SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
-------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 8, 1999
RECKSON SERVICE INDUSTRIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
1-14183 11-3383642
(Commission File Number) (IRS Employer Id. Number)
225 Broadhollow Road 11747
Melville, New York (Zip Code)
(Address of principal executive offices)
(516) 719-7400
(Registrant's telephone number, including area code)
<PAGE>
The Company considers certain statements set forth herein 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 financing of the Company's operations, the timing and success of the
mergers and the ability to integrate and manage effectively its acquisitions,
involve certain risks and uncertainties. Although the Company believes that
the expectations 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, the Company's dependence upon financing from Reckson Operating
Partnership, L.P. and conflicts of interest of management. 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.
Item 2. Acquisition or Disposition of Assets
On January 8, 1999, Reckson Executive Centers, Inc. ("REC"), an executive
office suite business with 8 executive office suite centers, and Interoffice
Superholdings Corporation ("Interoffice"), a company that owns 36 executive
office suite centers, merged with Alliance National Incorporated ("Alliance"),
a Nevada corporation that owns 90 executive office suite centers in 37 markets
across the country (the "Merger"). Prior to the Merger, REC and Interoffice
were majority-owned subsidiaries of Reckson Service Industries, Inc. ("RSI").
Pursuant to the terms of the Merger, RSI and the other stockholders of REC and
Interoffice received an approximately 40% equity interest in Alliance in the
form of 100% of the outstanding Series C preferred stock of Alliance ("Series
C Preferred Stock"). 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 Reckson Office Centers LLC ("REC LLC"), a newly formed Delaware
limited liability company of which a subsidiary of RSI is the managing member.
Pursuant to the Merger and related pending transactions, RSI will own
indirectly approximately 24% of Alliance through its ownership interest in IS
LLC and REC LLC.
Alliance 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 Alliance, provided certain third party and
"most-favored nation" conditions are satisfied.
In connection with the Merger of Interoffice into Alliance, RSI obtained
an option to purchase the Class D units in IS LLC, which entitle the holder to
certain governance rights regarding IS LLC, from a stockholder of Interoffice
for $6.5 million. If the option is not exercised, the stockholder has the
right to sell the Class D units in IS LLC to RSI for $8.5 million. Also in
connection with the Merger, RSI paid $3.5 million to another stockholder of
Interoffice for an option to purchase 11.875% of the equity interests in IS
LLC (which represents approximately 4.75% of Alliance) for a purchase price of
$6.75 million, which option generally may be exercised after July 8, 2001.
Certain members of IS LLC also have the right to sell their interests in IS
LLC to RSI at a price equal to fair market value at the time of sale.
In connection with the Merger, the stockholders of Alliance, including IS
LLC and REC LLC, entered into a stockholder's agreement (the "Stockholder's
Agreement") pursuant to which holder's of Series C Preferred Stock have the
right to nominate four of the ten members of the board of directors of
Alliance (the "Board"), including the Chairman of the Board. 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
Alliance's annual operating budget, certain borrowings and capital
expenditures by Alliance, the hiring or termination of certain 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 Alliance (including the holders of
Alliance's 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,
mergers, changes to the charter documents of Alliance and other matters. In
addition, the Stockholder's Agreement contains non-competition provisions
applicable to RSI, as well as provisions limiting the rights of the Series C
Preferred Stock in the event RSI is acquired by certain competitors of
Alliance.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) and (b) Financial Statements and Pro Forma Financial Information
Financial statements and pro forma financial information relating to the
acquisition described in Item 2 have not been included in this report and
will be filed on or before March 24, 1999.
(c) Exhibits
10.1 Limited Liability Company Agreement of Interoffice Superholdings LLC
dated as of August 14, 1998 by and among Interoffice Superholdings
LLC, RSI I/O Holdings, Inc., JAH I/O, LLC, RFIA, LLC and Rieger I/O
LLC.
10.2 Fourth Amended and Restated Stockholder's Agreement dated January 8,
1999 by and among Alliance National Incorporated and the
securityholders identified therein.
10.3 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.
10.4 Letter Agreement dated November 9, 1998 by and between Reckson
Service Industries, Inc. and RFIA, LLC.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Michael Maturo
---------------------------------
Michael Maturo
Executive Vice President, Chief Financial
Officer and Treasurer
Date: January 25, 1999
Exhibit 10.1
LIMITED LIABILITY COMPANY AGREEMENT
of
INTEROFFICE SUPERHOLDINGS LLC
dated as of
August 14, 1998
by and among
INTEROFFICE SUPERHOLDINGS LLC,
RSI I/O HOLDINGS, INC.
JAH I/O, LLC
RFIA, LLC
and
RIEGER I/O LLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Formation................................................................................................2
(a) Formation; Name; Office.........................................................................2
(b) Purposes........................................................................................2
(c) Term............................................................................................2
(d) Termination of Stockholders Agreement...........................................................3
(e) Registered Office and Resident Agent............................................................3
2. Capital Contributions; Initial Acquisition Loan..........................................................3
(a) Initial Capital Contributions...................................................................3
(b) Issuance of Membership Interests; Membership Classes............................................3
(c) Units; Class Percentage Interests...............................................................4
(d) Initial Class Percentage Interests..............................................................4
(e) Description of Membership Classes...............................................................5
(f) Members' Liability..............................................................................5
(g) Uses of Capital Contributions; Interest on Capital Contributions................................5
(h) Withdrawal of Capital...........................................................................5
(i) Source of Distributions.........................................................................5
(j) Initial Acquisition Loan........................................................................5
(k) Forfeiture of Class C and Class D Units.........................................................6
(l) Employee Options................................................................................6
3. Title to the Property of the Company.....................................................................6
(a) Title to the Property of the Company............................................................6
4. Representations and Warranties of the Members............................................................6
5. Sale or Transfer of Membership Interest..................................................................7
(a) General Restrictions............................................................................7
(b) Class C and Class D Units.......................................................................7
(c) Permitted Transfers of Interest.................................................................7
(i) Testamentary and Gift Transfers........................................................7
(ii) Affiliate Transfers....................................................................8
(iii) Transfers to the Company...............................................................8
(iv) Transfers to Members and Third Parties.................................................8
(v) Pledges................................................................................8
(vi) Reckson................................................................................9
(vii) Syndication............................................................................9
(viii) Conditions to a Permitted Transfer.....................................................9
(d) Indemnity by Member for an Invalid Transfer of Membership Interests............................10
(e) Transfer by JAH of Combined Alliance Shares....................................................10
6. Right of First Refusal..................................................................................10
(a) Right of RSI as to Contingent Transfers........................................................10
(b) Acceptance Period..............................................................................11
(c) Exercise of FR Right...........................................................................11
(d) Failure to Exercise FR Right or Failure to Close after Exercise................................11
(e) FR Right Closing...............................................................................12
(f) Survival of FR Right with respect to JAH Combined Alliance Shares..............................12
(g) Joint Brokerage Account or Escrow Account......................................................12
(h) Covered Securities.............................................................................13
7. Tag-Along Rights........................................................................................13
(a) Qualifying Sale................................................................................13
(b) Notice of Transfer.............................................................................13
(c) Exercise of Tag-Along Rights...................................................................13
8. Bring-Along Rights......................................................................................14
(a) Subject Sale...................................................................................14
(b) Number of Units Subject to a Bring-Along Right.................................................14
(c) Transfer and Assignment........................................................................14
9. Rieger Call Option......................................................................................14
10. Rieger Put Option.......................................................................................15
(a) Exercise Period................................................................................15
(b) Manner of Exercise of the Rieger Put Option....................................................15
(c) Purchase Price of the Rieger Put Units.........................................................15
(d) Closing of the Rieger Put Option...............................................................16
(e) Purchase Price Adjustment......................................................................16
11. JAH A Membership Class Put Option.......................................................................16
(a) Exercise Period................................................................................16
(b) Suspension of the JAH Put Option...............................................................16
(c) Termination of the JAH Put Option..............................................................16
(d) Manner of Exercise of the JAH Put Option.......................................................17
(e) Purchase Price of the JAH Put Units............................................................17
(f) Closing of the JAH Put Option..................................................................17
(g) Termination Date...............................................................................17
(h) Default Call Option............................................................................17
(i) Co-Obligation of Reckson.......................................................................17
12. D Membership Class Call and Put Options.................................................................18
(a) Exercise Period................................................................................18
(b) Manner of Exercise of such Options.............................................................18
(c) Purchase Price of the Subject D Units..........................................................18
(d) Letter of Credit...............................................................................18
(e) Closing of the D Class Option..................................................................19
(f) Survival of the D Class Option.................................................................19
13. Governance..............................................................................................19
(a) Covenant by Each Member........................................................................19
(b) Manager........................................................................................19
(c) Officers.......................................................................................20
(d) Combined Alliance Directors....................................................................20
(e) Limitations....................................................................................21
14. Additional Contributions................................................................................22
(a) Capital Call...................................................................................22
(b) Capital Call Objectives........................................................................22
(c) Determination of Number of Class A Units to be Issued and Sold.................................22
(d) Pre-Emptive Rights; Subscription for Additional Shares.........................................23
(e) Notice of Subscription Deficit.................................................................23
(f) Number of Additional Shares; Use of Necessary Funds............................................24
(g) Subscription Closing...........................................................................24
(h) Intentionally Omitted..........................................................................24
(i) Limitation of JAH Right to Purchase Additional Shares..........................................24
(j) Obligation to Purchase Combined Alliance Shares................................................25
(k) Limitation to the Company's Right to Purchase Combined Alliance Shares.........................26
15. Substitution of Rights Upon Change of Majority of Series C Stock inCombined Alliance....................26
(a) Intended Effect................................................................................26
(b) Triggering Event...............................................................................26
(c) Substitution of Rights.........................................................................26
(d) Reversion of Rights............................................................................27
(e) Consideration of Certain Permitted Transferees.................................................27
16. JAH Right of First Refusal to Maintain Group Ownership..................................................27
17. Accounting Provisions...................................................................................28
(a) Fiscal and Taxable Year........................................................................28
(b) Books and Accounts.............................................................................28
(c) Financial Reports..............................................................................28
(d) Tax Elections..................................................................................29
(e) Expenses.......................................................................................29
18. Profits Interest........................................................................................29
19. Distributions and Allocations...........................................................................29
(a) Definitions....................................................................................29
(1) "Capital Account".....................................................................29
(2) "Gross Asset Value"...................................................................30
(3) "Losses"..............................................................................31
(4) "Net Cash Flow".......................................................................31
(5) "Preferred Return"....................................................................31
(6) "Profits" and "Losses"................................................................31
(7) "Proceeds of a Capital Event".........................................................32
(8) "Regulation"..........................................................................32
(b) Distributions..................................................................................32
(c) Allocation of Profits, Losses, Profits from Capital Events and Losses from Capital Events......33
(d) Allocations between Assignor and Assignee Members..............................................35
(e) Tax Credits....................................................................................35
(f) Deficit Capital Accounts.......................................................................35
(g) Tax Allocations: Code Section 704(c)..........................................................35
20. Liquidation and Termination of the Company..............................................................35
(a) Time Period....................................................................................35
(b) General........................................................................................35
(c) Statements on Termination......................................................................36
(d) Priority on Liquidation........................................................................36
(e) Distribution of Combined Alliance Shares.......................................................36
(f) Distribution of Other Non-Liquid Assets........................................................37
(g) Orderly Liquidation............................................................................38
21. Loans and Advances......................................................................................38
22. Exculpation and Indemnification of Managers, Members and Affiliates.....................................38
(a) Exculpation....................................................................................38
(b) Indemnification................................................................................38
23. Power of Attorney.......................................................................................40
(a) General........................................................................................40
(b) Successor Members..............................................................................40
(c) Additional Power of Attorney...................................................................40
24. Confidentiality; Noncompetition.........................................................................41
(a) Confidentiality................................................................................41
(b) Non-Competition................................................................................41
(c) Survival.......................................................................................42
25. Intentionally Omitted...................................................................................42
26. Intentionally Omitted...................................................................................42
27. Intentionally Omitted...................................................................................42
28. Certain Defined Terms...................................................................................42
(a) Affiliate......................................................................................42
(b) Bring-Along Qualifying Sale....................................................................42
(c) Capital Event..................................................................................42
(d) Capital Call Value.............................................................................42
(e) Combined Alliance FMV..........................................................................42
(f) Combined Alliance Share........................................................................44
(g) Contingent Transfer............................................................................44
(h) Disqualified Transferee........................................................................44
(i) Employee Option Ownership Adjustment...........................................................44
(j) Employee Option Value Adjustment...............................................................45
(k) Excused Condition..............................................................................45
(l) Fair Market Value..............................................................................45
(m) Family Group...................................................................................45
(n) In the Money Employee Options..................................................................45
(o) In the Money Redemption Shares.................................................................46
(p) IPO............................................................................................46
(q) JAH Put Units..................................................................................46
(r) Net Asset Value................................................................................46
(s) Nominated Investment Bank......................................................................46
(t) Qualified IPO..................................................................................46
(u) Person.........................................................................................46
(v) Syndicate Representative.......................................................................46
(w) Tag-Along Interest.............................................................................46
(x) Tag-Along Member...............................................................................47
(y) Third Party Price..............................................................................47
29. Amendment and Modification..............................................................................47
30. Assignment..............................................................................................47
31. Further Assurances......................................................................................47
32. Governing Law...........................................................................................48
33. Notices.................................................................................................48
34. Consent to Jurisdiction.................................................................................49
35. Entire Agreement; Non-Waiver............................................................................49
36. Specific Performance and Injunctive Relief..............................................................49
37. Attorneys' Fees.........................................................................................49
38. Severability............................................................................................49
39. Conditions to Rieger Becoming a Member..................................................................50
40. Miscellaneous...........................................................................................50
</TABLE>
<PAGE>
SCHEDULE I.................Schedule of Members, Membership Class, Units and
Class Percentage Interest.
SCHEDULE II................List of Nominated Investment Banks.
SCHEDULE III...............List of Persons or Entities which are not
Disqualified Transferees.
EXHIBIT A..................Form of Assignment of Series C Preferred Stock
EXHIBIT B..................Form of Stock Power
EXHIBIT C..................Form of Letter of Credit
EXHIBIT D..................Form of Release and Satisfaction.
EXHIBIT E..................Form of Assignment of Class D Units.
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
INTEROFFICE SUPERHOLDINGS LLC
LIMITED LIABILITY COMPANY AGREEMENT, dated as of August 14, 1998 (this
"Agreement"), by and among INTEROFFICE SUPERHOLDINGS LLC, a Delaware limited
liability company (the "Company"), RSI I/O HOLDINGS, INC., a Delaware
corporation having an office located at 225 Broadhollow Road, Melville, New York
11747 ("RSI") and a wholly owned subsidiary of Reckson Service Industries, Inc.,
JAH I/O, LLC, a New York limited liability company having an office located at 2
Manhattanville Road, Suite 205, Purchase, New York, 10577 ("JAH"), RFIA, LLC, a
Delaware limited liability company, having an office located c/o Martin
Rabinowitz, 850 Park Avenue, New York, NY 10021 ("RFIA"), and RIEGER I/O LLC, a
limited liability company having an office located at c/o Robert Rieger, 2
Manhattanville Road, Suite 205, Purchase, New York, NY 10577, if such entity
executes and delivers a counterpart of this Agreement on or prior to the
Effective Time, as defined below ("Rieger" and together with RSI, JAH and RFIA,
the "Members"). Unless otherwise expressly set forth herein, all capitalized
terms used herein shall have the meaning ascribed thereto in Section 28.
WHEREAS, on August 14, 1998 the Members formed the Company as a Delaware
limited liability company pursuant to the Limited Liability Company Act of the
State of Delaware, as amended, Title 6 ss.ss.18-101 et seq. (the "Act");
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger (the "Merger Agreement"), by and among Alliance National Incorporated, a
Nevada corporation ("Combined Alliance"), Alliance Holding, Inc., a Delaware
corporation ("Merger Sub"), Interoffice Superholdings Corporation, a Delaware
corporation ("ISC"), and the Company, providing for, inter alia, the merger (the
"Merger") of Merger Sub with and into ISC and for the ISC stockholders to
receive the number of shares of Combined Alliance Shares (as hereinafter
defined) specified in the Merger Agreement.
WHEREAS, it is the intention of the parties hereto that the
Company be a special purpose vehicle limited to the ownership and management,
including the sale and other disposition, of the Combined Alliance Shares;
WHEREAS, the Members desire to provide for the stability and continuity of
the management of the affairs of the Company and to impose certain rights and
restrictions with respect to the transfer or other disposition of their
membership interests upon the terms and conditions hereinafter set forth.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Formation.
(a) Formation; Name; Office. On August 14, 1998, the Members formed
the Company under and pursuant to the Act to be conducted under the name
"INTEROFFICE SUPERHOLDINGS LLC". The business office of the Company shall be 225
Broadhollow Road, Melville, New York 11747 or at such other place or places as
the Manager (as defined below) may from time to time designate.
(b) Purposes. The purposes for which the Company has been formed are:
(i) to hold, manage and dispose of the investment of the Company
represented by the Combined Alliance Shares;
(ii) to exercise all rights and benefits and perform all
obligations of the Company under the Merger Agreement and under that certain
Fourth Amended and Restated Stockholders Agreement by and among Combined
Alliance and the Securityholders identified therein (as the same may be amended
from time to time in accordance with the provisions thereof, the "CA Agreement")
including, without limitation, purchasing securities of Combined Alliance; and
(iii) to engage in all activities necessary, customary,
convenient or incident to any of the foregoing.
(c) Term. This Agreement shall commence on the date upon which the
Merger becomes effective under applicable corporate law (the "Effective Date")
and shall end on December 31, 2048 unless the Company is earlier dissolved in
accordance with either the terms of this Agreement or the Act (such period, the
"Term"). If the Effective Date is not on or prior to the date that is three (3)
months after the date that the Merger Agreement is executed and delivered free
and clear of any escrow conditions or such other date mutually agreed to in
writing by RSI and JAH (the "Outside Date"), then neither this Agreement nor any
document or instrument expressly referred to in this Agreement shall be
effective, no Member shall have any liability to any other Member arising from
or in connection with this Agreement and the Members shall promptly cause of
dissolution of the Company. Notwithstanding the foregoing, any provision set
forth in this Agreement which is to be performed or satisfied prior to the
Effective Date (if and only if the Effective Date occurs on or prior to the
Outside Date) including, without limitation, the obligations set forth in
Section 2(a), shall be a valid and binding obligation of such Member enforceable
against such Member in accordance with its terms.
<PAGE>
(d) Termination of Stockholders Agreement. Each of RSI, JAH, and RFIA
hereby consents to the termination of the Stockholders Agreement dated as of
December 29, 1997, by and among Interoffice Superholdings Corporation, Reckson
Management Group, Inc. (the predecessor in interest under such agreement of
RSI), JAH and RFIA as of and effective on the Effective Date (the "ISC
Stockholders Agreement"); provided, however, that if the Effective Date is not
on or prior to the Outside Date, the ISC Stockholders Agreement shall remain in
full force and effect and this Agreement shall terminate as set forth in Section
1(c).
(e) Registered Office and Resident Agent. The registered office and
the resident agent of the Company shall be as designated in the certificate of
formation of the Company (the "Certificate") or any amendment thereof. The
registered office and the resident agent may be changed from time to time by the
Manager in accordance with the Act. If the resident agent shall ever resign,
then the Manager shall promptly appoint a successor resident agent and shall
file an appropriate amendment to the Certificate.
2. Capital Contributions; Initial Acquisition Loan.
(a) Initial Capital Contributions. Simultaneously with the execution
and delivery of this Agreement, each Member hereby contributes to the Company
all of its rights and benefits in, to and under the Merger Agreement including,
without limitation, the number of Combined Alliance Shares which shall be issued
to such Member in accordance with the terms and provisions of the Merger
Agreement. Simultaneously with the execution and delivery of this Agreement,
each Member has executed and delivered an assignment in the form attached hereto
as Exhibit A and the Stock Power with respect to their respective Combined
Alliances Shares in the form attached hereto as Exhibit B. Each Member shall
deliver all of the Combined Alliance Shares issued to such Member in connection
with Merger to the Company and take such other action as is reasonably requested
by the Company to vest the Company with all rights of ownership (beneficial and
of record) to the Combined Alliance Shares. The initial capital contribution of
each of Member pursuant to this Section 2 (a) is referred to herein as an
"Initial Capital Contribution". The Initial Capital Contribution together with
any other contribution to the Company's capital is referred to herein as a
"Capital Contribution".
<PAGE>
(b) Issuance of Membership Interests; Membership Classes. In
consideration of the foregoing, the Company shall issue to each Member a
membership interest of the Membership Class (as defined below) in the Company
specified below equal to the percentage of the aggregate membership interests of
such Membership Class as described and provided for in this Section 2. There
shall be four separate classes of membership interest. Each class of a
membership interest is referred to herein as a "Membership Class". The
Membership Classes of membership interest and the number of Units (as defined
below) initially representing such Membership Classes are set forth below. The
number of Units held by a Member in any specified Membership Class divided by
the total number of Units of such Membership Class is referred to herein as the
"Class Percentage Interest" of such Member.
(c) Units; Class Percentage Interests. The membership interest of each
Member in the Company shall be represented by one or more units (each, a "Unit")
or any fractional units. There shall be four (4) classes of Units: (i) "Class A
Units" representing the A Membership Class membership interests; (ii) "Class B
Units" representing the B Membership Class membership interests; (iii) "Class C
Units" representing the C Membership Class membership interests; and (iv) "Class
D Units" representing the D Membership Class membership interests. A Unit shall
not be represented by a certificate unless otherwise provided by the Manager
(provided that if the Manager elects to certificate any Units, all of the other
Units in such Membership Class shall be so certificated). Any certificate
representing a Unit and any legend endorsed thereon shall be in the form
approved by the Manager. Any such certificate shall be signed in the name of the
Company by the manager in the manner approved by the Manager. If any
certificates are issued, the Company shall issue a new certificate to replace a
lost, mutilated, stolen or destroyed certificate pursuant to the procedures then
approved by the Manager. The maximum number of Units of each Membership Class
shall be unlimited.
Schedule I attached hereto shall reflect the number and Membership
Class of the Units held by, and the Class Percentage Interest of, each Member
and shall be revised, amended or modified by the Manager to reflect the
issuance, redemption or Transfer of any Units. The provisions of this Section 2
shall not give any Member an interest in any amount credited to the Capital
Account of any other Member.
(d) Initial Class Percentage Interests. Effective as of the Effective
Date, each Member shall own and hold the Class Percentage Interest of the
Membership Class and the number of Units of each Membership Class, in all cases,
as the same may be adjusted from time to time, pursuant to the terms and
conditions of this Agreement, including, without limitation, in order to reflect
a Transfer (as defined below) of all or part of a Member's Class Percentage
Interest as follows:
<PAGE>
(i) Each Member shall hold the number of Class A Units
immediately after the Effective Date which is equal to the number of shares of
voting common stock of ISC that such Member owned immediately before the
Effective Date as will be indicated on Schedule I attached hereto on the
Effective Date. It is acknowledged and agreed that the number of shares of
common stock of ISC is contemplated to be the number of shares outstanding on
the date that this Agreement is executed and delivered plus any additional
shares of common stock issued by ISC in accordance with Section 10 of the ISC
Stockholders Agreement. For avoidance of doubt, the number of shares of voting
common stock of ISC do not include the Profits Interest granted to Rieger by
ISC, as defined by that certain agreement dated as of January 29, 1998 as
amended and restated prior to the effective date of the Merger between ISC and
Robert Rieger, on behalf of himself and Rieger (the "Rieger Letter Agreement").
(ii) All other Membership Classes shall be as set forth in
Schedule I.
(e) Description of Membership Classes. The rights, preferences, duties
and obligations of the Members holding a specified Membership Class membership
interest are defined by the terms and provisions of this Agreement and the Act.
The parties intend the following with respect to such rights and preferences:
(i) the Class A Units shall have all economic rights of ownership, including the
right to distributions as provided in this Agreement, including, without
limitation, distributions upon the liquidation and termination of the Company
and allocations of profits and distributions set forth in Section 19; (ii) the
Class B Units shall have the economic right to receive a preferred distribution
accruing after a specified return is received by the Members holdings Class A
Units as set forth in the Rieger Letter Agreement regarding, among other
matters, the right of Rieger to receive a Profits Interest (as described
therein) equal to the Accrued Benefit (as defined therein); (iii) the Class C
Units shall have no economic rights and shall, as provided in Section 13(e),
have the right to approve or reject specified transactions proposed to be taken
by or on behalf of the Company by the Manager; and (iv) the Class D Units shall
have (x) the economic right to 0.01% of the distributions provided in this
Agreement including, without limitation, distributions upon the liquidation and
termination of the Company and distributions of profits paid by the Company to
its Members and (y) the right to elect the Manager and remove the Manager for
cause as provided in Section 13(b).
(f) Members' Liability. Except as otherwise provided in this
Agreement, the liability of a Member, solely as Member, for any obligations,
debts or liabilities incurred by the Company (as opposed to such Member directly
on its own behalf in its individual capacity) shall be limited to the aggregate
amount of the capital contributions that such Member has made or is obligated to
make to the Company under the terms and provisions of this Agreement.
(g) Uses of Capital Contributions; Interest on Capital Contributions.
Any property received by the Company pursuant to this Section 2 shall be
utilized by the Company for the purpose of the Company. Except as otherwise
provided herein, no interest shall accrue on any capital contribution.
(h) Withdrawal of Capital. Unless the prior unanimous written consent
of the Members shall have been obtained and except as otherwise provided in this
Agreement, no Member shall have the right to withdraw any part of such Member's
capital contributions prior to the liquidation and termination of the Company
pursuant to Section 20 of this Agreement.
(i) Source of Distributions. No Member, manager or any of their
respective Affiliates shall be personally liable for the return of the capital
contributions of any other Member, or any portion thereof, it being expressly
understood that any such return shall be made solely from the Company's assets.
<PAGE>
(j) Initial Acquisition Loan. JAH hereby agrees to pay on the
Effective Date all interest on the loan in the original principal amount of
$2,850,012 (the "Initial Acquisition Loan") made by Reckson Management Group,
Inc. to JAH in connection with the acquisition of InterOffice (Holdings)
Corporation ("Holdings") by ISC that is accrued but unpaid on the Effective
Date. Each of RSI and JAH hereby ratify and confirm the Initial Acquisition Loan
as being in full force and effect on the date hereof. It is acknowledged and
agreed that the Initial Acquisition Loan was assigned by Reckson Management
Group, Inc. to RSI with the consent of JAH. By execution and delivery of this
Agreement and without any further action by or on behalf of RSI or JAH,
contingent upon the consummation of the Merger and effective on the Effective
Date the terms and conditions of the Initial Acquisition Loan shall be amended
to change the maturity date to the earlier of (x) May 31, 2000 or (y) the date
JAH exercises its D Class Put Option or (z) the date RSI exercises its D Class
Call Option. On the Effective Date, JAH shall pay the interest on the Initial
Acquisition Loan that is accrued and unpaid to the Effective Date.
(k) Forfeiture of Class C and Class D Units. A Member holding any
Class C Units or any Class D Units shall forfeit all rights and benefits
thereunder immediately upon the date that such Member Transfers (as hereinafter
defined) through one or more Contingent Transfers (as hereinafter defined) more
than fifty percent (50%) of the number of Class A Units held by such Member as
of the Effective Date and the Company shall redeem such Class C Units and Class
D Units upon such event for nominal consideration. As long as any such Member
owns of record at least fifty percent (50%) of the number of Class A Units held
by such Member as of the Effective Date, then the Class C Units and the Class D
Units owned by such Member shall remain with such Member and such Member shall
have all of the rights and benefits under such Class C Units and Class D Units.
(l) Employee Options. The Company shall issue options for the purchase
of Class A Units to each employee of Holdings or any of its Affiliates which as
of the Effective Date holds any options to acquire the Class B Common Stock of
Holdings. The number of Class A Units to be issued pursuant to such options
shall equal the number of shares of Class B Common Stock that such employee
would have the right to purchase pursuant to their existing options to acquire
shares of Class B Common Stock of Holdings. The purchase price, vesting terms
and other materials terms shall be substantially equivalent to the respective
terms of such employee's options. The Company shall issue Class A Units upon the
exercise of any such options and the payment of the applicable purchase price
therefor. The Company shall assume the right and obligation of Holdings to
redeem such options and the Class A Units issued upon the exercise thereof. The
Company shall exercise such redemption rights in the discretion of the Manager.
3. Title to the Property of the Company.
(a) Title to the Property of the Company. Title to the Combined
Alliance Shares any and all other property, owned by the Company shall be held
in the name of the Company, or in the name of any nominee (e.g., "Street Name"),
which the Manager may, in its reasonable discretion, designate, and no Members,
individually or collectively, shall have, or shall be deemed to have, any title
in or to any such property.
4. Representations and Warranties of the Members. Each Member (solely with
respect to such Member) represents and warrants to the Company and each other
Member as follows:
(i) Such Member has the full power and authority to execute,
deliver and perform this Agreement;
<PAGE>
(ii) This Agreement has been duly and validly authorized,
executed and delivered by such Member and constitutes a valid and binding
obligation of such Member;
(iii) The execution, delivery and performance of this Agreement
by such Member does not violate or conflict with or constitute a default under
such Member's certificate of incorporation, by-laws, certificate of limited
partnership, certificate of formation, limited liability company agreement,
partnership agreement or similar charter or organizational document or any
material agreement to which it is a party or by which it or its property is
bound;
(iv) Such Member has acquired its membership interest for
investment purposes only and not with a view to the distribution thereof in
violation of any applicable state or federal securities law; and
(v) The Combined Alliance Shares shall be contributed to the
Company on the Effective free and clear of any lien, charge, encumbrances or
restrictions of any kind other than the CA Agreement and this Agreement (each, a
"Lien").
5. Sale or Transfer of Membership Interest.
(a) General Restrictions. Subject to the terms and provisions of
Section 5(c), during the term of this Agreement, without the prior written
consent of the Manager, no Member shall, directly or indirectly, sell, pledge,
hypothecate, give, devise, transfer, create a security interest in or lien on,
place in trust (voting or otherwise), assign or in any other way encumber or
dispose of (each, a "Transfer") any membership interest now or hereafter at any
time held by it, or any interest therein, or in the certificate or document
representing any such membership interest, if any (each, a "Transfer of
Interest"). Without limiting the generality of the foregoing, except as provided
in Section 5(c)(vi) a Transfer of Interest by a Member shall include the direct
or indirect Transfer of any equity securities of, or interest in, such Member
and with respect to any such Transfer, a Permitted Transfer shall pertain to any
Transfer by a holder of such equity interests as if the transferor were a Member
and the interest being Transferred were membership interests. Any Transfer of
Interest effected or purported or attempted to be effected: (i) not in
accordance with the terms and conditions of this Agreement; (ii) to an
individual younger than 18 years of age or who has been adjudged incompetent or
insane; or (iii) to a person prohibited by law from holding any membership
interest, shall be void ab initio and shall not bind the Company or any Member.
(b) Class C and Class D Units. No Member shall have the right to
Transfer any Class C or Class D Units except to RSI or JAH. In addition, a
Member shall not have the right to Transfer any Class C or Class D Units unless
all, but not less than all, of the Units then held by such Member are
Transferred in such transaction.
(c) Permitted Transfers of Interest. Notwithstanding the provisions of
Section 5(a) and subject to Section 5(c)(viii) and the rights of JAH under
Section 16, a Member may, without the consent of any other Member, effect a
Transfer of Interest of its Class A Units as follows (each, a "Permitted
Transfer"); provided, however that no Member may effect a Transfer of Interest
to any Disqualified Transferee:
(i) Testamentary and Gift Transfers. Each Member that is an
individual may effect a Transfer of Interest by distribution, gift,
will or the laws of descent and distribution to any Family Group
Member of such Member;
<PAGE>
(ii) Affiliate Transfers. Each Member may effect a Transfer of
Interest to an Affiliate of such Member or a Family Group Member of
such Affiliate;
(iii) Transfers to the Company. Each Member may Transfer any such
Units to the Company pursuant to this Agreement or otherwise;
(iv) Transfers to Members and Third Parties. Each Member may (x)
effect a Transfer of Interest of any such Units to another Member or
(y) Transfer any Units to a third party purchaser who is not an
Affiliate of such Member pursuant to the express terms and conditions
of this Agreement;
(v) Pledges. Each of RSI, JAH and RFIA may grant a security
interest ("Pledge") in any such Units now or hereafter held by it in
accordance with this Agreement and Section 4.2 of the CA Agreement,
and an Affiliate of a Member may Pledge any equity interest in such
Member, to secure its indebtedness (or the indebtedness or the
guarantee of indebtedness of any of its Affiliates that is incurred
for general purposes) owing to a bank or financial institution, third
party lender or other Person (a "Pledgee") if the Pledgee is not a
Disqualified Transferee provided, however:
(A) If the Member which Pledged such Class A Units is RFIA,
then in the event a Pledgee or its successor succeeds to the
interest of such Member, such Member and such Pledgee shall
deliver a notice to the Company and each other Member of such
succession and at any time within three (3) months after the
earlier to occur of (x) delivery of such notice or (y) actual
knowledge of such succession the Company may elect to redeem all
of such Class A Units at the Fair Market Value of such Class A
Units; or
<PAGE>
(B) If the Member which Pledged such Class A Units is JAH,
then (1) as a condition to such Pledge, (x) prior to any such
Pledge, the Pledgee shall deliver to RSI a duly executed notice
to the effect that the Pledged Units are subject to the terms and
conditions of this Agreement and (y) the Pledgee shall provide
RSI with written notice prior to the date that it either takes
possession or otherwise owns the Pledged Units or that it
disposes of such collateral in accordance with its rights under
Article IX of the Uniform Commercial Code or under the applicable
security agreement, (2) prior to taking possession or otherwise
owning the Pledged Units or disposing of such collateral in
accordance with Article IX of the Uniform Commercial Code, the
Pledgee shall provide a notice (the "Demand Notice") to JAH (and
a copy of such notice to RSI) demanding payment in full of the
obligations secured by the Pledged Class A Units, and (3) RSI
shall have the right, but not the obligation, to purchase all of
the Class A Units directly or indirectly Pledged by JAH at any
time from the date that RSI receives the notice described in
Section 5(c)(v)(B)(1)(y) from the Pledgee at an aggregate
purchase price equal to the Fair Market Value of such Units until
the date (the "Pledge Redemption Deadline") that is thirty (30)
days after the date that RSI receives such notice. RSI may
exercise its right under this Section 5(c)(v)(B) to purchase the
Class A Units Pledged by JAH by notice to the Pledgee (at the
address of the Pledgee provided to RSI in the notice described in
Section 5(c)(v)(B)(1)(y)) to such effect on or prior to the
Pledge Redemption Deadline.
In addition, JAH hereby assigns to RSI all of its right as a
debtor to redeem the collateral (the Pledged Class A Units) under
Section 9-506 of the Uniform Commercial Code following the
failure of JAH to pay in full the obligations secured by the
Pledged Class A Units in accordance with the Demand Notice;
provided, however, that in the event RSI exercises such right
under this Section 5(c)(v)(B) and RSI redeems some or all of the
Pledged Class A Units then, if the price paid by RSI exceeds the
Fair Market Value, RSI shall pay over to JAH such excess. As an
additional condition to JAH Pledging any Class A Units, the
Pledgee shall acknowledge and agree to RSI's right to redeem the
collateral (the Pledged Class A Units) under Section 9-506 of the
Uniform Commercial Code as if its was the debtor of such
indebtedness and acknowledge that such right may not be waived
without the expressed written consent of RSI.
(vi) Reckson. Notwithstanding any provision of this
Agreement to the contrary, Reckson Service Industries, Inc.
("Reckson") and each Person with any economic interest in Reckson
may Transfer any equity securities or economic interest in
Reckson. Each such Transfer by Reckson or any such Person is
referred to herein as a "Reckson Transfer".
(vii) Syndication. Subject to Section 4.2 of the CA
Agreement, any Member may syndicate its Class A Units by a
Transfer of the equity interests in such Member in any
transaction or series of related transactions (each, a
"Syndication"); provided, that (A) no Member shall effect any
Syndication which (together with all prior Syndications) would
result in the Syndication of (80%) percent or more of the equity
interests of such Member (provided that RSI may effect a Transfer
of Interest in RSI by the sale of securities issued by Reckson
Service Industries, Inc. or any other Affiliate of RSI which were
issued and sold in a public offering); (B) no direct or indirect
subscriber, participant or Transferee of any such interest shall
be a Disqualified Transferee; (C) such Member shall remain the
sole and exclusive record owner of all of the Class A Units of
such Member; (D) such Member and each such subscriber,
participant or Transferee shall be subject to, and shall submit
to, the jurisdiction of the Delaware Court of Chancery, the New
York State Courts in New York County, and all federal courts; (E)
with respect to any Syndication by JAH, RFIA or Rieger, the
Syndicate Representatives of such Member shall be the exclusive
representatives of such Member and the Class A Units and have the
exclusive power to control (as such term is used in the
definition of Beneficial Ownership) the Units of such Member and
(F) no such transaction shall relieve such Member from any of its
obligations under this Agreement.
<PAGE>
(viii) Conditions to a Permitted Transfer. Notwithstanding
the provisions of this Section 5(c), no Transfer of Interest
other than a Reckson Transfer shall be a Permitted Transfer
unless, in each case, such Transfer of Interest (A) does not
require the registration of any Class A Units or any other
security issued or issuable by the Company under the Securities
Act of 1933, as amended (the "1933 Act"), or any state securities
or "Blue Sky" laws (other than notice filings in connection with
a transaction exempt from the registration requirements of the
1933 Act ("Notice Filings")); (B) complies with all applicable
federal and state securities and "Blue Sky" laws; (C) does not
relieve such Member from any of its obligations under this
Agreement and (D) in the event of a Transfer to a third party or
a Syndication, prior to the consummation of any Permitted
Transfer the Company and each Member shall have received a notice
from the Member proposing such Transfer of Interest stating the
provision herein which permits such Transfer of Interest, the
identity of such permitted assignee or transferee (any such
person, regardless of the method of Transfer, being referred to
herein as a "Transferee"), the expected closing date for such
Transfer of Interest; and (E) in the event of a Transfer to a
third party or a Syndication, all other information reasonably
requested by the Company, RSI or JAH for the purposes of
determining the beneficial ownership of the securities issued by
Combined Alliance has been received from such Member or the
Company, (y) the Company shall have received the opinion of its
counsel or counsel reasonably acceptable to the Company that such
Transfer of Interest does not require registration under the 1933
Act or any applicable state securities or "Blue Sky" laws (other
than Notice Filings) together with all documentation reasonably
requested by the Company to evidence that such Transfer of
Interest is permitted hereunder and to otherwise disclose the
identity and financial condition of such Transferee. Any
Transferee not a party hereto shall execute an appropriate
document confirming that such Transferee takes such Units subject
to the terms and conditions of this Agreement and assumes all of
the obligations of the Member effecting such Transfer of Interest
hereunder and with respect to such Class A Units. The Company
shall not give effect on its books to any Transfer or purported
Transfer of shares of Class A Units held or owned by any Member
to any Transferee unless each and all of the conditions hereof
affecting such Transfer shall have been complied with to the
Company's reasonable satisfaction.
(d) Indemnity by Member for an Invalid Transfer of Membership
Interests. In the event that any Member effects or purports to effect any
Transfer of Interest other than a Permitted Transfer, then such Member shall
indemnify and hold harmless the Company and each other Member from and against
any and all liabilities or damages to such party by reason of such act
including, without limitation, reasonable attorneys' fees and disbursements
incurred by any such indemnified party in connection with any such act as and
when such liabilities or damages are determined and such expenses are incurred.
(e) Transfer by JAH of Combined Alliance Shares. JAH agrees that it
will not Transfer any JAH Combined Alliance Shares to any Disqualified
Transferee prior to the expiration of RSI's FR Right with respect to JAH.
6. Right of First Refusal.
<PAGE>
(a) Right of RSI as to Contingent Transfers. If at any time a Member,
other than RSI, has a bona fide written offer, including an offer which is a
result of solicitation by such Member, to make a Contingent Transfer, of any or
all of its Class A Units or Class B Units (collectively, the "Third Party
Offered Interest") and such Member (the "Selling Member") desires to accept such
offer, such Selling Member shall give a prompt notice regarding such proposed
Contingent Transfer (a "Notice of Offer") to RSI which notice shall contain: (i)
a true and complete copy of such offer; (ii) the Class Percentage Interest of
each Membership Class proposed to be sold; (iii) the identity of such third
party purchaser and its controlling Affiliates; (iv) reasonable and sufficient
evidence that such third party purchaser has a financial net worth sufficient to
consummate the proposed Permitted Transfer (it being acknowledged and agreed
that if RSI does not dispute the reasonableness and sufficiency of such
information by delivering a notice to the Selling Member to such effect within
ten (10) business days after the delivery of the Notice of Offer that such
information shall be deemed to satisfy the requirements of this clause (iv));
(v) the proposed Third Party Price; and (vi) the other material terms and
conditions of such offer including, without limitation, any promissory notes
included in such Third Party Price and the proposed date of closing and any
earnest money deposit of such Third Party Price or escrow conditions relating to
such Transfer.
(b) Acceptance Period. For a period of ten (10) business days after
receipt of the Notice of Offer (the "Acceptance Period"), RSI shall have the
right, but not the obligation (the "FR Right"), to purchase all, but not less
than all, of the Third Party Offered Interest from the Selling Member (and with
respect to any JAH Combined Alliance Shares pursuant to Section 6(g) hereof, to
the escrowee holding such shares) in accordance with the provisions of this
Section 6 at a purchase price equal to the Third Party Price. RSI may exercise
its FR Right by providing a notice (the "FR Acceptance Notice") to such effect
to the Selling Member on or prior to the expiration of the FR Acceptance Period
and specifying the proposed date for the closing of the purchase and sale of the
Third Party Offered Interest (the "FR Closing Date") which date shall not be
later than (x) sixty (60) days after the date that the Notice of Offer is
delivered. In addition, if the Selling Member is JAH, then the FR Acceptance
Notice shall be required to be accompanied by any earnest money deposit
specified in the Notice of Offer which any proposed Transferee would be required
to pay upon the execution and delivery of the operative agreements with respect
to the proposed purchase and sale of the Third Party Offered Interest.
(c) Exercise of FR Right. Subject to Section 7, upon exercise by RSI
of its FR Right, the Selling Member shall be obligated to sell all, but not less
than all, of the Third Party Offered Interest to RSI, and RSI shall be obligated
to purchase all, but not less than all, of: (i) the Third Party Offered Interest
from the Selling Member; and (ii) the Tag-Along Interest of each other Member,
if any, simultaneously on the FR Closing Date, in each case, at a price equal to
the Third Party Price; provided, that, at the sole discretion of RSI, the
payment of the aggregate Third Party Price may be on the terms and conditions
stated in the Notice of Offer including by the issuance of any promissory notes
described therein ("FR Notes"). Each Member shall use all commercially
reasonable efforts to secure any approvals required to be obtained by such
Member for the consummation of the purchase and sale of such membership
interests.
<PAGE>
(d) Failure to Exercise FR Right or Failure to Close after Exercise.
If RSI does not exercise its FR Right hereunder with respect to all, but not
less than all, of the Third Party Offered Interest within the FR Acceptance
Period or otherwise fails to purchase such membership interest on or prior to
the FR Closing Date other than as a result of an Excused Condition, then the
Selling Member shall be free (subject to any Tag-Along Rights of the Members as
provided for in Section 7) to sell the Third Party Offered Interest at the price
and upon the terms specified in the Notice of Offer within sixty (60) days after
the expiration of the FR Acceptance Period or breach of RSI to so purchase such
Units and in compliance with the provisions of Section 5. If the Selling Member
does not consummate the sale of the Third Party Offered Interests within the
applicable Time period specified above, then the provisions of this Section 6
shall again apply, and no sale of membership interests shall be made otherwise
than in accordance with the terms of this Agreement.
(e) FR Right Closing. On the FR Closing Date at the offices of the
Company: (i) RSI shall pay the aggregate Third Party Price to the Selling Member
by wire transfer of immediately available funds (or, if the Notice of Offer
permits FR Notes, RSI shall pay an amount equal to the cash to be paid on the FR
Closing Date and shall deliver such FR Notes if any are to be delivered); and
(ii) the Selling Member shall deliver to RSI the certificates, if any,
representing the Third Party Offered Interest or an assignment of the Third
Party Offered Interest in a form and substance reasonably acceptable to RSI and
assign and transfer all, but not less than all, of the Third Party Offered
Interest free and clear of any Liens (subject, however, to the terms and
provisions of this Agreement) therewith. If any Tag-Along Member has exercised
his or its Tag-Along Right in accordance with Section 7, then on the FR Closing
Date at the offices of the Company simultaneously with the closing of the
purchase of the Third Party Offered Interest (x) RSI shall pay an amount of cash
equal to the amount of the Tag-Along Interest of each such Tag-Along Member
valued at the Third Party Price of such Tag-Along Interest (or, if the Notice of
Offer permits FR Notes, RSI shall pay an amount equal to the cash to be paid on
the FR Closing Date for the Tag-Along Interest based proportionately on the
amount of cash being paid for the Third Party Offered Interest and shall deliver
the balance of the consideration payable for the Tag-Along Interest in
promissory notes based proportionately on the principal amount the FR Notes
being delivered in consideration for the purchase of the Third Party Offered
Interest at the Third Party Price) and (y) each such Tag-Along Member shall
deliver to RSI a certificate representing the Tag-Along Interest of such Member
or an assignment of the Tag-Along Interest of such Tag-Along Member in a form
and substance reasonably acceptable to RSI Member and assign and transfer all,
but not less than all, of the Tag-Along Interests of such Tag-Along Member free
and clear of any Liens (but such membership interests shall continue to be
subject to the terms and provisions of this Agreement).
(f) Survival of FR Right with respect to JAH Combined Alliance Shares.
The FR Right of RSI shall also be effective with respect to a Contingent
Transfer of any JAH Combined Alliance Shares (as hereinafter defined) from the
Effective Date until that date which is thirty (30) months after the date an IPO
is declared effective by the Securities and Exchange Commission under the
provisions of the 1933 Act. The FR Right of RSI with respect to JAH under this
Section 6 shall survive the Term or the termination, liquidation or dissolution
of the Company.
<PAGE>
(g) Joint Brokerage Account or Escrow Account. In the event the
Company is dissolved and liquidated prior to the expiration of RSI's FR Right
with respect to JAH, then for the purpose of implementing such FR Right, JAH
shall immediately upon such dissolution and liquidation: (i) deposit all
securities issued by Combined Alliance that were distributed by the Company to
JAH (collectively, "JAH Combined Alliance Shares") in a brokerage account or
escrow account with Battle Fowler LLP (counsel to JAH) or if such law firm is
unable or unwilling to serve as the escrowee, then a law firm, broker dealer,
bank or trust company selected by RSI which is reasonably acceptable to JAH
pursuant to an escrow agreement acceptable to such escrowee, RSI and JAH in
their sole discretion; (ii) endorse the certificate or certificates representing
such JAH Combined Alliance Shares (and any replacement certificate) with an
appropriate legend to the effect that such shares are subject to the Right of
First Refusal provided herein; and (iii) deliver or cause to be delivered an
original duly authorized and executed written acknowledgment of the escrowee in
form and substance reasonably acceptable to RSI that the effect that such
escrowee will not deliver any certificate or replacement certificate without
receipt of appropriate documentation demonstrating that RSI was advised of such
Contingent Transfer. RSI hereby acknowledges that the escrow agent shall be
entitled to deliver any certificate or replacement certificate being held in
escrow at JAH's direction if the escrow agent has not received a copy of the FR
Acceptance Notice from RSI during the Acceptance Period as provided in this
Section 6 in accordance with the terms of the applicable escrow agreement. JAH
shall have the right to Pledge such JAH Combined Alliance Shares, subject to the
provisions of Section 5(c)(v), it being acknowledged and agreed that such
provisions shall be interpreted as though the JAH Combined Alliance Shares are
the Units described therein, it being acknowledged that RSI's right to purchase
such securities under Section 5(c)(v)(B) shall expire if there is not a default
beyond applicable notice and grace periods under such loan within such 30 month
period. As a condition to the establishment of the account described in this
Section 6(g), the operative documents with respect to the joint account or
escrow account described in this Section 6(g) shall expressly state that JAH
shall be entitled to vote such shares, receive all cash and stock dividends and
other distributions on such securities as and when paid by Combined Alliance and
that such account shall be closed and such securities shall be immediately
returned to JAH upon expiration of RSI's FR Right with respect to such
securities.
(h) Covered Securities. Notwithstanding any provision of this Section
6 to the contrary, the FR Right shall apply only to the securities of Combined
Alliance purchased or acquired by the Company and such securities transferred
and assigned by the Company to its Members upon liquidation or any other
distribution.
7. Tag-Along Rights.
(a) Qualifying Sale. If RSI or JAH proposes to effect a Contingent
Transfer of any or all of its Class A Units then, unless JAH exercises its
rights under Section 16 with respect to such Transfer, each Tag-Along Member
shall have such rights (the "Tag-Along Rights") as provided in this Section 7.
Each Tag-Along Member may require RSI and JAH, as the case may be, and RSI and
JAH, as the case may be, shall cause, such third party purchaser to purchase
from each Tag-Along Member all, but not less than all, of the Tag Along Interest
of each such Tag-Along Member.
(b) Notice of Transfer. Each of RSI and JAH shall deliver a notice to
the Company and each other Member of each proposed sale of all or part of its
Class A Units (the "Notice of Transfer") at least ten (10) business days prior
to the closing of such purchase and sale. A Notice of Transfer shall contain the
information required to be included in a Notice of Offer and a statement that
the third party purchaser has been informed of the Tag-Along Rights provided for
in this Section 7 and has agreed in writing to purchase the membership interest
in accordance with the terms of this Agreement including, without limitation,
the Tag-Along Interests as provided by this Section 7.
<PAGE>
(c) Exercise of Tag-Along Rights. A Tag-Along Right may be exercised
by a Tag-Along Member by delivery of a notice to the Company and RSI and JAH, as
the case may be, to such effect (the "Tag-Along Notice") within ten (10)
business days after receipt of the Notice of Transfer. The Tag-Along Notice
shall state the member of Class A Units of such Member to be sold to such third
party purchaser. Any Class A Units purchased from a Member pursuant to this
Section 7 shall be at a price (per Unit) and upon such other terms which are no
less favorable to such Member than that contained in the Notice of Transfer.
8. Bring-Along Rights.
(a) Subject Sale. In the event of any proposed Bring-Along Qualifying
Sale, RSI shall have the right, but not the obligation (the "Bring-Along Right")
upon five (5) business days' prior notice, to require JAH, RFIA and/or Rieger,
as the case may be, to sell all, but not less than all, of the same percentage
of their respective Class A Units as RSI proposed to sell to such third party
purchaser, at the same purchase price per Class A Unit, on the same closing date
and on the same other terms and conditions as RSI.
(b) Number of Units Subject to a Bring-Along Right. The number of
Class A Units that a Member obligated to sell Class A Units pursuant to the
exercise of a Bring-Along Right is as follows:
(i) If JAH is the Member obligated to sell Class A Units, then
the same proportion of Class A Units proposed to be sold by RSI to the
total number of Class A Units then held by RSI; provided, that the
Bring-Along Right is subject to the right of JAH under Section 16 and
provided, further, that the Bring-Along Right of RSI with respect to
JAH is limited to the extent of a Transfer of fifty percent (50%) of
RSI's Class A Units; and
(ii) If any other Member is obligated to sell Class A Units, then
the same proportion of Class A Units proposed to be sold by RSI to the
total number of Class A Units then held by RSI.
(c) Transfer and Assignment. On the closing date specified for the
purchase and sale of Class A Units subject to the Bring-Along Right pursuant to
the exercise by RSI of its Bring-Along Right at the offices of the Company (x)
the party purchasing such Class A Units shall pay the aggregate purchase price
for such Units to the Member obligated to sell such Units pursuant to the
exercise of the Bring-Along Right on the same terms and conditions as regards
the other Members by wire transfer of immediately available funds and (y) the
Member obligated to sell such Units pursuant to the exercise of the Bring-Along
Right shall deliver to such purchaser the certificate or certificates, if any,
or an assignment of such Class A Units free and clear of any Liens (but such
Class A Units shall continue to be subject to the terms and provisions of this
Agreement).
9. Rieger Call Option. Subject to the limitations set forth in this Section
9, Rieger hereby grants the Company the right and option, but not the obligation
(the "Rieger Call Option"), to require Rieger to sell all, but not less than
all, of the Class A Units or all, but not less than all, of the Class B Units
issued to Rieger in exchange for its Initial Capital Contribution which have not
been Transferred subsequent to the Effective Date (in each case, such Units are
referred to herein as the "Rieger Call Units") as follows:
(a) Exercise Period. At any time during the period commencing on
January 30, 2001 and ending on June 29, 2002 Rieger shall have the Rieger Put
Option with respect to all, but not less than all, of the Rieger Put Units.
<PAGE>
(b) Manner of Exercise of the Rieger Call Option. The Rieger Call
Option shall be exercised by the Company delivering to Rieger a notice to such
effect which notice shall specify the date for the closing of the purchase and
sale of the Rieger Call Units, which date shall be not less than sixty (60) nor
more than one-hundred and twenty (120) days after the date such notice is
delivered to Rieger.
(c) Purchase Price of the Rieger Call Units. The aggregate purchase
price at which the Rieger Call Units shall be purchased pursuant to the Rieger
Call Option shall be the Fair Market Value of the Rieger Call Units; provided,
that if there is a Capital Event within six (6) months after the exercise of the
Rieger Call Option the Fair Market Value shall be (increased or decreased) (the
"Rieger Call Price Adjustment") to the extent necessary so that such Purchase
Price equals the amount that would have been calculated had the parties
considered such Capital Event in such computation.
(d) Closing of the Rieger Call Option. On the closing date specified
in accordance with Section 9(b) at the offices of the Company: (i) the Company
shall pay the aggregate purchase price of the Rieger Call Units to be purchased
pursuant to the Rieger Call Option by wire transfer of immediately available
funds; and (ii) Rieger shall deliver to the Company the stock certificate or
certificates or an assignment of the Rieger Call Units in form and substance
reasonably acceptable to RSI to be purchased pursuant to the Rieger Call Option
free and clear of any Liens (but such Units shall continue to be subject to the
terms and provisions of this Agreement).
(e) Purchase Price Adjustment. If the Rieger Call Price Adjustment
would have increased such Fair Market Value amount of the Rieger Call Units,
then the amount of the Rieger Call Price Adjustment shall be paid by the Company
to Rieger (in the same form and under the same terms and conditions applicable
to such Capital Event). If the Rieger Call Price Adjustment would have decreased
the Fair Market Value of the Rieger Call Units, then Rieger shall pay the
Company the amount of such Rieger Call Price Adjustment within 30 days after
notice to Rieger by the Company.
10. Rieger Put Option. Subject to the limitations set forth in this Section
10, the Company hereby grants Rieger the right and option, but not the
obligation (the "Rieger Put Option"), to require the Company to purchase all,
but not less than all, of the Class A Units or all, but not less than all, of
the Class B Units issued to Rieger in exchange for its Initial Capital
Contribution which have not been Transferred subsequent to the Effective Date
(in each case, such Units are referred to herein as the "Rieger Put Units") as
follows:
(a) Exercise Period. At any time during the period commencing on July
29, 1999 and ending on January 29, 2001 Rieger shall have the Rieger Put Option
with respect to all, but not less than all, of the Rieger Put Units.
(b) Manner of Exercise of the Rieger Put Option. The Rieger Put Option
shall be exercised by Rieger delivering to the Company a notice to such effect
which notice shall specify the date for the closing of the purchase and sale of
the Rieger Put Units, which date shall be not less than sixty (60) nor more than
one-hundred and twenty (120) days after the date such notice is delivered to the
Company.
<PAGE>
(c) Purchase Price of the Rieger Put Units. The aggregate purchase
price at which the Rieger Put Units shall be purchased pursuant to the Rieger
Put Option shall be the Fair Market Value of the Rieger Put Units on the date of
the notice specified in Section 10(b); provided, that if there is a Capital
Event within six (6) months after the exercise of the Rieger Put Option the Fair
Market Value shall be (increased or decreased) (the "Rieger Put Price
Adjustment") to the extent necessary so that such Purchase Price equals the
amount that would have been calculated had the parties considered such Capital
Event in such computation.
(d) Closing of the Rieger Put Option. On the closing date specified in
accordance with Section 10(b) at the offices of the Company: (i) the Company
shall pay the aggregate purchase price of the Rieger Put Units to be purchased
pursuant to the Rieger Put Option by wire transfer of immediately available
funds; and (ii) Rieger shall deliver to the Company the stock certificate or
certificates or an assignment of the Rieger Put Units in form and substance
reasonably acceptable to RSI to be purchased pursuant to the Rieger Put Option
free and clear of any Liens (but such Units shall continue to be subject to the
terms and provisions of this Agreement).
(e) Purchase Price Adjustment. If the Rieger Put Price Adjustment
would have increased such Fair Market Value amount of the Rieger Put Units, then
the amount of the Rieger Put Price Adjustment shall be paid by the Company to
Rieger (in the same form and under the same terms and conditions applicable to
such Capital Event). If the Rieger Put Price Adjustment would have decreased the
Fair Market Value of the Rieger Put Units, then Rieger shall pay the Company the
amount of such Rieger Put Price Adjustment within 30 days after notice to Rieger
by the Company.
11. JAH A Membership Class Put Option. Subject to the limitations set forth
in this Section 11, JAH shall have the right and option, but not the obligation
(the "JAH Put Option"), exercisable in its sole discretion, to require RSI to
purchase all, but not less than all, of the JAH Put Units as follows:
(a) Exercise Period. JAH shall have the JAH Put Option with respect to
all, but not less than all, of the JAH Put Units at any time during the period
commencing on the date hereof and ending on the earlier of (x) the date of a
Qualified IPO or (y) the date that is five years after the Effective Date.
(b) Suspension of the JAH Put Option. In the event that the purchase
of Class A Units pursuant to JAH Put Option would (i) violate applicable law or
(ii) (unless the JAH Put Option has been previously exercised in accordance with
this Section 11) conflict with the Bring-Along Right provided for in Section 8,
then only to the extent of such violation or conflict the JAH Put Option shall
be suspended; provided, however, that when applicable law or the Bring-Along
Right no longer prohibits the purchase of such Class A Units, the JAH Put Option
shall be reinstated with the same effect as if it had become exercisable on the
date such suspension had become effective. To the extent that any Units may be
sold under the JAH Put Option not in violation of applicable law and not in
conflict with the Bring-Along Right, the JAH Put Option shall not be suspended
to such extent. In addition, the JAH Put Option shall not be suspended pursuant
to the provisions of this Section 11(b): (i) more than three times during any
annual period, nor for more than an aggregate of ninety (90) days during any
annual period; or (ii) from and after the date that is one month prior to the
expiration of the JAH Put Option.
<PAGE>
(c) Termination of the JAH Put Option. Notwithstanding the Terms of
this Agreement, the JAH Put Option shall terminate the earlier of the date that:
(i) (unless the JAH Put Option has been previously exercised in accordance with
this Section 11) RSI is obligated to sell all of its Class A Units in a
Contingent Transfer in accordance with the terms and conditions of this
Agreement or otherwise in a bona fide transaction; provided that a notice of
such proposed sale is delivered to JAH at least fifteen (15) business days prior
to the closing of such purchase and sale (in the event such sale is not
consummated the JAH Put Option shall continue); (ii) the date of a Qualified
IPO; (iii) five (5) years after the date of the Effective Date; or (iv) the date
that JAH is obligated to sell all of its Class A Units (unless such Transfer is
not consummated in accordance with the terms and conditions applicable thereto).
(d) Manner of Exercise of the JAH Put Option. The JAH Put Option shall
be exercised by JAH delivering to RSI a notice to such effect which notice shall
specify the date for the closing of the purchase and sale of JAH's Class A
Units, which date shall be not less than ninety (90) nor more than one hundred
and twenty (120) days after the date that the Fair Market Value of the JAH Put
Units is determined in accordance with this Agreement.
(e) Purchase Price of the JAH Put Units. The aggregate purchase price
at which the JAH Put Units shall be purchased pursuant to the JAH Put Option
shall be the Fair Market Value of such Class A Units on the date of the notice
specified in Section 11(d) determined in accordance with Section 28.
(f) Closing of the JAH Put Option. On the closing date specified in
accordance with Section 11(d) at the offices of the Company: (i) RSI shall pay
the aggregate purchase price of the JAH Put Units to be purchased pursuant to
the JAH Put Option by wire transfer of immediately available funds; and (ii) JAH
shall deliver to RSI the certificate or certificates, if any, or an assignment
of the JAH Put Units in form and substance reasonably acceptable to RSI to be
purchased pursuant to the JAH Put Option free and clear of any Liens (but such
Units shall continue to be subject to the terms and provisions of this
Agreement).
(g) Termination Date. The provisions of this Section 11 shall survive
the Term or the termination, liquidation or dissolution of the Company.
(h) Default Call Option. In the event that RSI fails to pay the
aggregate purchase price for the Class A Units upon the closing date specified
in accordance with Section 11(d) other than as a result of an Excused Condition,
then in addition to all other rights and remedies available to JAH at law or in
equity, JAH shall have the right, but not the obligation, to purchase all, but
not less than all of the Class A Units then owned by RSI at an aggregate price
equal to 80% of the Fair Market Value of such Units, it being acknowledged and
agreed that the amount equal to 20% of such aggregate Fair Market Value shall
reduce the amount of damages that JAH would otherwise be entitled to as a result
of such default by RSI. Such right of JAH may be exercised on or prior to the
date that is 60 days after the date of such default or breach upon notice to
such effect by JAH to RSI, which notice shall specify the date for the closing
of such purchase and sale of RSI's Class A Units, which date shall not be less
than five (5), nor more than 120 days after the date that the aggregate Fair
Market Value of RSI's Class A Units is determined in accordance with this
Agreement. On the closing date specified in accordance with this Section 11(h),
RSI shall deliver to JAH the certificate or certificates, if any, or an
assignment of the interest of RSI being purchased by JAH pursuant to this
Section 11(h) in form and substance reasonably acceptable to JAH free and clear
of any Liens (but such Units shall continue to be subject to the terms and
provisions of this Agreement) in exchange for and upon receipt of the aggregate
purchase price for such interests.
(i) Co-Obligation of Reckson. Reckson Services Industries Inc., hereby
acknowledges and agrees that it, as a primary obligor, is jointly and severally
liable with respect to the obligations of RSI under this Section 11 to the full
extent of such obligations, subject to any defenses, counterclaims, set-offs and
other rights of RSI with respect to JAH.
<PAGE>
12. D Membership Class Call and Put Options. Subject to the limitations set
forth in this Section 12: (i) JAH hereby grants RSI the right and option, but
not the obligation (the "D Class Call Option") to require JAH and its affiliates
to sell all, but not less than all, of the Class D Units owned by JAH and its
affiliates (the "Subject D Units"); and (ii) RSI hereby grants JAH the right and
option, but not the obligation (the "D Class Put Option"), to require RSI to
purchase all, but not less than all, of the Subject D Units.
(a) Exercise Period.
(i) RSI shall have the D Class Call Option with respect to the
Subject D Units of JAH at any time during the period commencing on February
1, 1999 and ending on February 28, 1999.
(ii) JAH shall have the D Class Put Option with respect to the
Subject D Units of JAH at any time from and after for a period commencing
on February 1, 2000 and ending on May 31, 2000 (the "D Class Put Period").
(b) Manner of Exercise of such Options.
(i) The D Class Call Option shall be exercised by RSI delivering
to JAH a notice to such effect which notice shall specify the date for the
closing of the purchase and sale of Subject D Units, which date shall be
not less than five (5) nor more than fifteen (15) business days after the
date such notice is delivered to JAH.
(ii) The D Class Put Option shall be exercised by JAH delivering
to RSI a notice to such effect which notice shall specify the date for the
closing of the purchase and sale of JAH's Subject D Units, which date shall
be not less than five (5) nor more than fifteen (15) business days after
the date such notice is delivered to RSI.
(c) Purchase Price of the Subject D Units. The aggregate purchase
price at which the Subject D Units shall be purchased shall equal (x) $6,500,000
plus all interest accrued on the Initial Acquisition Loan from the Effective
Date through the date of the closing of the purchase and sale of the Subject D
Units, if such Units are purchased pursuant to the D Class Call Option or (y)
$8,500,000 plus all accrued interest on the Initial Acquisition Loan from the
Effective Date through the date of the closing of the purchase and sale of the
Subject D Units if such Units are purchased pursuant to the D Class Put Option.
RSI shall have the right to offset from such amount the amount, if any, of the
outstanding principal amount of the Initial Acquisition Loan as of the date of
the closing of the purchase and sale of the Subject D Units pursuant to the D
Class Call Option or the D Class Put Option, plus accrued and unpaid interest as
of the date of the closing of the purchase and sale of the Subject D Units.
(d) Letter of Credit. As credit support for the aggregate purchase
price for the Subject D Units pursuant to the D Class Put Option, RSI on or
prior to the Effective Date RSI shall deliver to JAH an irrevocable stand-by
letter of credit from Chase Manhattan Bank N.A. substantially in the form of the
specimen attached hereto as Exhibit C with any modifications thereto approved by
JAH which approval shall not be unreasonably withheld, delayed or conditioned
(the "Letter of Credit") for an amount equal to $5,649,988 which may be
immediately drawn upon in the event RSI fails to pay the purchase price pursuant
to the D Class Put Option as and when due. RSI shall keep the Letter of Credit
in force until the earlier of (x) May 31, 2000 or (y) the date RSI purchases the
Subject D Units pursuant to the D Class Call Option or the D Class Put Option.
<PAGE>
(e) Closing of the D Class Option. On the closing date specified in
accordance with Section 12(b) at the offices of the Company: (i) RSI shall pay
the aggregate purchase price of the Class D Units to be purchased pursuant to
the D Class Call Option or the D Class Put Option by certified or official bank
check or by wire transfer of immediately available funds; (ii) RSI shall deliver
to JAH a signed release or satisfaction of the Initial Acquisition Loan in the
form attached hereto as Exhibit D evidencing payment-in-full; (iii) JAH shall
deliver to RSI the certificate or certificates, if any, or an assignment in the
form attached hereto asE C of the D Class Put Units to be purchased pursuant to
the D Class Put Option free and clear of any Liens (but such Class D Units shall
continue to be subject to the terms and provisions of this Agreement); and (iv)
JAH shall deliver a duly executed notice to Chase Manhattan Bank N.A. (with a
copy to RSI) directing Chase Manhattan Bank N.A. to terminate the letter of
credit referred to in Section 12(d) and take, at the request and expense of RSI,
such other actions required by Chase Manhattan Bank N.A. to terminate such
letter of credit.
(f) Survival of the D Class Option. The D Class Put Option shall
survive the Term or the termination, liquidation or dissolution of the Company.
13. Governance.
(a) Covenant by Each Member. Each Member hereby agrees to take, at any
time and from time to time, all action necessary (including, without limitation,
voting all of its membership interests in person or by proxy, calling special
meetings of the Members holding C Membership Class membership interests or D
Membership Class membership interests and executing and delivering written
consents in lieu thereof) to effect the provisions of this Section 13.
(b) Manager.
<PAGE>
(i) The Member holding the Class D Units may elect or appoint any
person or entity as the Manager of the Company (the "Manager"). Unless otherwise
agreed by RSI, JAH and RFIA (the agreement of any such Person being required
only if at such time it is a Member), the Manager shall not receive any fee for
serving as the manager but shall be reimbursed for all expenses incurred on
behalf of the Company's business. Each Member holding Class C Units shall be
reimbursed for all out of pocket third party professional fees and expenses
incurred on behalf of the Company's business on the same basis that the Manager
is reimbursed for such expenses. The Initial Manager shall be RSI. The Manager
may delegate any or all of its duties to hereunder pursuant to a written
agreement. It is acknowledged and agreed that the Manager may enter into an
agreement with an Affiliate of RSI providing for such Affiliate to exercise the
rights of the Company provided under the terms and provisions of the CA
Agreement and the Merger Agreement. Such Affiliate shall not receive any
compensation from the Company under such agreement but shall be reimbursed for
all reasonable and customary expenses and disbursements. Subject to the express
provisions of this Agreement the Manager shall have the exclusive power and
authority including, without limitation, the power and authority customarily
afforded the board of directors and the stockholders of a corporation
incorporated in the State of Delaware to manage the business and affairs of the
Company. In this regard, except as otherwise expressly provided herein, the
Manager shall have all power and authority to approve any transaction of the
Company, manage, and direct the management and the business and affairs of, the
Company including, without limitation, the power to exercise all rights of the
Company under the CA Agreement and under the Merger Agreement. Any power not
delegated by the Manager pursuant to this Agreement or any separate agreement
shall remain with the Manager. Approval of, or action taken by, the Manager in
accordance with the terms of this Agreement shall constitute approval of, or
action by, the Company and shall be binding on each of the Members.
(ii) The Manager shall serve until the completion of his or its
term (which term shall initially be for three (3) years and shall be extended
for an additional year upon each annual anniversary of this Agreement) or until
such earlier date as: (1) the removal of the Manager for cause, by written
notice of the Member holding the Class D Units; provided, however, that until
the expiration of the Exercise Period with respect to the D Class Call Option,
the consent of Scott Rechler of his designee shall be required in order to
remove the Manager, such consent to be based on a reasonable good-faith judgment
that "cause" does exist; or (2) the resignation or death or liquidation of the
Manager. For the purpose of this Agreement "cause" shall mean the intentional
misconduct or gross negligence of the Manager. Upon the removal, resignation,
death or liquidation of the Manager, the Members holding the D Class Units may
designate a successor who shall serve for the remainder of the term of the
Manager.
(iii) Any Member holding Class D Units may call a special meeting
of such Members. RSI may call a special meeting of the Members holding Class A
Units or Class C Units. Special meetings of such Members shall require at least
forty-eight (48) hours' prior written or telephonic notice to all such Members,
unless such notice shall have been waived in writing by all such Members, which
notice shall identify the purpose of the meeting or the business to be
transacted. Each such Member may vote by delivering his or its proxy to another
Member holding such Units. Such Members may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear one another, and such
participation shall constitute presence in person at such meeting. Such Members
may act without a meeting if the action taken is approved in writing by the
requisite Members.
(c) Officers. The Company shall have such officers who shall have such
power and authority and such duties as determined by the Manager from time to
time. The Company shall initially appoint each of Scott Rechler and Jon Halpern
as "Co-Chairmen" which position shall not be a position with any authority to
enter into contracts or otherwise commit or obligate the Company in any manner
without the prior approval of the Manager. Any officer or Co-Chairman of the
Company may be removed by the Manager at any time with or without cause, subject
to any agreement between such officer or Co-Chairman and the Manager, the
Co-Chairmen and the officers shall each serve without compensation.
<PAGE>
(d) Combined Alliance Directors. The directors and committee members
which the Company is permitted to nominate, select or appoint pursuant to the
terms and conditions of the CA Agreement shall be nominated, selected or
appointed by the Manager on behalf of the Company; provided, that prior to an
IPO, the Company shall appoint Jon Halpern as a member of the Board of Directors
and Executive Committee of Combined Alliance and, if the Company can appoint two
or more members to the Strategic Steering Committee of Combined Alliance, such
Strategic Steering Committee, in all cases, subject to removal for cause (as may
be determined between the Manager and any such appointee from time to time);
provided, further, that if the Board of Directors of Combined Alliance will be
reelected or in any way changed in connection with, or in contemplation of, an
IPO and the Company then has the power to elect or appoint at least three
directors, then the Company will, to the fullest extent permitted under the CA
Agreement, use its reasonable efforts to nominate and elect or appoint Jon
Halpern as a member of the Combined Alliance Board of Directors at such
election. In addition, the individuals elected or appointed by the Company to
the Strategic Steering Committee of Combined Alliance shall include Scott
Rechler or his designee, Jon Halpern and any other individual designated by the
Manager, who shall be subject to the approval of RSI and JAH (which approval
shall not be unreasonably withheld or delayed or conditioned). The rights of Jon
Halpern set forth in this Section 13(d) with respect to election or appointment
to the Board of Directors, Executive Committee and Strategic Steering Committee
of Combined Alliance shall pass upon the death or disability of Jon Halpern to a
JAH appointee who is reasonably acceptable to the Manager. The Company shall
require that any equity interest in Combined Alliance or option or right to
acquire any equity interest in Combined Alliance issued to any individual
appointed by the Company to serve on the Combined Alliance board of directors or
any committee thereof solely in their capacity as such director or committee
member be assigned to the Company.
(e) Limitations. Notwithstanding any provisions contained in this
Agreement to the contrary, the Company shall not, and the Manager shall not
cause the Company to except with the affirmative consent (a "Supermajority
Vote") of the Members holding more than 50% of the Class C Units, consummate any
of the following actions (each, a "Significant Decision"):
(i) Commencing any business or line of business other than the
holding, managing and selling, pledging or otherwise realizing the economic
value of the Combined Alliance Shares held by the Company and exercising its
rights and performing its obligations under the CA Agreement;
(ii) The incurrence of any indebtedness by the Company,
including, without limitation, any indebtedness between the Company and any of
its Members or their respective Affiliates;
(iii) The merger or consolidation of the Company;
(iv) The sale of all or substantially all of the Combined
Alliance Shares owned by the Company or that number of Combined Alliance Shares
which, immediately after such Transfer, would result into the Qualifying Series
C Beneficial Holders not having Beneficial Ownership of at least 20% of the
Series C Adjusted Fully Diluted Capitalization (as such capitalized terms are
defined by the CA Agreement), in each case, other than in connection with an
IPO;
(v) The liquidation or dissolution of the Company prior to the
date of an IPO other than in accordance with Section 20 hereof;
(vi) The filing on behalf of the Company of a petition pursuant
to the United States Bankruptcy Code (Title 11, U.S.C.), as amended;
(vii) Any recapitalization of the Company, any changes in number
of Units, any exchanges, conversions, new issuances or redemptions of equity in
the Company, except as expressly provided herein; or
(viii) The selection or change in the tax allocations to the
extent required by Section 19(g).
<PAGE>
14. Additional Contributions.
(a) Capital Call. If, at any time and from time to time, the Manager
determines that the Company requires funds in addition to the cash on hand for
the Company to purchase additional Combined Alliance Shares or any securities
issued by Combined Alliance or its controlled Affiliates pursuant to the
exercise of its rights under the CA Agreement or to pay or otherwise discharge
or settle obligations of the Company under the Merger Agreement or redeem Class
A Units issued pursuant to the options described in Section 2(l) or to redeem
such options ("Necessary Funds"), then a notice shall be given to all Members
holding Class A Units (a "Capital Call Notice") stating the terms and conditions
of the offering of additional membership interest to such Members, the amount of
the Necessary Funds required and the number and type of such securities to be
purchased or the other relevant information regarding the intended use of such
Necessary Funds.
(b) Capital Call Objectives. The Members acknowledge and agree that
each Member holding Class A Units shall be provided the opportunity to
contribute up to its pro rata share of any Necessary Funds based on its
ownership of Class A Units and that Members who do not contribute their
respective pro rata share in full shall have their equity interest in the
Company (as represented by their Class A Units) diluted on a fair market value
basis in accordance with the provisions of this Section 14. The following
example illustrates the method by which fair market dilution of equity interests
shall be determined for purposes of this Agreement:
(i) Assume that there are 1,000 Class A Units; that a Member owns
a 10% A Class Percentage Interest (100 Class A Units); that the Capital Call
Value of the Company determined in accordance with this Agreement prior to the
Capital Call Notice and the contribution of Necessary Funds is $4,000,000; that
the aggregate contribution of Necessary Funds of $1,000,000; that such Member
does not contribute any Necessary Funds; and that each other Member has
contributed such Member's portion of the Necessary Funds on a pro rata basis.
(ii) The provisions of this Section 14 would result in a dilution
of such Member as follows, subject to readjustment as a result of the operation
of Section 14(h) below:
(A) The amount of the Necessary Funds which the Member has a
right to contribute is equal to (I) that Member's A Class
Percentage Interest (10%) multiplied by (II) the aggregate amount
of such Necessary Funds ($1,000,000) (that is: 10% $1,000,000 or
$100,000) divided by (III) the fair market value of the Company
immediately prior to the Capital Call Notice plus the amount of
the Necessary Funds to be contributed to the Company as stated in
the Capital Call Notice, assuming that the other Members
contribute the total amount of Necessary Funds ($4,000,000 fair
market value plus the $1,000,000 contribution of Necessary Funds
or $5,000,000); which equals 100,000 / 5,000,000 or 0.02 or 2%.
(B) The equity interest of such Member after the dilution
caused by it not contributing Necessary Funds is the equity
percentage of such Member prior to the Capital Call Notice less
the amount of such dilution, that is: 10% less 2%, which results
in an equity percentage equal to 8% after the dilution of such
Member.
<PAGE>
(c) Determination of Number of Class A Units to be Issued and Sold.
The Company shall obtain the Necessary Funds by the issue and sale of Class A
Units (the "Additional Shares"). The maximum number of Additional Shares which
may be issued and sold shall be determined on the basis of the Capital Call
Value of the Company on the date of the Capital Call Notice and shall equal: (i)
the number of Class A Units prior to the Capital Call Notice; (ii) multiplied by
a fraction, the numerator of which is the aggregate amount of the Necessary
Funds and the denominator of which is the Capital Call Value of the Company
immediately prior to the Capital Call Notice . Using the above illustration, the
number of Additional Shares would equal 1,000 * ($1,000,000 / $4,000,000) or 250
Class A Units. The purchase price per Additional Share (the "NF per Share")
shall equal the aggregate amount of Necessary Funds to be contributed in
accordance with the Capital Call Notice divided by the aggregate number of
Additional Shares. Using the above illustration, the NF per Share would equal
$1,000,000 / 250 or $4,000 per share. Accordingly, if all Additional Shares were
issued and sold at the NF per Share the Company would obtain the total amount of
the Necessary Funds.
(d) Pre-Emptive Rights; Subscription for Additional Shares. Within
five (5) business days after the date that a Capital Call Notice is delivered
(the "Subscription Acceptance Period"), each Member holding Class A Units shall
have the right, but not the obligation, to subscribe for the purchase of
Additional Shares on a pro rata basis; that is up to the number of Additional
Shares equal to: (i) the number of Class A Units held by such Member immediately
prior to the Capital Call Notice ; (ii) multiplied by a fraction, the numerator
of which is the number of Additional Shares and the denominator of which is the
total number of issued and outstanding Class A Units immediately prior to the
Capital Call Notice. The Company shall offer Additional Shares to the Members in
the manner stated in the Capital Call Notice at a purchase price per share equal
to the NF per Share. Any Member who provides the Company with a notice prior to
the expiration of the Subscription Acceptance Period that it shall purchase all
of the Additional Shares offered to such Member in accordance with the terms and
conditions stated in such Capital Call Notice is herein called a "Fully
Subscribing Member" and each other Member is herein referred to as a "Non-Fully
Subscribing Member". Each Non-Fully Subscribing Member who provides the Company
with a notice prior to the expiration of the Subscription Acceptance Period that
it will purchase some, but not all, of the Additional Shares offered to it is
herein called a "Partly Subscribing Member", and together with the Fully
Subscribing Member, the "Subscribing Members".
<PAGE>
(e) Notice of Subscription Deficit. Promptly after the expiration of
the Subscription Acceptance Period, the Company shall give notice to each Member
setting forth: (i) the name of each Non-Fully Subscribing Member; (ii) the
number of Additional Shares which each Non-Fully Subscribing Member did not
subscribe to purchase in accordance with the applicable Capital Call Notice; and
(iii) the aggregate amount of Additional Shares which all of the Non-Fully
Subscribing Members declined to purchase pursuant to such Capital Call Notice
(such total amount as the same may be reduced by any shares purchased by the
Fully Subscribing Members in the manner hereinafter set forth is herein called
the "Additional Subscription Shares"). Within five (5) business days after the
giving of such notice (the "Subscription Deficit Contribution Period"), the
Fully Subscribing Members shall have the right, but not the obligation, to
subscribe for the purchase of the Additional Subscription Shares on a pro rata
basis. Those Fully Subscribing Members electing to subscribe for the purchase of
Additional Subscription Shares shall provide a notice to the Company to such
effect on or prior to the expiration of the Subscription Deficit Contribution
Period. Such notice shall also state the amount, if any, of Additional
Subscription Shares in excess of such Member's pro rata amount ("Remaining
Shares") which such Member would purchase in the event that all of the
Additional Subscription Shares are not purchased by the Fully Subscribing
Members. The Remaining Shares will be purchased by the Fully Subscribing
Members, first in the proportion of the number of Class A Units held by such
Member (assuming the purchase of the Additional Shares and Additional
Subscription Shares) and then such Remaining Shares will be allocated to the
Fully Subscribing Members in successive rounds of allocations (which such
allocations shall be deemed to be made simultaneously) so that in each
allocation the then unallocated Remaining Shares are allocated to such Fully
Subscribing Members in the proportion of the number of Class A Units held by
such Member (assuming the purchase of the Additional Shares and Additional
Subscription Shares and Remaining Shares then allocated to such Member) but in
no event shall any Remaining Shares be allocated to a Fully Subscribing Member
in an amount in excess of the amount specified by such Member in its notice to
the Company specifying the amount of Additional Subscription Shares which such
Member will purchase.
(f) Number of Additional Shares; Use of Necessary Funds. It is
acknowledged and agreed that for the purposes of determining the dilution
pursuant to this Section 14, the number of Additional Shares shall equal the
number of Additional Shares actually issued and sold with respect to the
applicable Capital Call Notice. The Necessary Funds received by the Company from
the issue and sale of the Additional Shares shall be used for the purchase of
the Combined Alliance securities or for such other purpose stated in the Capital
Call Notice.
(g) Subscription Closing. On the date (the "Subscription Due Date")
that the Additional Shares are issued and sold by the Company to the Subscribing
Members in accordance with the procedures described in the Capital Call Notice
at the offices of the Company, the Company shall issue and deliver to each
Subscribing Member a certificate representing the number of Additional Shares
which such Subscribing Member subscribed for, if such Class A Units are to be
represented by certificates, or a copy of the Schedule I as amended by the
Manager to reflect the issuance by the Company of such Additional Shares and
such Member shall pay to the Company by a wire transfer of immediately available
funds an amount equal to such Additional Shares (including Additional
Subscription Shares) multiplied by the NF per Share price. In the event of a
default by a Subscribing Member to purchase their Additional Shares (including
Additional Subscription Shares) on the Subscription Due Date (the "Defaulted
Shares"), then each Member that is a Subscribing Member shall have the right to
purchase the Defaulted Shares to the extent that such Subscribing Member had a
right to purchase Remaining Shares pursuant to Section 14(e), it being
acknowledged that the date for the purchase and sale of the Defaulted Shares
shall be the Subscription Due Date.
(h) Intentionally Omitted.
<PAGE>
(i) Limitation of JAH Right to Purchase Additional Shares.
Notwithstanding anything in this Agreement to the contrary, the aggregate amount
of Necessary Funds which JAH shall have the right to contribute to the Company
shall be limited to an amount equal to JAH's pro rata amount of the first
$23,157,895 of Necessary Funds contributed to the Company by the purchase of
Additional Shares pursuant to any Capital Call Notices; excluding Necessary
Funds required to satisfy the obligations of the Company under the provisions of
the Merger Agreement, including, without limitation, the indemnification
provisions and the funding of the Shareholder Contribution by the Company and
Necessary Funds used to fund operational costs and expenses of the Company
(e.g., legal and accounting and investment banking fees and disbursements) to
the extent not paid by the Company from gross receipts. Notwithstanding the
foregoing to the contrary, the amount of such Necessary Funds which JAH shall
have a right to contribute to the Company by the purchase of Additional Shares
shall be increased to the extent that the weighted average consolidated debt
ratio of Combined Alliance is less than 50% (as conclusively evidenced by the
quarterly balance sheet of Combined Alliance) from and after the Effective Date
to the date that an aggregate of $23,157,895 of Necessary Funds is raised
pursuant to Capital Call Notices. Furthermore, and notwithstanding any provision
herein to the contrary, from the Effective Date to the earlier to occur of (x)
the second anniversary of the Effective Date or (y) the date of an IPO, JAH
shall have the right to purchase Additional Shares to the extent necessary to
maintain an A Class Percentage Interest of 17.80%, provided, that, in all
events, it is acknowledged and agreed that JAH's right to contribute Necessary
Funds by the purchase of Additional Shares is on a use or forfeit basis. In
addition, as a separate limitation to JAH's right to purchase any Additional
Shares, JAH shall not have the right to purchase any Additional Shares
representing JAH's pro rata interest in any Class A or Class B Units Transferred
by JAH to Rieger and subsequently Transferred by Rieger and purchased by the
Company pursuant to the Company's right of first refusal under the Rieger Letter
Agreement or otherwise.
The following example illustrates the adjustment described in clause
(A) above: assume that the Company issues a Capital Call Notice for $25,000,000
of Necessary Funds for the purchase of securities issued by Combined Alliance
and that the consolidated debt leverage of Combined Alliance during the
applicable measurement period is 30%. Absent the adjustment in clause (A) above,
JAH's right to purchase Additional Shares would be limited to its pro rata
amount of the first $23,157,895 of Necessary Funds which, assuming no change in
JAH's initial A Class Percentage Interest, is equal to 23.75% of $23,157,895 or
$5,500,000. The adjustment provided in clause (A) above is equal to (A) the
product of the amount of the limit of Necessary Funds which JAH would be able to
contribute (which assuming no other adjustments is equal to $23,157,895)
multiplied by 50% and divided by the consolidated debt leverage of Combined
Alliance during the applicable measurement period (30%) less (B) the amount of
the limit of Necessary Funds which JAH would be able to contribute (which
assuming no other adjustments is equal to $23,157,895). Therefore, the
adjustment to such amount is equal to [$23,157,895 * 0.5 / 0.3] - $23,157,895 or
$38,596,492 - $23,157,895 or $15,438,597 and therefore JAH's pro rata amount,
assuming a 23.75% membership interest, would equal $9,166,666.77.
(j) Obligation to Purchase Combined Alliance Shares. Subject to
Section 14(k) and Section 16, prior to the date an IPO is declared effective,
the Manager shall cause the Company to purchase any securities issued by
Combined Alliance that the Company has a right to purchase pursuant to the terms
and conditions of Section 4.3 (Rights of First Refusal) and Section 7.1
(Preemptive Rights) of the CA Agreement to the extent:
(i) the Manager determines in his or its sole discretion; or
(ii) of a Member's A Class Percentage Interest of the number of
securities issued by Combined Alliance which the Company has a right
to purchase if (x) such Member demands such exercise at least two
business days prior to the date the Company's right to so purchase
such securities expires pursuant to the terms and provisions of the CA
Agreement and (y) tenders to the Company the aggregate purchase price
of such securities.
<PAGE>
In the event that the Manager determines not to exercise the preferred
right to purchase securities of Combined Alliance on behalf of the Company
pursuant to Section 4.3 and Section 7.1 of the CA Agreement, the Manager shall
provide telecopier notice of such determination to each of the Members no later
than five (5) business days prior to the date that such right will expire
pursuant to the terms and conditions of the CA Agreement (with written notice to
follow promptly by telecopier and overnight courier or personal delivery if such
notice was by telephone).
(k) Limitation to the Company's Right to Purchase Combined Alliance
Shares. It is acknowledged and agreed that the CA Agreement provides RSI a
preferred right to purchase securities of Combined Alliance which are (x)
subject to the right of first refusal thereunder or (y) issued by Combined
Alliance. Such preferred right of RSI continues until RSI has the Beneficial
Ownership (as defined by the CA Agreement) of 30% of the Series C Adjusted Fully
Diluted Capitalization (as such term is defined by the CA Agreement). Any
purchase by the Company of any such securities at the direction of or for the
benefit of RSI pursuant to such preferred right shall be paid for solely by RSI
or its Affiliates and shall be allocated by the Company solely to RSI by the
issuance of an appropriate amount of additional Class A Units to RSI so that
RSI's A Class Percentage Interest immediately after such Class A Units are
issued and paid provides RSI with the sole economic benefit of the Combined
Alliance securities purchased pursuant to such preferred right of RSI. It is
acknowledged and agreed that after such preferred right of RSI, there is a
general right of first refusal and preemptive right provided under the CA
Agreement accruing to the benefit of all holders of specified securities of
Combined Alliance, including without limitation Reckson Office Centers LLC, an
affiliate of RSI. Any purchases of Combined Alliance securities by any other
holders of Combined Alliance securities in which RSI has a Beneficial Ownership
and the preferred right of RSI to purchase such securities of Combined Alliance
shall be included in determining whether RSI has received the 30% threshold set
forth above in this Section 14(k).
15. Substitution of Rights Upon Change of Majority of Series C Stock in
Combined Alliance.
(a) Intended Effect. It is the intention of RSI and JAH that at JAH's
option the governance and liquidity rights set forth in this Agreement shall be
transferred to JAH at such time as JAH owns a Beneficial Ownership of a Majority
of the Shares of Series C Preferred Stock (as defined by the CA Agreement);
provided, that simultaneously therewith RSI shall be entitled to certain of the
rights of JAH set forth in this Agreement.
(b) Triggering Event. The terms and provisions of this Section 15
shall be effective upon written notice to such effect by JAH to RSI on or prior
to thirty (30) days from the date that JAH has a Beneficial Ownership (which
ownership shall not include the number of Class A Units acquired by JAH directly
or indirectly from Rieger in any Transfer in which Reckson did not have the
right to purchase such Units pursuant to a right of first refusal provided
hereunder) of a Majority of the Shares of Series C Preferred Stock (a
"Governance Triggering Event").
(c) Substitution of Rights.
(i) Upon a Governance Triggering Event, the Manager shall
immediately resign and, assuming the D Class Interest Call Option or D
Class Interest Put Option has previously been exercised, RSI shall transfer
and assign all of its Class D Units to JAH to the effect that JAH shall be
appointed the Manager.
(ii) Upon a Governance Triggering Event, the following amendments
shall automatically be made to this Agreement without any further action by
any party hereto or the payment of any costs, fees or amounts:
<PAGE>
(A) The rights provided in Section 13 regarding the right of
Jon Halpern to be nominated, elected or appointed to the Board of
Directors, Executive Committee and Steering Committee of Combined
Alliance shall immediately become the right of RSI or any designee of
RSI for as long as RSI holds any Class A Units.
(B) The rights provided in Section 11 regarding the right,
but not the obligation to require the purchase of Class A Units shall
be immediately amended so that (A) RSI shall have the JAH Put Option
and JAH shall be the obligated party under the JAH Put Option; (B) the
JAH Put Units shall mean all, but not less than all, of the Class A
Units issued to RSI in accordance with Section 2 in exchange for its
Initial Capital Contribution which have not been subsequently
Transferred and all other provisions shall remain in full force and
effect, as amended by this Section.
(C) The rights provided in Section 7 regarding the Tag-Along
Right of JAH shall immediately become the Tag-Along Right of RSI with
respect to any such transaction by JAH, and JAH shall be the party
obligated under such Tag-Along Right, as amended by this Section.
(D) The right of Jon Halpern to be appointed the
"Co-Chairman" of the Company shall immediately become the right of RSI
or any individual designated by RSI.
(E) The FR Right of RSI with respect to the Units owned by
RFIA and Rieger shall become the FR Right of JAH with respect to such
Units, accordingly, RSI shall no longer have an FR Right.
(F) Section 14 (i) shall be deleted. Accordingly, JAH shall
not be restricted in the amount of Necessary Funds that it may
contribute to the Company pursuant to any Capital Call.
(G) The rights of JAH under Section 16 shall immediately
become the rights of RSI.
(iii) It is acknowledged and agreed that no provision of this
Section 15 shall suspend, terminate or otherwise affect the JAH Put Option
provided for in Section 12.
(d) Reversion of Rights. The terms and provisions of this Agreement
shall again be amended to fully reverse the effect of all of the amendments
specified in Section 15(c) immediately upon the date that RSI has a Beneficial
Ownership (which ownership shall include (be increased) by the number of Class A
Units acquired by JAH directly or indirectly from Rieger in any Transfer in
which Reckson did not have the right to purchase such Units pursuant to a right
of first refusal provided hereunder) of a Majority of the Shares of Series C
Preferred Stock.
(e) Consideration of Certain Permitted Transferees. For the purposes
of this Section, the ownership of JAH and RSI shall include the ownership of any
Transferee in a Transfer effected in accordance with Sections 5(c)(i), (ii ) and
(vi).
<PAGE>
16. JAH Right of First Refusal to Maintain Group Ownership. Notwithstanding
anything in this Agreement to the contrary, JAH shall have the right to purchase
any Class A Units proposed to be Transferred by any other Member at a price
equal to the Third Party Price (or a pro rata portion thereof in the case of an
exercises by JAH of its rights hereunder with respect to less than all of the
Class A Units proposed to be Transferred) if: (i) such Transfer would
(immediately upon the consummation of such Transfer) result in the Qualifying
Series C Beneficial Holders not having Beneficial Ownership of at least 20% of
the Series C Adjusted Fully Diluted Capitalization (as such capitalized terms
are defined by the CA Agreement); and (ii) the Company or RSI had the right to
purchase such Units and neither the Company nor RSI exercises such right to
purchase such Units; provided, that, each of the Company and RSI shall give a
notice to JAH of its intention not to so exercise such purchase right at least
two (2) business days prior to expiration of such right and shall give a copy of
a notice exercising such purchase right, if any, to JAH. This right shall be
exercisable by JAH in accordance with the same procedures as are set forth in
Section 6 with respect to the FR Right of RSI (provided that any exercise by JAH
of this right shall not be subject to any Tag-Along Right under Section 7)
during the period commencing on the date immediately following the Acceptance
Period until the date that is ten days after the Acceptance Period upon notice
to such effect to the Selling Member.
17. Accounting Provisions.
(a) Fiscal and Taxable Year. The fiscal and taxable year of the
Company shall be the calendar year.
(b) Books and Accounts.
(i) Complete and accurate books and accounts shall be kept and
maintained for the Company at the Company's principal place of business. Such
books and accounts shall be kept for fiscal and tax purposes on the cash or
accrual basis, as the Manager shall determine, and shall include separate
accounts for each Member. A list of the names and addresses of the Members and
their respective membership interest shall be maintained as part of the books
and records for the Company. Each Member or such Member's duly authorized
representative, at such Member's own expense and upon delivering advance written
notice to the Company, shall at all reasonable time have access to, and may
inspect and make copies of, such books and accounts and any other records of the
Company.
(ii) All funds received by the Company shall be deposited in the
name of the Company in the bank account or accounts of the Company, and
withdrawals therefrom shall be made upon the signature of the individual or
individuals designated from time to time by the Manager. In the sole and
absolute discretion of the Manager, all deposits and other funds not needed in
the operation of the Company's business may be deposited in interest-bearing
bank accounts, in money market funds, or invested in treasury bills,
certificates of deposit, U.S. government security-backed repurchase agreements
or similar money market instruments, or funds investing in any of the foregoing
or similar types of investments.
(c) Financial Reports. The Manager shall endeavor to cause to be
prepared after the end of each taxable year of the Company and filed, on or
before their respective due dates (as the same may be extended), all federal and
state income tax returns of the Company for such taxable year and shall take all
action as may be necessary to permit the Company's regular accountants to
prepare and timely file such returns. Form 1065 (Schedule K-1) shall be sent to
each Member after the end of each taxable year reflecting the Member's pro rata
share of income, loss, credit and deductions for such taxable year.
<PAGE>
(d) Tax Elections. Any elections required or permitted to be made by
the Company under the Internal Revenue Code of 1986, as amended (the "Code"),
shall be made by the Manager in such manner as the Manager shall determine. In
the event of an audit of the Company by the Internal Revenue Service (the
"IRS"), RSI shall act as the "tax matters partner" pursuant to Section
6231(a)(7) of the Code, and such tax matters partner shall comply with all of
its obligations as such under the Code and the regulations promulgated
thereunder.
(e) Expenses. To the extent practicable, all expenses of the Company
shall be billed directly to, and be paid by, the Company.
18. Profits Interest. Reference is hereby made to the Rieger Letter
Agreement regarding, among other matters, the right of Rieger to receive a
Profits Interest (as described therein) equal to the Accrued Benefit (as defined
therein). The Company shall pay to Rieger the amount of the Accrued Benefit upon
any Capital Event (as defined herein).
19. Distributions and Allocations.
(a) Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(1) "Capital Account" means, with respect to any Member, the
Capital Account maintained for such Member in accordance with the following
provisions:
(A) To each Member's Capital Account there shall be credited
(x) such Member's Capital Contributions, (y) such Member's
distributive share of Profits, and (z) the amount of any Company
liabilities assumed by such Member or which are secured by any
property distributed to such Member. The principal amount of a
promissory note which is not readily traded on an established
securities market and which is contributed to the Company by the maker
of the note (or a Member related to the maker of the note within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(c)) shall not be
included in the Capital Account of any Member until the Company makes
a taxable disposition of the note or until (and to the extent)
principal payments are made on the note, all in accordance with
Regulations Section 1.704-1(b)(2)(iv)(d)(2);
(B) To each Member's Capital Account there shall be debited
(A) the amount of money and the Gross Asset Value of any property
distributed to such Member pursuant to any provision of this
Agreement, (B) such Member's distributive share of Losses and (C) the
amount of any liabilities of such Member assumed by the Company or
which are secured by any property contributed by such Member to the
Company;
(C) In the event of a Transfer of Interests in accordance
with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the
Transfer of Interests; and
(D) In determining the amount of any liability for purposes
of subparagraphs (i) and (ii) above there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code
and Regulations.
<PAGE>
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply
with Regulations Section 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the
Manager reasonably shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed property
or which are assumed by the Company or any Members) are computed in
order to comply with such Regulations, the Manager may make such
modification, provided that it is not likely to have a material effect
on the amounts distributed to any Person pursuant to Article XI hereof
upon the dissolution of the Company. If the provisions of Regulations
Section 1.704-1(b)(2)(iv) do not provide guidance with respect to
adjustments to Capital Accounts, then the Manager also shall (i) make
any adjustments that are necessary or appropriate (x) to maintain
equality between the Capital Accounts of the Members and the amount of
capital reflected on the Company's balance sheet, as computed for book
purposes, (y) to maintain consistency with the underlying economic
arrangement of the members; and (z) to be in accordance with Federal
tax accounting principles; all in accordance with Regulations Section
1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in
the event unanticipated events might otherwise cause this Agreement
not to comply with Regulations Section 1.704-1(b), provided that such
modifications are not likely to have a material effect on the amounts
distributed to any person pursuant to Article XI hereof upon the
dissolution of the Company.
(2) "Gross Asset Value" means with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(A) The initial Gross Asset Value of any asset contributed
by a Member to the Company shall be the gross fair market value of
such asset, as determined by the Manager provided that the initial
Gross Asset Values of the Combined Alliance Shares contributed to the
Company pursuant to Section 2 shall be the Fair Market Value of such
securities as of the Effective Date;
(B) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values (taking
Code Section 7701(g) into account), as determined by the Manager as of
the following times: (A) the acquisition of an additional interest in
the Company by any new or existing Member in exchange for more than a
de minimis Capital Contribution; (B) the distribution by the Company
to a Member of more than a de minimis amount of Company property as
consideration for an interest in the Company; and (C) the liquidation
of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses
(A) and (B) of this paragraph shall be made only if the Manager
reasonably determines that such adjustment is necessary to reflect the
relative economic interests of the Members in the Company;
<PAGE>
(C) The Gross Asset Value of any item of Company assets
distributed to any Member shall be adjusted to equal the gross fair
market value (taking Code Section 7701(g) into account) of such asset
on the date of distribution as determined by the Manager; and
(D) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m) and subparagraph (F) of the definition of
"Profits" and "Losses"; provided, however, that Gross Asset Values
shall not be adjusted pursuant to this subparagraph (D) to the extent
that an adjustment pursuant to subparagraph (B) is required in
connection with a transaction that would otherwise result in an
adjustment pursuant to this subparagraph (D).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (B) or (D) of this paragraph (2), such Gross
Asset Value shall thereafter be adjusted by the depreciation taken
into account with respect to such asset, for purposes of computing
Profits and Losses.
(3) "Losses" has the meaning set forth in the definition of
"Profits" and "Losses."
(4) "Net Cash Flow" means (i) all receipts of cash and other
property (measured at its fair market value) other than arising out of a
Capital Event including, without limitation, cash dividends from Combined
Alliance Shares and interest and dividends from investments; less (ii) all
payments and disbursements by the Company including such for the purchase
of securities issued by Combined Alliance and the payment of expenses.
(5) "Preferred Return" shall have the meaning set forth in the
Rieger Letter Agreement.
(6) "Profits" and "Losses" mean, for each taxable year, an amount
equal to the Company's taxable income or loss, respectively, for such
taxable year, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments (without
duplication):
(A) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits
or Losses pursuant to this definition of "Profits" and "Losses" shall
be added to such taxable income or loss;
(B) Any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv) (i),
and not otherwise taken into account in computing Profits or Losses
pursuant to this definition of "Profits" and "Losses" shall be
subtracted from such taxable income or loss;
<PAGE>
(C) In the event the Gross Asset Value of any Company asset
is adjusted pursuant to subparagraphs (B) or (C) of the definition of
Gross Asset Value, the amount of such adjustment shall be treated as
an item of gain (if the adjustment increases the Gross Asset Value of
the asset) or an item of loss (if the adjustment decreases the Gross
Asset Value of the asset) from the disposition of such asset and shall
be taken into account for purposes of computing Profits or Losses;
(D) Gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Gross Asset Value;
(E) If the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes, in lieu of the
depreciation, amortization, and other cost recovery deductions taken
into account in computing such taxable income or loss, there shall be
taken into account depreciation in an amount which bears the same
ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such
taxable year bears to such beginning adjusted tax basis; provided,
however, that if the adjusted basis for federal income tax purposes of
an asset at the beginning of such taxable year is zero, depreciation
shall be determined with reference to such beginning Gross Asset Value
using any reasonable method selected by the Manager;
(F) To the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Regulations Section
1.704-(b)(2)(iv)(m)(2) or (4), to be taken into account in determining
Capital Accounts as a result of a distribution other than in
liquidation of a Member's interest in the Company, the amount of such
adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
such basis) from the disposition of such asset and shall be taken into
account for purposes of computing Profits or Losses and shall be
specially allocated to the Member or Members to whom such adjustment
relates.
(G) Any Profit or Loss attributable to a Capital Event
("Profits from Capital Events" and "Losses from Capital Events") shall
not be taken into account.
(H) Rules similar to clauses (A) through (F) above shall be
used to determine Profits from Capital Events and Losses from Capital
Events.
(7) "Proceeds of a Capital Event" shall mean the excess of (i)
the amount of cash and fair market value of other property received upon a
Capital Event, over (ii) the costs and expenses incurred by the Company in
connection with such Capital Event including the costs of converting any
property received to cash.
(8) "Regulation" means the income tax regulations promulgated
from time to time by the U.S. Department of the Treasury.
(b) Distributions.
<PAGE>
(1) Distributions of Net Cash Flow. Except as otherwise required
by this Agreement or by law, Net Cash Flow (as defined) shall be
distributed or applied promptly after the receipt of such Net Cash Flow as
follows:
(i) First, to the payment of any currently due debts and
liabilities of the Company which are not intended to be paid out of
the Proceeds of a Capital Event;
(ii) Next, to the setting up of any reserves reasonably
necessary to provide for any actual obligations of the Company which
are reasonably expected to accrue or be incurred in the next fiscal
period, for example, accounting and legal fees;
(iii) Last, the balance, if any to the Members holding Class
A Units and Class D Units in accordance with their respective A Class
Percentage Interests and the amount (.01% of the aggregate
distributions to the Members) attributable to the Class D Units.
(2) Distribution of Proceeds of a Capital Event. Except as
otherwise required by this Agreement or by law, Proceeds of a Capital Event
shall be distributed to the Members holding Class A Units, Class B Units
and Class D Units or applied, as follows:
(i) First, to the payment of any debts and liability of the
Company;
(ii) Next, to the setting up of any reserves reasonably
necessary to provide for any actual obligations of the Company which
are reasonably expected to accrue or to be incurred in the next fiscal
period or in connection with a liquidation of the Company or a
redemption of the Rieger Profits Interest;
(iii) Next, to the Members holding Class A Units in
proportion to their A Class Percentage Interests, up to an amount
equal to the unpaid Preferred Return;
(iv) Next, to the Members holding Class B Units up to an
amount equal to the Accrued Benefit; and
(v) The balance, if any, to the Members holding Class A
Units and Class D Units in accordance with their respective A Class
Percentage Interests and amount (.01% of the aggregate distributions
to the Members) attributable to the Class D Units.
(3) No Return of Distributions. No Member shall have any
obligation to refund to the Company any amount that shall have been
distributed to such Member pursuant to this Agreement, subject, however, to
the rights of any third party creditor under law.
(c) Allocation of Profits, Losses, Profits from Capital Events and
Losses from Capital Events.
<PAGE>
(1) Profits and Losses shall be allocated to the Class A Members
and the Class D Members in accordance with their respective Class A
Percentage Interests and amount (.01% of the aggregate distributions to the
Members) attributable to the Class D Units.
(2) Profits from Capital Events shall be allocated as follows:
(i) First, to the Class A Members to the extent of and in
proportion to the excess of (a) the Losses from Capital Events
previously allocated to the Class A Members pursuant to Section
19(c)(3)(ii), over (b) the aggregate amount of Profits from Capital
Events previously allocated to such Members pursuant to this clause
(i).
(ii) Next, to the Class A Members and the Class D Member to
the extent of and in proportion to the excess of (a) the Losses from
Capital Events previously allocated to such Members pursuant to
Section 19(c)(3)(i), over (b) the aggregate amount of Profits from
Capital Events previously allocated to such Member pursuant to this
clause (ii).
(iii) Next, to the Class A Members and the Class D Member to
the extent of and in proportion to the excess of (a) the aggregate
Preferred Return paid and to be paid to such Members pursuant to
Sections 19(b)(2)(iii) and 20(d)(iv), but only to the extent such
amount represents payment of the 20% preferred total return pursuant
to clause (i) of Paragraph A.1. of the Rieger Letter Agreement, from
inception of the Company through the close of the current taxable year
of the Company, over (b) the aggregate Profits from Capital Events
previously allocated to such Members pursuant to this clause (iii);
(iv) Next to the Class B Member up to an amount equal to (a)
the excess of the distributions of Proceeds of a Capital Event paid to
the Class B Member pursuant to Sections 19(b)(2)(iv) and 20(d)(v) from
conception of the Company through a date 60 days after the close of
the current taxable year of the Company, over (b) the aggregate
Profits from Capital Events previously allocated to the Class B Member
pursuant to this clause (iv) and Section 19(c)(4); and
(v) The balance, if any, to the Class A Members and the
Class D Member to the extent of and in proportion to the distribution
of Proceeds of a Capital Event that would have been made to such
Members if there was additional Proceeds of a Capital Event to
distribute pursuant to Section 19(b)(2)(v) equal to the amount of
Profits from Capital Events remaining to be allocated pursuant to this
clause (v).
(3) Losses from Capital Events shall be allocated as follows:
(i) First, to the Class A Members and the Class D Member to
the extent of and in proportion to the aggregate Profits from Capital
Events allocated to such Members pursuant to Section 19(a)(v); and
(ii) The balance, if any, to the Class A Members.
(4) Allocation of Income related to Redemption of Class B Units.
Anything hereto to the contrary notwithstanding, if the Company shall
dispose of property for the purpose of obtaining cash to redeem all or a
portion of the Class B Units, such income shall be allocated to the Class B
Member.
<PAGE>
(d) Allocations between Assignor and Assignee Members. In the case of
a Transfer, the assignor and assignee shall each be entitled to receive
distributions of Net Cash Flow and allocations of Net Profits or Net Losses as
follows:
(i) Unless the assignor and assignee agree to the contrary
and shall so provide in the instrument effecting the Transfer,
distributions shall be made to the person owning the Member's
Membership Interest on the date of the distribution; and
(ii) Profits or Losses shall be allocated by the number of
days of the fiscal year each person held the Member's Interest.
(e) Tax Credits. Any Company tax credits shall be allocated among the
Members in proportion to their respective Percentage of Interests.
(f) Deficit Capital Accounts. Except as otherwise provided under the
Act, no Member shall be required at any date to make up any deficit in such
Member's Capital Account.
(g) Tax Allocations: Code Section 704(c).
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Company shall, solely for tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its initial
Gross Asset Value (computed in accordance with the definition of Gross Asset
Value) using such method as the Manager shall select with the consent of JAH and
RFIA, which consent shall not be unreasonably withheld, delayed or conditioned.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (ii) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by the Manager in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 19(g) are
solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Member's Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.
20. Liquidation and Termination of the Company.
(a) Time Period. The Manager may, at its discretion, liquidate the
Company upon the earlier to occur of (i) the fifth (5th) anniversary of the
Effective Date provided that RSI can procure for the benefit of JAH the seats on
the Alliance Board of Directors, Executive Committee and Strategic Steering
Committee provided in Section 13 hereof with respect to the period prior to an
IPO and (ii) the tenth (10th) anniversary of the Effective Date; provided,
however, that the Company shall be liquidated within sixty (60) days following
the consummation of an IPO.
<PAGE>
(b) General. Upon the termination of the Company, the Company) shall
be liquidated in accordance with this Section 20 and the Act. The liquidation
shall be conducted and supervised by the Manager, or if there shall be no
Manager, by a person who shall be designated for such purpose by the Member
holding the Class D Units or, if there is no such designation by the D Class
Members, by the Member holding a majority of the Class A Units (the Manager or
person for such purpose so designated being herein referred to as the
"Liquidating Agent"). The Liquidating Agent shall have all of the rights and
powers with respect to the assets and liabilities of the Company in connection
with the liquidation and termination of the Company that the Manager would have
with respect to the assets and liabilities of the Company during the term of
this Agreement including, without limitation, and notwithstanding any provision
contained in this Agreement to the contrary, the ability to liquidate and/or
sell any or all of the Combined Alliance Shares without the necessity to obtain
any Member's consent. Without limiting the foregoing, the Liquidating Agent is
hereby expressly authorized and empowered to execute and deliver any and all
documents necessary or desirable to effectuate the liquidation and termination
of the Company and the transfer of any asset or liability of the Company. The
Liquidating Agent shall have the right from time to time, by revocable powers of
attorney, to delegate to one or more persons any or all of such rights and
powers and such authority and power to execute and deliver documents, and, in
connection therewith, to fix the reasonable compensation of each such person,
which compensation shall be charged as an expense of liquidation. The
Liquidating Agent is also expressly authorized to sell the Company's assets
and/or to distribute the Company's property to the Members or other third
parties subject to liens and the terms and provisions of this Agreement.
(c) Statements on Termination. Each Member shall be furnished with a
statement prepared by the Company's regular accountants setting forth the assets
and liabilities of the Company as of the date of complete liquidation, and each
Member's share thereof. Upon compliance with the distribution plan set forth in
this Agreement, the Members shall cease to be such, and the Liquidating Agent
shall execute, acknowledge and cause to be filed where appropriate under law a
Certificate of Dissolution of the Company.
(d) Priority on Liquidation. The Liquidating Agent shall, to the
extent feasible, liquidate and sell the tangible assets and the intangible
assets of the Company other than any Combined Alliance Shares as promptly as
shall be practicable. To the extent the proceeds are sufficient therefor, in the
Liquidating Agent's opinion, the proceeds of such liquidation shall be applied
and distributed in the following order of priority (the "Liquidation
Distribution"):
(i) To pay the costs and expenses of the liquidation and
termination;
(ii) To pay the matured or fixed debts and liabilities of
the Company;
(iii) To establish any reasonable reserve that the
Liquidating Agent may deem necessary for any contingent, unmatured or
unforeseen liability of the Company;
(iv) To the Class A Members in proportion to their Class A
Percentage Interests, an amount equal to any unpaid Preferred Return;
(v) To the redemption of the Class B Units for an aggregate
redemption price equal to any unpaid Accrued Benefit, unless otherwise
agreed by the Class C Members;
(vi) To the Members in accordance with clause (v) of Section
19(b)(2).
<PAGE>
(e) Distribution of Combined Alliance Shares. If at the date of the
termination of the Company, the Company then owns Combined Alliance Shares or
any other securities of Combined Alliance, then subject to the distribution
provided in Section 20(d) above, all such securities shall be distributed to the
Members holding Class A Units (pro rata on the basis of their respective Class A
Units) and the Member holding the Class D Units as follows:
(i) All Combined Alliance Shares of Combined Alliance
allocable to JAH, Rabinowitz and Rieger shall be converted into, or
exchange for, shares of the securities of Combined Alliance pursuant
to the terms thereof and such shares shall be distributed to such
Member pro rata on the basis of their respective Class A Units.
(ii) All other shares of securities of Combined Alliance
shall be distributed to the Members pro rata on the basis of their
respective Class A Units.
(iii) All Combined Alliance Shares of Combined Alliance
allocable to RSI shall be distributed to RSI.
(f) Distribution of Other Non-Liquid Assets. Subject to Section 20(f),
if the Liquidating Agent shall reasonably determine that it is not practicable
to liquidate all of the assets of the Company, then the Liquidating Agent shall
cause the fair market value of the assets not so liquidated to be determined by
appraisal by an independent appraiser. Such assets, as so appraised, shall be
retained or distributed by the Liquidating Agent as follows:
(i) The Liquidating Agent shall retain assets having a fair
market value equal to the amount, if any, by which the net proceeds of
liquidated assets are insufficient to satisfy the debts and
liabilities of the Company (other than any debt or liability for which
neither the Company nor the Members are personally liable), to pay the
costs and expenses of the dissolution and liquidation, and to
establish reserves, all subject to the provisions of this Agreement.
The foregoing shall not be construed, however, to prohibit the
Liquidating Agent from distributing, pursuant to this Agreement,
property subject to liens at the value of the Company's equity
therein.
(ii) The remaining assets (including, without limitation,
receivables, if any) shall be distributed to the Members by way of
undivided interests therein in such proportions as shall be equal to
the respective amounts to which each Member is entitled pursuant to
this Agreement (including recognizing any priorities provided for in
this Agreement). If, in the judgment of the Liquidating Agent, it
shall not be practicable to distribute to each Member an undivided
aliquot share of each asset, the Liquidating Agent may allocate and
distribute specific assets to one or more Members as tenants-in-common
as the Liquidating Agent shall determine to be fair and equitable,
taking into consideration, inter alia, the basis for tax purposes of
each asset distributed. Notwithstanding any provision contained herein
to the contrary, if the Liquidating Agent shall for any reason be
unable to liquidate and/or sell the Company's intangible assets in the
course of any liquidation, then the parties hereto hereby instruct the
Liquidating Agent to, and the Liquidating Agent shall, subject to the
terms and provisions of this Section 20, distribute each of such
intangible assets to the Members as co-owners with an undivided
interest in the whole and unless otherwise agreed to by the parties
hereto to the contrary, each Member to whom an intangible asset shall
have been distributed shall have the full right to exploit the
intellectual property rights contained therein without being obligated
to account or pay to the other Member or Members for any royalties or
other revenues received therefrom.
<PAGE>
(iii) Nothing contained in this Agreement is intended to
cause any in-kind distributions to be treated as sales for value.
(g) Orderly Liquidation. A reasonable time shall be allowed for the
orderly liquidation of the assets of the Company and the discharge of
liabilities to creditors so as to minimize the losses normally attendant upon a
liquidation.
21. Loans and Advances. If any Member, manager or any of their respective
Affiliates shall loan or advance any funds to the Company, such loan or advance
shall not be deemed a contribution to the capital of the Company and shall not
in any respect increase such Member's Percentage Membership Interest in the
Company. Such loan or advance shall constitute an obligation and liability of
the Company. Unless otherwise agreed in writing between the Members, the Manager
and the Company, the Members, the managers and any of their respective
Affiliates shall not have any personal obligation or liability for the repayment
of such loans and the same shall be collectible only from Company assets. Any
reference in this Agreement to the payment of debts, obligations or liabilities
of the Company shall be deemed to include any such loans from a Member, a
manager, and any of their respective Affiliates, to the extent that law and
agreements to which the Company is a party or is subject permit, and to the
extent that the terms of such loans may require, such loans from a Member, the
managers or any of their respective Affiliates, shall be paid ahead of other
general debts, obligations and liabilities of the Company.
22. Exculpation and Indemnification of Managers, Members and Affiliates.
(a) Exculpation. Notwithstanding any other provisions of this
Agreement, whether express or implied, or obligation or duty at law or in
equity, no Member or manager, nor any officer or employee of the Company shall
be liable to the Company or any other person or entity for any act or omission
taken or omitted by any such Person or any Affiliate of any such Person which is
within the scope of authority granted to any such Person or any Affiliate of any
such Person by this Agreement, provided that such act or omission does not
constitute a breach of any representation, warranty, covenant or agreement of
this Agreement, fraud, willful misconduct, bad faith or gross negligence.
(b) Indemnification.
<PAGE>
(i) The Company shall indemnify any person or entity who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
initiated by or in the right of the Company in which action the
Company ultimately prevails) by reason of the fact that such party is
or was a Member, manager, officer, employee, or agent of the Company,
or is or was serving at the request of the Company as a manager,
director, officer, employee, trustee or agent of another limited
liability company or corporation, partnership, joint venture, trust or
other enterprise, from and against expenses (including attorneys' and
accountants' fees and disbursements), judgments, fines and amounts
paid in settlement, actually and reasonably incurred (collectively,
"Losses") by such party in connection with such action, suit or
proceeding if such party acted in good faith and in a manner such
party reasonably believed to be in, or not opposed to, the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such party's conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person seeking indemnification did not act in
good faith and in a manner which such party reasonably believed to be
in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that such party's conduct was unlawful.
(ii) To the extent that a Member, manager, officer, employee
or agent of the Company has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in Section
22(a), or in defense of any claim, issue or matter therein, such party
shall be indemnified against expenses (including attorneys' and
accountants' fees and disbursements) actually and reasonably incurred
by such party in connection therewith.
(iii) Any indemnification hereunder (unless ordered by a
court) shall be made by the Company only as authorized in the specific
case upon a determination by the Manager that indemnification of the
Member, manager, officer, employee or agent is proper in the
circumstances because such party has met the applicable standard of
conduct set forth herein; provided, that no person or entity shall be
entitled to indemnification hereunder to the extent that the amount of
any Losses arises from a breach of any representation, warranty,
covenant or agreement of this Agreement, fraud, willful misconduct,
bad faith or gross negligence.
(iv) Expenses (including reasonable attorneys' and
accountants fees and disbursements) incurred by any Member, manager,
officer, employee or agent in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall, with
the prior consent of the Manager which shall be made in good faith
after meaningful consultation with the Chairman, be paid by the
Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
person or entity to repay such amount if it shall ultimately be
determined that such party is not entitled to be indemnified by the
Company as authorized in this Section 22(b).
(v) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 22(b) shall not be deemed
exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any law, agreement,
or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office.
(vi) The Company may purchase and maintain insurance on
behalf of any person who is or was a Member, manager, officer,
employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee, trustee or agent of
another limited liability company corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against such party and incurred by such party in any such capacity, or
arising out of such party's status as such.
(vii) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 22(b) shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a Member, manager, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of each such person or entity.
<PAGE>
23. Power of Attorney.
(a) General. Each Member irrevocably constitutes and appoints the
Manager and the Liquidating Agent, or any one of them, with full power of
substitution, the true and lawful attorney of such Member to execute,
acknowledge, swear to and file any of the following:
(i) Any amendment to the Certificate pursuant to the Act;
provided, that if any provision of such amendment adversely affects
such Member's limited liability company interest in the Company such
amendment shall be approved by all such affected Members;
(ii) Any certificate or other instrument (i) that may be
required to be filed by the Company under the laws of the United
States, the State of Delaware or any other state in which any of the
Members reside or in which the Company engages in business or (ii)
which the Manager deems advisable to file;
(iii) Any amendments to the certificates or other
instruments referred to in paragraphs (a) and (b) of this Section 23;
(iv) Any document that may be required to effectuate the
liquidation or termination of the Company in accordance with Section
20 hereof; and
(v) Any amendment to this Agreement or the foregoing
certificates, instruments or documents necessary to effect any change
permitted under this Agreement or to reflect any change in the
ownership of membership interests in the Company as expressly provided
for in this Agreement.
It is expressly acknowledged by each Member that the
foregoing power of attorney is coupled with an interest and shall
survive the disability of such Member or a Transfer by such Member,
provided, however, that if such Member shall make a Transfer of all of
such Member's membership interest and the Transferee shall, in
accordance with the provisions of Article VIII of this Agreement,
become a successor Member, such power of attorney shall survive the
Transfer only for the purpose of executing, acknowledging, swearing to
and filing any and all instruments necessary to effectuate such
substitution.
Each Member hereby agrees to execute concurrently herewith
or upon five (5) business days' prior written notice, a special power
of attorney containing the substantive provisions of this Agreement in
form satisfactory to the Manager.
(b) Successor Members. A power of attorney similar to that contained
in Section 23(a) of this Agreement shall be one of the instruments that the
Manager may require a successor Member to execute, acknowledge and swear to
pursuant to this Agreement. No Transferee shall become a Member or otherwise own
all or part of a Member's Percentage Membership Interest or any other interest
in the Company unless, as a condition precedent thereto, such purported
Transferee becomes a signatory of this Agreement.
<PAGE>
(c) Additional Power of Attorney. Upon the admission of a successor
Manager or upon the liquidation or termination of the Company, the Members, at
the request of the Manager or any of such successor Manager or the Liquidating
Agent, shall execute, acknowledge and swear to and deliver a new power of
attorney, similar to that described in Section 23(a) of this Agreement, in favor
of any such successors or the Liquidating Agent.
24. Confidentiality; Noncompetition.
(a) Confidentiality. Each Member shall retain in strict confidence,
and shall not use for any purpose whatsoever, or divulge, disseminate or
disclose to any third party (other than in furtherance of the business purposes
of Combined Alliance and the Company or as may be required by law) any
proprietary or confidential information relating to the business of Combined
Alliance and the Company, including, without limitation, information regarding
real property interests, financial information, real property space
availability, development plans, distribution or franchising methods and
channels, pricing information, business methods, management information systems
and software, customer lists, supplier lists, leads, solicitations and contacts,
know-how, show-how, inventions, improvements, specifications, trade secrets,
agreements, research and development, business plans and marketing plans of
Combined Alliance and the Company, whether or not any of the foregoing are
copyrightable or patentable provided, that a Member may in connection with a
Syndication or Pledge provide financial and other information with respect to
the Company which is reasonably requested by any proposed Transferee in such
Syndication or Pledge and reasonably required for the evaluation of such
financial investment if such person executes and delivers to the Company a
confidentiality agreement in form and substance reasonably acceptable to the
Company; provided, further, that each Member may divulge, disseminate or
disclose any such proprietary and confidential information to its agents
(including consultants) for the purposes of managing its investment in the
Company, provided that any such agent is subject to a similar obligation to
maintain the confidentiality of such information and as may be required by law.
(b) Non-Competition. Each of the Members, other than RSI, JAH and RFIA
on behalf of itself and its respective Affiliates, hereby severally warrants,
covenants and agrees with the Company and each other Member that neither it nor
its Affiliates will, during the applicable Restrictive Covenant Period (as
defined below), directly or indirectly, without the prior written consent of the
Company, engage in or be interested in any business which business is
competitive with the business of Combined Alliance or the Company (i.e., the
executive office suite business) in the countries where Combined Alliance has
active operations, nor during such period shall it or its Affiliates retain or
hire (on behalf of itself or any other person) any person who is or was an
employee, consultant or agent of Combined Alliance (other than any such person
whose duties do not include activities that are material to the management,
administration or operations of such company's business) unless that person was
in the employ of, or a consultant to or agent of, the Member or any of its
Affiliates prior to being so for Combined Alliance). For the purposes of this
Agreement, a party shall be deemed to be directly or indirectly interested in a
business if such party is or shall be engaged or affiliated directly or
indirectly with such business as a stockholder, director, officer, employee,
salesman, sales representative, agent, broker, partner, member, individual
proprietor, lender, investor, consultant or otherwise, unless such interest is
limited solely to the passive investment or beneficial ownership of twenty
percent (20%) or less of the equity or debt of any company, as the case may be.
For purposes of this Agreement, the "Restrictive Covenant Period" shall mean the
period that commences on the date hereof and expires the earlier of the date
that is: (i) one (1) year after the date that such Member no longer owns, or has
any beneficial interest in, any Units; or (ii) the date of an IPO.
<PAGE>
(c) Survival. The provisions of this Section 24 shall survive the Term
or the termination, liquidation or dissolution of the Company.
25. Intentionally Omitted.
26. Intentionally Omitted.
27. Intentionally Omitted.
28. Certain Defined Terms. For the purposes of this Agreement, the
following terms used herein shall be defined as follows:
(a) Affiliate. With respect to any Person means: (i) any person at the
time directly or indirectly controlling, controlled by or under direct or
indirect common control (whether by ownership of voting securities, contract or
otherwise) with such person; (ii) any executive officer, senior employee or
director (or a person with similar responsibilities) of such person; and (iii)
when used with respect to an individual, shall include the Family Group of such
individual.
(b) Bring-Along Qualifying Sale. Means (1) with respect to JAH, a sale
by RSI of not more than 50% of the Class A Units then held by RSI to a third
party purchaser which is not an Affiliate of RSI, (2) with respect to RFIA, a
sale of 50% or more of the Class A Units owned by RSI to a third party
purchaser(s) (which is not an Affiliate of RSI), including a proposed sale of
the Company by the sale or exchange of all or substantially all the Members'
Class A Units, a merger, consolidation, recapitalization or otherwise, and (3)
with respect to Rieger, a sale of 50% or more of the Class A Units owned by
either RSI or JAH whether by merger or otherwise (other than any such sale or
transfer of Class A Units owned by RSI (or its transferee) to any Affiliate of
RSI.
(c) Capital Event. Means any of the following events: (i) the sale of
Combined Alliance (whether by a merger, consolidation, recapitalization, sale of
assets or capital stock), (ii) an IPO or (iii) the sale of Class A Units of
Rieger pursuant to the Tag-Along Right provided in Section 7 or the Bring-Along
Right provided in Section 8.
(d) Capital Call Value. Means the Fair Market Value of the Company
determined by the Manager, on the one hand, and all of the Non-Fully Subscribing
Members and RFIA on the other hand.
(e) Combined Alliance FMV. Means the fair market value of Combined
Alliance determined as follows:
(A) if the date of determination is prior to the effective date
of a Qualified IPO, the fair market value of Combined Alliance shall be
determined on a basis as a going concern determined by mutual agreement of
the Manager and the Member or the Non-Fully Subscribing Members and RFIA,
as the case may be (collectively, the "Concerned Group"), whose Class A
Units are the subject of such valuation or, if after ten (10) business days
(the "Discussion Period") such parties do not agree upon such
determination, the average of the fair market valuations of Combined
Alliance (each, an "Appraiser Valuation") determined in good faith by two
Nominated Investment Banks, one selected by the Manager within two (2)
business days after the expiration of the Discussion Period and one
selected by the Concerned Group within such two (2) business day period;
provided, however:
<PAGE>
(1) If either the Manager or the Concerned Group do not provide
written notice of its selection of a Nominated Investment Bank within such
two (2) business day period after the Discussion Period (the party not
making such selection, being the "No Selection Party"), then the Nominated
Bank to be selected by the No Selection Party shall be the Nominated Bank
immediately following the name of the Nominated Bank that was selected by
the Manager or the Concerned Group, as the case may be, in the order of
appearance of such firms on Schedule II. If neither the Manager nor the
Concerned Group select a Nominated Investment Bank within such two (2)
business day period after the Discussion Period, then the Nominated Banks
shall be the first two Nominated Investment Banks in the order of
appearance of such firms on Schedule II.
(2) If the difference between the Appraiser Valuations is greater
than ten (10%) of the higher Appraiser Valuation, then the Manager and the
Concerned Group shall select a third Nominated Investment Bank within two
(2) business days after the date that the Appraiser Valuations have been
provided to the Manager and the Concerned Group and the "Fair Market Value"
shall equal the valuation of the third Nominated Investment Bank (which
such valuation must not be lower than the lower of the Appraiser Valuations
nor greater than the higher of the Appraiser Valuations). If the Manager
and the Concerned Group do not agree on the third Nominated Investment Bank
within such two (2) business day period, then the Nominated Investment Bank
selected (or deemed to be selected) by the Manager and the Nominated
Investment Bank selected (or deemed to be selected) by the Concerned Group
shall select the third Nominated Investment Bank within three (3) business
days after the expiration of such two (2) business day period. If the two
Nominated Investment Banks do not so select a third Nominated Investment
Bank within such three (3) business day period, then the third Nominated
Investment Bank shall be the first Nominated Investment Bank in the order
of the appearance of such firms on Schedule II which has not been selected
(or deemed to be selected) by the Manager or the Concerned Group.
(3) Whenever the Fair Market Value of the Class A Units is to be
determined through the valuation of Nominated Investment Banks, the Members
including any Member Transferring its Units in connection with the
transaction giving rise to the valuation shall pay all fees and
disbursement of such Nominated Investment Banks as if such amount were
contributed to the Company pursuant to the procedures of Section 14
(provided that the Subscription Due Date shall be the date such fees and
disbursements will be paid by the Company as determined by the Manager) and
shall require that each Nominated Investment Bank (x) confirm in writing
that it is independent with respect to, and not conducting any business
with, any Member or their respective Affiliates other than stock, commodity
or similar brokerage, broker/dealer, underwriting, acquisition and/or
valuation activities for reasonable and customary commissions or discounts
and (y) report its valuation within thirty (30) days after the date of such
assignment.
<PAGE>
(4) Any Member (including any Member Transferring its Units in
connection with the transaction giving rise to the valuation) which does
not pay its pro rata share of such fees and disbursements will be diluted
on a fair market value basis or, if a Transferring Member will have the
Fair Market Value of its Units reduced by such pro rata share.
(B) if the date of determination is on or after the effective
date of a Qualified IPO, the fair market value of the Combined Alliance
shall equal the average of the closing per share bid and ask prices of the
publicly traded common stock of Combined Alliance for the ten (10) business
days immediate preceding the date of such determination multiplied by the
number of issued and outstanding shares of common stock of Combined
Alliance on such date.
(C) It is acknowledged and agreed that the procedures described
above are to determine the specified valuation with administrative
efficiency and expediency. Accordingly, no party hereto shall have a right,
and no Nominated Investment Bank shall be required to, or shall, hold any
hearing, presentation or other advocacy proceeding with respect to the
preparation of such valuation and the determination of such value in
accordance with the terms hereof shall be final and binding on the parties
hereto. Further, any information regarding the number of outstanding shares
of common stock of Combined Alliance shall be determined solely by the
information filed with the Securities and Exchange Commission by Combined
Alliance.
(f) Combined Alliance Shares The Class C Preferred Stock of Combined
Alliance, par value $4.75 per share or, as if context shall require, the
securities of Combined Alliance which such preferred stock may be converted
into, or exchanged for, pursuant to the terms thereof.
(g) Contingent Transfer. A Transfer of Interest of membership
interests other than a Transfer (A) permitted by, and as described in, Sections
5(b)(i) (Testamentary and Gift Transfers), (ii) (Affiliate Transfers), (iii)
(Sale to the Company), (v) (Pledges), (vii) (Syndications); (B) between JAH and
Rieger; or (c) between RFIA and RSI.
(h) Disqualified Transferee. Means, with respect to any Member other
than RSI unless waived or agreed by RSI, any Person other than the Persons
listed on Schedule II hereto that is: (i) a real estate investment trust or
similar investment vehicle, real estate investor or developer which actively and
directly (by itself or through one or more of its Affiliates) competes with
Reckson Service Industries, Inc. or Reckson Associates Realty Corp. or any of
their respective Affiliates in the geographic locations in which Reckson Service
Industries, Inc., Reckson Associates Realty Corp. or any of their Affiliates
then conducts its business; or (ii) if the Member transferring or pledging its
membership interest is RFIA or Rieger, actively and directly (by itself or
through one or more of its Affiliates) competes in the same business or any line
of business of the Company or any other Platform Company of RSI or any of its
Affiliates; provided, however, that notwithstanding the foregoing to the
contrary, in no event shall a Disqualified Transferee include any pension fund
or trust or any financial investor, including without limitation those set forth
on Schedule II hereto, whose primary activity is investment in entities or
businesses (including real estate businesses).
<PAGE>
(i) Employee Option Ownership Adjustment. Means an adjustment to the A
Class Percentage Interest of a Member so that the A Class Percentage Interest of
the specified Member is equal to the number of Class A Units held by such Member
divided by the total number of Class A Units outstanding at the time of
determination plus the aggregate number of Class A Units which would be issued
pursuant to In the Money Employee Options less the aggregate number of Class A
Units which are In the Money Redemption Shares.
(j) Employee Option Value Adjustment. Means the sum of (1) the
aggregate purchase price for the Class A Units to be issued and sold pursuant to
all In the Money Employee Options and (2) negative one (-1) multiplied by the
aggregate redemption price for all In the Money Redemption Shares.
(k) Excused Condition. With respect to any Member which will purchase
membership interests of any other Member hereunder, means a breach or default on
the part of the selling Member or the failure of a condition precedent to the
specified purchase of the membership interests unless such failure is the result
of a breach, default or failure on the part of the purchasing Member.
(l) Fair Market Value. Means:
(i) with respect to the value of the Company, shall mean (x)
the Combined Alliance FMV multiplied by a fraction, the numerator of
which is the number of Common Stock Equivalents (as defined by the CA
Agreement) owned by the Company at the time of determination and the
denominator of which is the Fully Diluted Capitalization (as defined
by the CA Agreement) at the time of determination, (y) plus or minus
the Net Asset Value and (z) plus or minus the Employee Option Value
Adjustment.
(ii) with respect to the value of a Member's Class A Units,
shall mean (x) the value of the Company determined as set forth in the
immediately preceding paragraph (y) multiplied by such Member's A
Class Percentage Interest at the time of determination as such
percentage interest is adjusted by the Employee Option Ownership
Adjustment, if any.
(iii) with respect to the value of the securities
distributed by the Company to a Member pursuant to Section 20, shall
mean the Combined Alliance FMV at the time of determination multiplied
by a fraction, (x) the numerator of which is the number of Common
Stock Equivalents represented by the securities distributed by the
Company to a Member which are held by such Member at the time of
determination and (y) the denominator of which is the Fully Diluted
Capitalization at the time of determination.
(m) Family Group Member. Means with respect to (i) (I) JAH, Jon
Halpern; (II) RFIA: Martin J. Rabinowitz; (III) Rieger I/O LLC: Robert Rieger;
(IV) RSI: Scott Rechler or Mitchell Rechler; (ii) the parents grandparents,
brothers, sisters, spouse and descendants (whether natural or adopted) of any
person described in clause (i) above; (iii) any spouse or descendant of any
person described in clauses (i) and (ii) above; (iv) any trust created solely
for the benefit of any person described in clauses (i) through (iii) above; (v)
any executor or administrator for any of the persons described in clauses (i)
through (iv) above; (vi) any partnership solely of persons described in clauses
(i) through (v) above; and (vii) any corporate foundation created by any of the
persons described in clauses (i) through (v) above for charitable purposes.
(n) In the Money Employee Options. Means employee options offered
pursuant to Section 2(l) in which the aggregate purchase price for the Class A
Units subject to such options is less than the fair market value of such Class A
Units to be purchased pursuant to such options as determined in good faith by
the Manager using the same methodology and considerations used in determining
the Fair Market Value of the Company.
<PAGE>
(o) In the Money Redemption Shares. Means employee options offered
pursuant to Section 2(l) and the Class A Units issued pursuant to the exercise
of such options, in each case, where the redemption price for such options or
such Class A Units is less than the fair market value of such options or Class A
Units which may be redeemed by the Company as determined in good faith by the
Manager using the same methodology and considerations used in determining the
Fair Market Value of the Company.
(p) IPO. Means an initial public offering of any equity security of
Combined Alliance registered with the Securities and Exchange Commission under
the provisions of the 1933 Act.
(q) JAH Put Units. Shall mean the Class A Units issued to JAH as of
the Effective Date in consideration of JAH's initial contribution to the capital
of the Company pursuant to Section 2 hereof, it being acknowledged and agreed
that for the purpose of determined whether any Class A Units were Units issued
as of the Effective Date or Units subsequently purchased or otherwise acquired
by JAH (whether pursuant to Section 14 or otherwise), Units shall be deemed to
be purchased and sold on a "LIFO" (the most recent Unit purchased or otherwise
acquired is the first Unit sold other otherwise Transferred) basis.
(r) Net Asset Value. Means the fair market value of all assets owned
by the Company other than securities issued by Combined Alliance (e.g., cash) at
the time of determination, less the liabilities of the Company at the time of
determination.
(s) Nominated Investment Bank. Shall mean the investment bank or
appraisal firms listed on Schedule III attached hereto.
(t) Qualified IPO. Shall mean the earlier of (x) the effective date of
an IPO which satisfies the criteria of a Qualified Public Offering as defined by
the CA Agreement or (y) the earlier of two years after the date of an IPO or the
date which the securities distributed to the applicable Member by the Company in
accordance with Section 20 (or any security received in exchange or conversion
therefor) are registered for a public offering in a Demand Registration or
Piggyback Registration (each, as defined by the CA Agreement) or, if earlier,
the date such Member declines to participate in any such Demand Registration or
Piggyback Registration.
(u) Person. Means any entity or individual, including any corporation,
limited liability company, partnership, trust, foundation, government,
government agency or authority.
(v) Syndicate Representative. Means: (i) any JAH Beneficial Holder (as
defined by the CA Agreement, in the case of a Syndication by JAH: (ii) Mr.
Martin Rabinowitz, in the event of a Syndication by RFIA; or (iii) Mr. Robert
Rieger, in the event of a Syndication by Rieger.
(w) Tag-Along Interest. Means a Class A or Class B membership interest
by any Tag-Along Member equal to the same percentage of membership interest of
the selling Member which it proposes to Transfer in the specified Contingent
Transfer. For example, if a Selling Member has a fifty (50%) percent Class
Percentage Interest in the Company and proposes to sell one-half of its
membership interest (i.e., a twenty-five (25%) percent Class Percentage Interest
in the Company), the Tag-Along Interest would equal one-half of the Tag-Along
Member's membership interest; provided, that, in no event shall the Tag-Along
Interest with respect to any Tag-Along Member exceed the aggregate Class
Percentage Interest proposed to be sold by the selling Member.
<PAGE>
(x) Tag-Along Member. Means (1) Rieger, if more than 50% of the Class
A Units held by RSI are being sold whether by merger or otherwise (other than
any such sale or transfer of Class A Units to RSI, JAH or any of their
Affiliates), and (2) RFIA or JAH, if the Class A Units held by RSI are being
sold whether by merger or otherwise (other than any such sale or transfer of
Class A Units to RSI or any of its Affiliates).
(y) Third Party Price. (i) Means a proposed or offered price in or
converted to cash equal to: (A) cash; (B) cash equivalents; and (C) stated
principal amount of any promissory notes, in each case, included in any such
proposal or offer; provided, however, that if there is no interest rate, or a
nominal interest rate, the stated principal amount shall be discounted in
accordance with generally accepted accounting principles; provided, further,
that any such note shall be included in the Third Party Price only if the
obligor (or guarantor) of such note has a minimum financial net worth of at
least $5,000,000 on a pro forma basis, assuming the Third Party Offered Interest
is purchased in accordance with the terms stated in the Notice of Offer. As used
herein, the Third Party Price for membership interests other than Third Party
Offered Interests shall be adjusted to equal the Class Percentage Interest
represented by such membership interests. Accordingly, the Third Party Price of
Tag-Along Interests shall equal the Third Party Price per Unit multiplied by the
number of Units to be transferred.
29. Amendment and Modification. Subject to Section 39, no change or
modification of this Agreement shall be valid, binding or enforceable as
against: (i) the Company unless the same shall be in writing and signed by the
Company; or (ii) any of the Members unless the same shall be in writing and
signed by such Member unless the rights of such Member are not adversely
affected by such amendment.
30. Assignment. This Agreement and all of the provisions hereof shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, assigns, executors, administrators or successors, but neither
this Agreement nor any of the rights, benefits, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties; provided, however, the rights and benefits
of this Agreement shall be assigned to any purchaser or transferee of membership
interests if such transaction is a Permitted Transfer, except that unless such
purchaser or Transferee is an Affiliate of RSI, JAH, RFIA or Rieger, the sole
rights and benefits which may be assigned or transferred is the right to receive
distributions pursuant to Sections 18, 19 and 20. In the event that any
membership interests are Transferred by RSI, JAH, RFIA or Rieger to an Affiliate
of such Member, such Transferee shall be deemed to be included in each reference
to RSI, JAH, Rabinowitz or Rieger, as the case may be; provided, that notices
shall only be required to be sent to, and shall only be sent by, RSI, JAH,
Rabinowitz or Rieger, as the case may be, for as long as such party is a Member
hereunder. Each Transferee of any Units takes such Units subject to the terms
and conditions of this Agreement, including without limitation, the rights with
respect to such Units under Sections 6, 7, 8, 9, 10, 11, 12, 14, 15, 16, 22, 36
and 37.
<PAGE>
31. Further Assurances. Each party hereto by the execution and delivery of
this Agreement hereby consents to the formation of the Company, the proposed
Merger, the terms and conditions of the CA Agreement and each other transaction
contemplated by such agreements, the acquisition by the Company of the Combined
Alliance Shares pursuant to the terms and conditions of Section 2 of this
Agreement and exercise by the Company of its rights and the performance of its
obligations pursuant to the terms and conditions of each of the Merger Agreement
and the CA Agreement. Each Member hereby agrees that he or it shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as any other party hereto may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
32. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware governing agreements made
wholly within the State of Delaware.
33. Notices. All notices given pursuant to this Agreement shall be in
writing and shall be made by hand-delivery, first-class mail (registered or
certified, return receipt requested), telecopier, or overnight air courier
guaranteeing next business day delivery (provided, that, all notices provided
pursuant to Section 14 must include a notice sent by telecopier and a second
notice sent by any other manner provided in this paragraph):
(a) if to the Company,
c/o RSI I/O Holdings, Inc.
225 Broadhollow Road
Melville, New York 11747
Attention: Scott Rechler, Daniel DiSano and Jason Barnett, Esq.
Tel: (516) 719-7400
Fax: (516) 719-7405
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, NY 10016
Attention: Stephen M. Rathkopf, Esq.
Richard M. Morris, Esq.
Tel: (212) 592-1400
Fax: (212) 889-7577
and to each Member at the address specified below.
(b) if to the Member, to him or it at his or its address as reflected
in the records of the Company or as the Member shall designate to the Company in
writing with a copy to the counsel to such Member as the Member shall designate
to the Company in writing, each such designation to be effective only upon
receipt.
(c) Except as otherwise provided in this Agreement, each such notice
shall be deemed given at the time delivered by hand, if personally delivered;
five business days after being deposited in the mail, postage prepaid, if
mailed; when 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.
<PAGE>
34. Consent to Jurisdiction. All actions and proceedings arising out of, or
relating to, this Agreement shall be heard and determined in any state or
federal court sitting in Delaware (including without limitation the Court of
Chancery) or New York. The undersigned, by execution and delivery of this
Agreement, expressly and irrevocably consent and submit to the personal
jurisdiction of any of such courts in any such action or proceeding; (ii)
consent to the service of any complaint, summons, notice or other process
relating to any such action or proceeding by delivery thereof to such party by
hand or by certified mail, delivered or addressed as set forth in Section 33 of
this Agreement; and (iii) waive any claim or defense in any such action or
proceeding based on any alleged lack of personal jurisdiction, improper venue or
forum non conveniens or any similar basis.
35. Entire Agreement; Non-Waiver. This Agreement supersedes and terminates
all prior agreements between any of the parties hereto with respect to the
subject matter contained herein, and this Agreement embodies the entire
understanding between the parties relating to such subject matter, and any and
all prior correspondence, conversations and memoranda are merged herein and
shall be without effect hereon. No promises, covenants or representations of any
kind, other than those expressly stated herein, have been made to induce any
party to enter into this Agreement. No delay on the part of any party in
exercising any right hereunder shall operate as a waiver thereof, nor shall any
waiver, express or implied, by any party of any right hereunder or of any
failure to perform or breach hereof by any other party constitute or be deemed a
waiver of any other right hereunder or of any other failure to perform or breach
hereof by the same or any other Member, whether of a similar or dissimilar
nature thereof.
36. Specific Performance and Injunctive Relief. The parties recognize and
acknowledge that their membership interests are closely held and that,
accordingly, in the event of a breach or default by one or more of the parties
hereto of the terms and conditions of this Agreement, the damages to the
remaining parties to this Agreement, or any one or more of them, may be
impossible to ascertain and such parties will not have an adequate remedy at
law. In the event of any such breach or default in the performance of the terms
and provisions of this Agreement, any party or parties thereof aggrieved thereby
shall be entitled to institute and prosecute proceedings in any court of
competent jurisdiction, either at law or in equity, to enforce the specific
performance of the terms and conditions of this Agreement, to enjoin further
violations of the provisions of this Agreement and/or to obtain damages. Such
remedies shall however be cumulative and not exclusive and shall be in addition
to any other remedies which any party may have under this Agreement or at law
(including the right to retain a Deposit as partial "liquidated damages"). Each
Member hereby waives any requirement for security or the posting of any bond or
other surety and proof of damages in connection with any temporary or permanent
award of injunctive, mandatory or other equitable relief and further agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
37. 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.
<PAGE>
38. Severability. If any provision of this Agreement or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and the application of such
provisions to the other parties or circumstances shall not be affected thereby
and shall be enforced to the greatest extent permitted by applicable law.
39. Conditions to Rieger Becoming a Member. Notwithstanding any term or
provision of this Agreement to the contrary, Rieger shall not be a member in the
Company, shall not be a party to this Agreement or receive any rights or
benefits hereunder unless prior to the Effective Date Rieger duly executes and
delivers an original counterpart to this Agreement and contributes to the
capital of the Company its Initial Capital Contribution specified in Section 2
hereof. In the event that such conditions are not satisfied on or prior to such
date, then Rieger, shall not be a party to this Agreement shall not be a
"Member" as defined herein, shall not have any of the rights or benefits or any
of the obligations provided hereunder, and the Manager shall amend Schedule I to
adjust the number of Units to appropriately reflect that no Units were issued to
Rieger. Further, in the event that such conditions are not satisfied on or prior
to such date, then the Manager shall amend and modify this Agreement to delete
all references to Rieger, delete all references to the Class B Units and to
otherwise conform the terms and provisions of this Agreement to the fact that
Rieger is not a member (as defined by the Act) of the Company nor a party to
this Agreement.
40. Miscellaneous.
(a) Notwithstanding any provision of this Agreement to the contrary, a
Transferee of a Permitted Transfer shall take the membership interests in such
sale or transaction subject to the terms and provisions of this Agreement
including, without limitation, the Tag-Along and Participation Rights of the
Members provided herein.
(b) Section headings are for convenience of reference only and shall
not be used to construe the meaning of any provision of this Agreement.
(c) This Agreement may be executed in any number of counterparts, each
of which shall be an original, and all of which shall together constitute one
agreement.
(d) Any word or term used in this Agreement in any form shall be
masculine, feminine, neuter, singular or plural, as proper reading requires. The
words "herein", "hereof", "hereby" or "hereto" shall refer to this Agreement
unless otherwise expressly provided. Any reference herein to a Section or any
exhibit or schedule shall be a reference to a Section of, and an exhibit or
schedule to, this Agreement unless the context otherwise requires. Any reference
herein to a "business day" shall mean a day in which the New York branch of the
Federal Reserve Bank is open for business during its normal hours of operation.
(e) This Agreement shall be binding upon, and inure to the benefit of,
the parties hereto who have executed and delivered this Agreement and their
respective successors, assigns and permitted Transferees (to the extent
otherwise permitted by this Agreement).
[The next page is the Signature Page]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by each of the
parties hereto as of the date first written above.
INTEROFFICE SUPERHOLDINGS LLC
By: RSI I/O Holdings, Inc.,
its Manager
By: /s/ Scott Rechler
---------------------------
Name: Scott Rechler
Title: Chairman
RSI I/O HOLDINGS, INC.
By: /s/ Scott Rechler
-----------------------------
Name: Scott Rechler
Title: Chairman
JAH I/O, LLC
By: JAH Realties, L.P.,
its Managing Member
By: JLH Realty Management Service, Inc.,
its general partner
By: /s/ Jon Halpern
------------------------------
Name: Jon Halpern
Title:
RFIA, LLC
By: /s/ Martin Rabinowitz
--------------------------
Name: Martin Rabinowitz
Title:
RIEGER I/O LLC
By: /s/ Robert Rieger
-----------------------------
Name: Robert Rieger
Title:
<PAGE>
Solely with respect to the
obligation under Section 11 hereof
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Scott Rechler
-----------------------------
Name:
Title:
<PAGE>
SCHEDULE I
to the Limited Liability Company Agreement
of Interoffice Superholdings LLC
Date Last Revised: ________
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------- ------------------------------------ ---------------------------------
Class of Units/ Class Percentage Interest
Name of Member Number of Units
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
Class A Units
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
RSI 6,822.87751 53.20016%
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
JAH 3,508.88639All of these Units are 27.35991%
pledged to Union State Bank and
such bank has a security interest
in such Units pursuant to an
agreement between such member and
such bank
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
RFIA 1,754.44319 13.67995%
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
Rieger 738.71292 5.75998%
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
TOTAL 12,824.92002 100.00000%
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
Class B Units
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
Rieger 500 100%
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
Class C Units
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
RSI 5 50%
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
JAH 5 50%
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
TOTAL 10 100%
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
Class D Units
- --------------------------------------------- ------------------------------------ ---------------------------------
- --------------------------------------------- ------------------------------------ ---------------------------------
JAH 5 100%
- --------------------------------------------- ------------------------------------ ---------------------------------
</TABLE>
<PAGE>
SCHEDULE II
Nominated Investment Banks
1. Morgan Stanley Group Inc.
2. Bear, Stearns & Co. Inc.
3. BancAmerica ROBERTSON STEPHENS
4. Goldman Sachs & Co.
5. BT Alex Brown Incorporated
6. Donaldson, Lufkin & Jenrette Securities Corporation
7. Salomon Smith Barney
8. Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated
9. Lazard Freres & Co. LLC
[End of List]
<PAGE>
SCHEDULE III
Exceptions to Disqualified Transferees
A. Developers
Capelli
B. Financial Investors
Soros Funds
Apollo Funds
NorthStar Funds
[End of List]
<PAGE>
EXHIBIT A
Form of Assignment
<PAGE>
EXHIBIT B
Form of Stock Power
<PAGE>
EXHIBIT C
Form of Letter of Credit
<PAGE>
EXHIBIT D
Form of Release and Satisfaction of Initial Acquisition Loan
<PAGE>
EXHIBIT E
Form of Assignment of the Class D Units
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the ____ day of November, 1998, before me personally came Scott Rechler
to me known, who being duly sworn, did depose and say that he is the officer of
RSI I/O Holdings, Inc., the Manager of Interoffice Superholdings LLC, the
limited liability company described in and which executed the foregoing
instrument; that he signed his name thereto by order of the Manager of such
company.
----------------------------------
Sworn to before me this
____ day of November, 1998
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the ____ day of November, 1998, before me personally came Scott Rechler
to me known, who being duly sworn, did depose and say that he is the officer of
RSI I/O HOLDINGS, INC., the corporation described in and which executed the
foregoing instrument; that he signed his name thereto by order of the board of
directors of such corporation.
----------------------------------
Sworn to before me this
___ day of November, 1998
- ---------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the ____ day of November, 1998, before me personally came Jon Halpern to
me known, who being duly sworn, did depose and say that he is the officer of JLH
Realty Management Services, Inc., the general partner of JAH Realties, L.P.
which is the managing member of JAH I/O, LLC, a limited liability company, and
that he executed the foregoing instrument in the name of such corporation on
behalf of such limited liability company and that he had authority to sign the
same, and he acknowledged that he executed the same as the act and deed of the
said corporation as the general partner of the said limited partnership as the
managing member of the said limited liability company.
----------------------------------
Sworn to before me this
____ day of November, 1998
- ---------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the ___ day of November, before me personally came MARTIN RABINOWITZ to
me known, and who executed the foregoing instrument and, who being by me duly
sworn, did depose and say that he is a member of RFIA, LLC, a limited liability
company, and that he executed the foregoing instrument in the name of said
limited liability company and that he had authority to sign the same, and he
acknowledged that he executed the same as the act and deed of said limited
liability company.
----------------------------------
Sworn to before me this
___ day of November, 1998
- ---------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the ___ day of November, before me personally came ROBERT RIEGER to me
known, and who executed the foregoing instrument and, who being by me duly
sworn, did depose and say that he is a member of Rieger I/O LLC, a limited
liability company, and that he executed the foregoing instrument in the name of
said limited liability company and that he had authority to sign the same, and
he acknowledged that he executed the same as the act and deed of said limited
liability company.
----------------------------------
Sworn to before me this
___ day of November, 1998
- ---------------------------
Notary Public
<PAGE>
Exhibit 10.2
________________________________________________________________________________
FOURTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
DATED AS OF JANUARY 8, 1999
BY AND AMONG
ALLIANCE NATIONAL INCORPORATED
AND
THE SECURITYHOLDERS IDENTIFIED HEREIN
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
RECITALS......................................................................1
ARTICLE I DEFINITIONS.................................................3
1.1 Defined Terms...............................................3
ARTICLE II BOARD; COMMITTEES..........................................12
2.1 Board of Directors.........................................12
2.2 Removal of Directors.......................................14
2.3 Committees.................................................14
2.4 Vacancies..................................................16
2.5 Proxies....................................................16
2.6 Compensation...............................................16
2.7 Subsidiary Boards..........................................16
ARTICLE III CERTAIN CORPORATE ACTION...................................16
3.1 Approval of Certain Board Action...........................16
3.2 Approval of Certain Stockholders...........................20
3.3 Appointment of Appraiser...................................20
3.4 Appointment of Certain Executive Personnel.................21
ARTICLE IV TRANSFER OF SHARES.........................................21
4.1 Restrictions on Transfer...................................21
4.2 Certain Permitted Transfers................................21
4.3 Rights of First Refusal....................................23
4.4 Restrictions in Connection with Registrations..............26
4.5 Tag-Along Right............................................27
4.6 Transfers to a Competitor..................................28
4.7 Sales of Beale Securities..................................29
4.8 Sale of the Company........................................31
4.9 Repurchase of Equity Interests.............................32
4.10 Restrictions Following Qualified Public Offering...........32
ARTICLE V PUT........................................................33
5.1 Ability to Put.............................................33
5.2 Put Price..................................................36
5.3 Appraisal Procedure........................................37
5.4 Consent Required to Put....................................37
ARTICLE VI REGISTRATION RIGHTS........................................38
6.1 Public Offering Shares.....................................38
i
<PAGE>
ARTICLE VII PREEMPTIVE RIGHTS...............................................46
7.1 Preemptive Rights..........................................46
7.2 Standstill.................................................50
ARTICLE VIII TERMINATION....................................................50
8.1 Termination................................................50
ARTICLE IX MISCELLANEOUS..............................................53
9.1 Information................................................53
9.2 Certificate Legend.........................................54
9.3 Negotiable Form............................................54
9.4 Enforcement................................................55
9.5 Specific Performance.......................................55
9.6 Transferees................................................55
9.7 Notices....................................................55
9.8 Binding Effect; Assignment.................................65
9.9 Governing Law..............................................65
9.10 Severability...............................................65
9.11 Entire Agreement...........................................66
9.12 Counterparts...............................................66
9.13 Amendment; Waiver..........................................66
9.14 Captions...................................................66
9.15 Waivers....................................................66
9.16 Subsequent Option Grants...................................67
9.17 Non-Competition............................................67
SCHEDULE 1 Holdings of Securityholders
SCHEDULE 2 Series C Adjusted Fully Diluted Capitalization
Sample Calculation
SCHEDULE 3 List of Certain Officers
ii
<PAGE>
FOURTH AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT OF
ALLIANCE NATIONAL INCORPORATED
STOCKHOLDERS' AGREEMENT dated as of January 8, 1999 (this "Agreement")
---------
by and among ALLIANCE NATIONAL INCORPORATED, a Nevada corporation (the
"Company"); the parties identified on the signature pages under the heading
-------
"Cahill, Warnock Holders" (the "Cahill Holders"); the parties identified on the
--------------
signature pages under the heading "Northwood Holders" (the "Northwood Holders");
-----------------
the party identified on the signature pages under the heading "Paribas Holder"
(the "Paribas Holder"); the party identified on the signature pages under the
---------------
heading "PNA Holder" (the "PNA Holder"); the parties identified on the signature
----------
pages under the heading "Unit Holders" (the "Unit Holders"); the parties
-------------
identified on the signature pages under the heading the "Series C Holders" (the
"Series C Holders"); and the parties identified on the signature pages under the
----------------
heading "Other Holders" (collectively, the "Other Holders"). The Cahill Holders,
-------------
the Northwood Holders, the Paribas Holder, the PNA Holder, the Unit Holders, the
Series C Holders, and the Other Holders are referred to herein collectively as
the "Securityholders".
---------------
RECITALS
A. The Company entered into a Series A Convertible Preferred Stock
Purchase Agreement, dated as of November 15, 1996 (the "First Series A Stock
---------------------
Purchase Agreement"), with the Cahill Holders, pursuant to which the Cahill
- -------------------
Holders acquired shares of the Company's Series A Convertible Preferred Stock
and warrants on the terms and conditions set forth therein.
B. The Company entered into a Stockholders' Agreement, dated as of
November 15, 1996 (the "Initial Stockholders' Agreement"), with the Cahill
---------------------------------
Holders and certain of the Other Holders identified therein.
C. The Company entered into a Series A Convertible Preferred Stock
Purchase Agreement, dated as of December 31, 1996 (the "Second Series A Stock
----------------------
Purchase Agreement"), with the Northwood Holders, pursuant to which the
- -------------------
Northwood Holders acquired shares of the Company's Series A Convertible
Preferred Stock and warrants on the terms and conditions set forth therein.
D. The Company entered into Subscription Agreements, dated as of
December 30, 1996 and January 14, 1997, with certain of the Other Holders
pursuant to which each of them acquired shares of the Company's Series A
Convertible Preferred Stock and warrants on the terms and conditions set forth
therein.
E. The Company entered into an Amended and Restated Stockholders'
Agreement, dated as of December 31, 1996 (the "First Restated Stockholders'
------------------------------
Agreement"), with the Cahill Holders, the Northwood Holders and the Other
- ---------
Holders who subscribed for Series A Preferred Stock, which amended, restated and
superseded in its entirety the Initial Stockholders' Agreement.
1
<PAGE>
F. The Company entered into an Amendment No. 1, dated as of January 14,
1997 ("Amendment No. 1"), to the First Restated Stockholders' Agreement with the
---------------
Cahill Holders, the Northwood Holders and the Other Holders who subscribed for
Series A Preferred Stock.
G. The Company entered into a Second Amended and Restated Stockholders'
Agreement, dated as of February 15, 1997 (the "Second Restated Stockholders
------------------------------
Agreement"), with the Cahill Holders, the Northwood Holders, the Other Holders
- ---------
who subscribed for Series A Preferred Stock, and the Paribas Holder which
amended, restated and superseded in its entirety the First Restated Stockholders
Agreement.
H. The Company entered into a Series B Convertible Preferred Stock
Purchase Agreement, dated as of April 29, 1998 (the "Series B Stock Purchase
------------------------
Agreement"), with the PNA Holder, the Cahill Holders, the Northwood Holders and
- ---------
certain of the Other Holders, pursuant to which such Securityholders acquired
shares of the Company's Series B Convertible Preferred Stock.
I. The Company entered into a Third Amended and Restated Stockholders'
Agreement, dated as of April 29, 1998 (the "Third Restated Stockholders
-----------------------------
Agreement"), with the Cahill Holders, the Northwood Holders, the Other Holders,
- ---------
the PNA Holder and the Paribas Holder which amended, restated and superseded in
its entirety the Second Restated Stockholders Agreement.
J. The Company entered into Series B Convertible Stock Purchase
Agreements dated as of December 21, 1998 with the holders of units of limited
partnership interest (the "Unit Holders") of certain limited partnerships, of
------------
which various Subsidiaries of the Company are the general partners, pursuant to
which such Unit Holders exchanged their units of limited partnership interest
for shares of the Company's Series B Convertible Preferred Stock.
K. The Company entered into an Amended and Restated Credit Agreement
dated as of November 6, 1998 (as such agreement may be amended, supplemented,
refinanced, modified or replaced, the "Credit Agreement") with certain financial
----------------
institutions party thereto from time to time and Paribas, as Agent, or any other
successor Agent thereto.
L. On the date hereof, ALLIANCE Holding, Inc., a wholly owned
subsidiary of the Company, was merged with and into Interoffice Superholdings
Corporation ("Interoffice"), and, immediately thereafter, ANI Holding, Inc., a
-----------
wholly owned subsidiary of the Company, was merged with and into Reckson
Executive Centers, Inc. ("REC"), in each case pursuant to the respective merger
---
agreements (the "Merger Agreements") and in connection with such mergers (the
------------------
"Mergers"), the Series C Holders exchanged all of their shares of capital stock
-------
of REC and Interoffice for shares of the Company's Series C Convertible
Preferred Stock.
M. On the date hereof, each Securityholder owns the shares of capital
stock of the Company or options or warrants exercisable for shares of capital
stock of the Company set forth opposite his, her or its name on Schedule 1
hereto.
2
<PAGE>
N. The Securityholders desire to enter into this Agreement with the
Company which shall amend, restate and supersede in its entirety the Fourth
Restated Stockholders' Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. The following terms are defined as follows:
-------------
(a) "Adjusted Fully Diluted Capitalization" shall mean the
---------------------------------------
number of issued and outstanding shares of Common Stock,
assuming that (i) any Options or Warrants outstanding as
of the date of this Agreement, and any Options
outstanding under the Company's 1996 Stock Option Plan,
whether or not outstanding as of the date of this
Agreement, have been exercised in full, (ii) any
outstanding options or warrants to purchase Common Stock
or to purchase any security convertible into or
exchangeable for Common Stock, other than those described
in clause (i) hereof, that are Exercisable and that have
an exercise price that is lower than the then fair market
value of the Common Stock, have been exercised in full,
and (iii) any outstanding securities that are then
convertible into or exchangeable for Common Stock have
been converted or exchanged in full.
(b) "Affiliate" shall mean, with respect to any Person, (i)
---------
any Person that directly or indirectly Controls, is
Controlled by, or is under common Control with, such
Person, (ii) any executive officer (as such term is
defined by Rule 501 promulgated under the Securities Act)
or director (or individual with a similar capacity) of
such Person, and (iii) when used with respect to an
individual, shall include the Family Group Members of
such individual.
(c) "Annual Budget" shall mean the budget for the Company and
-------------
its Subsidiaries in respect of each fiscal year of the
Company which shall include, without limitation, a cash
flow projection, an operating budget, a capital
expenditures budget and an acquisition budget.
(d) "Beale Employment Agreement" shall mean that certain
----------------------------
Employment Agreement, dated as of November 15, 1996,
between the Company and David W. Beale.
(e) "Beneficially Own" shall have the meaning given such term
----------------
under Rule 13d-3 promulgated under the Exchange Act. The
term "Beneficial Ownership" shall have the correlative
meaning. The foregoing terms shall exclude any record or
Beneficial Ownership in any securities issued by RSI or
any interest in JAH Realties L.P.
3
<PAGE>
(f) "Blackout Period' shall mean the period commencing on the
---------------
consummation of a Qualified Public Offering and ending on
the earliest to occur of (i) the second anniversary of
the consummation of the Qualified Public Offering, (ii)
the consummation of a secondary offering of the Common
Stock in which (X) the gross proceeds of such offering
equal or exceed 30% of the gross proceeds of the
Qualified Public Offering, and (Y) the offering price per
share of Common Stock is at least 10% higher than the
offering price per share of Common Stock in the Qualified
Public Offering (as adjusted to reflect stock dividends,
stock splits, stock combinations or any other similar
transaction occurring after the Qualified Public
Offering), and (iii) the presentation by any
Securityholder that is subject to restrictions on resale
during the Blackout Period of evidence reasonably
satisfactory to a majority of the other Securityholders
that are also subject to such restrictions that the
Company is capable of consummating an offering of the
type described in clause (ii) hereof. The parties agree
that the opinion of a bulge bracket underwriter to the
foregoing effect based on the then current market price
of the Common Stock, earnings multiples and any other
relevant factors shall automatically be satisfactory
evidence.
(g) "Board" shall mean the Board of Directors of the Company.
-----
(h) "Business Day" shall mean a day (other than a Saturday or
------------
Sunday) on which both federally and New York State
chartered banks are generally open for business in New
York City.
(i) "Certificates of Designation" shall mean the Series A
-----------------------------
Certificate of Designation, the Series B Certificate of
Designation and the Series C Certificate of Designation.
(j) "Commission" shall mean the Securities and Exchange
----------
Commission or any other federal agency at the time
administering the Securities Act.
(k) "Common Stock" shall mean the Company's common stock, par
------------
value $.01 per share, whether designated as Class A
Common Stock or Class B Common Stock.
(l) "Common Stock Equivalent" shall mean, with respect to any
-----------------------
Securityholder, the number of shares of Common Stock
owned by such Securityholder, plus the number of shares
of Conversion Stock, the number of Warrant Shares, and
the number of Option Shares which such Securityholder has
the right to acquire (or would upon the full vesting of
all Options have the right to acquire) by conversion or
exercise as of the date of determination thereof.
4
<PAGE>
(m) "Control" shall mean the power to direct the management
-------
and policies of any Person whether through voting
control, by contract or otherwise, and the terms
"Controls" and "Controlled" shall have the correlative
-------- ----------
meanings.
(n) "Conversion Stock" shall mean Common Stock issuable upon
-----------------
the conversion of the Series A Preferred Stock, the
Series B Preferred Stock or the Series C Preferred Stock.
(o) "Core Business" shall mean the business of the
---------------
outsourcing of office operations both on an on-site and
off-site basis, and the outsourcing of business support
services to customers or clients of the Company which
purchase any of the Company's products or services.
(p) "Director" shall mean any member of the Board.
--------
(q) "Encumbrances" shall mean any and all liens, pledges,
------------
claims, charges, security interests, options or other
legal or equitable encumbrances and restrictions.
(r) "Exchange Act" shall mean the Securities Exchange Act of
------------
1934 or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same
shall be in effect at the time.
(s) "Exercisable" shall mean, with respect to any options or
-----------
warrants to purchase Common Stock or any security
convertible into or exchangeable for Common Stock, that
at the time of determination, such options or warrants
may be exercised for Common Stock or any security
convertible into or exchangeable for Common Stock.
(t) "Family Group Members" shall mean (i) the parents,
----------------------
grandparents, brothers, sisters, descendants (whether
natural or adopted) and spouse of the specified
individual; (ii) any spouse or descendant of any
specified individual specified in clause (i) above; (iii)
any trust created solely for the benefit of any
individual described in clauses (i) through (ii) above;
(iv) any executor or administrator for any of the
individuals described in clauses (i) through (ii) above;
(v) any partnership solely of individuals described in
clauses (i) through (iv) above; and (vi) any tax exempt
corporate foundation created by any of the Persons
described in clauses (i) through (v) above exclusively
engaged in charitable purposes.
(u) "Fully Diluted Capitalization" shall mean the number of
-----------------------------
issued and outstanding shares of Common Stock assuming
full issuance of all Conversion Stock, Warrant Shares,
Option Shares and other shares of Common Stock issuable
upon exercise of any other options to purchase Common
Stock or any security convertible or exchangeable for
Common Stock and conversion of any such convertible or
exchangeable securities.
5
<PAGE>
(v) "GAAP" shall mean generally accepted accounting
----
principles.
(w) "Incapacity" with respect to an individual, shall mean
----------
that a committee or conservator shall have been appointed
for such individual or his property.
(x) "Initial Public Offering" shall mean the consummation of
------------------------
either (i) a public offering that has received
Super-Majority Approval, or (ii) a Qualified Public
Offering.
(y) "Intercompany Agreement" means that certain Intercompany
-----------------------
Agreement, dated as of January 8, 1999, by and between
the Company and the RSI Holder.
(z) "JAH Beneficial Holders" shall mean (i) Jon L. Halpern
------------------------
and any Person Controlled by him, (ii) any Family Group
Member of Jon L. Halpern so long as Jon L. Halpern has
the power to control, by contract or otherwise, the vote
of the Shares of Series C Preferred Stock or Common Stock
Equivalents Beneficially Owned by such Family Group
Member, and (iii) in the event of the death or Incapacity
of Jon L. Halpern, any of his Family Group Members or any
conservator or committee who, as a result of his death,
obtain Beneficial Ownership of the Shares of Series C
Preferred Stock or Common Stock Equivalents, which were
Beneficially Owned by Jon L. Halpern prior to his death
or Incapacity so long as Control with respect to such
Beneficial Ownership thereof resides in a single
individual.
(aa) "Majority of the Shares of Series A and Series B
--------------------------------------------------------
Preferred Stock" shall mean at least 66-2/3% of the
----------------
Shares of the Series A Preferred Stock and Series B
Preferred Stock (taken as a single class) issued and
outstanding at the time any such vote is taken.
(bb) "Majority of the Shares of Series C Preferred Stock"
-------------------------------------------------------
shall mean at least 50.1% of the Shares of the Series C
Preferred Stock issued and outstanding at the time any
such vote is taken.
(cc) "OnSite" shall mean OnSite Ventures, L.L.C.
------
(dd) "OnSite Agreement" means the agreement to be entered into
----------------
between the Company and OnSite with respect to the
provision of Internet and telecommunications services to
the Company by OnSite.
6
<PAGE>
(ee) "Option Plan" shall mean the Company's 1996 Stock Option
-----------
Plan, the Company's 1998 Stock Option Plan, or any other
stock option or phantom interest plan that has received
Super-Majority Approval.
(ff) "Options" shall mean (i) the options to purchase Common
-------
Stock, each originally dated as of June 30, 1996, issued
to David W. Beale, Kelly G. Besecker, Laura J. Kozelouzek
and Alan M. Langer, (ii) the options to purchase Common
Stock, each originally dated as of November 1, 1996,
issued to David W. Beale, Louis Perlman, William E.
Phillips and Arnold L. Cohen, (iii) the option to
purchase Common Stock, originally dated as of August 4,
1998, issued to David W. Beale (as all of such options
described in clauses (i), (ii) and (iii) have been
amended and restated as of January 8, 1999), and (iv) any
options to purchase Common Stock granted under an Option
Plan.
(gg) "Option Shares" shall mean the shares of Common Stock of
--------------
the Company issuable (or which may become issuable upon
vesting) upon the exercise of Options.
(hh) "Person" means any individual, proprietorship,
------
partnership, corporation, limited liability company,
trust, estate, or other form of entity including, if
applicable, any governmental authority or agency.
(ii) "Prime Rate" shall mean the prime rate publicly announced
----------
by The Chase Manhattan Bank, N.A. from time to time.
(jj) "Pro Rata Share" with respect to any Securityholder shall
--------------
mean the percentage equal to the fraction obtained by
dividing the number of Common Stock Equivalents such
Securityholder owns by the aggregate number of all Common
Stock Equivalents owned by all Securityholders.
(kk) "Prohibited Business" shall mean the executive office
--------------------
suite business in which the Company is engaged at the
time of determination, taken as a whole and including (i)
on-site and off-site operations and (ii) any product or
service which is part of the executive office suite
business and is being actively pursued for development by
management of the Company and which has been presented to
the Executive Committee of the Company and not been
rejected thereby (provided that if such product or
service has been rejected and thereafter been taken to
the Board and not been rejected, such product or service
shall be considered part of the Prohibited Business). The
time of determination shall be the time of the
development of a business or the making of any investment
in question under Section 9.17 by any of the Persons
subject to the restrictions in Section 9.17.
7
<PAGE>
(ll) "Qualified Public Offering" shall mean the consummation
---------------------------
of a firm-commitment underwritten public offering
pursuant to an effective registration statement under the
Securities Act covering the offer and sale of Common
Stock for the account of the Company in which (i) the
aggregate gross proceeds of such offering equal or exceed
$75 million, (ii) the valuation of the Company (as
reflected by the quotient obtained by dividing (A) the
product of (1) the Adjusted Fully Diluted Capitalization
(giving effect to the Qualified Public Offering) and (2)
the aggregate gross proceeds of such offering by (B) the
number of shares of Common Stock sold in such offering)
equals or exceeds a multiple of 20 times the Company's
projected net income for the 12 month period following
the date of the most recent financial statements included
in the registration statement for such offering (which
projected net income shall be based on reasonable
assumptions that have been disclosed to the Board and
shall be determined in a manner consistent with the last
regularly prepared quarterly financial statements of the
Company, except for any change in accounting practices
made subsequent thereto with which the Company's
independent accountants concur and in accordance with
applicable financial standards (e.g. AICPA Professional
----
Standards Section 200 for a Financial Forecast)), and
(iii) the lead managing underwriter is either a "bulge
bracket" firm or BT Alex. Brown Incorporated, NationsBank
Montgomery Securities LLC or William Blair & Company,
L.L.C. The assumptions used in determining projected net
income may include: (i) consistency in financial
reporting policies and procedures (except as otherwise
required or suggested by GAAP), (ii) the earnings growth
of the Company during the relevant (e.g., prior 2- year)
period, (iii) projected events and transactions during
the projected one year period per the Annual Budget (as
adjusted per variance analysis for the prior four
quarters) and the expected use of funds from the public
offering, (iv) financial effect (pro forma) of any
acquisitions that are likely to be consummated and (v)
such other factors as any investment banking firm
described above might consider in valuing the Company.
(mm) "Qualifying Series C Beneficial Holders" shall mean the
----------------------------------------
RSI Beneficial Holders, the JAH Beneficial Holders, the
Rabinowitz Beneficial Holders, the Rieger Beneficial
Holders and the Widder Beneficial Holders.
(nn) "Rabinowitz Beneficial Holders" shall mean (i) Martin
-------------------------------
Rabinowitz and any Person Controlled by him, (ii) any
Family Group Member of Martin Rabinowitz so long as
Martin Rabinowitz has the power to control, by contract
or otherwise, the vote of the Shares of Series C
Preferred Stock or Common Stock Equivalents Beneficially
Owned by such Family Group Member, and (iii) in the event
of the death or Incapacity of Martin Rabinowitz, any of
his Family Group Members or any conservator or committee
who, as a result of his death or Incapacity, obtain
Beneficial Ownership of the shares of Series C Preferred
Stock or the Common Stock Equivalents, which were
Beneficially Owned by Martin Rabinowitz prior to his
death. Notwithstanding the foregoing provisions of this
definition, no Person shall be deemed a Rabinowitz
Beneficial Holder with respect to any shares of Series C
Preferred Stock or Common Stock Equivalents which were
not acquired by a Rabinowitz Beneficial Holder either (i)
pursuant to the Merger Agreements, or (ii) by exercise of
a right to purchase under Article 4 or under Section 7.1
hereof.
8
<PAGE>
(oo) "Registered Securities" shall mean securities that (i)
----------------------
have been registered under the Securities Act and (ii)
are of a class (A) listed on a national securities
exchange or designated for quotation on NASDAQ, and (B)
having an aggregate market value (which shall include
securities issued to the holders of the Company's
securities) of at least $50,000,000.
(pp) "Rieger Beneficial Holders" shall mean (i) Robert Rieger
--------------------------
and any Person Controlled by him, (ii) any Family Group
Member of Robert Rieger so long as Robert Rieger has the
power to control, by contract or otherwise, the vote of
the Shares of Series C Preferred Stock or Common Stock
Equivalents, and (iii) in the event of the death or
Incapacity of Robert Rieger, any of his Family Group
Members or any conservator or committee who, as a result
of his death or Incapacity, obtain Beneficial Ownership
of the shares of Series C Preferred Stock or the Common
Stock Equivalents, which were Beneficially Owned by
Robert Rieger prior to his death. Notwithstanding the
foregoing provisions of this definition, no Person shall
be deemed a Rieger Beneficial Holder with respect to any
shares of Series C Preferred Stock or Common Stock
Equivalents which were not acquired by a Rieger
Beneficial Holder either (i) pursuant to the Merger
Agreements, or (ii) by exercise of a right to purchase
under Article 4 or under Section 7.1 hereof.
(qq) "RSI" shall mean Reckson Service Industries, Inc.
---
(rr) "RSI Beneficial Holders" shall mean RSI and any
--------------------------
Affiliates of RSI Controlled by RSI, in each case for so
long as an acquisition of Control of RSI of the type
described in Section 4.6 has not occurred.
(ss) "Sale of the Company" shall mean (i) consummation of a
-------------------
merger or consolidation (or similar transaction) of the
Company with or into another Person that is not a direct
or indirect parent or subsidiary of the Company pursuant
to which all or substantially all of the then outstanding
shares of capital stock of the Company are converted or
exchanged into the right to receive cash or securities of
another Person, (ii) the consummation of the sale or
other disposition of all or substantially all of the
outstanding Shares, Options and Warrants that are the
subject of this Agreement to a Person that is not a
direct or indirect parent or Subsidiary of the Company or
(iii) the consummation of the sale or other disposition
of all or substantially all of the Company's assets to a
Person that is not a direct or indirect parent or
Subsidiary of the Company; provided, however, that
-------- -------
notwithstanding anything to the contrary contained
herein, a Sale of the Company shall only be deemed to
have occurred if at least 80% of the consideration to be
received by the Securityholders in connection with such
transaction is payable in (i) cash, (ii) Registered
Securities or (iii) any combination of cash and
Registered Securities.
9
<PAGE>
(tt) "Securities Act" shall mean the Securities Act of 1933,
---------------
or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same
shall be in effect at the time.
(uu) "Series A and Series B Preferred Directors" shall mean
-------------------------------------------
the directors nominated by the Series A Holders and the
Series B Holders pursuant to Section 2.1(a) and (b).
(vv) "Series A Certificate of Designation" shall mean the
--------------------------------------
Fourth Amended and Restated Certificate of Designation of
Series A Preferred Stock, dated as of December 29, 1998,
to the Company's Articles of Incorporation.
(ww) "Series A Holders" shall mean the holders of the Series A
----------------
Preferred Stock issued and outstanding at any time.
(xx) "Series A Preferred Stock" shall mean the Company's
---------------------------
Series A convertible preferred stock, par value $.01 per
share, having such rights, preferences and privileges as
may be in effect from time to time.
(yy) "Series B Certificate of Designation" shall mean the
--------------------------------------
Amended and Restated Certificate of Designation of Series
B Preferred Stock, dated as of December 29, 1998, to the
Company's Articles of Incorporation.
(zz) "Series B Holders" shall mean the holders of the Series B
----------------
Preferred Stock issued and outstanding at any time.
(aaa)"Series B Preferred Stock" shall mean the Company's
---------------------------
Series B convertible preferred stock, par value $.01 per
share, having such rights, preferences and privileges as
may be in effect from time to time.
(bbb)"Series C Adjusted Fully Diluted Capitalization" shall
------------------------------------------------
mean the Adjusted Fully Diluted Capitalization,
10
<PAGE>
(i) decreased by the number of Common Stock Equivalents
(A) issued upon the exercise of options to purchase
Shares granted to directors or employees of or
consultants to the Company pursuant to the Company's
1998 Stock Option Plan or any other stock option
plan of the Company (other than the Company's 1996
Stock Option Plan), (B) issued pursuant to the
exercise of any rights, warrants, options (other
than as described in clause (A) hereof) or other
agreements to purchase Shares, which rights,
warrants, options or other agreements are not
outstanding on the date of this Agreement (except if
and to the extent that the Series C Holders had the
right to exercise preemptive rights under Article 7
with respect to the initial sale or grant by the
Company of such rights, warrants, options or
agreements), (C) issued in an Initial Public
Offering as to which the RSI Beneficial Holders or
the Series C Holders would have had the right to
exercise preemptive rights under Section 7.1(b) but
for the limitation set forth in Section 7.1(b)
relating to the right to acquire up to 30% of the
New Securities sold in such Initial Public Offering
until other Persons have purchased $75,000,000 of
such New Securities, and (D) issued as consideration
for, or in connection with, any merger or
acquisition of the stock or assets of any acquired
entity by the Company, and
(ii) increased in the event there is an issuance of New
Securities (as defined in Section 7.1(a)) or
Additional Securities (as defined in Section 7.1(b))
by the number of Unused Backlog CSE's (as
hereinafter defined) as to which the RSI Beneficial
Holders or any of the Series C Holders have the
right to exercise (as determined below) preemptive
rights under the second paragraph of Section 7.1(a)
or under Section 7.1(b) (the "Testing Sections").
As used herein, "Backlog CSE's" shall mean the aggregate number of Common Stock
Equivalents by which the Adjusted Fully Diluted Capitalization has been
decreased pursuant to clause (i) above of this Section 1.1(bbb), and "Unused
Backlog CSE's" shall mean the number of Backlog CSE's reduced by the number of
Backlog CSE's by which the Adjusted Fully Diluted Capitalization has been
increased pursuant to clause (ii) above of this Section 1.1(bbb). For the
purpose of determining whether the RSI Beneficial Holders or the Series C
Holders have the right to exercise preemptive rights under the Testing Sections
with respect to Unused Backlog CSEs, the RSI Beneficial Holders or the Series C
Holders, as the case may be, shall be deemed to have such rights if and to the
extent that the number of New Securities or Additional Securities which the RSI
Beneficial Holders or any of the Series C Holders have the right to purchase
under the Testing Sections is greater than the number of such New Securities or
Additional Securities which the RSI Beneficial Holders or any Series C Holders
would then have the right to purchase if the RSI Beneficial Holders and the
Series C Holders (x) had actually exercised preemptive rights to the maximum
extent permitted to them under Sections 7.1(a) and 7.1(b) with respect to all
issuances of New Securities or Additional Securities, and (y) had the right to
exercise, and had actually exercised, preemptive rights under the Testing
Sections with respect to all issuances described in clause (i) above of this
Section 1.1(bbb). If at any time the Company requests, and the RSI Beneficial
Holders or the Series C Holders agree to, the waiver of preemptive rights that
the RSI Beneficial Holders or such Series C Holders may then have with respect
to New Securities or Additional Securities, then for purposes of this Agreement,
the RSI Beneficial Holders and the Series C Holders shall not be deemed to have
had the right to exercise preemptive rights with respect to such New Securities
or Additional Securities. A sample calculation of the Series C Adjusted Fully
Diluted Capitalization is attached as Schedule 2 to this Agreement.
11
<PAGE>
(ccc) Series C Certificate of Designation" shall mean the
--------------------------------------
Certificate of Designation of the Series C Preferred
Stock, dated as of December 29, 1998, to the Company's
Articles of Incorporation.
(ddd)"Series C Holders" shall mean the holders of the Series
----------------
C Preferred Stock issued and outstanding at any time.
(eee)"Series C Preferred Directors" shall mean the directors
-----------------------------
nominated by the Series C Holders pursuant to Section
2.1(a) and (b).
(fff)"Series C Preferred Stock" shall mean the Company's
---------------------------
Series C convertible preferred stock, par value $.01 per
share, having such rights, preferences and privileges as
may be in effect from time to time.
(ggg)"Shares" shall mean any shares of capital stock of the
------
Company, including, without limitation, Common Stock,
Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Warrant Shares and Option
Shares, now or hereafter issued.
(hhh)"Subsidiary" shall mean any corporation, partnership or
----------
limited liability company of which a majority of the
outstanding voting securities or other voting equity
interests or voting power are owned, directly or
indirectly, by the Company.
(iii)"Super-Majority Approval" shall mean approval of a
-------------------------
majority of the whole Board (which majority shall include
a majority of the Series C Preferred Directors and,
solely with respect to the actions specified in Sections
3.1(e), 3.1(f), and 3.1(j), at least two Series A and
Series B Preferred Directors).
(jjj)"Warrants" shall mean (1) the warrants originally dated
--------
as of November 15, 1996 issued to the Cahill Holders, (2)
the warrants originally dated as of November 15, 1996,
December 31, 1996, February 15, 1997 and April 29, 1998
issued to Thomas S. Shattan, Gregory E. Mendel and G.
Kevin Fechtmeyer and the warrants originally dated as of
December 31, 1996 and April 29, 1998 issued to The
Shattan Group, LLC, (3) the warrants originally dated as
of December 31, 1996 and February 15, 1997 issued to the
Northwood Holders, (4) the warrants originally dated as
of December 31, 1996, January 14, 1997 and February 15,
1997 issued to certain of the Other Holders, and (5) the
warrants originally dated as of February 15, 1997 issued
to the Paribas Holder (as all of such warrants described
in clauses (1), (2), (3), (4) and (5) have been amended
and restated as of January 8, 1999).
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(kkk)"Warrant Shares" shall mean the shares of Common Stock
---------------
of the Company issuable upon the exercise of the
Warrants.
(lll)"Widder Beneficial Holders" shall mean (i) Arnold Widder
--------------------------
and any Person Controlled by him, (ii) any Family Group
Member of Arnold Widder so long as Arnold Widder has the
power to control, by contract or otherwise, the vote of
the Shares of Series C Preferred Stock or Common Stock
Equivalents Beneficially Owned by such Family Group
Member, and (iii) in the event of the death or Incapacity
of Arnold Widder, any of his Family Group Members or any
conservator or committee who, as a result of his death or
Incapacity, obtain Beneficial Ownership of the shares of
Series C Preferred Stock or the Common Stock Equivalents,
which were Beneficially Owned by Arnold Widder prior to
his death. Notwithstanding the foregoing provisions of
this definition, no Person shall be deemed a Widder
Beneficial Holder with respect to any shares of Series C
Preferred Stock or Common Stock Equivalents which were
not acquired by a Widder Beneficial Holder either (i)
pursuant to the Merger Agreements, or (ii) by exercise of
a right to purchase under Article 4 or under Section 7.1
hereof.
ARTICLE II
BOARD; COMMITTEES
2.1 Board of Directors.
------------------
(a) The Board shall consist of ten Directors, (i) three
Directors initially nominated by David W. Beale (which
nominees shall initially be David W. Beale, Arnold L.
Cohen, and Louis Perlman) (collectively, and as may be
reduced pursuant to Section 2.1 (b) hereof, the "Company
-------
Directors"), (ii) three Directors (collectively, along
---------
with any additional Person nominated pursuant to Section
2.1(b) hereof, the "Series A and Series B Preferred
----------------------------------
Directors") initially nominated as follows: two shall be
---------
designated by the Cahill Holders (which nominees shall
initially be David L. Warnock and G. Lee Bohs), and one
shall be designated by the Northwood Holders (which
nominee shall initially be Henry T. Wilson), and (iii)
four Directors (collectively, the "Series C Preferred
------------------
Directors") initially nominated by holders of a Majority
---------
of the Shares of Series C Preferred Stock (which
13
<PAGE>
nominees shall initially be Scott Rechler, Jon Halpern,
Arnold Widder and William E. Phillips). William E.
Phillips is sometimes referred to herein as the "Special
-------
Series C Director". The Chairman of the Board shall be a
-----------------
Series C Preferred Director nominated by the holders of a
Majority of the Shares of Series C Preferred Stock and
reasonably acceptable to the Company Directors and the
Series A and Series B Preferred Directors. The Chairman
of the Board shall not serve as an employee or officer of
the Company but shall be vested with the rights and
privileges typically accorded the Chairman of the Board
of Directors under applicable corporate law, including,
without limitation, the right to call special meetings of
the Board or stockholders in accordance with the
Company's By-laws. Notwithstanding the foregoing, the
Chairman of the Board and the Chief Executive Officer of
the Company shall jointly prepare the agenda for and
chair each meeting of the Board. The initial Chairman of
the Board shall be Scott Rechler.
(b) Upon the earlier to occur of (i) the retirement,
resignation, disability or death of any Company Director
(other than David W. Beale) or the Special Series C
Director, after the date hereof and (ii) January 1, 2001,
the Directors shall be reelected, such that there shall
be (A) three Company Directors who shall be nominated by
David W. Beale, (B) four Series C Preferred Directors who
shall be nominated by the holders of a Majority of the
Shares of Series C Preferred Stock (which Series C
Preferred Directors shall not be required to include
William E. Phillips), and (C) three Series A and Series B
Preferred Directors who shall be nominated by the Cahill
Holders and the Northwood Holders as set forth in Section
2.1(a). If by January 1, 2001, none of the Company
Directors (other than David W. Beale) or the Special
Series C Director has ceased to be a Director by reason
of retirement, resignation, disability or death, then one
of the Company Directors or the Special Series C Director
shall resign as a Director as of that date, and, if such
resignation has not occurred by January 10, 2001, the
Board shall vote to remove one Company Director (other
than David W. Beale) or the Special Series C Director
pursuant to a designation to be made by a majority of the
Series C Preferred Directors, following which the Board
shall be re-elected in accordance with the first sentence
of this Section 2.1(b). Upon any retirement, resignation,
disability or death of any Company Director (other than
David W. Beale) following the date that the Directors are
reelected pursuant to this Section 2.1(b), the Cahill
Holders shall have the right to appoint his successor
(who shall be reasonably satisfactory to the Northwood
Holders). Thereafter, there shall be (x) four Series A
and Series B Preferred Directors, three of whom shall be
nominated by the Cahill Holders (one of whom shall be
reasonably satisfactory to the Northwood Holder) and one
of whom shall be nominated by the Northwood Holders, (y)
two Company Directors, who shall be nominated by David W.
Beale, and (z) four Series C Preferred Directors who
shall be nominated by the holders of a Majority of the
Shares of the Series C Preferred Stock.
14
<PAGE>
(c) Notwithstanding anything to the contrary contained
herein, (i) David W. Beale shall have the rights set
forth herein to nominate all of the Company Directors (as
the number of Company Directors shall be reduced pursuant
to Section 2.1(b)) only so long as he maintains
Beneficial Ownership of at least 50% of the Common Stock
Equivalents held by him as of the date of this Agreement
and the Beale Employment Agreement has not been
terminated by the Company for Cause (as defined therein);
provided, however, that so long as David W. Beale is the
-------- -------
Chief Executive Officer of the Company he shall serve as
a Director, (ii) the Cahill Holders and the Northwood
Holders each shall have the rights set forth herein to
nominate the Series A and Series B Preferred Directors,
and Series A and Series B Preferred Directors shall have
the right to nominate members of the Committees described
in Section 2.3 hereof, only so long as the Cahill Holders
or the Northwood Holders, as the case may be, maintain
Beneficial Ownership in the aggregate of at least 50% of
the Common Stock Equivalents (excluding Warrant Shares)
initially acquired by it pursuant to the First Series A
Stock Purchase Agreement and the Second Series A Stock
Purchase Agreement, and (iii) the holders of a Majority
of the Shares of Series C Preferred Stock shall have the
rights set forth herein to nominate the Series C
Preferred Directors and to designate the Chairman of the
Board, and the Series C Preferred Directors shall have
the right to nominate members of the Committees described
in Section 2.3 hereof, only so long as the Qualifying
Series C Beneficial Holders maintain Beneficial Ownership
of at least 20% of the Series C Adjusted Fully Diluted
Capitalization. If any of David W. Beale, the Cahill
Holders, the Northwood Holders or the Series C Holders
loses its rights to designate Directors, the Directors
which such Securityholder was entitled to designate shall
promptly resign and the vacancies created by such
resignations shall be filled by the stockholders of the
Company voting at a meeting or by written consent at any
time after the consummation of the transaction in which
any such Person lost its rights to designate Directors.
If any Directors or Committee members who are required to
resign such positions pursuant to the preceding sentences
fail to promptly tender their written resignations, the
stockholders and the remaining Directors shall promptly
take such steps as may be necessary or appropriate under
the Company's bylaws and applicable law in order to
remove such Directors and/or Committee members. The
Directors designated by the stockholders of the Company
shall appoint successor committee members to fill any
vacancies then existing as a result of the resignations
of the Directors referred to in the two preceding
sentences (other than any vacancy on the Executive
Committee created by the failure of David W. Beale to
serve thereon which shall be handled in the manner
provided in Section 2.3(a)).
15
<PAGE>
(d) Wherever this Agreement provides that any vote is based
on a majority of the Series C Preferred Directors, the
Special Series C Director shall not be included in either
the numerator or the denominator for purposes of
determining whether there has been such a majority vote
of Series C Preferred Directors.
(e) The Company shall give the PNA Holder notice of (in the
same manner as notice is given to directors), and permit
one Person designated by the PNA Holder to attend as a
non-voting observer, all meetings of the Board and shall
provide to such observer the same information concerning
the Company, and access thereto, provided to members of
the Board. Such observer shall keep all such information
confidential and shall not directly or indirectly use
such information for any purpose other than evaluating
the PNA Holder's continued investment in the Series B
Preferred Stock. The direct out-of-pocket expenses
reasonably incurred by any such designee of the PNA
Holder in attending any board meetings shall be
reimbursed by the Company. The PNA Holder shall have the
rights set forth herein to a non-voting board observer
only so long as the PNA Holder maintains ownership in the
aggregate of at least 50% of the Common Stock Equivalents
initially acquired by it pursuant to the Series B Stock
Purchase Agreement. Notwithstanding the foregoing, the
Company reserves the right to excuse the non-voting board
observer from all or any portion of any meeting of the
Board if the Board determines in its good faith
discretion that there are confidential matters to be
discussed relating to the Company's debt financing.
(f) Election of Nominees. On the date hereof, and at each
---------------------
annual meeting of stockholders of the Company or any
special meeting called for the purpose of electing
Directors of the Company (or by consent of stockholders
in lieu of any such meeting) or at such other time or
times as the Securityholders may agree, the
Securityholders shall vote all of their respective Shares
entitled to vote in favor of the election of all of the
Persons so nominated in accordance with Section 2.1(a)
and Section 2.1(b) and no other Person.
(g) Term. Each of the Series A and Series B Preferred
----
Directors, the Series C Preferred Directors and the
Company Directors shall hold office as a Director of the
Company for a term of one year.
2.2 Removal of Directors. No Securityholder shall vote any Shares, and
--------------------
no Director shall vote, in favor of the removal of a Director designated by
David W. Beale, the Cahill Holders, the Northwood Holders or the Series C
Holders unless (i) the right of such other Securityholder(s) to so designate
such Director shall no longer exist as a result of Section 2.1(c), or (ii) such
other Securityholder(s) shall have requested that the Securityholders or
Directors vote for the removal of any such Director (provided the
Securityholder(s) making such request shall at such time remain entitled to
designate a Director pursuant to Section 2.1(c)). In the case of clause (ii) of
the
16
<PAGE>
immediately preceding sentence, the (x) Securityholders shall vote all of
their Shares entitled to vote and (y) Directors shall vote, as the case may be,
immediately upon request in favor of the removal of such Director and the
election of any replacement Director as may be designated by requesting
Securityholder(s).
2.3 Committees.
----------
(a) The Executive Committee of the Board shall consist of
four Directors: (i) two Directors nominated by the Series
A and Series B Preferred Directors (which nominees shall
initially be David W. Beale, who shall be entitled to
serve on the Executive Committee for so long as he
remains Chief Executive Officer of the Company, and David
L. Warnock) and (ii) two Directors nominated by the
Series C Preferred Directors (which nominees shall
initially be Scott Rechler and Jon Halpern). The Chairman
of the Executive Committee shall be David W. Beale, who
shall hold such title for so long as he serves on the
Executive Committee, and, thereafter, the Chairman shall
be any successor Chief Executive Officer to David W.
Beale. To the extent permitted by law, the Executive
Committee shall have and may exercise all the powers and
authority of the Board in the management of the business
and affairs of the Company; provided, however, that, in
-------- -------
no event, shall the Executive Committee have the
authority to authorize any action which requires
Super-Majority Approval under this Agreement. If a
majority of the members of the entire Executive Committee
shall not agree on a decision with respect to any matter
over which it has authority to act, such matter shall be
referred to the Board for its determination. Without
limiting the foregoing, it is intended that the Executive
Committee shall be responsible for such matters as
non-annual (project level) budget approvals, commitment
of capital, incurrence of debt and significant
contractual relations. The Executive Committee shall
maintain minutes of its meetings and report to the Board
on all of its proceedings.
(b) The Audit Committee of the Board shall consist of four
Directors: (i) two Directors nominated by the Series A
and Series B Preferred Directors, who shall not be
officers or employees of the Company (which nominees
shall initially be Messrs. Arnold Cohen and G. Lee Bohs)
and (ii) two Directors nominated by the Series C
Preferred Directors (which nominees shall initially be
Messrs. Scott Rechler and Arnold Widder). Subject to
Section 2.1(c), the Series C Preferred Directors shall
have the right to designate the Chairman of the Audit
Committee of the Board. The Audit Committee shall
recommend the engagement of independent auditors, review
and consider actions of management in matters relating to
audit function, review with independent auditors the
scope and results of their audit engagement, review the
system of internal controls and procedures of the Company
and its
17
<PAGE>
Subsidiaries, and review the effectiveness of procedures
intended to prevent violations of law and regulations.
The Audit Committee shall also approve the engagement
letter of the Company's independent accountants, direct
the internal control (or internal audit) department, if
any, be authorized to direct agreed upon procedures
review by independent public accountants or consultants
and review and approve all public securities filings and
audited financial statements.
(c) The Compensation Committee of the Board shall consist of
four Directors: (i) two Directors nominated by the Series
A and Series B Preferred Directors, who shall not be
officers or employees of the Company (which nominees
shall initially be Messrs. Louis Perlman and David L.
Warnock), and (ii) two Directors nominated by the Series
C Preferred Directors (which nominees shall initially be
Messrs. Scott Rechler and Jon Halpern). The grant or
allocation of rights, warrants, options or other
agreements to purchase Common Stock or any security
convertible into or exchangeable for Common Stock under
any Option Plan or as compensation to any employee,
consultant, Director or officer of the Company shall
require approval of a majority of the members of the
Compensation Committee.
(d) The Board shall establish a Strategic Steering Committee,
which shall be a management committee. The Strategic
Steering Committee shall consist of David W. Beale, three
members appointed by the Series C Preferred Directors
(which members need not be Directors and which members
shall initially include Jon L. Halpern) and three senior
managers of the Company appointed by the Chief Executive
Officer of the Company. The Strategic Steering Committee
shall be responsible for evaluating and recommending new
products, technologies and strategies with a view towards
ensuring the ultimate success of the Company by
continually meeting the changing needs of customers of
the Company. There shall be no chairman of the Strategic
Steering Committee.
2.4 Vacancies. Subject to Sections 2.1(b), 2.1(c) and 2.3, if any
---------
vacancy occurs in the Board or any Committee thereof because of death,
disability, resignation, retirement or removal of a Director or a Committee
member in accordance with this Agreement, the Securityholder or Securityholders
that nominated the Person creating such vacancy (or the Directors who nominated
the Committee member) shall nominate a successor (provided that such
Securityholder shall at such time remain entitled to designate a Director, or
the relevant Directors shall at such time remain entitled to nominate a
Committee member, as the case may be, pursuant to Sections 2.1(a), 2.1(b),
2.1(c) and 2.3), and all Securityholders shall vote the Shares held by them
which are entitled to vote in favor of the election of such successor to the
Board and all of the Directors shall elect or appoint the successors to such
Committee of the Board. Any vacancy that occurs shall be filled as promptly as
possible upon the request of the group having the right to nominate a Person to
fill such vacancy.
18
<PAGE>
2.5 Proxies. Neither the Company nor any Securityholder shall give any
-------
proxy or power of attorney to any Person or entity that permits the holder
thereof to vote in his discretion on any matter that may be submitted to the
Company's Securityholders for their consideration and approval, unless such
proxy or power of attorney is made subject to and is exercised in conformity
with the provisions of this Agreement.
2.6 Compensation. Each Director shall be reimbursed by the Company for
------------
all direct out-of-pocket expenses incurred in the reasonable discretion of the
Director in connection with their services as a Director and a committee member
and each Director, other than any Director who is an officer of the Company,
shall receive from the Company an annual Director's fee of $5,000.
2.7 Subsidiary Boards. The board of directors of each Subsidiary shall
------------------
be comprised of a single director who shall be David W. Beale or any successor
Chief Executive Officer. No action taken by the board of directors of any
Subsidiary shall be contrary to or inconsistent with the policies,
recommendations or directions of the Board.
ARTICLE III
CERTAIN CORPORATE ACTION
3.1 Approval of Certain Board Action. None of the following actions
---------------------------------
shall be taken by the Company or any of its Controlled Affiliates without
Super-Majority Approval (provided that if at the time of the proposed action (i)
the Qualifying Series C Beneficial Holders do not have aggregate Beneficial
Ownership of at least 20% of the Series C Adjusted Fully Diluted Capitalization,
then the approval of a majority of the Series C Preferred Directors shall not be
required as part of the Super-Majority Approval, and (ii) the Cahill Holders and
the Northwood Holders do not have aggregate Beneficial Ownership of 50% of the
Common Stock Equivalents (excluding Warrant Shares) initially acquired by them
pursuant to the First Series A Stock Purchase Agreement and the Second Series A
Stock Purchase Agreement, then the approval of at least two of the Series A and
Series B Preferred Directors shall not be required as part of the Super-Majority
Approval):
(a) any sale, exchange, lease or other disposition (whether
in a single transaction or a series of related
transactions), of any asset, group of assets, division or
Subsidiary of the Company, which would have the effect of
(i) disposing of assets which produce gross revenues
constituting 4% or more of the Company's consolidated
gross revenues (determined in each case as of the date of
the last regularly prepared quarterly financial
statements of the Company but giving effect to all
acquisitions made by the Company and its Subsidiaries on
or after the beginning of the measurement period), (ii)
disposing of the Company's operations in a "metropolitan
statistical area" as such term is defined by the Bureau
of the Census (with respect to domestic
19
<PAGE>
operations) or a country (with respect to international
operations), or (iii) terminating or substantially
terminating any material product line (e.g., executive
office suites, Internet services, telecommunications
service, etc.);
(b) any material amendment to or replacement or extension of
the Credit Agreement as it exists as of the date hereof;
(c) incurring any direct or indirect Indebtedness (as such
term is defined in the Credit Agreement as it exists as
of the date hereof) for borrowed money, loaning any
money, guaranteeing the payment of any money or
indebtedness for borrowed money of another Person,
guaranteeing the performance of any other obligation of
another Person (other than a wholly owned subsidiary), or
indemnifying another Person against any losses, damages
or costs, provided that the foregoing shall not include
(i) any borrowing by the Company under its Credit
Agreement for acquisitions which have been approved by
the Board or the Executive Committee, working capital,
letters of credit in connection with leases of real
property by the Company or any Subsidiary, or any other
purpose which is within the then current Annual Budget,
(ii) any Capital Lease permitted under Section 3.1(d),
(iii) any trade debt of the Company or any Subsidiary
incurred in the ordinary course of business, or (iv) any
indemnity which the Company or any Subsidiary may give to
a seller or related entities in connection with an
acquisition that has received the requisite Board
approval, in respect of the liabilities or obligations
which are being assumed by the Company or a Subsidiary in
connection with such acquisition;
(d) making capital expenditures, including Capital Leases, in
an aggregate amount as capitalized on a balance sheet
under GAAP, in any fiscal year which exceeds by more than
$500,000 the amount approved in the Annual Budget for
such year;
(e) entering into any business other than the Core Business;
(f) entering into any material transaction with any Affiliate
of the Company, except any transaction pursuant to the
OnSite Agreement, the Intercompany Agreement or any
Product Agreement entered into pursuant thereto;
(g) any change in the name of the Company;
(h) any voluntary liquidation or dissolution of the Company
or filing of a voluntary petition of the Company under
Chapter 7 or Chapter 11 of the Bankruptcy Act or a
determination to not contest an involuntary petition of
bankruptcy or otherwise institute insolvency proceedings
or otherwise seek any relief under laws relating to the
relief from debts or the protections of
20
<PAGE>
debtors generally; seek or consent to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator,
custodian or any similar official for such entity or all
or any portion of such entity's properties; make any
assignment for the benefit of such entity's creditors;
take any action that would cause the Company to become
insolvent as defined by the Bankruptcy Act; or take any
action which consents to a case in a bankruptcy or other
insolvency proceedings against the Company or waives or
releases any right or claims of the Company in any such
case or proceeding;
(i) any merger, consolidation or reorganization of the
Company with another Person which is not a Subsidiary of
the Company, except if such merger, consolidation or
reorganization is an acquisition transaction that would
not require Super-Majority Approval under Section 3.1(n);
provided, however, that such exception shall not apply to
-------- -------
mergers, consolidations, or reorganizations (i) pursuant
to which the Company is not the surviving corporation and
the shares of the Company's capital stock are converted
or exchanged, or (ii) which would materially and
adversely affect the relative rights or preferences of
the Series C Preferred Stock (including, without
limitation, through the issuance of a security ranking
senior to the Series C Preferred Stock as to payment of
dividends or liquidation preference);
(j) any issuance or sale of equity securities or phantom
interests of the Company or of any security, warrant,
option or right (contingent or otherwise) to purchase or
acquire any equity security of the Company or any phantom
interests, or the adoption of any option, phantom
interests or similar plan (other than the Company's 1996
Option Plan and the Company's 1998 Option Plan), except
(i) any issuance of securities pursuant to a Qualified
Public Offering, (ii) any grant of options pursuant to an
Option Plan, (iii) any issuance of securities upon the
exercise of any Warrant or Option or upon the conversion
of any outstanding convertible security of the Company or
(iv) any issuance of securities as consideration in
connection with any merger, consolidation or acquisition
of stock or assets from any Person (if such merger,
consolidation or acquisition would not otherwise require
Super-Majority Approval under any other clause of this
Section 3.1);
(k) creating, granting, or consenting to any Encumbrances
which secure, individually or in the aggregate, an amount
in excess of $100,000 and which are not otherwise
required or permitted under the terms of the Credit
Agreement, provided that if the Credit Agreement is not
then in effect, under the terms of the Credit Agreement
as such Credit Agreement exists as of the date hereof;
(l) any change in the accounting principles used by the
Company or the adoption of any change to the Company's
financial reporting practices, procedures or
21
<PAGE>
standards which would as a normal matter require the
approval of the Board, except for any such changes which
are required by GAAP or the Securities and Exchange
Commission;
(m) retaining any accounting firm other than
PricewaterhouseCoopers, LLP or another "Big Five"
accounting firm which is "independent" as such term is
used in Rule 2-01 of Regulation S-X under the Securities
Act and under GAAP;
(n) any acquisition (in any transaction or series of related
transactions) of all or substantially all of the assets
of, or of a controlling interest in, any other Person,
where such transaction (or related transactions) would
have the effect, on a pro forma basis, assuming such
transaction or related transactions were consummated, of
increasing the consolidated gross revenues of the Company
by 10% or more (in the case of international
acquisitions) or 20% or more, (in the case of domestic
acquisitions) over the existing consolidated gross
revenues of the Company, determined for the immediately
preceding twelve month period ending as of the date of
the most recent quarterly financial statements of the
Company. For this purpose consolidated gross revenues
shall be calculated giving effect to all other
acquisitions made by the Company and its Subsidiaries on
or after the beginning of the measurement period;
(o) entering into any agreement, other than any agreement
that may be entered into under the terms of the
Intercompany Agreement (including the OnSite Agreement),
(i) with a real estate investment trust other than
Reckson Associates Realty Corp., except for leases of
real property and related agreements for services
ancillary to a lease of real property, or (ii) which is a
material agreement with any Person (other than RSI,
OnSite or their respective Affiliates) which directly
competes with RSI as a broad based provider of multiple
outsourced business services (i.e. this clause (ii) shall
not apply to an agreement with a provider of individual
business services which RSI, OnSite or their respective
Affiliates may offer; provided, that each such agreement
is not otherwise violative of the terms and conditions of
the Intercompany Agreement);
(p) any amendment to the Articles of Incorporation (including
the Certificates of Designation) or Bylaws of the
Company, or any change in the number of members of the
Board, any Committee thereof or the Strategic Steering
Committee;
(q) the hiring or termination of employment of any of the
Chief Executive Officer, Chief Operating Officer or Chief
Financial Officer of the Company, or of any other officer
of the Company with a compensation package equal
22
<PAGE>
to or greater than the compensation package of the Chief
Executive Officer, Chief Operating Officer or Chief
Financial Officer or the approval of any renewal,
extension or termination of any employment agreement with
any such individual or the waiver by or on behalf of the
Company or any of its Controlled Affiliates of any of the
Company's rights thereunder;
(r) the adoption or amendment of the Annual Budget;
(s) the settlement of any action or proceeding before a
federal regulatory agency, or the commencement or
settlement of any litigation by or against the Company or
any Subsidiary in which the amount at issue involves at
least $500,000;
(t) redemption or other purchase of outstanding Shares,
Warrants or Options except pursuant to the provisions of
this Agreement, the Certificates of Designation or the
terms of the applicable Option Plan; or
(u) any amendment, modification or waiver of any provision of
this Agreement.
3.2 Approval of Certain Stockholders. The Company agrees it shall not,
--------------------------------
without the approval of a Majority of the Shares of Series A and Series B
Preferred Stock and a Majority of the Shares of the Series C Preferred Stock:
(a) issue any class or series of equity security senior to or
on a parity with the Series A Preferred Stock, the Series
B Preferred Stock or the Series C Preferred Stock as to
payment of dividends or senior to or on a parity with the
Series A Preferred Stock, Series B Preferred Stock or the
Series C Preferred Stock as to payments on a dissolution,
liquidation or winding up of the Company;
(b) enter into any agreement or arrangement of any kind that
would restrict the Company's ability to perform its
obligations under (i) this Agreement, (ii) the First
Series A Stock Purchase Agreement, the Second Series A
Stock Purchase Agreement and the Series B Stock Purchase
Agreement (it being agreed that no vote shall be required
from the holders of the Series C Preferred Stock with
respect to the actions specified in this clause (ii)) or
(iii) the Merger Agreements (it being agreed that no vote
shall be required from the holders of the Series A and
the Series B Preferred Stock with respect to the actions
specified in this clause (iii));
(c) amend the Articles of Incorporation (including the
Certificates of Designation) or the By-laws of the
Company in any manner;
(d) merge or consolidate with any other entity or sell all or
substantially all of its assets or issue any voting
securities to a Person or entity not then a holder of
Shares which would result in such Person or entity
acquiring control of the Company; or
23
<PAGE>
(e) liquidate or dissolve.
Notwithstanding anything to the contrary contained above,
neither the Paribas Holder, nor any of its affiliated transferees or successors
shall be entitled to participate in any vote needing the approval of a Majority
of the Shares of Series A and Series B Preferred Stock.
3.3 Appointment of Appraiser. Notwithstanding anything to the contrary
------------------------
in this Agreement or in the Certificates of Designation, any Initial Appraiser
(as defined in this Agreement or the Certificates of Designation) to be selected
by the Company shall be selected by a majority of the Directors of the Company
who are not Affiliates of the Securityholders whose Shares are the subject of
the appraisal and such appraiser shall be reasonably acceptable to the majority
of the Series C Preferred Directors.
3.4 Appointment of Certain Executive Personnel. In addition to the
----------------------------------------------
rights contained in Section 3.1(q), the holders of a Majority of the Shares of
Series C Preferred Stock shall have the right to appoint on the Closing Date
those executive officers of Parent designated on Schedule 3 and, thereafter, the
----------
employment of such executive officers shall be governed by the terms of such
agreements as the Company may enter into with such persons.
ARTICLE IV
TRANSFER OF SHARES
4.1 Restrictions on Transfer. So long as this Agreement is in effect,
------------------------
no Securityholder shall sell, assign, transfer, give, encumber, pledge,
hypothecate or in any other way dispose of any Shares, Warrants or Options (any
of which being a "Transfer") except as provided in this Agreement. For purposes
--------
of Section 4.1, Section 4.2, Section 4.3 and Section 4.6 of this Agreement, a
Transfer shall be deemed to include any Transfer by any Person who Beneficially
Owns any shares of Series C Preferred Stock by reason of any Transfer of any
interest (or portion thereof) by or through which such Person holds such
Beneficial Ownership of such shares (any such interest, a "Series C Beneficial
-------------------
Interest"). In addition, each Securityholder agrees that it will not Transfer
- --------
any of its Shares, Warrants or Options except as permitted under the Securities
Act or applicable state securities laws or any rule or regulation promulgated
thereunder. No Transfer in violation of this Agreement shall be made or recorded
on the books of the Company and any such Transfer shall be void and of no force
or effect. Subject to the terms of this Agreement, the Securityholders shall be
entitled to exercise all rights of ownership of their Shares and any such
Options or Warrants, and the transferability of any such Options or Warrants
shall, in addition to the terms hereof, be subject to the terms and conditions
contained therein. Except as set forth in Section 4.6 hereof, nothing herein is
intended to restrict the Transfer of any securities issued by RSI or any
interest in JAH Realties, L.P.
24
<PAGE>
4.2 Certain Permitted Transfers. The Company and the Securityholders
----------------------------
acknowledge and agree that any of the following Transfers shall be deemed to be
in compliance with this Agreement (subject in each case to compliance with
applicable securities laws):
(a) subject to Section 4.6 and 9.6 hereof, a Transfer in
accordance with the provisions of Section 4.3, 4.5, 4.7
or 4.8 or Article 5 hereof, pursuant to the redemption
provisions applicable to the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock as
in effect from time to time, or through a sale in a
registered offering in accordance with Article 6 hereof;
(b) subject to Section 4.6 and 9.6 hereof, a Transfer (i)
upon the death of a Securityholder or of a Beneficial
Owner of shares of Series C Preferred Stock to his
executors, administrators and testamentary trustees and
beneficiaries of his estate or (ii) by the PNA Holder to
not more than 15 employees of the PNA Holder or any of
the PNA Holder's Affiliates (subject in each case to
compliance with applicable securities laws);
(c) subject to Section 4.6 and 9.6 hereof, a Transfer to (x)
an Affiliate or (y) to members, partners, limited
partners, or stockholders of a Securityholder in the
event of a liquidation or other distribution of or by
such Securityholder, or (z) made for nominal
consideration or as a gift to any of the Securityholder's
Family Group Members; and
(d) subject to Section 4.6 and 9.6 hereof, any Transfer by
any of the Series C Holders (or any member thereof) to
any other Series C Holder or by any Beneficial Owner of
shares of Series C Preferred Stock to any other
Beneficial Owner of shares of Series C Preferred Stock or
to any of their respective members, partners or
stockholders or any Family Group Members (any such
transferee, together with any transferee pursuant to
Section 4.2(b) and (c), being a "Permitted Transferee");
--------------------
(e) anything herein to the contrary notwithstanding, in the
event that any Securityholder or any of its Affiliates
shall deliver to the Company an opinion of counsel to
such Securityholder or such Affiliate, as the case may
be, to the effect that if such Securityholder or such
Affiliate, as the case may be, shall continue to hold
some or all of the Warrants or Shares held by it, there
is a material risk that such ownership will result in the
violation of any statute, regulation or rule of any
governmental authority (including, without limitation,
Regulation Y promulgated under the Bank Holding Company
Act of 1956, as amended (the "BHCA")), such
----
Securityholder or such Affiliate (a "Regulated Holder"),
-----------------
as the case may be, may exchange its Shares or Warrants,
as herein provided. The Company shall cooperate with such
Securityholder or such Affiliate as the case may be, in
exchanging all or any
25
<PAGE>
portion of its voting Shares on a share-for-share basis
for Shares of a non-voting security or warrants (which
shall thereafter be deemed Warrants hereunder)
convertible into a nonvoting security of the Company
(such non-voting security shall be identical in all
respects to such voting Shares, except that they shall be
non-voting and shall be convertible or exercisable into
voting securities on such conditions as are requested by
such Securityholder in light of the regulatory
considerations prevailing). Without limiting the
forgoing, at the request of such Securityholder or such
Affiliate, as the case may be, the Company shall use
commercially reasonable efforts to amend this Agreement,
the Articles of Incorporation of the Company, the By-laws
of the Company, and any related agreements and
instruments and shall take such additional actions in
order to effectuate the authorization of the issuance of
nonvoting securities and the exchange of such
Securityholder's voting securities into such nonvoting
securities. The provisions of this Section 4.2(e) shall
inure solely to the benefit of the Securityholders and
their Affiliates which are subject to the provisions of
the BHCA or the Small Business Investment Act of 1958, as
amended (the "SBIA"); and
----
(f) any pledge of a Series C Holder Beneficial Interest to
secure any bona fide indebtedness, but in each case
subject to Section 4.6 and provided that the lender
acknowledges in writing that any sale or Transfer of the
pledged Series C Beneficial Interests shall be subject to
the provisions of this Agreement and that it shall not
have the right to take title, sell or exercise any rights
of ownership of the pledged Series C Holder Beneficial
Interests without first having complied with the
provisions of Article IV hereof (it being agreed and
understood among the Company and the Securityholders that
any transfer of title or sale of such pledged interests
to any Series C Holder or any holder of a Series C Holder
Beneficial Interest shall not be subject to the
provisions of Section 4.3).
4.3 Rights of First Refusal.
-----------------------
(a) Each Securityholder agrees that, subject to the
restrictions on Transfers contained in Sections 4.3(i),
4.4 and 4.6, if any Securityholder (a "Transferring
------------
Securityholder") proposes to Transfer any or all of the
--------------
Shares or Warrants then owned by such Transferring
Securityholder pursuant to a bona fide offer from a third
party (who (x) is not an Affiliate of such Securityholder
and (y) reasonably has the ability to consummate such
offer in accordance with its terms), other than as
provided in Section 4.2, 4.5, 4.7 or 4.8 or Article 5
hereof or pursuant to the redemption provisions in the
Certificates of Designation or through a sale in a
registered offering in accordance with Article 6 hereof
(a "Section 4.3 Transfer"), then such Transferring
----------------------
Securityholder shall first give a written notice (the
"Transfer Notice") to the Company and each of the other
----------------
Securityholders (the
26
<PAGE>
"Securityholder Offerees") specifying (i) the number of
------------------------
Shares or Warrants such Transferring Securityholder
proposes to Transfer (the "Transfer Shares"), (ii) the
----------------
consideration to be received for the Transfer Shares in
the proposed Section 4.3 Transfer pursuant to such bona
fide offer, (iii) any other material terms of the
proposed Section 4.3 Transfer, including, without
limitation, the conditions precedent to such offer, and
(iv) whether any purchase of the Transfer Shares by the
Company and the Securityholder Offerees pursuant to this
Section 4.3 is conditioned upon purchase by the Company
and the Securityholder Offerees of all the Transfer
Shares (an "All or Nothing Condition"). The Transfer
--------------------------
Notice shall constitute an irrevocable offer to the
Company and the Securityholder Offerees (the "Transfer
--------
Offer") to sell the Transfer Shares to the Company and
-----
the Securityholder Offerees, pursuant to the provisions
of this Section 4.3, for the consideration and on the
other terms stated in the Transfer Notice (or the
reasonable equivalent thereof in the case of non-monetary
consideration of a type which is personal to the third
party offeror). For purposes of this Section 4.3, in the
case of a Transfer of a Series C Beneficial Interest, the
Transfer Shares shall not be the Series C Beneficial
Interest proposed to be transferred but rather shall be
deemed to be the number of shares of Series C Preferred
Stock as to which the transferee of the Series C
Beneficial Interest would acquire Beneficial Ownership in
such proposed transfer.
(b) The RSI Beneficial Holder shall have the initial right,
exercisable, in RSI's sole discretion, by the Series C
Holders for the benefit of the RSI Beneficial Holders or
directly by any of the RSI Beneficial Holders (provided,
that, if such right is exercised directly by any of the
RSI Beneficial Holders, such Person shall become a party
to this Agreement for all purposes hereunder), to accept
the Transfer Offer as to all or a portion of the Transfer
Shares; provided, however, that in no event shall the
-------- -------
foregoing right to accept the Transfer Offer and purchase
Transfer Shares pursuant to this Section 4.3(b) by or on
behalf of the RSI Beneficial Holders entitle the Series C
Holders or the RSI Beneficial Holders, as the case may
be, to purchase a number of Shares that, immediately
following such purchase, would result in the RSI
Beneficial Holders having Beneficial Ownership of Shares,
Options and Warrants representing, in the aggregate, more
than 30% of the Adjusted Fully Diluted Capitalization.
Within 5 Business Days after the receipt of a Transfer
Notice, the Company shall notify the Transferring
Securityholder and the Securityholder Offerees in writing
of the number of Transfer Shares that the Series C
Holders or the RSI Beneficial Holders, as the case may
be, shall have the right to purchase pursuant to this
Section 4.3(b). Within 15 Business Days after receipt of
such notice from the Company, if the Series C Holders or
the RSI Beneficial Holders, as the case may be, shall be
entitled to purchase any of the Transfer Shares pursuant
to this Section 4.3(b), the Series C Holders or the RSI
Beneficial Holders, as the case may be, shall give a
27
<PAGE>
written notice to the Company and the Transferring
Securityholder, accepting the Transfer Offer (an
"Acceptance Notice"), which shall specify the number of
------------------
Transfer Shares that they desire to purchase pursuant to
this Section 4.3(b). The failure of the Series C Holders
or the RSI Beneficial Holders, as the case may be, to
timely give an Acceptance Notice shall be deemed to be an
election by them to not purchase any Transfer Shares
pursuant to this Section 4.3. If the Series C Holders or
the RSI Beneficial Holders, as the case may be, have
given timely Acceptance Notices electing to purchase less
than all, or are not entitled to purchase pursuant to
this Section 4.3(b) all, of the Transfer Shares, the
number of Transfer Shares as to which the Series C
Holders or the RSI Beneficial Holders, as the case may
be, shall have not given timely Acceptance Notices
pursuant to this Section 4.3(b) (the "Initial Remaining
------------------
Transfer Shares") shall be deemed offered by the
-----------------
Transferring Securityholder to the Company pursuant to
Section 4.3(c). The rights set forth in this Section
4.3(b) shall terminate and shall no longer apply in the
event that the Qualifying Series C Beneficial Holders do
not Beneficially Own at least 20% of the Series C
Adjusted Fully Diluted Capitalization. The Series C
Holders shall provide such information as the Company
shall reasonably request in order to determine the
Beneficial Ownership of the Qualifying Series C
Beneficial Holders. In the event that any RSI Beneficial
Holder transfers Beneficial Ownership in any Shares,
Options or Warrants to any Qualifying Series C Beneficial
Holder, then, notwithstanding such transfer, the Shares,
Options or Warrants so transferred shall be deemed to be
Beneficially Owned by the RSI Beneficial Holders for
purposes of this Section 4.3.
(c) The Company shall have the right to accept the Transfer
Offer as to all or a portion of the Initial Remaining
Transfer Shares. Within 15 Business Days after the end of
the 15 Business Day period provided to the Series C
Holders in Section 4.3(b), if the Company elects to
purchase any of the Initial Remaining Transfer Shares,
the Company shall give an Acceptance Notice to the
Transferring Securityholder and each of the
Securityholder Offerees, which shall specify the number
of Initial Remaining Transfer Shares that it desires to
purchase pursuant to this Section 4.3(c), up to the total
of such Initial Remaining Transfer Shares. The failure of
the Company to timely give an Acceptance Notice shall be
deemed to be an election by the Company to not purchase
any Transfer Shares. If the Company has given a timely
Acceptance Notice electing to purchase less than all of
the Initial Remaining Transfer Shares, the number of
Initial Remaining Transfer Shares as to which the Company
has not given a timely Acceptance Notice pursuant to this
Section 4.3(c) (the "Final Remaining Transfer Shares")
----------------------------------
shall be deemed offered by the Transferring
Securityholder to the Securityholder Offerees pursuant to
Section 4.3(d).
28
<PAGE>
(d) The Securityholder Offerees shall have the right to
accept the Transfer Offer as to the Final Remaining
Transfer Shares. Within 15 Business Days after the end of
the 15 Business Day period provided to the Company in
Section 4.3(c), each Securityholder Offeree who wishes to
purchase any of the Final Remaining Transfer Shares shall
give an Acceptance Notice to the Company and the
Transferring Securityholder, which shall specify the
number of Final Remaining Transfer Shares (up to such
Securityholder Offeree's Pro Rata Share of the Final
Remaining Transfer Shares, which for the RSI Beneficial
Holders shall be calculated including any Transfer Shares
to be acquired by them or by the Series C Beneficial
Holders for their account pursuant to the exercise of the
rights set forth in Section 4.3(b)) which such
Securityholder Offeree desires to purchase). The
Acceptance Notice may, at the Securityholder Offeree's
option, indicate the maximum number of Final Remaining
Transfer Shares such Securityholder Offeree would
purchase in excess of such Securityholder Offeree's Pro
Rata Share of the Final Remaining Transfer Shares (the
"Excess Amount"). If one or more Securityholder Offerees
-------------
does not give a timely Acceptance Notice, or elects in an
Acceptance Notice to purchase less than such
Securityholder Offeree's Pro Rata Share of the Final
Remaining Transfer Shares, then the Final Remaining
Transfer Shares shall automatically be deemed to be
accepted by Securityholder Offerees who specified an
Excess Amount in their respective Acceptance Notice,
allocated among such Securityholder Offerees (with
rounding to the nearest whole share to avoid fractional
shares) in proportion to their respective Pro Rata Shares
determined based only on those Securityholder Offerees
who have given timely Acceptance Notices which specified
an Excess Amount. In no event shall an amount greater
than a Securityholder Offeree's Excess Amount be
allocated to such Securityholder Offeree. Any excess
Final Remaining Transfer Shares shall be further
allocated among the Securityholder Offerees whose
specified Excess Amount has not been satisfied (with
rounding to the nearest whole share to avoid fractional
shares) in proportion to their respective Pro Rata
Shares, determined based only on those Securityholder
Offerees whose specified Excess Amount has not yet been
satisfied, and such procedure shall be employed until the
entire Excess Amount of each Securityholder Offeree has
been satisfied or all Final Remaining Transfer Shares
have been allocated.
(e) The closing of the purchase by the Series C Holders or
the RSI Beneficial Holders, as the case may be, the
Company and/or the Securityholder Offerees of the
Transfer Shares pursuant to this Section 4.3 shall take
place at the principal offices of the Company on the
fifteenth Business Day after the end of the 15 Business
Day period set forth in (i) Section 4.3(d) or (ii) if the
Series C Holders are purchasing all of the Transfer
Shares, Section 4.3(c). At such closing, the Series C
Holders or the RSI Beneficial Holders, as the case may
be, the Company and/or the Securityholder Offerees who
have
29
<PAGE>
elected to purchase Transfer Shares shall deliver a
certified check or checks in the appropriate amount to
the Transferring Securityholder against delivery of duly
endorsed certificates with all stock transfer tax stamps
attached representing the Transfer Shares to be
purchased. The Transfer Shares shall be delivered free
and clear of all Encumbrances other than those imposed by
this Agreement.
(f) If any Transfer Shares allocated to a Securityholder
Offeree are not purchased by such Securityholder Offeree,
such Transfer Shares may be purchased by the Company
promptly following any such default. Nothing contained
herein shall prejudice any Person's right to maintain any
cause of action or pursue any other remedies available to
it as a result of such default.
(g) If, at the end of the 15 Business Day period set forth in
Section 4.3(d), timely Acceptance Notices have not been
given covering all of the Transfer Shares and the
Transfer Notice contained an All or Nothing Condition,
then the Transferring Securityholder shall have 90 days
in which to complete the sale of all, but not less than
all, of the Transfer Shares. If, at the end of the 15
Business Day period set forth in Section 4.3(d), timely
Acceptance Notices have not been given covering all of
the Transfer Shares and the Transfer Notice did not
contain an All or Nothing Condition, then the
Transferring Securityholder shall have 90 days in which
to complete the sale of any or all of the Transfer Shares
as to which timely Acceptance Notices have not been
given. Any such sale of Transfer Shares shall be to a
third party for a consideration not less than the
consideration, and on terms no more favorable to the
transferee, than those contained in the Transfer Notice.
No such Transfer may be made to any third party unless
and until such third party delivers to the Company an
executed consent to be bound by the provisions of this
Agreement in form and substance reasonably satisfactory
to the Company. Promptly after any Transfer pursuant to
this Section 4.3, the Transferring Securityholder shall
notify the Company of the consummation thereof and shall
furnish such evidence of the completion and time of
completion of such Transfer and of the terms thereof as
the Company may request. If, at the end of such 90 day
period, the Transferring Securityholder has not completed
the Transfer of all of the Transfer Shares, the
Transferring Securityholder shall no longer be permitted
to Transfer such Shares pursuant to this Section 4.3(g)
without again complying with this Section 4.3 in its
entirety. If the Transferring Securityholder determines
at any time within such 90 day period that the Transfer
of all or any part of such Transfer Shares for a
consideration not less than and on terms no more
favorable to the transferee than those contained in the
Transfer Notice is impractical, the Transferring
Securityholder may terminate all attempts to Transfer
such Transfer Shares and recommence the procedures of
this Section 4.3 in their entirety without waiting for
the expiration of such 90 day period by delivering
written notice of such decision to the Company.
30
<PAGE>
(h) If any Regulated Holder has the right to purchase any
Transfer Shares but is prohibited from exercising such
right under the BHCA or SBIA or the regulations
promulgated thereunder, such Regulated Holder may assign
such right to the Company and upon such assignment the
Company shall, subject to any legal or contractual
restrictions and at no cost or expense to the Company,
purchase such Transfer Shares and concurrently sell to
such Regulated Holder such Transfer Shares, or if
requested by such Regulated Holder, securities that do
not have voting rights but otherwise have the same terms
as such Transfer Shares, for the purchase price upon
which such Transfer Shares were purchased by the Company.
The Company's obligations under this Section 4.3(h) are
solely as an accommodation to such Regulated Holder and
the Company shall be under no obligation to advance any
funds or to obtain any financing to acquire such Transfer
Shares.
(i) No Transfer of Options may be made in a Section 4.3
Transfer.
(j) Any time periods contained in this Section 4.3 shall be
extended to the extent reasonably necessary to allow any
Securityholder to obtain any requisite approvals under
the Hart-Scott-Rodino Act and any other approvals that
may be required under applicable state or federal law.
The Company shall cooperate (at the Securityholder's
expense) in the obtaining of such approvals.
4.4 Restrictions in Connection with Registrations. Each Securityholder
---------------------------------------------
agrees not to effect any public sale or distribution of Shares, including any
sale pursuant to Rule 144, during the seven (7) days prior to the effective date
of a registration statement effected pursuant to the terms hereof and during
such period of time beginning on such effective date as may be required by the
underwriters of such offering and agreed to by the Company, but in no event
exceeding nine (9) months (in each case except as part of such registration).
Each Securityholder hereby acknowledges that such Securityholder shall have no
right to include its Shares in any registration of Shares, except as expressly
provided in Article 6.
4.5 Tag-Along Right. Prior to the effective date of an Initial Public
----------------
Offering (or such longer period as set forth in the second following paragraph),
if any Transferring Securityholder wishes to Transfer any Shares or Warrants,
either in one transaction or a series of related transactions, and any portion
of the Transfer Shares are not purchased by the Series C Holders or the RSI
Beneficial Holders, as the case may be, the Company or the Securityholder
Offerees under Section 4.3 (other than any Transfer pursuant to Section 4.2, 4.7
or 4.8, or through a redemption or put of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, or a sale in a registered offering
or pursuant to Rule 144 under the Securities Act, or through the right of any
Remaining Securityholder (as defined below) to sell Shares provided by this
Section 4.5), then as a condition to such Transfer, the Transferring
Securityholder shall permit (or cause to be permitted)
31
<PAGE>
all other Securityholders who did not seek to purchase the Transfer Shares
pursuant to Section 4.3 (other than Securityholders who elected to purchase
Transfer Shares and failed to close on the purchase thereof) or were unable to
purchase the Transfer Shares as a result of the failure of the All or Nothing
Condition to be satisfied (the "Remaining Securityholders") to sell, either to
--------------------------
the prospective purchaser of the Transferring Securityholder's Shares or
Warrants or to another financially reputable purchaser reasonably acceptable to
such Remaining Securityholders, up to the same proportion of the Shares,
Warrants and Options (if then vested) then owned by such Remaining
Securityholder as the proportion that the number of Shares and Warrants the
Transferring Securityholder proposes to Transfer pursuant to this Section 4.5 in
the contemplated sale on the date of the Tag-Along Notice (as defined below)
bears to the total number of Shares and Warrants held by the Transferring
Securityholder on such date prior to any Shares or Warrants sold pursuant to
Section 4.3, on equivalent terms and at an equivalent price and for the same
type of consideration to that offered by the third-party offeror, taking into
account any difference in the type of securities (i.e., Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Common Stock) held
(or acquirable) by the Transferring Securityholder and the Remaining
Securityholders who desire to sell Shares, Warrants or Options. All numbers of
Shares and Warrants and Options (only to the extent then vested) under this
Section 4.5 shall be determined on a fully converted and fully exercised basis.
The Transferring Securityholder shall give written notice (the
"Tag-Along Notice") to the Remaining Securityholders of each proposed Transfer
-----------------
giving rise to the rights referred to in this Section 4.5 (the "Tag-Along
---------
Rights") immediately following the end of the 15 Business Day period provided in
- ------
Section 4.3(d) and at least 20 days prior to the proposed consummation of such
Transfer, setting forth the name of the prospective purchaser, the maximum
number of Shares and Warrants proposed to be Transferred, the proposed amount
and form of consideration and the other terms and conditions of the proposed
transaction. The Tag-Along Notice shall also provide that each of the Remaining
Securityholders may elect to exercise such rights within 15 days following the
giving of the Tag-Along Notice, by delivery, on or before the expiration of such
time period, of a written notice to the Transferring Securityholder indicating
such Securityholder's desire to exercise its rights under this Section 4.5 and
specifying the number of Shares, Warrants or Options he, she or it desires to
sell. No present or future Tag-Along Rights of a Securityholder shall be
adversely affected by its failure to exercise such rights in the past.
Notwithstanding anything to the contrary contained herein, a holder of
Options shall only be entitled to exercise Tag-Along Rights with respect to such
Options if the Tag-Along Notice relates to the sale or other disposition of a
majority of the outstanding shares of voting capital stock of the Company (based
on the Fully Diluted Capitalization excluding Option Shares and Warrant Shares)
to a Person that is not a parent or Subsidiary of the Company. Notwithstanding
anything to the contrary contained herein, the provisions of this Section 4.5
shall apply to any Transfer following an Initial Public Offering if, at the time
of any such Transfer, the provisions of Rule 144 promulgated under the
Securities Act are not generally applicable to sales of the Company's securities
due to the failure of the condition set forth in Rule 144(c) to be satisfied.
The Company shall use all reasonable efforts to inform the Securityholders if
such condition has not been satisfied at any time following an Initial Public
Offering; provided however, the Company shall have no liability to any
-------- -------
32
<PAGE>
Securityholder arising out of the failure of any Transferring Securityholder to
comply with the provisions contained in this Section 4.5.
The Transferring Securityholder's sale of Shares or Warrants in any
sale proposed in a Tag-Along Notice shall be effected on substantially the terms
and conditions set forth in such Tag-Along Notice (except in the case of
non-monetary consideration which is unique to the third party as to which there
shall be paid the reasonable equivalent thereof). The number of Shares or
Warrants to be sold by the Transferring Securityholder shall be reduced by the
aggregate number of Shares, Warrants or Options to be sold by each of the
Remaining Securityholders who have exercised Tag-Along Rights in connection with
such Transfer.
In no event shall any Securityholder transferring Shares, Warrants or
Options pursuant to this Section 4.5 receive any special consideration
(including, without limitation, financial advisory, finders, consulting or other
similar fees) in connection with any sale of Shares, Warrants or Options
pursuant to this Section 4.5, unless such consideration is shared among the
Transferring Securityholder and the other Remaining Securityholders pro rata
based on their respective Shares, Warrants or Options sold (on a fully exercised
and converted basis); provided, however, this sentence shall not apply with
respect to an arms-length negotiated engagement of The Shattan Group LLC or any
of its Affiliates (any such Persons are hereinafter referred to as "Shattan") to
act as the Company's financial advisor with respect to such sale of Shares,
Warrants or Options. Furthermore, no Remaining Securityholder shall be required
to provide any representations or warranties in connection with the sale of
Shares, Warrants or Options pursuant to this Section 4.5, except representations
as to the authority to transfer, and title to, such Shares, Warrants or Options
and the absence of any Encumbrances on the title of such Shares, Warrants or
Options.
4.6 Transfers to a Competitor. Each Securityholder agrees that it shall
-------------------------
not, except in connection with a Sale of the Company, without the approval of at
least two of the Series A and Series B Preferred Directors (in the case of
Transfers described in clauses (i), (iv) and (v) of this Section 4.6) and a
majority of the Series C Preferred Directors, directly or indirectly, Transfer
any of its Shares, Warrants or Options to (any of the Persons described in
clauses (i) through (v) hereof is referred to herein as a "Prohibited
----------
Transferee"): (i) any entity that is engaged in owning, operating and/or
- ----------
managing executive office suites and providing related business support
services, including secretarial, telecommunications, word processing, printing
and copying; (ii) any real estate investment trust (other than Reckson
Associates Realty Corp.); (iii) any direct competitor of RSI; (iv) any entity
that Beneficially Owns 5 percent or more of the outstanding equity securities or
voting control of a Prohibited Transferee, excluding transfers to an
institutional holder that holds such equity securities or voting control as a
passive investment without the right to Control such Prohibited Transferee; and
(v) any Affiliate, officer or director of any Prohibited Transferee. For
purposes of this Section 4.6, a Transfer shall include any indirect Transfer
arising out of an acquisition of Control of RSI (provided that for this purpose
no presumption of Control shall arise solely from ownership of any specific
percentage of equity securities of RSI) by any of (w) CarrAmerica, (x) HQ Omni,
or (y) Regus, so long as any of such Persons named in clauses (w), (x) or (y) is
engaged in the executive office suite business, or (z) any other Person which
owns or operates 50 executive office suite centers as its primary business (any
of the foregoing Persons, a
33
<PAGE>
"Disqualified Transferee"), unless prior to or substantially contemporaneously
-----------------------
with such acquisition Beneficial Ownership of the Series C Preferred Stock shall
have been transferred to a Person that is (x) Controlled by the executive
officers of RSI immediately prior to such acquisition and (y) not an Affiliate
of RSI or the Disqualified Transferee following such acquisition.
4.7 Sales of Beale Securities.
-------------------------
(a) If the employment of David W. Beale ("Beale") by the
-----
Company is terminated by reason of the occurrence of any
of the events set forth in Paragraph 7(d) of the Beale
Employment Agreement, then at any time and from time to
time thereafter, Beale shall have the option (the "Beale
-----
Put"), subject to Section 4.7(c), to require the Company
---
to purchase all or any portion of his Common Stock and
Common Stock Equivalents, including the vested portion of
any Options granted to Beale under an Option Plan, and
the non-vested portion of such Options which otherwise
would vest pursuant to the terms of such Plan within two
years of such termination (which unvested portion shall
immediately vest and become exercisable) (all of the
foregoing being referred to as the "Beale Securities"),
-----------------
at the Beale Put Price (as hereinafter defined) by
delivery of written notice to the Company (the "Beale Put
---------
Notice"). Upon receipt of such election(s), the Company
------
will be obligated, subject to Section 4.7(c), to purchase
the Beale Securities specified (collectively the "Offered
-------
Shares") in such Beale Put Notice within ninety (90) days
------
after the receipt by the Company of the Beale Put Notice
(or such longer period as may be reasonably necessary
to determine the Beale Put Price pursuant to the
provisions of Section 4.7(b)) (such date of closing
being hereinafter referred to as the "Beale Put Closing
-----------------
Date").
----
Upon election exercised by Beale to require the Company to
purchase the Offered Shares pursuant to the provisions of this Section 4.7, the
Company will, subject to Section 4.7(c), notify Beale of the Beale Put Closing
Date with respect to such Offered Shares and Beale shall surrender the
certificate or certificates duly endorsed in blank or together with an
acknowledgment of such redemption representing such Offered Shares to the
Company on or before such date. On the Beale Put Closing Date, the Beale Put
Price for such Offered Shares shall be paid to Beale by certified or bank
cashier's check or, at Beale's option, by wire transfer in immediately available
funds to an account designated by Beale, and each surrendered certificate shall
be canceled and retired. If less than all of the Shares represented by such
certificates are purchased, a new certificate or certificates shall be issued
representing the Shares not purchased by the Company. If the Company does not
have available legal surplus to purchase all of the Offered Shares, the Company
shall purchase the maximum number of Offered Shares that it may purchase with
such legal surplus available, and the Company shall purchase the remainder of
such Offered Shares as soon as it has funds legally available to do so. If
payment of the Beale Put Price shall cause the Company to be in default under
the provisions of any of its loan agreements (a "Default Event"), the Company
--------------
may defer payment of all or such part of the Beale Put Price to Beale in an
amount (a "Beale Deferred Amount") and for such time as is necessary to avoid a
----------------------
Default Event. Interest shall accrue on so
34
<PAGE>
much of the Beale Deferred Amount as is outstanding from time to time at a rate
per annum equal to 3-1/2% plus the Prime Rate and such interest shall be payable
by the Company to Beale at the time of payment of the Beale Deferred Amount in
full.
(b) Determination of Beale Put Price. For purposes of this
---------------------------------
Section 4.7, the "Beale Put Price" shall be an amount per
Offered Share equal to the "fair market value" thereof
------------------
(as determined in accordance with this Section 4.7(b)).
For purposes of this Section 4.7(b), fair market value
shall be determined by mutual agreement of the Company
and Beale or, if the Company and Beale are unable to
agree on a fair market value, then the fair market value
shall be determined pursuant to the procedure set forth
in the immediately following paragraph.
If Beale and the Company are unable to mutually agree on a
fair market value within 60 days after the occurrence of the termination event,
Beale and the Company shall each appoint one appraiser (each, an "Appointed
---------
Appraiser") within five (5) business days thereafter (the "Appointment Date"),
- --------- -----------------
which Appointed Appraisers shall independently, within 25 days of Appointment
Date (the "Determination Date"), determine a fair market value (collectively the
------------------
"Original Estimates"). If the Original Estimates do not differ in amount by more
------------------
than 10% of the lower market value, then the fair market value shall be deemed
to be the average of such fair market values. If the Original Estimates differ
in amount by more than 10% of the lower market value, the Appointed Appraisers
shall within five (5) business days of the Determination Date appoint a third
appraiser, which third appraiser shall independently, within 25 days of the
Determination Date, determine a fair market value (the "Third Estimate"). The
--------------
Original Estimate that is nearest in amount to the Third Estimate shall be
deemed to be the fair market value, or if the Third Estimate is exactly the mean
of the two Original Estimates the Third Estimate shall be deemed to be the fair
market value, that shall be binding upon the Company and Beale. If either Beale
or the Company fails to appoint an Appointed Appraiser by the Appointment Date,
then the Appointed Appraiser who has been appointed shall be the sole appraiser
and the fair market value determined by such Appointed Appraiser shall be the
fair market value and shall be binding on the parties. All Appointed Appraisers
shall be qualified in valuing companies similar to the Company and shall not be
an Affiliate of either party. Any determination of the fair market value under
this Section 4.7(b) shall be made without any reduction as a result of the lack
of liquidity of the Offered Shares or the fact that the Offered Shares may
represent a minority interest in the Company. The Company and Beale shall
equally bear and be responsible for all costs and expenses of the appraisers
under this Section 4.7(b).
(c) Consent of Required Banks. Upon receipt of a Beale Put
--------------------------
Notice, the Company shall request the Required Banks (as
such term is defined in the Credit Agreement) to consent
to the exercise of the Beale Put. The Company shall not
be required to purchase the Offered Shares pursuant to
Section 4.7(a), the Beale Put Notice shall be deemed
rescinded and withdrawn and of no force and effect and no
beneficiary of the Beale Put shall have any rights
thereunder and shall have no rights or remedies to
enforce the Beale Put until
35
<PAGE>
such time as all Obligations (as defined in the Credit
Agreement) shall have been paid in full in cash, unless
the Required Banks have consented in writing to the
exercise of the Beale Put.
(d) Restriction on Sale of Beale Securities. Prior to the
------------------------------------------
earliest to occur of (i) an Initial Public Offering, or
(ii) any termination of Beale's employment with the
Company, or (iii) any other time approved by
Super-Majority Approval, Beale shall be prohibited from
making any Transfer of any of the Beale Securities, other
than pursuant to Section 4.2(b), Section 4.5, or Section
4.8, to a Permitted Transferee, or a pledge of up to 50%
of the Shares owned by Beale to secure any bona fide
indebtedness, but in each case subject to Section 4.6 and
provided that the lender acknowledges in writing that any
sale or Transfer of the pledged Shares shall be subject
to the provisions of this Agreement. Any such lender also
shall agree in writing that upon the existence and
continuance of an event of default of any such
indebtedness, the Series C Holders shall upon 10 Business
Days' notice have the right to purchase such indebtedness
at an aggregate price equal to the lower of (x) the "fair
market value" or (y) the then principal amount of such
indebtedness and the accrued interest thereon (without
regard to costs, charges or additional interest or fees
accruing as a result of such default provided that, in
connection with such purchase, the Series C Holders
acknowledge in writing that they shall not have the right
to foreclose or otherwise acquire the pledged shares
without first having complied with the transfer
provisions contained in Article IV hereof.
4.8 Sale of the Company. If (i) the Board (by Super-Majority Approval)
-------------------
and the holders of a Majority of the Shares of Series A and Series B Preferred
Stock and a Majority of the Series C Preferred Stock approve a Sale of the
Company of the type described in clauses (i) or (iii) of the definition thereof,
or (ii) if the holders of a Majority of the Shares of the Series A and Series B
Preferred Stock and a Majority of the Series C Preferred Stock approve of a Sale
of the Company of the type described in clause (ii) of the definition thereof,
in each case to a third party which is not an affiliate of any such Person or
the Company, the Company shall deliver a notice to each Securityholder
containing the material terms thereof (a "Sale Notice"). Each Securityholder
------------
agrees to vote, if such a vote is required under applicable law, all of its
Shares in favor of such a Sale of the Company, and to sell all of its Shares,
Warrants and Options on the terms contained in the Sale Notice. Each
Securityholder and the Company agrees to cooperate in any such Sale of the
Company (including, without limitation, by not exercising any appraisal rights
that may be available under applicable law) and agrees to execute and deliver
all documents and instruments as is required in the Sale Notice and which the
holders of a Majority of the Shares of Series A and Series B Preferred Stock or
a Majority of the Series C Preferred Stock request to effect such Sale of the
Company; provided, however, that the Sale Notice (i) shall not require any
-------- -------
Securityholder to provide any representations or warranties in connection with
the Sale of the Company pursuant to this Section 4.8, except representations as
to the authority to transfer such Shares, Warrants or Options and the absence of
any Encumbrances (other than under this Agreement) on the title of such Shares,
36
<PAGE>
Warrants and Options, and (ii) shall require that each Securityholder receive
the same percentage of each type of consideration delivered in connection with
the Sale of the Company.
Upon such Sale of the Company, each Securityholder shall receive its
Pro Rata Share of the consideration paid by the purchaser or received from the
sale of securities. In no event shall any Securityholder receive special
consideration (including, without limitation, financial advisory, finders,
consulting or other similar fees) in connection with a Sale of the Company
contemplated by this Section 4.8, unless such consideration is shared among all
Securityholders based on their Pro Rata Shares; provided, however, this sentence
shall not apply with respect to an arms-length negotiated engagement of Shattan
to act as the Company's financial advisor with respect to the Sale of the
Company.
4.9 Repurchase of Equity Interests. The Company covenants and agrees
-------------------------------
that it will not, without giving prior written notice to any Securityholder of
which the Company has written notice is a Regulated Holder, directly or
indirectly, purchase, redeem, retire or otherwise acquire any Shares or Warrants
if, as a result of such purchase, redemption, retirement or other acquisition,
such Regulated Holder, together with its Affiliates, will own, or be deemed to
own, Common Stock Equivalents representing capital equal to 25% or more of the
aggregate equity interests then outstanding of the Company.
4.10 Restrictions Following Qualified Public Offering. In the event of
--------------------------------------------------
the consummation of a Qualified Public Offering that has not been approved by a
majority of the Company Directors and the Series A and Series B Preferred
Directors (taken in the aggregate) then serving, and by a majority of the Series
C Preferred Directors then serving, then, during the Blackout Period, (x) none
of the Cahill Holders or Beale shall Transfer any Shares, Options or Warrants
Beneficially Owned by any of them, (y) the RSI Beneficial Holders shall not, and
shall cause the Series C Holders not to, make any Transfer of any of the RSI
Beneficial Holders' Beneficial Ownership of Shares, Options or Warrants, except
to a Permitted Transferee who agrees in writing to be bound by terms of this
Agreement, including the restrictions contained in this Section 4.10, and (z)
the JAH Beneficial Holders shall not, and shall cause the Series C Holders not
to, make any Transfer of any of the JAH Beneficial Holders' Beneficial Ownership
of Shares, Options or Warrants other than to a Permitted Transferee who agrees
in writing to be bound by this Agreement, including the restrictions contained
in this Section 4.10; provided, however, that (i) the foregoing restrictions
-------- -------
shall not apply to any Shares acquired by any such Person in the open market
following an Initial Public Offering and not directly from the Company, (ii) the
foregoing restrictions shall not apply to any Transfer which is a pledge by any
of (A) the RSI Beneficial Holders, (B) David W. Beale, or (c) the JAH Beneficial
Holders of their respective Beneficial Ownership of Shares, Options or Warrants,
provided that such pledgor retains voting control of such pledged Shares,
Options or Warrants, (iii) at any time following the first anniversary of the
consummation of the Qualified Public Offering, the Cahill Holders shall be
entitled to distribute any Shares, Options, or Warrants held by any of them to
any limited partners or non-managing members of such Cahill Holders (provided
such limited partners or non-managing members are not Affiliates of the general
partner or managing member of such Cahill Holders), and such limited partners or
non-managing members, other than David L. Warnock and Edward Cahill, shall not
be subject to any further restrictions pursuant to this Section 4.10, and
37
<PAGE>
(iv) Beale shall be entitled to sell any Shares, Options, or Warrants held by
him in an amount sufficient to provide proceeds to pay any tax liabilities
arising in connection with the exercise of any Options that would expire if not
exercised during the Blackout Period (provided, such exercise is made not more
than five Business Days prior to the expiration date thereof and that all of the
proceeds therefrom will be used to pay such tax liability and provided, further,
that such a sale by Beale shall not be permitted if "cashless exercise" of such
Options is available to him to achieve the same after tax result).
ARTICLE V
PUT
5.1 Ability to Put. (a) If (A) the Company has not, prior to November
--------------
15, 2001, either made an Initial Public Offering, or merged into a public
company and the holders of the then outstanding Series A Preferred Stock, Series
B Preferred Stock and Conversion Stock shall have received Registered Securities
in such merger in exchange for their Shares, or (B) the Series C Holders
Beneficially Own Shares, Options and Warrants representing (on a fully exercised
and converted basis), in the aggregate, 65% or more of the Fully Diluted
Capitalization, then at any time and from time to time thereafter until the
earlier of November 15, 2003 or two years after the occurrence of the event
described in clause (B) of this paragraph, the holders of a Majority of the
Shares of Series A and Series B Preferred Stock shall have the option (the
"Put") to require, subject to Section 5.4, the Company to purchase all of the
---
outstanding Series A Preferred Stock and Series B Preferred Stock held by the
Series A Holders and Series B Holders who have voted in favor of the exercise of
the Put, at the Put Price (as hereinafter defined) by delivery of written notice
to the Company (the "Put Notice"). Upon receipt of the Put Notice, the Company
----------
shall notify each other Series A Holder and Series B Holder, who shall have the
right to join in the Put by written notice to the Company (the "Supplemental Put
----------------
Notice"). The Company shall also provide notice thereof to the holders of the
- ------
Series C Preferred Stock. The Company shall be obligated to purchase, subject to
Section 5.4, the Series A Preferred Stock and Series B Preferred Stock specified
in the Put Notice and the Supplemental Put Notice within 90 days after the
receipt by the Company of the Put Notice (or such longer period as may be
reasonably necessary to determine the Put Price pursuant to the provisions of
Sections 5.2 and 5.3). The closing of the purchase by the Company of the Series
A Preferred Stock and Series B Preferred Stock shall occur at the Company's
principal office, or at such other place as shall be mutually agreeable to the
Series A Holders, the Series B Holders and the Company as soon as possible (and
in any event within 10 days after the determination of the Put Price in
accordance with Sections 5.2 and 5.3) (such date of closing being hereinafter
referred to as the "Put Closing Date").
----------------
(b) If the holders of a Majority of the Shares of Series A and Series B
Preferred Stock are entitled to exercise the Put pursuant to the preceding
paragraph and shall not have done so, then at any time and from time to time
thereafter until the earlier of November 15, 2003 or two years after the
occurrence of the event described in clause (B) of the preceding paragraph, the
PNA Holder shall have the option, subject to all of the terms and conditions set
forth in this Article 5 (other than those pertaining to the repurchase of all of
the outstanding shares of the Series A Preferred Stock and the
38
<PAGE>
Series B Preferred Stock), to require the Company to purchase all of the
outstanding Series B Preferred Stock then held by the PNA Holder at the Put
Price by delivery of written notice to the Company (the "PNA Holder Put
----------------
Notice"). Following the receipt of the PNA Holder Put Notice, the Company shall
- ------
promptly (and in any event within 10 days after its receipt of the PNA Put
Holder Notice) provide notice thereof to the Cahill Holders, the Northwood
Holders and the holders of the Series C Preferred Stock. Each of the Cahill
Holders and the Northwood Holders shall have the right, subject to all of the
terms and conditions set forth in this Article Five (other than those pertaining
to the repurchase of all of the outstanding shares of the Series A Preferred
Stock and the Series B Preferred Stock), to require the Company to purchase all
of the outstanding shares of Series A Preferred Stock and Series B Preferred
Stock then held by it at the Put Price by delivery of written notice to the
Company within 20 days after such holder's receipt of the PNA Holder Put Notice.
If the Cahill Holders or the Northwood Holders exercise the Put pursuant to this
paragraph, each other Series B Holder shall be entitled to join in the Put by
written notice to the Company. Any repurchase of Series A Preferred Stock or
Series B Preferred Stock pursuant to this paragraph shall be made on one closing
date.
(c) If the Company has not, prior to November 15, 2001, either made an
Initial Public Offering, or merged into a public company and the holders of the
then outstanding Series C Preferred Stock and Conversion Stock shall have
received Registered Securities in such merger in exchange for their Shares, then
at any time and from time to time thereafter until November 15, 2003, the
holders of a Majority of the Shares of Series C Preferred Stock shall have the
option (the "Series C Put") to require, subject to Section 5.4, the Company to
------------
purchase all of the outstanding Series C Preferred Stock held by the Series C
Holders who have voted in favor of the exercise of the Series C Put, at the
Series C Put Price (as hereinafter defined) by delivery of written notice to the
Company (the "Series C Put Notice"). Upon receipt of the Series C Put Notice,
--------------------
the Company shall notify each other Series C Holder, who shall have the right to
join in the Series C Put by written notice to the Company (the "Supplemental
------------
Series C Put Notice"). The Company shall also provide notice thereof to the
- --------------------
holders of the Series A Preferred Stock and the Series B Preferred Stock. The
Company shall be obligated to purchase, subject to Section 5.4, the Series C
Preferred Stock specified in the Series C Put Notice and the Series C
Supplemental Put Notice within 90 days after the receipt by the Company of the
Series C Put Notice (or such longer period as may be reasonably necessary to
determine the Series C Put Price pursuant to the provisions of Sections 5.2 and
5.3). The closing of the purchase by the Company of the Series C Preferred Stock
shall occur at the Company's principal office, or at such other place as shall
be mutually agreeable to the Series C Holders and the Company as soon as
possible (and in any event within 10 days after the determination of the Series
C Put Price in accordance with Sections 5.2 and 5.3) (such date of closing being
hereinafter referred to as the "Series C Put Closing Date"). Notwithstanding
---------------------------
anything to the contrary contained herein, in the event of an acquisition of
Control of RSI of the type described in Section 4.6 hereof, the Series C Put may
only be exercised in the event that the Put has been exercised.
(d) The Company shall not be required to purchase Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock pursuant to this
Section 5.1 to the extent that the Company does not have available legal surplus
pursuant to the General Corporation Law of the State of Nevada from which it can
purchase such stock at the Put Price or the Series C Put Price, as the
39
<PAGE>
case may be, provided that the Company shall use all legally permissible methods
in the reduction of capital and in the revaluation of its assets, including
appraisal, in obtaining such legal surplus, and the Company gives written notice
to the electing Securityholders within 30 days after the date of the notice of
exercise of the Put or the Series C Put by such Securityholders that it is not
required to purchase the number of Shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock set forth in such notice by reason
of this clause and setting forth the facts relating thereto.
(e) It is acknowledged and agreed that any Put Notice, Supplemental Put
Notice, PNA Holder Put Notice, Series C Put Notice, and Supplemental Series C
Put Notice received by the Company within any 30 day period shall be treated in
all respects under the terms and provisions of this Agreement as though such
notices were received on the same date at the same time. Accordingly, the Put
Closing Date, the closing date related to a PNA Holder Put Notice and the Series
C Put Closing Date related to such notices shall occur simultaneous on one
closing date and the payments to all such Securityholders shall be made pro rata
on the basis of the Common Stock Equivalents subject to such put rights.
(f) Upon election to require the Company to purchase such Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock pursuant
to the provisions of this Article 5, the Company will, subject to Section 5.4,
notify each Series A Holder, Series B Holder or Series C Holder of the Put
Closing Date or the Series C Put Closing Date, as the case may be, and each such
Series A Holder, Series B Holder or Series C Holder, as the case may be, shall
surrender the certificate or certificates representing such Shares to the
Company on or before such date. On the Put Closing Date or the Series C Put
Closing Date, as the case may be, the Put Price or the Series C Put Price, as
the case may be, for such Shares shall be payable to each such Series A Holder,
Series B Holder or Series C Holder, as the case may be, by certified or bank
cashier's check or, at the option of the Series A Holder, Series B Holder or
Series C Holder, as the case may be, receiving the same, by wire transfer in
immediately available funds to an account designated by each such holder, and
each surrendered certificate shall be canceled and retired. If less than all of
the Shares represented by such certificate are purchased, a new certificate or
certificates shall be issued representing the Shares not purchased by the
Company. If the Company does not have available legal surplus to purchase all of
the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock that each such Series A Holder, Series B Holder or Series C Holder has
requested the Company to purchase under this Article 5, the Company shall
purchase the maximum number of shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock that it may purchase with such
legal surplus available, pro rata to the Put Price or the Series C Put Price, as
the case may be, thereof, and the Company shall repurchase the remainder of such
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
as the case may be, as soon as it has funds legally available to do so.
(g) The Company shall be permitted to pay the Put Price or the Series C
Put Price, as the case may be, by delivery of a subordinated note payable in
three annual installments of principal commencing on the first anniversary of
the Put Closing Date or the Series C Put Closing Date, as the case may be, with
interest at an annual rate equal to 3-1/2% plus the Prime Rate, it being
40
<PAGE>
acknowledged and agreed that with respect to the decision to pay the Put Price
in cash or in such annual installments, the Series A and Series B Directors
shall not be entitled to vote if such decision is with respect to the redemption
or repurchase of the Series A Preferred Stock or the Series B Preferred Stock,
and the Series C Directors shall not be entitled to vote if such decision is
with respect to the redemption or repurchase of the Series C Preferred Stock.
(h) If payment of the Put Price to the Series A Holders and Series B
Holders or the Series C Put Price to the Series C Holders shall cause the
Company to be in default under the provisions of any of its loan agreements (a
"Default Event"), the Company may defer payment of all or such part of the Put
--------------
Price or the Series C Put Price, as the case may be, to each Series A Holder and
Series B Holder or Series C Holder, as the case may be, pro rata to the Put
Price or the Series C Put Price, as the case may be, thereof, in an amount (a
"Deferred Amount") and for such time as is necessary to avoid a Default Event.
----------------
Interest shall accrue on so much of the Deferred Amount as is outstanding from
time to time at a rate per annum (based on the actual number of days elapsed in
a 365 day year) equal to 3-1/2% percent plus the Prime Rate and such interest
shall be payable by the Company to the Series A Holders, Series B Holders or
Series C Holders, as the case may be, at the time of payment of the Deferred
Amount in full. In addition, the Company shall use its best efforts to pay the
Put Price or the Series C Put Price in full on the Put Closing Date or the
Series C Put Closing Date, as the case may be, and, in this regard, the Company
shall (i) seek to negotiate with its lenders to permit the Company, under the
terms of its loan agreements, to perform its obligations under this Article 5
and/or (ii) seek to obtain new financing.
5.2 Put Price. (a) For purposes of this Article 5, the Put Price shall
---------
be the greater of (i) the Appraised Value of the Conversion Stock underlying the
Series A Preferred Stock or Series B Preferred Stock, as the case may be, or
(ii) the Adjusted Value of the Series A Preferred Stock or Series B Preferred
Stock, as the case may be. The "Appraised Value" shall mean the fair market
value of the Conversion Stock issuable upon conversion of the Series A Preferred
Stock or Series B Preferred Stock, as the case may be, determined pursuant to
the appraisal procedure set forth in the immediately succeeding section (the
"Appraised Value"). The "Adjusted Value" shall be an amount per share equal to
----------------
the Adjusted Purchase Price of the Series A Preferred Stock (determined in
accordance with the Series A Certificate of Designation), or of the Series B
Preferred Stock (determined in accordance with the Series B Certificate of
Designation), as the case may be, plus a cumulative accretion computed on the
Adjusted Purchase Price at the rate of 8% per annum (compounded annually) from
the date of issue up to the date of the Put Notice, reduced by an amount equal
-------
to the aggregate of all declared and paid cash dividends, if any.
(b) For purposes of this Article 5, the Series C Put Price
shall be the greater of (i) the Series C Appraised Value of the Conversion Stock
underlying the Series C Preferred Stock, or (ii) the Series C Adjusted Value.
The "Series C Appraised Value" shall mean the fair market value of the
Conversion Stock issuable upon conversion of the Series C Preferred Stock
determined pursuant to the appraisal procedure set forth in the immediately
succeeding section (the "Series C Appraised Value"). The "Series C Adjusted
-------------------------
Value" shall be an amount per share equal to the Adjusted Purchase Price of the
Series C Preferred Stock (determined in accordance with the Series C Certificate
of Designation), plus a cumulative accretion computed on the Adjusted Purchase
Price
41
<PAGE>
at the rate of 8% per annum (compounded annually) from the date of issue up to
the date of the Series C Put Notice, reduced by an amount equal to the aggregate
-------
of all declared and paid cash dividends, if any.
5.3 Appraisal Procedure. In order to determine the Appraised Value or
--------------------
the Series C Appraised Value, the holders of a Majority of the Shares of Series
A and Series B Preferred Stock (in the case of determinations of the Appraised
Value) or the holders of a Majority of the Shares of Series C Preferred Stock
(in the case of determinations of the Series C Appraised Value), on the one
hand, and the Board (excluding the Series A and Series B Preferred Directors, in
the case of the determination of the Appraised Value of the Series A Preferred
Stock or the Series B Preferred Stock, and excluding the Series C Preferred
Directors, in the case of the determination of the Appraisal Value of the Series
C Preferred Stock), on the other hand, shall each appoint one appraiser
(collectively, the "Initial Appraisers"), within 20 days after delivery of the
------------------
Put Notice or the Series C Put Notice, as the case may be, which appraisers
shall promptly determine a fair market value based on the going concern value of
the Company as a whole and without adjustment for minority interest or lack of
liquidity, within 30 days. In the event that the fair market values determined
by the Initial Appraisers (collectively, the "Original Estimates") do not differ
------------------
in amount by more than 10 percent, the fair market value for purposes of this
Section 5.3 shall be the amount equal to the average of the Original Estimates.
In the event that the Original Estimates differ in amount by more than 10
percent, the holders of a Majority of the Shares of Series A and Series B
Preferred Stock (in the case of determinations of the Appraised Value) or the
holders of a Majority of the Shares of Series C Preferred Stock (in the case of
determinations of the Series C Appraised Value) and the Company shall mutually
agree on a third appraiser within 5 days thereafter, provided that if such
holders and the Company fail to appoint a third appraiser within such 5-day
period, then the Initial Appraisers shall appoint a third appraiser within 5
days thereafter. The third appraiser shall independently, within 30 days of such
third appraiser's appointment, determine such a fair market value (the "Third
-----
Estimate"). The Original Estimate that is nearest in amount to the Third
- --------
Estimate shall be deemed to be the fair market value that shall be binding on
the Company and the holders of the Shares subject to the Put. The Company shall
bear all costs of appraisers under this Section 5.3. All appraisers appointed
pursuant to this Section 5.3 shall be qualified in valuing companies similar to
the Company and shall be unaffiliated with any party hereto. Any determination
of the Appraised Value or the Series C Appraised Value under this Section 5.3
shall be made without reduction resulting from the lack of liquidity of the
Shares subject to Put or the Series C Put or the fact that such Shares may, at
such time, represent a minority interest in the Company.
5.4 Consent Required to Put. Upon receipt of a Put Notice or a Series C
-----------------------
Put Notice, the Company shall request the Required Banks to consent to the
exercise of the Put or the Series C Put, as the case may be. The Company shall
not be required to purchase Series A Preferred Stock and Series B Preferred
Stock or Series C Preferred Stock, as the case may be, pursuant to Section 5.1,
and the Put Notice or the Series C Put Notice, as the case may be, shall be
deemed rescinded and withdrawn and of no force and effect and no beneficiary of
any Put or Series C Put, as the case may be, shall have any rights thereunder,
and no beneficiary of any Put or Series C Put, as the case may be, shall have
any rights or remedies to enforce any Put or Series C Put, as the case may be,
until such time as all Obligations shall have been paid in full in cash, unless
the Required Banks have consented in writing to the exercise of the Put or
Series C Put, as the case may be.
42
<PAGE>
ARTICLE VI
REGISTRATION RIGHTS
6.1 Public Offering Shares.
----------------------
(a) Demand Registration Rights. (i) Subject to Section
-----------------------------
6.1(a)(ii), at any time and from time to time following
the one year anniversary of an Initial Public Offering,
if the Company receives written notice from either (A)
holders of Class A Common Stock (as defined in Section
8.1(e)) who, immediately prior to the Initial Public
Offering, constituted the holders of a majority of the
Shares of the Series A and Series B Preferred Stock, or
(B) holders of Class B Common Stock (as defined in
Section 8.1(e)) who immediately prior to the Initial
Public Offering, constituted the holders of a Majority of
the Shares of the Series C Preferred Stock, which notice
demands the registration of all or any portion of the
Common Stock, Conversion Stock or Warrant Shares held by
such Series A Holders, Series B Holders or Series C
Holders and specifies the intended methods of disposition
thereof (which may include a delayed and continuous
offering pursuant to Rule 415 promulgated under the
Securities Act), then the Company shall promptly (and in
any event within 10 days after its receipt of such
demand) provide notice thereof to the other
Securityholders in accordance with this Section 6.1
(which other Securityholders shall have the right,
subject to Section 6.1(c)(ii) to include in such
registration any shares of Common Stock, and any shares
of Common Stock issuable upon conversion of Series A
Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock or upon exercise of Warrants or Options
held by them) and cause to be prepared a registration
statement, file and obtain a receipt for the registration
statement as soon as practicable (but not later than 90
days after the date of such demand), and exercise its
best efforts to file a final registration statement, to
obtain a receipt therefor as soon as practicable
thereafter and to have such registration statement
declared effective as soon as practicable thereafter,
under the Securities Act and such other securities laws
as shall be directed by such Securityholders, to the end
that the Shares (including Shares issuable upon
conversion of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock or upon
exercise of Warrants or Options) held by all demanding
Securityholders, may be sold thereunder as soon as
practicable after the receipt of such notice, and the
Company will use its best efforts to ensure that a
distribution of such Shares pursuant to the registration
statement may continue for up to six months from the date
of the effective date of the registration statement or
such later time pursuant to the method of disposition
specified in the demand for registration; provided,
--------
however, that the Company shall not be obligated
-------
43
<PAGE>
to take any action to effect such registration,
qualification or compliance pursuant to this Section
6.1(a) unless the Company shall have received requests
for such registration of such Shares having a minimum
anticipated aggregate net offering price (based on the
then market price of the Common Stock and customary
underwriter's discounts and commissions, if applicable)
of $20.0 million, subject, however, to the right of the
Company pursuant to Section 6.1(c)(ii), upon advice of
the managing underwriters, to reduce the number of Shares
that are requested to be registered by such holders (a
"Market Cut Back"). Notwithstanding the foregoing, the
---------------
holders of Class B Common Stock shall be entitled to
exercise the registration rights contained herein solely
with respect to the Class A Common Stock issuable upon
conversion of such Class B Common Stock. The Class B
Common Stock shall be automatically converted into Class
A Common Stock upon the consummation of an underwritten
offering for such Class A Common Stock or upon the sale
of such Class A Common Stock pursuant to any delayed and
continuous offering pursuant to Rule 415 promulgated
under the Securities Act. Each such registration shall
hereinafter be called a "Demand Registration." The Series
-------------------
A Holders and the Series B Holders shall be entitled to
request one Demand Registration and the Series C Holders
shall be entitled to request two Demand Registrations;
provided, however, that if all of the Series C Preferred
-------- -------
Stock may have been (x) included in the registration
statement prepared upon the exercise of the Series C
Holders' first exercised right for a Demand Registration
and (y) offered and sold in such offering in accordance
with the plan of distribution described therein (after
giving full force and effect to the Company's right to a
Market Cut Back and the Company's rights under Section
6.1(a)(ii)), then the Series C Holders shall not have the
right to the second Demand Registration (but will
continue to have the rights provided under Section
6.1(b)). A Demand Registration shall not count as such
until a registration statement becomes effective;
provided, that if, after such registration statement has
--------
become effective, the offering pursuant to the
registration statement is interfered with by any stop
order, injunction or other order or requirement of the
Commission or any other governmental authority, such
registration shall be deemed not to have been effected
unless such stop order, injunction or other order shall
subsequently have been vacated or otherwise removed. The
holders of a Majority of the Shares of the Series A and
Series B Preferred Stock or the holders of a Majority of
the Shares of the Series C Preferred Stock requesting
such registration shall select the underwriters of any
underwritten offering pursuant to a registration
statement filed pursuant to this Section 6.1(a).
(ii) (A) If, upon receipt of a registration request
pursuant to Section 6.1(a)(i), the Company is advised in writing (with a copy to
the person(s) requesting registration pursuant to Section 6.1(a)) by a
nationally recognized investment banking firm selected by the
44
<PAGE>
Company that, in such firm's opinion, a registration at the time and on the
terms requested would materially and adversely affect any immediately planned
underwritten public equity financing by the Company for the primary purpose of
raising capital for the Company that had been contemplated by the Board prior to
receipt of notice requesting registration pursuant to Section 6.1(a)(i) (a
"Transaction Blackout"), the Company shall not be required to effect a
---------------------
registration pursuant to Section 6.1(a)(i) until the earliest of (1) the
abandonment of such financing, (2) 90 days after the completion of such
financing, (3) the termination of any "hold back" or "lock-up" period obtained
by the underwriter(s) selected by the Company from any person in connection with
such financing, or (4) 180 days after notice to the Securityholders requesting
registration of written notice of such Transaction Blackout (together with a
copy of the investment banking firm opinion referred to above in this Section
6.1(a)(ii)(A)); provided, however, that the Company shall be entitled to
-------- -------
exercise this right on only one occasion during any twelve-month period; or
(B) If, while a registration request is pending
pursuant to Section 6.1(a), counsel to the Company has determined in good faith
that the filing of a registration statement would require the disclosure of
material information which the Company has a bona fide business purpose for
preserving as confidential and which has not been disclosed to the public (which
determination shall be made promptly), the Company shall not be required to
effect a registration pursuant to Section 6.1(a) until the earlier of (1) the
date upon which such material information is disclosed to the public or ceases
to be material and (2) 45 days after counsel to the Company makes such good
faith determination.
(iii) For purposes of this Article VI, whenever there are
references to Series A Holders, Series B Holders or Series C Holders at a time
following an Initial Public Offering, such terms shall be deemed to refer to the
same Persons but in their capacity as holders of Class A Common Stock or Class B
Common Stock, as the case may be.
(b) "Piggyback" Registration Rights. Subject to applicable
--------------------------------
stock exchange rules and securities regulations, at least
30 days prior to the filing of any registration statement
for any public offering of any of its Common Stock for
the account of the Company or any other Person (other
than a registration statement on Form S-4 or S-8 (or any
successor forms under the Securities Act) or other
registrations relating solely to employee benefit plans
or any transaction governed by Rule 145 of the Securities
Act), the Company shall give written notice of such
proposed filing and of the proposed date thereof to each
Securityholder and if, on or before the twentieth (20th)
day following the date on which such notice is given, the
Company shall receive a written request from any such
Securityholder requesting that the Company include among
the securities covered by such registration statement any
Shares (including Shares issuable upon conversion of
Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock or upon exercise of Warrants or
Options) held by such Securityholder for offering for
sale in a manner and on terms set forth in such request,
the Company shall include such Shares in such
registration statement, if filed, so as to permit such
45
<PAGE>
Shares to be sold or disposed of in the manner and on the
terms of the offering thereof set forth in such request.
Each such registration shall hereinafter be called a
"Piggyback Registration." The holders of a majority of
-----------------------
the Shares of the Series A Preferred Stock, Series B
Preferred Stock and the Series C Preferred Stock (taken
as a single class) participating in the registration
shall have the right to select an underwriter of any
offering pursuant to a registration statement filed
pursuant to this Section 6.1(b).
(c) Terms and Conditions of Registration or Qualification. In
-----------------------------------------------------
connection with any registration statement filed pursuant
to Section 6.1(a) or 6.1(b) hereof, the following
provisions shall apply:
(i) Each selling Securityholder shall, if requested by
the managing underwriter, agree not to sell any
Shares held by such selling Securityholder (other
than the Shares so registered) for such period of
time following the effective date of the
registration statement relating to such offering,
but in no event in excess of three (3) months in the
case of a secondary offering, or such other longer
period as the managing underwriter may require and
the Company shall agree.
(ii) If the managing underwriter advises in writing that
the inclusion in such registration or qualification
of some or all of the Shares sought to be registered
exceeds the number (the "Saleable Number") that can
----------------
be sold in an orderly fashion within a price range
acceptable to the Company, if such registration is
being effected at the Company's determination, or
holders of a Majority of the Shares of the Series A
and Series B Preferred Stock, if such registration
is being effected at the request of the holders of a
Majority of the Shares of Series A Preferred Stock
and Series B Preferred Stock, or the holders of a
Majority of the Shares of the Series C Preferred
Stock, if such registration is being effected at the
request of the holders of a Majority of the Shares
of Series C Preferred Stock, then the number of
Shares offered shall be limited to the Saleable
Number and shall be allocated as follows:
(A) If such registration is being effected at the
Company's determination to sell Shares for its own account, (1) first, all the
Shares the Company proposes to register and (2) second, the difference between
the Saleable Number and the number to be included pursuant to clause (1) above,
allocated first to the Series A Holders, Series B Holders and Series C Holders
pro rata on the basis of the relative number of Shares offered for sale by each
such Securityholder, and then among all other selling Securityholders pro rata
on the basis of the relative number of Shares offered for sale by each such
other Securityholder; and
46
<PAGE>
(B) in all other cases, including if the
registration is being effected pursuant to a Demand Registration, (1) first, the
entire Saleable Number allocated first to the holders of the Series A and Series
B Preferred Stock, if the Demand Registration was initiated by the holders of a
Majority of the Shares of the Series A and Series B Preferred Stock, or to the
holders of the Series C Preferred Stock, if the Demand Registration was
initiated by the holders of a Majority of the Shares of the Series C Preferred
Stock, and then among all other selling Securityholders pro rata on the basis of
the relative number of Shares offered for sale by each such Securityholder and
(2) second, the difference (if positive) between the Saleable Number and the
number to be included pursuant to clause (1) above, allocated to the Company.
(iii) The selling Securityholders will promptly provide
the Company with such information concerning the
selling Securityholder, its ownership of Shares and
its intended methods of distribution as the Company
shall reasonably request in order to prepare such
registration statement and, upon the Company's
request, each selling Securityholder shall provide
such information in writing and signed by such
Securityholder and stated to be specifically for
inclusion in the registration statement. If the
distribution of the Shares covered by the
registration statement shall be effected by means of
an underwriting, the right of any selling
Securityholder to include its Shares in such
registration shall be conditioned on such
Securityholder's execution and delivery of a
customary underwriting agreement with respect
thereto; provided, however, that except with respect
-------- -------
to information concerning such Securityholder and
its ownership of Shares to be included in such
registration and such Securityholder's intended
manner of distribution of the Shares, no selling
Securityholder shall be required to make any
representations or warranties in such agreement as a
condition to the inclusion of its Shares in such
registration.
(iv) The Company shall bear all expenses in connection
with the preparation of any registration statement
filed pursuant to Section 6.1(a), including the fees
and disbursements of one counsel for the selling
Securityholders, except for the underwriting
discounts or commissions with respect to Shares of
the selling Securityholders which shall be borne by
the selling Securityholders.
(v) The Company shall bear all expenses in connection
with the preparation of any registration statement
filed pursuant to Section 6.1(b), including the fees
and disbursement of one counsel to the selling
Securityholders, except for the underwriting
discounts or commissions with respect to Shares of
the selling Securityholders, which shall be borne by
the selling Securityholders.
47
<PAGE>
(vi) Following the effective date of such registration
statement, the Company shall, upon the request of
the selling Securityholders, forthwith supply such
number of prospectuses (including preliminary
prospectuses and amendments and supplements thereto)
meeting the requirements of the Securities Act or
such other securities laws where the registration
statement or prospectus has been filed and such
other documents as are referred to in the
registration statement as shall be requested by the
selling Securityholders to permit such
Securityholders to make a public distribution of
their Shares, provided that the selling
Securityholders furnish the Company with such
appropriate information relating to such
Securityholders' intentions in connection therewith
as the Company shall reasonably request in writing.
(vii) The Company shall prepare and file such amendments
and supplements to such registration statement as
may be necessary to keep such registration statement
effective and to comply with the provisions of the
Securities Act or such other securities laws where
the registration statement has been filed with the
respect to the offer and sale or other disposition
of the Shares covered by such registration statement
during the period required for distribution of the
Shares, which period shall not be in excess of six
(6) months from the effective date of such
registration statement or such longer period
specified in the demand for registration.
(viii)The Company shall use its best efforts to register
or qualify the Shares of the selling Securityholders
covered by any such registration statement under
such securities or Blue Sky laws in such
jurisdictions as the Securityholders may request;
provided, however, that the Company shall not be
-------- -------
required to execute a general consent to service of
process or to qualify to do business as a foreign
corporation in any jurisdiction where it is not so
qualified in order to comply with such request.
(ix) The Company will as expeditiously as possible:
(A) cause the Shares covered by such registration
statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and operations of
the Company to enable the selling Securityholders to consummate the disposition
of such Shares;
(B) notify each selling Securityholder at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or
48
<PAGE>
necessary to make the statements therein not misleading, and the Company will
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Shares, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
(C) cause all Shares covered by the registration
statement to be listed on each securities exchange or designated for quotation
on NASDAQ on which similar securities issued by the Company are then so listed
or designated and, unless the same already exists, provide a transfer agent,
registrar and CUSIP number for all such Shares not later than the effective date
of the registration statement;
(D) enter into such customary agreements (including
an underwriting agreement in customary form) and take all such other actions as
the holders of a majority of the voting power of the Shares being sold or the
underwriters retained by such holders, if any, reasonably request in order to
expedite or facilitate the disposition of such Shares;
(E) make available for inspection by any selling
Securityholder, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter (collectively, the "Inspectors"), all
----------
financial and other records, pertinent corporate documents and properties of the
Company as shall be necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information requested by any such Inspector in connection with such
registration statement;
(F) obtain "cold comfort" letters and updates
thereof from the Company's independent public accountants and an opinion from
the Company's counsel, in each case addressed to the selling Securityholders, in
customary form and covering such matters of the type customarily covered by
"cold comfort" letters and opinion of counsel, respectively, as the holders of a
majority of the voting power of the Shares of the selling Securityholders shall
request;
(G) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its Securityholders, as
soon as reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder; and
(H) cause its officers to use their reasonable best
efforts to support the marketing of the Shares covered by the registration
statement (including, without limitation, the participation in "road shows," at
the request of the managing underwriter) taking into account the Company's
business needs.
(x) Each selling Securityholder agrees that, upon
receipt of any notice from the Company of the
happening of any event of the kind described in
Section 6.1(c)(ix)(B), such Securityholder will
forthwith
49
<PAGE>
discontinue disposition of its Shares pursuant to
the registration statement covering such Shares
until such Securityholder's receipt of the copies of
the supplemented or amended prospectus contemplated
by such Section 6.1(c)(ix)(B) and, if so directed by
the Company, such Securityholder will deliver to the
Company (at the Company's expense) all copies, other
than permanent file copies then in such
Securityholder's possession, of the prospectus
covering such its Shares current at the time of
receipt of such notice.
(d) Transfer Restrictions. The transfer restrictions
-----------------------
contained in Article 4, including, without limitation,
those set forth in Section 4.3, of this Agreement shall
not apply to any offering of Shares pursuant to this
Section 6.1.
(e) Indemnification.
---------------
(i) In the event of the registration or qualification of
any Shares of the Securityholders under the
Securities Act or any other applicable securities
laws pursuant to the provisions of this Section 6.1,
the Company agrees to indemnify and hold harmless
each Securityholder thereby offering such Shares for
sale (a "Seller") and each of their officers,
------
directors, partners, members or agents, the
underwriter, broker or dealer, if any, of such
Shares, and each other Person, if any, who controls
any such Seller, underwriter, broker or dealer
within the meaning of the Securities Act or any
other applicable securities laws (each an
"Indemnified Seller"), from and against any and all
------------------
losses, claims, damages or liabilities (or actions
in respect thereof), joint or several, to which such
Indemnified Seller may become subject under the
Securities Act or any other applicable securities
laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any
material fact contained in any registration
statement under which such Shares were registered or
qualified under the Securities Act or any other
applicable securities laws, any preliminary
prospectus or final prospectus relating to such
Shares, or any amendment or supplement thereto,
offering circular or other document or any amendment
or supplement thereto or arise out of or are based
upon the omission or alleged omission to state
therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading, or any violation by the Company of
any rule or regulation under the Securities Act, the
Exchange Act or any other applicable securities laws
applicable to the Company or relating to any action
or inaction required by the Company in connection
with any such registration or qualification and will
promptly reimburse each such Indemnified Seller for
any legal or
50
<PAGE>
other expenses reasonably incurred by such
Indemnified Seller in connection with investigating
or defending any such loss, claim, damage, liability
or action; provided, however, that the Company will
-------- -------
not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or omission
made in such registration statement, such
preliminary prospectus, such final prospectus or
such amendment or supplement thereto in reliance
upon and in conformity with written information
furnished to the Company by such Indemnified Seller
specifically and expressly for use in the
preparation thereof, or to the extent that an
Indemnified Seller sold securities to a Person to
whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the
final prospectus as then amended or supplemented if
the Company previously furnished copies thereof to
such Indemnified Seller and the loss, claim, damage,
liability or action results from an untrue statement
or omission contained in the preliminary prospectus
that was corrected in the final prospectus.
(ii) In the event of the registration or qualification of
any Shares of the Securityholders under the
Securities Act or any other applicable securities
laws for sale pursuant to the provisions of this
Section 6.1, each selling Securityholder, each
underwriter, broker and dealer, if any, of such
Shares, and each other Person, if any, who controls
any such selling Securityholder, underwriter, broker
or dealer within the meaning of the Securities Act,
agrees severally, and not jointly, to indemnify and
hold harmless the Company, each Person who controls
the Company within the meaning of the Securities
Act, and each officer and director of the Company
from and against any and all losses, claims, damages
or liabilities (or actions in respect thereof),
joint or several, to which the Company, such
controlling Person or any such officer or director
may become subject under the Securities Act or any
other applicable securities laws or otherwise,
insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement of any
material fact contained in any registration
statement under which such Shares were registered or
qualified under the Securities Act or any other
applicable securities laws, any preliminary
prospectus or final prospectus relating to such
Shares, or any amendment or supplement thereto, or
arise out of or are based upon an untrue statement
or the omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading, which untrue
statement or omission was made therein in reliance
upon and in conformity with written information
furnished to the Company by such selling
Securityholder, underwriter, broker, dealer or
controlling
51
<PAGE>
Person specifically for use in connection with the
preparation thereof, and will reimburse the Company,
such controlling Person and each such officer or
director for any legal or any other expenses
reasonably incurred by them in connection with
investigating or defending any such loss, claim,
damage, liability or action; provided, however, that
-------- -------
no selling Securityholder will be liable under this
Section 6.1(e)(ii) for any amount in excess of the
net proceeds paid to such selling Securityholder in
respect of Shares sold by it.
(iii)Promptly after receipt by a Person entitled to
indemnification under this Section 6.1(e) (an
"Indemnified Party") of notice of the commencement
------------------
of any action or claim relating to any registration
statement filed under Section 6.1(a) or 6.1(b) or as
to which indemnity may be sought hereunder, such
indemnified party will, if a claim for
indemnification hereunder in respect thereof is to
be made against any other party hereto (an
"Indemnifying Party"), give written notice to such
-------------------
Indemnifying Party of the commencement of such
action or claim, but the omission to so notify the
Indemnifying Party will not relieve the Indemnifying
Party from any liability that it may have to any
Indemnified Party otherwise than pursuant to the
provisions of this Section 6.1(e) and shall also not
relieve the Indemnifying Party of its obligations
under this Section 6.1(e) except to the extent that
the Indemnifying Party is actually prejudiced
thereby. In case any such action is brought against
an Indemnified Party, and it notifies an
Indemnifying Party of the commencement thereof, the
Indemnifying Party will be entitled (at its own
expense) to participate in and, to the extent that
it may wish, jointly with any other Indemnifying
Party similarly notified, to assume the defense,
with counsel reasonably satisfactory to such
Indemnified Party, of such action and/or to settle
such action and, after notice from the Indemnifying
Party to such Indemnified Party of its election so
to assume the defense thereof, the Indemnifying
Party will not be liable to such Indemnified Party
for any legal or other expenses subsequently
incurred by such Indemnified Party in connection
with the defense thereof, other than the reasonable
cost of investigation; provided, however, that no
-------- -------
Indemnifying Party shall enter into any settlement
agreement without the prior written consent of the
Indemnified Party unless such Indemnified Party is
fully released and discharged from any such
liability. Notwithstanding the foregoing, the
Indemnified Party shall have the right to employ its
own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of
such Indemnified Party unless (A) the employment of
such counsel shall have been authorized in writing
by the Indemnifying Party in connection with the
defense of such suit,
52
<PAGE>
action, claim or proceeding, (B) the Indemnifying
Party shall not have employed counsel (reasonably
satisfactory to the indemnified party) to take
charge of the defense of such action, suit, claim or
proceeding, or (C) such Indemnified Party shall have
reasonably concluded, based upon the advice of
counsel, that there may be defenses available to it
that are different from or additional to those
available to the Indemnifying Party which, if the
Indemnifying Party and the Indemnified Party were to
be represented by the same counsel, could result in
a conflict of interest for such counsel or
materially prejudice the prosecution of the defenses
available to such Indemnified Party. If any of the
events specified in clauses (A), (B) or (C) of the
preceding sentence shall have occurred or shall
otherwise be applicable, then the reasonable fees
and expenses of one counsel or firm of counsel
selected by a majority in interest of the
Indemnified Parties (and reasonably acceptable to
the Indemnifying Party) shall be borne by the
Indemnifying Party. If, in any such case, the
Indemnified Party employs separate counsel, the
Indemnifying Party shall not have the right to
direct the defense of such action, suit, claim or
proceeding on behalf of the Indemnified Party and
the Indemnified Party shall assume such defense
and/or settle such action; provided, however, that
-------- -------
an Indemnifying Party shall not be liable for the
settlement of any action, suit, claim or proceeding
effected without its prior written consent, which
consent shall not be unreasonably withheld.
ARTICLE VII
PREEMPTIVE RIGHTS
7.1 Preemptive Rights.
-----------------
(a) Prior to an Initial Public Offering. If, after the date
------------------------------------
hereof and prior to an Initial Public Offering, the
Company shall propose to issue or sell New Securities (as
hereinafter defined) or enter into any contracts,
commitments, agreements, understandings or arrangements
of any kind relating to the issuance or sale of any New
Securities, then subject to the immediately following
paragraph, each Securityholder shall have the right to
purchase that number of New Securities, at the same price
and on the same terms proposed to be issued or sold by
the Company, so that each such Securityholder would,
after the issuance or sale of all such New Securities
(and after giving effect to the preference given to the
Series C Holders set forth in the immediately following
paragraph), hold the same proportionate interest of the
Fully Diluted Capitalization as was held by each such
Securityholder immediately after any issuance or sale of
New Securities as set forth in the immediately
53
<PAGE>
following paragraph and immediately prior to the issuance
or sale of the balance of such New Securities (the
"Proportionate Percentage"). "New Securities" shall mean
------------------------ --------------
any Shares or other securities or other rights
convertible or exchangeable into or exercisable for
Shares; provided, however, that "New Securities" does not
-------- -------
include: (i) any Warrants, Options or Common Stock issued
or issuable on conversion of the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred
Stock, or upon the exercise of Warrants or Options (other
than options referred to in clause (v) below); (ii)
Shares issued pursuant to the exercise of any rights,
warrants, options (other than options referred to in
clause (v) below) or other agreements not outstanding on
the date of this Agreement including, without limitation,
any security convertible or exchangeable, with or without
consideration, into or for any stock, options and
warrants, provided that the rights established by this
Section 7.1 apply with respect to the initial sale or
grant by the Company of such rights or agreements; (iii)
securities issued by the Company as part of any public
offering pursuant to an effective registration statement
under the Securities Act; (iv) Shares issued in
connection with any stock split, stock dividend or
recapitalization of the Company; (v) Shares issued to
management, directors or employees of, or consultants to,
the Company pursuant to options outstanding as of the
date hereof and options to purchase Shares issued
pursuant to any Option Plan or as otherwise approved by
the Compensation Committee and Shares issuable upon
exercise thereof; and (vi) securities issued as
consideration for, or in connection with, any merger or
acquisition of the stock or assets of any acquired entity
by the Company.
Notwithstanding the provisions of the foregoing paragraph, if, at the
time of any proposed issuance or sale by the Company of New Securities prior to
an Initial Public Offering, the RSI Beneficial Holders have Beneficial Ownership
of Shares, Options and Warrants (which in the case of Options or Warrants shall
include only those Options or Warrants that are Exercisable) representing (on a
fully exercised and converted basis), in the aggregate, less than 30% of the
Adjusted Fully Diluted Capitalization, then the RSI Beneficial Holders shall
have the initial right, exercisable, in the sole discretion of RSI, by the
Series C Holders for the benefit of the RSI Beneficial Holders or directly by
any of the RSI Beneficial Holders (provided, that, if such right is exercised
directly by any of the RSI Beneficial Holders, such Person shall become a party
to this Agreement for all purposes hereunder), to purchase that number of New
Securities (subject to the maximum number of New Securities proposed to be
issued or sold) at, except as set forth in the two immediately following
sentences, the same price and on the same terms proposed to be issued or sold by
the Company so that after such priority purchase under this paragraph the RSI
Beneficial Holders would have Beneficial Ownership of Shares, Options and
Warrants representing (on a fully exercised and converted basis), in the
aggregate, 30% of the Adjusted Fully Diluted Capitalization on a pro forma basis
giving effect to the maximum number of New Securities proposed to be issued or
sold. If, at the time of any issuance of New Securities, there are Unused
Backlog CSE's that are derived from a previous issuance of shares as
consideration for, or in connection with, any merger or
54
<PAGE>
acquisition of the stock or assets of any acquired entity by the Company
("Merger Shares"), then, notwithstanding the proposed price of the New
--------------
Securities to be issued, the price per share of the New Securities (only for
that number of New Securities as are purchasable under this paragraph with
respect to such Unused Backlog CSE's derived from the Merger Shares which number
of New Securities shall be deemed to be the first New Securities issued unless
there are at the time Unused Backlog CSE's derived from In-the-Money Option
Shares with respect to which such Unused Backlog CSE's came into existence prior
to the Unused Backlog CSE's derived from the Merger Shares) acquirable by the
Series C Holders or the RSI Beneficial Holders, as the case may be, shall be
equal to the price per share at which the Merger Shares were valued at the time
of issuance, as determined in good faith by the Board at the time of such
acquisition (provided that if RSI disagrees with such valuation, then the
Company and RSI shall utilize the appraisal procedures set forth in Section 5.3
hereof to determine such fair market value). If, at the time of any issuance of
New Securities, there are Unused Backlog CSE's that are derived from the
issuance of rights, warrants, options or other agreements to purchase Common
Stock or any security convertible or exchangeable therefor (other than options
granted under the Company's 1996 Option Plan) which such rights, warrants,
options or other agreements were either (x) issued as consideration for, or in
connection with, any merger or acquisition of the stock or assets of any
acquired company (other than such issuances which are made as incentive
compensation for future services and are approved by the Compensation
Committee), or (y) issued with an exercise price below the then fair market
value of the Common Stock, as determined in good faith by the Board (provided
that if RSI disagrees with such valuation, then the Company and RSI shall
utilize the appraisal procedures set forth in Section 5.3 hereof to determine
such fair market value and provided further that the exercise price of any
options issued pursuant to any Option Plan or as compensation to any consultant
to the Company shall be deemed to be at or above fair market value and shall not
be subject to the appraisal procedures if such exercise price has been
established by the Compensation Committee), and which rights, warrants, options
or other agreements described in clause (x) or clause (y) are Exercisable
("In-the-Money Option Shares"), then, notwithstanding the proposed price of the
--------------------------
New Securities to be issued, the price per share (only for that number of New
Securities as are purchasable under this paragraph with respect to such Unused
Backlog CSE's derived from the In-the-Money Option Shares which number of New
Securities shall be deemed to be the first New Securities issued unless there
are at the time Unused Backlog CSE's derived from Merger Shares with respect to
which such Unused Backlog CSE's came into existence prior to the Unused Backlog
CSE's derived from the In-the-Money Option Shares) of the New Securities
acquirable by the Series C Holders or the RSI Beneficial Holders, as the case
may be, shall be equal to the exercise price for such In-the-Money Option
Shares. The failure of the RSI Beneficial Holders to exercise or to cause the
Series C Holders to exercise such preemptive rights shall constitute an
irrevocable waiver of the RSI Beneficial Holders' preemptive rights with respect
to such New Securities. The Company shall comply with the procedural
requirements of this Section 7.1 in connection with the offer of New Securities
to the Series C Holders or the RSI Beneficial Holders, as the case may be. The
rights set forth in this paragraph shall terminate and shall be of no force and
effect at such time as the Qualifying Series C Beneficial Holders shall no
longer maintain Beneficial Ownership of at least 20% of the Series C Adjusted
Fully Diluted Capitalization. The Series C Holders shall provide such
information as the Company shall reasonably request in order to determine the
Beneficial Ownership of the Qualifying Series C Beneficial Holders. In the event
that any RSI Beneficial Holder transfers
55
<PAGE>
Beneficial Ownership in any Shares, Options or Warrants, then, notwithstanding
such transfer, the Shares, Options or Warrants so transferred shall be deemed to
be Beneficially Owned by the RSI Beneficial Holders for purposes of this Section
7.1.
Subject to the immediately preceding paragraph, the Company shall give
the Securityholders written notice of its intention to issue and sell New
Securities, describing the type of New Securities, the price and the general
terms and conditions upon which the Company proposes to issue the same. Subject
to the immediately preceding paragraph, the Securityholders shall have 15 days
from the giving of such notice to agree to purchase all (or any part) of its
Proportionate Percentage of New Securities for the price and upon the terms and
conditions specified in the notice by giving written notice of the Company and
stating therein the quantity of New Securities to be purchased.
If the Securityholders fail to exercise in full such right within such
15 days, the Company shall have 120 days thereafter to sell the New Securities
in respect of which the Securityholders' rights were not exercised, at a price
and upon general terms and conditions no more favorable to the purchasers
thereof than specified in the Company's notice to the Securityholders pursuant
to this Section 7.1(a). If the Company has not sold the New Securities within
such 120 days, the Company shall not thereafter issue or sell any New
Securities, without first offering such securities to the Securityholders in the
manner provided above.
If a Securityholder which is a SBIC has the right to acquire any voting
New Securities under this Section 7.1(a), the Company shall, at such
Securityholder's request, offer to sell to such Securityholder, New Securities
that do not have voting rights but otherwise have the same terms as such voting
New Securities.
Prior to the consummation of an Initial Public Offering, if there
remain any Unused Backlog CSE's that are derived from Merger Shares or
In-the-Money Option Shares, upon request of the RSI Beneficial Holders, the
Company shall issue to the RSI Beneficial Holders or the Series C Holders, as
determined by RSI in its sole discretion, that number of shares of Series C
Preferred Stock as are purchasable under the second paragraph of this Section
7.1(a) with respect to such Unused Backlog CSE's derived from the Merger Shares
and the In-the-Money Option Shares. The per share price for such shares to be
issued shall be calculated in the manner set forth in the second and third
sentences, as applicable, contained in the second paragraph of this Section
7.1(a). The Company shall notify the Series C Holders of the consummation of an
Initial Public Offering at least 30 days, prior thereto and the Series C Holders
or the RSI Beneficial Holders, as the case may be, shall have 15 days after
receipt of such notice to exercise the rights contained in this paragraph. The
rights set forth in this paragraph, if not exercised by the RSI Beneficial
Holders or the Series C Holders for the account of the RSI Beneficial Holders,
prior to the consummation of an Initial Public Offering, shall terminate upon
the effectiveness of an Initial Public Offering.
(b) Initial Public Offering and Following an Initial Public
---------------------------------------------------------
Offering. If, in connection with an Initial Public
--------
Offering or thereafter, the Company shall propose to
issue or sell Additional Securities or enter into any
contracts, commitments, agreements, understandings or
arrangements of any kind
56
<PAGE>
relating to the issuance or sale of any Additional
Securities, then the Series C Holders shall have the
right to purchase that number of Additional Securities,
at the same price and on the same terms proposed to be
issued or sold by the Company, so that the Series C
Holders would, after the issuance or sale of all such
Additional Securities, Beneficially Own the greater of
(i) 46% of the Adjusted Fully Diluted Capitalization or
(ii) the same percentage of the Adjusted Fully Diluted
Capitalization as they held immediately prior to such
issuance or sale of all such Additional Securities,
provided, however, that (x) in connection with an Initial
Public Offering, the right of the Series C Holders to
purchase Additional Securities pursuant to this Section
7.1(b) also shall be limited to a right to acquire 30% of
the Additional Securities until the dollar amount of such
Additional Securities sold in such Initial Public
Offering to Persons other than the Series C Holders (or
any Beneficial Owner of the Series C Preferred Stock or
Shares acquired by conversion thereof) is at least
$75,000,000 and thereafter shall be exercisable to the
extent provided above. Notwithstanding the immediately
preceding sentence, if, at the time of issuance of any
Additional Securities, the Series C Holders Beneficially
Own less than 46% of the Adjusted Fully Diluted
Capitalization and the Series C Holders do not exercise
their right in full to acquire Additional Securities
pursuant to the previous sentence, then, in any
subsequent issuance of Additional Securities, the Series
C Holders shall have the rights to purchase only that
number of Additional Securities, at the same price and on
the same terms proposed to be issued or sold by the
Company, so that the Series C Holders would, after the
issuance or sale of all such Additional Securities,
Beneficially Own the same percentage of the Adjusted
Fully Diluted Capitalization as such Series C Holders
Beneficially Owned after the issuance of Additional
Securities in which such Series C Holders did not so
exercise their right in full (for these purposes any
capital stock of the Company subsequently acquired by the
Series C Holders other than pursuant to a direct issuance
by the Company shall not be deemed to be Beneficially
Owned by such Series C Holders). For purposes of this
Section 7.1(b), the term "Additional Securities" shall
mean New Securities plus all securities issued by the
Company as part of any public offering pursuant to an
effective registration statement under the Securities Act
("Additional Securities").
---------------------
Subject to the immediately preceding paragraph, the Company shall give
the Series C Holders written notice of its intention to issue and sell
Additional Securities, describing the type of Additional Securities, the price
and the general terms and conditions upon which the Company proposes to issue
the same. Subject to the immediately preceding paragraph, the Series C Holders
shall have 15 days from the giving of such notice to agree to purchase all (or
any part) of the Additional Securities which they are entitled to purchase
pursuant to this Section 7.1(b) for the price and upon the terms and conditions
specified in the notice by giving written notice of the Company and stating
therein the quantity of Additional Securities to be purchased.
57
<PAGE>
If the Series C Holders fail to exercise in full such right within such
15 days, the Company shall have 180 days thereafter to sell the Additional
Securities in respect of which the Series C Holders' rights were not exercised,
at a price and upon general terms and conditions no more favorable to the
purchasers thereof than specified in the Company's notice to the Series C
Holders pursuant to this Section 7.1(b). If the Company has not sold the
Additional Securities within such 180 days, the Company shall not thereafter
issue or sell any Additional Securities, without first offering such securities
to the Series C Holders in the manner provided above. The rights set forth in
this Section 7.1(b) shall terminate and shall be of no force and effect at such
time as the Qualifying Series C Beneficial Holders shall no longer maintain
Beneficial Ownership of at least 20% of the Series C Adjusted Fully Diluted
Capitalization.
7.2 Standstill. Except as expressly provided in Section 7.1, no Series
----------
A Holder, Series B Holder or Series C Holder or any Affiliate thereof shall
purchase or otherwise acquire any securities of the Company that are not subject
to the provisions of this Agreement, without the prior approval of a majority of
the Series A and Series B Preferred Directors and the Company Directors (taken
in the aggregate) and a majority of the Series C Preferred Directors.
Notwithstanding the generality of the foregoing, this Section 7.2 shall not
apply to restrict the granting by the Company to any Person of Options pursuant
to any Option Plan and/or to the exercise of any such Options.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement shall terminate automatically upon the
-----------
consummation of (i) an Initial Public Offering, or (ii) a Sale of the Company;
provided, however, that, notwithstanding the foregoing:
- -------- -------
(a) the provisions of Section 4.5 shall survive an Initial
Public Offering and shall terminate upon the third anniversary thereof;
(b) the provisions of Section 4.10 shall survive in accordance
with the terms thereof;
(c) the provisions of Article 6 shall survive an Initial
Public Offering until each Securityholder has disposed of its Shares that are
the subject of this Agreement; provided, however, that the provisions of Section
-------- -------
6.1(a) shall terminate upon the third anniversary of the date of consummation of
such Initial Public Offering and the provisions of Section 6.1(b) shall
terminate when each Securityholder is eligible to sell all of the securities
held by it and covered by this Agreement in a single transaction pursuant to
Rule 144 promulgated under the Securities Act (taking into account the volume
limitations contained therein); and
(d) the provisions of (i) Section 7.1(b), (ii) Section 2.1(a)
solely as it relates to the right to nominate the Chairman of the Board, (iii)
Section 3.1(e), (iv) Section 3.1(h), (v) Section 3.1(o), and (vi) Section
3.1(p), in each case, shall survive an Initial Public Offering and continue
until such time as the RSI Beneficial Holders no longer have Beneficial
58
<PAGE>
Ownership of 15% of the Series C Adjusted Fully Diluted Capitalization;
provided, however, that following the fifth anniversary of the Initial Public
- -------- -------
Offering, such percentage shall be increased to 23%. Notwithstanding the
foregoing, from and after an Initial Public Offering, Section 3.1(e) and Section
3.1(p) shall be modified to read as follows:
(A) Section 3.1(e): "entering into any business other than
the Core Business if, as a result of the entering into
such business, the Core Business would no longer be the
predominant business of the Company;" and
(B) Section 3.1(p): "any amendment to the Articles of
Incorporation (including the Certificates of Designation)
or By-laws of the Company or any change in the number of
members of the Board, any Committee thereof, or the
Strategic Steering Committee, which amendment or change
would materially and adversely affect the rights of the
Series C Holders under this Agreement that survive an
Initial Public Offering (it being agreed and understood
that any amendment that increases the authorized capital
stock of the Company shall not be deemed to materially
and adversely affect such rights)";
(e) upon an Initial Public Offering, the Shares of Series C
Preferred Stock shall automatically be converted pursuant to and in accordance
with the Series C Certificate of Designation into shares of the Company's Class
B Common Stock, par value $.01 per share (the "Class B Common Stock"), to be
---------------------
issued solely to the Series C Holders (provided that, to the extent that any
-------- ----
Shares of Series C Preferred Stock are Beneficially Owned by Persons who are not
Qualifying Series C Beneficial Holders, such Shares of Series C Preferred Stock
shall be converted pursuant to and in accordance with the Series C Certificate
of Designation into Shares of Class A Common Stock, and such Persons who are not
Qualifying Series C Beneficial Holders, by their execution of a consent pursuant
to Section 9.6 hereof, irrevocably elect such conversion to Shares of Class A
Common Stock, provided further however, that if any such Person shall not have
executed such a consent for any reason, such Person shall nonetheless be deemed
bound by the obligation set forth herein to convert Shares of Series C Preferred
Stock to Shares of Class A Common Stock; and provided, further, that the
-------- -------
Qualifying Series C Beneficial Holders shall be deemed to have irrevocably
elected to receive Shares of Class B Common Stock). Prior to such Initial Public
Offering, the Board shall by resolution grant the Shares of Class B Common Stock
the rights set forth in the immediately following sentence and shall provide for
the automatic conversion of Shares of Class B Common Stock into Shares of Class
A Common Stock upon any transfer thereof to a Person who is not a Qualifying
Series C Beneficial Holder or upon the events set forth in clause (y) of the
second sentence of Section 9.17(d). Shares of Class B Common Stock shall (i)
carry the right to elect that number of Directors, but in no event more than
four, as are equal to (A) 1, if the outstanding shares of the Class B Common
Stock then represent 10% or more but less than 20% of the Series C Adjusted
Fully Diluted Capitalization, (B) 2, if the outstanding shares of the Class B
Common Stock then represent 20% or more but less than 30% of the Series C
Adjusted
59
<PAGE>
Fully Diluted Capitalization, (C) 3, if the outstanding shares of the Class B
Common Stock then represent 30% or more but less than 40% of the Series C
Adjusted Fully Diluted Capitalization, or (D) 4, if the outstanding shares of
the Class B Common Stock then represent 40% or more of the Series C Adjusted
Fully Diluted Capitalization, (ii) automatically convert into Common Stock upon
any Person that is not a Qualifying Series C Beneficial Holder acquiring
Beneficial Ownership thereof, and (iii) otherwise be identical to the Common
Stock in all respects. From and after an Initial Public Offering, the reference
to the Series C Preferred Directors in the definition of SuperMajority Approval
shall mean the Directors elected by the holders of the Class B Common Stock.
Nothing in this paragraph shall diminish any other rights of such holders
contained in this Agreement that shall survive an Initial Public Offering which
provisions shall survive in accordance with the terms thereof, notwithstanding
the conversion of Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock into Class A Common Stock or Class B Common Stock, as the case
may be; and
(f) the provisions of Section 9.17 shall survive in accordance
with their terms.
ARTICLE IX
MISCELLANEOUS
9.1 Information. The Company covenants and agrees to deliver to each
------------
Securityholder who continues to own at least 2% of the Fully Diluted
Capitalization (any such Securityholder, a "Large Securityholder") the
----------------------
information specified in this Section 9.1 unless any such Large Securityholder
at any time specifically requests that such information not be delivered to it.
(a) Monthly and Quarterly Financial Statements. As soon as
--------------------------------------------
available, but in any event not later than forty-five
(45) days after the end of each monthly or quarterly
fiscal period as the case may be (other than the last
quarterly fiscal period in any fiscal year of the
Company), the unaudited consolidated balance sheet of the
Company and its Subsidiaries as at the end of each such
period and the related unaudited consolidated statements
of income and cash flows of the Company and its
Subsidiaries for such period and for the elapsed period
in such fiscal year, all in reasonable detail and
stating, in comparative form (i) the figures as of the
end of and for the comparable periods of the preceding
fiscal year and (ii) the figures reflected in the
operating budget for such period as specified in the
financial plan of the Company delivered pursuant to
Section 9.1(e) hereof. All such financial statements
shall be prepared in accordance with GAAP applied on a
consistent basis throughout the periods reflected therein
except as stated therein and shall be accompanied by a
certificate of the Company's president or chief financial
officer to such effect.
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<PAGE>
(b) Annual Financial Statements. As soon as available, but in
---------------------------
any event within ninety (90) days after the end of each
fiscal year of the Company, a copy of the audited
consolidated (and unaudited consolidating) balance sheets
of the Company and its Subsidiaries as at the end of such
fiscal year and the related audited consolidated (and
unaudited consolidating) statements of operations,
stockholders' equity and cash flows of the Company and
its Subsidiaries for such fiscal year, all in reasonable
detail and stating in comparative form the figures as at
the end of and for the immediately preceding fiscal year,
accompanied (in the case of the audited consolidated
financial statements) by an opinion of an accounting firm
of recognized national standing selected by or such
Subsidiary, which opinion shall state that such
accounting firm's audit was conducted in accordance with
generally accepted auditing standards. All such financial
statements shall be prepared in accordance with GAAP
applied on a consistent basis throughout the periods
reflected therein except as stated therein.
(c) Material Litigation. Within ten (10) days after the
--------------------
Company learns of the commencement or written threat of
commencement of any litigation or proceeding against the
Company or any of its Subsidiaries or any of their
respective assets that could reasonably be expected to
have a material adverse effect on the Company, written
notice of the nature and extent of such litigation or
proceeding.
(d) Material Agreement. Within five (5) days after the
-------------------
receipt by the Company of written notice of the
occurrence of a default by the Company or any of its
Subsidiaries under any material contract, agreement or
document that could reasonably be expected to have a
material adverse effect on the Company, written notice of
the nature and extent of such default.
(e) Budgets. As soon as available, but in any event not later
-------
than thirty (30) days prior to the beginning of each
fiscal year of the Company, the Annual Budget as well as
any updates or revisions to such plan as soon as
available.
(f) Accountants' Management Letters, Etc. Promptly after
----------------------------------------
receipt by the Company, copies of all accountants'
management letters and all management and board responses
to such letters, and copies of all certificates as to
compliance, defaults, material adverse changes, material
litigation or similar matters relating to the Company and
its Subsidiaries, which shall be prepared by the Company
or its officers and delivered to the third parties.
(g) Stockholders' Lists. Within sixty (60) days after the end
-------------------
of each fiscal year, a stockholders' list, showing the
authorized and outstanding shares by class (including the
Common Stock equivalents of any convertible security),
the holders of all outstanding shares (both before giving
effect to dilution and on
61
<PAGE>
a fully diluted basis) and all outstanding options,
warrants and convertible securities, and detailing all
options and warrants granted, exercised or lapsed
(including in each case, without limitation, all option
and warrant exercise prices, stock issuance prices and
other terms) and all shares issued or sold (whether to
directors or managers, in connection with financing or
otherwise).
(h) Other Information and Access. From time to time, and
-------------------------------
promptly, such additional information regarding results
of operations, financial condition or business of the
Company and its Subsidiaries, including, without
limitation, cash flow analyses, projections and minutes
of any meetings of the Board, as any Large Securityholder
may reasonably request. The Company shall also afford to
any Large Securityholder (and its representatives)
access, at reasonable times and on reasonable prior
notice, to the books, records and properties of the
Company and its Subsidiaries.
9.2 Certificate Legend. Upon execution of this Agreement, the stock
-------------------
certificates representing Shares held by the Securityholders shall contain
substantially the following legend, in addition to any other legends deemed
reasonably appropriate or necessary by the Company:
"This certificate is transferable only upon compliance with and subject
to the provisions of a Stockholders' Agreement among the Company and
certain Securityholders, a copy of which Agreement is on file in the
office of the Secretary of the Company at its principal place of
business. The Company will furnish a copy of such Agreement to the
record holder of this Certificate, without charge, upon written request
to the Company at its principal place of business or registered
office."
9.3 Negotiable Form. Whenever any Shares, Warrants or Options are to be
---------------
delivered or sold pursuant to this Agreement, the Person selling such Shares,
Warrants or Options shall deliver such certificates or other instruments duly
endorsed or accompanied by appropriate stock powers or assignments separate from
the instrument along with attached stock transfer tax stamps.
9.4 Enforcement. No Shares, Warrants or Options shall be transferred on
-----------
the books of the Company and no Transfer thereof shall be effective unless and
until the terms and provisions of this Agreement are complied with, and in cases
of violation of this Agreement by the attempted Transfer of the Shares, Warrants
or Options without compliance with the terms and provisions thereof, such
Transfer shall be invalid and of no effect and be deemed in all respects void ab
--
initio, and the Company and/or any of the Securityholders who are not attempting
- ------
to Transfer the Shares, Warrants or Options shall have the right to compel the
Securityholder who is attempting to Transfer the Shares, Warrants or Options,
and/or the purported transferee, to Transfer and deliver the same in accordance
with the applicable provisions of this Agreement.
9.5 Specific Performance. The parties hereto recognize that the Shares,
--------------------
Warrants or
62
<PAGE>
Options cannot be readily purchased or sold on the open market and that it is to
the benefit of the Company and the Securityholders that this Agreement be
carried out; and for those and other reasons, the parties hereto would be
irreparably damaged if this Agreement is not specifically enforced in the event
of a breach hereof. If any controversy concerning the rights or obligations to
purchase or sell any Shares, Warrants or Options arises, or if this Agreement is
breached, the parties hereto hereby agree that remedies at law might be
inadequate and that, therefore, such rights and obligations, and this Agreement,
shall be enforceable by specific performance. The remedy of specific performance
shall not be an exclusive remedy, but shall be cumulative of all other rights
and remedies of the parties hereto at law, in equity or under this Agreement.
9.6 Transferees. The Company and the Securityholders shall cause any
-----------
transferee of any Shares, Warrants or Options held by any Securityholder to
execute a consent, in form and substance reasonably acceptable to the Company,
to be bound by the terms and conditions of this Agreement and upon execution
thereof such future Securityholder shall be entitled to the rights of an owner
of the Shares, Warrants or Options held by such transferee hereunder, provided
that the foregoing shall not apply to Shares that have been sold pursuant to an
effective registration statement under the Securities Act or Rule 144
thereunder.
9.7 Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if in writing and delivered in person,
transmitted by telecopier or sent by registered or certified mail (return
receipt requested) or recognized overnight delivery service, postage pre-paid,
addressed as follows, or to such other address as any such party may notify to
the other parties in writing:
(a) if to the Company:
ALLIANCE National Incorporated
90 Park Avenue
Suite 3100
New York, New York 10016
Attn: David W. Beale
Facsimile No.: (212) 907-6444
with a copy to:
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attn: Lawrence B. Rodman, Esq.
Facsimile No.: (212) 735-8708
63
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(b) if to the Cahill Holders:
Cahill, Warnock & Company LLC
1 South Street, Suite 2150
Baltimore, Maryland 21202
Attn: David Warnock
Facsimile No.: (410) 895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light St.
Baltimore, Maryland 21202
Attn: John B. Watkins, Esquire
Facsimile No.: (410) 986-2828
(c) if to the Northwood Holders:
Northwood Ventures LLC
485 Underhill Boulevard
Syosset, New York 11791
Attn: Henry T. Wilson
Facsimile No.: (516) 364-0879
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attn: Bradley P. Cost, Esquire
Facsimile No.: (212) 682-0200
and a copy to:
Kuhn, Loeb & Co.
485 Madison Avenue, 20th Floor
New York, New York 10022
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(d) if to the Paribas Holder or the PNA Holder:
Paribas, acting through its
Cayman Island Branch
787 Seventh Avenue
New York, New York 10019
Attn: Donald J. Ercole
Facsimile No.: (212) 841-2363
Paribas North America
787 Seventh Avenue
New York, New York 10019
Attn: Donald J. Ercole
Facsimile No.: (212) 821-2363
with a copy to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attn: John Reiss, Esq.
Facsimile: (212) 354-8113
(e) if to the Series C Holders:
InterOffice Superholdings LLC
225 Broadhollow Road
Melville, New York 11747
Attn: Scott Rechler, Esq.
Jason Barnett, Esq.
Fax: (516) 622-6788
Reckson Office Centers LLC
225 Broadhollow Road
Melville, New York 11747
Attn: Scott Rechler
Jason Barnett, Esq.
Fax: (516) 622-6788
65
<PAGE>
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attn: Steven M. Rathkopf, Esq.
Richard M. Morris, Esq.
Fax: (212) 889-7577
and to:
JAH I/O LLC
2 Manhattanville Road
Purchase, New York 10577
Attn: Jon L. Halpern
and to:
Battle, Fowler LLP
75 East 55th Street
New York, New York 10022
Attn: Michael Mishaan, Esq.
Fax: (212) 856-7811
(f) if to any of the Other Holders, to the respective
Other Holder as set forth below:
David W. Beale
3230 Hewlett Avenue
Merrick, New York 11564
Thomas S. Shattan
930 Park Avenue
New York, New York 10028
Kate Dundes Shattan
930 Park Avenue
New York, New York 10028
Thomas S. Shattan and
Kate Dundes Shattan Trust
FBO Cecily Bay Shattan,
Gregory E. Mendel, Trustee
930 Park Ave.
New York, New York 10028
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<PAGE>
Thomas S. Shattan and
Kate Dundes Shattan Trust
FBO Ward Harrison Shattan,
Gregory E. Mendel, Trustee
930 Park Ave.
New York, New York 10028
Gregory E. Mendel
354 Hartshorn Drive
Short Hills, New Jersey 07078
Nancy Warshauer Mendel
Cust for Erica Brooke Mendel UTMA NJ
354 Hartshorn Drive
Short Hills, New Jersey 07078
Nancy Warshauer Mendel
Cust for David Ross Mendel UTMA NJ
354 Hartshorn Drive
Short Hills, New Jersey 07078
G. Kevin Fechtmeyer
5 Jackie Lane
Westport, Connecticut 06880
Facsimile No.: (203) 222-8231
The Shattan Group LLC
590 Madison Avenue, 18th Floor
New York, New York 10022
Attn: Thomas S. Shattan
Facsimile: (212) 308-5205
Arnold L. Cohen
105 Captain Road
North Woodmere, New York 11581
Barbara Cohen
105 Captain Road
North Woodmere, New York 11581
Louis Perlman
1239 Veedor Drive
Hewlett Bay Park, New York 11557
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<PAGE>
Louis Perlman IRA Rollover,
Gruntal & Co., LLC Custodian
1239 Veedor Drive
Hewlett Bay Park, New York 11557
Wilma Perlman
1239 Veedor Drive
Hewlett Bay Park, New York 11557
William E. Phillips
200 North Cove Road
Old Saybrook, Connecticut 06475
Michael Phillips
30 Winchester Drive
Atherton California 94027
Thomas Phillips and Tracy Phillips
43 Jennifer Lane
New Canaan, Connecticut 06840
Willis Pember and Sarah Pember
P.O. Box 8073
Aspen, Colorado 81612
Alan M. Langer
Strawberry Lane
Irvington, New York 10533
Laura J. Kozelouzek
50 West 72nd Street
Apt. 712
New York, New York 10023
Edward M. Caravalho
39 16th Street
West Babylon, New York 11704
Daniel Felix Robitaille
2 Fadore Lane
Apt. 6-G
Yonkers, New York 10710
68
<PAGE>
Deborah Baker
28 Cove Road
South Salem, New York 10590
M.L.P.F. & S. Custodian for Deborah Baker
28 Cove Road
South Salem, New York 10590
Kelly J. Besecker
21930 Hyde Park Drive
Ashburn, Virginia 20147
Jerry Daniels
166 East 63rd Street
Apt. 11C
New York, New York 10021
Mitchell Knecht
37 Barnside Road
Short Hills, New Jersey 07078
Linda Harris
340 East 93rd Street, # 6L
New York, New York 10128
Bonnie Deininger
4342 Laclede Place
St. Louis, Missouri 63108
G. Lee Bohs
1720 Clockwater Drive
Westchester, Pennsylvania 19380
David L. Warnock
c/o Cahill, Warnock & Co.
1 South Street, Suite 2150
Baltimore, Maryland 21202
Bennett Schmidt
31 West 93rd Street
Apt. 1C/2C
New York, New York 10025
Peter Samitt
15 West 104th Street
Apartment 1B
New York, New York 10025
69
<PAGE>
Carol Whalin
350 East 79th Street
Apt C
New York, New York 10021
Donaldson Lufkin & Jenrette
Custodian for Dottie Wight
8 Bohler Lane
Atlanta, Georgia 30327
Leslie Flynn
223 Hillside Place
Eastchester, New York 10709
Winnie Huynh
108-10 66th Avenue
Forest Hills, New York 11375
Rommel Mapa
47-28 Parsons Boulevard
Flushing, New York 11355
Debbie Klein
737 North Broadway
Hastings, New York 10706
Rita Michaelson
301 East 62nd Street
New york, New York 10021
Susan Melchner
150 Larchmont Avenue
Larchmont, New York 10538
Gerald Kaminsky
136 Harold Road
Woodmere, New York 11598
Bettylu Saltzman
161 Chicago Avenue East
Chicago, Illinois 60611
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<PAGE>
Alan Goldberg
10 Kenneth Court
Kings Point, New York 11024
Francis G. Hickey, Jr.
6333 North Scottsdale
Casita No. 6
Scottsdale, Arizona 85253
Peggyanne Kahn
5 Lakewood Lane
Larchmont, New York 10538
William Spier
One West 81st Street, Apt. 5-D
New York, New York 10024
Samuel Klutznick
111 East Wacker Drive
Suite 2400
Chicago, Illinois 60601
Peter A. Halstead, Trustee
for Eliza Finkelstein
Tippet Alley
P.O. Box 1454
Edwards, Colorado 81632-1454
Peter A. Halstead, Trustee
for Jennifer Finkelstein
Tippet Alley
P.O. Box 1454
Edwards, Colorado 81632-1454
Tippet Partners
Tippet Alley
P.O. Box 1454
Edwards, Colorado 81632-1454
Karen Scharfberg
1058 Kingsley Road
Rydal, Pennsylvania 19046
71
<PAGE>
Douglas Scharfberg
1058 Kingsley Road
Rydal, Pennsylvania 19046
Bette Ann Spielman
33 The Oaks
Roslyn, New York 11576
The Spielman Group
c/o Bette Ann Spielman
General Partner
33 The Oaks
Roslyn, New York 11576
Gerald Spielman
Fortrend International, LLC
7960 L'Aquila Way, First Floor
Delray Beach, FL 33446
Robert Spielman
7 Windemere Crest
Woodbury, New York 11797
Robin Spielman
7 Windemere Crest
Woodbury, New York 11797
4364 Kasso Circle Realty, Inc. Profit Sharing Plan
c/o Stanley Spielman and Phyllis Spielman, Trustees
7 Acric Court
Manhasset, New York 11030
Stanley Spielman
7 Acric Court
Manhasset, New York 11030
Stanley Spielman, IRA
7 Acric Court
Manhasset, New York 11030
Kenneth Witover
12 Sabine Road
Oyster Bay Cove
Syosset, New York 11791
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<PAGE>
Erica Witover
12 Sabine Road
Oyster Bay Cove
Syosset, New York 11791
A notice or communication will be effective (i) if delivered in person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, 3 business days
after dispatch.
9.8 Binding Effect; Assignment. This Agreement, including the rights
---------------------------
and conditions contained herein in connection with disposition of Shares,
Warrants or Options shall be binding upon the parties hereto, together with
their respective executors, administrators, successors, Personal
representatives, heirs and assigns permitted under this Agreement.
9.9 Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of New York for contracts executed and
to be fully performed in such state and without regard to principles regarding
conflict of laws.
9.10 Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provisions shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
9.11 Entire Agreement. This Agreement together with the Certificates of
----------------
Designation and the Warrants and Options embodies the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings relating to the subject
matter hereof. To the extent that any provision contained herein conflicts or is
otherwise inconsistent with any provision contained in the Warrants or Options,
including, without limitation, any provision relating to preemptive rights, the
provisions contained herein shall be controlling.
9.12 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which together shall constitute
one instrument.
9.13 Amendment; Waiver. This Agreement may be amended, modified or
------------------
supplemented only by a written instrument executed by the Company and
Securityholders holding Common Stock Equivalents in excess of 66-2/3% of the
Common Stock Equivalents that are then subject to this Agreement (which
approving Securityholders shall include each Securityholder who, either alone
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<PAGE>
or together with its Affiliates, holds 2% or more of the Common Stock
Equivalents that are then subject to this Agreement); provided, however, that
-------- -------
any amendment, modification or supplement that would (i) impose additional
restrictions on any Securityholder's right to transfer its Options, Warrants or
Shares or eliminate any Securityholder's rights under the Agreement to transfer
its Options, Warrants or Shares pursuant to Article 4, in each case in a manner
that does not affect all similarly situated Securityholders equally, or (ii)
materially and adversely affect any Securityholder's registration rights (other
than as a result of any increase in the number of shares that may be covered by
such registration rights), in each case in a manner that does not affect all
similarly situated Securityholders equally, or preemptive rights shall, in each
case, require the approval of each such affected Securityholder. Section 4.7(c)
and Section 5.4 of this Agreement shall not be permitted to be amended without
the consent of the Required Banks.
9.14 Captions. The captions of this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
9.15 Waivers. (a) By executing this Agreement, each Securityholder
-------
shall be deemed to have waived any preemptive rights such Securityholder may
have had under this Agreement or under any other instrument or agreement in
connection with the issuance and sale of Series C Preferred Stock pursuant to
the Merger Agreements.
(b) By executing this Agreement, each Securityholder who had the right
to receive information concerning the Company pursuant to the provisions of the
First Series A Stock Purchase Agreement, the Second Series A Stock Purchase
Agreement or the Series B Stock Purchase Agreement shall be deemed to have
irrevocably waived the right to receive any such information. The foregoing
waiver shall not limit the rights of any Securityholder to receive information
pursuant to Section 9.1 hereof.
9.16 Subsequent Option Grants. In the event of any grant by the Company
------------------------
of any Option pursuant to the Company's 1996 Stock Option Plan, (i) if the
grantee is a party to this Agreement, such Options and Option Shares shall
automatically, and without any action on the part of such grantee, become
subject to the provisions of this Agreement, and (ii) if the grantee is not a
party to this Agreement, such grantee shall become a party with respect to such
Options and Option Shares by executing a signature page hereto. Schedule 1
hereto shall be amended by the Company, without any action on the part of any
Securityholder, from time to time to reflect such additions. The Company shall
not be required to give notice to any Securityholder of any such amendments to
Schedule 1 but shall, upon the request of any Securityholder, provide a copy of
Schedule 1, as so amended.
9.17 Non-Competition. (a) Each of the Cahill Holders, the Northwood
----------------
Holders, the RSI Beneficial Holders and the JAH Beneficial Holders (each of the
foregoing Persons, a "Non-Competing Party" and collectively, the "Non-Competing
------------------- -------------
Parties") shall not, and shall cause each of its Affiliates Controlled by such
- -------
Person not to, directly or indirectly, (i) "Compete" with the Company, or act as
a director, officer, consultant to, or as an employee of, any Person that
directly or indirectly Competes with the Company, or (ii) knowingly own or
control any voting securities or
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<PAGE>
other securities convertible into voting securities in any Person that Competes
with the Company. A Person shall be deemed to "Compete" with the Company, for
purposes of this Section 9.17, if a business conducted by such Person is
materially competitive with the Prohibited Business. In determining whether a
business conducted by a Person is materially competitive with the Prohibited
Business, the factors to be considered shall include, without limitation, the
respective customer base and distribution channels of such Person and the
Prohibited Business with respect to the specific products and services which
compete with each other. Notwithstanding the foregoing, a Person shall not be
deemed to Compete with the Company if it offers for sale one or more products or
services which are part of the Prohibited Business so long as the provision of
any such products or services taken in the aggregate are not materially
competitive with the Prohibited Business. In the event that the Company believes
that any proposed investment or the conduct of any business by any Non-Competing
Party would violate such restrictions, it shall so notify such Non-Competing
Party within six months after receipt of written notice from the Non-Competing
Party of such investment or business. The failure of the Company to so notify
such Non-Competing Party within such six-month period shall constitute an
irrevocable waiver of the Company's right to contest such investment or
business.
(b) Notwithstanding the foregoing, each of the Non-Competing
Parties shall be permitted to make an investment in any Person whose business
Competes with the Company, provided that within 9 months after the consummation
of such investment, such Person ceases to engage in the business which Competes
with the Company provided, that if there is a dispute with respect to whether an
investment Competes, then any required divestiture shall not be required until
nine (9) months after the date of final determination of such Dispute adverse to
the Non-Competing Party. If such Person ceases to engage in the business which
Competes with the Company through the divestiture of the competing business
lines (including any divestiture following a final determination described
above), the Non-Competing Party shall use and cause each of its Affiliates
Controlled by it to use its reasonable good faith efforts to offer the Company
the first opportunity to acquire such business lines which such Person is
divesting.
(c) Nothing in this Section 9.17 shall limit the right of (i)
the RSI Beneficial Holders to provide products and services under the terms of
the Intercompany Agreement, or (ii) any Non-Competing Party to own not more than
4.9% of the outstanding shares of a corporation or other entity whose shares or
other equity or debt interests are listed on any United States national or
regional securities exchange or reported by NASDAQ or any successor thereto. In
the event of a final determination by a court of competent jurisdiction that any
Non-Competing Party has breached the covenants in this Section 9.17, then,
except as set forth in Section 9.17(d) below, the Company shall be entitled to
all available remedies at law and in equity for such breach. It is acknowledged
and agreed that no provision of this Section 9.17 shall require any
Non-Competing Party to divest or refrain from conducting any investment or
business (a "Pre-Existing Business") which it acquired or developed prior to the
---------------------
time that, as a result of developments of or modifications to the Prohibited
Business, such Pre-Existing Business taken as a whole Competes with the
Prohibited Business. However, the restrictions set forth in Section 9.17 shall
apply to such Pre-Existing Business if, as a result of developments of or
modifications to such Pre-Existing Business, such Pre-Existing Business taken as
a whole then Competes with the Prohibited Business.
75
<PAGE>
(d) In the event of a final determination by a court of
competent jurisdiction that any of the RSI Beneficial Holders or the JAH
Beneficial Holders has breached the covenants in this Section 9.17, then,
without duplication or limitation of any rights and remedies that may be
available to the Company under the Intercompany Agreement, the Company shall
have the right to recover the profits (taking into account the consideration set
forth in the last sentence of this Section 9.17(d)), to the RSI Beneficial
Holders and their Affiliates (in the case of a breach of this Section 9.17 by
any of the RSI Beneficial Holders) or the JAH Beneficial Holders and their
Affiliates (in the case of a breach of this Section 9.17 by any of the JAH
Beneficial Holders) derived from the operations of the business or investment
that has been determined to Compete with the Company for the period commencing
on the notification of a dispute with respect to such business or investment
pursuant to Section 9.17 hereof and ending on the earlier to occur of (i) the
date of divestiture of the business line that Competes with the Company, (ii)
the termination of the Intercompany Agreement in accordance with the terms
thereof (solely in the case of a breach of this Section 9.17 by any of the RSI
Beneficial Holders), and (iii) the exercise of the Call Right (as defined below)
or the conversion of the Class B Common Stock described below, as applicable
(which right to recover profits (taking into account the consideration set forth
in the last sentence of this Section 9.17(d)) shall be Alliance's sole and
exclusive remedy at law and in equity for such breach other than Alliance's
rights set forth in this Section 9.17(d), (e) and (f) and in the Intercompany
Agreement). Further, in the event that such final determination occurs (x) prior
to an Initial Public Offering, the Company shall have the right to acquire all
of the Shares, Options and Warrants then Beneficially Owned by the RSI
Beneficial Holders (in the case of a breach of this Section 9.17 by any of the
RSI Beneficial Holders) or the JAH Beneficial Holders (in the case of a breach
of this Section 9.17 by any of the JAH Beneficial Holders) in accordance with
the provisions of Section 9.17(e) and the rights granted to the Series C Holders
pursuant to this Agreement shall terminate to the extent provided in Section
9.17(e), or (y) after an Initial Public Offering: (1) all of the shares of Class
B Common Stock shall automatically, and without any action on the part of any
Person, convert into an equal number of shares of Class A Common Stock;
provided, however, that if only the JAH Beneficial Holders are the parties that
- -------- -------
have been determined to breach the provisions of this Section 9.17, then only
the shares of Class B Common Stock then Beneficially Owned by such JAH
Beneficial Holders shall be converted as described above; (2) all of the rights
of the RSI Beneficial Holders and the Series C Holders that survive an Initial
Public Offering shall automatically terminate and be of no further force and
effect; provided, however, that if only the JAH Beneficial Holders are the
-------- -------
parties that have been determined to breach the provisions of this Section 9.17,
then such rights shall survive in accordance with their terms; and (3) any
Directors then serving that are Affiliates or appointees (other than Jon A.
Halpern who shall continue to serve as a Director if the JAH Beneficial Holders
would then remain entitled to designate a Director under the provisions of
Section 9.17(e) (assuming for the purpose of applying said Section 9.17(e) to
this clause (3) that an Initial Public Offering has not occurred) and other than
the Special Series C Director if he is then serving), of the RSI Beneficial
Holders (in the case of a breach of this Section 9.17 by any of the RSI
Beneficial Holders) or the JAH Beneficial Holders (in the case of a breach of
this Section 9.17 by any of the JAH Beneficial Holders) shall immediately resign
or shall be removed from the Board. Nothing herein shall preclude the RSI
Beneficial Holders or the JAH Beneficial Holders from exercising their rights as
holders of Common Stock following any automatic conversion of the Class B Common
Stock, including, without limitation, the right to vote for, and nominate
Directors, in accordance with the
76
<PAGE>
Company's Articles of Incorporation and By-Laws and applicable law. The Company
agrees that, following any automatic conversion of the Class B Common Stock, it
shall continue to hold its annual meetings for stockholders in accordance with
the Company's By-laws. Notwithstanding the foregoing, the Company shall not have
the rights described in clause (x) of the second preceding sentence and the
actions described in clause (y) of the second preceding sentence shall not occur
if, within thirty days after the final determination referred to in the first
sentence of this Section 9.17(d), the RSI Beneficial Holders (in the case of a
breach of this Section 9.17 by any of the RSI Beneficial Holders) or the JAH
Beneficial Holders (in the case of a breach of this Section 9.17 by any of the
JAH Beneficial Holders), at its option, delivers written notice to the Company
that the business line which Competes with the Company will be divested, and
such divestiture is actually completed within nine months after the date of such
final determination. If a breach of the covenant contained in this Section 9.17
arises out of an investment in an entity that is not a wholly owned subsidiary
of a Non-Competing Party or its Affiliates (an "Acquired Competing Party"),
--------------------------
then, for purposes of this Section 9.17(d), the profits referred to herein shall
include only those profits that a Non-Competing Party or its Affiliates (other
than the Acquired Competing Party and its Affiliates Controlled by such Acquired
Competing Party) shall have received and the portion of the profits of the
Acquired Competing Party as to which such Non-Competing Party or its Affiliates
(other than the Acquired Competing Party and its Affiliates Controlled by such
Acquired Competing Party) would be entitled by virtue of their proportionate
ownership in the Acquired Competing Party (whether or not such profits have been
distributed to a Non-Competing Party or its Affiliates).
(e) The Company shall have the right (the "Call Right") to
-----------
acquire, upon written notice delivered to RSI Beneficial Holders (in the case of
a breach of this Section 9.17 by any of the RSI Beneficial Holders) or the JAH
Beneficial Holders (in the case of a breach of this Section 9.17 by any of the
JAH Beneficial Holders) within 30 days after the final determination referred to
in the first sentence of Section 9.17(d) (only if such final determination
occurs prior to an Initial Public Offering), all (but not less than all) of the
Shares (including any Class B Common Stock acquired upon conversion of the
Series C Preferred Stock), Options and Warrants then Beneficially Owned by the
RSI Beneficial Holders (in the case of a breach of this Section 9.17 by any of
the RSI Beneficial Holders) or the JAH Beneficial Holders (in the case of a
breach of this Section 9.17 by any of the JAH Beneficial Holders) at the fair
market value of such Shares, Options and Warrants at the time of exercise of the
Call Right (without giving effect to any actions that the Company may take to
effectuate the payment of the Call Purchase Price (as defined below) and without
giving effect to the impact, if any, of any termination of the Intercompany
Agreement) as determined pursuant to and in accordance with the appraisal
procedures set forth in Section 5.3 hereof. The aggregate amount payable to RSI
Beneficial Holders (in the case of a breach of this Section 9.17 by any of the
RSI Beneficial Holders) or the JAH Beneficial Holders (in the case of a breach
of this Section 9.17 by any of the JAH Beneficial Holders) upon exercise of the
Call Right shall be referred to herein as the "Call Purchase Price." Upon
---------------------
exercise of the Call Right with respect to the RSI Beneficial Holders, the
Company shall be required to pay to such RSI Beneficial Holders in immediately
available funds an amount equal to the lesser of (1) 10% of the estimated Call
Purchase Price, and (ii) $7,000,000, which amount shall be refunded to the
Company in the event that the Call Right shall not be consummated due to the
failure of the RSI Beneficial Holders to deliver the Shares, Options and
Warrants that are the subject of the Call Right. Upon exercise of the Call Right
77
<PAGE>
with respect to the JAH Beneficial Holders, the Company shall be required to pay
to such JAH Beneficial Holders in immediately available funds an amount equal to
the lesser of (i) 10% of the estimated Call Purchase Price, and (ii) $2,800,000,
which amount shall be refunded to the Company in the event that the Call Right
shall not be consummated due to the failure of the JAH Beneficial Holders to
deliver the Shares, Options and Warrants that are the subject of the Call Right.
Following any exercise of the Call Right, the Series C Holders and the Series C
Preferred Directors shall not utilize any of the rights granted to any of them
pursuant to this Agreement or under the Series C Certificate of Designation to
prohibit the Company from taking any actions reasonably necessary to effect the
consummation of the Call Right. The closing of the purchase by the Company of
the Shares, Options and Warrants that are the subject of the Call Right shall
occur at the Company's principal office, or at such other place as shall be
mutually agreeable to the RSI Beneficial Holders (in the case of a breach of
this Section 9.17 by any of the RSI Beneficial Holders) or the JAH Beneficial
Holders (in the case of a breach of this Section 9.17 by any of the JAH
Beneficial Holders) and the Company as soon as possible (and in any event within
9 months after the final determination referred to in Section 9.17) (such date
of closing being hereinafter referred to as the "Call Closing Date").
-------------------
Notwithstanding anything to the contrary contained herein, if the Call Right has
been exercised and an Initial Public Offering (as evidenced by a filing of a
registration statement with the Securities and Exchange Commission) or a Rule
144A offering is pending or is being undertaken in connection with the exercise
of the Call Right, then, (x) the Call Closing Date shall occur prior to or
contemporaneous with the consummation of such offering, and (y) the payment of
the Call Purchase Price shall be made in immediately available funds at a price
per share equal to the greater of (i) the price per share of Common Stock in
such offering and (ii) the fair market value of a share of Common Stock as
determined in accordance with the first sentence of this Section 9.17(e). At the
Call Closing Date, each of the RSI Beneficial Holders (in the case of a breach
of this Section 9.17 by any of the RSI Beneficial Holders) or the JAH Beneficial
Holders (in the case of a breach of this Section 9.17 by any of the JAH
Beneficial Holders) shall surrender to the Company any Options, Warrants and the
certificate or certificates representing its Shares, in each case free and clear
of all Encumbrances and the Company shall pay the Call Purchase Price by wire
transfer in immediately available funds to an account designated by the RSI
Beneficial Holders (in the case of a breach of this Section 9.17 by any of the
RSI Beneficial Holders) or the JAH Beneficial Holders (in the case of a breach
of this Section 9.17 by any of the JAH Beneficial Holders). Notwithstanding the
foregoing, the Company shall be permitted to pay the Call Purchase Price by
delivery of a subordinated note payable in three annual installments of
principal commencing on the first anniversary of the Call Closing Date, with
interest at an annual rate equal to 3-1/2% plus the Prime Rate. Upon payment of
the Call Purchase Price, any Directors then serving that are Affiliates or
appointees (other than Jon A. Halpern if the JAH Beneficial Holders remain
entitled to designate a director under the provisions of this Section 9.17(e)
and other than the Special Series C Director if he is then serving) of the RSI
Beneficial Holders (in the case of a breach of this Section 9.17 by any of the
RSI Beneficial Holders) or the JAH Beneficial Holders (in the case of a breach
of this Section 9.17 by any of the JAH Beneficial Holders) shall immediately
resign or shall be removed from the Board. In the event of a breach of this
Section 9.17 by any of the RSI Beneficial Holders and upon payment of the Call
Purchase Price to the RSI Beneficial Holders, all of the rights of the RSI
Beneficial Holders and the Series C Holders contained in this Agreement shall
automatically terminate and be of no further force and effect; provided,
--------
however, that (x) the JAH Beneficial
- -------
78
<PAGE>
Holders shall have the right to designate that number of Directors as are equal
to the number of Directors they would have had the right to designate pursuant
to Section 8.1(e), assuming that the shares of Series C Preferred Stock
Beneficially Owned by such JAH Beneficial Holders had been converted to Class B
Common Stock as provided therein and that there were no other outstanding shares
of Class B Common Stock, (y) for purposes of any Super-Majority Approval
requirements thereafter, any Directors designated by the JAH Beneficial Holders
or any other Series C Holders shall not be considered Series C Preferred
Directors but any actions specified in Sections 3.1(e), 3.1(f), and 3.1(j) shall
require the approval of a majority of the Directors then designated by the JAH
Beneficial Holders and (z) the JAH Beneficial Holders shall remain entitled to
exercise the rights granted to all Securityholders generally as set forth in
Section 3.2, Article IV, Article V, Article VI, and Section 7.1(a) which rights
shall survive in accordance with their terms. Notwithstanding the previous
sentence, if the JAH Beneficial Holders shall Beneficially Own less than 10% of
the Series C Adjusted Fully Diluted Capitalization but shall not have disposed
of any shares of Series C Preferred Stock originally issued to them pursuant to
the Merger Agreements and shall have exercised in full all rights previously
available to them under Section 4.3 and Section 7.1 hereof, then the JAH
Beneficial Holders shall be entitled to designate one Director. In the event of
a breach of this Section 9.17 by any of the JAH Beneficial Holders, all of the
rights of the RSI Beneficial Holders and the Series C Holders contained in this
Agreement shall survive in accordance with their respective terms. In the event
of the Company's failure to exercise the Call Right or pay the Call Purchase
Price, the rights of the Series C Holders shall remain unaffected.
(f) Upon exercise of the Call Right, the Company shall request
the Required Banks to consent to such exercise. The Company shall not be
required to consummate the Call Right, and the exercise of such Call Right shall
be deemed rescinded and withdrawn and of no force and effect and no RSI
Beneficial Holder or JAH Beneficial Holder, as the case may be, shall have any
rights or remedies to enforce the Call Right, until such time as all Obligations
(as defined in the Credit Agreement) shall have been paid in full in cash,
unless the Required Banks have consented in writing to the exercise of the Call
Right. The Company may assign the Call Right, in whole or in part, to any Person
provided that such Person must pay the Call Purchase Price with respect to any
Shares, Options or Warrants acquired by it in immediately available funds.
(g) The prohibitions set forth in this Section 9.17 shall
apply to each of the Cahill Holders and the Northwood Holders only so long such
Cahill Holders or Northwood Holders maintain Beneficial Ownership in the
aggregate of 50% or more of the Common Stock Equivalents (excluding Warrant
Shares) initially acquired by them pursuant to the First Series A Stock Purchase
Agreement and the Second Series A Stock Purchase Agreement. The prohibitions set
forth in this Section 9.17 shall apply to the JAH Beneficial Holders for so long
as such JAH Beneficial Holders maintain Beneficial Ownership in the aggregate of
50% or more of the Common Stock Equivalents initially acquired by them pursuant
to the merger of a wholly owned subsidiary of the Company and Interoffice
Superholdings Corporation. The prohibitions set forth in this Section 9.17 shall
apply to the RSI Beneficial Holders for so long as such RSI Beneficial Holders
maintain Beneficial Ownership in the aggregate of 15% or more of the Series C
Adjusted Fully Diluted Capitalization.
79
<PAGE>
[NO FURTHER TEXT ON THIS PAGE]
[SIGNATURE PAGES FOLLOW]
80
<PAGE>
SCHEDULE 1
TO
FOURTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
DATED AS OF JANUARY 8, 1999
HOLDINGS OF SECURITYHOLDERS
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
COMMON COMMON
STOCK STOCK
NUMBER NUMBER OF NUMBER OF NUMBER OF ISSUABLE ISSUABLE
OF SHARES SHARES OF SHARES OF SHARES OF ON ON
OF SERIES A SERIES B SERIES C EXERCISE EXERCISE
COMMON PREFERRED PREFERRED PREFERRED OF OF OPTIONS
NAME: STOCK: STOCK: STOCK: STOCK: WARRANTS: GRANTED:
- ---- ----- ----- ----- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
CAHILL-
WARNOCK
STRATEGIC 0 4,448,096 593,327 0 667,214 0
PARTNERS FUND,
L.P.
STRATEGIC 0 246,464 32,875 0 36,970 0
ASSOCIATES, L.P.
NORTHWOOD 0 1,833,813 240,681 0 183,382 0
VENTURES LLC
NORTHWOOD
CAPITAL 0 352,092 45,692 0 35,210 0
PARTNERS LLC
KUHN, LOEB & 0 146,705 21,523 0 14,670 0
CO.
HENRY T. 0 14,670 1,098 0 1,466 15,000
WILSON
PARIBAS, acting
through its Cayman 0 0 0 0 90,958 0
Islands Branch
PARIBAS NORTH 0 0 662,350 0 0 0
AMERICA
INTEROFFICE
SUPERHOLDINGS 0 0 0 11,567,247 0 0
LLC
1
<PAGE>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
COMMON COMMON
STOCK STOCK
NUMBER NUMBER OF NUMBER OF NUMBER OF ISSUABLE ISSUABLE
OF SHARES SHARES OF SHARES OF SHARES OF ON ON
OF SERIES A SERIES B SERIES C EXERCISE EXERCISE
COMMON PREFERRED PREFERRED PREFERRED OF OF OPTIONS
NAME: STOCK: STOCK: STOCK: STOCK: WARRANTS: GRANTED:
- ---- ----- ----- ----- ----- -------- -------
RECKSON OFFICE 0 0 0 1,318,633 0 0
CENTERS LLC
ARNOLD WIDDER 0 0 0 439,544 0 0
DAVID W. BEALE 1,173,653 0 200,000 0 0 1,275,000
THOMAS S. 0 0 16,196 0 273,310 0
SHATTAN
KATE SHATTAN 0 0 429 0 0 0
THOMAS
SHATTAN AND
KATE SHATTAN 0 0 1,895 0 0 0
TRUST FBO
WARD SHATTAN
THOMAS
SHATTAN AND
KATE SHATTAN 0 0 1,895 0 0 0
TRUST FBO
CECILY SHATTAN
GREGORY E. 0 0 40,670 0 163,986 0
MENDEL
NANCY MENDEL
(CUST. FOR ERICA
BROOKE 0 0 4,210 0 0 0
MENDEL)
NANCY MENDEL
(CUST. FOR
DAVID ROSS 0 0 4,210 0 0 0
MENDEL)
G. KEVIN 0 0 0 0 109,324 0
FECHTMEYER
THE SHATTAN 0 0 0 0 3,680 0
GROUP LLC
2
<PAGE>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
COMMON COMMON
STOCK STOCK
NUMBER NUMBER OF NUMBER OF NUMBER OF ISSUABLE ISSUABLE
OF SHARES SHARES OF SHARES OF SHARES OF ON ON
OF SERIES A SERIES B SERIES C EXERCISE EXERCISE
COMMON PREFERRED PREFERRED PREFERRED OF OF OPTIONS
NAME: STOCK: STOCK: STOCK: STOCK: WARRANTS: GRANTED:
- ---- ----- ----- ----- ----- -------- -------
ARNOLD L. 230,000 116,506 59,739 0 11,652 100,000
COHEN
BARBARA COHEN 0 50,000 1,938 0 5,000 0
LOUIS PERLMAN 1,011,205 66,506 0 0 6,652 330,000
LOUIS PERLMAN 0 0 100,000 0 0 0
IRA ROLLOVER
WILMA PERLMAN 0 100,000 0 0 10,000 0
WILLIAM E. 178,333 43,034 0 0 4,302 50,000
PHILLIPS
MICHAEL 10,000 0 0 0 0 0
PHILLIPS
THOMAS AND 10,000 0 0 0 0 0
TRACY PHILLIPS
WILLIS AND 10,000 0 0 0 0 0
SARAH PEMBER
ALAN M. LANGER 80,000 76,287 95,825 0 7,628 205,000
LAURA J. 0 50,000 10,526 0 5,000 160,000
KOZELOUZEK
EDWARD M. 0 10,000 5,211 0 1,000 15,000
CARAVALHO
DANIEL FELIX 0 5,868 0 0 586 7,500
ROBITAILLE
DEBORAH BAKER 0 14,670 3,789 0 1,466 0
MLPF&S CUST
FOR DEBORAH 0 0 12,000 0 0 0
BAKER
3
<PAGE>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
COMMON COMMON
STOCK STOCK
NUMBER NUMBER OF NUMBER OF NUMBER OF ISSUABLE ISSUABLE
OF SHARES SHARES OF SHARES OF SHARES OF ON ON
OF SERIES A SERIES B SERIES C EXERCISE EXERCISE
COMMON PREFERRED PREFERRED PREFERRED OF OF OPTIONS
NAME: STOCK: STOCK: STOCK: STOCK: WARRANTS: GRANTED:
- ---- ----- ----- ----- ----- -------- -------
KELLY J. 0 0 1,500 0 0 150,000
BESECKER
JERRY DANIELS 0 0 108,813 0 0 150,000
MITCHELL 0 0 11,000 0 0 25,000
KNECHT
LINDA HARRIS 0 0 13,801 0 0 25,000
BONNIE 0 0 2,500 0 0 50,000
DEININGER
DAVID L. 0 0 0 0 0 15,000
WARNOCK
G. LEE BOHS 0 0 7,068 0 0 15,000
BENNETT 0 0 2,500 0 0 0
SCHMIDT
PETER SAMITT 0 0 0 0 0 9,500
CAROL WHALIN 0 0 11,801 0 0 50,000
DONALDSON
LUFKIN
JENRETTE CUST. 0 0 10,000 0 0 0
FOR DOTTIE
WIGHT
LESLIE FLYNN 0 0 0 0 0 5,000
WINNIE HUYNH 0 0 0 0 0 1,000
ROMMEL MAPA 0 0 0 0 0 1,000
DEBBIE KLEIN 0 0 0 0 0 1,000
4
<PAGE>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
COMMON COMMON
STOCK STOCK
NUMBER NUMBER OF NUMBER OF NUMBER OF ISSUABLE ISSUABLE
OF SHARES SHARES OF SHARES OF SHARES OF ON ON
OF SERIES A SERIES B SERIES C EXERCISE EXERCISE
COMMON PREFERRED PREFERRED PREFERRED OF OF OPTIONS
NAME: STOCK: STOCK: STOCK: STOCK: WARRANTS: GRANTED:
- ---- ----- ----- ----- ----- -------- -------
RITA 0 0 0 0 0 250
MICHAELSON
SUSAN 0 0 66,635 0 0 0
MELCHNER
GERALD 0 0 26,780 0 0 0
KAMINSKY
BETTYLU 0 0 23,914 0 0 0
SALTZMAN
ALAN GOLDBERG 0 0 47,179 0 0 0
FRANK HICKEY 0 0 284,488 0 0 0
PEGGYANNE 0 0 20,426 0 0 0
KAHN
WILLIAM SPIER 0 0 23,590 0 0 0
SAMUEL 0 0 42,294 0 0 0
KLUTZNICK
PETER HALSTEAD
(TRUSTEE FOR
ELIZA 0 0 23,907 0 0 0
FINKELSTEIN)
PETER HALSTEAD
(TRUSTEE FOR
JENNIFER 0 0 23,914 0 0 0
FINKELSTEIN)
TIPPET 0 0 17,541 0 0 0
PARTNERS
KAREN 0 0 28,954 0 0 0
SCHARFBERG
DOUGLAS 0 0 18,732 0 0 0
SCHARFBERG
5
<PAGE>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
COMMON COMMON
STOCK STOCK
NUMBER NUMBER OF NUMBER OF NUMBER OF ISSUABLE ISSUABLE
OF SHARES SHARES OF SHARES OF SHARES OF ON ON
OF SERIES A SERIES B SERIES C EXERCISE EXERCISE
COMMON PREFERRED PREFERRED PREFERRED OF OF OPTIONS
NAME: STOCK: STOCK: STOCK: STOCK: WARRANTS: GRANTED:
- ---- ----- ----- ----- ----- -------- -------
SPIELMAN 0 0 25,035 0 0 0
GROUP
GERALD 0 0 61,346 0 0 0
SPIELMAN
ROBERT 0 0 62,898 0 0 0
SPIELMAN
ROBIN SPIELMAN 0 0 20,426 0 0 0
KASSO CIRCLE
REALTY, INC.
PROFIT SHARING 0 0 22,238 0 0 0
PLAN
STANLEY 0 0 18,380 0 0 0
SPIELMAN
STANLEY 0 0 8,771 0 0 0
SPIELMAN, IRA
KENNETH 0 0 18,380 0 0 0
WITOVER
ERICA WITOVER 0 0 11,961 0 0 0
TOTALS 2,703,191 7,574,711 3,222,851 13,325,424 1,633,456 2,655,250
6
</TABLE>
<PAGE>
SCHEDULE 2
SERIES C ADJUSTED FULLY DILUTED
CAPITALIZATION SAMPLE CALCULATION
---------------------------------
<TABLE>
<CAPTION>
Fully Diluted Adjusted Fully Diluted Series C Adjusted Fully
Class of Security Capitalization Capitalization Diluted Capitalization
- ----------------- -------------- ----------------------------- ----------------------
<S> <C> <C> <C>
Class A Common 4,901,868 4,901,868 4,901,868
Series A Preferred 7,574,711 7,574,711 7,574,711
Series B Preferred* 3,222,851 3,222,851 3,222,851
Series C Preferred 13,325,424 13,325,424 13,325,424
1996 Plan Options 1,375,250 1,375,250 1,375,250
Other Pre Merger
Options & Warrants 2,913,456 2,913,456 2,913,456
----------- ----------- -----------
33,313,560 33,313,560 33,313,560
1998 Option Plan** 2,701,099 300,000 0
----------- ----------- -----------
36,014,659 33,613,560 33,313,560
Other Post Merger
Rights, Options &
Warrants*** 0 0 0
Merger Shares**** 2,000,000 2,000,000 0
----------- ----------- -----------
38,014,659 35,613,560 33,313,560
IPO Shares***** 9,000,000 9,000,000 8,103,186
----------- ----------- -----------
Total 47,014,659 44,613,560 41,416,746
</TABLE>
______________
* Includes 1,930,062 shares issued in connection with the
initial offering of Series B Preferred in April 1998 and
1,292,789 shares issued in connection with the LP Roll Up and
related transactions.
** Assumes that all options available for grant under the 1998
Plan (7.5% of the Fully Diluted capitalization) have been
granted, and that 300,000 of those options are exercisable and
"in the money".
*** Assumes that no rights, options or warrants have been granted
post Merger other than under the 1998 Plan.
**** Assumes an acquisition has been made by merger in which
2,000,000 shares of common stock were issued.
***** Assumes an IPO of 9,000,000 shares at $15 per share
($135,000,000 total). Under Section 7.1(b), of the first
7,142,857 shares ($107,142,855), the Series C Holders can
purchase 30% or 2,142,857 shares ($32,142,855), leaving
5,000,000 shares for the public ($75,000,000), and the Series
C Holders can purchase all of the balance of 1,857,143 shares
($27,857,145), for total purchases by the Series C Holders of
4,000,000 shares ($60,000,000).
1
<PAGE>
The computation of Series C Adjusted Fully Diluted Capitalization, Backlog CSE's
and Unused Backlog CSE's is as follows (the explanation of the calculation of
the numbers is in the following paragraphs):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Adjusted Fully Diluted Capitalization 44,613,560
Less clause (i) of definition (Backlog CSE's):
1998 Plan Options 300,000
Merger shares 2,000,000
Initial Public Offering shares 3,196,814 (5,496,814)
--------- ----------
39,116,746
Plus clause (ii) of definition:
Backlog CSE's as to which
Series C Holders have the
opportunity to exercise
preemptive rights in the
Initial Public Offering 2,300,000
----------
Series C Adjusted Fully Diluted Capitalization 41,416,746
==========
Backlog CSE's (computed above) 5,496,814
Less shares under clause (ii) of definition (2,300,000)
---------
Unused Backlog CSE's 3,196,814
=========
</TABLE>
Pursuant to the second paragraph of Section 7.1(a), the RSI Beneficial Holders
have special preemptive rights to purchase New Securities to increase their
Beneficial Ownership to 30% of the Adjusted Fully Diluted Capitalization
(assuming for the purposes of this example that such Beneficial Ownership,
immediately prior to the merger transaction set forth in this example in which
2,000,000 shares are issued, is 7,995,254 shares (i.e. 60% of the original
Series C shares issued)). Therefore, based on the 300,000 exercisable and "in
the money" options under the 1998 Plan and the issuance of 2,000,000 shares in
the merger transaction, but for the exceptions to the definition of New
Securities set forth in clause (v) and (vi) of Section 7.1(a), the RSI
Beneficial Holders would have had the right to subscribe to 2,688,726 shares
(30% of the Adjusted Fully Diluted Capitalization following the merger of
35,613,560 shares, equals 10,684,068 shares, minus the 7,995,254 shares already
2
<PAGE>
Beneficially Owned, equals 2,688,814 shares). Since this is more than the
2,300,000 shares represented by the 1998 options and the shares being issued in
the merger, the full 2,300,000 shares are Unused Backlog CSE's. Note that this
example does not give effect to the right of the RSI Beneficial Holders and/or
the Series C Holders under the last paragraph of Section 7.1(a) to exercise
certain premptive rights with respect to Unused Backlog CSE's prior to an
Initial Public Offering.
Pursuant to Section 7.1(b), upon an Initial Public Offering, the Series C
Holders are entitled to increase their total Beneficial Ownership to 46% of the
Adjusted Fully Diluted Capitalization, subject to the 30% limitation in that
provision (assuming for the purposes of this example that such Beneficial
Ownership, immediately prior to the Initial Public Offering set forth in this
example in which 9,000,000 shares are issued, is 13,325,424 shares (i.e. all of
the original Series C Shares issued)). Therefore, upon the issuance of 9,000,000
shares in the Initial Public Offering, but for the 30% limitation, the Series C
Holders would have had the right to subscribe to 7,196,814 shares (46% of the
Adjusted Fully Diluted Capitalization following the Initial Public Offering of
44,613,560 shares, equals 20,522,238 shares minus the 13,325,424 shares already
Beneficially Owned, equals 7,196,814 shares). As result of the 30% limitation,
the Series C Holders were only able to purchase 4,000,000 shares in the Initial
Public Offering. The difference of 3,196,814 shares is the new total of Unused
Backlog CSE's (the calculation has been done inclusive of the previous total of
Unused Backlog CSE's). So the increase in Unused Backlog CSE's (from the
previous total of 2,300,000 shares) resulting from the Initial Public Offering
is 896,814 shares, and the balance of the 9,000,000 shares issued in the Initial
Public Offering, 8,103,186 shares, are included in the Series C Adjusted Fully
Diluted Capitalization. The difference of 3,196,814 between the total Adjusted
Fully Diluted Capitalization and the total Series C Adjusted Fully Diluted
Capitalization shown on the first page hereof equals the total Unused Backlog
CSE's calculated above in this paragraph.
3
<PAGE>
SCHEDULE 3
TO
FOURTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
DATED AS OF JANUARY 8, 1999
LIST OF CERTAIN EXECUTIVE PERSONNEL PURSUANT TO SECTION 3.4
T.J. Tison
Joanne McDaniel
Linda Marschall
1
Exhibit 10.3
JAH I/O LLC
c/o JAH Realties L.P.
2 Manhattanville Road
Suite 205
Purchase, New York 10577
Reckson Management Group, Inc. November 9, 1998
Reckson Service Industries, Inc.
RSI I/O Holdings, Inc.
Reckson Office Centers LLC
c/o Reckson Service Industries, Inc.
225 Broadhollow Road
Melville, New York 11747
Re: Limited Liability Company Agreement
of Interoffice Superholdings LLC (the "LLC Agreement")
Ladies and Gentlemen:
In connection with today's execution and delivery of the LLC
Agreement, each of you other than Reckson Management Group, Inc., (collectively,
"Reckson") and the undersigned ("JAH") hereby agree to supplement the terms
thereof as follows:
1. Definitions. All capitalized terms used but not defined herein
shall have the respective meanings attributed to them in the LLC
Agreement. All capitalized terms used and defined herein shall
have the meanings attributed to them herein notwithstanding any
definition set forth in the LLC Agreement.
2. Combined Alliance Board Representation. The Combined Alliance
board and the executive and other committee members which may be
elected or appointed by the Company will be appointed by
Reckson; provided, that prior to an initial public offering
("IPO") of Combined Alliance Jon Halpern shall be appointed as a
member of the Combined Alliance board of directors, the Combined
Alliance Executive Committee and, if the Company can appoint two
or more members to the Combined Alliance Steering Committee, the
Strategic Steering Committee, in all cases, subject to the
removal of Jon Halpern for "cause". "Cause" means the vote,
solicitation of any vote or any other overt affirmative act by
Jon Halpern which is intended to influence a vote adverse to
Reckson's position with respect to any Combined Alliance
transaction which directly impacts Reckson; provided that any
such transaction and Reckson's position with respect thereto
shall be identified in an oral or written notice given by a
Series C Preferred Director designated by Reckson from time to
time (initially Scott Rechler) within a reasonable period of
time at which such vote is to be taken. "Directly impacts" means
(a) any proposed transaction between Combined Alliance and (x)
Reckson in any vendor/vendee relationship (i.e., where Reckson
or its affiliates would provide products or services to Combined
Alliance, expressly excluding, however, the provision of
executive air travel or other services provided by Summit
Aviation or its affiliates (collectively, "Summit") with respect
to executive charter air travel at the time of the proposed
transaction between Reckson or its affiliate and Combined
Alliance) or (y) any Real Estate Investment Trust (or any
affiliate thereof) which at the time of such vote or action
competes with Reckson or Reckson Associates Realty Corp.
("RARC") in the markets which RARC then conducts its business
and (b) any transaction that, if approved, would have a material
adverse affect on the voting rights of the Company at Combined
Alliance, e.g., a merger or private placement of securities of
Combined Alliance or joint venture or alliance with any person
by Combined Alliance, other than an IPO of Combined Alliance.
The undersigned hereby agree that the abstention or recusal by
Jon Halpern on any vote that would directly impact Reckson shall
not constitute "cause" for removal hereunder.
The members of the Combined Alliance Strategic Steering
Committee which are designated by the Company shall include
Scott Rechler or his designee, Jon Halpern and any other
individual designated by Reckson, who shall be subject to the
approval of JAH (which approval shall not be unreasonably
withheld or delayed or conditioned).
If the Board of Directors of Combined Alliance will be reelected
or in any way changed in connection with, or in contemplation
of, an IPO of Combined Alliance and the Company has the power to
elect or appoint at least three directors pursuant to Section
8.1(c) of the CA Agreement, then the Company will use its
reasonable efforts to nominate and elect or appoint Jon Halpern
as a director at such election.
The right of Jon L. Halpern to the foregoing Board and Committee
seats shall pass upon his death or disability to a JAH appointee
reasonably acceptable to Reckson.
<PAGE>
3. NonContingent Provisions. JAH and Reckson hereby reaffirm, and
agree that, notwithstanding anything set forth in the LLC
Agreement to the contrary, each and every one of the
NonContingent Provisions set forth in that certain Term Sheet
dated as of September 24, 1998, as amended in Paragraph 14
hereof (the "Term Sheet") by among JAH, Reckson Management
Group, Inc. ("RMG") and Reckson Services Industries, Inc.
("RSI") with respect to the LLC Agreement and the Combined
Alliance transaction shall survive the termination of the Merger
Agreement in accordance with the terms of the Term Sheet.
Furthermore, it is hereby agreed that until the earlier to occur
of the Effective Date and the Outside Date (as defined in
Paragraph 14 hereof) (i) no acquisition of, or investment in,
any business, whether effected through the purchase or other
transfer of assets or securities constituting a Significant
Decision pursuant to Section 8 of that certain Stockholders
Agreement dated as of December 29, 1997 by and among ISC, RMG,
JAH and RFIA LLC (the "ISC Stockholders Agreement") shall give
either party any BuySell Right pursuant to Section 9 of the ISC
Stockholders Agreement and (ii) in the event Alliance proposes
on its behalf to effect any acquisition by Alliance or
investment in any business through the purchase or other
transfer of assets or securities prior to the Effective Date and
such transaction does not require ISC to issue a Capital Call
Notice pursuant to the ISC Stockholders Agreement, such
transaction shall not be deemed to be a transaction constituting
a Significant Decision under the ISC Stockholders Agreement.
4. OnSite Agreements. Neither the limited liability company
agreements of OnSite Ventures, L.L.C. ("OV") or OnSite Commerce
and Content LLC ("OCC") nor the Intercompany Agreement between
the two foregoing entities (collectively, "OnSite")
(collectively, the "OnSite Agreements") shall be superceded by
the Mergers (as defined by the Term Sheet) or the limited
liability company of Newco, but rather shall remain in full
force and effect. Consistent with the OnSite Product Agreement
to be executed by Alliance and OnSite, Reckson and JAH and each
of their respective Affiliates, shall direct all opportunities
to provide products or services to Combined Alliance (with
respect to Reckson, procured pursuant to its Intercompany
Agreement) to OnSite to the extent that such opportunities (i)
involve any business within the scope of the activities
described in Section 1(b)(i) of each of the limited liability
company agreements of OV and OCC, respectively and Article 1 of
the Intercompany Agreement between OV and OCC or (ii) are within
the scope of Section 12(c) of each of the limited liability
company agreements of OV and OCC, respectively (the noncompete
provisions). 1.
<PAGE>
5. Summit Aviation. With respect to any provision by Reckson to
Combined Alliance under the terms of the proposed Intercompany
Agreement regarding executive charter air travel, Jon Halpern
will be able to vote for the approval or rejection of any such
services at the Combined Alliance executive committee or board
of directors in his sole discretion. Furthermore, in no event
shall Reckson's board designees be permitted to disapprove of
any transaction between Alliance and Summit pursuant to Section
3.1 of the CA Agreement if the services to be provided by Summit
thereunder meet the same conditions for General Outsourced
Products as are set forth in the Intercompany Agreement (it
being acknowledged that RSI will not be required to buy such
services from Summit). Nothing in the agreement shall prohibit
Reckson from abstaining or recusing itself from any vote taken
with respect to a transaction described in the preceding
sentence.
6. Representations and Warranties of Reckson. Reckson hereby
warrants and represents to JAH the following:
a. RSI I/O Holdings, Inc. ("Holdings") is the wholly owned
subsidiary of RSI and is a singlepurpose entity formed
solely to (i) hold, manage, increase and dispose of the
Reckson investment in ISC, the Company and Reckson Office
Centers LLC, a Delaware Limited liability company ("ROC"),
their respective successors and assigns, (ii) to manage the
business and affairs of the Company as the Manager of the
Company in accordance with the terms and provisions of the
LLC Agreement, and (iii) to manage the business and affairs
of Combined Alliance as a stockholder thereof in accordance
with the terms and provisions of the CA Agreement and
applicable law. Holdings has no assets or liabilities as of
the date hereof other than its investment in ISC and its
rights as a member in the Company and is not presently
insolvent nor is there any reason to believe that in the
near future, it will become insolvent or unable to pay its
debts when due. There have been no petitions filed pursuant
to the Bankruptcy Code of the United States by or against
Holdings as of the date hereof.
<PAGE>
b. RSI is not presently insolvent nor is there any reason to
believe that, in the near future, it will become insolvent
or unable to pay its debts when due. There have been no
petitions filed pursuant to the Bankruptcy Code of the
United States by or against RSI as of the date hereof.
c. Each of the entities comprising Reckson has the full power
and authority to execute, deliver and perform its
obligations, if any, under the LLC Agreement, this letter
agreement, that certain Joint Unanimous Written Consent of
the Stockholders and Board of Directors of ISC dated as of
the date hereof with respect to the Merger and the
transactions contemplated thereby (the "Consent") and the
limited waiver (the "Waiver") of the time periods for a
capital call under the ISC Stockholders Agreement. Each of
this letter agreement and the LLC Agreement constitute the
valid and binding obligation of each of the parties
comprising Reckson that is a party to such document.
d. The execution, delivery and performance of the LLC
Agreement by RSI and Holdings, of the Consent and the
Waiver by RMG and of this letter agreement by each of the
entities comprising Reckson does not violate or conflict
with or constitute a default under any such entity's
certificate of incorporation, bylaws, certificate of
formation, limited liability company agreement or similar
charter or organizational document or any material
agreement to which it is a party or by which it or its
property is bound.
e. ROC has two members, Arnold Widder and RSI or its designee,
Holdings, and is managed by RSI or its designee, Holdings,
as the sole Managing Member. ROC is a singlepurpose entity
formed solely to hold, manage, increase and dispose of
RSI's investment in Combined Alliance. ROC has no assets or
liabilities as of the date hereof other than its investment
in Reckson Executive Centers, Inc. and its rights under the
ROC Merger Agreement and is not presently insolvent nor is
there any reason to believe that in the near future, it
will become insolvent or unable to pay its debts when due.
There have been no petitions filed pursuant to the
Bankruptcy Code of the United States by or against ROC as
of the date hereof.
f. ROC has the full power and authority to execute and deliver
and perform its obligations under this letter agreement.
This letter agreement constitutes the valid and binding
obligation of ROC.
g. The execution and delivery of this letter agreement does
not violate or conflict with or constitute a default under
ROC's certificate of formation or limited liability company
agreement or any material agreement to which it is a party
or by which it or its property is bound.
7. Representations and Warranties of JAH. JAH hereby represents and
warrants to Reckson the following:
<PAGE>
a. JAH is the wholly owned subsidiary of JAH Realties, L.P.
("Realties") and as of the Effective Date shall be a
singlepurpose entity formed solely to hold, manage,
increase and dispose of its interest in the Company (and
ISC, as the Company's predecessorininterest). Other than
the indebtedness secured by the USB Pledge (as defined in
Paragraph 16 below), JAH has no assets or liabilities as of
the date hereof other than its investment in ISC and its
rights as member in the Company and is not presently
insolvent nor is there any reason to believe that in the
near future, it will become insolvent or unable to pay its
debts when due. There have been no petitions filed pursuant
to the Bankruptcy Code of the United States by or against
JAH as of the date hereof.
b. Realties is not presently insolvent nor is there any reason
to believe that, in the near future, it will become
insolvent or unable to pay its debts when due. There have
been no petitions filed pursuant to the Bankruptcy Code of
the United States by or against Realties as of the date
hereof.
c. JAH has the full power and authority to execute, deliver
and perform its obligations under the LLC Agreement, this
letter agreement, the Consent and the Waiver. This letter
agreement and the LLC Agreement each constitute the valid
and binding obligation of JAH.
d. The execution, delivery and performance of the LLC
Agreement, this letter agreement, the Consent and the
Waiver by JAH does not violate or conflict with or
constitute a default under JAH's certificate of formation
or JAH's limited liability company agreement or any
material agreement to which it is a party or by which it or
its property is bound.
<PAGE>
8. Legal Opinions. Reckson and JAH shall cause their respective
counsel to deliver legal opinions with respect to the due
organization of Holdings, RSI, ROC, JAH and Realties and the due
execution, authorization and delivery of the Consent, Waiver,
LLC Agreement and this Agreement by those of said parties that
are a party to such agreements, such opinions to be in form and
substance reasonably acceptable to the parties hereto on or
prior to the Effective Date. Additionally, Reckson and JAH shall
each cause its respective counsel to opine to such matters
pertaining solely to Reckson and JAH, respectively, and their
respective Affiliates as may be reasonably requested by Herrick,
Feinstein LLP (counsel for the Company) with respect to any
legal opinion reasonably requested under the terms and
conditions of the Merger Agreement.
9. Rights with Respect to ROC.
a. ROC hereby grants to JAH the right to purchase any Class A
Units proposed to be Transferred by ROC or any Member in
ROC of a price equal to the Third Party Price (or a pro
rata portion thereof in the case of an exercise by JAH of
its rights hereunder with respect to less than all of the
Class A Units proposed to be Transferred) if: (i) such
Transfer would (immediately upon the consummation of such
Transfer) result in the Qualifying Series C Beneficial
Holders not having Beneficial Ownership of at least 20% of
the Series C Adjusted Fully Diluted Capitalization (as such
capitalized terms are defined in the CA Agreement) and (ii)
the Company or RSI had the right to purchase such Units and
neither the Company nor RSI purchase such Units. This right
shall be exercisable by JAH in accordance with the same
procedures as are set forth in Section 6 of the LLC
Agreement with respect to the Right of RSI (provided that
any exercise by JAH of this right shall not be subject to
any TagAlong Right in favor of any party) during the period
commencing on the date immediately following the Acceptance
Period until the date that is ten (10) days after the
Acceptance Period upon notice to such effect to the Selling
Member.
b. In the event that ROC determines not to exercise its rights
to purchase securities of Combined Alliance pursuant to
Section 4.3 and Section 7.1 of the CA Agreement, ROC shall
provide JAH telecopier notice of such determination to JAH
not later than five (5) business days prior to the date
that such right would expire pursuant to the terms and
conditions of the CA Agreement (with written notice to
follow promptly by telecopier and overnight courier or
personal delivery if such notice was by telephone). JAH may
then cause ROC to purchase on behalf of JAH any such
securities issued by Combined Alliance by tendering to ROC
the aggregate purchase price payable by ROC for such
securities, such securities to be transferred by Combined
Alliance directly to JAH at ROC's direction, or if
necessary, by ROC to JAH immediately following the transfer
by Combined Alliance to ROC.
<PAGE>
c. In the event that JAH is entitled to purchase all, but not
less than all, of the Class A Units owned by RSI in
accordance with Section 11(h) of the LLC Agreement upon the
default of RSI on its obligation to purchase the JAH Put
Units, JAH shall also be entitled to purchase all, but not
less than all, of the membership interest of RSI in ROC on
the same terms as RSI's Class A Units in the Company.
<PAGE>
d. The undersigned hereby acknowledge that immediately
following the Merger, it is intended that ANI Holding, Inc.
("ANI") a wholly owned subsidiary of Alliance National
Incorporated, shall merge with and into Reckson Executive
Centers, Inc. ("REC") pursuant to that certain Agreement
and Plan of Merger by and among Alliance National
Incorporated, ANI, REC, and ROC and dated as of the date
hereby providing for, inter alia, the ROC members to
receive shares of Series C Preferred Stock of Combined
Alliance (such merger agreement the "ROC Merger Agreement;"
such merger, the "ROC Merger"). Notwithstanding anything in
this Agreement, the LLC Agreement, the CA Agreement, the
Merger Agreement, the ROC Merger Agreement or any other
document or instrument delivered by Reckson, ROC, JAH or
any of their respective Affiliates pursuant to the Merger
Agreements (all of the foregoing, collectively, the
"Alliance Documents") to the contrary, Reckson and JAH
hereby acknowledge that except as expressly provided in
this subparagraph 9(d), it is their intention that JAH
shall not have any fewer rights nor any greater obligations
under the Alliance Documents than the rights and
obligations that JAH would have if: (i) JAH held on the
Effective Date a Beneficial Ownership of 23.75% of the
shares of the Series C Preferred Stock of Combined Alliance
(less the Loss Percentage Ownership, as hereinafter
defined), (ii) the Company owned 100% of the Series C
Preferred Stock issued in the Mergers and (iii) REC or its
stockholders received an aggregate purchase price of
$7,500,000 from ISC for the REC Assets (as defined by the
ISC Stockholders Agreement). "Loss Percentage Ownership"
means the dilution of JAH's equity interest pursuant to
Section 10 of the ISC Stockholders Agreement, if any,
resulting from JAH not contributing cash to the capital of
ISC pursuant to capital calls issued by ISC on or prior to
the Effective Date in accordance with Section 10 of the ISC
Stockholders Agreement including, without limitation, the
capital call regarding an acquisition (XEBEC) which closed
on August 7, 1998, and any capital calls issued to pay the
Shareholder Contribution to Combined Alliance under the
terms of the Merger Agreement and to finance the purchase
of the REC Assets. Accordingly, Reckson hereby agrees to
indemnify JAH and its successors and/or assigns from the
net aggregate amount of any damage, claim, loss, cost or
expense, including reasonable attorneys fees, suffered by
JAH or its successors and/or assigns as the result of such
diminution of rights or increase in obligations.
Notwithstanding the foregoing to the contrary, however, JAH
acknowledges that if, as of the Effective Date, JAH
contributes the Necessary Funds set forth in all Capital
Calls issued between the date hereof and the Effective
Date, JAH will on the Effective Date hold a Beneficial
Ownership in the Series C Preferred Stock in Combined
Alliance equal to 23.75%.
Notwithstanding anything in this Paragraph 9(d) to the
contrary, Transfers between Holdings and the member of ROC
controlled by Arnold Widder shall be treated for purposes
of the LLC Agreement and this Agreement as Transfers
between Affiliates.
10. Survival. The provisions of this letter agreement shall survive
the consummation or termination of the Merger.
11. Conflict. In the event of any conflict between the terms of this
letter agreement and the LLC Agreement, the terms of this letter
agreement shall control as pertains to any matter not affecting
the Members other than Holdings and JAH.
This letter agreement shall become effective on and
as of the Effective Date; provided, that, if the
Effective Date does not occur on or prior to the
Outside Date, as set forth in Paragraph 14 hereof,
then other than the provisions of Paragraph 3 hereof
no provision of this Agreement nor any document or
instrument delivered pursuant to this Agreement shall
be effective.
12. Governing Law. This letter agreement shall be governed by the
laws of the State of New York.
13. Counterparts. This letter agreement may be signed in one or more
counterparts, each of which shall be an original and all of
which shall together constitute but one agreement.
<PAGE>
14. Outside Date. The parties to the Term Sheet hereby agree to
modify the Term Sheet by amending Paragraph 8 thereof to define
the Outside Date.
15. Notices. All notices to be given to JAH pursuant to the LLC
Agreement shall be sent in the manner set forth in Section 33
thereof at the following address:
JAH I/O, LLC
2 Manhattanville Road
Suite 205
Purchase, New York 10577
Attention: Jon L. Halpern
Tel: (914) 4600681
Fax: (914) 4600661
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Michael A. Mishaan, Esq.
Tel: (212) 8566848
Fax: (212) 8567811
<PAGE>
16. Union State Bank Pledge. Notwithstanding Section 5(c)(v)(B) of
the LLC Agreement to the contrary, the parties hereto
acknowledge that JAH has pledged its common stock of ISC to
Union State Bank ("USB") pursuant to a Pledge and Security
Agreement dated as of February 25, 1998, that JAH will be
pledging its interest in the Class A Units in substitution for
the stock certificate evidencing its common stock of ISC (the
"USB Pledge") and that the USB Pledge shall not be subject to
the restrictions set forth in Section 5(c)(v)(B).
Notwithstanding the preceding sentence or Section 1(d) of the
LLC Agreement to the contrary, the USB Pledge shall continue to
be subject to Section 5(b)(iv) of the ISC Stockholders Agreement
and JAH hereby covenants to, simultaneously with the closing of
the D Class Call Option or the D Class Put Option, either (A)
obtain from USB a notice to RSI satisfying Section
5(c)(v)(B)(1)(y) of the LLC Agreement (a "Complying Notice")
with respect to the USB Pledge or any modification or
replacement thereof or (B) satisfy the USB loan and terminate
the USB Pledge. In order to secure such obligation of JAH, RSI
shall be entitled to deposit with Battle Fowler LLP, as escrow
agent pursuant to a written escrow agreement in such firm's
customary form, up to $1,000,000 (One Million Dollars) (the
"Holdback Amount") of the purchase price payable at the closing
of the D Class Call Option or D Class Put Option, as the case
may be, which amount shall be released by Escrow Agent to (i)
JAH upon presentation of a satisfaction of the loan secured by
the USB Pledge or a Complying Notice from the lender for
delivery by Escrow Agent to RSI or (ii) RSI, if the conditions
set forth in clause (i) of this sentence have not been satisfied
within twelve (12) months of the execution of said escrow
agreement. All interest earned on such amounts shall be payable
to the party to which the Holdback Amount shall be payable. On
the Effective Date of the Merger, JAH will cause the stock
certificate of Interoffice Superholdings Corporation pledged to
USB in the USB Pledge to be delivered to Alliance pursuant to
the Merger Agreement.
17. Permitted Transfer. Notwithstanding anything in the LLC
Agreement including, without limitation, Section 5, to the
contrary, Reckson hereby agrees and acknowledges that the
Transfer by JAH of all of its Class A, Class C and Class D Units
to any entity Beneficially Owned by a JAH Beneficial Holder (as
such terms are defined in the CA Agreement) (i) shall constitute
a Permitted Transfer pursuant to Section 5(c) of the LLC
Agreement and (ii) shall not constitute a Contingent Transfer
under the LLC Agreement with the effect that Reckson shall have
no right, including, without limitation, any right of consent or
first refusal, with respect to such Transfer. Furthermore,
Reckson agrees and acknowledges that if following such Transfer
Realties is not an entity that has direct or indirect Beneficial
Ownership, or that shares Beneficial Ownership, of the Combined
Alliance Shares held by the Company, then following such
Permitted Transfer Reckson shall not have any right, including,
without limitation, any right of consent or first refusal, with
respect to any Transfer of any direct or indirect interest in
Realties, the current and sole member of JAH, any such interests
being freely transferable.
18. Reimbursement of ISC Expenses. See Schedule A annexed hereto.
<PAGE>
19. Letter of Credit. As set forth in Section 12(d) of the LLC
Agreement, Holdings is obligated to deliver to JAH on or prior
to the Effective Date, the Letter of Credit as security for its
obligation to perform under the D Class Put Option. Reckson
Service Industries, Inc. hereby acknowledges and agrees that it,
as a primary obligor, is jointly and severally liable with
respect to the obligations of Holdings under Section 12,
including, without limitation, the obligation of delivering the
Letter of Credit to the full extent of such obligations, subject
to all defenses, counterclaims, setoffs and other rights of
Holdings, if any. Reckson hereby agrees that the obligation of
Holdings and RSI to deliver the Letter of Credit to JAH on or
prior to the Effective Date is a material inducement to JAH
entering into this transaction and in the event of a breach of
such obligations, JAH shall suffer irreparable damage.
20. Reckson Management Group, Inc. ("RMG"). RMG hereby represents
and RSI acknowledges that on or prior to the date hereof it has
transferred and assigned all of its right, title and interest
into and under the investment in ISC to RSI in accordance with
the terms of the ISC Shareholders Agreement. RMG is therefore
signing this letter agreement solely as a party to the Term
Sheet but is hereby released from all obligations arising under
or related to the ISC Stockholders Agreement and the Term Sheet,
all such obligations having been assumed by RSI.
21. Successors and Assigns. The rights and obligations of Reckson,
ROC, JAH and Realties hereunder shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
heirs, assigns, executors, administrators and/or successors.
22. Severability. If any provision of this Agreement or the
application thereof to any party or circumstance shall be held
invalid or unenforceable to any extent, the remainder of this
Agreement and the application of such provisions to the other
parties or circumstances shall not be affected thereby and shall
be enforced to the greatest extent permitted by applicable law.
Your countersignature below indicates your acknowledgment and
agreement to all of the foregoing.
<PAGE>
Sincerely,
JAH I/O LLC
By: JAH Realties, L.P.
By: JAH Realty Management Service, Inc.
By: /s/ Jon Halpern
Jon Halpern
Title:
ACKNOWLEDGED AND AGREED:
RECKSON MANAGEMENT GROUP, INC.
By: /s/ Mitchell H. Rechler
Name:
Title:
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Scott H. Rechler
Name:
Title:
RSI I/O HOLDINGS, INC.
By: /s/ Scott H. Rechler
Name:
Title:
RECKSON OFFICE CENTERS, LLC
By: /s/ Scott H. Rechler
Name:
Title:
<PAGE>
Schedule A
RSI and JAH shall in good faith review all expenses and fees to which any such
person or its affiliates would be entitled to reimbursement from ISC or
InterOffice (Holdings) Corporation ("Reimbursable Expenses"). Within thirty (30)
days after the execution and delivery of the Merger Agreement, RSI and JAH shall
determine the aggregate amount of such Reimbursable Expenses. The determination
of the aggregate amount of such Reimbursement Expenses payable to RSI and JAH
shall be done using comparable standards of measurement and methodology for the
possible expense categories of expenses and fees listed on Schedule A1 annexed
hereto.
Payment of Reimbursable Expenses shall be made by ISC or InterOffice (Holdings)
Corporation to the extent permitted under the Merger Agreement. Any amount of
Reimbursable Expenses not so reimbursed shall be assumed by Newco. Any such
assumed obligation shall be paid by Newco by the contribution of Necessary Funds
pursuant to Section 14 of the limited liability company agreement, provided that
any stockholder of ISC which previously paid any other stockholder on account of
Reimbursable Expenses shall be credited with such amount with respect to such
capital call.
<PAGE>
Schedule A1
Methodology for Reimbursement
The following categories of expenses are to be considered for reimbursement by
the Company in accordance with Paragraph 18 of this Agreement (both with respect
to expenses incurred prior, and subsequent, to the acquisition by ISC of
Interoffice Holdings Corporation:
1. Salaries, wages and fees earned by inhouse professionals.
2. OutofPocket professional fees and disbursements paid on behalf of
the Company as opposed to any particular Stockholder.
a. For these purposes, fees and disbursements incurred on behalf of
the minority Stockholders as a group shall be reimbursable
expenses.
b. Fees and disbursements incurred with respect to matters
pertaining to both Company (or minority Stockholder) interests
as opposed to any particular Stockholder shall be allocated on a
percentage basis to be negotiated in good faith by the parties.
Exhibit 10.4
RECKSON SERVICE INDUSTRIES, INC.
225 Broadhollow Road
Melville, New York 11747-0983
November 9, 1998
RFIA, LLC
1500 Broadway
Suite 10020
New York, New York 10036
Attn: Martin Rabinowitz
Re: Interoffice Superholdings
Gentlemen:
Interoffice Superholdings Corporation, a Delaware corporation ("ISC"),
is currently negotiating the terms and conditions of the Agreement and Plan of
Merger (the "Merger Agreement") providing for, inter alia, the merger ("Merger")
of Alliance Holding, Inc., a Delaware corporation and a wholly owned subsidiary
of Alliance National Incorporated, a Nevada corporation ("Combined Alliance"),
with and into ISC. On the effective date of the Merger, the stockholders of ISC
will receive shares of Series C Preferred Stock of Combined Alliance and shall
contribute such securities to the capital of Interoffice Superholdings LLC, a
Delaware limited liability company ("Newco"), in exchange for units of Class A
membership interests therein ("Class A Units") pursuant to the terms and
conditions of Section 2 of the Limited Liability Company Agreement (the "Newco
Agreement") by and among Newco and the members named therein. Capitalized terms
used herein but not otherwise defined herein shall, unless the context otherwise
requires, have the respective meanings set forth in the Newco Agreement.
Pursuant to the terms and conditions of that certain Stockholders
Agreement (the "Stockholders Agreement") dated as of December 29, 1997 by and
among ISC, Reckson Management Group, Inc. ("RMG"), JAH I/O LLC and RFIA, LLC
("RFIA"), RMG loaned RFIA the principal amount of $2,228,217.94 as the Initial
Acquisition Loan (as defined by the Stockholders Agreement).
On or prior to the date hereof RMG has assigned all of its right, title
and interest in, to and under the investment in ISC, the Stockholders Agreement
and the Initial Acquisition Loan under the Stockholders Agreement to Reckson
Service Industries, Inc., a Delaware corporation ("RSI") and you hereby confirm
your consent to such assignment of the Initial Acquisition Loan.
The parties hereto agree as follows:
<PAGE>
1. Purchase Price; Loan Option.
(a) Purchase Price. The net aggregate purchase price
("Purchase Price") to be paid hereunder as consideration for the RFIA Call
Option (as hereinafter defined) and the transactions contemplated hereby is
equal to THREE MILLION, FIVE HUNDRED THOUSAND and 00/100 ($3,500,000.00)
DOLLARS. The Purchase Price shall be paid to you as follows: On the Closing
Date, as defined below, RSI shall: (i) pay RFIA ONE MILLION and 00/100
($1,000,000) DOLLARS (the "Cash Portion") by wire transfer of immediately
available funds to the bank account designated by RFIA; and (ii) apply the sum
of TWO MILLION, FIVE HUNDRED THOUSAND and 00/100 ($2,500,000) DOLLARS (the "Loan
Offset") to the payment of the indebtedness of RFIA to RSI or any of its
affiliates, including without limitation, Reckson I/O Holdings, Inc., a Delaware
corporation which is a member in Newco ("RSI Sub") under the Initial Acquisition
Loan under the Stockholders Agreement and the Loan Option under the Stockholders
Agreement which such application shall be done automatically on the Closing Date
without any further action by, or any cost or expense of, any party. To the
extent that the aggregate amount owed by RFIA to RSI or any of its affiliates,
including without limitation RSI Sub, under such indebtedness on the Closing
Date is less than $2,500,000, then such excess shall be paid to RFIA on the
Closing Date.
(b) Exercise of Loan Options. On the effective date of the
Merger, for settlement immediately prior to the effective time of the Merger,
RFIA shall exercise each of its Loan Options under the Stockholders Agreement
for all, but not less than all, of the shares of common stock of ISC which RFIA
has a right to purchase from RSI pursuant to Section 10(h) of the Stockholders
Agreement. Included within the Loan Option is the purchase price for 11.875% of
the 1,467.89 additional shares of common stock of ISC issued and sold on August
7, 1998 in connection with the acquisition of substantially all of the assets of
Xebec Management Services, Inc. and XMS Greenhaven, Incorporated which own and
operate an aggregate of six (6) executive office suites in the Sacramento,
California area, in an aggregate amount equal to $999,880.44 ($5,730.00 per
share) plus the additional amount of the purchase price in accordance with the
terms and provisions of the Stockholders Agreement.
(c) Closing Date; Failure to Pay the Cash Portion. As used
herein, the term "Closing Date" shall mean the later of February 1, 1999 or the
effective date of the Merger. No interest shall accrue on the Initial
Acquisition Loan or on the Loan Option from the period of the effective date of
the Merger to February 1, 1998.
In the event that the Closing Date is after the effective date
of the Merger and RSI fails to pay the Cash Portion to RFIA on the Closing Date
after notice of default by RFIA and the failure to cure such default is not
cured within five (5) business days after receipt of such notice, then RSI shall
reduce the RFIA Loan Amount by $1,000,000 and RFIA shall have all other remedies
provided at law or in equity with respect such breach and default including
without limitation the right to receive the Cash Portion in addition to having
received the benefit of the Loan Offset.
<PAGE>
2. Capital Call Loan on the Effective Date of the Merger.
(a) REC Capital Call. In connection with the Merger, ISC will
issue a Capital Call Notice for the contribution of cash to the capital of ISC
under the terms and conditions of Section 10 of the Stockholders Agreement (the
"REC Capital Call") for the purchase of specified assets of Reckson Executive
Centers, Inc., a Delaware corporation and an affiliate of RSI ("REC"). The
capital contributed to ISC by you for the REC Capital Call shall equal
$890,625.00, less RFIA's pro rata share of any offset or credit of the
Shareholder Contribution amount (as such term is defined by the Merger
Agreement).
(b) Alliance Merger Capital Call. Under the terms and
conditions of the Merger Agreement, the stockholders of ISC shall receive or be
obligated to pay an amount equal to the Shareholder Contribution (as defined by
the Merger Agreement). If the stockholders of ISC are obligated to pay the
Shareholder Contribution, then such payment shall be made by ISC issuing a
Capital Call Notice for the contribution of cash to the capital of ISC under the
terms and conditions of Section 10 of the Stockholders Agreement (the "Alliance
Merger Capital Call") in the amount of such obligation.
(c) Due Dates. Notwithstanding the terms and provisions of the
Stockholders Agreement to the contrary, the closing of the REC Capital Call and
the Alliance Merger Capital Call, if any, shall be immediately prior to the
effective time of the Merger.
(d) ISC Stockholder Payments. The aggregate amount of all
obligations of RFIA to (i) contribute cash to the capital of ISC and Newco
(which includes RFIA's pro rata share of the REC Capital Call and RFIA's pro
rata share of the Alliance Merger Capital Call, if any); (ii) pay RSI the
aggregate purchase price due upon the exercise of the Loan Option; (iii) pay the
principal amount of the Initial Acquisition Loan and the accrued and unpaid
interest thereon; and (iv) pay any other cash amounts to the capital of ISC
pursuant to any other Capital Call Notices for the contribution of cash to the
capital of ISC issued by ISC on or prior to the effective date of the Merger, in
all cases, as of the date such cash contributions are due and payable to ISC
less the amount of the Purchase Price applied to the payment of the indebtedness
of RFIA to RSI or any of its affiliates, including RSI Sub, as described in
Section 1(b); and (iv) pay any other amounts to ISC or RSI pursuant to the terms
and provisions of the Stockholders Agreement, the Merger Agreement, the REC
Capital Call or otherwise, is referred to herein as the "ISC Stockholder
Payments".
<PAGE>
(e) Loan to RFIA. Immediately prior to the effective time of
the Merger, RSI shall lend you an amount equal to the ISC Stockholder Payments.
The amount of such loan together with all increases of such amount pursuant to
the loans made by RSI to RFIA in accordance with Section 6, less any payments of
such amounts by RFIA to RSI, including without limitation, the amount of Newco
distributions received in accordance with Section 2(h) is referred to herein as
the "RFIA Loan Amount". The RFIA Loan Amount shall accrue interest at a rate
equal to the Annual Cost of Funds (as defined below), compounded annually from
the date of the applicable loan through and including the date the Maturity Date
(as defined below); provided, that, if the RFIA Call Option is not exercised,
then on the date that such call option expires the interest rate on the RFIA
Loan Amount shall be reset to a rate equal to SIX PERCENT (6%), compounded
annually without any action by the parties hereto and without any cost, fee or
expense; provided, further, if the RFIA Put Option (as hereinafter defined) is
not exercised, then on the date that such put option expires the interest rate
on the RFIA Loan Amount shall be reset to a rate equal to the Annual Cost of
Funds compounded annually without any action by the parties hereto and without
any cost, fee or expense. The RFIA Loan Amount together with accrued and unpaid
interest thereon shall be due and payable by RFIA on the date (the "Maturity
Date") which is the earlier of: (i) the date the closing of the purchase and
sale of Class A Units pursuant to the RFIA Call Option; (ii) the date the
closing of the purchase and sale of Class A Units pursuant to the RFIA Put
Option; (iii) the date of a Bankruptcy Event (as hereinafter defined); or: (iv)
ten (10) years after the effective date of the Merger. As used herein, the term
"Annual Cost of Funds" means TWELVE PERCENT (12%), compounded annually.
(f) Security Interest. All obligations of RFIA under the RFIA
Loan Amount, the accrued interest thereon and any additional indebtedness
incurred by RFIA to RSI under the terms and conditions of this Agreement shall
be secured by a pledge by RFIA of one hundred percent (100%) of the Class A
Units in Newco now and hereafter owned by RFIA. RFIA does hereby grant to RSI a
security interest in one hundred percent (100%) of the Class A Units now and
hereafter owned by RFIA and this instrument shall constitute a security
agreement for purposes of the Uniform Commercial Code. RFIA shall execute and
deliver financing statements (Form UCC-1) in favor of RSI and such other
documents reasonably requested by RSI to evidence such pledge and security
interest in such Class A Units. RFIA shall deliver any certificate or
certificates representing the Class A Units to RSI and each such certificate
shall be endorsed with a legend to the effect that such securities are subject
to the Lien. RSI shall have all rights and remedies under the Uniform Commercial
Code with respect to such collateral.
(g) No Personal Liability. There shall be no personal
liability of RFIA (or its members, managers or employees) for any default in the
payment of the RFIA Loan Amount or accrued interest thereon. RSI's sole recourse
from any default shall be against the collateral held as security pursuant to
Section 2(f).
<PAGE>
(h) Assignment of Distributions. RFIA hereby transfers,
conveys and assigns to RSI all of RFIA's right, title and interest to the amount
of any and all distributions receivable from Newco in the amount of the RFIA
Loan Amount, and hereby irrevocably directs the Company to pay any such amounts
to the order of RSI for the payment of such obligations: (i) first to the
payment of accrued and unpaid interest; and (ii) then to the payment of the
outstanding principal amount; provided, however, that there shall be deducted
from such distributions to be paid to RSI an amount sufficient to pay the
combined federal, state or local income tax liability of RFIA as a result of the
allocation of taxable income to RFIA under the terms and provisions of the Newco
Agreement (it being acknowledged and agreed that the state and local tax
liability is a deduction against federal taxable income) computed at the highest
marginal federal, state and local income tax rates assuming RFIA is an
individual taxpayer, its allocable share of Newco income or gain is its only
income or gain, and there are no losses, deductions or credits other than those
allocated to RFIA by Newco offsetting such income or otherwise reducing such tax
liability. Such amount shall be paid over to RFIA.
3. RFIA Call Option. Subject to the limitations set forth in this
Section 3, from and after the Closing Date, RSI shall have the right and option,
but not the obligation (the "RFIA Call Option"), to purchase all, but not less
than all, of the RFIA Beneficial Interest (as hereinafter defined) owned by RFIA
as follows:
(a) Exercise Period. RSI shall have the RFIA Call Option with
respect to all, but not less than all, of the RFIA Beneficial Interest owned by
RFIA at any time during the period (the "Call Option Period"):
(i) commencing on the date that is the earlier of (1) the
effective date of an initial public offering of the securities of
Combined Alliance (an "IPO"), (2) the closing date of the sale of
Combined Alliance whether by a merger, consolidation, recapitalization,
sale of assets or securities or otherwise, (3) the date of the
dissolution of Combined Alliance, (4) the date of the commencement of a
case under the Bankruptcy Act, as amended (Title 11 of the United
States Code), in which the debtor is either RFIA or any person with
whom RFIA may be consolidated with in a case under the Bankruptcy Act
(a "Bankruptcy Event"), (5) the date of any purported Transfer of Class
A Units which would violate or conflict with Section 5 of the Newco
Agreement or (6) thirty (30) months after the effective date of the
Merger; and
(ii) ending on the date that is thirty-six (36) months
after the effective date of the Merger.
(b) Manner of Exercise of the RFIA Call Option. The RFIA Call
Option shall be exercised by RSI delivering to RFIA a notice to such effect
which notice shall specify the date for the closing of the purchase and sale of
the RFIA Beneficial Interest which date shall be not less than ten (10) nor more
than fifteen (15) days after the date such notice is delivered to RFIA.
(c) Purchase Price. The aggregate purchase price at which the
RFIA Beneficial Interest shall be purchased pursuant to the RFIA Call Option
shall be the sum of: (i) SIX MILLION, SEVEN HUNDRED AND FIFTY THOUSAND and
00/100 ($6,750,000.00) DOLLARS; and (ii) the Additional Purchase Amount (as
hereinafter defined).
<PAGE>
(d) Closing of the RFIA Call Option. On the closing date
specified in accordance with Section 3(b) at the offices of RSI: (i) RSI shall
pay the aggregate purchase price of the RFIA Beneficial Interest to be purchased
pursuant to the RFIA Call Option by wire transfer of immediately available
funds; (ii) RFIA shall deliver to RSI the stock certificate or certificates or
an assignment of such Class A Units or securities in form and substance
reasonably acceptable to RSI free and clear of any Liens (but, if the RFIA
Beneficial Interest is then Class A Units, then such Class A Units shall
continue to be subject to the terms and provisions of the Newco Agreement); and
(iii) RFIA shall pay in full the RFIA Loan Amount and all accrued and unpaid
interest thereon as of such closing date. RSI shall have the right to offset
from the payment of the aggregate purchase price of the RFIA Beneficial Interest
specified in Section 3(b) the aggregate RFIA Loan Amount and all accrued and
unpaid interest thereon as of such closing date.
(e) Survival. The provisions of this Section 3 shall survive
the termination, liquidation or dissolution of Newco.
4. RFIA Put Option. Subject to the limitations set forth in this
Section 4, from and after the Closing Date, RFIA shall have the right and
option, but not the obligation (the "RFIA Put Option"), to require RSI to
purchase all, but not less than all, of the RFIA Beneficial Interest owned by
RFIA as follows:
(a) Exercise Period. At any time during the period commencing
on the date that is three years and one day after the effective date of the
Merger and ending on the date that is six years after the effective date of the
Merger, RFIA shall have the RFIA Put Option with respect to all, but not less
than all, of the RFIA Beneficial Interest owned by RFIA.
(b) Termination of the RFIA Put Option. Notwithstanding the
terms of this Agreement, the RFIA Put Option shall terminate on the earlier of
the date that: (i) RSI sells all of its Class A Units in a bona fide transaction
or all of its beneficial ownership of equity securities in Combined Alliance;
provided that a notice of any such sale is delivered to RFIA at least fifteen
(15) business days prior to the closing of such purchase and sale (in the event
such sale is not consummated the RFIA Put Option shall continue) and provided,
further, that if RFIA has exercised its Tag-Along Rights under the Newco
Agreement with respect to such sale of Class A Units by RSI, then the Class A
Units of RFIA subject to the exercise of such Tag-Along Right are purchased and
sold on the date that RSI sells its Class A Units in such transaction; or (ii)
the date of the closing of the RFIA Call Option.
(c) Manner of Exercise of the RFIA Put Option. The RFIA Put
Option shall be exercised by RFIA delivering to RSI a notice to such effect
which notice shall specify the date for the closing of the purchase and sale of
the RFIA Beneficial Interest, which date shall be not less than sixty (60) days
after the date such notice is delivered to RSI, nor more than the later of (x)
ten (10) days after the date of the Fair Value of the RFIA Beneficial Interest
is determined in accordance with Section 4(g) or (y) sixty (60) days after the
date such notice is delivered to RSI.
<PAGE>
(d) Purchase Price. The aggregate purchase price at which the
RFIA Beneficial Interest shall be purchased pursuant to the RFIA Put Option
shall be the sum of: (i) the Fair Value of the RFIA Beneficial Interest owned by
RFIA on the effective date of the Merger determined as set forth below; and (ii)
the Additional Purchase Amount for all RFIA Beneficial Interest purchased by
RFIA pursuant to Section 6.
(e) Closing of the RFIA Put Option. On the closing date
specified in accordance with Section 4(c) at the offices of RSI: (i) RSI shall
pay the aggregate purchase price of the RFIA Beneficial Interest to be purchased
pursuant to the RFIA Put Option by wire transfer of immediately available funds;
(ii) RFIA shall deliver to RSI the stock certificate or certificates or an
assignment of the RFIA Beneficial Interest to be purchased in accordance with
the RFIA Put Option in form and substance reasonably acceptable to RSI free and
clear of any Liens (but if the RFIA Beneficial Interest is then Class A Units,
such Class A Units shall continue to be subject to the terms and provisions of
the Newco Agreement); and (iii) RFIA shall pay in full the RFIA Loan Amount and
all accrued and unpaid interest thereon as of such closing date. RSI and RFIA
shall each have the right to offset from the payment of the aggregate purchase
price of the RFIA Beneficial Interest specified in Section 4(c) the aggregate
RFIA Loan Amount and all accrued and unpaid interest thereon as of such closing
date.
(f) Company Value. Means
(i) the fair market value of Combined Alliance as a going
concern determined by the mutual agreement of the parties hereto within
five (5) business days after the notice described in Section 4(c) is
received by RSI or
(ii) if there is no mutual agreement as to the fair market
value of Combined Alliance as a going concern within such five (5)
business day period, then
<PAGE>
(1) if the date of determination is prior to
the date that the common stock of Combined Alliance is listed
on a national stock exchange or traded in the over-the-counter
markets with at least two market makers, then the fair market
value of Combined Alliance as a going concern shall be
determined by the mutual agreement of an investment banker,
accounting firm or appraiser listed on Schedule I hereto
(each, an "Appraiser") selected by RSI and an Appraiser
selected by RFIA. Each such Appraiser shall be selected within
five (5) business days after the date that the notice
described in Section 4(c) is received by RSI. If a party fails
to so select an Appraiser, the Appraiser selected by such
party shall be deemed to be the first Appraiser in order of
appearance on Schedule I which was not selected by the other
party. If such Appraisers do not mutually agree on such value
within thirty (30) days (the "Appraiser Period"), then RSI and
RFIA shall enter into good faith negotiations to mutually
determine such value; provided, however, if the difference
between such values is equal to ten (10%) percent or less of
the lesser of such values, then the fair market value of
Combined Alliance as a going concern shall be the average of
such values. If the difference between such values is greater
than 10% of the lesser of such values and the parties do not
mutually agree on such value within fifteen (15) days after
the Appraiser Period, then within five (5) business days the
Appraiser selected by RSI and the Appraiser selected by RFIA
shall select a third Appraiser. If such Appraisers do not
mutually agree on the selection of such third Appraiser within
such five (5) business day period, then the third Appraiser
shall be the first Appraiser in order of appearance on
Schedule I which has not been selected by RSI or RFIA. Within
twenty (20) days after the selection (or deemed selection) of
such third Appraiser, such third Appraiser shall select one of
the two valuations by the Appraisers selected (or deemed to be
selected) by RSI and RFIA and the value of the equity
interests of Combined Alliance attributable to RFIA shall
equal such selected value.
It is acknowledged and agreed that the procedures described
above are to determine the specified valuation with
administrative efficiency and expediency. Accordingly, no
party hereto shall have a right, and no Appraiser shall be
required to, or shall, hold any hearing, presentation or other
advocacy proceeding with respect to the preparation of such
valuation and the determination of such value in accordance
with the terms hereof shall be final and binding on the
parties hereto. Each of RSI and RFIA shall pay all fees and
disbursement of the Appraiser selected by such party. The fees
and disbursement of the third Appraiser shall be paid equally
by RSI and RFIA.
(2) if the date of determination is on or subsequent
to the date that the common stock of Combined Alliance is
listed on a national stock exchange or traded in the
over-the-counter markets with at least two market makers, the
fair market valuation of Combined Alliance as a going concern
shall equal the average of the closing bid and ask prices of
the publicly traded common stock for the ten (10) business
days immediate preceding the date of such determination
multiplied by the number of shares of common stock issued and
outstanding at the time of determination.
(iii) The parties hereto will deliver all financial
information reasonably requested by any Appraiser for the purpose of
determining the "Company Value" hereunder and take such other actions
reasonably requested by any such Appraiser for such purpose.
(g) Fair Value.
<PAGE>
(i) if the RFIA Beneficial Interest is represented by the
Class A Units in Newco, then the "Fair Value" shall equal (x) the
Company Value plus or minus the Net Asset Value, if any, plus or minus
the Employee Option Value Adjustment, if any, (y) multiplied by the A
Percentage Interest of RFIA at the time of determination as such
percentage interest is adjusted by the Employee Option Ownership
Adjustment, if any, and as such percentage interest is reduced by the A
Percentage Interest represented by all of the Class A Units purchased
by RFIA after the Effective Date and/or the Class A Units Transferred
by RFIA after the Effective Date.
(ii) if the RFIA Beneficial Interests is represented by
securities distributed to RFIA in accordance with Section 20 of the
Newco Agreement, then the "Fair Value" shall equal (x) the Company
Value (y) multiplied by a fraction, (x) the numerator of which is the
number of Common Stock Equivalents held by RFIA on the date of
determination which were distributed to RFIA in accordance with Section
20 of the Newco Agreement on account of the Class A Units held by RFIA
on the Effective Date (that is, excluding the Common Stock Equivalents
represented by the Class A Units purchased by RFIA after the Effective
Date and any of the Class A Units held on the Effective Date
Transferred by RFIA) and (y) the denominator of which is the Fully
Diluted Capitalization at the time of determination.
(h) Deposit of Put Purchase Price. If the Company Value used
in determining the Fair Value of the RFIA Beneficial Interest was determined in
accordance with Section 4(f)(ii)(1), RSI shall pay ninety (90%) percent of the
Fair Value of the RFIA Beneficial Interest calculated on the basis of the
Company Value proposed by the Appraiser selected by RSI pursuant to Section 4(f)
within five (5) business days after the date such value is proposed to an escrow
agent selected by RSI and approved by RFIA, which approval shall not be
unreasonably withheld, delayed or conditioned. Within such five (5) business day
period, RFIA shall deposit with such escrow agent the stock certificate or
certificates or an assignment of the RFIA beneficial to be purchased pursuant to
the RFIA Put Option. Such escrow agent shall hold such payment, the stock
certificate or certificates and assignment pursuant to the terms and conditions
of an escrow agreement proposed by RSI and approved by RFIA, which approval
shall not be unreasonably withheld, delayed or conditioned, it being
acknowledged and agreed that such escrow agreement shall provide at a minimum
the exculpation and indemnification of the escrow agent, the application of the
deposit by RSI to the principal and accrued and unpaid interest of the RFIA Loan
Amount, the payment of all distributions paid on the account of the RFIA
beneficial interest to RFIA promptly upon the receipt thereof, the payment of
all dividends and interest accruing on the amount of cash deposited by RSI which
is not used to pay the principal balance and accrued and unpaid interest on the
RFIA Loan Amount to RFIA promptly upon the receipt thereof and the release of
all other escrowed documents and funds to RSI and to RFIA on the closing date of
the purchase and sale of the RFIA beneficial interest pursuant to the RFIA Put
Option.
(i) Termination Date. The provisions of this Section 4
shall survive the termination, liquidation or dissolution of Newco.
5. Transfer Restrictions.
<PAGE>
(a) The RFIA Call Option and the obligation to repay the
RFIA Loan Amount and the security interest on the RFIA Beneficial Interest
granted hereunder are a Lien on the RFIA Beneficial Interest held by RFIA. Any
transferee or assignee of such RFIA Beneficial Interest and any successor to
RFIA shall own and hold such RFIA Beneficial Interest subject to the terms and
conditions of the RFIA Call Option. RFIA shall not effect any Transfer of
Interests of any RFIA Beneficial Interest or owned or held by RFIA other than a
Transfer of Interest by gift, distribution, will or the laws of descent and
distribution to any Family Group Member of RFIA at any time prior to the
expiration or termination of the RFIA Call Option without the prior written
consent of RSI, which consent may be withheld for any reason or no reason. As
used herein, the term "Family Group Member" shall mean Martin J. Rabinowitz;
(ii) the parents grandparents, brothers, sisters, spouse and descendants
(whether natural or adopted) of the person described in clause (i) above; (iii)
any spouse or descendant of any person described in clauses (i) and (ii) above;
(iv) any trust created solely for the benefit of one or more of any persons
described in clauses (i) through (iii) above; (v) any executor or administrator
for any of the persons described in clauses (i) through (iv) above; (vi) any
partnership solely of persons described in clauses (i) through (v) above; and
(vii) any corporate foundation created by any of the persons described in
clauses (i) through (v) above for charitable purposes.
(b) The restrictions on a Transfer of Interest herein have
been purchased for good and valuable consideration hereunder and are for the
benefit of RSI and its successors and assigns. The provisions of this Section
are in addition to, and not superseded by, the right to effect a Transfer of
Interest of Class A Units pursuant to the Newco Agreement.
6. Exercise of Preemptive Rights. RFIA shall purchase all Additional
Shares it has a right to purchase under the terms and conditions of the Newco
Agreement as directed by RSI by a notice to RFIA provided that on or prior to
the Subscription Due Date RSI shall loan RFIA an amount equal to the aggregate
purchase price of such Additional Shares to be paid by RFIA to Newco. The
principal amount of each loan made under this Section 6 shall increase the RFIA
Loan Amount and be non-recourse loans that bear interest, have the maturity date
and be subject to the other terms and conditions of the loan described in
Section 2. The principal amount of each loan made under this Section 6 and the
accrued interest thereon is referred to herein, collectively, as the "Additional
Purchase Amount". RFIA shall not have any obligation to purchase any Additional
Shares to the extent that it will not receive the amount of cash needed to fund
such purchase pursuant to the loan described in this Section 6.
7. Proxy. Simultaneously with the execution and deliver of this
Agreement, RFIA shall deliver to RSI its irrevocable proxy in the form attached
hereto as Exhibit A approving the proposed Merger, the execution, delivery and
performance by ISC and Newco of the terms and conditions of the Merger Agreement
and all agreements, documents and instruments related thereto which such entity
is a party thereto.
8. Newco Agreement.
<PAGE>
(a) Simultaneously with the execution and deliver of this
Agreement, RFIA shall deliver to RSI a duly authorized and executed counterpart
of the Newco Agreement. RSI hereby grants RFIA a Tag-Along Right with respect to
the membership interest owned by RFIA in Reckson Office Centers LLC, a Delaware
limited liability company, owned by RSI through any of its subsidiaries and the
beneficial ownership of RSI in the Series C Preferred Stock of Combined Alliance
owned by Reckson Office Centers to the full extent, and subject to the same
terms, conditions and limitations, provided under Section 7 of the Newco
Agreement as if such membership interest in Reckson Office Centers or such
beneficial interest in the Series C Preferred Stock were Class A Units in Newco.
(b) RSI acknowledges a duty of loyalty to Newco during the
period of time that RSI (or any of its affiliates) is the Manager of Newco or
has the right to designate the Manager in Newco for actions taken on behalf of
Newco; provided such duty of loyalty shall not apply to actions (including
votes) taken by RSI in furtherance of RSI's and/or its affiliates' rights (as
opposed to Newco's rights) under the Newco Agreement, CA Agreement, Merger
Agreement, Intercompany Agreement, Product Agreements and any similar agreements
which may be entered into from time to time.
(c) RSI shall not cause Newco to incur any indebtedness,
recapitalize the Class A Units, change the tax allocations as provided in
Section 19 of the Newco Agreement or pay any salary or wages to any Manager
without the prior consent of RFIA which consent shall not be unreasonably
withheld, delayed or conditioned. RSI shall not cause Newco to conduct any
business activity not related to its business purposes described in Section 1(b)
of the Newco Agreement without the prior consent of RFIA which consent may be
withheld for any reason or no reason.
9. Legal Opinion. Counsel to RFIA shall deliver to Herrick, Feinstein
LLP, counsel for ISC, the legal opinions reasonably requested by Herrick,
Feinstein LLP with respect to the due authorization of the Merger by RFIA for
the purposes of Herrick, Feinstein LLP delivering its legal opinion pursuant to
the terms and conditions of the Merger Agreement.
10. Obligations Contingent Upon the Merger. If the effective date of
the Merger is not on or prior to the Outside Date, then neither this Agreement
nor any document or instrument delivered pursuant to this Agreement shall be
effective and no party hereto shall have any liability or obligation to the
other party hereto arising from or in connection with this Agreement.
<PAGE>
11. RFIA Beneficial Interest. As used herein, the term "RFIA Beneficial
Interest" shall mean the Class A Units held by RFIA on the Effective Date and
the Class A Units purchased by RFIA in accordance with Section 6 or other
successor membership interest in Newco during the Term of Newco and, after the
Term, shall mean the securities issued by Combined Alliance owned by Newco
distributed by Newco to RFIA in connection with the liquidation and termination
of Newco with respect to the Class A Units held by RFIA on the Effective Date
and the Class A Units purchased by RFIA in accordance with Section 6. For
avoidance of doubt, the right to purchase or sell RFIA Beneficial Interest
pursuant to the RFIA Call Option and the RFIA Put Option includes the right to
purchase or sell the securities issued by Combined Alliance owned by Newco and
distributed by Newco to RFIA attributable to the Class A Units held by RFIA on
the Effective Date and the Class A Units purchased by RFIA in accordance with
Section 6 (or other successor membership interest in Newco) in connection with
the liquidation and termination of Newco or otherwise. In the event that the
RFIA Beneficial Interest is represented by an certificated equity interest
(e.g., a stock certificate), then RFIA shall endorse each such certificate with
a legend stating that "the equity interests represented by this certificate are
subject to a call option of Reckson Service Industries, Inc. pursuant to the
terms and conditions of that certain letter agreement between such person and
RFIA, LLC dated as of November __, 1998 and any assignee or transferee takes
such equity interests subject to the terms and provisions of such call option. A
copy of such agreement is available without charge upon request to Reckson
Service Industries, Inc., 225 Broadhollow Road, Melville, New York 11747-0983,
ATTN: Secretary.
12. Effect of the Hart Scott Rodino Act.
(a) Applicability. Each party hereto acknowledges and agrees
that the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder (the "HSR Act") may be
applicable to the purchase and sale of the RFIA Beneficial Interest as
contemplated by this Agreement.
(b) Covenant to File all Necessary Documents. Each party
hereto covenants and agrees that if and when the HSR Act is applicable to a the
purchase and sale of the RFIA Beneficial Interest, it will use its commercially
reasonable efforts to: (i) promptly and timely file the Notification and Report
Form For Certain Mergers and Acquisition as required under the HSR Act; (ii)
request early termination of the waiting period under the HSR Act; (iii) take
all other actions necessary or desirable to obtain a termination of the waiting
period under the HSR Act; (iv) provide a copy, subject to an appropriate
agreement regarding confidentiality, of all documents submitted in connection
with the HSR Act; and (v) coordinate and consult with each other party with
respect to such filing. RSI shall pay the HSR Act filing fee.
(c) Amendment of Timing Periods. If the HSR Act is applicable
to the purchase and sale of the RFIA Beneficial Interest, the specified period
of time provided herein for the closing of such transaction shall be extended
for the waiting period of the HSR Act.
<PAGE>
13. Notices. All notices given pursuant to this Agreement shall be in
writing and shall be made by hand-delivery, first-class mail (registered or
certified, return receipt requested), telex, telecopier, or overnight air
courier guaranteeing next business day delivery: (i) if to RSI, then to Reckson
Service Industries, Inc., 225 Broadhollow Road, Melville, New York 11747,
Attention: Scott Rechler, Daniel DiSano and Jason Barnett, Esq. fax: (516)
719-7405 with a copy to Herrick, Feinstein LLP, 2 Park Avenue, New York, NY
10016, attention: Richard M. Morris, Esq., fax: (212) 889-7577; and (ii) to
RFIA, then to RFIA, LLC c/o Martin Rabinowitz, 1500 Broadway, Suite 10020, New
York, New York 10036, fax: (212) 220-9949 with a copy to Pryor, Cashman, Sherman
& Flynn, 410 Park Avenue, New York, New York 10022-4441, attention Eric
Woldenberg, Esq., fax: (212) 326-0806; or (iii) as the party hereto shall
designate to the other party hereto by a notice. 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.
14. Amendment and Modification. No change or modification of this
Agreement shall be valid, binding or enforceable as a party hereto unless the
same shall be in writing and signed by such party.
15. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
16. Entire Agreement; Non-Waiver. This Agreement supersedes and
terminates all prior agreements between any of the parties hereto with respect
to the subject matter contained herein and supplements the terms and provisions
of the Newco Agreement with respect to the parties hereto. To the extent there
is any conflict with respect to the express terms of this Agreement and the
Newco Agreement, the terms of each agreement shall be interpreted in a manner
consistent with this Agreement and to implement the intention of the parties
hereto under this Agreement. No delay on the part of any party in exercising any
right hereunder shall operate as a waiver thereof, nor shall any waiver, express
or implied, by any party of any right hereunder or of any failure to perform or
breach hereof by any other party constitute or be deemed a waiver of any other
right hereunder or of any other failure to perform or breach hereof by the same
or any other party, whether of a similar or dissimilar nature thereof.
17. Specific Performance and Injunctive Relief. The parties recognize
and acknowledge that in the event of a breach or default by one or more of the
parties hereto of the terms and conditions of Sections 3, 4 6 or 8 of this
Agreement, the damages to the other party to this Agreement, 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 such terms and
provisions of this Agreement, any party 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 such terms
and conditions of this Agreement, to enjoin further violations of the provisions
of this Agreement and/or to obtain damages. Such remedies shall however be
cumulative and not exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or at law. Each party hereto
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, unless the breach is
with respect to the payment of money by RSI to RFIA further agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
<PAGE>
18. 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.
19. Severability. If any provision of this Agreement or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and the application of such
provisions to the other parties or circumstances shall not be e affected thereby
and shall be enforced to the greatest extent permitted by applicable law.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York governing agreements made
wholly within the State of New York.
21. Miscellaneous.
(a) Section headings are for convenience of
reference only and shall not be used to construe the meaning of any
provision of this Agreement.
(b) This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one agreement.
(c) 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.
<PAGE>
If you agree to the terms of this letter (this "Agreement"), kindly
execute a counterpart of this Agreement and return it to the undersigned.
Sincerely,
RECKSON SERVICE INDUSTRIES, INC.
By: /s/ Scott Rechler
____________________________
Name:
Title:
ACCEPTED AND AGREED
as of the date first written above
RFIA, LLC
By: /s/ Martin J. Rabinowitz
_____________________________
Name:
Title:
<PAGE>
SCHEDULE I
List of Appraisers
1. Morgan Stanley Dean Witter Inc.
2. Bear, Stearns & Co. Inc.
3. BancAmerica ROBERTSON STEPHENS
4. Goldman Sachs & Co.
5. BT Alex Brown Incorporated
6. Donaldson, Lufkin & Jenrette Securities Corporation
7. Salomon Smith Barney
8. Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated
9. Lazard Freres & Co. LLC
[End of List]
