business, and (iii) RSI's indirect interest in ACLC and Dobie Center.
OnSite. On February 20, 1998, RSI entered into a contract to acquire
through its wholly-owned subsidiary, RSI-OSA Holding Inc., an interest in
OnSite, which has been formed as a joint venture entity to acquire and hold 100%
of the equity interests of OnSite Access LLC and OnSite Access Local LLC
(collectively, "OSA"). OSA is engaged in the business of installing
state-of-the-art telecommunications infrastructure in commercial and residential
buildings and complexes, including wiring, cabling and transmission equipment
and providing telecommunication, computer and Internet services. OSA commenced
operations in February 1997. The OnSite transaction has been closed in escrow
pending the receipt of regulatory approvals from the Federal Communications
Commission, the State of New York and the State of Connecticut. Although such
approvals are pending and management believes that such approvals will be
obtained, there can be no assurance that the approvals will be received. As of
the date of this prospectus, RSI has made an aggregate of $1.125 million of
senior convertible loans to Veritech Ventures LLC, an entity controlled by Jon
L. Halpern, a director of Reckson who is one of the founders of OSA ("Veritech")
for the working capital of OSA pending receipt of the regulatory approvals. Such
loans are unconditionally guaranteed by OSA and secured by Veritech's equity
interest in OSA. RSI has also purchased a membership interest in OnSite equal to
1% of the aggregate membership interests. Such loans accrue interest at a 12%
rate, payable together with principal not later than March 1, 1999. If
regulatory approval is obtained, the senior convertible indebtedness of Veritech
to RSI will be subsumed into the $6.5 million dollar Subordinated Loan Agreement
and Promissory Note executed in connection with the OnSite transaction. Under
the terms of this Subordinated Loan Agreement and Promissory Note, RSI is
committed to loan OnSite up to $6.5 million (less the aggregate subsumed amount
of the senior convertible notes). The Company may fund such $6.5 million from
borrowings under the RSI Facility or out of cash flow from operations, or from a
combination thereof. This subordinated convertible note, in the sole discretion
of RSI, may be converted into a membership interest equal to 58.69% of the
aggregate membership interests in OnSite for an aggregate purchase price equal
to $6.5 million less the aggregate amount previously loaned by RSI to Veritech
or OnSite. Interest on the subordinated note accrues at a rate of 12% and is
payable to the extent of available cash flow of OSA. Under the subordinated
note, RSI also receives equity distributions equal to 45.19% of the aggregate
distributions as and when distributed to the members in OnSite. The subordinated
convertible note is convertible only during the two year period subsequent to
its issuance. If RSI does not convert the subordinated convertible note during
such two year period, the subordinated convertible note will be automatically
converted into a non-convertible subordinated note with a term of ten years and
accruing interest at a rate of 7%. Veritech contributed all of the assets used
in the OnSite business, including 100% of the ownership interest in OSA, in
return for an interest in OnSite. Veritech and former members in Veritech own a
39.13% interest in OnSite.
OnSite has been formed as a Delaware limited liability company managed
by a management committee comprised of three designees of RSI and two designees
of Veritech. The Limited Liability Company Agreement of OnSite (the "OnSite LLC
Agreement") provides that certain significant decisions (i.e., liquidation or
dissolution of OnSite, affiliated transactions, the issuance of equity
securities, changing the nature of the business of OnSite, the hiring of certain
executives, incurring indebtedness above a specified limit, an initial public
offering of interests in OnSite and any transaction which results in RSI,
Veritech and another member not controlling the business and affairs of the
Company) by the management committee require the approval of both a
representative of RSI and an OSA Representative. The OnSite LLC Agreement also
provides RSI and Veritech with buy/sell rights in the event of a deadlock with
respect to a significant decision. In accordance with the OnSite LLC Agreement,
Veritech will have the right, but not the obligation, to purchase all of RSI's
interest if (i) RSI authorizes the dissolution of OnSite any time after its
initial capital contribution has been spent or (ii) OnSite does not within the
first two years of its operations spend RSI's capital contribution of $6.5
million for the wiring of buildings or building complexes, provided that
Veritech proposed transactions in accordance with the OnSite business plan
sufficient to expend such $6.5 million. In addition, Veritech will have the
right to sell all of its membership interest to RSI at any time after the first
two years of the joint venture if RSI does not consent to an initial public
offering by OnSite proposed by Veritech. RSI also will have the right for a
period of six months to require OnSite to purchase 18.6% of the aggregate
percentage interest in OnSite for a purchase price equal to $2 million
commencing two years after the formation of the joint venture. The terms of the
OnSite LLC Agreement provide RSI and Veritech a right of first refusal with
respect to the sale of the other's membership interest, provides customary
"tag-along" and "drag-along" rights and contemplates the adoption of an employee
stock option or similar plan.
Under the terms and conditions of the OnSite LLC Agreement, OnSite has
a right of first opportunity to deliver or provide communication, wiring and
other related services with respect to Reckson's office buildings and complexes.
The cost to Reckson for such services by OnSite will be the lesser of the best
price offered by OnSite to its other customers and the lowest price otherwise
available in the market, for a period through one year after RSI no longer holds
an interest in OnSite.
Jon L. Halpern, a director of Reckson, beneficially owned substantially
all of the OnSite business prior to the transactions described above. Prior to
RSI's conversion of any of the subordinated indebtedness that it acquires in
OnSite, Mr. Halpern will continue to own substantially all of the OnSite
business. Mr. Halpern will own beneficially a 25.97% interest in OnSite after
giving effect to its acquisition of the OnSite business, assuming RSI converts
its subordinated convertible note into a 58.69% interest.
RSI and the entity controlled by Jon L. Halpern have also agreed to
invest an additional $300,000 and $200,000 in OnSite Commerce and Content LLC, a
newly formed Delaware Limited Liability Company which has been established to
develop and acquire various forms of software products, content and other
related computerized commercial products which may be delivered primarily by
telecommunications and computer equipment service providers to their respective
end users. The terms and conditions of the Limited Liability Company Agreement
of OnSite Commerce and Content LLC will be substantially similar to the OnSite
LLC Agreement.
OnSite Industry. Building centric communications, the sector in which
OnSite operates, is a newer sector of the telecommunications industry, having
evolved largely as a result of the Telecommunications Act of 1996. The sector
includes those companies involved in providing local and long-distance
telecommunications and high-speed internet access. The industry and the sector
are regulated on both the federal and state level. Competing in this sector
requires significant capital expenditures for wiring and equipment. Companies
with access to lower-cost capital have a competitive advantage due to the
significant capital expenditures incurred by participants in this sector. The
sector is undergoing rapid change, development and innovation. As a result,
OnSite and other participants in its sector are subject to the risk of
obsolescence of their technology. Changes in office vacancy rates and interest
rates have an impact on the performance of the sector. OnSite (including its
predecessors) has operated in New York City, Long Island and Westchester County,
NY for two years. The New York tri-state market is a fragmented market comprised
of large, national firms (such as Bell Atlantic and Worldcom) and smaller,
regional companies (such as OnSite). OnSite is one of several companies seeking
to establish a significant presence in the market.
Executive Office Suites. RSI has obtained a 9.9% ownership interest in
Reckson Executive Centers LLC, an executive office suites business which
currently operates at nine of Reckson's properties encompassing approximately
100,800 rentable square feet. RSI acquired the 9.9% interest in Reckson
Executive Centers LLC from Reckson Operating Partnership for $200,000. Reckson
Executive Centers LLC provides tenants with furnished office suites and
immediate support services, including secretarial services, telecommunication
services and conference facilities. In addition, RSI is presently seeking to
acquire a portion of the remaining 90.1% interest from the owner of such
interest, who presently manages the day-to-day operations of Reckson Executive
Centers LLC. Such owner, Arnold Widder, also currently serves as a non-executive
officer of Reckson.
Reckson Executive Centers LLC leases space at the related Reckson
properties as well as office furniture and equipment from Reckson Operating
Partnership pursuant to five-year leases that provide for rental payments to
Reckson. Reckson Executive Centers LLC effectively subleases such space to
tenants on a short-term basis (generally one to five years).
RSI has also obtained an option from Reckson Management Group, Inc., a
company in which Reckson Operating Partnership owns a 97% non-voting interest
(the "Reckson Management Company"), to acquire a majority equity interest in the
Office Suites Company. Reckson Management Company closed the acquisition of the
Office Suites Company in January 1998. Each of the RO Partners Managing
Directors (as defined below) owns a minority interest in the Office Suites
Company. Jon L. Halpern owns a 22.75% interest in the Office Suites Company.
RSI's option to acquire Reckson Management Company's interest in the Office
Suites Company has a five-year term and is exercisable at any time at a price
equal to Reckson Management Company's cost in acquiring the interest (estimated
to be approximately $13.8 million), increasing at 8% per annum from January 27,
1998 (the date on which Reckson Management Company acquired such interest in the
Office Suites Company). Management has determined that RSI will not exercise its
option to acquire Reckson Management Company's interest in the Office Suites
Company unless significant due diligence and an audit of such company's
financial statements have been completed to its satisfaction.
The Executive Office Suites Industry. The executive office suite
("EOS") business began approximately 35 years ago. There has been a significant
expansion in the business during the last decade. This growth resulted largely
from corporate downsizing and the development of technology which decreased the
need for employees to be present in large corporate offices. Instead, more work
has been outsourced to consultants, or smaller groups, who often work closer to
their homes. A wide range of services are now offered by EOS businesses and are
only paid for on an "as-used" basis. The EOS business meets the needs of a broad
range of businesses from individual entrepreneurs to branch offices of Fortune
500 firms offering basic telephone and clerical services, as well as more
advanced services such as teleconferencing, Internet access and virtual office
concepts.
The industry combines many aspects of the real estate business - supply
and demand and location -- with those of a service intensive business, including
technology. The industry is currently fragmented, with only four large
participants operating on a national basis, with many operating under an
affiliation, or networking basis.
Initial Investments of RSVP. RSVP (the successor to Opportunity
Partners) has acquired an indirect interest in two investments: ACLC and Dobie
Center. Jon L. Halpern, a director of Reckson, and Martin Rabinowitz were
formerly partners of Opportunity Partners (the "Non-RSI Partners"). Each of the
Non-RSI Partners owns a minority interest in ACLC and Dobie Center and have
certain rights for additional investment in that platform. Jon L. Halpern owns a
331/3% interest in the joint venture that owns 76.09% of ACLC and a 331/3%
interest in the joint venture that owns 70% of the Dobie Center. The Non-RSI
Partners will not have any involvement in the future investments and operations
of RSVP.
RSVP has acquired a 331/3% interest in a joint venture that owns a
76.09% interest in American Campus Lifestyles Companies, LLC ("ACLC"), a student
housing enterprise which develops, constructs, manages and acquires on- and
off-campus student housing projects, for $1.51 million in cash. RSVP acquired
such interest from the Company, which had acquired the interest from RFG Capital
which acquired such interest in October 1997. RSVP is negotiating to acquire an
additional interest in such joint venture. The Non-RSI Partners each own an
interest in such joint venture. ACLC currently manages approximately 3,600
student beds in several different projects located in Texas, Oklahoma and
Florida. The existing management of ACLC, which includes construction,
development, marketing and accounting personnel, continued in their existing
roles subsequent to the RSVP acquisition. ACLC employs 11 people at its
corporate offices and has in excess of 250 people (i.e., mostly employees and
staff personnel provided by independent contractors) carrying out
responsibilities at its various projects. In addition to the Dobie Center, ACLC
owns/manages student housing at the Texas A&M University at Prairie View (two
projects), Texas A&M University at Laredo, Centennial Court Apartments, Langston
University, Oklahoma, and Southgate Campus Center at Florida State University in
Tallahassee.
RSVP has acquired a 331/3% interest in a joint venture that owns a 70%
interest in the Dobie Center, a 27-story off-campus student housing project
located directly opposite the campus of the University of Texas at Austin, for
$3.62 million in cash. RSVP acquired such interest from RO Partners which
acquired such interest in June 1997. Each of the Non-RSI Partners owns an
interest in such joint venture. The Dobie Center is one of the nation's largest
off-campus student housing facilities, with a student residential tower of 504
rooms accommodating approximately 950 students, a two story student oriented
retail shopping mall comprising 70,000 rentable square feet and a six story
parking garage accommodating up to 668 cars.
The Dobie Center is subject to a $17.4 million first mortgage note
maturing in 2002 which bears interest at a floating rate of interest equal to
LIBOR plus 1.75%. Such mortgage note is fully amortizing and may be prepaid
prior to maturity without the payment of a penalty. The Dobie Center is also
subject to a $2.9 million second mortgage note maturing in 2002 which bears
interest at a fixed rate of 7 1/2%. Such note may be prepaid prior to maturity
without the payment of a penalty and is payable on an interest only basis prior
to maturity. A payment of $2.9 million plus accrued and unpaid interest will be
due and payable at the maturity of the mortgage debt. The Company believes that
the Dobie Center is in good condition and, other than a $2.2 million capital
improvement program currently being implemented, there are no present plans for
significant renovation of or improvement to the Dobie Center. In management's
opinion, the Dobie Center is adequately covered by insurance. The student
housing at the Dobie Center was 82%, 90%, 100%, 100% and 100% leased during the
1993 through 1997 academic years, respectively, and had an average effective
annual rent per bed of $5,570, $6,662, $6,785, $6,929 and $7,390, during such
years. The retail space at the Dobie Center was 72%, 77%, 75%, 86% and 84%
leased during the 1993 to 1997 academic years, respectively, and had an average
effective rent per square foot of $19.72, $19.84, $20.25, $20.14 and $20.68,
during such years. The federal tax basis of the Dobie Center is $10.8 million,
and the Dobie Center is depreciated based upon a 40 year straight line method.
The Dobie Center pays an annual property tax of $430,000.
Student Housing Market Overview. The student housing industry is a
specialized market sector that is highly fragmented and has relatively few large
participants. Management believes that student housing represents a market
sector that will maintain growth trends as the student population increases.
According to the 1994 Statistical Abstract of the United States, 8.6 million
students were enrolled in higher education institutions nationwide in 1970. This
population increased to over 12.1 million in 1980. By 1995, it was estimated
that the student population was over 16.5 million with over 18 million students
projected by 2005. While the student population has continued to increase, the
rate of growth slowed somewhat during the last several years. The U.S.
Department of Education estimates that the student housing industry is currently
a $10 billion dollar industry and could grow to a $20 billion industry in less
than ten years.
While the student population and the demand for student housing has
increased, housing stock and in particular on-campus housing stock, has not kept
up with demand. Student housing is comprised of two different sub-sectors, on-
campus and off-campus housing. However, some university-run student housing
projects are experiencing declining occupancy rates, as a direct result of age,
general mismanagement, and physical and functional obsolescence rather than due
to a lack of demand. The failure of the housing supply to keep pace with the
increased demand provides the opportunity to develop new private on- and off-
campus student housing and to improve the management and physical condition of
existing university-owned housing through privatization.
FUNDING SOURCES FOR RSI
RSI will commence the Rights Offering as a means for RSI to raise
sufficient capital to (i) fund certain organizational and start-up costs
(estimated to be $1.5 million) and fund anticipated short-term operating losses
of the Company, (ii) provide RSI sufficient initial equity capital in order to
pursue its business objectives and (iii) provide capital towards meeting minimum
capital requirements to commence trading on an organized trading system.
RSI expects to establish the RSI Facility with Reckson Operating
Partnership in the amount of $100 million for RSI's service sector operations
and other general corporate purposes. In addition, Reckson Operating Partnership
has approved the funding of investments of up to $100 million with or in RSVP,
through (i) loans for the funding of RSVP investments prior to the Distribution,
(ii) RSVP-controlled joint venture REIT-Qualified Investments, or (iii) advances
made to RSI subsequent to the Distribution under the RSVP-ROP Facility. Advances
under the RSVP-ROP Facility in excess of $25 million in respect of any single
platform will be subject to approval by Reckson's board of directors, while
advances under the RSI Facility in excess of $10 million in respect of any
single investment in Commercial Services, as well as advances for investments in
opportunities in non-Commercial Services, will be subject to approval by
Reckson's board of directors, or a committee thereof. It is expected that the
Credit Facilities will each have a term of five years and advances thereunder
will be recourse obligations of RSI. Interest will accrue on advances made under
the Credit Facilities at a rate equal to the greater of (i) the prime rate plus
2% and (ii) 12% per annum, with the rate referred to in clause (ii) increasing
annually at a rate of 4% of the prior year's rate. Prior to maturity, interest
will be payable quarterly but only to the extent of net cash flow and on an
interest-only basis and will be prepayable without penalty at the option of RSI.
As long as there are outstanding advances under the Credit Facilities, RSI will
be prohibited from paying dividends on any shares of its capital stock. The
Credit Facilities will be subject to certain other covenants and will prohibit
advances thereunder to the extent such advances could, in the determination of
Reckson, endanger Reckson's status as a REIT. The anticipated terms of the
Credit Facilities were not negotiated at arms' length and thus may not reflect
terms that could have been obtained from independent third parties. Additional
indebtedness may be incurred by subsidiaries of RSI.
RSVP has obtained the $200 million PaineWebber Equity Facility from
PWRES. RSI, through its subsidiaries, has agreed to contribute up to $100
million in the form of common equity to RSVP and PWRES has agreed to contribute
up to $200 million in the form of preferred equity to RSVP. The PaineWebber
Equity Facility requires that the preferred equity be drawn upon during a period
of 36 months subsequent to the execution thereof and the RSVP operating
agreement has a seven year term. The preferred equity holder is entitled to a
preferred return in respect of distributions from RSVP's cash flow and from
capital events such as sales and refinancings. Under the terms of the
PaineWebber Equity Facility, the preferred equity holder is generally entitled
to a 10% preferred return on its capital and, after the RSVP Managing Member has
received a 10% return on its capital, an additional 6% return. Thereafter,
amounts are distributed as a return of capital and then 100% to the RSVP
Managing Member. The terms of the PaineWebber Equity Facility also contemplate
periodic unused commitment fees payable to the preferred holder, as well as a
one-time structuring fee paid to the preferred holder at closing. The
PaineWebber Equity Facility contains several other covenants and events of
default, including requirements that RSVP maintain sufficient earnings,
distribute cash sufficient to cover the preferred return, limit debt in respect
of particular investments as well as on a portfolio-wide basis, maintain the
involvement of certain specified officers in its operations, prohibit RSI from
competing with RSVP and prohibit changes-in- control of RSI. The PaineWebber
Equity Facility provides for the formation of an advisory committee that is
comprised of at least one representative of the preferred holder. Although such
committee will review all investments, in the absence of a default under the
PaineWebber Equity Facility it will not have the authority to approve or
disapprove of any investment decisions of the RSVP Managing Member. The
PaineWebber Equity Facility also provides for the offering of the RSVP Managing
Member's share of any REIT-Qualified Investments to Reckson Operating
Partnership, and provides a right of first opportunity to Reckson Operating
Partnership in respect of office and industrial real estate transactions. The
PaineWebber Equity Facility also provides PWRES with the right, under certain
circumstances, to act as a lender or an underwriter in respect of financing
transactions of entities in which RSVP holds an interest. The PaineWebber Equity
Facility also requires the Operating Partnership's consent for RSVP to enter
into any office or industrial property transactions that the Operating
Partnership has chosen not to pursue. Advances under the PaineWebber Equity
Facility will be partially funded by an investment fund that is jointly
sponsored by financier George Soros and PWRES.
CHANGES IN INTEREST RATES
As indicated above, borrowings under the Credit Facilities accrue
interest at the greater of (i) the prime rate plus 2% and (ii) 12% per annum,
with the rate referred to in (ii) increasing annually at a rate of 4% of the
prior year's rate. Due to the variable component of the interest rates payable
under the Credit Facilities, significant increases in market interest rates may
impact negatively the earnings of the Company. Since it is anticipated that the
Company will borrow money under the Credit Facilities (particularly the RSI
Facility) to fund its investments in whole or in part, increases in market rates
of interest may reduce or eliminate the spread between the cost of the Company's
funds under the Credit Facilities and the return on its investments. However,
increases in the prime rate that do not result in a rate greater than the rate
detailed in clause (ii) above will not affect the borrowing cost of the Company
under the Credit Facilities.
THE INTERCOMPANY AGREEMENT
The Operating Partnership and RSI will enter into an Intercompany
Agreement in order to reduce conflicts of interest by formalizing their
relationship. It is anticipated that decisions regarding such first opportunity
rights of Reckson will be presented to the executive committee of the board of
directors of Reckson, which includes Donald Rechler, Scott Rechler and two
independent directors of Reckson's board of directors. Under the Intercompany
Agreement, RSI will grant Reckson Operating Partnership a right of first
opportunity to make any REIT-Qualified Investment that it develops or that
otherwise becomes available to RSI. In addition, in the event that any such
investment opportunity becomes available to an affiliate of RSI, such affiliate
will be required to allow Reckson Operating Partnership to participate in such
investment opportunity to the extent of RSI's interest, if any, therein.
Under the Intercompany Agreement, Reckson Operating Partnership will
grant RSI a right of first opportunity to provide Commercial Services to Reckson
Operating Partnership and its tenants or that are developed by or otherwise
become available to Reckson Operating Partnership. Any services provided by RSI
to Reckson Operating Partnership will be required to be at market rates on terms
and conditions as attractive as the best available for comparable services in
the market or those offered by RSI to third parties. In addition, Reckson
Operating Partnership will be required to give RSI access to its tenants in
respect of Commercial Services that may be provided to such tenants.
The Intercompany Agreement will also provide, subject to certain
conditions, that Reckson Operating Partnership will provide RSI with a right of
first refusal to become the lessee of any real property acquired by Reckson
Operating Partnership if Reckson Operating Partnership determines that,
consistent with Reckson's status as a REIT, it is required to enter into a
"master" lease arrangement.
Under the Intercompany Agreement, RSI will agree not to acquire or make
any REIT-Qualified Investment unless it has provided written notice to Reckson
Operating Partnership of the material terms and conditions of such investment,
and Reckson Operating Partnership has determined not to pursue such investment
either by providing written notice to RSI rejecting the opportunity within 10
days from the date of receipt of notice of the opportunity or by allowing such
10-day period to lapse. RSI will also agree to assist Reckson Operating
Partnership in structuring and consummating any REIT-Qualified Investment which
Reckson Operating Partnership elects to pursue, on terms determined by Reckson
Operating Partnership.
Due to certain considerations relating to Reckson's status as a REIT,
the Intercompany Agreement will also obligate RSI to maintain the 9.9% limits on
the ownership of RSI Common Stock and RSI capital stock set forth in its
charter.
The anticipated terms of the Intercompany Agreement have not been
negotiated at arms' length and thus may not reflect terms which could have been
obtained from independent third parties.
PROPERTY
Reckson has agreed to make available to RSI, at Reckson's principal
office at 225 Broadhollow Road, Melville, New York, 11747, space for RSI's
principal corporate office. RSVP maintains offices in Melville, New York and New
York, New York. RSI believes that its facilities are adequate to meet its
expected requirements for the coming year.
EMPLOYEES
As of May 13, 1998, RSI had 10 employees.
LEGAL PROCEEDINGS
There are no pending legal proceedings or to which the Company is a
party or which any of its properties is subject.
MANAGEMENT
DIRECTORS, DIRECTOR NOMINEE AND EXECUTIVE OFFICERS OF RSI
RSI's Board of Directors will be expanded immediately after the
Distribution to include the director nominee named in the following table, who
has been nominated for election and has consented to serve. In addition, RSI
anticipates nominating one additional director who is unaffiliated with RSI and
Reckson prior to December 31, 1998. The following table sets forth certain
information with respect to executive officers, directors and director nominee
of RSI immediately after the Distribution.
Name Position and Offices Held
--------------------------------------------------
Donald J. Rechler......... Chairman of the Board and Director (term as
a director expires in 2001)
Roger Rechler............. Director; Member of Management Advisory
Committee (term as a director expires in
2001)
Scott H. Rechler.......... President, Chief Executive Officer and
Director (term as a director expires in
1999)
Michael Maturo............ Executive Vice President, Chief Financial
Officer, Treasurer and Director (term as a
director expires in 2000)
Gregg M. Rechler.......... Director and Member of Management Advisory
Committee (term as a director expires in
2001)
Mitchell D. Rechler....... Secretary, Member of Management Advisory
Committee and Director (term as a director
expires in 2000)
Paul F. Amoruso .......... Director Nominee (term as a director expires
in 1999)
Independent Director ..... Director to be nominated prior to December 31,
1998 (term as director will expire in 2000)
Jason M. Barnett.......... Senior Vice President and General Counsel
Daniel A. DiSano.......... Senior Vice President of Operations
Jeffrey D. Neumann........ Senior Vice President of Investments
The following is a biographical summary of the experience of the
above-mentioned persons:
Donald J. Rechler, age 63, serves as Chairman of the Board and Director
of RSI and of Reckson. Prior to the initial public offering of Reckson (the
"Reckson IPO"), Mr. Rechler was a Co-Founder and General Partner of Reckson
Associates. As Chief Executive Officer, he coordinates and directs all of RSI's
primary functions as well as establishing policy for RSI. He is a founder and
former President and Chairman of the Association For A Better Long Island, a
founder of the Long Island Commercial & Industrial Development Association, a
member of the Board of Directors of the Development Division of North Shore
Hospital, a member of the Council of Overseers of Long Island University, C.W.
Post College. Mr. Rechler is a graduate of the University of Miami. Mr. Rechler
is the father of Mitchell Rechler and the brother of Roger Rechler.
Roger M. Rechler, age 56, serves as Director of RSI and member of the
Management Advisory Committee and also serves as Executive Vice President of
Development and the Vice-Chairman of the Board and a Director of Reckson. Prior
to the Reckson IPO, Mr. Rechler was a co-founder and general partner of Reckson
Associates and is responsible for the supervision of development, property
construction, architectural and design services, interior construction and
property management. Mr. Rechler attended the University of Miami. Mr. Rechler
is the father of Scott Rechler and Gregg Rechler and the brother of Donald
Rechler.
Scott H. Rechler, age 30, serves as the President, Chief Executive
Officer and a Director of RSI and of Reckson. Mr. Rechler has been employed at
Reckson since 1989. He is responsible for the day-to-day operations and
directing corporate policy for RSI. Prior to the Reckson IPO, he directed the
financing of approximately $200 million of mortgage debt and the acquisition of
property having a value in excess of $100 million for Reckson. He is a member of
the Board of Directors of the Long Island Children's Museum. Mr. Rechler is a
graduate of Clark University and received a Masters Degree in Finance with a
specialization in real estate from New York University. He is the son of Roger
Rechler and the brother of Gregg Rechler.
Michael Maturo, age 36, serves as an Executive Vice President, Chief
Financial Officer, Treasurer and Director of RSI and of Reckson. He is
responsible for the supervision of all financial, treasury and reporting
functions. Mr. Maturo is also primarily responsible for banking and capital
market activities and investor relations. Prior to joining Reckson, Mr. Maturo
was a Senior Manager at E&Y Kenneth Leventhal Real Estate Group (formerly
Kenneth Leventhal & Company), a public accounting and consulting firm. He
specialized in diverse phases of real estate finance including corporate and
property debt financings and recapitalization transactions. Mr. Maturo is a
graduate of Seton Hall University with a degree in accounting and finance and is
a certified public accountant. Mr. Maturo is a member of the accounting
committee of the National Association of Real Estate Investment Trusts.
Gregg M. Rechler, age 31, serves as a member of the Management Advisory
Committee and as a Director of RSI and serves as an Executive Vice President and
Secretary of Reckson and as President of Reckson Construction Group, Inc. (the
"Construction Company"). Mr. Rechler is responsible for the construction,
architectural and property management activities of Reckson. Since 1985, he has
been employed by Reckson and certain affiliates. From 1985 to 1988, Mr. Rechler
held non-supervisory roles in the construction and property management areas.
Beginning in 1989, as an Executive Vice President of Reckson, he served as the
person responsible for the construction of the Omni office building and
supervised all construction aspects of this project. In 1991, he organized the
Construction Company and has been responsible for its significant growth. Mr.
Rechler is a member of the Board of Directors of the Long Island chapter of the
Building Owners and Managers Association ("BOMA"). Mr. Rechler attended the New
York Institute of Technology. He is the son of Roger Rechler and the brother of
Scott Rechler.
Mitchell D. Rechler, age 38, serves as Secretary and as a Director of
RSI and as a member of the Management Advisory Committee; also serves as an
Executive Vice President and a Director of Reckson and also serves as the
President of Reckson Management Group, Inc. (the "Management Company"). From
1981 to 1985, he was employed by Reckson in various non-supervisory roles
including positions in property management, construction, acquisitions and space
leasing. Since 1986, Mr. Rechler has served as an Executive Vice President of
Reckson, responsible for all leasing activities including the coordination of
leasing and marketing strategies and overseeing tenant relations. During his
career at Reckson, Mr. Rechler has completed over 300 leasing transactions
encompassing in excess of 3 million square feet of office and industrial space.
Mr. Rechler has served as President of the Management Company, since its
organization in 1991. Mr. Rechler serves on the Executive Committee of the
Children's Medical Fund of Schneider Children's Hospital of Long Island Jewish
Medical Center and as a member of the Board of Directors of the Long Island
Friends of the Arts. He is a graduate of Emory University. He is the son of
Donald Rechler.
Paul F. Amoruso, age 37, has been nominated for election as a Director of
RSI. Since 1983, Mr. Amoruso has been the President of Oxford & Simpson Realty,
Inc. of Jericho, New York. Prior to that time, he was President of Lanstar
International Realty, Inc., a real estate advisory services firm. Mr. Amoruso is
a member of the Board of Directors of the Nature Conservancy and has been
appointed to the Task Force of the Empire State Development Corp. He is a
co-founder of the Long Island Commercial Industrial Brokers Society and is a
licensed real estate broker in New York and Connecticut.
Jason M. Barnett, age 29, serves as Senior Vice President and General
Counsel of RSI and of Reckson. Mr. Barnett joined Reckson in 1996. He is
responsible for the coordination of all legal and compliance matters for RSI.
Prior to joining Reckson, Mr. Barnett practiced law as an associate in the REIT
practice group of Brown & Wood LLP. While at Brown & Wood LLP, Mr. Barnett
participated in numerous corporate and real estate transactions involving
publicly held REITs, including initial public offerings, joint ventures and
corporate and real estate acquisitions. Mr. Barnett holds a Bachelor of Arts
degree from Clark University and Law Degree from Emory University School of Law.
Mr. Barnett is admitted to the Bar of the State of New York.
Daniel A. DiSano, age 29, serves as Senior Vice President of Operations
of the Company. Mr. DiSano joined RSI in 1998. He is responsible for developing
and implementing the strategic direction of RSI and its operating companies.
Prior to joining Reckson, Mr. DiSano was a Senior Associate at Booz-Allen &
Hamilton, a leading management consulting firm. He worked on several strategic
issues, including growth and acquisition strategies and organizational design,
across a variety of industries. Mr. DiSano holds a Bachelor of Arts degree in
Economics from Clark University and an MBA from MIT Sloan School of Management.
Jeffrey D. Neumann, age 35, serves as Senior Vice President of
Investments of the Company. Mr. Neumann joined RSI in 1998. He is responsible
for all investments and acquisitions for the Company. Prior to joining RSI, Mr.
Neumann was a Vice President in GE Capital's private equity investment
subsidiary. While at GE Capital, Mr. Neumann participated in numerous
investments in both public and private companies. Additionally, he has
significant operating experience having been President of a manufacturing
company and a health care company. He started his career with the investment
banking firm of Bear, Stearns & Co. Inc. in New York. Mr. Neumann received a
Master in Business Administration degree from New York University Leonard N.
Stern School of Business.
COMMITTEES OF THE BOARD OF DIRECTORS
The RSI Board has standing Audit and Compensation Committees. The
independent director nominee will initially serve as the sole member of the
Audit Committee and it is expected that an additional independent director, if
and when added to the RSI Board, will be added as a member of the Audit
Committee. Donald J. Rechler, Scott H. Rechler and the independent director
nominee will serve as the members of the Compensation Committee. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and
reviews the adequacy of RSI's internal controls. The Compensation Committee
is responsible for establishing compensation for RSI's officers and
administering RSI's stock option plan.
COMPENSATION OF DIRECTORS
Each director other than Donald J. Rechler, Scott H. Rechler, Roger
Rechler, Michael Maturo, Gregg M. Rechler and Mitchell D. Rechler will receive
from RSI an annual fee of $7,500 or a meeting fee of $500 for each RSI Board or
Committee meeting attended and reimbursements of expenses incurred in attending
meetings.
ANNUAL MEETING
RSI's Bylaws provide that its annual meeting of stockholders will be
held in May of each year at its principal office or on such other date and at
such other place and time as may be fixed by resolution of RSI's Board. The
first annual meeting for which proxies will be solicited from stockholders will
be held in 1999.
EMPLOYMENT AGREEMENTS
None of the Executive Officers or members of the management advisory
committee of RSI have entered into employment agreements with RSI.
REGISTRATION RIGHTS
RSI has granted certain demand and "piggyback" registration rights to
Donald J. Rechler, Scott H. Rechler, Michael Maturo, Roger Rechler, Mitchell D.
Rechler and Gregg M. Rechler in respect of RSI Common Stock received in the
Distribution and the Rights Offering or owned by them through Lightpost LLC.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AFTER THE
DISTRIBUTION
Executive officers and directors will receive shares of RSI Common
Stock in the Distribution in respect of shares of Reckson Common Stock and Units
held by them on the Record Date. The Distribution will be made on the basis of
one share of RSI Common Stock for every 12.5 Reckson Common Shares held on the
Record Date and one share of RSI Common Stock for every 12.5 Units held on the
Record Date.
For purposes of providing an indication of the beneficial ownership of
certain persons following the Distribution, the following table sets forth the
number of shares of RSI Common Stock that will be beneficially owned immediately
following the Distribution, based on a Record Date of May 26, 1998, by each
person then serving as an executive officer and director of RSI, all such
executive officers and directors of RSI as a group, and persons or entities
owning 5% or more of the outstanding shares of Reckson Common Stock and Units.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF RSI COMMON STOCK(1)
Percent
NUMBER OF of
NAME OF BENEFICIAL OWNER SHARES(1) Total
<S> <C> <C>
Donald J. Rechler.............. 136,722(2)(4) 3.33%
Roger M. Rechler............... 134,959(3)(5) 3.28%
Lightpost LLC (6).............. 143,900 3.5%
Scott H. Rechler............... 30,813 .75%
Michael Maturo................. 6,879 .17%
Mitchell D. Rechler............ 32,407 .79%
Gregg Rechler.................. 30,872 .75%
FMR Corp. (7).................. 4,448,300 9.33%
Cohen & Steers Capital
Management Inc. (8)............ 5,595,100 11.74%
LaSalle (9).................... 2,841,077 5.96%
All directors and executive 516,552 12.56%
officers as a group (6 persons)
</TABLE>
- ---------------
(1) Assumes the exercise in full of Rights held by the respective beneficial
owner and all other Holders in the Rights Offering, but excludes any
Standby Commitment Shares.
(2) Includes 10,544 shares held by a trust for the benefit of Glenn Rechler,
the son of Donald J. Rechler, beneficial ownership of which is
disclaimed by Donald J. Rechler.
(3) Includes 10,628 shares held by a trust for the benefit of Todd Rechler,
the son of Roger M. Rechler, and 84 shares held by the wife of Roger M.
Rechler, beneficial ownership of which is disclaimed by Roger M.
Rechler.
(4) Includes 21,890 Units held by trusts for the benefit of the sons of
Donald J. Rechler, beneficial ownership of which is disclaimed by Donald
J. Rechler.
(5) Includes 21,890 Units held by trusts for the benefit of the sons of
Roger M. Rechler, beneficial ownership of which is disclaimed by Roger
M. Rechler.
(6) Donald J. Rechler, Scott H. Rechler, Michael Maturo, Roger Rechler,
Mitchell D. Rechler and Gregg M. Rechler and trusts controlled by
certain of such executive officers own 70% of the member interests of
Lightpost LLC and the other 30% of the member interests is owned by
members of Reckson management who are not executive officers or
directors of Reckson and a Rechler family member who is not a member
of Reckson management.
(7) The address of FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
02109.
(8) The address of Cohen & Steers Capital Management Inc. is 757 Third
Avenue, New York, New York 10019.
(9) LaSalle Advisors Capital Management, Inc. ("LaSalle") beneficially owns
1,279,930 shares (2.7% of the total) and ABKB/LaSalle Securities
Limited Partnership ("ABKB") beneficially owns 1,561,147 shares (3.26%
of the total). The address of LaSalle and ABKB is 200 East Randolph
Drive, Chicago, Illinois 60601.
In addition, as described under "The Rights Offering", certain members
of RSI management are members of the Standby Purchaser, which has agreed to
purchase any and all Standby Commitment Shares.
EXECUTIVE COMPENSATION
RSI was recently formed. None of the Company's executive officers has
received compensation from or on behalf of RSI since its formation. The Company
has no employment agreements with any executive officer and does not currently
contemplate paying a base salary to any executive officer that is also an
executive officer of Reckson for his services in such capacity, although options
have been, and in the future may be, granted to executive officers. Subsequent
to the commencement of RSI's operations, it expects that it will pay salaries
and other compensation to such executive officers when it begins conducting
business operations material enough to warrant such compensation.
The following table provides certain information regarding options
granted to the Company's named executive officers. None of the options is
exercisable until after the Distribution Effective Date.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF PRICE APPRECIATION
SHARES % OF TOTAL EXERCISE FOR OPTION/SAR TERM
UNDERLYING OPTIONS/SARs OR BASE EXPIRATIO (1)
OPTIONS GRANTED IN PRICE N ----------------------------
NAME GRANTED FISCAL 1998 ($/sh)(2) DATE 5% 10%
- -------------------------- ------------- ---------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Rechler 128,341 21% 1.10 1/10/2008 $ 88,555 $ 224,597
629,477 -- 1.04 3/30/2008 409,160 1,044,932
Scott H. Rechler 128,341 21% 1.10 1/10/2008 88,555 224,597
629,477 -- 1.04 3/30/2008 409,160 1,044,932
Michael Maturo 105,519 17% 1.10 1/10/2008 72,808 184,658
541,476 -- 1.04 3/30/2008 351,959 898,850
Roger Rechler 52,392 9% 1.10 1/10/2008 36,150 91,686
271,105 -- 1.04 3/30/2008 176,218 450,034
Gregg M. Rechler 52,392 9% 1.10 1/10/2008 36,150 91,686
271,105 -- 1.04 3/30/2008 176,218 450,034
Mitchell D. Rechler 52,392 9% 1.10 1/10/2008 36,150 91,686
271,105 -- 1.04 3/30/2008 176,218 450,034
</TABLE>
- ---------------
(1) Potential Realizable Value is based on the assumed annual growth
rates shown over their 10-year option term. For example, a 5% growth
rate compounded annually, for Scott H. Rechler's grant results in
stock prices of $1.79 per share and $1.69 per share, respectively,
and a 10% growth rate, compounded annually, results in stock prices
of $2.85 per share and $2.70 per share, respectively. These Potential
Realizable Values are listed to comply with the regulations of the
Commission, and the Company cannot predict whether these values will
be achieved. Actual gains, if any, on stock option exercises are
dependent on the future performance of the stock.
(2) The exercise or base price per share as of the date of grant, which
the Company's board of directors has determined represents the fair
market value as of the date of grant.
RSI STOCK OPTION PLAN
On January 10, 1998, RSI adopted a Stock Option Plan pursuant to which
grants of options ("Options") to purchase a specified number of shares of RSI
Common Stock were made in order to provide incentives to the recipient thereof.
Additional Options to purchase shares of RSI Common Stock were granted on March
30, 1998. Each of the Options granted as of the date hereof has been granted at
an option price equal to the fair market value of the RSI Common Stock at the
date of grant. The Options become exercisable immediately subsequent to January
1, 1999. Under the Stock Option Plan, grants with respect to up to 3,700,376
shares of RSI Common Stock (i.e. approximately 15% of the total outstanding
shares of RSI Common Stock after giving effect to the Rights Offering) are
authorized for issuance under the Plan. Non-employee directors of RSI will
receive annual grants of Options to purchase 500 shares of RSI Common Stock
(including an initial grant of an Option to purchase 1,000 shares of RSI Common
Stock upon appointment of any non-employee director). Future grants under the
plan, other than grants to non-employee directors, will be determined in the
sole discretion of the Compensation Committee. However, in any year, no person
eligible for awards under the plan may be granted options covering a total of
more than 1,000,000 shares of RSI Common Stock. The Stock Option Plan expires on
December 31, 2008.
The Compensation Committee of RSI has authority to determine the
employees, officers and advisors to be granted Options, Restricted Stock (as
defined below) and other awards of RSI Common Stock, to interpret the Stock
Options Plan, to prescribe, amend and rescind any rules and regulations
necessary or appropriate for the administration of the Stock Option Plan, to
determine and interpret the details and provisions of each Option agreement, to
modify or amend any Option agreement or waive any conditions or restrictions
applicable to any Option (or the exercise thereof), and to make all other
determinations necessary or advisable for the administration of the Stock Option
Plan. With respect to any provisions of the Stock Option Plan granting the
Compensation Committee the right to agree, in its sole discretion, to further
extend the term of any award, the Compensation Committee may exercise such right
at the time of grant, in the agreement relating to such award, or at any time or
from time to time after the grant of any award thereunder. The discretion of the
Compensation Committee under the Stock Option Plan does not extend to Options
granted to outside directors.
The Stock Option Plan authorizes (i) the grant of Options that qualify
as incentive stock options under Section 422 of the Code ("ISOs"), (ii) the
grant of Options that do not so qualify ("NQSOs"), (iii) the grant of shares of
RSI Common Stock subject to certain restrictions on transfer and risks of
forfeiture ("Restricted Stock"), (iv) the grant of Options in lieu of cash
Directors' fees and employee bonuses, and (v) the grant of unrestricted shares
of RSI Common Stock in lieu of cash compensation. The exercise price of Options
is determined by the Compensation Committee, but may not be less than 100% of
the fair market value of the shares of RSI Common Stock on the date of grant in
the case of ISOs; provided that, in the case of grants of NQSOs granted in lieu
of cash Directors' fees and employee bonuses, the exercise price may not be less
than 50% of the fair market value of the shares of RSI Common Stock on the date
of grant.
Certain Federal Income Tax Consequences of the Stock Option Plan. The
following is a brief summary of the principal Federal income tax consequences of
awards under the Stock Option Plan. The summary is based upon current Federal
income tax laws and interpretations thereof, all of which are subject to change
at any time, possibly with retroactive effect. This summary is not intended to
be exhaustive and, among other things, does not describe state, local or foreign
tax consequences.
A participant is not subject to Federal income tax either at the time
of grant or at the time of exercise of an ISO. However, upon exercise, the
difference between the fair market value of the RSI Common Stock and the
exercise price is an item of tax preference subject to the possible application
of the alternative minimum tax. If a participant does not dispose of RSI Common
Stock acquired through the exercise of an ISO in a "disqualifying disposition"
(i.e., no disposition occurs within two years from the date of grant of the
share option nor within one year of the transfer of the RSI Common Stock to the
participant), then the participant will be taxed only upon the gain, if any,
from the sale of such RSI Common Stock, and such gain will be taxable as gain
from the sale of a capital asset.
RSI will not receive any tax deduction on the exercise of an ISO or, if
the above holding period requirements are met, on the sale of the underlying RSI
Common Stock. If there is a disqualifying disposition (i.e., one of the holding
period requirements is not met), the participant will be treated as receiving
compensation subject to ordinary income tax in the year of the disqualifying
disposition and RSI will be entitled to a deduction for compensation expense in
an amount equal to the amount included in income by the participant. The
participant generally will be required to include in income an amount equal to
the difference between the fair market value of the RSI Common Stock at the time
of exercise and the exercise price. Any appreciation in value after the time of
exercise will be taxed as capital gain and will not result in any deduction by
RSI.
If NQSOs are granted to a participant, there are no Federal income tax
consequences at the time of grant. Upon exercise of the NQSO, the participant
must report as ordinary income an amount equal to the difference between the
exercise price and the fair market value of the RSI Common Stock on the date of
exercise. RSI will receive a tax deduction in like amount. Any appreciation in
value after the time of exercise will be taxed as capital gain and will not
result in any deduction by RSI.
A participant who is awarded unrestricted shares of RSI Common Stock
will have compensation income at the time of grant equal to the fair market
value of such shares. The Company will receive a tax deduction in the amount of
the income recognized by the participant.
A participant who is awarded Restricted Stock that is subject to a
substantial risk of forfeiture (as defined in the Code) will not be taxed at the
time of the grant unless the participant makes a special election under section
83(b) of the Code. Assuming that no such election is made, RSI will receive no
tax deduction at the time of the grant. Upon the lapse of the substantial risk
of forfeiture associated with the Restricted Stock, a participant will recognize
ordinary income equal to the fair market value of the Restricted Stock at the
time of the lapse. At the same time, RSI will receive a tax deduction in the
amount of ordinary income recognized by a participant.
If a participant makes an election under section 83(b) of the Code or
if the Restricted Stock is subject to restrictions that do not comprise a
substantial risk of forfeiture, he or she will recognize ordinary income in an
amount equal to the fair market value of the Restricted Stock at the time of the
grant (determined without regard to any restrictions which may lapse). RSI will
receive a tax deduction in the equal amount at the same time. No tax will be
payable by a participant (and no additional deduction will be taken by RSI) upon
lapse of the restrictions.
CONFLICTS OF INTEREST
Donald J. Rechler will serve as Chairman of the Board and Chief
Executive Officer of Reckson and Chairman of the Board of RSI, Scott H. Rechler
will serve as the President and Chief Operating Officer of Reckson and President
and Chief Executive Officer of RSI and Michael Maturo will serve as Executive
Vice President, Treasurer and Chief Financial Officer of Reckson and RSI and a
director of RSI. Although each of them is committed to the success of RSI, they
are also committed to the success of Reckson. None of Donald J. Rechler, Scott
H. Rechler or Michael Maturo is committed to spending a particular amount of
time on RSI's affairs, nor will any of them devote his full time to RSI. As a
result, such officers may spend more time acting in their positions with
Reckson, particularly if Reckson encounters operating difficulties or is engaged
in significant transactions. Furthermore, Roger Rechler, Gregg M. Rechler and
Mitchell D. Rechler are members of the RSI Board of Directors and will also be
either insiders of RSI or members of the Reckson board of directors. As noted
below in "--Related Party Transactions," Jon L. Halpern, a director of Reckson,
has an interest in certain entities in which RSI holds an investment. In
addition, it is anticipated that the RSI Board will include only two members who
are unaffiliated with RSI and Reckson.
Officers and directors of a corporation owe fiduciary duties to the
stockholders of that corporation. There is a risk that the common membership of
management and members of the Boards of Directors of RSI and Reckson will lead
to conflicts of interest in the fiduciary duties owed to stockholders by common
directors and officers in connection with transactions between the two
companies. However, RSI was formed with the specific purpose of entering into
and performing the Intercompany Agreement with Reckson Operating Partnership in
an effort to avoid conflicts of interest issues by identifying at the outset
which types of opportunities will be pursued by each company. See
"Management--Conflicts of Interest."
In respect of services to be provided to Reckson Operating Partnership
by the Company, management will have a conflict of interest in determining the
terms on which the Company will provide such services. In addition, management
will have a conflict of interest in determining whether an investment
opportunity of RSVP that generates REIT qualifying income but is outside of
Reckson's core business strategy should be pursued by the Company or Reckson.
CERTAIN TRANSACTIONS
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
As of April 27, 1998, Donald J. Rechler, Roger M. Rechler, Scott H.
Rechler, Michael Maturo, Mitchell D. Rechler and Gregg M. Rechler beneficially
own approximately 3.59%, 3.54%, 0.81%, 0.18%, 0.85% and 0.81%, respectively, of
Reckson, which interests consist of shares of Reckson Common Stock and Units
(including vested options to acquire shares of Reckson Common Stock) and will
own RSI Common Stock following the Distribution, as set forth above under
"Management--Security Ownership of Certain Beneficial Owners and Management
After the Distribution." In addition, RSI has granted the aforementioned RSI
officers and directors certain registration rights in respect of their RSI
Common Stock. See "Management-Registration Rights."
ACQUISITION OF ASSETS
During 1997, RSI acquired its indirect interests in ACLC and Dobie
Center from a Rechler family entity for $5.13 million. Such entity had acquired
the interests in ACLC and the Dobie Center earlier in 1997 for $5.06 million in
contemplation of transferring such interests to RSI, the difference representing
interest carrying costs.
FORMATION AND EQUITY CAPITALIZATION OF RSI; OWNERSHIP OF RSI COMMON STOCK
Due to considerations relating to the Reckson's status as a REIT under
Federal tax laws, RSI was initially formed as a subsidiary in which Reckson
Operating Partnership owned 95% of the outstanding capital stock in the form of
non-voting common stock. Lightpost LLC owns the remaining 5% of the outstanding
capital stock in the form of common stock. Donald J. Rechler, Scott H. Rechler,
Michael Maturo, Roger Rechler, Mitchell D. Rechler and Gregg M. Rechler and
trusts controlled by certain of such executive officers own 70% of the member
interests of Lightpost LLC and the other 30% of the member interests is owned by
members of Reckson management who are not executive officers or directors of
Reckson and a Rechler family member who is not a member of Reckson management.
The shares of capital stock owned by Reckson Operating Partnership and Lightpost
LLC were issued by RSI on the same dates and at the same price per share of
$1.10. Immediately prior to the Distribution, the shares of non-voting common
stock owned by Reckson Operating Partnership will be exchanged for RSI Common
Stock.
The Company also will obtain the Credit Facilities from Reckson
Operating Partnership which shall bear interest at the rate equal to the greater
of the prime rate plus 2% and 12% per annum, with such 12% increasing annually
at a rate of 4% of the prior year's rate. The Credit Facilities will be payable
on an interest-only basis from net cash flow during its five-year term. Advances
under the Credit Facilities will be recourse obligations of RSI.
Jon L. Halpern, a director of Reckson, beneficially owned substantially
all of the OnSite business prior to RSI's acquisition of an interest therein
(and will own beneficially a 25.97% interest in OnSite after giving effect to
its acquisition of the OnSite business, assuming RSI converts its subordinated
convertible note into a 58.69% interest), and owns a 331/3% interest in a joint
venture that owns a 70% interest in the Dobie Center, a 331/3% interest in a
joint venture that owns a 76.09% interest in ACLC, and a 22.75% interest in the
Office Suites Company, and may participate in the operation of such entities.
Based upon its understanding of the market generally and discussions with third
parties specifically, management believes that RSI's participation, or, in the
Office Suites Company's case, possible participation, in such investments with
Mr. Halpern has been the subject of arm's-length negotiations.
THE INTERCOMPANY AGREEMENT
The Intercompany Agreement between the Company and Reckson Operating
Partnership will set forth the basis on which RSI and Reckson Operating
Partnership will allocate business opportunities among them. See "Business--The
Intercompany Agreement."
STANDBY AGREEMENT
The Company and the Standby Purchaser have entered into the Standby
Agreement pursuant to which the Standby Purchaser has agreed to purchase, and
the Company has agreed to sell, any and all Standby Commitment Shares on the
Expiration Date at the Exercise Prices.
The Company has entered into the Standby Agreement to provide
additional assurance that, the Company would, with the sale of the Standby
Commitment Shares, sell all of the shares of RSI Common Stock that are the
subject of Subscription Rights in the Rights Offering. The Standby Purchaser is
owned by Donald J. Rechler, Scott H. Rechler, Michael Maturo, Roger Rechler,
Mitchell D. Rechler, Gregg M. Rechler, certain non-executive officers of RSI and
Reckson and certain trusts controlled by executive officers of Reckson.
DESCRIPTION OF RSI CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
RSI's authorized capital stock consists of 25,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), 100,000,000
shares of RSI Common Stock and 25,000,000 shares of excess stock, par value $.01
per share. Immediately following the Rights Offering, approximately 24,668,556
shares of RSI Common Stock will be outstanding (subject to reduction to the
extent that cash payments are made in lieu of the issuance of fractional shares
of RSI Common Stock). All of the shares of RSI Common Stock that will be
outstanding immediately following the Distribution will be validly issued, fully
paid and nonassessable.
COMMON STOCK
The holders of RSI Common Stock will be entitled to one vote for each
share on all matters voted on by stockholders, including elections of directors,
and, except as otherwise required by law or provided in any resolution adopted
by RSI's Board with respect to any series of Preferred Stock, the holders of
such shares will possess all voting power. The Charter does not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of Preferred Stock created by the RSI Board
from time to time, the holders of RSI Common Stock will be entitled to such
dividends as may be declared from time to time by the RSI Board from funds
available therefor, and upon liquidation will be entitled to receive pro rata
all assets of the Company legally available for distribution to such holders.
PREFERRED STOCK
The Charter authorizes the RSI Board to establish one or more series of
Preferred Stock and to determine, with respect to any series of Preferred Stock,
the terms and rights of such series, including (i) the designation of the
series, (ii) the number of shares of the series, which number the RSI Board may
thereafter (except where otherwise provided in the applicable certificate of
designation) increase or decrease (but not below the number of shares thereof
then outstanding), (iii) whether dividends, if any, will be cumulative or
noncumulative, and, in the case of shares of any series having cumulative
dividend rights, the date or dates or method of determining the date or dates
from which dividends on the shares of such series shall be cumulative, (iv) the
rate of any dividends (or method of determining such dividends) payable to the
holders of the shares of such series, any conditions upon which such dividends
will be paid and the date or dates or the method for determining the date or
dates upon which such dividends will be payable, (v) the redemption rights and
price or prices, if any, for shares of the series, (vi) the terms and amounts of
any sinking fund provided for the purchase or redemption of shares of the
series, (vii) the amounts payable on and the preferences, if any, of shares of
the series in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of RSI, (viii) whether the shares of the series
will be convertible or exchangeable into shares of any other class or series, or
any other security, of RSI or any other corporation, and, if so, the
specification of such other class or series or such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares will be convertible or
exchangeable and all other terms and conditions upon which such conversion or
exchange may be made, (ix) restrictions on the issuance of shares of the same
series or of any other class or series, (x) the voting rights, if any, of the
holders of the shares of the series, and (xi) any other relative rights,
preferences and limitations of such series.
RSI believes that the ability of the RSI Board to issue one or more
series of Preferred Stock will provide it with flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. The authorized shares of Preferred Stock, as well as
shares of RSI Common Stock, will be available for issuance without further
action by RSI's stockholders, unless such action is required by applicable law
or the rules of any stock exchange or automated quotation system on which RSI's
securities may be listed or traded. If the approval of RSI's stockholders is not
required for the issuance of shares of Preferred Stock or RSI Common Stock, the
RSI Board may determine not to seek stockholder approval.
Although the RSI Board has no intention at the present time of doing
so, it could issue a series of Preferred Stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The RSI Board will make any determination to issue such shares
based on its judgment as to the best interests of RSI and its stockholders. The
RSI Board, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt through which an acquiror may be able to
change the composition of the RSI Board, including a tender offer or other
transaction that some, or a majority, of RSI's stockholders might believe to be
in their best interests or in which such stockholders might receive a premium
for their stock over the then-current market price of such stock.
SERIES A JUNIOR PREFERRED STOCK
The Company expects to reserve approximately 247,000 shares of
Series A Junior Preferred Stock for issuance upon exercise of the Preferred
Stock Purchase Rights. The Series A Junior Preferred Stock will not be
redeemable and will rank, with respect to the payment of dividends and the
distribution of assets, junior to any other series of any other classes
of Preferred Stock that may exist from time to time. Generally, each share of
Series A Junior Preferred Stock will entitle its holder to 100 votes on all
matters submitted to a vote of the Company's stockholders.
Subject to the rights of holders of any shares of any series of
Preferred Stock ranking senior to the Series A Junior Preferred Stock with
respect to dividends, holders of shares of Series A Junior Preferred Stock, in
preference to holders of RSI Common Stock and any other junior stock, will be
entitled to receive, when, as and if declared by the RSI Board, quarterly cash
dividends, in an amount per share equal to the greater of (i) $1 or (ii) subject
to adjustment as set forth herein, 100 times the aggregate per share amount of
all cash dividends and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions (other than dividends
payable in RSI Common Stock or a subdivision of outstanding shares of RSI Common
Stock) declared on the RSI Common Stock since the immediately preceding
quarterly dividend payment date, or since the first issuance of any share of
Series A Junior Preferred Stock, in the case of the first quarterly dividend
payment date. In the event the Board declares or pays a dividend on the RSI
Common Stock payable in shares of RSI Common Stock or subdivides, combines or
consolidates the outstanding shares of RSI Common Stock into a greater or lesser
number of shares of RSI Common Stock, the amount of in-kind dividend payable to
holders of Series A Junior Preferred Stock will be adjusted for such dividend
on, or subdivision, combination or consolidation of, shares of RSI Common Stock.
Dividends on the Series A Junior Preferred Stock generally will be declared
immediately following a dividend declaration on the RSI Common Stock, and will
be cumulative. Accumulated but unpaid dividends will not bear interest.
During such times as dividends payable on the Series A Junior Preferred
Stock are in arrears, and until such arrearages have been paid in full, RSI will
be prohibited from (i) declaring or paying dividends or making other
distributions on any shares of stock ranking junior to the Series A Junior
Preferred Stock, (ii) declaring or paying dividends or making other
distributions on any shares of stock ranking on a parity with the Series A
Junior Preferred Stock, except dividends paid ratably on the Series A Junior
Preferred Stock and all such parity stock, in proportion to the amounts to which
holders of all such shares are then entitled, (iii) redeeming or otherwise
acquiring for value any stock ranking junior to the Series A Junior Preferred
Stock, and (iv) redeeming or otherwise acquiring for value any shares of Series
A Junior Preferred Stock, or any shares of stock ranking on a parity with the
Series A Junior Preferred Stock, except in accordance with a purchase offer made
under certain limited circumstances. Redemptions and other acquisitions of stock
ranking junior to the Series A Junior Preferred Stock will be permissible if
such redemptions or acquisitions are made in exchange for shares of any stock of
RSI ranking junior to the Series A Junior Preferred Stock.
In the event of any liquidation, dissolution or winding up of RSI, no
distribution will be made to the holders of shares of stock ranking junior to
the Series A Junior Preferred Stock unless and until the holders of the Series A
Junior Preferred Stock have received $100 per share, plus an amount equal to
accumulated and unpaid dividends and distributions thereon. Holders of Series A
Junior Preferred Stock will be entitled to receive an aggregate amount per share
equal to 100 times the aggregate amount to be distributed per share to holders
of RSI Common Stock. Further, no distribution will be made to the holders of
shares of stock ranking on a parity with the Series A Junior Preferred Stock,
except distributions made ratably on the Series A Junior Preferred Stock and all
such parity stock in proportion to the totals to which the holders are entitled
upon such liquidation, dissolution or winding up. In the event the Board
declares or pays a dividend payable in shares of RSI Common Stock or subdivides,
combines or consolidates the outstanding shares of RSI Common Stock into a
greater or lesser number of shares of RSI Common Stock, the amount of the
liquidating distribution payable to holders of Series A Junior Preferred Stock
will be adjusted for such dividend on, or subdivision, combination or
consolidation of, shares of RSI Common Stock.
In the event RSI enters into a consolidation, merger, combination or
other transaction pursuant to which shares of RSI Common Stock are exchanged for
or changed into other stock or securities, cash or other property, each share of
Series A Junior Preferred Stock must be similarly exchanged or changed into an
amount per share equal to 100 times the aggregate amount of stock, securities,
cash or other property (payable in kind) into which or for which each share of
RSI Common Stock is changed or exchanged. In the event the Board declares or
pays a dividend payable in shares of RSI Common Stock or subdivides, combines or
consolidates the outstanding shares of RSI Common Stock into a greater or lesser
number of shares of RSI Common Stock, the amount payable to holders of Series A
Junior Preferred Stock in respect of a consolidation, merger, combination or
other such transaction will be adjusted for such dividend on, or subdivision,
combination or consolidation of, shares of RSI Common Stock.
RESTRICTION ON OWNERSHIP OF RSI CAPITAL STOCK
In order for Reckson to qualify as a REIT under the Code, it must
satisfy a variety of requirements, including annual tests with respect to the
nature of its gross income. Substantially all of Reckson's gross income meets
these requirements by qualifying as "rentals from real property" under Section
856(d) of the Code. Under this provision, however, a REIT's real property
rentals can be disqualified if the rent is received by the REIT from a related
party or if noncustomary services are performed for the tenant other than by an
independent contractor. The characterization of a party as a related-party
tenant or as an independent contractor depends, in part, upon the percentage of
stock, assets or net profits of such party that may be owned by the REIT or by
shareholders of the REIT. Such ownership may be direct or may be indirect under
certain attribution rules prescribed by the Code. Immediately after the
Distribution, there will be a substantial identity of ownership between
stockholders of Reckson and stockholders of the Company. It cannot be predicted
how long or to what degree such identity of ownership may continue. In order to
protect Reckson from the risk that rental income that it will earn from the
Company or its affiliates and from tenants with respect to which the Company or
its affiliates may provide Commercial Services will not be disqualified as rent
from real property for REIT qualification purposes, subject to certain
exceptions, the ownership by any person or entity of RSI Common Stock is limited
to 9.9% of the aggregate number or value of shares of RSI Common Stock and the
ownership by any person of RSI capital stock is limited to 9.9% of the aggregate
value of all classes of RSI capital stock.
EXCESS STOCK
The Articles of Incorporation provide that the Company may issue up to
25 million shares of excess stock, par value $.01 per share ("Excess Stock").
For a description of Excess Stock, see "--Restrictions on Ownership" below.
RESTRICTIONS ON OWNERSHIP
In order to protect Reckson against the risk of failing to satisfy
certain tax laws applicable to REITs, the Certificate of Incorporation provides
that no stockholder may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.9% (the "Ownership Limit") of the aggregate
number or value of the Company's outstanding shares of Common Stock, or more
than 9.9% of the aggregate value of the outstanding shares of all classes of the
Company's capital stock, provided that in no event will a stockholder be limited
in the amount of RSI Common Stock acquired in connection with the Distribution,
the Standby Agreement and awards or exercises of employee stock options. In
the event the Company issues Preferred Stock, it may, in the Designating
Amendment, determine a limit on the ownership of such stock. Any direct or
indirect ownership of shares of stock in excess of the Ownership Limit or that
would result in common ownership among 10% holders of RSI Common Stock and
Reckson Common Stock, shall be null and void, and the intended transferee
will acquire no rights to the shares of capital stock. The foregoing
restrictions on transferability and ownership will not apply if Reckson
determines that it is no longer in its best interests to attempt to qualify,
or to continue to qualify, as a REIT. Under the terms of the Intercompany
Agreement, the RSI Board of Directors will have the right to waive the
Ownership Limit only if permission to do so is granted by Reckson, in
Reckson's sole discretion, and the RSI Board of Directors otherwise decides that
such action is in the best interest of the Company.
Shares of capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit or the Aggregate Ownership Limit
will automatically be converted into shares of Excess Stock that will be
transferred, by operation of law, to the trustee of a trust for the exclusive
benefit of one or more charitable organizations described in Section
170(b)(1)(A) and 170(c) of the Code (the "Charitable Beneficiary"). The trustee
of the trust will be deemed to own the Excess Stock for the benefit of the
Charitable Beneficiary on the date of the violative transfer to the original
transferee-stockholder. Any dividend or distribution paid to the original
transferee-stockholder of Excess Stock prior to the discovery by the Company
that capital stock has been transferred in violation of the provisions of the
Company's Certificate of Incorporation shall be repaid to the trustee upon
demand. Any dividend or distribution authorized and declared but unpaid shall be
rescinded as void ab initio with respect to the original transferee-stockholder
and shall instead be paid to the trustee of the trust for the benefit of the
Charitable Beneficiary. Any vote cast by an original transferee-stockholder of
shares of capital stock constituting Excess Stock prior to the discovery by the
Company that shares of capital stock have been transferred in violation of the
Company's Certificate of Incorporation shall be rescinded as void ab initio.
While the Excess Stock is held in trust, the original transferee-stockholder
will be deemed to have given an irrevocable proxy to the trustee to vote the
capital stock for the benefit of the Charitable Beneficiary. The trustee of the
trust may transfer the interest in the trust representing the Excess Stock to
any person whose ownership of the shares of capital stock converted into such
Excess Stock would be permitted under the Ownership Limit and the Aggregate
Ownership Limit. If such transfer is made, the interest of the Charitable
Beneficiary shall terminate and the proceeds of the sale shall be payable to the
original transferee-stockholder and to the Charitable Beneficiary as described
herein. The original transferee-stockholder shall receive the lesser of (i) the
price paid by the original transferee-stockholder for the shares of capital
stock that were converted into Excess Stock or, if the original
transferee-stockholder did not give value for such shares (e.g., the stock was
received through a gift, devise or other transaction), the average closing price
for the class of shares from which such shares of capital stock were converted
for the ten trading days immediately preceding such sale or gift, and (ii) the
price received by the trustee from the sale or other disposition of the Excess
Stock held in trust. The trustee may reduce the amount payable to the original
transferee-stockholder by the amount of dividends and distributions relating to
the shares of Excess Stock which have been paid to the original
transferee-stockholder and are owed by the original transferee-stockholder to
the trustee. Any proceeds in excess of the amount payable to the Original
transferee-stockholder shall be paid by the trustee to the Charitable
Beneficiary. Any liquidation distributions relating to Excess Stock shall be
distributed in the same manner as proceeds of a sale of Excess Stock. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulations, then the original
transferee-stockholder of any shares of Excess Stock may be deemed, at the
option of the Company, to have acted as an agent on behalf of the Company in
acquiring the shares of Excess Stock and to hold the shares of Excess Stock on
behalf of the Company.
In addition, the Company will have the right, for a period of 90 days
during the time any shares of Excess Stock are held in trust, to purchase all or
any portion of the shares of Excess Stock at the lesser of (i) the price
initially paid for such shares by the original transferee-stockholder, or if the
original transferee-stockholder did not give value for such shares (e.g., the
shares were received through a gift, devise or other transaction), the average
closing price for the class of stock from which such shares of Excess Stock were
converted for the ten trading days immediately preceding such sale or gift, and
(ii) the average closing price for the class of stock from which such shares of
Excess Stock were converted for the ten trading days immediately preceding the
date the Company elects to purchase such shares. The Company may reduce the
amount payable to the original transferee-stockholder by the amount of dividends
and distributions relating to the shares of Excess Stock which have been paid to
the original transferee-stockholder and are owned by the original transferee-
stockholder to the trustee. The Company may pay the amount of such reductions to
the trustee for the benefit of the Charitable Beneficiary. The 90-day period
begins on the later date of which notice is received of the violative transfer
if the original transferee-stockholder gives notice to the Company of the
transfer or, if no such notice is given, the date the RSI Board of Directors
determines that a violative transfer has been made.
All certificates representing shares of capital stock will bear a
legend referring to the restrictions described above.
Each stockholder shall, upon demand by the Company, be required to
disclose to the Company in writing any information with respect to the direct,
indirect and constructive ownership of capital stock of the Company as Reckson
deems necessary for Reckson to determine its compliance with the provisions of
the Code applicable to REITs.
The Company is required to maintain in its charter the foregoing
Ownership Limit, Excess Stock and stock ownership disclosure requirements under
the terms of the Intercompany Agreement.
The Ownership Limit may have the effect of delaying, deferring or
preventing a change in control of the Company.
CERTAIN ANTITAKEOVER PROVISIONS
STAGGERED BOARD OF DIRECTORS
The Charter and the Bylaws provide that the RSI Board will be divided
into three classes of directors, each class constituting approximately one-third
of the total number of directors, with the classes serving staggered three-year
terms. The classification of the RSI Board will have the effect of making it
more difficult for stockholders to change the composition of the RSI Board,
because only a minority of the directors are up for election, and the RSI Board
may not be replaced by vote of the stockholders, at any one time. RSI believes,
however, that the longer terms associated with the classified RSI Board will
help to ensure continuity and stability of the Company's management and
policies.
The classification provisions also could have the effect of
discouraging a third party from accumulating a large block of RSI Common Stock
or attempting to obtain control of RSI, even though such an attempt might be
beneficial to the Company and some, or a majority, of its stockholders.
Accordingly, under certain circumstances, stockholders could be deprived of
opportunities to sell their shares of RSI Common Stock at a higher price than
might otherwise be available.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Charter provides that, subject to any rights of holders of
Preferred Stock to elect additional directors under specified circumstances
("Preferred Holders' Rights"), the number of directors will be fixed by the
Bylaws. The Bylaws provide that, subject to any Preferred Holders' Rights, the
number of directors will be fixed by the RSI Board, but must not be more than 25
nor less than three. In addition, the Bylaws provide that, subject to any
Preferred Holders' Rights, and unless the RSI Board otherwise determines, any
vacancies (other than vacancies created by an increase in the total number of
directors) will be filled by the affirmative vote of a majority of the remaining
directors, though less than a quorum, and any vacancies created by an increase
in the total number of directors may be filled by a majority of the entire RSI
Board. Accordingly, the RSI Board could temporarily prevent any stockholder from
enlarging the RSI Board and then filling the new directorships with such
stockholder's own nominees.
The Charter and the Bylaws provide that, subject to any Preferred
Holders' Rights, directors may be removed only for cause upon the affirmative
vote of holders of at least 80% of the entire voting power of all the
then-outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Charter and Bylaws provide that any action required or permitted to
be taken by the stockholders of RSI must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders. Except as otherwise required by law and subject to the
rights of the holders of any Preferred Stock, special meetings of stockholders
of RSI for any purpose or purposes may be called only by the Chairman of the
Board, Vice Chairman, President or the RSI Board pursuant to a resolution
stating the purpose or purposes thereof. No business other than that stated in
the notice shall be transacted at any special meeting. These provisions may have
the effect of delaying consideration of a stockholder proposal until the next
annual meeting unless a special meeting is called by the Chairman of the Board,
Vice Chairman, President or the RSI Board.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for directors or bring other business before an
annual meeting of stockholders of RSI (the "Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that (i) only persons who are
nominated by, or at the direction of, the RSI Board, or by a stockholder who has
given timely written notice containing specified information to the Secretary of
RSI prior to the meeting at which directors are to be elected, will be eligible
for election as directors of RSI and (ii) at an annual meeting, only such
business may be conducted as has been brought before the meeting by, or at the
direction of the Chairman or the RSI Board or by a stockholder who has given
timely written notice to the Secretary of RSI of such stockholder's intention to
bring such business before such meeting. In general, for notice of stockholder
nominations or proposed business to be conducted at an annual meeting to be
timely, such notice must be received by the Company not less than 75 days nor
more than 90 days prior to the first anniversary of the previous year's annual
meeting.
The purpose of requiring stockholders to give the Company advance
notice of nominations and other business is to afford the RSI Board a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the RSI Board, to inform stockholders and make recommendations
about such nominees or business, as well as to ensure an orderly procedure for
conducting meetings of stockholders. Although the Bylaws do not give the RSI
Board power to block stockholder nominations for the election of directors or
proposal for action, they may have the effect of discouraging a stockholder from
proposing nominees or business, precluding a contest for the election of
directors or the consideration of stockholder proposals if procedural
requirements are not met, and deterring third parties from soliciting proxies
for a non-management slate of directors or proposal, without regard to the
merits of such slate or proposal.
RELEVANT FACTORS TO BE CONSIDERED BY THE RSI BOARD
The Charter, which provides that one of the purposes of RSI is to
perform the Intercompany Agreement, also provides that, in determining what is
in the best interest of RSI in evaluating a "business combination," "change in
control" or other transaction, a director of RSI shall consider all of the
relevant factors, which may include (i) the immediate and long-term effects of
the transaction on RSI's stockholders, including stockholders, if any, who do
not participate in the transaction; (ii) the social and economic effects of the
transaction on the Company's employees, suppliers, creditors and customers and
others dealing with the Company and on the communities in which the Company
operates and is located; (iii) whether the transaction is acceptable, based on
the historical and current operating results and financial condition of the
Company; (iv) whether a more favorable price would be obtained for the Company's
stock or other securities in the future; (v) the reputation and business
practices of the other party or parties to the proposed transaction, including
its or their management and affiliates, as they would affect employees of the
Company; (vi) the future value of the Company's securities; (vii) any legal or
regulatory issues raised by the transaction; (viii) the effect on the
Intercompany Agreement; and (ix) the business and financial condition and
earnings prospects of the other party or parties to the proposed transaction,
including, without limitation, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
transaction and other foreseeable financial obligations of such other party or
parties. Pursuant to this provision, the RSI Board may consider subjective
factors affecting a proposal, including certain nonfinancial matters, and on the
basis of these considerations, may oppose a business combination or other
transaction which, evaluated only in terms of its financial merits, might be
attractive to some, or a majority, of the Company's stockholders.
AMENDMENT
The Charter provides that the affirmative vote of the holders of at
least 80% of the stock entitled to vote generally in the election of directors
(the "Voting Stock"), voting together as a single class, is required to amend
provisions of the Charter relating to stockholder action without a meeting; the
calling of special meetings; the number, election and term of the Company's
directors; the filling of vacancies and the removal of directors. The Charter
further provides that the related Bylaws described above (including the
Stockholder Notice Procedure) may be amended only by the RSI Board or by the
affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of Voting Stock, voting together as a single class. In all
cases, amendments to the charter and by-laws require that the RSI Board
determines that the proposed amendment is advisable.
PREFERRED RIGHTS PLAN
The RSI Board will adopt the Preferred Rights Plan on or prior to the
Distribution Effective Date after consideration by the directors of the RSI
Board of their fiduciary duties and applicable law. Pursuant to the Preferred
Rights Plan, the RSI Board will cause to be issued one Preferred Stock Purchase
Right (each, a "Preferred Right") for each share of RSI Common Stock issued in
the Distribution and the Rights Offering. Each Preferred Right will entitle the
registered holder to purchase from RSI one one-hundredth of a share of Series A
Junior Participating Preferred Stock at a price to be determined by the RSI
Board (the "Purchase Price"), subject to adjustment. The description and terms
of the Preferred Rights will be set forth in a Preferred Rights Agreement (the
"Preferred Rights Agreement"), between RSI and the designated Preferred Rights
Agent (the "Preferred Rights Agent"). The description set forth below is
intended as a summary only and is qualified in its entirety by reference to the
actual provisions of the Preferred Rights Agreement approved by the RSI Board in
the future.
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 10% or more of the
outstanding shares of RSI Common Stock or (ii) 10 business days (or such later
date as may be determined by action of the RSI Board prior to such time as any
person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 10% or more of such outstanding shares of RSI Common Stock (the earlier
of such dates being called the "Preferred Rights Distribution Effective Date"),
the Preferred Rights will be evidenced by the certificates representing the RSI
Common Stock.
The Preferred Rights Agreement will provide that, until the Preferred
Rights Distribution Effective Date (or earlier redemption or expiration of the
Rights), the Preferred Rights will be transferred with and only with the RSI
Common Stock. Until the Preferred Rights Distribution Effective Date (or earlier
redemption or expiration of the Preferred Rights), the RSI Common Stock
certificates will contain a notation incorporating the Preferred Rights
Agreement by reference. As soon as practicable following the Preferred Rights
Distribution Effective Date, separate certificates evidencing the Rights
("Preferred Right Certificates") will be mailed to holders of record of the RSI
Common Stock as of the close of business on the Preferred Rights Distribution
Effective Date and such separate Preferred Right Certificates alone will
evidence the Preferred Rights.
The Preferred Rights will not be exercisable until the Preferred Rights
Distribution Effective Date. The Preferred Rights will expire on the tenth
anniversary of the Record Date (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Preferred Rights are earlier redeemed
or exchanged by RSI, in each case, as summarized below.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, proper provision shall be made so that each
holder of a Preferred Right, other than Preferred Rights beneficially owned by
the Acquiring Person (which will thereafter be void), will thereafter have the
right to receive upon exercise, in lieu of its right to receive one
one-hundredth of a share of Series A Junior Participating Preferred Stock per
Preferred Right, that number of shares of RSI Common Stock having a market value
of two times the exercise price of the Preferred Right. In the event that RSI is
acquired in a merger or other business combination transaction or 50% or more of
its consolidated assets or earning power are sold after a person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
will be made so that each holder of a Preferred Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Preferred Right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the Preferred Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the outstanding RSI
Common Stock, and prior to the acquisition by such person or group of 50% or
more of the outstanding RSI Common Stock, the RSI Board may exchange the
Preferred Rights (other than Preferred Rights owned by such person or group
which have become void), in whole or in part, at an exchange ratio of one share
of RSI Common Stock, or one one-hundredth of a share of Series A Junior
Preferred Stock (or a share of a class or series of the Preferred Stock having
equivalent rights, preference and privileges) per Preferred Right (subject to
adjustment).
At any time prior to the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 10% or more of the outstanding
shares of RSI Common Stock, the RSI Board may redeem the Preferred Rights in
whole, but not in part, at the Redemption Price of $.01 per Preferred Right. The
redemption of the Preferred Rights may be made effective at such time on such
basis and with such conditions as the RSI Board in its sole discretion may
establish. Immediately upon any redemption of the Preferred Rights, the right to
exercise the Preferred Rights will be terminated and the only right of the
holders of Preferred Rights will be to receive the Redemption Price.
The terms of the Preferred Rights may be amended by the RSI Board
without the consent of the holders of the Preferred Rights; provided, however,
that from and after such time as any person or group of affiliated or associated
persons becomes an Acquiring Person, no such amendment may adversely affect the
interests of the holders of the Preferred Rights.
Until a Preferred Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of RSI, including, without limitations, the
right to vote or to receive dividends.
The number of outstanding Preferred Rights and the number of one
one-hundredths of a share of Series A Junior Preferred Stock issuable upon
exercise of each Preferred Right also will be subject to adjustment in the event
of a stock split of the RSI Common Stock, or a stock dividend on the RSI Common
Stock payable in RSI Common Stock or subdivisions, consolidations or
combinations or the RSI Common Stock occurring, in any such case, prior to the
Preferred Rights Distribution Effective Date.
The Purchase Price payable, and the number of shares of Series A Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Preferred Rights will be subject to adjustment from time to time to prevent
dilution (i) in the event or a stock dividend on, or a subdivision, combination
or reclassification of, the shares of Series A Junior Preferred Stock; (ii) upon
the grant to holders of shares of Series A Junior Preferred Stock of certain
rights or warrants to subscribe for or purchase shares of Series A Junior
Preferred Stock at a price, or securities convertible into shares of Series A
Junior Preferred Stock with a conversion price, less than the then-current
market price of shares of the Series A Junior Preferred Stock; or (iii) upon the
distribution to holders of shares of Series A Junior Preferred Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in shares of
Series A Junior Preferred Stock) or of subscription rights or warrants (other
than those referred to above).
Notwithstanding anything to the contrary contained herein, no
adjustment in the Purchase Price payable, or the number of shares of Series A
Junior Preferred Stock or other securities or property issuable, upon exercise
of the Preferred Rights shall be made in respect of the Rights Offering. With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least one percent in such
Purchase Price. No fractional shares of Series A Junior Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of Series A Junior Preferred Stock, which may, at the election of the
Company, be evidenced by depositary receipts) and, in lieu thereof, an
adjustment in cash will be made based on the market price of the shares of
Series A Junior Preferred Stock on the last trading day prior to the date of
exercise.
Shares of Series A Junior Preferred Stock purchased upon exercise of
the Preferred Rights will not be redeemable. For a discussion of the dividend,
liquidation and voting provisions applicable to the Series A Junior Preferred
Stock, see "Description of RSI Capital Stock-Series A Junior Preferred Stock."
Due to the nature of the shares of Series A Junior Preferred Stock's
dividend, liquidation and voting rights, the value of the one one-hundredth
interest in a share of Series A Junior Preferred Stock purchasable upon exercise
of each Preferred Right should approximate the value of one share of RSI Common
Stock.
The Preferred Rights have certain antitakeover effects. The Preferred
Rights will cause substantial dilution to a person or group of persons that
attempts to acquire RSI on terms not approved by the RSI Board. The Preferred
Rights should not interfere with any merger or other business combination
approved by the RSI Board prior to the time that a person or group has acquired
beneficial ownership of 10% or more of the RSI Common Stock since the Preferred
Rights may be redeemed by RSI at the Redemption Price until such time.
The Preferred Rights Plan contains certain provisions to exclude RSI
and its affiliates from the operative provisions thereof.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the time that such stockholder becomes an interested
stockholder unless (i) prior to such time, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an "interested stockholder," the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(iii) on or subsequent to such time, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 662/3% of the
outstanding voting stock which is not owned by the interested stockholder.
Except as otherwise specified in Section 203, an interested stockholder is
defined to include (x) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the date
of determination and (y) the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. RSI has not elected to
be exempt from the restrictions imposed under Section 203. However, the Charter
excludes Reckson and its affiliates from the definition of "interested
stockholder" pursuant to the terms of Section 203. The provisions of Section 203
may encourage persons interested in acquiring RSI to negotiate in advance with
the RSI Board, since the stockholder approval requirement would be avoided if a
majority of the directors then in office approves either the business
combination or the transaction which results in any such person becoming an
interested stockholder. Such provisions also may have the effect of preventing
changes in the management of RSI. It is possible that such provisions could make
it more difficult to accomplish transactions which the Company's stockholders
may otherwise deem to be in their best interests.
CONTROL SHARE ACQUISITIONS
The Charter provides that the holder of "control shares" of RSI
acquired in a control share acquisition have no voting rights with respect to
such control shares except to the extent approved by a vote of two-thirds of the
votes entitled to be cast by stockholders, excluding shares owned by the
acquiror, officers of RSI and employees of RSI who are also directors. "Control
shares" are shares which, if aggregated with all other shares previously
acquired which the person is entitled to vote, would entitle the acquiror to
vote (i) 20% or more but less than one-third, (ii) one-third or more but less
than a majority, or (iii) a majority of the outstanding shares. Control shares
do not include shares that the acquiring person is entitled to vote on the basis
of prior stockholder approval. A "control share acquisition" means the
acquisition of control shares subject to certain exceptions.
The Charter provides that a person who has made or proposed to make a
control share acquisition and who has obtained a definitive financing agreement
with a responsible financial institution providing for any amount of financing
not to be provided by the acquiring person may compel the RSI Board to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the holder in respect of such control shares. If no request
for a meeting is made, the Charter permits RSI itself to present the question at
any stockholders' meeting.
Pursuant to the Charter, if voting rights are not approved at a
stockholders' meeting or if the acquiring person does not deliver an acquiring
person's statement, which would disclose certain information about the
particular control share acquisition, as required by the Charter, then, subject
to certain conditions and limitations set forth in the Charter, RSI may redeem
any or all of the control shares, except those for which voting rights have
previously been approved, for "fair value." Fair value is determined, without
regard to the absence of voting rights, as of the date of the last control share
acquisition or of any meeting of stockholders at which the voting rights of the
holder in respect of such control shares are considered and not approved, and
means, for purposes of the redemption, the highest closing sale price during the
30-day period immediately prior to and including the date in question, of a
share of such stock on the exchange on which the shares are listed or, if not so
listed, the highest closing bid quotation during such 30-day period or, if no
such quotations are available, the fair market value as determined by the RSI
Board. Under the Charter, if voting rights of the holder in respect of such
control shares are approved at a stockholders' meeting and, as a result, the
acquiror would be entitled to vote a majority of the shares entitled to vote,
then the Charter shall be amended to so state, and all other stockholders will
have the rights of dissenting stockholders under the DGCL. The Charter provides
that the fair value of the shares for purposes of such appraisal rights may not
be less than the highest price per share paid by the acquiror in the control
share acquisition, and that certain limitations and restrictions of the DGCL
otherwise applicable to the exercise of dissenters' rights do not apply.
The control share acquisition provisions do not apply to the holder in
respect of control shares acquired in a merger, consolidation or share exchange
if RSI is a party to the transaction, or if the acquisition is approved or
excepted by the Charter or Bylaws prior to a control share acquisition. The
control share provisions in the Charter do not apply to Reckson and its
affiliates.
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
The Charter provides that a director of RSI will not be personally
liable to RSI or its stockholders for monetary damages for breach of fiduciary
duty as a director, except, if required by the DGCL, as amended from time to
time, for liability (i) for any breach of the director's duty of loyalty to RSI
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which concerns unlawful payments of dividends, stock
purchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. Neither the amendment nor repeal of such
provision will eliminate or reduce the effect of such provision in respect of
any matter occurring, or any cause of action, suit or claim that, but for such
provision, would accrue or arise prior to such amendment or repeal.
While the Charter provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate such
duty. Accordingly, the Charter will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care.
The Charter provides that each person who was threatened to be made a
party to or is involved in any proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of RSI or is or was serving at the request of RSI as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan, whether the basis of such proceeding in an alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, will be
indemnified and held harmless by RSI to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits RSI to provide
broader indemnification rights than said law permitted RSI to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. Such right to indemnification
includes the right to have RSI pay the expenses incurred in defending any such
proceeding in advance of its final disposition, subject to the provisions of the
DGCL. Such rights are not exclusive of any other right which any person may have
or thereafter acquire under any statute, provision of the Charter, Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise. No
repeal or modification of such provision will in any way diminish or adversely
affect the rights of any director, officer, employee or agent of RSI thereunder
in respect of any occurrence or matter arising prior to any such repeal or
modification. The Charter also specifically authorizes RSI to maintain insurance
and to grant similar indemnification rights to employees or agents of RSI.
RSI will enter into indemnification agreements with each of its
executive officers and directors. The indemnification agreements will require,
among other things, that RSI indemnify its officers and directors to the fullest
extent permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that the
indemnification is not permitted. The Company also will be required to indemnify
and advance expenses incurred by officers and directors seeking to enforce their
rights under the indemnification agreements and will cover officers and
directors under the Company's directors' and officers' liability insurance.
Although the indemnification agreements will offer substantially the same scope
of coverage afforded by provisions in the Charter and Bylaws, they will provide
greater assurance to directors and executive officers that indemnification will
be available, because, as contracts, they cannot be modified unilaterally in the
future by the Board of Directors or by the stockholders to alter, limit or
eliminate the rights they provide.
EXPERTS
The financial statements of RSI, RO Partners Management LLC, Veritech
Ventures, L.L.C., American Campus Lifestyles Company L.L.C. and Dobie Center
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, to the extent indicated in their
reports thereon also appearing elsewhere herein and in the Registration
Statement. Such financial statements have been included herein in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements and Schedule of Dobie Center as of December
31, 1996 and 1995, and for the three years in the period ended December 31,
1996, included in this prospectus and elsewhere in this registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The financial statements of American Campus Lifestyles Companies LLC as
of December 31, 1996 and 1995, and for the two years in the period ended
December 31, 1996, included in this prospectus and elsewhere in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
LEGAL MATTERS
The legality of the issuance of the shares of RSI Common Stock to be
distributed in the Distribution and to be issued in respect of the Rights
Offering, and certain legal matters relating to federal income tax
considerations, will be passed upon for RSI by Brown & Wood LLP, New York, New
York.
INDEX TO FINANCIAL STATEMENTS
Page
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RECKSON SERVICE INDUSTRIES, INC.
Pro Forma Condensed Combining Balance Sheet (unaudited)
as of December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . F-4
Pro Forma Condensed Combining Statement of Operations (unaudited)
for the year ended December 31, 1997 . . . . . . . . . . . . . . . . . F-7
RECKSON SERVICE INDUSTRIES, INC.
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . F-10
Balance Sheet as of December 31, 1997 . . . . . . . . . . . . . . . . F-11
Statement of Operations for the Period July 15, 1997
(commencement of operations) to December 31, 1997 . . . . . . . . . . F-12
Statement of Shareholders' Equity for the Period July 15, 1997
(commencement of operations) to December 31, 1997 . . . . . . . . . . F-13
Statement of Cash Flows for the Period July 15, 1997
(commencement of operations) to December 31, 1997 . . . . . . . . . . F-14
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-15
RO PARTNERS MANAGEMENT, L.L.C.
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . F-23
Consolidated Balance Sheet as of December 31, 1997 . . . . . . . . . . F-24
Consolidated Statement of Income for the period June 4, 1997
(commencement of operations) to December 31, 1997) . . . . . . . . . F-25
Consolidated Statement of Members' Equity for the period June
4, 1997 (commencement of operations) to December 31, 1997 . . . . . . F-26
Consolidated Statement of Cash Flows for the period June 4,
1997 (commencement of operations) to December 31, 1997 . . . . . . . F-27
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-28
INVESTEES ACCOUNTED FOR UNDER THE EQUITY METHOD
DOBIE CENTER
Report of Independent Public Accountants . . . . . . . . . . . . . . F-34
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . F-35
Statement of Changes in Project Equity (Deficit) for the years
ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . F-37
Combined Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 and the unaudited Statement
of Operations for the nine months ended September 30, 1996 . . . . . F-38
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 and the unaudited Statement
of Cash Flows for the nine months ended September 30, 1996 . . . . . F-39
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-40
Schedule III - Real Estate Investments, Accumulated
Depreciation and Amortization as of December 31, 1996 . . . . . . . . F-47
Notes to Schedule III . . . . . . . . . . . . . . . . . . . . . . . . F-48
DOBIE CENTER
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . F-49
Balance Sheet as of December 31, 1997 . . . . . . . . . . . . . . . . F-50
Statements of Income for the year ended December 31, 1997
and the periods January 1, 1997 through June 26, 1997 and
June 27, 1997 through December 31, 1997 . . . . . . . . . . . . . . . F-51
Statement of Changes in Members' Equity (Deficit) for the
year ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . F-52
Statement of Cash Flows for the year ended December 31, 1997 . . . . F-53
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-54
Supplemental Statement of Income for the period July 15,
1997 through December 31, 1997 . . . . . . . . . . . . . . . . . . . . F-60
Schedule III-Real Estate and Accumulated Depreciation as
of December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . F-61
Notes to Schedule III . . . . . . . . . . . . . . . . . . . . . . . . . F-62
AMERICAN CAMPUS LIFESTYLES COMPANIES, L.L.C.
Report of Independent Public Accountants . . . . . . . . . . . . . . F-63
Statements of Assets, Liabilities, and Members'
Equity (Deficit) as of December 31, 1996 and 1995 . . . . . . . . . . F-64
Statements of Revenues and Expenses for the years ended December 31,
1996 and 1995 and the unaudited Statement of Revenues and Expenses
for the nine months ended September 30, 1996 . . . . . . . . . . . . F-66
Statement of Changes in Members' Equity (Deficit)
for the years ended December 31, 1996 and 1995 . . . . . . . . . . . F-67
Statements of Cash Flows for the years ended December 31,
1996 and 1995 and the unaudited Statement of Cash Flows for
the nine months ended September 30, 1996 . . . . . . . . . . . . . . F-68
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-69
AMERICAN CAMPUS LIFESTYLES COMPANIES, L.L.C.
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . F-76
Consolidated Balance Sheet as of December 31, 1997 . . . . . . . . . F-77
Consolidated Statements of Income for the year ended
December 31, 1997 and for the periods June 1, 1997
through December 31, 1997 and January 1, 1997 through
May 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-78
Consolidated Statement of Changes in Members' Equity
for the year ended December 31, 1997 . . . . . . . . . . . . . . . . F-79
Consolidated Statement of Cash Flows for the year ended
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-80
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-81
Supplemental Consolidation Statement of Income for the
period from October 17, 1997 through December 31, 1997 . . . . . . . . F-88
OTHER INVESTMENTS
VERITECH VENTURES LLC
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . F-89
Balance Sheets as of December 31, 1996 and 1997 . . . . . . . . . . F-90
Statements of Operations for the period July 5, 1996
(date of inception) to December 31, 1996 and for the
year ended December 31, 1997 . . . . . . . . . . . . . . . . . . . . F-91
Statements of Members' Equity for the period July 5, 1996
(date of inception) to December 31, 1996 and the year ended
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-92
Statements of Cash Flows for the period July 5, 1996
(date of inception) to December 31, 1996 and the year ended
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-93
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-94
RECKSON SERVICE INDUSTRIES INC.
PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)
The following unaudited pro forma condensed combining balance sheet is
presented as if the Company had (i) made working capital loans to OnSite and
(ii) exercised its option to acquire a 9.9% equity interest in Reckson
Executive Centers, LLC on December 31, 1997.
This pro forma condensed combining balance sheet should be read in
conjunction with the pro forma condensed combining statement of operations of
the Company for the year ended December 31, 1997 and notes thereto and the
historical financial statements and notes thereto of the Company as of and
for the period ended December 31, 1997 included elsewhere in this
Registration Statement.
This pro forma condensed combining balance sheet is unaudited and is not
necessarily indicative of what the actual financial position would have been
had the Company made working capital loans to OnSite or exercised its option
to acquire a 9.9% equity interest in Reckson Executive Centers, LLC on
December 31, 1997, nor does it purport to represent the future financial
position of the Company.
Pro Forma Balance Sheet 12-97
RECKSON SERVICE INDUSTRIES INC.
PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
RECKSON DECEMBER
EXECUTIVE 31,
HISTORICAL CENTERS ON-SITE 1997
(A)(B) (C) (D) PRO FORMA
------------ ------------- --------- -------------
<S> <C> <C> <C> <C>
Assets
Cash $ 129,704 $ - $ - $ 129,704
Investment in RO Partners Management, LLC 3,868,093 - - 3,868,093
Investment in ACLC 1,652,165 - - 1,652,165
Investment in Reckson Executive Centers, LLC - 200,000 - 200,000
Loan receivable 325,000 - 650,000 975,000
Affiliate receivable 832,854 - - 832,854
Organization and pre-acquisition costs 681,694 - - 681,694
Other Assets 30,185 - - 30,185
------------ ------------- --------- -------------
Total Assets $7,519,695 $200,000 $650,000 $8,369,695
============ ============= ========= =============
Liabilities and shareholders' equity
Accounts payable and accrued expenses $ 119,384 $ $ - - $ 119,384
Loans payable to Affiliates 3,177,857 200,000 650,000 4,027,857
------------ ------------- --------- -------------
Total liabilities 3,297,241 200,000 650,000 4,147,241
============ ============= ========= =============
Commitments - - - -
Shareholder's equity
Common Stock 10 - - 10
Additional paid-in capital 4,480,331 - - 4,480,331
Retained earnings (257,887) - - (257,887)
------------ ------------- --------- -------------
Total shareholders' equity 4,222,454 - - 4,222,454
------------ ------------- --------- -------------
Total Liabilities and Shareholders'
Equity $7,519,695 $200,000 $650,000 $8,369,695
============ ============= ========= =============
</TABLE>
RECKSON SERVICE INDUSTRIES INC.
NOTES TO PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)
(a) Reflects the Company's historical balance sheet as of December 31, 1997.
(b) In connection with the formation and capitalization of RSI, Reckson
Operating Partnership contributed $4,256,324 to RSI for a 95% non-voting
equity interest. Simultaneously, certain officers of Reckson contributed
$224,017 of Notes to RSI in exchange for a 5% voting equity interest.
The shares of capital stock owned by Reckson Operating Partnership and
Reckson officers were acquired on the same terms. On October 29, 1997,
the notes were paid. Immediately prior to the Distribution, the shares
of non-voting common stock owned by Reckson Operating Partnership were
exchanged for RSI Common Stock. Such shares will be distributed to
holders of Reckson Common Stock and Units on the basis of one share of
RSI Common Stock for every 12 shares of Reckson Common Stock held by
Reckson stockholders on the Record Date and one share of RSI Common
Stock for every 12 Units held by Limited Partners on the Record Date.
RSI Common Stock to be distributed in the Distribution is approximately
3,858,909 shares (subject to reduction to the extent that cash payments
are made in lieu of the issuance of fractional shares of RSI Common
Stock, which is immaterial) plus the right to subscribe to an additional
20,310,050 shares (Subscription Rights). No adjustment has been made to
reflect the impact of the Standby Agreement whereby an entity owned by
members of management of Reckson have agreed to purchase any and all
shares of RSI common stock that were the subject of Subscription Rights
but were not subscribed for or for the impact of the shares of RSI
common stock issuable in connection with grants under the Company's
Stock Option Plan.
(c) Reflects the Company's exercise of its option to acquire a 9.9% equity
interest in Reckson Executive Centers, LLC for $200,000 from Reckson.
(d) Under the terms of the OnSite letter of intent, RSI has made a
commitment to fund, in the aggregate, $6.5 million of loans which are
convertible into an approximately 58.69% interest in OnSite. As of
December 31, 1997, RSI had loaned $325,000. The pro forma adjustment
reflects an additional advance to OnSite of $650,000 with proceeds from
Reckson Operating Partnership, L.P. Such loans bear interest at 12%.
RECKSON SERVICE INDUSTRIES INC.
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
The following unaudited pro forma condensed combining statement of operations
for the year ended December 31, 1997 is presented as if the Company had
acquired (i.) through its interest in RSVP, a 33 1/3% interest in a joint
venture that owns a 76.09% interest in ACLC, (ii.) through its interest in
RSVP, a 33 1/3% interest in a joint venture that owns a 70% interest in Dobie
Center, (iii.) working capital loans to OnSite and (iv.) a 9.9% equity
interest in Reckson Executive Centers, LLC (collectively the "Acquired
Investments") as of January 1, 1997.
This pro forma condensed combining statement of operations should be read in
conjunction with the pro forma condensed combining balance sheet and notes
thereto as of December 31, 1997 and the historical financial statements and
notes thereto of the Company as of and for the period ended December 31, 1997
included elsewhere in this Registration Statement.
This pro forma condensed combining statement of operations is unaudited and
is not necessarily indicative of what the actual results of operations would
have been had the Company acquired the Acquired Investments on January 1,
1997, nor does it purport to represent the operations of the Company for
future periods.
PRO FORMA OPERATIONS 12-97
RECKSON SERVICE INDUSTRIES INC.
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
RECKSON FORMA
EXECUTIVE ADJUST- DECEMBER
Historical DOBIE ACLC CENTERS ON-SITE MENTS 31, 1997
(a) (B) (C) (D) (E) (F) PRO FORMA
---------- ---------- -------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
EQUITY IN EARNINGS OF
RO PARTNERS
MANAGEMENT, LLC $ 245,593 $ 152,329 $ - $ - $ - $ - $ 397,922
EQUITY IN LOSS OF ACLC (22,156) - 146,042 - - - 123,886
EQUITY IN LOSS OF RECKSON
EXECUTIVE CENTERS, LLC - - - (9,128) - - (9,128)
INTEREST INCOME 30,383 - - - 114,182 - 144,565
---------- ---------- -------- --------- --------- --------- --------------
TOTAL REVENUES 253,820 152,329 146,042 (9,128) 114,182 - 657,245
---------- ---------- -------- --------- --------- --------- --------------
EXPENSES:
GENERAL AND ADMINISTRATIVE 479,113 - - - - 100,000 579,113
---------- ---------- -------- --------- --------- --------- --------------
TOTAL OPERATING EXPENSES 479,113 - - - - 100,000 579,113
---------- ---------- -------- --------- --------- --------- --------------
NET OPERATING LOSS (225,293) 152,329 146,042 (9,128) 114,182 (100,000) 78,132
NON-OPERATING EXPENSES
INTEREST 24,380 - - - - 288,842 313,222
AMORTIZATION 8,214 - - - - - 8,214
---------- ---------- -------- --------- --------- --------- --------------
NET LOSS $(257,887) $ 152,329 $146,042 $ (9,128) $114,182 $(388,842) $ (243,304)
========== ========== ======== ========= ========= ========= ==============
BASIC AND DILUTED NET
INCOME PER COMMON
SHARE (G) $ (0.06)
==============
BASIC AND DILUTED COMMON
SHARES OUTSTANDING (G) 4,062,010
==============
</TABLE>
RECKSON SERVICE INDUSTRIES INC.
NOTES TO PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(a) Reflects the Company's historical operations for the period ended
December 31, 1997 which includes the operations of Dobie Center for the
period from July 15, 1997 through December 31, 1997 and ACLC for the
period from October 17, 1997 through December 31, 1997 and interest
income from OnSite for the period from December 5, 1997 through December
31, 1997 on a $325,000 loan.
(b) Reflects the pre-acquisition equity in earnings of Dobie Center, a mixed
use student housing retail property in Austin, Texas for the period from
January 1, 1997 to July 14, 1997 based on net income of $652,838, which,
as a result of RSVP's, 33 1/3% interest in a joint venture that owns 70%
of Dobie Center, results in an adjustment for equity in earnings of
$152,329.
(c) Reflects the pre-acquisition equity in earnings of ACLC for the period
from January 1, 1997 to October 16, 1997 based on net income of
$575,800, which as a result of RSVP's 33 1/3% interest in a joint
venture that owns 76.09% of ACLC results in an adjustment for equity in
earnings of $146,042.
(d) Reflects the pre-acquisition equity in loss of Reckson Executive
Centers, LLC for the year ended December 31, 1997 based on a net loss of
$92,202, which as a result of the Company's 9.9% interest in Reckson
Executive Center, LLC, results in an adjustment for equity in loss of
$9,128.
(e) Reflects the interest income on the $975,000 advanced to OnSite at an
interest rate of 12% for the year ended December 31, 1997.
(f) Reflects the effect of an increase in interest costs associated with
borrowings from Reckson Operating Partnership, L.P. to fund the
acquisition of the Acquired Investments at a 12% interest rate and
incremental general and administrative costs of $100,000, which
represent the cost of operating the business.
(g) Basic and diluted pro forma net (loss) per share of common stock is
based upon 4,062,010 shares outstanding.
Report of Independent Auditors
Board of Directors of
Reckson Service Industries, Inc.
We have audited the accompanying balance sheet of Reckson Service Industries,
Inc. (the "Company") as of December 31, 1997 and the related statements of
operations, shareholders' equity and cash flows for the period from July 15,
1997 (commencement of operations) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1997, and the results of its operations and its cash flows for the period
from July 15, 1997 (commencement of operations) to December 31, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
March 10, 1998
Reckson Service Industries, Inc.
Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets
Cash $ 129,704
Investment in RO Partners Management, LLC (Note 3) 3,868,093
Investment in ACLC (Note 3) 1,652,165
Organization and pre-acquisition costs (net of
amortization of $8,214) 681,694
Affiliate receivable (Note 5) 832,854
Loan receivable (Note 5) 325,000
Other assets 30,185
----------------
Total assets $7,519,695
================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 119,384
Loans payable to Affiliates (Note 5) 3,177,857
----------------
Total liabilities 3,297,241
Commitments (Note 6) -
Shareholders' equity (Note 1 and 4):
Common Stock, $.01 par value 10
Additional paid-in capital 4,480,331
Retained earnings (257,887)
----------------
Total shareholders' equity 4,222,454
----------------
Total liabilities and shareholders' equity $7,519,695
================
</TABLE>
See accompanying notes.
Reckson Service Industries, Inc.
Statement of Operations
Period from July 15, 1997 (Commencement of Operations)
to December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Equity in earnings of RO Partners Management, LLC $245,593
Equity in loss of ACLC (22,156)
Interest income 30,383
----------------
Total revenues 253,820
----------------
Expenses:
General and administrative expenses 479,113
----------------
Total operating expenses 479,113
Net operating loss (225,293)
Non operating expenses:
Interest 24,380
Amortization 8,214
----------------
Net loss $(257,887)
================
</TABLE>
See accompanying notes.
Reckson Service Industries, Inc.
Statement of Shareholders' Equity
Period from July 15, 1997 (Commencement of Operations)
to December 31, 1997
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock issued-
July 15, 1997 $ 10 $4,480,331 - $4,480,341
Net loss - - $ (257,887) (257,887)
---------------------------------------------------------------
Shareholders' equity
December 31, 1997 $ 10 $4,480,331 $ (257,887) $4,222,454
===============================================================
</TABLE>
See accompanying notes.
Reckson Service Industries, Inc.
Statement of Cash Flows
Period from July 15, 1997 (Commencement of Operations) to December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net loss $ (257,887)
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization 8,214
Changes in operating assets and liabilities:
Organization costs (524,129)
Other assets (30,185)
Accounts payable and accrued expenses 119,384
----------------
Net cash used in operating activities (684,603)
----------------
INVESTING ACTIVITIES
Investment in RO Partners Management, LLC (3,868,093)
Investment in ACLC (1,652,165)
Pre-acquisition costs (165,779)
----------------
Net cash used in investing activities (5,686,037)
----------------
FINANCING ACTIVITIES
Capital contributions 4,480,341
Proceeds from Affiliate loans 3,177,857
Loan advances to affiliate (832,854)
Loan receivable (325,000)
----------------
Net cash provided by financing activities 6,500,344
----------------
Net increase in cash 129,704
Cash beginning of period -
----------------
Cash end of period $ 129,704
================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ -
================
</TABLE>
See accompanying notes.
Reckson Service Industries, Inc.
Notes to Financial Statements
December 31, 1997
1. SUMMARY OF SIGNIFICANT TRANSACTIONS
Reckson Service Industries, Inc. ( "RSI" or the "Company") was formed on July
15, 1997 to engage in the business of providing commercial services to
properties owned by Reckson Operating Partnership, L.P. ("ROP"), whose
general partner is Reckson Associates Realty Corp. ("Reckson"), and its
tenants and third parties and to invest in a real estate venture capital
fund. The Company will operate under an agreement between the Company and
ROP (the "Intercompany Agreement"). Under the Intercompany Agreement, the
Company and ROP agree, subject to certain terms, to provide each other with
first refusal rights to participate in certain transactions.
In connection with the initial capitalization of RSI, ROP contributed
$4,256,324 for a 95% nonvoting equity interest and certain Reckson management
contributed notes of $224,017 to the Company in exchange for a 5% voting
ownership interest. On October 29, 1997, the notes were paid.
Subsequent to the effectiveness of the Company's Registration Statement on
Form S-1, 95% of the common stock of RSI will be distributed (the
"Distribution") to holders of common shares of Reckson and unitholders of
ROP. Immediately prior to the Distribution, the shares of non-voting common
stock held by ROP will be exchanged by RSI for RSI common shares. Each share
of the Company's Common Stock issued in the Distribution is expected to be
accompanied by one Preferred Share Purchase Right. In addition,
simultaneously with the Distribution, the Company will issue rights to its
stockholders to subscribe for the purchase of additional shares of common
stock of the Company.
The Company owns a 33 1/3% interest in RO Partners Management, LLC ("RO"),
the remaining interest in RO is held 33 1/3% by Jon L. Halpern and 33 1/3% by
an independent third party investor. RO is the general partner of Reckson
Opportunity Partners, L.P. ("Opportunity Partners") predecessor to Reckson
Strategic Venture Partners ("RSVP"). RSVP was formed on January 23, 1998 to
succeed to the operating activities of Opportunity Partners. The Company is
the 100% common equity owner and managing member of RSVP and PaineWebber Real
Estate Securities, Inc. ("PWRES") is a non-managing member and preferred
equity owner. It is anticipated that future investments by the Company in
real estate venture capital fund activities will be conducted through RSVP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of RSI include the Company's equity
interest in RO and its equity interest in American Campus Lifestyles
Companies, L.L.C. ("ACLC").
Reckson Service Industries, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
LONG-LIVED ASSETS
At inception, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which establishes methods of valuation for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used. The adoption of this statement had no material
impact on the accompanying financial statements.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," ("FAS No. 123") requires the use
of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, no compensation expense was recognized
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant. (See Note 4)
EQUITY INVESTMENTS
The Company accounts for its investment of less than 50% in other entities
using the equity method.
INCOME TAXES
At inception, the Company adopted SFAS No. 109, "Accounting for Income Taxes"
("SFAS No. 109"), which prescribes an asset and liability method of
accounting for income taxes. Under SFAS No. 109, deferred tax assets are to
be recognized unless it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Reckson Service Industries, Inc.
Notes to Financial Statements (continued)
3. INVESTMENTS
The Company has invested $3.62 million in RO, which contributed such amount
to Opportunity Partners. Opportunity Partners invested approximately $10.8
million to acquire a 70% interest in Dobie Center, L.P., a mixed use student
housing and retail property located in Austin, Texas.
Substantially all of RO's assets, liabilities, revenues and expenses relate
to its investment in Dobie Center. Summarized financial information and a
summary of the Company's investment in and share of income from RO follows:
BALANCE SHEET
DECEMBER 31, 1997
-----------------
Property and equipment, less accumulated depreciation $35,345,013
Other assets 6,700,605
-----------------
Total assets $42,045,618
=================
Mortgage payable $20,280,500
Other liabilities 5,195,624
-----------------
Total liabilities 25,476,124
-----------------
Minority interest 4,915,462
Members' equity 11,654,032
Less: Other members' equity (7,785,939)
-----------------
Net investment in RO $3,868,093
=================
Reckson Service Industries, Inc.
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
STATEMENT OF INCOME
PERIOD FROM
JULY 15,
1997 TO
DECEMBER 31, 1997
-----------------
Rental income $4,265,584
Interest income 102,971
Other income 434,264
-----------------
Total income 4,802,819
-----------------
Property operating expenses 1,691,906
General and administrative expenses 663,337
Interest expense 875,019
Depreciation and amortization 381,292
Non-recurring expense 221,222
-----------------
Total expenses 3,832,776
-----------------
Minority interest 233,264
Net income 736,779
Less: Other members' share 491,186
-----------------
Company's share $245,593
=================
The Company contributed $1.51 million to and acquired a 33 1/3% interest in
RFG Capital Management Partners ("RFG Capital") whose sole net investment is,
a 76.09% interest in ACLC, a student housing enterprise which owns, develops,
constructs, manages and acquires, on-and off campus student housing project.
As of December 31, 1997, the excess of the Company's investment over its
share of the equity in the underlying net assets of the joint venture
("Excess Investment") was $190,920. This Excess Investment is being
amortized over the life of the investment.
Reckson Service Industries, Inc.
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Summarized financial information and a summary of the Company's investment in
and share of income from ACLC follow:
BALANCE SHEET
DECEMBER 31, 1997
-----------------
Investment in leasehold estates, less
accumulated depreciation: $30,042,101
Other assets 4,035,570
-----------------
Total assets 34,077,671
-----------------
Notes payable 25,635,208
Other liabilities 3,633,473
-----------------
Total liabilities 29,268,681
-----------------
Minority interest 425,254
Members' equity 4,383,736
Less: other members' equity (2,922,490)
-----------------
Company's share of the equity in
underlying net assets of ACLC 1,461,245
Excess investment 190,920
-----------------
Net investment in ACLC $ 1,652,165
=================
Reckson Service Industries, Inc.
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
STATEMENT OF OPERATIONS
PERIOD FROM
OCTOBER 17,
1997 TO
DECEMBER 31,
1997
-----------------
Rental income $ 980,402
Other income 504,252
-----------------
Total income 1,484,654
-----------------
General and administrative expenses 612,682
Property operating expenses 353,912
Interest expense 452,864
Depreciation 152,550
-----------------
Total expenses 1,572,008
-----------------
Minority interest (20,886)
Net loss (66,468)
Less: other members' share (44,312)
-----------------
Company's share $ (22,156)
=================
4. SHAREHOLDERS' EQUITY
The Company has established the 1998 stock option plan (the "Plan") for the
purpose of attracting and retaining executive officers, directors and other
key employees. Pursuant to the Plan 3,655,809 of the Company's authorized
shares have been reserved for issuance under the Plan. On January 10, 1998,
the Company granted options to purchase 542,890 of the Company's common
shares at an exercise price of $1.10 per share based on the fair value on the
date of grant, which the board of directors of the Company have concluded to
be book value on the date of grant.
Reckson Service Industries, Inc.
Notes to Financial Statements (continued)
5. TRANSACTIONS WITH RELATED PARTIES
ROP has advanced the Company $2,943,210, to fund the purchase of its interest
in ACLC and for other general operating expenses. These advances bear
interest at 12% per annum.
On August 28, 1997 the Company made an unsecured loan of $666,666 to RFG
Capital. In addition, the Company advanced RFG Capital $166,188. The note
and advance bear interest at 12% per annum.
RSI acquired its interests in ACLC and Dobie Center from a Rechler family
entity for $5.13 million. Such entity had acquired the interests in ACLC and
the Dobie Center in 1997 for $5.06 million in contemplation of transferring
such interest to RSI. The difference represents interest carry costs.
The Company advanced On-Site Venture L.L.C. ("On-Site") $325,000 in December
1997 and an additional $650,000 through March 10, 1998 to fund certain
operating costs. The advances are evidenced by subordinated loans which bear
interest at a rate of 12% per annum and mature on March 1, 1999 (See Note 7).
6. FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires RSI to disclose the estimated fair
values of its financial instrument assets and liabilities. The carrying
amounts approximate fair value for cash and cash equivalents because of the
short maturity of those instruments. For the loans payable to affiliates the
estimated fair value approximates the recorded balance.
7. SUBSEQUENT EVENTS
RSI has contracted to acquire a 58.69% equity interest in On-Site, a company
that provides advanced telecommunications systems and services within
commercial and residential buildings and/or building complexes. Under the
terms of the contract, the Company has also committed to contribute $6.5
million to On-Site. The subordinated loans will be converted into
subordinated notes convertible at the option of the Company, which when
converted, together with the contributions of the $6.5 million pursuant to
its commitment will comprise a 58.69% common equity interest.
Reckson Service Industries, Inc.
Notes to Financial Statements (continued)
7. SUBSEQUENT EVENTS (CONTINUED)
RSI has obtained an option from Reckson Management Group, Inc., a company in
which ROP owns a 97% non-voting equity interest to acquire a majority equity
interest in a privately held national executive office suites business. The
Company's option to acquire this equity interest has a five year term.
In February 1998, RSVP Holdings, LLC, the managing member of RSVP ("RSVP
Holdings") entered into employment agreements with two highly experienced
real estate professionals (the "Managing Directors"). The agreements provide
for a base salary of $500,000 and have a seven-year term. In addition to the
base salary each Managing Director has received a $3.0 million grant of
common stock of Reckson (the "Reckson Stock") which will vest equally over
five years. The Reckson Stock will be purchased by the Company and
contributed to RSVP Holdings. The Company is a managing member and 100%
owner of the common equity of RSVP Holdings. New World Realty LLC ("New
World"), an entity owned by the managing directors, acts as a managing member
of RSVP Holdings and owns a carried interest which provides for the Managing
Directors to receive a share in the profits of RSVP after the Company has
received certain minimum returns and a return of capital. In addition, it is
anticipated that New World will receive transaction fees of up to $1 million
dollars a year for identifying investment opportunities for RSVP.
The Company has entered into an agreement which provides for PWRES to invest
up to $200 million in RSVP in the form of a preferred equity interest. In
connection with the PWRES preferred equity financing the Company paid a
commitment fee of 2.5% of the total preferred equity investment of which
$1,400,000 was paid to an entity owned by one of the Managing Directors who
is a former employee of PWRES.
Subsequent to year end the Company contributed its equity interest in ACLC to
RSVP.
Subsequent to year end the Company purchased Reckson's 9.9% equity interest
in Reckson Executive Centers, LLC for $200,000.
Report of Independent Auditors
Members of
RO Partners Management, L.L.C.
We have audited the accompanying consolidated balance sheet of RO Partners
Management, L.L.C. (the "Company") as of December 31, 1997 and the related
consolidated statements of income for the period from June 4, 1997
(commencement of operations) to December 31, 1997, and for the periods from
June 4, 1997 through July 14, 1997 and July 15, 1997 through December 31,
1997, and members' equity and cash flows for the period from June 4, 1997
(commencement of operations) to December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1997, and the consolidated results of its operations for the
period from June 4, 1997 (commencement of operations) to December 31, 1997,
and for the periods from June 4, 1997 through July 14, 1997 and July 15, 1997
through December 31, 1997 and its cash flows for the period from June 4, 1997
(commencement of operations) to December 31, 1997, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
New York, New York
March 10, 1998
RO Partners Management, L.L.C.
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $ 5,020,110
Due from affiliate 117,606
Accounts receivable 952,662
Other current assets 7,668
-----------------
Total current assets 6,098,046
Fixed assets: (Note 2)
Land, building and equipment 35,751,430
Accumulated depreciation (406,417)
-----------------
Total fixed assets 35,345,013
Organization costs (net of amortization of $15,248) 336,525
Deposit contract 266,034
-----------------
Total assets $42,045,618
=================
'' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,019,912
Tenant security deposits 224,942
Deferred income 3,510,099
Current portion mortgage notes 1,000,000
Other liabilities 35,300
-----------------
Total current liabilities 5,790,253
Due to Affiliate (Note 5) 405,371
Mortgage notes payable 19,280,500
-----------------
Total liabilities 19,685,871
Minority interest 4,915,462
Members' equity 11,654,032
-----------------
Total equity $42,045,618
=================
</TABLE>
See accompanying notes.
RO Partners Management, L.L.C.
Consolidated Statement of Income
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD JUNE FOR THE PERIOD JULY
4, 1997 PERIOD JUNE 15, 1997
THROUGH 4, 1997 THROUGH
DECEMBER 31, THROUGH JULY DECEMBER 31,
1997 14, 1997 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenues:
Tower rental revenue $3,737,698 $357,865 3,379,833
Mall rental revenue 720,388 68,973 651,415
Garage revenue 259,148 24,812 234,336
Interest and other revenue 144,122 13,799 130,323
-------------- -------------- ---------------
Total revenues $4,861,356 $465,449 $4,395,907
Operating expenses:
Tower expenses 1,581,703 151,441 1,430,262
Mail expenses 289,347 27,703 261,644
Administrative/other 651,309 62,359 588,950
-------------- -------------- ---------------
Total operating expenses 2,522,359 241,503 2,280,856
Operating income 2,338,997 223,946 2,115,051
Other income 184,621 --- 184,621
Non-operating expenses:
Interest expense 812,814 77,823 734,991
Depreciation 421,665 40,373 381,292
Non-recurring expense 244,645 23,423 221,222
-------------- -------------- ---------------
Total non-operating expense 1,479,124 141,619 1,337,505
-------------- -------------- ---------------
Minority interest 257,962 24,698 233,264
-------------- -------------- ---------------
Net income $ 786,532 57,629 729,903
============== ============== ===============
</TABLE>
See accompanying notes.
RO Partners Management, L.L.C.
Consolidated Statement of Members' Equity
Period from June 4, 1997 (Commencement of Operations) to December 31, 1997
MEMBERS' EQUITY
---------------
Members' equity June 4, 1997 $ ---
Capital contributions - June 26, 1997 10,867,500
Net income 786,532
---------------
Members' equity - December 31, 1997 $ 11,654,032
===============
See accompanying notes.
RO Partners Management, L.L.C.
Consolidated Statement of Cash Flows
Period from June 4, 1997 (Commencement of Operations) to December 31, 1997
Operating activities
Net income $ 786,532
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 421,665
Minority interest 257,962
Gain on sale of securities (184,621)
Changes in operating assets and liabilities:
Accounts Receivable (952,662)
Other assets (7,668)
Deferred Rents 3,510,099
Accounts payable and accrued expenses 1,055,212
Tenants security deposits 224,942
-----------
Net cash provided by operating activities 5,111,461
-----------
INVESTING ACTIVITIES
Acquisition of building (31,093,930)
Acquisition costs (617,807)
Purchase of securities (4,038,556)
Proceed from sale of securities (net of transaction costs) 4,223,177
-----------
Net cash used in investing activities (31,527,116)
===========
FINANCING ACTIVITIES
Capital contributions 10,867,500
Proceeds from mortgages 20,280,500
Loan from affiliate 405,371
Payments to affiliate, net (117,606)
-----------
Net cash provided by financing activities 31,435,765
-----------
Net increase in cash 5,020,110
Cash beginning of period -
-----------
Cash end of period $5,020,110
===========
See accompanying notes.
RO Partners Management, L.L.C.
Notes to Consolidated Financial Statements
December 31, 1997
1. SUMMARY OF SIGNIFICANT TRANSACTIONS
DESCRIPTION OF BUSINESS
RO Partners Management, LLC ("RO" or the "Company") was formed on June 4,
1997 as the 99.9% general partner of Reckson Opportunity Partners, L.P.
("Opportunity Partners"). The .1% limited partner interest in RO is held by
an executive officer of Reckson Service Industries, Inc. ("RSI").
Opportunity Partners is the predecessor entity to Reckson Strategic Venture
Partners ("RSVP") a real estate venture capital fund which will invest in
real estate and real estate-related operating companies. RSVP was formed on
January 23, 1998 to succeed to the operating activities of Opportunity
Partners. RSVP's common equity is 100% owned by RSI. RSVP's strategy is to
identify and acquire interests in established enterprises in market sectors
which are in early stages of their growth cycle or offer unique circumstances
for attractive investments as well as a platform for future growth. It is
anticipated that future investments by RSI in real estate venture capital
fund activities will be conducted through RSVP.
ORGANIZATION AND FORMATION OF THE COMPANY
The Company's general partner, RSI, has invested approximately $3,620,000 in
the Company for a 33 1/3% equity interest. The two other partners, Jon L.
Halpern and an unrelated third party investor, each contributed approximately
$3,620,000 to the Company for their respective 33 1/3% interest. RSI will
operate under an agreement between it and Reckson Operating Partnership, L.P.
("ROP"), under which RSI and ROP agree, subject to certain terms, to provide
each other with first refusal rights to participate in certain transactions.
INVESTMENT
On June 26, 1997, the Company invested approximately $10.8 million in
Opportunity Partners which acquired a 70% interest in Dobie Center
Properties, Ltd. ("Dobie"), a mixed use student housing and retail property
located in Austin, Texas.
Dobie, which is located immediately adjacent to the University of Texas at
Austin, consists of the Dobie tower, a 932-bed, 27-story student residence
hall that is situated on top of the Dobie mall, a 96,000-square foot retail
mall. The facility also includes a 644-car commercial parking garage.
RO Partners Management, L.L.C.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of RO Partners Management,
LLC include the accounts of the Company and Opportunity Partners. The
Company consolidates all entities in which it has a 50% or greater interest.
All significant intercompany balances and transactions have been eliminated
in consolidation.
The minority interest at December 31, 1997 represent a 30% interest in Dobie.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
The Company maintains cash balances at four banks. Cash accounts at banks
are insured by the FDIC up to $100,000. Amounts in excess of insured limits
were approximately $4,639,368 at December 31, 1997.
LONG-LIVED ASSETS
Statement of Financial Accounting Standard ("SFAS") No.121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" requires that long-lived assets to be held and used be reviewed for
impairment whenever events or circumstances indicate that the carrying amount
of an asset may not be recoverable. As of December 31, 1997, the Company has
determined that their long-lived assets are not impaired.
RO Partners Management, L.L.C.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS AND DEPRECIATION
Fixed assets are recorded at cost. Repairs and maintenance of fixed assets
are charged to operations. Major improvements are capitalized. The
estimated useful lives of the assets are as follows:
FIXED ASSETS AND DEPRECIATION
YEARS
-----------
Furniture, fixtures & equipment 5-10
Building & improvements 40
Mall renovation and improvements 5-40
Depreciation is computed using the straight-line method for financial
reporting purposes. Depreciation expense was $406,417 for the period June 4,
1997 through December 31, 1997. Upon retirement, sale, or other disposition
of property and equipment, the cost and related accumulated depreciation are
removed from the related accounts and the resulting gains or losses are
included in operations.
OTHER ASSETS AND AMORTIZATION
Organization costs are being amortized over 60 months on a straight-line
basis. Amortization expense was $15,248 for the period from June 4, 1997
through December 31, 1997.
REVENUE RECOGNITION
STUDENT HOUSING
Upon execution of student dormitory contracts, Dobie records a receivable for
the full value of the contract with an off-setting increase to deferred
revenue. Income is then recognized on a straight-line basis over the
remaining life of the contracts.
RO Partners Management, L.L.C.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
MALL TENANTS
Minimum rental revenue is recognized on a straight-line basis over the term
of the lease. The excess of rents recognized over amounts contractually due
are included in accounts receivable on the accompanying consolidated balance
sheet.
GARAGE REVENUES
Upon execution of semester garage contracts, Dobie records the cash received
pursuant to each contract as deferred revenue. Income is then recognized on
a straight-line basis over the life of the contracts. Daily parking revenues
are recognized as received.
INCOME TAXES
The Company is not subject to federal or state income taxes. As such, no
provision for these taxes has been made, since the aforementioned taxes are
the responsibility of the individual members of the Company. The Company is
subject to the New York State LLC/LP fee.
3. SALE OF SECURITIES
During 1997, the Company invested approximately $4,000,000 in marketable
securities. These investments were sold for total proceeds of approximately
$4,400,000, resulting in a gain of approximately $185,000, net of transaction
costs.
RO Partners Management, L.L.C.
Notes to Consolidated Financial Statements (continued)
4. MORTGAGE NOTES PAYABLE
The mortgage notes payable which are collateralized by the Company's interest
in the mixed use student housing and retail property owned by Dobie Center
Properties, Ltd., have outstanding balance as of December 31, 1997 as
follows:
DECEMBER 31, 1997
-----------------
First mortgage notes payable - stated interest at
7.25% at December 31, 1997 maturing August 30, 2002 $17,380,500
Second mortgage note payable - fixed interest rate at
7.5%, maturing August 30, 2002 2,900,000
-----------------
$20,280,500
=================
The following is a schedule of future maturities of the Mortgage Notes
Payable debt at December 31, 1997:
1998 $ 1,000,000
1999 1,000,000
2000 1,000,000
2001 1,000,000
2002 16,280,500
-----------
$20,280,500
===========
At the option of the holders of the first mortgage notes, the entire
principal balance and accrued and unpaid interest thereon is due and payable
in full upon the occurrence of an event of default, as defined.
An additional capital improvement reserve of $1,219,500 is available through
September 30, 1998 on the First mortgage notes.
RO Partners Management, L.L.C.
Notes to Consolidated Financial Statements (continued)
4. MORTGAGE NOTES PAYABLE (CONTINUED)
At December 31, 1997, the interest rate on the first mortgage notes payable
is fixed at the applicable LIBOR rate selected by the Company in accordance
with the provisions of the notes defining the option interest period
elections. Interest is payable in arrears on each quarterly roll over date
with the stated principal repayment as set forth in the note agreements. A
portion of the principal balance of the notes is to repaid in twenty-eight
(28) consecutive quarterly installment payments before the maturity date of
the notes.
The Second Mortgage Note Payable was obtained on September 1, 1995. Interest
payments are to be made quarterly, with the entire principal balance due at
the maturity date.
5. RELATED PARTIES
Management fees paid to an affiliated company were $120,483 for the period
from June 4, 1997 through December 31, 1997.
ROP, and another affiliate have advanced the Company approximately $340,000
and $65,000, respectively. The advances bear interest at 12% per annum.
6. FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires Dobie to disclose the estimated
fair values of its financial instrument assets and liabilities. The carrying
amounts approximate fair value for cash and cash equivalents and the
improvement reserve because of the short maturity of those instruments. For
the first and second mortgage notes payable the estimated fair value
approximates the recorded balance.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management of
Dobie Center:
We have audited the accompanying balance sheets of Dobie Center as of Decem-
ber 31, 1996 and 1995, and the related combined statements of operations,
changes in project equity (deficit), and cash flows for each of the three
years in the period ending December 31, 1996. These financial statements and
the schedule referred to below are the responsibility of the Projects'
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dobie Center as of Decem-
ber 31, 1996 and 1995, and the results of its operations and its cash flows
for the each of the three years in the period ending December 31, 1996, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule III attached to the
financial statements is presented for purposes of complying with the Securi-
ties and Exchange Commission's rules and is not part of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
Dallas, Texas,
April 4, 1997
DOBIE CENTER
------------
BALANCE SHEETS-DECEMBER 31, 1996 AND 1995
-----------------------------------------
<TABLE>
<CAPTION> As of December 31,
ASSETS 1996 1995
------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,678,742 $ 2,403,348
Accounts receivable-
Student contracts 553,433 578,400
Straight line rent 77,614 109,372
Other 139,625 89,280
Prepaid insurance 59,496 62,579
------------- -------------
Total current assets 3,508,910 3,242,979
FIXED ASSETS:
Land 2,263,599 2,263,599
Building and improvements 11,826,888 10,364,362
Mall renovations and improvements 5,438,501 5,250,550
Furniture, fixture, and equipment 1,678,839 1,437,245
Less- Accumulated depreciation (2,960,020) (2,004,563)
------------- -------------
Total fixed assets 18,247,807 17,311,193
OTHER ASSETS:
Lease commissions 235,172 214,977
Organization costs 10,195 10,195
Software 117,223 150,573
Loan fees 599,443 599,443
Less- Accumulated amortization (292,123) (165,915)
------------- -------------
Total other assets 669,910 809,273
------------- -------------
Total assets $22,426,627 $21,363,445
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
DOBIE CENTER
------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
As of December 31,
LIABILITIES AND PROJECT EQUITY (DEFICIT) 1996 1995
---------------------------------------- ------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 908,435 $ 746,020
Accrued interest 126,454 259,808
Deferred income 3,240,553 3,002,908
Tenant deposits 234,609 221,005
Note payable - Landesbank Hessen 462,500 393,750
Note payable - Bayerische Landesbank 462,500 393,750
------------- -------------
Total current liabilities 5,435,051 5,017,241
LONG-TERM LIABILITIES:
Note payable - Landesbank Hessen 8,142,500 8,105,000
Note payable - Bayerische Landesbank 8,142,500 8,105,000
Notes payable - Proeller Brothers 2,900,000 2,900,000
------------- -------------
Total long-term liabilities 19,185,000 19,110,000
------------- -------------
Total liabilities 24,620,051 24,127,241
------------- -------------
PROJECT EQUITY (DEFICIT) (2,193,424) (2,763,796)
------------- -------------
Total liabilities and
project equity (deficit) $ 22,426,627 $ 21,363,445
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
DOBIE CENTER
------------
STATEMENTS OF CHANGES IN PROJECT EQUITY (DEFICIT)
-------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
-----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CAPITAL BALANCE, December 31, 1993 $(2,591,791)
Distributions, net (983,398)
Net income 208,761
-------------
CAPITAL BALANCE, December 31, 1994 (3,366,428)
Contributions, net 1,216,622
Net loss (613,990)
-------------
CAPITAL BALANCE, December 31, 1995 (2,763,796)
Distributions, net (77,378)
Net income 647,750
-------------
CAPITAL BALANCE, December 31, 1996 $(2,193,424)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
DOBIE CENTER
------------
COMBINED STATEMENTS OF OPERATIONS
---------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995
------------------------------------- ----------------------------------
Tower Mall Combined Tower Mall Combined
------------ ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental revenue $ 6,318,380 $ 850,001 $7,168,381 $6,026,227 $ 965,479 $6,991,706
Other revenue 297,028 313,921 610,949 308,361 247,912 556,273
Garage 498,344 - 498,344 409,110 - 409,110
Interest and other income 122,793 13,542 136,335 188,680 14,751 203,431
------------ ---------- ----------- ----------- ----------- ----------
Total revenues 7,236,545 1,177,464 8,414,009 6,932,378 1,228,142 8,160,520
OPERATING EXPENSES:
Wages and contract labor 1,329,517 116,318 1,445,835 1,348,632 116,888 1,465,520
Food cost 746,881 - 746,881 714,029 - 714,029
Administrative 895,685 233,116 1,128,801 792,058 228,863 1,020,921
Utilities 604,157 217,165 821,322 592,312 164,468 756,780
Contract services 166,678 74,796 241,474 282,816 75,658 358,474
Maintenance 172,499 206,876 379,375 138,424 194,252 332,676
Depreciation and amortization 807,793 273,872 1,081,665 574,667 257,276 831,943
Property tax 328,453 77,314 405,767 295,548 65,796 361,344
Nonrecurring expenses 45,238 3,345 48,583 4,282 1,427 5,709
------------ ---------- ----------- ----------- ----------- ----------
Total operating expenses 5,096,901 1,202,802 6,299,703 4,742,768 1,104,628 5,847,396
------------ ---------- ----------- ----------- ----------- ----------
NET OPERATING INCOME (LOSS) 2,139,644 (25,338) 2,114,306 2,189,610 123,514 2,313,124
NONOPERATING EXPENSES:
Interest expense 1,173,245 293,311 1,466,556 2,325,059 602,055 2,927,114
------------ ---------- ----------- ----------- ----------- ----------
NET INCOME (LOSS) $ 966,399 $(318,649) $ 647,750 $(135,449) $(478,541) $(613,990)
============ ========== =========== =========== =========== ==========
</TABLE>
(table continued)
<TABLE>
<CAPTION>
For the Years Ended December 31, For the
Nine Months
Ended
September 30,
1994 1996
-------------------------------------------------- -------------
Tower Mall Combined Combined
------------ ----------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Rental revenue $5,578,081 $ 893,883 $6,471,964 $5,106,385
Other revenue 173,422 307,748 481,170 469,319
Garage 334,725 - 334,725 357,808
Interest and other income 27,664 - 27,664 102,250
------------ ----------- ------------- -------------
Total revenues 6,113,892 1,201,631 7,315,523 6,035,762
OPERATING EXPENSES:
Wages and contract labor 1,454,214 24,022 1,478,236 1,067,388
Food cost 643,900 - 643,900 507,006
Administrative 938,195 99,343 1,037,538 847,144
Utilities 622,442 161,194 783,636 587,605
Contract services 120,692 112,194 232,886 284,836
Maintenance 209,677 115,141 324,818 208,665
Depreciation and amortization 422,482 140,827 563,309 814,493
Property tax 281,042 70,260 351,302 299,946
Nonrecurring expenses 26,166 8,722 34,888 18,841
------------ ----------- ------------- -------------
Total operating expenses 4,718,810 731,703 5,450,513 4,635,924
------------ ----------- ------------- -------------
NET OPERATING INCOME (LOSS) 1,395,082 469,928 1,865,010 1,399,838
NONOPERATING EXPENSES:
Interest expense 1,242,187 414,062 1,656,249 1,076,106
------------ ----------- ------------- -------------
NET INCOME (LOSS) $ 152,895 $ 55,866 $208,761 $ 323,732
============ =========== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
DOBIE CENTER
------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the
Nine Months
Ended
For the Years Ended December 31, September 30,
---------------------------------------
1996 1995 1994 1996
---------- ------------ ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss) $ 647,750 $ (613,990) $ 208,761 $ 323,732
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities-
Depreciation and amortization 1,081,665 831,943 563,309 814,495
Write-off of unamortized discount - 1,280,696 - -
Amortization of discount on notes payable - 220,823 655,805 (29,450)
Decrease (increase) in accounts receivable 6,380 (75,559) (55,203) (1,413,895)
Decrease (increase) in prepaid insurance 3,083 (6,370) (2,884) (21,458)
Increase in lease commissions (20,195) (44,452) (16,117) -
Increase in loan costs - (599,443) - -
Increase (decrease) in accounts payable and
accrued expenses 162,415 208,472 (75,824) (209,446)
Increase in deferred income 237,645 210,450 560,082 2,151,727
Increase (decrease) in accrued interest (133,354) 259,808 - (101,938)
Increase (decrease) in tenant deposits 13,604 13,324 12,023 (77,035)
---------- ------------ ------------- -------------
Total adjustments 1,351,243 2,299,692 1,641,191 1,113,000
---------- ------------ ------------- -------------
Net cash provided by operating activities 1,998,993 1,685,702 1,849,952 1,436,732
---------- ------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures, and equipment (241,594) (5,687) (11,315) (45,966)
Purchase of building and improvements (1,462,526) (83,815) - (1,268,460)
Increase in mall renovations and improvements (187,951) (1,260,979) (624,457) (1,032,326)
Decrease (increase) in software 33,350 (66,473) (84,100) 33,350
---------- ------------ ------------- -------------
Net cash used in investing activities (1,858,721) (1,416,954) (719,872) (2,313,402)
---------- ------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions, net - 1,216,622 - 27,061
Repayment of notes payable (787,500) (19,814,116) - (562,500)
Proceeds from notes payable 1,000,000 20,074,927 - 1,000,000
Distributions, net (77,378) - (983,398) -
---------- ------------ ------------- -------------
Net cash provided by (used in) financing
activities 135,122 1,477,433 (983,398) 464,561
---------- ------------ ------------- -------------
Net cash provided by (used in) operating,
investing, and financing activities 275,394 1,746,181 146,682 (412,109)
---------- ------------ ------------- -------------
CASH AND CASH EQUIVALENTS, beginning of year 2,403,348 657,167 510,485 2,403,348
---------- ------------ ------------- -------------
CASH AND CASH EQUIVALENTS, end of year $ 2,678,742 $ 2,403,348 $ 657,167 $ 1,991,239
========== ============ ============= =============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest expense $ 1,599,910 $ 1,256,836 $ 1,022,679 $ 1,076,106
========== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
DOBIE CENTER
------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996, 1995, AND 1994
---------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Located immediately adjacent to The University of Texas at Austin, Dobie
Center ("Dobie" or the "Project") consists of Dobie Tower, a 932-bed,
27-story student residence hall that sits on top of Dobie Mall, a
96,000-square foot retail mall. The mall includes student-oriented tenants
such as a copy/printing shop, student bookstore, movie theater, video store,
tanning salon, hair salon, video arcade, and a 500-seat food court. The
student-residence tower includes a full service cafeteria, state-of-the-art
computer center, fitness center, junior Olympic swimming pool, Jacuzzi,
volleyball court, basketball court, mini-theater, study rooms, meeting rooms,
and a 24-hour service desk. The facility also includes a 644-car commercial
parking garage.
Dobie is wholly owned by AustInvest I, Ltd. ("AustInvest"), which was formed
on March 30, 1992, under the laws of the state of Texas. AustInvest is a
limited partnership formed for the purpose of owning, operating, and managing
Dobie.
Leasing figures for the student residence hall for the fall 1996 semester
showed that the maximum capacity of 932 spaces, or beds, were occupied by
888 students (95%) with the remaining 44 spaces primarily occupied by
resident advisors (5%). Leasing figures for the student residence halls for
the Spring 1996 semester show that the maximum capacity of 932 spaces, or
beds, will be attained. This figure reflects spaces primarily occupied by
students (95%) with their supporting resident advisors (5%). At December 31,
1996, the retail mall occupancy rate was approximately 82%. The commercial
parking garage generates revenues from both contract parking (68%) and daily
parking (32%) fees.
The facility is staffed with nearly 100 employees responsible for all areas
of operation including business administration, residence life/student
development, food service, maintenance, housekeeping, and accounting.
Student services are administered by a professional management team in
conjunction with a paraprofessional staff consisting of a resident director
and 20 student resident assistants.
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared from the records of
the Project and include its assets, liabilities, revenues and expenses. The
accompanying financial statements do not include assets, liabilities, reve-
nues, or expenses pertaining solely to AustInvest.
Dobie uses the accrual method of accounting for financial reporting in
conformity with generally accepted accounting principles (GAAP). Therefore,
revenue is recorded as earned and costs and expenses are recorded as
incurred.
The allocation of income and expenses between the tower and mall are based on
actual results and estimates made by management. The income and expenses of
the garage are included with the income and expenses of the tower.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of preparing the statement of cash flows, unrestricted currency,
certificates of deposit, and money market accounts are considered cash, and
investments with an original maturity of one year or less are considered cash
equivalents.
Dobie maintains cash balances at two banks. Cash accounts at banks are
insured by the FDIC up to $100,000. Amounts in excess of insured limits were
approximately $2,633,741, $2,203,348, and $357,166, at December 31, 1996,
1995, and 1994, respectively.
ACCOUNTS RECEIVABLE
Accounts receivable include $553,433 of deferred student revenues. Upon
completion of dormitory contracts with students, Dobie records a receivable
for the full value of the contract with an off-setting increase to deferred
revenue. Income is then recognized over the life of the contracts from the
deferred revenue account.
Dobie generally considers all accounts receivable to be fully collectible.
Accordingly, no allowance for doubtful accounts has been recorded.
FIXED ASSETS AND DEPRECIATION
Fixed assets are recorded at cost. Repairs and maintenance of fixed assets
are charged to operations. Major improvements are capitalized. The
estimated useful lives of the assets are as follows:
Years
-----
Furniture, fixtures & equipment 5-10
Building & improvements 40
Mall renovation and improvements 5-40
Depreciation is computed using the straight-line method for financial report-
ing purposes. Depreciation expense was $955,457, $760,150, and $504,457 for
the years ended December 31, 1996, 1995, and 1994, respectively. Upon
retirement, sale, or other disposition of property and equipment, the cost
and related accumulated depreciation are removed from the related accounts
and the resulting gains or losses are included in operations. There were no
gains or losses for the years ended December 31, 1996, 1995, and 1994.
OTHER ASSETS AND AMORTIZATION
Lease commissions are being amortized over the life of the lease on a
straight-line basis. Organization costs and software are being amortized
over 60 and 36 months on a straight-line basis. Amortization expense was
$126,208, $71,793, and $58,852 for the years ended December 31, 1996, 1995,
and 1994, respectively.
FEDERAL INCOME TAXES
No income tax provision has been included in the financial statements since
profit or loss of Dobie Center is required to be reported by the respective
partners of AustInvest on their income tax returns.
2. LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Note payable to Landesbank Hessen-
Thuringen Girozentrale, stated interest at
7.25% and 7.625% at December 31, 1996 and
1995, respectively, maturing August 30,
2002 $8,605,000 $8,498,750 $ -
Note payable to Bayerische Landesbank
Girozentrale, stated interest at 7.25% and
7.625% at December 31, 1996 and 1995, re-
spectively, maturing August 30, 2002. 8,605,000 8,498,750 -
Note payable to Proeller Brothers, stated
interest at 7.5%, maturing August 30,
2002. 2,900,000 2,900,000 -
Note payable to partner, stated interest
at 10.0%, pay rate at 7.5% (at December
31, 1994), maturing May 1999 - - 2,067,231
Note payable to Lincoln National Life
Insurance Company, non-interest bearing,
maturing May 1999. - - 3,937,655
Note payable to partner, non-interest
bearing, maturing May 1999 - - 1,850,000
Note payable to Lincoln National Life
Insurance Company, stated interest at 10%,
pay rate of 7.5% (at December 31, 1994),
maturing May 1999 - - 11,771,730
------------ ------------ ------------
Total debt 20,110,000 19,897,500 19,626,616
------------ ------------ ------------
Less-
Discounts - - (1,485,605)
Current portion (925,000) (787,500) -
------------ ------------ ------------
Net long-term debt $19,185,000 $19,110,000 $18,141,011
============ ============ ============
</TABLE>
The following is a schedule of future maturities of long-term debt at
December 31, 1996:
1997 $ 925,000
1998 1,000,000
1999 1,000,000
2000 1,000,000
2001 1,000,000
Thereafter 15,185,000
On September 1, 1995, two mortgage payable balances were paid to Lincoln
National Life Insurance Company and AustInvest I Partners, Ltd., in the
amounts of $15,709,385 and $3,917,231, respectively. These two mortgage
payable balances, comprised of four promissory notes secured by Dobie, were
executed and delivered on March 25, 1992. A portion of the mortgage payable
to AustInvest I Partners, Ltd., in the amount of $2,067,231 was made in
connection with the restructuring of the notes. The one additional note to
AustInvest I Partners, Ltd., of $1,850,000 and the two notes to Lincoln
National Life Insurance Company of $15,709,385 were given in renewal and
extension of the outstanding balance of principal left owing and unpaid by
AustInvest I, Ltd. These three additional notes were assigned to AustInvest.
Two of the four notes were noninterest bearing and were held by Lincoln
National Life Insurance Company and AustInvest I Partners, Ltd., in the
amounts of $3,937,655 and $1,850,000, respectively. The noninterest bearing
note held by Lincoln National Life Insurance Company was being discounted at
7.5%. The noninterest bearing note held by AustInvest I Partners, Ltd., was
being discounted at 7.0%. Interest expense in 1995 includes $1,280,696 of
unamortized discount on notes payable written-off in conjunction with the
refinancing of the company's notes payable.
The notes described above were all paid off on September 1, 1995, via a
refinancing transaction. The total refinancing transaction costs of $599,443
have been capitalized over the seven-year note term. At the option of
Landesbank Hessen-Thuringen Girozentrale and Bayerische Landesbank
Girozentrale, the holders of the new notes, totaling $17,210,000 and
$16,997,500 at December 31, 1996 and 1995, respectively, the entire principal
balance and accrued and unpaid interest thereon shall become due and payable
in full upon the occurrence of any of the following events:
1. default in the payment of the principal balance on the maturity date of
August 30, 2002,
2. the occurrence of any other default, as defined, which has occurred and
has continued for more than five (5) business days after written notice
from the holder of such default, or
3. the occurrence of any other default or event by which, under the terms
of the other Loan documents, shall have occurred and have continued
after the expiration of any applicable grace and/or notice period set
forth in such other Loan documents.
An additional capital improvement reserve is available on the Landesbank
Hessen and Bayerische Landesbank loans. Dobie exercised its option to draw
the advance of $1,000,000 in 1996. No funds had been drawn on this reserve
as of December 31, 1995 and 1994. An additional $2,325,073 can be drawn by
Dobie prior to September 1, 1997, after which time no additional advances are
provided for in the note agreements. This reserve is not reflected on the
corresponding Balance Sheet.
At December 31, 1996 and 1995, the interest rate on the loan is fixed at the
applicable LIBOR rate selected by Dobie in accordance with the provisions of
the notes defining the option interest period elections. Interest is payable
in arrears on each quarterly roll over date with the stated principal repay-
ment as set forth in the note agreements. A portion of the principal balance
of the notes are to be repaid in twenty-eight (28) consecutive quarterly
installment payments before the maturity date of the notes. The interest
rate on this note in effect at December 31, 1996 and 1995, was 7.25% and
7.625%, respectively.
A loan of $2,900,000 was also obtained from Hubert Proeller, Arthur Proeller,
Hermann Proeller, and Manfred Proeller on September 1, 1995. The loan is due
on August 30, 2002, and is collateralized by a second mortgage on Dobie. The
interest rate is fixed at 7.5% per annum. Interest payments are to be made
quarterly, with the entire principal balance due at the maturity date.
The total cash paid for interest expense on all loans during 1996, 1995, and
1994 was $1,599,910, $1,256,836 and $1,022,679, respectively.
3. RELATED PARTIES
Management fees paid to an affiliated company were $395,677, $414,874, and
$332,707 for 1996, 1995, and 1994, respectively.
4. FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires Dobie to disclose the estimated
fair values of its financial instrument assets and liabilities. The carrying
amounts approximate fair value for cash and cash equivalents and the improve-
ment reserve because of the short maturity of those instruments. For Dobie's
mortgage payable and note payable (Proeller) it is presumed that estimated
fair value approximates the recorded book balance due to the recent refinanc-
ing.
5. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This state-
ment requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Dobie has adopted the principles of this statement in
1996. Its adoption did not have a material effect on the financial position
of Dobie.
SCHEDULE III
REAL ESTATE INVESTMENTS, ACCUMULATED DEPRECIATION AND AMORTIZATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Gross Amount at Which
Initial Cost Costs Carried at Close of Period
--------------------------------------- Capitalized --------------------------------------------
Related Building & Subsequent Buildings &
Description Encumbrance Land Improvements to Acquisition Land Improvements Totals
- ------------------ ------------ ---------- ------------ -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dobie Center $20,110,000 $2,263,599 $10,286,964 $ 6,978,425 $2,263,599 $17,265,389 $19,528,988
</TABLE>
(table continued)
<TABLE>
<CAPTION>
Accumulated
Depreciation Date of Date Depreciable
Description & Amortization Construction Acquired Lives(years)
- --------------- -------------- ------------ --------
<S> <C> <C> <C>
Dobie Center $ (2,131,214) 1969 4/23/92 5-40
</TABLE>
See accompanying notes to Schedule III
Notes To Schedule III
Real Estate Investments, Accumulated Depreciation and Amortization
A summary of activity for the Partnership's real estate investments and
accumulated depreciation and amortization is as follows:
<TABLE>
<CAPTION>
For Year Ended
Real estate investments: 1996
- ------------------------ ----------------
<S> <C>
Balance at beginning of year $ 17,878,511
Improvements 1,650,477
----------------
Balance at end of year $ 19,528,988
================
Accumulated depreciation and amortization:
- -----------------------------------------
Balance at beginning of year $ (1,444,221)
Depreciation (686,993)
----------------
Balance at end of year $ (2,131,214)
================
</TABLE>
Report of Independent Auditors
To the Management of
Dobie Center
We have audited the accompanying balance sheet of Dobie Center (the
"Project") as of December 31, 1997, and the related statements of income for
the year then ended, and for the periods from January 1, 1997 through June
26, 1997 and June 27, 1997 through December 31, 1997 and the related
statements of project equity (deficit) and cash flows for the year ended
December 31, 1997. These financial statements and the schedules referred to
below are the responsibility of the Projects' management. Our responsibility
is to express an opinion on these financial statements and the schedules
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Dobie Center as of
December 31, 1997, and the results of its operations for the year then ended
and for the period from January 1, 1997 through June 26, 1997 and June 27
through December 31,1997 and its cash flows for the year ended December 31,
1997 in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental statement of income
for the period July 15, 1997 through December 31, 1997 is presented for
purposes of additional analysis and the Schedule III attached to the
financial statements is provided for purpose of complying with the Securities
and Exchange Commission's rules. The supplemental statement of income and
Schedule III are not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Ernst & Young LLP
New York, New York
February 23, 1998
Dobie Center
Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,849,614
Accounts receivable - students 305,719
Accounts receivable - AustInvest 594,883
Accounts receivable - other 52,060
Other current assets 7,668
-------------
Total current assets 5,809,944
Fixed assets:
Land, building and equipment 35,716,430
Accumulated depreciation (406,417)
-------------
Total fixed assets 35,310,013
Intangible assets:
Organizational costs 152,482
Accumulated amortization (15,248)
-------------
Total intangible assets 137,234
-------------
Total assets $41,257,191
=============
LIABILITIES AND PROJECT EQUITY
Current liabilities:
Accounts payable and accrued expenses $856,777
Tenant security deposits 224,942
Deferred income - students 3,508,099
Other deferred income 2,000
Current portion mortgage notes payable 1,000,000
-------------
Total current liabilities 5,591,818
-------------
Non-current liabilities:
Mortgage notes payable 19,280,500
-------------
Total liabilities 24,872,318
Project equity 16,384,873
-------------
Total liabilities and project equity $41,257,191
=============
</TABLE>
See accompanying notes.
Dobie Center
Statement of Income
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
YEAR JANUARY 1, 1997 JUNE 27, 1997
ENDED DECEMBER THROUGH JUNE 26, THROUGH DECEMBER
31, 1997 1997 31, 1997
---------------------------------------------------
<S> <C> <C> <C>
Revenues:
Tower rental revenue $7,137,515 $3,399,817 $3,737,698
Mall rental revenue 1,377,878 657,490 720,388
Garage revenue 504,527 245,379 259,148
Other revenue 96,186 65,938 30,248
Interest and other revenue 160,802 46,928 113,874
---------------------------------------------------
Total revenues 9,276,908 4,415,552 4,861,356
Operating expenses:
Tower expenses:
Wages 1,231,907 630,551 601,356
Food costs 628,418 302,952 325,466
Administrative/other 928,423 460,260 468,163
Utilities 569,268 279,547 289,721
Management fee 267,991 169,390 98,601
Maintenance 146,089 61,773 84,316
Property taxes 344,677 162,434 182,243
---------------------------------------------------
Total tower expenses 4,116,773 2,066,907 2,049,866
Mall expenses:
Wages 116,741 46,958 69,783
Administrative/other 370,521 187,375 183,146
Utilities 237,002 116,756 120,246
Management fee 64,488 42,606 21,882
Maintenance 58,899 27,023 31,876
Property taxes 86,167 40,607 45,560
---------------------------------------------------
Total mall expenses 933,818 461,325 472,493
---------------------------------------------------
Total operating expenses 5,050,591 2,528,232 2,522,359
Operating income 4,226,317 1,887,320 2,338,997
Non-operating expense:
Depreciation/amortization - tower 650,517 350,629 299,888
Depreciation/amortization - mall 238,259 116,482 121,777
Interest expense 1,543,186 730,372 812,814
Nonrecurring expenses 363,972 119,327 244,645
---------------------------------------------------
Total non-operating expense 2,795,934 1,316,810 1,479,124
---------------------------------------------------
Net income $1,430,383 $ 570,510 $ 859,873
===================================================
</TABLE>
See accompanying notes.
Dobie Center
Statement of Changes in Project Equity (Deficit)
<TABLE>
<CAPTION>
<S> <C>
Project deficit, December 31, 1996 $(2,193,424)
Net income for the period January 1, 1997 through June 26, 1997 570,510
Elimination of deficit - purchase transaction 1,622,914
Contributions - June 26, 1997 15,525,000
Net income for the period June 27, 1997 through December 31, 1997 859,873
-------------
Project equity, December 31, 1997 $16,384,873
=============
</TABLE>
See accompanying notes.
Dobie Center
Statement of Cash Flows
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income $1,430,383
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 888,776
Changes in operating assets and liabilities:
Accounts receivable-students 247,714
Accounts receivable - AustInvest (594,883)
Other accounts receivables 165,179
Other current assets 51,828
Accounts payable (178,112)
Tenant security deposits payable (9,667)
Deferred income-students 267,546
Deferred parking income 2,000
-------------
Net cash provided by operating activities 2,270,764
-------------
Investing activities
Increase in organizational costs (142,287)
Purchase of fixed assets (15,653,105)
-------------
Net cash used in investing activities (15,795,392)
-------------
Financing activities
Repayment of notes payable (925,000)
Contributions 15,525,000
Net proceeds from notes payable 1,095,500
-------------
Net cash provided by financing activities 15,695,500
-------------
Net increase in cash and cash equivalents 2,170,872
Cash and cash equivalents at beginning of period 2,678,742
-------------
Cash and cash equivalents at end of period $4,849,614
=============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Non-cash activities:
Net decrease in fixed assets 1,233,715
Decrease in accumulated depreciation and amortization (3,719,250)
Elimination of Project deficit - purchase transaction 1,622,914
Elimination of Intangible assets - purchase transaction 951,838
</TABLE>
See accompanying notes.
Dobie Center
Notes to Financial Statements (continued)
December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Dobie Center ("Dobie" or the "Project") which is located immediately adjacent
to the University of Texas at Austin, consists of the Dobie tower, a 932-bed,
27-story student residence hall that is situated on top of the Dobie mall, a
96,000-square foot retail mall. The mall includes student-oriented tenants
such as a copy/printing shop, student bookstore, movie theater, video store,
tanning salon, hair salon, video arcade, and a 500-seat food court. The
student-residence tower includes a full service cafeteria, state-of-the-art
computer center, fitness center, junior olympic swimming pool, Jacuzzi,
volleyball court, basketball court, mini-theater, study rooms, meeting rooms,
and a 24-hour service desk. The facility also includes a 644-car commercial
parking garage.
On June 26, 1997, AustInvest I, Ltd. ("AustInvest") sold 70% of Dobie Center
to Reckson Opportunity Partners, L.P. ("ROP"). Simultaneously, ROP and
AustInvest contributed their interest in Dobie Center to a new entity, Dobie
Center Properties, Ltd.
BASIS OF ACCOUNTING
The accompanying financial statements include the assets, liabilities,
revenues and expenses directly related to the Project. These financial
statements do not include accounts of AustInvest or Dobie Center Properties,
Ltd.
Dobie uses the accrual method of accounting for financial reporting in
conformity with generally accepted accounting principles (GAAP). Therefore,
revenue is recorded as earned and costs and expenses are recorded as
incurred.
The allocation of income and expenses between the tower and mall are based on
historical results and estimates made by management. The expenses of the
garage are included with the expenses of the tower.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Dobie Center
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of preparing the statement of cash flows, unrestricted currency,
certificates of deposit, and money market accounts are considered cash, and
investments with an original maturity of three months or less are considered
cash equivalents.
Dobie maintains cash balances at three banks. Cash accounts at banks are
insured by the FDIC up to $100,000. Amounts in excess of insured limits were
approximately $4,639,368 at December 31, 1997.
FIXED ASSETS AND DEPRECIATION
Fixed assets are recorded at cost. Repairs and maintenance of fixed assets
are charged to operations. Major improvements are capitalized. The
estimated useful lives of the assets are as follows:
YEARS
---------------
Furniture, fixtures & equipment 5-10
Building & improvements 40
Mall renovation and improvements 5-40
Depreciation is computed using the straight-line method for financial
reporting purposes. Depreciation expense was $873,528 for the year ended
December 31, 1997. Upon retirement, sale, or other disposition of property
and equipment, the cost and related accumulated depreciation are removed from
the related accounts and the resulting gains or losses are included in
operations.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
requires that long-lived assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 has not had an
impact on the financial position of Dobie.
Dobie Center
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS AND AMORTIZATION
Organization costs are being amortized over 60 months on a straight-line
basis. Amortization expense was $15,248 for the year ended December 31,
1997.
REVENUE RECOGNITION
STUDENT HOUSING
Upon execution of student dormitory contracts, Dobie records a receivable for
the full value of the contract with an off-setting increase to deferred
revenue. Income is then recognized on a straight-line basis over the
remaining life of the contracts.
MALL TENANTS
Minimum rental revenue is recognized on a straight-line basis over the term
of the lease. The excess of rents recognized over amounts contractually due
are included in accounts receivable - other on the accompanying balance
sheet.
GARAGE REVENUES
Upon execution of semester garage contracts, Dobie records the cash received
pursuant to each contract as deferred revenue. Income is then recognized on
a straight-line basis over the life of the contracts. Daily parking revenues
are recognized as received.
FEDERAL INCOME TAXES
No income tax provision has been included in the financial statements since
profit and loss of Dobie is required to be reported by the respective
partners of AustInvest and Dobie Center Properties, Ltd. on their respective
income tax returns.
Dobie Center
Notes to Financial Statements (continued)
2. LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
<S> <C>
First Mortgage Notes Payable - collateralized by the Project:
Note payable to Landesbank Hessen-Thuringen Girozentrale, ("LH-TG") stated
interest at 7.25% at December 31, 1997 maturing August 30, 2002 $8,690,250
Note payable to Bayerische Landesbank Girozentrale,("BLG") stated interest at
7.25% at December 31, 1997, maturing August 30, 2002 8,690,250
Second Mortgage Note Payable - collateralized by the Project:
Note payable to Proeller Brothers, stated interest at 7.5%, maturing
August 30, 2002 2,900,000
-------------
Total long term debt $20,280,500
=============
</TABLE>
The following is a schedule of future maturities of long-term debt at
December 31, 1997:
1998 $ 1,000,000
1999 1,000,000
2000 1,000,000
2001 1,000,000
2002 16,280,500
-----------
$20,280,500
===========
At the option of LH-TG and BLG, the holders of the first mortgage notes,
$17,380,500, the entire principal balance and accrued and unpaid interest
thereon is due and payable in full upon the occurrence of an event of
default, as defined.
An additional capital improvement reserve of $1,219,500 is available through
September 30, 1998 on the LH-TG and BLG loans.
Dobie Center
Notes to Financial Statements (continued)
2. LONG-TERM LIABILITIES (CONTINUED)
At December 31, 1997, the interest rate on the first mortgage notes payable
to LH-TG and BLG is fixed at the applicable LIBOR rate selected by Dobie in
accordance with the provisions of the notes defining the option interest
period elections. Interest is payable in arrears on each quarterly roll over
date with the stated principal repayment as set forth in the note agreements.
A portion of the principal balance of the notes is to repaid in twenty-eight
(28) consecutive quarterly installment payments before the maturity date of
the notes. The interest rate on this note in effect at December 31, 1997 was
7.259%.
A loan of $2,900,000 was also obtained from the Proeller Brothers on
September 1, 1995. The loan is due on August 30, 2002. The interest rate is
fixed at 7.5% per annum. Interest payments are to be made quarterly, with
the entire principal balance due at the maturity date.
3. RELATED PARTIES
Management fees paid to an affiliated company were $332,479 for the year
ended December 31, 1997.
4. FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires Dobie to disclose the estimated
fair values of its financial instrument assets and liabilities. The carrying
amounts approximate fair value for cash and cash equivalents and the
improvement reserve because of the short maturity of those instruments. For
Dobie's first and second mortgage notes payable the estimated fair value
approximates the recorded balance.
Supplemental Information
Dobie Center
Supplemental Statement of Income (Note 1)
For the period from July 15, 1997 through December 31, 1997
Revenues:
Tower rental revenue $3,379,833
Mall rental revenue 651,415
Garage revenue 234,336
Other revenue 27,352
Interest and other revenue 102,971
-----------
Total revenues 4,395,907
Operating expenses:
Tower expenses:
Wages 543,779
Food costs 294,304
Administrative/other 423,339
Utilities 261,983
Management fee 89,160
Maintenance 76,243
Property taxes 164,794
-----------
Total tower expenses 1,853,602
Mall expenses:
Wages 63,102
Administrative/other 165,611
Utilities 108,733
Management fee 19,787
Maintenance 28,824
Property taxes 41,198
-----------
Total mall expenses 427,254
-----------
Total operating expenses 2,280,857
Operating income 2,115,050
Non-operating expense:
Depreciation/amortization - tower 271,175
Depreciation/amortization - mall 110,118
Interest expense 734,991
Nonrecurring expenses 221,222
-----------
Total non-operating expense 1,337,506
-----------
Net income $ 777,545
===========
See accompanying notes.
Dobie Center
Schedule III
Real Estate and Accumulated Depreciation
December 31, 1997
<TABLE>
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO GROSS AMOUNT AT WHICH
INITIAL COST ACQUISITION/(1)/ CARRIED AT CLOSE OF
RELATED BUILDING & BUILDINGS & PERIOD BUILDINGS &
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dobie Center, $20,280,500 $2,263,599 $10,286,964 $1,787,041 $20,185,360 $4,050,640 $30,472,324
Austin Texas
</TABLE>
(table continued)
<TABLE>
<CAPTION>
ACCUMULATED DATE OF DATE DEPRECIABLE LIFE
DESCRIPTION TOTALS DEPRECIATION CONSTRUCTION ACQUIRED (YEARS)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dobie Center, $34,522,964 $(380,904) 1969 1992 40
Austin Texas
</TABLE>
See accompanying notes to Schedule III.
/(1)/ Reflects the step-up in basis associated with the sale of a 70%
interest in the property to an unrelated third party.
Dobie Center
Notes to Schedule III
Real Estate and Accumulated Depreciation
December 31, 1997
A summary of activity for the Partnership's real estate and accumulated
depreciation is as follows:
FOR THE YEAR ENDED
1997
------------------
Real estate investments:
Balance at beginning of year $ 19,528,988
Improvements/(1)/ 14,993,976
------------------
Balance at end of year $ 34,522,964
==================
Accumulated depreciation and amortization:
Balance at beginning of year $ (2,131,214)
Depreciation (873,528)
Reduction of accumulated depreciation/(1)/ 2,623,838
------------------
Balance at end of year $ (380,904)
==================
/(1)/ Reflects the step-up in basis associated with
the sale of a 70% interest in the property to
an unrelated third party.
/(2)/ A reconciliation of land, building and equipment is as follows:
Real estate investments balance at end of year $ 34,522,964
Furniture, fixtures and equipment 1,193,466
----------------
Land, building and equipment $ 35,716,430
================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
American Campus Lifestyles Companies, L.L.C.:
We have audited the accompanying statement of assets, liabilities, and
members' equity of American Campus Lifestyles Companies, L.L.C. (a Texas
limited liability company) and subsidiaries as of December 31, 1996 and 1995,
and the related statements of revenues and expenses, changes in members'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Campus Lifestyles
Companies, L.L.C. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Dallas, Texas,
March 28, 1997
AMERICAN CAMPUS LIFESTYLES COMPANIES, L.L.C. AND SUBSIDIARIES
-------------------------------------------------------------
STATEMENTS OF ASSETS, LIABILITIES, AND MEMBERS' EQUITY (DEFICIT)
----------------------------------------------------------------
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------
ASSETS 1996 1995
------ ------------------ ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents,
including restricted cash
of $74,164 as of December 31, 1996 $ 619,754 $ 12,306
Deposits 3,315 3,415
Accounts receivable 1,153,912 141,943
Prepaid expenses - -
Contributions receivable - 1,000
------------------ ------------------
Total current assets 1,776,981 158,664
------------------ ------------------
INVESTMENTS:
Investment in leasehold
estate -- completed
contract, including
restricted cash of
$175,800, as of December
31, 1996 10,277,687 -
Investment in leasehold
estate - projects under
development 929,224 -
------------------ ------------------
Total investments 11,206,911 -
------------------ ------------------
FIXED ASSETS:
Equipment 137,140 10,377
Less-accumulated depreciation (18,456) (2,512)
------------------ ------------------
Total fixed assets 118,684 7,865
------------------ ------------------
Total assets $13,102,576 166,529
================== ==================
AMERICAN CAMPUS LIFESTYLES COMPANIES, L.L.C. AND SUBSIDIARIES
-------------------------------------------------------------
STATEMENTS OF ASSETS, LIABILITIES, AND MEMBERS' EQUITY (DEFICIT)
----------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
- -----------------------------------------
As of December 31,
---------------------------------------
CURRENT LIABILITIES: 1996 1995
- ------------------- ------------------ ------------------
Construction accounts
payable - leasehold estate $ 403,456 $ -
Accounts payable 580,424 45,125
Security deposits 31,074 -
Deferred rental income 877,536 -
Advances from members - 1,449,184
Distributions payable 50,510 -
Notes payable - leasehold
estates 87,088 -
Notes payable - other 47,669 -
------------------ ------------------
Total current liabilities 2,077,757 1,494,309
------------------ ------------------
NONCURRENT LIABILITIES:
Notes Payable - leasehold
estates 10,716,367 -
------------------ ------------------
Total noncurrent liabilities 10,716,367 -
------------------ ------------------
Total liabilities 12,794,124 1,494,309
------------------ ------------------
MEMBERS' EQUITY:
Advances from members - 1,404,327
Members' equity:
Beginning balance (1,327,780) (2,388,000)
Contributions 1,490,000 68,034
Distributions (855,552) (5,800)
Net income (loss) 1,001,784 (406,341)
------------------ ------------------
Total members' equity
(deficit) 308,452 (1,327,780)
------------------ ------------------
Total liabilities and
members' equity $13,102,576 $ 166,529
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
AMERICAN CAMPUS LIFESTYLES COMPANIES, L.L.C. AND SUBSIDIARIES
-------------------------------------------------------------
STATEMENTS OF REVENUES AND EXPENSES
-----------------------------------
<TABLE>
<CAPTION>
For the Years Ended For the Nine
December 31, Months Ended
------------------------------ September 30,
1996 1995 1996
---------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Development/construction fees $1,727,668 - 1,504,785
Prairie View Phase I rental revenue 776,582 - 265,423
Management fees 752,374 622,911 531,361
Other income 10,383 - 1,937
---------- ------------- -------------
Total revenues 3,267,007 622,911 2,303,506
---------- ------------- -------------
OPERATING EXPENSES:
Personnel 821,706 397,289 592,863
Administrative 607,412 435,406 337,775
Marketing 42,222 4,894 24,655
Prairie View Phase I operating expenses 623,354 - 265,423
Depreciation 15,944 2,058 11,021
---------- ------------- -------------
Total operating expenses 2,110,638 839,647 1,231,737
---------- ------------- -------------
Net operating income (loss) 1,156,369 (216,736) 1,071,769
---------- ------------- -------------
OTHER EXPENSE:
Interest, including Prairie View Phase I 154,585 189,605 468
---------- ------------- -------------
NET INCOME (LOSS) $1,001,784 $ (406,341) $ 1,071,301
========== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
AMERICAN CAMPUS LIFESTYLES COMPANIES, L.L.C. AND SUBSIDIARIES
-------------------------------------------------------------
STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
--------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------
<TABLE>
<CAPTION>
Campus Landmark
Management JHD Campus Campus
Associates, Ventures Investments, Adelie,
L.L.C. L.L.C. L.L.C. L.L.C. Totals
----------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
MEMBERS' DEFICIT,
December 31, 1994 (unaudited) $(597,000) $(895,500) $ - $ (895,500) $(2,388,000)
Advances from members - 1,404,327 - - 1,404,327
Contributions - 68,034 - - 68,034
Distributions - (5,800) - - (5,800)
Net loss (101,585) (152,378) - (152,378) (406,341)
----------- ---------- ------------ ----------- ------------
MEMBERS' (DEFICIT) EQUITY,
December 31, 1995 (698,585) 418,683 - (1,047,878) (1,327,780)
Adjustments due to
capital restructure 707,333 (341,947) (836,387) 471,001 -
Contributions - - 900,000 590,000 1,490,000
Distributions - (427,776) (427,776) - (855,552)
Net income (loss) (8,748) 505,266 518,389 (13,123) 1,001,784
----------- ---------- ------------ ----------- ------------
MEMBERS' EQUITY,
December 31, 1996 $ - $154,226 $154,226 $ - $ 308,452
=========== ========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
AMERICAN CAMPUS LIFESTYLES COMPANIES, L.L.C. AND SUBSIDIARIES
-------------------------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the Years Ended For the Nine
December 31, Months Ended
---------------------------------- September 30,
1996 1995 1996
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,001,784 $ (406,341) $1,071,301
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities-
Depreciation 15,944 2,058 11,020
Decrease in deposits 100 11,586 -
Increase in accounts receivable (1,011,969) (102,289) (1,075,423)
Decrease (increase) in prepaid
expenses - 4,500 (5,808)
Decrease in contributions
receivable 1,000 - -
Increase (decrease) in accounts
payable 535,299 (222,923) 315,664
Increase in construction accounts
payable -leasehold estate 403,456 - 1,352,950
Increase in security deposits 31,074 - -
Increase in deferred rental
income 877,536 - 87,754
Increase in accrued interest - 91,956 -
Increase in restricted cash (74,164) - -
Increase (decrease) in advances
from members (189,184) 483,087 (189,184)
--------------- --------------- ---------------
Total adjustments 589,092 267,975 496,973
--------------- --------------- ---------------
Net cash provided by (used
in) operating activities 1,590,876 (138,366) 1,568,274
--------------- --------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in leasehold estate -
completed contract (10,277,687) - (10,277,687)
Investment in leasehold estate -
projects under development (929,224) - -
Purchase of equipment (126,763) (6,577) (95,111)
--------------- --------------- ---------------
Net cash used in investing
activities (11,333,674) (6,577) (10,372,798)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable-
leasehold estates 10,803,455 - 8,924,736
Proceeds from notes payable 51,643 - -
Repayment of notes payable - computer
equipment (3,974) - -
Contributions 900,000 68,034 900,000
Distributions (805,042) (5,800) (205,226)
Capital restructure - cash paid to
Adelie, L.L.C. (670,000) - (670,000)
--------------- --------------- ---------------
Net cash provided by
financing activities 10,276,082 62,234 8,949,510
--------------- --------------- ---------------
Net cash provided by (used
in) operating, investing, and
financing activities 533,284 (82,709) 144,986
CASH AND CASH EQUIVALENTS, beginning of
year 12,306 95,015 12,306
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of year,
net $ 545,590 $ 12,306 $ 157,292
--------------- --------------- ---------------
NONCASH TRANSACTIONS:
Contribution of Adelie, L.L.C.
advances to capital $ 590,000 $ - $ 590,000
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
AMERICAN CAMPUS LIFESTYLES COMPANIES, L.L.C. AND SUBSIDIARIES
-------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
American Campus Lifestyles Companies, L.L.C. ("the Company"), a Texas private
limited liability company, was formed on October 8, 1993. The Company is
committed to providing colleges, universities, and other educational institu-
tions with private sector assistance in financing, developing, constructing,
refurbishing, and managing on-campus and off-campus student housing.
The Company generates monthly management fees from two on-campus (one of
which was added during 1996) and two off-campus student housing projects
located in Texas, Oklahoma, and Florida. In addition, the Company generates
monthly development and construction management fees from two on-campus
student housing development projects located in Texas. Upon the scheduled
completion of these two projects in August 1997, the Company will generate
monthly management fees for the property management of these facilities.
The Company's principal owners as of December 31, 1996, are J.H. Domberger
Campus Ventures, L.L.C. ("Domberger"), Campus Management Associates, L.L.C.
("CMA"), and Landmark Campus Investments, L.L.C. ("Landmark"), an affiliate
of the Austin-based Landmark Companies.
At the end of 1995, CMA negotiated a redemption of the interest of Adelie,
L.L.C. ("Adelie"), a former owner, for the amount of $670,000 cash from the
Company to Adelie and the admission of Landmark as a member of the Company
together with a cash capital contribution from Landmark of $900,000. This
redemption, with the creation of Landmark's member interest, led to the
restructuring as of January 31, 1996, resulting in ownership of 25% by CMA,
37.5% by Domberger and 37.5% by Landmark.
Per the Second Amended and Restated Limited Liability Company Agreement (the
"Agreement"), dated January 31, 1996, net income of the Company is allocated
equally to Landmark and Domberger until the net income allocated to Landmark
and Domberger equals the sum of current and prior year distributions to
Landmark and Domberger. Additionally, the next $1,100,000 in net income is
allocated equally to Landmark and Domberger. Subsequent net income is then
allocated 25% to CMA, 37.5% to Domberger, and 37.5% to Landmark.
Net losses of the Company are allocated equally to Domberger and Landmark to
the extent that cumulative net losses of the Company do not exceed
$1,800,000. Net losses are then allocated equally to Domberger and Landmark
to the extent of previously allocated net income. Subsequent net losses are
allocated 25% to CMA, 37.5% to Domberger, and 37.5% to Landmark.
Net losses of the Company incurred prior to January 31, 1996, were allocated
under the First Amended and Restated Limited Liability Company Agreement
dated January 1, 1994. Such losses were allocated by the members' Shared
Ratios, as defined.
Excess cash flows, as defined by the Agreement, are payable equally to
Domberger and Landmark until such time as they have received $1,450,000 plus
interest at 5% per annum ("Preferred Return"), compounded annually, in
cumulative distributions. Subsequent excess cash flows will be paid 25% to
CMA, 37.5% to Domberger, and 37.5% to Landmark. As of December 31, 1996, the
cumulative Preferred Return for Domberger and Landmark was $60,119 each.
Distribution payments are computed and paid, if available, every quarter in
accordance with the allocation of excess cash flows. Distributions of
$805,042 and $5,800 were paid during the years ended December 31, 1996 and
1995. An additional $50,510 in distributions were declared in 1996 but not
yet paid at year-end.
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared on the accrual basis
of accounting in conformity with generally accepted accounting principles
("GAAP"). Therefore, revenue is recorded as earned and costs and expenses
are recorded as incurred.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments with a maturity of three months or less to be cash
equivalents.
As of December 31, 1996, the Company maintained its cash balance of $619,754
at two banks. Cash accounts at banks are insured by the FDIC up to $100,000.
RESTRICTED CASH
Restricted cash represents tenant security deposits included in cash and cash
equivalents and debt service and operating reserves held by Texas Commerce
Bank ("the Lender"), which is included in "Investment in leasehold estate -
completed" (see Note 3).
ACCOUNTS RECEIVABLE
Accounts receivable includes $877,536 of deferred student revenues. At the
inception of the school year, the Company records a receivable for the
respective academic year's total rent receivable with a credit to Deferred
Revenue. Income is then recognized over the course of the academic year from
the Deferred Revenue account.
FIXED ASSETS AND DEPRECIATION
Fixed assets are recorded at historical cost. Repairs and maintenance of
fixed assets are charged to operations, but major improvements are capital-
ized. The estimated useful lives of the assets are as follows:
Years
-----
Equipment 5-10
Depreciation is computed using the straight-line method for financial report-
ing purposes. Depreciation expense was $15,944 and $2,058 for the years
ended December 31, 1996 and 1995. Upon retirement, sale, or other
dispositions of the equipment, the cost and related accumulated depreciation
are removed from the related accounts and the resulting gains or losses are
included in operations. There were no gains or losses for the years ended
December 31, 1996 and 1995.
INVESTMENTS IN LEASEHOLD ESTATE
Investments in leasehold estate reflects the project costs incurred to date,
including development and construction fees, on the three student housing
development projects located in Texas. These investments in leasehold
estates are subject to ground leases (See Note 2). The investments are
reduced by an amount equal to the principal reduction of the notes payable-
leasehold estate, as payments are submitted to the Lender.
FEDERAL INCOME TAXES
No provision for income taxes has been recorded in the financial statements
as the owners are required to report their share of the Company's earnings in
their respective income tax returns. The Company's tax returns and the
amounts of the allocable income or loss are subject to examination by federal
and state taxing authorities. If such examinations result in changes to
income or loss, the tax liability of the members could be changed
accordingly.
2. INVESTMENTS IN LEASEHOLD ESTATE
The Company leases from the Texas A&M University System ("TAMUS") a tract of
land at Prairie View A&M University under a ground lease (the "Lease")
effective February 1, 1996, at a cost of $100 per year ($4,000) paid upon
inception of the Lease. The Company entered into this Lease for the purpose
of developing, constructing and maintaining a student housing project
("Prairie View Phase I" or the "Project"). Subsequent to the execution of
and in accordance with the provisions of the Lease, the Company obtained
financing (See Note 3) and constructed the Project for a total cost of
$10,277,687, including debt service and operating cash reserves. Under the
provisions of the Lease, all improvements to the land are owned fee simple by
TAMUS. The Lease expires on August 31, 2035. However, the Lease will
terminate upon repayment of all indebtedness related to the Project. The
Lease requires that all indebtedness be repaid prior to August 31, 2021.
Under the Lease, TAMUS has the option to purchase the leasehold estate at the
close of each calendar year. The purchase price is defined in the Lease as
the lesser of (1) the sum of the present cash value of the Company's
leasehold estate in Prairie View Phase I discounted at 9.5%, the Company's
leasehold estate in the equipment of Prairie View Phase I, and the amount
required to repay the debt secured by the Prairie View Phase I loan,
including principal, accrued interest, prepayment fees and any additional
obligations; or (2) the sum of the fair market value, as defined in the
Lease, of Prairie View Phase I and the equipment of Prairie View Phase I. In
no event shall the purchase price be less than the amount required to repay
the Prairie View Phase I loan.
In the event the Company were to receive a bona fide offer, acceptable to the
Company (the "Offer"), to purchase the Company's leasehold estate in Prairie
View Phase I, TAMUS has the right of first refusal to purchase the leasehold
estate under the terms of the Offer.
A development fee and a construction fee were earned by the Company for the
services it provided during construction of the Project. Additionally, the
Company manages the Project for a fee of 5% of gross receipts as defined in
the management agreement, plus 50% of net cash flow of the Project, as
defined in the Lease. No income with respect to the net cash flow has been
recognized in 1996 as the net cash flow calculation is based on year-end cash
flow which is defined by the management agreement as ending with the academic
year.
For the year ended December 31, 1996, the Company was paid a total of
$2,346,566 in development, construction and management fees.
The Company is involved in two additional projects, one each at Prairie View
A&M University ("Prairie View Phase II") and Texas A&M International
University ("Laredo"), under substantially the same terms as the original
ground lease.
3. DEVELOPMENT/CONSTRUCTION FEES
The Company receives management fees on the development and construction
("Development") of properties included in the "Investments in leasehold
estate" and on Development of properties managed in which the Company does
not hold a leasehold estate. The Development fees are paid via construction
loan proceeds by the projects during the construction and development phase
to development and construction companies affiliated with the Company.
4. NOTES PAYABLE - LEASEHOLD ESTATE
Notes payable - leasehold estate (collectively, "the Loans") reflects the
project costs incurred to date on the three student housing development
projects located in Texas. A construction loan ("the Prairie View Phase I
loan") of $10,277,687 was obtained from the Lender in March 1996 to finance
the construction of Prairie View Phase I. Upon maturity of the Prairie View
Phase I loan in February 1997, it will convert to a three-year mini-perm loan
with a balloon payment due and payable at the end of the three-year period.
Two additional construction credit facilities ("the Facilities") were
obtained from the Lender in December 1996 to finance the development and
construction of Prairie View Phase II and Laredo. The total credit available
under the Facilities is approximately $10,700,000 and $5,100,000 for Prairie
View Phase II and Laredo, respectively. No principal payments are due under
the Facilities until January 1998. Upon maturity of the Facilities in
January 1998, both will convert to three-year mini-perm loans with payments,
based on a 25 year amortization, of principal and interest due monthly. As
of December 31, 1996, the total borrowings outstanding under the Prairie View
Phase II and Laredo loans were $525,768.
The interest rate on the Loans is defined as LIBOR plus 250 basis points.
Interest is due monthly depending upon the rate and length of time offered by
the bank. Interest was capitalized for the Prairie View Phase I loan as
"Investment in leasehold estate - completed" and was 8.093% at December 31,
1996. Interest was capitalized for the Prairie View Phase II and Laredo
Facilities as the "Investments in leasehold estate - projects under develop-
ment" and was 8.125% at December 31, 1996. Capitalized interest on the Loans
for the year ended December 31, 1996 was $102,777.
The Company entered into an interest rate cap agreement ("the Cap") with the
Lender effective September 3, 1996, to hedge the floating rate cost of the
Prairie View Phase I loan. The Cap calls for a principal amount of
$10,000,000 from September 3, 1996, through September 30, 1996, and
$10,277,687 from October 1, 1996 through October 1, 1997, which is the
termination date. Under the agreement, the Company has the right to receive
payments based on the principal amount of the Cap to the extent that LIBOR
exceeds 5.5%. The Company paid a premium of $90,500 in connection with this
transaction, which is included in "Investment in leasehold estate -
completed" on the accompanying balance sheet.
Aggregate maturities of the Loans for five years subsequent to December 31,
1996, and thereafter are as follows:
Year Ending
December 31,
- ------------
1997 $ 117,270
1998 140,724
1999 140,724
2000 9,878,969
-------------
10,277,687
Prairie View Phase II 309,709
Laredo 216,059
-------------
Total Notes Payable - leasehold estate $ 10,803,455
=============
5. ADVANCES FROM MEMBERS
During 1994, Domberger and Adelie each advanced the Company funds to cover
operating expenses during the first year of operations, bearing interest at
the rate of 15% per annum. The Adelie advance became noninterest bearing
effective January 1, 1995. During the January 31, 1996 restructuring, the
Company negotiated the extinguishment of both advances. (See Note 1).
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires the Company to disclose the
estimated fair values of its financial instrument assets and liabilities.
The carrying amount of cash and cash equivalents approximate fair value
because of the short maturity of those instruments. The carrying amount of
the Company's notes payable - leasehold estate approximates fair value.
7. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company adopted the principles of
this statement in 1996. Its adoption did not have a material effect on the
carrying value of the Company's long-lived assets.
8. RELATED-PARTY TRANSACTIONS
The Company receives monthly management fees from the management,
development, and construction companies affiliated with the Company (see
Notes 1 and 3).
Report of Independent Auditors
Members of
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
We have audited the accompanying consolidated balance sheet of American
Campus Lifestyles Companies, L.L.C. and subsidiaries (the "Company") as of
December 31, 1997, and the related consolidated statements of income for the
year then ended, and for the periods from January 1, 1997 through May 31,1997
and June 1, 1997 through December 31, 1997 and the related consolidated
statements of members' equity and cash flows for the year ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as
of December 31, 1997, and the results of their operations for the year then
ended and for the periods from January 1, 1997 through May 31, 1997 and June
1, 1997 through December 31, 1997 and their cash flows for the year ended
December 31, 1997 in conformity with generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental statement of income
for the period October 17, 1997 through December 31, 1997 is presented for
purpose of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
New York, New York Ernst & Young LLP
February 23, 1998
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,642,357
Deposits 161,549
Accounts receivable 2,115,355
Other assets 3,916
------------
Total current assets 3,923,177
Investments:
Investment in leasehold estate - PVAMU-I 11,867,752
Investment in leasehold estate - PVAMU-II 12,335,104
Investment in leasehold estate - PVAMU-III 332,749
Investment in leasehold estate - Laredo 5,879,673
Accumulated depreciation on leasehold estates (373,177)
------------
Total investments 30,042,101
Fixed assets:
Equipment 147,702
Accumulated depreciation (35,309)
------------
Total fixed assets 112,393
------------
Total assets $34,077,671
============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $606,450
Security deposits 161,549
Deferred rental income 1,662,948
Construction note payable - PVAMU-III 332,749
Note payable - related parties 522,500
Current portion of long-term debt 318,000
------------
Total current liabilities 3,604,196
Non-current liabilities:
Notes payable - PVAMU-I 10,022,421
Notes payable - PVAMU-II 10,560,806
Notes payable - Laredo 5,051,981
Note payable - other 29,279
------------
Total non-current liabilities 25,664,487
------------
Total liabilities 29,268,683
------------
Comments and contingencies -
Members' equity 4,808,988
------------
Total liabilities and members' equity $34,077,671
============
</TABLE>
See accompanying notes.
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD
PERIOD JUNE 1, JANUARY 1, 1997
YEAR ENDED DECEMBER 1997 THROUGH THROUGH
31, 1997 DECEMBER 31, 1997 MAY 31, 1997
----------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Development and construction fees $ 1,025,508 $ 564,075 $ 461,433
Prairie View Phase I and II revenue 3,093,983 2,346,418 747,565
Laredo revenue 183,107 183,107 -
Management fees 797,926 456,301 341,625
Other income 313,530 280,582 32,948
----------------------------------------------------------------
Total revenues 5,414,054 3,830,483 1,583,571
Expenses:
Personnel 1,234,123 859,703 374,420
Administrative 622,981 370,702 252,279
Marketing 51,990 32,126 19,864
Prairie View Phase I and II expense 942,645 647,858 294,787
Laredo expense 73,656 73,656 -
----------------------------------------------------------------
Operating expenses 2,925,395 1,984,045 941,350
Operating income 2,488,659 1,846,438 642,221
Non-operating expenses:
Interest (including leasehold
expense) 1,162,518 833,716 328,802
Depreciation 390,032 264,752 125,280
Ground lessor participation 70,000 70,000 -
Professional fees 377,663 254,063 123,600
----------------------------------------------------------------
Total non-operating expenses 2,000,213 1,422,531 577,682
----------------------------------------------------------------
Net income $ 488,446 $ 423,907 $ 64,539
================================================================
</TABLE>
See accompanying notes.
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Consolidated Statement of Changes in Members' Equity
<TABLE>
<CAPTION>
J.H.
RFG Domberger Landmark
Capital Campus Campus
Management Ventures, Investments, William
Partners, L.P. L.L.C. L.L.C. Bayless Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Members' equity,
December 31,
1996 $ - $154,226 $154,226 $ - $308,452
Adjustments due to
purchase price 4,012,090 - - - 4,012,090
Net income 371,644 26,546 53,092 37,164 488,446
---------------------------------------------------------------------------
MEMBERS' EQUITY,
DECEMBER 31,
1997 $4,383,734 $180,772 $207,318 $37,164 $4,808,988
===========================================================================
</TABLE>
See accompanying notes.
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Consolidated Statement of Cash Flows
For the Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income $ 488,446
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation 390,032
Changes in operating assets and liabilities:
Deposits 1,267
Accounts receivable (961,409)
Restricted cash (87,385)
Other assets (1,868)
Accounts payable and accrued expenses (24,487)
Security deposits payable 130,475
Deferred rental income 785,412
Note payable - related party 522,500
Note payable - other (18,388)
--------------
Net cash provided by operating activities 1,224,595
--------------
INVESTING ACTIVITIES
Investment in leasehold estate - PVAMU-I (1,265,655)
Investment in leasehold estate - PVAMU-II (9,369,903)
Investment in leasehold estate - PVAMU-III (332,749)
Investment in leasehold estate - Laredo (4,298,711)
Purchase of equipment (10,562)
--------------
Net cash used in investing activities (15,277,580)
--------------
FINANCING ACTIVITIES
Repayment of current notes payable - leasehold estates (122,269)
Repayment of long term notes payable - leasehold estates (10,716,367)
Proceeds from construction note payable - PVAMU-III 332,749
Proceeds from notes payable - PVAMU-I 10,195,601
Proceeds from notes payable - PVAMU-II 10,360,057
Proceeds from notes payable - Laredo 5,099,981
--------------
Net cash provided by financing activities 15,149,752
--------------
Net increase in cash and cash equivalents 1,096,767
Cash and cash equivalents at beginning of period 545,590
--------------
Cash and cash equivalents at end of period $ 1,642,357
==============
</TABLE>
See accompanying notes
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Notes to Consolidated Financial Statements
For the Year ended December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
American Campus Lifestyles Companies, L.L.C., a Texas limited liability
company formed on October 8, 1993, and subsidiaries (the "Company"),
provides colleges, universities, and other educational institutions with
private sector assistance in financing, developing, constructing,
refurbishing, and managing on-campus and off-campus student housing.
The Company is a private, limited liability company whose principal owners
are RFG Capital Management Partners, L.P. ("RFG Capital"), Landmark Campus
Investments, L.L.C. ("Landmark"), William Bayless and J.H. Domberger Campus
Ventures, L.L.C. ("Domberger").
The Company currently generates monthly management fees from four on-campus
and two off-campus student housing projects located in Texas, Oklahoma, and
Florida. In addition, the Company generated monthly development and
construction management fees in 1997 from three on-campus student housing
development projects located in Texas, of which two were completed in August
1997 and the third began construction in December 1997.
On May 31, 1997, RFG Capital acquired an interest in American Campus
Lifestyles Companies, L.L.C. by purchasing certain common units, senior
preferred units and junior preferred units from the existing members for
$4,012,090. This transaction resulted in the following ownership of the
common units: 76.09% by RFG Capital, 10.87% by Landmark, 7.61% by William
Bayless and 5.43% by Domberger.
In accordance with the purchase agreement, net income and loss of the Company
is allocated to the partners based on their individual ownership of common
unit interest.
The capital structure of American Campus Lifestyles Companies, L.L.C.
consists of common units, senior preferred units and junior preferred units.
The senior preferred units and junior preferred units have a liquidation
preference of $1,000 per unit. RFG Capital holds 700 common units, 50 senior
preferred units and 2,900 junior preferred units, Domberger holds 50 common
units and 1,000 senior preferred units, Landmark holds 100 common units and
846.154 senior preferred units and William Bayless holds 70 common units and
42.308 senior preferred units. Annual distributions of cash flow, as defined
agreement, are payable first to the senior preferred holders in the amount of
$100 per unit per year and second to the junior preferred holders in the
amount of $100 per unit per year. The Company pays a 2% of debt guarantee
per annum to a related party of RFG Capital for the guarantee of $5.0 million
of the Company's Notes Payable - Leasehold Estate (See Note 3). Excess cash
flow is then distributed to the common unit holders based on their individual
ownership interest.
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared on the accrual basis
of accounting in conformity with generally accepted accounting principles
("GAAP"). Therefore, revenue is recorded as earned and costs and expenses
are recorded as incurred.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany balances and transactions have
been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments with a maturity of three months or less to be cash
equivalents.
As of December 31, 1997, the Company maintained its cash balance of
$1,642,357 at two banks. Cash accounts at banks are insured by the FDIC up
to $100,000.
RESTRICTED CASH
Restricted cash represents debt service and operating reserves held by Texas
Commerce Bank ("the Lender"), which is included in "Investment in leasehold
estate" (see Notes 2 and 3),and tenant security deposits.
FIXED ASSETS AND DEPRECIATION
Fixed assets are recorded at historical cost. Repairs and maintenance of
fixed assets are charged to operations, but major improvements are
capitalized. The estimated useful lives of the assets are as follows:
Years
----------
Equipment 5-10
Depreciation is computed using the straight-line method for financial
reporting purposes. Depreciation expense was $390,032 for year ended December
31, 1997. Upon retirement, sale, or other dispositions of the equipment, the
cost and related accumulated depreciation are removed from the related
accounts and the resulting gains or losses are included in operations.
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS AND DEPRECIATION (CONTINUED)
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
requires that long-lived assets and certain identifiable intangibles to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 has not had an impact on the financial position of the
Company.
OPTIONS
The Company has issued to William Bayless options to purchase 20 common units
from the Company at an initial purchase price of $3,177.30 per unit. The
options vest in the following manner: 10 units vest May 1999, 5 units vest
May 2000 and the remaining 5 units vest May 2002.
The Company has issued to Thomas Trubiana options to purchase 80 common units
from the Company at an initial purchase price of $1,588.65 per unit. The
options vest in the following manner: 20 common units vest on January 1,
1998, 20 common units vest on July 1, 1998, 20 common units vest on July 1,
1999 and the remaining 20 common units vest on July 1, 2000.
The effect on proforma net income and earnings per unit of amortizing to
expense over the options vesting period the estimated fair value of the
options, is immaterial.
INVESTMENTS IN LEASEHOLD ESTATE
Investments in leasehold estate reflects the project costs incurred to date,
including development and construction fees, on the four student housing
development projects located in Texas. These investments in leasehold
estates are subject to ground leases (see note 2). The carrying amounts of
the investments include an amount capitalized (based on the estimated fair
value of the acquired assets, principally investments in leasehold estates)
for the capital restructure. The investments are amortized on a straight
line method over the life of the lease.
STUDENT DORMITORY HOUSING REVENUES
Upon execution of student dormitory contracts, the Company records a
receivable for the full value of the contract with an offsetting increase to
deferred revenue. Income is then recognized on a straight-line basis over
the life of the contract.
DEVELOPMENT/CONSTRUCTION FEES
The Company receives management fees on the development and construction
("Development Fees") of properties included in the "Investments in leasehold
estate" and on development of properties managed in which the Company does
not hold a leasehold estate. Development Fees are paid from construction loan
proceeds related to the projects during the construction and development
phase to development and construction companies affiliated with the Company.
Development Fees income is recognized monthly as costs are incurred.
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
No provision for income taxes has been recorded in the financial statements
as the owners are required to report their share of the Company's earnings in
their respective income tax returns.
2. INVESTMENTS IN LEASEHOLD ESTATE
The Company leases from the Texas A&M University System ("TAMUS") tracts of
land at both Prairie View A&M University and Texas A&M International
University under a ground lease (the "Lease") effective February 1, 1996, at
a cost of $100 per year ($4,000) paid upon inception of the Lease. The
Company entered into this Lease for the purpose of developing, constructing
and maintaining student housing projects (Prairie View Phase I, Prairie View
Phase II, and Texas A&M International - Laredo) or the ("Projects").
Subsequent to the execution of and in accordance with the provisions of the
Lease, the Company obtained financing (see Note 3) and constructed the
Projects for a total cost of $25,953,208, including debt service and
operating cash reserves. Under the provisions of the Lease, all improvements
to the land are owned by TAMUS. The Lease expires on August 31, 2035.
However, the lease will terminate upon repayment of all indebtedness related
to the Projects. The Lease requires that all indebtedness be repaid prior to
August 31, 2021. In December 1997 the Company began construction on the
fourth student housing project Prairie View Phase III. Prairie View Phase III
is subject to the same terms and conditions as Prairie View Phase I and II.
The Lease provides that in the event the Company were to receive a bona fide
offer, acceptable to the Company (the "Offer"), to purchase the Company's
leasehold estate in Prairie View Phase I, Prairie View Phase II, Prairie View
Phase III and Texas A&M International - Laredo, TAMUS has the right of first
refusal to purchase the leasehold estate under the terms of the Offer.
Additionally the Lease provides that TAMUS has the option to purchase the
leasehold estate at the close of each calendar year. The purchase price is
defined in the Lease as the lesser of (1) the sum of the present cash value
of the Company's leasehold estate in Prairie View Phase I, Prairie View Phase
II, Prairie View Phase III and Texas A&M International - Laredo, and the
amount required to repay the debt secured by the Prairie View Phase I,
Prairie View Phase II, Prairie View Phase III and Texas A&M International -
Laredo loans, including principal, accrued interest, prepayment fees and any
additional obligations; or (2) the sum of the fair market value, as defined
in the Lease of Prairie View Phase I, Prairie View Phase II, Prairie View
Phase III and Texas A&M International - Laredo and the equipment of Prairie
View Phase I, Prairie View Phase II, Prairie View Phase III and Texas A&M
International - Laredo.
A development fee and construction fee was earned by the Company for the
services it provided during construction of each project. Additionally, the
Company manages each project for a fee of 5% of gross receipts as defined in
the management agreement, and 50% of net cash flow of the Project, as defined
in the Lease.
For the year ended December 31, 1997, the Company was paid a total of
$1,823,434 in development, construction and management fees.
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Notes to Consolidated Financial Statements
3. NOTES PAYABLE - LEASEHOLD ESTATE
Notes payable - Prairie View Phase I reflects the project costs incurred to
date on a student housing development project located in Texas. The
construction loan which was in place in 1996 converted to a three year mini-
perm in February 1997 with a balloon payment due and payable at the end of
the three-year period.
Notes payable - Prairie View Phase II reflects the project costs incurred to
date on a student housing development project located in Texas. A
construction loan of $10,615,308 was obtained from the Lender in December
1996 to finance the construction of Prairie View Phase II. In December 1997
the Prairie View Phase II construction loan was converted into a three year
mini-perm loan with payments, based on a 25 year amortization of principal
and interest, due monthly, with a balloon payment due and payable at the end
of the three-year period.
Note payable - Texas A&M International - Laredo reflects the project costs
incurred to date on a student housing development project located in Texas.
A construction loan of $5,037,236 was obtained in December 1996 to finance
the construction of Texas A&M International - Laredo. In December 1997 the
construction loan was converted into a three-year mini-perm loan with
payments, based on a 25 year amortization of principal and interest, due
monthly, with a balloon payment due and payable at the end of the three-year
period.
The interest rate on the Notes Payable is defined as LIBOR plus 250 basis
points. Each Note Payable is collateralized by a lien on the leasehold
estates of each respective Project. Prairie View Phase II and Texas A&M
International - Laredo have a floating interest rate which calls for LIBOR
plus 250 basis points in the first year, LIBOR plus 275 basis points in the
second year and LIBOR plus 300 basis points in the third year.
The Company entered into an interest rate cap agreement ("the Cap") effective
September 3, 1996, to hedge the floating rate cost of the Prairie View Phase
I loan. The Cap provided for a principal amount of $10,000,000 from
September 3, 1996, through September 30, 1996, and $10,277,687 from October
1, 1996 through October 1, 1997, which was the termination date. Under the
agreement, the Company had the right to receive payments based on the
principal amount of the Cap to the extent that LIBOR exceeds 5.5%.
Aggregate maturities of the Notes Payable for three years subsequent to
December 31, 1997 are as follows:
Year ending December 31,
1998 $ 318,000
1999 359,570
2000 25,275,638
------------
Total $25,953,208
============
4. CONSTRUCTION NOTE PAYABLE
Construction note payable - Prairie View Phase III reflects the project costs
incurred to date on a student housing development project located in Texas.
The construction loan currently bears interest at a rate of 8.5%, when
cumulative advances exceed $1,000,000 the interest rate will be set at LIBOR
plus 2.5%. The construction loan is convertible into a three year mini-perm
upon completion of the development.
American Campus Lifestyles Companies, L.L.C. and Subsidiaries
Notes to Consolidated Financial Statements
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires the Company to disclose the
estimated fair values of its financial instrument assets and liabilities.
The carrying amount of cash and cash equivalents approximate fair value
because of the short maturity of those instruments. The carrying amount of
the Company's notes payable - leasehold estate approximates fair value.
6. RELATED-PARTY TRANSACTIONS
At December 31, 1997 the Company has loans outstanding with affiliates as
follows, RFG Capital $469,400, Domberger $17,700, and Landmark $35,400.
These loans bear interest at 10% per annum and mature on December 1, 1998.
The Company receives monthly fees from the management, development, and
construction of affiliates of the Company (see Notes 1 and 3).
Supplemental Information
American Campus Lifestyle Companies, L.L.C. and Subsidiaries
Supplemental Consolidated Statement of Income (Note 1)
For the period from October 17, 1997 through December 31, 1997
Revenues:
Development and construction fees $ 55,679
Prairie View Phase I and II revenue 875,673
Laredo revenue 104,729
Management fees 215,372
Other income 233,201
------------
Total revenues 1,484,654
Expenses:
Personnel 333,393
Administrative 167,754
Marketing 12,193
Prairie View Phase I and II expense 301,959
Laredo expense 51,953
------------
Operating expenses 867,252
Operating income 617,402
Non-operating expenses:
Interest (including leasehold expense) 452,864
Depreciation 152,550
Ground lessor participation 41,522
Professional fees 57,820
------------
Total non-operating expenses 704,756
------------
Net income $ (87,354)
============
Report of Independent Auditors
To the Board of Members of
Veritech Ventures LLC
We have audited the accompanying consolidated balance sheets of Veritech
Ventures LLC (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of operations and members' equity and cash
flows for the year ended December 31, 1997 and for the period from July 5,
1996 (date of inception) to December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Veritech
Ventures LLC at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for the year ended December 31, 1997 and
for the period from July 5, 1996 (date of inception) to December 31, 1996 in
conformity with generally accepted accounting principles.
February 5, 1998, except for Ernst & Young LLP
Note 9, as to which the date
is February 20, 1998
Veritech Ventures LLC
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $121,830 $ -
Accounts receivable 8,779 11,994
Prepaid expenses and other current assets 49,019 -
----------------------------
Total current assets 179,628 11,994
Property and equipment, net 568,451 2,956
Deposits 154,729 -
Organization costs, net of accumulated
amortization
of $1,542 ($514 in 1996) 3,597 4,625
---------------------------
Total assets $906,405 $19,575
===========================
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $310,400 $5,256
Current portion of capital lease obligation 50,945 -
---------------------------
Total current liabilities 361,345 5,256
Deferred rent 40,175 -
Capital lease obligation 118,782 -
RSI loan 325,000 -
Commitments
Members' equity:
Members' capital 1,179,065 75,739
Accumulated deficit (1,117,962) (61,420)
------------------------------
Total liabilities and members' equity $ 906,405 $ 19,575
==============================
</TABLE>
See accompanying notes.
Veritech Ventures LLC
Consolidated Statements of Operations
<TABLE>
<CAPTION> PERIOD FROM
JULY 5, 1996
(DATE OF
YEAR ENDED INCEPTION)
DECEMBER TO DECEMBER
31, 1997 31, 1996
-------------------------------------------
<S> <C> <C>
Consulting revenue $ 335,126 $ 20,109
Telecommunications and Internet Services 12,682 -
-------------------------------------------
Total revenue 347,808 20,109
Costs of revenue 127,214 -
General and administrative 689,577 76,504
Sales and marketing 344,541 1,034
Operations and development 155,713 -
Depreciation and amortization 23,345 991
--------------------------------------------
1,340,390 78,529
--------------------------------------------
Loss from operations (992,582) (58,420)
Other income (expenses):
Interest expense (2,833) -
Interest income 843 -
Preferred return (61,970) (3,000)
--------------------------------------------
Net loss $(1,056,542) $(61,420)
============================================
</TABLE>
See accompanying notes.
Veritech Ventures LLC
Consolidated Statements of Members' Equity
Year ended December 31, 1997 and period
from July 5, 1996 (date of inception) to December 31, 1996
<TABLE>
<CAPTION>
MANAGING NON-MANAGING ACCUMULATED
MEMBER MEMBERS DEFICIT TOTAL
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital contributed $72,739 $ - $ - $ 72,739
Preferred return 3,000 - - 3,000
Net loss for the period
July 5, 1997 (date of
inception) to December
31, 1996 - - (61,420) (61,420)
---------------------------------------------------------------------
Balance as of December 31, 1996 75,739 - (61,420) 14,319
Capital contributed 774,760 266,596 - 1,041,356
Preferred return 60,945 1,025 - 61,970
Net loss for the year ended
December 31, 1997 - - (1,056,542) (1,056,542)
----------------------------------------------------------------------
Balance as of December 31, 1997 $911,444 $267,621 $(1,117,962) $ 61,103
======================================================================
</TABLE>
See accompanying notes.
Veritech Ventures LLC
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> PERIOD FROM
JULY 5, 1996
(DATE OF INCEPTION)
YEAR ENDED DECEMBER TO DECEMBER
31, 1997 31, 1996
--------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,056,542) $ (61,420)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 23,345 991
Deferred rent 40,175 -
Preferred return 61,970 3,000
Changes in operating assets and liabilities:
Accounts receivable 3,215 (11,994)
Prepaid expenses (49,019) -
Deposits (154,729) -
Accounts payable and accrued expenses 204,840 5,256
--------------------------------------------
Net cash used in operating activities (890,745) (64,167)
CASH USED IN INVESTING ACTIVITIES
Organization costs - (5,139)
Acquisition of property and equipment (349,850) (3,433)
--------------------------------------------
Net cash used in investing activities (349,850) (8,572)
CASH FROM FINANCING ACTIVITIES
Payment of capital lease obligation (3,931) -
RSI loan 325,000 -
Members' contributions 1,041,356 72,739
-------------------------------------------
Net cash provided by financing activities 1,362,425 72,739
-------------------------------------------
Increase in cash 121,830 -
Cash at beginning of period - -
-------------------------------------------
Cash at end of period $ 121,830 $ -
===========================================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND
NONCASH INVESTING AND
FINANCING ACTIVITIES
Included in property and equipment at December 31, 1997 is $173,658 of
equipment acquired under a capital lease and $64,303 of equipment included in
accounts payable and accrued expenses.
See accompanying notes.
VERITECH VENTURES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Veritech Ventures, LLC (the "Company") was formed on July 5, 1996, as a New
York Limited Liability Company, pursuant to an operating agreement (the
"Members' Agreement") which will terminate on July 5, 2016 unless terminated
earlier by certain events, as defined, in such Members' Agreement.
The Company has been organized for the purpose of developing and implementing
concepts related to the integration of modern technology applications within
commercial and residential real estate operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
EQUIPMENT
Equipment is recorded at cost and is depreciated on the straight-line method
over its estimated useful life.
INCOME TAXES
The Company is taxed as a limited liability Company and, accordingly, no
provision for federal, state or local income taxes has been made in the
accompanying financial statements.
ORGANIZATION COSTS
Organization costs are being amortized on a straight-line basis over five
years.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments purchased with
a maturity of three months or less to be cash equivalents. At December 31,
1997, the Company's cash is maintained at one financial institution.
VERITECH VENTURES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION
For the year ended December 31, 1997, approximately 89% of revenue was
derived from one customer.
ADVERTISING COSTS
The Company's policy is to expense advertising costs as incurred. For the
year ended December 31, 1997, the Company incurred approximately $19,000 of
advertising expenses which are included in sales and marketing expenses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. MEMBERS' EQUITY
The Members' Agreement provides that the Company shall have two classes of
membership interest, managing and non-managing, with both classes voting
equally. The Agreement further provides governance for the maintenance of
individual member capital accounts, the allocation of profit and loss to such
capital accounts, the accretion of a preferred return to certain outstanding
member capital balances, and the return of such capital from available cash
flow.
3. RSI LOAN
In December 1997 and January 1998 the Company received loans from Reckson
Service Industries, Inc. ("RSI") in the amounts of $325,000 and $300,000,
respectively. The loans bear interest at 12% per annum and were contributed
to the joint venture formed by the Company and RSI in February 1998 (See Note
9).
VERITECH VENTURES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31
1997 1996
-----------------------------------
Wiring $ 138,486 $ -
Computer hardware, software
and equipment 378,319 3,433
Leasehold improvement 69,330 -
Furniture and fixtures 5,109 -
-----------------------------------
591,244 3,433
Less accumulated depreciation 22,794 477
------------------------------------
$568,450 $2,956
====================================
5. CAPITAL LEASE
In December 1997, the Company executed a long-term lease agreement for
equipment. The lease bears interest at 13.4% per annum and provides the
Company with a bargain purchase option. For financial reporting purposes, the
lease has been classified as a capital lease; accordingly, an asset of
$173,658 (included in property and equipment at December 31, 1997) has been
recorded.
The future minimum lease payments under the capital lease at December 31,
1997 is as follows:
1998 $70,632
1999 70,617
2000 64,732
-----------
Total minimum lease payment 205,981
Amounts representing interest (36,253)
Present value of net
-----------
Minimum lease payments (including
current portion of $50,945) $169,727
===========
VERITECH VENTURES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS
LEASES
The Company has lease commitments for office rentals which expire through
July 30, 2002. These operating leases provide for basic annual rents plus
escalation charges. Minimum commitments through the life of such lease are
approximately as follows:
1998 $102,000
1999 105,000
2000 115,000
2001 119,000
2002 71,000
---------
Total $512,000
=========
In accordance with the provisions of Statement of Financial Accounting
Standards No. 13, Accounting for Leases, the aggregate of the total minimum
lease payments is amortized on the straight-line method over the term of the
lease. The difference between the straight-line rent expense and the amounts
paid in accordance with the terms of the lease has been included in "Deferred
Rent". Rent expense was approximately $63,800 and $0 for the year ended
December 31, 1997 and for the period from July 5, 1996 (date of inception) to
December 31, 1996, respectively.
EMPLOYMENT AGREEMENTS
On January 6, 1997, the Company entered into a three-year employment
agreement which obligates the Company to a minimum of $100,000 per year in
guaranteed payments.
7. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997, the Company rented temporary office
space from its managing member whereby the Company paid approximately $5,250
to such managing member.
During the year ended December 31, 1997, the Company purchased $56,000 of
construction services from a related party of which $26,000 is included in
accounts payable at December 31, 1997.
8. ORGANIZATION
On February 7, 1997, the Company formed two wholly-owned subsidiaries, OnSite
Access, LLC and OnSite Access Local, LLC for purposes of implementing
distinct elements of its business intentions (i.e., providing Internet access
and local phone service, respectively).
VERITECH VENTURES LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SUBSEQUENT EVENT
On February 20, 1998, the Company entered into an agreement (the "RSI
Agreement") with RSI and other third parties whereby the parties agreed to
form a new company, OnSite Ventures, LLC ("OSV"). Pursuant to the RSI
Agreement, the Company has agreed to contribute to OSV all of its assets and
liabilities in consideration for approximately a 26% interest in OSV and RSI
has agreed to contribute $6.5 million in consideration for its approximate
59% interest in OSV.
NO DEALER, SALESPERSON OR OTHER RECKSON SERVICE INDUSTRIES, INC.
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR COMMON STOCK
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OR
OFFERING MADE PURSUANT HERETO SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
TABLE OF CONTENTS RIGHTS TO SUBSCRIBE
FOR COMMON STOCK
Page
Summary..................................6
Risk Factors............................19
The Distribution........................29
The Rights Offering.....................35 PROSPECTUS
Dividend Policy.........................38
Selected Financial Data.................38
Management's Discussion and
Analysis and Financial
Condition and Results
of Operations.........................40
Business................................44
Management..............................53
Beneficial Ownership of RSI
Common Stock..........................57
Certain Transactions....................61
Description of RSI Capital Stock........62
Certain Antitakeover Provisions.........67
Experts.................................75
Legal Matters...........................75
Index to Financial Statements..........F-1
UNTIL JULY 24, 1998 (25 DAYS AFTER THE
EXPIRATION DATE OF THE RIGHTS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN
THE COMMON STOCK DISTRIBUTED PURSUANT
HERETO, WHETHER OR NOT PARTICIPATING IN MAY 13, 1998
THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the Common Stock registered
hereby, all of which expenses, except for the SEC registration fee, are
estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- -------
<S> <C>
SEC Registration Fee................................ $ 7,433
Transfer Agent's and Registrar's Fee................ $ 25,000
Printing and Engraving Fees......................... $ 10,000
Legal Fees and Expenses............................. $500,000
Accounting Fees and Expenses........................ $150,000
Miscellaneous....................................... $ 57,567
--------
Total...................................... $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law (the "Delaware Law") provides that
a corporation may limit the liability of each director to the corporation of its
stockholders for monetary damages except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases, and (iv) for any transaction from which the
director derives an improper personal benefit. The Certificate of Incorporation
and Bylaws provide for the elimination and limitation of the personal liability
of directors of the Company for monetary damages to the fullest extent permitted
by the Delaware Law. In addition, the Certificate of Incorporation and Bylaws
provide that if the Delaware Law is amended to authorize the further elimination
or limitation of the liability of a director, then the liability of the
directors shall be eliminated or limited to the fullest extent permitted by the
Delaware Law, as so amended. The effect of this provision is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the situations
described in clauses (i) through (iv) above. The provision does not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a breach of a
director's duty of care. In addition, the Bylaws provide that the Company shall,
to the full extent permitted by the Delaware Law, as amended from time to time,
indemnify and advance expenses to each of its currently acting and former
directors, officers, members of the management advisory committee, employees and
agents.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Reckson Operating Partnership, L.P. has acquired 95% of the
Registrant's outstanding equity interests in the form of non-voting common stock
for $4,256,324. Lightpost LLC has acquired the remaining 5% of the Registrant's
outstanding equity interests in the form of voting common stock for $224,017.
The foregoing issuances of unregistered securities are claimed to be exempt from
the registration provisions of the Securities Act of 1933 pursuant to Section
4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
3.1 -- Certificate of Incorporation
3.2 -- Form of Amended and Restated Certificate
of Incorporation
3.3 -- Bylaws
4.1 -- Specimen Common Stock certificate
4.2 -- Form of Subscription certificate
5.1
8.1 -- Opinion of Brown & Wood LLP regarding the validity
of the securities being registered
10.1 -- Opinion of Brown & Wood LLP regarding certain tax
matters
10.1 -- Form of Intercompany Agreement between Reckson
Operating Partnership, L.P. and Reckson Service
Industries, Inc.
10.2A -- Form of Credit Agreement between Reckson Operating
Partnership, L.P. and Reckson Service Industries,
Inc. relating to the operations of Reckson Service
Industries, Inc.
10.2B -- Form of Credit Agreement between Reckson Operating
Partnership, L.P. and Reckson Service Industries,
Inc. relating to the operations of Reckson
Strategic Venture Partners, LLC
10.3 -- Form of Limited Liability Company Agreement of
OnSite Ventures L.L.C.
10.4 -- Standby Purchase Agreement
10.5 -- Limited Liability Company Agreement of RSVP
Holdings, LLC
10.6A -- Operating Agreement of Reckson Strategic Venture
Partners, LLC
10.6B -- Supplemental Agreement to Operating Agreement of
Reckson Strategic Venture Partners, LLC
10.7 -- Form of Registration Rights Agreement between
Reckson Service Industries, Inc. and certain
affiliates thereof
10.8 -- Option to Acquire Interoffice Superholdings
10.9 -- Loan Agreement regarding On-Site Convertible Loans
10.10 -- Stock Option Plan
10.11 -- Employment Agreement of Steven H. Shepsman
10.12 -- Employment Agreement of Seth V. Lipsay
21.1 -- List of Subsidiaries of Reckson Service Industries,
Inc.
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consents of Brown & Wood LLP (included as part of
exhibits 5.1 and 8.1)
24.1 -- Power of Attorney (set forth on page II-4 of the
Registration Statement)
99.1 -- Form of Letter to Stockholders regarding Rights
Offering
99.2 -- Subscription Agent Agreement between Reckson
Service Industries, Inc. and American Stock
Transfer & Trust Company
(b) Financial Statement Schedules.
Dobie Center -
Schedule III - Real Estate Investments, Accumulated Depreciation and
Amortization
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;"
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer of controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer of controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Melville, New York on May 12, 1998.
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Scott H. Rechler
-------------------------------------
Scott H. Rechler
President and Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Donald Rechler, Scott H. Rechler and Michael
Maturo, and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capabilities, to sign any and all amendments
(including post-efffective amendents) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the registration statement and Power of Attorney have been
signed by the following persons in the capacities and on the dates indicated.
Donald Rechler* Director and Chief
- -----------------------
Donald Rechler Executive Officer
/s/ Scott H. Rechler Director, President May 12, 1998
- ----------------------- and Chief Operating
Scott H. Rechler Officer (Principal
Executive Officer)
Michael Maturo* Director, Executive
- ------------------------ Vice President and
Michael Maturo Chief Financial
Officer (Principal
Financial and
Accounting Officer)
Roger Rechler* Director
- ------------------------
Roger Rechler
/s/ Gregg M. Rechler Director and Member May 12, 1998
- ------------------------
Gregg M. Rechler of Management
Advisory Committee
/s/ Mitchell D. Rechler Director, Secretary May 12, 1998
- ------------------------ and Member of
Mitchell D. Rechler Management Advisory
Committee
*By: /s/ Scott H. Rechler May 12, 1998
- -------------------------
Scott H. Rechler
Attorney-in-Fact
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------ -----------
3.1 -- Certificate of Incorporation
3.2 -- Form of Amended and Restated Certificate
of Incorporation
3.3 -- Bylaws
4.1 -- Specimen Common Stock certificate
4.2 -- Form of Subscription certificate
5.1 -- Opinion of Brown & Wood LLP regarding the validity of
the securities being registered
8.1 -- Opinion of Brown & Wood LLP regarding certain tax
matters
10.1 -- Form of Intercompany Agreement between Reckson Operating
Partnership, L.P. and Reckson Service Industries, Inc.
10.2A -- Form of Credit Agreement between Reckson Operating
Partnership, L.P. and Reckson Service Industries, Inc.
relating to the operations of Reckson Service Industries, Inc.
10.2B -- Form of Credit Agreement between Reckson Operating
Partnership, L.P. and Reckson Service Industries, Inc.
relating to the operations of Reckson Strategic Venture
Partners, LLC
10.3 -- Form of Limited Liability Company Agreement of OnSite
Ventures L.L.C.
10.4 -- Standby Purchase Agreement
10.5 -- Limited Liability Company Agreement of RSVP Holdings,
LLC
10.6A -- Operating Agreement of Reckson Strategic Venture
Partners, LLC
10.6B -- Supplemental Agreement to Operating Agreement of Reckson
Strategic Venture Partners, LLC
10.7 -- Form of Registration Rights Agreement between Reckson
Service Industries, Inc. and certain affiliates thereof
10.8 -- Option to Acquire Interoffice Superholdings
10.9 -- Loan Agreement regarding On-Site Convertible Loans
10.10 -- Stock Option Plan
10.11 -- Employment Agreement of Steven H. Shepsman
10.12 -- Employment Agreement of Seth V. Lipsay
21.1 -- List of Subsidiaries of Reckson Service Industries, Inc.
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consents of Brown & Wood LLP (included as part of
exhibits 5.1 and 8.1)
24.1 -- Power of Attorney (set forth on page II-4 of the Registration
Statement)
99.1 -- Form of Letter to Stockholders regarding Rights Offering
99.2 -- Subscription Agent Agreement between Reckson Service
Industries, Inc. and American Stock Transfer & Trust
Company
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
RECKSON STRATEGIC INC.
ARTICLE I
NAME
The name of the Corporation is
Reckson Strategic Inc.
(the "Corporation")
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the Corporation in the state of Delaware
is c/o the Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, New Castle County, Delaware 19801. The name
and address of the Corporation's registered agent is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
ARTICLE III
CORPORATE PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock of all classes which
the Corporation shall have authority to issue is two thousand (2,000)
shares consisting of the following:
(i) one thousand (1,000) shares of Common Stock, par value $0.01
per share ("Common Stock"); and (ii) one thousand (1,000) shares of Non-
Voting Common Stock, par value $0.01 per share ("Non-Voting Common
Stock").
Common Stock and Non-Voting Common Stock. The powers, preferences,
----------------------------------------
dividends, distributions and rights of, and the qualifications of, and
limitations and restrictions upon, the Common Stock and Non-Voting Common
Stock shall be identical except as follows:
(a) Common Stock Voting Rights. Except as set forth herein
--------------------------
or as otherwise required by law, each outstanding share of Common Stock shall
be entitled to vote on each matter on which the stockholders of the
Corporation shall be entitled to vote, and each holder of Common Stock shall
be entitled to one vote for each share of such stock held by such holder.
(b) Non-Voting Common Stock Voting Rights. Except as set
-------------------------------------
forth herein or as otherwise required by law, each outstanding share of Non-
Voting Common Stock shall not be entitled to vote on any matter on which the
stockholders of the Corporation shall be entitled to vote and shares of Non-
Voting Common Stock shall not be included in determining the number of shares
voting or entitled to vote on any such matters.
Preemptive Rights. No holder of any stock or any other securities
-----------------
of the Corporation, whether now or hereafter authorized, shall have any
preemptive rights to subscribe for or purchase any stock or any other
securities of the Corporation other than such rights, if any, as the Board of
Directors, in its sole discretion, may fix; and any stock or other securities
which the Board of Directors may determine to offer for subscription may,
within the Board of Directors' sole discretion, be offered to the holders of
any class, series or type of stock or other securities at the time
outstanding to the exclusion of holders of any or all other classes, series
or types of stock or other securities at the time outstanding.
ARTICLE V
CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VI
SOLE INCORPORATOR
The name and mailing address of the incorporator is as follows:
Name Mailing Address
-----------------------------------
Jason M. Barnett c/o Reckson Associates Realty Corp.
225 Broadhollow Road
Melville, New York 11747
The powers of the incorporator are to terminate upon the filing of the
Certificate of Incorporation.
ARTICLE VII
INITIAL DIRECTORS
The name and mailing address of each person who is to serve as an
initial director until the first annual meeting of stockholders or until such
initial director's successor is elected and qualified are as follows:
Name Mailing Address
----------------------------------------
c/o Reckson Associates Realty Corp.
225 Broadhollow Road
Jason M. Barnett Melville, New York 11747
----------------------- ---------------------------
c/o Reckson Associates Realty Corp.
225 Broadhollow Road
Thomas Carey Melville, New York 11747
----------------------- ---------------------------
c/o Reckson Associates Realty Corp.
225 Broadhollow Road
Todd Rechler Melville, New York 11747
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ARTICLE VIII
POWERS OF BOARD OF DIRECTORS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of this Corporation is expressly authorized:
(a) To make, alter, amend or repeal the By-Laws, except as otherwise
expressly provided in any By-Law made by the
holders of the capital stock of the Corporation entitled to vote
thereon. Any By-Law may be altered, amended or repealed by the
holders of the capital stock of the Corporation entitled to vote
thereon at any annual meeting or at any special meeting called for
that purpose.
(b) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
(c) To determine the use and disposition of any surplus and net profits
of the Corporation, including the determination of the amount of
working capital required, to set apart out of any of the funds of
the Corporation, whether or not available for dividends, a reserve
or reserves for any proper purpose and to abolish any such reserve
in the manner in which it was created.
(d) To designate, by resolution passed by a majority of the whole Board
of Directors, one or more committees, each committee to consist of
one or more directors of the Corporation, which, to the extent
provided in the resolution designating the committee or in the By-
Laws of the Corporation, shall, subject to the limitations
prescribed by law, have and may exercise all the powers and
authority of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal
of the Corporation to be affixed to all papers which may require
it. Such committee or committees shall have such name or names as
may be provided in the By-Laws of the Corporation or as may be
determined from time to time by resolution adopted by the Board of
Directors.
(e) To adopt such pension, retirement, deferred compensation or other
employee benefit plans or provisions as may, from time to time, be
approved by it, providing for pensions, retirement income, deferred
compensation or other benefits for officers or employees of the
Corporation and of any corporation which is a subsidiary of the
Corporation, in consideration for or in recognition of the services
rendered by such officers or employees or as an inducement to
future efforts.
(f) To exercise, in addition to the powers and authorities hereinbefore
or by law conferred upon it, any such powers and authorities and do
all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the laws
of the State of Delaware and of the Certificate of Incorporation
and of the By-Laws of the Corporation.
ARTICLE VII
INDEMNIFICATION
Section 1. Right to Indemnification. The corporation shall indemnify
------------------------
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made
or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(a "proceeding"), by reason of the fact that he, or a person for whom he is
legal representative, is or was a director or officer of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans (as "indemnitee"), against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
indemnitee. Subject to Section 3 hereof, the corporation shall be required
to indemnify an indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if the initiation of such proceeding (or
part thereof) by the indemnitee was authorized by the Board of Directors of
the corporation.
Section 2. Prepayment of Expenses. The corporation shall pay the
----------------------
expenses (including attorneys' fees) incurred by an indemnitee in defending
any proceeding in advance of its final disposition, provided, however, that
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the payment of expenses incurred by a director or officer in advance of the
final disposition of the proceeding shall be made only upon receipt of an
undertaking by the director or officer to repay all amounts advanced if it
should be ultimately determined that the director or officer is not entitled
to be indemnified under this Article or otherwise.
Section 3. Claims. If a claim for indemnification or payment of
------
expenses under this Article is not paid in full within sixty days after a
written claim therefor by the indemnitee has been received by the
corporation, the indemnitee may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to be
paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the indemnitee was not
entitled to the requested indemnification or payment of expenses under
applicable law.
Section 4. Nonexclusivity of Rights. The rights conferred on any
------------------------
person by this Article shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statue, provision of the
certificate of incorporation, these by- laws, agreement, vote of stockholders
or disinterested directors or otherwise.
Section 5. Other Indemnification. The corporation's obligation, if
---------------------
any, to indemnify or advance expenses to any person who was or is serving at
its request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such person may collect as indemnification or
advancement from such other corporation, partnership, joint venture, trust,
enterprise or nonprofit entity.
Section 6. Amendment or Repeal. Any repeal or modification of the
-------------------
foregoing provisions of this Article shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
ARTICLE VIII
ELECTION OF DIRECTORS
Elections of directors need not be by written ballot.
ARTICLE IX
LIABILITY OF DIRECTORS
A director of this corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any repeal or
modification of the foregoing sentence shall not adversely affect any right
or protection of a director of the Corporation existing hereunder with
respect to any act or omission occurring prior to such repeal or
modification.
ARTICLE X
RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by law, and all the provisions of this Certificate of
Incorporation and all rights and powers conferred in this Certificate of
Incorporation on stockholders, directors and officers are subject to this
reserved power.
The undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, 8 Del. Section 101, et seq., does make this
-- ---
Certificate, hereby declaring and certifying that the facts herein stated are
true; and accordingly has hereunto set her hand this day of July, 1997.
____________________________
Jason M. Barnett
Incorporator
Exhibit 3.2
FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
RECKSON SERVICE INDUSTRIES, INC.
It is hereby certified that:
1. The present name of the corporation (hereinafter called the
"Corporation") is Reckson Service Industries, Inc. The name under
which the Corporation was originally incorporated was Reckson
Strategic Inc., and the date of filing the original certificate of
incorporation of the Corporation with the Secretary of State of the
State of Delaware was July 15, 1997, as amended by certificates of
amendment to the certificate of incorporation on January 8, 1998 and
March 4, 1998.
2. The certificate of incorporation is hereby amended and restated in
its entirety as set forth in the First Amended and Restated
Certificate of Incorporation hereinafter set forth.
3. The provisions of the certificate of incorporation of the Corporation
as herein amended are hereby restated and integrated into the single
instrument which is hereinafter set forth, and which is entitled
First Amended and Restated Certificate of Incorporation of Reckson
Service Industries, Inc., without any further amendments other than
the amendments herein certified.
4. As of the date this amendment and restatement of the certificate of
incorporation is filed with the Secretary of State of the State of
Delaware, the Corporation has received payment for its outstanding
capital stock.
5. This First Amended and Restated Certificate of Incorporation has been
duly adopted by the Corporation in accordance with the provisions of
Sections 103, 242 and 245 of the General Corporation Law of the State
of Delaware and by the shareholders in accordance with Section 228 of
the General Corporation Law of the State of Delaware.
6. The certificate of incorporation of the Corporation, as amended and
restated herein, shall at the effective time of this First Amended
and Restated Certificate of Incorporation read as follows:
ARTICLE I.
The name of the corporation is: Reckson Service Industries, Inc.
(the "Corporation").
ARTICLE II.
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
ARTICLE III.
PURPOSE
The purposes for which the Corporation is organized are: (a) to identify
and acquire interests in operating companies that engage in businesses that
provide services for occupants of office, industrial and other property types;
(b) to become a lessee and operator of various types of assets, including
certain real estate owned or to be owned directly or indirectly by (i) Reckson
Associates Realty Corp., a Maryland real estate investment trust ("Reckson
Associates"), or Reckson Operating Partnership, L.P., a Delaware limited
partnership (the "Operating Partnership", and collectively with Reckson
Associates, "Reckson") or (ii) other persons or entities whether or not
affiliated with Reckson; (c) to perform an agreement to be entered into by and
between the Corporation and the Operating Partnership (the "Intercompany
Agreement") pursuant to which the Corporation and the Operating Partnership
will agree to provide each other with rights of first opportunity with respect
to certain transactions and activities; (d) to be prohibited, in accordance
with the Intercompany Agreement, from developing, pursuing or taking advantage
of opportunities to acquire, or otherwise make an investment in, real estate
that is structured in a manner that qualifies under the federal tax law
requirements applicable to real estate investment trusts for so long as the
Intercompany Agreement remains effective, unless and until the Corporation, in
accordance with the terms of the Intercompany Agreement, has offered any such
opportunity to the Operating Partnership and the Operating Partnership has
chosen not to pursue such opportunity; and (e) to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as from time to time amended (the "DGCL").
ARTICLE IV.
CAPITAL STOCK
The Corporation shall have the authority to issue a total of 150,000,000
shares of capital stock, each with a par value of $.01, consisting of
100,000,000 shares of common stock ("Common Stock"), 25,000,000 shares of
excess stock ("Excess Stock") and 25,000,000 shares of preferred stock
("Preferred Stock").
ARTICLE V.
COMMON STOCK
Section A. Common Stock Subject to Terms of Preferred Shares. Common Stock
shall be subject to the express terms of any series of Preferred Stock.
Section B. Dividend Rights. Subject to any preferential rights of any
outstanding series of Preferred Stock, the holders of Common Stock shall be
entitled to receive such dividends as may be declared by the board of
directors out of funds legally available therefor.
Section C. Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any distribution of the
assets in connection therewith, of the Corporation, the aggregate assets
available for distribution to holders of Common Stock shall be determined in
accordance with applicable law. Each holder of Common Stock shall be entitled
to receive, ratably with each other holder of Common Stock, that portion of
such aggregate assets available for distribution as the number of outstanding
Common Stock held by such holder bears to the total number of outstanding
Common Stock.
Section D. Voting Rights. Except as may otherwise be provided herein, and
subject to the express terms of any series of Preferred Stock, the holders of
Common Stock shall have the exclusive right to vote on all matters (as to
which a holder of common stock shall be entitled to vote pursuant to
applicable law) at all meetings of the stockholders of the Corporation and
shall be entitled to one (1) vote for each share of Common Stock entitled to
vote at such meeting.
ARTICLE VI.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series as
authorized by the board of directors. The board of directors is hereby
authorized, by filing a certificate pursuant to the DGCL (the "Preferred Stock
Designation"), to establish from time to time the number of shares to be
included in each series, and to fix the designations, voting powers,
privileges, preferences, terms and rights, and the limitations, restrictions
and qualifications, of the shares of each series. The authority of the board
of directors with respect to each series shall include, but not be limited to,
determination of the following:
(a) the designation of the series, which may be by distinguishing number,
letter or title;
(b) the number of shares of the series, which number the board of
directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding);
(c) whether dividends, if any, shall be cumulative or noncumulative, and,
in the case of shares of any series having cumulative dividend rights, the
date or dates or method of determining the date or dates from which dividends
on the shares of such series shall be cumulative;
(d) the rate of any dividends (or method of determining such dividends)
payable to the holders of the shares of such series, any conditions upon which
such dividends shall be paid and the date or dates or the method for
determining the date or dates upon which such dividends shall be payable;
(e) the price or prices (or method of determining such price or prices)
at which, the form of payment of such price or prices (which may be cash,
property or rights, including securities of the same or another corporation or
other entity) for which, the date or dates on which or the period or periods
within which and the terms and conditions upon which the shares of such series
may be redeemed or exchanged, in whole or in part, at the option of the
Corporation or at the option of the holder or holders thereof or upon the
happening of a specified event or events, if any;
(f) the obligation, if any, of the Corporation to purchase, exchange or
redeem shares of such series pursuant to a sinking fund or otherwise and the
price or prices at which, the form of payment of such price or prices (which
may be cash, property or rights, including securities of the same or another
corporation or other entity) for which, the date or date on which or the
period or periods within which and the terms and conditions upon which the
shares of such series shall be redeemed, exchanged or purchased, in whole or
in part, pursuant to such obligation;
(g) the amounts payable on and the preferences, if any, of shares of such
series in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation;
(h) provisions, if any, for the conversion or exchange of the shares of
such series, at any time or times at the option of the holder or holders
thereof or at the option of the Corporation or upon the happening of a
specified event or events, into shares of any other class or classes or any
other series of the same or any other class or classes of stock, or any other
security, of the Corporation, or any other corporation or other entity, and
the price or prices or rate or rates of conversion or exchange and any
adjustments applicable thereto, and all other terms and conditions upon which
such conversion or exchange may be made;
(i) restrictions on the issuance of shares of such series or of any other
class or series, if any;
(j) the voting rights, if any, of the holders of shares of such series;
and
(k) any other relative rights, preferences and limitations on such
series.
(l) Subject to the express provisions of any other series of Preferred
Stock then outstanding, and notwithstanding any other provision contained
herein, the board of directors may increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares, or
amend the voting powers, designations, preferences and relative,
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions of the shares of any such series of Preferred
Stock.
ARTICLE VII.
SOLE INCORPORATOR
The name and mailing address of the incorporator is as follows:
Name Mailing Address
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Jason M. Barnett 225 Broadhollow Rd.
Melville, New York 11747
The powers of the incorporator are to terminate upon the filing of the
Certificate of Incorporation.
ARTICLE VIII.
BOARD OF DIRECTORS
Section A. Initial Directors. The name and mailing address of the persons
who are to serve as the directors until the first annual meeting of
stockholders in 1999 or until his or her successor is elected and qualifies is
as follows:
Name Mailing Address
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Donald J. Rechler 225 Broadhollow Rd.
Melville, New York 11747
Roger M. Rechler 225 Broadhollow Rd.
Melville, New York 11747
Scott H. Rechler 225 Broadhollow Rd.
Melville, New York 11747
Michael Maturo 225 Broadhollow Rd.
Melville, New York 11747
Gregg M. Rechler 225 Broadhollow Rd.
Melville, New York 11747
Section B. Powers of the Board of Directors. The business of the
Corporation shall be managed by the board of directors.
Section C. Number of Directors Constituting the Board. Subject to any
rights of holders of any class or series of stock having a preference over the
Common Stock as to dividends to elect additional directors under specified
circumstances (the "Preferred Holders' Rights"), the number of directors shall
be fixed by the by-laws of the Corporation.
Section D. Election and Terms of Directors. The directors, other than any
directors elected by the holders of any class or series of stock having a
preference over the Common Stock as to dividends, shall be classified, with
respect to the time which they severally hold office, into three classes, each
class constituting approximately one-third of the total number of directors.
One class will be originally elected for a term expiring at the annual meeting
of stockholders to be held in 1999, another class will be originally elected
for a term expiring at the annual meeting of stockholders to be held in 2000,
and another class will be originally elected for a term expiring at the annual
meeting of stockholders to be held in 2001, with directors in each class to
hold office until a successor is duly elected and qualified. At each
succeeding annual meeting of stockholders, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until such person's successor
shall have been duly elected and qualified.
Section E. Vacancies. Except as otherwise provided for or fixed pursuant
to the provisions of Article VI hereof relating to the rights of the holders
of any class or series of stock having a preference over the Common Stock as
to dividends to elect additional directors under specified circumstances,
newly created directorships resulting from any increase in the authorized
number of directors and any vacancies on the board of directors resulting from
death, resignation, disqualification, removal or other cause shall only be
filled by the board of directors.
Section F. Election of Directors. The directors of the Corporation shall
not be required to be elected by written ballots unless the Bylaws of the
Corporation so provide.
Section G. Removal of Directors. Subject to any Preferred Holders'
Rights, directors may be removed only for cause upon the affirmative vote of
holders of at least 80% of the entire voting power of all the then-outstanding
shares of stock entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class.
Section H. Relevant Factors to be Considered by the Board of Directors.
In determining what is in the best interest of the Corporation in evaluating a
transaction, a director of the Corporation shall consider all of the relevant
factors, which may include: (i) the immediate and long-term effects of the
transaction on the Corporation's stockholders, including stockholders, if any,
who do not participate in the transaction; (ii) the social and economic
effects of the transaction on the Corporation's employees, suppliers,
creditors and customers and others dealing with the Corporation and on the
communities in which the Corporation operates and is located; (iii) whether
the transaction is acceptable, based on the historical and current operating
results and financial condition of the Corporation; (iv) whether a more
favorable price would be obtained for the Corporation's stock or other
securities in the future; (v) the reputation and business practices of the
other party or parties to the proposed transaction, including its or their
management and affiliates, as they would affect employees of the Corporation;
(vi) the future value of the Corporation's securities; (vii) any legal or
regulatory issues raised by the transaction; (viii) the effect on the
Intercompany Agreement; and (ix) the business and financial condition and
earnings prospects of the other party or parties to the proposed transaction,
including, without limitation, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
transaction, and other foreseeable financial obligations of such other party
or parties.
Section I. Amendment of Certain Provisions of Article VIII.
Notwithstanding anything contained herein to the contrary, the affirmative
vote of the holders of at least 80% of the Voting Stock then outstanding,
voting together as a single class, shall be required to alter, amend or adopt
any provision inconsistent with, or to repeal, this Article VIII.
ARTICLE IX.
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such
holders. Except as otherwise required by law and subject to the rights of any
class or series of stock having a preference over the Common Stock as to
dividends, special meetings of stockholders of the Corporation for any purpose
or purposes may be called only by the Chairman of the Board, the Vice Chairman
of the Board, the President or the board of directors pursuant to a resolution
stating the purpose or purposes thereof. Any power of stockholders to call a
special meeting is otherwise specifically denied. No business other than that
stated in the notice shall be transacted at any special meeting.
Notwithstanding anything contained herein to the contrary, the affirmative
vote of the holders of at least 80% of the Voting Stock, voting together as a
single class, shall be required to alter, amend, or adopt any provision
inconsistent with, or to repeal, this Article IX.
ARTICLE X.
RESTRICTIONS ON BUSINESS COMBINATIONS
The Corporation will be governed by Del. Code Ann. Tit. 8, Section 203
(1991); provided, however, that the restrictions contained in Section 203
shall not apply to any transaction with Reckson and any Reckson affiliate. For
purposes of this First Amended and Restated Certificate of Incorporation,
"affiliate" shall have the meaning set forth in Rule 405 of Regulation C
promulgated under the Securities Act of 1933, as amended.
ARTICLE XI.
DURATION OF CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE XII.
BY-LAWS
The Bylaws may be altered or repealed and new Bylaws may be adopted (i)
at any annual or special meeting of stockholders, by the affirmative vote of
the holders of at least 80% of the Voting Stock, voting together as a single
class, provided that in the case of any such stockholder action at a special
meeting of stockholders notice of the proposed alteration, repeal or adoption
of the new Bylaw or Bylaws must be contained in the notice of such special
meeting, or (ii) by the affirmative vote of a majority of the board of
directors.
Notwithstanding anything contained herein to the contrary, the
affirmative vote of the holders of at least 80% of the Voting Stock, voting
together as a single class, shall be required to alter, amend, adopt any
provision inconsistent with, or to repeal, this Article XII.
ARTICLE XIII.
DIRECTOR LIABILITY
Section A. Limited Liability of Directors. A director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except, if
required by the DGCL, as amended from time to time, for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit. Neither the amendment nor repeal of Section A of
this Article XIII shall eliminate or reduce the effect of Section A of this
Article XIII in respect of any matter occurring, or any cause of action, suit
or claim that, but for Section A of this Article XIII would accrue or arise,
prior to such amendment or repeal.
Section B. Indemnification and Insurance.
1. Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that such person, or a person of whom
such person is the legal representative, is or was a director, officer or
member of the management advisory committee of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the DGCL,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, amounts paid or to be paid in
settlement, and excise taxes or penalties arising under the Employee
Retirement Income Security Act of 1974, as in effect from time to time)
reasonably incurred or suffered by such person in connection therewith and
such indemnification shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; provided, however, that, except
as provided in paragraph (2) hereof the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the board of directors. The right to indemnification
conferred in this Section shall be a contract right and shall include the
right to have the Corporation pay the expenses incurred in defending any such
proceeding in advance of its final disposition, subject to the provisions of
the DGCL; such advance payments to be paid by the Corporation within 20
calendar days after the receipt by the Corporation of a statement or
statements from the claimant requesting such advance or advances from time to
time; provided, however, that, if and to the extent the DGCL requires, the
payment of such expenses incurred by a director, officer or member of the
management advisory committee in such person's capacity as a director, officer
or member of the management advisory committee (and not in any other capacity
in which service was or is rendered by such person while a director, officer
or member of the management advisory committee, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
proceeding shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director, officer or member of the
management advisory committee, to repay all amounts so advanced if it shall
ultimately be determined that such director, officer or member of the
management advisory committee is not entitled to be indemnified under this
Section or otherwise. The Corporation may, to the extent authorized from time
to time by the board of directors, grant rights to indemnification, and rights
to have the Corporation pay the expenses incurred in defending any proceeding
in advance of its final disposition, to any employee or agent of the
Corporation to the fullest extent of the provisions of this Article with
respect to the indemnification and advancement of expenses of directors,
officers and members of the management advisory committee of the Corporation.
2. Right of Claimant to Bring Suit. If a claim under paragraph (1) of
this Section is not paid in full by the Corporation within 30 calendar days
after a written claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim to the extent successful therein. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standard of conduct which makes
it permissible under the DGCL for the Corporation to indemnify the claimant
for the amount, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because the claimant has met the applicable
standard of conduct set forth in the DGCL, nor an actual determination by the
Corporation (including its directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
3. Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of this First Amended and Restated Certificate of Incorporation,
Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise. No repeal or modification of this Article shall in any way diminish
or adversely affect the rights of any director, officer, member of the
management advisory committee, employee or agent of the Corporation hereunder
in respect of any occurrence or matter arising prior to any such repeal or
modification.
4. Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, member of the management advisory
committee, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such
expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the DGCL.
5. Severability. If any provision or provisions of this Article XIII
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, (i) the validity, legality and enforceability of the remaining
provisions of this Article XIII (including, without limitation, each portion
of any paragraph of this Article XIII containing any such provision held to be
invalid, illegal or unenforceable, that is not itself held to be invalid,
illegal or unenforceable) shall not in any way be affected or impaired
thereby; and (ii) to the fullest extent possible, the provisions of this
Article XIII (including, without limitation, each such portion of any
paragraph of this Article XIII containing any such provision held to be
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
ARTICLE XIV.
AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this First Amended
and Restated Certificate of Incorporation, and any other provisions authorized
by the law of the State of Delaware at the time in force may be added or
inserted, in the manner now or hereafter prescribed by law, and, except as set
forth in Article XIII, all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons whomsoever
by and pursuant to this First Amended and Restated Certificate of
Incorporation in its present form or as hereafter amended are granted subject
to the rights reserved in this Article. Notwithstanding anything contained in
this First Amended and Restated Certificate of Incorporation to the contrary,
the affirmative vote of the holders of at least 80% of the Voting Stock,
voting together as a single class, shall be required to alter, amend, or adopt
any provision inconsistent with, or to repeal, Article VIII, IX, XII or this
sentence.
ARTICLE XV.
VOTING RIGHTS OF CERTAIN CONTROL SHARES
Section A. Definitions. In this Article XV, the following words have the
meanings indicated:
1. "Acquiring person" means a person who makes or proposes to make a
control share acquisition.
2. "Associate," when used to indicate a relationship with any person,
means:
(a) Any corporation, entity or organization (other than the Corporation
or a subsidiary of the Corporation) of which such person is an
officer, director, or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity
securities;
(b) Any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity; and
(c) Any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director or
officer of the corporation or any of its affiliates; or
(d) A person that:
(1) Directly or indirectly controls, or is controlled by, or is
under common control with, the person specified; or
(ii) Is acting or intends to act jointly or in concert with the
person specified.
3. "Control shares"
(a) means shares of stock that, except for this Article, would, if
aggregated with all other shares of stock of the Corporation
(including shares of stock the acquisition of which is excluded
from the definition of "control share acquisition" in
subsection (A)(4) of this section) owned by a person or in
respect of which that person is entitled to exercise or direct
the exercise of voting power, except solely by virtue of a
revocable proxy, entitle that person, directly or indirectly,
to exercise or direct the exercise of the voting power of
shares of stock of the Corporation in the election of directors
within any of the following ranges of voting power:
(i) One-fifth or more, but less than one third of all
voting power,
(ii) One-third or more, but less than majority of all voting
power, or
(iii) A majority or more of all voting power;
(b) includes shares of stock of the Corporation only to the extent
that the acquiring person, following the acquisition of the
shares, is entitled, directly or indirectly, to exercise or
direct the exercise of voting power within any level of voting
power set forth in this section for which approval has not been
obtained previously under Section B of this Article;
(c) do not include shares of stock of the Corporation owned by
Reckson or any Reckson affiliate, or in respect of which
Reckson or any Reckson affiliate is entitled to exercise or
direct the exercise of the voting power of such shares of the
Corporation in the election of directors.
4. "Control share acquisition"
(a) means the acquisition, directly or indirectly, by any
person, of ownership of, or the power to direct the
exercise of voting power with respect to, issued and
outstanding control shares.
(b) does not include the acquisition of shares of stock:
(i) Under the laws of descent and distribution;
(ii) Under the satisfaction of a pledge or other security
interest charged in good faith and not for the purpose of
circumventing this Article; or
(iii) Under a merger, consolidation, or share exchange if the
Corporation is a party to the merger, consolidation, or
share exchange.
(c) Unless the acquisition entitles any person, directly or indirectly,
to exercise or direct the exercise of voting power in the election
of directors in excess of the range of voting power previously
authorized or attained under an acquisition that is exempt under
paragraph (b) of this subsection, "control share acquisition" does
not include the acquisition of shares of the Corporation in good
faith and not for the purpose of circumventing this Article by or
from:
(i) Any person whose voting rights have previously been
authorized by stockholders in compliance with this Article;
or
(ii) Any person whose previous acquisition of shares of
beneficial interest of the Corporation would have
constituted a control share acquisition but for paragraph
(b) of this subsection.
5. "Interested shares" means shares of voting stock of the Corporation in
respect of which any of the following persons is entitled to exercise or
direct the exercise of the voting power of shares of voting stock of the
Corporation in the election of directors:
(a) An acquiring person;
(b) An officer of the Corporation; or
(c) An employee of the corporation who is also a Director of the
Corporation.
6. "Person" includes an associate of the person.
Section B Voting Rights
1. Approval by Stockholders. Holders of control shares of the
Corporation acquired in a control share acquisition have no voting
rights or powers (collectively, "voting rights") in respect of such
control shares except to the extent approved by the stockholders at
a meeting held under Section D of this Article by the affirmative
vote of two-thirds of all the votes entitled to be cast on the
matter, excluding all interested shares.
2. Acquisition of Shares; Voting Power. For the purposes of Section
A(3) of this Article:
(a) Shares of stock acquired within 90 days of shares acquired
under a plan to make a control share acquisition are
considered to have been acquired in the same acquisition;
and
(b) A person may not be deemed to be entitled to exercise or
direct the exercise of voting power with respect to shares
of stock held for the benefit of others if the person:
(i) Is acting in the ordinary of this course of
business, in good faith and not for the purpose of
circumventing the provisions section; and
(ii) Is not entitled to exercise or to direct the
exercise of the voting power of the shares unless
the person first seeks to obtain the instruction of
another person.
Section C. Acquiring Person Statement. Any person who proposes to make or
who has made a control share acquisition may deliver an acquiring person
statement to the Corporation at the Corporation's principal office. The
acquiring person statement shall set forth all of the following:
1. The identity of the acquiring person and each other member of any
group of which the person is a part for purposes of determining
control shares;
2. A statement that the acquiring person statement is given under
this Article;
3. The number of shares of the Corporation owned (directly or
indirectly) by the acquiring person and each other member of any
group;
4. The applicable range of voting power as set forth in Section A(3)
of this Article; and
5. If the control share acquisition has not occurred
(a) A description in reasonable detail of the terms of the
proposed control share acquisition; and
(b) Representations of the acquiring person, together with a
statement in reasonable detail of the facts on which they
are based, that:
(i) The proposed control share acquisition, if
consummated, will not bc contrary to law; and
(ii) The acquiring person has the financial capacity,
through financing to be provided by the acquiring
person and any additional specified sources of
financing required under Section E of this Article,
to make the proposed control share acquisition.
Section D. Special Meeting
1. Request by Acquiring Person. Except as provided in Section E of
this Article, if the acquiring person requests, at the time of
delivery of an acquiring person statement, and gives a written
undertaking to pay the Corporation's expenses of a special
meeting, except the expenses of opposing approval of the voting
rights of the holder in respect of such control shares, of the
control shares of the holder or holders thereof within 10 days
after the day on which the Corporation receives both the request
and undertaking, the directors of the Corporation shall call a
special meeting of stockholders of the Corporation for the purpose
of considering the voting rights to be accorded with respect to
the shares acquired or to be acquired in the control share
acquisition.
2. Bond. The Corporation may require the acquiring person to give
bond, with sufficient surety, to reasonably assure the Corporation
that this undertaking will be satisfied.
3. Time for Meeting. Unless the acquiring person agrees in writing to
another date the special meeting of stockholders shall be held
within 50 days after the day on which the Corporation has received
both the request and the undertaking.
4. Delay at Request of Acquiring Person. If the acquiring person
makes a request in writing at the time of delivery of the
acquiring person statement, the special meeting may not be held
sooner than 30 days after the day on which the Corporation
receives the acquiring person statement.
5. In Absence of Request.
(a) If no request is made under subsection 1 of this Section,
the issue of the voting rights to be accorded to the holder
in respect of such control shares acquired in the control
shares acquisition may, at the option of the Corporation,
be presented for consideration at any meeting of
stockholders.
(b) If no request is made under subsection 1 of this section
and the Corporation proposes to present the issue of the
voting rights to be accorded to the holder in respect of
such control shares acquired in a control share acquisition
for consideration at any meeting of stockholders, the
Corporation shall provide the acquiring person with written
notice of the proposal not less than 20 days before the
date on which notice of the meeting is given.
Section E. Calls. A call of a special meeting of stockholders of the
Corporation is not required to be made under Section D(l) of this Article
unless, at the tine of delivery of an acquiring person statement under Section
C of this Article, the acquiring person has:
1. Entered into a definitive financing agreement of agreements with
one or more responsible financial institutions or other entities
that have the necessary financial capacity, providing for any
amount of financing of the control share acquisition not to be
provided by the acquiring person; and
2. Delivered a copy of the agreements to the Corporation.
Section F. Notice of Meeting.
1. In General. If a special meeting of stockholders is requested,
notice of the special meeting shall be given as promptly as
reasonably practicable by the Corporation to all stockholders of
record as of the record date set for the meeting, whether or not
the stockholder is entitled to vote at the meeting.
2. Contents. Notice of the special or annual meeting of stockholders
at which the voting rights of the holder in respect of such
control shares are to be considered shall include or be
accompanied by the following:
(a) A copy of the acquiring person statement delivered to the
Corporation under Section C of this Article; and
(b) A statement by the board of directors of the Corporation
setting forth the position or recommendation of the board,
or stating that the board is taking no position or making
no recommendation, with respect to the issue of voting
rights to be accorded the control shares.
Section G. Redemption Rights.
1. Upon delivery of acquiring person statement. If an acquiring
person statement has been delivered on or before the 10th day
after the control share acquisition, the Corporation at its
option, shall have the right to redeem for "fair value" (as
defined herein) any or all control shares, except control shares
for which voting rights in respect of the holder thereof have been
previously approved under Section B of this Article, at any time
during a 60-day period commencing on the day of a meeting at which
voting rights are considered under Section D of this Article and
are not approved.
2. In absence of delivery of acquiring person statement. In addition
to the redemption rights authorized under subsection 1 of this
Section, if an acquiring person statement has not been delivered
on or before the 10th day after the control share acquisition, the
Corporation, at its option, shall have the right to redeem any or
all control shares, except control shares for which voting rights
have been previously approved under Section B of this Article, at
any time during a period commencing on the 11th day after the
control share acquisition and ending 60 days after a statement has
been delivered.
3. Fair value. Any redemption of control shares under this section
shall be at the fair value of the shares, is determined by the
board of directors in its discretion. For purposes of this
section, "fair value" shall be determined:
(a) As of the date of the last acquisition of control shares by
the acquiring person in a control share acquisition or, if
a meeting is held under Section D of this Article as of the
date of the meeting;
(b) Without regard to the absence of voting rights of the
holders of such control shares; and
(c) "Fair Market Value" means, in the case of the stock, the
highest closing sale price during the 30-day period
immediately prior to and including the date in question of a
share of stock on the principal United States securities
exchange registered under the 1934 Act (or any subsequent
provisions replacing such Act or the rules and regulations
promulgated thereunder) on which such stock is listed, or,
if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of
such stock during the 30-day period immediately prior to and
including the date in question on the National Association
of Securities Dealers Automated Quotation System or any
comparable system then in use, or if no such quotations are
available, the fair market value on the date in question of
a share of such stock as determined by the affirmative vote
of a majority of the board of directors in good faith; and
Section H. Status as Dissenting Stockholders.
1. In General. Before a control share acquisition has occurred, if
voting rights for an acquiring person's control shares are
approved at a meeting held under Section D of this Article and the
acquiring person is entitled to exercise or direct the exercise of
a majority or more of all voting power in respect of such control
share, then the Certificate of Incorporation of the Corporation
shall be amended to so state and all stockholders of the
Corporation (other than the acquiring person) have the rights of
dissenting stockholders under the DGCL.
2. Corporation Deemed Successor. For purposes of applying the
provisions of the DGCL to stockholders under this Section H, the
Corporation shall be deemed to be a successor in a merger and the
date of the most recent approval of voting rights referred to in
subsection 1 of this Section shall be deemed to be the date of
filing of a certificate of merger or corresponding document for
record as therein provided.
3. Status To Be Contained in Notice. The notice required by Section F
of this Article shall also state that stockholders (other than the
acquiring person) are entitled to the rights of dissenting
shareholders under the DGCL and shall include a copy of the
applicable provisions thereof.
4. Application of DGCL. For purposes of applying the provisions of
Section 262 of the DGCL to this Section:
(a) Fair value" may not be less than the highest price per
share paid by the acquiring person in the control share
acquisition;
(b) and the second, third, fourth and fifth sentences of
Section 262(d)(1) of the DGCL do not apply; and
(c) There shall be no requirement that the dissenting
stockholder shall not have voted in favor of the action.
ARTICLE XVI
RESTRICTION ON TRANSFER
ACQUISITION AND REDMPTION OF SHARES
Section A. Definitions.
For Purposes of this Article XVI, the following terms shall have the
following meanings:
"Aggregate Ownership Limit" shall mean 9.9 percent of the aggregate value
of all outstanding Equity Stock. The value of the outstanding Equity Stock
shall be determined by the Board of Directors in good faith, which
determination shall be conclusive for all purposes hereof.
"Beneficial Ownership" shall mean ownership of Common Stock or Equity
Stock by a Person who would be treated as an owner of such stock under Section
856(d)(5) of the Code, either directly or constructively through the
application of Section 318(a) of the Code. The terms "Beneficial Owner,"
"Beneficially Owns," "Beneficially Own," and "Beneficially Owned" shall have
the correlative meanings.
"Charitable Beneficiary" shall mean the beneficiary of the Trust as
determined pursuant to Section L of this Article XVI. The term "Charitable
Beneficiaries" shall have the correlative meaning.
"Common Stock" shall mean the common stock of the Corporation.
"Distribution" shall mean the distribution of the Common Stock held by
Reckson to its shareholders.
"Equity Stock" shall mean any class of stock of the Corporation,
including Common Stock.
"Excepted Holder" shall mean any Person who is the Beneficial Owner of
Common Stock in excess of the Ownership Limit immediately after the
Distribution or who becomes an Excepted Holder pursuant to the provisions of
Section H of this Article XVI, so long as, but only so long as, such Person
Beneficially Owns Common Stock in excess of the Ownership Limit or Equity
Stock in excess of the Aggregate Ownership Limit.
"Excepted Holder Aggregate Ownership Limit" shall initially mean, for any
Excepted Holder, the percentage (rounded up to the nearest tenth of a
percentage point) of the aggregate value of the outstanding Equity Stock as
shall be Beneficially Owned by such Excepted Holder immediately after the
Distribution and, after any adjustments set forth in Section H of this Article
XVI, shall mean such percentage of the outstanding Equity Stock as so
adjusted. The value of the outstanding Equity Stock shall be determined by the
Board of Directors in good faith, which determination shall be conclusive for
all purposes hereof.
"Excepted Holder Ownership Limit" shall initially mean, for any Excepted
Holder, the percentage (rounded up to the nearest tenth of a percentage point)
of the total number of shares or value of the outstanding Common Stock as
shall be Beneficially Owned by such Excepted Holder immediately after the
Distribution and, after any adjustments set forth in Section H of this Article
XVI, shall mean such percentage of the outstanding Common Stock as so
adjusted. The number and value of shares of the outstanding Common Stock shall
be determined by the Board of Directors in good faith, which determination
shall be conclusive for all purposes hereof.
"Market Price" shall mean the last reported sales price reported on the
New York Stock Exchange of Equity Stock on the trading day immediately
preceding the relevant date, or if not then traded on the New York Stock
Exchange, the last reported sales price of the Equity Stock on the trading day
immediately preceding the relevant date as reported on any exchange or
quotation system over which the Equity Stock may be traded, or if not then
traded over an exchange or quotation system, then the market price of the
Equity Stock on the relevant date as determined in good faith by the Board of
Directors of the Corporation.
"Ownership Limit" shall mean 9.9% of the number of shares or value of the
outstanding Common Stock. The Corporation may, in Articles Supplementary,
determine a limit on the ownership of one or more classes or series of its
Preferred Stock. From and after such determination, references to the
Ownership Limit herein shall include any such limit, as applicable. The number
and value of shares of the outstanding Common Stock and Preferred Stock shall
be determined by the Board of Directors in good faith, which determination
shall be conclusive for all purposes hereof.
"Person" shall mean an individual, company, partnership, limited
liability company, estate, trust or other entity; but shall not include an
underwriter which participated in a public offering of the Equity Stock for a
period of 25 days following the purchase by such underwriter of the Equity
Stock.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which results in Excess Stock (as defined below in Section
D of this Article XVI), the purported beneficial transferee for whom the
Purported Record Transferee would have acquired shares of Common Stock or
Equity Stock, as the case may be, if such Transfer had been valid under
Sections B and C of this Article XVI.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in Excess Stock, the record holder of the Common Stock
or Equity Stock, as the case may be, if such Transfer had been valid under
Sections B and C of this Article XVI.
"Standby Agreement" shall mean that certain agreement between RSI Standby
LLC and the Corporation with respect to the purchase by RSI Standby LLC and
the sale by the Corporation of Common Stock upon the expiration of certain
subscription rights distributed by the Corporation immediately after the
Distribution to holders of Common Stock.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Common Stock or Equity Stock, including (i) the granting
of any option or entering into any agreement for the sale, transfer or other
disposition of Common Stock or Equity Stock or (ii) the sale, transfer,
assignment or other disposition of any securities or rights convertible into
or exchangeable for Common Stock or Equity Stock whether voluntary or
involuntary, whether of record or beneficially and whether by operation of law
or otherwise. The terms "Transfers" and "Transferred" shall have the
correlative meanings.
"Trust" shall mean the trust created pursuant to Section L of this
Article XVI.
"Trustee" shall mean the Corporation, as trustee for the Trust, and any
successor trustee appointed by the Corporation
Section B. Ownership Limitations
(1) Except as provided in Section I of this Article XVI, no Person
(other than an Excepted Holder) shall Beneficially Own shares of
Common Stock or Preferred Stock in excess of the Ownership Limit
and no Excepted Holder shall Beneficially Own shares of Common
Stock in excess of the Excepted Holder Ownership Limit for such
Excepted Holder.
(2) Except as provided in Section I of this Article XVI, any Transfer
that, if effective, would result in any Person (other than an
Excepted Holder) Beneficially Owning Common Stock or Preferred
Stock in excess of the Ownership Limit or would result in any
Excepted Holder Beneficially Owning Common Stock in excess of the
Excepted Holder Ownership Limit for such Excepted Holder shall be
void ab initio as to the Transfer of such shares of Common Stock
or Preferred Stock which otherwise would be Beneficially Owned by
such Person in excess of the Ownership Limit or Beneficially Owned
by such Excepted Holder in excess of such Excepted Holder
Ownership Limit, as the case may be; and the intended transferee
shall acquire no rights in such shares of Common Stock or
Preferred Stock.
Section C. Aggregate Ownership Limitation
(1) Except as provided in Section I of this Article XVI, no Person
(other than an Excepted Holder) shall Beneficially Own shares of
Equity Stock in excess of the Aggregate Ownership Limit and no
Excepted Holder shall Beneficially Own shares of Equity Stock in
excess of the Excepted Holder Aggregate Ownership Limit for such
Excepted Holder.
(2) Except as provided in Section I of this Article XVI, any
Transfer that, if effective, would result in any Person (other
than an Excepted Holder) Beneficially Owning Equity Stock in
excess of the Aggregate Ownership Limit or would result in any
Excepted Holder Beneficially Owning Equity Stock in excess of
the Excepted Holder Aggregate Ownership Limit for such Excepted
Holder shall be void ab initio as to the Transfer of such shares
of Equity Stock which otherwise would be Beneficially Owned by
such Person in excess of the Aggregate Ownership Limit or
Beneficially Owned by such Excepted Holder in excess of such
Excepted Holder Aggregate Ownership Limit, as the case may be;
and the intended transferee shall acquire no rights in such
shares of Equity Stock.
Section D. Excess Stock
If, notwithstanding the other provisions contained in this Article XVI,
at any time there is a purported Transfer or other change in the capital
structure of the Corporation such that any Person would Beneficially Own
Common Stock or Preferred Stock in excess of the Ownership Limit or Equity
Stock in excess of the Aggregate Ownership Limit, then, except as otherwise
provided in Section I of this Article XVI, such shares of Common Stock or
Preferred Stock in excess of the Ownership Limit or Equity Stock in excess of
the Aggregate Ownership Limit, as the case may be (rounded up to the nearest
whole share), shall be converted into Excess Stock and be treated as provided
in this Article XVI. Such conversion and treatment shall be effective as of
the close of business on the business day prior to the date of the purported
Transfer or change in capital structure.
Section E. Prevention of Transfer.
If the Board of Directors or its designee shall at any time determine in
good faith that a Transfer has taken place in violation of Sections B or C of
this Article XVI or that a Person intends to acquire or has attempted to
acquire (determined without reference to any rules of attribution) Beneficial
Ownership of any Common Stock or Equity Stock of the Corporation in violation
of Sections B or C of this Article XVI, the Board of Directors or its designee
shall take such action as it deems advisable to refuse to give effect to or to
prevent such Transfer, including, but not limited to, refusing to give effect
to such Transfer on the books of the Corporation or instituting proceedings to
enjoin such Transfer; provided, however, that any Transfers or attempted
Transfers in violation of Sections B or C of this Article XVI shall
automatically result in the designation and treatment described in Section D
of this Article XVI, irrespective of any action (or non-action) by the Board
of Directors.
Section F. Notice to Corporation.
Any Person who acquires or attempts to acquire Common Stock, Preferred
Stock or other Equity Stock in violation of Sections B or C of this Article
XVI, or any Person who is a transferee such that Excess Stock results under
Section D of this Article XVI, shall immediately give written notice or, in
the event of a proposed or attempted transfer, give at least 15 days prior
written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request in order to
determine the effect, if any, of such Transfer.
Section G. Ambiguities.
In the case of an ambiguity in the application of any of the provisions
of this Article XVI, including any definition contained in Section A, the
Board of Directors shall have the power to conclusively determine the
application of the provisions of this Article XVI with respect to any
situation based on the facts known to it.
Section H. Increase or Modification to Ownership Limitations.
The Ownership Limit, Aggregate Ownership Limit, Excepted Holder Ownership
Limit or Excepted Holder Aggregate Ownership Limit shall automatically be
modified with respect to any Excepted Holder or other Person as follows:
(1) The Board of Directors of the Corporation may grant options to
acquire Common Stock pursuant to a stock option plan approved by
the Board of Directors, the stockholders of the Corporation, or
both, which result in the Beneficial Ownership of Common Stock or
Equity Stock by an Excepted Holder or other Person in excess of
the Ownership Limit, Aggregate Ownership Limit, Excepted Holder
Ownership Limit or Excepted Holder Aggregate Ownership Limit, as
the case may be. In the case of an Excepted Holder, any such grant
shall immediately increase the Excepted Holder Ownership Limit
(rounded up to the nearest tenth of a percentage point) and the
Excepted Holder Aggregate Ownership Limit (rounded up to the
nearest tenth of a percentage point) for such Excepted Holder by
amounts that will permit the Beneficial Ownership of the shares of
Common Stock issuable upon the exercise of such stock options. In
the case of a Person other than an Excepted Holder, such Person
shall immediately become an Excepted Holder with an Excepted
Holder Ownership Limit (rounded up to the nearest tenth of a
percentage point) and an Excepted Holder Aggregate Ownership Limit
(rounded up to the nearest tenth of a percentage point) set at
amounts that will permit the Beneficial Ownership of the shares of
Common Stock issuable upon the exercise of such stock options.
(2) RSI Standby LLC shall be permitted to purchase from the
Corporation and Beneficially Own Common Stock in fulfillment of
its obligation under the Standby Agreement that results in the
Beneficial Ownership of Common Stock by an Excepted Holder or
other Person in excess of the Ownership Limit, Aggregate Ownership
Limit, Excepted Holder Ownership Limit or Excepted Holder
Aggregate Ownership Limit, as the case may be. In the case of an
Excepted Holder, such purchase shall immediately increase the
Excepted Holder Ownership Limit (rounded up to the nearest tenth
of a percentage point) and the Excepted Holder Aggregate Ownership
Limit (rounded up to the nearest tenth of a percentage point) for
such Excepted Holder by amounts that will permit the purchase of
the shares of Common Stock by RSI Standby LLC in fulfillment of
such obligation. In the case of a Person other than an Excepted
Holder, such Person shall immediately become an Excepted Holder,
with an Excepted Holder Ownership Limit (rounded up to the nearest
tenth of a percentage point) and an Excepted Holder Aggregate
Ownership Limit (rounded up to the nearest tenth of a percentage
point) set at amounts that will permit the purchase of the shares
of Common Stock by RSI Standby LLC in fulfillment of such
obligation.
(3) The Excepted Holder Ownership Limit and the Excepted Holder
Aggregate Ownership Limit for any Excepted Holder shall be reduced
after any Transfer permitted in this Article XVI by such Excepted
Holder by the percentage of the outstanding Common Stock or Equity
Stock, as the case may be, the Beneficial Ownership of which is so
transferred, or after the lapse (without exercise) of a stock
option described in this Section H, by the percentage of the
Common Stock or Equity Stock, as the case may be, that the stock
option, if exercised, would have represented (such reduction
rounded down to the nearest tenth of a percentage point), but in
either case not below the Ownership Limit or the Aggregate
Ownership Limit.
Section I. Exemptions by Board.
The Board of Directors may waive the Ownership Limit, Aggregate Ownership
Limit, Excepted Holder Ownership Limit or Excepted Holder Aggregate Ownership
Limit with respect to any Excepted Holder or other Person if such waiver would
not violate any contractual obligation of the Corporation and the Board of
Directors otherwise decides that such action is in the best interest of the
Corporation. The Board of Directors may impose such conditions and require
such undertakings as it deems appropriate in granting such waiver.
Section J. Legend.
(1) In addition to any other legend required by applicable law, each
certificate for shares of Common Stock shall bear substantially
the following legend:
Except as otherwise provided pursuant to the charter of the
Corporation, no Person may Beneficially Own shares of
Common Stock in excess of 9.9% (or such greater percentage
as may be determined by the Board of Directors of the
Corporation) of the number or value of the outstanding
shares of the Common Stock and no Person may Beneficially
Own shares of Equity Stock in excess of 9.9% (or such
greater percentage as may be determined by the Board of
Directors of the Corporation) of the value of the
outstanding shares of Equity Stock. Any Person who attempts
or proposes to Beneficially Own shares of Common Stock or
Equity Stock in excess of the above limitations must notify
the Corporation in writing at least 15 days prior to such
proposed or attempted Transfer. All capitalized terms in
this legend have the meanings defined in the charter of the
Corporation, a copy of which, including the restrictions on
transfer, will be sent without charge to each stockholder
who so requests. If the restrictions on transfer are
violated, the securities represented hereby will be
designated and treated as shares of Excess Stock that will
be held in trust by the Corporation.
(2) In addition to any other legend required by applicable law, each
certificate for shares of Preferred Stock shall bear such legend
as may be set forth in the Articles Supplementary with respect to
the transferability of such Preferred Stock.
Section K. Severability.
If any provision of this Article XVI or any application of any such
provision is determined to be void, invalid or unenforceable by any legal
decision, statute, rule or regulation then the Purported Record Transferee may
be deemed, at the option of the Corporation, to have acted as agent of the
Corporation in acquiring such shares of Excess Stock and to hold such shares
of Excess Stock on behalf of the Corporation and the validity and
enforceability of the remaining provisions shall not be affected and other
applications of such provision shall be affected only to the extent necessary
to comply with the determination of such legal decision, statute, rule or
regulation.
Section L. Trust for Excess Stock.
Upon any purported Transfer that results in Excess Stock pursuant to
Section D of this Article XVI, such Excess Stock shall be deemed to have been
transferred by operation of law to the Trustee of a Trust for the exclusive
benefit of one or more Charitable Beneficiaries. The Trustee shall be
appointed by the Corporation and shall be a person unaffiliated with the
Corporation, any Purported Beneficial Transferee or any Purported Record
Transferee. By written notice to the Trustee, the Corporation shall designate
one or more non-profit organizations to be the Charitable Beneficiary(ies) of
the interest in the Trust representing the Excess Stock such that (a) the
shares of Common Stock or Equity Stock from which the shares of Excess Stock
held in the Trust were so converted would not violate the restrictions set
forth in Sections B and C of this Article XVI in the hands of such Charitable
Beneficiary and (b) each Charitable Beneficiary is an organization described
in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code. The Trustee of
the Trust will be deemed to own the Excess Stock for the benefit of the
Charitable Beneficiary on the date of the purported Transfer that results in
Excess Stock pursuant to Section D of this Article XVI. Shares of Excess Stock
so held in trust shall be issued and outstanding stock of the Corporation. The
Purported Record Transferee shall have no rights in such Excess Stock except
as expressly provided for in this Article XVI.
Section M. Dividends on Excess Stock.
Share of Excess Stock shall be entitled to dividends and distributions
authorized and declared with respect to the class or series of Common Stock or
Equity Stock, as the case may be, from which the Excess Stock was converted
and will be payable to the Trustee of the Trust in which such Excess Stock is
held, for the benefit of the Charitable Beneficiary. Dividends and
distributions will be authorized and declared with respect to each share of
Excess Stock in an amount equal to the dividends and distributions authorized
and declared on each share of stock of the class or series of Common Stock or
Equity Stock, as the case may be, from which the Excess Stock was converted.
Any dividend or distribution paid to a Purported Record Transferee of Excess
Stock prior to the discovery by the Corporation that Common Stock or Equity
Stock has been transferred in violation of the Charter shall be repaid by the
Purported Record Transferee to the Trustee upon demand. The Corporation shall
rescind any dividend or distribution authorized and declared but unpaid as
void ab initio with respect to the Purported Record Transferee, and the
Corporation shall pay such dividend or distribution when due to the Trustee of
the Trust for the benefit of the Charitable Beneficiary.
Section N. Liquidation Distributions for Excess Stock.
Subject to the preferential rights of any Preferred Stock, if any, as may
be determined by the Board of Directors of the Corporation, in the event of
any voluntary or involuntary liquidation, dissolution or winding up of, or any
other distribution of all or substantially all of the assets of the
Corporation, each holder of shares of Excess Stock shall be entitled to
receive, in the case of Excess Stock converted from Preferred Stock, ratably
with each other holder of Preferred Stock and Excess Stock converted from
Preferred Stock and having the same rights to payment upon liquidation,
dissolution or winding up as such Preferred Stock and, in the case of Excess
Stock converted from Common Stock, ratably with each other holder of Common
Stock, that portion of the assets of the Corporation available for
distribution to its stockholders as the number of shares of the Excess Stock
held by such holder bears to the total number of shares of (i) Preferred Stock
and Excess Stock then outstanding in the case of Excess Stock constituting
Preferred Stock and (ii) Common Stock and Excess Stock then outstanding in the
case of Excess Stock converted from Common Stock.
Any liquidation distributions to be distributed with respect to Excess
Stock shall be distributed in the same manner as proceeds from the sale of
Excess Stock are distributed as set forth of Section P of this Article XVI.
Section O. Voting Rights for Excess Stock.
Any vote cast by a Purported Record Transferee of Excess Stock prior to
the discovery by the Corporation that Common Stock or Equity Stock, as the
case maybe, has been transferred in violation of the provisions of the Charter
shall be void ab initio. While the Excess Stock is held in trust, the
Purported Record Transferee will be deemed to have given an irrevocable proxy
to the Trustee to vote the shares of Common Stock or Equity Stock, as the case
may be, which have been converted into shares of Excess Stock for the benefit
of the Charitable Beneficiary.
Section P. Non-Transferability of Excess Stock.
Excess Stock shall not be transferable. In its sole discretion, the
Trustee of the Trust may transfer the interest in the Trust representing
shares of Excess Stock to any Person if the shares of Excess Stock would not
be Excess Stock in the hands of such Person. If such transfer is made, the
interest of the Charitable Beneficiary in the Excess Stock shall terminate and
the proceeds of the sale shall be payable by the Trustee to the Purported
Record Transferee and to the Charitable Beneficiary as herein set forth. The
Purported Record Transferee shall receive from the Trustee the lesser of (i)
the price paid by the Purported Record Transferee for its shares of Common
Stock, Preferred Stock or other Equity Stock, as the case may be, that were
converted into Excess Shares or, if the Purported Record Transferee did not
give value for such shares (e.g., the stock was received through a gift,
device, or other transaction), the average closing price for the class of
shares from which the Excess Shares were converted for the ten trading days
immediately preceding such sale or gift, and (ii) the price received by the
Trustee from the sale or other disposition of the Excess Stock held in trust.
The Trustee may reduce the amount payable to the Purported Record Transferee
by the amount of dividends and distributions which have been paid to the
Purported Record Transferee and are owed by the Purported Record Transferee to
the Trustee pursuant to Section M of this Article XVI. Any proceeds in excess
of the amount payable to the Purported Record Transferee shall be paid by the
Trustee to the Charitable Beneficiary. Upon such transfer of an interest in
the Trust, the corresponding shares of Excess Stock in the Trust shall be
automatically exchanged for an equal number of shares of Common Stock,
Preferred Stock or other Equity Stock, as applicable, and such shares of
Common Stock, Preferred Stock or other Equity Stock, as applicable, shall be
transferred of record to the transferee of the interest in the Trust if such
shares of Common Stock, Preferred Stock or other Equity Stock, as applicable,
would not be Excess Stock in the hands of such transferee. Prior to any
transfer of any interest in the Trust, the Corporation must have waived in
writing its purchase rights under Section Q of this Article XVI.
Section Q. Call by Corporation on Excess Stock.
Shares of Excess Stock shall be deemed to have been offered for sale to
the Corporation, or its designee, at a price per share payable to the
Purported Record Transferee equal to the lesser of (i) the price per share in
the transaction that created such Excess Stock (or, in the case of a devise or
gift, the Market Price at the time of such devise or gift) and (ii) the Market
Price of the Common Stock, Preferred Stock or other Equity Stock, as the case
may be, from which such Excess Stock was converted on the date the
Corporation, or its designee, accepts such offer. The Corporation may reduce
the amount payable to the Purported Record Transferee by the amount of
dividends and distributions which have been paid to the Purported Record
Transferee and are owed by the Purported Record Transferee to the Trustee
pursuant to Section M of this Article XVI. The Corporation may pay the amount
of such reductions to the Trustee for the benefit of the Charitable
Beneficiary. The Corporation shall have the right to accept such offer for a
period of ninety days after the later of (i) the date of the Corporation's
receipt of notice pursuant to Section F of this Article XVI and (ii) if the
Corporation does not receive a notice of such transfer pursuant to Section F
of this Article XVI, the date that the Board of Directors determines in good
faith that a Transfer resulting in Excess Stock has occurred, but in no event
later than a permitted Transfer pursuant to and in compliance with the terms
of Section P of this Article XVI.
Section R. Enforcement.
The Corporation is authorized specifically to seek equitable relief,
including injunctive relief, to enforce the provisions of this Article XVI.
Section S. Non-Waiver.
No delay or failure on the part of the Corporation or the Board of
Directors in exercising any right hereunder shall operate as a waiver of any
right of the Corporation or the Board of Directors, as the case may be, except
to the extent specifically waived in writing.
IN WITNESS WHEREOF, Reckson Service Industries, Inc. has caused this
First Amended and Restated Certificate of Incorporation to be signed in its
name and on its behalf on this 12th day of May, 1998, by its President and
Chief Executive Officer, who acknowledges that this First Amended and Restated
Certificate of Incorporation is the act of the Corporation and that, to the
best of his knowledge, information and belief, and under penalties of perjury,
all matters and facts contained in this First Amended and Restated Certificate
of Incorporation are true and correct in all material respects.
_____________________________________
Scott H. Rechler
President and Chief Executive Officer
EXHIBIT 3.3
RECKSON SERVICE INDUSTRIES, INC.
BYLAWS
ARTICLE I.
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation shall
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be located at such place or places as the Board of Directors may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional offices
------------------
at such places as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
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principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting. Any action required or
permitted to be taken at any meeting of the stockholders must be effected at a
duly called annual or special meeting of such stockholders and may not be
effected by any consent in writing by such stockholders.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the
--------------
election of directors and the transaction of any business within the powers of
the Corporation shall be held on a date and at the time set by the Board of
Directors during the month of May in each year or such other month as may be
fixed by resolution of the Board of Directors.
Section 3. SPECIAL MEETINGS. Except as otherwise required by law and
-----------------
subject to the rights of holders of any class or series of preferred stock of
the Corporation to elect additional directors under specified circumstances
("Preferred Holders' Rights"), the chairman or vice chairman, president or Board
of Directors only may call special meetings of the stockholders pursuant to a
resolution stating the purpose(s) thereof, approved by a majority of the total
number of directors which the corporation would have if there were no vacancies
(the "Whole Board"). Any power of the stockholders is otherwise specifically
denied.
Section 4. NOTICE. Not less than ten nor more than 90 days before each
------
meeting of stockholders, the secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such stockholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
stockholder at his post office address as it appears on the records of the
Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
-----------------
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the Chairman of
------------
the Board, if there be one, shall conduct the meeting or, in the case of vacancy
in office or absence of the Chairman of the Board, one of the following officers
present shall conduct the meeting in the order stated: the Vice Chairman of the
Board, if there be one, the President, the Vice Presidents in their order of
rank and seniority, or a Chairman chosen by the stockholders entitled to cast a
majority of the votes which all stockholders present in person or by proxy are
entitled to cast, shall act as Chairman, and the Secretary, or, in his absence,
an assistant secretary, or in the absence of both the Secretary and assistant
secretaries, a person appointed by the Chairman shall act as Secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in person
------
or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If, however,
such quorum shall not be present at any meeting of the stockholders, the
stockholders entitled to vote at such meeting, present in person or by proxy,
shall have the power to adjourn the meeting from time to time to a date not more
than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. Subject to the Preferred Holders' Rights and applicable
------
law, each stockholder having the right to vote shall be entitled at every
meeting of stockholders to one (1) vote for every share owned in his or her name
on the record date fixed by the Board of Directors pursuant to these Bylaws.
Except as otherwise provided by law, the charter of the Corporation, these
Bylaws, any resolution adopted by the Board of Directors authorizing a class or
series of preferred stock, or any resolution adopted by a majority of the Whole
Board, all matters submitted to the stockholders at any meeting (other than the
election of directors) shall be decided by a majority of the votes cast with
respect thereto. A majority of all the votes cast at a meeting of stockholders
duly called and at which a quorum is present shall be sufficient to elect a
director.
Section 9. PROXIES. A stockholder may vote the stock owned of record by
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him, either in person or by proxy executed in writing by the stockholder or by
his duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation
-----------------------------------
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of the
----------
meeting may, or upon the request of any stockholder shall, appoint one or more
persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the stockholders.
Each report of an inspector shall be in writing and signed by him or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 12. NOMINATIONS AND STOCKHOLDER BUSINESS
(a) Annual Meetings of Stockholders. (1) Nominations of persons for
----------------------------------
election to the Board of Directors and the proposal of business to be considered
by the stockholders (except for stockholder proposals included in the proxy
materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) may be made at an annual meeting of stockholders
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of notice provided for in this
Section 12(a) and who is entitled to vote at the meeting and who complied with
the notice procedures set forth in this Section 12(a).
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of paragraph(a)(1) of
this Section 12, the stockholder must have given timely notice thereof in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 75 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than seven
calendar days or delayed by more than 60 days from such anniversary date, notice
by the stockholder to be timely must be so delivered not earlier than the 90th
day prior to such annual meeting and not later than the close of business on the
later of the 75th day prior to such annual meeting or the twentieth day
following the earlier of the day on which public announcement of the date of
such meeting is first made or notice of the meeting is mailed to stockholders.
Such stockholder's notice shall set forth: (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (y) the number of shares of each class or series of
stock of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 85
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 12(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
offices of the Corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted
--------------------------------
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 12(b), who is entitled to vote at the meeting and
who complied with the notice procedures set forth in this Section 12(b). In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be) for election to such
position as specified in the Corporation's notice of meeting, if the
stockholder's notice containing the information required by paragraph (a)(2) of
this Section 12 shall be delivered to the secretary at the principal executive
offices of the Corporation not earlier than the 180th day prior to such special
meeting and not later than the close of business on the later of the 75th day
prior to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(c) General. (1) Only such persons who are nominated in accordance with the
-------
procedures set forth in this Section 12 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 12. The presiding officer of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 12 and, if any proposed nomination or business is not in
compliance with this Section 12, to declare that such defective nomination or
proposal be disregarded.
(2) For purposes of this Section 12, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 12, a
stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 12. Nothing in this Section 12 shall be deemed
to affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
to create any additional rights with respect to any such inclusion.
Section 13. VOTING BY BALLOT. Voting on any question or in any election may
----------------
be viva voce unless the presiding officer shall order or any stockholder shall
demand that voting be by ballot.
ARTICLE III.
DIRECTORS
Section 1. GENERAL POWERS; QUALIFICATIONS. The business and affairs of the
------------------------------
Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at
---------------------------------
any special meeting called for that purpose, a majority of the Whole Board of
Directors may establish, increase or decrease the number of directors, provided
that the number thereof shall never be less than the minimum number required by
applicable law, nor be more than 25, and further provided that the tenure of
office of a director shall not be affected by any decrease in the number of
directors. Except for the initial directors of the Corporation who were
appointed by the Incorporator of the Corporation and those directors who may be
elected pursuant to Preferred Holders' Rights, the Board of Directors shall be
classified with respect to the time for which they severally hold office into
three classes, as nearly equal in number as possible, one class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1999, another class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 2000, and another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
2001, with directors of each class to hold office until their successor is duly
elected and qualified. At each succeeding annual meeting of stockholders,
directors elected to succeed those directors whose terms then expire shall be
elected for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until such
person's successor shall have been duly elected and qualified. Directors need
not be stockholders.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
----------------------------
Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Delaware, for the holding of regular meetings of the
Board of Directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
----------------
be called by or at the request of the chairman of the board (or any co-chairman
of the board if more than one), president or by a majority of the directors then
in office. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Delaware, as the place for holding any special meeting of the Board of Directors
called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of Directors
------
shall be delivered personally or by telephone, facsimile transmission, United
States mail or courier to each director at his business or residence address.
Notice by personal delivery, by telephone or a facsimile transmission shall be
given at least two days prior to the meeting. Notice by mail shall be given at
least five days prior to the meeting and shall be deemed to be given when
deposited in the United States mail properly addressed, with postage thereon
prepaid. Telephone notice shall be deemed to be given when the director is
personally given such notice in a telephone call to which he is a party.
Facsimile transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a quorum
------
for transaction of business at any meeting of the Board of Directors, provided
that, if less than a majority of such directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice, and provided further that if, pursuant to the charter of
the Corporation or these Bylaws, the vote of a majority of a particular group of
directors is required for action, a quorum must also include a majority of such
group.
The Board of Directors present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present at a
------
meeting at which a quorum is present shall be the action of the Board of
Directors, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 8. TELEPHONE MEETINGS. Directors may participate in a meeting by
-------------------
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or permitted
-----------------------------
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if a consent in writing to such action is signed by each director and
such written consent is filed with the minutes of proceedings of the Board of
Directors.
Section 10. RESIGNATION AND REMOVAL; VACANCIES. Any director may resign at
-----------------------------------
any time upon written notice to the Corporation. Subject to any Preferred
Holders' Rights, any director may be removed only for cause by the affirmative
vote of holders of at least 80% of the entire voting power of all the
then-outstanding shares of stock entitled to vote at an election of directors,
voting together as a single class.
If for any reason any or all the directors cease to be directors, such
event shall not terminate the Corporation or affect these Bylaws or the powers
of the remaining directors hereunder (even if fewer than three directors
remain). Subject to any Preferred Holders' Rights, and unless the Board of
Directors otherwise determines, any vacancy on the Board of Directors for any
cause other than an increase in the number of directors shall be filled by a
majority of the remaining directors, although such majority is less than a
quorum, or by the sole remaining director. Any vacancy in the number of
directors created by an increase in the number of directors may be filled by a
majority vote of the Whole Board. Any individual so elected as director shall
hold office for the unexpired term of the director he is replacing.
Section 11. COMPENSATION. Directors shall not receive any stated salary for
------------
their services as directors but, by resolution of the Board of Directors, may
receive fixed sums per year and/or per meeting and/or per visit to real property
owned or to be acquired by the Corporation and for any service or activity they
performed or engaged in as directors. Directors may be reimbursed for expenses
of attendance, if any, at each annual, regular or special meeting of the Board
of Directors or of any committee thereof and for their expenses, if any, in
connection with each property visit and any other service or activity they
performed or engaged in as directors; but nothing herein contained shall be
construed to preclude any directors from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director shall be liable for any loss
-----------------
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or stock have been
deposited.
Section 13. SURETY BONDS. Unless required by law, no director shall be
-------------
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each director, officer, employee and agent of the
--------
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
-------------------------------------------------------------
The directors shall have no responsibility to devote their full time to the
affairs of the Corporation. Any director or officer, employee or agent of the
Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
ARTICLE IV.
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may
-----------------------------------
appoint from among its members an Executive Committee, an Audit Committee, a
Compensation Committee and other committees, composed of two or more directors,
to serve at the pleasure of the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to committees
------
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the
--------
same manner as notice for special meetings of the Board of Directors. A majority
of the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board of
Directors may designate a chairman of any committee, and such chairman or any
two members of any committee may fix the time and place of its meeting unless
the Board shall otherwise provide. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another director to act in the place of such
absent member. Each committee shall keep minutes of its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of
-------------------
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted
-----------------------------
to be taken at any meeting of a committee of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
---------
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V.
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall
-------------------
include a chief executive officer, a president, a secretary and a treasurer and
may include a chairman of the board (or one or more co-chairmen of the board), a
vice chairman of the board, one or more executive vice presidents, one or more
senior vice presidents, one or more vice presidents, a chief operating officer,
a chief financial officer, a treasurer, one or more assistant secretaries and
one or more assistant treasurers, as well as a management advisory committee. In
addition, the Board of Directors may from time to time appoint such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Corporation shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of stockholders, except that the chief executive officer may appoint one
or more vice presidents, assistant secretaries and assistant treasurers. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as may be convenient. Each officer shall hold office
until his successor is elected and qualifies or until his death, resignation or
removal in the manner hereinafter provided. Any two or more offices except
president and vice president may be held by the same person. In its discretion,
the Board of Directors may leave unfilled any office except that of president,
treasurer and secretary. Election of an officer or agent shall not of itself
create contract rights between the Corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer, member of any management
-----------------------
advisory committee or agent of the Corporation may be removed by the Board of
Directors if in its judgment the best interests of the Corporation would be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Any officer, member of any management
advisory committee or agent of the Corporation may resign at any time by giving
written notice of his resignation to the Board of Directors, the chairman of the
board (or any co-chairman of the board if more than one), the president or the
secretary. Any resignation shall take effect at any time subsequent to the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation. Such resignation shall be without prejudice to the contract rights,
if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office or management advisory
---------
committee may be filled by the Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may designate a
-----------------------
chief executive officer. In the absence of such designation, the chairman of the
board (or, if more than one, the co-chairmen of the board in the order
designated at the time of their election or, in the absence of any designation,
then in the order of their election) shall be the chief executive officer of the
Corporation. The chief executive officer shall have general responsibility for
implementation of the policies of the Corporation, as determined by the Board of
Directors, and for the management of the business and affairs of the
Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may designate a
-----------------------
chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a
-----------------------
chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall designate a
---------------------
chairman of the board (or one or more co-chairmen of the board). The chairman of
the board shall preside over the meetings of the Board of Directors and of the
stockholders at which he shall be present. If there be more than one, the
co-chairmen designated by the Board of Directors will perform such duties. The
chairman of the board shall perform such other duties as may be assigned to him
or them by the Board of Directors.
Section 8. CHAIRMAN OF THE BOARD EMERITUS. The directors may elect by a
-------------------------------
majority vote, from time to time, a chairman of the board emeritus (or one or
more co-chairmen of the board emeritus). The chairman of the board emeritus
shall be an honorary position and shall have no vote on any matter considered by
the directors. The chairman of the board emeritus shall serve for such term as
determined by the Board of Directors and may be removed by a majority role of
directors with or without cause.
Section 9. PRESIDENT. The president or chief executive officer, as the case
---------
may be, shall in general supervise and control all of the business and affairs
of the Corporation. In the absence of a designation of a chief operating officer
by the Board of Directors, the president shall be the chief operating officer.
He may execute any deed, mortgage, bond, contract or other instrument, except in
cases where the execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation
or shall be required by law to be otherwise executed; and in general shall
perform all duties incident to the office of president and such other duties as
may be prescribed by the Board of Directors from time to time.
Section 10. VICE PRESIDENTS. In the absence of the president or in the
----------------
event of a vacancy in such office, the executive vice president, senior vice
president or vice president (or in the event there be more than one such vice
president, such vice presidents in the order designated at the time of their
election or, in the absence of any designation, then in the order of their
election) shall perform the duties of the president and when so acting shall
have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Board of Directors. The Board of
Directors may designate one or more vice presidents as executive vice president
or as vice president for particular areas of responsibility.
Section 11. SECRETARY. The secretary shall (a) keep the minutes of the
---------
proceedings of the stockholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the Corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder; (e)
have general charge of the share transfer books of the Corporation; and (f) in
general perform such other duties as from time to time may be assigned to him by
the chief executive officer, the president or by the Board of Directors.
Section 12. TREASURER. The treasurer shall have the custody of the funds
---------
and securities of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. In the absence of a designation of a chief financial officer by the
Board of Directors, the treasurer shall be the chief financial officer of the
Corporation.
The treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transactions as treasurer and of the financial condition of
the Corporation.
If required by the Board of Directors, the treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 13. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
-----------------------------------------------
secretaries and assistant treasurers, in general, shall perform such duties as
shall be assigned to them by the secretary or treasurer, respectively, or by the
president or the Board of Directors. The assistant treasurers shall, if required
by the Board of Directors, give bonds for the faithful performance of their
duties in such sums and with such surety or sureties as shall be satisfactory to
the Board of Directors.
Section 14. SALARIES. The salaries and other compensation of the officers
--------
shall be fixed from time to time by the Board of Directors and no officer shall
be prevented from receiving such salary or other compensation by reason of the
fact that he is also a director.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer,
---------
member of any management advisory committee or agent to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
Corporation and such authority may be general or confined to specific instances.
Any agreement, deed, mortgage, lease or other document executed by one or more
of the directors or by an authorized person shall be valid and binding upon the
Board of Directors and upon the Corporation when authorized or ratified by
action of the Board of Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the
-----------------
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by any officer, member of any management
advisory committee or agent of the Corporation in such manner as shall from time
to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
designate.
ARTICLE VII.
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to a
------------
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the chief executive officer, the president or a vice
president and countersigned by the secretary or an assistant secretary or the
treasurer or an assistant treasurer and may be sealed with the seal, if any, of
the Corporation. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Corporation shall, from time to
time, issue several classes of stock, each class may have its own number series.
A certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the transfer
---------
agent of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of any
share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.
Notwithstanding the foregoing, transfers of shares of any class of
stock will be subject in all respects to the charter of the Corporation and all
of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board of
-----------------------
Directors may direct a new certificate to be issued in place of any certificate
previously issued by the Corporation alleged to have been lost, stolen or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing the issuance
of a new certificate, an officer designated by the Board of Directors may, in
his discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he shall require and/or
to give bond, with sufficient surety, to the Corporation to indemnify it against
any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of
--------------------------------------------------
Directors may set, in advance, a record date for the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
determining stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of stockholders, not less
than ten days, before the date on which the meeting or particular action
requiring such determination of stockholders of record is to be held or taken.
In lieu of fixing a record date, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not longer
than 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are not closed
for the determination of stockholders, (a) the record date for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of stockholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the directors,
declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting
of stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its principal
------------
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate stock ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may
------------------------------------
issue fractional stock or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the charter or these Bylaws, the Board of Directors may issue units
consisting of different securities of the Corporation. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Corporation, except that the Board of Directors may provide that for a
specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
ARTICLE VIII.
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix
the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX.
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the stock
-------------
of the Corporation may be authorized and declared by the Board of Directors,
subject to the provisions of law and the charter of the Corporation. Dividends
and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
-------------
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X.
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board
of Directors may from time to time adopt, amend, revise or terminate any policy
or policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XI.
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a
----
seal by the Corporation. The seal shall contain the name of the Corporation and
the year of its incorporation and the words "Corporate Seal, Delaware". The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or required
-------------
to affix its seal to a document, it shall be sufficient to meet the requirements
of any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Corporation.
ARTICLE XII.
INDEMNIFICATION AND ADVANCES FOR EXPENSES
To the maximum extent permitted by Delaware law in effect from time to
time, the Corporation, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify and shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any individual who is a present or former director, officer or member of any
management advisory committee of the Corporation and who is made a party to the
proceeding by reason of his service in that capacity or (b) any individual who,
while a director of the Corporation and at the request of the Corporation,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise and who is made a party to the proceeding by reason of
his service in that capacity. The Corporation may, with the approval of its
Board of Directors, provide such indemnification and advance for expenses to a
person who served a predecessor of the Corporation in any of the capacities
described in (a) or (b) above and to any employee or agent of the Corporation or
a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE XIII.
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of
the Corporation or these Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIV.
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt, alter
or repeal any provision of these Bylaws and to make new Bylaws. These Bylaws may
also be amended by the affirmative vote of holders of at least 80% of the entire
voting power of all the then outstanding shares of stock entitled to vote at an
election of directors, voting together as a single class.
Exhibit 4.1
COMMON STOCK TEMPORARY CERTIFICATE COMMON STOCK
Exchangeable for Definitive Engraved
Certificate When Ready for Delivery
RECKSON SERVICE INDUSTRIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
$.01 PAR VALUE CUSIP 75621J-10-9
THIS CERTIFIES THAT **** SEE REVERSE FOR CERTIFICATE DEFINITIONS
is the owner of *****
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF RECKSON
SERVICE INDUSTRIES, INC. (hereinafter called the "Corporation"), transferable
on the books of the Corporation by the registered holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the charter of the
Corporation (the "Charter") and the Bylaws of the Corporation and any
amendments thereto. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures
of its duly authorized officers and its facsimile seal to be affixed
hereto.
DATED: ___________, 1998
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST
COMPANY
BY (New York) Transfer Agent and Registrar
Authorized Signature
- -------------------------------------- ------------------------------------
Mitchell D. Rechler Scott J. Rechler
Secretary and Executive Vice President President and Chief Executive Officer
RECKSON SERVICE INDUSTRIES, INC.
CORPORATE SEAL
1998
DELAWARE
The Corporation will furnish to any stockholder on request and without
charge a full statement of the information required by Section 151(f) of the
General Corporation Law of the state of Delaware with respect to the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights. The foregoing Summary does not purport to be complete and is subject
to and qualified in its entirety by reference to the charter of the
Corporation (the "Charter"), a copy of which will be sent without charge to
each stockholder who so requests. Such request may be made to the secretary
of the Corporation at its principal office or to its transfer agent.
Except as otherwise provided pursuant to the charter of the Corporation,
no Person may Beneficially Own shares of Common Stock in excess of 9.9% (or
such greater percentage as may be determined by the Board of Directors of the
Corporation) of the number or value of the outstanding shares of the Common
Stock and no Person may Beneficially Own shares of Equity Stock in excess of
9.9% (or such greater percentage as may be determined by the Board of
Directors of the Corporation) of the value of the outstanding shares of
Equity Stock. Any Person who attempts or proposes to Beneficially Own shares
of Common Stock or Equity Stock in excess of the above limitations must
notify the Corporation in writing at least 15 days prior to such proposed or
attempted Transfer. All capitalized terms in this legend have the meanings
defined in the charter of the Corporation, a copy of which, including the
restrictions on transfer, will be sent without charge to each stockholder who
so requests. If the restrictions on transfer are violated, the securities
represented hereby will be designated and treated as shares of Excess Stock
that will be held in trust by the Corporation. The foregoing summary does
not purport to be completed and is subject to and qualified in its entirety
by reference to the Charter, a copy of which, including the restrictions on
transfer, will be sent without charge to each stockholder who so requests.
Such request must be made to the Secretary of the Corporation at its
principal office or to the Transfer Agent. The terms of the Preferred Stock
Purchase Rights Agreement is hereby incorporated by reference and, prior to
the Preferred Rights Distribution Effective Date (as defined in such
agreement) this share will evidence one Preferred Right (as defined in such
agreement).
---------------
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN
OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A
CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
---------------
The following abbreviations, when used in the inscription of the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- . . .Custodian . . .
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors Act
JT TEN -- as joint tenants with right of . . . . . . . . . . . . . . .
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
---------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
- -----------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney
- ---------------------------------------------------------------------
to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated:
---------------
Signature(s)
--------------------------------------------
NOTICE: The signature(s) to this assignment
must correspond with the name as written
upon the face of the Certificate, in every
particular, without alteration or enlargement
of any change whatever.
Signature Guaranteed By:
- ----------------------- The shares represented by this certificate
have not been registered under the Securities
Act of 1933. The shares have been acquired
for investment and may not be sold,
transferred or assigned in the absence of an
effective registration statement for these
shares under the Securities Act of 1933 or an
opinion of the Company's counsel that
registration is not required under said Act.
Exhibit 4.2
<TABLE>
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE COMPANY'S PROSPECTUS, DATED Certificate for
MAY , 1998 (THE "PROSPECTUS"), AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM AMERICAN STOCK TRANSFER & TRUST COMPANY *************
AS SUBSCRIPTION AGENT.
RIGHTS
RECKSON SERVICE INDUSTRIES, INC.
Incorporated under the laws of the State of Delaware
SUBSCRIPTION CERTIFICATE
Evidencing Non-Transferable Rights to Purchase Shares of Common Stock ******************
******************
Subscription price: $1.03 per Share ******************
******************
VOID IF NOT EXERCISED ON OR BEFORE THE EXPIRATION DATE (AS DEFINED IN THE PROSPECTUS) ******************
REGISTERED OWNER: ATC BOOK-ENTRY FAST ACCOUNT
******DO NOT MAIL*****
<S> <C>
****
THIS CERTIFIES THAT the registered owner Completing Section 1 of the reverse side hereof. Special
whose name is inscribed hereon is the owner delivery instructions may be specified by completing Section 2 on
of the number of Rights set forth above, each the reverse side hereof. THE RIGHTS EVIDENCED BY THIS
of which entitles the owner to subscribe for SUBSCRIPTION CERTIFICATE ARE NOT TRANSFERABLE AND MAY NOT BE
and purchase one share or, at such owner's election, EXERCISED UNLES THE REVERSE SIDE HEREOF IS COMPLETED AND SIGNED
four additional shares, of common stock, $.01 par WITH A SIGNATURE GUARANTEE, IF APPLICABLE. ANY SIGNATURE GUARANTEE
value per share, of Reckson Service Industries, MUST BE IN ACCORDANCE WITH THE MEDALLION SIGNATURE GUARANTEE
Inc., a Delaware corporation, on the terms and PROGRAM
subject to the conditions set forth in the
Prospectus and instructions relating hereto
on the revenue side hereof. The non-transferable
Rights represented by this Subscription Certificate
may be exercised by duly
Dated: May __, 1998
_____________________________________ _____________________________
President and Chief Executive Officer Secretary
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
TRANSFER AGENT AND REGISTRAR
By:
Authorized Signature
</TABLE>
==============================================================================
SECTION 1 --EXERCISE AND SUBSCRIPTION
The undersigned irrevocably exercises Rights to subscribe for Common Stock of
Reckson Service Industries, Inc. ("RSI"), as indicated below, on the terms and
subject to the conditions specified in the Prospectus, receipt of which is
hereby acknowledged.
(a) Number of whole share(s) of RSI Common
Stock subscribed for: / / One Share per Right _____
/ / Five Shares per Right ____
(b) Total Exercise Price (total number of whole share(s) of RSI Common
Stock subscribed for multiplied by the Exercise Price
of $1.03 per share): $_____________
METHOD OF PAYMENT (CHECK ONE)
/ / Uncertified personal check. Please note that funds paid by
uncertified personal check may take at least five business days to
clear. Accordingly, Rights holders who wish to pay the exercise
price by means of an uncertified personal check are urged to make
payment sufficiently in advance of the Expiration Date to ensure
that such payment is received and clears by such time, and are urged
to consider payment by means of certified or bank check, money order
or wire transfer of immediately available funds.
/ / Certified check or bank check drawn on a U.S. Bank, or money order,
payable to American Stock Transfer & Trust Company, as Subscription
Agent.
/ / Wire transfer directed to the account maintained by American Stock
Transfer & Trust Company at The Chase Manhattan Bank, Account No.
323059945; ABA No. 021000021.
If the amount enclosed or transmitted is not sufficient to pay the Exercise
Price for all share(s) of RSI Common Stock that ar e stated to be subscribed
for, or if the number of share(s) of RSI Common Stock being subscribed for is
not specified, the number of share(s) of RSI Common Stock being subscribed for
will be assumed to be the maximum number that could be subscribed for upon
payment of such amount. If the amount enclosed or transmitted exceed the
Exercise Price for all share(s) of RSI Common Stock that the undersigned has
the right to subscribe for (such excess amount, the "Subscription Excess"),
the Subscription Agent shall return the Subscription Excess to the subscriber
without interest or deduction.
==============================================================================
SECTION 2--SPECIAL DELIVERY INSTRUCTIONS
==============================================================================
Name and address for mailing of any securities or Subscription Excess, if
other than as shown on the reverse hereof.
Name: __________________________________________________
Address: _______________________________________________
==========--------------------------------------------------------------------
IMPORTANT -- ALL RIGHTS HOLDERS EXERCISING RIGHTS SIGN HERE AND COMPLETE
SUBSTITUTE FORM W-9
_______________________________ __________________________________
________________________________
(Signature of Holder(s))
(Must be signed by the Rights holder(s) exactly as named(s) appear on the
reverse side of this Subscription Certificate. If signature is by trustee,
executor, administrator, guardian, attorney-in-fact, agent, officer of a
corporation or another acting in a fiduciary or representative capacity,
please provide the following information. See Instructions accompanying this
Subscription Certificate).
Tax Identification or
Name: ____________________________ Social Security Number:__________________
(Please Print) (Complete Substitute
Form W-9)
Capacity:________________________ Home Telephone Number: (_____)____________
Address: ________________________ Business Telephone Number: (____)__________
EXHIBIT 5.1
(Brown & Wood LLP Letterhead)
May 13, 1998
Reckson Service Industries, Inc.
225 Broadhollow Road
Melville, New York 11747
Ladies and Gentlemen:
We have acted as counsel to Reckson Service Industries, Inc., a
Delaware corporation (the "Company"), in connection with the registration of
24,462,985 shares of the Company's common stock, par value $.01 per share
(the "Common Stock"), and 4,111,426 non-transferable subscription rights to
purchase shares of Common Stock (the "Rights"), pursuant to a Registration
Statement on Form S-1 (Registration No. 333-44419), including the prospectus
and all amendments, exhibits and documents related thereto (collectively, the
"Registration Statement"), under the Securities Act of 1933, as amended, and
with the proposed distribution of the Common Stock to stockholders of Reckson
Associates Realty Corp., a Maryland corporation and the holders of units of
limited partner interest in Reckson Operating Partnership, L.P., a Delaware
limited partnership, in a spin-off and a rights offering by the Company, in
each case in accordance with the terms of the Registration Statement.
Based upon our examination of the originals or copies of such
documents, corporate records, certificates of officers of the Company and
other instruments as we have deemed necessary and upon the laws as presently
in effect, we are of the opinion that (i) the Common Stock has been duly
authorized for issuance by the Company and, upon issuance, delivery and (in
the case of Common Stock to be issued upon exercise of the Rights)
subscription and payment in accordance with the terms of the Registration
Statement, the Common Stock will be validly issued, fully paid (as
applicable) and nonassessable and (ii) the Rights have been duly authorized
for issuance by the Company and, upon issuance and delivery in accordance
with the terms of the Registration Statement, will be legal, valid and
binding obligations of the Company, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to, or affecting, creditors' rights and remedies generally and general
principles of equity (regardless of whether considered in a proceeding at law
or in equity).
We hereby consent to the incorporation by reference of this opinion
as an exhibit to the Registration Statement. We also consent to the
reference to Brown & Wood LLP under the caption "Legal Matters" in the
Registration Statement.
Very truly yours,
/s/ Brown & Wood LLP
EXHIBIT 8.1
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
May 13, 1998
Reckson Service Industries, Inc.
225 Broadhollow Road
Melville, New York 11747
Reckson Associates Realty Corp.
225 Broadhollow Road
Melville, New York 11747
Re: Distribution of Stock of Reckson Service Industries, Inc.
---------------------------------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain federal income tax
matters in connection with the distribution (the "Distribution") of stock of
Reckson Service Industries, Inc. ("RSI") by Reckson Operating Partnership
(the "Operating Partnership") and Reckson Associates Realty Corp.
("Reckson"). The Distribution is described in the Form S-1 Registration
Statement (No. 333-4419) initially filed by RSI with the Securities and
Exchange Commission on January 16, 1998, as amended through the date hereof
(the "Registration Statement"). All capitalized terms not otherwise defined
herein have the respective meanings set forth in the Registration Statement.
Background
------
RSI was formed on July 15, 1997 as a Delaware corporation. It was
formed primarily to identify and acquire interests in operating companies
that engage in businesses that provide services for occupants of office,
industrial and other property types that Reckson may not be permitted to
provide under federal tax laws applicable to real estate investment trusts
("REITs") or that have not traditionally been performed by Reckson
("Commercial Services"). RSI will also pursue real estate or real estate-
related investment opportunities through Reckson Strategic Venture Partners,
LLC ("RSVP"), a real estate venture capital fund created as a "research and
development" vehicle for Reckson to explore and invest in real estate sectors
outside of its traditional office and industrial sectors, thereby providing
the potential for Reckson to incorporate one or more of these alternative
sectors into its core business. RSI has hired two investment professionals
who will be primarily responsible for executing the business strategy of RSI
and who are not involved in the management of Reckson or the Operating
Partnership. RSVP's day-to-day activities will be managed by highly-
experienced real estate investment professionals who are not involved in the
management of Reckson, the Operating Partnership or RSI.
RSI expects to establish a credit facility with the Operating
Partnership (the "RSI Facility") in the amount of $100 million for RSI's
service sector operations and other general corporate purposes. In addition,
the Operating Partnership has approved the funding of investments of up to
$100 million with or in RSVP, through (i) loans for the funding of RSVP
investments prior to the Distribution, (ii) RSVP-controlled joint ventures in
investments satisfying the federal tax laws applicable to REITs ("REIT-
Qualified Investments"), or (iii) advances made to RSI subsequent to the
Distribution under a credit facility with terms similar to the those of the
RSI Facility (the "RSVP Facility").
RSI has formed a limited liability company together with PaineWebber
Real Estate Securities Inc. ("PWRES"), pursuant to which PWRES will be
obligated to invest up to $200 million in RSVP in the form of preferred
equity, subject to certain conditions. Such investment by PWRES will be
partially funded by an investment fund of which PWRES is a
co-sponsor.
RSI will enter into an agreement with the Operating Partnership (the
"Intercompany Agreement") in order to reduce conflicts of interest by
formalizing their relationship. Under the Intercompany Agreement, RSI will
grant the Operating Partnership a right of first opportunity to make any
REIT-Qualified Investment that it develops or that otherwise becomes
available to RSI. In addition, in the event that any such investment
opportunity becomes available to an affiliate of RSI, such affiliate will be
required to allow the Operating Partnership to participate in such investment
opportunity to the extent of RSI's interest, if any, therein. RSI will also
agree to assist the Operating Partnership in structuring and consummating any
REIT-Qualified Investment that the Operating Partnership elects to pursue, on
terms determined by the Operating Partnership. The Operating Partnership
will grant RSI a right of first opportunity to provide Commercial Services to
the Operating Partnership and its tenants that are developed by or otherwise
become available to the Operating Partnership. Any Commercial Services
provided by RSI to the Operating Partnership will be required to be at market
rates on terms and conditions as attractive as the best available for
comparable services in the market or those offered by RSI to third parties.
In addition, the Operating Partnership will be required to give RSI access to
its tenants in respect of Commercial Services that may be provided to such
tenants. Furthermore, subject to certain conditions, the Operating
Partnership will provide RSI with a right of first refusal to become the
lessee of any real property acquired by the Operating Partnership if the
Operating Partnership determines that, consistent with Reckson's status as a
REIT, it is required to enter into a "master" lease arrangement.
The Operating Partnership currently holds a 95% interest in RSI, in the
form of 3,905,855 shares of RSI nonvoting common stock. Lightpost LLC, a
Delaware limited liability company, owns the remaining 5% interest in RSI, in
the form of 205,571 shares of RSI voting common stock. Lightpost LLC is
owned by members of Reckson management and trusts controlled by members of
Reckson management. Immediately prior to the Distribution, it is expected
that the shares of RSI nonvoting common stock held by the Operating
Partnership will be exchanged by RSI for shares of RSI voting common stock.
The Operating Partnership will distribute its 95% interest in RSI to Reckson
and the limited partners of the Operating Partnership. Reckson will then
distribute all of its shares of RSI stock to holders of Reckson's common
stock. Each Reckson stockholder will receive one share of RSI common stock
for every 12.5 shares of Reckson common stock held on the record date for the
Distribution and each limited partner of the Operating Partnership will
receive one share of RSI stock for every 12.5 common units of limited
partnership interest in the Operating Partnership ("Units") held (or, in the
case of certain convertible preferred Units, into which its convertible
preferred Units could be converted) on the record date for the Distribution.
Immediately after the Distribution, RSI will grant to holders of RSI
stock subscription rights (the "Subscription Rights") to purchase shares of
RSI common stock (the "Rights Offering"). Each RSI stockholder will receive
one Subscription Right for every one share of RSI common stock held. Each
Subscription Right will entitle the holder to purchase one share of RSI
common stock at a certain purchase price per share (the "Exercise Price")
and, at the election of the stockholder, four additional shares (but not less
than four additional shares) at the Exercise Price. RSI stockholders will
thus be allowed to exercise their Subscription Rights in respect of either
one share or five shares of RSI common stock. As of the date of the
Distribution, there will be approximately 4,111,426 shares of RSI common
stock outstanding. Accordingly, a total of 4,111,426 Subscription Rights
with respect to an aggregate of 20,557,130 shares of RSI common stock are
expected to be issued in the Rights Offering. The Subscription Rights will
expire after 17 days. RSI has entered into an agreement with RSI Standby
LLC, a Delaware limited liability company (the "Standby Purchaser"), pursuant
to which the Standby Purchaser has agreed to purchase, and RSI has agreed to
sell, at the Exercise Price any and all shares of RSI common stock that were
the subject of Subscription Rights in the Rights Offering but were not
subscribed for as of the expiration of the Subscription Rights. The Standby
Purchaser is owned by members of Reckson and RSI management and trusts
controlled by members of Reckson management.
It is anticipated that the RSI board of directors will ultimately
consist of eight members. Of these, six will be members of the Reckson board
of directors and two will be unaffiliated with Reckson. Each of the
executive officers of RSI currently serves as an executive officer of
Reckson. As noted above, RSI also employs two senior officers who are not
employed by Reckson or the Operating Partnership and who are primarily
responsible for executing the business strategy of RSI .
Reckson's stock trades on the New York Stock Exchange. There is
currently no public market for RSI stock and none is expected to develop
prior to the termination of the Rights Offering. Subsequent to the
termination of the Rights Offering, RSI anticipates that trading of its stock
may occur on the OTC Bulletin Board. However, shares of RSI stock have not
been approved for listing on any national securities exchange or for
quotation on any quotation system. There are no arrangements, legally
binding or otherwise, which require Reckson shareholders or Operating
Partnership Unitholders to continue to hold RSI stock after the Distribution
or after termination of the Rights Offering and the RSI common stock issued
in the Distribution and the Rights Offering will be freely transferable
(except for stock received by persons who may be deemed to be "affiliates" of
RSI under federal securities law).
Documents and Representations
-----------------------------
In rendering the following opinions, we have examined originals and
copies, certified or otherwise identified to our satisfaction, of such
documents, corporate records and other instruments as we have deemed
necessary or appropriate for purposes of this opinion, including the
following:
the Registration Statement;
the Certificate of Incorporation of RSI;
the First Amended and Restated Bylaws of RSI;
a form of the Intercompany Agreement;
a form of the RSI Facility; and
a form of the RSVP Facility.
We also have reviewed the descriptions set forth in the Registration
Statement of the investments, activities, operations and governance of RSI.
We have relied upon the facts set forth in the Registration Statement and we
assume that each of Reckson, the Operating Partnership, RSI and RSVP has been
and will continue to be operated in accordance with (i) applicable state and
local corporation, partnership, limited liability company and similar laws
and the terms and conditions of applicable documents and (ii) the statements
and representations made in the Registration Statement.
In rendering the opinions set forth herein, we have assumed (i) the
genuineness of all signatures on documents submitted to us as originals, (ii)
the conformity to the original documents of all documents submitted to us as
copies, (iii) the conformity of final documents to all documents submitted to
us as drafts, (iv) the authority and capacity of the individual or
individuals who executed any such documents on behalf of any person, and (v)
the accuracy and completeness of all records made available to us. We also
have assumed, without investigation, that all documents, certificates,
representations, warranties, and covenants on which we have relied in
rendering the opinions set forth below and that were given or dated earlier
than the date of this letter continue to remain accurate, insofar as relevant
to the opinions set forth herein, from such earlier date through and
including the date of this letter.
The opinions set forth below are based upon the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury Regulations promulgated
thereunder and existing administrative and judicial interpretations thereof,
all as they exist at the date of this letter. All of the foregoing statutes,
regulations and interpretations are subject to change, in some circumstances
with retroactive effect. Any changes to the foregoing authorities might
result in modifications of our opinions contained herein.
Summary of Opinions
-------------------
Based upon and subject to the foregoing, we are of the opinion that:
(i) RSI will be treated for federal income tax purposes as a corporate
entity separate from Reckson and the Operating Partnership, and not as
an agent of Reckson or the Operating Partnership.
(ii) Reckson and RSI will not be treated as stapled entities for federal
income tax purposes under Section 269B(a)(3) of the Code.
(iii) Commencing with its taxable year ended December 31, 1995, Reckson
has been organized in conformity with the requirements for
qualification and taxation as a REIT under the Code and its
proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT.
(iv) The discussions in the Registration Statement under the headings "The
Distribution -- Federal Income Tax Consequences" and "The Rights
Offering -- Federal Income Tax Consequences" fairly summarize the
federal income tax considerations likely to be material to a recipient
of RSI Common Stock and Subscription Rights in the Distribution and
the Rights Offering.
Discussion
----------
A. Separate Corporate Entities
---------------------------
The activities that RSI expects to undertake would have an adverse
impact on the status of Reckson as a REIT for federal income tax purposes
were such activities to be engaged in by Reckson or the Operating
Partnership. Such activities could be deemed to be engaged in by Reckson or
the Operating Partnership if the separate corporate existence of RSI were
ignored for federal income tax purposes or if RSI were deemed to be an agent
of either Reckson or the Operating Partnership for federal income tax
purposes.
As described above, the Operating Partnership and RSI will be
establishing what is intended to be a long-term business relationship. The
Operating Partnership will substantially finance the activities of RSI
outside RSVP as well as RSI's investment in RSVP. RSI and the Operating
Partnership will provide each other first opportunity rights with respect to
certain types of transactions and activities. RSI's senior management will
be substantially the same as that of Reckson, although each of RSI and RSVP
have engaged investment professionals who are not involved in the management
of Reckson or the Operating Partnership to run their respective day-to-day
operations. After the Distribution, six members of the RSI board of
directors will be members of the Reckson board, although the RSI board will
ultimately include two members who are unaffiliated with Reckson.
Furthermore, at least initially there will be a substantial overlap between
the ownership of Reckson common stock and Operating Partnership common Units,
on the one hand, and RSI stock, on the other hand. As described below,
however, these facts are not sufficient to cause RSI's separate existence as
a corporation to be ignored for federal income tax purposes or to cause RSI
to be considered an agent of Reckson or the Operating Partnership for federal
income tax purposes.
The leading case which considers whether a corporation is a separate
entity for federal income tax purposes is Moline Properties, Inc. v.
--------------------------
Commissioner./F1/ In Moline Properties, the taxpayer
- ------------
sought to disregard the separate existence of his wholly-owned corporation
by having the gain from its sales of property taxed directly to himself.
In holding that the corporate form may only be disregarded where it is a
sham or unreal, the Supreme Court established its now landmark principle
for determining the "sham" status of a corporation:
Whether the purpose be to gain an advantage under the law of
the state of incorporation or to avoid or to comply with the
demands of creditors or to serve the creator's personal or
undisclosed convenience, so long as that purpose is the
equivalent of business activity or is followed by the carrying
on of business by the corporation, the corporation remains a
separate taxable entity./F2/
- -----------------
/F1/ 319 U.S. 436 (1943).
/F2/ Id. at 438-439.
This standard has been universally applied by all courts in matters involving
separate entity recognition where corporations are involved./F3/
The Supreme Court in Moline Properties was explicit in its establishment
-----------------
of a two-prong disjunctive test. The first prong a subjective standard --
requires the taxpayer to demonstrate a legitimate, nontax business purpose
for the formation of the entity under scrutiny. The second prong -- an
objective standard -- merely requires a demonstration that the entity has
engaged in sufficient business activity to warrant its recognition as an
entity. Satisfaction of either prong of the test will result in the
recognition of the separate existence of the entity, regardless of whether or
not the other prong is satisfied. In other words, a legal entity will be
ignored only if it both is formed for no legitimate business purpose and fails
to conduct any legitimate business activity.
Both prongs of the Moline Properties test are satisfied by RSI. With
-----------------
respect to the subjective standard, RSI was formed for a legitimate business
purpose, i.e., to identify and acquire interests in operating companies that
engage in Commercial Services. With respect to the objective standard, RSI
has in fact engaged in substantial business activity by virtue of its various
investments described in the Registration Statement, has entered into
contracts and has hired some of its own employees. Such activity will
continue after the Distribution. Moreover, after the Distribution RSI will
hold itself out to the public as a separate corporate entity from Reckson and
its stock will be publicly traded separately from the stock of Reckson.
Accordingly, the separate corporate existence of RSI will be respected under
Moline Properties.
- -----------------
The Supreme Court has also held that a corporation may be disregarded as
a separate taxable entity if the corporation is deemed to be a mere agent
acting on behalf of its principal./F4/ In National Carbide Corp. v.
---------------------------
Commissioner,/F5/ the Court identified the following factors for establishing
- ------------
whether an agency relationship exists for purposes of disregarding a
corporation:
(1) Whether the corporation operates in the name and for the
account of the principal, (2) binds the principal by its
actions, (3) transmits money received to the principal,
and (4) whether receipt of income is attributable to the
services of employees of the principal and to assets
belonging to the principal are some of the relevant
considerations in determining whether a true agency
exists. (5) If the corporation is a true agent, its
relations with its principal must not be dependent upon
the fact that it is owned by the principal, if such is
the case. (6) Its business purpose must be the carrying
on of the normal duties of an agent./F6/
In Commissioner v. Bollinger,/F7/ the Supreme Court applied the National
------------------------- --------
Carbide factors to disregard the separate corporate identity of a subsidiary.
- -------
The Court held that a genuine agency relationship exists if there is a written
agency agreement, the corporation functions as an agent for all purposes and
the corporation holds itself out to third parties as an agent./F8/
- -----------------
/F3/ See, e.g., Commissioner v. Bollinger, 485 U.S. 340 (1988); National
Carbide Corp. v. Comm'r, 336 U.S. 422 (1949); Tomlinson v. Miles, 316
F.2d 710, 713 (5th Cir. 1963); Paymer v. Comm'r, 150 F.2d 334 (2d Cir.
1945); Kimbrell v. Comm'r, 371 F.2d 897 (5th Cir. 1967); Lowndes v.
U.S., 384 F.2d 635 (4th Cir. 1967); Britt v. U.S., 431 F.2d 227 (5th
Cir. 1970); Strick Corp. v. U.S., 714 F.2d 1194 (3d Cir. 1983), cert.
denied, 466 U.S. 971; Ocean Drilling & Exploration Co. v. U.S., 988
F.2d 1135, 1150 (Fed. Cir. 1993); Addison Int'l, Inc. v. Comm'r, 887
F.2d 660, 666 (6th Cir. 1989); Humana, Inc. v. Comm'r, 881 F.2d 247,
252 (6th Cir. 1989); Chelsea Products, Inc. v. Comm'r, 16 T.C. 840
(1951), aff'd, 197 F.2d 620 (3d Cir. 1952); Skarda v. Comm'r, 27 T.C.
137 (1956), aff'd, 250 F.2d 429 (10th Cir. 1957); Aldon Homes, Inc. v.
Comm'r, 33 T.C. 582 (1959); Nutt v. Comm'r, 39 T.C. 231 (1962), rev'd
on another issue, 351 F.2d 452 (9th Cir. 1965), cert. denied, 384 U.S.
918 (1966); Siegel v. Comm'r, 45 T.C. 566 (1966); Bass v. Comm'r, 50
T.C. 595 (1968); Rath v. Comm'r, 101 T.C. 196, 206 (1993); Rogers v.
Comm'r, 34 T.C.M. 1254 (1975).
/F4/ Moline Properties, 319 U.S. at 440-441; National Carbide Corp. v.
Comm'r, 336 U.S. 422 (1949), at 437; Commissioner v. Bollinger,
485 U.S. 340 (1988), at 346-347.
/F5/ 336 U.S. 422 (1949).
/F6/ Id. at 437.
/F7/ 485 U.S. 340 (1988).
/F8/ Id. at 349-350. See Moline Properties, 319 U.S. at 440-441 (lack of
agency contract a factor in finding that an agency relationship did
not exist).
RSI will invest in businesses that provide Commercial Services to
unrelated third parties in addition to providing services to the Operating
Partnership. In addition, RSI is the managing member of RSVP, which will
make investments in real estate sectors outside of Reckson's traditional
office and industrial sectors. It has entered into contracts and will
continue to enter into contracts in its own name and expects to earn profits
for its own account. Its stock will trade separately from Reckson's stock.
As described above, its shareholders may differ significantly from Reckson's,
just 17 days after the Distribution as a result of the Standby Agreement.
RSI will not operate in the name or on the account of Reckson or the
Operating Partnership, nor will RSI hold itself out as an agent of Reckson or
the Operating Partnership. Finally, there will not be a written agency
agreement between RSI and the Operating Partnership or Reckson. In fact, the
form of Intercompany Agreement expressly provides that each of RSI and the
Operating Partnership shall act in its own best interests and neither shall
be considered an agent of the other or to owe any fiduciary or other common
law duty to the other. Accordingly, based on the National Carbide factors,
----------------
as well as Bollinger, RSI will not be treated as an agent of Reckson or the
---------
Operating Partnership.
Based upon the foregoing, it is our opinion that RSI will be treated for
federal income tax purposes as a corporate entity separate from Reckson and
the Operating Partnership and not as an agent of Reckson or the Reckson
Operating Partnership.
B. Stapled Entities
--------
Section 269B(a)(3) of the Code requires that all entities that are
stapled entities be treated as a single entity for purposes of determining
whether any stapled entity is a REIT. A "stapled entity" is defined as any
group of two or more entities if more than 50% of the value of the beneficial
ownership in each of the entities consists of stapled interests. Under
Section 269B(c)(3), two or more interests are stapled interests if, by reason
of form of ownership, restrictions on transfer or other terms or conditions,
one of such interests are transferred or required to be transferred in
connection with the transfer of the other of such interests.
If shares of RSI and Reckson were characterized as stapled to each
other, then the REIT status of Reckson could be jeopardized because the two
entities would be treated as a single entity for purposes of determining
Reckson's REIT status. Immediately after the Distribution, there will be a
substantial overlap of common shareholders of Reckson and common Unitholders
of the Operating Partnership, on the one hand, and shareholders of RSI, on
the other hand. However, the number of outstanding shares of RSI will
increase five-fold just 17 days after the Distribution as a result of the
Rights Offering. Although the Subscription Rights will be distributed pro
rata to the public shareholders of RSI, the amount of RSI stock that will be
acquired by the initial public shareholders of RSI as a result of exercise of
the Subscription Rights cannot be predicted. Any RSI stock available under
the Subscription Rights but not subscribed for will be purchased by the
Standby Purchaser. As a result, there could be substantial divergence of
interest between the common shareholders of Reckson (and common Unitholders
of the Operating Partnership) and the shareholders of RSI shortly after the
Distribution. Moreover, the shares of RSI stock will trade separately from
the shares of Reckson stock and will be freely transferable, so that they
will not constitute stapled interests under the plain and unambiguous
language of Section 269B(c)(3) of the Code.
Based on the foregoing, it is our opinion that Reckson and RSI will not
be treated as stapled entities under Section 269B(a)(3) of the Code.
C. Status of Reckson as a REIT
---------------------------
Based on the assumptions and representations set forth above, and taking
into account the matters discussed above in sections A and B of the
Discussion portion of this letter, we are of the opinion that, commencing
with its taxable year ended December 31, 1995, Reckson has been organized in
conformity with the requirements for qualification and taxation as a REIT
under the Code, and its proposed method of operation will enable it to meet
the requirements for qualification and taxation as a REIT.
* * *
In rendering the foregoing opinions, we express no opinion as to the
laws of any jurisdiction other than the federal income tax laws of the United
States. This opinion is rendered as of the date hereof and we undertake no
obligation to update this opinion or advise you of changes in the event that
there is any change in legal authorities, facts, assumptions or documents on
which this opinion is based or any inaccuracy in any of the representations,
warranties or assumptions upon which we have relied on rendering this
opinion, unless we are specifically engaged to do so. In particular,
Reckson's qualification as a REIT will depend on Reckson meeting, in its
actual operations, the applicable asset composition, source of income,
shareholder diversification, distribution, recordkeeping and other
requirements of the Code and Treasury Regulations necessary for an entity to
qualify as a REIT. We will not review these operations and no assurance can
be given that the actual operations of Reckson and its affiliates will meet
these requirements or the representations made to us with respect thereto.
This opinion is rendered only to those to whom it is addressed and may not be
relied on in connection with any transactions other than the transactions
contemplated herein.
This opinion is furnished to you solely for your use in connection with
the Registration Statement. We hereby consent to the filing of this opinion
as Exhibit 8.1 to the Registration Statement and to the use of our name under
the caption "The Distribution -- Federal Income Tax Consequences" and "The
Rights Offering -- Federal Income Tax Consequences" in the prospectus
included therein.
Very truly yours,
</S/> Brown & Wood LLP
----------------
Brown & Wood LLP
EXHIBIT 10.1
Draft 5/6/98
------------
INTERCOMPANY AGREEMENT
THIS INTERCOMPANY AGREEMENT (the "Agreement") is made and entered into as
of the ___ day of _____________, 1998, by and between Reckson Operating
Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"),
and Reckson Service Industries, Inc., a Delaware corporation ("RSI").
W I T N E S S E T H:
WHEREAS, Reckson Associates Realty Corp., a Maryland corporation
("Reckson"), is the managing general partner of, and owns a supermajority
interest in, the Operating Partnership;
WHEREAS, the Operating Partnership has determined that it is precluded from
pursuing, or is limited in the manner in which it pursues, various business
opportunities due to the status of Reckson as a real estate investment trust
("REIT") under sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, RSI has been formed primarily to provide various commercial
services to the Operating Partnership and its tenants and other third parties
and is expected to pursue real estate or real estate related investment
opportunities through one or more real estate opportunity funds, including
Reckson Strategic Venture Partners, LLC ("RSVP"), which may make or acquire real
estate or real estate-related investments other than REIT-Qualified Investments
(as hereinafter defined) and REIT-Qualified Investments that the Operating
Partnership has decided not to pursue;
WHEREAS, based upon management's knowledge of and relationships with the
Operating Partnership's tenants, the parties hereto believe that RSI will be
able to offer on competitive market terms a high quality level of services to
the Operating Partnership and its tenants and other third parties, which
services are currently provided by third parties in a more limited and
fragmented manner or are not currently provided at all;
WHEREAS, the Operating Partnership believes that RSI, particularly through
RSVP or other real estate opportunity funds, may source attractive opportunities
for REIT-Qualified Investments, which may be in sectors outside of the Operating
Partnership's traditional markets; and
WHEREAS, in light of the purposes for which RSI was formed, the Operating
Partnership and RSI desire to enter into this Agreement in order to (i) reduce
any potential conflict of interest by allocating to each party a right of first
opportunity with respect to certain matters referred to herein and (ii) provide
access to certain information for the benefit of the other party.
NOW, THEREFORE, in consideration of the premises and mutual undertakings
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
undersigned parties hereby agree as follows:
1. Definitions. Except as may be otherwise herein expressly provided, the
following terms and phrases shall have the meanings as set forth below:
(a) "Affiliate" means any entity in which a majority of the beneficial
ownership interests are owned by another specified entity or by any entity
controlled by, controlling or under common control with another specified
entity.
(b) "Master Lease Opportunity" means the opportunity to become the
lessee under a "master" lease arrangement of a property owned or subsequently
acquired by the Operating Partnership if the Operating Partnership, in its sole
discretion, determines that, consistent with the status of Reckson as a REIT,
the Operating Partnership is required to enter into such a "master" lease
arrangement for such property and that RSI or an Affiliate of RSI is qualified
to be the lessee based on experience in the industry and financial and legal
qualifications.
(c) "REIT Opportunity" means a direct or indirect opportunity to
invest in (i) real estate, real estate mortgages, real estate derivatives, or
entities that invest primarily in or have a substantial portion of their assets
in the aforementioned types of assets, or (ii) any other investment which may be
structured in a manner so as to be a REIT-Qualified Investment, as determined by
the Operating Partnership in its sole discretion. The Operating Partnership
shall have the right from time to time to provide written notice to RSI
specifying certain more limited criteria for a REIT Opportunity. Any such
written notice from the Operating Partnership may be modified or canceled by
written notice given by the Operating Partnership at any time. The definition of
REIT Opportunity shall be modified as appropriate from time to time in
accordance with any such written notices sent by the Operating Partnership.
(d) A "REIT-Qualified Investment" means an investment, the income from
which would qualify under the 95% gross income test set forth in section
856(c)(2) of the Code, the ownership of which would not cause a REIT to violate
the asset limitations set forth in section 856(c)(5) of the Code, and which
otherwise meets the federal income tax requirements applicable to REITs.
(e) "Service Provider Opportunity" means (i) the opportunity to
provide to the Operating Partnership and its tenants and other third parties
commercial services (other than customary services) utilized by lessees of real
estate or (ii) a Master Lease Opportunity. RSI shall have the right from time to
time to provide written notice to the Operating Partnership specifying more
limited criteria for a Service Provider Opportunity. Any such written notice
from RSI may be modified or canceled by written notice given by RSI at any time.
The definition of Service Provider Opportunity shall be modified as appropriate
from time to time in accordance with any such written notices sent by RSI.
2. Operating Partnership Right of First Opportunity.
(a) During the term of this Agreement, if RSI develops a REIT
Opportunity, or if any REIT Opportunity otherwise becomes available to RSI,
then, subject to the provisions of Section 2(b), RSI shall offer such REIT
Opportunity first to the Operating Partnership. In the event that an Affiliate
of RSI (including, but not limited to, RSVP) develops a REIT Opportunity, or if
any REIT Opportunity otherwise becomes available to such Affiliate, then,
subject to the provisions of Section 2(b), RSI shall (i) cause such Affiliate to
offer such REIT Opportunity to the Operating Partnership in the form of joint
venture with such Affiliate to the extent of RSI's interest therein and (ii) to
the extent that such joint venture has invested funds in excess of 25% of such
Affiliate's total [common] equity in a particular real estate sector, cause such
Affiliate to offer all subsequent REIT Opportunities in such sector directly to
the Operating Partnership. The offer of a REIT Opportunity to the Operating
Partnership shall be made by written notice (the "RSI Notice"), which RSI Notice
shall contain a detailed description of the material terms and conditions of the
REIT Opportunity developed by or made available to RSI or the applicable
Affiliate, as the case may be, including, without limitation, any noncompetition
provisions. The Operating Partnership shall have ten days (the "Ten-Day Period")
from the date of receipt of the RSI Notice to notify RSI or the applicable
Affiliate, as the case may be, in writing that it has accepted or rejected the
REIT Opportunity. If the Operating Partnership does not respond by the end of
the Ten-Day Period, the Operating Partnership shall be deemed to have rejected
the REIT Opportunity. If the Operating Partnership accepts a REIT Opportunity,
but subsequently decides not to pursue such opportunity, or for any other reason
fails to consummate a REIT Opportunity, the Operating Partnership shall
immediately provide written notice that it is no longer pursuing such REIT
Opportunity to RSI or the applicable Affiliate, as the case may be.
(b) If the Operating Partnership rejects a REIT Opportunity, or
accepts a REIT Opportunity but thereafter provides, or is required by the
provisions hereof to provide, written notice to RSI or the applicable Affiliate,
as the case may be, that it is no longer pursuing such REIT Opportunity, RSI or
such Affiliate, as the case may be, shall, for a period of six months or, to the
extent that there are ongoing discussions relating thereto, a period of one year
after the Operating Partnership Withdrawal Date (as hereinafter defined), be
entitled to acquire the related REIT-Qualified Investment (i) on terms and
conditions that are not materially more favorable to RSI or such Affiliate, as
the case may be, than the terms and conditions set forth in the RSI Notice
relating to such REIT Opportunity or (ii) if the Operating Partnership, at any
time after the RSI Notice, negotiated different terms or conditions with respect
to such REIT Opportunity, then on terms and conditions that are not materially
more favorable than the terms and conditions negotiated by the Operating
Partnership. [If RSI or an Affiliate of RSI (including, but not limited to,
RSVP) enters into a binding agreement to acquire a REIT-Qualified Investment
within a six-month or one year period, as applicable, after the Operating
Partnership Withdrawal Date and subsequently one or more additional REIT
Opportunities in the same real estate sector become available to RSI or such
Affiliate, as the case may be, then RSI or such Affiliate, as the case may be,
shall be under no obligation to offer such REIT Opportunity to the Operating
Partnership and RSI or such Affiliate, as the case may be, may immediately enter
into a binding agreement to acquire such Qualified Investment]. If RSI or such
Affiliate, as the case may be, does not enter into a binding agreement to
acquire such REIT-Qualified Investment within such six-month or one-year period,
as applicable, or if the terms and conditions are materially more favorable to
RSI than the terms and conditions set forth in the RSI Notice (or, if
applicable, than the terms and conditions negotiated by the Operating
Partnership subsequent to the RSI Notice), then RSI or such Affiliate, as the
case may be, shall again be required to comply with the procedures set forth
above in Section 2(a) if it desires to enter into a binding agreement to acquire
such REIT-Qualified Investment. The Operating Partnership Withdrawal Date means
any one of the following dates, as applicable: (i) the date that the Operating
Partnership notifies RSI or the applicable Affiliate, as the case may be, that
it has rejected the REIT Opportunity, (ii) if the Operating Partnership does not
respond to RSI or the applicable Affiliate, as the case may be, regarding the
REIT Opportunity, the expiration date of the Ten-Day Period, or (iii) if the
Operating Partnership accepts the REIT Opportunity but subsequently ceases to
pursue the opportunity, the earlier of (A) 30 days after the date on which the
Operating Partnership ceases to pursue the REIT Opportunity or (B) the date of
receipt by RSI or the applicable Affiliate, as the case may be, of written
notice from the Operating Partnership that it is no longer pursuing the REIT
Opportunity.
(c) RSI agrees to use commercially reasonable efforts to assist the
Operating Partnership in consummating any REIT Opportunity accepted by the
Operating Partnership that was developed by, or otherwise became available to,
RSI (including, without limitation, structuring such opportunity as a
REIT-Qualified Investment) and RSI shall cause its Affiliates to do the same.
Any expenses incurred that are directly related to structuring an investment as
a REIT-Qualified Investment shall be borne solely by the Operating Partnership.
3. RSI Access to Tenants; RSI Right of First Opportunity for Service
Provider Opportunity.
(a) During the term of this Agreement, the Operating Partnership shall
provide RSI with access to its tenants so that RSI may offer services directly
to such tenants, including, but not limited to, providing an updated listing of
all of the tenants of the Operating Partnership on a semi-annual basis and the
names of contacts at such tenants. The Operating Partnership will use
commercially reasonable efforts to facilitate the solicitation of such tenants
by RSI in respect of non-customary commercial services to be provided by them
and, if the Operating Partnership develops a Service Provider Opportunity as a
result of such efforts or otherwise, or if a Service Provider Opportunity
otherwise becomes available to the Operating Partnership, the Operating
Partnership shall offer such Service Provider Opportunity first to RSI. If the
Operating Partnership accepts a REIT Opportunity presented to it by RSI or its
Affiliates, then the Service Provider Opportunity in respect of such REIT
Opportunity and any future investments by the Operating Partnership in the same
real estate sector shall also be subject to the right of first opportunity
provided for in this Section 3(a).
The offer of a Service Provider Opportunity to RSI shall be made by written
notice (the "Operating Partnership Notice"), which Operating Partnership Notice
shall contain a detailed description of the material terms and conditions of the
Service Provider Opportunity developed by or made available to the Operating
Partnership. The Operating Partnership shall thereafter provide or cause to be
provided promptly to RSI such additional information relating to the Service
Provider Opportunity as RSI reasonably may request. For a period of 30 days
after the date that the Operating Partnership delivers the Operating Partnership
Notice, the Operating Partnership and RSI shall negotiate with each other on an
exclusive basis with respect to such Service Provider Opportunity. RSI shall
offer to provide services to the Operating Partnership in respect of a Service
Provider Opportunity at market rates and on terms and conditions as attractive
as the best available for comparable services in the market or (it being
understood that RSI will provide market information on such services to the
Operating Partnership during such 30-day period) those offered by RSI to third
parties. If the Operating Partnership and RSI are unable to enter into a
mutually satisfactory arrangement with respect to such Service Provider
Opportunity within such 30-day period, or if RSI determines that it is not
interested in pursuing such Service Provider Opportunity (in which event RSI
shall provide written notice to the Operating Partnership promptly after such
determination), then the Operating Partnership shall be entitled, for a period
of six months or, to the extent that there are ongoing discussions relating
thereto, one year after the expiration of such 30-day period, to enter into a
binding agreement with respect to such Service Provider Opportunity with any
party on terms and conditions that are not materially more favorable to the
Operating Partnership than the terms and conditions last proposed in writing by
the Operating Partnership to RSI. If the Operating Partnership does not enter
into a binding agreement with respect to such Service Provider Opportunity
within such six-month or one-year period, as applicable, or if the terms and
conditions are more materially favorable to the Operating Partnership than the
terms and conditions last proposed in writing by the Operating Partnership to
RSI, the Operating Partnership shall again be required to comply with the
procedures set forth above in this Section 3(a) if it desires to pursue such
Service Provider Opportunity.
(b) Notwithstanding anything to the contrary contained in this
Agreement, (1) the Operating Partnership shall not be required to offer to RSI
any Service Provider Opportunity in connection with a proposed acquisition
involving a Master Lease Opportunity until a binding contract has been entered
into with respect to such acquisition, and the consummation of any agreement
between the Operating Partnership and RSI with respect to a Service Provider
Opportunity shall be subject to the actual closing of such acquisition by the
Operating Partnership, (2) the Operating Partnership shall have the right, in
its sole discretion, to decide not to pursue, or to discontinue at any time
pursuing, any investment opportunity, even if such opportunity, if pursued,
would create a Service Provider Opportunity, and (3) the Operating Partnership
shall have no obligation to offer any opportunity other than a Service Provider
Opportunity to RSI.
(c) The Operating Partnership agrees to use commercially reasonable
efforts to assist RSI in structuring and consummating all dealings with outside
parties in connection with any Service Provider Opportunity that was developed
by, or otherwise became available to, the Operating Partnership. The Operating
Partnership shall have the right, in its sole discretion, to structure any
investment as a REIT- Qualified Investment, even if such structuring prevents
the Operating Partnership from creating a Service Provider Opportunity for RSI.
4. General Terms and Conditions for Rights of First Opportunity/
Notification Rights.
(a) Unless waived or unless agreed to as part of an investment, each
party shall bear its own expenses with respect to any opportunity to which this
Agreement is applicable, and each party agrees that it shall not be entitled to
any compensation from the other party with respect to any such opportunity.
y. (b) A party shall not be required to comply with the right of first
opportunity and notification requirements set forth in this Agreement during any
period in which the other party or any Affiliate of such other party is in
default of this Agreement or any other agreement entered into by the parties
hereto or any of their Affiliates, if such default is material and remains
uncured for fifteen days after receipt of notice thereof.
(c) The Operating Partnership shall not enter into any arrangement or
agreement to provide any Service Provider Opportunity to any party other than
RSI, and RSI shall not, and shall cause its Affiliates not to, enter into any
arrangement or agreement to provide REIT Opportunities to any party other than
the Operating Partnership, except, in each case, as permitted in this Agreement.
(d) Any REIT Opportunity which is offered to and accepted by the
Operating Partnership under this Agreement may be entered into by or on behalf
of the Operating Partnership or by any designee which is an Affiliate of the
Operating Partnership. Any Service Provider Opportunity which is offered to and
accepted by RSI under this Agreement may be entered into by or on behalf of RSI
or by any Affiliate of RSI.
(e) All first opportunity and notification rights set forth in this
Agreement shall be subordinated to any seller consent and confidentiality
requirements. Accordingly, no party shall be required to comply with the first
opportunity and notification rights set forth in this Agreement if such
compliance would violate any seller consent or confidentiality requirements.
(f) While it is the intention of the parties to align their businesses
in accordance with the terms of this Agreement, each party shall act
independently in its own best interests, and neither party shall be considered a
partner or agent of the other party or to owe any fiduciary or other common law
duty to the other party.
(g) All provisions hereof requiring the giving of notice shall be
satisfied through the giving of notice to the Board of Directors of Reckson or
RSI, as the case may be, or a committee of such Board formed for the specific
purpose of addressing matters covered in this Agreement.
5. Services of Officers and Directors. It is acknowledged and agreed that
the directors and executive officers of either party hereto may serve in similar
capacities with the other party hereto.
6. RSI Ownership Limitation. So long as this Agreement is in effect, the
certificate of incorporation of RSI shall contain provisions to the effect that
(i) no stockholder of RSI may own, or be deemed to own by virtue of the
attribution provisions of Section 856(d)(5) of the Code, more than 9.9% of the
aggregate number or value of the outstanding shares of RSI common stock ("Common
Stock"), (ii) no stockholder of RSI may own more than 9.9% in value of all of
the outstanding shares of capital stock of RSI, taking into account all classes
of such capital stock outstanding, and (iii) any shares of RSI stock owned or
purported to be owned in violation of the foregoing restrictions shall
automatically be transferred to a trust for the benefit of a charitable
beneficiary and be subject to "Excess Stock" provisions similar to those
contained in Article VII of the Articles of Amendment and Restatement of
Reckson, provided that the ownership limitations described in clauses (i) and
(ii) above shall be subject to exceptions so as to enable a stockholder (x) to
acquire and own any Common Stock by Reckson to its shareholders, (y) to
acquire and own Common Stock in satisfaction of obligations under that certain
standby agreement between RSI and RSI Standby LLC with respect to the purchase
of Common Stock subject to certain subscription rights distributed by RSI to its
shareholders that expire unexercised, and (z) to acquire and own employee stock
options and Common Stock issued pursuant to the exercise of employee stock
options. The board of directors of RSI shall not grant any waivers or
exemptions from the foregoing limitations without the consent of the board of
directors of Reckson, which may be granted or withheld in Reckson's sole
discretion.
7. Specific Performance. Each party hereto hereby acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other party hereto would likely have no adequate remedy at law if such party
shall fail to perform its obligations hereunder, and such party therefor
confirms that the other party's right to specific performance of the terms of
this Agreement is essential to protect the rights and interests of the other
party. Accordingly, in addition to any other remedies that a party hereto may
have at law or in equity, such party shall have the right to have all
obligations, covenants, agreements and other provisions of this Agreement
specifically performed by the other party hereto and the right to obtain a
temporary restraining order or a temporary or permanent injunction to secure
specific performance and to prevent a breach or threatened breach of this
Agreement by the other party hereto. Each party submits to the jurisdiction of
the courts of the State of Delaware for this purpose.
8. Affiliates. Each party hereto shall cause all Affiliates under its
control to comply with the terms hereof. Reckson, by its signature below, hereby
agrees that it shall comply with the terms of this Agreement applicable to the
Operating Partnership.
9. Term. The term of this Agreement shall commence as of the date first
written above and shall terminate on ________, 2008. This Agreement may be
extended at the option of either of the parties hereto for two additional
five-year periods, upon notice given to the other party within six months of the
expiration hereof. Notwithstanding the foregoing, a party hereto may terminate
this Agreement if the other party or any Affiliate of such other party is in
default of this Agreement or any other agreement entered into by the parties
hereto or any of their Affiliates, if such default is material and remains
uncured for fifteen days after receipt of notice thereof.
10. Miscellaneous.
(a) Notices. Notices shall be sent to the parties at the following
addresses:
Reckson Operating Partnership, L.P.
225 Broadhollow Road
Melville, NY 11747
Facsimile: 516-756-1764
Attention: Jason M. Barnett, Esq.
with a copy to:
Edward F. Petrosky, Esq.
Brown & Wood LLP
One World Trade Center
NY, NY 10048
Facsimile: 212-839-5599
Reckson Service Industries, Inc.
225 Broadhollow Road
Melville, NY 11747
Facsimile: 516-756-1764
Attention: [ ]
with a copy to:
________________________
________________________
Facsimile: _____________
Notices may be sent by certified mail, return receipt requested, Federal
Express or comparable overnight delivery service, or facsimile. Notice will be
deemed received on the fourth business day following deposit in U.S. mail and on
the first business day following deposit with Federal Express or other delivery
service, or transmission by facsimile. Any party to this Agreement may change
its address for notice by giving written notice to the other party at the
address and in accordance with the procedures provided above.
(b) Reasonable and Necessary Restrictions. Each of the parties hereto
hereby acknowledges and agrees that the restrictions, prohibitions and other
provisions of this Agreement are reasonable, fair and equitable in scope, term
and duration, are necessary to protect the legitimate business interests of the
parties hereto and are a material inducement to the parties hereto to enter into
the transactions described in and contemplated by the recitals hereto. Each
party hereto covenants that it will not sue to challenge the enforceability of
this Agreement or raise any equitable defense to its enforcement.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns. Except as otherwise permitted in this Agreement, this Agreement shall
not be assigned without the express written consent of each of the parties
hereto. Notwithstanding the foregoing, this Agreement may be assigned without
the consent of any party hereto in connection with any merger, consolidation,
reorganization or other combination of a party with or into another entity where
the party is not the surviving entity.
(d) Amendments; Waivers. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless such change or waiver is specifically set forth
in a writing signed by the party or parties to be bound thereby. The waiver of
any right or remedy with respect to any occurrence on one occasion shall not be
deemed a waiver of such right or remedy with respect to such occurrence on any
other occasion.
(e) Choice of Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the principles of choice of law
thereof.
(f) Severability. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent, be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
(g) Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, between
the parties hereto with respect to the subject matter hereof, so that no such
external or separate agreement relating to the subject matter of this Agreement
shall have any effect or be binding, unless the same is referred to specifically
in this Agreement or is executed by the parties after the date hereof. This
Agreement is not intended to confer upon any other person any rights or remedies
hereunder and shall not be enforceable by any party not a signatory to this
Agreement.
(h) Gender; Number. As the context requires, any word used herein in
the singular shall extend to and include the plural, any word used in the plural
shall extend to and include the singular and any word used in any gender or the
neuter shall extend to and include each other gender or be neutral.
(i) Headings. The headings of the sections hereof are inserted for
convenience of reference only and are not intended to be a part of or affect the
meaning or interpretation of this Agreement or of any term or provision hereof.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed by one of its duly authorized signatories as of the date first
above written.
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp.,
its sole general partner
By: _________________________________________
Name:
Title:
RECKSON SERVICE INDUSTRIES, INC.
By: _________________________________________
Name:
Title:
Exhibit 10.2A
B&W DRAFT 5/12/98
CREDIT AGREEMENT
dated as of
___, 1998
between
RECKSON SERVICE INDUSTRIES, INC.,
as Borrower
and
RECKSON OPERATING PARTNERSHIP, L.P.,
as Lender
relating to the operations of
RECKSON SERVICE INDUSTRIES, INC.
<PAGE>
Table of Contents
Page
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions........................................................1
(a) Terms Generally....................................................1
(b) Other Terms........................................................1
ARTICLE II.
THE REVOLVING CREDIT FACILITY
Section 2.1 Commitment and Loans...............................................6
Section 2.2 Borrowing Procedure................................................6
Section 2.3 Termination and Reduction of Commitment............................6
Section 2.4 Repayment..........................................................6
Section 2.5 Optional Prepayment................................................7
ARTICLE III.
INTEREST AND FEES
Section 3.1 Interest Rate......................................................8
Section 3.2 Interest on Overdue Amounts........................................8
Section 3.3 Maximum Interest Rate..............................................8
ARTICLE IV.
DISBURSEMENT AND PAYMENT
Section 4.1 Method and Time of Payments........................................9
Section 4.2 Compensation for Losses............................................9
Section 4.3 Withholding and Additional Costs..................................10
(a) Withholding.......................................................10
(b) Additional Costs..................................................10
(c) Certificate, Etc..................................................10
Section 4.4 Expenses; Indemnity...............................................11
Section 4.5 Survival..........................................................11
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties....................................11
(a) Good Standing and Power...........................................12
(b) Authority.........................................................12
(c) Authorizations....................................................12
(d) Binding Obligation................................................12
(e) Litigation........................................................12
(f) No Conflicts......................................................12
(g) Taxes.............................................................13
(h) Properties........................................................13
(i) Compliance with Laws and Charter Documents........................13
(j) No Material Adverse Effect........................................13
(k) Disclosure........................................................13
Section 5.2 Survival..........................................................13
ARTICLE VI.
CONDITIONS PRECEDENT
Section 6.1 Conditions to the Availability of the Commitment..................14
(a) This Agreement....................................................14
(b) Certificate of Incorporation and By-Laws..........................14
(c) Representations and Warranties....................................14
(d) Other Documents...................................................14
(e) REIT Status of Reckson............................................14
(f) Certain Loans Subject to Reckson's Approval.......................14
Section 6.2 Conditions to All Loans...........................................14
(a) Borrowing Request.................................................15
(b) No Default........................................................15
(c) Debt-to-Equity Ratio..............................................15
(d) Representations and Warranties; Covenants.........................15
Section 6.3 Satisfaction of Conditions Precedent..............................15
ARTICLE VII.
COVENANTS
Section 7.1 Affirmative Covenants.............................................15
(a) Financial Statements; Compliance Certificates.....................15
(b) Existence.........................................................16
(c) Compliance with Law and Agreements................................16
(d) Authorizations....................................................16
(e) Inspection........................................................16
(f) Maintenance of Records............................................16
(g) Notice of Defaults and Adverse Developments.......................17
Section 7.2 Negative Covenants................................................17
(a) Mergers, Consolidations and Sales of Assets.......................17
(b) Liens.............................................................17
(c) Indebtedness......................................................17
(d) Dividends.........................................................17
(e) Certain Amendments................................................18
ARTICLE VIII.
EVENTS OF DEFAULT
Section 8.1 Events of Default.................................................18
ARTICLE IX.
EVIDENCE OF LOANS; TRANSFERS
Section 9.1 Evidence of Loans.................................................20
ARTICLE X.
MISCELLANEOUS
Section 10.1 Applicable Law...................................................20
Section 10.2 Waiver of Jury...................................................20
Section 10.3 Jurisdiction and Venue; Service of Process.......................20
Section 10.4 Confidentiality..................................................21
Section 10.5 Amendments and Waivers...........................................21
Section 10.6 Cumulative Rights; No Waiver.....................................21
Section 10.7 Notices..........................................................21
Section 10.8 Certain Acknowledgments..........................................22
Section 10.9 Separability.....................................................22
Section 10.10 Parties in Interest.............................................22
Section 10.11 Execution in Counterparts.......................................22
<PAGE>
CREDIT AGREEMENT, dated as of ___, 1998, between Reckson Service
Industries, Inc., a Delaware corporation, and Reckson Operating Partnership,
L.P., a Delaware limited partnership, relating to the operations of Reckson
Service Industries, Inc.
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Lender to commit to lend to
the Borrower up to $100 million on a revolving basis for acquisitions of assets
and general corporate purposes; and
WHEREAS, the Lender is willing to make revolving credit loans on the
terms and conditions provided herein;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions.
(a) Terms Generally. The definitions ascribed to terms in this Agreement
apply equally to both the singular and plural forms of such terms. Whenever the
context may require, any pronoun shall be deemed to include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be interpreted as if followed by the phrase "without
limitation". The phrase "individually or in the aggregate" shall be deemed
general in scope and not to refer to any specific Section or clause of this
Agreement. All references herein to Articles, Sections, Exhibits and Schedules
shall be deemed references to Articles and Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise require. The
table of contents, headings and captions herein shall not be given effect in
interpreting or construing the provisions of this Agreement. Except as otherwise
expressly provided herein, all references to "dollars" or "$" shall be deemed
references to the lawful money of the United States of America.
(b) Other Terms. The following terms have the meanings ascribed to them
below or in the Sections of this Agreement indicated below:
"Adjusted Indebtedness" means, with respect to the Borrower, the
Borrower's Indebtedness determined without regard for any amounts described
in clause (viii) of the definition of "Indebtedness."
"Affiliate" means, with respect to any Person, any other
Person that controls, is controlled by, or is under common control
with, such Person.
"Agreement" means this credit agreement, as it may be amended,
modified or supplemented from time to time.
"Available Commitment" means, on any day, an amount equal to
(i) the Commitment on such day minus (ii) the aggregate outstanding
principal amount of Loans on such day.
"Borrower" means Reckson Service Industries, Inc., a Delaware
corporation.
"Borrowing Date" means, with respect to any Loan, the Business
Day set forth in the relevant Borrowing Request as the date upon which
the Borrower desires to borrow such Loan;
"Borrowing Request" means a request by the Borrower for a
Loan, which shall specify (i) the requested Borrowing Date and (ii) the
aggregate amount of such Loan.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in The City of New York are
authorized by law to close.
"Capital Lease Obligations" means, with respect to any Person,
the obligation of such Person to pay rent or other amounts under any
lease with respect to any property (whether real, personal or mixed)
acquired or leased by such Person that is required to be accounted for
as a liability on a consolidated balance sheet of such Person.
"Commercial Services" means businesses that provide services
for occupants of office, industrial and other property types that
Reckson may not be permitted to provide under Federal tax laws
applicable to a real estate investment trust or that have not
traditionally been provided by Reckson.
"Commitment" means $100 million, as such amount may be reduced
from time to time pursuant to Section 2.3.
"Commitment Termination Date" means the earlier to occur of
(i) May __, 2003 and (ii) the date, if any, on which the Commitment is
terminated.
"Confidential Information" means information delivered to the
Lender by or on behalf of the Borrower in connection with the
transactions contemplated by or otherwise pursuant to this Agreement
that is confidential or proprietary in nature at the time it is so
delivered or information obtained by the Lender in the course of its
review of the books or records of the Borrower contemplated herein;
provided that such term shall not include information W that was
publicly known or otherwise known to the Lender prior to the time of
such disclosure, (ii) that subsequently becomes publicly known through
no act or omission by the Lender or any Person acting on the Lender's
behalf, (iii) that otherwise becomes known to the Lender other than
through disclosure by the Borrower or (iv) that constitutes financial
information delivered to the Lender that is otherwise publicly
available.
"Default" means any event or circumstance which, with the
giving of notice or the passage of time, or both, would be an Event of
Default.
"EBITDA" means for any fiscal period, the Consolidated Net
Income or Consolidated Net Loss, as the case may be, for such fiscal
period, after restoring thereto amounts deducted for (a) extraordinary
losses (or deducting therefrom any amounts included therein on account
of extraordinary gains) and special charges, (b) depreciation and
amortization (including write-offs or write-downs) and special charges,
(c) the amount of interest expense of the Borrower and its
Subsidiaries, if any, determined on a consolidated basis in accordance
with GAAP, for such period on the aggregate principal amount of their
consolidated indebtedness, (d) the amount of tax expense of the
Borrower and its Subsidiaries, if any, determined on a consolidated
basis in accordance with GAAP, for such period and (e) the aggregate
amount of fixed and contingent rentals payable by the Borrower and its
Subsidiaries, if any, determined on a consolidated basis in accordance
with GAAP, for such period with respect to leases of real and personal
property.
"Effective Date" has the meaning assigned to such term in Section
6.1.
"Event of Default" has the meaning assigned to such term in
Section 8.1.
"GAAP" means generally accepted accounting principles, as set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entities as may be
approved by a significant segment of the accounting profession of the
United States of America.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranty" means, with respect to any Person, any obligation,
contingent or otherwise, of such Person guaranteeing or having the
economic effect of guaranteeing any Indebtedness of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
and including any obligation of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such
Indebtedness or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Indebtedness, (ii) to
purchase property, securities or services for the purpose of assuring
the holder of such Indebtedness of the payment of such Indebtedness or
(iii) to maintain working capital, equity capital or the financial
condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Indebtedness. The term "Guaranteed" shall
have the corresponding meaning.
"Indebtedness" means, with respect to any Person, (i) all
obligations of such Person for borrowed money or for the deferred
purchase price of property or services (including all obligations,
contingent or otherwise, of such Person in connection with letters of
credit, bankers' acceptances, interest rate swap agreements, interest
rate cap agreements or other similar instruments, including currency
swaps) other than indebtedness to trade creditors and service providers
incurred in the ordinary course of business and payable on usual and
customary terms, (ii) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such
Person (even though the remedies available to the seller or lender
under such agreement are limited to repossession or sale of such
property), (iv) all Capital Lease Obligations of such Person, (v) all
obligations of the types described in clauses (i), (ii), (iii) or (iv)
above secured by (or for which the obligee has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in any
property (including accounts, contract rights and other intangibles)
owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, (vi) all preferred stock
issued by such Person which is redeemable, prior to full satisfaction
of the Borrower's obligations under this Agreement (including repayment
in full of the Loans and all interest accrued thereon), other than at
the option of such Person, valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends,
(vii) all Indebtedness of others Guaranteed by such Person and (viii)
all Indebtedness of any partnership of which such Person is a general
partner.
"Indemnitee" has the meaning assigned to such term in Section
4.4(b).
"Intercompany Agreement" means the intercompany agreement,
dated as of the date hereof, by and between the Borrower and the
Lender.
"Interest Period" means, with respect to any Loan, each
three-month period commencing on the date such Loan is made or at the
end of the preceding Interest Period, as the case may be; provided,
however, that:
(i) any Interest Period that would otherwise end on a day that is
not a Business Day shall be extended to the next Business Day, unless
such Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (iii) below, end on the last Business
Day of a calendar month; and
(iii) ____ any Interest Period that would otherwise end after the
Commitment Termination Date then in effect shall end on such
Commitment Termination Date.
"Lender" means Reckson Operating Partnership, L.P., a Delaware limited
partnership.
"Lien" means, with respect to any asset of a Person, (i) any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset, (ii) the interest of a vendor or lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset,
and (iii) in the case of securities, any purchase option, call or similar right
of any other Person with respect to such securities.
"Loans" has the meaning assigned to such term in Section 2.1.
"Material Adverse Effect" means any material and adverse effect on (i)
the consolidated business, properties, condition (financial or otherwise) or
operations, present or prospective, of the Borrower and its Subsidiaries, (ii)
the ability of the Borrower timely to perform any of its material obligations,
or of the Lender to exercise any remedy, under this Agreement or (iii) the
legality, validity, binding nature or enforceability of this Agreement.
"Net Assets" means, with respect to the Borrower, the greater of (i)
the sum of the Borrower's paid-in capital and retained earnings or (ii) the
excess of the Value of all of the Borrower's assets of any kind over the
Borrower's Adjusted Indebtedness.
"Permitted Liens" means, collectively, the following: (i) Liens
expressly approved by the Lender, which approval shall not be unreasonably
withheld; (ii) Liens imposed by any Governmental Authority for taxes,
assessments or charges not yet due or that are being contested in good faith by
appropriate proceedings and for which adequate reserves are being maintained (in
accordance with GAAP); and (iii) Liens existing on the date hereof.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including any instrumentality,
division, agency, body or department thereof).
"Prime Rate" means the prime rate (or if a range is given, the highest
prime rate) listed under "Money Rates" in THE WALL STREET JOURNAL for such date
or, if THE WALL STREET JOURNAL is not published on such date, then in THE WALL
STREET JOURNAL most recently published.
"Reckson" means Reckson Associates Realty Corp., a Maryland
corporation.
"Responsible Officer" means the chief executive officer, president,
chief financial officer, chief accounting officer, treasurer or any vice
president, senior vice president or executive vice president of the General
Partner.
"RSVP-ROP Facility Agreement" means the credit agreement dated the
date hereof between Borrower and Lender in respect of the operations of Reckson
Strategic Venture Partners, LLC.
"SEC" means the Securities and Exchange Commission (or any successor
Governmental Authority).
"Subsidiary" means, at any time and with respect to any Person, any
other Person the shares of stock or other ownership interests of which having
ordinary voting power to elect a majority of the board of directors or with
respect to other matters of such Person are at the time owned, or the management
or policies of which is otherwise at the time controlled, directly or indirectly
through one or more intermediaries (including other Subsidiaries) or both, by
such first Person. Unless otherwise qualified or the context indicates clearly
to the contrary, all references to a "Subsidiary" or "Subsidiaries" in this
Agreement refer to a Subsidiary or Subsidiaries of the Borrower.
"Taxes" has the meaning assigned to such term in Section 4.3(a).
"Value" means, with respect to any asset owned by the Borrower, the
present value of the net cash flow reasonably projected by the Borrower to be
received with respect to its ownership of such assets, discounted at an interest
rate that the Borrower reasonably determines appropriate given the risks
associated with such asset and such projected net cash flow, but in no event at
an interest rate lower than ___% above the Prime Rate in effect at the time that
the determination of Value is made.
ARTICLE II.
THE REVOLVING CREDIT FACILITY
Section 2.1 Commitment and Loans. Until the Commitment Termination Date,
subject to the terms and conditions of this Agreement, the Lender agrees to make
revolving credit loans (collectively, "Loans") in dollars to the Borrower in an
aggregate principal amount at any one time outstanding not to exceed the
Commitment.
Section 2.2 Borrowing Procedure. In order to borrow a Loan, the Borrower
shall give a Borrowing Request to the Lender, by telephone, telex or telecopy or
in writing, not later than 10:30 A.M., New York time, on the third Business Day
before the Borrowing Date (or such later time or date as the Lender may in its
sole discretion permit). (If any Borrowing Request is made otherwise than in
writing, Borrower shall promptly confirm such Borrowing Request in writing.)
Subject to satisfaction, or waiver by the Lender, of each of the applicable
conditions precedent contained in Article VI, on the Borrowing Date the Lender
shall make available, in immediately available funds, to the Borrower the amount
of the requested Loan. Section 2.3 _______ Termination and Reduction of
Commitment . The Borrower may terminate the Commitment, or reduce the amount
thereof, by giving written notice to the Lender, not later than 5:00 P.M., New
York time, on the fifth Business Day prior to the date of termination or
reduction (or such later time or date as the Lender may in its sole discretion
permit). Section 2.4 _______ Repayment . Loans shall be repaid, together with
all accrued and unpaid interest thereon, on the Commitment Termination Date.
Section 2.5 _______ Optional Prepayment . The Borrower may prepay Loans by
giving notice (specifying the Loans to be prepaid in whole or in part, the
principal amount thereof to be prepaid and the date of prepayment) to the
Lender, by telephone, telex, telecopy or in writing not later than 12:00 noon,
New York time, on the fourth Business Day preceding the proposed date of
prepayment (or such later time or date as the Lender may in its sole discretion
permit). (If any such prepayment notice is made otherwise than in writing,
Borrower shall promptly confirm such notice in writing.) Each such prepayment
shall be at the aggregate principal amount of the principal being prepaid,
together with accrued interest on the principal being prepaid to the date of
prepayment and the amounts required by Section 4.3. Subject to the terms and
conditions of this Agreement, prepaid Loans may be reborrowed.
Section 2.3 Termination and Reduction of Commitment. The Borrower may
terminate the Commitment, or reduce the amount thereof, by giving written
notice to the Lender, not later than 5:00 P.M., New York time, on the fifth
Business Day prior to the date of termination or reduction (or such later
time or date as the Lender may in its sole discretion permit).
Section 2.4 Repayment. Loans shall be repaid, together with all
accruedl and unpaid interest thereon, on the Commitment Termination Date.
Section 2.5 Optional Prepayment. The Borrower may repay Loans by
giving notice (specifying the Loans to be prepaid in whole or in part,
the principal amount thereof to be prepaid and the date of prepayment)
to the Lender, by telephone, telex, telecopy or in writing not later than
12:00 noon, New York time, on the fourth Business Day preceding the proposed
date of prepayment (or such later time or date as the Lender may in its
sole discretion permit). (If any such prepayment notice is made otherwise
than in writing, Borrower shall promptly confirm such notice in writing.)
Each such prepayment shall be at the aggregate principal amount of the
principal being prepaid, together with accrued interest on the principal
being prepaid to the date of prepayment and the amounts required by Section
4.3. Subject to the terms and conditions of this Agreement, prepaid Loans
may be reborrowed.
<PAGE>
ARTICLE III.
INTEREST AND FEES
Section 3.1 Interest Rate . Each Loan shall bear interest from the date
made until the date repaid, payable in arrears, with respect to Interest Periods
of three months or less, on the last day of such Interest Period, and with
respect to Interest Periods longer than three months, on the day which is three
months after the commencement of such Interest Period and on the last day of
such Interest Period, at a rate per annum equal to the greater of (i) the sum of
(x) 2% and (y) the Prime Rate for the applicable Interest Period and (ii) 12%,
with such 12% rate increasing to 12.48%, 12.98%, 13.50% and 14.04% as of May __
for the second, third, fourth and fifth years of this Agreement, respectively.
Notwithstanding the foregoing, if the amount of interest to be paid by the
Borrower to the Lender exceeds the amount of EBITDA of the Borrower for the
immediately preceding calendar quarter (ending the last day of September,
December, March, or June), the Borrower shall not be obligated to repay the
amount of interest in excess of EBITDA of the Borrower for such period. Any such
amount of unpaid interest shall be added to principal and shall accrue interests
thereon. Payments under the Notes shall be applied first to any fees, costs or
expenses due under the Notes or hereunder, then to interest, and then to
principal. Notwithstanding any other provision of this Agreement, all
outstanding principal and interest of the Loan and all other amounts payable
hereunder, if not sooner paid, shall be due and payable on the Commitment
Termination Date.
Section 3.2 Interest on Overdue Amounts . All overdue amounts (including
principal, interest and fees) hereunder, and, during the continuance of any
Event of Default that shall have occurred, each Loan, shall bear interest,
payable on demand, at a rate per annum equal to the greater of (i) the sum of
(1) 3% and (ii) Prime Rate for the applicable Interest Period and (ii) 13%, with
such 13% rate increasing to 13.48%, 13.98%, 14.50% and 15.04% for the second,
third, fourth and fifth years of this Agreement, respectively.
Section 3.3 Maximum Interest Rate . (a) Nothing in this Agreement shall
require the Borrower to pay interest at a rate exceeding the maximum rate
permitted by applicable law. Neither this Section nor Section 10.1 is intended
to limit the rate of interest payable for the account of the Lender to the
maximum rate permitted by the laws of the State of New York (or any other
applicable law) if a higher rate is permitted with respect to the Lender by
supervening provisions of U.S. Federal law.
(b) If the amount of interest payable for the account of the Lender on any
interest payment date in respect of the immediately preceding interest
computation period, computed pursuant to this Article III, would exceed the
maximum amount permitted by applicable law to be charged by the Lender, the
amount of interest payable for its account on such interest payment date shall
automatically be reduced to such maximum permissible amount.
(c) If the amount of interest payable for the account of the Lender in
respect of any interest computation period is reduced pursuant to Section 3.3(b)
and the amount of interest payable for its account in respect of any subsequent
interest computation period would be less than the maximum amount permitted by
law to be charged by the Lender, then the amount of interest payable for its
account in respect of such subsequent interest computation period shall be
automatically increased to such maximum permissible amount; provided that at no
time shall the aggregate amount by which interest paid for the account of the
Lender has been increased pursuant to this Section 3.3(c) exceed the aggregate
amount by which interest paid for its account has theretofore been reduced
pursuant to Section 3.3(b).
ARTICLE IV.
DISBURSEMENT AND PAYMENT
Section 4.1 Method and Time of Payments .
(a) All payments by the Borrower hereunder shall be made without setoff or
counterclaim to the Lender, for its account, in dollars and in immediately
available funds to the account of the Lender theretofore designated in writing
to the Borrower not later than 12:00 noon, New York time, on the date when due
or, in the case of payments pursuant to Sections 4.3 and 4. 4 or payments
otherwise specified as payable upon demand, forthwith upon written demand
therefor.
(b) Whenever any payment from the Borrower shall be due on a day that is
not a Business Day, the date of payment thereof shall be extended to the next
succeeding Business Day. If the date for any payment of principal is extended by
operation of law or otherwise, interest thereon shall be payable for such
extended time.
Section 4.2 Compensation for Losses . (a) If (i) the Borrower prepays
Loans, (ii) the Borrower revokes any Borrowing Request or (iii) Loans (or
portions thereof) shall become or be declared to be due prior to the scheduled
maturity thereof, then the Borrower shall pay to the Lender an amount that will
compensate the Lender for any loss (other than lost profit) or premium or
penalty incurred by the Lender as a result of such prepayment, declaration or
revocation in respect of funds obtained for the purpose of making or maintaining
the Lender's Loans, or any portion thereof. Such compensation shall include an
amount equal to the excess, if any, of (i) the amount of interest that would
have accrued on the amount so paid or prepaid, or not borrowed, for the period
from the date of such payment or prepayment or failure to borrow to the last day
of such Interest Period (or, in the case of a failure to borrow, the Interest
Period that would have commenced on the expected Borrowing Date) in each case at
the applicable rate of interest for such Loan over (ii) the amount of interest
(as reasonably determined by the Lender) that would have accrued on such amount
were it on deposit for a comparable period with leading banks in the London
interbank market.
(b) If requested by the Borrower, in connection with a payment due pursuant
to this Section 4.2, the Lender shall provide to the Borrower a certificate
setting forth in reasonable detail the amount required to be paid by the
Borrower to the Lender and the computations made by the Lender to determine such
amount. In the absence of manifest error, such certificate shall be conclusive
as to the amount required to be paid.
Section 4.3 Withholding and Additional Costs .
(a) Withholding. All payments under this Agreement (including payments of
principal and interest) shall be payable to the Lender free and clear of any and
all present and future taxes, levies, imposts, duties, deductions, withholdings,
fees, liabilities and similar charges (collectively, "Taxes") . If any Taxes are
required to be withheld or deducted from any amount payable under this
Agreement, then the amount payable under this Agreement shall be increased to
the amount WHICH, AFTER deduction from such increased amount of all Taxes
required to be withheld or deducted therefrom, will yield to the Lender the
amount stated to be payable under this Agreement. The Borrower shall also hold
the Lender harmless and indemnify it for any stamp or other taxes with respect
to the preparation, execution, delivery, recording, performance or enforcement
of this Agreement (all of WHICH SHALL be included within "Taxes") . If any of
the Taxes specified in this Section 4.3(a) are paid by the Lender, the Borrower
shall, upon demand of the Lender, promptly reimburse the Lender for such
payments, together with any interest, penalties and expenses incurred in
connection therewith. The Borrower shall deliver to the Lender certificates or
other valid vouchers for all Taxes or other charges deducted from or paid with
respect to payments made by the Borrower hereunder.
(b) Additional Costs. Subject to Section 4.3(c), and without duplication of
any amounts payable described in Section 4.2 or 4.3(a), if after the date hereof
any change in any law or regulation or in the interpretation thereof by any
court or administrative or Governmental Authority charged with the
administration thereof or the enactment of any law or regulation shall either
(1) impose, modify or deem applicable any reserve, special deposit or similar
requirement against the Lender's Commitment or Loans or (2) impose on the Lender
any other condition regarding this Agreement, its Commitment or the Loans and
the result of any event referred to in clause (1) or (2) shall be to increase
the cost to the Lender of maintaining its Commitment or any Loans made by the
Lender (which increase in cost shall be calculated in accordance with the
Lender's reasonable averaging and attribution methods) by an amount which the
Lender deems to be material, then, upon demand by the Lender, the Borrower shall
pay to the Lender an amount equal to such increase in cost.
(c) Certificate, Etc. If requested by the Borrower, in connection with any
demand for payment pursuant to this Section 4.3, the Lender shall provide to the
Borrower a certificate setting forth in reasonable detail the basis for such
demand, the amount required to be paid by the Borrower to the Lender, the
computations made by the Lender to determine such amount and satisfaction of the
conditions set forth in the next sentence. Anything to the contrary herein
notwithstanding, the Lender shall not have the right to demand any payment or
compensation under this Section 4.3 (i) with respect to any period more than 180
days prior to the date it has made a demand pursuant to this Section 4.3, and
(ii) to the extent that the Lender determines in good faith that the interest
rate on the relevant Loans appropriately accounts for any increased cost or
reduced rate of return. In the absence of manifest error, the certificate
referred to above shall be conclusive as to the amount required to be paid.
Section 4.4 Expenses; Indemnity. (a) The Borrower agrees: (i) to pay or
reimburse the Lender for all reasonable out-of-pocket costs and expenses
incurred in connection with the preparation and execution of, and any amendment,
supplement or modification to, this Agreement and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of Brown & Wood LLP, counsel to the Lender; and (ii) to
pay or reimburse the Lender for all reasonable costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement and any such other documents, including, without limitation, the
reasonable fees and disbursements of counsel to the Lender. The Borrower also
agrees to indemnify the Lender against any transfer taxes, documentary taxes,
assessments or charges made by any Governmental Authority by reason of the
execution and delivery of this Agreement.
(b) The Borrower agrees to indemnify the Lender and its directors,
officers, partners, employees, agents and Affiliates (for purposes of this
paragraph, each, an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all claims, liabilities, damages, losses, costs, charges and
expenses (including fees and expenses of counsel) incurred by or asserted
against any Indemnitee arising out of, in any way connected with, or as a result
of (i) the execution or delivery of this Agreement or any agreement or
instrument contemplated by this Agreement, the performance by the parties
thereto of their respective obligations under this Agreement or the consummation
of the transactions and the other transactions contemplated by this Agreement,
(ii) the use of the proceeds of the Loans or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
Indemnitee is a party thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee.
(c) All amounts due under this Section 4.4 shall be payable in immediately
available funds upon written demand therefor.
Section 4.5 Survival. The provisions of Sections 4.2, 4.3 and 4.4 shall
remain operative and in full force and effect regardless of the expiration of
the term of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of any of the Loans, the reduction or termination of the
Commitment, the invalidity or unenforceability of any term or provision of this
Agreement, or any investigation made by or on behalf of the Lender.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties . The Borrower represents and
warrants to the Lender as follows:
(a) Good Standing and Power. The Borrower and each Subsidiary is a limited
partnership or corporation, duly organized and validly existing in good standing
under the laws of the jurisdiction of its organization; each has the power to
own its property and to carry on its business as now being conducted; and each
is duly qualified to do business and is in good standing in each jurisdiction in
which the character of the properties owned or leased by it therein or in which
the transaction of its business makes such qualification necessary, except where
the failure to be so qualified, or to be in good standing, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(b) Authority. The Borrower has full power and authority to execute and
deliver, and to incur and perform its obligations under, this Agreement, which
has been duly authorized by all proper and necessary action. No consent or
approval of limited partners is required as a condition to the validity or
performance of, or the exercise by the Lender of any of its rights or remedies
under, this Agreement.
(c) Authorizations. All authorizations, consents, approvals, registrations,
notices, exemptions and licenses with or from any Governmental Authority or
other Person necessary for the execution, delivery and performance by the
Borrower of, and the incurrence and performance of each of its obligations
under, this Agreement, and the exercise by the Lender of its remedies under this
Agreement have been effected or obtained and are in full force and effect.
(d) Binding Obligation. This Agreement constitutes the valid and legally
binding obligation of the Borrower enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, reorganization, moratorium
and similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(e) Litigation. There are no proceedings or investigations now pending or,
to the knowledge of the Borrower, threatened before any court or arbitrator or
before or by any Governmental Authority which, individually or in the aggregate,
if determined adversely to the interests of the Borrower or any Subsidiary,
could reasonably be expected to have a Material Adverse Effect.
(f) No Conflicts . There is no statute, regulation, rule, order or
judgment, and no provision of any agreement or instrument binding upon the
Borrower or any Subsidiary, or affecting their properties, and no provision of
the certificate of limited partnership, certificate of incorporation, agreement
of limited partnership or by-laws (or similar constitutive instruments) of the
Borrower or any Subsidiary, that would prohibit, conflict with or in any way
impair the execution or delivery of, or the incurrence or performance of any
obligations of the Borrower under, this Agreement, or result in or require the
creation or imposition of any Lien on property of the Borrower or any Subsidiary
as a consequence of the execution, delivery and performance of this Agreement.
(g) Taxes. The Borrower and the Subsidiaries each has filed or caused to be
filed all tax returns that are required to be filed and paid all taxes that are
required to be shown to be due and payable on said returns or on any assessment
made against it or any of its property and all other taxes, assessments, fees,
liabilities, penalties or other charges imposed on it or any of its property by
any Governmental Authority, except for any taxes, assessments, fees,
liabilities, penalties or other charges which are being contested in good faith
and (unless the amount thereof is not material to the Borrower's consolidated
financial condition) for which adequate reserves have been established in
accordance with GAAP.
(h) Properties. The Borrower and the Subsidiaries each has good and
marketable title to, or valid leasehold interests in, all of its respective
properties and assets. All such assets and properties are so owned or held free
and clear of all Liens, except Permitted Liens.
(i) Compliance with Laws and Charter Documents. Neither the Borrower nor
any Subsidiary is, or as a result of performing any of its obligations under
this Agreement will be, in violation of (a) any law, statute, rule, regulation
or order of any Governmental Authority applicable to it or its properties or
assets or (b) its certificate of limited partnership, certificate of
incorporation, agreement of limited partnership, by-laws or any similar
document.
(j) No Material Adverse Effect. Since June __, 1997, there has not occurred
or arisen any event, condition or circumstance that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(k) Disclosure. All information relating to the Borrower or its
Subsidiaries delivered in writing to the Lender in connection with the
negotiation, execution and delivery of this Agreement is true and complete in
all material respects. There is no material fact of which the Borrower is aware
which, individually or in the aggregate, would reasonably be expected adversely
to influence the Lender's credit analysis relating to the Borrower and its
Subsidiaries which has not been disclosed to the Lender in writing.
Section 5.2 Survival. All representations and warranties made by the
Borrower in this Agreement, and in the certificates or other instruments
prepared or delivered in connection with or pursuant to this Agreement, shall be
considered to have been relied upon by the Lender, (ii) survive the making of
Loans regardless of any investigation made by, or on behalf of, the Lender and
(iii) continue in full force and effect as long as the Commitment has not been
terminated and, thereafter, so long as any Loan, fee or other amount payable
under this Agreement remains unpaid.
ARTICLE VI.
CONDITIONS PRECEDENT
Section 6.1 Conditions to the Availability of the Commitment. The
obligations of the Lender hereunder are subject to, and the Lender's Commitment
shall not become available until the earliest date (the "Effective Date") on
which each of the following conditions precedent shall have been satisfied or
waived in writing by the Lender:
(a) This Agreement. The Lender shall have received this Agreement duly
executed and delivered by the Borrower.
(b) Certificate of Incorporation and By-Laws. The Lender shall have
received the following:
(i) a copy of the Certificate of Incorporation of the Borrower, as in
effect on the Effective Date, certified by the Secretary of State of
Delaware, and a certificate from such Secretary of State as to the good
standing of the Borrower, in each case as of a date reasonably close to the
Effective Date; and
(ii) a certificate of a Responsible Officer of the Borrower, dated the
Effective Date, and stating that attached thereto is a true and complete
copy of the By-Laws of the Borrower as in effect on such date.
(c) Representations and Warranties . The representations and warranties
contained in Section 5.1 shall be true and correct on the Effective Date, and
the Lender shall have received a certificate, signed by a Responsible Officer of
the Borrower, to that effect.
(d) Other Documents. The Lender shall have received such other
certificates, opinions and other documents as the Lender reasonably may require.
(e) REIT Status of Reckson . The borrowing shall not, in the sole judgment of
the Lender, endanger Reckson's status as a REIT.
(e) REIT status of Reckson. The borrowing shall not, in the sole
judgment of the Lender, endanger Reckson's status as a REIT.
(f) Certain Loans Subject to Reckson's Approval. In respect of any Loan or
Loans aggregating in excess of $10 million, any single Commercial Service, as
well as any Loan relating to an investment by Borrower in any area other than
Commercial Services, Reckson shall have approved the Lender's making such Loan
in its sole discretion.
Section 6.2 Conditions to All Loans. The obligations of the Lender to make
each Loan are subject to the conditions precedent that, on the date of each Loan
and after giving effect thereto, each of the following conditions precedent
shall have been satisfied, or waived in writing by the Lender:
(a) Borrowing Request. The Lender shall have received a Borrowing Request
in accordance with the terms of this Agreement.
(b) No Default. No Default or Event of Default shall have occurred and be
continuing, nor shall any Default or Event of Default occur as a result of the
making of such Loan.
(c) Debt-to-Equity Ratio. The Lender shall have received from the Borrower
a certificate demonstrating that the ratio of the Borrower's Adjusted
Indebtedness to the Borrower's Net Assets, taking into account the requested
Loan and the assets, if any, to be acquired by the Borrower with the proceeds of
such Loan, shall not exceed 4-to-1.
(d) Representations and Warranties; Covenants. The representations and
warranties contained in Section 5. 1 shall have been true and correct when made
and (except to the extent that any representation or warranty speaks as of a
date certain) shall be true and correct on the Borrowing Date with the same
effect as though such representations and warranties were made on such Borrowing
Date; and the Borrower shall have complied with all of its covenants and
agreements under this Agreement.
Section 6.3 Satisfaction of Conditions Precedent. Each of (i) the delivery
by the Borrower of a Borrowing Request (unless the Borrower notifies the Lender
in writing to the contrary prior to the Borrowing Date) and (ii) the acceptance
of the proceeds of a Loan shall be deemed to constitute a certification by the
Borrower that, as of the Borrowing Date, each of the conditions precedent
contained in Section 6. 2 has been satisfied with respect to the Loan then being
made.
ARTICLE VII.
COVENANTS
Section 7.1 Affirmative Covenants. Until satisfaction in full of all the
obligations of the Borrower under this Agreement and termination of the
Commitment of the Lender hereunder, the Borrower will:
(a) Financial Statements; Compliance Certificates . Furnish to the Lender:
(i) as soon as available, but in no event more than 60 days following
the end of each of the first three quarters of each fiscal year, copies of
the Borrower's Quarterly Report on Form 10-Q being filed with the SEC,
which shall include a consolidated balance sheet and consolidated income
statement of the Borrower and the Subsidiaries for such quarter;
(ii) as soon as available, but in no event more than 120 days
following the end of each fiscal year, a copy of the Borrower's Annual
Report on Form 10-K being filed with the SEC, which shall include the
consolidated financial statements of the Borrower and the Subsidiaries,
together with a report thereon by Ernst & Young LLP (or another firm of
independent certified public accountants reasonably satisfactory to the
Lender), for such year;
(iii) within five Business Days of any Responsible Officer of the
Borrower obtaining knowledge of any Default or Event of Default, if such
Default or Event of Default is then continuing, a certificate of a
Responsible Officer of the Borrower stating that such certificate is a
"Notice of Default" and setting forth the details thereof and the action
which the Borrower is taking or proposes to take with respect thereto; and
(iv) such additional information, reports or statements, regarding the
business, financial condition or results of operations of the Borrower and
its Subsidiaries, as the Lender from time to time may reasonably request.
(b) Existence. Except as permitted by Section 7. 2(a), maintain its
existence in good standing and qualify and remain qualified to do business in
each jurisdiction in which the character of the properties owned or leased by it
therein or in which the transaction of its business is such that the failure to
qualify, individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect.
(c) Compliance with Law and Agreements. Comply, and cause each Subsidiary
to comply, with all applicable laws, ordinances, orders, rules, regulations and
requirements of all Governmental Authorities and with all agreements except
where the necessity of compliance therewith is contested in good faith by
appropriate proceedings or where the failure to comply therewith, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(d) Authorizations. Obtain, make and keep in full force and effect all
authorizations from and registrations with Governmental Authorities required for
the validity or enforceability of this Agreement.
(e) Inspection. Permit, and cause each Subsidiary to permit, the Lender to
have one or more of its officers and employees, or any other Person designated
by the Lender, to visit and inspect any of the properties of the Borrower and
the Subsidiaries and to examine the minute books, books of account and other
records of the Borrower and the Subsidiaries, and to photocopy extracts from
such minute books, books of account and other records, and to discuss its
affairs, finances and accounts with its officers and with the Borrower's
independent accountants, during normal business hours and at such other
reasonable times, for the purpose of monitoring the Borrower's compliance with
its obligations under this Agreement.
(f) Maintenance of Records. Keep, and cause each Subsidiary to keep, proper
books of record and account in which full, true and correct entries will be made
of all dealings or transactions of or in relation to its business and affairs.
(g) Notice of Defaults and Adverse Developments. Promptly notify the Lender
upon the discovery by any Responsible officer of the occurrence of (i) any
Default or Event of Default; (ii) any event, development or circumstance whereby
the financial statements most recently furnished to the Lender fail in any
material respect to present fairly, in accordance with GAAP, the financial
condition and operating results of the Borrower and the Subsidiaries as of the
date of such financial statements; (iii) any material litigation or proceedings
that are instituted or threatened (to the knowledge of the Borrower) against the
Borrower or any Subsidiary or any of their respective assets; (iv) any event,
development or circumstance which, individually or in the aggregate, could
reasonably be expected to result in an event of default (or, with the giving of
notice or lapse of time or both, an event of default) under any Indebtedness and
the amount thereof; and (v) any other development in the business or affairs of
the Borrower or any Subsidiary if the effect thereof would reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect;
in each case describing the nature thereof and the action the Borrower proposes
to take with respect thereto.
Section 7.2 Negative Covenants. Until satisfaction in full of all the
obligations of the Borrower under this Agreement and termination of the
Commitment of the Lender hereunder, the Borrower will not:
(a) Mergers, Consolidations and Sales of Assets. Wind up, liquidate or
dissolve its affairs or enter into any merger, consolidation or share exchange,
or convey, sell, lease or otherwise dispose of (or agree to do any of the
foregoing at any future time), whether in one or a series of transactions, all
or any substantial part of its assets, or permit any Subsidiary so to do, unless
such transaction or series of transactions are expressly approved by the Lender,
which approval shall not be unreasonably withheld.
(b) Liens. Create, incur, assume or suffer to exist any Lien upon or with
respect to any of its property or assets, whether now owned or hereafter
acquired, or assign or otherwise convey any right to receive income, except
Permitted Liens.
(c) Indebtedness. Create, incur, issue, assume, guarantee or suffer to
exist any Indebtedness, [or permit any Subsidiary so to do], except:
(i) Indebtedness to the Lender under this Agreement or under the
RSVP-ROP Facility Agreement,
(ii) Non-recourse Indebtedness of the Borrower and any Subsidiary
secured by mortgages, encumbrances or liens specifically permitted by
Section 7. 2(b), and
(iii) Indebtedness expressly approved by the Lender in writing,
which approval may be withheld in the Lender's sole discretion.
(d) Dividends. Declare any dividends on any of its shares of capital stock
unless such dividend or distribution is expressly approved in writing by the
Lender.
(e) Certain Amendments. Amend, modify or waive, or permit to be amended,
modified or waived, any provision of its Certificate of Incorporation unless,
within not less than 5 days prior to such amendment, modification or waiver (or
such later time as the Lender may in its sole discretion permit), the Borrower
shall have given the Lender notice thereof, including all relevant terms and
conditions thereof, and the Lender shall have consented in writing thereto.
ARTICLE VIII.
EVENTS OF DEFAULT
Section 8.1 Events of Default. If one or more of the following events
(each, an "Event of Default") shall occur:
(a) The Borrower shall fail duly to pay any principal of any Loan when due,
whether at maturity, by notice of intention to prepay or otherwise; or
(b) The Borrower shall fail duly to pay any interest, fee or any other
amount payable under this Agreement within two days after the same shall be due;
or
(c) Borrower shall fail duly to observe or perform any term, covenant, or
agreement contained in Section 7. 2; or
(d) The Borrower shall fail duly to observe or perform any other term,
covenant or agreement contained in this Agreement, and such failure shall have
continued unremedied for a period of 30 days; or
(e) Any representation or warranty made or deemed made by the Borrower in
this Agreement, or any statement or representation made in any certificate,
report or opinion delivered by or on behalf of the Borrower in connection with
this Agreement, shall prove to have been false or misleading in any material
respect when so made or deemed made; or
(f) The Borrower shall fail to pay any Indebtedness (other than obligations
here under) in an amount of $100,000 or more when due; or any such Indebtedness
having an aggregate principal amount outstanding of $100,000 or more shall
become or be declared to be due prior to the expressed maturity thereof; or
(g) An involuntary case or other proceeding shall be commenced against the
Borrower seeking liquidation, reorganization or other relief with respect to it
or its debts under any applicable bankruptcy, insolvency, reorganization or
similar law or seeking the appointment of a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of it or any substantial
part of its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of more than 60 days; or an order or
decree approving or ordering any of the foregoing shall be entered and continued
unstayed and in effect; or
(h) The Borrower shall commence a voluntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or similar law or any other
case or proceeding to be adjudicated a bankrupt or insolvent, or any of them
shall consent to the entry of a decree or order for relief in respect of the
Borrower in an involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against any of them, or any of them
shall file a petition or answer or consent seeking reorganization or relief
under any applicable law, or any of them shall consent to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the Borrower
or any substantial part of its property, or the Borrower shall make an
assignment for the benefit of creditors, or the Borrower shall admit in writing
its inability to pay its debts generally as they become due, or the Borrower
shall take corporate action in furtherance of any such action;
(i) One or more judgments against the Borrower or attachments against its
property, which in the aggregate exceed $100,000, or the operation or result of
which could be to interfere materially and adversely with the conduct of the
business of the Borrower remain unpaid, unstayed on appeal, undischarged,
unbonded, or undismissed for a period of more than 30 days; or
(j) Any court or governmental or regulatory authority shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
judgment, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which prohibits, enjoins or otherwise
restricts, in a manner that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect, any of the transactions
contemplated under this Agreement; or
(k) Any Event of Default shall occur and be continuing under the RSVP-ROP
Facility Agreement.
then, and at any time during the continuance of such Event of Default, the
Lender may, by written notice to the Borrower, take either or both of the
following actions, at the same or different times: (i) terminate forthwith the
Commitment and (ii) declare any Loans then outstanding to be due, whereupon the
principal of the Loans so declared to be due, together with accrued interest
thereon and any unpaid amounts accrued under this Agreement, shall become
forthwith due, without presentment, demand, protest or any other notice of any
kind (all of which are hereby expressly waived by the Borrower); provided that,
in the case of any Event of Default described in Section 8. 1(g) or (h)
occurring with respect to the Borrower, the Commitment shall automatically and
immediately terminate and the principal of all Loans then outstanding, together
with accrued interest thereon and any unpaid amounts accrued under this
Agreement, shall automatically and immediately become due without presentment,
demand, protest or any other notice of any kind (all of which are hereby
expressly waived by the Borrower).
ARTICLE IX.
EVIDENCE OF LOANS; TRANSFERS
Section 9.1 Evidence of Loans. (a) The Lender shall maintain accounts
evidencing the indebtedness of the Borrower to the Lender resulting from each
Loan made by the Lender from time to time, including the amounts of principal
and interest payable and paid to the Lender in respect of Loans.
(b) The Lender's written records described above shall be available for
inspection during ordinary business hours by the Borrower from time to time upon
reasonable prior notice to the Lender.
(c) The entries made in the Lender's written or electronic records and the
foregoing accounts shall be prima facie evidence of the existence and amounts of
the indebtedness of the Borrower therein recorded; provided, however, that the
failure of the Lender to maintain any such account or such records, as
applicable, or any error therein, shall not in any manner affect the validity or
enforceability of any obligation of the Borrower to repay any Loan actually made
by the Lender in accordance with the terms of this Agreement.
ARTICLE X.
MISCELLANEOUS
Section 10.1 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 10.2 Waiver of Jury. THE BORROWER AND THE LENDER EACH HEREBY WAIVES
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, [THE NOTES] OR THE
RELATIONSHIPS ESTABLISHED HEREUNDER.
Section 10.3 Jurisdiction and Venue; Service of Process. (a) The Borrower
and the Lender each hereby irrevocably submits to the non-exclusive jurisdiction
of any state or federal court in the Borough of Manhattan, The City of New York
for the purpose of any suit, action, proceeding or judgment relating to or
arising out of this Agreement and to the laying of venue in the Borough of
Manhattan The City of New York. The Borrower and the Lender each hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection to the laying of the venue of any such suit, action or proceeding
brought in the aforesaid courts and hereby irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
(b) Borrower agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in subsection 10.7 or at such other address of
which the Lender shall have been notified pursuant thereto. The Borrower further
agrees that nothing herein shall affect the right to effect service of process
in any other manner permitted by law or shall limit the right to sue in any
other jurisdiction; and
(c) The Borrower waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding referred
to in this subsection any special, exemplary, punitive or consequential damages.
Section 10.4 Confidentiality. The Lender agrees (on behalf of itself and
each of its Affiliates, partners, officers, employees and representatives) to
use its best efforts to keep confidential, in accordance with their customary
procedures for handling confidential information of this nature and in
accordance with commercially reasonable business practices, any Confidential
Information; provided that nothing herein shall limit the disclosure of any such
information (i) to the extent required by statute, rule, regulation or judicial
process, (ii) to counsel for the Lender, (iii) to auditors or accountants, (iv)
by the Lender to an Affiliate thereof, or (v) in connection with any litigation
relating to enforcement of this Agreement; provided further, that, unless
specifically prohibited by applicable law or court order, the Lender shall,
prior to disclosure thereof, notify the Borrower of any request for disclosure
of any Confidential Information (x) by any Governmental Authority or
representative thereof or (y) pursuant to legal process.
Section 10.5 Amendments and Waivers. (a) Any provision of this Agreement
may be amended, modified, supplemented or waived, but only by a written
amendment or supplement, or written waiver, signed by the Borrower and the
Lender.
(b) Except to the extent expressly set forth therein, any waiver shall be
effective only in the specific instance and for the specific purpose for which
such waiver is given.
Section 10.6 Cumulative Rights; No Waiver. Each and every right granted to
the Lender hereunder or under any other document delivered in connection
herewith, or allowed it by law or equity, shall be cumulative and not exclusive
and may be exercised from time to time. No failure on the part of the Lender to
exercise, and no delay in exercising, any right will operate as a waiver
thereof, nor will any single or partial exercise by the Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right.
Section 10.7 Notices. Any communication, demand or notice to be given
hereunder will be duly given when delivered in writing or by telecopy to a party
at its address as indicated below or such other address as such party may
specify in a notice to the other party hereto. A communication, demand or notice
given pursuant to this Agreement shall be addressed:
If to the Borrower, to:
Reckson Service Industries, Inc.
225 Broadhollow Road
Melville, New York 11747
Telecopy: (516) 719-7400
Attention: Chief Financial Officer
If to the Lender, to:
Reckson Operating Partnership, L.P.
225 Broadhollow Road
Melville, New York 11747
Telecopy: (516) 694-6900
Attention: Chief Financial Officer
This Section 10. 7 shall not apply to notices referred to in Article
II of this Agreement, except to the extent set forth therein.
Section 10.8 Certain Acknowledgments. The Borrower hereby confirms and
acknowledges that (a) the Lender does not have any fiduciary or similar
relationship to the Borrower by virtue of this Agreement and the transactions
contemplated herein and that the relationship established by this Agreement
between the Lender and the Borrower is solely that of creditor and debtor and
(b) no joint venture exists between the Borrower and the Lender by virtue of
this Agreement and the transactions contemplated herein.
Section 10.9 Separability . In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect under any law, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
Section 10.10 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, except that the Borrower may not assign any of its
rights hereunder without the prior written consent of the Lender, and any
purported assignment by the Borrower without such consent shall be void.
Section 10.11 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all the counterparts shall together constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
RECKSON SERVICE INDUSTRIES, INC.,
as Borrower
By:
Name:
Title:
RECKSON OPERATING PARTNERSHIP, L.P.,
as Lender
By: RECKSON ASSOCIATES REALTY CORP.,
its general partner
By:
Name:
Title:
Exhibit 10.2B
B&W DRAFT 5/12/98
CREDIT AGREEMENT
dated as of
___, 1998
between
RECKSON SERVICE INDUSTRIES, INC.,
as Borrower
and
RECKSON OPERATING PARTNERSHIP, L.P.,
as Lender
relating to
RECKSON STRATEGIC VENTURE PARTNERS, LLC
Table of Contents
Page
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions........................................................1
(a) Terms Generally.......................................................1
(b) Other Terms...........................................................1
ARTICLE II.
THE REVOLVING CREDIT FACILITY
Section 2.1 Commitment and Loans...............................................6
Section 2.2 Borrowing Procedure................................................6
Section 2.3 Termination and Reduction of Commitment............................6
Section 2.4 Repayment..........................................................6
Section 2.5 Optional Prepayment................................................7
ARTICLE III.
INTEREST AND FEES
Section 3.1 Interest Rate......................................................7
Section 3.2 Interest on Overdue Amounts........................................7
Section 3.3 Maximum Interest Rate..............................................8
ARTICLE IV.
DISBURSEMENT AND PAYMENT
Section 4.1 Method and Time of Payments........................................8
Section 4.2 Compensation for Losses............................................9
Section 4.3 Withholding and Additional Costs...................................9
(a) Withholding...........................................................9
(b) Additional Costs.....................................................10
(c) Certificate, Etc.....................................................10
Section 4.4 Expenses; Indemnity...............................................10
Section 4.5 Survival..........................................................11
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties....................................11
(a) Good Standing and Power..............................................11
(b) Authority............................................................11
(c) Authorizations.......................................................12
(d) Binding Obligation...................................................12
(e) Litigation...........................................................12
(f) No Conflicts.........................................................12
(g) Taxes................................................................12
(h) Properties...........................................................12
(i) Compliance with Laws and Charter Documents...........................13
(j) No Material Adverse Effect...........................................13
(k) Disclosure...........................................................13
Section 5.2 Survival..........................................................13
ARTICLE VI.
CONDITIONS PRECEDENT
Section 6.1 Conditions to the Availability of the Commitment..................13
(a) This Agreement.......................................................13
(b) Certificate of Incorporation and By-Laws.............................13
(c) Representations and Warranties.......................................14
(d) Other Documents......................................................14
(e) REIT Status of Reckson...............................................14
(f) Certain Loans Subject to Reckson's Approval..........................14
Section 6.2 Conditions to All Loans...........................................14
(a) Borrowing Request....................................................14
(b) No Default...........................................................14
(c) Debt-to-Equity Ratio.................................................14
(d) Representations and Warranties; Covenants............................14
Section 6.3 Satisfaction of Conditions Precedent..............................15
ARTICLE VII.
COVENANTS
Section 7.1 Affirmative Covenants.............................................15
(a) Financial Statements; Compliance Certificates........................15
(b) Existence............................................................15
(c) Compliance with Law and Agreements...................................16
(d) Authorizations.......................................................16
(e) Inspection...........................................................16
(f) Maintenance of Records...............................................16
(g) Notice of Defaults and Adverse Developments..........................16
Section 7.2 Negative Covenants................................................16
(a) Mergers, Consolidations and Sales of Assets..........................17
(b) Liens................................................................17
(c) Indebtedness.........................................................17
(d) Dividends............................................................17
(e) Certain Amendments...................................................17
ARTICLE VIII.
EVENTS OF DEFAULT
Section 8.1 Events of Default.................................................17
ARTICLE IX.
EVIDENCE OF LOANS; TRANSFERS
Section 9.1 Evidence of Loans.................................................19
ARTICLE X.
MISCELLANEOUS
Section 10.1 Applicable Law...................................................20
Section 10.2 Waiver of Jury...................................................20
Section 10.3 Jurisdiction and Venue; Service of Process.......................20
Section 10.4 Confidentiality..................................................21
Section 10.5 Amendments and Waivers...........................................21
Section 10.6 Cumulative Rights; No Waiver.....................................21
Section 10.7 Notices..........................................................21
Section 10.8 Certain Acknowledgments..........................................22
Section 10.9 Separability.....................................................22
Section 10.10 Parties in Interest.............................................22
Section 10.11 Execution in Counterparts.......................................22
CREDIT AGREEMENT, dated as of ___, 1998, between Reckson Service
Industries, Inc., a Delaware corporation, and Reckson Operating Partnership,
L.P., a Delaware limited partnership relating to Reckson Strategic Venture
Partners, LLC ("RSVP").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Lender to commit to lend to
the Borrower up to $100 million on a revolving basis for investment in RSVP; and
WHEREAS, the Lender is willing to make revolving credit loans on the
terms and conditions provided herein;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions.
(a) Terms Generally. The definitions ascribed to terms in this
Agreement apply equally to both the singular and plural forms of such terms.
Whenever the context may require, any pronoun shall be deemed to include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be interpreted as if followed by the phrase
"without limitation". The phrase "individually or in the aggregate" shall be
deemed general in scope and not to refer to any specific Section or clause of
this Agreement. All references herein to Articles, Sections, Exhibits and
Schedules shall be deemed references to Articles and Sections of, and Exhibits
and Schedules to, this Agreement unless the context shall otherwise require. The
table of contents, headings and captions herein shall not be given effect in
interpreting or construing the provisions of this Agreement. Except as otherwise
expressly provided herein, all references to "dollars" or "$" shall be deemed
references to the lawful money of the United States of America.
(b) Other Terms. The following terms have the meanings ascribed to
them below or in the Sections of this Agreement indicated below:
"Adjusted Indebtedness" means, with respect to the Borrower, the
Borrower's Indebtedness determined without regard for any amounts described
in clause (viii) of the definition of "Indebtedness."
"Affiliate" means, with respect to any Person, any other Person that
controls, is controlled by, or is under common control with, such Person.
"Agreement" means this credit agreement, as it may be amended,
modified or supplemented from time to time.
"Available Commitment" means, on any day, an amount equal to (i) the
Commitment on such day minus (ii) the aggregate outstanding principal
amount of Loans on such day.
"Borrower" means Reckson Service Industries, Inc., a Delaware
corporation.
"Borrowing Date" means, with respect to any Loan, the Business Day set
forth in the relevant Borrowing Request as the date upon which the Borrower
desires to borrow such Loan;
"Borrowing Request" means a request by the Borrower for a Loan, which
shall specify (i) the requested Borrowing Date and (ii) the aggregate
amount of such Loan.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized by law
to close.
"Capital Lease Obligations" means, with respect to any Person, the
obligation of such Person to pay rent or other amounts under any lease with
respect to any property (whether real, personal or mixed) acquired or
leased by such Person that is required to be accounted for as a liability
on a consolidated balance sheet of such Person.
"Commitment" means $100 million less (i) the amount of loans made by
the Lender to the Borrower for the funding of investments made by RSVP
prior to the spin-off distribution of shares of common stock of Borrower by
Reckson and (ii) the amount of any investments made by the Lender in joint
venture investments made with RSVP, and as such amount may be reduced from
time to time pursuant to Section 2.3.
"Commitment Termination Date" means the earlier to occur of (i) May
__, 2003 and (ii) the date, if any, on which the Commitment is terminated.
"Confidential Information" means information delivered to the Lender
by or on behalf of the Borrower in connection with the transactions
contemplated by or otherwise pursuant to this Agreement that is
confidential or proprietary in nature at the time it is so delivered or
information obtained by the Lender in the course of its review of the books
or records of the Borrower contemplated herein; provided that such term
shall not include information W that was publicly known or otherwise known
to the Lender prior to the time of such disclosure, (ii) that subsequently
becomes publicly known through no act or omission by the Lender or any
Person acting on the Lender's behalf, (iii) that otherwise becomes known to
the Lender other than through disclosure by the Borrower or (iv) that
constitutes financial information delivered to the Lender that is otherwise
publicly available.
"Default" means any event or circumstance which, with the giving of
notice or the passage of time, or both, would be an Event of Default.
"EBITDA" means for any fiscal period, the Consolidated Net Income or
Consolidated Net Loss, as the case may be, for such fiscal period, after
restoring thereto amounts deducted for (a) extraordinary losses (or
deducting therefrom any amounts included therein on account of
extraordinary gains) and special charges, (b) depreciation and amortization
(including write-offs or write-downs) and special charges, (c) the amount
of interest expense of the Borrower and its Subsidiaries, if any,
determined on a consolidated basis in accordance with GAAP, for such period
on the aggregate principal amount of their consolidated indebtedness, (d)
the amount of tax expense of the Borrower and its Subsidiaries, if any,
determined on a consolidated basis in accordance with GAAP, for such period
and (e) the aggregate amount of fixed and contingent rentals payable by the
Borrower and its Subsidiaries, if any, determined on a consolidated basis
in accordance with GAAP, for such period with respect to leases of real and
personal property.
"Effective Date" has the meaning assigned to such term in Section 6.1.
"Event of Default" has the meaning assigned to such term in Section
8.1.
"GAAP" means generally accepted accounting principles, as set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entities as may be approved by a significant
segment of the accounting profession of the United States of America.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty" means, with respect to any Person, any obligation,
contingent or otherwise, of such Person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or to purchase (or
to advance or supply funds for the purchase of) any security for the
payment of such Indebtedness, (ii) to purchase property, securities or
services for the purpose of assuring the holder of such Indebtedness of the
payment of such Indebtedness or (iii) to maintain working capital, equity
capital or the financial condition or liquidity of the primary obligor so
as to enable the primary obligor to pay such Indebtedness. The term
"Guaranteed" shall have the corresponding meaning.
"Indebtedness" means, with respect to any Person, (i) all obligations
of such Person for borrowed money or for the deferred purchase price of
property or services (including all obligations, contingent or otherwise,
of such Person in connection with letters of credit, bankers' acceptances,
interest rate swap agreements, interest rate cap agreements or other
similar instruments, including currency swaps) other than indebtedness to
trade creditors and service providers incurred in the ordinary course of
business and payable on usual and customary terms, (ii) all obligations of
such Person evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the remedies available to the
seller or lender under such agreement are limited to repossession or sale
of such property), (iv) all Capital Lease Obligations of such Person, (v)
all obligations of the types described in clauses (i), (ii), (iii) or (iv)
above secured by (or for which the obligee has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in any property
(including accounts, contract rights and other intangibles) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, (vi) all preferred stock issued by such
Person which is redeemable, prior to full satisfaction of the Borrower's
obligations under this Agreement (including repayment in full of the Loans
and all interest accrued thereon), other than at the option of such Person,
valued at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (vii) all Indebtedness of
others Guaranteed by such Person and (viii) all Indebtedness of any
partnership of which such Person is a general partner.
"Indemnitee" has the meaning assigned to such term in Section 4.4(b).
"Intercompany Agreement" means the intercompany agreement, dated as of
the date hereof, by and between the Borrower and the Lender.
"Interest Period" means, with respect to any Loan, each three-month
period commencing on the date such Loan is made or at the end of the
preceding Interest Period, as the case may be; provided, however, that:
(i) any Interest Period that would otherwise end on a day that is
not a Business Day shall be extended to the next Business Day, unless
such Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (iii) below, end on the last Business
Day of a calendar month; and
(iii) any Interest Period that would otherwise end after the
Commitment Termination Date then in effect shall end on such
Commitment Termination Date.
"Lender" means Reckson Operating Partnership, L.P., a Delaware limited
partnership.
"Lien" means, with respect to any asset of a Person, (i) any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security interest in or
on such asset, (ii) the interest of a vendor or lessor under any
conditional sale agreement, capital lease or title retention agreement
relating to such asset, and (iii) in the case of securities, any purchase
option, call or similar right of any other Person with respect to such
securities.
"Loans" has the meaning assigned to such term in Section 2.1.
"Material Adverse Effect" means any material and adverse effect on (i)
the consolidated business, properties, condition (financial or otherwise)
or operations, present or prospective, of the Borrower and its
Subsidiaries, (ii) the ability of the Borrower timely to perform any of its
material obligations, or of the Lender to exercise any remedy, under this
Agreement or (iii) the legality, validity, binding nature or enforceability
of this Agreement.
"Net Assets" means, with respect to the Borrower, the greater of (i)
the sum of the Borrower's paid-in capital and retained earnings or (ii) the
excess of the Value of all of the Borrower's assets of any kind over the
Borrower's Adjusted Indebtedness.
"Permitted Liens" means, collectively, the following: (i) Liens
expressly approved by the Lender, which approval shall not be unreasonably
withheld; (ii) Liens imposed by any Governmental Authority for taxes,
assessments or charges not yet due or that are being contested in good
faith by appropriate proceedings and for which adequate reserves are being
maintained (in accordance with GAAP); and (iii) Liens existing on the date
hereof.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether
Federal, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).
"Prime Rate" means the prime rate (or if a range is given, the highest
prime rate) listed under "Money Rates" in THE WALL STREET JOURNAL for such
date or, if THE WALL STREET JOURNAL is not published on such date, then in
THE WALL STREET JOURNAL most recently published.
"Reckson" means Reckson Associates Realty Corp., a Maryland
corporation.
"Responsible Officer" means the chief executive officer, president,
chief financial officer, chief accounting officer, treasurer or any vice
president, senior vice president or executive vice president of the General
Partner.
"RSI Facility Agreement" means the credit agreement dated the date
hereof between Borrower and Lender in respect of the operations of Reckson
Service Industries, Inc.
"RSVP Platform" means a particular real estate market sector in which
RSVP invests.
"SEC" means the Securities and Exchange Commission (or any successor
Governmental Authority).
"Subsidiary" means, at any time and with respect to any Person, any
other Person the shares of stock or other ownership interests of which
having ordinary voting power to elect a majority of the board of directors
or with respect to other matters of such Person are at the time owned, or
the management or policies of which is otherwise at the time controlled,
directly or indirectly through one or more intermediaries (including other
Subsidiaries) or both, by such first Person. Unless otherwise qualified or
the context indicates clearly to the contrary, all references to a
"Subsidiary" or "Subsidiaries" in this Agreement refer to a Subsidiary or
Subsidiaries of the Borrower.
"Taxes" has the meaning assigned to such term in Section 4.3(a).
"Value" means, with respect to any asset owned by the Borrower, the
present value of the net cash flow reasonably projected by the Borrower to
be received with respect to its ownership of such assets, discounted at an
interest rate that the Borrower reasonably determines appropriate given the
risks associated with such asset and such projected net cash flow, but in
no event at an interest rate lower than ___% above the Prime Rate in effect
at the time that the determination of Value is made.
ARTICLE II.
THE REVOLVING CREDIT FACILITY
Section 2.1 Commitment and Loans. Until the Commitment Termination Date,
subject to the terms and conditions of this Agreement, the Lender agrees to make
revolving credit loans (collectively, "Loans") in dollars to the Borrower in an
aggregate principal amount at any one time outstanding not to exceed the
Commitment.
Section 2.2 Borrowing Procedure. In order to borrow a Loan, the Borrower
shall give a Borrowing Request to the Lender, by telephone, telex or telecopy or
in writing, not later than 10:30 A.M., New York time, on the third Business Day
before the Borrowing Date (or such later time or date as the Lender may in its
sole discretion permit). (If any Borrowing Request is made otherwise than in
writing, Borrower shall promptly confirm such Borrowing Request in writing.)
Subject to satisfaction, or waiver by the Lender, of each of the applicable
conditions precedent contained in Article VI, on the Borrowing Date the Lender
shall make available, in immediately available funds, to the Borrower the amount
of the requested Loan.
Section 2.3 Termination and Reduction of Commitment. The Borrower may
terminate the Commitment, or reduce the amount thereof, by giving written notice
to the Lender, not later than 5:00 P.M., New York time, on the fifth Business
Day prior to the date of termination or reduction (or such later time or date as
the Lender may in its sole discretion permit).
Section 2.4 Repayment. Loans shall be repaid, together with all accrued and
unpaid interest thereon, on the Commitment Termination Date.
Section 2.5 Optional Prepayment. The Borrower may prepay Loans by giving
notice (specifying the Loans to be prepaid in whole or in part, the principal
amount thereof to be prepaid and the date of prepayment) to the Lender, by
telephone, telex, telecopy or in writing not later than 12:00 noon, New York
time, on the fourth Business Day preceding the proposed date of prepayment (or
such later time or date as the Lender may in its sole discretion permit). (If
any such prepayment notice is made otherwise than in writing, Borrower shall
promptly confirm such notice in writing.) Each such prepayment shall be at the
aggregate principal amount of the principal being prepaid, together with accrued
interest on the principal being prepaid to the date of prepayment and the
amounts required by Section 4.3. Subject to the terms and conditions of this
Agreement, prepaid Loans may be reborrowed.
ARTICLE III.
INTEREST AND FEES
Section 3.1 Interest Rate. Each Loan shall bear interest from the date made
until the date repaid, payable in arrears, with respect to Interest Periods of
three months or less, on the last day of such Interest Period, and with respect
to Interest Periods longer than three months, on the day which is three months
after the commencement of such Interest Period and on the last day of such
Interest Period, at a rate per annum equal to the greater of (i) the sum of (x)
2% and (y) the Prime Rate for the applicable Interest Period and (ii) 12%, with
such 12% rate increasing to 12.48%, 12.98%, 13.50% and 14.04% as of May __ for
the second, third, fourth and fifth years of this Agreement, respectively.
Notwithstanding the foregoing, if the amount of interest to be paid by the
Borrower to the Lender exceeds the amount of EBITDA of the Borrower for the
immediately preceding calendar quarter (ending the last day of September,
December, March, or June), the Borrower shall not be obligated to repay the
amount of interest in excess of EBITDA of the Borrower for such period. Any such
amount of unpaid interest shall be added to principal and shall accrue interests
thereon. Payments under the Notes shall be applied first to any fees, costs or
expenses due under the Notes or hereunder, then to interest, and then to
principal. Notwithstanding any other provision of this Agreement, all
outstanding principal and interest of the Loan and all other amounts payable
hereunder, if not sooner paid, shall be due and payable on the Commitment
Termination Date.
Section 3.2 Interest on Overdue Amounts. All overdue amounts (including
principal, interest and fees) hereunder, and, during the continuance of any
Event of Default that shall have occurred, each Loan, shall bear interest,
payable on demand, at a rate per annum equal to the greater of (i) the sum of
(1) 3% and (ii) Prime Rate for the applicable Interest Period and (ii) 13%, with
such 13% rate increasing to 13.48%, 13.98%, 14.50% and 15.04% for the second,
third, fourth and fifth years of this Agreement, respectively.
Section 3.3 Maximum Interest Rate. (a) Nothing in this Agreement shall
require the Borrower to pay interest at a rate exceeding the maximum rate
permitted by applicable law. Neither this Section nor Section 10.1 is intended
to limit the rate of interest payable for the account of the Lender to the
maximum rate permitted by the laws of the State of New York (or any other
applicable law) if a higher rate is permitted with respect to the Lender by
supervening provisions of U.S. Federal law.
(b) If the amount of interest payable for the account of the Lender on any
interest payment date in respect of the immediately preceding interest
computation period, computed pursuant to this Article III, would exceed the
maximum amount permitted by applicable law to be charged by the Lender, the
amount of interest payable for its account on such interest payment date shall
automatically be reduced to such maximum permissible amount.
(c) If the amount of interest payable for the account of the Lender in
respect of any interest computation period is reduced pursuant to Section 3.3(b)
and the amount of interest payable for its account in respect of any subsequent
interest computation period would be less than the maximum amount permitted by
law to be charged by the Lender, then the amount of interest payable for its
account in respect of such subsequent interest computation period shall be
automatically increased to such maximum permissible amount; provided that at no
time shall the aggregate amount by which interest paid for the account of the
Lender has been increased pursuant to this Section 3.3(c) exceed the aggregate
amount by which interest paid for its account has theretofore been reduced
pursuant to Section 3.3(b).
ARTICLE IV.
DISBURSEMENT AND PAYMENT
Section 4.1 Method and Time of Payments.
(a) All payments by the Borrower hereunder shall be made without setoff or
counterclaim to the Lender, for its account, in dollars and in immediately
available funds to the account of the Lender theretofore designated in writing
to the Borrower not later than 12:00 noon, New York time, on the date when due
or, in the case of payments pursuant to Sections 4.3 and 4.4 or payments
otherwise specified as payable upon demand, forthwith upon written demand
therefor.
(b) Whenever any payment from the Borrower shall be due on a day that is
not a Business Day, the date of payment thereof shall be extended to the next
succeeding Business Day. If the date for any payment of principal is extended by
operation of law or otherwise, interest thereon shall be payable for such
extended time.
Section 4.2 Compensation for Losses. (a) If (i) the Borrower prepays Loans,
(ii) the Borrower revokes any Borrowing Request or (iii) Loans (or portions
thereof) shall become or be declared to be due prior to the scheduled maturity
thereof, then the Borrower shall pay to the Lender an amount that will
compensate the Lender for any loss (other than lost profit) or premium or
penalty incurred by the Lender as a result of such prepayment, declaration or
revocation in respect of funds obtained for the purpose of making or maintaining
the Lender's Loans, or any portion thereof. Such compensation shall include an
amount equal to the excess, if any, of (i) the amount of interest that would
have accrued on the amount so paid or prepaid, or not borrowed, for the period
from the date of such payment or prepayment or failure to borrow to the last day
of such Interest Period (or, in the case of a failure to borrow, the Interest
Period that would have commenced on the expected Borrowing Date) in each case at
the applicable rate of interest for such Loan over (ii) the amount of interest
(as reasonably determined by the Lender) that would have accrued on such amount
were it on deposit for a comparable period with leading banks in the London
interbank market.
(b) If requested by the Borrower, in connection with a payment due pursuant
to this Section 4.2, the Lender shall provide to the Borrower a certificate
setting forth in reasonable detail the amount required to be paid by the
Borrower to the Lender and the computations made by the Lender to determine such
amount. In the absence of manifest error, such certificate shall be conclusive
as to the amount required to be paid.
Section 4.3 Withholding and Additional Costs.
(a) Withholding. All payments under this Agreement (including payments of
principal and interest) shall be payable to the Lender free and clear of any and
all present and future taxes, levies, imposts, duties, deductions, withholdings,
fees, liabilities and similar charges (collectively, "Taxes") . If any Taxes are
required to be withheld or deducted from any amount payable under this
Agreement, then the amount payable under this Agreement shall be increased to
the amount WHICH, AFTER deduction from such increased amount of all Taxes
required to be withheld or deducted therefrom, will yield to the Lender the
amount stated to be payable under this Agreement. The Borrower shall also hold
the Lender harmless and indemnify it for any stamp or other taxes with respect
to the preparation, execution, delivery, recording, performance or enforcement
of this Agreement (all of WHICH SHALL be included within "Taxes") . If any of
the Taxes specified in this Section 4.3(a) are paid by the Lender, the Borrower
shall, upon demand of the Lender, promptly reimburse the Lender for such
payments, together with any interest, penalties and expenses incurred in
connection therewith. The Borrower shall deliver to the Lender certificates or
other valid vouchers for all Taxes or other charges deducted from or paid with
respect to payments made by the Borrower hereunder.
(b) Additional Costs. Subject to Section 4.3(c), and without duplication of
any amounts payable described in Section 4.2 or 4.3(a), if after the date hereof
any change in any law or regulation or in the interpretation thereof by any
court or administrative or Governmental Authority charged with the
administration thereof or the enactment of any law or regulation shall either
(1) impose, modify or deem applicable any reserve, special deposit or similar
requirement against the Lender's Commitment or Loans or (2) impose on the Lender
any other condition regarding this Agreement, its Commitment or the Loans and
the result of any event referred to in clause (1) or (2) shall be to increase
the cost to the Lender of maintaining its Commitment or any Loans made by the
Lender (which increase in cost shall be calculated in accordance with the
Lender's reasonable averaging and attribution methods) by an amount which the
Lender deems to be material, then, upon demand by the Lender, the Borrower shall
pay to the Lender an amount equal to such increase in cost.
(c) Certificate, Etc. If requested by the Borrower, in connection with any
demand for payment pursuant to this Section 4.3, the Lender shall provide to the
Borrower a certificate setting forth in reasonable detail the basis for such
demand, the amount required to be paid by the Borrower to the Lender, the
computations made by the Lender to determine such amount and satisfaction of the
conditions set forth in the next sentence. Anything to the contrary herein
notwithstanding, the Lender shall not have the right to demand any payment or
compensation under this Section 4.3 (i) with respect to any period more than 180
days prior to the date it has made a demand pursuant to this Section 4.3, and
(ii) to the extent that the Lender determines in good faith that the interest
rate on the relevant Loans appropriately accounts for any increased cost or
reduced rate of return. In the absence of manifest error, the certificate
referred to above shall be conclusive as to the amount required to be paid.
Section 4.4 Expenses; Indemnity. (a) The Borrower agrees: (i) to pay or
reimburse the Lender for all reasonable out-of-pocket costs and expenses
incurred in connection with the preparation and execution of, and any amendment,
supplement or modification to, this Agreement and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of Brown & Wood LLP, counsel to the Lender; and (ii) to
pay or reimburse the Lender for all reasonable costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement and any such other documents, including, without limitation, the
reasonable fees and disbursements of counsel to the Lender. The Borrower also
agrees to indemnify the Lender against any transfer taxes, documentary taxes,
assessments or charges made by any Governmental Authority by reason of the
execution and delivery of this Agreement.
(b) The Borrower agrees to indemnify the Lender and its directors,
officers, partners, employees, agents and Affiliates (for purposes of this
paragraph, each, an "Indemnitee") against, and to hold each Indemnitee harmless
from, any and all claims, liabilities, damages, losses, costs, charges and
expenses (including fees and expenses of counsel) incurred by or asserted
against any Indemnitee arising out of, in any way connected with, or as a result
of (i) the execution or delivery of this Agreement or any agreement or
instrument contemplated by this Agreement, the performance by the parties
thereto of their respective obligations under this Agreement or the consummation
of the transactions and the other transactions contemplated by this Agreement,
(ii) the use of the proceeds of the Loans or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
Indemnitee is a party thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee.
(c) All amounts due under this Section 4.4 shall be payable in immediately
available funds upon written demand therefor.
Section 4.5 Survival. The provisions of Sections 4.2, 4.3 and 4.4 shall
remain operative and in full force and effect regardless of the expiration of
the term of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of any of the Loans, the reduction or termination of the
Commitment, the invalidity or unenforceability of any term or provision of this
Agreement, or any investigation made by or on behalf of the Lender.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties. The Borrower represents and
warrants to the Lender as follows:
(a) Good Standing and Power. The Borrower and each Subsidiary is a
limited partnership or corporation, duly organized and validly existing in
good standing under the laws of the jurisdiction of its organization; each
has the power to own its property and to carry on its business as now being
conducted; and each is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the properties
owned or leased by it therein or in which the transaction of its business
makes such qualification necessary, except where the failure to be so
qualified, or to be in good standing, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(b) Authority. The Borrower has full power and authority to execute
and deliver, and to incur and perform its obligations under, this
Agreement, which has been duly authorized by all proper and necessary
action. No consent or approval of limited partners is required as a
condition to the validity or performance of, or the exercise by the Lender
of any of its rights or remedies under, this Agreement.
(c) Authorizations. All authorizations, consents, approvals,
registrations, notices, exemptions and licenses with or from any
Governmental Authority or other Person necessary for the execution,
delivery and performance by the Borrower of, and the incurrence and
performance of each of its obligations under, this Agreement, and the
exercise by the Lender of its remedies under this Agreement have been
effected or obtained and are in full force and effect.
(d) Binding Obligation. This Agreement constitutes the valid and
legally binding obligation of the Borrower enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(e) Litigation. There are no proceedings or investigations now pending
or, to the knowledge of the Borrower, threatened before any court or
arbitrator or before or by any Governmental Authority which, individually
or in the aggregate, if determined adversely to the interests of the
Borrower or any Subsidiary, could reasonably be expected to have a Material
Adverse Effect.
(f) No Conflicts. There is no statute, regulation, rule, order or
judgment, and no provision of any agreement or instrument binding upon the
Borrower or any Subsidiary, or affecting their properties, and no provision
of the certificate of limited partnership, certificate of incorporation,
agreement of limited partnership or by-laws (or similar constitutive
instruments) of the Borrower or any Subsidiary, that would prohibit,
conflict with or in any way impair the execution or delivery of, or the
incurrence or performance of any obligations of the Borrower under, this
Agreement, or result in or require the creation or imposition of any Lien
on property of the Borrower or any Subsidiary as a consequence of the
execution, delivery and performance of this Agreement.
(g) Taxes. The Borrower and the Subsidiaries each has filed or caused
to be filed all tax returns that are required to be filed and paid all
taxes that are required to be shown to be due and payable on said returns
or on any assessment made against it or any of its property and all other
taxes, assessments, fees, liabilities, penalties or other charges imposed
on it or any of its property by any Governmental Authority, except for any
taxes, assessments, fees, liabilities, penalties or other charges which are
being contested in good faith and (unless the amount thereof is not
material to the Borrower's consolidated financial condition) for which
adequate reserves have been established in accordance with GAAP.
(h) Properties. The Borrower and the Subsidiaries each has good and
marketable title to, or valid leasehold interests in, all of its respective
properties and assets. All such assets and properties are so owned or held
free and clear of all Liens, except Permitted Liens.
(i) Compliance with Laws and Charter Documents. Neither the Borrower
nor any Subsidiary is, or as a result of performing any of its obligations
under this Agreement will be, in violation of (a) any law, statute, rule,
regulation or order of any Governmental Authority applicable to it or its
properties or assets or (b) its certificate of limited partnership,
certificate of incorporation, agreement of limited partnership, by-laws or
any similar document.
(j) No Material Adverse Effect. Since June __, 1997, there has not
occurred or arisen any event, condition or circumstance that, individually
or in the aggregate, could reasonably be expected to have a Material
Adverse Effect.
(k) Disclosure. All information relating to the Borrower or its
Subsidiaries delivered in writing to the Lender in connection with the
negotiation, execution and delivery of this Agreement is true and complete
in all material respects. There is no material fact of which the Borrower
is aware which, individually or in the aggregate, would reasonably be
expected adversely to influence the Lender's credit analysis relating to
the Borrower and its Subsidiaries which has not been disclosed to the
Lender in writing.
Section 5.2 Survival. All representations and warranties made by the
Borrower in this Agreement, and in the certificates or other instruments
prepared or delivered in connection with or pursuant to this Agreement, shall be
considered to have been relied upon by the Lender, (ii) survive the making of
Loans regardless of any investigation made by, or on behalf of, the Lender and
(iii) continue in full force and effect as long as the Commitment has not been
terminated and, thereafter, so long as any Loan, fee or other amount payable
under this Agreement remains unpaid.
ARTICLE VI.
CONDITIONS PRECEDENT
Section 6.1 Conditions to the Availability of the Commitment. The
obligations of the Lender hereunder are subject to, and the Lender's Commitment
shall not become available until the earliest date (the "Effective Date") on
which each of the following conditions precedent shall have been satisfied or
waived in writing by the Lender:
(a) This Agreement. The Lender shall have received this Agreement
duly executed and delivered by the Borrower.
(b) Certificate of Incorporation and By-Laws. The Lender shall have
received the following:
(i) a copy of the Certificate of Incorporation of the Borrower,
as in effect on the Effective Date, certified by the Secretary of
State of Delaware, and a certificate from such Secretary of State as
to the good standing of the Borrower, in each case as of a date
reasonably close to the Effective Date; and
(ii) a certificate of a Responsible Officer of the Borrower,
dated the Effective Date, and stating that attached thereto is a true
and complete copy of the By-Laws of the Borrower as in effect on such
date.
(c) Representations and Warranties. The representations and warranties
contained in Section 5.1 shall be true and correct on the Effective Date,
and the Lender shall have received a certificate, signed by a Responsible
Officer of the Borrower, to that effect.
(d) Other Documents. The Lender shall have received such other
certificates, opinions and other documents as the Lender reasonably may
require.
(e) REIT Status of Reckson. The borrowing shall not, in the sole
judgment of the Lender, endanger Reckson's status as a REIT.
(f) Certain Loans Subject to Reckson's Approval. In respect of any
Loan or Loans aggregating $25 million in a single RSVP Platform, Reckson
shall have approved the Lender's making such Loan in its sole discretion.
Section 6.2 Conditions to All Loans. The obligations of the Lender to make
each Loan are subject to the conditions precedent that, on the date of each Loan
and after giving effect thereto, each of the following conditions precedent
shall have been satisfied, or waived in writing by the Lender:
(a) Borrowing Request. The Lender shall have received a Borrowing
Request in accordance with the terms of this Agreement.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing, nor shall any Default or Event of Default occur as a result
of the making of such Loan.
(c) Debt-to-Equity Ratio. The Lender shall have received from the
Borrower a certificate demonstrating that the ratio of the Borrower's
Adjusted Indebtedness to the Borrower's Net Assets, taking into account the
requested Loan and the assets, if any, to be acquired by the Borrower with
the proceeds of such Loan, shall not exceed 4-to-1.
(d) Representations and Warranties; Covenants. The representations
and warranties contained in Section 5.1 shall have been true and correct
when made and (except to the extent that any representation or warranty
speaks as of a date certain) shall be true and correct on the Borrowing
Date with the same effect as though such representations and warranties
were made on such Borrowing Date; and the Borrower shall have complied with
all of its covenants and agreements under this Agreement.
Section 6.3 Satisfaction of Conditions Precedent. Each of (i) the delivery
by the Borrower of a Borrowing Request (unless the Borrower notifies the Lender
in writing to the contrary prior to the Borrowing Date) and (ii) the acceptance
of the proceeds of a Loan shall be deemed to constitute a certification by the
Borrower that, as of the Borrowing Date, each of the conditions precedent
contained in Section 6.2 has been satisfied with respect to the Loan then being
made.
ARTICLE VII.
COVENANTS
Section 7.1 Affirmative Covenants. Until satisfaction in full of all the
obligations of the Borrower under this Agreement and termination of the
Commitment of the Lender hereunder, the Borrower will:
(a) Financial Statements; Compliance Certificates . Furnish to the
Lender:
(i) as soon as available, but in no event more than 60 days
following the end of each of the first three quarters of each fiscal
year, copies of the Borrower's Quarterly Report on Form 10-Q being
filed with the SEC, which shall include a consolidated balance sheet
and consolidated income statement of the Borrower and the Subsidiaries
for such quarter;
(ii) as soon as available, but in no event more than 120 days
following the end of each fiscal year, a copy of the Borrower's Annual
Report on Form 10-K being filed with the SEC, which shall include the
consolidated financial statements of the Borrower and the
Subsidiaries, together with a report thereon by Ernst & Young LLP (or
another firm of independent certified public accountants reasonably
satisfactory to the Lender), for such year;
(iii) within five Business Days of any Responsible Officer of the
Borrower obtaining knowledge of any Default or Event of Default, if
such Default or Event of Default is then continuing, a certificate of
a Responsible Officer of the Borrower stating that such certificate is
a "Notice of Default" and setting forth the details thereof and the
action which the Borrower is taking or proposes to take with respect
thereto; and
(iv) such additional information, reports or statements,
regarding the business, financial condition or results of operations
of the Borrower and its Subsidiaries, as the Lender from time to time
may reasonably request.
(b) Existence. Except as permitted by Section 7.2(a), maintain its
existence in good standing and qualify and remain qualified to do business
in each jurisdiction in which the character of the properties owned or
leased by it therein or in which the transaction of its business is such
that the failure to qualify, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(c) Compliance with Law and Agreements. Comply, and cause each
Subsidiary to comply, with all applicable laws, ordinances, orders, rules,
regulations and requirements of all Governmental Authorities and with all
agreements except where the necessity of compliance therewith is contested
in good faith by appropriate proceedings or where the failure to comply
therewith, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(d) Authorizations. Obtain, make and keep in full force and effect all
authorizations from and registrations with Governmental Authorities
required for the validity or enforceability of this Agreement.
(e) Inspection. Permit, and cause each Subsidiary to permit, the
Lender to have one or more of its officers and employees, or any other
Person designated by the Lender, to visit and inspect any of the properties
of the Borrower and the Subsidiaries and to examine the minute books, books
of account and other records of the Borrower and the Subsidiaries, and to
photocopy extracts from such minute books, books of account and other
records, and to discuss its affairs, finances and accounts with its
officers and with the Borrower's independent accountants, during normal
business hours and at such other reasonable times, for the purpose of
monitoring the Borrower's compliance with its obligations under this
Agreement.
(f) Maintenance of Records. Keep, and cause each Subsidiary to keep,
proper books of record and account in which full, true and correct entries
will be made of all dealings or transactions of or in relation to its
business and affairs.
(g) Notice of Defaults and Adverse Developments. Promptly notify the
Lender upon the discovery by any Responsible officer of the occurrence of
(i) any Default or Event of Default; (ii) any event, development or
circumstance whereby the financial statements most recently furnished to
the Lender fail in any material respect to present fairly, in accordance
with GAAP, the financial condition and operating results of the Borrower
and the Subsidiaries as of the date of such financial statements; (iii) any
material litigation or proceedings that are instituted or threatened (to
the knowledge of the Borrower) against the Borrower or any Subsidiary or
any of their respective assets; (iv) any event, development or circumstance
which, individually or in the aggregate, could reasonably be expected to
result in an event of default (or, with the giving of notice or lapse of
time or both, an event of default) under any Indebtedness and the amount
thereof; and (v) any other development in the business or affairs of the
Borrower or any Subsidiary if the effect thereof would reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect; in each case describing the nature thereof and the action the
Borrower proposes to take with respect thereto.
Section 7.2 Negative Covenants. Until satisfaction in full of all the
obligations of the Borrower under this Agreement and termination of the
Commitment of the Lender hereunder, the Borrower will not:
(a) Mergers, Consolidations and Sales of Assets. Wind up, liquidate or
dissolve its affairs or enter into any merger, consolidation or share
exchange, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time), whether in one or a series of
transactions, all or any substantial part of its assets, or permit any
Subsidiary so to do, unless such transaction or series of transactions are
expressly approved by the Lender, which approval shall not be unreasonably
withheld.
(b) Liens. Create, incur, assume or suffer to exist any Lien upon or
with respect to any of its property or assets, whether now owned or
hereafter acquired, or assign or otherwise convey any right to receive
income, except Permitted Liens.
(c) Indebtedness. Create, incur, issue, assume, guarantee or suffer to
exist any Indebtedness, [or permit any Subsidiary so to do], except:
(i) Indebtedness to the Lender under this Agreement or under the
RSI Facility Agreement,
(ii) Non-recourse Indebtedness of the Borrower and any Subsidiary
secured by mortgages, encumbrances or liens specifically permitted by
Section 7.2(b), and
(iii) Indebtedness expressly approved by the Lender in writing,
which approval may be withheld in the Lender's sole discretion.
(d) Dividends . Declare any dividends on any of its shares of capital
stock unless such dividend or distribution is expressly approved in writing
by the Lender.
(e) Certain Amendments. Amend, modify or waive, or permit to be
amended, modified or waived, any provision of its Certificate of
Incorporation unless, within not less than 5 days prior to such amendment,
modification or waiver (or such later time as the Lender may in its sole
discretion permit), the Borrower shall have given the Lender notice
thereof, including all relevant terms and conditions thereof, and the
Lender shall have consented in writing thereto.
PICK UP HERE
ARTICLE VIII.
EVENTS OF DEFAULT
Section 8.1 Events of Default. If one or more of the following events
(each, an "Event of Default") shall occur:
(a) The Borrower shall fail duly to pay any principal of any Loan when
due, whether at maturity, by notice of intention to prepay or otherwise; or
(b) The Borrower shall fail duly to pay any interest, fee or any other
amount payable under this Agreement within two days after the same shall be due;
or
(c) Borrower shall fail duly to observe or perform any term, covenant,
or agreement contained in Section 7.2; or
(d) The Borrower shall fail duly to observe or perform any other term,
covenant or agreement contained in this Agreement, and such failure shall have
continued unremedied for a period of 30 days; or
(e) Any representation or warranty made or deemed made by the Borrower
in this Agreement, or any statement or representation made in any certificate,
report or opinion delivered by or on behalf of the Borrower in connection with
this Agreement, shall prove to have been false or misleading in any material
respect when so made or deemed made; or
(f) The Borrower shall fail to pay any Indebtedness (other than
obligations here under) in an amount of $100,000 or more when due; or any such
Indebtedness having an aggregate principal amount outstanding of $100,000 or
more shall become or be declared to be due prior to the expressed maturity
thereof; or
(g) An involuntary case or other proceeding shall be commenced against
the Borrower seeking liquidation, reorganization or other relief with respect to
it or its debts under any applicable bankruptcy, insolvency, reorganization or
similar law or seeking the appointment of a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of it or any substantial
part of its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of more than 60 days; or an order or
decree approving or ordering any of the foregoing shall be entered and continued
unstayed and in effect; or
(h) The Borrower shall commence a voluntary case or proceeding under
any applicable bankruptcy, insolvency, reorganization or similar law or any
other case or proceeding to be adjudicated a bankrupt or insolvent, or any of
them shall consent to the entry of a decree or order for relief in respect of
the Borrower in an involuntary case or proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against any of
them, or any of them shall file a petition or answer or consent seeking
reorganization or relief under any applicable law, or any of them shall consent
to the filing of such petition or to the appointment of or taking possession by
a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Borrower or any substantial part of its property, or the
Borrower shall make an assignment for the benefit of creditors, or the Borrower
shall admit in writing its inability to pay its debts generally as they become
due, or the Borrower shall take corporate action in furtherance of any such
action;
(i) One or more judgments against the Borrower or attachments against
its property, which in the aggregate exceed $100,000, or the operation or result
of which could be to interfere materially and adversely with the conduct of the
business of the Borrower remain unpaid, unstayed on appeal, undischarged,
unbonded, or undismissed for a period of more than 30 days; or
(j) Any court or governmental or regulatory authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
judgment, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which prohibits, enjoins or otherwise
restricts, in a manner that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect, any of the transactions
contemplated under this Agreement; or
(k) Any Event of Default shall occur and be continuing under the RSI
Facility Agreement.
then, and at any time during the continuance of such Event of Default, the
Lender may, by written notice to the Borrower, take either or both of the
following actions, at the same or different times: (i) terminate forthwith the
Commitment and (ii) declare any Loans then outstanding to be due, whereupon the
principal of the Loans so declared to be due, together with accrued interest
thereon and any unpaid amounts accrued under this Agreement, shall become
forthwith due, without presentment, demand, protest or any other notice of any
kind (all of which are hereby expressly waived by the Borrower); provided that,
in the case of any Event of Default described in Section 8.1(g) or (h) occurring
with respect to the Borrower, the Commitment shall automatically and immediately
terminate and the principal of all Loans then outstanding, together with accrued
interest thereon and any unpaid amounts accrued under this Agreement, shall
automatically and immediately become due without presentment, demand, protest or
any other notice of any kind (all of which are hereby expressly waived by the
Borrower).
ARTICLE IX.
EVIDENCE OF LOANS; TRANSFERS
Section 9.1 Evidence of Loans. (a) The Lender shall maintain accounts
evidencing the indebtedness of the Borrower to the Lender resulting from each
Loan made by the Lender from time to time, including the amounts of principal
and interest payable and paid to the Lender in respect of Loans.
(b) The Lender's written records described above shall be available
for inspection during ordinary business hours by the Borrower from time to time
upon reasonable prior notice to the Lender.
(c) The entries made in the Lender's written or electronic records and
the foregoing accounts shall be prima facie evidence of the existence and
amounts of the indebtedness of the Borrower therein recorded; provided, however,
that the failure of the Lender to maintain any such account or such records, as
applicable, or any error therein, shall not in any manner affect the validity or
enforceability of any obligation of the Borrower to repay any Loan actually made
by the Lender in accordance with the terms of this Agreement.
ARTICLE X.
MISCELLANEOUS
Section 10.1 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 10.2 Waiver of Jury. THE BORROWER AND THE LENDER EACH HEREBY
WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, [THE NOTES] OR
THE RELATIONSHIPS ESTABLISHED HEREUNDER.
Section 10.3 Jurisdiction and Venue; Service of Process . (a) The Borrower
and the Lender each hereby irrevocably submits to the non-exclusive jurisdiction
of any state or federal court in the Borough of Manhattan, The City of New York
for the purpose of any suit, action, proceeding or judgment relating to or
arising out of this Agreement and to the laying of venue in the Borough of
Manhattan The City of New York. The Borrower and the Lender each hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection to the laying of the venue of any such suit, action or proceeding
brought in the aforesaid courts and hereby irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
(b) Borrower agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in subsection 10.7 or at such other address of
which the Lender shall have been notified pursuant thereto. The Borrower further
agrees that nothing herein shall affect the right to effect service of process
in any other manner permitted by law or shall limit the right to sue in any
other jurisdiction; and
(c) The Borrower waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or consequential
damages.
Section 10.4 Confidentiality. The Lender agrees (on behalf of itself and
each of its Affiliates, partners, officers, employees and representatives) to
use its best efforts to keep confidential, in accordance with their customary
procedures for handling confidential information of this nature and in
accordance with commercially reasonable business practices, any Confidential
Information; provided that nothing herein shall limit the disclosure of any such
information (i) to the extent required by statute, rule, regulation or judicial
process, (ii) to counsel for the Lender, (iii) to auditors or accountants, (iv)
by the Lender to an Affiliate thereof, or (v) in connection with any litigation
relating to enforcement of this Agreement; provided further, that, unless
specifically prohibited by applicable law or court order, the Lender shall,
prior to disclosure thereof, notify the Borrower of any request for disclosure
of any Confidential Information (x) by any Governmental Authority or
representative thereof or (y) pursuant to legal process.
Section 10.5 Amendments and Waivers. (a) Any provision of this Agreement
may be amended, modified, supplemented or waived, but only by a written
amendment or supplement, or written waiver, signed by the Borrower and the
Lender.
(b) Except to the extent expressly set forth therein, any waiver shall
be effective only in the specific instance and for the specific purpose for
which such waiver is given.
Section 10.6 Cumulative Rights; No Waiver. Each and every right granted to
the Lender hereunder or under any other document delivered in connection
herewith, or allowed it by law or equity, shall be cumulative and not exclusive
and may be exercised from time to time. No failure on the part of the Lender to
exercise, and no delay in exercising, any right will operate as a waiver
thereof, nor will any single or partial exercise by the Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right.
Section 10.7 Notices. Any communication, demand or notice to be given
hereunder will be duly given when delivered in writing or by telecopy to a party
at its address as indicated below or such other address as such party may
specify in a notice to the other party hereto. A communication, demand or notice
given pursuant to this Agreement shall be addressed:
If to the Borrower, to:
Reckson Service Industries, Inc.
225 Broadhollow Road
Melville, New York 11747
Telecopy: (516) 719-7400
Attention: Chief Financial Officer
If to the Lender, to:
Reckson Operating Partnership, L.P.
225 Broadhollow Road
Melville, New York 11747
Telecopy: (516) 694-6900
Attention: Chief Financial Officer
This Section 10.7 shall not apply to notices referred to in Article II of
this Agreement, except to the extent set forth therein.
Section 10.8 Certain Acknowledgments. The Borrower hereby confirms and
acknowledges that (a) the Lender does not have any fiduciary or similar
relationship to the Borrower by virtue of this Agreement and the transactions
contemplated herein and that the relationship established by this Agreement
between the Lender and the Borrower is solely that of creditor and debtor and
(b) no joint venture exists between the Borrower and the Lender by virtue of
this Agreement and the transactions contemplated herein.
Section 10.9 Separability. In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect under any law, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
Section 10.10 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, except that the Borrower may not assign any of its
rights hereunder without the prior written consent of the Lender, and any
purported assignment by the Borrower without such consent shall be void.
Section 10.11 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all the counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
RECKSON SERVICE INDUSTRIES, INC.,
as Borrower
By:
---------------------------------
Name:
Title:
RECKSON OPERATING PARTNERSHIP, L.P.,
as Lender
By: RECKSON ASSOCIATES REALTY CORP.,
its general partner
By:
---------------------------------
Name:
Title:
Exhibit 10.3
LIMITED LIABILITY COMPANY AGREEMENT
LIMITED LIABILITY COMPANY AGREEMENT, dated as of November 20, 1997
(this "Agreement"), by and among ONSITE VENTURES, L.L.C., a Delaware limited
liability company (the "Company"), RSI-OSA HOLDINGS, INC., a Delaware
corporation, having an office located at 225 Broadhollow Road, Melville, New
York 11747 ("RSI"), VERITECH VENTURES LLC, a New York limited liability company
having an office located at 2 Manhattanville Road, Suite 205, Purchase, New
York, NY 10577 ("Veritech", together with RSI, the "Institutional Members"),
ARTHUR SIMON, an individual with an address at 452 Ardsley Road, Scarsdale, New
York 10583 ("Simon"), DAREN HORNIG, an individual with an address at 404 East
55th Street, #7C, New York, New York 10022 ("Hornig"), and MARTIN RABINOWITZ, an
individual with an address at 850 Park Avenue, New York, NY 10021 ("Rabinowitz",
and together with Simon and Horning, the "General Members"). The General Members
and the Institutional Members who execute and deliver this Agreement are
referred to herein, collectively, as the "Members" and, individually, as a
"Member". Unless otherwise expressly set forth herein, all capitalized terms
used herein shall have the meaning ascribed thereto in Section 23.
WHEREAS, on November 20, 1997 the Members formed the Company as a
Delaware limited liability company pursuant to the Limited Liability Company Act
of the State of Delaware, as amended, Title 6 ss.ss.18-101 et seq. (the "Act");
WHEREAS, prior to the Effective Date, JAH Realties, L.P., a New York
limited partnership ("JAH"), Rabinowitz, Simon and Hornig were members in
Veritech with a percentage membership interest in Veritech of 62.875%, 5.450%,
26.947%and 4.728%, respectively;
WHEREAS, on or prior to the Effective Date (as hereinafter defined),
Veritech and certain of its Affiliates have contributed to the Company all of
their respective right, title and interest in and to all of the assets
(collectively, the "Contributed Assets") (other than the regulatory approvals,
licenses and permits held by ONSITE ACCESS LLC, a New York limited liability
company ("OCC Access"), and ONSITE ACCESS LOCAL LLC, a New York limited
liability company ("OCC Local") which approvals, licenses and permits shall
continue to be held by OCC Access and OCC Local) which are used or useful in
connection with the Company's Business (as hereinafter defined) as heretofore
conducted by Veritech and such Affiliates pursuant to the terms and conditions
of that certain Capital Contribution Agreement (the "Capital Contribution
Agreement") including, without limitation, all of the membership interests in
OCC Access and OCC Local;
WHEREAS, the Members desire to provide for the stability and
continuity of the management of the affairs of the Company and to impose certain
rights and restrictions with respect to the transfer or other disposition of
their membership interests upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Formation.
(a) Formation; Name; Office. On November 20, 1997, the Members formed
the Company under and pursuant to the Act (and filed an amendment to the
Certificate of Formation on November 26, 1997) to be conducted under the name
"ONSITE VENTURES, L.L.C." The business office of the Company shall be 680 Fifth
Avenue, New York, NY 10022 or at such other place or places as the Board of
Managers (as defined below) may from time to time designate.
(b) Purposes. The purposes for which the Company has been formed are:
(i) To, through itself and its subsidiaries, construct and
develop advanced telecommunications distribution systems within
commercial and residential buildings and/or commercial and residential
complexes (each, a "Building") and provide to residential and
commercial customers (A) local, long distance, international, calling
card, 800/888 services, directory assistance, paging, wireless and
other related telephone services, (B) local loop provisioning and
selling of circuits either directly or through ventures or telephone
carrier reselling agreements, (C) dial-up, dedicated and satellite
Internet access, (D) Internet service provider services for website
hosting, E-mail, collocation, news groups, browser software and
Internet links such as ESPN/Sportzone, HotBot, MSNBC, Yahoo and
Weather Channel, (E) standard cable and television access, (F) LAN and
desktop installation, router, hub and CSU/DSU setup services and sales
of related equipment (collectively, "Equipment") and (G) customer
referrals to providers of hardware and installation services related
thereto;
(ii) To promote and develop the Plan of the Company set forth on
Exhibit I (the "Plan" and, together with the operations and activities
described in Section 1(b)(i), but excluding the primary business of
OCC Access and OCC Local, the "Business");
(iii) To negotiate, execute and enter into and perform any and
all contracts and agreements necessary or desirable for, or otherwise
related to, the Company's Business, including, without limitation, the
operation or management of the Company or the ownership, operation or
management of any asset or property owned by the Company;
(iv) To accomplish any lawful business whatsoever or which shall
at any time appear conducive to, or expedient for, the protection or
benefit of the Company or its assets or properties and in furtherance
of the Business;
(v) To engage in any lawful act or activity for which a limited
liability company may be formed under the Act in furtherance of the
Business; and
(vi) To engage in all activities necessary, customary, convenient
or incident to any of the foregoing.
(c) Term. The term of existence of the Company commenced on November
20, 1997 and shall end on December 31, 2047 unless the Company is earlier
dissolved in accordance with either the terms of this Agreement or the Act (the
"Term"). This Agreement shall be effective, except as otherwise provided herein,
until the earlier of the Term or the date of an IPO by the Company of at least
twenty (20%) percent of the aggregate membership interests in (or other equity
interest in or equity security of) the Company on a fully diluted basis after
giving effect to such IPO.
(d) Registered Office and Resident Agent. The registered office and
the resident agent of the Company shall be as designated in the Certificate of
Formation of the Company (the "Certificate") or any amendment thereof. The
registered office and the resident agent may be changed from time to time by the
Board of Managers in accordance with the Act. If the resident agent shall ever
resign, then the Board of Managers shall promptly appoint a successor resident
agent and shall file an appropriate amendment to the Certificate.
2. Capital Contributions.
(a) Initial Capital Contributions. Simultaneously with the execution
and delivery of this Agreement free and clear from any escrow conditions (the
"Effective Date") Veritech shall assign, transfer and contribute all of its
right, title and interest in, to and under the Contributed Assets (including,
without limitation, the then remaining proceeds of the Interim Loans) which the
parties hereto acknowledge and agree have a fair market value net of the
Veritech Excess, as of the Effective Date, of FOUR MILLION AND FIFTY THOUSAND
and 00/100 ($4,050,000.00) DOLLARS. The initial capital contribution of each of
Veritech, Rabinowitz, Simon and Hornig shall be their proportionate share (on a
fair market value basis) in the Contributed Assets which they are deemed to have
had immediately prior to the Effective Date through their respective ownership
of membership interests in Veritech prior to the Effective Date (which were
redeemed by Veritech in consideration for membership interests in the Company).
In addition to the foregoing, simultaneously with the execution and delivery of
this Agreement: (i) the Company shall assume all payment obligations for
borrowed money of Veritech with respect to the Interim Loans if such amount is
converted into a Committed Loan (as defined by the RSI Subordinated Note) on
such date; and (ii) RSI and the Company shall execute and deliver that certain
Convertible Subordinated Loan Agreement and Promissory Note in the form attached
hereto as Exhibit II (the "RSI Subordinated Note") dated as of the Effective
Date, pursuant to, and subject to the terms and provisions of, RSI shall have
the irrevocable obligation to loan the Company up to an aggregate amount of SIX
MILLION FIVE HUNDRED THOUSAND and 00/100 ($6,500,000.00) DOLLARS less the
aggregate amount of the Interim Loans (which shall be converted into and deemed
a part of such convertible subordinated loan (as evidenced by an endorsement on
the schedule to the RSI Subordinated Note)) from time to time upon demand of the
Company in amounts not less than five hundred thousand ($500,000) dollars for
expenditures to be made by the Company approved in accordance with the Section 9
(Governance), it being acknowledged and agreed that such conversion and the
entering into of the RSI Subordinated Note and other good and valuable
consideration shall be the initial capital contribution of RSI. The initial
capital contribution of each of RSI, Veritech, Rabinowitz, Simon and Hornig is
referred to herein as a "Initial Capital Contribution".
(b) Issuance of Membership Interests. In consideration of the
foregoing, the Company shall issue to each of RSI, Veritech, Simon, Hornig and
Rabinowitz a Percentage Membership Interest (as defined below) in the Company as
described and provided for in this Section 2.
(c) Initial Percentage Membership Interests. (i) Effective as of the
date hereof, the Percentage Membership Interest of each Member in the Company
(their respective "Percentage Membership Interest"), as the same may be adjusted
from time to time pursuant to the terms and conditions of this Agreement,
including, without limitation, in order to reflect a Transfer (as defined below)
of all or part of a Member's membership interest is as follows:
Percentage Membership
Member Interests
------ ---------------------
RSI 1.0000%
Veritech 62.2470%
Simon 26.6770%
Hornig 4.6800%
Rabinowitz 5.3960%
--------
TOTAL: 100.0000%
========
(ii) Effective as of the date that the Conversion Right is exercised,
the Percentage Membership Interest of each Member in the Company, as the same
may be adjusted from time to time pursuant to the terms and conditions of this
Agreement and the RSI Subordinated Note, including, without limitation, the
purchase of Additional Interests and a Transfer of all or part of a Member's
membership interest is as follows:
Percentage Membership
Member Interests
------ ---------------------
RSI 58.6900%
Veritech 25.9740%
Simon 11.1317%
Hornig 1.9529%
Rabinowitz 2.2514%
--------
TOTAL: 100.0000%
========
(d) Members' Liability. Except as otherwise provided in this
Agreement, the liability of a Member, solely as Member, for any obligations,
debts or liabilities incurred by the Company shall be limited to the aggregate
amount of the capital contributions that such Member has made or is obligated to
make to the Company.
(e) Uses of Capital Contributions and Proceeds from the RSI
Subordinated Note; Interest on Capital Contributions. Any funds received by the
Company pursuant to this Section 2 and any funds loaned to the Company by RSI
under the terms of the RSI Subordinated Note shall be utilized by the Company
for Company purposes in accordance with Section 9; provided, that such funds
shall also be used for the payment of the Veritech Excess. Except as otherwise
provided in this Agreement, no interest shall accrue on any capital
contribution.
(f) Withdrawal of Capital. Subject to Section 2(g), unless the prior
unanimous written consent of the Members shall have been obtained and except as
otherwise provided in this Agreement, no Member shall have the right to withdraw
any part of such Member's capital contributions prior to the liquidation and
termination of the Company pursuant to Section 19 of this Agreement.
(g) Veritech Excess. Notwithstanding Section 2(f), Veritech shall be
entitled on the Effective Date to receive from the Company cash in the sum of
$306,806, which sum represents the amount which the aggregate unreturned capital
contributions of JAH, Simon and Hornig in Veritech immediately prior to the
Effective Date exceeds $550,000 (the "Veritech Excess"). Except for the Veritech
Excess, all cash investments made on or prior to the Effective Date by a member
in Veritech, whether in the form of a capital contribution, loan or otherwise,
including, without limitation, JAH, Simon, Hornig and Rabinowitz shall be
included in the Contributed Assets and may not be withdrawn.
(h) Source of Distributions. No Member, manager or any of their
respective Affiliates shall be personally liable for the return of the capital
contributions of any other Member, or any portion thereof, it being expressly
understood that any such return shall be made solely from the Company's assets.
3. Title to the Property of the Company.
(a) Title to the Property of the Company. Title to any and all
property, real, personal or mixed, owned by, or leased to, the Company shall be
held in the name of the Company, or in the name of any nominee which the Board
of Managers may, in its sole and absolute discretion, designate, and no Members,
individually or collectively, shall have, or shall be deemed to have, any
ownership interest in or to any such property.
4. Representations and Warranties of the Members.
(a) Representations and Warranties of Each Member. Each Member (solely
with respect to such Member) represents and warrants to the Company and each
other Member as follows:
(i) Such Member has the full power and authority to execute,
deliver and perform this Agreement;
(ii) This Agreement has been duly and validly authorized,
executed and delivered by such Member and constitutes a valid and
binding obligation of such Member;
(iii) The execution, delivery and performance of this Agreement
by such Member does not violate or conflict with or constitute a
default under such Member's certificate of incorporation, by-laws,
certificate of limited partnership, certificate of formation, limited
liability company agreement, partnership agreement or similar charter
or organizational document or any material agreement to which it is a
party or by which it or its property is bound; and
(iv) Such Member has acquired its membership interest for
investment purposes only and not with a view to the distribution
thereof in violation of any applicable state or federal securities
law; it being acknowledged and agreed, however, that each Member shall
have the rights set forth herein with respect to a Syndication.
(b) Additional Representation and Warranty of Veritech. Veritech
represents and warrants to the Company and each other Member that the amount of
the Veritech Excess is not less than the amount specified in Section 2(g).
5. Sale or Transfer of Membership Interest.
(a) General Restrictions. Subject to the terms and provisions of
Section 5(b), during the term of this Agreement, without the prior written
consent of each other Member, no Member shall, directly or indirectly, sell,
pledge, hypothecate, give, devise, transfer, create a security interest in or
lien on, place in trust (voting or otherwise), assign or in any other way
encumber or dispose of (each, a "Transfer") any membership interest now or
hereafter at any time held by him or it, or any interest therein, or the
certificate or document representing any such membership interest, if any (each,
a "Transfer of Interest"). Without limiting the generality of the foregoing,
except with respect to the membership interest in Veritech held (or entitled to
be held) on the date hereof by any employee of, or member in, Veritech
(provided, that any such Transfer of Interest is limited among such employees,
such members and Veritech), a Transfer of Interest by a Member shall include the
direct or indirect Transfer of any equity securities of, or interest in, such
Member and with respect to any such Transfer, a Permitted Transfer shall pertain
to any Transfer by holder of such equity interests as if the transferor were a
Member and the interest being Transferred were membership interests. Any
Transfer of Interest effected or purported or attempted to be effected: (i) not
in accordance with the terms and conditions of this Agreement; (ii) to an
individual younger than 18 years of age or who has been adjudged incompetent or
insane; or (iii) to a person prohibited by law from holding any membership
interest, shall be void ab initio and shall not bind the Company or any Member.
(b) Permitted Transfers of Interest. Notwithstanding the provisions of
Section 5(a) hereof and subject to Section 5(b)(vii), a Member may, without the
consent of any other Member, effect a Transfer of Interest as follows (each, a
"Permitted Transfer"); provided, however that neither Veritech nor any General
Member may effect a Transfer of Interest to any Disqualified Transferee.
(i) Testamentary and Gift Transfers. Each Member that is an
individual may effect a Transfer of Interest by gift, will or the laws
of descent and distribution to any Family Group Member of such Member;
(ii) Affiliate Transfers. Each Member may effect a Transfer of
Interest to an Affiliate of such Member and, with respect to RSI, may
effect a Transfer of Interest to Reckson Services Industries Inc.
("Reckson");
(iii) Sale to the Company. Any Member may Transfer any membership
interest to the Company pursuant to this Agreement or otherwise;
(iv) Sales to Third Parties. Any Member may sell any membership
interest to another Member or any third party purchaser who is not an
Affiliate of such Member to the extent provided in, and in accordance
with, the provisions of this Agreement, including Sections 6, 7, 8,
10, 14, 15 and 16; provided, that (x) on or prior to the date that is
two (2) years after the Effective Date no Member shall sell any of its
membership interests pursuant to a Third Party Offer or to any other
Member (other than pursuant to a Buy/Sell Right, Participation Right,
Tag-Along Right or pursuant to Section 8 (Bring-Along Rights)); and
(y) on or prior to the date that is three (3) years after the
Effective Date no Member shall sell any of its membership interests
unless it together with its Affiliates concurrently sells, in the
aggregate, the same percentage of the membership interests in OnSite
Commerce and Content LLC, a Delaware limited liability company and an
Affiliate of the Company ("OCC") held by it and its Affiliates, to the
same third party purchaser or other Member;
(v) Pledges. (A) Each Member may grant a security interest
("Pledge") in any of its membership interests now or hereafter held by
it, and an Affiliate of a Member may Pledge any equity interest in
such member, to secure its indebtedness (or the indebtedness or the
guarantee of indebtedness of any of its Affiliates that is incurred
for general purposes) owing to a bank, financial institution, third
party lender or other Person (a "Pledgee") if the Pledgee is not a
Disqualified Transferee; provided, however, that in the event a
Pledgee or its successor succeeds to the interest of such Member, then
such Member and such Pledgee shall deliver a notice to the Company and
each other Member of such succession and at any time within three (3)
months after the earlier to occur of (x) delivery of such notice or
(y) actual knowledge of such succession: (1) Veritech, if the member
which granted such security interest is RSI, (2) RSI, if the member
which granted such security interest is Veritech, may elect to
exercise a Buy/Sell Right between such Members as if there were a
Deadlock with respect to a Significant Decision in accordance with the
terms and provisions of Section 10 but without the requirement of
providing a Warning Notice; or (3) the Company, if the Member which
granted such security interest is a General Member, may elect to
redeem all the membership interest of such Member at the Fair Market
Value of such membership interests;
(B) Notwithstanding the provisions of Section 5(b)(v)(A),
neither Veritech nor any General Member may on or prior to the date
that is two years after the Effective Date Pledge any of their
respective membership interests for: (1) any purpose other than the
acquisition (or the refinancing of the acquisition) of the membership
interests held by such Member; or (2) an aggregate amount which,
together with all prior Pledge transactions, is in excess of the
aggregate amount paid or payable to the Company or a Member for the
aggregate purchase price of such membership interests including,
without limitation, Additional Interests (or for the purpose of
refinancing such indebtedness);
(vi) Syndication. On and after the date that is two (2) years
after the Effective Date a Member may syndicate its membership
interests by a Transfer of the equity interests in such Member in any
transaction or series of related transactions (each, a "Syndication");
provided, that (A) neither Veritech nor any General Member shall
effect any Syndication which (together with all prior Syndications)
would result in the Syndication of 50% or more of such Member's
membership interest; (B) no direct or indirect subscriber, participant
or Transferee of any such interest shall be a Disqualified Transferee;
(C) such Member and each such subscriber, participant or Transferee
shall be subject to, and shall submit to, the jurisdiction of the
Delaware Court of Chancery, the New York state courts in New York
County and all federal courts; (D) with respect to a Syndication by
Veritech or a General Member, the Syndicate Representatives of such
Member shall be the exclusive representatives of such Member and the
membership interests, business and affairs of such Member; (E) no such
transaction shall relieve such Member from any of its obligations
under this Agreement; and (F) with respect to any Syndication by
Veritech, at the time of any such Syndication, the Family Group
Members of Veritech shall, collectively, own at least one-third of the
beneficial economic interests in JAH Realties, L.P., a New York
Limited Partnership, which presently owns 70% of the equity interests
in Veritech; and
(vii) Conditions to a Permitted Transfer. Notwithstanding the
provisions of this Section 5(b), no Transfer of Interest shall be a
Permitted Transfer unless, in each case, such Transfer of Interest (A)
complies with all applicable federal and state securities and "Blue
Sky" laws, (B) does not relieve such Member from any of its
obligations under this Agreement, (C) does not require the
registration of any membership interests or any other security under
the Securities Act of 1933, as amended, (the "1933 Act"), (D) does not
require the approval, license or permit of, or notification to, any
regulatory authority with jurisdiction over OCC Access or OCC Local
(unless all required approvals, licenses or permits have been obtained
and are in full force and effect, or all such notifications have been
made, in each case, to the satisfaction of the Company) and (D) prior
to the consummation of any Permitted Transfer (x) the Company and each
Member shall have received a notice from the Member proposing such
Transfer of Interest stating the provision herein which permits such
Transfer of Interest, the identity of such permitted assignee or
transferee (any such person, regardless of the method of Transfer,
being referred to herein as a "Transferee"), the expected closing date
for such Transfer of Interest the amount of membership interest or
equity interest proposed to be Transferred and, if such Transfer of
Interest is to be effected by a Member pursuant to clause (iv), the
purchase price or other consideration to be received in connection
with such Transfer of Interest, if any, (y) the Company shall have
received the opinion of its counsel that such Transfer of Interest
does not require registration under the 1933 Act (which, for avoidance
of doubt, does not include a notice to the Securities and Exchange
Commission) or any applicable state securities or "Blue Sky" laws
together with all documentation reasonably requested by the Company to
evidence that such Transfer of Interest is permitted hereunder and to
otherwise disclose the identity and financial condition of such
Transferee and (z) any Transferee not a party hereto shall execute an
appropriate document confirming that such Transferee takes such
membership interests subject to the terms and conditions of this
Agreement and assumes all of the obligations of the Member effecting
such Transfer of Interest hereunder and with respect to such
membership interests. The Company shall not give effect on its books
to any Transfer or purported Transfer of membership interests held or
owned by any Member to any Transferee unless each and all of the
conditions hereof affecting such Transfer shall have been complied
with.
(c) Indemnity by Member for an Invalid Transfer of Membership
Interests. In the event that any Member effects or purports to effect any
Transfer of Interest other than a Permitted Transfer, then such Member shall
indemnify and hold harmless the Company and each other Member from and against
any and all liabilities or damages to such party by reason of such act
including, without limitation, reasonable attorneys' fees and disbursements
incurred by any such indemnified party in connection with any such act as and
when such liabilities or damages are determined and such expenses are incurred.
6. Right of First Refusal.
(a) Right of the Institutional Members. If, at any time, either
Institutional Member has a bona fide written offer, including an offer which is
a result of solicitation by such Institutional Member, for a Contingent Transfer
other than a Transfer to another Member, for any or all of its membership
interests (collectively, the "Third Party Offered Interest") and such
Institutional Member (the "Selling Institutional Member") desires to accept such
offer, such Selling Institutional Member shall give a prompt notice regarding
such proposed Contingent Transfer (a "Notice of Offer") to the other
Institutional Member (the "FR Member") and each other Member which notice shall
contain: (i) a true and complete copy of such offer; (ii) the Percentage
Membership Interests proposed to be sold; (iii) the identity of such third party
purchaser and its controlling Affiliates; (iv) reasonable and sufficient
evidence that such third party purchaser has a financial net worth sufficient to
consummate the proposed Permitted Transfer (it being acknowledged and agreed
that if the FR Member does not dispute the reasonableness and sufficiency of
such information by delivering a notice to the Selling Institutional Member to
such effect within ten (10) business days after the delivery of the Notice of
Offer that such information shall be deemed to satisfy the requirements of this
clause (iv)); (v) the proposed Third Party Price; and (vi) the other material
terms and conditions of such offer including, without limitation, any promissory
notes included in such Third Party Price and the proposed date of closing.
(b) Acceptance Period. For a period of ten (10) business days after
receipt of the Notice of Offer (the "FR Acceptance Period"), the FR Member shall
have the right, but not the obligation (the "FR Right"), to purchase all, but
not less than all, of the Third Party Offered Interest from the Selling
Institutional Member in accordance with the provisions of this Section 6 at a
purchase price equal to the Third Party Price. The FR Member may exercise its FR
Right by providing a notice (the "FR Acceptance Notice") to such effect to the
Selling Institutional Member and each General Member on or prior to the
expiration of the FR Acceptance Period and specifying the proposed date for the
closing of the purchase and sale of the Third Party Offered Interest (the "FR
Closing Date") which date shall not be later than (x) sixty (60) days after the
date that the Notice of Offer is delivered, if the FR Member is RSI, or (y) one
hundred and eighty (180) days after the date that the Notice of Offer is
delivered, if the FR Member is Veritech.
(c) FR Deposit. Upon exercise of its FR Right, the FR Member shall
deliver a deposit (the "FR Deposit") to the Selling Institutional Member on or
prior to five (5) business days after the delivery of the FR Acceptance Notice,
which deposit shall be as set forth below:
(i) if Veritech is the FR Member, the FR Deposit shall equal the
greater of (x) 5% of the aggregate Third Party Price or (y) $300,000
(but not in excess of the aggregate Third Party Price). The FR Deposit
shall consist of (x) a certified check (the "Cash Deposit") payable to
the order of RSI in an amount equal to not less than the lesser of the
amount of the FR Deposit or $1,000,000 and (y) either (A) a first
priority security interest in, and pledge of, a percentage of
Veritech's membership interest such that the product of (1) the
aggregate Third Party Price divided by (2) the Percentage of
Membership Interest represented by the Third Party Offered Interest
multiplied by (3) Veritech's Percentage Membership Interest pledged to
the Selling Institutional Member is equal to 1.5 times the amount that
the FR Deposit exceeds the amount of the Cash Deposit, if any, or (B)
a second priority security interest in, and pledge of, all of the
membership interests of the FR Member, if the amount of the FR Deposit
is greater than the amount of the Cash Deposit actually paid.
(ii) if RSI is the FR Member, the FR Deposit shall equal 5% of
the aggregate Third Party Price for the Third Party Offered Interest
consisting of (x) a Cash Deposit payable to the order of Veritech in
an amount equal to not less than the lesser of the amount of the FR
Deposit or $3,000,000 and (y) either (A) a first priority security
interest in, and pledge of, a percentage of RSI's membership interest
such that the product of (1) the aggregate Third Party Price divided
by (2) the Percentage of Membership Interest represented by the Third
Party Offered Interest multiplied by (3) RSI's Percentage Membership
Interest pledged to the Selling Institutional Member is equal to 1.5
times the amount that the FR Deposit exceeds the amount of the Cash
Deposit, if any, or (B) a second priority security interest in, and
pledge of, all of the membership interests of the FR Member, if the
amount of the FR Deposit is greater than the amount of the Cash
Deposit actually paid.
(iii) if an FR Member is required to deliver to the Selling
Institutional Member a security interest in, and pledge of, any of its
membership interests, it will execute and deliver such documents
(including, without limitation, UCC Financing Statements) as are
reasonably required by the Selling Institutional Member to the Selling
Institutional Member at its address specified in Section 28. It is
acknowledged and agreed that any security interest in, and pledge of,
membership as collateral security provided in this Section shall be
limited for the purpose of providing collateral for the amount of the
FR Deposit which is in excess of the Cash Deposit, if any.
Accordingly, the Selling Institutional Member's right and interest in
the FR Member's membership interest shall be limited to the Deposit
Defaulted Interests of the FR Member.
(iv) it is acknowledged and agreed that, except as expressly
provided below, the FR Deposit is intended to be a non-refundable
deposit to secure the obligations of the FR Member. Accordingly, if
the FR Member fails to purchase the Third Party Offered Interest on
the FR Closing Date, other than as a result of an Excused Condition,
then: (A) the Selling Institutional Member shall retain the Cash
Deposit and the Deposit Defaulted Interests as liquidated damages for
the harm (which harm is acknowledged to not be readily measurable in
damages) caused by the failure of the FR Member to timely conclude
such purchase and, to the extent that a portion of the FR Deposit
constituted a pledge of membership interests, the Deposit Defaulted
Interests shall be transferred to the Selling Institutional Member and
any membership interests included in the FR Deposit other than the
Deposit Defaulted Interests shall be returned to the FR Member; and
(B) the FR Member shall promptly upon request vote all of its
membership interests in favor of a transaction for the sale of the
entire Company (whether by a merger, consolidation, recapitalization,
sale of assets or membership interests or otherwise) to be consummated
within 180 days after the FR Closing Date at an aggregate value of not
less than ninety-five (95%) percent of the Third Party Price divided
by the Percentage of Membership Interest represented by the Third
Party Offered Interest (e.g., the value of the Company using the
Third-Party Price) if the Selling Institutional Member votes its
membership interests (or causes the directors designated by the
Selling Institutional Member to vote) in favor of such transaction.
(d) Exercise of FR Right. Subject to Section 7, upon exercise of its
FR Right, the Selling Institutional Member shall be obligated to sell all, but
not less than all, of the Third Party Offered Interest to the FR Member, and the
FR Member shall be obligated to purchase all, but not less than all, of: (i) the
Third Party Offered Interest from the Selling Institutional Member; and (ii) the
Tag-Along Interest of each General Member, if any, simultaneously on the FR
Closing Date, in each case, at a price equal to the Third Party Price; provided,
that, at the sole discretion of the FR Member, the payment of the aggregate
Third Party Price may be on the terms and conditions stated in the Notice of
Offer including by the issuance of any promissory notes described therein ("FR
Notes"). Each Member shall use all commercially reasonable efforts to secure any
approvals required to be obtained by such Member for the consummation of the
purchase and sale of such membership interests.
(e) Failure to Exercise FR Right or Failure to Close after Exercise.
In addition to the rights granted to the Selling Institutional Member under
Section 6(c)(iv), if the FR Member: (i) does not exercise its FR Right hereunder
with respect to all, but not less than all, of the Third Party Offered Interest
within the FR Acceptance Period; (ii) does not deliver the FR Deposit to the
Selling Institutional Member in accordance with Section 6(c); or (iii) otherwise
fails to purchase such membership interest on or prior to the FR Closing Date
other than as a result of an Excused Condition, then:
(A) If an FR Acceptance Notice was not delivered, the Selling
Institutional Member shall be free (subject to any Tag-Along Rights of
the Members as provided for in Section 7) to sell the Third Party
Offered Interest at the price and upon the terms specified in the
Notice of Offer within sixty (60) days after the expiration of the FR
Acceptance Period and in compliance with the provisions of Section 5;
(B) If an FR Acceptance Notice was delivered but the FR Deposit
was not delivered to the Selling Institutional Member in accordance
with Section 6(c), the Selling Institutional Member shall be free
(subject to any Tag-Along rights of the Members as provided for in
Section 7) to sell the Third Party Offered Interest at a price not
less than ninety-five (95%) percent of the Third Party Price within
one hundred twenty (120) days after the five (5) business days
specified in Section 6(c) and in compliance with the provisions of
Section 5; and
(C) If an FR Acceptance Notice and the FR Deposit was delivered,
the Selling Institutional Member shall be free (subject to any
Tag-Along Rights of the Members as provided for in Section 7) to sell
the Third Party Offered Shares at a price not less than ninety-five
(95%) percent of the Third Party Price within one hundred eighty (180)
days after the earlier to occur of (x) the date a notice is delivered
by the FR Member to the Selling Institutional Member specifying that
the FR Member will not purchase the Third Party Offered Interest on
the FR Closing Date or (y) the proposed FR Closing Date and in
compliance with the provisions of Section 5.
If the Selling Institutional Member does not consummate the sale
of the Third Party Offered Interests within the applicable time period specified
above, then the provisions of this Section 6 shall again apply, and no sale of
membership interests shall be made otherwise than in accordance with the terms
of this Agreement.
(f) FR Right Closing. On the FR Closing Date at the offices of the
Company: (i) the FR Member shall pay the aggregate Third Party Price (less the
Cash Deposit actually received by the Selling Institutional Member) to the
Selling Institutional Member by wire transfer of immediately available funds
(or, if the Notice of Offer permits FR Notes, an amount equal to the sum of cash
and the principal amount of the FR Notes); and (ii) the Selling Institutional
Member shall deliver to the FR Member (x) an assignment of the Third Party
Offered Interest in a form and substance reasonably acceptable to the FR Member
and assign and transfer all, but not less than all, of the Third Party Offered
Interest free and clear of any Liens (but such membership interests shall
continue to be subject to the provisions of this Agreement) and (y) a release of
the non-cash portion of the FR Deposit and all documents delivered to it in
connection therewith. If any Tag-Along Member has exercised his or its Tag-Along
Right in accordance with Section 7, then on the FR Closing Date at the offices
of the Company simultaneously with the closing of the purchase of the Third
Party Offered Interest (x) the FR Member shall pay an amount of cash (or, if the
Notice of Offer permits FR Notes, an amount equal to the sum of cash and the
principal amount of the FR Notes), equal to the amount of the Tag-Along Interest
of each such Tag-Along Member valued at the Third Party Price of such Tag-Along
Interest and (y) each such Tag-Along Member shall deliver the to the FR Member
an assignment of the Tag-Along Interest of such Tag-Along Member in a form and
substance reasonably acceptable to the FR Member and assign and transfer all,
but not less than all, of the Tag-Along Interests of such Tag-Along Member free
and clear of any Liens (but such membership interests shall continue to be
subject to the provisions of this Agreement).
(g) Proposed Sale by a General Member
(i) General Member Offered Interest. If, at any time, a General
Member has a bona fide written offer, including an offer which is a result of
solicitation by such General Member, to effect a Contingent Transfer for any or
all of his or its membership interests (collectively, the "General Member
Offered Interest") and such General Member desires to accept such offer, such
General Member shall promptly give a Notice of Offer (which shall include the
items set forth in clauses (a)(i) through (vi), inclusive, of Section 6) to each
Institutional Member.
(ii) IM Acceptance Period. For a period of ten (10) business days
after receipt of the Notice of Offer (the "IM Acceptance Period"), each
Institutional Member shall have the right, but not the obligation (the "IM
Refusal Right"), to purchase all, but not less than all, of each Institutional
Member's pro rata share of each such General Member Offered Interest (each, an
"IM Share") in accordance with this Section 6. Each Institutional Member may
exercise its right to purchase all, but not less than all, of its IM Share of
the General Member Offered Interest by providing a notice to such effect (the
"IM Acceptance Notice") to such General Member and the other Institutional
Member on or prior to the expiration of the IM Acceptance Period, together with
a cash deposit (a "ROI Deposit") in an amount equal to five (5%) percent of the
aggregate purchase price for the IM Share of such General Member Offered
Interest (determined as set forth below) to be purchased by such Institutional
Member (such deposit to be retained by such General Member as liquidated damages
in the event that such Institutional Member fails to timely consummate the
purchase of such membership interests for any reason other than an Excused
Condition).
(iii) Exercise of the Purchase Right by each Institutional
Member. Upon exercise of the IM Refusal Right and delivery of the ROI Deposit by
an Institutional Member, each such General Member shall be obligated to sell
all, but not less than all, of the IM Share of the General Member Offered
Interest to such Institutional Member and such Institutional Member shall be
obligated to purchase all, but not less than all, of its IM Share of the General
Member Offered Interest on the date that is specified in the Notice of Offer,
but in any event, not earlier than sixty (60) days after the date that the IM
Acceptance Notice is delivered (the "IM Closing Date") at a purchase price equal
to the Third Party Price of such General Member Offered Interest. Each such
Member shall use all commercially reasonable efforts to secure any approvals
required to be obtained by such Member for the consummation of the purchase and
sale of such membership interests.
(iv) Exercise of the Purchase Right by one Institutional Member.
If one but not both Institutional Members exercises its IM Refusal Right and
delivers its ROI Deposit on or prior to the IM Acceptance Period, then such
General Member shall promptly deliver a notice to such effect to the exercising
Institutional Member and within five (5) business days after the date such
notice is delivered such exercising Institutional Member shall have the right,
but not the obligation, to purchase the IM Share of such General Member Offered
Interest of the non-exercising Institutional Member by providing a notice to
such effect to such General Member on or prior to the expiration of such five
(5) business day period together with the ROI Deposit applicable to such IM
Share. Upon delivery of such notice and ROI Deposit, such General Member shall
be obligated to sell all, but not less than all, of such General Member Offered
Interest to such exercising Institutional Member and such exercising
Institutional Member shall be obligated to purchase all, but not less than all,
of such General Member Offered Interest on the IM Closing Date at a purchase
price equal to the Third Party Price of the General Member Offered Interest.
Each General Member Transferring a General Member Interest and such exercising
Institutional Member shall use all commercially reasonable efforts to secure any
approvals required to be obtained by such Member for the consummation of the
purchase and sale of such membership interests.
(v) Failure to Exercise the IM Refusal Right in Full. If one or
both Institutional Members do not elect to purchase all, but not less than all,
of such General Member Offered Interest in accordance with this Section 6(g), or
if such Institutional Member(s) otherwise fail to purchase such membership
interest on or prior to the IM Closing Date other than as a result of a Excused
Condition, then
(A) if each Institutional Member did not exercise its IM Refusal
Right, then such General Member shall be free to sell such General
Member Offered Interest other than the IM Share of the General Member
Offered Interest of any exercising Institutional Member at the Third
Party Price of such membership interest and upon the terms specified
in the Notice of Offer within sixty (60) days after the expiration of
such ten (10) business day period and in compliance with the
provisions of Section 5; and
(B) if an IM Acceptance Notice was delivered and the ROI Deposit
was delivered to such General Member in accordance with this Section
6(g) and one or both Institutional Members failed to purchase its IM
Share of the General Member Offered Interest on the IM Closing Date
other than as a result of an Excused Condition, then such General
Member shall be free to sell such General Member Offered Interest
other than the IM Share of the General Member Offered Interest of
non-defaulting Institutional Member at a price equal to not less than
ninety-five (95%) percent of the Third Party Price of such membership
interest within one hundred and eighty (180) days after the expiration
of the IM Closing Date and in compliance with the provisions of
Section 5.
If such General Member proposing to Transfer a General Member Interest
does not consummate the sale within the applicable period specified above, then
the provisions of this Section 6 shall again apply, and no sale of membership
interests shall be made otherwise than in accordance with the terms of this
Agreement.
(vi) Closing of the General Member Sale. On the date specified
for the closing of the purchase and sale of a General Member Offered Interest
(or an IM Share) at the offices of the Company (x) the Institutional Member
purchasing such General Member Offered Interest (or an IM Share) shall pay to
the General Member Transferring such General Member Interest an aggregate amount
equal to the General Member Offered Interest (or such IM Share) valued at the
Third Party Price of such membership interests (less the amount of the ROI
Deposit actually paid to the General Member Transferring the General Member
Interest) for the General Member Offered Interest (or such IM Share) by wire
transfer of immediately available funds and (y) the General Member Transferring
such General Member Interest shall deliver to such Institutional Member an
assignment of such General Member Offered Interest (or such IM Share) in a form
and substance reasonably acceptable to such Institutional Member and assign and
transfer all, but not less than all, of such General Member Offered Interest (or
such IM Share) free and clear of any Liens (but such membership interests shall
continue to be subject to the provisions of this Agreement).
7. Tag-Along Rights.
(a) Qualifying Sale. If one or more Members proposes to effect a
Contingent Transfer of any or all of its membership interests then, each other
Member shall have such rights (the "Tag-Along Rights") as are set forth below:
(i) If the Member proposing to sell all or part of its membership
interest (the "Selling Member") is an Institutional Member, then each
Tag-Along Member may require, and the selling Institutional Member
shall cause, such third party purchaser or Institutional Member to
purchase from him or it all, but not less than all, of the Tag Along
Interest of such Tag-Along Member.
(ii) An Institutional Member with Tag-Along Rights with respect
to a Third Party Offer with respect to which it exercised its FR Right
(a "Specified Sale") and either: (A) failed to deliver the applicable
FR Deposit in accordance with Section 6(c); or (2) otherwise failed to
purchase all of such Third Party Offered Interest on the FR Closing
Date other than as a result of an Excused Condition, shall have a
Tag-Along Right with respect to the sale of such Third Party Offered
Interest (e.g. the membership interests applicable to the Specified
Sale) if (1) such Third Party Offered Interest are sold by the Selling
Member in accordance with Section 6(e)(B) or 6(e)(C) and (2) if the
Selling Member in connection with the Specified Sale did not receive
the applicable FR Deposit at the closing of the sale of such Third
Party Offered Interest the Selling Member is paid an amount equal to
the sum of (I) the Cash Deposit applicable to the Specified Sale and
(II) the amount of cash equal to the Deposit Defaulted Interests
applicable to the Specified Sale, if any, valued at the purchase price
of the Third Party Offered Interest sold by the Selling Member in
accordance with Section 6(e)(B) or 6(e)(C).
(iii) It is acknowledged and agreed that the Tag-Along Rights
provided by this Section 7 do not limit or restrict the Participation
Rights provided by Section 15.
(b) Notice of Transfer. A Selling Member shall deliver a notice to the
Company and each other Member of each proposed sale of all or part of a
membership interest (the "Notice of Transfer") at least fifteen (15) business
days prior to the closing of such purchase and sale. A Notice of Transfer shall
contain the information required to be included in a Notice of Offer and a
statement that the third party purchaser has been informed of the Tag-Along
Rights provided for in this Section 7 and has agreed in writing to purchase the
membership interest in accordance with the terms of this Agreement including,
without limitation, the Tag-Along Rights provided by this Section 7.
(c) Exercise of Tag-Along Rights. A Tag-Along Right may be exercised
by a Tag-Along Member by delivery of a notice to the Company and the Selling
Member to such effect (the "Tag-Along Notice") within ten (10) business days
after receipt of the Notice of Transfer. The Tag-Along Notice shall state the
Percentage Membership Interest of such Member to be sold to such third party
purchaser or the purchasing Institutional Member. Any membership interest
purchased from a Member pursuant to this Section 7 shall be at a price and upon
such other terms which are no less favorable to such Member than that contained
in the Notice of Transfer.
8. Bring-Along Rights.
(a) Sale by Institutional Members. If the Institutional Members
propose to sell all or a pro rata portion of their respective membership
interests to the same third party purchaser(s) or its Affiliates which, in each
case, are not an Affiliate of either Institutional Member (whether resulting
from the exercise of their respective Tag-Along Rights or otherwise), including
a proposed sale of the Company by the sale or exchange of all or substantially
all the Members' membership interests, a merger, consolidation, recapitalization
or otherwise, such third party purchaser and each Institutional Member shall
have the right, but not the obligation (the "Bring Along Right") upon five (5)
business days' prior notice, to require each other Member (other than an
Institutional Member) to participate in such sale in the same manner, at the
same purchase price on the same closing date and on the same other terms and
conditions as the Institutional Members, as follows:
(i) if the proposed sale of membership interest is a sale of the
entire Percentage Membership Interests held by the Institutional
Members, such third party purchaser or the Institutional Members may
require the General Members to sell all, but not less than all, of
their respective membership interest to such third party purchaser;
(ii) if the proposed sale of membership interest is a sale of
less than all of the membership interests owned by the Institutional
Members, such third party purchaser or the Institutional Members may
require the General Members to sell the same percentage, but not less
than the same percentage, of their respective membership interest as
the Institutional Members propose to sell to such third party
purchaser; and
(iii) on the closing date specified for the purchase and sale of
all or part of each General Member's membership interest (the "Bring
Along Interest") pursuant to the exercise by such third party
purchaser or an Institutional Member of its Bring-Along Right at the
offices of the Company (x) the party purchasing such membership
interest shall pay to each such General Member the aggregate purchase
price for his or its Bring Along Interest on the same terms and
conditions as regards the other Members by wire transfer of
immediately available funds and (y) each such General Member shall
deliver to such purchaser an assignment of such Bring Along Interest
in a form and substance reasonably acceptable to such purchaser and
assign and transfer all, but not less than all, of the Bring Along
Interest of such Member free and clear of any Liens (but such
membership interests shall continue to be subject to the provisions of
this Agreement).
(b) Sale by RSI After Default by Veritech. If RSI (but not any other
Member) proposes to sell all, but not less than all, of its Percentage
Membership Interest to a third-party purchaser which is not an Affiliate of RSI,
and, at any time prior to the date of such proposed sale, Veritech shall have
(x) exercised its FR Right or Buy/Sell Right and (y) failed to timely close on
its purchase of RSI's membership interest in contravention of its having
exercised such FR Right or Buy/Sell Right, as the case may be (other than as a
result of an Excused Condition) then upon five (5) business days prior notice by
RSI if RSI shall have entered into a fully executed agreement for the
consummation of such sale within 180 days after such failure by Veritech,
Veritech shall be required to sell to a third party purchaser on the same terms
and conditions (including the purchase price) as RSI, for all, but not less than
all, of Veritech's Percentage Membership Interest, and RSI shall have Bring
Along Rights as to each and any General Member in accordance with Section 8(a)
above.
(c) Sale of OCC. If the members in OCC have an obligation to transfer
all or substantially all of their respective membership interests in OCC to a
third party purchaser in a transaction approved by RSI (or its Affiliate), then:
(i) such third party purchaser or RSI may require each Member to
Transfer the same percentage, but not less than the same percentage,
of its membership interest in the Company as the members in OCC
propose to Transfer to such third party purchaser at a price and on
such other terms and conditions approved by the RSI Designees, it
being acknowledged and agreed that the amount to be received by each
Member shall equal such Member's Percentage Membership Interest on the
closing date of such Transfer multiplied by the aggregate price or
consideration paid to all Members for all of the membership interests
Transferred to such third party; and
(ii) on the closing date specified for the Transfer of all or
part of the membership interest in the Company of such Members
pursuant to the exercise by such third party purchaser or RSI of its
Bring-Along Right pursuant to this Section 8(c) at the offices of the
Company (x) the third party acquiring such membership interests shall
pay to each such Member the aggregate purchase price for the
membership interests (computed as set forth above) to be Transferred
in accordance with this Section 8(c) and (y) each Member shall deliver
to such third party an assignment of such membership interest in a
form and substance reasonably acceptable to such third party and
assign and transfer all, but not less than all, of such membership
interest free and clear of any Liens (but such membership interests
shall continue to be subject to the provisions of this Agreement).
9. Governance.
(a) Covenant by Each Member. Each Member hereby agrees to take, at any
time and from time to time, all action necessary (including, without limitation,
voting its membership interest (in person or by proxy), calling special meetings
of the Board of Managers and the Members and executing and delivering written
consents in lieu thereof) to effect the provisions of this Section 9.
(b) Board of Managers.
(i) Subject to the provisions of this Agreement (including,
without limitation, Section 9(b)(x)), the Board of Managers shall have
the exclusive power and authority including, without limitation, the
power and authority customarily afforded the board of directors or the
stockholders of a corporation incorporated in the State of Delaware to
manage the business and affairs of the Company. In this regard, except
as otherwise expressly provided herein (including, without limitation,
Section 9(b)(x)), the Board of Managers shall have all power and
authority to approve any transaction of the Company, manage, and
direct the management and the business and affairs of, the Company
including, without limitation, the power to terminate the employment,
contract or arrangement of any officer, employee or agent of the
Company (other than the Chairman and Vice Chairman). Any power not
delegated by the Board of Managers pursuant to this Agreement shall
remain with the Board of Managers. Approval of, or action taken by,
the Board of Managers in accordance with the terms of this Agreement
shall constitute approval of, or action by, the Company and shall be
binding on the Members.
(ii) During the Supermajority Effective Period, the requirements
for a quorum for the transaction of any business at any meeting of the
Board of Managers shall be a majority of the entire Board of Managers,
but including at least one (1) RSI Designee and one (1) Veritech
Designee, and, subject to the provision hereof, including Sections
9(c), 6(c)(iv) and 11(d), requirements for action of, or by, the Board
of Managers shall be a majority as aforesaid of the entire Board of
Managers.
(iii) During the Supermajority Effective Period, subject to
Section 9(b)(v), the Board of Managers of the Company and the Board of
Managers (or similar body) of any direct or indirect subsidiary of the
Company shall consist of the managers elected or appointed by RSI and
Veritech in accordance with the terms and provisions of this
Agreement. RSI and Veritech hereby agree that the Board of Managers
shall consist of three designees of RSI (the "RSI Designees") and two
designees of Veritech ("Veritech Designees") and that one of the
initial Veritech Designees shall be Jon L. Halpern and one of the
initial RSI Designees shall be Scott Rechler.
(iv) During the Supermajority Effective Period, from time to
time, the Board of Managers may be expanded or decreased only by the
mutual agreement of RSI and Veritech; provided, that any such
modification shall, unless otherwise agreed by RSI and Veritech, in
their respective sole and absolute discretion, provide for 3:2
proportionate representation of the RSI and Veritech constituencies,
respectively. The Board of Managers shall regularly examine the need
to add managers and advise the Members of its recommendations.
(v) During the Supermajority Effective Period, if a third party
investor in the Company requires a designee on the Board of the
Managers (a "Third Party Designee") and such investment is approved in
accordance with Section 9(c), if applicable, and Section 9(b)(iv),
then the Board of Managers shall be expanded so as to include such
Third Party Designee and provide for 3:2 proportionate representation
of the RSI and Veritech Member constituencies, respectively, and each
of RSI and Veritech agree to elect or appoint each such designee.
(vi) Each manager of the Board of Managers shall serve until the
completion of his term (which term shall be for three (3) years), or
until such earlier date as: (1) the removal of such manager with or
without cause, by written notice of the Member entitled to elect or
qualify such manager; or (2) his resignation, death or inability to
serve. Any manager of the Board of Managers may resign at any time
upon written notice to the Company. Upon the removal, resignation,
death or inability to serve of a manager of the Board of Managers, the
Member entitled to elect or appoint such manager may designate a
successor who shall serve for the remainder of the term of the manager
that he succeeds. Designation of a manager of the Board of Managers
shall be effective upon the Company's receipt of notice thereof. The
Chairman of the Board of Managers shall be Jon L. Halpern and the
Vice-Chairman shall be Scott Rechler. Each such person shall continue
in such officer capacity until the earlier date of: (1) the removal of
such person from the Board of Managers by the Member entitled to
designate such person; (2) his resignation, death or inability to
serve; or (3) the election or appointment of his successor after his
initial term of three (3) years provided that during the Supermajority
Effective Period Veritech shall continue to have the right to
designate the Chairman. The Chairman and Vice Chairman shall have no
greater vote than any other manager of the Board of Managers and shall
have an initial term of three (3) years.
(vii) Regular meetings of the Board of Managers shall be held at
least once each calendar quarter at the principal offices of the
Company unless otherwise agreed by the managers on such dates as may
be fixed from time to time by the managers. Special meetings of the
Board of Managers may be called by the Chairman. The Vice Chairman may
request that the Chairman call a special meeting of the Board of
Managers and, if such meeting is not called by the Chairman within
five (5) business days after such request, then the Vice Chairman may
call a special meeting of the Board of Managers. Special meetings of
the Board of Managers shall require at least forty-eight (48) hours'
prior written or telephonic notice to all Members of the Board of
Managers, unless such notice shall have been waived in writing by all
of the Managers of the Board of Managers, which notice shall identify
the purpose of the meeting or the business to be transacted. Each
manager of the Board of Managers may vote by delivering his proxy to
another manager of the Board of Managers. Managers of the Board of
Managers may participate in a meeting of the Board of Managers by
means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear one
another, and such participation shall constitute presence in person at
such meeting. The Board of Managers may act without a meeting if the
action taken is unanimously approved in writing by the managers;
provided, that a notice specifying the actions taken in such consent
is delivered to each manager within three (3) business days after the
execution and delivery of such consent. The Board of Managers shall
cause written minutes to be prepared of all actions taken by it, which
minutes shall be made available to each Member and manager.
(viii) RSI agrees that until thirty (30) months after the
Effective Date, it shall cause each RSI Designee to consent to and
approve each investment for wiring of Buildings; provided, that, in
each case, that the forecasted internal rate of return (the
"Projections") presented to management in connection with such
Building, taking into account penetration rates, revenue projections
and other applicable parameters is reasonably forecasted to be equal
to not less than a 15% (the "IRR Benchmark") for any such Building.
For purposes of determining the IRR Benchmark, total investment costs
("Total Investment Costs") shall mean the infrastructure costs of
bringing a Building on-line, including all vendor costs for labor and
material for wiring, hardware and software in such Building and cash
flow revenue ("Cash Flow Revenue") shall mean all revenues received
from the applicable Buildings, including internet, telephone and VPN
charges less the cost of sale expenses of these sales, including
tenant sales commissions, CLEC share charges and landlord share
charges, if any. If from and after 12 months after the Effective Date,
the parameters for Buildings on line for all of the 12 calendar months
prior to the date of determination (the "Stabilized Buildings") are
materially different from those set forth in the Projections for such
Buildings, then, with respect to consent and approvals sought for new
Buildings, the Board of Managers may apply to the Projection presented
for such new Building the actual penetration, revenue and other
applicable parameters resulting from the Stabilized Buildings at such
time and if in utilizing such parameters the Projections for such new
Building is forecasted at less than the IRR Benchmark, the RSI
Designees shall not be required to approve such projects but shall act
reasonably in their determination. The parameters utilized in the
Projections for Stabilized Buildings (adding additional Buildings as
they reach the stabilization timing threshold) for purposes of this
Section shall be updated on a monthly basis.
(ix) Except as set forth in any employment agreement or as
otherwise expressly set forth in this Agreement (including, without
limitation, Section 21), neither the Chairman, the Vice Chairman nor
any manager (unless he is a Third Party Designee) shall be entitled to
compensation or other remuneration for his service to the Company,
whether in such capacity or otherwise, other than reimbursement of
reasonable and customary expenses for the discharge of their
respective duties hereunder and participation in the Company Option
Plan; provided, that RSI and Veritech shall in good faith consider and
evaluate the compensation of managers (including the compensation of
the Chairman and Vice Chairman) in the event of a significant capital
event, including a recapitalization or sale of equity interests to a
third party, or the significant growth of the Company, so that the
managers receive compensation commensurate with that of directors,
managers or executives of similarly situated companies engaged
primarily in a business similar to that of the Company's Business.
(x) Subject to Section 9(c) and duly adopted resolutions of the
Board of Managers, and Section 9(b)(xii) as to senior management
employment agreements, the Chairman (or the executive officers as
directed by the Chairman) shall have the full authority to direct and
carry on the day-to-day business, activities and operations of the
Company, including, without limitation, the hiring and terminating of
employees and officers, opening and closing bank accounts, leasing
office space and other facilities, authorization, execution and
delivery of contracts in the name and stead of the Company, retention
of consultants, agents and accountants, development of policies and
procedures, business plans and business strategies; provided, that,
the Board of Managers and the Chairman shall cause the business and
commercial activities of the Company to be limited to the Business
unless otherwise modified in accordance with Section 9(c); provided,
further, that in the event expenditures by the Company are not made in
accordance with each of the requirements of the Plan, RSI shall upon
delivery of a notice to Company have the right, but not the
obligation, through the Vice-Chairman designated by RSI to cause the
Company to make expenditures (including providing its services and
Equipment) with respect to any Building selected by RSI, provided,
that the expenditures to be made and services and equipment to be
provided are in accordance with the Plan. Notwithstanding the
provisions of this paragraph to the contrary, the selection of
accountants and all financial reporting and tax matters pertaining to
the Company shall be subject to the approval of RSI, which approval
shall not be unreasonably withheld.
(xi) The Board of Managers shall adopt on behalf of the Company a
company option or phantom interest plan (the "Company Option Plan") in
form and substance as shall be mutually agreed by RSI and Veritech, it
being acknowledged and understood that such Company Option Plan shall,
at a minimum, contain the following provisions: (1) the Company Option
Plan shall represent 15% of the aggregate equity interests in the
Company (which as of the Effective Date is deemed to have a
capitalization equal to $10,800,000); (2) 20% of the interests (the
"RSI Share") in the Company Option Plan shall be allocated to
employees and directors of RSI who are managers or otherwise a part of
the executive management of the Company in some capacity, and awarded
to such individuals by the RSI Board of Directors; (3) 80% of the
interests (the "Management Share") in the Company Option Plan shall be
awarded to the existing management of the Company, including Jon L.
Halpern and to employees; (4) if the actual net profits of the Company
and other performance factors contemplated by the Plan exceed the
results contemplated by the Plan, as determined in the reasonable
discretion of both RSI and Veritech, then the equity interests of the
Company Option Plan as a percentage of the aggregate equity interests
in the Company shall be increased in accordance with the provisions of
the Company Option Plan; (5) RSI and Veritech shall, in their
reasonable discretion, mutually determine the award of the Company
Option Plan interests to senior management of the Company, including
the performance benchmarks, option strike prices and other threshold
factors for senior management to be awarded such interests.
(xii) Employment Agreements, and any amendments or modifications
thereof, shall be executed and delivered with respect to the former
Veritech's senior management employees to be employed by the Company,
or such other individuals in replacement of such individuals as shall
be mutually agreed by RSI and Veritech, on such terms and conditions
as shall be mutually agreed by RSI and Veritech, it being acknowledged
and agreed that Veritech shall negotiate such agreements in good faith
but shall have no liability if any such agreement is not executed and
delivered on or prior to the Effective Date.
(xiii) Veritech agrees to provide to the Company sales,
management, marketing, technical, administrative and other services
which are reasonably requested from time to time by the Company. Such
services shall be provided by Veritech without any compensation in
addition to the rights and benefits of Veritech's membership interest;
provided, however, that the Company shall reimburse Veritech for all
reasonable and customary expenses, fees and other disbursements
incurred by Veritech as a result of providing such services promptly
upon request and presentment of appropriate documentation, such
expenses, fees and disbursement to include, without limitation,
personnel and employee salaries and related expenses (other than
indirect overhead expenses or charges).
(c) Significant Decisions. Notwithstanding any provisions contained in
this Agreement to the contrary, during the Supermajority Effective Period, no
act shall be taken, sum expended, decision made or obligation incurred by or on
behalf of the Company except with the affirmative consent (a "Supermajority
Vote") of at least one (1) RSI Designee and one (1) Veritech Designee with
respect to any of the following matters set forth in this Section 9(c) (each, a
"Significant Decision"), unless (x) Veritech shall have not accepted the RSI Put
Offer, or Veritech has accepted the RSI Put Offer, but did not consummate the
purchase of RSI's membership interest thereunder (other than as a result of an
Excused Condition) (y) Veritech shall have consummated a Syndication which
results in a breach of or default under the terms and provisions of Section 5(b)
or (z) the Syndicate Representative of the Veritech membership interests is not
the person specified in Section 5(b)(vi):
(i) The voluntary liquidation or dissolution (including the
filing of a Certificate of Dissolution with the Delaware Secretary of
State) of the Company or the winding-up the business of the Company;
provided, that a Supermajority Vote shall not be required for such
actions from and after the date that the Company has Employed the RSI
Funds, it being acknowledged that in such event Veritech may avoid
dissolving the Company by exercise of the Veritech Call Right in
accordance with Section 14.
(ii) Except as provided by the Intercompany Agreement dated the
date hereof by and between the Company and OCC and by the RSI
Subordinated Note, any transaction between the Company (on the one
hand) and RSI or Veritech or any of their respective Affiliates (on
the other hand) including, without limitation, the use of any
Affiliate for outsourcing of administrative matters, treasury
functions, construction (wiring services), wiring of a Building owned
or leased by RSI or any of its Affiliates, or architectural or other
professional or administrative functions, which requires the Company
to pay or distribute any cash amounts or incur any indebtedness other
than: (1) distributions made in accordance with Section 18, (2) such
other transactions in which RSI or Veritech or any such Affiliate is
acting solely in its capacity as a Member of the Company or exercising
its rights as a Member under the Act or this Agreement (including the
payment of the fees and disbursements of Nominated Investment Banks in
connection with the determination of the fair market value of the
Company or the membership interests of any Member), (3) the
transactions approved in accordance with Section 12 between the
Company and any Building owned, leased or managed by RSI or any of its
Affiliates or (4) any transaction or transactions which during any
fiscal year of the Company requires a payment, distribution or
incurrence by the Company or any such Affiliate of an aggregate amount
of not more than $20,000;
(iii) The issue and sale of any equity interests (including
phantom interests) in the Company or the grant of any securities,
options, warrants, rights or other equity or debt obligations which
are or may be converted or exchanged for any equity interests or
interests other than in accordance with Section 11, the Company Option
Plan or the conversion of the RSI Subordinated Note into a membership
interest in the Company, which (x) with respect to any transaction
exceeds in the aggregate 15% of the aggregate membership interests of
the Company on a fully diluted basis immediately prior to such
transaction or (y) with respect to all such transactions (other than
those transactions which have been previously approved in accordance
with this Section 9(c)(iii)) exceeds in the aggregate 25% of the
aggregate membership interests of the Company on a fully diluted basis
immediately prior to such transaction;
(iv) The offer and sale of any securities in the Company to any
investor who, in addition to the purchase price for such securities,
is reasonably likely to provide an opportunity for meaningful
synergies to the Company through a material service or client base;
(v) The expansion of the Board of Managers of the Company other
than pursuant to Sections 9(b)(iv)and (v);
(vi) A change in organizational or tax structure of the Company
or any other action which would have a material adverse tax
consequence to either RSI or Veritech in their capacity as a member in
the Company;
(vii) The hiring (but not terminating) of the (x) Chief Executive
Officer or Chief Operating Officer (whichever office has superior
authority and responsibilities) or (y) Chief Financial Officer of the
Company;
(viii) Commencing any business or line of business other than the
Business of the Company or conducting any business which is
inconsistent with the Plan or making any material changes to (x) the
nature of the Business or (y) the Certificate of Formation of the
Company;
(ix) Changing the name of the Company;
(x) The incurrence of any indebtedness of the Company or the
refinancing of any such indebtedness which, on a pro forma basis after
giving effect to any such proposed transaction, results in a
consolidated ratio of total debt to total equity that is less than 50%
or more than 75% at the time of any such incurrence;
(xi) The filing of a registration statement with the Securities
and Exchange Commission registering any membership interests, or
common stock exchanged therefor, or other equity securities of the
Company or any direct of its direct or indirect subsidiaries;
(xii) The recapitalization, exchange, conversion or redemption of
the equity of the Company other than in accordance with the terms and
provisions of this Agreement;
(xiii) The merger or consolidation of the Company or the sale of
all or substantially all of the assets of the Company (other than
pursuant to Section 6(c)(iv)); provided, however, that any such
transaction may be approved by the vote or consent of the RSI
Designees if at any time on or prior to the date of such proposed
transaction: (A) Veritech shall have (x) exercised its FR Right or
Buy/Sell Right and (y) failed to purchase the membership interest of
RSI with respect to such FR Right or Buy/Sell Right, other than as a
result of an Excused Condition; or (B) the Board of Managers of OCC
shall have adopted any such merger, consolidation or sale of OCC (or
its assets) to the same third party (or any of such third party's
Affiliates) and the managers of OCC designated by RSI (or any of its
Affiliates) voted in favor of, or consented to, any such transaction.
(xiv) Any transaction which results in the Members (as a group)
no longer controlling the management and affairs of the Company
whether by the ownership of equity securities, contract or otherwise;
(xv) The equity investment in, or the acquisition of any business
which will be managed and serviced by the Company in a manner
consistent with past practices; or
(xvi) The merger or incorporation of all or part of the
operations of the Company or any direct or indirect subsidiary of the
Company, including, without limitation, bookkeeping and accounting
operations, into the operations of RSI or any of its Affiliates.
(d) Leverage of the Company. It is acknowledged and agreed that prior
to the date that the Securities and Exchange Commission declares effective a
registration statement that registers any membership interest or other equity
securities in the Company under the 1933 Act, the parties hereto intend to the
extent commercially reasonable that the Company shall be leveraged with third
party non-recourse financing (except for recourse as to the Company itself), at
a ratio of assets to liabilities comparable to that of companies (or division's
or segments thereof) engaging primarily in a business similar to the Company's
Business, it being acknowledged and agreed that under no circumstances shall any
Member be liable for any such indebtedness and that the Board of Mangers shall
attempt to utilize purchase money financing when commercially practical and
advantageous. Accordingly, prior to an IPO by the Company, the Company shall use
its commercially reasonable efforts to obtain such financing (whether unsecured
or secured, by asset based financing, securitization, sale-leaseback
transactions or otherwise). Without limiting the generality of the foregoing,
the Board of Managers shall in good faith attempt to structure asset
acquisitions (e.g., Equipment) and investments of the Company so that between
50% and 75% of the net purchase price (including taxes, fees, installation and
other related fees and disbursements) of such assets or investments are financed
by the Company (whether on an unsecured or secured basis, by a third party
financing or purchase money financing, it being acknowledged that vendor
financing will be pursued when and to the extent feasible).
10. Deadlock Regarding Significant Decisions; Buy/Sell Option.
(a) Buy/Sell Right. Subject to Section 10(i), each Institutional
Member shall have the right (the "Buy/Sell Right") to cause (x) the sale of all
of such Institutional Member's membership interest or (y) the purchase of all of
the other Institutional Member's membership interest in the event of a Deadlock
(but other than an affiliate transaction in accordance with Section 9(c)(ii) or
a change in the name of the Company in accordance with Section 9(c)(ix))
regarding a Significant Decision upon the terms and conditions set forth in this
Section 10.
(b) Significant Decision Deadlock. If an Institutional Member (the
"Initiating Member") requests the approval of a Significant Decision by the
other Institutional Member (the "Deciding Member") and such Significant Decision
is not approved by the Supermajority Vote on or prior to five (5) business days
after such request (a "Deadlock") because the Deciding Member did not vote or
execute a written consent in favor of such Significant Decision, whether at a
meeting of the Board of Managers duly called in accordance with this Agreement
or by an action by written consent in lieu thereof, then on or prior to thirty
(30) days after the expiration of such five (5) business day period the
Initiating Member shall be entitled to deliver a notice (the "Warning Notice")
to the Deciding Member specifying in such notice the Significant Decision that
is the subject of such Deadlock and that the Initiating Member intends to
deliver to the Deciding Member a notice (the "Buy/Sell Notice") requiring the
Deciding Member to (x) purchase all, but not less than all, of the membership
interests of the Initiating Member or (y) sell to the Initiating Member all, but
not less than all, of the membership interests of the Deciding Member, in each
case, at a stated cash purchase price, equal to the value of the Company as
stated in the Buy/Sell Notice (the "Buy/Sell Value", i.e., the aggregate value
of the Company) multiplied by the Percentage Membership Interest to be
purchased, which purchase shall be paid on the Buy/Sell Closing Date; provided:
(i) that concurrently with the delivery of a Warning Notice, the
Initiating Member shall provide a notice (the "Sealed Price Notice") to an
investment bank listed on Schedule A attached hereto (each, a "Nominated
Investment Bank") specifying the Buy/Sell Value as determined by the Initiating
Member, in its sole discretion , it being acknowledged and agreed that the
Nominated Investment Bank shall be instructed to: (A) read the Sealed Price
Notice for the limited purpose of verifying that such notice has included a
Buy/Sell Value; (B) promptly provide a notice to each Institutional Member if
such notice does not include such Buy/Sell Value; (C) hold such Buy/Sell Value
and all other information included in the Sealed Price Notice in strict
confidence; and (D) not disclose such Buy/Sell Value to the Deciding Member
except pursuant to Section 10(d).
(ii) if a Deadlock is with respect to the Significant Decision
described in Section 9(c)(xiii) (merger, consolidation or asset sale) and such
Member or any of its Affiliates is a member in OCC and would be entitled to an
OCC Buy Sell Right under the OCC LLC Agreement with respect to any such
transaction, then, such Institutional Member shall not be permitted to deliver a
Warning Notice or a Buy/Sell Notice hereunder unless such Member (or such
Affiliate) simultaneously delivers a Warning Notice and Buy/Sell Notice pursuant
to the terms and provisions of the OCC LLC Agreement.
(c) Other Events Triggering a Buy/Sell Right.
(i) In the event Veritech effects a Transfer of Interest to a
Pledgee other than as permitted pursuant to the terms of Section 5(b)(v), RSI
shall have the right, but not the obligation, to deliver a Buy/Sell Notice to
Veritech and such Pledgee (without the requirement to deliver a Warning Notice
or a Sealed Price Notice) at any time prior to the date that is three (3) months
after the date RSI receives notice of such Transfer of Interest. For the
purposes of this Agreement, if RSI so delivers a Buy/Sell Notice to Veritech,
RSI shall be the Initiating Member and the Pledgee or Veritech (or both,
whichever person holds such membership interest) shall be the Deciding Member.
(ii) If an Institutional Member (or any of its Affiliates)
exercises an OCC Buy Sell Right, then simultaneously with the delivery of a
Warning Notice and Buy/Sell Notice under the OCC LLC Agreement such
Institutional Member shall deliver a Warning Notice and Buy/Sell Notice
hereunder. For the purposes of this Agreement, the Institutional Member which is
required to exercise its Buy/Sell Right pursuant to this Section 10(c)(ii) shall
be the Initiating Member and the other Institutional Member shall be the
Deciding Member.
(d) Delivery of the Buy/Sell Notice. Upon receipt of a Warning Notice,
the Deciding Member shall have three (3) business days to approve such
Significant Decision or otherwise amicably resolve such Deadlock. In the event
that the Deadlock which is the subject of the Warning Notice has been amicably
resolved within such three (3) business day period, then the Initiating Member
shall not have the right to deliver a Buy/Sell Notice with respect to such
Deadlock and shall instruct the Nominated Investment Bank which received the
Sealed Price Notice to return or destroy such notice. In the event that at the
close of business at the end of such three (3) business day period, the Deadlock
has not been resolved by a writing signed and delivered by both Institutional
Members, the Initiating Member shall deliver a Buy/Sell Notice to the Deciding
Member which notice shall specify a Buy/Sell Value (which shall be equal to the
Buy/Sell Value specified in the Sealed Price Notice) and, if a Buy/Sell Notice
is so delivered, instruct the Nominated Investment Bank which received the
Sealed Price Notice to deliver by telecopier and First Class U.S. Mail such
Sealed Price Notice to the Deciding Member. In the event the Deadlock is not
amicably resolved within such three (3) business day period and the Buy/Sell
Notice is not actually delivered for any reason it nonetheless shall be deemed
delivered by the prior delivery of the Sealed Price Notice to the Nominated
Investment Bank and the Nominated Investment Bank shall deliver the Sealed Price
Notice to the Deciding Member promptly upon the request of the Deciding Member
(with the date of such delivery of the Sealed Price Notice to the Deciding
Member being deemed the date of delivery of the Buy/Sell Notice to the Deciding
Member).
(e) Delivery and Deemed Delivery of Response Notice.
(i) Within ten (10) business days after the delivery of a
Buy/Sell Notice (including the deemed delivery to the Member by the
delivery to the Nominated Investment Bank), the Deciding Member shall
deliver a notice (the "Response Notice") to the Initiating Member
specifying either that:
(A) the Deciding Member has elected to sell all, but not less
than all, of its membership interest to the Initiating Member at an
all cash price equal to the Buy/Sell Value multiplied by the total
Percentage Membership Interest of the Deciding Member, in which case,
subject to the Tag-Along Rights of the General Members provided in
Section 7, the Deciding Member shall sell all, but not less than all,
of the Deciding Member's membership interest to the Initiating Member
at such price and the Initiating Member shall purchase all, but not
less than all, of the Deciding Member's membership interest, and all,
but not less than all, of the Tag-Along Interest of each such General
Member, if any, at a price equal to the Buy/Sell Value multiplied by
the total Percentage Membership Interest represented by the Tag-Along
Interest of such Tag-Along Member.
(B) the Deciding Member has elected to purchase all, but not less
than all, of the Initiating Member's membership interest, at an all
cash price equal to the Buy/Sell Value multiplied by the total
Percentage Membership Interest of the Initiating Member, in which
case, subject to the Tag-Along Rights of the General Members provided
in Section 7, the Initiating Member shall sell all, but not less than
all, of the Initiating Member's membership interest to the Deciding
Member at such price and the Deciding Member shall purchase all, but
not less than all of the Initiating Member's membership interest, and
all, but not less than all of the Tag-Along Interest of each such
General Member, if any, at a price equal to the Buy/Sell Value
multiplied by the total Percentage Membership Interest of the
Tag-Along Interest of such Member.
(ii) In the event that the Deciding Member has not delivered a
Response Notice within the ten (10) business day period provided above, or
has delivered a Response Notice exercising its right to purchase but has
not delivered the Buy/Sell Deposit within the five (5) business day period
provided above, then for purposes of this Agreement, the Deciding Member
shall be deemed to have made the election to sell all, but not less than
all, of its membership interest and thereafter, subject to the Tag-Along
Right of the General Members provided by Section 7, the Deciding Member
shall sell all of its membership interest to the Initiating Member at the
price determined by the Buy/Sell Value specified in the Buy/Sell Notice.
(iii) If the Buy/Sell Notice delivered hereunder is delivered
concurrently with the delivery of a Buy/Sell Notice under the terms and
provisions of the OCC LLC Agreement, the Deciding Member shall the make an
election (e.g., to purchase or sell) hereunder that is the same as in its
(or its Affiliate's) Response Notice delivered under the OCC LLC Agreement.
In the event the Response Notice delivered hereunder contains a different
election, then the election of the Deciding Member (or its Affiliate)
contained in the Response Notice that was delivered as the direct result of
a Deadlock of a Significant Decision (as opposed to the requirement to
concurrently deliver a Warning Notice and Buy/Sell Notice) shall be
controlling and deemed to be the election of the Deciding Member hereunder.
(f) Buy/Sell Deposit. Upon exercise of its Buy/Sell Right, the
purchasing Institutional Member shall be irrevocably obligated to pay and
deliver a deposit (the "Buy/Sell Deposit") to the selling Institutional Member
on or prior to five (5) business days after the delivery of the Response Notice,
which deposit shall be as set forth below:
(i) if Veritech is the purchasing Member, the Buy/Sell Deposit
shall equal the greater of (x) five (5%) percent of the aggregate
purchase price or (y) $300,000 (but not in excess of the aggregate
purchase price). The Buy/Sell Deposit shall consist of (x) a Cash
Deposit payable to the order of RSI in the amount equal to not less
than the lesser of the amount of the Buy/Sell Deposit or $1,000,000
and (y) either (A) a first priority security interest in, and pledge
of, a percentage of Veritech's membership interest such that the
aggregate Buy/Sell Value multiplied by the Veritech Percentage
Membership Interest pledged to the selling Institutional Member is
equal to 1.5 times the amount that the Buy/Sell Deposit exceeds the
amount of the Cash Deposit, if any, or (B) a second priority security
interest in, and a pledge of, all of the membership interests of the
purchasing Institutional Member, if the amount of the Buy/Sell Deposit
is greater than the amount of the Cash Deposit actually paid.
(ii) if RSI is the purchasing Member, the Buy/Sell Deposit shall
equal five (5%) percent of the purchase price consisting of (x) a Cash
Deposit payable to the order of Veritech in the amount equal to the
lesser of the Buy/Sell Deposit or $3,000,000 and (y) either (A) a
first priority security interest in, and pledge of, a percentage of
RSI's membership interest such that the aggregate Buy/Sell Value
multiplied by the RSI Percentage Membership Interest pledged to the
selling Institutional Member is equal to 1.5 times the amount that the
Buy/Sell Deposit exceeds the Cash Deposit, if any, or (B) a second
priority security interest in, and a pledge of, all of the membership
interests of the purchasing Institutional Member, if the amount of the
Buy/Sell Deposit is greater than the amount of the Cash Deposit
actually paid.
(iii) if a Member is required to deliver a security interest in,
and pledge of, any of its membership interests, it will execute and
deliver to the selling Institutional Member at its address specified
in Section 28 such documents (including, without limitation, UCC
Financing Statements) as are reasonably required by the selling
Institutional Member to evidence and perfect such security interest.
(iv) it is acknowledged and agreed that any such security
interest in, and pledge of, membership interests as collateral
security provided in this Section shall be for the limited purpose of
providing collateral for the amount of the Buy/Sell Deposit which is
in excess of the Cash Deposit, if any. Accordingly, the selling
Institutional Member's right and interest under this Section in the
purchasing Institutional Member's membership interests shall not
exceed the Deposit Defaulted Interest of the purchasing Institutional
Member.
(g) [Reserved]
(h) Closing of the Buy/Sell Right. Subject to the Tag-Along Right of
the General Members provided in Section 7, on the date (the "Buy/Sell Closing
Date") that is (x) sixty (60) days, if RSI is the purchasing Institutional
Member or (y) six (6) months, if Veritech is the purchasing Institutional
Member, in each case, after the date the Buy/Sell Notice is delivered, at the
offices of the Company: (i) the purchasing Institutional Member shall pay the
aggregate purchase price (less the amount of the cash portion of the Buy/Sell
Deposit actually received by the selling Institutional Member) to the selling
Institutional Member by wire transfer of immediately available funds; and (ii)
the selling Institutional Member shall deliver to the purchasing Institutional
Member (x) an assignment of the membership interest of the selling Institutional
Member in a form and substance reasonably acceptable to the purchasing
Institutional Member and assign and transfer all, but not less than all, of the
membership interest of the selling Institutional Member free and clear of any
Liens (but such membership interests shall continue to be subject to the
provisions of this Agreement) and (y) a release of the non-cash portion of the
Buy/Sell Deposit and all documents delivered to it in connection therewith. If a
General Member has exercised his or its Tag-Along Right in accordance with this
Agreement, then on the Buy/Sell Closing Date at the offices of the Company
simultaneously with the closing under the Buy/Sell Right (x) the purchasing
Institutional Member shall pay to each such General Member an amount of cash
equal to the purchase price of the Tag-Along Interest (that is, the Buy/Sell
Value multiplied by the Percentage Membership Interest represented by such
Tag-Along Interest) by wire transfer of immediately available funds and (y) each
such General Member shall deliver to the purchasing Institutional Member an
assignment of the Tag-Along Interest of such General Member in a form and
substance reasonably acceptable to the purchasing Institutional Member and
assign and transfer all, but not less than all, of the Tag-Along Interest of
such General Member free and clear of any Liens (but such membership interests
shall continue to be subject to the provisions of this Agreement).
(i) RSI Buy/Sell Option. Notwithstanding any provision of this Section
10 to the contrary, RSI shall not have the Buy/Sell Right until such time as the
Company has Employed the RSI Capital unless an OCC Buy/Sell Right is exercised
by RSI (or any of its Affiliates).
(j) Failure of Buyer to Close. (A) It is acknowledged and agreed that
the Buy/Sell Deposit is intended to be a non-refundable deposit to secure the
obligations of the purchasing Institutional Member. Accordingly, if the
Institutional Member which pursuant to the terms hereof has elected to purchase
or has become obligated to purchase the membership interests of the other
Institutional Member fails to close in accordance with Section 10(h) for any
reason other than an Excused Condition, the Buy/Sell Deposit shall be retained
by the selling Institutional Member as liquidated damages for the harm (which
harm is acknowledged to not be readily measurable in damages) caused by the
failure of the buying Institutional Member to timely conclude its purchase and,
to the extent that a portion of the Buy/Sell Deposit constituted a pledge of all
or a portion of a Member's Percentage Membership Interest, the Deposit Defaulted
Interests shall be transferred to the selling Institutional Member. If the
buying Institutional Member that so fails to close is Veritech, then: (i) RSI
may, at any time within thirty (30) days after the Buy/Sell Closing Date failed
to close, elect to buy Veritech's entire membership interest in the Company at a
price equal to the Buy/Sell Value multiplied by Veritech's then remaining total
Percentage Membership Interest with the closing thereon to occur in accordance
with Section 10(h) sixty (60) days after RSI delivers notice of its election to
buy Veritech's entire interest in the Company; or (ii) alternatively, RSI may,
at any time within thirty (30) days after the Buy/Sell Closing Date, elect to
sell the Company by the sale or exchange of the membership interests, a merger,
consolidation, recapitalization, asset sale or otherwise, at a value of not less
than ninety-five (95%) percent of the Buy/Sell Value, such sale to be on such
terms and conditions as are directed by the Board of Managers without a Super
Majority Vote requirement and without the vote of the Veritech Designees.
(B) If the Institutional Member which pursuant to the terms
hereof has elected to sell or has become obligated to sell its membership
interests to the other Institutional Member fails to close in accordance with
Section 9(h) for any reason other than an Excused Condition, the other
Institutional Member shall have the remedy set forth in Section 31.
(k) Assumption of Obligations. Any Institutional Member who purchases
the entire remaining membership interest of another Institutional Member
pursuant to this Section 10, shall assume all of the liabilities and obligations
of the selling Member with regard to the Company, including, without limitation,
any recourse obligations with respect to such Member to the Company (other than
an obligation to pay to the Company the purchase price of any membership
interests).
11. Additional Contributions.
(a) Capital Call. If, at any time and from time to time, the Board of
Managers determines that the Company requires funds in addition to the then
unborrowed Maximum Committed Amount (as defined by the RSI Subordinated Note)
and cash on hand for the Company to conduct its business and affairs (the
"Necessary Funds"), then prior to the Company issuing any equity interest in, or
equity security of, the Company to any person who is not a Member, a notice
shall be given to all Members (a "Capital Call Notice") stating the terms and
conditions of the offering of additional membership interest (the "Additional
Interests") to the Members, the amount of the Necessary Funds required and all
other relevant information regarding the intended use of such Necessary Funds.
(b) Capital Call Objectives. The Members acknowledge and agree that
each Member shall be provided the opportunity to contribute up to its pro rata
share of any Necessary Funds and that Members who do not contribute their
respective pro rata share in full shall have their equity interest in the
Company (as represented by their Percentage Membership Interest) diluted on a
fair market value basis in accordance with the provisions of this Section 11.
The following example illustrates the method by which fair market dilution of
equity interests shall be determined for purposes of this Agreement:
(i) Assume that a Member holds a Percentage Membership Interest
equal to ten (10%) percent; that the Fair Market Value of the Company
determined in accordance with this Agreement prior to the Capital Call
and the contribution of Necessary Funds is $4,000,000; that the
Capital Call is for an aggregate contribution of Necessary Funds of
$1,000,000; that such Member does not contribute any Necessary Funds;
and that each other Member has contributed such Member's portion of
the Necessary Funds on a pro rata basis.
(ii) The provisions of this Section 11 would result in a dilution
of such Member as follows:
(A) The amount of the Capital Call applicable to the Member
(10% * $1,000,000 or $100,000) divided by the Fair Market Value
of the Company after the Capital Call, assuming that the other
Members contribute the total amount of Necessary Funds
($4,000,000 fair market value plus the $1,000,000 contribution of
Necessary Funds or $5,000,000); which equals 100,000 / 5,000,000
or 0.02 or 2%.
(B) The equity interest (i.e. Percentage Membership
Interest) of such Member after the dilution caused by it not
contributing Necessary Funds is the Percentage Membership
Interest of such Member prior to the Capital Call less the amount
of such dilution, that is: 10% less 2%, which results in a
Percentage Membership Interest equal to 8% after the dilution of
such Member.
(c) Pre-Emptive Rights. Within thirty (30) days after the date that a
Capital Call Notice is delivered (the "Subscription Acceptance Period"), each
Member shall have the right, but not the obligation, to subscribe for the
purchase of Additional Interests (that is, contribute Necessary Funds) on a pro
rata basis based on such Member's Percentage Membership Interest in the Company
at such time. The Company shall offer Additional Interests to the Members in the
manner stated in the Capital Call Notice. Any Member who provides the Company
with a notice prior to the expiration of the Subscription Acceptance Period that
it shall purchase all of the Additional Interests offered to such Member (that
is, contribute all of the Necessary Funds which such Member has a right to
contribute) in accordance with the terms and conditions stated in such Capital
Call Notice is herein called a "Fully Subscribing Member" and each other Member
is herein referred to as a "Non-Fully Subscribing Member". Each Non-Fully
Subscribing Member who provides the Company with a notice prior to the
expiration of the Subscription Acceptance Period that it will purchase some, but
not all, of the Additional Interests offered to it (that is, contribute some but
not all of the Necessary Funds that it has a right to contribute) is herein
called a "Partly Subscribing Member", and together with the Fully Subscribing
Member, the "Subscribing Members".
(d) Notice of Subscription Deficit. Promptly after the expiration of
the Subscription Acceptance Period, the Company shall give a notice to each
Member setting forth: (i) the name of each Non-Fully Subscribing Member; (ii)
the Additional Interests which each Non-Fully Subscribing Member did not
subscribe to purchase in accordance with the applicable Capital Call Notice
(which shall be stated as a percentage of the Necessary Funds which such Member
had a right to contribute to the Company); and (iii) the aggregate amount of
Additional Interests which all of the Non-Fully Subscribing Members declined to
purchase pursuant to such Capital Call Notice, which shall be expressed as a
percentage of the aggregate Necessary Funds which all of the Members had a right
to contribute to the Company (such total amount as the same may be reduced by
any Additional Interests purchased by the Fully Subscribing Members in the
manner hereinafter set forth is herein called the "Additional Subscription
Interests"). Within thirty (30) days after the giving of such notice (the
"Subscription Deficit Contribution Period"), the Fully Subscribing Members shall
have the right, but not the obligation, to subscribe for the purchase of the
Additional Subscription Interests (increase the amount of Necessary Funds that
it has a right to contribute to the Company) on a pro rata basis based upon the
amount of Additional Interests subscribed to by such Fully Subscribing Member to
the aggregate amount of Additional Interests subscribed to by all Fully
Subscribing Members. Those Fully Subscribing Members electing to subscribe for
the purchase of Additional Subscription Interests shall provide a notice to the
Company to such effect on or prior to the expiration of the Subscription Deficit
Contribution Period. Notwithstanding any provision of this Section 11 to the
contrary, if the aggregate amount of the Necessary Funds will not be contributed
by the Members, the Company shall, in the reasonable discretion of the Board of
Managers by unanimous vote and within five (5) business days after the
expiration of the Subscription Deficit Contribution Period, have the right to
cancel the offering of Additional Interests. If the Company proceeds with the
offering of Additional Interests, then the Company shall provide a notice to
each Subscribing Member specifying the aggregate amount of Additional Interests
to be purchased and sold (that is, the aggregate amount of Necessary Funds to be
contributed) by all of the Subscribing Members (the "Purchased Additional
Interests"), the name of each Subscribing Member, the amount of Additional
Interests to be purchased and sold to (that is, the aggregate amount of
Necessary Funds to be contributed by) each such Subscribing Member (the "Member
Purchased Interests").
(e) Subscription Closing; Adjustment of Percentage of Membership
Interest. On the date (the "Subscription Due Date") specified in the Capital
Call Notice for the contribution of Necessary Funds by the Members, in
accordance with the procedures described in the Capital Call Notice and at the
offices of the Company: (i) the Company shall deliver to each Subscribing Member
a written statement specifying: (1) the name of each Member as of the
Subscription Due Date; (2) the Percentage Membership Interest of each Member
immediately prior to the Subscription Due Date; and (3) the Percentage
Membership Interest of each Member as of the Subscription Due Date which shall
be computed in accordance with Section 11(f) below; and (ii) each Subscribing
Member shall pay to the Company an amount equal to the aggregate Member
Purchased Interests of such Member by wire transfer of immediately available
funds; provided, however, that if RSI pays for such Additional Interests by
loaning the aggregate Member Purchased Interest amount to the Company under the
terms and provisions of the RSI Subordinated Note, then each other Member may
pay for its Additional Interests by loaning the aggregate Member Purchased
Interest Amount of such Member to the Company under terms and conditions which
are not more favorable to such Member than the terms and conditions of the RSI
Subordinated Note, such terms and conditions including, without limitation,
subordination of such indebtedness, interest rate and maturity.
(f) Computation of Adjusted Membership Interest. On the Subscription
Due Date, the Company shall make such entries in its books and records as may be
necessary to reflect that as of the Subscription Due Date, the Percentage
Membership Interest of each Member shall equal: (i) such Member's Percentage
Membership Interest in the Company immediately prior to the Subscription Due
Date (the "Base Percentage Interest") less (ii) an amount equal to a fraction
(A) the numerator of which is (x) such Member's Base Percentage Interest
multiplied by the aggregate amount of Purchased Additional Interests actually
contributed to the Company on the Subscription Due Date less (y) the Member
Purchased Interest of such Member actually contributed to the Company on the
Subscription Due Date and (B) the denominator of which is the Fair Market Value
of the Company as of the date of the Capital Call Notice plus the aggregate
amount of Purchased Additional Interests actually contributed to the Company on
the Subscription Due Date.
(g) Illustration of Adjustments to Membership Interest. Using the
above illustration,
(i) if the Member did not contribute any Necessary Funds, its
Percentage Membership Interest in the Company as of the Subscription
Due Date would equal eight (8%) percent of the aggregate Percentage
Membership Interests in the Company, computed as follows: 10% (its
Base Percentage Interest) - [(10% * 1,000,000) - 0 / 4,000,000 +
1,000,000)];
(ii) if the Member contributed one-half ($50,000) of the
Necessary Funds it had a right to contribute and all of the Necessary
Funds were contributed to the Company, its Percentage Membership
Interest would equal 9% of the aggregate Percentage Membership
interest in the Company, computed as follows
(A) 10% (its Base Percentage Interest) - [(10% * 1,000,000)
- 50,000 / 4,000,000 + 1,000,000] or
(B) 10% - (100,000 - 50,000 / 5,000,000) or
(C) 10% - 1%.
(iii) if the Member contributed all (100%) ($100,000) of the
Necessary Funds it had a right to contribute and all of the Necessary
Funds were contributed to the Company, its Percentage Membership
Interest would equal 10% (i.e., no dilution) of the aggregate
Percentage Membership Interests in the Company, computed as follows:
(A) 10% (its Base Percentage Interest) - [(10% *
$1,000,000) - $100,000 / $4,000,000 + $1,000,000] or
(B) 10% - ($100,000 - $100,000 / $5,000,000) or
(C) 10% - ($0 / $5,000,000) or
(D) 10%-0%.
(iv) if the Member ("A") contributed all (100%) ($100,000) of the
Necessary Funds it had a right to contribute, there are two (2) other
Members ("B") and ("C") each holding a 45% Percentage Membership
Interest in the Company, "B" did not contribute any Necessary Funds,
"C" contributed its full share of the Necessary Funds and the "A"
Member contributed all of the Necessary Funds which the "B" Member did
not contribute, the Percentage Membership Interest of the "A" Member
would equal 19% of the aggregate Percentage Membership Interests in
the Company, computed as follows:
(A) 10% (its Base Percentage Interest) - [(10% * 1,000,000)
- 100,000 (its contributions) + 450,000 ("B"'s
contribution) / 4,000,000 + 1,000,000] or
(B) 10% - (100,000 - 550,000 / 5,000,000) or
(C) 10% - (-450,000 / 5,000,000) or
(D) 10% - negative .09 (that is 9%) or
(E) 19% (which corresponds to the 9% dilution of "B").
12. Opportunities; Confidentiality; Noncompetition; RSI Buildings.
(a) Opportunities. Each Member on behalf of itself and its respective
Affiliates, hereby transfers to the Company all right, title and interest that
such Member or its Affiliates currently has or may have in all business
opportunities relating to the Company's Business on the date hereof. In
furtherance of the foregoing, subject to Section 12(d), each Member, on behalf
of itself and its respective Affiliates, covenants and agrees that such Member
and such Member's Affiliates shall conduct the Business of the Company solely
for the benefit of the Company.
(b) Confidentiality. Each Member shall retain in strict confidence,
and shall not use for any purpose whatsoever, or divulge, disseminate or
disclose to any third party (other than in furtherance of the business purposes
of the Company or as may be required by law) any proprietary or confidential
information relating to the Company's Business, including, without limitation,
information regarding financial information, development plans, distribution or
franchising methods and channels, pricing information, business methods,
management information systems and software, customer lists, supplier lists,
leads, solicitations and contacts, know-how, show-how, inventions, improvements,
specifications, trade secrets, agreements, research and development, business
plans and marketing plans of the Company, whether or not any of the foregoing
are copyrightable or patentable; provided, that a Member may in connection with
a Syndication provide financial and other information with respect to the
Company which is reasonably requested by any proposed Transferee in such
Syndication and reasonably required for the evaluation of such financial
investment if such person executes and delivers to the Company a confidentiality
agreement in form and substance reasonably acceptable to the Company.
(c) Non-Competition. Unless otherwise agreed by the Company and
subject to Section 12(d), each of the Members and Reckson, on behalf of itself
and its respective Affiliates, hereby severally warrants, covenants and agrees
with the Company and each other Member and Reckson that neither it nor its
Affiliates will, during the applicable Restrictive Covenant Period (as defined
below), directly or indirectly, without the prior written consent of the Company
and each Member and Reckson, engage in or be interested in any business which is
competitive with the Company's Business in the localities where the Company has
active operations pursuant to the Plan for the Company nor during such period
shall it or any of its Affiliates retain or hire (on behalf of itself or any
other person) any person who is or was an employee, consultant or agent of the
Company (other than any such person whose duties do not include activities that
are material to the management, administration or operations of the Company's
Business) unless that person was in the employ of, or a consultant or agent of,
the Member, Reckson or any of their respective Affiliates prior to being so for
the Company. For the purposes of this Agreement, a party shall be deemed to be
directly or indirectly interested in a business if such party is or shall be
engaged or affiliated directly or indirectly with such business as a
stockholder, director, officer, employee, salesman, sales representative, agent,
broker, partner, member, individual proprietor, lender, investor, consultant or
otherwise, unless such interest is limited solely to the passive investment
ownership of twenty percent (20%) or less of the equity interests or debt of any
company, as the case may be. For purposes of this Agreement, the "Restrictive
Covenant Period" shall mean the period that commences on the date hereof and
expires one (1) year after the date which is the earlier of the date: (i) that
such Member no longer holds, or has any beneficial interest in, any membership
interest; or (ii) of an IPO or (iii) in the case of Reckson, when RSI no longer
holds, or has any beneficial interest in, any membership interests.
(d) RSI Buildings; Exclusivity of the Company. During the RSI
Exclusivity Period:
(i) The Company shall, to the extent permitted by applicable law,
have the exclusive right (and RSI and Reckson shall have the
obligation to permit and retain the Company) to deliver or provide its
communication, wiring and other related services and Equipment with
respect to all Buildings owned or leased by RSI or Reckson or any of
their respective Affiliates; provided, that if the Company declines to
provide such communication, wiring and other services and Equipment to
any such Building or if the Company is not able to provide all of the
communication, wiring and other services and Equipment which RSI,
Reckson or such Affiliate requests to be provided to such Building,
then RSI, Reckson or such Affiliate may then acquire such requested
combination of communication, wiring and other services and Equipment
from vendors or suppliers other than the Company with respect to such
Building.
(ii) All contracts between the Company and RSI or Reckson or any
of their respective Affiliates with respect to communication, wiring
and other services and Equipment to any Building owned or leased RSI,
Reckson or such Affiliate shall at all times be on such terms and
conditions as are at least as favorable to those afforded by the
Company to other customers of the Company and, as to those afforded by
or any other similar company (a "Competitor") which offers all or
substantially all of the services offered by the Company on a regular
basis in the geographic area of such Building and is making (or
proposing to make) a similar financial investment in such Building.
(iii) For the purposes of this Agreement, the term "RSI
Exclusivity Period" shall mean the period of time commencing on the
Effective Date and expiring on the date that is one year after the
date that RSI or any of its Affiliates is not a Member in the Company.
(iv) The parties hereto agree that if the exclusivity arrangement
provided in this Section 12 is not permitted by applicable law, then
with respect to each Building of RSI, Reckson or any of their
respective Affiliates with respect to which the Company does not have
the exclusive rights provided in this Section 12, RSI, Reckson and
each such Affiliate shall grant the Company the right of first refusal
to provide any communication, wiring and other services and Equipment
proposed to be required for such Building on the same terms and
conditions offered by any third party.
(v) Notwithstanding any provision of this Agreement to the
contrary, this Section 12 shall not be applicable with respect to any
acquisition or investment by RSI, Reckson or any of their respective
Affiliates in any Building or any company or entity if such Building,
company or entity, as the case may be, has a commitment or obligation
(which is not on its terms cancellable or terminable without the
payment of money, property, services or damages) to a competitor of
the Company for communication, wiring and other related services and
Equipment.
(e) Survival. The provisions of this Section 12 shall survive the
termination of this Agreement.
13. Effect of the Hart Scott Rodino Act.
(a) Applicability. Each Member hereby acknowledges and agrees that the
Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act") may be applicable to the
purchase and sale of membership interests as contemplated by this Agreement,
including the purchase by Veritech of all of RSI's membership interest in
accordance with the Buy/Sell Right and the exercise of the Veritech Call Right,
the Veritech Put Right or the RSI Put Offer. In addition, the HSR Act may be
applicable to the acquisition of the Contributed Assets and the acquisition of
membership interests upon the conversion of the RSI Subordinated Note.
(b) Covenant to File all Necessary Documents. Each Member hereby
covenants and agrees that if and when the HSR Act is applicable to a
transaction, it will use its commercially reasonable best efforts to: (i)
promptly and timely file the Notification and Report Form For Certain Mergers
and Acquisition as required under the HSR Act; (ii) request early termination of
the waiting period under the HSR Act; (iii) take all other actions necessary or
desirable to obtain a termination of the waiting period under the HSR Act; (iv)
provide a copy, subject to an appropriate agreement regarding confidentiality,
of all documents submitted in connection with the HSR Act; and (v) coordinate
and consult with each other party with respect to such filing. Each Member
hereby agrees that if such Member effects any transaction hereunder or
contemplated hereby which causes the HSR Act to be applicable, such Member shall
pay all reasonable fees and disbursements in connection with such filings.
(c) Amendment of Timing Periods. Wherever this Agreement provides that
a Member may purchase the membership interest of another Member or exercise the
Veritech Call Right Option, the Veritech Put Right or the RSI Put Offer and the
HSR Act is applicable to such, if this Agreement provides that the closing of
such transaction shall occur within a specified period of time, the expiration
of such period shall be stayed for the waiting period of the HSR Act, but in any
event not later than forty-five (45) days.
14. Veritech Call Right; Veritech Put Right. Subject to the limitations set
forth in this Section 14, RSI hereby grants Veritech the right and option, but
not the obligation (the "Veritech Call Right"), to require RSI to sell, assign
and transfer all, but not less than all, of its membership interest in the
Company to Veritech in the event (each, a "VC Event") that: (i) at any time
after the Company has Employed the RSI Funds, the Board of Managers approves and
adopts the dissolution or winding-up of the Company; or (ii) within sixty (60)
days after the date that is two (2) years after the Effective Date if an
aggregate amount of at least $6,500,000 has not been spent by the Company for
the wiring of Buildings and providing services relating thereto and general
administrative expenses in connection therewith, in each case, in accordance
with the Plan within the first two (2) years after the Effective Date; provided,
that notwithstanding any provision of this Section 14 to the contrary, Veritech
shall not have the Veritech Call Right if on or prior to the date that is two
years after the Effective Date Veritech did not propose transactions within the
scope of the Plan and in accordance with the financial budget set forth in the
Plan sufficient to expend an aggregate amount of not less than $6,500,000 within
the first two (2) years after the Effective Date. Additionally, subject to the
limitations set forth in this Section 14, RSI hereby grants Veritech the right
and option, but not the obligation (the "Veritech Put Right"), to require RSI to
purchase all, but not less than all, of Veritech's membership interest in the
Company, if at any time after the date that is two (2) years after the Effective
Date, RSI (as a member in the Company) does not consent to an IPO proposed by
Veritech; provided that Veritech may not propose more than one IPO during any
calendar year.
(a) Exercise Period. At any time during the period commencing on the
date of any VC Event and ending on the date that is sixty (60) days after such
date, Veritech may exercise the Veritech Call Right. At any time during the
period commencing on the date of the rejection of an IPO proposed by Veritech as
aforesaid and ending on the date that is sixty (60) days after such date
Veritech may exercise the Veritech Put Right.
(b) Manner of Exercise of the Rights. The Veritech Call Right and the
Veritech Put Right shall be exercised by Veritech delivering to RSI a notice to
such effect which notice shall specify the date for the closing of the purchase
and sale of the RSI membership interest or Veritech membership interest, as the
case may be, provided, Veritech shall have up to six (6) months after the notice
is given to close the acquisition of RSI's membership interest and RSI shall
have sixty (60) days after the notice is given to close the acquisition of
Veritech's membership interest.
(c) Purchase Price. The purchase price pursuant to the Veritech Call
Right or Veritech Put Right shall be the Fair Market Value of the membership
interest being purchased as determined in accordance with Section 23 of this
Agreement.
(d) Deposit.
(i) Upon exercise of the Veritech Call Right, Veritech shall pay
a deposit (the "Call Deposit") to RSI on or prior to five (5) business
days after the delivery of the notice specified in Section 14(b),
which deposit shall be as set forth below:
(A) The Call Deposit shall equal the greater of (x) five
(5%) percent of the aggregate Fair Market Value of the RSI
membership interest or (y) $300,000. The Call Deposit shall
consist of (x) a Cash Deposit payable to the order of RSI in the
amount equal to not less than the lesser of the amount of the
Call Deposit or $1,000,000 and (y) either (A) a first priority
security interest in, and pledge of, a percentage of Veritech's
membership interest such that the aggregate Fair Market Value of
the Percentage Membership Interest pledged is equal to 1.5 times
the amount that the Call Deposit exceeds the amount of the Cash
Deposit, if any, or (B) a second priority security interest in,
and pledge of, all of the membership interest of Veritech, if the
amount of the Call Deposit is greater than the amount of the Cash
Deposit actually paid.
(B) If Veritech is required to deliver to RSI a security
interest in, and pledge of, any of its membership interest, it
will execute and deliver such documents as are reasonably
required by RSI (including UCC Financing Statements) to evidence
and perfect such security interest to RSI at the address
specified in Section 28. It is acknowledged and agreed that any
security interest in, and pledge of, membership interests of
Veritech pursuant to this Section shall be limited for the
purpose of providing collateral for the amount that the Call
Deposit exceeds the Cash Deposit, if any. Accordingly, RSI's
rights and interest in and to Veritech's membership interest
shall not exceed the Deposit Defaulted Interest of Veritech.
(C) It is acknowledged and agreed that the Call Deposit is
intended to be a non-refundable deposit to secure the obligations
of Veritech. Accordingly, if Veritech fails to purchase the
membership interests of RSI pursuant to the Veritech Call Right
on the closing date specified in Section 14(b), other than as a
result of an Excused Condition, then: (1) RSI shall retain the
Call Deposit as liquidated damages for the harm (which harm is
acknowledged to not be readily measurable in damages) caused by
the failure of Veritech to timely conclude such purchase and, to
the extent that a portion of the Call Deposit constituted a
pledge of a percentage of Veritech's membership interest, the
Deposit Defaulted Interests pledged shall be Transferred to RSI;
(2) Veritech shall no longer have any Veritech Call Right or
Veritech Put Right for any purpose whatsoever and (3) RSI shall
release any security interest in the membership interests of
Veritech other than RSI's security interest in the Deposit
Defaulted Interests.
(ii) Upon exercise of the Veritech Put Right, RSI shall pay to
Veritech within ten (10) business days after the giving of the notice
by Veritech specified above, a non-refundable deposit (the "Put
Deposit"), which Deposit shall be as set forth below:
(A) The Put Deposit shall equal five (5%) percent of the
aggregate Fair Market Value of Veritech's membership interest.
The Put Deposit shall consist of (x) a Cash Deposit payable to
the order of Veritech in the amount equal to not less than the
lesser of the amount of the Put Deposit or $3,000,000 and (y)
either (A) a first priority security interest in, and pledge of,
a percentage of RSI's membership interest such that the aggregate
Fair Market Value of the Percentage Membership Interest pledged
is equal to 1.5 times the amount that the Put Deposit exceeds the
amount of the Cash Deposit, if any, or (B) a second priority
security interest in, and pledge of, all of the membership
interest of RSI, if the amount of the Put Deposit is greater than
the amount of the Cash Deposit actually paid.
(B) If RSI is required to deliver to Veritech a security
interest in, and pledge of, any of its membership interest, it
will execute and deliver such documents as are reasonably
required by Veritech (including UCC Financing Statements) to
evidence and perfect such security interest to Veritech at the
address specified in Section 28. It is acknowledged and agreed
that any security interest in, and pledge of, membership
interests of RSI pursuant to this Section shall be limited for
the purpose of providing collateral for the amount that the Put
Deposit exceeds the Cash Deposit, if any. Accordingly, Veritech's
rights and interest in and to RSI's membership interest shall not
exceed the Deposit Defaulted Interest of RSI.
(C) It is acknowledged and agreed that the Put Deposit is
intended to be a non-refundable deposit to secure the obligations
of RSI. Accordingly, if RSI fails to purchase the membership
interests of Veritech pursuant to the Veritech Put Right on the
closing date specified in Section 14(b), other than as a result
of an Excused Condition, then: (1) Veritech shall retain the Put
Deposit as liquidated damages for the harm (which harm is
acknowledged to not be readily measurable in damages) caused by
the failure of RSI to timely conclude such purchase and, to the
extent that a portion of the Put Deposit constituted a pledge of
a percentage of RSI's membership interest, the Deposit Defaulted
Interests pledged shall be Transferred to Veritech and Veritech
shall release any security interest in the membership interests
of RSI other than Veritech's security interest in the Deposit
Defaulted Interests.
(iii) it is acknowledged and agreed that each of the Call Deposit
and the Put Deposit is non-refundable unless the party selling its
membership interests under this Section 14 does not Transfer such
membership interests on the closing date specified in accordance with
Section 14(b) and Section 14(e) and Section 14(f), as the case may be.
(e) Closing of the Veritech Call Right. On the closing date specified
in accordance with Section 14(b) at the offices of the Company: (i) Veritech
shall pay the Fair Market Value of RSI's Percentage Membership Interest (less
the cash portion of the Call Deposit actually received by RSI) to RSI by wire
transfer of immediately available funds; and (ii) RSI shall deliver to Veritech
(x) an assignment of its entire membership interest in a form and substance
reasonably acceptable to Veritech and assign and transfer all, but not less than
all, of its membership interest free and clear of any liens or encumbrances
other than indebtedness of the Company (but such membership interests shall
continue to be subject to the provisions of this Agreement); and (y) a release
of the non-cash portion of the Call Deposit and all documents delivered to it in
connection therewith.
(f) Closing of the Veritech Put Right. On the closing date specified
in accordance with Section 14(b) at the offices of the Company: (i) RSI shall
pay the Fair Market Value of the entire Veritech membership interest (less the
cash portion of the Put Deposit actually received by Veritech) to Veritech by
wire transfer of immediately available funds; and (ii) Veritech shall deliver to
RSI (x) an assignment of its entire membership interest in a form and substance
reasonably acceptable to RSI and assign and transfer all, but not less than all,
of its membership interest free and clear of any Liens (but such membership
interests shall continue to be subject to the provisions of this Agreement); and
(y) a release of the non-cash portion of the Put Deposit and all documents
delivered to it in connection therewith. If a General Member has exercised its
Tag-Along Right in accordance with Section 7, then on the closing date specified
in accordance with Section 14(b), simultaneously with the closing of the
purchase of Veritech's membership interest under the Veritech Put Right (x) RSI
shall pay by wire transfer of immediately available funds, to each such General
Member an amount of cash equal to the aggregate amount of the Tag-Along Interest
of such General Member valued at the Fair Market Value of such membership
interests and (y) each such General Member shall deliver to RSI an assignment of
such Tag-Along Interests in a form and substance reasonably acceptable to RSI
and assign and transfer all, but not less than all, of the Tag-Along Interest of
such General Member free and clear of any Liens (but such membership interests
shall continue to be subject to the provisions of this Agreement).
15. Participation Right.
(a) General Member Participation Right. In the event that an
Institutional Member exercises its FR Right, Buy/Sell Right or Veritech Put
Right, each General Member shall have the right, but not the obligation, which
right is contingent upon the consummation of such other transaction (the
"Participation Right") to participate with the purchasing Institutional Member
in the purchase of such membership interest on a pro rata basis or to
participate on a pro rata basis with the Selling Institutional Members in the
sale of such membership interest (each General Member's right to participate
shall be based on the Percentage Membership Interest held by the purchasing
Institutional Member or Selling Institutional Member, as the case may be, and
such General Member) at the same Third Party Price, Buy/Sell Value or Fair
Market Value, as the case may be (in each case, appropriately adjusted for the
Percentage Membership Interest represented by such Tag-Along Interest), and on
the same other terms and conditions as the purchasing or selling Institutional
Member, as the case may be. A General Member may exercise his or its
Participation Right by notice to such effect to the purchasing Institutional
Member within five (5) business days after such General Member has received
notice of such Transfer. If a General Member has exercised its Participation
Right in accordance with this Section 15, then contingent upon the consummation
of such Transfer between the Institutional Members: (i) such General Member
shall be obligated to purchase, and the selling Institutional Member shall be
obligated to sell, the amount of Percentage Membership Interest such General
Member is purchasing under its Participation Right; and (ii) on the closing date
for the Transfer of membership interest between the Institutional Members at the
offices of the Company, simultaneously with the such closing (x) such General
Member shall pay an amount equal to the aggregate purchase price of the
Percentage Membership Interest such General Member is purchasing under its
Participation Right by wire transfer of immediately available funds to the
selling Institutional Member and (y) the selling Institutional Member shall
deliver to such General Member an assignment of the membership interest in form
and substance reasonably acceptable to such General Member and assign and
transfer all, but not less than all, of the Percentage Membership Interest
purchased by such General Member under its Participation Right free and clear of
any Liens (but such membership interests shall continue to be subject to the
provisions of this Agreement). To the extent that this Participation Right is
exercised, the membership interest to be purchased by the purchasing
Institutional Member (and all of such Member's obligations in connection
therewith) shall be reduced by the obligations of such General Member under the
Participation Right; provided, that if such General Member shall default in its
obligation to so purchase such Percentage Membership Interest, then the
purchasing Institutional Member shall have the obligation to purchase such
membership interest. If a General Member has exercised his Participation Right
in accordance with this Section 15 so as to sell, then contingent upon the
consummation of such Transfer between the Institutional Members: (i) such
General Member shall be obligated to sell, and the purchasing Institutional
Member shall be obligated to purchase, the amount of Percentage Membership
Interest such General Member is selling under its Participation Right; and (ii)
on the closing date of the Transfer of membership interest between the
Institutional Members at the office of the Company, simultaneously with such
closing (x) the purchasing Institutional Member shall pay an amount equal to the
aggregate purchase price of the Percentage Membership Interest such General
Member is selling under its Participation Right by wire transfer of immediately
available funds to such General Member and (y) such General Member shall deliver
to the purchasing Institutional Member an assignment of the membership interest
in form and substance reasonably acceptable to the purchasing Institutional
Member and assign and transfer all, but not less than all, of the Percentage
Membership Interest purchased by the purchasing Institutional Member free and
clear of any liens or encumbrances (but such membership interests shall continue
to be subject to the provisions of this Agreement).
(b) Participation Rights on Transfers to a General Member and to his
or its Affiliates. In the event that either Institutional Member intends to
Transfer any of its membership interests to a General Member or any Affiliate of
a General Member, such Institutional Member shall give the Company and the other
Institutional Member ten (10) days' prior written notice of such proposed
Transfer and such other Institutional Member (or an Affiliate of such Member)
may elect to purchase a pro rata portion of the membership interests that is the
subject of such proposed Transfer. The pro rata portion of shares which such
other Institutional Member shall be entitled to purchase shall be calculated
based on the relative proportions of membership interests in the Company held by
such Institutional Member and by such General Member. Such General Member and
the other Institutional Member, if it so elects to purchase shall have at least
sixty (60) days from receipt of the transferor's notice of intention to close on
such purchase. Such election shall be made in writing by such Institutional
Member within five (5) days of receipt of such notice by the Institutional
Member proposing to transfer its membership interests, the failure to deliver
such notice by the other Institutional Member being deemed an election not to so
purchase.
16. RSI Put Option.
(a) RSI Put Notice. RSI may offer to put that portion of its
membership interest (the "RSI Put Interests") which on the Effective Date is
equal to 18.6% of the aggregate Percentage Membership Interests in the Company
for a purchase price equal to TWO MILLION and 00/100 ($2,000,000) DOLLARS (the
"RSI Put Offer"). RSI may exercise its RSI Put Offer by notice (the "RSI Put
Notice") to such effect to Veritech at any time (but not more than once) during
the period between the 24th month and the 30th month after the Effective Date;
provided, that the Veritech Call Right has not previously been exercised (unless
such transaction does not close in accordance with Section 14). Veritech may
accept the RSI Put Offer by notice to such effect on or prior to ten (10)
business days after the date that the RSI Put Notice is delivered to Veritech.
If Veritech does not provide a notice accepting the RSI Put Notice within such
ten (10) business day period, then for the purposes of this Agreement, Veritech
shall be deemed to have rejected the RSI Put Offer.
(b) Acceptance of RSI Put Offer. If Veritech accepts the RSI Put
Offer, then Veritech shall be obligated to purchase, and RSI shall be obligated
to sell, all but not less than all of the RSI Put Interests on or prior to the
date that is nine (9) months after the date that Veritech delivers a notice to
RSI accepting the RSI Put Offer (the "RSI Put Closing Date") for a purchase
price equal to $2,000,000. Each Member shall use all commercially reasonable
efforts to secure any approvals required to be obtained by such Member for the
consummation of the purchase and sale of such membership interests.
(c) Deposit. On or prior to five (5) business days after acceptance of
the RSI Put Offer, Veritech shall pay and deliver a deposit (the "RSI Put
Deposit") to RSI equal to $250,000 in cash which shall be non-refundable in
accordance with Section 16(e).
(d) RSI Put Closing. On the RSI Put Closing Date at the offices of the
Company: (i) Veritech shall pay $1,750,000 to RSI (which is equal to the
$2,000,000 purchase price less the amount of the RSI Put Deposit) by wire
transfer of immediately available funds; and (ii) RSI shall deliver to Veritech
an assignment of its RSI Put Interests in a form and substance reasonably
acceptable to Veritech and assign and transfer all, but not less than all, of
its RSI Put Interests free and clear of any liens or encumbrances (but such
membership interests shall continue to be subject to the provisions of this
Agreement).
(e) Rejection of RSI Put; Failure to Close. Notwithstanding any
provision of Section 9(c) to the contrary, in the event that Veritech: (i)
rejects the RSI Put Offer; or (ii) accepts the RSI Put Offer but does not
purchase the RSI Put Interests on the RSI Put Closing Date, other than as a
result of an Excused Condition, then from and after the date that Veritech did
not accept the RSI Put Offer or if Veritech accepted the RSI Put Offer, the RSI
Put Closing Date, no Significant Decision shall require a Supermajority Vote for
approval or adoption by the Company. Additionally, if Veritech accepts the RSI
Put Offer but does not purchase the RSI Put Interests on the RSI Put Closing
Date, other than as a result of an Excused Condition, then RSI shall be entitled
to retain the RSI Put Deposit as liquidated monetary damages for the harm (which
harm is acknowledged to not be readily measurable in damages) caused by the
failure of Veritech to timely conclude such purchase.
17. Accounting Provisions.
(a) Fiscal and Taxable Year. The fiscal and taxable year of the
Company shall be the calendar year, unless the Board of Managers, in its sole
and absolute discretion, designates a different fiscal or taxable year.
(b) Books and Accounts.
(i) Complete and accurate books and accounts shall be kept and
maintained for the Company at the Company's principal place of
business. Such books and accounts shall be kept for fiscal and tax
purposes on the cash or accrual basis, as the Board of Managers shall
determine, and shall include separate accounts for each Member. A list
of the names and addresses of the Members and their respective
membership interest shall be maintained as part of the books and
records for the Company. Each Member or such Member's duly authorized
representative, at such Member's own expense and upon delivering
advance written notice to the Company, shall at all reasonable times
have access to, and may inspect and make copies of, such books and
accounts and any other records of the Company.
(ii) All funds received by the Company shall be deposited in the
name of the Company in the bank account or accounts of the Company,
and withdrawals therefrom shall be made upon the signature of the
individual or individuals designated from time to time by the Board of
Managers. In the sole and absolute discretion of the Board of
Managers, all deposits and other funds not needed in the operation of
the Company's business may be deposited in interest-bearing bank
accounts, in money market funds, or invested in treasury bills,
certificates of deposit, U.S. government security-backed repurchase
agreements or similar money market instruments, or funds investing in
any of the foregoing or similar types of investments.
(c) Financial Reports.
(i) If requested in advance and in writing by any Member prior to
the last day of any calendar year the Board of Managers shall endeavor
to cause the Company to provide each Member on or about April 1 of the
following year, with financial statements including a balance sheet
and the related statements of income and changes in Company capital
and changes in financial position for the prior year. Each Member
shall be entitled to receive any financial statements that are
produced by the Company in the ordinary course of business.
(ii) The Board of Managers shall endeavor to cause to be prepared
after the end of each taxable year of the Company and filed, on or
before their respective due dates (as the same may be extended), all
federal and state income tax returns of the Company for such taxable
year and shall take all action as may be necessary to permit the
Company's regular accountants to prepare and timely file such returns.
Form 1065 (Schedule K-1) shall be sent to each Member after the end of
each taxable year reflecting the Member's pro rata share of income,
loss, credit and deductions for such taxable year.
(d) Tax Elections. Any elections required or permitted to be made by
the Company under the Internal Revenue Code of 1986, as amended (the "Code"),
shall be made by the Board of Managers in such manner as the Board of Managers
shall determine, subject to Section 9(c). In the event of an audit of the
Company by the Internal Revenue Service (the "IRS"), Veritech shall act as the
"tax matters partner" pursuant to Section 6231(a)(7) of the Code, and such tax
matters partner shall comply with all of his obligations as such under the Code
and the regulations promulgated thereunder.
(e) Expenses. To the extent practicable, all expenses of the Company
shall be billed directly to, and be paid by, the Company.
18. Distributions and Allocations.
(a) Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Capital Account" means as to each Member the amount of such
Member's cash capital contributions once made and the Gross Asset
Value of any property contributed to the Company, plus such Member's
share of Net Profits and items of income and gain allocated to such
Member pursuant to this Agreement and the amount of any Company
liabilities assumed by such Member or which are secured by any
property distributed to such Member, less the amount of cash
distributions and the Gross Asset Value of distributions of property
to such Member (other than payments described in Sections 707(a) and
707(c) of the Code) and also less (1) such Member's share of Net
Losses, Nonrecourse Deductions and items of loss and deduction,
allocated to such Member pursuant to this Agreement, (2) the amount of
any liabilities of such Member assumed by the Company or which are
secured by any property contributed by such Member to the Company and
(3) such Member's share of Company expenditures which are neither
deductible nor properly chargeable to Capital Accounts under Section
705(a)(2)(B) of the Code or are treated as such expenditures under
Regulation Section 1.704-1(b)(2)(iv)(i), subject, however, to such
further or different adjustments as may be required pursuant to
Section 704 of the Code, or any successor provision, and any
regulation promulgated thereunder, so as to cause the allocations
prescribed hereunder to be respected for tax purposes. In the event
any property other than cash is contributed to or distributed by the
Company, the adjustments to Capital Accounts required by Regulation
Section 1.704-1(b)(2)(iv)(d), (e), (f) and (g) and Section
1.704-1(b)(4)(i) shall be made.
In the event membership interests are Transferred in accordance
with the terms of this Agreement, the Transferee shall succeed to the
Capital Account of the Transferor to the extent it relates to the
Transferred membership interests; and
In determining the amount of any liability for purposes of
determining a Member's Capital Account there shall be taken into
account Code Section 752(c) and any other applicable provisions of the
Code and Regulations.
The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended
to comply with Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Regulations.
In the event the Board of Managers shall determine that it is prudent
to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits
relating to liabilities which are secured by contributed or
distributed property or which are assumed by the Company or any
Members, are computed in order to comply with such Regulations, the
Board of Managers may make such modification, provided that it is not
likely to have a material effect on the amounts distributed to any
Person pursuant to Section 18(c) hereof upon the dissolution of the
Company. The Board of Managers also shall (1) make any adjustments
that are necessary or appropriate to maintain equality between the
Capital Accounts of the Members and the amount of capital reflected on
the Company's balance sheet, as computed for book purposes, in
accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (2) make
any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
(ii) "Company Minimum Gain" shall have the meaning provided in
Regulation Section 1.704-2(b)(2).
(iii) "Depreciation" means, for each Allocation Year, an amount
equal to the depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such Allocation Year,
except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of
such Allocation Year, Depreciation shall be an amount which bears the
same ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery deduction for
such Allocation Year bears to such beginning adjusted tax basis;
provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such Allocation Year is zero,
Depreciation shall be determined with reference to such beginning
Gross Asset Value using any reasonable method selected by the Board of
Managers.
(iv) "Gross Asset Value" means with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as
follows:
(1) The initial Gross Asset Value of any asset contributed
by a Member to the Company shall be the gross fair market value
of such asset, as determined by the Board of Managers provided
that the initial Gross Asset Values of the assets contributed to
the Company pursuant to Section 2(a) hereof shall be as set forth
in such section;
(2) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values
(taking Code Section 7701(g) into account, as determined by the
Board of Managers as of the following times: (A) the acquisition
of an additional interest in the Company by any new or existing
Member in exchange for more than a de minimis capital
contribution; (B) the distribution by the Company to a Member of
more than a de minimis amount of Company property as
consideration for an interest in the Company; and (C) the
liquidation of the Company within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g), provided that an adjustment
described in clauses (A) and (B) of this paragraph shall be made
only if the Board of Managers reasonably determines that such
adjustment is necessary to reflect the relative economic
interests of the Members in the Company;
(3) The Gross Asset Value of any item of Company assets
distributed to any Member shall be adjusted to equal the gross
fair market value (taking Code Section 7701(g) into account) of
such asset on the date of distribution as determined by the Board
of Managers; and
(4) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or
Code Section 743(b), but only to the extent that such adjustments
are taken into account in determining Capital Accounts pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (6)
of the definition of "Net Profits" and "Net Losses" or Section
3.3(c) hereof; provided, however, that Gross Asset Values shall
not be adjusted pursuant to this subparagraph (4) to the extent
that an adjustment pursuant to subparagraph (2) is required in
connection with a transaction that would otherwise result in an
adjustment pursuant to this subparagraph (4). If the Gross Asset
Value of an asset has been determined or adjusted pursuant to
subparagraph (2) or (4), such Gross Asset Value shall thereafter
be adjusted by the Depreciation taken into account with respect
to such asset, for purposes of computing Profits and Losses.
(v) "Member Nonrecourse Debt" shall have the meaning
provided in Regulation Section 1.704-2(b)(4).
(vi) "Member Nonrecourse Debt Minimum Gain" means the
minimum gain attributable to "Member Nonrecourse Debt", as determined in
accordance with Regulation Section 1.704-2(i)(3).
(vii) "Net Cash Flow" means all cash receipts of the Company
(including, without limitation, capital contributions and investment
income), and the fair market value of any property received in connection
therewith, in any fiscal year from whatever source derived, less payment of
all of the Company's expenses, capital expenditures and investments and
such reserves as the Board of Managers shall decide in good faith to
establish for current and future expenses of operating the Company and its
subsidiaries or liabilities in connection therewith and the current and
future capital expenditures and investments of the Company and its
subsidiaries.
(viii) "Net Profits" and "Losses" mean for taxable year an
amount equal to the Company's taxable income or loss for such taxable year,
determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or
loss), with the following adjustments (without duplication):
(1) Any income of the Company that is exempt from
federal income tax and not otherwise taken into account in
computing Net Profits or Net Losses pursuant to this definition
of "Net Profits" and "Net Losses" shall be added to such taxable
income or loss;
(2) Any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Regulations Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Net Profits or Net Losses pursuant to this definition
of "Net Profits" and "Net Losses" shall be subtracted from such
taxable income or loss;
(3) In the event the Gross Asset Value of any Company
asset is adjusted pursuant to subparagraphs (2) or (3) of the
definition of Gross Asset Value, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases
the Gross Asset Value of the asset) or an item of loss (if the
adjustment decreases the Gross Asset Value of the asset) from the
disposition of such asset and shall be taken into account for
purposes of computing Profits or Losses;
(4) Gain or loss resulting from any disposition of
Company property with respect to which gain or loss is recognized
for federal income tax purposes shall be computed by reference to
the Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(5) In lieu of the depreciation, amortization, and
other cost recovery deductions taken into account in computing
such taxable income or loss, there shall be taken into account
Depreciation for such taxable year, computed in accordance with
the definition of Depreciation;
(6) To the extent an adjustment to the adjusted tax
basis of any Company asset pursuant to Code Section 734(b) is
required, pursuant to Regulations Section 1.704-(b)(2)(iv)(m)(4),
to be taken into account in determining Capital Accounts as a
result of a distribution other than in liquidation of a Member's
interest in the Company, the amount of such adjustment shall be
treated as an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases such basis)
from the disposition of such asset and shall be taken into
account for purposes of computing Net Profits or Net Losses; and
(7) Notwithstanding any other provision of this
definition, any items which are specially allocated pursuant to
Section 17(h) hereof shall not be taken into account in computing
Net Profits or Net Losses.
The amounts of the items of Company income, gain, loss
or deduction available to be specially allocated pursuant to
Section 17(h) hereof shall be determined by applying rules
analogous to those set forth in subparagraphs (1) through (6)
above.
(ix) "Nonrecourse Deductions" shall have the meaning set forth in
Regulation Section 1.704-2(b)(1).
(x) "Regulation" means the income tax regulations promulgated
from time to time by the U.S. Department of the Treasury.
(xi) "Tax Distribution" with respect to any Member means an
amount of cash equal to the product of:
(1) the sum of (x) the highest marginal individual Federal income
tax rate (the "Individual Rate") and (y) the product of (1) 100% minus
the Individual Rate and (2) the highest marginal state and local tax
rate applicable to any individual Member; multiplied by
(2) the taxable income of the Company for Federal income tax
purposes for the applicable fiscal year which is allocated to such
Member in accordance with Section 18.
(b) Distributions of Net Cash Flow. Except as otherwise required by
this Agreement or by law, Net Cash Flow shall be distributed, at such times as
the Board of Managers shall determine (but at least quarterly), to the Members
pro rata in accordance with their then respective Percentage Membership
Interest; provided, that on or prior to March 31 of each year, the Company shall
distribute Net Cash Flow to the members, pro rata in accordance with their
Percentage Membership Interest as of December 31 of the immediately preceding
year, such that each Member shall receive cash in an amount not less than such
Member's Tax Distribution for such immediately preceding year.
(c) Allocation of Net Profits and Net Losses.
(i) Net Profits shall be allocated among the Members as follows:
(1) First, to the Members having negative Capital Account
balances (after adding to such Capital Account balance such Member's
share of Company Minimum Gain and such Member's share of Member
Nonrecourse Debt Minimum Gain), up to an amount necessary to increase
such negative Capital Account balances to zero; and
(2) The balance, if any, among the Members in accordance
with their respective Percentage Membership Interest.
(ii) Net Losses shall be allocated as follows:
(1) First, to the Members having positive Capital Account
balances, up to an amount necessary to reduce such positive Capital
Account balance to zero; and
(2) The balance, if any, among the Members in accordance
with their respective Percentage Membership Interest.
(d) No Return of Distributions. No Member shall have any obligation to
refund to the Company any amount that shall have been distributed to such Member
pursuant to this Agreement, subject, however, to the rights of any third party
creditor under law.
(e) Allocations between Assignor and Assignee Members. In the case of
a Transfer, the assignor and assignee shall each be entitled to receive
distributions of Net Cash Flow and allocations of Net Profits or Net Losses and
Nonrecourse Deductions as follows:
(i) Unless the assignor and assignee agree to the contrary and
shall so provide in the instrument effecting the Transfer,
distributions shall be made to the person owning the Member's
membership interest on the date of the distribution; and
(ii) Net Profits or Net Losses and Nonrecourse Deductions shall
be allocated by the number of days of the fiscal year each person held
the Member's membership interest.
(f) Tax Credits. Any Company tax credits shall be allocated among the
Members in proportion to their respective Percentage Membership Interest.
(g) Deficit Capital Accounts. Except as otherwise provided herein or
under the Act, no Member shall be required at any time to make up any deficit in
such Member's Capital Account.
(h) Further Allocation Rules. Anything herein to the contrary
notwithstanding:
(i) An item of Company tax loss or deduction shall not be
allocated to a Member to the extent that as of the end of any taxable
year a deficit balance in such Member's Capital Account would be
created or increased (after adding to such Capital Account balance
such Member's share of Company Minimum Gain and Member Nonrecourse
Debt Minimum Gain as provided in Regulation Sections 1.704-2(g)(1) and
1.704-2(i)(5), respectively) and subtracting the items referred to in
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). Any amount
that cannot be allocated to one Member by reason of this Section shall
be allocated to the Members whose Capital Accounts, as determined in
accordance with the foregoing rules, are positive. Additionally, if in
any taxable year any Member unexpectedly receives any adjustment,
allocation or distribution described in Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) such that had such unexpected
adjustment, allocation or distribution been known at the time of the
determinations made under this Section such Member would not have been
entitled to the allocation under this Agreement, such Member shall be
allocated items of income and gain in an amount and manner sufficient
to eliminate any deficit balance in such Member's Capital Account
(after adjustment as provided above) as quickly as possible. The
preceding sentence is intended to satisfy the qualified income offset
provisions of the Regulations referenced therein.
(ii) Company tax losses and Nonrecourse Deductions that are
attributable to Member Nonrecourse Debt shall be allocated to the
Member that bears the economic risk of loss for such debt. Such
allocations and any determinations required in order to make such
allocations shall be made in accordance with Regulation Section
1.704-2. Except as otherwise required by Regulation Section 1.704-2,
all other Nonrecourse Deductions shall be allocated among the Members
in accordance with their respective Percentage Membership Interest.
(iii) If there is a net decrease in Company Minimum Gain during
any Company taxable year, each Member shall be allocated before any
other allocation is made under Section 704(b) of the Code (for such
taxable year, and, if necessary, for subsequent years), items of
Company income and gain in proportion to, and to the extent of such
Member's share of the net decrease in Company Minimum Gain during such
year (as determined in accordance with Regulation Sections
1.702-2(g)(2) and 1.702-2(j)(2)). This clause (iii) shall not apply to
the extent no minimum gain chargeback is required pursuant to
Regulation Section 1.704-2(f).
(iv) Minimum Gain during any Company taxable year, each Member
with a share of such Member Nonrecourse Debt Minimum Gain at the
beginning of such taxable year shall be allocated, after any
allocation pursuant to Section (iii) of this subparagraph (h) but
before any other allocation is made under Section 704(b) of the Code
(for such taxable year and, if necessary, for subsequent years), items
of Company income and gain in proportion to, and to the extent of,
such Member's share of the net decrease in such Member Nonrecourse
Debt Minimum Gain (as determined in accordance with Regulation
Sections 1.702-2(i)(4) and 1.702-2(j)(2)). This clause (iv) shall not
apply to the extent no minimum gain chargeback is required pursuant to
Regulation Section 1.704-2(i)(4).
(v) Notwithstanding the allocations provided for in this
subparagraph (h), each of the Members agrees that the Board of
Managers is authorized to make such special allocations of items of
income, gain, loss or deduction as may be necessary to eliminate the
effects of any special allocations or adjustments to the Capital
Accounts of the Members pursuant to Section 704(b) of the Code and any
regulations promulgated thereunder ("Regulatory Allocations") which
are applied to the Company by the Board of Managers but which
Regulatory Allocations might cause distributions to the Members to
differ from those provided for in this Agreement without the authority
of the Board of Managers to make the special allocations of income,
gain, loss or deduction provided for hereby.
(vi) Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset, pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a Member in complete liquidation of such Member's
interest in the Company, the amount of such adjustment to Capital
Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
such basis) and such gain or loss shall be specially allocated to the
Members in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member
to whom such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(vii) Each item of income, gain, loss or deduction which is
specially allocated under this subparagraph (h), shall not be taken
into account for purposes of Net Profits and Net Losses allocated
under subparagraph (c) of this Agreement.
(i) Tax Allocations: Code Section 704(c).
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any Property contributed to
the capital of the Company shall, solely for tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted basis of
such Property to the Company for federal income tax purposes and its initial
Gross Asset Value (computed in accordance with clause (1) of the definition of
Gross Asset Value in Section 18(a)(iv)) using the remedial method pursuant to
the Regulations under Section 704(c).
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (2) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by the Board of Managers in any manner that reasonably reflects the purpose
and intention of this Agreement. Allocations pursuant to this subparagraph (i)
are solely for purposes of federal, state, and local taxes and shall not affect,
or in any way be taken into account in computing, any Member's Capital Account
or share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.
19. Liquidation and Termination of the Company.
(a) General. Upon the termination of the Company, the Company shall be
liquidated in accordance with this Section 19 and the Act. The liquidation shall
be conducted and supervised by the Board of Managers, or if there shall be no
Board of Managers, by a person who shall be designated for such purpose by the
members holding a majority of the Percentage Membership Interests in the Company
(the Board of Managers or person for such purpose so designated being herein
referred to as the "Liquidating Agent"). The Liquidating Agent shall have all of
the rights and powers with respect to the assets and liabilities of the Company
in connection with the liquidation and termination of the Company that the Board
of Managers would have with respect to the assets and liabilities of the Company
during the term of this Agreement including, without limitation, and
notwithstanding any provision contained in this Agreement to the contrary, the
ability to liquidate and/or sell any or all of the Company's tangible assets or
intangible assets without the necessity to obtain any Member's consent. Without
limiting the foregoing, the Liquidating Agent is hereby expressly authorized and
empowered to execute and deliver any and all documents necessary or desirable to
effectuate the liquidation and termination of the Company and the transfer of
any asset or liability of the Company. The Liquidating Agent shall have the
right from time to time, by revocable powers of attorney, to delegate to one or
more persons any or all of such rights and powers and such authority and power
to execute and deliver documents, and, in connection therewith, to fix the
reasonable compensation of each such person, which compensation shall be charged
as an expense of liquidation. The Liquidating Agent is also expressly authorized
to sell the Company's assets and/or to distribute the Company's property to the
Members or other third parties subject to liens and the terms and provisions of
this Agreement.
(b) Statements on Termination. Each Member shall be furnished
with a statement prepared by the Company's regular accountants setting forth the
assets and liabilities of the Company as of the date of complete liquidation,
and each Member's share thereof. Upon compliance with the distribution plan set
forth in this Agreement, the Members shall cease to be such, and the Liquidating
Agent shall execute, acknowledge and cause to be filed where appropriate under
law a Certificate of Dissolution of the Company.
(c) Priority on Liquidation. The Liquidating Agent shall, to
the extent feasible, liquidate and sell the tangible assets and the intangible
assets of the Company as promptly as shall be practicable. To the extent the
proceeds are sufficient therefor, in the Liquidating Agent's opinion, the
proceeds of such liquidation shall be applied and distributed in the following
order of priority (the "Liquidation Distribution"):
(i) To pay the costs and expenses of the liquidation and
termination;
(ii) To pay the matured or fixed debts and liabilities of the
Company;
(iii) To establish any reserve that the Liquidating Agent may
deem necessary for any contingent, unmatured or unforeseen liability
of the Company;
(iv) The balance, if any, shall be distributed to the initial
Members of the Company up to an amount not in excess of the following
for each Member on the Effective Date: (1) RSI, $6,500,000, if RSI has
converted the RSI Subordinated Note on or prior to the date of the
termination of the Company; (2) Veritech, Simon and Hornig, $550,000
pro rata in accordance with their Percentage Membership Interest on
the Effective Date; and (3) each General Member, the amount of the
initial capital contribution of such Member specified in Section 2(a),
pro rata in accordance with to such amounts.
(v) The balance, if any, shall be distributed to Veritech and the
General Members up to an amount not in excess of $3,500,000 pro rata
in accordance with their Percentage Membership Interest on the
Effective Date.
(vi) The balance, if any, shall be distributed to the Members of
the Company in the proportion to their then Percentage Membership
Interest.
(d) Distribution of Non-Liquid Assets. If the Liquidating Agent shall
determine that it is not practicable to liquidate all of the assets of the
Company, then the Liquidating Agent shall cause the fair market value of the
assets not so liquidated to be determined by appraisal by an independent
appraiser. Such assets, as so appraised, shall be retained or distributed by the
Liquidating Agent as follows:
(i) The Liquidating Agent shall retain assets having a fair
market value equal to the amount, if any, by which the net proceeds of
liquidated assets are insufficient to satisfy the debts and
liabilities of the Company (other than any debt or liability for which
neither the Company nor the Members are personally liable), to pay the
costs and expenses of the dissolution and liquidation, and to
establish reserves, all subject to the provisions of this Agreement.
The foregoing shall not be construed, however, to prohibit the
Liquidating Agent from distributing, pursuant to this Agreement,
property subject to liens at the value of the Company's equity
therein.
(ii) The remaining assets (including, without limitation,
receivables, if any) shall be distributed to the Members by way of
undivided interests therein in such proportions as shall be equal to
the respective amounts to which each Member is entitled pursuant to
this Agreement (including recognizing any priorities provided for in
this Agreement). If, in the judgment of the Liquidating Agent, it
shall not be practicable to distribute to each Member an undivided
aliquot share of each asset, the Liquidating Agent may allocate and
distribute specific assets to one or more Members as tenants-in-common
as the Liquidating Agent shall determine to be fair and equitable,
taking into consideration, inter alia, the basis for tax purposes of
each asset distributed. Notwithstanding any provision contained herein
to the contrary, if the Liquidating Agent shall for any reason be
unable to liquidate and/or sell the Company's intangible assets in the
course of any liquidation, then the parties hereto hereby instruct the
Liquidating Agent to, and the Liquidating Agent shall, subject to the
terms and provisions of this Section 19, distribute each of such
intangible assets to the Members as co-owners with an undivided
interest in the whole and unless otherwise agreed to by the parties
hereto to the contrary, each Member to whom an intangible asset shall
have been distributed shall have the full right to exploit the
intellectual property rights contained therein without being obligated
to account or pay to the other Member or Members for any royalties or
other revenues received therefrom.
(iii) Nothing contained in this Agreement is intended to cause
any in-kind distributions to be treated as sales for value.
(e) Orderly Liquidation. A reasonable time shall be allowed for the
orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors so as to minimize the losses normally attendant upon a
liquidation.
20. Loans and Advances.
(a) Loans and Advances. If any Member, manager or any of their
respective Affiliates shall loan or advance any funds to the Company, such loan
or advance shall not be deemed a contribution to the capital of the Company and
shall not in any respect increase such Member's Percentage Membership Interest
in the Company. Such loan or advance shall constitute an obligation and
liability of the Company. Unless otherwise agreed in writing between the
Members, the Board of Managers and the Company, the Members, the managers and
any of their respective Affiliates shall not have any personal obligation or
liability for the repayment of such loans and the same shall be collectible only
from Company assets. Any reference in this Agreement to the payment of debts,
obligations or liabilities of the Company shall be deemed to include any such
loans from a Member, a manager, and any of their respective Affiliates, to the
extent that law and agreements to which the Company is a party or is subject
permit, and to the extent that the terms of such loans may require, such loans
from a Member, the managers or any of their respective Affiliates, shall be paid
ahead of other general debts, obligations and liabilities of the Company.
21. Exculpation and Indemnification of Managers, Members and Affiliates.
(a) Exculpation. Notwithstanding any other provisions of this
Agreement, whether express or implied, or obligation or duty at law or in
equity, no Member or manager, nor any officer or employee of the Company or any
of its or their respective Affiliates (individually, a "Related Party" and
collectively, the "Related Parties") shall be liable to the Company or any other
person or entity for any act or omission taken or omitted by a Related Party
which is within the scope of authority granted to such Related Party by this
Agreement, provided that such act or omission does not constitute a breach of
any representation, warranty, covenant or agreement of this Agreement, fraud,
willful misconduct, bad faith or gross negligence.
(b) Indemnification.
(i) The Company shall indemnify any person or entity who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
initiated by or in the right of the Company in which action the
Company ultimately prevails) by reason of the fact that such party is
or was a Member, manager, officer, employee, or agent of the Company,
or is or was serving at the request of the Company as a manager,
director, officer, employee, trustee or agent of another limited
liability company or corporation, partnership, joint venture, trust or
other enterprise, from and against expenses (including attorneys' and
accountants' fees and disbursements), judgments, fines and amounts
paid in settlement, actually and reasonably incurred (collectively,
"Losses") by such party in connection with such action, suit or
proceeding if such party acted in good faith and in a manner such
party reasonably believed to be in, or not opposed to, the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such party's conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person seeking indemnification did not act in
good faith and in a manner which such party reasonably believed to be
in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that such party's conduct was unlawful.
(ii) To the extent that a Member, manager, officer, employee or
agent of the Company has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section
21(a), or in defense of any claim, issue or matter therein, such party
shall be indemnified against expenses (including attorneys' and
accountants' fees and disbursements) actually and reasonably incurred
by such party in connection therewith.
(iii) Any indemnification hereunder (unless ordered by a court)
shall be made by the Company only as authorized in the specific case
upon a determination by the Board of Managers that indemnification of
the Member, manager, officer, employee or agent is proper in the
circumstances because such party has met the applicable standard of
conduct set forth herein; provided, that no person or entity shall be
entitled to indemnification hereunder to the extent that the amount of
any Losses arises from a breach of any representation, warranty,
covenant or agreement of this Agreement, fraud, willful misconduct,
bad faith or gross negligence.
(iv) Expenses (including attorneys' and accountants fees and
disbursements) incurred by any Member, manager, officer, employee or
agent in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall, with the prior consent
of the Board of Managers which shall be made in good faith after
meaningful consultation with the Chairman, be paid by the Company in
advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such person or
entity to repay such amount if it shall ultimately be determined that
such party is not entitled to be indemnified by the Company as
authorized in this Section 21(b).
(v) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section 21(b) shall not be deemed
exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any law, agreement,
or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office.
(vi) The Company may purchase and maintain insurance on behalf of
any person who is or was a Member, manager, officer, employee or agent
of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee or agent of another limited
liability company corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such party and
incurred by such party in any such capacity, or arising out of such
party's status as such.
(vii) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 21(b) shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a Member, manager, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of
each such person or entity.
22. Power of Attorney.
(a) General. Each Member irrevocably constitutes and appoints the
Board of Managers and the Liquidating Agent, or any one of them, with full power
of substitution, the true and lawful attorney of such Member to execute,
acknowledge, swear to and file any of the following:
(i) Any amendment to the Certificate pursuant to the Act;
provided, that if any provision of such amendment adversely affects
such Member's limited liability company interests in the Company such
amendment is approved by all the Members;
(ii) Any certificate or other instrument (i) that may be required
to be filed by the Company under the laws of the United States, the
State of Delaware or any other state in which any of the Members
reside or in which the Company engages in business or (ii) which the
Board of Managers deems advisable to file;
(iii) Any amendments to the certificates or other instruments
referred to in paragraphs (a) and (b) of this Section 22;
(iv) Any document that may be required to effectuate the
liquidation or termination of the Company; and
(v) Any amendment to this Agreement or the foregoing
certificates, instruments or documents necessary to effect any change
permitted under this Agreement or to reflect any change in the
ownership of membership interests in the Company as expressly provided
for in this Agreement.
It is expressly acknowledged by each Member that the
foregoing power of attorney is coupled with an interest and shall
survive the disability of such Member or a Transfer by such Member,
provided, however, that if such Member shall make a Transfer of all of
such Member's membership interest and the Transferee shall, in
accordance with the provisions of Article VIII of this Agreement,
become a successor Member, such power of attorney shall survive the
Transfer only for the purpose of executing, acknowledging, swearing to
and filing any and all instruments necessary to effectuate such
substitution.
Each Member hereby agrees to execute concurrently herewith
or upon five (5) business days' prior written notice, a special power
of attorney containing the substantive provisions of this Agreement in
form satisfactory to the Board of Managers.
(b) Successor Members. A power of attorney similar to that contained
in Section 22(a) of this Agreement shall be one of the instruments that the
Board of Managers may require a successor Member to execute, acknowledge and
swear to pursuant to this Agreement. No Transferee shall become a Member or
otherwise own all or part of a Member's Percentage Membership Interest or any
other interest in the Company unless, as a condition precedent thereto, such
purported Transferee becomes a signatory of this Agreement.
(c) Additional Power of Attorney. Upon the admission of a successor
Board of Managers or upon the liquidation or termination of the Company, the
Members, at the request of the Board of Managers or any of such successor Board
of Managers or the Liquidating Agent, shall execute, acknowledge and swear to
and deliver a new power of attorney, similar to that described in Section 22(a)
of this Agreement, in favor of any such successors or the Liquidating Agent.
23. Certain Defined Terms. For the purposes of this Agreement, the
following terms used herein shall be defined as follows:
(a) Affiliate. With respect to any Person means: (i) any person at the
time directly or indirectly controlling, controlled by or under direct or
indirect common control (whether by ownership of voting securities, contract or
otherwise) with such person; (ii) any executive officer, senior employee or
director (or a person with similar responsibilities) of such person; and (iii)
when used with respect to an individual, shall include the Family Group of such
individual. Notwithstanding the provisions of this Section 23(a), an Affiliate
of RSI shall include Reckson, Reckson Realty Associates Corp. and any Platform
Company.
(b) Contingent Transfer. A Transfer of Interest of membership
interests other than a Transfer (A) permitted by, and as described in, Sections
5(b)(i) (Testamentary and Gift Transfers), (ii) (Affiliate Transfers), (iii)
(Sale to the Company), (v) (Pledges), (vi) (Syndications), Section 10 (Buy/Sell)
or Section 16 (RSI Put) or (B) pursuant to the exercise of the Veritech Call.
(c) Deposit Defaulted Interests. Means that aggregate amount of
membership interests so that the value of such membership interests (valued at
the Third Party Price, Buy/Sell Price or Fair Market Value, as the case may be)
equals the amount of the FR Deposit, Buy/Sell Deposit, Call Deposit, Put Deposit
or RSI Put Deposit, as the case may be, less the amount of the Cash Deposit
actually paid by such Member.
(d) Disqualified Transferee. Means, unless waived by RSI, any Person
other than the Persons listed on Schedule B hereto that is: (i) a real estate
investment trust or similar investment vehicle, real estate investor or
developer which actively and directly (by itself or through one or more of its
Affiliates) competes with RSI or any of its Affiliates in the geographic
locations in which it or any such Affiliate is then actively engaged in the real
estate investment or management business; or (ii) actively and directly (by
itself or through one or more of its Affiliates) competes in the same business
or any line of business of the Company or any other Platform Company of RSI or
any of its Affiliates; provided, however, that notwithstanding the foregoing to
the contrary, in no event shall a Disqualified Transferee include any pension
fund or trust or any financial investor, including without limitation those set
forth on Schedule B hereto, whose primary activity is investment in entities or
businesses (including real estate businesses).
(e) Employed the RSI Funds. Means that the total disbursements by the
Company on or prior to the specified date plus the aggregate amount that the
Company is unconditionally contractually committed to disburse from its funds as
of such date is equal to $6,500,000 or more; provided, that the Company shall be
deemed to have Employed the RSI Funds: (i) if such disbursements and contractual
commitments would have equaled or exceeded $6,500,000 had the Company conducted
its Business in accordance with the Plan; or (ii) in any event, on and after the
date that is two years and sixty (60) days after the Effective Date; provided,
further, that, solely with respect to the Significant Decision specified in
Section 9(c)(vii), the Company shall be deemed to have Employed the RSI Funds if
the actual or deemed amount of such disbursements and contractual commitments
equals or exceeds, or would have equaled or exceeded, $5,500,000.
(f) Excused Condition. With respect to any Member which will purchase
membership interests of any other Member hereunder, means a breach or default on
the part of the selling Member or the failure of a condition precedent to the
specified purchase of the membership interests unless such failure is the result
of a breach, default or failure on the part of the purchasing Member.
(g) Fair Market Value. With respect to the valuation of the Company
for the purposes of this Agreement shall mean the fair market valuation of the
equity of the Company determined by valuing the Company as a going concern
without any discount for loss of liquidity determined by the mutual agreement of
RSI and Veritech or, if after ten (10) business days such parties do not agree
upon such determination, the average of such fair market valuations of the
Company (provided, that in connection with a Capital Call Notice the acquisition
or investment that is the subject of such notice shall be valued at the proposed
cost to the Company) as determined in good faith by two Nominated Investment
Banks selected by the Company in the order of appearance of such firms on
Schedule A; provided, that if the difference between such valuations is greater
than ten (10%) of the higher valuation, then the Company shall select the next
available Nominated Investment Bank (in the order of appearance of such firms on
such schedule) and the "Fair Market Value" shall equal the average of all three
such valuations. Whenever the Fair Market Value of the Company is to be
determined, the Company shall pay all fees and disbursement of such Nominated
Investment Banks and shall require that each Nominated Investment Bank to (x)
confirm in writing that it is independent with respect to, and not conducting
any business with, any Member or their respective Affiliates other than stock or
commodity or similar brokerage or broker/dealer activities for reasonable and
customary commissions or discounts and (y) report its valuation within thirty
(30) days after the date of such assignment. The "Fair Market Value" of any
membership interest held by any Member shall be the Fair Market Value of the
Company, as determined above, multiplied by the Percentage Membership Interest
represented by such membership interests on the date of such determination.
Accordingly, the Fair Market Value of such membership interests is without
regard to a premium or discount for a majority or minority interest. It is
acknowledged and agreed that the procedures described above are to determine the
specified valuation with administrative efficiency and expediency. Accordingly,
no party hereto shall have a right, and no Nominated Investment Bank shall be
required to or shall hold any hearing, presentation or other advocacy proceeding
with respect to the preparation of such valuation and the determination of such
value in accordance with the terms hereof shall be final and binding on the
parties hereto.
(h) Family Group Member. Means with respect to (i) (I) Veritech, Jon
Halpern; (II) Rabinowitz: Marty Rabinowitz; (III) Simon: Arthur Simon; (IV)
Hornig: Daren Hornig or (V) RSI: Scott Rechler or Mitchell Rechler; (ii) the
parents grandparents, brothers, sisters, spouse and descendants (whether natural
or adopted) of any person described in clause (i) above; (iii) any spouse or
descendant of any person described in clauses (i) and (ii) above; (iv) any trust
created solely for the benefit of any person described in clauses (i) through
(iii) above; (v) any executor or administrator for any of the persons described
in clauses (i) through (iv) above; (vi) any partnership solely of persons
described in clauses (i) through (v) above; and (vii) any corporate foundation
created by any of the persons described in clauses (i) through (v) above for
charitable purposes.
(i) Interim Loans. Means the loans and advances made by RSI or its
Affiliate to Veritech on or prior to the Effective Date.
(j) IPO. Means an initial public offering of the membership interests
in (or other equity interest in or equity security of) of the Company which is
registered with the Securities and Exchange Commission under the provisions of
the 1933 Act; provided, that not less than twenty percent (20%) such interest
(on a fully diluted basis after giving effect to the sale of such interests in
such IPO) shall be issued in such offering (or any substantially similar
transaction, including without limitation, the transfer of the Company's assets
to a subsidiary and the sale of such subsidiary's stock in an offering of the
type described in this subsection with respect to the Company).
(k) Liens. Means any lien, encumbrance, claim, charge or restriction
on or with respect to the membership interests other than a lien, encumbrance,
claim, charge or restriction imposed by this Agreement or which either (A) was
granted in order to secure any obligation of the Company or any guaranty of any
obligation of the Company at the request of the Company or (B) is fully,
absolutely and irrevocably released on the day of a Transfer of such membership
interests.
(l) OCC Buy Sell Right. Means a Buy/Sell Right (as defined by the OCC
LLC Agreement) of the membership interests in OCC pursuant to the terms and
provisions of the OCC LLC Agreement caused by, or resulting from, a Deadlock (as
defined by the OCC LLC Agreement) with respect to the merger or consolidation of
OCC or the sale of all or substantially all of the assets of OCC.
(m) OCC LLC Agreement. Means the Limited Liability Company Agreement
of OCC, as amended from time to time.
(n) Person. Any individual and any corporation, partnership, trust or
other entity.
(o) Platform Company. The Company and any other company or entity, or
any division thereof, in which RSI, Reckson, or any of their respective
Affiliates directly or indirectly invests and has rights to direct or
significantly influence the management and control thereof.
(p) Supermajority Effective Period. Means the period of time
concerning on the date hereof and ending on the date that: (i) Veritech's
Percentage Membership Interests is less than 12.9870% and (ii) at such time the
ratio of RSI's Percentage Membership Interests to Veritech's Percentage
Membership Interest is greater than 2.26:1.
(q) Syndicate Representative. Means: (i) any individual who is
ultimately at the direction of JAH Realties, L.P., in the case of a Syndication
by Veritech; (ii) Mr. Martin Rabinowitz, in the event of a Syndication by
Rabinowitz; (iii) Mr. Arthur Simon, in the event of a Syndication by Simon; and
(iv) Mr. Daren Hornig, in the event of a Syndication by Hornig.
(r) Tag-Along Interest. Means a membership interest of the specified
Tag-Along Member equal to the same percentage of membership interest of the
selling Member which it proposes to Transfer in the specified Contingent
Transfer (for example, if a Selling Member has a fifty (50%) percent Percentage
Membership Interest in the Company and proposes to sell one-half of its
membership interest (i.e., a twenty-five (25%) percent Percentage Membership
Interest in the Company), the Tag-Along Interest would equal one-half of the
Tag-Along Member's membership interest; provided, that, in no event shall the
Tag-Along Interest exceed the aggregate Percentage Membership Interest proposed
to be sold by the selling Member.
(s) Tag-Along Member. Means a Member which is exercising the Tag-Along
Right provided in Section 7.
(t) Third Party Price. (i) Means a proposed or offered price in or
converted to cash equal to: (A) cash; (B) cash equivalents; and (C) stated
principal amount of any promissory notes, in each case, included in any such
proposal or offer; provided, however, that if there is no interest rate, or a
nominal interest rate, the stated principal amount shall be discounted in
accordance with generally accepted accounting principles; provided, further,
that any such note shall be included in the Third Party Price only if the
obligor (or guarantor) of such note has a minimum financial net worth of at
least $5,000,000 on a pro forma basis, assuming the Third Party Offered Interest
are purchased in accordance with the terms stated in the Notice of Offer. As
used herein, the Third Party Price for membership interests other than Third
Party Offered Interests shall be adjusted to equal a price per Percentage
Membership Interest represented by such membership interests. Accordingly, the
Third Party Price of Tag-Along Interests shall equal the Third Party Price as
defined by clause (i) above multiplied by a fraction, the numerator of which is
equal to the Percentage Membership Interest represented by such Tag-Along
Interests and the denominator of which is equal to the Percentage Membership
Interest represented by the Third Party Offered Interests. For example, if the
Third Party Offered Interest represents a Percentage Membership Interest of 33%,
the Third Party Offered Price as defined by clause (i) above is equal to
$1,000,000 and the Tag-Along Interest represents a Percentage Membership
Interest equal to 10%, then the Third Party Price of the Tag-Along Interest is
equal to $300,000, computed as follows: $1,000,000 / .33 * .10 or $3,000,000 *
.10 or $300,000.
(u) Glossary. A glossary of other defined terms is attached hereto as
Schedule C.
24. Amendment and Modification. No change or modification of this Agreement
shall be valid, binding or enforceable as against: (i) the Company unless the
same shall be in writing and signed by the Company; or (ii) any of the Members
unless the same shall be in writing and signed by such Member unless the rights
of such Member are not adversely affected by such amendment.
25. Assignment. This Agreement and all of the provisions hereof shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, assigns, executors, administrators or successors, but neither
this Agreement nor any of the rights, benefits, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties; provided, however, that the rights and
benefits of this Agreement shall be assigned to any purchaser or transferee of
membership interests if such transaction is a Permitted Transfer, except that
unless such purchaser or Transferee is an Affiliate of RSI, Veritech or a
General Member, the rights and benefits of the following Sections may shall not
be assigned or transferred to any Person other than a Pledgee which is not a
Disqualified Transferee without the prior written consent of each Institutional
Member: 6 (Right of First Refusal), 7 (Tag-Along Rights), 9 (Governance), 10
(Deadlock Regarding Significant Decisions; Buy/Sell Option), 11 (Additional
Contributions), 14 (Veritech Call Right; Veritech Put Right), 15 (Participation
Right), 16 (RSI Put Option) and 35 (Initial Investment in the Company by RSI).
This Agreement is not intended to confer upon any other person except the
parties hereto and their permitted successors and assigns any rights or remedies
hereunder. In the event that any membership interests are Transferred by RSI,
Veritech or a General Member to an Affiliate of such Member, such Transferee
shall be deemed to be included in each reference to RSI, Veritech or such
General Member, as the case may be; provided, that notices shall only be
required to be sent to, and shall only be sent by, RSI, Veritech, Rabinowitz,
Simon or Hornig, as the case may be, for as long as such party is a Member
hereunder.
26. Further Assurances. Each party hereto by the execution and delivery of
this Agreement hereby consents to the formation of the Company, the sale to, and
the acquisition by, the Company of the Contributed Assets by the Company from
Veritech pursuant to the terms and conditions of the Capital Contribution
Agreement, the conduct of the Business by the Company, obtaining and maintaining
in full force and effect all regulatory approvals, licenses, permits and
consents necessary or desirable to conduct the Business and hereby agrees that
he or it shall do and perform or cause to be done and performed all such further
acts and things and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party hereto may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
27. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware governing agreements made
wholly within the State of Delaware.
28. Notices. All notices given pursuant to this Agreement shall be in
writing and shall be made by hand-delivery, first-class mail (registered or
certified, return receipt requested), telex, telecopier, or overnight air
courier guaranteeing next day delivery:
(a) if to the Company,
to the principal office of the Company:
680 Fifth Avenue
New York, NY 10022
Attention: The Chairman
Tel: (212) 324-1500
Fax: (212) 324-1550
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Stephen M. Rathkopf, Esq.
Tel: (212) 592-1400
Fax: (212) 889-7577
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 30th Floor
New York, NY 10022
Attention: Scott Wornow, Esq.
Tel: (212) 318-6000
Fax: (212) 319-4090
and
if Rabinowitz is a Member,
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attention: Steven M. Rabinowitz, Esq.
Tel: (212) 326-4100
Fax: (212) 319-4090
and
if Hornig is a Member,
Davidoff & Malito, LLP
605 Third Avenue
New York, NY 10158
Attention: Charles Klein, Esq.
Tel: (212) 557-7200
Fax: (212) 286-1884
and
if Simon is a Member,
Frankfurt, Garbus, Klein & Selz, P.C.
488 Madison Avenue
New York, New York 10022
Attention: Gary Schonwald, Esq.
Tel: (212) 980-0120
Fax: (212) 593-9175
(b) if to the Member, to him or it at his or its address as reflected
in the records of the Company or as the Member shall designate to the Company in
writing, such designation to be effective only upon receipt.
(c) Except as otherwise provided in this Agreement, each such notice
shall be deemed given at the time delivered by hand, if personally delivered;
five business days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt acknowledged, if
telecopied; and the next business day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next business day delivery.
29. Consent to Jurisdiction. All actions and proceedings arising out of, or
relating to, this Agreement shall be heard and determined in any state or
federal court sitting in Delaware (including without limitation the Court of
Chancery) or New York. The undersigned, by execution and delivery of this
Agreement, expressly and irrevocably consent and submit to the personal
jurisdiction of any of such courts in any such action or proceeding; (ii)
consent to the service of any complaint, summons, notice or other process
relating to any such action or proceeding by delivery thereof to such party by
hand or by certified mail, delivered or addressed as set forth in Section 28 of
this Agreement; and (iii) waive any claim or defense in any such action or
proceeding based on any alleged lack of personal jurisdiction, improper venue or
forum non conveniens or any similar basis.
30. Entire Agreement; Non-Waiver. This Agreement supersedes and terminates
all prior agreements between any of the parties hereto with respect to the
subject matter contained herein, and this Agreement embodies the entire
understanding between the parties relating to such subject matter, and any and
all prior correspondence, conversations and memoranda are merged herein and
shall be without effect hereon. No promises, covenants or representations of any
kind, other than those expressly stated herein, have been made to induce any
party to enter into this Agreement. In the event a party hereto is in material
breach of any of the terms and provisions of this Agreement, then such party
shall not be entitled to the benefits of this Agreement including without
limitation the Supermajority Vote provided in Section 9. No delay on the part of
any party in exercising any right hereunder shall operate as a waiver thereof,
nor shall any waiver, express or implied, by any party of any right hereunder or
of any failure to perform or breach hereof by any other party constitute or be
deemed a waiver of any other right hereunder or of any other failure to perform
or breach hereof by the same or any other Member, whether of a similar or
dissimilar nature thereof.
31. Specific Performance and Injunctive Relief. The parties recognize and
acknowledge that their membership interests are closely held and that,
accordingly, in the event of a breach or default by one or more of the parties
hereto of the terms and conditions of this Agreement, the damages to the
remaining parties to this Agreement, or any one or more of them, may be
impossible to ascertain and such parties will not have an adequate remedy at
law. In the event of any such breach or default in the performance of the terms
and provisions of this Agreement, any party or parties thereof aggrieved thereby
shall be entitled to institute and prosecute proceedings in any court of
competent jurisdiction, either at law or in equity, to enforce the specific
performance of the terms and conditions of this Agreement, to enjoin further
violations of the provisions of this Agreement and/or to obtain damages. Such
remedies shall however be cumulative and not exclusive and shall be in addition
to any other remedies which any party may have under this Agreement or at law
(including the right to retain a Deposit as partial "liquidated damages"). Each
Member hereby waives any requirement for security or the posting of any bond or
other surety and proof of damages in connection with any temporary or permanent
award of injunctive, mandatory or other equitable relief and further agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
32. Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees and all disbursements in addition to any other available remedy.
33. Severability. If any provision of this Agreement or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and the application of such
provisions to the other parties or circumstances shall not b e affected thereby
and shall be enforced to the greatest extent permitted by applicable law.
34. Miscellaneous.
(a) Notwithstanding any provision of this Agreement to the contrary, a
Transferee of a Permitted Transfer shall take the membership interests in such
sale or transaction subject to the terms and provisions of this Agreement
including, without limitation, the Tag-Along and Participation Rights of the
Members provided herein.
(b) Section headings are for convenience of reference only and shall
not be used to construe the meaning of any provision of this Agreement.
(c) This Agreement may be executed in any number of counterparts, each
of which shall be an original, and all of which shall together constitute one
agreement.
(d) Any word or term used in this Agreement in any form shall be
masculine, feminine, neuter, singular or plural, as proper reading requires. The
words "herein", "hereof", "hereby" or "hereto" shall refer to this Agreement
unless otherwise expressly provided. Any reference herein to a Section or any
exhibit or schedule shall be a reference to a Section of, and an exhibit or
schedule to, this Agreement unless the context otherwise requires. Any reference
herein to a "business day" shall mean a day in which the New York branch of the
Federal Reserve Bank is open for business during its normal hours of operation.
(e) This Agreement shall be binding upon, and inure to the benefit of,
the parties hereto who have executed and delivered this Agreement on or prior to
5:00 p.m. (New York City time), March 2, 1998 and their respective successors,
assigns and permitted Transferees (to the extent otherwise permitted by this
Agreement). In the event that any General Member does not so execute and deliver
this Agreement on or prior to such date and time, then Veritech shall have the
right and the obligation to purchase from the Company all, but not less than
all, of the membership interest which would have been allocated to each such
General Member on the same terms and conditions as such General Member (unless
otherwise agreed by the Company) and from and after such date, each reference to
the term "General Member" shall not include any party which did not so execute
and deliver this Agreement on or prior to such date and time unless any such
party otherwise acquires a membership interest in the Company in accordance with
the terms and provisions of this Agreement.
(f) In the event the terms and conditions of any Buy/Sell Notice or
Notice of Transfer are inconsistent with the terms and conditions of this
Agreement, the terms and conditions of this Agreement shall supersede the terms
and conditions of any such notice. The Buy/Sell Right shall be applicable to the
all, but not less than all, of the membership interests held by an Institutional
Member and all of its Affiliates.
35. Initial Investment in the Company of RSI.
(a) Intention of Parties. It is the intention of the parties hereto
that the initial investment in the Company of RSI shall be pursuant to the terms
and provisions of that certain RSI Subordinated Note which shall be executed and
delivered by the Company and RSI on or prior to the Effective Date and provides,
inter alia, that:
(i) RSI, in its sole discretion, may exercise a right (the
"Conversion Right") to convert all, but not less than all, of the
aggregate principal amount and the accrued and unpaid interest under
the RSI Subordinated Note on the date of such conversion (the
"Conversion Date") into the Percentage Membership Interest (the "RSI
Deemed Membership Interest") specified in Section 2(c)(ii) subject to
adjustment as provided in the RSI Subordinated Note with all rights
and benefits provided to RSI under this Agreement including, without
limitation, the governance rights provided in Section 9 and the right
to contribute Necessary Funds to the Company by the purchase of
Additional Interests (including Additional Subscription Interests) in
the Company offered to Members in the Company from time to time
pursuant to a Capital Call Notice as if the Conversion Right were
exercised on the date hereof;
(ii) That RSI may exercise its Conversion Right at any time on or
prior to the date that is two (2) years and thirty (30) days after the
Effective Date (the "Conversion Period") upon delivery of a notice to
such effect and an original of the RSI Subordinated Note (or a duly
executed affidavit that such note is lost or stolen).
(iii) That all amounts to be paid by RSI to the Company may, at
the option of RSI in its sole discretion, be paid by (A) a loan by RSI
to the Company under the terms and provisions of the RSI Subordinated
Note (increasing the principal balance thereof) or (B) a cash
contribution to the capital of the Company for a membership interest
(or increase of its Percentage Membership Interest) in the Company;
(iv) That if RSI does not exercise its Conversion Right on or
prior to the expiration of the Conversion Period, then (A) the
membership interests of RSI which it holds on the date hereof (i.e.,
the 1% Percentage Membership Interest specified in Section 2 (c)(i))
shall be redeemed by the Company and (B) the Company shall have the
right, but not the obligation, to redeem all other membership
interests held by RSI on such date, in each case, within thirty (30)
days after the expiration of the Conversion Period at a purchase price
equal to the Fair Market Value of such membership interests on the
date of such redemption, such amount to be paid by cash or by an
increase in the principal amount of outstanding indebtedness under the
RSI Subordinated Note;
(v) That during the Conversion Period the interest rate under the
RSI Subordinated Note shall equal twelve (12%) percent, per annum,
compounded annually paid semi-annually to the extent provided below
and, to the extent the accrued interest is not paid in full on the
expiration of the Conversion Period, such unpaid amount shall be
accrued and paid in full without additional interest on the maturity
date of the RSI Subordinated Note;
(vi) That after the Conversion Period the interest rate under the
RSI Subordinated Note shall equal seven (7%) percent, per annum,
compounded annually and paid semi-annually commencing on the first
semi-annual period after the expiration of the Conversion Period;
(vii) That the unpaid principal balance shall be due and payable
on the date that is twelve (12) years after the Effective Date;
(viii) That, subject to terms and conditions of the RSI
Subordinated Note, the Company may draw upon the aggregate principal
amount of six million five hundred thousand and 00/100 ($6,500,000.00)
dollars less the outstanding principal amount of the Interim Loans on
the date of the execution and delivery of the RSI Subordinated Note
(as evidenced by the endorsement of the schedule to the RSI
Subordinated Note) from time to time upon demand by the Company in
amounts not less than $500,000 or the maximum amount which the Company
may then borrow under the RSI Subordinated Note;
(ix) That if RSI exercises its Conversion Right, RSI shall
contribute to the capital of the Company the amount which $6,500,000
exceeds the amount which the Company has drawn upon (including,
without limitation, the outstanding principal amount of the Interim
Loans on the date of the execution and delivery of the RSI
Subordinated Note) pursuant to the terms and conditions of the RSI
Subordinated Note, if any;
(x) The indebtedness under the RSI Subordinated Note shall be
subordinate in right of payment as provided therein and RSI will
execute and deliver any subordination agreement reasonably requested
by the Company to confirm the subordinated status of the RSI
Subordinated Note;
(xi) That during the Conversion Period the Company is required to
pay accrued interest only to the extent that RSI would have received a
distribution of Net Cash Flow had it exercised the Conversion Right
and converted the RSI Subordinated Note into the RSI Deemed Membership
Interest;
(xii) That during the Conversion Period the Company shall
distribute to RSI an amount equal to the excess, if any, of (x) the
amount of distributions actually made to the members in the Company
during any fiscal period that RSI would have received had it exercised
the Conversion Right and converted the RSI Subordinated Note into the
RSI Deemed Membership Interest immediately prior to such distribution
less (y) the amount of accrued interest received by RSI during such
fiscal period; and
(xiii) That during the Conversion Period RSI shall have the
rights and benefits provided to it under this Agreement.
(b) General Interpretation of this Agreement. The parties hereto agree
that this Agreement shall be interpreted in a manner that fully effectuates the
intention of the parties described in Section 35(a).
(c) Consent to Admission of RSI as a Member in the Company. Each
Member on behalf of themselves and any of their respective assignees or
transferees) hereby agrees, and each such assignee and transferee as a condition
to being admitted as a member in the Company shall agree, to the admission of
RSI as a member in the Company upon the conversion of the RSI Subordinated Note
in accordance with the terms and provisions thereof or upon the purchase by RSI
of any Additional Interests by a cash contribution to the capital of the
Company.
(d) Release of Security Interest. Simultaneously with the execution
and delivery of the RSI Subordinated Note the security interest of RSI (or its
Affiliate) in Veritech's ownership of OSA and OSL shall be terminated and
released by RSI (or such Affiliate) and RSI (or such Affiliate) shall deliver to
Veritech duly executed and completed UCC Termination Statements on UCC Form-3
for filing by Veritech to record such termination and release.
(e) Interpretation of Specific Provisions of this Agreement. Each of
the parties hereto agrees that in furtherance of the intent expressed above in
this Section 35, during the Conversion Period or, if earlier, until the
Conversion Date the following provisions of this Agreement shall be interpreted
as provided below:
(i) Recitals.
(A) Each Member by the execution and delivery of this
Agreement hereby elects RSI as a manager of the Company with all
rights provided to RSI hereunder.
(B) Until the expiration of the Conversion Period RSI shall
continue to be a manager of the Company with all such rights and
benefits.
(C) That upon conversion of the RSI Subordinated Note, RSI's
membership interest in the Company shall be increased to the RSI
Deemed Membership Interest.
(D) The term "membership interest" shall include the RSI
Deemed Membership Interest and all of RSI's right, title and
interest in, to and under the RSI Subordinated Note. Further,
each other term defined herein (e.g., "Transfer", "Third Party
Offered Interests", "Bring Along Interest", "Contingent
Transfer", "Permitted Transfer", "Syndication", "Supermajority
Effective Period", "Restrictive Covenant Period" and "RSI
Exclusivity Period") shall be conformed to include such
reference.
(ii) Section 2(c) Initial Percentage Membership Interests. The
"Percentage Membership Interest" of RSI shall be computed by
aggregating the Percentage Membership Interest of RSI (including
Additional Interests actually purchased by RSI by a cash contribution
to the capital of the Company) and the Percentage Membership Interest
represented by the RSI Deemed Membership Interest as of the date of
such computation (including Additional Interests deemed to have been
purchased by RSI). Further, each other term defined herein (e.g.,
"Base Percentage Interest") shall be conformed to include such
reference.
(iii) Section 4 Representations and Warranties of the Members.
Each Member hereby authorizes the execution, delivery and performance
of the RSI Subordinated Note by the Company and RSI hereby represents
and warrants that the RSI Subordinated Note was duly authorized,
executed and delivered.
(iv) Section 9 Governance. RSI shall have all of the rights
provided in Section 9 including, without limitation, the right to
designate the RSI Designees to the Board of Managers and the
requirement that all Significant Decisions be approved by a
Supermajority Vote.
(v) Section 10 Deadlock Regarding Significant Decisions; Buy/Sell
Option. Without limiting the generality of the interpretation of
"membership interests" provided above, in the event that a Buy/Sell
Right is exercised, RSI shall be deemed to have exercised its
Conversion Right immediately prior to such exercise and, accordingly,
the Buy/Sell Deposit may include a pledge of the RSI Subordinated Note
or part thereof.
(vi) Section 11 Additional Contributions. RSI shall have the
right to purchase Additional Interests offered pursuant to the
provisions of Section 11 as if RSI had exercised its Conversion Right
immediately prior to such offering. RSI may, in its sole discretion,
pay for any Additional Interests by (A) a cash contribution to the
capital of the Company or (B) a loan to the Company of the aggregate
purchase price of such Additional Interests under the terms and
provisions of the RSI Subordinated Note. RSI shall have actually
purchased Additional Interests if it pays for such Additional
Interests by a cash contribution to the capital of the Company, and
shall for the purposes of this Agreement be deemed to have purchased
such Additional Interests if it loans money to the Company as provided
above. Any amount paid by RSI to the Company for such Additional
Interests (whether as a cash contribution or loan) shall be included
in the amount of "Purchased Additional Interests" and "Member
Purchased Interests".
(vii) Section 12 Opportunities; Confidentiality; Non-Competition;
RSI Buildings. If on or prior to the Conversion Date the Conversion
Right is not exercised by RSI, then: (A) the term "Restrictive
Covenant Period" with respect to RSI, Reckson and any of their
respective Affiliates shall mean the period that commences on the date
hereof and expires one (1) year after the Conversion Date or, if
earlier, the date of an IPO; and (B) the term "RSI Exclusivity Period"
shall mean the period of time commencing on the Effective Date and
expiring on the date that is one (1) year after the Conversion Date
or, if earlier, the date of an IPO.
(viii) Section 17(b) Books and Records. The capital account in
the Company of RSI shall exclude the membership interests in the
Company which RSI would acquire upon the exercise of the Conversion
Right.
(ix) Section 18 Distributions and Allocations. There shall be no
allocations of income or loss to RSI with respect to the RSI Deemed
Membership Interest unless RSI exercises its Conversion Right.
(x) Section 19(c) Priority on Liquidation. The term "Percentage
of Membership Interest" shall not include the Percentage Membership
Interest represented by the RSI Deemed Membership Interest.
(xi) Section 20 Loans and Advances. For the purposes of the first
sentence of Section 20(a), the Percentage Membership Interest of RSI
shall be increased by the RSI Deemed Membership Interest.
[The next page is the Signature Page]
IN WITNESS WHEREOF, this Agreement has been signed by each of the
parties hereto as of the date first written above.
ONSITE VENTURES, L.L.C.
By: ______________________________
Name: Jon Halpern
Title: Manager
RSI-OSA HOLDINGS, INC.
By: _____________________________
Name: Scott Rechler
Title: President
VERITECH VENTURES LLC
By: JAH Realties, L.P.,
its Managing Member
By: JLH Realty Management Service, Inc.,
its general partner
By: ________________________
Name: Jon Halpern
Title: President
------------------------------
MARTIN RABINOWITZ, Individually
------------------------------
ARTHUR SIMON, Individually
------------------------------
DAREN HORNIG, Individually
[Signatures Continued on the Following Page]
ACCEPTED AND AGREED AS TO
SECTIONS 12 (c) and 12(d)
RECKSON SERVICES INDUSTRIES INC.
By: ______________________________
Name: Scott Rechler
Title: President
SCHEDULE A
Nominated Investment Banks
1. Ladenburg Thalmann & Co. Inc.
2. Morgan Stanley Group Inc.
3. Bear, Stearns & Co. Inc.
4. BancAmerica ROBERTSON STEPHENS
5. Goldman Sachs & Co.
6. BT Alex Brown Incorporated
7. Donaldson, Lufkin & Jenrette Securities Corporation
8. Salomon Smith Barney
9. Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated
10. Lazard Freres & Co. LLC
[End of List]
SCHEDULE B
Exceptions to Disqualified Transferees
A. Developers
Capelli
B. Financial Investors
Soros Funds
Apollo Funds
NorthStar Funds
[End of List]
SCHEDULE C
Glossary of Defined Terms
Term Reference
- ---- ---------
1933 Act 5(b)
Act Recitals
Additional Interests 11(a)
Additional Subscription Interests 11(d)
Agreement Recitals
Base Percentage Interest 11(e)
Bring Along Right 8(a)
Bring Along Interest 8(a)
Building 1(b)
Business 1(b)
Buy/Sell Closing Date 10(h)
Buy/Sell Notice 10(b)
Buy/Sell Right 10(a)
Buy/Sell Value 10(b)
Buy/Sell Deposit 10(f)
Buy/Sale Value 10(b)
Call Deposit 14(d)
Capital Call Notice 11(a)
Capital Contribution Agreement Recitals
Cash Deposit 6(c)
Cash Flow Revenue 9(b)
Certificate 1(d)
Code 17(d)
Company Option Plan 9(b)
Company Recitals
Competitor 12(d)
Contributed Assets Recitals
Conversion Right 35(a)
Deadlock 10(b)
Deciding Member 10(b)
Effective Date 2(a)
Equipment 1(b)
FR Acceptance Notice 6(b)
FR Notes 6(d)
FR Closing Date 6(b)
FR Acceptance Period 6(b)
FR Deposit 6(c)
FR Right 6(b)
FR Member 6(a)
Fully Subscribing Member 11(c)
General Member Offered Interest 6(g)
Hornig Recital
HSR Act 13(a)
IM Closing Date 6(g)
IM Acceptance Notice 6(g)
IM Share 6(g)
IM Refusal Right 6(g)
IM Acceptance Period 6(g)
Initial Veritech Capital Contribution 2(a)
Initial Rabinowitz Capital Contribution 2(a)
Initial Simon Capital Contribution 2(a)
Initial RSI Capital Contribution 2(a)
Initial Hornig Capital Contribution 2(a)
Initiating Member 10(b)
Institutional Members Recitals
IRR Benchmark 9(b)
IRS 17(d)
JAH Recitals
Liquidating Agent 19(a)
Liquidation Distribution 19(c)
Losses 21(b)
Management Share 9(b)
Member Purchased Interests 11(d)
Members Recitals
MRVeritech Loan 2(a)
Necessary Funds 11(a)
Nominated Investment Bank 10(b)
Non-Fully Subscribing Member 11(c)
Notice of Offer 6(a)
Notice of Transfer 7(b)
OCC Local Recitals
OCC Access Recitals
OCC 5(b)
Participation Right 15(a)
Partly Subscribing Member 11(c)
Percentage Membership Interest 2(c)
Permitted Transfer 5(b)
Plan 1(b)
Pledge 5(b)
Pledgee 5(b)
Projections 9(b)
Purchased Additional Interests 11(d)
Put Deposit 14(d)
Rabinowitz Recitals
Reckson 5(b)
Related Party 21(a)
Response Notice 10(e)
Restrictive Covenant Period 12(c)
ROI Deposit 6(g)
RSI Put Interests 16(a)
RSI Put Deposit 16(c)
RSI Recitals
RSI Share 9(b)
RSI Subordinated Note 2(a)
RSI Put Closing Date 16(b)
RSI Exclusivity Period 12(d)
RSI Put Offer 16(a)
RSI Designees 9(b)
RSI Put Notice 16(a)
Sealed Price Notice 10(b)
Selling Institutional Member 6(a)
Selling Member 7(a)
Significant Decision 9(c)
Simon Recitals
Specified Sale 7(a)
Stabilized Buildings 9(b)
Subscribing Members 11(c)
Subscription Deficit Contribution Period 11(d)
Subscription Due Date 11(e)
Subscription Acceptance Period 11(c)
Supermajority Vote 9(c)
Syndication 5(b)
Tag-Along Rights 7(a)
Tag-Along Notice 7(c)
Term 1(c)
Third Party Designee 9(b)
Third Party Offered Interest 6(a)
Transfer 5(a)
Transfer of Interest 5(a)
Transferee 5(b)
VC Event 14
Veritech Put Right 14
Veritech Recitals
Veritech Call Right 14
Veritech Excess 2(g)
Veritech Designees 9(b)
Warning Notice 10(b)
RSI Deemed Membership Interest 35(a)
Conversion Date 35(a)
Conversion Period 35(a)
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the 20th day of February 1998, before me personally came Jon
Halpern to me known, who being duly sworn, did depose and say that he is the
officer of ONSITE VENTURES, L.L.C., the limited liability company described in
and which executed the foregoing instrument; that he signed his name thereto by
order of the board of managers of such company.
Sworn to before me this
20th day of February, 1998
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the ____ day of February 1998, before me personally came Scott
Rechler to me known, who being duly sworn, did depose and say that he is the
officer of RSI-OSA HOLDINGS, INC., the corporation described in and which
executed the foregoing instrument; that he signed his name thereto by order of
the board of directors of such corporation.
----------------------------------
Sworn to before me this
___ day of February, 1998
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the 20th day of February 1998, before me personally came Jon
Halpern to me known, who being duly sworn, did depose and say that he is the
officer of JLH Realty Management Services, Inc., the general partner of JAH
Realties, L.P. which is the managing member of Veritech Ventures LLC, a limited
liability company, and that he executed the foregoing instrument in the name of
such corporation on behalf of such limited liability company and that he had
authority to sign the same, and he acknowledged that he executed the same as the
act and deed of the said corporation as the general partner of the said limited
partnership as the managing member of the said limited liability company.
Sworn to before me this
20th day of February, 1998
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF _____________ )
On the ___ day of February, 1998, before me personally came MARTIN
RABINOWITZ to me known to be the individual described in and who executed the
foregoing instrument, and acknowledged that he executed the same.
----------------------------------
Sworn to before me this
___ day of February, 1998
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the ___ day of February, 1998, before me personally came ARTHUR
SIMON to me known to be the individual described in and who executed the
foregoing instrument, and acknowledged that he executed the same.
----------------------------------
Sworn to before me this
___ day of February, 1998
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the ___ day of February, 1998, before me personally came DAREN
HORNIG to me known to be the individual described in and who executed the
foregoing instrument, and acknowledged that he executed the same.
----------------------------------
Sworn to before me this
___ day of February, 1998
- ---------------------------
Notary Public
TABLE OF CONTENTS
Page
1. Formation..............................................................2
(a) Formation; Name; Office.......................................2
(b) Purposes......................................................2
(c) Term..........................................................3
(d) Registered Office and Resident Agent..........................3
2. Capital Contributions..................................................3
(a) Initial Capital Contributions.................................3
(b) Issuance of Membership Interests..............................4
(c) Initial Percentage Membership Interests.......................4
(d) Members' Liability............................................5
(e) Uses of Capital Contributions and Proceeds
from the RSI Subordinated Note;
Interest on Capital Contributions.............................5
(f) Withdrawal of Capital.........................................5
(g) Veritech Excess...............................................5
(h) Source of Distributions.......................................5
3. Title to the Property of the Company...................................6
(a) Title to the Property of the Company..........................6
4. Representations and Warranties of the Members..........................6
(a) Representations and Warranties of Each Member.................6
(b) Additional Representation and Warranty of Veritech............6
5. Sale or Transfer of Membership Interest................................6
(a) General Restrictions..........................................6
(b) Permitted Transfers of Interest...............................7
(i) Testamentary and Gift Transfers......................7
(ii) Affiliate Transfers..................................7
(iii) Sale to the Company..................................7
(iv) Sales to Third Parties...............................7
(v) Pledges..............................................8
(vi) Syndication..........................................8
(vii) Conditions to a Permitted Transfer...................9
(c) Indemnity by Member for an Invalid Transfer of
Membership Interests.........................................10
6. Right of First Refusal................................................10
(a) Right of the Institutional Members...........................10
(b) Acceptance Period............................................11
(c) FR Deposit...................................................11
(d) Exercise of FR Right.........................................12
(e) Failure to Exercise FR Right.................................13
(f) FR Right Closing.............................................14
(g) Proposed Sale by a General Member............................14
(i) General Member Offered Interest.....................14
(ii) IM Acceptance Period................................14
(iii) Exercise of the Purchase Right by each
Institutional Member................................15
(iv) Exercise of the Purchase Right by one
Institutional Member................................15
(v) Failure to Exercise the IM Refusal Right in Full....16
(vi) Closing of the General Member Sale..................16
7. Tag-Along Rights......................................................17
(a) Qualifying Sale..............................................17
(b) Notice of Transfer...........................................17
(c) Exercise of Tag-Along Rights.................................18
8. Bring-Along Rights....................................................18
(a) Sale by Institutional Members................................18
(b) Sale by RSI After Default by Veritech........................19
(c) Sale of OCC..................................................19
9. Governance............................................................20
(a) Covenant by Each Member......................................20
(b) Board of Managers............................................20
(c) Significant Decisions........................................25
(d) Leverage of the Company......................................28
10. Deadlock Regarding Significant Decisions; Buy/Sell Option.............28
(a) Buy/Sell Right...............................................28
(b) Significant Decision Deadlock................................29
(c) Other Events Triggering a Buy/Sell Right.....................29
(d) Delivery of the Buy/Sell Notice..............................30
(e) Delivery and Deemed Delivery of Response Notice..............30
(f) Buy/Sell Deposit.............................................32
(g) [Reserved]...................................................33
(h) Closing of the Buy/Sell Right................................33
(i) RSI Buy/Sell Option..........................................33
(j) Failure of Buyer to Close....................................34
(k) Assumption of Obligations....................................34
11. Additional Contributions..............................................35
(a) Capital Call.................................................35
(b) Capital Call Objectives......................................35
(c) Pre-Emptive Rights...........................................36
(d) Notice of Subscription Deficit...............................36
(e) Subscription Closing; Adjustment of Percentage of Membership
Interest.....................................................37
(f) Computation of Adjusted Membership Interest..................37
(g) Illustration of Adjustments to Membership Interest...........38
12. Opportunities; Confidentiality; Noncompetition; RSI Buildings.........39
(a) Opportunities................................................39
(b) Confidentiality..............................................39
(c) Non-Competition..............................................39
(d) RSI Buildings; Exclusivity of the Company....................40
13. Effect of the Hart Scott Rodino Act...................................41
(a) Applicability................................................41
(b) Covenant to File all Necessary Documents.....................42
(c) Amendment of Timing Periods..................................42
14. Veritech Call Right; Veritech Put Right...............................42
(a) Exercise Period..............................................43
(b) Manner of Exercise of the Rights.............................43
(c) Purchase Price...............................................43
(d) Deposit......................................................43
(e) Closing of the Veritech Call Right...........................45
(f) Closing of the Veritech Put Right............................46
15. Participation Right...................................................46
(a) General Member Participation Right...........................46
(b) Participation Rights on Transfers to a General Member
and to his or its Affiliates................................47
16. RSI Put Option........................................................48
(a) RSI Put Notice...............................................48
(b) Acceptance of RSI Put Offer..................................48
(c) Deposit......................................................48
(d) RSI Put Closing..............................................48
(e) Rejection of RSI Put; Failure to Close.......................49
17. Accounting Provisions.................................................49
(a) Fiscal and Taxable Year......................................49
(b) Books and Accounts...........................................49
(c) Financial Reports............................................50
(d) Tax Elections................................................50
(e) Expenses.....................................................50
18. Distributions and Allocations.........................................50
(a) Definitions..................................................50
(b) Distributions of Net Cash Flow...............................55
(c) Allocation of Net Profits and Net Losses.....................55
(d) No Return of Distributions...................................56
(e) Allocations between Assignor and Assignee Members............56
(f) Tax Credits..................................................56
(g) Deficit Capital Accounts.....................................56
(h) Further Allocation Rules.....................................57
19. Liquidation and Termination of the Company............................59
(a) General......................................................59
(b) Statements on Termination....................................60
(c) Priority on Liquidation......................................60
(d) Distribution of Non-Liquid Assets............................61
(i) The Liquidating Agent...............................61
(ii) The remaining assets................................61
(iii) Nothing contained in this Agreement.................62
(e) Orderly Liquidation..........................................62
20. Loans and Advances....................................................62
(a) Loans and Advances...........................................62
21. Exculpation and Indemnification of Managers, Members and Affiliates...62
(a) Exculpation..................................................62
(b) Indemnification..............................................62
22. Power of Attorney.....................................................64
(a) General......................................................64
(b) Successor Members............................................65
(c) Additional Power of Attorney.................................65
23. Certain Defined Terms.................................................65
(a) Affiliate....................................................65
(b) Contingent Transfer..........................................66
(c) Deposit Defaulted Interests..................................66
(d) Disqualified Transferee......................................66
(e) Employed the RSI Funds.......................................66
(g) Fair Market Value............................................67
(h) Family Group.................................................67
(i) Interim Loans................................................68
(j) IPO..........................................................68
(k) Liens........................................................68
(l) OCC Buy Sell Right...........................................68
(m) OCC LLC Agreement............................................68
(n) Person.......................................................68
(o) Platform Company.............................................68
(p) Supermajority Effective Period...............................68
(q) Syndicate Representative.....................................68
(t) Third Party Price............................................69
(u) Glossary.....................................................69
24. Amendment and Modification............................................69
25. Assignment............................................................70
26. Further Assurances....................................................70
27. Governing Law.........................................................70
28. Notices...............................................................70
29. Consent to Jurisdiction...............................................72
30. Entire Agreement; Non-Waiver..........................................72
31. Specific Performance and Injunctive Relief............................73
32. Attorneys' Fees.......................................................73
33. Severability..........................................................73
34. Miscellaneous.........................................................73
35. Initial Investment in the Company of RSI..............................74
(a) Intention of Parties.........................................74
(b) General Interpretation of this Agreement.....................76
(c) Consent to Admission of RSI as a Member in the Company.......76
(d) Release of Security Interest.................................77
(e) Interpretation of Specific Provisions of this Agreement......77
SCHEDULE A List of Nominated Investment Banks.
SCHEDULE B List of Persons or Entities which are not
Disqualified Transferees.
SCHEDULE C Glossary of Certain Defined Terms.
EXHIBIT I Copy of the Plan.
EXHIBIT II Form of The RSI Subordinated Note.
LIMITED LIABILITY COMPANY AGREEMENT
dated as of
November 20, 1997
by and among
ONSITE VENTURES, L.L.C.
RSI-OSA HOLDINGS, INC.
VERITECH VENTURES LLC
ARTHUR SIMON, Individually
DAREN HORNIG, Individually
and
MARTIN RABINOWITZ, Individually
Exhibit 10.4
STANDBY AGREEMENT
This Standby Agreement (the "Agreement") is made as of the ___ day of May,
1998, by and among Reckson Service Industries, Inc., a Delaware corporation
("RSI"), and RSI Standby LLC, a _________ (the "Standby Purchaser").
WITNESSETH:
WHEREAS, RSI has granted at no cost to its initial common stockholders
(collectively, the "Holders") non-transferable rights (collectively, the
"Subscription Rights") to purchase up to an aggregate of 20,557,130 shares of
RSI common stock (the "Rights Offering") on or prior to June __, 1998 (the
"Expiration Date"); and
WHEREAS, in order to achieve its purposes for the Rights Offering, RSI has
requested the Standby Purchaser to provide a commitment to purchase all shares
of RSI common stock subject to Subscription Rights that Holders fail to
subscribe for on or prior to the Expiration Date (the "Standby Commitment
Shares").
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. RSI agrees to sell to the Standby Purchaser, and the Standby Purchaser
agrees to purchase from RSI, the Standby Commitment Shares at $1.03 per share
(the "Exercise Price").
2. As soon as practicable after the Expiration Date, but in any event no
earlier than seven (7) calendar days after the Expiration Date, RSI shall
deliver the Standby Commitment Shares to the Standby Purchaser against delivery
by the Standby Purchaser of the aggregate Exercise Price.
3. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto in connection with the subject matter hereof.
4. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
5. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York, without
regard to the conflict of laws principles thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
RECKSON SERVICE INDUSTRIES, INC.
By: ___________________________________________
Name:
Title:
RSI STANDBY LLC
By: ___________________________________________
Exhibit 10.5
LIMITED LIABILITY
COMPANY AGREEMENT
OF
RSVP HOLDINGS, LLC
dated as of February 26, 1998
LIMITED LIABILITY COMPANY AGREEMENT
OF
RSVP HOLDINGS, LLC
This Limited Liability Company Agreement of RSVP Holdings, LLC, a
Delaware limited liability company (the "Company"), is made as of February
26, 1998, among RSI Fund Management LLC, a Delaware limited liability company
("RSI Management"), as the Class A Member and as a Managing Member, and New
World Realty, LLC, a Delaware limited liability company ("S/S"), as the Class
B Member and a Managing Member, and any other Persons (as defined below) who
become Members of the Company from time to time in accordance with the
provisions hereof (collectively, the "Members").
WHEREAS, the Class A Member and the Class B Member have formed the
Company under the Delaware Limited Liability Company Act, 6 Del. C. Section
18-101, et seq., as amended from time to time (the "Delaware Act"), by
causing to be filed a Certificate of Formation of the Company with the Office
of the Secretary of State of the State of Delaware on February 17, 1998.
WHEREAS, the Class A Member and the Class B Member desire to enter into
a written agreement, in accordance with Section 18-201(d) of the Delaware
Act, as to the affairs of the Company and the conduct of its business.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The following terms shall have the
-----------
meanings set forth below:
"Adverse Valuation Determination" means a determination, made at the
request of RSI Management, that the Fair Value (as determined by the Expert),
of the Fund's net assets, minus the sum of (x) the Fund Preferred Member's
unreturned capital contributions to the Fund, and (y) the Fund Preferred
Member's accrued and unpaid Basic Yield, is less than the unreturned Capital
Contributions (as defined in Section 5.01(d)).
"Affiliate" means, with respect to a Person, another Person that
directly or indirectly controls, is controlled by or is under common control
with such first Person, and shall be
deemed to include a Family Member of such first Person, and a director,
executive officer, senior employee (or Person with similar responsibilities)
of such first Person. For purposes of this Agreement and the Employment
Agreements, Reckson Services and RSI Management shall be deemed Affiliates of
the Operating Partnership and of RA, and RA and the Operating Partnership
shall be deemed Affiliates of Reckson Services and RSI Management.
"Agreement" means this Limited Liability Company Agreement of the
Company, as amended, modified, supplemented or restated from time to time.
"Basic Yield" has the meaning specified in the Fund Operating Agreement.
"Capital Account" means the capital account established for each Member
in accordance with Section 5.02(a).
"Capital Asset" means any asset of the Company or of any partnership or
limited liability company in which the Company holds a direct or indirect
interest, the sale or other disposition of which at a gain after the
requisite holding period would result in whole or in part, in long term
capital gain within the meaning of Section 1222(3) of the Code.
"Capital Contributions" shall have the meaning specified in Section
5.01(d).
"Cash Flow" means, with respect to any period, the amount by which (i)
all cash receipts received by the Company during such period from whatever
source derived (including, without limitation, cash from operations, the
Managing Member Asset Management Fee, or proceeds from the sale, disposition
or exchange of any asset and funds released during such period from cash
reserves previously established from cash from operations or from proceeds
from the sale, disposition or exchange of any asset, but excluding capital
contributions received by the Colimitation, payment of reasonable operating
expenses (including the unsubordinated portion of the RSI Asset Management
Fee, and payments of the Managing Member Asset Management Fee to S/S or RSI
Management), capital expenditures, payment of principal and interest on the
Company's indebtedness and reasonable reserves established by the Managing
Member for the Company's operating expenses allocable to the operation of the
Fund; but excluding all disbursements funded with capital contributions to
the Company, distributions to Members, and the Capital Contributions made by
the Company to the Fund.
"Cause" has the meaning specified in the Employment Agreement.
"Certificate of Formation" means the Certificate of Formation referred
to in the first recital of this Agreement and any and all amendments thereto
and restatements thereof filed on behalf of the Company with the office of
the Secretary of State of the State of Delaware pursuant to the Delaware Act.
"Change in Control Event" shall have the meaning specified in Section
10.04(b) of this Agreement.
"Class A Approval" means the prior written consent of the holders of
Class A Units representing in the aggregate more than 50% of the total number
of Class A Units outstanding on the date of determination.
"Class A Member" means a Member that holds one or more Class A Units
and, initially, is solely RSI Management.
"Class A Units" means the Interests in the Company designated as Class A
Units as provided in Section 3.01(a) of this Agreement, having the terms
provided in this Agreement.
"Class B Approval" means the prior written consent of the holders of
Class B Units representing in the aggregate more than 50% of the total number
of Class B Units outstanding on the date of determination.
"Class B Member" means a Member that holds one or more Class B Units
and, initially, is solely S/S.
"Class B Units" means the Interests in the Company designated as
Class B Interests as provided in Section 3.01(a) of this Agreement, having
the terms provided in this Agreement.,
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any corresponding federal tax statute enacted after the date of this
Agreement. A reference to a specific section of the Code refers not only to
such specific section but also to any corresponding provision of any federal
tax statute enacted after the date of this Agreement, as such specific
section or corresponding provision is in effect and applicable on the date of
the application of the provisions of this Agreement containing such
reference.
"Company" has the meaning specified in the Preamble to this Agreement.
"Compulsory Non-Fund Platform Investments" shall have the meaning set
forth in Section 5.01(e).
"Concentration Threshold" with respect to a given Platform shall mean
the date of the first to occur of (i) Seventy-Five Million ($75,000,000)
Dollars of the total equity capital commitments to the Fund (preferred and
common) having been invested in that Platform, (ii) the entire $300 million
common and preferred equity capital commitments having been invested in Fund
Investments or used to fund expenses or overhead of the Fund or (iii) the
Investment Period having expired.
"Control" means (a) in the case of a corporation, ownership, directly or
through ownership of other entities, of at least ten percent (10%) of all the
voting stock (exclusive of
stock which is voting only as required by applicable law or in the event of
nonpayment of dividends and pays dividends only on a nonparticipating basis
at a fixed or floating rate), and (b) in the case of any entity, ownership,
directly or through ownership of other entities, of at least ten percent
(10%) of all of the beneficial equity interests therein (calculated by a
method that excludes from equity interests, ownership interests that are
nonvoting (except as required by applicable law or in the event of nonpayment
of dividends or distributions) and pay dividends or distributions only on a
non-participating basis at a fixed or floating rate) or, in any case (c) the
power, directly or indirectly, to direct or control, or cause the direction
of, the management policies of another Person, whether through the ownership
of voting securities, general partnership interests, common directors,
trustees, officers by contract or otherwise. The terms "controlled",
"controlling" and "under common control with" shall have meanings correlative
to the foregoing definition of Control.
"Covered Person" means the Members (including Members acting as Managing
Members), any Affiliate of a Member or any officers, managers, members,
employees, representatives or agents of a Member, the Managing Directors, any
member of the Management Committee or any employee or agent of the Company or
its Affiliates.
"Damages" shall mean liabilities, demands, claims, actions or causes of
action, regulatory, legislative or judicial proceedings or investigations,
assessments, levies, losses, fines, penalties, damages, costs and expenses,
including, without limitation, reasonable attorneys', accountants',
investigators', and experts' fees and expenses.
"Delaware Act" shall have the meaning set forth in the first recital of
this Agreement.
"Default" shall have the meaning set forth in Section 5.01(f).
"Disability" has the meaning specified in the Employment Agreement.
"Elective Non-Fund Platform Investments" shall have the meaning set
forth in Section 5.01(e).
"Employment Agreements" shall mean the employment agreements, dated as
of the date of this Agreement, between the Company and each of SL and SS, in
the form attached hereto as Exhibit A.
"Encumbrance" shall mean any security interest, mortgage, lien, charge,
adverse claim, or restriction of any kind including, but not limited to, any
restriction on the use, voting, transfer, receipt of income or other exercise
of any attribute of ownership.
"Estate Planning Transfer" means any transfer, for estate or gift
planning purposes of a Managing Director, of the direct or indirect Interest
(but not voting or management authority) of a Class B Member or any Class B
Units to a spouse, lineal descendant, Affiliate
of the Member (or, if the Member is an entity, of an ultimate beneficial
owner of the Member), or, provided any such transfer is for no consideration,
other Person (excluding any competitor of Reckson Services, RA or the
Operating Partnership), or a trust for the benefit of any such spouse, lineal
descendant, Affiliate or, provided any such transfer is for no consideration,
to a trust for the benefit of such other Person (excluding any competitor of
Reckson Services, RA or the Operating Partnership).
"Expert" means an independent, nationally recognized investment banking
firm or other appropriate, independent expert selected as provided in the
definition of Fair Value below.
"Fair Value" of any Fund Investment or interest in the Company or in the
Fund means the fair value thereof (but without any discount for minority
interest or premium for majority interest) as determined by the parties by
mutual agreement and, in the absence of such agreement, by an Expert. The
Expert shall be selected by RSI Management and S/S, and if RSI Management and
S/S are unable to agree on an Expert, the Expert shall be selected by two
Experts, one of which shall have been selected by S/S, and the other by RSI
Management, and each of which shall have determined the Fair Value of the
Fund Investment or interest, as the case may be. In the event the two
Experts are unable to agree on the Expert within three business days, a court
with apnnot agree on Fair Value within 30 days, the Expert selected then
shall make such determination. The Expert so selected shall agree to render
a decision within 60 days after being selected, without a hearing. The third
Expert's determination of Fair Value shall not be less than the lower of the
two values as determined by the two Experts and shall not be greater than the
higher of the two values as determined by the two Experts. Notwithstanding
the foregoing, for purposes solely of section (h)(ii) in the definition of
"Major Decisions" in this Section 1.01, and Section 4.04(d)(i), Fair Value
shall be conclusively presumed to be the value paid for a Fund Investment in
a bona fide arm's-length transaction by an unrelated third-party Person which
is not an Affiliate of RSI Management, Reckson Services, RA or the Operating
Partnership or a Rechler Family Member or an Affiliate of a Rechler Family
Member, but only if such unrelated third-party Person has not engaged, within
the past three years, and does not engage, within one year following the
transaction, in any commercial or financial transactions or relationships
with RSI Management, Reckson Services, RA or the Operating Partnership or an
Affiliate thereof, or with a Rechler Family Member or an Affiliate of a
Rechler Family Member.
"Family Member" means, with respect to a Person, the spouse, lineal
descendant, parent, or lineal descendant of such parent, of such Person.
"Fiscal Year" shall have the meaning set forth in Section 2.04.
"Formation Date" means the date of this Agreement.
"Fund" shall mean (i) Reckson Strategic Venture Partners, LLC, a
Delaware limited liability company ("RSVP"), the sole members of which are or
will be the Company, as managing member, and the Fund Preferred Member, as
non-managing member, or (ii) any alternative investment vehicle capable,
legally and operationally of pursuing the investment objectives of RSVP,
subject in all respects, including scope and nature of the investment
objectives, to the constraints on real estate investment trust income imposed
by the Code, and with the Managing Directors and S/S having no less economic
remuneration, including rights to distributions and fees, managerial control
and autonomy as provided under this Agreement, and capitalized with at least
$300 million of legally binding equity capital commitments from institutional
investors and/or Reckson Services, RA, the Operating Partnership, or their
Affiliates.
"Fund Investment" means an Investment by the Fund.
"Fund Preferred Payments" means distributions from the Fund to the Fund
Preferred Member sufficient to satisfy all amounts proposed to be distributed
pursuant to Section 6.01(A)(i), (iii) and (iv) and Section 6.01(B), (i),
(iii) and (iv) of the Fund Operating Agreement.
"Fund Preferred Member" means Paine Webber Real Estate Securities Inc.
("PWRES"), or such other Person as may, prior to or after formation and
funding of the Fund, be substituted for, or succeed to the rights and
privileges of, PWRES.
"Fund Operating Agreement" means the proposed Operating Agreement of the
Fund in the form of the draft attached hereto as Exhibit B, or such other
Operating Agreement of the Fund as may be approved or deemed approved by the
Members pursuant to Section 12.03 of this Agreement.
"Fundamental Failure" has the meaning specified in the Employment
Agreements.
"GAAP" means generally accepted accounting principles in the United
States.
"incur" means to issue, assume, guarantee, incur or otherwise become
liable for; "incurrence" has the correlative meaning.
"Indebtedness" with respect to the Company means, without duplication,
(i) all indebtedness of the Company for borrowed money or for the deferred
purchase price of property or services, (ii) all indebtedness of the Company
evidenced by a note, bond, debenture or similar instrument, (iii) the face
amount of all letters of credit issued for the account of the Company and,
without duplication, all un-reimbursed amounts drawn thereunder, (iv) all
indebtedness of any other Person secured by any Lien on any property owned by
the Company, whether or not such indebtedness has been assumed, (v) all
contingent obligations of the Company, (vi) all payment obligations of the
Company under
any hedge agreement or currency swaps or similar agreements, (vii) all
indebtedness and liabilities secured by any lien or mortgage on any property
of the Company, whether or not the same would be classified as a liability on
a balance sheet, (viii) the liability of the Company in respect of banker's
acceptances and the estimated liability under any participating mortgage,
convertible mortgage or similar arrangement, (ix) the present value of the
aggregate amount of rentals or other consideration payable by the Company in
accordance with GAAP over the remaining unexpired term of all capitalized
leases, (x) all judgments or decrees by a court, (xi) all indebtedness,
payment obligations and contingent obligations of any partnership in which
the Company holds a general partnership interest, (xii) all convertible debt
and subordinated debt, (xiii) all preferred stock of the Company that is
redeemable for cash, a cash equivalent, a note receivable or similar
instrument or are convertible to Indebtedness as defined herein (other than
Indebtedness described in clauses (iii), (ix), (x) or (xiii) of this
definition), and (xiv) all obligations, liabilities, reserves and any other
items which are listed as a liability on a balance sheet of the Company
determined on a consolidated basis in accordance with GAAP, but excluding all
general contingency reserves and reserves for deferred income taxes.
"Interest" means a limited liability company interest in the Company,
including the right of the holder thereof to any and all benefits to which a
Member may be entitled as provided in this Agreement together with the
obligations of a Member to comply with all of the terms and provisions of
this Agreement.
"Investment" means any acquisition of an interest, whether in the form
of debt or equity, in real estate or in a real estate- related operating
corporation, partnership, trust, limited liability company or other real
estate-related entity, or a group of real estate-related assets purchased in
a single transaction or group of related transactions, and subsequent to such
acquisition, the asset so acquired.
"Investment Period" has the meaning specified in the Fund Operating
Agreement.
"Investment Plan" shall have the meaning set forth in paragraph (b) of
the definition of Major Decision.
"IRR" means the annual rate, calculated and compounded monthly, at which
the present value, as of the date deemed to be the date of the initial
Capital Contribution to the Company, of all distributions hereunder, from all
sources, to a Member (discounted at such rate from the dates such
distributions are actually received by such Member), is equal to the net
present value, as of the date deemed to be the date of the initial Capital
Contributions to the Company, of the unreturned Capital Contributions made by
such Member to the Company contributed or funded from and after the date of
this Agreement (discounted at such rate from the date such amounts are
actually paid or contributed by such Member). The date deemed to be the date
of the initial Capital Contribution to the Company shall be the closing date
in July 1997 for the first of the Prior Investments, unless the Class B
Member
gives the Rejection Notice in accordance with Note (1) to Schedule A hereto,
whereupon the date of the Initial Capital Contribution shall be the Formation
Date and the Prior Investments shall be deemed Investments which are not
subject to this Agreement or the Employment Agreements and S/S, SL and SS
shall have no rights of any kind or nature with respect thereto or with
respect to any future investment in that Platform.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, conditional sale agreement, deposit arrangement, security
interest, encumbrance, lien (statutory or other), preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever in respect of any property includes the interest of a lessor under
a capital lease or under any financing lease having substantially the same
economic effect as any of the foregoing, inchoate liens arising under the
Employment Retirement Income Security Act of 1974, as amended and the filing
of any financing statement or similar notice (other than a financing
statement filed by a "true" lessor or consignor pursuant to Section9-408 of
the Uniform Commercial Code), naming the owner of such property as debtor,
under the Uniform Commercial Code or other comparable law of any
jurisdiction.
"Liquidation" means any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary. For the purpose of this
definition, the voluntary sale, conveyance, exchange or transfer (for cash,
shares of stock, interests, units or other consideration) of all or
substantially all the property or assets of the Company shall be deemed a
voluntary liquidation, dissolution or winding up of the Company.
"Major Decisions" means:
(1) Making or acquiring any Fund Investment requiring a capital
call or the incurrence of senior debt or claims on cash flow, disposition
proceeds or other equity-type claims;
(2) Adopting an investment plan for each Fund Investment or any
material modification to such investment plan (each, an "Investment Plan").
Each Investment Plan will specify the financing, growth and disposition
strategies for the Fund Investment and will include a budget of all capital
and operating expenses anticipated for the Fund Investment;
(3) Any action which is materially inconsistent with an approved
Investment Plan;
(4) Adopting an annual operating expense budget (which shall not
include capital items) for the Fund and any material modification thereto,
provided, however, that unless and until agreement on a subsequent year's
budget is reached, the prior year's operating budget shall continue in effect
for subsequent years;
(5) The undertaking by the Company
of any substantial business activity not reasonably related to acting as the
managing member of the Fund;
(6) The agreement by the Company to any amendment, modification or
termination of the Fund Operating Agreement, including, without limitation,
any of the provisions of Articles III, VI or VII thereof, except as provided
in Section 12.03 of this Agreement;
(7) The changing of the Fund's or the Platform Investments'
independent accountants;
(8) Unless within the parameters previously approved under an
Investment Plan (as the same may have been modified by written amendment or
by Management Committee action as reflected in approved minutes) and subject
to Section 4.05(d)(i):
(1) the settlement for more than $250,000 of any litigation
or arbitration or other claim; provided, however, that RSI Management may
cause (or direct or compel S/S to take) such action with respect to such
litigation, arbitration or other claim as is necessary, in the reasonable
judgment of RSI Management, to preserve RSI Management's, Reckson Services',
the Operating Partnership's or their Affiliates' unreturned original invested
capital in any Fund investment;
(2) the voluntary disposition of any Fund Investment (or any
material part thereof); provided, however, that at any time, or from time to
time, after the unpaid Subordinated Preference Amount has been paid in full,
RSI Management may compel a disposition at Fair Value to (A) an unrelated
third party Person which is not an Affiliate of RSI Management, Reckson
Services, RA or the Operating Partnership or a Rechler Family Member or an
Affiliate of a Rechler Family Member; or (B) following a determination of
Fair Value, at or above the Fair Value so determined, to Reckson Services,
RA, the Operating Partnership or a Rechler Family Member, or an Affiliate
thereof, or to any other Person.
(3) the acceleration, foreclosure or other exercise of
remedies by the Fund in respect of any Fund Investment; provided, however,
that RSI Management may cause (or direct or compel S/S to take) such action
with respect to such acceleration, foreclosure or other exercise of remedies
as is necessary, in the reasonable judgment of RSI Management, to preserve
RSI Management's, Reckson Services, the Operating Partnership's, or their
Affiliates' unreturned original invested capital in any Fund Investment; or
(4) the extension, restructuring, workout or other
modification of the terms of any Fund Investment, provided, however, that RSI
Management may cause (or direct or compel S/S to take) such action with
respect to such extension, restructuring, workout or other modification as is
necessary, in the reasonable judgment of RSI Management, to preserve RSI
Management's, Reckson Services', the Operating Partnership's, or their
Affiliates' unreturned original invested capital in any Fund Investment;
(9) The designation, extension or reduction of the Investment
Period or any extension or acceleration of the termination date of the Fund
or continuation of the Fund beyond that permitted by the Fund Operating
Agreement;
(10) Any pledge, sale or other transfer by the Company of any or
all of its interest in the Fund or its rights under the Fund Operating
Agreement or any withdrawal as managing member of the Fund;
(11) Any liquidation, dissolution or merger of the Fund or the
Company;
(12) The commencement by the Company of (or acquiescence of the
Company to) any bankruptcy, insolvency or similar proceeding by or against
the Fund or the Company as debtor;
(13) Any termination of a Managing Director other than by reason of
an Adverse Valuation Determination or for Cause (provided the Company and RSI
Management indemnify and hold harmless the other Managing Director from and
against any adverse effect on his future distributions from the Company
arising from any payments made to, or claims made by the Managing Director
who is so terminated);
(14) Any agreement or transaction with, or payment of any salary,
fees, equity compensation, or other compensation to, any Managing Director,
S/S or Affiliates of S/S, or RSI Management, Reckson Services, the Operating
Partnership or Affiliates of RSI Management, except for the RSI Asset
Management Fee, the Managing Member Asset Management Fee, the S/S Asset
Management Fee, the S/S Transaction Fees, or as expressly set forth in the
Fund Operating Agreement, this Agreement, the Employment Agreements or an
approved Investment Plan;
(15) The registration of any securities of the Fund or the Company
(or any entity in which the Fund has a controlling interest) under the
Securities Act of 1933;
(16) Any change of the name of the Company or the name under which
the business of the Company will be conducted;
(17) The determination that it is necessary, in order to preserve
the capital value of the Fund's Investments or otherwise, that the Fund take
actions materially inconsistent with the policies set forth in the Fund's
operating agreement;
(18) The increase or reduction of the capital commitments of any
member of the Fund;
(19) The admission of a new Member;
(20) The incurrence of any Indebtedness in excess of $250,000;
(21) Any press releases or other public relations communications
intended for dissemination to the general public regarding events or
activities material to the Fund as a whole;
(22) Approval of payment of organizational or offering expenses
incurred in the formation of the Fund or the Company; and
(23) Approval of the retention of a successor Managing Director
which is not an Approved Successor (as such term is defined in the Employment
Agreements).
"Managing Director" means each of SL and SS, in their capacities as
Managing Directors of the Company pursuant to the Employment Agreements.
"Managing Member" means each of RSI Management and S/S, in their
capacities as Members of the Company designated as the managers.
"Managing Member Asset Management Fee" shall have the meaning set forth
in Section 9.02(b).
"Management Committee" means a committee consisting of four members, two
of whom shall be SL and SS and two of whom shall be designated by RSI
Management, which shall initially be Messrs. Scott Rechler and Michael
Maturo. Each of SL and SS shall be a member of the Management Committee
until his employment with the Company has been terminated, at which time he
can be replaced by a successor Managing Director. The designees of RSI
Management may not be changed without the consent of SL and/or SS, which
consent shall not be unreasonably withheld, provided, however, that one of
the two initial RSI Management designees may be changed without the consent
of SL or SS so long as the new designee is a person who was a director or
senior executive officer of Reckson Services or RA on January 1, 1998.
"Member" means any Person that holds an Interest in the Company, is
admitted as a member of the Company pursuant to the provisions of this
Agreement and named as a member of the Company on Schedule A hereto and
includes any Person admitted as an Additional Member or a Substitute Member
pursuant to the provisions of this Agreement, in such Person's capacity as a
member of the Company. For purposes of the Delaware Act, the Class A Member
and the Class B Member shall constitute separate classes or groups of
Members.
"Net Profits" and "Net Losses" means for
each taxable year of the Company an amount equal to the Company's net income
or loss for such year as determined in accordance with the Federal income tax
accounting methods and rules used by the Company on its Federal Partnership
Information Return (other than items allocated pursuant to Section 8.02(c)),
increased by any non-taxable income received by the Company and decreased by
any non-deductible expenses incurred by the Company.
"Non-Fund Platform Investments" shall have the meaning set forth in
Section 5.01(f).
"Operating Partnership" means Reckson Operating Partnership, L.P., a
Delaware limited partnership.
"Permitted Class B Transfers" means (i) any transfer of all or a portion
of the Interest of a Class B Member or any Class B Units to a Class B Member
and (ii) any Estate Planning Transfer.
"Person" means an individual, a corporation, a partnership, a limited
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 of whatever
nature.
"Platform" means a business sector in the real estate industry, defined
by real estate sector and property type, but which sectors and property types
shall not include office or industrial real estate or executive office
suites.
"Platform Investment" means an Investment by the Fund, Reckson Services,
RA, the Operating Partnership, and/or their Affiliates in real estate and
real estate-related operating companies in a Platform, but shall not include
a Non-Fund Platform Investment.
"Prior Investments" means the Investments heretofore made by the Fund in
America Campus Lifestyles Companies LLC and in Dobie Center.
"RA" means Reckson Associates Realty Corp., a Maryland corporation.
"Rechler Family Member" means Donald J. Rechler, Scott H. Rechler, Roger
Rechler, Mitchell D. Rechler, Gregg M. Rechler, or a Family Member of any of
the foregoing.
"Reckson Services" means Reckson Services Industries Inc., a Delaware
corporation.
"Regulations" means the regulations proposed or promulgated under the
Code, as amended from time to time, or any federal income tax regulations
promulgated after the date of this Agreement. A reference to a specific
Regulation refers not only to such specific Regulation but also to any
corresponding provision of any federal tax regulation enacted after
the date of this Agreement, as such specific
Regulation or corresponding provision is in effect and applicable on the date
of application of the provisions of this Agreement containing such reference.
"RSI Asset Management Fee" shall have the meaning set forth in Section
9.02(a).
"RSI Management" shall have the meaning set forth in first paragraph of
this Agreement.
"ROP/SS" means ROP-New World, LLC, a Delaware limited liability company
which may be formed, among a wholly-owned subsidiary of the Operating
Partnership, as the class A member, and S/S, as the class B member, or such
other Person or contractual relationship as is approved by both Managing
Members in their respective sole discretion as a vehicle for direct
Investments by RA, the Operating Partnership or their Affiliates in Platforms
(but in no event shall the exercise of discretion by S/S with respect to
denying approval of such vehicle preclude RA, the Operating Partnership or a
wholly-owned Affiliate from making such Investments if not otherwise
expressly prohibited or restricted by this Agreement).
Significant Affiliate" means, with respect to a Person, an Affiliate of
such Person which is a reporting company under the Securities Exchange Act of
1934 and of which such Person is the holder of 5% or more of its outstanding
voting common equity securities.
"SL" means Seth B. Lipsay, an individual.
"SS" means Steven H. Shepsman, an individual.
"S/S" shall have the meaning set forth in the first paragraph of this
Agreement.
"S/S Transaction Fees" means the acquisition and/or consulting fees
payable to S/S in the amounts and manner specified in Section 9.02(d).
"Subordinated Preference Amount" means Fifteen Million ($15,000,000)
Dollars.
"Subordinated RSI Fee" means, until the Fund Preferred Member has
received the Fund Preferred Payments, an amount for each calendar year equal
to the lesser of (A) $1.5 million of the annual RSI Asset Management Fee for
that year, and (B) the annual excess of (x) total Fund general and
administrative expenses, plus the RSI Asset Management Fee for that year,
over (y) $5.0 million.
"Substitute Member" means a Person who is admitted to the Company as a
Member pursuant to Section 10.05 hereof, and who is named as a Member on
Schedule A to this Agreement.
"Tax Distributions" means any
distributions made under Section 7.01(a) or corresponding provisions of any
operating agreement of the Fund, any Platform Investment or ROP/SS.
"Tax Matters Partner" means the Managing Member designated as such in
Section 4.09(b).
"Transfer" shall have the meaning set forth in Section 10.04(a).
ARTICLE II
GENERAL PROVISIONS
Section 1.2 Company Name. The name of the Company is "RSVP
------------
Holdings, LLC."
Section 1.3 Registered Office; Registered Agent. The Company
-----------------------------------
shall maintain a registered office in the State of Delaware at, and the name
and address of the Company's registered agent in the State of Delaware is The
Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington,
Delaware 19805-1297.
Section 1.4 Nature of Business; Permitted Powers. The purposes
------------------------------------
of the Company are (i) to act as the managing member of the Fund, and (ii) to
acquire, own, hold, monitor, vote, sell, exchange, dispose of and exercise
all rights and remedies with respect to membership interests of the Fund and
any cash or cash equivalents or other property received by the Company in
respect thereof. In addition, the Company may conduct such other business
and take all other actions as may be attendant to said purposes or otherwise
approved by all of the Members and which shall be a lawful act or activity
for which limited liability companies may be formed under the Delaware Act.
Section 1.5 Fiscal Year. Unless and until otherwise determined
-----------
by the Managing Members, the fiscal year of the Company for federal income
tax purposes shall, except as otherwise required in accordance with the Code,
end on December 31 of each year (each, a "Fiscal Year").
Section 1.6 Term. The term of the Company shall be the term of
----
the Fund (as such term may be extended or reduced pursuant to the Fund
Operating Agreement, but subject to the provisions of Section 4.05 as regards
Major Decisions), plus three months, unless the Company is earlier dissolved
in accordance with the provisions of Article XI of this Agreement.
Section 1.7 Limitation on Member Liability.
------------------------------
(1) Except as otherwise expressly required by law, the debts,
obligations and liabilities of the Company, whether arising in contract, tort
or otherwise, shall be solely the debts, obligations and liabilities of the
Company, and no Member or Managing Member shall be obligated personally for
any such debt, obligation or liability of the Company by reason of being a
Member or Managing Member.
(2) Except as otherwise expressly required by law, a Member,
including the Managing Members, in its capacity as a Member or Managing
Member, shall have no liability to any Person hereunder in excess of (i) its
obligation to contribute capital as expressly provided for in this Agreement
and (ii) the amount of any distributions made to it, as provided in Section
18-607 of the Delaware Act.
Section 1.8 Indemnification. To the fullest extent permitted
---------------
by applicable law, any Covered Person shall be indemnified and held harmless
by the Company for and from any Damages sustained or incurred by such Covered
Person by reason of any act performed or omitted by such Covered Person as to
which such Covered Person is not liable as provided below in Section 2.08;
provided, however, that any indemnity under this Section 2.07 shall be
provided out of and to the extent of Company assets only, and no Member shall
have any personal liability on account thereof. The right of indemnification
pursuant to this Section 2.07 shall include the right to be paid, in advance
or within 15 business days of presentation of reasonable supporting
documentation, by the Company for the reasonable expenses incurred by a
Covered Person who was, is, or is threatened to be made a named defendant or
respondent in a proceeding provided that the Covered Person shall have given
a written undertaking to reimburse the Company in the event it is
subsequently determined that he, she or it is not entitled to such
indemnification.
Section 1.9 Exculpation. No Covered Person shall be liable to
-----------
the Company or any Member for any Damages incurred by reason of any act
performed or omitted by such Covered Person on behalf of the Company unless
such act or omission was performed or omitted in bad faith and not in good
faith reliance on the advice of the Company's legal, accounting or other
professional advisors, or, as to a Managing Director constituted Cause, or as
to any Member constituted willful misconduct or gross negligence.
(b) Unless otherwise acting in bad faith with respect thereto, a
Covered Person shall be fully protected in relying in good faith upon the
records of the Company and upon such information, opinions, reports or
statements presented to the Company by any person as to matters the Covered
Person reasonably believes are within such other Person's professional or
expert competence and who has been selected with reasonable care by or on
behalf of the Company, including information opinions, reports or statements
as to the value and amount of the assets, liabilities, profits, losses, or
any other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be paid.
Section 1.10 Limitations on Fiduciary Duties. No Member shall
-------------------------------
be subject to any fiduciary duty as a Member to another Member or to the
Company, nor shall any Managing Director or RSI Management designee to the
Management Committee be subject to any fiduciary duty of care to a Member or
to the Company. In exercising his right to propose, oppose, or vote in favor
of or against any Major Decision or any other decision, each Managing
Director and each RSI Management designee to the Management Committee (i)
shall be entitled to act solely in his own best interests, without regard to
the interests of the Company or its Members, and (ii) shall not be subject to
any fiduciary duty to the Company or any Member.
Section 1.11 Insurance. The Company shall purchase and
---------
maintain insurance, to the extent and in such amounts as RSI Management
shall, in its reasonable discretion, deem reasonable (but in no event less
than the scope of the coverage in effect from time to time with respect to
directors and officers of RA, and in amounts of not less than $10 million per
occurrence and $10 million in the aggregate, with an aggregate deductible of
not more than $100,000, on behalf of Covered Persons and such other Persons
as the Managing Members shall determine, against any liability that may be
asserted against or expenses that may be incurred by any such Person in
connection with the activities of the Company regardless of whether the
Company would have the power to indemnify such Person against such liability
under the provisions of this Agreement. The Company may enter into indemnity
contracts with Covered Persons and such other Persons as the Managing Members
shall determine and adopt written procedures pursuant to which arrangements
are made for the advancement of expenses and the funding of obligations under
this Section 2.10 and containing such other procedures regarding
indemnification as are appropriate and consistent with this Agreement.
Section 1.12 Outside Businesses.
------------------
(1) Except as consented to by the Management Committee, neither
S/S, SL, SS, Reckson Services nor RA nor any of their respective Affiliates,
nor any Rechler Family Member who is an officer of Reckson Services, RA or
the Operating Partnership, will, directly or indirectly, fund or exercise
voting or investment control over any Investments outside of the Fund of a
kind suitable for investment by the Fund until the expiration of the
Investment Period or, with respect to new Investments in a Platform, when
that Platform has reached its Concentration Threshold, except that (i)
Reckson Services, RA, the Operating Partnership or any of their respective
Affiliates may consummate Investments which have been presented to the Fund
and rejected by the Managing Directors, and (ii) RA, Reckson Services and the
Operating Partnership or any of their respective Affiliates shall not be
required to present to the Fund, and may consummate Investments in "executive
office suite business" opportunities, and in office and industrial
properties, in any geographic location; and (iii) Reckson Services and its
Affiliates shall not be required to present to the Fund, and may consummate,
with subsequent notice to S/S, Investments in service companies which derive
no more than 25% of their gross revenues, directly or indirectly, from the
ownership, operation, sale or leasing of real estate (such
determination of revenue sources to be made upon initial investment
evaluation and prior to any assets being classified for presentation to RA
and/or Reckson Services).
(2) The Company shall offer, and shall cause the Fund to offer, to
the Operating Partnership, any office or industrial property or office suite
opportunities it encounters.
(3) If a Change in Control Event occurs regarding RA, the
restrictions in Section 2.11(a) on RA and other Persons with respect to RA
shall not apply to any Person, but the Fund shall nevertheless continue to be
precluded from acquiring office or industrial properties in the then-existing
RA markets for such time as the former executive officers or directors of RA
are prohibited from competing with the Operating Partnership.
(4) Neither Reckson Services, the Operating Partnership, RA or
their Affiliates will, directly or indirectly, close on or commit capital to
any real estate investment fund or other real estate investment vehicle
having investment objectives similar to the Fund until 12 months after the
earlier of (i) the Fund's entire $300 million Common and Preferred Capital
Commitments having been invested in Fund Investments or used to Fund expenses
or overhead, or (ii) the Fund's Investment Period has expired.
(5) Subject to their right to conduct their core businesses
without substantial restrictions, neither Reckson Services, RA, the Operating
Partnership nor any of their Affiliates will directly engage in activities
that provide material benefits to any Person which directly competes with a
then-existing Fund Platform Investment.
ARTICLE III
CLASSES OF INTERESTS AND ADMISSION OF MEMBERS
Section 1.13 Classes. Subject to Section 3.01(b), the Interests
-------
of the Company shall be divided into two classes, Class A Units and Class B
Units, each having the relative rights, powers and duties set forth in this
Agreement.
Section 1.14 Admission of Initial Members. Upon the execution
----------------------------
of this Agreement, RSI Management shall be admitted to the Company as a Class
A Member and S/S shall be admitted to the Company as a Class B Member. The
Company shall issue 50 Class A Units to RSI Management and 50 Class B Units
to S/S. The number of Units issued to each Member does not reflect capital
contributions or ownership, and shall have no effect on the relative rights
and privileges of the Class A Members, as a class, and the Class B Members,
as a class. The name and mailing address of each such Member and the amount
contributed by such Member to the capital of the Company is listed on
Schedule A attached hereto.
Section 1.15 Schedule A. The Managing Members shall update
----------
Schedule A from time to time as necessary in accordance with this Agreement
to reflect accurately the information therein and shall send each Member
prompt written notice of each such update to Schedule A. Any amendment or
revision to Schedule A made in accordance with this Agreement shall not be
deemed an amendment to this Agreement. Any reference in this Agreement to
Schedule A shall be deemed to be a reference to Schedule A as amended and in
effect from time to time.
ARTICLE IV
VOTING AND MANAGEMENT
Section 1.16 Class A Member Voting Rights. Class A Members
----------------------------
holding Class A Units shall be entitled to one vote for each such Class A
Unit upon all matters upon which Class A Members have the right to vote. All
Class A Members shall have the right to vote separately as a class on any
matter on which the Class A Members have the right to vote regardless of the
voting rights of any other class or series of Interests. The Company shall
cause a notice of any meeting at which holders of the Class A Units are
entitled to vote, or of any matter upon which action may be taken by written
consent of such holders, to be mailed in accordance with Section 12.09 to
each holder of record of the Class A Units. Each such notice will include a
statement setting forth (a) the date of such meeting or the date by which
such action is to be taken, (b) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of
such matters upon which written consent is sought and (c) instructions for
the delivery of proxies or consents.
Section 1.17 Class B Member Voting Rights. Class B Members
----------------------------
holding Class B Units shall be entitled to one vote for each such Class B
Unit upon all matters upon which Class B Members have the right to vote. All
Class B Members shall have the right to vote separately as a class on any
matter on which the Class B Members have the right to vote regardless of the
voting rights of any other class or series of Interests. The Company shall
cause a notice of any meeting at which holders of the Class B Units are
entitled to vote, or of any matter upon which action may be taken by written
consent of such holders, to be mailed in accordance with Section 12.09 to
each holder of record of the Class B Units. Each such notice will include a
statement setting forth (a) the date of such meeting or the date by which
such action is to be taken, (b) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of
such matters upon which written consent is sought and (c) instructions for
the delivery of proxies or consents.
Section 1.18 Management Committee Meetings.
-----------------------------
(1) The Management Committee shall hold meetings bi-weekly, or
more frequently when requested by S/S or RSI Management. A majority of the
Management Committee shall constitute a quorum for the transaction of
business at each meeting provided three business days' prior notice of the
meeting has been given to or waived in writing by all members of the
Management Committee. An agenda for each meeting shall be prepared by the
Managing Directors and circulated to each member of the Management Committee
at least 24 hours prior to the meeting. Minutes of each Management Committee
meeting shall be kept by the Managing Directors and circulated to each member
thereof within three business days after the actual meeting. To the extent
not objected to by a Management Committee member within ten business days
following receipt, such minutes shall be deemed approved by that member.
Meetings of the Management Committee may be held by conference telephone call
or other similar device, provided that all participating Management Committee
members may hear each other.
(2) The members of the Management Committee designated by each of
S/S and RSI Management shall each use their reasonable efforts to reach a
consensus on all matters within the framework of regular Management Committee
meetings, and shall each cooperate in encouraging frequent and detailed
dialogue and communication between the Managing Directors and RSI Management.
Section 1.19 Major Decisions. Subject to the provisions of
---------------
Section 10.04(b)(iii) and 10.04(f):
(1) S/S and the Managing Directors shall not have the authority to
take any action which would constitute a Major Decision unless the Management
Committee shall have considered and approved such Major Decision, including
the approval of one Managing Director and one member designated by RSI
Management.
(2) Conversely, S/S shall take or shall cause the Company to take
any action that is a Major Decision if both members designated by RSI
Management and one Managing Director approve the taking of such action. In
exercising his right to propose, oppose, or vote in favor of or against any
Major Decision or any other decision, each Managing Director (i) shall be
entitled to act solely in his own best interest without regard to the
interests of the Company or RSI Management, and (ii) shall not be subject to
any fiduciary duty to the Company or to RSI Management.
Section 1.20 Management of the Company.
-------------------------
(1) Subject to the regular and frequent oversight of the
Management Committee and prior approval of the Management Committee with
respect to Major Decisions, S/S shall conduct the business and affairs of the
Company, including the day-to-day operations of the Company and the Fund, and
the performance by the Company and the Fund of their obligations under the
Fund Operating Agreement and the agreements relating to
the Fund Preferred Member, and shall execute
the Investment Plans and budgets as initially approved by the Management
Committee, or as modified by the Management Committee, all as reflected in
approved minutes and as described in Section 4.03 hereof.
(2) Subject to the foregoing, including, without limitation,
Section 4.04, and any other limitations expressly provided for in this
Agreement, each of the Managing Members shall have the power to:
(1) authorize and engage in transactions and dealings on
behalf of the Company, including transactions and dealings with any Member or
any Affiliate of any Member or the Managing Member;
(2) call meetings of Members or any class or series thereof
or of the Management Committee;
(3) incur and pay or compel RSI Management to cause to be
paid all expenses and obligations incident to the operation and management of
the Company, other than expenses and obligations the Incurrence of which
would be a Major Decision;
(4) call for capital contributions from RSI Management to
fund expenses as set forth in Section 4.08;
(5) acquire, own, hold, monitor, vote, sell, exchange or
otherwise dispose of any assets, including, without limitation, Fund
interests, in accordance with each approved Investment Plan, and exercise all
rights and remedies with respect thereto, other than such actions as would
constitute a Major Decision;
(6) subject to this Agreement, determine and make, or direct
the Company to cause to be made, distributions, in cash or otherwise, on
Interests, in accordance with the provisions of this Agreement and of the
Delaware Act
(7) establish or set aside any reserve or reserves for
contingencies and for any other proper Company purpose;
(8) (A) employ SL and SS as Managing Directors of the
Company pursuant to the Employment Agreements and pay to each of them the
salary set forth in the Employment Agreements, which salary shall, during the
term of the Employment Agreement, not be increased without the consent of RSI
Management, and (B) subject to Section 4.05(c), and, if not subject to
Section 4.05(c), otherwise with the agreement of RSI Management, appoint (and
dismiss from appointment) officers and agents on behalf of the Company, and
employ (and dismiss from employment) any and all persons providing legal,
accounting or financial services to the Company, or such other employees or
agents as S/S deems necessary or desirable for the management and operation
of the Company;
(9) acquire and enter into any contract of insurance
necessary or desirable for the protection or conservation of the Company and
its assets or otherwise in the interest of the Company as S/S shall
determine;
(10) effect a dissolution of the Company and to act as
liquidator or the person winding up the Company's affairs, all in accordance
with the provisions of this Agreement and of the Delaware Act;
(11) bring and defend on behalf of the Company actions and
proceedings at law or equity before any court or governmental, administrative
or other regulatory agency, body or commission or otherwise;
(12) prepare and cause to be prepared reports, statements and
other relevant information for distribution to Members as may be required or
determined to be appropriate by a Managing Member from time to time or as may
be reasonably requested by the Management Committee;
(13) execute all other documents or instruments, perform all
duties and powers and do all things for and on behalf of the Company in all
matters necessary or desirable or incidental to the foregoing.
(3) Notwithstanding anything to the contrary in this Agreement,
RSI Management shall have the sole power to:
(1) determine accounting policies for the Company, the Fund
and Platform Investments;
(2) select the Company's independent accountant;
(3) make any tax policy election or file any tax return on
behalf of the Company, the Fund or any Platform Investment, provided,
however, that RSI Management shall take no position that is
disproportionately adverse to S/S; and
(4) open accounts and deposit, maintain and withdraw funds
in the name of the Company in banks, savings and loan associations, brokerage
firms or other financial institutions;
(5) subject to the distribution rights of S/S set forth in
Section 7.01, manage all treasury, cash management, bookkeeping and financial
reporting functions (but not including financings and decisions related
thereto which shall constitute a Major Decision unless in accordance with an
approved Investment Plan) of the Company and the Fund; and
(6) terminate a Managing Director for Cause pursuant to the
Employment Agreement or by reason of an Adverse Valuation Determination
pursuant to the Employment Agreement.
(4) (i) Notwithstanding section (h)(ii) in the definition of
"Major Decisions" in Section 1.01, in the event the Members cannot agree with
respect to a voluntary disposition of any Fund Investment which is proposed
by RSI Management, then unless and until the unpaid Subordinated Preference
Amount has been paid in full (in which event, RSI Management may compel a
disposition, at any time or from time to time, of a Fund Investment at Fair
Value to (A) an unrelated third party Person which is not an Affiliate of RSI
Management, Reckson Services, RA or the Operating Partnership, or a Rechler
Family Member or an Affiliate of a Rechler Family Member, or (B) following
the determination of Fair Value, at or above the Fair Value so determined, to
Reckson Services, RA, the Operating Partnership or a Rechler Family Member,
or an Affiliate thereof, or to any other Person):
(1) until the third anniversary of the Formation Date, if RSI
Management reasonably believes that (x) a material change in
circumstances has occurred with respect to such Fund
Investment, and (y) the continued holding of such Fund
Investment under such change in circumstances is reasonably
likely to result in a material adverse effect on Reckson
Services, the Operating Partnership, RA and/or any of their
respective Significant Affiliates, RSI Management in its sole
discretion may take such action as it has requested be taken
with respect to the disposition of such Fund Investment,
provided, however, if there is an event regarding RA that
would constitute a Change in Control Event had such event
occurred with respect to Reckson Services, this clause (y)
shall be deemed amended to eliminate any reference to the
Operating Partnership, RA or their respective Affiliates;
(2) from and after the third anniversary of the Formation
Date, RSI Management may in its sole discretion take such
action with respect to disposition of a Fund Investment as it
requests without regard to the restrictions in the foregoing
clause (1), provided, that unless and until the unpaid
Subordinated Preference Amount has been paid in full and
subject to clause (3) below, RSI Management may not effect a
disposition of a Fund Investment in a manner which results in
the disposition in any 12-month period of Fund Investments
representing more than $75 million of original capital
contributions to the Fund;
(3) until the fourth anniversary of the Formation Date,
notwithstanding the provisions set forth in the foregoing
clause (2), if the aggregate Platform Investments and
Compulsory Non-Fund Platform Investments
in a given Platform exceed $150
million, RSI Management in its sole
discretion may elect to dispose of all or
any of the Platform Investments in that
Platform, provided, however, if there is
an event regarding RA that would
constitute a Change in Control Event had
such event occurred with respect to
Reckson Services, this subsection (3)
shall not apply; and
(4) until the fourth anniversary of the Formation Date,
notwithstanding any of the foregoing clauses (1)-(3) above, as
an additional limitation, unless and until the unpaid
Subordinated Preference Amount has been paid in full, the
aggregate disposition of Fund Investments proposed by RSI
Management and not consented to by S/S under all of the
foregoing provisions of this sentence shall not exceed $150
million of original capital contributions to the Fund.
(ii) From and after the third anniversary of the Formation Date,
in the event the Management Committee rejects (x) two or more proposals to
dispose of a Platform Investment which are presented by the Managing
Directors within a six-month period, or (y) one proposal to dispose of a
Platform Investment which includes a bona fide written offer from a
prospective third-party purchaser which can demonstrate sufficient debt and
equity capitalization to consummate the offer (either, a "Disposition
Deadlock"), S/S may elect, within 30 days of such rejection, in its sole
discretion, to require RSI Management to acquire from the Fund any such
Platform Investment(s) (i) if the rejected proposal(s) includes an offer to
purchase the Platform Investment from a prospective purchaser, on the terms
and conditions offered by the prospective purchaser, and (ii) if the rejected
proposal(s) does not include an offer to purchase the Platform Investment
from a prospective purchaser, at a price equal to Fair Value of that Platform
Investment (and if RSI Management does not or cannot consummate such
acquisition within 90 days, to then dispose of the Platform Investment on the
terms proposed but rejected by RSI Management). In a Disposition Deadlock,
in the event that a third party offer is made and approved by RSI Management
but not consummated, unless another bona fide offer on substantially the same
or better terms is made in writing and accepted by S/S within 30 days after
the initial offer fails to close, then for two years thereafter, S/S shall
not be entitled to elect to require RSI Management to acquire that Platform
Investment.
(5) The Class B Member shall have the right to request the
determination of the Fair Value of any Fund Investment which has been
compelled by RSI Management to be disposed of pursuant to section (h)(ii) (A)
in the definition of "Major Decisions" in Section 1.01 or pursuant to Section
4.05(d)(i)(A), by written notice within 45 days of the consummation of such
disposition, unless Fair Value has been conclusively presumed in accordance
with the definition of Fair Value contained in Section 1.01 of this
Agreement. The excess, if any, of the Fair Value of such Fund Investment
over the fair market value of the consideration received by the Fund in such
disposition shall be paid by RSI Management to the Fund, and deemed for
purposes of the Fund Agreement and this Agreement to be
additional consideration received by the Fund
in such disposition. If the Fair Value of such Fund Investment exceeds the
fair market value of the consideration received by the Fund in such
disposition, all costs of the determination of Fair Value shall be paid by
RSI Management; if the Fair Value of such Fund Investment does not exceed the
fair market value of the consideration received by the Fund in the
disposition, all costs of the determination of Fair Value shall be paid by
S/S.
Section 1.21 Books and Records; Accounting. RSI Management
-----------------------------
shall keep or cause to be kept at 225 Broadhollow Road, Melville, Long
Island, New York (or at such other place within the Tri-state area as RSI
Management shall advise the other Members in writing) full and accurate books
and records regarding the status of the business and financial condition and
results of operations of the Company. The books and records of the Company
shall be kept in accordance with GAAP.
Section 1.22 Reliance by Third Parties. Persons dealing with
-------------------------
the Company are entitled to rely conclusively upon the power and authority of
either Managing Member herein set forth.
Section 1.23 Expenses; Certain Services.
--------------------------
(1) The Company shall pay (and subject to Section 5.01(d) of this
Agreement may call for Capital Contributions from RSI Management to fund,
which call shall not constitute a Major Decision) the expenses (including,
but not limited to, compensation and benefits payable under the Employment
Agreements, the costs of accounting, and legal fees and disbursements,
transfer agent fees and disbursements, duplicating, travel, telephone,
appraisal, engineering and environmental expenses, asset management fees,
property management fees and real estate commissions) relating to the
acquisition, development, financing, management, operation and disposition of
Fund Investments as well as all other expenses incurred by the Company from
and after the Formation Date in connection with Fund and Company business, to
the extent provided for in a previously approved operating expense budget or
otherwise previously approved by the Management Committee and not paid or
reimbursed by the Fund. It is the Members' expectation that substantially
all of the expenses incurred by the Company in connection with Fund business
will be reimbursed by the Fund.
(2) In consideration of payment of the RSI Asset Management Fee,
RSI Management or its Affiliates shall provide all accounting and reporting
services required by the Company and the Fund, office space and related
office support services on an as-needed basis in the Reckson Services or RA
corporate offices in Melville, New York, all tax return preparation and
filing functions, and all treasury, cash management, bookkeeping and
financial reporting functions of the Company and the Fund provided, however,
that none of the foregoing is intended to cover or replace the need for, or
expenses of, third party professional services. RSI Management, Reckson
Services, RA or any of their Affiliates will
not charge the Company or the Fund for any
other expenses or expense allocations, other than third party expenses.
(3) The Company will bear (and subject to Section 5.01(d) of this
Agreement may call for Capital Contributions from RSI Management to fund) all
organizational and offering expenses incurred in the formation of the Fund
and the Company not reimbursed by the Fund.
(4) (i) Notwithstanding the foregoing, RSI Management shall be
credited for $625,000 of Capital Contributions with respect to costs
heretofore incurred on behalf of the Fund prior to the Formation Date, other
than pursuant to subsection (c) above.
(ii) Notwithstanding anything to the contrary in Section 7.01
of this Agreement, the $625,000 Capital Contribution and a 12% IRR thereon
shall not be distributed until after the payment in full of the Subordinated
Preference Amount, except that if any portion of the $625,000 was incurred in
connection with a transaction which becomes a Fund Platform Investment, then
to the extent of direct third-party costs, exclusive of rent, salaries and
other administrative expenses, incurred in connection with that transaction,
such portion shall be treated as part of the capital contributions referenced
in Section 7.01(b) and distributed prior to payment of the Subordinated
Preference Amount.
Section 1.24 Company Tax and Information Returns.
-----------------------------------
(1) RSI Management shall cause to be prepared and timely filed all
tax and information returns required to be filed for the Company. RSI
Management may, in its sole discretion, make or refrain from making any
federal, state or local income or other tax elections for the Company, the
Fund and any Platform Investments that it deems necessary or advisable, to
the extent authorized to do so, including, without limitation, (i) any
election under Section 754 of the Code or any successor provision, and (ii)
any election under Regulation Section 301.7701-3 or any successor provision;
provided, however, that RSI Management may not elect to have the Company
treated as a corporation for tax purposes or make any other election which is
disproportionately adverse to any Class B Member without the Class B
Approval.
(2) RSI Management is hereby designated as the Company's "Tax
Matters Partner" under Section 6231(a)(7) of the Code and shall have all the
powers and responsibilities of such position as provided in the Code. RSI
Management is specifically directed and authorized to take whatever steps RSI
Management, in its discretion, deems necessary or desirable to perfect such
designation, including filing any forms or documents with the Internal
Revenue Service and taking such other action as may from time to time be
required under the Regulations issued under the Code, provided that RSI
Management shall take no action as Tax Matters Partner under this Section
4.09(b) disproportionately adverse to any Class B Member without the Class B
Approval. Expenses incurred by the Tax Matters Partner, in its capacity as
such, will be borne by the Company.
Section 1.25 Certain Provisions Relating to the Managing
-------------------------------------------
Directors.
- ---------
(1) Commencing with the third anniversary of the Formation Date,
and once per year during each calendar year thereafter, RSI Management may
elect to have an Expert determine the Fair Value of the Fund's assets. The
cost of such determination shall be borne solely by RSI Management unless RSI
Management declares an Adverse Valuation Determination because of such
determination, in which event such cost shall be borne by the Company.
(2) Upon declaring an Adverse Valuation Determination, which may
be declared by RSI Management commencing with the third anniversary date of
the Formation Date, and once a year during each calendar year thereafter, and
only if RSI Management is not in Default or has failed to cure a Default as
provided in Section 5.01(f) of this Agreement, RSI Management may terminate
the Managing Directors, provided it causes to be paid to each terminated
Managing Director on the date of termination of his employment, as a
condition precedent to the effectiveness of such termination, the amounts
specified, in the manner specified, in Section 5.4 of their respective
Employment Agreements. Such termination shall not alter the rights of S/S to
receive the distributions to Class B Members provided for in Article VII
hereof, but S/S shall no longer be a Managing Member of the Company or
otherwise have any governance rights under this Agreement.
ARTICLE V
CONTRIBUTIONS AND CAPITAL ACCOUNTS
Section 1.26 Capital Contributions.
---------------------
(1) The Class A Member is, concurrently with its execution of this
Agreement, contributing to the capital of the Company the amount set forth
opposite such Member's name on Schedule A attached hereto.
(2) The Class B Member is, concurrently with its execution of this
Agreement, contributing to the capital of the Company the amount set forth
opposite its name on Schedule A.
(3) (not used)
(4) The Class A Member will make or cause its Affiliates to make
additional capital contributions to the Company (or directly or indirectly to
the Fund, or to Fund Platform Investments) equal to 100% of total capital
contributions to be made by the Company to the Fund, up to maximum aggregate
capital contributions, inclusive of the amounts set forth in Schedule A with
respect to the Class A Member, of $100 million
("Capital Contributions"). The foregoing Class
A Member capital commitment is a full-recourse obligation of RSI Management,
and such Class A Member commitment commences and continues from the Formation
Date, notwithstanding any delay or failure to consummate the formation,
organization or funding of the Fund. The Company may make mandatory calls
for Capital Contributions on an "as-needed" basis, with a minimum of five
business days' prior written notice by the Company to the Class A Member.
The Class A Member covenants that the Company, S/S and each of the Managing
Directors will be specifically identified and acknowledged by the parties to
any loan or funding agreement from RA to Reckson Services as third-party
beneficiaries with standing and rights of enforcement in the event of default
with respect to RSI Management's obligation to make or cause its Affiliates
to make Capital Contributions pursuant to this Section 5.01(d).
(5) All Platform Investments by the Operating Partnership or its
Affiliates which are to be included in Capital Contributions shall be made in
an investment vehicle in which the Fund or the Company is the sole managing
member or sole general partner.
(6) Any Capital Contributions by Reckson Services, the Operating
Partnership or any of their Affiliates to Platform Investments as a result of
the operation of the Concentration Threshold ("Compulsory Non-Fund Platform
Investments") or rejection by the Fund ("Elective Non-Fund Platform
Investments") (such Compulsory Non-Fund Platform Investments and Elective
Non-Fund Platform Investments collectively being hereinafter referred to as
"Non-Fund Platform Investments"), and any distributions related thereto, will
not be considered in determining RSI Management's (or its Affiliates')
Capital Contributions to the Company (or directly or indirectly to the Fund
or any Platform Investment), or in computing distributions pursuant to
Section 7.01.
(7) If RSI Management fails to fund any of its Capital
Contributions within 15 business days from notice to RSI Management by S/S
that RSI Management has failed to timely fund a Capital Contribution required
to be made (a "Default"), then, in addition to its legal and
----
equitable remedies for damages and specific performance, the
Company and/or S/S may elect thereafter, unless and until S/S has received,
inclusive of all amounts previously distributed to S/S under Article VII of
this Agreement, $7.5 million of the Subordinated Preference Amount, to (1)
subordinate RSI Management's interest to the prior distribution to S/S of
S/S's Subordinated Preference plus a 12% IRR thereon, and reduce RSI
Management's Management Committee representation to a single member, who
shall not have the right to block a Major Decision approved by S/S's member
designees or (2) sell to RSI Management S/S's interest in the Company for a
price equal to the greater of S/S's remaining unpaid Subordinated Preference
Amount or such interest's Fair Value, unless, within six months of the date
of Default, (x) RSI
------
Management has cured such default and deposited all of its
remaining Capital Commitments in an irrevocable escrow account, or (y) S/S
has received, inclusive of all amounts previously distributed to S/S under
Article VII of this Agreement, $7.5 million of the Subordinated Preference
Amount.
(8) No Class B Member shall be
required to make any additional capital contribution to the Company.
However, a Class B Member may make additional capital contributions to the
Company with the written consent of the Managing Members.
Section 1.27 Capital Accounts.
----------------
(1) There shall be established for each Member on the books of the
Company a capital account (a "Capital Account"), which shall be maintained
and adjusted as provided in the Regulations. The Capital Account of a Member
shall be credited with the amount of all cash and the fair market value of
all property contributed by such Member to the Company (provided the value
attributed to such property has been approved by both Managing Members, which
approval as to any property contributed on the Formation Date, shall be
deemed given by the Class A Member's execution and delivery of this Agreement
with a copy of Schedule A specifically identifying the property contributed,
and by the Class B Member's failure to deliver the Rejection Notice referred
to in Note (1) to Schedule A). The Capital Account of a Member shall be
increased by the amount of any Net Profits allocated to such Member, and
decreased by (i) the amount of any Net Losses allocated to such Member, (ii)
the amount of any cash distributed to such Member, and (iii) the fair market
value of any assets (other than cash) distributed to such Member. The
Capital Account of each Member shall also be charged or credited with the
amounts allocated to the Member pursuant to Section 8.02(c), and shall be
adjusted appropriately to reflect any other adjustment required pursuant to
Regulation Section 1.704-1 or 1.704-2.
(2) Upon the occurrence of any event specified in Regulation
Section 1.704-1(b)(2)(iv)(f), including, without limitation, any reduction in
the Interest of the Class B Member by reason of the termination of a Managing
Director for Cause, or as otherwise provided for in Section 7.04, the Tax
Matters Partner may cause the Capital Accounts of the Members to be adjusted
to reflect the fair market value of the Company's assets at such time as
determined in good faith by the Managing Member. The adjustments shall
reflect the manner in which the unrealized income, gains, loss, or deduction
inherent in such property would be allocated among the Members if there were
a taxable disposition of such property for such fair market value determined
in good faith by the Tax Matters Partner on the date of the occurrence of
such event.
Section 1.28 Withdrawal of Capital: Return of Capital: Deficit
-------------------------------------------------
Balance in Capital Account.
- --------------------------
(1) Except as otherwise specifically set forth in this Agreement,
no Member shall have the right to (i) withdraw such Member's capital
contribution or to demand or receive the return of a capital contribution or
make any claim to any portion of Company capital or (ii) demand or receive
property other than cash in return for a capital contribution or to receive
any distribution in return for a capital contribution that is not required by
this Agreement.
(2) A deficit Capital Account of a Member shall not be deemed to
be a liability of such Member or an asset or property of the Company or any
other Member. Furthermore, no Member shall have any obligation to the
Company or any other Member for, or to restore any deficit balance in such
Member's Capital Account.
ARTICLE VI
ALLOCATIONS
Section 1.29 Allocation of Net Profits and Net Losses for Book
-------------------------------------------------
Accounting Purposes.
- -------------------
a. Net Profits shall be allocated for book accounting purposes as
follows:
(1) first, to the Members in proportion to and to the extent
of Net Losses allocated to them pursuant to
Sections 6.01(b)(vi),(v),(iv),(iii),(ii) and (i), respectively (and in that
order of priority), in excess of amounts previously allocated to them
pursuant to this Section 6.01(a)(i);
(2) second, to the Class A Member, in an amount equal to the
amount previously distributed or currently distributable to it pursuant to
Section 7.01(b) (other than the portion of such amount constituting a return
of the Class A Member's capital contribution to the Company, the Fund or any
Platform Investment), in excess of amounts previously allocated to the
Class A Member pursuant to this Section 6.01(a)(ii);
(3) third, to the Class B Member in an amount equal to the
amount previously distributed or currently distributable to it pursuant to
Section 7.01(c), in excess of amounts previously allocated to it pursuant to
this Section 6.01(a)(iii);
(4) fourth, to the Members in proportion to and to the
extent of amounts previously distributed or currently distributable to them
pursuant to Section 7.01(d), in excess of amounts previously allocated to
them pursuant to this Section 6.01(a)(iv);
(5) fifth, to the Members in proportion to and to the extent
of amounts previously distributed or currently distributable to them pursuant
to Section 7.01(e), in excess of amounts previously allocated to them
pursuant to this Section 6.01(a)(v); and
(6) thereafter, to the Members in proportion to and to the
extent of amounts previously distributed or currently distributable to them
pursuant to Section 7.01(f), in excess of amounts previously allocated to
them pursuant to this Section 6.01(a)(vi).
In the interest of clarity, and for the avoidance of doubt, solely for
purposes of determining the amount of Net Profits allocable pursuant to any
subparagraph of this Section 6.01(a), (i) the amount currently distributable
pursuant to any of Sections 7.01(b) through (f) shall be
deemed to be an amount sufficient to
allocate the full amounts of Net Profits for the year, in accordance with the
allocation priorities established herein; and (ii) amounts distributed or
currently distributable pursuant to Section 7.01(a) shall be considered as
having been distributed pursuant to the subsequent paragraphs of Section
7.01, in accordance with the priorities set forth therein, to the extent such
amounts are applied as a credit against amounts otherwise distributable
pursuant to such subsequent paragraphs.
b. Net Losses shall be allocated for book accounting purposes as
follows:
(7) first, to the Members in proportion to and to the extent
of Net Profits previously allocated to them pursuant to Section 6.01(a)(vi),
in excess of Net Losses previously allocated to them pursuant to this
Section 6.01(b)(i);
(8) second, to the Members in proportion to and to the
extent of Net Profits previously allocated to them pursuant to
Section 6.01(a)(v), in excess of amounts previously allocated to them
pursuant to this Section 6.01(b)(ii);
(9) third, to the Members in proportion to and to the
extent of Net Profits previously allocated to them pursuant to
Section 6.01(a)(iv), in excess of amounts previously allocated to them
pursuant to this Section 6.01(b)(iii);
(10) fourth, to the Class B Member, to the extent of Net
Profits previously allocated to it pursuant to Section 6.01(a)(iii), in
excess of amounts previously allocated to it pursuant to this
Section 6.01(b)(iv);
(11) fifth, to the Class A Member to the extent of Net
Profits allocated to it pursuant to Section 6.01(a)(ii), in excess of amounts
previously allocated to it pursuant to this Section 6.01(b)(v);
(12) sixth, to the Members, in proportion to and to the
extent of their positive Capital Account balances; and
(13) thereafter, to the Members in accordance with the
distribution ratios then in effect under Section 7.01(f).
ARTICLE VII
DISTRIBUTIONS
Section 1.30 Distributions. Cash Flow for any period shall be
-------------
distributed to the Members, at times determined by the Managing Members, but
no less frequently than quarterly, and in the following order of priority:
(a) First, to each Member prior to each estimated tax payment
date in an amount sufficient to pay any tax at a rate
equal to the maximum federal ordinary income tax rate
applicable to individuals and/or the then applicable
federal capital gain tax rate applicable to individuals
(as set forth in the Code), plus 6% (in respect of state
and local taxes) applicable to the income or capital gain
estimated to be allocated to it as a result of each
Member's Interest (or, in the case of the Class B Member,
estimated to be allocated 50% to SL (or to its transferee
in an Estate Planning Transfer) and 50% to SS (or to its
transferee in an Estate Planning Transfer) as a result of
their respective interests in the Class B Member) in the
Company, or, without duplication of any other Tax
Distribution, the Fund, any Platform Investment or
ROP/SS.
(b) Second, to the Class A Member until the Class A Member,
Reckson Services, RA or their Affiliates have received,
in the aggregate (from the Company, ROP/SS, the Fund and
Platform Investments), an amount, inclusive of (x) any
prior Tax Distributions to the Class A Member, (y) the
amounts received by the Class A Member as the
Subordinated RSI Fee, and (z) distributions made to the
Class A Member, Reckson Services, RA or their Affiliates
related to contributions by them to the Company, ROP/SS,
the Fund or any Platform Investment, equal to their
unreturned capital contributions to the Company, ROP/SS,
the Fund or any Platform Investment, plus a 12% IRR
thereon;
(c) Third, to the Class B Member until the Class B Member has
received (from the Company, ROP/SS, the Fund and Platform
Investments), an amount equal to the Subordinated
Preference Amount, inclusive of any prior Tax
Distributions to the Class B Member;
(d) Fourth, 85% to the Class A Member and 15% to the Class B
Member until the Class A Member, Reckson Services, RA or
their Affiliates have received, in the aggregate (from
the Company, ROP/SS, the Fund and Platform Investments),
inclusive of (x) any prior Tax Distributions to the Class
A Member, (y) amounts received by the Class A Member as
the Subordinated RSI Fee, and (z) distributions made to
Reckson Services, RA or their Affiliates related to
contributions by them to the Company, ROP/SS, the Fund or
any Platform Investment, a 16% IRR on the aggregate
investment made by the Class A Member, Reckson Services,
RA or their Affiliates to the Company, ROP/SS, the Fund
or any Platform Investment;
(e) Fifth, 72.25% to the Class A Member and 27.75% to the
Class B Member until the Class A Member, Reckson
Services, RA or their Affiliates have received,
in the aggregate (from the Company, ROP/SS, the Fund
and Platform Investments), inclusive of (x) any prior
Tax Distributions to the Class A Member, (y) amounts
received by the Class A Member as the Subordinated
RSI Fee, and (z) distributions made to the
Class A Member, Reckson Services, RA or their
Affiliates related to contributions by them to
the Company, ROP/SS the Fund or any Platform
Investment, a 25% IRR on the investment made by the
Class A Member, Reckson Services, RA or their
Affiliates to the Company, ROP/SS, the Fund or
Platform Investments; and
(f) Thereafter, 74.375% to the Class A Member, inclusive of
(x) any prior Tax Distributions to the Class A Member not
previously taken into account in calculating
distributions to the Class A Member, (y) amounts received
by the Class A Member as the Subordinated RSI Fee not
previously taken into account in calculating
distributions to the Class A Member, and (z)
distributions made to the Class A Member, Reckson
Services, RA or their Affiliates related to contributions
by them to the Company, ROP/SS, the Fund or any Platform
Investment not previously taken into account in
calculating distributions to the Class A Member; and
25.625% to the Class B Member, inclusive of any prior Tax
Distributions to the Class B Member not previously taken
into account in calculating distributions to the Class B
Member.
Section 1.31 Treatment of Insufficiency. If the amounts
--------------------------
available for distribution pursuant to Section 7.01 hereof are not sufficient
to allow for the distribution to each Member of the amounts provided for in
such Section, then the amount distributable pursuant to each such Section
shall be apportioned among the Members in proportion to the amounts that
would be distributed to them under that Section if the amounts available for
distribution thereunder were sufficient to allow for the distribution to the
Members of the amounts required to be distributed pursuant to such Section.
Any remaining insufficiency shall constitute a priority distribution before
any further amounts are distributed pursuant to Section 7.01.
Section 1.32 Distributions in Kind. S/S may cause the Company
---------------------
to make distributions of assets in kind only after obtaining the Class A
Approval in the Class A Member's sole discretion. Whenever the distribution
provided for in Section 7.01 shall be payable in property other than cash,
the value of such distribution shall be the fair market value of such
property determined by the Management Committee in good faith, and in the
event of such a distribution there shall be allocated to the Members in
accordance with Article VI the amount of Net Profits or Losses that would
result if the distributed asset had been sold for an amount in cash equal
to its fair market value at the time of the distribution. No Member shall
have the right to demand that the Company distribute any assets in kind to
such Member.
Section 1.33 Adjustment in Class B Member Distributions under
------------------------------------------------
Certain Conditions. In the event that either SL or SS:
- ------------------
(a) voluntarily terminates employment with the Company
pursuant to Section 5.5 of his Employment Agreement (other than pursuant to
Section 5.2(b)), or
(b) is terminated for Cause, and the terminated Managing
Director does not contest such termination, or Cause is found to occur after
adjudication in accordance with Section 5.2(b) of the Employment Agreement;
Section 7.01 shall be deemed automatically amended, effective as of the
applicable Termination Date (as defined in the Employment Agreement), to
reduce the Class B Member's rights to certain distributions, and to increase
the Class A Member's rights to certain distributions (the "Distribution
Adjustment") as follows:
(i) any remaining unpaid Subordinated Preference Amount
shall be reduced by 50%;
(ii) the references to 85% and 15% in Section 7.01(d) shall
be amended to be 92.5% and 7.5%, respectively;
(iii) the references to 72.25% and 27.75% in Section
7.01(e) shall be amended to be 86.125% and 13.875%, respectively, and
(iv) the references to 75.375% and 25.625% in Section
7.01(f) shall be amended to be 87.1875% and 12.8125%, respectively.
(c) RSI Management may make the Distribution Adjustment
available to any successor Managing Director in accordance with Section 6.1
of the Employment Agreements, and to the extent that such Distribution
Adjustment is not required to be made available to a successor Managing
Director in order to obtain the services of the successor Managing Director,
it shall be reallocated and divided equally between the Class A Member and
the Class B Member, and Section 7.01 shall be deemed automatically further
amended to effect such reallocation.
Section 1.34 Capital Contributions; Distributions to S/S. It is
-------------------------------------------
the intended effect of this Article VII, which takes into account all capital
contributions, whether made by RSI Management or any of its Affiliates and
whether made directly or indirectly to the Company, the Fund, ROP/SS, or any
Platform Investments, and all distributions (whether or
not made by the Company) related to such capital contributions, that the
amount of distributions to which S/S will be entitled will be the same as the
amount of distributions to which S/S would have been entitled had all such
capital contributions and distributions been Capital Contributions to, and
distributions from, the Company, and this Article VII shall be interpreted in
a manner consistent with such intent.
Section 1.35 Limitations. Neither the Company (except as
-----------
required by the Fund Operating Agreement) nor S/S shall have any rights to
directly instruct a Platform Investment to take, or refrain from taking, any
action with respect to distributions.
ARTICLE VIII
SPECIAL ALLOCATION RULES
Section 1.36 Certain Definitions. The following terms have the
-------------------
definitions hereinafter indicated whenever used in this Article VIII with
initial capital letters:
(1) "Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of
the end of the relevant Fiscal Year or other period, after giving effect to
the following adjustments:
(1) Credit to such Capital Account any amounts which such
Member is treated as obligated to restore to the Company pursuant to Section
1.704-1(b)(2)(ii)(c) of the Regulations or is deemed to be obligated to
restore pursuant to Section 1.704-2(g)(1) of the Regulations or Section
1.704-2(i)(5) of the Regulations; and
(2) Debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (d)(5), and (d)(6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the
Regulations and shall be interpreted consistently therewith.
(2) "Depreciation" means, for each Fiscal Year, an amount equal to
the federal income tax depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period,
Depreciation shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization or
other cost recovery deduction for such year bears to such beginning adjusted
tax basis; provided that if the federal income tax depreciation,
amortization, or other cost recovery deductions for such year is zero,
Depreciation shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the Managing Member.
(3) "Gross Asset Value" means, with respect to any asset of the
Company, such asset's adjusted basis for federal income tax purposes, except
as follows:
(1) the initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such asset at
the time of contribution determined by the Managing Member using such
reasonable method of valuation as they may adopt;
(2) in the discretion of the Managing Member, the Gross
Asset Values of all the Company's assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined by the Managing
Member, immediately prior to the following events:
(A) the making
of a capital
contribution
(other than a de
minimis
-- -------
capital contribution) to the Company by a
new or existing Member as consideration
for an Interest;
(B)the
distrib
ution
by the
Company
to a
Member
of more
than a
de
--
minimis amount of Company property as
-------
consideration for the redemption of an
Interest; and
(C) the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and
(3) the Gross Asset Values of the Company assets
distributed to any Member shall be the gross fair market values of such
assets as reasonably determined by the Managing Member as of the date of
distribution.
At all times, Gross Asset Values shall be adjusted by any
Depreciation taken into account with respect to the Company's assets for
purposes of computing Profits and Losses. Gross Asset Values shall be
further adjusted to reflect adjustments to Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m) to the extent not otherwise
reflected in adjustments to Gross Asset Values. Any adjustment to the Gross
Asset Values of the Company property shall require an adjustment to the
Members' Capital Accounts as described in the definition of Capital Account.
(4) "Nonrecourse Deductions" means the nonrecourse deductions as
defined in Regulations Section 1.704-2(b)(1). The amount of Nonrecourse
Deductions for a Fiscal Year equals the net increase, if any, in the amount
of Company Minimum Gain during such Fiscal Year reduced by any distributions
during such Fiscal Year of proceeds of a Nonrecourse Liability that are
allocable to an increase in Company Minimum Gain, determined according to the
provisions of Regulations Sections 1.704-2(c) and 1.704-2(h).
(5) "Nonrecourse Liability" means a nonrecourse liability as
defined in Regulations Section 1.704-2(b)(3).
(6) "Member Minimum Gain" means an amount, with respect to each
Member Nonrecourse Debt, equal to Company Minimum Gain that would result if
such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
(7) "Member Nonrecourse Debt" means a liability as defined in
Regulations Section 1.704-2(b)(4).
(8) "Member Nonrecourse Deductions" means the Partner
Nonrecourse Deductions as defined in Regulations Section
1.704-2(i)(2). The amount of Member Nonrecourse Deductions with respect to a
Member Nonrecourse Debt for a Fiscal Year equals the net increase, if any, in
the amount of Member Minimum Gain during such Fiscal Year attributable to
such Member Nonrecourse Debt, reduced by any distributions during that Fiscal
Year to the Member that bears the economic risk of loss for such Member
Nonrecourse Debt to the extent that such distributions are from the proceeds
of such Member Nonrecourse Debt and are allocable to an increase in Member
Minimum Gain attributable to such Member Nonrecourse Debt, determined
according to the provisions of Regulations Sections 1.704-2(h) and
1.704-2(i).
(9) "Company Minimum Gain" means the aggregate gain, if any, that
would be realized by the Company for purposes of computing Profits and Losses
with respect to each Company asset if each Company asset subject to a
Nonrecourse Liability were disposed of for the amount outstanding on the
Nonrecourse Liability by the Company in a taxable transaction. Company
Minimum Gain with respect to each Company asset shall be further determined
in accordance with Regulations Section 1.704-2(d) and any subsequent rule or
regulation governing the determination of minimum gain. A Member's share of
Company Minimum Gain at the end of any Fiscal Year shall equal the aggregate
Nonrecourse Deductions allocated to such Member (or its predecessors in
interest) up to that time, less such Member's (and predecessors') aggregate
share of decreases in Company Minimum Gain determined in accordance with
Regulations Section 1.704-2(g).
(10) "Profits" and "Losses" shall mean, respectively, Net Profits
and Net Losses.
Section 1.37 Allocations. The following provisions are
-----------
incorporated in the Agreement:
(1) Allocations for U.S. Federal Income Tax Purposes.
------------------------------------------------
(1) For each Fiscal Year or other relevant period, except as
otherwise provided in this Section 8.02(a), for federal income tax purposes,
each item of income, gain, loss and deduction shall be allocated among the
Members in the same manner as its correlative item of Net Profits or Net
Losses allocated pursuant to Article VI of this Agreement.
(2) In accordance with Code Sections 704(b) and 704(c) and
the Regulations thereunder, income, gain, loss and deduction with respect to
any property contributed to the capital of the Company shall, solely for
federal income tax purposes, be allocated among the Members so as to take
into account any variation between the adjusted basis of such property to the
Company for federal income tax purposes and the initial Gross Asset Value of
such property.
(3) If the Gross Asset Value of any Company
property is adjusted as described in the
definition of Gross Asset Value, subsequent allocations of income, gain, loss
and deduction with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income tax purposes and
the Gross Asset Value of such asset in the manner prescribed under Code
Sections 704(b) and 704(c) and the Regulations thereunder. In furtherance of
the foregoing, the Company shall employ any reasonable method selected by the
Managing Member. The Managing Member is specifically authorized to select
the traditional method described in Regulation Section 1.704-3(b).
(2) Allocations with Respect to Transferred or Additional
-----------------------------------------------------
Interests. Profits and Losses allocable to
---------
an Interest assigned, issued or reissued during a Fiscal Year
shall be allocated to each Person who was the holder of such Interest during
such Fiscal Year on the basis of an interim closing of the books of the
Company.
(3) Mandatory Allocations for Federal Income Tax Purposes.
-----------------------------------------------------
(1) No Excess Deficit. To the extent that any Member has
-----------------
or would have, as a result of an allocation of Loss (or
item thereof), an Adjusted Capital Account Deficit, such amount of Loss (or
item thereof) shall be allocated to the other Members in accordance with
Section 8.02(a), but in a manner which will not produce an Adjusted Capital
Account Deficit as to such Members. To the extent such allocation would
result in all Members having Adjusted Capital Account Deficits, such Loss
shall be allocated to the Members in the manner required by the Regulations
under Section 704 of the Code. Where the Company is entitled to select an
allocation method under such Regulations, the method shall be selected by the
Managing Member.
(2) Minimum Gain Chargeback. Notwithstanding any other
-----------------------
provision of this Article VIII, if there is a net
decrease in Company Minimum Gain during any Fiscal Year, then, subject to the
exceptions set forth in Regulations Sections 1.704-2(f)(2), (3), (4) and (5),
each Member shall be specially allocated items of the Company income and gain
for such year (and, if necessary, subsequent years) in an amount equal to
such Member's share of the net decrease in Company Minimum Gain, as
determined under Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in such section of the Regulations in
accordance with Regulations Section 1.704-2(f). This Section 8.02(c)(ii) is
intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith.
(3) Member Minimum Gain Chargeback. Notwithstanding any
------------------------------
other provision of this Article VIII except Section
8.02(c)(ii), if there is a net decrease in Member Minimum Gain attributable
to a Member Nonrecourse Debt during any Fiscal Year, then, subject to the
exceptions set forth in Regulations Section 1.704-2(i)(4), each Member who
has a share of the Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of the Company
income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Member's share of the net decrease in Member
Minimum Gain attributable to such Member Nonrecourse Debt, determined
in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant
to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The items
to be so allocated shall be determined in accordance with Regulations Section
1.704-2(i)(4). This Section 8.02(c)(iii) is intended to comply with the
minimum gain chargeback requirement in such Section of the Regulations and
shall be interpreted consistently therewith.
(4) Qualified Income Offset. Notwithstanding any other
-----------------------
provision of this Article VIII, except Sections
8.02(c)(ii) and 8.02(c)(iii), in the event any Member receives any
adjustments, allocations or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5), or (6), that cause or increase an Adjusted
Capital Account Deficit of such Member, items of Company income and gain
shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit of such Member as quickly as possible.
(5) Member Nonrecourse Deductions. Any Member
-----------------------------
Nonrecourse Deductions for any Fiscal Year shall be
specially allocated to the Member who bears the economic risk of loss with
respect to the Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Regulations Section
1.704-2(i)(1).
(6) Intentionally Omitted
(7) Code Section 754 Adjustments. To the extent an
----------------------------
adjustment to the adjusted tax basis of any Company
asset pursuant to Code Section 734(b) or 743(b) is required, pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis), and
such item of gain or loss shall be specially allocated to the Members in a
manner consistent with the manner in which their Capital Accounts are
required to be adjusted pursuant to such Section of the Regulations.
Each Member hereby agrees to provide the Company with all
information necessary to give effect to an election made under Code Section
754 if the Managing Member determines to make such an election; provided that
the cost associated with such an election shall be borne by the Company as a
whole. With respect to such election:
(A) Any change in the amount of the depreciation deducted by the
Company and any change in the gain or loss of the Company, for federal income
tax purposes, resulting from an
adjustment pursuant to Code Section 743(b) shall be allocated entirely to the
transferee of the Interest or portion thereof so transferred. Neither the
Capital Contribution obligations of, nor the Interest of, nor the amount of
any cash distributions to, the Members shall be affected as a result of such
election, and except as provided in Regulations Section 1.704-1(b)(2)(iv)(m),
the making of such election shall have no effect except for federal and (if
applicable) state and local income tax purposes.
(B) Solely for federal and (if applicable) state and local income
tax purposes and not for the purpose of maintaining the Members' Capital
Accounts (except as provided in Regulations Section 1.704-1(b)(2)(iv)(m)),
the Company shall keep a written record for amount at which such assets are
carried on such record shall be debited (in the case of an increase in basis)
or credited (in the case of a decrease in basis) by the amount of such basis
adjustment. Any change in the amount of the depreciation deducted by the
Company and any change in the gain or loss of the Company, for federal and
(if applicable) state and local income tax purposes, attributable to the
basis adjustment made as a result of such election shall be debited or
credited, as the case may be, on such record.
(8) Curative Allocations. The allocations set forth in
--------------------
this Section 8.02 (the "Regulatory Allocations") are
intended to comply with certain requirements of Regulations Section
1.704-1(b). The Regulatory Allocations shall be taken into account for the
purpose of equitably adjusting subsequent allocations of Profits and Losses,
and items of income, gain, loss, and deduction among the Members so that, to
the extent possible, the net amount of such allocations of Profits and Losses
and other items to each Member shall be equal to the net amount that would
have been allocated to each such Member if the Regulatory Allocations had not
occurred.
(9) Nonrecourse Debt Distribution. To the extent
-----------------------------
permitted by Regulations Sections 1.704-2(h)(3) and
1.704-2(i)(6), the Managing Member shall endeavor to treat distributions as
having been made from the proceeds of Nonrecourse Liabilities or Member
Nonrecourse Debt only to the extent that such distributions would cause or
increase a deficit balance in any Member's Capital Account that exceeds the
amount such Member is otherwise obligated to restore (within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(c)) as of the end of the Company's
taxable year in which the distribution occurs.
ARTICLE IX
REPORTING; CERTAIN FEES
Section 1.38 Reporting.
---------
(a) The Class A Member shall cause the Company to deliver or cause
to be delivered to each Member: (i) an annual audited consolidated income
statement and consolidated balance sheet for the Company within one hundred
twenty (120) days following each fiscal year end, each as of the end of and
for the fiscal year just ended, all in reasonable detail; and (ii) a
quarterly unaudited consolidated income statement and consolidated balance
sheet for the Company within sixty (60) days following each fiscal quarter
end, each as at the end of the period commencing at the end of the previous
fiscal quarter and ending with such fiscal quarter, all in reasonable detail.
(2) The Company shall deliver or cause to be delivered to each
Member: (i) an annual audited consolidated income statement and consolidated
balance sheet for the Fund, (ii) a quarterly unaudited consolidated income
statement and consolidated balance sheet for the Fund, all in reasonable
detail, and other descriptive investment information, if any, in each case as
and when distributed to the Fund Preferred Member.
(3) The Managing Directors shall be entitled to request and
receive financial data regarding (i) each Fund Platform Investment and Non-
Fund Platform Investment with respect to which an Asset Management Fee is
payable to S/S, sufficient to satisfy them that such fees have been paid and
are being calculated properly, and (ii) each Fund Investment, sufficient to
satisfy them that the allocation and distribution provisions of Articles V,
VI, VII and VIII, including, without limitation, Section 7.05, have been and
are being properly applied and complied with.
(4) The Class A Member shall direct all of the activities
described in Sections 9.01(a)-(c) in its sole discretion, subject to the
Class B Member's right to receive the foregoing statements and reports in
strict conformity with the requirements described above. The Class B Member
shall cause its Managing Director designees to reasonably cooperate in the
preparation of the statements described in Section 9.01(a)-(b).
Section 1.39 Certain Fees.
------------
(1) RSI Asset Management Fee. RSI Management shall receive an
------------------------
annual asset management fee from the Fund, payable in
quarterly installments in arrears, in an amount equal to 2% of the capital
committed and/or funded by RSI Management, Reckson Services, RA or their
Affiliates to the Company, the Fund or to Fund Platform Investments (the "RSI
Asset Management Fee"). The RSI Asset Management Fee will initially be a
priority payment before certain distributions by the Fund to the Company, but
up to $1.5 million annually will be subordinated (to the extent of an amount
equal to the annual excess of (x) total Fund general and administrative
expenses, plus the RSI Asset Management Fee, over (y) $5.0 million) to the
prior payment of the Fund Preferred Payments. The unsubordinated $0.5
million of the RSI Asset Management Fee will be deemed to be reimbursement to
RSI Management for overhead costs incurred by RSI Management in connection
with the Fund and will be treated as an operating expense of the Fund. The
remaining portion (the "Subordinated RSI Fee") shall be paid currently until
RSI Management and its Affiliates have received the distributions (inclusive
of the Subordinated RSI Fee payments) specified in Section 7.01 (b), and
thereafter shall accrue, but not be paid currently, until S/S has received,
inclusive of any prior distributions specified in Section
7.01(a), an amount equal to its Subordinated
Preference Amount. Thereafter, the Subordinated RSI Fee shall be payable to
RSI Management, but shall not have priority over distributions to S/S. In no
event shall payment of the Subordinated RSI Fee adversely affect the timing
and amount of distributions to S/S as compared to those distributions which
would have been made to S/S had there been no Subordinated RSI Fee.
(2) Managing Member Asset Management Fee. The Company shall
------------------------------------
receive an annual asset management fee from RA and/or the
Operating Partnership with respect to Investments made directly or indirectly
by the Operating Partnership, payable in quarterly installments in arrears,
in an amount equal to 1.0% of RA's and/or the Operating Partnership's total
cost of investment (including debt but excluding depreciation) in Compulsory
Non-Fund Platform Investments and in Elective Non-Fund Platform Investments,
provided those Investments are in Platforms in which the Fund has an existing
Fund Investment. Such fee (the "Managing Member Asset Management Fee") shall
be paid 50% to RSI Management and 50% to S/S, and shall be considered an
expense of the Company, and not a distribution for purposes of Articles VII
or VIII. Of the S/S portion of such fee, 50% shall terminate upon
termination of employment of SL and 50% shall terminate upon termination of
employment of SS. RSI Management may make those fees which have terminated
as to S/S available to any successor Managing Director in accordance with
Section 6.1 of the Employment Agreement, and to the extent such fees are not
required to be made available to a successor Managing Director in order to
obtain the services of the successor Managing Director, they shall be divided
equally (over the remaining term of the Employment Agreement of the Managing
Director whose employment has not terminated) between RSI Management and S/S.
(3) S/S Asset Management Fee. S/S shall receive an annual
------------------------
asset management fee directly from RSI Management with respect
to Investments made by RSI Management or its Affiliates, payable in quarterly
installments in arrears, in an amount equal to 0.50% of RSI's and its
Affiliates total cost of investment (including debt but excluding
depreciation) in Compulsory Non-Fund Platform Investments and in Elective
Non-Fund Platform Investments, provided those Investments are in Platforms in
which the Fund has an existing Fund Investment (the "S/S Asset Management
Fee"). Such fee shall not be considered a distribution for purposes of
Articles VII or VIII, and 50% of such fee shall terminate upon termination of
employment of SL and 50% of such fee shall terminate upon termination of
employment of SS. RSI Management may make those fees which have terminated
as to S/S available to any successor Managing Director in accordance with
Section 6.1 of the Employment Agreement, and to the extent such fees are not
required to be made available to a successor Managing Director in order to
obtain the services of the successor Managing Director, they shall be divided
equally (over the remaining term of the Employment Agreement of the Managing
Director whose employment has not terminated) between RSI Management and S/S.
(4) S/S Transaction Fees. S/S shall receive acquisition and/or
--------------------
consulting fees (excluding the Managing Member Asset
Management Fees and S/S Asset Management Fees)
in connection with Fund Platform Investments
and/or Non-Fund Platform Investments ("S/S Transaction Fees"), as and when
received, but no less frequently than quarterly, in an amount up to $1.0
million annually for the term of the Employment Agreements (unless earlier
terminated as set forth in this Section 9.02(d) or pursuant to Section
11.01). RSI Management and the Company shall use all reasonable efforts
(taking into consideration the circumstances of each Investment transaction)
to facilitate such S/S Transaction Fees being paid to S/S, upon the
consummation of each Fund Platform Investment and Non-Fund Platform
Investment, in an amount such that S/S can reasonably anticipate receiving
the current year's remaining unpaid maximum S/S Transaction Fees. Such fees
shall not be considered a distribution for purposes of Article VII or VIII,
and 50% of such fees shall terminate upon termination of employment of SL for
Cause or by reason of SL's voluntary resignation (excluding by reason of
Fundamental Failure or constructive termination by the Company or RSI
Management), and 50% of such fees shall terminate upon termination of
employment of SS for Cause or by reason of SS's voluntary resignation
(excluding by reason of Fundamental Failure or constructive termination by
the Company or RSI Management). RSI Management may make those fees which
have terminated as to S/S available to any successor Managing Director in
accordance with Section 6.1 of the Employment Agreements, and to the extent
such fees are not required to be made available to a successor Managing
Director in order to obtain the services of the successor Managing Director,
they shall be divided equally (over the remaining term of the Employment
Agreement of the Managing Director whose employment has not terminated)
between RSI Management and S/S.
ARTICLE X
RESIGNATION AND ASSIGNMENT OF INTERESTS
Section 1.40 Resignation of a Managing Member. The Class B
--------------------------------
Member shall be entitled to resign as a Managing Member, and the Class A
Member may compel the resignation of the Class B Member as a Managing Member,
in either case only upon the termination of the employment of both Managing
Directors, whereupon the Class B Member shall remain as a Class B Member,
with the rights of a non-Managing Member as specified in this Agreement.
Section 1.41 Resignation of Member. A Member (other than a
---------------------
Managing Member) may resign from the Company prior to the dissolution and
winding up of the Company only upon, and shall be deemed to have resigned
upon, any redemption, exchange or other repurchase by the Company or an
assignment of its interests in compliance with the provisions of Section
10.04 and Section 10.05.
Section 1.42 No Distribution Upon Resignation. Upon
--------------------------------
resignation, no resigning Member shall be entitled to receive any
distribution or otherwise be entitled to receive the fair value of its
Interest; provided, however, that upon any redemption, exchange
or other repurchase by the Company, such Member shall be entitled to receive
the amount payable by the Company in connection with such redemption,
exchange or other repurchase.
Section 1.43 Assignment, Transfer or Pledge of Interests.
-------------------------------------------
(1) No Transfer of all or any portion of a Member's Interest,
either Class A Units or Class B Units (including some or all of its rights or
obligations hereunder) may be made except as permitted by this Section 10.04.
For purposes of this Agreement "Transfer" shall mean any sale, exchange,
pledge, syndication, assignment, bequest, creation of an encumbrance, or any
other transfer or disposition of any kind, whether voluntary or involuntary.
(2) No Member may Transfer, directly or indirectly (including,
without limitation, SL and SS with respect to their respective ownership
interests in S/S, and Reckson Services with respect to its ownership interest
in RSI Management), any of its respective interest in the Company except with
the consent of all Managing Members in their sole discretion, provided,
however, that:
(i) (A) RSI Management may transfer direct or indirect membership
interests to the Operating Partnership or any of the Operating
Partnership's or Reckson Services Controlled or Controlling Affiliates
(provided that unless the Controlling Affiliate was also a Controlling
Affiliate of Reckson Services or RA on January 1, 1998, such Transfer,
although permitted, shall constitute a "Change in Control Event"), and
(B) Reckson Services may consummate a public offering or other
distribution of its securities (provided that if (x) beneficial
ownership (as defined in SEC Regulation 13D-G) of more than 4.99% of
Reckson Services common equity voting securities is held by one or more
Persons, individually or as a "group" (as such term is defined in SEC
Regulation 13D-G) (but excluding any group in which S/S, SL, SS or any
Affiliate is a member), and (y) such Person or Persons have elected or
designated, or have the power to elect or designate a number of
directors of Reckson Services equal to or greater than those directors
who (i) were senior executive officers of Reckson Services or RA on
January 1, 1998, (ii) are Rechler Family Members, or (iii) are designees
of a Rechler Family Member and are then executive officers of RA or
Reckson Services, such Transfer, although permitted, shall also
constitute a "Change in Control Event"), provided, however, in no event
shall a "Change in Control Event" be deemed to have occurred if
individuals who were directors or senior executive officers of RA or
Reckson Services on January 1, 1998 retain exclusive and unfettered
decision making authority for RSI Management as regards the Company and
the Fund with respect to (i) activities consistent with the Fund's
stated objectives and the Fund's investment strategy, as implemented
prior to the Change in Control Event, and (ii) investment by RSI
Management or its Affiliates of common equity capital of not more than
$10 million per Investment.
(ii) S/S and each Managing Director may
Transfer direct or indirect Interests to
each other, and may make Transfers that
constitute Estate Planning Transfers; and
(iii) both S/S and RSI Management and their respective Affiliates may
pledge or assign (but not syndicate to multiple parties) a beneficial
interest in their respective Interests (but not, directly or indirectly,
more than 50% of S/S's aggregate Interest), provided such pledge does
not permit the pledgee or assignee to acquire any direct or indirect
voting rights with respect to such Interest or to be substituted as a
Member. In the event of a pledge as aforesaid by S/S or its Affiliates
of their Interests, if there is a default by S/S or its Affiliates that
results in an exercise of remedies by the pledgor such that the pledgor
or a transferee (other than SL, SS or an SL or SS affiliate) succeeds to
or obtains all or part of the Interests of S/S or S/S's Affiliates
(e.g., a U.C.C. foreclosure sale that results in the pledgor or a third
party not an S/S Affiliate purchasing the interests of S/S being sold),
then S/S shall lose its right to prevent a Major Decision from being
taken and, if the Interest taken is not limited only to a right to
receive the economic benefits of that Interest, then RSI Management may
elect to treat the occurrence as an Adverse Valuation Determination.
(3) Upon the occurrence of a Change in Control Event, if within
the first three years of the Formation Date, S/S may elect to require RSI
Management to immediately (A) purchase all of S/S's Interest for its Fair
Value, or (B) pay to S/S the remaining unpaid amount of the Subordinated
Preference Amount, in which event S/S shall retain its right to share in
distributions as set forth in Section 7.01; if a Change in Control Event
occurs more than three years after the Formation Date, S/S may elect only (A)
above in this subsection. Any election by S/S shall be made within six
months after the occurrence of the Change in Control Event. If S/S elects
either (A) or (B) above in accordance with this subsection, SS and SL shall
be required to simultaneously terminate their employment, but the terms set
forth in their respective Employment Agreements upon the occurrence of a
Change in Control Event shall apply. Any election by S/S shall be made
within six months after the occurrence of the Change in Control Event.
(4) The Company shall not recognize for any purpose any purported
Transfer of all or any portion of a Member's Interest, either Class A Units
or Class B Units (including some or all of its rights or obligations
hereunder) unless;
(1) the Managing Members shall have been furnished with the
documents effecting such Transfer executed and acknowledged by both
transferor and transferee, together with the written agreement of the
transferee to become a party to and be bound by this Agreement, all of which
shall be in form and substance reasonably satisfactory to the Managing
Members;
(2) such Transfer shall have been made in accordance with
all applicable laws and regulations and all necessary governmental consents
shall have been obtained and requirements satisfied,
including without limitation, compliance with the Securities Act of 1933, as
amended, and applicable state blue sky and securities laws;
(3) such Transfer will not cause the Company to have more
than 100 partners (as determined for purposes of Treasury Regulations
Section-1.7704-1(h)(1)(ii));
(4) all necessary instruments reflecting such admission
shall have been filed in each jurisdiction in which such filing is necessary
in order to qualify the Company to conduct business or to preserve the
limited liability of the Members; and
(5) such transfer or assignment will not cause the Company
to be required to register as an "investment company" under the Investment
Company Act of 1940.
(5) Any Class B Unit Transferred to RSI Management or any
Affiliate of RSI Management shall remain a Class B Unit upon that Transfer,
and any Class A Unit Transferred to S/S or any Affiliate of S/S shall remain
a Class A Unit upon that Transfer.
(6) Notwithstanding anything herein to the contrary, RSI
Management and its Affiliates shall be permitted to pledge their Interests in
the Company or their interests in a Platform Investment, but if there is a
default by RSI Management or any such Affiliate that results in an exercise
of remedies by the pledgor such that the pledgor or a Transferee (other than
RSI Management or its Affiliate) succeeds to or obtains all or part of the
interests of RSI Management or its Affiliate in the Company or a Platform
Investment (e.g., a U.C.C. foreclosure sale that results in the pledgor or a
third party that is not an Affiliate of RSI Management purchasing the
interests of RSI Management or its Affiliate being sold), then RSI Management
shall no longer have the right to cause a Major Decision to be, or to prevent
a Major Decision from being, taken and, if the pledged interest so
Transferred is not limited only to a right to receive the economic benefits
of that interest, then S/S may elect to treat the occurrence as a Change in
Control Event.
ARTICLE XI
DISSOLUTION
Section 1.44 Duration and Dissolution. The Company shall be
------------------------
dissolved and its affairs shall be wound up upon the first to occur of the
following:
(1) the entry of a decree of judicial dissolution of the Company
under Section 18-802 of the Delaware Act;
(2) the bankruptcy, dissolution or
liquidation of both Managing Members unless the business of the Company is
continued by the consent of all remaining Members within 90 days following
the occurrence of such event;
(3) the mutual agreement of S/S and RSI Management;
(d) the termination for Cause or the voluntary termination or the
expiration of the terms of employment of both Managing Directors pursuant to
the provisions of their respective Employment Agreements unless the Class A
Member elects, within 90 days following the last such termination for Cause
or voluntary termination or expiration of employment, to continue the
business of the Company; and
(e) the 90th day following the dissolution and liquidation of the
Fund.
Except as provided in (b) above, the death, retirement,
resignation, expulsion, bankruptcy or dissolution of any Member or the
occurrence of any other event which terminates the continued membership of
any Member in the Company shall not cause the Company to be dissolved and its
affairs wound up.
Section 1.45 Winding Up. Subject to the provisions of the
----------
Delaware Act, the Managing Members shall have the exclusive right to wind up
the Company's affairs in accordance with Section 18-803 of the Delaware Act
(and shall promptly do so upon dissolution of the Company), and shall also
have the exclusive right to act as or appoint a liquidating trustee in
connection therewith.
Section 1.46 Distribution of Assets. Upon the winding up of
----------------------
the Company, the assets shall be distributed to the Members in accordance
with Sections 7.01(b) through (f) hereof, subject to the applicable terms of
Section 18-804 of the Delaware Act and Section 11.05 hereof. However, if on
liquidation of the Company, RSI Management and/or its Affiliates have not
received (from the Company, ROP/SS, the Fund or any Fund Platform
Investments), an amount at least equal to the distributions contemplated to
be distributed to them under subsection (b) of Section 7.01, then S/S shall
pay to RSI Management, without duplication by any other Tax Distribution
repayment obligation, the amount of any Tax Distributions made to S/S, but
only (i) if, in connection with liquidation of the Company (including any
disposition of assets pursuant to a plan of liquidation), S/S, SL or SS (or
any transferee of SL or SS in an Estate Planning Transfer) recognizes a loss
or becomes entitled to any other tax benefit (other than any loss or other
tax benefit to which any of them would have been entitled in the absence of
such liquidation and disposition of assets), (ii) in the amount of and at the
time of the actual reduction in the tax liability otherwise payable by S/S,
SL or SS (or any transferee of SL or SS in an Estate Planning Transfer)
resulting from such loss or other tax benefit and (iii) if such reduction
occurs within five years after such liquidation. The foregoing shall not be
deemed to grant to RSI Management any equitable or legal right to request or
inspect copies of the tax returns or personal records of S/S, SL or
SS (or any transferee of SL or SS in an Estate Planning Transfer), but RSI
Management may require that S/S, SL and/or SS certify as to whether any such
reduction has been effected.
Section 1.47 Notice of Liquidation. The Managing Members shall
---------------------
give each of the other Members at least 10 days' prior written notice of any
Liquidation.
Section 11.05 Disposition of Remaining Fund Platform
--------------------------------------
Investments. At the end of the term of the Fund, the Class A Member, in
- ------------
its sole discretion, may require the Company to sell or hold any one or more
Fund Platform Investments. If the Class A Member elects to require the
Company to sell any one or more Fund Platform Investments, the Class B Member
shall have a right of first refusal to purchase any Fund Platform Investment
proposed to be sold. If the Class A Member elects to hold any one or more
Fund Platform Investments, the Class B Member, in its sole discretion, may
elect to hold or sell any one or more of the Fund Platform Investments
selected to be held by the Class A Member. If the Class B Member elects at
any time or from time to time (but not more frequently than annually) to sell
any one or more Fund Platform Investments selected to be held by the Class A
Member, the Class A Member shall either allow the sale or shall purchase (or
cause Reckson Services or an Affiliate of Reckson Services to purchase) from
the Fund the Fund Platform Investments selected by the Class B Member to be
sold, at Fair Value.
ARTICLE XII
MISCELLANEOUS
Section 1.48 Rights to Specific Performance. Each of the
------------------------------
undersigned acknowledges and agrees that each of the parties hereto is
entering into this Agreement in reliance on the agreements, obligations and
covenants made herein by the other parties hereto, and that any failure or
delay in specific performance of those agreements, obligations, and covenants
would result in irreparable harm to the other parties hereto. Each of the
undersigned agrees that if any of the undersigned defaults in the performance
of its or their obligations under this Agreement, the other parties hereto
shall be entitled, in addition to any other remedies that they may have, to
enforce this Agreement by injunctive relief (including a temporary
restraining order or preliminary injunction) or an order or judgment of
specific performance in a court of competent jurisdiction requiring the
defaulting party to perform its obligations under this agreement.
Section 1.49 Tax Reports. After the end of each fiscal year,
-----------
the Class A Member shall, as promptly as possible and in any event within 120
days after the close of the fiscal year, cause to be prepared and transmitted
to each Member federal income tax form K-1.
Section 1.50 Amendment to the Agreement. This Agreement may be
--------------------------
amended or supplemented by the written consent of both Managing Members;
provided, that no such amendment or supplement shall:
(1) change the percentage of Class A Units or Class B Units
necessary for any consent required under this Agreement to the taking of any
action without the Class A Approval or the Class B Approval, respectively; or
(2) adversely affect the rights of the Class A Members or the
Class B Members without the Class A Approval or the Class B Approval,
respectively.
(3) Notwithstanding the foregoing, this Agreement shall be deemed
amended and relevant section and other references thereto revised to preserve
the meaning of such references, without further action by the Members, to
replace Exhibit B with the final form of Operating Agreement of the Fund
executed by the Managing Member and the Fund Preferred Member, provided such
final form of Operating Agreement of the Fund does not contain any terms or
provisions, or omit any terms or provisions, including, without limitation,
financial terms, distributions or allocations or provisions for payment of
fees, expenses or compensation which have or might have, by reason of their
inclusion or omission and after giving effect to any adjustments by the Class
A Member in its rights to distributions or fees under this Agreement, a
material adverse effect on the rights and privileges, including, without
limitation, any prospective future payments or distributions to the Class B
Member or the Managing Directors, or result in an increase in the
obligations, liabilities or duties of the Class B Member or the Managing
Directors as compared with those provided for in this Agreement. Subject to
the foregoing, the Class B Member and the Managing Directors shall use
commercially reasonable efforts and shall cooperate in the promulgation of a
final form of operating agreement of the Fund and shall not unreasonably
withhold consent thereto.
Section 1.51 Successors; Counterparts. This Agreement and any
------------------------
amendment hereto in accordance with Section 12.03(a) shall be binding as to
executors, administrators, estates, heirs and legal successors, or nominees
or representatives, of the Members, and (b) may be executed in several
counterparts with the same effect as if the parties executing the several
counterparts had all executed one counterpart.
Section 1.52 Governing Law; Severability. This Agreement shall
---------------------------
be governed by and construed in accordance with the laws of the State of
Delaware without giving effect to the principles of conflict of laws thereof.
In particular, this Agreement shall be construed to the maximum extent
possible to comply with all of the terms and conditions of the Delaware Act.
If, nevertheless, it shall be determined by a court of competent jurisdiction
that any provisions or wording of this Agreement shall be invalid or
unenforceable under said Delaware Act or other applicable law, such
invalidity or unenforceability shall not invalidate the entire Agreement. In
that case, this Agreement shall
be construed so as to limit any term or provision to make it enforceable or
valid within the requirements of applicable law, and, in the event such term
or provisions cannot be so limited, this Agreement shall be construed to omit
such invalid or unenforceable provisions. If it shall be determined by a
court of competent jurisdiction that any provisions relating to the
distributions and allocations of the Company or to any fee payable by the
Company is invalid or unenforceable, this Agreement shall be construed or
interpreted so as (a) to make it enforceable or valid and (b) to make the
distributions and allocations as closely equivalent to those set forth in
this Agreement as is permissible under applicable law.
Section 1.53 Filings. Following the execution and delivery of
-------
this Agreement, the Class A Member shall promptly prepare any documents
required to be filed and recorded under the Delaware Act, and shall promptly
cause each such document to be filed and recorded in accordance with the
Delaware Act and, to the extent required by local law, to be filed and
recorded or notice thereof to be published in the appropriate place in each
jurisdiction in which the Company may hereafter establish a place of
business. The Class A Member shall also promptly cause to be filed, recorded
and published such statements of fictitious business name and any other
notices, certificates, statements or other instruments required by any
provision of any applicable law of the United States or any state or other
jurisdiction which governs the conduct of its business from time to time.
Section 1.54 Headings. Section and other headings contained in
--------
this Agreement are for reference purposes only and are not intended to
describe, interpret, define or limit the scope or intent of this Agreement or
any provision hereof.
Section 1.55 Additional Documents. Each member, upon the
--------------------
request of a Managing Member, agrees to perform all further acts and execute,
acknowledge and deliver any documents that may be reasonably necessary to
carry out the provisions of this Agreement.
Section 1.56 Notices. All notices, requests and other
-------
communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given to such party (and any other
person designated by such party) at its address set forth in a schedule filed
with the records of the Company, or such other address as such party may
hereafter specify for the purpose of notice to both Managing Members. Each
such notice,
request or other communication shall be effective when actually delivered to
the party at the address specified pursuant to this Section.
Section 1.57 Confidentiality. The Members shall keep
---------------
confidential, and shall not disclose publicly, or to any third party, either
the existence of, or the terms and conditions of this Agreement and the
relationship created hereby, except as shall be mutually agreed by, and with
the prior approval of, each of S/S, the Managing Directors, and RSI
Management, except for professionals (including, but not limited to, bankers
and underwriters) with a need to know and except as may be required by law,
regulation or court order.
IN WITNESS WHEREOF, the undersigned have hereto set their hands as of
the day and year first above written.
CLASS A MEMBER:
RSI FUND MANAGEMENT, LLC
By:
---------------------------------------------------------------------
_____________, as Manager
CLASS B MEMBER:
NEW WORLD REALTY, LLC
By GNREP, L.P. I, a Managing Member
By: GNREP I Corp., its General Partner
By:
----------------------------------------------------------------
Seth B. Lipsay,
Authorized Officer
By Sam De Realty, L.P., a Managing Member
By:
----------------------------------------------------------------
Steven H. Shepsman,
its General Partner
SCHEDULE A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Member Class Capital Number of Address
Contribution Units
RSI Fund Management, LLC A $100.00/(1)/ 50 Address:
c/o
Reckson
Services
Industries
Inc.
225 BroadhollowRoad
Melville,
NY
11747-0983
Attention:
Chief
Executive
Officer
New World Realty, LLC B $100.00 50 Address:
c/o GNREP, L.P.I
46 Merrivale Road
Great Neck,NY 11020
Attention:
General
Partner
and
c/o Sam de Realty, L.P.
36 Arleigh Road
Great Neck, NY11021
Attention:
General
Partner
</TABLE>
(1) Plus an amount equal to the amount specified in an itemized schedule
prepared by the Class A Member, detailing the aggregate cost of the
investment, through the Formation Date, of Reckson Strategic Venture
Partners, LLC in (A) its 33.33% interest in American Campus Lifestyles
Companies, LLC, and (B) its 33.33% interest in a joint venture that owns
a 70% interest in the Dobie Center, unless the Class B Member gives
------
notice (the "Rejection Notice") to the Class A Member on or prior to March 5,
1998 that both such Investments are not being accepted as part of the Class A
Member's Capital Contributions.
TABLE OF CONTENTS
PAGE
ARTICLE IDEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . 1
ARTICLE IIGENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.01 Company Name . . . . . . . . . . . . . . . . . . 14
Section 2.02 Registered Office; Registered Agent . . . . . . . 14
Section 2.03 Nature of Business; Permitted Powers . . . . . . 14
Section 2.04 Fiscal Year . . . . . . . . . . . . . . . . . . . 14
Section 2.05 Term . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.06 Limitation on Member Liability . . . . . . . . . 15
Section 2.07 Indemnification . . . . . . . . . . . . . . . . . 15
Section 2.08 Exculpation . . . . . . . . . . . . . . . . . . . 15
Section 2.09 Limitations on Fiduciary Duties . . . . . . . . . 16
Section 2.10 Insurance . . . . . . . . . . . . . . . . . . . . 16
Section 2.11 Outside Businesses . . . . . . . . . . . . . . . 16
ARTICLE IIICLASSES OF INTERESTS AND ADMISSION OF MEMBERS . . . . . . . . 18
Section 3.01 Classes . . . . . . . . . . . . . . . . . . . . . 18
Section 3.02 Admission of Initial Members . . . . . . . . . . 18
Section 3.03 Schedule A . . . . . . . . . . . . . . . . . . . 18
ARTICLE IVVOTING AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 18
Section 4.01 Class A Member Voting Rights . . . . . . . . . . 18
Section 4.02 Class B Member Voting Rights . . . . . . . . . . 19
Section 4.03 Management Committee Meetings . . . . . . . . . . 19
Section 4.04 Major Decisions . . . . . . . . . . . . . . . . . 19
Section 4.05 Management of the Company . . . . . . . . . . . . 20
Section 4.06 Books and Records; Accounting . . . . . . . . . . 24
Section 4.07 Reliance by Third Parties . . . . . . . . . . . . 24
Section 4.08 Expenses; Certain Services . . . . . . . . . . . 24
Section 4.09 Company Tax and Information Returns . . . . . . . 25
Section 4.10 Certain Provisions Relating to the Managing
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VCONTRIBUTIONS AND CAPITAL ACCOUNTS . . . . . . . . . . . . . . . 26
Section 5.01 Capital Contributions . . . . . . . . . . . . . . 26
Section 5.02 Capital Accounts . . . . . . . . . . . . . . . . 28
Section 5.03 Withdrawal of Capital: Return of Capital: Deficit
Balance
in Capital Account . . . . . . . . . . . . . . . . . 28
ARTICLE VIALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.01 Allocation of Net Profits and Net Losses for Book
Accounting Purposes . . . . . . . . . . . . . . . . . 29
ARTICLE VIIDISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.01 Distributions . . . . . . . . . . . . . . . . . . 31
Section 7.02 Treatment of Insufficiency . . . . . . . . . . . 32
Section 7.03 Distributions in Kind . . . . . . . . . . . . . . 32
Section 7.04 Adjustment in Class B Member Distributions under
Certain Conditions. . . . . . . . . . . . . . . . . . 33
Section 7.05 Capital Contributions; Distributions to S/S. . . 34
Section 7.06 Limitations. . . . . . . . . . . . . . . . . . . 34
ARTICLE VIIISPECIAL ALLOCATION RULES . . . . . . . . . . . . . . . . . . 34
Section 8.01 Certain Definitions. . . . . . . . . . . . . . . 34
Section 8.02 Allocations. . . . . . . . . . . . . . . . . . . 37
ARTICLE IXREPORTING; CERTAIN FEES . . . . . . . . . . . . . . . . . . . . 40
Section 9.01 Reporting . . . . . . . . . . . . . . . . . . . . 40
Section 9.02 Certain Fees . . . . . . . . . . . . . . . . . . 41
ARTICLE XRESIGNATION AND ASSIGNMENT OF INTERESTS . . . . . . . . . . . . 43
Section 10.01 Resignation of a Managing Member . . . . . . . . 43
Section 10.02 Resignation of Member . . . . . . . . . . . . . 43
Section 10.03 No Distribution Upon Resignation . . . . . . . . 43
Section 10.04 Assignment, Transfer or Pledge of Interests . . 43
ARTICLE XIDISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.01 Duration and Dissolution . . . . . . . . . . . . 46
Section 11.02 Winding Up . . . . . . . . . . . . . . . . . . . 46
Section 11.03 Distribution of Assets . . . . . . . . . . . . . 47
Section 11.04 Notice of Liquidation . . . . . . . . . . . . . 47
ARTICLE XIIMISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 12.01 Rights to Specific Performance . . . . . . . . 48
Section 12.02 Tax Reports . . . . . . . . . . . . . . . . . . 48
Section 12.03 Amendment to the Agreement . . . . . . . . . . . 48
Section 12.04 Successors; Counterparts . . . . . . . . . . . . 49
Section 12.05 Governing Law; Severability . . . . . . . . . . 49
Section 12.06 Filings . . . . . . . . . . . . . . . . . . . . 49
Section 12.07 Headings . . . . . . . . . . . . . . . . . . . . 49
Section 12.08 Additional Documents . . . . . . . . . . . . . . 50
Section 12.09 Notices . . . . . . . . . . . . . . . . . . . . 50
Section 12.10 Confidentiality . . . . . . . . . . . . . . . . 50
EXHIBITS
- --------
Exhibit A - Form of Employment Agreements
Exhibit B - Fund Operating Agreement
Exhibit 10.6A
RECKSON STRATEGIC VENTURE PARTNERS, LLC
OPERATING AGREEMENT
THIS OPERATING AGREEMENT is made as of the 5th day of March, 1998,
by and among RSVP HOLDINGS, LLC, a Delaware limited liability company, as
Managing Member (such person and its successors and assigns hereunder in such
capacity being hereinafter referred to as the "MANAGING MEMBER"), and PAINE
WEBBER REAL ESTATE SECURITIES INC., a Delaware corporation, as the Non-
Managing Member (such person and its successors and assigns hereunder in such
capacity, together with any members admitted to the Company in accordance
with the terms hereof other than a Managing Member being hereinafter referred
to individually as a "NON-MANAGING MEMBER" and collectively as the "NON-
MANAGING MEMBERS") (The Managing Member and the Non-Managing Member are
hereinafter referred to severally as a "MEMBER" and collectively as the
"MEMBERS"). Each capitalized term utilized herein shall have the meaning
ascribed to such term in Article II hereof.
RECITALS
--------
A. Reckson Strategic Venture Partners, LLC (the "COMPANY") has
been formed as a limited liability company under the Delaware Limited
Liability Company Act (as amended from time to time, the "ACT") on
January 23, 1998.
B. The Managing Member and the Non-Managing Member wish to set out
fully their respective rights, obligations and duties regarding the Company
and its assets and liabilities.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
FORMATION
---------
1.01. Formation. The Company has been formed by the filing of
---------
its Certificate of Formation with the Delaware Secretary of State pursuant to
the Act. The Managing Member shall appoint such agents and attorneys for
service of process as may be necessary or appropriate in connection with the
formation and continuation of the Company under the laws of the State of
Delaware. The Managing Member shall take all other necessary action required
by law to
perfect and maintain the Company as a limited liability company under the Act
and in all other jurisdictions in which the Company may elect to conduct
business.
1.02. Name. The name of the Company shall be, and the business
----
of the Company shall be conducted under the name of, "Reckson Strategic
Venture Partners, LLC" or such other name as the Managing Member from time to
time shall elect; provided, however, that in no event shall the Company
conduct business under any name that is similar to, or incorporates any
reference to, the name under which any Non-Managing Member or any Affiliate
of any Non-Managing Member conducts business without the prior written
Consent of such Non-Managing Member, which Consent shall be in the sole
discretion of such Non-Managing Member.
1.03. Place of Business. The principal office and place of
-----------------
business of the Company is located at 225 Broadhollow Road, Melville, New
York 11747. The Managing Member may change the location of the principal
office and may establish such additional offices of the Company as it may
from time to time determine upon Notice to the Non-Managing Members of such
change or addition of location.
1.04. Registered Office; Principal Office. The address of the
-----------------------------------
registered office of the Company in the State of Delaware is c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, and the registered agent for
service of process on the Company in the State of Delaware at such registered
office is The Corporation Trust Company.
1.05. Term. The Company shall continue in full force and
----
effect from the date of this Agreement until the Articles of Termination are
filed. The Company shall be dissolved and its affairs wound up in accordance
with Article XI hereof.
----------
ARTICLE II
DEFINITIONS
-----------
The following terms have the definitions hereinafter indicated
whenever used in this Agreement with initial capital letters:
"ACM": Asbestos-containing materials.
"ACM REQUIREMENTS": All present and future federal, state and
local legal requirements applicable to any ACMs located within any of the
Improvements, including the regulations promulgated by the federal
Occupational Safety and Health Administration, 29 CFR Parts 1910, 1915 and
1926; the National Emission Standards for Hazardous Air Pollutants for
asbestos, 40 CFR Section 61, Subpart M; and the Asbestos Hazard Emergency
Response Act regulations, 40 CFR Section 763 Subpart E.
"ACQUISITION COST": With respect to any Investment, the actual
purchase price paid by the Company for such Investment plus reasonable
transaction costs, including without limitation brokers' fees and expenses,
attorneys fees' and disbursements and travel expenses, incurred in connection
with such Investment plus, as of the date of acquisition thereof, (a) the
outstanding principal balance (and any accrued but unpaid interest thereon)
of any debt (i) of an Investment Entity in which the Investment is made, to
the extent allocable to such Investment, assumed by the Company in connection
with such Investment or (ii) secured by a lien on such Investment and (b) any
par or stated amount of outstanding preferred equity issued by any such
Investment Entity, and allocable to such Investment.
"ACQUISITION PLAN": Shall have the meaning ascribed to such term
in Section 16.02(E).
-----------------
"ACT": The Delaware Limited Liability Company Act, as it may be
amended from time to time or any successor statute.
"ADDITIONAL YIELD": Six percent (6%) per annum; provided that
during the continuance of Management Authority under Section 16.03, the
-------------
Additional Yield shall be eleven percent (11%) per annum, and provided
further that, so long as no Management Authority under Section 16.03 shall
-------------
be continuing, during the continuance of a default by any Class A Member
under Section 4.03 hereof, the Additional Yield shall be one percent (1%) per
------------
annum.
"ADJUSTMENT AMOUNTS": Shall have the meaning ascribed to such term
in clause (iii) of the definition of Sweep Event set forth in this
Article II.
"ADVISORY COMMITTEE": The committee described in Article XVI
hereof.
"AFFILIATE": When used with reference to a specified Person, (a)
any Person that directly or indirectly through one or more intermediaries
controls or is controlled by or is under common control with the specified
Person, (b) any Person who, from time to time, is (i) an officer or director
of a specified Person or (ii) a spouse or immediate family relative of a
specified Person, and (C) any Person which, directly or indirectly, is the
beneficial owner of 25% or more of any class of equity securities of the
specified Person or of which the specified Person is directly or indirectly
the owner of 25% or more of any class of equity securities; provided,
--------
however, that for purposes of this Agreement, each of Reckson, Reckson
- -------
Services and their respective Affiliates shall be deemed to be Affiliates of
each other. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under
common control with") when used with respect to any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"AGREEMENT": This Operating Agreement, as it may be amended from
time to time.
"ALLOCATED ACCRUED CLASS A ADDITIONAL RETURN": Shall have the
meaning ascribed to such term in Section 6.01(C).
---------------
"ALLOCATED ACCRUED CLASS A BASIC RETURN": Shall have the meaning
ascribed to such term in Section 6.01(C).
---------------
"ALLOCATED ACCRUED CLASS B BASIC RETURN": Shall have the meaning
ascribed to such term in Section 6.01(C).
---------------
"ALLOCATED ADDITIONAL RETURN SHORTFALL": In connection with the
distribution of any Capital Event Proceeds, the unpaid amount of Allocated
Accrued Class A Additional Return of such Investment remaining after
application of such Capital Event Proceeds pursuant to Section 6.01(B).
---------------
"ALLOCATED NET ADJUSTED CAPITAL CONTRIBUTION": Shall have the
meaning ascribed to such term in Section 6.01(C).
---------------
"ASBESTOS CONSULTANT": An industrial hygienist certified by the
American Board of Industrial Hygiene, who has successfully completed
appropriate OSHA/EPA asbestos training courses, who has all certifications,
accreditations, licenses and permits required by any Governmental Authority
having jurisdiction over any Related Property, and who is experienced with
required and appropriate health and safety standards related to ACMs, and
experienced in preparing O&M Programs.
"BANKRUPTCY": For purposes of this Agreement, with respect to any
Person, the institution by such Person of a voluntary case in bankruptcy, or
the voluntary taking advantage by such Person of any bankruptcy or insolvency
law, or the entry of an order, judgment or decree by a court of competent
jurisdiction which continues in effect and unstayed for 60 days of such
Person as bankrupt or insolvent, or the filing by such Person of any petition
or answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, or the filing by such Person of any answer
admitting (or the failure by such Person to make a required responsive
pleading to) the material allegations of a petition filed against such Person
in any such proceeding or the seeking or consenting to or acquiescence in the
judicial appointment of any trustee, fiscal agent, receiver or liquidator of
such Person or of all or any substantial part of its properties or, if within
90 days after the commencement of an involuntary case or action against such
Person seeking any bankruptcy, reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, the failure of such case or action to have
been dismissed or all orders in proceedings thereunder affecting the
operations or the business of such Person stayed, or if the stay of any such
order or proceeding thereafter shall be set aside, or, if within 90 days
after the judicial appointment
without the consent or acquiescence of such Person of any trustee, fiscal
agent, receiver or liquidator of such Person or of all or any substantial
part of its properties or the insolvency of such Person, such appointment
shall not have been vacated, such insolvency being deemed to occur when such
Person shall make an assignment for the benefit of creditors or shall admit
in writing that its assets are insufficient to pay its liabilities as they
come due.
"BANKRUPTCY CODE": Shall have the meaning ascribed to such term in
Section 7.11(N)(b).
- ------------------
"BASIC YIELD": Ten percent (10%) per annum.
"BOOK CAPITALIZATION": With respect to Reckson Services and as at
any date of determination, shall mean the greater of
(i) the sum of (a) the trailing 12-month EBITDA of Reckson Services
solely from its service business(es) and its executive centers
business(es) (and not from the Company or any other rents from real
property), adjusted for normalized 12-month historical operations,
multiplied by seven (7), plus (b) the then outstanding Capital
Contribution of the Managing Member hereunder, or
(ii) the then Equity Capitalization of Reckson Services plus the then
outstanding Capital Contribution of the Managing Member to the extent
funded from draws on the ROP Line.
"BUILDING SERVICES": The offering to owners and /or developers and
/or occupants of office and industrial properties and other property types of
services with respect to the ownership, operation, leasing and management of
such properties or of services used by these owners or occupants.
"BUSINESS DAY": Any day on which banks located in New York, New
York are not required or authorized to close.
"CAPITAL ACCOUNT": The account maintained by the Company for each
Member as provided in Section 5.01 of this Agreement.
------------
"CAPITAL COMMITMENT": With respect to each Member, the amount set
forth on Schedule A opposite its name, as may be amended from time to time
----------
pursuant to the terms hereof.
"CAPITAL CONTRIBUTION": The total amount of money contributed by
each Member to the Company pursuant to the terms of this Agreement. The
aggregate Capital Contributions shall not exceed $300,000,000.00.
"CAPITAL EVENTS PROCEEDS": For any Investment, (a) the proceeds
from the sale, transfer, disposition, conveyance or refinancing, directly or
indirectly, of all or any portion of such Investment or any of the assets of
such Investment net of (i) any actual, out-of-pocket costs and expenses paid
or payable in respect of the sale, transfer, disposition, conveyance or
refinancing of such Investment and (ii) any pre-existing debt in respect of
such Investment that is satisfied in connection with such sale, transfer,
disposition, conveyance or refinancing and (b) Casualty Insurance Proceeds
and Condemnation Proceeds.
"CAPITAL EXPENSES": For any Related Property, costs of capital
improvements, deferred maintenance or Tenant Capital Expenses with respect to
such Related Property.
"CASUALTY": Any damage to, or loss or destruction of, all or any
part of any Related Property, whether or not such damage, loss or destruction
is insured or insurable.
"CASUALTY INSURANCE PROCEEDS": Insurance proceeds paid or payable
in respect of a Casualty.
"CAUSE": A failure by the Managing Member to carry out its
obligations hereunder which constitutes (i) fraud, wilful misconduct or bad
faith, (ii) a breach of Section 8.01 hereof, (iii) a material breach of this
------------
Agreement by the Managing Member which material breach does, or could
reasonably be expected to, result in a Company Material Adverse Effect, and
which material breach continues for a period of forty-five (45) days after
Notice of such material breach has been provided to the Managing Member (or,
if the material breach can be cured but is not capable of being cured within
such forty-five (45) day period, such longer period of time as is necessary
to cure such material breach, provided that Managing Member promptly
commences all necessary action to cure such breach and thereafter diligently
prosecutes all such action to completion), or (iv) a material breach of this
Agreement by the Managing Member which material breach reasonably could be
expected to result in a Platform Material Adverse Effect, and which material
breach continues for a period of forty-five (45) days after Notice of such
material breach has been provided to the Managing Member (or, if the material
breach can be cured but is not capable of being cured within such forty-five
(45) day period, such longer period of time as is necessary to cure such
material breach; provided that Managing Member promptly commences all
necessary action to cure such breach and thereafter diligently prosecutes all
such action to completion).
"CHANGE OF CONTROL EVENT": A change of control or ownership of the
Company or a merger of the Company such that management control of the
Company is not exercised by at least fifty percent (50%) of the individuals
identified on Schedule 2.22 hereto without the prior written approval of the
-------------
Class A Member (which approval may be withheld in the Class A Member's sole
and absolute discretion); provided, however, that PWRES, in its sole and
-------- -------
absolute discretion, may, by written notice to the Managing Member prior to
the occurrence of a Change of Control Event, waive any remedies otherwise
available hereunder with respect to such Change of Control Event; it being
understood that any such waiver shall be effective only with respect to a
specific Change of Control Event as disclosed to PWRES, and no such waiver
shall be deemed to waive the remedies of the Class A Member with respect to
any other Change of Control Event.
"CLASS A ADDITIONAL RETURN": For each Class A Member, a cash
return equal to (i) the Additional Yield, compounded monthly, on the amounts
of such Class A Member's funded Net Adjusted Capital Contributions from time
to time (including compounded but unpaid Basic Yield and Additional Yield on
such allocated Net Adjusted Capital Contributions), plus (ii) the Basic
Yield, compounded monthly, on all amounts of compounded and unpaid Additional
Yield, commencing on the date of funding of each such Capital Contribution
until such Capital Contribution and the accrued and unpaid Basic Yield and
Additional Yield thereon (including any such accrued and unpaid Basic Yield
or Additional Yield on any unpaid and compounded Basic Yield or Additional
Yield, respectively) is repaid to such Class A Member pursuant to this
Agreement.
"CLASS A BASIC RETURN": For each Class A Member, a cash return
equal to the Basic Yield, compounded monthly, on the amounts of such Class A
Member's funded Net Adjusted Capital Contributions from time to time
(including compounded but unpaid Basic Yield on such allocated Net Adjusted
Capital Contributions), commencing on the date of funding of each such
Capital Contribution until such Capital Contribution and the accrued and
unpaid Basic Yield thereon (including any such accrued and unpaid Basic
Yield on any unpaid and compounded Basic Yield) is repaid to such Class A
Member pursuant to this Agreement.
"CLASS A MEMBER": Any Member(s) admitted to the Company as a Class
A Member.
"CLASS A MEMBER'S RELEASED PERSONS": Shall have the meaning
ascribed to such term in Section 11.04.
-------------
"CLASS B BASIC RETURN": For each Class B Member, a cash return
equal to the Basic Yield, compounded monthly, on the amounts of such Class B
Member's funded Net Adjusted Capital Contributions from time to time
(including compounded but unpaid Basic Yield on such allocated Net Adjusted
Capital Contributions), commencing on the date of funding of each such
Capital Contribution until such Capital Contribution and the accrued and
unpaid Basic Yield thereon (including any such accrued and unpaid Basic Yield
on any unpaid and compounded Basic Yield) is repaid to such Class B Member
pursuant to this Agreement.
"CLASS B MEMBER": Any Member(s) admitted to the Company as a Class
B Member, including the Managing Member.
"CLOSING": The date on which a Capital Commitment is made by any
Member pursuant to the terms hereof.
"CODE": The Internal Revenue Code of 1986, as amended, and any
successor statutory provisions.
"CO-INVESTMENT VEHICLES": Shall have the meaning ascribed to such
term in Section 3.05 hereof.
------------
"COMPANY": The limited liability company referred to herein, as
said limited liability company may from time to time be constituted.
"COMPANY COMPETITOR": Any pooled investment fund, other than the
Company, with a primary purpose similar to that of the Company as set forth
in Section 3.01 hereof.
------------
"COMPANY MATERIAL ADVERSE EFFECT": Any circumstance, act,
condition or event of whatever nature (including any adverse determination in
any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, or circumstance or circumstances, whether or not
related, that does, or could reasonably be expected to, result in a
materially adverse change in or have a materially adverse effect upon the
business, operations, condition (financial or otherwise) or prospects of the
Company in the aggregate.
"CONDEMNATION": Any actual or threatened taking, condemnation,
eminent domain or other similar proceeding relating to all or any portion of
any Related Property.
"CONDEMNATION PROCEEDS": Any and all award proceeds and other
compensation payable in respect of a Condemnation.
"CONSENT": Either the written consent of a Person, or the
affirmative vote of such Person at a meeting duly called and held pursuant to
this Agreement, as the case may be, to do the act or thing for which the
Consent is solicited, or the act of granting such Consent, as the context may
require. Subject to Section 15.03(C), reference to the Consent of a stated
----------------
percentage of the Percentage Interest of the Non-Managing Members means the
Consent of a number of the Non-Managing Members not then in default whose
combined Percentage Interests represent at least such stated percentage of
the total Percentage Interests of the Non-Managing Members not then in
default, or such higher percentage as is required by applicable law.
"CONTROL": With respect to any Investment Entity, the Company's
power to direct the management of such Investment Entity, directly or
indirectly, whether by the ownership of voting securities, by contract or by
any other means.
"CUMULATIVE PRIORITY RETURN": For any period, (a) for any Class A
Member, such Class A Member's Class A Basic Return and Class A Additional
Return for such period, and (b) for any Class B Member, such Class B Member's
Class B Basic Return for such period.
"CURE AMOUNT": Shall have the meaning ascribed to such term in
Section 6.05.
- ------------
"DEEMED VALUE": With respect to any Investment, initially, the
Acquisition Cost of such Investment. From and after the Class A Member's
election pursuant to Section 3.06 to require a revaluation of an Investment
------------
at the time that the Adjustment Amounts for such Investment are initially
included for purposes of the Financial Tests, the "DEEMED VALUE" of such
Investment shall mean the Gross Fair Value of such Investment at such time,
as determined in accordance with Section 3.06, and from and after the
------------
occurrence of any Revaluation Event with respect to an Investment from time
to time, the "DEEMED VALUE" of such Investment as of any date of
determination shall mean the Gross Fair Value of such Investment as of the
time of the then most recent Revaluation Event for such Investment, as
determined in accordance with Section 3.06.
------------
"DERIVATIVES": A financial instrument, product or index which is
not a direct investment, but instead derives its economic characteristics
from the economic characteristics of one or more direct or derivative
financial instruments, products or indexes.
"DOBIE CENTER INVESTMENT": The acquisition by the Company of an
equity interest in a dormitory and residence hall occupied by students at the
University of Texas at Austin and in the parking garage and retail mall
adjacent thereto commonly known as Dobie Center.
"EBITDA": Earnings before interest, tax, depreciation and
amortization as determined in accordance with GAAP on a consistent basis.
"ELECTION PERIOD": Shall have the meaning ascribed to such term in
clause (iii) of the definition of Sweep Event set forth in this Article II.
"ENVIRONMENTAL LAWS": All laws, statutes, ordinances, orders,
rules, codes, regulations, guidance documents, policies, binding decrees and
judgments and any binding judicial or administrative interpretations thereof
relating to health, safety, industrial hygiene, protection of the
environment, or the protection of human, plant or animal health or welfare
from injury as a result of exposure to Hazardous Materials or loss of
ecological resources, including those relating to fines, orders, injunctions,
penalties, damages, contribution, cost recovery compensation, removal,
cleanup or remedial action, losses or injuries resulting from Hazardous
Material Activity or threatened Hazardous Material Activity, in any manner
applicable to any Investment Entity, any Related Property or any part
thereof, or the ownership, use, occupancy or operation thereof, including
CERCLA, the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et
--
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
- --- --
seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et
- --- --
seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic
- --- -- ---
Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal
-- ---
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.),
-- ---
the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), the
-- ---
Residential Lead-Based Paint Act (42 U.S.C. Section 4856 et seq.) and the
-- ---
Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001
et seq.), each as heretofore or hereafter amended or supplemented from
- -- ---
time to time, and any analogous future or present applicable local, state and
federal statutes and regulations promulgated pursuant thereto, each as in
effect as of the date of determination.
"ENVIRONMENTAL REPORT": With respect to any Related Property, a
written environmental site assessment, prepared by an independent qualified
environmental professional.
"EQUIPMENT": The meaning specified in the UCC.
"EQUITY CAPITALIZATION": With respect to Reckson Services, as at
any date of determination, shall mean the then total paid-in equity capital
of Reckson Services.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"EXPERT": An independent, nationally recognized investment banking
firm or other appropriate, independent valuation expert, other than PWRES or
an Affiliate thereof, selected by the Class A Member with the reasonable
approval of the Managing Member.
"FAIR VALUE": As of any date of determination, the fair value of
any Interest, Investment, Related Property or other Company asset as of such
date, as determined pursuant to and in accordance with Section 3.06(d)
---------------
"FINANCIAL TEST INCLUSION EVENT": For any Investment, the initial
inclusion of the Adjustment Amounts for such Investment for purposes of the
Financial Tests.
"FINANCIAL TESTS": Shall mean those calculations described in
clause (y) of the definition of "Sweep Event" and in Sections 3.04, 11.01(F)
------------- --------
and 16.03(A).
---------
"FISCAL YEAR": The taxable year of the Company which, except in
the case of a short taxable year or such other taxable year as may be
required under the Code, shall be the calendar year.
"GAAP": Generally accepted accounting principles in the United
States of America as of the date of the applicable financial report.
"GOVERNMENTAL AUTHORITY": Any legislative body, court, board,
agency, commission, office or authority of any nature whatsoever of or for
any governmental unit (federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence.
"GROSS FAIR VALUE": As of any date of determination, the Fair
Value of any Interest, Investment, Related Property or other Company asset as
of such date, determined on the basis of the gross anticipated cash flows
without reduction for any debt or preferred equity payments, dividends or
distributions prior to the interest of the Company or the applicable Member,
as the case may be.
"HAZARDOUS MATERIAL": (i) Any chemical, material or substance at
any time defined as or included in the definition of "hazardous wastes,"
"hazardous materials," "hazardous substance," "extremely hazardous
substance," "extremely hazardous waste", "pollutants," "restricted hazardous
waste," "infectious waste" or "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws or publications
promulgated pursuant thereto; (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of
crude oil, natural gas or geothermal resources; (iv) any flammable substances
or explosives; (v) any radioactive materials; (vi) asbestos in any form;
(vii) urea formaldehyde foam insulation; (viii) electrical equipment
containing any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million; (ix) pesticides; (x) radon;
and (xi) any other chemical, material or substance, exposure to which is at
the time of determination prohibited, limited or regulated by any
Governmental Authority or which is likely to pose a hazard to health or
safety.
"HAZARDOUS MATERIAL ACTIVITY": Any storage, holding, existence,
release, spill, leaking, pumping, pouring, injection, escaping, deposit,
disposal, dispersal, leaching, migration, use, treatment, emission,
discharge, dumping, generation, processing, abatement, removal, disposition,
handling or transportation of any Hazardous Material from, under, into or on
a Related Property or surrounding property, including the discharge of any
Hazardous Material emanating from any Related Property through the air, soil,
surface water, groundwater or property and also including the abandonment or
disposal of any barrels, containers and other closed receptacles containing
any Hazardous Material from or on any such individual Related Property, in
each case whether sudden or non-sudden, accidental or non-accidental.
"IMPOSITIONS": All real estate and personal property taxes, water,
sewer and vault charges and all other taxes, levies, assessments and other
similar charges, general and special, ordinary and extraordinary, foreseen
and unforeseen, of every kind and nature whatsoever, which at any time prior
to, at or after the execution hereof may be assessed, levied or imposed by a
Governmental Authority upon or with respect to any Related Property or the
revenues in respect of such Related Property or the ownership, use, occupancy
or enjoyment thereof, and any interest, costs or penalties with respect to
any of the foregoing.
"INCORRECT VALUE DETERMINATION": Shall have the meaning ascribed to
such term in Section 3.06(iii).
-----------------
"INDEMNIFIED PARTIES": Shall have the meaning ascribed to such
term in Section 7.05(A) hereof.
---------------
"INITIAL INVESTMENT DEADLINE": Shall have the meaning ascribed to
such term in Section 4.03(A)(a) hereof.
------------------
"INTEREST": The ownership interest of a Member in the Company at
any particular time, including the right of such Member to any and all
benefits to which such Member may be entitled as provided in this Agreement
and in the Act, together with the obligations of such Member to comply with
all the terms and provisions of this Agreement and of the Act.
"INVESTMENT": Any acquisition, made with the proceeds of one or
more Capital Contributions, of an interest, whether in the form of debt or
equity, in a corporation, partnership, trust, limited liability company or
other entity, or a group of assets or entities purchased in a single
transaction or group of related transactions, or any other asset, including
short-term investments of cash, and subsequent to such acquisition, the asset
so acquired. It is understood and agreed that the Company shall make no
acquisitions of any such interests other than with the proceeds of one or
more Capital Contributions.
"INVESTMENT COMPANY ACT": The Investment Company Act of 1940, as
amended.
"INVESTMENT ENTITY": Any Person in which the Company, either
directly or indirectly, has made an Investment pursuant to Section 3.01
------------
hereof.
"INVESTMENT EXPENSES": The sum of (i) Unconsummated Deal Costs,
(ii) Organizational Expenses and (ii) Operating Expenses.
"INVESTMENT PARAMETERS": Shall have the meaning ascribed to such
term in Section 3.01(A) hereof.
---------------
"INVESTMENT PERIOD": The period ending on the third anniversary of
the date of this Agreement, unless (a) (i) in the opinion of counsel selected
by the Managing Member, changes in applicable law after the date hereof have
materially adversely affected the ability of the Company to pursue its
investment objectives, (ii) the Managing Member determines, in its reasonable
discretion, that there are insufficient business opportunities consistent
with the investment objectives of the Company or (iii) at least ninety
percent (90%) of the aggregate Capital Commitments have been invested or
committed for investment, in any of which events the Managing Member may
terminate the Investment Period prior to the third anniversary of the date of
this Agreement, or (b) the Investment Period is earlier terminated as
otherwise provided in this Agreement.
"INVESTMENT REVENUES": With respect to all of the Company's
Investments, the sum of (i) all receipts of the Company relating to such
Investments (other than Capital Contributions and Capital Events Proceeds),
including, without limitation, rents and other operating revenues, dividends
and interest, (ii) any financing, break-up and other fees, reimbursements or
other sums payable by third parties to the Company, the Managing Member or
their Affiliates (other than any asset management, property management or
similar fees
payable by any Investment Entity to any of the Managing Member Members or
their Affiliates pursuant to a transaction entered into in accordance with
the requirements of Section 7.04) in respect of such Investments and
------------
(iii) any reserves previously set aside from items (i) and (ii) pursuant to
clause (v) of the definition of Net Investment Revenues which are deemed
available for distribution by the Managing Member or Liquidator.
"LEASE": With respect to any Investment Entity, any lease or
ground lease, or, to the extent of the interest therein of such Investment
Entity, any sublease or license, concession or other agreement (whether writ-
ten or oral and whether now or hereafter in effect) pursuant to which any
person is granted a possessory interest in, or right to use or occupy all or
any portion of any Related Property (including any use or occupancy
arrangement created pursuant to Section 365(d) of the Bankruptcy Code or
--------------
otherwise in connection with any bankruptcy, reorganization, arrangement,
insolvency, dissolution, receivership or similar proceedings, or any
assignment for the benefit of creditors, in respect of any tenant or occupant
of any portion of such Related Property), and every modification, amendment
or other agreement relating to such lease, ground lease, sublease, sub-
sublease, license, concession or other agreement entered into in connection
therewith, and every guarantee of the performance and observance of the
covenants, conditions and agreements to be performed and observed by the
other party or parties thereto.
"LEGAL REQUIREMENTS": All federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions of any Governmental Authority (including
Environmental Laws) affecting any Related Property or any part thereof or the
construction, ownership, use, alteration, maintenance, management, occupancy
or operation thereof, or any part thereof, whether now or hereafter enacted
and in force, and all permits, licenses, authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments at any time in force affecting any
Related Property or any part thereof, including any of the foregoing which
may (i) require repairs, modifications or alterations in or to such Related
Property or any part thereof, or (ii) in any way limit the use and enjoyment
thereof.
"LEVERAGE EXCEPTED INVESTMENTS": (i) So long as the Company has
obtained non-recourse, tax exempt financing with respect thereto, the Dobie
Center Investment, and (ii) any other Investment acquired by the Company from
time to time with respect to which the Company has obtained non-recourse,
tax-exempt financing if, but only if, at the time such Investment (or, if
later, the non-recourse, tax-exempt financing on such Investment) is acquired
by the Company, the aggregate Deemed Value of such other Investment together
with the Dobie Center Investment and all other Leverage Excepted Investments
is not greater than twenty percent (20%) of the aggregate Deemed Value of all
of the Company's Investments.
"LEVERAGE RATIO": For any Investment, the ratio of (i) the sum of
(a) all indebtedness of the Company or of any related Investment Entity
(except for any indebtedness of the Managing Member or any Person directly or
indirectly holding an interest in Managing Member) secured, directly or
indirectly, by such Investment or by all or part of the assets of any
such Investment Entity, directly or indirectly, or payable, directly or
indirectly, from the revenues of such Investment or such assets, plus (b) the
amount of any preferred equity (other than any Capital Contribution made by
any Class A Member pursuant to the terms hereof) issued by any Investment
Entity in which such Investment is held, directly or indirectly, plus (c) the
aggregate Class A Capital Contributions allocated to such Investment to (ii)
the Gross Fair Value of such Investment.
"LIEN": Any mortgage, deed of trust, lien, pledge, hypothecation,
assignment, security interest, security title, or any other encumbrance,
charge or collateral transfer of, on or affecting the relevant property (real
or personal, tangible or intangible, as the context may require) or any
portion thereof or any interest therein, including any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, the filing of any financing
statement, and mechanic's, materialmen's and other similar liens and
encumbrances.
"LIQUIDATOR": The Managing Member, or if (i) the Managing Member's
withdrawal or Bankruptcy caused the dissolution of the Company or (ii) the
Company is dissolved pursuant to Section 7.08(B) or 7.09(B) or 11.01(F)
--------------- ------- --------
hereof or during the continuance of Management Authority, such other Person
who may be appointed by a majority of the Percentage Interests of the Class A
Members, who shall be responsible for taking all action necessary or
appropriate to wind up the affairs of, and distribute the assets of, the
Company upon its dissolution.
"LOCK-OUT PERIOD": As defined in Section 3.03(a)(J).
------------------
"MANAGING MEMBER": RSVP Holdings, LLC, or any other Person who
becomes a successor Managing Member pursuant to the terms hereof.
"MANAGING MEMBER MEMBER": A member of the Managing Member.
"MANAGEMENT AUTHORITY": Shall have the meaning ascribed to such
term in Section 16.03.
-------------
"MARKETABLE SECURITIES": Securities which are traded on a national
securities exchange in the United States, reported through the National
Association of Securities Dealers, Inc. Automated Quotation System or
otherwise actively traded over-the-counter in the United States, and are not
subject to restrictions on transfer as a result of applicable contract
provisions or the provisions of the Securities Act other than the volume and
method-of-sale restrictions of Rule 144 promulgated thereunder or any
successor thereto.
"MATERIAL ADVERSE EFFECT": With respect to any Investment Entity,
any circumstance, act, condition or event of whatever nature (including any
adverse determination in any litigation, arbitration, or governmental
investigation or proceeding), whether singly or in conjunction with any other
event or events, act or acts, condition or conditions, or circumstance
or circumstances, whether or not related, that does, or could reasonably be
expected to, result in a materially adverse change in or have a materially
adverse effect upon the business, operations, condition (financial or
otherwise) or prospects of such Investment Entity or any Related Property.
"MEMBER": As the context may require, any of the Managing Member
and the Non-Managing Member(s).
"MINIMUM BOOK CAPITALIZATION": With respect to Reckson Services, a
Book Capitalization equal to the lesser of (a) $25,000,000 or (b) if PWRES
shall have elected to make its initial Capital Contribution (excluding, for
purposes hereof, the Capital Contribution described in the first sentence of
Section 4.03 (A)) on a date when Reckson Service's Book Capitalization is
- ----------------
less than $25,000,000 as provided in the second sentence of Section 4.03(E),
---------------
the amount of Reckson Service's Book Capitalization on the date PWRES makes
such Capital Contribution.
"MINIMUM OVERHEAD EXPENSES": For any period, the actual Operating
Expenses of the Company for such period, provided that such amount shall not
exceed (a) $5,000,000 on an annualized basis, so long as no Sweep Event has
occurred and is continuing, or (b) during the continuance of a Sweep Event,
$4,250,000 on an annualized basis.
"MITIGATION PROGRAM": The meaning specified in Section 7.11(P)(b).
------------------
"NET ACQUISITION COST": With respect to any Investment, as of any
date of determination, (i) the Acquisition Cost of such Investment, less (ii)
any amounts described in clauses (a) or (b) of the definition of "Acquisition
Costs" set forth herein, plus (iii) the sum of all Capital Contributions to
the Company to the extent used for capital improvements to or other expenses
of such Investment, less (iv) all returns of Allocated Net Adjusted Capital
Contributions of any Member for such Investment pursuant to Section
-------
6.01(B)(ii) or (iv).
- ---------- ----
"NET ADJUSTED CAPITAL CONTRIBUTION": With respect to each Member,
as of any time, the aggregate Capital Contributions of such Member as of such
time, less the sum of (a) any distributions in return of such Capital
Contributions previously made to such Member pursuant to Section 6.01(A) or
---------------
Section 6.01(B) of this Agreement, and (b) any refunds of Capital
- ---------------
Contributions made pursuant to Section 4.03(A) hereof.
---------------
"NET INVESTMENT REVENUES": For any period and with respect to all
of the Company's Investments, the excess of Investment Revenues less the
following, without duplication, and only to the extent that the following are
not funded from Capital Contributions: (i) all non-capitalized accrued
expenditures and costs relating to the organization, acquisition, lease,
management, ownership, improvement, operation and disposition of such
Investments, including any fees payable in respect of such Investments, (ii)
amounts paid in respect of any loan or other indebtedness related to such
Investments, (iii) extraordinary expenses (including non-ordinary repairs,
maintenance, improvements and replacements) not previously deducted
from Investment Revenues relating to such Investments, (iv) capital
expenditures for such Investments (other than to acquire any such
Investments) (v) reserves funded during such period to meet anticipated
operating expenditures of the Company attributable to such Investments and
(vi) Minimum Overhead Expenses and Unconsummated Deal Costs.
"NON-MANAGING MEMBER": Any Member of the Company, other than the
Managing Member.
"NON-MANAGING MEMBER'S INTEREST": A membership interest in the
Company held by a Non-Managing Member.
"NON-PUBLIC INFORMATION": Shall have the meaning ascribed to such
term in Section 17.15 hereof.
-------------
"NOTICE": A writing containing the information required by this
Agreement to be communicated to a Person and personally delivered to such
Person or sent by facsimile or similar electronic means, overnight courier or
registered or certified mail, postage prepaid, return receipt requested, to
such Person at the last known address of such Person as shown on the books of
the Company. A Notice shall be deemed effectively given and received (i)
upon personal delivery, (ii) if sent by facsimile or similar electronic
means, when confirmation of transmission is received or, if such confirmation
is received on a day other than a Business Day, on the next Business Day,
(iii) if delivered by overnight courier, on the next Business Day after
delivery to the overnight courier service and (iv) if sent by registered or
certified mail, three (3) Business Days after delivery to the United States
postal service; provided, however, that any written communication containing
-------- -------
such information actually received by a Person shall constitute Notice for
all purposes of this Agreement.
"O&M PROGRAM": For each applicable Related Property, the operation
and maintenance program for ACMs at such Related Property prepared by an
Asbestos Consultant satisfactory to the Managing Member and consistent with
all applicable recommendations in the Environmental Protection Agency's
"Managing Asbestos in Place, A Building Owner's Guide to Operations and
Maintenance Programs for Asbestos-Containing Materials" and including the
following program elements: (i) notification (a program to tell workers,
tenants and building occupants as appropriate, where ACM is located, and how
and why to avoid disturbing the ACMs); (ii) surveillance (regular ACM
surveillance to note, assess and document changes in the ACM's condition);
(iii) controls (work control/permit system to control activities which might
disturb ACMs); (iv) work practices (O&M work practices to avoid or minimize
fiber release during activities affecting ACM); (v) record keeping (to
document O&M activities); (vi) worker protection (medical and respiratory
protection programs, as applicable); (vii) training (asbestos program manager
and custodial and maintenance staff training); and (viii) a plan for
complying with all ACM Requirements.
"OFFICER'S CERTIFICATE": A certificate delivered by an Investment
Entity which is signed by an authorized officer of such Investment Entity.
"OPERATING EXPENSES": All miscellaneous costs and expenses of
operation of the Company, determined on a cash basis, including, without
limitation, salaries, rent, taxes, insurance, administrative fees and audit
costs but specifically excluding, Unconsummated Deal Costs.
"ORGANIZATIONAL DOCUMENTS": With respect to any Person, (a) if
such Person is a limited partnership, the limited partnership agreement of
such Person and the certificate of limited partnership of such person, in
each case, as amended, restated, supplemented or otherwise modified from time
to time, (b) if such Person is a corporation, the certificate or articles of
incorporation of such Person and the by-laws of such Person, in each case, as
amended, restated, supplemented or otherwise modified from time to time, and
(c) if such Person is a limited liability company, the articles of
organization and operating agreement of such Person, as amended, restated,
supplemented or otherwise modified from time to time.
"ORGANIZATIONAL EXPENSES": (a) All costs, expenses and fees
(including, but not limited to attorneys' fees and disbursements) incurred by
the initial Managing Member and the initial Class A Member on or prior to the
date hereof with respect to the preparation, negotiation and review of the
Company's Organizational Documents and any related documents, agreements,
certificates and opinions and (b) any fee payable by the Company to PWRES in
connection with the organization of the Company.
"PERCENTAGE INTEREST": As of any given time, as to any Member, a
fraction, expressed as a percentage, equal to the amount of the Capital
Commitment of such Member divided by the total Capital Commitments of all
Members, as may be adjusted from time to time in accordance with the
provisions hereof.
"PERSON": Any individual, corporation, general partnership,
limited partnership, limited liability company, limited liability
partnership, joint venture, estate, trust, unincorporated association, or
other organization, whether or not a legal entity, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"PLATFORM": A specific business sector, defined by property type
and use, within the general category of debt or equity Investments relating
to the ownership of real property or the operation thereof, as determined for
each Investment pursuant to Section 3.02(b). Examples of certain types of
---------------
Platforms include, but are not limited to the following, student housing
companies and related assets, assisted living companies and related assets,
limited service hotel companies and related assets, and real estate finance
and credit companies and related assets.
"PLATFORM DISTRIBUTION ACCOUNT": As defined in Section 6.04
------------
hereof.
"PLATFORM MATERIAL ADVERSE EFFECT": With respect to any Platform,
any circumstance, act, condition or event of whatever nature (including any
adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, or circumstance or circumstances, whether or not
related, that does, or could reasonably be expected to result in a materially
adverse change in or have a materially adverse effect upon the business,
operations, condition (financial or otherwise) or prospects of all of the
Investment Entities and their Related Properties pertaining to such Platform.
"PLATFORM SWEEP EVENT": Any of the following events, (i) a
material breach of the obligations set forth in Section 7.11 and Section 7.12
------------ ------------
hereof which may result in a Platform Material Adverse Effect and which
breach continues for fifteen (15) days after Notice of such material breach
has been provided to the Managing Member (or if the breach can be cured but
is not capable of being cured within such fifteen (15) day period, such
longer period of time as is necessary to cure such breach, provided that such
cure is diligently pursued within and after such fifteen (15) day period), or
(ii) acts or omissions of Managing Member that constitute Cause pursuant to
clause (iv) of the definition thereof.
"PORTFOLIO SHARE": Shall have the meaning ascribed to such term in
Section 6.01(C).
- ---------------
"PRIME RATE": The rate of interest publicly announced as its
"prime rate" from time to time by Citibank, N.A., New York, New York, or its
successor or any other financial institution, as the Managing Member and
PWRES may agree, or its successor.
"PROJECT": Shall have the meaning ascribed to such term in Section
-------
16.01(E)(a).
- -----------
"PROPERTY": Any real estate parcel or parcels and any improvements
thereon owned by an Investment Entity in fee simple or pursuant to a
leasehold interest, together with all rights pertaining to such property and
improvements.
"PROPERTY MANAGER": For each Related Property, the property
manager engaged by the applicable Investment Entity for the purpose of
managing such Related Property and any other such property manager engaged by
such Investment Entity for such purpose from time to time.
"PROPOSED TRANSFEREE": As defined in Section 10.01.
-------------
"PWRES": Paine Webber Real Estate Securities Inc., a Delaware
corporation and/or any of its Affiliates, including, for purposes hereof
(other than with respect to Section 4.04(A)), Stratum Realty Fund, L.P. and
---------------
Stratum Realty Fund II, L.P. (to be formed).
"RECKSON": Reckson Associates Realty Corp., a Maryland
corporation.
"RECKSON COMPETITOR": Any Person, other than Reckson or Reckson
Operating Partnership, engaged in the business of owning, developing or
operating suburban office and industrial properties in the New York
metropolitan tri-state area.
"RECKSON INVESTMENT OPPORTUNITY": The right of Reckson Operating
Partnership to make a direct investment with the Company as provided in
Section 3.05 of this Agreement.
- ------------
"RECKSON OPERATING PARTNERSHIP": Reckson Operating Partnership,
L.P., a Delaware limited partnership.
"RECKSON SERVICES": Reckson Services Industries, Inc., a Delaware
corporation.
"RECKSON SERVICES COMPETITOR": Any Person, other than Reckson
Services, engaged, as of the relevant date of determination, in the same
business of providing services primarily directed towards occupants of
office, industrial and other property types that Reckson may not be permitted
to provide under Federal tax laws applicable to a real estate investment
trust or that Reckson has traditionally not performed.
"REDETERMINATION EVENT": Shall have the meaning ascribed to such
term in Section 3.06(a).
---------------
"RELATED PROPERTY": With respect to an Investment and the
applicable Investment Entity, the Property owned by such Investment Entity.
"RELATED PROPERTY MANAGER": With respect to any Related Property,
the Property Manager therefor.
"REMAINING CAPITAL COMMITMENT": With respect to each Member at any
given time, such Member's Capital Commitment adjusted as follows: (i)
reduced by such Member's Capital Contributions; and (ii) increased by any
refunds of unused Capital Contributions made in accordance with Section
-------
4.03(A) hereof.
- -------
"RENT ROLL": For each Related Property, a rent roll for such
Property specifying with respect to each Lease (i) the name of the tenant,
(ii) the rentable square feet of the premises, (iii) the lease term
commencement date, (iv) the lease term termination date, (v) the current
monthly base rent, (vi) the current annual rent per square foot, (vii) the
effective dates of rent adjustments, (viii) any free rent period, (ix) any
CPI adjustments or expense stop increases, and (x) any security deposit.
"ROP LINE": Shall mean a credit facility, in the maximum principal
amount of $100,000,000.00, to be provided to Reckson Services by Reckson
Operating Partnership solely for the purposes of funding the Capital
Commitment of the Managing Member hereunder, the capital commitment of
Reckson Operating Partnership in any Co-Investment Vehicle and funding
indemnification obligations of Managing Member and Reckson Services under
Section 7.05 hereof.
- ------------
"SECURITIES ACT": The Securities Act of 1933, as amended, and all
rules, rulings and regulations thereunder.
"SERVICE": The Internal Revenue Service, a branch of the United
States Treasury Department.
"SUBSIDIARY": With respect to any Person, any corporation,
partnership, limited liability company or other entity of which at least a
majority of the securities or other ownership interests having by their terms
ordinary voting power to elect a majority of the board of directors or other
individuals performing similar functions of such corporation, partnership,
limited liability company or other entity (irrespective of whether or not at
the time securities or other ownership interests of any other class or
classes of such corporation, partnership, limited liability company or other
entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person and/or one or more Subsidiaries of such Person, and any
partnership or limited liability company in which such Person or any such
Subsidiary is a general partner or managing member.
"SUBSTITUTE NON-MANAGING MEMBER": Any Person admitted to the
Company as a Non-Managing Member pursuant to Section 10.02 hereof.
-------------
"SUCCESSOR COMPANY": A limited liability company which shall
continue the business of the Company following its dissolution and
reconstitution in accordance with the provisions of Article XI.
----------
"SWEEP EVENT": Any of the following events: (i) a material breach
of the obligations set forth in Section 7.11, Section 7.12 or Section 7.13
------------ ------------ ------------
hereof which may result in a Company Material Adverse Effect and which breach
continues for ninety (90) days after Notice of such material breach has been
provided to the Managing Member, (ii) a material breach of the obligations
set forth in Section 7.09(A) hereof which breach continues for thirty (30)
----------------
days after Notice of such material breach has been provided to the Managing
Member (or, if the breach can be cured pursuant to Section 7.09(B) but is not
---------------
capable of being cured within such thirty (30) day period, such longer
period of time, not to exceed sixty (60) days, as is necessary to cure such
breach pursuant to Section 7.09(B), provided that such cure is diligently
---------------
pursued during and after such thirty (30) day period), (iii) in the event the
Class A Basic Return shall not be paid in full for each of 18 consecutive
calendar months or for each of 21 calendar months in the aggregate at any
time (provided, however, that (a) for purposes of determining whether such
--------- -------
21-month test has been satisfied, any month in respect of which the Class A
Basic Return shall have later been paid in full in accordance with the terms
hereof shall not be considered, and (b) for purposes of determining whether
either such 18-month or 21-month test has been satisfied, the following shall
not be considered: (x) for the initial 24 months following the date of this
Agreement; and (y) for the initial 12 months following the acquisition of any
Investment (the "ELECTION PERIOD" for such Investment), (1) the amount of the
Class A Member's Capital Commitment allocated to such Investment and (2) any
cash flow from operations of such Investment distributed to the Class A
Member pursuant to the terms hereof (collectively, the "ADJUSTMENT AMOUNTS")
for such Investment, provided that the Managing Member may at any time within
--------
such Election Period and upon prior Notice to
the Class A Member, elect to include the Adjustment Amounts for such
Investment for purposes of determining whether such 18-month or 21-month test
has been satisfied and provided, further, that if the Managing Member so
-------- -------
elects to include the Adjustment Amounts for such purposes, it may not
subsequently elect to exclude the Adjustment Amounts for such purposes) or
until the earlier of (a) such time as all prior accrued but unpaid Class A
Basic Return shall have been paid in full, not less than 75% from cash flow
from operations of the Investments, or (b) such date as all prior accrued but
unpaid Class A Basic Return shall have been paid in full, and the Class A
Basic Return shall have been paid in full for three consecutive months
thereafter from cash flows from operations of the Investments, (iv) subject
to Section 3.01(B), in the event the Company makes an Investment outside the
---------------
scope of the Investment Parameters and any Class A Member on the Advisory
Committee shall have objected to such Investment on such grounds when each
Investment shall have been proposed to the Advisory Committee until such time
as all Investments are within the scope of the Investment Parameters, (v) a
breach of any of the obligations set forth in Section 3.03(a)(K), until the
------------------
requirements of Section 3.03(a)(K) have been satisfied, (vi) a Change of
------------------
Control Event, or (vii) acts or omissions of the Managing Member that
constitute Cause (other than pursuant to clause (iv) of the definition
thereof).
"TAX DISTRIBUTIONS": Shall have the meaning ascribed to such term
in Section 6.06.
------------
"TENANT SERVICES": The offering to tenants occupying space in
office and industrial properties and other property types of services
relating to the occupancy of such premises.
"TENANT CAPITAL EXPENSES": With respect to any Investment Entity,
costs incurred by such Investment Entity in respect of (i) tenant
improvements, and reasonable and customary tenant concessions, under and
pursuant to Leases and (ii) leasing and brokerage commissions in connection
with Leases.
"TERMINATION DATE": As defined in Section 6.05(b).
---------------
"TMP": Shall have the meaning ascribed to such term in Section
-------
13.02.
- -----
"TRANSFER": A sale, assignment, transfer or other disposition of,
or pledge, hypothecation or other encumbrance of an Interest and (a) with
respect to the Managing Member, any direct or indirect sale, assignment,
transfer or other disposition of, or pledge, hypothecation or other
encumbrance of, a controlling interest in the Managing Member, other than (i)
any such disposition occurring in connection with a public offering of
securities registered under the Securities Act of 1933, or (ii) any such
disposition taking place on a
nationally recognized stock exchange, or (iii) provided that prior Notice has
been given to the Class A Member, any such disposition taking place in
connection with the issuance by the Managing Member of equity interests in
the Managing Member to any officers of the Managing Member as additional
compensation to such officers for their employment by the Managing Member,
and (b) with respect to the Class A Member, any direct or indirect sale,
assignment, transfer or other disposition of, or pledge, hypothecation or
other encumbrance of, a controlling interest in the Class A Member, other
than (i) any such disposition occurring in connection with a public offering
of securities registered under the Securities Act of 1933, (ii) any such
disposition taking place on a nationally recognized stock exchange, or (iii)
any such disposition to any of its Affiliates, including for purposes hereof
Stratum Realty Fund, L.P. and Stratum Realty Fund II, L.P. (to be formed).
"TREASURY REGULATIONS": The federal income tax and procedure and
administration regulations as promulgated by the U.S. Treasury Department, as
such regulations may be in effect from time to time. All references in this
Agreement to provisions of the Treasury Regulations shall be deemed to refer
to successor regulatory provisions to the extent appropriate in light of the
context herein in which such Treasury Regulations references are used.
"UCC" or "UNIFORM COMMERCIAL CODE": The Uniform Commercial Code as
in effect in the relevant jurisdiction.
"UNCONSUMMATED DEAL COSTS": Fees and expenses paid by or on behalf
of the Company to third parties for services rendered in connection with an
unconsummated transaction.
ARTICLE III
PURPOSE AND BUSINESS
--------------------
3.01. Business.
--------
(A) The primary purpose of the Company is (i) the acquisition,
ownership, management and sale of debt and equity interests in real estate
and in operating companies primarily engaged in, or fundamentally related to,
the real estate industry, such as student housing companies, assisted living
companies, limited service hotel companies, real estate finance and credit
companies and companies which provide property management, leasing or other
similar services to real estate companies, including, but without limitation,
(A) the purchasing of mortgage and property portfolios owned by banks,
thrifts, insurance companies and government agencies, (B) the acquisition or
recapitalization of operating companies with significant real estate assets,
(C) the acquisition of single or multiple real-estate or real-estate-related
assets and (D) subject to Section 3.03(a)(F) hereof, investments in land and
------------------
development projects, (ii) the acquisition, improvement, holding,
maintenance, management, operation,
leasing, restructuring, selling, disposing of and otherwise exercising
rights, remedies and claims with respect to the assets underlying any such
Investment described in clause (i) above, and (iii) the financing, lending,
mortgaging, making of bridge loans, long and short term loans, convertible
loans and any other type of loan, and the foreclosing upon and other
restructuring of such loans, in connection with an Investment described in
clause (i) above (the foregoing being hereinafter referred to as the
"INVESTMENT PARAMETERS"). The Company may engage in open market purchases,
privately-negotiated transactions or other means of pursuing an Investment,
and may engage in the making or holding of Investments, directly or
indirectly, through subsidiaries, partnership interests, joint ventures or
otherwise.
(B) Notwithstanding anything to the contrary in Section 3.01(A),
---------------
the Company may invest up to 25% of the aggregate Capital Commitments of all
Members in Investments outside the scope of the Investment Parameters,
provided that all such Investments outside the scope of the Investment
- --------
Parameters are in real estate or real-estate-related assets or businesses.
(C) The Company may engage in any other activities permitted by
law and related or incidental to those referred to in this Section 3.01,
------------
including making temporary investments pursuant to Section 3.02(L) hereof.
---------------
3.02. Authorized Activities. (a) In carrying out the purposes
---------------------
of this Agreement, but subject to all other provisions of this Agreement,
including without limitation Section 3.03, and applicable law, the Company
------------
is empowered and authorized:
(A) to acquire, invest in, lease, hold, mortgage, option, pledge,
manage, operate or otherwise deal in or with the Investments and any real or
personal property which may be necessary, convenient or incidental to the
accomplishment of the purposes of the Company, whether directly or
indirectly, through subsidiaries, partnership interests, securities, joint
ventures or otherwise, and to sell, transfer or otherwise dispose of the
Investments;
(B) to construct, operate, develop, maintain, option, finance,
lend, refinance, improve, own, sell, convey, assign, mortgage, lease or
foreclose upon any real estate and any personal property necessary,
convenient or incidental to the accomplishment of the purposes of the
Company;
(C) to borrow money and issue evidences of indebtedness with
respect to an Investment, in all cases on a basis that is non-recourse
(except for customary non-recourse exceptions for matters such as fraud,
misappropriation of funds and other customary carve-outs) to the Company or
any of its other assets, to finance or refinance such Investment and to
secure any such evidences of indebtedness by mortgages, pledges or other
liens, but only on the specific assets of such Investment so that such
evidences of indebtedness and documents securing the same, if any, shall
effectively provide in substance and legal effect for recourse only to the
specific assets of such Investment; provided, however, that the Company may
-------- -------
borrow money or issue evidences of indebtedness with respect to an Investment
on a basis that is recourse to the Company and its other assets, so long as
the aggregate amount of outstanding recourse
indebtedness with respect to all of the Company's Investments does not exceed
$10,000,000, and provided further that the foregoing shall not limit the
amount of recourse indebtedness a particular Investment Entity may have as
long as such indebtedness is without recourse to the Company or any of its
other assets as provided above;
(D) to enter into, perform and carry out contracts of any kind
necessary or incidental to the accomplishment of the purposes of the Company,
including, without limitation, contracts with Affiliates of the Managing
Member pursuant to Section 7.04;
------------
(E) to bring, sue, prosecute, defend, settle or comprise actions
at law or in equity related to the purposes of the Company;
(F) to purchase, cancel or otherwise retire or dispose of the
Interest of any Member pursuant to the express provisions of this Agreement;
(G) to execute and deliver all documents in connection with the
sale of Non-Managing Member Interests;
(H) to lease those Investments in the form of real properties and
collect all rents and other income and to pay therefrom expenses of the
Company, including, without limitation, expenses relating to such
Investments;
(I) to prepay in whole or in part, refinance, recast, assume,
increase, reduce, modify, extend, foreclose or transfer any mortgages
constituting or affecting any of the Investments, and in connection therewith
to execute any extensions, renewals, assumptions or modifications of any
mortgage or deed of trust constituting or affecting any of the Investments;
(J) to sell, exchange, transfer or otherwise dispose of all or any
portion of an Investment, including but not limited to a transfer of all or
any portion of the Investments to a publicly traded company;
(K) (Reserved.)
(L) to hold all or part of the assets, property or funds of the
Company in cash or cash equivalents and to make interim investments in U.S.
government obligations, short-term debt obligations with the highest rating
issued by a nationally recognized rating agency, fully insured bank time
deposits, repurchase agreements with a counterparty whose short-term debt
obligations have been rated with the highest rating issued by a nationally
recognized rating agency, money market funds investing solely in U.S.
government obligations and/or commercial paper rated not lower than P-1,
commercial paper rated not lower than P-1, certificates of deposit and
bankers acceptances, in each case, issued by a bank, the short-term debt
obligations of which have been rated with the highest rating issued by a
nationally recognized rating agency;
(M) to make debt or equity investments, including the acquisition
of Marketable Securities, in operating companies with real estate or real
estate related assets;
(N) to engage in any kind of lawful activity, and perform and
carry out contracts of any kind, necessary or advisable in connection with
the accomplishment of the purposes of the Company; and
(O) to make investments with Reckson Operating Partnership in
connection with a Reckson Investment Opportunity.
(b) (i) The Managing Member shall, in connection with the
acquisition of each Investment by the Company, by Notice to the Class A
Member(s) given on or prior to the date of acquisition of such Investment,
specify, on a reasonable basis, the Platform to which each Investment
pertains.
(ii) The establishment of any Platform, to the extent
such Platform is substantially similar to any existing Platform in respect of
the proposed types and uses of properties, shall be subject to the prior
Consent of PWRES.
3.03. Prohibited Activities. (a) Notwithstanding any other
---------------------
provision of this Agreement, the Company and the Managing Member shall not,
without the Consent of the Class A Member which Consent shall be in its sole
and absolute discretion, be empowered or authorized as follows:
(A) to invest more than twenty-five percent (25%) of the aggregate
Capital Commitments of all Members (not including additional direct
investments by Reckson) in (i) any one Investment or (ii) any one Platform
(as determined by Managing Member and the Class A Member pursuant to Section
-------
3.02(b));
- --------
(B) (i) with respect to any Investment (other than a Leverage
Excepted Investment), to incur indebtedness or cause or permit any applicable
Investment Entity to issue any preferred equity which, together with
indebtedness incurred and preferred equity issued in connection with all
other Investments of the Company (other than a Leverage Excepted Investment),
exceeds seventy-five (75%) (calculated as of the date of incurrence of such
indebtedness or issuance of such preferred equity, as the case may be) of the
Deemed Value of such Investments, and (ii) with respect to any Investment
(other than a Leverage Excepted Investment), to incur indebtedness or cause
or permit any applicable Investment Entity to issue any preferred equity
which in the aggregate with existing indebtedness and outstanding preferred
equity relating to such Investment exceeds eighty-five percent (85%)
(calculated as of the date of incurrence of such indebtedness or issuance of
such preferred equity, as the case may be) of the Deemed Value of such
Investment as of such date;
(C) to pay any expenses or to reimburse the Managing Member for
any of its expenses incurred in connection with any potential investment for
the Company not purchased by the Company if such investment is thereafter
purchased by the Managing Member, any party advised by the Managing Member or
any of their respective Affiliates;
(D) except as specifically provided herein, to borrow money or
enter into credit facilities or to guaranty the indebtedness of any other
Person;
(E) to take any actions in violation of the Securities Act or
applicable state securities laws;
(F) to invest (i) except as Consented to in advance and in writing
by the Class A Members, more than five percent (5%) of the aggregate Capital
Commitments of all Members in Investments in which the principal value of the
Investment is attributable to non-income producing raw land purchased, or
(ii) in Investments, the Related Properties of which, except for a de
--
minimis portion, are located outside of the United States or Canada;
- -------
(G) purchase from or sell assets to any Person who is an Affiliate
of the Managing Member or Reckson without the approval of the Advisory
Committee, or enter into any other transaction with any such Affiliate except
in accordance with Section 7.04;
------------
(H) make any Investments in suburban office and industrial
properties inside the New York metropolitan tri-state area without Reckson's
prior written Consent;
(I) make any Investment in suburban office and industrial
properties outside the New York metropolitan tri-state area without providing
Reckson an opportunity to make such Investment on the same terms and
conditions on which the Company proposed to make such Investment, and Reckson
must respond within 10 Business Days from the date the Company provides
Reckson with Notice of such Investment as to whether it will exercise its
right to pursue such Investment (and the failure to respond within such time
period will result in the loss of such right);
(J) return capital to any Class A Member at any time prior to the
later of (a) the fourth (4th) anniversary of the date of this Agreement or
(b) the third (3rd) anniversary of the date on which capital calls
aggregating not less than $100,000,000 shall have been made on the Class A
Members in accordance with the terms hereof (the "LOCK-OUT PERIOD"),
provided, however, that the forgoing prohibition with respect to returns of
capital shall not apply to such returns from (i) cash flows generated by the
operations of an Investment, (ii) the sale or refinancing of an Investment,
or (iii) proceeds of casualty insurance or condemnation proceeds received in
connection with an Investment;
(K) to make, finance or refinance any Investment, or make any
capital improvement or capital improvements constituting a single expenditure
or related group of expenditures in excess of $1.5 million with respect to
any particular Platform or $5 million with
respect to all Platforms in the aggregate, if, on the date of acquisition,
financing or refinancing or making of such capital improvement, the weighted
average Leverage Ratios of all Investments of the Company (other than the
Leverage Excepted Investments) would exceed 90.625%, or if the Leverage Ratio
for such Investment (other than the Leverage Excepted Investments) would
exceed 95%; provided, however, that the Company may make capital improvements
-------- -------
in excess of the foregoing limitations provided that the financing for such
excess is made solely by Capital Contributions of the Managing Member;
(L) purchase Derivatives other than typical hedging instruments
such as interest rate caps and collars and other financial instruments
relating to an Investment designed to protect the Company against adverse
movements in currency and/or interest rates, but not intended to speculate on
an uncovered basis with respect to the foregoing or to trade in the
foregoing; provided, however, that the Company shall not be prohibited from
acquiring warrants to obtain common equity in any Investment Entity in which
the Company has made an Investment, as additional consideration for making
such Investment;
(M) to make any Investments in operating companies primarily
engaged in the business of operating executive office suites;
(N) to invest more than 25% of the aggregate Capital Commitments
of all Members in Investments of a type other than those described in Section
-------
3.01(A) hereof, or to acquire any Investments other than as permitted under
- --------
Section 3.01(A) or 3.01(B) hereof, all of which are subject to the provisions
- --------------- -------
of this Section 3.03; and
------------
(O) to hold any short-term investments, other than as described in
Section 3.02(a)(L) hereof.
- ------------------
3.04. EBITDA. For any consecutive twelve-month period
------
(excluding the first twenty-four (24) months after the date of this
Agreement), the Managing Member shall cause there to be sufficient EBIDTA
derived from all of the Company's Investments to cover the Class A Basic
Return required to be distributed in respect of such period; provided,
--------
however, that with respect to the twelve-month period immediately following
- -------
the Company's acquisition of an Investment, such Investment and the amount of
the Class A Member's Capital Commitment allocated to such Investment shall
be excluded for purposes of determining the above calculation; provided, the
Managing Member may, at any time during the Election Period for
- --------
such Investment and upon prior Notice to the Class A Member, elect to include
the Adjustment Amounts for such Investment in making such calculation, and
provided, further, that if the Managing Member so elects to include such
- -------- -------
Adjustment Amounts, it may not subsequently elect to make such calculation
without reference to such Adjustment Amounts.
3.05. Co-Investment Opportunities. (a) Managing Member shall
---------------------------
have the right to permit Reckson Operating Partnership to satisfy Managing
Member's obligation to make Capital Contributions with respect to any
Investments Managing Member deems appropriate and which are eligible for
ownership by Reckson Operating Partnership as the operating partnership
of a qualified real estate investment trust or an Affiliate thereof (a
"RECKSON INVESTMENT OPPORTUNITY"). If Managing Member agrees to transfer its
obligation and Reckson Operating Partnership or an Affiliate thereof agrees
to make such cash investments, the Managing Member is hereby authorized to
make the Investment in whole or in part through special purpose entities
(which may be partnerships, limited liability companies, corporations or
other types of entities) in which the Company and Reckson Operating
Partnership hold interests (a "CO-INVESTMENT VEHICLE"). Any common equity
capital contribution that would otherwise have been provided by Managing
Member in accordance with the terms hereof as if the Investment were to be
acquired directly by the Company shall be provided to a Co-Investment Vehicle
in respect of a Reckson Investment Opportunity by Reckson Operating
Partnership, and any preferred equity capital contribution to be provided to
a Co-Investment Vehicle in respect of a Reckson Investment Opportunity shall
be provided by the Company solely from Capital Contributions made by the
Class A Member. It is understood that any Reckson Investment Opportunity
will be structured to preserve in all material respects the overall economic
and legal relationship of the Members (for purposes of such determination,
all rights and obligations of the Reckson Operating Partnership with respect
to any Co-Investment Vehicle being deemed to be rights and obligations of the
Managing Member hereunder), including with respect to all terms, covenants
and conditions of this Agreement, except that distributions which would have
been made to Managing Member had it made the Capital Contribution instead of
transferring it to Reckson Operating Partnership will be made to Reckson
Operating Partnership. Without limiting the generality of the foregoing,
each Co-Investment Vehicle shall be structured such that the Class A Member
shall (i) receive distributions in respect of such Reckson Investment
Opportunity and (ii) have available to it remedies of the type set forth in
this Agreement, in each case as if the Investment were made directly by the
Company from Capital Contributions made by Managing Member. All fees and
distributions to the Class A Members with respect to a Reckson Investment
Opportunity shall be determined as if Managing Member had made the Capital
Contribution instead of Reckson Operating Partnership. Managing Member's
Capital Commitment will be reduced by the amounts which Reckson Operating
Partnership invests in any Reckson Investment Opportunities.
(b) In the event that an Investment by the Company would cause the
Company to breach the covenant set forth in Section 3.03(a)(A)(ii) hereof,
----------------------
the Company may, without the consent of the Class A Member, afford Reckson
the opportunity to make such Investment on the same terms and conditions
provided to the Company with respect to such Investment.
(c) Unless otherwise Consented to by PWRES, which Consent may be
withheld by PWRES in its sole and absolute discretion, the sole means by
which Reckson shall invest in any Investment held by the Company shall be
pursuant to paragraphs (a) and (b) of this Section 3.05.
------------
3.06. Determination of Fair Value, Gross Fair Value and Deemed
--------------------------------------------------------
Value.
- -----
(a) Except as otherwise provided herein, the Fair Value or Gross
Fair Value of any Interest, Investment, Related Property or other Company
asset shall be as reasonably determined by the Managing Member for all
purposes of this Agreement. For purposes of Section 6.03, Section 7.09(B)
------------ ---------------
and Section 8.03, the Fair Value of any Interest, Investment, Related
------------
Property or other Company asset shall be determined by an Expert selected by
PWRES.
(b) The Gross Fair Value of any Investment shall be determined (or
redetermined) in accordance with the requirements of this Section 3.06 upon
------------
the occurrence of any of the following events with respect to such Investment
(each, a "REDETERMINATION EVENT" for such Investment):
(i) any capital improvement or capital improvements constituting a
single expenditure or related group of expenditures in excess of
$1.5 million with respect to a capital project on any Related Property
funded in whole or in part by a Capital Contribution made by the Class A
Member pursuant to the terms hereof, or
(ii) any financing or refinancing of the assets of such Investment.
Within 10 Business Days of the occurrence of any Redetermination Event for
any Investment, the Managing Member shall give Notice to the Class A Members
of the occurrence of such Redetermination Event, and of Managing Member's
determination of the Gross Fair Value of the related Investment.
(c)(i) If the Class A Member reasonably believes that the
Managing Member's determination of the Gross Fair Value of any Investment
made pursuant to Section 3.06(b) exceeds the actual gross fair market value
---------------
of such Investment by at least 7%, or if the Class A Member reasonably
believes that the then Deemed Value of an Investment exceeds the actual gross
fair market value of an Investment by at least 7% at the time the Adjustment
Amounts for such Investment are initially included for purposes of the
Financial Tests, then, notwithstanding any determination or redetermination
by the Managing Member of the Fair Value or Gross Fair Value of an Investment
pursuant to the terms of this Agreement, the Class A Member may require that
the Gross Fair Value of an Investment be determined by an Expert in
accordance with the terms of this Section 3.06(c) by Notice to Managing
---------------
Member given
(x) within thirty (30) days after the Class A Member's receipt of Notice
of the Managing Member's determination of the Gross Fair Value of such
Investment following the occurrence of a Redetermination Event with
respect to such Investment, or
(y) if the Managing Member gives Notice to the Advisory Committee
pursuant to Section 16.02(E)(j) that the Managing Member elects to
-------------------
include the Adjustment Amounts as of the date of acquisition of an Investment
for the purposes of determining the calculations required under the terms of
this Agreement, within ten (10) days after the date of acquisition of such
Investment, or
(z) otherwise, within thirty (30) days after the Adjustment Amounts for
such Investment are initially included for purposes of the Financial
Tests.
In the event that the Class A Member elects to cause the Gross Fair Value of
an Investment to be determined by an Expert in accordance herewith, the Class
A Member shall, as promptly as practicable after giving the Notice to
Managing Member described above, retain an Expert for such purpose and shall
cause such Expert to give the Class A Member and the Managing Member notice
of such Expert's determination of the Gross Fair Value of such Investment
within thirty (30) days after the date of such Notice.
(ii) If the Managing Member disputes the determination of the Gross
Fair Value of an Investment by an Expert selected by PWRES, the Managing
Member may, within ten (10) days after its receipt of Notice of such Expert's
determination, give Notice of such dispute to the Class A Member. Such
dispute shall be referred by the Managing Member to an Expert selected by
the Managing Member and such Expert shall, within thirty days after the date
Notice is given to the Class A Member pursuant to this Section 3.06(c)(iv),
determine the Gross Fair Value of such Investment. The Managing Member shall
give Notice of such Gross Fair Value to both the Class A Member and the
Expert selected by such Class A Member. If the Experts selected by the Class
A Member and the Managing Member, respectively, are unable to agree on a
Gross Fair Value with respect to such Investment, such Experts shall select a
third Expert, which Expert shall, within thirty days after its selection,
determine the Gross Fair Value of such Investment and give Notice of such
determination to the Class A Member and the Managing Member. The
determination of Gross Fair Value made by such third Expert shall be final
and binding on the Company and all of the Members.
(iii) If the Gross Fair Value of any Investment, as initially
determined by the Managing Member, exceeds by 7% or more the Gross Fair Value
as finally determined by an Expert pursuant to this Section 3.06(c), the
---------------
Gross Fadetermined by such Expert, and the Managing Member shall pay to the
Company and the Class A Member any and all costs, fees and expenses incurred
by the Company or the Class A Member in connection with the resolution of
such dispute. If the Gross Fair Value of any such Investment, as initially
determined by the Managing Member, does not exceed by 7% or more the Gross
Fair Value as finally determined by any Expert or Experts commissioned
pursuant to this Section 3.06(c) (an "INCORRECT VALUE DETERMINATION"), the
---------------
Gross Fair Value of such Investment shall continue to be the Gross Fair Value
initially determined by the Managing Member, and the Class A Member shall pay
to the Company and the Managing Member any and all costs, fees and expenses
incurred by the Company or the Managing Member in connection with the
resolution of such dispute; and provided, further, that if (a) five or fewer
-------- -------
Investments are the subject of a Revaluation Event
or Financial Test Inclusion Event during any twelve (12) month period, and
any Expert or Experts selected by the Class A Member have singly or
collectively made two Incorrect Value Determinations within any such
consecutive twelve (12) month period or (b) more than five Investments are
the subject of a Revaluation Event or Financial Test Inclusion Event during
any twelve (12) month period, and any Expert or Experts selected by the Class
A Member have singly or collectively made Incorrect Value Determinations with
respect to thirty-three and one-third percent (33 1/3rd %) or more of the
Investments of the Company that are the subject of a Revaluation Event or
Financial Test Inclusion Event within such twelve (12) month period, the
Class A Member may not, for a period of nine (9) months commencing on the
date such threshold has been reached, commission an Expert to determine Gross
Fair Value pursuant to this Section 3.06.
------------
(iv) For purposes of this Section 3.06(b) and (c), to the extent
--------------- ---
that a Revaluation Event shall have occurred with respect to fewer than all
of the Related Properties in any Investment, then the revaluation procedures
set forth in Section 3.06(b) and (c) shall apply only with respect to the
--------------- --
affected Related Property or Related Properties, and the Deemed Value of the
other Related Property or Related Properties in such Investment shall not be
subject to such revaluation procedures in connection with such Revaluation
Event.
(d) In determining the Fair Value of any Interest, Investment,
Related Property or any other Company asset, the Managing Member or Expert
shall apply the following: (i) the value to be arrived at should represent
the discounted present value of all anticipated cash flows, including
proceeds from the potential sale of the asset, expected to be derived from
such asset (net of actual and contingent associated liabilities and estimated
costs of sale), without regard to temporary market fluctuations or
aberrations and assuming a plan of orderly disposition of such asset which
does not involve unreasonable delays in cash realization, there being a
presumption that cash flow will be realized over a time period of no more
than the earlier of (a) 5 years or (b) the end of the term of the Company,
but in any event no less than 3 years (with the discount rate determined by
taking into consideration the risk inherent in holding the assets being
valued and the prevailing cost of funds for such assets, among other relevant
factors), unless required by reasonably compelling evidence to the contrary;
(ii) securities which are publicly traded will be valued taking into account
the average of their last sale price on the principal national securities
exchange on which they are traded on each business day during the one-month
period ending immediately prior to the date of the determination or, if no
sales occurred on any such day, the mean between the closing "bid" and
"asked" prices on such day, or if the principal market for such Securities
is, or is deemed to be, in the over-the-counter market, their average closing
"bid" price on each day during such period, as published by the National
Association of Securities Dealers Automated Quotation System or, if such
price is not so published, the mean between their closing "bid" and "asked"
prices, if available, on each day during such period, which prices may be
obtained from any reputable broker or dealer; and (iii) all valuations shall
be made taking into account all factors which might reasonably affect the
sales price of the asset in question, including, without limitation, if and
as appropriate, the existence of a control bloted impact on current market
prices of immediate sale, the lack of a market for such asset, and the impact
on present value of factors such as the length of time
before any such sales may become possible and the cost and complexity of any
such sales. Subject to Section 3.06(c), for all purposes of this Agreement,
all valuations made by the Managing Member or Expert shall be final and
conclusive on the Company and all Members, their successors and assigns,
absent manifest error. In determining the fair value of assets, the Managing
Member or Expert may obtain and rely on information provided by any source or
sources reasonably believed to be accurate and reliable.
ARTICLE IV
COMPANY INTERESTS AND CAPITAL
-----------------------------
4.01. Managing Member.
---------------
(A) The name and address of the Managing Member is RSVP Holdings,
LLC, a Delaware limited liability company, having an address at 225
Broadhollow Road, Melville, New York, 11747.
(B) The Capital Commitment of the Managing Member shall at all
times be equal to $100 million less (i) the amount of Capital Contributions
made by the Managing Member and (ii) the amount of capital contributions made
by Reckson Operating Partnership to a Co-Investment Vehicle pursuant to the
terms of Section 3.05 of this Agreement.
------------
4.02. Non-Managing Members.
--------------------
(A) The initial Capital Commitment of the initial Class A Member
shall be $200 million, and the Capital Commitment of the Class A Members
shall at all times be equal to $200 million less the amount of Capital
Contributions made by the Class A Members pursuant to the terms of this
Agreement.
(B) A Proposed Transferee acquiring a Non-Managing Member Interest
through a Transfer shall become a Substitute Non-Managing Member when the
provisions of Article X of this Agreement have been complied with. The
---------
aggregate Capital Commitments of all Non-Managing Members, together with the
Capital Commitment of the Managing Member, shall be $300 million.
4.03. Capital Contributions.
---------------------
(A) PWRES, as the initial Class A Member, shall make an initial
Capital Contribution to the Company of $5,000,000 within ten (10) days after
the date of this Agreement. The Managing Member may issue calls for Capital
Contributions from the Members at any time during the Investment Period
subject to and in accordance with the terms of this Section 4.03(A). Except
---------------
as otherwise provided herein, the Managing Member may, at its determination,
issue a call for a Capital Contribution, in such amounts as the Managing
Member shall specify, solely from the Class A Members, or solely from the
Class B Members,
or from both the Class A Members and the Class B Members in such amounts as
the Managing Member shall specify; provided, that Notice of any call for
--------
Capital Contributions shall in any event be given to all Members; and
provided, further, that
- -------- -------
(a) with respect to any Co-Investment Vehicle, the Managing Member shall
have issued calls for Capital Contributions from the Class A Members in
an amount such that the total Capital Contributions of the Company to
the Co-Investment Vehicle provided solely from Capital Contributions
made by the Class A Members shall be equal to sixty-six and two-thirds
percent (66 2/3rds%) of the aggregate Capital Contributions to such Co-
Investment Vehicle until the initial date on which the sum of (i) the
total Capital Contributions of the Class A Member plus (ii) the total
Capital Contributions of the Managing Member are at least equal to
$50,000,000.00, and
(b) if (i) the Company has acquired Investments with aggregate
acquisition costs of at least $75 million on or prior to December 31,
1998 (the "INITIAL INVESTMENT DEADLINE"), and (ii) Stratum Realty Fund,
L.P. has committed to purchase from PWRES a portion of its Interest
representing at least $50 million of PWRES's Capital Commitment, the
Managing Member shall have issued calls for Capital Contributions from
the Class A Members in an aggregate amount of not less than $50 million
on or prior to the Initial Investment Deadline, provided, however, that
-------- -------
in no event shall the Class A Members make such additional Capital
Contributions if such Capital Contributions would require any Capital
Contributions made by Reckson Operating Partnership or an Affiliate thereof
to a Co-Investment Vehicle to be returned to Reckson Operating Partnership or
such Affiliate, and
(c) if (i) the Company has not acquired Investments with aggregate
acquisition costs of at least $75 million on or prior to the Initial
Investment Deadline and (ii) Stratum Realty Fund, L.P. has committed to
purchase from PWRES a portion of its Interest representing at least $50
million of PWRES's Capital Commitment, then
(1) the Managing Member shall have issued calls for Capital
Contributions from the Class A Members in an amount such that the
total Capital Contributions of the Class A Members shall be not
less than sixty-six and two-thirds percent (66 2/3rds %) of the
aggregate acquisition costs of all Investments of the Company on or
prior to the Initial Investment Deadline, and
(2) the Managing Member shall, by Notice to the Class A Members
given no later than 30 days prior to the Initial Investment
Deadline, offer the Class A Members the opportunity, but not the
obligation, to contribute additional Capital Contributions to the
Company up to such amount as would cause the aggregate Capital
Contributions of the Class A Members as of the Initial Investment
Deadline to be equal to the lesser of $50 million and the aggregate
acquisition costs of all Investments of the Company on or prior to
the Initial Investment Deadline; provided, however, that in no
-------- -------
event shall the Class A Members make
such additional Capital Contributions if such Capital Contributions
would require any Capital Contributions made by Reckson Operating
Partnership or an Affiliate thereof to a Co-Investment Vehicle to
be returned to Reckson Operating Partnership or such Affiliate; it
being understood and agreed that, in the event the total Capital
Contributions of the Company are less than $50,000,000 on the
Initial Investment Deadline, the Class A Members may elect to fund
up to 100% of future calls for Capital Contributions until the
total Capital Contributions of the Company are at least equal to
$50,000,000. If the Class A Members elect to make the additional
Capital Contributions to the Company as described in this clause
(2) or as described in clause (d) below, then
(x) to the extent (and only to the extent) that such
additional Capital Contributions would otherwise result in a
breach of any of the covenants set forth in Sections
--------
3.03(a)(B), 3.03(a)(K) and 3.04 hereof, such breach shall be deemed waived
- ---------- ---------- ----
by the Class A Members for so long as the aggregate Capital Contributions of
the Class A Members shall exceed sixty-six and two-thirds percent (66 2/3rds
%) of the total Capital Contributions of all Members of the Company for such
reason; and
(y) to the extent that, as a result of such additional Capital
Contributions of the Class A Members, the Book Capitalization
of Reckson Services is reduced below the Minimum Book
Capitalization, then thereafter all calls for Capital
Contributions shall be made solely to the Managing Member
until the Book Capitalization of Reckson Services is at least
equal to the Minimum Book Capitalization; and
(d) at any time prior to the Initial Investment Deadline when (i) the
total outstanding Capital Contributions to the Company are at least
$50,000,000, (ii) PWRES' total outstanding Capital Contribution to the
Company are less than $50,000,000, (iii) Stratum Realty Fund, L.P. has
committed to purchase from PWRES a portion of its Interest representing
at least $50,000,000 of PWRES's Capital Commitment, PWRES may, at its
option, elect, by Notice to the Managing Member, to make an additional
Capital Contribution to the Company sufficient to cause PWRES' total
outstanding Capital Contribution to equal $50,000,000, and in the event
PWRES elects to exercise its rights under this clause (d), the Managing
Member shall have no further obligations under the foregoing clauses
(a), (b) and (c); provided, however, that in no event shall the Class
-------- -------
A Members make such additional Capital
Contributions if such Capital Contributions would require any Capital
Contributions made by Reckson Operating Partnership or an Affiliate thereof
to a Co-Investment Vehicle to be returned to Reckson Operating Partnership or
such Affiliate;
and provided, further, that, at the end of the Investment Period the Managing
- --- -------- -------
Member shall have issued calls for Capital Contributions from the Class A
Members in an aggregate amount of not less than the lesser of $200,000,000 or
sixty-six and two-thirds percent (66 2/3rds %) of the
aggregate acquisition and other costs of all Investments of the Company.
Notwithstanding anything to the contrary herein contained (but subject
nonetheless to the first sentence of Section 4.03 (A) and to the foregoing
----------------
clause (2) and clause (d) of this section), in no event shall the ratio of
the Capital Contributions of the Class A Members to the Capital Contributions
of the Class B Members at any time exceed two to one (2.0:1.0). Within three
(3) calendar days after a call issued from time-to-time by delivery of Notice
to the Non-Managing Members from the Managing Member, the Class A Members
and/or the Class B Members, as shall be specified by the Managing Member in
such Notice, shall, subject to compliance by the Managing Member with the
requirements of Section 16.02(E), but irrespective of whether the Class A
----------------
Member shall have requested additional information subsequent to delivery of
an Acquisition Plan pursuant to and in accordance with Section 16.02(E), make
----------------
cash Capital Contributions to the capital of the Company in the amounts
called from the Class A Members and/or the Class B Members, as the case may
be, pro rata in accordance with the Remaining Capital Commitments of the
Class A Members and/or the Class B Members, as the case may be, as of the
date of such call; provided, however, that with respect to the first
-------- -------
$50,000,000 of Capital Contributions to be made by the Class A Member, such
time period shall be thirteen (13) Business Days. The Managing Member shall
have the right to call Capital Contributions during the Investment Period
from any Member in an amount up to such Member's then Remaining Capital
Commitment if the Managing Member anticipates (i) the consummation of an
Investment by the Company in accordance with the terms of this Agreement,
(ii) the need for additional cash investments for any reason in any
Investment, (iii) the need for additional cash for the Company expenses
(including Investment Expenses), (iv) the need to repay any outstanding
financing of the Company, or (v) the need to make a loan in connection with
proposed Investment. To the extent Capital Contributions for an Investment
have not been used by the Company to acquire such Investment within ninety
(90) days of receipt thereof, the Managing Member shall either deliver a
revised Notice to the Non-Managing Members stating that such Capital
Contributions will be used to fund an Investment which is scheduled to close
pursuant to a binding commitment within thirty (30) days or shall return such
unused Capital Contributions to the Members who contributed the same,
treating such amounts as distributions from a fully realized Investment. All
Capital Contributions shall be made to the Company by wire transfer in same
day funds. All Capital Contributions from Class A Members shall accrue the
Class A Basic Return and the Class A Additional Return from the date
contributed until returned to such Class A Member. All Capital Contributions
from Class B Members shall accrue the Class B Basic Return from the date
contributed until returned to such Class B Member.
(B) Notices provided pursuant to Section 4.03(A) above relating
---------------
to an Investment shall, where applicable, set forth the anticipated closing
date of such Investment, the date by which the Company expects to fund the
Investment and a brief description of the Investment to be made.
(C) Any Investment made by the Company or a Co-Investment Vehicle
pursuant to the terms of this Agreement shall be made with the proceeds of
Capital Contributions made hereunder (or, with respect to a Reckson
Investment Opportunity, cash investments by
Reckson Operating Partnership pursuant to and in accordance with Section
-------
3.05) and not with the proceeds of any retained earnings of the Company or
- ----
any Co-Investment Vehicle.
(D) The Class A Members shall not be required to make a Capital
Contribution with respect to an Investment pursuant to this Section 4.03
------------
prior to the submission of an Acquisition Plan with respect to such
Investment to the Advisory Committee pursuant to and in accordance with
Section 16.02(E).
- ----------------
(E) Notwithstanding anything to the contrary herein contained (but
subject nonetheless to the first sentence of Section 4.03(A)), in no event
---------------
shall any Class A Member be obligated to fund a call for its initial Capital
Contribution (other than as contemplated under the first sentence of
Section 4.03(A)), other than solely for purposes of funding a capital
contribution by the Company to the Co-Investment Vehicle, at any time when
the Book Capitalization of Reckson Services shall be less than
$25,000,000.00; provided, however, that, a Class A Member may (with the
-----------------
consent of the Managing Member), but shall have no obligation to, fund a
Capital Contribution at a time when the Book Capitalization of Reckson
Services is less than $25,000,000.00. The Class A Member shall not be
obligated to fund a Capital Contribution under certain other circumstances as
more specifically provided in Section 7.05(F)(v).
------------------
4.04. Default by Members.
------------------
(A) In the event that any Non-Managing Member shall be in default
in its obligation to make any Capital Contribution pursuant to Section 4.03
------------
hereof to the Company and such default shall continue for two (2) Business
Days following Notice from the Managing Member to all of the Non-Managing
Members, in addition to the remedies provided at law or in equity, the
Managing Member may commence legal proceedings to compel the defaulting Non-
Managing Member to make the Capital Contribution. If such default is made by
any Class A Member, other than PWRES, and such default shall continue for two
(2) Business Days following Notice from the Managing Member to all of the
Non-Managing Members, then PWRES shall be deemed to be in default of such
obligation and in addition to the remedies provided at law or in equity, the
Managing Member may commence legal proceedings to compel Paine Webber Real
Estate Securities Inc. and the defaulting Class A Member to make the Capital
Contribution.
(B) (Intentionally omitted.)
(C) Such defaulting Non-Managing Member (and, to the extent it
does not, pursuant to Section 4.04(A), make the Capital Contribution in lieu
---------------
of such defaulting Class A Member, PWRES) shall not be entitled to (i) make
any further Capital Contributions to the Company, (ii) except as provided
below, receive any further distributions by the Company until the final
liquidation and termination of the Company, (iii) be counted as a Member for
voting purposes with respect to the count of both that Member's vote and the
total number of Members' votes, (iv) participate in any Consent of the Non-
Managing Members, (v) be a member of the
Advisory Committee or (vi) any amounts due under Section 4.11 hereof. No
------------
defaulting Member's Interest shall be counted in connection with the giving
or withholding of any Consent. Each defaulting Member shall remain fully
liable to the creditors of the Company, to the extent provided by law, as if
such default had not occurred.
(D) The remedies set forth in this Section 4.04 shall not be
------------
exclusive of any other remedy which the Company or the Members may have at
law or in equity (including without limitation the right to recover
structuring fees paid by the Company), it being agreed that the Members shall
be personally liable for the making of their Capital Commitments. Each of the
Members agrees to the remedies set forth in this Section 4.04.
------------
4.05. Interest. Interest earned on the Company funds shall
--------
inure to the benefit of the Company.
4.06. (Reserved.)
4.07. Withdrawal of Capital Contributions. Except as otherwise
-----------------------------------
provided in this Agreement or by law, (i) no Member shall have the right to
withdraw or reduce its Capital Contributions or its Capital Commitment, or to
demand and receive property other than property distributed by the Company in
accordance with the terms hereof in return for its Capital Contributions, and
(ii) any return of Capital Contributions to the Non-Managing Members shall be
solely from Company assets, and the Managing Member shall not be personally
liable for any such return.
4.08. Restoration of Negative Capital Accounts. At no time
----------------------------------------
during the term of the Company or upon the dissolution and liquidation of the
Company shall a Member with a negative balance in its Capital Account have
any obligation to the Company or to any other Member to restore such negative
balance, except as may be required by law or in respect of any negative
balance resulting from withdrawal of capital or a distribution in
contravention of this Agreement. Neither the Managing Member nor any other
Member shall be obligated to restore any deficit balance in its Capital
Account or shall be personally liable for the return of the Capital
Contributions of the Non-Managing Members, or any portion thereof, it being
expressly understood that (x) any such return shall be made solely from
Company assets and (y) a deficit in a Member's Capital Account shall not
constitute a Company asset.
4.09. (Reserved.)
4.10. (Reserved.)
4.11. Class A Members' Remaining Capital Commitment Fee. At
-------------------------------------------------
the end of (a) the period from the date of this Agreement to but excluding
the numerically corresponding date in the 18th calendar month following the
calendar month of the date of this Agreement, (b) the period from and
including the date in the 18th calendar month following the calendar month of
the date of this Agreement numerically corresponding to the date of this
Agreement, to but
excluding the numerically corresponding date in the 27th calendar month
following the calendar month of the date of this Agreement, and (c) the
period from and including the date in the 27th calendar month following the
calendar month of the date of this Agreement through the end of the
Investment Period, the Company shall make payments to each Class A Member in
an amount equal to the product of 1%, 1.5% and 2%, respectively, multiplied
by such Class A Member's Remaining Capital Commitment on the last day of such
period.
ARTICLE V
CAPITAL ACCOUNTS, ALLOCATION OF INCOME AND LOSS
-----------------------------------------------
5.01. Capital Accounts. A separate capital account (a "CAPITAL
----------------
ACCOUNT") shall be maintained for each Member in accordance with Treasury
Regulations Section 1.704-1(b)(2)(iv), and this Section 5.01 shall be
------------------------- ------------
interpreted and applied in a manner consistent with said Section of the
Treasury Regulations. Whenever the Company would be permitted to adjust the
Capital Accounts of the Members
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) to reflect
----------------------------
revaluations of Company property, the Company shall so adjust the Capital
Accounts of the Members. In the event that the Capital Accounts of the
Members are so adjusted, (i) the Capital Accounts of the Members shall be
adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g)
----------------------------
for allocations of depreciation, depletion, amortization and gain or loss, as
computed for book purposes, with respect to such property and (ii) the
Members' distributive shares of depreciation, depletion, amortization and
gain or loss, as computed for tax purposes, with respect to such property
shall be determined so as to take account of the variation between the
adjusted tax basis and book value of such property in the same manner as
under Code Section 704(c). In the event that Code Section 704(c) applies to
-------------- --------------
Company property, the Capital Accounts of the Members shall be adjusted in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for
----------------------------
allocations of depreciation, depletion, amortization and gain and loss, as
computed for book purposes, with respect to such property. The Capital
Accounts shall be maintained for the sole purpose of allocating items of
income, gain, loss and deduction among the Members and shall have no effect
on the amount of any distributions to any Members in liquidation or
otherwise. The amount of all distributions to Members shall be determined
pursuant to Article VI.
5.02. Allocation of Profits and Losses. All items of Company
--------------------------------
income, gain, loss and deduction as determined for book purposes shall be
allocated among the Members and credited or debited to their respective
Capital Accounts in accordance with Treasury Regulations
Section 1.704-1(b)(2)(iv), so as to ensure to the maximum extent possible
- -------------------------
(i) that such allocations satisfy the economic effect equivalence test of
Treasury Regulations Section 1.704-1(b)(2)(ii)(i) (as provided hereinafter)
----------------------------
and (ii) that all allocations of items that cannot have economic effect
(including credits and nonrecourse deductions) are allocated to the Members
in proportion to their respective Capital Contributions unless otherwise
required by Code Section 704(b) and the Treasury Regulations promulgated
--------------
thereunder. To the extent possible, items that can have economic effect
shall be allocated in such a manner that the balance
of each Member's Capital Account at the end of any taxable year (increased by
the sum of (a) such Member's "share of partnership minimum gain" as defined
in Treasury Regulations Section 1.704-2(g)(1) and (b) such Member's
---------------------
share of "partner nonrecourse debt minimum gain" as defined in Treasury
Regulations Section 1.704-2(i)(5)) would be positive to the extent of the
---------------------
amount of cash that such Member would receive (or would be negative to the
extent of the amount of cash that such Member should be required to
contribute to the Company) if the Company sold all of its property for an
amount of cash equal to the book value (as determined pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)) of such property (reduced, but not
-------------------------
below zero, by the amount of nonrecourse debt to which such property is
subject) and all of the cash of the Company remaining after payment of all
liabilities (other than nonrecourse liabilities) of the Company were
distributed in liquidation immediately following the end of such taxable year
in accordance with Section 6.01(B).
---------------
ARTICLE VI
DISTRIBUTIONS
-------------
6.01. Distributions.
-------------
(A) Subject to Section 6.06, Net Investment Revenues for all
------------
Investments (other than Capital Events Proceeds) shall be distributed
quarterly, or in the discretion of the Managing Member more frequently, to
the extent available, in the following priority:
(i) First, to each Class A Member until the Class A Member
shall have received the accrued Class A Basic Return on its outstanding
Net Adjusted Capital Contribution from time to time through the end of
such quarter or other period. Any distribution to the Class A Members
pursuant to this Section 6.01(A)(i) shall be applied to the earliest
------------------
accrued but unpaid Class A Basic Return in proportion to the Class A Members'
respective Net Adjusted Capital Contributions on a per diem basis; provided,
--------
however, that any distribution to a Class A Member under this Section
- -------
6.01(A)(i) shall not exceed the amount provided under the preceding sentence.
(ii) Second, to each Class B Member until the Class B Member
shall have received the accrued Class B Basic Return on its outstanding
Net Adjusted Capital Contribution from time to time through the end of
such quarter or other period. Any distribution to the Class B Members
pursuant to this Section 6.01(A)(ii) shall be applied to the earliest
-------------------
accrued but unpaid Class B Basic Return in proportion to the Class B
Members' respective Net Adjusted Capital Contributions on a per diem basis;
provided, however, that any distribution to a Class B Member under this
- -------- -------
Section 6.01(A)(ii) shall not exceed the amount provided under the preceding
- -------------------
sentence.
(iii) Third, to each Class A Member until the Class A
Member shall have received the accrued Class A Additional Return on its
outstanding Net Adjusted Capital Contribution from time to time through
the end of such quarter or other period. Any distribution to the Class
A Members pursuant to this Section 6.01(A)(iii) shall be applied to the
--------------------
earliest accrued but unpaid Class A Additional Return in proportion to the
Class A Members' respective Net Adjusted Capital Contributions on a per diem
basis; provided, however, that any distribution to a Class A Member under
-------- -------
this Section 6.01(A)(iii) shall not exceed the amount provided under the
--------------------
preceding sentence.
(iv) Fourth, to all Members, in proportion to their respective
Net Adjusted Capital Contributions, as a return of capital until the Net
Adjusted Capital Contributions of each of the Members shall have been
reduced to zero.
(v) Fifth, to each Class B Member in proportion to their
respective total Capital Contributions.
(B) Subject to Section 6.06, Capital Events Proceeds from any
-------------
Investment shall be distributed to the Members by the Company promptly, and
in any event within six (6) Business Days after receipt thereof by the
Company, in the following order of priority:
(i) First, to each Class A Member until the Class A Member
shall have received its Allocated Accrued Class A Basic Return for such
Investment through the date of distribution thereof. Any distribution
to the Class A Members pursuant to this Section 6.01(B)(i) shall be
------------------
applied to the earliest accrued but unpaid Class A Basic Return in proportion
to the Class A Members' respective Capital Contributions on a per diem basis;
provided, however, that any distribution to a Class A Member under this
- -------- -------
Section 6.01(B)(i) shall not exceed the amount provided under the preceding
- ------------------
sentence.
(ii) Second, to each Class A Member as a return of capital in
reduction of its Allocated Net Adjusted Capital Contribution for such
Investment until such Allocated Net Adjusted Capital Contribution has
been reduced to zero.
(iii) Third, to each Class B Member until the Class B
Member shall have received its Allocated Accrued Class B Basic Return
for such Investment through the date of distribution. Any distribution
to the Class B Members pursuant to this Section 6.01(B)(iii) shall be
--------------------
applied to the earliest accrued but unpaid Class B Basic Return in proportion
to the Class B Members' respective Capital Contributions on per diem basis;
provided, however, that any distribution to a Class B Member under this
- -------- -------
Section 6.01(B)(iii) shall not exceed the amount provided under the preceding
- --------------------
sentence.
(iv) Fourth, to each Class B Member as a return of capital in
reduction of its Allocated Net Adjusted Capital Contribution for such
Investment until such Allocated Net Adjusted Capital Contribution has
been reduced to zero.
(v) Fifth, to each Class A Member until the Class A Member
shall have received its Allocated Accrued Class A Additional Return for
such Investment through the date of distribution. Any distribution to
the Class A Members pursuant to this Section 6.01(B)(v) shall be applied
------------------
to the earliest accrued but unpaid Class A Additional Return in proportion to
the Class A Members' respective Capital Contributions on a per diem basis;
provided, however, that any distribution to a Class A Member under this
- -------- -------
Section 6.01(B)(v) shall not exceed the amount provided under the preceding
- ------------------
sentence.
(vi) Sixth, to each Class A Member until the Class A Member
shall have received its aggregate outstanding Allocated Additional
Return Shortfalls with respect to any Investments. Any distribution to
the Class A Members pursuant to this Section 6.01(B)(vi) shall be
-------------------
applied to the earliest accrued but unpaid Class A Additional Return in
proportion to the Class A Members' respective Capital Contributions on a per
diem basis; provided, however, that any distribution to a Class A Member
-------- -------
under this Section 6.01(B)(vi) shall not exceed the amount provided under the
-------------------
preceding sentence.
(vii) Seventh, to each Class A Member until the Class A
Member shall have received its accrued Class A Basic Return on its
outstanding Net Adjusted Capital Contributions from time to time through
the date of distribution thereof. Any distribution to the Class A
Members pursuant to this Section 6.01(B)(vii) shall be applied to the
--------------------
earliest accrued but unpaid Class A Basic Return in proportion to the Class A
Members' respective Capital Contributions on a per diem basis; provided,
--------
however, that any distribution to a Class A Member under this Section
- -------
6.01(B)(vii) shall not exceed the amount provided under the preceding
sentence.
(viii) Eighth, to each Class B Member until the Class B
Member shall have received the Class B Basic Return on its outstanding
Net Adjusted Capital Contributions from time to time through the date of
distribution. Any distribution to the Class B Members pursuant to this
Section 6.01(B)(viii) shall be applied to the earliest accrued but
---------------------
unpaid Class B Basic Return in proportion to the Class B Members' respective
Capital Contributions on per diem basis; provided, however, that any
-------- -------
distribution to a Class B Member under this Section 6.01(B)(viii) shall not
---------------------
exceed the amount provided under the preceding sentence.
(ix) Ninth, to each Class A Member until the Class A Member
shall have received the Class A Additional Return on its outstanding Net
Adjusted Capital Contributions from time to time through the date of
distribution. Any distribution to the Class A Members pursuant to this
Section 6.01(B)(viii) shall be applied to the earliest accrued but
---------------------
unpaid Class A Additional Return in proportion to the Class A Members'
respective Capital Contributions on a per diem basis; provided, however, that
-------- -------
any distribution to a Class A Member under this Section 6.01(B)(viii) shall
---------------------
not exceed the amount provided under the preceding sentence.
(x) Tenth, to all Members, in proportion to their respective
Net Adjusted Capital Contributions, as a return of capital until the
Net Adjusted Capital Contributions of each of the Members shall have
been reduced to zero.
(xi) Eleventh, to each Class B Member in proportion to their
respective Capital Contributions.
(C) For purposes of determining distributions of Capital
Event Proceeds pursuant to Section 6.01(B),
---------------
(i) the "ALLOCATED NET ADJUSTED CAPITAL CONTRIBUTION" of any Member with
respect to any Investment then held by the Company as of any date of
determination shall be an amount equal to (a) a fraction, the numerator
of which is the Net Acquisition Costs of such Investment, and the
denominator of which is the Net Acquisition Costs of all Investments of
the Company at such time (such fraction, the "PORTFOLIO SHARE" of such
Investment on such date), multiplied by (b) the then Net Adjusted
Capital Contribution of such Member;
(ii) the "ALLOCATED ACCRUED CLASS A BASIC RETURN" of any Class A Member
with respect to any Investment then held by the Company as of any date
of determination shall be an amount equal to (a) the Portfolio Share of
such Investment on such date multiplied by (b) the then aggregate
accrued but unpaid Class A Basic Return on the outstanding Net Adjusted
Capital Contributions of such Class A Member from time to time;
(iii) the "ALLOCATED ACCRUED CLASS B BASIC RETURN" of any Class B
Member with respect to any Investment then held by the Company as of any
date of determination shall be an amount equal to (a) the Portfolio
Share of such Investment on such date multiplied by (b) the then
aggregate accrued but unpaid Class B Basic Return on the outstanding Net
Adjusted Capital Contributions of such Class B Member from time to time;
and
(iv) the "ALLOCATED ACCRUED CLASS A ADDITIONAL RETURN" of any Class A
Member with respect to any Investment then held by the Company as of any
date of determination shall be an amount equal to (a) the Portfolio
Share of such Investment on such date multiplied by (b) the then
aggregate accrued but unpaid Class A Additional Return on the
outstanding Net Adjusted Capital Contributions of such Class A Member
from time to time.
6.02. Withholding. Each Member hereby authorizes the Company
-----------
to withhold from or pay on behalf of or with respect to such Member any
amount of federal, state, local, or foreign taxes that the Managing Member
reasonably determines that the Company is or may be required to withhold or
pay with respect to any amount distributable or allocable to such Member
pursuant to this Agreement, including, without limitation, any taxes required
to be withheld or paid by the Company pursuant to Code SectionSection 1441,
1442, 1445, or 1446. Any amount
of such taxes so paid by the Company on behalf of or with respect to a Member
shall constitute a loan by the Company to such Member, which loan shall be
repaid through withholding of subsequent distributions to such Member, and
any such distributions so withheld by the Company shall be treated as having
been distributed to the defaulting Member and immediately paid by the
defaulting Member to the Company in repayment of such loan. Any amounts
payable by a Member hereunder shall bear interest at the lesser of (i)
eighteen percent (18%) or (ii) the maximum lawful rate of interest on such
obligation, such interest to accrue from the date such amount is due (which
shall be fifteen (15) days after demand) until such amount is paid in full.
6.03. Form of Distributions. The Managing Member shall use
---------------------
commercially reasonable efforts to convert the assets of the Company to cash
prior to the distribution thereof. Notwithstanding the foregoing,
distributions of Net Investment Revenues made prior to the dissolution and
liquidation of the Company may take the form of Marketable Securities. For
purposes of determining the allocations of such property, and the
corresponding allocation of Profits or Losses, the Class A Member shall
select an Expert, subject to the reasonable approval of the Managing Member,
and such Expert shall determine the Fair Value of such property. The fees and
expenses of such Expert shall be borne by the Company, and the calculations
of the such Expert shall be final and conclusive on the Company and all of
the Members. Distributions of assets in kind shall be allocated in
accordance with Section 6.01 as if such assets were Net Investment Revenues.
------------
6.04. Distribution Accounts. (a) Upon the acquisition of any
---------------------
Investment in an Investment Entity, the Managing Member shall establish, in
the name of the Company, a separate trust account with respect to each such
Investment Entity (each, a "PLATFORM DISTRIBUTION ACCOUNT") for the purposes
set forth herein. The Managing Member shall cause the Company to irrevocably
direct that any amounts to be distributed to the Company by such Investment
Entity be paid directly to the relevant Platform Distribution Account. Each
Platform Distribution Account shall be in the control of the Company;
provided, however, that upon the establishment of each Platform Distribution
Account, the Managing Member shall cause the depository institution in which
such Platform Distribution Account has been established to deliver to PWRES a
letter from such depository institution in form and substance satisfactory to
PWRES, which letter shall be acknowledged by the Company, stating that during
the occurrence of a Sweep Event or Platform Sweep Event and Notice thereof by
PWRES to such depository institution, (i) the Company's access to such
Platform Distribution Account shall be terminated, and all signing authority
for such Platform Distribution Account by any officer, director or employee
of Managing Member shall immediately terminate, and (ii) such Platform
Distribution Account and all distributions therefrom shall be in the sole and
absolute dominion and control of the Class A Member until such time as the
Class A Member shall notify such depository institution that the Company's
access to such Platform Distribution Account is to be restored, which
notification shall be made by the Class A Member upon the cure (to the extent
such cure is available under the terms of this Agreement) of the event
triggering such Platform Sweep Event or Sweep Event.
(b) Upon the occurrence and during the continuance of (i) a Sweep
Event or (ii) a Platform Sweep Event hereunder, PWRES shall have the right to
apply or disburse funds from time to time on deposit in, with respect to
clause (i) above, all of the Platform Distribution Accounts, and with respect
to clause (ii) above, the applicable Platform Distribution Account, in each
case as follows:
first, to the payment of Minimum Overhead Expenses of the Company,
-----
second, to the Class A Members, in proportion to their respective
------
Capital Contributions, on account of all accrued but unpaid Class A Basic
Return and Class A Additional Return and a return of all capital due to the
Class A Members, and
third, for disbursement in accordance with the terms of Section 6.01(A)
----- ---------------
or Section 6.01(B) of this Agreement, as applicable.
---------------
6.05. Payment of Cure Amount. (a) Subject to Section
----------------------
3.03(a)(J) hereof, upon the exercise of any remedy available to the Class A
Member pursuant to the terms of this Agreement, the Class B Member may
contribute to the Company an amount sufficient to return to the Class A
Members all of the Capital Contributions made by the Class A Members to the
Company, together with an internal rate of return on such Capital
Contributions of 16% per annum (the "CURE AMOUNT"); provided, however, that
payment of the Cure Amount shall not preclude the Class A Members from
receiving, pursuant to the terms of Sections 6.01(A) and 6.01(B), any
---------------- -------
distributions in excess of the Cure Amount. Upon payment by the Company to
the Class A Member of the Cure Amount, any default that triggered such remedy
shall be deemed cured.
(b) Notwithstanding paragraph (a) of this Section 6.05 or
------------
Section 3.03(a)(J) hereof, upon the occurrence of a Change of Control Event
- ------------------
the Class B Member may contribute to the Company an amount sufficient to
return to the Class A Member (i) the Cure Amount and (ii) an additional
return equal to a 4% per annum return on all Capital Contributions made by
the Class A Member, as calculated for the period from the date of such
prepayment until the expiration of the Lock-Out Period. Upon payment by the
Company to the Class A Member of such amount (the "TERMINATION DATE"), the
Control Event shall be deemed cured and all other rights and obligations, if
any, of the Class A Member under the terms of this Agreement shall terminate.
6.06. Tax Distributions. Notwithstanding Sections 6.01(A) and
----------------- ----------------
6.01(B), the Company shall, prior to any distribution pursuant to such
- -------
Sections, make distributions ("TAX DISTRIBUTIONS") to all Members, regardless
of their tax status, in amounts intended to enable the Members to discharge
their United States federal, state and local income tax liabilities arising
from allocations to them of Company taxable income pursuant to Section 5.02.
------------
Each Tax Distribution in respect of a taxable year shall be made to all
members in proportion to the amount of taxable income allocated to each such
member pursuant to Section 5.02, and shall be calculated on the basis of the
------------
maximum combined United States federal, state and local tax rates
applicable to any of the Members on ordinary income and net short-term
capital gain, as applicable, and taking into account the deductibility of
state and local income taxes for United States federal income tax purposes
and the deductibility of local income taxes for state income tax purposes,
where applicable. Amounts distributable to any Member pursuant to Sections
--------
6.01(A) and 6.01(B) shall take into account amounts distributed to such
- ------- -------
Member pursuant to this Section 6.06.
----
ARTICLE VII
RIGHTS AND OBLIGATIONS OF THE MANAGING MEMBER
---------------------------------------------
7.01. Management. Subject to the provisions of this Agreement,
----------
including, without limitation, those provisions contained in Article XVI with
-----------
respect to the Advisory Committee and in other sections of this Agreement,
the Managing Member has the full, exclusive and complete right, power,
authority, discretion, obligation and responsibility vested in or assumed by
a managing member of a limited liability company under the Act and as
otherwise provided by law, including those necessary to make all decisions
affecting the business of the Company and to take those actions specified in
Section 3.02 hereof. Subject to the other provisions of this Agreement, the
- ------------
Managing Member is hereby vested with the full, exclusive and complete right,
power and discretion to operate, manage and control the affairs of the
Company to the best of its ability and shall use reasonable efforts to carry
out the business of the Company. The Managing Member shall devote
substantially all of its time to the proper performance of its duties
hereunder.
7.02. Authority.
---------
(A) The Managing Member has authority to bind the Company, by
execution of documents or otherwise, to any obligation not inconsistent with
the provisions of this Agreement. Subject to, and except as otherwise
provided in Sections 7.03 and 7.04, the Managing Member may contract or
------------- ----
otherwise deal with any Person for the transaction of the business of the
Company, which Person may, under supervision of the Managing Member, perform
any acts or services for the Company as the Managing Member may approve and
the Managing Member shall use reasonable care in the selection and retention
of such Persons.
(B) The Managing Member may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture, or other paper or document reasonably believed by it to be genuine
and to have been signed or presented by the proper party or parties.
(C) The Managing Member may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers, and
other consultants and advisers selected by it, and any act taken or omitted
to be taken in reasonable reliance upon the opinion
of such Persons as to matters within such Person's professional or expert
competence shall be presumed to have been done or omitted in good faith and
not to constitute willful misconduct.
(D) No Person dealing with the Managing Member shall be required
to determine the Managing Member's authority to enter into any contract,
agreement or undertaking on behalf of the Company or to determine any facts
or circumstances bearing upon the existence of such authority. Any Person
dealing with the Company or the Managing Member may rely upon a certificate
signed by the Managing Member as to:
(i) the identity of any Member;
(ii) the existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by the Managing
Member or are in any other manner germane to the affairs of
the Company;
(iii) the persons who are authorized to execute and
deliver any instrument or document by or on behalf of the
Company; or
(iv) any act or failure to act by the Company or as to any
other matter whatsoever involving the Company or any Member.
7.03. Limitations on the Managing Member.
----------------------------------
(A) Anything contained in any other Section of this Agreement
notwithstanding, the Managing Member and its Affiliates shall not have any
authority or be entitled:
(1) to perform any act in violation of any applicable law or
regulation thereunder, including applicable Federal and state
securities laws;
(2) to perform any act in violation of the Act or this
Agreement;
(3) to sell all or substantially all of the assets of the
Company without the Consent of a majority in Interest of the Non-
Managing Members unless such sale is in accordance with the general
purposes of the Company or in accordance with Section 11.02 hereof;
-------------
(4) the merger or other reorganization of the Company where
the Company is not the surviving entity, without the Consent of a
majority in Interest of the Members;
(5) to perform any other act expressly requiring the Consent
of the Members or the Advisory Committee under this Agreement
without first obtaining such Consent;
(6) to cause the Company to borrow funds from the Managing
Member or its Affiliates except in accordance with Section
-------
7.04(B)(ii) or, in the event PWRES is the Managing Member, Section 17.19 and
- ----------- -------------
any other applicable provision hereof.
(7) to accept and retain rebates or any other benefit not
available to all Members;
(8) to commingle funds of the Company with funds of any other
Person, except in connection with Investments made with other
parties.
(B) The Managing Member shall endeavor to cause the Company to
maintain cash reserves for operating expenses, capital expenditures, repairs,
replacements, contingencies and related items in such amount as the Managing
Member in its reasonable discretion deems necessary or advisable.
7.04. Business with Affiliates.
------------------------
(A) The Managing Member may permit the Company to enter into any
transaction with the Managing Member or its Affiliates or engage the Managing
Member or its Affiliates to provide property or asset management,
construction or development services or asset disposition services if all of
the following criteria are complied with:
(i) The fees and other terms and conditions under which the
goods or services are to be rendered or the transaction is to be
entered into are embodied in a written contract which precisely
describes the transaction or the goods or services to be rendered
and the compensation, price or fee therefor;
(ii) The terms and conditions of the contract are at least as
favorable to the Company as the terms generally available in
arm's-length transactions with independent third parties;
(iii) The compensation, price, fees, and other benefits to
the Managing Member and its Affiliates and the formula or method by
which they are to be calculated, and the goods, services or other
benefits to be provided therefor, are fully disclosed on an
Investment by Investment basis in a writing filed with the Non-
Managing Members and the Advisory Committee in advance; provided,
however, that if such transaction is not on arms-length and market
terms, such transaction shall also be Consented to in advance and
in writing by the Advisory Committee; and
(iv) Such transaction or contract for services is in the
ordinary course of its business.
(B) The Managing Member shall have the right:
(i) to cause the Company to enter into one or more agreements
other than the type specified in Section 7.04(A) with an Affiliate
---------------
of the Managing Member or Reckson only after receiving the consent of the
Advisory Committee;
(ii) to (a) make short-term advances to the Company to fund
the Company obligations prior to receipt of Capital Contributions
(including, but not limited to, situations whereby the Company must
acquire an Investment prior to the date upon which an Acquisition
Plan for such Investment is delivered to the Advisory Committee
pursuant to Section 16.02(E)), which advances shall accrue interest
-----------------
at the greater of (1) 12% or (2) the Prime Rate plus two percent (2%) and
shall be repaid from Capital Contributions or other Company funds; provided,
however, that the Company shall extend to each Class A Member (other than a
defaulting Class A Member under Section 4.03) the right to participate in the
------------
making of such short-term advances, in proportion to the respective
Percentage Interests of the Members (including for purpose hereof, the
Managing Member) who elect to participate, and (b) assign or cause the
Company to assign contract rights to and from newly formed acquisition
vehicles at cost and be refunded any previously funded amounts together with
interest accrued thereon at the greater of (i) 12% or (ii) the Prime Rate
plus two percent (2%) (provided that in each instance the Managing Member
shall not be entitled to any compensation for amounts advanced or funded
other than the interest provided for herein), in both instances without
complying with the provisions of clauses (i), (ii) or (iv) of Section 7.04(A)
---------------
or clause (iii) of Section 7.04(A) with respect to the rate of interest on
---------------
such advances;
(iii) in the event of a default by the Class A Member of
its obligations under Section 4.03 and the expiration of any
------------
applicable cure period, to be reimbursed by the Company for costs and
expenses incurred by the Managing Member in connection with the making of the
short-term advances referenced in clause (a) above; provided, however, that
-------- -------
the total amount of reimbursements to be made in respect of each such short-
term advance shall not exceed (1) $5,000 with respect to each such short-term
advance and (2) $50,000 with respect to all such short-term advances in the
aggregate; and
(iv) to participate in a Reckson Investment Opportunity with
Reckson Operating Partnership.
7.05. Liability for Acts and Omissions; Recourse to Reckson
-----------------------------------------------------
Services and to ROP Line.
- ------------------------
(A) None of the Managing Member, PWRES, any member of the Advisory
Committee or any of their respective Affiliates, members, shareholders,
partners, officers, directors, employees, agents and representatives shall
have any liability, responsibility or accountability in damages or otherwise
to any other Member or the Company for, and the Company agrees to indemnify,
pay, protect and hold harmless the Managing Member, PWRES, each member of the
Advisory Committee and their respective Affiliates, shareholders, partners,
officers, directors, employees, agents and representatives (each, an
"INDEMNIFIED PARTY" and collectively, the "INDEMNIFIED PARTIES") from and
against, any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, proceedings, costs, expenses and disbursements of
any kind or nature whatsoever (including, without limitation, all reasonable
costs and expenses of attorneys, defense, appeal and settlement of any and
all suits, actions or proceedings instituted or threatened against the
Indemnified Parties or the Company) and all costs of investigation in
connection therewith which may be imposed on, incurred by, or asserted
against the Indemnified Parties or the Company in any way relating to or
arising out of, or alleged to relate to or arise out of, any action or
inaction on the part of the Company, on the part of the Indemnified Parties
when acting on behalf of the Company or on the part of any brokers or agents
when acting on behalf of the Company; provided, that Reckson Services and
--------
Managing Member shall be jointly and severally liable, responsible and
accountable for, and shall indemnify and hold the Company and the Non-
Managing Members harmless against, and the Company shall not be liable to
Managing Member, Reckson Services or any of their respective Affiliates for,
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, proceedings, costs, expenses or disbursements or
any costs, of investigation in connection therewith which result from, the
fraud, willful misconduct or bad faith of Managing Member, Reckson Services
or any of their respective Affiliates. In any action, suit or proceeding
against the Company or any Indemnified Party relating to or arising, or
alleged to relate to or arise, out of any such action or non-action (other
than Managing Members', Reckson Services' or any of their respective
Affiliates' fraud, willful misconduct or bad faith), the Indemnified Parties
shall have the right to jointly employ, at the expense of the Company, of the
Indemnified Parties' choice, which counsel shall be reasonably satisfactory
to the Company, in such action, suit or proceeding, provided that if
retention of joint counsel by the Indemnified Parties would create a conflict
of interest, each group of Indemnified Parties which would not cause such a
conflict shall have the right to employ, at the expense of the Company,
separate counsel of the Indemnified Party's choice, which counsel shall be
reasonably satisfactory to the Company, in such action, suit or proceeding.
The satisfaction of the obligations of the Company under this Section 7.05(A)
---------------
shall be from and limited to the assets of the Company (which, for purposes
hereof, shall be deemed not to include Remaining Capital Commitments) and no
Non-Managing Member shall have any personal liability on account thereof. For
purposes of this Section 7.05(A), Reckson and its Affiliates shall be deemed
---------------
to be deemed to be Affiliates of Reckson Services until such time as less
than a majority of the directors of the board of directors of Reckson
Services are also officers or directors of Reckson.
(B) The provision of advances from Company funds to an Indemnified
Party for legal expenses and other costs incurred as a result of any legal
action or proceeding is permissible if (i) such suit, action or proceeding
relates to or arises out of, or is alleged to relate to or arise out of, any
action or inaction on the part of the Indemnified Party in the performance of
its duties or provision of its services on behalf of the Company; and (ii)
the Indemnified Party undertakes to repay any funds advanced pursuant to this
Section 7.05(B) in cases in which such Indemnified Party would not be
- ---------------
entitled to indemnification under Section 7.05(A) and, if required by the
---------------
Advisory committees provides security in such a undertaking satisfactory to
the Advisory committee, and (iii) the Company has sufficient available funds
on hand for such advances. If advances are permissible under this Section
-------
7.05(B), the Indemnified Party shall furnish the Company with an undertaking,
- -------
and, if required, security as set forth in clause (ii) of this paragraph and
shall thereafter have the right to bill the Company for, or otherwise request
the Company to pay, at any time and from time to time after such Indemnified
Party shall become obligated to make payment therefor, any and all reasonable
amounts for which such Indemnified Party believes in good faith that such
Indemnified Party is entitled to indemnification under Section 7.05(A) with
---------------
the approval of the Advisory Committee. The Company shall pay any and all
such bills and honor any and all such requests for payment within 60 days
after such bill or request is received by the Managing Member. In the event
that a final determination is made that the Company is not so obligated in
respect of any amount paid by it to a particular Indemnified Party, such
Indemnified Party will refund such amount within 60 days of such final
determination, and in the event that a final determination is made that the
Company is so obligated in respect of any amount Indemnified Party, the
Company will pay such amount to such Indemnified Party within 60 days of such
final determination, in either case together with interest at the Prime Rate
plus 2% from the date paid by such Indemnified Party until actually repaid to
such Indemnified Party or the date such amount was obligated to be paid to
such Indemnified Party until the date actually paid to such Indemnified
Party.
(C) All judgments against the Company or any Indemnified Party
wherein such persons or entities are entitled to indemnification, must first
be satisfied from the Company assets (other than Remaining Capital
commitments).
(D) Except as may be otherwise provided herein, in no event shall
any Member, or any Affiliate of a Member, or any partner, director, officer,
employee, agent, member or shareholder of a Member or any Affiliate of a
Member, be liable for the obligations of the Company, whether for the
consummation of Investments, professional and other services rendered to it,
loans made to it by Members or others, injuries to persons or property,
indemnity to the Indemnified Parties, contractual obligations, guaranties,
endorsements or for other reasons similar or dissimilar to any of the
foregoing, and without regard to the manner in which any liability of any
nature may be incurred by the person to whom it may be owed it being
understood that, all such liabilities shall be liabilities of the Company as
an entity, and shall be paid or otherwise satisfied from the Company assets
as are necessary to satisfy such liabilities.
(E) The Managing Member may cause the Company, at the Company's
expense, to purchase insurance to insure the Indemnified Parties against
liability hereunder,
including, without limitation, for a breach or an alleged breach of their
responsibilities hereunder. The Managing Member shall send Notice to the Non-
Managing Members thereof, describing the insurance policy and the premiums
paid therefor promptly upon the purchase of such insurance. The Company shall
not incur the costs of that portion of any insurance, other than public
liability insurance, which insures any Indemnified Party for any liability as
to which such person is prohibited from being indemnified under Section
-------
7.05(A).
- -------
(F) As a material inducement to PWRES to enter into this
Agreement, Reckson Services hereby agrees (i) to use best efforts to enter
into all documentation with Reckson Operating Partnership necessary to
effectuate the ROP Line, and shall deliver to PWRES true and complete copies
of all such documentation, as soon as practicable following the date of this
Agreement; (ii) that such documentation (a) shall permit proceeds of advances
under the ROP Line to be used to fund any indemnification obligations of
Reckson Services or Managing Member under this Section 7.05; (b) shall not
------------
require, as a condition to any such advance, that there be no material
adverse change (or similar provision) with respect to Reckson Services,
Managing Member or the Company (but such advance may be subject to other
types of customary conditions to funding of a loan and may also be subject to
the preservation of the lender's status as a real estate investment trust);
and (c) shall provide in substance that all rights of Reckson Operating
Partnership in respect of advances under the ROP Line shall be subordinated,
on terms and conditions satisfactory to PWRES, to any claims of the Company
and the Non-Managing Members against Reckson Services and Managing Member
under this Section 7.05; (iii) in connection with any claim
------------
by the Company or the Class A Members against Managing Member and/or Reckson
Services under the indemnification set forth in this Section 7.05, Reckson
------------
Services shall, promptly after receipt of a written request from a Class A
Member, request an advance under the ROP Line to fund the total amount of any
reasonably expected liabilities of the Managing Member and/or Reckson
Services in connection with such claim, as reasonably determined by such
Class A Member provided, however, that such funds need not be actually
-------- -------
advanced by Reckson Operating Partnership until such claim has been
determined by final judgment or otherwise, it being understood that the
amount of the advance covered by such request by Reckson Services for such an
advance on the ROP Line shall not be eligible for use for any other purpose
until such claim has been finally determined, and then only such portion of
such advance as shall not be required to satisfy such claim shall be eligible
for use for other purposes; (iv) Reckson Services shall not pay any dividend
to its shareholders that would cause its total paid-in equity capital to be
reduced to less than the lesser of (a) the Minimum Book Capitalization, or
(b) the amount of its paid-in equity capital immediately following the first
issuance of common stock of Reckson Services (up to a maximum of $15 million)
occurring after the spin-off of the shares of Reckson Services to the
shareholders of Reckson; and (v) Reckson Services shall give the Class A
Members prompt Notice of any principal repayment under the ROP Line or
dividends paid from Capital Event Proceeds, and if the Class A Member
reasonably believes that the Book Capitalization of Reckson Services would be
less than the Minimum Book Capitalization upon such principal repayment, then
the Class A Member shall not thereafter be required to make any Capital
Contribution (other than solely for the purpose of funding a capital
contribution by the Company to a Co-Investment Vehicle) until the Class A
Member shall have received evidence reasonably satisfactory to the
Class A Member that the Book Capitalization of Reckson Services would be at
least equal to the Minimum Book Capitalization upon such principal repayment.
7.06. (Reserved.)
7.07. (Reserved.)
7.08. Key Man Provisions.
------------------
(A) So long as RSVP Holdings, LLC is the Managing Member, the
Managing Member shall cause at least fifty percent (50%) of the individuals
identified on Schedule 2.22 hereto to remain actively involved in the Company
-------------
and to devote to the Company such business time and attention as may be
reasonably necessary to carry out the objectives of the Company.
(B) The Non-Managing Members sole remedy with respect to
noncompliance with the foregoing shall be as follows:
(i) The Class A members shall immediately be entitled to
designate by vote of the majority in interest of the Class A
Members, to designate an individual as a member of the Advisory
Committee, and the affirmative vote of such member of the Advisory
Committee shall be required for the Company to (a) issue or redeem
any membership interest, (b) incur any material expenses, (c) make
any new Investment or allocate additional funds to any existing
Investment, (d) finance or refinance any Investment, or restructure
or without financing, (e) sell or otherwise liquidate any
Investment, (f) change the Company's distribution policy, or direct
or Consent to the change in any Investment's distribution policy or
(g) disburse funds on deposit in the Distribution Account.
7.09. Presentation of Opportunities to the Company.
--------------------------------------------
(A) Except as set forth in Section 3.05 hereof, until the earlier
------------
of (i) the expiration of the Investment Period or (ii) the date on which 90%
of the Members' aggregate Capital Commitments have been invested or committed
for investment, none of the Managing Member, the Managing Member Members,
Reckson Services or Reckson shall act as a general partner or managing member
of or otherwise as a source of transactions on behalf of another pooled
investment fund with a primary purpose similar to that of the Company as set
forth in Section 3.01 hereof, and all investment opportunities consistent
------------
with the investment objectives of the Company other than investments by
Reckson and its subsidiaries in investments consistent with the investment
objectives of Reckson and such subsidiaries as of the date hereof coming to
the attention of the Managing Member Members, Reckson Services or Reckson
shall be presented by the Managing Member to the Company, and the Company
shall have the exclusive right to invest in such investment opportunity on
such terms and conditions as the Company shall deem appropriate, for a period
of 30 days (or 90 days in the event that PWRES, in its sole and
absolute discretion, determines that additional due diligence is required to
be performed with respect to such investment opportunity) before any of the
Managing Member Members, Reckson Services, Reckson, or any of their
respective affiliates may invest in such Investments; provided, however, that
-------- -------
(a) in the event Reckson Services or its Subsidiaries are presented with an
opportunity to make an Investment in (i) an operating company engaged in the
business of providing services, including but not limited to, Tenant Services
or Building Services, which operating company receives less than 25% of its
revenues from owning and operating real property or (ii) an operating company
engaged in the business of executive office suites; or (b) any Non-Managing
Member shall, with respect to a particular Investment, be in default of its
obligation to make a Capital Contribution pursuant to Section 4.03 hereof and
------------
such default shall continue for two (2) Business Days following Notice from
the Managing Member to all of the Non-Managing Members, then solely with
respect to such particular Investments, the terms of this Section 7.09(A)
---------------
shall not apply.
(B) (a) The Managing Member shall promptly provide the Members
with Notice of any breach of the obligations set forth in paragraph (A)
above. In the event of a material breach of the obligations set forth in
paragraph (A) above which breach continues for thirty (30) days (or, if the
breach can be cured but is not capable of being cured within such thirty (30)
day period, such longer period of time, not to exceed sixty (60) days, as is
necessary to cure such breach provided that such cure is diligently pursued
during and after such thirty (30) day period) following Notice from the
Managing Member, the Non-Managing Members shall have the right, by Consent of
sixty percent (60%) of the Percentage Interests of the Non-Managing Members,
(i) to terminate the Investment Period, (ii) to exercise control over, and
disburse funds on deposit in, all of the Platform Distribution Accounts as
provided in Section 6.04(b) hereof, or (iii) to exercise the
---------------
remedies set forth in Section 16.03(D) hereof. To cure a breach of the
----------------
obligations set forth in paragraph (A) above, Managing Member shall, within
the period specified in this Section 7.09(B)(a), (or, if the Managing Member
------------------
disputes, prior to the expiration of such period, the Class A Member's
assertion that a breach of Section 7.09(A) has occurred, within three (3)
---------------
days following final resolution of such dispute pursuant to Section
-------
7.09(B)(b)) cause the Investment made in breach of Section 7.09(A) to be sold
- ---------- ---------------
to the Company at a price not to exceed the Acquisition Cost of such
Investment; provided, however, that in the event such Investment constitutes
-------- -------
a depleting asset, the sale price shall not exceed the Fair Value of such
Investment.
(b) Notwithstanding anything to the contrary set forth in
this Agreement, in the event a dispute arises among, or between any of, the
Members with respect to whether or not a breach of the obligations set forth
in Section 7.09(A) has occurred, then such Members shall promptly and in good
---------------
faith attempt to resolve such dispute by mutual agreement. In the event the
Members are unable to resolve such dispute by mutual agreement, the matter
shall be resolved by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect. No
Member shall institute any legal or equitable action against another Member
in any court with respect to any dispute in respect of whether or not such a
breach has occurred, except to confirm an arbitrator's award, which award
shall be final and binding. There shall be one arbitrator, to be selected by
mutual agreement of the Members
engaged in the dispute or, failing such agreement, by the president of the
American Arbitration Association. The arbitration shall take place in New
York, New York. The party prevailing in such arbitration shall be entitled
to recover from the other party the reasonable attorneys' fees and
disbursements incurred by such prevailing party in connection with such
arbitration. Except for such issues subject to arbitration as specifically
set forth in this Section 7.09(B)(b), the Members shall have the right to
------------------
enforce the rights and obligations under this Agreement in any action at law
or equity.
7.10. Other Activities. Subject to Sections 7.01, 7.08 and 7.09
---------------- ------------- ---- ----
above, the Members and their Affiliates may engage in or possess an interest
in other business ventures of every nature and description for their own
account, independently or with others, including, without limitation, real
estate business ventures, whether or not such other enterprises shall be in
competition with any activities of the Company; and neither the Company nor
the other Members shall have any right by virtue of this Agreement in and to
such independent ventures or to the income or profits derived therefrom.
7.11. Affirmative Covenants.
---------------------
Subject to Section 7.13 hereof, Managing Member shall:
------------
(A) EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS.
---------------------------------------------
(a) cause to be done all things necessary to preserve, renew
and keep in full force and effect the existence of, and any material rights,
licenses, permits and franchises of, each Investment Entity and comply in all
material respects with all Legal Requirements applicable to each such
Investment Entity or its Related Property, if any, and other material assets,
if any;
(b) at all times cause such Investment Entity to maintain,
preserve and protect all of its material franchises and trade names and
preserve all the remainder of such Investment Entity's property used or
useful in the conduct of such Investment Entity's business and keep its
Related Property in good working order and repair, ordinary wear and tear
excepted, and from time to time make, or cause to be made, all reasonably
necessary repairs, renewals, replacements, betterments and improvements
thereto;
(c) cause each Investment Entity to procure insurance from
financially sound and reputable insurers necessary to protect at all times
the business and operations of such Investment Entity and any Related
Property against all liabilities, hazards and risks (including, but not
limited to, environmental liabilities, hazards and risks) which are commonly
insured against in respect of properties similar to any such Related
Properties and entities which have businesses and operations similar to those
of such Investment Entity; and
(d) in the event the Managing Member fails to procure any of
such required insurance, promptly notify the Class A Member of such failure.
(B) IMPOSITIONS AND OTHER CLAIMS.
----------------------------
cause to be paid and discharged all Impositions, as well as
all lawful claims for labor, materials and supplies or otherwise, which could
become a Lien.
(C) LITIGATION.
----------
give prompt written notice to the Class A Member of any
litigation or governmental proceedings pending or threatened against any
Investment Entity which has or could reasonably be expected to have a
Material Adverse Effect.
(D) ACCESS TO PREMISES.
------------------
cause each Investment Entity to permit agents, representatives
and employees of Managing Member and the Class A Member to inspect any
Related Property at reasonable hours upon reasonable advance Notice to such
Investment Entity, subject to the rights of tenants, subtenants and licensees
under any Leases.
(E) NOTICE OF DEFAULT.
-----------------
cause each Investment Entity to promptly advise Managing
Member of any material adverse change in such Investment Entity's condition,
financial or otherwise, or of the occurrence of any default or event of
default under any agreements, instruments and documents to which such
Investment Entity is a party that would result in a Material Adverse Effect.
(F) COOPERATE IN LEGAL PROCEEDINGS.
------------------------------
cause each Investment Entity to cooperate fully with the
Company, any Member or any other Person with respect to any proceedings
before any court, board or other Governmental Authority which may in any way
affect the rights of the Company or any Member hereunder or the value of the
related Investment or Related Property and, in connection therewith, permit
the Company or such Member, at its reasonable election, to participate in any
such proceedings.
(G) PERFORM AGREEMENTS.
------------------
cause each Investment Entity to observe, perform and satisfy
all the terms, provisions, covenants and conditions of, and to pay when due
all costs, fees and expenses to the extent required under any agreements,
instruments and documents to which such Investment Entity is a party.
(H) FURTHER ASSURANCES.
------------------
cause each Investment Entity, to execute and deliver such
documents, instruments, certificates, opinions, assignments and other writ-
ings, and do such other acts necessary or desirable, to evidence, preserve
and/or protect the value of the Investment and any Related Property, as
Managing Member or the Class A Member may reasonably request from time to
time.
(I) MANAGEMENT OF PROPERTY.
----------------------
cause each Investment Entity to cause any Related Property
Manager (and any permitted successor property manager) to enter into a
management agreement with such Investment Entity with respect to the Related
Property on arms-length and market terms and to abide by all of the
applicable terms of such management agreement and any related documents,
instruments, certificates or other writings.
(J) BUSINESS AND OPERATIONS.
-----------------------
(a) cause each Investment Entity to continue to engage in the
businesses presently conducted by it; and
(b) cause each Investment Entity to qualify to do business
and to remain in good standing under the laws of each jurisdiction necessary
for the conduct of its business as presently conducted.
(K) PERFORMANCE BY INVESTMENT ENTITY.
--------------------------------
cause each Investment Entity to in a timely manner observe,
perform and fulfill each and every covenant, term and provision of each
agreement, document or instrument to which it is a party and to not enter
into or otherwise suffer or permit any amendment, waiver, supplement,
termination or other modification of any such agreement, document or
instrument to the extent such amendment, waiver, supplement, termination or
other modification would result in a Material Adverse Effect.
(L) INSOLVENCY PROCEEDINGS.
----------------------
(a) not make any bankruptcy or insolvency filing or
proceeding in respect of the Company without the Consent of the unanimous
affirmative vote of all of the Members;
(b) not acquiesce, petition or otherwise invoke or cause any
other Person to invoke the process of the United States of America, any state
or other political subdivision thereof or any other jurisdiction, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government for the purpose of commencing or
sustaining a case against the Company under Federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian,
sequestrator or other similar official of the Company if such action has not
been consented to by a unanimous affirmative vote of all of the Members;
(c) cause each Investment Entity in which the Company has
made an Investment (provided that such Investment is in the form of equity)
not to commence a bankruptcy or insolvency filing or proceeding in respect of
such Investment Entity without the Consent of the Company, and the Company
shall not give any such Consent without the unanimous affirmative vote of all
of the Members; and
(d) cause such Investment Entity not to acquiesce, petition
or otherwise invoke or cause any other Person to invoke the process of the
United States of America, any state or other political subdivision thereof or
any other jurisdiction, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government for the purpose of commencing or sustaining a case against the
Company under Federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of Investmof all of the Members.
(M) NO JOINT ASSESSMENT.
-------------------
cause each Investment Entity not to permit a joint
assessment of any Related Property with any other real property constituting
a tax lot separate from such Related Property.
(N) SINGLE PURPOSE COVENANT.
-----------------------
(a) cause the Company and each Investment Entity to (i)
be a duly formed and existing limited partnership, limited liability company
or corporation, as the case may be; (ii) be duly qualified in each
jurisdiction in which such qualification is necessary for the conduct of its
business; (iii) comply with the provisions of its organizational documents
and the laws of its jurisdiction of formation in all respects; (iv) observe
all customary formalities regarding its partnership, limited liability
company or corporate existence, as the case may be; (v) maintain its records
and books of account separate from those of any Investment Entity or the
Company, respectively; (vi) not commingle its assets or funds with those of
any Investment Entity or the Company, respectively; (vii) conduct its own
business in its own name and not in the name of any Investment Entity or the
Company, respectively; (viii) maintain financial statements separate from
those of any Investment Entity or the Company, respectively; (ix) pay its own
liabilities out of its own funds and not from the funds of any Investment
Entity or the Company, respectively; (x) observe all corporate or partnership
formalities, as applicable; (xi) maintain an arms-length relationship with
its Affiliates; (xii) not pay the salaries of any employees of any Investment
Entity or the Company, respectively; (xiii) not guarantee or become obligated
for the debts of any Investment Entity or the Company, respectively, or hold
out its credit as being available to satisfy the obligations of any
Investment Entity or the Company, respectively; (xiv) allocate fairly and
reasonably any overhead for any office space
shared with any Investment Entity or the Company, respectively; (xv) use
stationery, invoices and checks separate from those used by any Investment
Entity or the Company, respectively; (xvi) not pledge its assets for the
benefit of any Investment Entity or the Company, respectively; (xvii) hold
itself out as a separate entity and not view itself as a division or
department of any Investment Entity or the Company, respectively; (xviii)
correct any misunderstanding actually known by it regarding its separate
identity from that of any Investment Entity or the Company, respectively;
(xix) maintain adequate capital in light of its contemplated business
operations and at all times remain solvent and able to pay its debts as they
become due; and (xx) maintain its accounts separate from those of any
Investment Entity or the Company, respectively; and
(b) upon the acquisition of each Investment, deliver to the
Class A Member an opinion, in form and substance reasonably satisfactory to
the Class A Member, of counsel reasonably satisfactory to the Class A Member,
stating that a bankruptcy court should not order the substantive
consolidation of the assets and liabilities of the Company with those of the
related Investment Entity, in the event that such Investment Entity were to
become a debtor under Title 11 of the United States Code (the "BANKRUPTCY
CODE").
(O) DEFERRED MAINTENANCE.
--------------------
cause each Investment Entity to utilize reasonable
efforts to remedy all items of deferred maintenance existing with respect to
any Related Property which the Managing Member may deem reasonably necessary
at the time of acquisition of such Investment.
(P) ACMS; O&M PROGRAM.
-----------------
(a) (i) cause each Investment Entity to comply with all
ACM Requirements in all material respects;
(ii) without limiting the generality of the foregoing,
cause each Investment Entity to discharge in all material respects all
obligations imposed on a building owner (including, without limitation,
requirements relating to notification, recordkeeping, labeling, and
sign-posting) under the ACM Requirements;
(iii) cause each Investment Entity with respect to
any Related Property that was constructed prior to 1981 to use all
diligent efforts to deliver to Managing Member within 60 days after
acquisition of the related Investment, an O&M Program for Managing
Member's review and approval;
(iv) cause each Investment Entity to comply in all
material respects with all elements of its O&M Program as approved by
Managing Member;
(v) cause each Investment Entity to permit Managing
Member to inspect all areas of any Related Property where ACMs are known
or suspected to be present and to audit each such Investment Entity's
operations to determine whether such Investment Entity is in compliance
in all material respects with the O&M Program and with all ACM
Requirements; and
(vi) if Managing Member determines that a potential
adverse health effect may be produced as a result of ACM in the
building, or if any governmental agency, either by regulation, statute,
ordinance, or other authority, requires a program of removal or other
abatement, control, management or monitoring of the ACMs, cause each
Investment Entity to, at its sole cost and expense, comply with such
program.
(b) (i) If any Investment Entity's Related Property has lead in
water, lead in paint, radon or any other condition that would be required to
be covered by a written monitoring and sampling, and if applicable,
mitigation and management program in accordance with safe and sound
environmental management standards, as indicated in any related Environmental
Report (each such program, a "MITIGATION PROGRAM"), cause such Investment
Entity to comply in all material respects with all applicable Environmental
Laws with respect thereto and to deliver to Managing Member on or prior to
the acquisition of the related Investment, an appropriate written Mitigation
Program with respect thereto for Managing Member's review and approval;
(ii) cause such Investment Entity to comply in all
material respects with each such Mitigation Program as approved by
Managing Member;
(iii) without limiting the generality of the
foregoing, cause such Investment Entity to discharge all obligations
imposed on a building owner (including requirements relating to
notification, recordkeeping, labeling, and sign-posting) under
applicable Environmental Laws;
(iv) cause each Investment Entity to permit Managing
Member to inspect all areas of the Related Property where lead in water,
lead in paint, radon or any other such condition are known or suspected
to be present and to audit such Investment Entity's operations to
determine whether such Investment Entity is in compliance in all
material respects with the applicable Mitigation Program delivered to
Managing Member and with all applicable Environmental Laws; and
(v) if Managing Member determines that a potential
adverse health effect may be produced as a result of lead in water, lead
in paint, radon or any other such condition in the building, or if any
governmental agency, either by regulation, statute, ordinance, or other
authority, requires a program of removal or other abatement, control,
management or monitoring of the lead in water, lead in paint, radon or
any other such condition, cause such Investment Entity to, at its sole
cost and expense, comply with such program.
(Q) ENVIRONMENTAL REMEDIATION. (a) cause each Investment
-------------------------
Entity to utilize diligent efforts to remediate the environmental conditions
existing with respect to each Related Property;
(b) in the event that the existence of any environmental
conditions existing with respect to any Related Property either at the time
of acquisition of the related Investment or subsequent thereto, may result in
a Material Adverse Effect, cause such Related Property to be held by a
separate Single Purpose entity; and
(c) cause each Investment Entity to deliver to the
Managing Member copies of any Environmental Report with respect to any
Related Properties and any other information, documents, instruments,
certificates and opinions with respect to such Environmental Report and
Related Properties reasonably requested by the Class A Member.
(R) CASH FLOW DISTRIBUTIONS.
-----------------------
to the extent possible, cause each Investment Entity to
distribute to the Company all available cash flow from the related Investment
(other than funds being retained by such Investment Entity for working
capital or other reasonable business purposes) not less frequently than
quarterly.
7.12. Negative Covenants.
------------------
Subject to Section 7.13 hereof (and Section 3.01(B) with respect
------------ ---------------
to clause (B) of this Section 7.12), Managing Member shall:
------------
(A) MANAGEMENT OF PROPERTY.
cause each Investment Entity not to, (i) without the
prior Consent of the Class A Member, which Consent shall not be unreasonably
withheld, terminate any Related Property management agreement or otherwise
replace a Related Property Manager or (ii) without the prior Consent of the
Class A Members, enter into any other management agreement with respect to
the Related Property that is not on arms-length and market terms.
(B) CHANGE IN BUSINESS.
------------------
cause each Investment Entity not to make any material
change in the scope or nature of its business objectives, purposes or
operations that would substantially deviate from the Investment Parameters.
(C) RELATED DOCUMENTS. (a) cause each Investment Entity not
-----------------
to enter into, acquiesce in, suffer or permit any amendment, restatement or
other modification of any of its Organizational Documents without the prior
written consent of the Class A Member if (i) such
amendment, restatement or modification could reasonably be expected to have a
material adverse effect upon the value of any Related Property or its
intended use, or (ii) such amendment, restatement or modification violates
(or would cause the violation of) any term hereof;
(b) whether or not the Class A Member's Consent is
required in respect of the modification of any Organizational Documents as
aforesaid, cause each Investment Entity to give Managing Member and the Class
A Member prompt Notice (and copies) of any amendment, restatement or other
modification of any Organizational Documents relating to such Investment
Entity;
(c) cause each Investment Entity not to enter into,
acquiesce in, suffer or permit the creation of, or the amendment, restatement
or modification of, any Property Agreement without the prior written consent
of the Class A Member if (A) such creation, amendment, restatement or
modification could reasonably be expected to have a Material Adverse Effect
upon the value of the Related Property or (B) such amendment, restatement or
modification violates (or would cause the violation of) any term hereof; and
(d) whether or not Managing Member's consent is required
in respect of the creation or modification of any Property Agreement as
aforesaid, cause each Investment Entity to give prompt Notice (and copies)
thereof to Managing Member and the Class A Member.
(D) DISSEMINATION OF INFORMATION.
----------------------------
not and shall cause the Company and each Investment
Entity not to disseminate a press release upon the execution of this
Agreement or upon the closing of the acquisition of any Investment if (i)
such press release mentions PWRES or, (ii) to the knowledge of the Person
disseminating such press release, the contents of such press release are or
may be adverse to the interests of PWRES or any of its Investments, unless
the Managing Member, the Company or such Investment Entity has obtained the
prior Consent of PWRES.
(E) NO SOLICITATION OF PWRES EMPLOYEES.
----------------------------------
not, and shall cause the Company and each Investment
Entity not to, for a period of twenty-four (24) months following the date of
this Agreement, engage any officer, director or employee of the PWRES or any
Affiliate of the PWRES who directly or indirectly reports to John A. Taylor
or Terrence E. Fancher as an officer, director, member or employee of the
Managing Member or the Company or any Affiliate thereof, and shall not, and
shall cause the Company and each Investment Entity not to, induce or solicit
the resignation of any such officer, director or employee of the PWRES or
any Affiliate of the PWRES.
7.13. Compliance with Affirmative and Negative Covenants.
--------------------------------------------------
(a) Notwithstanding paragraph (b) below, with respect to
any Investment Entity that is not an Affiliate of Reckson, Reckson Services
or any of their respective Affiliates and whose common stock is traded on a
national or foreign securities exchange or is listed for quotation on a
recognized national or foreign over-the-counter market, Managing Member shall
not be obligated to comply with the covenants set forth in Section 7.11 and
Section 7.12.
- ------------
(b) With respect to an Investment Entity over which the
Company does not exercise Control, the Company shall use commercially
reasonable efforts to comply with the covenants set forth in Section 7.11 and
------------
Section 7.12.
- ------------
ARTICLE VIII
ASSIGNMENTS, WITHDRAWAL AND REMOVAL OF THE MANAGING MEMBERS
-----------------------------------------------------------
8.01. Assignment or Withdrawal by the Managing Member. The
-----------------------------------------------
Managing Member may not Transfer its Interest as Managing Member, in whole or
in part, or withdraw from the Company, except as permitted by this Article.
8.02. Voluntary Assignment or Withdrawal of the Managing
--------------------------------------------------
Member. The Managing Member may not Transfer its Interest as Managing Member,
- ------
except to an Affiliate (provided (a) it gives prompt Notice of such Transfer
to all the Non-Managing Members, (b) such Affiliate has a Book Capitalization
not less than the Minimum Book Capitalization, (c) management control of such
Affiliate is exercised by no fewer than fifty percent (50%) of the
individuals named on Schedule 2.22 hereto, (d) such Affiliate shall have
-------------
access to the proceeds of the ROP Line or to an equally reliable source of
capital for funding its Capital Commitment as Managing Member hereunder, and
(e) such Transfer does not cause an acceleration of any the Company
indebtedness or default under any loan or other agreement to which the
Company is a party), nor voluntarily withdraw from the Company at any time.
In the event that the Managing Member intends to Transfer its Interest to an
Affiliate in accordance with the terms of this Agreement, such Affiliate
shall be admitted as a successor Managing Member immediately prior to the
effective time of the Transfer and such successor Managing Member shall
continue the business of the Company without dissolution.
8.03. Bankruptcy of the Managing Member. Upon the Bankruptcy
---------------------------------
or dissolution of the Managing Member, (a) the Managing Member or its legal
representative shall give Notice to the Non-Managing Members of such event
and shall automatically, with or without delivery of such Notice, become a
special Non-Managing Member with no power, authority or responsibility to
bind the Company or to make decisions concerning, or manage or control, the
affairs of the Company, and the recorded certificate of the Company shall be
amended to reflect such fact, and (b) such Person as may be selected by a
majority of the Percentage Interests of the Non-Managing Members within
ninety (90) days of the date of the event that caused the
Managing Member to become a special Non-Managing Member shall be admitted to
the Company as a successor Managing Member (effective as of the date of the
bankruptcy or dissolution of the prior Managing Member) and such successor
shall continue the business of the Company without dissolution, in which case
the Investment Period shall terminate. If a successor Managing Member
selected by a majority of the Percentage Interests of the Non-Managing
Members is not admitted to the Company within such ninety (90) day period,
the Company shall dissolve in accordance with Article XI. In the case of a
----------
conversion of the Managing Member to a special Non-Managing Member and
continuance of the Company without dissolution, each of the special Non-
Managing Member and the Advisory Committee shall select one Expert, and such
Experts shall jointly select a third Expert, which jointly selected Expert
shall determine the Fair Value of the special Non-Managing Member's Interest
as of the effective date it became a special Non-Managing Member, taking into
account all profits, losses, gains, deductions, distributions and other
credits and charges (other than fees) to which the special Non-Managing
Member was and would be entitled under this Agreement if all Investments of
the Company were sold on the effective date of creation of the special Non-
Managing Member for their Fair Value and the proceeds were distributed on
such date pursuant to this Agreement. Thereafter, the special Non-Managing
Member shall be entitled to a percentage of all future profits, losses,
gains, deductions, distributions and other credits and charges of the Company
equal to the quotient of (x) the Fair Value of the special Non-Managing
Member's Interest as of the date it was created divided by (y) the amounts
which would be available to all Members as of such date as determined by the
Expert using the same assumptions as were used by the Expert in determining
the Fair Value of the special Non-Managing Member's Interest, but the special
Non-Managing Member shall not be obligated to make any further deposits in
the Reserve Account. The Fair Value as determined by the jointly selected
Expert shall be final and conclusive on the parties. The fees and expenses of
all Experts retained pursuant to this Section 8.03 shall be borne by the
------------
Company.
8.04. (Reserved.)
8.05. Obligations of a Prior Managing Member. In the event that
--------------------------------------
the Managing Member Transfers its Interest in accordance with Section 8.02
------------
or 8.04 or has its Interest converted to that of a special Non-Managing
-----
Member pursuant to Section 8.03 or 8.04, it shall have no further obligation
------------ ----
or liability as a Managing Member to the Company pursuant to this Agreement
in connection with any obligations or liabilities arising from and after such
Transfer, and all such future obligations and liabilities shall automatically
cease and terminate and be of no further force or effect; provided, however,
-------- -------
that nothing contained herein shall be deemed to relieve the Managing Member
of any obligations or liabilities (i) arising prior to such transfer or (ii)
resulting from a dissolution of the Company caused by the act of the Managing
Member where liability is imposed upon the Managing Member by law or by the
provisions of this Agreement.
8.06. Successor Managing Member. A Person shall be admitted as
-------------------------
a Managing Member only if the following terms and conditions are satisfied:
(A) if such Person is not an Affiliate of Managing Member, the
admission of such Person shall have been Consented to by a majority of the
Percentage Interests of the Non-Managing Members;
(B) the Person shall have accepted and agreed to be bound by all
the terms and provisions of this Agreement by executing a counterpart hereof
and such other documents or instruments as may be required or appropriate in
order to effect the admission of such Person as a Managing Member;
(C) a certificate evidencing the admission of such Person as a
Managing Member shall have been filed for recordation;
(D) if the successor Managing Member is a corporation, it shall
have provided counsel for the Company with a certified copy of a resolution
of its Board of Directors and, if required, the Consent of the shareholders,
authorizing it to become a Managing Member;
(E) if the successor Managing Member is a partnership or limited
liability company it shall provide counsel for the Company with a certified
copy of its agreement of partnership or limited partnership or operating
agreement together with certified copies of any partnership or limited
liability company actions authorizing it to become a Managing Member; and
(F) counsel for the Company shall have rendered an opinion that
none of the actions taken in connection with such Transfer or admission will
have an adverse tax effect upon the Company, which adverse tax effect can be
waived by the Consent of a majority of the Percentage Interests of the Non-
Managing Members.
The former Managing Member shall reasonably cooperate to facilitate
the substitution of the successor Managing Member, even where the Managing
Member was removed for Cause, and shall be reimbursed for its reasonable
costs and expenses relating thereto.
ARTICLE IX
RIGHTS AND OBLIGATIONS OF NON-MANAGING MEMBERS
----------------------------------------------
9.01. Management of the Company. Without limiting a Non
-------------------------
Managing Member's participation on the Advisory Committee or the Management
Committee as set forth in this Agreement, and except as may be otherwise
expressly provided herein, no Non-Managing Member shall take part in the
management or control of the business of the Company or transact any business
in the name of the Company. Except as may be otherwise expressly provided
herein, no Non-Managing Member shall have the power or authority to bind the
Company or to sign any agreement or document in the name of the Company.
Except as may be otherwise
provided herein, no Non-Managing Member shall have any power or authority
with respect to the Company, except as provided in the Act and insofar as the
Consent of the Non-Managing Members shall be expressly required by this
Agreement. The exercise of any of the rights and powers of the Non-Managing
Members pursuant to the Act or the terms of this Agreement shall not be
deemed taking part in the day-to-day affairs of the Company or the exercise
of control over Company affairs.
9.02. Limitation on Liability.
-----------------------
(A) No Non-Managing Member shall have any liability to contribute
money to the Company, nor shall any Non-Managing Member be personally liable
for any obligations of the Company, except to the extent of its Remaining
Capital Commitment as of the date any Capital Contribution is required and as
otherwise provided in Sections 4.03, 4.09, 6.03 and 9.02(B) hereof. No
------------- ---- ---- -------
Non-Managing Member shall be obligated to make loans to the Company or to
repay to the Company, any Member or any creditor of the Company all or any
fraction of any amounts distributed to such Member, except as specifically
required pursuant to Section 9.02(B) hereof.
---------------
(B) In accordance with state law, members of a limited liability
company may, under certain circumstances, be required to return to the
company for the benefit of company creditors amounts previously distributed
to it as a return of capital. It is the intent of the Members that a
distribution to any Member be deemed a compromise within the meaning of
Section 17-502(b) of the Act and not a return or withdrawal of capital, even
- -----------------
if such distribution represents, for federal income tax purposes or otherwise
(in full or in part), a distribution of capital, and no Non-Managing Member
shall be obligated to pay any such amount to or for the account of the
Company or any creditor of the Company, except as provided in this Section
-------
9.02. However, if any court of competent jurisdiction holds that,
- ----
notwithstanding the provisions of this Agreement, any Non-Managing Member is
obligated to make any such payment, such obligation shall be the obligation
of such Non-Managing Member and not of the Managing Member.
ARTICLE X
TRANSFER OF NON-MANAGING MEMBER
INTERESTS
-----------------------------------------
10.01. Transfers by Non-Managing Members.
---------------------------------
(A) A Non-Managing Member may not Transfer its Interest in the
Company or any part thereof to any Person (a "PROPOSED TRANSFEREE") except
(i) as provided in Section 4.03(A)(b)(ii), or (ii) as permitted in this
----------------------
Article X, and any such Transfer in violation of this Article X shall be null
- --------- ---------
and void ab initio as against the Company, except as otherwise provided by
law. In connection with any transfer of an Interest in accordance with the
terms of this Agreement, the transferee of such Interest and the other
Members shall enter into a supplemental
agreement memorializing such transfer, which supplemental agreement shall
specify, among other things, the amount of such transferee's Capital
Commitment and Net Adjusted Capital Contributions as of the date of such
transfer, and the method of allocations of distributions to Class A Members
under Section 6.01.
------------
(B) (a) Subject to Section 10.01(B)(b), a Non-Managing Member may
-------------------
Transfer its Interest in the Company, in whole or in part, by an executed and
acknowledged written instrument only if all of the following conditions are
satisfied:
(1) the transferor and Proposed Transferee file a Notice of
Transfer with the Managing Member which contains the information
reasonably required by the Managing Member, including (a) the
address and social security or taxpayer identification number of
the Proposed Transferee, (b) the circumstances under which the
proposed Transfer is to be made, including whether the proposed
Transfer would constitute a disregarded transfer for purposes of
Treasury Regulation Section 1.7704-1(e), and that the proposed
-------------------
Transfer is not being made
on an established securities market or a secondary market (or the substantial
equivalent thereof) for purposes of Section 7704 of the Code, and (c) the
------------
Interests to be Transferred, and which Notice shall be signed and certified
by the Non-Managing Member;
(2) any reasonable out-of-pocket costs incurred by the
Company in connection with the Transfer are paid by the transferor
Non-Managing Member to the Company;
(3) the Interest being transferred represents an initial
Capital Commitment of at least Five Million Dollars ($5,000,000);
(4) PWRES and/or its Affiliates, including for purposes
hereof Stratum Realty Fund, L.P. and Stratum Realty Fund II, L.P.
(to be formed), shall retain not less than (i) 25% beneficial
ownership of all Class A Member Interests and (ii) decision-making
and voting control (including the right to appoint members of the
Advisory Committee pursuant to Section 16.01) and capital
-------------
obligations with respect to all Class A Member Interests;
(5) in addition to PWRES and/or its Affiliates, including for
purposes hereof Stratum Realty Fund, L.P. and Stratum Realty Fund
II, L.P. (to be formed), there shall be no more than ten (10) other
Class A Members at any time, and there shall be no more than twelve
(12) Class A Members at any time in the aggregate;
(6) the Proposed Transferee shall be neither a direct Reckson
Competitor nor a direct Reckson Services Competitor; provided,
--------
however, that a Non-Managing Member may Transfer its Interest in the Company
- -------
to a Proposed
Transferee that is a pooled investment fund or financial
institution, notwithstanding the fact that such pooled investment
fund or financial institution is or has invested in a Reckson
Competitor or a Reckson Services Competitor, so long as, to the
best knowledge of such Non-Managing Member, such pooled investment
fund or financial institution is not acquiring such Interest in the
Company for purposes which are or may reasonably be expected to be
detrimental or adverse to the Company.
The Managing Member shall have the right, with respect to not more than two
(2) proposed transfers, to object, by Notice to the transferring Non-Managing
Member within 10 Business Days after the Managing Member's receipt of the
Notice of Transfer with respect to such proposed transfer pursuant to clause
(1) above, to a proposed transfer of a Non-Managing Member Interest in the
Company on the grounds that, in the reasonable determination of the Managing
Member, the Proposed Transferee is a Reckson Competitor, a Reckson Services
Competitor or a Company Competitor, or that such Proposed Transferee is
acquiring such Interest in the Company for purposes which are or may
reasonably be expected to be detrimental or adverse to Reckson, Reckson
Services or the Company. In the event that the Managing Member gives such
Notice of objection to a proposed transfer as provided in the preceding
sentence, then the transferring Non-Managing Member may nonetheless transfer
its Interest as described in the applicable Notice of Transfer to such
Proposed Transferee; however, (x) the Managing Member shall not be obligated
(A) to permit such Proposed Transferee to have a representative on the
Advisory Committee, nor (B) to provide such Proposed Transferee with any
confidential information (including without limitation all non-public
financial information) regarding the Company or any of its Investments, and
(y) no other Member shall provide to such Proposed Transferee any such
confidential information (including without limitation all non-public
financial information) regarding the Company or any of its Investments.
(b) (i) Prior to any Transfer by a Class A Member of its
Interest to any Proposed Transferee (other than a Transfer by PWRES of its
Interest, in whole or in part, to any of its Affiliates, including for
purposes hereof Stratum Realty Fund, L.P. and Stratum Realty Fund II, L.P.
(to be formed)), such Class A Member shall offer the Company all of its
Interest proposed to be Transferred. Each such offer shall (1) be in
writing; (2) be at a price and upon terms identical or more favorable to the
Company than the price at and terms upon which such Class A Member desires to
Transfer its Interest to such Proposed Transferee; and (3) specify the price
and terms of the proposed Transfer to such Proposed Transferee.
(ii) The Company shall have thirty (30) Business Days
from its receipt of the offer made pursuant to clause (i) above within which
it may, pursuant to Notice to such Class A Member, accept such offer.
Transfer of the Class A Member's Interest to the Company shall occur within
sixty (60) days of the Company's acceptance of such offer. If the Company
does not accept such Class A Member's offer in accordance with the terms of
this Section 10.01(B)(b)(ii), the Class A Member may thereafter Transfer such
-----------------------
Interest to the Proposed Transferee, at a price producing a yield to the
purchaser (assuming a 16% per annum return on the Class A Member's Interest
under the terms of this Agreement) not greater than
fifty basis points (i.e., 0.50 % per annum) greater than the yield that would
have been so produced on the price specified in the offer described in
Section 10.01(B)(b)(i); provided, however, that such Transfer shall occur
- ---------------------- -------- -------
during the period of one-hundred and eighty (180) days following the last day
upon which the Company could have accepted such offer.
(C) Upon satisfaction of the conditions set forth in Section
-------
10.01(B), any such Transfer shall be recognized by the Company as being
- --------
effective on the first day of the calendar month following either receipt by
the Company of such Notice of the proposed Transfer or the satisfaction of
said conditions, whichever occurs later.
(D) If a Proposed Transferee of a Non-Managing Member does not
become a Substitute Non-Managing Member pursuant to Section 10.02, such
-------------
Proposed Transferee shall become a mere assignee and shall not have any
non-economic rights of a Non-Managing Member of the Company, including,
without limitation, the right to require any information on account of the
Company's business, inspect the Company's books or vote on the Company
matters.
(E) The Managing Member and the Company shall cooperate reasonably
and in good faith in connection with any proposed Transfer by a Class A
Member of its Interest. Such cooperation shall include, without limitation,
affording such Class A Member and/or any Proposed Transferee of all or part
of its Interest access to Investment sites, on reasonable prior notice and
with reasonable frequency, and to all agreements, documents, studies, reports
or other materials in the possession of the Company or the Managing Member
relating to the Company and/or its Investments. Any reasonable, third-party
costs and expenses incurred by the Managing Member or the Company in
connection with such cooperation shall be paid by such Class A Member.
10.02. Substitute Non-Managing Member. A Proposed Transferee of
------------------------------
the whole or any portion of an Interest in the Company pursuant to Section
-------
10.01 shall have the right to become a Substitute Non-Managing Member in
- -----
place of its transferor only if all of the following conditions are
satisfied:
(A) the fully executed and acknowledged written instrument of
Transfer has been filed with the Company;
(B) the Proposed Transferee executes, adopts and acknowledges this
Agreement;
(C) any reasonable costs of Transfer incurred by the Company are
paid to the Company; and
(D) to the extent required pursuant to Section 10.01(A)(4), the
-------------------
Managing Member shall have Consented to the Transfer.
10.03. Involuntary Withdrawal by Non-Managing Members.
----------------------------------------------
(A) If an individual Non-Managing Member does not, by written
instrument, designate a Person to become a transferee of his Interest upon
his death, then his personal representative shall have all of the rights of a
Non-Managing Member for the purpose of settling or managing his estate, and
such power as the decedent possessed to Transfer his Interest in the Company
to a transferee and to join with such transferee in making application to
substitute such transferee as a Substitute Non-Managing Member.
(B) Upon the Bankruptcy, dissolution or other cessation of
existence of a Non-Managing Member which is a trust, corporation, partnership
or other entity, the authorized representative of such entity shall have all
the rights of a Non-Managing Member for the purpose of effecting the orderly
winding up and disposition of the business of such entity and such power as
such entity possessed to designate a successor as a transferee of its
Interest and to join with such transferee in making application to substitute
such transferee as a Substitute Non-Managing Member.
(C) The death, Bankruptcy, dissolution, disability or legal
incapacity of a Non-Managing Member shall not dissolve or terminate the
Company.
10.04. Transfers by Class B Members. A Class B Member may
----------------------------
Transfer its Interest in the Company, in whole or in part, only with the
Consent of a majority of the Percentage Interests of the Class A Members.
Notwithstanding the foregoing, a Class B Member may Transfer its Interest to
an Affiliate of Reckson and without the Consent of the Managing Member or the
Class A Members.
ARTICLE XI
DISSOLUTION AND LIQUIDATION; RECONSTITUTION
-------------------------------------------
11.01. Dissolution. The Company shall be dissolved upon the
-----------
first to occur of any one of the following:
(A) an election to dissolve the Company is made by the Managing
Member with the Consent of a majority of the Percentage Interests of the
Class A Members;
(B) after the end of the Investment Period, the reduction to cash
or Marketable Securities of all or substantially all of the Investments
(which Investments shall include purchase money security interests) of the
Company;
(C) subject to the provisions of Article VIII and Section 11.03,
------------ -------------
the Bankruptcy, dissolution, removal or other withdrawal of the Managing
Member or the sale, transfer or assignment by the Managing Member of its
Interest in the Company;
(D) upon the seventh anniversary of the date of this Agreement,
unless extended by the Managing Member in its reasonable discretion for up to
two additional one-year periods with the Consent of the majority in Interest
of the Non-Managing Members;
(E) as provided in Section 7.08(B) or 7.09(B) hereof;
--------------- -------
(F) the failure of the Company to pay the Class A Basic Return in
full for each of 24 consecutive calendar months or for each of 27 calendar
months in the aggregate at any time (provided, however, that (a) for
--------- -------
purposes of determining whether such 27-month test has been satisfied, any
month in respect of which the Class A Basic Return shall have later been paid
in full in accordance with the terms hereof shall not be considered; and (b)
for purposes of determining whether either such 24-month or such 27-month
test has been satisfied, (i)the initial 24 months following the date of this
Agreement shall not be considered; and (ii) with respect to the Election
Period for any Investment, the Adjustment Amounts for such Investment, shall
not be considered provided that the Managing Member, may at any time within
--------
such Election Period and upon prior Notice to the Class A Member, elect to
include the Adjustment Amounts for such Investment for purposes of
determining whether such 24-month or 27-month test has been satisfied and
provided, further, that if the Managing Member so elects to include the
- -------- -------
Adjustment Amounts for such purposes, it may not subsequently elect to
exclude the Adjustment Amounts for such purposes); or
(G) any other event causing dissolution of the Company under the
Act.
11.02. Liquidation.
-----------
(A) Upon dissolution of the Company, the Liquidator shall wind up
the affairs of the Company as expeditiously as business circumstances allow
and proceed within a reasonable period of time to sell or otherwise liquidate
the assets of the Company and, after paying or making due provision by the
setting up of reserves for all liabilities to creditors of the Company,
distribute the assets among the Members in accordance with the provisions for
the making of Distributions set forth in this Article XI. Notwithstanding the
----------
foregoing, in the event that the Liquidator shall, in its absolute
discretion, determine that a sale or other disposition of part or all of the
Investments would cause undue loss to the Members or otherwise be
impractical, the Liquidator may either defer liquidation of any such
Investments and withhold distributions relating thereto for a reasonable
time, or distribute part or all of such Investments to the Members in kind
(utilizing the principles of Section 6.04 and the valuation procedures
------------
described herein).
(B) No Member shall be liable for the return of the Capital
Contributions of other Members, provided that this provision shall not
relieve any Member of any other duty or liability it may have under this
Agreement.
(C) Upon liquidation of the Company, all of the assets of the
Company, or the proceeds therefrom, shall be distributed or used as follows
and in the following order of priority:
(i) for the payment of the debts and liabilities of the
Company and the expenses of liquidation;
(ii) to the setting up of any reserves which the Liquidator
may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Company; and
(iii) to the Members in accordance with Section 6.01(B)
---------------
hereof.
(D) When the Liquidator has complied with the foregoing
liquidation plan, the Members shall execute, acknowledge and cause to be
filed an instrument evidencing the cancellation of the certificate of
formation of the Company, at which time the Company shall be terminated.
11.03. Continuation of the Company. Notwithstanding the
---------------------------
provisions of Section 11.01(C), the occurrence of an event of withdrawal of
----------------
a Managing Member shall not cause a dissolution of the Company if the
Company, in such circumstance, is continued pursuant to the provisions of
Article VIII hereof or if, within ninety (90) days after the withdrawal, a
- ------------
majority of the Percentage Interests of the Non-Managing Members admit a
successor Managing Member to the Company (effective as of the date of the
withdrawal of the prior Managing Member), in which case the business of the
Company shall be continued without dissolution.
11.04. Release. On the earlier of (i) the Termination Date or
-------
(ii) the dissolution of the Company pursuant to this Article XI, the Company
shall execute and deliver to the Class A Member a release (in form and
substance reasonably acceptable to the Class A Member) pursuant to which the
Company shall forever release, discharge and forgive the Class A Member and
any of its predecessors, parents, subsidiaries, affiliates, and each of its
present and former directors, officers, employees, general partners,
successors, agents, accountants, advisors, consultants, assigns and all
others on its behalf liable (the "CLASS A MEMBER'S RELEASED PERSONS"), for
and from any and all liabilities, actions, suits, claims, demands, damages,
injuries and causes of action of whatever kind and nature (including any
claims for attorneys' fees), whether known or unknown, whether contingent,
liquidated or otherwise, whether accrued or to accrue, whether asserted by
way of claim, counterclaim, cross-claim, third party action, action for
indemnity, contribution or breach of contract or otherwise that the Company
has or may have against any or all of the Class A Member's Released Persons
that arose prior to the Termination Date or the dissolution of the Company,
as the case may be, or that may arise subsequent thereto.
ARTICLE XII
REPRESENTATIONS AND WARRANTIES
------------------------------
OF THE MEMBERS
--------------
12.01. Representations and Warranties of the Non-Managing
--------------------------------------------------
Members. Each Non-Managing Member is fully aware that the Company and the
- -------
Managing Member are relying upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended (the "SECURITIES
- ------------
ACT"), and the exemption provided by Section 3(c)(1) of the Investment
---------------
Company Act of 1940, as amended, and upon the truth and accuracy of the
following representations by each of the Non-Managing Members. Each of the
Non-Managing Members hereby represents and warrants that (i) it has been
given the opportunity to ask the Managing Member questions relating to the
Company and has had access to such financial and other information concerning
the Company as it has considered necessary to make a decision to invest in
the Company and has availed itself of that opportunity to the full extent
desired; (ii) it is able (x) to bear the economic risk of its investment in
the Company, and (y) to afford a full loss of its Capital Commitment; and
(iii) if any portion of its Capital Contributions consist, or will consist,
of assets of an employee benefit plan as defined in Section 3(3) of ERISA,
------------
whether or not such plan is subject to Title I of ERISA or a plan subject to
Section 4975 of the Code, determined after giving effect to applicable
- ------------
regulations, rulings, and exemptions thereunder, it has so notified the
Managing Member in writing.
12.02. Representations and Warranties of the Managing Member.
-----------------------------------------------------
The Managing Member represents, warrants and covenants to each other Member
that:
(A) The Company is a duly formed and validly existing limited
liability company under the laws of the State of Delaware with full power and
authority to conduct its business as contemplated in this Agreement.
(B) The Managing Member is a duly formed and validly existing
limited liability company under the laws of the State of Delaware, with full
power and authority to perform its obligations herein.
(C) All action required to be taken by the Managing Member and The
Company as a condition to the issuance and sale of the Non-Managing Member
Interests being purchased by the Non-Managing Members has been taken; the
Interest of each Non-Managing Member represents a duly and validly issued
membership interest in the Company; and each Non-Managing Member is entitled
to all the benefits of a Non-Managing Member under this Agreement and the
Act.
(D) This Agreement has been duly authorized, executed and
delivered by the Managing Member and, upon due authorization, execution and
delivery by each Non-Managing
Member, will constitute the valid and legally binding agreement of the
Managing Member enforceable in accordance with its terms against the Managing
Member.
(E) The Managing Member has not engaged any Person in such a
manner as to give rise to a valid claim against the Company or any Non-
Managing Member for any placement fee or similar compensation in connection
with the organization of the Company.
(F) The Company is not required to register as an investment
company under the Investment Company Act of 1940, as amended as of the date
hereof.
(G) So long as RSVP Holdings, LLC is the Managing Member, the
existing Managing Member Members shall not Transfer their interests in the
Managing Member without the Consent of a majority of the Percentage Interests
of the Class A Members (except to another existing Managing Member Member or
an Affiliate of an existing Managing Member Member).
ARTICLE XIII
ACCOUNTING AND REPORTS
-----------------------
13.01. Books and Records. The Managing Member shall maintain at
-----------------
such office it deems appropriate full and accurate books of the Company
(which at all times shall remain the property of the Company), in the name of
the Company and separate and apart from the books of the Managing Member and
its Affiliates, showing all receipts and expenditures, assets and
liabilities, profits and losses, and all other books, records and information
required by the Act or necessary for recording the Company's business and
affairs. The Company's books and records shall be maintained in accordance
with generally accepted accounting principles (or such other accounting basis
reasonably acceptable to the Class A Member). The Company shall initially
retain Ernst & Young LLP as its independent certified public accountant.
Each Non-Managing Member shall be afforded full and complete
access, as provided by the Act, to all records and books of account during
reasonable business hours or such other times as required by legislative
authority and, at such hours, shall have the right of inspection and copying
of such records and books of account, at its expense. Each Non-Managing
Member shall have the right to audit such records and books of account by an
accountant of its choice at its expense. The Managing Member shall reasonably
cooperate with any Non-Managing Member or its agents in connection with any
review or audit of the Company or its records and books. The Managing Member
shall retain all records and books relating to the Company for a period of at
least six years after the termination of the Company and shall thereafter
destroy such records and books only after giving at least 30 days' advance
written Notice to the Non-Managing Members.
13.02. Tax Matters Member. The Managing Member is hereby
------------------
designated the tax matters partner (in this Section called the "TMP") as
defined in Section 6231(a)(7) of
------------------
the Code with respect to operations conducted by the Members pursuant to this
Agreement. The TMP shall comply with the requirements of Sections 6221
-------------
through 6232 of the Code and regulations promulgated thereunder, and the
----
Members further agree as follows:
(A) The TMP shall have a continuing obligation to provide the
Internal Revenue Service with sufficient information so that proper notice
can be mailed to all Members as provided in Section 6223 of the Code, and the
------------
Members shall have a continuing obligation to furnish the TMP with such
information (including information specified in Section 6230(e) of the Code)
---------------
as the TMP may reasonably request for such purposes.
(B) The TMP shall keep each Member informed of all administrative
and/or judicial proceedings for the adjustment of partnership items (as
defined in Section 6231(a)(3) of the Code and regulations promulgated
------------------
thereunder) at the Company level. Without limiting the generality of the
foregoing sentence, within 15 days of receiving any written or oral notice of
the time and place of a meeting or other proceeding from the Internal Revenue
Service regarding a Company proceeding (and in any event, within a reasonable
time prior to such meeting or proceeding), the TMP shall furnish a copy of
such written communication or notice, or inform the Members in writing of the
substance of any such oral communication.
(C) If any administrative proceeding contemplated under Section
-------
6223 of the Code has begun, the Members shall, upon request by the TMP,
- ----
notify the TMP of their treatment of any Company item on their federal income
tax return which is or may be inconsistent with the treatment of that item on
the Company's return.
(D) Any Member who enters into a settlement agreement with the
Internal Revenue Service with respect to Company items shall notify the other
Members of such settlement agreement and its terms within 30 days after the
date of such settlement.
(E) If the TMP elects not to file suit concerning an
administrative adjustment or request for administrative adjustment and
another Member elects to file such a suit, such other Member shall notify all
Members of such intention and the forum or forums in which such suit shall be
filed.
(F) The TMP shall be authorized to extend the statute of
limitations, file a request for administrative adjustment, file suit
concerning any tax refund or deficiency relating to any Company
administrative adjustment or enter into any settlement agreement relating to
any Company item of income, gain, loss, deduction or credit for any Fiscal
Year of the Company, provided that the TMP shall promptly send Notice to the
Non-Managing Members upon taking any of the foregoing actions.
(G) The obligations imposed on the TMP and the participation
rights afforded the Non-Managing Members under this Section 13.02 and
-------------
Sections 6221 through 6232 of the Code may not be restricted or limited in
- ------------- ----
any fashion by the TMP or any Member or Members without the Consent of all
the Members.
(H) The Company shall indemnify and reimburse the TMP for all
expenses, including legal and accounting fees, claims, liabilities, losses
and damages incurred in connection with any administrative or judicial
proceeding with respect to the tax liability of the Members or in connection
with any audit of the Company's income tax returns, except to the extent such
expenses, claims, liabilities, losses and damages are attributable to the bad
faith or wilful misconduct of the TMP. The payment of all such expenses to
which the indemnification applies shall be made before any distributions
pursuant to Section 6.02. Neither the Managing Member, nor any of its
------------
Affiliates, nor any other Person shall have any obligation to provide funds
for such purpose. The taking of any action and the incurring of any expense
by the TMP in connection with any such proceeding, except to the extent
required by law, is a matter in the reasonable discretion of the TMP and the
provisions on limitations of liability of the Managing Member and
indemnification set forth in Section 7.05 of this Agreement shall be fully
------------
applicable to the TMP in its capacity as such.
13.03. Reports to Members.
------------------
(A) The Managing Member shall use reasonable efforts to cause to
be prepared and furnished to each Non-Managing Member within ninety (90)
days, and the Managing Member shall in any event cause to be prepared and
furnished to each Non-Managing Member within one-hundred and twenty (120)
days, after the close of each Fiscal Year of the Company and at the Company's
expense the following information with respect to such Fiscal Year (provided,
--------
however, that with respect to the information required to be delivered
- -------
pursuant to clause (a) below, the Managing Member shall use reasonable
efforts to cause the preparation and furnishing of such information within
one-hundred and twenty (120) days, but in no event longer than the statutory
filing requirements, including extensions):
(a) the information necessary for the preparation by such
Non-Managing Member of its Federal, state and other income tax
returns;
(b) an audited consolidated balance sheet, consolidated
statement of cash flows, consolidated income statement (with
reconciliation to cash) and statement of Members' Capital Accounts
and an unaudited consolidating balance sheet, consolidating
statement of cash flows and consolidating income statement (with
reconciliation to cash) with respect to all of the Company's
Investments and related Investment Entities, all of which shall be
prepared in accordance with generally accepted accounting
principles (or such other accounting basis as shall be reasonably
acceptable to the Class A Members);
(c) a copy of management's letter to the auditors;
(d) to the extent available, any accounting audits and
accounting firm reports with respect to any Investment; and
(e) such other information as the Managing Member deems
reasonably necessary for the Non-Managing Members to be advised of
the current status of the Company and its business.
(B) No later than sixty (60) days after the last day of each
fiscal quarter other than the Company's last fiscal quarter, the Managing
Member shall cause to be prepared and furnished to each Non-Managing Member
an unaudited report prepared in accordance with generally accepted accounting
principles (or such other accounting basis as shall be reasonably acceptable
to the Class A Member), accompanied by a certificate of the senior officer of
the Company responsible for the preparation of the Company's financial
statements certifying that such financial statements fairly present in all
material respects (subject to exceptions to specific line items in such
reports as shall be specified in reasonably sufficient detail by such senior
officer), which report shall include for such fiscal quarter and year-to-date
the following information:
(a) a consolidated balance sheet, consolidated statement of
cash flows and consolidated income statement (with reconciliation
to cash) and a consolidating balance sheet, consolidating statement
of cash flows and consolidating income statement (with
reconciliation to cash);
(b) a statement of operations;
(c) a statement as to the then Deemed Value of each
Investment and all secured debt and other liabilities accrued with
respect to each Investment or otherwise payable by the Company;
(d) a statement showing the computation of fees and
distributions to the Managing Member and its Affiliates which
statement shall separately reflect each transaction with or service
provided by the Managing Member and its Affiliates, the amount paid
with respect thereto, and the method or formula used for
calculating such payment;
(e) a statement of each Member's Capital Account; and
(f) a Member's Capital Account transactions report which
shows the details of all Company transactions which flow through a
Member's Capital Account and have occurred since the end of the
preceding quarter and preceding Fiscal Year, including, but not
limited to, the date, nature, and amount of all capital calls, cash
flows and/or capital distributions, and their effects at the time
on each Member's Cumulative Priority Return and overall yield on
Investments.
(g) to the extent available, any accounting audits and
accounting firm reports with respect to an Investment.
(C) No later than one-hundred and twenty (120) days after the end
of each Fiscal Year, the Managing Member shall provide each Non-Managing
Member with:
(a) a statement reflecting any transactions with the Managing
Member or any of its Affiliates with respect to the Company; and
(b) a summary of any material regulatory or material legal
proceedings, if any, against the Managing Member or any of its
officers or directors.
(D) The Managing Member shall cause to be prepared and furnished
to each Non-Managing Member a statement describing any monetary or material
non-monetary uncured event of default under any loans to which the Company or
any Investment Entity is subject, within three (3) days after the Managing
Member has knowledge thereof.
(E) The Managing Member shall provide such other reports or
information as any Non-Managing Member may reasonably request relating to the
Managing Member's reasonable projections as to the Company's unrelated
business taxable income.
(F) Managing Member shall cause to be prepared and furnished to
PWRES Notice of any uncured default under any of the terms, covenants or
conditions of this Agreement (including any of the terms, covenants or
conditions that, by their terms, impose obligations with respect to any
Investment Entity or its Related Properties, whether or not such obligations
are within the control of Managing Member), within two (2) days after
Managing Member has knowledge thereof.
(G) Managing Member shall provide to PWRES copies of such reports,
statements, materials, documents, instruments, opinions, certificates or
information required to be provided to Managing Member by or on behalf of any
Investment Entity pursuant to the terms hereof. Managing Member shall
further provide to PWRES such other reports, statements, materials,
documents, instruments, opinions, certificates or information relating to any
Investment Entity or its Related Properties as PWRES may reasonably request.
13.04. Company Funds. The Managing Member shall have fiduciary
-------------
responsibility for the safekeeping and use of all funds and assets of the
Company and the Managing Member shall not employ such funds in any manner
except for the benefit of the Company. All funds of the Company not otherwise
invested shall be deposited in one or more accounts maintained in such
banking institutions, as the Managing Member shall determine in the name of
the Company and not in the name of the Managing Member. All withdrawals from
the Company's accounts shall be made upon checks or instructions signed by
the Managing Member. Company funds shall not be commingled with the funds of
any other Person nor shall such funds be employed by the Managing Member as
compensating balances other than in respect of Company borrowing.
ARTICLE XIV
(Reserved.)
ARTICLE XV
AMENDMENTS AND MEETINGS
-----------------------
15.01. Amendment Procedure. The amendment procedure is as
-------------------
follows:
(A) Amendments to this Agreement may be proposed by the Managing
Member or by 25% of the Percentage Interests of the Non-Managing Members.
(B) A proposed amendment will be adopted and effective only if it
receives the Consent of the Managing Member and the Consent of a majority of
the Percentage Interests of the Non-Managing Members.
(C) In addition to any amendments otherwise authorized herein, and
notwithstanding anything to the contrary in Sections 15.01 and the
--------------
appropriate portion of Section 15.02(B), the Managing Member, without the
----------------
consent of any of the Non-Managing Members, may amend the provisions of this
Agreement relating to the allocations of Profits or Losses or items thereof
(including, without limitation, non-taxable receipts or non-deductible
expenditures) or credits among the Members if the Company is advised at any
time by the Company's independent certified public accountants or legal
counsel that in their opinion it is likely that such allocations would not be
respected for Federal income tax purposes or if necessary so as to cause the
Capital Accounts of the Members at the time of liquidation of the Company to
be in proportion to the amounts which would be distributed if liquidating
proceeds available to be distributed to Members were distributed in
accordance with Section 6.01 rather than Section 11.02(C); provided, however,
------------ ---------------- -------- -------
that no such amendments shall affect the Capital Contribution, cash
distribution or fee provisions of this Agreement and provided further that
the Managing Member is empowered to amend such provisions only to the extent
it is necessary to give such provisions a basis on which such allocations
would in the opinion of such accountants or legal counsel likely be respected
in accordance with the advice of such accountants or legal counsel, so that
any such amendment will have the least possible effect on such provisions set
forth in this Agreement. Any such amendment made by the Managing Member in
reliance upon the advice of the accountants or legal counsel described above
shall be deemed to be made in compliance with the fiduciary obligation of the
Managing Member to the Company and the Non-Managing Members, and no such
amendment shall give rise to any claim or cause of action by any Non-Managing
Member.
(D) Except to the extent already delivered pursuant to clause (B)
of this Section 15.01, the Managing Member shall furnish each Non-Managing
-------------
Member with a copy of each amendment to this Agreement promptly after its
adoption.
15.02. Exceptions. Notwithstanding the provisions of Section
----------
15.01, no Amendment without the Consent of all Members shall:
(A) alter the purposes of the Company or amend Sections 3.03(a)(A)
-------------------
or 15.01 hereof;
-----
(B) increase the liability or change the Capital Contributions
required by a Member, or change, except to the extent permitted pursuant to
Section 15.01(C) hereof, the rights and interests of a Member in the Profits,
- ----------------
Losses, fees or Net Investment Revenues of the Company, the voting rights of
a Member or the rights of a Member respecting reconstitution or liquidation
of The Company;
(C) directly or indirectly affect or jeopardize the status of the
Company as a partnership for Federal income tax purposes; or
(D) amend this Section 15.02 or Section 7.05 hereof.
------------- ------------
15.03. Meetings and Voting.
-------------------
(A) Meetings of Members may be called by the Managing Member for
any purpose permitted by this Agreement. The Managing Member shall give all
Members Notice of the purpose of such proposed meeting not less than 15 nor
more than 60 days before the meeting. Meetings shall be held in New York
County, New York at a time reasonably selected by the Managing Member.
(B) The Managing Member may solicit required Consents of the Non-
Managing Members under this Agreement at a meeting held pursuant to Section
-------
15.03(A) or by written ballot. If Consents are solicited by written ballot,
- --------
the Non-Managing Members shall return said ballots to the Managing Member
within 30 days after receipt.
(C) For any matter on which the Non-Managing Members vote, in
determining whether the requisite Percentage Interests of the Non-Managing
Members has been obtained, the Percentage Interests of any Non-Managing
Members who are Affiliates of the Managing Member shall not be included.
ARTICLE XVI
ADVISORY COMMITTEE
------------------
16.01. Selection of the Advisory Committee.
-----------------------------------
(A) The Managing Member shall select an "ADVISORY COMMITTEE" which
shall be a committee consisting of (i) two representatives designated by the
Managing Member, (ii) any non-voting members appointed by the Managing Member
and (iii) representatives of Class A Members selected pursuant to the next
two sentences. PWRES may, to the extent it holds an Interest, designate to
the Advisory Committee a representative selected by PWRES. Subject to the
Consent of the Managing Member, which Consent shall not be unreasonably
withheld, each Class A Member, other than PWRES, who has made a Capital
Commitment of at least $50 million may designate to the Advisory Committee a
representative selected by such Class A Member; provided, however, that the
-------- -------
Class A Members, in the aggregate, shall be entitled to no more than three
(3) seats on the Advisory Committee, provided that if in the event such three
(3) seats are occupied and in connection with the sale by any Class A Member
of an Interest in the Company of at least $50 million, the Proposed
Transferee so requests, such Proposed Transferee, subject to the reasonable
Consent of the Managing Member, shall be given a seat on the Advisory
Committee. In addition, the Managing Member, in its sole discretion, may
select representatives of Class A Members to sit on the Advisory Committee.
There shall be at least one representative of the Class A Member on the
Advisory Committee at all times.
(B) Any member of the Advisory Committee may resign by giving the
Managing Member thirty (30) days' prior written notice. Additionally, the
Managing Member may, except as provided below, remove and replace members of
the Advisory Committee from time to time. Notwithstanding the foregoing, a
representative designated by a Class A Member shall not be removed without
the consent of the Class A Member. Any vacancy in the Advisory Committee
shall be promptly filled by the Managing Member in accordance with Section
-------
16.01(A).
- --------
(C) The members of the Advisory Committee shall not receive any
compensation in connection with their membership on the Advisory Committee;
provided, however, that the members of the Advisory Committee shall be
- -------- -------
reimbursed for the reasonable out-of-pocket expenses they incur in connection
with the activities of the Advisory Committee.
16.02. Meetings of and Action by the Advisory Committee.
------------------------------------------------
(A) The Advisory Committee shall meet from time to time with the
Managing Member to consult on various matters, including investment strategy,
financing strategy, disposition strategy, third-party relationships, related
party transactions, asset valuation and reporting format and frequency of
reports.
(B) The presence of a majority of the members of the Advisory
Committee shall constitute a quorum. Members may participate by conference
call provided that all parties can hear and speak with each other. Except as
provided herein, in all instances where an approval is required by the
Advisory Committee, the Advisory Committee shall act by affirmative vote of a
majority of its members, which affirmative vote shall include the affirmative
vote of a majority of the members of the Advisory Committee appointed by
Class A Members. Except where approval of the Advisory Committee is required,
the
recommendations of the Advisory Committee shall be advisory only and shall
not obligate the Managing Member to act in accordance therewith. The Managing
Member or its designated representative shall be entitled to be present at
all meetings of the Advisory Committee although the Managing Member shall not
be entitled to vote on matters requiring the vote of the Advisory Committee.
(C) The Advisory Committee shall have the following powers and
duties:
(i) The Advisory Committee shall, with respect to any
transactions that are not on market and arms-length terms,
promptly review and approve or disapprove in advance any
transactions between the Company and the Managing Member or
its respective Affiliates as provided in Sections 3.03(a)(G)
-------------------
and 7.04(B)(i); provided, however, that the Advisory Committee shall not have
---------- -------- -------
the right to approve a Reckson Investment Opportunity;
(ii) Pursuant to Section 8.02, the approval of the
------------
Advisory Committee shall be required prior to certain Transfers by the
Managing Member of its Interest, which approval shall not be unreasonably
withheld; and
(iii) The Advisory Committee shall have the right to
select an Expert in connection with the matters contemplated
by Section 8.03.
------------
(D) To the extent such information has not previously been
delivered to the Advisory Committee, then no later than thirty (30) days
after each occurrence thereof, the Managing Member shall provide the Advisory
Committee with:
(a) a statement reflecting any transactions with the Managing
Member or any of its Affiliates with respect to the Company; and
(b) a summary of any regulatory or legal proceedings against
the Managing Member or any of its officers or directors.
(E) To the extent that the Company desires to pursue the
acquisition of an Investment, the Managing Member shall prepare and deliver
to the Advisory Committee an acquisition plan (an "ACQUISITION PLAN").
Managing Member shall exercise its good faith efforts to prepare and deliver
to the Advisory Committee such Acquisition Plan within ten (10) days prior to
such acquisition, provided, however, that in no event shall such
-------- -------
Acquisition Plan be prepared and delivered to the Advisory Committee later
than five (5) days prior to such acquisition. Any proposed Acquisition Plan
shall, to the extent applicable, include the following information:
(a) a description in reasonable detail of the Investment, the
related Investment Entity and its Related Properties, if any, and
any proposed improvements to any of such Related Properties (the
"PROJECT");
(b) whether the Investment Entity will be a limited
partnership, limited liability company, corporation or other
entity;
(c) the identity of any third party partners, if any, in the
Investment Entity and the proposed form of Investment Entity
limited partnership agreement or limited liability company
agreement to be entered into with such third party partner(s);
(d) the estimated cost and timing of acquisition and estimated
cost of construction of any then proposed improvements, including a
description of the nature and amount of any fees which would be
payable in connection with the acquisition of the Investment to a
Member or an Affiliate of a Member;
(e) a rent roll, if applicable, the major tenant(s) for the
Project, and the proposed leasing strategy, if developed;
(f) the terms and conditions of the financing contemplated for
the Project.
(g) the capital and guaranty requirements of the Company, all
Members and their Affiliates;
(h) the estimated initial cash on cash returns for such
Investment;
(i) the Platform to which such Investment pertains;
(j) the Acquisition Cost of the Investment;
(k) Notice as to whether the Managing Member elects to include
the Adjustment Amounts for such Investment as of the acquisition date of such
Investment for purposes of the Financial Tests (it being understood that if
Managing Member elects not to so include such Adjustment Amounts as of such
date, Managing Member may thereafter so elect as provided in clause (y) of
the definition of "Sweep Event"); and
(l) such other information with respect to such Investment as
has been provided to Reckson Strategic's investment committee.
16.03. Advisory Committee Management Authority in Certain
--------------------------------------------------
Events. As used herein, "MANAGEMENT AUTHORITY" of the Advisory Committee
- ------
shall mean that the Company shall make no new Investment, nor shall the
Company sell, transfer, finance, refinance, contribute additional capital to,
or otherwise dispose of or recapitalize any existing
Investment, or Consent to any of the foregoing, nor shall the Company make
any changes to its distribution policies or the distribution policies of the
Investments or consent to any changes in the distribution policies of the
Investments without the affirmative vote of a majority of the Advisory
Committee, which affirmative vote must include the affirmative vote of the
Class A Members on the Advisory Committee. Management Authority shall occur
upon any of the following events:
(A) If the Class A Basic Return shall not be paid in full for
each of 12 consecutive calendar months or for each of 15 calendar months in
the aggregate at any time, then, subject to Section 6.05 hereof, the Advisory
------------
Committee shall have Management Authority until the earlier of (i) such time
as all prior accrued but unpaid Class A Basic return shall have been paid in
full, not less than 75% from cash flows from operations of the Investments,
or (ii) such date as all prior accrued but unpaid Class A Basic Return shall
have been paid in full, and the Class A Basic return shall have been paid in
full for three consecutive months thereafter from cash flows from operations
of the Investments; provided, however, that (a) for purposes of determining
-------- -------
whether such 15-month test has been satisfied, any month in respect of which
the Class A Basic Return shall have later been paid in full in accordance
with the terms hereof shall not be considered and (b) for purposes of
determining whether either such 12-month or 15-month test has been satisfied,
(i) the initial 24 months following the date of this Agreement shall not be
considered; and (iii) with respect to the Election Period for any Investment,
the Adjustment Amounts for such Investment shall not be considered, provided
that the Managing Member may, at any time within such Election Period and
upon prior Notice to the Class A Member, elect to include the Adjustment
Amounts for such Investment for purposes of determining whether such 12-month
or 15-month test has been satisfied. If the Managing Member so elects to
include the Adjustment Amounts for such purposes, it may not subsequently
elect to exclude the Adjustment Amounts for such purposes.
(B) Upon the occurrence of a Change of Control Event, the Advisory
Committee shall immediately have Management Authority until the Company shall
have been fully liquidated and dissolved.
(C) Subject to Section 3.01(B), in the event the Company makes an
---------------
Investment outside the scope of the Investment Parameters and any Class A
Member on the Advisory Committee shall have objected to such Investment on
such grounds when such Investment shall have been proposed to the Advisory
Committee, the Advisory Committee shall immediately have Management Authority
until the Company shall have been fully liquidated and dissolved.
(D) In the event of a breach of the obligations set forth in
Section 7.09(A) hereof which breach is not cured pursuant to the terms of
- ---------------
Section 7.09(B), the Advisory Committee shall immediately have Management
- ---------------
Authority until the Company shall have been fully liquidated and dissolved.
(E) In the event of a material breach of the obligations set forth
in Section 7.11 and Section 7.12 hereof which continues for fifteen (15) days
------------ ------------
and which may result in a
Company Material Adverse Effect (or, if the default can be cured but is not
capable of being cured within such fifteen (15) day period, such longer
period of time as is necessary to cure such default provided that such cure
is diligently pursued within and after such fifteen (15) day period)
following Notice from PWRES, the Advisory Committee shall immediately have
Management Authority with respect to all of the Investments of the Company
until such default shall be fully cured.
(F) In the event of a material breach of the obligations set forth
in Section 7.11 and Section 7.12 hereof which continues for fifteen (15) days
------------ ------------
and which may result in a Platform Material Adverse Effect (or, if the
default can be cured but is not capable of being cured within such fifteen
(15) day period, such longer period of time as is necessary to cure such
default provided that such cure is diligently pursued during and after such
fifteen (15) day period) following Notice from PWRES, the Advisory Committee
shall immediately have Management Authority with respect to all of the
Investments pertaining to the applicable Platform until such default shall be
fully cured.
ARTICLE XVII
MISCELLANEOUS
-------------
17.01. Title to Company Property. All property owned by the
-------------------------
Company, whether real or personal, tangible or intangible, shall be deemed to
be owned by the Company as an entity, and no Member, individually, shall have
any ownership of such property. The Company may hold any of its assets in its
own name or in the name of a nominee, which nominee may be one or more
individuals, corporations, partnerships, trusts, limited liability companies
or other entities; provided, however, such nominee shall be at the direction
-------- -------
of the Company.
17.02. Validity. Each provision of this Agreement shall be
--------
considered separate and, if for any reason, any provision(s) which is not
essential to the effectuation of the basic purposes of this Agreement is
determined to be invalid, illegal or unenforceable, such invalidity,
illegality or unenforceability shall not impair the operation of or affect
those provisions of this Agreement which are otherwise valid. To the extent
legally permissible, the parties shall substitute for the invalid, illegal or
unenforceable provision a provision with a substantially similar economic
effect and intent.
17.03. Applicable Law. This Agreement, and the application or
--------------
interpretation thereof, shall be governed exclusively by its terms and by the
laws of the State of Delaware, excluding the conflict of laws provisions
thereof.
17.04. Binding Agreement. This Agreement and all terms,
-----------------
provisions and conditions hereof shall be binding upon the parties hereto,
and shall inure to the benefit of the
parties hereto and, except as otherwise provided herein, to their respective
heirs, executors, personal representatives, successors and lawful assigns.
17.05. Waiver of Action for Partition. Each of the parties
------------------------------
hereto irrevocably waives during the term of the Company any right that it
may have to maintain any action for partition with respect to any property of
the Company.
17.06. Record of Non-Managing Members. The Managing Member shall
------------------------------
maintain at the office of the Company a record showing the names and
addresses of all the Non-Managing Members. All Members and their duly
authorized representatives shall have the right to inspect such record.
17.07. Headings. All section headings in this Agreement are for
--------
convenience of reference only and are not intended to qualify the meaning of
any section.
17.08. Terminology. All personal pronouns used in this
-----------
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders, the singular shall include the plural, and vice
versa, as the context may require.
17.09. Counterparts. This Agreement may be executed in several
------------
counterparts, and all so executed shall constitute one Agreement, binding on
all of the parties hereto, notwithstanding that all the parties are not
signatories to the original or the same counterpart.
17.10. Entire Agreement. This Agreement contains the entire
----------------
understanding among the parties hereto and supersedes all prior written or
oral agreements among them respecting the within subject matter, unless
otherwise provided herein.
17.11. Disclaimer. The provisions of this Agreement are not
----------
intended for the benefit of any creditor or other Person (other than a Member
in such Member's capacity as such) to whom any debts, liabilities or
obligations are owed by or who otherwise has any claim against the Company or
any of the Members.
17.12. No Third Party Rights. This Agreement is intended solely
---------------------
for the benefit of the parties hereto and, except as expressly provided to
the contrary in this Agreement, is not intended to confer any benefits upon,
or create any rights in favor of, any person other than the parties hereto;
provided, however, that Reckson shall be deemed to be a third-party
- -------- -------
beneficiary of this Agreement for the purposes of Section 3.03(a)(H) and
------------------
Section 3.03(a)(I) only.
- ------------------
17.13. Attorneys' Fees. In the event of any litigation,
---------------
arbitration or other dispute resolution proceedings between the parties
hereto arising out of or relating to this Agreement or the transactions
contemplated hereby, the party prevailing in such litigation, arbitration or
proceeding shall be entitled to recover from the other party the reasonable
attorneys' fees and disbursements incurred by such prevailing party in
connection with such litigation, arbitration or proceeding.
17.14. Services to the Company. The parties hereto hereby
-----------------------
acknowledge and recognize that the Company has retained, and may in the
future retain, the services of various persons, entities and professionals,
including legal counsel, accountants, architects and engineers, for the
purposes of representing and providing services to the Company in connection
with the investigation, consummation and operation of the Investments or
otherwise. The parties hereby acknowledge that such persons, entities and
professionals may have in the past represented and performed and currently
and in the future may represent or perform services for the Managing Member
or its Affiliates or the initial Class A Member or its Affiliates.
Accordingly, each party hereto Consents to the representation or provision of
services by such persons, entities and professionals to The Company and
waives any right to claim a conflict of interest based thereon. Nothing
contained herein shall relieve the Managing Member of any duty or liability,
including without limitation the duty to monitor and direct such persons,
entities and professionals for the best interests of the Company. Further,
this Section shall not apply where there is an actual or potential conflict
between the Managing Member or any of its Affiliates and the Company or the
initial Class A Members or any of its Affiliates and the Company.
17.15. Confidentiality. Each Non-Managing Member shall maintain
---------------
the confidentiality of (i) "Non-Public Information," (ii) any information
subject to a confidentiality agreement binding upon the Managing Member or
the Company of which such Non-Managing Member has Written Notice and (iii)
the identity of other Non-Managing Members and their Affiliates so long as
such information has not become otherwise publicly available unless, after
reasonable notice to the Company by the Non-Managing Member, otherwise
compelled by court order or other legal process or in response to other
governmentally imposed reporting or disclosure obligations including, without
limitation, any act regarding the freedom of information to which it may be
subject; provided that each Non-Managing Member may disclose Non-Public
--------
Information to its Affiliates, officers, employees, agents, professional
consultants and proposed Substitute Non-Managing Member upon notification to
such Affiliate, officer, employee, agent, consultant or proposed Substitute
Non-Managing Member that such disclosure is made in confidence and shall be
kept in confidence. As used in this Section 17.14, "NON-PUBLIC INFORMATION"
-------------
means information regarding the Company (including information regarding any
Person in which the Company holds, or contemplates acquiring, any Investment)
or the Managing Member received by such Non-Managing Member pursuant to this
Agreement, but does not include information that (i) was publicly known at
the time such Non-Managing Member receives such information pursuant to this
Agreement, (ii) subsequently becomes publicly known through no act or
omission by such Non-Managing Member or (iii) is communicated to such Non-
Managing Member by a third party free of any obligation of confidence known
to such Non-Managing Member. The Managing Member may not disclose the
identities of the Non-Managing Members, except on a confidential basis to
prospective and other Non-Managing Members in the Company. The Managing
Member may, subject to Section 7.12(D), upon the execution of this Agreement
---------------
and the closing of the acquisition of any Investment, disseminate a press
release with respect thereto.
17.16. Member's Discretion. Whenever pursuant to this
-------------------
Agreement, a Member exercises any right given to it to approve, disapprove,
make a determination, exercise discretion or Consent, or any arrangement or
term is to be satisfactory to such Member, the decision of such Member to
approve, disapprove, make a determination, exercise discretion or Consent, or
to decide whether arrangements or terms are satisfactory or not satisfactory
shall (except as otherwise specifically herein) be in the sole and absolute
discretion of such Member and shall be final and conclusive.
17.17. Modification, Waiver in Writing. No modification,
-------------------------------
amendment, extension, discharge, termination or waiver of any provision of
this Agreement, nor Consent to any departure by any Member therefrom, shall
in any event be effective unless the same shall be in a writing signed by the
party against whom enforcement is sought, and then such waiver or Consent
shall be effective only in the specific instance, and for the purpose, for
which given.
17.18. (Intentionally Omitted).
17.19. PWRES Right of First Offer.
--------------------------
(a) PWRES shall have the exclusive right of first offer to act as
lender, lead manager or lead underwriter for any debt transaction directly or
indirectly involving the Company's assets, on the terms and conditions set
forth in this Section 17.19(a). Prior to making any offers to or soliciting
----------------
any offers from any other Person to act as lender, lead manager or lead
underwriter for any debt transaction directly or indirectly involving the
Company's assets, the Managing Member shall give PWRES a Notice specifying
all of the material business terms for such transaction, including the
principal amount, term, interest rate, amortization, and fees and identifying
all collateral for such debt. If PWRES notifies the Managing Member within
six (6) Business Days that PWRES elects to act as lender, lead manager or
lead underwriter for such transaction, on such terms, then thereafter PWRES
and the Managing Member shall negotiate diligently and in good faith to
consummate such transaction on such terms. If PWRES declines such offer to
act as lender, lead manager or lead underwriter, the Company may engage
another Person to act as lender, lead manager or lead underwriter for such
debt transaction, so long as
(i) the commitment and/or structuring fees in respect of such
transaction are less than or equal to the commitment and/or structuring
fees offered to PWRES;
(ii) the interest rate spread in respect of such transaction does not
exceed the interest rate spread offered to PWRES by more than
(x) fifteen (15) basis points, in the case of floating rate
financing or fixed rate financing with a term of less than ten
years, or
(y) in the case of fixed rate financing with a term of ten years or
more, such difference as would result in a difference in net
present value to the lender of more than (1/2)of one percent of the
principal amount of the financing, such net present value to be
calculated on the basis of the incremental difference in cash flows
generated over the term of the financing due to the difference in
interest rate from the rate offered to PWRES, such incremental
cash flows to be discounted to present value at a discount rate
equal to the rate which, when compounded monthly, is the equivalent
to the yield calculated by the linear interpolation of the yield of
the two U.S. Treasury constant maturities with a maturity date (one
longer and one shorter) nearest to the maturity date of the
financing, compounded semi-annually;
(iii) the principal amount of the loan is less than or equal to the
principal amount proposed to PWRES;
(iv) all other terms and conditions of such transaction are
substantially similar to the terms offered to PWRES;
(v) the Company and such other Person shall have executed a letter of
intent with respect to such transaction within forty-five (45) days of
the date PWRES declines the Company's offer to act as lender, lead
manager or lead underwriter for such transaction;
(vi) the Company and the Managing Member thereafter diligently prosecute
all actions necessary to consummate such transaction subsequent to the
execution of such letter of intent; and
(vii) the transaction as ultimately entered into by the parties is
without change in economics or material business terms from the term
sheet.
Notwithstanding the forgoing, with respect to transactions involving up to
30% in the aggregate of the assets of the Company (as determined at the end
of the Investment Period) for which mortgage financing or refinancing will be
obtained during the term of this Agreement (as such amount may be determined
at the end of the Investment Period), the Company shall not be obligated to
provide PWRES with such exclusive right of first offer; provided, however,
that with respect to assets of the type similar to those -------- -------
described on Schedule 3.03(B) hereof that are financed or refinanced by tax
----------------
exempt debt financing or similarly advantaged financing during the term of
this Agreement, only 50% of the par amount of such debt shall be taken into
account for purposes of determining whether such 30% threshold has been
reached and provided further, that the Company may exceed such 30% threshold
-------- -------
if, on or prior to the closing date of such financing, the Company pays to
PWRES a fee equal to 2% of the amount by which any mortgage financing or
refinancing exceeds such threshold. Such payment shall be made by wire
transfer of immediately available funds to an account designated by PWRES for
such purpose. PWRES' rights under this Section 17.19(a) shall be on the
----------------
express condition that at least two of John A. Taylor, Diedre Wiener and
Steven Baum shall be with PWRES or such other entity
as shall then be the Class A Member in accordance with the terms hereof at
the time of such transaction.
(b) PWRES shall have the exclusive right of first offer to act as
lead manager or underwriter for any equity transaction directly or indirectly
involving the Company's assets on the terms and conditions set forth in this
Section 17.19(b). Prior to making any offer or soliciting any offer from any
- ----------------
other person to act as lead manager or lead underwriter in any equity
transaction directly or indirectly involving the Company's assets the
Managing Member shall give PWRES a Notice specifying all of the material
business terms for such transaction including, but not limited to the
underwriters' spread. If PWRES notifies the Managing Member within ten six
(6) Business Days that PWRES elects to act as lead manager or lead
underwriter for such transaction, on such terms then thereafter PWRES and the
Managing Member shall negotiate diligently and in good faith to consummate
such transaction on such terms; provided, however, that if the Company
-------- -------
reasonably determines that the engagement of another lead manager or
underwriter for any such equity trans act as co-manager of such equity
transaction on terms, including underwriters' spread and allocation, not less
favorable than those of (i) any other co-manager of such transaction, if
there are other co-managers, or (ii) the lead manager of such transaction, if
there are no other co-managers; provided, that with respect to transactions
involving up to 30% in the aggregate of the assets of the Company with
respect to which financing will be obtained by means of equity transactions
during the term of this Agreement (to be determined at the end of the
Investment Period), the Company shall not be obligated to permit PWRES to so
act as co-manager to the extent there are no co-managers of the transaction.
PWRES' rights under this Section 17.19(b) shall be on the
----------------
express condition that at least two of John A. Taylor, Diedre Wiener and
Steven Baum shall be with PWRES or such other entity as shall then be the
holder of the Preferred in accordance with the terms hereof at the time of
such transaction.
(c) Notwithstanding anything to the contrary herein contained,
PWRES' Right of First Offer with respect to debt and equity transactions
shall terminate and be of no further force or effect after PWRES shall have
acted as lender, lead manager or lead underwriter for any such debt or equity
transactions totaling at least $450 million in the aggregate; provided,
--------
however, that any such debt or equity transactions in respect of Investments
- -------
introduced to the Company by PWRES shall not be taken into account for
purposes of determining whether or not such $450 million threshold has been
reached.
(The remainder of this page has been intentionally left blank.)
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first above written.
MANAGING MEMBER:
---------------
RSVP HOLDINGS, LLC
By: RSI Fund Management, LLC,
its managing member
By: Reckson Services Industries, Inc.,
its managing member
By:_________________________________
Name:
Title:
CLASS A MEMBER:
--------------
PAINE WEBBER REAL ESTATE SECURITIES INC.
By:_________________________________
Name:
Title:
For Purposes of Section 7.05(A) and (F) Only:
--------------------------------------------
RECKSON SERVICES INDUSTRIES, INC.
By:_________________________________
Name:
Title:
SCHEDULE A
MEMBERS' CAPITAL COMMITMENTS
Class A Member Amount Class B Member Amount
PWRES $200,000,000 RSVP Holdings, LLC $100,000,000
SCHEDULE 2.22
COMPANY MANAGEMENT PERSONNEL
Donald J. Rechler
Roger M. Rechler
Scott H. Rechler
Gregg M. Rechler
Mitchell D. Rechler
Michael Maturo
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
- ------- -----------
1.01. Formation . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------
1.02. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
----
1.03. Place of Business . . . . . . . . . . . . . . . . . . . . . 2
-----------------
1.04. Registered Office; Principal Office . . . . . . . . . . . . 2
-----------------------------------
1.05. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
----
ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
- ------- -- -----------
ARTICLE III PURPOSE AND BUSINESS . . . . . . . . . . . . . . . . . . . . . 23
- ------- --- -------------------
3.01. Business . . . . . . . . . . . . . . . . . . . . . . . . . 23
--------
3.02. Authorized Activities . . . . . . . . . . . . . . . . . . 24
---------------------
3.03. Prohibited Activities . . . . . . . . . . . . . . . . . . 26
---------------------
3.04. EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------
3.05. Co-Investment Opportunities . . . . . . . . . . . . . . . 28
---------------------------
3.06. Determination of Fair Value, Gross Fair Value and Deemed
--------------------------------------------------------
Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
- -----
ARTICLE IV COMPANY INTERESTS AND CAPITAL . . . . . . . . . . . . . . . . . 33
- ------- -- -----------------------------
4.01. Managing Member . . . . . . . . . . . . . . . . . . . . . 33
---------------
4.02. Non-Managing Members . . . . . . . . . . . . . . . . . . . 33
--------------------
4.03. Capital Contributions . . . . . . . . . . . . . . . . . . 33
---------------------
4.04. Default by Members . . . . . . . . . . . . . . . . . . . . 37
------------------
4.05. Interest . . . . . . . . . . . . . . . . . . . . . . . . . 38
--------
4.06. (Reserved.) . . . . . . . . . . . . . . . . . . . . . . . 38
4.07. Withdrawal of Capital Contributions . . . . . . . . . . . 38
-----------------------------------
4.08. Restoration of Negative Capital Accounts . . . . . . . . . 38
----------------------------------------
4.09. (Reserved.) . . . . . . . . . . . . . . . . . . . . . . . 38
4.10. (Reserved.) . . . . . . . . . . . . . . . . . . . . . . . 38
4.11. Class A Members' Remaining Capital Commitment Fee . . . . 38
-------------------------------------------------
ARTICLE V CAPITAL ACCOUNTS, ALLOCATION OF INCOME AND LOSS . . . . . . . . 39
- ------- - -----------------------------------------------
5.01. Capital Accounts. . . . . . . . . . . . . . . . . . . . . 39
----------------
5.02. Allocation of Profits and Losses. . . . . . . . . . . . . 39
--------------------------------
ARTICLE VI DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 40
- ------- -- -------------
6.01. Distributions. . . . . . . . . . . . . . . . . . . . . . . 40
-------------
6.02. Withholding . . . . . . . . . . . . . . . . . . . . . . . 44
-----------
6.03. Form of Distributions. . . . . . . . . . . . . . . . . . . 44
---------------------
6.04. Distribution Accounts . . . . . . . . . . . . . . . . . . 44
---------------------
6.05. Payment of Cure Amount . . . . . . . . . . . . . . . . . . 45
----------------------
6.06. Tax Distributions . . . . . . . . . . . . . . . . . . . . 46
-----------------
ARTICLE VII RIGHTS AND OBLIGATIONS OF THE MANAGING MEMBER . . . . . . . . 46
- ------- --- ---------------------------------------------
7.01. Management. . . . . . . . . . . . . . . . . . . . . . . . 46
----------
7.02. Authority. . . . . . . . . . . . . . . . . . . . . . . . . 46
---------
7.03. Limitations on the Managing Member . . . . . . . . . . . . 47
----------------------------------
7.04. Business with Affiliates. . . . . . . . . . . . . . . . . 48
------------------------
7.05. Liability for Acts and Omissions; Recourse to Reckson Services
--------------------------------------------------------------
and to ROP Line. 50
- ---------------
7.06. (Reserved.) . . . . . . . . . . . . . . . . . . . . . . . 53
7.07. (Reserved.) . . . . . . . . . . . . . . . . . . . . . . . 53
7.08. Key Man Provisions. . . . . . . . . . . . . . . . . . . . 53
------------------
7.09. Presentation of Opportunities to the Company . . . . . . . 54
--------------------------------------------
7.10. Other Activities . . . . . . . . . . . . . . . . . . . . . 55
----------------
7.11. Affirmative Covenants . . . . . . . . . . . . . . . . . . 55
---------------------
7.12. Negative Covenants . . . . . . . . . . . . . . . . . . . . 62
------------------
7.13. Compliance with Affirmative and Negative Covenants . . . . 63
--------------------------------------------------
ARTICLE VIII ASSIGNMENTS, WITHDRAWAL AND REMOVAL OF THE MANAGING MEMBERS . 64
- ------- ---- -----------------------------------------------------------
8.01. Assignment or Withdrawal by the Managing Member . . . . . 64
-----------------------------------------------
8.02. Voluntary Assignment or Withdrawal of the Managing Member. 64
---------------------------------------------------------
8.03. Bankruptcy of the Managing Member. . . . . . . . . . . . 64
---------------------------------
8.04. (Reserved.) . . . . . . . . . . . . . . . . . . . . . . . 65
8.05. Obligations of a Prior Managing Member. . . . . . . . . . 65
--------------------------------------
8.06. Successor Managing Member. . . . . . . . . . . . . . . . 65
-------------------------
ARTICLE IX RIGHTS AND OBLIGATIONS OF NON-MANAGING MEMBERS . . . . . . . . 66
- ------- -- ----------------------------------------------
9.01. Management of the Company. . . . . . . . . . . . . . . . 66
-------------------------
9.02. Limitation on Liability. . . . . . . . . . . . . . . . . . 66
-----------------------
ARTICLE X TRANSFER OF NON-MANAGING MEMBER INTERESTS . . . . . . . . . . . 67
- --------- -----------------------------------------
10.01. Transfers by Non-Managing Members. . . . . . . . . . . . 67
---------------------------------
10.02. Substitute Non-Managing Member. . . . . . . . . . . . . . 70
------------------------------
10.03. Involuntary Withdrawal by Non-Managing Members. . . . . . 70
----------------------------------------------
10.04. Transfers by Class B Members. . . . . . . . . . . . . . . 71
----------------------------
ARTICLE XI DISSOLUTION AND LIQUIDATION; RECONSTITUTION . . . . . . . . . . 71
- ------- -- -------------------------------------------
11.01. Dissolution. . . . . . . . . . . . . . . . . . . . . . . 71
-----------
11.02. Liquidation. . . . . . . . . . . . . . . . . . . . . . . . 72
-----------
11.03. Continuation of the Company. . . . . . . . . . . . . . . 73
---------------------------
11.04. Release. . . . . . . . . . . . . . . . . . . . . . . . . . 73
-------
ARTICLE XII REPRESENTATIONS AND WARRANTIESOF THE MEMBERS . . . . . . . . . 73
- ------- --- --------------------------------------------
12.01. Representations and Warranties of the Non-Managing Members. 73
12.02. Representations and Warranties of the Managing Member. . 74
-----------------------------------------------------
ARTICLE XIII ACCOUNTING AND REPORTS . . . . . . . . . . . . . . . . . . . 75
- ------------ -----------------------
13.01. Books and Records. . . . . . . . . . . . . . . . . . . . 75
-----------------
13.02. Tax Matters Member . . . . . . . . . . . . . . . . . . . . 75
------------------
13.03. Reports to Members. . . . . . . . . . . . . . . . . . . . 77
------------------
13.04. Company Funds. . . . . . . . . . . . . . . . . . . . . . . 79
-------------
ARTICLE XIV (Reserved.) . . . . . . . . . . . . . . . . . . . . . . . . . 80
- -----------
ARTICLE XV AMENDMENTS AND MEETINGS . . . . . . . . . . . . . . . . . . . . 80
- ---------- -----------------------
15.01. Amendment Procedure. . . . . . . . . . . . . . . . . . . . 80
-------------------
15.02. Exceptions. . . . . . . . . . . . . . . . . . . . . . . 81
----------
15.03. Meetings and Voting. . . . . . . . . . . . . . . . . . . . 81
-------------------
ARTICLE XVI ADVISORY COMMITTEE . . . . . . . . . . . . . . . . . . . . . . 82
- ----------- ------------------
16.01. Selection of the Advisory Committee. . . . . . . . . . . . 82
-----------------------------------
16.02. Meetings of and Action by the Advisory Committee. . . . . 82
------------------------------------------------
16.03. Advisory Committee Management Authority in Certain Events. 85
---------------------------------------------------------
ARTICLE XVII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 86
- ------------ -------------
17.01. Title to Company Property. . . . . . . . . . . . . . . . . 86
-------------------------
17.02. Validity. . . . . . . . . . . . . . . . . . . . . . . . . 86
--------
17.03. Applicable Law. . . . . . . . . . . . . . . . . . . . . . 87
--------------
17.04. Binding Agreement. . . . . . . . . . . . . . . . . . . . . 87
-----------------
17.05. Waiver of Action for Partition. . . . . . . . . . . . . . 87
------------------------------
17.06. Record of Non-Managing Members. . . . . . . . . . . . . . 87
------------------------------
17.07. Headings. . . . . . . . . . . . . . . . . . . . . . . . . 87
--------
17.08. Terminology. . . . . . . . . . . . . . . . . . . . . . . . 87
-----------
17.09. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 87
------------
17.10. Entire Agreement. . . . . . . . . . . . . . . . . . . . . 87
----------------
17.11. Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . 87
----------
17.12. No Third Party Rights. . . . . . . . . . . . . . . . . . . 87
---------------------
17.13. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . 88
---------------
17.14. Services to the Company. . . . . . . . . . . . . . . . . . 88
-----------------------
17.15. Confidentiality. . . . . . . . . . . . . . . . . . . . . . 88
---------------
17.16. Member's Discretion . . . . . . . . . . . . . . . . . . . 89
-------------------
17.17. Modification, Waiver in Writing . . . . . . . . . . . . . 89
-------------------------------
17.18. (Intentionally Omitted) . . . . . . . . . . . . . . . . . 89
17.19. PWRES Right of First Offer. . . . . . . . . . . . . . . . 89
--------------------------
SCHEDULES
- ---------
Schedule A Members' Capital Commitments
Schedule 2.22 Company Management Personnel
RECKSON STRATEGIC VENTURE PARTNERS, LLC
OPERATING AGREEMENT
Exhibit 10.6B
SUPPLEMENTAL AGREEMENT
TO
OPERATING AGREEMENT
OF
RECKSON STRATEGIC VENTURE PARTNERS, LLC
This SUPPLEMENTAL AGREEMENT TO OPERATING AGREEMENT OF RECKSON
STRATEGIC VENTURE PARTNERS, LLC (this "SUPPLEMENTAL AGREEMENT") is made and
entered into as of the 24th day of April, 1998 by and among RSVP HOLDINGS,
LLC, a Delaware limited liability company ("MANAGING MEMBER"), having an
address at 225 Broadhollow Road, Melville, New York 11747, Attention: Seth B.
Lipsay, PAINE WEBBER REAL ESTATE SECURITIES INC., a Delaware corporation
("PWRES"), having an address at 1285 Avenue of the Americas, 19th Floor, New
York, New York 10019, Attention: John A. Taylor, and STRATUM REALTY
PARTNERS, LLC, a Delaware limited liability company ("STRATUM"), having an
address at 888 Seventh Avenue, Suite 3300, New York, New York 10106,
Attention: Michael Nelsen. All capitalized terms used and not otherwise
defined herein shall have the meaning ascribed thereto in the Original
Operating Agreement (as defined below).
W I T N E S S E T H
-------------------
WHEREAS, Managing Member and PWRES have entered into that certain
Operating Agreement of Reckson Strategic Venture Partners, LLC ("RSVP") dated
as of March 5, 1998 (the "ORIGINAL OPERATING AGREEMENT"; as supplemented
hereby, and as the same may hereafter be amended, restated, supplemented or
otherwise modified from time to time, the "OPERATING AGREEMENT"); and
WHEREAS, under the Original Operating Agreement, PWRES was the sole
Class A Member of RSVP with an initial Capital Commitment of $200,000,000;
and
WHEREAS, pursuant to and in accordance with Section 10.01(B) of
the Original Agreement, PWRES has assigned to Stratum, and Stratum has
assumed, a portion of PWRES' Interest in RSVP representing a Class A Member
Interest in RSVP with an unfunded Capital Commitment of $50,000,000 (the
"TRANSFERRED INTEREST") by that certain Assignment and Assumption of Member
Interest by and between PWRES and Stratum dated as of even date herewith; and
WHEREAS, pursuant to Section 10.02 of the Original Operating
Agreement, Stratum desires to exercise its right to become a Substitute Non-
Managing Member of RSVP, and pursuant to Section 10.01(A) of the Original
Operating Agreement, the parties hereto desire to memorialize the transfer of
the Transferred Interest to Stratum and the admission of Stratum as a Member
of RSVP.
NOW THEREFORE, in consideration of the matters described in the
foregoing recitals, and the mutual covenants herein contained and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby conclusively acknowledged, and intending to be bound hereby, the
parties hereto, constituting all of the Members of RSVP, do hereby
supplement and amend the Original Operating Agreement as follows:
1. Admission of Stratum as Member of RSVP; Representations of
----------------------------------------------------------
PWRES and Managing Member. Pursuant to Section 10.02
- -------------------------
of the Original Operating Agreement, Stratum is hereby
admitted as a Substitute Non-Managing Member that is a Class A Member of
RSVP, effective as of the date hereof. For all purposes under the Operating
Agreement, Stratum shall be and hereby is deemed to be a Member of RSVP, a
Class A Member of RSVP and a Non-Managing Member of RSVP from and after the
date hereof. Stratum, by its execution and delivery of this Supplemental
Agreement, hereby adopts and agrees to be bound by all of the terms and
conditions of the Operating Agreement, and shall be, and hereby is, deemed to
have executed, adopted and acknowledged the Operating Agreement in accordance
with Section 10.02(B) thereof. Managing Member and PWRES each hereby
represents to Stratum that RSVP has been duly formed under the laws of the
State of Delaware and is validly existing, that the Operating Agreement, as
supplemented and amended hereby, has not been otherwise modified or amended
and is in full force and effect, and that no default on the part of any
Member thereunder, nor any event that with the passage of time or the giving
of notice or both would constitute such a default, has occurred and is
continuing.
2. Capital Commitments and Net Adjusted Capital Contributions.
----------------------------------------------------------
As of the date hereof, the unfunded Capital Commitments and the
Net Adjusted Capital Contributions of the Members of RSVP are as set forth on
Schedule A attached hereto and by this reference made a part hereof.
- ----------
3. Capital Contributions by Class A Members.
----------------------------------------
(a) Subject to the terms of Section 3(b) below, any call for
Capital Contributions from the Class A Members (including any call for
Capital Contributions from both Class A Members and Class B Members) pursuant
to and in accordance with Section 4.03 of the Operating Agreement shall be
funded by the Class A Members pro rata in accordance with their respective
total (i.e., funded and unfunded) Capital Commitments.
(b) Notwithstanding anything to the contrary contained in
paragraph (a) above, by mutual agreement of PWRES and Stratum, Stratum may
fund that portion of any call for Capital Contributions referenced in
paragraph (a) above that would otherwise have been allocable to PWRES under
paragraph (a) above (but for the operation of this paragraph (b)), in
addition to that portion of such call allocable to Stratum, until Stratum has
fully funded its $50,000,000 Capital Commitment. If PWRES and Stratum shall
mutually elect to exercise their rights under the preceding sentence, they
shall give notice of such election to Managing Member at the time of funding
of the applicable call for Capital Contributions, and from and after the date
on which Stratum shall have fully funded its Capital Commitment, PWRES shall
fund that portion of any call for Capital Contributions referenced in
paragraph (a) above that would otherwise have been allocable to Stratum under
paragraph (a) above (but for the operation of this paragraph (b)), in
addition to that portion of such call allocable to PWRES. In no event shall
this paragraph (b) operate to require either of Stratum or PWRES to make any
Capital Contribution to the extent that making the same would result in the
total funded Capital Contributions of Stratum or PWRES, as the case may be,
to exceed such Person's Capital Commitment.
4. Distributions to Class A Members
--------------------------------
(a) Any distribution of Net Investment Revenues to the Class A
Members pursuant to Section 6.01 of the Operating Agreement shall be
allocated among the Class A Members in the following manner:
(1) Each distribution of Class A Basic Return shall be distributed
among the Class A Members pro rata in accordance with their
then respective total accrued but unpaid Class A Basic Return.
(2) Each distribution of Class A Additional Return shall be
distributed among the Class A Members pro rata in accordance
with their then respective total accrued but unpaid Class A
Additional Return.
(3) Each distribution in return of capital shall be distributed
among the Class A Members pro rata in accordance with their
then respective outstanding Net Adjusted Capital Contributions.
(b) Any distribution of Capital Events Proceeds for any Investment
to the Class A Members pursuant to Section 6.01 of the Operating Agreement
shall be allocated among the Class A Members in the following manner:
(1) Each distribution of Allocated Accrued Class A Basic Return
shall be distributed among the Class A Members pro rata in
accordance with their then respective outstanding Allocated
Accrued Class A Basic Returns for such Investment.
(2) Each distribution in return of capital in reduction of
Allocated Net Adjusted Capital Contributions shall be
distributed among the Class A Members pro rata in accordance
with their then respective Allocated Net Adjusted Capital
Contributions for such Investment.
(3) Each distribution of Allocated Accrued Class A Additional
Return shall be distributed among the Class A Members pro rata
in accordance with their then respective outstanding Allocated
Accrued Class A Additional Returns for such Investment.
(4) Each distribution of Allocated Additional
Return Shortfalls shall be distributed
among the Class A Members pro rata in
accordance with their then respective
outstanding Allocated Additional Return
Shortfalls.
(5) Each distribution of Class A Basic Return shall be distributed
among the Class A Members pro rata in accordance with their
then respective total accrued but unpaid Class A Basic Return.
(6) Each distribution of Class A Additional Return shall be
distributed among the Class A Members pro rata in accordance
with their then respective total accrued but unpaid Class A
Additional Return.
(7) Each distribution in return of capital after payment in full
of Allocated Net Adjusted Capital Contributions for such
Investment shall be distributed among the Class A Members pro
rata in accordance with their then respective outstanding Net
Adjusted Capital Contributions.
5. Advisory Committee. Pursuant to Section 16.01(A) of the
------------------
Original Operating Agreement, Managing Member hereby consents
and agrees that Stratum shall be entitled to designate one representative as
a member of the Advisory Committee.
6. Modification of Right of First Offer of RSVP. Section
--------------------------------------------
10.01(B)(b) of the Original Operating Agreement is hereby
amended and restated in its entirety as follows:
(b) (i) Prior to any Transfer by a Class A Member of
its Interest to any Proposed Transferee (other than a Transfer (x) by
PWRES of its Interest, in whole or in part, to any of its Affiliates,
including for purposes hereof Stratum Realty Fund, L.P. and Stratum
Realty Fund II, L.P. (to be formed), or (y) that is a pledge,
hypothecation or other encumbrance, collateral assignment or other
similar transfer or assignment in the nature of security for the payment
or performance of a debt obligation, including without limitation a
guaranty of the debt obligation of another Person), such Class A Member
shall offer the Company all of its Interest proposed to be Transferred.
Each such offer shall (1) be in writing; (2) be at a price and upon
terms identical or more favorable to the Company than the price at and
terms upon which such Class A Member desires to Transfer its Interest to
such Proposed Transferee; and (3) specify the price and terms of the
proposed Transfer to such Proposed Transferee.
(ii) The Company shall have thirty (30) Business
Days from its receipt of the offer made pursuant to clause (i) above
within which it may, pursuant to Notice to such Class A Member, accept
such offer. Transfer of the Class A Member's Interest to the Company
shall occur within sixty (60) days of the Company's acceptance of such
offer. If the Company does not accept such Class A Member's offer in
accordance with the terms of this Section 10.01(B)(b)(ii), the Class A
-----------------------
thereafter Transfer such Interest to the Proposed
Transferee, at a price producing a yield to the purchaser (assuming a 16% per
annum return on the Class A Member's Interest under the terms of this
Agreement) not greater than fifty basis points (i.e., 0.50 % per annum)
greater than the yield that would have been so produced on the price
specified in the offer described in Section 10.01(B)(b)(i) (provided that,
----------------------
in the case of a Transfer by a lender that has
succeeded to an Interest constituting an aggregate Capital Commitment of less
than $75 million by foreclosure or assignment in lieu thereof, the price
shall not be less than the lesser of (I) ten percent (10%) less than the
dollar price specified in the offer described in Section 10.01(B)(b)(i) or
----------------------
$2.5 million less than the dollar price specified
in the offer described in Section 10.01(B)(b)(i), and in the case of a
----------------------
Transfer by a lender that has succeeded to an Interest
constituting an aggregate Capital Commitment equal to or greater than $75
million by foreclosure or assignment in lieu thereof, a price that is the
lesser of (I) ten percent (10%) less than the dollar price specified in the
offer described in Section 10.01(B)(b)(i) or (II) $5.0 million less than the
----------------------
dollar price specified in the offer described in
Section 10.01(B)(b)(i)); provided, however, in any case, that such Transfer
- ---------------------- -------- -------
shall occur during the period of one-hundred and
eighty (180) days following the last day upon which the Company could have
accepted such offer.
7. General Provisions
------------------
(a) Effect of Supplemental Agreement. The Operating
--------------------------------
Agreement, as supplemented and amended hereby, is
hereby ratified and confirmed and remains in full force and effect.
(b) Governing Law. This Supplemental Agreement shall be con
-------------
strued in accordance with, and shall be governed
by, the laws of the State of Delaware, without regard to principles of
conflicts of laws.
(c) Amendments. This Supplemental Agreement and the
----------
Operating Agreement may not be further
supplemented, amended or otherwise modified, except in writing signed by the
parties hereto.
(d) Severability. In the event that any provision contained
------------
in this Supplemental Agreement shall for any
reason be held to be illegal or invalid under the laws of any jurisdiction,
such illegality or invalidity shall in no way impair the effectiveness of any
other provision hereof, or of such provision under the laws of any other
jurisdiction; provided, that in the construction and enforcement of such
provision under the laws of the jurisdiction in
which such holding of illegality or invalidity exists, and to the extent only
of such illegality or invalidity, this Supplemental Agreement shall be
construed and enforced as though such illegal or invalid provision had not
been contained herein; and provided, further, that in the event of any such
illegality or invalidity, the parties hereto hereby agree to endeavor in good
faith to amend this Supplemental Agreement with such terms and conditions as
are not illegal or invalid and reflect, to the fullest extent possible, the
agreements of the parties set forth herein.
(e) Headings. Section headings used herein are inserted for
convenience only and
--------
shall not in any way affect the meaning or
construction of any provision of this Supplemental Agreement.
(f) Counterparts. This Supplemental Agreement may be
------------
executed in any number of counterparts, each of
which when so executed and delivered shall be an original, and all of which
shall together constitute but one and the same instrument.
(THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)
IN WITNESS WHEREOF, the parties hereto have caused this Supplement
to be duly executed and delivered by their respective duly authorized
representatives as of the date first above written.
RSVP HOLDINGS, LLC
By: RSI Fund Management, LLC,
its managing member
By: Reckson Services Industries, Inc.,
its managing member
By: _________________________________
Name:
Title:
PW REAL ESTATE INVESTMENTS SECURITIES INC.
By: ___________________________
Name:
Title:
STRATUM REALTY FUND, L.P.
By: Stratum Realty Company, L.P.,
its general partner
By: Stratum Principals, Inc.,
its general partner
By: ___________________________
Name:
Title:
SCHEDULE A
CAPITAL COMMITMENTS AND
NET ADJUSTED CAPITAL CONTRIBUTIONS
Member: Capital Commitment: Net Adjusted
Capital Contribution:
RSVP Holdings, LLC $100,000,000.00 $0.00
Paine Webber Real Estate
Securities $150,000,000.00 $5,000,000.00
Inc.
Stratum Realty Partners, LLC $50,000,000.00 $0.00
Exhibit 10.7
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of May 13, 1998 by and between Reckson Service Industries, Inc., a
Delaware corporation (the "Company") and Donald J. Rechler, Roger Rechler,
Scott H. Rechler, Michael Maturo, Gregg M. Rechler and Mitchell D. Rechler
(each, a "Holder", and collectively, the "Holders").
In consideration of the mutual promises and agreements set forth herein,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Registration.
(a) Demand Registration. Until the date on which all of the
Registrable Shares (as hereinafter defined) have become eligible for sale
pursuant to Rule 144 promulgated under the Securities Act, subject to the
conditions set forth in this Agreement, any of the Holders of Registrable
Shares may request that the Company cause to be filed a registration statement
(a "Demand Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the sale by the Holder of its
Registrable Shares in accordance with the terms hereof. As used in this
Agreement, the term "Registrable Shares" means the shares of common stock,
par value $.01 per share (the "Shares") of the Company beneficially owned
by the Holders excluding (A) Shares for which a Registration Statement
relating to the sale thereof shall have become effective under the Securities
Act and which have been disposed of under such Registration Statement, (B)
Shares sold pursuant to Rule 144 under the Securities Act or otherwise or (C)
Shares eligible for sale pursuant to Rule 144 under the Securities Act. Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all other Holders of Registrable Shares. Such
Holders shall have the right, by giving written notice to the Company within
fifteen (15) days after the notice referred to in the preceding sentence has
been given by the Company to elect to have included in the Demand Registration
Statement such of their Registrable Shares as such Holders may request in such
notice of election. Thereupon, the Company (i) will prepare such Registration
Statement for filing with the Securities and Exchange Commission (the "SEC")
within 90 days from such request and (ii) will use its best efforts to cause
such Registration Statement to be declared effective by the SEC for all
Registrable Shares which the Company has been requested to register as soon as
practicable thereafter. The Company agrees to use its best efforts to keep a
Demand Registration Statement filed pursuant to Rule 415 continuously
effective until the earliest of (a) the date on which the Holders no longer
hold any Registrable Shares registered under the Registration Statement, (b)
the date on which the Registrable Shares may be sold by the Holders pursuant
to Rule 144 promulgated under the Securities Act or (c) the date which is
twelve (12) months from the effective date of such Demand Registration
Statement. The Company shall not be required to file and effect a new Demand
Registration Statement pursuant to this Section l(a) until a period of twelve
(12) months has elapsed from the effective date of the registration statement
with respect to Registrable Shares covered by a prior registration request.
(b) Piggyback Registration. If at any time while any Registrable Shares
are outstanding (without any obligation to do so) the Company proposes to file
a registration statement under the Securities Act with respect to a primary
offering of Shares solely for cash (other than a registration statement
(i) on Form S-8 or any successor form to such Form or in connection with any
employee or director welfare, benefit or compensation plan, (ii) on Form S-4
or any successor form to such Form or in connection with an exchange offer,
(iii) in connection with a rights offering exclusively to existing holders of
Shares, (iv) in connection with an offering solely to employees of the
Company or its affiliates, or (v) relating to a transaction pursuant to Rule
145 of the Securities Act), whether or not for its own account (a "Piggyback
Registration Statement"), the Company shall give prompt written notice of such
proposed filing to the Holders. The notice referred to in the preceding
sentence shall offer Holders the opportunity to register such amount of
Registrable Shares as each Holder may request (a "Piggyback Registration").
Any Demand Registration Statement and any Piggyback Registration Statement are
sometimes hereinafter referred to as a "Registration Statement." Subject to
the provisions of Section 2 below, the Company shall include in such Piggyback
Registration all Registrable Shares requested to be included in the
registration and qualification for sale under the blue sky or securities laws
of the various states and in any underwriting in connection therewith for
which the Company has received written requests for inclusion therein within
fifteen (15) calendar days after the notice referred to above has been given
by the Company to the Holders. Holders of Registrable Shares shall be
permitted to withdraw all or part of the Registrable Shares from a Piggyback
Registration at any time prior to the effective date of such Piggyback
Registration. If a Piggyback Registration is an underwritten primary
registration on behalf of the Company and the managing underwriter advises the
Company that the total number of Shares requested to be included in such
registration exceeds the number of Shares which can be sold in such offering,
the Company will include in such registration in the following priority: (i)
first, all Shares the Company proposes to sell and (ii) second, up to the full
number of applicable Registrable Shares requested to be included in such
registration and, which in the opinion of such managing underwriter, can be sold
without adversely affecting the price range or probability of success of such
offering, which shall be allocated among the Holders and all other
stockholders requesting registration pursuant to an effective registration
rights agreement with the Company on a pro rata basis (based on the aggregate
number of Registrable Shares and Shares of such other stockholders).
(c) The Company shall notify each Holder of the effectiveness of the
Registration Statement and shall furnish to each Holder such number of copies
of the Registration Statement as the Holder may reasonably request (including
any amendments, supplements and exhibits), the prospectus contained therein
(including each preliminary prospectus), any documents incorporated by
reference in the Registration Statement and such other documents as the Holder
may reasonably request in order to facilitate its sale of the Registrable
Shares in the manner described in the Registration Statement.
(d) The Company shall prepare and file with the SEC from time to time
such amendments and supplements to the Registration Statement and prospectus
used in connection therewith as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all the Registrable Shares until the
earlier of (a) such time as all of the Registrable Shares have been disposed
of in accordance with the intended methods of disposition by the Holders as
set forth in the Registration Statement or (b) the date on which the
Registration Statement ceases to be effective in accordance with the terms of
this Section 1. Upon five (5) business days' notice, the Company shall file
any supplement or post-effective amendment to the Registration Statement with
respect to such Holder's interests in or plan of distribution of Registrable
Shares that is reasonably necessary to permit the sale of the Holder's
Registrable Shares pursuant to the Registration Statement and the Company
shall file any necessary listing applications or amendments to the existing
applications to cause the shares to be then listed or quoted on the primary
exchange or quotation system on which the Shares are then listed or
quoted.
(e) The Company shall promptly notify each Holder of, and confirm in
writing, any request by the SEC for amendments or supplements to the
Registration Statement or the prospectus related thereto or for additional
information. In addition, the Company shall promptly notify each Holder of,
and confirm in writing, the filing of the Registration Statement, any
prospectus supplement related thereto or any post-effective amendment to the
Registration Statement and the effectiveness of any post-effective amendment.
(f) The Company shall immediately notify each Holder, at any time when a
prospectus relating to the Registration Statement is required to be delivered
under the Securities Act, of the happening of any event as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. In such event, the
Company shall promptly prepare and furnish to each Holder with a reasonable
number of copies of a supplement to or an amendment of such prospectus as may
be necessary so that, as thereafter delivered to the purchasers of Registrable
Shares, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
2. State Securities Laws. Subject to the conditions set forth in this
Agreement, the Company shall, promptly upon the filing of a Registration
Statement including Registrable Shares, file such documents as may be
necessary to register or qualify the Registrable Shares under the securities
or "Blue Sky" laws of such states as any Holder may reasonably request, and
the Company shall use its best efforts to cause such filings to become
effective; provided, however, that the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any such
state in which it is not then qualified or to file any general consent to
service of process in any such state. Once effective, the Company shall use
its best efforts to keep such filings effective until the earlier of (a) such
time as all of the Registrable Shares have been disposed of in accordance with
the intended methods of disposition by the Holder as set forth in the
Registration Statement, (b) in the case of a particular state, a Holder has
notified the Company that it no longer requires an effective filing in such
state in accordance with its original request for filing or (c) the date on
which the Registration Statement ceases to be effective. The Company shall
promptly notify each Holder of, and confirm in writing, the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Registrable Shares for sale under the securities or "Blue
Sky" laws of any jurisdiction or the initiation or threat of any proceeding
for such purpose.
3. Expenses. The Company shall bear all expenses incurred in connection
with the registration of Registrable Shares pursuant to Section 1(b) of this
Agreement. Additionally, the Company shall bear all expenses incurred in
connection with the registration of the Registrable Shares pursuant to Section
1(a) of this Agreement for each Registration Statement registering $1 million
or more of Registrable Shares, and each Holder shall bear a portion of all
expenses incurred by the Company in connection with a registration in which
Registrable Shares of such Holder is included pursuant to Section 1(a) of this
Agreement based on the ratio of the number of Registrable Shares of such
Holder included to the total number of Shares so registered for each
Registration Statement registering less than $1 million of Registrable Shares.
Such expenses shall include, without limitation, all printing, legal and
accounting expenses incurred by the Company and all registration and filing fees
imposed by the SEC, any state securities commission or the New York Stock
Exchange or, if the Shares are not then listed on the New York Stock Exchange,
the principal national securities exchange or national market system on which
the Shares are then traded or quoted. Holders shall be responsible for any
brokerage or underwriting commissions and taxes of any kind (including, without
limitation, transfer taxes) with respect to any disposition, sale or transfer
of Registrable Shares and for any legal, accounting and other expenses incurred
by them.
4. Indemnification by the Company. The Company agrees to indemnify each
of the Holders and their respective officers, directors, employees, agents,
representatives and affiliates, and each person or entity, if any, that
controls a Holder within the meaning of the Securities Act, and each other
person or entity, if any, subject to liability because of his, her or its
connection with a Holder, and any underwriter and any person who controls the
underwriter within the meaning of the Securities Act (an "Indemnitee") against
any and all losses, claims, damages, actions, liabilities, costs and expenses
(including without limitation reasonable attorneys' fees, expenses and
disbursements documented in writing), joint or several, arising out of or
based upon any untrue or alleged untrue statement of material fact contained
in the Registration Statement or any prospectus contained therein, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except insofar
as and to the extent that such statement or omission arose out of or was based
upon information regarding the Indemnitee or its plan of distribution which
was furnished to the Company by the Indemnitee expressly for use therein,
provided, further that the Company shall not be liable to any person who
participates as an underwriter in the offering or sale of Registrable Shares
or any other person, if any, who controls such underwriter within the meaning
of the Securities Act, in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon (i) an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
information furnished to the Company for use in connection with the
Registration Statement or the prospectus contained therein by such Indemnitee
or (ii) such Indemnitee's failure to send or give a copy of the final
prospectus furnished to it by the Company at or prior to the time such action
is required by the Securities Act to the person claiming an untrue statement
or alleged untrue statement or omission or alleged omission if such statement
or omission was corrected in such final prospectus.
5. Covenants of Holders. Each of the Holders hereby agrees (a) to
cooperate with the Company and to furnish to the Company, in a timely manner,
all such information in connection with the preparation of the Registration
Statement and any filings with any state securities commissions as the Company
may reasonably request, (b) to deliver or cause delivery of the prospectus
contained in the Registration Statement to any purchaser of the shares covered
by the Registration Statement from the Holder and (c) to indemnify the
Company, its officers, directors, employees, agents, representatives and
affiliates, and each person, if any, who controls the Company within the
meaning of the Securities Act, and each other person, if any, subject to
liability because of his connection with the Company, against any and all
losses, claims, damages, actions, liabilities, costs and expenses arising out
of or based upon (i) any untrue statement or alleged untrue statement of
material fact contained in either Registration Statement or the prospectus
contained therein, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if and to the extent that such statement or omission
arose out of or was based upon information regarding the Holder or its plan of
distribution which was furnished to the Company by the Holder expressly for
use therein, or (ii) the failure by the Holder to deliver or cause to be
delivered the prospectus contained in the Registration Statement (as amended
or supplemented, if applicable) furnished by the Company to the Holder to any
purchaser of the shares covered by the Registration Statement from the Holder.
Notwithstanding the foregoing, (i) in no event will a Holder have any
obligation under this Section 5 for amounts the Company pays in settlement of
any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder (which consent shall not be
unreasonably withheld) and (ii) the total amount for which a Holder shall be
liable under this Section 5 shall not in any event exceed the aggregate
proceeds received by him or it from the sale of the Holder's Registrable
Shares in such registration.
6. Suspension of Registration Requirement.
(a) The Company shall promptly notify each Holder of, and confirm in
writing, the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose. The Company shall use its best efforts to obtain
the withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in this Agreement,
the Company's obligation under this Agreement to use its best efforts to cause
the Registration Statement and any filings with any state securities
commission to become effective or to amend or supplement the Registration
Statement shall be suspended in the event and during such period as unforeseen
circumstances exist (including without limitation (i) an underwritten primary
offering by the Company if the Company is advised by the underwriters that
sale of the shares under the Registration Statement would have a material
adverse effect on the primary offering or (ii) pending negotiations relating
to, or consummation of, a transaction or the occurrence of an event that would
require additional disclosure of material information by the Company in the
Registration Statement or such filing, as to which the Company has a bona fide
business purpose for preserving confidentiality or which renders the Company
unable to comply with SEC requirements) (such unforeseen circumstances being
hereinafter referred to as a "Suspension Event") that would make it
impractical or unadvisable to cause the Registration Statement or such filings
to become effective or to amend or supplement the Registration Statement, but
such suspension shall continue only for so long as such event or its effect is
continuing but in no event will that suspension exceed 60 days. The Company
agrees not to exercise the rights set forth in this Section 6(b) more than
twice in any twelve month period. The Company shall notify the Holder of the
existence and, in the case of circumstances referred to in clause (i) of this
Section 6(b), of the nature of any Suspension Event.
(c) Each holder of Registrable Shares whose Registrable Shares are
covered by a Registration Statement filed pursuant to Section 1 hereof agrees,
if requested by the Company in the case of a non-underwritten offering or if
requested by the managing underwriter or underwriters in an underwritten
offering, not to effect any public sale or distribution of any of the
securities of the Company of any class included in such Registration
Statement, including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act (except as part of such underwritten registration), during the
15-day period prior to, and during the 60-day period beginning on, the date of
effectiveness of each underwritten offering made pursuant to such Registration
Statement, to the extent timely notified in writing by the Company or the
managing underwriters; provided, however, that such 60-day period shall be
extended by the number of days from and including the date of the giving of
any notice pursuant to Section l(e) or (f) hereof to and including the date
when each seller of Registrable Shares covered by such Registration Statement
shall have received the copies of the supplemented or amended Prospectus
contemplated by Section l(f) hereof.
7. Black-Out Period. Following the effectiveness of the Registration
Statement and the filings with any state securities commissions, the Holders
agree that they will not effect any sales of the Registrable Shares pursuant
to the Registration Statement or any such filings at any time after they have
received notice from the Company to suspend sales as a result of the
occurrence or existence of any Suspension Event or so that the Company may
correct or update the Registration Statement or such filing. The Holder may
recommence effecting sales of Shares pursuant to the Registration
Statement or such filings following further notice to such effect from the
Company, which notice shall be given by the Company not later than five (5)
days after the conclusion of any such Suspension Event.
8. Additional Shares. The Company, at its option, may register, under any
registration statement and any filings with any state securities commissions
filed pursuant to this Agreement, any number of unissued Shares or any Shares
owned by any other shareholder or shareholders of the Company.
9. Contribution. If the indemnification provided for in Sections 4 and 5
is unavailable to an indemnified party with respect to any losses, claims,
damages, actions, liabilities, costs or expenses referred to therein or is
insufficient to hold the indemnified party harmless as contemplated therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, actions, liabilities, costs or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and the Holder, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims,
damages, actions, liabilities, costs or expenses as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to,
among other factors, whether the untrue or alleged untrue statement of a
material fact or omission to state a material fact relates to information
supplied by the Company or by the Holder and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that in no event shall the
obligation of any indemnifying party to contribute under this Section 9 exceed
the amount that such indemnifying party would have been obligated to pay by
way of indemnification if the indemnification provided for under Sections 4 or
5 hereof had been available under the circumstances.
The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
10. No Other Obligation to Register. Except as otherwise expressly
provided in this Agreement, the Company shall have no obligation to the
Holders to register the Registrable Shares under the Securities Act.
11. Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented without the prior written consent of the
Company and the Holders.
12. Notices. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
telex or telecopier, registered or certified mail (return receipt requested),
postage prepaid or courier or overnight delivery service to the Company at the
following address and to the Holder at the address set forth on his signature
page to this Agreement (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall
be effective only upon receipt thereof), and further provided that in case of
directions to amend the Shelf Registration Statement pursuant to Section l(d)
or Section 5(a), a Holder must confirm such notice in writing by overnight
express delivery with confirmation of receipt:
If to the Company: Reckson Service Industries, Inc.
225 Broadhollow Road
Melville, New York 11747
Attn: Scott H. Rechler, President
and Chief Executive Officer
With a copy to: Brown & Wood LLP
One World Trade Center
New York, New York 10048
Attn: Edward F. Petrosky, Esq.
In addition to the manner of notice permitted above, notices given
pursuant to Sections 1, 6 and 7 hereof may be effected telephonically and
confirmed in writing thereafter in the manner described above.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company. This
Agreement may not be assigned by any Holder and any attempted assignment
hereof by any Holder will be void and of no effect and shall terminate all
obligations of the Company hereunder with respect to such Holder.
14. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly within said State, without giving effect to the
conflict of law provisions thereof.
16. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and
of the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
17. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred
to herein, with respect to such subject matter. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
RECKSON SERVICE INDUSTRIES, INC.
By:_____________________________
Name:
Title:
REGISTRATION RIGHTS AGREEMENT
HOLDER SIGNATURE PAGE
Donald J. Rechler
_________________________________
Scott H. Rechler
_________________________________
Michael Maturo
_________________________________
Roger Rechler
_________________________________
Mitchell D. Rechler
_________________________________
Gregg M. Rechler
_________________________________
Exhibit 10.8
InterOffice (Superholdings) Corporation
OPTION TO PURCHASE
THIS OPTION TO PURCHASE (the "Agreement") made this ____ day of May, 1998
by and between Reckson Management Group, Inc., having an address at 225
Broadhollow Road, Melville, New York 11747 ("Seller") and Reckson Service
Industries, Inc., having an address at 225 Broadhollow Road, Melville, New York
11747 ("Purchaser").
WHEREAS, Purchaser desires to acquire an option to purchase all of the
Seller's right, title and interest in Interoffice (Superholdings) Corporation
(collectively the "Interest"); and
WHEREAS, Seller desires to grant to Purchaser an option to purchase the
Interest;
NOW, THEREFORE, in pursuance of said agreement and in consideration of the
sum of [Ten Dollars ($10.00)] and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Seller hereby grants to Purchaser an option, upon the terms and
conditions hereinafter set forth (the "Option"), to acquire the Interest. The
Option may be exercised by Purchaser in the manner hereinafter set forth from
the date hereof through and including the fifth (5th) anniversary of the date
hereof (the "Option Period"). In the event Purchaser elects to exercise the
Option, it shall give written notice thereof to Seller (the "Option Notice"),
which Option Notice must be received by Seller on or before the expiration of
the Option Period. In the event that the Option Notice is not delivered to
Seller on or prior to the expiration of the Option Period, the option shall be
terminated and of no further force and effect and neither party shall have any
further rights or liabilities under this paragraph. In the event the Option
Notice is delivered to Seller prior to the expiration of the Option Period, then
the Contract of Sale attached hereto as Exhibit A (the "Contract of Sale") shall
be deemed a binding agreement, dated the date of actual receipt by Seller of the
Option Notice, between Seller and Purchaser without the need for execution
thereof.
2. Seller may not sell or otherwise transfer the Interest to any party
other than Purchaser.
3. All notices hereunder shall be in writing and may be given either by (a)
federal express or other nationally recognized overnight courier or (b) hand
delivery, in each case to the Seller or Purchaser, as applicable, at the address
first set forth above. Notices shall be deemed given one day after posting, if
given pursuant to (a) above or upon delivery, if given pursuant to (b) above.
4. Time shall be of the essence with regard to all notices given hereunder.
5. All matters relating to the operation, construction or interpretation of
this Agreement shall be governed and determined by the internal laws of the
State of New York, without giving effect to the principles of conflicts of laws.
6. Unless specifically provided herein, no failure by any party to insist
upon the strict performance of any covenant, duty, agreement or condition of
this Agreement or to exercise any right or remedy upon a breach thereof shall
constitute a waiver of any such breach of any other covenant, agreement, term or
condition set forth herein. Neither this Agreement nor any provision hereof may
be waived, modified, amended, discharged or terminated except by an instrument
signed by the party against whom the enforcement of such waiver, modification,
amendment, discharge or termination is sought, and then only to the extent set
forth in such instrument. No waiver shall affect or alter the remainder of this
Agreement but each and every covenant, agreement, term and condition hereof
shall continue in full force and effect with respect to any other then existing
or subsequent breach.
7. This Agreement constitutes the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the parties in connection
therewith. No covenant, representation or condition not expressed in this
Agreement shall affect, or be effective to interpret, change or restrict, the
express provisions of this Agreement.
8. This Agreement may not be assigned, transferred or conveyed by Purchaser
to any person(s) or entity without the prior written consent of Seller.
9. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs or successors and permitted assigns.
10. No provision of this Agreement is intended, nor shall it be
interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any customer, affiliate, stockholder, partner,
director, officer or employee of any party hereto or any other person or entity.
11. If any provision of this Agreement, or the application thereof, is for
any reason held to any extent to be invalid or unenforceable, the remainder of
this Agreement and application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
the void or unenforceable provision and to execute any amendment, consent or
agreement deemed necessary or desirable by Purchaser to effect such replacement.
12. The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any federal or state court located in New
York (as to which the parties agree to submit to jurisdiction for the purposes
of such action), this being in addition to any other remedy to which they are
entitled under this Agreement or otherwise at law or in equity.
13. In connection with any litigation or a court proceeding arising out of
this Agreement, the prevailing party shall be entitled to recover all costs
incurred, including reasonable attorneys' fees and costs whether incurred prior
to trial, at trial, or on appeal.
IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement the
day and year first above written.
RECKSON MANAGEMENT GROUP, INC., Seller
By: ___________________________
Name:
Title:
RECKSON SERVICE INDUSTRIES, INC.,
Purchaser
By: ___________________________
Name:
Title:
EXHIBIT A
---------
THIS CONTRACT (the "Contract") dated as of ________ __, 199_ between
RECKSON MANAGEMENT GROUP, INC., having an address at 225 Broadhollow Road,
Melville, New York 11747 ("Seller") and RECKSON SERVICE INDUSTRIES INC., having
an address at 225 Broadhollow Road, Melville, New York 11747 ("Purchaser").
In consideration of the mutual covenants and agreements contained herein,
and intending to be legally bound hereby, Seller and Purchaser hereby agree as
follows:
ARTICLE 1. Sale of Premises and Acceptable of Title
----------------------------------------
Section 1.01. Seller shall sell and convey to Purchaser, and Purchaser
shall purchase from Seller, at the price and upon, the terms and conditions set
forth in this Contract, all of its right, title and interest in Interoffice
(Superholdings) Corporation (the "Interest").
ARTICLE 2. Purchase Price and Acceptable Funds
-----------------------------------
Section 2.01. The purchase price ("Purchase Price") to be paid by Purchaser
to Seller for the Interest shall be the Seller's cost in acquiring the Interests
of [$13.8 million], plus interest at a rate of 8% per annum from January 27,
1998 (the date on which the Seller acquired the interest).
Section 2.02. All monies payable under this Contract, unless otherwise
specified in this Contract, shall be paid by wire transfer or other form of
payment acceptable to the Seller.
ARTICLE 3. The Closing
-----------
Section 3.01. Except as otherwise provided in this Contract, the closing of
the purchase of the Interest pursuant to this Contract ("Closing") shall take
place at the offices of Brown & Wood LLP, 56th Floor, One World Trade Center,
New York, New York 10048 on or before the thirtieth (30th) day following the
execution of this Contract as agreed by the parties at 10 a.m. ("Closing Date").
ARTICLE 4. Representations and Warranties of Seller
----------------------------------------
Seller represents and warrants to Purchaser as follows:
Section 4.01. (a) Seller is the sole owner of, and has good and marketable
title to, the Interest.
(b) Interoffice (Superholdings) Corporation is a duly formed and validly
existing corporation under the laws of [Delaware] and is duly qualified to
transact business in each jurisdiction in which it is required to be so
qualified;
(c) Interoffice (Superholdings) Corporation has good title to all of its
assets;
(d) Since January 1, 1998, there has been no material adverse change in the
business, assets, or business prospects of Interoffice (Superholdings)
Corporation;
(e) Seller is a duly formed and validly existing corporation under the laws
of New York State and has the full power, authority and legal right to execute
and deliver this Contract and the instruments contemplated hereby and to observe
and perform the provisions hereof;
(f) the execution and delivery of this Contract, the consummation of the
transactions provided for herein and the fulfillment of the terms hereof on the
part of Seller will not result in a breach of any instrument to which Seller is
a party or by which Seller is bound or of any judgment, decree or order of any
court or governmental body or any law, rule or regulation applicable to Seller;
and
(g) Interoffice (Superholdings) Corporation is not now a party to any
litigation or administrative or other proceedings, and Seller knows of no such
litigation or proceedings or threatened litigation or proceedings.
ARTICLE 5. Acknowledgements of Purchaser
-----------------------------
Section 5.01. Purchaser acknowledges that before entering into this
Contract, Purchaser has made such examination of the Interoffice (Superholdings)
Corporation, the operation, income and expenses thereof and all other matters
affecting or relating to this transaction as Purchaser deemed necessary. In
entering into this Contract, Purchaser has not been induced by and has not
relied upon any representations, warranties or statements, whether express or
implied, made by Seller or any agent, employee or other representative of Seller
or by any broker or any other person or entity representing or purporting to
represent Seller, which are not expressly set forth in this Contract, whether or
not any such representations, warranties or statements were made in writing or
orally.
ARTICLE 6. Seller's Closing Obligations
----------------------------
Section 6.01. At the Closing, Seller shall deliver stock certificates
representing the Interest, if any, and shall cause the Purchaser's name to be
reflected on the books and records of Interoffice (Superholdings) Corporation as
the sole owner of the Interest.
Section 6.02. Seller shall deliver a resolution of the board of directors
of Seller authorizing the sale of the Interest contemplated herein and a
certificate executed by the secretary or assistant secretary of Seller
resolution.
Section 6.03. Any other documents required by this Contract to be delivered
by Seller.
ARTICLE 7. Purchaser's Closing Obligations
-------------------------------
At the Closing, Purchaser shall:
Section 7.01. Deliver to Seller the Purchase Price.
Section 7.02. Deliver any other documents required by this Contract to be
delivered by Purchaser.
ARTICLE 8. Broker
------
Section 8.01. Seller and Purchaser mutually represent and warrant that
neither Seller nor Purchaser know of any broker who has claimed, or may have the
right to claim, a commission or any similar finder's fee in connection with this
transaction. Seller and Purchaser shall indemnify and defend each other against
any costs, claims or expenses, including reasonable attorneys' fees, arising out
of the breach on their respective parts of any representations, warranties or
agreements contained in this Section. The representations and obligations under
this Section shall survive the Closing or, if the Closing does not occur, the
termination of this Contract.
ARTICLE 9. Notices
-------
Section 9.01. All notices hereunder by either party to the other shall be
sent by hand delivery or nationally recognized overnight delivery service,
addressed to Seller and Purchaser at the addresses first set forth above. Notice
shall be deemed given one day after posting if sent by nationally recognized
overnight delivery service, or upon delivery if delivered by hand or facsimile
transmission.
ARTICLE 10. Limitations on Survival of Representations,
-----------------------------------------------
Warranties, Covenants and other Obligations
-------------------------------------------
Section 10.01. Except as otherwise provided in this Contract, the
representations, warranties, covenants or other obligations of Seller set forth
in this Contract shall survive until the last day of the twelfth calendar month
following the Closing Date and no action based thereon shall be commenced
thereafter.
ARTICLE 11. Miscellaneous Provisions
------------------------
Section 11.01. This Contract embodies and constitutes the entire
understanding between the parties with respect to the transaction contemplated
herein, and all prior agreements, understandings, representations and
statements, oral or written, are merged into this Contract. Neither this
Contract nor any provision hereof may be waived, modified, amended, discharged
or terminated except by an instrument signed by the party against whom the
enforcement of such waiver, modification, amendment, discharge or termination is
sought, and then only to the extent set forth in such instrument.
Section 11.02. This Contract shall be governed by, and construed in
accordance with, the internal laws of the State of New York without giving
effect to the principles of conflicts of laws.
Section 11.03. The captions in this Contract are inserted for convenience
of reference only and in no way define, describe or limit the scope or intent of
this Contract or any of the provisions hereof.
Section 11.04. This Contract shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs or successors and
permitted assigns.
Section 11.05. As used in this Contract, the masculine shall include the
feminine and neuter, the singular shall include the plural and the plural shall
include the singular, as the context may require.
Section 11.06. No provision of this Contract is intended, nor shall it be
interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any customer, affiliate, stockholder, partner,
director, officer or employee of any party hereto or any other person or entity.
IN WITNESS WHEREOF, the parties hereto have executed this Contract as of
the date first above written.
RECKSON MANAGEMENT GROUP, INC., Seller
By: ________________________________
Name:
Title:
RECKSON SERVICE INDUSTRIES, INC.,
Purchaser
By: ________________________________
Name:
Title:
Exhibit 10.9
THIS NOTE AND THE MEMBERSHIP INTERESTS ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE, SUCH MEMBERSHIP
INTERESTS, NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED
OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE
OR SUCH MEMBERSHIP INTERESTS, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT THIS NOTE OR SUCH MEMBERSHIP INTERESTS MAY
BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.
ONSITE VENTURES, L.L.C.
12% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
AND LOAN AGREEMENT
$6,500,000.00 February ___, 1998
(Initial Maximum Committed Amount) New York, New York
ONSITE VENTURES, L.L.C., a Delaware limited liability company (the
"Company"), for value received, hereby unconditionally promises to pay to the
-------
order of
RSI-OSA HOLDINGS, INC., a Delaware corporation with an address at
225 Broadhollow Road, Melville, New York 11747-0983, or its
permitted assigns (the "Holder"),
------
the aggregate principal amount of all unpaid loans (each, a "Loan") made
----
from time to time by the Holder to the Company in accordance with the terms
and provisions of this Convertible Subordinated Promissory Note and Loan
Agreement (this "Note"), which is initially an amount not to exceed SIX
----
MILLION FIVE HUNDRED THOUSAND and 00/00 DOLLARS ($6,500,000.00) and shall
be adjusted as provided in Section 8(b) hereof, each such Loan being
evidenced by this Note by an endorsement on the schedule attached hereto and
made a part of this Note, including additional pages, if any, attached hereto
(the "Schedule"), on the date (the "Maturity Date") that is twelve (12)
-------- -------------
years after the date (the "Effective Date") that this Note is executed and
--------------
delivered free and clear of any escrow conditions (as conclusively evidenced
by the Schedule) or by way of acceleration, and to pay interest on the
unpaid balance of the aggregate principal amount of each such Loan from
and including the date of such Loan (as shown in the Schedule) to such
original or accelerated maturity date at a rate per annum equal to TWELVE
(12%) percent until the Conversion Date (as hereinafter defined) and equal
to SEVEN (7%) percent from the Conversion Date to the Maturity Date, in
each case, calculated on the basis of a 360-day year and actual number of
days elapsed (but in no event in excess of the maximum rate permitted by
applicable law). Subject to Section 1(c) hereof the accrued interest on each
Loan shall be payable semi-annually on the day of the semi annually period
coinciding with the Maturity Date of such Loan and beginning with the semi-
annual period beginning with the Effective Date and continuing on the same
day of each semi-annual period until the maturity of such Loan (each, an
"Interest Payment Date"). In addition to and not in limitation of the
---------------------
foregoing, the Company further agrees to pay all expenses, including
reasonable attorney's fees and legal expenses, incurred by the Holder in
collecting or attempting to collect any amounts payable hereunder which
are not paid when due, whether by acceleration or otherwise. Interest
from and after the maturity of such Loan (whether as originally stated
or by acceleration) shall be at the rate per annum equal to 15% per annum
if such rate shall not be lawful with respect to the Company, at the highest
lawful rate then in effect. Any interest not paid when due hereunder
shall be added to the principal amount of this Note and shall bear interest
from its due date at the applicable interest rate specified herein.
RECITALS.
Reference is hereby made to the limited liability company agreement
among the Company and the other parties named therein dated as of November
20, 1997, as in effect on the date hereof without regard to amendments,
modifications or supplements thereto on or after the date hereof (the "LLC
---
Agreement"). The LLC Agreement provides, inter alia, that the initial
- --------- ----- ----
investment of the Holder shall be made by the execution and delivery of this
Note which provides, inter alia, that: (a) the Holder shall have the
----- ----
right to: (i) convert all, but not less than all, of the outstanding
principal balance of, and accrued and unpaid interest on, all of the Loans
into a membership interest in the Company equal to 58.69% (including the
membership interest (equal to a 1% Percentage Membership Interest) in the
Company held by the Holder on the date hereof) of the aggregate membership
interests in the Company such amount being subject to adjustment from time to
time to reflect the issuance of additional membership interests in the
Company as more fully described below; (ii) interest at a rate equal to 12%
per annum until the Conversion Date paid semi-annually to the extent that the
Holder would have received such amount had the Holder converted this Note and
received its pro rata share of distributions by the Company to its members;
(iii) interest at a rate equal to 7% per annum after the Conversion Date paid
semi-annually in full; (iv) the full repayment of the outstanding principal
balance of all of the Loans on the Maturity Date; (v) receive as an
additional amount the amount of the Holder's pro rata share of distributions
by the Company to its members (computed as if the Holder converted this Note
immediately prior to such distributions) less the 12% interest actually paid;
and (vi) the enjoyment of all rights and benefits, except as otherwise
specified below, of a member in the Company on or prior to the Conversion
Date (as hereinafter defined); (b) the payment obligations of the Company
under this Note are subordinate to the Senior Debt (as hereinafter defined);
(c) that the Holder has an obligation to loan to the Company from time to
time the Maximum Committed Amount (as hereinafter defined); (d) that unless
the Conversion right is exercised, the accrued and unpaid interest on the
Conversion Date will be payable on the Maturity Date; and (e) after the
Conversion Date, the Company may prepay all or part of the Loans at any time
without any penalty or premium.
1. Payments.
--------
(a) Principal of, and any accrued and unpaid interest on,
each Loan shall be due and payable in full on the Maturity Date or, if
earlier, the date upon which a Conversion Event (as hereinafter defined) is
consummated.
(b) Interest on each Loan shall accrue from the most recent
Interest Payment Date of such Loan to which interest has been paid or, if no
interest has been paid on such Loan, to but excluding the next Interest
Payment Date, and shall be payable in arrears on each Interest Payment Date.
(c) Notwithstanding any provision of this Note to the
contrary, on or prior to the Conversion Date the Company shall only be
required to make payments of interest if the Company distributes cash or
property to the members in the Company during the period which such interest
accrued and then only to the extent of the amount that the Holder would have
received if the Holder had exercised the Conversion Right (as hereinafter
defined) immediately prior to each such distribution, each such payment to be
due and payable on the date as such distribution to the members in the
Company. To the extent that the Company does not pay any accrued and unpaid
interest on or prior to an Interest Payment Date, then such unpaid interest
shall be recorded as accrued interest which is not required to be paid until
the next distribution by the Company to its members or as otherwise provided
herein; provided, that all accrued and unpaid interest on the Conversion Date
--------
shall remain accrued and be due and payable in full on the Maturity Date.
Nothing in this Section 1(c) shall be interpreted to mean that the Company is
permitted to not pay interest on each Interest Payment Date from and after
the Conversion Date.
(d) All payments hereunder shall be made in lawful money of
the United States and in immediately available funds. If any Interest
Payment Date or the Maturity Date would fall on a day that is not a Business
Day (as hereinafter defined), the payment due on such Interest Payment Date
or Maturity Date will be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date or the Maturity
Date, as the case may be. "Business Day" means any day which is not a
Saturday or Sunday and is not a day on which banking institutions are
generally authorized or obligated to close in the City of New York, New York.
(e) The Company may not without the prior consent of the
Holder prepay all or any part of the principal amount of any Loan evidenced
by this Note on or prior to the Conversion Date. From and after the
Conversion Date, the Company in its sole discretion shall have the right to
prepay the principal amount of any and each Loan evidenced by this Note
without premium or penalty. It is acknowledged and agreed that the Holder in
its sole discretion shall have the right to convert all, but not less than
all, of the aggregate principal amount and accrued and unpaid interest of the
Loans evidenced by this Note into membership interests in the Company as
provided in Section 3 hereof at any time on or prior to the Conversion Date.
(f) The obligations of the Company to make the payments
provided for in this Note are absolute and unconditional and not subject to
any defense, setoff, counterclaim, rescission, recoupment or adjustment
whatsoever other than a breach of or default hereunder by the Holder. The
Company hereby expressly waives demand and presentment for payment, notice of
nonpayment, notice of dishonor, protest, notice of protest, bringing of suit
and diligence in taking any action to collect any amount called for
hereunder, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount
called for hereunder.
2. Subordination of Indebtedness; Ranking of this Note.
---------------------------------------------------
(a) The Company covenants and agrees, and the Holder, by
accepting this Note, also covenants and agrees, that the indebtedness of the
Company represented by this Note and the payment of principal and interest by
the Company on each Loan evidenced by this Note shall be expressly
subordinate in right of payment and subject to the prior payment or provision
for payment in full of all claims of all other present and future creditors
of the Company, except: (i) for Pari Passu Debt (as hereinafter defined),
which shall rank pari passu in priority in payment and in all other respects
with the Loans, (ii) claims which are the subject of subordination
agreements, if any, which rank on the same priority as, or are junior to, the
claim of the Holder under such subordination agreements, if any, and (iii)
claims arising or incurred by the Company during the period that any Event of
Default (as hereinafter defined) hereunder shall have occurred and be
continuing.
(b) Payment of principal and interest due on this Note may be
made as long as there shall not have occurred and be continuing an event
which constitutes an Event of Default as defined in any instrument, document
or agreement evidencing any obligations with right of payment obligation
senior to the Loans ("Senior Debt"). No payment on this Note shall be made
-----------
by the Company, if, at the time of such payment or after giving effect
thereto, there shall have occurred and be continuing an event which
constitutes an Event of Default as defined in any instrument, document or
agreement evidencing the Senior Debt permitting the holder of Senior Debt to
accelerate the maturity of the Senior Debt, and such Event of Default shall
not have been cured or waived or shall not have ceased to exist.
(c) Upon any distribution of the assets of the Company upon
any dissolution, winding up, liquidation or reorganization of the Company,
whether in bankruptcy, insolvency, reorganization, arrangement or
receivership proceedings, or upon any assignment for the benefit of
creditors, or any other marshaling of the assets and liabilities of the
Company or otherwise: (i) the holders of the Senior Debt shall first be
entitled to receive cash payment in full of the principal thereof and
interest (whenever arising) due thereon, or provision shall be made for such
payment in cash, before the Holder is entitled to receive any payment on
account of the principal of, or interest on the indebtedness evidenced by
this Note; (ii) any payment by, or distribution of the assets of, the Company
of any kind or character, whether in cash, property or securities, to which
the Holder would be entitled, except for the provisions of this Section 2,
shall be paid or delivered by the person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or
otherwise, directly to the holder of Senior Debt or its agent or other
representative, to the extent necessary to make payment in full of all Senior
Debt remaining unpaid, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holder of such Senior Debt; and
(iii) in the event that, notwithstanding the foregoing, any payment by, or
distribution of the assets of, the Company of any kind or character, whether
in cash, property or securities shall be received by the Holder before all
Senior Debt is paid in full in cash, such payment or distribution shall be
held in trust for the benefit of, and shall be paid over to the holder of,
such Senior Debt or its agent or representative, for application to the
payment of all Senior Debt remaining unpaid until all such Senior Debt shall
have been paid in full in cash, after giving effect to any concurrent payment
or distribution (or provision therefor) to the holder of such Senior Debt.
(d) Subject to the cash payment in full of all Senior Debt,
the holder of this Note shall be subrogated to the rights of the holder of
Senior Debt to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Debt until all amounts
owing on each Loan evidenced by this Note shall be paid in full, and, as
between the Company, its creditors, other than the holders of Senior Debt,
and the Holder, no such payment or distribution made to the holder of Senior
Debt by virtue of this Section 2 which otherwise would have been made to the
Holder shall be deemed to be a payment by the Company on account of this
Note.
(e) Nothing contained in this Note is intended to or shall
impair, as between the Company, its creditors, other than the holder of
Senior Debt, and the Holder, the obligation of the Company, which is absolute
and unconditional, to pay to the Holder the aggregate principal of and
accrued and unpaid interest on each Loan evidenced by this Note as and when
the same shall become due and payable in accordance with its terms, or affect
the relative rights of the Holder and the creditors of the Company, other
than the holders of Senior Debt, nor shall anything herein or therein prevent
the Holder from exercising all remedies otherwise permitted by applicable law
upon default under this Note, subject to the rights, if any, under this Note
of the holders of Senior Debt in respect of cash, property or securities of
the Company received upon the exercise of any such remedy.
(f) Upon any payment or distribution of assets of the Company
referred to in this Note, the Holder shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which any such
dissolution, winding up, liquidation or reorganization proceeding affecting
the affairs of the Company is pending, or upon a certificate of the
liquidating trustee or agent or other person making any payment or
distribution to the Holder for the purpose of ascertaining the persons
entitled to participate in such payment or distribution, the holder of the
Senior Debt and any other Indebtedness of the Company, the amount thereof or
payable thereon, the amount paid or distributed thereon and all other facts
pertinent thereto or to this Note.
(g) With or without notice to or further assent from the
Holder, any holder of Senior Debt may at any time or from time to time, in
its discretion, either prior to or after any default on the part of the
Company, extend or change any of the terms of the Senior Debt, waive any
default, modify, rescind, or waive any provision of any related agreement or
collateral undertaking, release, exchange, fail to resort to or realize upon
any collateral security or any part thereof available to it for the Senior
Debt, and generally deal with the Company in such manner as such holder of
Senior Debt may see fit without impairing or affecting its rights and
remedies under this Note. The Holder, by accepting this Note, waives any and
all notice of the receipt of acceptance of the terms of subordination
contained herein by any holder of Senior Debt and other creation, renewal,
extension or accrual of any of the Senior Debt.
(h) The Company, for itself, its successors and assigns,
covenants and agrees that all indebtedness of the Company evidenced by this
Note (including, without limitation, the payment of the principal of and
accrued and unpaid interest on each Loan) is senior in right of payment to
the payment of all Junior Debt (as hereinafter defined).
(i) Subject to the rights of the holders of the Senior Debt,
the Company covenants and agrees to use its best efforts to cause any current
holder of Junior Debt and to cause any future holder of Junior Debt to
execute such subordination agreements, instruments or waivers as may be
necessary to reflect the terms set forth herein.
(j) Upon an Event of Default (as hereinafter defined), until
the payment in full of all amounts of principal of and interest on the Loans,
and all other amounts due and owing under this Note, no payment may be made
with respect to the principal of or interest on other amounts owing with
respect to any Junior Debt or any membership interest in the Company, or in
respect of any redemption, retirement purchase or other acquisition thereof
except as provided herein.
(k) Upon any payment or distribution of the assets of the
Company to creditors upon dissolution, total or partial liquidation or
reorganization of or similar proceeding relating to the Company, the Holder
of this Note will be entitled to receive payment in full of the entire
principal amount and all accrued interest on the Loans before any holder of
Junior Debt is entitled to receive any payment.
(l) Nothing in this Section 2 shall be interpreted to
prohibit, prevent or delay the issuance of the membership interest in the
Company represented by the Conversion Amount (as hereinafter defined) to the
Holder on the Conversion Date upon the exercise of the Holder of the
Conversion Right.
3. Conversion of this Note into Membership Interests.
-------------------------------------------------
(a) The Holder shall have the right (the "Conversion Right")
----------------
at any time prior to the date that is two (2) years and thirty (30) days
after the date that this Note is executed and delivered free and clear from
any escrow conditions, or if such date is not a Business Day, then the first
Business Day immediately following such date (the "Conversion Date"), on the
---------------
terms set forth in this Section 3, to convert all, but not less than all, of
the outstanding principal balance and accrued and unpaid interest on the
Loans evidenced by this Note into a membership interest in the Company equal
to fifty-eight and sixty-nine one hundredths (58.69%) percent of the
aggregate membership interest in the Company (including the membership
interest (equal to a 1% Percentage Membership Interest) in the Company held
by the Holder on the date hereof), subject to the adjustment hereinafter
provided (the "Conversion Amount").
-----------------
(b) To exercise the Conversion Right the Holder shall,
on or prior to the Conversion Date: (i) deliver a notice to the effect that
the Holder is exercising the Conversion Right (the "Conversion Notice") to
-----------------
the Company at its office at 680 Fifth Avenue, New York, New York 10022,
Attention: The Chairman, or at such other place as is designated in a notice
by the Company to the Holder; and (ii) pay by wire transfer of immediately
available funds an amount equal to SIX MILLION FIVE HUNDRED THOUSAND and
00/100 ($6,500,000.00) DOLLARS less the aggregate outstanding principal
amount of the Committed Loans (as hereinafter defined) evidenced by this
Note, if any (the "Conversion Premium"). The Conversion Notice, once given,
------------------
shall be irrevocable; provided, however, that a Conversion Notice given after
-------- -------
notice of a proposed Conversion Event may be made expressly conditional upon
the consummation of such Conversion Event, in which event the Conversion
Right shall be deemed to have been exercised if and only if such Conversion
Event is actually consummated.
(c) Upon exercise of the Conversion Right (or in the
case of the exercise of a Conversion Right made expressly conditional upon
the occurrence of a Conversion Event, immediately prior the consummation of
such Conversion Event), the Holder shall be admitted as a member in the
Company in accordance with the LLC Agreement (as hereinafter defined) with a
Percentage Membership Interest equal to the Conversion Amount and the books
and records of the Company shall so reflect the conversion of this Note into
such membership interest. Promptly, but not later than two (2) Business Days
after the exercise of the Conversion Right (or in the case of the exercise of
a Conversion Right made expressly conditional upon the occurrence of a
Conversion Event immediately prior to the consummation of such Conversion
Event) the Company shall provide a written notice to the Holder stating that
the Holder has been so admitted as a member in the Company with a membership
interest in the Company equal to (or an increase of its membership interest
by an amount equal to) such Percentage Membership Interest.
(d) The Company covenants and agrees that the membership
interest in the Company to be issued to the Holder by the exercise of the
Conversion Right shall be validly issued, fully paid, non-accessible and free
and clear of any Liens (as hereinafter defined) but such membership interest
shall be subject to the terms and provisions of the LLC Agreement.
(e) The issuance of the membership interest in the Company
represented by the Conversion Amount and the delivery of certificates or
other instruments representing such, shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required
to issue or deliver any such certificate or instrument unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
4. Adjustments to the Conversion Amount.
------------------------------------
(a) The Holder shall at all times on or prior to the
Conversion Date have the right, but not the obligation, to purchase
Additional Interests (as defined by the LLC Agreement) offered to the Members
in the Company pursuant to the terms and provisions of Section 11 of the LLC
Agreement as if the Holder had exercised the Conversion Right immediately
prior to such offer. The Holder, in its sole discretion, may purchase
Additional Interests by paying to the Company as a capital contribution the
aggregate amount of the Necessary Funds (as defined by the LLC Agreement)
attributable to such Additional Interests or by making a Loan for the amount
of Necessary Funds represented by such Additional Interests which loan will
be evidenced by this Note, in which case, the stated principal amount of this
Note shall be increased by such amount. Any Additional Interests purchased
by the Holder by making a Loan shall, in the case of Additional Subscription
Interests (as defined by the LLC Agreement) increase the Percentage
Membership Interest represented by the Conversion Amount which the Holder
shall acquire upon exercise of the Conversion Right, and, in the case of
Additional Interests which are not Additional Subscription Interests, prevent
the fair market dilution of the Percentage Membership Interest represented by
the Conversion Amount pursuant to the provisions of Section 11 of the LLC
Agreement. If the Holder does not purchase its pro rata share of Additional
Interests offered to the Members (such amount being determined as if the
Holder had exercised the Conversion Right immediately prior to the Capital
Call Notice (as defined by the LLC Agreement) applicable to such offer), then
the Conversion Amount shall be diluted to the same extent provided in Section
11(f) of the LLC Agreement, computed as if the Base Percentage Interest (as
defined by the LLC Agreement) of the Holder was the Percentage Membership
Interest represented by the Conversion Amount as of the time immediately
prior to the applicable Capital Call Notice.
(b) In the event that the Holder pays for Additional
Interests by contributing cash to the capital of the Company, the Holder
shall be admitted as a member in the Company or if the Holder had previously
so purchased Additional Interests than the Percentage Membership Interest of
the Holder shall be adjusted in accordance with the terms and provisions of
Section 11 of the LLC Agreement.
5. Covenants.
---------
The Company covenants and agrees with the Holder that, so long
as any amount remains unpaid on the Notes, unless the prior written consent
of the Holder is obtained:
(a) On or prior to the Conversion Date, the Company shall
provide a statement indicating the amount, type and date of each distribution
by the Company to the members on or prior to the date of such distribution;
and
(b) The Company shall provide a notice to the Holder of each
proposed Conversion Event at least 15 Business Days prior to the earliest
proposed closing date of such Conversion Event.
6. Events of Default.
-----------------
The occurrence of any of the following events shall constitute an
event of default (an "Event of Default"):
----------------
(a) At any time while any indebtedness under this Note remains
unpaid:
(i) A default in the payment of the principal on any
Loan, when and as the same shall become due and payable.
(ii) A default in the payment of any interest on any Loan,
when and as the same shall become due and payable, which default shall
continue for ten business days after the date fixed for the making of
such interest payment.
(iii) The entry of a decree or order by a court having
jurisdiction adjudging the Company or any Subsidiary a bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any
Subsidiary, under federal bankruptcy law, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, and the continuance of any such decree
or order unstayed and in effect for a period of 60 days; or the
commencement by the Company or any Subsidiary of a voluntary case under
federal bankruptcy law (a "Voluntary Bankruptcy"), as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency, or other similar law, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization
or relief under federal bankruptcy law or any other applicable federal
or state law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due,
or the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action; provided, however, that it shall not be
an Event of Default if on or prior to the Conversion Date any manager of
the Board of Managers of the Company elected or designated by the Holder
votes in favor of, or consents to, any such Voluntary Bankruptcy.
(b) At any time after the Conversion Date while any indebtedness
under this Note remains unpaid:
(i) The sale or transfer by the Company or any
Subsidiary (as hereinafter defined), whether in one transaction or a
series of transactions, of all or substantially all of their respective
business, whether accomplished by an issuance or transfer of the
membership interests in the Company, equity interests or assets thereof,
or any change in control thereof, or by lease, license, franchise,
contract, merger, consolidation, reorganization, dissolution,
liquidation, foreclosure, by operation of law or otherwise;
(ii) The failure of the Company to own, beneficially and
of record, one hundred percent (100%) of the membership interests in
each Subsidiary;
(iii) A default in the performance, or a breach, of
any other covenant or agreement of the Company in this Note and
continuance of such default or breach for a period of 30 days after
receipt of notice from the Holder as to such breach or after the Company
had or should have had knowledge of such breach;
(iv) (A) Any event or transaction which, directly or
indirectly, results in Veritech not having the unrestricted power to
manage the business and affairs of the Company; (B) any Syndication (as
defined by the LLC Agreement) by Veritech which would not be a Permitted
Transfer (as defined by the LLC Agreement);
(v) (A) Any failure of the Company or any Subsidiary to
pay any indebtedness for borrowed money or otherwise or any interest or
premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) if such failure shall
continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such indebtedness, or (B) any other
breach of, or default under, any agreement or instrument relating to any
such indebtedness, if any such breach or default shall continue after
the applicable grace period, if any, specified in such agreement or
instrument; and
(vi) Any event or transaction which would constitute a
Conversion Event.
7. Remedies Upon Default.
---------------------
(a) Upon the occurrence of an Event of Default referred to in
Section 6(a) above the principal amount then outstanding of, and the accrued
interest on, each Loan evidenced by this Note shall automatically become
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Company. Upon the occurrence of any other Event of Default, the Holder, by
notice in writing given to the Company, may declare the entire principal
amount then outstanding of, and the accrued interest on and, each Loan
evidenced by this Note to be due and payable immediately, and upon any such
declaration the same shall become and be due and payable immediately, without
presentation, demand, protest or other formalities of any kind, all of which
are expressly waived by the Company.
(b) The Holder may institute such actions or proceedings
in law or equity as it shall deem expedient for the protection of its rights
and may prosecute and enforce its claims against all assets of the Company,
and in connection with any such action or proceeding shall be entitled to
receive from the Company payment of the principal amount of this Note plus
accrued interest to the date of payment plus reasonable expenses of
collection, including, without limitation, attorneys' fees and expenses.
8. Obligation of the Holder to Make Committed Loans.
------------------------------------------------
(a) Subject to fulfillment of the conditions precedent set
forth in Section 10 hereof, the Holder agrees from time to time, on the terms
and conditions of this Note, to make loans (each, a "Committed Loan") to the
--------------
Company, from and including the date hereof to but excluding the earlier of
the date the Holder exercises the Conversion Right or the Conversion Date
(the "Committed Loan Period") in an aggregate principal amount at any one
---------------------
time outstanding up to but not exceeding the maximum committed amount of SIX
MILLION AND FIVE HUNDRED THOUSAND and 00/100 ($6,500,000) DOLLARS (the
"Maximum Committed Amount"). It is acknowledged and agreed that prior to the
------------------------
execution and delivery of this Note, the Holder (or its Affiliates) had
previously loaned or advanced to an Affiliate of the Company the aggregate
amount of $625,000 (collectively, the "Interim Loans") and that the Company
-------------
had assumed the obligations of such loans contingent upon such loans being
modified to be a Committed Loan hereunder. Accordingly, on the date that
this Note is executed and delivered free and clear from any escrow
conditions, the Holder shall cancel and return the promissory notes
evidencing the Interim Loans to the Company and the Company shall endorse the
Schedule to reflect a Committed Loan by the Holder in the aggregate principal
amount of the Interim Loans, which amount shall reduce the Maximum Committed
Amount.
(b) In addition to the foregoing, the Holder may from time to
time in its sole discretion, on the terms and conditions of this Note, make
loans (each, an "Uncommitted Loan") to the Company (and the Company by the
----------------
execution and delivery of this Note hereby agrees to so borrow such funds and
endorse the Schedule to record each such Loan) during the period from and
including the date hereof to and including the Conversion Date to pay for any
Additional Interests as provided above. The principal amount of any
Uncommitted Loans will not reduce the Maximum Committed Amount.
9. Procedure for Borrowing.
-----------------------
(a) The Company may request a borrowing of a Committed Loan
hereunder, on any Business Day during the Committed Loan Period, by
delivering to the Holder an irrevocable written notice requesting such
borrowing (a "Funding Notice"), which notice shall state the amount to be
--------------
borrowed (which shall be not less than lesser of $500,000.00 or the then
unborrowed amount of the Maximum Committed Amount), signed by a duly
authorized Veritech Designee (as defined by the LLC Agreement), specify the
requested funding date (the "Funding Date") which date shall not be earlier
------------
than three (3) nor later than ten (10) Business Days after the date such
request is delivered to the Holder and provide a schedule of the intended use
of the proceeds of such Committed Loan.
(b) Upon the Company's request for a borrowing pursuant to
Section 9(a) hereof, the Holder shall, assuming all conditions precedent set
forth in Section 10 hereof and have been met and provided no Event of Default
shall have occurred and be continuing, make a Committed Loan to the Company
on the requested Funding Date in the amount so requested.
10. Conditions to Holder Making Any Committed Loans. The making
-----------------------------------------------
of each Committed Loan to the Company on any Business Day is subject to the
satisfaction of the following conditions precedent, both immediately prior
to the making of such Loan and also after giving effect thereto and to the
intended use thereof:
(a) That no Event of Default shall have occurred and be
continuing;
(b) On the date that the Company delivers a Funding Notice,
the Company shall have reasonable expectation to promptly employ all of the
proceeds from the applicable Committed Loan for expenditures by the Company
in accordance with the Section 9 (Governance) of the LLC Agreement.
(c) That the amount requested for each Committed Loan shall
be an amount not less than the lesser of (x) $500,000 or (y) the then
unborrowed amount of the Maximum Committed Amount and, except for the last
Committed Loan, be in multiples of $500,000.
(d) That there is no breach of, or default under, the LLC
Agreement by the Company or any Member which has occurred and is continuing,
in each case, other than a breach or default caused by the Holder.
11. Payment of Excess Amounts.
-------------------------
It is intended that the Company be obligated to pay as an
additional amount to the Holder the excess of the amount, if any, which the
Holder would have received if the Holder exercised its Conversion Right less
the amount of accrued interest which the Company has actually paid to the
Holder. To effectuate such intent, the Company hereby agrees to pay to the
Holder as an additional amount due and payable hereunder the amount (the
"Excess Amount") of the excess, if any, of (x) the amount of distributions
-------------
actually made to the members in the Company during any fiscal period that the
Holder would have received had it exercised the Conversion Right and
converted this Note into the Converted Amount immediately prior to such
distribution less (y) the amount of accrued interest during such fiscal
period on the Loans actually paid to RSI on or prior to the date of such
distribution. The Excess Amount shall be due and payable by the Company on
the date (and in the same form) as the distribution to the members in the
Company.
12. Amendments, Waivers and Consents.
--------------------------------
(a) Any term, covenant, agreement or condition contained in
this Note may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular instance and
either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the Holder.
13. Transfer.
--------
(a) This Note shall be binding upon the Company and its
successors and assigns; provided, that on or prior to the Conversion Date the
Holder shall not assign this Note without the consent of the Company.
14. Definitions. For the purposes of this Agreement the following
-----------
terms shall have the meaning ascribed thereto in this Section 14.
(a) "Affiliate" means with respect to any person: (i) any
---------
person at the time directly or indirectly controlling, controlled by or under
direct or indirect common control (whether by ownership of voting securities,
contract or otherwise) with such person; and (ii) any executive officer,
senior employee or director (or a person with similar responsibilities) of
such person.
(b) "Conversion Event" shall mean (A) an initial public
----------------
offering of the membership interests in (or other equity interest in or
equity security of) the Company which is registered with the Securities and
Exchange Commission under the provisions of the Act; provided, that not less
--------
than twenty percent (20%) of such interests (on a fully diluted basis after
giving effect to the sale of such interests in such IPO) shall be issued in
such offering (or any substantially similar transaction, including without
limitation, the transfer of the Company's assets to a subsidiary and the sale
of such subsidiary's stock in an offering of the type described in this
subsection with respect to the Company), (B) any merger or consolidation or
similar transaction of the Company with another entity other than a
Subsidiary (as hereinafter defined), or (C) the sale or transfer of all or
substantially all of the assets of the Company to any person or entity other
than to a Subsidiary.
(c) "Junior Debt" means all future indebtedness of the
-----------
Company, if any, which by its terms is junior in right of payment to the
indebtedness represented by this Note and any indebtedness of the Company to
any of its members or any of their respective Affiliates, it being
acknowledged that on the date hereof there is no Junior Debt of the Company.
(d) "Liens" means any lien, encumbrance, claim, charge or
-----
restriction on or with respect to the membership interests in the Company
other than a lien, encumbrance, claim, charge or restriction imposed by this
Agreement or which was granted in order to secure any obligation of the
Company or any guaranty of any obligation of the Company at the request of
the Company.
(e) "Pari Passu Debt" means any claims or indebtedness of the
---------------
Company to any person or entity or any of its Affiliates that is or was a
member in the Company.
(f) "Percentage Membership Interest" shall mean a percentage
------------------------------
equal to the membership interest in the Company of the specified holder on
the date of determination divided by the aggregate membership interests in
the Company.
(g) "Subsidiary" shall mean OnSite Access LLC, a New York
----------
limited liability company, and OnSite Access Local LLC, a New York limited
liability company.
15. Miscellaneous.
--------------
(a) Notices. All notices given pursuant to this Note shall
-------
be in writing and shall be made by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or
overnight air courier guaranteeing next day delivery:
(i) if to the Company,
to the principal office of the Company:
680 Fifth Avenue
New York, NY 10022
Attention: The Chairman
Tel: (212) 324-1514
Fax: (212) 324-1550
with a copy to:
--------------
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Stephen M. Rathkopf, Esq.
Tel: (212) 592-1400
Fax: (212) 889-7577
with a copy to:
--------------
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 30th Floor
New York, NY 10022
Attention: Scott Wornow, Esq.
Tel: (212) 318-6000
Fax: (212) 319-4090
and
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attention: Steven M. Rabinowitz, Esq.
(ii) if to the Holder, to it at its address provided above or
as the Holder shall designate to the Company in writing, such designation to
be effective only upon receipt with a copy to Herrick, Feinstein LLP at the
address set forth above.
(iii) Except as otherwise provided in this Agreement, each
such notice shall be deemed given at the time delivered by hand, if
personally delivered; five business days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next business day after timely delivery
to the courier, if sent by overnight air courier guaranteeing next business
day delivery.
(b) All actions and proceedings arising out of, or relating
to, this Agreement shall be heard and determined in any state or federal
court sitting in New York. The Company, by execution and delivery of this
Note, expressly and irrevocably consent and submit to the personal
jurisdiction of any of such courts in any such action or proceeding; (ii)
consent to the service of any complaint, summons, notice or other process
relating to any such action or proceeding by delivery thereof to such party
by hand or by certified mail, delivered or addressed as set forth in this
Section; and (iii) waive any claim or defense in any such action or
proceeding based on any alleged lack of personal jurisdiction, improper venue
or forum non conveniens or any similar basis.
(c) Specific Performance and Injunctive Relief. The parties
------------------------------------------
recognize and acknowledge that their membership interests of the Company are
closely held and that, accordingly, in the event of a breach or default by
one or more of the parties hereto of the terms and conditions of this Note,
the damages to the remaining parties to this Note, or any one or more of
them, may be impossible to ascertain and such parties will not have an
adequate remedy at law. In the event of : (i) any such breach or default in
the performance of the terms and provisions of Section 11 hereof on or prior
to the Conversion Date; or (ii) any breach or default by the Company of its
obligation to issue or assign or transfer the Conversion Amount in accordance
with Section 3 hereof, any party or parties thereof aggrieved thereby shall
be entitled to institute and prosecute proceedings in any court of competent
jurisdiction, either at law or in equity, to enforce the specific performance
of the terms and conditions of this Note, to enjoin further violations of the
provisions of this Agreement and/or to obtain damages. Such remedies shall
however be cumulative and not exclusive and shall be in addition to any other
remedies which any party may have under this Agreement or at law (including
the right to retain a Deposit as partial "liquidated damages"). Each Member
hereby waives any requirement for security or the posting of any bond or
other surety and proof of damages in connection with any temporary or
permanent award of injunctive, mandatory or other equitable relief and
further agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(d) Attorneys' Fees. In any action or proceeding
---------------
brought to enforce any provision of this Agreement, or where any provision
hereof is validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorneys' fees and all disbursements in
addition to any other available remedy.
(e) Severability. If any provision of this Agreement or
------------
the application thereof to any party or circumstance shall be held invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to the other parties or circumstances shall
not be affected thereby and shall be enforced to the greatest extent
permitted by applicable law.
(f) This Note may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one agreement.
(g) Any word or term used in this Agreement in any form
shall be masculine, feminine, neuter, singular or plural, as proper reading
requires. The words "herein", "hereof", "hereby" or "hereto" shall refer to
this Agreement unless otherwise expressly provided. Any reference herein to
a Section or any exhibit or schedule shall be a reference to a Section of,
and an exhibit or schedule to, this Agreement unless the context otherwise
requires. Any reference herein to a "business day" shall mean a day in which
the New York branch of the Federal Reserve Bank is open for business during
its normal hours of operation.
(h) Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Note (and upon
surrender of this Note if mutilated), and upon reimbursement of the Company's
reasonable incidental expenses, the Company shall execute and deliver to the
Holder a new Note of like date, tenor and denomination.
(i) No course of dealing and no delay or omission on the
part of the Holder in exercising any right or remedy shall operate as a
waiver thereof or otherwise prejudice the Holder's rights, powers or
remedies. No right, power or remedy conferred by this Note upon the Holder
shall be exclusive of any other right, power or remedy referred to herein or
now or hereafter available at law, in equity, by statute or otherwise, and
all such remedies may be exercised singly or concurrently.
(j) This Note may be amended only by a written
instrument executed by the Company and the Holder hereof. Any amendment
shall be endorsed upon this Note, and all future Holders shall be bound
thereby.
(k) This Note has been negotiated and consummated in the
State of New York and shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles
governing conflicts of law.
(The next page is the signature page)
IN WITNESS WHEREOF, each of the Company and the Holder has caused
this Note to be executed and dated the day and year first above written.
THE COMPANY
ONSITE VENTURES, L.L.C.
By: _____________________
Name: Jon Halpern
Title: Manager
THE HOLDER
RSI-OSA HOLDINGS, INC.
By: _____________________
Name: Scott Rechler
Title: President
SCHEDULE ATTACHED TO CONVERTIBLE SUBORDINATED LOAN AGREEMENT AND PROMISSORY
NOTE
IN THE INITIAL MAXIMUM COMMITTED AMOUNT OF $6,500,000.00
FOR ONSITE VENTURES, L.L.C.
<TABLE>
<CAPTION>
Type of Loan
Committed or Amount of Endorsement
Date Uncommitted Amount of Loan Repayment Total Outstanding Made By
<S> <C> <C> <C> <C>
2/20/98 Committed $625,000 $625,000
3/___/98 Committed $350,000 $975,000
4/__/98 Committed $150,000 $1,125,000
</TABLE>
Exhibit 10.10
RECKSON SERVICE INDUSTRIES, INC.
1998 STOCK OPTION PLAN
ARTICLE 1. GENERAL
1.1. Purpose. The purpose of the Reckson Service Industries, Inc. 1998
Stock Option Plan (the "Plan") is to provide for a broad base of officers,
directors and key employees, as defined in Section 1.3, of Reckson Service
Industries, Inc. (the "Company") and certain of its Affiliates (as defined
below) an equity-based incentive to maintain and enhance the performance and
profitability of the Company. It is the further purpose of this Plan to permit
the granting of awards that will constitute performance based compensation for
certain executive officers, as described in Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations promulgated
thereunder.
1.2. Administration.
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of two or more directors, or by the Board. It is
intended that from and after the initial public offering of Common Stock, the
directors appointed to serve on the Committee shall be "non-employee
directors" (within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Act")) and "outside directors" (within
the meaning of Code Section 162(m)); however, the mere fact that a
Committee member shall fail to qualify under either of these requirements shall
not invalidate any award made by the Committee which award is otherwise validly
made under the Plan. The members of the Committee shall be appointed by, and may
be changed at any time and from time to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Plan agreements executed pursuant to the Plan, (iii) to
prescribe, amend and rescind rules relating to the Plan, (iv) to make any
determination necessary or advisable in administering the Plan, and (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan. The Committee shall have no authority to interpret or administer Article 5
of the Plan or to take any action with respect to any awards thereunder.
(c) The determination of the Committee on all matters relating to the Plan
or any Plan agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
hereunder.
(e) Notwithstanding anything to the contrary contained herein, the Board
may, in its sole discretion, at any time and from time to time, resolve to
administer the Plan, in which case, the term Committee as used herein shall be
deemed to mean the Board.
1.3. Persons Eligible for Awards. Awards under the Plan may be made to such
officers, directors and key employees ("key personnel") of the Company or its
Affiliates as the Committee shall from time to time in its sole discretion
select. No member of the Board who is not an officer or employee of the Company
or an Affiliate (an "Independent Director") shall be eligible to receive any
Awards under the Plan, except for non-qualified stock options granted
automatically under the provisions of Article 5 of the Plan.
1.4. Types of Awards Under Plan.
(a) Awards may be made under the Plan in the form of (i) stock options
("options"), (ii) restricted stock awards, and (iii) unrestricted stock awards
in lieu of cash compensation, all as more fully set forth in Articles 2 and 3.
(b) Options granted under the Plan may be either (i) "nonqualified" stock
options ("NQSOs") or (ii) options intended to qualify for incentive stock option
treatment described in Section 422 of the Internal Revenue Code of 1986 (the
"Code") ("ISOs"). Grants of options made under the Plan may also be made in lieu
of cash fees otherwise payable to Directors of the Company or cash bonuses
payable to employees of the Company or any Affiliate.
(c) All options when granted are intended to be NQSOs, unless the
applicable Plan agreement explicitly states that the option is intended to be an
ISO. If an option is intended to be an ISO, and if for any reason such option
(or any portion thereof) shall not qualify as an ISO, then, to the extent of
such nonqualification, such option (or portion) shall be regarded as a NQSO
appropriately granted under the Plan provided that such option (or portion)
otherwise meets the Plan's requirements relating to NQSOs.
1.5. Shares Available for Awards.
(a) Subject to Section 4.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock with
respect to which awards may be granted under the Plan, shall equal the excess
(if any) of 3,700,376 shares of Common Stock, over (i) the number of shares of
Common Stock subject to outstanding awards, (ii) the number of shares in respect
of which options have been exercised, or grants of restricted or unrestricted
Common Stock have been made pursuant to the Plan, and (iii) the number of shares
issued subject to forfeiture restrictions which have lapsed. In any year, a
person eligible for awards under the Plan may not be granted adoptions under
the Plan covering a total of more than 1,000,000 shares of Common Stock.
In accordance with (and without limitation upon) the preceding sentence,
awards may be granted in respect of the following shares of Common Stock: shares
covered by previously-granted awards that have expired, terminated or been
cancelled for any reason whatsoever (other than by reason of exercise or
vesting).
(b) Shares of Common Stock that shall be subject to issuance pursuant to
the Plan shall be authorized and unissued or treasury shares of Common Stock, or
shares of Common Stock purchased on the open market or from shareholders of the
Company for such purpose.
(c) Without limiting the generality of the foregoing, the Committee may,
with the grantee's consent, cancel any award under the Plan and issue a new
award in substitution therefor upon such terms as the Committee may in its sole
discretion determine, provided that the substituted award shall satisfy all
applicable Plan requirements as of the date such new award is made.
1.6. Definitions of Certain Terms.
(a) The term "Affiliate" as used herein means RSI Fund Management, LLC,
RSVP Holdings, LLC and Reckson Strategic Venture Partners, LLC, and any person
or entity as subsequently approved by the Board which, at the time of reference,
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company.
(b) The term "Cause" shall mean a finding by the Committee that the
recipient of an award under the Plan has (i) acted with gross negligence or
willful misconduct in connection with the performance of his material duties to
the Company or its Affiliates; (ii) defaulted in the performance of his material
duties to the Company or its Affiliates and has not corrected such action within
15 days of receipt of written notice thereof; (iii) willfully acted against the
best interests of the Company or its Affiliates, which act has had a material
and adverse impact on the financial affairs of the Company or its Affiliates; or
(iv) been convicted of a felony or committed a material act of common law fraud
against the Company, its Affiliates or their employees and such act or
conviction has, or the Committee reasonably determines will have, a material
adverse effect on the interests of the Company or its Affiliates.
(c) The term "Common Stock" as used herein means the shares of common stock
of the Company as constituted on the effective date of the Plan, and any other
shares into which such common stock shall thereafter be changed by reason of a
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like.
(d) The "fair market value" (or "FMV") as of any date and in respect of any
share of Common Stock shall be:
(i) if the Common Stock is listed for trading on the New York Stock
Exchange, the closing price, regular way, of the Common Stock as
reported on the New York Stock Exchange Composite Tape, or if no
such reported sale of the Common Stock shall have occurred on such
date, on the next preceding date on which there was such a reported
sale; or
(ii) the Common Stock is not so listed but is listed on another
national securities exchange or authorized for quotation on the
National Association of Securities Dealers Inc.'s NASDAQ National
Market System ("NASDAQ/NMS"), the closing price, regular way, of the
Common Stock on such exchange or NASDAQ/NMS, as the case may be, on
which the largest number of shares of Common Stock have been traded
in the aggregate on the preceding twenty trading days, or if no such
reported sale of the Stock shall have occurred on such date on such
exchange or NASDAQ/NMS, as the case may be, on the preceding date on
which there was such a reported sale on such exchange or NASDAQ/NMS,
as the case may be; or
(iii) if the Common Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS, the
average of the closing bid and asked prices as reported by the
National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or, if no such prices shall have been so reported
for such date, on the next preceding date for which such prices were
so reported; or
(iv) if the Common Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS or
NASDAQ generally, the average of the closing bid and asked prices as
reported on the OTC Bulletin Board or, if no such prices shall have
been so reported for such date, on the next preceding date for which
such prices were so reported; or
(v) prior to the initial distribution of Common Stock by Reckson
Operating Partnership, L.P. to its unitholders in the spin-off
transaction, the book value per share of the Common Stock in such
spin-off transaction.
1.7. Agreements Evidencing Awards.
(a) Options and restricted stock awards granted under the Plan shall be
evidenced by written agreements. Any such written agreements shall (i) contain
such provisions not inconsistent with the terms of the Plan as the Committee may
in its sole discretion deem necessary or desirable and (ii) be referred to
herein as "Plan Agreements."
(b) Each Plan agreement shall set forth the number of shares of Common
Stock subject to the award granted thereby.
(c) Each Plan agreement with respect to the granting of an option shall set
forth the amount (the "option exercise price") payable by the grantee to the
Company in connection with the exercise of the option evidenced thereby. The
option exercise price per share shall not be less than 100% of the fair market
value of a share of Common Stock on the date the option is granted.
ARTICLE 2. STOCK OPTIONS
2.1. Option Awards.
(a) Grant of Stock Options. The Committee may grant options to purchase
shares of Common Stock in such amounts and subject to such terms and conditions
as the Committee shall from time to time in its sole discretion determine,
subject to the terms of the Plan.
(b) Dividend Equivalent Rights. To the extent expressly provided by the
Committee at the time of the grant, each NQSO granted under this Section 2.1
shall also generate Dividend Equivalent Rights ("DERs"), which shall entitle the
grantee to receive an additional share of Common Stock for each DER received
upon the exercise of the NQSO, at no additional cost, based on the formula set
forth herein. As of the last business day of each calendar quarter, the amount
of dividends paid by the Company on each share of Common Stock with respect to
that quarter shall be divided by the FMV per share to determine the actual
number of DERs accruing on each share subject to the NQSO. Such amount of DERs
shall be multiplied by the number of shares covered by the NQSO to determine the
number of DERs which accrued during such quarter. The provisions of this Section
2.1(b) shall not be amended more than once every six months other than to
comport with changes in the Code, the Employee Retirement Income Security Act
("ERISA") or the rules thereunder.
For example. Assume that a grantee holds a NQSO to purchase 600 shares of
Common Stock. Further assume that the dividend per share for the first quarter
was $0.10, and that the FMV per share on the last business day of the quarter
was $20. Therefore, .005 DER would accrue per share for that quarter and such
grantee would receive three DERs for that quarter (600 X .005). For purposes of
determining how many DERs would accrue during the second quarter, the NQSO would
be considered to be for 603 shares of Common Stock.
2.2. Exercisability of Options. Subject to the other provisions of the
Plan:
(a) Exercisability Determined by Plan Agreement. Each Plan agreement shall
set forth the period during which and the conditions subject to which the option
shall be exercisable (including, but not limited to vesting of such options), as
determined by the Committee in its discretion.
(b) Partial Exercise Permitted. Unless the applicable Plan agreement
otherwise provides, an option granted under the Plan may be exercised from time
to time as to all or part of the full number of shares for which such option is
then exercisable, in which event the DERs relating to the portion of the option
being exercised shall also be exercised.
(c) Notice of Exercise; Exercise Date.
(i) An option shall be exercisable by the filing of a written notice
of exercise with the Company, on such form and in such manner as the
Committee shall in its sole discretion prescribe, and by payment in
accordance with Section 2.4.
(ii) Unless the applicable Plan agreement otherwise provides, or the
Committee in its sole discretion otherwise determines, the date of
exercise of an option shall be the date the Company receives such
written notice of exercise and payment.
2.3. Limitation on Exercise. Notwithstanding any other provision of the
Plan, no Plan agreement shall permit an ISO to be exercisable more than 10 years
after the date of grant.
2.4. Payment of Option Price.
(a) Tender Due Upon Notice of Exercise. Unless the applicable Plan
agreement otherwise provides or the Committee in its sole discretion otherwise
determines, any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased.
(b) Manner of Payment. Payment of the option exercise price shall be made
in any combination of the following:
(i) by certified or official bank check payable to the Company (or the
equivalent thereof acceptable to the Committee);
(ii) by personal check (subject to collection), which may in the
Committee's discretion be deemed conditional;
(iii) with the consent of the Committee in its sole discretion, by
delivery of previously acquired shares of Common Stock owned by the
grantee for at least six months having a fair market value (determined
as of the option exercise date) equal to the portion of the option
exercise price being paid thereby, provided that the Committee may
require the grantee to furnish an opinion of counsel acceptable to the
Committee to the effect that such delivery would not result in the
grantee incurring any liability under Section 16(b) of the Act and
does not require any Consent (as defined in Section 4.2); and
(iv) with the consent of the Committee in its sole discretion, by the
full recourse promissory note and agreement of the grantee providing
for payment with interest on the unpaid balance accruing at a rate not
less than that needed to avoid the imputation of income under Code
Section 7872 and upon such terms and conditions (including the
security, if any, therefor) as the Committee may determine; and
(v) by withholding shares of Common Stock from the shares otherwise
issuable pursuant to the exercise.
(c) Cashless Exercise. Payment in accordance with Section 2.4(b) may be
deemed to be satisfied, if and to the extent provided in the applicable Plan
agreement, by delivery to the Company of an assignment of a sufficient amount of
the proceeds from the sale of Common Stock acquired upon exercise to pay for all
of the Common Stock acquired upon exercise and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be made at the
grantee's direction at the time of exercise, provided that the Committee may
require the grantee to furnish an opinion of counsel acceptable to the Committee
to the effect that such delivery would not result in the grantee incurring any
liability under Section 16 of the Act and does not require any Consent (as
defined in Section 4.2).
(d) Issuance of Shares. As soon as practicable after receipt of full
payment, the Company shall, subject to the provisions of Section 4.2, deliver to
the grantee one or more certificates for the shares of Common Stock so
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.
2.5. Default Rules Concerning Termination of Employment.
Subject to the other provisions of the Plan and unless the applicable Plan
agreement otherwise provides:
(a) General Rule. All options granted to a grantee shall terminate upon the
grantee's termination of employment for any reason except to the extent
post-employment exercise of the option is permitted in accordance with this
Section 2.5.
(b) Termination for Cause. All unexercised or unvested options granted to a
grantee shall terminate and expire on the day a grantee's employment is
terminated for Cause.
(c) Regular Termination; Leave of Absence. If the grantee's employment
terminates for any reason other than as provided in subsection (b), (d) or (f)
of this Section 2.5, any awards granted to such grantee which were exercisable
immediately prior to such termination of employment may be exercised, and any
awards subject to vesting may continue to vest, until the earlier of either: (i)
90 days after the grantee's termination of employment and (ii) the date on which
such options terminate or expire in accordance with the provisions of the Plan
(other than this Section 2.5) and the Plan agreement; provided that the
Committee may, in its sole discretion, determine such other period for exercise
in the case of a grantee whose employment terminates solely because the
grantee's employer ceases to be an Affiliate or the grantee transfers employment
with the Company's consent to a purchaser of a business disposed of by the
Company. The Committee may, in its sole discretion, determine (i) whether any
leave of absence (including short-term or long-term disability or medical leave)
shall constitute a termination of employment for purposes of the Plan and (ii)
the effect, if any, of any such leave on outstanding awards under the Plan.
(d) Retirement. If a grantee's employment terminates by reason of
retirement (i.e., the voluntary termination of employee by a grantee after
attaining the age of 55), the options exercisable by the grantee immediately
prior to the grantee's retirement shall be exercisable by the grantee until the
earlier of (i) 12 months after the grantee's retirement and (ii) the date on
which such options terminate or expire in accordance with the provisions of the
Plan (other than this Section 2.5) and the Plan agreement.
(e) Death After Termination. If a grantee's employment terminates in the
manner described in subsections (c) or (d) of this Section 2.5 and the grantee
dies within the period for exercise provided for therein, the options
exercisable by the grantee immediately prior to the grantee's death shall be
exercisable by the personal representative of the grantee's estate or by the
person to whom such options pass under the grantee's will (or, if applicable,
pursuant to the laws of descent and distribution) until the earlier of (i) 12
months after the grantee's death and (ii) the date on which such options
terminate or expire in accordance with the provisions of subsections (c) or (d)
of this Section 2.5.
(f) Death Before Termination. If a grantee dies while employed by the
Company or any Affiliate, all options granted to the grantee but not exercised
before the death of the grantee, whether or not exercisable by the grantee
before the grantee's death, shall immediately become and be exercisable by the
personal representative of the grantee's estate or by the person to whom such
options pass under the grantee's will (or, if applicable, pursuant to the laws
of descent and distribution) until the earlier of (i) 12 months after the
grantee's death and (ii) the date on which such options terminate or expire in
accordance with the provisions of the Plan (other than this Section 2.5) and the
Plan agreement.
2.6. Special ISO Requirements. In order for a grantee to receive special
tax treatment with respect to stock acquired under an option intended to be an
ISO, (i) the Plan must be approved by the Company's shareholders in accordance
with the requirements of Code Section 422(b) and (ii) the grantee of such option
must be, at all times during the period beginning on the date of grant and
ending on the day three months before the date of exercise of such option, an
employee of the Company or any of the Company's parent or subsidiary
corporations (within the meaning of Code Section 424), or of a corporation or a
parent or subsidiary corporation of such corporation issuing or assuming a stock
option in a transaction to which Code Section 424(a) applies. If an option
granted under the Plan is intended to be an ISO, and if the grantee, at the time
of grant, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the grantee's employer corporation or of its parent
or subsidiary corporation, then (i) the option exercise price per share shall in
no event be less than 110% of the fair market value of the Common Stock on the
date of such grant and (ii) such option shall not be exercisable after the
expiration of five years after the date such option is granted.
ARTICLE 3. RESTRICTED STOCK AND UNRESTRICTED STOCK AWARDS
3.1. Restricted Stock Awards.
(a) Grant of Awards. The Committee may grant restricted stock awards, alone
or in tandem with other awards, under the Plan in such amounts and subject to
such terms and conditions as the Committee shall from time to time in its sole
discretion determine; provided, however, that the grant of any such restricted
stock awards may be made only in lieu of cash compensation and bonuses. The
vesting of a restricted stock award granted under the Plan may be conditioned
upon the completion of a specified period of employment with the Company or any
Affiliate, upon the attainment of specified performance goals, and/or upon such
other criteria as the Committee may determine in its sole discretion.
(b) Payment. Each Plan agreement with respect to a restricted stock award
shall set forth the amount (if any) to be paid by the grantee with respect to
such award. If a grantee makes any payment for a restricted stock award which
does not vest, appropriate payment may be made to the grantee following the
forfeiture of such award on such terms and conditions as the Committee may
determine. The Committee shall have the authority to make or authorize loans to
finance, or to otherwise accommodate the financing of, the acquisition or
exercise of a restricted stock award.
(c) Forfeiture upon Termination of Employment. Unless the applicable Plan
agreement otherwise provides or the Committee otherwise determines, (i) if a
grantee's employment terminates for any reason (including death) before all of
his restricted stock awards have vested, such awards shall terminate and expire
upon such termination of employment, and (ii) in the event any condition to the
vesting of restricted stock awards is not satisfied within the period of time
permitted therefor, such unvested shares shall be returned to the Company.
(d) Issuance of Shares. The Committee may provide that one or more
certificates representing restricted stock awards shall be registered in the
grantee's name and bear an appropriate legend specifying that such shares are
not transferable and are subject to the terms and conditions of the Plan and the
applicable Plan agreement, or that such certificate or certificates shall be
held in escrow by the Company on behalf of the grantee until such shares vest or
are forfeited, all on such terms and conditions as the Committee may determine.
Unless the applicable Plan agreement otherwise provides, no share of restricted
stock may be assigned, transferred, otherwise encumbered or disposed of by the
grantee until such share has vested in accordance with the terms of such award.
Subject to the provisions of Section 4.2, as soon as practicable after any
restricted stock award shall vest, the Company shall issue or reissue to the
grantee (or to the grantee's designated beneficiary in the event of the
grantee's death) one or more certificates for the Common Stock represented by
such restricted stock award.
(e) Grantees' Rights Regarding Restricted Stock. Unless the applicable Plan
agreement otherwise provides: (i) a grantee may vote and receive dividends on
restricted stock awarded under the Plan; and (ii) any stock received as a
distribution with respect to a restricted stock award shall be subject to the
same restrictions as such restricted stock.
3.2. Unrestricted Shares. The Committee may issue stock under the Plan,
alone or in tandem with other awards, in such amounts and subject to such terms
and conditions as the Committee shall from time to time in its sole discretion
determine; provided, however, that the grant of any such unrestricted stock
awards may be made only in lieu of cash compensation and bonuses.
ARTICLE 4. MISCELLANEOUS
4.1. Amendment of the Plan; Modification of Awards.
(a) Plan Amendments. The Board may, without stockholder approval, at any
time and from time to time suspend, discontinue or amend the Plan in any respect
whatsoever, except that (i) no such amendment shall impair any rights under any
award theretofore made under the Plan without the consent of the grantee of such
award and (ii) except as and to the extent otherwise permitted by Section 4.5 or
4.11, no such amendment shall cause the Plan to fail to satisfy any applicable
requirement under Rule 16b-3 without stockholder approval.
(b) Award Modifications. Subject to the terms and conditions of the Plan
(including Section 4.1(a)), the Committee may amend outstanding Plan agreements
with such grantee, including, without limitation, any amendment which would (i)
accelerate the time or times at which an award may vest or become exercisable
and/or (ii) extend the scheduled termination or expiration date of the award,
provided, however, that no modification having a material adverse effect upon
the interest of a grantee in an award shall be made without the consent of such
grantee.
4.2. Restrictions.
(a) Consent Requirements. If the Committee shall at any time determine that
any Consent (as hereinafter defined) is necessary or desirable as a condition
of, or in connection with, the granting of any award under the Plan, the
acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine not to
make any payment whatsoever until Consent has been given if (i) the Committee
may make any payment under the Plan in cash, Common Stock or both, and (ii) the
Committee determines that Consent is necessary or desirable as a condition of,
or in connection with, payment in any one or more of such forms.
(b) Consent Defined. The term "Consent" as used herein with respect to any
Plan Action means (i) any and all listings, registrations or qualifications in
respect thereof upon any securities exchange or other self-regulatory
organization or under any federal, state or local law, rule or regulation, (ii)
the expiration, elimination or satisfaction of any prohibitions, restrictions or
limitations under any federal, state or local law, rule or regulation or the
rules of any securities exchange or other self-regulatory organization, (iii)
any and all written agreements and representations by the grantee with respect
to the disposition of shares, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an exemption from the
requirement that any such listing, qualification or registration be made, and
(iv) any and all consents, clearances and approvals in respect of a Plan Action
by any governmental or other regulatory bodies or any parties to any loan
agreements or other contractual obligations of the Company or any Affiliate.
4.3. Nontransferability. Except as set forth in any Plan Agreement, no
award granted to any grantee under the Plan or under any Plan agreement shall be
assignable or transferable by the grantee other than by will or by the laws of
descent and distribution. During the lifetime of the grantee, all rights with
respect to any award granted to the grantee under the Plan or under any Plan
agreement shall be exercisable only by the grantee.
4.4. Withholding Taxes.
(a) Whenever under the Plan shares of Common Stock are to be delivered
pursuant to an award, the Committee may require as a condition of delivery that
the grantee remit an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto. Whenever cash is to
be paid under the Plan, the Company may, as a condition of its payment, deduct
therefrom, or from any salary or other payments due to the grantee, an amount
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto or to the delivery of any shares of Common Stock
under the Plan.
(b) Without limiting the generality of the foregoing, (i) a grantee may
elect to satisfy all or part of the foregoing withholding requirements by
delivery of unrestricted shares of Common Stock owned by the grantee for at
least six months (or such other period as the Committee may determine) having a
fair market value (determined as of the date of such delivery by the grantee)
equal to all or part of the amount to be so withheld, provided that the
Committee may require, as a condition of accepting any such delivery, the
grantee to furnish an opinion of counsel acceptable to the Committee to the
effect that such delivery would not result in the grantee incurring any
liability under Section 16(b) of the Act and (ii) the Committee may permit any
such delivery to be made by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the award giving rise to the tax withholding
obligation (in which event the date of delivery shall be deemed the date such
award was exercised).
4.5. Adjustments Upon Changes in Capitalization. If and to the extent
specified by the Committee, the number of shares of Common Stock which may be
issued pursuant to awards under the Plan, the maximum number of options which
may be granted to any one person in any year, the number of shares of Common
Stock subject to awards, the option exercise price of options theretofore
granted under the Plan, and the amount payable by a grantee in respect of an
award, shall be appropriately adjusted (as the Committee may determine) for any
change in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of a stock dividend after the effective date of the
Plan, or other change in such shares of Common Stock effected without receipt of
consideration by the Company; provided that any awards covering fractional
shares of Common Stock resulting from any such adjustment shall be eliminated
and provided further, that each ISO granted under the Plan shall not be adjusted
in a manner that causes such option to fail to continue to qualify as an ISO
within the meaning of Code Section 422. Adjustments under this Section shall be
made by the Committee, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.
4.6. Right of Discharge Reserved. Nothing in the Plan or in any Plan
agreement shall confer upon any person the right to continue in the employment
of the Company or an Affiliate or affect any right which the Company or an
Affiliate may have to terminate the employment of such person.
4.7. No Rights as a Stockholder. No grantee or other person shall have any
of the rights of a stockholder of the Company with respect to shares subject to
an award until the issuance of a stock certificate to him for such shares.
Except as otherwise provided in Section 4.5, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary, and
whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued. In the case of a grantee of
an award which has not yet vested, the grantee shall have the rights of a
stockholder of the Company if and only to the extent provided in the applicable
Plan agreement.
4.8. Nature of Payments.
(a) Any and all awards or payments hereunder shall be granted, issued,
delivered or paid, as the case may be, in consideration of services performed
for the Company or for its Affiliates by the grantee.
(b) No such awards and payments shall be considered special incentive
payments to the grantee or, unless otherwise determined by the Committee, be
taken into account in computing the grantee's salary or compensation for the
purposes of determining any benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate or (ii) any
agreement between the Company or any Affiliate and the grantee.
(c) By accepting an award under the Plan, the grantee shall thereby waive
any claim to continued exercisability or vesting of an award or to damages or
severance entitlement related to non-continuation of the award beyond the period
provided herein or in the applicable Plan agreement, notwithstanding any
contrary provision in any written employment contract with the grantee, whether
any such contract is executed before or after the grant date of the award.
4.9. Non-Uniform Determinations. The Committee's determinations under the
Plan need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform and
selective Plan agreements, as to (a) the persons to receive awards under the
Plan, (b) the terms and provisions of awards under the Plan, and (c) the
treatment of leaves of absence pursuant to Section 2.7(c).
4.10. Other Payments or Awards. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company, any Affiliate or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
4.11. Reorganization.
(a) In the event that the Company is merged or consolidated with another
corporation and, whether or not the Company shall be the surviving corporation,
there shall be any change in the shares of Common Stock by reason of such merger
or consolidation, or in the event that all or substantially all of the assets of
the Company are acquired by another person, or in the event of a reorganization
or liquidation of the Company (each such event being hereinafter referred to as
a "Reorganization Event") or in the event that the Board shall propose that the
Company enter into a Reorganization Event, then the Committee may in its
discretion, by written notice to a grantee, provide that his options will be
terminated unless exercised within 30 days (or such longer period as the
Committee shall determine in its sole discretion) after the date of such notice;
provided that if, and to the extent that, the Committee takes such action with
respect to the grantee's options not yet exercisable, the Committee shall also
accelerate the dates upon which such options shall be exercisable. The Committee
also may in its discretion by written notice to a grantee provide that all or
some of the restrictions on any of the grantee's awards may lapse in the event
of a Reorganization Event upon such terms and conditions as the Committee may
determine.
(b) Whenever deemed appropriate by the Committee, the actions referred to
in Section 4.11(a) may be made conditional upon the consummation of the
applicable Reorganization Event.
4.12. Section Headings. The section headings contained herein are for the
purposes of convenience only and are not intended to define or limit the
contents of said sections.
4.13. Effective Date and Term of Plan.
(a) The Plan has been adopted and shall be effective as of January 10,
1998.
(b) The Plan shall terminate as of December 31, 2008, and no awards shall
thereafter be made under the Plan. Notwithstanding the foregoing, all awards
made under the Plan prior to such termination date shall remain in effect until
such awards have been satisfied or terminated in accordance with the terms and
provisions of the Plan and the applicable Plan agreement.
4.14. Governing Law. The Plan shall be governed by the laws of the State of
New York applicable to agreements made and to be performed entirely within such
state.
ARTICLE 5. STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS
5.1. Automatic Grant of Options. Each Independent Director appointed or
elected for the first time shall automatically be granted a NQSO to purchase
1,000 shares of Common Stock on his date of appointment or election. Each
Independent Director who is serving as Director of the Company on the fifth
business day after each annual meeting of shareholders shall automatically be
granted on such day NQSOs to acquire 500 shares of Common Stock; provided,
however, that an Independent Director who is appointed or elected for the first
time shall not be eligible to receive NQSOs pursuant to this sentence for the
year of his initial appointment or election. The exercise price per share for
the Common Stock covered by a NQSO granted pursuant to this Section 5.1 shall be
equal to the FMV of the Common Stock on the date the NQSO is granted.
5.2. Exercise; Termination; Non-Transferability
(a) All NQSOs granted under this Article 5 shall be immediately
exercisable. No NQSO issued under this Article 5 shall be exercisable after the
expiration of ten years from the date upon which such NQSO is granted.
(b) The rights of an Independent Director in a NQSO granted under this
Article 5 shall terminate twelve months after such Director ceases to be a
Director of the Company or the specified expiration date, if earlier; provided,
however, that such rights shall terminate immediately on the date on which an
Independent Director ceases to be a Director by reason of termination of his
directorship on account of any act of (i) fraud or intentional misrepresentation
or (ii) embezzlement, misappropriation or conversion of assets or opportunities
of the Company.
(c) No NQSO granted under this Article 5 shall be transferable by the
grantee otherwise than by will or by the laws of descent and distribution, and
such grantee shall be exercisable during the grantee's lifetime only by the
grantee. Any NQSO granted to an Independent Director and outstanding on the date
of his death may be exercised by the legal representative or legatee of the
grantee for the period of twelve months from the date of death or until the
expiration of the stated term of the option, if earlier.
(d) NQSOs granted under this Article 5 may be exercised only by written
notice to the Company specifying the number of shares to be purchased. Payment
of the full purchase price of the shares to be purchased may be made by
certified or official bank check payable to the Company. A grantee shall have
the rights of a stockholder only as to shares acquired upon the exercise of a
NQSO and not as to unexercised NQSOs.
5.3. Adjustments Upon Changes in Capitalization. The number of shares of
Common Stock subject to awards and the option exercise price of NQSOs
theretofore granted under this Article 5, and the amount payable by a grantee in
respect of an award, shall be appropriately adjusted for any change in the
number of issued shares of Common Stock resulting from the subdivision or
combination of shares of Common Stock or other capital adjustments, or the
payment of a stock dividend after the effective date of the Plan, or other
change in such shares of Common Stock effected without receipt of consideration
by the Company; provided that any awards covering fractional shares of Common
Stock resulting from any such adjustment shall be eliminated.
5.4 Limited to Independent Directors. The provisions of this Article 5
shall apply only to NQSOs granted or to be granted to Independent Directors,
shall be interpreted as if this Article 5 constituted a separate plan of the
Company and shall not be deemed to modify, limit or otherwise apply to any other
provision of this Plan or to any NQSO issued under this Plan to a participant
who is not an Independent Director of the Company. To the extent inconsistent
with the provisions of any other Section of this Plan, the provisions of this
Article 5 shall govern the rights and obligations of the Company and Independent
Directors respecting NQSOs granted or to be granted to Independent Directors.
The provisions of this Article 5 shall not be amended more than once every six
months other than to comport with changes in the Code, ERISA or the rules
thereunder.
Exhibit 10.11
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, entered into as of February 26, 1998, is made by
and between RSVP Holdings, LLC, a Delaware limited liability company (the
"Company"), and Steven H. Shepsman (the "Executive"). Capitalized terms used
herein but not defined herein shall have the meanings as defined in the
Limited Liability Operating Agreement of the Company dated as of February 20,
1998 (the "Company Operating Agreement").
WHEREAS, the Company is owned and controlled by (i) RSI Fund
Management LLC, a Delaware limited liability company ("RSI Management"),
wholly owned by Reckson Services Industries Inc. ("Reckson Services"), and
(ii) New World Realty, LLC, a Delaware limited liability company ("S/S"); and
WHEREAS, the Company and Paine Webber Real Estate Securities Inc.
propose to form Reckson Strategic Venture Partners, LLC, a Delaware limited
liability company (the "Fund") to acquire and invest in real estate and real
estate-related operating companies in selected segments of the real estate
industry; and
WHEREAS, the Company is proposed to be the Managing Member of the
Fund; and
WHEREAS, the Company desires to obtain the services of the
Executive to perform certain services, including to manage the operations of
the Fund or such other vehicle as may be formed in lieu of the Fund, and the
Executive is willing to render such services, in accordance with the terms
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the Company and the Executive agree as follows:
ARTICLE I
Term of Agreement
I.1 Term. The term of employment under this Agreement shall be
----
for the period commencing on March 5, 1998, or such later date within 5 days
thereafter as is requested by the Executive ( the "Effective Date") and
ending on the day prior to the seventh anniversary of the Effective Date (the
"Term"); provided, however, that the Term may be earlier terminated after the
fifth anniversary of the Effective Date as a result of (a) the end of the
term (unless extended) of the Fund, or (b) as otherwise provided in this
Agreement. The parties' respective obligations hereunder shall commence and
continue from and after the date of this Agreement, notwithstanding any delay
or failure to consummate the formation, organization or funding of the Fund,
provided, however, that if the Executive does not
commence performance of his duties on or before the Effective Date for any
reason, and the Company has provided written notice thereof to the Executive
and the Executive has not commenced performance within 30 days of the date of
the receipt of written notice, his failure to do so shall be deemed a
voluntary termination of employment by Executive, as of the Effective Date,
pursuant to the terms of Section 5.5 of this Agreement (except that Section
7.1 of this Agreement shall not apply to such termination).
ARTICLE II
Position and Duties
II.1 Position. The Executive shall be employed as one of two
--------
Managing Directors of the Fund, a non-member manager of the Company and one
of four members of the Management Committee, all subject to the terms of this
Agreement.
II.2 Duties. The Executive agrees to (a) supervise and direct the
------
Fund including the day to day management of the Fund, and (b) from time to
time advise RA on strategic corporate decisions and major acquisitions as RA
may request ("RA Advisory Services"), provided the RA Advisory Services do
not interfere with the performance of the Executive's other duties hereunder,
and further provided the Executive is indemnified and held harmless by RA and
the Operating Partnership from and against all Damages arising out of or
relating thereto, other than for wilful misconduct on the part of the
Executive. The Executive shall be located in Long Island, New York. The
Executive shall report directly to the Management Committee. Excluding
periods of vacation and sick leave to which the Executive is entitled
pursuant to the terms of this Agreement, the Executive agrees that during the
Term he shall devote substantial and sufficient time and attention to the
performance of his duties and responsibilities hereunder. Notwithstanding
the foregoing, the Executive may (i) with the written consent of Reckson
Services or RSI Management, such consent not to be unreasonably withheld,
serve as a director of any public or private company, which does not directly
compete with a Fund Platform Investment or with RSI or its affiliates;
(ii) serve on civic or charitable boards or committees or engage in other
charitable activities; (iii) engage in residential mortgage lending in the
U.S. and abroad and in vehicle financing and sales; and (iv) engage in any
passive investment activities (the foregoing activities, collectively,
"Permitted Outside Activities"), so long as all such Permitted Outside
Activities in the aggregate do not (x) materially interfere with the
performance of the Executive's duties with respect to the Fund or (y) exceed
an average of five hours per week during regular business hours in any
calendar year.
ARTICLE III
Compensation
III.1 Base Salary. The Company agrees to pay or cause to be paid
-----------
to the Executive during the Term a base salary at the rate of $500,000 per
annum during the first five years of the Term, and $1,100,000 per annum
during the sixth and seventh year of the Term, or such larger amount as RSI
Management may from time to time determine (hereinafter referred to as the
"Base Salary"). Such Base Salary shall be payable in accordance with RA's
customary practices applicable to its senior executives, but not less
frequently than monthly. During the Term, the Base Salary shall be
automatically, without further action by the Company, increased, by an amount
equal to 50% of the maximum amount of S/S Transaction Fees which may be
payable to S/S (calculated as if both Managing Directors of the Company were
still Managing Directors, but increased by 100% of any Retained S/S
Transaction Fees) (as defined in Section 5.8(e) of this Agreement) and not
received by S/S as provided in Section 9.02(d) of the Company Operating
Agreement, but such increase shall not exceed $500,000 per annum during the
Term. The Company and RSI Management shall not be entitled to any additional
or greater defenses, rights or remedies than they would otherwise have had,
nor shall the Executive be deemed to waive or release any rights he would
otherwise have had, were the amounts payable to S/S as S/S Transaction Fees
instead payable to the Executive as additional stated Base Salary.
III.2 Deferred Compensation. The Executive will be provided, at the
---------------------
beginning of the Term and on an annual basis, the opportunity to defer all or
a portion of Base Salary into a grantor trust established by the Company for
the benefit of Executive. The deferred Base Salary shall be deposited with
the trustee of the grantor trust at such times as the deferred Base Salary
would have been paid to Executive. Executive shall select the investment
vehicle(s) for amounts held by the trustee and all such amounts shall be
actually invested in such investments. All deferred Base Salary plus
investment gains and minus investment losses thereon (the "Deferred
Compensation") will be paid to Executive within seven business days of
Executive's termination of employment for any reason. All expenses of the
grantor trust shall be paid from the grantor trust.
ARTICLE IV
Other Benefits
IV.1 Executive Benefits. The Executive will be covered under all
------------------
retirement, medical, dental and vision care, short-term and long-term
disability, life insurance, accident insurance and other benefit plans
maintained from time to time by RA for its senior executives.
IV.2 Vacation and Sick Leave. The Executive shall be entitled to
-----------------------
annual vacation in accordance with the policies as periodically established
by RA for its senior executives, which shall in no event be less than five
weeks per year. The Executive shall be entitled to carryover up to 2.5
unused weeks of vacation from year to year, provided that no more than eight
weeks of vacation is taken in any one calendar year. The Executive shall be
entitled to sick leave (without loss of pay) in accordance with RA's policies
for its senior executives as in effect from time to time.
IV.3 Expenses. The Company shall reimburse the Executive for all
--------
reasonable travel, entertainment and other business expenses incurred by him
in connection with the performance of the Executive's duties under this
Agreement.
ARTICLE V
Termination of Employment
V.1 Permitted Termination: The Executive's employment hereunder
---------------------
may not be terminated by the Company or RSI Management except (a) for Cause
(as defined in Section 5.8(b)), (b) as a result of Executive's death or
Disability (as defined in Section 5.8(c)); (c) upon an Adverse Valuation
Determination, or (d) after the fifth anniversary of the Effective Date, as a
result of the end of the term (unless otherwise extended) of the Fund.
V.2 Termination for Cause or Certain Resignation.
--------------------------------------------
(a) Except as otherwise set forth in this Section 5.2, all
obligations of the Company under this Agreement shall cease if, during the
Term, the Company or RSI Management terminates the Executive for Cause (and
if the Executive is terminated for Cause, he will be deemed to have
withdrawn, as of the Termination Date, as a member of S/S and will not be
entitled to receive any distributions not actually distributed as of the
Termination Date unless previously required to have been paid or distributed
to the Executive or S/S prior to the Termination Date). Upon such
termination the Executive shall receive in a lump sum cash payment as soon as
practicable after the Termination Date, but in no event more than seven
business days thereafter, an amount equal to the sum of: (i) the portion of
the Executive's then current Base Salary accrued to the Termination Date but
unpaid as of the Termination Date (the "Unpaid Salary"); (ii) 50% of S/S
Transaction Fees (calculated as if both Managing Directors of the Company
were still Managing Directors, but increased by 100% of any Retained S/S
Transaction Fees) accrued to the Termination Date but unpaid as of the
Termination Date (the "Unpaid Additional Compensation"); (iii) payment in
respect of Executive's accrued but unused vacation ("Unused Accrued
Vacation"); (iv) Deferred Compensation (as provided in Section 3.2); and
(v) payment in respect of accrued but unpaid or unused Executive Benefits
("Accrued Executive Benefits").
(b) If the Company or RSI Management seeks to terminate the
Executive for Cause and the Executive contests such termination, then at RSI
Management's or the Executive's election, the issue shall be submitted for
judicial determination with expedited discovery, no priorities in discovery,
a three-month cutoff to all discovery and trial as soon thereafter as a court
will allow, in federal (or if that venue is unavailable, state) court in New
York County (but the court may only determine the issue of whether Cause
exists). The Executive's rights to payment of Base Salary, 50% of S/S
Transaction Fees (calculated as if both Managing Directors of the Company
were still Managing Directors, but increased by 100% of any Retained S/S
Transaction Fees) and other benefits shall continue unimpeded while such
proceeding is pending unless and until there is an initial finding in such
proceeding on a motion for summary judgment or at trial that Cause exists.
If Cause is found to have occurred:
(i) the Executive's employment shall be terminated for Cause as of
the date the Company or RSI Management first requested such action be
taken;
(ii) the Executive shall promptly receive the amounts set forth in
Section 5.2(a), but in no event more than seven business days
thereafter; and
(iii) simultaneously with such payment to the Executive, the
Company shall be repaid, with statutory interest, any payments made to
the Executive pursuant to this Section 5.2(b) from and after the date
the Company or RSI Management first requested termination for Cause.
If Cause is not found to have occurred, the Executive may elect,
provided notice of such election is given to the Company and RSI Management
within 15 business days of final adjudication, to terminate employment and
all governance rights in S/S effective as of the date of such notice and,
upon Executive's execution in favor of the Company, the other Managing
Director, RSI Management, Reckson Services, S/S and their respective
Affiliates of a waiver and release of all claims relating to the attempted
termination for Cause, shall simultaneously receive a lump sum cash payment
equal to the sum of: (i) Base Salary through the end of an assumed six-year
Term; (ii) 50% of S/S Transaction Fees through the end of an assumed six-year
Term (calculated as if both Managing Directors of the Company were still
Managing Directors, but increased by 100% of any Retained S/S Transaction
Fees); (iii) Unpaid Salary through the date of termination of employment by
the Executive (to the extent not previously paid pursuant to Section 5.2(a)),
(iv) Unpaid Additional Compensation through the date of termination of
employment by the Executive (to the extent not previously paid pursuant to
Section 5.2(a)); (v) all Unused Accrued Vacation through the date of
termination of employment by the Executive (to the extent not previously paid
pursuant to Section 5.2(a)); (vi) Deferred Compensation (as provided in
Section 3.2); and (vii) Accrued Executive Benefits through the date of
termination of employment by the Executive (to the extent not previously paid
pursuant to Section 5.2(a)), provided, however, that all of clauses (i) -
(vii) are subject to the provisions of Section 7.1, including the financial
remedies of the Company in Section 7.1(b). If such election is not made by the
Executive, the Executive (i) may continue employment and (ii) shall retain
his rights and remedies at law or in equity with respect to the attempted
termination for Cause.
V.3 Termination in the Event of Death or Disability. If, during
-----------------------------------------------
the Term, the Company terminates the Executive's employment due to the
Executive's death or Disability, the Executive or his Beneficiary (as defined
in Section 5.8(a)) shall receive in a lump sum cash payment as soon as
practicable after the Termination Date, but in no event more than seven
business days thereafter, an amount equal to the sum of: (i) Unpaid Salary,
if any; (ii) Unpaid Additional Compensation, if any; (iii) Unused Accrued
Vacation, if any; and (iv) Accrued Executive Benefits, if any. In addition,
Executive (or his Beneficiary) shall continue to receive, subject, however,
to the provisions of Section 7.1, including the financial remedies of the
Company in Section 7.1(b), Base Salary, plus 50% of S/S Transaction Fees
(calculated as if both Managing Directors of the Company were still Managing
Directors, but increased by 100% of any Retained S/S Transaction Fees), from
the Termination Date through the end of an assumed six-year Term. Such
continued Base Salary plus 50% of S/S Transaction Fees (calculated as if both
Managing Directors of the Company were still Managing Directors, but
increased by 100% of any Retained S/S Transaction Fees) through the end of an
assumed six-year Term may be provided, in whole or in part, through a Company
purchased policy or plan the costs and premiums for which are the sole
expense of the Company, provided, however the Company is primarily liable to
pay the entire amount to Executive (or his Beneficiary).
V.4 Termination in the Event of an Adverse Valuation
------------------------------------------------
Determination. The Company or RSI Management may terminate Executive's
- -------------
employment upon declaring an Adverse Valuation Determination in accordance
with the applicable provisions of the Company Operating Agreement. If,
during the Term, the Company or RSI Management terminates Executive's
employment due to an Adverse Valuation Determination, the Executive, as a
condition precedent to the effectiveness of that termination, shall receive
in a lump sum cash payment no later than the Termination Date an amount equal
to the sum of: (i) Unpaid Salary; (ii) Unpaid Additional Compensation;
(iii) Unused Accrued Vacation; (iv) Accrued Executive Benefits; and (v) 50%
of Base Salary, plus 25% of S/S Transaction Fees (calculated as if both
Managing Directors of the Company were still Managing Directors but increased
by 50% of any Retained S/S Transaction Fees), from the Termination Date
through the end of an assumed six-year Term. Executive shall also receive,
subject, however, to the provisions of Section 7.1, including the financial
remedies of the Company in Section 7.1(b), on the last day of the Non-Compete
Period (as defined in Section 7.1), in a lump sum cash payment, an amount
equal to 50% of Base Salary, plus 25% of S/S Transaction Fees (calculated as
if both Managing Directors of the Company were still Managing Directors, but
increased by 50% of any Retained S/S Transaction Fees), from the Termination
Date through the end of an assumed six-year Term.
V.5 Voluntary Resignation of the Executive. If, during the Term,
--------------------------------------
the Executive voluntarily terminates his employment (other than pursuant to
Section 5.2(b)), provided such voluntary termination is not the result of
acts or omissions by the Company or
RSI Management (after written notice to the Company and RSI Management and a
reasonable time period and opportunity to cure such breach if such breach is
capable of being cured, provided that such time period shall be extended for
a reasonable time period if at the time it was otherwise to expire, such
breach was then capable of being cured and such cure was being diligently
pursued by the Company and RSI Management) constituting constructive
termination (which constructive termination is not a permitted method of
termination), Executive shall receive payments as if his employment were
terminated by the Company for Cause. Upon such voluntary termination, the
Executive will be deemed to have withdrawn as a member of S/S and will not be
entitled to receive any distributions not actually distributed as of the
Termination Date unless previously required to have been paid or distributed
to the Executive or S/S prior to the Termination Date.
V.6 Change in Control Event, Default or Fundamental Failure. Upon
-------------------------------------------------------
the occurrence of (i) a Change in Control Event provided S/S has made an
election in accordance with Section 10.04(c) of the Company Operating
Agreement within six months of the occurrence of the Change in Control Event,
(ii) a Default which is not cured in accordance with the provisions of the
Company Operating Agreement (and S/S has not received, inclusive of all
amounts previously distributed to S/S pursuant to Article VII of the Company
Operating Agreement, $7.5 million of the Subordinated Preference Amount), or
(iii) Fundamental Failure, the Executive may require (provided the Executive
gives notice of such requirement within six months of the Change of Control
Event) the Company to immediately pay all amounts that would be paid to the
Executive pursuant to Section 5.4 (including all amounts that would otherwise
have been payable on the last day of the Non-Compete Period), if the
Executive's employment had been terminated upon an Adverse Valuation
Determination. Upon the occurrence of a Fundamental Failure, all obligations
of the Executive to the Company under this Agreement shall terminate in their
entirety.
V.7 Payments upon the Executive's Termination. The foregoing
-----------------------------------------
payments upon the Executive's termination shall constitute the exclusive
payments due the Executive upon termination of his employment with the
Company under this Agreement; provided, however, that except as stated above,
such payments shall have no effect on (i) any benefits which may be payable
to the Executive under any plan of the Company which provides benefits after
termination of employment, or (ii) any right to receive current or future
distributions from the Company pursuant to the Company Operating Agreement.
The Executive shall not be required to mitigate the amount of any payment by
seeking other employment or otherwise, nor shall the amount of any such
payment be reduced by any compensation earned by the Executive as the result
of employment by another employer after the Termination Date.
V.8 Certain Definitions.
-------------------
(a) "Beneficiary" means the person or trust designated in writing
-----------
by the Executive to receive any payments due under this Agreement in the
event of the Executive's death and if no such person or trust is designated,
the Executive's estate.
(b) "Cause" shall mean and be limited to (i) gross negligence,
-----
(ii) willful misconduct (including an act of fraud or embezzlement or
material breach of the fiduciary duty of loyalty to the Company or the Fund,
but not including any exercise by the Executive of his right to propose,
oppose, or vote in favor of or against any Major Decision or any other
decision, as set forth in Section 4.04(b) of the Company Operating
Agreement), (iii) an intentional act or omission constituting a material
breach of the Company Operating Agreement or of the Employment Agreement
(including the refusal, failure or neglect of the Executive to perform his
duties under the Company Operating Agreement or the Employment Agreement)
after written notice of, and a reasonable time period and opportunity to cure
such breach if such breach is capable of being cured, provided that such time
period shall be extended for a reasonable time period if at the time it was
otherwise to expire, such breach was then capable of being cured and such
cure was being diligently pursued by the Executive), (iv) conviction of, or
pleading guilty to, a felony, or (v) the excessive and continued use, after
written notice, of alcohol or illegal drugs interfering with the performance
of the Executive's duties.
(c) "Disability" shall mean that the Executive has been physically
----------
or mentally incapable of performing the essential functions of his job for a
period of more than 120 consecutive days, or for more than 180 days in any
18-month period, as determined by a board-certified physician selected by the
Company's primary disability insurer and reasonably acceptable to the other
Managing Director of the Fund and to RSI Management.
(d) "Termination Date" means the date as of which the Executive's
----------------
employment with the Company is terminated by the Company, RSI Management or
by the Executive for any reason which, except in the event of the Executive's
death, shall be specified in a written notice of termination received by
either party from the other, provided, however, that if Section 5.8(b)(iii)
applies, it shall mean the date notice to cure was first given to the
Executive.
(e) "Retained S/S Transaction Fees" means the S/S Transaction Fees
-----------------------------
allocated to the Executive pursuant to the last sentence of Section 6.1(b) of
this Agreement.
(f) "Fundamental Failure" shall mean that the Fund (or any other
-------------------
investment vehicle capable, legally and operationally, of pursuing the
investment objectives of the Fund, subject in all respects, including scope
and nature of the investment objectives, to the constraints on real estate
investment trust income imposed by the Code, and with the Managing Directors
and S/S having no less economic remuneration, including rights to
disbursements and fees, managerial control and autonomy as provided under the
Company Operating Agreement), has not been organized and capitalized with at
least $300 million of legally binding equity capital commitments from
institutional investors and/or Reckson Services, RA, the Operating
Partnership, or their Affiliates, prior to the first anniversary of the
Effective Date.
ARTICLE VI
VI.1 Successor Managing Director.
---------------------------
(a) Upon termination of the other Managing Director's employment,
RSI Management shall have the right to propose a successor who is not
otherwise an affiliate of the Company, RSI Management or Reckson Services,
subject to approval, not to be unreasonably withheld, by the Executive (an
"Approved Successor"). Such withholding of approval shall be deemed
reasonable if it is based on assessment of the proposed successor's business
expertise or experience, and/or compatibility with the Executive's management
style, methods of operation and business and investment objectives.
(b) RSI Management may make available or cause the Company to make
available to an Approved Successor (i) the interest in the Company
transferred to RSI Management by S/S (i.e., 50 percent of S/S's interest in
the Company) in connection with the resignation of the other Managing
Director as provided in Section 7.04 of the Company Operating Agreement, (ii)
an amount equal to the Base Salary and all benefits of the terminated
Managing Director, (iii) 50% of the S/S Transaction Fees, and (iv) 50% of the
asset management fees previously payable to S/S. Any part of such (i)
interest in the Company, (ii) Base Salary amounts and benefits, (iii) S/S
Transaction Fees, and/or (iv) asset management fees not required to be made
available to an Approved Successor in order to obtain the services of the
Approved Successor shall be divided equally between (x) RSI Management and
(y) the Executive and/or S/S.
ARTICLE VII
VII.1 Executive Covenants.
-------------------
(a) Non-Compete. Following termination of employment, the
-----------
Executive may engage without restriction (except as set forth below) in real
estate and real estate-related investment, acquisition, management, leasing,
disposition, workout and financing activities ("Activities"), except that, in
consideration of the payments to be made to the Executive following
termination of employment pursuant to Article V of this Agreement, the
Executive agrees that, during the Non-Compete Period (as defined herein), the
Executive will not without the prior written consent of the Company, engage
in Activities (other than Permitted Outside Activities and financing
activities) that provide material benefits to any entity which directly
competes with a Fund Platform Investment which was a Fund Platform Investment
prior to the Termination Date or which was being actively negotiated or
reviewed and, at the Termination Date, was then being actively negotiated or
reviewed as a possible Fund Platform Investment in the form of term sheet
negotiations and/or due diligence investigations (including, if not closed, a
substitute company in the same Platform which is within three months
thereafter identified and is being actively pursued). For purposes of this
Agreement, the "Non-Compete Period" shall be the two-year period following
the Termination Date of the Executive's employment; provided, however, such
period shall be reduced to one year (i) following an Adverse Valuation
Determination if the Subordinated Preference Amount has not been paid in full
and the Executive waives his rights to the distributions described in Article
VII of the Company Operating Agreement, or (ii) if Cause is alleged and not
found to have occurred as described in Section 5.2(b) hereof and if the
Executive has terminated his employment in accordance with Section 5.2(b),
and, provided, further, that there shall be no Non-Compete Period following
(I) a Change in Control Event, if the Executive waives his rights to all
compensation under this Agreement and to all distributions described in
Article VII of the Company Operating Agreement, other than any amounts
required to be paid or distributed to the Executive or S/S on or prior to the
last to occur of (i) the Change in Control Event or (ii) Termination Date; or
(II) a Fundamental Failure.
(b) Effect of Breach. The Executive acknowledges that the
----------------
payments to be made to the Executive following termination of employment
pursuant to Article V of this Agreement will be made in consideration of his
obligations under this Agreement not to compete, and the Executive agrees
that in the event of a breach of Section 7.1(a) by the Executive, the
Company and RSI Management shall be entitled to an injunction (including a
temporary restraining order or preliminary injunction) to prevent
continuation of such breach by the Executive. The Company and Executive
agree that in the event the Executive breaches this Section 7.1, the
Company's sole financial remedies shall be as follows: (i) the Company shall
not be obligated to, and shall not, make any further payments to the
Executive under this Agreement, including, without limitation, Section 5.4
(excluding any amounts required to be paid or distributed to the Executive or
S/S on or prior to the Termination Date); (ii) the Executive shall not be
entitled to receive any distributions not actually distributed unless
required to be paid or distributed to the Executive or S/S on or prior to the
Termination Date, and (iii) the Company or RSI Management may recover, up to
the amount of the Company's actual damages, all amounts actually paid to the
Executive after the Termination Date as compensation (other than Deferred
Compensation), distributions or otherwise (excluding any amounts required to
be paid or distributed to the Executive or S/S on or prior to the Termination
Date). In the event the Executrovisions of Section 7.1(a), RSI Management
shall (i) in accordance with Section 9.1(a), reimburse the Executive for all
legal fees and related expenses incurred in any action to obtain such
determination, and (ii) pay Executive an amount equal to 200% of the
compensation and distributions withheld by reason of an alleged breach by the
Executive of the non-compete provisions.
ARTICLE VIII
Taxes
VIII.1 Taxes. Any amounts payable to the Executive hereunder shall
-----
be paid to the Executive subject to all applicable taxes required to be
withheld by the Company pursuant to federal, state or local law. The
Executive or his Beneficiary, if applicable, shall be solely responsible for
all taxes imposed on the Executive or his Beneficiary by reason of his
receipt of any amounts of compensation or benefits payable to the Executive
hereunder.
VIII.2 Excise Tax Payments. In the event that any payment or benefit
-------------------
(within the meaning of Section 280G(b)(2) of the Internal Revenue Code of
1986, as amended (the "Code")) to the Executive or for his benefit paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise in connection with, or arising out of, his employment
with the Company and in connection with a Change in Control Event, other than
any payments of the Subordinated Preference Amount, would be subject to the
excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the
Executive will be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes,
including, but not limited to, Excise Tax, income and employment tax, imposed
on the Gross-Up Payment, and taking into account any tax benefit derived from
the deductibility of any of such items, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All
determinations as to amounts payable to the Executive under this Section 8.2
shall be made in accordance with Sections 280G and 4999 of the Code and any
rulings and regulations promulgated thereunder and shall be made within
thirty (30) days after the Termination Date by an independent auditor
selected by the Company and the Executive, whose determination shall be
binding on the Executive and the Company.
ARTICLE IX
Miscellaneous
IX.1 Fees, Expenses and Indemnification.
----------------------------------
(a) In any action between the Executive and the Company, the
prevailing party's legal fees and related expenses shall be paid by the other
party.
(b) The Company shall indemnify the Executive and advance or
reimburse legal fees in connection with any litigation or proceeding relating
to the Fund in accordance with the Operating Agreement of the Fund.
IX.2 Confidentiality. Executive and the Company shall keep
---------------
confidential, and shall not disclose publicly, or to any third party, either
the existence of, or the terms and conditions of this Agreement, except as
mutually agreed by, and with the prior approval of, each of S/S, the Managing
Directors, and RSI Management, except for professionals (including, but not
limited to, bankers and underwriters) with a need to know and except as
required by law, regulation or court order.
IX.3 Assignment; Succession. This Agreement shall be binding upon
----------------------
the Company and its successors and assigns and the Executive and his
Beneficiary and permitted assigns.
IX.4 Severability. If all or any part of this Agreement is
------------
declared by any court or governmental authority to be unlawful or invalid,
such unlawfulness or invalidity shall not serve to invalidate any portion of
this Agreement not declared to be unlawful or invalid. Any paragraph or part
of a paragraph so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such paragraph
or part of a paragraph to the fullest extent possible while remaining lawful
and valid.
IX.5 Amendment and Waiver. This Agreement shall not be altered,
--------------------
amended or modified except by written instrument executed by the Company and
the Executive. A waiver of any term, covenant, agreement or condition
contained in this Agreement shall not be deemed a waiver of any other term,
covenant, agreement or condition, and any waiver of any default in any such
term, covenant, agreement or condition shall not be deemed a waiver of any
later default thereof or of any other term, covenant, agreement or condition.
IX.6 Notices. All notices and other communications required
-------
hereunder shall be in writing and delivered by hand, with confirmation of
receipt, or overnight courier service, with confirmation of receipt,
addressed as follows:
If to the Company: RSVP Holdings, LLC
c/o Reckson Services Industries, Inc.
225 Broadhollow Road
Melville, NY 11747-0983
Attention: Managing Director
with a copy to S/S and each other Managing Director of the Company.
If to RSI Management: c/o Reckson Services Industries Inc.
225 Broadhollow Road
Melville, NY 11747-0983
Attention: Chief Executive Officer
If to the Executive: 36 Arleigh Road
Great Neck, NY 11021
Attention: Steven H. Shepsman
with a copy to S/S.
Any party may from time to time designate a new address by notice given in
accordance with this Paragraph. Notice and communications to any Person
shall be effective upon personal delivery to that Person.
IX.7 Counterpart Originals. This Agreement may be executed in
---------------------
several counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
IX.8 Entire Agreement. This Agreement forms the entire agreement
----------------
between the parties hereto with respect to the subject matter contained in
this Agreement.
IX.9 Applicable Law. This Agreement and the rights and obligations
--------------
of the parties hereto shall be governed by and construed and enforced in
accordance with the laws of the State of New York without giving effect to
the conflicts of law principles thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
RSVP HOLDINGS, LLC
By RSI Fund Management LLC,
its Managing Member
By:________________________________
EXECUTIVE
___________________________________
Steven H. Shepsman
Exhibit 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, entered into as of February 26, 1998, is made by
and between RSVP Holdings, LLC, a Delaware limited liability company (the
"Company"), and Seth B. Lipsay (the "Executive"). Capitalized terms used
herein but not defined herein shall have the meanings as defined in the
Limited Liability Operating Agreement of the Company dated as of February 20,
1998 (the "Company Operating Agreement").
WHEREAS, the Company is owned and controlled by (i) RSI Fund
Management LLC, a Delaware limited liability company ("RSI Management"),
wholly owned by Reckson Services Industries Inc. ("Reckson Services"), and
(ii) New World Realty, LLC, a Delaware limited liability company ("S/S"); and
WHEREAS, the Company and Paine Webber Real Estate Securities Inc.
propose to form Reckson Strategic Venture Partners, LLC, a Delaware limited
liability company (the "Fund") to acquire and invest in real estate and real
estate-related operating companies in selected segments of the real estate
industry; and
WHEREAS, the Company is proposed to be the Managing Member of the
Fund; and
WHEREAS, the Company desires to obtain the services of the
Executive to perform certain services, including to manage the operations of
the Fund or such other vehicle as may be formed in lieu of the Fund, and the
Executive is willing to render such services, in accordance with the terms
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the Company and the Executive agree as follows:
ARTICLE I
Term of Agreement
I.1 Term. The term of employment under this Agreement shall be
----
for the period commencing on March 5, 1998, or such later date within
5 days thereafter as is requested by the Executive ( the "Effective Date")
and ending on the day prior to the seventh anniversary of the Effective Date
(the "Term"); provided, however, that the Term may be earlier terminated
after the fifth anniversary of the Effective Date as a result of (a) the end
of the term (unless extended) of the Fund, or (b) as otherwise provided in
this Agreement. The parties' respective obligations hereunder shall commence
and continue from and after the date of this Agreement, notwithstanding any
delay or failure to consummate the formation, organization or funding of the
Fund, provided, however, that if the Executive does not
commence performance of his duties on or before the Effective
Date for any reason, and the Company has provided written notice thereof to
the Executive and the Executive has not commenced performance within 30 days
of the date of the receipt of written notice, his failure to do so shall be
deemed a voluntary termination of employment by Executive, as of the
Effective Date, pursuant to the terms of Section 5.5 of this Agreement
(except that Section 7.1 of this Agreement shall not apply to such
termination).
ARTICLE II
Position and Duties
II.1 Position. The Executive shall be employed as one of two
--------
Managing Directors of the Fund, a non-member manager of the Company
and one of four members of the Management Committee, all subject to the terms
of this Agreement.
II.2 Duties. The Executive agrees to (a) supervise and direct the
------
Fund including the day to day management of the Fund, and (b) from
time to time advise RA on strategic corporate decisions and major
acquisitions as RA may request ("RA Advisory Services"), provided the RA
Advisory Services do not interfere with the performance of the Executive's
other duties hereunder, and further provided the Executive is indemnified and
held harmless by RA and the Operating Partnership from and against all
Damages arising out of or relating thereto, other than for wilful misconduct
on the part of the Executive. The Executive shall be located in Long Island,
New York. The Executive shall report directly to the Management Committee.
Excluding periods of vacation and sick leave to which the Executive is
entitled pursuant to the terms of this Agreement, the Executive agrees that
during the Term he shall devote substantial and sufficient time and attention
to the performance of his duties and responsibilities hereunder.
Notwithstanding the foregoing, the Executive may (i) with the written consent
of Reckson Services or RSI Management, such consent not to be unreasonably
withheld, serve as a director of any public or private company, which does
not directly compete with a Fund Platform Investment or with RSI or its
affiliates; (ii) serve on civic or charitable boards or committees or engage
in other charitable activities; (iii) engage in residential mortgage lending
in the U.S. and abroad and in vehicle financing and sales; and (iv) engage in
any passive investment activities (the foregoing activities, collectively,
"Permitted Outside Activities"), so long as all such Permitted Outside
Activities in the aggregate do not (x) materially interfere with the
performance of the Executive's duties with respect to the Fund or (y) exceed
an average of five hours per week during regular business hours in any
calendar year.
ARTICLE III
Compensation
III.1 Base Salary. The Company agrees to pay or cause to be paid
-----------
to the Executive during the Term a base salary at the rate of
$500,000 per annum during the first five years of the Term, and $1,100,000
per annum during the sixth and seventh year of the Term, or such larger
amount as RSI Management may from time to time determine (hereinafter
referred to as the "Base Salary"). Such Base Salary shall be payable in
accordance with RA's customary practices applicable to its senior executives,
but not less frequently than monthly. During the Term, the Base Salary shall
be automatically, without further action by the Company, increased, by an
amount equal to 50% of the maximum amount of S/S Transaction Fees which may
be payable to S/S (calculated as if both Managing Directors of the Company
were still Managing Directors, but increased by 100% of any Retained S/S
Transaction Fees) (as defined in Section 5.8(e) of this Agreement) and not
received by S/S as provided in Section 9.02(d) of the Company Operating
Agreement, but such increase shall not exceed $500,000 per annum during the
Term. The Company and RSI Management shall not be entitled to any additional
or greater defenses, rights or remedies than they would otherwise have had,
nor shall the Executive be deemed to waive or release any rights he would
otherwise have had, were the amounts payable to S/S as S/S Transaction Fees
instead payable to the Executive as additional stated Base Salary.
III.2 Deferred Compensation. The Executive will be provided, at the
---------------------
beginning of the Term and on an annual basis, the opportunity to
defer all or a portion of Base Salary into a grantor trust established by the
Company for the benefit of Executive. The deferred Base Salary shall be
deposited with the trustee of the grantor trust at such times as the deferred
Base Salary would have been paid to Executive. Executive shall select the
investment vehicle(s) for amounts held by the trustee and all such amounts
shall be actually invested in such investments. All deferred Base Salary
plus investment gains and minus investment losses thereon (the "Deferred
Compensation") will be paid to Executive within seven business days of
Executive's termination of employment for any reason. All expenses of the
grantor trust shall be paid from the grantor trust.
ARTICLE IV
Other Benefits
IV.1 Executive Benefits. The Executive will be covered under all
------------------
retirement, medical, dental and vision care, short-term and long-term
disability, life insurance, accident insurance and other benefit plans
maintained from time to time by RA for its senior executives.
IV.2 Vacation and Sick Leave. The Executive shall be
-----------------------
entitled to annual vacation in accordance with the policies as
periodically established by RA for its senior executives, which shall in no
event be less than five weeks per year. The Executive shall be entitled to
carryover up to 2.5 unused weeks of vacation from year to year, provided that
no more than eight weeks of vacation is taken in any one calendar year. The
Executive shall be entitled to sick leave (without loss of pay) in accordance
with RA's policies for its senior executives as in effect from time to time.
IV.3 Expenses. The Company shall reimburse the Executive for all
--------
reasonable travel, entertainment and other business expenses incurred
by him in connection with the performance of the Executive's duties under
this Agreement.
ARTICLE V
Termination of Employment
V.1 Permitted Termination: The Executive's employment hereunder
---------------------
may not be terminated by the Company or RSI Management except (a) for
Cause (as defined in Section 5.8(b)), (b) as a result of Executive's death or
Disability (as defined in Section 5.8(c)); (c) upon an Adverse Valuation
Determination, or (d) after the fifth anniversary of the Effective Date, as a
result of the end of the term (unless otherwise extended) of the Fund.
V.2 Termination for Cause or Certain Resignation.
--------------------------------------------
(a) Except as otherwise set forth in this Section 5.2, all
obligations of the Company under this Agreement shall cease if, during the
Term, the Company or RSI Management terminates the Executive for Cause (and
if the Executive is terminated for Cause, he will be deemed to have
withdrawn, as of the Termination Date, as a member of S/S and will not be
entitled to receive any distributions not actually distributed as of the
Termination Date unless previously required to have been paid or distributed
to the Executive or S/S prior to the Termination Date). Upon such
termination the Executive shall receive in a lump sum cash payment as soon as
practicable after the Termination Date, but in no event more than seven
business days thereafter, an amount equal to the sum of: (i) the portion of
the Executive's then current Base Salary accrued to the Termination Date but
unpaid as of the Termination Date (the "Unpaid Salary"); (ii) 50% of S/S
Transaction Fees (calculated as if both Managing Directors of the Company
were still Managing Directors, but increased by 100% of any Retained S/S
Transaction Fees) accrued to the Termination Date but unpaid as of the
Termination Date (the "Unpaid Additional Compensation"); (iii) payment in
respect of Executive's accrued but unused vacation ("Unused Accrued
Vacation"); (iv) Deferred Compensation (as provided in Section 3.2); and
(v) payment in respect of accrued but unpaid or unused Executive Benefits
("Accrued Executive Benefits").
(b) If the Company or RSI Management seeks to terminate
the Executive for Cause and the Executive contests such termination, then at
RSI Management's or the Executive's election, the issue shall be submitted
for judicial determination with expedited discovery, no priorities in
discovery, a three-month cutoff to all discovery and trial as soon thereafter
as a court will allow, in federal (or if that venue is unavailable, state)
court in New York County (but the court may only determine the issue of
whether Cause exists). The Executive's rights to payment of Base Salary,
50% of S/S Transaction Fees (calculated as if both Managing Directors of the
Company were still Managing Directors, but increased by 100% of any Retained
S/S Transaction Fees) and other benefits shall continue unimpeded while such
proceeding is pending unless and until there is an initial finding in such
proceeding on a motion for summary judgment or at trial that Cause exists.
If Cause is found to have occurred:
(i) the Executive's employment shall be terminated for Cause as of
the date the Company or RSI Management first requested such action be
taken;
(ii) the Executive shall promptly receive the amounts set forth in
Section 5.2(a), but in no event more than seven business days
thereafter; and
(iii) simultaneously with such payment to the Executive, the
Company shall be repaid, with statutory interest, any payments made to
the Executive pursuant to this Section 5.2(b) from and after the date
the Company or RSI Management first requested termination for Cause.
If Cause is not found to have occurred, the Executive may elect,
provided notice of such election is given to the Company and RSI Management
within 15 business days of final adjudication, to terminate employment and
all governance rights in S/S effective as of the date of such notice and,
upon Executive's execution in favor of the Company, the other Managing
Director, RSI Management, Reckson Services, S/S and their respective
Affiliates of a waiver and release of all claims relating to the attempted
termination for Cause, shall simultaneously receive a lump sum cash payment
equal to the sum of: (i) Base Salary through the end of an assumed six-year
Term; (ii) 50% of S/S Transaction Fees through the end of an assumed six-year
Term (calculated as if both Managing Directors of the Company were still
Managing Directors, but increased by 100% of any Retained S/S Transaction
Fees); (iii) Unpaid Salary through the date of termination of employment by
the Executive (to the extent not previously paid pursuant to Section 5.2(a)),
(iv) Unpaid Additional Compensation through the date of termination of
employment by the Executive (to the extent not previously paid pursuant to
Section 5.2(a)); (v) all Unused Accrued Vacation through the date of
termination of employment by the Executive (to the extent not previously paid
pursuant to Section 5.2(a)); (vi) Deferred Compensation (as provided in
Section 3.2); and (vii) Accrued Executive Benefits through the date of
termination of employment by the Executive (to the extent not previously paid
pursuant to Section 5.2(a)), provided, however, that all of clauses (i) -
(vii) are subject to the provisions of Section 7.1, including the financial
remedies of the Company in Section 7.1(b). If such election is not made by
the
Executive, the Executive (i) may continue employment and
(ii) shall retain his rights and remedies at law or in equity with respect to
the attempted termination for Cause.
V.3 Termination in the Event of Death or Disability. If, during
-----------------------------------------------
the Term, the Company terminates the Executive's employment due to
the Executive's death or Disability, the Executive or his Beneficiary (as
defined in Section 5.8(a)) shall receive in a lump sum cash payment as soon
as practicable after the Termination Date, but in no event more than seven
business days thereafter, an amount equal to the sum of: (i) Unpaid Salary,
if any; (ii) Unpaid Additional Compensation, if any; (iii) Unused Accrued
Vacation, if any; and (iv) Accrued Executive Benefits, if any. In addition,
Executive (or his Beneficiary) shall continue to receive, subject, however,
to the provisions of Section 7.1, including the financial remedies of the
Company in Section 7.1(b), Base Salary, plus 50% of S/S Transaction Fees
(calculated as if both Managing Directors of the Company were still Managing
Directors, but increased by 100% of any Retained S/S Transaction Fees), from
the Termination Date through the end of an assumed six-year Term. Such
continued Base Salary plus 50% of S/S Transaction Fees (calculated as if both
Managing Directors of the Company were still Managing Directors, but
increased by 100% of any Retained S/S Transaction Fees) through the end of an
assumed six-year Term may be provided, in whole or in part, through a Company
purchased policy or plan the costs and premiums for which are the sole
expense of the Company, provided, however the Company is primarily liable to
pay the entire amount to Executive (or his Beneficiary).
V.4 Termination in the Event of an Adverse Valuation
------------------------------------------------
Determination. The Company or RSI Management may terminate
-------------
Executive's employment upon declaring an Adverse Valuation
Determination in accordance with the applicable provisions of the Company
Operating Agreement. If, during the Term, the Company or RSI Management
terminates Executive's employment due to an Adverse Valuation Determination,
the Executive, as a condition precedent to the effectiveness of that
termination, shall receive in a lump sum cash payment no later than the
Termination Date an amount equal to the sum of: (i) Unpaid Salary;
(ii) Unpaid Additional Compensation; (iii) Unused Accrued Vacation;
(iv) Accrued Executive Benefits; and (v) 50% of Base Salary, plus 25% of S/S
Transaction Fees (calculated as if both Managing Directors of the Company
were still Managing Directors but increased by 50% of any Retained S/S
Transaction Fees), from the Termination Date through the end of an assumed
six-year Term. Executive shall also receive, subject, however, to the
provisions of Section 7.1, including the financial remedies of the Company in
Section 7.1(b), on the last day of the Non-Compete Period (as defined in
Section 7.1), in a lump sum cash payment, an amount equal to 50% of Base
Salary, plus 25% of S/S Transaction Fees (calculated as if both Managing
Directors of the Company were still Managing Directors, but increased by 50%
of any Retained S/S Transaction Fees), from the Termination Date through the
end of an assumed six-year Term.
V.5 Voluntary Resignation of the Executive. If, during the Term,
--------------------------------------
the Executive voluntarily terminates his employment (other than
pursuant to Section 5.2(b)), provided such voluntary termination is not the
result of acts or omissions by the Company or
RSI Management (after written notice to the Company and RSI
Management and a reasonable time period and opportunity to cure such breach
if such breach is capable of being cured, provided that such time period
shall be extended for a reasonable time period if at the time it was
otherwise to expire, such breach was then capable of being cured and such
cure was being diligently pursued by the Company and RSI Management)
constituting constructive termination (which constructive termination is not
a permitted method of termination), Executive shall receive payments as if
his employment were terminated by the Company for Cause. Upon such voluntary
termination, the Executive will be deemed to have withdrawn as a member of
S/S and will not be entitled to receive any distributions not actually
distributed as of the Termination Date unless previously required to have
been paid or distributed to the Executive or S/S prior to the Termination
Date.
V.6 Change in Control Event, Default or Fundamental Failure. Upon
-------------------------------------------------------
the occurrence of (i) a Change in Control Event provided S/S has
made an election in accordance with Section 10.04(c) of the Company Operating
Agreement within six months of the occurrence of the Change in Control Event,
(ii) a Default which is not cured in accordance with the provisions of the
Company Operating Agreement (and S/S has not received, inclusive of all
amounts previously distributed to S/S pursuant to Article VII of the Company
Operating Agreement, $7.5 million of the Subordinated Preference Amount), or
(iii) Fundamental Failure, the Executive may require (provided the Executive
gives notice of such requirement within six months of the Change of Control
Event) the Company to immediately pay all amounts that would be paid to the
Executive pursuant to Section 5.4 (including all amounts that would otherwise
have been payable on the last day of the Non-Compete Period), if the
Executive's employment had been terminated upon an Adverse Valuation
Determination. Upon the occurrence of a Fundamental Failure, all obligations
of the Executive to the Company under this Agreement shall terminate in their
entirety.
V.7 Payments upon the Executive's Termination. The foregoing
-----------------------------------------
payments upon the Executive's termination shall constitute the
exclusive payments due the Executive upon termination of his employment with
the Company under this Agreement; provided, however, that except as stated
above, such payments shall have no effect on (i) any benefits which may be
payable to the Executive under any plan of the Company which provides
benefits after termination of employment, or (ii) any right to receive
current or future distributions from the Company pursuant to the Company
Operating Agreement. The Executive shall not be required to mitigate the
amount of any payment by seeking other employment or otherwise, nor shall the
amount of any such payment be reduced by any compensation earned by the
Executive as the result of employment by another employer after the
Termination Date.
V.8 Certain Definitions.
-------------------
(a) "Beneficiary" means the person or trust designated in writing
-----------
by the Executive to receive any payments due under this Agreement in
the event of the Executive's death and if no such person or trust is
designated, the Executive's estate.
(b) "Cause" shall mean and be limited to (i) gross negligence,
-----
(ii) willful misconduct (including an act of fraud or
embezzlement or material breach of the fiduciary duty of loyalty to the
Company or the Fund, but not including any exercise by the Executive of his
right to propose, oppose, or vote in favor of or against any Major Decision
or any other decision, as set forth in Section 4.04(b) of the Company
Operating Agreement), (iii) an intentional act or omission constituting a
material breach of the Company Operating Agreement or of the Employment
Agreement (including the refusal, failure or neglect of the Executive to
perform his duties under the Company Operating Agreement or the Employment
Agreement) after written notice of, and a reasonable time period and
opportunity to cure such breach if such breach is capable of being cured,
provided that such time period shall be extended for a reasonable time period
if at the time it was otherwise to expire, such breach was then capable of
being cured and such cure was being diligently pursued by the Executive),
(iv) conviction of, or pleading guilty to, a felony, or (v) the excessive and
continued use, after written notice, of alcohol or illegal drugs interfering
with the performance of the Executive's duties.
(c) "Disability" shall mean that the Executive has been physically
----------
or mentally incapable of performing the essential functions of
his job for a period of more than 120 consecutive days, or for more than 180
days in any 18-month period, as determined by a board-certified physician
selected by the Company's primary disability insurer and reasonably
acceptable to the other Managing Director of the Fund and to RSI Management.
(d) "Termination Date" means the date as of which the Executive's
----------------
employment with the Company is terminated by the Company, RSI
Management or by the Executive for any reason which, except in the event of
the Executive's death, shall be specified in a written notice of termination
received by either party from the other, provided, however, that if Section
5.8(b)(iii) applies, it shall mean the date notice to cure was first given to
the Executive.
(e) "Retained S/S Transaction Fees" means the S/S Transaction Fees
-----------------------------
allocated to the Executive pursuant to the last sentence of
Section 6.1(b) of this Agreement.
(f) "Fundamental Failure" shall mean that the Fund (or any other
-------------------
investment vehicle capable, legally and operationally, of
pursuing the investment objectives of the Fund, subject in all respects,
including scope and nature of the investment objectives, to the constraints
on real estate investment trust income imposed by the Code, and with the
Managing Directors and S/S having no less economic remuneration, including
rights to disbursements and fees, managerial control and autonomy as provided
under the Company Operating Agreement), has not been organized and
capitalized with at least $300 million of legally binding equity capital
commitments from institutional investors and/or Reckson Services, RA, the
Operating Partnership, or their Affiliates, prior to the first anniversary of
the Effective Date.
ARTICLE VI
VI.6 Successor Managing Director.
---------------------------
(a) Upon termination of the other Managing Director's employment,
RSI Management shall have the right to propose a successor who is not
otherwise an affiliate of the Company, RSI Management or Reckson Services,
subject to approval, not to be unreasonably withheld, by the Executive (an
"Approved Successor"). Such withholding of approval shall be deemed
reasonable if it is based on assessment of the proposed successor's business
expertise or experience, and/or compatibility with the Executive's management
style, methods of operation and business and investment objectives.
(b) RSI Management may make available or cause the Company to make
available to an Approved Successor (i) the interest in the Company
transferred to RSI Management by S/S (i.e., 50 percent of S/S's interest in
the Company) in connection with the resignation of the other Managing
Director as provided in Section 7.04 of the Company Operating Agreement, (ii)
an amount equal to the Base Salary and all benefits of the terminated
Managing Director, (iii) 50% of the S/S Transaction Fees, and (iv) 50% of the
asset management fees previously payable to S/S. Any part of such (i)
interest in the Company, (ii) Base Salary amounts and benefits, (iii) S/S
Transaction Fees, and/or (iv) asset management fees not required to be made
available to an Approved Successor in order to obtain the services of the
Approved Successor shall be divided equally between (x) RSI Management and
(y) the Executive and/or S/S.
ARTICLE VII
VII.1 Executive Covenants.
-------------------
(a) Non-Compete. Following termination of employment, the
-----------
Executive may engage without restriction (except as set forth
below) in real estate and real estate-related investment, acquisition,
management, leasing, disposition, workout and financing activities
("Activities"), except that, in consideration of the payments to be made to
the Executive following termination of employment pursuant to Article V of
this Agreement, the Executive agrees that, during the Non-Compete Period (as
defined herein), the Executive will not without the prior written consent of
the Company, engage in Activities (other than Permitted Outside Activities
and financing activities) that provide material benefits to any entity which
directly competes with a Fund Platform Investment which was a Fund Platform
Investment prior to the Termination Date or which was being actively
negotiated or reviewed and, at the Termination Date, was then being actively
negotiated or reviewed as a possible Fund Platform Investment in the form of
term sheet negotiations and/or due diligence investigations (including, if
not closed, a substitute company in the same Platform which is within three
months thereafter identified and is being actively pursued). For purposes of
this Agreement, the "Non-Compete Period" shall be the two-
year period following the Termination Date of the Executive's employment;
provided, however, such period shall be reduced to one year (i) following an
Adverse Valuation Determination if the Subordinated Preference Amount has not
been paid in full and the Executive waives his rights to the distributions
described in Article VII of the Company Operating Agreement, or (ii) if Cause
is alleged and not found to have occurred as described in Section 5.2(b)
hereof and if the Executive has terminated his employment in accordance with
Section 5.2(b), and, provided, further, that there shall be no Non-Compete
Period following (I) a Change in Control Event, if the Executive waives his
rights to all compensation under this Agreement and to all distributions
described in Article VII of the Company Operating Agreement, other than any
amounts required to be paid or distributed to the Executive or S/S on or
prior to the last to occur of (i) the Change in Control Event or (ii)
Termination Date; or (II) a Fundamental Failure.
(b) Effect of Breach. The Executive acknowledges that the
----------------
payments to be made to the Executive following
termination of employment pursuant to Article V of this Agreement will be
made in consideration of his obligations under this Agreement not to compete,
and the Executive agrees that in the event of a breach of Section 7.1(a) by
the Executive, the Company and RSI Management shall be entitled to an
injunction (including a temporary restraining order or preliminary
injunction) to prevent continuation of such breach by the Executive. The
Company and Executive agree that in the event the Executive breaches this
Section 7.1, the Company's sole financial remedies shall be as follows: (i)
the Company shall not be obligated to, and shall not, make any further
payments to the Executive under this Agreement, including, without
limitation, Section 5.4 (excluding any amounts required to be paid or
distributed to the Executive or S/S on or prior to the Termination Date);
(ii) the Executive shall not be entitled to receive any distributions not
actually distributed unless required to be paid or distributed to the
Executive or S/S on or prior to the Termination Date, and (iii) the Company
or RSI Management may recover, up to the amount of the Company's actual
damages, all amounts actually paid to the Executive after the Termination
Date as compensation (other than Deferred Compensation), distributions or
otherwise (excluding any amounts required to be paid or distributed to the
Executive or S/S on or prior to the Termination Date). In the event the
Executrovisions of Section 7.1(a), RSI Management shall (i) in accordance
with Section 9.1(a), reimburse the Executive for all legal fees and related
expenses incurred in any action to obtain such determination, and (ii) pay
Executive an amount equal to 200% of the compensation and distributions
withheld by reason of an alleged breach by the Executive of the non-compete
provisions.
ARTICLE VIII
Taxes
VIII.1 Taxes. Any amounts payable to the Executive hereunder shall
-----
be paid to the Executive subject to all applicable taxes required to
be withheld by the Company pursuant to federal, state or local law. The
Executive or his Beneficiary, if applicable, shall be solely responsible for
all taxes imposed on the Executive or his Beneficiary by reason of his
receipt of any amounts of compensation or benefits payable to the Executive
hereunder.
VIII.2 Excise Tax Payments. In the event that any payment or benefit
-------------------
(within the meaning of Section 280G(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Code")) to the Executive or for his benefit
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise in connection with, or arising out of, his employment
with the Company and in connection with a Change in Control Event, other than
any payments of the Subordinated Preference Amount, would be subject to the
excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the
Executive will be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes,
including, but not limited to, Excise Tax, income and employment tax, imposed
on the Gross-Up Payment, and taking into account any tax benefit derived from
the deductibility of any of such items, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. All
determinations as to amounts payable to the Executive under this Section 8.2
shall be made in accordance with Sections 280G and 4999 of the Code and any
rulings and regulations promulgated thereunder and shall be made within
thirty (30) days after the Termination Date by an independent auditor
selected by the Company and the Executive, whose determination shall be
binding on the Executive and the Company.
ARTICLE IX
Miscellaneous
IX.1 Fees, Expenses and Indemnification.
----------------------------------
(a) In any action between the Executive and the Company, the
prevailing party's legal fees and related expenses shall be paid by the other
party.
(b) The Company shall indemnify the Executive and advance or
reimburse legal fees in connection with any litigation or proceeding relating
to the Fund in accordance with the Operating Agreement of the Fund.
IX.2 Confidentiality. Executive and the
---------------
Company shall keep confidential, and shall not disclose publicly, or
to any third party, either the existence of, or the terms and conditions of
this Agreement, except as mutually agreed by, and with the prior approval of,
each of S/S, the Managing Directors, and RSI Management, except for
professionals (including, but not limited to, bankers and underwriters) with
a need to know and except as required by law, regulation or court order.
IX.3 Assignment; Succession. This Agreement shall be binding upon
----------------------
the Company and its successors and assigns and the Executive and his
Beneficiary and permitted assigns.
IX.4 Severability. If all or any part of this Agreement is
------------
declared by any court or governmental authority to be unlawful or
invalid, such unlawfulness or invalidity shall not serve to invalidate any
portion of this Agreement not declared to be unlawful or invalid. Any
paragraph or part of a paragraph so declared to be unlawful or invalid shall,
if possible, be construed in a manner which will give effect to the terms of
such paragraph or part of a paragraph to the fullest extent possible while
remaining lawful and valid.
IX.5 Amendment and Waiver. This Agreement shall not be altered,
--------------------
amended or modified except by written instrument executed by the
Company and the Executive. A waiver of any term, covenant, agreement or
condition contained in this Agreement shall not be deemed a waiver of any
other term, covenant, agreement or condition, and any waiver of any default
in any such term, covenant, agreement or condition shall not be deemed a
waiver of any later default thereof or of any other term, covenant, agreement
or condition.
IX.6 Notices. All notices and other communications required
-------
hereunder shall be in writing and delivered by hand, with
confirmation of receipt, or overnight courier service, with confirmation of
receipt, addressed as follows:
If to the Company: RSVP Holdings, LLC
c/o Reckson Services Industries, Inc.
225 Broadhollow Road
Melville, NY 11747-0983
Attention: Managing Director
with a copy to S/S and each other Managing Director of the Company.
If to RSI Management: c/o Reckson Services Industries Inc.
225 Broadhollow Road
Melville, NY 11747-0983
Attention: Chief Executive Officer
If to the Executive: 46 Merrivale Road
Great Neck, NY 11020
Attention: Seth B. Lipsay
with a copy to S/S.
Any party may from time to time designate a new address by notice given in
accordance with this Paragraph. Notice and communications to any Person
shall be effective upon personal delivery to that Person.
IX.7 Counterpart Originals. This Agreement may be executed in
---------------------
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same
instrument.
IX.8 Entire Agreement. This Agreement forms the entire agreement
----------------
between the parties hereto with respect to the subject matter
contained in this Agreement.
IX.9 Applicable Law. This Agreement and the rights and obligations
--------------
of the parties hereto shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the conflicts of law principles thereof.
IN WITNESS WHEREOF, the parties have executed this
Agreement on the date first above written.
RSVP HOLDINGS, LLC
By RSI Fund Management LLC,
its Managing Member
By:________________________________
EXECUTIVE
___________________________________
Seth B. Lipsay
9.23
Exhibit 21.1
LIST OF SUBSIDIARIES OF RECKSON SERVICE INDUSTRIES, INC.
NAME OF SUBSIDIARY STATE OF INCORPORATION/ORGANIZATION
------------------ -----------------------------------
1. RSI-OSA Holding Inc. Delaware corporation
2. RSI Fund Management LLC Delaware limited liability company
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 10, 1998, with respect to the financial
statements of Reckson Service Industries Inc., March 10, 1998, with respect to
RO Partners Management LLC, February 5, 1998, except for Note 9 as to which the
date is February 20, 1998, with respect to Veritech Ventures LLC, February 23,
1998, with respect to American Campus Lifestyles Companies, L.L.C. and February
23, 1998, with respect to Dobie Center all of which are included in the
Amendment No. 3 to the Registration Statement (Form S-1) and related Prospectus
of Reckson Service Industries, Inc. for the registration of $25,196,875 of its
common stock.
New York, New York /s/ Ernst & Young LLP
May 8, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 4, 1997, on the financial statements of Dobie Center (and to all
references to our Firm), included in or made part of this Registration Statement
on Amendment No. 3 to Form S-1.
Dallas, Texas /s/ Arthur Andersen LLP
May 12, 1998
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 28, 1997, on the financial statements of American Campus Lifestyles
Companies, L.L.C. (and to all references to our Firm), included in or made part
of this Registration Statement on Amendment No. 3 to Form S-1.
Dallas, Texas /s/ Arthur Andersen LLP
May 12, 1998
Exhibit 99.1
Reckson Service Industries, Inc.
225 Broadhollow Road
Melville, New York 11747
June 2, 1998
Dear Stockholder:
Reckson Service Industries, Inc. ("RSI") is pleased to inform you that it
is proceeding with a rights offering (the "Rights Offering") in which you may
participate. RSI is distributing to its stockholders non-transferable
subscription rights (the "Rights") to purchase shares of its Common Stock.
Each initial RSI common stockholder will receive one Right for each share of
RSI Common Stock so held.
RSI's purposes for the Rights Offering include: (i) funding certain
organizational and start-up costs and short-term losses; (ii) providing
sufficient initial equity capital for pursuing its business objectives; and
(iii) providing capital towards meeting organized trading requirements.
Summary of Terms of the Rights Offering
RSI has been formed primarily to identify and acquire interests in
operating companies that engage in businesses that provide services for
occupants of office, industrial and other property types that Reckson
Associates Realty Corp. ("Reckson") may not be permitted to provide under
Federal tax laws applicable to a real estate investment trust ("REIT") or
that have not traditionally been performed by Reckson. RSI will also pursue
real estate or real estate-related investment opportunities through Reckson
Strategic Venture Partners, LLC, a fund created as a "research and
development" vehicle for Reckson.
The basic terms of the Rights Offering are as follows:
Each Right entitles holders to purchase either one share of RSI Common Stock
or, at their election, four additional shares of RSI Common Stock.
HOLDERS WILL NOT BE PERMITTED TO PURCHASE MORE THAN ONE SHARE, AND LESS
THAN FIVE SHARES, OF RSI COMMON STOCK.
The Exercise Price for the RSI Common Stock is $1.03 per share.
Subscriptions are irrevocable once made.
The Rights are not transferable
The Rights are exercisable from June 11, 1998 through June 29, 1998.
THE RIGHTS MAY NOT BE EXERCISED AFTER 5:00 P.M., EASTERN TIME, ON JUNE
29, 1998. NOTE: BROKERS, DTC OR OTHER RECORD HOLDERS MAY ESTABLISH
DEADLINES FOR RECEIVING INSTRUCTIONS FROM BENEFICIAL HOLDERS WELL IN
ADVANCE OF JUNE 29, 1998.
A more detailed description of the Rights Offering is contained in the
enclosed Prospectus, which you should read and consider in its entirety prior
to deciding whether or not to participate in the Rights Offering.
Enclosures
You will find enclosed a Prospectus describing the Rights Offering and, if
your shares of RSI Common Stock are held in your name and you are located in
the United States, a Subscription Certificate representing Rights to purchase
RSI Common Stock as well as related instructions. If you are located
anywhere outside the United States (except the United Kingdom), you will find
instead an International Holder Subscription Form and related instructions.
You should carefully review the enclosed Prospectus and, if applicable, the
other enclosed materials.
Exercise of Rights
If your shares of Reckson Common Stock are held in your name and you are
located in the United States, you should follow the enclosed instructions as
to the exercise of the Rights represented by the enclosed Subscription
Certificate.
If you are located outside the United States (except the United Kingdom),
you should follow the enclosed instructions as to the completion of the
International Holder Subscription Form. If your shares of RSI Common Stock
are held in your name and you are located in the United Kingdom, you should
contact __________________ at the international address indicated below if
you are interested in participating in the Rights Offering. If your shares
of RSI Common Stock are held in the name of a nominee such as a broker, you
should contact the nominee and provide instructions as to the exercise of the
Rights.
Additional Information
You may obtain additional information concerning the Rights Offering from
the following sources:
United States International
Information is also available from the subscription agent:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
telephone: (718) 921-8200
telecopier: (718) 234-5001
RSI is pleased to provide you with this opportunity to participate in
the Rights Offering. We thank you for your support and look forward to our
continuing relationship commenced with your ownership of Reckson.
Very truly yours,
Scott H. Rechler
President and Chief Executive Officer
Exhibit 99.2
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as of May
__, 1998 between Reckson Service Industries, Inc., a Delaware Corporation
("RSI") and American Stock Transfer & Trust Company as subscription agent
(the "Agent"). All terms not defined herein shall have the meaning given in
the prospectus (the "Prospectus") included in the Registration Statement on
Form S-1 (File No. 333-44419) filed by RSI with the Securities and Exchange
Commission on January 16, 1998, as amended by any amendment filed with
respect thereto (the "Registration Statement").
WHEREAS, RSI proposes to make a subscription offer by issuing
certificates or other evidences of subscription rights, in the form
designated by RSI (the "Subscription Certificates"), to stockholders of
record (the "Record Date Stockholders") of its common stock, par value $0.01
per share ("Common Stock"), as of a record date specified by RSI (the "Record
Date"), pursuant to which each Stockholder will have certain rights (the
"Rights") to subscribe for shares of Common Stock, as described in and upon
such terms as are set forth in the Prospectus, a final copy of which has been
or, upon availability will promptly be, delivered to the Agent; and
WHEREAS, RSI wishes the Agent to perform certain acts on behalf of RSI,
and the Agent is willing to so act, in connection with the distribution of
the Subscription Certificates and the issuance and exercise of the Rights to
subscribe therein set forth, all upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
1. APPOINTMENT. RSI hereby appoints the Agent to act as subscription
-----------
agent in connection with the distribution of Subscription Certificates and
the issuance and exercise of the Rights in accordance with the terms set
forth in this Agreement and the Agent hereby accepts such appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.
-----------------------------------------------
(a) Each Subscription Certificate shall be irrevocable and non-
transferable. The Agent shall, in its capacity as Transfer Agent of RSI,
maintain a register of Subscription Certificates and the holders of record
thereof (each of whom shall be deemed a "Stockholder" hereunder for purposes
of determining the rights of Holders of Subscription Certificates). Each
Subscription Certificate shall, subject to the provisions thereof, entitle
the Stockholder in whose name it is recorded to the:
the right to acquire prior to the Expiration Date, as
defined in the Prospectus, at the Exercise Price, as defined in the
Prospectus, one share of Common Stock or, at the election of such
Stockholder, four additional shares of Common Stock for every one Right.
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.
-------------------------------------------------
(a) Each Subscription Certificate shall evidence the Rights of the
Stockholder therein named to purchase Common Stock upon the terms and
conditions therein set forth.
(b) Upon the written advice of RSI, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of
RSI Stockholders as of the Record Date to be prepared by the Agent in its
capacity as Transfer Agent of RSI, prepare and record Subscription
Certificates in the names of the Stockholders, setting forth the number of
Rights to subscribe for RSI's Common Stock calculated as described above.
The number of Rights that are issued to Record Date Stockholders will be
rounded up, by the Agent, to the nearest whole number of Rights evenly
divisible by one. In the case of shares of Common Stock held of record by a
nominee holder, the number of Rights issued to such nominee holder will be
adjusted, by the Agent, to permit rounding up (to the nearest whole number of
Rights evenly divisible by one) of the Rights to be received by beneficial
holders for whom the nominee holder is the holder of record only if the
nominee holder provides to the Agent on or before the close of business on
the fifth business day prior to the Expiration Date, written representation
of the number of Rights required for such rounding. Each Subscription
Certificate shall be dated as of the Record Date and shall be executed
manually or by facsimile signature of a duly authorized officer of RSI.
Immediately after the Distribution the Agent shall deliver the Subscription
Certificates, together with a copy of the Prospectus, instruction letter and
any other document as RSI deems necessary or appropriate, to all Stockholders
with record addresses in the United States (including its territories and
possessions and the District of Columbia). Delivery shall be by first class
mail (without registration or insurance), except for those Stockholders
having a registered address outside the United States (who will only receive
copies of the Prospectus, instruction letter and other documents as RSI deems
necessary or appropriate, if any), delivery shall be by air mail (without
registration or insurance) and by first class mail (without registration or
insurance) to those Stockholders having APO or FPO addresses. No
Subscription Certificate shall be valid for any purpose unless so executed.
Should any officer of RSI whose signature has been placed upon any
Subscription Certificate cease to hold such office at any time thereafter,
such event shall have no effect on the validity of such Subscription
Certificate.
(c) The Agent will mail a copy of the Prospectus, instruction letter, a
special notice and other documents as RSI deems necessary or appropriate, if
any, but not Subscription Certificates to Record Date Stockholders whose
record addresses are outside the United States (including its territories and
possessions and the District of Columbia) ("Foreign Record Date
Stockholders"). The Rights to which such Subscription Certificates relate
will be held by the Agent for such Foreign Record Date Stockholders' accounts
until instructions are received to exercise the Rights.
4. EXERCISE.
--------
(a) Stockholders exercising their Rights ("Exercising Rights Holders"),
may acquire shares of Common Stock covered by the Rights on by delivery to
the Agent as specified in the Prospectus of (i) the Subscription Certificate
with respect thereto, duly executed in accordance with and as provided by the
terms and conditions of the Subscription Certificate, together with (ii) the
purchase price of $1.03 for each share of Common Stock subscribed for by
exercise of such Rights, in U.S. dollars by money order or check drawn on a
bank in the United States, in each case payable to the order of American
Stock Transfer & Trust Company, as agent of RSI.
(b) Rights may be exercised at any time after the date of issuance of
the Subscription Certificates with respect thereto but no later than 5:00
P.M., New York City time, on the Expiration Date. For the purpose of
determining the time of the exercise of any Rights, delivery of any material
to the Agent shall be deemed to occur when such materials are received at the
Stockholder Services Division of the Agent specified in the Prospectus.
(c) As promptly as practicable after the Expiration Date, the Agent
shall send to each Exercising Rights Holder (or, if shares of Common Stock on
the Record Date are held by Cede & Co. or any other depository or nominee, to
Cede & Co. or such other depository or nominee) the stock certificates
representing the shares of Common Stock acquired pursuant to the exercise of
the applicable Rights.
5. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise
-------------------------
covered by specific instructions herein shall be submitted to an appropriate
officer of RSI and handled in accordance with his or her instructions. Such
instructions will be documented by the Agent indicating the instructing
officer and the date thereof.
6. OVER-SUBSCRIPTION. If there remain unexercised Rights at 5:00 P.M.,
-----------------
New York City time, on the Expiration Date, then the Agent shall allot the
shares issuable upon exercise of such unexercised Rights (the "Remaining
Shares") to RSI Standby LLC for exercise pursuant to the Standby Agreement,
as defined in the Prospectus. The Agent shall advise RSI immediately as to
the total number of Remaining Shares at 5:00 P.M., New York City time, on the
Expiration Date.
7. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.
---------------------------------------------
(a) Until 5:00 P.M., New York City time, on the Expiration Date, all
proceeds received by the Agent from Exercising Rights Holders shall be held
by the Agent, on behalf of RSI, in a segregated, interest-bearing escrow
account (the "Escrow Account").
(b) The Agent shall deliver all proceeds received in respect of the
exercise of Rights (including interest earned thereon) to RSI as promptly as
practicable after, but in no event later than seven business days after, the
Expiration Date.
8. REPORTS.
-------
Daily, during the period commencing on the Record Date, until the
Expiration Date, the Agent will report by telephone or telecopier (by 12:00
Noon, New York City time), confirmed by letter, to a designated officer of
RSI, daily data regarding the number of Rights exercised the total number of
shares of new Common Stock subscribed for, and payments received therefor,
bringing forward the figures from the previous day's report in each case so
as to also show the cumulative totals and any such other information as may
be mutually determined by RSI and the Agent.
9. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen,
------------------
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect RSI and the Agent as the Agent may in its discretion impose (which
shall, in the case of a mutilated Subscription Certificate include the
surrender and cancellation thereof), issue a new Subscription Certificate of
like denomination in substitution for the Subscription Certificate so lost,
stolen, mutilated or destroyed.
10. COMPENSATION FOR SERVICES. RSI agrees to pay to the Agent
-------------------------
compensation for its services as such in accordance with its Fee Schedule to
act as Agent dated May ___, 1998 and set forth hereto as Exhibit A. The
Agent agrees that such compensation shall include all services as Transfer
Agent and Registrar provided in connection with the offering of the Rights.
RSI further agrees that it will reimburse the Agent for its reasonable
out-of-pocket expenses incurred in the performance of its duties as such.
11. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties
--------------------------------
and obligations imposed by this Agreement upon the following terms and
conditions:
(a) The Agent shall be entitled to rely upon any instructions or
directions furnished to it by an appropriate officer of RSI, whether in
conformity with the provisions of this Agreement or constituting a
modification hereof or a supplement hereto. Without limiting the generality
of the foregoing or any other provision of this Agreement, the Agent, in
connection with its duties hereunder, shall not be under any duty or
obligation to inquire into the validity or invalidity or authority or lack
thereof of any instruction or direction from an officer of RSI which conforms
to the applicable requirements of this Agreement and which the Agent
reasonably believes to be genuine and shall not be liable for any delays,
errors or loss of data occurring by reason of circumstances beyond the
Agent's control, including, without limitation, acts of civil or military
authority, national emergencies, labor difficulties, fire, flood,
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(b) RSI will indemnify the Agent and its nominees against, and hold it
harmless from, all liability and expense which may arise out of or in
connection with the services described in this Agreement or the instructions
or directions furnished to the Agent relating to this Agreement by an
appropriate officer of RSI, except for any liability or expense which shall
arise out of the negligence, bad faith or willful misconduct of the Agent or
such nominees.
12. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the
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consent or concurrence of the Stockholders in whose names Subscription
Certificates are registered, by supplemental agreement or otherwise, concur
with RSI in making any changes or corrections in a Subscription Certificate
that it shall have been advised by counsel (who may be counsel for RSI) is
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or clerical omission or mistake or manifest error therein or herein
contained, and which shall not be inconsistent with the provisions of the
Subscription Certificate except insofar as any such change may confer
additional rights upon the Stockholders.
13. ASSIGNMENT; DELEGATION.
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(a) Neither this Agreement nor any rights or obligations hereunder may
be assigned or delegated by either party without the written consent of the
other party.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim or to impose upon any other person any
duty, liability or obligation.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
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accordance with the laws of the State of New York.
15. SEVERABILITY. The parties hereto agree that if any of the provisions
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contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the
invalidity, unlawfulness or unenforceability of any term or provision thereof
shall not affect the validity, legality or enforceability of this Agreement
or of any term or provision hereof.
16. COUNTERPARTS. This Agreement may be executed in one or more
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counterparts, each of which shall be deemed an original and all of, which
together shall be considered one and the same agreement.
17. CAPTIONS. The captions and descriptive headings herein are for the
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convenience of the parties only. They do not in any way modify, amplify,
alter or give full notice of the provisions hereof.
18. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto
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shall constitute a legal, valid and binding execution hereof by such party.
19. FURTHER ACTIONS. Each party agrees to perform such further acts and
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execute such further documents as are necessary to effect the purposes of
this Agreement.
20. ADDITIONAL PROVISIONS. Except as specifically modified by this
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Agreement, the Agent's rights and responsibilities set forth in the Agreement
for Stock Transfer Services between RSI and the Agent are hereby ratified and
confirmed and continue in effect.
RECKSON SERVICE INDUSTRIES, INC.
By:
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Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: -------------------------------------------
Name:
Title: