STOCKHOLDERS AGREEMENT

Exhibit 10.18

 

 

STOCKHOLDERS AGREEMENT

 

by and among

 

FRONTLINE CAPITAL GROUP (formerly known as

 

RECKSON SERVICE INDUSTRIES, INC.),

 

HQ GLOBAL HOLDINGS, INC.,

 

and

 

CARRAMERICA REALTY CORPORATION

 

Dated as of

 

June 1, 2000

 

TABLE OF CONTENTS

 

 

EXHIBIT A

 

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STOCKHOLDERS AGREEMENT

 

THIS STOCKHOLDERS AGREEMENT (this “Agreement”), dated as of June 1, 2000, is made by and among FrontLine Capital Group (formerly known as Reckson Service Industries, Inc.) (“RSI”), HQ Global Holdings, Inc. (the “Company”) and CarrAmerica Realty Corporation (“CarrAmerica” or the “Designated Holder”).

 

WHEREAS, RSI, CarrAmerica and certain other parties have entered into that certain Stock Purchase Agreement dated as of January 20, 2000, as amended pursuant to which RSI is acquiring on the date hereof certain shares of common stock of HQ Global Workplaces, Inc. (“HQ Global”) owned by CarrAmerica and such other parties (the “Transaction”);

 

WHEREAS, the parties believe it is in their best interests to enter into this Agreement and provide for certain rights and restrictions with respect to the continuing investment by RSI and each Holder (as hereafter defined) in the Company and the corporate governance of the Company; and

 

WHEREAS, it is a condition precedent to the completion of the Transaction that the parties enter into this Agreement.

 

NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

1.	DEFINITIONS

 

As used in this Agreement, certain capitalized terms not otherwise defined herein shall have the following respective meanings:

 

“10% Holder” shall mean any Holder hereunder who, together with any Affiliates, holds more than ten percent (10%) of the total number of issued and outstanding shares of Common Stock of the Company.

 

“Affiliate” shall mean, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, or (ii) any officer, director, general partner, managing member or trustee of such Person or any Person referred to in clause (i) above. For purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

“Board” shall mean the board of directors of the Company.

 

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“Code” shall mean the Internal Revenue Code of 1986, as amended (including for this purpose the amendments made to Section 856(c)(4)(B)(iii) of the Code by Pub. L. No. 106-170, The Ticket to Work and Work Incentives Improvement Act of 1999, 113 Stat. 1860 (the “RMA”)), and any successor thereto, including all of the rules and regulations promulgated thereunder.

 

“Common Stock” shall mean any common stock of the Company, including, without limitation, the Voting Common Stock and the Nonvoting Common Stock.

 

“Director” shall mean a member of the Board.

 

“Government Authority” shall mean any government or state (or any subdivision thereof) of or in the United States or any foreign nation, or any agency, authority, bureau, commission, department or similar body or instrumentality thereof, or any governmental court or tribunal.

 

“Holder” shall mean CarrAmerica and any stockholder of the Company that becomes a party to this agreement after the date hereof in accordance with the terms herein.

 

“Immediate Family Member” shall mean, with respect to any natural Person, (i) such natural Person’s spouse, parents, descendants, nephews, nieces, brothers and sisters, and (ii) any trust established by such Person or any of the persons listed in clause (i) above, the sole beneficiaries of which are such Person or any of the persons listed in clause (i) above.

 

“Independent Director” shall mean any Director who (i) is not an officer or employee of the Company, (ii) is not an officer, employee or director of RSI, (iii) does not have a material financial interest in or relationship with RSI (it being agreed that for purposes of this definition, any Director who owns less than five percent (5%) of the issued and outstanding RSI common stock shall be deemed not to have a material financial interest in or relationship with RSI by virtue of such stock ownership), and (iv) is not an Affiliate or an Immediate Family Member of any Person covered by clauses (i), (ii) or (iii) above.

 

“IPO” shall mean one or more sales of Common Stock by the Company pursuant to one or more registration statements effective under the Securities Act of 1933, as amended (the “1933 Act”) that results in (i) gross proceeds to the Company of not less than $150,000,000 and (ii) the listing for trading on either the NASDAQ Stock Market or a national securities exchange of all shares of Voting Common Stock of the Company.

 

“Majority Consent of the Holders” shall mean the approval of Holders owning at least a majority of all of the issued shares of Voting Common Stock owned by the Holders at such time.

 

“Nonvoting Common Stock” shall mean the Nonvoting Common Stock, par value $.01 per share, of the Company.

 

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“Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, other form of business or legal entity or Government Authority.

 

“Preferred Stockholders Agreement” shall mean the Stockholders Agreement by and among FrontLine Capital Group, HQ Global Holdings, Inc. and certain holders of Series A Preferred Stock of HQ Global Holdings, Inc. named therein, dated as of the date hereof.

 

“SEC” shall mean the Securities and Exchange Commission.

 

“RSI Board” shall mean the board of directors of RSI.

 

“transfer” means a sale, gift, assignment, exchange or other disposition (including a voluntary or involuntary disposition under judicial order, legal process, execution, attachment or enforcement of an encumbrance) or any other transfer of beneficial interest of shares of Common Stock. A “transfer” shall not include (i) in the case of an individual, a transfer to an Immediate Family Member, (ii) in the case of a partnership, a transfer by the partnership to an Affiliate or to its partners in connection with a dissolution of the partnership, (iii) in the case of a corporation, a transfer by the corporation to an Affiliate or to its stockholders in connection with the dissolution of the corporation, (iv) in the case of a limited liability company, a transfer by the limited liability company to an Affiliate or to its members in connection with the dissolution of the limited liability company, or (v) in the case of any entity referred to in clause (ii), (iii) or (iv) above, any transfer of an interest in the securities of such entity or any other indirect transfer that may occur as a result of either a consolidation, merger or other business combination involving such entity or a sale, lease, exchange or other transfer of all or substantially all of the assets of such entity, or (vi) in the case of CarrAmerica, a transfer to an entity in which it owns at least 90% of the economic interests of such entity; provided , that a transferee under (i) -(vi) above agrees in writing to be bound by all of the terms of this Agreement by executing and delivering to the Company a counterpart signature page to this Agreement.

 

“U.S. Stock Purchase Agreement” shall mean the Stock Purchase Agreement between CarrAmerica, RSI and certain other parties dated as of January 20, 2000, as amended.

 

“Voting Common Stock” shall mean the Voting Common Stock, par value $.01 per share, of the Company.

 

2.	BOARD OF DIRECTORS OF THE COMPANY

 

2.1. Number of Directors

 

From and after the date hereof, the Board shall consist of thirteen (13) Directors. The number of Directors may not be decreased unless such decrease is approved by a Majority Consent of the Holders.

 

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2.2. Holder Nominees

 

(a) Nomination of Directors . At each annual or special meeting of stockholders of the Company at, or the taking of action by written consent of stockholders of the Company with respect to, which any Directors are to be elected, each Holder (a “Nominating Holder”) shall have the right (but not the obligation) to nominate for election to the Board that number of Directors which represents the same proportion of the total number of Directors as is represented by the number of shares of Voting Common Stock which such Holder then owns, as of the applicable record date for such meeting or consent (or, in the case of the first annual meeting of stockholders of the Company following the Closing, if the record date for such annual meeting is prior to the date of the Closing, then as of the date of the Closing), relative to the number of shares of Voting Common Stock outstanding as of such date (such Directors, “Holder Nominees”). Notwithstanding the foregoing, if a Holder shall make an equity investment, through a joint venture or otherwise, in Regus Business Corp., Servcorp or a company that, at the time such investment is made, is a significant regional competitor of the Company in the executive suites business, such Holder’s right under this Section 2.2(a) shall terminate. In computing the number of Holder Nominees, any fraction shall be rounded down to the nearest whole number (and, if such fraction shall be less than one, then such Holder shall have no right to nominate any Director for election). If Directors are placed into two or more classes pursuant to the Company’s certificate of incorporation, the Holder Nominees shall be placed in as many different classes as possible.

 

(b) Qualification of Holder Nominees . No Nominating Holder shall name any person as a Holder Nominee if (i) such person is not reasonably experienced in business or financial matters, (ii) such person has been convicted of, or has pled nolo contendere to, a felony, (iii) the election of such person would violate any applicable law, (iv) any event described in Item 401(f) of Regulation S-K promulgated under the 1933 Act has occurred with respect to such person, or (v) such person is an Affiliate of, or has a material financial interest in, (A) any individual or entity that engages, as the principal component of its business, in activities that are directly competitive with the Company in the executive suites business, or (B) any entity whose primary business is to invest in business to business e-commerce companies, which has invested an aggregate of at least $50 million in such companies.

 

(c) Support of Holder Nominees by RSI and the Company . RSI shall support, and the Board and any nominating committee (or any other committee exercising a similar function) thereof shall recommend, the nomination of each Holder Nominee to the Board. The Board shall recommend to the stockholders of the Company the election of each Holder Nominee, and the Company and RSI shall exercise all authority under applicable law to cause each Holder Nominee to be elected to and to remain a member of the Board for the term for which the Holder Nominee is nominated. Without limiting the generality of the foregoing, with respect to each meeting of stockholders of the Company at which Directors are to be elected, (i) the Company shall use its commercially reasonable efforts to solicit from the stockholders of the Company eligible to vote in the election of Directors proxies in favor of each Holder Nominee, and (ii) RSI shall vote its shares of Voting Common Stock in favor of each Holder Nominee at any stockholders meeting (or written consent in lieu thereof).

 

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(d) Support of RSI Nominees by CarrAmerica . Provided that the nominees proposed by RSI meet the qualifications set forth in Section 2.2(b)(i)-(iv) above (each, an “RSI Nominee”), CarrAmerica shall support and the Board or any nominating committee (or any other committee exercising a similar function) thereof shall recommend, the nomination of each RSI Nominee to the Board. RSI shall have the right to nominate all of the directors other than the Holder Nominees, except as may otherwise be provided for in the Preferred Stockholders Agreement. The Board shall recommend to the stockholders of the Company the election of each RSI Nominee and the Company shall exercise all authority under applicable law to cause each RSI Nominee to be elected to and to remain a member of the Board for the term for which the RSI Nominee is nominated. With respect to each meeting of stockholders of the Company at which Directors are to be elected, CarrAmerica shall vote its shares of Voting Common Stock in favor of each RSI Nominee at any stockholders meeting (or written consent in lieu thereof).

 

(e) Vacancies . In the event that any Holder Nominee shall cease to serve as a Director for any reason other than the fact that the Nominating Holder no longer has a right to nominate a Director, as provided in Section 2.2(a), the vacancy resulting thereby shall be filled by a Holder Nominee designated by the Nominating Holder which nominated the vacating Director; provided , however , that any Holder Nominee so designated shall satisfy the qualification requirements set forth in Section 2.2(b).

 

2.3. Independent Directors

 

(a) Number of Independent Directors . From and after the date hereof, the Board shall include at least two (2) Independent Directors.

 

(b) RSI and Holder Support of Independent Director Nominees . RSI shall nominate and the Holders shall support, and the Board and any nominating committee (or any other committee exercising a similar function) thereof shall recommend, the nomination of at least two (2) Independent Directors at all times, and the Company, the Holders and RSI shall exercise all authority under applicable law to cause each Independent Director nominee so supported to be elected to and remain a member of the Board for the term for which such Independent Director is nominated. Without limiting the generality of the foregoing, with respect to each meeting of stockholders of the Company at which Directors are to be elected, (i) the Company shall use its commercially reasonable efforts to solicit from the stockholders of the Company eligible to vote in the election of Directors proxies in favor of each Independent Director nominee that is nominated pursuant to this Section 2.3(b), and (ii) RSI and the Holders shall vote their respective shares of Voting Common Stock in favor of each Independent Director nominee that is nominated pursuant to this Section 2.3(b).

 

2.4. Termination

 

The rights of the Holders pursuant to this Section 2 shall terminate on the first date on which no Holder has a right to Board representation pursuant to Section 2.2(a) hereof.

 

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3.	INFORMATION RIGHTS

 

3.1. Information Rights of All Holders

 

(a) Quarterly Financial Information . From and after the date hereof, the Company shall deliver to each Holder as soon as available and in any event within thirty (30) days after the close of each of the first, second and third fiscal quarters of the Company, the unaudited consolidated balance sheet of the Company and its subsidiaries as at the end of such period and the related unaudited consolidated statements of income, retained earnings and cash flows of the Company and its subsidiaries for such period, setting forth in each case in comparative form the figures for the corresponding periods of the previous fiscal year, all of which shall be certified by the chief financial officer or the chief accounting officer of the Company, in his or her opinion, to present fairly in all material respects and in accordance with generally accepted accounting principles (“GAAP”), the consolidated financial position of the Company and its subsidiaries as at the date thereof and the results of operations for such period (subject to normal year-end adjustments).

 

(b) Annual Financial Information . From and after the date hereof, the Company shall deliver to each Holder as soon as available and in any event within seventy-five (75) days after the end of each fiscal year of the Company, the audited consolidated balance sheet of the Company and its subsidiaries as at the end of such fiscal year and the related audited consolidated statements of income, retained earnings and cash flows of the Company and its subsidiaries for such fiscal year, setting forth in comparative form the figures as at the end of and for the previous fiscal year, all of which shall be certified by (A) the chief financial officer or the chief accounting officer of the Company, in his or her opinion, to present fairly in all material respects and in accordance with GAAP, the financial position of the Company and its subsidiaries as of the date thereof and the result of operations for such period and (B) independent certified public accountants of recognized national standing.

 

3.2. Information Rights of 10% Holders

 

In addition to the information rights set forth in Section 3.1 hereof, from and after the date hereof, the Company shall:

 

(a) Financial Reports . Deliver to each 10% Holder, as soon as practicable after the end of each month, an operating and financial statement and management report of the Company and its subsidiaries (including each subsidiary, if any, not consolidated with the Company) as at and for the end of such month, all in such form as may be prepared by the Company for internal use by management.

 

(b) Securities Filings . Deliver to each 10% Holder, as promptly as practicable following filing, a copy of each report, schedule or other document filed by the Company pursuant to the requirements of any federal or state securities laws (collectively, the “Securities Filings”).

 

(c) Opportunity to Review Securities Filings . Afford each 10% Holder a reasonable opportunity to review any portion of any Securities Filing which refers to,

 

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describes or mentions such 10% Holder prior to the time that such Securities Filing is filed with or sent to the applicable Government Authority.

 

(d) Delivery of Annual Budget of the Company . Deliver to each 10% Holder a copy of the approved annual operating budget for the Company and its subsidiaries.

 

3.3. Confidentiality

 

Each Holder shall keep all information provided to it or any of its representatives pursuant to this Agreement confidential, and such Holder shall not disclose such information to any Persons other than the directors, officers, employees, financial advisors, legal advisors, accountants and consultants of any Holder who reasonably need to have access to the confidential information and (i) in the case of directors, officers, employees, legal advisors and the principal accountants of such Holder, who are advised of the confidential nature of such information, and (ii) in the case of any financial advisors, other accountants or consultants of such Holder, who execute an agreement with the Company agreeing to maintain the confidentiality of such information; provided , however , the foregoing obligation of each Holder shall not (A) relate to any information that (i) is or becomes generally available other than as a result of unauthorized disclosure by such Holder or by Persons to whom such Holder has made such information available, or (ii) is or becomes available to such Holder on a non-confidential basis from a third party that is not, to such Holder’s knowledge, bound by any other confidentiality agreement with the Company or RSI, or (B) prohibit disclosure of any information if such Holder believes in good faith that disclosure is required by law, rule, regulation, court order or other legal or governmental process (including SEC or GAAP reporting requirements) or if such Holder believes in good faith that disclosure is advisable to explain a material deviation from its expected financial results that arises from its investment in the Company; provided further , that in the case of a disclosure described in clause (B) above, such Holder shall (i) give prior notice to the Board of any such disclosure and (ii) consult with the Board prior to making such disclosure.

 

3.4. Termination

 

The rights granted to the Holders pursuant to Section 3.1 and Sections 3.2(a) and 3.2(d) shall terminate upon such date that the Company’s Common Stock is listed for trading on either the NASDAQ Stock Market or a national securities exchange. The obligations assumed by the Holders pursuant to Section 3.3 shall remain in full force and effect until the first anniversary of the consummation of an IPO.

 

4.	LIMITATIONS ON CORPORATE ACTIONS

 

4.1. REIT Restrictions

 

(a) Taxable REIT Subsidiary Election .

 

(i) Effective as of January 1, 2001 and for so long thereafter as CarrAmerica continues to make the election to be taxed as a real estate investment trust

 

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(“REIT”) under Sections 856 through 860 of the Code, the Company and any corporation in which the Company owns at least 35% of vote or value of the stock (including OmniOffices (UK) Limited, a company incorporated in England, and OmniOffices (Lux) 1929 Holding Company S.A., a company organized under the laws of the Grand Duchy of Luxembourg), shall (A) elect to be treated as a “taxable REIT subsidiary” of CarrAmerica pursuant to Section 856(l) of the Code (a “TRS”) and (B) not take any action to cause the Company to fail to qualify as a TRS of CarrAmerica. If CarrAmerica’s ownership of the Common Stock of the Company is (A) reduced below five percent (5%) for a continuous period of six months or longer or (B) reduced below ten percent (10%) for a continuous period of twelve months or longer, CarrAmerica shall, at the request of the Company, consent to the revocation of such election for the first taxable year following the taxable year in which the last month of such six month or twelve month period, as applicable, occurs. Notwithstanding the foregoing, for so long as CarrAmerica continues to make the election to be taxed as a REIT, the Company shall, so long as the Company is a TRS of Equity Office Properties Trust or any successor-in-interest thereof (“EOPT”), (A) elect to be treated as a TRS of CarrAmerica and (B) not take any action to cause the Company to fail to qualify as a TRS of CarrAmerica, provided that CarrAmerica shall, at the request of the Company, consent to the revocation of such election for the first taxable year following the taxable year in which a CarrAmerica De Minimis Event (as defined below) shall occur. As a condition to any merger, consolidation, reorganization or other business combination to which the Company is a party pursuant to which CarrAmerica acquires any equity interest in any entity other than the Company, such entity, so long as it is a TRS of EOPT, shall agree to (A) file an election to be treated as a TRS of CarrAmerica effective as of the date of consummation of such business combination (or, if such business combination takes place before January 1, 2001, effective beginning January 1, 2001) and (B) not take any action that would cause such entity to fail to qualify as a TRS of CarrAmerica for so long thereafter as CarrAmerica continues to make the election to be treated as a REIT; provided that CarrAmerica shall, at the request of such entity, consent to and join in a revocation of such election if a Post-Merger De Minimis Event (as defined below) shall occur any time after the date of consummation of the business combination (which revocation shall be effective for the taxable year immediately following the taxable year in which such Post-Merger De Minimis Event occurs). CarrAmerica shall notify the Company or the surviving entity, as the case may be, in writing of the occurrence of a CarrAmerica De Minimis Event or a Post-Merger De Minimis Event no more than 10 Business Days following the occurrence of such event. The determination of when a “CarrAmerica De Minimis Event” or a “Post-Merger De Minimis Event” shall occur shall be made in accordance with the principles of the respective definitions of “EOP De Minimis Event” and “Post-Merger De Minimis Event” contained in Section 4.1 of the Preferred Stockholders Agreement, as applied to Common Stock or common stock of the surviving entity, as the case may be, owned by CarrAmerica.

 

(ii) For so long as the Company is obligated to constitute a TRS of CarrAmerica, if CarrAmerica shall so request in writing within forty-five (45) days prior to the close of any quarter of any of CarrAmerica’s taxable years beginning after December 31, 2000, the Company shall provide, within ten (10) days prior to the close of such quarter, written certification in a form reasonably acceptable to CarrAmerica that the Company constitutes a TRS of CarrAmerica. All references to the Company in this subparagraph (ii) shall include references to any successor-in-interest to the Company.

 

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(iii) Prior to the effective date of the Company’s election to be treated as a TRS of CarrAmerica, the Company shall not, without the prior written consent of CarrAmerica, provide any tenant services with respect to any property in which CarrAmerica owns a direct or indirect interest and in which a flexible workplace center was operated by a predecessor-in-interest of the Company prior to the date of this Agreement other than (A) the same types of tenant services as were provided prior to the date of this Agreement, (B) the same types of services as described in the ruling request filed by CarrAmerica with the Internal Revenue Service with respect to services provided by the Company, as supplemented, and as described in the private letter ruling issued by the Internal Revenue Service in response to such request and (C) any other services that would not cause more than 1% of the gross income derived directly or indirectly by CarrAmerica from such property to constitute impermissible tenant service income, as defined in Code Section 856(d)(7), provided that, with respect to any tenant services not described in clauses (A) or (B) which the Company notifies CarrAmerica in writing that it proposes to provide at any property, CarrAmerica shall provide such written consent as soon as is practicable after receiving such notification unless CarrAmerica determines, in its sole opinion, that the provision of such other services would give rise to a reasonable likelihood that the 1% level described in clause (C) would be exceeded at such property, and provided further that CarrAmerica shall be deemed to have given such written consent if it has not responded to the Company in writing, within 30 days of receipt of such notification from the Company, that it does not consent to the provision of the services described in the notification because it has determined that the provision of such services would give rise to a reasonable likelihood that such 1% level would be exceeded at such property. Copies of the ruling request referred to in clause (B) and any supplements or amendments thereto through the date of this Agreement, as well as copies of the private letter ruling referred to in clause (B) and any supplements or amendments thereto through the date of this Agreement, have been delivered by CarrAmerica to the Company upon or prior to the execution of this Agreement (all of which may be marked to conceal information other than any information concerning CarrAmerica and that portion of its business that relates to the company or the Company’s business, the Company and its business and the relationship and business arrangements between CarrAmerica and the Company). CarrAmerica shall deliver to the Company copies of any further supplements or amendments to the ruling request or the private letter ruling promptly after filing or receiving, as the case may be, such supplements or amendments.

 

(b) Ten Percent Voting Securities Limitation .

 

(i) From the period commencing on the date hereof and ending on January 1, 2001, the Company shall not undertake any transaction (including, without limitation, a merger, reorganization, recapitalization, stock dividend, split-off, stock repurchase or otherwise) that would result in CarrAmerica owning (or being deemed for own) more that 10% of the outstanding “voting securities” of any issuer (as determined

 

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under Section 856(c)(4)(B) of the Code). For these purposes, in no event shall CarrAmerica be deemed to own voting securities of an issuer merely as a result of the ownership of such securities by the Company or by an entity in which the Company owns an interest. Notwithstanding the foregoing, if the exception in Section 856(c)(4)(B)(iii) with respect to stock of “taxable REIT subsidiaries” which was enacted as part of the RMA, and is to become effective on January 1, 2001, is repealed, the prohibitions contained in this paragraph (b) shall not expire on January 1, 2001, but shall continue to apply (x) if such repeal occurs prior to June 16, 2002, through the date (the “Put Expiration Date”) that is either (I) if CarrAmerica does not exercise its 2002 Put Right, June 15, 2002, or (II) if CarrAmerica exercises its 2002 Put Right, July 31, 2002, or (y) if such repeal occurs on or after June 16, 2002, then, if CarrAmerica is a REIT and still holds securities of the Company, until 30 days following the first to occur of (I) an IPO, (II) the acquisition of the Company by a publicly-traded company, or (III) such other transaction pursuant to which the Company securities held by CarrAmerica become or are exchanged for securities of a publicly traded company, provided that, in the case of any transaction described in clause (I) or (III) above in which CarrAmerica is required (or at the request of the Company agrees) to enter into a lock-up, whether pursuant to Section 8.5 or otherwise, the commencement of the 30 days shall begin on the last day of such lock-up period. For these purposes, the relevant provision of the Code shall be considered to have been repealed upon the passage of legislation that would repeal such provision by both houses of Congress (prior to such legislation being signed into law and regardless of whether such passage occurs prior to the effective date of such legislation). In no event shall the provisions of this paragraph apply to a transaction that takes place or to which the Company becomes contractually committed after December 31, 2000 but prior to the repeal of Section 856(c)(4)(B)(iii) (determined as set forth in the preceding sentence).

 

(ii) In the event of any transaction that would otherwise result in a violation of this paragraph (b), the Company shall have the option to cause CarrAmerica to be offered and, if offered, CarrAmerica shall accept, consideration in the form of nonvoting securities rather than voting securities to the extent necessary to reduce CarrAmerica’s voting interest to no more than 10% of the outstanding voting securities of such issuer; provided , however , that CarrAmerica shall be required to accept such nonvoting securities (or waive the restrictions set forth in this paragraph (b)) only if (x) such nonvoting securities have economic terms that are at least as favorable to CarrAmerica as the economic terms of the voting securities that would otherwise be received by CarrAmerica, (y) CarrAmerica receives an opinion of nationally recognized tax counsel to the effect that the securities to be received will not be treated as voting securities for purposes of Section 856(c)(4) of the Code, and (z) the nonvoting securities shall be convertible into voting securities under the same circumstances that the Nonvoting Common Stock is convertible into Voting Common Stock.

 

(c) Limitation on Acquisition of Securities .

 

(i) The Company shall not undertake any transaction (including, without limitation, a merger, reorganization, distribution of securities, or otherwise) prior to the Put Expiration Date that would cause CarrAmerica to be considered to have acquired (as determined for purposes of Section 856(c)(4)(B) of the Code) any security of any issuer if, as a result thereof and immediately after such transaction, CarrAmerica

 

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would not meet one or more of the assets tests set forth in Section 856(c)(4) of the Code (the “Asset Tests”).

 

(ii) For purposes of determining whether a violation of one or more of the Asset Tests would occur for purposes of subparagraph (i) above, (A) the date of the transaction shall be treated as if it were the last day of the calendar quarter in which the transaction would occur, (B) the value of securities that CarrAmerica would be considered to have acquired in connection with the transaction for purposes of the Asset Tests shall be deemed to be the value of such securities as of the date of the transaction, increased to reflect deemed appreciation in value at an annual rate of 25%, for the period of time from the date of the transaction to the close of the calendar quarter in which the transaction takes place, and (C) CarrAmerica shall be treated as having acquired or disposed of, as the case may be, on the date of the transaction any other assets that CarrAmerica is contractually committed, on the later of the time it receives written notice of the transaction or twenty (20) business days prior to the transaction, to acquire or dispose of, as the case may be, at some future date during such calendar quarter.

 

(iii) The Company shall have the option to provide to CarrAmerica at least twenty (20) business days’ prior notice of a potential transaction that could be subject to the prohibition in this Section 4.1(c). Such notice shall contain a detailed description of the potential transaction, including the maximum reasonably expected value of any securities to be received by CarrAmerica in connection with such transaction as of the date the transaction is expected to be completed. If the Company provides such notice to CarrAmerica, CarrAmerica may, within ten (10) business days after receipt of such notice, provide the Company an opinion of counsel or its independent accountants to the effect that the execution of such transaction (taking into account the principles set forth in subparagraph (ii) above) would reasonably be expected to result in a violation of one or more of the Asset Tests (which opinion may be based upon customary representations of CarrAmerica as to factual matters). If the Company shall provide such notice to CarrAmerica, and CarrAmerica shall fail to deliver such an opinion within the requisite ten (10) business days, the Company shall be entitled to complete such transaction without any liability under this subparagraph (c).

 

(iv) From and after the Put Expiration Date through December 31, 2003, so long as CarrAmerica owns any securities of the Company, the Company shall provide to CarrAmerica twenty (20) business days’ prior notice of any transaction involving the Company that would result in CarrAmerica being deemed to have acquired additional securities of any issuer for purposes of Section 856(c)(4) of the Code, provided that such notice would not violate any confidentiality obligations of the Company. If the notice requirement set forth in this subparagraph (iv) would violate any confidentiality obligations of the Company, the Company shall use commercially reasonable efforts to obtain an exception to such confidentiality requirements in order to provide the notice to CarrAmerica.

 

(v) CarrAmerica shall maintain strict confidentiality with respect to any potential transaction of which it receives notice under subparagraph (iii) or subparagraph (iv) above, and CarrAmerica shall join in any confidentiality obligations to which the Company is subject with respect to such transaction.

 

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(vi) Notwithstanding any of the above, in the event of any transaction that would otherwise result in a violation of this subparagraph (c), CarrAmerica shall (x) accept consideration in the form of cash rather than securities (or waive the restrictions set forth in this paragraph (c)); provided , that CarrAmerica shall not be obligated to accept cash (or waive the restrictions set forth in this paragraph (c)) if the receipt of such cash would reasonably be expected to cause CarrAmerica to violate any of the income tests set forth in Section 856(c)(2) or 856(c)(3) of the Code for either of the taxable years ending December 31, 2000 or December 31, 2001; and (y) at the request of the Company, join to elect that the Company (or any successor) be treated as a “taxable REIT subsidiary” of CarrAmerica (to the extent that such an election is not then in effect and would be effective to avoid a violation of this paragraph (c) or to minimize the amount of cash that CarrAmerica must receive in order to avoid a violation of this paragraph (c)).

 

(d) Limitations on Transactions that Produce Gain .

 

(i) The Company shall not undertake any transaction (including, without limitation, a dividend, merger, reorganization, distribution of securities, or otherwise) (A) that shall result in the recognition of more than $25 million of taxable income or gain by CarrAmerica during the taxable year ending December 31, 2000 (in addition to any gain that will be recognized by CarrAmerica by reason of the consummation of the transactions contemplated by the Merger Agreement (the “Merger Agreement”) dated as of January 20, 2000, as amended, by and among HQ Global, CarrAmerica, RSI and Vantas Incorporated, a Nevada corporation, and all ancillary agreements related thereto), or (B) that shall result in the recognition of more than $75 million of taxable income or gain for CarrAmerica during the taxable year ending December 31, 2001.

 

(ii) In the event that the Company contemplates undertaking any transaction (including, without limitation, a dividend, merger, reorganization, distribution of securities, or otherwise) that is reasonably likely to result in the recognition of taxable income or gain for CarrAmerica in any single calendar year through 2003 that equals or exceeds $25 million (other than any gain that will be recognized by CarrAmerica by reason of the consummation of the transactions contemplated by the Merger Agreement and all ancillary agreements related thereto), the Company shall provide CarrAmerica with not less than seventy-five (75) calendar days’ prior written notice thereof; provided , however , that if using commercially reasonable efforts it is not practicable for the Company to provide at least seventy-five (75) c