-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Yjfn3UhQqc8G+LWV5xhMtpiUcf3BJVqdAVz7gK61foFS/QjAZHDACd0Qrk2Butuf 4tOQ/xvvkRmCU5pC9yfp3Q== 0000950116-94-000094.txt : 19940725 0000950116-94-000094.hdr.sgml : 19940725 ACCESSION NUMBER: 0000950116-94-000094 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940722 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARA GROUP INC CENTRAL INDEX KEY: 0000757523 STANDARD INDUSTRIAL CLASSIFICATION: 5812 IRS NUMBER: 232319139 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-30879 FILM NUMBER: 94539664 BUSINESS ADDRESS: STREET 1: THE ARA TOWER STREET 2: 1101 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19107 BUSINESS PHONE: 2152383000 FORMER COMPANY: FORMER CONFORMED NAME: ARA HOLDING CO DATE OF NAME CHANGE: 19880515 424B3 1 1 ARA Stock Options Prospectus 1994B THE ARA GROUP, INC. ARA OWNERSHIP PROGRAM Stock Options 14,644,387 Shares Common Stock, Class B, $.01 Par Value This Prospectus relates to up to 14,644,387 shares of the Common Stock, Class B, $.01 par value ("Common Stock" or "Class B Common Stock"), of The ARA Group, Inc. ("ARA" or the "Company") being offered upon exercise of Options to purchase shares of Common Stock heretofore or hereafter granted by the Company to eligible employees of the Company and its subsidiaries under the ARA Ownership Program (the "Program"). The Program consists of the 1984 Stock Option Plan (the "1984 Option Plan") the 1987 Stock Option Plan (the "1987 Option Plan") and the 1991 Stock Ownership Plan (the "1991 Ownership Plan"). There is no established public trading market for the Company's Common Stock and each new management investor is required to be bound by the terms of an Amended and Restated Stockholders' Agreement (the "Stockholders' Agreement") which also binds all other management investors. Management investors may transfer their shares only in limited instances, and then only in accordance with the terms of the Stockholders' Agreement. ______________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ________________________ Neither the delivery of this Prospectus nor any sale made through its use shall, under any circumstances create any implication that there has been no change in the affairs of the Company since the date hereof. This Prospectus does not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized or in any jurisdiction in which the Company is not qualified to make such an offer or solicitation or to anyone to whom it is unlawful to make such offer or solicitation. ________________________ The date of this Prospectus is July 20, 1994. 2 TABLE OF CONTENTS Page ---- Available Information...................................... 2 Prospectus Summary......................................... 3 Questions and Answers...................................... 5 The ARA Ownership Program.................................. 15 The Deferred Payment Program............................... 16 Income Tax Considerations.................................. 17 Description of Equity Securities........................... 18 Experts.................................................... 20 Incorporation of Certain Documents by Reference............ 20 Annex A -- Amended and Restated Stockholders' Agreement.. A-1 Annex B -- Stock Option Exercise Form.................... B-1 AVAILABLE INFORMATION The Company is subject to the information requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission" or the "SEC"). Reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W. Washington, D.C., and at the Commission's Regional Offices at 75 Park Place, New York, New York; and 500 West Madison Street, Chicago, Illinois. Copies of such material also may be obtained from the public reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C. at prescribed rates. In addition, reports, proxy statements and other information concerning the Company may be inspected at the offices of the Philadelphia Stock Exchange, 1900 Market Street, Philadelphia, Pennsylvania. The Company has filed with the Commission registration statements relating to the shares of Common Stock offered hereby (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. For further information, the reader is referred to the Registration Statement. The Company will provide without charge to each person holding a stock option granted under the Program, upon the request of such person, a copy of any or all of the documents which are incorporated by reference herein, other than exhibits to such documents. Written or telephone requests should be directed to William B. Bourne, The ARA Group, Inc., The ARA Tower, 1101 Market Street, Philadelphia, Pennsylvania 19107 (telephone: 215-238-3213). The ARA Group, Inc. is a Delaware corporation with its principal offices located at The ARA Tower, 1101 Market Street, Philadelphia, Pennsylvania 19107 (telephone 215-238-3000). As used herein, references to the "Company" include The ARA Group, Inc. and its subsidiaries unless the context otherwise requires. 3 PROSPECTUS SUMMARY The following is a summary of this Prospectus and is qualified in its entirety by the more detailed information appearing elsewhere in, or incorporated into, this Prospectus. The Company The Company, through ARA Services, Inc. ("ARA Services") and its other subsidiaries, is engaged in providing or managing services, including food, leisure and support services, uniform services, health and education services and distributive services. As a result of a management buyout transaction that was completed in 1984 by a group of investors led by ARA senior management, ARA Holding Company became the parent of ARA Services. Since then, the number of management investors has increased through stock offerings made from time to time to selected management employees pursuant to the ARA Ownership Program. In 1988, as part of the Company's Shareholder Enhancement Plan, management investors increased their direct ownership interest in the Company, and the Company changed its name to The ARA Group, Inc. Currently, approximately 900 management investors directly own approximately 55% of the equity of the Company. In November 1993, the Board of Directors declared and the Company paid a four-for-one split of the Common Stock effected in the form of a stock dividend. As a result of the stock split, each share of Class B Common Stock (a "Class B Share") covered by an outstanding stock option was automatically converted into the right to receive a total of four Class B Shares upon exercise of a stock option. Consequently, while the total purchase price for a stock option (assuming exercise in full) will remain virtually the same, the per share exercise price under an outstanding stock option will now be equal to the pre-split exercise price divided by four. The Option Plans The ARA Ownership Program (the "Program") provides selected management employees of the Company and its subsidiaries with an opportunity to purchase shares of ARA's Common Stock. Under the Program, selected management employees are granted options to purchase shares of Common Stock. The exercise price of each stock option is the current fair market value at the time the stock option is granted, based upon the most recent available independent appraisal. Generally, each stock option is granted for ten years, but may not be exercised at the time it is granted. Half of the option becomes exercisable after five years, and the portion exercisable increases each year thereafter until the option is fully exercisable after nine years. Options that become exercisable may be exercised at any time, until their expiration date, as long as the option holder remains an employee of the Company or its subsidiaries (or any entity designated by the Board of Directors in which ARA owns an equity interest). The specific terms of your stock option are set by the terms of the Plans and your stock option certificate. 4 How to Purchase Shares To exercise all or a portion of your stock option and thereby purchase shares, you must deliver to the Company (at the address set forth on the exercise form) (1) a completed exercise form (included in this Prospectus as Annex B), and (2) payment of the aggregate purchase price plus the aggregate amount of applicable income taxes required to be withheld or collected (as computed on the exercise form). For the exercise of non-qualified stock options, you may elect to defer payment of up to 1/2 of the total purchase price (including required withholding taxes) under ARA's Deferred Payment Program. Stockholders' Agreement At the time of the ARA management buyout in 1984, all of the management investors and other investors (except the ARA employee benefit plans, which were prohibited by law from doing so) entered into a Stockholders' Agreement. The Stockholders' Agreement was entered into to assure that the Company would have consistent and uniform management as a private company, and that ownership of the Company would be strictly controlled. At the time of the adoption of the Shareholder Enhancement Plan in 1988, the Stockholders' Agreement was amended and restated. By exercising your stock option, you will be agreeing to be bound by the terms of the Stockholders' Agreement. Under the terms of the Stockholders' Agreement, your investment in the Common Stock can be sold only in limited instances. In addition, upon your termination of employment, the Company may, but is not generally obligated to, repurchase your shares. The Stockholders' Agreement also provides that each year you must vote your shares in favor of the election of directors nominated by the Board of Directors. The terms of the Stockholders' Agreement are summarized in this Prospectus, and a copy of the Stockholders' Agreement is included as Annex A. Other Factors You have received a copy of ARA's most recent annual report on Form 10-K. The annual report contains financial and other information about ARA's operations. Available information for subsequent periods can be obtained as described under "Available Information" on page 2. You should read carefully the annual report as well as this Prospectus, and consider the following (as well as the other information presented) before electing to invest. Additional Information If you did not receive a copy of ARA's most recent annual report on Form 10-K, or if you have any questions about the Program or would like to obtain further information, you should call one of the following persons in the ARA Corporate Human Resources Department: William Bourne at (215) 238-3213 Mari Fulginiti at (215) 238-3217 5 QUESTIONS AND ANSWERS To assist you in better understanding the offering, this Prospectus briefly describes certain significant provisions of the Program, the Common Stock and the Stockholders' Agreement in a question and answer format. For more complete answers to the questions, you are referred to the text of the Stockholders' Agreement. References to the appropriate sections of the Stockholders' Agreement appear below at the end of the answers to specific questions where applicable. Those sections are incorporated by such reference into the answer, and the answer is qualified in its entirety by such reference. The text of the Stockholders' Agreement is set forth as Annex A to this Prospectus. 1. Q: What is The ARA Group, Inc.? A: The ARA Group, Inc. was formed by a group of investors led by ARA senior management and acquired ARA Services in a management buyout transaction in 1984. As a result of the adoption of the Shareholder Enhancement Plan in 1988, management investors directly own approximately 50% of the equity of the Company. 2. Q: Are the shares of Common Stock being offered the same as the shares owned by current management investors? A: Yes, with the same rights and obligations to which current management investors are subject under the Stockholders' Agreement. 3. Q: Am I required to purchase shares? A: No. Any exercise of all or any portion of your stock option by you is strictly voluntary. 4. Q: What is the purchase price per share? A: The price per share for your stock option is set at the time your stock option is granted. The price appears on your certificate and represents the fair market value based on the most recent available independent appraisal as of the date of grant. This price remains fixed subject to adjustments for stock dividends, stock splits, reorganizations, mergers or the like as described in Question 5 below. 5. Q: Is my stock option adjusted in the event of a Common Stock dividend, split, reorganization, merger or the like? A: In such cases your stock option will be equitably adjusted, if appropriate, as determined by the Human Resources, Compensation and Public Affairs Committee of the Board of Directors. For example, as a result of such adjustments previously made, a stock option originally granted in February 1985 for 10 shares at an exercise price of $350.00 per share is now an option for 4,280 shares at an exercise price of $.81 per share. 6. Q: When can I exercise my stock option and purchase shares? A: You can exercise your stock option (and thereby purchase shares) only after the conditions set forth in your stock option certificate are satisfied. Generally, stock options have two conditions: (1) You must have held your stock option for at least the minimum time specified in your certificate. 6 (2) A registration statement must have become effective with respect to the exercise of your option. This second condition has been satisfied for all stock options under the Program. 7. Q: What is the required holding period for stock options? A: The required holding period is specified in your stock option certificate. Generally, half of your option becomes exercisable after five years, and the portion exercisable increases each year thereafter until the option is fully exercisable after nine years. 8. Q: Do the stock options have an expiration date? A: Yes. The expiration date is specified in your stock option certificate. Generally, stock options expire ten years after they are granted. 9. Q. What if my employment is terminated? A: Your stock option is canceled if your employment with the Company and its subsidiaries (or any entity designated by the board of directors in which ARA continues to own an equity interest) is terminated for any reason. Unless you are terminated for cause, however, you may exercise your option at any time during the three months following your termination (but not after the expiration date of your option) to buy those shares which were exercisable at the time of your termination. If you die or become permanently disabled while employed by the Company and its subsidiaries, (or any entity designated by the board of directors in which ARA continues to own an equity interest) you (or your legal representative) may exercise your options at any time during the 12 months after your disability or death (but in any case not after the expiration date) to buy those shares which were exercisable at the time of your disability or death. See Questions 44 and 45 for information relating to the Company's ability to call any shares obtained upon exercise of stock options and the price paid for such shares upon exercise of a Call. 10. Q: If I exercise only a portion of my stock option, what happens to the unexercised portion of my stock option? A: The unexercised portion of your stock option is not affected. 11. Q: How do I purchase shares of Common Stock? A: To exercise all or a portion of your stock option and thereby purchase shares, you must deliver to the Company, at the address which appears on the exercise form included in this Prospectus as Annex B, (1) your completed exercise form and (2) payment of the aggregate purchase price plus the estimated aggregate amount of applicable income taxes required to be withheld or collected. Instructions for computing your estimated income taxes are included on the exercise form. For the exercise of non-qualified stock options, you may elect to defer payment of up to 1/2 of the total purchase price (including required withholding taxes) under ARA's Deferred Payment Program (see Questions 19 through 30). 12. Q: Do I have to pay taxes when I exercise my stock option? A: The answer depends on whether your option is an incentive stock option or a non-qualified stock option. Certain stock options issued in 1985 are incentive stock options ("ISOs"), and income subject to regular taxation generally 7 is not recognized upon their exercise. Your stock option certificate will state whether your stock option is intended to be an ISO. However, stock options held by employees of former subsidiaries of ARA (regardless of any statement in the stock option certificate) are non- qualified stock options. All other stock options are non-qualified stock options, and taxes are payable upon their exercise. The tax consequence of exercising an ISO involves the Alternative Minimum Tax ("AMT") and can be very complex. You are urged to discuss any planned exercise of ISOs with your tax adviser. See "Federal Income Tax Considerations". 13. Q: Why do I have to pay taxes when I exercise a non-qualified stock option? A: When you exercise a non-qualified stock option, the difference (if any) between the exercise price and any higher fair market value of the Common Stock at the time of the exercise is considered under the tax law to be ordinary taxable income. The Company is required to withhold taxes at the time of the exercise. These include federal income taxes, social security taxes (if appropriate), applicable state income taxes, and state unemployment taxes (depending on the state in which you are employed). This is not necessarily the entire amount of tax that you will owe as a result of this exercise. Additional tax, including estimated tax payments, may be required to meet your full tax liability due to this exercise. You should discuss your particular situation with your tax advisor. 14. Q: Will the Company report to the IRS the taxable income (if any) that I realize upon the exercise of my non-qualified stock option? A: Yes. The taxable income (if any) and the taxes withheld will be reported on your W-2 form for the year in which the purchase occurs. The purchase occurs at the time your completed exercise form and your check are received by the Company. 15. Q: How will I know what the fair market value of the Common Stock is when I exercise a non-qualified stock option? A: The Company's current practice is to have the Common Stock appraised periodically by an independent appraiser. The appraised fair market value at December 1, 1993 was $11.20, which includes the effect of the November 1993 stock split. 16. Q: Can I compute the amount of withholding tax I must deposit with the Company prior to exercising a non-qualified stock option? A: Yes. The exercise form (included in this Prospectus as Annex B) includes a worksheet which allows you to compute the amount of applicable taxes required to be withheld or collected. 17. Q: Can I borrow money to purchase the shares covered by my stock option? A: Yes. Generally, you must make your own financing arrangements. However, for the exercise of non-qualified stock options, you may elect to defer payment of up to 1/2 of the total purchase price (including required withholding taxes) under ARA's Deferred Payment Program (see Questions 19 through 30). 8 18. Q. May I pledge my shares of ARA Common Stock? A. Yes, you may pledge your shares to a commercial bank, savings and loan institution or any other lending or financial institution as security for your indebtedness. However, you may do so only if the lender agrees that, upon realization of its security, the shares shall remain subject to all of the terms of the Stockholders' Agreement and that the lender will dispose of the shares only in compliance with the terms of the Stockholders' Agreement. (Section 3.02(e)) If you are eligible to participate in ARA's Deferred Payment Program, you will be required to pledge shares to ARA (see Questions 19 through 30). 19. Q: What is the Deferred Payment Program? A: The Deferred Payment Program is a Company program that allows you to purchase shares of Common Stock pursuant to your exercise of a non-qualified stock option and defer paying a portion of the total purchase price. 20. Q: Will the Deferred Payment Program be offered for future non-qualified stock option exercises? A: The Company anticipates the Deferred Payment Program will continue to be offered. However, the Deferred Payment Program is subject to cancellation or modification at the discretion of the Board of Directors at any time without notice. 21. Q: Do I have to participate in the Deferred Payment Program? A: No. Any participation by you is strictly voluntary. 22. Q: How much of the purchase price payment may I defer under the Deferred Payment Program? A: You may defer payment of up to 1/2 of the total purchase price (including required withholding taxes) for the shares you are purchasing. The maximum amount that can be deferred is equal to 1/2 of the Total Amount Due, as computed on line 11 of the Stock Option Exercise Form. 23. Q: How do I elect to participate in the Deferred Payment Program? A: In order to participate in the Deferred Payment Program when exercising your non-qualified stock option, you should indicate the amount to be deferred on the Stock Option Exercise Form and also complete the Deferred Payment Obligation form, which is on the reverse side. 24. Q: What are the terms of the Deferred Payment Program? A: The deferred payment is due, plus interest, on the February 15, next following the third anniversary of the date the option is exercised. For example, for an option exercise in June 1994, the deferred payment is due on February 15, 1998. Interest accrues at an interest rate to be established at the time the option is exercised, and is payable at the same time the deferred payment is due. (The interest rate is based on the current prime rate.) All of the shares purchased pursuant to the option exercise are pledged to secure the deferred payment obligation, and the Company holds the share certificates. If you sell or otherwise transfer the pledged shares, the deferred payment becomes due at the time of the sale. 9 25. Q: Will I be able to sell pledged shares in the internal market or under the Emergency Buyback Program? A: Yes. However, your deferred payment obligation will become due at the time of such sale. 26. Q: Will I be able to sell shares to pay my deferred payment obligation at the time it becomes due? A: The Company intends to allow you to sell shares at that time. However, all repurchases of shares by the Company must be approved by the Board of Directors and are subject to the ability of the Company to do so under its financing agreements. 27. Q: Can I prepay my deferred payment obligation? A: Yes. You may prepay your deferred payment obligation at any time. 28. Q: Will the pledged shares be subject to the Stockholders' Agreement? A: Yes. 29. Q: What are the anticipated federal income tax consequences to me for participation in the Deferred Payment Program? A: The tax consequences of exercising your stock option will not change. Generally, under current federal law, the interest paid at the time of making the deferred payment would be treated for federal income tax purposes as "investment interest." Accordingly, it may be deductible, but only to the extent of investment income received during the year the interest is paid. The 1993 tax law changes have limited the types of income that can be included in "investment income" and now exclude from that category any income taxed at the favorable capital gains rate. As a result, you may not be able, or wish, to deduct deferred payment interest when you pay it. However, investment interest expense, including deferred payment interest, that is not deducted for federal income tax purposes may be carried forward indefinitely until it is used. You are urged to discuss this matter with your tax advisor. 30. Q: Will my obligation to pay the deferred payment be treated as debt for my personal credit purposes? A: Any decision regarding your personal credit, whether for a home mortgage or otherwise, would be made by a lender. The Company understands that generally the deferred payment obligation would be treated as debt for personal credit purposes by lenders. 31. Q: Will I receive a stock certificate for the shares of Common Stock that I purchase? A: Yes, unless you are eligible and have elected to participate in ARA's Deferred Payment Program (see Questions 19 through 30). 32. Q: Can I have the shares registered jointly in my name and my spouse's name? A: Yes, you can register shares in the names of you and your spouse, as joint tenants, provided both you and your spouse sign the exercise form. (Introduction to the Stockholders' Agreement) 10 33. Q: Will I receive dividends on the Common Stock? A: If the Board of Directors declares a dividend, holders of Common Stock on the dividend record date will be entitled to receive that dividend. 34. Q: Will I be entitled to vote on any matters submitted to a vote of The ARA Group, Inc. stockholders? A: Yes, however you will be bound by the terms of the Stockholders' Agreement. You will generally be free to vote your shares in any manner you choose on any matters properly presented to the stockholders. However, you will be required to vote your shares in favor of the election of directors nominated by the Board of Directors. This has the effect of granting to the existing directors the right to select their successors. (Section 2.01) 35. Q: May I transfer my shares of Common Stock? A: Generally, you may not sell or otherwise transfer your shares of Common Stock (other than in certain limited instances). (Section 3.02(a)) 36. Q: May I transfer my shares of Common Stock for estate or tax planning purposes? A: Yes. You may transfer your shares for estate or tax planning purposes as gifts to your spouse, child, grandchild or parent or a trust for the benefit of any of them or to a qualifying charitable organization. You may also make other transfers to your family members, their trusts or other entities if the transfer is approved by the Company's Board of Directors. (Section 3.02)(d)) 37. Q: Are these permitted transfers subject to any conditions? A: Yes. The transferee must sign a document confirming that he or she is acquiring the shares subject to all the terms and conditions of the Stockholders' Agreement, and such document must be delivered to and approved by the Company at least five business days before the transfer. (Section 3.01) 38. Q: Will I be able to sell shares back to the Company? A: Yes. Primarily you will be able to sell your Class B and Series C Shares to the Company in the internal market. Secondly, the Company provides an Emergency Buyback Program to accommodate certain limited instances when unanticipated emergencies arise. The Company anticipates that the combination of the internal market and the emergency buyback program should provide adequate liquidity to all management investors on an orderly and equitable basis. The Company also provides an offer to sell procedure for the Class B Shares that could be utilized. These three methods for realizing liquidity are described more fully below (see Questions 39, 40 and 41). Of course, the ability of the Company to repurchase shares is subject to the Company's continued strong operating and financial performance. (Section 7). 39. Q: What is the internal market? A: The internal market is a process whereby the Company, on a periodic basis, offers to purchase some of your Class B and Series C Shares. At the time of the offer, each management owner will then be able to decide whether to accept or reject the offer. The internal market provides a way for management owners to sell some of their stock holdings. In this regard, a management owner can pursue a sale of stock in the internal market in excess of the guideline stated below by contacting one of the persons listed on page 4 of this Prospectus. 11 The initial Internal Market Policy approved for 1994 consists of two semi-annual repurchase periods, and subject to further review and approval by the Board of Directors prior to each subsequent annual offering, is as follows:
Class B Shares Series C Shares -------------- --------------- Offering Periods: December 15, 1993 to January Same as for Class B 15, 1994 and July 15, 1994 to Shares, except that August 16, 1994 initial offering period does not begin until January 1, 1994 Offerees: All management owners All management owners Purchase Price: The most recent available $1,000 per share plus appraised value, as of accrued and unpaid dividends December 1, 1993, and as of June 1, 1994 respectively Payment Terms: Cash Cash Individual Guideline for Generally, up to $50,000 or, Unlimited each Offering Period: if greater, 10% of shares owned (up to a maximum of $150,000); requests for larger sales can be made by contacting one of the persons listed on page 4 of this Prospectus Required Holding Shares owned for less than six None Period: months are not eligible for resale in the internal market
40. Q: What is the Emergency Buyback Program? A: From time to time there may be compelling circumstances when an unanticipated emergency arises which may cause a management owner to request the Company to repurchase Class B or Series C Shares. Each request will be reviewed individually, taking into account all relevant circumstances. 41. Q: Will I be able to sell my Class B shares in any other way? A: The anticipated normal procedure for selling Class B Shares is through the internal market. However, you could also offer a portion of your Class B Shares to the Company at the current appraised Fair Market Value of the Common Stock. Annually you could offer to sell up to the lesser of 10% of your Class B Shares or $100,000 in share value. These rights are cumulative beginning in 1990. In other words, if you did not choose to sell in one year, the following year you could offer to sell up to the lesser of 20% of your Class B Shares or $200,000 in share value, etc. In the event your Class B Shares were not purchased by ARA you could offer to sell your Class B Shares within the next 90 days to a third party who agreed to abide by all the terms of the Stockholders' Agreement, on the same terms offered to ARA. (Section 4) Upon termination for any reason, subject to the Company's right to Call your Class B Shares (see Question 44), you could offer to sell your Class B Shares as described above. 12 Additionally, if the reason for termination were death, Complete Disability or Normal Retirement, then the annual 10%/$100,000 limitation would no longer be applicable. (Sections 1.04, 1.06 and 3.02(a)) 42. Q: Will I be able to require the Company to repurchase shares? A: Generally no. However, upon your death, Complete Disability or Normal Retirement, you or your estate as appropriate, subject to the Company's financing agreements, can require the Company to purchase up to 30% of your shares. This right to require the Company to purchase shares is described as a "Put". The Company will be required to purchase these shares for cash at the current appraised Fair Market Value of the Common Stock. The Company intends to purchase ("Call") your remaining shares (see Question 44). However, in the event the Company does not Call your shares, then you could offer to sell the remaining shares (see Question 41). (Section 5) 43. Q: Will the Company inform me prior to the time that I purchase from the Company (through the exercise of an option or otherwise) or sell to the Company (in the internal market or otherwise) any of my shares of stock of any pending or potential transaction that could increase or decrease the value of the stock? A: No. The Company has no obligation to disclose any pending or potential transaction in connection with your decision to purchase from or sell to the Company any shares of Company stock owned by you. The Company does not disclose publicly its projections or the status of any transaction that may be under consideration. This information is generally confidential, and the Company could be adversely affected if such information should become publicly known. (Section 8) 44. Q: If my employment with the Company and its subsidiaries is terminated for any reason, does the Company have the right to require me to sell my shares to the Company? A: Yes. This right of the Company to require you to sell your Class B Shares is described as a "Call". At any time during the 10 years following the termination of your employment, the Company has the right to Call any or all of your Class B Shares and any or all of the Class B shares of all of your permitted transferees. The Company's intention is to promptly exercise this right if you are terminated for any reason for all Class B Shares except those acquired by exercising stock options shortly before or after termination. The Company intends to call those Class B Shares approximately six months after they were acquired. (Section 6) 45. Q: How will I be paid for my Class B Shares when they are Called? A: The Company will purchase your Class B Shares at the lesser of the appraised Fair Market Value of the Common Stock at the time of the exercise of the Call or the appraised Fair Market Value at the time of termination plus 8% simple interest to the date of the exercise of the Call. Under the terms of the Stockholders' Agreement, payment will be in cash up to the least of 10% of shares called, $100,000 or your highest base salary, with the remainder paid in installment notes. (Section 6.02) 13 46. Q: What are the terms of the installment notes? A: The Stockholders' Agreement provides for the following terms for the installment notes. Annual cash payments will equal the least of 10% of the principal, $100,000 or your highest base salary. At the end of the 10th year following termination, any remaining balance on the notes will be paid in cash. Interest will be paid semi-annually and the rate will be fixed at the Applicable Federal Rate which currently varies from approximately 4.3% to 7.2% depending upon the term of the note (Section 1.08). 47. Q: If the Company purchases my Class B Shares using, in part, an installment note, will I have to pay tax on the entire gain in the first year? A: Generally, no. The purchase using a note usually will qualify for installment treatment under the federal income tax laws. You should be able to recognize taxable gain in proportion to the cash payments of principal you will receive over the years. You should consult with your tax advisor to determine if installment sale treatment is advantageous to you and how you should report it on your tax returns. 48. Q: What is the Stock Repurchase Policy? A: The Company's Stock Repurchase Policy provides for payment terms that are generally more favorable to you than the payment terms provided for in the Stockholders' Agreement. This Policy, which is described below (see Questions 49 through 53), may be amended, discontinued or varied for all repurchase transactions generally or for any specific repurchase transaction at any time by the Company without notice. The Policy does not affect the total repurchase price which you will be paid for your shares. 49. Q: If I terminate before age 55 and my Class B Shares are Called, what does the Stock Repurchase Policy currently provide? A: The initial cash payment will be a minimum of $50,000 and each annual principal installment on the promissory note will be a minimum of $25,000. 50. Q: If I terminate at or after age 55 but before Normal Retirement and my Class B Shares are Called, what does the Stock Repurchase Policy currently provide? A: The total repurchase price will be paid in an initial cash payment and subsequent annual principal installments on the promissory note in equal amounts, so that the entire repurchase price will have been paid before you reach age 66. Each such payment is subject to a minimum of $50,000 and a maximum of $300,000, with any remaining balance paid in the final installment. 51. Q: If I terminate through Normal Retirement and my Class B Shares are Called (or if I exercise my Put and the remainder of my Class B Shares are Called), what does the Stock Repurchase Policy currently provide? A: Generally, Normal Retirement means you are at least age 60 and you retire from active employment. The initial cash payment will be 30% of the total repurchase price. The remainder of the total repurchase price will be paid in equal annual principal installments on the promissory note so that the entire repurchase price will have been paid before you reach 66 (or if you are 63 or over, in 3 equal annual principal installments). Each such payment is subject to a minimum of $50,000 and a maximum of $300,000, with any remaining balance paid in the final installment. 14 52. Q: If I die or become Completely Disabled and my Class B Shares are Called (or if my estate exercises its Put and the remainder of my shares are Called), what does the Stock Repurchase Policy currently provide? A: The initial cash payment will be 30% of the total repurchase price. The remainder of the total repurchase price will be paid in three equal annual principal installments on the promissory note. Each such payment is subject to a minimum of $50,000 and a maximum of $300,000, with any remaining balance paid in the final installment. 53. Q: Does the Stock Repurchase Policy provide for an alternative interest rate on the promissory note? A: Yes. In lieu of a fixed interest rate (equal to the Applicable Federal Rate at the time of the repurchase) for the entire life of the promissory note, you may make a one- time irrevocable election at the time of repurchase for the rate to reset annually on the date of each principal payment to the Applicable Federal Rate then in effect. 54. Q: Do the Call rights apply to a termination of my employment with ARA and its subsidiaries which is beyond my control? A: Yes. The Call rights apply to all terminations of employment with ARA and its subsidiaries without regard to cause, including death, permanent and complete disability, voluntary or involuntary termination of employment and retirement. For example, if ARA were to sell the division or subsidiary in which you work, then the Call rights would apply even though you were continuing to work in the same organization. (Section 6) 55. Q: What if ARA cannot repurchase my Class B Shares pursuant to the exercise of a Put or a Call because it would cause a default under one of ARA's loan agreements or would violate applicable law? A: Your Class B Shares would be repurchased on the earliest practicable date when such repurchase could be effected in compliance with such loan agreement and applicable law. The price to be paid could be affected because of such delay. (Section 12) 56. Q: If I voluntarily terminate my employment, the Company has the right to Call my Class B Shares. Will the Company inform me prior to the time I terminate my employment of any pending or potential transaction that could increase the value of the Common Stock? A: No. The Company has no obligation to disclose any pending or potential transaction in connection with your decision to terminate your employment (or in connection with your decision to exercise a Put or in any other circumstance). The Company does not disclose publicly its projections or the status of any transaction that may be under consideration. This information is generally confidential, and the Company could be adversely affected if such information should become publicly known. (Section 8) 57. Q: When will I be able to transfer my Class B Shares freely without having to comply with the restrictions on transfer contained in the Stockholders' Agreement? A: Generally, the Stockholders' Agreement will continue in force unless the stockholders who are parties to the Agreement and the Company vote to terminate or change it. (Section 15) 15 THE ARA OWNERSHIP PROGRAM The ARA Ownership Program (the "Program") is designed to provide an opportunity for selected management employees of the Company and its subsidiaries to acquire an ownership interest in the Company and thereby give them a more direct and continuing interest in the future success of the Company's business. Under the Program, the direct ownership in the Company has increased from 62 original management investors in 1984 to approximately 900 management investors today owning approximately 55% of the equity. In addition, at February 1, 1994, management employees held installment stock purchase opportunities for 8,281,160 shares and stock options for an additional 1,567,856 shares. The Company's senior management believes that management ownership has significantly contributed to the Company's success, and intends to continue to use the Program to expand both the number of management investors and their percentage ownership. The Program uses the 1984 Stock Option Plan, the 1987 Stock Option Plan and the 1991 Stock Ownership Plan. These Plans allow the Company to offer, and under the Program the Company has offered, stock purchase opportunities to selected employees in three different ways: the direct sale of shares, the grant of installment stock purchase opportunities, and the grant of stock options. In choosing the form of stock ownership opportunity to be offered, the Company considers, among other factors, the number of offerees and their ability generally to finance an investment. This Prospectus relates to the grant and exercise of stock options. The 1984 Option Plan was adopted by the Board of Directors and approved by the stockholders in December 1984 in connection with the management buyout. Amendments to the Plan were approved by the stockholders in February 1987. The Plan provides for the issuance of up to 14,643,192 shares of Common Stock through the granting of incentive stock options and/or nonqualified options. Under the terms of the Plan, a specified number of the options are reserved for issue in connection with promotions or to new hires. On February 1, 1994, 1,883,448 options were outstanding under the Plan and 1,501,506 shares were available for the grant of future options under the Plan. The 1987 Option Plan was adopted by the Board of Directors in May 1987 and was approved by stockholders in February 1988. The Plan provides for the issuance of up to 8,357,956 shares of Common Stock through the granting of incentive stock options and/or nonqualified options. On February 1, 1994, 1,750,228 options were outstanding under the Plan and 2,396,188 shares were available for the grant of future options. The 1991 Ownership Plan was adopted by the Board of Directors in November 1991. The Plan provides for the issuance of up to 8,513,372 shares of Common Stock through the granting of nonqualified options. On February 1, 1994, 6,215,340 options were outstanding under the Plan and 897,677 shares were available for the grant of future options. In accordance with the terms of the Plans, the purchase price for shares subject to stock options granted under the Plans will not be less than the fair market value of the shares (based upon the most recent available independent appraisal) on the date of the grant. Shares issued pursuant to the Plans are subject to the Stockholders' Agreement. The Plans provide that the terms of options and purchase opportunities outstanding under the Plans and the number of shares authorized under the Plans will be appropriately adjusted upon the declaration of stock dividends and upon the occurrence of certain other events. The Plans grant certain authority to the Human Resources, Compensation and Public Affairs Committee (the "Committee") which consists of six members of the Board. 16 The Committee is authorized to grant stock options and to determine the number of shares to be offered thereby to each selected key employee. The term "key employee" is not defined in the Plans, and subject to the express provisions of the Plans, the Committee has complete authority to determine the employees who receive stock options thereunder. As a result, the number of employees eligible to participate in the Plans is not determinable. Stock options are not transferrable. No stock option can be subject to attachment, execution or levy of any kind. Each stock option shall be exercisable only by the employee to whom it is granted and only while an employee of ARA or a subsidiary (or any entity in which ARA continues to own an equity interest and which the board of directors designates). ARA will use the net proceeds from the sale of shares pursuant to exercises of stock options for general corporate purposes. The Plans are not subject to any provisions of the Employee Retirement Income Security Act of 1974 and are not "qualified" within the meaning of Section 401(a) of the Internal Revenue Code. The Board of ARA or the Committee may establish such procedures as it deems appropriate for the administration of the Plans. It may also include at the time a stock option is granted such additional terms and conditions as it deems desirable to the extent such are not inconsistent with the Plans. The opinion of the Committee, or the Board for certain matters described in the Plans, shall be final and binding upon all persons in interest, including employees, ARA and its stockholders. The Board may amend the Plans from time to time as it deems desirable, except that certain amendments to the 1984 Option Plan or the 1987 Option Plan require stockholder approval. Neither the Plans nor any stock option granted under the Plans gives any employee the right to continue in the employ of ARA or its subsidiaries or limits in any respect the right of ARA or any subsidiary to terminate such employee. The appraised fair market value of the Common Stock as of December 1, 1993 was $11.20. The appraisal of the fair market value of the shares of Common Stock was provided by Willamette Management Associates, Inc. ("Willamette"), a professional independent appraiser. Such appraisal was based on the financial condition and results of operations of ARA, a comparison of ARA with other companies with similar characteristics, and other factors prevailing at the time such determination was made. In connection with the services rendered by Willamette with respect to the preparation of the appraisal referred to above and other appraisals of Company securities within the 12 months prior to the date of this Prospectus, Willamette has received fees from the Company of approximately $100,000 plus reimbursement of certain expenses. In addition, the Company has agreed to indemnify Willamette against certain liabilities which it might incur in connection with the preparation of the appraisal referred to above or otherwise as a result of the services rendered by such firm. THE DEFERRED PAYMENT PROGRAM The Deferred Payment Program was adopted in 1992 and is designed to enable employees to take better advantage of stock options granted to them, by giving them the alternative to defer payment of a portion of the purchase price. The Company anticipates that the Deferred Payment Program will continue to be offered. However, the Program is subject to cancellation or modification at the discretion of the Board of Directors at any time without notice. The Deferred Payment Program currently in effect will permit the holder of a non-qualified stock option to defer payment of up to one-half of the total purchase price (including required withholding taxes) for the shares being purchased. Accordingly, 17 payment may be deferred for up to 47 months in some cases. (In order to comply more clearly with certain laws which may be applicable, ARA has the right to require the payment on demand. However, ARA has no intention of exercising such right.) Interest will accrue on any deferred payment at a fixed annual rate (to be established at the time the option is exercised) and payable at the time the deferred payment is due. ARA may from time to time select a different interest rate for use in future deferred payment obligations. However, the interest rate at the time a deferred payment obligation is entered into is fixed for the entire term of the obligation. The Company will hold as collateral all shares purchased in which any portion of the purchase price is financed under the Deferred Payment Program until the deferred payment is received by the Company. Deferred payment obligations may be prepaid at any time at the election of the employee and will become due immediately in the event any shares securing the deferred payment obligation are sold or otherwise transferred by the stockholder (whether pursuant to a call of such shares by ARA upon termination of employment or otherwise). Holders of stock options are not required to use the Deferred Payment Program. If you have any questions about the Deferred Payment Program, you should call Liza Cartmell at the ARA Corporate Treasury Department (telephone: 215-238-3187). INCOME TAX CONSIDERATIONS The following discussion is not intended to be a complete statement of the federal income tax consequences of the granting and exercise of stock options pursuant to the Plans or the disposition of shares acquired upon exercise of such stock options. Because of the complexities of the federal income tax law, option holders are urged to consult their own tax advisers. Stock options granted pursuant to the Plans are intended to be either incentive stock options or non-qualified stock options for federal income tax purposes. Incentive stock options are identified as such on your stock option certificate. However, stock options held by employees of former subsidiaries of ARA (regardless of any statement in the stock option certificate) are non-qualified stock options. All other stock options are non-qualified stock options. Incentive Stock Options With respect to incentive stock options, ARA understands that under current federal income tax laws, if shares purchased pursuant to the exercise of an incentive stock option are not disposed of by the employee within one year after the exercise of the option, then (i) no income subject to regular taxation will be recognized to the employee either at the time of grant or at the time of exercise of the option; (ii) any gain or loss (calculated with reference to the option exercise price) will be recognized to the employee only upon the ultimate disposition of the shares and, assuming the shares constitute capital assets in the employee's hands, will be treated as long-term capital gain or loss; and (iii) the difference between the option exercise price and the fair market value of the shares at the time of exercise will be treated as an "item of tax preference", subject to AMT. ARA further understands that if the employee disposes of the shares acquired by exercise of an incentive stock option before the expiration of the required holding period, the employee must treat as ordinary income in the year of such disposition an amount equal to the difference between the option exercise price and the lesser of the fair market value at the time of exercise or the selling price. The balance of the employee's gain on such disposition, if any, may be taxed as capital gain. None of the gain on such a disposition would be an item of tax preference subject to AMT. 18 Non-Qualified Stock Options With respect to the non-qualified stock options, ARA understands that, under current federal income tax laws, (i) no income will be recognized to the employee at the time of grant; (ii) upon exercise of a stock option, the employee must treat as ordinary income the difference, if any, between the exercise price and any higher fair market value of the Common Stock on the date of exercise, and (iii) assuming the shares received upon exercise of such stock options constitute capital assets in the employee's hands, any gain or loss upon disposition of shares (measured by reference to the fair market value of the shares on the date of exercise) may be treated as capital gain or loss. None of the income from exercise of non- qualified options or gain from the sale of stock acquired through exercise of such options would be an item of tax preference subject to AMT. ARA further understands that income recognized upon the exercise of a non-qualified stock option is subject to tax withholding and that it is obligated to withhold or collect an amount equal to a portion of the tax applicable to such income. Consequently, ARA requires the exercising employee to deposit with ARA the amount of the taxes required to be withheld or collected. The Company is required to report to the IRS the amount of ordinary income generated by the exercise of a purchase opportunity by including that amount as compensation in the employee's form W-2, and the employee is required to report that amount in his/her tax return. If payment of a portion of the exercise price is deferred under the Deferred Payment Program, the interest paid at the time of making the deferred payment would be treated as "investment interest". Accordingly, it may be deductible, but only to the extent of investment income received during the year the interest is paid. The 1993 tax law changes have limited the types of income that can be included in "investment income" and now exclude from that category any income taxed at the favorable capital gains rate. As a result, you may not be able, or wish, to deduct deferred payment interest when you pay it. However, investment interest that is not deducted can be carried forward and be deductible in future years to the extent of the holder's investment income in such years. You are urged to discuss this matter with your tax advisor. Similarly, to the extent that stock options are exercised using other borrowed funds, the interest incurred on such borrowing may also be treated as "investment interest". You are urged to discuss this matter as well with your tax advisor. DESCRIPTION OF EQUITY SECURITIES General The authorized capital of the Company consists of 185,000,000 shares, which includes 150,000,000 shares of Common Stock, Class B, par value $.01 per share ("Common Stock" or "Class B Common Stock") 25,000,000 shares of Common Stock, Class A, par value $.01 per share ("Class A Common Stock"); and 10,000,000 shares of Series Preferred Stock, par value $1.00 per share ("Series Preferred Stock"). As of February 1, 1994, 26,139,143 shares of Class B Common Stock were issued and outstanding (not including 9,967,555 shares subject to options, installment stock purchase opportunities and deferred stock units granted and outstanding under the Company's Plans), 2,100,761 shares of Class A Common Stock were issued and outstanding, and 19,873 shares of Series Preferred Stock were outstanding. Management investors (approximately 900 persons at the date of this Prospectus) hold all of the shares of outstanding Class B Common Stock of the Company. There is no established public trading market for the Class A or Class B Common Stock or the Series C Preferred Stock of the Company. The following is a summary of certain provisions of the Restated Certificate of Incorporation of the Company (the "Certificate of Incorporation") and the By-Laws of the Company, as amended. The summary is qualified in its entirety by reference to such documents filed as exhibits to the Registration Statement of which this Prospectus is a part. 19 The Class A Common Stock and the Class B Common Stock Voting. Each share of Class A Common Stock and each share of Class B Common Stock entitles the holder thereof to one vote on all matters submitted to the stockholders. All actions submitted to a vote of stockholders are voted upon by holders of Class A Common Stock and Class B Common Stock voting together except that the holders of Class A Common Stock and Class B Common Stock vote separately as classes with respect to amendments to the Company's Certificate of Incorporation that may alter or change the powers, preferences or special rights, of their respective classes of stock so as to affect them adversely, and such other matters as may require class votes under the Delaware General Corporation Law. There is no provision in the Certificate of Incorporation permitting cumulative voting. Dividends and Other Distributions (including Distributions upon Liquidation of the Company). Dividends on the Class A Common Stock and the Class B Common Stock are paid when, as and if declared by the Board of Directors and permitted under the Company's loan agreements. In respect of rights to dividends and other distributions in cash, stock or property of the Company (including distributions upon liquidation of the Company, after provision for creditors of the Company and any shares of the Company's capital stock having a preference on liquidation, dissolution or winding up of the Company) each share of Class A Common Stock is entitled to ten times the dividends and other distributions payable on each share of Class B Common Stock when, as and if such dividends or distributions may be declared and/or paid provided, however, that in the case of dividends or other distributions payable on the Class A Common Stock and the Class B Common Stock in capital stock of the Company other than Preferred Stock, including distributions pursuant to split-ups or divisions of the Class A Common Stock or the Class B Common Stock, only Class A Common Stock is distributed with respect to Class A Common Stock and only Class B Common Stock is distributed with respect to Class B Common Stock. In no event may either Class A Common Stock or Class B Common Stock be split, divided or combined unless the other is split, divided or combined equally. Convertibility. The Class A Common Stock is not convertible. Subject to the prior approval of the Board of Directors, the Class B Common Stock is convertible at all times, in whole or in part, and without cost to the stockholder, into Class A Common Stock on the basis of ten shares of Class B Common Stock for each share of Class A Common Stock. Only full-time employees and directors of the Company (and their Permitted Transferees while the transferor is a full-time employee or director) may hold Class B Common Stock. Upon any holder of Class B Common Stock ceasing to be a full-time employee or director of the Company, such holder's Class B Common Stock automatically converts into Class A Common Stock, on the basis of ten shares of Class B Common Stock for each share of Class A Common Stock. The Board of Directors, by a majority of the Board plus one additional director, may at any time order the conversion of all the Class B Common Stock into Class A Common Stock on a ten-for-one basis. No fractions of shares of Class A Common Stock would be issued on such conversion, but rather such amounts would be paid in cash based on the market value (or, if the Company is not publicly traded, the last appraised value) of the Class B Common Stock. Other. The Class A Common Stock and Class B Common Stock do not carry any preemptive rights enabling a holder to subscribe for or receive shares of stock of the Company of any class or any other securities convertible into shares of stock of the Company. 20 EXPERTS The audited consolidated financial statements and related notes and schedules included in the Company's Annual Report on Form 10-K for the year ended October 1, 1993 incorporated by reference herein have been audited by Arthur Andersen & Co., independent public accountants, as set forth in their report also incorporated herein by reference. In their report, that firm states that with respect to amounts included for Versa Services Ltd., the Company's Canadian subsidiary, its opinion is based on the report of other auditors, namely Ernst & Young, Chartered Accountants, whose report is also incorporated herein by reference. The financial statements referred to above have been incorporated by reference herein in reliance upon the reports of said firms and upon the authority of said firms as experts in accounting and auditing. Subsequent audited financial statements of the Company and the reports thereon of the Company's independent public accountants, to the extent incorporated herein by reference, have been so incorporated in reliance upon the reports of those accountants and upon the authority of those accountants as experts in accounting and auditing to the extent such accountants have audited those financial statements and consented to the use in this Prospectus of their reports thereon. The appraisal of Willamette Management Associates, Inc., independent securities appraisers, and references thereto included in this Prospectus have been included herein in reliance upon the authority of said firm as an expert in securities valuations. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, if filed by the Company with the Commission prior to the termination of the offering of the shares, are incorporated herein by reference: 1. The Company's latest annual report on Form 10-K filed pursuant to Section 13(a) or 15(d) of the Exchange Act. 2. All other reports filed by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year of the annual report referred to in Item 1 above. 3. All documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document which also is or is deemed to be incorporated by reference herein or in a supplement hereto modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. 21 AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT OF THE ARA GROUP, INC. AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT dated as of the 7th day of April, 1988, which amends and restates the Stockholders' Agreement dated as of December 14, 1984, and amended as of December 1, 1986 (the "Agreement"), by and among The ARA Group, Inc. (formerly ARA Holding Company), a Delaware corporation ("ARA"), the parties listed in Schedule I hereto (hereinafter referred to as the "Management Investors" or their "Permitted Transferees", as identified on such Schedule), the parties listed in Schedule II hereto (hereinafter referred to as the "Individual Investors") and the parties listed in Schedule III hereto (hereinafter referred to as the "Institutional Investors"). The parties hereto (other than ARA) and any other person who hereafter acquires equity securities of ARA pursuant to the provisions of, and subject to the restrictions and rights set forth in, this Agreement are sometimes hereinafter referred to collectively, as the "Stockholders" or, individually, as a "Stockholder." The Management Investors and the Individual Investors are sometimes hereinafter referred to collectively as the "Investor Group." Unless otherwise explicitly set forth herein, the term "Management Investors" shall mean only those individuals so specified in Schedule I hereto, exclusive of such individuals' respective heirs, Permitted Transferees (as identified on such Schedule or defined in Section 3.02(d) hereof) or other Transferees (as defined in Section 3.01 hereof); provided that the Board of Directors of ARA may, from time to time and in its sole discretion, designate any Stockholder then employed full-time by ARA or its Subsidiaries a "Management Investor." Stockholders who are Permitted Transferees are identified as such in the foregoing Schedule, along with the identity of their respective transferors. Where full-time employees or directors have acquired or acquire equity securities of ARA in joint tenancy with their spouses or in any other manner other than sole direct ownership, such employee or director is deemed to be a Management Investor and such record owner is deemed to be his or her Permitted Transferee. RECITALS Pursuant to a proposed reclassification (the "Reclassification") of the stock of ARA, at the effective time (the "Effective Time") of the Reclassification, Management Investors will receive shares of ARA's Class B Common Stock, par value $.01 per share ("Class B Common Stock") and, unless they were qualified to and had previously elected to receive (various combinations of) Class A Common Stock, par value $.01 per share ("Class A Common Stock"), cash and/or installment notes in the Reclassification, all other stockholders will receive solely cash. Stockholders who do not receive in the Reclassification either Class A Common Stock or Class B Common Stock shall cease to be parties to this Agreement. The Class A Common Stock and the Class B Common Stock are collectively referred to herein as the "Common Stock," and when so referred to shall be treated as one class to which all the provisions of this Agreement apply. Pursuant to ARA's Restated Certificate of Incorporation (the "Certificate of Incorporation"), upon the termination of employment of a Management Investor, the shares of Class B Common Stock held by such Management Investor and his Permitted Transferees shall be converted into shares of Class A Common Stock; and upon any transfer of shares of Class B Common Stock in accordance with the terms of this Agreement other than to a Management Investor or Permitted Transferees of a Management Investor, such shares shall be converted into shares of Class A Common Stock. For purposes of this Agreement only, the employment of a Management Investor shall be deemed terminated if he shall cease to be a director or an active, full-time employee of ARA or its Subsidiaries. 22 The parties hereto also desire to restrict the sale, assignment, transfer, encumbrance or other disposition of the Common Stock, including issued and outstanding shares of Common Stock as well as shares of Common Stock which may be issued hereafter, or which may become issuable pursuant to the exercise of options, and to provide for certain rights and obligations with respect thereto as hereinafter provided. In consideration of the premises and of the terms and conditions herein contained, the parties hereto mutually agree as follows: 1. Certain Definitions. 1.01 "Affiliate" shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with another Person. 1.02 "Appraiser" shall mean a firm headquartered in the United States of nationally recognized standing in the business of appraisal or valuation of securities which does not own any stock of ARA which has been selected by the Board of Directors to act as an independent appraiser. The Board of Directors shall review its selection of an Appraiser annually. 1.03 "Call" or "Called" shall mean ARA's option to purchase Common Stock from the holder thereof referred to in Sections 6 and 9 hereof. 1.04 "Completely Disabled" and "Complete Disability" shall mean a "permanent and total disability" as now defined in Section 105(d) (9) of the Internal Revenue Code of 1986. 1.05 "Fair Market Value" of shares of Common Stock shall mean the fair market value of such shares, as determined by an Appraiser according to the most recent existing appraisal of shares of Common Stock, which appraisal shall be as of a date not more than six months prior to the use thereof; provided, however, that, after such time as any shares of Common Stock are traded on a national securities exchange or quoted on NASDAQ, "Fair Market Value" of shares of Common Stock shall be based upon the "Average Market Price" (as such term is defined in Article Sixth of the Company's Certificate of Incorporation) of such publicly traded stock. 1.06 "Normal Retirement" shall mean voluntary termination of employment after attaining the age of 60, on at least ninety days prior written notice of such termination, where the retiree does not intend to, at the time of termination, and in fact does not, engage in full-time employment following such termination other than employment that is with a governmental or a charitable, non- profit organization and that is not competitive with ARA. 1.07 "Person" shall mean a corporation, an association, a partnership, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency. 1.08 "Promissory Note" shall mean a subordinated installment note of ARA substantially in the form of Exhibit A to this Agreement, with a stated annual rate of interest equal to the Applicable Federal Rate (as such term is defined in the Internal Revenue Code of 1986, as amended (the "Code")) as of the issue date of the Promissory Note, as determined by ARA; with equal annual installments of principal equal in amount to the least of (1) 10% of the original principal amount of the Promissory Note, (2) the Management Investor's highest annual base salary as an employee of ARA, or (3) $100,000; and with the final installment of principal equal to the outstanding balance and due at the final maturity; and with the first installment of principal due on the April 15 or October 15 occurring closest to the first anniversary of the issue date of the Promissory Note; and with the final maturity no later than the tenth anniversary of the Management Investor's termination of employment; and with such other insertions as ARA shall reasonably make. 23 1.09 "Put" shall mean the option of the holder to cause ARA to purchase Common Stock referred to in Section 5 hereof. 1.10 "Subsidiary" shall mean any corporation or other entity of which ARA shall, directly or indirectly, own 50% or more of the equity, as determined for purposes of this Agreement by the ARA Board of Directors and any other corporation or other entity in which ARA shall directly or indirectly have an equity investment and which the ARA Board of Directors shall in its sole discretion designate. 1.11 "Supermajority" shall have the meaning as defined in ARA's Certificate of Incorporation, as it may be restated or amended from time to time. SECTION 2 IN ITS ENTIRETY SHALL NOT APPLY TO ANY HOLDER OF SECURITIES OF ARA HOLDING COMPANY WHICH IS EITHER (A) A "BANK", A "BANK HOLDING COMPANY" OR ANY "AFFILIATE" THEREOF (AS SUCH TERMS ARE DEFINED UNDER THE BANK HOLDING COMPANY ACT OF 1956) OR (B) A TRANSFEREE OF A HOLDER SPECIFIED IN CLAUSE (A) AND ANY SUCH HOLDER IS NOT A PART OF THIS SECTION 2. SECTION 2 MAY BE AMENDED, WAIVED OR TERMINATED WITHOUT THE CONSENT OF ANY OF THE HOLDERS SPECIFIED IN THE PRECEDING SENTENCE. ____________________________ 2. Corporate Governance. 2.01 Board of Directors-ARA (a) Number of Directors. ARA shall be governed by a Board of Directors consisting of not less than nine but not more than nineteen members, as set forth in the Certificate of Incorporation and in the By-Laws of ARA. (b) Management Directors. The number of the members of the Board of Directors who are Management Investors and active, full-time employees of ARA or its Subsidiaries (such persons and their successors as provided in this Section 2 are, collectively, referred to herein as the "Management Directors") shall not exceed (A) the number of directors as last fixed by resolution of the Board of Directors and otherwise increased in accordance with paragraph 7(b) of Part 4A of ARA's Certificate of Incorporation, plus (B) one, minus (C) a Supermajority (such maximum number of Management Directors is referred to herein as the "Maximum Number of Management Directors"). (c) Nominations. The entire Board of Directors, acting by a Supermajority vote, shall nominate and recommend to holders of Common Stock entitled to vote the proposed members of the Board of Directors for the succeeding year; provided, however, that up to the Maximum Number of Management Directors shall be as designated by the majority vote of the Management Directors then in office. If the incumbent Management Directors shall fail to select any of their nominees by majority vote, then the nominees shall be selected by the Chief Executive Officer of ARA. At such time as a Management Director shall cease for any reason to be a stockholder of ARA, such Management Director shall immediately tender his resignation from the Board of Directors (or, if he does not resign, shall be removed by the vote of a majority of the votes of the outstanding shares of Common Stock of ARA entitled to vote in the election of directors). If none of the Management Directors any longer serves on the Board, then, the Chief Executive Officer of ARA shall be elected by the vote of a Supermajority of the then members of the Board to fill the place of one of the Management Directors and he shall nominate the other Management Directors. Under all other circumstances, the Chief Executive Officer shall be selected by the vote of a Supermajority of the members of the Board. 24 (d) Covenant to Vote. Each of the Management Investors and their Permitted Transferees shall vote the shares of Common Stock owned by him at any annual or special meeting of stockholders of ARA called for the purpose of voting on the election of directors or by consensual action of stockholders with respect to the election of directors, in favor of the election of the directors nominated in accordance with this Section 2.01. In addition, each Stockholder agrees to vote the shares of Common Stock owned by him upon any matter submitted to a vote of the stockholders in a manner so as to be consistent and not in conflict with, and to implement, the terms of this Agreement. (e) Filling Vacancies. As provided for in Part 5C of ARA's Certificate of Incorporation, if at any time a vacancy is created on the Board of Directors by the death, removal or resignation of any one of the directors, no action shall be taken by the Board of Directors except by a Supermajority vote of the directors, until the Board of Directors is reconstituted with the appropriate number of directors in accordance with this Section 2.01, other than actions to so reconstitute the Board of Directors. In the event of any such death, removal or resignation, the remaining directors shall meet within ten days for the purpose of approving and appointing a director nominated to fill such vacancy. (i) If a vacancy is created by the death, removal or resignation of a Management Director, the incumbent Management Directors shall have the right to select a nominee to fill such vacancy within ten business days of the occurrence thereof. If the incumbent Management Directors shall fail to select a nominee by majority vote, such nominee shall be selected by the Chief Executive Officer of ARA within the three following business days. If the Management Directors or the Chief Executive Officer shall not have nominated a person to fill such vacancy within such ten days, or three day period, as the case may be, the Board of Directors shall meet on the 14th day following the creation of such vacancy or as soon thereafter as is practicable and a new director or directors shall be appointed by action of a majority of the remaining directors, which action shall be the first action to be taken at such meeting. In the event the Board shall fail to act to fill such vacancy as provided herein at two consecutive meetings of the Board following the creation of such vacancy, such vacancy may be filled by the vote of a majority of the votes of the outstanding shares of Common Stock entitled to vote in the election of directors. (ii) If a vacancy is created by the death, removal or resignation of any of the directors who is not a Management Director, the remaining directors, acting by a Supermajority vote, shall select a nominee to fill such vacancy until the next annual meeting of Stockholders. In the event the Board shall fail to act to fill such vacancy as provided herein at two consecutive meetings of the Board to be held within thirty days following the creation of such vacancy, such vacancy may be filled by the vote of a majority of the votes of the outstanding shares of Common Stock entitled to vote in the election of directors. 25 3. Transfer of Common Stock-General. 3.01 Shares of Common Stock Subject to this Agreement. Unless otherwise explicitly provided herein, and except in connection with a sale of shares included in a registered public offering under the Securities Act of 1933, as amended (the "Securities Act"), no Stockholder shall sell, assign, pledge, encumber or otherwise transfer any shares of Common Stock to any person (regardless of the manner in which such Stockholder initially acquired such shares of Common Stock) nor shall ARA issue, sell or otherwise transfer any shares of ARA Common Stock to any person (all such persons, regardless of the method of transfer, shall be referred to collectively as "Transferees" and individually as a "Transferee") unless (a) such shares bear legends as provided in Section 14 to the effect that such shares are not registered under the Securities Act and to the effect that such shares are subject to the terms of this Agreement, (b) such Transferee shall have executed, as a condition to its acquisition of shares (or, in the case of a Transferee by will or the laws of descent, record ownership on the books of ARA) of Common Stock, an appropriate document confirming that such Transferee takes such shares subject to all the terms and conditions of this Agreement and (c) (other than Transferees by will or the laws of descent) such document shall have been delivered to and approved by ARA prior to such Transferee's acquisition of shares (or, in the case of a Transferee by will or the laws of descent, record ownership on the books of ARA) of Common Stock. ARA shall not unreasonably withhold or delay its approval of any such document. ARA shall not transfer upon its books any shares of Common Stock held or owned by any of the Stockholders to any person except in accordance with this Agreement. A Transferee who is not already a party to this Agreement, by executing the document referred to in clause (b) above, shall thereby become entitled to the benefits of this Agreement and shall be deemed to be an "Institutional Investor," except if such Transferee is an employee of the Company, in which case he shall be deemed to be a "Management Investor," or except if such Transferee is an Individual Investor or a Permitted Transferee of an Individual Investor, in which case he shall be deemed to be an "Individual Investor," or except if such Transferee is a Permitted Transferee of a Management Investor, in which case he shall be deemed to be such "Permitted Transferee". 26 3.02 Certain Restrictions. (a) Notwithstanding anything to the contrary set forth herein, except as provided in Section 3.02(d) (certain permitted transfers), Sections 5 and 6 (transfers by Management Investors in the event of death or termination of employment), Section 7 (transfers approved by the Board of Directors) and Section 9 (options to purchase involuntarily transferred shares) (i) no Stockholder shall transfer any shares of Common Stock at any time, unless any such sale, assignment, pledge or encumbrance or other transfer shall have been effected in accordance with the terms of this Agreement; and (ii) no Management Investor or any of such Management Investor's Permitted Transferees shall directly or indirectly sell, assign, pledge or encumber or otherwise transfer (except, in accordance with Section 3.02(e) hereof pledges or encumbrances for the benefit of ARA, a commercial bank, a savings and loan association or other lending institution) any shares of Common Stock, other than Limited Transfers, as defined in the following sentence. "Limited Transfers" shall mean transfers made after January 31, 1990 (or after any earlier termination of employment of such Management Investor) (A) that are effected in accordance with this Agreement including, without limitation, the provisions of Section 4 hereof (rights of first offer and reoffer) and (B) that are limited for any Management Investor and his Permitted Transferees in any one fiscal year of ARA to the lesser of (I) the number of shares with a fair market value at the time of such transfers (as determined by the Board of Directors) of $100,000 or (II) 10% of the greatest number of shares previously held at any time by such Management Investor and his Permitted Transferees; provided, however, that the limitation in clause (B) shall not apply to transfers made after December 19, 1999 (or if earlier after the death, Complete Disability or Normal Retirement of such Management Investor). For purposes of clause (B) of the definition of "Limited Transfers", the ability to transfer shares which could have been, but were not, so transferred in any fiscal year, may be "carried over" in any subsequent fiscal year. (b) No Stockholder shall sell, assign, pledge, encumber or otherwise transfer any shares of Common Stock at any time if such action would constitute a violation of any federal or state securities or blue sky laws or a breach of the conditions to any exemption from registration of the Common Stock under any such laws or a breach of any undertaking or agreement of such Stockholder entered into pursuant to such laws or in connection with obtaining an exemption thereunder. Each Stockholder agrees that any shares of Common Stock to be purchased by such Stockholder shall bear appropriate legends to be determined by the Company, in addition to the legend provided for in Section 14 hereof with respect to the Securities Act, restricting the sale or other transfer of such stock in accordance with applicable state securities or blue sky laws. Any Stockholder who proposes to sell, assign, pledge, encumber or transfer any shares of Common Stock may deliver to ARA an opinion of counsel that such action would not result in any such violation or breach. The delivery of such opinion shall be deemed to establish compliance with the provisions of this Section 3.02(b) unless, within ten days after the receipt by ARA of such opinion, counsel for ARA shall deliver an opinion that such action would result in any such violation or breach (such opinion to state the basis of the legal conclusions reached therein). 27 (c) No Stockholder shall grant any proxy or enter into or agree to be bound by any voting trust with respect to Common Stock nor shall any Stockholder enter into any stockholder agreement or arrangement of any kind with any person with respect to Common Stock inconsistent with the provisions of this Agreement (whether or not such agreement and arrangement is with other Stockholders or holders of Common Stock that are not parties to this Agreement), including but not limited to, any agreement or arrangement with respect to the acquisition, disposition or voting of shares of Common Stock, or act, for any reason, as a member of a group or in concert with any other persons in connection with the acquisition, disposition or voting of shares of Common Stock in any manner which is inconsistent with the provisions of this Agreement. (d) Other than the restrictions set forth in Section 3.02(b) and Section 4.06, none of the restrictions contained in this Agreement with respect to transfers of shares of Common Stock shall apply to the following transfers: (A) if made for nominal consideration or as gifts: (i) any transfer or assignment to any one or more of the following relatives of the Stockholder - spouse, child, grandchild, parent - or to a trust of which there are and continue to be, during the term of this Agreement no principal beneficiaries other than one or more of such relatives; (ii) any transfer to any charitable organization which qualifies as such under Section 5.01 (c) (3) or any successor provision of the Code; (iii) any transfer to a legal representative in the event any Stockholder becomes mentally incompetent; (iv) any transfer of record title to any nominee or custodian, provided that the Stockholder so transferring such shares remains the beneficial owner thereof; (B) any transfer among members of a family, their trusts or other entities, if approved by the Board of Directors; (C) any transfer among Institutional Investors which became Stockholders in December 1984; and (D) with respect to a corporate or partnership Stockholder, transfers between an Affiliate and such corporate or partnership Stockholder (it being understood with respect to such Affiliate that the later sale of such Affiliate as part of a sale or series of sales of substantial assets other than Common Stock would not constitute an indirect sale of Common Stock by such corporate or partnership Stockholder, and need not be made within the terms of this Agreement, provided that an officer of such institution certifies that such sale is not being undertaken to evade the transfer restrictions herein); provided, however, that in each of cases (A) through (D), each transferee, donee or distributee (the "Permitted Transferees") agrees to take subject to and to comply with the provisions of this Agreement. "Permitted Transferees" include the persons identified as such on the Schedules hereto. (e) A Stockholder shall be entitled to pledge his shares of Common Stock to ARA, a commercial bank, savings and loan institution or any other lending or financial institution as security for any indebtedness of such Stockholder to such lender; provided that such lender shall first agree not to dispose of such shares except in compliance with the provisions of this Agreement; and further provided that the lender shall agree upon the realization of its security the same shall be subject to all of the terms and conditions of this Agreement (except those prohibiting transfers by Management Investors under Section 3.02(a)). 4. Rights of First Offer and Reoffer. 4.01 Transfers by Management Investors. (a) Except as provided in Sections 3.02(d) and (e), if any Management Investor or Permitted Transferee of a Management Investor at any time desires to sell or otherwise transfer any shares of Common Stock, the selling Management Investor shall first give written notice (a "Management Investor's Notice") to ARA stating such selling Management Investor's 28 desire to make such transfer, the number of shares of Common Stock to be transferred (the "Offered Management Shares"), and the price which the selling Management Investor proposes to be paid for the Offered Management Shares, which proposed price shall not be greater than the Fair Market Value of (an equivalent number of) shares of Class B Common Stock (the "First Offer Price"). (b) Upon receipt of the Management Investor's Notice, ARA shall have the irrevocable and exclusive option to buy up to all of the Offered Management Shares at the First Offer Price; provided, however, that ARA shall not have the right to purchase any of the Offered Management Shares unless either (i) ARA purchases all such Offered Management Shares, or (ii) such selling Management Investor consents to the purchase of less than all of the Offered Management Shares. ARA's option under this Section 4.01(b) shall be exercisable by a written notice to such Selling Management Investor, given within forty-five days from the date of the Management Investor's Notice. 4.02 Transfers by Outside Investors. (a) Except as provided in Sections 3.02(d) and (e), if any Individual Investor or Institutional Investor (collectively, an "Outside Investor") at any time desires to sell or otherwise transfer any shares of Common Stock, including pursuant to the registration rights under Section 2.1 of ARA's Amended and Restated Registration Rights Agreement amended and restated as of April 7, 1988 (the "Registration Rights Agreement"), the selling Outside Investor shall first give written notice (a "Seller's Notice") to ARA stating such selling Outside Investor's desire to make such transfer, the number of shares of Common Stock to be transferred (the "Offered Investors' Shares"), and the price which the selling Outside Investor proposes to be paid for the Offered Investors' Shares (the "First Offer Investors' Price"). (b) Upon receipt of the Seller's Notice, ARA shall have the irrevocable and exclusive option to buy up to all of the Offered Investors' Shares at the First Offer Investors' Price; provided, however, that ARA shall not have the right to purchase any of the Offered Investors' Shares unless either (i) ARA purchases all such Offered Investors' Shares, or (ii) such selling Outside Investor consents to the purchase of less than all of the Offered Investors' Shares. ARA's option under this Section 4.02(b) shall be exercisable by a written notice to such selling Outside Investor, given within forty-five days from the date of the Seller's Notice. 4.03 Transfer of Offered Shares to Third Parties. If the Management Investor's Notice or the Seller's Notice (collectively, the "Notice") required to be given pursuant to Section 4.01 or 4.02, as the case may be, has been duly given, and ARA determines not to exercise its option to purchase the Offered Management Shares or the Offered Investors' Shares (collectively, the "Offered Shares") or determines (with the consent of the Stockholder who has made the First Offer) to exercise its option to purchase less than all the Offered Shares, then the Stockholder who has made such First Offer shall be free, for a period of ninety days from the earlier of (i) the expiration of the option period with respect to such First Offer pursuant to Section 4.01 or 4.02, as the case may be, or (ii) the date such Stockholder shall have received written notice from ARA stating that ARA intends not to exercise in whole or in part the option granted under Section 4.01 or 4.02, as the case may be, to sell to any third-party Transferees the remaining Offered Shares, at a price equal to or greater than the First Offer Price, in the case of Management Investors or their Permitted Transferees, and the First Offer Investors' Price, in the case of Outside Investors; provided, however, that the Transferee complies with the provisions of Section 3.01 and provided further that, in the case where such selling Stockholder is a Management Investor or 29 a Management Investor's Permitted Transferee, (i) such Transferee shall have been approved by ARA as a suitable investor in a privately-owned services management company and (ii) if any of such Offered Shares shall be shares of Class B Common Stock, then, upon any such transfer, such shares of Class B Common Stock shall, in accordance with the terms of the Certificate of Incorporation, convert into and become shares of Class A Common Stock and shall continue to be subject to the terms and provisions of this Agreement. ARA shall not unreasonably withhold or delay such approval. Anything herein to the contrary notwithstanding, the 90-day period described in this Section 4.03 shall be extended until the completion of all sales pursuant to a registration statement, a request for which was made substantially concurrently with the Notice. 4.04 Reoffers. In the event the proposed purchase price of a third-party Transferee for the Offered Shares is less than the First Offer Price or the First Offer Investors' Price, as the case may be, the Stockholder desiring to sell at such lesser price shall not sell or otherwise transfer any of the Offered Shares unless such selling Stockholder shall first reoffer the Offered Shares at such lesser price to ARA by giving written notice (the "Reoffer Notice") to ARA of such selling Stockholder's intention to make such transfer at such lower price (the "Reoffer Price"). ARA shall then have an irrevocable and exclusive option to purchase all or part of the Offered Shares at the Reoffer Price, exercisable in the same manner as provided in Section 4.01 or 4.02, as the case may be. In the event ARA does not then elect to purchase all the remaining Offered Shares, or ARA elects (with the consent of the Stockholder desiring to sell) to purchase less than all the remaining Offered Shares, the remaining Offered Shares may be sold by such selling Stockholder within thirty days following the earlier of (i) the expiration of the option period with respect to such Reoffer pursuant to Section 4.01 or 4.02, as the case may be, or (ii) the last date on which such selling Stockholder shall have received written notice from ARA stating that ARA intends not to exercise in whole or in part the option granted in this Section 4.04, at a price equal to or greater than the Reoffer Price; provided, however, that the Transferee complies with the provisions of Section 3.01; and provided further that, in the case where such selling Stockholder is a Management Investor or a Management Investor's Permitted Transferee, such Transferee shall have been approved by ARA as a suitable investor in a privately-owned services management company. ARA shall not unreasonably withhold or delay such approval. 4.05 Waiting Period With Respect to Subsequent Transfers. In the event that ARA does not exercise its option to purchase any or all of the Offered Shares at the First Offer Price or the First Offer Investors' Price, as the case may be, or at the Reoffer Price, and the Stockholder desiring to sell shall not have sold the remaining Offered Shares to any Transferee for any reason before the expiration of the thirty-day period described in Section 4.04 in the event of a Reoffer, or, if no Reoffer Notice is given, the ninety-day period described in Section 4.03, then such selling Stockholder shall not sell any shares of Common Stock to any Transferee or other Stockholder (other than Permitted Transferees) at any price for a period of three months from the last day of such thirty- or ninety-day period, as the case may be. 30 4.06 No Sales of Control. (a) Subject to Section 4.06(b) and except as provided in Section 7 (transfers approved by the Board of Directors), no Person or group of Persons, as defined in Section 13 (d) (3) of the Securities Exchange Act of 1934 (the "Exchange Act"), including for the purposes of this paragraph as part of such Person's group, Transferees pursuant to Sections 3.02(d) and (e), shall become (whether through the purchase of shares pursuant to this Agreement or otherwise or through any other action) the holder, directly or indirectly, of 10% or more of either the outstanding shares of Class A Common Stock or the outstanding shares of Class B Common Stock. Any transaction resulting in a violation of this Section 4.06(a) shall be void, and of no effect against ARA, and ARA shall not record any such purported transfer in its stock transfer books. Two or more Stockholders owning in the aggregate 10% or more of such outstanding shares shall not be deemed to be a group of Persons for the purposes of this Section 4.06 solely because such Stockholders are parties to this Agreement or because such Stockholders are related by blood or marriage and/or because such Stockholders are officers or directors of ARA. (b) The provisions of Section 4.06(a) shall not apply to the acquisition by ARA, directly or indirectly, of shares of Common Stock, notwithstanding that as a result of such acquisition any Person or group of Persons acting in concert would own 10% or more of such outstanding shares subsequent to such an acquisition, but shall apply to any subsequent acquisition or other action by such Person or group of Persons. (c) Except as provided in Section 7 (transfers approved by the Board of Directors), to the extent an Institutional or Individual Investor (together in each case with any Transferees), shall, at any time prior to April 30, 1988, hold more shares of Class A Common Stock than one-half the aggregate number of shares of Special Participating Stock, Class B or Class C, that he held on February 26, 1988 (which date was prior to the effective time of the Reclassification), subject to adjustment for stock dividends, stock splits, reclassification or the like occurring subsequent to the Effective Time, ARA shall have the right to Call such shares. The purchase price for such shares purchased hereunder shall be $2,650 per share, payable in cash at the Closing Date. 4.07 Form of Consideration for Shares. No offer to purchase or to sell shares of Common Stock shall be deemed to be a valid offer under this Section 4 unless the purchase price of such offer is payable in cash or securities that can be readily valued by reference to quoted trading prices. The purchase price of shares upon exercise of an option under this Section 4 in respect of a Notice which specifies only cash as the form of consideration shall be payable only in cash. 4.08 Merger Transaction. Subject to any applicable provisions of the Certificate of Incorporation or any loan agreement or instruments to which ARA is a party, ARA may enter into any agreement of merger to merge with or into any other corporation; and, in such event, Sections 4.01 through 4.07 of this Agreement shall not be applicable to such merger and all shares may be transferred for such consideration as approved by the Board of Directors and the Stockholders in accordance with applicable law. 31 4.09 Transfers in a Public Offering. In the event a request is made under Section 2.1 of the Registration Rights Agreement for a demand registration, then the procedures set forth in Sections 4.02 through 4.05 shall be modified in the following respects: (a) Such request shall also provide the information required to be stated in a Seller's Notice, and shall also constitute a Seller's Notice. (b) Prior to the expiration of the twenty-one day period under the Registration Rights Agreement within which the Company is to file a registration statement covering the shares the holder of which requested a demand registration, ARA shall have the irrevocable and exclusive option to buy all (and only all) of the Offered Investors' Shares at the First Offer Investors' Price, which shall be the proposed public offering price after reduction for commissions, discounts and the like. (c) In the event the public offering price (after reduction for commissions, discounts and the like) is more than 10% lower than the First Offer Investors' Price, or the number of shares included in the offering is reduced to less than 75% of the shares as to which the Seller's Notice was delivered (otherwise than by reason of a cut down by the Underwriter) then Section 4.04 shall apply, but such section shall not otherwise apply to any sale pursuant to a registration statement. (d) In the event all of the Offered Investors' Shares are elected to be purchased, the demand registration shall be held in abeyance pending the closing of such purchase in accordance with this Agreement. 5. Put of Shares upon Death, Complete Disability or Normal Retirement. 5.01 Put in Event of Death, Complete Disability or Normal Retirement. Subject to any financing agreements in connection with the Reclassification or any other instruments or agreements of ARA from time to time in effect restricting or otherwise governing the repurchase or retirement of shares of ARA's capital stock (the "Loan Agreements") and to applicable law, unless a Call pursuant to Section 6.01 shall have been exercised by ARA, upon the death, Complete Disability or Normal Retirement of any Investor Group member, at the option of such Investor Group member, such Investor Group member's estate, heirs or personal representative, and such Investor Group member's Permitted Transferees (other than Permitted Transferees specified in Section 3.02(d) (ii)) (collectively, the "Holders" of such Investor Group member's shares) and within thirty days of receipt by ARA of a Seller's Notice from such Holders, which notice must be given within thirty days from the date of the appointment of a personal representative of such Investor Group member, the date he became Completely Disabled, or the date of his Normal Retirement, ARA shall purchase from such Holders' the shares of Common Stock held by such Holders specified in such Seller's Notice up to 30% of such shares so held at a purchase price determined in accordance with Section 5.02. ARA shall be under no obligation to purchase such shares unless it shall have received a Seller's Notice from such Holders in accordance with this Section 5.01. 5.02 Purchase Price of Put Shares. The purchase price for the shares of Common Stock purchased pursuant to Section 5.01 shall be the Fair Market Value of (an equivalent number of) shares of Class B Common Stock, for the shares of a Holder of a Management Investor's shares, and shall be the Fair Market Value of shares of Class A Common Stock for the shares of a Holder of an Individual Investor's shares. ARA shall satisfy its obligation to purchase shares upon the exercise of any Put granted under Section 5.01 with cash. 32 6. Call upon Termination of Employment. 6.01 Call in Event of Termination. Unless the shares of Common Stock held by the Holders of any Management Investor's shares have been earlier sold pursuant to Section 4 (rights of first offer and reoffer), including the transfer on the books of the Company pursuant to Section 3.01, ARA shall have an exclusive and irrevocable option, at any time and from time to time during the period of ten years following the termination of employment of such Management Investor for any reason whatsoever (including without limitation death, Complete Disability or Normal Retirement) to make a purchase or purchases of up to all of the shares of Common Stock owned by such Management Investor and his Permitted Transferees, at a purchase price, with respect to any such exercise, determined in accordance with Section 6.02. 6.02 Purchase Price. The purchase price per share for any shares of Common Stock purchased pursuant to Section 6.01 shall be the lesser of (i) the Fair Market Value of (an equivalent number of) shares of Class B Common Stock at the time the option is exercised and (ii) the Fair Market Value of (an equivalent number of) shares of Class B Common Stock at the date of termination of employment, plus 8% simple interest on such amount from the date of termination of employment through the date the option is exercised and the shares of Common Stock thereunder are purchased. ARA shall satisfy its obligations to purchase shares upon the exercise of such Calls with cash up to the least of $100,000, or the Management Investor's highest annual base salary as an employee of ARA, or 10% of the aggregate purchase price for such Called shares and, at the Company's option, with cash and/or Promissory Notes valued at their principal amount for the remainder. 6.03 Sale of ARA Following Call. In the event that any entity, person, or any group of persons acting in concert (excluding the Management Investors as a group), acquires in any manner shares of Common Stock with 50% of the ordinary voting rights of the outstanding shares of Common Stock or in the event of the redemption or repurchase of all the shares of Common Stock in connection with a sale of all or substantially all the assets of ARA, or the winding up, dissolution or liquidation of ARA, within ninety days from the date of a sale pursuant to Section 6.01 then, subject to the Loan Agreements, ARA and/or the purchaser of such shares of Common Stock with 50% of the ordinary voting rights of the outstanding shares of Common Stock shall pay to the Holders whose shares have been so purchased the excess, if any, of the amount per share realized by ARA's stockholders upon such acquisition, redemption, repurchase, winding up, dissolution or liquidation over the purchase price per share paid to such Holders pursuant to Section 6 less the interest paid on any Promissory Notes paid as consideration for such stock and less a financing cost for carrying such stock for any cash received, based on an interest rate equal to the rate paid by ARA under the Loan Agreements at the date of payment hereunder, for the period from the date of payment to such Holders pursuant to Section 6 to the date of such acquisition, redemption, repurchase, winding up, dissolution or liquidation, for each share purchased by ARA. 34 7. Authority of Board of Directors to Approve Transfers; Actions by Board of Directors. Notwithstanding any other provision of this Agreement, the Board of Directors shall have the authority to approve any transfer, or class, category or type of transfer, of Common Stock, and any such transfer that shall have been so specifically approved by the Board of Directors shall not be prohibited by this Agreement. Such authority of the Board of Directors shall extend to, among other things, (i) the authority to create an internal market for shares of the Company's stock pursuant to which Management Investors would be offered the opportunity to sell a portion of their shares at the times and on the terms set by the Board of Directors, and (ii) the authority to waive entirely the restrictions (including, without limitation, restrictions relating to rights of first offer and reoffer, calls upon termination of employment and sales, transfers and other dispositions of shares) set forth in this Agreement which relate to Management Investors and which do not relate to Outside Investors. Any such approval may be revoked by the Board at any time without notice and such revocation shall be effective with respect to any action, including any or all transfers or proposed transfers, unless, prior to such revocation, the shares have been presented to the transfer agent for the purpose of registering such transfer, in proper form and satisfying the requirements of Section 8-401 of the Uniform Commercial Code or such other applicable law relating to the duty of an issuer to register securities transfers. The Board of Directors may delegate any and all authority it has under this Agreement to any committee thereof and/or to any authorized officer or agent. 8. No Access to Information. Each of the parties to this Agreement acknowledges that, at the time of a sale by a Stockholder of shares of Common Stock pursuant to this Agreement, there may have occurred or be proposed or pending an event or a transaction that could affect the fair market value of the Common Stock, and that the fair market value of the Common Stock as of a prior date in all likelihood will vary substantially from the fair market value as of the current date, and further acknowledges that ARA may have valid business reasons not to, and in any case shall not be required to, disclose any event or transaction that may have occurred or be proposed or pending at the time of any such sale. 9. Involuntary Transfer of Shares. 9.01 Certain Involuntary Transfers; Seller's Notice. Except for involuntary transfers (by foreclosure or otherwise) to ARA of shares of Common Stock pledged to ARA by any Management Investor or other Stockholder employed by ARA or by such Management Investor's or other employed Stockholder's personal representative, estate or heirs or Permitted Transferees, in the event a Stockholder shall involuntarily transfer directly or indirectly any or all of his shares, for any reason other than as a result of those events specified in Section 5 or 6, such Stockholder shall give written notice within thirty days of such involuntary transfer (the "Stockholder Notice") to ARA, with a copy to the Transferee, stating the fact that the involuntary transfer occurred, the reason therefor, the date of the transfer, the name and address of the Transferee and the number of shares acquired by the Transferee (the "Acquired Shares"). For purposes of this Section 9 an involuntary transfer shall include, without limitation, a court-ordered transfer, constructive trust or other device designed to transfer economic benefit of share ownership. 9.02 Right to Repurchase. For a period of sixty days from the date of receipt of the Stockholder Notice or, failing receipt of such notice, sixty days from the date ARA sends written notice to the Transferee that the transfer is deemed to be an involuntary transfer subject to repurchase under this Agreement, ARA shall have an irrevocable and exclusive option to buy all of the Acquired Shares, exercisable in the same manner as provided in Section 4.01, and the provisions of such applicable Section shall be followed in their entirety except that the purchase price shall be as provided in Section 9.03. 34 9.03 Purchase Price. The purchase price for shares purchased pursuant to Section 9.02 shall be payable in cash and shall be equal to the Fair Market Value of (an equivalent number of) shares of Class B Common Stock. 10. No Right to Continued Employment. Neither this Agreement nor the ownership of Common Stock by a Management Investor shall confer upon any Management Investor any right to continue in the employ of ARA or any of its Subsidiaries or limit in any respect the right of ARA or its Subsidiaries to terminate his employment at any time. 11. Avoidance of SEC Registration. Notwithstanding any other provision of this Agreement that may be to the contrary, unless ARA's Board of Directors shall have given its prior approval, no transfer of shares of Common Stock subject to this Agreement shall be permitted if (i) at the time of such proposed transfer ARA does not have a class of equity securities registered, or required to be registered, under Section 12 of the Exchange Act, and (ii) such transfer, in the determination of the Board of Directors, shall create a significant risk that such registration would be required in the future. In making such determination, the Board shall consider, among other things, the possible requirements of ARA to issue shares in the future. For purposes of this Section 11, any increase in the number of holders of record of a class of ARA's equity securities at a time when the number of record holders exceeds 450 shall be deemed to create a significant risk that registration of such class of equity securities under Section 12 of the Exchange Act would be required in the future. Any transaction resulting in the violation of this Section 11 shall be void and of no effect against ARA, and ARA shall not record any such proported transfer on its stock record books. 12. Closing; Purchase Price. Any selling Stockholder and ARA, as purchaser, of shares of Common Stock pursuant to Section 4, 5, 6 or 9 shall mutually determine a closing date (the "Closing Date") which, unless this Agreement otherwise explicitly provides, shall be not more than five business days, subject to any applicable regulatory waiting periods, after the expiration of the option period described in the Section pursuant to which such shares may be sold in accordance with this Agreement, or if any such day is not a business day, then the first business day thereafter. Notwithstanding anything in this Agreement to the contrary, the Closing Date may be delayed in any case in which ARA cannot, in compliance with the Loan Agreements or applicable law, purchase any shares of Common Stock that it is otherwise obligated to purchase until the earliest practicable date when such closing may be effected in compliance with such Loan Agreements or applicable law. The closing shall be held at 11:00 a.m., local time, at the offices of ARA or at such other time or place as the parties may agree. The most recent existing appraisal of fair market value as determined by an Appraiser shall be determined, for purposes of Sections 5, 6 and 9, at the time the written notice exercising the Put is received by ARA or the written notice exercising the Call is received by the Stockholder, as the case may be. The determination date of the fair market value shall be appropriately changed if the Closing Date is delayed in accordance with the foregoing paragraph. 13. Deliveries at Closing; Method of Payment of Purchase Price. On the Closing Date, any selling Stockholder shall deliver certificates with appropriate transfer tax stamps affixed and with stock powers endorsed in blank, representing the shares of Common Stock to be purchased, and ARA, as purchaser shall deliver to such Stockholder the purchase price which is payable in cash (or by wire transfer or certified check payable in New York or Philadelphia Clearing House funds) and the other consideration, if any, to be given in exchange for such shares. In addition, if the person selling shares is the personal representative of a deceased Stockholder, the personal representative shall also deliver to the purchaser or purchasers (i) copies of letters testamentary or letters of administration evidencing his appointment and qualification, (ii) a certificate issued by the Internal Revenue Service pursuant to Section 6325 of the Code discharging the shares being sold from liens imposed by the Code and (iii) an estate tax waiver issued by the state of the decedent's domicile. 35 14. Endorsement of Stock Certificates. A copy of this Agreement shall be filed with the Secretary of ARA and kept with the records of ARA. Each of the Stockholders hereby agrees that each outstanding certificate representing shares of Common Stock shall bear endorsements reading substantially as follows: (a) The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred, sold or otherwise disposed of except while such a registration is in effect or pursuant to an exemption from registration under said Act. (b) The securities represented by this certificate are subject to the right of the Corporation and the Stockholders of the Corporation to repurchase such securities and the right of the registered holder to sell such securities to the Corporation on the terms and conditions set forth in a Stockholders' Agreement dated as of December 14, 1984, as the same may be amended from time to time, a copy of which may be obtained from the Corporation or from the holder of this instrument. No transfer of such securities will be made on the books of the Corporation unless accompanied by evidence of compliance with the terms of such Agreement. Such certificate shall bear any additional endorsement which may be required for compliance with state securities or blue sky laws. 15. Term. The terms and provisions of this Agreement which relate to Management Investors shall terminate on the 20th anniversary of the Effective Time. The terms and provisions of this Agreement which relate to Outside Investors shall terminate on the 20th anniversary of the Effective Time or, if earlier, on the closing date of the first to occur of (i) any merger or other business combination of ARA with or into any other corporations, except a merger with or into ARA Services, Inc. or a merger or other business combination in which the stockholders of ARA immediately prior thereto constitute more than a majority of the stockholders (by value of equity securities held) following such merger, and (ii) the sale of shares of Class A Common Stock to the public pursuant to a registered public offering under the 1933 Act, as a result of which offering the public (including for this purpose all purchasers in the underwriting irrespective of any relationship with the Company) owns 10% or more of the outstanding shares of Class A Common Stock, provided such shares have a fair market value equal to at least $25,000,000 at the time of the offering. Notwithstanding the foregoing, the restrictive terms and provisions set forth herein with respect to the rights and obligations of Management Investors shall terminate, effective upon or after the occurrence of a public offering pursuant to clause (ii) above, to the extent the existence of such terms and provisions would impair the ability of ARA to list its Common Stock on the New York Stock Exchange or, in the written opinion of the lead underwriter, significantly impair the value of the Common Stock proposed to be sold in a public offering. 16. Registration of Common Stock. In the event of any registration under the Securities Act and public offering of Common Stock, each Stockholder shall, at a meeting convened for the purpose of amending the Certificate of Incorporation, vote to increase the authorized number of shares of Common Stock and, if necessary, to subdivide the outstanding shares of Common Stock of ARA, in both instances as recommended by a majority of the members of the Board in order to effectuate such public offering. 36 17. Injunctive Relief. It is acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved person will be irreparably damaged and will not have an adequate remedy at law. Any such person shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 18. Notices. All notices, statements, instructions or other documents required to be given hereunder, shall be in writing and shall be given either personally, or by mailing the same in a sealed envelope, first-class mail, postage prepaid and either certified or registered, return receipt requested, addressed to ARA at its principal offices and to the other parties at their addresses reflected in the stock records of ARA, or sent by telegram, telex, telecopy or similar form of telecommunication. Each Stockholder, by written notice given to ARA in accordance with this Section 18 may change the address to which notices, statements, instructions or other documents are to be sent to such Stockholder. All notices, statements, instructions and other documents hereunder that are mailed shall be deemed to have been given on the date of mailing. 19. Cooperation. ARA agrees that it will use all reasonable efforts under the circumstances to help any Stockholder desiring to dispose of its Common Stock pursuant to the provisions of this Agreement to do so. 20. Miscellaneous. 20.01 Successor and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties, and their respective successors and assigns. The provisions of this Agreement are for the sole benefit of the parties hereto and their heirs, executors, administrators, legal representatives, successors and assigns, and they shall not be construed as conferring any rights on any other persons. If any Transferee of any Stockholder shall acquire any shares of Common Stock, in any manner, whether by operation of law or otherwise, such shares shall be held subject to all of the terms of this Agreement, and by taking and holding such shares such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. ARA may assign to any other Person its rights with respect to any specific transaction pursuant to Section 4, 5, 6 or 9, provided that Person complies with the provisions of Section 3.01. 20.02 Governing Law. Regardless of the place of execution, this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be wholly performed in such State. 20.03 Headings. Paragraph headings are inserted herein for convenience only and do not form a part of this Agreement. 37 20.04 Entire Agreement; Amendment. This Agreement contains the entire agreement among the parties hereto with respect to the transactions contemplated herein, supersedes all prior written agreements and negotiations and oral understandings, if any, and may not be amended, supplemented or discharged except by performance or by an instrument in writing signed by the holders of at least three-fourths of the Common Stock held by the Institutional and Individual Investors (taken as a whole), and by Management Investors who hold (in combination with their Permitted Transferees) at least a majority of the Common Stock held by Management Investors and their Permitted Transferees, and by ARA. In the event of the amendment or modification of this Agreement in accordance with its terms, the Stockholders shall cause the Board of Directors of ARA to meet within thirty days following such amendment or modification or as soon thereafter as is practicable for the purpose of amending the Certificate of Incorporation and By-Laws of ARA, as may be required as a result of such amendment or modification, and proposing such amendments to the stockholders of ARA entitled to vote thereon, and such action shall be the first action to be taken at such meeting. 20.05 Inspection. So long as this Agreement shall be in effect, this Agreement shall be made available for inspection by any stockholder of ARA at the principal offices of ARA. 20.06 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [Signature Pages and Schedules Omitted] 38 EXHIBIT A (to Amended and Restated Stockholders' Agreement) THIS NOTE IS NOT TRANSFERABLE UNLESS AS A CONDITION PRECEDENT TO THE EFFECTIVENESS OF ANY TRANSFER THE PAYEE HAS OBTAINED THE WRITTEN CONSENT OF THE COMPANY AS TO THE PROPOSED TRANSFER. $__________ Philadelphia, Pennsylvania ___________________, 19___ SUBORDINATED INSTALLMENT NOTE 1. For value received, THE ARA GROUP, INC. (formerly ARA Holding Company), a Delaware corporation (the "Company"), hereby promises to pay to (the "Payee") the sum of $ in equal, annual installments of $ and one final installment of $ on each (April/October) 15 commencing on (April/October) 15, 19 , and to pay simple interest at the rate of % per annum on the unpaid balance thereof, semi-annually in arrears on each April 15 and October 15. 2. The Payee may not sell, assign or otherwise transfer or encumber any portion of this Note or interest herein without first procuring the written consent of the Company, which consent the Company is under no obligation to provide. No transfer of this Note shall be effective unless such transfer is in compliance with the foregoing, including the requirements set forth in the legend provided for above. 3. Both the principal of this Note and interest thereon are payable in lawful money of the United States of America at 1101 Market Street, Philadelphia, PA 19107, or such address of any subsequent principal executive office of the Company within the United States of America as the Company shall designate in writing to the Payee, or at the option of the Company, by check mailed to the Payee at such address for the Payee as is indicated on the books of the Company. 4. This Note may be prepaid in full, or in part, any time, without premium or penalty. All prepayments shall be applied first to accrued interest and then to installments of principal in the order of their maturities. 5. The indebtedness evidenced by this Note and the payment of the principal of and interest on this Note are hereby expressly subordinated, to the extent and in the manner hereinafter set forth, to the prior payment in full of all Senior Indebtedness. 5.1 "Senior Indebtedness" means the principal of, premium, if any, interest and any other amounts due on (1) all Indebtedness incurred, assumed or guaranteed by the Company, either before or after the date hereof, (excluding any debt which by the terms of the instrument creating or evidencing the same is not superior in right of payment to this Note), including, without limitation, (a) any amount payable with respect to any lease, conditional sale or installment sale agreement or other financing instrument or agreement which in accordance with generally accepted accounting principles is, at the date hereof or at the time the lease, conditional sale or installment sale agreement or other financing instrument or agreement is entered into, or assumed or guaranteed by, directly or indirectly, the Company, required to be reflected as a liability on the face of the balance sheet of the Company, (b) any amounts payable in respect to any interest rate exchange agreement, currency exchange agreement or similar agreement and (c) any subordinated indebtedness of a corporation merged with or into or acquired by the Company; and (2) any renewals or extensions or refunding of any such Senior Indebtedness or evidences of indebtedness issued in exchange for such Senior Indebtedness. 5.2 "Indebtedness" means (a) all items, except items of capital stock or of surplus or of general contingency reserves or of reserves for deferred income taxes, which in accordance with 39 generally accepted accounting principles in effect on the date hereof should be included in determining total liabilities as shown on the liability side of a balance sheet of the Company as at the date of which Indebtedness is to be determined, (b) all indebtedness secured by any mortgage, pledge, lien or conditional sale or other title retention agreement existing on any property or asset owned or held by the Company, whether or not such indebtedness shall have been assumed, and (c) all indebtedness of others which the Company has directly or indirectly guaranteed, endorsed, discounted or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which the Company has agreed to supply or advance funds or otherwise to become liable directly or indirectly with respect thereto, including, without limitation, indebtedness arising out of the sale or transfer of accounts or notes receivable or any moneys due or to become due. 6. In the event of any dissolution, winding up, liquidation or reorganization of the Company (whether voluntary or involuntary and whether in bankruptcy, insolvency or receivership proceedings, or upon an assignment for the benefit of creditors or any readjustment of debt, arrangement or composition among creditors or any other marshalling of the assets and liabilities of the Company or otherwise), then holders of Senior Indebtedness shall first be paid in full, or provision made for such payment, before any payment or distribution, directly or indirectly (including by way of set off) is made upon the principal of or interest on this Note, and to that end the holders of Senior Indebtedness shall be entitled to receive in payment thereof any payment or distribution of assets of the Company, whether in cash or property or securities, which may be payable or deliverable in any such proceeding in respect of this Note. The Payee irrevocably authorizes, empowers and directs all receivers, custodians, trustee, liquidators, conservators and others having authority in the premises to effect all such payments and deliveries. Notwithstanding any statute, including without limitation the Federal Bankruptcy Code, any rule of law or bankruptcy procedures to the contrary, the right of the holders of the Senior Indebtedness to have all of the Senior Indebtedness paid and satisfied in full prior to the payment of any amounts due the payee under this Note shall include, without limitation, the right of the holders of the Senior Indebtedness to be paid in full all interest accruing on the Senior Indebtedness due them after the filing of any petition by or against the Company in connection with any bankruptcy or similar proceeding or any other proceeding referred to in paragraph 6 hereof, prior to the payment of any amounts in respect of the Note, including, without limitation, any interest due to the Payee accruing after such date. 7. No payment, directly or indirectly (including by way of set off), shall be made by the Company with respect to the principal of or interest on this Note if (i) an event of default has happened with respect to any Senior Indebtedness, as defined therein or in the instrument under which the same is outstanding which if occurring prior to the stated maturity of such Senior Indebtedness, permits holders thereof upon the giving of notice or passage of time, or both, to accelerate the maturity thereof ("Senior Indebtedness Default") and has not been cured, (ii) a payment by the Company to or for the benefit of Payee would, immediately after giving effect thereto, result in a Senior Indebtedness Default, or (iii) full payment of all amounts then due for principal of (or premium, if any), interest or any other amounts due on Senior Indebtedness shall not then have been made or duly provided for. Upon the occurrence of any events described in (i), (ii) or (iii) described above, notwithstanding any event of default under this Note by the Company, the Payee may not accelerate the maturity of all or any portion of this Note, or take any action towards collection of all or any portion of this Note or enforcement of any rights, powers or remedies under this Note, or applicable law until the earlier of the date on which a Senior Indebtedness Default (or in the case of (iii) required payments shall have been duly provided for) have been cured or such Senior Indebtedness has been paid in full. 40 8. In the event that, notwithstanding the foregoing, the Company shall make any payment prohibited by Section 6 or 7, then, except as hereinafter in this Section otherwise provided, unless and until any such Senior Indebtedness Default shall have been cured or waived or shall cease to exist, such payment shall be held in trust for the benefit of and shall be paid over to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instrument evidencing the Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay in full all Senior Indebtedness then due, after giving effect to any concurrent payment to the holders of such Senior Indebtedness. 9. Subject to the payment in full of all Senior Indebtedness at the time outstanding, the Payee shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until this Note shall be paid in full, and no payments or distributions to the holders of Senior Indebtedness by or on behalf of the Company from the proceeds that would otherwise be payable to the Payee, or by or on behalf of the Payee, shall as between the Company and the Payee, be deemed to be a payment by the Company to or for the account of holders of Senior Indebtedness. 10. No holder of Senior Indebtedness shall be prejudiced in his right to enforce subordination of this Note by any act on the part of the Company. The above provisions in regard to subordination are intended solely for the purpose of defining the relative rights of the Payee on the one hand, and the holders of Senior Indebtedness, on the other hand, and nothing contained in this Note is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness and the Payee, the obligation of the Company, which is absolute and unconditional, to pay to the Payee, subject to the rights of the holders of Senior Indebtedness, the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, subject to the rights, if any, under the above subordination provisions, of holders of Senior Indebtedness to receive cash, property or securities of the Company payable in respect thereof. 11. The principal of this Note and accrued unpaid interest thereon shall (if not already due and payable) upon written demand by the Payee become due and payable forthwith, if there shall have been a default in the payment of any interest on, or principal of, this Note when it becomes due and payable (but only if such payment is not prohibited by the provisions of this Note), and such default shall have continued for a period of 30 days after written notice of such default shall have been given to the Company and shall be continuing at the time of such written demand. 12. No course of dealing between the Company and the Payee or any delay on the part of the Payee in exercising any rights under this Note shall operate as a waiver of any rights of the Payee. 13. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered, or deposited in the mails, first-class, postage prepaid, or delivered to a telegraph office for transmission, if to the Payee, at such address for the Payee as is indicated on the books of the Company or if to the Company, at the address of the principal executive offices of the Company as provided above. 14. This Note shall be governed by the laws of the State of Delaware. THE ARA GROUP, INC. By:______________________________ Treasurer 41 INCENTIVE STOCK OPTION Instructions to Incentive Stock Option Exercise Form READ THE PROSPECTUS CAREFULLY BEFORE COMPLETING THE INCENTIVE STOCK OPTION EXERCISE FORM Date Stock Option was Granted. Insert the effective date of your Stock Option that you are exercising. The effective date is printed on back of your Stock Option Certificate, near the bottom. Name(s). The shares must be registered initially either in your name or in the names of you and your spouse, as joint tenants. If you wish the shares to be registered in the name of both you and your spouse, as joint tenants, you must print both names in this space. 1. Purchase Price Per Share. Insert the exercise price per share specified in your stock option certificate. 2. Number of Shares Being Purchased. Insert the number of shares being purchased. 3. Amount of Check Enclosed. Multiply the Purchase Price Per Share (1) by the Number of Shares Being Purchased (2). Payment of this amount should be made by check payable to "The ARA Group, Inc." Signature(s). Sign the form exactly as you printed your name above. If the shares are to be registered in the names of both you and your spouse, then you both must sign the form. By signing the form, your spouse joins in the representations, warranties and agreement you are making, including your agreement to be bound by the Amended and Restated Stockholders' Agreement as a Management Investor. Delivery of Form. The method of delivery of the Stock Option Exercise Form and check for the Amount of Check Enclosed is your decision and at your risk. 42 INCENTIVE STOCK OPTION Please Review Instructions Before You Fill Out This Form THE ARA GROUP, INC. Incentive Stock Option Exercise Form I hereby exercise a Stock Option granted to me on ______________________________________, 19___________. I hereby represent, warrant and agree as follows: 1. I have received and read copies of (a) the Prospectus dated July 20, 1994, including the Amended and Restated Stockholders' Agreement by and among The ARA Group, Inc. ("ARA") certain of its stockholders, and (b) ARA's annual report on Form 10-K. 2. I have full power and authority to enter into the Amended and Restated Stockholders' Agreement. 3. By signing below, I hereby execute and deliver and agree to be bound by the Amended and Restated Stockholders' Agreement as a Management Investor. 4. I will, upon request, execute any additional documents necessary or desirable for me to become a party to the Amended and Restated Stockholders' Agreement. Name(s):___________________________________________________________ Home Address:______________________________________________________ Home Telephone:____ -_____ -____ Business Telephone:____-____-____ ARA Company:____________________ Component Number: _______________ Social Security No:_____________ 1. Purchase Price Per Share...................$________ 2. Number of Shares Being Purchased...........X________ 3. Amount of Check Enclosed (Line 1 x Line 2). $__________ ___________________________________________ _______________________ Signature Date ___________________________________________ _______________________ Signature Date Please complete and return with your check for the amount listed in Line 3 to: The ARA Group, Inc. 1101 Market Street Philadelphia, Pennsylvania 19107 Attention: Annette Nedd For Transfer agent use only: Check Number______________________ Check Amount $____________________ HID# _____________________________ 43 [This Page Intentionally Left Blank] 44 INCENTIVE STOCK OPTION Please Review Instructions Before You Fill Out This Form THE ARA GROUP, INC. Incentive Stock Option Exercise Form I hereby exercise a Stock Option granted to me on ______________________________________, 19___________. I hereby represent, warrant and agree as follows: 1. I have received and read copies of (a) the Prospectus dated July 20, 1994, including the Amended and Restated Stockholders' Agreement by and among The ARA Group, Inc. ("ARA") certain of its stockholders, and (b) ARA's annual report on Form 10-K. 2. I have full power and authority to enter into the Amended and Restated Stockholders' Agreement. 3. By signing below, I hereby execute and deliver and agree to be bound by the Amended and Restated Stockholders' Agreement as a Management Investor. 4. I will, upon request, execute any additional documents necessary or desirable for me to become a party to the Amended and Restated Stockholders' Agreement. Name(s):______________________________________________________________ Home Address:_________________________________________________________ Home Telephone:_____-_____-_____ Business Telephone:_____-_____-_____ ARA Company:____________________ Component Number:___________________ Social Security No:_____________ 1. Purchase Price Per Share.......................$_________ 2. Number of Shares Being Purchased...............X_________ 3. Amount of Check Enclosed (Line 1 x Line 2)..... $________ __________________________________________ _______________________ Signature Date __________________________________________ _______________________ Signature Date Please complete and return with your check for the amount listed in Line 3 to: The ARA Group, Inc. 1101 Market Street Philadelphia, Pennsylvania 19107 Attention: Annette Nedd For Transfer agent use only: Check Number_________________________ Check Amount $__________________ HID# ________________________________ 45 (This Page Intentionally Left Blank) 46 (This Page Intentionally Left Blank) 47 NON-QUALIFIED STOCK OPTION Instructions to Non-Qualified Stock Option Exercise Form READ THE PROSPECTUS CAREFULLY BEFORE COMPLETING THE NON-QUALIFIED STOCK OPTION EXERCISE FORM Date Stock Option was Granted. Insert the effective date of your Stock Option that you are exercising. The effective date is printed on back of your Stock Option Certificate, near the bottom. Name(s). The shares must be registered initially either in your name or in the names of you and your spouse, as joint tenants. If you wish the shares to be registered in the name of both you and your spouse, as joint tenants, you must print both names in this space. 1. Purchase Price Per Share. Insert the exercise price per share specified in your stock option certificate. 2. Number of Shares Being Purchased. Insert the number of shares being purchased. 3. Total Purchase Price. Multiply the Purchase Price Per Share (1) by the Number of Shares Being Purchased (2). 4. Current Price Per Share. Insert the most recent appraised value. If you do not know the appraised value, you can obtain it by calling one of the persons listed on page 4 of the Prospectus. 5. Purchase Price Per Share. Insert the same Purchase Price Per Share you entered on Line 1. 6. Appreciation Per Share. Subtract the Purchase Price Per Share (5) from the Current Price Per Share (4). 7. Number of Shares Being Purchased. Insert the same Number of Shares Being Purchased you entered on Line 2. 8. Total Appreciation Subject to Taxes. Multiply the Appreciation Per Share (6) by the Number of Shares Being Purchased (7). 9. Estimated Withholding Tax Rate. This 38% rate is an estimate of the federal income tax withholding rate, the social security tax (FICA) withholding rate and state income tax or state unemployment tax which may be required to be withheld by certain states. 10. Total Estimated Withholding Tax Due. Multiply the Total Appreciation Subject to Taxes (8) by the Estimated Withholding Tax Rate (9). 11. Total Amount Due. Add the Total Purchase Price (3) plus the Total Estimated Withholding Tax Due (10). 12. Maximum Amount Eligible to be Deferred. Insert 50% of Total Amount Due (11). 13. Amount of Payment to be Deferred. You may elect to defer any amount up to the Maximum Amount Eligible to be Deferred (12). IF YOU ELECT TO DEFER ANY PART OF THE PAYMENT, YOU MUST COMPLETE AND SIGN THE REVERSE SIDE OF THE EXERCISE FORM. 48 14. Amount of Check Enclosed. Subtract Amount of Payment to be Deferred (13) from Total Amount Due (11). Payment of this amount should be made by check payable to "The ARA Group, Inc." Signature(s). Sign the form exactly as you printed your name above. If the shares are to be registered in the names of both you and your spouse, then you both must sign the form. By signing the form, your spouse joins in the representations, warranties and agreement you are making, including your agreement to be bound by the Amended and Restated Stockholders' Agreement as a Management Investor. Delivery of Form. The method of delivery of the Stock Option Exercise Form and check for the Amount of Check Enclosed is your decision and at your risk. 49 NON-QUALIFIED STOCK OPTION Please Review Instructions Before You Fill Out This Form THE ARA GROUP, INC. Non-Qualified Stock Option Exercise Form I hereby exercise a Stock Option granted to me on____________________________, 19_______. I hereby represent, warrant and agree as follows: 1. I have received and read copies of (a) the Prospectus dated July 20, 1994 including the Amended and Restated Stockholders' Agreement by and among The ARA Group, Inc. ("ARA") certain of its stockholders, and (b) ARA's annual report on Form 10-K. 2. I have full power and authority to enter into the Amended and Restated Stockholders' Agreement. 3. By signing below, I hereby execute and deliver and agree to be bound by the Amended and Restated Stockholders' Agreement as a Management Investor. 4. I will, upon request, execute any additional documents necessary or desirable for me to become a party to the Amended and Restated Stockholders' Agreement. Name(s):_____________________________________________________________________ Home Address:________________________________________________________________ Home Telephone:_____ -______ -________ Business Telephone:____-_____-________ ARA Company:__________________________ Component Number:_____________________ Social Security No:___________________ 1. Purchase Price Per Share.................................. $______ 2. Number of Shares Being Purchased.......................... X______ 3. Total Purchase Price (Line 1 x Line 2).................... $______ 4. Current Price Per Share................................... $______ 5. Purchase Price Per Share.................................. -______ 6. Appreciation Per Share (Line 4 - Line 5).................. $______ 7. Number of Shares Being Purchased.......................... X______ 8. Total Appreciation Subject to Taxes (Line 6 x Line 7)..... $______ 9. Withholding Tax Rate (38%)................................ X__.38_ 10. Total Withholding Tax Due (Line 8 x Line 9)............... $______ 11. Total Amount Due (Line 3 + Line 10)....................... $______ 12. Maximum Amount Eligible to be Deferred (50% of Line 11)... $______ 13. Amount of Payment to be Deferred (May not exceed Line 12). $______ 14. Amount of Check Enclosed (Line 11 - Line 13).............. $______ _______________________________________ _______________________________ Signature Date _______________________________________ _______________________________ Signature Date ______________________________________________________________________________ IF THE AMOUNT ON LINE 13 IS NOT ZERO, YOU MUST ALSO COMPLETE AND SIGN THE REVERSE SIDE OF THIS EXERCISE FORM.* -------- ______________________________________________________________________________ Please complete and return with your check for the amount listed in Line 14 to: The ARA Group, Inc. 1101 Market Street Philadelphia, Pennsylvania 19107 Attention: Annette Nedd For Transfer agent use only: Check Number_________________________________ Check Amount $______________ HID# ________________________________________ Deferred Amount $______________ ____________________________ *PLEASE TURN OVER. ____________________________ 50 DEFERRED PAYMENT OBLIGATION For value received, I/we promise to pay to the order of The ARA Group, Inc. (referred to as the "Company") $_____________, and to pay interest at the rate of _____% per year. Payment of both the deferred obligation and interest shall be due on February 15, 1997 or on such earlier date as the Company may make demand. The obligation and appropriate interest may be prepaid at any time. I/We grant to the Company a security interest in ______________ shares of The ARA Group, Inc. common stock, Class B (the "Pledged Shares") and agree that the Pledged Shares shall be held as collateral by the Company until the amount is paid in full. In the event the amount is not paid when due, the Company shall be entitled to exercise the legal remedies available under applicable law. If any of the Pledged Shares shall be sold or otherwise transferred, then the amount shall become due immediately. This Agreement may be assigned by the Company at any time and shall be governed by the laws of the Commonwealth of Pennsylvania. Print Name(s):______________________________________________________ ______________________________________________________ _______________________________ _______________________________ Signature Date _______________________________ _______________________________ Signature Date INSTRUCTIONS 1. Insert the Amount of Payment to be Deferred (Line 13 on the Exercise Form) in the first paragraph. 2. Please contact one of the individuals on Page 4 for the interest rate to be inserted. 3. Insert the Number of Shares Being Purchased (Line 2 on the Exercise Form) in the second paragraph. 4. Print and sign your name exactly as on the Exercise Form (on the reverse side). If your spouse signed the Exercise Form, he/she must also sign the Deferred Payment Obligation form. By signing the form, your spouse joins in the agreement you are making to pay the amount of the deferred payment obligation. 51 NON-QUALIFIED STOCK OPTION Please Review Instructions Before You Fill Out This Form THE ARA GROUP, INC. Non-Qualified Stock Option Exercise Form I hereby exercise a Stock Option granted to me on____________________________, 19_______. I hereby represent, warrant and agree as follows: 1. I have received and read copies of (a) the Prospectus dated July 20, 1994 including the Amended and Restated Stockholders' Agreement by and among The ARA Group, Inc. ("ARA") certain of its stockholders, and (b) ARA's annual report on Form 10-K. 2. I have full power and authority to enter into the Amended and Restated Stockholders' Agreement. 3. By signing below, I hereby execute and deliver and agree to be bound by the Amended and Restated Stockholders' Agreement as a Management Investor. 4. I will, upon request, execute any additional documents necessary or desirable for me to become a party to the Amended and Restated Stockholders' Agreement. Name(s):_____________________________________________________________________ Home Address:________________________________________________________________ Home Telephone:_____ -______ -________ Business Telephone:____-_____-________ ARA Company:__________________________ Component Number:_____________________ Social Security No:___________________ 1. Purchase Price Per Share.................................. $______ 2. Number of Shares Being Purchased.......................... X______ 3. Total Purchase Price (Line 1 x Line 2).................... $______ 4. Current Price Per Share................................... $______ 5. Purchase Price Per Share.................................. -______ 6. Appreciation Per Share (Line 4 - Line 5).................. $______ 7. Number of Shares Being Purchased.......................... X______ 8. Total Appreciation Subject to Taxes (Line 6 x Line 7)..... $______ 9. Withholding Tax Rate (38%)................................ X__.38_ 10. Total Withholding Tax Due (Line 8 x Line 9)............... $______ 11. Total Amount Due (Line 3 + Line 10)....................... $______ 12. Maximum Amount Eligible to be Deferred (50% of Line 11)... $______ 13. Amount of Payment to be Deferred (May not exceed Line 12). $______ 14. Amount of Check Enclosed (Line 11 - Line 13).............. $______ _______________________________________ _______________________________ Signature Date _______________________________________ _______________________________ Signature Date ______________________________________________________________________________ IF THE AMOUNT ON LINE 13 IS NOT ZERO, YOU MUST ALSO COMPLETE AND SIGN THE REVERSE SIDE OF THIS EXERCISE FORM.* -------- ______________________________________________________________________________ Please complete and return with your check for the amount listed in Line 14 to: The ARA Group, Inc. 1101 Market Street Philadelphia, Pennsylvania 19107 Attention: Annette Nedd For Transfer agent use only: Check Number_________________________________ Check Amount $______________ HID# ________________________________________ Deferred Amount $______________ ____________________________ *PLEASE TURN OVER. ____________________________ 52 DEFERRED PAYMENT OBLIGATION For value received, I/we promise to pay to the order of The ARA Group, Inc. (referred to as the "Company") $_____________, and to pay interest at the rate of _____% per year. Payment of both the deferred obligation and interest shall be due on February 15, 1997 or on such earlier date as the Company may make demand. The obligation and appropriate interest may be prepaid at any time. I/We grant to the Company a security interest in ______________ shares of The ARA Group, Inc. common stock, Class B (the "Pledged Shares") and agree that the Pledged Shares shall be held as collateral by the Company until the amount is paid in full. In the event the amount is not paid when due, the Company shall be entitled to exercise the legal remedies available under applicable law. If any of the Pledged Shares shall be sold or otherwise transferred, then the amount shall become due immediately. This Agreement may be assigned by the Company at any time and shall be governed by the laws of the Commonwealth of Pennsylvania. Print Name(s):______________________________________________________ ______________________________________________________ __________________________________ _____________________________ Signature Date __________________________________ _____________________________ Signature Date INSTRUCTIONS 1. Insert the Amount of Payment to be Deferred (Line 13 on the Exercise Form) in the first paragraph. 2. Please contact one of the individuals on Page 4 for the interest rate to be inserted. 3. Insert the Number of Shares Being Purchased (Line 2 on the Exercise Form) in the second paragraph. 4. Print and sign your name exactly as on the Exercise Form (on the reverse side). If your spouse signed the Exercise Form, he/she must also sign the Deferred Payment Obligation form. By signing the form, your spouse joins in the agreement you are making to pay the amount of the deferred payment obligation. -----END PRIVACY-ENHANCED MESSAGE-----