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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998 OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to ----------------
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Commission File Number 001-14183
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RECKSON SERVICE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 11-3233650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Broadhollow Road, 11747
Melville, NY (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (516) 719-7400
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on
Which Registered
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Common Stock, $.01 par value OTC Bulletin Board
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [ ]
The aggregate market value of the shares of common stock held by
non-affiliates was approximately $77,752,142 based on the average of the closing
bid and ask prices on the OTC Bulletin Board for such shares on March 24 ,1999.
The number of the Registrant's shares of common stock outstanding was
24,686,834 as of March 24,1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Shareholder's
Meeting to be held June 24,1999 are incorporated by reference into Part III.
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TABLE OF CONTENTS
Form 10-K
Item No. Report Page
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PART I
1. Business.......................................................... I-1
2. Properties........................................................ I-6
3. Legal Proceedings................................................. I-6
4. Submission of Matters to a Vote of Security
Holders........................................................... I-6
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................... II-1
6. Selected Financial Data........................................... II-2
7. Management's Discussion and Analysis of Financial Condition and
Results of Ooperations......................................... II-3
7a. Quantitative and Qualitative Disclosures about Market
Risk........................................................... II-9
8. Financial Statements and Supplementary Data....................... II-9
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ II-9
PART III
10. Directors and Executive Officers of the Registrant................III-1
11. Executive Compensation............................................III-1
12. Security Ownership of Certain Beneficial Owners
and Management................................................ III-1
13. Certain Relationships and Related Transactions................... III-1
PART IV
14. Financial Statements and Schedules, Exhibits and
Reports on Form 8-K............................................ IV-1
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ITEM 1. BUSINESS
General
Reckson Service Industries ("RSI" or the "Company"), a business service
provider, was formed on July 15, 1997 by Reckson Associates Realty Corp.
("Reckson"), to create, operate and manage a system of inter-related business
services offered for sale to its customer pool which currently includes business
customers of Reckson Operating Partnership, L.P. ("ROP") a commercial real
estate owner, Advantis, the Company's executive suite business, On-Site
Ventures, LLC, ("On-Site") the Company's telecommunications business, Reckson
Strategic Venture Partners, LLC ("RSVP") (collectively, the "RSI Customer Pool")
and third parties in the general marketplace through a centralized
infrastructure. The Company's growth strategy is to acquire or form strategic
alliances with established businesses with strong entrepreneurial management and
a reputation for high quality services within each of its targeted business
service sectors ("Business Service Platforms"). Specifically, the Company seeks
opportunities to provide business services for which there is broad demand in
the RSI Customer Pool. Such Business Service Platform investment or alliance
serves as a basis for sale and delivery of business services to the RSI Customer
Pool. The Company believes the RSI Customer Pool will attract exceptional
investment opportunities and strategic alliances which can capitalize on
enhanced revenue opportunities through a cross selling effort. The Company will
establish Business Service Platforms that present significant opportunities to
provide business services to the RSI Customer Pool and third parties. Currently,
the RSI Customer Pool retains third parties to provide many business to business
services for their day-to-day operations. Of these services, the Company may
seek to provide the RSI Customer Pool with telecommunications, outsourced
business services, E-commerce and content, executive suites and concierge
services, as well as other business services that the Company determines may be
utilized by the RSI Customer Pool. The RSI Customer Pool consists of small to
medium size businesses as well as the mobile workforce of large corporations.
RSI seeks to provide the RSI Customer Pool with high quality value-added
business services meeting all of their outsourcing needs and providing them with
resources to successfully compete in the marketplace. The Company will seek
growth in each Business Service Platform by (i) accessing the RSI Customer Pool
as an anchor for growth opportunities, (ii) integrating each Business Service
Platform into RSI's centralized infrastructure and (iii) acquiring similar
businesses, forming strategic alliances or making additional investments within
such Business Service Platform.
In connection with the initial capitalization of RSI, ROP contributed $4,256,324
for a 95% non-voting equity interest and certain members of 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 repaid.
On June 11, 1998, ROP distributed its 95% of the common stock of RSI to its unit
holders of record on May 26, 1998 (the "Distribution"). Immediately prior to the
Distribution, the shares of non-voting common stock held by ROP were exchanged
by RSI for RSI common shares. Each share of the Company's common stock issued in
the Distribution was accompanied by one preferred share purchase right.
Simultaneously, Reckson distributed 100% of the RSI common shares received from
the Distribution to its common shareholders of the same record date. In
addition, simultaneously with the Distribution, the Company issued rights to its
stockholders to subscribe for the purchase of additional shares of common stock
of the Company.
Immediately after the distribution of RSI common stock, RSI granted to its
stockholders (each a "Holder") one subscription right for each share of RSI
common stock. Each subscription right entitled the Holders 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. A
Holder of subscription rights had the opportunity to acquire up to an aggregate
of approximately 20,557,130 shares of RSI common stock. RSI and Reckson Standby,
LLC (the "Standby Purchaser") (an entity owned by several members of
management), entered into a standby agreement pursuant to which the Standby
Purchaser agreed to purchase, and RSI agreed to sell, any and all shares of RSI
common stock that were the subject of subscription rights in the rights offering
but were not subscribed for by a Holder on the expiration date at the Exercise
Price. The proceeds from the StandBy Purchaser were approximately $7,325,000.
RSI received net proceeds from the rights offering of approximately $19,852,000.
In connection with the Company's initial capitalization the Company obtained,
from ROP a five year $100 million unsecured credit facility (the "RSI
Facility"). The RSI Facility bears interest at a rate equal to the greater of
the prime rate plus 2% and (i) 12% per annum with the rate in this clause (ii)
increasing annually on outstanding borrowings at the rate of 4% per year over
the prior year's rate.
ROP and RSI have entered into an intercompany agreement (the "ROP Intercompany
Agreement") to formalize their relationship and to limit conflicts of interest.
Under the ROP Intercompany Agreement, RSI granted ROP a right of first
opportunity to make any Real Estate Investment Trust ("REIT")-qualified
investment that becomes available to RSI. In addition, if a REIT-qualified
investment opportunity becomes available to an affiliate of RSI, including RSVP,
the ROP Intercompany Agreement requires such affiliate to allow ROP to
participate in such opportunity to the extent of RSI's interest.
Under the ROP Intercompany Agreement, ROP granted RSI a right of first
opportunity to provide business services to ROP and its tenants. RSI is required
to provide services to ROP at rates and on terms as attractive as either the
best available for comparable services in the market or those offered by RSI to
third parties. In addition, ROP is required to give RSI access to its tenants
with respect to business services that may be provided to such tenants and,
under the ROP Intercompany Agreement, subject to certain conditions, ROP granted
RSI a right of first refusal to become the lessee of any real property acquired
by ROP if ROP determines that, consistent with Reckson's status as a REIT, it is
required to enter into a "master" lease agreement.
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RSI Fund Management, LLC a wholly owned subsidiary of RSI, is a managing member
of RSVP Holdings, LLC ("Holdings"), the 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 interests. RSVP will invest 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 Investments"). ROP has committed $100 million to be invested in
RSVP Investments (the "RSVP Facility"). Paine Webber Real Estate Securities,
Inc. ("PWRES") is a non-managing member and holds a preferred interest in RSVP.
PWRES has committed $200 million in capital (the "PWRES Equity Facility") and
shares 66 2/3% in profits and losses of RSVP, subject to a maximum internal rate
of return ("IRR") of 16% of invested capital. On April 24, 1998, PWRES assigned
25% of its preferred equity interest in RSVP, representing an unfunded capital
committment of $50 million to Stratum Realty Fund, LLC ("Stratum"). The
assignment provides Stratum with similar rights and privileges. Excess returns
over 16% on the PWRES Equity Facility is to be distributed to Holdings. On March
17, 1999, PWRES transferred all of its rights, title and interest on its
invested capital to date in RSVP to Stratum.
Holdings has retained two managing directors (the "RSVP Managing Directors") to
manage the day-to-day operations of RSVP, subject to the strategic direction of
RSI. New World Realty, LLC ("New World"), an entity owned by the RSVP Managing
Directors acts as a managing member of Holdings. The Holdings operating
agreement (the "Managing Member Operating Agreement") provides for the payment
to New World of distributions out of the cash flow of Holdings, after RSI
and affiliated persons have received a return of their capital contributions to
RSVP investments plus a 12% IRR thereon, of $15 million and, thereafter, a share
of cash flows ranging from 15% to 27.75% based upon the IRR received by RSI and
affiliated persons above 12% in respect of RSVP investments. The Managing Member
Operating Agreement obligates RSI to contribute 100% of the capital
contributions to be made by Holdings to RSVP in an amount up to $100 million. In
the event that RSI defaults in making its capital contributions, 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 Holdings 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. New World will
also be entitled to one-half of any asset management fee earned by Holdings from
ROP. 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 Company's executive offices are located at 225 Broadhollow Road, Melville,
New York 11747 and its telephone number at that location is (516) 719-7400. At
December 31, 1998, the Company had approximately 13 employees.
Recent Developments
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Investment Activities
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Set forth below is a brief description of the Company's major investment
activities during 1998:
Executive Office Suites
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On April 1, 1998, the Company acquired a 9.9% membership interest in Reckson
Executive Centers, LLC ("REC, LLC") for $200,000 from ROP and assumed debt of
approximately $322,000. On October 5, 1998, the Company contributed its interest
in REC, LLC to Reckson Executive Centers, Inc. ("REC") in exchange for 75% of
the common stock of REC.
On November 9, 1998, the Company acquired a majority interest in Interoffice
SuperHoldings Corporation ("Interoffice"), a nationally operated executive
office suite business. The aggregate purchase price paid by the Company was
approximately $20.5 million, and was financed through borrowings under the RSI
Facility. The Company also acquired receivables related to certain advances made
to certain other stockholders of Interoffice for approximately $10.3 million.
Such receivables are secured by the shares held by these stockholders.
On January 8, 1999, Interoffice (36 executive office suite centers) and REC (8
executive office suite centers) merged with Alliance National Incorporated, a
holding company which owns and operates approximately 90 nationally located
executive office suite centers.The merged company changed its name to Advantis.
The stockholders of Interoffice and REC received shares of the Series C
Preferred Stock of Advantis which represent approximately
40% of the equity interest in Advantis. The Company thereafter owned
approximately 23% of Advantis. The holders of the Series C Preferred Stock have
the right to appoint four of the ten members of the Board of Directors of
Advantis, including Chairman of the Board and received specified preemptive
rights and other specified rights. RSI and the other stockholders of Interoffice
hold the Series C Preferred Stock received in respect of the merger of
Interoffice through Interoffice Superholdings, LLC ("IS LLC"), a newly formed
Delaware limited liability company of which RSI is the sole managing member. RSI
also holds the Series C Preferred Stock received in respect of the merger of REC
through Reckson Office Centers, LLC, a newly formed Delaware limited liability
company of which a subsidiary of RSI is the managing member.
Advantis and RSI have also entered into an intercompany agreement pursuant to
which RSI has the opportunity to be the exclusive provider of certain business
services to Advantis, provided certain third party and "most-favored nation"
conditions are satisfied.
RSI acquired certain ownership rights related to the Series C Preferred Stock of
Advantis from a stockholder of Interoffice which provided the Company with
enhanced governance rights for $6.5 million. In addition, the Company paid $3.5
million to another stockholder of Interoffice for an option to purchase that
stockholders effective interest in the Series C Preferred Stock for a purchase
price of $6.75 million. If the option is not exercised, the stockholder has the
right to sell such interests to the Company at fair value, as determined in
accordance with the applicable agreement. A significant number of items
presented to the Advantis Board will require the separate approval of a majority
of the representatives of the Series
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C Preferred Stock on the Board, including significant acquisitions, sale or
leasing of assets, approval of Advantis's annual operating budget, certain
borrowings and capital expenditures by Advantis, the hiring or termination of
senior executives and other matters. The holders of Series C Preferred Stock
also have the right to appoint half of the members of the executive and audit
committees of the Board. The preferred stockholders of Advantis (including the
holders of Advantis' Class A Preferred Stock, Class B Preferred Stock and Class
C Preferred Stock) were granted super-majority voting rights with respect to
certain corporate actions, including the issuance of equity securities, changes
to the charter documents of Advantis and other matters.
Telecommunications
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The Company currently has a 1% interest and holds a subordinated note
convertible into 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. The Company has advanced
On-Site $6.5 million through December 31, 1998 to fund certain operating costs
under the terms of the subordinated note. The loan bears interest at a rate of
12% per annum. In May 1998, the Company made an initial capital contribution of
$300,000 for a 58.69% interest in On-Site Commerce and Content, LC ("OCC"), a
Company established to acquire and develop software products. As of December 31,
1998 OCC had no operations.
Real Estate Venture Capital Fund
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On August 11, 1998, RSVP, through a wholly owned subsidiary, formed a joint
venture, Gateway Development Group, LLC ("Gateway"), with Gateway Management
Group. Gateway is a start up entity that pursues opportunities in privatized
military housing. During 1998, RSVP contributed $549,238 to Gateway. The Company
is uncertain whether it will recover its invested dollars from Gateway's future
cash flows. At December 31, 1998, RSVP has recognized a loss of $650,531 which
includes a reserve for their total contributed dollars and investment costs of
$101,293.
On August 12, 1998, RSVP acquired, through a wholly owned subsidiary a 45%
interest in Assisted Living Investments, LLC ("ALI") for approximately $3.25
million. ALI is a joint venture that develops, leases, operates and finances
assisted living facilities. In addition, RSVP has agreed to contribute 80% of
the equity of ALI, up to a maximum $16.0 million for a total maximum commitment
of $19.25 million. RSVP funded $7.5 million of its $19.25 million commitment
upon the closing of the transaction. RSVP has funded 50% of its capital
contributions through draws under the PWRES Equity Facility.
On August 27, 1998, RSVP formed a joint venture with Dominion, an
Oklahoma-based, privately-owned group of companies that focuses on the
development, acquisition and ownership of government occupied office buildings
and correctional facilities. The joint venture, Dominion Venture Group LLC, (the
"Dominion Venture"), is owned by RSVP-Dominion, LLC, a subsidiary of RSVP, and
by Burgess Services, LLC, an entity owned and controlled by Calvin Burgess,
President and Chief Executive Officer of Dominion. The Dominion Venture will
engage primarily in acquiring, developing and/or owning government-occupied
office buildings and privately operated correctional facilities and related
activities. RSVP is to invest up to $100 million in the Dominion Venture subject
to its affirmative voting rights relating to investment activities. RSVP funded
its total capital contribution of $8,597,455 through draws under the PWRES
Equity Facility and the RSVP facility. ROP has contributed $10,065,338 to the
Dominion Venture.
Financing Activities
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During 1998, RSI established the RSI Facility with ROP in the amount of $100
million for RSI's business service sector operations and other general corporate
purposes. Borrowings under the RSI Facility 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 on outstanding borrowings at a
rate of 4% per year of the prior year's rate. The RSI Facility is expected to be
payable on an interest only basis from net cash flow and have a five year term.
Advances under the RSI Facility will be a recourse obligation of RSI. Under the
terms of the RSI facility, as long as there are outstanding advances under such
facility the Company is prohibited from paying dividends on any shares of its
capital stock. At December 31, 1998, RSI had availability under the RSI Facility
to borrow an additional $66.3 million.
During 1998, ROP approved the funding of $100 million of investments with or in
RSVP. It is anticipated that a portion of these investments will be funded
through advances to RSI under the RSVP Facility. The RSVP Facility has a term
and interest rate similar to that of the RSI Facility. At December 31, 1998, RSI
had availability under the RSVP facility to borrow an additional $82,652,881.
Corporate Strategies, Growth Opportunities and Business Segments
The Company's primary business objective is to maximize the long term return to
shareholders through the appreciation in the value of its common stock. The
Company plans to achieve these objectives by executing the corporate strategies
and growth opportunities described below.
Corporate Strategies. Management believes that there exists a significant
opportunity to create, operate and manage a system to deliver business to
business services to the RSI Customer Pool. Management also believes that it is
in a unique position to invest in companies that will expand the RSI Customer
Pool and thereby increase its business services business. Management intends to
execute an
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operating strategy that will provide the RSI Customer Pool with high quality
value-added services to meet the customer's outsourcing needs while providing
them with a competitive advantage in the marketplace. These operating strategies
include the implementation of (i) a marketing program that will survey our
customers to comprehend their outsourcing service needs and design creative
approaches to sell RSI's business services, (ii) programs to form strategic
alliances with business service companies to enable RSI to quickly and
efficiently bundle and deliver a variety of service products to the RSI Customer
Pool, (iii) an acquisition strategy to expand the RSI Customer Pool through our
executive suites business or by making strategic investments in key business
service providers, and (iv) cost control management and systems that take
advantage of economies of scale that arise from the Company's large customer
base and market position.
Internal Growth. Currently the RSI Customer Pool consists of customers of the
following investees and business partners: (i) Advantis Executive Suites which
total approximately 15,000 customers (ii) ROP which has approximately 1,500
business tenants, employing additional thousands of personnel and (iii) On-Site
that has 170 business customers. The Company will initially target this large
customer base to provide business services. The Company believes that it can
build a substantial service business by penetrating this Customer Pool.
External Growth. The Company intends to seek external growth opportunities
through investment in business service companies or strategic alliances with
such companies. These investments and alliances will serve to increase the RSI
Customer Pool and expand the distribution and variety of service products
available for sale to the RSI Customer Pool. For example, the Company will seek
to increase its investment in the executive suite business through the
acquisition and development of executive suite centers by Advantis. The Company
will utilize the RSI Facility to fund its additional investment. The Company
will also seek other forms of equity capital through strategic venture partners.
Business Segments
Executive Office Suites
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The executive office suites business ("EOS") 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, demand
and location - with those of a service intensive business, including technology.
The industry is currently fragmented with only two large participants operating
on a national basis with many operating under an affiliation or networking
basis.
The merger of the Company's executive suite businesses, REC and Interoffice
with Advantis, on January 8, 1999 created the nation's largest executive suite
company.
Telecommunications
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Building centric communications is a newer sector of the telecommunications
industry, having evolved largely as a result of the Telecommunications Act of
1996. This sector includes those companies involved in providing local and
long-distance telecommunications and high-speed Internet access. The industry
and this 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.
This sector is undergoing rapid change, development and innovation. On-Site is
one of several companies seeking to establish a significant presence in this
market.
Student Housing
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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
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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.
Privatization
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In the United States the Privatization Industry is in the initial stages of an
anticipated significant period of growth. Traditionally, government
organizations have financed new facilities through a combination of budget
appropriations and bonds. As governments of all types face increasing pressure
to control costs and improve the quality of services, they are increasingly
turning to the private sector.
Privatization holds a great deal of promise due to expected growth, which will
arise mainly from increasing demand from municipalities that will outstrip the
available supply of real estate dedicated to governmental use, and governments'
embracing the economic benefits and other efficiencies of private sector
financing, ownership and management, which will cause governments to depart from
their historic primary reliance upon budget appropriations for financing,
self-development and self-management.
Opportunities in privatization of correctional facilities will arise from an
extremely favorable demand/supply environment. Many prison jurisdictions are
currently operating their prisons at levels exceeding their legal capacities and
are therefore under federal court order to alleviate prison overcrowding.
According to the Bureau of Justice Statistics, as of year end 1996, state
prisons were operating at between 16% to 24% overcapacity, while the federal
correction systems was 25% overcrowded. Sentencing jurisdictions cannot
appropriate funds or obtain financing to construct new facilities because of
other pressing fiscal demands and requirements for public approval. Many
governments have been, and more will be, forced to consider private ownership of
correctional facilities.
As high occupancy rate and prison overcrowding have resulted in an increased
demand for new correctional facilities, the new construction can be absorbed in
the market. These factors create a strong opportunity for growth in investments
with companies that have demonstrated capabilities in developing and leasing
correctional facilities.
Privatization of government office, industrial, residential and other real
estate will create new opportunities for investment by the private sector as
governments acknowledge the benefits of a shift from public ownership and
development of such assets towards the increasing involvement of, and ultimately
dependence on, the private sector. As with correctional facilities, development
and construction capabilities enhance investment opportunities in these types of
privatized real estate.
Assisted Living
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Assisted living is currently the fastest growing segment of the seniors-housing
industry with over 6.5 million senior adults (adults over the age of 65) in need
of some form of assistance with the activities of daily living. Activities of
daily living are defined to mean those activities necessary to health, grooming,
personal sanitation, and well-being which reasonably competent and healthy
individuals can ordinarily perform for themselves. Such activities include, but
are not limited to, walking, bathing, shaving, dental care, grooming, dressing
oneself, shopping food preparation, self-administration of medication,
recreation, and leisure activities.
The number of senior adults will approximately double over the next 20 years,
and over the next five years, it is estimated that seniors will account for
one-third of all population growth in the United States. Because of these
demographic trends, new capital is flowing rapidly into assisted living. The
capital sources are attracted to the fact that, although there are currently
facilities which cater to those suffering from Alzheimer's disease or other
illnesses, assisted living facilities fill the gap for housing requirements for
the remainder of the frail elderly that require some form of assistance with the
activities of daily living, but do not need the nursing services provided by
more specialized facilities.
The goal of assisted living residences is to provide a home-like environment
with hospitality services and to provide assistance with daily living activities
to those who need it where such need has not risen to the level of skilled
nursing in a long term facility environment. Assisted living facilities are
defined to be a building or group of buildings in which room, board, meals,
laundry, and assistance with personal care and other services are provided by
trained professionals to elderly adults.
Financial information about the Company's industry segments may be found in Note
6 to the Company's consolidated financial statements presented in Item 8 of this
Annual Report on From 10-K and incorporated herein by reference.
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ITEM 2. PROPERTIES
The Company leases its principal office at 225 Broadhollow Road, Melville, New
York, 11747, in a building owned in part by certain members of management. In
addition, the Company also leases an office at 10 East 50th Street, New York,
New York, 10017.
Reckson Executive Centers, Inc. leases its offices at 225 Broadhollow Road,
Melville, New York, 11747. Interoffice Holdings Corporation maintains its
principal office at 11350 Random Hills Road, Fairfax, Virginia, 22030.
On-Site Ventures, LLC leases its principal office at 680 Third Avenue, New York
New York.
Reckson Strategic Venture Partners, LLC leases its principal office at 50
Charles Lindbergh Boulevard, Suite 400, Uniondale, New York, 11553 as a lessee
in a building owned by Reckson Operating Partnership, L.P.
Management believes that such properties are sufficient to meet their present
needs and does not anticipate any difficulty in securing additional space, as
needed, on terms acceptable to the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently subject to any material litigation nor, to the
Company's knowledge, is any litigation threatened against the Company, other
than routine actions for negligence or other claims and administrative
proceedings arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the liquidity, results of
operations or business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth quarter of
the year ended December 31, 1998.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began trading over-the-counter ("OTC") on June 29,
1998 under the symbol "RSII". The following table sets forth the quarterly high
and low closing bid prices per share of the common stock reported for each
respective quarter. These OTC market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. Since inception, the Company has not paid any
dividends to its stockholders. Under the terms of the credit facilities that the
Company has obtained from Reckson Operating Partnership, L. P. ("ROP") as long
as there are outstanding advances under such facilities, the Company is
prohibited from paying dividends on any shares of its capital stock.
High Low
---- ---
June 29, 1998..................... $4.063 $3.625
June 30, 1998..................... $3.750 $3.125
September 30, 1998................ $4.500 $2.000
December 31, 1998................. $4.625 $1.688
The Company's Registration Statement on Form S-1 (File No. 333-44419) with
respect to the spin-off distribution of its shares and the registration of
20,557,130 shares of the Company's common stock in connection with the rights
offering, was declared effective by the Securities and Exchange Commission on
May 13, 1998. In connection with the rights offering, which expired on June 29,
1998, the Company sold 20,557,130 shares of common stock for aggregate proceeds
of approximately $21.1 million before deducting approximately $1.2 million of
offering costs. As of December 31, 1998, the Company had used approximately
$17.7 million of the net proceeds of the rights offering to repay indebtedness
(and related interest) to ROP, approximately $1 million to fund advances to
On-Site and approximately $1.2 million to pay operating and other expenses.
II-1
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the For the period
year ended July 15, 1997 to
December 31, 1998 December 31, 1997
------------------------ ------------------------
<S> <C> <C>
OPERATIONS SUMMARY:
Total revenues..................................... $ 1,342,504 $ 30,383
Equity in earnings (loss) of investments........... (3,966,399) 223,437
Total expenses..................................... 5,455,963 511,707
Cumulative effect of change in accounting principle (67,945) -----
Net loss........................................... $ (8,147,803) $ (257,887)
PER SHARE DATA: (1)
Basic and diluted net loss......................... $ (.56) $ ----
BALANCE SHEET DATA (PERIOD END):
Equity Investments ................................ $ 45,837,711 $ 5,845,258
Affiliate receivables.............................. 9,396,070 832,854
Equipment.......................................... 99,928 -----
Other assets....................................... 1,483,427 30,185
Total assets....................................... 58,842,663 7,519,695
Credit facilities.................................. 40,981,500 -----
Loans payable to affiliates........................ ----- 3,177,857
Total liabilities.................................. 42,875,157 3,297,241
Total shareholders' equity......................... $ 15,967,506 $ 4,222,454
</TABLE>
- -----------
(1) Based on 14,522,513 weighted average shares of common stock outstanding for
the year ended December 31, 1998.
II-2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
Financial Statements of Reckson Service Industries, Inc. (the "Company" or
"RSI") and related notes thereto.
The Company considers certain statements set forth to be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, with respect to
the Company's expectations for future periods. Certain forward-looking
statements, including, without limitation, statements relating to the ability to
identify and acquire interests in commercial services companies, the financing
of the Company's operations, the timing and success of such acquisitions and the
ability to integrate and manage effectively its various acquisitions, involve
certain risks and uncertainties. Although the Company believes that the
expectation reflected in such forward-looking statements are based on reasonable
assumptions, the actual results may differ materially from those set forth in
the forward-looking statements and the Company can give no assurance that its
expectations will be achieved. Certain factors that might cause the results of
the Company to differ materially from those indicated by such forward-looking
statements include, among other factors, general economic conditions, a lack of
attractive business opportunities or suitable acquisitions, the Company's
dependence upon financing from Reckson Operating Partnership, L.P., ("ROP")
conflicts of interest of management, competition for targeted acquisitions and
the ability to otherwise finance business opportunities. Consequently, such
forward-looking statements should be regarded solely as reflections of the
Company's current operating and development plans and estimates. These plans and
estimates are subject to revision from time to time as additional information
becomes available, and actual results may differ from those indicated in the
referenced statements.
OVERVIEW AND BACKGROUND
The Company's primary business is to create and operate a system of interrelated
business services offered for sale to its customer pool which includes customers
of ROP, a commercial real estate owner, Advantis, the Company's executive suite
business, On-Site Ventures, LLC ("On-Site"), the Company's telecommunications
business, and Reckson Strategic Venture Partners, LLC ("RSVP"), (collectively,
the "RSI Customer Pool") and third parties in the general marketplace through a
centralized infrastructure. The Company's growth strategy is to acquire or form
strategic alliances with established businesses with strong entrepreneurial
management and a reputation for high quality services within each of its
targeted business service sectors ("Business Service Platforms"). Specifically,
the Company seeks opportunities for which there is broad demand in the RSI
Customer Pool. Such Business Service Platform investment or alliance serves as a
basis for sale and delivery of business services to the RSI Customer Pool. The
Company will establish Business Service Platforms that present significant
opportunities to provide business services to the RSI Customer Pool and other
third parties. Currently, the RSI Customer Pool retains third parties to provide
many business to business services for their day-to-day operations. Of these
services, the Company may seek to provide the RSI Customer Pool with
telecommunications, outsourced business services, E-commerce and content,
executive suites and concierge services, as well as with other business services
that the Company determines may be utilized by the RSI Customer Pool. The
Company will seek growth in each Business Service Platform by (i) accessing the
RSI Customer Pool as an anchor for growth opportunities (ii) integrating each
Business Service Platform into RSI's centralized infrastructure and (iii)
acquiring similar businesses, forming strategic alliances, or making additional
investments within such Business Service Platform.
In connection with the initial capitalization of RSI, ROP contributed $4,256,324
for a 95% non-voting equity interest and certain members of 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 repaid.
On June 11, 1998, ROP distributed its 95% of the common stock of RSI to its unit
holders of record on May 26, 1998 (the "Distribution"). Immediately prior to the
Distribution, the shares of non-voting common stock held by ROP were exchanged
by RSI for RSI common shares. Each share of the Company's common stock issued in
the Distribution was accompanied by one preferred share purchase right.
Simultaneously, Reckson Associates Realty Corp. ("Reckson") distributed 100% of
the RSI common shares received from the Distribution to its common shareholders
of the same record date. In addition, simultaneously with the Distribution, the
Company issued rights to its stockholders to subscribe for the purchase of
additional shares of common stock of the Company.
Immediately after the Distribution of RSI common stock, RSI granted to its
stockholders (each a "Holder") one subscription right for each share of RSI
common stock. Each subscription right entitled 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. A
Holder of subscription rights had the opportunity to acquire up to an aggregate
of approximately 20,557,130 shares of RSI common stock. RSI and Reckson Standby,
LLC (the "Standby Purchaser") (an entity owned by several members of
management), entered into a standby agreement pursuant to which the Standby
Purchaser agreed to purchase, and RSI agreed to sell, any and all shares of RSI
common stock that were the subject of subscription rights in the rights offering
but were not subscribed for by a Holder on the expiration date at the Exercise
Price. The proceeds from the Standby Purchaser were
II-3
<PAGE>
approximately $7,325,000. RSI received net proceeds from the rights offering of
approximately $19,852,000. In connection with the Company's initial
capitalization the Company obtained, from ROP a five year $100 million unsecured
credit facility (the "RSI Facility"). The RSI Facility bears interest at a rate
equal to the greater of the prime rate plus 2% and (i) 12% per annum with the
rate in clause (ii) increasing annually on outstanding borrowings at the rate of
4% per year over the prior year's rate.
ROP and RSI have entered into an intercompany agreement (the "ROP Intercompany
Agreement") to formalize their relationship and to limit conflicts of interest.
Under the ROP Intercompany Agreement, RSI granted ROP a right of first
opportunity to make any Real Estate Investment Trust ("REIT") -qualified
investment that becomes available to RSI. In addition, if a REIT-qualified
investment opportunity becomes available to an affiliate of RSI, including RSVP,
the ROP Intercompany Agreement requires such affiliate to allow ROP to
participate in such opportunity to the extent of RSI's interest.
Under the ROP Intercompany Agreement, ROP granted RSI a right of first
opportunity to provide commercial services to ROP and its tenants. RSI will
provide services to ROP at rates and on terms as attractive as either the best
available for comparable services in the market or those offered by RSI to third
parties. In addition, ROP is required to give RSI access to its tenants with
respect to business services that may be provided to such tenants and, under the
ROP Intercompany Agreement, subject to certain conditions, ROP granted RSI a
right of first refusal to become the lessee of any real property acquired by ROP
if ROP determines that, consistent with the REIT status of Reckson, it is
required to enter into a "master" lease agreement.
RSI Fund Management, LLC a wholly owned subsidiary of RSI, is a managing member
of RSVP Holdings, LLC ("Holdings"), the 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 interests. RSVP will invest 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 Investments"). ROP has committed $100 million to be invested in
RSVP Investments (the "RSVP Facility"). Paine Webber Real Estate Securities,
Inc. ("PWRES") is a non-managing member and holds a preferred interest in RSVP.
PWRES has committed $200 million in capital (the "PWRES Equity Facility") and
shares 66 2/3% in profits and losses of RSVP, subject to a maximum internal rate
of return ("IRR") of 16% of invested capital. On April 24, 1998, PWRES assigned
25% of its preferred equity interest in RSVP, representing an unfunded capital
committment of $50 million to Stratum Realty Fund, LLC ("Stratum"). Excess
returns over 16% on the PWRES Equity Facility is to be distributed to Holdings.
On March 17, 1999, PWRES transferred all of its rights, title and interest on
its invested capital to date in RSVP to Stratum.
Holdings has retained two managing directors (the "RSVP Managing Directors") to
manage the day-to-day operations of RSVP, subject to the strategic direction of
RSI. New World Realty, LLC ("New World"), an entity owned by the RSVP Managing
Directors acts as a managing member of Holdings. The Holdings operating
agreement (the "managing member operating agreement") provides for the payment
to New World of distributions out of the cash flow of Holdings, after RSI and
affiliated persons have received a return of their capital contributions to RSVP
investments plus a 12% IRR thereon, of $15 million and, thereafter, a share of
cash flows ranging from 15% to 27.75% based upon the IRR received by RSI and
affiliated persons above 12% in respect of RSVP investments. The managing member
operating agreement obligates RSI to contribute 100% of the capital
contributions to be made by Holdings to RSVP in an amount up to $100 million. In
the event RSI defaults in making its capital contributions, 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 Holdings 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.
New World will also be entitled to one-half of
any asset management fee earned by Holdings from ROP. Additionally, it is
anticipated that New World will receive transaction fees of up to $1 million a
year for identifying investment opportunities for RSVP.
On April 1, 1998, the Company acquired a 9.9% membership interest in Reckson
Executive Centers, LLC ("REC, LLC") for $200,000 from ROP and assumed debt of
approximately $322,000. On October 5, 1998, the Company contributed its interest
in REC, LLC to Reckson Executive Centers, Inc. ("REC") in exchange for 75% of
the common stock of REC.
On November 9, 1998, the Company acquired a majority interest in Interoffice
SuperHoldings Corporation ("Interoffice"), a nationally operated executive
office suite business. The aggregate purchase price paid by the Company was
approximately $20.5 million and was financed through borrowings under the RSI
Facility. The Company also acquired receivables related to certain advances made
to certain other stockholders of Interoffice for approximately $10.3 million.
Such receivables are secured by the share held by these stockholders.
On January 8, 1999, Interoffice (36 executive office suite centers) and REC (8
executive office suite centers) merged with Alliance National Incorporated, a
holding company which owns and operates approximately 90 nationally located
executive office suite centers. The merged company changed its name to Advantis.
The stockholders of Interoffice and REC received shares of the Series C
Preferred Stock of Advantis which represent approximately 40% of the equity
interest in Advantis. The Company thereafter owned approximately 23% of
Advantis. The holders of the Series C Preferred Stock have the right to appoint
four of the ten members of the board of directors of Advantis, including
Chairman of the Board and received specified preemptive rights and other
specified rights. RSI and the other stockholders of Interoffice hold the Series
C Preferred Stock received in respect of the merger of Interoffice through
Interoffice Superholdings, LLC ("IS LLC"), a newly formed Delaware limited
liability company of which RSI is the sole managing member. RSI also holds the
Series C Preferred Stock received in respect of the merger of REC through
Reckson Office Centers, LLC, a newly formed Delaware limited liability company
of which a subsidiary of RSI is the managing member.
II-4
<PAGE>
Advantis and RSI have also entered into an intercompany agreement pursuant to
which RSI has the opportunity to be the exclusive provider of certain business
services to Advantis, provided certain third party and "most-favored nation"
conditions are satisfied.
RSI acquired certain ownership rights related to the Series C Preferred Stock of
Advantis from a stockholder of Interoffice which provided the Company with
enhanced governance rights for $6.5 million. In addition, the Company paid $3.5
million to another stockholder of Interoffice for an option to purchase that
stockholders effective interest in the Series C Preferred Stock for a purchase
price of $6.75 million. If the option is not exercised, the stockholder has the
right to sell such interests to the Company at fair value, as determined in
accordance with the applicable agreement. A significant number of items
presented to the Advantis Board will require the separate approval of a majority
of the representatives of the Series C Preferred Stock on the Board, including
significant acquisitions, sale or leasing of assets, approval of Advantis's
annual operating budget, certain borrowings and capital expenditures by
Advantis, the hiring or termination of senior executives and other matters. The
holders of Series C Preferred Stock also have the right to appoint half of the
members of the executive and audit committees of the Board. The preferred
stockholders of Advantis (including the holders of Advantis' Class A Preferred
Stock, Class B Preferred Stock and Class C Preferred Stock) were granted
super-majority voting rights with respect to certain corporate actions,
including the issuance of equity securities, changes to the charter documents of
Advantis and other matters.
The Company currently has a 1% interest and holds a subordinated note
convertible into 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. The Company has advanced
On-Site $6.5 million through December 31, 1998 to fund certain operating costs
under the terms of the subordinated note. The loan bears interest at a rate of
12% per annum. In May 1998, the Company made an initial capital contribution of
$300,000 for a 58.69% interest in On-Site Commerce and Content, LLC ("OCC"), a
Company established to acquire and develop software products. As of December 31,
1998 OCC had no operations.
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 $245,593 which represents RSI's 33 1/3% interest in a
joint venture that owns a 70% interest in Dobie Center Properties, Ltd.
.("Dobie"), (ii) equity in loss of American Campus Communities, LLC ("ACC") of
$22,156 and (iii) interest income of $30,383 relating to loans made to certain
affiliates. The Company also reported total expenses of $511,707 which
substantially represents payroll and office costs.
II-5
<PAGE>
Summary of Operations by Business Segment
Executive Suites
- ----------------
For the period November 9, 1998 to December 31, 1998, Interoffice reported loss
of $73,509. RSI's share after adjustments, was income of $54,161. For the period
April 1, 1998 to December 31, 1998, REC reported losses of $275,818. RSI's share
of these losses was $149,079. REC's losses were generally attributable to costs
of opening new centers.
Telecommunications
- ------------------
For the period May 18, 1998 to December 31, 1998, On-Site reported losses of
$3,055,505. On-Site's losses were generally attributable to start-up costs. The
Company's share of losses attributable to its 1% equity interest was $30,555. In
connection with the Company's convertible notes with On-Site, RSI recognized
$345,428 in interest income.
RSVP Holdings, LLC
- ------------------
For the year ended December 31, 1998, Holdings, reported total revenues of
$646,678, equity in losses on investments of $3,993,755 and expenses of
$7,261,529. RSI's share of Holdings' loss for the year ended December 31, 1998
was $3,959,989. Included in Holdings' operating results are the following RSVP
activities:
Student Housing
- ---------------
For the year ended December 31, 1998, Dobie reported income of $869,412. RSI's
share of income for its period of ownership, January 1, 1998 to March 31, 1998
was $170,567. For the period April 1, 1998 to December 31, 1998 RSVP's share of
income was $32,296. Student rental revenues are generally recognized over the
school year. In addition, in August of 1998, the mortgage indebtedness in Dobie
Center was refinanced with a larger mortgage loan resulting in increased
interest expense.
For the period April 1, 1998 to December 31, 1998, ACC, reported losses of
$2,226,330. RSI's share of those losses for its period of ownership, January 1,
1998 to March 31, 1998 was $51,504. For the period April 1, 1998 to December 31,
1998 RSVP's share of losses was $518,895. ACC losses generally related to
operating expenses on new projects prior to student occupancy,
in addition to interest expense and amortization of leaseholds.
Privatization
- -------------
On August 11, 1998, RSVP, through a wholly owned subsidiary, formed a joint
venture, Gateway Development Group,LLC ("Gateway") with Gateway Management
Group. During 1998, RSVP contributed $549,238 to Gateway. RSVP is currently
uncertain whether it will recover its invested dollars from Gateway's future
cash flows.
At December 31, 1998, RSVP has recognized a loss of $650,531 which includes a
reserve for their total contributed dollars and investment costs of $101,293.
For the period August 27, 1998 to December 31, 1998 Dominion Venture Group, LLC
reported income of $970,608. RSVP's share of income was $296,970.
Assisted Living
- ---------------
For the period August 21, 1998 to December 31,1998 Assisted Living Investments,
LLC ("ALI") reported losses of $5,102,096. RSVP's share of losses amounted to
$2,907,607. ALI's losses were generally attributable to the opening of new
assisted living facilities and the costs of operating and maintaining those
facilities prior to their lease up.
LIQUIDITY AND CAPITAL RESOURCES
Summary of Cash Flows
- ---------------------
Net cash used by operating activities totaled approximately $15 million in 1998
and $1.9 million for the period July 15, 1997 to December 31, 1997. Cash used in
operations for 1998 and 1997 were primarily attributable to the start-up losses
incurred by the Company, advances to affiliates and general and administrative
operating costs.
Net cash used in investing activities totaled approximately $44 million in 1998
and $2 million for the period July 15, 1997 to December 31, 1997. Cash used in
investing activities related primarily to investments in and advances to
Holdings, Interoffice and On-Site.
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<PAGE>
Net cash provided by financing activities totaled approximately $61 million in
1998, and $4 million for the period July 15, 1997 to December 31, 1997. Cash
provided by financing activities during 1998 is attributable to proceeds from
the rights offering and draws on the RSI facility and the RSVP facility.
Financing Activities
On June 15, 1998, RSI established the RSI Facility with ROP in the amount of
$100 million for RSI's service sector operations and other general corporate
purposes. On the same date, RSI established the RSVP Facility with ROP for
funding of investments of up to $100 million with or in RSVP through (i)
RSVP-controlled joint venture REIT-qualified investments, or (ii) advances made
to RSI subsequent to the Distribution. Advances under the RSVP Facility in
excess of $25 million in respect of any single platform are 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 a Business Service
Platform, as well as advances for investments in opportunities in non-commercial
services, are subject to approval by Reckson's board of directors, or a
committee thereof. The RSI and RSVP Facilities (the "Credit Facilities") each
have a term of five years and advances thereunder are recourse obligations of
RSI. Interest accrues 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 on balances outstanding for more than one year increasing annually at a
rate of 4% of the prior year's rate. Prior to maturity, interest is payable
quarterly but only to the extent of net cash flow and on an interest-only basis
and is prepayable without penalty at the option of RSI. As long as there are
outstanding advances under the Credit Facilities, RSI is prohibited from paying
dividends on any shares of its capital stock. The Credit Facilities are 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. As of
December 31, 1998, approximately $33.7 million was outstanding under RSI
Facility and approximately $17.3 million was advanced under the RSVP Facility of
which approximately $10.1 million represents an investment by ROP in RSVP joint
ventures and approximately $7.2 million represents outstanding borrowings.
Additionally, RSVP has obtained the PWRES Equity Facility 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 PWRES Equity
Facility have been used by RSVP to make investments consistent with its business
objectives and to fund working capital. Under the terms of the PWRES 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 PWRES Equity
Facility are 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. As of December 31, 1998, PWRES and Stratum have
contributed $37,465,384. On March 17, 1999, PWRES transferred all of its rights,
title and interest on its invested capital to date in RSVP to Stratum. This
transfer will include the rights to distributions based upon the amount of
funded capital contributions.
The Company utilizes the advances under the RSI Facility primarily to make
investments in operating companies that provide business services. The Company
may make additional investments in these operating companies to accommodate
their respective growth plans. The Company's investments in operating companies
are anticipated to produce net cash flow as a result of their operating
activities over the long term, although the level and timing of net cash flow
for each investment in the short-and long-term may vary based upon the stage of
the respective operating company's growth cycle and the level of the Company's
ownership interest. The Company targets investments in operating companies that
will produce net cash flow in the long-term. It is expected that certain of the
Company's investments will be made in Companies which it does not own a
majority interest or fully control. Thereby cash flow of these companies will be
used for growth opportunities at such companies and not for distribution to its
owners. It is also expected that the Company will seek to invest in companies
where it controls operations and consolidates such companies cash flows with
those of the Company. Under such circumstances 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 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, 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.
IMPACT OF YEAR 2000
With respect to the year 2000 disclosure, the following Company information
pertains to RSI, its direct investments (On-Site, Interoffice and Holdings), as
well as the RSVP platform investments.
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
II-7
<PAGE>
process transactions, 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 year 2000 project is estimated to be completed not later than July 31, 1999,
which is prior to any anticipated impact on its operating systems. Additionally,
the Company has received assurances from its contractors that all of the
Company's building management and mechanical systems are currently year 2000
compliant or will be made compliant prior to any impact on those systems.
However, the Company cannot guarantee that all contractors will comply with
their assurances and therefore, the Company may not be able to determine year
2000 compliance of those contractors. At that time, the Company will determine
the extent to which the Company will be able to replace non-compliant
contractors. 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 complete timely costs associated with
the year 2000 issue could be significant and have a material impact on the
operations on the Company.
To date, the Company has expended approximately $21,000 and expects to expend an
additional $60,000 in connection with upgrading building management, mechanical
and computer systems. 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.
In a "worst case scenario" of the failure of the third party to deliver to, on a
timely basis, the necessary upgrades to the accounting software, the Company
would be required to process transactions, such as the issuance of
disbursements, manually until an alternative system was implemented.
If the Company is not successful in implementing its year 2000 compliance plan,
the Company may suffer a material adverse impact on their results of operations
and financial condition. Because of the importance of addressing the year 2000
issue, the Company expects to develop contingency plans if they determine that
the compliance plans will not be implemented by July 31, 1999.
INFLATION
The Credit Facilities bear interest at the greater of the prime rate plus 2% or
12% (on balances outstanding more than one year 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.
The privatization, assisted living and student housing sectors are subject to
incremental rent increases each year. The Company believes that inflationary
increases will be offset by these rent increases.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt the new Statement effective January 1,
2000. The Company does not anticipate that the adoption of this Statement will
have any effect on its results of operations or financial position.
II-8
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk facing the Company is interest rate risk on its Credit
Facilities. The Company does not hedge interest rate risk using financial
instruments. The Credit Facilities bear interest at the greater of the prime
rate plus 2% or 12% (with balances outstanding more than one year 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.
The following table sets forth the Company's Credit Facilities obligations,
principal cash flows by scheduled maturity, weighted average interest rates and
estimated fair market value ("FMV") at December 31, 1998.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total FMV
---- ---- ---- ---- ---- ---------- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable rate $ ------ $ ----- $ ------ $ ----- $ 40,981,500 $ ----- $40,981,500 $40,981,500
Average interest ------ ----- ------ ----- 12% ----- 12% ------
rate
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included in a separate section of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
II-9
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the section captioned "Proposal I: Election of
Directors" of the Company's definitive proxy statement for the 1999 annual
meeting of stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the section captioned "Executive Compensation" of
the Company's definitive proxy statement for the 1999 annual meeting of
stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the section captioned "Principal and Management
Stockholders" of the Company's definitive proxy statement for the 1999 annual
meeting of stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the section captioned "Certain Relationships and
Related Transactions" of the Company's definitive proxy statement for the 1999
annual meeting of the stockholders is incorporated herein by reference.
III-1
<PAGE>
PART IV
ITEM 14. FINANCIAL STATEMENTS AND SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(a) (1 and 2) Financial Statements and Schedules
The following consolidated financial information is included as a
separate section of this annual report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
-----------
RECKSON SERVICE INDUSTRIES, INC.
<S> <C>
Report of Independent Auditors.................................................................... IV-6
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997......................... IV-7
Consolidated Statements of Operations for the year ended December 31, 1998 and for
the period from July 15, 1997 (commencement of operations) to December 31, 1997................ IV-8
Consolidated Statements of Shareholders' Equity for the year ended December 31, 1998
and for the period from July 15, 1997 (commencement of operations) to December 31, 1997........ IV-9
Consolidated Statements of Cash Flows for the year ended December 31, 1998 and for
the period from July 15, 1997 (commencement of operations) to December 31, 1997................ IV-10
Notes to Consolidated Financial Statements........................................................ IV-11
</TABLE>
IV-1
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS INCLUDED PURSUANT TO RULE 3-09 OF REGULATION S-X
<S> <C>
INTEROFFICE SUPERHOLDINGS CORPORATION AND SUBSIDIARIES
Report of Independent Auditors ............................................. IV-26
Consolidated Balance Sheet as of December 31, 1998 ......................... IV-27
Consolidated Statement of Operations for the period from November 9, 1998
to December 31, 1998 ..................................................... IV-28
Consolidated Statement of Stockholders' Equity for the period from November
9, 1998 to December 31, 1998............................................. IV-29
Consolidated Statement of Cash Flows for the period from November 9, 1998 to
December 31, 1998 ........................................................ IV-30
Notes to Consolidated Financial Statements ................................. IV-31
RSVP HOLDINGS, LLC
Report of Independent Auditors ............................................. IV-41
Consolidated Balance Sheet as of December 31, 1998 ......................... IV-42
Consolidated Statement of Operations for the period from February 26, 1998
(commencement of operations) to December 31, 1998 ........................ IV-43
Consolidated Statement of Members' Equity for the period from February 26,
1998 (commencement of operations) to December 31, 1998 ................... IV-44
Consolidated Statement of Cash Flows for the period from February 26, 1998
(commencement of operations) to December 31, 1998 ........................ IV-45
Notes to Consolidated Financial Statements ................................. IV-46
</TABLE>
Other schedules are omitted since the required information is not present in
amounts sufficient to require submission of the the schedule or because the
information required is included in the financial statements and notes thereto.
IV-2
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1* Certificate of Incorporation
3.2* By-Laws of Registrant
3.3 Amended and Restated Certificate of Incorporation
4.1* Specimen Share Certificate of Common Stock
10.1 Intercompany Agreement between Reckson Operating Partnership, L..P. and
Reckson Service Industries, Inc. dated May 13, 1998
10.2A Credit Agreement between Reckson Operating Partnership, L.P. and
Reckson Service Industries, Inc. relating to the operations of Reckson
Strategic Venture Partners,LLC dated June 15, 1998
10.2B Credit Agreement between Reckson Operating Partnership, L.P. and
Reckson Service Industries, Inc. relating to the operations of Reckson
Service Industries, Inc. dated June 15, 1998
10.3* Limited Liability Company Agreement of OnSite Ventures, LLC
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* Registration Rights Agreement between Reckson Service Industries, Inc.
and certain affiliates thereof dated May 13, 1998
10.8* Option to acquire Interoffice Superholdings Corporation
10.9 Loan Agreement regarding On-Site Convertible Loans
10.10A* Stock Option Plan
10.10B 1998 employee stock option plan
10.11* Employment Agreement of Steven H. Shepsman
10.12* Employment Agreement of Seth B. Lipsay
10.13* Limited Liability Company Agreement of Interoffice Superholdings, LLC
by and among Interoffice Superholdings, LLC, RSI I/O Holdings, Inc.,
JAH I/O, LLC and Rieger I/O LLC
10.14* Fourth Amended and Restated Stockholder's Agreement dated January 8,
1999 by and among Alliance National Incorporated and the security
holders identified therein.
10.15** Letter Agreement dated November 9, 1998 by and between JAH I/O LLC and
Reckson Management Group, Inc., Reckson Service Industries, Inc., RSI
I/O Holdings, Inc., and Reckson Office Centers, LLC
10.16** Letter Agreement by and between Reckson Service Industries, Inc., and
RFIA, LLC
10.17*** Amended and Restated Operating Agreement of Assisted Living Investments
LLC
10.18# Operating Agreement of Dominion Venture Group LLC
10.19## Agreement and Plan of Merger by and among Alliance National
Incorporated, Alliance Holding Inc., Interoffice Superholdings
Corporation and Interoffice Superholdings, LLC
10.20## Agreement and Plan of Merger by and among Alliance National
Incorporated, ANI Holdings, Inc., Reckson Executive Centers, Inc., and
Reckson Office Centers, LLC
10.21 $4 million Senior Secured Promissory Note of On-Site Ventures, LLC
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries of Reckson Service Industries, Inc.
24.1 Powers of Attorney (included in Part IV of this Form 10-K)
27.0 Financial Data Schedule
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
- -------------
* Previously filed as an exhibit to Registration Statement on Form S-1 (No.
333-44419) and incorporated herein by reference.
** Previously filed as an exhibit to the Company's Form 8-K filed with the SEC
on January 25, 1999 and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's form 8-K report filed with
the SEC on September 8, 1998 and incorporated herein by reference.
# Previously filed as an exhibit to the Company's form 8-K report field with
the SEC on September 11, 1998 and incorporated herein by reference.
## Previously filed as an exhibit to the Company's Form 8-K filed with the SEC
on December 1, 1998 and incorporated herein by reference.
IV-3
<PAGE>
(3) Exhibits
(b) Reports on Form 8-K
On November 9, 1998 the Company filed a report on Form 8-K/A in order to file
financial statements relating to RSVP's purchase of an interest in Assisted
Living Investments, LLC.
On November 10, 1998 the Company filed a report on Form 8-K/A in order to file
financial statements relating to the formation of joint venture (Dominion
Venture Group, LLC) between RSVP and Dominion.
On November 20, 1998 the Company filed a report on Form 8-K announcing the
exercise of its option to acquire a majority interest in Interoffice
SuperHoldings Corporation from Reckson Management Group, Inc.
On December 1, 1998, the Company filed a report on Form 8-K announcing its
execution of merger agreements with Alliance National Incorporated and Reckson
Executive Centers, Inc., and Interoffice SuperHoldings Corporation.
IV-4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March ___________, 1999.
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ SCOTT RECHLER
---------------------------------
(Scott Rechler)
President, Chief Executive Officer
and Director
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Reckson Service Industries, Inc., hereby severally constitute Scott
H. Rechler, Mitchell D. Rechler and Michael Maturo, and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly, to
sign for us and in our names in the capacities indicated below, the Form 10-K
filed herewith and any and all amendments to said Form 10-K, and generally to do
all such things in our names and in our capacities as officers and directors to
enable Reckson Service Industries, Inc. to comply with the provisions of the
Securities Exchange Act of 1934, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Form 10-K and any and
all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ SCOTT H. RECHLER
- ---------------------------------------
(Scott H. Rechler) President,-Chief-Executive-Officer-and-Director March 30, 1999
/s/ MICHAEL MATURO
- ---------------------------------------
(Michael Maturo) Executive Vice President, Chief Financial Officer and Director March 30, l999
Financial-Officer-and-Accounting-Officer)
/s/ DONALD J. RECHLER
- ---------------------------------------
(Donald J. Rechler) Chairman of the Board and Director March 30, 1999
/s/ ROGER M. RECHLER
- ---------------------------------------
(Roger M. Rechler) Member of Management Advisory Committee and Director March 30, 1999
/s/ MITCHELL D.. RECHLER
- ---------------------------------------
(Mitchell D. Rechler) Secretary,-Member-of-Management-Advisory-Committee-and-Director March 30, 1999
/s/ GREGG M.. RECHLER
- --------------------------------------
(Gregg M. Rechler) Member of Management Advisory Committee and Director March 30, 1999
- --------------------------------------
(Paul Amoruso) Director March 30, 1999
/s/ RONALD COOPER
- --------------------------------------
(Ronald Cooper) Director March 30, 1999
</TABLE>
IV-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Reckson Service Industries, Inc.
We have audited the accompanying consolidated balance sheets of Reckson Service
Industries, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year
ended December 31, 1998 and 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 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 consolidated financial position of Reckson Service
Industries, Inc. as of December 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for the year ended December 31, 1998 and
for the period July 15, 1997 (commencement of operations) to December 31, 1997
in conformity with generally accepted accounting principles.
/S/ERNST & YOUNG LLP
New York, New York
March 12, 1999
IV-6
<PAGE>
<TABLE>
<CAPTION>
RECKSON SERVICE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 2,025,527 $ 129,704
Equity investments (Note 3) 45,837,711 5,845,258
Affiliate receivables (Notes 3 and 5) 9,396,070 832,854
Organization and pre-acquisition costs net of amortization of $8,214, (1997) ----- 681,694
Equipment (net of depreciation of $15,337) 99,928 -----
Other assets 1,483,427 30,185
----------------------- -----------------------
Total Assets $ 58,842,663 $ 7,519,695
======================= =======================
Liabilities and Shareholders' Equity:
Accounts payable and accrued expenses $ 1,893,657 $ 119,384
Loans payable to affiliates ---- 3,177,857
Credit facilities with related parties (Note 5) 40,981,500 ---
----------------------- -----------------------
Total Liabilities 42,875,157 3,297,241
----------------------- -----------------------
Commitments and Contingencies (Note 8)
Shareholders' Equity: (Notes 1 and 4)
Preferred stock, $.01 par value 25,000,000 shares authorized, none issued ----- -----
and outstanding
Common stock, $.01 par value, 100,000,000 shares authorized, 24,685,514
and 1,000 shares issued and outstanding, respectively 246,855 10
Additional paid in capital 24,126,341 4,480,331
Accumulated deficit ( 8,405,690) (257,887)
----------------------- -----------------------
Total Shareholders' Equity 15,967,506 4,222,454
----------------------- -----------------------
Total Liabilities and Shareholders' Equity $ 58,842,663 $ 7,519,695
======================= =======================
</TABLE>
(See accompanying notes to consolidated financial statements)
IV-7
<PAGE>
<TABLE>
<CAPTION>
RECKSON SERVICE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year For the period from
ended July 15, 1997 to
December 31, 1998 December 31, 1997
-------------------------------------------------------
<S> <C> <C>
Revenues:
Interest income $ 1,006,551 $ 30,383
Management fee income (Note 5) 277,778 ---
Other income 58,175 ---
----------------------- ------------------------
Total Revenues 1,342,504 30,383
----------------------- ------------------------
Equity in earnings (loss) of investments (Note 3) (3,966,399) 223,437
----------------------- ------------------------
Expenses:
Professional fees 457,901 12,575
General and administrative expenses 2,086,989 466,538
Amortization and depreciation 39,179 8,214
Terminated transaction and related costs 1,220,694 ---
Interest expense (Note 5) 1,651,200 24,380
----------------------- ------------------------
Total Expenses 5,455,963 511,707
----------------------- ------------------------
Loss before cumulative effect of change in accounting principle (8,079,858) (257,887)
Cumulative effect of change in accounting principle (Note 2) (67,945) ---
----------------------- ------------------------
NET LOSS $ (8,147,803) $ (257,887)
======================= ========================
Basic and diluted net loss per weighted average common share $ (.56) $ ---
======================= ========================
Basic and diluted weighted average common shares outstanding 14,522,513 ---
======================= ========================
</TABLE>
(See accompanying notes to consolidated financial statements)
IV-8
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Common Additional Paid Accumulated Shareholders'
Stock in Capital Deficit Equity
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial capitalization, 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
Distribution of shares......................... 41,142 -- -- 41,142
Proceeds from rights offering,
Net of costs of $1,296,537................... 205,703 19,646,010 -- 19,851,713
Net loss....................................... -- -- (8,147,803) (8,147,803)
------------- ------------- -------------- --------------
Shareholders' equity, December 31, 1998........ $ 246,855 $24,126,341 $ (8,405,690) $ 15,967,506
-----------------------------------------------------------------------------
</TABLE>
(see accompanying notes to consolidated financial statements)
IV-9
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twelve months Period from
ended July 15, 1997 to
December 31, 1998 December 31, 1997
----------------------- -----------------------
CASH FLOWS FROM OPERATING:
<S> <C> <C>
Net Loss $ (8,147,803) $ (257,887)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation 39,179 8,214
Cumulative effect of change in accounting principle 67,945 ----
Equity in (earnings) loss of investments 3,966,399 (223,437)
Changes in operating assets and liabilities:
Other assets (1,453,242) (30,185)
Purchase of equipment (115,265) ----
(Increase) decrease in organization and pre-acquisition costs 589,907 (689,908)
Accounts payable and accrued expenses 1,774,273 119,384
Advances to affiliates (11,741,073) (832,854)
--------------- --------------
Net cash used in operating activities (15,019,680) (1,906,673)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in American Campus Communities, LLC (278,985) (1,674,321)
Investment in and advances to Reckson Executive Centers, LLC (1,041,973) ----
Investment in and convertible loans to On-Site Ventures, LLC (6,806,885) (325,000)
Investment in and advances to RSVP Holdings, LLC (13,602,579) ----
Investment in Interoffice SuperHoldings Corporation (22,228,430) ----
--------------- -------------
Net cash used in investing activities (43,958,852) (1,999,321)
--------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions ---- 857,841
Net proceeds from credit facilities 40,981,500 ----
Proceeds from affiliate loans ---- 3,177,857
Net proceeds from rights offering 19,892,855 ----
--------------- --------------
Net cash provided by financing activities 60,874,355 4,035,698
--------------- --------------
Net increase in cash and cash equivalents 1,895,823 129,704
Cash and cash equivalents at beginning of period 129,704 ----
--------------- --------------
Cash and cash equivalents at end of period $ 2,025,527 $ 129,704
=============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 815,604 $ ----
=============== =============
NON-CASH TRANSACTIONS:
Contributions of assets from ROP $ ---- $ 3,622,500
=============== =============
Contribution of non cash assets to Reckson Strategic
Venture Partners, LLC - $ (1,879,646) $ ----
Investment in American Campus Communities, LLC
=============== =============
</TABLE>
(see accompanying notes to consolidated financial statements)
IV-10
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. Organization and Formation of the Company
Reckson Service Industries ("RSI" or the "Company"), a business service
provider, was formed on July 15, 1997 by Reckson Associates Realty Corp.
("Reckson"), to create, operate and manage a system of inter-related business
services offered for sale to its customer pool which includes business customers
of Reckson Operating Partnership, L.P. ("ROP") a commercial real estate owner,
Advantis, the Company's executive suite business, On-Site Ventures, LLC,
("On-Site") the Company's telecommunications business, and Reckson Strategic
Venture Partners, LLC ("RSVP") (collectively, the "RSI Customer Pool") and third
parties in the general marketplace through a centralized infrastructure. The
Company's growth strategy is to acquire or form strategic alliances with
established businesses with strong entrepreneurial management a reputation for
high quality services within each of its targeted business service sectors
("Business Service Platforms"). Specifically, the Company seeks opportunities
for which there is broad demand in the RSI Customer Pool. Such Business Service
Platform investment or alliance serves as a basis for sale and delivery of
business services to the RSI Customer Pool. The Company believes the RSI
Customer Pool will attract exceptional investment opportunities and strategic
alliances which can capitalize on enhanced revenue opportunities through a cross
selling effort. The Company will establish Business Service Platforms that
present significant opportunities to provide business services to the RSI
Customer Pool and other third parties. Currently, the RSI Customer Pool retains
third parties to provide many business to business services for their day-to-day
operations. Of these services, the Company may seek to provide the RSI Customer
Pool with telecommunications, document storage, document reproduction and
logistics services (i.e., inventory services, messenger services and delivery
services), as well as the other business services that the Company determines
may be utilized by the RSI Customer Pool. The RSI Customer Pool consists of
small to medium size businesses as well as the mobile workforce of large
corporations. RSI seeks to provide the RSI Customer Pool high quality
value-added business services meeting all of their outsourcing needs providing
them with resources to successfully compete in the marketplace. The Company will
seek growth in each Business Service Platform by (i) accessing the RSI Customer
Pool as an anchor for growth opportunities, (ii) integrating each Business
Service Platform into RSI's centralized infrastructure and (iii) acquiring
similar businesses, forming strategic alliances or making additional investments
within such Business Service Platform.
In connection with the initial capitalization of RSI, ROP contributed $4,256,324
for a 95% nonvoting equity interest and certain members of 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 repaid.
On June 11, 1998, ROP distributed its 95% of the common stock of RSI to its unit
holders of record on May 26, 1998 (the "Distribution"). Immediately prior to the
Distribution, the shares of non-voting common stock held by ROP were exchanged
by RSI for RSI common shares. Each share of the Company's common stock issued in
the Distribution was accompanied by one preferred share purchase right.
Simultaneously, Reckson distributed 100% of the RSI common shares received from
the Distribution to its common shareholders of the same record date. In
addition, simultaneously with the Distribution, the Company issued rights to its
stockholders to subscribe for the purchase of additional shares of common stock
of the Company.
Immediately after the Distribution, RSI granted to its stockholders (a "Holder")
one subscription right for each share of RSI common stock. Each subscription
right entitled 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. A Holder of subscription rights had the
opportunity to acquire up to an aggregate of approximately 20,557,130 shares of
RSI common stock. RSI and Reckson Standby, LLC (the "Standby Purchaser") (an
entity owned by several members of management), entered into a Standby agreement
pursuant to which the Standby Purchaser agreed to purchase, and RSI agreed to
sell, any and all shares of RSI common stock that were the subject of
subscription rights in the rights offering but were not subscribed for by a
Holder on the expiration date at the Exercise Price. The proceeds from the
stand-by purchaser were approximately $7,325,000. RSI received net proceeds from
the rights offering of approximately $19,852,000. In connection with the
Company's initial capitalization the Company obtained, from ROP, a five year
$100 million unsecured credit facility (the "RSI Facility"). The RSI Facility
bears interest at a rate equal to the greater of the prime rate plus 2% and (i)
12% per annum with the rate in this clause (ii) increasing annually on
outstanding borrowings at the rate of 4% per year over the prior years rate.
RSVP was formed on March 5, 1998 to invest in real estate and real
estate-related operating companies 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.
Through RSVP Holdings, LLC ("Holdings") the Company is a managing member and
100% owner of the common equity of RSVP. New World Realty, LLC ("New World"), an
entity owned by two individuals retained by Holdings,(the "Managing Directors"),
acts as a managing member of Holdings, and has a carried interest which provides
for the Managing Directors to receive a share in the profits of RSVP after the
Company and Paine Webber Real Estate Securities, Inc. ("PWRES") have received
certain minimum returns and a return of capital. PWRES is a non-managing member
and preferred equity owner who has committed $200 million in capital (the "PWRES
Equity Facility") and shares 66 2/3% in profits and losses of RSVP with the
Company, subject to a maximum internal rate of return of 16% of invested
capital. On April 24, 1998, PWRES assigned 25% of its preferred equity interest
in RSVP, representing an unfunded capital commitment of $50 million to Stratum
Realty Fund, LLC ("Stratum").The assignment provides Stratum with similar rights
and priorities.
IV-11
<PAGE>
Holdings, has retained two managing directors (the "RSVP Managing Directors") to
manage the day-to-day operations of RSVP, subject to the strategic direction of
RSI. New World Realty, LLC ("New World"), an entity owned by the RSVP Managing
Directors 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 Holdings 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 received by RSI and affiliated persons above 12% in respect of RSVP
investments. 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, 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. New World will also be entitled
to one-half of any asset management fee earned by Holdings from ROP.
Additionally, it is anticipated that New World will receive transaction fees of
up to $1 million a year for identifying investment opportunities for RSVP.
ROP and RSI have entered into an intercompany agreement (the "ROP Intercompany
Agreement") to formalize their relationship and to limit conflicts of interest.
Under the ROP Intercompany Agreement, RSI granted ROP a right of first
opportunity to make any Real Estate Investment Trust ("REIT")-qualified
investment that becomes available to RSI. In addition, if a REIT-qualified
investment opportunity becomes available to an affiliate of RSI, including RSVP,
the ROP Intercompany Agreement requires such affiliate to allow ROP to
participate in such opportunity to the extent of RSI's interest.
Under the ROP Intercompany Agreement, ROP granted RSI a right of first
opportunity to provide business services to ROP and its tenants. RSI is required
to provide services to ROP at rates and on terms as attractive as either the
best available for comparable services in the market or those offered by RSI to
third parties. In addition, ROP is required to give RSI access to its tenants
with respect to business services that may be provided to such tenants and,
under the ROP Intercompany Agreement, subject to certain conditions, ROP granted
RSI a right of first refusal to become the lessee of any real property acquired
by ROP if ROP determines that, consistent with Reckson's status as a REIT, it is
required to enter into a "master" lease agreement.
IV-12
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements present the financial
position of the Company at December 31, 1998 and 1997 and the results of its
operations and its cash flows for the year ended December 31, 1998 and for the
period July 15, 1997 (commencement of operations) to December 31, 1997. The
Company accounts for its investments of less than controlling interests under
the equity method of accounting. All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements.
The investments in Dobie Center Properties, Ltd ("Dobie") and American Campus
Communities, LLC ("ACC") through March 31, 1998, and Holdings, Reckson Executive
Centers, Inc. ("REC"), InterOffice Superholdings Corporation ("Interoffice") and
On-Site are reflected in the accompanying financial statements under the equity
method of accounting.
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 and 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
The Company assesses the need to record impairment losses on long-lived assets
used in operations when indicators of impairment are present. On an on-going
basis, management reviews the value and period of amortization or depreciation
of long-lived assets, including excess investments of equity investments. During
this review, the Company re-evaluates the significant assumptions used in
determining the original cost of long-lived assets. Although the assumptions may
vary from transaction to transaction, they generally include revenue growth,
operating results, cash flows and other indicators of value. Management then
determines whether there has been a permanent impairment of the value of
long-lived assets based upon events or circumstances which have occurred since
acquisition.
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).
IV-13
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. Summary of Significant Accounting Policies (continued)
Income Taxes
At inception, the Company adopted Statement of Financial Accounting Standards
("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 recognized for temporary differences that
will result in deductible amounts in future years and for carry forward. A
valuation allowance is recognized if it is more likely than not that some
portion of the deferred asset will not be recognized. At December 31, 1998 any
deferred tax assets have been reserved for 100% due to the uncertainty as to
whether these assets will have benefit in future periods.
Earnings Per Share
In 1997, the FASB issued Statement No. 128, "Earnings per Share" ("FAS 128").
FAS 128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented to conform to the FAS 128
requirements.
Comprehensive Income
In 1997, the FASB issued Statement No. 130, ("SFAS 130") Reporting Comprehensive
Income SFAS No. 130 which is effective for fiscal years beginning after December
15, 1997. SFAS 130 established standards for reporting comprehensive income and
its components in a full set of general-purpose financial statements. SFAS 130
requires that all components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The adoption of this standard had no impact on the Company's
financial position or results of operations.
Fair Value of Financial Instruments
SFAS 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.
Disclosures about Segments of an Enterprise and Related Information
In 1997, the FASB issued Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") which is effective for fiscal
years beginning after December 15, 1997. SFAS 131 establishes standards for
reporting information about operating segments in annual financial statements
and in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of this standard had no impact on the Company's financial position
or results of operations, but did effect the disclosure of segment information,
see Note 6.
Derivative Instruments and Hedging Activities
In June 1998, the FASB issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginnning of any fiscal quarter after its
issuance. The Company expects to adopt the new Statement effective January 1,
2000. The Company does not anticipate that the adoption of this Statement will
have any effect on its results of operations or financial position.
Change in Accounting Principle
In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued SOP No. 98-5, "Reporting on the
Costs of Start-Up Activities". This standard provides guidance on the financial
reporting for start-up costs and requires that such costs be expensed as
incurred. The standard is effective for fiscal years beginning after December
15, 1998. In accordance with this standard the Company changed its method of
accounting for start-up costs and organizational costs in 1998. Previously,
start-up activities and organization costs were capitalized and amortized over 5
years. The cumulative effect of this change in accounting principle for 1998
was $67,945, has been included in 1998 operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
IV-14
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. INVESTMENTS
The Company's equity investments are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
---------------------- -----------------------
<S> <C> <C>
Investment in Dobie $ -- 3,868,093
Investment in ACC --- 1,652,165
Investment in and advances to Holdings 15,560,896 ---
Investment in and advances to REC 892,894 ---
Investment in and convertible loans to On-Site 7,101,330 325,000
Investment in and advances to Interoffice 22,282,591 ---
------------- ----------
TOTAL EQUITY INVESTMENTS 45,837,711 $ 5,845,258
============= ==========
</TABLE>
The following are the Company's summarized equity in earnings (loss) of
investments:
<TABLE>
<CAPTION>
For the year For the period from
ended July 15, 1997 to
December 31, 1998 December 31, 1997
---------------------- ----------------------
<S> <C> <C>
Equity in earnings of Dobie $ 170,567 $ 245,593
Equity in loss of ACC (51,504) (22,156)
Equity in loss of Holdings (3,959,989) -----
Equity in loss of REC (149,079) -----
Equity in loss of On-Site (30,555) -----
Equity in earnings of Interoffice 54,161 -----
-------------- ----------
TOTAL EQUITY IN EARNINGS (LOSS) OF INVESTMENTS $ (3,966,399) $ 223,437
============== ==========
</TABLE>
IV-15
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. Investments (Continued)
The Company's significant investments are summarized as follows:
RSVP Holdings, LLC
Summarized financial information and a summary of the Company's investment in,
advances to Holdings and RSI's share of loss is as follows:
<TABLE>
<CAPTION>
BALANCE SHEET December 31, 1998
- ------------- -----------------
Assets
<S> <C>
Investment in Dobie..................................................... $ 32,296
Investment in ACC....................................................... 1,262,415
Investment in Assisted Living Investments, LLC.......................... 4,676,272
Investment in Dominion Venture Group, LLC ............................. 29,288,973
Deferred compensation................................................... 4,938,539
Other assets............................................................ 4,552,917
---------
Total Assets........................................................ $ 44,751,412
===============
Liabilities and Members' Equity
Due to affiliates...................................................... $ 1,591,459
Other liabilities...................................................... 1,397,412
---------
Total Liabilities.................................................. 2,988,871
---------
Minority interest...................................................... 31,201,645
Preferred capital offering costs....................................... (5,000,000)
RSI investment in and advances to Holdings ............................ 15,560,896
----------
Total Liabilities and Members' Equity............................ $ 44,751,412
================
</TABLE>
In connection with the PWRES Equity Facility, RSVP paid a commitment fee of 2.5%
of the total preferred equity commitment of $5,000,000.
IV-16
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. INVESTMENTS - (CONTINUED)
Statement of Operations
For the period from
February 26, 1998 to
December 31, 1998
-----------------
Revenues:
Interest income......................................... $ 193,034
Other income............................................ 453,644
-------
Total Revenues..................................... 646,678
-------
Equity in earnings (loss) of investments
Equity in earnings of Dobie............................. 32,296
Equity in loss of ACC................................... (518,895)
Equity in loss of Gateway Development Group, LLC........ (650,531)
Equity in loss of Assisted Living Investments, LLC...... (2,907,607)
Equity in earnings of Dominion Venture Group, LLC....... 296,970
------
Total Equity in loss of investments..................... (3,747,767)
----------
Expenses:
Operating expenses...................................... 2,212,440
General and administrative expenses..................... 3,769,716
Organization costs ..................................... 757,644
Interest expense........................................ 491,172
Depreciation and amortization........................... 30,557
---------
Total Expenses.................................... 7,261,529
---------
Minority Interest....................................... (6,263,739)
----------
Net loss................................................ (4,098,879)
Less: Elimination of intercompany management fee........ 138,890
-------
RSI's share of net loss................................. $(3,959,989)
==========
On April 1, 1998, the Company acquired a 9.9% membership interest in Reckson
Executive Centers, LLC ("REC, LLC") for $200,000 from ROP and assumed debt of
approximately $322,000. REC, LLC owns and operates eight executive office suite
centers in the New York TriState Area. The Company also loaned REC, LLC
approximately $623,000 to fund purchases of certain business assets in
connection with the operation of the executive centers. These loans accrue
interest at 12%. On October 5, 1998, the Company contributed its interest in
REC, LLC to Reckson Executive Centers, Inc. ("REC") in exchange for 75% of the
Common Stock of REC. For the period April 1, 1998 to December 31, 1998, the
Company recognized a loss of $149,079.
On November 9, 1998, the Company announced the exercise of its option to acquire
a majority interest in Interoffice, the executive office suite business held by
Reckson Management Group, Inc. ("RMG"). The aggregate purchase price paid by the
Company to RMG was approximately $20.5 million and was financed through
borrowings under the RSI Facility. The Company also acquired rights to certain
advances made by RMG to the other stockholders' of Interoffice for approximately
$10.3 million. Such receivables are secured by the shares held by these
stockholders.
On January 8, 1999 Interoffice and REC merged with Alliance National
Incorporated ("Alliance") (See Note 8).
IV-17
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. INVESTMENTS - (CONTINUED)
Summarized financial information and a summary of the Company's investment in,
advances to and share of income from Interoffice is as follows:
<TABLE>
<CAPTION>
Balance Sheet
- -------------
December 31, 1998
-----------------
<S> <C>
Assets
Current assets $ 6,045,328
Property & Equipment, net 8,598,216
Goodwill 31,811,421
Other Assets 3,250,511
-----------------
TOTAL ASSETS $ 49,705,476
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 6,312,533
Long-term liabilities 9,544,196
----------------
Total liabilities 15,856,729
----------------
Stockholders' Equity
Non-RSI Stockholders 13,038,002
Net RSI investment and advances to Interoffice 22,282,591
Less: Non-Interoffice equity in RSI investment (1,471,846
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 49,705,476
================
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period
November 9, 1998 to
December 31, 1998
-----------------
<S> <C>
Revenues
Rental income $ 4,089,740
Services income 4,024,810
Other income 141,701
------------------
Total Revenues 8,256,251
------------------
Expenses
Rent 2,889,699
Services 1,604,313
General and administrative 3,123,747
Depreciation and amortization 663,127
Interest expense 48,874
-----------------
Total expenses 8,329,760
-----------------
Net loss as reported by Interoffice (73,509)
Add: Adjustment for non-RSI costs incurred 164,727
-------------------
Net income as adjusted 91,218
Less: non-RSI share (37,057)
-------------------
RSI share of net income $ 54,161
====================
</TABLE>
IV-18
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. INVESTMENTS - (CONTINUED)
Student Housing
The Company acquired a 33 1/3% interest in a wholly owned subsidiary of RFG
Capital Group, LLC for $1.51 million whose sole net investment is a 76.09%
interest in ACC, a student housing enterprise which owns, develops, constructs,
manages and acquires, on-and off campus student housing projects. On April 1,
1998, RSI transferred its interest in ACC to RSVP. RSI's loss for its period of
ownership, January 1, 1998 to March 31, 1998 was $51,504. For the period April
1, 1998 to December 31, 1998, RSVP's share of losses was $518,895.
In 1997, the Company invested through other affiliated entities $3.62 million in
Reckson Opportunity Partners, LP ("RO").RO invested approximately $10.8
million to acquire a 70% interest in Dobie,
which owns 100% in Dobie Center, a mixed-use student
housing and retail property located in Austin, Texas. On April 1, 1998, the
Company transferred its interest in RO to RSVP, net of certain proceeds related
to the refinancing of Dobie Center. RSI's income for its period of ownership,
January 1, 1998 to March 31, 1998 was $170,567. For the period April 1, 1998 to
December 31, 1998 RSVP's share of income was $32,296.
Privatization
On August 11, 1998, RSVP acquired through a wholly owned subsidiary an interest
in Gateway Development Group, LLC ("Gateway") with Gateway Management for
approximately $377,000. Gateway is a start up entity that pursues opportunities
in privatized military housing. The Company is uncertain whether it will recover
its invested dollars from Gateway's future cash flows. At December 31, 1998,
RSVP has recognized a loss of $650,531 which includes a reserve for their
invested dollars plus acquisition costs of $101,293.
On August 27, 1998, the Company announced the formation of a joint venture
between RSVP and Dominion, an Oklahoma-based, privately-owned group of
companies that focuses on the development, acquisition and ownership of
government occupied office buildings and correctional facilities. The new
venture, Dominion Venture Group LLC (the "Dominion Venture"), is owned by
RSVP-Dominion LLC, a subsidiary of RSVP, and by Burgess Services, LLC, an entity
owned and controlled by Calvin Burgess, President and Chief Executive Officer of
Dominion. The Dominion Venture will engage primarily in acquiring, developing
and/or owning government-occupied office buildings and privately operated
correctional facilities and related activities. Under the Operating Agreement,
RSVP is to invest up to $100 million, some of which may be invested by ROP
(together, the "RSVP Capital"), for capital requirements approved by RSVP. RSVP
funded its total capital contribution of $8,597,455 through draws under its
PWRES Equity Facility and the RSVP Facility with ROP. ROP contributed
$10,065,338 in connection with the Dominion Venture. For the period August 27,
1998 to December 31, 1998, RSVP recognized $296,970 of income.
IV-19
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. INVESTMENTS (CONTINUED)
Assisted Living
On August 12, 1998, RSVP acquired through a wholly owned subsidiary a 45%
interest in Assisted Living Investments, LLC ("ALI") for approximately $3.25
million. ALI is a joint venture that develops, leases, operates and finances
assisted living facilities. In addition, RSVP has agreed to contribute 80% of
the equity of ALI, up to a maximum $16.0 million for a total maximum commitment
of $19.25 million. RSVP funded $7.5 million of its $19.25 million commitment
upon the closing of the transaction. RSVP funded 50% of its capital contribution
through draws under the PWRES Equity Facility. The remaining 50% capital
contribution was funded through a draw under the RSVP facility (see Note 5).
As of December 31, 1998, the excess of the RSVP's investment over its share of
the equity in the underlying net assets of ALI ("Excess ALI Investment") was
$2,887,585. The Excess ALI Investment is being amortized over the life of the
investment estimated at 25 years.
Summarized financial information and a summary of RSVP's investment in and share
of loss is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance Sheet
December 31, 1998
---------------------
Assets
Property and equipment, net...................... $ 79,101,531
Other assets..................................... 6,483,316
------------------------
$ 85,584,847
Total Assets................................ ========================
Liabilities and Members' Deficit
Note payable..................................... $ 82,883,473
Other liabilities................................ 8,087,520
-----------------------
Total Liabilities............................ 90,970,993
-----------------------
Minority interest................................ (7,174,833)
RSVP investment in ALI........................... 4,676,272
Less: Excess ALI investment..................... (2,887,585)
------------------------
Total Members' Deficit (5,386,146)
-----------------------
Total Liabilities and Members' Deficit........... $ 85,584,847
========================
Statement of Operations
For the period from
August 12, 1998 to
December 31, 1998
Total Revenues............................................... $ 2,847,404
------------
Operating expenses........................................... 3,509,287
Pre-opening expenses......................................... 1,090,673
Depreciation and amortization................................ 1,180,190
Interest expense............................................. 1,759,929
Other expenses............................................... 409,421
----------
Total expenses........................................ 7,949,500
----------
Net loss as reported by ALI.................................. (5,102,096)
Adjustment for equity accounting basis....................... 545,337
----------
Net loss as adjusted......................................... (4,556,759)
Less: Non-RSVP share........................................ (1,708,785)
----------
RSVP share of net loss....................................... (2,847,974)
Amortization of excess investment and pre-opening costs...... (59,633)
----------
Total RSVP share of net loss................................. $(2,907,607)
===========
</TABLE>
IV-20
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. INVESTMENTS (CONTINUED)
With respect to RSVP's investment in ALI, on February 1, 1999, a member of Sun
Healthcare Group, Inc., ("SUN") the parent of an ALI member, reported a
significant loss from operations during the quarter ended December 31, 1998.
Additionally, SUN continues to implement a comprehensive restructuring of its
operations. The restructuring of SUN's operations had led the partners of ALI to
enter into negotiations regarding ALI's ongoing business plan and potentially
modify allocations and priorities of cash flow, profits and losses. These
negotiations are in progress. As of December 31, 1998, RSVP determined that
there was no impairment on its investment in ALI.
Telecommunications
RSI holds a subordinated note convertible into a 58.69% equity interest in
On-Site, a company that provides advanced telecommunications systems and
services within commercial buildings and/or building complexes. The Company has
advanced OnSite $6.5 million through December 31, 1998 to fund operating costs
under the terms of the note. The loan bears interest at a rate of 12% per annum.
On May 18, 1998, the Company purchased a membership interest in On-Site equal to
1% of the aggregate membership interests. At December 31, 1998, the Company
recognized a loss of $30,555 relating to its 1% interest.
In May 1998, the Company made an initial capital contribution of $300,000 for a
58.69% interest in On-Site Commerce and Content, LLC ("OCC"), a Company
established to acquire and develop software products. As of December 31, 1998
OCC had no operations.
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 3,700,376 of the Company's authorized shares
have been reserved for issuance under the Plan. On January 10, 1998 and March
30, 1998, the Company granted options to purchase 542,892 and 2,732,085,
respectively of the Company's common shares at an exercise price of $1.10 and
$1.04 respectively per share based on the fair value on each date of grant,
which the board of directors of the Company has concluded to be the book value
on each date of grant. These options fully vest on January 1, 1999.
On August 4, 1998, the Board of Directors of the Company adopted a "broad based"
stock option plan for the purpose of awarding options to non-executive officers
and new hires. Pursuant to such adoption, 100,000 of the Company's authorized
shares have been reserved for this purpose.
Additionally, on August 4, 1998, the Company granted options to purchase 456,564
shares at an exercise price of $2 per share, which approximated market value at
the time of the grant. These options have a five year vesting period.
IV-21
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
4. SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plan
Options granted under the 1998 qualified stock option plan are exercisable at
the market price on the date of the grant and, subject to termination of
employment, expire ten years from date of the grant, are not transferable other
than on death.
Pro forma information regarding net income and earnings per share is required by
FAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumption for 1998,
risk-free interest rate of 5%, no expected dividend yield, a volatility factor
of the expected market price of the Company's common stock of 1.723 and a
weighted-average expected life of the option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. For the year ended
December 31, 1998 the Company's pro forma information follows:
Pro forma net loss (in thousands) $ (11,495,683)
-------------
Basic and diluted net loss per share $ (.79)
-------------
A summary of the Company's stock option activity, and related information
for the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
Average Average
Options Exercise Price Fair Value
<S> <C> <C> <C>
Outstanding - December 31, 1997 ----- $ ----- $ ----
Granted 3,731,541 1.16 1.15
Exercised ---- ----- -----
Forfeited ---- ----- -----
--------------- ----------------- -------------------
Outstanding - December 31, 1998 3,731,541 $1.16 $ 1.15
=============== ================= ===================
</TABLE>
IV-22
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998
5. TRANSACTIONS WITH RELATED PARTIES
On June 15,1998 RSI established the RSI Facility with ROP in the amount of
$100 million for RSI's service sector operations and other general corporate
purposes. ROP has advanced the Company $33,699,719 at December 31,1998. These
advances bear interest at 12% per annum. Additionally, RSI established the RSVP
Facility with ROP for funding the RSVP investments. The amount available under
RSVP Facility is reduced by any amount invested by ROP in joint ventures with
RSVP. As of December 31,1998, ROP has advanced RSI $7,281,781 under the RSVP
Facility and has invested $10,065,338 in joint ventures with RSVP. The total
outstanding at December 31,1998 owed by RSI under both credit facilities was
$40,981,500.
In February 1998, Holdings entered into employment agreements with the two
Managing Directors of RSVP. The agreements provide for a minimum annual salary
of $500,000 and have a seven-year term. In addition to the base salary each
Managing Director has received from the Company a $3.0 million grant of common
stock of Reckson (the "Reckson Stock") which will vest equally over five years.
The Reckson Stock was purchased by the Company and contributed to Holdings. In
addition, in April 1998, the Company advanced each managing director a tax loan
of approximately $1.4 million in connection with the grant of Reckson Stock.
These loans bear interest at 8% per annum and are due in April, 2003 and are
secured by the Reckson Stock. Additionally, New World will receive transaction
fees of up to $1 million per year related to identifying RSVP investment
opportunities. In August of 1998, $1 million of such fees were paid to New World
by third parties.
RSI and Reckson Standby, LLC (the "Standby Purchaser") (an entity owned by
several members of management), entered into an agreement pursuant to which the
Standby Purchaser agreed to Purchase, and RSI agreed to sell, any and all shares
of RSI common stock that were subject of subscription rights in the rights
offering but were not subscribed for by Holders on the expiration date at
the Expiration Price. Pursuant to the standby agreement, in July 1998, the
Standby Purchaser acquired 7,111,650 shares of RSI common stock for an
aggregate purchase price of approximately $7,325,000.
The Company is entitled to a cumulative management fee of $2 million with
respect to RSVP, of which $1.5 million is subordinate to PWRES receiving an
annual minimum rate of return of 16% and a return of its capital. The
unsubordinated amount for the period March 5, 1998 to December 31, 1998 was
$416,667.
The Comapny reimburses ROP with respect to general and administrative expenses
(including payroll expenses) incurred by ROP for the benefit of the Company.
During 1998, the Company reimbursed ROP $399,387 for such activities.
IV-23
<PAGE>
RECKSON SERVICE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
6. SEGMENT DISCLOSURE
Each of the segments has a managing director who reports directly to the Board
of Directors/Executive Committees who have been identified as the Chief
Operating Decision Makers ("CODM") because of their final authority over
resource allocation decisions and performance assessment.
The CODM evaluate the operating performance of these segments based on sectors.
RSI's governance and control rights are generally exercised through Board of
Directors seats and through representation on the executive committees of the
various segment entities.
The following table sets for the Company's segments and their revenues and
expenses and other related disclosures as required by SFAS 131 for the year
ended December 31, 1998.
<TABLE>
<CAPTION>
TELE
EXEC. OFFICE COMMU ASSISTED STUDENT OTHER
SUITES NICATIONS LIVING PRIVATIZATION HOUSING HOLDINGS TOTAL
------------ --------------- ----------------- ------------ ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT $ 23,175,485 $7,101,330 $ 2,338,136 $2,970,770 $ 1,294,711 $8,957,279 $45,837,711
------------ --------------- ----------------- ------------ ---------------- -------------- -------------
REVENUES 13,012,817 950,015 2,847,404 19,442,953 17,036,554
------------ --------------- ----------------- ------------ ---------------- -------------- -------------
EXPENSES 13,226,017 5,863,052 7,949,500 18,892,316 18,393,472 1,819,736
------------ --------------- ----------------- ------------ ---------------- -------------- -------------
NET INCOME (213,200) (4,913,037) (5,102,096) 550,637 (1,356,918)
(LOSS)
------------ --------------- ----------------- ------------ ---------------- -------------- -------------
RSI/EQUITY $ (94,918) $ (30,555) $(1,453,804) $(199,850) $ (367,536) $ (1,819,736) $(3,966,399)
IN LOSS
------------ --------------- ----------------- ------------ ---------------- -------------- -------------
</TABLE>
7. OFFICE LEASES
The Company leases office space, pursuant to a non-cancelable operating lease
from a ROP affiliated entity. Future minimum lease commitments relating to the
lease as of December 31, 1998 is as follows:
1999................................... $ 48,798
2000................................... 50,568
2001................................... 52,404
2002................................... 54,318
2003................................... 56,310
Thereafter............................. 274,418
-------
$ 536,816
=======
8. SUBSEQUENT EVENTS
On January 8, 1999, each of Interoffice (36 executive office suite centers) and
REC (8 executive office suite centers) an executive center business acquired by
the Company from ROP and an officer of REC, merged with Alliance a holding
company which owns and operates approximately 90 nationally located executive
office suites centers. The merged entity changed its name to Advantis. The
stockholders of Interoffice and REC received shares of the Series C Preferred
Stock of Advantis which represent approximately 40% of the equity interest in
Advantis. The Company thereafter owned approximately 23% of Advantis.
The holders of the Series C Preferred Stock have the right to appoint
four of the ten members of the board of directors of Advantis, including
Chairman of the Board and specified preemptive rights and other specified
rights. RSI and the other stockholders of Interoffice hold the Series C
Preferred Stock received in respect of the Merger of Interoffice through
Interoffice Superholdings LLC ("IS LLC"), a newly formed Delaware limited
liability company of which RSI is the sole manager. Likewise, RSI holds the
Series C Preferred Stock received in respect of the merger of REC through REC
LLC, a newly formed Delaware limited liability company of which a subsidiary of
RSI is the managing member.
IV-24
<PAGE>
Advantis and RSI have also entered into an intercompany agreement pursuant to
which RSI has the opportunity to be the exclusive provider of certain business
services to Advantis, provided certain third party and "most-favored nation"
conditions are satisfied.
RSI acquired certain ownership rights related to the Series C Preferred Stock of
Advantis from a stockholder of Interoffice which provided the Company with
enhanced governance rights for $6.5 million. In addition, the Company paid $3.5
million to another stockholder of Interoffice for an option to purchase that
stockholders effective interest in the Series C Preferred Stock for a purchase
price of $6.75 million. If the option is not exercised, the stockholder has the
right to sell such interests to the Company at fair value, as determined in
accordance with the applicable agreement. A significant number of items
presented to the Board will require the separate approval of a majority of the
representatives of the Series C Preferred Stock on the Board, including
significant acquisitions, sale or leasing of assets, approval of Advantis'
annual operating budget, certain borrowings and capital expenditures by
Advantis, the hiring or termination of senior executives and other matters. The
holders of Series C Preferred Stock also have the right to appoint half of the
members of the executive and audit committees of the Board. The preferred
stockholders of Advantis (including the holders of Advantis Class A Preferred
Stock, Class B Preferred Stock and Class C Preferred Stock) were granted
super-majority voting rights with respect to certain corporate actions,
including the issuance of equity securities, changes to the charter documents of
Advantis and other matters.
On February 10, 1999, the Company along with another member of On-Site (the
"Members"), executed a senior secured promissory note with On-Site for
$4,000,000. The Members initially funded $2,000,000, in which RSI funded
approximately $1.35 million. The note matures in February 2000. Interest in
compounded monthly at a variable rate subject to the terms in the loan
agreement.
On March 17, 1999, PWRES transferred all of its rights, title and interest in
its invested capital to date in RSVP to Stratum. This transfer will include the
rights to distributions based upon the amount of funded capital contributions.
(Unaudited)
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summary represents the Company's results of operations for each
quarter during 1998:
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Total revenues........................ $ 46,661 $ 205,382 $ 495,135 $ 595,326
------------ ----------- ----------- ------------
Equity in loss of investments....... (424,353) (26,751) (735,458) ( 2,779,837)
-------------- ------------ ------------- --------------
Total expenses...................... $ 331,517 $ 595,107 $ 1,003,678 $ 3,525,661
------------ ----------- ----------- ------------
Cumulative effect of change in
accounting principle.............. (67,945) ------ ------ -----
============ ============ ============= =============
Net loss............................. (777,154) (416,476) (1,244,001) (5,710,172)
============ ============ ============= =============
Basic and diluted net loss per
weighted average common share $ (.20) $ (.09) $ (.05) $ (.23)
============ ============= ============== =============
Basic and diluted weighted average
common shares outstanding..... 3,864,573 4,513,975 24,685,514 24,685,514
============ ========== ============= ============
</TABLE>
The above quarterly information has been restated to reflect the Company's
early adoption of SOP 98-5.
IV-25
<PAGE>
Report of Independent Auditors
To the Board of Directors of
Interoffice Superholdings Corporation
We have audited the accompanying consolidated balance sheet of Interoffice
Superholdings Corporation and Subsidiaries ("Interoffice") as of December 31,
1998 and the related consolidated statements of operations, stockholders' equity
and cash flows for the period November 9, 1998 to December 31, 1998. These
financial statements are the responsibility of Interoffice'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 Interoffice
Superholdings Corporation and Subsidiaries at December 31, 1998 and the
consolidated results of their operations and their cash flows for the period
November 9, 1998 to December 31, 1998, in conformity with generally accepted
accounting principles.
s/Ernst & Young LLP
New York, New York
March 12, 1999
IV-25
<PAGE>
Interoffice Superholdings Corporation and Subsidiaries
Consolidated Balance Sheet
December 31, 1998
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,420,947
Accounts receivable, net of allowance for doubtful accounts of $48,400 2,053,508
Prepaid expenses, prepaid taxes and other assets 459,218
Due from related party 111,655
-------------------
Total current assets 6,045,328
Goodwill, net 31,811,421
Property and equipment, net 8,598,216
Deferred acquisition costs 1,346,536
Restricted cash 688,246
Certificate of deposits 565,125
Deposits 544,309
Other assets 106,295
-------------------
Total assets $ 49,705,476
===================
Liabilities and Stockholders'Equity
Current liabilities:
Accounts payable and accrued expenses $ 4,624,897
Capital lease obligations 1,644,345
Notes payable 43,291
-------------------
Total current liabilities 6,312,533
Notes payable 365,440
Deferred rent payable 1,332,822
Due to stockholder 1,750,000
Capital lease obligations 460,484
Security deposits 4,767,348
Deferred income taxes 2,618,102
------------------
Total liabilities 17,606,729
------------------
Stockholders' equity:
Common stock, $1 par value; 50,000 Class A shares authorized, 50,000 Class B
shares; 11,468 Class A shares issued and outstanding 11,468
Additional paid-in-capital 32,918,835
Accumulated deficit (831,556)
-------------------
Total stockholders' equity 32,098,747
-------------------
Total liabilities and stockholders' equity $ 49,705,476
===================
</TABLE>
See accompanying notes.
IV-26
<PAGE>
Interoffice Superholdings Corporation and Subsidiaries
Consolidated Statement of Operations
For the period November 9, 1998 to December 31, 1998
Business center operations:
Revenues:
Office rentals $ 4,089,740
Support services 4,024,810
-----------------
8,114,550
-----------------
Expenses:
Rent 2,889,699
Support services 1,604,313
Center general and administrative 1,626,694
-----------------
6,120,706
-----------------
Contribution from operation of business centers 1,993,844
-----------------
Other (expense) income:
Corporate general and administrative (1,497,053)
Depreciation and amortization (663,127)
Interest expense (48,874)
Other income 138,623
-----------------
(2,070,431)
-----------------
Loss before income taxes (76,587)
Benefit from income taxes 3,078
-----------------
Net loss $ (73,509)
=================
Share information
Net loss per common share-basic and diluted $ (6)
=================
Cash distributions per common share $ 77
=================
See accompanying notes.
IV-27
<PAGE>
Interoffice Superholdings Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the period November 9, 1998 to December 31, 1998
<TABLE>
<CAPTION>
Class A and Class B Retained
Common Shares $1 par Earnings
value Additional (Accumulated
Paid-In Capital Deficit) Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at November 9, 1998 $ 11,468 $ 32,918,835 $ 123,762 $ 33,054,065
Net loss for the period - (73,509) (73,509)
Stockholders' distributions - - (881,809) (881,809)
==================================================================================
Balance at December 31, 1998 $ 11,468 $ 32,918,835 $ (831,556) $ 32,098,747
==================================================================================
</TABLE>
See accompanying notes.
IV-28
<PAGE>
Interoffice Superholdings Corporation and Subsidiaries
Consolidated Statement of Cash Flows
For the period November 9, 1998 to December 31, 1998
<TABLE>
<S> <C>
Operating activities
Net loss $ (73,509)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 663,127
Deferred income taxes (46,848)
Bad debt expense 46,573
Changes in operating assets and liabilities:
Accounts receivable (515,605)
Prepaid expenses 59,324
Certificates of deposit (4,586)
Restricted cash (267,953)
Deposits (67,032)
Accounts payable and accrued expenses 2,049,537
Deferred rent payable 236,270
Security deposits 100,540
Due from stockholder 1,750,000
-------------------
Net cash provided by operating activities 3,929,838
-------------------
Investing activities
Purchases of property and equipment (769,606)
Deferred acquisition costs (1,453,205)
-------------------
Net cash used in investing activities (2,222,811)
Financing activities
Payments of notes payable (16,824)
Payments of capital lease obligations (429,844)
Distributions to stockholders (881,809)
-------------------
Net cash used in financing activities (1,328,477)
-------------------
Change in cash and cash equivalents 378,550
Cash and cash equivalents, beginning of period 3,042,397
-------------------
Cash and cash equivalents, end of period $ 3,420,947
===================
Supplemental disclosure
Interest paid $ 48,874
===================
Income taxes paid $ 118,364
===================
</TABLE>
See accompanying notes.
IV-29
<PAGE>
Interoffice Superholdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements
For the period November 9, 1998 to December 31, 1998
1. Organization
Interoffice Superholdings Corporation (the "Company"), was formed on November
20, 1997 in connection with its acquisition of Interoffice (Holdings)
Corporation ("Interoffice" - see Acquisition Transaction below).
The Company operates 36 office centers throughout the United States. The Company
leases executive office suites and provides secretarial and administrative
services and amenities to their tenants for lease terms generally ranging from
one month to one year.
2. Acquisition Transactions
On January 29, 1998, the Company purchased from the sole stockholder of
Interoffice (the "Seller") all of the outstanding shares of common stock for
approximately $24.5 million pursuant to the terms and conditions of a stock
purchase agreement assigned to the Company by RFG Capital Management Partners,
L.P. ("RFG"). The purchase price was paid by RFG directly to the Seller and
resulted in an increase to goodwill and additional paid in capital for that
amount. Concurrently with the purchase of Interoffice, the Company caused
Interoffice to issue 10,000 shares of common stock to the Company at par value.
The Company wholly owns Interoffice.
On July 14, 1998, Interoffice reclassified its common stock into Class A common
stock and Class B common stock. Each share of common stock is identical except
that the Class B shares do not entitle the holder to vote for, or consent to any
matter, transaction or event. Each share of issued and outstanding common stock
of Interoffice was converted to a share of Class A common stock.
Based on the above transactions, Interoffice has 50,000 authorized Class A
common shares and 50,000 authorized Class B common shares. In July 1998,
Interoffice issued approximately 1,468 shares to the Company, the proceeds of
which were used to fund the purchase of Xebec Management Services Incorporated
and XMS Greenhaven Incorporated (collectively referred to as "Xebec") discussed
below.
IV-30
<PAGE>
9
2. Acquisition Transactions (continued)
In connection with the sale, Interoffice transferred its investment in
residential real estate to the Seller and forgave all loans to the Seller.
Reckson Management Group, Inc. ("RMG") originally owned 58.9% of the Company and
granted Reckson Services Industries, Inc. ("RSI") an option to purchase RMG's
entire interest in the Company. This option was exercised on November 9, 1998.
On July 20, 1998, the Company purchased substantially all of the assets of
Xebec. Xebec is engaged in the business of developing and operating executive
office suites at six locations in the Sacramento, California area. The purchase
price for the purchased assets was $8,875,000. The transaction was accounted for
under the purchase method of accounting with the goodwill resulting from the
purchase after adjustments amounting to approximately $7,944,000. In addition,
the Company paid the principal shareholders of Xebec for a covenant to not
compete for a period of three years. The agreement provides for additional
amounts not to exceed $1,000,000 to be paid by the Company to Xebec through
December 31, 1999 if Earnings Before Interest Taxes Depreciation and
Amortization (EBITDA) exceeds certain agreed upon benchmarks.
3. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared for the purpose of
complying with Rule 3.09 of Regulation S-X of the Securities and Exchange
Commission.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
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 these estimates.
IV-31
<PAGE>
3. Summary of Significant Accounting Policies (continued)
Income Recognition
Office rental revenue and support services revenue are recognized as the related
services are provided.
Cash and Cash Equivalents
Investments with maturities at purchase of three months or less are considered
to be cash equivalents.
Accounts Receivable
Accounts receivable primarily consists of fixed and variable charges due from
tenants, net of prepayments.
Property and Equipment
Furniture, equipment and leasehold improvements are stated at cost. Depreciation
is computed using straight-line methods over terms ranging from 3 1/2 to 15
years. Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense when paid.
Restricted Cash
Restricted cash represents monies pledged as collateral for letters of credit
required under certain lease agreements and monies in escrow for transactions
not closed at December 31, 1998.
Goodwill
Goodwill represents the excess of the Company's purchase price over the amounts
allocated to the underlying assets and liabilities of both the purchase of
InterOffice (Holdings) Corporation in January 1998 and the Xebec acquisition in
July 1998 (see Note 2). Goodwill is amortized over a period of 30 years based on
the Company's assessment of the significant barriers to entry due to the rapid
consolidation in the executive suites business and the increase over the last
several years of the large national corporations
IV-32
<PAGE>
3. Summary of Significant Accounting Policies (continued)
Goodwill (continued)
which utilize executive suites companies that have an expanded national
presence. Goodwill is evaluated when indicators of impairment are present and
provisions for possible losses are recorded when undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts.
Accumulated amortization of goodwill, through December 31, 1998 is $1,050,584.
Income Taxes
The Company accounts for income taxes under the provisions of Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes".
Statement 109 utilizes the asset and liability method for computing tax
expenses. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
statutory tax rates to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. Deferred tax
assets are recognized for temporary differences that will result in deductible
amounts in future years and for carryforwards. A valuation allowance is
recognized if it is more likely than not that some portion of the deferred asset
will not be recognized. When evaluating whether a valuation allowance is
appropriate, Statement 109 requires a company to consider such factors as
previous operating results, future earnings potential, tax planning strategies
and future reversals of existing temporary differences. The valuation allowance
is increased or decreased in future years based on changes in these criteria.
Rent Expense
Generally accepted accounting principles require that rent expense be recognized
on a straight-line basis over the term of the related lease. The difference
between the rent expense recognized for financial reporting purposes and the
actual payments made in accordance with the lease agreement is recognized as
deferred rent payable.
Earnings Per Common Share
Basic earnings per common share is computed using the weighted average number of
shares outstanding. Diluted earnings per common share is equal to basic earnings
per
IV-33
<PAGE>
3. Summary of Significant Accounting Policies (continued)
Earnings Per Common Share (continued)
common share as the strike price of the options outstanding approximates current
estimated market value.
4. Certificates of Deposit - Restricted
The Company has certificates of deposit totaling $565,125 as of December 31,
1998, which are pledged as collateral for letters of credit, required under
certain lease agreements totaling approximately $1,631,000 as of December 31,
1998.
5. Property and Equipment
Property and equipment as of December 31, 1998 consists of:
Furniture and fixtures $ 5,021,344
Equipment 4,496,707
Leasehold improvements 1,398,171
-------------------
Less: Accumulated depreciation (2,318,006)
===================
$ 8,598,216
===================
6. Capital Lease Obligations
The Company leases substantially all of the furniture and equipment under
capital leases. At December 31, 1998, approximately $10,460,000 of property and
equipment were under capital leases. The present value of future minimum lease
payments under these leases and the corresponding liabilities have been recorded
in the financial statements as property and equipment and capital lease
obligations, respectively.
IV-34
<PAGE>
6. Capital Lease Obligations (continued)
The future minimum lease payments under capital leases together with the present
value of minimum lease payments as of December 31, 1998 are as follows:
Year ending December 31,
1999 $ 1,600,941
2000 527,271
2001 113,561
2002 35,251
-------------------
2,277,024
Less - amount representing interest 172,195
-------------------
Present value of minimum lease payments $ 2,104,829
===================
7. Notes Payable
The Company has three notes payable to a related party totaling $124,876 as of
December 31, 1998, as discussed below and in note 9. The remaining notes payable
are due to unrelated third parties.
Two notes provide for interest only payments at 8.56% until June 2004, when
balloon payments will be due totaling $94,750. The third note provides for
interest only payments at 8.56% until August 2005, when a balloon payment will
be due totaling $31,126.
A subsidiary rented office space under a lease that expired in July 1997. The
original lease, including amendments, provided for a note payable in the amount
of $252,172 to be due at lease end. At lease end, the subsidiary signed a new 10
year lease expiring July 2007. The lease requires the original note payable due
in July 1997, to become due in July 2007. This note will be reduced each year by
5% of the total amount of the note, provided the monthly lease payments are made
on a timely basis.
Another subsidiary signed a note payable in the amount of $192,348 plus interest
of prime plus 1.5% due to the landlord as an amendment to its original lease.
The note is to be paid in 24 equal installments that were to begin June 1997.
During 1997, note payments were not made as management was in negotiations with
the landlord to reduce the note amount and extend the current lease that expires
in May 1999. The full amount due is included in notes payable on the
accompanying consolidated balance sheets. In
IV-35
<PAGE>
7. Notes Payable (continued)
February 1998, the Company made a lump sum payment covering the June 1997
through February 1998 period.
At December 31, 1998 the aggregate maturities of notes payable are as follows:
December 31, 1999 $ 43,291
2000 -
2001 -
2002 -
2003 -
Thereafter 365,440
===================
$ 408,731
===================
8. Income Taxes
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes." Deferred
income tax assets and liabilities are determined based upon differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
The components of the income tax benefit are as follows:
For the period
November 9, 1998
to December 31,
1998
------------------
Current federal tax $ 43,770
Current state tax -
Deferred federal tax (51,438)
Deferred state tax 4,590
==================
$ (3,078)
==================
IV-36
<PAGE>
8. ncome Taxes (continued)
The reconciliation of income tax computed at the U.S. federal statutory rate to
income tax benefit is as follows:
For the period from November 9 to
December 31, 1998
Amount Percent
------------------------------------
Tax at U.S. statutory rate $ (26,806) 35.0%
State taxes, net of federal benefit (3,829) 5.0%
Change in valuation allowance 67,353 51.9%
Effect of permanent differences (39,796) (87.9)%
====================================
$ (3,078) 4.0%
====================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred income taxes are as follows:
December 31,
1998
-------------------
Deferred tax assets:
Net operating loss carryforwards $ 720,937
AMT credit carryforward 251,879
Book/tax basis difference 286,501
Less: valuation allowance (360,470)
-------------------
898,847
-------------------
Deferred tax liabilities:
Rent accrual 2,442,016
Depreciation 265,794
Book/tax basis difference 776,660
Goodwill 32,479
-------------------
-------------------
3,516,949
-------------------
Net deferred tax liability after valuation allowance $ (2,618,102)
===================
IV-37
<PAGE>
8. Income Taxes (continued)
Statement 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that approximately $284,000 of a valuation allowance at December 31,
1998 is necessary to reduce the deferred tax assets to the amount that will more
likely than not be realized.
At December 31, 1998, Interoffice has available unused net operating loss
carryforwards of approximately $1,246,000.
9. Related Parties
An executive of Interoffice owns a real estate brokerage company which has
received commissions from landlords of the centers for leasing certain
facilities at the sites the subsidiaries are located. The brokerage company
received commissions from the landlords and shared an allocated portion with
Interoffice. Total commissions earned for the period November 9, 1998 to
December 31, 1998 were approximately $75,000, and have been included in service
income on the accompanying consolidated statements of income.
The Company has notes payable to the above mentioned related party as discussed
in note 7.
In connection with the Company's acquisition of three executive office suite
centers in France (see note 13), a stockholder loaned the Company $1,750,000.
This amount was repaid in January 1999.
10. 401(k) Profit Sharing Plan
The Company has an established profit sharing plan under Section 401(k) of the
Internal Revenue Code. The plan, which is open to substantially all employees,
provides for employer matching contributions of 50%, up to a maximum of $2,400
per employee per year. Employer contributions totaled $19,042 for the period
November 9, 1998 to December 31, 1998.
IV-38
<PAGE>
11. Management Incentive Bonus Structure
Certain members of the senior management team of the Company, consisting of five
employees, by contract are paid an incentive bonus based on Interoffice's cash
flow, as defined, monthly. Senior management bonus percentages during 1998
averaged 11%. Also, most other Company employees receive incentive bonuses
through a discretionary bonus structure monitored by senior management.
12. Commitments and Contingencies
The Company leases the premises from which operations are conducted from third
parties. These noncancellable arrangements expire from January 1998 to May 2009
and contain rent escalations up to 5% per year. Rent paid during the period
November 9, 1998 to December 31, 1998 was approximately $2,578,000.
As of December 31, 1998, the approximate minimum lease payments under the terms
of these agreements are as follows:
December 31, 1999 $ 15,724,000
2000 16,121,000
2001 16,203,000
2002 15,046,000
2003 13,821,000
Thereafter 32,844,000
===================
$ 109,759,000
===================
Included in rent expense is escalation expenses of approximately $127,000 in the
period November 9, 1998 to December 31, 1998.
The Company has guaranteed approximately $2.5 million of lease payments for
certain of its subsidiaries.
During 1998, the Company entered into four separate employment agreements. The
employees have been awarded options to purchase 225 shares of Class B common
stock of the aggregate issued and outstanding shares of Class A and Class B
common stock of the Company at an aggregate purchase price per share, as
defined. Such options vest in equal installments over a two to three year
period.
IV-39
<PAGE>
13. Subsequent Events (Unaudited)
On January 5, 1999, the Company closed on a contract to acquire three executive
office suite centers in France for approximately $1.5 million. In connection
with this acquisition, the Company has guaranteed certain leases and bank loans
of approximately $500,000 which were previously personally guaranteed by the
Seller.
On January 8, 1999, the Company merged with a wholly-owned subsidiary of
Alliance National Incorporated ("Alliance"), a Nevada corporation. In connection
with the merger, Alliance issued 11,567,247 shares of Series C preferred stock
to shareholders of the Company. In addition, the Company issued 1,357 common
stock in connection with the merger.
On May 8, 1998, the Company entered into a stock purchase agreement whereby
Interoffice will purchase all of the issued and outstanding shares of the
capital stock of Pacific Office Centers, Inc. for approximately $7.1 million.
Pacific Office Center, Inc. consists of nine office centers located in southern
California. Alliance, as successor to the Company, closed this agreement
effective February 1, 1999.
14. Impact of Year 2000 (Unaudited)
The Company's management has assessed the Year 2000 issue, and has developed an
action plan to address the issue. Management believes that its action plan will
be implemented and completed in a timely fashion, and that it will not
materially affect the Company's future operating results or future financial
condition.
IV-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
MEMBERS OF RSVP HOLDINGS, LLC
We have audited the accompanying consolidated balance sheet of RSVP Holdings,
LLC as of December 31, 1998 and the related consolidated statements of
operations, members' equity, and cash flows for the period from February 26,
1998 (commencement of operations) to December 31, 1998. 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 RSVP Holdings, LLC
as of December 31, 1998 and the consolidated results of its operations and its
cash flows for the period February 26, 1998 (commencement of operations) to
December 31, 1998 in conformity with generally accepted accounting principles.
/S/ERNST & YOUNG, LLP
New York, New York
March 5, 1999
IV-41
<PAGE>
RSVP HOLDINGS, LLC
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Cash $ 123,020
Equity Investments (Note 3) 35,259,956
Affiliate receivables (Note 4) 3,637,471
Deferred Compensation (Notes 1 and 4) 4,938,539
Equipment (net of accumulated depreciation of $30,557) 105,699
Other assets (Note 5) 686,727
-------------
TOTAL ASSETS $44,751,412
===========
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued expenses $ 1,397,412
Affiliate payables (Note 4 and 5) 5,232,929
------------
TOTAL LIABILITIES 6,630,341
---------
Minority Interest 31,201,645
COMMITMENTS AND CONTINGENCIES (Notes 1, 4 and 6) -
Members' equity 6,919,426
---------
TOTAL LIABILITIES AND MEMBERS' EQUITY $44,751,412
===========
(See accompanying notes to consolidated financial statements)
IV-42
<PAGE>
RSVP HOLDINGS, LLC
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIO
FEBRUARY 26, 1998 TO
REVENUES DECEMBER 31, 1998
- -------- -----------------
Fee income (Note 4) $ 92,791
Interest income 193,034
Other income 360,853
--------------
TOTAL REVENUES 646,678
--------------
EQUITY IN LOSS ON INVESTMENTS (Note 3) (3,747,767)
--------------
EXPENSES
Payroll & related costs (Note 4) 2,893,914
Office expenses 493,781
Professional fees 382,021
Management fees (Note 4) 416,667
Travel 109,384
Terminated transaction costs (Note 2) 1,686,389
Amortization and depreciation 30,557
Organization costs (Note 2) 757,644
Interest expense 491,172
--------------
TOTAL EXPENSES 7,261,529
--------------
LOSS BEFORE MINORITY INTEREST (10,362,618)
Minority Interest 6,263,739
--------------
NET LOSS $(4,098,879)
===========
(See accompanying notes to consolidated financial statements)
IV-43
<PAGE>
RSVP HOLDINGS, LLC
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
For the period February 26, 1998 to December 31, 1998
<TABLE>
<CAPTION>
RSI FUND
MANAGEMENT, LLC
---------------
<S> <C>
Contribution of Reckson Stock (Note 1) $ 5,887,000
Cost of Capital - March 13, 1998 (Note 1) (5,000,000)
Contribution of Investment in American Campus Communities, LLC 1,879,646
Contribution of Investment in Dobie Center Properties, Ltd. --------
Contributions for Investments in Gateway Development Group, LLC 182,908
Contributions for Investments in Assisted Living Investments, LLC 3,769,125
Contributions for Investments in Dominion Venture Group, LLC 2,865,818
Contributions for working capital 1,433,808
Net Loss - February 26, 1998 to December 31, 1998 (4,098,879)
-----------
MEMBERS' EQUITY AT DECEMBER 31, 1998 $ 6,919,426
=============
</TABLE>
(See accompanying notes to consolidated financial statements)
IV-44
<PAGE>
RSVP HOLDINGS, LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FEBRUARY 26, 1998 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $ (4,098,879)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 30,557
Minority interest (6,263,739)
Equity in loss of investments 3,747,767
Write-off of organization costs 757,644
Changes in operating assets and liabilities:
Affiliate receivables (3,637,471)
Deposit (466,666)
Other assets (220,061)
Accounts payable and accrued expenses 1,397,412
-------------
Net cash used in operating activities (8,753,436)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (136,256)
Distribution from American Campus Communities, LLC 98,335
Investment in Gateway Development Group, LLC (650,531)
Investment in Assisted Living Investments, LLC (7,583,879)
Investment in Dominion Venture Group, LLC (28,992,002)
Organization and pre-acquisition costs (757,644)
-------------
Net cash used in investing activities (38,021,977)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from affiliate loans 5,232,929
Offering costs (5,000,000)
Deferred compensation (4,938,539)
Contributions of minority members 37,465,384
Contributions of members 14,138,659
------------
Net cash provided by financing activities 46,898,433
-----------
Net increase in cash which is cash at end of period $ 123,020
-------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 130,296
===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
Contribution of non-cash assets to Reckson Strategic Venture Partners,
LLC-Investment in American Campus Communities, LLC $1,879,646
==========
</TABLE>
(See accompanying notes to consolidated financial statements)
IV-45
<PAGE>
RSVP HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND FORMATION OF THE COMPANY
RSVP Holdings, LLC ("Holdings" or the "Company") was formed on February 26, 1998
to be the managing member of Reckson Strategic Venture Partners, LLC and related
entities ("RSVP") a real estate venture capital fund, of which the Company owns
100% of the common equity interests. The Company is composed of two members, RSI
Fund Management LLC, a wholly owned subsidiary of Reckson Service Industries,
Inc., ("RSI") and New World Realty, LLC ("New World"), an entity formed by the
two RSVP managing directors to manage the day-to-day operations of RSVP, subject
to the strategic direction of RSI. RSI Fund Management, LLC, owns 100% of the
common equity interests and New World has a carried interest in profits. The
Holdings operating agreement (the "Managing Member Operating Agreement")
provides for the payment to New World after RSI and affiliated persons (the
"Reckson Investors") 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 received by the Reckson Investors in respect of RSVP investments.
RSVP was formed on March 5, 1998 to invest in real estate and real
estate-related operating companies 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 retained highly experienced professionals that who 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.
On March 5, 1998, Paine Webber Real Estate Securities, Inc., ("PWRES") became a
non-managing member and sole preferred equity owner of RSVP, with a capital
commitment of $200 million (the "Preferred Equity Facility"). PWRES will share
in profits and losses of RSVP, as defined in the RSVP'S operating agreement
subject to a maximum IRR of 16% on invested capital. Allocations of income and
losses are made in accordance with provisions defined in the operating
agreement. In connection with the PWRES preferred equity financing, RSVP paid a
commitment fee of $5,000,000. On April 24, 1998, PWRES assigned 25% of its
preferred equity interest in RSVP, representing an unfunded capital commitment
of $50 million to Stratum Realty Fund, LLC ("Stratum"). The assignment provides
Stratum with similar rights and priorities.
Each of the RSVP Managing Directors has entered into an employment agreement
with the Company which provides for a minimum 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 Associates Realty Corp. ("Reckson")
which vests equally throughout the first five years of employment (see Note 4).
New World is also entitled to one-half of any asset management fee earned by
Holdings from the Reckson Investors. 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 disposition of RSVP's
investments except for dispositions at an independently determined fair value.
The Managing Member Operating Agreement obligates RSI to contribute 100% of the
capital contributions to be made by Holdings to RSVP in an amount up to $100
million. At the termination of RSVP, New World has a right of first refusal to
purchase any RSVP investment proposed for sale.
IV-46
<PAGE>
RSVP HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared for the purpose of
complying with Rule 3-09 of regulation S-X of the Securities and Exchange
Commission.
Basis of Presentation
The accompanying consolidated financial statements include the financial
position of the Company and RSVP, at December 31, 1998 and the results of its
operations and its cash flows for the period February 26, 1998 to December 31,
1998. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements. The preferred interest of
PWRES and Stratum in RSVP are reflected in minority interests in the
accompanying consolidated financial statements.
The investments accounted for under the equity method are Dobie Center
Properties, Ltd., American Campus Communities, LLC, Assisted Living Investments,
LLC, Dominion Venture Group, LLC and Gateway Development Group, LLC
(collectively, the "RSVP Investments").
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
The Company assesses the need to record impairment losses on long-lived assets
used in operations when indicators of impairment are present. On an on-going
basis, management reviews the value and period of amortization or depreciation
of long-lived assets, including excess investments of equity investments. During
this review, the Company reevaluates the significant assumptions used in
determining the original cost of long-lived assets. Although the assumptions may
vary from transaction to transaction, they generally include revenue growth,
operating results, cash flows and other indicators of value. Management then
determines whether these have been a permanent impairment of the value of
long-lived assets based upon events or circumstances which have occurred since
acquisition.
Transaction Costs
Costs incurred in connection with potential acquisitions are deferred until the
transaction is consummated, or if terminated, such costs are expensed.
Change in Accounting Principle
In April 1998, the Accounting Standards' Executive Committee of the American
Institute of Certified Public Accountants issued SOP No. 98-5, "Reporting on the
Costs of Start-Up Activities". This standard provides guidance on the financial
reporting for start-up costs and requires that such costs be expenses as
incurred. The standard is effective for fiscal years beginning after December
15, 1998. In accordance with this standard the Company adopted this policy in
1998. The Company expensed organization costs of $757,644 in 1998.
Income Taxes
The Company is not subject to federal or state income taxes. As such, no
provisions 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 New York State Limited Liability Company fees.
IV-47
<PAGE>
RSVP HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. INVESTMENTS
As of December 31, 1998, the Company's equity investments are as follows:
Investment in American Campus Communities,LLC $ 1,262,415
Investment in Dobie Center Properties, Ltd. 32,296
Investment in Assisted Living Investments, LLC 4,676,272
Investment in Dominion Venture Group, LLC 29,288,973
------------
TOTAL EQUITY INVESTMENTS $ 35,259,956
===========
The following are the Company's equity in earnings (loss) of investments for the
period February 26, 1998 to December 31, 1998:
Equity in loss of American Campus Communities, LLC $ (518,895)
Equity in earnings of Dobie Center Properties, Ltd. 32,296
Equity in loss of Gateway Development Group, LLC (650,531)
Equity in loss of Assisted Living Investments, LLC (2,907,607)
Equity in earnings of Dominion Venture Group, LLC 296,970
-----------
TOTAL EQUITY IN LOSS OF INVESTMENTS $(3,747,767)
============
Student Housing
- ---------------
In 1997, RSI acquired a 33 1/3% interest in a wholly owned subsidiary of RFG
Capital Group, LLC ("RFG") for $1.51 million. RFG's sole net investment is a
76.09% interest in American Campus Communities, LLC ("ACC"), a student housing
enterprise which owns, develops, constructs, manages and acquires, on-and off
campus student housing projects. On April 1, 1998, RSI transferred its equity
interest to RSVP. For the period April 1, 1998 to December 31, 1998, RSVP
recognized a loss of $518,895 attributable to ACC.
In 1997, RSI invested through affiliated entities $3.62 million for a 33 1/3%
interest in Reckson Opportunity Partners, LP ("RO"). RO used such proceeds along
with equal proceeds from RO's two other owners to acquire a 70% interest in
Dobie Center Properties, Ltd. ("Dobie"), which owns 100% of Dobie Center, a
mixed-use student housing and retail property located in Austin, Texas. On April
1, 1998, RSI transferred its interest in RO, net of certain proceeds related to
the refinancing of Dobie, to RSVP. For the period April 1, 1998 to December 31,
1998, RSVP recognized income of $32,296 attributable to Dobie.
Privatization
- -------------
On August 27, 1998, a joint venture was formed between RSVP and Dominion, an
Oklahoma-based, privately-owned group of companies that focuses on the
development, acquisition and ownership of government occupied office buildings
and correctional facilities. The new venture, Dominion Venture Group, LLC (the
"Dominion Venture") is owned by RSVP-Dominion LLC, a subsidiary of RSVP, and by
Burgess Services, LLC, an entity owned and controlled by Calvin Burgess,
President and Chief Executive Officer of Dominion.
The Dominion Venture consists of two operating divisions. Dominion Properties,
LLC, will directly or indirectly own real estate and other Real Estate
Investment Trust ("REIT") qualified investments (the "Properties Division"). A
subsidiary of ROP owns a membership interest in the Properties Division.
Dominion Asset Services, LLC, owns companies that engage in businesses that
create non-REIT qualifying income (the "Services Division"). The businesses of
the Services Division will include (i) leasing correctional facilities from the
Properties Division and contracting with a third party for the management of
such facilities, (ii) acting as a general contractor or a construction manger
for the construction of real estate both for the Properties Division and for
third parties, and (iii) the management of existing and newly developed and
constructed government leased office buildings.
In 1998, total RSVP contributions to the Dominion Venture were $28,728,130 of
which $25,862,312 was contributed by PWRES and $2,865,818 by RSI.
Allocations of income and cash flow distributions are made in accordance with
provisions defined in the Operating Agreement.
IV-48
<PAGE>
RSVP HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. INVESTMENTS (CONTINUED)
As of December 31, 1998, the excess of the RSVP's investment over its share of
the equity in the underlying net assets of the Dominion Venture ("Excess
Investment") was $263,873. This Excess Investment is being amortized over the
life of the investment estimated at 25 years.
Summarized financial information and a summary of RSVP's investment in and share
of income of the Dominion Venture is as follows:
Balance Sheet December 31, 1998
----------------
Property and equipment, net..................... $ 132,872,232
Intangibles..................................... 15,777,941
Other assets.................................... 9,505,124
-------------
Total Assets.................................... $ 158,155,297
=============
Current liabilities............................. $ 25,222,798
Mortgage payable................................ 48,847,698
-------------
Total Liabilities............................... 74,070,496
=============
Minority Interest............................... 10,188,332
Preferred equity................................ 44,871,369
RSVP investment in Dominion Venture............. 29,288,973
Less: Excess Investment........................ (263,873)
-------------
Total Members' Equity........................... 73,896,469
--------------
Total Liabilities & Members' Equity............. $ 158,155,297
===============
Statement of Operations For the period from
August 27, 1998 to
December 31, 1998
-----------------
Construction revenue............................ $ 10,313,898
Other revenue................................... 8,744,453
Total Revenue................................... ---------
19,058,351
----------
Cost of sales................................... 14,483,812
General and administrative expenses............. 1,359,293
Depreciation and amortization expense........... 1,418,351
Interest expense, net........................... 703,293
---------
Total Expenses.................................. 17,964,749
---------
Minority Interest............................... 122,994
---------
Net income...................................... 970,608
Less: Preferred Members' share................. (673,638)
---------
RSVP's share.................................... $ 296,970
==========
On August 11, 1998, RSVP, through a wholly owned subsidiary, formed a joint
venture Gateway Development Group, LLC ("Gateway"), with Gateway Management
Group. Gateway is a start up entity that pursues opportunities in privatized
military housing. In 1998, RSVP has funded $549,238. The Company is uncertain
whether it will to recover its invested dollars from Gateway's future cash
flows. At December 31, 1998, RSVP has recognized a loss of $650,531 which
includes a reserve for their total contributed dollars plus investment costs of
$101,293.
IV-49
<PAGE>
RSVP HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
3. INVESTMENTS (CONTINUED)
Assisted Living
- ---------------
On August 12, 1998, RSVP, acquired through a wholly owned subsidiary, a 45%
interest in Assisted Living Investments, LLC ("ALI") for approximately $3.25
million. ALI is a joint venture that develops, leases, operates and finances
assisted living facilities. In addition, RSVP has agreed to contribute 80% of
the equity of ALI, up to a maximum $16.0 million for a total maximum commitment
of $19.25 million. RSVP funded $7.5 million of its $19.25 million commitment
upon the closing of the transaction. RSVP has funded 50% of its capital
contributions through draws under the Preferred Equity Facility.
As of December 31, 1998, the excess of the Company's investment over its share
of the equity in the underlying net assets of ALI ("Excess Investment") was
$2,887,585. The Excess Investment is being amortized over the life of the
investment estimated at 25 years.
Summarized financial information and a summary of RSVP's investment in and share
of loss is as follows:
Balance Sheet December 31, 1998
-----------------
Property and equipment, net $ 79,101,531
Other assets................................. 6,483,316
---------
Total Assets............................ $ 85,584,847
===========
Note payable................................. $ 82,883,473
Other liabilities............................ 8,087,520
---------
Total Liabilities....................... 90,970,993
----------
Minority interest............................ (7,174,833)
Net RSVP investment in ALI................... 4,676,272
Less: Excess investment..................... (2,887,585)
---------
Total Members' Deficit.................. (5,386,146)
---------
Total Liabilities and Members' Deficit.. $ 85,584,847
============
Statement of Operations For the period from
August 12, 1998 to
December 31, 1998
----------------
Total Revenues.......................... $ 2,847,404
------------
Operating expenses....................... 3,509,287
Pre-opening expenses..................... 1,090,673
Depreciation and amortization............ 1,180,190
Interest expense......................... 1,759,929
Other expenses........................... 409,421
---------
Total Expenses...................... 7,949,500
---------
Net loss as reported by ALI.............. (5,102,096)
Adjustment for equity accounting basis... 545,337
---------
Net loss as adjusted..................... (4,556,759)
Less: Non-RSVP share.................... (1,708,785)
---------
RSVP share of net loss................... (2,847,974)
Amortization of excess investment and
pre-opening costs...................... (59,633)
---------
Total RSVP share of net loss.............. $ (2,907,607)
==============
IV-50
<PAGE>
RSVP HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
4. TRANSACTIONS WITH RELATED PARTIES
On June 15, 1998, RSI established a credit facility of $100 million ("RSVP
Facility") with ROP for funding the common equity component of RSVP investments.
The amount available under the RSVP Facility is reduced by any amount invested
by ROP directly in joint ventures with RSVP. The RSVP Facility has a term of
five years and bears interest 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 (iii)
increasing annually on outstanding borrowings at a rate of 4% of the prior
year's rate. As of December 31, 1998, ROP has advanced RSI $7,281,781 under the
RSVP Facility and has invested $10,065,338 in the Dominion Venture (See Note 3).
Included in affiliate payables are interim advances of approximately $1.2
million made to the Company by RSI for working capital. These advances accrue
interest at a rate equal to the rate on the RSVP facility.
Each RSVP Managing Director received a $3.0 million grant of common stock of
Reckson Associates Realty Corp. (the "Reckson Stock") which will vest equally
over five years. The Reckson Stock was purchased by RSI and contributed to
Holdings. The amortization of the Reckson stock for the period March 5, 1998 to
December 31, 1998 was $948,461. It was charged to RSVP and is included in
payroll and related costs in the accompanying consolidated statement of
operations. In addition, in April 1998, RSI advanced each managing director a
tax loan of approximately $1.4 million in connection with the grant of Reckson
Stock. These loans bear interest at 8% per annum, are due in April, 2003, and
are secured by the Reckson stock. These amounts are included in affiliate
receivables.
New World is entitled to receive transaction fees of up to $1 million per year
related to identifying RSVP investment opportunities. In August of 1998, $1
million of such fees were paid to New World by a third party.
RSI is entitled to a cumulative annual management fee of $2 million with respect
to RSVP, of which $1.5 million is subordinate to PWRES receiving an annual
minimum rate of return of 16% and a return of its capital. The unsubordinated
amount earned by RSI for the period March 5, 1998 to December 31, 1998 was
$416,667.
In 1998, RSVP received an asset management fee of $92,791 for services provided
to Dobie Center Properties, Ltd.
5. OTHER ASSETS
Included in other assets is a deposit of $466,666 which represents funds
reserved for future capital improvements for Dobie Center. Upon release, these
funds would be payable to RSI. These funds are held in a trustee's account and
are not controlled by RSVP.
6. SUBSEQUENT EVENTS (UNAUDITED)
With respect to RSVP's investment in Assisted Living Investments, LLC, on
February 1, 1999, a member of Sun Healthcare Group, Inc., ("SUN") the parent of
an ALI member, reported a significant loss from operations during the quarter
ended December 31, 1998. Additionally, SUN continues to implement a
comprehensive restructuring of its operations. The restructuring of SUN's
operations has led the partners of ALI to enter into negotiations regarding
ALI's ongoing business plan and potentially modify allocations and priorities of
cash flow, profits and losses. These negotiations are in progress. As of
December 31, 1998, the Company determined that there was no impairment on its
investment in ALI.
On March 17, 1999, PWRES transferred rights, title and interest on its invested
capital to date in RSVP to Stratum. This transfer will include the rights to
distributions based upon the amount of funded capital contributions.
IV-51
<PAGE>
RSVP HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
7. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company and the RSVP Investments have completed an assessment to modify or
replace portions of their software so that their computer systems will function
properly with respect to dates in the year 2000 and thereafter. Since their
accounting software is maintained and supported by a third party, the total year
2000 project cost is estimated to be minimal. The year 2000 project is estimated
to be completed no later than July 31, 1999, which is prior to any anticipated
impact on their operating systems. Additionally, their mechanical systems are
currently year 2000 compliant. However, the Company and the RSVP Investments
cannot guarantee that all contractors will comply with their assurances and
therefore, they will not be able to replace non-compliant contractors. They
believe 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 complete timely costs associated with the year 2000 issue could
be significant and have a material impact on the operations of the Company and
the RSVP Investments.
To date, the Company and the RSVP Investments have expended approximately
$21,000 and expect to expend an additional $60,000 in connection with upgrading
of their computer system. The costs of the project and the date on which they
believe 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.
IV-52
<PAGE>
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1* Certificate of Incorporation
3.2* By-Laws of Registrant
3.3 Amended and Restated Certificate of Incorporation
4.1* Specimen Share Certificate of Common Stock
10.1 Intercompany Agreement between Reckson Operating Partnership, L..P. and
Reckson Service Industries, Inc. dated May 13, 1998
10.2A Credit Agreement between Reckson Operating Partnership, L.P. and
Reckson Service Industries, Inc. relating to the operations of Reckson
Strageic Venture Partners, LLC dated June 15, 1998
10.2B Credit Agreement between Reckson Operating Partnership, L.P. and
Reckson Service Industries, Inc. relating to the operations of Reckson
Service Industries, Inc. dated June 15, 1998
10.3* Limited Liability Company Agreement of OnSite Ventures, LLC
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* Registration Rights Agreement between Reckson Service Industries, Inc.
and certain affiliates thereof dated May 13, 1998
10.8* Option to acquire Interoffice Superholdings Corporation
10.9 Loan Agreement regarding On-Site Convertible Loans
10.10A* Stock Option Plan
10.10B 1998 employee stock option plan
10.11* Employment Agreement of Steven H. Shepsman
10.12* Employment Agreement of Seth B. Lipsay
10.13* Limited Liability Company Agreement of Interoffice Superholdings, LLC
by and among Interoffice Superholdings, LLC, RSI I/O Holdings, Inc.,
JAH I/O, LLC and Rieger I/O LLC
10.14* Fourth Amended and Restated Stockholder's Agreement dated January 8,
1999 by and among Alliance National Incorporated and the security
holders identified therein.
10.15** Letter Agreement dated November 9, 1998 by and between JAH I/O LLC and
Reckson Management Group, Inc., Reckson Service Industries, Inc., RSI
I/O Holdings, Inc., and Reckson Office Centers, LLC
10.16** Letter Agreement by and between Reckson Service Industries, Inc., and
RFIA, LLC
10.17*** Amended and Restated Operating Agreement of Assisted Living Investments
LLC
10.18# Operating Agreement of Dominion Venture Group LLC
10.19## Agreement and Plan of Merger by and among Alliance National
Incorporated, Alliance Holding Inc., Interoffice Superholdings
Corporation and Interoffice Superholdings, LLC
10.20## Agreement and Plan of Merger by and among Alliance National
Incorporated, ANI Holdings, Inc., Reckson Executive Centers, Inc., and
Reckson Office Centers, LLC
10.21 $4 Million Senior Secured Promissory Note of On-Site Ventures, LLC
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries of Reckson Service Industries, Inc.
24.1 Powers of Attorney (included in Part IV of this Form 10-K)
27.0 Financial Data Schedule
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
- -------------
* Previously filed as an exhibit to Registration Statement on Form S-1 (No.
333-44419) and incorporated herein by reference.
** Previously filed as an exhibit to the Company's Form 8-K filed with the SEC
on January 25, 1999 and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's form 8-K report filed with
the SEC on September 8, 1998 and incorporated herein by reference.
# Previously filed as an exhibit to the Company's form 8-K report field with
the SEC on September 11, 1998 and incorporated herein by reference.
## Previously filed as an exhibit to the Company's Form 8-K filed with the SEC
on December 1, 1998 and incorporated herein by reference.
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:
<PAGE>
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").
<PAGE>
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;
<PAGE>
(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
---- ---------------
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
---- ---------------
Donald J. Rechler 225 Broadhollow Rd.
Melville, New York 11747
Roger 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
Mitchell D. Rechler 225 Broadhollow Rd.
Melville, New York 11747
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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;
(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:
(i) 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
(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
<PAGE>
(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; and
(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; and
(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 stock
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 stock of
the Corporation would have constituted a control share
acquisition but for paragraph (b) of this subsection.
<PAGE>
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 of this 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;
<PAGE>
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, 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 a
bond, with sufficient surety, to reasonably assure the Corporation
that the aforementioned 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 aforementioned request and 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.
<PAGE>
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 time of delivery of an acquiring person statement under Section C
of this Article, the acquiring person has:
1. entered into a definitive financing agreement or 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 agreement(s) 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.
<PAGE>
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 for fair value 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, as
determined by the board of directors of the Corporation 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 such
meeting;
(b) without regard to the absence of voting rights of the holders of
such control shares; and
(c) to be 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
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 board of directors of
the Corporation in good faith.
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 shares, then
<PAGE>
this Certificate of Incorporation 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) Section 262(b)(1) 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 stockholders
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% 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
<PAGE>
"Beneficial Owner," "Beneficially Own," "Beneficially Owned," "Beneficially
Owning" and "Beneficially Owns" 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.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the common stock of the Corporation.
"Distribution" shall mean the distribution of the Common Stock held by
Reckson Associates to its shareholders.
"Effective Date" shall mean the date of the Distribution.
"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 I 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 I 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 I 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.
<PAGE>
"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.
"Restriction Termination Date" shall mean the first day after the date
that the Corporation is notified in writing by Associates that the board of
directors of Reckson Associates has determined that it is no longer in the best
interests of Reckson Associates to attempt to, or continue to, qualify as a real
estate investment trust under the Code.
"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 M of this
Article XVI.
"Trustee" shall mean the Corporation, as trustee for the Trust, and any
successor trustee appointed by the Corporation.
<PAGE>
Section B. Ownership Limitations
(1) Except as provided in Section J of this Article XVI, from the
Effective Date and prior to the Restriction Termination Date, 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 J of this Article XVI, from the
Effective Date and prior to the Restriction Termination Date, 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.
(3) From the Effective Date and prior to the Restriction Termination
Date, any Transfer that would result in any Person who is the
Beneficial Owner of 10% or more in value of the capital stock of
Associates Beneficially Owning Equity Stock in excess of the
Aggregate Ownership Limit 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; and the intended Transferee shall acquire no
rights in such shares of Equity Stock.
Section C. Aggregate Ownership Limitation
(1) Except as provided in Section J of this Article XVI, from the
Effective Date and prior to the Restriction Termination Date, 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 J of this Article XVI, from the
Effective Date and prior to the Restriction Termination Date, 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.
<PAGE>
Section D. Excess Stock
(1) If, notwithstanding the other provisions contained in this Article
XVI, at any time after the Effective Date and prior to the
Restriction Termination Date, 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 applicable Ownership Limit or Excepted Holder
Ownership Limit or Equity Stock in excess of the Aggregate
Ownership Limit or applicable Excepted Holder Aggregate Ownership
Limit, then, except as otherwise provided in Section J of this
Article XVI, such shares of Common Stock or Preferred Stock in
excess of the applicable Ownership Limit or such shares of Equity
Stock in excess of the Aggregate Ownership Limit or applicable
Excepted Holder 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.
(2) If , notwithstanding the other provisions contained in this Article
XVI, at any time after the Effective Date and prior to the
Restriction Termination Date, there is a purported Transfer or
other change in the capital structure of the Corporation, such that
any Person who is the Beneficial Owner of 10% or more in value of
the capital stock of Associates would Beneficially Own Equity Stock
in excess of the Aggregate Ownership Limit, then such shares of
Equity Stock in excess of the Aggregate Ownership Limit (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
<PAGE>
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. Information for Corporation
From the Effective Date through the Restriction Termination Date, each
Person who is a Beneficial Owner of Equity Stock and each Person
(including the stockholder of record) who is holding Equity Stock for a
Beneficial Owner shall upon demand provide in writing to the
Corporation any information with respect to the direct, indirect and
constructive ownership of Equity Stock of the Corporation as the Board
of Directors of the Corporation deems necessary for Associates to
determine its compliance with the provisions of the Code applicable to
real estate investment trusts.
Section H. 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 I. 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.
<PAGE>
(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 I, 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 J. 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 K. 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
<PAGE>
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 L. 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 M. 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
<PAGE>
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 N. 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 O. 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.
<PAGE>
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 Q of this
Article XVI.
Section P. 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 Q. 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 N 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 R of this Article XVI.
<PAGE>
Section R. 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 N 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 O of
this Article XVI.
Section S. Enforcement
The Corporation is authorized specifically to seek equitable relief,
including injunctive relief, to enforce the provisions of this Article
XVI.
Section T. 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.
<PAGE>
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 13th 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.
/s/ Scott H. Rechler
--------------------------------------
Scott H. Rechler
President and Chief Executive Officer
INTERCOMPANY AGREEMENT
THIS INTERCOMPANY AGREEMENT (the "Agreement") is made and entered into
as of the 13th day of May, 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:
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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
(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.
<PAGE>
(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, (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, and (iv) stockholders of RSI shall be required to disclose to RSI upon
demand such information with respect to the ownership of RSI capital stock as
the Company deems necessary to determine Reckson's compliance with the REIT
provisions of the Code, 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 distributed 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. RSI shall request from its stockholders, pursuant
to the provision described in clause (iv) above, such information as Reckson
shall direct RSI to request, and RSI shall promptly advise Reckson of the
responses it receives to such request.
<PAGE>
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 May 13, 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: Scott H. Rechler
with a copy to:
Mitchell Rechler, Secretary
<PAGE>
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.
<PAGE>
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: /s/ Mitchell Rechler
-------------------------
Name: Mitchell Rechler
Title: Executive Vice President
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Scott H. Rechler
----------------------------
Name: Scott H. Rechler
Title: President
CREDIT AGREEMENT
dated as of
June 15, 1998
between
RECKSON SERVICE INDUSTRIES, INC.,
as Borrower
and
RECKSON OPERATING PARTNERSHIP, L.P.,
as Lender
relating to
RECKSON STRATEGIC VENTURE PARTNERS, LLC
<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....................................................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
<PAGE>
CREDIT AGREEMENT, dated as of June 15, 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) June 15, 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 2% 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
respect to each Loan outstanding for one year or longer, such 12% rate shall
increase to 12.48%, 12.98%, 13.50% and 14.04% as of the anniversary of the
making of such Loan, for the second, third, fourth and fifth years that such
Loan is outstanding, 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
(x) 3% and (y) Prime Rate for the applicable Interest Period and (ii) 13%. With
respect to each Loan outstanding for one year or longer, such 13% rate shall
increase to 13.48%, 13.98%, 14.50% and 15.04% as of the anniversary of the
making of such Loan for the second, third, fourth and fifth years that such Loan
is outstanding, 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.
<PAGE>
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.
<PAGE>
(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 May 15, 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.
<PAGE>
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)
<PAGE>
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, 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.
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, 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
<PAGE>
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: /s/ Scott H. Rechler\
-----------------------
Name: Scott H. Rechler
Title: President
RECKSON OPERATING PARTNERSHIP, L.P.,
as Lender
By: RECKSON ASSOCIATES REALTY CORP.,
its general partner
By: /s/ Mitchell Rechler
-------------------------
Name: Mitchell Rechler
Title: Executive Vice President
CREDIT AGREEMENT
dated as of
June 15, 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.....................................................7
Section 3.2 Interest on Overdue Amounts.......................................7
Section 3.3 Maximum Interest Rate.............................................7
Section 3.3 Neither this Section nor Section 10...............................8
ARTICLE IV.
DISBURSEMENT AND PAYMENT
Section 4.1 Method and Time of Payments.......................................8
Section 4.2 Compensation for Losses...........................................8
Section 4.2 Loans, or any portion thereof.....................................9
Section 4.3 Withholding and Additional Costs..................................9
(a) Withholding.................................................9
(b) Additional Costs............................................9
(c) Certificate, Etc...........................................10
Section 4.4 Expenses; Indemnity..............................................10
Section 4.5 Survival.........................................................10
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties...................................11
(a) Good Standing and Power....................................11
(b) Authority..................................................11
(c) Authorizations.............................................11
(d) Binding Obligation.........................................11
(e) Litigation.................................................11
(f) No Conflicts...............................................12
(g) Taxes......................................................12
(h) Properties.................................................12
(i) Compliance with Laws and Charter Documents.................12
(j) No Material Adverse Effect.................................12
(k) Disclosure.................................................12
Section 5.2 Survival.........................................................13
<PAGE>
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.............................13
(d) Other Documents............................................13
(e) REIT Status of Reckson.....................................13
(f) Certain Loans Subject to Reckson's Approval................13
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.............................14
ARTICLE VII.
COVENANTS
Section 7.1 Affirmative Covenants............................................14
(a) Financial Statements; Compliance Certificates..............14
(b) Existence..................................................15
(c) Compliance with Law and Agreements.........................15
(d) Authorizations.............................................15
(e) Inspection.................................................15
(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................16
(b) Liens......................................................16
(c) Indebtedness...............................................16
(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
<PAGE>
ARTICLE X.
MISCELLANEOUS
Section 10.1 Applicable Law..................................................19
Section 10.2 Waiver of Jury..................................................19
Section 10.3 Jurisdiction and Venue; Service of Process......................19
Section 10.4 Confidentiality.................................................20
Section 10.5 Amendments and Waivers..........................................20
Section 10.6 Cumulative Rights; No Waiver....................................20
Section 10.7 Notices.........................................................20
Section 10.8 Certain Acknowledgments.........................................21
Section 10.9 Separability....................................................21
Section 10.10 Parties in Interest............................................21
Section 10.11 Execution in Counterparts......................................21
<PAGE>
CREDIT AGREEMENT, dated as of June 15, 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.
<PAGE>
"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) June 15, 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.
<PAGE>
"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.
<PAGE>
"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.
<PAGE>
"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).
<PAGE>
"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 2% 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.
<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
respect to each Loan outstanding for one year or longer, such 12% rate shall
increase to 12.48%, 12.98%, 13.50% and 14.04% as of the anniversary of the
making of such Loan, for the second, third, fourth and fifth years that such
Loan is outstanding, 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 Iterest 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
(x) 3% and (y) Prime Rate for the applicable Interest Period and (ii) 13%. With
respect to each Loan outstanding for one year or longer, such 13% rate shall
increase to 13.48%, 13.98%, 14.50% and 15.04% as of the anniversary of the
making of such Loan for the second, third, fourth and fifth years that such Loan
is outstanding, 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).
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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 May 15, 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:
<PAGE>
(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 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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
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, 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.
<PAGE>
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;
<PAGE>
(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.
<PAGE>
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, 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.
<PAGE>
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.
<PAGE>
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 10.9
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 20, 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
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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
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<PAGE>
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.
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<PAGE>
(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.
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<PAGE>
(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.
5
<PAGE>
(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
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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
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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
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<PAGE>
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.
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(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
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<PAGE>
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
11
<PAGE>
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.
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<PAGE>
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
13
<PAGE>
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.
14
<PAGE>
(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.
15
<PAGE>
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
16
<PAGE>
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 b e 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.
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<PAGE>
(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]
18
<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: /s/ Jon Halpern
------------------------------
Name: Jon Halpern
Title: Manager
THE HOLDER
RSI-OSA HOLDINGS, INC.
By: /s/ Scott Rechler
------------------------------
Name: Scott Rechler
Title: President
19
<PAGE>
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 AMOUNT OF ENDORSEMENT
DATE OR AMOUNT OF LOAN REPAYMENT TOTAL OUTSTANDING MADE BY
UNCOMMITTED
- -------- ------------- -------------- --------- ----------------- -------
<S> <C> <C> <C> <C> <C>
2/20/98 Committed $625,000 $625,000
- -------- ------------- -------------- --------- ----------------- -------
3/13/98 Committed $350,000 $975,000
- -------- ------------- -------------- --------- ----------------- -------
4/10/98 Committed $150,000 $1,125,000
- -------- ------------- -------------- --------- ----------------- -------
5/18/98 Committed $1,000,000 $2,125,000
- -------- ------------- -------------- --------- ----------------- -------
6/25/98 Committed $1,000,000 $3,125,000
- -------- ------------- -------------- --------- ----------------- -------
8/14/98 Committed $1,000,000 $4,125,000
- -------- ------------- -------------- --------- ----------------- -------
10/16/98 Committed $1,000,000 $5,125,000
- -------- ------------- -------------- --------- ----------------- -------
12/11/98 Committed $1,375,000 $6,500,000
- -------- ------------- -------------- --------- ----------------- -------
</TABLE>
20
THIS NOTE AND THE SERIES B REDEEMABLE PREFERRED STOCK 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 SERIES B
REDEEMABLE PREFERRED STOCK, 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) ANY SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH STATE SECURITIES LAWS.
ONSITE VENTURES, L.L.C.
15% Senior Secured Promissory Note
and Loan and Security Agreement
$4,000,000.00 February 10, 1999
(Maximum Loan 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
("RSI"), and JAH Realties, L.P., a limited partnership with an
address at Two Manhattanville Road, Suite 205, Purchase, New
York, 10579 ("Veritech" and together with RSI and their
respective successors, assignees and transferees, collectively
referred to herein as the "Holders"), or their respective
permitted assigns, as provided herein,
the aggregate outstanding principal amount of all loans (each, a "Loan") made
from time to time by the Holders or any Holder to the Company in accordance with
the terms and provisions of this 15% Senior Secured Promissory Note and Loan and
Security Agreement (this "Note"), which initially is an amount not to exceed
FOUR MILLION and 00/00 DOLLARS ($4,000,000.00), each such Loan being evidenced
by this Note by an endorsement on Schedule A attached hereto and made a part of
this Note, including additional pages, if any, on the date (the "Maturity Date")
that occurs no later than eleven (11) months and three (3) weeks after the date
(the "Initial Funding Date") first written above or to the extent provided for
herein, by way of acceleration, and to pay interest accruing on the unpaid
balance of the aggregate principal amount of each such Loan from and including
the date of such Loan to such original or accelerated maturity date at a rate
per annum initially equal to FIFTEEN PERCENT (15%), compounded monthly, and
increasing from and after April 1, 1999 as set forth on Schedule B attached
hereto and made a part of this Note; provided, however, that the interest rate
for any period shall not exceed the maximum rate permitted by law. Interest
shall be 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). 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 Holders 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
- 1 -
<PAGE>
per annum equal to TWENTY-FOUR PERCENT (24%) per annum, and if such rate shall
not be lawful with respect to the Company, at the highest lawful rate then in
effect. In the event that any amounts paid as interest shall exceed such
applicable law, such payments shall be deemed to have constituted principal
payments in reduction of the Obligations hereunder. 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.
1. Payments. Subject to the terms and provisions herein:
(a) Principal of each Loan shall be due and payable in full on the
Maturity Date or, if earlier, on the Conversion Date (as defined below).
(b) Interest on each Loan shall be paid in full on the date which is
the earlier to occur of (i) the Maturity Date, or (ii) the Conversion Date.
(c) Subject to Section 3 hereof, all payments hereunder shall be made
in lawful money of the United States and in immediately available funds. If the
Maturity Date or the Conversion Date would fall on a day that is not a Business
Day (as hereinafter defined), the payment due on such date will be made on the
next succeeding Business Day with the same force and effect as if made on the
Maturity Date or the Conversion 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 closed in the City of New York, New York.
(d) The Company may prepay all or any part of the principal amount of
any Loan evidenced by this Note on or prior to the Maturity Date without
penalty.
(e) 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 Holders. 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. Ranking of this Note.
(a) The Company 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 of first priority and
expressly senior to any and all Indebtedness of the Company and any Subsidiary
including, without limitation, the RSI Subordinated Note (as defined by the
amended and restated limited liability company agreement of the Company) and any
and all other loans made by members in the Company to the Company.
(b) Nothing contained in this Note is intended to or shall impair, as
between the Company, its creditors, and the Holders, the obligation of the
Company, which is
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<PAGE>
absolute and unconditional, to pay to the Holders the principal of and interest
on this Note as and when the same shall become due and payable in accordance
with its terms, or affect the relative rights of the Holders and the creditors
of the Company, nor shall anything herein or therein prevent the Holders from
exercising all remedies otherwise permitted by applicable law upon default under
this Note.
(c) Upon any payment or distribution of assets of the Company referred
to in this Note, the Holders 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 Holders for the
purpose of ascertaining the persons entitled to participate in such payment or
distribution, the holder of 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.
(d) Subject to the provisions of Section 8, 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 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 holders of Junior Debt are entitled to receive any payment on account
of the principal of, or interest on the Indebtedness evidenced by this Note; and
(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 Holders
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
Holders or their respective agents; or other representatives, to the extent
necessary to make payment in full of this Note remaining unpaid, after giving
effect to any concurrent payment or distribution (or provision therefor) so
required.
(e) 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).
(f) 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.
(g) 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
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<PAGE>
respect of any redemption, retirement purchase or other acquisition thereof
except as provided herein.
(h) Subject to the provisions of Section 8, 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 Holders 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.
3. Conversion of this Note into Series B Preferred Units and Series C
Preferred Units.
(a) All, but not less than all, of the outstanding principal balance,
but not the accrued and unpaid interest on the Loans or any part thereof,
evidenced by this Note shall be converted (the "Conversion") by the Company
without notice by the Company to any of the Holders and without any further
action by the Company or any of the Holders except as may be required by the
amended and restated limited liability company agreement of the Company on the
date and prior to the time that the Subsequent Transaction (as defined below) is
consummated (the "Conversion Date") into the number Units specified in Section
3(b) hereof of Series B Preferred Units (the "Series B Shares") and of Series C
Preferred Units (the "Series C Shares") in the Company which shall be issued by
the Company in connection with the proposed equity investment in the Company by
Spectrum Equity Investors and others or any other similar significant equity
investment in the Company or its successor or a sale of the Company whether by
merger, sale of all or substantially all of the Company's assets or otherwise
(each, a "Subsequent Transaction") and shall have the powers, rights,
preferences, limitations and obligations determined by the Board of Managers in
accordance with the amended and restated limited liability company agreement of
the Company.
(b) The number of Series B Shares or Series C Shares, as the case may
be, to be issued by the Company (such Series B Shares or Series C Shares being
referred to herein as, the "Conversion Shares") to each Holder shall equal:
(i) the aggregate number of Series B Shares or Series C Shares,
as the case may be, to be issued by the Company in the Subsequent
Transaction (in each case, the "Total B or C Shares"), including
without limitation, the total number of such Conversion Shares, as
determined conclusively by the definitive documentation with respect
to such transaction executed and delivered by the Company;
(ii) multiplied by the Conversion Ratio;
(iii) multiplied by a fraction (x) the numerator of which is
equal to the Total B or C Shares, including without limitation, the
total number of such Conversion Shares, as determined conclusively by
the definitive documentation with respect to such transaction executed
and delivered by the Company; (y) the denominator of which is equal to
the aggregate number of Series B Shares AND Series C Shares to be
issued by the Company in the Subsequent Transaction, including without
limitation, the total number of
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such Conversion Shares, as determined conclusively by the definitive
documentation with respect to such transaction executed and delivered
by the Company;
(iv) multiplied by a fraction (x) the numerator of which is equal
to the aggregate principal amount of outstanding Loans funded by such
Holder hereunder immediately prior to the Conversion and (y) the
denominator of which is equal to the aggregate principal amount of
outstanding Loans funded by both of the Holders hereunder immediately
prior to the Conversion.
(c) The Company covenants and agrees that all of the Conversion Shares
to be issued by the Company to the Holders pursuant to this Section 3 shall be
validly issued, fully paid, non-accessible and free and clear of any Liens (as
hereinafter defined).
(d) The issuance of the Conversion Shares in the Company and the
delivery of certificates or other instruments representing such, shall be made
without charge to the Holders 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 Holders 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. Security.
(a) All obligations of the Company under this Note, including, without
limitation, payment of principal and accrued interest hereunder, shall be
secured by a pledge of the Company of all of the assets of the Company and the
Company hereby assigns, pledges, and grants to RSI for its benefit and the
ratable benefit of the Holders a security interest in all of the Company's
right, title, and interest in and to the following (the "Collateral"):
(1) all of the Company's now owned and hereafter acquired, present and
future, accounts, chattel paper, documents, and instruments, including,
without limitation all obligations to the Company for the payment of money,
whether arising out of the Company's sale of goods or rendition of services
or otherwise (all hereinafter called "Accounts, Etc.");
(2) all of the Company's rights, remedies, security and liens, in, to
and in respect of the Accounts, Etc., present and future, including,
without limitation, rights of stoppage in transit, replevin, repossession
and reclamation and other rights and remedies of an unpaid vendor, lienor
or secured party, guaranties or other contracts of suretyship with respect
to the Accounts, Etc., deposits or other security for the obligation of any
debtor or obligor in any way obligated on or in connection with any
Accounts, Etc., and credit and other insurance;
(3) all of the Company's right, title and interest, present and
future, in, to and in respect of all goods relating to, or which by sale
have resulted in, Accounts, Etc.,
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including, without limitation, all goods described in invoices or other
documents or instruments with respect to, or otherwise representing or
evidencing any Accounts, Etc., and all returned, reclaimed or repossessed
goods;
(all of the assets described in paragraphs "(1)", "(2)" and "(3)" above are
hereinafter called "Receivables")
(4) all inventory of whatsoever name, nature, kind or description now
owned and hereafter acquired, present and future, by the Company, wherever
located, including, without limitation, all contract rights with respect
thereto and documents representing the same, all goods held for sale or
lease or to be furnished under contracts of service, finished goods, work
in process, raw materials, materials used or consumed by the Company,
parts, supplies, and all wrapping, packaging, advertising and shipping
materials and any documents relating thereto, and all labels and other
devices, names and marks affixed or to be affixed thereto for purposes of
selling or of identifying the same or the seller or manufacturer thereof,
and all right, title and interest of the Company therein and thereto (all
hereinafter called "Inventory");
(5) all machinery, equipment, furniture, fixtures, tools, parts and
supplies (excluding motor vehicles) now owned and hereafter acquired,
present and future, by the Company of whatsoever name, nature, kind or
description, wherever located, and all additions and accessions thereto and
replacements or substitutions therefor (all hereinafter called
"Equipment");
(6) all of the Company's right, title and interest, present and
future, in and to (i) all letters patent of the United States or any other
country, all right, title and interest therein and thereto, and all
registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States,
and State thereof or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired by the Company, and
(ii) all reissues, continuations, continuations-in-part or extensions
thereof and all licenses thereof ("(i)" and "(ii)" collectively called
"Patents");
(7) all of the Company's right, title and interest, present and
future, in and to (i) all trademarks, trade names, trade styles, service
marks, prints and labels on which said trademarks, trade names, trade
styles and service marks have appeared or appear, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired,
all right, title and interest therein and thereto, and all registrations
and recordings thereof, including, without limitation, applications,
registrations and recordings in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof, or any other country or any political subdivision thereof, all
whether now owned or hereafter acquired by the Company, (ii) all reissues,
extensions or renewals thereof and all licenses thereof, and (iii) the
goodwill of the business symbolized by each of the Trademarks, and all
customer lists and other records of the Company relating to the
distribution of products bearing the Trademarks ("(i)" "(ii)" and "(iii)"
collectively called "Trademarks");
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(8) all other general intangibles of every kind and description of the
Company, including, without limitation, Federal, State and local tax refund
claims of all kinds, and any present or future right of the Company to or
in its employee or other pension, retirement or similar plans and any
assets thereof, or any portion thereof, including but not limited to
refunds for overpayment, distributions upon termination, reversion of any
surplus assets or otherwise, whether now existing or hereafter arising;
(9) all of the Company's deposit accounts, whether now owned or
hereafter created, wherever located;
(10) all monies, securities, instruments, cash and other property of
the Company and the proceeds thereof, now or hereafter held or received by,
or in transit to, the Holders (or any of them) from or for the Company,
whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of the Company's deposits (general or special, balances,
sums, proceeds and credits of the Company with the Holders (or any of them)
at any time existing);
(11) all books, records, customer lists, ledger cards, computer
programs, computer tapes, disks or other electronic media, printouts and
records, and other property and general intangibles at any time evidencing
or relating to any of the foregoing, whether now in existence or hereafter
created;
(12) all contract rights (whether such contract is written or oral,
including, without limitation, license and telecommunications and wiring
agreements, management, employment and operator agreements and referral fee
arrangements), whether now in existence or hereafter created;
(13) any and all products and proceeds of any of the foregoing, in any
form, including, without limitation, any insurance proceeds or claims by
the Company against third parties for loss or damage to or destruction of
any and all of the foregoing collateral and any claims by the Company
against third parties for infringement of the Trademarks or the Patents.
(all of the assets described in paragraphs "(8)", "(9)", "(10)" "(11)"
"(12)" and "(13)" hereinafter called "Additional Collateral")
(14) All of the following (the "Security Collateral"):
(i) one hundred (100%) of the membership interests (collectively,
the "Pledged Shares") in each of: (x) OnSite Access LLC, a New York
limited liability company with an address at 680 Fifth Avenue, New
York, NY 10019 ("OSA"); (y) On Site Access Local LLC, a New York
limited liability company with an address at 680 Fifth Avenue, New
York, NY 10019 ("OSL"); and (z) Glass Circuits LLC, a New York limited
liability company with an address at 680 Fifth Avenue, New York, NY
10019 ("GC");
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(ii) All additional shares of stock, any security convertible or
exchangeable to shares of stock of, or any other equity interest in,
any issuer of the Pledged Shares or any right (whether or not
contingent) to acquire any such stock, security or equity interest
from time to time acquired by the Company in any manner, and the
certificates representing such additional shares, and all dividends,
cash, instruments, and other property from time to time received,
receivable, or otherwise distributed in respect to or in exchange for
any or all of such shares; and
(iii) All additional Indebtedness from time to time owed to the
Company by any issuer of the Pledged Shares and the instruments
evidencing such Indebtedness, and all interest, cash, instruments, and
other property from time to time received, receivable, or otherwise
distributed in respect of or in exchange for any or all of such
Indebtedness;
(15) All proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds which constitute property of the
types described in clauses (1)- (14) of this Section 4), and, to the extent
not otherwise included, all (a) payments under insurance (whether or not
any of the Holders is the loss payee thereof), or any indemnity, warranty,
or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral, and (b) cash.
(b) This instrument shall constitute a security agreement for purposes
of the Uniform Commercial Code and this instrument and the Collateral secures
the payment of all obligations (collectively, the "Obligations") of the Company
now or hereafter existing under (i) this Note or (ii) all future obligations of
the Company to the Holders or any of them, whether any of the aforesaid are for
principal, interest, fees, charges, expenses, or otherwise, whether direct or
indirect, joint or several, due or to become due, whether or not contemplated by
the parties at the time of execution of this Note.
(c) Anything herein to the contrary notwithstanding, (i) the Company
shall remain liable under the contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Note had not been executed;
(ii) the exercise by the Holders or any of them of any rights hereunder shall
not release the Company from any of its duties or obligations under the
contracts and agreements included in the Collateral; and (iii) neither of the
Holders shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Note, nor shall the
Holders or any of them be obligated to perform any of the obligations or duties
of the Company thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
(d) All certificates or instruments representing or evidencing the
Security Collateral shall be delivered to and held by the Holders and shall be
in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Holders. The Holders shall have the right, at any
time in their sole and absolute discretion and without notice to the Company, to
transfer to or to register in the name of the Holders or any of their nominees
any or all of the Security Collateral. The
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Holders shall have the right, at any time in its discretion and without notice
to the Company, to cause a legend to be placed on any certificate representing
Pledged Shares or Security Collateral and/or cause the issuer of any of the
Pledged Shares or Security Collateral to mark the official books and records of
such issuer, in each case, to appropriately note the security interest of the
Holders to the effect that such security is subject to the provisions of this
Note. In addition, the Holders shall have the right, after the occurrence and
continuance of an Event of Default, at any time to exchange certificates or
instruments representing or evidencing Security Collateral for certificates or
instruments of smaller or larger denominations.
(e) Upon the occurrence of an Event of Default, the Holders shall have
all rights and remedies under the Uniform Commercial Code with respect to the
Collateral.
5. Covenants.
The Company covenants and agrees with each of the Holders that,
so long as any Loan and the accrued interest thereon remains unpaid the Company
shall not without the prior Consent of the Holders:
(a) incur or take any action to incur Indebtedness senior in right or
priority of payment to the Obligations hereunder;
(b) assign or transfer any of the Collateral to any Person;
(c) pledge any security interest in any assets or otherwise
collateralize any Indebtedness of the Company or any of its subsidiaries other
than to the extent required in purchase money obligations related to the
acquisition of Equipment;
(d) permit any of the Company's subsidiaries to incur any
Indebtedness, or take any action with respect to their respective assets which
are not permitted to be taken by the Company hereunder with respect to the
Company's assets, unless such transaction has been approved by the Board of
Managers of the Company;
(e) permit any lien or encumbrance on the Collateral, unless such
transaction has been approved by the Board of Managers of the Company;
(f) dissolve, terminate, liquidate, merge with or consolidate into
another Person or sell or transfer any of the Company's subsidiaries or all or
substantially all of its assets, whether accomplished by an issuance or transfer
of Units in the Company or any subsidiary, or in any other manner in any
transaction or series of related transactions, unless such transaction has been
approved by the Board of Managers of the Company;
(g) make any change in the nature or scope of its business objectives,
purposes or operations, or undertake activities other than the continuance of
its present business, unless such transaction or change has been approved by the
Board of Managers of the Company;
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(h) enter into any material transactions with any affiliate of any of
the Members, unless such transaction or type of transaction has been approved by
the Board of Managers of the Company;
(i) enter into, amend, extend, expand or cancel any material contract
or agreement, unless such transaction has been approved by the Board of Managers
of the Company; or
(j) except for the payment of wages and salaries to employees in
accordance with rates in effect on the date hereof and payment of Indebtedness
existing on the date hereof in accordance with its terms, spend, whether in one
transaction or a series of related transactions, more than $100,000 unless such
transaction has been approved by the Board of Managers of the Company.
6. Events of Default. The occurrence of any of the following events shall
constitute an event of default (an "Event of Default") at any time while any
Indebtedness under this Note remains unpaid:
(a) A default in the payment of the principal on any Loan, when and as
the same shall become due and payable;
(b) 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 (10)
days after the date fixed for the making of such interest payment;
(c) 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;
(d) The sale or transfer by the Company or any of its subsidiaries
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
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interests in the Company or any such subsidiary, 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;
(e) The failure of the Company to own, beneficially and of record, one
hundred percent (100%) of the membership interests and any other equity interest
or right to acquire any equity interest in any of OSA, OSL and GL or any future
subsidiary of the Company;
(f) Except as otherwise addressed in this Section 6, a default in the
performance, or a breach, of any covenant or agreement of the Company in this
Note and continuance of such default or breach for a period of 15 days after
receipt of notice from RSI on behalf of the Holders as to such breach or after
the Company had or should have had knowledge of such breach;
(g) (A) Any failure of the Company or any subsidiary thereof 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
(h) Any event which has caused the sum of (A) the Company's
consolidated cash balance as determined in accordance with United States
generally accepted accounting principles and (B) the available remaining undrawn
portion of the Maximum Loan Amount of this Note is less than $250,000.
7. Remedies Upon Default.
(a) Upon the occurrence of an Event of Default referred to in Section
6(a), (b), (c), (d), (e) or (h) 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
Holders, by the Consent of the Holders, 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. From and after the date that pursuant to the provisions
of this Section 7(a) the principal amount and accrued and unpaid interest
thereon becomes due and payable because of an Event of Default, the applicable
interest rate on such amounts shall be increased without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company to the greater of (i) the highest interest rate chargeable
under Schedule B hereto or (ii) the maximum interest rate allowable by law.
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(b) Subject to the provisions of Section 15 hereof, either or both
Holders may institute such actions or proceedings in law or equity as it shall
deem expedient for the protection of their respective rights and may prosecute
and enforce its claims against all assets of the Company and or any of its
subsidiaries, and in connection with any such action or proceeding shall
together be entitled to receive from the Company payment of the principal amount
of each Loan then outstanding under this Note plus accrued interest to the date
of payment plus all reasonable expenses of collection, including, without
limitation, attorneys' fees and expenses.
8. Obligation of the Holders to Make Loans.
(a) Subject to fulfillment of the conditions precedent set forth in
Section 10 hereof, for the period (the "Loan Period"), from and including the
date hereof, and terminating on the earlier of (i) the Conversion Date or (ii)
the Maturity Date, the Holders agree from time to time, on the terms and
conditions of this Note, to make Loans to the Company in an aggregate principal
amount at any one time outstanding up to but not exceeding the maximum loan
amount by the Holders to the Company of FOUR MILLION and 00/100 ($4,000,000)
DOLLARS (the "Maximum Loan Amount"), each Holder being obligated to fund such
Holder's Pro Rata Participation (as defined in Section 14) of the aggregate
principal amount of each Loan, unless otherwise agreed by such Holders and
subject to the provisions of Section 8(b) hereof (each a "Required
Participation").
(b) In the event that one Holder (the "Defaulting Holder") shall fail
to fund a Loan hereunder in the amount of such Holder's Required Participation
(an "Unfunded Participation") on the Initial Funding Date or any Subsequent
Funding Date, the other Holder (the "Non-Defaulting Holder") shall, subject to
fulfillment of the conditions precedent set forth in Section 10 hereof, be
obligated to fund a Loan in the aggregate amount of the Defaulting Holder's
Unfunded Participation on or prior to two (2) Business Days after the applicable
Initial Funding Date or Subsequent Funding Date.
9. Procedure for Borrowing.
(a) The Company may request a borrowing of a Loan hereunder, on any
Business Day during the Loan Period, by delivering to the Holders 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 the lesser
of $1,000,000.00 or the then unborrowed amount of the Maximum Loan Amount or
greater than the lesser of $1,500,000 or the then unborrowed amount of the
Maximum Loan Amount), signed by a duly authorized and specify the requested
funding date other than the Initial Funding Date (the "Subsequent Funding Date")
which date shall not be earlier than three (3) nor later than ten (10) Business
Days after the date the Funding Notice is delivered to the Holders.
(b) Upon the Company's request for a borrowing pursuant to Section
9(a) hereof, the Holders shall, assuming all conditions precedent set forth in
Section 10 hereof have been and continue to be satisfied and provided no Event
of Default shall have occurred and be continuing, fund the Loan to the Company
on the Initial Funding Date or the Subsequent Funding Date, as the
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case may be, in the amount so requested in the Funding Notice in accordance with
the terms and provisions hereof.
10. Conditions to Holders Making Any Loans. The making of each 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) That the amount requested for each Loan shall be an amount not
less than the lesser of (x) $1,000,000 or (y) the then unborrowed amount of the
Maximum Loan Amount and not greater than the lesser of (x) $1,500,000 or (g) the
then unborrowed amount of the Maximum Loan Amount and, except for the last Loan,
be in multiples of $1,000,000.
11. Successor Company.
(a) It is acknowledged and agreed that in connection with the proposed
Subsequent Transaction, the Company intends that OnSite Ventures Incorporated, a
newly organized Delaware corporation ("Newco"), will succeed to the business and
affairs of the Company by any such transaction (a "Successor Transaction") and
that as a result thereof: (i) the holders of the Common Units in the Company
will receive the same percentage of the total number of shares of Common Stock
of Newco; (ii) the holders of the Series A Preferred Units in the Company (if
the RSI Subordinated Note has been converted to Series A Preferred Units) will
receive the same percentage of the total number of shares of Series A Preferred
Stock in Newco and that such securities shall enjoy the same powers, rights and
preferences and be subject to the same limitations and obligations in Newco as
the Series A Preferred Stock enjoy in the Company; and (iii) that Newco shall
authorize the issuance of the same number of shares of Series B Redeemable
Preferred Stock and Series C Convertible Preferred Stock as the Company intends
to issue upon the Conversion of this Note as provided hereunder and the closing
of the Subsequent Transaction and that such securities shall enjoy the same
powers, rights and preferences, and be subject to the same limitations and
obligations in Newco as the Series B Preferred Units and the Series C Preferred
Units enjoy in the Company.
(b) From and after the date of any Successor Transaction, each
reference herein to any of the following terms shall mean and be a reference to
the term set forth opposite such term as follows:
Term Revised Meaning and Reference
- ---- -----------------------------
Common Units Common Stock of Newco
Company Newco
Series A Preferred Units Series A Preferred Stock of Newco
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Series B Preferred Units Series B Redeemable Preferred Stock
of Newco
Series C Preferred Units Series C Convertible Preferred Stock
of Newco
(c) The Company covenants and agrees with each Holder that in
connection with any Successor Transaction the Company will cause Newco or any
other successor to the business and affairs of the Company to irrevocably and
unconditionally assume all of the Obligations hereunder, including without
limitation, the obligations set forth in Section 3 to convert the aggregate
amount of the Loans to Series B Preferred Stock and Series C Preferred Stock of
Newco (or the applicable security of any other successor to the business and
affairs of 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
each of the Holders.
13. Transfer. This Note shall be binding upon the Company and its
successors and assigns and may not be transferred by the Company without the
prior written consent of both Holders. Neither Holder may transfer, pledge or
otherwise encumber its interest in this Note without the prior written consent
of the other Holder; provided, that nothing in this Note shall prevent either
Holder from transferring any direct or indirect ownership interest in this Note
to any transferee or assignee, if any person who was a controlling person in
such Holder immediately before such transfer or assignment is a controlling
person of such transferee or assignee immediately after such transfer or
assignment.
14. Definitions. For the purposes of this Note 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) "Consent of the Holders" means the affirmative vote or written
consent of all of the Non-Defaulting Holders.
(c) "Conversion Ratio" means the amount expressed as a percentage
equal to a fraction (x) the numerator of which is equal to the aggregate dollar
amount of the Loans outstanding on the Conversion Date and (y) the denominator
of which is the aggregate dollar amount of the investment being made in the
Subsequent Transaction, including the aggregate dollar amount of the Loans
outstanding on the Conversion Date.
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(d) "Indebtedness" means: (i) any liability of the Company (x) for
borrowed money, (y) evidenced by a note, debenture, bond or other instrument of
indebtedness (including, without limitation, a purchase money obligation),
including any given in connection with the acquisition of property, assets or
service, or (z) for the payment of rent or other amounts relating to capitalized
lease obligations; (ii) any liability of others which the Company has guaranteed
or which is otherwise its legal liability; and (iii) any modification, renewal,
extension, replacement or refunding of any such liability; provided, however,
that Indebtedness shall not include unsecured trade debt.
(e) "Holder's Pro Rata Participation" shall mean (i) in the case of
RSI, an amount equal to (A) the total RSI Units divided by (B) the sum of the
total RSI Units, plus the total Veritech Units, plus the total Hornig Units; and
(ii) in the case of Veritech, an amount equal to (A) the sum of the total number
of Veritech Units plus the total number of Hornig Units divided by (B) the sum
of the total RSI Units, plus the total Veritech Units, plus the total Hornig
Units, in each case, at the time of determination.
(f) "Hornig Units" shall mean the number of Common Units which
Veritech Ventures LLC may transfer to Daren Hornig (or any of his affiliates)
pursuant to Section 5(a) of the amended and restated limited liability company
agreement of the Company.
(g) "Junior Debt" means all present 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 other than the Indebtedness
hereunder.
(h) "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 Note 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.
(i) "Person" means any entity or individual, including any
corporation, limited liability company, partnership, trust, foundation,
government, government agency or authority.
(j) "RSI Units" shall mean the total number of Common Units and Series
A Units which RSI owns or would own upon the conversion of the RSI Subordinated
Note, in each case, at the time of determination.
(k) "Veritech Units" shall mean the total number of Common Units which
Veritech Ventures LLC ( a member in the Company) owns at the time of
determination less the number of the Hornig Units.
15. Intercreditor Agreement.
(a) Except as otherwise provided in this Section 15, each Holder
covenants and agrees that neither Holder shall exercise its right to foreclose
on any of the Collateral
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<PAGE>
or any of the collateral provided under the Subsidiary Guaranty and Security
Agreement (the "Subsidiary Collateral") pursuant to Section 4(e) hereof or
otherwise or institute any proceeding to so foreclose on such property without
the Consent of the Holders. At any time from and after the date that an Event of
Default has occurred and is continuing and the Holders have the right to
foreclose on the Collateral and/or the Subsidiary Collateral, if both Holders
are required to vote in favor of or consent to such action in order to obtain
the Consent of the Holders, then either Holder may request the Consent of the
Holders by giving a notice to such effect to the other Holder.
(b) On or prior to five (5) Business Days after the date that the
notice described in the immediately preceding subsection is given to the other
Holder, each Holder shall give a notice to the other Holder specifying whether
the party giving such notice elects to have both Holders foreclose on the
Collateral and the Subsidiary Collateral (a "Foreclosure Election") or elects to
have all, but not less than all, of the Obligations owed to the Holders paid in
full by the Company issuing Common Units to the Holders in accordance with
Section 15(d) hereof (a "Conversion Election"). If a Holder does not make a
Foreclosure Election or a Conversion Election on or prior to the expiration of
such five (5) Business Day period, then such Holder shall be deemed to have
elected a Conversion Election.
(c) If both the Holders shall have elected (or is deemed to have
elected) a Foreclosure Election, then each Holder shall promptly take all
commercially reasonable actions requested by the other Holder to foreclose upon
the Collateral and the Subsidiary Collateral in accordance with the Uniform
Commercial Code.
(d) If both of the Holders shall have elected (or are deemed to have
elected) a Conversion Election, then all of the Obligations owed to each of the
Holders under this Note shall be paid in full by the Company issuing Common
Units to the Holders as provided below, and each of the Holders agrees to accept
such Common Units as payment in full of all Obligations owed to such Holder
hereunder:
The aggregate number of Common Units (the "Pay Off Units") to be so
issued to both Holders shall equal:
(i) the sum of total number of (x) Common Units in the Company
and (y) the total number of Series A Units of the Company, in each
case, on a fully diluted basis assuming all Common Units subject to
options have been issued and assuming the conversion of the RSI
Subordinated Note into Series A Preferred Units in the Company
accordance with its terms;
(ii) multiplied by a fraction (x) the numerator of which is equal
to the aggregate principal amount of outstanding Loans funded by the
Holders hereunder and the then accrued and unpaid interest thereon
immediately prior to such issuance, and (y) the denominator of which
is equal to TEN MILLION EIGHT HUNDRED THOUSAND and 00/00 DOLLARS.
The aggregate number of Pay Off Units to be issued to a Holder shall
equal the aggregate number of the Pay Off Units multiplied by a fraction (x) the
numerator of which is equal to the aggregate principal amount of outstanding
Loans funded by such Holder hereunder
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<PAGE>
immediately prior to the issuance of the Pay Off Units and (y) the denominator
of which is equal to the aggregate principal amount of outstanding Loans funded
by both of the Holders hereunder immediately prior to the issuance of the Pay
Off Units.
(e) If one Holder shall have elected a Foreclosure Election and the
other Holder shall have elected (or is deemed to have elected) a Conversion
Election, then the Holder which elected the Conversion Election (the "Opt In
Holder") shall have three (3) Business Days from the date of the expiration of
the five (5) Business Day period described in Section 15(b) to rescind its
Conversion Election and elect a Foreclosure Election by giving a notice to such
effect to the other Holder. If the Opt In Holder so changes its election for a
Conversion Election to a Foreclosure Election within such three (3) Business Day
period, then the Holders shall foreclose on the Collateral and the Subsidiary
Collateral in accordance with Section 15(c) hereof.
(f) If the Opt In Holder does not change its Conversion Election to a
Foreclosure Election as provided in Section 15(e) hereof, then the Obligations
hereunder to both of the Holders shall be paid in full by the issuance of the
Pay Off Units to the Holders in accordance with the provisions of Section 15(d)
hereof and each Holder shall accept such Pay Off Units in full satisfaction of
the Obligations owed to such Holder hereunder;
(g) Upon the payment in full of this Note pursuant to Section 15
(either by the issuance and sale of the Pay Off Units or otherwise, this Note
shall be canceled by the Holders and delivered by the Holders to the Company.
(h) Upon the issuance of the Pay Off Units pursuant to this Section
15, the Company shall deliver to the Holder or Holders receiving such Units
evidence of such issuance in form and substance reasonably satisfactory to such
Holder or Holders in accordance with the terms and conditions of the amended and
restated limited liability company agreement of the Company.
(i) Each of the Holders acknowledge and agree that the issuance of the
Pay Off Units pursuant to this Section 15 has been approved by the Board of
Managers of the Company by all necessary action.
(j) Subject to the provisions of Section 15(k) hereof, the Company
covenants and agrees to make all payments of principal and interest to the
Holders on a pro rata basis based on the aggregate amount of Loans then made by
each such Holder to the Company as conclusively evidenced by Schedule A hereto.
Subject to the provisions of Section 15(k), each of the Holders covenant and
agree that they shall only receive payments of principal and interest of the
aggregate amount of the Loans or any proceeds from the exercise of any security
rights or any other rights under this Note or the Unconditional and Irrevocable
Guarantee of Payment and Security Agreement attached hereto (the "Subsidiary
Guaranty and Security Agreement") on a pro rata basis based on the aggregate
amount of Loans then made by each such Holder to the Company as conclusively
evidenced by Schedule A hereto.
(k) The Non-Defaulting Holder shall receive first priority as to all
payments by the Company or its subsidiaries and proceeds from the Collateral and
the Subsidiary
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<PAGE>
Collateral required to be made to the Holders under the terms and conditions of
this Note and/or the Subsidiary Guaranty and Security Agreement to the extent,
and until payment in full, of the net aggregate amount of the Unfunded
Participation loaned by the Non-Defaulting Holder to the Company hereunder. All
payments of such principal, interest and/or collateral after the payment in full
of such priority shall be made or received by the Holders as provided in Section
15(j) after taking into effect (and therefore reducing) the amount of Loans of
the Non-Defaulting Holder paid pursuant to this Section 15(k).
(l) If any Holder (a "recipient Holder") shall receive any amount of
principal, interest and/or proceeds from the Collateral and/or Subsidiary
Collateral from any obligor under this Note or the Subsidiary Guaranty and
Security Agreement that is in excess of the amountsuch recipient Holder has a
right to receive under the provisions of Section this Section 15, then the
recipient Holder shall promptly remit to the other Holder (the "non-recipient
Holder") an amount equal to such excess; provided, however, that if all or any
portion of such excess amount is thereafter recovered by the non-recipient
Holder from any obligor under the Note and/or the Subsidiary Guaranty and
Security Agreement, the non-recipient Holder shall immediately return to the
recipient Holder the portion of such excess amount received by it, provided,
that if such excess shall not be turned over to the non-recipient Holder within
five (5) business days of its receipt by the recipient Holder, then the
non-recipient Holder may sue the recipient Holder for damages. Any windfall
(that is, any amounts received by both Holders in excess of the amount that the
Company is obligated to pay under this Note) shall be shared by the Holders on a
pro rata basis in accordance with each Holder's total amount of Loans funded
under this Note.
(m) Each Holder covenants and agrees that neither Holder shall extend
any additional loans or other Indebtedness to the Company except as provided for
under the terms of this Note.
(n) Each of the Company and each Holder covenant and agree to endorse
or otherwise amend, modify or revise Schedule A attached hereto to reflect each
Loan and each permitted transfer and/or assignment or payment thereof on the
date of any such transaction and to take all further action necessary to validly
issue and deliver free and clear of any liens or encumbrances the Pay Off Units.
(o) Veritech represents and warrants that it is a direct or indirect
wholly owned subsidiary of JAH Realties, L.P. or Jon Halpern, and Veritech
acknowledges and agrees that its right to participate in the transactions
contemplated by this Note are solely contingent upon the Veritech being a direct
or indirect wholly owned subsidiary of JAH Realties, L.P. or Jon Halpern as of
the date hereof.
(p) If Pay Off Units are issued to the Holders in accordance with this
Section 15 in satisfaction of the Obligations under this Note and Veritech
Ventures LLC (a member in the Company) or any of its Affiliates sells, transfers
or assigns to Daren Hornig ("Hornig") or any Affiliate of Hornig, any or all of
the Hornig Units (or any other securities issued with respect to such Common
Units in accordance with the amended and restated limited liability company
agreement of the Company), then on the date of such sale, transfer or assignment
Veritech shall transfer and assign to RSI that number of Pay Off Units that is
equal to:
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<PAGE>
(i) the total number of Pay Off Units issued to Veritech
hereunder;
(ii) multiplied by the percentage equal to:
(A) the percentage represented by the fraction (x) the numerator of
which is equal to the aggregate number of Veritech Units and Horning Units
and (y) the denominator of which is equal to the aggregate number of RSI
Units, Veritech Units and Hornig Units; less
(B) the percentage represented by the fraction (x) the numerator of
which is equal to the aggregate number of Veritech Units and (y) the
denominator of which is equal to the aggregate number of RSI Units and
Veritech Units,
in each case, on the date that the Pay Off Units are issued by the Company.
On the date of such transfer and assignment of Pay Off Units by Veritech to RSI,
Veritech shall execute and deliver an instrument of assignment in form and
substance reasonably satisfactory to RSI.
(q) Upon any transfer and assignment of Pay Off Units pursuant to
Section 15(q) hereof, RSI shall pay to Veritech an amount equal to the total
principal amount of Loans multiplied by a fraction (x) the numerator of which is
equal to the number of Pay Off Units actually transferred and assigned and (y)
the denominator of which is equal to the total number of Pay Off Units. On the
date that such Pay Off Units are transferred and assigned by Veritech to RSI,
RSI shall pay such amount by wire transfer to the account previously designated
by Veritech or, if no account is designated by Veritech on or prior to such
date, by mailing a check to the address of Veritech specified above.
(r) Each Holder covenants and agrees that neither Holder shall
exercise its rights provided under Section 4(d) hereof or Section 4(d) of the
Subsidiary Guaranty and Security Agreement without the Consent of the Holders,
which approval or consent shall not be unreasonably withheld, delayed or
conditioned. Each of the Holders hereby consents to the filing of the UCC
Financing Statements executed by the Company and/or any of its subsidiaries and
the notation in the official books and records of each subsidiary of the Company
to the effect that all of the membership interests therein are pledged pursuant
to the terms and conditions of this Note.
16. 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 to the address specified below or to such
other address specified by any such Person in writing to the Company and the
Holders:
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<PAGE>
(i) if to the Company,
to the principal office of the Company:
680 Fifth Avenue
New York, New York 10019
Attention: Scott Jarus
Tel: (212) 324-1500
Fax: (212) 324-1550
ii) if, to any of the Holders:
RSI-OSA Holdings, Inc.
225 Broadhollow Road
Melville, New York 11747
Tel: (516) 719-7400
Fax: (516) 719-7405
Attention: Jeffrey Neumann and Jason Barnett, Esq.
JAH Realties, L.P.
2 Manhattanville Road
Suite 205
Purchase, New York 10577
Tel: (914) 460-0660
Fax: (914) 460-0661
Attention: Jon Halpern and Michael Kaplan, Esq.
with a copy of each notice provided to the Company or any
Holder to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Tel: (212) 592-1400
Fax: (212) 889-7577
Attention: Richard Morris, Esq.
and
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Tel: (212) 856-6848
Fax: (212) 856-7811
Attention: Michael A. Mishaan, Esq.
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
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<PAGE>
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) 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 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 Company and each
of the Holders recognize and acknowledge that the Conversion Shares and Pay Off
Units shall be closely held and that, accordingly, in the event of a breach or
default by one or more of the Holders or the Company of the terms and conditions
of Sections 3 and/or 8 and/or 15, the damages to the Holders or the
Non-Defaulting Holder or the Opt In Holder, the case may be, 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 Sections 3 or 8 or 15 hereof the Holder or the Non-Defaulting
Holder or the Opt In Holder aggrieved thereby, as the case may be, 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 Note 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 Note or at law (including the right to
receive Conversion Shares as provided in Section 8 and/or receive Pay Off Units
as provided in Section 15, in each case, as partial "liquidated damages"). Each
party 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 Note, 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 Note or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Note 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.
(f) Counterparts. 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.
-21-
<PAGE>
(g) Interpretation. Any word or term used in this Note 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
Note 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 Note unless the context otherwise requires.
(h) Replacement of the Note. 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
Holders a new Note of like date, tenor and denomination.
(i) No Waivers. No course of dealing and no delay or omission on the
part of the Holders in exercising any right or remedy shall operate as a waiver
thereof or otherwise prejudice the Holders' rights, powers or remedies. No
right, power or remedy conferred by this Note upon the Holders 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) Amendments. This Note may be amended only by a written instrument
executed by the Company and the Holders hereof. Any amendment shall be endorsed
upon this Note, and all future Holders shall be bound thereby.
(k) Jurisdiction. 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.
17. Consents and Approvals. Any action to be taken by the Company or any
Holder under this Note which requires the consent or approval of, or notice to
or filing with, a governmental agency or authority shall not be taken without
such consent or approval having been received and in full force and effect or
such notice or filing having been made and in full force and effect, in such
case, in accordance with applicable law rule and regulation.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
-22-
<PAGE>
IN WITNESS WHEREOF, each of the Company and the Holders have
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 HOLDERS:
RSI-OSA HOLDINGS, INC.
By:_____________________________________
Name:
Title:
JAH REALTIES, L.P.
By: JLH Realty Management Service, Inc.,
its general partner
By: ___________________________________
Name: Jon Halpern
Title: President
-23-
<PAGE>
UNCONDITIONAL AND IRREVOCABLE GUARANTEE OF PAYMENT AND SECURITY AGREEMENT
1. Preamble. Reference is hereby made to that certain Senior Secured
Promissory Note and Loan and Security Agreement to which this agreement is
affixed (the "Note"). All Capitalized terms used in this agreement that are not
otherwise defined shall have the respective meanings ascribed thereto in the
Note.
2. Guarantee. Each of OSA, OSL and GC hereby irrevocably and
unconditionally, jointly and severally, guarantee that the Company shall pay the
Obligations hereunder at the times and in the manner provided in the Note to the
extent such payment(s) would not have been excused were any such guarantor the
direct obligor thereunder. This guarantee shall be an absolute, unconditional,
present and continuing guaranty of payment and not of collectability and is in
no way conditioned or contingent upon any attempt to collect from any such
guarantor or the Company.
3. Consideration Received by each Guarantor. Each of the undersigned
guarantors of the Obligations hereby represents and warrants to the Holders that
the business and affairs of such guarantors constitute the entire business and
affairs of the Company, that the proceeds of each Loan made under the Note shall
benefit the business of each such guarantor, that such guarantors would not be
able to continue their respective business and affairs without the proceeds of
the Loans made under the Note, that this guarantee and the security interest
granted hereunder to secure such obligations were made and incurred by each of
the undersigned guarantors for fair consideration pursuant to a bona-fide,
arms-length transaction, and that approval of this Endorsement was made in the
good faith upon judgment of each such guarantor and is for the benefit of each
such guarantor.
4. Grant of Security Interest. Each of OSA, OSL and GC (each referred to
herein as the "Grantor") hereby grant to the Holders a first priority security
interest in and agree and covenant to the following:
(a) All obligations of the Grantor under the Note, including, without
limitation, payment of principal and accrued interest hereunder, shall be
secured by a pledge of the Grantor of all of the assets of the Grantor and the
Grantor hereby assigns, pledges, and grants to RSI for its benefit and the
ratable benefit of the Holders a security interest in all of the Grantor's
right, title, and interest in and to the following (the "Collateral"):
(1) all of the Grantor's now owned and hereafter acquired,
present and future, accounts, chattel paper, documents, and instruments,
including, without limitation all obligations to the Grantor for the payment of
money, whether arising out of the Grantor's sale of goods or rendition of
services or otherwise (all hereinafter called "Accounts, Etc.");
(2) all of the Grantor's rights, remedies, security and liens, in, to and
in respect of the Accounts, Etc., present and future, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
Etc., deposits
Subsidiary Guaranty and Security Agreement Page I
<PAGE>
or other security for the obligation of any debtor or obligor in any way
obligated on or in connection with any Accounts, Etc., and credit and other
insurance;
(3) all of the Grantor's right, title and interest, present and future, in,
to and in respect of all goods relating to, or which by sale have resulted in,
Accounts, Etc., including, without limitation, all goods described in invoices
or other documents or instruments with respect to, or otherwise representing or
evidencing any Accounts, Etc., and all returned, reclaimed or repossessed goods;
(all of the assets described in paragraphs "(1)", "(2)" and "(3)" above are
hereinafter called "Receivables")
(4) all inventory of whatsoever name, nature, kind or description now owned
and hereafter acquired, present and future, by the Grantor, wherever located,
including, without limitation, all contract rights with respect thereto and
documents representing the same, all goods held for sale or lease or to be
furnished under contracts of service, finished goods, work in process, raw
materials, materials used or consumed by the Grantor, parts, supplies, and all
wrapping, packaging, advertising and shipping materials and any documents
relating thereto, and all labels and other devices, names and marks affixed or
to be affixed thereto for purposes of selling or of identifying the same or the
seller or manufacturer thereof, and all right, title and interest of the Grantor
therein and thereto (all hereinafter called "Inventory");
(5) all machinery, equipment, furniture, fixtures, tools, parts and
supplies (excluding motor vehicles) now owned and hereafter acquired, present
and future, by the Grantor of whatsoever name, nature, kind or description,
wherever located, and all additions and accessions thereto and replacements or
substitutions therefor (all hereinafter called "Equipment");
(6) all of the Grantor's right, title and interest, present and future, in
and to (i) all letters patent of the United States or any other country, all
right, title and interest therein and thereto, and all registrations and
recordings thereof, including, without limitation, applications, registrations
and recordings in the United States Patent and Trademark Office or in any
similar office or agency of the United States, and State thereof or any other
country or any political subdivision thereof, all whether now owned or hereafter
acquired by the Grantor, and (ii) all reissues, continuations,
continuations-in-part or extensions thereof and all licenses thereof ("(i)" and
"(ii)" collectively called "Patents");
(7) all of the Grantor's right, title and interest, present and future, in
and to (i) all trademarks, trade names, trade styles, service marks, prints and
labels on which said trademarks, trade names, trade styles and service marks
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all right, title and interest therein
and thereto, and all registrations and recordings thereof, including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof, or any other country or any political subdivision
thereof, all whether now owned or hereafter acquired by the Grantor, (ii) all
reissues, extensions or renewals thereof and all licenses thereof, and (iii) the
goodwill of the business symbolized by each of the Trademarks, and all customer
lists and other records of the Grantor relating to the distribution of products
bearing the Trademarks ("(i)" "(ii)" and "(iii)" collectively called
"Trademarks");
Subsidiary Guaranty and Security Agreement Page II
<PAGE>
(8) all other general intangibles of every kind and description of the
Grantor, including, without limitation, Federal, State and local tax refund
claims of all kinds, and any present or future right of the Grantor to or in its
employee or other pension, retirement or similar plans and any assets thereof,
or any portion thereof, including but not limited to refunds for overpayment,
distributions upon termination, reversion of any surplus assets or otherwise,
whether now existing or hereafter arising;
(9) all of the Grantor's deposit accounts, whether now owned or hereafter
created, wherever located;
(10) all monies, securities, instruments, cash and other property of the
Grantor and the proceeds thereof, now or hereafter held or received by, or in
transit to, the Holders (or any of them) from or for the Grantor, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all of
the Grantor's deposits (general or special, balances, sums, proceeds and credits
of the Grantor with the Holders (or any of them) at any time existing);
(11) all books, records, customer lists, ledger cards, computer programs,
computer tapes, disks or other electronic media, printouts and records, and
other property and general intangibles at any time evidencing or relating to any
of the foregoing, whether now in existence or hereafter created;
(12) all contract rights (whether such contract is written or oral,
including, without limitation, license and telecommunications and wiring
agreements, management, employment and operator agreements and referral fee
arrangements), whether now in existence or hereafter created;
(13) any and all products and proceeds of any of the foregoing, in any
form, including, without limitation, any insurance proceeds or claims by the
Grantor against third parties for loss or damage to or destruction of any and
all of the foregoing collateral and any claims by the Grantor against third
parties for infringement of the Trademarks or the Patents.
(all of the assets described in paragraphs "(8)", "(9)", "(10)" "(11)"
"(12)" and "(13)" hereinafter called "Additional Collateral")
(14) All of the following (the "Security Collateral"):
(i) All shares of stock, any security convertible or exchangeable
to shares of stock of, or any other equity interest in, any entity or
any right (whether or not contingent) to acquire any such stock,
security or equity interest from time to time acquired by the Grantor
in any manner, and the certificates representing such additional
shares, and all dividends, cash, instruments, and other property from
time to time received, receivable, or otherwise distributed in respect
to or in exchange for any or all of such shares; and
(ii) All additional Indebtedness from time to time owed to the
Grantor by any issuer and the instruments evidencing such
Indebtedness, and all interest, cash, instruments, and other property
from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such Indebtedness;
Subsidiary Guaranty and Security Agreement Page III
<PAGE>
(15) All proceeds of any and all of the foregoing Collateral (including,
without limitation, proceeds which constitute property of the types described in
clauses (1)-(14) of this Section 4), and, to the extent not otherwise included,
all (a) payments under insurance (whether or not any of the Holders is the loss
payee thereof), or any indemnity, warranty, or guaranty, payable by reason of
loss or damage to or otherwise with respect to any of the foregoing Collateral,
and (b) cash.
(b) This instrument shall constitute a security agreement for purposes
of the Uniform Commercial Code and this instrument and the Collateral secures
the payment of all obligations (collectively, the "Obligations") of the Grantor
now or hereafter existing under (i) this Note or (ii) all future obligations of
the Grantor to the Holders or any of them, whether any of the aforesaid are for
principal, interest, fees, charges, expenses, or otherwise, whether direct or
indirect, joint or several, due or to become due, whether or not contemplated by
the parties at the time of execution of this Note.
(c) Anything herein to the contrary notwithstanding, (i) the Grantor
shall remain liable under the contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Note had not been executed;
(ii) the exercise by the Holders or any of them of any rights hereunder shall
not release the Grantor from any of its duties or obligations under the
contracts and agreements included in the Collateral; and (iii) neither of the
Holders shall have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Note, nor shall the
Holders or any of them be obligated to perform any of the obligations or duties
of the Grantor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
(d) All certificates or instruments representing or evidencing the
Security Collateral shall be delivered to the Holders and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Holders. The Holders shall have the right, at any time in
their sole and absolute discretion and without notice to the Grantor, to
transfer to or to register in the name of the Holders or any of their nominees
any or all of the Security Collateral. The Holders shall have the right, at any
time in its discretion and without notice to the Grantor, to cause a legend to
be placed on any certificate representing Pledged Shares or Security Collateral
and/or cause the issuer of any of the Pledged Shares or Security Collateral to
mark the official books and records of such issuer, in each case, to
appropriately note the security interest of the Holders to the effect that such
security is subject to the provisions of this Note. In addition, the Holders
shall have the right, after the occurrence and continuance of an Event of
Default, at any time to exchange certificates or instruments representing or
evidencing Security Collateral for certificates or instruments of smaller or
larger denominations.
(e) Upon the occurrence of an Event of Default, the Holders shall have
all rights and remedies under the Uniform Commercial Code with respect to the
Collateral.
5. Effective Time. This Subsidiary Guaranty and Security Agreement shall be
effective immediately upon the receipt of all necessary consents and approvals
under any and all applicable laws and upon the filing of all notices required
under any and all applicable laws.
Subsidiary Guaranty and Security Agreement Page IV
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has duly executed
and delivered this Endorsement to the above referenced instrument as of this 4th
day of February, 1999
ONSITE ACCESS LLC
By: OnSite Ventures, L.L.C., its sole member
By: ___________________________________________
Name:
Title:
ONSITE ACCESS LOCAL LLC
By: OnSite Ventures, L.L.C., its sole member
By: __________________________________________
Name:
Title:
GLASS CIRCUITS LLC
By: OnSite Ventures, L.L.C., its sole member
By: __________________________________________
Name:
Title:
Subsidiary Guaranty and Security Agreement Page V
<PAGE>
SCHEDULE A
(ATTACHED TO CONVERTIBLE SENIOR SECURED LOAN AGREEMENT AND PROMISSORY NOTE)
IN THE INITIAL MAXIMUM LOAN AMOUNT OF $4,000,000.00
FOR ONSITE VENTURES, L.L.C.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DATE AMOUNT OF LOAN AMOUNT OF TOTAL OUTSTANDING AGGREGATE ENDORSEMENT
REPAYMENT OUTSTANDING MADE BY
- ---- -------------- --------- ----------------- --------- -----------
RSI VERITECH RSI VERITECH RSI VERITECH
--- -------- --- -------- --- --------
</TABLE>
Subsidiary Guaranty and Security Agreement Page VI
<PAGE>
SCHEDULE B
Interest Rate Schedule
Annual Interest Rate
Applicable Period (compounded monthly)
- ----------------- --------------------
January 1, 1999 to January 31, 1999 15%
- ----------------------------------- ---
February 1, 1999 to February 28, 1999 15%
- ------------------------------------- ---
March 1, 1999 to March 31, 1999 15%
- ------------------------------- ---
April 1, 1999 to April 30, 1999 16%
- ------------------------------- ---
May 1, 1999 to May 31, 1999 17%
- --------------------------- ---
June 1, 1999 to June 30, 1999 18%
- ----------------------------- ---
July 1, 1999 to July 31, 1999 19%
- ----------------------------- ---
August 1, 1999 to August 31, 1999 20%
- --------------------------------- ---
September 1, 1999 to September 30, 1999 21%
- --------------------------------------- ---
October 1, 1999 to October 31, 1999 22%
- ----------------------------------- ---
November 1, 1999 to November 30, 1999 23%
- ------------------------------------- ---
From and after December 1, 1999 24%
- ------------------------------- ---
Subsidiary Guaranty and Security Agreement Page VII
RECKSON SERVICE INDUSTRIES, INC.
1998 EMPLOYEE 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.
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 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")); 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 shall be eligible to receive any Awards under the Plan.
<PAGE>
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 will be "nonqualified" stock options
("NQSOs"). 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.
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 100,000 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 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 Reckson Strategic Venture
Partners, LLC, RSVP Holdings LLC and such other companies as the Committee may
determine in its sole discretion, 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.
<PAGE>
(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) if 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 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 if not quoted on
NASDAQ, as determined in good faith by the Committee.
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.
<PAGE>
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 Section 7872 of the Internal
Revenue Code of 1986 (the "Code") 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.
<PAGE>
(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 employment 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.
<PAGE>
(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.
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.
<PAGE>
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.
<PAGE>
(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. Non-transferability. 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.
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.
<PAGE>
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.
<PAGE>
(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 July 27,
1998.
(b) The Plan shall terminate as of July 27, 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.
EXHIBIT 12.1
RECKSON SERVICE INDUSTRIES, INC
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for the periods shown:
For the year ended July 15, 1997 to
December 31, 1998 December 31, 1997
----------------- -----------------
$6,251,423(1) $225,293 (2)
- ----------------
(1) The excess of losses over fixed charges amounted to $6,251,423
(2) The excess of losses over fixed charges amounted to $225,293.
Reckson Service Industries, Inc.
Statement of Subsidiaries
Name State of Organization
---- ---------------------
RSI Fund Management, LLC Delaware
RSI-OSA Holdings, Inc. Delaware
Reckson Office Centers, LLC Delaware
RS Gateway, LLC Delaware
RSVP-Privatization, LLC Delaware
RSVP-Dominion, LLC Delaware
RSVP Ali Baba, LLC Delaware
RSVP Holdings, LLC Delaware
Reckson Strategic Venture Partners, LLC Delaware
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,025
<SECURITIES> 0
<RECEIVABLES> 56,718
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,743
<PP&E> 115
<DEPRECIATION> 15
<TOTAL-ASSETS> 58,843
<CURRENT-LIABILITIES> 42,875
<BONDS> 0
0
0
<COMMON> 247
<OTHER-SE> 15,721
<TOTAL-LIABILITY-AND-EQUITY> 58,843
<SALES> 0
<TOTAL-REVENUES> 1,342
<CGS> 0
<TOTAL-COSTS> 3,805
<OTHER-EXPENSES> 3,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,651
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 68
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<NET-INCOME> (8,148)
<EPS-PRIMARY> (.56)
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