<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10
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GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
INSIGNIA/ESG HOLDINGS, INC.
(TO BE RENAMED "INSIGNIA FINANCIAL GROUP, INC.")
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 56-2084290
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
</TABLE>
200 PARK AVENUE, NEW YORK, NEW YORK 10166
(Address of Principal Executive Offices) (Zip Code)
(212) 984-8000
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE, INC.
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
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<PAGE> 2
INFORMATION STATEMENT
[INSIGNIA LOGO]
INSIGNIA/ESG HOLDINGS, INC.
(TO BE RENAMED "INSIGNIA FINANCIAL GROUP, INC.")
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Information Statement ("Information Statement") has been prepared by
Insignia Financial Group, Inc., a Delaware corporation ("Insignia"), in
connection with the proposed pro rata distribution (the "Distribution") by
Insignia to its stockholders of all of the outstanding Common Stock, par value
$.01 per share ("Holdings Common Stock"), of Insignia/ESG Holdings, Inc., a
Delaware corporation and a wholly-owned subsidiary of Insignia ("Holdings"). It
is currently anticipated that the Distribution will be effected as soon as
possible after the Special Meeting of Stockholders of Insignia to be held on
September 14, 1998 (the "Insignia Meeting"), at which Insignia stockholders will
be asked to approve, among other things, the Distribution and the Amended and
Restated Agreement and Plan of Merger, dated as of May 26, 1998 (the "Merger
Agreement"), by and among Insignia, Holdings, Apartment Investment and
Management Company, a Maryland corporation ("AIMCO"), and AIMCO Properties,
L.P., a Delaware limited partnership ("AIMCO Operating Partnership"), which
provides for the proposed merger (the "Merger") of Insignia with and into AIMCO,
as such Merger is described in the Joint Proxy Statement/Prospectus dated August
, 1998 (the "Joint Proxy Statement/Prospectus") relating to the Insignia
Meeting and the Special Meeting of Stockholders of AIMCO to be held on September
14, 1998 (the "AIMCO Meeting"). Following the Merger, Holdings will change its
name to "Insignia Financial Group, Inc."
As a result of the Distribution, each holder of record as of September 15,
1998 (the "Distribution Record Date") of shares of Class A Common Stock, par
value $.01 per share, of Insignia ("Insignia Common Stock") will receive two
shares of Holdings Common Stock for each three shares of Insignia Common Stock
held by such holder. Cash will be distributed in lieu of any fractional shares
of Holdings Common Stock (determined in the aggregate). The Insignia Board of
Directors (the "Insignia Board") expects to consummate the Distribution as soon
as practicable after the Distribution Record Date.
The Distribution will occur if the Insignia stockholders approve the
Distribution and the Insignia Board determines that the conditions to the
Distribution have been satisfied, regardless of whether the Merger Agreement is
approved. See "THE DISTRIBUTION -- CONDITIONS."
---------------------
THE SECURITIES TO BE ISSUED IN THE DISTRIBUTION AND THE WARRANT DISTRIBUTION
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS INFORMATION STATEMENT OR THE JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Information Statement is August , 1998.
<PAGE> 3
Prior to the Distribution, Insignia will transfer to Holdings and its
subsidiaries the assets and liabilities that comprise Insignia's commercial real
estate operations and other select holdings. The business of Holdings will
include Insignia's commercial real estate services business, cooperative and
condominium apartment management business, single-family home brokerage and
mortgage origination business, equity co-investment business and certain other
related businesses. After the Distribution, Insignia and its remaining
subsidiaries will continue to own and operate Insignia's existing residential
multifamily property management, ownership and partnership administration
businesses, including related assets and liabilities, and if the Merger is
consummated, such businesses, assets and liabilities will be acquired by AIMCO.
No consideration will be paid by Insignia stockholders for the shares of
Holdings Common Stock to be received by them in the Distribution. There is
currently no public trading market for the Holdings Common Stock. The shares of
Holdings Common Stock to be distributed in the Distribution have been approved
for listing, subject to official notice of issuance and approval of the
Distribution by Insignia stockholders, on the NYSE under the symbol "IEG." See
"THE DISTRIBUTION -- MANNER OF EFFECTING THE DISTRIBUTION."
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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AVAILABLE INFORMATION....................................... iii
SUMMARY..................................................... 1
Insignia/ESG Holdings, Inc................................ 1
Pro Forma Revenues........................................ 3
The Distribution and the Merger........................... 3
Effects of the Distribution............................... 4
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION OF HOLDINGS................................... 6
CAPITALIZATION.............................................. 8
LISTING AND TRADING OF HOLDINGS COMMON STOCK................ 8
DIVIDEND POLICY............................................. 8
THE DISTRIBUTION............................................ 9
Reasons for the Distribution.............................. 9
The Distribution.......................................... 10
Manner of Effecting the Distribution...................... 11
Conditions................................................ 11
Relationship with Insignia Following the Distribution..... 12
Expenses.................................................. 12
THE MERGER.................................................. 12
Reasons for the Merger.................................... 12
The Merger Agreement...................................... 13
The Indemnification Agreement............................. 13
BUSINESS OF HOLDINGS........................................ 14
General................................................... 14
Commercial Real Estate Services -- Insignia/ESG........... 16
Residential Real Estate Services -- Realty One and
Insignia Residential Group............................. 21
Cooperative and Condominium Apartment Management
Services............................................... 23
Mergers and Acquisitions.................................. 25
Competition............................................... 25
Employees................................................. 26
Environmental Regulation.................................. 26
Litigation................................................ 26
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO INSIGNIA
STOCKHOLDERS.............................................. 28
The Distribution.......................................... 28
SELECTED COMBINED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION OF HOLDINGS................................... 30
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF
HOLDINGS (UNAUDITED)...................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 37
Results of Operations for the Three Months Ended March 31,
1998 and 1997.......................................... 37
Results of Operations for the Years Ended December 31,
1997 and 1996.......................................... 39
Results of Operations for the Years Ended December 31,
1996 and 1995.......................................... 40
Liquidity and Capital Resources........................... 41
Effect of New Accounting Standards........................ 41
Year 2000 Compliance...................................... 41
Impact of Inflation and Changing Prices................... 42
</TABLE>
i
<PAGE> 5
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PAGE
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MANAGEMENT.................................................. 43
Directors and Executive Officers.......................... 43
Committees of the Holdings Board.......................... 44
Directors' Compensation................................... 45
EXECUTIVE COMPENSATION...................................... 46
Summary Compensation Table................................ 46
Insignia Option/SAR Grants in Last Fiscal Year............ 47
Aggregated Insignia Option/SAR Exercises in Last Fiscal
Year and Fiscal Year-End Option/SAR Values............. 48
Compensation Pursuant to Plans............................ 48
Employment Agreements..................................... 54
Compensation Committee Interlocks and Insider
Participation.......................................... 58
CERTAIN TRANSACTIONS........................................ 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 59
DESCRIPTION OF CAPITAL STOCK................................ 61
Common Stock.............................................. 61
Preferred Stock........................................... 61
NYSE Listing.............................................. 61
Transfer Agent and Registrar.............................. 61
The Delaware Business Combination Act..................... 61
Certain Certificate and By-laws Provisions................ 62
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEX A -- AGREEMENT AND PLAN OF DISTRIBUTION............... A-1
</TABLE>
ii
<PAGE> 6
AVAILABLE INFORMATION
Holdings has filed with the Securities and Exchange Commission (the "SEC")
a registration statement on Form 10 (such registration statement, as it may be
amended or supplemented, the "Registration Statement") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to the
Holdings Common Stock to be distributed to Insignia stockholders in the
Distribution. This Information Statement does not contain all of the information
that is set forth in the Registration Statement and the exhibits and schedules
thereto. Additional information concerning the proposed Distribution and related
transactions may be found in the Joint Proxy Statement/Prospectus forming a part
of the registration statement on Form S-4 (the "Form S-4") filed by AIMCO under
the Securities Act of 1933, as amended (the "Securities Act"). The Registration
Statement and the Form S-4, as well as the respective annexes, exhibits and
schedules thereto, can be copied and inspected at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, NW, Washington,
D.C. 20549, as well as the Regional Offices of the SEC at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials can also
be obtained from the Public Reference Section of the SEC at 450 Fifth Street NW,
Washington, D.C. 20549 at prescribed rates. The SEC also maintains a site on the
World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including Holdings and Insignia. In addition,
information filed by Holdings and Insignia with the NYSE may be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005.
Following the Distribution, Holdings will be subject to the informational
requirements of the Exchange Act and, in accordance therewith, will file
reports, proxy statements and other information with the SEC. The reports, proxy
statements and other information that will be filed by Holdings with the SEC
will be available for inspection and copying at the SEC's public reference
facilities referred to above. Copies of such material will be obtainable by mail
from the Public Reference Section of the SEC at the address referred to above at
prescribed rates and from the SEC's web site referred to above. In addition, it
is expected that reports, proxy statements, and other information concerning
Holdings will be available for inspection at the offices of the NYSE at 20 Broad
Street, New York, New York 10005.
NO PERSON HAS BEEN AUTHORIZED BY INSIGNIA OR HOLDINGS TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED
IN THIS INFORMATION STATEMENT OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT AND IN THE JOINT PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EITHER INSIGNIA OR HOLDINGS. NEITHER THE DELIVERY OF THIS
INFORMATION STATEMENT OR THE JOINT PROXY STATEMENT/PROSPECTUS NOR THE
CONSUMMATION OF THE DISTRIBUTION CONTEMPLATED HEREBY SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF HOLDINGS SINCE THE DATE THEREOF, OR THAT THE INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO SUCH DATE.
iii
<PAGE> 7
SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by reference to the more detailed information and financial
statements, including the notes thereto, included in this Information Statement
and the Appendices to the Joint Proxy Statement/Prospectus, including (i) the
form of the Agreement and Plan of Distribution to be entered into between
Insignia and Holdings attached hereto as Appendix A (the "Distribution
Agreement") and (ii) the Merger Agreement attached as Appendix I to the Joint
Proxy Statement/Prospectus. Stockholders are urged to read this Information
Statement, the Joint Proxy Statement/Prospectus and the Appendices thereto in
their entirety. After the Distribution, Holdings will be one of the largest
international real estate firms in the world, comprised of Insignia's
international commercial real estate services business, cooperative and
condominium apartment management business, single-family home brokerage and
mortgage origination business, equity co-investment and certain other related
businesses (collectively, the "Holdings Businesses"), and Insignia will continue
to own and operate Insignia's existing residential multifamily property
management and ownership and partnership administration businesses, including
related assets and liabilities (collectively, the "Multifamily Business").
Assuming the Merger with AIMCO is consummated, AIMCO will succeed to the
Multifamily Business, including related assets and liabilities.
INSIGNIA/ESG HOLDINGS, INC.
Holdings, headquartered in New York, New York, is the parent company of an
international real estate organization. Holdings' business units specialize in
commercial real estate services, single-family home brokerage and mortgage
origination, condominium and cooperative apartment management, equity
co-investment and other services. As more fully described below and elsewhere in
this Information Statement, Holdings' principal operating units are
Insignia/ESG, Inc. (international commercial property services), Realty One,
Inc. (single-family home brokerage and mortgage origination) and Insignia
Residential Group, Inc. (condominium and cooperative housing management).
Through Insignia/ESG, Inc. and its subsidiaries ("Insignia/ESG"), including
its U.K. subsidiary Richard Ellis Group Limited ("Richard Ellis"), its Italian
subsidiary Insignia CAGISA S.P.A. ("Insignia/ CAGISA"), and its German
subsidiary Insignia RE GmbH, Holdings provides a broad spectrum of commercial
real estate services, including tenant representation, property leasing and
management, property disposition and acquisition, investment sales, equity and
debt financing, equity co-investment and consulting services. Insignia/ESG
provides these services for tenants, owners and investors in office,
manufacturing/distribution, retail, hospitality and mixed-use properties.
Insignia/ESG is among the leading providers of commercial real estate services
in the United States according to the January 1998 edition of Commercial
Property News. Insignia/ESG enjoys a dominant market position in the New York
metropolitan area, and also maintains a significant market position in property
owner and/or tenant services in Washington, DC, Philadelphia, Chicago, Atlanta,
Phoenix, Los Angeles, San Francisco, Dallas and other major central business
districts. In all, Insignia/ESG has operations in more than 40 markets in the
United States. Insignia/ESG also has growing international capabilities which
allow it to meet clients' expanding world-wide needs, most notably through
Richard Ellis in the United Kingdom, Insignia RE GmbH in Germany, and Insignia/
CAGISA in Italy. According to the January 1998 issue of Estates Gazette, Richard
Ellis is among the leading property services companies in the United Kingdom
with offices in London, Manchester, Glasgow, Birmingham, Leeds, Liverpool and
Belfast.
1
<PAGE> 8
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<S> <C>
Map of United States showing Map of United Kingdom showing
locations of Insignia/ESG offices locations of Insignia/ESG offices
</TABLE>
[INSIGNIA/ESG U.S. AND U.K. OFFICE LOCATIONS MAPS]
Through Realty One, Inc. and its affiliated companies ("Realty One"),
Holdings operates a full-service single-family residential brokerage and
mortgage loan origination business in northern Ohio. Realty One is the ninth
largest (based on unit volume) residential real estate brokerage firm in the
United States according to Real Trends "Big Broker Report" published in May
1998. In 1997, it handled more than 20,000 transaction sides valued at more than
$2.8 billion, and through its affiliate, First Ohio Mortgage Corp. Inc. ("First
Ohio"), Realty One originated in excess of 2,650 mortgage loans totaling
approximately $292 million.
Holdings' subsidiary, Insignia Residential Group, Inc. ("Insignia
Residential Group"), is the largest manager of cooperatives and condominiums in
the New York metropolitan tri-state area according to the July/August 1998 issue
of New York Habitat. As of March 31, 1998, Insignia Residential Group managed
315 residential properties, consisting of 237 cooperatives, 41 condominiums and
37 rental properties, comprising a total of approximately 59,000 residential
units.
As a result of the Distribution, Holdings will be an independent, publicly
held company. Certain of the current executive officers and directors of
Insignia are also executive officers and directors of Holdings. See
"MANAGEMENT."
Holdings, which was incorporated under the laws of the State of Delaware on
May 6, 1998, was organized by Insignia for the purpose of owning and operating
the Holdings Businesses in order to facilitate the Distribution. Holdings has no
operating history and no established sources of capital. Holdings' principal
executive offices are located at 200 Park Avenue, New York, New York 10166, and
its telephone number at that address is (212) 984-8000. Following the Merger,
Holdings will change its name to "Insignia Financial Group, Inc."
2
<PAGE> 9
PRO FORMA REVENUES
On a pro forma basis, Insignia/ESG's U.S. operations accounted for 58% of
Holdings' 1997 revenues, Insignia/ESG's European operations accounted for 16% of
Holdings' 1997 revenues, Realty One accounted for 21% of Holdings' 1997
revenues, and Insignia Residential Group accounted for 5% of Holdings' 1997
revenues.
HOLDINGS PRO FORMA REVENUES
[CHART]
[PIE CHART ILLUSTRATING PERCENTAGES OF HOLDINGS'
PRO FORMA REVENUES ACCOUNTED FOR BY OPERATIONS LISTED ABOVE]
THE DISTRIBUTION AND THE MERGER
Prior to the Distribution, Insignia will effect a series of contributions,
transfers and liability assumptions among itself and its subsidiaries for the
purpose of separating the Holdings Businesses and the Multifamily Business. The
purpose of these transactions is to facilitate the Distribution and the Merger.
Most of Insignia's existing liabilities, other than those directly relating to
the Holdings Businesses, will remain with Insignia after the Distribution
(subject to certain guarantees and pledges of Holdings and its subsidiaries
pending the completion of the Merger or refinancing thereof by Insignia).
Assuming the Merger is consummated, those liabilities will be assumed by AIMCO
and Holdings will be released from all guarantees, liens and pledges in favor of
Insignia's revolving credit facility lenders.
The Distribution. Insignia will distribute to each record holder of
Insignia Common Stock as of the Distribution Record Date certificates
representing that number of whole shares of Holdings Common Stock equal to
two-thirds of the number of shares of Insignia Common Stock held by such holder.
Insignia stockholders will recognize gain or loss to the extent cash is
distributed in lieu of any fractional shares of Holdings Common Stock. It is
currently anticipated that the Distribution will be effected as soon as
practicable after approval thereof at the Insignia Meeting. Insignia has
received an opinion from Rogers & Wells LLP that, although the matter is not
free from doubt, the Distribution should qualify as a reorganization and
tax-free distribution for Federal income tax purposes. Notwithstanding the
receipt of such an opinion, no assurance can be given that the Internal Revenue
Service ("IRS") or a court will agree with the conclusions of Rogers & Wells
LLP. To qualify as a tax-free distribution, the Distribution must satisfy the
requirements of Sections 355 and 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), including the requirements that the Distribution not be
used as a device for the distribution of Insignia's earnings and that
3
<PAGE> 10
Insignia's historic business be continued following the Merger and Distribution.
The law is not entirely clear regarding the application of these requirements to
a distribution and subsequent merger with a real estate investment trust
("REIT") that will conduct the acquired business through a subsidiary
partnership and other non-controlled subsidiaries. If the Distribution did not
qualify as a tax-free reorganization, each Insignia stockholder would be treated
as receiving a distribution in an amount equal to the fair market value of
Holdings Common Stock received, which would result in a taxable dividend to the
extent of such stockholder's pro rata share of Insignia's current and
accumulated earnings and profits (including gain to Insignia from the
distribution of Holdings Common Stock). In the event that Insignia stockholders
approve the Distribution but not the Merger Agreement, the Distribution will
nonetheless be consummated if the Insignia Board determines that the conditions
to the Distribution have been satisfied. See "THE DISTRIBUTION -- CONDITIONS."
In connection with the Distribution, Insignia anticipates making a
distribution (the "Warrant Distribution") to record holders on the Distribution
Record Date of the 6 1/2% Trust Convertible Preferred Securities issued by
Insignia Financing I, a subsidiary of Insignia (the "Convertible Preferred
Securities"), of warrants to purchase approximately 1,196,000 shares of Holdings
Common Stock (four warrants for each $500 liquidation amount of Convertible
Preferred Securities held by them) (the "Warrants"). Each Warrant will represent
the right to purchase one share of Holdings Common Stock. The Warrants will have
an exercise price of 120% of the market price of Holdings Common Stock following
the Distribution. The term of each Warrant will be five years, and no Warrant
will be exercisable before two years after it is granted. Immediately prior to
the Warrant Distribution, Insignia will purchase the Warrants from Holdings for
approximately $8.5 million, which represents the estimated fair market value of
the Warrants. This value was determined using the Black-Scholes method, based on
the following assumptions: (i) no dividends are paid on Holdings Common Stock,
(ii) an exercise price equal to 120% of the market price, (iii) a five-year term
and (iv) 30% volatility of the Holdings Common Stock. See "THE
DISTRIBUTION -- MANNER OF EFFECTING THE DISTRIBUTION."
The Insignia Board will formally declare, and authorize Insignia to effect,
the Warrant Distribution if the Distribution has occurred and the Insignia Board
determines, among other things, that (i) the conditions to the Merger have been
satisfied and (ii) the closing of the Merger is imminent. See "THE
DISTRIBUTION -- CONDITIONS."
The Merger. If the Distribution and the Merger Agreement are approved by
Insignia stockholders, pursuant to the Merger Agreement Insignia (and thus the
Multifamily Business) will be merged with and into AIMCO, with AIMCO being the
surviving corporation. In the aggregate, Insignia's stockholders will receive
shares of preferred AIMCO equity securities ("AIMCO Securities") in the Merger,
which will also entitle the holders of the AIMCO Securities to a one-time
special dividend of approximately $50 million in cash (the "Special Dividend").
In addition, AIMCO is required to have Holdings released from all guarantees of,
and pledges of collateral for, Insignia debt as a condition of the Merger. A
more detailed description of the Merger Agreement and the Merger, including the
respective pre- and post-Merger obligations of the parties to the Merger
Agreement and the conditions to consummation of the Merger, can be found in the
Joint Proxy Statement/Prospectus. See "THE MERGER."
EFFECTS OF THE DISTRIBUTION
Set forth below is a brief summary of certain terms of the Distribution and
related transactions. The Distribution Agreement is more fully described herein
under "THE DISTRIBUTION" and is attached hereto as Appendix A.
Distributing Company.......... Insignia
Securities to be
Distributed................... Shares of Holdings Common Stock, on the basis
of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock, and cash
in lieu of any fractional shares of Holdings
Common Stock. Based on the number of shares of
Insignia
4
<PAGE> 11
Common Stock outstanding as of July 31, 1998,
it is estimated that approximately 21,500,000
shares of Holdings Common Stock will be
distributed to Insignia stockholders in the
Distribution.
Distribution Record Date...... The Distribution Record Date is September 15,
1998.
Time of Distribution.......... The time at which the Distribution is effective
(the "Time of Distribution") is expected to be
as soon as practicable after the approval
thereof at the Insignia Meeting. Stock
certificates for shares of Holdings Common
Stock will be mailed as soon as practicable
after the Time of Distribution. See "THE
DISTRIBUTION -- MANNER OF EFFECTING THE
DISTRIBUTION."
Trading Market................ The Holdings Common Stock to be distributed in
the Distribution have been approved for listing
on the NYSE, subject to official notice of
issuance and approval of the Distribution by
Insignia stockholders, under the symbol "IEG."
Holdings is also considering applying to list
its shares of the Holdings Common Stock on the
London Stock Exchange. See "LISTING AND TRADING
OF HOLDINGS COMMON STOCK."
Distribution Agent, Transfer
Agent and Registrar........... First Union National Bank, which also serves as
transfer agent for the Insignia Common Stock,
is expected to serve as the distribution agent
and as the transfer agent and registrar for the
Holdings Common Stock.
Tax Consequences.............. The Distribution is intended to be tax-free to
holders of Insignia Common Stock. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES TO INSIGNIA
STOCKHOLDERS."
Distribution Agreement........ Holdings and Insignia will enter into the
Distribution Agreement immediately prior to the
Distribution, which will govern the parties
respective rights, duties and obligations with
respect to the sharing of tax liabilities, if
any, and other pre- and post-Distribution
liabilities and obligations. A copy of the
Distribution Agreement is attached hereto as
Appendix A. See "THE DISTRIBUTION --
RELATIONSHIP WITH INSIGNIA FOLLOWING THE
DISTRIBUTION."
Relationship with Insignia
After the Distribution........ Except as provided in the Distribution
Agreement, the Merger Agreement and the Amended
and Restated Indemnification Agreement, dated
as of May 26, 1998, between AIMCO and Holdings
(the "Indemnification Agreement") and as
otherwise described herein, there will be no
relationship between Holdings and Insignia
after the Distribution, or between Holdings and
AIMCO after the Merger. See "THE
DISTRIBUTION -- RELATIONSHIP WITH INSIGNIA
FOLLOWING THE DISTRIBUTION."
5
<PAGE> 12
SUMMARY COMBINED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION OF HOLDINGS
The following table sets forth (i) unaudited summary combined historical
financial information of the Insignia entities to be spun off into Holdings (the
"Holdings Businesses") as of March 31, 1998 and for each of the three-month
periods ended March 31, 1998 and 1997; (ii) summary combined historical
financial information as of December 31, 1997 and 1996 and for each of the years
ended December 31, 1997, 1996 and 1995, which has been derived from the Holdings
Businesses' audited combined financial statements as of December 31, 1997 and
1996, and for each of the years ended December 31, 1997, 1996 and 1995, included
elsewhere herein; (iii) summary historical financial information as of and for
each of the years ended December 31, 1995, 1994, and 1993, which has been
derived from the unaudited combined financial statements of the Holdings
Businesses, not included elsewhere herein; and (iv) unaudited summary combined
pro forma financial information as of and for the three-month period ended March
31, 1998 and for the year ended December 31, 1997, which has been derived from
the Unaudited Pro Forma Condensed Combined Financial Statements of Holdings
included elsewhere herein. This historical and pro forma financial information
includes an allocable portion of corporate, administrative and general expenses
of Insignia estimated to be incurred by Holdings operating on a stand alone
basis. Such data should be read in conjunction with the combined financial
statements (including the notes thereto) and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included elsewhere
herein. The unaudited summary combined pro forma balance sheet information as of
March 31, 1998 is presented as if the Distribution and the Merger had occurred
on March 31, 1998, and the unaudited summary combined pro forma income statement
information for the three-month period ended March 31, 1998 and the year ended
December 31, 1997 is presented as if the Distribution, the acquisition of
Richard Ellis, the acquisition of Realty One, and the acquisition of Barnes,
Morris, Pardoe & Foster had occurred on January 1, 1997. The unaudited summary
combined pro forma financial information incorporates certain assumptions set
forth in the footnotes to the Unaudited Pro Forma Condensed Combined Financial
Statements of Holdings included elsewhere herein. Historical per share data has
not been presented because the financial statements of the Holdings Businesses
include primarily wholly-owned subsidiaries or divisions of Insignia. The
summary combined pro forma information does not purport to represent what
Holdings' financial position or results of operations actually would have been
had the Distribution and the acquisitions described above, in fact, occurred on
such date or at the beginning of the period indicated, or to project Holdings'
financial position or results of operations at any future date or for any future
period.
The tables set forth below provide a variety of statistical information
about Holdings and the Holdings Businesses. Management believes that Net EBITDA,
which is defined as earnings before interest, income taxes, depreciation and
amortization ("EBITDA") combined with funds from operations ("FFO") less
interest expense, is a significant indicator of the strength of its results.
EBITDA does not represent cash flow as defined by GAAP and does not necessarily
represent amounts of cash available to fund Holdings' cash requirements. EBITDA
should not be considered an alternative to net income, an indicator of operating
performance or an alternative to cash flow from operations as a measure of
liquidity. There can be no assurance that Holdings' basis of computing EBITDA
and Net EBITDA is comparable with that of other companies.
6
<PAGE> 13
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, HOLDINGS HOLDINGS BUSINESSES
-------------------------------- --------- -------------------------------------------------
HOLDINGS HOLDINGS BUSINESSES YEAR ENDED DECEMBER 31,
--------- -------------------- -------------------------------------------------------------
PRO FORMA PRO FORMA
1998 1998 1997 1997 1997 1996 1995 1994 1993
--------- --------- -------- --------- -------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $113,033 $102,801 $43,866 $460,717 $295,753 $122,005 $38,658 $15,665 $11,711
Operating expenses............. 101,690 91,776 39,162 408,848 258,625 107,444 37,554 14,606 8,672
Depreciation and
amortization................. 6,007 5,184 3,268 22,056 15,244 9,197 3,778 771 157
Net income (loss).............. 2,330 2,759 1,072 14,570 13,055 3,484 (2,278) 173 1,758
Per share amount -- assuming
dilution..................... $ 0.10 $ 0.67
Weighted average and potential
dilutive common shares....... 22,581 21,657
CASH FLOW DATA:
Cash provided by (used in)
operating activities......... N/A $(11,778) $(6,030) N/A $ 30,332 $ 7,307 $(1,399) N/A N/A
Cash used in investing
activities................... N/A (36,845) (3,117) N/A (82,893) (77,194) (19,796) N/A N/A
Cash provided by financing
activities................... N/A 54,424 9,116 N/A 61,767 69,895 21,221 N/A N/A
SUPPLEMENTAL DATA:
EBITDA......................... $ 11,343 $ 11,025 $ 4,704 $ 51,869 $ 37,128 $ 14,561 $ 1,104 $ 1,059 $ 3,039
Combined EBITDA and FFO........ 11,709 11,391 4,860 52,673 37,932 14,923 1,104 1,059 3,039
Net EBITDA..................... 11,096 11,009 4,860 50,621 37,614 14,905 1,104 1,059 3,039
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, HOLDINGS BUSINESSES
---------------------- -------------------------------------------------
HOLDINGS HOLDINGS
--------- BUSINESSES AS OF DECEMBER 31,
PRO FORMA ---------- -------------------------------------------------
1998 1998 1997 1996 1995 1994 1993
--------- ---------- -------- -------- ------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................... $485,652 $450,907 $334,494 $171,787 $43,074 $19,877 $ 3,153
Notes payable.................. 31,208 31,208 20,891 -- -- -- --
Investment and net advances
from Insignia................ -- 288,720 208,444 137,777 39,948 17,294 1,671
Stockholders' equity........... 323,465 -- -- -- -- --
</TABLE>
7
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Holdings
Businesses as of March 31, 1998 and the pro forma capitalization of Holdings as
of such date after giving effect to the Distribution (amounts in thousands,
except share data). This table should be read in conjunction with Holdings
Businesses' Combined Financial Statements and the notes thereto, Holdings'
Unaudited Pro Forma Condensed Combined Financial Statements and the notes
thereto, and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," all of which are included elsewhere herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Long-term debt(1)......................................... $ 31,208 $ 31,208
Investment and net advances from Insignia -- stockholders'
equity................................................. 288,720 --
Common Stock, $.01 par value per share, 80,000,000 shares
authorized, 21,500,000 shares issued and
outstanding(2)......................................... -- 215
Preferred Stock, $.01 par value per share, 20,000,000
shares authorized, no shares issued and outstanding.... -- --
Additional paid-in capital................................ -- 323,250
Retained earnings......................................... -- --
-------- --------
Total investment and net advances from Insignia --
stockholders' equity............................ 288,720 323,465
-------- --------
Total capitalization.............................. $319,928 $354,673
======== ========
</TABLE>
- ---------------
(1) Holdings is a guarantor of, and the stock of each of its material
subsidiaries is pledged to secure, Insignia's $300 million revolving credit
facility.
(2) Does not include 6,154,000 shares of Holdings Common Stock which may be
issued upon exercise of options and warrants.
LISTING AND TRADING OF HOLDINGS COMMON STOCK
The Holdings Common Stock to be distributed in the Distribution have been
approved for listing on the NYSE, subject to official notice of issuance, under
the symbol "IEG." Holdings is also considering applying to list the Holdings
Common Stock on the London Stock Exchange. There is currently no public trading
market for the Holdings Common Stock, and there can be no assurance as to the
establishment or consistency of any such market. Of the approximately 21,500,000
million shares of Holdings Common Stock that are expected to be outstanding
following the Distribution, approximately 13.6 million shares will become
eligible for sale in the public market immediately following the Distribution,
and the remaining approximately 7.9 million shares held by affiliates will
become eligible for resale 90 days following the Distribution, subject to
volume, manner of sale and other limitations of Rule 144 under the Securities
Act. Persons who may be deemed to be affiliates of Holdings after the
Distribution generally include individuals or entities that control, are
controlled by or are under common control with Holdings, and may include the
directors and executive officers of Holdings as well as any principal
stockholder of Holdings. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT."
DIVIDEND POLICY
Holdings does not intend to pay dividends on the Holdings Common Stock in
the foreseeable future. Any payment of future dividends and the amounts thereof
will be dependent upon Holdings' earnings, financial requirements and other
factors, including contractual obligations.
8
<PAGE> 15
THE DISTRIBUTION
This section of the Information Statement describes certain aspects of the
Distribution. This description does not purport to be complete and is qualified
in its entirety by reference to the agreements (including the Distribution
Agreement and the Merger Agreement) which are attached as Appendices to this
Information Statement and to the Joint Proxy Statement/Prospectus.
REASONS FOR THE DISTRIBUTION
The Insignia Board believes that the Distribution will enhance stockholder
value principally for the following reasons:
- Access to Capital Markets. The separation of the Holdings Businesses will
provide Holdings with greater access to the capital markets to develop
its commercial and retained residential real estate operations,
facilitate future acquisitions and make Holdings better able to attract
and retain top quality professionals in its commercial real estate future
operations. Stock-based compensation of commercial real estate
professionals is expected to more closely tie their performance and
compensation.
- Continuation of Multifamily Business. Regardless of whether the Merger
occurs, the Distribution will permit Insignia to continue and expand the
Multifamily Business. Immediately following the Distribution, Insignia
will continue to be the largest manager of multifamily housing in the
United States.
- Future Prospects of Holdings. The strength and future prospects of
Holdings are favorable, even without the net cash flow contributed by the
Multifamily Business. The Insignia Board believes that Holdings will have
sufficient access to capital to fund its operations as a stand alone
entity.
- Commercial Business Attractive to Investors. The Insignia Board believes
that the creation of a stand-alone commercial business will be more
attractive to the investment community, because it will enable that
community to better understand and analyze the performance and prospects
of the Holdings Businesses.
- Management Focus. The Distribution will allow the management of Holdings
to focus exclusively on the operation and growth of the Holdings
Businesses.
- Tax Free Distribution. The Distribution is expected to be tax-free to
Insignia stockholders (except to the extent of cash received in lieu of
fractional shares).
Notwithstanding these favorable aspects of the Distribution, the Insignia
stockholders should be aware of the following factors, among others which the
Insignia Board considered in approving the Distribution:
- Tax Risks. While Insignia intends that the Distribution will qualify as a
tax-free distribution to its stockholders, the issue is not entirely free
from doubt and no assurance can be given that the IRS will agree with
this characterization. Insignia has received an opinion of Rogers & Wells
LLP to the effect that the Distribution should be tax-free to Insignia
stockholders (except in respect of cash received in lieu of fractional
shares).
- Lack of Operating History. Holdings has not operated as a business apart
from Insignia and there can be no assurance that the separation will not
result in a disruption, at least temporarily, of the Holdings Businesses.
The Insignia Board believes that Holdings' management has the experience
necessary to operate Holdings as a stand alone business.
- No Market for Holdings Common Stock. There is not currently a public
market for Holdings Common Stock, and there can be no assurance that a
public trading market will develop. However, Holdings' Common Stock has
been approved for listing on the NYSE, subject to official notice of
issuance.
9
<PAGE> 16
- Uncertainty of Market Prices. There can be no assurance that the combined
market value of Holdings Common Stock and Insignia Common Stock after the
Distribution will equal or exceed the market value of Insignia Common
Stock before the Distribution.
- Access to Credit. If the Merger does not occur following the
Distribution, Holdings and Insignia will have to refinance or restructure
Insignia's revolving credit facility in order to permit Holdings to have
access to the credit markets. The Insignia Board believes that Insignia's
revolving credit facility can be adequately restructured.
- Interests of Directors and Officers. Certain directors and officers of
Insignia will receive substantial payments from Insignia as a result of
the Merger and certain executive officers (or entities they control) will
be parties to employment and/or consulting agreements with Holdings and
Insignia. The Insignia Board reviewed and approved the nature and amount
of such payments and considered the consequent effect on non-affiliated
stockholders. In addition, the independent directors and certain key
personnel of Holdings will be granted an aggregate of approximately
1,100,000 options to purchase Holdings Common Stock under the Holdings
1998 Stock Plan.
The foregoing discussion of the factors considered by the Insignia Board is
not intended to be exhaustive, but includes all material factors considered by
the Insignia Board. In light of the variety of the factors considered in
connection with its evaluation of the Distribution, the Insignia Board did not
find it practicable to, and therefore did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination and did not try to reach a consensus as to the appropriate
analysis of each factor. In addition, different members of the Insignia Board
may have given different weights to different factors and may have analyzed each
factor differently.
THE DISTRIBUTION
Prior to the Distribution, Insignia effected a series of contributions,
transfers and liability assumptions among itself and its subsidiaries for the
purpose of separating the Holdings Businesses and the Multifamily Business in
order to facilitate the Distribution and the Merger. Most of Insignia's existing
liabilities, other than those directly relating to the Holdings Businesses, will
remain with Insignia after the Distribution (subject to certain guarantees and
pledges of Holdings and its subsidiaries pending the completion of the Merger or
refinancing thereof by Insignia). Assuming the Merger is consummated, those
liabilities will be assumed by AIMCO and Holdings will be released from all
guarantees, liens and pledges in favor of Insignia's revolving credit facility.
Subject to receipt of Insignia stockholder approval and the satisfaction of
certain other conditions, Insignia will effect the Distribution by distributing
to each record holder of Insignia Common Stock as of the Distribution Record
Date certificates representing that number of whole shares of Holdings Common
Stock equal to two-thirds of the number of shares of Insignia Common Stock held
by such holder. Cash will be distributed in lieu of any fractional shares of
Holdings Common Stock (determined in the aggregate). It is currently anticipated
that the Distribution will be effected as soon as practicable after approval
thereof at the Insignia Meeting. In the event that Insignia stockholders approve
the Distribution but not the Merger Agreement, the Distribution will nonetheless
be consummated if the Insignia Board determines that the conditions to the
Distribution have been satisfied. The Holdings Common Stock has been approved
for listing on the NYSE, subject to official notice of issuance and approval of
the Distribution by Insignia stockholders, under the symbol "IEG." Consummation
of the Distribution is not conditioned upon approval or consummation of the
Merger. See "-- MANNER OF EFFECTING THE DISTRIBUTION" AND "-- CONDITIONS."
In connection with the Merger, Holdings will assume certain existing
options and warrants to purchase shares of Insignia Common Stock. It is
estimated that following the Distribution, such options and warrants will
represent the right to purchase approximately 3.86 million shares of Holdings
Common Stock. The precise number of shares underlying certain of such options
and warrants and the exercise prices thereof will depend in part upon the fair
market value of Holdings Common Stock following the Distribution, and thus is
indeterminable at this time. Such options and warrants are in addition to the
approximately 1,100,000 options to purchase Holding Common Stock under the
Holdings 1998 Stock Plan. See "CERTAIN TRANSACTIONS."
10
<PAGE> 17
In connection with the Distribution, Insignia anticipates making a
distribution to record holders of the Convertible Preferred Securities on the
Distribution Record Date of Warrants to purchase approximately 1,196,000 shares
of Holdings Common Stock (four warrants for each $500 liquidation amount of
Convertible Preferred Securities held by them). Each Warrant will represent the
right to purchase one share of Holdings Common Stock. The Warrants will have an
exercise price of 120% of the market price of Holdings Common Stock following
the Distribution. The term of each Warrant will be five years, and no Warrant
will be exercisable before two years after it is granted. Immediately prior to
the Warrant Distribution, Insignia will purchase the Warrants from Holdings for
approximately $8.5 million, which represents the estimated fair market value of
the Warrants. This value was determined using the Black-Scholes method, based on
the following assumptions: (i) no dividends are paid on Holdings Common Stock,
(ii) an exercise price equal to 120% of the market price, (iii) a five-year
term, and (iv) 30% volatility of the Holdings Common Stock. See "-- MANNER OF
EFFECTING THE DISTRIBUTION."
The Insignia Board will formally declare and authorize Insignia to effect
the Warrant Distribution if the Distribution has occurred and the Insignia Board
determines, among other things, that (i) the conditions to the Merger have been
satisfied, and (ii) the closing of the Merger is imminent. See "-- CONDITIONS."
MANNER OF EFFECTING THE DISTRIBUTION
Prior to the Distribution, Holdings will effect a stock split of the sole
current outstanding share of Holdings Common Stock, which will permit Insignia
to distribute the required number of shares of Holdings Common Stock in the
Distribution. Insignia will effect the Distribution by delivering new share
certificates for Holdings Common Stock to First Union National Bank as the
distribution agent (the "Distribution Agent"), for delivery on a pro rata basis
to the holders of Insignia Common Stock as of the close of business on the
Distribution Record Date without further action by such holders. It is expected
that the Distribution Agent will begin mailing new share certificates
representing the Holdings Common Stock as soon as practicable after the
Distribution. The Distribution will be deemed effective upon notification by
Insignia to the Distribution Agent that the Distribution has been declared and
that the Distribution Agent is authorized to proceed with the distribution of
Holdings Common Stock. All shares of Holdings Common Stock to be distributed in
the Distribution will be fully paid, nonassessable and free of preemptive
rights. See "DESCRIPTION OF CAPITAL STOCK." Insignia will effect the Warrant
Distribution by delivering warrant certificates for the Warrants to the
Distribution Agent for delivery to the holders of Convertible Preferred
Securities as of the close of business on the Distribution Record Date without
further action by such holders.
No fractional shares of Holdings Common Stock will be distributed in the
Distribution. Insignia stockholders who otherwise would be entitled to receive
fractional shares of Holdings Common Stock in the Distribution will receive a
number of whole shares of Holdings Common Stock equal to the next lower number
of shares of Insignia Common Stock to which such holder would be entitled. All
fractional shares of Holdings Common Stock that otherwise would have been
distributed to such holders of Insignia Common Stock will be aggregated and sold
in the open market as soon as practicable after the Time of Distribution and the
holders otherwise entitled to such fractional shares will receive, and will be
subject to tax on, their pro rata share of the proceeds of such sale in lieu of
such fractional shares.
No holder of Insignia Common Stock will be required to pay any cash or any
other consideration for the shares of Holdings Common Stock to be received in
the Distribution or to surrender or exchange shares of Insignia Common Stock in
order to receive shares of Holdings Common Stock.
THE DISTRIBUTION AGENT WILL SEND YOU YOUR NEW HOLDINGS STOCK CERTIFICATES
FOLLOWING CONSUMMATION OF THE DISTRIBUTION. STOCKHOLDERS SHOULD NOT SEND
INSIGNIA STOCK CERTIFICATES TO HOLDINGS OR THE DISTRIBUTION AGENT.
CONDITIONS
The obligation of Insignia to consummate the Distribution is subject to the
fulfillment or waiver of each of the following conditions: (i) the approval of
the Distribution by Insignia stockholders; (ii) the receipt of the requisite
consent to the Distribution by Insignia's revolving credit facility lenders;
(iii) the receipt of a confirming opinion of tax counsel to Insignia to the
effect that the Distribution should qualify as a tax-free
11
<PAGE> 18
distribution to Insignia's stockholders; and (iv) the determination by the
Insignia Board that Holdings and its subsidiaries will be relieved of
substantially all of their obligations under Insignia's revolving credit
facility and that all related liens on their assets will be terminated. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO INSIGNIA STOCKHOLDERS." See also
"THE MERGER AGREEMENT AND THE TERMS OF THE MERGER -- CONDITIONS TO THE MERGER"
in the Joint Proxy Statement/Prospectus.
RELATIONSHIP WITH INSIGNIA AND AIMCO FOLLOWING THE DISTRIBUTION
Immediately prior to the Distribution, Holdings and Insignia will enter
into the Distribution Agreement described below relating to the future
relationship between Holdings and Insignia after the Distribution. The
Distribution Agreement will govern the parties respective rights, duties and
obligations with respect to the sharing of tax liabilities, if any, and other
pre- and post-Distribution liabilities and obligations.
Prior to and after the Distribution, Holdings' stock in its material
subsidiaries will be subject to liens in favor of Insignia's revolving credit
facility lenders. The Distribution Agreement provides, among other things, that
Insignia will use its reasonable best efforts to obtain the release of the liens
on Holdings' stock in its material subsidiaries in favor of Insignia's revolving
credit facility lenders. AIMCO has covenanted in the Merger Agreement to obtain
such a release as a condition to the Merger being consummated. Unless and until
Insignia, or AIMCO after the Merger, obtains the release of such liens on
Holdings' stock in its material subsidiaries, it is unlikely that Holdings will
be able to obtain additional financing. Following the Merger, the relationship
between Holdings and AIMCO will be governed by the Merger Agreement and the
Indemnification Agreement. See "THE MERGER -- THE MERGER AGREEMENT" AND "-- THE
INDEMNIFICATION AGREEMENT."
After the Distribution, affiliates of Holdings will continue to provide
management services for certain properties owned by partnerships whose general
partners are affiliates of Insignia (or, after the Merger, AIMCO) on
substantially the same terms and conditions as management agreements currently
in effect. In addition, after the Distribution Insignia (or, after the Merger,
AIMCO) will provide computer services and data processing for accounting and
payroll functions at Insignia's (or AIMCO's) actual direct cost through December
31, 1998, and on a month-to-month basis thereafter pursuant to a technical
services agreement.
EXPENSES
Regardless of whether the Distribution and the Merger are consummated, all
fees, costs and expenses incurred in connection therewith will be paid by the
party incurring such fees, costs and expenses, except that Insignia and AIMCO
will share equally the cost of printing the Joint Proxy Statement/Prospectus.
THE MERGER
The following is a brief summary of the key terms and provisions of the
Merger Agreement and the Merger. This description does not purport to be
complete and is qualified in its entirety by reference to the agreements
(including the Merger Agreement and the Indemnification Agreement) which are
attached as Appendices to the Joint Proxy Statement/Prospectus.
REASONS FOR THE MERGER
For information concerning the background of and reasons for the Merger,
see "THE MERGER AND RELATED TRANSACTIONS -- BACKGROUND OF THE MERGER," and
"-- INSIGNIA'S REASONS FOR THE MERGER; RECOMMENDATION OF THE INSIGNIA BOARD" in
the Joint Proxy Statement/Prospectus. As described therein, the Insignia Board
has unanimously approved the Merger and believes that it is in the best
interests of Insignia's stockholders. AIMCO's interest in Insignia related only
to the Multifamily Business, and therefore a divestiture of the Holdings'
Businesses was required to permit the Merger to proceed. The Insignia Board
believes that the Merger will permit the Multifamily Business to maximize its
competitive advantage. The Insignia Board further believes that, taken together,
the Distribution and the Merger will permit stockholders to continue to be
involved in the Holdings Businesses, while also providing them with the
opportunity to
12
<PAGE> 19
participate in a company which will be one of the largest owners and managers of
multifamily apartment properties in the United States after the Merger.
THE MERGER AGREEMENT
If the Distribution and the Merger are approved by Insignia stockholders,
pursuant to the Merger Agreement Insignia (and thus the Multifamily Business)
will be merged with and into AIMCO, with AIMCO being the surviving corporation.
In the aggregate, Insignia's stockholders will receive a number of AIMCO
Securities in the Merger equal to approximately $303 million divided by the
AIMCO Index Price, which will also entitle the holders of AIMCO Securities to
the one-time Special Dividend of approximately $50 million in cash. In addition,
AIMCO is required to have Holdings released from all guarantees of, and pledges
of collateral for, Insignia debt at or prior to the time of the Merger. A more
detailed description of the Merger Agreement and the Merger, including the
respective pre- and post-Merger obligations of the parties to the Merger
Agreement and the conditions to consummation of the Merger, can be found in the
Joint Proxy Statement/Prospectus. The "AIMCO Index Price" is defined in the
Merger Agreement as the aggregate of the daily average price of AIMCO Common
Stock (computed based on the sum of the high and low sales prices of AIMCO
Common Stock (as reported on the NYSE Composite Transactions reporting system as
published in The Wall Street Journal or, if not published therein, in another
authoritative source) divided by two) on each of the 20 consecutive NYSE trading
days ending on the fifth NYSE trading day immediately preceding the effective
time of the Merger, divided by 20; provided, however, that if the AIMCO Index
Price is greater than $38.00, then the AIMCO Index Price will be deemed to be
$38.00. The AIMCO Index Price is not intended to and will not necessarily
represent the fair market value of the AIMCO Securities.
THE INDEMNIFICATION AGREEMENT
In connection with the Merger Agreement, Holdings and AIMCO entered into
the Indemnification Agreement. The Indemnification Agreement provides generally
that following consummation of the Merger, Holdings will indemnify and hold
harmless AIMCO from and against all losses in excess of $9.1 million resulting
from (i) breaches of representations, warranties or covenants of Insignia or
Holdings in the Merger Agreement, (ii) actions taken by or on behalf of Insignia
prior to consummation of the Merger and (iii) the Distribution. Holdings is also
required to indemnify AIMCO against all losses (without regard to any dollar
value limitation) resulting from (a) amounts paid or payable to employees of
Insignia actually paid by AIMCO, other than those employees AIMCO has agreed to
retain following the consummation of the Merger, (b) obligations to third
parties for goods, services, taxes or indebtedness incurred prior to the
consummation of the Merger, other than as agreed to by AIMCO or included in the
approximately $458 million of indebtedness and liabilities of Insignia and its
subsidiaries which will be assumed by AIMCO in the Merger, and (c) Insignia's
ownership and operation of Holdings and the Holdings Businesses.
At the time of the Merger, to the extent that Insignia and its subsidiaries
have more or less than $458 million of debts and liabilities, including
estimated income taxes through the effective time of the Merger (including
income taxes that will result from the Distribution), the Merger consideration
will be adjusted as follows: if such debts and liabilities are greater than $458
million, Holdings will pay to AIMCO the difference between those amounts; if
such debts and liabilities are less than $458 million, AIMCO will pay to
Holdings the difference between those amounts. Income taxes arising from the
Distribution have been estimated based on an assumed value of Holdings. Assuming
an AIMCO Index Price of $38.00, and based on 32,010,907 shares of Insignia
Common Stock outstanding as of July 31, 1998 and a spread value of approximately
$10.8 million for warrants and employee stock options which AIMCO is expected to
assume as a result of the Merger, the Merger consideration of $353 million
(including the Special Dividend) approximates $10.49 per share of Insignia
Common Stock. Using an assumed price of $25.00 per share of Insignia Common
Stock would imply a market value of Holdings of approximately $14.41 per share
of Insignia Common Stock. Insignia's taxable income attributable to the
Distribution at this implied value after reduction for expenses incurred in
connection with the Distribution and Merger, including the retirement of
options, is estimated to be approximately $5 million.
13
<PAGE> 20
The Distribution contemplates that two shares of Holdings Common Stock will
be distributed for each three shares of Insignia Common Stock. Accordingly, the
implied market valuation of Holdings per share of Insignia Common Stock would
equate to an implied market valuation of $21.51 per share of Holdings Common
Stock, with approximately 21,500,000 shares of Holdings Common Stock
outstanding. To the extent the fair market value of Holdings Common Stock is
greater than the implied market valuation of $21.51 per share of Holdings Common
Stock, Holdings is required to indemnify AIMCO for taxes paid in respect of such
excess fair market value. The amount of such taxes should approximate $13.0
million for each $1 per share that the fair market value of a share of Holdings
Common Stock exceeds $21.51. On the other hand, if the fair market value of the
Holdings Common Stock is less than $21.51 per share, the income tax liability of
Insignia assumed by AIMCO in the Merger would be less than the estimate included
in the $458 million of debt and liabilities of Insignia and its subsidiaries to
be assumed by AIMCO in the Merger, in which case AIMCO would owe to Holdings the
amount of such difference. The foregoing references to assumed market value are
not, and are not intended to be, an estimate of the actual prices at which such
shares may trade in the market.
The Indemnification Agreement also provides that following consummation of
the Merger, AIMCO will indemnify and hold harmless Holdings from all losses that
arise out of the operation of the Multifamily Business following consummation of
the Merger and for all losses in excess of $9.1 million arising from breach of
any representation, warranty or covenant of AIMCO in the Merger Agreement.
BUSINESS OF HOLDINGS
The following description of the business of Holdings gives effect to the
Distribution.
GENERAL
Holdings, headquartered in New York, New York, is the parent company of an
international real estate organization. Holdings' business units specialize in
commercial real estate services, single-family home brokerage and mortgage
origination, condominium and cooperative apartment management, equity
co-investment and other services. As more fully described below and elsewhere in
this Information Statement, Holdings' principal operating units are Insignia/ESG
(international commercial property services), Realty One (single-family home
brokerage and mortgage origination) and Insignia Residential Group (condominium
and cooperative housing management). The European operations of Insignia/ESG
consist of Richard Ellis in the United Kingdom, Insignia/CAGISA in Italy and
Insignia RE GmbH in Germany. The British Pound (Sterling) represents the only
foreign currency of a material business operation, as Richard Ellis is currently
responsible for approximately 90% of all foreign operations.
Through Insignia/ESG, Holdings provides a broad spectrum of commercial real
estate services, including tenant representation, property leasing and
management, property disposition and acquisition, investment sales, equity and
debt financing, equity co-investment and consulting services. Insignia/ESG
provides these services for tenants, owners and investors in office,
manufacturing/distribution, retail, hospitality and mixed-use properties.
Insignia/ESG is among the leading providers of commercial real estate services
in the United States. Insignia/ESG enjoys a dominant market position in the New
York metropolitan area, and also maintains a significant market position in
property owner and/or tenant services in Washington, DC, Philadelphia, Chicago,
Atlanta, Phoenix, Los Angeles, San Francisco, Dallas and other major central
business districts. In all, Insignia/ESG has operations in more than 40 markets
in the United States. Insignia/ESG also has growing international capabilities
which allow it to meet clients' expanding world-wide needs, most notably through
Richard Ellis in the United Kingdom, Insignia RE GmbH in Germany and Insignia/
CAGISA in Italy. According to the January 1998 issue of Estates Gazette, Richard
Ellis is among the leading property services companies in the United Kingdom,
with offices in London, Manchester, Glasgow, Birmingham, Leeds, Liverpool and
Belfast.
Through Realty One, Holdings operates a full-service single-family
residential brokerage and mortgage loan origination business in northern Ohio.
Realty One is the ninth largest (based on unit volume) residential real estate
brokerage firm in the United States according to Real Trends "Big Broker Report"
published in May 1998. In 1997, it handled more than 20,000 transactions valued
at more than $2.8 billion, and through its
14
<PAGE> 21
mortgage loan affiliate, First Ohio, originated in excess of 2,650 mortgage
loans totaling approximately $292 million. A transaction is measured by closed
transaction "sides," which means either the listing or selling of a closed
transaction. Each side closed is a commissionable event to the broker
responsible for that side of the transaction.
Holdings' subsidiary, Insignia Residential Group, is the largest manager of
cooperatives and condominiums in the New York metropolitan tri-state area,
according to the July/August 1998 issue of New York Habitat. As of March 31,
1998, Insignia Residential Group managed 315 residential properties, consisting
of 237 cooperatives, 41 condominiums and 37 rental properties, comprising a
total of approximately 59,000 residential units.
As a result of the Distribution, Holdings will be an independent, publicly
held company. Certain of the current executive officers and directors of
Insignia are also executive officers and directors of Holdings. See
"MANAGEMENT."
Holdings, which was incorporated under the laws of the State of Delaware on
May 6, 1998, was organized by Insignia for the purpose of owning and operating
the Holdings Businesses in order to facilitate the Distribution. Holdings has no
operating history and no established sources of capital. Holdings' principal
executive offices are located at 200 Park Avenue, New York, New York 10166, and
its telephone number at that address is (212) 984-8000. Following the Merger,
Holdings will change its name to "Insignia Financial Group, Inc."
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<PAGE> 22
COMMERCIAL REAL ESTATE SERVICES -- INSIGNIA/ESG
UNITED STATES OPERATIONS GENERALLY
The U.S. commercial real estate services business is the largest of
Holdings' operations, accounting for an estimated 58% of Holdings' 1997 pro
forma revenues. Insignia/ESG's commercial services business commenced operations
on January 1, 1991, as a division of Insignia's residential property management
business. As the commercial services area grew, it was separately incorporated
in late 1992 as Insignia Commercial Group, Inc. and has operated separately from
Insignia's residential services since that time. Its growth has come principally
through acquisitions, most notably substantially all the assets of Edward S.
Gordon Company, Incorporated ("ESG") on June 30, 1996. In February 1998, ESG was
merged into Insignia Commercial Group, Inc. which then changed its name to
Insignia/ESG, Inc. Insignia/ESG generated approximately $31.3 million in
revenues in 1995, $97.7 million in revenues in 1996, and $245.2 million in
revenues in 1997.
U.S. COMMERCIAL SERVICES REVENUES
[CHART]
[BAR CHART ILLUSTRATING THE ANNUAL REVENUES OF HOLDINGS'
REAL ESTATE SERVICES OPERATIONS FOR 1995, 1996 AND 1997]
Its 1997 revenues made Insignia/ESG the third-largest provider of
commercial real estate services in the United States according to the January
1998 issue of Commercial Property News. Insignia/ESG provides a broad spectrum
of commercial real estate services to corporations and other major space users,
property owners and investors. These services include tenant representation,
property leasing and management, property acquisition and disposition services,
placement of equity and debt financing, property co-investment and consulting
services. Insignia/ESG provides these services in the office, industrial, retail
and hospitality sectors of the commercial real estate industry. At June 30,
1998, Insignia/ESG provided property management, leasing or other services for
approximately 195 million square feet of commercial real estate, including 123
million square feet of office space, 53 million square feet of industrial space,
and 19 million square feet of retail space. These services are provided on a
third-party basis for owners such as Metropolitan Life Insurance Company, Chase
Manhattan Bank, Lennar, John Hancock Mutual Life, The Irvine Company and others.
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<PAGE> 23
U.S. PROPERTY SERVICES PORTFOLIO
Total: 195 million Sq. Ft.
[CHART]
[PIE CHART ILLUSTRATING HOLDINGS'
U.S. PROPERTY SERVICES PORTFOLIO BY SQUARE FOOTAGE]
Beginning in early 1998, all services nationally were rendered under the
highly-regarded Insignia/ESG brand name. Specialized divisions within
Insignia/ESG include the Capital Advisors Group, responsible for third-party
investment sales and equity/debt placement activities, and the Commercial
Investments Group, which offers fee-development and redevelopment services.
During 1997, Insignia/ESG completed in excess of 70 million square feet of
commercial real estate transactions, sold more than $2 billion in commercial
properties and arranged more than $500 million of financing for properties.
Insignia/ESG prides itself on the consistent, high-quality delivery of its
services across geographic markets, property types and disciplines. It is active
to varying degrees in more than 40 US markets, and maintains substantial market
share in key central business districts, such as New York, Chicago, Washington,
DC, Philadelphia, Phoenix, Los Angeles and others.
New York City is the largest market for Insignia/ESG. Insignia/ESG
represents many leading corporations and property owners, helping them to
fulfill their requirements in this marketplace. Insignia/ESG was responsible for
23 of the 50 largest leasing transactions in New York City during 1997,
including the single largest: Standard & Poors' 947,000 square feet lease at 55
Water Street. The closest competitor to Insignia/ESG was responsible for 10 of
the 50 largest leasing transactions in New York City.
Insignia/ESG believes that its success and reputation within the New York
area serve as a catalyst for its growth nationally as well as internationally.
Insignia/ESG's growth strategy combines targeted acquisitions of companies that
offer complementary skill sets as well as the establishment of servicing
capabilities in markets where it does not currently offer these services.
Insignia/ESG's expansion is primarily focused on first tier U.S. and
international markets (those comprising 75 million square feet or more) and
secondarily on opportunities in second tier U.S. and international markets
(those comprising 25 million to 74 million square feet). In the past 18 months,
Insignia/ESG has completed acquisitions of real estate services companies in
Chicago, IL, Washington, DC, Philadelphia, PA, Portland, OR and Stamford, CT,
and established brokerage capabilities in Atlanta, GA and Phoenix, AZ.
17
<PAGE> 24
EUROPEAN OPERATIONS GENERALLY
Insignia/ESG's European operations consist of Richard Ellis in the United
Kingdom, Insignia/CAGISA in Italy and Insignia RE GmbH in Germany. The European
operations accounted for approximately 16% of Holdings' 1997 pro forma revenues.
Richard Ellis
Richard Ellis is a London-based commercial real estate firm. It has
operated for 225 years and until May 1997 operated as a partnership. In 1997,
Richard Ellis was converted into an English limited company. Richard Ellis was
acquired by Insignia in February 1998 and its operations are currently being
integrated with Insignia/ESG's operations.
Richard Ellis is a highly regarded name in commercial real estate
throughout the United Kingdom. It provides extensive coverage of the entire UK
market through full-service offices in London, Glasgow, Birmingham, Leeds,
Manchester, Liverpool and Belfast. During 1997, Richard Ellis had revenues of
approximately $58 million, concluded 12.5 million square feet of transactions
and sold more than $2.4 billion worth of commercial property. Richard Ellis
services more than 20 million square feet of commercial properties. It has over
500 employees.
Richard Ellis' capabilities, culture, operating philosophy and client base
are very similar to Insignia/ESG's. In an increasingly global business
environment, Holdings expects that substantial synergies and cross-selling
opportunities will accrue from the pairing of the Richard Ellis and Insignia/ESG
operations, particularly with respect to two of the world's leading financial
centers, New York and London.
Richard Ellis provides broad-ranging services, including consulting,
project management, appraisal, zoning and other general services. The major
income components, however, are agency leasing, tenant representation and
property sales and financing. The London market reflects growing rents and
continued construction after a marked decline from the peak in the late 1980's.
It is currently expected that the positive market environment will continue in
London and in other parts of the country.
Through Richard Ellis, Holdings believes it can serve as a springboard for
the global expansion of its commercial real estate services business. Holdings
expects to further penetrate the European market, and longer-term, expects to
expand into Asia as well. For example, in July 1998, Richard Ellis assisted in
opening the offices of Insignia RE GmbH, Holdings' German subsidiary, in
Frankfurt.
Insignia/CAGISA
In 1997, Insignia acquired 60% of the capital stock of Insignia/CAGISA, a
leading Italian management company founded in 1939. Insignia/CAGISA operates a
mixed portfolio of 10,000 commercial and residential units throughout Italy from
its offices in Rome and Milan.
Insignia/CAGISA is operating in a relatively underdeveloped real estate
services market in Italy which presents growth opportunities. Government
entities, such as municipalities and pension funds, are required by law to
outsource the management of their properties, and many private companies, driven
by European convergence and competitive pressures, are following suit.
Insignia/CAGISA has started to develop strong real estate advisory expertise for
these clients, leveraging on the Insignia, and particularly the Richard Ellis
experience and know-how.
SERVICES
The full-range of Insignia/ESG's services, both in the United States and
internationally, includes:
Tenant Representation: the acquisition or disposition of leased or
owned space on behalf of space users;
Consulting: specialization in large, multi-faceted transactions
(usually 50,000 square feet or more) requiring in-depth planning, analysis
and execution;
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<PAGE> 25
Investment Sales: the sale or acquisition of all types of commercial
property on behalf of owners;
Debt/Equity Placement: the arrangement of financing -- either debt or
equity -- on behalf of owners of all types of commercial properties;
Property Leasing: the marketing of available space within commercial
properties and the consummation of leases with tenants;
Property Management: responsibility for the financial and operational
aspects of a commercial property which sometimes involves specialized
services such as construction management, engineering or energy management;
Retail Services: specialized services performed on behalf of retail
tenants and retail property owners;
Industrial Services: specialized services performed for the owners
and/or users of manufacturing, warehouse, distribution, or flex-space
(combining office and industrial uses) facilities; and
Property Development: development and construction services for owners
of office, industrial and retail properties, and the
re-development/re-positioning of properties for owners looking to create
enhanced value.
Equity Co-investments in Real Estate: the identification of investment
opportunities for select clients and investment along side of these clients
in the ownership of qualifying properties.
MARKET TRENDS
Management believes that the commercial real estate services industry in
the United States is undergoing consolidation. A number of factors are driving
this trend, including:
- Clients Demand More Services; Desire to Consolidate Service
Providers -- As requirements become more sophisticated, clients' needs
follow. They want to be able to turn to a single source for all of their
real estate use, investment and management requirements. As a result,
clients with multiple real estate requirements ranging from occupancy
needs to investment objectives are fast consolidating service providers.
Whereas several years ago it might have been common for real estate
owners, users and investors to hire several different companies in
different locations to manage their needs, the industry is clearly seeing
a trend towards the hiring of fewer providers to address all of a
client's requirements.
- Industrial Consolidation is Driven by Economies of Scale -- The ability
of commercial property services providers to accommodate the increasing
demands being made by clients is in no small part driven by their ability
to deliver these services while controlling cost increases. The ability of
service companies to amortize their overhead costs over a larger revenue
base helps to drive consolidation.
- Increasing Sophistication of Transactions -- As companies grow, the
significance of their real estate issues follow suit. It is common today
for a company's real estate occupancy and investment issues to be second
only to labor as a component of overall operating costs. Additionally,
with the increasing sophistication of capital markets, the trend towards
real estate securitization, the tendency of companies today to merge with
others to achieve economies of scale and capture market share, and the
consolidation of worldwide locations that accompany such mergers, the
manner in which corporations manage such issues can have profound impacts
on their profit and loss statements and on their balance sheets. As a
result, the level of sophistication required to manage such complex
requirements and interrelationships transcends the traditional role of
the real estate broker. Successful commercial real estate services
companies today must be able to manage these requirements in order to
effectively compete.
- Improvements in Real Estate Markets and the Economy Generally -- To the
extent that commercial property services firms do not focus on expansion
of service lines, consolidation, and increasing their ability to manage
complex transactions, an improving economy can commoditize their
services.
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<PAGE> 26
- Insignia/ESG's Business Plan -- Insignia/ESG's response to all of the
foregoing is to seek to become an advisor for corporations and pension
funds with respect to their real estate use, investment and management
requirements in the same manner that major investment banks are advisors
with respect to a corporation's corporate finance requirements. By
focusing on providing the highest quality services with the best talent
in the major business centers of the world, Insignia/ESG seeks to become
the one-stop resource for all real estate requirements, specializing in
the more complex and creative transactions that characterize today's
worldwide marketplace.
Holdings believes that Insignia/ESG is well positioned to meet the
competitive challenges of an industry in flux. Among its competitive strengths
are:
- its strong reputation and the recognition of its brand name within the
industry;
- the quality and depth of both its management and brokerage staff;
- its entrepreneurial corporate culture, which allows it to respond quickly
to opportunities;
- its unique methodologies for implementing large, complex transactions;
- its array of services, which allows it to both meet existing client needs
and take advantage of cross-selling opportunities;
- its extensive nationwide property services portfolio, which provides
significant economies of scale;
- its proven mergers and acquisitions capability;
- growth in excess of 250% over the last 24 months;
- its market leadership in the world's two most important financial
centers -- New York and London; and
- its focus on attracting, retaining, supporting and promoting the highest
quality, most skilled personnel in the industry.
EQUITY CO-INVESTMENTS IN REAL ESTATE
Insignia/ESG will succeed to the commercial portion of the equity
co-investment programs formerly conducted by Insignia's investment banking unit,
which Insignia/ESG intends to expand into European markets through Richard
Ellis, Insignia GmbH and Insignia/CAGISA. This unit identifies investment
opportunities for select clients and invests along side of these clients in the
ownership of qualifying properties.
Since its formation in 1996, this unit has concluded real estate investment
transactions having an aggregate value of approximately $575 million, with
Holdings' ownership interest typically ranging from 10% to 35%. Co-investment
partners include ING Barings, Blackacre Capital, Lennar, Investcorp, Lone Star,
Lehman Brothers, Whitehall and CS First Boston. Insignia/ESG does not compete
for acquisitions with its advisory clients who do not seek co-investment
partners. In addition, with the recent acquisition of Richard Ellis, this
program is being expanded to include opportunities in the United Kingdom and
Europe. This expansion is expected to utilize the personnel of Richard Ellis
Financial, Ltd., a Securities and Futures Authority regulated entity which has
substantial investment experience. Holdings believes the European co-investment
opportunities will increase as a result of increasing investor appetites for
European real estate and Holdings' increase in the capital to be made available
to the Richard Ellis unit. See "CERTAIN TRANSACTIONS."
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<PAGE> 27
ACQUISITIONS
Since 1991, Insignia has completed the following acquisitions of commercial
real estate services firms which are now included within Insignia/ESG's
operations:
ACQUISITIONS OF COMMERCIAL REAL ESTATE SERVICES FIRMS
<TABLE>
<CAPTION>
YEAR PURCHASE
ACQUIRED NAME LOCATION PRICE
- -------- ---- -------- -----------
<C> <S> <C> <C>
1991 Brunner Companies Southeast $ 1,450,000
1993 First Resource Realty, Inc. Oklahoma 425,000
1994 Gross Lancton & Co. Houston, TX 1,200,000
1995 O'Donnell Property Services, Southern California 7,000,000
Inc.
1996 Paragon Commercial National 18,100,000
1996 Edward S. Gordon Company, Inc. New York, NY 81,000,000
1997 Rostenberg-Doern Company, Inc. Westchester/Fairfield 2,333,333
Counties (New York)
1997 HMB Property Services, Inc. Denver, CO 1,100,000
1997 Frain, Camins & Swartchild, Chicago, IL 5,000,000
Inc.
1997 Radius Retail Advisors, Inc. California 250,000
1997 Forum Properties, Inc. Portland, OR 1,500,000
1997 CAGISA Rome/Milan, Italy 2,800,000
1997 Barnes, Morris, Pardoe & Washington, D.C. 17,000,000
Foster
1998 Cohen Financial Chicago, IL 1,000,000
1998 Richard Ellis Group Limited United Kingdom 68,200,000
1998 Goldie B. Wolfe & Company Chicago, IL 5,300,000
1998 Hotel Partners Chicago, IL 14,200,000
1998 Jackson-Cross Co. Philadelphia, PA 9,100,000
</TABLE>
In addition, Insignia has completed the following acquisitions which
included some commercial operations:
OTHER INSIGNIA ACQUISITIONS WHICH INCLUDED
SOME COMMERCIAL OPERATIONS
<TABLE>
<CAPTION>
YEAR
ACQUIRED NAME LOCATION
- -------- ---- --------
<C> <S> <C>
1992 Angeles Corporation National
1992 Brunner Companies Southeast
1993 Duddlesten Management Co. Texas
1993 VMS Realty Investment, Ltd. National
1994 SHL Properties Acquisition Partners, Ltd. National
1994 Hampton Real Estate Group National
1994 The Rooney Company Tulsa, OK
1994 Allegiance Realty Group, Inc. National
1994 Capital Realty Group, Inc. Dallas, TX
1994 Consolidated Capital National
</TABLE>
RESIDENTIAL REAL ESTATE SERVICES -- REALTY ONE AND INSIGNIA RESIDENTIAL GROUP
SINGLE-FAMILY HOME BROKERAGE SERVICES
General
Realty One, a full-service residential real estate broker headquartered in
Cleveland, Ohio, was established in 1953 and acquired by Insignia in 1997.
Realty One's current business operation is the result of nearly 60 separate
mergers and acquisitions. It is the largest residential real estate brokerage
firm in Ohio and the ninth
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<PAGE> 28
largest (based on unit volume) in the United States according to Real Trends
"Big Brokers Report" published in May 1998. With more than 1,500 sales
associates and 400 support staff located in more than 45 offices throughout
northern Ohio, it represents more than 90 residential builders and handles more
than 20,000 transactions valued at more than $2.8 billion annually. Realty One's
services include residential real estate sales, corporate relocation services
and residential builder representation. First Ohio, an affiliate of Realty One,
originates single-family home mortgages for both Realty One clients and third
parties. Realty One accounted for approximately 21% of Holdings' 1997 pro forma
revenues.
Services
The services provided by Realty One include the following:
Residential Brokerage: the agency representation of both buyers and
sellers in the purchase and sale of residential housing. These services
include assisting the seller in pricing the property, marketing and
advertising the property, showing the property to prospective buyers,
assisting the parties in negotiating the terms of the sale and closing the
transaction.
Relocation Services: assisting both corporations and individuals in
the sale, procurement and temporary management of properties for
corporations and transferees. Realty One assists in large group moves as
well as individual relocations.
Builder Marketing Services: representing and consulting with large
national and local developers providing marketing, research studies,
product development and brokerage services.
Mortgage: through First Ohio, Realty One offers convenient and
competitive mortgage services to its customers and many other brokerages
throughout northern Ohio. First Ohio represents more than 15 lenders, each
offering multiple financial products.
Escrow: through First Ohio Escrow, an affiliate, a subsidiary of First
Ohio, Realty One provides residential escrow services facilitating the
closing of property sales.
Industry Overview
Holdings continues to evaluate a consolidation-based strategy in the
single-family brokerage industry. The industry is currently defined by several
key trends, including:
Margin Compression: Margins are being compressed as a result of
increasing splits paid to agents and, for the larger, more progressive
firms, the investment in technology, marketing and development of one-stop
shopping services.
Market Fragmentation: There are more than 50,000 single-family
brokerages in the U.S., one quarter of which are currently estimated to be
unprofitable, according to various industry research studies. These consist
of independent brokerages as well as franchise operations. No single
independent broker commands more than 1% of the national market, and no
national franchise company maintains more than an 11% market share, with
only three franchise companies holding more than 3%.
Aging Entrepreneurial Base of Industry Founders: According to the July
1997 issue of Real Estate Outlook, a leading industry publication, over 85%
of the current principals in this industry are over 55 years old and are
beginning to look for ways to continue to grow their business, such as
mergers or strategic alliances, or for exit strategies.
Strategy
The above trends coupled with the available economies of scale suggest that
pursuit of a consolidation based strategy may be capable of reversing the
downward trend in margins, exploiting proprietary technology to build real
competitive advantages, and building brand equity so as to increase the value of
the brokerage company in the eyes of the consumer. Realty One may also benefit
from horizontal and vertical expansion in related areas, such as mortgage,
escrow and title, by offering the consumer a one stop shopping experience.
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<PAGE> 29
The residential brokerage industry has been consolidating for some time,
and with access to additional capital, Realty One could acquire key brokerage
firms. Realty One already has significant experience acquiring and assimilating
companies, completing 60 acquisitions over the last 15 years. The senior
officers of Realty One are highly respected within their industry and have
strong contacts with the principals of numerous other large, independent
brokerages around the United States.
In addition to consolidation strategies, opportunities exist to increase
margins to the brokerage firm as well as the sale of services to generate other
income. Realty One is a pioneer with this strategy and has been successful at
increasing its margins. Realty One's approach is, through technology, to bundle
services more inexpensively and increase the value to the consumer.
COOPERATIVE AND CONDOMINIUM APARTMENT MANAGEMENT SERVICES
General
In 1995, Insignia purchased the residential property management business of
Douglas Elliman-Gibbons & Ives and all of the outstanding capital stock of
Kreisel Company, Inc., forming the largest manager of cooperative and
condominium apartments in the New York metropolitan tri-state area according to
the July/August 1998 issue of New York Habitat. Its primary business is to
provide third party fee management to cooperative, condominium and rental
housing in the New York marketplace. At March 1, 1998, Insignia Residential
Group, operating under the Douglas Elliman-Gibbons & Ives and Kreisel Company,
Inc. trade names, provided full service management to 315 residential properties
comprised of approximately 59,000 residential units in the greater New York
metropolitan area. Insignia Residential Group's cooperative and condominium
management services accounted for approximately 5% of Holdings' 1997 pro forma
revenues.
Portfolio Composition
The 315 residential properties consist of 237 cooperatives, 41 condominiums
and 37 rental properties. Among the notable properties in each of these
categories are the San Remo, Worldwide Plaza and Fresh Meadows, respectively.
Manhattan is the largest market for Insignia Residential Group, although it does
maintain a presence in each of the other four boroughs of New York City as well
as Long Island and Westchester County. In late 1996, Insignia Residential Group
made its foray into the Northern New Jersey marketplace by obtaining the
management of the 1,266 unit Horizon House cooperative. Since that time Insignia
Residential Group has added an additional 1,300 units in New Jersey. The
division strategy has been to focus in key markets where its size and economies
of scale allow it to become the dominant player.
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<PAGE> 30
Services
Insignia Residential Group generated revenues of $21.3 million in 1995,
$23.5 million in 1996 and $24.4 million in 1997.
[CHART]
[BAR CHART ILLUSTRATING HOLDINGS' COOPERATIVE/
CONDOMINIUM SERVICES REVENUES FOR 1995, 1996 AND 1997]
Insignia Residential Group's revenues were generated by providing the
following services:
Property Management: Responsibility for all of the financial and
operational aspects of a residential property. This service involves
providing accounting on a cash or accrual basis, lease administration,
central purchasing, cash management, insurance oversight, collections and
compliance monitoring, and construction management.
Transfer Agent: On behalf of cooperative and condominium clients,
Insignia Residential Group processes applications of prospective
purchasers, arranges and attends closings, facilitates the assignment of
proprietary leases and provides safekeeping of leases and other documents.
Brokerage: While Insignia Residential Group does engage, to a limited
extent, in apartment resale and mortgage brokerage, there exists the
potential to expand these activities to a point where they could make a
meaningful contribution. Many cooperative and condominium management
companies have used management as a loss leader to provide business flows
to more profitable transactional activities.
Strategy: Insignia Residential Group anticipates that its reputation
for quality service and the broad experience of its personnel in managing
condominiums and cooperatives located throughout the New York metropolitan
area should enable it to successfully pursue new property management
opportunities. Insignia Residential Group also believes its economies of
scale and state-of-the-art management information system will allow it to
increase margins by offering its services efficiently and at a competitive
cost. Insignia Residential Group also anticipates pursuing opportunities in
the apartment resale and mortgage brokerage businesses, which not only
could offer the potential for higher margins but may provide for an above
average rate of growth.
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<PAGE> 31
MERGERS AND ACQUISITIONS
Holdings will maintain an internal mergers and acquisitions staff, which
will include all senior members of Insignia's existing investment banking group
as well as the acquisition analysis staff currently maintained by Richard Ellis.
Insignia has historically pursued an opportunistically oriented acquisition
strategy focusing on the development of its core businesses. Holdings expects to
continue this approach in the development of each of its international and
domestic businesses, while simultaneously seeking principal opportunities to
invest capital in real estate assets in partnership with its clients. Such
undertakings are expected to be pursued in the areas of both commercial and
residential real estate assets and services. Holdings also expects that, with
time, it may pursue opportunities to diversify its lines of business and
investment objectives as circumstances and opportunities change. Holdings
believes this strategy to be consistent with the ideas and objectives upon which
Insignia was founded. See "CERTAIN TRANSACTIONS."
COMPETITION
COMMERCIAL PROPERTY SERVICES
Competition is intense in the commercial property services industry,
particularly in the areas of tenant representation, property leasing/management
and other services in which Insignia/ESG is engaged. Historically, most
competitors have been regional or local companies specializing in one or more
aspects of the business (e.g. property management, tenant representation, etc.).
However, the consolidation trend (discussed in "-- COMMERCIAL REAL ESTATE
SERVICES -- INSIGNIA/ESG -- MARKET TRENDS" above) has spawned fewer, larger
national competitors that are integrated across property types and disciplines.
Insignia/ESG competes increasingly with these full-service national competitors,
including CB/Richard Ellis, Cushman & Wakefield, Grubb & Ellis, LaSalle Partners
and Trammel Crow.
Different factors weigh heavily in the competition for tenant
representation and property services assignments. For major tenant
representation assignments, competition is based on quality of services,
demonstrated track record, breadth of resources, analytical skills and market
knowledge. Insignia/ESG believes it has a distinct methodology for executing
major tenant representation assignments, which combines brokerage and consulting
disciplines. This methodology, honed in New York over the past decade, can be
exported to top tier markets throughout the United States. Further, Insignia/ESG
has an outstanding track record in completing major tenant representation
assignments. As tenant representative, Insignia/ESG arranged 16 transactions for
more than 100,000 square feet in New York City during 1997 -- twice as many as
the nearest competitor -- including assignments for such well-known entities as
McGraw-Hill, Standard & Poors, Chubb Insurance, Empire Blue Cross and Blue
Shield, AON Risk Services and Bankers Trust. Moreover, Insignia/ESG's creativity
and transaction-structuring have been recognized by a leading trade group which
annually recognizes two New York City transactions as its "Deals of the Year."
Insignia/ESG has been the recipient of both awards in each of the past three
years, and has earned the top award overall in four consecutive years.
Insignia/ESG believes this outstanding track record provides a distinct
competitive advantage.
Competition for third-party commercial property services is based
principally on quality of service, including the ability to enhance asset
values, and cost. Unlike many of its competitors, Insignia/ESG's personnel are
experienced in managing a wide variety of types of properties in locations
throughout the country. This enables Insignia/ESG to offer an owner of a large
diversified portfolio the ability to obtain experienced management for most or
all of its properties through one organization. Insignia/ESG believes it has
demonstrated an ability to effectively manage, lease and improve the value of
properties. In addition, Insignia/ESG believes it has developed a reputation for
quality service and attention to detail to clients, investors and tenants alike.
Insignia/ESG also believes its economies of scale and state-of-the-art
management information systems allow it to offer its services efficiently and at
an overall cost which is competitive with or less expensive than is offered by
other property service companies. Because of its size, Insignia/ESG is able to
control operating costs by spreading fixed overhead costs over its large service
volume, which benefits Insignia/ESG's results of operations and enables
Insignia/ESG to pass on some of these savings to the
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<PAGE> 32
property owners for which it provides services. As a result, Insignia/ESG
believes it has competed effectively in the market for provision of real estate
services to third party entities.
SINGLE-FAMILY HOME BROKERAGE SERVICES
Realty One accounts for almost one-third of single-family home sales or
listings within the northern Ohio residential market. The number two firm,
Smythe, Cramer, is responsible for approximately 20% of the total sales and
listings. Other firms trail significantly further behind. Realty One believes
its success is due to a number of factors, including its leading-edge use of
technology and innovative marketing practices. For example, its proprietary
computer system, CARS, defines the "readiness" of potential customers to
purchase a home, thus allowing for highly targeted direct-marketing and
advertising programs.
COOPERATIVE AND CONDOMINIUM MANAGEMENT SERVICES
The cooperative condominium management business is extremely competitive.
In addition, to several large companies, including Charles Greenthal, Inc. and
Brown, Harris and Stevens, Inc., there are many small entities that aggressively
compete for business. In addition, some owner associations have opted for self
management, which eliminates the need for third party service providers
altogether. Despite the competitive landscape, Insignia Residential Group
believes that it has a proven record and that it has the capability to continue
to compete successfully. It has grown to be an industry leader by offering
superior service while providing its clients cost benefits not available from
smaller competitors. Examples are the lower cost of supplies, insurance and
other items that Insignia Residential Group purchases on behalf of its clients
using the buying power available because of size. Furthermore, Insignia
Residential Group has begun to develop a new state-of-the-art information system
that, when fully operational, will provide further product differentiation.
EMPLOYEES
If the Distribution had occurred on March 31, 1998, Holdings would have had
approximately 3,700 full time employees as of such date. As Insignia's employee
relations have been good for the seven years prior to the Distribution, Holdings
believes that its employee relations will be good as well.
ENVIRONMENTAL REGULATION
Under various federal and state environmental laws and regulations, a
current or previous owner or operator of real estate may be required to
investigate and remediate certain hazardous or toxic substances or
petroleum-product releases at the property, and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by such parties in connection with
contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The presence of contamination or the failure
to remediate contamination may adversely affect the owner's ability to sell or
lease real estate or to borrow using the real estate as collateral. The owner or
operator of a site may be liable under common law to third parties for damages
and injuries resulting from environmental contamination emanating from the site.
There can be no assurance that Holdings, or any assets owned or controlled by
Holdings, currently are in compliance with all of such laws and regulations, or
that Holdings will not become subject to liabilities that arise in whole or in
part out of any such laws, rules, or regulations. Moreover, there can be no
assurance that any of such liabilities to which Holdings may become subject will
not have a material adverse effect upon the business or financial condition of
Holdings.
LITIGATION
On March 24, 1998, certain persons claiming to own limited partner
interests in certain limited partnerships whose general partners (the "General
Partners") are affiliates of Insignia (the "Partnerships") filed a purported
class and derivative action in California Superior Court in the County of San
Mateo against Insignia, the General Partners, AIMCO, certain persons and
entities who purportedly formerly controlled the General Partners, and
additional entities affiliated with and individuals who are officers, directors
and/or
26
<PAGE> 33
principals of several of the defendants. The complaint contains allegations
that, among other things, (i) the defendants breached their fiduciary duties to
the plaintiffs by selling or agreeing to sell their "fiduciary positions" as
stockholders, officers and directors of the General Partners for a profit and
retaining said profit rather than distributing it to the plaintiffs; (ii) the
defendants breached their fiduciary duties by mismanaging the Partnerships and
misappropriating the assets of the Partnerships by (a) manipulating the
operations of the Partnerships to depress the trading price of limited
partnership units ("Units") of the Partnerships; (b) coercing and fraudulently
inducing Unit holders to sell Units to certain of the defendants at depressed
prices, and (c) using the voting control obtained by purchasing Units at
depressed prices to entrench certain of the defendants' positions of control
over the Partnerships; and (iii) the defendants breached their fiduciary duties
to the plaintiffs by (a) selling assets of the Partnerships such as mailing
lists of Unit holders; and (b) causing the General Partners to enter into
exclusive arrangements with their affiliates to sell goods and services to the
Partnerships, the Unit holders and tenants of Partnership properties. The
complaint also alleges that the foregoing allegations constitute violations of
various California securities, corporate and partnership statutes, as well as
conversion and common law fraud. The complaint seeks unspecified compensatory
and punitive damages, an injunction blocking the sale of control of the General
Partners to AIMCO and a court order directing the defendants to discharge their
fiduciary duties to the plaintiffs. On June 25, 1998, Insignia, the General
Partners and certain other defendants served a demurrer to the complaint and a
motion to strike. Plaintiffs' opposition to the demurrer and motion to strike is
due on August 21, 1998 and a hearing is scheduled for October 2, 1998. AIMCO
served a separate demurrer to the complaint which is scheduled to be heard by
the Court on August 6, 1998. Defendants Apollo Real Estate Advisors, L.P. and
Michael L. Ashner have also each filed separate motions which seek,
respectively, to dismiss the complaint and quash service of the summons. In lieu
of responding to defendants' motion and demurrers, plaintiffs' counsel has
notified defendants that they intend to file and serve an amended complaint,
which will render the motions and demurrers moot. Based upon the allegations of
the complaint, Holdings is unable to quantify the relief sought. Holdings
intends to defend the action vigorously. Holdings does not believe that the
outcome of the litigation will have a material adverse impact on either its
financial condition, its results of operations or its ability to consummate the
Distribution.
On July 30, 1998, certain entities claiming to own limited partnership
interests in certain limited partnerships whose general partners are affiliates
of Insignia filed a complaint in the Superior Court of the State of California,
County of Los Angeles, which asserts eleven causes of action, including breach
of contract and fiduciary duty, tortious interference with prospective economic
advantage, interference with contract, unfair business practices, violations of
California's Cartwright Act, and the respective Limited Partnership Acts of
California, Delaware, South Carolina, Massachusetts and Missouri, under which
the relevant limited partnerships are organized. The complaint names, among
others, Insignia Financial Group, Inc., Insignia Properties Trust ("IPT"),
Insignia Properties, L.P., three IPT subsidiaries (Angeles Realty Corporation,
Angeles Realty Corporation II and ConCap Equities, Inc.) and 12 other entities
alleged to be managing partners of the defendant limited partnerships.
The action involves 44 real estate limited partnerships (each named as a
defendant) in which the plaintiffs allegedly own interests and which Insignia
entities allegedly manage or control (the "Subject Partnerships"). Plaintiffs
allege that they have requested from, but have been denied by, each of the
Subject Partnerships their respective lists of limited partners for the purpose
of making tender offers to purchase up to 4.9% of the limited partner units of
each of the Subject Partnerships. The complaint also alleges that certain of the
defendants made tender offers to purchase limited partner units in many of the
Subject Partnerships, with the result that plaintiffs have been deprived of the
benefits they would have realized from ownership of the additional units.
Plaintiffs' complaint seeks compensatory damages in excess of $15 million,
punitive and treble damages.
Certain subsidiaries of Holdings are defendants in lawsuits arising in the
ordinary course of business. Claims may demand substantial compensatory and
punitive damages. Management of Holdings believes that all of those lawsuits
will be resolved without material loss to Holdings or its subsidiaries.
27
<PAGE> 34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO INSIGNIA STOCKHOLDERS
The following discussion is a summary of the material U.S. Federal income
tax consequences of the Distribution to a holder of Insignia Common Stock. The
discussion is based on the Code, Treasury Regulations promulgated thereunder,
administrative rulings and pronouncements and judicial decisions as of the date
hereof, all of which are subject to change (possibly with retroactive effect).
This discussion does not address all aspects of U.S. Federal taxation that may
be relevant to particular Insignia stockholders in light of their personal
investment circumstances or to Insignia stockholders subject to special
treatment under the Code (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, regulated investment
companies, Insignia stockholders who received their shares through the exercise
of employee stock options or otherwise as compensation, foreign corporations and
persons who are not citizens or residents of the United States and Insignia
stockholders who hold their shares as part of a straddle, hedge or conversion
transaction) who may be subject to tax rules that differ significantly from
those described below. In addition, this discussion does not include a detailed
discussion of any state, local or foreign tax consequences.
EACH INSIGNIA STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S TAX
ADVISOR AS TO THE PERSONAL TAX CONSEQUENCES OF THE DISTRIBUTION, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS AND OF CHANGES IN
APPLICABLE TAX LAWS.
There can be no assurance that future legislative, judicial or
administrative changes or interpretations will not adversely affect the accuracy
of the statements and conclusions set forth herein. Any such changes or
interpretations could be applied retroactively and could affect the tax
consequences of the Distribution to Insignia stockholders.
THE DISTRIBUTION
General
Insignia has received an opinion of its special tax counsel, Rogers & Wells
LLP, to the effect that for Federal income tax purposes, although the matter is
not entirely free from doubt, the Distribution should qualify as a tax-free
distribution and reorganization under Sections 355 and 368 of the Code.
Counsel's opinion is based on various assumptions and is conditioned upon
certain representations made by Insignia, AIMCO, the AIMCO Operating Partnership
and others as to factual matters. An opinion of counsel is not binding upon the
IRS and no assurance can be given that the IRS will not challenge the tax
treatment of the Distribution. In this regard, the Distribution must satisfy the
requirements of Sections 355 and 368 of the Code to qualify as a tax-free
distribution, including the requirements that the Distribution not be used as a
device for the distribution of Insignia's earnings. Moreover, the tax treatment
of the Distribution depends on future events, such as AIMCO and the AIMCO
Operating Partnership continuing certain businesses of Insignia in the AIMCO
Operating Partnership, and various other qualification tests imposed under the
Code, to which AIMCO and the AIMCO Operating Partnership have made factual
representations concerning their business and properties, and the use of the
business and properties of Insignia after the Merger, the results of which will
not be reviewed by counsel. The law is not entirely clear regarding the
application of these requirements to a distribution and subsequent merger with a
REIT that will conduct the acquired business through a subsidiary partnership
and other non-controlled subsidiaries. If the Distribution did not qualify as a
tax-free reorganization, each Insignia stockholder would be treated as receiving
a distribution in an amount equal to the fair market value of Holdings Common
Stock received, which would result in a taxable dividend to the extent of such
stockholder's pro rata share of Insignia's current and accumulated earnings and
profits (including gain to Insignia from the distribution of Holdings Common
Stock).
The Distribution and Merger Agreement are subject to the approval of the
Insignia stockholders. In the event the Insignia stockholders approve the
Distribution, but not the Merger Agreement, or there is a change in
circumstances after the approval of both the Distribution and Merger Agreement
which prevents the completion of the Merger, Insignia intends, subject to the
conditions noted under "THE DISTRIBUTION -- CONDITIONS," to consummate the
Distribution nonetheless. Insignia believes that there are substantial business
purposes supporting the completion of the Distribution independent of the
Merger. Based on these purposes,
28
<PAGE> 35
Rogers & Wells LLP expects to issue its opinion that the Distribution should
still qualify as a reorganization within the meaning of Section 368(a)(1)(D) of
the Code and a tax-free distribution under Section 355 of the Code. See "THE
DISTRIBUTION -- REASONS FOR THE DISTRIBUTION." However, no assurance can be
given that the IRS will agree with the opinion of Rogers & Wells LLP.
Taxation to Insignia Stockholders
Assuming the Distribution qualifies as a tax-free distribution under
Section 355 of the Code, (i) Insignia stockholders will not recognize any gain
or loss upon the receipt of Holdings Common Stock, (ii) Insignia stockholders'
aggregate tax basis in the Insignia Common Stock and the Holdings Common Stock
held by them immediately after the Distribution will equal the stockholders'
aggregate basis in the Insignia Common Stock held by them immediately before the
Distribution and will be allocated between the Insignia Common Stock and the
Holdings Common Stock in proportion to their market values (if an Insignia
stockholder holds blocks of Insignia Common Stock that were purchased at
different times or for different prices, the allocation of basis must be
calculated separately for each of those blocks of Insignia Common Stock); and
(iii) Insignia stockholders' holding period of the Holdings Common Stock
received in the Distribution will include the holding period of the Insignia
Common Stock with respect to which the Holdings Common Stock was issued. Cash
received in lieu of fractional shares will be treated as if such fractional
shares were actually received and then redeemed for cash and, in general, gain
or loss will be measured by the differences between the cash received and the
basis allocable to such fractional shares.
Each Insignia stockholder who receives Holdings Common Stock in the
Distribution must attach to the stockholder's Federal income tax return for the
year in which the Holdings Common Stock is received, a statement which describes
the applicability of Code Section 355 to the Distribution. Each Insignia
stockholder is urged to consult its own tax advisor with respect to special tax
consequences of the Distribution which may apply to that particular Insignia
stockholder, including the effects of state, local and foreign tax laws.
Taxation to Insignia
Under recently-enacted Section 355(e) of the Code, a corporation that
distributes the stock of a subsidiary in a distribution under Section 355 of the
Code will be required to recognize gain if the transaction is part of a plan in
which one or more persons acquire directly or indirectly stock representing a
50% or greater interest in either the distributing corporation or the
distributed subsidiary. If one or more persons acquire such stock within two
years before or after the transaction, the acquisition will be treated as being
part of a plan unless it is otherwise established. AIMCO will be treated as
acquiring 100% of the stock of Insignia in the Merger. Therefore, if the Merger
is consummated, gain will be realized and recognized by Insignia, but not by
Insignia stockholders, as if Insignia had sold its stock in Holdings to its
Insignia stockholders at its fair market value immediately before the
Distribution.
If the Distribution is completed without the Merger, Insignia generally
should not recognize gain under Code Section 355(e), provided that AIMCO or
another party (or their stockholders) does not directly or indirectly acquire a
50% or greater interest in Insignia or Holdings after the Distribution as part
of a plan in existence at the time of the Distribution.
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH INSIGNIA
STOCKHOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE PERSONAL TAX
CONSEQUENCES OF THE DISTRIBUTION, INCLUDING THE EFFECT OF FEDERAL, STATE, LOCAL
AND FOREIGN AND OTHER TAX RULES, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS.
29
<PAGE> 36
SELECTED COMBINED HISTORICAL AND
PRO FORMA FINANCIAL INFORMATION OF HOLDINGS
The following table sets forth (i) unaudited selected combined historical
financial information of the Holdings Businesses as of March 31, 1998 for each
of the three-month periods ended March 31, 1998 and 1997; (ii) selected combined
historical financial information as of December 31, 1997 and 1996 and for each
of the years ended December 31, 1997, 1996 and 1995, which has been derived from
the Holdings Businesses' audited combined financial statements as of December
31, 1997 and 1996, and for each of the years ended December 31, 1997, 1996 and
1995, included elsewhere herein; (iii) selected historical financial information
as of and for each of the years ended December 31, 1995, 1994, and 1993, which
has been derived from the unaudited combined financial statements of the
Holdings Businesses, not included elsewhere herein; and (iv) unaudited selected
combined pro forma financial information as of and for the three-month period
ended March 31, 1998 and for the year ended December 31, 1997, which has been
derived from the Unaudited Pro Forma Condensed Combined Financial Statements of
Holdings included elsewhere herein. This historical and pro forma financial
information includes an allocable portion of corporate, administrative and
general expenses of Insignia estimated to be incurred by Holdings operating on a
stand alone basis. Such data should be read in conjunction with the combined
financial statements (including the notes thereto) and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included
elsewhere herein. The unaudited selected combined pro forma balance sheet
information as of March 31, 1998 is presented as if the Distribution and the
Merger had occurred on March 31, 1998, and the unaudited selected combined pro
forma income statement information for the three-month period ended March 31,
1998 and the year ended December 31, 1997 is presented as if the Distribution,
the acquisition of Richard Ellis, the acquisition of Realty One, and the
acquisition of Barnes, Morris, Pardoe & Foster had occurred on January 1, 1997.
The unaudited selected combined pro forma financial information incorporates
certain assumptions set forth in the footnotes to the Unaudited Pro Forma
Condensed Combined Financial Statements of Holdings included elsewhere herein.
Historical per share data has not been presented because the financial
statements of the Holdings Businesses include primarily wholly-owned
subsidiaries or divisions of Insignia. The selected combined pro forma
information does not purport to represent what Holdings' financial position or
results of operations actually would have been had the Distribution and the
acquisitions described above in fact occurred on such date or at the beginning
of the period indicated, or to project Holdings' financial position or results
of operations at any future date or for any future period.
The tables set forth below provide a variety of statistical information
about Holdings and the Holdings Businesses. Management believes that Net EBITDA
is a significant indicator of the strength of its results. EBITDA does not
represent cash flow as defined by GAAP and does not necessarily represent
amounts of cash available to fund Holdings' cash requirements. EBITDA should not
be considered an alternative to net income, an indicator of operating
performance or an alternative to cash flow from operations as a measure of
liquidity. There can be no assurance that Holdings' basis of computing EBITDA
and Net EBITDA is comparable with that of other companies.
30
<PAGE> 37
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, HOLDINGS HOLDINGS BUSINESSES
---------------------------------- --------- --------------------------------------------------
HOLDINGS HOLDINGS BUSINESSES YEAR ENDED DECEMBER 31,
--------- ---------------------- --------------------------------------------------------------
PRO FORMA PRO FORMA
1998 1998 1997 1997 1997 1996 1995 1994 1993
--------- ----------- -------- --------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $113,033 $102,801 $ 43,866 $460,717 $295,753 $122,005 $ 38,658 $15,665 $11,711
Operating expenses.......... 101,690 91,776 39,162 408,848 258,625 107,444 37,554 14,606 8,672
Depreciation and
amortization.............. 6,007 5,184 3,268 22,056 15,244 9,197 3,778 771 157
Net income (loss)........... 2,330 2,759 1,072 14,570 13,055 3,484 (2,278) 173 1,758
Per Share amount -- assuming
dilution.................. $ 0.10 $ 0.67
Weighted average and
potential dilutive common
shares.................... 22,581 21,657
CASH FLOW DATA:
Cash provided by (used in)
operating activities...... N/A $(11,778) $ (6,030) N/A $ 30,332 $ 7,307 (1,399) $ N/A N/A
Cash used in investing
activities................ N/A (36,845) (3,117) N/A (82,893) (77,194) (19,796) N/A N/A
Cash provided by financing
activities................ N/A 54,424 9,116 N/A 61,767 69,895 21,221 N/A N/A
SUPPLEMENTAL DATA:
EBITDA...................... $ 11,343 $ 11,025 $ 4,704 $ 51,869 $ 37,128 $ 14,561 $ 1,104 $ 1,059 $ 3,039
Combined EBITDA and FFO..... 11,709 11,391 4,860 52,673 37,932 14,923 1,104 1,059 3,039
Net EBITDA.................. 11,096 11,009 4,860 50,621 37,614 14,905 1,104 1,059 3,039
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, HOLDINGS BUSINESSES
----------------------- --------------------------------------------------
HOLDINGS HOLDINGS
--------- BUSINESSES AS OF DECEMBER 31,
PRO FORMA ----------- --------------------------------------------------
1998 1998 1997 1996 1995 1994 1993
--------- ----------- -------- -------- -------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................ $485,652 $450,907 $334,494 $171,787 $ 43,074 $19,877 $ 3,153
Notes payable............... 31,208 31,208 20,891 -- -- -- --
Investment and net advances
from Insignia............. -- 288,720 208,444 137,777 39,948 17,294 1,671
Stockholders' equity........ 323,465 -- -- -- -- -- --
</TABLE>
31
<PAGE> 38
PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS OF HOLDINGS (UNAUDITED)
The following Pro Forma Condensed Combined Balance Sheet as of March 31,
1998 gives effect to the consummation of the Distribution and the Merger as if
effected at such date and the Pro Forma Condensed Combined Statements of Income
for the year ended December 31, 1997 and the three months ended March 31, 1998
for Holdings give effect to (i) the acquisition of the outstanding stock of
Realty One, (ii) the acquisition of Barnes, Morris, Pardoe & Foster and (iii)
the acquisition of the outstanding stock of Richard Ellis, in each case as if
effected at January 1, 1997. The exchange rates used in the translation of the
Richard Ellis financial statements, included herein, are as follows: $1.68 for
the balance sheet as of March 31, 1998; $1.68 for statement of income for the
year end December 31, 1997; and $1.65 for the statement of income for the three
months ended March 31, 1998. These exchange rates have been determined based on
the end of the period rate, in the case of the balance sheet, and the average
rate for the periods presented, in the case of the statement of income.
The pro forma statements have been prepared by management of Insignia and
are based on the historical financial statements of Holdings, Realty One and
Richard Ellis, giving effect to the transactions under the purchase method of
accounting and the assumptions and adjustments in the accompanying Notes to
Unaudited Pro Forma Condensed Combined Financial Statements. These pro forma
statements may not be indicative of the actual results that may have occurred if
the combination had been in effect on the date indicated or results which may be
experienced in the future. The pro forma statements should be read in
conjunction with the audited financial statements and corresponding footnote
disclosures of the Holdings Businesses included elsewhere herein.
PRO FORMA CONDENSED COMBINED
BALANCE SHEET OF HOLDINGS -- (UNAUDITED)
MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HOLDINGS ADJUSTMENTS BALANCE SHEET
-------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 15,051 $ 34,745(a) $ 49,796
Receivables........................................... 129,115 -- 129,115
Property and equipment................................ 13,473 -- 13,473
Co-investments in real estate......................... 19,637 -- 19,637
Property management contracts......................... 46,825 -- 46,825
Cost in excess of net assets of acquired businesses... 209,947 -- 209,947
Other assets.......................................... 16,859 -- 16,859
-------- --------- ---------
Total assets.......................................... $450,907 $ 34,745 $ 485,652
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable...................................... $ 13,912 $ -- $ 13,912
Commissions payable................................... 56,404 -- 56,404
Accrued and sundry liabilities........................ 60,308 -- 60,308
Notes payable......................................... 31,208 -- 31,208
-------- --------- ---------
Total liabilities..................................... 161,832 -- 161,832
-------- --------- ---------
Minority interest in consolidated subsidiaries.......... 355 -- 355
Stockholders' Equity:
Investment and net advances from Insignia............. 288,720 34,745(a) --
(323,465)(b)
Common stock, par value $.01 per share................ -- 215(b) 215
Additional paid-in capital............................ -- 323,250(b) 323,250
Retained earnings..................................... -- -- --
-------- --------- ---------
Total stockholders' equity............................ 288,720 34,745 323,465
-------- --------- ---------
Total liabilities and stockholders' equity............ $450,907 $ 34,745 $ 485,652
======== ========= =========
</TABLE>
32
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
PRO FORMA ADJUSTMENTS
(a) As a part of the Merger negotiation, Insignia provided that a
significant portion of its working capital will be contributed to Holdings at
the time of the Distribution. This pro forma adjustment, which assumes the
consummation of the proposed Merger, represents the contribution by Insignia
which will result in the debt and other liabilities of Insignia and its
subsidiaries at the time of the Merger being in compliance with the Merger
Agreement.
The cash contributed by Insignia is shown net of approximately $9.6 million
to be paid by Holdings to certain of Insignia's executive officers. These
payments are the obligation of Holdings only in the event that the Merger
occurs. The net impact of these payments has no effect on Holdings.
(b) Represents the adjustment to record the issuance of approximately
21,500,000 shares of Holdings Common Stock, with a par value of $.01 per share,
at the time of the Distribution.
33
<PAGE> 40
PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS OF HOLDINGS -- (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------- PRO FORMA
REALTY RICHARD BARNES OTHER INCOME
HOLDINGS ONE(1) ELLIS(1) MORRIS(1) ADJUSTMENTS STATEMENT
-------- ------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Fee based services.............. $295,258 $71,364 $69,405 $21,409 $ -- $ 457,436
Interest........................ 457 48 622 118 -- 1,245
Other........................... 38 1,987 -- 11 -- 2,036
-------- ------- ------- ------- ----------- -----------
295,753 73,399 70,027 21,538 -- 460,717
-------- ------- ------- ------- ----------- -----------
Costs and expenses
Fee based services.............. 251,268 62,436 60,767 17,578 (4,152)(a) 387,897
Overhead allocations from
Insignia...................... 6,770 -- -- -- -- 6,770
Administrative.................. 587 4,730 2,465 3,714 2,685(b) 14,181
Contract terminations........... -- -- 8,702 -- (8,702)(c) --
Interest........................ 318 441 704 9 580(d) 2,052
Depreciation and amortization... 15,244 1,804 850 221 3,937(e) 22,056
-------- ------- ------- ------- ----------- -----------
274,187 69,411 73,488 21,522 (5,652) 432,956
-------- ------- ------- ------- ----------- -----------
Equity earnings................... 151 -- -- -- (3,669)(f) (3,518)
Minority interest in consolidated
subsidiaries.................... 41 -- 60 -- (60)(g) 41
-------- ------- ------- ------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES........................... 21,758 3,988 (3,401) 16 1,923 24,284
Provision for income taxes...... 8,703 552 (489) -- 948(h) 9,714
-------- ------- ------- ------- ----------- -----------
NET INCOME (LOSS)................. $ 13,055 $ 3,436 $(2,912) $ 16 $ 975 $ 14,570
======== ======= ======= ======= =========== ===========
Per share amount -- assuming
dilution........................ N/A $ 0.67
======== ===========
Weighted average and potential
dilutive common shares.......... N/A 21,656,679(i) 21,656,679
======== =========== ===========
</TABLE>
- ---------------
(1) Represents operations prior to acquisition by Holdings.
See "Notes to Unaudited Pro Forma Condensed Combined Statements of Operations"
for pro forma adjustments notes.
34
<PAGE> 41
PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS OF HOLDINGS -- (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------- PRO FORMA
RICHARD OTHER INCOME
HOLDINGS ELLIS(1) ADJUSTMENTS STATEMENT
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES
Fee based services......................... $102,511 $10,079 $ -- $ 112,590
Interest................................... 282 153 -- 435
Other...................................... 8 -- -- 8
-------- ------- ----------- ----------
102,801 10,232 -- 113,033
-------- ------- ----------- ----------
COSTS AND EXPENSES
Fee based services......................... 89,212 9,473 (446)(a) 98,239
Overhead allocations from Insignia......... 1,746 -- -- 1,746
Administrative............................. 818 217 670(b) 1,705
Interest................................... 382 72 159(d) 613
Depreciation and amortization.............. 5,184 90 733(e) 6,007
-------- ------- ----------- ----------
97,342 9,852 1,116 108,310
-------- ------- ----------- ----------
Equity earnings.............................. (476) -- -- (476)
Minority interest in consolidated
subsidiaries............................... 33 (43) -- (10)
-------- ------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES............ 5,016 337 (1,116) 4,237
Provision for income taxes................. 2,257 191 (541)(h) 1,907
-------- ------- ----------- ----------
NET INCOME (LOSS)............................ $ 2,759 $ 146 $ (575) $ 2,330
======== ======= =========== ==========
Per share amount -- assuming dilution........ N/A $ 0.10
======== ==========
Weighted average and potential dilutive
common shares.............................. N/A 22,580,876(i) 22,580,876
======== =========== ==========
</TABLE>
- ---------------
(1) Represents operations prior to acquisition by Holdings.
See "Notes to Unaudited Pro Forma Condensed Combined Statements of Operations"
for pro forma adjustments notes.
35
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INCOME INCREASE (DECREASE)
---------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------------
<S> <C> <C> <C>
PRO FORMA ADJUSTMENTS
COSTS AND EXPENSES
(a) Reduction (increase) in fee-based services expenses:
Prior to its acquisition, Richard Ellis accounted for
annuities to retired employees as expense when paid. As a
part of the purchase, the present value of these
obligations was recorded as a liability using a 9% present
value discount rate and actuarial life expectancies. The
pro forma adjustment eliminates the annuity expense from
fee-based services expense................................ $ 687 $ 71
As a part of the Richard Ellis acquisition, the present
value of future office lease obligations pertaining to
locations no longer occupied, and in one case, the
difference between the rental rate pursuant to the lease
in excess of current market rent, was recorded as a
liability using a 9% present value discount rate. The
applicable rent is removed from fee-based services
expense................................................... 1,650 268
As a condition to the acquisition of Richard Ellis, lifetime
employment agreements of seven employees of Richard Ellis
were terminated by payment in cash. These employees were
no longer providing any economic benefit to Richard Ellis.
The pro forma adjustment removes these cash payments from
fee-based services expense................................ 1,529 107
As a condition to the acquisition of Richard Ellis, the
Richard Ellis bonus plan was modified by shareholder vote.
The adjustment to the amount of bonus based on the revised
plan in place at the date of acquisition is reflected as a
pro forma adjustment...................................... 286 --
------------ ------------
4,152 446
------------ ------------
(b) Represents the estimated administrative expenses associated
with new employment agreements with three executive
officers of Insignia, liability insurance policies,
director fees and similar costs in excess of
administrative expenses formerly allocated from
Insignia.................................................. (2,685) (670)
(c) Prior to the Richard Ellis acquisition, Insignia entered
into agreements to terminate lifetime employment
agreements with seven persons and to reduce the term of
employment contracts with three other persons. The amount
to be paid for such terminations and modifications was
accrued by Richard Ellis during the year ended December
31, 1997, and Insignia contributed the funds to make the
modification payments to Richard Ellis at the time of the
acquisition. The contract termination expense is
eliminated from historical results as a pro forma
adjustment................................................ 8,702 --
(d) Interest expense on the present value obligations described
in (a) above is reflected as a pro forma adjustment using
the 9% present value discount rate in calculating the
liabilities............................................... (580) (159)
(e) Represents reductions (increases) in:
Amortization of purchase price of acquired entities
allocated to goodwill (25 yr.)............................ (4,068) (749)
Removal of Richard Ellis historical goodwill amortization... 131 16
------------ ------------
(3,937) (733)
------------ ------------
Total cost and expense effect............................ 5,652 (1,116)
------------ ------------
(f) Represents the pro forma adjustment to record equity loss in
Fresh Meadows (apartment property 35% owned) from 1/1/97
to 12/4/97................................................ (3,669)
(g) Represents the removal of Richard Ellis historical
interest.................................................. (60)
(h) Income tax effect........................................... (948) 541
------------ ------------
Adjustment to net income.................................... $ 975 $ (575)
============ ============
SHARE DATA
(i) Weighted average and potential dilutive common shares:
Issuance of Holdings Common Stock, on a two for three basis,
to Insignia stockholders.................................. 20,835,288 21,538,208
Potential dilutive common shares, with respect to warrants
and employee options assumed by Holdings.................. 821,391 1,042,668
------------ ------------
21,656,679 22,580,876
============ ============
</TABLE>
36
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Holdings has two principal business segments -- commercial real estate
services and residential real estate services. The commercial real estate
services segment is comprised of Insignia/ESG's United States operations
division and its European operations division; and the residential services
segment is comprised of a single-family home brokerage division (Realty One) and
a cooperative and condominium apartment services division (Insignia Residential
Group).
Insignia/ESG is one of the largest commercial real estate services firms in
the United States according to January 1998 issue of Commercial Property News.
With the acquisition of Richard Ellis in the United Kingdom and the purchase of
60% of the capital stock in Insignia/CAGISA in Italy, Insignia/ESG is becoming a
global leader in real estate services.
In addition to commercial real estate services, Holdings provides
residential real estate services principally through Realty One and Insignia
Residential Group. Realty One, based in Ohio, is the ninth largest residential
real estate brokerage firm in the United States according to Real Trends "Big
Broker Report" published in May 1998. Insignia Residential Group manages
cooperative and condominium properties in the New York metropolitan tri-state
area.
Revenue from tenant representation, consulting, investment sales,
debt/equity placements and property leasing, which is a substantial majority of
Holdings' revenue, is largely transactional in nature and therefore subject to
changes in economic cycles. Holdings believes that its large, diversified client
base, geographical reach, overall size and number of annual transactions will
minimize the impact of changes in economic cycles on annual revenue. A large
majority of the expenses associated with the above mentioned activities are
directly correlated to revenue.
Holdings' primary objective is to increase EBITDA and stockholder value
through internal growth and the acquisition of companies. See "BUSINESS OF
HOLDINGS -- COMMERCIAL SERVICES -- INSIGNIA/ESG" and "BUSINESS OF
HOLDINGS -- MERGERS AND ACQUISITIONS" for information regarding Holdings'
acquisitions.
The following results are based on the historical financial statements of
the Holdings Businesses and include certain assumptions concerning the
allocation of overhead costs from Insignia. These results may not be indicative
of the actual results that may have occurred if the Holdings Businesses had been
operating on a stand-alone basis for the periods presented.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The Holdings Businesses, with the exception of Insignia Residential Group,
posted strong results in all major components of operational activity for the
three months ended March 31, 1998 in comparison to 1997. These results are
primarily attributable to a vibrant real estate market in the United States and
Europe, as well as continued growth through acquisitions over the past year. The
Holdings Businesses use Net EBITDA, which is EBITDA combined with funds from
operations minus interest expenses, as a primary indicator of financial
performance. Net EBITDA increased 126% for the quarter over the same period last
year from $4.9 million for March 31, 1997 to $11.0 million for March 31, 1998.
Total revenues increased 134% or $58.9 million for the three months from
$43.9 million in 1997 to $102.8 million in 1998. The growth in revenues is
primarily reflected in fee-based services, which posted gains of 134% or $58.6
million for the three months. This growth is attributable primarily to internal
growth in the U.S. commercial operations of Insignia/ESG, in conjunction with
the operations of the Richard Ellis and Realty One companies acquired over the
past six months.
Fee-based services expense increased 136% from $37.9 million in the first
quarter of 1997 to $89.2 million in the first quarter of 1998. Consistent with
fee-based services revenue, fee-based services expense increased significantly
as a result of the internal growth and growth through acquisitions over the past
12 months.
37
<PAGE> 44
Insignia/ESG revenues increased 85% from $37.7 million in the first quarter
of 1997 to $69.7 million in the first quarter of 1998. This increase is
attributable to the operating impact of several acquisitions throughout the last
nine months of 1997, including Frain, Camins & Swartchild, Inc.; Forum
Properties, Inc.; and Barnes, Morris, Pardoe & Foster. Also, contributing to
this increase was increased brokerage activity in comparison to the same period
of 1997. Insignia/ESG fee-based services expense increased 81% from $32.6
million in the first quarter of 1997 to $59.1 million in the first quarter of
1998. Consistent with revenues, the increase in fee-based services expense is
due primarily to the impact of the above mentioned acquisitions coupled with
increased brokerage activity in the New York metropolitan tri-state area.
The European operations of Insignia/ESG, comprised of Richard Ellis in
London and Insignia/CAGISA in Italy, reported revenues of $7.7 million and
fee-based service expenses of $5.6 million for the three months of 1998. These
entities were acquired subsequent to March 31, 1997 (Insignia/CAGISA on
September 30, 1997 and Richard Ellis on February 26, 1998), therefore no
comparable operations existed for this period. The operations of Richard Ellis,
which reflected less than a full quarter of ownership, comprised $7.0 million,
or 91%, of the total revenues for the European operations.
Realty One reported total revenues of $18.3 million for the first three
months of 1998. Realty One was acquired in October 1997; therefore, no actual
operations are reflected for Realty One for the first three months of 1997.
These results were considerably stronger than anticipated and can be attributed
to an improved market due to attractive interest rates and the mild winter. On a
comparable basis after giving pro forma effect to the ownership of the Realty
One operations for all of the three-month periods of 1998 and 1997 revenues
increased 9% from $16.8 million in the first quarter of 1997 to $18.3 million in
the first quarter of 1998. During the first quarter of 1998, fee-based services
expense for Realty One was $18.3 million. On a comparable basis after giving
effect for the ownership of the Realty One operations for all of the three-month
periods of 1998 and 1997, fee-based services expense decreased 7% from $19.8
million in 1997.
It is important to note that despite the improved performance over 1997,
Realty One reported a negative Net EBITDA of $512,000 for the first three months
of 1998. Consistent with most of the residential brokerage industry, Realty One
experiences significant seasonality, with the first quarter results typically
being the lowest. In spite of the negative contribution, the results exceeded
expectations for the period due to a mild winter and strong home sales.
Insignia Residential Group revenues increased 1% from $6.1 million in the
first quarter of 1997 to $6.2 million in the first quarter of 1998. Fee-based
services expense increased 8% from $5.3 million in the first quarter of 1997 to
$5.7 million in the first quarter of 1998. These changes reflect that revenues
were consistent with the prior year, whereas fee-based services expenses were
impacted by normal salary increases and additional staffing hires throughout the
latter part of 1997.
Overhead allocations from Insignia increased 35% from $1.3 million in the
first quarter of 1997 to $1.7 million in the first quarter of 1998. This
increase is directly correlated to the increased administrative costs absorbed
with newly acquired entities over the past year. It is important to note that
the rate of growth in overhead costs from Insignia is substantially lower than
the growth rate in revenues of the combined entities.
Administrative expenses of $0.8 million were incurred for the three months
ended March 31, 1998. These expenses relate entirely to the operations of the
Richard Ellis, Insignia/CAGISA and Realty One subsidiaries acquired over the
past six months. No comparable expenses were incurred for the same period of
1997. As additional consolidations are made in the respective business units
represented by these entities, efficiencies are expected to be gained and the
growth in administrative expenses is expected to slow.
Depreciation and amortization increased 59% from $3.3 million in the first
quarter of 1997 to $5.2 million in the first quarter of 1998. This increase is
consistent with the growth in the Holdings Businesses over the past year
attributable to acquisitions. These acquisitions, most notably Richard Ellis and
Realty One, have resulted in significant purchases of amortizable assets
resulting in a corresponding increase in amortization expense.
Equity earnings decreased from $351,000 in the first quarter of 1997 to a
loss of $476,000 in the first quarter of 1998. The loss is primarily
attributable to substantial losses of Fresh Meadows, a 35% owned apartment
property, acquired in December 1997. Holdings' share of the loss was $656,000.
38
<PAGE> 45
The provision for income taxes increased 216% from $715,000 in the first
quarter of 1997 to $2.3 million in the first quarter of 1998. This increase is
due primarily to the increase in pretax earnings attributable to the factors
discussed above. Also contributing to this increase is a change in the effective
tax rate from 40% to 45% because of changes in assets and their tax bases from
acquisition activity and higher tax rates where those acquisitions occurred.
As a result of the foregoing, net income increased 157% to $2.8 million for
the first three months of 1998 compared to $1.1 million for the same period of
1997.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
The Holdings Businesses posted strong results in all major components of
operational activity for 1997. Favorable comparisons to 1996 are attributable to
a vibrant commercial real estate market in the United States, the inclusion of
ESG for a full year (versus six months in 1996), and the partial year impact of
several acquisitions during 1997. The Holdings Businesses use Net EBITDA as a
primary indicator of financial performance. Net EBITDA increased 152% from $14.9
million in 1996 to $37.6 million in 1997.
Total revenues increased 142% or $173.7 million for the year from $122.0
million in 1996 to $295.8 million in 1997. The growth in revenues is primarily
reflected in fee-based services, which posted gains of 142% or $173.3 million in
comparison to 1996. This increase is reflective of the contributions of a full
year of operations of ESG, which was acquired on June 30, 1996, and the eight
acquisitions made in 1997. In addition ESG experienced strong internal revenue
growth of over $60 million in 1997 as compared to its 1996 results.
Fee-based services expense increased 142% from $103.9 million in 1996 to
$251.3 million in 1997. Consistent with fee-based services revenue, fee-based
services expense increased significantly as a direct result of the acquisitions
over the past eighteen months and Insignia/ESG's strong internal growth. In
addition, in 1997 Holdings incurred a one time charge of $1.5 million in legal
and litigation settlement costs associated with the establishment of an office
in Phoenix.
Insignia/ESG revenues increased 151% from $97.7 million in 1996 to $245.2
million in 1997. This increase is attributable to the operating impact of
several acquisitions throughout 1997, including Rostenberg-Doern Company, Inc.;
HMB Property Services, Inc.; Frain, Camins & Swartchild, Inc.; Forum Properties,
Inc.; and Barnes, Morris, Pardoe & Foster. Also, contributing to this increase
was a full year of operations of ESG in 1997 compared to six months for 1996,
and increased brokerage activity of ESG in the New York metropolitan tri-state
area. Insignia/ESG fee-based services expense increased 145% from $83.4 million
in 1996 to $204.7 million in 1997. Consistent with revenues, the increase in
fee-based services expense is due primarily to the impact of the above mentioned
acquisitions coupled with the full year's effect of ESG operations.
The European operations of Insignia/ESG, comprised of Insignia/CAGISA in
Italy, reported revenues of $712,000 for 1997. These revenues reflect only one
quarter of operations for Insignia/CAGISA, which was acquired on September 30,
1997. Fee-based services expense for Insignia/CAGISA was $413,000 for 1997.
Realty One, organized in October 1997, reported total revenues of $24.0
million and fee-based services expenses of $22.2 million for the three months of
ownership in 1997. No comparative operations are reflected for Realty One for
1996.
Insignia Residential Group revenues increased 4% from $23.5 million in 1996
to $24.4 million in 1997. Fee-based services expense for Insignia Residential
Group increased 10% from $20.5 million in 1996 to $22.6 million in 1997. These
figures reflect that the operations of the cooperative and condominium business
for 1997 were consistent with the prior year.
Overhead allocations from Insignia increased 93% from $3.5 million in 1996
to $6.8 million in 1997. This increase is directly correlated to increased
administrative responsibility in absorbing newly acquired entities over the past
year. The rate of growth in overhead allocations from Insignia is substantially
lower than the
39
<PAGE> 46
growth rate in revenues for the same period, clearly reflecting the ability of
Holdings to efficiently absorb acquisitions into its existing corporate
infrastructure.
Administrative expenses of $0.6 million were included in 1997 which relate
entirely to the Insignia/ CAGISA acquisition.
Depreciation and amortization increased 66% from $9.2 million in 1996 to
$15.2 million in 1997. This increase is consistent with the growth of Holdings
attributable to acquisitions. These acquisitions have reflected significant
purchases of amortizable assets resulting in a corresponding increase in
amortization expense.
The provision for income taxes increased 308% from $2.1 million in 1996 to
$8.7 million in 1997. This increase is attributable to the rise in net income in
comparison to 1996 coupled with an increase in the effective tax rate from 38%
to 40% because of changes in assets and their tax bases as determined by the
structure of the purchase agreements for acquisitions completed over the past
twelve months and higher tax rates where these acquisitions occurred.
As a result of the foregoing factors, net income increased 275% to $13.1
million in 1997 compared to $3.5 million in 1996.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
The Holdings Businesses posted strong growth in all major components of
operational activity for 1996 due primarily to acquisition activity.
Revenues increased 216% for the year from $38.7 million for 1995 to $122.0
million for 1996 with the primary growth being in fee-based services revenue.
The acquisitions of ESG and Group Property Services, Inc. completed in June 1996
contributed substantially to this growth.
Fee-based services expense increased 189% from $36.0 million for 1995 to
$103.9 million for 1996. This increase is primarily caused by the completed
acquisitions mentioned previously.
Insignia/ESG revenues increased 249% from $28.0 million in 1995 to $97.7
million in 1996. This increase is due to internal growth of $12.6 million in the
commercial management business, coupled with the acquisition of ESG on June 30,
1996. ESG, a commercial brokerage firm located in New York, contributed revenues
of $53.4 million for the second half of 1996. On a comparable basis without
respect to ownership, ESG total revenues increased 9% from $92.1 million in 1995
to $100.2 million for the twelve months of 1996. Insignia/ESG fee-based services
expense increased 183% from $29.5 million in 1995 to $83.4 million in 1996.
Consistent with revenues, the increase in fee-based services expense is due
primarily to the impact of the ESG acquisition, which contributed $45.2 million
in expense in the second half of 1996.
Insignia Residential Group revenues increased 220% from $7.3 million in
1995 to $23.5 million in 1996. Insignia Residential Group commenced operations
with the acquisition of Douglas Elliman-Gibbons & Ives and Kreisel Company, Inc.
of New York in September 1995. Insignia Residential Group fee-based services
expense increased 216% from $6.5 million in 1995 to $20.5 million in 1996. This
increase is due to the comparison of four months of operations in 1995 to a full
year for 1996.
Overhead allocations from Insignia increased 119% from $1.6 million for
1995 to $3.5 million for 1996. This increase is due to increased administrative
responsibility related to the recent acquisitions.
During 1995, a one-time charge for $1.0 million was incurred as a result of
terminating a contract arrangement with a senior executive. Both Holdings and
the employee agreed to the termination. No such expenses were incurred during
the year ended December 31, 1996.
Depreciation and amortization increased 143% from $3.8 million for 1995 to
$9.2 million for 1996. This is a result of the amortization of acquired property
management contracts and goodwill.
The provision for income taxes increased by $3.5 million from $(l.4)
million in 1995 to $2.1 million in 1996 in direct proportion to the increase in
income before income taxes, resulting from the factors discussed above.
40
<PAGE> 47
As a result of the foregoing factors, net income increased by $5.8 million
from a $2.3 million loss in 1995 to $3.5 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Holdings Businesses have not historically maintained separate capital
resources. Rather, all of its cash flows have been remitted to Insignia, and
Insignia has provided the capital resources required for operating needs,
capital expenditure needs and to acquire businesses.
Holdings uses Net EBITDA as an indicator of its ability to internally
produce capital. Net EBITDA was $11.0 million for the three months ended March
31, 1998 and $37.6 million for the year ended December 31, 1997. However, Net
EBITDA must be used to finance increases in net working capital and to pay
income taxes before it is available for other purposes.
Holdings expects to use excess cash generated from its businesses together
with external capital to continue its acquisition and equity co-investment
activities. During the first quarter of 1998, the aggregate expenditure for such
activities was $26.6 million, all of which was paid for by Insignia. Cash
provided by operations was $30.3 million for the year ended December 31, 1997,
however, operations used cash of $11.8 million in the first quarter of 1998. The
first quarter of each year typically reflects annual employee bonus payments for
the prior year, and the amount paid in 1998 was approximately $12 million,
reflecting the strong 1997 results. Additionally, increased receivables related
to heightened commercial brokerage activity contributed to the use of funds in
the first quarter of 1998.
Holdings has pro forma cash of approximately $50 million and is negotiating
for and expects to procure a $150 million revolving credit facility as soon as
possible after the Distribution. However, negotiations regarding the credit
facility are in the very early stages, and there can be no assurance that
Holdings will in fact procure a facility in any amount. In addition, all of
Holdings' interests in its material subsidiaries are pledged to secure
Insignia's $300 million revolving credit facility, and any Holdings borrowings
under a new credit facility would require a release from that obligation.
Over the twelve-month period commencing July 1, 1998, Holdings anticipates
incurring capital expenditures significantly in excess of the normal needs of
the business due to following: (i) the relocation of Insignia Residential Group
to newly leased office space in Manhattan and the purchase and development of
new client accounting and information systems which Holdings believes will be
state-of-the-art for the cooperative and condominium management industry, (ii)
the upgrade and replacement of substantially all information systems of Richard
Ellis, as contemplated in the purchase transaction, (iii) the separation of
networks systems of the commercial businesses from the residential businesses to
be merged with AIMCO and (iv) the potential purchase of a new marketing system
for the single-family brokerage business. The aggregate capital expenditures
anticipated for these and other normal items is approximately $16.0 million,
which Holdings expects to pay from operating cash flows and cash on hand at the
time of the Distribution.
EFFECT OF NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which requires that an enterprise report the change in its net assets
during the period from nonowner sources, and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes annual and
interim reporting and disclosure standards for an enterprise's operating
segments. Adoption of these statements will not impact the Holdings consolidated
financial position, results of operations or cash flows, and will be limited to
the form and content of its disclosures. Both statements are effective for
fiscal years beginning after December 15, 1997.
YEAR 2000 COMPLIANCE
Holdings has completed an assessment on the impact of the year 2000 issue
and has determined that it will have to modify or replace portions of its
software and its computer platform so that computer systems will function
properly with respect to dates in the year 2000 and thereafter. The project is
expected to be
41
<PAGE> 48
completed in 1998; therefore, the year 2000 issues should not pose significant
operational problems for Holdings.
Holdings has begun to assess the impact of the year 2000 issue as it
relates to systems and software used to process property management customers'
transactions. At this point, Holdings cannot estimate the cost and time required
to modify or replace such systems and software. Holdings plans to complete this
assessment and begin implementation during 1998.
Holdings believes that year 2000 issues could have a substantial impact on
the operation of buildings managed by it, such as life safety, energy
management, elevator and security systems. Holdings has a program to assist its
property management customers with the identification and correction of year
2000 issues associated with critical systems at these properties.
Holdings is currently assessing the extent to which its operations are
vulnerable should third party vendors and other organizations with which
Holdings conducts business fail to properly remediate their computer systems. In
the event that such necessary modifications and conversions are not made, or are
not completed in a timely fashion, the year 2000 issue could potentially have a
material impact on the operations of Holdings.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation has not had a significant impact on the results of operations of
Holdings in recent years and is not anticipated to have a significant negative
impact in the foreseeable future. Holdings' exposure to market risk from
changing prices consists primarily of fluctuations in rental rates of properties
managed, market interest rates on residential mortgages and debt obligations,
real estate property values, and foreign currency fluctuations of the European
operations.
The revenues of the property management operations with respect to rental
properties are highly dependent upon the aggregate rents of the properties
managed, which are affected by rental rates and building occupancy rates. Rental
rate increases are dependent upon market conditions and the competitive
environments in the respective locations of the properties. Employee
compensation is the principal cost element of property management.
The revenues of the single-family brokerage business are impacted by
changes in market interest rates on residential mortgage loans and changes in
real property values in the Northern Ohio area.
The revenues associated with the commercial services business are impacted
by fluctuations in interest rates, lease rates, real property values and the
availability of space and competition in the market place. Commercial services
revenues are derived from a broad range of services which are primarily
transaction driven and are therefore volatile in nature and highly competitive.
Recent price and cost trends have not significantly affected profit
margins; however, changes in these trends in the future could have a potentially
significant impact on the profitability of Holdings.
42
<PAGE> 49
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning persons who
serve as directors and executive officers of Holdings, most of whom currently
serve in similar capacities for Insignia.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH HOLDINGS
---- --- ----------------------
<S> <C> <C>
Andrew L. Farkas......... 38 Director; Chairman of the Board; Chief Executive Officer
Robert J. Denison........ 56 Director
Robin L. Farkas.......... 64 Director
Andrew J.M. Huntley...... 59 Director; Office of the Chairman
Robert G. Koen........... 51 Director
Stephen B. Siegel........ 53 Director; President
H. Strauss Zelnick....... 41 Director
James A. Aston........... 45 Office of the Chairman; Chief Financial Officer
Frank M. Garrison........ 43 Office of the Chairman
Adam B. Gilbert.......... 45 Executive Vice President -- Legal General Counsel; Secretary
Edward S. Gordon......... 62 Office of the Chairman
Ronald Uretta............ 42 Office of the Chairman; Chief Operating Officer; Treasurer
</TABLE>
The Board of Directors of Holdings (the "Holdings Board") is comprised of
seven members, divided into two classes of two members each and one class of
three members. At each annual meeting of stockholders, directors constituting
one class will be elected for a three-year term. The terms of Messrs. Huntley
and Koen will expire at the 1999 annual meeting of stockholders, the terms of
Messrs. Robin L. Farkas, Denison and Zelnick will expire at the 2000 annual
meeting of stockholders, and the terms of Messrs. Andrew L. Farkas and Siegel
will expire at the 2001 annual meeting of stockholders. See "DESCRIPTION OF
CAPITAL STOCK -- CERTAIN CERTIFICATE AND BY-LAWS PROVISIONS." All executive
officers of Holdings serve at the discretion of the Holdings Board.
The following is additional information with respect to the above-named
executive officers and directors.
Andrew L. Farkas has been a director and Chairman of Holdings since its
inception in May 1998, Chief Executive Officer of Holdings since August 1998 and
a director of Insignia since its inception in August 1990. Mr. Farkas has been
Chairman and Chief Executive Officer of Insignia since January 1991, and
President since May 1995. Prior to August 1993, Mr. Farkas was the sole director
of Insignia. He has been Chairman of the Board of Trustees of Insignia
Properties Trust since December 1996.
Robert J. Denison has been a director of Holdings since its inception in
May 1988 and a director of Insignia since May 1996. Mr. Denison has been General
Partner of First Security Company II, L.P., an investment advisory firm, for
more than the past five years.
Robin L. Farkas has been a director of Holdings since its inception in May
1988 and a director of Insignia since August 1993. Mr. Farkas is the retired
Chairman of the Board and Chief Executive Officer of Alexander's Inc., a real
estate company. He served in that capacity from 1984 until 1993. He is also a
director of Refac Technology Development Corporation, Noodle Kiddoodle, Inc. and
Containerways International, Ltd.
Andrew J.M. Huntley has been a director and member of the Office of the
Chairman of Holdings since its inception in May 1998. Mr. Huntley also serves as
Chairman of Richard Ellis, and his principal employment has been with Richard
Ellis for more than the past five years.
Robert G. Koen has been a director of Holdings since its inception in May
1998 and a director of Insignia since August 1993. Since February 1996, Mr. Koen
has been a partner in the law firm Akin, Gump, Strauss, Hauer & Feld, which
represents Insignia or certain of its affiliates from time to time. From January
1991 to February 1996, Mr. Koen was a partner in the law firm of LeBoeuf, Lamb,
Greene & MacRae.
Stephen B. Siegel has been a director of Holdings since its inception in
May 1998 and President of Holdings since August 1998. Mr. Siegel also serves as
Chief Executive Officer of Insignia/ESG (since July
43
<PAGE> 50
1996) and Executive Managing Director of Insignia (since June 1996). Mr. Siegel
served as President of ESG (now Insignia/ESG) from June 1992 to May 1998. From
1988 to 1992, Mr. Siegel was engaged in a joint venture with Chubb Corporation
to develop and acquire investment-grade office buildings throughout the United
States.
H. Strauss Zelnick has been a director of Holdings since August 1998. Mr.
Zelnick has been President and Chief Executive Officer of BMG Entertainment
since August 1998. Mr. Zelnick was President and Chief Executive Officer of BMG
Entertainment North America, a division of BMG Entertainment, from January 1994
to July 1998. Prior to joining BMG Entertainment, Mr. Zelnick was President and
Chief Executive Officer of Crystal Dynamics, a supplier of video game software,
from 1993 to 1994.
James A. Aston has been a member of the Office of the Chairman and Chief
Financial Officer of Holdings since August 1998. Mr. Aston has been Executive
Managing Director of Investment Banking of Insignia since January 1991, with the
Office of the Chairman of Insignia since July 1994, and Chief Financial Officer
since August 1996.
Frank M. Garrison has been a member of the Office of the Chairman of
Holdings since August 1998. Mr. Garrison also serves as Executive Managing
Director of Insignia and President of Insignia Financial Services, a division of
Insignia. He commenced his employment with Insignia in January 1992.
Adam B. Gilbert has been General Counsel and Secretary of Holdings since
its inception in May 1998 and Executive Vice President -- Legal of Holdings
since August 1998. Mr. Gilbert also serves as an Executive Managing Director of
Insignia/ESG (since July 1998) and General Counsel and Secretary of Insignia
(since March 1998). Prior to March 1998, Mr. Gilbert was a partner in the law
firm of Nixon, Hargrave, Devans & Doyle, LLP, New York, New York.
Edward S. Gordon has been a member of the Office of the Chairman of
Holdings since its inception in May 1998. Mr. Gordon also serves as Chairman of
Insignia/ESG (since June 1996) and a member of the Office of the Chairman of
Insignia (since June 1996). He is also the founder of ESG, which was acquired by
Insignia in June 1996.
Ronald Uretta has been a member of the Office of the Chairman, Chief
Operating Officer and Treasurer of Holdings since August 1998. Mr. Uretta also
serves as Chief Operating Officer and Treasurer of Insignia.
There is no family relationship between any of the executive officers of
Holdings. Robin L. Farkas is the father of Andrew L. Farkas.
COMMITTEES OF THE HOLDINGS BOARD
In order to facilitate the activities of the Holdings Board following the
Distribution, it has created the following standing committees: an Executive
Committee, an Audit Committee and a Compensation Committee. The Holdings Board
will not have a standing nominating committee. The functions normally performed
by a nominating committee will be performed by the Holdings Board as a whole.
The committees, their primary functions and their memberships are as follows:
Executive Committee -- This Committee has the authority of the
Holdings Board to act on most matters during intervals between meetings of
the Board of Directors. The members of the Executive Committee are Andrew
L. Farkas (Chairman), Robin L. Farkas, Mr. Siegel, Mr. Koen and Mr.
Huntley.
Audit Committee -- This Committee will make recommendations to the
Holdings Board with respect to the appointment of independent public
accountants, review significant audit and accounting policies and
practices, meet with Holdings' independent public accountants concerning,
among other things, the scope of audits and reports, and review the
performance of the overall accounting and financial controls of Holdings.
The members of the Audit Committee are Mr. Denison (Chairman) and Mr.
Zelnick.
Compensation Committee -- This Committee has the responsibility for
reviewing and approving the compensation and benefits of executive
officers, advising management regarding benefits, including
44
<PAGE> 51
bonuses, and other terms and conditions of compensation of other employees,
administering Holdings' incentive compensation plans, including the Holding
1998 Stock Incentive Plan (the "Holdings Stock Plan"), and reviewing and
recommending compensation of directors. The members of the Compensation
Committee are Mr. Denison (Chairman) and Mr. Zelnick.
Nominations for election to the Holdings Board may be made by the Holdings
Board, by a nominating committee appointed by the Holdings Board or by any
stockholder entitled to vote for the election of directors as described below.
The By-laws establish an advance notice procedure for the nomination, other than
by or at the direction of the Holdings Board or a committee thereof, of
candidates for election as directors. Notice of director nominations must be
timely given in writing to the Secretary of Holdings prior to the meeting at
which the directors are to be elected. To be timely, notice must be delivered to
or mailed and received at the principal executive offices of Holdings not less
than 50 nor more than 80 days prior to the scheduled date of the annual meeting
of the stockholders or special meeting of stockholders called by the Board of
Directors for the purpose of electing directors, provided, however, that if less
than 60 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
delivered or mailed and received not later than the close of business on the
tenth day following the earlier of (i) the day on which such notice of the date
of the meeting was mailed, or (ii) the day on which such public disclosure was
made. Notice to Holdings from a stockholder who proposes to nominate a person at
a meeting for election as a director must contain all information about such
person that would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee (including such person's
written consent to serve as a director if so elected) and certain information
about the stockholder proposing to nominate that person. If the chairman of the
meeting of stockholders determines that a person was not nominated in accordance
with the nomination procedure, such nomination will be disregarded.
DIRECTORS' COMPENSATION
Each of Holdings' directors who is not an employee of Holdings will receive
a fee of $25,000 per year for serving as a director. Each director who is not a
full-time employee of Holdings also may receive a bonus based on Holdings'
performance. Each director who is not a full-time employee of Holdings is
eligible to participate in the Holdings Stock Plan, which provides for each
non-employee director to receive at the time of his initial election an option
to purchase 20,000 shares of Holdings Common Stock and to receive an additional
option each year thereafter to purchase 2,000 shares, in each case at the then
fair market value of the Holdings Common Stock.
45
<PAGE> 52
EXECUTIVE COMPENSATION
Prior to the Distribution, Holdings has been a wholly-owned subsidiary of
Insignia and Holdings' officers and directors have not been separately
compensated for acting in such capacities. The following Summary Compensation
Table sets forth the cash compensation and certain other components of the
compensation of Andrew L. Farkas, the Chief Executive Officer of Holdings, and
the four other executive officers of Holdings who were paid over $100,000 for
services rendered to Insignia in 1997 and who served as executive officers of
Insignia at December 31, 1997 (including Mr. Farkas, the "Named Executive
Officers"). Compensation and benefits to be provided by Holdings to its
executive officers will be governed, in part, by the employment agreements
between such officers and Holdings. See "-- EMPLOYMENT AGREEMENTS." In addition,
certain of the Named Executive Officers and certain key personnel of Holdings
have been granted, effective at the Time of the Distribution, an aggregate of
approximately 1,100,000 options to purchase Holdings Common Stock under the
Holdings Stock Plan. See "-- COMPENSATION PURSUANT TO PLANS.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------
AWARDS
ANNUAL COMPENSATION -------------------------
-------------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- --------------------------- ---- --------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew L. Farkas 1997 600,000 2,000,000 153,329(a) -- 61,500(b)
Chairman, President, and 1996 600,000 1,450,000 151,055(c) 300,000(j) 58,500(b)
Chief Executive Officer 1995 600,000 1,450,000 233,636(d) 628,000 48,000(b)
Edward S. Gordon 1997 1,000,000 1,334,000 322,546(e)(f) -- 3,200(b)
Office of the 1996(i) 505,130 -- 83,377(e)(f) 250,000(g) --
Chairman of Insignia
Stephen B. Siegel 1997 1,000,613 2,400,000 998,376(e)(f) 374,063(k) 50,000(l) 4,056(b)
Chairman, President and 1996(i) 303,333 300,000 284,117(e)(f) 75,000(h) 6,500(b)
Chief Executive Officer
of Insignia/ESG
Frank M. Garrison 1997 300,000 500,000 --(f) -- 21,000(b)
Executive 1996 250,000 400,000 (f) -- 3,000(b)
Managing Director 1995 199,667 325,000 (f) 190,000 3,000(b)
James A. Aston 1997 300,000 500,000 --(f) -- 3,200(b)
Office of the 1996 250,000 400,000 (f) -- 3,000(b)
Chairman and Chief 1995 194,900 325,000 (f) 250,000 3,000(b)
Financial Officer
</TABLE>
- ---------------
(a) Represents forgiveness of $77,350 principal and $1,875 interest related to
a $400,000 loan in accordance with the Employment Agreement dated August 1,
1993. Prerequisites totaled $74,104 including $58,633 for personal tax
return assistance.
(b) Represents Insignia's contribution under its 401(k) Plan and 401(k)
Restoration Plan.
(c) Represents forgiveness of $100,000 principal and $7,641 interest related to
a $400,000 loan in accordance with the Employment Agreement dated August 1,
1993. Perquisites totaled $43,414 including $30,267 for personal use of
leased aircraft.
(d) Represents forgiveness of $100,000 principal and $18,000 interest to a
$400,000 loan in accordance with the Employment Agreement dated August 1,
1993. Perquisites totaled $115,636 including $37,284 for personal use of
leased aircraft and $32,231 for personal tax return assistance.
(e) Sales commissions. Does not include certain advance payments with respect
to a non-compete agreement. See "Executive Compensation -- Employment
Agreements."
(f) Total perquisites did not exceed the lesser of $50,000 or 10% of total
salary and bonus.
(g) Does not include options to purchase 840,679 shares assumed by the Company
in the acquisition of ESG.
(h) Does not include options to purchase 146,680 shares assumed by the Company
in the acquisition of ESG.
(i) Employment began on July 1, 1996.
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<PAGE> 53
(j) Granted on February 20, 1996 and disclosed in the Proxy Statement for the
Annual Meeting of Stockholders held on May 23, 1996.
(k) Restricted stock award for 17,500 shares of Insignia Common Stock.
Valuation based on $21.375 per share, the fair market value on the date of
the award. The restrictions lapse for 25% of the award after 18 months, 25%
after 36 months and 50% after 60 months.
(l) Does not include repriced options replacing those originally granted in
1996.
INSIGNIA OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table summarizes the terms of stock options granted by
Insignia to each of the Named Executive Officers during 1997. All of the options
referred to in the table below are nonqualified stock options granted pursuant
to Insignia's 1992 Stock Incentive Plan, as amended (the "Insignia 1992 Stock
Plan"), at the fair market value on the date of grant and are for the purchase
of Insignia Common Stock. In connection with the Distribution, all then
outstanding options held by Insignia employees and consultants who become
employees of Holdings or any affiliate, including those that are held by the
Named Executive Officers, will be converted into options to purchase Holdings
Common Stock and will be covered by the Holdings Stock Plan, except that options
and warrants held by Messrs. Farkas, Aston and Garrison and certain other
employees and certain options held by Mr. Siegel will be purchased for a cash
payment by Insignia. See "-- EMPLOYMENT AGREEMENTS."
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERMS(a)
---------------------------------------------------- --------------------------
% OF TOTAL
OPTIONS/SARS EXERCISE
GRANTED TO OR BASE
EMPLOYEES IN PRICE
OPTIONS/SARS FISCAL YEAR ($/SHARE) EXPIRATION
NAME GRANTED(#) (b) (a) DATE 5% 10%
---- ------------ ------------ --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew L. Farkas......... none
Edward S. Gordon......... none
Stephen B. Siegel........ 125,000(d) 13.4% $16.4375 7/21/02 $567,675(e) $1,254,413(e)
Frank M. Garrison........ none
James A. Aston........... none
</TABLE>
- ---------------
(a) The dollar amounts under these columns are the result of calculations at 5%
and 10% rates set by the SEC and therefore are not intended to forecast
possible future appreciation, if any, of the Insignia Common Stock price.
(b) During the year ended December 31, 1997, stock options representing an
aggregate of 935,250 shares of Insignia Common Stock were issued to all
employees as a group.
(c) Exercise prices represent the fair market value, as determined by the
Insignia Board, on the date of grant. The exercise price may be paid in
cash, in shares of Insignia Common Stock valued at fair market value on the
date of exercise, or a combination thereof.
(d) Includes options to purchase 75,000 shares repriced to replace options
originally issued July 1, 1996 and options to purchase 25,000 shares
repriced to replace options originally issued February 21, 1997. All such
options become exercisable in five equal annual installments, the first
installment becoming exercisable six months after the date of grant.
(e) Represents gain before income taxes; the fair market value of the Insignia
Common Stock on July 21, 1997 (the date of the grant), as determined by the
Insignia Board, was $16.4375 per share.
47
<PAGE> 54
AGGREGATED INSIGNIA OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table summarizes, for each of the Named Executive Officers,
information concerning the exercise of stock options during fiscal 1997 and the
total number of unexercised stock options and the aggregate dollar value of
in-the-money unexercised stock options held at December 31, 1997. All of the
stock options referenced below are for Insignia Common Stock and were awarded
pursuant to the Insignia 1992 Stock Plan. In connection with the Distribution,
all then outstanding options held by Insignia employees and consultants who
become employees of or consultants to Holdings or any affiliate, including those
that are held by the Named Executive Officers, will be converted into options to
purchase Holdings Common Stock and will be covered by Holdings Stock Plan,
except that options and warrants owned by Messrs. Farkas, Aston and Garrison and
certain options held by Mr. Siegel will be purchased for a cash payment by
Insignia. See "-- EMPLOYMENT AND CONSULTING AGREEMENTS."
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
FISCAL YEAR-END(#) YEAR-END($)(A)
VALUE ---------------------- ----------------------
SHARES ACQUIRED REALIZED EXERCISABLE(E)/ EXERCISABLE(E)/
NAME ON EXERCISE(#) ($) UNEXERCISABLE(U) UNEXERCISABLE(U)
- ---- --------------- ----------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Andrew L. Farkas.......... none 748,000(E) $6,330,750(E)
180,000(U) 630,000(U)
------- ----------
928,000 $6,960,750
======= ==========
Edward S. Gordon.......... 840,679(b) $12,921,473 50,000(E) $ -0-(E)
200,000(U) -0-(U)
------- ----------
250,000 $ -0-
======= ==========
Stephen B. Siegel......... none 146,680(E)(c) $2,470,332(E)(c)
125,000(U) 820,313(U)
------- ----------
271,680 $3,290,645
======= ==========
Frank M. Garrison......... 8,890 $ 166,132 168,500(E) $2,195,742(E)
112,000(U) 1,277,863(U)
------- ----------
280,500 $3,473,605
======= ==========
James A. Aston............ none 239,890(E) $2,836,800(E)
78,000(U) 911,375(U)
------- ----------
317,890 $3,748,175
======= ==========
</TABLE>
- ---------------
(a) Based on the closing price of Insignia Common Stock on the NYSE on December
31, 1997 of $23.00 per share.
(b) Includes options to purchase 840,679 shares assumed by Insignia in the
acquisition of ESG.
(c) Includes options to purchase 146,680 shares assumed by Insignia in the
acquisition of ESG.
COMPENSATION PURSUANT TO PLANS
HOLDINGS STOCK PLAN
At the Insignia Meeting, Insignia's stockholders will be asked to approve
the Holdings Stock Plan which is intended to enhance the profitability and value
of Holdings for the benefit of its stockholders by enabling Holdings (i) to
offer stock-based incentives to employees and consultants of Holdings and its
affiliates (as defined in the Holdings Stock Plan), thereby creating a means to
raise the level of stock ownership by such individuals in order to attract,
retain and reward such individuals and strengthen the mutuality of interests
between such individuals and stockholders, and (ii) to grant nondiscretionary,
nonqualified stock options to non-employee directors, thereby creating a means
to attract, retain and reward such non-employee directors
48
<PAGE> 55
and strengthen the mutuality of interests between non-employee directors and
stockholders. The following description of the Holdings Stock Plan is a summary
and is qualified in its entirety by reference to the Holdings Stock Plan, a copy
of which may be obtained upon written request to Holdings' Investor Relations
Department at 200 Park Avenue, New York, NY 10166.
Administration
The Holdings Stock Plan will be administered and interpreted by the
Compensation Committee of the Holdings Board (which must consist of two or more
non-employee directors, each of whom is intended to be a non-employee director
as defined in Rule 16b-3 under the Exchange Act ("Rule 16b-3") and an outside
director as defined under Section 162(m) of the Code). If no Compensation
Committee exists which has the authority to administer the Holdings Stock Plan,
the functions of the Compensation Committee will be exercised by the Holdings
Board.
The Compensation Committee will have the full authority to administer and
interpret the Holdings Stock Plan (except that with respect to awards to
non-employee directors, the Holdings Stock Plan will be administered by the
Holdings Board), to grant discretionary awards under the Holdings Stock Plan, to
determine the persons to whom awards will be granted, to determine the types of
awards to be granted, to determine the terms and conditions of each award, to
determine whether, to what extent and under what circumstances to provide loans
to participants (other than non-employee directors) in order to exercise stock
options or to purchase awards (including shares of Holdings Common Stock), to
determine the number of shares of Holdings Common Stock to be covered by each
award, to prescribe the form or forms of instruments evidencing awards and to
make all other determinations in connection with the Holdings Stock Plan and the
awards thereunder as the Compensation Committee (or the Holdings Board, in the
case of non-employee directors' awards), in its sole discretion, deems necessary
or desirable.
The terms and conditions of individual awards will be set forth in written
agreements which will be consistent with the terms of the Holdings Stock Plan.
Awards under the Holdings Stock Plan may not be made on or after the tenth
anniversary of the earlier of the adoption of the Holdings Stock Plan or the
date of stockholder approval, but awards granted prior to such date may extend
beyond that date.
Eligibility and Types of Awards
All employees and consultants of Holdings and its affiliates (including
prospective employees and consultants) are eligible to be granted nonqualified
stock options, stock appreciation rights, restricted stock, performance shares,
performance units, other stock-based awards and awards providing benefits
similar to those listed above which are designed to meet the requirements of
non-U.S. jurisdictions under the Holdings Stock Plan. In addition, employees of
Holdings and its affiliates that qualify as subsidiaries or parent corporations
(within the meaning of Section 424 of the Code) are eligible to be granted
incentive stock options ("ISOs") under the Holdings Stock Plan. Non-employee
directors of Holdings are eligible to receive nondiscretionary grants of
nonqualified stock options.
Available Shares
The aggregate number of shares of Holdings Common Stock which may be issued
or used for reference purposes under the Holdings Stock Plan or with respect to
which awards may be granted may not exceed the greater of (i) 3,500,000 shares
of Holdings Common Stock with respect to all types of awards or (ii) 12% of the
number of shares of Holdings Common Stock issued and outstanding (assuming full
dilution for all outstanding awards and equity convertible into Holdings Common
Stock), determined as of the close of the most recent fiscal quarter of
Holdings, with respect to all types of awards other than ISOs.
The maximum number of shares of Holdings Common Stock with respect to which
any option, stock appreciation right, award of performance shares or award of
restricted stock for which the grant of such award or lapse of the relevant
restriction period is subject to the attainment of pre-established performance
goals (in accordance with Section 162(m) of the Code) which may be granted under
the Holdings Stock Plan during any fiscal year of Holdings to any individual
will be 500,000 shares per type of award, provided that the
49
<PAGE> 56
maximum number of shares of Holdings Common Stock for all types of awards does
not exceed 500,000 during any fiscal year. The maximum value at grant of
performance units which may be granted under the Stock Plan during any fiscal
year of Holdings to any individual will be $250,000. To the extent that shares
of Holdings Common Stock for which awards are permitted to be granted to an
individual during a fiscal year are not covered by an award in a fiscal year,
the number of shares of Holdings Common Stock available for awards will
automatically increase in subsequent fiscal years until used.
The number of shares of Holdings Common Stock available for the grant of
awards and the exercise price of an award may be adjusted to reflect any change
in the Holdings' capital structure or business by reason of certain corporate
transactions or events.
Outstanding options held by Insignia employees who become employees of
Holdings or any affiliate (other than options held by Messrs. Farkas, Aston and
Garrison and certain options held by Mr. Siegel) will be converted into options
to purchase shares of Holdings Common Stock and will be covered by the Holdings
Stock Plan.
Awards Under the Holdings Stock Plan
Stock Options. The Compensation Committee may grant nonqualified stock
options and ISOs to purchase shares of Holdings Common Stock. The Compensation
Committee will determine the number of shares of Holdings Common Stock subject
to each option, the term of each option (which may not exceed 10 years (or five
years in the case of an ISO granted to a 10% shareholder)), the exercise price,
the vesting schedule (if any) and the other material terms of each option. No
ISO or nonqualified stock option which is intended to be performance based for
purposes of Section 162(m) of the Code may have an exercise price less than the
fair market value of the Holdings Common Stock at the time of grant (or, in the
case of an ISO granted to a 10% shareholder, 110% of fair market value). Options
will be exercisable at such time or times and subject to such terms and
conditions as determined by the Compensation Committee at grant and the
exercisability of such options may be accelerated by the Compensation Committee
in its sole discretion. Payment of the purchase price may be made: (i) in cash
or by check, bank draft or money order, (ii) through a "cashless exercise"
procedure whereby the recipient delivers irrevocable instructions to a broker to
deliver promptly to Holdings an amount equal to the purchase price, or (iii) on
such other terms and conditions as may be acceptable to the Compensation
Committee or the Holdings Board of Directors, as applicable.
Stock Appreciation Rights. The Compensation Committee may grant stock
appreciation rights ("SARs") either with a stock option which may be exercised
only at such times and to the extent the related option is exercisable ("Tandem
SAR") or independent of a stock option ("Non-Tandem SARs"). An SAR is a right to
receive a payment either in cash or common stock, as the Compensation Committee
may determine, equal in value to the excess of the fair market value of one
share of Holdings Common Stock on the date of exercise over the exercise price
per share established in connection with the grant of the SAR. The exercise
price per share covered by an SAR will be the exercise price per share of the
related option in the case of a Tandem SAR and will be the fair market value of
the Holdings Common Stock on the date of grant in the case of a Non-Tandem SAR.
Restricted Stock. The Compensation Committee may award "restricted" shares
of Holdings Common Stock. Upon the award of restricted stock, the recipient has
all rights of a stockholder with respect to the shares, including the right to
receive dividends, the right to vote the shares of restricted stock and,
conditioned upon full vesting of shares of restricted stock, the right to tender
such shares, subject to the conditions and restrictions generally applicable to
restricted stock or specifically set forth in the recipient's restricted stock
agreement. The Compensation Committee may, in its sole discretion, determine at
grant, that the payment of dividends, if any, shall be deferred until the
expiration of the applicable restriction period. Recipients of restricted stock
are required to enter into a restricted stock agreement with Holdings which
states the restrictions to which the shares are subject and the criteria or date
or dates on which such restrictions will lapse. Within these limits, based on
service, attainment of objective performance goals and such other factors as the
Compensation Committee may determine in its sole discretion, the Compensation
Committee may provide for the lapse of such restrictions or may accelerate or
waive such restrictions at any time. If the grant
50
<PAGE> 57
of restricted stock or the lapse of the relevant restriction is based on the
attainment of objective performance goals, the Compensation Committee shall
establish the performance goals, formulae or standards and the applicable
vesting percentage for the restricted stock award applicable to each participant
while the outcome of the performance goals are substantially uncertain. Such
performance goals may incorporate provisions for disregarding (or adjusting for)
changes in accounting methods, corporate transactions (including without
limitation dispositions and acquisitions) and other similar events or
circumstances. These performance goals shall be based on one or more of the
performance criteria described under the description of the Executive
Performance Incentive Plan below ("Performance Criteria").
Performance Shares and Performance Unit. The Compensation Committee may
grant performance shares entitling recipients to receive a fixed number of
shares of Common Stock or the cash equivalent thereof, as determined by the
Compensation Committee in its sole discretion, upon the attainment of
performance goals established by the Compensation Committee (based on the
Performance Criteria), based on a specified performance period. The Compensation
Committee may also grant performance units entitling recipients to receive a
value payable in cash or shares of Holdings Common Stock, as determined by the
Compensation Committee, upon the attainment of performance goals established by
the Compensation Committee (based on the Performance Criteria), for a specified
performance cycle. The Compensation Committee may subject such grants of
performance shares and performance units to such vesting and forfeiture
conditions as it deems appropriate.
Other Stock-Based Awards. The Compensation Committee may grant awards of
Holdings Common Stock and other awards that are valued in whole or in part by
reference to, or are payable in or otherwise based on, Holdings Common Stock and
may be granted either alone or in addition to or in tandem with stock options,
stock appreciation rights, restricted stock, performance shares or performance
units. Subject to the provisions of the Holdings Stock Plan, the Compensation
Committee has the authority to determine the recipients to whom and the time or
times at which such awards will be made, the number of shares of Holdings Common
Stock to be awarded pursuant to such awards and all other conditions of the
awards. The Compensation Committee may also provide for the grant of Holdings
Common Stock under such awards upon the completion of a specified performance
period. The Compensation Committee also determines the purchase price to be
paid, if any, by a recipient to purchase other stock-based awards (including
without limitation shares of Holdings Common Stock). The purchase of shares of
Holdings Common Stock or other stock-based awards may be made on either an
after-tax or pre-tax basis, as determined by the Compensation Committee;
provided, however, that if the purchase is made on a pre-tax basis, such
purchase will be made pursuant to a deferred compensation program established by
the Compensation Committee, which will be deemed to be part of the Holdings
Stock Plan.
Supplemental Stock Purchase and Loan Program. The Compensation Committee
has adopted as an "Other Stock-Based Award" under the Holdings Stock Plan, a
supplemental stock purchase and loan program (the "Supplemental Stock Purchase
and Loan Program") for employees of Holdings and its designated affiliates whose
target annual base compensation equals or exceeds $100,000 ("Covered
Employees"). Covered Employees may purchase shares of Holdings Common Stock
through the Holdings Stock Plan, subject to and in accordance with terms and
conditions set by the Compensation Committee. Under the Supplemental Stock
Purchase and Loan Program, purchases of shares of Holdings Common Stock may be
made by means of check, payroll deduction or pursuant to a loan granted to the
Covered Employee. Purchases generally may be made on a quarterly basis at a
price per share equal to 100% of fair market value of a share of Holdings Common
Stock on the last business day of the applicable calendar quarter.
51
<PAGE> 58
Covered Employees may borrow up to 50% of their base compensation to
purchase shares of Holdings Common Stock at an interest rate set by the
Compensation Committee, but in no event less than the rate at which Holdings may
borrow from its principal lenders. Loans may not exceed five years, may be
repaid by payroll deductions and will be secured by the Holdings Common Stock
purchased with such loans. Upon a Covered Employee's termination of employment,
any outstanding loan amounts (including accrued and unpaid interest) will be due
and payable within 30 days of such event.
Change in Control
Unless determined otherwise by the Compensation Committee at the time of
grant, and except to the extent provided in the applicable award agreement, the
recipient's employment agreement or other agreement approved by the Compensation
Committee, no accelerated vesting or lapsing of restrictions will occur upon a
change in control of Holdings (as defined in the Holdings Stock Plan). The
Compensation Committee may, in its sole discretion, provide for accelerated
vesting of an award at any time. Upon a change in control of Holdings, options
granted to non-employee directors will be subject to the rules described below.
Non-Employee Director Stock Option Grants
The Holdings Stock Plan authorizes the automatic grant of nonqualified
stock options to each non-employee director, without further action by the
Holdings Board or the stockholders, as follows: (i) options to purchase 20,000
shares of Holdings Common Stock will be granted to each non-employee director as
of the date he or she begins service as a non-employee director on the Holdings
Board; and (ii) options to purchase 2,000 shares of Holdings Common Stock will
be granted to each non-employee director as of the first day of the month
following each annual meeting of stockholders of Holdings. The exercise price
per share of such options will be determined by the Holdings Board at the time
of grant but may not be less than the fair market value of the Holdings Common
Stock at the time of grant. The term of each such option will be five years.
Options granted to non-employee directors pursuant to (i) above will vest and
become exercisable at the rate of 5,000 shares of Holdings Common Stock on or
after each anniversary of the date that is six months and one day after the date
of grant. Options granted to non-employee directors pursuant to (ii) above will
vest and become exercisable on or after six months and one day after the date of
grant. All options granted to non-employee directors and not previously
exercisable will become fully exercisable immediately upon a change in control
(as defined in the Holdings Stock Plan) of Holdings.
Amendment and Termination
Notwithstanding any other provision of the Holdings Stock Plan, the
Holdings Board or the Compensation Committee may at any time, amend any or all
of the provisions of the Holdings Stock Plan, or suspend or terminate it
entirely, retroactively or otherwise; provided, however, that, unless otherwise
required by law or specifically provided in the Holdings Stock Plan, the rights
of a participant with respect to awards granted prior to such amendment,
suspension or termination, may not be impaired without the consent of such
participant and, provided further, without the approval of the stockholders of
Holdings in accordance with the laws of the State of Delaware, to the extent
required under Section 162(m) of the Code, or to the extent applicable to ISOs,
Section 422 of the Code, no amendment may be made which would: (i) increase the
aggregate number of shares of Holdings Common Stock that may be issued; (ii)
increase the maximum individual participant share limitations for a fiscal year;
(iii) change the classification of employees or consultants eligible to receive
awards; (iv) decrease the minimum exercise price of any stock option or SAR; (v)
extend the maximum option term; (vi) materially alter the Performance Criteria;
or (vii) require stockholder approval in order for the Holdings Stock Plan to
continue to comply with the applicable provisions of Section 162(m) of the Code
or, to the extent applicable to ISOs, Section 422 of the Code.
Future Awards; Miscellaneous
Awards granted under the Holdings Stock Plan are generally nontransferable,
except that the Compensation Committee may, in its sole discretion, permit the
transfer of nonqualified stock options (other than those granted to non-employee
directors) at the time of grant or thereafter.
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<PAGE> 59
The Holdings Stock Plan is not subject to any of the requirements of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The
Holdings Stock Plan is not, nor is it intended to be, qualified under Section
401(a) of the Code.
Because future awards under the proposed Holdings Stock Plan will be based
upon prospective factors including the nature of services to be rendered by
prospective employees of Holdings and their potential contributions to the
success of Holdings, actual awards cannot be determined at this time, except
that effective upon the Distribution, certain of the Named Executive Officers
and certain other key personnel of Holdings will be granted an aggregate of
approximately 1,100,000 options to purchase Holdings Common Stock, of which Mr.
Siegel will be granted 100,000 and Messrs. Farkas, Aston and Garrison will each
be granted 50,000 options.
HOLDINGS EXECUTIVE PERFORMANCE INCENTIVE PLAN
At the Insignia Meeting, Insignia's stockholders will be asked to approve
the Holdings Executive Performance Incentive Plan (the "Incentive Plan"), which
will be effective as of the Time of Distribution. The Incentive Plan provides
for annual incentive payments to key executives of Holdings, its subsidiaries or
its parent, if any, (as such terms are defined in the Incentive Plan) based upon
the performance of Holdings (or a subsidiary division or other operational
unit). The Incentive Plan is based on a strong pay-for-performance philosophy
and provides a direct linkage between Holdings' performance and compensation. A
central element of this philosophy is to link a significant portion of annual
cash compensation to the attainment of annual financial objectives. The
following description of the Incentive Plan is a summary and is qualified in its
entirety by reference to the Incentive Plan, a copy of which may be obtained
upon written request to Holdings' Investor Relations Department at 200 Park
Avenue, New York, New York 10166.
Section 162(m) of the Code generally disallows a Federal income tax
deduction to any publicly held corporation for compensation paid in excess of $1
million in any taxable year to the chief executive officer or any of the four
other most highly compensated executive officers. Holdings intends to structure
awards under the Incentive Plan so that compensation resulting therefrom would
be qualified "performance based compensation" eligible for continued
deductibility.
No individual may receive for any fiscal year an amount under the Incentive
Plan which exceeds $3,000,000.
Plan Administration. The Incentive Plan will be administered by the
Compensation Committee which is intended to consist entirely of non-employee
directors who meet the criteria of "outside director" under Section 162(m) of
the Code. The Compensation Committee shall select the key executives of Holdings
who shall receive awards, the target pay-out level and the performance targets.
The Compensation Committee will certify the level of attainment of performance
targets. Currently, approximately 8 key executives are expected to be eligible
to receive awards under the Incentive Plan.
Performance Criteria. Participants in the Incentive Plan will be eligible
to receive an annual cash performance award based on attainment by Holdings
and/or a subsidiary, division or other operational unit of Holdings of specified
performance goals to be established for each fiscal year by the Compensation
Committee. The performance award will be payable as soon as administratively
feasible following the end of the fiscal year with respect to which the payment
relates, but only after the Compensation Committee certifies that the
performance goals have been attained. A participant and Holdings may agree to
defer all or a portion of a performance award in a written agreement executed
prior to the beginning of the fiscal year to which the performance award relates
in accordance with any deferred compensation program in effect applicable to
such participant. Any deferred performance award will increase (between the date
on which it is credited to any deferred compensation program and the payment
date) by a measuring factor for each fiscal year greater than the interest rate
on thirty year Treasury Bonds on the first business day of such fiscal year
compounded annually, as elected by the participant in the deferral agreement.
Code Section 162(m) requires that performance awards be based upon
objective performance measures. The performance goals will be based on one or
more of the following criteria: (i) revenues, income before
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income taxes and extraordinary income, net income, earnings before income tax,
earnings before interest, taxes, depreciation and amortization, funds from
operation of real estate investments or a combination of any or all of the
foregoing; (ii) after-tax or pre-tax profits; (iii) operational cash flow; (iv)
level of, reduction of, or other specified objectives with regard to Holdings'
bank debt or other long-term or short-term public or private debt or other
similar financial obligations; (v) earnings per share or earnings per share from
continuing operations; (vi) return on capital employed or return on invested
capital; (vii) after-tax or pre-tax return on stockholders' equity; (viii)
economic value added targets; (ix) fair market value of the shares of Holdings
Common Stock; and (x) the growth in the value of an investment in Holdings
Common Stock assuming the reinvestment of dividends. In addition, such
performance goals may be based upon the attainment of specified levels of
Holdings (or a subsidiary, division or other operational unit of Holdings)
performance under one or more of the measures described above relative to the
performance of other corporations. To the extent permitted under the Code, the
Compensation Committee may: (i) designate additional business criteria on which
the performance goals may be based; or (ii) adjust, modify or amend the
aforementioned business criteria.
Term and Amendment of the Incentive Plan. The Incentive Plan will be
effective for all fiscal years following the Time of Distribution (including the
initial short fiscal year). The Incentive Plan may be amended or discontinued by
the Holdings Board at any time. However, stockholder approval of Holdings is
required for an amendment that increases the maximum payment which may be made
to any individual for any fiscal year above the award limits outlined above and
specified in the Incentive Plan, materially alters the business criteria on
which performance goals are based, increases the maximum annual measuring factor
for deferred amounts, changes the class of eligible employees or otherwise
requires stockholder approval under Code Section 162(m).
Future Plan Awards. Because Holdings did not exist as a stand-alone
business until recently and because future awards under the proposed Incentive
Plan will be based upon the future performance of Holdings, actual payments
cannot be determined at this time.
EMPLOYMENT AGREEMENTS
Following is a description of employment agreements between Holdings and
the Named Executives.
Andrew L. Farkas
Andrew L. Farkas will be employed by Holdings pursuant to an employment
agreement, effective as of the Time of Distribution (the "Farkas Employment
Agreement"), which provides for him to serve as Chairman of the Board of
Directors and Chief Executive Officer of Holdings until the date three years
from the Time of Distribution (the "Expiration Date"), or such earlier date as
provided therein. Mr. Farkas is to receive an annual salary of $750,000 (the
"Base Salary"), subject to such discretionary increases as may be determined by
the Holdings' Board and a bonus to be determined annually by the Holdings Board.
Mr. Farkas also will be entitled to certain perquisites. Mr. Farkas has agreed
that for one year after the termination of the Farkas Employment Agreement, he
will not solicit business from any of Holdings' customers or clients with whom
he has had "material contact" (as defined in the Farkas Employment Agreement)
during the twelve month period preceding the date of cessation of his employment
with Holdings, and he will neither solicit employees of Holdings to work for any
direct competitor of Holdings nor purchase any limited partner units of
partnerships controlled directly or indirectly by Holdings for two years after
the termination of the Farkas Employment Agreement.
Mr. Farkas's employment will be terminated in the event that Mr. Farkas is
disabled during his employment with Holdings, whereupon Insignia will pay 75% of
his Base Fee for a period of time equal to twice the remaining term under the
Farkas Employment Agreement immediately prior to his termination (but not less
than four years). If Mr. Farkas dies during the term of the Farkas Employment
Agreement, Holdings will pay to his estate his salary through the Expiration
Date. If Mr. Farkas is terminated without cause and such termination is not in
connection with a Significant Transaction (as defined below), Holdings will pay
the Base Salary through the Expiration Date. In addition, if Mr. Farkas dies, is
disabled or is terminated without
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cause during the term of the Farkas Employment Agreement, Holdings will continue
to pay all perquisites to which Mr. Farkas is entitled and will pay all bonuses
to be paid upon the occurrence of a Significant Transaction (as defined below)
or a Material Asset Disposition (as defined below), to Mr. Farkas or his estate
if the Significant Transaction or the Material Asset Disposition giving rise to
such payment occurs, or a definitive agreement regarding such event has been
executed, before or within 180 days after his death or disability or, in the
case of a termination without cause, on or before the Expiration Date.
The Farkas Employment Agreement provides that upon the occurrence of any
one of several events or transactions involving Holdings set forth in the Farkas
Employment Agreement (each, a "Significant Transaction"), including, but not
limited to, any change of control of Holdings, Holdings shall pay to Mr. Farkas
an amount equal to 1.0% of the total equity market capitalization of Holdings on
the date the Significant Transaction occurred. Upon the occurrence of a
Significant Transaction and/or upon termination without cause, all options,
warrants and restricted stock in Holdings granted to Mr. Farkas will vest
immediately and be exercisable. The Farkas Employment Agreement also provides
that in the event that Holdings enters into a transaction resulting in (i) a
majority of the equity interest in Holdings being beneficially owned by a person
or persons who is not an affiliate of Holdings, (ii) the sale or other
disposition to a third party of one or more of Insignia's subsidiaries,
divisions or operating businesses or (iii) the consummation of the Merger (each,
a "Material Asset Disposition"), Holdings shall pay to Mr. Farkas a cash bonus
equal to 1.0% of the consideration received by Holdings and its stockholders or,
in the event of the consummation of the Merger, 1.0% of the consideration
received by Insignia and its stockholders (not including the value of the
Distribution), as a result of such Material Asset Disposition. As a result,
Holdings will pay Mr. Farkas a lump sum payment of $5,049,000 after the
consummation of the Merger. In addition, upon the consummation of the Merger,
Mr. Farkas will be paid a pro rata portion of the annual bonus he received from
Insignia with respect to 1997 based on the period from January 1, 1998 to the
effective time of the Merger.
To the extent Mr. Farkas would be subject to the excise tax under Section
4999 of the Code, on amounts or benefits to be received from Holdings required
to be included in the calculation of parachute payments for purposes of Sections
280G and 4999 of the Code, the amounts of any such payments will be
automatically reduced to an amount one dollar less than an amount that would
subject Mr. Farkas to the excise tax under Section 4999 of the Code, provided
that the automatic reduction shall apply only if the reduced payments received
by Mr. Farkas (after taking into account further reductions for applicable
taxes) would be greater than his unreduced payments, after applicable taxes.
Stephen B. Siegel
Holdings, Insignia/ESG and Stephen B. Siegel are parties to a second
amended and restated employment agreement, dated as of July 31, 1998 (the
"Siegel Employment Agreement"), which expires on December 31, 2002, subject to
earlier termination or extension as provided for in the agreement. The Siegel
Employment Agreement provides that Mr. Siegel shall serve as President of
Holdings and Chairman and Chief Executive Officer of Insignia/ESG, among other
duties. Under the Siegel Employment Agreement, Mr. Siegel (i) receives a base
salary of $1,000,000 per annum, (ii) receives 30% of all promotional commission
revenues earned, received and retained by Insignia/ESG in which Mr. Siegel has
rendered services recognized by Insignia/ESG, and (iii) receives 50% of all net
commission revenues earned, received and retained by Insignia/ESG in which Mr.
Siegel has rendered services recognized by Insignia/ESG. The Siegel Employment
Agreement also provides that Mr. Siegel will receive, for each year or part
thereof during the employment term, an amount up to a maximum of $400,000
annually equal to 0.6% of the gross commissions earned, received and retained by
Insignia/ESG, but only to the extent that Insignia/ESG and all of its wholly
owned subsidiaries meet or exceed its annual Net EBITDA (as defined below)
budget, as established by Holdings' Compensation Committee, after reduction for
all bonus compensation paid to employees of Insignia/ESG (including the imputed
bonus of Mr. Siegel), all Insignia/ESG overhead allocations and all other
compensation paid to Mr. Siegel, which annual Net EBITDA budget shall be
increased by Holdings' Compensation Committee for each subsequent year by an
amount of no more than 10% of the annual Net EBITDA budget for the immediately
preceding year. "Net EBITDA" means earnings
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<PAGE> 62
before interest, taxes, depreciation and amortization, computed in accordance
with generally accepted accounting principles, consistently applied. The Siegel
Employment Agreement further provides that Mr. Siegel will receive for each year
an annual bonus of 10%, or such lesser percentage as Holdings' Compensation
Committee, in its sole and absolute discretion, shall determine, of the increase
in annual Net EBITDA reduced by all bonus compensation paid to the employees of
Insignia/ESG (including the imputed bonus of Mr. Siegel), all Insignia/ESG
overhead allocations and all compensation paid to Mr. Siegel over the annual Net
EBITDA for the immediately preceding year. Such bonus shall be paid to Mr.
Siegel within 120 days after the end of Holdings' fiscal year.
In addition, upon the consummation of a transaction resulting in a change
in the ownership of a majority of the issued and outstanding shares of Holdings
Common Stock and a change in the majority of the Holdings Board, Mr. Siegel will
receive a payment in the amount of 0.5% of the consideration received by
Holdings and its shareholders in such transaction (excluding the assumption of
liabilities), which payment shall be made upon the earlier of the termination of
Mr. Siegel's employment with Holdings, other than for cause or voluntary
termination, or the expiration of the term of Mr. Siegel's employment agreement.
Holdings has made a loan to Mr. Siegel in the amount of $1,000,000.
Holdings will forgive the loan ratably over a three-year period beginning July
1, 1998 provided that Mr. Siegel remains employed by Holdings and is not in
material breach of the provisions of the Siegel Employment Agreement. In
addition, Insignia/ESG will purchase, at Insignia/ESG's expense, term life
insurance on the life of Mr. Siegel with a death benefit of $5,000,000, the
beneficiaries of which are to be designated by Mr. Siegel.
Mr. Siegel has agreed not to compete with either Holdings or Insignia/ESG
for two years after the termination of the Siegel Employment Agreement. Upon Mr.
Siegel's death, Holdings or Insignia/ESG shall pay Mr. Siegel's estate
$1,000,000 per annum during the remaining term of the Siegel Employment
Agreement, not to exceed one year. If Mr. Siegel is terminated for cause (as
defined in the Siegel Employment Agreement), Holdings and ESG shall pay Mr.
Siegel his base salary, as in effect, up to and including the date on which the
termination occurred. If Mr. Siegel is terminated without cause, Mr. Siegel
shall, at his election, either observe the non-compete agreement and receive the
compensation provided for in the Siegel Employment Agreement until December 31,
2002 or accept other employment that violates the non-compete provision and
receive $1,000,000 per year until December 31, 2002, less the aggregate amount
of compensation payable to him for such new employment.
Upon the consummation of the Distribution, Mr. Siegel's options to purchase
Insignia Common Stock will be (i) in the case of options granted to Mr. Siegel
by Insignia after Insignia purchased ESG, assumed by Holdings at a price subject
to adjustment of the exercise price in connection with the Distribution; and
(ii) in the case of options granted to Mr. Siegel by ESG that Insignia assumed
when Insignia purchased ESG, purchased by Insignia for a per option cash payment
equal to the difference between the exercise price of such option and $25.
The Siegel Employment Agreement also provides that Mr. Siegel will receive
a grant of options to purchase 100,000 shares of Holdings Common Stock. In
addition, Mr. Siegel is eligible to obtain a loan in the amount of $1,000,000 to
purchase shares of Holdings Common Stock which loan shall be secured by such
shares purchased.
Edward S. Gordon
Holdings also will assume an employment agreement between Insignia,
Insignia/ESG and Edward S. Gordon which expires on June 30, 2001, subject to
earlier termination or extension as provided for in the agreement. Mr. Gordon
(i) receives an annual base salary of $1,000,000 per annum, (ii) received a
one-time grant of options to purchase up to 250,000 shares of Insignia Common
Stock at $27.125 per share that vest in five equal installments commencing on
January 1, 1997 (the "Gordon Options"), and (iii) received the payment of
commissions earned on or prior to December 31, 1996, at certain rates and for
certain identified transactions, each as set forth in the agreement. The
agreement also provides for an annual bonus payment for each year or part
thereof which is subject to a bonus plan (the "Gordon Bonus Plan") which was
approved by Insignia stockholders. The Gordon Bonus Plan provides for an annual
bonus for each year (or part thereof) during the term of the employment
agreement in an amount equal to 0.75% of Insignia/ESG's gross revenues
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for such year (or part thereof), if Insignia/ESG's EBITDA, after adjustment for
any bonus payable under the Gordon Bonus Plan with respect to such year (or part
thereof), is not less than the Target Amount (as defined below) for such year
(or pro rata portion for partial years); provided, however, that in the event
Insignia/ ESG's EBITDA as so calculated is less than the Target Amount (or pro
rata portion for partial years), the amount of such bonus shall be reduced by
the amount of such deficiency. With respect to any year "Target Amount" is
defined as Insignia/ESG's budgeted EBITDA for such year as determined by
Holding's Compensation Committee prior to the commencement of such year (and
which was $14 million for the year ended December 31, 1997) provided, however,
that budgeted EBITDA for any year shall not be more than 110% of the budgeted
EBITDA for the immediately preceding year, and provided further, that the Target
Amount may be increased or decreased from time to time if Holding's Compensation
Committee reasonably determined that anticipated increases or decreases in
Insignia/ESG's EBITDA must be reflected as a result of any acquisitions or
dispositions, respectively, by Insignia/ESG.
Mr. Gordon has agreed not to compete with either Holdings or Insignia/ESG
for five years after the termination of the agreement. As compensation
therefore, Mr. Gordon received a $1,000,000 advance payment on July 1, 1996 to
be allocated over five years.
If Mr. Gordon is terminated for cause (as defined in the agreement),
Insignia/ESG shall pay Mr. Gordon his base salary, as in effect, up to and
including the date on which the termination occurred. Upon termination without
cause, Insignia/ESG shall pay Mr. Gordon $1,200,000 per year until June 30,
2001. Upon termination due to death, Insignia/ESG shall pay Mr. Gordon's estate
$1,200,000 per annum during the remaining term of the agreement, not to exceed
two years.
The Gordon Options will be assumed by Holdings at the Time of Distribution,
and the exercise price will be adjusted to an amount equal to the average
closing price of Holdings Common Stock during a certain period of initial
trading days, as determined by the Insignia Board.
James A. Aston and Frank M. Garrison
Messrs. James A. Aston and Frank M. Garrison are employed by Holdings
pursuant to employment agreements with Holdings, effective as of the Time of
Distribution (the "Executive Employment Agreements"), which provide for Mr.
Aston to serve as a member of the Office of the Chairman and Chief Financial
Officer of Holdings and for Mr. Garrison to serve as a member of the Office of
the Chairman of Holdings until the date three years from the Time of
Distribution (the "Expiration Time") or such earlier date as provided therein.
Messrs. Aston and Garrison each are to receive a base salary of $400,000 per
year subject to such discretionary increases as may be determined by the
Holdings Board, and a bonus to be determined annually by the Holdings Board.
Messrs. Aston and Garrison also will be entitled to certain perquisites. Messrs.
Aston and Garrison each has agreed that for one year after the termination of
his Executive Employment Agreement he will not solicit business from any of
Holdings' customers or clients with whom he has had "material contact" (as
defined in the Executive Employment Agreements) during the twelve month period
preceding the date of cessation of his employment with Holdings, and he will
neither solicit employees of Holdings to work for any direct competitor of
Holdings nor purchase any limited partner units of partnerships controlled
directly or indirectly by Holdings for two years after the termination of his
Executive Employment Agreement.
Each of the Executive Employment Agreements provides that it will be
terminated in the event that either of Messrs. Aston or Garrison, as applicable,
is disabled during his employment with Holdings, whereupon Holdings will pay his
salary through the Expiration Time and will pay all bonuses to be paid upon the
occurrence of a Significant Transaction or a Material Asset Disposition (as
described below) if the event giving rise to such payment occurs, or a
definitive agreement regarding such event is executed before or within 180 days
after such termination. If Messrs. Aston or Garrison dies during the term of his
Executive Employment Agreement, Holdings will pay to his estate his salary
through the Expiration Time, and will pay all bonuses to be paid upon the
occurrence of a Significant Transaction or a Material Asset Disposition if the
event giving rise to such payment occurs, or a definitive agreement regarding
such event is executed before or within 180 days after his death. If Messrs.
Aston or Garrison is terminated without cause, Holdings will pay his salary and
all bonuses to be paid upon the occurrence of a Significant Transaction or a
Material Asset Disposition through the Expiration Time. Upon termination without
cause, or due to Messrs. Aston's or
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Garrison's death or disability, all options and warrants granted to Messrs.
Aston or Garrison will vest immediately and be exercisable.
Upon the occurrence of a Significant Transaction, Messrs. Aston and
Garrison each may elect to convert his Executive Employment Agreement into a
consulting agreement with the same terms and conditions. The Executive
Employment Agreements also provide that upon the occurrence of a Material Asset
Disposition, Holdings will pay each of Messrs. Aston and Garrison a cash bonus
equal to 0.5% (or 0.25% in the event the Executive Employment Agreements are
converted to consulting agreements) of the consideration received by Holdings
and its stockholders (not including the value of the Distribution) or, in the
event of the consummation of the Merger, 0.25% of the consideration received by
Insignia and its stockholders, as a result of such Material Asset Disposition.
As a result, Holdings will pay Messrs. Aston and Garrison a lump sum payment of
$2,524,500 after the consummation of the Merger. In addition, upon the
consummation of the Merger, Messrs. Aston and Garrison will be entitled to a
bonus payment in an amount equal to the pro-rated portion of the 1997 bonus that
each of them received from Insignia, based on the period from January 1, 1998 to
the effective time of the Merger.
To the extent Messrs. Aston or Garrison would be subject to the excise tax
under Section 4999 of the Code on amounts or benefits to be received from
Insignia required to be included in the calculation of parachute payments for
purposes of Sections 280G and 4999 of the Code, the amounts of any such payments
will be automatically reduced to an amount one dollar less than an amount that
would subject Messrs. Aston or Garrison to the excise tax under Section 4999 of
the Code, provided that the automatic reduction shall apply only if the reduced
payments received by Messrs. Aston or Garrison (after taking into account
further reductions for applicable taxes) would be greater than the unreduced
payments to be received by Messrs. Aston or Garrison, after applicable taxes.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, Messrs. Denison and Merril M. Halpern (non-employee directors)
served as members of the Insignia Compensation Committee. None of the proposed
Holdings Compensation Committee members or executive officers have any
relationships which must be disclosed under this caption.
CERTAIN TRANSACTIONS
Apollo Real Estate Investment Fund, L.P. ("Apollo") owns an aggregate of
1,392,916 warrants (the "Apollo/Insignia Warrants") representing the right to
purchase 1,392,916 shares of Insignia Common Stock. At the time of Distribution,
Insignia is expected to distribute to Apollo 928,610 warrants (the "Apollo/
Holdings Warrants") to purchase shares of Holdings Common Stock at an exercise
price of $8.25 per share, which represent two-thirds of the number of the
Apollo/Insignia Warrants.
Upon the consummation of the Distribution, the exercise price of the
Apollo/Insignia Warrants is expected to be adjusted as follows: (a) 77,916
Apollo/Insignia Warrants with an exercise price of $7.50 per share will be
adjusted to an exercise price of $2.00 per share; (b) 875,000 Apollo/Insignia
Warrants with an exercise price of $8.00 per share will be adjusted to an
exercise price of $2.50 per share; and (c) 440,000 Apollo/Insignia Warrants with
an exercise price of $9.50 per share will be adjusted to an exercise price of
$4.00 per share.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sole outstanding share of Holdings capital stock currently is and until
immediately prior to the Distribution will continue to be, held beneficially by
Insignia through its wholly-owned subsidiary Insignia Capital Corporation. The
following table sets forth, as of July 31, 1998 or such other date as indicated
in the footnotes to the table, the beneficial ownership of Insignia Common Stock
by each director, Named Executive Officer, the executive officers and directors
of Holdings as a group, and each stockholder known to management of Insignia to
beneficially own more than five percent of the outstanding Insignia Common
Stock. Also set forth below are the number of shares of Holdings Common Stock
that each such person, entity and group will own immediately after the
Distribution, on a pro forma basis, assuming no change in ownership of the
outstanding shares of Insignia Common Stock. The beneficial ownership of
Holdings Common Stock following the Distribution shown in the table below does
not include shares issuable upon the exercise of stock options that will be
granted upon the conversion of outstanding Insignia stock options because the
number of such shares is presently indeterminable. Unless otherwise indicated,
Insignia and Holdings believe that each beneficial owner set forth in the table
has sole voting and investment power.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF
INSIGNIA COMMON STOCK HOLDINGS COMMON STOCK
------------------------- -----------------------
NAME AND ADDRESS SHARES PERCENT SHARES PERCENT
---------------- --------- ------- ---------- -------
<S> <C> <C> <C> <C>
Metropolitan Acquisition Partners IV,
L.P....................................... 2,237,258 7.0% 1,491,505 7.0%
c/o Metro Shelter Directives, Inc.
One Insignia Financial Plaza
Greenville, South Carolina 29602
Andrew L. Farkas............................ 5,828,834(1) 17.8% 3,347,223(14) 15.7%
Insignia Financial Group, Inc.
375 Park Avenue, Suite 3401
New York, New York 10152
Apollo Real Estate Investment Fund, L.P..... 3,994,686(2) 12.0% 2,663,124(15) 12.0%
c/o Apollo Real Estate Fund, L.P.
2 Manhattanville Road
Purchase, New York 10577
The Capital Group Companies, Inc............ 3,274,230(3) 10.1% 1,899,800 8.9%
333 South Hope Street
Los Angeles, California 90071
Robert J. Denison(4)........................ 403,724(5) 1.3% 262,483 1.2%
Robin L. Farkas(4)(6)....................... 166,777 * 95,185 *
James A. Aston.............................. 337,066(7) 1.0% 61,111 *
Frank M. Garrison........................... 249,222(8) * 27,926 *
Edward S. Gordon............................ 680,879(9) 2.1% 453,919(9) 2.1%
Robert G. Koen.............................. 24,000(10) * -- *
Stephen B. Siegel........................... 186,055(11) * 33,933(16) *
Strauss Zelnick............................. -- * -- *
All directors and executive officers as a
group (12 individuals)(13)................ 8,223,736(1)(12) 24.2% 4,113,427 19.2%
</TABLE>
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- ---------------
* Indicates less than one percent.
(1) Includes shares owned by (i) Metropolitan Acquisition Partners IV, L.P.
("MAP IV"), (ii) Metropolitan Acquisition Partners V, L.P. ("MAP V"), (iii)
Metro Shelter Directives, Inc. and MV, Inc., the general partners of MAP IV
and MAP V, respectively, (iv) certain stockholders who have granted proxies
to MAP IV and MAP V, and (v) certain stockholders (including Charterhouse
Equity Partners, L.P. ("CEP") and affiliates of Apollo Real Estate
Advisors, L.P.) who are party to a stockholders agreement with Andrew L.
Farkas. Includes 808,000 shares subject to options and warrants which are
or will become exercisable within 60 days. Includes 3,334 shares of
restricted stock which will vest within 60 days.
(2) Includes securities owned by various affiliates of Apollo Real Estate
Investment Fund, L.P., including 1,392,916 shares subject to warrants which
are or will become exercisable within 60 days.
(3) The Capital Group Companies, Inc. ("Capital") is the parent holding company
of a group of investment management companies. Capital does not have
investment power or voting power over any of the securities reported
herein. Capital Guardian Trust Company, a bank as defined in Section 3(a)6
of the Exchange Act and a wholly owned subsidiary of Capital, is the
beneficial owner of the reported shares as a result of serving as the
investment manager of various institutional accounts. The reported shares
include 424,530 shares resulting from the assumed conversion of 225,000
shares of the Convertible Preferred Securities issued by Insignia Financing
I, a subsidiary of Insignia. The foregoing is based upon a Schedule 13G
filed by Capital with the Securities and Exchange Commission on or about
February 10, 1998.
(4) Messrs. Denison and Robin L. Farkas are each limited partners in MAP IV.
(5) Includes 133,600 shares held by First Security Associates L.P., a limited
partnership of which Mr. Denison is the sole general partner, and 246,100
shares held by First Security Company II, L.P., a limited partnership of
which Mr. Denison is the sole general partner. Includes 10,000 shares
subject to options and warrants which are exercisable or will become
exercisable within 60 days, but excludes 43,600 shares held by First
Security International Fund, Ltd., a Cayman Islands company, for which
First Security Management, Inc., a New York corporation, serves as the
investment advisor. Mr. Denison is the President of First Security
Management, Inc.
(6) Includes 24,000 shares subject to options which are or will become
exercisable within 60 days and 88,129 shares owned by a general partnership
for which Mr. Farkas shares voting power.
(7) Includes 245,400 shares subject to options and warrants which are or will
become exercisable within 60 days. Includes 833 shares of restricted stock
which will vest within 60 days.
(8) Includes 206,500 shares subject to options and warrants which are or will
become exercisable within 60 days. Includes 833 shares of restricted stock
which will vest within 60 days.
(9) Includes 100,000 shares subject to options which are or will become
exercisable within 60 days.
(10) Includes 24,000 shares subject to options which are or will become
exercisable within 60 days.
(11) Includes 181,680 shares subject to options which are or will become
exercisable within 60 days. Includes 4,375 shares of restricted stock which
will vest within 60 days.
(12) Includes 1,837,880 shares subject to options and warrants which are or will
become exercisable within 60 days. Includes 10,208 shares of restricted
stock which will vest within 60 days.
(13) No director or executive officer beneficially owns any of the outstanding
Convertible Preferred Securities.
(14) Includes 2,223 shares of restricted stock which will vest within 60 days.
(15) Includes 206,500 shares subject to options and warrants which are or will
become exercisable within 60 days. Includes 833 shares of restricted stock
which will vest within 60 days.
(16) Includes 31,016 options which are exercisable and 2,917 shares of
restricted stock which will vest within 60 days.
60
<PAGE> 67
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Holdings consists of 100,000,000 shares of
capital stock, par value $.01 per share, of which (i) 80,000,000 shares are
Common Stock, par value $.01 per share, with one share currently outstanding,
and (ii) 20,000,000 shares are Preferred Stock, par value $.01 per share
("Holdings Preferred Stock"), of which none are currently outstanding.
The following description of the capital stock of Holdings is a summary and
is qualified in its entirety by the provisions of Holdings' Certificate of
Incorporation (the "Certificate") and Holdings' By-laws (the "By-laws"), copies
of which are filed as exhibits to the Registration Statement of which this
Information Statement forms a part.
COMMON STOCK
The shares of Holdings Common Stock to be distributed in the Distribution
will be, when issued, fully paid and nonassessable. The holders of shares of
Holdings Common Stock elect all directors and are entitled to one vote per
share. There are no cumulative voting rights. Subject to the prior rights of the
holders of Preferred Stock, holders of Holdings Common Stock are entitled to
receive dividends when, as, and if declared by the Holdings Board out of funds
legally available therefrom, and to share ratably in the assets of Holdings
legally available for distribution to the stockholders in the event of
liquidation or dissolution. There are no shares of Preferred Stock currently
outstanding. Holders of Holdings Common Stock have no preemptive, subscription
or redemption rights.
PREFERRED STOCK
Pursuant to the Certificate, the Holdings Board is authorized, subject to
any limitations prescribed by law, from time to time to issue up to an aggregate
of 20,000,000 shares of Holdings Preferred Stock, in one or more series, and to
determine the designation, number of shares and rights and preferences,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, of each such series.
The issuance of Holdings Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have an adverse effect on holders of Holdings Common Stock,
depending upon the rights of such Holdings Preferred Stock, by delaying or
preventing a change in control of Holdings, making removal of the present
management of Holdings more difficult, or resulting in restrictions upon the
payment of dividends or other distributions to holders of Holdings Common Stock.
NYSE LISTING
The shares of Holdings Common Stock to be distributed in the Distribution
have been approved for listing on the NYSE, subject to official notice of
issuance, under the symbol "IEG." The current rules of the NYSE effectively
preclude the listing on the NYSE of any securities of an issuer which has issued
securities or taken other corporate action that would have the effect of
nullifying, restricting or disparately reducing the per share voting rights of
holders of an outstanding class or classes of equity securities registered under
Section 12 of the Exchange Act. Holdings does not intend to issue any additional
shares of any class of stock that would make the Holdings Common Stock
ineligible for continued listing or cause the Holdings Common Stock to be
delisted from the NYSE. Holdings is also considering applying to list the
Holdings Common Stock on the London Stock Exchange.
TRANSFER AGENT AND REGISTRAR
Holdings has appointed First Union National Bank, Insignia's current
transfer agent, as the Transfer Agent and Registrar for the Holdings Common
Stock.
THE DELAWARE BUSINESS COMBINATION ACT
Holdings is a Delaware corporation and, from and after the Time of
Distribution, will be subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "DGCL"). In
61
<PAGE> 68
general, Section 203 provides that a Delaware corporation may not, for a period
of three years, engage in any of a broad range of business combinations with a
person or affiliate or associate of such person who is an "interested
stockholder" (defined generally as a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
outstanding voting stock) unless: (a) the transaction resulting in a person's
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder; (b) the interested stockholder acquires 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder; or (c) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock. The Holdings Board has approved the
acquisition in the Distribution of shares of Holdings Common Stock by Andrew L.
Farkas and his affiliates, and thereby has exempted such persons from the
application of DGCL Section 203.
CERTAIN CERTIFICATE AND BY-LAWS PROVISIONS
General
Certain provisions of the Certificate and the By-laws could have an
antitakeover effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Holdings Board and in the
policies formulated by the Holdings Board and to discourage certain types of
transactions described below, which may involve an actual or threatened change
of control of Holdings. The provisions are designed to reduce the vulnerability
of Holdings to an unsolicited proposal for a takeover of Holdings that does not
contemplate the acquisition of all of its outstanding shares or an unsolicited
proposal for the restructuring or sale of all or part of Holdings. The
provisions are also intended to discourage certain tactics that may be used in
proxy fights. The Holdings Board believes that, as a general rule, such takeover
proposals would not be in the best interests of Holdings and its stockholders.
Classified Board
The Certificate provides for the Holdings Board to be divided into three
classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Holdings Board will be elected each year. In
addition, under the DGCL, the directors on a classified board may be removed
from office only for cause and only by the affirmative vote of holders of a
majority of the outstanding voting stock. The overall effect of the provisions
in the Certificate with respect to the classified board may be to render more
difficult a change in control of Holdings or the removal of incumbent
management.
Special Meetings of Stockholders; Action by Written Consent
The Certificate provides that no action may be taken by stockholders except
at an annual or special meeting of stockholders and prohibits action by written
consent in lieu of a meeting. As authorized by the Certificate, the By-laws
provide that special meetings of stockholders of Holdings may be called only by
the Chairman, President or Chief Executive Officer or by a majority of the
members of the Holdings Board. This provision will make it more difficult for
stockholders to take action opposed by the Holdings Board.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
The By-laws establish an advance notice procedure for the nomination, other
than by or at the direction of the Holdings Board or a committee thereof, of
candidates for election as directors as well as for other stockholder proposals
to be considered at stockholders' meetings. These limitations on stockholder
proposals do not restrict a stockholder's right to include proposals in Holdings
annual proxy materials pursuant to rules promulgated under the Exchange Act. The
purpose of requiring advance notice is to afford the Holdings Board an
opportunity to consider the qualification of the proposed nominees or the merits
of other stockholder proposals and, to the extent deemed necessary or desirable
by the Holdings Board, to inform stockholders about those matters.
62
<PAGE> 69
Certificate and By-laws Amendments
The Certificate requires the affirmative vote of the holders of at least
80% of the voting power of Holdings capital stock in order to amend certain of
its provisions, including any provisions concerning (i) the classified board,
(ii) the amendment of the By-laws, (iii) any proposed compromise or arrangement
between Holdings and its creditors, (iv) the authority of stockholders to act by
written consent or to call a special meeting, (v) the liability of directors,
(vi) the indemnification of directors, officers and others and (vii) the
percentage of votes represented by capital stock required to approve certain
amendments to the Certificate. These voting requirements will make it more
difficult for stockholders to make changes in the Certificate which would be
designed to facilitate the exercise of control over Holdings. In addition, the
requirement of approval by at least a 80% stockholder vote will enable the
holders of a minority of the voting securities of Holdings to prevent the
holders of a majority or more of such securities from amending such provisions.
In addition, the Certificate provides that the By-laws may only be amended by
stockholders by the affirmative vote of 80% of Holdings outstanding voting
stock. After giving effect to the Distribution, the directors and executive
officers of Holdings will hold in the aggregate approximately 19.8% of the
voting power of Holdings. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT."
Indemnification and Insurance
Pursuant to authority conferred by DGCL Section 102(b)(7), the Certificate
contains a provision providing that no director of Holdings shall be liable to
it or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that such exemption from liability or limitation
thereof is not permitted under the DGCL, as then in effect or as the same may be
amended. This provision is intended to eliminate the risk that a director might
incur personal liability to Holdings or its stockholders for breach of the duty
of care.
DGCL Section 145 contains provisions permitting, and in some situations
requiring, Delaware corporations, such as Holdings, to provide indemnification
to their officers and directors for losses and litigation expenses incurred in
connection with their service to the corporation in those capacities. The
Certificate and By-laws contain provisions requiring indemnification by Holdings
of its directors, officers, employees and agents, and of persons serving at the
request of Holdings as a director, officer, incorporator, employee, partner,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including an employee benefit plan), to the fullest extent
permitted by law. Among other things, these provisions provide indemnification
for such persons against liabilities for judgments in and settlements of
lawsuits and other proceedings and for the advance and payment of fees and
expenses reasonably incurred by the director or officer in defense of any such
lawsuit or proceeding.
Holdings intends to purchase and maintain insurance on behalf of any person
who is or was a director or officer of Holdings, or is now or was a director or
officer of Holdings serving at the request of Holdings as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not Holdings would have the power or the obligation
to indemnify him against such liability under the provisions of the By-laws.
63
<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.:
- ------------------------------------------------------------
Unaudited Condensed Combined Financial Statements for the
Spin-off Entities:
Condensed Combined Balance Sheets as of March 31, 1998 and
December 31, 1997...................................... F-3
Condensed Combined Statements of Income for the Three
Months Ended March 31, 1998 and 1997................... F-4
Condensed Combined Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997................... F-5
Notes to Condensed Combined Financial Statements.......... F-6
Combined Financial Statements for the Spin-off Entities:
Report of Ernst & Young LLP Independent Auditors.......... F-10
Combined Balance Sheets as of December 31, 1997 and
1996................................................... F-11
Combined Statements of Operations for the years ended
December 31, 1997, 1996 and 1995....................... F-12
Combined Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995....................... F-13
Notes to Combined Financial Statements.................... F-14
EDWARD S. GORDON COMPANY, INCORPORATED AND EDWARD S. GORDON
COMPANY OF NEW JERSEY, INC.:
- ------------------------------------------------------------
Unaudited Condensed Combined Financial Statements for Edward
S. Gordon Company, Incorporated and Edward S. Gordon
Company of New Jersey, Inc.:
Condensed Combined Statements of Operations for the Six
Months Ended June 30, 1996 and 1995.................... F-31
Condensed Combined Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995.................... F-32
Notes to Unaudited Condensed Combined Financial
Statements............................................. F-33
Combined Financial Statements for Edward S. Gordon Company,
Incorporated and Edward S. Gordon Company of New Jersey,
Inc.:
Report of PricewaterhouseCoopers, independent
accountants............................................ F-35
Combined Statements of Operations for the years ended
December 31, 1995, 1994, and 1993...................... F-36
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993....................... F-37
Notes to Combined Financial Statements.................... F-38
REALTY ONE:
- ------------------------------------------------------------
Combined Financial Statements for Realty One, Inc.
Report of Plante & Moran, LLP, independent auditors....... F-42
Combined Balance Sheets as of December 31, 1996 and
1995................................................... F-43
Combined Statements of Income for the years ended December
31, 1996 and 1995...................................... F-44
Combined Statements of Changes in Stockholders' Equity for
the years ended December 31, 1996 and 1995............. F-45
Combined Statements of Cash Flows for the years ended
December 31, 1996 and 1995............................. F-46
Notes to Combined Financial Statements.................... F-47
Report of Plante & Moran, LLP, independent auditors....... F-55
Combined Balance Sheets as of September 30, 1997 and
1996................................................... F-56
Combined Statements of Income for the nine months ended
September 30, 1997 and 1996............................ F-57
Combined Statements of Changes in Stockholders' Equity for
the nine months ended September 30, 1997............... F-58
Combined Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996...................... F-59
Notes to Combined Financial Statements.................... F-60
BARNES, MORRIS, PARDOE & FOSTER:
- ------------------------------------------------------------
Unaudited Financial Statements for Barnes, Morris, Pardoe &
Foster Management Services, LLC
Unaudited Balance Sheets as of October 31, 1997 and
1996................................................... F-66
Unaudited Statements of Income for the ten months ended
October 31, 1997 and 1996.............................. F-67
Unaudited Statements of Cash Flows for the ten months
ended October 31, 1997 and 1996........................ F-68
Notes to Consolidated Financial Statements................ F-69
Consolidated Financial Statements for Barnes, Morris, Pardoe
& Foster, Inc.
Unaudited Consolidated Balance Sheets as of the nine
months ended October 31, 1997 and 1996................. F-70
Unaudited Consolidated Income Statements for the nine
months ended October 31, 1997 and 1996................. F-72
</TABLE>
F-1
<PAGE> 71
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Unaudited Consolidated Statements of Cash Flows for the
nine months ended October 31, 1997 and 1996............ F-73
Notes to Consolidated Financial Statements................ F-74
Report of Beers & Cutler PLLC, the auditors............... F-75
Balance Sheets as of January 31, 1997..................... F-76
Income Statement for the year ended January 31, 1997...... F-78
Statement of Changes in Stockholders' Equity for the year
ended January 31, 1997................................. F-79
Statement of Cash Flows for the year ended January 31,
1997................................................... F-80
Notes to the Financial Statements......................... F-81
Financial Statements for Barnes, Morris, Pardoe & Foster
Management Services, LLC
Report of Beers & Cutler PLLC, the independent auditors... F-86
Balance Sheet as of December 31, 1996..................... F-87
Statement of Income for the year ended December 31,
1996................................................... F-88
Statement of Changes in Members' Capital for the year
ended December 31, 1996................................ F-89
Statement of Cash Flows for the year ended December 31,
1996................................................... F-90
Notes to Financial Statements............................. F-91
RICHARD ELLIS:
- ------------------------------------------------------------
Annual Report and Financial Statements for Richard Ellis
Holdings Limited:
Report of the Directors................................... F-96
Report of BDO Stoy Hayward, the Auditors.................. F-99
Consolidated Profit and Loss Accounts for the years ended
April 30, 1997 and 1996................................ F-100
Consolidated Balance Sheets at April 30, 1997 and 1996.... F-101
Balance Sheets at 30 April 1997 and 1996.................. F-102
Consolidated Cash Flow Statements for the years ended
April 30, 1997 and 1996................................ F-103
Notes to Financial Statements............................. F-104
Richard Ellis Partnership Accounts:
Profit and Loss Accounts for the years ended April 30,
1997 and 1996.......................................... F-122
Balance Sheets as of April 30, 1997 and 1996.............. F-123
Notes to Partnership Accounts............................. F-124
Report of Independent Auditors............................ F-130
Annual Report and Financial Statements for Richard Ellis
Holdings Limited:
Report of the Directors................................... F-132
Report of BDO Stoy Hayward, the Auditors.................. F-135
Consolidated Profit and Loss Accounts for the years ended
April 30, 1996 and 1995................................ F-136
Consolidated Balance Sheets at April 30, 1996 and 1995.... F-137
Balance Sheets at 30 April 1996 and 1995.................. F-138
Consolidated Cash Flow Statements for the years ended
April 30, 1996 and 1995................................ F-139
Notes to Financial Statements............................. F-140
Richard Ellis Partnership Accounts:
Profit and Loss Accounts for the years ended April 30,
1996 and 1995.......................................... F-153
Balance Sheets as of April 30, 1996 and 1995.............. F-154
Notes to Partnership Accounts............................. F-155
Report of BDO Stoy Hayward, the Auditors.................. F-161
Annual Report and Financial Statements for Richard Ellis
Group Limited:
Report of the Directors................................... F-163
Report of BDO Stoy Hayward, the Auditors.................. F-166
Consolidated Profit and Loss Account for the Eight Months
Ended December 31, 1997................................ F-167
Consolidated Balance Sheet at December 31, 1997........... F-168
Balance Sheet at December 31, 1997........................ F-169
Consolidated Cash Flows Statement for the Eight Months
Ended December 31, 1997................................ F-170
Notes to Financial Statements............................. F-171
Unaudited Consolidated Financial Statements for Richard
Ellis Group Limited:
Consolidated Profit and Loss Accounts for the Eight Months
Ended December 31, 1997 and 1996....................... F-187
Consolidated Balance Sheets as at December 31, 1997 and
1996................................................... F-188
Consolidated Statements of Cash Flows for the Eight Months
Ended December 31, 1997 and 1996....................... F-189
</TABLE>
The schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
F-2
<PAGE> 72
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
CONDENSED COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
MARCH 31, DECEMBER 31,
1998 1997(1)
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 15,051 $ 9,250
Receivables................................................. 129,115 101,653
Property and equipment...................................... 13,473 11,235
Co-investments in real estate............................... 19,637 19,454
Property management contracts............................... 46,825 48,614
Costs in excess of net assets of acquired businesses........ 209,947 138,019
Other assets................................................ 16,859 6,269
-------- --------
Total assets...................................... $450,907 $334,494
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 13,912 $ 9,673
Commissions payable....................................... 56,404 51,285
Accrued and sundry liabilities............................ 60,308 43,811
Notes payable............................................. 31,208 20,891
-------- --------
Total liabilities................................. 161,832 125,660
Minority interests.......................................... 355 390
Investment and net advances from Insignia................... 288,720 208,444
-------- --------
Total liabilities and net advances from
Insignia........................................ $450,907 $334,494
======== ========
</TABLE>
See accompanying notes.
- ---------------
(1) The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
F-3
<PAGE> 73
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Fee based services........................................ $102,511 $43,866
Interest.................................................. 282 --
Other..................................................... 8 --
-------- -------
102,801 43,866
Expenses:
Fee based services........................................ 89,212 37,869
Overhead allocations from Insignia........................ 1,746 1,293
Administrative............................................ 818 --
Interest.................................................. 382 --
Depreciation and amortization............................. 5,184 3,268
-------- -------
97,342 42,430
-------- -------
5,459 1,436
Equity earnings............................................. (476) 351
Minority interests.......................................... 33 --
-------- -------
Income before income taxes.................................. 5,016 1,787
Provision for income taxes.................................. 2,257 715
-------- -------
Net income.................................................. $ 2,759 $ 1,072
======== =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 2,759 $ 1,072
Adjustments to reconcile net income to net cash (used in)
operating activities:
Depreciation and amortization, including amounts allocated
from Insignia.......................................... 5,184 3,268
Equity earnings........................................... 476 (351)
Minority interests........................................ (34) --
Foreign currency translation.............................. 6 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (9,607) (5,035)
Other assets........................................... (1,931) 473
Accounts payable and accrued expenses.................. (11,083) (4,985)
Commissions payable.................................... 2,452 (472)
-------- -------
Net cash (used in) operating activities..................... (11,778) (6,030)
INVESTING ACTIVITIES
Additions to property and equipment, net.................... (1,623) (1,072)
Payments made for acquisitions of businesses................ (26,634) (3,089)
Proceeds from Balcor dispositions........................... 196 674
Purchase of co-investment real estate....................... (3,648) (41)
Net increase in mortgage loans.............................. (5,110) --
Distributions from co-investments real estate............... 538 1,028
Advances made under note agreements......................... (927) (886)
Collections on notes receivable............................. 363 269
-------- -------
Net cash used in investing activities....................... (36,845) (3,117)
FINANCING ACTIVITIES
Payments on notes payable................................... (1,061) --
Proceeds from notes payable................................. 840 --
Net transactions with Insignia.............................. 54,645 9,116
-------- -------
Net cash provided by financing activities................... 54,424 9,116
Net increase (decrease) in cash and cash equivalents........ 5,801 (31)
Cash and cash equivalents at beginning of period............ 9,250 44
-------- -------
Cash and cash equivalents at end of period.................. $ 15,051 $ 13
======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
BUSINESS
Insignia Financial Group, Inc. ("Insignia") entities which will be spun-off
into Insignia/ESG Holdings, Inc. ("Holdings"), which subsequently will become a
separate public company. Holdings will consist of Insignia's domestic commercial
real estate services division; Richard Ellis Group Limited, a real estate
services and investment firm acquired in February 1998 and located in the United
Kingdom; the 60% investment in CAGISA, a privately held property management
company in Italy; Insignia Management Services-New York, Inc., a New York based
cooperative and condominium apartment management company; Realty One, Inc. and
its subsidiaries, a single-family home brokerage and mortgage origination
business; equity co-investment; and other related businesses.
The financial statements of Holdings primarily include wholly-owned
subsidiaries or divisions of Insignia, and therefore, these subsidiaries or
divisions either did not have outstanding shares of capital stock or only had a
nominal number of shares outstanding. As such, earnings per share data is not
considered to provide meaningful information about the results of operations of
Holdings.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed combined financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the combined
financial statements and footnotes thereto included elsewhere herein.
COMPREHENSIVE INCOME
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income ("Statement 130"). As of January 1, 1998,
Holdings adopted Statement 130. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of Statement 130 had no impact on Holdings' net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on Holdings'
available-for-sale securities and foreign currency translation adjustments,
reported separately in shareholders' equity, to be included in other
comprehensive income. Total comprehensive income for each of the three month
periods ended March 31, 1998 and 1997 was immaterial.
COMMITMENTS AND CONTINGENCIES
The following is a summary of Holdings' material contingencies as of March
31, 1998:
On March 24, 1998, certain persons claiming to own limited partner
interests in certain limited partnerships whose general partners (the "General
Partners") are affiliates of Insignia (the "Partnerships") filed a purported
class and derivative action in California Superior Court in the County of San
Mateo against Insignia, the General Partners, Apartment Investment and
Management Company ("AIMCO"), certain persons and entities who purportedly
formerly controlled the General Partners, and additional entities affiliated
with individuals who are officers, directors and/or principals of several of the
defendants. The complaint contains allegations that, among other things, (i) the
defendants breached their fiduciary duties to the plaintiffs by selling or
agreeing to sell their "fiduciary positions" as stockholders, officers and
directors of the General Partners for a profit and retaining said profit rather
than distributing it to the plaintiffs; (ii) the
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INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
defendants breached their fiduciary duties by mismanaging the Partnerships and
misappropriating the assets of the Partnerships by (a) manipulating the
operations of the Partnerships to depress the trading price of limited
partnership units (the "Units") of the Partnerships; (b) coercing and
fraudulently inducing unitholders to sell Units to certain of the defendants at
depressed prices; and (c) using the voting control obtained by purchasing Units
at depressed prices to entrench certain of the defendants' positions of control
over the Partnerships; and (iii) the defendants breached their fiduciary duties
to the plaintiffs by (a) selling assets of the Partnerships such as mailing
lists of unitholders; and (b) causing the General Partners to enter into
exclusive arrangements with their affiliates to sell goods and services to the
partnerships, the unitholders and tenants of Partnership properties. The
complaint also alleges that the foregoing allegations constitute violations of
various California securities, corporate and partnership statutes, as well as
conversion and common law fraud. The complaint seeks unspecified compensatory
and punitive damages, an injunction blocking the sale of control of the General
Partners to AIMCO and a court order directing the defendants to discharge their
fiduciary duties to the plaintiffs. The last day for defendants to serve an
answer or a demurrer to the complaint is June 25, 1998. It is the current
intention of the defendants to file demurrers to the complaint. Based upon the
allegations of the complaint, neither Insignia nor AIMCO is able to quantify the
relief sought. Both Insignia and AIMCO intend to defend the action vigorously.
Neither Insignia nor AIMCO believe that the outcome of the litigation will have
a material adverse impact either on their financial condition, their results of
operations or their abilities to consummate the Merger.
Holdings and certain subsidiaries are defendants in lawsuits arising in the
ordinary course of business. Such lawsuits are primarily insured claims arising
from accidents at managed properties. Claims may demand substantial compensatory
and punitive damages.
Management believes that the aforementioned contingencies will be resolved
without material loss to Holdings or its subsidiaries.
ACQUISITIONS
Richard Ellis Group Limited Acquisition
In February 1998, the shareholders of Richard Ellis Group Limited ("Richard
Ellis") accepted Insignia's offer to acquire 100% of the stock of Richard Ellis.
Richard Ellis is a real estate services and investment firm located in the
United Kingdom. The purchase price is valued at approximately $82.9 million, of
which $14.7 million is contingent on future performance measures of Richard
Ellis. The transaction was completed on February 26, 1998. Insignia funded the
acquisition by borrowing approximately $35 million from its revolving credit
facility, issuing 617,371 shares of Class A Common Stock, par value $.01 per
share, of Insignia ("Insignia Class A Common Stock"), and assuming existing
options which will enable Richard Ellis employees to purchase 853,741 shares of
Insignia Class A Common Stock.
MERGER AND SPIN-OFF
Insignia and Holdings entered into an Amended and Restated Agreement and
Plan of Merger (as amended, the "Merger Agreement") with AIMCO and AIMCO
Properties, L.P., a Delaware limited partnership, pursuant to which Insignia
will merge with and into AIMCO, with AIMCO as the survivor (the "Merger").
Consummation of the Merger is subject to certain conditions, including
regulatory approval and the approval of the stockholders of Insignia (but not
the approval of the stockholders of AIMCO).
Prior to the Merger, Insignia will spin off to its stockholders the stock
of Holdings (the "Distribution"). Pursuant to an amended and restated
indemnification agreement entered into by AIMCO and Holdings (as amended, the
"Indemnification Agreement") in connection with the Merger Agreement, Holdings
will provide indemnification for certain liabilities arising under the Merger
Agreement.
F-7
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INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Assuming the stockholders of AIMCO approve the Merger, shares of Insignia
Class A Common Stock will be converted into the right to receive an aggregate
number of shares of Class E Preferred Stock, par value $.01 per share, of AIMCO
(the "Class E Preferred") approximately equal to $303 million divided by the
AIMCO Index Price. In addition to receiving the same dividends as holders of
Class A Common Stock, par value $.01 per share, of AIMCO ("AIMCO Common Stock"),
holders of Class E Preferred are entitled to receive a preferred dividend of
approximately $50 million in the aggregate to be paid on or before January 15,
1999 and when paid, the Class E Preferred will automatically convert into AIMCO
Common Stock on a one-for-one basis, subject to certain antidilution
adjustments. The actual number of Class E Preferred issued in the Merger will be
determined by a formula based on the AIMCO Index Price, which will be the
average market price of AIMCO Common Stock during a fixed period prior to the
Merger, subject to a fixed maximum AIMCO Index Price of $38 per share. If the
AIMCO Index Price during that period is less than $36.50 per share, AIMCO may
elect to pay up to $15 million of the purchase price in cash.
In addition, approximately $458 million of debt and other liabilities of
Insignia and its subsidiaries, including $149.5 million of convertible
subordinated debt underlying the 6.5% Trust Convertible Preferred Securities
("Convertible Preferred Securities") issued by Insignia Financing I, a
subsidiary of Insignia, will remain outstanding as obligations of AIMCO and its
subsidiaries after the Merger.
If the stockholders of AIMCO do not approve the Merger, the Merger may
nonetheless be consummated. However, instead of receiving only Class E
Preferred, holders of Insignia Class A Common Stock would receive a number of
shares of Class E Preferred approximately equal to $203 million divided by the
AIMCO Index Price and a number of shares of Class F Preferred Stock, par value
$.01 per share, of AIMCO (the "Class F Preferred") approximately equal to $100
million divided by the AIMCO Index Price. In either case, holders of Class E
Preferred would be entitled to receive the approximately $50 million preferred
dividend. Holders of Class F Preferred are entitled to receive the greater of
(i) the same dividends as holders of AIMCO Common Stock and (ii) preferred cash
distributions of 10% of the liquidation value of the Class F Preferred, with the
distribution rate escalating 1% each year until a 15% annual distribution rate
is achieved. Upon the approval by the stockholders of AIMCO, the Class F
Preferred will convert into AIMCO Common Stock on a one-to-one basis, subject to
certain antidilution adjustments. For purposes of the foregoing valuations, each
share of AIMCO Class E Preferred Stock and AIMCO Class F Preferred Stock is
valued at the AIMCO Index Price. Also, the Merger Agreement provides that
following the Merger, AIMCO is required to offer to purchase the outstanding
shares of beneficial interest of Insignia Properties Trust, a majority owned
subsidiary of Insignia ("IPT"), at a price of at least $13.25 per IPT share. IPT
is a 61% owned subsidiary of Insignia; the 39% interest of IPT not owned by
Insignia is valued at an aggregate of approximately $100 million, assuming a
value of $13.25 per share.
As a condition to execution of the Merger Agreement, certain of Insignia's
executive officers executed voting agreements and irrevocable proxies in favor
of AIMCO, pursuant to which each of the foregoing individuals agreed to vote the
shares of Insignia Class A Common Stock owned of record by each of them (but not
beneficially), including shares under options and warrants to the extent
exercisable on March 17, 1993 in favor of the Merger and the Merger Agreement
and against any competing transaction. In addition, each of Metropolitan
Acquisition Partners IV, L.P. and Metropolitan Acquisition Partners V, L.P.
(collectively, the "MAPs") also executed voting agreements and irrevocable
proxies, pursuant to which each has agreed to vote certain shares of Insignia
Class A Common Stock to which Insignia's Chairman, Chief Executive Officer and
President would be entitled in a distribution of shares of Insignia Class A
Common Stock made by the MAPs, in favor of the Merger and the Merger Agreement
and against any competing transaction.
F-8
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INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
THE WARRANT DISTRIBUTION
On May 4, 1998, Insignia approved, contingent upon the completion of the
Distribution to its stockholders of all of the outstanding common stock, par
value $.01 per share, of Holdings ("Holdings Common Stock"), a special
distribution of warrants to purchase shares of Holdings Common Stock (the
"Warrant Distribution") to the holders of Convertible Preferred Securities
issued by Insignia Financing I. The Warrant Distribution is contingent upon the
completion of the Distribution and the determination by Insignia's Board that
(i) all the conditions to the Merger have been satisfied, and (ii) the closing
of the Merger is imminent. The proposed Warrant Distribution would consist of
the distribution to each holder of record as of the record date for the
Distribution of Convertible Preferred Securities of warrants to purchase
Holdings Common Stock (four warrants for each $500 liquidation amount of
Convertible Preferred Securities held by them) (the "Warrants"). The Warrants
will have an exercise price of 120% of the market price of Holdings Common Stock
following the Distribution. The term of each Warrant will be five years, and no
Warrant will be exercisable before two years after it is granted. There are
expected to be approximately 1,196,000 Warrants outstanding immediately
following the Warrant Distribution.
F-9
<PAGE> 79
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Insignia Financial Group, Inc.
We have audited the accompanying combined balance sheets of the Insignia
Financial Group, Inc. entities to be spun-off into Insignia/ESG Holdings, Inc.
as of December 31, 1997 and 1996 and the related combined statements of
operations, and cash flows for each of the three years in the period ended
December 31, 1997 (see Note 1). These financial statements are the
responsibility of the management of the combined entities. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Insignia
Financial Group, Inc. entities to be spun-off into Insignia/ESG Holdings, Inc.
at December 31, 1997 and 1996, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Greenville, South Carolina
April 22, 1998
F-10
<PAGE> 80
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 9,250 $ 44
Receivables................................................. 101,653 37,185
Property and equipment...................................... 11,235 5,512
Co-investments in real estate............................... 19,454 4,465
Property management contracts............................... 48,614 48,937
Costs in excess of net assets of acquired businesses........ 138,019 72,616
Other assets................................................ 6,269 3,028
-------- --------
Total assets...................................... $334,494 $171,787
======== ========
LIABILITIES AND INVESTMENT AND NET ADVANCES FROM INSIGNIA
Liabilities:
Accounts payable.......................................... $ 9,673 $ 233
Commissions payable....................................... 51,285 18,736
Accrued and sundry liabilities............................ 43,811 15,041
Notes payable............................................. 20,891 --
-------- --------
125,660 34,010
Minority interests.......................................... 390 --
Investment and net advances from Insignia................... 208,444 137,777
-------- --------
Total liabilities and investment and net advances
from Insignia.................................... $334,494 $171,787
======== ========
</TABLE>
See accompanying notes.
F-11
<PAGE> 81
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Fee based services, including fees from affiliated
partnerships of $8,154 (1997), $3,153 (1996) and $2,905
(1995)................................................. $295,258 $122,005 $38,658
Interest.................................................. 457 -- --
Other..................................................... 38 -- --
-------- -------- -------
295,753 122,005 38,658
Costs and expenses:
Fee based services........................................ 251,268 103,942 35,956
Overhead allocations from Insignia........................ 6,770 3,502 1,598
Administrative............................................ 587 -- --
Interest.................................................. 318 18 --
Depreciation and amortization............................. 15,244 9,197 3,778
Termination of employment agreements...................... -- -- 1,000
-------- -------- -------
274,187 116,659 42,332
-------- -------- -------
21,566 5,346 (3,674)
Equity earnings............................................. 151 273 --
Minority interests.......................................... 41 -- --
-------- -------- -------
Income (loss) before income taxes........................... 21,758 5,619 (3,674)
Provision (benefit) for income taxes........................ 8,703 2,135 (1,396)
-------- -------- -------
Net income (loss)........................................... $ 13,055 $ 3,484 $(2,278)
======== ======== =======
</TABLE>
See accompanying notes.
F-12
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INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 13,055 $ 3,484 $ (2,278)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, including amounts allocated
from Insignia.......................................... 15,490 9,326 3,846
Equity earnings........................................... (151) (273) --
Minority interests........................................ (41) -- --
Deferred income taxes..................................... 3,415 506 (1,424)
Changes in operating assets and liabilities:
Accounts receivable.................................... (6,646) 755 (320)
Commissions receivable................................. (43,466) (33,372) --
Other assets........................................... (667) (542) 1,714
Accounts payable and accrued expenses.................. 16,794 9,289 (3,539)
Commissions payable.................................... 32,549 18,134 602
-------- ------- --------
Net cash provided by (used in) operating activities......... 30,332 7,307 (1,399)
INVESTING ACTIVITIES
Additions to property and equipment, net.................... (5,882) (4,806) (1,717)
Payments made for acquisition of businesses................. (62,672) (73,879) (17,185)
Proceeds from Balcor dispositions........................... 3,006 893 --
Purchase of co-investment real estate....................... (17,014) (3,584) (894)
Distributions from co-investments real estate............... 2,208 286 --
Advances made under note agreements......................... (5,776) (1,254) --
Collections on notes receivable............................. 3,237 5,150 --
-------- ------- --------
Net cash used in investing activities....................... (82,893) (77,194) (19,796)
FINANCING ACTIVITIES
Payments on notes payable................................... (2,985) -- --
Proceeds from notes payable................................. 7,140 -- --
Net transactions with Insignia.............................. 57,612 69,895 21,221
-------- ------- --------
Net cash provided by financing activities................... 61,767 69,895 21,221
-------- ------- --------
Net increase in cash and cash equivalents................... 9,206 8 26
Cash and cash equivalents at beginning of year.............. 44 36 10
-------- ------- --------
Cash and cash equivalents at end of year.................... $ 9,250 $ 44 $ 36
======== ======= ========
</TABLE>
See accompanying notes.
F-13
<PAGE> 83
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BASIS OF PRESENTATION
On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into
an Agreement and Plan of Merger ("Merger Agreement") with Apartment Investment
and Management Company ("AIMCO"), pursuant to which Insignia will merge with and
into AIMCO, with AIMCO as the survivor (the "Merger"). Consummation of the
Merger is subject to certain conditions, including regulatory approval and the
approval of the stockholders of Insignia. Prior to the Merger, Insignia will
spin-off ("spin-off") to its stockholders the stock of Insignia/ESG Holdings,
Inc. ("Holdings") an entity that will become a separate public company. Holdings
will consist of Insignia's domestic commercial real estate services division;
Richard Ellis Group Limited ("Richard Ellis"), a real estate services and
investment firm acquired in February 1998 and located in the United Kingdom; the
60% investment in CAGISA, a privately held property management company in Italy;
Insignia Residential-New York, a New York based cooperative and condominium
apartment management company; Insignia's single-family home brokerage and
mortgage origination operations and other related businesses.
These financial statements present the combined financial position, results
of operations and cash flows of the Insignia entities to be spun-off into
Holdings (also herein referred to as Holdings or the "combined entities") as if
a separate entity for all periods presented. Insignia's historical cost bases in
the assets and liabilities of the combined entities have been reflected in these
financial statements. The financial information in these financial statements is
not necessarily indicative of results that would have occurred had the combined
entities been a separate stand-alone entity during the periods presented or of
future results of Holdings. Changes in Investment and Net Advances from Insignia
represent the net income or loss of the combined entities plus the net change in
cash transferred between the combined entities and Insignia and certain non-
cash items.
The combined entities have utilized Insignia's centralized systems for cash
management, payroll, employee benefit plans, insurance and various
administrative services. As a result, substantially all cash received by these
entities was deposited in and commingled with Insignia's general corporate
funds. Similarly, fee-based services and administrative expenses, capital
expenditures and other cash requirements of these entities were paid by Insignia
and charged directly or allocated to these entities. The fee-based services and
administrative expenses, which included, among other things, investment banking,
information technology, legal, finance, accounting, and facilities, were
allocated to the combined entities. These allocations were $6,770,000 (1997),
$3,502,000 (1996) and $1,598,000 (1995). The allocations were based upon
detailed analysis of the operations of Insignia using various methods, including
acquisition activities, employee headcount, estimated personnel, and estimated
management time devoted to the operations of the combined entities. Certain
assets and liabilities related to the operations of the combined entities are
managed and controlled by Insignia on a centralized basis. Such assets and
liabilities have been allocated to the respective entity based on the use of, or
interest in, those assets and liabilities. In the opinion of management, the
methods for allocating expenses, assets and liabilities are believed to be
reasonable and would not differ materially from the overhead expenses to be
incurred by Holdings on a stand-alone basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the accounts of the combined
entities as defined in Note 1. All significant intercompany balances and
transactions have been eliminated.
F-14
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INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The amount of cash on deposit in federally insured institutions
periodically exceeds the limit on insured deposits. The combined entities
consider all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Co-investments in Real Estate
Co-investments in real estate represent co-investment partnership interests
in commercial real estate and land held for development. These investments are
accounted for by the equity method. Equity in earnings from these partnerships
amounted to approximately $151,000 (1997) and $273,000 (1996).
Minority Interest
Minority interests consist of the 40% minority equity of CAGISA.
Advertising Expense
The cost of advertising is expensed as incurred. The combined entities
incurred approximately $2,800,000, $1,007,000 and $341,000 in advertising costs
during 1997, 1996 and 1995, respectively.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation
of $2,598,000 (1997), and $1,357,000 (1996). Property and equipment consists of
office furniture and fixtures, data processing equipment, computer software, and
leasehold improvements.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets. Direct as well as allocated depreciation
expense was approximately $2,539,000 (1997), $1,455,000 (1996) and $779,000
(1995).
Interest Expense
The interest expense reflected in the combined statements of operations is
based upon the historical debt of the combined entities. The combined statements
do not include an interest expense allocation from Insignia's indebtedness.
Property Management Contracts and Costs in Excess of Net Assets of Acquired
Businesses
Property management contracts are stated at cost, net of accumulated
amortization of $13,713,000 (1997) and $7,801,000 (1996). The combined entities
capitalize costs paid or payable to third parties in the successful pursuit of
acquiring management contracts. These contracts are amortized by the
straight-line method over three to ten years. All costs related to unsuccessful
attempts to acquire management contracts are expensed.
Costs in excess of net assets of acquired businesses are amortized by the
straight-line method primarily over 15 to 25 years. Accumulated amortization is
$6,085,000 (1997) and $2,178,000 (1996).
F-15
<PAGE> 85
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The combined entities follow FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" (FAS 121), which requires
impairment losses to be recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying amount. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount. No
significant asset impairments have been recorded.
Revenue Recognition
Fee based services includes property management, commercial leasing, loan
origination, loan servicing and investment banking fees, and commission revenue
related to real estate sales. Such revenues are recorded when the related
services are performed, unless significant contingencies exist, or at contract
closing in the case of real estate sales.
Foreign Currency Translation
The financial statement of CAGISA was prepared in its respective local
currency and translated into U.S. dollars based on the current exchange rate at
the end of the period for the balance sheet and a weighted-average rate for the
period on the statement of income. Translation adjustments in 1997 were not
material.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"), which is effective for
years beginning after December 15, 1997. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Statement 131 is effective
for financial statements for fiscal years beginning after December 15, 1997, and
therefore Holdings will adopt the new requirements in 1998. Management of the
combined entities has not completed its review of Statement 131, but does
anticipate that the adoption of this statement will modify its segment
disclosures.
3. EARNINGS PER SHARE
The financial statements of the combined entities include primarily
wholly-owned subsidiaries or divisions of Insignia, and therefore, these
subsidiaries or divisions did not have separate outstanding shares of capital
stock. As such, earnings per share data is not considered to provide meaningful
information about the results of operations of the combined entities.
4. ACQUISITIONS
Significant acquisitions during the last three years are discussed below.
All acquisitions were accounted for as purchases.
1997 Acquisitions
Frain, Camins & Swartchild, Inc.
On April 1, 1997, Frain, Camins & Swartchild, Inc. ("FC&S") was acquired.
FC&S is a full service commercial, retail and industrial real estate brokerage
firm located in Chicago, Illinois. The purchase price was approximately $4.4
million, and in addition, up to $4.5 million in contingent payments may be paid
based on certain future performance measures. The contingent payments, if paid,
will be recorded as additional
F-16
<PAGE> 86
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition costs. The operations of FC&S have been included in the operations
of the combined entities since April 1, 1997.
Realty One, Inc. and Affiliates
Effective October 1, 1997, the outstanding stock of Realty One, Inc. and
affiliated companies ("Realty One"), including First Ohio Mortgage Corporation
were acquired. Realty One is a full service residential real estate brokerage
firm headquartered in Cleveland, Ohio and serving primarily the northern region
of Ohio. First Ohio Mortgage Corporation originates single family home mortgages
for both Realty One clients and third parties. The cost of the acquisition was
approximately $64.1 million including approximately $24.2 million of Realty One
liabilities assumed and $825,000 of acquisition costs. The operations of Realty
One have been included in the operations of the combined entities since October
1, 1997.
Barnes, Morris, Pardoe & Foster
On October 30, 1997, substantially all of the assets of Barnes, Morris,
Pardoe & Foster ("Barnes Morris"), a commercial real estate services firm
located in the greater Washington, D.C. area were acquired. The purchase price
was approximately $17.0 million. The operations of Barnes Morris have been
included in the operations of the combined entities since October 30, 1997.
1996 Acquisitions
Edward S. Gordon Company, Inc.
On June 30, 1996, the business and substantially all of the assets of
Edward S. Gordon Company, Incorporated ("ESG") were acquired. ESG's services
include commercial real estate leasing, including tenant and landlord
representation, real estate consulting services and commercial real estate
brokerage as well as commercial property management in the New York City
metropolitan area. The purchase price was $80.2 million. Additionally, $875,000
in acquisition costs were incurred and a short-term loan of $5 million was
granted at the time of the purchase to ESG and one of its affiliates, which has
subsequently been repaid.
Paragon Group Property Services, Inc.
On June 30, 1996, the commercial real estate services business of Paragon
Group Property Services, Inc. ("Paragon") were acquired. Paragon's services
include property management, leasing and tenant improvement services for managed
properties as well as brokerage, fee development and real estate consulting
services performed for various institutional clients. The purchase price was
$18.1 million in cash, plus an additional $4 million in future contingent
purchase price (without interest). Additionally, $930,000 of acquisition costs
were incurred and a net deferred tax liability of $1.2 million was recorded.
The operations of Paragon and ESG have been included in the operations of
the combined entities since June 30, 1996.
1995 Acquisitions
Douglas Elliman-Gibbons & Ives and Kreisel Company, Inc.
On September 5, 1995, the residential property management business of
Douglas Elliman-Gibbons & Ives and all of the outstanding stock of Kreisel
Company, Inc. (collectively "DEK") were acquired. The purchase price was $13.1
million. In addition, a deferred tax liability of $3.1 million and other
liabilities of $2.6 million were recorded. The operations of DEK have been
included in the operations of the combined entities since September 5, 1995.
F-17
<PAGE> 87
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
O'Donnell Property Services, Inc.
On May 1, 1995, all of the outstanding common stock of O'Donnell Property
Services, Inc. ("OPSI") was acquired for consideration having an aggregate value
as of the date of acquisition of approximately $7.0 million. The operations of
OPSI have been included in the operations of the combined entities since May 1,
1995.
Other Information
Pro forma results of operations for the years ended December 31, 1997, 1996
and 1995 assuming consummation of the FC&S, Realty One, and Barnes Morris
acquisitions at January 1, 1997 and 1996, assuming consummation of the ESG and
Paragon acquisitions at January 1, 1996 and 1995, and assuming consummation of
the DEK and OPSI acquisitions at January 1, 1995, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................... $396,307 $314,915 $171,070
Net income......................................... 17,125 10,841 3,056
</TABLE>
The acquisitions made by the combined entities were funded utilizing the
working capital of Insignia and no debt or interest was allocated to the
combined entities.
These results do not purport to represent the operations of the combined
entities nor are they necessarily indicative of the results that actually would
have been realized by the combined entities if the purchase of the operating
entities had been in effect the entire period.
The cost of the FC&S, Realty One, Barnes Morris (1997), ESG, Paragon,
(1996) and DEK and OPSI (1995) acquisitions are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable........................................ $16,735 $ -- $ --
Insignia common stock................................ 4,200 24,450 3,711
Accrued and sundry liabilities....................... 14,453 1,805 1,789
Deferred tax liability, net.......................... -- 1,150 3,115
Cash paid at the closing dates....................... 50,474 73,879 17,185
------- -------- -------
$85,862 $101,284 $25,800
======= ======== =======
</TABLE>
The cost was allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash acquired........................................ $ 1,383 $ -- $ --
Accounts receivable.................................. 2,623 -- --
Notes receivable..................................... -- 5,000 --
Single-family mortgage loans receivable.............. 8,414 -- --
Property and equipment............................... 2,123 -- --
Property management contracts........................ 6,343 19,759 24,324
Non-compete agreements............................... -- 1,700 --
Goodwill............................................. 62,415 74,232 --
Other assets......................................... 2,529 593 1,476
Investment in limited partnership units.............. 32 -- --
------- -------- -------
$85,862 $101,284 $25,800
======= ======== =======
</TABLE>
F-18
<PAGE> 88
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable......................................... $ 9,180 $ 2,709
Commissions receivable...................................... 76,838 33,372
Single-family mortgage loans receivable..................... 11,991 --
Notes receivable:
Brokerage employees with interest at prime plus 1%........ 1,894 1,104
Affiliate................................................. 1,750 --
-------- -------
3,644 1,104
-------- -------
$101,653 $37,185
======== =======
</TABLE>
Accounts receivable consist primarily of management fees. Commissions
receivable consist of commercial lease commissions from users of the combined
entities' real estate services. The receivables are not collateralized, but
credit losses have been insignificant and within management's estimate.
Long-term commissions receivable have been discounted to their present value.
Principal collections on notes and commissions receivable are scheduled as
follows (in thousands):
<TABLE>
<CAPTION>
NOTES COMMISSIONS
RECEIVABLE RECEIVABLE
---------- -----------
<S> <C> <C>
1998........................................................ $1,894 $69,506
1999........................................................ -- 6,390
2000........................................................ 1,750 815
2001........................................................ -- 89
2002........................................................ -- 14
Later years................................................. -- 24
------ -------
$3,644 $76,838
====== =======
</TABLE>
F-19
<PAGE> 89
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. CO-INVESTMENTS IN REAL ESTATE
The combined entities have equity investments in real estate properties,
primarily through co-investment partnerships, which own real estate consisting
primarily of commercial property. The capital ownership percentages of such
investments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
REAL ESTATE PARTNERSHIPS LOCATION TYPE OWNERSHIP %
------------------------ ------------------ ---------- -----------
<S> <C> <C> <C>
Courtyard Plaza Associates, L.P......... San Antonio, TX Retail 20%
101 Marietta Street Associates.......... Atlanta, GA Office 10%
Mockingbird Associates, L.P............. Indianapolis, IN Office 10%
Brickyard Investors, L.P................ Dallas, TX Industrial 19%
Brookhollow Associates, L.P............. San Antonio, TX Retail 20%
Bingham Partners, L.P................... Arizona & Michigan Office 10%
Nashpike Partners, L.P.................. Nashville, TN Retail 30%
Sleepy Lake Partners, L.P............... Lakeland, FL Retail 20%
Northpoint Partners, L.P................ Houston, TX Office 10%
Clayton Investors Associates, LLC....... Clayton, MO Office 20%
Fresh Meadows Development, LLC.......... Queens, NY Apartment 35%
Glades Plaza, L.P....................... Boca Raton,FL Retail 20%
Hiawassee Oak Partners, L.P............. Orlando, FL Retail 30%
</TABLE>
These partnerships own 22 properties comprising approximately 3.7 million
square feet of commercial space and 3,300 residential units.
In addition, at December 31, 1997, the combined entities had acquired two
properties for development at a cost of approximately $6.1 million.
F-20
<PAGE> 90
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information of the unconsolidated partnerships is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
CONDENSED STATEMENTS OF EARNINGS INFORMATION
Revenues.................................................... $ 27,267 $ 9,747
Property operating expenses................................. 11,946 3,417
Depreciation and amortization............................... 3,231 884
Interest.................................................... 8,522 2,228
Administrative.............................................. 1,411 892
-------- -------
Total operating expenses.................................... 25,110 7,421
-------- -------
Net income........................................ $ 2,157 $ 2,326
======== =======
CONDENSED BALANCE SHEET INFORMATION
Cash and investments........................................ $ 13,578 $ 1,684
Receivables and deposits.................................... 14,605 3,036
Other assets................................................ 9,705 2,138
Real estate................................................. 376,048 56,308
Less accumulated depreciation............................... (3,843) (170)
-------- -------
Net real estate............................................. 372,205 56,138
-------- -------
Total assets................................................ $410,093 $62,996
======== =======
Mortgage notes payable...................................... $329,057 $40,872
Other liabilities........................................... 14,028 2,120
-------- -------
Total liabilities........................................... 343,085 42,992
Partners' capital........................................... 67,008 20,004
-------- -------
Total liabilities and partners' capital........... $410,093 $62,996
======== =======
</TABLE>
7. ACCRUED AND SUNDRY LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Employee compensation....................................... $21,121 $ 4,442
Estimated acquisition liabilities........................... 10,836 810
Deferred taxes.............................................. 5,816 2,270
Deferred revenue............................................ 772 550
Accrued vacation............................................ 416 282
Other....................................................... 4,850 6,687
------- -------
$43,811 $15,041
======= =======
</TABLE>
F-21
<PAGE> 91
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. NOTES PAYABLE
Notes payable and the resulting interest expense of the combined entities
consists of the notes payable of Realty One and Affiliates.
Notes payable consist of the following at December 31, 1997:
<TABLE>
<S> <C>
First Ohio Mortgage Corporation $15 million line of credit
with a bank expiring on April 30, 1998, with interest
equal to the prime rate, and collateralized by
substantially all assets of First Ohio Mortgage
Corporation and guaranteed by Realty One and Affiliates... $12,495
Realty One $5.5 million revolving credit agreement with a
bank, collateralized by property and receivables, with
interest payable monthly at 6.4%, and maturity date of
September 30, 1999........................................ 3,500
Realty One $4.5 million term loan with a bank, expiring on
June 1, 2001, collateralized by property and receivables,
payable in monthly installments of $75,000 plus interest
at 6.4%................................................... 2,625
Realty One affiliate has a $3 million revolving line,
collateralized by accounts receivable and due on demand,
with interest at 8.2%..................................... 1,349
Realty One, other notes with interest rates from
5.1% -- 7.7% due at various times through 2001............ 922
-------
$20,891
=======
</TABLE>
At December 31, 1997, First Ohio Mortgage Corporation had total assets of
approximately $15.5 million, excluding intangible assets of approximately $1
million, and equity of approximately $3.3 million. Realty One's net book value
of property, plant and equipment was approximately $2.3 million and receivables
were approximately $3.1 million.
Interest paid on the Realty One debt was approximately $309,000 for the
period October 1, 1997 to December 31, 1997.
Scheduled principal maturities on notes payable after December 31, 1997 are
as follows (thousands of dollars):
<TABLE>
<S> <C>
1998.................................................... $15,095
1999.................................................... 1,145
2000.................................................... 4,552
2001.................................................... 99
2002.................................................... --
Later years............................................... --
-------
$20,891
=======
</TABLE>
Certain note agreements contain various restrictive covenants requiring,
among other things, minimum consolidated net worth, minimum liquidity, and
various other financial ratios. Realty One is in compliance with these
restrictive covenants.
First Ohio Mortgage Corporation has a $2,000,000 line of credit with a bank
that expires on April 28,1998. The line is collateralized by substantially all
of the assets of First Ohio Mortgage Corporation and is guaranteed by Realty One
and Affiliates. The interest rate on all advances under the line is prime plus
1.0%. There were no outstanding advances under this line of credit at December
31, 1997.
F-22
<PAGE> 92
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997, the stock of the significant companies comprising
the combined entities was pledged as collateral on a revolving credit facility
of Insignia. In conjunction with the Merger Agreement and Spin-off, the Insignia
revolving credit agreement will be revised (see Note 12).
9. INVESTMENT AND NET ADVANCES FROM INSIGNIA
The following analyzes Insignia's Net Investment in the combined entities
for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- -------
<S> <C> <C> <C>
Balance at beginning of year......................... $137,777 $ 39,948 $17,294
Net earnings......................................... 13,055 3,484 (2,278)
Equity assumed in acquisitions....................... -- 24,450 3,711
Net transactions with Insignia....................... 57,612 69,895 21,221
-------- --------- -------
Balance at end of year............................... $208,444 $ 137,777 $39,948
======== ========= =======
</TABLE>
Included in Insignia's Net Investment in the combined entities are accounts
payable and receivable between Insignia and the combined entities. Insignia's
average Net Investment in the combined entities was $146,210, $99,032 and
$27,441 for the years ended December 31, 1997, 1996 and 1995, respectively.
Insignia's Net Investment in the combined entities has no due date and does not
require an interest expense charge.
10. COMPENSATION PLANS
The combined entities had no stock options outstanding as of December 31,
1997. Subsequent to the spin-off, Holdings intends to adopt its own Stock
Incentive, Employee Stock Purchase and Executive Performance Plans.
Holdings will apply Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related interpretations in
accounting for its employee stock based compensation because the alternative
fair value accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options and warrants.
11. INCOME TAXES
The combined entities are included in the consolidated federal income tax
return of Insignia. The income tax provision reflects the portion of Insignia's
historical income tax provision attributable to the operations of the combined
entities as if they were not included in Insignia's consolidated federal income
tax return. Management believes the income tax provision, as reflected, is
comparable to what the income tax provision would have been if the combined
entities had filed a separate return during the periods presented.
F-23
<PAGE> 93
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Acquisition related intangibles........................... $(8,018) $(3,800)
Tax over book depreciation................................ (1,249) (256)
Other, net................................................ -- (285)
------- -------
Total deferred tax liabilities.................... (9,267) (4,341)
Deferred tax assets:
Net operating losses...................................... 2,263 2,071
Partnership earnings differences.......................... 721 --
Other, net................................................ 767 --
------- -------
Total deferred tax assets................................... 3,751 2,071
Valuation allowance for deferred tax assets................. (300) --
------- -------
Deferred tax assets, net of valuation allowance............. 3,451 2,071
------- -------
Net deferred tax (liabilities).................... $(5,816) $(2,270)
======= =======
</TABLE>
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current (payable):
Federal............................................... $4,595 $1,408 $ --
State................................................. 693 221 28
------ ------ -------
Total current................................. 5,288 1,629 28
Deferred:
Federal............................................... 2,765 707 (1,188)
State................................................. 650 (201) (236)
------ ------ -------
Total deferred................................ 3,415 506 (1,424)
------ ------ -------
$8,703 $2,135 $(1,396)
====== ====== =======
</TABLE>
In 1996, Holdings utilized a net operating loss of approximately $1,800,000
which was generated in 1995.
F-24
<PAGE> 94
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax (benefit) attributable to continuing
operations computed at the U.S. statutory rate to income tax expense (benefit)
is shown below (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates........... $7,615 35.0% $1,967 35.0% $(1,285) 35.0%
Effect of incremental tax rates....... (100) (0.5) (41) (0.7)
State income taxes, net of Federal tax
benefit............................. 1,074 4.9 168 3.0 (103) 2.8
Effect of permanent differences....... 478 2.2 93 1.6 (4) 0.1
Change in valuation reserve........... 300 1.4
Change in state tax rates............. (32) (0.2) (52) (0.9) (4) 0.1
Other................................. (632) (2.8)
------ ---- ------ ---- ------- ----
$8,703 40.0% $2,135 38.0% $(1,396) 38.0%
====== ==== ====== ==== ======= ====
</TABLE>
Income tax payments allocated to the combined entities were approximately
$11,786,000 (1997), $134,000 (1996), and $28,000 (1995). Income taxes payable
and receivable are charged directly against the investment from Insignia. Income
taxes payable of $1,495,000(1996) and income taxes receivable of $5,003,000
(1997) have been charged against the investment from Insignia.
As a result of the acquisition of Paragon Group Properties Services, Inc.,
net operating losses of approximately $5,000,000 were acquired. These losses
carryforward to the calendar year ended December 31, 2010. The carryforward is
subject to provisions of the Internal Revenue Code, which limit the use of the
carryforward to the lesser of the value of the stock multiplied by the Federal
long-term tax-exempt rate or the subsidiary's income.
12. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The combined entities are defendants in lawsuits arising in the ordinary
course of business. Claims may demand substantial compensatory and punitive
damages. Management believes that the lawsuits will be resolved without material
impact to the financial position or results of operations of the combined
entities.
Environmental Liabilities
Under various Federal and state environmental laws and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous or toxic substances or petroleum
product releases at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with contamination. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
The owner or operator of a site may be liable under common law to third parties
for damages and injuries resulting from environmental contamination emanating
from the site. There can be no assurance that the combined entities, or any
assets owned or controlled by the combined entities, currently are in compliance
with all of such laws and regulations, or that the combined entities will not
become subject to liabilities that arise in whole or in part out of any such
laws, rules, or regulations. Management is not currently aware of any
environmental liabilities which are expected to have a material adverse effect
on the combined entities' operations or financial condition.
F-25
<PAGE> 95
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Operating Leases
The combined entities lease office space and equipment under noncancelable
operating leases. Minimum annual rentals under operating leases for the five
years ending after December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $12,370
1999........................................................ 11,139
2000........................................................ 9,753
2001........................................................ 7,932
2002........................................................ 6,288
Thereafter.................................................. 14,749
-------
Total minimum payments required............................. $62,231
=======
</TABLE>
Direct as well as allocated rental expense was approximately $9,967,000
(1997), $4,796,000 (1996) and $1,936,000 (1995).
Certain of the leases are subject to annual escalation based on the
Consumer Price Index.
Holdings is expected to complete lease negotiations in May 1998, for
additional office space in New York and Chicago. The average minimum annual
payments will be approximately $2.6 million for a period of approximately 10
years.
401(k) Retirement Plan
The combined entities participated in Insignia's 401(k) savings plan which
covered substantially all of its employees. The combined entities were allocated
approximately $1,302,000, $954,000 and $771,000 during 1997, 1996 and 1995,
respectively for its share of contributions.
Holdings intends to adopt its own 401(k) savings plan. Employees of
Insignia who will become employees of Holdings and who have accounts under the
Insignia 401(k) plan will have those accounts transferred to accounts under the
Holdings 401(k) Plan.
Property Dispositions
In November 1994, a portion of the assets (consisting primarily of
management contracts) of Allegiance Realty Group, a wholly owned subsidiary of
the Balcor Company, Inc. ("Balcor") were acquired. Balcor announced in the
second quarter of 1996 its intention to sell a large portion of the properties
covered by these management contracts. An agreement was entered into with Balcor
whereby an advisory fee would be paid to the combined entities based on the
property sales for services rendered in the sales transactions. The Advisory
Agreements have terms of one year and the fees range from .75% to 1.25% of the
sales price of the property. The fees are and will continue to be paid in cash
after the close of each transaction. Management believes that the unamortized
purchase price relating to properties managed for Balcor properly reflects the
asset value and that no impairment exists.
Indemnification Agreement
In connection with the Merger Agreement, Holdings and AIMCO entered into an
Indemnification Agreement. The Indemnification Agreement provides generally that
following consummation of the Merger, Holdings will indemnify and hold harmless
AIMCO from and against all losses in excess of $9.1 million resulting from (i)
breaches of representations, warranties or covenants of Insignia or Holdings in
the Merger
F-26
<PAGE> 96
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Agreement, (ii) actions taken by or on behalf of Insignia prior to consummation
of the Merger and (iii) the Distribution. Holdings is also required to indemnify
AIMCO against all losses (without regard to any dollar value limitation)
resulting from (a) amounts paid or payable to employees of Insignia actually
paid by AIMCO, other than those employees AIMCO has agreed to retain following
the consummation of the Merger, (b) obligations to third parties for goods,
services, taxes or indebtedness incurred prior to the consummation of the
Merger, other than as agreed to by AIMCO or included in the approximately $308
million of indebtedness and liabilities which AIMCO succeeded to in the Merger
and (c) Insignia's ownership of Holdings.
The Indemnification Agreement also provides generally that following
consummation of the Merger, AIMCO will indemnify and hold harmless Holdings from
all losses that arise out of the operation of the business of Insignia being
acquired by AIMCO following consummation of the Merger and for all losses in
excess or $9.1 million arising from breach of any representation, warranty or
covenant of AIMCO in the Merger Agreement.
In addition, Holdings will indemnify AIMCO for taxes resulting from the
consummation of the spin-off to the extent that such taxes arise from a gain
realized on that portion of the fair market value of Holdings Common Stock at
the time of the spin-off which is greater than a specified per share amount to
be determined prior to the spin-off.
Other
Subsequent to the spin-off, Holdings will guarantee Insignia's obligations
under Insignia's revolving credit facility, and the assets of Holdings will be
subject to liens in favor of Insignia's revolving credit facility lenders.
Insignia will use its reasonable best efforts to obtain the release of Holdings
as guarantor under the revolving credit facility and the removal of the liens.
13. INDUSTRY SEGMENTS
The combined entities represent a fully integrated real estate services
company, which currently operates in principally two business segments,
commercial and residential services. The commercial services business segment
provides property and asset management services, leasing and brokerage,
investment sales and development, and tenant representation services. The
commercial services business segment also includes co-investment partnerships in
which the combined entities have significant investments. The residential
services business segment provides property management services, originates
loans, and brokers residential real estate.
The following table summarizes certain information by industry segment:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable assets:
Commercial services............................... $245,948 $152,666 $25,160
Residential services.............................. 87,284 18,159 17,611
Other............................................. 1,262 962 303
-------- -------- -------
$334,494 $171,787 $43,074
======== ======== =======
Gross revenues and equity earnings:
Commercial services............................... $247,548 $ 98,766 $31,309
Residential services.............................. 48,356 23,512 7,349
-------- -------- -------
$295,904 $122,278 $38,658
======== ======== =======
</TABLE>
F-27
<PAGE> 97
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating profit (loss):
Commercial services............................... $ 27,697 $ 7,597 $(2,537)
Residential services.............................. 1,108 1,542 461
-------- -------- -------
28,805 9,139 (2,076)
Interest.......................................... (318) (18)
Overhead allocations from Insignia................ (6,770) (3,502) (1,598)
Minority interests................................ 41
-------- -------- -------
$ 21,758 $ 5,619 $(3,674)
======== ======== =======
Depreciation and amortization expense:
Commercial services............................... $ 12,946 $ 7,745 $ 3,377
Residential services.............................. 2,298 1,452 401
-------- -------- -------
$ 15,244 $ 9,197 $ 3,778
======== ======== =======
Capital expenditures:
Commercial services............................... $ 4,990 $ 2,933 $ 1,270
Residential services.............................. 650 1,308 592
Other............................................. 300 659 35
-------- -------- -------
$ 5,940 $ 4,900 $ 1,897
======== ======== =======
</TABLE>
Assets of the commercial services business segment include the
co-investments in real estate and the revenues of this segment include equity
earnings. These investees represent partnerships owning commercial real estate
consisting of commercial property. Other assets include primarily property and
equipment. The $1,000,000 employment agreement termination expense has been
included in the commercial services business segment.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value estimates of financial instruments presented below are not
necessarily indicative of the amounts the combined entities might pay or receive
in actual market transactions. Potential taxes and other taxes have also not
been considered in estimating fair value. The carrying amount reported on the
balance sheet for cash and cash equivalents approximates its fair value.
Receivables reported on the balance sheet consist of property and lease
commission receivables, mortgage loans receivable and various note receivables.
The property receivables approximate their fair values. Lease commissions
receivable are carried at their discounted present value, therefore the carrying
amount and fair value amount are the same. The mortgage loans receivable and
notes receivable earn interest at either fixed or variable rates. Interest rates
approximate current market interest rates for similar instruments, therefore,
the carrying amount approximates their fair value. Notes payable were analyzed
individually to calculate fair value based on current interest rates and market
value, if applicable.
F-28
<PAGE> 98
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Summary
The carrying amounts and fair values of the combined entities' financial
instruments at December 31, are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------- ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 9,250 $ 9,250 $ 44 $ 44
Receivables.................................. 101,653 101,653 37,185 37,185
Commissions payable.......................... 51,285 51,285 18,736 18,736
Notes payable................................ 20,891 21,023 -- --
</TABLE>
15. SUBSEQUENT EVENTS
Acquisitions
Cohen Financial
On January 7, 1998, the rights to perform property management, leasing and
construction supervision services for approximately 4.1 million square feet of
commercial real estate were acquired from Cohen Financial which is based in
Chicago, Illinois. The purchase price was approximately $1 million.
Goldie B. Wolfe & Company
On January 20, 1998, 100% of the stock of Goldie B. Wolfe & Company, a
commercial real estate services firm based in Chicago, Illinois was acquired.
The purchase price was approximately $5.3 million.
Richard Ellis Group Limited Acquisition
In February 1998, 100% of the stock of Richard Ellis Group Limited
("Richard Ellis") was acquired. Richard Ellis is a real estate services and
investment firm headquartered in London with offices throughout the United
Kingdom. The purchase price was approximately $68.2 million. In addition,
contingent payments of approximately $14.7 million could be paid based upon
future performance measures.
Litigation
On March 24, 1998, certain persons claiming to own limited partner interest
in certain limited partnerships whose general partners (the "General Partners")
are affiliates of Insignia (the "Partnerships") filed a purported class and
derivative action in California Superior Court in the County of San Mateo
against Insignia, the General Partners, AIMCO, certain persons and entities who
purportedly formerly controlled the General Partners, and additional entities
affiliated with the individuals who are officers, directors and/or principals of
several of the defendants. The complaint contains allegations that, among other
things, (i) the defendants breached their fiduciary duties to the plaintiffs by
selling or agreeing to sell their "fiduciary positions" as stockholders,
officers and directors of the General Partners for a profit and retaining said
profit rather than distributing it to the plaintiffs; (ii) the defendants
breached their fiduciary duties by mismanaging the Partnerships and
misappropriating the assets of the Partnerships by (a) manipulating the
operations of the Partnerships to depress the trading price of limited
partnership units (the "Units") of the Partnerships; (b) coercing and
fraudulently inducing unitholders to sell Units to certain of the defendants at
depressed prices; and (c) using the voting control obtained by purchasing Units
at depressed prices to entrench certain of the defendants' positions of control
over the Partnerships; and (iii) the defendants breached their fiduciary duties
to the plaintiffs by (a) selling assets of the Partnership such as mailing lists
of unitholders; and (b) causing the General Partners to enter into exclusive
arrangements with their affiliates to sell goods and
F-29
<PAGE> 99
INSIGNIA FINANCIAL GROUP, INC. ENTITIES TO BE SPUN-OFF INTO
INSIGNIA/ESG HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
services to the General Partners, the unitholders and tenants of Partnership
properties. The complaint also alleges that the foregoing allegations constitute
violations of various California Securities, corporate and partnership statutes,
as well as conversion and common law fraud. The complaint seeks unspecified
compensatory and punitive damages, an injunction blocking the sale of control of
the General Partners to AIMCO and a court order directing the defendants to
discharge their fiduciary duties to the plaintiffs. As of the date of this
response, defendants have not served or filed a reply to the complaint.
F-30
<PAGE> 100
EDWARD S. GORDON COMPANY, INCORPORATED AND
EDWARD S. GORDON COMPANY OF NEW JERSEY, INC.
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Revenue:
Revenue before co-brokers' commissions.................... $ 53,610,167 $49,021,216
Co-brokers' commissions................................... 6,832,442 2,720,354
------------ -----------
Net revenue....................................... 46,777,725 46,300,862
Salespersons' commissions................................. 20,187,306 21,849,355
------------ -----------
26,590,419 24,451,507
------------ -----------
Expenses:
Payroll and related benefits.............................. 16,215,722 15,726,507
Deferred compensation and stock option plan............... 37,663,570 759,232
Professional fees......................................... 1,178,690 779,329
Rent...................................................... 2,393,133 2,284,827
Depreciation and amortization............................. 1,446,873 778,130
General and administrative................................ 4,149,562 4,855,676
------------ -----------
63,047,550 25,183,701
------------ -----------
Department loss................................... (36,457,131) (732,194)
------------ -----------
Other income (expenses):
Interest and dividend income.............................. 20,402 23,303
Interest expense.......................................... (676,687) (43,660)
------------ -----------
Other expenses, net............................... (656,285) (20,357)
------------ -----------
Loss before provision for income taxes............ (37,113,416) (752,551)
------------ -----------
(Benefit) provision for income taxes:
Current................................................... (80,000) 201,783
Deferred.................................................. (3,448,017) (288,367)
------------ -----------
(3,528,017) (86,584)
------------ -----------
Net loss.......................................... $(33,585,399) $ (665,967)
============ ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-31
<PAGE> 101
EDWARD S. GORDON COMPANY, INCORPORATED AND
EDWARD S. GORDON COMPANY OF NEW JERSEY, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(33,585,399) $ (665,967)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,446,873 778,130
Discount on non-current commission receivables and
payables.............................................. 247,509 (16,840)
Provision for uncollectible accounts................... 110,279 187,500
Deferred income taxes.................................. (3,448,017) (288,367)
Straight-line rent adjustment.......................... (137,624) (277,171)
Stock option and deferred compensation plan............ 37,663,570 759,232
Change in assets and liabilities:
(Increase) decrease in accounts receivable........... (4,534,285) 9,012,041
Decrease (increase) in employee notes receivable,
other current assets and other assets............... 71,573 (1,655,395)
Increase in commissions payable...................... 7,265,237 2,191,657
Increase in accounts payable, accrued expenses and
other liabilities................................... 1,271,795 1,801,487
Increase in income taxes payable..................... 69,496 24,846
------------ -----------
Total adjustments................................. 40,026,406 12,517,120
------------ -----------
Net cash provided by operating activities......... 6,441,007 11,851,153
------------ -----------
Cash flows from investing activities:
Capital expenditures...................................... (1,187,384) (577,384)
Purchases of investment bonds............................. (125,000)
------------ -----------
Net cash used in investing activities............. (1,187,384) (702,384)
------------ -----------
Cash flows from financing activities:
Payments on demand note payable........................... (5,600,000) (8,275,000)
------------ -----------
Net cash used in financing activities............. (5,600,000) (8,275,000)
------------ -----------
Net (decrease) increase in cash and cash
equivalents.................................... (346,377) 2,873,769
Cash and cash equivalents, at beginning of period........... 1,042,671 804,712
------------ -----------
Cash and cash equivalents, at end of period....... $ 696,294 $ 3,678,481
============ ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-32
<PAGE> 102
EDWARD S. GORDON COMPANY, INCORPORATED AND
EDWARD S. GORDON COMPANY OF NEW JERSEY, INC.
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
1. INTERIM FINANCIAL STATEMENTS:
The accompanying unaudited condensed combined financial statements include
the accounts of Edward S. Gordon Company, Incorporated and Edward S. Gordon
Company of New Jersey, Inc. (the "Company") and have been prepared by the
Company pursuant to the rules of the Securities and Exchange Commission ("SEC")
and, in the opinion of the Company, include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of results of
operations and cash flows. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules.
The Company believes that the disclosures made are adequate to make the
information presented not misleading. The condensed combined statements of
income for the six months ended June 30, 1996 and 1995 are not necessarily
indicative of the results to be expected for the full year. It is suggested that
these financial statements be read in conjunction with the latest audited
financial statements and notes thereto.
2. SALE OF THE COMPANY:
Effective June 30, 1996, the Company agreed to sell certain fixed assets,
contracts and the Company name to the Insignia Financial Group, Inc. (the
"Acquiror") for $49,300,000 in cash, $24,450,000 in common stock options of the
Acquiror plus a contingent purchase price feature. This transaction falls under
the definition of an Event in the stock option and deferred compensation
agreement. Therefore, the outstanding stock options became fully vested upon the
consummation of the sale. The Company, however, prohibited the exercise of the
stock options by giving the option holders written notice before the
commencement of the exercise period and paying the option holders an amount
equal to the excess of the fair market value of the consideration which the
option holders would have received if the exercise of the stock options were not
prohibited over the exercise price of the shares. This payment amounted to
$40,278,570 and has been offset by the reversal of the accrual for deferred
compensation on the unaudited condensed combined Statements of Operations.
3. INCOME TAXES:
The Company has elected, for federal and state income tax purposes, to be
treated under the provisions of the Internal Revenue Code as an "Electing Small
Business Corporation" ("S" Corporation). An "S" Corporation is generally not
subject to federal or state income taxes.
However, the Company is subject to New York City income taxes. Therefore,
the effective income tax rate is substantially less than the statutory federal
income tax rate. The annual corporate income, whether distributed or not, is
taxed currently to the individual stockholders according to their ownership
interest in the shares of the respective "S" Corporation.
For income tax purposes, the Company utilizes the cash receipts and
disbursements method, whereas the accrual method is used for financial
reporting. Deferred New York City corporation income taxes are reflected in the
financial statements primarily to recognize the effects of these different
methods. No provision is reflected for income tax liabilities of individual
stockholders related to their share of the Company's income.
F-33
<PAGE> 103
EDWARD S. GORDON COMPANY, INCORPORATED AND
EDWARD S. GORDON COMPANY OF NEW JERSEY, INC.
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES: (CONTINUED) --
Deferred income taxes arise from temporary differences between the tax
bases of assets and liabilities and their reported amounts in the combined
financial statements. At June 30, 1996, the components of the net deferred
income tax assets is as follows:
<TABLE>
<S> <C>
ASSETS:
Allowance for uncollectable accounts...................... $ 95,300
Accounts payable and accrued expenses..................... 583,745
Due to deferred compensation and stock option plan
participants........................................... 4,027,857
Commissions payable....................................... 2,086,351
Deferred rent payable..................................... 166,613
----------
6,959,866
----------
LIABILITIES:
Fixed assets.............................................. 444,070
Accounts receivable....................................... 4,507,074
Other assets.............................................. 397,960
----------
5,349,104
----------
Net deferred tax asset............................ $1,610,762
==========
</TABLE>
The Company has recorded a current deferred tax asset of $2,241,356 and a
noncurrent deferred tax liability of $630,594 at June 30, 1996.
4. CONTINGENCIES:
The Company is involved in litigation and disputes which are normal in the
real estate leasing industry. Management is of the opinion that the ultimate
liability, if any, resulting from litigation, will not have a material adverse
effect on the Company's combined financial condition or results of operations.
F-34
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Edward S. Gordon Company, Incorporated and
Edward S. Gordon Company of New Jersey, Inc.:
We have audited the accompanying combined statements of operations and cash
flows of EDWARD S. GORDON COMPANY, INCORPORATED and EDWARD S. GORDON COMPANY of
NEW JERSEY, INC. (the "Company") for the three years ended December 31, 1995,
1994 and 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and cash flows of
Edward S. Gordon Company, Incorporated and Edward S. Gordon Company of New
Jersey, Inc. for the years ended December 31, 1995, 1994 and 1993, in conformity
with generally accepted accounting principles.
PricewaterhouseCoopers LLP
New York, New York
April 1, 1996
F-35
<PAGE> 105
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Revenue:.............................................
Revenue before co-brokers' commissions............. $97,193,603 $104,973,015 $71,205,126
Co-brokers' commissions............................ (5,129,023) (8,696,977) (5,175,090)
----------- ------------ -----------
Net revenue................................ 92,064,580 96,276,038 66,030,036
Salespersons' commissions............................ 39,562,989 40,180,629 26,432,223
----------- ------------ -----------
52,501,591 56,095,409 39,597,813
----------- ------------ -----------
Expenses:
Payroll and related benefits....................... 32,804,688 33,692,677 24,783,134
Professional fees.................................. 1,607,314 1,411,811 906,048
Rent............................................... 4,181,664 4,558,599 4,895,717
Depreciation and amortization...................... 2,476,200 1,788,749 1,889,748
General and administrative......................... 9,486,178 9,941,765 9,330,445
----------- ------------ -----------
50,556,044 51,393,601 41,805,092
----------- ------------ -----------
Department income (loss)................... 1,945,547 4,701,808 (2,207,279)
----------- ------------ -----------
Other income (expenses):
Interest and dividend income....................... 84,259 58,676 201,171
Interest expense................................... (339,072) (396,362) (781,993)
Sublease income.................................... 209,604 401,823
Loss on write-off of investment.................... (45,000)
----------- ------------ -----------
Other expenses, net........................ (254,813) (128,082) (223,999)
----------- ------------ -----------
Income (loss) before provision for income
taxes.................................... 1,690,734 4,573,726 (2,431,278)
----------- ------------ -----------
Provision (benefit) for income taxes:
Current............................................ 241,979 396,653 229,629
Deferred........................................... 398,898 408,582 (381,290)
----------- ------------ -----------
640,877 805,235 (151,661)
----------- ------------ -----------
Net income (loss).......................... $ 1,049,857 $ 3,768,491 $(2,279,617)
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-36
<PAGE> 106
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ 1,049,857 $ 3,768,491 $(2,279,617)
----------- ------------ -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 2,476,200 1,788,749 1,889,748
Discount on non-current commission receivables
and payables.................................. 76,248 (18,975) 480,610
Write-off of investment......................... 45,000
Contribution of investment bonds................ 192,620 75,000
Provision for uncollectible accounts............ 1,016,523 17,510 681,968
Deferred income taxes........................... 398,898 408,582 (381,290)
Straight-line rent adjustment................... (355,968) (568,900) (235,454)
Deferred compensation........................... 1,274,000 1,341,000
Income tax reserve.............................. (1,250,000)
Change in assets and liabilities:
(Increase) decrease in accounts receivable.... (3,819,024) (10,525,161) 2,071,479
Increase in employee notes receivable and
other current assets....................... (2,482,209) (69,183) (2,666,843)
Decrease in other assets...................... 1,504,360
Increase in commissions payable............... 2,162,931 4,320,417 1,059,994
Increase in accounts payable, accrued expenses
and other liabilities...................... 1,290,709 (174,664) 79,129
(Decrease) increase in income taxes payable... (40,160) 37,693
----------- ------------ -----------
Total adjustments.......................... 788,308 (3,328,165) 4,641,394
----------- ------------ -----------
Net cash provided by operating
activities............................... 1,838,165 440,326 2,361,777
----------- ------------ -----------
Cash flows from investing activities:
Repayment of advance to stockholder................ 100,000
Advance to stockholder............................. (2,445,000)
Purchases of artwork............................... (5,640)
Capital expenditures............................... (6,299,102) (389,456) (708,672)
Proceeds from sales of fixed assets................ 6,500
Purchases of investment bonds...................... (126,104) (10,000) (110,000)
----------- ------------ -----------
Net cash used in investing activities...... (6,425,206) (392,956) (3,169,312)
----------- ------------ -----------
Cash flows from financing activities:
Demand note payable borrowings..................... 5,600,000 8,275,000 8,200,000
Payments on demand note payable.................... (8,275,000) (8,200,000) (7,333,000)
Long-term debt borrowings.......................... 7,500,000
----------- ------------ -----------
Net cash provided by financing
activities............................... 4,825,000 75,000 867,000
----------- ------------ -----------
Net increase in cash and cash
equivalents.............................. 237,959 122,370 59,465
Cash and cash equivalents, at beginning of year...... 804,712 682,342 622,877
----------- ------------ -----------
Cash and cash equivalents, at end of
year..................................... $ 1,042,671 $ 804,712 $ 682,342
=========== ============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................ $ 237,824 $ 415,337 $ 341,383
Income taxes.................................... 309,155 483,723 104,948
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
1) During 1993, the Company made a deemed distribution of $6,006,426 to a
stockholder by reducing the advance due from that stockholder.
The accompanying notes are an integral part of the combined financial
statements.
F-37
<PAGE> 107
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of combination:
The accompanying combined financial statements include the accounts of
Edward S. Gordon Company, Incorporated and Edward S. Gordon Company of New
Jersey, Inc. (together, the "Company"). These financial statements have been
prepared on a combined basis because each company is owned and controlled by the
same stockholder and are in the same industry. Inter-entity accounts and
transactions are eliminated in the combination.
Commission income and expense:
The income of the Company is derived principally from commissions in
connection with the leasing of commercial office space, consulting services,
property management services and the sale of properties primarily in the New
York City metropolitan area. Income and the related commission expense are
recognized upon the signing of a lease or sales document.
Imputed interest:
Interest has been imputed on non-current commissions receivable and payable
arising during the years ended December 31, 1995, 1994 and 1993 at rates of 9%,
8% and 6%, respectively.
Fixed assets:
Fixed assets are recorded at cost and are being depreciated over their
estimated useful lives, which range from 5 to 13 years, principally by the
straight-line and double-declining-balance methods. Leasehold improvements are
amortized by the straight-line method over the lesser of their estimated useful
lives or the remaining lease terms. Fixed assets are written off in the year
after they have become fully depreciated.
Income taxes:
The Company has elected, for federal and state income tax purposes, to be
treated under the provisions of the Internal Revenue Code as an "Electing Small
Business Corporation" ("S" Corporation). An "S" Corporation is generally not
subject to federal or state income taxes.
However, the Company is subject to New York City income taxes. Therefore,
the effective income tax rate is substantially less than the statutory federal
income tax rate. The annual corporate income, whether distributed or not, is
taxed currently to the individual stockholders according to their ownership
interest in the shares of the respective "S" Corporation.
For income tax purposes, the Company utilizes the cash receipts and
disbursements method, whereas the accrual method is used for financial
reporting. Deferred New York City corporation income taxes are reflected in the
financial statements primarily to recognize the effects of these different
methods. No provision is reflected for income tax liabilities of individual
stockholders related to their share of the Company's income.
Cash and cash equivalents:
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. The most significant estimates and
F-38
<PAGE> 108
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
assumptions relate to the realizability of accounts receivable and the
recoverability of fixed assets. Actual results could differ from those
estimates.
New Pronouncements:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and For Long-Lived Assets To Be Disposed Of." This statement
addresses the accounting for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used. This statement will be effective for the Company in fiscal year 1996. This
statement, when adopted, is not expected to have a material effect on the
Company's statements of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This statement establishes fair value-based financial accounting
and reporting standards for all transactions in which a company acquires goods
or services by issuing its equity instruments or by incurring a liability to its
supplier in amounts based on the price of its common stock or other equity
instruments. This statement will be effective for the Company in fiscal year
1996. This statement, when adopted, is not expected to have a material effect on
the Company's statements of operations.
2. COMMITMENTS AND CONTINGENCIES:
a. The Company is leasing office space under the terms of various leases,
which have been accounted for as operating leases. These obligations extend for
various periods through June 2005. One of the leases provides the option to
extend the term for two successive periods of five years each. The Company was
granted an abatement of rent at the beginning of one of the lease obligations
for nine months, during which time no rent payments were required or made. For
financial statement purposes, the total rent due under this lease has been
allocated ratably over its term.
Rent expense was $4,181,664 in 1995, $4,558,599 in 1994 and $4,895,717 in
1993. Sublease income for 1994 and 1993 amounted to $209,604 and $401,823,
respectively. The leases require the Company to pay a proportionate share of
real estate tax and operating expense increments, which amounted to $849,071,
$800,971 and $848,654 for 1995, 1994 and 1993, respectively.
The Company's obligations under these operating leases as of December 31,
1995 for the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- -----------
<S> <C>
1996................................................... $ 3,814,352
1997................................................... 3,814,352
1998................................................... 3,692,780
1999................................................... 3,389,845
2000................................................... 3,260,300
Thereafter............................................. 14,619,901
-----------
Total minimum payments required.............. $32,591,530
===========
</TABLE>
b. The Company had recorded a $1,250,000 reserve for potential assessments
that could result from a New York State sales tax audit. The audit was completed
in 1995 and no assessment was made against the Company. Accordingly, the reserve
of $1,250,000 was reversed and has been reflected as a reduction of general and
administrative expenses in the accompanying 1995 combined statements of
operations.
F-39
<PAGE> 109
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
c. The Company is involved in litigation and disputes which are normal in
the real estate leasing industry. Management is of the opinion that the ultimate
liability, if any, resulting from litigation, will not have a material adverse
effect on the Company's combined financial condition or results of operations.
3. RELATED PARTIES:
The Company subleased office space to a business partially owned by a
person related to a stockholder of the Company. The sublease expired on February
28, 1994.
4. SAVINGS PLAN:
The Company has a contributory savings plan for the benefit of its
employees. It is the intention of the Company that this plan meet all
requirements for profit-sharing plan qualification under Sections 401(a) and
401(b) of the Internal Revenue Code. Employees may make contributions of up to
16% of their compensation. The Company makes a matching contribution equal to a
maximum of 50% of the first 6% of employee compensation. Participants are always
100% vested in their contributions while they vest at 20% per year in regards to
the Company matching contribution for each year that they perform over 1,000
hours of service. For the years ended December 31, 1995, 1994 and 1993, the
Company's matching contribution was $340,362, $208,572 and $197,884,
respectively.
5. STOCK OPTIONS AND DEFERRED COMPENSATION AGREEMENT:
In 1994, the Company amended and restated its stock option and deferred
compensation agreement ("Agreement") with certain employees. The Agreement
grants stock options to purchase an aggregate of 2,954,000 shares of the
Company's common stock. There is no limit on the amount of options available for
grant. The options, which do not expire, fully vest only upon the occurrence of
certain defined events (an "Event"). The exercise price of the options is based
upon the calculated fair market value of the Company's common stock on the stock
option grant date. At December 31, 1995, the exercise prices per share range
from $5.75 to $13.28 for Edward S. Gordon Company, Incorporated and from $0.00
to $0.126 for Edward S. Gordon Company of New Jersey, Inc. The Company has the
right to prohibit the exercise of the options by giving the option holder
written notice prior to the commencement of the exercise period. In the event
that the Company prohibits the exercise of stock it must pay the option holder
an amount equal to the excess of the fair market value of the consideration
which the option holder would have received with respect to the shares upon the
consummation of the Event over the exercise price of the shares. The Company has
also granted the same employees receiving stock options the right to receive
deferred compensation equal to their pro-rata share of defined profit and loss
upon termination of employment. For certain option holders, the right to receive
deferred compensation vests in increments of 20% on the anniversary of the grant
in each of the subsequent five years. See Note 1.
Information with respect to stock options granted is as follows:
<TABLE>
<S> <C>
Options outstanding, January 1, 1993........................ 662,000
Granted................................................... 195,000
Forfeited................................................. (17,500)
---------
Options outstanding, December 31, 1993...................... 839,500
Granted................................................... 1,814,500
---------
Options outstanding, December 31, 1994...................... 2,654,000
Granted................................................... 350,000
Forfeited................................................. (50,000)
---------
Options outstanding, December 31, 1995...................... 2,954,000
=========
</TABLE>
F-40
<PAGE> 110
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, to facilitate tax requirements for certain states, the
majority shareholder of the Company requested the minority shareholders of
Edward S. Gordon Company of New Jersey, Inc. to exchange 395,000 shares of
common stock for 350,000 stock options. The options are convertible back into
common stock of Edward S. Gordon Company of New Jersey, Inc. at a zero exercise
price.
6. CONCENTRATION OF RISK:
Financial Risk:
The Company maintains its cash and cash equivalents at five financial
institutions which management believes are of high quality.
Geographic Concentration:
The Company's revenue is generated primarily in the New York City
metropolitan area. This concentration imposes on the Company certain risks,
which include local economic conditions, that are not within management's
control.
7. SUBSEQUENT EVENT:
Effective June 30, 1996, the Company agreed to sell certain fixed assets,
contracts and the Company name to the Insignia Financial Group Inc. (the
"Acquiror") for $49,300,000 in cash, $24,450,000 in common stock options of the
Acquiror plus a contingent purchase price feature. This transaction falls under
the definition of an Event in the stock option and deferred compensation
agreement (Note 5). Therefore, the outstanding stock options became fully vested
upon the consummation of the sale. The Company, however, prohibited the exercise
of the stock options by giving the option holders written notice before the
commencement of the exercise period and paying the option holders an amount
equal to the excess of the fair market value of the consideration which the
option holders would have received if the exercise of the stock options were not
prohibited over the exercise price of the shares. This payment amounted to
$40,278,570.
F-41
<PAGE> 111
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Realty One, Inc. and Affiliated Companies
We have audited the accompanying combined balance sheets of Realty One,
Inc. and affiliated companies as of December 31, 1996 and 1995 and the related
combined statements of income, changes in stockholders' equity and cash flows
for the years then ended. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Realty One,
Inc. and affiliated companies as of December 31, 1996 and 1995 and the combined
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
As disclosed in Note 12 to the combined financial statements, all of the
Companies' outstanding common stock was acquired by Insignia Financial Group,
Inc. effective October 1, 1997.
PLANTE & MORAN, LLP
Cleveland, Ohio
June 23, 1998
F-42
<PAGE> 112
REALTY ONE, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
ASSETS (Notes 5 and 6)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 3,683,569 $ 1,191,756
Mortgage loans held for sale.............................. 9,089,634 6,033,780
Commissions receivable.................................... 9,215,650 9,220,521
Accounts receivable:
Trade.................................................. 2,631,370 1,480,827
Sales associates....................................... 636,530 526,918
Fees earned on closed loans............................ 436,769 272,956
Affiliates (Note 2).................................... 79,126 100,664
Other.................................................. 344,426 679,518
Prepaid expenses and other current assets................. 446,716 423,854
----------- -----------
Total current assets.............................. 26,563,790 19,930,794
PROPERTY AND EQUIPMENT -- Net (Notes 3 and 7)............... 9,437,485 8,717,654
OTHER ASSETS
Intangible assets -- Net.................................. 2,573,374 2,683,940
Investments (Note 4)...................................... 732,731 643,892
Deposits and other........................................ 75,875 139,145
----------- -----------
Total other assets................................ 3,381,980 3,466,977
----------- -----------
Total assets...................................... $39,383,255 $32,115,425
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable -- Trade (Note 2)........................ $ 1,336,912 $ 2,020,303
Accounts payable -- Escrow agent.......................... 624,297 --
Lines of credit (Note 5).................................. 12,534,074 8,310,097
Commissions payable -- Sales agents....................... 5,450,488 5,484,291
Accrued expenses.......................................... 711,424 867,801
Accrued bonus............................................. 3,553,567 3,646,025
Current portion of long-term debt (Note 6)................ 1,570,061 1,839,250
Current portion of capital lease obligations (Note 7)..... 431,902 298,621
----------- -----------
Total current liabilities......................... 26,212,725 22,466,388
LONG-TERM LIABILITIES
Long-term debt -- Net of current portion (Note 6)......... 4,790,819 2,475,752
Capital lease obligations -- Net of current portion (Note
7)..................................................... 924,838 574,944
----------- -----------
Total long-term liabilities....................... 5,715,657 3,050,696
----------- -----------
Total liabilities................................. 31,928,382 25,517,084
STOCKHOLDERS' EQUITY (Note 12)
Voting common stock, no par value:
Authorized -- 12,250 shares
Issued and outstanding -- 11,750 shares................ 410,964 410,964
Nonvoting common stock, no par value:
Authorized -- 190,000 shares
Issued and outstanding -- 190,000 shares............... 2,953,817 2,953,817
Additional paid-in capital................................ 175,000 175,000
Retained earnings......................................... 3,915,092 3,058,560
----------- -----------
Total stockholders' equity........................ 7,454,873 6,598,341
----------- -----------
Total liabilities and stockholders' equity........ $39,383,255 $32,115,425
=========== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-43
<PAGE> 113
REALTY ONE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
REVENUE (Note 2)
Brokerage commissions..................................... $137,747,743 $126,456,224
Less co-broker commissions................................ 62,294,684 55,649,283
------------ ------------
Net brokerage commissions......................... 75,453,059 70,806,941
Net management revenue.................................... 1,715,967 1,591,480
Gain on sale of loans and servicing release fees.......... 5,131,740 4,288,534
Loan origination fees..................................... 1,297,809 1,139,251
Interest on mortgages..................................... 571,646 172,936
Application and loan fees................................. 783,815 594,250
Escrow fees............................................... 1,099,600 1,009,355
Other revenue............................................. 1,586,999 1,191,007
------------ ------------
Gross revenue..................................... 87,640,635 80,793,754
COMMISSIONS EXPENSE AND OTHER DIRECT COSTS OF REVENUE....... 47,838,923 45,093,224
------------ ------------
39,801,712 35,700,530
NET REVENUE
OPERATING EXPENSES
Compensation and benefits................................. 15,644,168 14,337,265
Facilities (Note 2)....................................... 4,946,155 4,781,313
General and administrative................................ 7,526,255 6,974,532
Marketing and promotion................................... 5,683,390 5,606,666
Communications............................................ 1,615,452 1,485,415
------------ ------------
Total operating expenses.......................... 35,415,420 33,185,191
------------ ------------
4,386,292 2,515,339
OPERATING INCOME
OTHER INCOME (EXPENSES)
Amortization expense...................................... (152,190) (161,515)
Interest expense.......................................... (1,335,185) (911,068)
Interest income........................................... 60,706 36,056
Income from investments................................... 47,240 --
------------ ------------
Total other expenses.............................. (1,379,429) (1,036,527)
------------ ------------
NET INCOME.................................................. $ 3,006,863 $ 1,478,812
============ ============
</TABLE>
See Notes to Combined Financial Statements.
F-44
<PAGE> 114
REALTY ONE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
VOTING NONVOTING ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
-------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE -- January 1, 1995........ $410,964 $2,953,817 $175,000 $ 3,031,738 $ 6,571,519
Net income........................ -- -- -- 1,478,812 1,478,812
Distributions..................... -- -- -- (1,451,990) (1,451,990)
-------- ---------- -------- ----------- -----------
BALANCE -- December 31, 1995...... 410,964 2,953,817 175,000 3,058,560 6,598,341
Net income........................ -- -- -- 3,006,863 3,006,863
Distributions..................... -- -- -- (2,150,331) (2,150,331)
-------- ---------- -------- ----------- -----------
BALANCE -- December 31, 1996...... $410,964 $2,953,817 $175,000 $ 3,915,092 $ 7,454,873
======== ========== ======== =========== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-45
<PAGE> 115
REALTY ONE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 3,006,863 $ 1,478,812
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization.......................... 2,202,650 1,896,277
Loss on sale of property and equipment................. 11,391 18,332
Gain on investment..................................... (47,240) --
Changes in assets and liabilities:
Mortgage loans held for sale......................... (3,055,854) (6,033,780)
Commissions receivable............................... 4,871 (1,189,811)
Accounts receivable:
Trade............................................. (1,150,543) (631,327)
Sales associates.................................. (109,612) (36,448)
Fees earned on closed loans....................... (163,813) 851,750
Affiliates........................................ 21,538 73,774
Other............................................. 335,092 (27,688)
Prepaid expenses and other current assets............ (22,862) (22,701)
Deposits and other................................... 68,886 (70,472)
Accounts payable..................................... (59,094) 741,140
Commission payable -- Sales agents................... (33,803) 903,696
Accrued expenses..................................... (156,377) (90,147)
Accrued bonus........................................ (92,458) (381,833)
----------- -----------
Net cash provided by (used in) operating
activities.................................. 759,635 (2,520,426)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment....................... (1,921,221) (2,739,267)
Proceeds from sale of property and equipment.............. 13,248 10,360
Increase in cash surrender value of life insurance
policies............................................... (18,816) (18,028)
Increase in investments................................... (70,023) --
----------- -----------
Net cash used in investing activities........... (1,996,812) (2,746,935)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt.............................. 10,570,475 3,627,895
Payments on long-term debt................................ (8,524,597) (1,673,837)
Payments on capital lease obligations..................... (390,534) (231,427)
Proceeds from lines of credit, net of repayments.......... 4,223,977 5,608,216
Distributions paid........................................ (2,150,331) (1,451,990)
----------- -----------
Net cash provided by financing activities....... 3,728,990 5,878,857
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,491,813 611,496
CASH AND CASH EQUIVALENTS -- Beginning of year.............. 1,191,756 580,260
----------- -----------
CASH AND CASH EQUIVALENTS -- End of year.................... $ 3,683,569 $ 1,191,756
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION -- Cash paid for
interest.................................................. $ 1,364,513 $ 890,728
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES -- Leases
capitalized............................................... $ 873,709 $ 205,044
=========== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-46
<PAGE> 116
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- The combined financial statements include the accounts of
Realty One, Inc. (ROI), Corporate Relocation Management, Inc. (CRM), First Ohio
Mortgage Corporation, Inc. (FOM) and First Ohio Escrow Corporation, Inc. (FOE)
(collectively, "the Companies"). The Companies are related through substantially
common ownership. ROI is engaged in real estate brokerage in the northern Ohio
area and provides management services for commercial, residential and
condominium properties. CRM is engaged in relocation management and marketing
assistance activities including, but not limited to, the acquisition and resale
of real estate throughout the United States. FOM is engaged in the origination
of single-family mortgages in the northern Ohio area for sale to outside
investors. FOE provides closing and mortgage escrow services on residential real
estate transactions in the northern Ohio area. All significant intercompany
balances and transactions have been eliminated in the combined financial
statements.
Cash Equivalents -- The Companies consider all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Mortgage Loans Held for Sale -- Mortgage loans held for sale are valued at
the lower of cost or market, determined on an aggregate basis, based on
commitments from investors to purchase such loans and on prevailing market
rates. Mortgage loans at December 31, 1996 and 1995 are due primarily from
individual homeowners in northern Ohio.
Revenue Recognition -- ROI recognizes commission revenue and commission
expense related to real estate sales transactions at the time a purchase and
sale agreement is signed. Allowances are recorded for amounts that are
determined to be not realizable. FOM recognizes fee income on sales of mortgage
loans when the related mortgage loans are sold. Fee income from loan origination
is recognized on the mortgage closing date. Interest deemed to be collectible on
mortgage loans held for sale is credited to income as accrued. Interest expense
on related borrowings is expensed as incurred. Due to the short length of time
most loans are held and the nature of the costs, there is not a material impact
on net income from applying the provisions of Statements of Financial Accounting
Standards ("SFAS") No. 91, Accounting for Nonrefundable Fees and Costs of
Originating and Acquiring Loans and Initial Direct Costs of Leases, and,
accordingly, there is no deferral of net fees or costs.
Property and Equipment -- Property and equipment are recorded at cost.
Depreciation is computed on the straight-line method over the estimated useful
lives of the purchased assets. Depreciation on leased assets is computed on the
straight-line method over the lesser of the useful life or lease term. Costs of
maintenance and repairs are charged to expense when incurred.
Intangible Assets -- As of December 31, 1996, intangible assets include
goodwill of $2,348,374 (net of accumulated amortization of $804,582) and a
covenant not to compete of $225,000 (net of accumulated amortization of
$525,000). Intangible assets as of December 31, 1995 include goodwill of
$2,383,940 (net of accumulated amortization of $716,920) and a covenant not to
compete of $300,000 (net of accumulated amortization of $450,000). Goodwill and
the covenant are being amortized on the straight-line method over 40 years and
10 years, respectively. Amortization expense totaled $152,190 and $161,515 for
1996 and 1995, respectively.
Income Taxes -- The Companies have elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code. In lieu of corporate income taxes,
the stockholders of an S Corporation are taxed on their proportionate share of
the Companies' taxable income.
Customer Deposits and Custodial Funds Held in Escrow -- The Companies have
a fiduciary responsibility for real estate escrow and custodial funds in the
amount of $3,919,321 and $3,350,265 at December 31,
F-47
<PAGE> 117
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1996 and 1995, respectively. The related trust cash accounts and corresponding
custodial liability are not included in the accompanying combined balance sheet.
401(k) Plan -- The Companies offer a 401(k) plan to employees. Under the
plan, employees can elect to have a portion of their wages deferred and set
aside for retirement. The Companies match eligible employee contributions as
defined in the plan document. The Companies contributed $73,717 and $80,707 to
the Plan in 1996 and 1995, respectively.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 -- RELATED PARTY TRANSACTIONS
The Companies share similar ownership and management with several
partnerships and corporations.
Revenue earned from affiliates includes maintenance and other management
services. ROI has also entered into an agreement to lease its corporate offices
from an affiliate. In addition, ROI advances funds to certain related entities
on a short-term basis.
Receivables from affiliates consist of receivables from various related
entities, due on demand, for maintenance performed, management fees and other
operating expenses.
Included in accounts payable at December 31, 1996 and 1995 is $39,736 and
$114,734, respectively, payable to an entity related through common ownership,
pursuant to a lease agreement.
The following transactions occurred during 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue:
Maintenance fees.......................................... $ 963,003 $ 727,505
Management fees........................................... 628,581 511,059
---------- ----------
Total revenue..................................... $1,591,584 $1,238,564
========== ==========
Expenses -- Office rentals.................................. $1,683,304 $1,415,632
========== ==========
</TABLE>
F-48
<PAGE> 118
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT
The Companies own the following real and tangible personal property as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
ESTIMATED
1996 1995 LIFE -- YEARS
----------- ----------- -------------
<S> <C> <C> <C>
Land....................................... $ 843,610 $ 843,610 --
Buildings and improvements................. 2,256,019 2,263,519 20-40
Leasehold improvements..................... 6,504,828 5,968,254 1-10
Furniture and office equipment............. 5,237,027 4,639,353 5
Computer equipment......................... 1,564,792 1,417,432 5
Automobiles................................ 303,598 330,602 5
Equipment under capital leases............. 2,276,170 1,469,889 1-10
Construction in progress................... 493,833 -- --
----------- -----------
Total cost....................... 19,479,877 16,932,659
Less accumulated depreciation and
amortization............................. 10,042,392 8,215,005
----------- -----------
Net carrying amount.............. $ 9,437,485 $ 8,717,654
=========== ===========
</TABLE>
Depreciation expense, including depreciation for equipment under capital
leases, totaled $2,050,460 and $1,734,762 in 1996 and 1995, respectively.
NOTE 4 -- INVESTMENTS
ROI has invested in Realty One Land Company, which has purchased certain
properties for residential development. ROI uses the equity method of accounting
for investment in the land company. Under this method, the investment is carried
at cost, adjusted for ROI's proportionate share of undistributed earnings and
losses.
Investments in land are recorded at cost and the Companies capitalize all
costs incurred with maintaining the properties. Investments consist of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Realty One Land Company..................................... $439,371 $370,906
Land........................................................ 187,166 187,166
Cash surrender value of officers' life insurance............ 104,636 85,820
Other....................................................... 1,558 --
-------- --------
Total............................................. $732,731 $643,892
======== ========
</TABLE>
NOTE 5 -- LINES OF CREDIT
CRM has a $3,000,000 line of credit with a bank that is collateralized by
accounts receivable and documents of title and is guaranteed by ROI. Borrowings
bear interest at CRM's option of prime or LIBOR plus 2.5 percent. Borrowings on
this line as of December 31, 1996 and 1995 were $2,320,485 and $1,269,546,
respectively.
FOM maintains a $13,000,000 line of credit with a bank that expired on
April 30, 1997. The line of credit is collateralized by substantially all assets
of FOM and guaranteed by ROI. Advances on the line of credit can only be drawn
with evidence of a committed residential mortgage and each advance is limited to
the committed sale price of the related mortgage loan. Repayment of each advance
is to be made within 14 business days of the funding. The line of credit cannot
be used to fund any single residential mortgage in
F-49
<PAGE> 119
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
excess of $400,000. The interest rate on all advances under the line of credit
shall be at a rate per annum equal to the prime rate plus .25 percent (8.5
percent at December 31, 1996). Borrowings on this line as of December 31, 1996
and 1995 were $10,213,589 and $6,142,377, respectively.
ROI had a $4,000,000 line of credit that expired in 1996 and was not
renewed. This line, which was collateralized by commissions receivable, had
outstanding borrowings at December 31, 1995 of $898,174.
NOTE 6 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Term loan with a bank, with a $4,500,000 borrowing limit,
collateralized by all of ROI's property and receivables,
payable in monthly installments of $75,000 plus interest
at ROI's option of three rates -- (i) prime rate, (ii) the
bank's money market rate plus a specified margin, as
defined, or (iii) the bank's cost of funds rate plus 2.5
percent. The rate in effect at December 31, 1996 was 6.0
percent. Any remaining principal amounts outstanding are
due and payable at the expiration date of June 1, 2001.... $3,415,000 $ --
Revolving credit agreement with a bank with a $5,500,000
borrowing limit. The agreement is collateralized by all of
ROI's property and receivables. Advances on the credit
line are payable at the maturity date of September 30,
1999 and monthly interest payments at ROI's option of
three rates -- (i) the prime rate, (ii) the bank's money
market rate plus a specified margin, as defined, or (iii)
the bank's cost of funds rate plus 2.5 percent. The rate
in effect at December 31, 1996 was 6.0 percent............ 1,983,000 --
Note payable to an individual, unsecured, due on demand, and
interest varying with the prime lending rate. Personally
guaranteed by one of the stockholders..................... 400,000 400,000
Note payable to former owners of an acquired company,
unsecured and payable in monthly installments of $6,250,
noninterest-bearing. Final payment due December 1999...... 225,000 300,000
Notes payable to former owners of an acquired company,
unsecured and payable in monthly installments of $6,251
including interest at 9.0 percent. Final payment due
December 1999. Personally guaranteed by the stockholders
of the Companies.......................................... 196,494 251,127
Notes payable to a bank, collateralized by vehicles, with
monthly installments ranging from $350 to $866, and
interest rates ranging from 7.75 percent to 9.50 percent
maturing through 2000..................................... 60,619 82,085
Note payable to an individual, unsecured, payable in annual
installments ranging from $15,400 to $17,400,
noninterest-bearing. Final payment due January 1998....... 34,600 51,000
Note payable to an individual, collateralized by real
estate, payable in quarterly installments of $6,125 plus
interest at 8 percent. Final payment due September 1997... 18,375 42,875
</TABLE>
F-50
<PAGE> 120
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Note payable to a former owner of an acquired company,
unsecured and payable in nine annual installments of
$6,000, plus interest accruing at a rate equal to the
greater of (i) the prevailing short-term money market rate
of interest or (ii) the Applicable Federal Rate (AFR)
using long-term rates on annual compounding assumptions
(7.63 percent at December 31, 1996). Final payment due
December 1999............................................. $ 18,000 $ 24,000
Note payable to former owner of an acquired company,
unsecured and payable in monthly installments of $1,354,
noninterest-bearing. Final payment due April 1997......... 5,417 21,667
Note payable to former owner of an acquired company,
unsecured and payable in monthly installments of $292,
noninterest-bearing. Final payment due March 1998......... 4,375 --
Term loan with a financial institution, refinanced in
1996...................................................... -- 3,117,248
Note payable to a financial institution, collateralized by
real estate, payable in quarterly installments of $12,500
plus interest at prime plus .5 percent. Final payment made
June 1996................................................. -- 25,000
---------- ----------
Total long-term debt.............................. 6,360,880 4,315,002
Less current portion.............................. 1,570,061 1,839,250
---------- ----------
Long-term debt -- Net of current portion.......... $4,790,819 $2,475,752
========== ==========
</TABLE>
The term loan and revolving credit agreement contain various covenants that
require, among other things, the maintenance of minimum levels of net worth and
debt service coverage, as defined, and certain restrictions with respect to
additional borrowings.
The revolving credit agreement also calls for a quarterly commitment fee of
.25 percent per annum on the unused credit line for the length of the agreement.
Minimum principal payments on long-term debt to maturity as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $1,570,061
1998........................................................ 1,085,835
1999........................................................ 3,052,420
2000........................................................ 652,564
----------
Total............................................. $6,360,880
==========
</TABLE>
F-51
<PAGE> 121
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LONG-TERM LEASES AND OTHER COMMITMENTS
Equipment under capital leases is recorded at the cost of the equipment at
the inception of the lease. At December 31, 1996, future minimum lease payments
under capital leases amounted to the following:
<TABLE>
<CAPTION>
<S> <C>
1997........................................................ $ 507,412
1998........................................................ 389,334
1999........................................................ 282,087
2000........................................................ 249,802
2001........................................................ 102,151
----------
Total............................................. 1,530,786
Less amounts representing interest, sales tax and
maintenance charges.................................... 174,046
----------
Present value of net minimum lease payments under capital
leases................................................. 1,356,740
Less current portion...................................... 431,902
----------
Capital lease obligations -- Net of current
portion.......................................... $ 924,838
==========
</TABLE>
The net carrying amount of office equipment recorded under capital leases
included with Companies-owned property and equipment totaled $1,318,310 and
$790,023 at December 31, 1996 and 1995, respectively, net of accumulated
depreciation of $957,860 and $679,866 at December 31, 1996 and 1995,
respectively.
The Companies operate principally in leased premises. Outstanding lease
terms generally range from 5 to 10 years with options of renewal for additional
periods.
At December 31, 1996, the approximate future minimum lease payments under
operating leases, including lease agreements with entities related through
common ownership, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING RELATED
DECEMBER 31 PARTIES OTHER TOTAL
------------ ----------- ----------- -----------
<S> <C> <C> <C>
1997.......................................... $ 1,521,450 $ 2,699,691 $ 4,221,141
1998.......................................... 1,430,455 2,351,611 3,782,066
1999.......................................... 1,350,331 1,861,366 3,211,697
2000.......................................... 1,254,387 1,321,739 2,576,126
2001.......................................... 1,147,548 1,065,851 2,213,399
Thereafter.................................... 3,873,586 2,648,145 6,521,731
----------- ----------- -----------
Total............................... $10,577,757 $11,948,403 $22,526,160
=========== =========== ===========
</TABLE>
Rental expense under all operating leases, including amounts paid to
affiliates (see Note 2) was $3,934,077 and $3,727,807 for 1996 and 1995,
respectively.
NOTE 8 -- CONTINGENCIES
ROI is uninsured for errors and omissions on real estate sales transactions
brokered by ROI or its sales agents. ROI has recorded a liability for future
losses due to errors and omissions claims of $150,000 and $500,000 at December
31, 1996 and 1995, respectively. Total expenses incurred to settle errors and
omissions claims were $63,460 and $31,852 in 1996 and 1995, respectively.
ROI is a defendant in a lawsuit filed by an international franchise
organization and some of its local franchisee companies who have asserted claims
against ROI and another Ohio real estate broker. Those claims include antitrust
allegations, unfair competition allegations and other related claims. The
lawsuit asserts claims for an unspecified amount of damages and equitable
relief. ROI has denied all those claims and asserted its own counterclaims
against the plaintiffs for antitrust violations and unfair competition. On
F-52
<PAGE> 122
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
March 19, 1996, the District Court granted ROI's motion for summary judgment on
all of the plaintiffs' claims. Additionally, the Court denied the plaintiffs'
motions for summary judgment on one of ROI's counterclaims. The plaintiffs have
appealed the District Court's ruling. Management and legal counsel believe that
the likelihood of ROI suffering a material loss is remote.
NOTE 9 -- STOCK RIGHTS
Under an employment contract between ROI and one of its stockholders, ROI
has the right to repurchase the shares of the stockholder upon his termination
of employment for any reason. The repurchase price is based on a formula
specified by contract.
NOTE 10 -- EMPLOYMENT AGREEMENTS
ROI maintains employment agreements with certain stockholders. These
agreements stipulate the terms of employment and include a three-year covenant
not to compete, which would be effective only in a limited circumstance.
NOTE 11 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
FOM is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. The primary financial
instruments are commitments to extend credit and commitments to sell originated
mortgage loans. These instruments involve elements of credit and market risk in
excess of the amounts recognized in the combined balance sheet.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract between
the time a mortgage loan is approved and closed. Commitments generally have
fixed expiration dates or other termination clauses. For each mortgage loan held
for sale and commitment to extend credit, FOM has obtained a commitment from an
investor to acquire the mortgage loan, thereby reducing market risk and
eliminating future cash requirements. FOM evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained upon
extension of credit, if any, is based on management's credit evaluation of the
counterparty. Collateral held is residential real estate. Commitments to extend
credit totaled approximately $18,000,000 at December 31, 1996.
NOTE 12 -- SUBSEQUENT EVENTS
Effective October 1, 1997, all of the Companies' outstanding common stock
was acquired by Insignia Financial Group, Inc. ("Insignia"). The Stock Purchase
Agreement includes provisions under which the Companies' stockholder will
indemnify Insignia for, and will pay to Insignia or the Companies, the amount of
any loss, liability, claim, damage or expense arising from any liabilities or
obligations related to the period prior to October 1, 1997, including all taxes
related to the Companies' operations through October 1, 1997 and including any
taxes attributable to the sale of the Companies' stock.
On March 17, 1998, Insignia entered into an Agreement and Plan of Merger
with Apartment Investment and Management Company ("AIMCO"), pursuant to which
the Companies will merge with and into AIMCO. Prior to the AIMCO merger,
Insignia will spin off to its stockholders the stock of an entity that will
become a separate public company. The Companies will be included in the spin-off
transaction. Pursuant to the Indemnification Agreement entered into in
connection with the Merger Agreement, the spin-off companies will provide
indemnification for certain liabilities arising under the Merger Agreement. The
merger and spin-off are expected to close in the third quarter of 1998.
F-53
<PAGE> 123
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- IMPACT OF THE YEAR 2000 (UNAUDITED)
Certain older computer programs use two digits rather than four to define
the applicable year. As a result, those computer systems recognize dates using
"00" as the year 1900 rather than the year 2000. This Year 2000 issue can cause
a system failure or miscalculations resulting in disruptions of operations
including, among other things, a temporary inability to process transactions,
issue invoices or engage in similar normal business activities.
The Companies rely on a number of packaged software systems, which its
vendors have represented will not be affected by the Year 2000 issue. The
Companies have also considered their relationships with significant vendors or
other third parties and are aware of no instances in which such third parties'
failure to address their own Year 2000 issues could adversely impact the
Companies' systems or operations.
Based on its review and assessment of risk associated with the Year 2000
issue, the Companies believe the Year 2000 will not have a material impact on
its operations. However, there can be no guarantee that the software vendors and
other third parties, upon whose representations the Companies are relying, have
identified or will complete all necessary conversions on a timely basis to
insure that the Year 2000 issue does not have an adverse effect on the
Companies' systems or operations.
F-54
<PAGE> 124
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Realty One, Inc. and Affiliated Companies
We have audited the accompanying combined balance sheet of Realty One, Inc.
and affiliated companies as of September 30, 1997 and the related combined
statements of income, changes in stockholders' equity and cash flows for the
nine months then ended. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audit. We did not
audit the financial statements of First Ohio Mortgage Corporation, Inc., a
combined entity, whose statements reflect total assets of $10,553,850 as of
September 30, 1997 and total revenue of $6,070,610 for the nine months then
ended. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for First Ohio Mortgage Corporation, Inc., is based solely on the report of the
other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of Realty One, Inc. and affiliated
companies as of September 30, 1997 and the combined results of their operations
and their cash flows for the nine months then ended, in conformity with
generally accepted accounting principles.
As disclosed in Note 11 to the combined financial statements, all of the
Company's outstanding common stock was acquired by Insignia Financial Group,
Inc. effective October 1, 1997.
PLANTE & MORAN, LLP
Cleveland, Ohio
June 23, 1998
F-55
<PAGE> 125
REALTY ONE, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1997
(WITH UNAUDITED COMPARATIVE BALANCES AT SEPTEMBER 30, 1996)
ASSETS (Notes 4 and 5)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,509,580 $ 2,206,327
Mortgage loans held for sale.............................. 8,413,730 4,758,046
Commissions receivable.................................... 14,205,646 12,746,129
Accounts receivable:
Trade................................................... 1,607,881 3,567,307
Sales associates........................................ 477,723 446,656
Fees earned on closed loans............................. 361,202 422,830
Affiliates.............................................. -- 5,804
Other................................................... 279,718 279,797
Prepaid expenses and other current assets................. 877,802 436,965
----------- -----------
Total current assets............................... 27,733,282 24,869,861
PROPERTY AND EQUIPMENT -- Net (Notes 3 and 6)............... 5,929,998 9,145,423
OTHER ASSETS
Intangible assets -- Net.................................. 2,456,354 2,563,671
Investments............................................... -- 645,450
Deposits and other........................................ 102,565 52,531
----------- -----------
Total other assets................................. 2,558,919 3,261,652
----------- -----------
Total assets....................................... $36,222,199 $37,276,936
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable -- Trade................................. $ 4,631,215 $ 1,743,837
Lines of credit (Note 4).................................. 10,670,739 8,819,769
Commissions payable -- Sales agents....................... 7,874,926 7,051,297
Accrued expenses.......................................... 1,508,953 1,024,795
Accrued bonus............................................. 3,565,697 3,618,278
Current portion of long-term debt (Note 5)................ 917,200 613,503
Current portion of capital lease obligations (Note 6)..... 354,718 452,034
----------- -----------
Total current liabilities......................... 29,523,448 23,323,513
LONG-TERM LIABILITIES
Long-term debt -- Net of current portion (Note 5)......... 4,148,000 5,055,678
Capital lease obligations -- Net of current portion (Note
6)..................................................... 644,472 1,013,299
----------- -----------
Total long-term liabilities....................... 4,792,472 6,068,977
----------- -----------
Total liabilities................................. 34,315,920 29,392,490
STOCKHOLDERS' EQUITY (Note 12)
Voting common stock, no par value:
Authorized -- 12,250 shares
Issued and outstanding -- 11,750 shares................ 298,896 410,964
Nonvoting common stock, no par value:
Authorized -- 190,000 shares
Issued and outstanding -- 190,000 shares............... 824,519 2,953,817
Additional paid-in capital................................ -- 175,000
Retained earnings......................................... 782,864 4,344,665
----------- -----------
Total stockholders' equity........................ 1,906,279 7,884,446
----------- -----------
Total liabilities and stockholders' equity........ $36,222,199 $37,276,936
=========== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-56
<PAGE> 126
REALTY ONE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(WITH UNAUDITED COMPARATIVE BALANCES FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
REVENUE (Note 2)
Brokerage commissions..................................... $116,790,354 $110,221,423
Less co-broker commissions................................ 51,702,847 50,171,790
------------ ------------
Net brokerage commissions......................... 65,087,507 60,049,633
Net management revenue.................................... 1,277,282 1,370,345
Gain on sale of loans and servicing release fees.......... 3,978,423 3,758,823
Loan origination fees..................................... 969,100 967,282
Interest on mortgages..................................... 458,631 388,580
Application and loan fees................................. 608,083 643,567
Escrow fees............................................... 793,268 848,495
Other revenue............................................. 1,424,648 804,964
------------ ------------
Gross revenue..................................... 74,596,942 68,831,689
COMMISSIONS EXPENSE AND OTHER DIRECT COSTS OF REVENUE....... 41,172,110 38,251,591
------------ ------------
NET REVENUE................................................. 33,424,832 30,580,098
OPERATING EXPENSES
Compensation and benefits................................. 13,650,740 11,641,206
Facilities (Note 2)....................................... 4,264,134 3,772,303
General and administrative................................ 6,153,868 5,688,497
Marketing and promotion................................... 4,768,979 4,109,953
Communications............................................ 1,264,589 1,198,029
------------ ------------
Total operating expenses.......................... 30,102,310 26,409,988
------------ ------------
OPERATING INCOME............................................ 3,322,522 4,170,110
OTHER INCOME (EXPENSES)
Amortization expense...................................... (114,924) (113,987)
Interest expense.......................................... (864,769) (938,701)
Interest income........................................... 34,931 43,965
Income from investment.................................... 165,924 50
------------ ------------
Total other expenses.............................. (778,838) (1,008,673)
------------ ------------
INCOME -- Before provision for taxes........................ 2,543,684 3,161,437
INCOME TAX EXPENSE.......................................... (462,000) --
------------ ------------
NET INCOME.................................................. $ 2,081,684 $ 3,161,437
============ ============
</TABLE>
See Notes to Combined Financial Statements.
F-57
<PAGE> 127
REALTY ONE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
VOTING NONVOTING ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
--------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE -- January 1, 1997.... $ 410,964 $ 2,953,817 $ 175,000 $ 3,915,092 $ 7,454,873
Net income.................... -- -- -- 2,081,684 2,081,684
Distributions (Note 2)........ (112,068) (2,129,298) (175,000) (5,213,912) (7,630,278)
--------- ----------- --------- ----------- -----------
BALANCE -- September 30,
1997........................ $ 298,896 $ 824,519 $ -- $ 782,864 $ 1,906,279
========= =========== ========= =========== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-58
<PAGE> 128
REALTY ONE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(WITH UNAUDITED COMPARATIVE BALANCES FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 2,081,684 $ 3,161,437
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization.......................... 1,831,835 1,714,765
Gain on sale of assets................................. (96,278) (1,558)
Changes in assets and liabilities:
Mortgage loans held for sale......................... 675,904 1,275,734
Commissions receivable............................... (5,145,656) (3,525,608)
Accounts receivable:
Trade............................................. 1,023,489 (2,086,480)
Sales associates.................................. 158,807 80,262
Fees earned on closed loans....................... 75,567 (149,874)
Affiliates........................................ 79,126 94,860
Other............................................. 64,552 399,720
Prepaid expenses and other assets.................... (494,040) 79,784
Accounts payable..................................... 2,703,936 (276,467)
Commissions payable -- Sales agents.................. 2,424,438 1,567,006
Accrued expenses..................................... 801,976 156,993
Accrued bonus........................................ 12,130 (27,747)
----------- -----------
Net cash provided by operating activities....... 6,197,470 2,462,827
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment....................... (1,719,751) (1,181,426)
Proceeds from sale of assets.............................. 353,009 --
----------- -----------
Net cash used in investing activities........... (1,366,742) (1,181,426)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt.............................. -- 1,890,476
Payments on long-term debt................................ (1,295,680) (900,000)
Payments on capital lease obligations..................... (335,554) (255,351)
Proceeds from lines of credit, net of repayments.......... (1,863,335) 873,375
Distributions paid........................................ (3,510,148) (1,875,331)
----------- -----------
Net cash used in financing activities........... (7,004,717) (266,831)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (2,173,989) 1,014,570
CASH AND CASH EQUIVALENTS -- Beginning of period............ 3,683,569 1,191,756
----------- -----------
CASH AND CASH EQUIVALENTS -- End of period.................. $ 1,509,580 $ 2,206,326
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION -- Cash paid for
interest.................................................. $ 864,769 $ 938,701
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
LEASES CAPITALIZED.......................................... $ 375,892 $ 847,119
=========== ===========
PROPERTY, NET OF CERTAIN LIABILITIES, DISTRIBUTED TO
STOCKHOLDERS.............................................. $ 4,120,130 $ --
=========== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-59
<PAGE> 129
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- The combined financial statements include the accounts of
Realty One, Inc. (ROI), Corporate Relocation Management, Inc. (CRM), First Ohio
Mortgage Corporation, Inc. (FOM) and First Ohio Escrow Corporation, Inc. (FOE)
(collectively, the "Companies"). The Companies are related through substantially
common ownership. ROI is engaged in real estate brokerage in the northern Ohio
area and provides management services for commercial, residential and
condominium properties. CRM is engaged in relocation management and marketing
assistance activities including, but not limited to, the acquisition and resale
of real estate throughout the United States. FOM is engaged in the origination
of single-family mortgages in the northern Ohio area for sale to outside
investors. FOE provides closing and mortgage escrow services on residential real
estate transactions in the northern Ohio area. All significant intercompany
balances and transactions have been eliminated in the combined financial
statements.
Cash Equivalents -- The Companies consider all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Mortgage Loans Held for Sale -- Mortgage loans held for sale are valued at
the lower of cost or market, determined on an aggregate basis, based on
commitments from investors to purchase such loans and on prevailing market
rates. Mortgage loans at September 30, 1997 are due primarily from individual
homeowners in northern Ohio.
Revenue Recognition -- ROI recognizes commission revenue and commission
expense related to real estate sales transactions at the time of purchase and
sale agreement is signed. Allowances are recorded for amounts that are
determined to be not realizable. FOM recognizes fee income on sales of mortgage
loans when the related mortgage loans are sold. Fee income from loan origination
is recognized on the mortgage closing date. Interest deemed to be collectible on
mortgage loans held for sale is credited to income as accrued. Interest expense
on related borrowings is expensed as incurred. Due to the short length of time
most loans are held and the nature of the costs, there is not a material impact
on net income from applying the provisions of Statements of Financial Accounting
Standards ("SFAS") No. 91, Accounting for Nonrefundable Fees and Costs of
Originating and Acquiring Loans and Initial Direct Costs of Leases, and,
accordingly, there is no deferral of net fees or costs.
Property and Equipment -- Property and equipment are recorded at cost.
Depreciation is computed on the straight-line method over the estimated useful
lives of the purchased assets. Depreciation on leased assets is computed on the
straight-line method over the lesser of the useful life or lease term. Costs of
maintenance and repairs are charged to expense when incurred.
Intangible Assets -- As of September 30, 1997, intangible assets include
goodwill of $2,287,604 (net of accumulated amortization of $919,506) and a
covenant not to compete of $168,750 (net of accumulated amortization of
$581,250). Goodwill and the covenant are being amortized on the straight-line
method over 40 years and 10 years, respectively. Amortization expense totaled
$114,924 for the nine months ended September 30, 1997.
Income Taxes -- The Companies have elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code. In lieu of corporate income taxes,
the stockholders of an S Corporation are taxed on their proportionate share of
the Companies' taxable income.
In conjunction with the sale of all of the Companies issued and outstanding
stock as discussed in Note 11, the Companies' S Corporation status under the
Internal Revenue Code and respective state codes terminated effective October 1,
1997. The income tax expense for the period ended September 30, 1997 represents
deferred income taxes for built-in-gains associated with the conversion to C
Corporation status.
F-60
<PAGE> 130
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Customer Deposits and Custodial Funds Held in Escrow -- The Companies have
a fiduciary responsibility for real estate escrow and custodial funds in the
amount of $5,517,062 at September 30, 1997. The related trust cash accounts and
corresponding custodial liability are not included in the accompanying combined
balance sheet.
401(k) Plan -- The Companies offer a 401(k) plan to employees. Under the
plan, employees can elect to have a portion of their wages deferred and set
aside for retirement. The Companies match eligible employee contributions as
defined in the plan document. Combined contributions for the nine months ended
September 30, 1997 were $69,146.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 -- RELATED PARTY TRANSACTIONS
The Companies share similar ownership and management with several
partnerships and corporations.
Revenue earned from affiliates includes maintenance and other management
services. ROI has also entered into an agreement to lease its corporate offices
from an affiliate. In addition, ROI advances funds to certain related entities
on a short-term basis.
The following transactions occurred during the nine months ended September
30, 1997:
<TABLE>
<S> <C>
Revenue:
Maintenance fees.......................................... $ 542,310
Management fees........................................... 504,203
----------
Total revenue..................................... $1,046,513
==========
Expenses -- Office rentals.................................. $1,303,488
==========
</TABLE>
In addition, during the nine months ended September 30, 1997, the Companies
made cash distributions of $3,510,148 and distributed assets, net of
liabilities, with a net book value of $4,120,130 to the stockholders of ROI. The
net book value of the property distributed approximates the fair value at
September 30, 1997. Certain amounts of the total of these distributions exceeded
the available retained earnings of the individual company. The excess was
charged against paid-in capital to the extent available and then pro rata to
each class of common stock as a return of capital.
F-61
<PAGE> 131
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT
The Companies own the following real and tangible personal property as of
September 30, 1997:
<TABLE>
<CAPTION>
ESTIMATED
AMOUNT LIFE -- YEARS
----------- -------------
<S> <C> <C>
Leasehold improvements..................................... $ 6,683,738 1-10
Furniture and office equipment............................. 5,587,526 5
Computer equipment......................................... 1,768,084 5
Automobiles................................................ 36,215 5
Equipment under capital leases............................. 2,652,067 1-10
Construction in progress................................... 8,376 --
-----------
Total cost....................................... 16,736,006
Less accumulated depreciation and amortization............. 10,806,008
-----------
Net carrying amount.............................. $ 5,929,998
===========
</TABLE>
Depreciation expense, including depreciation for equipment under capital
leases, totaled $1,716,911 for the nine months ended September 30, 1997.
NOTE 4 -- LINES OF CREDIT
CRM has a $3,000,000 line of credit with a bank, which is collateralized by
accounts receivable and documents of title and is guaranteed by ROI. Borrowings
bear interest at CRM's option of prime or LIBOR plus 2.5 percent. Borrowings on
this line as of September 30, 1997 were $1,586,608.
FOM maintains a $15,000,000 line of credit with a bank that expired on
April 30, 1998. The line of credit is collateralized by substantially all assets
of FOM and guaranteed by ROI. Advances on the line of credit can only be drawn
with evidence of a committed residential mortgage and each advance is limited to
the committed sale price of the related mortgage loan. Repayment of each advance
is to be made within 14 business days of the funding. The line of credit cannot
be used to fund any single residential mortgage in excess of $400,000. The
interest rate on all advances under the line of credit shall be at a rate per
annum equal to the prime rate plus .25 percent (8.5 percent at September 30,
1997). Borrowings on this line as of September 30, 1997 were $9,084,131.
F-62
<PAGE> 132
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1997:
<TABLE>
<S> <C>
Revolving credit agreement with a bank with a $5,500,000
borrowing limit. The agreement is collateralized by all of
ROI's property and receivables. Advances on the credit
line are payable at the maturity date of September 30,
1999. Interest, charged at a variable rate (6.35 percent
at September 30, 1997), is payable monthly................ $3,498,000
Term loan with a bank, with a $4,500,000 borrowing limit,
collateralized by all of ROI's property and receivables,
payable in monthly installments of $75,000 plus interest
at a variable rate (6.35 percent at September 30, 1997).
Any remaining principal amounts outstanding are due and
payable at the expiration date of June 1, 2001............ 1,550,000
Note payable to an individual, unsecured,
noninterest-bearing....................................... 17,200
----------
Total long-term debt.............................. 5,065,200
Less current portion.............................. 917,200
----------
Long-term debt -- Net of current portion.......... $4,148,000
==========
</TABLE>
The term loan and revolving credit agreement contain various covenants that
require, among other things, the maintenance of minimum levels of net worth and
debt service coverage, as defined, and certain restrictions with respect to
additional borrowings.
The revolving credit agreement also calls for a quarterly commitment fee of
.25 percent per annum on the unused credit line for the length of the agreement.
Minimum principal payments on long-term debt to maturity as of September
30, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 917,200
1999........................................................ 4,148,000
----------
Total............................................. $5,065,200
==========
</TABLE>
NOTE 6 -- LONG-TERM LEASES AND OTHER COMMITMENTS
Equipment under capital leases is recorded at the cost of the equipment at
the inception of the lease. At September 30, 1997, future minimum lease payments
under capital leases amounted to the following:
<TABLE>
<S> <C>
1998........................................................ $ 422,423
1999........................................................ 282,133
2000........................................................ 243,077
2001........................................................ 133,208
2002........................................................ 25,229
----------
Total............................................. 1,106,070
Less amounts representing interest, sales tax and
maintenance charges.................................... 106,880
----------
Present value of net minimum lease payments under capital
leases................................................. 999,190
Less current portion...................................... 354,718
----------
Capital lease obligations -- Net of current
portion.......................................... $ 644,472
==========
</TABLE>
The net carrying amount of office equipment recorded under capital leases
included with Companies-owned property and equipment totaled $1,286,080 at
September 30, 1997, net of accumulated depreciation of $1,365,987 at September
30, 1997.
F-63
<PAGE> 133
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Companies operate principally in leased premises. Outstanding lease
terms generally range from 5 to 10 years with options of renewal for additional
periods.
At September 30, 1997, the approximate future minimum lease payments under
operating leases, including lease agreements with entities related through
common ownership, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING RELATED
SEPTEMBER 30 PARTIES OTHER TOTAL
- ------------ ---------- ----------- -----------
<S> <C> <C> <C>
1998........................................... $1,434,567 $ 2,843,977 $ 4,278,544
1999........................................... 1,364,785 2,284,062 3,648,847
2000........................................... 1,386,260 1,690,818 3,077,078
2001........................................... 1,244,714 1,463,356 2,708,070
2002........................................... 1,124,972 1,318,407 2,443,379
Thereafter..................................... 3,223,464 4,014,952 7,238,416
---------- ----------- -----------
Total................................ $9,778,762 $13,615,572 $23,394,334
========== =========== ===========
</TABLE>
Rental expense under all operating leases, including amounts paid to
affiliates (see Note 2) was $3,537,497 for the nine months ended September 30,
1997.
NOTE 7 -- CONTINGENCIES
ROI is uninsured for errors and omissions on real estate sales transactions
brokered by ROI or its sales agents. ROI has recorded a liability for future
losses due to errors and omissions claims of $150,000 at September 30, 1997.
Total expenses incurred to settle errors and omissions claims were $51,477 for
the nine months ended September 30, 1997.
ROI is a defendant in a lawsuit filed by an international franchise
organization and some of its local franchisee companies who have asserted claims
against ROI and another Ohio real estate broker. Those claims include antitrust
allegations, unfair competition allegations and other related claims. The
lawsuit asserts claims for an unspecified amount of damages and equitable
relief. ROI has denied all those claims and asserted its own counterclaims
against the plaintiffs for antitrust violations and unfair competition. On March
19, 1996, the district court granted ROI's motion for summary judgment on all of
the plaintiffs' claims. Additionally, the court denied the plaintiffs' motions
for summary judgment on one of ROI's counterclaims. The plaintiffs have appealed
the district court's ruling. Management and legal counsel believe that the
likelihood of ROI suffering a material loss is remote.
NOTE 8 -- STOCK RIGHTS
Under an employment contract between ROI and one of its stockholders, ROI
has the right to repurchase the shares of the stockholder upon his termination
of employment for any reason. The repurchase price is based on a formula
specified by contract.
NOTE 9 -- EMPLOYMENT AGREEMENTS
ROI maintains employment agreements with certain stockholders. These
agreements stipulate the terms of employment and include a three-year covenant
not to compete, which would be effective only in a limited circumstance.
NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
FOM is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. The
F-64
<PAGE> 134
REALTY ONE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
primary financial instruments are commitments to extend credit and commitments
to sell originated mortgage loans. These instruments involve elements of credit
and market risk in excess of the amounts recognized in the combined balance
sheet.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract between
the time a mortgage loan is approved and closed. Commitments generally have
fixed expiration dates or other termination clauses. For each mortgage loan held
for sale and commitment to extend credit, FOM has obtained a commitment from an
investor to acquire the mortgage loan, thereby reducing market risk and
eliminating future cash requirements. FOM evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained upon
extension of credit, if any, is based on management's credit evaluation of the
counterparty. Collateral held is residential real estate. Commitments to extend
credit totaled approximately $31,855,000 at September 30, 1997.
NOTE 11 -- SUBSEQUENT EVENTS
Effective October 1, 1997, all of the Companies outstanding common stock
was acquired by Insignia Financial Group, Inc. ("Insignia"). The Stock Purchase
Agreement includes provisions under which the Companies' stockholders will
indemnify Insignia for, and will pay to Insignia or the Companies, the amount of
any loss, liability, claim, damage or expense arising from any liabilities or
obligations related to the period prior to October 1, 1997, including all taxes
related to the Companies' operations through October 1, 1997 and including any
taxes attributable to the sale of the Companies' stock.
On March 17, 1998, Insignia entered into an Agreement and Plan of Merger
with Apartment Investment and Management Company ("AIMCO"), pursuant to which
the Companies will merge with and into AIMCO. Prior to the AIMCO merger,
Insignia will spin off to its stockholders the stock of an entity that will
become a separate public company. The Companies will be included in the spin-off
transaction. Pursuant to the Indemnification Agreement entered into in
connection with the Merger Agreement, the spin-off companies will provide
indemnification for certain liabilities arising under the Merger Agreement. The
merger and spin-off are expected to close in the third quarter of 1998.
NOTE 12 -- IMPACT OF THE YEAR 2000 (UNAUDITED)
Certain older computer programs use two digits rather than four to define
the applicable year. As a result, those computer systems recognize dates using
"00" as the year 1900 rather than the year 2000. This Year 2000 issue can cause
a system failure or miscalculations resulting in disruptions of operations
including, among other things, a temporary inability to process transactions,
issue invoices or engage in similar normal business activities.
The Companies rely on a number of packaged software systems that its
vendors have represented will not be affected by the Year 2000 issue. The
Companies have also considered their relationships with significant vendors or
other third parties and are aware of no instances in which such third parties'
failure to address their own Year 2000 issues could adversely impact the
Companies' systems or operations.
Based on its review and assessment of risk associated with the Year 2000
issue, the Companies believe the Year 2000 will not have a material impact on
its operations. However, there can be no guarantee that the software vendors and
other third parties, upon whose representations the Companies are relying, have
identified or will complete all necessary conversions on a timely basis to
ensure that the Year 2000 issue does not have an adverse effect on the
Companies' systems or operations.
F-65
<PAGE> 135
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 174,092 $232,326
Accounts receivable, net of allowance for doubtful
accounts of $20,558.................................... 962,015 459,231
Prepaid rent.............................................. -- 18,650
Prepaid taxes............................................. 5,885 --
---------- --------
Total current assets.............................. 1,141,992 710,207
Property and Equipment, net................................. 215,557 212,934
Other Assets
Deferred costs, net....................................... -- 11,364
---------- --------
Total assets...................................... $1,357,549 $934,505
========== ========
LIABILITIES AND MEMBERS' CAPITAL
Current Liabilities
Notes payable............................................. $ 169,522 $142,333
Accounts payable.......................................... 581,918 23,961
Accounts payable -- related party......................... 295,711 94,828
Accrued payroll........................................... 75,622 229,281
Accrued vacation.......................................... 75,794 85,333
Other accrued expenses.................................... 30,690 6,265
Deferred rent............................................. 70,365 --
Escrow deposits........................................... 7,100 9,250
Due to members............................................ 12,228 215,530
---------- --------
Total current liabilities......................... 1,318,950 806,781
Members' Capital............................................ 38,599 127,724
---------- --------
Total liabilities and members' capital............ $1,357,549 $934,505
========== ========
</TABLE>
See accompanying notes
F-66
<PAGE> 136
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
STATEMENTS OF INCOME
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues
Management fees........................................... $2,640,800 $2,559,987
Leasing commissions....................................... 1,116,239 1,144,509
Supervision fees.......................................... 497,058 278,123
Processing and other fees................................. 430,363 455,712
---------- ----------
4,684,460 4,438,331
Operating Expenses.......................................... 4,450,245 3,793,564
---------- ----------
Income from Operations...................................... 234,215 644,767
Other Income (Expenses)
Contributions............................................. (1,422) (630)
Interest expense.......................................... (1,594) --
Interest income........................................... 9,147 16,863
---------- ----------
6,131 16,233
Income Before Depreciation and Amortization and Provision
for Income Taxes.......................................... 240,346 661,000
Depreciation and Amortization............................... 103,950 145,925
---------- ----------
Income Before Provision for Income Taxes.................... 136,396 515,075
Provision for Income Taxes.................................. 9,917 37,500
---------- ----------
Net Income.................................................. $ 126,479 $ 477,575
========== ==========
</TABLE>
See accompanying notes
F-67
<PAGE> 137
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net income................................................ $ 126,479 $ 477,575
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization.......................... 103,950 145,925
Provision for doubtful accounts........................ 20,558 --
Changes in:
Restricted cash...................................... -- 25,000
Accounts receivable.................................. (466,249) 258,885
Prepaid taxes........................................ 17,700 --
Accounts payable..................................... 546,732 (5,882)
Accounts payable -- related party.................... 169,264 --
Income taxes payable................................. -- (35,000)
Accrued payroll...................................... 3,122 185,451
Accrued vacation..................................... (9,539) (25,940)
Other accrued expenses............................... (21,443) (43,488)
Deferred rent........................................ 87,400 8,066
Escrow deposits...................................... (9,650) (15,750)
--------- ---------
Net cash provided by operating activities......... 568,324 974,842
--------- ---------
Cash Flows from Investing Activities
Acquisition of property and equipment..................... (110,158) (162,368)
--------- ---------
Net cash used in investing activities............. (110,158) (162,368)
--------- ---------
Cash Flows from Financing Activities
Repayment of note payable................................. (40,665) --
Proceeds from note payable................................ 87,483... 127,722
Contributions from members................................ -- 20,000
Distributions to members.................................. (527,000) (414,250)
Payments of amounts due to members........................ -- (664,480)
--------- ---------
Net cash used in financing activities............. (480,182) (931,008)
--------- ---------
Net Decrease in Cash........................................ (22,016) (118,534)
Cash and Cash Equivalents, beginning of year................ 196,108 350,860
--------- ---------
Cash and Cash Equivalents, end of year...................... $ 174,092 $ 232,326
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 1,594 $ --
========= =========
Non-cash Financing Activity:
Accrued distributions to members.......................... $ 12,228 $ 102,286
========= =========
</TABLE>
See accompanying notes
F-68
<PAGE> 138
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BUSINESS
Barnes, Morris, Pardoe & Foster Management Services, L.P. was formed on
June 1, 1992 pursuant to the laws of the State of Delaware. Effective January 1,
1996, the Partnership converted to a limited liability company pursuant to the
laws of the State of Delaware, titled Barnes, Morris, Pardoe & Foster Management
Services, LLC (the "Company"). The Company was organized to conduct a real
estate property management business and certain related businesses including
parking management, supervising build-out of tenant space, leasing and financing
of managed assets, property consulting and asset management in the Washington,
D.C. regional area. The Company has a finite life and will cease to exist on
December 20, 2096 or earlier if any of the specific events described in the
operating agreement occur. No member is liable for any debts or obligations of
the Company.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed combined financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
SALE OF THE COMPANY
Effective November 1, 1997, the members of the Company sold their ownership
interests to Insignia Financial Group, Inc.
F-69
<PAGE> 139
BARNES, MORRIS, PARDOE & FOSTER, INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997 AND 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 2,607,863 $ 2,407,602
Marketable securities..................................... -- 10,000
Certificates of deposit................................... 1,050,429 --
Accounts receivable, net of allowance for doubtful
accounts of $736,732 and $285,585, respectively
Leasing commissions.................................... 3,175,650 2,745,219
Stockholders and employees............................. 25,659 4,233
Agents and other....................................... 300,791 530,754
Related parties........................................ 345,687 169,513
Advances to Smith Mack Barnes Morris Management Services,
LLP.................................................... 51,489 --
Distribution receivable................................... -- 216,668
Deferred tax asset........................................ 28,374 --
Prepaid expenses.......................................... 45,595 36,121
Prepaid taxes............................................. 31,448 --
----------- -----------
Total current assets.............................. 7,662,985 6,120,110
----------- -----------
Long-term Leasing Commissions Receivable.................... 938,329 810,764
Property and Equipment
Furniture and fixtures.................................... 1,108,750 1,108,750
Office equipment and vehicle.............................. 1,330,691 1,282,789
Leasehold improvements.................................... 226,530 226,529
Less accumulated depreciation............................. (2,292,000) (2,123,978)
----------- -----------
Total property and equipment...................... 373,971 494,090
----------- -----------
Investment in Barnes, Morris, Pardoe & Foster Management
Services, LLC............................................. 786,670 467,203
Investment in Barnes, Morris, Pardoe & Foster Management
Services Holdings Co., LLC................................ 88,811 13,677
Investment in Smith Mack Barnes Morris Management Service,
LLP....................................................... 3,354 --
----------- -----------
Total Assets...................................... $ 9,854,120 $ 7,905,844
=========== ===========
</TABLE>
See accompanying notes
F-70
<PAGE> 140
BARNES, MORRIS, PARDOE & FOSTER, INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997 AND 1996
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current Liabilities
Accounts payable.......................................... $2,319,238 $ 359,667
Commissions payable....................................... 1,915,929 2,404,483
Accrued expenses.......................................... 411,085 188,379
Accrued vacation.......................................... 21,886 19,535
Accrued salary............................................ 682,792 696,162
Accrued pension........................................... 100,000 75,000
Accrued loss on subleases................................. -- 76,778
Income taxes payable...................................... 22,610 170,296
Current portion of long-term debt
Treasury stock note.................................... 5,507 12,173
Other notes payable.................................... 44,544 130,546
Deferred tax liability.................................... -- 223,312
---------- ----------
Total current liabilities......................... 5,523,591 4,356,331
---------- ----------
Other Liabilities
Commissions payable....................................... 856,157 710,133
Security deposits......................................... 1,162 7,570
Deferred rent............................................. 248,754 329,224
---------- ----------
1,106,073 1,046,927
Total liabilities................................. 6,629,664 5,403,258
---------- ----------
Stockholders' Equity
Class A common stock, $.01 par value; 1,000 shares
authorized, 634.68 shares issued and outstanding....... 6 6
Class B common stock, $.01 par value; 1,000 shares
authorized, 365.32 shares issued and outstanding....... 4 4
Additional paid-in capital................................ 1,870,723 1,732,820
Retained earnings......................................... 1,353,723 843,089
---------- ----------
3,224,456 2,575,919
Treasury stock............................................ -- (73,333)
---------- ----------
Total stockholders' equity........................ 3,224,456 2,502,586
---------- ----------
Total Liabilities and Stockholders' Equity........ $9,854,120 $7,905,844
========== ==========
</TABLE>
See accompanying notes
F-71
<PAGE> 141
BARNES, MORRIS, PARDOE & FOSTER, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Revenues
Sales and leasing commissions earned...................... $ 16,470,153 $12,116,701
Financing commissions..................................... 254,800 --
Sales and leasing commissions paid and payable............ (10,635,726) (6,339,499)
------------ -----------
6,089,227 5,777,202
Income from Barnes, Morris, Pardoe & Foster Management
Services, LLC.......................................... 1,577 20,299
Loss from Barnes, Morris, Pardoe & Foster Management
Services Holdings Co., LLC............................. (5,929) (5,165)
Loss on investment in Smith Mack Barnes Morris Management
Services, LLP.......................................... (46,646) --
------------ -----------
6,038,229 5,792,336
------------ -----------
Expenses
Salaries and bonuses...................................... 2,439,346 2,212,718
General and administrative expenses....................... 3,714,293 2,972,784
Depreciation expense...................................... 116,546 153,778
------------ -----------
6,270,185 5,339,280
------------ -----------
(Loss)/Income from Operations............................... (231,956) 453,056
Realized Gain on Investments................................ 8,624 --
Interest Expense............................................ (6,792) (15,531)
Interest Income............................................. 109,015 48,610
------------ -----------
(Loss)/Income Before Provision for Income Taxes............. (121,109) 486,135
------------ -----------
Benefit/(Provision) for Income Taxes
Current tax benefit/(provision)........................... 69,354 (103,951)
Deferred tax benefit...................................... 450,132 22,943
------------ -----------
519,486 (81,008)
Net Income........................................ $ 398,377 $ 405,127
============ ===========
</TABLE>
See accompanying notes
F-72
<PAGE> 142
BARNES, MORRIS, PARDOE & FOSTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income................................................ $ 398,377 $ 405,127
Reconciliation adjustments
Depreciation and amortization.......................... 116,546 153,778
Income from Barnes, Morris, Pardoe & Foster Management
Services, LLC......................................... (1,577) (20,299)
Loss from Barnes, Morris, Pardoe & Foster Management
Services Holdings Co., LLC............................ 5,929 5,165
Loss from Smith Mack Barnes Morris Management Services,
LLP................................................... 46,646 --
Gain on sale of marketable securities.................. (8,624) --
Provision for losses on accounts receivable............ 249,590 285,586
Deferred income benefit................................ (450,131) (80,943)
Noncash commission expense............................. 211,237 --
Changes in:
Accrued interest receivable on certificate of
deposit............................................... (50,429) --
Accounts receivable:
Leasing commissions.................................. (1,038,047) (112,203)
Stockholders and employees........................... (21,565) 497
Agents and other..................................... (107,824) (2,284)
Related parties...................................... (144,250) (169,514)
Advances to Smith Mack Barnes Morris Management
Services, LLP......................................... (51,489) --
Prepaid expenses....................................... (50,793) (31,621)
Accounts payable....................................... 2,160,810 259,001
Commissions payable.................................... 308,277 641,122
Accrued pension........................................ -- 75,000
Accrued expenses....................................... 228,744 (29,621)
Accrued vacation....................................... 2,351 1,563
Accrued salary......................................... 599,767 633,228
Accrued loss on sublease............................... (42,009) (156,310)
Income taxes payable................................... (135,403) 50,105
Deposits............................................... (6,400) 7,570
Deferred rent.......................................... (190,211) (217,034)
----------- ----------
Net cash provided by operating activities................. 2,029,522 1,697,913
----------- ----------
Cash Flows from Investing Activities
Acquisition of property and equipment..................... (42,682) (53,392)
Distributions from Barnes, Morris, Pardoe & Foster
Management Services, LLC............................... 3,184 149,111
Investment in Smith Mack Barnes Morris Management Services
LLP.................................................... (50,000) --
Investment in marketable securities....................... (50,000) (10,000)
Proceeds from sale of marketable securities............... 172,330 --
----------- ----------
Net cash provided by investing activities......... 32,832 85,719
----------- ----------
Repayment of long-term debt............................... (64,821) (90,569)
Repayment of treasury stock note.......................... (908) (12,992)
----------- ----------
Net cash used in financing activities............. (65,729) (103,561)
----------- ----------
Net Increase in Cash and Cash Equivalents................... 1,996,625 1,680,071
Cash and Cash Equivalents, beginning of year................ 611,238 727,531
----------- ----------
Cash and Cash Equivalents, end of year...................... $ 2,607,863 $2,407,602
=========== ==========
Supplemental Cash Flow Disclosures
Cash paid for interest.................................... $ 6,792 $ --
=========== ==========
Cash paid for income taxes................................ $ 31,448 $ 88,000
=========== ==========
</TABLE>
See accompanying notes
F-73
<PAGE> 143
BARNES, MORRIS, PARDOE & FOSTER, MANAGEMENT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BUSINESS
Barnes, Morris, Pardoe & Foster, Inc. (the "Company") was formed for the
purpose of engaging in the business of commercial real estate sales, leasing,
financing, market research, and consulting in the Washington, D.C. regional
area. As such, the Company is directly affected by the well being of the local
real estate industry. The Company is incorporated in the District of Columbia.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed combined financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
SALE OF THE COMPANY
Effective November 1, 1997, the Shareholders of the Company sold their
ownership interests to Insignia Financial Group, Inc.
F-74
<PAGE> 144
REPORT OF THE AUDITORS
To the Board of Directors and Stockholders of
Barnes, Morris, Pardoe & Foster, Inc.
Washington, D.C.
We have audited the accompanying balance sheet of Barnes, Morris, Pardoe &
Foster, Inc., as of January 31, 1997, and the related statements of income,
changes in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Barnes, Morris, Pardoe &
Foster, Inc. as of January 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of general and
administrative expenses on page F-85 is presented for the purpose of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
BEERS & CUTLER PLLC
December 5, 1997
F-75
<PAGE> 145
BARNES, MORRIS, PARDOE & FOSTER, INC.
BALANCE SHEET
JANUARY 31, 1997
ASSETS
<TABLE>
<S> <C>
Current Assets
Cash and cash equivalents................................. $ 611,238
Marketable securities..................................... 113,706
Certificates of deposit................................... 1,000,000
Accounts receivable, net of allowance for doubtful
accounts of $487,142
Leasing commissions.................................... 1,812,955
Stockholders and employees............................. 4,094
Agents and other....................................... 267,354
Related parties........................................ 201,437
Distributions receivable.................................. 216,668
Prepaid expenses.......................................... 26,250
-----------
Total current assets.............................. 4,253,702
-----------
Long-term Leasing Commissions Receivable.................... 1,512,567
Property and Equipment
Furniture and fixtures.................................... 1,108,750
Office equipment and vehicle.............................. 1,288,010
Leasehold improvements.................................... 226,529
-----------
2,623,289
Less accumulated depreciation............................. (2,175,455)
-----------
Total property and equipment...................... 447,834
-----------
Investment in Barnes, Morris, Pardoe & Foster Management
Services, LLC ............................................ 571,609
Investment in Barnes, Morris, Pardoe & Foster Management
Services Holdings Co., LLC ............................... 20,354
-----------
Total Assets...................................... $ 6,806,066
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 146
BARNES, MORRIS, PARDOE & FOSTER, INC.
BALANCE SHEET
JANUARY 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current Liabilities
Accounts payable.......................................... $ 158,427
Commissions payable....................................... 1,724,711
Accrued expenses.......................................... 182,341
Accrued vacation.......................................... 19,535
Accrued salary............................................ 83,026
Accrued pension........................................... 100,000
Accrued loss on subleases................................. 42,009
Income taxes payable...................................... 158,013
Current portion of long-term debt
Treasury stock note.................................... 6,415
Other notes payable.................................... 83,333
Deferred tax liability.................................... 421,757
----------
Total current liabilities......................... 2,979,567
----------
Long-term Debt
Notes payable............................................. 26,032
Other Liabilities
Commissions payable....................................... 739,098
Security deposits......................................... 7,562
Deferred rent............................................. 438,965
----------
Total liabilities................................. 4,191,224
----------
Stockholders' Equity
Class A common stock, $.01 par value; 1,000 shares
authorized, 634.68 shares issued and outstanding....... 6
Class B common stock, $.01 par value; 1,000 shares
authorized, 365.32 shares issued, 344.09 shares
outstanding............................................ 4
Additional paid-in capital................................ 1,732,819
Retained earnings......................................... 955,346
----------
2,688,175
Treasury stock............................................ (73,333)
----------
Total stockholders' equity........................ 2,614,842
----------
Total Liabilities and Stockholders' Equity........ $6,806,066
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 147
BARNES, MORRIS, PARDOE & FOSTER, INC.
INCOME STATEMENT
YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C>
Revenues
Sales and leasing commissions earned...................... $18,334,202
Sales and leasing commissions paid and payable............ 9,912,366
-----------
8,421,836
Income from Barnes, Morris, Pardoe & Foster Management
Services, LLC.......................................... 124,714
Income from Barnes, Morris, Pardoe & Foster Management
Services Holdings Co., LLC............................. 1,512
-----------
8,548,062
-----------
Expenses
Salaries and bonuses...................................... 3,250,291
General and administrative expenses....................... 4,309,500
Depreciation expense...................................... 205,255
-----------
7,765,046
-----------
Income from Operations...................................... 783,016
Unrealized Gain on Investments.............................. 13,706
Interest Expense............................................ (18,348)
Interest Income............................................. 81,177
-----------
Income Before Provision for Income Taxes.................... 859,551
-----------
Provision for Income Taxes
Current tax expense....................................... 224,668
Deferred tax expense...................................... 117,502
-----------
342,170
-----------
Net Income........................................ $ 517,381
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE> 148
BARNES, MORRIS, PARDOE & FOSTER, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
-------------- ADDITIONAL
CLASS CLASS PAID-IN RETAINED TREASURY
A B CAPITAL EARNINGS STOCK TOTAL
----- ----- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1996........ $ 6 $ 4 $1,732,819 $437,965 $(73,333) $2,097,461
Net Income....................... -- -- -- 517,381 -- $ 517,381
--- --- ---------- -------- -------- ----------
Balance, January 31, 1997........ $ 6 $ 4 $1,732,819 $955,346 $(73,333) $2,614,842
=== === ========== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE> 149
BARNES, MORRIS, PARDOE & FOSTER, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net income................................................ $ 517,381
Reconciliation adjustments
Depreciation and amortization.......................... 205,255
Income from Barnes, Morris, Pardoe & Foster Management
Services, LLC......................................... (124,714)
Income from Barnes, Morris, Pardoe & Foster Management
Services Holdings Co., LLC............................ (1,512)
Unrealized gain on investments......................... (13,706)
Provision for losses on accounts receivable............ 487,142
Provision for deferred income taxes.................... 117,502
Changes in:
Accounts receivable:
Leasing commissions.................................. (83,073)
Stockholders and employees........................... 637
Agents and others.................................... 261,116
Related parties...................................... (201,437)
Deposits............................................... 7,562
Prepaid expenses....................................... (21,750)
Accounts payable....................................... 57,761
Commissions payable.................................... (9,685)
Income taxes payable................................... 37,822
Accrued expenses....................................... 64,340
Accrued salary......................................... 20,091
Accrued vacation....................................... 1,563
Deferred rent.......................................... (107,293)
Accrued sublease....................................... (191,079)
-----------
Net cash provided by operating activities......... 1,023,923
-----------
Cash Flows from Investing Activities
Purchase of certificate of deposit..................... (1,000,000)
Acquisition of property and equipment.................. (58,827)
Distributions from Barnes, Morris, Pardoe & Foster
Management Services, LLC.............................. 149,111
Investment in marketable securities.................... (100,000)
-----------
Net cash used in investing activities............. (1,009,716)
-----------
Cash Flows from Financing Activities
Repayment of long-term debt............................... (111,750)
Repayment of treasury stock note.......................... (18,750)
-----------
Net cash used in financing activities............. (130,500)
-----------
Net Decrease in Cash and Cash Equivalents................... (116,293)
Cash and Cash Equivalents, beginning of year................ 727,531
-----------
Cash and Cash Equivalents, end of year...................... $ 611,238
===========
Supplemental Cash Flow Disclosures
Cash paid for interest.................................... $ 18,348
===========
Cash paid for income taxes................................ $ 182,346
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE> 150
BARNES, MORRIS, PARDOE & FOSTER, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 31, 1997
1. ORGANIZATION
Barnes, Morris, Pardoe & Foster, Inc. (the Company) was formed for the
purpose of engaging in the business of commercial real estate sales, leasing,
financing, market research, and consulting in the Washington, D.C. regional
area. As such, the Company is directly affected by the well being of the local
real estate industry. The Company is incorporated in the District of Columbia.
On November 1, 1997, the shareholders of the Company sold their ownership
interests to an unrelated third party.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting -- The Company's financial statements are prepared
using generally accepted accounting principles.
Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and the disclosure of contingent assets and
liabilities.
Cash and Cash Equivalents -- The term cash and cash equivalents, as used in
the accompanying financial statements, includes currency on hand, demand
deposits and financial institutions, and short-term highly liquid investments
purchased with a maturity of three months or less.
The Company places its cash and temporary investments with financial
institutions which at times exceed federally insured limits. Management believes
the Company is not exposed to any significant credit risk on these accounts.
Escrow Accounts -- The accompanying financial statements do not include
cash of $58,370, which is held in escrow by the Company.
Accounts Receivable -- Accounts receivable generally includes leasing
commissions which the Company has earned for which payment has not yet been
received. Agents' commissions and co-broker fees related to these receivables
are reflected in the accompanying financial statements as commissions payable.
These expenses are payable upon receipt of the related leasing commission.
Leasing commissions earned but payable over the term of the respective
lease are segregated to present amounts due currently and amounts due after
January 31, 1998. Significant leasing commissions receivable over the term of a
long-term lease have been presented at estimated present value of the commission
payments to be collected.
Draws Receivable -- Accounts receivable from agents and others includes
draws advanced to agents and not yet repaid through commissions earned by those
agents.
Investments and Marketable Securities -- Investments are recorded using the
equity method of accounting.
The Company accounts for marketable securities under the provisions of the
Statement of Financial Accounting Standards No. 11 (SFAS 115). In accordance
with this statement, securities are classified as held-to-maturity, available
for sale, or trading. The Company has classified its marketable securities as
trading securities. Unrealized holding gains for trading securities are included
in earnings.
Property and Equipment -- Property and equipment are recorded at cost.
Depreciation of property and equipment is computed using accelerated
depreciation methods over asset lives ranging from 5 to 10 years. Leasehold
improvements are amortized straight-line over the life of the respective lease.
F-81
<PAGE> 151
BARNES, MORRIS, PARDOE & FOSTER, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Rent -- The term deferred rent, as used in the accompanying
financial statements, represents the benefit received from reduced rental
payments in early lease terms which are being amortized over the life of the
leases on a straight-line basis.
3. FINANCING ARRANGEMENTS
As part of a stock redemption agreement executed in January 1993, the
Company purchased 21.23 shares of Class B common stock for a total purchase
price of $73,333. The agreement provides for an initial payment of $14,667 with
the remaining balance evidenced by a 5-year note payable. Payments on the
treasury stock note are to be made in twenty quarterly installments of $2,933
plus interest on the outstanding balance beginning April 13, 1993. Interest is
computed on the outstanding balance at 7%.
The Company has available a $300,000 line of credit, with no outstanding
advances at January 31, 1997. The line is secured by the Company's accounts
receivable and guaranteed by the Company's stockholders. Interest accrues on the
amount outstanding at the prime rate.
The Company has a promissory note dated April 28, 1995 for the purchase of
computer equipment. The balance of the computer note at January 31, 1997 was
$109,365. The note accrues interest at the prime rate and monthly payments are
$6,944 plus interest.
Aggregate maturities of the above notes payable are as follows:
<TABLE>
<S> <C>
Year ending January 31, 1998............................. $ 83,333
1999........................... 26,032
--------
$109,365
========
</TABLE>
4. COMMITMENTS
The Company leases corporate office space and office equipment under
operating leases, none of which require any personal guarantees by the Company's
stockholders. The minimum future rental payments under noncancelable operating
leases as of January 31, 1997 for each of the next five years are as follows:
<TABLE>
<CAPTION>
OFFICE SPACE EQUIPMENT
------------ ---------
<S> <C> <C>
Year ending January 31, 1998................ $1,172,541 $14,220
1999.............. 1,115,313 14,220
2000.............. 1,000,858 4,740
2001.............. 1,000,858 --
2002.............. 135,396 --
---------- -------
$4,424,966 $33,180
========== =======
</TABLE>
The Company has various subleases for the office space which the Company
vacated. For the year ended January 31, 1997, sublease income was $253,978. The
minimum future sublease income due under noncancelable subleases as of January
31, 1997 is $39,716. The Company has recorded an accrued loss on subleases
representing the differential between minimum lease payments on vacated office
space and the minimum sublease payments to be received for such office space.
The Company has employment agreements with certain officers of the Company
which provide for annual salary payments plus bonuses based on the profitability
of the Company.
F-82
<PAGE> 152
BARNES, MORRIS, PARDOE & FOSTER, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENTS
During 1992, the Company acquired a limited partnership interest in Barnes,
Morris, Pardoe & Foster Management Services, L.P. (Management Services). On
January 1, 1996, Management Services was converted to a limited liability
company. As of January 31, 1997, the Company owned a 19.6% interest in
Management Services.
During the year ended January 31, 1997, distributions paid by Management
Services were $149,111 and there were distributions receivable from Management
Services of $213,483.
Income of $124,714 from the investment in Management Services was reported
for the year ended January 31, 1997. The Company is also due $128,643 from
Management Services for working capital advances made by the Company.
On January 1, 1996, the Company acquired a 2.123% interest in a newly
formed entity, Barnes, Morris, Pardoe & Foster Management Services Holding Co.,
LLC, (Holdings), which acquired additional ownership interests in Management
Services. During the year, the Company advanced $72,794 to Holdings for working
capital. The Company reported a $1,512 of income from Holdings for the year
ending January 31, 1997 and there were distributions receivable from Holdings of
$3,185 at year-end. The Company and its commonly controlled affiliate, Holdings,
own 90% of Management Services as of January 1, 1996.
6. RETIREMENT PLAN
The Company has a profit-sharing plan including a 401(k) plan feature for
all eligible employees of the Company who elect to participate. Participants may
contribute to the plan, on a pre-tax basis, an amount not to exceed the maximum
allowed by law. The Company's total contribution to the retirement plan was
$100,000 ($50,000 to the profit sharing portion and $50,000 for the employer
matching contribution to the 401(k) portion) for the year ended January 31,
1997.
7. INCOME TAXES
The Company files its federal and state income tax returns using the
accrual basis of accounting. As of February 1, 1997, the Company converted from
a C corporation to an S corporation. State income tax returns are filed for
Maryland, Virginia and District of Columbia operations. The provisions for
income taxes for the year ended January 31, 1997 are as follows:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Federal
Current................................................. $174,430
Deferred tax............................................ 92,100
--------
266,530
--------
State
Current................................................. 50,238
Deferred tax............................................ 25,402
--------
75,640
--------
Total........................................... $342,170
========
</TABLE>
Deferred income taxes are provided for timing differences in reporting
income and expenses for financial statement and income tax purposes. The primary
timing differences are as follows. The Company uses different asset lives to
depreciate leasehold improvements for financial statement and income tax
purposes. For financial reporting purposes, the improvement is depreciated over
the life of the lease while for tax purposes
F-83
<PAGE> 153
BARNES, MORRIS, PARDOE & FOSTER, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
the improvement is depreciated over 39 years. In addition, rent expense for
financial purposes is expensed using the straight-line method while the cash
method is used for tax purposes. The Company also recognizes income at the time
of lease execution for leasing commissions earned and payable over the life of
the lease or for portions payable on occupancy of the space. For income tax
purposes, leasing commissions earned and payable at occupancy or over the term
of the lease are recognized as taxable income when such payments become due.
The net deferred tax assets and liabilities in the accompanying balance
sheet include the following components:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Deferred tax liabilities................................. $(642,403)
Deferred tax assets...................................... 220,646
---------
$(421,757)
=========
</TABLE>
F-84
<PAGE> 154
BARNES, MORRIS, PARDOE & FOSTER, INC.
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C>
Accounting.................................................. $ 56,486
Advertising................................................. 138,887
Auto........................................................ 36,922
Consulting Fees............................................. 88,354
Contributions............................................... 18,244
Delivery and Postage........................................ 99,192
Dues and Subscriptions...................................... 162,766
Entertainment and Promotion................................. 150,507
Equipment Rental............................................ 50,151
Insurance................................................... 353,982
Legal Fees.................................................. 199,806
Miscellaneous............................................... 83,571
Printing and Stationery..................................... 95,503
Profit Sharing Contribution................................. 100,000
Rent........................................................ 1,351,700
Repairs..................................................... 109,797
Selling..................................................... 119,846
Supplies.................................................... 144,067
Taxes....................................................... 287,249
Telephone................................................... 184,810
Temporary Help.............................................. 130,914
Training.................................................... 57,555
Travel...................................................... 21,472
Uncollectible Accounts...................................... 267,719
----------
$4,309,500
==========
</TABLE>
The accompanying notes are an integral part of this financial schedule.
F-85
<PAGE> 155
INDEPENDENT AUDITORS' REPORT
To the Members of
Barnes, Morris, Pardoe & Foster
Management Services, LLC
Washington, D.C.
We have audited the accompanying balance sheet of Barnes, Morris, Pardoe &
Foster Management Services, LLC, a limited liability company, as of December 31,
1996, and the related statements of income, changes in members' capital, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Barnes, Morris, Pardoe &
Foster Management Services, LLC as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of operating expenses on
page F-94 is presented for the purpose of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
BEERS & CUTLER PLLC
November 11, 1997
F-86
<PAGE> 156
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current Assets
Cash and cash equivalents................................. $196,108
Accounts receivable....................................... 516,323
Prepaid rent.............................................. 17,035
Prepaid taxes............................................. 23,585
--------
Total current assets.............................. 753,051
Property and Equipment, net................................. 199,148
Other Assets
Deferred costs, net of accumulated amortization of
$754,799............................................... 10,201
--------
Total assets...................................... $962,400
========
LIABILITIES AND MEMBERS' CAPITAL
Current Liabilities
Note payable, current portion............................. $ 45,240
Accounts payable.......................................... 35,185
Accounts payable -- related party......................... 126,447
Accrued payroll........................................... 72,450
Accrued vacation.......................................... 85,333
Accrued other............................................. 52,184
Escrow deposits........................................... 16,750
Due to members............................................ 102,286
--------
Total current liabilities......................... 535,875
Long-term Liabilities
Note payable, net of current portion...................... 77,463
Due to members............................................ 113,244
--------
Total liabilities................................. 726,582
Members' Capital............................................ 235,818
--------
Total liabilities and members' capital............ $962,400
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE> 157
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues
Management fees........................................... $ 3,078,774
Leasing commissions....................................... 1,336,397
Supervision fees.......................................... 362,468
Processing and other fees................................. 548,685
-----------
5,326,324
Operating Expenses.......................................... (4,551,316)
-----------
Income from Operations...................................... 775,008
Other Income (Expenses)
Contributions............................................. (880)
Interest expense.......................................... (6,458)
Interest income........................................... 18,435
-----------
Income Before Depreciation and Amortization and Provision
for Income Taxes.......................................... 786,105
Depreciation and Amortization............................... (155,272)
-----------
Income Before Provision for Income Taxes.................... 630,833
Provision for Income Taxes.................................. (26,415)
-----------
Net Income........................................ $ 604,418
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE> 158
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
KAEMPFER
BMP&F BMP&F COLUMBIA MANAGEMENT
MANAGEMENT HOLDINGS, MANAGEMENT & SERVICES,
INC. BMP&F, INC. LLC DEVELOPMENT CO. INC. TOTAL
---------- ----------- --------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996...... $(4,287) $ 549,571 $ -- $(154,936) $(243,662) $ 146,686
Acquisition of Members
Interest by BMP&F Holdings,
LLC from Columbia Management
and Development Co. and
Kaempfer Management
Services, Inc............... -- -- (318,878) 123,949 194,929 --
Capital Contributions......... -- -- 10,000 -- 10,000 20,000
Net Income.................... 2,330 115,307 411,781 26,250 48,750 604,418
Preferred Distributions....... -- -- -- (26,250) (48,750) (75,000)
Distributions................. (2,046) (100,240) (358,000) -- -- (460,286)
------- --------- --------- --------- --------- ---------
Balance, December 31, 1996.... $(4,003) $ 564,638 $(255,097) $ (30,987) $ (38,733) $ 235,818
======= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE> 159
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net income................................................ $ 604,418
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization.......................... 155,271
(Increase) decrease in:
Restricted cash...................................... 25,000
Accounts receivable.................................. 201,794
Prepaid rent......................................... 9,680
Prepaid taxes........................................ (23,585)
Increase (decrease) in:
Accounts payable..................................... (89,485)
Accrued expense other................................ 2,381
Accrued vacation..................................... 28,670
Accrued payroll...................................... (25,940)
Accounts payable related party....................... 126,447
Escrow deposits...................................... (8,250)
Income taxes payable................................. (35,000)
---------
Net cash provided by operating activities......... 971,401
---------
Cash Flows from Investing Activities
Acquisition of property and equipment..................... (156,765)
---------
Net cash used in investing activities..................... (156,765)
---------
Cash Flows from Financing Activities
Repayment of note payable................................. (19,630)
Proceeds from note payable................................ 127,722
Contributions from members................................ 20,000
Distributions to members.................................. (433,000)
Payments of amounts due to members........................ (664,480)
---------
Net cash used in financing activities............. (969,388)
---------
Net Decrease in Cash........................................ (154,752)
Cash and Cash Equivalents, beginning of year................ 350,860
---------
Cash and Cash Equivalents, end of year...................... $ 196,108
=========
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 6,458
=========
Income taxes paid......................................... $ 26,415
=========
Non-cash Financing Activity:
Accrued distributions to members.......................... $ 102,286
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE> 160
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Barnes, Morris, Pardoe & Foster Management Services, L.P. was formed on
June 1, 1992 pursuant to the laws of the State of Delaware. Effective January 1,
1996, the Partnership converted to a limited liability company pursuant to the
laws of the State of Delaware, titled Barnes, Morris, Pardoe & Foster Management
Services, LLC (the Company). The Company was organized to conduct a real estate
property management business and certain related businesses including parking
management, supervising build-out of tenant space, leasing and financing of
managed assets, property consulting and asset management in the Washington, D.C.
regional area. The Company has a finite life and will cease to exist on December
20, 2096 or earlier if any of the specific events described in the operating
agreement occur. No member is liable for any debts or obligations of the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting -- The financial statements are prepared using
generally accepted accounting principles.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and the disclosure of contingent assets and
liabilities.
Cash and Cash Equivalents -- The term cash and cash equivalents as used in
the accompanying financial statements, includes currency on hand, demand
deposits with financial institutions, and short-term highly liquid investments
purchased with a maturity of three months or less.
At December 31, 1996, cash held in banks was insured by the FDIC in the
amount of $170,585.
Deferred Costs -- Costs relating to the acquisition of management contracts
are being amortized using the straight-line method over the length of the
respective contracts.
Property and Equipment -- Property and equipment are recorded at cost.
Depreciation of property and equipment is computed using accelerated
depreciation methods over asset lives ranging from 5 to 39 years. The resulting
depreciation expense does not materially differ from the expense that would
result from the use of management's estimate of actual useful lives as required
by generally accepted accounting principles.
Leasing Commissions -- The Company acts as a co-broker leasing agent with a
commonly controlled affiliated brokerage company for properties the Company
manages. Pursuant to this co-broker leasing agent arrangement, the Company
receives an agreed upon allocation of the total leasing commission earned from
properties the Company manages. The Company records their allocated share of
leasing commission revenue in the accompanying financial statements.
F-91
<PAGE> 161
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Automobile............................................... $ 33,480
Computer equipment....................................... 145,151
Furniture and fixtures................................... 181,228
Leasehold improvements................................... 24,925
Software................................................. 28,036
---------
412,820
Less: accumulated depreciation........................... (213,672)
---------
$ 199,148
=========
</TABLE>
4. MEMBERS' CAPITAL
The Company has two classes of members, preferred and common. Two members,
Columbia Management & Development Co., and Kaempfer Management Services, Inc.
hold a preferred interest in the Company. Preferred members are to receive
annual cash distributions of 10% of pretax profits, but not less than the
guaranteed minimum payment specified in the operating agreement. The preferred
members also have a put option for all, but not less than all, of their
preferred membership units beginning January 1, 2001. The preferred interest
members have limited voting rights as described in the operating agreement.
Common members share in the allocation of profits based on their respective
ownership percentages. Management has the discretion regarding distributions to
common members from available cash flow. Distributions to common members are to
be made pro rata based on their ownership percentages. Distributions of $215,530
are due to certain common members at December 31, 1996.
5. LEASE COMMITMENTS
During 1993, the Company leased office space under a noncancellable
operating lease. The original lease and the amendments for additional space have
varying lease periods but all expire on March 31, 2001. The Company has the
right to terminate the lease effective March 31, 1997 or March 31 of any year
thereafter. The original lease and the amendments all have the same structure
with respect to rents. For the first three years, the lease structure is full
service and the Company is only obligated to pay the base rents specified in the
lease. In the fourth year, the lease structure changes to triple net whereby the
Company, in addition to the specified base rents, becomes obligated to pay its
share of real estate taxes and operating expenses. In the fifth year, the base
rents due under the lease are subject to upward adjustment based on increases in
the Consumer Price Index.
On September 30, 1996, the Company elected to terminate the lease to be
effective March 31, 1997. A termination fee of approximately $56,000 is due
March 31, 1997.
The Company entered into a new lease effective April 29, 1997 for space
located at 1015 15th Street. The lease term is five years and there is an option
to terminate the lease on April 30, 2001. The Company may terminate the lease
effective April 30, 2001, in which case a $115,159 termination fee would be
incurred.
The Company's office rent expense for the year ended December 31, 1996
totaled $431,186.
In addition the Company has various operating leases for office equipment.
F-92
<PAGE> 162
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future rental payments are as follows:
<TABLE>
<CAPTION>
OFFICE SPACE EQUIPMENT
------------ ---------
<S> <C> <C>
December 31, 1997............................. $ 386,987 $ 91,667
1998........................... 454,956 47,940
1999........................... 475,102 15,924
2000........................... 482,183 --
2001........................... 489,429 --
thereafter.......................... 165,558 --
---------- --------
$2,454,215 $155,531
========== ========
</TABLE>
6. INCOME TAXES
The Company is not subject to federal income taxes. Each members'
distributive share of income or loss and other tax items is reported on their
respective income tax returns in accordance with the operating agreement and the
Internal Revenue Code. A provision for the District of Columbia franchise tax
for 1996 of $26,415 has been reported in the accompanying financial statements.
7. RELATED PARTY TRANSACTIONS
The Company earned revenues in 1996 totaling $67,958 from entities in which
certain members have ownership interests. During 1996, the Company paid
management finder's fees to a member totaling $78,256.
During 1996, the Company shared its operating expenses with one of the
members.
The Company leases computer equipment from one of the members. Total
payments were $97,945 for 1996.
8. NOTE PAYABLE
The Company has financed automobiles and computer equipment with various
notes. The notes are financed at 8.5% to 9% interest for varying periods and
require monthly principal and interest payments.
Principal payments are due as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1997.......................................... $ 45,240
1998........................................ 48,293
1999........................................ 26,382
2000........................................ 2,788
--------
$122,703
========
</TABLE>
9. RETIREMENT PLAN
The Company has a 401(k) plan for all eligible employees of the Company who
elect to participate. Participants may contribute to the plan, on a pre-tax
basis, an amount not to exceed the lesser of the maximum allowed by law or 15%
of their compensation, as defined by the Plan, by entering into a salary
reduction agreement with the Company. The Company matches 50% of each
participant's salary contribution up to the first 5% deferred. The Company's
contribution to the Plan was $39,973 for 1996.
10. SUBSEQUENT EVENTS
On November 1, 1997, the members of the Company sold their ownership
interests to an unrelated third party.
F-93
<PAGE> 163
BARNES, MORRIS, PARDOE & FOSTER MANAGEMENT SERVICES, LLC
SCHEDULE OF OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Advertising and Promotion................................... $ 37,022
Auto and Parking............................................ 66,552
Books, Dues and Subscriptions............................... 18,439
Commissions................................................. 58,628
Computer Rent............................................... 129,923
Education and Seminars...................................... 28,638
Finder's Fee................................................ 78,256
Insurance................................................... 115,967
General Office.............................................. 90,124
Office Rent................................................. 431,186
Postage and Delivery........................................ 14,616
Professional Fees........................................... 71,920
Recruiting and Temporary Help............................... 137,826
Repairs and Maintenance..................................... 43,044
Salaries, Benefits and Payroll Costs........................ 2,955,274
Supplies.................................................... 68,627
Taxes and Licenses.......................................... 13,066
Telephone................................................... 111,310
Travel and Entertainment.................................... 80,898
----------
$4,551,316
==========
</TABLE>
F-94
<PAGE> 164
RICHARD ELLIS HOLDINGS LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH APRIL 1997
CONTENTS
Directors
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of the directors..................................... F-96
Report of the auditors...................................... F-99
Consolidated profit and loss account........................ F-100
Consolidated balance sheet.................................. F-101
Balance sheet............................................... F-102
Consolidated cash flow statement............................ F-103
Notes forming part of the financial statements.............. F-104
</TABLE>
DIRECTORS
A J M Huntley (Chairman)
A C Froggatt
S A Hubbard
M J Strong
G E Webster
H V A Ellingham
I Harvey
SECRETARY AND REGISTERED OFFICE
P A V S Osman, Berkeley Square House, London, W1X 6AN.
AUDITORS
BDO Stoy Hayward, 8 Baker Street, London, W1M 1DA.
BANKERS
Barclays Bank PLC, 54 Lombard Street, London EC3V 9EX.
F-95
<PAGE> 165
RICHARD ELLIS HOLDINGS LIMITED
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30TH APRIL 1997
The directors present their annual report together with the audited
financial statements for the year ended 30th April 1997.
RESULTS AND DIVIDENDS
The results of the group for the year are set out on page F-100.
The directors do not propose the payment of a dividend.
PRINCIPAL ACTIVITIES, TRADING REVIEW AND FUTURE DEVELOPMENTS
During the year the company's principal activity was that of a holding
company. The subsidiaries' activities are disclosed in note 13 to the financial
statements.
The trading results of the group were disappointing, particularly the costs
of merging the group with the Richard Ellis Partnership were higher than
expected.
During the year the group acquired Richard Ellis Facilities Management
Limited, the remaining 70% shareholding in its associate Richmount Enterprise
Zone Managers Limited, and also purchased the remaining minority interests in
Richard Ellis (incorporating Hepper Robinson) Limited, Richard Ellis Regional
Limited, REFS Holdings Limited and Richard Ellis Financial Holdings Limited.
On 2nd May 1997 the Richard Ellis group in the UK carried out a corporate
restructuring. This involved transferring the trade, assets and liabilities of
the former Richard Ellis Partnership, Richard Ellis Services Limited, Richard
Ellis (incorporating Hepper Robinson) Limited, Richard Ellis Regional Limited
and Richard Ellis Midlands Limited into Richard Ellis Holdings Limited, which
became the main UK trading company for the group, trading as Richard Ellis.
Performance of the new trading entity has begun strongly. Conditions in
both property investment and occupier markets continue to improve and this has
increased activity in both transactional and advisory parts of the business.
The absence of costs and extensive time involvement in incorporation and
merger are also likely to benefit the results substantially.
F-96
<PAGE> 166
DIRECTORS
The directors of the company during the year and their interests in the
ordinary share capital of the company were:
<TABLE>
<CAPTION>
10P ORDINARY SHARES
---------------------
1997 1996
--------- ---------
<S> <C> <C>
A J M Huntley............................................... 371,532 371,532
B N Harris (resigned 30th April 1997)....................... 360,532 360,532
J A D Croft (resigned 30th April 1997)...................... 358,257 358,257
D A Sizer (resigned 30th April 1997)........................ 371,532 371,532
B D White (resigned 30th April 1997)........................ 358,257 358,257
M D G Wheldon (resigned 30th April 1997).................... 370,532 370,532
R J F Wildman (resigned 19th August 1997)................... 360,532 360,532
C N G Arding (resigned 30th April 1997)..................... 360,532 360,532
R D Lucas (resigned 30th April 1997)........................ 360,532 360,532
A Forbes (resigned 30th April 1997)......................... 374,526 374,526
R G Glover (resigned 19th August 1997)...................... 365,201 365,201
C P B Roe (resigned 30th April 1997)........................ 358,257 358,257
E T D Luker (resigned 30th April 1997)...................... 358,257 358,257
A C Froggatt................................................ 174,704 174,704
S A Hubbard................................................. 346,432 346,432
A C M Pringle (resigned 30th April 1997).................... 331,432 331,432
J J Shellard (resigned 30th April 1997)..................... 326,432 326,432
M J Strong.................................................. 318,479 318,479
K J Caesar (resigned 30th April 1997)....................... 344,900 344,900
A J Waters (resigned 30th April 1997)....................... 304,631 304,631
G E Webster................................................. 302,900 302,900
J S Worboys (resigned 30th April 1997)...................... 294,631 294,631
J M T Slade (resigned 30th April 1997)...................... 278,708 278,708
C M Warner (resigned 30th April 1997)....................... 278,708 278,708
S L Barter (resigned 30th April 1997)....................... 2,600 2,600
H V A Ellingham............................................. 200,056 200,056
I D Ellis (resigned 30th April 1997)........................ 63,615 63,615
D P Smith (resigned 30th April 1997)........................ 63,615 63,615
S V Clayton (resigned 30th April 1997)...................... -- --
R P Lister (resigned 30th April 1997)....................... -- --
A J Davenport (resigned 31st May 1996)...................... -- --
I Harvey (appointed 24th April 1997)........................ -- --
--------- ---------
8,360,422 8,360,422
========= =========
</TABLE>
F-97
<PAGE> 167
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
group and of the profit or loss of the group for that period. In preparing those
financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the group will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
group and to enable them to ensure that the financial statements comply with the
Companies Act 1985. They are also responsible for safeguarding the assets of the
group and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
AUDITORS
BDO Stoy Hayward have expressed their willingness to continue in office and
a resolution to re-appoint them will be proposed at the annual general meeting.
BY ORDER OF THE BOARD
P A V S Osman
Secretary
23rd October 1997
F-98
<PAGE> 168
RICHARD ELLIS HOLDINGS LIMITED
REPORT OF THE AUDITORS
TO THE SHAREHOLDERS OF RICHARD ELLIS HOLDINGS LIMITED
We have audited the financial statements on pages F-100 to F-120 which have
been prepared under the accounting policies set out on pages F-104 to F-105.
Respective responsibilities of directors and auditors
As described on page F-98 the company's directors are responsible for the
preparation of the financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the
state of affairs of the company and the group as at 30th April 1997 and of the
result of the group for the year then ended and have been properly prepared in
accordance with the Companies Act 1985.
Accounting principles generally accepted in the United Kingdom vary in
certain respects from generally accepted accounting principles in the United
States. These differences are referred to in note 34 to the financial
statements.
BDO STOY HAYWARD
Chartered Accountants
and Registered Auditors
London
23rd October 1997 (final paragraph signed as at 21 July 1998)
F-99
<PAGE> 169
RICHARD ELLIS HOLDINGS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30TH APRIL 1997
<TABLE>
<CAPTION>
NOTE 1997 1996
---- ------ ------
L000 L000
<S> <C> <C> <C>
Turnover.................................................... 2 8,583 9,053
Administrative expenses..................................... 3 (8,722) (9,302)
------ ------
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST AND OTHER
INCOME.................................................... (139) (249)
Investment income........................................... 6 134 196
Interest receivable......................................... 61 96
Interest payable............................................ 7 (167) (160)
Share of profit/(loss) of associated undertakings........... 8 43 (192)
------ ------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION................. (68) (309)
Taxation on loss on ordinary activities..................... 9 (159) (19)
------ ------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION.................. (227) (328)
Minority interests -- equity................................ (28) 23
------ ------
LOSS FOR THE FINANCIAL YEAR................................. 19 (255) (305)
====== ======
</TABLE>
All amounts relate to continuing activities.
The notes on pages F-104 to F-120 form part of these financial statements.
All recognised gains and losses are included in the profit and loss account.
F-100
<PAGE> 170
RICHARD ELLIS HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEET
AT 30TH APRIL 1997
<TABLE>
<CAPTION>
NOTE 1997 1996
---- --------------- --------------------
AS RESTATED
-----------
L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets................................................ 11 490 --
Tangible fixed assets............................................ 12 1,202 1,458
Investments...................................................... 13 3,112 3,123
------ ------
4,804 4,581
CURRENT ASSETS
Debtors -- due within one year................................... 14 3,323 3,276
-- due after one year................................... 14 87 334
Cash at bank..................................................... 1,058 1,217
------ ------
4,468 4,827
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR................... 15 (3,708) (2,998)
------ ------
NET CURRENT ASSETS............................................... 760 1,829
------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES............................ 5,564 6,410
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR.......... 16 (1,982) (2,348)
------ ------
3,582 4,062
====== ======
CAPITAL AND RESERVES:
Called up share capital.......................................... 18 877 858
Share premium account............................................ 19 2,723 2,647
Profit and loss account.......................................... 19 (131) 150
Capital reserve.................................................. 19 199 --
------ ------
SHAREHOLDERS' FUNDS.............................................. 3,668 3,655
Minority interests -- equity..................................... 17 (86) 407
------ ------
3,582 4,062
====== ======
</TABLE>
The notes on pages F-104 to F-120 form part of these financial statements.
These financial statements were approved by the Board on 23rd October 1997.
F-101
<PAGE> 171
RICHARD ELLIS HOLDINGS LIMITED
BALANCE SHEET
AT 30TH APRIL 1997
<TABLE>
<CAPTION>
NOTE 1997 1996
---- --------------- ---------------
L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Investments......................................... 13 4,342 4,390
CURRENT ASSETS
Debtors -- due within one year...................... 14 165 127
-- due after one year...................... 14 463 463
------ ------
628 590
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR..... 15 (2,821) (1,984)
------ ------
NET CURRENT LIABILITIES............................. (2,193) (1,394)
------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES............... 2,149 2,996
====== ======
CAPITAL AND RESERVES:
Called up share capital............................. 18 877 858
Share premium account............................... 19 2,723 2,647
Profit and loss account............................. 19 (1,451) (509)
------ ------
SHAREHOLDERS' FUNDS................................. 2,149 2,996
====== ======
</TABLE>
All amounts within capital and reserves relate to equity.
The notes on pages F-104 to F-120 form part of these financial statements.
These financial statements were approved by the Board on 23rd October 1997.
<TABLE>
<S> <C>
Chairman Director
</TABLE>
F-102
<PAGE> 172
RICHARD ELLIS HOLDINGS LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30TH APRIL 1997
<TABLE>
<CAPTION>
NOTE 1997 1996
---- ---- ----
L000 L000
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES......................... 21 558 702
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE............. 22 (38) 29
TAXATION.................................................... (10) (5)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT................ 23 57 118
ACQUISITIONS AND DISPOSALS.................................. 24 (318) --
---- ----
CASH OUTFLOW BEFORE FINANCING............................... 249 844
FINANCING................................................... 25 (407) (266)
---- ----
(DECREASE)/INCREASE IN CASH................................. (158) 578
==== ====
</TABLE>
The notes on pages F-104 to F-120 form part of these financial statements.
F-103
<PAGE> 173
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH APRIL 1997
1 ACCOUNTING POLICIES
Accounting convention
The financial statements have been prepared under the historical cost
convention and are in accordance with applicable accounting standards. The
following principal accounting policies have been applied:
Basis of consolidation
The financial statements consolidate the accounts of Richard Ellis Holdings
Limited and its subsidiary and associated undertakings, drawn up to 30th April
each year. The accounts of certain small subsidiaries and associated
undertakings have been drawn up to 31st March 1997. Adjustments to reflect those
companies' trading results for the period between the dates of their accounts
and 30th April 1997 would not be material to the group.
The group uses the acquisition method of accounting to consolidate the
results of subsidiary undertakings whereby the results of subsidiary
undertakings are included from the date of acquisition.
No profit and loss account is presented for Richard Ellis Holdings Limited,
as permitted by Section 230 of the Companies Act 1985.
Goodwill
The tangible assets of newly acquired subsidiary undertakings are
incorporated into the accounts on the basis of the fair value to the group as at
the effective date of control.
Goodwill, being any excess of the consideration over that fair value, is
amortised through the profit and loss account over the directors' estimate of
its useful economic life which ranges from zero to ten years.
This represents a change in the group's previous accounting policy in
relation to goodwill, which was written off directly to reserves. The decision
to change the accounting policy was caused by the purchase by the group of an
investment in Richmount Enterprise Zone Managers Limited. In the light of this
acquisition and current thinking, the directors felt it more appropriate to
amortise the goodwill arising through the profit and loss account. It is the
opinion of the directors that it is reasonable to attribute a useful economic
life to the goodwill arising on this acquisition of not less than ten years, and
thus this is the useful economic life adopted.
The economic effects of this change in accounting policy are set out in
note 19 to the financial statements. There is no effect to the results for the
year ended 30 April 1996.
Associated undertakings
A company is treated as an associated undertaking when the group holds a
substantial interest in it for the long term and exercises significant influence
over its operating and financial policy decisions.
The group's share of the results of associated undertakings is included in
the consolidated profit and loss account using the equity method of accounting.
The investment in associated undertakings included in the consolidated balance
sheet is based on the group's share of the net assets of the associated
undertakings, together with any premium or discount arising on acquisition, less
amounts written off. Any premium on acquisition is dealt with as if it were
goodwill.
Foreign currency
Profit and loss accounts and assets and liabilities of foreign subsidiary
undertakings are translated into sterling at the rates of exchange ruling on the
balance sheet date.
F-104
<PAGE> 174
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
Turnover
Turnover represents professional fees rendered to the extent that they have
been earned, net of shared fees, and amounts receivable in respect of equipment
hire and promotional services, all exclusive of value added tax. An accrual is
made for professional fees earned but not billed at the year end.
Valuation of investments
Investments held as fixed assets are stated at cost less any provision for
a permanent diminution in value.
Depreciation
Depreciation is calculated to write off the cost less estimated residual
values of all tangible fixed assets over their expected useful lives as follows:
<TABLE>
<S> <C>
New motor vehicles (from 1st October -- straight line at 25% per annum
1994)
Motor vehicles -- reducing balance at 25% per
annum
Office equipment -- straight line at 20% per annum
Office fixtures and fittings -- straight line at 33% per annum
Office furniture -- straight line at 12.5% per annum
</TABLE>
Deferred taxation
Provision is made for timing differences between the treatment of certain
items for taxation and accounting purposes to the extent that it is probable
that a liability or asset will crystallise.
Leased assets
Where assets are financed by leasing arrangements that give rights
approximating to ownership (finance leases), the assets are treated as if they
had been purchased outright. The amount capitalised is the minimum lease
payments payable over the full term of a lease. The corresponding leasing
commitments are shown as payable to the lessor. Depreciation on the relevant
assets is charged to the profit and loss account.
Lease payments are split between capital and interest using the actuarial
method. The interest is charged to the profit and loss account. The capital part
reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals are
charged to the profit and loss account on a straight line basis over the term of
the lease.
Pension costs
Pension costs are charged against profits in the year in which they become
payable.
2 TURNOVER
Turnover comprises:
<TABLE>
<CAPTION>
1997 1996
----- -----
L000 L000
<S> <C> <C>
Professional fees........................................... 6,842 7,390
Asset hire and promotional charges.......................... 1,741 1,663
----- -----
8,583 9,053
===== =====
</TABLE>
F-105
<PAGE> 175
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
Turnover includes L50,000 which was generated in Poland. All other turnover
was generated in the United Kingdom. Related party turnover is disclosed in note
32.
3 ADMINISTRATIVE EXPENSES
Administrative expenses include:
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Auditors' remuneration -- audit -- parent company
auditors.................... 55 53
-- other auditors......... 11 --
-- non audit services..... 29 26
Depreciation................................................ 428 563
Amortisation................................................ 72 --
Profit on disposal of fixed assets.......................... (36) (89)
Payments in respect of operating leases..................... 703 637
Exceptional items:
Restructuring costs....................................... 294 169
Provision against investment.............................. -- 160
</TABLE>
The exceptional items in the year ended 30th April 1997 were the cost
incurred in the major restructuring, the details of which are disclosed in note
31 and the costs involved in the restructuring of Richard Ellis Regional
Limited.
The exceptional item in the previous year related to a provision made
against the group's investment in Chasley (Lifestyle) Limited (formerly IHS
Sport Villages Plc).
Depreciation includes L157k (1996: L229k) charged on assets held under
finance leases and hire purchase contracts.
4 DIRECTORS' EMOLUMENTS
Directors' emoluments consist of:
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Directors' remuneration..................................... 42 42
Amounts paid to Richard Ellis Partnership................... 278 324
Contributions to a defined contribution pension scheme...... 9 --
--- ---
329 366
=== ===
</TABLE>
There are six directors in a defined benefit pension scheme (1996: Six).
The emoluments of the highest paid director were L7k (1996: L7k). The
accrued pension of the highest paid director at the year end was L19k.
F-106
<PAGE> 176
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
5 STAFF COSTS
<TABLE>
<CAPTION>
1997 1996
----- -----
L000 L000
<S> <C> <C>
Staff costs consist of:
Wages and salaries........................................ 3,281 3,745
Social security costs..................................... 317 353
Pension costs............................................. 121 142
----- -----
3,719 4,240
===== =====
</TABLE>
The average number of employees during the year was as follows:
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
Full time................................................... 136 150
Part time................................................... 6 5
--- ---
142 155
=== ===
</TABLE>
6 INVESTMENT INCOME
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Income from investments..................................... 4 66
Profit share receivable from Richard Ellis.................. 130 130
--- ---
134 196
=== ===
</TABLE>
7 INTEREST PAYABLE
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Bank interest............................................... 70 73
Finance leases and hire purchase contracts.................. 97 87
--- ---
167 160
=== ===
</TABLE>
8 SHARE OF PROFIT/(LOSS) OF ASSOCIATED UNDERTAKINGS
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Richmount Enterprise Zone Managers Limited.................. 26 (3)
Beckwith Property Fund Management Limited................... -- (129)
General Property Company (Goldsworth Park) Limited
-- share of profit for the year........................... 22 13
-- share of revaluation reserve........................... -- (72)
LAW 572 Limited............................................. (5) (1)
-- ----
43 (192)
== ====
</TABLE>
F-107
<PAGE> 177
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
9 TAXATION ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
UK corporation tax.......................................... 176 50
Over provision in respect of prior years.................... (17) (35)
--- ---
159 15
Share of associated undertakings' tax charge................ -- 4
--- ---
159 19
=== ===
</TABLE>
10 DEFERRED TAXATION
The group has a potential tax liability of approximately L693k which would
crystallise on the liquidation of Richard Ellis Corporate Capital Limited. This
deferred taxation has not been provided as the directors have no intention to
liquidate Richard Ellis Corporate Capital Limited in the foreseeable future.
11 INTANGIBLE ASSETS
Group
<TABLE>
<CAPTION>
GOODWILL ON
CONSOLIDATION
-------------
L000
<S> <C>
Cost:
Addition in the year...................................... 562
---
At 30th April 1997........................................ 562
===
Amortisation:
Charged in the year....................................... 72
---
At 30th April 1997........................................ 72
===
Net book value:
At 30th April 1997........................................ 490
===
At 30th April 1996........................................ --
===
</TABLE>
F-108
<PAGE> 178
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
12 TANGIBLE FIXED ASSETS
Group
<TABLE>
<CAPTION>
FURNITURE,
EQUIPMENT,
FIXTURES &
MOTOR FITTINGS TOTAL
----- ---------- -----
L000 L000 L000
<S> <C> <C> <C>
Cost:
At 1st May 1996.......................................... 1,970 5,126 7,096
Additions in the year.................................... 200 59 259
Disposals in the year.................................... (395) (2) (397)
----- ----- -----
At 30th April 1997....................................... 1,775 5,183 6,958
===== ===== =====
Depreciation:
At 1st May 1996.......................................... 875 4,763 5,638
Charged in the year...................................... 261 167 428
Disposals in the year.................................... (309) (1) (310)
----- ----- -----
At 30th April 1997....................................... 827 4,929 5,756
===== ===== =====
Net book value:
At 30th April 1997....................................... 948 254 1,202
===== ===== =====
At 30th April 1996....................................... 1,095 363 1,458
===== ===== =====
</TABLE>
The net book value of tangible fixed assets includes an amount of L886k
(1996: L1,006k) in respect of assets held under finance leases and hire purchase
contracts.
Company
Richard Ellis Holdings Limited has no tangible fixed assets other than
investments (note 13).
Capital commitments
Commitments for tangible fixed assets at 30th April 1997 were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
L000 L000
Contracted.................................................. 453 --
==== ====
</TABLE>
At 30th April 1997 the group was committed to invest an additional L875k in
its associate Beckwith Property Management Fund Limited. The cash is to be
invested in property investment funds (1996: L875k).
F-109
<PAGE> 179
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
13 FIXED ASSET INVESTMENTS
Group
<TABLE>
<CAPTION>
RICHARD UNQUOTED CONVERTIBLE ASSOCIATED
ELLIS INVESTMENTS LOAN STOCK UNDERTAKINGS TOTAL
------- ----------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C>
L000 L000 L000 L000 L000
At 1st May 1996.............................. 2,600 45 463 15 3,123
Disposals in the year........................ -- -- -- (5) (5)
Profit for the year.......................... -- -- -- 48 48
Reclassifications............................ -- (16) -- 48 32
Reclassification as group undertaking........ -- -- -- (86) (86)
----- --- --- --- -----
At 30th April 1997........................... 2,600 29 463 20 3,112
===== === === === =====
</TABLE>
The investment in Richard Ellis is partnership capital subscribed by the
group interest-free, carrying an entitlement to a share of profits, as
determined by the partners of Richard Ellis. The investment in Richard Ellis is
non-voting and no control is exercised.
On 4th November 1996, the group acquired the remaining 70% of the issued
ordinary share capital of Richmount Enterprise Zone Managers Limited, (REZM), a
group engaged in the management of enterprise zone trusts and incorporated in
England. The company now holds 100% of the issued ordinary share capital of
REZM. REZM Limited holds 100% of the issued ordinary share capital of Richmount
Management Limited which is also engaged in the management of enterprise zone
trusts and is incorporated in England.
Company
<TABLE>
<CAPTION>
1997 1996
----- -----
L000 L000
<S> <C> <C>
Beckwith Property Fund Management Limited................... -- --
Business Parks Consultancy Limited.......................... -- --
Business Parks Consultancy SA............................... -- --
Capital and Country Properties Limited...................... -- --
Property Mezzanine Partners Limited......................... -- 16
R.E.F.S. Limited............................................ -- --
REFS Holdings Limited....................................... 1,975 1,843
Rehold Limited.............................................. -- --
Richard Ellis Corporate Finance Limited..................... 12 12
Richard Ellis Facilities Management Limited................. -- --
Richard Ellis Financial Holdings Limited.................... 1,515 1,479
Richard Ellis Fund Management Limited....................... -- --
Richard Ellis Gunne Limited................................. -- --
Richard Ellis (incorporating Hepper Robinson) Limited....... 534 740
Richard Ellis International Limited......................... -- --
Richard Ellis Investment Services Limited................... 5 --
Richard Ellis (Ireland) Limited............................. -- --
Richard Ellis Scotland Limited.............................. 1 --
Richard Ellis Securities Limited............................ -- --
Richard Ellis Services Limited.............................. 300 300
Waresure Limited............................................ -- --
----- -----
4,342 4,390
===== =====
</TABLE>
F-110
<PAGE> 180
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
The following were subsidiary and associated undertakings at the end of the
year and have all been included in the consolidated accounts:
<TABLE>
<CAPTION>
PROPORTION OF
COUNTRY OF VOTING RIGHTS
INCORPORATION AND SHARE
OR REGISTRATION CAPITAL HELD NATURE OF BUSINESS
--------------- ------------- ------------------
<S> <C> <C> <C>
30 Marsh Wall Limited............................. England 100% Enterprise zone trust managers
Beckwith Property Fund Management Limited*........ England 25% Property fund management
Business Parks Consultancy Limited................ England 100% Holding company
Capital and Country Properties General Property
Company......................................... England 100% Dormant
(Goldsworth Park) Limited*........................ England 25% Property investment
Laser Richmount Limited........................... England 100% Provision of operational and
promotional services
R.E.F.S. Limited.................................. England 100% Dormant
R.E.F Services Limited............................ England 100% Property related investment
REFS Holdings Limited............................. England 100% Finance and investment services
Rehold Limited.................................... England 100% Dormant
Richard Ellis Corporate Capital Limited........... England 100% Finance and investment services
Richard Ellis Corporate Finance Limited........... England 100% SFA regulated finance and
investment services
Richard Ellis Facilities Management Limited....... England 100% Facilities management
Richard Ellis Financial Holdings Limited.......... England 100% Finance and investment services
Richard Ellis Financial Limited................... England 100% Property related investment
advisors
Richard Ellis Fund Management Limited............. England 100% Holding company
Richard Ellis Gunne Limited....................... England 51% Auctioneers
Richard Ellis (incorporating Hepper Robinson)
Limited......................................... England 100% Commercial property consultants
Richard Ellis International Limited............... England 100% Dormant
Richard Ellis Investment Services Limited......... England 100% Dormant
Richard Ellis (Ireland) Limited................... England 100% Dormant
Richard Ellis Midlands Limited.................... England 100% Property consultants
Richard Ellis Regional Limited.................... England 100% Property consultants
Richard Ellis Services Limited.................... England 100% Provision of assets for hire and
promotional services
Richard Ellis Structured Finance Limited.......... England 100% Property related investment
advisors
Richmount Enterprise Zone Managers Limited*....... England 100% Enterprise zone trust managers
Richmount Management Limited*..................... England 100% Enterprise zone trust managers
Richmount Marketing Limited*...................... England 100% Enterprise zone trust managers
Richmount Underwriting Limited*................... England 100% Enterprise zone trust managers
Waresure Limited.................................. England 100% Corporate partner in Richard Ellis
</TABLE>
- ---------------
* Subsidiaries with a 31st March year end.
F-111
<PAGE> 181
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
14 DEBTORS
Amounts due within one year:
<TABLE>
<CAPTION>
GROUP COMPANY
------------- -----------
1997 1996 1997 1996
----- ----- ---- ----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Trade debtors............................................ 2,810 2,372 -- --
Prepayments and accrued income........................... 388 410 -- --
Corporation tax recoverable.............................. -- 23 -- --
Other debtors............................................ 125 58 42 2
Amounts due from group undertakings...................... -- -- 123 125
Amounts due from associated undertakings................. -- 413 -- --
----- ----- --- ---
3,323 3,276 165 127
===== ===== === ===
</TABLE>
Amounts due after more than one year:
<TABLE>
<S> <C> <C> <C> <C>
Trade debtors............................................... -- 247 -- --
ACT recoverable............................................. 87 87 -- --
Amounts due from group undertakings......................... -- -- 463 463
--- --- --- ---
87 334 463 463
=== === === ===
</TABLE>
15 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
------------- -------------
1997 1996 1997 1996
----- ----- ----- -----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Bank overdraft......................................... -- -- 156 66
Trade creditors........................................ 1,517 907 788 409
Other taxes and social security........................ 292 405 -- --
Other creditors........................................ 474 433 61 --
Obligations under finance leases and hire purchase
contracts............................................ 249 261 -- --
Corporation tax........................................ 174 50 -- --
Accruals and deferred income........................... 1,002 942 300 56
Amounts owed to group undertakings..................... -- -- 1,516 1,453
----- ----- ----- -----
3,708 2,998 2,821 1,984
===== ===== ===== =====
</TABLE>
16 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
------------- -----------
1997 1996 1997 1996
----- ----- ---- ----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Loan from Hypobank....................................... 1,350 1,350 -- --
Obligations under finance leases and hire purchase
contracts.............................................. 519 658 -- --
Accruals and deferred income............................. 113 340 -- --
----- ----- -- --
1,982 2,348 -- --
===== ===== == ==
</TABLE>
The loan from Hypobank carries a fixed rate of 5% until July 1999 and then
converts to a variable rate. It is repayable in July 2000.
F-112
<PAGE> 182
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
The obligations under finance leases and hire purchase contracts are
secured on the relevant assets and each carries a normal commercial rate of
interest.
They are due as follows:
<TABLE>
<CAPTION>
GROUP COMPANY
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Within 1 -- 2 years......................................... 166 239 -- --
Within 2 -- 5 years......................................... 353 419 -- --
--- --- -- --
519... 658 -- --
=== === == ==
</TABLE>
17 MINORITY INTERESTS
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Richard Ellis Gunne Limited................................. (86) (86)
Richard Ellis Regional Limited.............................. -- 155
REFS Holdings Limited....................................... -- 315
Richard Ellis Financial Holdings Limited.................... -- 23
--- ---
(86) 407
=== ===
</TABLE>
The minority interests in Richard Ellis Regional Limited, REFS Holdings
Limited and Richard Ellis Financial Holdings Limited, were purchased by the
group during the year. For details of these transactions see note 20.
18 SHARE CAPITAL
Authorised
<TABLE>
<CAPTION>
1997 1996
----- -----
L000 L000
<S> <C> <C>
"A" ordinary shares of 10p each............................. 3,283 500
"B" ordinary shares of 10p each............................. -- 600
----- -----
3,283 1,100
===== =====
</TABLE>
On 30th April 1997 the authorised share capital was increased to L3,283k
and the "B" ordinary shares were converted into "A" ordinary shares.
Allotted, called up and fully paid
<TABLE>
<CAPTION>
NO OF "B" TOTAL
NO OF "A" ORDINARY NON NO OF
ORDINARY SHARES VOTING SHARES SHARES OF
OF 10P EACH OF 10P EACH 10P EACH L000
--------------- ------------- --------- ----
<S> <C> <C> <C> <C>
30th April 1997........................... 8,769,749 -- 8,769,749 877
========= ========= ========= ===
30th April 1996........................... 3,596,858 4,986,197 8,583,055 858
========= ========= ========= ===
</TABLE>
On 30th April 1997 the "B" ordinary non voting shares of 10p each were
converted into "A" ordinary shares of 10p each.
F-113
<PAGE> 183
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
On 30th April 1997 186,694 ordinary shares of 10p each were allotted,
issued, called up and fully paid. The shares issued were as consideration for
minority shareholdings in Richard Ellis (incorporating Hepper Robinson) Limited.
The shares were issued for a total consideration of L93k at a premium of 40p per
share.
19 RESERVES
Group
<TABLE>
<CAPTION>
SHARE PROFIT
PREMIUM AND LOSS GOODWILL CAPITAL
ACCOUNT ACCOUNT RESERVE RESERVE TOTAL
------- -------- -------- ------- -----
L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
At 1 May 1996, as previously stated............... 2,647 734 (584) -- 2,797
Prior year adjustment -- see below................ -- (584) 584 -- --
----- ---- ---- --- -----
At 1 May 1996, as restated........................ 2,647 150 -- -- 2,797
Premium on issue of shares........................ 76 -- -- -- 76
Retained loss for the year........................ -- (255) -- -- (255)
Capital reserve on acquisition -- see note 20..... -- -- -- 199 199
Share of former associate's profit taken to group
profit and loss account prior to the associate
becoming a subsidiary........................... -- (26) -- -- (26)
----- ---- ---- --- -----
At 30th April 1997................................ 2,723 (131) -- 199 2,791
===== ==== ==== === =====
</TABLE>
Included within the group reserves are reserves of (L26k) which relate to
shares of associated undertakings retained profits.
Prior year adjustment
As disclosed in note 1 there has been a change in the group's accounting
policy regarding goodwill. The effect on net assets and loss for the year in
effect on the year ended 30th April 1996 is nil. The effect on net assets in the
year ended 30th April 1997, is an increase of L491k in the net assets of the
group, and an increase of L72k in the loss for the year. The change in
accounting policy will give rise to a transfer in reserves between the goodwill
reserve previously held at L584k and the profit and loss account reserve brought
forward.
The cumulative amount of goodwill resulting from acquisitions which has
been eliminated against group reserves is L656k (1996: L584k)
Company
<TABLE>
<CAPTION>
SHARE PROFIT
PREMIUM AND LOSS
ACCOUNT ACCOUNT TOTAL
------- -------- -----
L000 L000 L000
<S> <C> <C> <C>
At 1st May 1996............................................. 2,647 (509) 2,138
Premium on issue of shares.................................. 76 -- 76
Retained loss for the year.................................. -- (942) (942)
----- ------ -----
At 30th April 1997.......................................... 2,723 (1,451) 1,272
===== ====== =====
</TABLE>
F-114
<PAGE> 184
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
20 ACQUISITIONS
<TABLE>
<CAPTION>
RICHARD RICHMOUNT RICHARD
ELLIS ENTERPRISE RICHARD ELLIS
FINANCIAL ZONE REFS ELLIS FACILITIES
HOLDINGS MANAGERS HOLDINGS REGIONAL MANAGEM'T DORMANT
LIMITED LIMITED LIMITED LIMITED LIMITED COMPANIES
--------- ---------- -------- -------- ---------- ---------
L000 L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C> <C>
Fixed assets.......................... -- -- -- 52 -- --
Investments........................... 1 -- -- -- -- --
Debtors............................... 31 136 784 195 151 6
Cash.................................. 28 71 37 58 66 --
Creditors............................. (48) (423) (502) (173) (217) --
--- ---- ---- ---- ---- --
Net assets acquired................... 12 (216) 319 132 -- 6
=== ==== ==== ==== ==== ==
Fair value totals..................... 12 (216) 319 132 -- 6
Goodwill.............................. (36) (519) 199 (7) -- --
--- ---- ---- ---- ---- --
Consideration......................... 48 303 120 139 -- 6
=== ==== ==== ==== ==== ==
</TABLE>
The preacquisition results of the subsidiaries acquired during the year
were L87k (1996: L2k).
Analysis of net cash acquired on purchase of subsidiary undertakings:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Cash consideration.................... (48) (242) (120) -- -- --
Cash acquired......................... -- 71 -- -- 66 --
--- ---- ---- ---- ---- --
(48) (171) (120) -- 66 --
=== ==== ==== ==== ==== ==
</TABLE>
For details of the dormant companies acquired see note 13.
In the opinion of the directors, there is no material difference between
the fair values of the assets and liabilities of the subsidiary undertakings
purchased and the fair value totals set out above.
F-115
<PAGE> 185
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
<TABLE>
<CAPTION>
CAPITAL
GOODWILL RESERVE
-------- -------
L000 L000
<S> <C> <C> <C>
ACQUISITION MINORITY INTEREST IN RICHARD ELLIS FINANCIAL
HOLDINGS LIMITED:
Consideration............................................... 48
Net assets acquired......................................... 12
----
(36)
ACQUISITION OF RICHMOUNT ENTERPRISE ZONE MANAGERS LIMITED:
Consideration paid.......................................... 303
Net assets acquired......................................... (216)
----
(519) --
ACQUISITION OF MINORITY INTEREST IN REFS HOLDINGS LIMITED:
Consideration paid.......................................... 120
Net assets acquired......................................... 319
----
-- 199
ACQUISITION OF MINORITY INTEREST IN RICHARD ELLIS REGIONAL
LIMITED:
Consideration paid.......................................... 139
Net assets acquired......................................... 132
----
(7) --
ACQUISITION OF RICHARD ELLIS FACILITIES MANAGEMENT LIMITED
Consideration paid.......................................... --
Net assets acquired......................................... --
----
-- --
ACQUISITION OF DORMANT COMPANIES
Consideration paid.......................................... 6
Net assets acquired......................................... 6
----
--
---- ---
(562) 199
==== ===
</TABLE>
21 RECONCILIATION OF OPERATING LOSS TO CASH FLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
GROUP GROUP
1997 1996
----- -----
L000 L000
<S> <C> <C>
Operating loss.............................................. (139) (249)
Depreciation charges........................................ 428 564
Amortisation................................................ 72 --
Provision against investment................................ 26 160
Profit on sale of tangible fixed assets..................... (36) (89)
Decrease in debtors......................................... 119 1,206
Decrease in creditors....................................... 88 (890)
---- -----
Net cash inflow from operating activities................... 558 702
==== =====
</TABLE>
F-116
<PAGE> 186
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
22 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
<TABLE>
<CAPTION>
GROUP GROUP
1997 1996
----- -----
L000 L000
<S> <C> <C>
Investment income net of tax................................ -- 134
Interest received........................................... 127 60
Interest paid............................................... (96) (78)
Interest element of finance lease payments.................. (69) (87)
---- -----
Returns on investment and servicing of finance.............. (38) 29
==== =====
</TABLE>
23 CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
<TABLE>
<CAPTION>
GROUP GROUP
1997 1996
----- -----
L000 L000
<S> <C> <C>
Purchase of tangible fixed assets........................... (44) (140)
Sale of tangible fixed asset................................ 126 239
Payment to acquire investments.............................. -- (16)
Sale of investment.......................................... (25) 35
---- -----
Net cash outflow for capital expenditure and financial
investment................................................ 57 118
==== =====
</TABLE>
24 ACQUISITIONS AND DISPOSALS
<TABLE>
<CAPTION>
GROUP GROUP
1997 1996
----- -----
L000 L000
<S> <C> <C>
Purchase of subsidiary undertaking.......................... (455) --
Net cash acquired with subsidiary........................... 137 --
---- ----
Net cash outflow for acquisitions and disposals............. (318) --
==== ====
</TABLE>
25 FINANCING
<TABLE>
<CAPTION>
GROUP GROUP
1997 1996
----- -----
L000 L000
<S> <C> <C>
Capital element of finance lease rental payments............ (407) (318)
Proceeds from new borrowings................................ -- 83
Repayment of borrowings..................................... -- (31)
---- ----
Net cash outflow from financing............................. (407) (266)
==== ====
</TABLE>
26 NET DEBT
<TABLE>
<CAPTION>
AT 1ST MAY CASH AT 30TH
1996 FLOW APRIL 1997
---------- ----- ----------
L000 L000 L000
<S> <C> <C> <C>
Cash in hand and at bank............................... 1,217 (158) 1,059
Debt due after one year................................ (1,350) -- (1,350)
Finance leases......................................... (919) 150 (769)
------ ---- ------
(1,052) (8) (1,060)
====== ==== ======
</TABLE>
F-117
<PAGE> 187
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
1997
------
L000
<S> <C>
Decrease in cash in the year................................ (158)
Cash outflow from decrease in lease financing............... 150
------
Movement in net debt in the year............................ (8)
Net debt at 1 May 1997...................................... (1,052)
------
Net debt at 30th April 1997................................. (1,060)
======
</TABLE>
27 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
GROUP COMPANY
------------- -------------
1997 1996 1997 1996
----- ----- ----- -----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Loss for the financial year............................ (255) (305) (942) (608)
New share capital subscribed........................... 95 -- 95 --
Capital reserve on acquisition......................... 199 -- -- --
Share of former associate's profit taken to group
profit and loss account prior to the associate
becoming a subsidiary................................ (26) -- -- --
----- ----- ----- -----
Net increase/(decrease) in shareholders' funds......... 13 (305) (847) (608)
Shareholders' funds at beginning of year............... 3,655 3,960 2,996 3,604
----- ----- ----- -----
Shareholders' funds at end of year..................... 3,668 3,655 2,149 2,996
===== ===== ===== =====
</TABLE>
28 PENSIONS
Certain employees are members of a pension scheme operated by the Richard
Ellis Partnership. The scheme includes final salary and defined contribution
sections. The assets of the schemes are held separately from those of the
Partnership.
The most recent actuarial valuation was at 30th April 1993. The valuation
was conducted using the projected unit method, and assumed an interest rate of
8%, a salary growth of 6% and dividend growth of 3.5%. The value of the scheme's
assets exceeded the accrued benefits to members. The next actuarial valuation is
at 30th April 1996, and is currently being prepared.
The pension charge represents contributions payable by the company and
amounted to L110k. Costs totalling L7k were payable at the year end and are
included in creditors.
F-118
<PAGE> 188
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
29 LEASING COMMITMENTS
The group had commitments under operating leases to make payments totalling
L539k (1996: L559k) in the year ending 30th April 1997 as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
LAND & LAND &
BUILDINGS OTHER BUILDINGS OTHER
--------- ----- --------- -----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Leases expiring:
Within one year................................... -- 52 -- 12
Within two to five years.......................... 52 138 23 227
Over five years................................... 297 -- 297 --
--- --- --- ---
349 190 320 239
=== === === ===
</TABLE>
30 CONTINGENT LIABILITIES
The company has given an unlimited guarantee in respect of the bank loans
and overdrafts of certain other group companies. At 30th April 1997 the amount
guaranteed by the company was L851k (1996: L706k).
31 POST BALANCE SHEET EVENT
On 2nd May 1997 the Richard Ellis group in the UK carried out a corporate
restructuring. This involved transferring the trade, assets and liabilities of
the former Richard Ellis Partnership, Richard Ellis Services Limited, Richard
Ellis (incorporating Hepper Robinson) Limited, Richard Ellis Regional Limited
and Richard Ellis Midlands Limited into Richard Ellis Holdings Limited, which
became the main UK trading company for the group, trading as Richard Ellis. The
ultimate parent company is now Richard Ellis Group Limited.
32 RELATED PARTY TRANSACTIONS
All of the directors of Richard Ellis Holdings Limited, except I Harvey and
A J Davenport, were partners in the Richard Ellis Partnership during the year.
During the year the Partnership charged Richard Ellis Holdings Limited and
its subsidiary companies fees totalling L126k and management charges totalling
L1,235k. Subsidiaries of Richard Ellis Holdings Limited charged the Partnership
fees totalling L451k, hire charges totalling L618k and promotional charges
totalling L1,122k.
Of these sums, the amounts unpaid at the balance sheet date totalled L461k
owed by the group, and L514k owed to the group.
Additionally Waresure Limited, a group company, is the corporate partner in
the Partnership, having invested capital of L2,600k. Waresure Limited was
allocated L130k in the year by way of its share of Partnership profits, L116k of
which was unpaid at the year end.
F-119
<PAGE> 189
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
The group paid the Richard Ellis Partnership L278k in respect of directors'
services to group companies.
All transactions were carried out on commercial terms and at arms' length.
33 ULTIMATE PARENT COMPANY
The ultimate parent company is Richard Ellis Group Limited which is the
parent of both the smallest and the largest groups of which the company is a
member.
34 SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
The Company's accounting policies comply with U.K. GAAP which differ in
certain significant respects from U.S. GAAP. The following is a summary of such
differences.
ACCOUNTING FOR GOODWILL
During the year ended 30 April 1997, the Company changed its accounting
policy from writing goodwill off directly to reserves, to amortising it over its
useful economic life through the profit and loss account. In connection with
this change in accounting policy, the 1996 financial statements were restated
onto a consistent basis with the 1997 financial statements; as a result the
goodwill previously taken to reserves was written off through the profit and
loss account in the restated 1996 financial statements as it was considered to
have nil useful economic life.
The restatement and the change in accounting policy did not adjust for
goodwill written off to reserves prior to 1995.
Under U.S. GAAP, goodwill arising on acquisitions is capitalised and
amortised over its economic life through the profit and loss account.
ACCOUNTING FOR DEFERRED INCOME TAXES
U.K. GAAP requires deferred income taxes to be recorded using the liability
method based on those timing differences expected to crystallise in the
foreseeable future. U.S. GAAP also requires the use of the liability method;
however, full provision for all temporary differences is required.
F-120
<PAGE> 190
RICHARD ELLIS
PARTNERSHIP ACCOUNTS
FOR THE YEAR ENDED 30TH APRIL 1997
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Profit and loss account..................................... F-122
Balance sheet............................................... F-123
Notes to the Partnership accounts........................... F-124
Report of the auditors...................................... F-130
</TABLE>
SECRETARY
P Osman, Berkeley Square House, Berkeley Square, London, W1X 6AN.
AUDITORS
BDO Stoy Hayward, 8 Baker Street, London, W1M 1DA.
PRINCIPAL BANKERS
Barclays Bank PLC, 54 Lombard Street, London, EC3V 9EX.
F-121
<PAGE> 191
RICHARD ELLIS
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30TH APRIL 1997
<TABLE>
<CAPTION>
NOTE 1997 1996
---- ------- -------
L000 L000
<S> <C> <C> <C>
Turnover.................................................... 2 27,137 25,553
Operating expenses.......................................... 3 (26,399) (24,522)
------- -------
Operating profit............................................ 738 1,031
Interest receivable......................................... 6 290 306
Interest payable............................................ 7 (204) (189)
Shareholders' interest payable.............................. (80) (99)
------- -------
6 18
------- -------
Net profit.................................................. 744 1,049
======= =======
</TABLE>
All amounts relate to continuing activities. The trade was transferred to
Richard Ellis Group
on 1st May 1997.
All recognised gains and losses are included in the profit and loss account.
The notes on pages F-124 to F-129 form part of these Partnership accounts.
F-122
<PAGE> 192
RICHARD ELLIS
BALANCE SHEET
AT 30TH APRIL 1997
<TABLE>
<CAPTION>
NOTE 1997 1996
---- ------ ------
L000 L000
<S> <C> <C> <C>
Fixed assets................................................ 8 458 446
Investments................................................. 9 -- 6
------ ------
458 452
Current assets
Current asset investment.................................. -- 5
Work in progress.......................................... 695 538
Debtors and prepayments................................... 10 10,040 9,883
Cash at bank and in hand.................................. 11 886 2,468
------ ------
11,621 12,894
Creditors falling due within one year....................... 12 (6,420) (5,739)
------ ------
Net current assets.......................................... 5,201 7,155
------ ------
Total assets less current liabilities....................... 5,659 7,607
Creditors falling due after more than one year.............. 13 (1,518) (1,649)
------ ------
4,141 5,958
====== ======
Represented by:
Shareholders' equity........................................ 14
Capital accounts.......................................... 3,950 3,828
Sinking fund capital accounts............................. -- 219
Loan accounts............................................. 7 1,070
Current accounts.......................................... 184 841
Current taxation.......................................... -- --
------ ------
4,141 5,958
====== ======
</TABLE>
The notes on pages F-124 to F-129 form part of these Partnership accounts.
F-123
<PAGE> 193
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS
FOR THE YEAR ENDED 30TH APRIL 1997
1 ACCOUNTING POLICIES
These Partnership accounts have been prepared under the historical cost
convention and are in accordance with applicable accounting standards. The
following principal accounting policies have been applied:
Turnover
This represents fees earned from all activities of the firm, exclusive of
value added tax, and net of specific provisions for bad debts and shared fees.
An accrual is made for management commission earned but not billed at the year
end, and for movements in work in progress in professional departments. Work in
progress is valued at the lower of cost and net realisable value; cost
represents the cost of relevant staff plus attributable professional indemnity
cover. In previous years cost has represented the salaries of the relevant
professional staff.
Provision for bad debts is made against specific fee accounts when, in the
opinion of the Partners, there is a substantial risk of loss due to non-payment.
Shared fees are matched with the relevant income.
Depreciation
Depreciation is provided in order to write off the cost less estimated
residual values of all tangible fixed assets over their expected useful lives as
follows:
<TABLE>
<S> <C>
-- reducing balance at 25% per
Motor vehicles annum
Computer software -- straight line at 25% per annum
</TABLE>
Leased assets
Where assets are financed by leasing agreements that give rights
approximating to ownership (finance leases), the assets are treated as if they
had been purchased outright. The amount capitalised is the present value of the
minimum lease payments payable during the lease term. The corresponding leasing
commitments are shown as amounts payable to the lessor. Depreciation on the
relevant assets is charged to the profit and loss account.
Lease payments are split between capital and interest using the straight
line method. The interest is charged to the profit and loss account. The capital
part reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals are
charged to the profit and loss account on a straight line basis over the lease
term.
Valuation of investments
Investments held as fixed assets are stated at cost less any provision for
a permanent diminution in value.
Cashflow statement
In the opinion of the Partners, a cashflow statement as required by FRS1
would be misleading because the cashflows relating to Partners' financing of the
firm and their drawings do not readily fit into the required format. An
alternative cashflow statement was not considered by the Partners to add value
to these Partnership accounts, nor to be appropriate or cost effective in
assisting them, and other users, in their understanding of these final
Partnership accounts.
F-124
<PAGE> 194
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
2 TURNOVER
<TABLE>
<CAPTION>
1997 1996
------ ------
L000 L000
<S> <C> <C>
Professional fees........................................... 24,572 22,833
Management commission....................................... 2,563 2,939
Bad debt write back/(charge)................................ 2 (219)
------ ------
27,137 25,553
====== ======
</TABLE>
3 OPERATING EXPENSES INCLUDE:
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Hire charges................................................ 788 900
Fixed asset depreciation.................................... 73 157
Auditors' remuneration...................................... 30 30
Exceptional income upon loss of profits claim relating to
bomb disruption in a previous period...................... -- (632)
</TABLE>
Depreciation includes L90,438 (1996: L91,370) charged on assets held under
finance leases and hire purchase contracts.
4 EQUITY PARTNERS' NOTIONAL SALARIES
<TABLE>
<CAPTION>
1997 1996
----- -----
L000 L000
<S> <C> <C>
Equity Partners' notional salaries.......................... 2,656 2,826
===== =====
</TABLE>
5 STAFF AND RELATED COSTS
<TABLE>
<CAPTION>
1997 1996
------ ------
L000 L000
<S> <C> <C>
Salaries (excluding Equity Partners)........................ 10,432 10,085
Salaried Partners' and Associates' bonuses.................. 271 397
Staff bonuses............................................... 87 126
------ ------
10,790 10,608
Social security costs....................................... 1,027 1,041
------ ------
11,817 11,649
====== ======
</TABLE>
F-125
<PAGE> 195
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
Number of persons in the firm at 30th April
<TABLE>
<CAPTION>
1997 1996
------ ------
NUMBER NUMBER
<S> <C> <C>
Operating units
Partners and other professional staff.................. 205 210
Administrative staff................................... 127 119
--- ---
332 329
=== ===
Support units
Partners and other professional staff.................. 63 63
Administrative staff................................... 37 39
--- ---
100 102
--- ---
432 431
--- ---
</TABLE>
6 INTEREST RECEIVABLE ON:
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Bank deposits............................................... 290 306
=== ===
</TABLE>
7 INTEREST PAYABLE ON:
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Term loan from 3i plc (see note 13)......................... 132 105
Bank overdrafts............................................. 12 58
Hire purchase contracts..................................... 60 26
--- ---
204 189
=== ===
</TABLE>
8 FIXED ASSETS
<TABLE>
<CAPTION>
MOTOR LEASEHOLD COMPUTER
VEHICLES PREMISES SOFTWARE TOTAL
-------- --------- -------- -----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Cost
B/F............................................ 1,130 228 109 1,467
Additions...................................... 161 0 0 161
Disposals...................................... (321) 0 0 (321)
----- --- --- -----
C/F............................................ 970 228 109 1,307
===== === === =====
Depreciation
B/F............................................ 716 228 77 1,021
Charge in year................................. 45 0 28 73
Disposals...................................... (245) 0 0 (245)
----- --- --- -----
C/F............................................ 516 228 105 849
===== === === =====
Net Book Value
At 30th April 1997............................. 454 0 4 458
----- --- --- -----
At 30th April 1996............................. 414 0 32 446
===== === === =====
</TABLE>
F-126
<PAGE> 196
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
The net book value of tangible fixed assets includes an amount of L50,223
(1996: L311,059) in respect of assets held under hire purchase contracts.
9 INVESTMENTS
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
At cost at 1st May.......................................... 6 6
Disposals in year........................................... (6) --
-- --
At 30th April............................................... -- 6
== ==
</TABLE>
10 DEBTORS AND PREPAYMENTS
<TABLE>
<CAPTION>
1997 1996
------ -----
L000 L000
<S> <C> <C>
Fees receivable (net of bad debt provision)................. 6,767 7,319
Management commission accrued............................... 331 295
Sundry debtors and prepayments.............................. 2,942 2,269
------ -----
10,040 9,883
====== =====
</TABLE>
All amounts shown under debtors and prepayments fall due within one year.
11 CASH AT BANK AND IN HAND
Cash at bank and in hand includes L752,660 (1996: L715,582) in a blocked
account, over which a charge has been granted.
12 CREDITORS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
----- -----
L000 L000
<S> <C> <C>
Bank overdraft.............................................. 1,713 --
Trade creditors and accruals................................ 2,049 1,249
Shared fees payable......................................... 379 514
P A Y E and National Insurance.............................. 364 429
Bonuses payable............................................. 358 522
Current taxation............................................ -- 1,559
Hire purchase creditors..................................... 19 116
Other creditors............................................. 1,538 1,350
----- -----
6,420 5,739
===== =====
</TABLE>
13 CREDITORS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
----- -----
L000 L000
<S> <C> <C>
Term loan from 3i plc....................................... 1,500 1,500
Hire purchase creditors..................................... 18 149
----- -----
1,518 1,649
===== =====
</TABLE>
F-127
<PAGE> 197
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
The term loan from 3i plc, which expires in December 2011, bears interest
at 1.875% above the higher of LIBOR or 6%. It is repayable at the Partners'
discretion but must be reduced to L1,000,000 by December 2001 and to L500,000 by
December 2006.
Obligations under hire purchase contracts are due as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
L000 L000
<S> <C> <C>
Within 1 -- 2 years......................................... 9 100
Within 2 -- 5 years......................................... 9 49
-- ---
18 149
== ===
</TABLE>
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SINKING FUND
CAPITAL CAPITAL LOAN CURRENT CURRENT
ACCOUNTS ACCOUNTS ACCOUNTS ACCOUNTS ACCOUNTS
-------- ------------ -------- -------- --------
L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
At 1st May 1996.............................. 3,828 219 1,070 841 --
Movement in year
Capital introduced......................... 222 -- -- -- --
Salaries and interest...................... -- -- -- 2,736 --
Profit attributable........................ -- -- -- 744 --
Transfers (to)/from creditors.............. (100) (20) (140) (55) 1,572
Capital and loan distributions............. -- (199) (923) -- --
Drawings................................... -- -- -- (2,824) --
Tax suffered............................... -- -- -- (1,151) 1,151
Tax released/paid.......................... -- -- -- (107) (1,663)
Cash set aside............................. -- -- -- -- (1,026)
Further cash to be set aside............... -- -- -- -- (234)
Administration costs accrued............... -- -- -- -- 200
----- ---- ----- ------ ------
At 30th April 1997........................... 3,950 -- 7 184 --
===== ==== ===== ====== ======
</TABLE>
15 COMMITMENTS UNDER OPERATING LEASES
As at 30th April 1997 the Partnership had annual commitments under
non-cancellable operating leases as set out below:
<TABLE>
<CAPTION>
PROPERTY EQUIPMENT
------------- ------------
1997 1996 1997 1996
----- ----- ----- ----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Operating leases which expire:
within one year............................................. -- -- 117 39
in second to fifth years inclusive.......................... 205 49 616 313
greater than five years..................................... 2,808 3,152 --
----- ----- ----- ---
3,013 3,201 733 352
===== ===== ===== ===
</TABLE>
16 RELATED PARTY TRANSACTIONS
During the year, all of the Richard Ellis Partners were directors of
Richard Ellis Holdings Limited and all except S.V. Clayton and R.P. Lister were
also shareholders in that company.
F-128
<PAGE> 198
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1997
During the year the Partnership charged Richard Ellis Holdings Limited and
its subsidiary companies fees totalling L126,474 and management charges
totalling L1,235,256. Subsidiaries of Richard Ellis Holdings Limited also
charged the Partnership fees totalling L451,043, hire charges totalling L618,954
and promotional charges totalling L1,122,214. Of these sums the amounts unpaid
at the year end totalled L461,286 owing to the Partnership and L644,806 owing by
the Partnership.
Additionally, Waresure Limited, a subsidiary of Richard Ellis Holdings
Limited, is the corporate partner in the Partnership, having invested capital of
L2,600,000. Waresure Limited was allocated L130,000 in the year by way of its
share of partnership profits, L116,140 of which was unpaid at the year end.
All transactions were carried out on commercial terms and at arms length.
17 POST BALANCE SHEET EVENT
On 1st May 1997 the trade, assets and liabilities of the Partnership were
transferred to Richard Ellis Group, a newly formed company, and the Partnership
ceased trading.
18 SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
The Partnership's accounting policies comply with applicable U.K. GAAP as
noted in the financial statements, which differ in certain significant respects
from U.S. GAAP. The following is a summary of such differences.
CASH FLOW STATEMENTS
Under U.K. GAAP, as a partnership, Richard Ellis does not present a Cash
Flow Statement as, in the opinion of the Partners, a cash flow statement as
required by Financial Reporting Standard 1 (Revised) would be misleading because
the cash flow relating to the Partners' financing of the firm and drawings do
not readily fit into the required format. An alternative cash flow statement was
not considered by the Partners to add value to these accounts, nor to be
appropriate or cost effective in assisting them, and other users, in their
understanding of the Partnership accounts. Under U.S. GAAP, a Cash Flow
Statement would be required for all years presented.
WORK IN PROGRESS
As discussed in the Partnership's accounting policies, work in progress is
valued at the lower of cost and net realisable value; cost represents the
salaries of the relevant professional staff. It does not, however, include any
cost element in respect of equity partner time. Under U.S. GAAP, work in
progress would be recorded at cost.
F-129
<PAGE> 199
RICHARD ELLIS
REPORT OF THE AUDITORS
TO THE PARTNERS OF RICHARD ELLIS
We have audited the Partnership accounts on pages F-122 to F-129 which have
been prepared under the accounting policies set out on page F-124.
Respective responsibilities of Partners and auditors
You are responsible, as Partners, for the preparation of the Partnership
accounts. It is our responsibility to form an independent opinion, based on our
audit, on those accounts and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. n audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the Partnership accounts. It
also includes an assessment of the significant estimates and judgements made by
the Partners in the preparation of the Partnership accounts, and of whether the
accounting policies are appropriate to the Partnership's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the Partnership accounts
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the Partnership accounts.
Opinion
In our opinion the financial statements give a true and fair view of the
state of the Partnership's affairs as at 30th April 1997 and of its profit for
the year then ended.
Accounting principles generally accepted in the United Kingdom vary in
certain respects from generally accepted accounting principles in the United
States. These differences are referred to in note 18 to the financial
statements.
BDO STOY HAYWARD
Chartered Accountants
and Registered Auditors
London
23 October 1997 (final paragraph signed as at 21 July 1998)
F-130
<PAGE> 200
RICHARD ELLIS HOLDINGS LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH APRIL 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Directors
Report of the directors..................................... F-132
Report of the auditors...................................... F-135
Consolidated profit and loss account........................ F-136
Consolidated balance sheet.................................. F-137
Balance sheet............................................... F-138
Consolidated cash flow statement............................ F-139
Notes forming part of the financial statements.............. F-140
</TABLE>
DIRECTORS
<TABLE>
<S> <C>
A J M Huntley (Chairman) A C M Pringle
B N Harris J J Shellard
J A D Croft M J Strong
D A Sizer K J Caesar
B D White A J Waters
M D G Wheldon G E Webster
R J F Wildman J S Worboys
C N G Arding J M T Slade
R D Lucas C M Warner
A Forbes S L Barter
R G Glover H V A Ellingham
C P B Roe I D Ellis
E T D Luker D P Smith
A C Froggatt S V Clayton
S A Hubbard R P Lister
</TABLE>
SECRETARY AND REGISTERED OFFICE
P A V S Osman, Berkeley Square House, London, W1X 6AN.
AUDITORS
BDO Stoy Hayward, 8 Baker Street, London, W1M 1DA.
BANKERS
Barclays Bank PLC, 54 Lombard Street, London EC3V 9EX.
F-131
<PAGE> 201
RICHARD ELLIS HOLDINGS LIMITED
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 30TH APRIL 1996
The directors present their annual report together with the audited
financial statements for the year ended 30th April 1996.
RESULTS AND DIVIDENDS
The results of the group for the year are set out on page F-136.
The directors do not propose the payment of a dividend.
PRINCIPAL ACTIVITIES, TRADING REVIEW AND FUTURE DEVELOPMENTS
The company's principal activity is that of a holding company. The
subsidiaries' activities are disclosed in note 14 to the financial statements.
The trading environment for the Group's activities remained difficult
throughout the year and the exceptional costs have been taken with the write
down of investments held by the Group. Considerable effort has been devoted to
reducing the Group's administrative expenses resulting in an improved
performance. Further improvements are expected during the course of the next
financial year.
FIXED ASSETS
The movements in fixed assets are set out in notes F-140 and F-151 to the
financial statements.
F-132
<PAGE> 202
DIRECTORS
The directors of the company during the year and their interests in the
ordinary share capital of the company were:
<TABLE>
<CAPTION>
10P ORDINARY SHARES AT 30TH APRIL 1996 TOTAL
--------------------------------------- 10P ORDINARY
NON-VOTING SHARES AT
"A" SHARES "B" SHARES TOTAL 30.4.95
------------ ------------ --------- ------------
<S> <C> <C> <C> <C>
A J M Huntley................................... 159,038 212,494 371,532 371,532
B N Harris...................................... 159,038 201,494 360,532 360,532
J A D Croft..................................... 159,038 199,219 358,257 358,257
D A Sizer....................................... 159,038 212,494 371,532 371,532
B D White....................................... 159,038 199,219 358,257 358,257
M D G Wheldon................................... 159,038 211,494 370,532 370,532
R J F Wildman................................... 159,038 201,494 360,532 360,532
C N G Arding.................................... 159,038 201,494 360,532 360,532
R D Lucas....................................... 159,038 201,494 360,532 360,532
A Forbes........................................ 159,038 215,488 374,526 374,526
R G Glover...................................... 159,038 206,163 365,201 365,201
C P B Roe....................................... 159,038 199,219 358,257 358,257
E T D Luker..................................... 159,038 199,219 358,257 358,257
A C Froggatt.................................... 135,182 39,522 174,704 174,704
S A Hubbard..................................... 135,182 211,250 346,432 346,432
A C M Pringle................................... 135,182 196,250 331,432 331,432
J J Shellard.................................... 135,182 191,250 326,432 326,432
M J Strong...................................... 127,230 191,249 318,479 318,479
K J Caesar...................................... 111,327 233,573 344,900 344,900
A J Waters...................................... 111,327 193,304 304,631 304,631
G E Webster..................................... 111,327 191,573 302,900 302,900
J S Worboys..................................... 111,327 183,304 294,631 294,631
J M T Slade..................................... 95,423 183,285 278,708 278,708
C M Warner...................................... 95,423 183,285 278,708 278,708
G Carr-Jones (resigned 31.7.95)................. 79,519 143,214 222,733 222,733
S L Barter...................................... 2,600 -- 2,600 2,600
H V A Ellingham................................. 47,711 152,345 200,056 200,056
I D Ellis....................................... 47,711 15,904 63,615 63,615
D P Smith....................................... 47,711 15,904 63,615 63,615
A J Davenport (resigned 31.05.96)............... -- -- -- --
S V Clayton..................................... -- -- -- --
R P Lister...................................... -- -- -- --
--------- --------- --------- ---------
3,596,858 4,986,197 8,583,055 8,583,055
========= ========= ========= =========
</TABLE>
F-133
<PAGE> 203
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and Group and of the profit or loss of the Group for that period. In
preparing those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company and Group will continue in
business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and Group and to enable them to ensure that the financial statements
comply with the Companies Act 1985. They are also responsible for safeguarding
the assets of the Company and Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
AUDITORS
BDO Stoy Hayward have expressed their willingness to continue in office and
a resolution to re-appoint them will be proposed at the annual general meeting.
BY ORDER OF THE BOARD
P A V S Osman
SECRETARY
22nd October 1996
F-134
<PAGE> 204
RICHARD ELLIS HOLDINGS LIMITED
REPORT OF THE AUDITORS
TO THE SHAREHOLDERS OF RICHARD ELLIS HOLDINGS LIMITED
We have audited the financial statements on pages F-136 to F-151 which have
been prepared under the accounting policies set out on pages F-140 to F-141.
Respective responsibilities of directors and auditors
As described on page F-134 the company's directors are responsible for the
preparation of the financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes an examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the
state of affairs of the company and the group as at 30th April 1996 and of the
result of the group for the year then ended and have been properly prepared in
accordance with the Companies Act 1985.
Accounting principles generally accepted in the United Kingdom vary in
certain respects from generally accepted accounting principles in the United
States. These differences are referred to in note 27 to the financial
statements.
BDO STOY HAYWARD
Chartered Accountants
and Registered Auditors
London
22nd October 1996 (final paragraph signed as at 21st July 1998)
F-135
<PAGE> 205
RICHARD ELLIS HOLDINGS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30TH APRIL 1996
<TABLE>
<CAPTION>
NOTE 1996 1995
---- ------ -------
L000 L000
<S> <C> <C> <C>
TURNOVER.................................................... 2 9,053 9,482
Administrative expenses..................................... 3 (9,142) (10,101)
------ -------
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST AND OTHER
INCOME.................................................... (89) (619)
Exceptional item............................................ 6 (160) --
Investment income........................................... 7 196 207
Interest receivable......................................... 96 105
Interest payable............................................ 8 (160) (142)
Share of loss of associated undertakings.................... 9 (192) (67)
------ -------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION................. (309) (516)
Taxation on loss on ordinary activities..................... 10 (19) (129)
------ -------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION.................. (328) (645)
Minority interests.......................................... 23 22
------ -------
LOSS FOR THE FINANCIAL YEAR................................. (305) (623)
Dividends paid.............................................. 11 -- (43)
------ -------
TRANSFER FROM RESERVES...................................... 19 (305) (666)
====== =======
</TABLE>
All amounts relate to continuing activities.
All recognised gains and losses are included in the profit and loss account.
The notes on pages F-140 to F-151 form part of these financial statements.
F-136
<PAGE> 206
RICHARD ELLIS HOLDING LIMITED
CONSOLIDATED BALANCE SHEET
AT 30TH APRIL 1996
<TABLE>
<CAPTION>
NOTE 1996 1995
---- --------------- ---------------
L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible fixed assets.......................................... 13 1,458 1,657
Investments.................................................... 14 3,123 3,363
------ ------
4,581 5,020
CURRENT ASSETS
Debtors -- due within one year................................. 15 3,276 3,961
-- due after one year................................. 15 334 582
Cash at bank................................................... 1,217 639
------ ------
4,827 5,182
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR................... 16 (2,998) (3,348)
------ ------
NET CURRENT ASSETS............................................... 1,829 1,834
------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES............................ 6,410 6,854
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR.......... 17 (2,348) (2,464)
------ ------
4,062 4,390
====== ======
CAPITAL AND RESERVES:
Share capital.................................................. 18 858 858
Share premium account.......................................... 19 2,647 2,647
Profit and loss account........................................ 19 734 1,039
Goodwill....................................................... (584) (584)
------ ------
3,655 3,960
Minority interests............................................. 407 430
------ ------
4,062 4,390
====== ======
</TABLE>
The notes on pages F-140 to F-151 form part of these financial statements.
These financial statements were approved by the Board on 22nd October 1996.
F-137
<PAGE> 207
RICHARD ELLIS HOLDINGS LIMITED
BALANCE SHEET
AT 30TH APRIL 1996
<TABLE>
<CAPTION>
NOTE 1996 1995
---- --------------- --------------
L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Investments........................................ 14 4,390 4,499
CURRENT ASSETS
Debtors -- due within one year..................... 15 127 288
-- due after one year..................... 15 463 463
------ ------
590 751
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR....... 16 (1,984) (1,646)
------ ------
NET CURRENT LIABILITIES.............................. (1,394) (895)
------ -----
TOTAL ASSETS LESS CURRENT LIABILITIES................ 2,996 3,604
====== =====
CAPITAL AND RESERVES:
Share capital...................................... 18 858 858
Share premium account.............................. 19 2,647 2,647
Profit and loss account............................ 19 (509) 99
------ -----
2,996 3,604
====== =====
</TABLE>
All amounts within capital and reserves relate to equity.
The notes on pages F-140 to F-151 form part of these financial statements.
These financial statements were approved by the Board on 22nd October 1996.
<TABLE>
<CAPTION>
<S> <C>
A C Froggatt R D Lucas
Director Director
</TABLE>
F-138
<PAGE> 208
RICHARD ELLIS HOLDINGS LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30TH APRIL 1996
<TABLE>
<CAPTION>
NOTE 1996 1995
---- ----------- ---------------
L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES.... 20 702 (1,186)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE:
Investment income, net of tax credit................. 134 174
Dividends paid....................................... -- (74)
Interest received.................................... 60 98
Interest paid........................................ (78) (102)
Interest element of finance lease rental payments.... (87) (45)
---- ------
29 51
TAXATION:
UK corporation tax (paid)/recovered.................. (5) 137
Belgian corporation tax paid......................... -- (29)
---- ------
(5) 108
INVESTING ACTIVITIES:
Payments to acquire investments...................... (16) (588)
Payments to acquire fixed assets..................... 21 (140) (211)
Receipts from sale of investments.................... 35 1,250
Receipts from sales of fixed assets.................. 239 205
---- ------
118 656
---- ------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING............. 844 (371)
FINANCING
Issue of ordinary share capital...................... -- 30
Repurchase of shares................................. -- (32)
Capital element of finance lease rental payments..... (318) (205)
Proceeds from new borrowings......................... 83 30
Repayment of borrowings.............................. (31) (1,250)
---- ------
(266) (1,427)
---- ------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS....... 22 578 (1,798)
==== ======
</TABLE>
The notes on pages F-140 to F-151 form part of these financial statements.
F-139
<PAGE> 209
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH APRIL 1996
1 ACCOUNTING POLICIES
Accounting convention
The financial statements have been prepared under the historical cost
convention and are in accordance with applicable accounting standards. The
following principal accounting policies have been applied:
Basis of consolidation
The financial statements consolidate the accounts of Richard Ellis Holdings
Limited and its subsidiary and associated undertakings, drawn up to 30th April
each year. The accounts of certain small subsidiaries and associated
undertakings have been drawn up to 31st March 1996 or up to 30th June 1996.
Adjustments to reflect those companies' trading results for the period between
the dates of their accounts and 30th April 1996 would not be material to the
group.
The group uses the acquisition method of accounting to consolidate the
results of subsidiary undertakings whereby the results of subsidiary
undertakings are included from the date of acquisition.
No profit and loss account is presented for Richard Ellis Holdings Limited,
as permitted by Section 230 of the Companies Act 1985.
Goodwill
The tangible assets of newly acquired subsidiary undertakings are
incorporated into the accounts on the basis of the fair value to the group as at
the effective date of control.
Goodwill, being any excess of the consideration over that fair value, is
written off against reserves on consolidation.
Associated undertakings
A company is treated as an associated undertaking when the group holds a
substantial interest in it for the long term and exercises significant influence
over its operating and financial policy decisions.
The group's share of the results of associated undertakings is included in
the consolidated profit and loss account using the equity method of accounting.
The investment in associated undertakings included in the consolidated balance
sheet is based on the group's share of the net assets of the associated
undertakings, together with any premium or discount arising on acquisition, less
amounts written off. Any premium on acquisition is dealt with as if it were
goodwill.
Foreign currency
Profit and loss accounts and assets and liabilities of foreign subsidiary
undertakings are translated into sterling at the rates of exchange ruling on the
balance sheet date.
Turnover
Turnover represents professional fees rendered to the extent that they have
been earned, net of shared fees, and amounts receivable in respect of equipment
hire and promotional services, all exclusive of value added tax. An accrual is
made for professional fees earned but not billed at the year end.
Valuation of investments
Investments held as fixed assets are stated at cost less any provision for
a permanent diminution in value.
F-140
<PAGE> 210
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation
Depreciation is calculated to write off the cost less estimated residual
values of all tangible fixed assets over their expected useful lives as follows:
<TABLE>
<S> <C>
New motor vehicles (from 1st October -- straight line at 25% per annum
1994)
Motor vehicles -- reducing balance at 25% per
annum
Office equipment -- straight line at 20% per annum
Office fixtures and fittings -- straight line at 33% per annum
Office furniture -- straight line at 12.5% per annum
</TABLE>
Deferred taxation
Provision is made for timing differences between the treatment of certain
items for taxation and accounting purposes to the extent that it is probable
that a liability or asset will crystallise.
Leased assets
Where assets are financed by leasing arrangements that give rights
approximating to ownership (finance leases), the assets are treated as if they
had been purchased outright. The amount capitalised is the minimum lease
payments payable over the full term of a lease. The corresponding leasing
commitments are shown as payable to the lessor. Depreciation on the relevant
assets is charged to the profit and loss account.
Lease payments are split between capital and interest using the actuarial
method. The interest is charged to the profit and loss account. The capital part
reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals are
charged to the profit and loss account on a straight line basis over the term of
the lease.
Pension costs
Pension costs are charged against profits in the year in which they become
payable.
2 TURNOVER
Turnover comprises:
<TABLE>
<CAPTION>
1996 1995
----- -----
L000 L000
<S> <C> <C>
Professional fees........................................... 7,390 7,430
Asset hire and promotional charges.......................... 1,663 2,052
----- -----
9,053 9,482
===== =====
</TABLE>
All turnover is generated in the United Kingdom. Related party turnover is
disclosed in note 4.
F-141
<PAGE> 211
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
3 ADMINISTRATIVE EXPENSES
Administrative expenses include:
<TABLE>
<CAPTION>
1996 1995
---- ----
L000 L000
<S> <C> <C>
Auditors' remuneration...................................... 53 54
Depreciation................................................ 563 629
Profit on disposal of fixed assets.......................... (89) (42)
Payments in respect of operating leases..................... 637 401
Restructuring costs......................................... 169 --
Write down of investments................................... -- 17
=== ===
</TABLE>
Depreciation includes L229k (1995: L136k) charged on assets held under
finance leases and hire purchase contracts.
4 DIRECTORS' EMOLUMENTS
Directors' emoluments consist of:
<TABLE>
<CAPTION>
1996 1995
---- ----
L000 L000
<S> <C> <C>
Directors' remuneration..................................... 42 42
Amounts paid to Richard Ellis Partnership................... 324 282
--- ---
366 324
=== ===
</TABLE>
The Chairman received no emoluments (1995: LNil) during the period. The
emoluments of the highest paid director, excluding pension contributions, were
L7k (1995: L7k). The emoluments of other directors, excluding pension
contributions, were in the following ranges:
<TABLE>
<CAPTION>
1996 1995
------ ------
NUMBER NUMBER
<S> <C> <C>
LNil -- 5,000............................................... 25 24
L5,001 -- 10,000............................................ 5 6
</TABLE>
All the directors of the company, with the exception of Mr. A J Davenport,
are partners in Richard Ellis. The group's turnover relating to asset hire and
promotional services arises principally from Richard Ellis. Richard Ellis
recharged operating costs to the group of L1,094k (1995: L1,183k) including
L324k (1995: L282k) in respect of directors' services, and paid a profit share
to the group of L130k (1995: L130k). Richard Ellis also charged fees to the
group, and the group charged fees to Richard Ellis, for commercial estate agency
work. Some of these fees and some of the operating costs remained outstanding at
the year end.
All transactions were carried out on normal commercial terms and at arm's
length.
F-142
<PAGE> 212
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
5 STAFF COSTS
Staff costs consist of:
<TABLE>
<CAPTION>
1996 1995
----- -----
L000 L000
<S> <C> <C>
Wages and salaries.......................................... 3,745 3,952
Social security costs....................................... 353 383
Pension costs............................................... 142 145
----- -----
4,240 4,480
===== =====
</TABLE>
The average number of employees during the year was as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
NUMBER NUMBER
<S> <C> <C>
Full time................................................... 150 164
Part time................................................... 5 7
--- ---
155 171
=== ===
</TABLE>
6 EXCEPTIONAL ITEM
An exceptional provision of L160k (1995 -- Nil) has been made against the
group's investment in IHS Sport Villages PLC (IHSSV). In the opinion of the
directors there may have been a permanent diminution in the value of this
investment and they have accordingly written down the carrying value of the
IHSSV to the group's share of the net assets of IHSSV based on the financial
statements of that company at 31 December 1995.
7 INVESTMENT INCOME
<TABLE>
<CAPTION>
1996 1995
---- ----
L000 L000
<S> <C> <C>
Income from investments..................................... 66 77
Profit share received from Richard Ellis.................... 130 130
---- ---
196 207
==== ===
</TABLE>
8 INTEREST PAYABLE
<TABLE>
<CAPTION>
1996 1995
---- ----
L000 L000
<S> <C> <C>
Bank interest............................................... 73 97
Finance leases and hire purchase contracts.................. 87 45
---- ---
160 142
==== ===
</TABLE>
F-143
<PAGE> 213
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
9 SHARE OF PROFIT/(LOSS) OF ASSOCIATED UNDERTAKINGS
<TABLE>
<CAPTION>
1996 1995
---- ----
L000 L000
<S> <C> <C>
Richmount Enterprise Zone Managers Limited.................. (3) --
Beckwith Property Fund Management Limited................... (129) (96)
General Property Company (Goldsworth Park) Limited
-- share of profit........................................ 13 22
-- share of revaluation reserve........................... (72) 7
LAW 572 Limited............................................. (1) --
---- ---
(192) (67)
==== ===
</TABLE>
The investment in Beckwith Property Fund Management Limited has now been
fully written down and no further liability can be incurred.
10 TAXATION ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
L000 L000
UK corporation tax at 33% based on profit for the year...... 50 51
(Over)/under provision in respect of prior years............ (35) 33
Belgian corporation tax at 41% based on profit for the
year...................................................... -- 36
---- ----
15 120
Share of associated undertakings' tax charge................ 4 9
---- ----
19 129
==== ====
</TABLE>
The company is a close company within the meaning of the Income and
Corporation Taxes Act 1988.
11 DIVIDENDS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
L000 L000
Ordinary -- Nil (1995 -- L0.005 per share).................. -- 43
==== ====
</TABLE>
12 DEFERRED TAXATION
The group has a potential tax liability of approximately L693k which would
crystallise on the liquidation of Richard Ellis Corporate Capital Limited. This
deferred taxation has not been provided as the directors have no intention to
liquidate Richard Ellis Corporate Capital Limited in the foreseeable future.
F-144
<PAGE> 214
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
13 TANGIBLE FIXED ASSETS
Group
<TABLE>
<CAPTION>
FURNITURE,
EQUIPMENT,
MOTOR FIXTURES &
VEHICLES FITTINGS TOTAL
-------- ---------- ------
L000 L000 L000
<S> <C> <C> <C>
Cost:
At 1st May 1995.......................................... 2,299 7,871 10,170
Additions in the year.................................... 374 140 514
Disposals in the year.................................... (703) (2,885) (3,588)
----- ------ ------
At 30th April 1996......................................... 1,970 5,126 7,096
===== ====== ======
Depreciation:
At 1st May 1995.......................................... 1,131 7,382 8,513
Charged in the year...................................... 311 252 563
Disposals in the year.................................... (567) (2,871) (3,438)
----- ------ ------
At 30th April 1996....................................... 875 4,763 5,638
===== ====== ======
Net book value:
At 30th April 1996....................................... 1,095 363 1,458
----- ------ ------
At 30th April 1995....................................... 1,168 489 1,657
===== ====== ======
</TABLE>
The net book value of tangible fixed assets includes an amount of L1,006k
(1995: L968k) in respect of assets held under finance leases and hire purchase
contracts.
Company
Richard Ellis Holdings Limited has no tangible fixed assets other than
investments (note 14).
Capital commitments
At 30th April 1996 there were no capital commitments for tangible fixed
assets contracted or authorised by either the company or the group (1995: Nil).
At 30th April 1996 the Group was authorised but not committed to invest an
additional L875,000 in its associate Beckwith Property Fund Management Limited.
The cash is to be invested in property investment funds (1995: L875k).
14 FIXED ASSET INVESTMENTS
Group
<TABLE>
<CAPTION>
RICHARD
ELLIS UNQUOTED CONVERTIBLE ASSOCIATED
INVESTMENTS LOAN STOCK UNDERTAKINGS TOTAL
----------- -------- ----------- ------------ -----
L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
At 1st May 1995................... 2,600 189 463 111 3,363
Acquisitions in the year.......... -- 16 -- 100 116
Loss for the year................. -- -- -- (196) (196)
Write down of investment.......... -- (160) -- -- (160)
----- ---- --- ---- -----
At 30th April 1996................ 2,600 45 463 15 3,123
===== ==== === ==== =====
</TABLE>
F-145
<PAGE> 215
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
The investment in Richard Ellis is partnership capital subscribed by the
group interest-free, carrying an entitlement to a share of profits, as
determined by the partners of Richard Ellis. The investment in Richard Ellis is
non-voting and no control is exercised.
A provision of L160k (1995: L17k) has been made against the Group's
investment in IHS Sports Village PLC (IHSSV). In the opinion of the directors
there may have been a permanent diminution in the value of this investment and
they have accordingly written down the carrying value of IHSSV to the Group's
share of the net assets of IHSSV based on the financial statements of that
company at 31st December 1995.
The group owns 30% of the issued ordinary share capital of Richmount
Enterprise Zone Managers Limited, a company engaged in the management of
enterprise zone trusts. It also owns 25% of the issued ordinary share capital of
each of General Property Company (Goldsworth Park) Limited and LAW 572 Limited.
A loan of L100k to Beckwith Property Fund Management Limited (BPFM) was
capitalised in May 1995. A provision of L225k has been made against the entire
investment in BPFM as the directors believe that it is unlikely that monies
invested to date will be recovered. No further liability can be incurred as a
result of the group's 25% share of the issued ordinary share capital of BPFM.
In the year the Group invested L16k in Property Mezzanine Partners LP, a
limited partnership set up to provide mezzanine funding to property companies.
Company
<TABLE>
<CAPTION>
1996 1995
----- -----
L000 L000
<S> <C> <C>
Richard Ellis Services Limited.............................. 300 300
Richard Ellis (incorporating Hepper Robinson) Limited....... 740 740
Richard Ellis Financial Holdings Limited.................... 1,479 1,479
REFS Holdings Limited....................................... 1,843 1,843
Beckwith Property Fund Management Limited................... -- 125
Property Mezzanine Partners Limited......................... 16 --
Richard Ellis Corporate Finance Limited..................... 12 12
----- -----
4,390 4,499
===== =====
</TABLE>
F-146
<PAGE> 216
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
The following were subsidiary and associated undertakings during the year
and have all been included in the consolidated accounts:
<TABLE>
<CAPTION>
COUNTRY OF PROPORTION OF VOTING
INCORPORATION RIGHTS AND SHARE
OR REGISTRATION CAPITAL HELD NATURE OF BUSINESS
--------------- -------------------- ------------------------------
<S> <C> <C> <C>
Richard Ellis Services
Limited..................... England 100% Provision of assets for hire
and promotional services
Business Parks Consultancy
Limited..................... England 100% Holding company
Business Parks Consultancy
SA.......................... Belgium 100% Property consultants
Richard Ellis (incorporating
Hepper Robinson) Limited.... England 100% Commercial property
consultants
REFS Holdings Limited......... England 89% Finance and investment
services
Richard Ellis Corporate
Capital Limited............. England 100% Finance and investment
services
Richard Ellis Investment
Management Limited.......... England 100% Property related investment
advisors
Richard Ellis Corporate
Finance Limited............. England 100% SFA regulated finance and
investment services
Richard Ellis Financial
Limited..................... England 100% Property related investment
advisors
R.E.F Services Limited........ England 100% Property related investment
advisors
Laser Richmount Limited....... England 100% Provision of operational and
promotional services
Richmount Enterprise Zone
Managers Limited............ England 30% Enterprise zone trust managers
Richard Ellis Regional
Limited..................... England 85% Property consultants
Richard Ellis Midlands
Limited..................... England 100% Property consultants
Richard Ellis Limited......... England 100% Corporate partner in Richard
Ellis
Richard Ellis Fund Management
Limited..................... England 100% Holding company
Beckwith Property Fund
Management Limited.......... England 25% Property fund management
Richard Ellis Gunne Limited... England 51% Auctioneers
General Property Company
(Goldsworth Park) Limited... England 25% Property investment
LAW 572 Limited............... England 25% Finance and investment
services
</TABLE>
F-147
<PAGE> 217
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
15 DEBTORS
Amounts due within one year:
<TABLE>
<CAPTION>
GROUP COMPANY
------------- -----------
1996 1995 1996 1995
----- ----- ---- ----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Trade debtors............................................ 2,372 2,791 -- --
Prepayments and accrued income........................... 410 499 -- --
Corporation tax recoverable.............................. 23 -- -- --
Other debtors............................................ 58 258 2 104
Amounts due from group undertakings...................... -- -- 125 184
Amounts due from associated Undertakings................. 413 413 -- --
----- ----- --- ---
3,276 3,961 127 288
===== ===== === ===
</TABLE>
Amounts due after more than one year:
<TABLE>
<CAPTION>
GROUP COMPANY
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Trade debtors............................................... 247 497 -- --
ACT recoverable............................................. 87 85 -- --
Amounts due from group undertakings......................... -- -- 463 463
--- --- --- ---
334 582 463 463
=== === === ===
</TABLE>
16 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
------------- -------------
1996 1995 1996 1995
----- ----- ----- -----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Bank overdraft......................................... -- -- 66 20
Trade creditors........................................ 907 891 409 492
Other taxes and social security........................ 405 435 -- --
Other creditors........................................ 433 493 -- --
Obligations under finance leases and hire purchase
contracts............................................ 261 224 -- --
Corporation tax........................................ 50 70 -- --
Accruals and deferred income........................... 942 1,235 56 95
Amounts owed to group undertakings..................... -- -- 1,453 1,039
----- ----- ----- -----
2,998 3,348 1,984 1,646
===== ===== ===== =====
</TABLE>
17 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
-------------- ---------------
1996 1995 1996 1995
----- ------ ------ ------
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Loan from Hypobank.................................. 1,350 1,350 -- --
Obligations under finance leases and hire purchase
contracts......................................... 658 638 -- --
Accruals and deferred income........................ 340 476 -- --
----- ------ ------ ------
2,348 2,464 -- --
===== ====== ====== ======
</TABLE>
F-148
<PAGE> 218
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
The loan from Hypobank carries a fixed rate of 5% until July 1999 and then
converts to a variable rate. It is repayable in July 2000.
<TABLE>
<CAPTION>
GROUP COMPANY
----------- ---------------
1996 1995 1996 1995
---- ---- ------ ------
L000 L000 L000 L000
<S> <C> <C> <C> <C>
The obligations under finance leases and hire purchase
contracts are secured on the relevant assets and each
carries a normal commercial rate of interest. They
are due as follows:
Within 1 -- 2 years.................................. 239 208 -- --
Within 2 -- 5 years.................................. 419 430 -- --
--- --- ------ ------
658 638 -- --
=== === ====== ======
</TABLE>
18 SHARE CAPITAL
Authorised
<TABLE>
<CAPTION>
1996 1995
----- -----
L000 L000
<S> <C> <C>
5,000,000 "A" ordinary shares of 10p each................... 500 500
6,000,000 "B" ordinary shares of 10p each................... 600 600
----- -----
1,100 1,100
===== =====
</TABLE>
Allotted, called up and fully paid
<TABLE>
<CAPTION>
NO OF "B" TOTAL
NO OF "A" ORDINARY NON NO OF
ORDINARY SHARES VOTING SHARES SHARES OF
OF 10P EACH OF 10P EACH 10P EACH L000
--------------- ------------- --------- ----
<S> <C> <C> <C> <C>
At 1st May 1995 and 30th April 1996....... 3,596,858 4,986,197 8,583,055 858
========= ========= ========= ===
</TABLE>
19 RESERVES
<TABLE>
<CAPTION>
GROUP COMPANY
------------------ ------------------
SHARE PROFIT SHARE PROFIT
PREMIUM AND LOSS PREMIUM AND LOSS
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
L000 L000 L000 L000
------- -------- ------- --------
<S> <C> <C> <C> <C>
At 1st May 1995.................................. 2,647 1,039 2,647 99
Retained loss for the year....................... -- (305) -- (608)
----- ----- ----- ----
At 30th April 1996............................... 2,647 734 2,647 (509)
===== ===== ===== ====
</TABLE>
20 RECONCILIATION OF OPERATING LOSS TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
GROUP GROUP
1996 1995
----- ------
L000 L000
<S> <C> <C>
Operating loss.............................................. (89) (619)
Depreciation charges........................................ 563 629
Provision against investment................................ -- 1
Profit on sale of tangible fixed assets..................... (89) (42)
Decrease in debtors......................................... 1,207 747
Decrease in creditors....................................... (890) (1,918)
----- ------
Net cash (outflow)/inflow from.............................. 702 (1,186)
===== ======
</TABLE>
F-149
<PAGE> 219
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
21 PAYMENTS TO ACQUIRE TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
GROUP GROUP
1996 1995
----- -----
L000 L000
<S> <C> <C>
Purchase of fixed assets.................................... 514 1,129
Less: asset additions which are financed.................... (374) (918)
---- -----
140 211
==== =====
</TABLE>
22 CHANGES IN CASH AND CASH EQUIVALENTS IN THE PERIOD
<TABLE>
<CAPTION>
GROUP GROUP
1996 1995
----- ------
L000 L000
<S> <C> <C>
At 1st May 1995............................................. 639 2,433
Net cash inflow/(outflow)................................... 578 (1,798)
Exchange gain............................................... -- 4
----- ------
At 30th April 1996.......................................... 1,217 639
===== ======
</TABLE>
23 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
GROUP COMPANY
---------------- ----------------
1996 1995 1996 1995
----- ----- ----- -----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Profit/(loss) for the financial year.......... (305) (623) (608) 740
New share capital subscribed.................. -- 30 -- 30
Amount paid by subsidiary on repurchase of
shares during the year...................... -- (32) -- --
Dividends paid................................ -- (43) -- (43)
----- ----- ----- -----
Net (decrease)/increase in shareholders'
funds....................................... (305) (668) (608) 727
Shareholders' funds at beginning of year...... 3,960 4,628 3,604 2,877
----- ----- ----- -----
Shareholders' funds at end of year............ 3,655 3,960 2,996 3,604
===== ===== ===== =====
</TABLE>
24 PENSIONS
Certain employees are members of a pension scheme operated by the Richard
Ellis Partnership. The scheme includes final salary and defined contribution
sections. The assets of the schemes are held separately from those of the
Partnership.
The most recent actuarial valuation was at 30th April 1993. The valuation
was conducted using the projected unit method, and assumed an interest rate of
8%, a salary growth of 6% and dividend growth of 3.5%. The value of the scheme's
assets exceeded the accrued benefits to members.
The pension charge represents contributions payable by the company and
amounted to L124k. Costs totalling L18k were payable at the year end and are
included in creditors.
F-150
<PAGE> 220
RICHARD ELLIS HOLDINGS LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
25 LEASING COMMITMENTS
The group had commitments under operating leases to make payments totalling
L559k (1995: L554k) in the year ending 30th April 1996 as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
LAND & LAND &
BUILDINGS OTHER BUILDINGS OTHER
--------- ----- --------- -----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Leases expiring:
Within one year................................ -- 12 -- 6
Within two to five years....................... 23 227 19 241
Over five years................................ 297 -- 287 --
--- --- --- ---
320 239 306 247
=== === === ===
</TABLE>
26 CONTINGENT LIABILITIES
The company has given an unlimited guarantee in respect of the bank loans
and overdrafts of certain other group companies. At 30th April 1996 the amount
guaranteed by the company was L706k (1995: L749k).
27 SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
The Company's accounting policies comply with U.K. GAAP which differ in
certain significant respects from U.S. GAAP. The following is a summary of such
differences.
ACCOUNTING FOR GOODWILL
During the year ended 30 April 1997, the Company changed its accounting
policy from writing goodwill off directly to reserves, to amortising it over its
useful economic life through the profit and loss account. In connection with
this change in accounting policy, the 1996 financial statements were restated
onto a consistent basis with the 1997 financial statements; as a result the
goodwill previously taken to reserves was written off through the profit and
loss account in the restated 1996 financial statements as it was considered to
have nil useful economic life.
The restatement and the change in accounting policy did not adjust for
goodwill written off to reserves prior to 1995.
Under U.S. GAAP, goodwill arising on acquisitions is capitalised and
amortised over its economic life through the profit and loss account.
ACCOUNTING FOR DEFERRED INCOME TAXES
U.K. GAAP requires deferred income taxes to be recorded using the liability
method based on those timing differences expected to crystallise in the
foreseeable future. U.S. GAAP also requires the use of the liability method;
however, full provision for all temporary differences is required.
F-151
<PAGE> 221
RICHARD ELLIS
PARTNERSHIP ACCOUNTS
FOR THE YEAR ENDED 30TH APRIL 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Profit and loss account..................................... F-153
Balance sheet............................................... F-154
Notes to the Partnership accounts........................... F-155
Report of the auditors...................................... F-161
</TABLE>
SECRETARY
P Osman, Berkeley Square House, Berkeley Square, London, W1X 6AN.
AUDITORS
BDO Stoy Hayward, 8 Baker Street, London, W1M 1DA.
PRINCIPAL BANKERS
Barclays Bank PLC, 54 Lombard Street, London, EC3V 9EX.
F-152
<PAGE> 222
RICHARD ELLIS
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30TH APRIL 1996
<TABLE>
<CAPTION>
NOTE 1996 1995
---- ------- -------
L000 L000
<S> <C> <C> <C>
Turnover.................................................... 2 25,553 26,760
Operating expenses.......................................... 3 (24,522) (26,348)
------- -------
Operating profit............................................ 1,031 412
Interest receivable......................................... 6 306 60
Interest payable............................................ 7 (189) (55)
Shareholders' interest payable.............................. (99) (132)
------- -------
18 (127)
------- -------
Net profit.................................................. 1,049 285
======= =======
</TABLE>
The notes on pages F-155 to F-160 form part of these Partnership accounts.
F-153
<PAGE> 223
RICHARD ELLIS
BALANCE SHEET
AT 30TH APRIL 1996
<TABLE>
<CAPTION>
NOTE 1996 1995
---- ------ ------
L000 L000
<S> <C> <C> <C>
Fixed assets................................................ 8 446 561
Investments................................................. 9 6 11
------ ------
452 572
Current assets
Current Asset Investment.................................. 5 --
Work in progress.......................................... 538 551
Debtors and prepayments................................... 10 9,883 9,078
Cash at bank and in hand.................................. 11 2,468 730
------ ------
12,894 10,359
Creditors falling due within one year....................... 12 (5,739) (5,010)
------ ------
Net current assets.......................................... 7,155 5,349
------ ------
Total assets less current liabilities....................... 7,607 5,921
Creditors falling due after one year........................ 13 (1,649) (710)
------ ------
5,958 5,211
====== ======
Represented by:
Shareholders' equity........................................ 14
Capital accounts.......................................... 3,828 3,831
Sinking fund capital accounts............................. 219 114
Loan accounts............................................. 1,070 1,146
Current accounts.......................................... 841 120
------ ------
5,958 5,211
====== ======
</TABLE>
The notes on pages F-155 to F-160 form part of these Partnership accounts.
F-154
<PAGE> 224
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS
FOR THE YEAR ENDED 30TH APRIL 1996
1 ACCOUNTING POLICIES
These Partnership accounts have been prepared under the historical cost
convention and are in accordance with applicable accounting standards. The
profit and loss account, the balance sheet and the notes thereto are considered
to provide a sufficient understanding of the finances of the business and the
addition of a cash flow statement has therefore been considered not cost
effective. The following principal accounting policies have been applied:
Turnover
This represents fees earned from all activities of the firm, exclusive of
value added tax, and net of specific provisions for bad debts and shared fees.
An accrual is made for management commission earned but not billed at the year
end, and for movements in work in progress in professional departments. Work in
progress is valued at the lower of cost and net realisable value; cost
represents the salaries of the relevant professional staff.
Provision for bad debts is made against specific fee accounts when, in the
opinion of the Partners, there is a substantial risk of loss due to non-payment.
Shared fees are matched with the relevant income.
Depreciation
Depreciation is provided in order to write off the cost of all tangible
fixed assets over their expected useful lives as follows:
<TABLE>
<CAPTION>
<S> <C>
Motor vehicles -- reducing balance at 25% per annum
Computer software -- straight line at 25% per annum
</TABLE>
Leased assets
Where assets are financed by leasing agreements that give rights
approximating to ownership (finance leases), the assets are treated as if they
had been purchased outright. The amount capitalised is the present value of the
minimum lease payments payable during the lease term. The corresponding leasing
commitments are shown as amounts payable to the lessor. Depreciation on the
relevant assets is charged to the profit and loss account.
Lease payments are split between capital and interest using the straight
line method. The interest is charged to the profit and loss account. The capital
part reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals are
charged to the profit and loss account on a straight line basis over the lease
term.
Valuation of investments
Investments held as fixed assets are stated at cost less any provision for
a permanent diminution in value.
F-155
<PAGE> 225
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1996
2 TURNOVER
<TABLE>
<CAPTION>
1996 1995
------ ------
L000 L000
<S> <C> <C>
Professional fees........................................... 22,833 23,776
Management commission....................................... 2,939 3,436
Bad debt charge............................................. (219) (452)
------ ------
25,553 26,760
====== ======
</TABLE>
3 OPERATING EXPENSES INCLUDE:
<TABLE>
<CAPTION>
1996 1995
---- -----
L000 L000
<S> <C> <C>
Hire charges................................................ 900 1,019
Fixed asset depreciation.................................... 157 148
Auditors' remuneration...................................... 30 30
Exceptional income upon loss of profits claim relating to
Bomb disruption in a previous period...................... (632) --
</TABLE>
Depreciation includes L91,370 (1995: L67,368) charged on assets held under
finance leases and hire purchase contracts.
4 EQUITY PARTNERS' NOTIONAL SALARIES
<TABLE>
<CAPTION>
1996 1995
----- -----
L000 L000
<S> <C> <C>
Equity Partners' notional salaries.......................... 2,826 2,946
===== =====
</TABLE>
5 STAFF AND RELATED COSTS
<TABLE>
<CAPTION>
1996 1995
------ ------
L000 L000
<S> <C> <C>
Salaries (excluding Equity Partners)........................ 10,085 11,076
Salaried Partners' and Associates' bonuses.................. 397 129
Staff bonuses............................................... 126 34
------ ------
10,608 11,239
Social security costs....................................... 1,041 1,036
------ ------
11,649 12,275
====== ======
</TABLE>
F-156
<PAGE> 226
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1996
Number of persons in the firm at 30th April
<TABLE>
<CAPTION>
1996 1995
------ ------
NUMBER NUMBER
<S> <C> <C>
Operating units
Partners and other professional staff....................... 210 226
Administrative staff........................................ 119 126
--- ---
329 352
=== ===
Support units
Partners and other professional staff....................... 63 66
Administrative staff........................................ 39 48
--- ---
102 114
--- ---
431 466
=== ===
</TABLE>
6 INTEREST RECEIVABLE ON:
<TABLE>
<CAPTION>
1996 1995
---- ----
L000 L000
<S> <C> <C>
Bank deposits............................................... 306 60
=== ==
</TABLE>
7 INTEREST PAYABLE ON:
<TABLE>
<CAPTION>
1996 1995
---- ----
L000 L000
<S> <C> <C>
Term loan from 3i plc (see note 13)......................... 105 38
Bank overdrafts............................................. 58 1
Hire purchase contracts..................................... 26 16
--- --
189 55
=== ==
</TABLE>
8 FIXED ASSETS
<TABLE>
<CAPTION>
MOTOR LEASEHOLD COMPUTER
VEHICLES PREMISES SOFTWARE TOTAL
-------- --------- -------- -----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Cost
B/F............................................ 1,217 228 109 1,554
Additions...................................... 67 0 0 67
Disposals...................................... (154) 0 0 (154)
----- --- ----- -----
C/F............................................ 1,130 228 109 1,467
===== === ===== =====
Depreciation
B/F............................................ 715 228 50 993
Charge in year................................. 130 0 27 157
Disposals...................................... (129) 0 0 (129)
----- --- ----- -----
C/F............................................ 716 228 77 1,021
===== === ===== =====
Net Book Value
At 30th April 1996............................. 414 0 32 446
----- --- ----- -----
At 30th April 1995............................. 502 0 59 561
===== === ===== =====
</TABLE>
F-157
<PAGE> 227
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1996
The net book value of tangible fixed assets includes an amount of L311,059
(1995: L348,684) in respect of assets held under hire purchase contracts.
9 INVESTMENTS
<TABLE>
<CAPTION>
1996 1995
---- ----
L000 L000
<S> <C> <C>
At cost 6 11
== ==
</TABLE>
10 DEBTORS AND PREPAYMENTS
<TABLE>
<CAPTION>
1996 1995
----- -----
L000 L000
<S> <C> <C>
Fees receivable (net of bad debt provision)................. 7,319 5,905
Management commission accrual............................... 295 364
Sundry debtors and prepayments.............................. 2,269 2,809
----- -----
9,883 9,078
===== =====
</TABLE>
All amounts shown under debtors and prepayments fall due within one year.
11 CASH AT BANK AND IN HAND
Cash at bank and in hand includes L715,582 (1995: L669,536) in a blocked
account, over which a charge has been granted.
12 CREDITORS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1996 1995
----- -----
L000 L000
<S> <C> <C>
Bank overdraft.............................................. -- 347
Trade creditors and accruals................................ 1,249 1,758
Shared fees payable......................................... 514 186
P A Y E and National Insurance.............................. 429 417
Bonuses payable............................................. 522 163
Current taxation............................................ 1,559 568
Hire purchase creditors..................................... 116 107
Other creditors............................................. 1,350 1,464
----- -----
5,739 5,010
===== =====
</TABLE>
13 CREDITORS FALLING DUE AFTER ONE YEAR
<TABLE>
<CAPTION>
1996 1995
----- ----
L000 L000
<S> <C> <C>
Term loan from 3i plc....................................... 1,500 500
Hire purchase creditors..................................... 149 210
----- ---
1,649 710
===== ===
</TABLE>
F-158
<PAGE> 228
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1996
The term loan from 3i plc, which expires in December 2011, was increased to
L1,500,000 in July 1995 and bears interest at 1.875% above the higher of LIBOR
or 6%. It is repayable at the Partners' discretion from October 1996 but must be
reduced to L1,000,000 by December 2001 and to L500,000 by December 2006.
Obligations under hire purchase contracts are due as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
L000 L000
<S> <C> <C>
Within 1 -- 2 years......................................... 100 100
Within 2 -- 5 years......................................... 49 110
--- ---
149 210
=== ===
</TABLE>
14 SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SINKING FUND
CAPITAL CAPITAL LOAN CURRENT
ACCOUNTS ACCOUNTS ACCOUNTS ACCOUNTS
-------- ------------ -------- --------
L000 L000 L000 L000
<S> <C> <C> <C> <C>
At 1st May 1995............................... 3,831 114 1,146 120
Movement in year
Capital introduced.......................... 72 112
Salaries and interest....................... 2,925
Profit attributable......................... 1,049
Transfers................................ (75) (7) (70) 7
Loan balances distributed................... (6)
Increase in taxation reserve................ 14
Drawings.................................... (1,987)
Tax suffered................................ (1,287)
----- --- ----- ------
At 30th April 1996............................ 3,828 219 1,070 841
===== === ===== ======
</TABLE>
15 COMMITMENTS UNDER OPERATING LEASES
As at 30th April 1996 the Partnership had annual commitments under
non-cancellable operating leases as set out below:
<TABLE>
<CAPTION>
PROPERTY EQUIPMENT
------------- -----------
1996 1995 1996 1995
----- ----- ---- ----
L000 L000 L000 L000
<S> <C> <C> <C> <C>
Operating leases which expire:
within one year........................................ -- 26 39 --
in second to fifth years inclusive..................... 49 -- 313 368
greater than five years................................ 3,152 3,134 -- --
----- ----- --- ---
3,201 3,160 352 368
===== ===== === ===
</TABLE>
16 SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
The Partnership's accounting policies comply with applicable U.K. GAAP as
noted in the financial statements, which differ in certain significant respects
from U.S. GAAP. The following is a summary of such differences.
F-159
<PAGE> 229
RICHARD ELLIS
NOTES TO THE PARTNERSHIP ACCOUNTS -- (CONTINUED)
FOR THE YEAR ENDED 30TH APRIL 1996
CASH FLOW STATEMENTS
Under U.K. GAAP, as a partnership, Richard Ellis does not present a Cash
Flow Statement as, in the opinion of the Partners, a cash flow statement as
required by Financial Reporting Standard 1 (Revised) would be misleading because
the cash flow relating to the Partners' financing of the firm and drawings do
not readily fit into the required format. An alternative cash flow statement was
not considered by the Partners to add value to these accounts, nor to be
appropriate or cost effective in assisting them, and other users, in their
understanding of the Partnership accounts. Under U.S. GAAP, a Cash Flow
Statement would be required for all years presented.
WORK IN PROGRESS
As discussed in the Partnership's accounting policies, work in progress is
valued at the lower of cost and net realisable value; cost represents the
salaries of the relevant professional staff. It does not, however, include any
cost element in respect of equity partner time. Under U.S. GAAP, work in
progress would be recorded at cost.
F-160
<PAGE> 230
RICHARD ELLIS
REPORT OF THE AUDITORS
TO THE PARTNERS OF RICHARD ELLIS
We have audited the Partnership accounts on pages F-151 to F-161 which have
been prepared under the accounting policies set out on page F-155.
Respective responsibilities of Partners and auditors
You are responsible, as Partners, for the preparation of the Partnership
accounts. It is our responsibility to form an independent opinion, based on our
audit, on those accounts and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes an examination, on a test basis, of
evidence relevant to the amounts and disclosures in the Partnership accounts. It
also includes an assessment of the significant estimates and judgements made by
the Partners in the preparation of the Partnership accounts, and of whether the
accounting policies are appropriate to the Partnership's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the Partnership accounts
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the Partnership accounts.
Opinion
In our opinion the financial statements give a true and fair view of the
state of the Partnership's affairs as at 30th April 1996 and of its profit for
the year then ended.
Accounting principles generally accepted in the United Kingdom vary in
certain respects from generally accepted accounting principles in the United
States. These differences are referred to in note 16 to the financial
statements.
BDO STOY HAYWARD
Chartered Accountants
and Registered Auditors
London
22 October 1996 (final paragraph signed as at 21 July 1998)
F-161
<PAGE> 231
RICHARD ELLIS GROUP LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31ST DECEMBER 1997
CONTENTS
Directors
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of the directors..................................... F-163
Report of the auditors...................................... F-166
Consolidated profit and loss account........................ F-167
Consolidated balance sheet.................................. F-168
Balance sheet............................................... F-169
Consolidated cash flow statement............................ F-170
Notes forming part of the financial statements.............. F-171
</TABLE>
DIRECTORS
A C Froggatt
A J M Huntley
I Harvey
S A Hubbard
M J Strong
G E Webster
H V A Ellingham
B S Thomas
V W Benjamin
ALTERNATE DIRECTORS
E T D Luker
C M Warner
I D Ellis
SECRETARY AND REGISTERED OFFICE
P A V S Osman, Berkeley Square House, Berkeley Square, London W1X 6AN.
AUDITORS
BDO Stoy Hayward, 8 Baker Street, London, W1M 1DA.
BANKERS
Barclays Bank PLC, 54 Lombard Street, London, EC3V 9EX.
F-162
<PAGE> 232
RICHARD ELLIS GROUP LIMITED
REPORT OF THE DIRECTORS
FOR THE PERIOD ENDED 31ST DECEMBER 1997
The directors present their first report together with the audited
financial statements for the period ended 31st December 1997.
PRINCIPAL ACTIVITY AND FUTURE DEVELOPMENTS
The company was incorporated on 7th April 1997 as an unlimited company. On
2nd May 1997 it was re-registered as a limited company.
On 1st May 1997 it became the UK holding company of the Richard Ellis group
when it acquired the entire share capital of Richard Ellis Holdings Limited. On
the 2nd May 1997 it acquired the trade, assets and liabilities of the former
Richard Ellis Partnership, before passing them down to Richard Ellis Holdings
Limited, which became the main UK trading vehicle for the group trading as
Richard Ellis.
During the period the company's principal activity was that of a holding
company. The subsidiaries' activities are disclosed in note 12 to the financial
statements.
On 4th March 1998 the entire share capital of the company, Richard Ellis
Group Limited, was acquired by Insignia Financial Group, Inc. a company
incorporated in the USA.
RESULTS AND DIVIDENDS
The results of the group for the period are set out on page 167. As the
company is newly formed and the group did not exist in its current form at the
time no comparisons as at the 30th April 1997 have been provided for the company
or for the group.
The business performed very strongly in the period showing a trading profit
of L2,635,000. The result shown on the profit and loss account is after charging
exceptional costs of L4,406,000 and exceptional staff bonuses of L1,785,000.
The directors do not recommend the payment of a dividend.
EMPLOYEE INVOLVEMENT
The flow of information to staff has been maintained by our staff newspaper
and by the process of monthly team briefings for all staff. Members of the
management team regularly visit branches and discuss matters of current interest
and concern to the business with members of staff.
EMPLOYMENT OF DISABLED PERSONS
The company is committed to a policy of recruitment and promotion on the
basis of aptitude and ability without discrimination of any kind. Management
actively pursues both the employment of disabled persons whenever a suitable
vacancy arises and the continued employment and retraining of employees who
become disabled whilst employed by the company. Particular attention is given to
the training, career development and promotion of disabled employees with a view
to encouraging them to play an active role in the development of the company.
YEAR 2000 COMPLIANCE
As is well known, many computer and digital storage systems express dates
using only the last two digits of the year and will thus require modification or
replacement to accommodate the year 2000 and beyond in order to avoid
malfunctions and resulting widespread commercial disruption. This is a complex
and pervasive issue. The operation of our business depends not only on our own
computer systems, but also to some degree on those of our suppliers and
customers. This could expose us to further risk in the event that there is a
failure by other parties to remedy their own Year 2000 issues.
F-163
<PAGE> 233
The company is well advanced in the phase of assessing the risks to our
business resulting from the date change to the Year 2000. Once this phase is
completed we can assess the likely impact on our activities and develop
prioritised action plans to deal with the key risks.
EUROPEAN ECONOMIC AND MONETARY UNION
European Economic and Monetary Union will have a far reaching effect on all
businesses operating within the European Union. Whether or not the United
Kingdom decides to participate in the single currency, Richard Ellis and its
clients will be affected and the Group therefore needs to be prepared. The Board
is taking pro-active steps to ensure that the business will not be adversely
affected by European Economic and Monetary Union.
DIRECTORS
The directors of the company during the period and their interests in the
share capital of the company were:
<TABLE>
<CAPTION>
5P ORDINARY SHARES 5P CONVERTIBLE SHARES
31ST DECEMBER 1997 31ST DECEMBER 1997
------------------ ---------------------
<S> <C> <C>
A C Froggatt (Appointed 7th April 1997)................ 502,123 --
A J M Huntley (Appointed 30th April 1997).............. 622,019
I Harvey (Appointed 30th April 1997)................... 30,000
S A Hubbard (Appointed 30th April 1997)................ 606,730 --
M J Strong (Appointed 30th April 1997)................. 589,702 --
G E Webster (Appointed 30th April 1997)................ 580,212 --
H V A Ellingham (Appointed 30th April 1997)............ 398,856 118,710
R G Glover (Appointed 13th May 1997
Resigned 19th August 1997)................ 618,162 --
R J F Wildman (Appointed 13th May 1997
Resigned 19th August 1997
Re-appointed 29th October 1997
Resigned 13th January 1998)........... 615,318
B S Thomas (Appointed 19th August 1997)................ -- --
V W Benjamin (Appointed 19th August 1997).............. -- --
K J Caesar (Appointed 7th April 1997
Resigned 30th April 1997).................. -- --
--------- -------
4,563,122 118,710
========= =======
</TABLE>
K J Caesar held 1 5p ordinary share in Richard Ellis Group Limited on the
date of his appointment and 210,092 5p ordinary shares on the date of his
resignation as a director.
ALTERNATE DIRECTORS
<TABLE>
<S> <C> <C>
E T D Luker (Appointed 2nd May 1997).................... 613,933 --
C M Warner (Appointed 2nd May 1997)..................... 565,476 --
I D Ellis (Appointed 2nd May 1997)...................... 315,744 118,710
--------- -------
1,495,153 118,710
========= =======
</TABLE>
On 30th June 1997 I Harvey was granted options to acquire 15,000 5p
ordinary shares at 25p each, and on 16th January 1998 he was granted further
options to acquire 25,000 5p ordinary shares at 65p. On 2nd March 1998 he agreed
to the cancellation of these options in exchange for a cash payment of L1.32 per
option less the option price, plus an amount dependent upon the future
profitability of the group in each of the
F-164
<PAGE> 234
following five years, of not less than an initial maximum value of 72p per
option in respect of the year ending 31st December 1998.
On 19th February 1998 the following directors were granted new options to
acquire 5p ordinary shares at 65p each in five equal annual tranches between
28th February 1999 and 28th February 2003.
<TABLE>
<CAPTION>
OPTIONS OVER
NUMBER OF
ORDINARY SHARES
OF 5P EACH
---------------
<S> <C>
A C Froggatt.......................................... 294,117
A J M Huntley......................................... 235,294
I Harvey.............................................. 176,470
S A Hubbard........................................... 235,294
M J Strong............................................ 235,294
G E Webster........................................... 235,294
H V A Ellingham....................................... 235,294
E T D Luker........................................... 235,294
C M Warner............................................ 176,470
</TABLE>
On acquisition of the group on 4th March 1998 by Insignia Financial Group,
Inc., these options converted into options in Insignia Financial Group, Inc.
Also on 4th March 1998 all of the directors sold all of their ordinary and
convertible shares to Insignia Financial Group, Inc.
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial period which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- Select suitable accounting policies and then apply them consistently
- make judgements and estimates that are reasonable and prudent
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
By order of the Board
P A V S Osman
Secretary
15th June 1998
F-165
<PAGE> 235
RICHARD ELLIS GROUP LIMITED
REPORT OF THE AUDITORS
TO THE SHAREHOLDERS OF RICHARD ELLIS GROUP LIMITED
We have audited the financial statements on pages F-167 to F-186 which have
been prepared under the accounting policies set out on page F-171 and F-172.
Respective responsibilities of directors and auditors
As described on page 165, the company's directors are responsible for the
preparation of the financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the
state of affairs of the company and the group as at 31st December 1997 and of
the result of the group for the period then ended and have been properly
prepared in accordance with the Companies Act 1985.
Accounting principles generally accepted in the United Kingdom vary in
certain respects from generally accepted accounting principles in the United
States. Those differences are referred to in note 35 to the financial
statements.
BDO STOY HAYWARD
Chartered Accountants
and Registered Auditors
London
15th June 1998 (final paragraph signed as at 21 July 1998)
F-166
<PAGE> 236
RICHARD ELLIS GROUP LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 31ST DECEMBER 1997
<TABLE>
<CAPTION>
8 MONTHS ENDED
NOTE 31ST DECEMBER 1997
---- ------------------
L000
<S> <C> <C>
TURNOVER.................................................... 2 27,550
Administrative expenses -- normal........................... 3 (24,915)
-- exceptional.................... 3 (6,191)
-------
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST AND OTHER
INCOME.................................................... (3,556)
Interest receivable......................................... 224
Interest payable............................................ 6 (242)
-------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION................. (3,574)
Share of profit of associated undertakings.................. 7 7
Taxation.................................................... 8 69
-------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION.................. (3,498)
Minority interests -- equity................................ 36
-------
LOSS FOR THE FINANCIAL PERIOD............................... 20 (3,462)
=======
</TABLE>
All amounts relate to continuing activities of the merged businesses and
acquisitions.
All recognised gains and losses are included in the profit and loss account.
The notes on pages F-171 to F-186 form part of these financial statements.
F-167
<PAGE> 237
RICHARD ELLIS GROUP LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 31ST DECEMBER 1997
<TABLE>
<CAPTION>
NOTE 31ST DECEMBER 1997
---- ------------------
L000 L000
<S> <C> <C> <C>
FIXED ASSETS
Intangible assets......................................... 10 455
Tangible fixed assets..................................... 11 994
Investments............................................... 12 28
Investment in own shares.................................. 12 368
-------
1,845
CURRENT ASSETS
Work in progress.......................................... 1,654
Debtors................................................... 13 12,057
Cash at bank and in hand.................................... 797
-------
14,508
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR.............. 14 (12,500)
-------
NET CURRENT ASSETS.......................................... 2,008
------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 3,853
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR..... 15 (1,879)
------
1,974
======
CAPITAL AND RESERVES:
Called up share capital................................... 17 837
Share premium account..................................... 20 1,322
Profit and loss account................................... 20 (3,462)
Merger reserve............................................ 20 3,400
------
SHAREHOLDERS' FUNDS......................................... 27 2,097
Minority interests -- equity................................ 16 (123)
------
1,974
======
</TABLE>
The financial statements were approved by the Board on 15th June 1998.
The notes on pages F-171 to F-186 form part of these financial statements.
F-168
<PAGE> 238
RICHARD ELLIS GROUP LIMITED
BALANCE SHEET
AS AT 31ST DECEMBER 1997
<TABLE>
<CAPTION>
NOTE 31ST DECEMBER 1997
---- -------------------
L000 L000
<S> <C> <C> <C>
FIXED ASSETS
Investments............................................... 12 3,768
Investment in own shares.................................. 12 368
------
4,136
CURRENT ASSETS
Cash at bank and in hand.................................. 15 805
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR.............. 14 (2,750)
------
NET CURRENT LIABILITIES..................................... (1,945)
------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 2,191
======
CAPITAL AND RESERVES
Called up share capital................................... 17 837
Share premium account..................................... 20 1,322
Profit and loss account................................... 20 32
------
SHAREHOLDERS' FUNDS......................................... 2,191
======
</TABLE>
All amounts within capital and reserves relate to equity.
The notes on pages F-171 to F-186 form part of these financial statements.
The financial statements were approved by the Board on 15th June 1998.
<TABLE>
<S> <C>
A J M Huntley A Froggatt
Chairman Director
</TABLE>
F-169
<PAGE> 239
RICHARD ELLIS GROUP LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 31ST DECEMBER 1997
<TABLE>
<CAPTION>
8 MONTHS ENDED
NOTE 31ST DECEMBER 1997
---- ------------------
L000
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES......................... 21 (13)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE............. 22 (45)
TAXATION.................................................... --
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT................ 23 527
ACQUISITIONS AND DISPOSALS.................................. 24 (827)
-----
CASH OUTFLOW BEFORE FINANCING............................... (358)
FINANCING................................................... 25 97
-----
DECREASE IN CASH............................................ (261)
=====
</TABLE>
The notes on pages F-171 to F-186 form part of these financial statements.
F-170
<PAGE> 240
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31ST DECEMBER 1997
1 ACCOUNTING POLICIES
Accounting Convention
The financial statements have been prepared under the historical cost
convention and are in accordance with applicable accounting standards. The
following principal accounting policies have been applied:
Basis of consolidation
The financial statements consolidate the accounts of Richard Ellis Group
Limited and its subsidiary undertakings, drawn up for an eight month period to
the 31st December 1997. The accounts of certain small subsidiary undertakings
have been drawn up for a nine month period, to the 31st December 1997.
The group uses the acquisition method of accounting to consolidate the
results of subsidiary undertakings whereby the results of subsidiary
undertakings are included from the date of acquisition.
No profit and loss account is presented for Richard Ellis Group Limited, as
permitted by Section 230 of the Companies Act 1985.
Merger accounting
Where merger accounting is used, the investment is recorded in the
company's balance sheet at the nominal value of the shares issued together with
the fair value of any additional consideration paid.
In the group financial statements, merged subsidiary undertakings are
treated as if they had always been a member of the group. The results of such a
subsidiary are included for the whole period in the year it joins the group. Any
difference between the nominal value of the shares acquired by the company and
those issued by the company to acquire them is taken to reserves.
Goodwill
The tangible assets of newly acquired subsidiary undertakings are
incorporated into the accounts on the basis of the fair value to the group as at
the effective date of control.
Goodwill, being any excess of the consideration over that fair value, is
amortised through the profit and loss account over the directors' estimate of
its useful economic life which ranges from zero to ten years.
Associated undertakings
A company is treated as an associated undertaking when the group holds a
substantial interest in it for the long term and exercises significant influence
over its operating and financial policy decisions.
The group's share of the results of associated undertakings is included in
the consolidated profit and loss account using the equity method of accounting.
The investment in associated undertakings included in the consolidated balance
sheet is based on the group's share of the net assets of the associated
undertakings, together with any premium or discount arising on acquisition, less
amounts written off. Any premium on acquisition is dealt with as if it were
goodwill.
Turnover
Turnover represents professional fees rendered to the extent that they have
been earned, net of shared fees exclusive of value added tax. Professional fees
earned but not billed are accrued at the period end.
F-171
<PAGE> 241
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
Valuation of investments
Investments held as fixed assets are stated at cost less any provision for
a permanent diminution in value.
Depreciation
Depreciation is calculated to write off the cost, less any residual values,
of all tangible fixed assets over their expected useful lives as follows:
<TABLE>
<S> <C>
Motor vehicles -- straight line at 25% per annum
Office equipment -- straight line at 20% per annum
Office fixtures and fittings -- straight line at 33% per annum
Office furniture -- straight line at 12.5% per annum
</TABLE>
Work in progress
Work in progress is valued at the lower of cost and net realisable value.
Cost comprises staff salary costs and direct expenses together with an
appropriate proportion of overheads. Net realisable value is based on estimated
selling price less further costs expected to be incurred to completion.
Deferred taxation
Provision is made for timing differences between the treatment of certain
items for taxation and accounting purposes to the extent that it is probable
that a liability or asset will crystallise.
Hire purchase assets
Where assets are financed by leasing arrangements that give rights
approximating to ownership (finance leases), the assets are treated as if they
have already been purchased outright. The amount capitalised is the minimum
lease payments payable over the full term of the lease. The corresponding lease
commitments are shown as payable to the lessor. Depreciation on the relevant
assets is charged to the profit and loss account.
Lease payments are split between capital and interest using the actuarial
method. The interest is charged to the profit and loss account. The capital part
reduces the amounts payable to the lessor.
All other leases are treated as operating leases. The annual rentals are
charged to the profit and loss account on a straight line basis over the term of
the lease.
Pension costs
Contributions to the group's defined benefit pension scheme are charged to
the profit and loss account so as to spread the cost of pensions over employees'
expected working lives with the group.
Contributions to the group's defined contribution pension scheme are
charged to the profit and loss account in the year in which they become payable.
Employee benefit trust
The company is deemed to have control of the assets, liabilities, income
and costs of the Richard Ellis Employee Share Trust (EBT). It has therefore been
included in the financial statements of the group and the company in accordance
with UITF 13.
The ordinary shares of the company held by the EBT are included in fixed
asset investments.
F-172
<PAGE> 242
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
2 TURNOVER
Turnover is wholly attributable to fee income and commissions from
commercial estate agency and surveying activities. The analysis of turnover by
geographical area of destination is as follows:
<TABLE>
<CAPTION>
8 MONTHS ENDED
31ST DECEMBER 1997
------------------
L000
<S> <C>
UK.......................................................... 24,243
Europe -- EC................................................ 2,812
-- Non EC........................................... 383
Asia........................................................ 70
Africa...................................................... 9
America..................................................... 33
------
27,550
======
</TABLE>
3 ADMINISTRATIVE EXPENSES
Administrative expenses include:
<TABLE>
<CAPTION>
8 MONTHS ENDED
31ST DECEMBER 1997
------------------
L000
<S> <C> <C> <C>
Auditor's remuneration -- audit -- parent company auditors................ 63
-- other auditors.................................. 19
-- non audit
services -- parent company auditors... 252
Depreciation of tangible fixed assets...................................... 245
Amortisation............................................................... 35
Profit on disposal of fixed assets......................................... (28)
Payments in respect of operating leases -- land and buildings.............. 2,167
-- other......................... 738
Exceptional items.......................................................... 6,191
=====
</TABLE>
The exceptional items in the period ended 31st December 1997 are the costs
incurred of L4,406,000 to enable the post balance sheet acquisition of the group
by Insignia Financial Group, Inc., details of which are disclosed in note 31,
and staff bonuses of L1,785,000.
Depreciation includes L142,000 charged on assets held under finance leases
and hire purchase contracts.
4 DIRECTORS' EMOLUMENTS
Directors' emoluments consist of:
<TABLE>
<CAPTION>
8 MONTHS ENDED
31ST DECEMBER 1997
------------------
L000
<S> <C>
Directors' remuneration..................................... 1,156
Contributions to a defined contribution pension scheme...... 4
-----
1,160
=====
</TABLE>
There are 2 directors in both a defined contribution scheme and a defined
benefits scheme.
F-173
<PAGE> 243
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
The emoluments of the highest paid director were L98,000. The highest paid
director was not a member of the pension scheme in the period.
5 STAFF COSTS
Staff costs (including directors) consist of:
<TABLE>
<CAPTION>
8 MONTHS ENDED
31ST DECEMBER 1997
------------------
L000
<S> <C>
Wages and salaries.......................................... 17,585
Social security costs....................................... 1,776
Pension costs............................................... 619
Severance pay............................................... 15
------
19,995
======
</TABLE>
The average number of employees during the period was as follows:
<TABLE>
<CAPTION>
8 MONTHS ENDED
31ST DECEMBER 1997
------------------
NUMBER
<S> <C>
Professional staff.......................................... 399
Administrative staff........................................ 230
---
629
===
</TABLE>
6 INTEREST PAYABLE
<TABLE>
<CAPTION>
8 MONTHS ENDED
31ST DECEMBER 1997
------------------
L000
<S> <C>
Bank interest............................................... 64
Loan interest............................................... 106
Finance leases and hire purchase contracts.................. 72
---
242
===
</TABLE>
7 SHARE OF PROFIT OF ASSOCIATED UNDERTAKINGS
<TABLE>
<S> <C>
General Property Company (Goldsworth Park) Limited.......... 7
===
</TABLE>
8 TAXATION
<TABLE>
<S> <C>
UK corporation tax.......................................... 69
===
</TABLE>
9 DEFERRED TAXATION
The group has a potential tax liability of approximately L638,000 which
would crystallise on the liquidation of Richard Ellis Corporate Capital Limited.
This deferred taxation has not been provided as the directors have no intention
to liquidate Richard Ellis Corporate Capital Limited in the foreseeable future.
F-174
<PAGE> 244
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
10 INTANGIBLE ASSETS
Group
<TABLE>
<CAPTION>
GOODWILL ON
CONSOLIDATION
-------------
L000
<S> <C>
Cost:
Intangible assets of group companies transferred in as
part of merger......................................... 562
---
At 31st December 1997..................................... 562
===
Amortisation:
Amortisation of intangible assets of group companies
transferred in as part of merger....................... 72
Charged in the period..................................... 35
---
At 31st December 1997..................................... 107
===
Net book value:
At 31st December 1997..................................... 455
===
</TABLE>
The goodwill arose on the acquisition of Laser Richmount Limited.
Company
Richard Ellis Group Limited has no intangible assets.
11 TANGIBLE FIXED ASSETS
Group
<TABLE>
<CAPTION>
FURNITURE,
EQUIPMENT,
MOTOR FIXTURES &
VEHICLES FITTINGS TOTAL
-------- ---------- ------
L000 L000 L000
<S> <C> <C> <C>
Cost:
Fixed assets of group companies transferred in as part
of merger........................................... 2,750 1,050 3,800
Additions in the period................................ 67 82 149
Disposals in the period................................ (1,278) (2) (1,280)
------ ----- ------
At 31st December 1997.................................. 1,539 1,130 2,669
====== ===== ======
Depreciation:
Depreciation of fixed assets of group companies
transferred in as part of merger.................... 1,345 789 2,134
Charged in the period.................................. 150 95 245
Disposals in the period................................ (704) -- (704)
------ ----- ------
At 31st December 1997.................................. 791 884 1,675
====== ===== ======
Net book value:
At 31st December 1997.................................. 748 246 994
====== ===== ======
</TABLE>
F-175
<PAGE> 245
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
The net book value of tangible fixed assets includes an amount of L702,000
in respect of assets held under finance leases and hire purchase contracts. The
depreciation charge for the period relating to these assets was L142,000.
Company
Richard Ellis Group Limited has no tangible assets other than investments
(note 12).
Capital Commitments
Commitments for tangible fixed assets at 31st December 1997 were:
<TABLE>
<CAPTION>
31ST DECEMBER 1997
------------------
L000
<S> <C>
Contracted.................................................. 22
Authorised but not contracted for........................... 979
</TABLE>
12 FIXED ASSET INVESTMENTS
Group
<TABLE>
<CAPTION>
L000 L000 L000 L000 L000
------ ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Fixed asset investments of group companies
transferred in as part of merger.............. 2,628 463 21 -- 3,112
Additions in period............................. -- -- -- 368 368
Disposals in period............................. -- (463) (21) -- (484)
Elimination (see below)......................... (2,600) -- -- -- (2,600)
------ ---- --- --- ------
At 31st December 1997........................... 28 -- -- 368 396
====== ==== === === ======
</TABLE>
During the period the company established an employee benefit trust, the
Richard Ellis Employee Share Trust, which purchased 565,476 5p ordinary shares
in the company. After the year end on the 16th January 1998 it sold 176,665 to
new shareholders. On the 20th January the trust purchased a further 8,000 5p
ordinary shares. On the 20th February 1998 the company purchased back the
remaining 399,811 shares from the employee benefits trust and cancelled the
shares. All of the above transactions were conducted at 65p per share.
The investment in own shares amounting to L368,000 relates to shares held
by the Richard Ellis Employee Share Trust.
On 29th September 1997, the group's investment in General Property Company
(Goldsworth Park) Limited, was sold. The sale proceeds were L443,000. The group
realised profits of L29,000.
F-176
<PAGE> 246
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
12 FIXED ASSET INVESTMENTS (CONTINUED)
Following the acquisition of the Richard Ellis Partnership on 2nd May 1997,
the group's investment in the Richard Ellis Partnership has been eliminated.
Company
<TABLE>
<CAPTION>
31ST DECEMBER 1997
------------------
L000
<S> <C>
Business Parks Consultancy Limited.......................... --
REFS Holdings Limited....................................... 1,974
Richard Ellis Corporate Finance Limited..................... 12
Richard Ellis Financial Holdings Limited.................... 1,515
Richard Ellis Fund Management Limited....................... --
Richard Ellis Gunne Limited................................. --
Richard Ellis Gunne (Northern Ireland) Limited.............. --
Richard Ellis Holdings Limited.............................. 267
Waresure Limited............................................ --
-----
3,768
=====
</TABLE>
Following the merger with Richard Ellis Holdings Limited the above
companies, excluding Richard Ellis Gunne (Northern Ireland) Limited and Richard
Ellis Holdings Limited, were transferred at cost from Richard Ellis Holdings
Limited to be held directly by Richard Ellis Group Limited.
<TABLE>
<CAPTION>
31ST DECEMBER 1997
------------------
L000
<S> <C>
Investment in own shares -- additions in period and at 31st
December 1997............................................. 368
===
</TABLE>
The following were subsidiary undertakings at the end of the period and
have all been included in the consolidated accounts.
<TABLE>
<CAPTION>
PROPORTION
OF
COUNTRY OF VOTING RIGHTS
INCORPORATION AND SHARE
OR REGISTRATION CAPITAL HELD NATURE OF BUSINESS
--------------- ------------- -------------------------------
<S> <C> <C> <C>
30 Marsh Wall Limited......................... England 100% Enterprise zone trust managers
Business Parks Consultancy Limited............ England 100% Property consultants
CB Commercial Limited......................... England 100% Dormant
Capital and Country Properties Limited........ England 100% Dormant
Laser Richmount Limited....................... England 100% Provision of operational and
promotional services
R.E.F.S. Limited.............................. England 100% Dormant
R.E.F. Services Limited....................... England 100% Property related investment
REFS Holdings Limited......................... England 100% Finance and investment services
REHOLD Limited................................ England 100% Dormant
Richard Ellis Corporate Capital Limited....... England 100% Finance and investment services
</TABLE>
F-177
<PAGE> 247
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
<TABLE>
<CAPTION>
PROPORTION
OF
COUNTRY OF VOTING RIGHTS
INCORPORATION AND SHARE
OR REGISTRATION CAPITAL HELD NATURE OF BUSINESS
--------------- ------------- -------------------------------
<S> <C> <C> <C>
Richard Ellis Corporate Finance Limited....... England 100% SFA regulated finance and
investment services
Richard Ellis Facilities Management Limited... England 100% Facilities management
Richard Ellis Financial Holdings Limited...... England 100% Finance and investment services
Richard Ellis Fund Management Limited......... England 100% Holding company
Richard Ellis Gunne Limited................... England 51% Auctioneers
Richard Ellis Gunne (Northern Ireland)
Limited..................................... England 51% Commercial property consultants
Richard Ellis Holdings Limited................ England 100% Commercial property consultants
Richard Ellis (Incorporating Hepper Robinson)
Limited..................................... England 100% Commercial property consultants
Richard Ellis International Limited........... England 100% Dormant
Richard Ellis Investment Services Limited..... England 100% Dormant
Richard Ellis (Ireland) Limited............... England 100% Dormant
Richard Ellis Midlands Limited................ England 100% Property consultants
Richard Ellis Regional Limited................ England 100% Property consultants
Richard Ellis Scotland Limited................ Scotland 100% Dormant
Richard Ellis Services Limited................ England 100% Provision of assets for hire
and promotional services
Richard Ellis Structured Finance Limited...... England 100% Property related investment
advisors
Richmount Enterprise Zone Managers Limited.... England 100% Enterprise zone trust managers
Richmount Management Limited.................. England 100% Enterprise zone trust managers
Richmount Marketing Limited................... England 100% Enterprise zone trust managers
Richmount Underwriting Limited................ England 100% Enterprise zone trust managers
Waresure Limited.............................. England 100% Finance
</TABLE>
F-178
<PAGE> 248
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
13 DEBTORS
Amounts due within one year:
<TABLE>
<CAPTION>
GROUP COMPANY
31ST DECEMBER 1997 31ST DECEMBER 1997
------------------ ------------------
L000 L000
<S> <C> <C>
Trade debtors...................................... 9,373 --
Prepayments and accrued income..................... 2,265 --
Other debtors...................................... 332 --
------ ---
11,970 --
====== ===
Amount due after more than one year:
ACT recoverable.................................... 87 --
====== ===
</TABLE>
14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
31ST DECEMBER 1997 31ST DECEMBER 1997
------------------ ------------------
L000 L000
<S> <C> <C>
Trade creditors.................................... 1,532 --
Other taxes and social security.................... 1,892 --
Other creditors.................................... 58 --
Obligations under finance leases and hire purchase
contracts........................................ 185 --
Corporation tax.................................... 104 --
Accruals and deferred income....................... 8,729 --
Amounts owed to group undertakings................. -- 2,750
------ -----
12,500 2,750
====== =====
</TABLE>
15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
31ST DECEMBER 1997 31ST DECEMBER 1997
------------------ ------------------
L000 L000
<S> <C> <C>
Loan from Hypobank................................. 1,350 --
Obligations under finance leases and hire purchase
contracts........................................ 418 --
Accruals and deferred income....................... 111 --
----- ---
1,879 --
===== ===
</TABLE>
The loan from Hypobank carries a fixed rate of 5% until July 1999 and then
converts to a variable rate. It is repayable in July 2000 and is secured by a
charge on a blocked bank account containing L804,000.
The obligations under finance leases and hire purchase contracts are
secured on the relevant assets and each carries a normal commercial rate of
interest.
F-179
<PAGE> 249
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
They are as follows:
<TABLE>
<CAPTION>
GROUP COMPANY
31ST DECEMBER 1997 31ST DECEMBER 1997
------------------ ------------------
L000 L000
<S> <C> <C>
Within 1-2 years................................... 156 --
Within 2-5 years................................... 262 --
--- ----
418 --
=== ====
</TABLE>
16 MINORITY INTERESTS
<TABLE>
<CAPTION>
31ST DECEMBER 1997
------------------
L000
<S> <C>
Richard Ellis Gunne Limited................................. (87)
Richard Ellis Gunne (Northern Ireland) Limited.............. (36)
----
(123)
====
</TABLE>
17 SHARE CAPITAL
Authorised
<TABLE>
<CAPTION>
31ST DECEMBER 1997
------------------
L000
<S> <C>
31,140,000 ordinary shares of 5p each....................... 1,557
860,000 convertible shares of 5p each....................... 43
-----
1,600
=====
</TABLE>
Issued, called up and fully paid:
<TABLE>
<CAPTION>
NUMBER NUMBER
OF ORDINARY OF CONVERTIBLE TOTAL NUMBER
SHARES OF SHARES OF OF SHARES OF
5P EACH 5P EACH 5P EACH L000
----------- -------------- ------------ ----
<S> <C> <C> <C> <C>
Shares issued in consideration for Richard
Ellis Partnership....................... 9,833,253 850,755 10,684,008 534
Shares issued in consideration for shares
in Richard Ellis Holdings Limited....... 5,342,002 -- 5,342,002 267
Other shares issued....................... 720,000 -- 720,000 36
---------- ------- ---------- ---
31st December 1997........................ 15,895,255 850,755 16,746,010 837
========== ======= ========== ===
</TABLE>
Insignia Financial Group, Inc., have committed to subscribe for a further
3,452,373 5p ordinary shares at a subscription price of L1.50 per share.
F-180
<PAGE> 250
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
18 MERGERS
<TABLE>
<CAPTION>
RICHARD ELLIS
HOLDINGS LIMITED
& SUBSIDIARIES
----------------
L000
<S> <C>
Fixed assets................................................ 1,208
Intangible fixed assets..................................... 490
Investments................................................. 3,112
Debtors..................................................... 3,402
Cash........................................................ 1,058
Creditors................................................... (5,690)
Minority interest........................................... 87
------
Net assets.................................................. 3,667
======
Fair value totals........................................... 3,667
Merger Reserve.............................................. (3,400)
------
Nominal value of shares issued.............................. 267
======
</TABLE>
Analysis of net cash acquired on purchase of subsidiary undertakings:
<TABLE>
<S> <C>
Cash consideration.......................................... --
Cash acquired............................................... 1,058
------
1,058
======
</TABLE>
In the opinion of the directors, there is no material difference between
the fair values of the assets and liabilities of the subsidiary undertakings
purchased and the fair value totals set out above.
On 1st May 1997, the company combined with Richard Ellis Holdings Limited.
This has been accounted for as a merger. All losses were derived in the period
subsequent to merger. The loss for the year ended 30th April 1997 was L255,000.
19 ACQUISITIONS
<TABLE>
<CAPTION>
RICHARD ELLIS
PARTNERSHIP REVALUATION 2ND MAY 1997
------------- ----------- ------------
L000 L000 L000
<S> <C> <C> <C>
Fixed assets................................... 458 -- 458
Work in progress............................... 695 182 877
Debtors........................................ 10,040 -- 10,040
Cash........................................... (827) -- (827)
Creditors...................................... (9,016) -- (9,016)
------ --- ------
Net assets acquired............................ 1,350 182 1,532
====== === ======
Fair value totals.............................. 1,532
Goodwill....................................... 3,810
------
Consideration.................................. 5,342
======
</TABLE>
The revaluation of work in progress was necessary to achieve consistency of
accounting policies with the group.
F-181
<PAGE> 251
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
Consideration was in the form of 9,833,253 5p ordinary shares and 850,755
5p convertible shares in Richard Ellis Group Limited. Both classes of shares
were issued at 50p.
Analysis of net cash acquired on purchase of assets:
<TABLE>
<S> <C>
Cash consideration.......................................... --
Cash acquired............................................... (827)
----
(827)
====
</TABLE>
In the opinion of the directors, there is no material difference between
the fair values of the assets and liabilities purchased and the fair value
totals set out above.
20 RESERVES
<TABLE>
<CAPTION>
SHARE PROFIT
PREMIUM AND LOSS MERGER
ACCOUNT ACCOUNT RESERVE GOODWILL TOTAL
------- -------- ------- -------- ------
L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
Reserve on merger................................ -- -- 3,400 -- 3,400
Goodwill on acquisition.......................... -- -- -- (3,810) (3,810)
Premium on issue of shares....................... 5,132 -- -- -- 5,132
Elimination of goodwill against share premium.... (3,810) -- -- 3,810 --
Retained loss for the period..................... -- (3,462) -- -- (3,462)
------ ------ ------ ------ ------
At 31st December 1997............................ 1,322 (3,462) 3,400 -- 1,260
====== ====== ====== ====== ======
</TABLE>
Company
<TABLE>
<S> <C> <C> <C>
Premium on issue of shares.................................. 5,132 -- 5,132
Elimination of goodwill against share premium............... (3,810) -- (3,810)
Retained profit for the period.............................. -- 32 32
------ --- ------
At 31st December 1997....................................... 1,322 32 1,354
====== === ======
</TABLE>
The company has taken advantage of the exemption allowed under section 230
of the Companies Act 1985 and has not presented its own profit and loss account
in these financial statements. The group result for the period includes a profit
by the company for the period of L32,000 which is dealt with in the group
financial statements.
The elimination of goodwill on acquisition against share premium occurred
when the company was unlimited, on 2nd May 1997.
The cumulative amount of goodwill that has been written off against group
reserves is L691,000.
F-182
<PAGE> 252
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
21 RECONCILIATION OF OPERATING LOSS TO CASH FLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
GROUP
31ST DECEMBER 1997
------------------
L000
<S> <C>
Operating loss.............................................. (3,556)
Depreciation charges........................................ 245
Amortisation of goodwill.................................... 35
Profit on sale of tangible assets........................... (28)
Decrease in debtors......................................... 578
Increase in creditors....................................... 2,713
------
Net cash outflow from operating activities.................. (13)
======
</TABLE>
22 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
<TABLE>
<CAPTION>
GROUP
31ST DECEMBER 1997
------------------
L000
<S> <C>
Interest received........................................... 120
Interest paid............................................... (92)
Interest element of finance lease payments.................. (73)
------
Net cash outflow from returns on investments and servicing
of finance................................................ (45)
======
</TABLE>
23 CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
<TABLE>
<CAPTION>
GROUP
31ST DECEMBER 1997
------------------
L000
<S> <C>
Purchase of tangible fixed assets........................... (151)
Sale of tangible fixed assets............................... 604
Payment to acquire investment............................... (369)
Sale of investment.......................................... 443
------
Net cash inflow from capital expenditure and financial
investment................................................ 527
======
</TABLE>
24 ACQUISITIONS AND DISPOSALS
<TABLE>
<CAPTION>
GROUP
31ST DECEMBER 1997
------------------
L000
<S> <C>
Net cash acquired with subsidiary........................... (827)
----
Net cash outflow from acquisitions and disposals............ (827)
====
</TABLE>
F-183
<PAGE> 253
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
25 FINANCING
<TABLE>
<CAPTION>
GROUP
31ST DECEMBER 1997
------------------
L000
<S> <C>
Capital element of finance lease rental payments............ (263)
Share capital issued........................................ 36
Share premium............................................... 324
----
Net cash inflow from financing.............................. 97
====
</TABLE>
26 NET DEBT
Reconciliation of net cash flow to movement in net debt
<TABLE>
<CAPTION>
GROUP
31ST DECEMBER 1997
---------------------
L000
<S> <C>
Decrease in cash in the period.............................. (261)
Cash outflow from decrease in finance leasing............... 263
------
Change in net debt resulting from cash flows................ 2
Finance leases acquired with subsidiary..................... (35)
------
New finance leases in the period............................ (62)
------
Movement in net debt........................................ (95)
Net debt at 1 May 1997...................................... (1,061)
------
Net debt at 31 December 1997................................ (1,156)
======
</TABLE>
Analysis of net debt
<TABLE>
<CAPTION>
NET DEBT OF GROUP
COMPANIES TRANSFERRED ACQUISITION OTHER NON GROUP COMPANIES
IN AS PART OF MERGER CASHFLOW (EXCL CASH) CASH CHANGES 31ST DECEMBER 1997
--------------------- -------- ------------ ------------ ------------------
L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
Cash in hand and at
bank.................... 1,058 (261) -- -- 797
Debt due after one year... (1,350) -- -- -- (1,350)
Finance leases............ (769) 263 (35) (62) (603)
------ ---- --- --- ------
(1,061) 2 (35) (62) (1,156)
====== ==== === === ======
</TABLE>
27 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
GROUP COMPANY
31ST DECEMBER 1997 31ST DECEMBER 1997
------------------ ------------------
L000 L000
<S> <C> <C>
(Loss)/profit for the period....................... (3,462) 32
New share capital subscribed....................... 837 837
New share premium on capital subscribed............ 1,322 1,322
Merger reserve on acquisition...................... 3,400 --
------ -----
Shareholders' funds at 31st December 1997.......... 2,097 2,191
====== =====
</TABLE>
F-184
<PAGE> 254
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
28 PENSIONS
Certain employees are members of a pension scheme operated by the group.
The scheme includes final salary and defined contributions sections. The assets
of the scheme are held separately from those of the group and are administered
by trustees.
The scheme is the subject of an independent actuarial valuation every three
years. The most recent actuarial valuation was as at 1st May 1996 using the
projected unit method. At that date the market value of the assets was L16.07m
of which L3.27m related to defined contribution assets. Ignoring defined
contribution assets and liabilities, the actuarial value of the assets was
sufficient to cover 107% of the value of the benefits that had accrued to
members, after allowing for increases in earnings. The principle assumptions
used were an interest rate of 7.75% pa, salary growth of 6% pa, price inflation
of 3.5% pa and dividend growth of 3.9% pa. The anticipated surplus in the Fund
at 1st May 1997 based on the assumptions in the 1996 valuation was nil. Company
contributions during the period equalled the pension cost, of L54,000 per month,
amounting to L432,000 for the eight months to 31st December 1997.
29 LEASING COMMITMENTS
The group had commitments under operating leases to make payments totalling
L3,813,000 in the period ending 31st December 1997 as follows:
<TABLE>
<CAPTION>
31ST DECEMBER 1997
------------------
LAND &
BUILDINGS OTHER
--------- -----
L000 L000
<S> <C> <C>
Lease expiring:
Within one year........................................... 23 78
Within two to five years.................................. 284 65
Over five years........................................... 3,002 545
----- ---
3,309 688
===== ===
</TABLE>
Included within other are annuity payments to former partners of the
Richard Ellis Partnership.
30 CONTINGENT LIABILITIES
The company has given an unlimited guarantee in respect of the bank loans
and overdrafts of certain other group companies. At 31st December the amount
guaranteed by the company was L952,000.
The company has received a claim for L763,000 on behalf of a former
employee in connection with the price paid to him on his resignation by the
Richard Ellis Share Trust for his shares in the group and another claim for rent
on one of its properties relating to a void period. If either claim is pursued,
the Board intends to defend it vigorously.
31 POST BALANCE SHEET EVENT
On 4th March 1998, the entire share capital of the company was acquired by
Insignia Financial Group, Inc., a company incorporated in the USA.
32 RELATED PARTY TRANSACTIONS
On 2nd May 1997 the group acquired the trade, assets and liabilities of the
former Richard Ellis Partnership.
F-185
<PAGE> 255
RICHARD ELLIS GROUP LIMITED
NOTES FORMING PART OF THE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD ENDED 31ST DECEMBER 1997
All of the directors excluding I Harvey, B S Thomas and V W Benjamin were
partners in the Richard Ellis Partnership prior to the acquisition and each
received 395,704 shares in the group as consideration for the partnership's
trade, assets and liabilities. The shares issued to H V A Ellingham and I D
Ellis included 118,710 convertible shares.
A J M Huntley, J A D Croft, C N G Arding, D A Sizer, R D Lucas, M D G
Wheldon and R J F Wildman were shareholders in both Richard Ellis Group Limited
and REI Limited. In aggregate they controlled 27.21% of the voting rights in
Richard Ellis Group Limited and 26.87% of the voting rights in REI Limited at
31st December 1997.
During the period the group was billed L308,000 by REI Limited, of which
L291,000 was outstanding at the year end. The group charged L364,000 to REI
Limited during the period. The outstanding debtor at the year end was L405,000.
All transactions were carried out on normal commercial terms.
33 PARENT COMPANY
Following the acquisition of Richard Ellis Group Limited, which took place
on 4th March 1998, Insignia Financial Group Inc. (a company incorporated in the
USA) is now the ultimate parent company. The parent of the largest and smallest
group of which the company is a member and for which financial statements are
prepared is Richard Ellis Group Limited.
34 RICHARD ELLIS GROUP LIMITED
Richard Ellis Group Limited was formed on the 7th April 1997, for the
express purpose of acquiring the net assets of Richard Ellis Holdings Limited
and subsidiaries and the net assets of Richard Ellis Partnership. These
transactions completed after the 30th April 1997. As the company is newly formed
and the group did not exist in its current form at the time no comparisons as at
the 30th April 1997 have been provided for the company or for the group.
35 SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
The Company's accounting policies comply with U.K. GAAP which differ in
certain significant respects from U.S. GAAP. The following is a summary of such
differences.
ACCOUNTING FOR DEFERRED INCOME TAXES
U.K. GAAP requires deferred income taxes to be recorded using the liability
method based on those timing differences expected to crystallise in the
foreseeable future. U.S. GAAP also requires the use of the liability method;
however, full provision for all temporary differences is required.
F-186
<PAGE> 256
RICHARD ELLIS GROUP LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 31ST DECEMBER 1997 (UNAUDITED COMPARATIVES)
<TABLE>
<CAPTION>
8 MONTHS ENDED 8 MONTHS ENDED
NOTE 31ST DECEMBER 1997 31ST DECEMBER 1996
---- ------------------ ------------------
<S> <C> <C> <C>
TURNOVER............................................. 2 27,550 20,207
Administrative expenses
-- normal......................................... 3 (24,915) (20,954)
-- exceptional.................................... 3 (6,191) --
------- -------
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST AND OTHER
INCOME............................................. (3,556) (747)
Interest receivable.................................. 224 86
Interest payable..................................... 6 (242) (338)
------- -------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION.......... (3,574) (999)
Share of profit of associated undertakings........... 7 7 29
Taxation............................................. 8 69 --
------- -------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION........... (3,498) (970)
Minority interests -- equity......................... 36 (19)
------- -------
LOSS FOR THE FINANCIAL PERIOD........................ 20 (3,462) (989)
======= =======
</TABLE>
All amounts relate to continuing activities of the merged businesses and
acquisitions.
All recognised gains and losses are included in the profit and loss account.
F-187
<PAGE> 257
RICHARD ELLIS GROUP LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 31ST DECEMBER 1997 (UNAUDITED COMPARATIVES)
<TABLE>
<CAPTION>
NOTE 31ST DECEMBER 1997 31ST DECEMBER 1996
---- ------------------ ------------------
L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets............................... 10 455 493
Tangible fixed assets........................... 11 994 1,818
Investments..................................... 12 28 512
Investment in own shares........................ 12 368 --
-------- -------
1,845 2,823
CURRENT ASSETS
Work in progress................................ 1,654 538
Debtors......................................... 13 12,057 9,256
Cash at bank and in hand.......................... 797 2,323
-------- -------
14,508 12,117
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR.... 14 (12,500) (5,920)
-------- -------
NET CURRENT ASSETS................................ 2,008 6,197
------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES............. 3,853 9,020
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE
YEAR............................................ 15 (1,879) 3,500
------- --------
1,974 5,520
======= ========
CAPITAL AND RESERVES:
Called up share capital/Partnership capital..... 17 837 3,200
Share premium account........................... 20 1,322 2,723
Capital reserve on acquisition.................. 199
Profit and loss account......................... 20 (3,462) (508)
Merger reserve.................................. 20 3,400 --
------- --------
SHAREHOLDERS' FUNDS............................... 27 2,097 5,614
Minority interests -- equity...................... 16 (123) (94)
------- --------
1,974 5,520
======= ========
</TABLE>
F-188
<PAGE> 258
RICHARD ELLIS GROUP LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 31ST DECEMBER 1997 (UNAUDITED COMPARATIVES)
<TABLE>
<CAPTION>
8 MONTHS ENDED 8 MONTHS ENDED
NOTE 31ST DECEMBER 1997 31ST DECEMBER 1996
---- ------------------ ------------------
L000 L000
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES................ 21 (13) 1,261
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE.... 22 (45) (50)
TAXATION........................................... -- 33
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT....... 23 527 42
ACQUISITIONS AND DISPOSALS......................... 24 (827) (171)
---- -----
CASH OUTFLOW BEFORE FINANCING...................... (358) 1,115
FINANCING.......................................... 25 97 (386)
---- -----
(DECREASE)/INCREASE IN CASH........................ (261) 729
==== =====
</TABLE>
F-189
<PAGE> 259
APPENDIX A
AGREEMENT AND PLAN OF DISTRIBUTION
BY AND BETWEEN
INSIGNIA FINANCIAL GROUP, INC.
AND
INSIGNIA/ESG HOLDINGS, INC.
DATED AS OF , 1998
<PAGE> 260
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................
1.1 Definitions.................................................
ARTICLE II THE DISTRIBUTION............................................
2.1 Mechanics of the Distribution...............................
2.2 Timing of the Distribution..................................
ARTICLE III TAX MATTERS.................................................
3.1 Assumption and Indemnification of Tax Liabilities...........
3.2 Failure of the Merger to Occur..............................
3.3 Indemnification Procedures..................................
ARTICLE IV TRANSFER OF ASSETS AND PAYMENT OF LIABILITIES...............
4.1 Transfer of Assets to Holdings..............................
4.2 Payment of Liabilities......................................
ARTICLE V OTHER AGREEMENTS............................................
5.1 Use of "Insignia," "ESG," or "Insignia/ESG" Names...........
5.2 Release of Holdings by the Company's Lenders................
5.3 Books and Records...........................................
5.4 Access to Information.......................................
5.5 Retention of Records........................................
5.6 Confidentiality.............................................
5.7 Listing on NYSE.............................................
5.8 Further Assurances..........................................
5.9 Treatment of Certain Participation Interests................
5.10 Cooperation.................................................
5.11 Assumption of Certain Contracts by Holdings.................
5.12 Payments With Respect to Consulting Agreements; Restricted
Stock; Stock Options......................................
5.13 Conflicting Terms...........................................
5.14 Performance of Services.....................................
ARTICLE VI INDEMNIFICATION AND RELEASES................................
6.1 Mutual Release..............................................
6.2 Indemnification by the Company..............................
6.3 Indemnification by Holdings.................................
6.4 Insurance Proceeds; Tax Benefits; Mitigation................
6.5 Procedure for Indemnification...............................
6.6 Remedies Cumulative.........................................
6.7 Survival of Indemnities.....................................
ARTICLE VII EMPLOYEE MATTERS............................................
7.1 Employees...................................................
7.2 Employee Benefits...........................................
7.3 Other Liabilities and Obligations...........................
ARTICLE VIII CONDITIONS..................................................
8.1 Stockholder Approval........................................
8.2 Opinion of Tax Counsel......................................
8.3 Certain Transactions........................................
8.4 Adequate Surplus............................................
8.5 Release of Obligations......................................
8.6 Bank Consent................................................
</TABLE>
App. A-(i)
<PAGE> 261
<TABLE>
<S> <C> <C>
ARTICLE IX MISCELLANEOUS AND GENERAL...................................
9.1 Termination.................................................
9.2 Effect of Termination.......................................
9.3 Modification or Amendment...................................
9.4 Waiver; Remedies............................................
9.5 Counterparts................................................
9.6 Governing Law...............................................
9.7 Notices.....................................................
9.8 Captions....................................................
9.9 No Third Party Beneficiary..................................
9.10 Successors and Assigns......................................
9.11 Certain Obligations.........................................
9.12 Specific Performance........................................
9.13 Severability................................................
9.14 Jurisdiction................................................
SCHEDULE 3.1..............................................................
SCHEDULE 4.1..............................................................
</TABLE>
App. A-(ii)
<PAGE> 262
AGREEMENT AND PLAN OF DISTRIBUTION, dated as of , 1998
("Agreement"), between Insignia Financial Group, Inc., a Delaware corporation
(the "Company"), and Insignia/ESG Holdings, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of the Company ("Holdings").
WHEREAS, the Company, Holdings, Apartment Investment and Management
Company, a Maryland corporation ("AIMCO"), and AIMCO Properties, L.P., a
Delaware limited partnership and a subsidiary of AIMCO ("AIMCO Properties"),
have entered into an Amended and Restated Agreement and Plan of Merger, dated as
of May 26, 1998 (the "Merger Agreement"), providing for the Merger (as defined
in the Merger Agreement) of the Company with and into AIMCO, with AIMCO as the
surviving corporation;
WHEREAS, the Boards of Directors of the Company and Holdings have approved
this Agreement, which is being entered into prior to the Effective Time (as
defined in Section 1.3 of the Merger Agreement), pursuant to which the
Distribution (as defined below) will be consummated;
WHEREAS, as soon as practicable after the Company Meeting (as hereinafter
defined), subject to the satisfaction or waiver of the conditions set forth in
Article VIII of this Agreement, the Company will distribute (the "Distribution")
to each holder of record of shares of Class A Common Stock, par value $.01 per
share, of the Company ("Company Common Stock"), a number of shares of Common
Stock, par value $.01 per share, of Holdings ("Holdings Common Stock") equal to
two-thirds of the number of shares of Company Common Stock held by such holder;
WHEREAS, the purpose of the Distribution is to allow the management of
Holdings and its subsidiaries to focus exclusively on the operation and growth
of the Holdings Business (as defined below), and to provide Holdings with
greater access to the capital markets to develop its commercial real estate
operations, to facilitate future acquisitions of other commercial real estate
operations and to make Holdings better able to attract and retain top quality
professionals in its commercial real estate operations, as well as to make
possible the Merger by divesting the Company of all businesses and operations
(other than the Retained Business (as defined below)) conducted by the Company
and its Subsidiaries (as defined below) which AIMCO is unwilling to acquire;
WHEREAS, the Company and Holdings wish to set forth and provide for certain
agreements between the Company and Holdings in consideration of the separation
of their ownership; and
WHEREAS, it is the intention of the parties to this Agreement that the
Distribution shall qualify as a transaction described in Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following respective meanings (capitalized terms used but not defined herein
shall have the respective meanings ascribed to them in the Merger Agreement):
"Additional Interests" shall have the meaning set forth in Section 5.9(c)
hereto.
"Affiliate" of any Person shall mean another Person that directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with, such first Person; provided, however, that for the
purposes of this Agreement from and after the Time of Distribution, no Retained
Company shall be deemed to be an Affiliate of any Holdings Company, and no
Holdings Company shall be deemed to be an Affiliate of any Retained Company. The
Affiliates of Holdings also include the Commercial Joint Venture Entities.
"Agreement" shall have the meaning set forth in the Preamble.
App. A-1
<PAGE> 263
"AIMCO" shall have the meaning set forth in the Recitals hereto.
"AIMCO Properties" shall have the meaning set forth in the Recitals hereto.
"Closing Date" shall have the meaning set forth in Section 3.1 of the
Merger Agreement.
"Code" shall have the meaning set forth in the Recitals hereto.
"Commercial Joint Venture Entities" shall mean the following entities:
Brickyard Investors, L.P., Brookhollow Associates, L.P., Courtyard Plaza
Associates, L.P., Glades Plaza, L.P., Hiawassee Oak Partners, L.P., Nashpike
Partners, L.P., Sleepy Lake Partners, L.P., Bingham Partners, L.P., Clayton
Investors Associates, LLC, Northpoint Partners, L.P., Mockingbird Associates,
L.P., 101 Marietta Street Associates, Fresh Meadows Development, LLC, W/9FIG
Realty, L.L.C., Dallas RPFIV Campbell Centre Associates Limited Partnership, St.
Louis RPFIV Gateway One Associates Limited Partnership, Santa Rosa L.L.C. and
any other entities owning commercial or non-residential real estate assets or
interests therein, or entities owning residential real estate assets related to
the New York Residential Business (as that term is defined in Section 4.1(i) of
the Merger Agreement) other than those in which a subsidiary of Insignia
Properties Trust, a Maryland real estate investment trust, serves as a general
partner, whether now existing or hereafter formed.
"Company" shall have the meaning set forth in the Preamble.
"Company 401(k) Plan" shall have the meaning set forth in Section 7.2(b)
hereof.
"Company Common Stock" shall have the meaning set forth in the Recitals
hereto.
"Company Disclosure Letter" shall mean that certain letter dated March 17,
1998 from the Company to AIMCO annexed to and deemed part of the Merger
Agreement.
"Company Flex Plan" shall have the meaning set forth in Section 7.2(c)
hereof.
"Company Indemnifiable Losses" shall have the meaning set forth in Section
6.3 hereof.
"Company Indemnitees" shall have the meaning set forth in Section 6.3
hereof.
"Company LTD Plan" shall have the meaning set forth in Section 7.2(c)
hereof.
"Company Meeting" shall mean the special meeting of Company stockholders at
which the stockholders will be asked to approve the Distribution and the Merger
Agreement.
"Company Restoration Plan" shall have the meaning set forth in Section
7.2(b) hereof.
"Company Stock Plans" shall mean the Insignia Financial Group, Inc. Amended
and Restated 1992 Stock Incentive Plan, as amended, and the Insignia Financial
Group, Inc. 1995 Non-Employee Director Stock Option Plan.
"Company VEBA" shall have the meaning set forth in Section 7.2(c) hereof.
"Company Welfare Plans" shall have the meaning set forth in Section 7.2(c)
hereof.
"Contingent Incentive Award" shall have the meaning set forth in the
Incentive Award Letters.
"Contract" shall mean any note, bond, mortgage, indenture, lease, contract,
agreement, obligation, understanding, commitment or other similar arrangement,
whether written or oral.
"Covered Person" shall have the meaning set forth in Section 2.1 of the
Merger Agreement.
"Credit Agreement" shall have the meaning set forth in Section 5.2 hereof.
"DGCL" shall mean the General Corporation Law of the State of Delaware.
"Distribution" shall have the meaning set forth in the Recitals hereto.
"Effective Time" shall have the meaning set forth in Section 1.3 of the
Merger Agreement.
"Employment Agreements" shall mean the agreements listed in Schedule
5.12(a) hereto.
App. A-2
<PAGE> 264
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Existing 401(k) Plan" shall have the meaning set forth in Section 7.2(b)
hereof.
"Existing LTD Plan" shall have the meaning set forth in Section 7.2(c)
hereof.
"Existing Restoration Plan" shall have the meaning set forth in Section
7.2(b) hereof.
"Existing Welfare Plans" shall have the meaning set forth in Section 7.2(c)
hereof.
"Flex Plan" shall have the meaning set forth in Section 7.2(c) hereof.
"Former Employees" shall have the meaning set forth in Section 7.12(a) of
the Merger Agreement.
"Holdings" shall have the meaning set forth in the Preamble.
"Holdings 40l(k) Plan" shall have the meaning set forth in Section 7.2(b)
hereof.
"Holdings Assets" shall have the meaning set forth in Section 4.1 hereof.
"Holdings Businesses" shall mean all of the businesses conducted at or at
any time prior to the Distribution by the Company or any of its Subsidiaries,
excluding the Retained Business.
"Holdings Common Stock" shall have the meaning set forth in the Recitals
hereto.
"Holdings Companies" shall mean Holdings and its Subsidiaries (determined
after giving effect to the transactions contemplated by Article IV of this
Agreement).
"Holdings Entities" shall have the meaning set forth in Section 4.1 hereof.
"Holdings Employees" shall mean all current and former employees of the
Company and its Subsidiaries other than the Retained Employees.
"Holdings Flex Plan" shall have the meaning set forth in Section 7.2(c)
hereof.
"Holdings Indemnifiable Losses" shall have the meaning set forth in Section
6.2 hereof.
"Holdings Indemnities" shall have the meaning set forth in Section 6.2
hereof.
"Holdings Liabilities" shall mean (i) all Liabilities or portions of
Liabilities arising primarily out of or in connection with the Holdings Assets
or the Holdings Businesses; (ii) all Liabilities under Contracts included in the
Holdings Assets, whether such Liabilities arise before, upon or after the
transactions contemplated by this Agreement and including any Liabilities under
such Contracts resulting from the consummation of the transactions contemplated
by this Agreement (including actions, claims or proceedings relating thereto);
(iii) all Liabilities of Holdings and its Subsidiaries pursuant to this
Agreement, the Merger Agreement, the Indemnification Agreement or any of the
Transaction Documents; and (iv) all Liabilities for payment of outstanding
drafts and checks of Holdings and its Subsidiaries to the extent attributable to
the Holdings Assets and the Holdings Businesses existing as of the Time of
Distribution.
"Holdings LTD Plan" shall have the meaning set forth in Section 7.2(c)
hereof.
"Holdings Restoration Plan" shall have the meaning set forth in Section
7.2(b) hereof.
"Holdings Vacation Obligation" shall have the meaning set forth in Section
7.2(a) hereof.
"Holdings VEBA" shall have the meaning set forth in Section 7.2(c) hereof.
"Holdings Welfare Plans" shall have the meaning set forth in Section 7.2(c)
hereof.
"Incentive Award Letters" shall have the meaning set forth in Section
5.9(b) hereof.
"Indemnifiable Losses" shall have the meaning set forth in Section 6.3
hereof.
"Indemnification Agreement" shall mean that certain Amended and Restated
Indemnification Agreement dated as of May 26, 1998 by and between AIMCO and
Holdings, as the same may be amended and supplemented from time to time.
App. A-3
<PAGE> 265
"Indemnifying Party" shall have the meaning set forth in Section 6.4
hereof.
"Indemnitee" shall have the meaning set forth in Section 6.4 hereof.
"Information" of a party shall mean any and all information that such party
or any of its Representatives furnish or have furnished to the receiving party
or any of its Representatives whether furnished orally or in writing or by any
other means or gathered by inspection and regardless of whether the same is
specifically marked or designated as "confidential" or "proprietary," together
with any and all notes, memoranda, analyses, compilations, studies or other
documents (whether in hard copy or electronic media) prepared by the receiving
party of any of its Representatives which contain or otherwise reflect such
Information, together with any and all copies, extracts or other reproductions
of any of the same; provided, however, that for the purposes hereof all
information relating to the Retained Companies and the Retained Business in the
possession of any Holdings Company at the Time of Distribution shall be deemed
to have been furnished by the Retained Companies and all information relating to
the Holdings Companies and the Holdings Businesses in the possession of any
Retained Company at the Time of Distribution shall be deemed to have been
furnished by the Holdings Companies; and further provided that the term
"Information" does not include information that:
(a) is or becomes generally available to the public through no
wrongful act of the receiving party or its Representatives;
(b) is or becomes available to the receiving party on a
non-confidential basis from a source other than the providing party or its
Representatives, provided that such source is not known by the receiving
party to be subject to a confidentiality agreement with the providing
party; or
(c) has been independently acquired or developed by the receiving
party without violation of any of the obligations of the receiving party or
its Representatives under this Agreement.
"IRS" shall mean the United States Internal Revenue Service.
"Lenders" shall have the meaning set forth in Section 5.2 hereof.
"Liabilities" shall mean any and all debts, liabilities, commitments and
obligations, whether fixed, contingent or absolute, matured or unmatured,
liquidated or unliquidated, accrued or not accrued, known or unknown, whenever
or however arising and whether or not the same would be required by generally
accepted accounting principles to be reflected in financial statements or
disclosed in the notes thereto.
"Merger" shall have the meaning set forth in the recitals to the Merger
Agreement.
"Merger Agreement" shall have the meaning set forth in the Recitals hereto.
"Participation Interests" shall mean the interests of Holdings in or with
respect to Proceeds from or arising out of any investment by the Company or any
Affiliates thereof in the Residential Joint Venture Entities listed below and in
the REMIC, as set forth below:
<TABLE>
<CAPTION>
ENTITY PARTICIPATION INTEREST
------ ----------------------
<S> <C>
REMIC...................................................... 30% of Proceeds
Southwest Associates, L.P.................................. 35% of Proceeds
Western Hills Associates, LLC.............................. 40% of Proceeds
Cobble Creek Associates LLC................................ 40% of Proceeds
Chimney Ridge Associates................................... 40% of Proceeds
Bennington Square Associates LP............................ 40% of Proceeds
Willow Park Associates..................................... 50% of Proceeds
Dallas Glen Associates, L.P................................ 50% of Proceeds
Watermans Crossing Associates, L.P......................... 50% of Proceeds
Louisville Apartments Limited Partnership.................. 50% of Proceeds
</TABLE>
App. A-4
<PAGE> 266
"Person" shall mean any natural person, corporation, general or limited
partnership, limited liability company, joint venture, trust, association or
entity of any kind.
"Proceeds" means the proceeds actually received by the Company or any of
its Affiliates derived from or arising out of its investment in (i) each
Residential Joint Venture Entity, and (ii) the REMIC, in each case after the
Company or such Affiliate has received 100% of its investment plus a return
thereon equal to 10% per annum.
"NYSE" shall mean The New York Stock Exchange, Inc.
"Record Date" shall mean the date designated by or pursuant to the
authorization of the Board of Directors of the Company for the purpose of
determining the stockholders of the Company entitled to participate in the
Distribution.
"REMIC" shall mean the obligations known as Structured Asset Securities
Corporation Trust I Collateralized Mortgage Obligation Series 1992-MI, Class D.
"Representatives" of a party shall mean such party's officers, directors,
employees, accountants, counsel, investment bankers, financial advisors,
consultants and other representatives.
"Residential Joint Venture Entities" shall mean the following partnerships
and limited liability companies: Southwest Associates L.P., Western Hills
Associates LLC, Cobble Creek Associates LLC, Chimney Ridge Associates,
Bennington Square Associates LP, Willow Park Associates, Dallas Glen Associates,
L.P., Watermans Crossing Associates, L.P., and Louisville Apartments Limited
Partnership.
"Retained Assets" shall mean the assets relating to the Company's existing
residential multifamily property management and ownership and partnership
administration businesses but excluding the entities and assets listed in
Schedule 4.1 hereto.
"Retained Business" shall mean the Company's existing residential
multifamily property management and ownership and partnership administration
businesses, including related assets and liabilities but excluding the entities
and assets listed in Schedule 4.1 hereto.
"Retained Companies" shall mean the Company and its Subsidiaries, other
than Holdings and its Subsidiaries.
"Retained Employees" shall mean those Persons who are employees of the
Retained Companies immediately after the Time of Distribution.
"Retained Liabilities" shall mean (i) all Liabilities or portions of
Liabilities arising primarily out of or in connection with the Retained Assets
or the Retained Business; (ii) all Liabilities under Contracts included in the
Retained Assets, whether such Liabilities arise before, upon or after the
transactions contemplated by this Agreement and including any Liabilities under
such Contracts resulting from the consummation of the transactions contemplated
by this Agreement (including actions, claims or proceedings relating thereto);
(iii) all Liabilities of the Company and its Subsidiaries (other than Holdings
and its Subsidiaries) pursuant to this Agreement, the Merger Agreement, the
Indemnification Agreement and the Transaction Documents; and (iv) all
Liabilities for the payment of outstanding drafts and checks of the Company and
its Subsidiaries to the extent attributable to the Retained Assets or the
Retained Business existing as of the Time of Distribution.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner or (ii) at
least 50% of the securities or other interests having by their terms ordinary
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization or at
least 50% of the value of the outstanding equity is directly or indirectly owned
or controlled by such Person or by any one or more of its Subsidiaries, or by
such Person and one or
App. A-5
<PAGE> 267
more of its Subsidiaries. The Subsidiaries of Holdings include the Commercial
Joint Venture Entities but do not include the Residential Joint Venture
Entities.
"Taxes" shall mean any federal, state, county, local or foreign taxes,
charges, fees, levies or other assessments, including all net income, gross
income, sales and use, ad valorem, transfer, gains, profits, excise, franchise,
real and personal property, gross receipt, capital stock, share, production,
business and occupation, disability, employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges imposed by any
governmental entity, and includes any interest and penalties (civil or criminal)
on or additions to any such taxes.
"Tax Indemnifying Party" shall have the meaning set forth in Section 3.3(a)
hereof.
"Tax Indemnitee" shall have the meaning set forth in Section 3.3(a) hereof.
"Tax Return" shall means any report, return or other information required
to be supplied to a governmental entity with respect to Taxes.
"Time of Distribution" shall mean the time as of which the Distribution is
effective.
"Third Party Claim" shall have the meaning set forth in Section 6.5 hereof.
"Trade Marks" shall have the meaning set forth in Section 5.1(b) hereof.
"Transaction Documents" shall have the meaning set forth in Section 5.8
hereof.
"Transfer Agent" shall mean First Union National Bank, the transfer agent
for the Company Common Stock.
"VEBA" shall have the meaning set forth in Section 7.2(c) hereof.
ARTICLE II
THE DISTRIBUTION
2.1 Mechanics of the Distribution. The Distribution shall be effected by
the distribution, to each holder of record of shares of Company Common Stock as
of the Record Date, of certificates representing the number of shares of
Holdings Common Stock equal to two-thirds of the number of shares of Company
Common Stock held by such holder; provided, however, that no fractional shares
of Holdings Common Stock shall be issued or delivered. In the event there are
holders of Company Common Stock holding of record on the Record Date a number of
shares of Company Common Stock not wholly divisible by three, the Transfer Agent
shall distribute certificates representing shares of Holdings Common Stock to
such holders on the basis of the next number of shares of Company Common Stock
held below the actual number of shares held which is wholly divisible by three,
multiplied by two. The Transfer Agent shall aggregate all shares of Holdings
Common Stock that would be distributable but for the proviso to the first
sentence of this Section 2.1, shall sell such shares in the public market as
soon as practicable after the Time of Distribution and shall distribute the
proceeds of the sale of such shares pro rata among the holders of record of
Company Common Stock holding such numbers of shares of Company Common Stock not
wholly divisible by three.
2.2 Timing of the Distribution. The Board of Directors of the Company
shall formally declare the Distribution and shall authorize the Company to
effect the Distribution following the approval of the Distribution by the
stockholders of the Company and prior to the Closing Date, subject to the
satisfaction or waiver of the conditions set forth in Article VIII of this
Agreement, by delivery of certificates representing shares of Holdings Common
Stock to the Transfer Agent for delivery to the holders entitled thereto. The
Distribution shall be deemed to be effective upon notification by the Company to
the Transfer Agent that the Distribution has been effected and that the Transfer
Agent is authorized to proceed with the distribution of certificates
representing shares of Holdings Common Stock.
App. A-6
<PAGE> 268
ARTICLE III
TAX MATTERS
3.1 Assumption and Indemnification of Tax Liabilities. Except as provided
in the attached Schedule 3.1, and except as otherwise specifically provided in
the Merger Agreement or the Indemnification Agreement, the respective Tax
liabilities of the Company and its Subsidiaries (other than Holdings and its
Subsidiaries) and of Holdings and its Subsidiaries, whether arising before, at
or after the Time of Distribution, will continue to be the Tax liabilities of
each such party, and each party hereto agrees to save, indemnify, defend and
hold harmless the other, its Subsidiaries and each of their respective
directors, officers, employees, agents, successors and assigns from and against
all such Tax liabilities.
3.2 Failure of the Merger to Occur.
In the event the Merger does not occur, Holdings agrees to save, indemnify,
defend and hold harmless the Company and each of its Subsidiaries and their
successors and assigns from and against any Taxes that arise under Sections
355(e), 355(c)(2) and 361(c)(2) of the Code and corresponding state or local
income and franchise Taxes as a result or on account of (i) any plan (or series
of transactions) of Holdings pursuant to which one or more persons acquire,
directly or indirectly, stock representing a 50% or greater interest in Holdings
or (ii) any action of Holdings or any of its Subsidiaries after the Time of
Distribution that is the principal cause of the Distribution not qualifying as a
reorganization and distribution under Sections 368(a)(1)(D) and 355 of the Code.
3.3 Indemnification Procedures.
(a) Any claim for indemnification under this Article III shall be made by
written notice from the party seeking to be indemnified (the "Tax Indemnitee")
to the party from which indemnification is sought (the "Tax Indemnifying Party")
in the same manner as set forth in Section 5 of the Indemnification Agreement.
Except as otherwise provided in the Indemnification Agreement, if a Tax
Indemnitee becomes aware during an examination of a Tax Return that the tax
authority conducting the examination is considering asserting a Tax subject to
indemnification, the Tax Indemnitee will (i) promptly notify the Tax
Indemnifying Party of this fact, (ii) to the extent reasonably practicable,
segregate the issue from any other issues being examined, (iii) permit the Tax
Indemnifying Party to control the Tax examination insofar as it relates to that
issue and any administrative or judicial appeals relating to the issue
(including whether to settle the issue or to appeal from an adverse
determination with regard to the issue) and (iv) cooperate with the Tax
Indemnifying Party in all reasonable respects to establish that such Tax is not
due and payable.
(b) Upon a determination that a Tax Indemnifying Party is liable for a
payment of Taxes to a Tax Indemnitee, the Tax Indemnifying Party shall pay the
Tax Indemnitee such Taxes. Except as otherwise provided under the
Indemnification Agreement, such payment will be made on an after-Tax basis
promptly following the submission by the Tax Indemnitee of written evidence of
the payment of indemnified Tax.
(c) Except as otherwise provided in the Merger Agreement, the Company will
be responsible for the preparation and filing of all Tax Returns with respect to
all periods ending on or before the Time of Distribution and for the payment of
all Taxes shown on those Tax Returns to be due. Holdings and its Subsidiaries
will be responsible for the preparation and filing of all other Tax Returns
relating to them or their assets or the Holdings Businesses which are required
to be filed after the Time of Distribution and for the payment of all Taxes
shown on those Tax Returns to be due and all related estimated Taxes payable
after the Time of Distribution.
(d) Each of the Company and Holdings will, and will cause their respective
personnel to, cooperate fully with each other of them in connection with the
preparation and review of Tax Returns and in connection with any examinations of
any Tax Returns filed by either of them or their respective Subsidiaries.
App. A-7
<PAGE> 269
ARTICLE IV
TRANSFER OF ASSETS AND PAYMENT OF LIABILITIES
4.1 Transfer of Assets to Holdings. Prior to the Time of Distribution, the
Company shall take or cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to Holdings of all of the
Company's and its Subsidiaries' right, title and interest in the Holdings
Entities and the Holdings Assets. "Holdings Entities" and "Holdings Assets"
mean, respectively, the entities and assets identified on Schedule 4.1 under the
headings "Holdings Entities" and "Holdings Assets."
4.2 Payment of Liabilities. Except as set forth in the Merger Agreement,
the Indemnification Agreement, and the Transaction Documents, from and after the
Time of Distribution, (i) Holdings shall, and shall use its reasonable best
efforts to cause its Subsidiaries to pay, perform and discharge in due course
all of the Holdings Liabilities for which such entity is liable, and (ii) the
Company shall, and shall use its reasonable best efforts to cause its
Subsidiaries, other than Subsidiaries that are not wholly owned Subsidiaries of
Holdings or one of its Affiliates to, pay, perform and discharge in due course
all of the Retained Liabilities for which such entity is liable.
ARTICLE V
OTHER AGREEMENTS
5.1 Use of "Insignia," "ESG," or "Insignia/ESG" Names.
(a) From and after the Time of Distribution, Holdings shall have all rights
in and use of the name "Insignia," "ESG," "Insignia/ESG" and all derivatives
thereof. Subject to the terms of this Agreement, no later than the later of (i)
90 days after the Time of Distribution or (ii) 90 days after the Closing Date,
but in no event later than December 31, 1998, the Company agrees (A) to cause
each of the Company and its Subsidiaries (other than Holdings and its
Subsidiaries) to change its name and all of its trade names, trademarks, service
marks and all derivatives thereof, to a name or names which does/do not include
the words "Insignia," "ESG" or "Insignia/ESG" and is/are not confusingly similar
to the words "Insignia," "ESG," "Insignia/ESG" or any other trademarks, service
marks, trade names or logos or all derivatives thereof used by the Holdings
Companies, (B) to cause the word "Insignia," "ESG," and "Insignia/ESG" and all
corporate names, trademarks, service marks, trade names and logos and all
derivatives thereof which are used in any way by the Holdings Companies to be
removed from all marketing, advertising and business materials, including
without limitation, telephone listings, signage, brochures and all other
property used by the Company or any Subsidiary of the Company, except that the
Company and its Subsidiaries may continue to use any remaining stationary,
business cards and other similar property which bears the word "Insignia" until
the stock thereof on hand at the Time of Distribution has been depleted and (C)
to use its reasonable best efforts to cause buildings which the Company or its
Subsidiaries own or in which the Company or its Subsidiaries rent space, to
change their names to names not including any reference to "Insignia," "ESG" or
"Insignia/ESG."
(b) Effective upon the Time of Distribution and continuing until the later
of (i) 90 days after the Time of Distribution or (ii) 90 days after the Closing
Date, but in no event later than December 31, 1998, and subject to the terms of
this Agreement, Holdings hereby grants to the Company, solely for the purpose of
complying with the terms of Section 5.1(a) hereof, a limited, non-exclusive,
royalty free license to use the name "Insignia" and the Holdings corporate name,
trade name, trademark, service mark and logo and all derivatives thereof
(collectively, the "Trade Marks") only in connection with the marketing and sale
of goods and/or residential property and asset management services which are
currently undertaken by the Company and each Subsidiary of the Company (other
than the Holdings Companies). All use of the Trade Marks by the Company shall
inure to the benefit of Holdings.
(c) The Trade Marks shall only be used in the same manner in which they are
currently used by the Company and each of its Subsidiaries. In the event that
the Trade Marks are used in a manner inconsistent
App. A-8
<PAGE> 270
with the terms of this sub-section, Holdings shall have the right to terminate
the limited license of Section 5.1(b) upon ten (10) calendar days' prior notice
to the Company.
5.2 Release of Holdings by the Company's Lenders. As soon as practicable
after the Time of Distribution, the Company shall use its reasonable best
efforts to cause the Company's Lenders (as defined below) to release Holdings
and its Subsidiaries from any and all obligations under the Credit Agreement (as
defined below) and all ancillary agreements and documents related thereto and to
release all related liens on the assets of Holdings and its Subsidiaries within
a reasonable time after the Distribution; provided, however, that at the
Effective Time, the Company or its successors in interest shall cause the
Lenders to release Holdings and its Subsidiaries from any and all obligations
under the Credit Agreement and all ancillary agreements and documents related
thereto and release all related liens on the assets of Holdings and its
Subsidiaries. The "Credit Agreement" shall mean that certain Amended and
Restated Credit Agreement, dated as of March 19, 1997, by and among the Company,
the lenders party thereto (the "Lenders"), First Union National Bank, as
administrative agent, and Lehman Commercial Paper Inc., as syndication agent, as
amended.
5.3 Books and Records. Prior to or as promptly as practicable after the
Time of Distribution, the Company shall deliver to Holdings all corporate books
and records of the Holdings Companies in the possession of the Retained
Companies and the relevant portions (or copies thereof) of all corporate books
and records of the Retained Companies relating directly and primarily to the
Holdings Companies, the Holdings Businesses or the Holdings Liabilities,
including, in each case, all agreements, litigation files and government
filings. From and after the Time of Distribution, all such books, records and
copies shall be the property of Holdings. The Company may retain copies of all
such corporate books and records. Prior to the Distribution, Holdings shall
deliver to the Company all corporate books and records of the Retained Companies
in the possession of any of the Holdings Companies and relevant portions (or
copies thereof) of all corporate books and records of the Holdings Companies
relating directly and primarily to the Retained Companies, the Retained Business
or the Retained Liabilities, including, in each case, all agreements, active
litigation files and government filings. From and after the Time of
Distribution, all such books, records and copies shall be the property of the
Company. Holdings may retain copies of all such corporate books and records.
5.4 Access to Information. Upon reasonable notice, each party shall, and
shall cause its Subsidiaries to, afford to Representatives of the other
reasonable access, during normal business hours throughout the period prior to
and following the Time of Distribution, to all of its properties, books,
contracts, commitments and records (including, but not limited to, Tax Returns)
and, during such period, each party shall, and shall cause its Subsidiaries to,
furnish promptly to the other (i) access to each report, schedule and other
document filed or received by it or any of its Subsidiaries pursuant to the
requirements of federal or state securities laws or filed with or sent to the
United States Securities and Exchange Commission or any other federal or state
regulatory agency or commission and (ii) access to all information concerning
themselves, their Subsidiaries, directors, officers and stockholders and such
other matters as may be reasonably requested by the other party in connection
with any filings, applications or approvals required or contemplated by this
Agreement or for any other reason related to the transactions contemplated by
this Agreement; provided, however, that the foregoing shall apply to Holdings
and the Holding Companies only with respect to information and access necessary
to or required by the Company in preparation of Tax Returns. Nothing in this
Section 5.4 shall require the parties to take any action or furnish any access
or information which would cause or could reasonably be expected to cause the
waiver of any applicable attorney client privilege. In addition, nothing herein
shall require the parties to provide information other than with respect to
itself and its Subsidiaries, or the conduct of their businesses.
5.5 Retention of Records. If any information relating to the businesses,
assets or liabilities of a Retained Company or a Holdings Company is retained by
a Holdings Company or Retained Company, respectively, each of the Company and
Holdings shall, and shall cause the other Retained Companies and Holdings
Companies, respectively, to retain all such information in the Retained
Companies' or Holdings Companies' possession or under its control until such
information is at least ten years old except that if, prior to the expiration of
such period, any Retained Company or Holdings Company wishes to destroy or
dispose of any such information that is at least three years old, prior to
destroying or disposing of any of such information,
App. A-9
<PAGE> 271
(a) the Company or Holdings, on behalf of the Retained Company or the Holdings
Company that is proposing to dispose of or destroy any such information, shall
provide no less than 45 days' prior written notice to the other party,
specifying the information proposed to be destroyed or disposed of, and (b) if,
prior to the scheduled date of such destruction or disposal, the other party
requests in writing that any of the information proposed to be destroyed or
disposed of be delivered to such other party, the Company or Holdings, as
applicable, promptly shall arrange for the delivery of the requested information
to a location specified by, and at the expense of, the requesting party.
5.6 Confidentiality.
(a) Each party hereto shall keep, and shall cause its Representatives to
keep, the other party's Information strictly confidential and will disclose such
Information only to such of its Representatives who need to know such
Information and who agree to be bound by this Section 5.6 and not to disclose
such Information to any other Person. Without the prior written consent of the
other party, neither party nor any of their respective Representatives shall
disclose the other party's Information to any Person or entity except as may be
required by law or judicial process and in accordance with this Section 5.6.
(b) In the event that either party or any of its Representatives receives a
request or is required by law or judicial process to disclose to a court or
other tribunal all or any part of the other party's Information, the receiving
party or its Representatives shall promptly notify the other party of the
request in writing, and consult with and assist the other party in seeking a
protective order or request for other appropriate remedy. In the event that such
protective order or other remedy is not obtained or the other party waives
compliance with the terms hereof, such receiving party or its Representatives,
as the case may be, shall disclose only that portion of the Information or facts
which, in the written opinion of the receiving party's outside counsel, is
legally required to be disclosed, and will exercise its respective reasonable
best efforts to assure that confidential treatment will be accorded such
Information or facts by the Persons or entities receiving the same. The
providing party will be given an opportunity to review the Information or facts
prior to disclosure.
5.7 Listing on NYSE. Holdings shall use its reasonable best efforts to
list the shares of Holdings Common Stock to be issued pursuant to the
Distribution on the NYSE.
5.8 Further Assurances. The parties agree that if, after the Time of
Distribution, a Holdings Company or a Retained Company holds assets which by the
terms hereof or of the Merger Agreement were intended to be assigned and
transferred to, or retained by, a Retained Company or a Holdings Company,
respectively, each of Holdings and the Company shall, and shall cause the other
Holdings Companies and Retained Companies, respectively, at their expense, to
take all commercially reasonable actions required promptly to assign and
transfer or cause to be assigned and transferred such assets to the applicable
Holdings Company or Retained Company, without the payment of additional
consideration, and the parties agree that the transferring Holdings Company or
Retained Company, as applicable, will hold such assets as agent for the sole
benefit of the transferee Retained Company or Holdings Company, as applicable,
and all income and risk of loss of the transferred assets to the Time of
Distribution shall be for the account of the intended owner. Each of the parties
hereto, at its own cost and expense, promptly shall, or shall cause its
Subsidiaries to, execute such documents (the "Transaction Documents") and take
such further actions as may be reasonably required or desirable to carry out the
provisions hereof and to consummate the transactions contemplated hereby. As
used herein, the term "Transaction Documents" includes, but is not limited to,
the Technical Services Agreement.
5.9 Treatment of Certain Participation Interests.
(a) From and after the Time of Distribution, the Company promptly shall pay
to Holdings that percentage of all Proceeds received by the Company or any of
its Affiliates, or their respective successors and assigns, from the respective
Residential Joint Venture Entities and the obligations known as the REMIC in
accordance with Holdings' applicable Participation Interest.
(b) Effective at the Time of Distribution and without further action by the
Company or Holdings, the Company hereby assigns to Holdings, and Holdings hereby
assumes, the Company's duties, obligations and liabilities arising from or
relating to the Incentive Award Letters (as defined below). The Company agrees
to
App. A-10
<PAGE> 272
use its reasonable best efforts to obtain the consent of the other parties to
the Incentive Award Letters to said assignments and assumptions and to
therelease of the Company from its duties, obligations and liabilities arising
from or relating to the Incentive Award Letters. The "Incentive Award Letters"
shall mean all of the agreements pursuant to which the Company has granted to
any officer or employee of the Company any right to receive a portion of the
Proceeds or any member or partnership interest, including, but not limited to,
the letter agreements listed on Schedule 5.9(b) hereto.
(c) The Company agrees that in the event the Company acquires additional
membership interests or partnership units (the "Additional Interests") in any
Residential Joint Venture Entity after the Time of Distribution which, together
with interests or units owned by the Company at the Time of Distribution, would
constitute a majority of the interests or units of such Residential Joint
Venture Entity, the Company shall pay Holdings an amount equal to the amount
Holdings would have received if such Residential Joint Venture Entity had sold
all of its assets for an aggregate price equal to the per unit price paid by the
Company for the Additional Interests multiplied by the total number of issued
and outstanding membership interests or partnership units of such Residential
Joint Venture Entity.
5.10 Cooperation. The parties shall cooperate with each other in all
reasonable respects to ensure (a) that the Distribution and the assumption (to
the extent necessary) of the Retained Liabilities and of the Holdings
Liabilities are consummated in accordance with the terms hereof, (b) the
retention by the Company of the Retained Business, including, without
limitation, allocating rights and obligations under Contracts, if any, of the
Retained Companies or the Holdings Companies that relate to the Retained
Business, and (c) the retention by Holdings of the Holdings Businesses,
including, without limitation, allocating rights and obligations under
Contracts, if any, of the Holdings Companies or the Retained Companies that
relate to the Holdings Businesses.
5.11 Assumption of Certain Contracts by Holdings. At the Time of
Distribution, the Company will, and will cause its Subsidiaries (other than
Holdings and its Subsidiaries) to, assign to Holdings, and Holdings will assume,
all rights, liabilities and obligations attributable to (i) Holdings Employees
under their respective employment, consulting and severance agreements with the
Company, including, but not limited to, the Contracts listed in Schedule 5.11
hereto, and (ii) all other Contracts relating to the Holdings Businesses,
including, but not limited to, the Contracts listed in Schedule 5.11 hereto. The
Company will use its reasonable best efforts to obtain the consent of the other
parties to the aforementioned Contracts to the assignment to Holdings and to the
substitution of Holdings for the Company as a party thereto.
5.12 Payments With Respect to Consulting Agreements; Restricted Stock;
Stock Options.
(a) From and after the Time of Distribution, in the event that the Company
for any reason does not make a payment to a signatory to any of the employment
agreements listed in Schedule 5.12(a) hereto (the "Employment Agreements")
pursuant to an Employment Agreement, the Company shall immediately make such
payment to Holdings.
(b) From and after the Time of Distribution, in the event that the Company
receives any payment (whether principal or interest) on a loan made by the
Company pursuant to a Employment Agreement, the Company shall assign and
transfer such loan payment to Holdings within ten days of the receipt thereof.
(c) From and after the Time of Distribution, in the event the Company for
any reason does not cause the shares of restricted stock identified in Schedule
5.12(c) (the "Restricted Stock") to vest in the holder thereof at the times set
forth in the terms of grant of such Restricted Stock, the Company shall
immediately pay to Holdings in cash an amount equal to the fair market value of
the shares of Restricted Stock which did not so vest, determined as of the date
on which such shares of Restricted Stock were to vest as if they had so vested
and were freely transferable.
(d) From and after the Time of Distribution, if the employment of any
Covered Person (as defined in Section 2.1 of the Merger Agreement) should
terminate prior to the vesting of all options to purchase shares of Company
Common Stock held by such Covered Person, then the Company shall, promptly after
such termination, pay to either such Covered Person or Holdings an amount equal
to the "in the money" spread value of such remaining unvested options as of the
Time of Distribution.
App. A-11
<PAGE> 273
5.13 Conflicting Terms. The terms of this Agreement shall continue
unabridged at and after the Effective Time, except that at and after the
Effective Time, in the event that there are any conflicts between the terms of
this Agreement on the one hand and the terms of the Merger Agreement and the
Indemnification Agreement on the other hand, the terms of the Merger Agreement
and the Indemnification Agreement shall control with respect to such
inconsistent terms.
5.14 Performance of Services. Beginning at the Time of Distribution, (i)
the Company will provide, or cause one or more of its Subsidiaries to provide,
to Holdings or another member of the Holdings Companies computer services and
data processing for accounting and payroll functions at the Company's actual
direct cost through December 31, 1998 and on a month-to-month basis thereafter
pursuant to a Technical Services Agreement, dated as of June 29, 1998, by and
among the Company, Holdings and AIMCO, as amended (the "Technical Services
Agreement"); and (ii) Holdings will continue to provide, or cause one or more of
its Subsidiaries to continue provide, to the Company or one or more of its
Subsidiaries management services for certain properties owned by partnerships
whose general partners are Affiliates of the Company on substantially the same
terms and conditions as management agreements currently in effect.
ARTICLE VI
INDEMNIFICATION AND RELEASES
6.1 Mutual Release. Effective as of the Time of Distribution and except as
otherwise specifically set forth in this Agreement or the Transaction Documents,
the Merger Agreement or the Indemnification Agreement, each of the Company, on
the one hand, and Holdings, on the other hand, releases and forever discharges
the other and its affiliates, and its and their directors, officers, employees
and agents of and from all debts, demands, actions, causes of action, suits,
accounts, covenants, contracts, agreements, damages, and any and all claims,
demands and liabilities whatsoever of every name and nature, both in law and in
equity, against such other party or any of its assigns, which the releasing
party has or ever had, which arise out of or relate to events, circumstances or
actions taken by such other party prior to the Time of Distribution; provided,
however, that the foregoing general release shall not apply to this Agreement,
the Transaction Documents, the Merger Agreement or the Indemnification Agreement
or the transactions contemplated hereby or thereby and shall not affect either
party's right to enforce this Agreement or the Transaction Documents, the Merger
Agreement, the Indemnification Agreement or any other agreement contemplated
hereby or thereby in accordance with its terms. Each party understands and
agrees that, except as otherwise specifically provided herein or in the
Transaction Documents, the Merger Agreement or the Indemnification Agreement,
neither the other party nor any of its Subsidiaries is, in this Agreement or any
other agreement or document, representing or warranting to such party in any way
as to the assets, business or Liabilities transferred or assumed as contemplated
hereby or thereby or as to any consents or approvals required in connection with
the consummation of the transactions contemplated by this Agreement, the
Transaction Documents, the Merger Agreement or the Indemnification Agreement.
6.2 Indemnification by the Company. Except as otherwise expressly set
forth in the Merger Agreement, the Indemnification Agreement, and the
Transaction Documents, the Company shall indemnify, defend and hold harmless
Holdings and each of its Subsidiaries, and each of their respective directors,
officers, employees, agents and Affiliates, and each of the heirs, executors,
successors and assigns of any of the foregoing (the "Holdings Indemnities") from
and against the Retained Liabilities and any and all losses, Liabilities and
damages, including the costs and expenses of any and all actions, threatened
actions, demands, assessments, judgments, settlements and compromises relating
thereto and attorneys' fees and any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any such actions or
threatened actions (collectively, "Holdings Indemnifiable Losses" and,
individually, a "Holdings Indemnifiable Loss") of the Holdings Indemnitees
arising out of or due to the failure or alleged failure of the Company or any of
its Subsidiaries to pay, perform or otherwise discharge in due course any of the
Retained Liabilities.
6.3 Indemnification by Holdings. Except as otherwise expressly set forth
in the Merger Agreement, the Indemnification Agreement and the Transaction
Documents, Holdings shall indemnify, defend and hold harmless the Company and
each of its Subsidiaries, and each of their directors, officers, employees,
agents and
App. A-12
<PAGE> 274
Affiliates and each of the heirs, executors, successors and assigns of any of
the foregoing (the "Company Indemnitees") from and against the Holdings
Liabilities and any and all losses, Liabilities and damages, including the costs
and expenses of any and all actions, threatened actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such actions or threatened actions (collectively,
"Company Indemnifiable Losses" and, individually, a "Company Indemnifiable
Loss") of the Company Indemnitees arising out of or due to the failure or
alleged failure of Holdings or any of its Affiliates to pay, perform or
otherwise discharge in due course any of the Holdings Liabilities. The "Holdings
Indemnifiable Losses" and the "Company Indemnifiable Losses" are collectively
referred to as the "Indemnifiable Losses."
6.4 Insurance Proceeds; Tax Benefits; Mitigation. The amount which any
party (an "Indemnifying Party") is or may be required to pay to any other Person
(an "Indemnitee") pursuant to Sections 6.2 or 6.3 shall be reduced (including
retroactively) by (i) any insurance proceeds or other amounts actually recovered
by or on behalf of such Indemnitee in reduction of the related Indemnifiable
Loss and (ii) any Tax benefits realized or realizable by such Indemnitee based
on the present value thereof by reason of such loss and shall be increased by
any Tax liability incurred by such Indemnitee based on such indemnity payment.
If an Indemnitee shall have received the payment required by this Agreement from
an Indemnifying Party in respect of an Indemnifiable Loss and shall subsequently
actually receive insurance proceeds, Tax benefits or other amounts in respect of
such Indemnifiable Loss as specified above, then such Indemnitee shall pay to
such Indemnifying Party a sum equal to the amount of such insurance proceeds,
Tax benefits or other amounts actually received. The Indemnitee shall take all
reasonable steps to mitigate all Losses, including availing itself of any
defenses, limitations, rights of contribution, claims against third parties and
other rights at law (it being understood that any out-of-pocket costs paid to
third parties in connection with such mitigation shall constitute Losses), and
shall provide such evidence and documentation of the nature and extent of any
Loss as may be reasonably requested by the Indemnifying Party.
6.5 Procedure for Indemnification.
(a) If an Indemnitee shall receive notice or otherwise learn of the
assertion by a person (including any governmental entity) who is not a party to
this Agreement or to any of the Transaction Documents of any claim or of the
commencement by any such Person of any action (a "Third-Party Claim") with
respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; provided, however, that the failure of any Indemnitee to give
notice as required by this Section 6.5 shall not relieve the Indemnifying Party
of its obligations under this Article VI, except to the extent that such
Indemnifying Party is prejudiced by such failure to give notice. Such notice
shall describe the Third-Party Claim in reasonable detail, and shall indicate
the amount (estimated if necessary) of the Indemnifiable Loss that has been or
may be sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel reasonably acceptable to the Indemnitee, any Third-Party
Claim, provided that the Indemnifying Party must confirm in writing that it
agrees that the Indemnitee is entitled to indemnification hereunder in respect
of such Third-Party Claim. Within 30 days of the receipt of notice from an
Indemnitee in accordance with Section 6.5(a) (or sooner, if the nature of such
Third-Party Claim so requires), the Indemnifying Party shall notify the
Indemnitee of its election whether to assume responsibility for such Third-Party
Claim (provided that if the Indemnifying Party does not so notify the Indemnitee
of its election within 30 days after receipt of such notice from the Indemnitee,
the Indemnifying Party shall be deemed to have elected not to assume
responsibility for such Third-Party Claim), and such Indemnitee shall cooperate
in the defense or settlement or compromise of such Third-Party Claim. After
notice from an Indemnifying Party to an Indemnitee of its election to assume
responsibility for a Third-Party Claim, such Indemnifying Party shall not be
liable to such Indemnitee under this Article VI for any legal or other expenses
(except expenses approved in advance by the Indemnifying Party) subsequently
incurred by such Indemnitee in connection with the defense thereof; provided,
however, that if the defendants in any such claim include both the Indemnifying
Party and one or more Indemnitees and in such Indemnitees'
App. A-13
<PAGE> 275
reasonable judgment there exists a conflict of interest between such Indemnitees
and the Indemnifying Party, such Indemnitees shall have the right to employ
separate counsel and in that event the reasonable fees and expenses of such
separate counsel (but not more than one separate counsel reasonably satisfactory
to the Indemnifying Party) shall be paid by such Indemnifying Party. If an
Indemnifying Party elects not to assume responsibility for a Third-Party Claim
(which election may be made only in the event of a good faith dispute that a
claim was inappropriately tendered under Section 6.2 or 6.3, as the case may be)
such Indemnitee may defend or (subject to the following sentence) seek to
compromise or settle such Third-Party Claim. Notwithstanding the foregoing, an
Indemnitee may not settle or compromise any Third-Party Claim without prior
written notice to the Indemnifying Party, which shall have the option within
fifteen days following the receipt of such notice (i) to disapprove the
settlement and assume all past and future responsibility for the claim,
including reimbursing the Indemnitee for prior expenditures in connection with
the claim, or (ii) to disapprove the settlement and continue to refrain from
participation in the defense of the claim, in which event the Indemnifying Party
shall have no further right to contest the amount or reasonableness of the
settlement if the Indemnitee elects to proceed therewith, or (iii) to approve
the amount of the settlement, reserving the Indemnifying Party's right to
contest the Indemnitee's right to indemnity, or (iv) to approve and agree to pay
the settlement. In the event the Indemnifying Party makes no response to such
written notice from the Indemnitee, the Indemnifying Party shall be deemed to
have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to compromise any
Third-Party Claim, the Indemnitee shall make available to such Indemnifying
Party any personnel and any books, records or other documents within its control
or which it otherwise has the ability to make available that are necessary or
appropriate for such defense.
(d) Notwithstanding anything else in this Section 6.5 to the contrary, an
Indemnifying Party shall not settle or compromise any Third-Party Claim unless
(i) such settlement or compromise contemplates as an unconditional term thereof
the giving by such claimant or plaintiff to the Indemnitee of a written release
from all liability in respect of such Third-Party Claim and (ii) such settlement
does not provide for any non-monetary relief by Indemnitee unless Indemnitee
consents thereto. In the event the Indemnitee shall notify the Indemnifying
Party in writing that such Indemnitee declines to accept any such settlement or
compromise, such Indemnitee may continue to contest such Third-Party Claim, free
of any participation by such Indemnifying Party, at such Indemnitee's sole
expense. In such event, the obligation of such Indemnifying Party to such
Indemnitee with respect to such Third-Party Claim shall be equal to (i) the
costs and expenses of such Indemnitee prior to the date such Indemnifying Party
notifies such Indemnitee of such offer of settlement or compromise (to the
extent such costs and expenses are otherwise indemnifiable hereunder) plus (ii)
the lesser of (A) the amount of any offer of settlement or compromise which such
Indemnitee declined to accept and (B) the actual out-of-pocket amount such
Indemnitee is obligated to pay subsequent to such date as a result of such
Indemnitee's continuing to pursue such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not result
from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 30 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 30-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 30-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement, the Merger Agreement or the
Indemnification Agreement.
(f) In addition to any adjustments required pursuant to Section 6.4, if the
amount of any Indemnifiable Loss shall, at any time subsequent to the payment
required by this Agreement, be reduced by recovery, settlement or otherwise, the
amount of such reduction, less any expenses incurred in connection therewith,
shall promptly be repaid by the Indemnitee to the Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third-Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee
App. A-14
<PAGE> 276
as to any events or circumstances in respect of which such Indemnitee may have
any right or claim relating to such Third-Party Claim against any claimant or
plaintiff asserting such Third-Party Claim. Such Indemnitee shall cooperate with
such Indemnifying Party in a reasonable manner, and at the cost and expense of
such Indemnifying Party, in prosecuting any subrogated right or claim.
6.6 Remedies Cumulative. The remedies provided in this Article VI shall be
cumulative and shall not preclude assertion by any Indemnitee of any other
rights or the seeking of any and all other remedies against any Indemnifying
Party.
6.7 Survival of Indemnities. The obligations of each of Holdings and the
Company under this Article VI shall survive the sale or other transfer by it of
any assets or businesses or the assignment by it of any Liabilities, with
respect to any Indemnifiable Loss of the other related to such assets,
businesses or Liabilities.
6.8 Tax Matters. Notwithstanding anything to the contrary in this Article
VI, any claim for indemnification with respect to any Liabilities which are Tax
liabilities of the Company and Holdings shall be governed by the terms and
provisions of Article III hereof.
ARTICLE VII
EMPLOYEE MATTERS
7.1 Employees. Immediately prior to, and subject to, the Distribution, the
Company shall transfer to Holdings (or the Holdings Companies) the employees
whose employment relates to the Holdings Companies and Holdings Businesses, as
determined by the Company in its sole discretion, so that no such employee who
becomes employed by Holdings experiences any termination or other interruption
in employment. The employees who become employees of Holdings upon the
Distribution shall not be employees of the Company or any Subsidiary of the
Company at the Time of Distribution, except as otherwise agreed to in writing by
the parties. Effective as of the Time of Distribution, (a) Retained Employees
shall remain or become employees of the Retained Companies in the same
capacities as then held by such employees (or in such other capacities and upon
such terms and conditions as the Company shall determine in its sole discretion)
and (b) Holdings Employees shall remain or become employees of the Holdings
Companies in the same capacities as then held by such employee (or in such other
capacities and upon such terms and conditions as Holdings shall determine in its
sole discretion). Nothing contained in this Section 7.1 shall confer on any
Retained Employee or any Holdings Employee any right to continued employment
after the Time of Distribution, and such employees shall continue to be employed
"at-will." At and from the Time of Distribution, except as set forth in this
Article VII, Holdings shall assume all obligations relating to all employees,
including the Former Employees and employees of the Holdings Companies, arising
prior to or at the Time of Distribution or, if the Merger is consummated, prior
to or at the Effective Time, including all obligations or liabilities relating
to employee benefits, health insurance and severance, if any.
7.2 Employee Benefits. Without limiting the generality of Section 7.1
above:
(a) Accrued Vacation. The Company and Holdings agree that all accrued
vacation for Retained Employees on and after the Time of Distribution shall be
the Company's obligation; provided, however, that if a Retained Employee (other
than on-site employees) is terminated or quits prior to December 31, 1998 (or
December 31, 1999 if the Closing Date occurs in 1999) and such Retained Employee
(other than on-site employees) was entitled to accrued vacation relating to his
employment prior to the Effective Time (the "Holdings Vacation Obligation") at
the time of his departure and received a cash payment for such Holdings Vacation
Obligation, Holdings shall promptly reimburse the Company for such amount.
(b) 401(k) Plan and Restoration Plan. Immediately prior to, and subject to,
the Distribution, the Company shall cause a "spin-off" of the assets and
liabilities of the Company's 401(k) Retirement Plan (the "Existing 401(k) Plan")
resulting in the division of the Existing 401(k) Plan into two separate,
identical, component plans and trusts, in accordance with applicable law
(including, without limitation, Section 414(l) of the Code), covering,
respectively, (i) the Retained Employees (and their beneficiaries) (the "Company
401(k) Plan") and (ii) all other Existing 401(k) Plan participants (and their
beneficiaries) (the "Holdings
App. A-15
<PAGE> 277
40l(k)Plan"). Immediately prior to, and subject to, the Distribution, the
Company shall cause a "spin-off" of the assets and liabilities of the Company
401(k) Restoration Plan (the "Existing Restoration Plan") resulting in the
division of the Existing Restoration Plan into two separate, identical component
plans and trusts, covering, respectively, (i) the Retained Employees (and their
beneficiaries) (the "Company Restoration Plan") and (ii) all other Existing
Restoration Plan participants (and their beneficiaries) (the "Holdings
Restoration Plan"). Immediately prior to, and subject to, the Distribution, the
Company shall cause the Holdings 401(k) Plan and the Holdings Restoration Plan
to be transferred to Holdings but shall retain the Company 401(k) Plan and the
Company Restoration Plan. Prior to the Distribution, the Company shall draft the
appropriate documents and us its reasonable best efforts to take all actions
necessary, to the extent possible, to effectuate the intent of this Section
7.2(b).
(c) Welfare Plans. Except as otherwise provided herein, immediately prior
to, and subject to, the Distribution, the Company shall cause all Company
employee benefit plans that are employee welfare benefit plans, as defined in
Section 3(l) of ERISA (the "Existing Welfare Plans"), to be divided into
separate, identical component plans covering, respectively, (i) the Retained
Employees (and their beneficiaries) (the "Company Welfare Plans") and (ii) all
other Existing Welfare Plan participants, including without limitation,
participants (and their beneficiaries) who experienced a "qualifying event" for
purposes of the group health plan continuation coverage requirements of Section
4980 of the Code and Title I, Subtitle B of ERISA prior to the Closing Date
regardless of when an election for continuation coverage is made by the
participant (the "Holdings Welfare Plans"). Notwithstanding the foregoing, the
Company shall cause the Company Long Term Disability Plan (the "Existing LTD
Plan") to be divided into two separate, identical component plans covering,
respectively, (i) employees who work for the Company after the Distribution and
employees who were working in the United States based multifamily apartment
business of the Company and the Subsidiaries not set forth on Section 4.2(h) of
the Company Disclosure Letter at the time they became eligible for benefits
under the Existing LTD Plan (the "Company LTD Plan") and (ii) all other
participants in the Existing LTD Plan (the "Holdings LTD Plan"). Without
limiting the generality of the foregoing, immediately prior to, and subject to,
the Distribution, the Company shall cause a "spin-off" of the assets and
liabilities of each of the Company Voluntary Employees' Beneficiary Association
and the Company's existing Flexible Spending Plan (which contains premium,
dependent care and medical health reimbursement component parts) (respectively,
the "VEBA" and the "Flex Plan") resulting in the division of each of the VEBA
and the Flex Plan into separate, identical, component plans and trusts, in
accordance with applicable law, covering, respectively, (i) the Retained
Employees (and their beneficiaries) (respectively, the "Company VEBA" and
"Company Flex Plan") and (ii) all other participants (and their beneficiaries)
in the VEBA and the Flex Plan (respectively, the "Holdings VEBA" and the
"Holdings Flex Plan"). Immediately prior to and subject to, the Distribution,
the Company shall cause the Holdings Welfare Plans, Holdings LTD Plan, Holdings
VEBA and Holdings Flex Plan to be transferred to Holdings but shall retain the
Company Welfare Plans, Company LTD Plan, Company VEBA and Company Flex Plan.
Prior to the Distribution, the Company shall draft the appropriate documents and
use its reasonable best efforts to take all actions necessary, to the extent
possible, to effectuate the intent of this Section 7.2(c).
(d) Stock Plans. Immediately prior to, and subject to, the Distribution,
the Company shall cause Holdings to assume all options and awards of restricted
stock (whether vested or unvested) held under the Company Stock Plans by
employees of the Company who become employees of Holdings and convert such
options and awards of restricted stock into an option to purchase shares of
common stock of Holdings or an award of restricted shares of common stock of
Holdings, as applicable, as the Company deems appropriate to reflect the
Distribution. Prior to the Distribution, the Company shall draft the appropriate
documents and use its reasonable best efforts to take all actions necessary, to
the extent possible, to effectuate the intent of this Section 7.2(d).
(e) Continuation of Group Health Plan Coverage. Holdings and the Holdings
Companies shall be responsible for all obligations and liabilities relating to
or arising under the group health plan continuation coverage requirements of
Section 4980B of the Code and Title I, Subtitle B of ERISA for employees
employed by the Company prior to the Closing Date other than the Retained
Employees. Holdings and the Holdings Companies shall also be responsible for any
liabilities or obligations for severance obligations relating
App. A-16
<PAGE> 278
to employees of the Company employed by the Company prior to the Closing Date
other than the Retained Employees.
7.3 Other Liabilities and Obligations. Effective as of the Time of
Distribution, Holdings shall assume and be solely responsible for (i) all
liabilities and obligations related to the Holdings Employees and (ii) except as
specifically provided in this Article VII and except to the extent otherwise
provided in this Agreement, the Merger Agreement, the Indemnification Agreement
or the Transaction Documents, all liabilities and obligations related to the
Retained Employees that were incurred on or before the Time of Distribution.
Effective as of the Time of Distribution, the Company shall assume and be solely
responsible for (i) all liabilities and obligations related to the Retained
Employees incurred after the Time of Distribution, (ii) all holiday, vacation
and sick day benefits of the Retained Employees accrued as of the Time of
Distribution, except as otherwise provided for in this Article VII, and (iii)
all other liabilities, including, without limitation, for worker's compensation
and medical benefits. For purposes of this Section 7.3, a liability is
"incurred" on either the date the event giving rise to the liability occurs or,
if the liability is related to more than one event, the date the first event to
which the liability relates occurs. Notwithstanding the foregoing, deferred
directors' fees shall be the sole responsibility of Holdings.
7.4 Actions by Holdings. Any action required to be taken under this
Article VII may be taken by any member of the Holdings Companies.
ARTICLE VIII
CONDITIONS
The obligations of the Company and Holdings to consummate the Distribution
shall be subject to the fulfillment of each of the following conditions:
8.1 Stockholder Approval. The stockholders of the Company shall have
approved the Distribution.
8.2 Opinion of Tax Counsel. The Company shall have received an opinion of
Rogers & Wells LLP (or another recognized law firm acceptable to the recipient)
that, based upon certificates and letters acceptable to Rogers & Wells LLP (or
another nationally recognized law firm acceptable to the Company) dated as of
the Closing Date, the Distribution should qualify as a tax-deferred distribution
to the Company's stockholders (with customary exceptions, assumptions and
qualifications and based on customary representations).
8.3 Certain Transactions. The actions provided for in Section 4.1 shall
have been consummated in accordance with Section 4.1 in all material respects.
8.4 Adequate Surplus. The Boards of Directors of the Company and Holdings
shall be reasonably satisfied that, after giving effect to the Distribution, (i)
the Company will not be insolvent and will not have unreasonably small capital
with which to engage in its businesses and (ii) the Company's surplus will be
sufficient to permit, without violation of Section 170 of the DGCL, the
Distribution.
8.5 Release of Obligations. The Boards of Directors of the Company and
Holdings shall be reasonably satisfied that the obligations of Holdings and its
Subsidiaries under the Credit Agreement and the related liens on the assets of
Holdings and its Subsidiaries will be released within a reasonable time after
the Distribution.
8.6 Bank Consent. The Lenders under the Credit Agreement shall have
consented to the Distribution and the other transactions provided for herein on
terms acceptable to the Boards of Directors of the Company and Holdings.
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1 Termination. This Agreement may be terminated by the Company at any
time prior to the Time of Distribution.
App. A-17
<PAGE> 279
9.2 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 9.1, no party to this Agreement (or any of its
directors or officers) shall have any liability or further obligation to any
other party.
9.3 Modification or Amendment. The parties hereto may modify or amend this
Agreement by written agreement executed and delivered by authorized officers of
the respective parties.
9.4 Waiver; Remedies. The conditions to the Company's obligation to
consummate the Distribution are for the sole benefit of the Company and may be
waived in writing by the Company in whole or in part to the extent permitted by
applicable law. No delay on the part of any party hereto in exercising any
right, power or privilege hereunder will operate as a waiver thereof, nor will
any waiver on the part of any party hereto of any right, power or privilege
hereunder operate as a waiver of any other right, power or privilege hereunder,
nor will any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder. Unless otherwise provided, the rights
and remedies herein provided are cumulative and are not exclusive of any rights
or remedies which the parties may otherwise have at law or in equity.
9.5 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in separate counterparts, each such counterpart being
deemed to be an original instrument, and which counterparts shall together
constitute the same agreement.
9.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to its
conflicts of law principles.
9.7 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered by
facsimile (upon confirmation of receipt) or personally, (ii) on the first
business day following the date of dispatch if delivered by Federal Express or
other next-day courier service, or (iii) on the third business day following the
date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
If to the Company before the Effective Time:
Insignia Financial Group, Inc.
102 Woodmont Blvd.
Suite 400
Nashville, TN 37205
Attn: Frank Garrison
Telecopy: (615) 783-1021
Telephone: (615) 783-1099
with a copy (which shall not constitute notice) to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Attn: Arnold S. Jacobs, Esq.
Telecopy: (212) 969-2900
Telephone: (212) 969-3210
App. A-18
<PAGE> 280
If to the Company on or after the Effective Time, to the above address for
the Company (but not to Proskauer Rose LLP) and to:
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
Attn: Peter K. Kompaniez
Telecopy: (303) 757-8735
Telephone: (303) 757-8101
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Thomas C. Janson, Esq.
Telecopy: (213) 687-5221
Telephone: (213) 687-5600
If to Insignia/ESG Holdings, Inc., to:
Insignia/ESG Holdings, Inc.
200 Park Avenue
New York, New York 10166
Attn: Adam B. Gilbert, Esq.
Telecopy: (212) 984-6655
Telephone: (212) 984-6644
with a copy (which shall not constitute notice) to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Attn: Arnold S. Jacobs, Esq.
Telecopy: (212) 969-2900
Telephone: (212) 969-3210
9.8 Captions. All Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
9.9 No Third Party Beneficiary. This Agreement is for the purpose of
defining the respective rights and obligations of the parties hereto and is not
for the benefit of any employee, creditor or other third party, except as may be
expressly set forth herein.
9.10 Successors and Assigns. No party to this Agreement shall convey,
assign or otherwise transfer any of its rights or obligations under this
Agreement without the express written consent of the other party hereto in its
sole and absolute discretion. Any such conveyance, assignment or transfer
without the express written consent of the other party shall be void ab initio.
No assignment of this Agreement or any rights hereunder shall relieve the
assigning party of its obligations hereunder. Any successor by merger to a party
to this Agreement shall be substituted for such party as a party to this
Agreement, and all obligations, duties and liabilities of the substituted party
under this Agreement shall continue in full force and effect as obligations,
duties and liabilities of the substituting party, enforceable against the
substituting party as a principal, as though no substitution had been made.
9.11 Certain Obligations. Whenever this Agreement requires any of the
Subsidiaries of any party to take any action, this Agreement will be deemed to
include an undertaking on the part of such party to cause such Subsidiary to
take such action.
App. A-19
<PAGE> 281
9.12 Specific Performance. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, the party or parties who are or are to be thereby aggrieved shall
have the right of specific performance and injunctive relief giving effect to
its or their rights under this Agreement, in addition to any and all other
rights and remedies at law or in equity, and all such rights and remedies shall
be cumulative. The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
9.13 Severability. If any provision of this Agreement or the application
thereof to any Person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to Persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon any such determination, the parties shall negotiate in good faith in
an effort to agree upon a suitable and equitable substitute provision to effect
the original intent of the parties.
9.14 Jurisdiction. Each of the Company and Holdings hereby (i) consents to
be subject to the jurisdiction of the United States District Court for the
Southern District of New York and the jurisdiction of the courts of the State of
New York in any suit, action or proceeding seeking to enforce any provision of,
or based in any matter arising out of or in connection with, this Agreement or
the transaction contemplated hereby, (ii) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for leave
from any such court, (iii) agrees that it will not bring any action relating to
this Agreement or the transactions contemplated hereby in any court other than
the United States District Court for the Southern District of New York or the
courts of the State of New York, (iv) irrevocably waives (x) any objection that
it may have or hereafter have to the changing of venue of any such suit, action
or proceeding in such court and (y) any claim that any such suit, action or
proceeding in any such court has been brought in an inconvenient forum, and (v)
irrevocably consents to the service of any and all process in any such suit,
action or proceeding by the delivery of such process to such party at the
address and in the manner provided in Section 9.7 hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first above
written.
INSIGNIA FINANCIAL GROUP, INC.
By:
------------------------------------
Name: Andrew L. Farkas
Title: Chairman, President and
Chief Executive Officer
INSIGNIA/ESG HOLDINGS, INC.
By:
------------------------------------
Name: Stephen B. Siegel
Title: President
App. A-20
<PAGE> 282
SCHEDULE 3.1
Except as otherwise specifically required under the Merger Agreement or the
Indemnification Agreement or as set forth in Section 3.1 of the Agreement to
which this Schedule is annexed, the parties agree to unconditionally assume,
pay, satisfy and discharge the Tax liabilities set forth herein:
Federal Tax Liabilities:
The Company shall be liable for all federal Taxes for periods ending on or
before the Time of Distribution. From and after the Time of Distribution, the
Company shall pay and be liable for all federal income Taxes of it and its
Subsidiaries, and Holdings shall pay and be liable for all federal income Taxes
of it and its Subsidiaries.
State and Local Income or Franchise Tax Liabilities:
The Company shall be liable for all state and local income and franchise
Taxes that relate to any taxable period that ends on or before the Time of
Distribution. For taxable periods that begin on or before the Time of
Distribution and end after the Time of Distribution and for any subsequent
taxable periods, the Company shall pay and be liable for all state and local
income or franchise Taxes of the Company and its Subsidiaries (excluding
Holdings and its Subsidiaries) and Holdings shall pay and be liable for all
state and local income and franchise Taxes of Holdings and its Subsidiaries
(except to the extent of estimated taxes paid on or before the Time of
Distribution and applied to such Taxes).
App. A-21
<PAGE> 283
SCHEDULE 4.1
1. HOLDINGS ENTITIES:
Richard Ellis Group Limited, and all of its subsidiaries
Metropolitan Opportunity Partners, Inc.
Metropolitan Opportunity Partners I, LLC
Insignia RO, Inc. and any subsidiaries thereof
Realty One, Inc.
First Ohio Escrow Corporation, Inc.
First Ohio Mortgage Corporation, Inc.
Corporate Relocation Management, Inc.
Reliance Relocation, Inc.
Insignia EC Corporation
Insignia (UK) Holdings Limited
Compagnia di Amministraziona a Gestioni Immobiliare SPA
S.I.A. Inc.
Insignia Capital Advisors, Inc. (formerly Insignia Mortgage & Investment Co.)*
Insignia Arrow, Inc.
Insignia Residential Group, Inc. (formerly IMS-NY, Inc.) and the following
subsidiaries thereof (all of which are part of the New York Residential
Business)
Kreisel Company, Inc.
Soren Management, Inc.
Insignia Construction Management Services New York, Inc.
Douglas Elliman-Gibbon & Ives, Inc.
Insignia Commercial Investments Group, Inc. and any subsidiaries thereof
Brookhollow Associates, LP
Falcon Gate, Inc.
Velocity One, Inc.
Courtyard Plaza Associates, LP
ICIG 101 Marietta LLC
Lennar Marietta Holdings, Inc.
101 Marietta Street Associates LP
ICIG Airport Technology, LLC
Tech Air Corp.
The Shoppes at Rivergate
Brickyard Investors, LP
ICIG Directives LLC
Sleepy Lake Partners LP
Glades Plaza LP
ICIG Oakhill Directives, LLC
Hiawassee Oaks Partners LP
ICIG Mockingbird LLC
Mockingbird Associates LP
Blackacre Mockingbird, LLC
ICIG Holdings LLC
Missouri Associates LLC
Westport Plaza Associates LLC
- ---------------
* Denotes those entities or their assets that are used in and/or relate to the
multi-family business of the
Company or a Subsidiary of the Company (other than Company's New York
Residential Business), but
which will nonetheless become entities or assets of Holdings.
App. A-22
<PAGE> 284
Barnes Morris, Pardoe & Foster Realty Associates, Inc.
Barnes, Morris, Pardoe & Foster Management Services, LLC
Insignia Rooney Management, Inc.
Insignia Commercial Group West, Inc.
O'Donnell Property Services, Inc.
Insignia/Edward S. Gordon Co. Inc.
ESG Operating Co., Inc.
Insignia/Edward S. Gordon Co., Inc. of Long Island LLC
Rostenberg-Doern Management Corporation
Insignia Commercial Group of Alabama, Inc.
Insignia Commercial Group of California, Inc.
Insignia Commercial Group of Colorado, Inc.
Insignia Commercial Group of Texas, Inc.
Frain, Camins & Swartchild Incorporated
Construction Interiors, Inc.
FC & S Management Company
Goldie Wolfe & Company
Insignia/ESG, Inc.
Insignia Commercial Group, Inc.
IPCG, Inc.
Insignia Retail Group, Inc.
Property Consulting Services, Inc.
Forum Properties, Inc.
Insignia Commercial Management, Inc.
Insignia Transport, Inc.
ICIG Bingham LLC
Bingham Partners, LP
Great American Tower LLC
Scottsdale Property Two LLC
Bingham Property Four LLC
Bingham Property Five LLC
A 50% interest in Market Ventures LLC**
Liquidity Assistance LLC ( except for the class A shares of Angeles Mortgage
Investment Trust)*
RJN Corporation*
IFSE Holdings LLC*
MAP VII Acquisition Corporation*
Metropolitan Acquisition VII LLC*
FMG Acquisition I LLC*
Beattie Place LLC*
Walton Street Capital Acquisition Co., II LLC*
Insignia Development Directives, Inc.
All Commercial Joint Venture Entities
- ---------------
* Denotes those entities or their assets that are used in and/or relate to the
multi-family business of the
Company or a Subsidiary of the Company (other than Company's New York
Residential Business), but
which will nonetheless become entities or assets of Holdings.
App. A-23
<PAGE> 285
2. HOLDINGS ASSETS:
Interests in Development Property
Rights of the Company under any consulting agreement with Balcor*
All rights to the name "Insignia," "Insignia Financial Group, Inc.,"
"Insignia/ESG, Inc." and any derivatives thereof, including trademarks, service
marks, trade names, copyrights, and all related intellectual property*
All rights to the symbol "FFO" on the NYSE*
All assets used in connection with the Insignia division known as Insignia
Financial Services, including, but not limited to, the Legal Department, the
Investment Banking Department, the Securitization Department and the
Co-Investment Group, except to the extent they relate to Retained Employees.*
All assets located at offices where, as of the Effective Time, Holdings has
become or a Holdings entity becomes financially obligated with respect to real
property lease obligations*
All personalty and intellectual property principally utilized by Company
employees who do not become Retained Employees, whether or not employed by
Holdings, including Andrew Farkas, James Aston, Ronald Uretta and Frank
Garrison*
Rights to be assigned by the Company to Holdings arising under
confidentiality, standstill or similar agreements with respect to Holdings or
other Holdings Entities, whether or not Holdings is a party thereto*
Rights to be assigned by the Company to Holdings arising under or the
ability to enforce all employment or similar agreements with respect to Holdings
or other Holdings Entities, whether or not Holdings is a party thereto*
Rights to be assigned by the Company to Holdings arising under or the
ability to enforce all non-competition or similar agreements with respect to
Holdings or other Holdings Entities, whether or not Holdings is a party thereto*
Interests in and rights with respect to OnCor International
"Time Share" or cooperative interest in aircraft generally referred to as
"NetJet'
Investment in Class B Shares of First Winthrop Corp. (subject to the
provisions of Article 7 of the Agreement)*
All of the following in the name of the Company or any subsidiary in which
the Company directly or indirectly owns 80% or more of the equity interest (but
specifically excluding the interest of IPT, IPLP, the IPT GP Entities and any of
the Investment Limited Partnerships, or partnerships owning the Controlled
Properties):
- bank accounts, cash, deposits or cash equivalents*
- earnest money deposits*
- insurance policies in the name of the Company or Subsidiaries of the
Company, including refunds of premiums attributable to periods before the
Effective Time**
- utility deposits, deposits for office leases or similar deposits*
- tax refunds*
- account receivables and notes, except advances made by a general partner
to a limited partnership*
- ---------------
* Denotes those entities or their assets that are used in and/or relate to the
multi-family business of the
Company or a Subsidiary of the Company (other than Company's New York
Residential Business), but
which will nonetheless become entities or assets of Holdings.
App. A-24
<PAGE> 286
- prepaid expenses*
- pre-paid country club dues*
- rights to reimbursements*
Rights to be assigned by the Company to Holdings under indemnification or
similar agreements or provisions in any document in favor of the Company or
Company Subsidiaries*.
Any Assets and related rights and any other assets not currently used in
the residential property management business (but specifically including all
assets used in the New York Residential Business)
Any asset or loan or other obligation pertaining to the Holdings Entities
or the Holdings Assets held directly or indirectly by Insignia Capital
Corporation or any of its subsidiaries (other than the REMIC, inter-company
receivables relating to the multi-family business other than the New York
Residential Business, and IPT stock)*
The interests of the Company, or any of its Subsidiaries including, but not
limited to, Insignia Capital Corporation, in all notes and other obligations
related to Investors First Staged Equity, LP acquired on December 31, 1997 and
generally consisting of an assignment of rights under: Residual Proceeds
Agreement dated July 1, 1993 between VMS Apartment Portfolio Associates II and
the Federal Deposit Insurance Corporation; Residual Proceeds Security Agreement
of even date between Investors First Stage Equity LP and VMS Apartment Portfolio
Associates, Ltd. and the Federal Deposit Insurance Corporation ("FDIC"); Secured
Promissory Note dated September 6, 1984 between VMS Apartment Portfolio
Associates II in the original principal amount of $5,530,961 secured by the
property known as Richardson Highlands situated in the County of Marin in the
State of California; Restated Note dated as of July 1, 1993 between VMS
Apartment Portfolio Associates II and the FDIC in the principal amount of
$8,126,181; Residual Proceeds Agreement dated July 1, 1993 between VMS Apartment
Portfolio Associates III; Secured Promissory Note dated December 6, 1984 in the
original principal amount of $6,196,868; and Restated Note dated as of July 1,
1993 in the principal amount of $8,417,039 executed by VMS Apartments Portfolio
Associates III (collectively, the "IFSE Obligations")*.
All partnership and member interests in the Commercial Joint Venture
Entities.
Memberships in the Commerce Club with respect to employees which do not
become Retained Employees.
Insignia Jacques-Miller, L.P., a Subsidiary of IPT, holds certain Note
Participation Interests with respect to obligations from Northgate, Limited,
River Hill Limited, Chelsea Place, L.P., Eastgreen, Limited, and Lafayette
Square, which shall be treated as follows: These Note Participation Interests
are subject to the right of the Company's Investment Banking Division to receive
an incentive fee equal to 33% of the actual proceeds collected with respect to
such Note Participation Interests. In addition, the Company is obligated to pay
out of such 33% incentive fee, certain incentives to individuals/employees of
the Company. These rights to incentive fees/payments are collectively referred
to as the "Note Participation Incentive Fees" and any amounts thereof related to
collections under the notes underlying the Note Participation Interests which
are collected before Closing are included in the Holdings Assets. Any amounts of
the Note Participation Incentive Fees related to collections under the notes
underlying the same following Closing are not Holdings assets.
All Participation Interests.
- ---------------
* Denotes those entities or their assets that are used in and/or relate to the
multi-family business of the
Company or a Subsidiary of the Company (other than Company's New York
Residential Business), but
which will nonetheless become entities or assets of Holdings.
App. A-25
<PAGE> 287
The Company shall specifically receive the following assets:
- all preferred vendor contracts with HSF, Incorporated.
- the main frame computer in Greenville, S.C., and all software used
exclusively in the multi-family business (other than the New York
Residential Business).
To the extent that any assets of the Company that are not included in
Holdings Assets are assets that were heretofore used by Holdings or any
subsidiary and are necessary for the operation of Holdings' business. Holdings
and the Company shall enter into an agreement reasonably acceptable to each
other with respect to the shared use of such assets.
App. A-26
<PAGE> 288
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
INSIGNIA/ESG HOLDINGS, INC.
By: /s/ RONALD URETTA
----------------------------------
Ronald Uretta
Chief Operating Officer
Date: August 4, 1998
<PAGE> 289
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger by and
among Apartment Investment and Management Company, AIMCO
Properties, L.P., Insignia Financial Group, Inc. and
Insignia/ESG Holdings, Inc., dated as of May 26, 1998
(incorporated by reference to Exhibit 2.1 to the
registration statement on Form S-4 (the "Form S-4") filed by
Apartment Investment and Management Company on August 4,
1998)
2.2 Form of Agreement and Plan of Distribution by and between
Insignia Financial Group, Inc. and Insignia/ESG Holdings,
Inc. dated as of , 1998 (incorporated by
reference to Appendix A to the Information Statement
included in this registration statement on Form 10 filed by
Insignia/ESG Holdings, Inc. on August 4 , 1998 (the "Form
10"))
3.1 Certificate of Incorporation of Insignia/ESG Holdings, Inc.
3.2 By-laws of Insignia/ESG Holdings, Inc.
10.1 Asset and Stock Purchase Agreement, dated as of June 17,
1996, among Insignia Financial Group, Inc., Insignia Buyer
Corporation, Edward S. Gordon Company Incorporated, Edward
S. Gordon Company of New Jersey, Inc. and Edward S. Gordon
(incorporated herein by reference to Exhibit 10.15 of Form
10-K of Insignia Financial Group, Inc., dated March 24,
1998)
10.2 Stock Purchase Agreement, dated March 19, 1997, by and among
Insignia Commercial Group, Inc., Insignia Financial Group,
Inc., Kirkland B. Armour, Scott J. Brandwein, Harvey B.
Camins, James L. Deiter, Lyan Homewood Fender, Ronald T.
Frain, Jay Hinshaw, Thomas E. Moxley, Robert B. Rosen, James
H. Swartchild, Jr., David Tropp, Gregg F. Witt, Frain,
Camins & Swartchild Incorporated, FC&S Management Company
and Construction Interiors, Incorporated (incorporated
herein by reference to Exhibit 10.22 to Form 10-K of
Insignia Financial Group, Inc. filed March 24, 1998)
10.3 Stock Purchase Agreement, dated as of September 18, 1997, by
and among Insignia Financial Group, Inc., Insignia RO, Inc.,
Joseph T. Aveni, Vincent T. Aveni, James C. Miller, Richard
A. Golbach, Joseph T. Aveni as Trustee of the Joseph T.
Aveni Declaration of Trust dated April 25, 1988, as amended
on August 10, 1995, Vincent T. Aveni as Trustee of the
Vincent T. Aveni Declaration of Trust dated February 11,
1988, as restated on September 14, 1995, Joseph T. Aveni as
Trustee of the Vincent T. Aveni Declaration Trust, dated
July 13, 1994 and Vincent T. Aveni as Trustee of the Joseph
T. Aveni Declaration Trust, dated July 13, 1994
(incorporated herein by reference to Exhibit 10.27 to Form
10-K of Insignia Financial Group, Inc. filed March 24, 1998)
10.4 Deed of Warranty & Indemnity by and among Insignia Financial
Group, Inc. and each of the Shareholders of Richard Ellis
Group Limited dated February 25, 1998
10.5 Amended and Restated Indemnification Agreement by and
between AIMCO and Insignia/ESG Holdings, Inc. dated as of
May 26, 1998 (incorporated by reference to Exhibit 2.2 to
the Form S-4)
10.6 Form of Second Amended and Restated Employment Agreement,
dated as of July 31, 1998, by and between Insignia/ESG
Holdings, Inc., Insignia/ESG, Inc. and Stephen B. Siegel
10.7 Form of Employment Agreement by and between Insignia/ESG
Holdings, Inc. and Ronald Uretta, dated as of August 3, 1998
</TABLE>
<PAGE> 290
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8 Employment Agreement, dated as of June 17, 1996, by and
among Insignia Financial Group, Inc., Insignia Buyer
Corporation and Edward S. Gordon (incorporated by reference
to Exhibit 10.16 to Form 10-K of Insignia Financial Group,
Inc. dated March 24, 1998)
10.9 Amendment No. 1 to Employment Agreement, dated April 1,
1997, by and among Insignia Financial Group, Inc.,
Insignia/Edward S. Gordon Co., Inc. and Edward S. Gordon
(incorporated by reference to Exhibit 10.24 to Form 10-K of
Insignia Financial Group, Inc. dated March 24, 1998)
10.10 Assignment, Assumption, Consent and Release Agreement by and
among Insignia Financial Group, Inc., Insignia/ESG Holdings,
Inc. and Edward S. Gordon, dated as of July 1, 1998 (Exhibit
A thereto is omitted because it is the same document as
Exhibit 10.7 to this Form 10)
10.11 Form of Employment Agreement by and between Insignia/ESG
Holdings, Inc. and Andrew L. Farkas dated as of August 3,
1998
10.12 Form of Employment Agreement by and between Insignia/ESG
Holdings, Inc. and Frank M. Garrison, dated as of August 3,
1998.
10.13 Form of Employment Agreement by and between Insignia/ESG
Holdings, Inc. and James A. Aston, dated as of August 3,
1998.
10.14 Insignia/ESG Holdings, Inc. 1998 Stock Incentive Plan
10.15 Insignia/ESG Holdings, Inc. 1998 Supplemental Stock Purchase
and Loan Program Under the Insignia/ESG Holdings, Inc. 1998
Stock Incentive Plan
10.16 Insignia/ESG Holdings, Inc. Executive Performance Incentive
Plan
10.17 Insignia/ESG Holdings, Inc. 1998 Employee Stock Purchase
Plan
10.18 Form of Indemnification Agreement to be entered into
separately by and between Insignia/ESG Holdings, Inc. and
each of the directors and executive officers listed on the
schedule annexed thereto
10.19 Technical Services Agreement, dated as of June 29, 1998, by
and among Insignia Financial Group, Inc., Insignia/ESG
Holdings, Inc. and Apartment Investment and Management
Company
10.20 Amendment No. 1 to Technical Services Agreement, dated as of
July 28, 1998, 1998, by and among Insignia Financial Group,
Inc., Insignia/ESG Holdings, Inc. and Apartment Investment
and Management Company
21.1 Subsidiaries of Insignia/ESG Holdings, Inc.
27.1 Financial Data Schedule for the year ended December 31, 1997
and for the three months ended March 31, 1998 (for SEC use
only)
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
INSIGNIA/ESG HOLDINGS, INC.
-----------------------------------------------------
FIRST. The name of the Corporation is "Insignia/ESG Holdings,
Inc."
SECOND. The address of the Corporation's registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH. Authorized Shares:
1. The aggregate number of shares which the Corporation shall
have authority to issue is 100,000,000, of which 80,000,000 shares
shall be designated "Common Stock,"
<PAGE> 2
and shall have a par value of $.01 per share and 20,000,000 shares
shall be designated "Preferred Stock," and shall have a par value of
$.01 per share.
2. The Board of Directors is authorized to provide for the
issuance of Preferred Stock from time to time in one or more series
with such distinctive voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of each such series as the
Board of Directors shall establish. The authority of the Board of
Directors with respect to each such series shall include, without
limiting the generality of the foregoing, the determination of any or
all of the following:
(a) the number of shares constituting such series and the
distinctive designation of such series;
(b) the extent, if any, to which the shares of such
series shall have voting rights;
(c) whether dividends, if any, with respect to such
series shall be cumulative or noncumulative, the
dividend rate or method of determining the dividend
rate of such series, and the dates and preferences of
dividends on such series;
(d) the rights of the shares of such series in the event
of voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, or upon any
distribution of the Corporation's assets;
(e) whether the shares of such series shall have
conversion privileges and, if so, the terms and
conditions of such conversion privileges, including a
-2-
<PAGE> 3
provision, if any, for adjustment of the conversion
rate and for payment of additional amounts by holders
of Preferred Stock of such series upon exercise of
such conversion privileges;
(f) whether or not the shares of such series shall be
redeemable, and, if so, the price at and the terms
and conditions upon which such shares shall be
redeemable, and whether such series shall have a
sinking fund for the redemption or purchase of shares
of such series, and, if so, the terms and amount of
such sinking fund; and
(g) any other preference and relative, participating,
optional or other special rights, and qualifications,
limitations or restrictions thereof, in each case as
shall be determined from time to time by the Board of
Directors and as shall be stated in a resolution or
resolutions thereof providing for the issuance of
such Preferred Stock (a "Preferred Stock
Designation").
Except as may be provided by the Board of Directors in a
Preferred Stock Designation or as required by law, shares of any series
of Preferred Stock that have been redeemed (whether through the
operation of a sinking fund or otherwise) or purchased by the
Corporation, or which, if convertible or exchangeable, have been
converted into or exchanged for shares of stock of any other class or
classes, shall have the status of authorized and unissued shares of
Preferred Stock and may be reissued as a part of the series of which
they were originally a part or may be reissued as part of a new series
of
-3-
<PAGE> 4
Preferred Stock to be created by resolution or resolutions of the Board
of Directors or as part of any other series of Preferred Stock.
3. Except as otherwise provided herein, as required by law or
in any resolution of the Board of Directors (or a duly authorized
committee thereof) creating any series of Preferred Stock, the holders
of shares of Preferred Stock and all series thereof who are entitled to
vote shall vote together with the holders of shares of Common Stock,
and not separately by class.
FIFTH. The name and mailing address of the incorporator is
Jeffrey P. Cohen, Insignia Financial Group, Inc., 375 Park Avenue, Suite 3401,
New York, New York 10152. The powers of the incorporator are to terminate upon
the filing of this Certificate of Incorporation.
SIXTH. Board of Directors:
1. Management. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
The Board of Directors may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by
statute or this Certificate of Incorporation directed or required to be
exercised or done by the stockholders. In taking action, including
without limitation action which may involve or relate to a change or
potential change in the control of the Corporation, a director shall be
entitled to consider, without limitation, (1) both the long-term and
the short-term interests of the Corporation and its stockholders and
(2) the effects that the
-4-
<PAGE> 5
Corporation's actions may have in the long-term and in the short-term
upon any of the following:
(a) the prospects for potential growth, development,
productivity and profitability of the Corporation;
(b) the Corporation's current employees;
(c) the Corporation's retired employees and other
beneficiaries receiving or entitled to receive
retirement, welfare or similar benefits from or
pursuant to any plan sponsored, or agreement entered
into, by the Corporation;
(d) the Corporation's customers and creditors; and
(e) the ability of the Corporation to provide, as a going
concern, goods, services, employment opportunities
and employment benefits and otherwise to contribute
to the communities in which it does business.
Nothing in this paragraph shall create any duties owed by any
director to any person or entity to consider or afford any particular
weight to any of the foregoing.
For purposes of this paragraph, "control" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the corporation, whether
through the ownership of voting stock, by contract or otherwise.
-5-
<PAGE> 6
2. Number of Directors. The number of directors of the
Corporation shall be fixed from time to time by action of not less than
a majority of the members of the Board of Directors then in office,
even if less than a quorum, but in no event shall be less than three.
The number of directors constituting the initial Bboard of Directors is
six, and the persons who are to serve as director until the applicable
annual meeting of stockholders or until their respective successors are
elected and qualified are Andrew L. Farkas, Stephen B. Siegel, Robin L.
Farkas, Robert J. Denison, Andrew J.M. Huntley and Robert G. Koen. The
mailing address of each is: c/o Insignia/ESG Holdings, Inc., 200 Park
Avenue, New York, New York 10166.
3. Classes of Directors. The directors shall be divided into
three classes, designated Class I, Class II and Class III. The initial
directors of each class are as follows:
<TABLE>
<CAPTION>
Name Class
---- -----
<S> <C>
Andrew L. Farkas Class III
Stephen B. Siegel Class III
Robin L. Farkas Class II
Robert J. Denison Class II
Andrew J.M. Huntley Class I
Robert G. Koen Class I
</TABLE>
The directors of Class I shall hold office for a term expiring
at the first annual meeting of the stockholders following the adoption
of this Certificate of Incorporation. The directors of Class II shall
hold office for a term expiring at the second annual meeting
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<PAGE> 7
of the stockholders following the adoption of this Certificate of
Incorporation. The directors of Class III shall hold office for a term
expiring at the third annual meeting of the stockholders following the
adoption of this Certificate of Incorporation.
Commencing with the first annual meeting of stockholders
following the adoption of this Certificate of Incorporation, and at
each subsequent annual meeting of stockholders, directors for each
class whose term shall then expire shall be elected to hold office for
a three year term. In the case of increase in the number of directors,
the number of directors in each class shall be as nearly equal as
possible. As to any directors added by increase in the number of
directors prior to the first annual meeting of stockholders following
the adoption of this Certificate of Incorporation, the class of such
directors shall be designated by the then-current Board of Directors.
4. Vacancies in Board of Directors. Newly created
directorships resulting from any increase in the authorized number of
directors, or any vacancies in the Board of Directors resulting from
death, resignation, disqualification or removal may be filled only by a
majority vote of the directors then in office, even if less than a
quorum, or by a sole remaining director; and any director so chosen
shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which he has
been elected expires and until such director's successor shall have
been duly elected and qualified.
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<PAGE> 8
SEVENTH. The By-laws of the Corporation may be adopted,
amended or repealed by the Board of Directors or by the affirmative vote of not
less than eighty percent (80%) of the aggregate voting power of the outstanding
stock of the Corporation, except as and to the extent provided in this
Certificate of Incorporation or in the By-laws.
EIGHTH. The Corporation shall not enter into any Transaction
(as hereinafter defined) with or benefitting any Interested Stockholder (as
hereinafter defined) unless (a) the Transaction has been approved by the
affirmative vote of not less than eighty percent (80%) of the aggregate voting
power of the outstanding stock of the Corporation or (b) the Continuing
Directors (as hereinafter defined) by a two-thirds vote thereof have expressly
approved the Transaction. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required or that a lesser
percentage may be specified by law, the rules of any national securities
exchange or otherwise.
For these purposes:
The term "Continuing Director" shall mean a director
who is not affiliated with an Interested Stockholder and either (i) was
a member of the Board of Directors of the Corporation immediately prior
to the time that such Interested Stockholder became an Interested
Stockholder or (ii) was elected by or recommended for election by a
majority of the then Continuing Directors in office at the time such
director was elected or nominated for election.
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The term "Interested Stockholder" shall mean any
person or group (other than (i) a trustee of an employee benefit plan
of the Corporation, (ii) a trustee of an employee benefit plan of an
affiliate of the Corporation, and (iii) Andrew L. Farkas and his
affiliates) that is the beneficial owner of more than ten percent (10%)
of the voting power of the Corporation (those of the foregoing terms
which are defined in the rules under Section 13 of the Exchange Act
shall have the same meanings as set forth in such rules).
When used in reference to the Corporation and any
Interested Stockholder, the term "Transaction" shall mean:
(i) any merger or consolidation of the Corporation or
any direct or indirect majority-owned subsidiary of the
Corporation (A) with such Interested Stockholder or (B) with
any other corporation if the merger or consolidation is caused
by such Interested Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series
of transactions), except proportionately as a stockholder of
the Corporation, to or with such Interested Stockholder,
whether as part of a dissolution or otherwise, of assets of
the Corporation or of any direct or indirect majority-owned
subsidiary of the Corporation, which assets have an aggregate
market value equal to ten percent (10%) or more of either the
aggregate
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<PAGE> 10
market value of all the assets of the Corporation determined
on a consolidated basis or the aggregate market value of all
the outstanding stock of the Corporation;
(iii) any transaction involving the Corporation or
any direct or indirect majority-owned subsidiary of the
Corporation which has the effect, directly or indirectly, of
increasing the proportionate share of the stock of any class
or series, or securities convertible into the stock of any
class or series, of the Corporation or of any such subsidiary
which is owned by such Interested Stockholder, except (A) as a
result of immaterial changes due to fractional share
adjustments, (B) as a result of any purchase or redemption of
any shares of stock not caused, directly or indirectly, by
such Interested Stockholder or (C) pursuant to the exercise,
exchange or conversion of securities exercisable for,
exchangeable for or convertible into stock of the Corporation
or any such subsidiary which securities were outstanding prior
to the time that such Interested Stockholder became such; or
(iv) any receipt by the Interested Stockholder of the
benefit, directly or indirectly (except proportionately as a
stockholder of such corporation), of any loans, advances,
guarantees, pledges or other financial benefits (other than
those expressly permitted in subparagraph (iii) above)
provided by or through the Corporation or any direct or
indirect majority-owned subsidiary of the Corporation.
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<PAGE> 11
NINTH. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation; provided,
however, that this Article NINTH and Article SIXTH, Article SEVENTH, Article
TENTH, Article ELEVENTH, Article TWELFTH, Article THIRTEENTH Article FOURTEENTH,
and Article FIFTEENTH may be amended, altered or repealed, and any provision
inconsistent therewith may be adopted, only by the affirmative vote of not less
than eighty percent (80%) of the aggregate voting power of the outstanding stock
of the Corporation.
TENTH. Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (whether or not by or
in the right of the Corporation), by reason of the fact that he is or was a
director, officer, incorporator, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
incorporator, employee, partner, trustee, member or agent of another
corporation, partnership, joint venture, trust, limited liability company or
other enterprise (including an employee benefit plan), shall be entitled to be
indemnified by the Corporation to the full extent then permitted by law against
expenses (including counsel fees and disbursements), judgments, fines (including
excise taxes assessed on a person with respect to an employee benefit plan) and
amounts paid in settlement incurred by him in connection with such action, suit
or proceeding. Such right of indemnification shall inure whether or not the
claim asserted is based on matters which arose prior to the adoption of this
Article TENTH. Such right of indemnification shall continue as to a person
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<PAGE> 12
who has ceased to be a director, officer, incorporator, employee, partner,
trustee, member or agent and shall inure to the benefit of the heirs and
personal representatives of such a person. The indemnification provided by this
Article TENTH shall not be deemed exclusive of any other rights which may be
provided now or in the future under any provision currently in effect or
hereafter adopted of the By-laws, by any agreement, by vote of stockholders, by
resolution of disinterested directors, by provision of law or otherwise.
Notwithstanding the foregoing, the Corporation shall be required to indemnify a
person in connection with the proceeding initiated by such person only if such
proceeding was authorized by the Board of Directors.
ELEVENTH. No director of the Corporation shall be liable to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that this provision does not
eliminate the liability of any director (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of Title 8 of the Delaware Code, or
(iv) for any transaction from which the director derived an improper personal
benefit. For purposes of the prior sentence, the term "damages" shall, to the
extent permitted by law, include without limitation any judgment, fine, amount
paid in settlement, penalty, punitive damages, excise or other tax assessed with
respect to an employee benefit plan or expense of any nature (including without
limitation counsel fees and disbursements). Each person who serves as a director
of the Corporation while this Article ELEVENTH is in effect shall be deemed to
be doing so in reliance on the provisions of this Article ELEVENTH and neither
the amendment or repeal of this Article ELEVENTH nor the
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<PAGE> 13
adoption of any provision of this Certificate of Incorporation inconsistent with
this Article ELEVENTH shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for, arising out of, based
upon or in connection with any acts or omissions of such director occurring
prior to such amendment, repeal or adoption of an inconsistent provision. The
provisions of this Article ELEVENTH are cumulative and shall be in addition to
and independent of any and all other limitations on or eliminations of the
liabilities of directors of the Corporation, as such, whether such limitations
or eliminations arise under or are created by any law, rule, regulation, By-law,
agreement, vote of stockholders or disinterested directors or otherwise.
TWELFTH. At the annual meeting of stockholders only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been properly brought before the annual meeting of stockholders (i)
by or at the direction of the Board of Directors or (ii) by a stockholder of the
Corporation in accordance with the procedures set forth in the By-laws. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that the business was not properly brought before the meeting in
accordance with the procedures set forth in this Certificate of Incorporation or
in the By-laws, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted. Notwithstanding the foregoing, nothing in this Article TWELFTH
shall be interpreted or construed to require the inclusion of information about
any stockholder proposal in any proxy statement distributed by, at the direction
of or on behalf of the Board of Directors.
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<PAGE> 14
THIRTEENTH. Special meetings of stockholders may be called
only by such persons, and in accordance with such procedures, as set forth in
the By-laws. At a special meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
properly brought before the special meeting of stockholders by such persons, and
in accordance with such procedures, as set forth in the By-laws. The chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that the business was not properly brought before the meeting in accordance with
the procedures set forth in this Certificate of Incorporation or in the By-laws,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
FOURTEENTH. No action required or permitted to be taken at a
meeting of the stockholders of the Corporation may be taken without a meeting,
prior notice and a vote. No action by written consent of the stockholders shall
be permitted or effective.
FIFTEENTH. Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, to be
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<PAGE> 15
summoned in such manner as such court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, such
compromise or arrangement or such reorganization shall, if sanctioned by the
court to which such application has been made, be binding on all the creditors
or class of creditors and/or on all the stockholders or class of stockholders,
as the case may be, of the Corporation and also on the Corporation.
IN WITNESS WHEREOF, I have made, signed and sealed this
Certificate of Incorporation on the 6th day of May, 1998.
/s/ Jeffrey P. Cohen
------------------------------
Jeffrey P. Cohen, Incorporator
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<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
INSIGNIA/ESG HOLDINGS, INC.
Effective as of May 6, 1998
ARTICLE I
STOCKHOLDERS
Section 1.01 Annual Meetings.
(a) Annual meetings of the stockholders shall be held at such
dates and times as determined by the Board of Directors.
(b) If present at the meeting, the Chairman of the Board shall
serve as chairman of the meeting. If the Chairman of the Board is not present
at the meeting, the Chief Executive Officer shall serve as chairman of the
meeting. If the Chief Executive Officer is not present at the meeting, the
President shall serve as chairman of the meeting. If the President is not
present at the meeting, a majority of the members of the Board of Directors
present at the meeting shall select a chairman of the meeting.
(c) At each annual meeting the stockholders shall elect qualified
successors for directors whose terms have expired or are due to expire within
six months after the date of the meeting and may transact any other business
described in Subsection (d) of this Section 1.01; provided, however, that no
business with respect to which special notice is required by law shall be
transacted unless such notice shall have been given.
(d) At the annual meeting of stockholders only such business shall
be conducted, and only such proposals shall be acted upon, as shall have been
properly brought before the annual meeting of stockholders (i) by or at the
direction of the Board of Directors or (ii) by a stockholder of the Corporation
in accordance with the procedures set forth in this Subsection (d) of Section
1.01. For business or a proposal to be properly brought before an annual
meeting of stockholders by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than fifty (50)
days nor more than eighty (80) days prior to the scheduled date of the annual
meeting, regardless of any postponement, deferral or adjournment of that
meeting to a later date; provided, however, that if less than sixty (60) days'
notice or prior public disclosure of the date of the annual meeting is given or
made to stockholders, notice by the stockholder to be timely must be so
delivered or mailed and received not later than the close of business on the
tenth (10th) day following the earlier of (i) the day on which such notice of
the date of the meeting was mailed or (ii) the day on which such public
disclosure was made. A
<PAGE> 2
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before an annual meeting of stockholders (i) a
description, in 500 words or less, of the business or proposal desired to be
brought before the annual meeting, (ii) the name and address, as such
information appears on the Corporation's books, of the stockholder proposing
such business and any other stockholder known by such stockholder to be
supporting such proposal, (iii) the class and number of shares of the
Corporation that are beneficially owned by such stockholder and each other
stockholder to be supporting such proposal on the date of such stockholder's
notice, (iv) a description, in 500 words or less, of any interest of the
stockholder in such proposal, and (v) a representation that the stockholder is
a holder of record of stock of the Corporation and intends to appear in person
or by proxy at the meeting to present the proposal specified in the notice.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that the business or proposal was not properly brought before
the meeting in accordance with these procedures, and if he should so determine
he shall so declare to the meeting and any such business or proposal not
properly brought before the meeting shall not be transacted. Notwithstanding
the foregoing, nothing in this Section 1.01 shall be interpreted or construed
to require the inclusion of information about any stockholder business or
proposal in any proxy statement distributed by, at the direction of, or on
behalf of, the Board of Directors.
Section 1.02 Special Meetings:
(a) Special meetings of stockholders may be called only by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President of the Corporation. Any such call for a special meeting shall
state the purpose or purposes of the proposed meeting. The business transacted
at a special meeting of stockholders shall be limited to the purposes stated in
the notice of the meeting. Business transacted at a special meeting shall be
confined to the purpose or purposes stated in the notice of meeting distributed
to stockholders.
(b) If present at the meeting, the Chairman of the Board shall
serve as chairman of the meeting. If the Chairman of the Board is not present
at the meeting, the Chief Executive Officer shall serve as chairman of the
meeting. If the Chief Executive Officer is not present at the meeting, the
President shall serve as chairman of the meeting. If the President is not
present at the meeting, a majority of the members of the Board of Directors
present at the meeting shall select a chairman of the meeting.
Section 1.03 Place of Meetings. Each meeting of the stockholders
shall be held at the principal executive office of the Corporation or at such
other place, within or without the State of Delaware, as may be designated by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer
or the President.
Section 1.04 Adjournments. Any meeting of the stockholders may be
adjourned from time to time to another date, time and place. If any meeting of
the stockholders is so adjourned, no notice as to such adjourned meeting need
be given if the date, time and place at which the meeting will be reconvened
are announced at the time of adjournment.
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<PAGE> 3
Section 1.05 Notice of Meetings. Unless otherwise required by
law, written notice of each meeting of the stockholders, stating the date, time
and place and, in the case of a special meeting, the purpose or purposes, shall
be given at least 10 days and not more than 60 days prior to the meeting to
every holder of shares entitled to vote at such meeting, except as specified in
Section 1.04 or as otherwise permitted by law. If action is proposed to be
taken that might entitle stockholders to payment for their shares, the notice
shall include a statement of that purpose and to that effect.
Section 1.06 Waiver of Notice. A stockholder may waive notice of
the date, time, place and purpose or purposes of a meeting of stockholders. A
waiver of notice by a stockholder entitled to notice is effective whether given
before, at or after the meeting, and whether given in writing, orally or by
attendance. Attendance by a stockholder at a meeting is a waiver of notice of
that meeting, unless the stockholder objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened, or objects before a vote on an item of business because the item may
not lawfully be considered at that meeting and does not participate in the
consideration of the item at that meeting.
Section 1.07 Voting Rights; Acts of Stockholders. (a) Except as
otherwise required by law or by the Certificate of Incorporation, a stockholder
shall have one vote for each share held which is entitled to vote, and a
stockholder entitled to vote may vote any portion of the shares in any way such
stockholder chooses. If a stockholder votes without designating the proportion
or number of shares voted in a particular way, such stockholder shall be deemed
to have voted all of the shares in that way.
(b) Except as otherwise required by law, regulation, the
Certificate of Incorporation or the rules of any applicable stock exchange,
corporate action to be taken by a stockholder vote, other than the election of
directors, shall be authorized by a majority of the voting power of the shares
present and entitled to vote on that item of business at a duly held meeting of
stockholders.
(c) All elections for directors shall be decided by a plurality of
the votes cast at a meeting of stockholders by the holders of shares entitled
to vote in the election.
Section 1.08 Fixing Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date for
any such determination of stockholders. Such date shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action. If no record date is fixed, one shall be determined
in accordance with the provisions of law.
Section 1.09 Proxies.
(a) A stockholder may cast or authorize the casting of a vote by
filing a written appointment of a proxy with an officer of the Corporation at
or before the meeting at which the appointment is to be effective. The
stockholder may sign or authorize the written appointment by telegram,
cablegram or other means of electronic transmission setting forth or submitted
with information
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sufficient to determine that the stockholder authorized such transmission. Any
copy, facsimile, telecommunication or other reproduction of the original of
either the writing or transmission may be used in lieu of the original,
provided that it is a complete and legible reproduction of the entire original.
No proxy shall be valid after expiration of three years from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except as otherwise provided in such
proxy or required by law.
(b) A stockholder voting by proxy authorized to vote on less than all
items of business considered at the meeting shall be considered to be present
and entitled to vote only with respect to those items of business for which the
proxy has authority to vote. A proxy who is given authority by a stockholder
who abstains with respect to an item of business shall be considered to have
authority to vote on that item of business.
Section 1.10 Quorum.
(a) Except as otherwise required by law, the Certificate of
Incorporation or by these By-laws, the presence, in person or by proxy, of
stockholders holding a majority of the stock of the Corporation entitled to
vote shall constitute a quorum at all meetings of the stockholders, provided
that when a specified item of business is required to be voted on by a class or
classes, the holders of a majority of the shares of such class or classes shall
constitute a quorum for the transaction of such specified item of business.
(b) When a quorum is once present to organize a meeting, it will
not be deemed broken by the subsequent withdrawal of any stockholders.
(c) In case a quorum shall not be present at any meeting, a
majority in interest of the stockholders entitled to vote thereat, present in
person or by proxy, shall have power to adjourn the meeting until the requisite
amount of stock entitled to vote shall be present.
ARTICLE II
DIRECTORS
Section 2.01 Qualifications. Except as may otherwise be required
by law or provided in the Certificate of Incorporation, the business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors, the members of which shall be at least 21 years of age.
Directors shall be natural persons.
Section 2.02 Number. The Board of Directors shall consist of not
less than three directors. The number of directors shall initially be six, and
thereafter shall be determined from time to time solely by a resolution adopted
by an affirmative vote of a majority of the entire Board of Directors.
Section 2.03 Newly Created Directorships and Vacancies. Unless
otherwise provided in the Certificate of Incorporation, any newly created
directorship resulting from an increase in the number of directors and any
vacancy occurring on the Board for any reason may be filled for the
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<PAGE> 5
unexpired term by a majority vote of the remaining directors, even if less than
a quorum, or by a sole remaining director. If there are no directors then in
office due to such a vacancy, the stockholders may elect a successor who shall
hold office for the unexpired term. No decrease in the number of directors
shall shorten the term of any incumbent directors.
Section 2.04 Nominations.
(a) Nominations of persons for election to the Board of Directors
may be made at an annual meeting of stockholders or special meeting of
stockholders called by the Board of Directors for the purpose of electing
directors. Nominations may be made only (i) by or at the direction of the
Board of Directors or (ii) by any stockholder of the Corporation entitled to
vote for the election of directors at such meeting who complies with the notice
procedures set forth in this Section 2.04. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the Corporation. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than fifty (50) days
nor more than eighty (80) days prior to the scheduled date of the stockholders'
meeting, regardless of any postponement, deferral or adjournment of that
meeting to a later date; provided, however, that if less than sixty (60) days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so delivered or
mailed and received not later than the close of business on the tenth (10th)
day following the earlier of (i) the day on which such notice of the date of
the meeting was mailed or (ii) the day on which such public disclosure was
made.
(b) A stockholder's notice to the Secretary shall set forth: (i)
as to each person whom the stockholder proposes to nominate for election or
reelection as a director, (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the Corporation which are
beneficially owned by such person on the date of such stockholder's notice, and
(D) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, or any successor statute thereto
(the "Exchange Act"), including without limitation such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (ii) as to the stockholder giving notice, (A) the name and
address, as such information appears on the Corporation's books, of such
stockholder and any other stockholders known by such stockholder to be
supporting such nominee(s), (B) the class and number of shares of the
Corporation which are beneficially owned by such stockholder and each other
stockholder known by such stockholder to be supporting such nominee(s) on the
date of such stockholder notice, and (C) a representation that the stockholder
is a holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; and (iii) a description of all
arrangements or understandings between the stockholder and each nominee and
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder.
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(c) Subject to the rights, if any, of the holders of any series of
Preferred Stock then outstanding, no person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth in this Section 2.04. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Section 2.04, and if he
should so determine he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 2.05 Removal. No member of the Board of Directors shall
be removed from the Board of Directors prior to the expiration of the term of
his class other than for Cause. No member of the Board of Directors shall be
removed from the Board of Directors prior to the expiration of the term of his
class other than at an annual meeting of stockholders, or a special meeting of
the stockholders the notice of which shall state that the removal of a director
or directors is among the purposes of the meeting. At such meeting, the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote may remove such director or directors for
Cause. For the purposes of this Section 2.05, "Cause" shall mean a judicial
determination that the director (i) breached the duty of loyalty owed by a
director to the Corporation or its stockholders or (ii) committed acts or
omissions which involved intentional misconduct or a knowing violation of law.
Section 2.06 Resignation. Any director may resign at any time.
Such resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Board of Directors, the Chief Executive Officer, the President or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective.
Section 2.07 Place of Meetings; Means of Participation.
(a) Each meeting of the Board of Directors shall be held at the
principal executive office of the Corporation or at such other place as may be
designated from time to time by the Chairman of the Board, by a majority of the
members of the Board, by the Chief Executive Officer or by the President.
(b) Any director or directors may participate in a Board of
Directors meeting by any means of communication through which the director,
other directors so participating and all directors, if any, physically present
at the meeting may simultaneously hear each other during the meeting. A
director so participating shall be deemed present in person at the meeting.
Section 2.08 Chairman of the Board. The directors may elect one
of their members to be Chairman of the Board of Directors. The Chairman shall
be subject to the control of and may be removed by the Board of Directors. He
shall perform such duties as may from time to time be assigned to him by the
Board of Directors. The Chairman of the Board, in such capacity, shall not be
an officer of the Corporation.
Section 2.09 Notice of Meetings of the Board. Annual meetings of
the Board of Directors may be held without notice at such places and times as
shall be determined from time to time by the
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<PAGE> 7
Chairman of the Board or by resolution of the directors. Special meetings of
the Board of Directors shall be held upon notice to the directors and may be
called by the Chairman of the Board, the Chief Executive Officer or the
President upon three days' notice to each director either personally or by mail
or by wire; special meetings shall be called by the Chairman of the Board, the
President or the Secretary in a like manner on the written request of a
majority of the directors.
Section 2.10 Waiver of Notice; Previously Scheduled Meetings.
(a) A director of the Corporation may waive notice of the date,
time and place of a meeting of the Board of Directors. A waiver of notice by a
director entitled to notice is effective whether given before, at or after the
meeting, and whether given in writing, orally or by attendance. Attendance by
a director at a meeting is a waiver of notice of that meeting, unless the
director objects at the beginning of the meeting to the transaction of business
because the meeting is not lawfully called or convened and thereafter does not
participate in the meeting.
(b) If the date, time and place of a Board of Directors meeting
have been provided herein or announced at a previous meeting of the Board of
Directors, no notice is required. Notice of an adjourned meeting need not be
given other than by announcement at the meeting at which adjournment is taken
of the date, time and place at which the meeting will be reconvened.
Section 2.11 Quorum. The presence in person of a majority of the
directors currently holding office shall be necessary to constitute a quorum
for the transaction of business. In the absence of a quorum, a majority of the
directors present may adjourn a meeting from time to time without further
notice until a quorum is present. If a quorum is present when a duly called or
held meeting is convened, the directors present may continue to transact
business until conclusion of the meeting, even though the withdrawal of a
number of the directors originally present leaves less than the proportion or
number otherwise required for a quorum.
Section 2.12 Acts of Board of Directors. Except as otherwise
required by law or specified in the Certificate of Incorporation or these
By-laws, the Board of Directors shall take action by the affirmative vote of a
majority of the directors present at a duly held meeting.
Section 2.13 Action Without a Meeting. Any action required or
permitted to be taken at a meeting of the Board of Directors may be taken
without a meeting by written action signed by all of the directors. The
written action will be effective when signed by all of the directors, unless a
different effective time is provided in the written action.
Section 2.14 Committees.
(a) A resolution approved by the affirmative vote of a majority of
the Board of Directors may establish committees having the authority of the
Board of Directors in the management of the business of the Corporation only
to the extent provided in the resolution. Committees shall be subject at all
times to the direction and control of the Board of Directors.
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<PAGE> 8
(b) A committee shall consist of one or more directors, appointed
by affirmative vote of a majority of the directors present at a duly held Board
of Directors meeting.
(c) Sections 2.06 to 2.13 of these By-laws shall apply to
committees and members of committees to the same extent as those sections apply
to the Board of Directors and directors.
(d) Minutes, if any, of committee meetings shall be made available
upon request to members of the committee and to any director.
Section 2.16 Compensation. The Board of Directors may fix the
compensation, if any, of directors and of committee members.
ARTICLE III
OFFICERS
Section 3.01 Executive Officers. The Board of Directors shall elect
or appoint one or more natural persons to hold the following executive offices
of the Corporation: Chief Executive Officer, President, Chief Financial
Officer, Treasurer and Secretary; and may, as it deems necessary or advisable
for the operation and management of the Corporation, elect or appoint one or
more natural persons to hold the following additional executive offices of the
Corporation: Office of the Chairman, Executive Vice President, Controller,
Chief Operating Officer and Chief Information Officer (the foregoing executive
offices of the Corporation are referred to herein as "Executive Offices," and
the persons holding such offices are referred to as "Executive Officers"). The
Executive Officers shall have the powers, rights, duties and responsibilities
set forth in these By-laws (unless otherwise determined by the Board of
Directors), as well as such additional powers, rights, duties and
responsibilities as may be prescribed by the Board of Directors from time to
time.
(a) Chief Executive Officer. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Executive Officer shall
(a) have general active management of the business of the Corporation, (b) when
present, preside at all meetings of the stockholders, (c) see that all orders
and resolutions of the Board are carried into effect, and (d) perform such
other duties as may from time to time be assigned by the Board. In addition,
the Chief Executive Officer may maintain records and certify proceedings of the
stockholders.
(b) President. Unless otherwise determined by the Board of
Directors, the President shall be the Chief Executive Officer of the
Corporation. If a person other than the President is designated Chief
Executive Officer, the President shall be responsible for the day-to-day
management of the business and affairs of the Corporation, shall enjoy all
other powers commonly incident to the office, and shall perform such duties as
may from time to time be assigned by the Board of Directors. During the
absence or disability of the Chief Executive Officer, it shall be the duty of
the President to perform the duties of Chief Executive Officer.
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<PAGE> 9
(c) Chief Financial Officer. Unless provided otherwise by
resolution adopted by the Board of Directors, the Chief Financial Officer shall
have the care and custody of all funds and securities of the Corporation, and
shall oversee (a) the maintenance of accurate financial records for the
Corporation, (b) the deposit of all monies, drafts and checks in the name of
and to the credit of the Corporation in such banks and depositories as the
Board shall designate from time to time, (c) the endorsement for deposit all
notes, checks and drafts received by the Corporation as ordered by the Board of
Directors, and the making of proper vouchers therefor and (d) the disbursement
of corporate funds and issuance of checks and drafts in the name of the
Corporation, as ordered or authorized by the Board of Directors. The Chief
Financial Officer shall render to the Chief Executive Officer, the President
and the Board of Directors, whenever requested, an account of all of the
foregoing transactions and of the financial condition of the Corporation, and
shall have such other rights and powers and perform such other duties as may be
prescribed by the Board of Directors, the Chief Executive Officer or the
President from time to time.
(d) Office of the Chairman. Any member of the Office of the
Chairman shall have such rights and powers and perform such duties as may from
time to time be assigned by the Board of Directors.
(e) Executive Vice Presidents. An Executive Vice Presidents shall
have such rights and powers and perform such duties as may from time to time be
prescribed by the Board of Directors, the Chief Executive Officer or the
President. During the absence or disability of the President, it shall be the
duty of the highest ranking Executive Vice President who shall be present at
the time and able to act, to perform the duties of the President. The
determination of who is the highest ranking of two or more Executive Vice
Presidents shall, in the absence of specific designation of order of rank by
the Board of Directors or the Chief Executive Officer, be made on the basis of
the earliest date of appointment or election, or, in the event of simultaneous
appointment or election, on the basis of the longest continuous employment by
the Corporation.
(f) Secretary. The Secretary, unless otherwise determined by the
Board of Directors, shall attend all meetings of the stockholders and all
meetings of the Board of Directors, shall record or cause to be recorded all
proceedings thereof in a book to be kept for that purpose, and may certify such
proceedings. Except as otherwise required or permitted by law or by these
By-laws, the Secretary shall give or cause to be given notice of all meetings
of the stockholders and all meetings of the Board of Directors.
(g) Treasurer. Unless otherwise determined by the Chief Executive
Officer, the Treasurer shall be the Chief Financial Officer of the Corporation.
If an officer other than the Treasurer is designated Chief Financial Officer,
the Treasurer shall perform such duties as may from time to time be assigned by
the Chief Financial Officer.
(h) Controller. The Controller shall be the Chief Accounting
Officer of the Corporation and shall have control of all books of account of
the Corporation (other than those to be kept by the Chief Financial Officer or
the Treasurer), render accounts of the financial condition of the Corporation
and shall perform such other duties as may be prescribed by the Chief Executive
Officer from time to time.
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<PAGE> 10
Section 3.02 Other Officers. The Chief Executive Officer and/or
the President may from time to time appoint one or more natural persons to hold
such other non-executive offices of the Corporation as they deem necessary or
advisable for the operation and management of the Corporation, including
without limitation the offices of Senior Vice President, Vice President,
Assistant Secretary, Assistant Treasurer and Assistant Controller. A person
appointed to any such office shall have such powers, rights, duties and
responsibilities as may be prescribed by the Chief Executive Officer or the
President from time to time.
Section 3.03 Delegation of Duties. Unless prohibited by a
resolution of the Board of Directors, an Executive Officer elected or appointed
by the Board of Directors may, without the approval of the Board of Directors,
delegate some or all of the duties and powers of his Executive Office to other
persons.
Section 3.04 Term.
(a) Each Executive Officer shall each hold office until the next
annual meeting of the Board of Directors after his installation in such office.
(b) All other officers of the Corporation shall hold office until
their respective successors are chosen and have qualified or until the earlier
of their death, resignation or removal.
(c) An officer may resign at any time by giving written notice to
the Corporation. The resignation is effective without acceptance when the
notice is given to the Corporation, unless a later effective date is specified
in the notice.
(d) An officer may be removed at any time, with or without cause,
by a resolution duly adopted by the Board of Directors.
(e) A vacancy in an Executive Office because of death,
resignation, removal, disqualification or other cause may, or in the case of a
vacancy in the office of Chief Executive Officer, President, Chief Financial
Officer, Treasurer or Secretary shall be filled by the Board of Directors.
Section 3.05 Compensation. Except as otherwise required by law,
compensation of all Executive Officers of the Corporation shall be fixed by, or
under authority of, the Board of Directors.
Section 3.06 Shares of Other Companies. Whenever the Corporation
is the holder of shares of any other equity interests in any other companies,
any or all rights and powers of the Corporation as such equity holder
(including the attendance, acting and voting at meetings, and execution of
waivers, consents and proxies) may be exercised on behalf of the Corporation by
the Chairman of the Board of Directors, any Executive Officer, or such other
person as the Board of Directors may authorize.
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<PAGE> 11
ARTICLE IV
INDEMNIFICATION
Section 4.01 Indemnification.
(a) Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (whether or not by or
in the right of the Corporation), by reason of the fact that he is or was a
director, officer, incorporator, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
incorporator, employee partner, trustee, member or agent of another
corporation, partnership, joint venture, trust, limited liability company or
other enterprise (including an employee benefit plan), shall be entitled to be
indemnified by the Corporation to the full extent then permitted by law against
expenses (including counsel fees and disbursements), judgments, fines
(including excise taxes assessed on a person with respect to an employee
benefit plan) and amounts paid in settlement incurred by him in connection with
such action, suit or proceeding. Such right of indemnification shall inure
whether or not the claim asserted is based on matters which antedate the
adoption of this Section 4.01. Such right of indemnification shall continue as
to a person who has ceased to be a director, officer, incorporator, employee,
partner, trustee, member or agent and shall inure to the benefit of the heirs
and personal representatives of such person. The indemnification provided by
this Section 4.01 shall not be deemed exclusive of any other rights which may
be provided now or in the future under any provision currently in effect or
hereafter adopted of the Certificate of Incorporation or the By-laws, or by any
agreement, vote of stockholders, resolution of disinterested directors,
provision of law or otherwise. Notwithstanding the foregoing, the Corporation
shall be required to indemnify a person in connection with the proceeding
initiated by such person only if such proceeding was authorized by the Board of
Directors.
(b) The right of indemnification conferred by this Section 4.01
shall also include the right of such persons to be paid in advance by the
Corporation for their expenses to the fullest extent permitted by the laws of
the State of Delaware. The right to indemnification conferred on persons by
this section shall be a contractual right.
(c) The rights to indemnification and to the advancement of
expenses conferred in this Section 4.01 shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation or these By-laws, agreement, vote
of stockholders or disinterested directors or otherwise. References in this
Section 4.01 to the laws of the State of Delaware shall mean such laws as from
time to time in effect.
(d) Neither any amendment or repeal of the foregoing provisions of
this Section 4.01 or the provisions of Section 4.02 below, nor adoption of any
provision of the Certificate of
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<PAGE> 12
Incorporation or these By-laws which is inconsistent with the foregoing
provisions of this Section 4.01 or the provisions of Section 4.02 below shall
adversely affect any right or protection for a person existing at the time of
such amendment, repeal or adoption.
Section 4.02 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person in such person's official capacity against
any liability asserted against and incurred by such person in or arising from
that capacity, regardless of whether the Corporation would otherwise be
required to indemnify the person against the liability.
ARTICLE V
SHARES
Section 5.01 Certificated Shares.
(a) The shares of the Corporation shall be certificated shares.
Each holder of duly issued certificated shares is entitled to a certificate
evidencing such shares.
(b) Each certificate evidencing shares of the Corporation shall be
signed by (i) the Chairman of the Board of Directors, any Vice-Chairman of the
Board of Directors, the President or any Executive Vice President and (ii) the
Treasurer, the Secretary or any Assistant Secretary, but when a certificate is
signed by a transfer agent or a registrar, the signatures of such officers
upon such certificate may be facsimiles, engraved or printed. If a person
signs or has a facsimile signature placed upon a certificate while an officer,
transfer agent or registrar of the Corporation, the certificate may be issued
by the Corporation even if the person has ceased to serve in that capacity
before the certificate is issued, with the same effect as if the person had
that capacity at the date of its issue.
(c) A certificate evidencing shares issued by the Corporation
shall, if the Corporation is authorized to issue shares of more than one class
or series, set forth upon the face or back of the certificate, or shall state
that the Corporation will furnish to any stockholder upon request and without
charge, a full statement of the designations, preferences, limitations and
relative rights of the shares of each class or series authorized to be issued,
so far as they have been determined, and the authority of the Board of
Directors to determine the relative rights and preferences of subsequent
classes or series.
Section 5.02 Declaration of Dividends and Other Distributions.
The Board of Directors shall have the authority to declare dividends and other
distributions upon the shares of the Corporation to the extent permitted by law
and subject to the provisions of the Certificate of Incorporation.
Section 5.03 Transfer of Shares. Shares of the Corporation may be
transferred only on the books of the Corporation by the holder thereof, in
person or by such person's attorney, only upon surrender and cancellation of
certificates for a like number of shares. The Board of Directors may,
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<PAGE> 13
however, appoint one or more transfer agents and registrars to maintain the
share records of the Corporation and to effect transfers of shares.
Section 5.04 Record Date. The Board of Directors may fix a time,
not exceeding 60 days preceding the date fixed for the payment of any dividend
or other distribution, as a record date for the determination of the
stockholders entitled to receive payment of such dividend or other
distribution, and in such case only stockholders of record on the date so fixed
shall be entitled to receive payment of such dividend or other distribution,
notwithstanding any transfer of any shares on the books of the Corporation
after any record date so fixed.
Section 5.05 Lost or Destroyed Certificates. A new certificate
evidencing shares may be issued in the place of any certificate theretofore
issued by the Corporation alleged to have been lost or destroyed, and the
directors may, in their discretion, require the owner of the lost or destroyed
certificate, or his legal representatives, to give the Corporation a bond in
such sum as they may direct, but not exceeding double the value of the stock,
to indemnify the Corporation against any claim that may be made against it on
account of the alleged loss of any such certificate or the issuance of any such
new certificate.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Execution of Instruments.
(a) All deeds, mortgages, bonds, checks, contracts and other
instruments pertaining to the business and affairs of the Corporation shall be
signed on behalf of the Corporation by an Executive or by such other person or
persons as may be designated from time to time by the Board of Directors, the
Chief Executive Officer or the President.
(b) If a document must be executed by persons holding different
offices or functions and one person holds such offices or exercises such
functions, that person may execute the document in more than one capacity if
the document indicates each such capacity.
Section 6.02 Advances. The Corporation may, without a vote of the
Board of Directors, advance money to its directors, officers or employees to
cover expenses that can reasonably be anticipated to be incurred by them in the
performance of their duties and for which they would be entitled to
reimbursement in the absence of an advance.
Section 6.03 Corporate Seal. The seal of the Corporation, if any,
shall be a circular embossed seal having inscribed thereon the name of the
Corporation, the year of its creation and the following words:
"Corporate Seal Delaware"
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Section 6.04 Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
Section 6.05 Amendments. These By-laws may be amended by the
Board of Directors or by stockholders owning eighty percent (80%) of the
outstanding Common Stock of the Corporation.
Section 6.06 References to Certificate of Incorporation.
References to the Certificate of Incorporation in these By-laws shall include
all amendments thereto or changes thereof unless specifically excepted.
-------------------------------
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<PAGE> 1
EXHIBIT 10.4
DATED February 25, 1998
INSIGNIA FINANCIAL GROUP, INC.
- and -
ANDREW HUNTLEY AND OTHERS
----------------------------------------
DEED OF WARRANTY AND INDEMNITY
collateral to offers for the
whole of the issued share
capital of Richard Ellis Group Limited
----------------------------------------
ASHURST MORRIS CRISP
Broadwalk House
5 Appold Street
London EC2A 2HA
Tel: 0171-638 1111
Fax: 0171-972 7990
PVB/I31200067
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
1. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. YOUR WATCH INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. NAME INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. SURMIA INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6. PENSIONS INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7. GROSS UP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8. EARN OUT PROTECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. MANAGEMENT OF THE GROUP POST COMPLETION . . . . . . . . . . . . . . . 18
10. COVENANTORS' REPRESENTATIVE . . . . . . . . . . . . . . . . . . . . . 19
11. ANNOUNCEMENTS, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12. COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13. EFFECT OF COMPLETION . . . . . . . . . . . . . . . . . . . . . . . . . 21
14. WAIVER, AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 22
15. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
17. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
18. GOVERNING LAW AND JURISDICTION . . . . . . . . . . . . . . . . . . . . 23
19. INVALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
20. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SCHEDULE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SCHEDULE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Warranty and Indemnity Defences . . . . . . . . . . . . . . . . . . . . . . . 65
SCHEDULE 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Taxation Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SCHEDULE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
The Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SCHEDULE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Part A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Part B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
</TABLE>
<PAGE> 3
THIS DEED is made on
1998
BETWEEN:-
(1) INSIGNIA FINANCIAL GROUP, INC. whose registered office is at One
Insignia Financial Plaza, Greenville, South Carolina 29601 (the
"OFFEROR"); and
(2) The Shareholders (other than the B Ordinary Shareholders) and the
holders of Options who accept the Offers contained in the Offer
Document (the "COVENANTORS").
(together the "PARTIES")
RECITALS
(A) Richard Ellis Group Limited ("REGL") is a private company
incorporated in England under the Companies Acts under number
3350437.
(B) The Covenantors are at the date hereof the registered holders
and/or beneficial owners of all of the Covenantors' Shares.
(C) The Offeror has made an offer to acquire all of the Ordinary
Shares, B Ordinary Shares, C Ordinary Shares and Convertible Shares
of the Company issued and to be issued subject to, and on the terms
set out in, the Offer Document. The Offeror has also made the
Cancellation Alternative Offer to participants holding outstanding
options under the REGL Wider Share Ownership Scheme for shares in
the Company.
(D) The Covenantors have warranted to the Offeror in the terms of the
Warranties to the intent that the Offeror should rely on such
Warranties in making the Offers.
(E) Irrevocable undertakings have been given to the Offeror by certain
Covenantors and other Shareholders to accept the Offers with the
intention of inducing the Offeror to make the Offer.
(F) The obligations contained in this Deed are part of the Offers and
the signing and returning of the form of acceptance in accordance
with the Offer Document includes the giving of a power of attorney
for the purpose of signing this Deed on a Covenantor's behalf as
confirmation of the obligations set out herein.
THE PARTIES AGREE AS FOLLOWS:-
1. INTERPRETATION
1.1 The following provisions shall have effect for the interpretation of
this Deed, in addition to the definitions included within the text of
this Deed.
- 1 -
<PAGE> 4
1.2 The following words and expressions and abbreviations shall, unless
the context otherwise requires, have the following meanings:-
"ACCOUNTS" means the consolidated financial statements of the Company,
comprising the consolidated balance sheet, profit and loss account and
cash flow statement of the Group, together with the notes thereon as
at and for the six month period ended on the Accounts Date;
"ACCOUNTS DATE" means 31 October 1997;
"AMOUNT OF THE RELEVANT CLAIM" means the amount Finally Determined or
agreed by the Offeror and the Covenantors' Representative;
"APPROPRIATE PROPORTION" has the meaning set out in paragraph 1(d) of
Schedule 2;
"ASSOCIATED COMPANY" has the meaning set out in Sections 416 et seq.
T.A.;
"BASE AMOUNT" has the meaning ascribed to it in Appendix III of the
Offer Document (as amended from time to time by agreement between the
Offeror and the Covenantors' Representative);
"BUDGET" means the financial budget of the Company for the year ending
31 December 1998, to be approved by the Offeror;
"BUSINESS" means the businesses presently carried on by the Group
being those of real estate property advisers and related activities,
and any businesses acquired by the Group and not rejected under Clause
8.1(p);
"BUSINESS DAY" means a day on which clearing banks in both London and
New York are open for normal banking business;
"BUSINESS PLAN" means the qualitative analysis of the Budget for the
forthcoming financial year, as approved in writing by the Offeror;
"B ORDINARY SHARES" means the B class of ordinary shares of the
Company created by a shareholders' resolution passed on 20
February1998 and designated "B Ordinary Shares";
"B ORDINARY SHAREHOLDERS" means the holders of B Ordinary Shares;
"C ORDINARY SHARES" means the C class of ordinary shares of the
Company created by a shareholders' resolution passed on 20 February
1998 and designated "C Ordinary Shares";
"CAA" means the Capital Allowances Act 1990;
- 2 -
<PAGE> 5
"CANCELLATION ALTERNATIVE" means the cancellation alternative offered
to participants holding Options under the REGL Wider Share Ownership
Scheme whereby, conditional on the Offers becoming unconditional, the
holders of Options will receive cash and Deferred Loan Notes in
exchange for cancellation of the Options held;
"COMMON STOCK" means Class 'A' common stock of $0.01 par value each in
the capital of the Offeror;
"COMPANY" means the company described in Recital (A) and, for the
purposes of the Indemnities and Schedule 1 includes the Richard Ellis
Partnership prior to the transfer of the business and assets of the
business to the Company on 1 May 1997, and the Subsidiaries, all of
them and each of them as the context admits;
"COMPANIES ACTS" as defined in Section 744 of the Companies Act 1985,
together with the Companies Act 1989;
"COMPLETION" means the opening of business on the business day after
the Offers become or are declared unconditional in all respects;
"COMPLETION ACCOUNTS" means the unaudited consolidated financial
statements of the Company comprising the consolidated balance sheet,
profit and loss account and cash flow statement of the Group, together
with the notes thereon as at the end of the period ended on the
Completion Accounts Date and compiled in accordance with Schedule 5;
"COMPLETION ACCOUNTS DATE" means the last day of that month which is
closest to the date of Completion;
"CONNECTED PERSON" means a person shall be deemed to be connected with
another if that person is connected with another within the meaning of
Section 839 T.A.;
"CONSIDERATION" means the total consideration to be paid by the Offeror
pursuant to the Offer Document;
"CONVERTIBLE SHARES" means convertible shares in the capital of the
Company as specified in the Document of Company Details;
"COVENANTORS' REPRESENTATIVE" means the person appointed pursuant to
Clause 10;
"COVENANTORS' SHARES" means the Shares of which the Covenantors are
the registered holders and/or beneficial owners;
"COVENANTORS' SOLICITORS" means Messrs Gouldens, 22 Tudor Street,
London EC4Y OJJ;
- 3 -
<PAGE> 6
"DEFERRED LOAN NOTES" means the loan notes to be issued by the Offeror
pursuant to the terms set out in the Offer Document;
"DISCLOSURE LETTER" means a letter as of the date the Offers are made
pursuant to the Offer Document together with the agreed bundle
addressed by the Covenantors' Solicitors on behalf of the Covenantors
to the Offeror's Solicitors on behalf of the Offeror limiting the
scope of the Warranties;
"DISTRIBUTION" means a distribution as defined by Sections 209 to 211
(inclusive), T.A. and Section 418 T.A.;
"DOCUMENT OF COMPANY DETAILS" means the agreed document containing the
details of the Company and Subsidiaries including specific information
in respect of the Shares, Convertible Shares, Options, B Ordinary
Shares and C Ordinary Shares.
"EARN OUT" means that part of the Consideration potentially achievable
by the Covenantors in the form of Deferred Loan Notes;
"ENCUMBRANCE" means any mortgage, charge (whether fixed or floating),
pledge, lien, security interest or other third party right or interest
(legal or equitable) over or in respect of the relevant asset,
security or right;
"ERA" has the meaning defined in Warranty D.1 of Schedule 1;
"ESCROW AGENT" means the agent appointed by the Offeror in accordance
with the terms of the Escrow Mandate for the purpose of administering
the Escrow Fund;
"ESCROW MANDATE" means the Escrow Mandate in the agreed form entered
into by the Offeror and The Royal Bank of Scotland or such other
financial institution as shall be reasonably acceptable to the
Covenantors' Representative, as escrow agent, and certain shareholders
of the Company;
"ESCROW FUND" means the fund operated pursuant to the Escrow Mandate;
"FINAL DETERMINATION" and "FINALLY DETERMINED" means a final decision
of a court or tribunal of competent jurisdiction from which there is
no appeal or the right to appeal has not been made within the
applicable time limit exclusive of any extension of time granted at
the discretion of the Court;
"GROUP" means the Company and the Subsidiaries;
"HOLDING COMPANY" has the meaning set out in Section 736 Companies Act
1985;
"THE INDEMNITIES" means the indemnities set out in Clauses 3, 4, 5 and
6 of this Deed;
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<PAGE> 7
"I.T.A." means the Inheritance Tax Act 1984;
"INTELLECTUAL PROPERTY" means the following in any part of the world
which, or the subject matter of which are used in the Business as
conducted at the date hereof:-
(i) patents, trade or service marks (whether registered or not),
registered designs, business names and applications and rights
to apply for registrations of any of the same;
(ii) copyrights, typographical rights, unregistered design rights,
rights in databases and all rights in the nature of the same;
(iii) know-how, inventions and confidential information; and
(iv) all intellectual property rights of a similar nature in any
jurisdiction howsoever called;
"MANAGEMENT" means Messrs Huntley, Froggatt, Ellingham, Harvey and
Osman and, if any of them leaves employment with the Group, such
individual in employment with the Group as the others choose to
replace the person leaving;
"MARKET PRICE" as of any date means the average of the closing price of
the Common Stock over the five business days prior to such date;
"NET ASSET VALUE" means the amount determined on the basis set forth on
the consolidated balance sheet of the Group included in the Accounts
less work-in-progress and intangible assets, provided, however, that
any net assets or liabilities included on such balance sheet
attributable to the Transaction Loyalty Bonus, the REGL 1997 Unapproved
Share Option Scheme or any amounts comprising the Offers and other
consideration payable to the holders of B Ordinary Shares, in each case
net of any tax benefit therefrom, shall not be reflected in the
calculation of Net Asset Value, nor shall any capital provided to the
Group by the Offeror be included in such Net Asset Value.
"NON-ALTERNATIVE STOCK" means the Common Stock save for the Common
Stock issued as part of the Common Share Alternative (as that term is
defined in the Offer Document);
"OFFERS" means the offers made subject to and on the terms of the Offer
Document;
"OFFER DOCUMENT" means the document which contains the Offers made by
the Offeror for, inter alia, the Shares;
"OFFEROR'S GROUP" means the Offeror and its subsidiaries and subsidiary
undertakings from time to time;
"OFFEROR GROUP'S BUSINESS" means the business of the Offeror's Group
after Completion;
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<PAGE> 8
"OFFEROR'S SOLICITORS" means Ashurst Morris Crisp of Broadwalk House, 5
Appold Street, London EC2A 2HA;
"OPTIONS" means the outstanding options to subscribe for Shares;
"ORDINARY SHARES" means the class of ordinary shares of the Company;
"PARTNERSHIP ACCOUNTS" means the audited financial accounts of the
Richard Ellis partnership prepared for the financial year ended 30
April 1997;
"PENSION FUND INDEMNITY" means the indemnity set out in Clause 6;
"PRINCIPAL AMOUNT OF DEFERRED LOAN NOTES TO BE ISSUED" shall have the
meaning ascribed to it in the Offer Document;
"PROPERTIES" means the properties described in Schedule 4;
"PENSION SCHEMES" has the meaning defined in Warranty F.1 of Schedule
1;
"RELEVANT BENEFITS" has the meaning defined in Warranty F.1. of
Schedule 1;
"REGL MODIFIED PRE-TAX PROFIT" has the meaning ascribed to it in
Appendix III of the Offer Document (as amended from time to time by
agreement between the Offeror and the Covenantors' Representative);
"REGL WIDER SHARE OWNERSHIP SCHEME" means the REGL Wider Share
Ownership Scheme;
"SCHEDULE OF LIABILITIES" means the schedule of liabilities and
provisions agreed between the Offeror and the Board of the Company and
which is set out in Schedule 5, Part B;
"SCHEMES" has the meaning set out in Warranty D.2 of Schedule 1;
"SHAREHOLDERS" means the holders of the Shares;
"SHARES" means the whole of the issued and to be issued share capital
of the Company as specified in the Document of Company Details;
"SUBSIDIARY" has the meaning set out in Section 736 of the Companies
Act 1985;
"SUBSIDIARY" means a subsidiary undertaking of the Company;
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"SUBSIDIARY UNDERTAKING" has the meaning set out in Section 258
Companies Act 1985 as amended by the Companies Act 1989;
"T.A." means the Income and Corporation Taxes Act 1988;
"TAX RETURN" means any return, report or similar statement required to
be filed by or with respect to any Tax, (including any attached
schedules), including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Tax;
"T.C.G.A." means the Taxation of Chargeable Gains Act 1992 and any
reference thereto shall include any enactment repealed or modified
thereby;
"TAX" OR "TAXATION" means:-
(a) any supranational, national, federal, state, local or other
tax, custom duty, impost, levy, governmental fee or other like
assessment or charge of any kind whatsoever, whether domestic or
foreign, and any fine, penalty or interest connected therewith,
including (without prejudice to the foregoing) corporation tax,
advance corporation tax, national insurance and social security
contribution, capital gains tax, inheritance tax, petroleum
revenue tax, value added tax, turnover tax, customs excise and
import duties, stamp duty, stamp duty reserve tax, property tax,
excise tax, franchise tax, payroll tax, withholding tax,
transfer tax, net worth tax or registration tax, or
environmental tax and any other payment whatsoever which the
Company is or may be or become bound to make to any person by
reason of any taxation statutes but excluding rates and water
rates; and
(b) any liability of the Company for the payment of amounts with
respect to payments of a type described in clause (a) as a
result of being a member of an affiliated, consolidated,
combined or unitary group, or as a result of any obligation of
the Company under any Tax sharing arrangement or Tax indemnity
arrangement or any secondary liability of the Company arising as
a result of the failure by the Covenantors or any person
connected with any of them to discharge or pay any liability for
tax;
"TAXATION STATUTES" means all statutes, decrees, orders and
regulations, whether domestic or foreign, providing for or imposing
any Tax;
"TAXATION AUTHORITY" means any local, municipal, governmental, state,
federal or fiscal revenue, customs or excise authority, body or
official anywhere in the world having powers or authority in relation
to Tax;
"TAXATION INDEMNITY" means the indemnities set out in Schedule 3;
"V.A.T.A." means the Value Added Tax Act 1994;
"VAT LEGISLATION" has the meaning defined in Warranty I.42 of Schedule
1;
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<PAGE> 10
"WARRANTIES" means the warranties set out in Schedule 1.
1.3 References to "F.A." followed by a stated year mean the
Finance Act of that year.
1.4 References to income being earned accrued or received before a
particular date shall include deemed income treated as earned accrued
or received prior thereto.
1.5 References to the parties hereto include their respective permitted
assignees and/or the respective successors in title to substantially
the whole of their respective undertakings and, in the case of
individuals, to their respective estates and personal representatives.
1.6 References to persons shall include bodies corporate and
unincorporated, associations, partnerships and individuals. Words
denoting the singular shall include the plural and words denoting any
gender shall include all genders.
1.7 References to statutes or statutory provisions include references to
any orders or regulations made thereunder and references to any
statute, provision, order or regulation include references to that
statute, provision, order or regulation as amended, modified,
re-enacted or replaced from time to time whether before or after the
date hereof (subject as otherwise expressly provided herein) and to
any previous statute, statutory provision, order or regulation
amended, modified, re-enacted or replaced by such statute, provision,
order or regulation.
1.8 Headings to clauses, sub-clauses and paragraphs and descriptive notes
in brackets relating to provisions of taxation statutes are for
information only and shall not form part of the operative provisions
of this Deed and shall be ignored in construing the same.
1.9 References to Recitals, Clauses, Schedules are to recitals to, clauses
of and schedules to this Deed. The Recitals and Schedules form part
of the operative provisions of this Deed and references to this Deed
shall, unless the context otherwise requires, include references to
the Recitals and the Schedules.
1.10 Each of the Warranties in Schedule 1 expressed to be given "to the
best of the knowledge and belief of the Covenantors" or "so far as the
Covenantors are aware" or otherwise qualified by reference to the
knowledge of the Covenantors shall be deemed to be given by reference
to the knowledge of the Management, the Management having made all
reasonable enquiries to establish the truth and accuracy of each
statement.
1.11 The obligations and liabilities of the Covenantors under this Deed are
given on a several basis.
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<PAGE> 11
2. WARRANTIES
2.1 The Covenantors warrant to the Offeror in the terms of the Warranties
and so that the remedies of the Offeror in respect of any breach of
any of the Warranties shall continue to subsist notwithstanding
completion of the acquisition of the Shares.
2.2 Any information supplied by or on behalf of the Group to the
Covenantors or their agents or accountants, solicitors or other
advisers in connection with the Warranties, the Disclosure Letter or
otherwise in relation to the business and affairs of the Company or
the Subsidiaries shall not constitute a representation or warranty or
guarantee as to the accuracy thereof by the Group or any of the
Subsidiaries and the Covenantors hereby waive any and all claims which
they might otherwise have against the Group or any of their respective
agents or employees in respect thereof.
2.3 The provisions of Schedule 2 shall be operative provisions of this
Deed and deemed incorporated in the body hereof.
2.4 Each of the Warranties shall be construed as a separate warranty and
(save as expressly provided to the contrary in this Deed (including
Schedule 2) or the Disclosure Letter) shall not be limited by the
terms of any of the other Warranties or by any other term of this
Deed.
2.5 The Covenantors shall be under no liability under the Warranties in
relation to any matter forming the subject matter of a claim
thereunder to the extent that the same or circumstances giving rise
thereto are fairly disclosed in the Disclosure Letter, the Schedule of
Liabilities or in the Accounts or expressly provided for or stated to
be exceptions under the terms of this Deed. No letter, document or
other communication shall be deemed to constitute a disclosure for the
purposes of the Warranties unless the same is included or referred to
in the Disclosure Letter.
2.6 No information relating to the Company or the Subsidiaries of which
the Offeror has knowledge (actual or constructive), subject to Clause
2.5 above, and no investigation by or on behalf of the Offeror shall
prejudice any claim by the Offeror under the Warranties or Indemnities
or otherwise under this Deed or operate to reduce any amount
recoverable thereunder.
2.7 The Covenantors acknowledge that the Offeror has made the Offers in
reliance upon the Warranties, the Indemnities and the Taxation
Indemnity, contained in this Deed; however the Offeror acknowledges
that it shall have no right of rescission after Completion for breach
of any of the Warranties and the Offeror's only remedy will be in
damages.
2.8 Each of the Covenantors shall give to the Offeror and its
representatives (insofar as they are reasonably able so to do) both
before and after Completion all such information and documentation
relating to the Company and its Subsidiaries as he/it has in his/its
possession or control and as the Offeror shall reasonably require to
enable it to satisfy itself as to the accuracy and observance of the
Warranties.
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<PAGE> 12
2.9 In the event the Offeror makes a relevant claim under the Warranties
and if such claim has been Finally Determined or agreed by the Offeror
and the Covenantors' Representative there shall be added to the Amount
of the Relevant Claim all reasonable third party costs of making,
investigating, pursuing and enforcing that claim against the
Covenantors.
3. YOUR WATCH INDEMNITY
3.1 Subject to Clause 3.2 and Schedule 2 (and, for the avoidance of doubt,
notwithstanding any information provided pursuant to the Disclosure
Letter) each Covenantor covenants severally with the Offeror that he
will pay, as the Offeror may direct to the Company or relevant
Subsidiary as the case may be, his appropriate proportion of an amount
or amounts (on a pound for pound basis) equal to:
(a) the amount or amounts of any payments made by the Offeror,
Company or any Subsidiary to third parties as a result of any
dispute with or claim made by a third party (not being the
Offeror or any member of the Offeror's Group) in relation to the
Company or the Subsidiaries arising out of or in respect of any
event, act or omission occurring on or prior to the date of
Completion;
(b) the amount or amounts of any and all third party costs and
expenses reasonably incurred or payable by the Offeror, the
Company or any Subsidiary in connection with investigating,
assessing, contesting or in settlement of any dispute or claim
referred to in paragraph (a) above or in connection with all
proceedings in relation thereto or steps taken to avoid or
mitigate the same.
3.2 Any claim relating to Tax shall be dealt with under the terms of the
Taxation Indemnity and not under this Clause 3.
4. NAME INDEMNITY
4.1 Subject to Schedule 2, notwithstanding any information provided
pursuant to the Disclosure Letter, each Covenantor shall indemnify and
keep indemnified the Offeror and/or the Company and/or each
Subsidiary, and/or its or their officers, servants and/or agents (the
"INDEMNIFIED PARTIES") against his appropriate proportion of any and
all liability, loss, damages, costs, legal costs, professional and
other expenses of any nature whatsoever (including without limitation
any indirect or consequential loss whatsoever) ("LIABILITIES")
incurred or suffered by the Indemnified Parties arising out of any
contractual or tortious proceedings brought by or against the
Indemnified Parties which claim actual or alleged infringement of
statutory or common law rights in the RICHARD ELLIS name and mark in
the UK ("PROCEEDINGS") where it follows from a Final Determination of
a court or tribunal of competent jurisdiction that the Company does
not have the exclusive right to use the RICHARD ELLIS name and mark in
relation to the Business in the United Kingdom. Unless and until any
such Final Determination the Covenantors shall have no liability to
the Indemnified Parties under this Clause other than the liability to
pay costs under Clause 4.2(e) below. For the avoidance of doubt, the
Covenantors
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<PAGE> 13
shall have no liability under this Clause 4 or otherwise to compensate
or indemnify any of the Indemnified Parties in relation to any
Liabilities suffered or incurred by any of the Indemnified Parties if
and to the extent that they arise as a result of the Company and/or
any Subsidiary not having the exclusive right to use the RICHARD ELLIS
name and mark (a) in the United Kingdom in relation to any business
other than the Business; and/or (b) outside of the United Kingdom.
4.2 In relation to Clause 4.1 above, in the event that Proceedings are
threatened or commenced:-
(a) the Offeror shall as soon as reasonably practicable give the
Covenantors' Representative reasonable details of the
Proceedings and shall at all times promptly give to the
Covenantors' Representative and professional advisers appointed
by the Covenantors' Representative all material information and
copies of documents in its or the Company's possession or under
its or the Company's control relevant to the Proceedings as may
be reasonably requested by the Covenantors' Representative from
time to time;
(b) the Offeror shall consult with the Covenantors' Representative
in relation to all material aspects of the Proceedings and
afford the Covenantors' Representative every opportunity to
comment in relation to the Proceedings which the Offeror will
take reasonable consideration of in the handling of the
Proceedings;
(c) the Offeror will not and shall procure that no other of the
Indemnified Parties shall make an admission, agreement,
settlement or compromise or other action in relation to the
Proceedings without the prior written consent of the
Covenantors' Representative (not to be unreasonably withheld);
(d) the Offeror and/or the Company and/or each Subsidiary shall
use all commercially reasonable endeavours to mitigate the
amount of any liability (whether actual or contingent) on the
part of the Covenantors under this Clause 4; and
(e) if, following a final decision at first instance by a court or
tribunal of competent jurisdiction (which, for the avoidance of
doubt, shall not include a decision made pursuant to any interim
motions or applications), it follows that the Company does not
have the exclusive right to use the RICHARD ELLIS name and mark
in relation to the Business in the United Kingdom (an "ADVERSE
FINDING"), the Covenantors' Representative shall have the right
to require those of the Indemnified Parties which are parties to
the Proceedings to appeal such Adverse Finding (in the absence
of an appeal by the Indemnified Parties) until such time as
there has been a Final Determination Provided That the
Covenantors shall bear the legal costs out of the Escrow Fund of
all appeals made against any such Adverse Finding which the
Indemnified Parties are required to make by the Covenantors. If
it subsequently follows from a Final Determination that the
Company has the exclusive right to use the RICHARD ELLIS name
and mark in relation to the Business in the United Kingdom then
to the extent that the Covenantors do not recover the full
amount of the costs incurred by them in relation
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<PAGE> 14
to all such appeals, the Offeror shall forthwith reimburse the
amount of any shortfall to the Covenantors.
4.3 The benefit of this indemnity may be assigned to any purchaser of all
or substantially all of the business of the Company, whether by sale
of shares or assets.
4.4 For the purpose of this Clause 4, a "Final Determination" shall mean a
final decision of a court or tribunal of competent jurisdiction from
which there is no appeal or from which the Covenantors have notified
the Offeror that they do not wish the final decisions to be appealed.
5. SURMIA INDEMNITY
Subject to Schedule 2 (and, for the avoidance of doubt,
notwithstanding any information provided pursuant to the Disclosure
Letter) each Covenantor covenants severally with the Offeror that he
will pay to the Offeror (or as the Offeror may direct, to the Company
or relevant Subsidiary as the case may be) his appropriate proportion
of an amount or amounts (on a pound for pound basis) equal to the
amount or amounts of sums demanded from the Company or any Subsidiary
by or on behalf of the Surveyors Mutual Insurance Association Limited
(or its successors or assigns) (together "SURMIA") and/or of any other
liability of the Company or any Subsidiary and/or of any payment made
by the Company or any Subsidiary to or in respect of SURMIA, including
for the avoidance of doubt liabilities or payments pursuant to
indemnities given by the Company or any Subsidiary in relation to
SURMIA, to the extent that the aggregate of such demands, liabilities
and payments exceeds L.207,866 as provided for in the Accounts plus
L.17,530 disclosed in Part B of Schedule 5. For the avoidance of
doubt, under this Clause 5, the Offeror, the Company or any Subsidiary
as the case may be, shall be entitled to be indemnified upon the
making of any demand by or on behalf of SURMIA or upon the
notification of any other liability, and without the Company or any
Subsidiary as the case may be having first made payment thereof, nor,
in the absence of manifest error, shall the Offeror, the Company or
any Subsidiary be required to challenge or otherwise question the
demand or the amount of any other liability or payment in order to be
entitled to indemnity in respect thereof.
6. PENSIONS INDEMNITY
6.1 The Offeror shall procure that an actuarial valuation ("THE 1999
VALUATION") of the Richard Ellis Retirement Fund ("THE FUND") is
carried out as at 1 May 1999 ("THE 1999 VALUATION DATE") no later than
30 June 1999 using the same assumptions as are set out in the draft
valuation report of the Fund dated 4 December 1997 ("THE VALUATION
REPORT") and on the further assumptions that:-
(a) the Company and its Subsidiaries have continued to pay
contributions to the Fund to the 1999 Valuation Date at the
rate recommended in the Valuation Report;
(b) benefits have not been improved from those applying at the
date of Completion;
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<PAGE> 15
(c) basic salaries have increased at the lower of the rate assumed
in the Valuation Report and the actual rate of increase since
the date of Completion;
(d) the Final Salary Section of the fund continues to remain
closed to new entrants, provided it is legal and proper to do
so.
6.2 In the event that the 1999 Valuation reveals that the value of the
assets of the Fund does not exceed the value of the benefits which are
payable from the Fund in respect of service to 1 May 1999 (such
shortfall being referred to herein as "THE 1999 DEFICIT") the Offeror
shall be entitled to procure that a further actuarial valuation of the
Fund is carried out as at the date of Completion using the same
assumptions as are set out in the Valuation Report ("THE COMPLETION
VALUATION") no later than 31 August 1999.
6.3 In the event that the Completion Valuation reveals that the value of
the assets of the Fund does not exceed the value of the benefits which
are payable from the Fund in respect of service to the date of
Completion (such shortfall being referred to herein as the "COMPLETION
DEFICIT") and subject to Schedule 2 (and for the avoidance of doubt
notwithstanding any information provided pursuant to the Disclosure
Letter) each Covenantor covenants severally with the Offeror that he
will pay as the Offeror may direct to the Company or the relevant
Subsidiary, as the case may be, his appropriate proportion of an
amount equal to the lower of the Completion Deficit and the 1999
Deficit ("THE SHORTFALL").
6.4 The Offeror shall procure that the Company and/or the relevant
Subsidiary shall forthwith upon receipt of the Shortfall pay an
equivalent amount to the Fund subject to Inland Revenue approval not
being prejudiced.
6.5 In the event that any liability of the Company and/or the relevant
Subsidiary to corporation tax is reduced as a result of any
contribution to the Fund (by the Company and/or the relevant
Subsidiary to the Fund as envisaged in Clause 6.4 derived from payment
made under Clause 6.3) the Offeror shall procure that the Company
and/or the relevant Subsidiary shall repay to each of the Covenantors
his appropriate proportion of an amount equal to the corporation tax
saving thereby arising to the Company and such repayment shall be made
on the day or days on which the corporation tax thereby saved would
otherwise have been due and payable.
7. GROSS UP
7.1 Where the Covenantors are obliged to indemnify the Offeror, the
Company or any Subsidiary (the "INDEMNIFIED PARTY") under this Deed:
(a) any amount due shall be paid free and clear of all deductions
or withholdings unless such deductions or withholdings are
required by law in which case the Covenantors shall pay to the
Indemnified Party such additional amount as shall be required
to ensure that the amount received by the Indemnified Party
will, after such deduction or withholding,
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<PAGE> 16
be sufficient to indemnify the Indemnified Party against the matter or
circumstance in question;
(b) if any Tax Authority brings the sum paid by way of indemnity
into charge to Tax (or would bring such sum into charge to Tax
but for any Relief as defined in the Tax Covenant), then the
Covenantors shall pay to the Indemnified Party such additional
amount as shall be required to ensure that the total amount
paid, less the tax chargeable (or which would be so chargeable
but for the Relief) is sufficient to indemnify and hold harmless
the Indemnified Party; and
(c) if following the payment of an additional amount under either
Clauses 7.1(a) or (b) above, the Indemnified Party subsequently
obtains a saving, reduction, credit or payment in respect of Tax
(other than a reduction in taxation which would have given rise
to a claim or been taken into account in a claim for damages
under the Warranties or under the Tax Indemnity) in consequence
of which the net after tax amount received by the Indemnified
Party is greater than the amount required to indemnify and hold
harmless the Indemnified Party against the matter indemnified,
the Indemnified Party shall pay to the Covenantors'
Representative such sum as shall leave the Indemnified Party
fully indemnified within seven days of the receipt of the
repayment or reduction of tax as the case may be.
7.2 Clause 7.1 shall not apply if the Offeror assigns the benefit of this
Deed or any rights deriving from this Deed.
8. EARN OUT PROTECTIONS
8.1 In recognition of the Covenantors' interest in achieving the maximum
amount payable in respect of the Deferred Loan Notes, the Offeror
hereby undertakes to the Covenantors that following Completion and
until the earlier of 31 December 2002 and the date on which no further
Deferred Loan Notes may be issued, save with the prior written consent
of the Covenantors' Representative (which may only be withheld to the
extent legitimate to protect the interests of the Covenantors
achieving the maximum amount payable in respect of the Deferred Loan
Notes) or as provided in Clauses 8.2 to 8.4 inclusive below:-
(a) it will not deliberately and knowingly do any act or thing or
procure the Company or any member of the Group to do any act or
thing not properly done for the purpose of the Offeror Group's
business the effect of which distorts unfairly the financial
results of the Company so as to reduce the amount of Deferred
Loan Notes to be issued as part of the Earn Out;
(b) it will not require or permit the declaration, making or
payment by the Company or any member of the Group of any
dividend or similar distribution in respect of the Company's
share capital save to the extent of net income of the Company
calculated for this purpose
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<PAGE> 17
without deduction for any amounts (net of any associated tax
benefit) incurred by the Offeror or REGL from amounts
contributed by the Offeror after the Completion Date;
(c) it will not require or permit the payment of management
charges to the Offeror's Group by the Company or any member of
the Group save:-
(i) with respect to services requested by the Company,
with any such charges subject to the consent of the
Covenantors' Representative, such consent not to be
unreasonably withheld; or
(ii) corporate allocations for travel expenses, accounting
services and similar items actually incurred, not to
exceed L.100,000 per year;
(d) it will not deliberately and knowingly do any act or thing or
procure the Company or any member of the Group to do any act or
thing which results in the provision of additional capital to
the Company and/or any Subsidiaries such that there is a
material increase in the Base Amount provided that the Business
is being managed prudently and in accordance with the Budget and
Business Plan;
(e) conducting a business operation to cease carrying on its
business in whole or in part except to the extent that the
Company and/or any member of the Group:-
(i) fails to satisfy the requirements specified in the
Budget or the Business Plan; or
(ii) without prejudice to Clause 8.1(a) above, it is
considered by the Offeror (acting reasonably) to be
necessary to effect an acquisition, disposal,
reorganisation or similar restructuring of assets or
shares provided that the financial results of the
Business after completion of such a restructuring or
acquisition are separately identifiable for the
purpose of the Earn Out;
(f) it will not solicit or endeavour to entice away, offer
employment to or offer to conclude any contract for services
with any of the employees of the Group except with the consent
of the Covenantors' Representative save for Andrew Huntley;
(g) it will not knowingly interfere with or do anything the sole
or main purpose of which is to impair or adversely affect the
relationship of the Company or any member of the Group with any
of its or their customers and clients;
(h) it will not require the Company or any member of the Group to
give any guarantee or indemnity for the obligations of any third
party save to the extent that the Offeror considers (acting
reasonably) it necessary for the Company and/or any of the
Subsidiaries to provide collateral guarantees in respect of:-
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<PAGE> 18
(i) the financing facilities available to the Offeror's
Group; or
(ii) liabilities relating to acquisitions completed after
Completion by the Group;
(i) it will maintain the Company and any member of the Group as
separate operating companies save to the extent that those
companies may be merged, amalgamated, reorganised or structured
within the Group in a more tax efficient way for the Group as a
whole provided that the financial results of the Business after
completion of any such restructuring are separately identifiable
for the purposes of determining the Earn Out;
(j) it will (insofar as he is permitted to act as such by law and
except where the Company or any member of the Group has
dismissed or is entitled to dismiss him summarily from his
employment) allow each member of the Management to have access
to all matters relating to the Business (except where the
information is held by the Offeror in which case a written
request for the information must be made, and such request
cannot be unreasonably withheld) and (insofar as consistent with
his fiduciary duties as a director) to pursue and maintain
trading policies (so long as consistent with the trading
policies of the Offeror and the Group over the year prior to the
date hereof and not to conflict with the interest of the
Business) to enable the Company to maximise the amount of the
Deferred Loan Notes issuable pursuant to the Offer Document
subject to overall control by the board of the Company in
respect of financial and policy matters relating to the
Offeror's Group (including the Group) such overall control not
to be unreasonably exercised to the material detriment of the
Covenantors in respect of the realisation of the maximum amount
possible in respect of the Deferred Loan Notes;
(k) it will not pass any resolution for the winding up,
dissolution or reconstruction of the Company or any member of
the Group except to the extent that the Company and/or any
member of the Group:-
(i) fails to satisfy the requirements specified in the
Budget or the Business Plan; or
(ii) without prejudice to Clause 8.1(a) above, is
considered by the Offeror (acting reasonably) to be
necessary to effect an acquisition of business assets
or shares provided that the financial results of the
Business after such acquisition is completed are
separately identifiable for the purpose of
determining the Earn Out;
(l) it will not take steps designed to prevent the Company or any
member of the Group from carrying on its business in the
ordinary course, substantially as presently carried on, and
(without prejudice to the generality of the foregoing) it will
not in any way to the detriment of the Company or any member of
the Group compel the Company or any member of the Group to trade
or deal with any particular person, firm or company whether for
goods or services except in relation to the selection of a
financial institution for commercial lending or investing or in
respect of appointing auditors, barristers,
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solicitors, accountants, investment bankers, insurers, actuaries
and other professional advisors provided that the Company or any
member of the Group shall only be required to meet appropriate
fees, charges or costs to the extent reasonable in the
circumstances including where such costs are incurred on an
Offeror's Group wide basis the due proportion of such costs
where such circumstances shall include the standing and
reputation of the professional advisers appointed;
(m) it will use its reasonable endeavours to procure that no
member of the Offeror's Group knowingly and deliberately diverts
away from the Group any business opportunities that first become
available to the Company or any of the Subsidiaries;
(n) it will not change the Company's corporate name or cause it to
cease using any trade name or start using any new trade name
(other than to reflect the fact that it is a member of the
Offeror's Group or in the event the Company does not have the
exclusive right to the RICHARD ELLIS name and mark in relation
to the Business in the United Kingdom);
(o) in the event of a sale or other disposition of a majority of
the Shares or all or substantially all of the undertaking or
material assets of the Group the Offeror shall procure the
purchaser to assume the Offeror's obligations under this Deed
and the Offer Document in respect of the Earn Out; and
(p) in the event that the Offeror procures the Company or any
Subsidiary to merge with another company or to acquire the whole
or part of any undertaking or any shares in the capital of
another company and the Board of the Company has not unanimously
approved such merger or acquisition then the Covenantor's
Representative may in the period of one month after the merger
or acquisition determine not to include the new undertaking or
company as part of the Business or the Group for the purpose of
calculating the REGL Modified Pre-tax Profit provided that any
such decision shall be treated consistently over time for the
purpose of determining REGL Modified Pre-tax Profit. In such
event, the Offeror shall indemnify the Group for any guarantee
provided by any member of the Group in connection with such
merger or acquisition.
8.2 Nothing in Clause 8.1 save for sub-Clauses (a), (i), (k) or (l) above
shall prevent the Offeror's Group from carrying on any business
presently carried on by it nor from acquiring any other company or
business whether of a similar nature or otherwise.
8.3 Nothing in Clause 8.1 shall prevent the Offeror or any other member of
the Offeror's Group or the Company from performing its other
obligations or enjoying or enforcing its rights under this Deed
including the Taxation Indemnity or any other agreement entered into
pursuant hereto.
8.4 Nothing in Clause 8.1 shall prevent the Offeror from changing the
auditors appointed for the Company or any members of the Group at any
time in the future.
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<PAGE> 20
8.5 In recognition of the Offeror's interest in acquiring a business that
is operated on the basis of maximising the net present value of
profits over time each of the Covenantors hereby undertakes to the
Offeror that in his capacity as officer, manager or employee of any
member of the Group ( if he is such) he shall procure as far as
reasonably practicable that following Completion and until the earlier
of 31 December 2002 and the date on which no further Deferred Loan
Notes may be issued:-
(a) he will not deliberately and knowingly do any act or thing or
procure the Company or any member of the Group to do any act or
thing the object of which is to distort unfairly the financial
results of the Company so as to increase the amount of Deferred
Loan Notes that are to be issued;
(b) that transactions entered into by the Company are structured
to maximise the net present value of the Company even though the
structure used may result in a corresponding decrease in REGL
Modified Pre-tax Profit;
(c) that the Business is being managed prudently and in accordance
with the Business Plan and Budget;
(d) that investment capital will not be committed or guarantees
undertaken or other liabilities assumed outside the ordinary
course of business without the written approval of the
Offeror; and
(e) to the extent that any rights, interests or obligations are
assigned under this Deed the Covenantors agree to meet their
obligations under this Clause 8.5.
9. MANAGEMENT OF THE GROUP POST COMPLETION
9.1 The Offeror hereby undertakes with the Covenantors that for the period
from Completion until the earlier of 31 December 2002 and the date on
which no further Deferred Loan Notes may be issued it will regulate
the affairs of the Group in accordance with this Clause 9
notwithstanding anything to the contrary in the articles of
association of the Company or any Group Company.
9.2 Notwithstanding anything contained in the articles of association of
the Company the board of directors of the Company will comprise 9
directors provided that the Offeror shall be able to replace any
directors appointed to the board at any time and further provided that
those members of the board of the Company appointed pursuant to Clause
9.2(c) below shall have served on the board for a period of at least
12 months:-
(a) five of whom will be appointed by the Offeror;
(b) four of whom, each being employees of the Company or its
Subsidiaries, will be appointed by the five directors
appointed pursuant to Clause 9.2(a) above; and
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<PAGE> 21
(c) the initial directors shall be Messrs Huntley, Froggatt,
Ellingham, Hubbard, Strong, Webster, Siegel, Aston and the
Finance Director.
9.3 (a) The Offeror shall nominate Mr. A. Huntley as a member of the
board of the Offeror as part of the slate of nominees to be
presented to shareholders at the Offeror's next annual meeting
of shareholders.
(b) The Offeror shall appoint two members of the board of the
Company, who are also employees of the Company, to the Senior
Executive Management Committee of the Offeror.
(c) The Offeror shall procure that personnel from its Investment
Banking Division are made available to the Company at cost or
on other terms agreed in writing between the parties at the
time of each given assignment to assist in the implementation
of the objectives set out in the Business Plan prepared for
three consecutive years.
9.4 (a) As and when prescribed by the Offeror with respect to its
major business units, the Company shall prepare and submit a
budget dealing with operating performance, capital expenditure
and cash flow. The Offeror's chief financial officer and
other designees will review these budgets during the
prescribed time and submit the final form of budget to the
Offeror's Board of Directors.
(b) Upon the approval of the Offeror's Board, in its sole
discretion, the Budget shall constitute authority to take all
actions implicit in the Budget, except for those matters, such
as major capital expenditures, acquisitions, guarantees,
borrowings, investments and other similar obligations, which
require further specific approvals.
(c) The Company shall use all reasonable endeavours to operate its
business in accordance with the agreed Budgets and the
Business Plan prepared for three consecutive years in the form
approved in writing by the Offeror.
9.5 The board of the Company will appoint a remuneration committee to
advise on the allocation of discretionary bonuses and options under
any stock incentive plans.
9.6 The Offeror shall use its reasonable endeavours (and where practicable
shall procure) that any business of surveying for the time being
carried on by the Company or any member of the Group shall at all
times be conducted in accordance with the document entitled "Rules of
Conduct" for the time being of The Royal Institution of Chartered
Surveyors.
10. COVENANTORS' REPRESENTATIVE
10.1 Each of the Covenantors hereby appoints the Chief Executive for the
time being (the first such Covenantors' Representative being Alan
Froggatt) of the Company (provided that person is a Covenantor) as the
Covenantors' Representative and authorises and empowers such
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<PAGE> 22
Covenantors' Representative as such Covenantor's true and lawful agent
and attorney to act in the name, place and stead of such Covenantor
with respect to the Offers as such Offers may from time to time be
amended, extended, varied or revised and with respect to the transfer
of the Covenantors' Shares to the Offeror pursuant thereto and to do
or refrain from doing all such acts and things as such Covenantors'
Representative shall deem necessary or appropriate in order to accept
and to give effect to the terms of the Offers and this Deed and the
transactions contemplated thereby, including, without limitation, the
power:-
(a) to act for such Covenantor with regard to all warranty and
indemnification matters referred to in this Deed including,
without limitation, the power to acknowledge responsibility
for any claim and the power to compromise or settle any claim
on behalf of such Covenantor including meeting his appropriate
proportion of costs incurred in investigating, assessing,
contesting, litigating or settling such claims out of the
Escrow Fund;
(b) to receive all demands, notices and other communications
directed to Covenantors and to do or refrain from doing any
further acts or deeds on behalf of such Covenantors which such
Covenantors' Representative deems necessary or appropriate;
(c) to acknowledge, vary, waive or agree any changes to the terms
of the Earn-Out protections set out in Clause 8 hereof in
relation to the Deferred Loan Notes on behalf of the
Covenantors where the Covenantors' Representative deems it
necessary, appropriate or expedient; and
(d) to vary, waive or agree any changes to the method of
calculating and to agree on behalf of such Covenantors the
calculations of REGL Modified Pre-Tax Profit, Base Amount and
Principal amount of Deferred Loan Notes to be issued
including, without limitation, in order to address any issues
that may arise from the acquisition or merger of a company by
or with any member of the Group.
10.2 The appointment of the Covenantors' Representative shall be
irrevocable until the later of 20 February 2004 and the date when all
relevant claims made by the Offeror prior to 20 February 2004 shall
have been resolved, settled, withdrawn or deemed to have been
withdrawn, at which date such appointment shall automatically
terminate, and the Offeror and any other person may conclusively and
absolutely rely, without enquiry, upon any action of the Covenantors'
Representative in accordance with this provision as an act of all of
the Covenantors in all matters referred to in the Offer Document and
this Deed. Each Covenantor hereby ratifies and confirms all and any
acts which the Covenantors' Representative shall do or cause to be
done in his capacity as Covenantors' Representative. The Covenantors'
Representative shall act for all Covenantors on all of the matters set
out in the Offer Document and in this Deed in the manner such
Covenantors' Representative believes to be in the best interests of
such Covenantors and consistent with their obligations under the
Offers and this Deed but the Covenantors' Representative shall not be
responsible to any Covenantor for any loss or damage any Covenantor
may suffer by reason of the performance by the Covenantors'
Representative of his
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<PAGE> 23
duties in accordance with this provision except for loss or damage
arising from wilful violation of law or negligence in the performance
of his duties.
10.3 In the event of the death, incapacity or resignation of the
Covenantors' Representative, or the Covenantors' Representative
ceasing to be the Chief Executive of the Company and the new Chief
Executive not being a Covenantor, the Covenantors shall agree upon a
successor within the 30 day period immediately following the date of
notification of the death, incapacity or resignation of the
Covenantors' Representative or his ceasing to be the Chief Executive
of the Company and the new Chief Executive not being a Covenantor and
such successor shall either be a Covenantor or any other person
acceptable to the Offeror who shall agree in writing to accept such
appointment in accordance with this provision. The appointment of a
successor Covenantors' Representative pursuant to this provision shall
promptly be notified in writing to the Offeror.
10.4 For the avoidance of doubt, any Covenantors' Representative appointed
pursuant to this Clause 10 shall not be vested with any authority or
power which is in conflict with the authority or power granted to any
attorney appointed by the Covenantors under any irrevocable
undertakings given by them in connection with or as part of the Offers
and to the extent that any conflict exists the attorney appointed by
the Covenantors pursuant to such irrevocable undertakings shall take
precedence.
11. ANNOUNCEMENTS, ETC
The terms of this Deed shall not be disclosed by any party hereto
other than to their respective legal financial and other advisers
without the prior consent of the other parties (not to be unreasonably
withheld or delayed) unless disclosure is required by any US or UK law
or the rules of the New York or London Stock Exchanges.
12. COSTS
Save as expressly otherwise provided in this Deed or in the Offer
Document each of the parties hereto shall bear its own legal,
accountancy and other costs, charges and expenses connected with the
negotiation, preparation and implementation of this Deed and the
Offers and any other document or action incidental to or referred to
in this Deed.
13. EFFECT OF COMPLETION
The terms of this Deed shall insofar as not performed before the
acquisition of the Shares by the Offeror and subject as specifically
otherwise provided in this Deed continue in force after and
notwithstanding the acquisition of the Shares by the Offeror.
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<PAGE> 24
14. WAIVER, AMENDMENT
14.1 No waiver of any term, provision or condition of this Deed shall be
effective unless such waiver is evidenced in writing and signed by the
waiving party.
14.2 No omission or delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or of any
other right, power or privilege. The rights and remedies herein
provided are cumulative with and not exclusive of any rights or
remedies provided by law.
14.3 No variation to this Deed shall be effective unless made in writing
and signed by the Covenantors' Representative on behalf of the
Covenantors and by the Offeror.
15. FURTHER ASSURANCES
At any time hereafter the Covenantors shall at their own expense
execute all such documents and do such acts and things as the Offeror
may reasonably require for the purpose of vesting in the Offeror the
full legal and beneficial title to the Covenantors' Shares and giving
to the Offeror the full benefit of this Deed.
16. NOTICES
16.1 Save as specifically otherwise provided in this Deed any notice,
demand or other communication to be served under this Deed may be
served upon any party hereto only by posting by first class post or
airmail if sent from outside the UK or delivering the same or sending
the same by facsimile transmission to the Offeror at the address of
the Offeror's Solicitors or to any of the Covenantors to the
Covenantors' Representative marked for the attention of the
Covenantors' Representative or facsimile number given below or at such
other name and address or number in England and/or Wales as the
Offeror or (as the case may be) all of the Covenantors may from time
to time notify in writing to the other parties hereto:-
The Covenantors' - fax number - 0171 493 1503
Representative marked for the attention of Alan
Froggatt
The Offeror - fax number 0171 972 7990 marked for
the attention of Philip Broke copy to
John K. Lines, General Counsel of
Insignia Financial Group, Inc. fax
number 001 864 239 1096
16.2 The Covenantors hereby irrevocably agree that service of any notice,
demand or other communication upon the person named above shall be
deemed due service upon each of them at the time of deemed service
upon him. The Covenantors hereby irrevocably agree that the
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<PAGE> 25
Offeror may rely upon any notice, demand or other communication given
by the Covenantors' Representative or the Covenantors' Solicitors and
purporting to be given on behalf of all the Covenantors as having been
given with the express authorisation of each of the Covenantors and
that each of the Covenantors will be bound thereby.
16.3 A notice or demand served by first class post shall be deemed duly
served 72 hours after posting by airmail from outside the UK and a
notice or demand sent by facsimile transmission shall be deemed to
have been served at the time of transmission and in proving service of
the same it will be sufficient to prove, in the case of a letter, that
such letter was properly stamped or franked first class, addressed and
placed in the post and, in the case of a facsimile transmission, that
such facsimile was duly transmitted to a current facsimile number of
the addressee at the address referred to in this Clause 16 or in
Clause 18.
17. COUNTERPARTS
This Deed may be executed in any number of counterparts and by the
several parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts
shall together constitute one and the same instrument.
18. GOVERNING LAW AND JURISDICTION
18.1 This Deed and the Offer Document shall be governed by and construed in
accordance with English law.
18.2 The parties hereto agree that service of any writ, notice or other
document for the purpose of any proceedings shall be duly served upon
it if delivered or sent by registered post, in the case of the
Covenantors to the address specified in Clause 16 (marked for the
attention of the Covenantors' Representative) or such other name and
address in England and/or Wales as is notified pursuant to Clause 16
and in the case of the Offeror to the address specified in Clause 16
(marked for the attention of Philip V. Broke).
19. INVALIDITY
If at any time any one or more of the provisions hereof is or becomes
invalid, illegal or unenforceable in any respect under any law, the
validity, legality and enforceability of the remaining provisions
hereof shall not be in any way affected or impaired thereby.
20. ASSIGNMENT
20.1 It is hereby agreed and declared that the benefit of this Deed may be
assigned by the Offeror (i) to any company of which it is a subsidiary
(as defined by Section 736 Companies Act 1985) or to any other company
which is a subsidiary of it or its holding company as thus defined;
and (ii) to any person who acquires a majority of the Shares or all or
substantially all of the undertaking
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<PAGE> 26
or material assets of the Group and who agrees to assume the Offeror's
obligations under this Deed and the Offer Document in respect of the
Earn Out.
20.2 Save as aforesaid this Deed and all rights and benefits hereunder are
personal to the parties hereto and may not be assigned at law or in
equity without the prior written consent of the other parties hereto.
SIGNED on behalf of each of the Covenantors by way of confirmation.
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<PAGE> 27
SCHEDULE 1
WARRANTIES
A. Constitution
B. Accounts
C. Business
D. Directors and Employees
E. Properties
F. Pensions
G. The Group and its Bankers
H. Accuracy of Information
I. Tax
J. Environmental Matters
K. Title and Capacity
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<PAGE> 28
A. CONSTITUTION
MEMORANDUM AND ARTICLES
A.1. The Memorandum and Articles of Association of the Company in the form
of the copies supplied to the Offeror are complete and accurate and
have embodied therein or annexed thereto copies of all resolutions and
agreements as are referred to in Section 380 of the Companies Act 1985,
and all amendments thereto (if any) were duly and properly made.
REGISTER OF MEMBERS
A.2. The Register of Members of the Company contains true and accurate
records of the members from time to time of the Company and the Company
has not been subject to any application under the Companies Act 1985
for rectification of such Register.
RETURNS
A.3. All such resolutions returns and other documents required by the
Companies Act 1985 to be delivered to the Registrar of Companies have
been duly delivered and are true and accurate.
POWERS OF ATTORNEY
A.4. To the best of the knowledge and belief of the Covenantors, the Company
has not executed any power of attorney or conferred on any person other
than its directors officers and employees any authority to enter into
any transaction on behalf of or to bind the Company in any way.
SUBSIDIARIES
A.5. The Company does not have any subsidiary undertakings other than those
listed in the Document of Company Details nor does the Company own any
shares or stock in the capital of nor have any beneficial interest in
any other company, corporate enterprise, partnership or business
organisation nor does the Company control or take part in the
management of any other company or business organisation. Each of the
Subsidiaries is a wholly owned subsidiary of the Company, save as
otherwise indicated in the document in agreed form headed "Details of
the Company and the Subsidiaries".
OPTIONS OVER SHARES
A.6. There is no agreement or commitment outstanding which calls for the
allotment, issue or transfer of, or accords to any person the right to
call for the allotment or issue of, any shares, debentures or
securities in or of the Company or any of the Subsidiaries other than
the Options and the Convertible Shares.
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<PAGE> 29
INSOLVENCY
A.7. No Company or Subsidiary is insolvent or unable to pay its debts as
they fall due or subject to receivership, administration, litigation or
winding-up and no order has been made or resolution passed, petition
presented or meeting held for the winding-up of any of them and no
analogous proceedings in any other jurisdiction have been commenced.
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<PAGE> 30
B. ACCOUNTS
ACCOUNTS WARRANTY
B.1. The Accounts which are not audited have been prepared by the Company
with due care and attention in accordance with generally accepted
accounting principles and practices in the United Kingdom and
accordingly adequately reflect in all material respects all the assets
and liabilities and the state of affairs, financial position and
results of the Company as at and up to the Accounts Date and without
prejudice to the generality of the foregoing, the Accounts:-
(a) make adequate provision or reserve for depreciation, bad or
doubtful debts and other actual liabilities in accordance with
the accounting policies of the relevant company;
(b) either make adequate provision or reserve for or make fair
disclosure of postponed or deferred liabilities in the
financial statements in accordance with the accounting policies
of the relevant company;
(c) do not overvalue assets or understate liabilities; and
(d) have not (save as disclosed in the Accounts) been affected by
any extraordinary, exceptional or non- recurring item or by any
other fact or circumstance rendering the profits or losses for
the relevant period unusually high or low.
PARTNERSHIP ACCOUNTS
B.2. The Partnership Accounts have been prepared in accordance with
generally accepted accounting principles and practices in the United
Kingdom and are true and accurate in all material respects so far as
they are stated to be facts and not estimates and accordingly give a
true and fair view of all the assets and liabilities (whether present
or future, actual or contingent) and of the state of affairs, financial
position and results of the Partnership as at and up to 30 April 1997.
NET ASSET WARRANTY
B.3. The Net Asset Value, calculated in accordance with Schedule 5, shall
not be less than L.3,938,000 as at the Completion Accounts Date.
UNDISCLOSED LIABILITIES
B.4. To the best of the knowledge and belief of the Covenantors there are no
liabilities or obligations of any nature (absolute, accrued,
contingent, otherwise or known) which were not fully disclosed or
reserved in the balance sheet prepared as at the Accounts Date, except
the liabilities specified in the Disclosure Letter and those
liabilities arising since the Accounts Date which were incurred in the
ordinary course of business.
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<PAGE> 31
BOOK DEBTS
B.5. Except to the extent to which provision or reserve has been made in the
Accounts, 90% of book debts owed to the Company included in the
Accounts will be duly paid in full not later than 30 April 1998 and
none of the book debts owed to the Company has been the subject of any
factoring by the Company. For this purpose book debts shall not include
prepayments by the Company.
FIXED ASSETS
B.6. The value of all of the fixed assets of the Company as shown in the
Accounts is at cost thereof less depreciation deducted from time to
time in a consistent manner and there has been no revaluation of such
fixed assets since their acquisition.
OFF BALANCE SHEET FINANCING
B.7. Neither the Company nor any associated company has engaged in any
financing (including without prejudice to the generality of the
foregoing the incurring of any borrowing or any indebtedness in the
nature of borrowing including without limitation liabilities in the
nature of acceptances or acceptance credits) of a type which would not
be required to be shown or reflected in the Accounts.
ACCOUNTING REFERENCE DATE
B.8. The Company has notified to the Registrar of Companies 30 April as
being its accounting reference date pursuant to the Companies Act 1985
and has not at any time notified the Registrar of Companies of any
other date.
BOOKS OF ACCOUNT
B.9. The Company has properly kept and maintained all necessary books of
account (accurately reflecting in accordance with generally accepted
accounting principles and practices in the United Kingdom and, in the
case of certain Subsidiaries, in their respective countries in which or
in a state, province or part of which they were incorporated, all
transactions effected by the Company or to which it is or has been a
party), minute books, records, Register of Members and other statutory
books. All deeds and documents (properly stamped where stamping is
necessary for enforcement thereof) belonging to the Company or which
ought to be in the possession of the Company and the common seal of the
Company are in the possession of the Company.
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<PAGE> 32
C. BUSINESS
BUSINESS SINCE THE ACCOUNTS DATE
C.1. Since the Accounts Date there has been no material adverse change in
the overall financial or trading position or performance of the Company
taking account of seasonal fluctuations in the financial performance of
the Business, and the Business has been conducted on a normal basis and
the Company has not disposed of any of its assets otherwise than in the
normal course of business or declared or paid any dividend on any of
its shares or effected any distribution of its assets or made any loan
or other payment other than in the normal course of business, and
without prejudice to the generality thereof, the Company has not since
the Accounts Date done or agreed or committed to do any of the
following:-
(a) accelerated collection of any sum payable to the Company to a
date prior to the date such collection would have occurred in
the ordinary course of business and consistent with past
practice;
(b) delayed payment of any sum payable by the Company beyond its
due date or to a date after the date such payment would have
been made in the ordinary course of business and consistent
with past practice; and
(c) created, incurred, guaranteed or assumed any indebtedness or
borrowed money or entered into any financial lease.
ACQUISITION AND DISPOSAL OF ASSETS
C.2. The Company has not since the Accounts Date acquired or agreed to
acquire any material asset for a consideration which is higher than the
market value at the time of acquisition and has not disposed of or
agreed to dispose of any material asset for a consideration which is
lower than the market value or the value thereof as shown in the books
of the Company at the time of disposal.
CHARGES AND TITLE TO ASSETS
C.3. (a) Save for Intellectual Property the Company has not created or
agreed to create or suffered to arise or exist any Encumbrance
(other than arising in the ordinary course of business) over any
part of its undertaking or assets and the Company has and will
at Completion own all the assets included in the Accounts and
all other assets (tangible or intangible) used for the purpose
of the Company's business at the date hereof and to all assets
acquired since the Accounts Date and prior to Completion.
(b) The Company owns or leases all vehicles, plant, machinery and
equipment required for the proper and efficient conduct of the
business of the Company.
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<PAGE> 33
(c) Save for Intellectual Property no person other than the
Company has any right, title or interest (present or future) in
any material asset belonging to or used by the Company.
LEASING ETC. AGREEMENTS
C.4. Accurate details of any hiring or leasing agreement, hire purchase
agreement, credit or conditional sale agreement, agreement for payment
on deferred terms or any other similar agreement with an annual
commitment in excess of L.5,000 per agreement to which the Company is a
party and where the aggregate annual payments by the Company exceed
L.5,000 are scheduled in the Disclosure Letter.
ONEROUS OBLIGATIONS
C.5. The Company is not a party to any contract, transaction, arrangement
or liability which:-
(a) is of an unusual or abnormal nature, or outside the ordinary
and proper course of business and is for an amount during the
term of the contract of more than L.50,000;
(b) is for a fixed term of more than six months and is for an
amount during the term of the contract of more than L.50,000;
(c) is of a material long-term nature (that is unlikely to have
been fully performed, in accordance with its terms, more than
six months after the date on which it was entered into or
undertaken) and is for an amount during the term of the contract
of more than L.50,000;
(d) is incapable of termination in accordance with its terms, by
the Company, on 60 days' notice or less and is for an amount
during the term of the contract of more than L.50,000;
(e) is of a material loss-making nature (that is, known to be
likely to result in a loss to the Company) on completion of
performance and is for an amount during the term of the contract
of more than L.15,000;
(f) cannot readily be fulfilled or performed by the Company on
time without undue, or unusual, expenditure of money, effort or
personnel and is for an amount during the term of the contract
of more than L.50,000;
(g) involves payment by the Company by reference to fluctuations
in the index of retail prices, or any other index or in the rate
of exchange for any currency and is for an amount during the
term of the contract of more than L.50,000;
(h) involves an aggregate outstanding expenditure by the Company
of more than L.50,000; or
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(i) restricts its freedom to engage in any activity or business or
confines its activity or business to a particular place.
SUPPLY CONTRACTS
C.6. All agreements or arrangements for the supply of products or goods to
or by the Company which involve or are likely to involve the supply of
goods the aggregate sale value of which will represent in excess of 5%
of the turnover for the preceding financial year of the Company have
been disclosed to the Offeror in writing. The Company has not been
notified of nor are the Covenantors aware of any breach of any of its
obligations under any contract, transaction or arrangement to which it
is a party or by which it is bound.
CONTRACTS WITH CONNECTED PERSONS
C.7. Save in respect of employment contracts and contracts relating to
employee benefits subsequent to Completion the Company will not have
any contractual or other arrangements of any sort with any of the
Covenantors or any body corporate or person connected or associated
with any of the Covenantors or holders of Shares or options over or to
subscribe for shares in the Company.
EVENTS OF DEFAULT
C.8. (a) To the best of the knowledge and belief of the Covenantors no
event has occurred or is subsisting which constitutes or results
in or would with the giving of notice and/or lapse of time
constitute or result in a default or the acceleration of any
obligation under any agreement or arrangement to which the
Company is a party or by which it or any of its properties,
revenues or assets are bound.
(b) The Company is not a party to any material agreement or
material arrangement which is capable of termination by any
other person on a change in the management control or
shareholding of the Company or by reason of the acquisition of
the Shares under the Offers.
(c) The Covenantors have no actual knowledge that after Completion
(whether by reason of an existing agreement or arrangement or
otherwise or as a result of the proposed acquisition of the
Company by the Offeror):-
(i) a material customer of the Company will cease, or
be entitled to cease, to deal with the Company or
is likely substantially to reduce its existing
level of business with the Company;
(ii) the Company is likely to lose the benefit of any
material right or privilege which it enjoys;
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(iii) any officer or senior employee of the Company or
director of the Company will leave other than as
referred to in or contemplated by this Deed or by
the Offers.
GUARANTEES ETC.
C.9. The Company has not given any indemnity, warranty or bond or incurred
any other similar obligation or created any security for or in respect
of liabilities, actual or contingent, of any other person nor has the
Company given any guarantee for an amount in excess of L.10,000 or
entered into any confidentiality agreement.
SRO INDEMNITIES
C.10 So far as the Covenantors are aware, no claim has been made and no
circumstances have arisen which are likely to give rise to a claim for
indemnification under the rules of the self regulating organisations by
an employee or former employee of the Company or any member of the
Group.
OPTIONS OVER SHARES ETC.
C.11. Since the Accounts Date no share or loan capital has been created or
issued or agreed to be created or issued and there are not any options
or other agreements outstanding which call or give any person the right
to call (whether or not subject to conditions) for the issue of any
share or loan capital of the Company and none of the Covenantors is
under any obligation of any kind whatsoever whether actual or
contingent to sell, charge or otherwise dispose of any of the Shares or
any interest therein to any other person other than the Offeror.
LITIGATION
C.12. The Company is not engaged in any litigation, arbitration,
prosecution or other legal proceedings (whether as plaintiff, defendant
or third party) and to the best of the knowledge and belief of the
Covenantors there are no such proceedings pending or threatened or any
proceedings in respect of which the Company is or would if the
proceedings were adversely determined be liable to indemnify any other
person concerned therein.
CUSTOMER DISPUTES
C.13. The Company is not engaged in any dispute, claim or negotiation with
any Customer which is or could be material to the Business or the value
of any of its assets.
BUSINESS NAME
C.14. The Company does not carry on, and has not in the past three years
carried on, any business under any name other than its corporate name.
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INTRA VIRES
C.15. The Company has the power to carry on its business as now conducted
and the business of the Company has at all times been carried on intra
vires.
INTELLECTUAL PROPERTY
C.16.1. General
Save for Intellectual Property licensed to the Company, the
Intellectual Property which is material to the successful
operation of the Business as presently operated is
beneficially owned by the Company and so far as the
Covenantors are aware the Intellectual Property constitutes
all rights necessary to carry on the business of the Company
as presently operated and will not be adversely affected by
the acquisition herein contemplated.
C.16.2. Registered Rights
Details of all registered Intellectual Property and of all
applications for registration of Intellectual Property are set
out in the Disclosure Letter with the name in which the
registrations are registered, the country of registration, the
mark, the number, the class and any associations, as
appropriate. All renewal fees have been paid in respect of
the registered Intellectual Property.
C.16.3 Licences-out
Details of all licences-out granted or liable to be granted in
relation to the Intellectual Property and which are still in
force which are material to the successful operation of the
Business as presently operated are set out in the Disclosure
Letter with details of the date, parties, term, royalty,
relevant Intellectual Property, exclusivity, territory and any
unusual restrictions or provisions.
C.16.4 Licences-in
Details of all licences-in granted or liable to be granted in
relation to the third party Intellectual Property used by the
Group other than software used in its business and which are
still in force are set out in the Disclosure Letter with
details of the date, parties, term, royalty, relevant third
party intellectual property, exclusivity, territory and any
unusual restrictions or provisions.
C.16.5 Breaches
So far as the Covenantors are aware there is no breach nor do
the Covenantors know of any fact or matter which would or may
create a breach of any licence referred to in Warranties
C.16.3 or C.16.4.
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C.16.6 Infringement by the Company
So far as the Covenantors are aware, the Intellectual Property
owned by the Company does not infringe any intellectual
property rights of any nature of any third party.
C.16.7 Infringement by third parties
So far as the Covenantors are aware, no third party is
infringing the Intellectual Property owned by the Company.
C.16.8 Confidential Information
The Company has obtained confidentiality agreements wherever
necessary for the protection of know-how forming part of the
Intellectual Property.
C.16.9 Data Protection and Software
(a) The Company has complied with the Data Protection
Act 1984 in all material respects.
(b) In the 12 months prior to the date hereof, the
Company has not suffered and the Covenantors do not
know that any other person has suffered any
failures or bugs in or breakdowns of any computer
hardware or software used in connection with the
business of the Company which have caused any
substantial disruption or interruption in or to its
use and the Covenantors do not know nor are they
aware of any fact or matter which may so disrupt or
interrupt or affect the use of such equipment
following the acquisition by the Offeror of the
Shares pursuant to this Deed on the same basis as
it is presently used.
(c) The Company either solely owns or is validly
licensed to use the software used in its Business
and has all rights necessary to develop, modify and
maintain such software and no action will be
necessary to enable it to continue to use, develop,
modify and maintain such software to the same
extent and in the same manner as it had been used
prior to the date hereof.
(d) All computer systems, excluding software, used in
the business of the Company is owned and operated
by and are under control of the Company and are not
wholly or partly dependent on any facilities which
are not under the ownership, operation or control
of the Company. No action will be necessary to
enable such systems to be continued to be used in
the business of the Company to the same extent and
the same manner as they have been used prior to the
date hereof.
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(e) Steps which the Management believes to be adequate
have been taken to back-up electronically stored
information and software material to be used or
likely to be used in the Business and the
Management has made what it believes to be adequate
disaster recovery provisions and security
arrangements in relation to all computer systems
and software used in the business of the Company.
PROPERTY IN OTHER COMPANIES
C.17. The Company is not liable to offer for sale transfer or otherwise
dispose of or purchase or otherwise acquire any assets, including
shares with an aggregate value of more than L.50,000 held by it in
other bodies corporate under their Articles of Association or any
agreement or arrangement or to take or suffer any action by reason of a
change in the management control or shareholding of the Company or by
reason of the acquisition of the Shares under the Offer.
INSURANCE
C.18. (a) The Company has produced to the Offeror all insurance policies
in effect in relation to its business and assets and such
policies are in full force and effect and so far as the
Covenantors are aware are not voidable.
(b) The Management considers that the Company is now, and has at
all material times been, adequately covered against accident,
damage, injury, third party loss, loss of profits, claims and
other risks normally covered by insurance and has at all times
effected such insurances as are required by law.
(c) So far as the Covenantors are aware there are no circumstances
which could reasonably be expected to lead to any cover under
such insurance being avoided by the insurers or the premiums
being increased and there is no claim outstanding under any
such policy nor are the Covenantors aware of any circumstances
likely to give rise to a claim.
FAIR TRADING AND COMPLIANCE WITH OTHER LEGISLATION
C.19. (a) To the best of the knowledge and belief of the Covenantors
neither the Company, nor any of its officers, agents or
employees (during the course of their duties in relation to the
Company) have committed, or omitted to do, any act or thing the
commission or omission of which is in contravention of any Act,
order, regulation or the like in the United Kingdom or
elsewhere which is punishable by fine or other penalty or which
may impose any other liabilities on the Company or affect the
validity or enforceability of any agreement or arrangement to
which it is a party.
(b) Without prejudice to the generality of the foregoing, so far as
the Covenantors are aware the Company has not done or omitted
to do any act or thing in contravention of the provisions of
the Restrictive Trade Practices Acts 1976 and 1977, the Fair
Trading Act 1973, the Competition Act 1980, Articles 85 and 86
of the Treaty of Rome, the Resale
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<PAGE> 39
Prices Act 1976, the Trade Descriptions Act 1968, the Consumer
Credit Act 1974, the Consumer Protection Act 1989, the
Companies Acts, the Financial Services Act 1986, the Banking
Act 1987 and the Food Safety Act 1990 and so far as the
Covenantors are aware all statutory, municipal and other like
requirements (including orders and regulations affecting
businesses carried on in member states of the European Economic
Community) applicable to the business of the Company have been
complied with.
LICENCES
C.20. So far as the Covenantors are aware the Company has all licences,
permissions, permits, consents and authorisations required for the
carrying on of its Business and is not in breach of the terms or
conditions of such licences, permissions, permits, consents and
authorisations and the Covenantors have not received notice of any
pending or threatened proceedings which might affect such licences,
permissions, permits, consents and authorisations and the Covenantors
are not aware of any other reason why any of them should be suspended,
threatened or revoked or be invalid.
GRANTS
C.21. The Company has not applied for nor received any financial assistance
from any supranational, national or local agency, body or authority.
FINANCIAL ASSISTANCE
C.22 The Company has not been a party to any transactions which could
constitute unlawful financial assistance by the Company for the
acquisition of its own shares contrary to the law relating thereto as
prevailing at the time of any such transaction.
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D. DIRECTORS AND EMPLOYEES
D DIRECTORS AND EMPLOYEES
D.1 PARTICULARS OF OFFICERS
The particulars of all employees annexed to the Disclosure Letter show
the names, job title, date of commencement of employment, date of
birth and period of continuous employment (calculated in accordance
with chapter 1 of part XIV of the Employment Rights Act 1996 "ERA"))
of every employee of the Company.
D.2 REMUNERATION AND BENEFITS
The particulars of all employees annexed to the Disclosure Letter show
all remuneration and other benefits:-
(a) actually provided; and
(b) which the Company is bound to provide (whether now or in the
future)
to each officer and employee of the Company and are true and complete
and include particulars of and details of participation in all profit
sharing, incentive, bonus, commission, share option, medical,
permanent health insurance, directors' and officers' insurance,
travel, car, redundancy and other benefit schemes, arrangements and
understandings (the "SCHEMES") operated for all or any employees or
former employees of the Company or their dependants whether legally
binding on the Company or not.
D.3 TERMS AND CONDITIONS
(a) The Disclosure Letter contains copies of all the standard
terms and conditions, staff handbooks and policies which apply
to employees of the Company and identifies which terms and
conditions apply to which employees.
(b) There are no terms and conditions in any contract with any
director, officer or employee of the Company pursuant to which
such person will be entitled to receive any payment or benefit
or such person's rights will change as a direct consequence of
the transaction contemplated by this Deed.
(c) There are no service agreements or contracts of employment
between the Company and any of its directors, officers or
employees containing any provision in addition to the matters
required to be contained therein under section 1 of the ERA.
(d) All employees of the Company have received a written
statement of particulars of their employment as required by
section 1 of the ERA.
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D.4 OPERATION OF THE SCHEMES
(a) The Schemes have at all times been operated in all material
respects in accordance with their governing rules or terms and
all applicable laws and all documents which are required to be
filed with any regulatory authority have been so filed and all
tax clearances and approvals necessary to obtain favourable tax
treatment for the Company and/or the participants in the Schemes
have been obtained and not withdrawn and no act or omission has
occurred which has or could prejudice any such tax clearance
and/or approval.
(b) No director, officer, employee or any dependant thereof or
any other participant in any Scheme in the last two years has
made any claim against the Company in respect of any Scheme and
the Covenantors are not aware of any event having occurred which
could reasonably be expected to give rise to any such claim.
D.5 NOTICE PERIODS
The terms of employment or engagement of all employees, agents,
consultants and professional advisers of the Company are such that
their employment or engagement may be terminated by not more than four
weeks' notice given at any time without liability for any payment
including by way of compensation or damages (except for unfair
dismissal or a statutory redundancy payment).
D.6 CHANGES SINCE THE ACCOUNTS DATE
Since the Accounts Date the Company has not made, announced or
proposed any changes to the emoluments or benefits of or any bonus to
any of its directors, officers or employees and the Company is under
no obligation to make any such changes with or without retrospective
operation.
D.7 LOANS
There are no amounts owing or agreed to be loaned or advanced by the
Company to any directors, officers and employees of the Company (other
than amounts representing season ticket loans, remuneration accrued
due for the current pay period, accrued holiday pay for the current
holiday year or for reimbursement of expenses).
D.8 NOTICE OF TERMINATION AND LEAVE OF ABSENCE
(a) Save as contemplated by the Offers no director, officer or
employee of the Company has given or received notice to
terminate his employment.
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(b) There are no directors, officers or employees of the Company
who are on secondment or absent on grounds of disability or
other leave of absence (other than normal holidays or absence of
no more than one week due to illness).
D.9 PAYMENT UP TO COMPLETION
All salaries and wages and other benefits of all employees of the
Company have, to the extent due, been paid or discharged in full.
D.10 INDUSTRIAL RELATIONS
(a) No directors, officers or employees of the Company are members
of a trade union, staff association or any other body
representing workers and no such union, association or body is
recognised by the Company for the purposes of collective
bargaining.
(b) The Disclosure Letter contains copies of and full details of
all rights and liabilities relating or pursuant to any
collective agreements (whether with a trade union, staff
association or any other body representing workers and whether
legally binding or not) concerning the Company.
(c) Within the three years preceding the date hereof the Company
has not been engaged or involved in any trade dispute (as
defined in section 218 of the Trade Union and Labour Relations
(Consolidation) Act 1992) with any employee, trade union, staff
association or any other body representing workers and no event
has occurred which could or might give rise to any such dispute
and no industrial action involving employees of the Company,
official or unofficial, is now occurring or threatened nor has
any industrial relations or employment matter been referred
either by the Company or its employees or by any trade union
staff association or any other body representing workers to
Advisory, Conciliation and Arbitration Service for advice,
conciliation or arbitration.
D.11 CLAIMS BY EMPLOYEES
No past or present director, officer or employee of the Company or any
predecessor in business has any claim or right of action against the
Company including any claim:-
(a) in respect of any accident or injury which is not fully
covered by insurance; or
(b) for breach of any contract of services or for services; or
(c) for loss of office or arising out of or connected with the
termination of his office or employment
and no event or inaction has occurred which could or might give rise
to any such claim.
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D.12 ENQUIRIES AND DISCRIMINATION
(a) So far as the Covenantors are aware there are no enquiries or
investigations existing, pending or threatened affecting the
Company in relation to any directors, officers or employees by
the Equal Opportunities Commission, the Commission for Racial
Equality or the Health and Safety Executive or any other bodies
with similar functions or powers in relation to workers.
(b) So far as the Covenantors are aware there are no terms or
conditions under which any director, officer or employee of the
Company is employed, nor has anything occurred or not occurred
prior to Completion that may give rise to any claim for sex
discrimination, race discrimination, disability discrimination
or equal pay either under domestic United Kingdom or European
Law whether by such director, officer or employee or a
prospective director, officer or employee or otherwise.
D.13 COMPLIANCE WITH LAWS
(a) The Company has complied in all material respects with all
relevant provisions of the Treaty of Rome, EC Directives,
statutes, regulations, codes of conduct, collective agreements,
terms and conditions of employment, orders, declarations and
awards relevant to the Company's directors, officers and
employees or the relations between the Company and any trade
union, staff association or any other body representing workers.
(b) There are no training schemes, arrangements or proposals,
whether past or present, in respect of which a levy may
henceforth become payable by the Company under the Industrial
Training Act 1982.
D.14 TRANSFER REGULATIONS
The Company has not entered into any agreement and no event has
occurred which may involve the Company in the future acquiring any
undertaking or part of one such that the Transfer Regulations may
apply thereto.
D.15 DUTY TO INFORM AND CONSULT
The Company has complied in all material respects with its obligations
to inform and consult with trade unions and other representatives of
workers and to send notices to the Secretary of State pursuant to
sections 188 to 194 of the TULR(C)A and regulations 10 and 11 of the
Transfer of Undertakings (Protection of Employment) Regulations 1981.
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D.16 RECORDS
The Company has maintained adequate and suitable records regarding the
service of its directors, officers and employees and such records
comply with the requirements of the Data Protection Act 1984.
D.17. BUSINESS IS CONDUCTED BY EMPLOYEES
The Company has not entered into any agreement or arrangement for the
management or operation of its business or any part thereof other than
with its employees.
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E. PROPERTIES
E.1. ALL PROPERTY
The Properties comprise all the freehold and leasehold land and
premises owned used or occupied by the Company and there are no other
rights vested in or liabilities of the Company or any agreements
whereby the Company has entered into obligations and/or has any
financial entitlement relating to any land other than the Properties at
the date hereof.
E.2. DISCLOSURES AND REPLIES
All disclosures and replies to enquiries and requisitions relating to
the Properties made or given by or on behalf of the Covenantors or the
Company to the Offeror or its Solicitors are now and will at Completion
be complete and correct in all material respects.
E.3. NO OTHER LIABILITIES
The Company has no actual or contingent obligations or liabilities (in
any capacity including as principal contracting party or guarantor) in
relation to any lease, licence or other interest in, or agreement
relating to, land apart from the Properties.
E.4. GOOD AND MARKETABLE TITLE
The Company has a good title to the Properties which title is freehold
or leasehold as indicated in Schedule 4 and, unless disclosed in
Schedule 4, the Company is solely legally and beneficially entitled to
the Properties for an unencumbered estate in possession.
E.5. TITLE DEEDS AND DOCUMENTS
The Company has under its control all title deeds and documents
necessary to prove its title to the Properties and the same are
original documents or properly examined abstracts; where any of the
Properties is leasehold the title documents include all necessary
consents for the grant and assignment of the lease, satisfactory
details of all reversioners' titles, memoranda of rent increases where
appropriate and all reversioners' consents required under the lease;
where any of the Properties is subject to leases, underleases,
agreements or licences the title documents include all necessary
consents in connection therewith and evidence of registration of the
grant of the same where appropriate.
E.6. ADEQUACY OF EXISTING BENEFICIAL RIGHTS
To the best of the Covenantors' knowledge each of the Properties has
the benefit of all rights necessary for the continued present use and
enjoyment of the same such rights not being capable of withdrawal by
any person nor liable to be made subject to any charge therefor.
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E.7. OTHER MATTERS ADVERSELY AFFECTING THE PROPERTIES
So far as the Company is aware, there are no agreements, covenants,
restrictions, exceptions, reservations, conditions, rights, privileges
or stipulations affecting the Properties which are of an onerous or
unusual nature.
E.8. NO DEFAULT
The Company has not received any notice of any breach of any
covenants, restrictions, exceptions, reservations, conditions,
agreements, statutory and common law requirements, by-laws, orders,
building regulations and other stipulations and regulations affecting
the Properties and the uses of the Properties including the terms of
any lease, underlease or tenancy agreement under which any part of any
of the Properties is held and (without prejudice to the generality of
the foregoing) all outgoings have been paid to date and (in the case
of leasehold property) all rents and service charges have been paid to
date and no notice of any alleged breach of any of the terms of any
such lease or tenancy agreement as aforesaid has been served on the
Company.
E.9. LEASEHOLD PROPERTIES
(a) Each of the Properties which is leasehold is held under the
lease brief details of which are set out in Schedule 4 and no
licences or collateral arrangements or concessions have been
entered into or granted each such lease being a head lease and
containing no unusual or onerous covenants or provisions nor
any rights of determination on the part of the landlord and
there are no rent reviews which are or will at the date of
Completion be in the course of being determined;
(b) The proposed acquisition of the Company by the Offeror will
not result in the termination or cessation of any rights or
interests in the Properties pursuant to any lease, licence or
collateral arrangement in relation to the Properties.
E.10. USE
The existing use of each of the Properties is only that specified in
Schedule 4 and is the lawful permitted use whether under the current
Town and Country Planning legislation and in the case of leasehold
property under the terms of the lease or tenancy agreement under which
such property is held or otherwise and are not temporary uses and all
necessary consents to such existing uses have been obtained.
E.11. NO COMPULSORY ACQUISITION OR ENFORCEMENT PROCEEDINGS
There are no outstanding enforcement or other notices or proceedings
issued in respect of any of the Properties and so far as the Company
is aware there is no resolution or proposal for compulsory acquisition
by the local or any other authority nor any outstanding order, notice
or
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other requirement of any such authority that affects such existing use
as aforesaid or involves expenditure in complying with it nor any
other circumstances known which may result in any such order or notice
being made or served or which may otherwise affect the Properties.
E.12. FULL DISCLOSURE
Accurate details of all leases have been disclosed in writing to the
Offeror or the Offeror's Solicitors prior to the date hereof.
E.13. ACCURACY OF INFORMATION
All the information produced to or given in writing to the Offeror or
the Offeror's Solicitors in respect of or relating to the Properties
(including replies to enquiries and requisitions) in the course of
negotiations leading up to the execution of this Deed is true and
accurate and the Covenantors are not aware of any fact, matter or
thing which has not been disclosed to the Offeror or the Offeror's
Solicitors which makes any such information untrue or misleading at
the date of this Deed.
E.14. NO DISPUTES
The Company has not received notice that the Properties are affected
by any outstanding disputes, notices or complaints which affect the
use of the Properties for the purposes for which they are now used or
proposed to be used or that there are matters or Encumbrances
affecting the Properties and which would prevent or impede the Company
from operating and carrying on the businesses currently carried on at
the Properties.
E.15. FIRE PRECAUTIONS ACT 1971
The Company has not received notice that it has not complied with its
obligations under the Fire Precautions Act 1971 and that it has
applied for and obtained fire certificates thereunder in respect of
all premises owned or occupied by the Company to the extent required
by such Act.
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F. PENSIONS
F.1. PENSION ARRANGEMENTS DISCLOSED
Save in respect of the Richard Ellis Retirement Fund, the Richard
Ellis Executive Retirement Trust and the Richard Ellis Structured
Finance Limited Retirement Scheme (the "PENSION SCHEMES") the Company
is under no obligation or commitment, nor is it a party to any custom
or practice, to pay, provide or contribute towards any "RELEVANT
BENEFITS" within the meaning of Section 612 of the TA (ignoring the
exception therein) and has not at any time participated in or
contributed towards any scheme or arrangement which has as its purpose
or one of its purposes the provision of any such benefits (other than
schemes which have been fully wound up).
F.2. EX GRATIA PENSIONS ETC.
The Company has not made or proposed, and will not before Completion
make or propose, any voluntary or ex gratia payments to any person in
respect of any relevant benefit (as defined in paragraph F.1 above).
F.3 UNDERTAKINGS AND ASSURANCES
No undertaking or assurance (whether legally binding or not) has been
given by the Company to any person as to the continuance,
introduction, increase or improvement of any such benefit or scheme or
arrangement as is referred to in paragraph F.1 above since 1 May 1996.
F.4. DISCLOSURE OF DOCUMENTS
All material details of the Pension Schemes have been supplied to the
Offeror or its legal advisers including (without limitation to the
foregoing) in relation to the Richard Ellis Retirement Fund
(the "RETIREMENT FUND") complete up-to-date and accurate copies of the
following:-
(a) all trust deeds, rules and other documents which have at any
time governed the Retirement Fund (including any which have
now been superseded or consolidated);
(b) any announcements to members of the Retirement Fund which are
not yet the subject of formal amendment to the documentation;
(c) the current explanatory booklets and other explanatory
literature issued to persons who are (or are entitled to
become) members of the Retirement Fund;
(d) the name and address of the actuary to the Retirement Fund and
the actuary's reports on the last actuarial valuation of the
Retirement Fund, together with any subsequent actuarial advice
or recommendations given in relation to the Retirement Fund;
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(e) the audited accounts of the Retirement Fund (including the
auditors' report) for the last two scheme years and any draft
scheme accounts for the current scheme year;
(f) a statement of the basis on which the participating companies
and the members of the Retirement Fund contribute thereto, and
make payments in respect of the expenses of administration,
management and trusteeship thereof and the rate and amount of
such contributions and payments made in the three years prior
to the date of this Deed;
(g) details of any discretionary benefits provided under, and
discretionary arrangements relating to, the Retirement Fund,
including any discretionary increases of deferred pensions or
pensions in payment;
(h) the approval letter issued by the Pension Schemes Office of
the Inland Revenue in respect of the Retirement Fund and any
undertakings and indemnities given to the Inland Revenue in
relation to the Retirement Fund other than undertakings in the
normal form requested by the Inland Revenue from pension
schemes generally.
All written information which has been made available to the Offeror
on or before the date of this Deed in relation to the Pension Schemes
and which is annexured to the Disclosure Letter is true and accurate
in all material respects.
F.5 PAYMENT OF CONTRIBUTIONS
All contributions and premiums which are payable by the participating
companies under the Pension Schemes and all contributions due from
members of the Pension Schemes have been duly paid when due and the
participating companies have fulfilled all their obligations under the
Pension Schemes to pay all relevant contributions and premiums.
F.6 EXEMPT APPROVAL
The Retirement Fund and the Richard Ellis Structured Finance Limited
Retirement Scheme are, and have been with effect from the date of
their commencement, (within the meaning of Section 592(1) of the TA)
exempt approved schemes and so far as the Covenantors are aware there
is no reason why such approval might be withdrawn or cease to apply.
F.7 CONTRACTING OUT
No employee of the Company is in contracted-out employment as defined
in the Pension Schemes Act 1993.
F.8 INSURANCE OF DEATH BENEFITS
All lump sum death benefits which may be payable under the Pension
Schemes (other than a refund of members' contributions with interest
where appropriate) are fully insured with an
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insurance company of good repute authorised to carry on long-term
insurance business under the Insurance Companies Act 1982. All
policies and contracts under which such benefits are insured are
enforceable and there is no ground on which the insurance company
concerned might avoid liability under any such policy or contract.
Each member and beneficiary has been covered for such insurance by
such insurance company at its normal rates and on its normal terms for
persons in good health.
F.9. LEGAL COMPLIANCE
So far as the Covenantors are aware the Pension Schemes have at all
times been administered in all material respects in accordance with
the trusts' powers and provisions of their governing documentation and
have been administered in accordance with and comply with all
applicable legislation and the general requirements of trust law.
F.10 NO CLAIMS OR LITIGATION
No notice of any claim has been made or threatened against the
trustees or administrator of the Pension Schemes or any company
participating therein or against any person whom the Company is or may
be liable to indemnify or compensate (including any complaint to the
Pensions Ombudsman) in respect of any act, event, omission or other
matter arising out of or in connection with the Pension Schemes (other
than routine claims for benefits) and so far as the Covenantors are
aware there are no circumstances which may give rise to any such
claim.
F.11 DISCRETIONARY BENEFITS
No power or discretion has been exercised to augment or improve any
benefit under the Pension Schemes, nor any promise or announcement
made to do so.
F.12 ACCESS TO MEMBERSHIP
Every person who is entitled to membership of the Pension Schemes has
been invited to join as of the date on which he became so entitled.
F.13 PAYMENTS TO COMPANIES
No payment has been or is proposed to be made from the Pension Schemes
to any participating company.
F.14 CONTRIBUTIONS TO PERSONAL PENSIONS
The Company has no contractual liability to make any contributions to
any personal pension scheme or any retirement annuity contract of any
employee or director or to make any payment of remuneration
specifically referable to contributions payable by any employee or
director under such scheme or contract.
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F.15 FEES AND EXPENSES PAID
All actuarial, consultancy, legal and other fees, charges or expenses
which have fallen due in respect of the Pension Schemes, and whether
payable by participating companies or by the trustees thereof, have
been paid.
F.16 NO TAX LIABILITY
All taxation of any nature, whether of the United Kingdom or
elsewhere, for which the trustees or administrators of the Pension
Schemes are liable or liable to account and which has fallen due has
been duly paid.
F.17 RECORDS PROPERLY MAINTAINED
The records of the Pension Schemes, including without prejudice to the
generality of the foregoing all books of account and trustees'
minutes, have been adequately maintained and all such records are in
the possession of or under the control of the trustees of the Pension
Schemes.
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G. THE GROUP AND ITS BANKERS
BORROWINGS
G.1. The total amount borrowed by the Company from its bankers does not
exceed its facilities and the total amount borrowed by the Company from
whatsoever source does not exceed any limitation on its borrowing
contained in its Articles of Association, or in any debenture or loan
stock deed or other instrument.
CONTINUANCE OF FACILITIES
G.2. Accurate details of all bank or deposit accounts (whether in credit or
overdrawn), overdraft, loans or other financial facilities outstanding
or available to the Company including the signatures of each bank or
deposit account, overdraft, loan or facility have been supplied to the
Offeror and none of the Covenantors nor the Company has done anything
whereby the continuance of any such facilities in full force and effect
might be affected or prejudiced. In relation to the bank or deposit
accounts there have been no payments out of any such accounts except
for payments in the ordinary course of the Company's business.
EVENTS OF DEFAULT - INDEBTEDNESS
G.3. No circumstances have arisen or, to the best of the knowledge,
information and belief of the Covenantors, are about to arise in
consequence of the acquisition of the Company or by reason of any
default by the Company or any of its Subsidiaries such that any person
is, or would with the giving of notice and/or lapse of time and/or the
satisfaction of any other condition become entitled to require payment
before its stated maturity of, or security for, any indebtedness in
respect of borrowed money of the Company and, to the best of the
knowledge, information and belief of the Covenantors, no person to whom
any indebtedness for borrowed money of the Company which is payable on
demand is owed presently proposes to demand payment of, or security
for, the same, and there is no reason to suppose that any overdraft
facility of the Company will be, or is likely to be, withdrawn.
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H. ACCURACY OF INFORMATION
H.1 All information contained in the document in agreed form headed
"Details of the Company and the Subsidiaries", Schedule 4 to this Deed
and the information contained in the Offer Document in relation to the
Company, its officers and any person connected (within the meaning
given in Section 839 T.A.) with any of them is true and correct in all
material respects and does not omit any information which would be
necessary to make the information contained therein not misleading in
any material respect.
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I. TAXATION
INFORMATION AND RETURNS
RETURNS
I.1. The Company has made all returns and supplied all information and given
all notices to the Inland Revenue or other Taxation Authority as
reasonably requested or required by law and, so far as the Covenantors
are aware, these have been made within any requisite period. All such
returns and information and notices are correct and accurate in all
material respects and are not the subject of any dispute so far as the
Covenantors are aware and to the best of the knowledge, information and
belief of the Covenantors there are no facts or circumstances likely to
give rise to or be the subject of any such dispute and all tax returns
for the Company for all periods ending on or before the Accounts Date
have been agreed by the Inland Revenue or other Taxation Authority.
CLEARANCES
I.2. No action has been taken by the Company in respect of which any consent
or clearance from the Inland Revenue or other Taxation Authority was
legally required save in circumstances where such consent or clearance
was validly obtained, and where any conditions attaching thereto were
and are (so far as necessary), at the date of the Offer, met.
CLAIMS AND ELECTIONS
I.3. The Company has not made and is not subject to any claim or election
under any or all of the following:-
(a) Sections 279(1) to (6) T.C.G.A. (foreign assets: delayed
remittances);
(b) Section 35 T.C.G.A. (capital gains: rebasing to 31 March 1982);
(c) Section 24 T.C.G.A. (assets of negligible value or lost or
destroyed);
(d) Section 175 T.C.G.A. and Sections 152 and 153 T.C.G.A.
(roll-over relief);
(e) Section 242 T.A. (surplus franked investment income);
(f) Section 247 T.A. (group income);
(g) Sections 584 585 or 723 T.A. (foreign income etc.: delayed
remittances);
(h) Sections 75 to 77 F.A. 1986 (stamp duty on reconstructions
etc.).
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I.4. The Disclosure Letter contains details of all outstanding entitlements
to make claims, elections, appeals and postponement applications in
respect of each company other than REGL and in respect of Section 35
T.C.G.A., no period has expired being a period in which such an
election in respect of the Company could have been made without the
election being made.
PAYMENT OF TAX BY INSTALLMENTS
I.5. The Company has made no election or arrangement for the payment of Tax
by instalments under Sections 280 and 48 T.C.G.A.
PROVISION FOR AND PAYMENT OF TAX
GENERAL
I.6. The Accounts make proper provision or reserve in respect of any period
ended on or before the Accounts Date for all Tax assessed or liable to
be assessed on the Company or for which it is accountable at the
Accounts Date whether or not the Company has or may have any right of
reimbursement against any other person and proper provision has been
made and shown in the Accounts for deferred taxation in accordance with
generally accepted accounting principles.
PAYMENT OF TAX
I.7. The Company has duly paid all Tax to the extent that the same ought to
have been paid and is not liable nor has it within three years prior to
the date hereof been liable to pay any penalty or interest in
connection therewith.
PAY AS YOU EARN
I.8. The Company has properly operated the P.A.Y.E. system, or any
equivalent system outside the United Kingdom, deducting Tax as required
by law from all payments to or treated as made to or benefits provided
for employees, ex-employees or independent contractors of the Company
(including any such payments within Section 134 T.A.) and duly
accounted to the Inland Revenue for Tax so deducted and has complied
with all its reporting obligations to the Inland Revenue in connection
with any such payments made or benefits provided, and no P.A.Y.E. audit
in respect of the Company has been made by the Inland Revenue nor has
the Company been notified that any such audit will be made.
GIVE AS YOU EARN
I.9. Details of any payroll deduction scheme pursuant to Section 202 T.A.
operated by the Company are set out in the Disclosure Letter and any
such scheme has been operated in accordance with that section and
regulations made thereunder.
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SECONDARY LIABILITY
I.10. So far as the Covenantors are aware, no transaction or event has
occurred in consequence of which the Company is or may be held liable
for any Tax or deprived of relief or allowances otherwise available to
it or may otherwise be held liable for or to indemnify any person in
respect of any Tax for which some other company or person was primarily
liable (whether by reason of any such other company being or having
been a member of the same group of companies or otherwise).
CORPORATION TAX
TRADING ASSETS
I.11. In the event that any asset shown in the Accounts as a fixed asset is
disposed of immediately following the Offers the proceeds derived from
such asset will not be treated as a trading receipt for tax purposes.
I.12. INTENTIONALLY LEFT BLANK
TRANSFER PRICING
I.13. The Company has not entered into any transactions to which Section 770
T.A. would apply and no notice or enquiry pursuant to Section 770 T.A.
has been made in connection with any of such transactions.
APPROPRIATIONS
I.14. Since the Accounts Date the Company has not appropriated any of its
assets to or from trading stock.
I.15. INTEREST RATE CONTRACTS ETC.
The Company is not at the date hereof and has not since the Accounts
Date been a party to any contract which is a qualifying contract for
the purposes of Section 147 of the 1994 or a contract which may become
a qualifying contract.
I.16 EXCHANGE GAINS AND LOSSES
The Company is not at the date hereof and has not since the Accounts
Date been:-
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(a) the holder of a qualifying asset;
(b) subject to a qualifying liability; or
(c) party to a currency contract
for the purposes of chapter II of the FA 1993.
I.17 CREDITOR RELATIONSHIPS
The Company is and has since the Accounts Date been taxed on an
authorised accruals basis of accounting in relation to all loan
relationships which are creditor relationships as defined in Section
103 of the FA 1996 and in relation thereto:-
(a) the accruals on which the Company is taxable are computed only
by reference to interest;
(b) if any such debt were to be repaid at its face value the
Company would not suffer any charge to Tax in excess of Tax on
interest accrued; and
(c) there is no connection between the Company and the debtor as
mentioned in Section 87 of the FA 1996.
I.18 DEBTOR RELATIONSHIPS
(a) So far as the Covenantors are aware the Company will obtain Tax
relief (in respect of the period between the Accounts Date and
the date hereof) on an authorised accruals basis of accounting
in relation to all loan relationships which are debtor
relationships as mentioned in Section 103 of the FA 1996 which
are now or have at any time during the period between the
Accounts Date and the date hereof been outstanding and in
relation to each such relationship:-
(i) the deduction given in computing the taxable profits
of the Company in consequence of that relationship
will not be less than the interest accruing for the
period concerned;
(ii) the Company would suffer no adverse Tax consequences
were such debts to be repaid at face value save that
the Tax deduction for interest accrued would cease.
(b) The Company has not since the Accounts Date held or been the
debtor under any relevant discounted security as mentioned in
Schedule 13 of the FA 1996.
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PENSION FUND SURPLUS
I.19. Since the Accounts Date the Company has not received any payment to
which Schedule 22 T.A. applies.
CAPITAL ASSETS
CAPITAL ALLOWANCES
I.20. (a) No balancing charge in respect of any capital allowances (as
defined in Section 832(1) T.A.) claimed or given would be made
on any member of the Group on the disposal of any pool of assets
(that is to say all those assets expenditure relating to which
would be taken into account in computing whether a balancing
charge would arise on a disposal of any other of those assets)
if the disposals were to be made on the date hereof and for a
consideration equal to the amount of the book value thereof as
shown or included in the Accounts for each of the assets.
(b) So far as the Covenantors are aware, all necessary conditions
for all capital allowances claimed by the Company were at all
material times satisfied and remain satisfied and the Company
has not since the Accounts Date become liable for any balancing
charge.
FINANCE LEASES
I.21. (a) The Company is not the lessee under any leases of plant or
machinery save for the leases specified in the Disclosure Letter
(the "Leases").
(b) The machinery or plant subject to the Leases has in the period
which is the requisite period in respect of any expenditure
thereon by an owner or lessor for the purposes of Section 39(1)
CAA been used and only been used for a qualifying purpose as
defined by the section.
(c) The Covenantors, after making due and reasonable enquiry, are
not aware of any revenue investigation, revenue enquiry or
other circumstance which indicates that any person who is or
was a lessor or owner of equipment subject to any of the Leases
will or may be denied the first year allowances and writing
down allowances by reference to which the initial rental under
that Lease was calculated.
DISTRIBUTIONS
REPAYMENTS OF SHARE CAPITAL
I.22. (a) The Company has not at any time after 6 April 1965 repaid or
agreed to repay or redeemed or agreed to redeem or purchased or
agreed to purchase (or made any
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contingent purchase contract within the meaning of Section 165
of the Companies Act 1985) in respect of any of its issued
share capital or any class thereof. Further the Company has
not after 6 April 1965 capitalised or agreed to capitalise in
the form of shares debentures or other securities or in paying
up amounts unpaid on any shares debentures or other securities
any profits or reserves of any class or description or passed
or agreed to be passed any resolution to do so.
(b) The Company has not made (and will not be deemed to have made)
any distribution within the meaning of Sections 209 and 210
T.A. in the last six years except dividends properly authorised
and shown in its Accounts nor is the Company bound to make any
such distribution.
PAYMENTS TO BE TREATED AS DISTRIBUTIONS
I.23. The Company has not issued any securities (within the meaning of
Section 254(1) T.A.) which remain in issue where the interest payable
thereon falls to be treated as a distribution.
CHARGEABLE GAINS
SALES AT BOOK VALUE
I.24. No chargeable gain would arise if any assets of the Company (other than
trading stock) were to be realised for a consideration equal to the
amount of the book value thereof as shown or included in the Accounts.
VALUATION OF ASSETS
I.25. (a) The Company has not since the Accounts Date made any disposal
of part of an asset part of which is still owned by the Company
at the date hereof which has required or may or will require
any computation under Section 42 T.C.G.A. (part disposals of
assets).
(b) The Company has not since the Accounts Date disposed of or
acquired any asset so that Section 17 T.C.G.A. might apply to
restrict the consideration deemed to be given on such disposal
or acquisition.
DEPRECIATORY TRANSACTIONS
I.26. No loss which may hereafter arise on a disposal by the Company of
shares in or securities of any company will or is likely to be reduced
by virtue of the application of Section 176 T.C.G.A. (transactions in a
group) or Section 177 T.C.G.A. (dividend stripping).
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SHARES AND SECURITIES
I.27. The Company has not acquired or sold any shares or securities or
changed the rights attaching to any shares or securities since the
Accounts Date.
TRANSFERS BY WAY OF GIFT
I.28. The Company has not since the Accounts Date made any such transfer of
an asset at an undervalue as is mentioned in Section 125 T.C.G.A. or
received any assets by way of gift as mentioned in Section 282 T.C.G.A.
ANTI AVOIDANCE PROVISIONS
TAX SCHEMES
I.29. The Company has not entered into nor been a party to nor otherwise
involved in any scheme or arrangement containing one or more steps or
stages having no commercial purpose and designed wholly or partly for
the purpose of avoiding or deferring Tax.
TRANSACTIONS IN SECURITIES
I.30. The Company has not since the Accounts Date:-
(a) become liable for Tax; or
(b) received and will not receive or be the subject of or be
adversely affected by any Claim for Tax (arising as a result of
events occurring after the Accounts Date);
arising under or imposed by or resulting from the operation of Sections
703-709 T.A..
TRANSACTIONS IN LAND
I.31. The Company has not since the Accounts Date:-
(a) become liable for Tax; or
(b) received and will not receive or be the subject of or be
adversely affected by any Claim for Tax (arising as a result of
events occurring after the Accounts Date);
arising under or imposed by or resulting from the operation of Sections
776-778 T.A..
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SALE AND LEASE BACK OF LAND
I.32. In the last six years, the Company has not entered into any transaction
as is mentioned in Sections 34-37 or Section 780 T.A.
TRANSACTIONS BETWEEN DEALING AND ASSOCIATED COMPANY
I.33. The Company has not in the last six years entered into any transaction
mentioned in Section 774 T.A.
FOREIGN ELEMENT
TREASURY CONSENTS
I.34. The Company has not without the prior consent of the Treasury entered
into any of the transactions specified in Section 765(1)(c) or (d) T.A.
nor did the Company prior to 15 March 1988 without such consent enter
into any of the transactions specified in Section 765(1)(a) or (b) T.A.
JURISDICTION
I.35. The Company is not liable to tax in any jurisdiction other than the
country in which it was incorporated.
TRANSFERS TO NON-RESIDENT COMPANY
I.36. The Company has not since the Accounts Date made any such transfer as
is mentioned in Section 140 T.C.G.A.
AGENCY FOR NON RESIDENTS
I.37. The Company is not assessable and has not been assessed to Tax by
virtue of Section 78 T.M.A.
INHERITANCE TAX
INHERITANCE TAX CHARGE
I.38 There is no unsatisfied liability to inheritance tax attached or
attributable to the Shares or any asset of the Company and in
consequence no person has the power to raise the amount of such Tax by
sale or mortgage of or by a terminable charge on any of the Shares or
assets of the Company as mentioned in Section 212 of the I.T.A. and
none of the Shares or assets of the Company are subject to an Inland
Revenue charge within Section 237 of the I.T.A..
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GROUPS OF COMPANIES
GROUP RELIEF
I.39. The Disclosure Letter contains particulars of all arrangements relating
to group relief under Sections 402-413 T.A. to which the Company is or
has been a party and:-
(a) all claims by the Company for group relief were valid when made
and have been or will be allowed by way of relief from
corporation tax;
(b) the Company has not made nor is liable to make any payment for
group relief otherwise than in consideration for the surrender
of group relief allowable to the Company by way of relief from
corporation tax;
(c) the Company has received all payments due to it under any
arrangement or agreement for surrender of group relief by it;
(d) no such payment exceeds or could exceed the amount permitted by
Section 402(6) T.A..
ADVANCE CORPORATION TAX
I.40. The Disclosure Letter contains particulars of all arrangements for the
surrender under Section 240 T.A. of any amount of advance corporation
tax and in respect of receipts and surrenders disclosed:-
(a) the Company has not paid nor is liable to pay for the benefit
of any advance corporation tax which is or may become incapable
of set off against the Company's liability to corporation tax;
(b) the Company has received all payments due to it for all
surrenders of advance corporation tax made by it; and
(c) no such payment exceeds or could exceed the amount permitted by
Section 240(8) T.A..
COMPANIES FORM A GROUP
I.41. The Companies form a group for the purposes of Section 170 T.C.G.A. and
there are no other companies which are members of that group.
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VALUE ADDED TAX
VALUE ADDED TAX
I.42. (a) The Company is a registered taxable person for the purpose of
the VAT legislation and has not at any time been treated as a
member of a group of companies for such purpose and has not
made any application to be so treated and no circumstances
exist whereby the Company would or might become liable for
value added tax as an agent or otherwise by virtue of Section
47 V.A.T.A. or any equivalent section of the VAT legislation.
(b) The Company has (so far as the Covenantors are aware) complied
in all respects with all material requirements and provisions
of V.A.T.A. or any equivalent legislation outside the UK and
all regulations and orders made thereunder (the "VAT
LEGISLATION") and has made and maintained and will pending the
date of the Offers make and maintain accurate and up-to-date
records invoices accounts and other documents required by or
necessary for the purposes of the VAT legislation.
STAMP DUTY
STAMP DUTY AND CAPITAL DUTY
I.43. All documents necessary to prove the Company's title to its assets have
been duly stamped and since the Accounts Date the Company has not been
a party to any transaction whereby the Company was or is or could
become liable to stamp duty reserve tax.
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J. ENVIRONMENTAL MATTERS
For the purposes of this Section J:
"Disposal" means any disposal by any means, including dumping, incineration,
spraying, pumping, injecting, depositing or burying;
"Environmental Laws" means all EU, national, municipal or local statutes,
regulations, bye-laws, published guidelines, published policies or rules, and
Orders of any Governmental Authority and the common law (in force as at or
prior to the date of this Deed), relating in whole or in part to the
environment and includes those laws (all as in force as at or prior to the date
of this Deed) relating to the storage, generation, use, handling, manufacture,
processing, transportation, import, export, treatment, Release or Disposal of
any Hazardous Substance and any laws (in force as at or prior to the date of
this Deed) relating to asbestos or asbestos containing materials in the
environment, in the workplace or in any building located on any of the
Properties;
"Environmental Notice" shall mean any citation, directive, order, claim,
litigation, investigation, proceeding, judgment, letter or other communication,
written or oral, actual or threatened, from any person, including any
Governmental Authority;
"Environmental Permits" includes all permits, certificates, approvals,
consents, authorisations, registrations, and licences issued, granted,
conferred, created or required by any Governmental Authority pursuant to any
Environmental Laws;
"Governmental Authority" means any domestic or foreign government whether
federal, provincial, state or municipal and any governmental agency,
governmental or regulatory authority, governmental tribunal or governmental
commission of any kind whatever;
"Hazardous Substance" means any pollutant, contaminant, waste, hazardous
substance, hazardous material, toxic substance, dangerous substance or
dangerous good as defined, judicially interpreted or identified in any
Environmental Law, including any that may impair the quality of any waters;
"Order" means any order (draft or otherwise), judgment, injunction, decree,
award or writ of any court, tribunal, arbitrator, Governmental Authority or
other person;
"Process" means any industrial or other process or activity carried on at the
Properties;
"Release" includes releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, migrating, escaping, leaching, disposing,
dumping, depositing, spraying, burying, abandoning, incinerating, seeping or
placing, or any similar action defined in any Environmental Law; and
"Remedial Order" means any Order issued, filed or imposed pursuant to any
Environmental Law and includes, without limitation, any Order requiring any
remediation or clean-up of any Hazardous Substance, or requiring that any
Release, Disposal or other activity be reduced, modified or eliminated.
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J.1 To the best of the Covenantors' knowledge, information and belief the
Company possesses all Environmental Permits necessary or desirable to
operate its businesses. All operations of the Company are now and
always have been in compliance in all respects with and without breach
of all applicable Environmental Laws and all Environmental Permits.
J.2 The Company is not the subject of any Remedial Order, nor to the
knowledge of the Covenantors, has any investigation, evaluation or
other proceeding been commenced to determine whether any such Remedial
Order is necessary.
J.3 To the best of the Covenantors' knowledge, information and belief,
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(a) the Company has not been charged with or convicted of an
offence for non compliance with or breach of any Environmental
Law nor has the Company been fined or otherwise sentenced for
non-compliance with or breach of any Environmental Law nor has
the Company settled any prosecution short of conviction for
non-compliance with or breach of any Environmental Law;
(b) the Company has not received any notice of judgment or
commencement of proceedings of any nature, or experienced any
search and seizure, nor is the Company under investigation
related to, any breach or alleged breach of or non-compliance
with any Environmental Law;
(c) the Company has not caused or permitted the Release or
Disposal of any Hazardous Substance on, from, under or to the
Properties or of any Release or Disposal from a facility owned
or operated by any other person, including previous owners,
for which the Company may have liability;
(d) all Hazardous Substances generated, handled, stored, treated,
processed, transported or disposed of by or on behalf of the
Company have been generated, handled, stored, treated,
processed, transported or disposed of in compliance with all
applicable Environmental Laws and Environmental Permits; and
(e) the Company has not received any Environmental Notice or other
Order that the Company is, or is potentially, responsible for
any clean-up, remediation or corrective action under any
Environmental Laws and the Covenantors have no knowledge of
any facts which could give rise to any such Environmental
Notice or other Order.
J.4 In relation to the Company, its businesses, the Properties and the
Process, the Covenantors have provided to the Offeror complete,
accurate and up to date copies of all insurance appraisals,
applications for relevant licences, consents, permits and
authorisations, all filings and submissions made in relation thereto,
all environmental audit reports and associated documentation, and
health and safety reports and in each case correspondence relevant
thereto in all cases since 31 December 1992.
J.5 There are no actions, claims, or proceedings (whether actual or so far
as the Covenantors are aware potential) relating to liability in
respect of environmental matters nor, to the best of the knowledge,
information and belief of the Covenantors, is there any other, so far
as the Covenantors are aware, reason to believe that the Company has or
is likely to have liability in relation to environmental matters.
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K. TITLE AND CAPACITY
Each of the Covenantors has good title to and the necessary power and authority
to enter into, to deliver and to perform his or its obligations made in this
Deed and in the document containing his irrevocable undertaking to accept the
Offers and any other documents executed or to be executed in connection
herewith or with the Offers and to sell all his Shares and he or it will at
Completion be free to transfer those Shares free from all Encumbrances and
together with all rights now or hereafter attaching thereto on the terms of
this Deed and the other documents executed or to be executed in connection
herewith and the entry into, delivery and performance of each of such
obligations will not conflict with or be prevented by the terms of any other
document or obligation binding on a Covenantor.
SCHEDULE 2
WARRANTY AND INDEMNITY DEFENCES
1. GENERAL
In this Deed and in particular this Schedule, where the context so
admits:-
(a) references to the Warranties are references to the warranties,
undertakings and covenants on the part of the Covenantors given
or contained in Schedule 1 and Clause 2 of this Deed and, for
the purposes of the limitations provided herein, all other (if
any) warranties given by the Covenantors or any of them pursuant
to or in connection with this Deed;
(b) the expression "relevant claim" means a claim in respect of
any of the Warranties and/or any claim against the Covenantors
under the Indemnities and/or the Taxation Indemnity as the case
may be;
(c) references to a claimant are references to any person entitled
to claim under the Warranties and/or the Indemnities and/or the
Taxation Indemnity;
(d) the expression "appropriate proportion" in relation to any of
the Covenantors means, to the maximum extent possible, that
proportion of his shares shown on the register of members as at
the date of the Offer Document together with any shares allotted
on the exercise of options granted under the REGL Wider Share
Ownership Scheme (plus options in respect of which he has
accepted the Cancellation Alternative) bears to the total issued
share capital of the Company less the shareholding of B Ordinary
Shareholders (plus the total number of options granted under the
REGL Wider Share Ownership Scheme); and
(e) In the event of the Offeror successfully bringing a relevant
claim against the Covenantors:-
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(i) the Offeror shall not be entitled to have recourse to the
personal assets of a Covenantor (other than the Common Stock and
Deferred Loan Notes and proceeds thereof held or to be held in
the Escrow Fund) under this Deed; and
(ii) any limitations imposed on the Offeror in this Deed in
relation to the Warranties, Indemnities and the Taxation
Indemnity, including the limitations specified in Clause 1(e)(i)
above, shall cease to apply to the extent there has been a
fraudulent misrepresentation by a Covenantor.
2. TIME LIMITS FOR CLAIMS
No relevant claim may be made unless written notice of a claim under
the Warranties or Indemnities shall have been given by the Offeror to
the Covenantors before:-
(a) 31 August 1999 in the case of a claim under the Warranties and
the Pension Fund Indemnity other than those relating to
Taxation; or
(b) 20 February 2003 in the case of a claim under the Indemnities
other than the Pension Fund Indemnity;
(c) 20 February 2004 in the case of a claim under the Warranties
relating to Taxation,
and any relevant claim which is validly made under paragraphs
(a) and (b) above within the required period shall (unless
previously settled or withdrawn) be deemed to have been waived
or withdrawn in the event that legal proceedings in respect
thereof are not issued and served on the Covenantors'
Representative within nine months of written notice of the
relevant claim first being given. Time shall be of the essence
for the purposes of the foregoing. For the avoidance of doubt,
the written notice required pursuant to paragraph 12 below shall
not constitute written notice of a relevant claim unless such
notice is clearly expressed to be notice of a relevant claim as
opposed to notice of potential liability under the Warranties or
Indemnities. Claims under the Warranties relating to Taxation
shall mutatis mutandis be governed by Clause 5 of the Taxation
Indemnity.
3. MINIMUM AMOUNT
No relevant claim may be made and no Covenantor shall be liable in
respect of any of the Warranties or under the Indemnities or the
Taxation Indemnity unless:-
(a) the amount of the liability actually payable by the
Covenantors under any individual claim or series of related
claims exceeds L.5,000; and
(b) the amount of the liability actually payable under such claim
and under all relevant claims (each being in excess of
L.5,000) exceeds L.150,000 in aggregate.
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4. THRESHOLD FOR CLAIMS
In the event that the aggregate relevant claims (each in excess of
L.5,000):-
(a) exceed L.150,000 but are not more than L.300,000, the Offeror
shall not make a relevant claim against the Covenantors but the
REGL Modified Pre-tax Profit shall be decreased in the year the
aggregate relevant claims exceed L.150,000 by the amount that
such aggregate relevant claims exceed that threshold, and in
each year thereafter in which relevant claims are made, by the
amount of such claims in such years provided that REGL Modified
Pre-tax Profit is only affected once in respect of the actual
amount paid; and
(b) exceed L.300,000, the Offeror shall be entitled to recover
L.150,000 plus the total amount of the aggregate relevant
claims in excess of L.300,000 from and only from the Escrow
Fund.
5. ESCROW ARRANGEMENTS
5.1 Deposit to Escrow
As security for any and all relevant claims made, each Covenantor
agrees that:
(a) on Completion the Non-Alternative Stock issued as part of the
Consideration ("ESCROW SHARES") shall not be delivered to him
but shall be deposited with the Escrow Agent;
(b) on each occasion on which any Deferred Loan Notes that would
otherwise have been issued by the Offeror to the Covenantors
("ESCROW NOTES") such Escrow Notes shall not be delivered to
the Covenantors but shall be deposited with the Escrow Agent
directly by the Offeror; and
(c) any dividend or distribution paid on the Escrow Shares shall
be paid to and deposited with the Escrow Agent provided that
to the extent that any such dividend or distribution gives
rise to a tax liability on his Escrow Shares in the UK, 40 per
cent. of the taxable amount of such dividend shall be
distributed to the Covenantor.
5.2 Release from Escrow
Subject to the retention of the Escrow Shares and the Escrow Notes
("ESCROW SECURITY") by the Escrow Agent in accordance with paragraph
5.3 below, the Offeror and the Covenantors' Representative shall
instruct the Escrow Agent to release from the Escrow Fund:-
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================================================================================
(a) to each Covenantor who was not a C Ordinary Shareholder one
third of his Escrow Shares on 20 February 1999 and each
succeeding 20 February, each such date being a Release Date,
until all such shares have been released from the Escrow Fund;
(b) to each Covenantor who was a C Ordinary Shareholder all his
Escrow Shares on 20 February 1999, being a Release Date; and
(c) to each Covenantor on 20 February 2000 and each succeeding 20
February, each such date being a Release Date, Escrow Notes
deposited in the Escrow Fund in respect of the second
preceding year until all such Escrow Notes have been released
from the Escrow Fund.
5.3 Relevant Claims
If by the Release Date it shall not have been Finally Determined
whether or not the Covenantors are liable in whole or part in respect
of a relevant claim and the Covenantors' Representative shall not have
expressly agreed in writing that the Covenantors are so liable, the
Offeror and the Covenantors' Representative shall jointly instruct the
Escrow Agent to retain in the Escrow Fund (and withhold from the
Escrow Security which would otherwise be released on such Release
Date) such amount of each Covenantor's Escrow Security (firstly from
Escrow Shares and secondly from Escrow Notes) representing his
appropriate proportion of such amount as the Offeror and the
Covenantors' Representative reasonably believe to be the value of such
claim (the "RETAINED ESCROW SECURITY") and, in the absence of
agreement, as determined by an independent chartered accountant
selected by the parties, where such Retained Escrow Security shall be
retained until it shall be Finally Determined whether or not the
Covenantors are liable in whole or in part in respect thereof or the
Covenantors' Representative shall agree that the Covenantors are so
liable or until the provisions of paragraph 5.4 apply (as
appropriate).
5.4 Disbursement of Escrow Security
The Offeror and the Covenantors' Representative shall jointly instruct
the Escrow Agent to release the Retained Escrow Security as follows in
the respective circumstances:
(a) if it is Finally Determined or agreed by the Offeror and the
Covenantors' Representative that the Covenantors are liable in
whole or in part in respect of a relevant claim, such amount
of each Covenantor's Retained Escrow Security with an Agreed
Value on the date of such Final Determination or agreement
equal to such Covenantor's appropriate proportion of the value
of such relevant claim (including interest and VAT thereon) in
each case as Finally Determined or agreed by the Covenantors'
Representative and the Offeror ("VALUE OF CLAIM") shall be
transferred by the Escrow Agent as authorised agent for the
Covenantor to the Offeror and the remainder of such
Covenantor's Retained Escrow Security shall be transferred by
the Escrow Agent as authorised agent for the Covenantor to
such Covenantor;
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(b) if it is Finally Determined or agreed by the Offeror and the
Covenantors' Representative that the Covenantors are not
liable in whole or in part in respect of a relevant claim,
each Covenantor's Retained Escrow Security shall be
distributed to such Covenantor;
(c) in the event the Agreed Value of each Covenantor's Retained
Escrow Security on the date of Final Determination or
agreement referred to in paragraph 5.4(a) above is less than
his appropriate proportion of the Value of Claim, an amount of
such Covenantor's other Escrow Security representing the
difference between his appropriate proportion of the Value of
Claim and the Agreed Value of the Retained Escrow Security
shall be transferred by the Escrow Agent as authorised agent
for the Covenantor from the Escrow Fund to the Offeror;
(d) in the event each Covenantor's Escrow Security transferred
under paragraphs 5.4(a) and (b) above is insufficient to meet
such Covenantor's appropriate proportion of the value of the
relevant claim the shortfall shall be carried forward and any
further Escrow Security from time to time deposited to the
Escrow Fund in respect of such Covenantor shall be transferred
by the Escrow Agent as authorised agent for the Covenantors in
accordance with paragraph 5.4(c) above until the shortfall of
his appropriate proportion of the relevant claim has been met
in full; and
(e) as to each Covenantor's Retained Escrow Security or other
Escrow Security, any distribution or transfer shall firstly be
taken from the Escrow Shares and secondly from the Escrow
Notes.
5.5 Valuation of Escrow Security
Escrow Security shall be valued for the purposes of paragraph 5.4 (the
"AGREED VALUE") as at any date as follows:-
(a) Escrow Shares shall have an Agreed Value equal to their Market
Price on such date; and
(b) Escrow Notes shall have an Agreed Value equal to their face
value.
(c) any distribution of dividends held in the Escrow Security or
cash shall be valued at the cash amount together with accrued
interest.
5.6 Covenantors' Representative's Access to Escrow Fund
(a) The Covenantors' Representative shall be entitled to recover
from the Escrow Fund (as they are incurred) the amount or
amounts of any and all third party costs and expenses incurred
or payable on behalf of the Covenantors by the Covenantors'
Representative in connection with investigating, assessing,
contesting or in settlement of any disputes or relevant claims
in connection with all proceedings in relation thereto or
steps taken to avoid or mitigate the same whether in relation
to a relevant claim made by the Offeror
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against the Covenantors or in pursuing a claim in accordance
with paragraph 12 against third parties.
(b) The Covenantors' costs of indemnifying the Offeror, the
Company and/or any Subsidiaries under paragraph 13 shall be
met at the option of the Covenantors' Representative out of
the Escrow Fund.
(c) The Offeror shall be obliged to join with the Covenantors'
Representative to jointly instruct the Escrow Agent to release
such amount of Escrow Security as is necessary to meet the
third party costs and expenses referred to in paragraph 5.6(a)
and (b) above.
5.7 Lapse of Claims
Notwithstanding any other provision of this paragraph the Offeror
shall not be entitled to continue to withhold its consent to release
of Escrow Security in respect of a relevant claim unless legal
proceedings in respect of such relevant claim shall have been
commenced on or before the expiry of nine months from the date on
which the relevant claim is notified in accordance with paragraph 12.
In default of legal proceedings both issued and served having been
commenced by such date the Offeror's rights to have recourse to the
Escrow Security in respect of such relevant claim shall automatically
lapse.
5.8 Permitted Actions
Nothing in this schedule shall in respect of the Escrow Securities
prevent the Covenantors from:-
(a) accepting or agreeing to accept or disposing of Shares or any
interest therein pursuant to acceptance of a general offer
made for all the issued share capital of the Offeror (other
than any such issued share capital held by the Offeror and/or
any subsidiary thereof and/or persons acting in concert with
the Offeror); or
(b) disposing of any shares in the Offeror or any interest thereon
where the disposal is pursuant to a statutory merger; or
(c) receiving interest due under the Escrow Notes,
provided that the share certificates in respect of any shares and/or
cash receivable by the Covenantors in consideration of an offer or
statutory merger shall be deposited in the Escrow Fund to be held on
the same terms as the Escrow Securities and
For the purposes of this clause a person shall be deemed to dispose of
a share or any interest therein if in any circumstances whatever he
ceases to be the beneficial owner thereof free from all liens,
charges, encumbrances or third party rights of any description or
enters into an agreement or arrangement whereby he will or may cease
to be such an owner thereof.
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6. APPROPRIATE PROPORTION
The liability of each of the Covenantors in respect of any relevant
claim shall not exceed his appropriate proportion of such claim.
7. REDUCTION OF CONSIDERATION
The amount of any successful relevant claim shall be deemed to
constitute a reduction in the Consideration payable hereunder.
8. RESTRICTIONS ON CLAIMS
No relevant claim may be made and none of the Covenantors shall be
liable under or in respect of the Warranties and/or under the
Indemnities:-
(a) if it would not have arisen but for some act, omission,
transaction or arrangement carried out after Completion
(otherwise than in the ordinary course of business or pursuant
to a legally binding commitment binding on the Company or any
Subsidiary in force on Completion) and which the Offeror was
or should reasonably have been aware would give rise to the
claim in question by or on behalf of all or any of the
Offeror, the Company any Subsidiary or any holding company
from time to time of any of them or any Subsidiary from time
to time thereof and their respective successors in title;
(b) if the fact, event or circumstance giving rise to the breach
or claim or otherwise relevant thereto is disclosed in the
Offer Document and this Deed (including the Schedules and any
Appendices thereto) or in any document in agreed terms or, in
relation to any breach of Warranty only, the Disclosure
Letter;
(c) to the extent that provision or allowance is made in the
Completion Accounts and Schedule of Liabilities in respect of
the matter to which the liability relates or that payment or
discharge thereof is or has been taken into account therein;
and
(d) to the extent of any insurance recovered by the claimant in
respect of the claim being brought. The Offeror shall procure
that the Company and the Subsidiaries maintain Professional
Indemnity insurance cover with substantially similar coverage
as the insurance in place during the 1997 financial year
provided such insurance cover is commercially available with
equivalent scope and breadth (including coverage of prior acts
and omissions up until Completion) and amount as had been in
place at Completion, provided that the Offeror shall not be
obliged to procure such insurance at a cost of more than 125%
of the cost for the financial year commencing 1 May 1997.
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9. CONTINGENT LIABILITIES
If in respect of a relevant claim under the Warranties or Indemnities
the liability of the Offeror or the Company or any Subsidiary is
contingent then the Covenantors shall not be liable in respect thereof
unless and until such time as the contingent liability ceases to be
contingent and becomes actual and no liability under a successful
relevant claim in respect of the payment of monies shall become due to
be satisfied unless and until the relevant monies become legally due
and payable.
10. DUTY TO MITIGATE
Nothing herein or in this Deed or otherwise shall be deemed to relieve
the Offeror or the Company or any Subsidiary from any common law duty
to mitigate any loss or damage incurred by it or them in consequence
of any matter giving rise to a relevant claim under the Warranties or
Indemnities and in any event the Offeror undertakes that it will
procure that following Completion insofar as relevant to the
Warranties or the Indemnities or other obligations of the Covenantors
under the Warranties or Indemnities:-
(a) the Company and each Subsidiary shall take all commercially
reasonable steps to perform its obligations owing to and
enforce its rights against third parties including (without
limitation) promptly to collect all debts the payment of which
or any part of which is warranted hereunder; and
(b) the Company and each Subsidiary shall duly and properly
perform its obligations set out in or contemplated by this
paragraph 10.
11. RECOVER ONLY ONCE
No person shall be entitled to recover any sum in respect of any
relevant claim or otherwise obtain reimbursement or restitution more
than once in respect of any one breach of the Warranties or claim
under the Indemnities or under the Taxation Indemnity or the subject
matter thereof so that for this purpose recovery by one shall be
deemed to be recovery by all other persons so entitled.
12. CONDUCT OF CLAIMS
If any relevant claim is made or any matter comes to the notice of the
Offeror or the Company or any Subsidiary or other possible claimant
for which or as a result of which the Covenantors may be liable under
the Warranties or the Indemnities the Offeror or the Company or
Subsidiary or claimant shall, as appropriate, within 28 days after the
matter first comes to its notice give written notice thereof to the
Covenantors' Representative provided that any failure to give the
requisite notice during that period shall not prejudice the ability of
the Offeror or the Company or any Subsidiary or other possible
claimant to make a claim and:-
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(a) none of them shall make any admission of liability, agreement,
settlement or compromise or otherwise take any action in
relation thereto without the prior written consent of the
Covenantors' Representative and shall at all times promptly
give the Covenantors' Representative and their professional
advisers all information and documents in its or the Company's
or Subsidiary's control as reasonably requested from time to
time;
(b) save as provided in paragraph 12(c), each of them will at all
times permit the Covenantors' Representative, as appropriate,
to take such action on their/its behalf to avoid, resist,
appeal, compromise, defend, mitigate or otherwise deal with
the claim or the liability the subject thereof or pursue any
rights of the Company or any Subsidiary in respect thereof;
(c) paragraph 12(b) will not apply to any relevant claim which
exceeds the maximum liability of the Covenantors (as set out
in paragraph 5 of this Schedule 2) or to any relevant claim
(other than purely monetary disputes or claims) which could
reasonably be expected to have a material adverse effect on
the operation of the Business or the goodwill or reputation of
the Business. In respect of any such relevant claims to which
this paragraph 12(c) applies, the Offeror, the Company or any
Subsidiary will consult with the Covenantors' Representative
and take account of all reasonable representations and views
in order to avoid, dispute, resist, appeal, compromise or
defend any such relevant claim.
Provided that to the extent that there is a conflict between the
provisions of this paragraph and Clause 4, Clause 4 shall prevail.
13. APPROPRIATE STEPS TO ENFORCE RECOVERY
Where the Offeror or the Company or any Subsidiary is entitled
(whether by right of indemnity, reimbursement or any other means) to
recover from some other person (not being the Offeror or the Company
or any Subsidiary but including, without limitation, any Taxation
authority) any sum or benefit in respect of any matter the subject of
a relevant claim under the Warranties or Indemnities the Offeror or
the Company or Subsidiary so entitled shall (subject to being
indemnified by the Covenantors to its or their reasonable satisfaction
against all costs and expenses which it or they may reasonably incur
thereby) take all appropriate steps to enforce such recovery or at the
option of the Covenantors it shall assign (for no consideration) to
them or such of them as they may nominate in writing all of its and
their rights of recovery aforesaid and the full benefit thereof and
(to the extent they have previously made payments in respect of the
relevant claim) account to them (or those of them as shall have made
payments in respect of the relevant claim in the proportions in which
such payments were made) for any amounts they recover, in accordance
with paragraph 14 below.
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14. SUBSEQUENT RECOVERY
In the event that payment is made by the Covenantors or any of them in
respect of a relevant claim under the Warranties or Indemnities and
the Offeror or the Company or any Subsidiary or any agent on its or
their behalf or any of them subsequently recovers from the third party
a sum or benefit which is referable to the subject matter of such
claim, the Offeror and the Company and the relevant Subsidiary shall
be jointly and severally liable forthwith after the receipt of such
sum or benefit to reimburse to the Covenantors the net amount received
(after deducting any costs and expenses reasonably incurred by the
recipient(s) in recovering such sum or benefit from the third party)
but not in any event exceeding the amount originally paid in respect
of the relevant claim. For these purposes:-
(a) a sum or benefit shall also be deemed to have been received if
received by way of credit set-off or other deduction or if
received in kind;
(b) a reduction in liability to Taxation arising as a direct
result of any payment made in respect of the relevant claim
shall be deemed to be a sum or benefit received aforesaid;
(c) the recipient shall be deemed to receive a credit refund or
repayment for Taxation purposes when and if it would have
received the same but for a liability to any Taxation not
covered by the Taxation Deed;
(d) any repayment supplement for Taxation purposes or interest
(less tax) paid or received or attributable to the sum or
benefit recovered shall also be accounted for to the
Covenantors to the extent referable to the period after the
relevant claim was satisfied.
15. RELEVANT REPRESENTATIONS
Save in respect of fraudulent misrepresentation none of the
Covenantors shall be liable in respect of any representations,
warranties, covenants, agreements, undertakings or other obligations
express, implied, statutory or otherwise which are made or assumed or
deemed to have been made or assumed by them or any of them in relation
to or connection with the subject matter hereof which are not
contained and expressly given or assumed by them in this Deed or any
document in agreed form to be entered into pursuant hereto and the
Offeror hereby confirms that it has not entered into this Deed or
intends to make the Offers in reliance on any such representation,
warranty, covenant, agreement, undertaking or other obligation.
16. CONTINUING OBLIGATIONS
The provisions of this Schedule shall remain in force and be fully
applicable in all circumstances and in particular shall not be
discharged by any breach of the Warranties or claim under the
Indemnities or breach of the provisions of the Taxation Indemnity
whatever its nature or consequence.
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17. MATERIAL TO BUSINESS
When any Warranty or any provision of this Deed or the Taxation
Indemnity is qualified or phrased by reference to materiality, such
reference shall be construed as a reference to materiality in the
context of the Business or its value as a whole, and where any
Warranty contains a reference to a material adverse change or effect,
such reference shall be construed as being a reference to a change or
effect which is material in the context of the Business or its value
taken as a whole.
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SCHEDULE 3
TAXATION INDEMNITY
1. INTERPRETATION
1.1 The following words, expressions and abbreviations used in this
Schedule shall, unless the context otherwise requires, have the
following meanings:-
"COMPLETION ACCOUNTS" means the unaudited consolidated financial
statements of the Company comprising the consolidated balance sheet,
profit and loss account and cash flow statement of the Group, together
with the notes thereon as at and for the period ended on the
Completion Accounts Date;
"CLAIM FOR TAX" means any of the following:-
(a) any liability to make a payment of or in respect of Tax;
(b) any claim, assessment, demand, notice or other document issued
or action taken by or on behalf of any person authority or
body whatsoever and of whatever country which claims payment
of Tax or any submission, return or correspondence from which
it appears that there may be a liability to Tax or Claim for
Tax within (c) below; or
(c) any non-availability or loss of or reduction of any Relief
(including in particular a right to repayment) to the extent
that such Relief has been shown as an asset in the Completion
Accounts or the availability of which has been taken into
account in computing, and so reducing or extinguishing, any
provision for deferred tax which appears in the Completion
Accounts (or which, but for such Relief, would have appeared
in the Completion Accounts);
"THE COMPANY" means REGL and the Subsidiaries and each of them;
"INCOME PROFITS OR GAINS" includes any measure by reference to which
Tax is computed;
"OFFEROR'S RELIEF" means any Relief to the extent that the same has
been treated as an asset in the Completion Accounts or the
availability of which has been taken into account in computing, and so
reducing or extinguishing any provision for deferred taxation which
appears in the Completion Accounts (or which would, but for such
Relief, have appeared in the Completion Accounts) or such Relief
arises in respect of periods after the Completion Accounts Date;
"RELEVANT EVENT" means every event, act, omission, default,
occurrence, circumstance, transaction, dealing or arrangement of any
kind whatsoever done or omitted to be done by the Covenantors or the
Company or which in any way concerns or affects the Company whether or
not done or omitted to be done by the Company or the Covenantors;
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"RELIEF" means any allowance, credit, exemption, deduction or relief
(including without prejudice to the generality of the foregoing loss
relief) from, in computing, against or in respect of Tax or any right
to the repayment of Tax;
"TAXATION STATUTES" means all statutes, decrees, orders and
regulations, whether domestic or foreign providing for or imposing any
Tax;
"TAX" has the meaning ascribed to it in the Deed;
"TAXATION AUTHORITY" means any local, municipal, governmental, state,
federal or fiscal revenue, customs or excise authority, body or
official anywhere in the world having powers or authority in relation
to Tax;
"UTILISATION OF AN OFFEROR'S RELIEF" means the utilisation or set off
of an Offeror's Relief available to the Company.
2. INDEMNITY
2.1 Subject as specifically provided herein, each Covenantor hereby
covenants severally with the Offeror to pay from time to time to the
Offeror or, as the Offeror may direct, to the Company or the relevant
Subsidiary (as the case may be), his appropriate proportion of an
amount equal to:-
(a) any Claim for Tax where the Claim for Tax in question arises
in respect or as a result or consequence of or in connection
with or by reference to:-
(i) one or more Relevant Events occurring or entered into
on or before the Completion Accounts Date; or
(ii) any income profits or gains earned, accrued or
received on or before the Completion Accounts Date;
or
(iii) the combined effect of two or more Relevant Events of
which at least one shall have occurred on or before
the Completion Accounts Date but only in
circumstances where such Claim for Tax would not have
been suffered by the Company but for the failure of
any person (other than a company falling within the
definition of the Company for the purposes of this
Deed) to discharge or pay any liability for Tax.
(b) any reasonable third party costs and expenses properly
incurred or payable in connection with any Claim for Tax the
subject of a successful claim under Clause 2.1(a) or (c),
including all legal proceedings relating thereto and the
settlement of any Claim for Tax or rebuttal of any contention
or in connection with any legal proceedings and reasonable
steps taken to avoid any Claim for Tax or contention whether
actual, threatened or anticipated including, for the avoidance
of doubt, all reasonable third party costs or
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expenses properly incurred in any legal proceedings taken by
the Offeror against the Covenantors under this Schedule;
(c) the amount of each and every Utilisation of an Offeror's
Relief which avoids or reduces a Claim for Tax which would
otherwise have been the subject of clause 2.1(a) hereof in
which case the Covenantors' liability under this Clause shall
be equal to the amount which the Covenantors would have paid
under Clause 2.1(a) had the Offeror's Relief utilised not been
available.
2.2 The covenant contained in Clause 2.1(a) shall not apply:-
(a) to any Claim for Tax to the extent that any Tax giving rise to
the same has been paid prior to the Completion Accounts Date
or to the extent that provision or reserve for the liability
to which the same relates has been made in the Completion
Accounts and for the purposes of this Clause 2.2(a) no
provision or reserve shall be prevented from being full and
sufficient if the same proves to be inadequate by reason only
of an increase in rates of Tax announced after the Completion
Accounts Date;
(b) to any Claim for Tax to the extent that the same shall have
arisen in consequence of any act or transaction, and which was
carried out without the prior written agreement of the
Covenantors by the Offeror or the Company after Completion
otherwise than in the ordinary course of business of the
Company or pursuant to a legally binding obligation created
prior to the date of this Deed; or
(c) to any Claim for Tax to the extent that the same is increased
as a result of any failure by the Offeror or the Company to
comply with its obligations under Clause 5.
(d) to any Claim for Tax to the extent that such liability to
Taxation arises or is increased by virtue of any change after
Completion in the basis upon which the accounts of the Company
are prepared and/or in the policies or practice adopted in the
preparation of such accounts other than a change required by
law or to comply with generally accepted accounting principles
where the existing basis, policies or practice did not so
comply; or
(e) to the extent that the Claim for Tax would not have arisen but
for the failure or omission by the Company after Completion to
make any claim, election, surrender or disclaimer or give any
notice or consent under any taxation statutes, the making or
giving of which was taken into account in computing any
provision or reserve for Tax in the Completion Accounts; or
(f) to the extent that the Claim for Tax would not have arisen but
for any claim, election, surrender or disclaimer made or
notice or consent given after Completion by the Offeror or the
Company or any subsidiary of them under any taxation statutes
other than a claim, election, surrender disclaimer, notice or
consent the making or giving of which was
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<PAGE> 81
taken into account in computing any provision or reserve for
tax in the Completion Accounts; or
(g) to the extent that notice of the Claim for Tax, in accordance
with Clause 5 hereof shall not have been given to the
Covenantors on or prior to 20 February 2004; or
(h) to the extent only that any amount otherwise subject to the
covenant contained in Clause 2.1 has been recovered under the
Warranties contained in this Deed; or
(i) to the extent that the Claim for Tax is excluded by paragraph
3 of Schedule 2 to this Deed;
(j) to the extent that the Claim for Tax would not have arisen but
for any change in law or published administrative practice of
any Taxation Authority, in either case after Completion with
retrospective effect to periods prior to Completion.
(k) if and to the extent that the Offeror or the Company have
recovered an amount in respect of such claim from a person or
persons other than the Covenantors or any other Company;
(l) to the extent that such claim would not have arisen but for
any winding-up or cessation after Completion of any trade or
business carried on by the Company or the Offeror or any major
change in the nature or conduct of any Company's trade after
Completion;
(m) to the extent that any Reliefs (including, for the avoidance
of doubt, any such saving, reduction or payment in respect of
Tax as is referred to in Clause 2.4(b) or 4.3(b) which has not
previously been so used or in respect of which a payment has
not already been made by the Offeror to the Covenantors) other
than an Offeror's Relief, are available for offset against the
liability giving rise to the claim;
(n) to the extent the damage, liability or loss suffered or
incurred by the Company has been made good or otherwise
compensated for without cost to the Offeror or any Company.
2.3 The provisions of Clauses 1(b), (c), (d) and (e) (3 (Minimum Amount),
4 (Threshold for Claims), 5 (Escrow Arrangements), 6 (Appropriate
Proportion), 9 (Contingent Liabilities) 11 (Recover Only Once), 16
(Continuing Obligations) and 17 (Material to Business) of Schedule 2
shall mutatis mutandis apply to this Schedule as if set out herein in
full.
2.4 Subject to Clause 2.5 below, all sums payable by the Covenantors under
this Schedule shall be paid free and clear of all deductions or
withholdings (including Tax), unless the deduction or withholding is
required by law, in which event or in the event that the Offeror shall
incur any liability for Tax chargeable or assessable in respect of any
payment pursuant to this Schedule, the Covenantors shall pay such
additional amounts as shall be required to ensure that the net amount
received and retained by the recipient of such sums (after Tax) will
equal the full
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<PAGE> 82
amount which would have been received and retained by it had no such
deduction or withholding been made and/or no such liability to tax
been incurred and:-
(a) in applying this Clause 2.4 no account shall be taken of the
extent to which any liability for Tax may be mitigated or
offset by any Relief available to the Offeror so that where
such Relief is available the additional amount payable
hereunder shall be the amount which would have been payable in
the absence of such availability; and
(b) if following the payment of an additional amount under this
Clause 2.4 the Offeror or the Company subsequently obtains a
saving, reduction or payment in respect of the Tax giving rise
to such additional amount (other than a reduction in Tax which
would have given rise to a claim under this Schedule or been
taken into account in a claim for damages under the
Warranties) the Offeror shall pay to the Covenantors a sum
equal to the amount of such repayment or saving (in both cases
to the extent only of the said additional amount) such payment
to be made within 14 days of the receipt of the repayment or
the reduction of Tax due and payable as the case may be.
2.5 Clause 2.4 shall not apply if the Offeror assigns the benefit of this
Deed to any other person.
3. TIMING
3.1 For the purposes of paragraph 9 of Schedule 2, a liability giving rise
to a claim under this Schedule shall be treated as being an actual tax
liability on the date falling five business days after the Offeror
makes written demand therefor or, if later:-
(a) insofar as the claim arises pursuant to Clause 2.1(a) two days
before the day on which a payment of Tax becomes due under or
in consequence of the Claim for Tax in question or two days
before the day on which any repayment (or increased repayment)
of Tax which but for such Claim for Tax would have been
available, would have been due;
(b) insofar as the claim arises pursuant to Clause 2.1(b), two
days before the day on which the costs and expenses fall due
for payment (subject to the Offeror giving the Covenantors
such evidence as they reasonably require for the purposes of
ascertaining that such costs and expenses have fallen due);
(c) insofar as the Claim for Tax arises pursuant to Clause 2.1(c),
two days before the day on which an actual payment of Tax
becomes due in consequence of the non-availability of the
Offeror's Relief which would have been available but for the
Utilisation of the Offeror's Relief.
3.2 For the purposes hereof where Tax is due or a repayment due is lost or
reduced or where, but for a Utilisation of an Offeror's Relief, Tax
would be due or costs and expenses fall due for payment, on more than
one occasion then paragraphs (a) to (c) of Clause 3.1 shall apply
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<PAGE> 83
separately on each such occasion (but, for the avoidance of doubt,
shall not operate to extend or increase the liability of the
Covenantors under this Schedule for the Claim for Tax in question).
3.3 Where, but for the non-availability of an Offeror's Relief, the
Company could have surrendered the same to another company by way of
Group Relief, this Schedule and in particular Clause 3.1(a) shall
apply as if the Company could have saved such amount of Tax as the
recipient of the Group Relief could have saved as a consequence of
such Group Relief and at the same time.
3.4 If any sum due under Clause 2 is not paid by the Covenantors or due
under Clause 4.3 is not paid by the Offeror by the due date the same
shall carry interest (from such later date until the date of payment)
at the rate of two per cent over base rate for the time being of
National Westminster Bank PLC (or in the absence of such rate at such
rate quoted by a bank of similar standing as the Offeror shall select)
save that interest shall not start to run in respect of any payments
of Tax falling within sub-Clause 3.1(a) above until two days before
the day on which the Company makes the payment of Tax due.
3.5 For the avoidance of doubt, references to any payment being made by
the Covenantors for the purpose of this Schedule 3 shall be references
to the transfer of an Appropriate Amount of the Escrow Security in
accordance with paragraph 5 of Schedule 2.
4. RIGHT TO REIMBURSEMENTS AND CREDITS
4.1 Subject to Clause 4.3, in calculating amounts due from the Covenantors
under this Schedule no account shall be taken of any entitlement of
the Offeror or the Company to make any recovery in respect of that
amount or the circumstances giving rise to the same from some other
person or of any Relief or other benefit or saving which may become
available to the Offeror or the Company in consequence of the Claim
for Tax in question or the circumstances giving rise to the same.
4.2 If the Offeror or the Company is or becomes entitled to recover from
some other person (not being the Company but including, inter alios,
any Tax authority) any amount in respect of the Claim for Tax
resulting in a payment being or becoming due by the Covenantors to the
Offeror under this Schedule, then the Offeror shall promptly notify
the Covenantors of the said entitlement and, if so required by the
Covenantors and if the Covenantors shall undertake to pay all
reasonable costs and expenses properly incurred by the Offeror and the
Company, shall take all reasonable steps to enforce or procure that
the Company shall enforce that recovery (keeping the Covenantors fully
informed of progress) and shall apply the same in accordance with
Clause 4.3.
4.3 If the Offeror or the Company receives:-
(a) a recovery as mentioned in Clause 4.2; or
(b) a benefit or saving being either a reduction in Tax due and
payable or any increased repayment of Tax in either case as a
result of:-
- 81 -
<PAGE> 84
(i) credit being obtained for Tax giving rise to a claim
by the Offeror under the terms of this schedule
(other than a reduction in a liability to Tax which
would otherwise have itself given rise to a payment
hereunder or been taken into account in a claim for
damages under the Warranties); and
(ii) the utilisation of any Relief which has arisen in
connection with Tax paid by the Company which has
given rise to a payment by the Covenantors pursuant
to Clause 2 hereof (other than where such Relief is
utilised to offset or reduce a liability to Tax which
would itself have given rise to a payment hereunder
or been taken into account in a claim for damages
under the Warranties);
then the Offeror shall within 14 days pay to the Covenantors an
amount equal to so much of the benefit received or sum recovered
(less any Tax paid by the recipient in respect thereof and less
any costs and expenses incurred by the Offeror and the Company)
as does not exceed the amount which the Covenantors paid in
respect of the Claim for Tax in question (together with so much
of any interest or repayment supplement paid to the recipient of
the recovery or benefit in respect thereof as corresponds to the
proportion of the recovery or benefit accounted for under this
Clause 4.3, less any Tax thereon).
4.4 Where any recovery or benefit is accounted for under Clause 4.3:-
(a) the amount of the payment originally made by the Covenantors
under Clause 2 shall be treated as reduced for all purposes of
this Schedule (including any further application of this
Clause 4) and of this Deed; and
(b) the same shall not of itself prejudice the right of the
Offeror to make further recoveries under this Schedule whether
in respect of matters to which the original claim related or
otherwise.
5. RESISTANCE OF CLAIMS
5.1 If the Offeror or the Company becomes aware of any Claim for Tax
(which expression shall for the avoidance of doubt include any claim
which would give rise to a Claim for Tax but for a Utilisation of an
Offeror's Relief) which may result in the Offeror having a claim
against the Covenantors under this Schedule, the Offeror shall give
notice to the Covenantors in the manner provided by this Deed as soon
as is reasonably practicable and in any event, in the case of an
assessment, at least 14 days before the expiry of the time limit for
appealing the assessment provided that any failure to give such notice
shall not prejudice the ability of the Offeror to make a claim under
this Deed and:
(a) neither the Offeror nor the Company shall make any admission
of liability, agreement, settlement or compromise or otherwise
take any action in relation thereto without the
- 82 -
<PAGE> 85
prior written consent of the Covenantors' Representative and
shall at all times promptly give the Covenantors' Representative
and their professional advisers all information and documents in
the Offeror's or the Company's control as reasonably requested
from time to time;
(b) save as provided in paragraph 5.1(c), each of them will at all
times permit the Covenantors' Representative, as appropriate,
to take such action on their/its behalf to avoid, resist,
appeal, compromise, defend, mitigate or otherwise deal with
the claim or the liability the subject thereof or pursue any
rights of the Company in respect thereof;
(c) paragraph 5.1(c) will not apply to any Claim for Tax which
(when aggregated with any other relevant claims) exceeds the
maximum liability of the Covenantors (as set out in paragraph
5 of Schedule 2 of this Deed) or to any Claim for Tax which
could reasonably be expected to have a material adverse effect
on the operation of the Business or the goodwill or reputation
of the Business. In respect of any such Claim for Tax to
which this paragraph 5.1 applies, the Offeror or the Company
will consult with the Covenantors' Representative and take
account of all reasonable representations and views in order
to avoid, dispute, resist, appeal, compromise or defend any
such Claim for Tax.
5.2 If the Covenantors do not request the Offeror or the Company to take
any action or do not respond indicating that they are actively
considering the matter within 21 days of the notice referred to in
Clause 5.1 above, the Offeror on the Company shall be free to admit,
settle, pay or discharge the Claim for Tax on such terms and
conditions as it shall in its absolute discretion consider
appropriate.
5.3 Any claim under this Schedule shall (unless previously settled or
withdrawn) be deemed to have been waived or withdrawn in the event
that legal proceedings in respect thereof are not issued and served on
the Covenantors' Representative within nine months of the date of
notice given pursuant to Clause 5.1 above.
6. MISCELLANEOUS
6.1 Any payment by the Covenantors to the Offeror pursuant to Clause 2
hereof shall, so far as possible constitute a repayment of the
Consideration.
6.2 The provisions of Clause 10 (Notices) of this Deed shall apply to this
Schedule as if the same were incorporated herein.
6.3 The provisions of Clause 9 (Covenantor's Representative) and of Clause
13 (waiver, amendment), 16 (counterparts), 17 (governing law) and 19
(assignment) of this Deed shall apply to this Schedule as if the same
were incorporated herein.
- 83 -
<PAGE> 86
7. COVENANTORS TO PREPARE TAX RETURNS/MITIGATION
7.1 The Covenantors or their duly authorised agents shall be responsible
for, and have the conduct of preparing, submitting to and agreeing
with the relevant Taxation Authorities all taxation computations of
the Company relating to all accounting periods ending on or before
Completion subject to all such computations, documents and
correspondence relating thereto being submitted in draft form to the
Offeror or its duly authorised agents for comment and approval such
approval not to be unreasonably withheld or delayed. The Offeror or
its duly authorised agent shall comment within 21 business days of
such submission. If the Covenantors have not received any comments
within 21 business days, the Offeror and its duly authorised agents
shall be deemed to have approved such draft documents. If the Offeror
or its duly authorised agents have any comments or suggestions, the
Covenantors shall not unreasonably refuse to adopt such comment or
suggestion. The Covenantors and the Offeror shall each respectively
afford (or procure the affordance) to the other or their duly
authorised agents of information and assistance which may reasonably
be required to prepare, submit and agree all such outstanding taxation
computations PROVIDED THAT nothing herein shall oblige the Offeror or
the Company to submit any return unless it is satisfied that it is
true and accurate in all material respects.
7.2 The Offeror shall procure that the Company makes (or joins in making)
such claims and elections as shall have been taken into account in the
1997 Accounts and sign such documents as the Covenantors shall
reasonably require in relation to accounting periods for which the
Covenantors have responsibility pursuant to paragraph 7.1 above.
7.3 The Offeror shall procure that the Company takes such reasonable steps
as are necessary for the Company to use in the manner hereinafter
mentioned all Reliefs arising by reason of events occurring on or
before the date of Completion (other than Offeror's Reliefs) as are
available to the Company to reduce or eliminate any liability of the
Company to make an actual payment of Tax in respect of which the
Offeror would have been able to make a claim against the Covenantors
under this Schedule, the said use being to effect the reduction or
elimination of any such liability to make an actual payment of Tax to
the extent permitted by law PROVIDED THAT nothing in this Clause shall
oblige the Offeror the Company or any Subsidiary to take any action
which it reasonably believes would materially increase the Tax
liability of the Company for any accounting period ended after
Completion (and, for these purposes, the use of a Relief, other than
an Offeror's Relief, to reduce or eliminate any liability of the
Company to make an actual payment of Tax in respect of which the
Offeror would have been able to make a claim under this Schedule shall
not constitute a material increase of any Tax liability of the Company
for any accounting period ended after Completion).
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<PAGE> 87
SCHEDULE 4
THE PROPERTIES
1. The following parts of the premises known as Berkeley Square House
Berkeley Square London W1:-
(a) parts of the basement
(b) part of the First Floor
(c) part of Wing no. 1 on the third floor
(d) part of Wing no. 3 on the first floor
(e) part of Wing no. 3 on the third floor
(f) part of Wing no. 4 on the third floor
(g) part of Wing no. 5 on the third floor
(h) part of Wing no. 6 on the third floor
(i) part of Wing no. 7 on the third floor
(j) part of Wing no. 2 on the third floor
(k) part of Wing no. 7 on the third floor
(l) part of Wing no. 6 on the fourth floor
(m) sixteen car parking spaces
all as more particularly described in various leases (and in the case
of (m) a licence) between National Westminster Bank plc (1) (or in the
case of (c) where the first party is Instance Contracts Limited) and
Wildman and others trading as Richard Ellis (2)
2. Premises on the fourth and fifth floors of 73 Mosley Street Manchester
as more particularly described in the Lease dated 17 November 1989 made
between MIM Trustee Corporation Ltd (1) and Michael Strong and David
Sizer trading as Richard Ellis (2)
3. Premises at 15, 16 and 17 Warwick Road Coventry as more particularly
described in a Lease dated 28 May 1992 made between Messrs Holt (1) and
Halifax Estate Agencies Limited (2)
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<PAGE> 88
4. Premises on the ground floor of The Corn Exchange Fenwick Street
Liverpool as more particularly described in a Lease dated 25 August
1994 between AXA Equity & Law Life Assurance Society plc (1) and
Richard Ellis Regional Ltd (2) and the Supplemental Lease dated 4 March
1996 between AXA Equity & Law Life Assurance Society plc (1) and
Richard Ellis Regional Ltd (2)
5. Premises on the first floor of the Corn Exchange Fenwick Street
Liverpool as more particularly described in a Lease dated 22 April 1997
between AXA Equity & Law Life Assurance Society plc (1) and Richard
Ellis Regional Ltd (2)
6. Storerooms B1 and B2 in the Corn Exchange Fenwick Street Liverpool as
more particularly described in a tenancy agreement dated 30 June 1995
between AXA Equity & Law Life Assurance Society plc (1) and Richard
Ellis Regional Limited (2)
7. Third Floor Acquis House Greek Street Leeds as more particularly
described in a Lease dated 10 October 1988 between the Acquis Property
Company Ltd (1) and Henry Spencer & Sons Ltd (2)
8. Fourth floor offices at 85/89 Colmore Row Birmingham as more
particularly described in a Lease dated 22 May 1989 between Piper Land
Development Ltd (1) and Cartwright Holt Ltd (2)
9. Seventh and eighth Floors office premises at Broad Street House, 55 Old
Broad Street, London EC2 as more particularly described in a
sub-underlease dated 21st March 1997 between A.J.M. Huntley and Others
(practising in partnership as Richard Ellis) (1) and Derby Investment
Holdings Limited (2)
Ninth and tenth Floors and Basement Store Room at Broad Street House,
55 Old Broad Street, London EC2 as more particularly described in a
Reversionary Underlease dated 21st March, 1997 between Derby Investment
Holdings Limited (1) and A.J.M. Huntley and Others (2).
10. First floor offices at Apsley House Glasgow as more particularly
described in a Lease dated 27 January and 8 February 1994 between
County Properties Group Ltd (1) and Messrs Richard Ellis (2)
11. First floor offices at Pacific House 70 Wellington Street Glasgow as
more particularly described in a Lease dated 30 September and 1
November 1985 between Beta Properties Ltd (1) and Anthony Edgar
Goodends and others as partners of and trustees for Richard Ellis (2)
12. Premises on the first floor of 12/14 Albert Road, Middlesborough as
more particularly described in a Lease dated 22 October 1990 between
West End & Metropolitan Estates Limited (1) and Halifax (NW) Limited
(2)
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<PAGE> 89
13. Premises on the second and third floors of Eagle Buildings, 64 Cross
Street, Manchester as more particularly described in a Lease dated 23
March 1992 between The Norwich Union Life Insurance Society (1) and
Halifax Estate Agencies Limited (2)
14. Premises on the third floor of the Gladstone Buildings, 1-5 St James'
Row, Sheffield as more particularly described in a Lease dated 3 May
1989 between Sun Life Assurance Company of Canada (UK) Limited (1) and
Halifax (NW) Limited (2).
15. Basement Storeroom in Broad Street House, 55 Old Broad Street, London
EC2 as more particularly described in a supplemental underlease dated
28 February 1980 between City and West End Properties Limited (1) and
Midland Bank Finance Corporation (2).
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<PAGE> 90
SCHEDULE 5
PART A: COMPLETION ACCOUNTS
1. NET ASSET VALUE
1.1 For the purpose of determining the Net Asset Value the Offeror shall
cause the Company to prepare and deliver to each party, as soon as
practicable following Completion but in any event within 90 days after
the Completion Accounts Date, draft Completion Accounts. The
Completion Accounts shall be prepared in accordance with the Companies
Acts and in accordance with generally accepted accounting principles
and practices in the United Kingdom which are extant at the time of
preparation, including in particular (but without limitation) the
Statements of Standard Accounting Practice issued by the member bodies
of the Consultative Committee of Accounting Bodies (or any successor
or replacement organisation) which are extant at that time and,
subject thereto, adopting the same accounting policies and practices
consistently applied as those used in the preparation of the
Partnership Accounts and the Accounts.
1.2 Immediately following preparation of the draft Completion Accounts,
the Offeror shall review the draft Completion Accounts and determine
the Net Asset Value as soon as possible and in any event not later
than 30 days after the Offeror's receipt of the draft Completion
Accounts.
1.3 Immediately following the Offeror's determination of the Net Asset
Value, there shall be supplied to the Covenantors' Representative a
statement of the Net Asset Value determination. The Covenantors'
Representative shall have a period of 28 days (the "NAV AGREEMENT
PERIOD") in which to review and agree or dispute the Offeror's
determination of the Net Asset Value.
1.4 The Offeror's determination of the Net Asset Value shall in the
absence of the service of a notice within the NAV Agreement Period by
either party on the other disputing the amount so determined be deemed
to constitute the final and binding agreement between the Covenantors
and the Offeror as to the amount thereof.
1.5 In the event that the Net Asset Value has not been agreed by the
earlier of the termination of the NAV Agreement Period or by 30
September 1998, the determination of the Net Asset Value shall be
referred to an independent firm of chartered accountants agreed
between the Offeror and the Covenantors' Representative or, failing
agreement within 30 days of the expiry of the NAV Agreement Period,
determined by the President for the time being of the Institute of
Chartered Accountants in England and Wales. In appointing any such
independent firm of chartered accountants, the Offeror and the
Covenantors' Representative shall have the right to make
representations to such independent firm of chartered accountants as
to the determination of the Net Asset Value. Any independent firm of
chartered accountants appointed pursuant to this paragraph 1.5 shall
act as experts and not as arbitrators and their certificate shall (in
the absence of manifest error) be final and binding on the Offeror and
the Covenantors and the
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<PAGE> 91
costs of any independent firm of chartered accountants appointed
pursuant to this paragraph 1.5 shall be borne between the parties as
it shall determine, or, in the absence of any such determination
equally between the parties.
1.6 The Covenantors' Representative shall procure that each Covenantor
shall, and the Offeror shall procure that the Company shall, promptly
provide each other, and their respective advisers with all information
(in their respective possession or control) relating to the operations
of the Group or the Company as the case may be, including access at
all reasonable times to all books and records, and all co-operation
and assistance as may be reasonably required to:-
(a) enable the production of the Completion Accounts; and
(b) enable the Offeror (or any independent firm of chartered
accountants appointed pursuant to this clause) to determine
the Net Asset Value.
1.7 The parties agree that from the date on which the Offers are made to
the Shareholders until the later of the Completion Accounts Date or
the date the Offers are declared unconditional the parties will use
all reasonable endeavours to operate the business in the ordinary and
usual course and will not deliberately and knowingly do any act or
thing or procure the Company or any member of the Group to do any act
or thing not properly done for the purpose of the Business the effect
of which distorts unfairly the Calculation of the Net Asset Value.
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<PAGE> 92
PART B: SCHEDULE OF LIABILITIES AS AT 31/12/97 - NON NORMAL TRADING ITEMS
<TABLE>
<CAPTION>
FY97 6m to 31/10 2m to Projected Total
L.000 L.000 31/12 from 1/1/98 L.000
L.000 to completion
L.000
<S> <C> <C> <C> <C> <C>
Interest on late paid tax 28 28
Incorporation costs 4 4
Donaldsons deal costs 16 16
Insignia deal costs 0 562 562
Associated Insignia deal costs:
Actuarial fees (estimated) 20 20
Wragges' fees (estimated) 20 20
PI provision (Central House) 20 20
(Amresco) 16 16
(Britannia Hotels) 70 70
General PI provision 100 100
Surmia 208 17 225
Redundancies 0 30 30
Additional bad debt provision 256 256
(Schipol)
244 118 609 396 1,367
Deal costs:
Transaction bonuses/NIC 1,781 1,781
Legal costs 270 270
1,781 270 2,051
</TABLE>
- 90 -
<PAGE> 1
EXHIBIT 10.6
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement"), made as of July 31, 1998, is by and among INSIGNIA/ESG HOLDINGS,
INC., a Delaware corporation with an office at 200 Park Avenue, New York, New
York 10166 (the "Parent Company"), INSIGNIA/ESG, INC., a Delaware corporation
with an office at 200 Park Avenue, New York, New York 10166 (the "Company") and
STEPHEN B. SIEGEL, an individual residing at 130 East 67th Street, NY, NY 10021
(the "Executive").
W I T N E S S E T H :
WHEREAS, Insignia Financial Group, Inc., Insignia/ESG (and its
predecessor entities) and the Executive entered into an Amended and Restated
Employment Agreement dated as of January 1, 1997, which was further amended (the
"Employment Agreement"); and
WHEREAS, the undersigned desire to amend and restate the Employment
Agreement as set forth in this Agreement; and
WHEREAS, the Parent Company and the Company desire to continue to
assure themselves of the services of the Executive for the period provided in
this Agreement, and the Executive is willing to serve in the employ of the
Parent Company and the Company for such period upon the terms and conditions
hereinafter provided;
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Parent Company and the Company hereby agree to
employ the Executive, and the Executive hereby accepts such employment, in
each case upon the terms and conditions set forth herein, for a period
commencing prior to the date of this Agreement and ending on December 31,
2002 (the "Expiration Date"), subject to earlier termination as set forth
herein (such period, as it may be so terminated, being referred to herein as
the "Employment Period").
2. DUTIES AND SERVICES.
(a) OFFICES. During the Employment Period, the Executive shall
serve as President of the Parent Company and Chairman, President and Chief
Executive Officer of the Company. In the performance of his duties hereunder,
the Executive shall report to and shall be responsible to the Chairman of
the Board of Directors of the Parent Company. The Executive agrees to his
employment as described in this Section 2, and agrees to devote
substantially all of his time and efforts to the performance of his duties
hereunder. The Executive shall be available to travel as the needs of the
business of the Parent Company and the Company require.
2
<PAGE> 3
(b) LOCATION OF OFFICE. During the Employment Period, the Executive's
office shall be located in the principal executive offices of the Company, which
shall be in New York City, New York. The Company will provide the Executive with
a suitable office, an executive secretary reasonably acceptable to him, and
other support appropriate to his duties hereunder.
(c) PRIMARY RESPONSIBILITIES. During the Employment Period, the
Executive shall have principal responsibility for the financial and operational
affairs of the Parent Company and its subsidiaries, including the Company, in
each case as directed by the Chairman of the Parent Company.
(d) PERMITTED ACTIVITIES. Notwithstanding anything to the contrary
herein provided, the Executive (i) may make certain real estate and other
investments and hold positions as officers, directors and/or partners thereof in
so far as such positions and investments do not conflict with the Executive's
duties and loyalties to the Parent Company, the Company and any controlled
affiliates, and (ii) may continue to hold all positions and operate businesses
and/or receive compensation in accordance with Exhibit A annexed hereto and
incorporated herein and (iii) may hold such other positions, in charitable and
other organizations, as may be appropriate to his duties hereunder,
(collectively, the "Permitted Activities").
(e) LICENSING. The Executive shall comply with the requirements of the
New York State Real Property Law (Broker's License Law) and New York State's
Rules for the
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Guidance of Real Estate Brokers and Salespersons and shall maintain his real
estate broker's license in effect at all times during the Employment Period. If
the Executive is not duly licensed as a real estate broker or salesperson in New
York at any time during the term of this Agreement, the Executive will
immediately notify the General Counsel of the Parent Company of that fact, in
writing. During such period the Executive will not engage in any activities in
violation of the applicable licensing laws, or any other applicable law; and the
Executive will diligently take all actions necessary to obtain such license as
soon as practicable thereafter. The failure of the Executive to maintain his
real estate broker's license during the Employment Period shall constitute a
material breach of this Agreement which shall entitle the Parent Company and the
Company to terminate the Executive's employment for cause.
(f) MEMBERSHIP. The Executive shall, at the Parent Company's and the
Company's request and expense, maintain a membership in the Real Estate Board of
New York, Inc. The Executive will at all times adhere to the Code of Ethics and
Professional Practices of said Board and to the requirements of all applicable
laws and governmental regulations.
(g) OTHER DUTIES. The Executive shall serve as a director and/or
officer of any of the Parent Company's subsidiaries or affiliates if the Parent
Company so requests. Executive shall not be entitled to receive any compensation
for the performance of the duties provided for in this Section 2(g) in addition
to the compensation expressly provided in this Agreement consistent with his
principal responsibilities as President of the Parent Company and Chairman,
President and Chief Executive Officer of the Company. Executive shall endeavor
to participate in all
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Executive Management Committee Meetings of the Parent Company and at all
monthly Operations Review Meetings of the Parent Company. It is acknowledged by
Executive that recurring failure of Executive to attend such meetings in person
or by telephone shall be a material breach of this Agreement; provided however,
that any failure to attend due to illness or other comparable circumstance
beyond the Executive's control shall be excused.
3. COMPENSATION. As full compensation for his services hereunder, the
Company shall pay, grant, issue, or give, as the case may be, to the Executive
the following, subject to the provisions of Section 6:
(a) BASE SALARY. A base salary at the rate of $1,000,000 per annum (the
"Base Salary"), payable in equal bi-weekly installments or in such other
installments consistent with the policy of the Parent Company or the Company as
they may be amended from time to time.
(b) OVERRIDE. An override ("Override") up to a maximum of $400,000 for
the year ended December 31, 1998 and subsequent years, equal to 0.6% of the
gross leasing commissions received (as "received" is defined in Section 3(d)
below) by the Company in each calendar year or part thereof during the
Employment Period, but only to the extent that the Company meets or exceeds the
Company's annual EBITDA budget as established by the Compensation Committee of
the Parent Company's Board of Directors (the "Compensation Committee"), after
deduction of the Override payable to the Executive, all bonus compensation paid
to employees of the Company (including the imputed bonus of the Executive as
determined under this Agreement), all Company overhead allocations and all
compensation paid to the
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Executive pursuant to this Agreement, which annual EBITDA budget shall be
increased by the Compensation Committee for each subsequent year by an amount of
no less than 10% of the annual EBITDA budget for the immediately preceding year.
For purposes of this Section 3(b), EBITDA shall mean the earnings before
interest, taxes, depreciation, and amortization of the Company computed in
accordance with generally accepted accounting principles, consistently applied.
(c) ADVANCES. The Company shall advance to the Executive an amount
equal to $50,000 less withholding permitted by Section 12 on the first day of
each month (such amounts including the related withholding are referred to as
the "Advances"). Not later than March 31 following the end of each fiscal year
(or 90 days following the termination of the Employment Period, if earlier), the
Compensation Committee shall deliver to the Executive a calculation of the
amount of Override payable to him pursuant to Section 3(b) of this Agreement and
the amount of Annual Bonus payable to him pursuant to Section 3(e) of this
Agreement for the preceding year (or portion thereof if the Employment Period
has terminated during such year). In the event the Advances for any such period
exceed the Override and Annual Bonus earned for such period, the Executive shall
repay such excess to the Company within 15 days of receipt of such calculation.
In the event the Override and Annual Bonus earned for such period exceeds the
Advances for such period, the Company shall pay such excess less withholding to
the Executive within 15 days of delivery of such calculation.
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(d) COMMISSIONS. A commission equal to a percentage (as determined
below) of the commissions earned, received and retained (collectively,
"received") by Insignia/ESG upon transactions as to which the Executive has
rendered services recognized by Insignia/ESG. The Executive's share of all
promotional commission revenues described above shall be thirty (30%) percent,
and Insignia/ESG's share shall be seventy (70%) percent; and the Executive's
share of all net commission (e.g. arising from a transaction where Insignia/ESG
is agent for the owner of the leased premises) revenues described above shall be
fifty (50%) percent and Insignia/ESG's share shall be fifty (50%) percent. Such
compensation shall be earned by the Executive only when such commissions have
been received by Insignia/ESG and shall be payable to the Executive at the time
and in the manner that commissions are paid to other real estate
salespersons/brokers of Insignia/ESG in accordance with the then current
Insignia/ESG policy.
(e) ANNUAL BONUS. An annual bonus for the year ending December 31, 1998
and subsequent years in an amount determined by the Compensation Committee of
the Parent Company, in its sole and absolute discretion, of 10%, or such lesser
percentage as such Compensation Committee shall determine, of the increase in
annual EBITDA reduced by all bonus compensation paid to employees of the Company
(including the imputed bonus of the Executive as determined under this
Agreement), all Company overhead allocations and all compensation paid to the
Executive pursuant to this Agreement, over the annual EBITDA for the immediately
preceding year. Such bonus shall be paid to the Executive within
one-hundred-twenty (120) days after the end of the Company's fiscal year. For
purposes of this Section 3(e),
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EBITDA shall mean the earnings before interest, taxes, depreciation, and
amortization of the Company computed in accordance with generally accepted
accounting principles, consistently applied.
(f) OPTIONS AND LOANS. Options (the "Options") pursuant to the Parent
Company's 1998 Stock Incentive Plan to be approved by stockholders (the "Plan"),
to purchase one hundred thousand (100,000) shares of the Class A Common Stock,
par value $0.01 per share, of the Parent Company (the "Parent Company Stock") at
a price to be determined by the Trustees of the Plan based upon the initial
trading prices of the Parent Company, which Options shall vest in five equal
installments commencing on the date six months after the date of grant and each
of the next four anniversaries of such date. In addition, Executive shall be
eligible to receive a loan in the amount of up to one million dollars
($1,000,000) to acquire Parent Company stock pursuant to the Plan.
(g) FRINGE BENEFIT PROGRAMS. In addition to the other benefits provided
to the Executive hereunder, the right to participate in the fringe benefit
programs now or hereafter maintained by the Parent Company or the Company during
the Employment Period and offered by the Parent Company or the Company to its
executive officers. Such fringe benefit program may include, but shall not be
limited to, pension, profit sharing, stock purchase, stock option, savings,
bonus, disability, life insurance, health insurance, hospitalization, dental,
and other plans and policies authorized on the date hereof (collectively, the
"Benefit Plans").
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(h) EXPENSE REIMBURSEMENT. Reimbursement of the Executive for all
reasonable out-of-pocket expenses incurred by him in connection with the
performance of duties hereunder, including professional activities and
membership fees and dues relating to professional organizations of which the
Executive currently is a member or is directed to be a member by the Chairman of
the Parent Company, upon the presentation of appropriate documentation therefor
in accordance with the then regular policies and procedures of the Company. The
Executive's current professional activities and memberships are set forth on
Exhibit B, attached hereto and made a part hereof. The Executive shall not
engage in or apply for any other professional activity or membership without the
prior written consent of the Chairman of the Parent Company.
(i) VACATIONS. Paid vacation consisting of twenty (20) days during each
calendar year during the Employment Period, to be taken at such time as is
consistent with the needs of the Parent Company and the Company, as reasonably
determined by the Executive.
(j) APPROVAL OF STOCKHOLDERS. Executive understands that the
compensation provided for in Section 3(f) of this Agreement is subject to the
approval of the Plan by the directors and stockholders of the Parent Company. In
the event such approval is not obtained on or before December 31, 1998, the
provisions of Section 3(f) shall be void ab initio, but the other provisions of
this Agreement shall remain in full force and effect provided this Agreement has
not been earlier terminated in accordance with its terms.
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4. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE.
The Executive represents and warrants to the Parent Company and the
Company as follows:
(a) Other than the Permitted Activities, he is under no contractual or
other restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder, or the other rights of the
Parent Company, or the Company hereunder; and
(b) To the best of his knowledge, he is under no physical or mental
disability that would hinder his performance of his duties under this Agreement.
5. NON-COMPETITION; CONFIDENTIALITY.
(a) NON-COMPETITION. In view of the unique and valuable services it is
expected the Executive will render to the Parent Company and the Company, the
Executive's knowledge of the customers, trade secrets, and other proprietary
information relating to the
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business of the Parent Company and the Company and their customers and
suppliers, and similar knowledge regarding the Parent Company and the Company it
is expected the Executive will obtain, the Executive agrees that (i) so long as
he is employed by the Parent Company and the Company pursuant to this Agreement
or otherwise and (ii) for a period of two (2) years after the Termination for
Cause (as hereinafter defined) of such employment or the Executive's termination
of such employment during the Employment Period, he will not compete with or be
engaged in the same business as, or "Participate In" (as hereinafter defined)
any other business or organization which, at the time of the cessation of the
Employment Period, competes with or is engaged in the same business as or
business similar to that of the Company or the Parent Company, with respect to
any product or service sold or activity engaged in by the Company or the Parent
Company in any geographical area which at the time of such cessation such
product or service is sold or activity is engaged in by the Company or the
Parent Company; provided, however, that the provisions of this Section 5 shall
not be interpreted to preclude the Executive, at any time and from time to time,
from (i) Participating In any other organization if approved by a majority of
the Directors of the Parent Company, or (ii) owning not more than five percent
(5%) of the outstanding capital stock of any publicly-traded entity or (iii) as
set forth on Exhibit A. In the event of a Termination Without Cause (as
hereinafter defined) of Executive's employment the Executive shall, at his
election, either (i) observe the non-competition agreement set forth in the
first sentence of this Section 5(a) for the remainder of the Employment Period
and continue to receive the compensation provided for herein, or (ii) accept
other employment (the "Competing Employment") in the real estate industry which
violates the non-competition agreement set forth in the first sentence of this
Section 5(a) and receive compensation at the
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annual rate of $1,000,000 less the aggregate amount of compensation payable to
him from the Competing Employment for the remainder of the Employment Period. In
the event this Agreement is not extended beyond the Employment Period, the
Executive shall not be bound by the non-competition agreement set forth in the
first sentence of this Section 5(a). The terms "Participate In" and
"Participating In" shall mean: "directly or indirectly, for his own benefit or
for, with, or through any other person, own or owning, manage or managing,
operate or operating, control or controlling, loan money to or lending money to,
or participate in or participating in, as the case may be, the ownership,
management, operation, or control of, or be connected or being connected, as the
case may be, as a director, officer, employee, partner, consultant, agent,
independent contractor, or otherwise with, or acquiesce or acquiescing, as the
case may be, in the use of his name in." Notwithstanding the termination or
failure to extend the term of this Agreement for any reason, the Executive will
not directly or indirectly employ any person who, at any time up to such
cessation of Executive's employment, was an employee of the Company or the
Parent Company, within a period of two years after such person leaves the employ
of the Company or the Parent Company or any of its affiliates other than his
personal secretary. In addition, notwithstanding the termination or failure to
extend the term of this Agreement for any reason, the Executive agrees that
following the Employment Period, he will not solicit anyone for the purpose of
providing management, leasing, brokerage or related real estate services with
respect to the properties then managed and the clients then served by the
Company or the Parent Company.
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(b) CONFIDENTIALITY. All confidential information which the Executive
may now possess, may obtain during or after the Employment Period, or may create
prior to the end of the Employment Period or otherwise relating to the business
of the Company or the Parent Company or any of their subsidiaries or affiliates
or of any customer or supplier of any of them shall not be published, disclosed,
or made accessible by him to any other person, either during or after the
termination of his employment, or used by him except during the Employment
Period in the business and for the benefit of the Company, the Parent Company
and their subsidiaries and affiliates. In the event that the Executive becomes
legally compelled to disclose any of the confidential information, the Executive
will provide the Parent Company and the Company with prompt notice so that the
Parent Company and the Company may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this Section 5(b) and in
the event that such protective order or other remedy is not obtained, or should
the Parent Company and the Company waive compliance with the provisions of this
Section 5(b), the Executive will furnish only that portion of the confidential
information which is so legally required. The Executive shall return all
tangible evidence of such confidential information to the Company and the Parent
Company prior to or at the termination of his employment hereunder.
(c) NON-COMPETITION COMPENSATION. In consideration of Executive's
performance of the agreements set forth in Sections 5(a) above, Executive
acknowledges that he was paid $300,000, to be allocated to the non-competition
agreement in Section 5(a). Such $300,000 is acknowledged by Executive to be full
and adequate compensation for the restrictions on the conduct of the Executive
to which he has voluntarily consented in Section 5(a).
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(d) INTERPRETATION. Since a breach of the provisions of this Section 5
could not adequately be compensated by money damages, the Company or the Parent
Company shall be entitled, in addition to any other right and remedy available
to it, to seek an injunction restraining such breach and the Parent Company and
the Company shall not be required to post a bond in any proceeding brought for
such purpose. The Executive agrees that the provisions of this Section 5 are
necessary and reasonable to protect the Company and the Parent Company in the
conduct of their respective businesses. If any restriction contained in this
Section 5 shall be deemed to be invalid, illegal, or unenforceable by reason of
the extent, duration, or geographical scope thereof, or otherwise, then the
court making such determination shall have the right to reduce such extent,
duration, geographical scope, or other provisions hereof, and in its reduced
form such restriction shall then be enforceable in the manner contemplated
hereby. Nothing herein shall be construed as prohibiting the Company or the
Parent Company from pursuing any other remedies, at law or in equity, for such
breach or threatened breach.
6. TERMINATION.
(a) DEFINITIONS.
(i) Death Termination Event. As used herein, "Death Termination
Event" shall mean the death of the Executive.
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(ii) Disability Termination Event. As used herein, "Disability
Termination Event" shall mean a circumstance where the Executive is physically
or mentally incapacitated or disabled or otherwise unable to fully discharge his
duties hereunder for a period of 100 consecutive days.
(iii) Estate. As used herein, "Estate" shall mean (A) in the event
that the last will and testament of the Executive has not been probated at the
time of determination, the estate of the Executive, and (B) in the event that
the last will and testament of the Executive has been probated at the time of
determination, the legatees or the Executor who are entitled under such will to
the assets or payments at issue.
(iv) Termination For Cause. As used herein, the term "Termination
For Cause" shall mean the termination by the Company or the Parent Company of
the Executive's employment hereunder upon a good faith determination by a
majority vote of the members of the Board of Directors of the Parent Company
that termination of this Agreement is necessary by reason of (A) the conviction
of the Executive of a felony under state or federal law, unless in any such case
the Executive performed such act in good faith and in a manner the Executive
reasonably believed to be in or not opposed to the best interests of the Company
or the Parent Company, (B) the continued material breach by the Executive of any
of the material provisions of this Agreement for a period of thirty days after
written notice of such breach is given to the Executive by the Company or the
Parent Company, (C) failure by the Executive to comply with any material
directive of the Board of Directors of the Company or the Parent Company which
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shall continue for ten days after written notice thereof is given to the
Executive, (D) a violation of the confidentiality provisions of Sections 5 or 9
of this Agreement by the Executive, (E) the taking by the Executive of any
action on behalf of the Company or the Parent Company knowingly without the
possession by the Executive of the appropriate authority to take such action,
provided that Executive shall have five (5) days after written notice thereof
from the General Counsel of the Parent Company to cure such breach, (F) the
taking by the Executive of actions (other than Permitted Activities) in conflict
of interest with the Company or the Parent Company or their subsidiaries or
affiliates, given the Executive's positions with the Company or the Parent
Company and their subsidiaries and affiliates, provided that Executive shall
have five (5) days after written notice thereof from the General Counsel of the
Parent Company to cure such breach, (G) the usurpation of a corporate
opportunity of the Company or the Parent Company or their subsidiaries or
affiliates by the Executive; provided, however, the parties acknowledge and
agree that no Permitted Activity shall constitute a corporate opportunity, and
further provided that the Executive shall have five (5) days after written
notice thereof from the General Counsel of the Parent Company to cure such
breach, (H) the recurring failure to attend and participate in (x) Executive
Management Committee Meetings, and (y) Monthly Operations Review Meetings,
provided that the Executive shall have five (5) days after written notice
thereof from the General Counsel of the Parent Company to cure such breach, (I)
a failure as provided in the last sentence of Section 2(e), provided that the
Executive shall have five (5) days after written notice thereof to cure such
breach. Notwithstanding the foregoing, if any breach by the Executive as
described in subparts (E), (F), (G), (H) and (I) above is not capable of being
cured within the five (5) day period following written notice thereof from the
General Counsel of the
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Parent Company, such breach shall not be deemed to constitute a basis for
Termination For Cause of the Executive's employment hereunder if the Executive
has taken all actions reasonably necessary during such five (5) day period to
commence the cure of such breach and has diligently pursued such cure to
completion within thirty (30) days following such written notice to the
satisfaction of the General Counsel of the Parent Company.
(v) Termination Without Cause. As used herein, "Termination
Without Cause" shall mean any termination of the Executive's employment
hereunder by the Company or the Parent Company that is not a Termination For
Cause, a Death Termination Event, a Disability Termination Event or a
resignation of employment by the Executive.
(b) DEATH TERMINATION EVENT. Upon the occurrence of a Death Termination
Event, this Agreement shall terminate automatically upon the date that such
Death Termination Event occurred (subject to the last sentence of this Section
6), whereupon the Company shall pay to the Estate compensation at the annual
rate of One Million ($1,000,000) Dollars for a period equal to the remaining
term of the Employment Period (determined upon the assumption that the
Employment Period will not be terminated prior to the Expiration Date), but in
no event longer than one (1) year.
(c) DISABILITY TERMINATION EVENT. Upon the occurrence of a Disability
Termination Event, this Agreement shall terminate automatically upon the date
that such Disability Termination Event occurred (subject to the last sentence of
this Section 6).
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(d) TERMINATION FOR CAUSE. The Executive and the Company and the Parent
Company agree that the Company and the Parent Company shall have the right to
effectuate a Termination For Cause prior to the Expiration Date. Upon the
occurrence of a Termination For Cause, this Agreement shall terminate upon the
date that such Termination For Cause occurs (subject to the last sentence of
this Section 6), whereupon the Executive shall be entitled to receive the Base
Salary, as then in effect, to and including the date that such Termination For
Cause occurs. The same shall apply to any resignation of employment by the
Executive
(e) TERMINATION WITHOUT CAUSE. Upon the occurrence of a Termination
Without Cause, this Agreement shall terminate upon the date that such
Termination Without Cause occurs (subject to the last sentence of this
Section 6), whereupon the Executive shall make the election provided for in the
second sentence of Section 5(a) and shall be compensated in accordance with such
election.
Notwithstanding anything in this Agreement to the contrary, Sections 3
(as to base salary, overrides, commissions, bonuses, options and loans, fringe
benefits and expense reimbursements to which Executive became entitled prior to
or as a result of the termination of this Agreement), 4, 5, 6, 7, 8, 9, 10, 11
and 12 of this Agreement shall survive any termination of this Agreement or of
the Executive's employment hereunder until the expiration of the statute of
limitations applicable hereto.
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7. CHANGE IN CONTROL PAYMENT.
(a) CHANGE IN CONTROL DEFINED. A Change in Control shall be deemed to
occur upon the occurrence of both of: (i) the actual closing of any transaction
which results in a majority of the equity interest in the Parent Company being
beneficially owned by any "person" including any "group" (as such terms are used
in Section 13(d) and 14(d) of the Securities and Exchange Act of 1934, as
amended), other than the Parent Company's present affiliates; and (ii) after
such closing, a majority of the Board of Directors of the Parent Company are not
persons who (a) had been Directors at any time in the 12 months preceding such
closing or (b) when they were elected to the Board (x) were nominated (if they
were elected by the stockholders) or elected (if they were elected by the
directors) with the affirmative vote of a majority of the directors who were
Continuing Directors at the time of nomination or election by the Board and (y)
were not elected as a result of an actual or threatened solicitation of proxies
or consents by a person other than the Board of Directors of the Parent Company
or an agreement intended to avoid or settle such a proxy solicitation (the
directors described in (a) and (b) being "Continuing Directors").
(b) EFFECT OF CHANGE IN CONTROL. In the event of a Change In Control,
upon the later to occur of: (i) an involuntary termination of Executive's
employment hereunder other than a Termination for Cause; or ii) the expiration
of the term of this Employment Agreement without a voluntary resignation by
Executive of his employment with the Parent Company or uncured material default
hereunder by Executive, Executive shall be entitled to receive a cash
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bonus equal to .5% of the Consideration received by the Parent Company or the
shareholders of the Parent Company as a direct result of the transaction
constituting a Change in Control.
(c) "CONSIDERATION" IN CHANGE IN CONTROL. "Consideration" shall not
include the assumption, directly or indirectly, or repayment of indebtedness or
other liabilities of the Parent Company. If all or a portion of the
consideration paid in connection with the Change in Control is other than cash
or securities, then the value of such non-cash consideration shall be the fair
market value thereof on the date the Change in Control is actually consummated
as mutually agreed upon in good faith by the Parent Company's Board of Directors
and the Executive. If the Board of Directors and the Executive are unable to
come to agreement on the fair market value of such non-cash consideration, then
the parties shall jointly retain an independent expert to value the same, and
the determination of such independent expert shall be binding on both the
Executive and the Company. If such non-cash consideration consists of common
stock, options, warrants or rights for which a public trading market existed
prior to the consummation of the Change in Control, then the value of such
securities shall be determined by the closing or last sales price thereof on the
date of the consummation of the Change in Control; provided, however, that if
such non-cash consideration consists of newly-issued, publicly-traded common
stock, then the value thereof shall be the average of the closing prices for the
20 trading days subsequent to the fifth trading day after the consummation of
the Change in Control. In such event, the portion of the bonus payable to the
Executive pursuant to this Section 7 attributable to such securities shall be
paid on the 30th trading day subsequent to consummation of the Change in
Control. If no public market exists for the common stock, options, warrants or
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other rights issued as a result of the Change in Control, then the value of
thereof shall be as mutually agreed upon in good faith by the Company's Board of
Directors and the Executive. If the non-cash consideration paid consists of
preferred stock or debt securities (regardless of whether a public trading
market existed for such preferred stock or debt securities prior to consummation
of the Change in Control or exists thereafter), the value hereof shall be the
face or principal amount, as the case may be. Any amounts payable by a purchaser
to the Parent Company, any shareholder of the Parent Company or any affiliate of
either the Parent Company or any shareholder of the Parent Company in connection
with a non-competition, employment, consulting, licensing, supply or other
agreement shall be deemed to be part of the consideration paid in the Change in
Control. If all or a portion of the consideration payable in connection with the
Change in Control includes contingent future payments, then the Company shall
pay to the Executive, upon consummation of such Change in Control, an additional
cash amount, determined in accordance with this Section 7 as, when and if such
contingency payments are received. However, in the event of an installment
purchase at a fixed price and a fixed time schedule, the Company agrees to pay
the Executive, upon consummation of the Change in Control, a cash amount
determined in accordance with this Section 7 based on the present value of such
installment payments using a discount rate of 6.5%.
8. LOAN. The Parent Company has assumed an unsecured loan to the
Executive in the principal amount of $1,000,000 (the "Loan"), which Loan shall
continue upon the terms and conditions set forth in, and shall be evidenced by,
a new promissory note attached as Exhibit C hereto and hereby made a part hereof
(the "Note").
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9. TERM LIFE INSURANCE. The Parent Company or the Company shall
purchase term life insurance, providing a death benefit of $5,000,000, upon the
life of the Executive, the beneficiaries of which shall be designated by the
Executive and which term life insurance shall be upon terms and conditions, and
in form and substance, available at the time, and otherwise reasonably
satisfactory to the Executive and which term life insurance shall be maintained
by the Parent Company or the Company during the Employment Period at its sole
cost and expense; provided however that such life insurance shall be purchased
only to the extent that it is commercially reasonably available.
10. KEY MAN LIFE INSURANCE. The Parent Company or the Company shall
provide "Key Man" life insurance, providing a death benefit of $15,000,00 upon
the death of the Executive, for which either the Parent Company or the Company
is the beneficiary (the "Key Man Insurance Policy"). In connection therewith,
the Executive hereby authorizes the Parent Company or the Company, at its sole
cost and expense, to purchase and maintain upon the life of the Executive such
insurance policy, and agrees to submit to such medical examinations, and to
provide and/or consent to the release of such medical information, as may be
necessary or desirable in order to secure the issuance thereof.
11. INDEMNIFICATION. The Company and the Parent Company hereby agree,
jointly and severally, to indemnify the Executive (and his successors, legatees,
estate, administrators, executors, and legal representatives) and to advance
monies to such persons to
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pay expenses relating to indemnifiable events to the fullest extent permitted by
the laws of the State of Delaware, and the Executive shall be entitled to the
protection of any insurance policies the Company or the Parent Company may elect
to maintain generally for the benefit of their directors and officers, against
all costs, charges, and expenses whatsoever incurred or sustained by him or his
successors, legatees, estate, administrators, executors, and legal
representatives in connection with any action, suit, or proceeding to which any
of such persons may be a party by reason of the Executive being or having been a
director or officer of the Company or the Parent Company or any of their
subsidiaries or affiliates.
12. TAX WITHHOLDING. The Company and the Parent Company shall be
entitled to withhold from amounts payable to the Executive hereunder such
amounts as may be required by applicable tax law to be so withheld.
13. MODIFICATION. This Agreement sets forth the entire understanding of
the parties hereto with respect to the subject matter hereof, supersedes all
existing agreements between them concerning such subject matter, and may be
modified or terminated only by a written instrument duly executed by each party.
Executive acknowledges and agrees that upon execution, that certain First
Amendment and Restated Employment Agreement dated January 1, 1997, as amended,
by and among Executive, Insignia Financial Group, Inc., and the Company, as
successors to Insignia Commercial Group, Inc. and Insignia/Edward S. Gordon,
Incorporated shall be cancelled, including the promissory note issued in
connection therewith.
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14. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given, at the address of such party set forth in the preamble to this
Agreement (or to such other address as such party shall have furnished in
writing in accordance with the provisions of this Section 14.) Notice to the
Estate shall be sufficient if addressed to the Executive as provided in this
Section 14. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
15. WAIVER. Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
16. BINDING EFFECT. The Executive's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance, or the claims of the
Executive's creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and
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inure to the benefit of the Executive and his heirs and personal
representatives, and shall be binding upon and inure to the benefit of the
Company, the Parent Company and their successors.
17. THIRD PARTY BENEFICIARIES. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.
18. CONSTRUCTION AND INTERPRETATION. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself, or through its agent, prepared the same, and it is
expressly agreed and acknowledged that the Executive, the Company, the Parent
Company and their respective representatives have participated in the
preparation hereof.
19. HEADINGS. The headings in this Agreement are solely for convenience
of reference, and shall be given no effect in the construction or interpretation
of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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21. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to the
conflict of law provisions thereof.
22. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY DEALINGS BETWEEN OR AMONG THEM RELATING TO THE SUBJECT
MATTER OF THIS AGREEMENT AND THE RELATIONSHIPS BEING ESTABLISHED. THE SCOPE OF
THIS WAIVER IS INTENDED TO ENCOMPASS ANY AND ALL DISPUTES THAT MAY BE FILED IN
ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING,
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT, AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY
HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
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IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
INSIGNIA/ESG HOLDINGS, INC.
By:
--------------------------------------
Name:
Title:
INSIGNIA/ESG, INC.
By:
--------------------------------------
Name:
Title:
-----------------------------------------
STEPHEN B. SIEGEL
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EXHIBIT A
PERMITTED ACTIVITIES
1. Liquidating certain assets of Edward S. Gordon Company Incorporated and
Edward S. Gordon Company of New Jersey, Inc. and operating the Aircraft.
2. Officer and part owner of the Pittsfield Mets baseball team.
3. Board member of Liberty Property Trust.
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EXHIBIT B
International Real Estate Institute
N.A.C.O.R.E.
N.A.I.O.P.
Realty Foundation of New York
Urban Land Foundation
IDRC
ONCOR
29
<PAGE> 30
EXHIBIT C
PROMISSORY NOTE
$1,000,000 New York, New York
July 1, 1998
FOR VALUE RECEIVED, the undersigned, Stephen B. Siegel, residing at 130
East 67th Street, NY, NY 10021 ("Maker"), promises to pay to the order of
Insignia/ESG Holdings, Inc. ("Holder"), at the offices of Holder located at 200
Park Avenue, New York, New York 10166 (or at such other place as Holder may
designate in writing to Maker), in lawful money of the United States of America,
the principal amount of ONE MILLION DOLLARS ($1,000,000).
The outstanding principal balance of this Promissory Note and all
accrued interest thereon shall become due and payable in full upon the earlier
to occur of (i) the Maker's voluntary termination of his employment with Holder,
(ii) the Maker is Terminated For Cause (as defined in his Second Amended and
Restated Employment Agreement) and (iii) December 31, 2002. Notwithstanding
anything to the contrary contained in this Note, the repayment of the
outstanding principal amount of this Note, and all then accrued interest
thereon, shall be forgiven ratably over the three year period commencing on the
date hereof and ending on June 30, 2001 if, on such third anniversary, the
Maker's employment with the Holder has not been terminated for any valid reason.
In the event the Maker dies or becomes permanently disabled the repayment of the
outstanding principal amount of this Promissory Note, and all then accrued
interest thereon, shall be forgiven as of the effective date of such death or
permanent disability.
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<PAGE> 31
The outstanding principal balance of this Promissory Note shall accrue
interest at the Applicable Rate (as hereinafter defined), compounded annually;
provided, however, that in no event shall the amount of interest due or payable
under this Promissory Note exceed the maximum rate of interest allowed by
applicable law.
The "Applicable Rate" for any period shall be a rate of interest
(expressed on an annual basis) equal to Holdings' Cost of Funds (as defined
below). For purposes of this Promissory Note, "Holdings' Cost of Funds" as of
any date shall mean a rate of interest equal to the applicable rate of interest
as of such date provided under that certain Credit Agreement dated as of
September 1998, by and among Holder, First Union National Bank of South
Carolina, Lehman Commercial Paper, Inc. and the Lenders referred to therein (the
"Credit Agreement"). In the absence of an Applicable Rate, interest shall accrue
at the prime rate as published by The New York Times.
Maker may from time to time make a prepayment of all or any part of the
outstanding balance of this Promissory Note (a "Prepayment"), without penalty or
premium.
If Maker shall commit an act of bankruptcy, make an assignment for the
benefit of creditors, or if a meeting of creditors is convened or a committee of
creditors is appointed for, or any petition or proceeding for any relief under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
receivership, liquidation or dissolution law or statute now or hereafter in
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effect (whether at law or in equity) is filed or commenced by or against, Maker
or any of his property, or if any custodian, trustee or receiver is appointed
for Maker or any such property, then, and in any such event, in addition to all
other rights and remedies of Holder under applicable law and otherwise, Holder
may, at its option, declare any or all of the then outstanding balance of this
Promissory Note to be due and payable, whereupon the maturity of said amount
shall be accelerated and the same shall become immediately due and payable.
Maker will pay all reasonable costs and expenses of collection and
enforcement, including but not limited to reasonable attorneys' fees, court
costs and disbursements, in connection with the enforcement of Holder's rights
under this Promissory Note.
Maker hereby waives demand for payment, notice of nonpayment, or
presentment, notice of dishonor, protest or any other notice. No delay on the
part of Holder in exercising any rights under this Promissory Note shall operate
as a waiver of such rights, and no single or partial exercise by Holder of any
right or remedy shall preclude other or further exercise thereof or the exercise
of any other right or remedy.
BY MAKING THIS PROMISSORY NOTE, MAKER ACKNOWLEDGES THAT ANY DISPUTE OR
CONTROVERSY BETWEEN MAKER AND HOLDER WOULD BE BASED ON DIFFICULT AND COMPLEX
ISSUES OF LAW AND FACT. ACCORDINGLY, MAKER HEREBY WAIVES HIS RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL
IN WHICH
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AN ACTION MAY BE COMMENCED BY OR AGAINST MAKER ARISING OUT OF THIS PROMISSORY
NOTE OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN MAKER AND
HOLDER OF ANY KIND OR NATURE.
MAKER AGREES THAT THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, OR, AT THE OPTION OF HOLDER, ANY STATE COURT LOCATED IN
NEW YORK, NEW YORK, SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN MAKER AND HOLDER PERTAINING DIRECTLY OR INDIRECTLY TO THIS
PROMISSORY NOTE. MAKER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS, HEREBY
WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR
PAPERS ISSUED THEREIN, AND AGREEING THAT SERVICE OF SUCH SUMMONS AND COMPLAINT,
OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED ADDRESSED TO MAKER AT THE ADDRESS OF MAKE SET FORTH ABOVE.
SHOULD MAKER FAIL TO APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS
SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING THEREOF, HE SHALL BE DEEMED
IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AGAINST HIM AS PRAYED FOR
IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS.
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THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
This Promissory Note shall be binding upon the estate and heirs of
Maker. Holder may assign this Promissory Note to any controlled affiliate of
Holder without the consent of Maker, whereupon all references herein to "Holder"
shall be deemed to be to such assignee; provided, however, that Maker shall have
no obligations to make any payments due hereunder to any person other than
Holder unless and until Holder notifies Maker of such assignment in writing.
IN WITNESS WHEREOF, Maker has executed and delivered this Promissory
Note as of the date first written above.
-----------------------------------------
STEPHEN B. SIEGEL
34
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is entered into as of August 3,
1998, by and between Insignia/ESG Holdings, Inc., a Delaware corporation with an
office at 200 Park Avenue, New York, New York, 10166 (the "Company"), and Ronald
Uretta, an individual with an office at One Insignia Financial Plaza,
Greenville, SC 29062 (the "Executive"). This Agreement is effective as of the
date of the consummation of the spin-off of the Company from Insignia Financial
Group, Inc. ("IFG") to its shareholders, and as of such date the obligations of
IFG under the Amended and Restated Employment Agreement between IFG and the
Executive dated as of January 1, 1998 shall be assumed by the Company, and the
Company hereby assumes and agrees to pay (without duplication under this
Agreement) the rights thereunder regarding amounts owed by IFG thereunder if IFG
does not timely pay such amounts (in which case the Company will be subrogated
to the right of the Executive to collect such amounts from IFG).
BACKGROUND
The Company desires to assure itself of the services of the Executive for
the period provided in this Agreement, and the Executive is willing to serve in
the employ of the Company for such period upon the terms and conditions provided
in this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby agrees to employ the Executive,
and the Executive hereby accepts such employment, in each case upon the terms
and conditions set forth herein, for a period commencing on the effective date
hereof (the "Commencement Date") and ending three years from the Commencement
Date, or on such earlier date as provided herein (the "Expiration Date") (such
period, as it may be so terminated, being referred to herein as the "Employment
Period").
SECTION 2. DUTIES AND SERVICES.
(a) OFFICES. Subject to Section 2(d), during the Employment Period the
Executive shall serve as Chief Operating Officer of the Company and, at the
Company's request, as an officer or director of one or more of its subsidiaries.
In the performance of his duties hereunder, the Executive shall report to and
shall be responsible only to the Chief Executive Officer and the Board of
Directors of the Company. The Executive agrees to his employment as described in
<PAGE> 2
this Section 2. The parties hereto understand and agree that the Executive has
substantial business interests outside of the scope of this Agreement,
including, without limitation, at Metropolitan Asset Enhancement, L.P. and
Insignia Properties Trust, and under an employment or consulting agreement with
IFG, and both parties hereby consent to such arrangements. The Executive shall
be available to travel as the needs of the business of the Company reasonably
require.
(b) OFFICE. During the Employment Period, the Company shall provide the
Executive with an office located in Greenville, SC or at 200 Park Avenue, New
York, NY, whichever the Executive chooses, or at such other location as the
Company and the Executive shall mutually agree. The Company will provide the
Executive with an office and executive secretary reasonably acceptable to him,
and other reasonable support appropriate to his duties hereunder.
(c) PRIMARY RESPONSIBILITIES. Subject to Section 2(a) and 2(d), during the
Employment Period, the Executive shall have such responsibilities as are
assigned to him by the Chief Executive Officer and the Board of Directors of the
Company. The Executive shall comply with all written policies and procedures of
the Company.
(d) CONSULTING. If (i) without the prior written consent of the Executive,
the Executive's title, powers or duties within the Company have been
substantially diminished, other than as a result of a Termination For Cause, (as
defined in Section 7(a)(iv)), (ii) an Extraordinary Transaction (as defined in
Section 4(c)) or a Material Asset Disposition (as defined in Section 4(d)) has
taken place, or (iii) Andrew L. Farkas has elected to convert that certain
Employment Agreement, dated as of August 3, 1998, by and between the Company and
Mr. Farkas (the "Farkas Employment Agreement") into a consulting agreement, then
the Executive may elect in writing to convert this Agreement into a consulting
agreement. Under the terms of the consulting agreement, the Executive shall
consult with respect to the assets and liabilities of the Company as they
existed immediately before the Extraordinary Transaction or the Material Asset
Disposition. Such consultation shall be at the reasonable times convenient to
the Executive on no less than five business days' notice, the parties
recognizing that the Executive during the consulting period likely will have
substantial other business interests, including under an employment or
consulting agreement with IFG. The terms and conditions of this Agreement
(including all rights hereunder of the Executive as to compensation, bonus,
payments and benefits) shall continue unabridged during the period of
consulting. The other provisions of this Agreement also shall remain in effect
except that (i) Section 2(a) shall be deleted and the remainder of Section 2
shall be modified by this Section 2(d), (ii) Section 7(a)(iv)(B) and Section
7(a)(iv)(C) shall be deleted, and (iii) references to salary (and Base Salary)
in Section 4(a) and elsewhere in this Agreement shall be deemed to refer to a
consulting fee (and Base Consulting Fee), and such Base Consulting Fee shall be
paid to the executive in twelve monthly installments, payable on the first day
of each calendar month. The "Employment Period" shall be deemed to include the
period during which the Executive is obligated to provide consulting services
hereunder and therefore, to the extent permitted by law, the conversion shall
not be deemed a termination or resignation for any purpose and, if the law
requires that the conversion be treated as a termination, then the Company must
provide the Executive with benefits
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equivalent to those he would have received had there been no termination. The
Executive shall not be obligated to consult for more than five days or portions
of a day in any calendar month.
SECTION 3. KEY MAN LIFE INSURANCE. The Company shall have the right to
place a "key man" life insurance policy, providing a death benefit of up to
$15,000,000 upon the life of the Executive, for which the Company is the
beneficiary. In connection therewith, the Executive hereby authorizes the
Company, at its sole cost and expense, to purchase and maintain upon the life of
the Executive such insurance policy, and agrees to submit to such reasonable
medical examinations, and to provide and/or consent to the release of such
medical information, as may be necessary or desirable in order to secure the
issuance thereof. Except as may be required in order to obtain insurance
coverage as described in this Section 3, any and all information about
Executive's health or medical records shall be kept confidential by the Company
and shall not be disclosed by the Company to any party without the Executive's
prior written consent.
SECTION 4. COMPENSATION. As full compensation for his services hereunder,
the Company shall pay, grant, issue or give, as the case may be, to the
Executive the compensation and benefits specified below:
(a) BASE SALARY. Subject to the provisions of Section 7, a base salary at
the rate of $500,000 per annum ("Base Salary"), which Base Salary shall be paid
to the Executive in accordance with the customary executive payroll policy of
the Company as in effect from time to time; provided, however, that the Base
Salary, as in effect at any time and from time to time, may be further increased
by action of the Board of Directors; and further provided, however, that in no
event shall the Base Salary be decreased at any time or from time to time
without the prior consent of the Executive, which consent may be granted or
withheld in the Executive's sole discretion.
(b) ANNUAL DISCRETIONARY BONUS. An annual discretionary bonus
("Discretionary Bonus"), the amount of which, if any, shall be determined by the
Board of Directors of the Company in its sole and absolute discretion, which
shall be paid to the Executive, with respect to any fiscal year of the Company,
before the expiration of 74 days after the end of such fiscal year. In making
bonus determinations, the Company shall evaluate the Executive's performance in
accordance with the standard bonus guidelines used by the Company for executives
of the Company in the same or a similar position as the Executive. In the event
of the consummation of the sale of the present residential business of IFG to
Apartment Investment and Management Company pursuant to an amended and restated
merger agreement dated May 26, 1998 (the "AIMCO Merger") in any year, the
Company shall, immediately after the consummation of the AIMCO Merger, pay to
the Executive an amount equal to X times Y, where X equals: (a) if the
consummation of the AIMCO Merger occurs in 1998, the amount of the discretionary
bonus the Executive received from IFG with respect to 1997, (b) if the
consummation of the AIMCO Merger occurs in 1999, the amount of the discretionary
bonus the Executive received from the Company with respect to 1998, divided by
the number of days between the effective date of this Agreement and the end of
1998, and multiplied by 365, or (c) if the consummation of the AIMCO Merger
occurs after 1999, the amount of the discretionary bonus the Executive received
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<PAGE> 4
with respect to the year prior to the year in which the consummation of the
AIMCO Merger occurred, and Y equals a fraction the numerator of which is the
number of days between the beginning of the year and the occurrence of the
consummation of the AIMCO Merger and the denominator of which is 365.
(c) EXTRAORDINARY TRANSACTION.
An "Extraordinary Transaction" as used herein means the occurrence of any
one or more of the following:
(i) the Company ceases to be required to file reports under Section
13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor to that Section;
(ii) (a majority of the members of the Board of Directors of the
Company are not persons who (a) had been directors of the Company for at least
the preceding 12 consecutive months or (b) when they initially were elected to
the Board (x) were nominated (if they were elected by the stockholders) or
elected (if they were elected by the directors) with the affirmative vote of
two-thirds of the directors who were Continuing Directors at the time of the
nomination or election by the Board and (y) were not elected as a result of an
actual or threatened solicitation of proxies or consents by a person other than
the Board of Directors of the Company or an agreement intended to avoid or
settle such a proxy solicitation (the directors described in clauses (a) and (b)
being "Continuing Directors");
(iii) (any "person," including a "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act, but excluding the Company, any of
its present affiliates (as such term is defined in Rule 405 promulgated under
the Securities Act of 1933, as amended) ("Affiliates"), or any employee benefit
plan of the Company or any of its present Affiliates) is or becomes the
"beneficial owner" (as defined in Rule 13(d) (3) under the Exchange Act),
directly or indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities;
(iv) (the purchase of Common Stock of the Company ("Common Stock")
pursuant to any tender or exchange offer or otherwise made by any "person,"
including a "group" (as such terms are used in Sections 13 (d) and 14 (d) of the
Exchange Act), other than the Company, any of its present Affiliates, or any
employee benefit plan of the Company or any of its present Affiliates, which
results in "beneficial ownership" (as so defined) of 30% or more of the
outstanding Common Stock;
(v) (the execution and delivery of a definitive agreement by the
Company that provides for a merger or consolidation, or a transaction having a
similar effect (unless such merger, consolidation or similar action is with a
subsidiary of the Company or with another company, a majority of whose
outstanding capital stock is owned by the same persons or entities who own a
majority of the Company's outstanding Common Stock at such time), where (A) the
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majority of the Common Stock of the Company is no longer held by the persons who
were the stockholders of the Company immediately prior to the transaction, (B)
the sale, lease, exchange or other disposition of all or substantially all of
the assets of the Company but excluding the trading of marketable securities
held as portfolio securities or (C) the Company's Common Stock is converted into
cash, securities or other property (other than the common stock of a company
into which the Company is merged), provided, however, that, in the event that
the contemplated merger, consolidation or similar transaction is not
consummated, then any rights that may arise under this paragraph (v) by virtue
of such Change of Control shall not apply; and
(vi) upon the consummation of any transaction requiring stockholder
approval for the acquisition of the Company by an entity other than the Company
or a subsidiary through purchase of assets, or by merger, or otherwise.
(d) MATERIAL ASSET DISPOSITION BONUS. In the event of a Material Asset
Disposition, as defined below, in consideration of the services performed by the
Executive and consistent with the prior terms of the Executive's employment, the
Company (or, in the case of clause (iii) below, the spin-off entity or, in
default thereof, the Company) shall pay to the Executive immediately before the
consummation of such Material Asset Disposition, a cash bonus equal to the Bonus
Percentage of the consideration (valued as set forth below) received by the
Company or its shareholders as a result of such Material Asset Disposition;
provided, however, that if the Material Asset Disposition giving rise to the
cash bonus contemplated by this Section 4(d) is the consummation of the AIMCO
Merger, the Company shall pay such cash bonus immediately after the consummation
of the AIMCO Merger, and the amount of such cash bonus shall be equal to .25% of
the consideration (valued as set forth below) received by IFG or its
shareholders as a result of the consummation of the AIMCO Merger (not including
the value of the distribution of shares of the Company to shareholders of IFG).
The Bonus Percentage shall be .25% if the Executive is a consultant to the
Company, or makes himself reasonably available to consult for the Company with
respect to the assets and liabilities of the Company as they existed immediately
after the spin-off of Insignia/ESG Holdings, Inc. to the Company's shareholders,
at the time the definitive agreement regarding such Material Asset Disposition
is executed. The Bonus Percentage shall be .5% if the Executive is an employee
of the Company (for this purpose only, the word "employee" not including a
consultant under this Agreement), whether under this Agreement or otherwise, at
the time the definitive agreement regarding such Material Asset Disposition is
executed. If the Executive has been Terminated For Cause, or is otherwise not
employed by the Company and not available to consult for the Company, at the
time the definitive agreement regarding such Material Asset Disposition is
executed, then the Bonus Percentage shall be 0%.
A "Material Asset Disposition" as used herein means, without duplication
for the same matter: (i) a transaction which results in a majority of the equity
interest in the Company being beneficially owned by any "person" or "persons,"
including any "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act), other than any of the Company's present Affiliates; (ii) a sale
or series of sales by the Company of subsidiaries, divisions, assets (other than
marketable securities), or operating businesses representing in the aggregate
20% or more of
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<PAGE> 6
the Company's 1998 budgeted EBITDA (which shall include for purposes of this
Agreement EBITDA for all contemplated subsidiaries of the Company) and each such
sale after such threshold has been reached or, if the AIMCO Merger is
consummated, a sale or series of sales by the Company of subsidiaries,
divisions, or assets (other than marketable securities), or operating businesses
regardless of size; (iii) a spin off, or series of spin offs, of any of the
Company's divisions, operating businesses or subsidiaries that meet the 1998
budgeted EBITDA threshold set forth in (ii) above (or, if the AIMCO Merger is
consummated, any such spin off, regardless of size) which is followed by a
subsequent Extraordinary Transaction (as defined above, but with reference to
the spun off entity rather than the Company) of the subsidiary, division or
business spun off within five years following such spin off; (iv) any
transaction which results in any one or more of the Company's divisions,
subsidiaries or operating businesses, representing in the aggregate 20% or more
of the Company's EBITDA, being owned by a third party or, if the AIMCO Merger is
consummated, any transaction, regardless of size, which results in any one or
more of the Company's divisions, subsidiaries, or operating businesses being
owned by a third party; or (v) the consummation of the AIMCO Merger. In the
event a Material Asset Disposition is consummated in one or more steps,
including, without limitation, by way of second-step merger, any additional
consideration paid or to be paid in any subsequent step in the Material Asset
Disposition in respect of (x) subsidiaries, divisions, assets (other than
marketable securities), or operating businesses of the Company and (y) capital
stock of the Company (and any securities convertible into, or options, warrants
or other rights to acquire, such capital stock) shall be included for purposes
of calculating the bonus payable pursuant to this Section 4(d). "Consideration"
shall not include the assumption, directly or indirectly, or repayment of
indebtedness or other liabilities of the Company but shall include the
assumption, directly or indirectly, or repayment of securities similar to the
IFG Trust Convertible Preferred Securities now outstanding. If all or a portion
of the consideration paid in the Material Asset Disposition is other than cash
or securities, then the value of such non-cash consideration shall be the fair
market value thereof on the date the Material Asset Disposition is consummated
as mutually agreed upon in good faith by the Company's Board of Directors and
the Executive. If the Board of Directors and the Executive are unable to come to
agreement on the fair market value of such non-cash consideration following the
provisions of this Section 4(d), then, at the request of either, an independent
valuation expert agreeable to both shall be appointed to determine the fair
market value of such non-cash consideration, and the determination of such
independent expert shall be binding on both the Executive and the Company. If
such non-cash consideration consists of common stock, options, warrants or
rights for which a public trading market existed prior to the consummation of
the Material Asset Disposition, then the value of such securities shall be
determined by the closing or last sales price thereof on the date of the
consummation of the Material Asset Disposition; provided, however, that if such
non-cash consideration consists of newly-issued, publicly-traded common stock,
options, warrants or rights for which no public trading market existed prior to
the consummation of the Material Asset Disposition, then the value thereof shall
be the average of the closing prices for the 20 trading days subsequent to the
fifth trading day after the consummation of the Material Asset Disposition. In
such event, the portion of the bonus payable to the Executive pursuant to this
Section 4(d) attributable to such securities shall be paid on the 30th trading
day subsequent to consummation of the Material Asset Disposition. If no public
market exists for the common stock, options, warrants or other
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rights issued in the Material Asset Disposition, then the value of thereof shall
be as mutually agreed upon in good faith by the Company's Board of Directors and
the Executive. If the non-cash consideration paid in the Material Asset
Disposition consists of preferred stock or debt securities (regardless of
whether a public trading market existed for such preferred stock or debt
securities prior to consummation of the Material Asset Disposition or exists
thereafter), the value hereof shall be the face or principal amount, as the case
may be. Any amounts payable by a purchaser to the Company, any shareholder of
the Company or any Affiliate of either the Company or any shareholder of the
Company in connection with a non-competition, employment, consulting, licensing,
supply or other agreement shall be deemed to be part of the consideration paid
in the Material Asset Disposition. If all or a portion of the consideration
payable in connection with the Material Asset Disposition includes contingent
future payments, then the Company shall pay to the Executive, upon consummation
of such Material Asset Disposition, an additional cash fee, determined in
accordance with this Section 4(d) as, when and if such contingency payments are
received. However, in the event of an installment purchase at a fixed price and
a fixed time schedule, the Company agrees to pay the Executive, upon
consummation of the Material Asset Disposition, a cash fee determined in
accordance with this Section 4(d) based on the present value of such installment
payments using a discount rate of 6.5%. For purposes of this Section 4(d), in no
case shall the "consideration" received by the Company be greater than the total
market capitalization of the Company at the time of the Material Asset
Disposition.
(e) FRINGE BENEFIT PROGRAMS. In addition to the other benefits provided to
the Executive hereunder and to the extent he satisfies the eligibility
requirements thereof and to the extent permitted by law, participation in fringe
benefit programs made available generally to employees or independent
contractors of the Company, including, without limitation, pension, profit
sharing, stock purchase, savings, bonus, disability, life insurance, health
insurance, hospitalization, dental, deferred compensation and other plans and
policies authorized on the date hereof or in the future.
(f) EXPENSE REIMBURSEMENT. Reimbursement of the Executive for all
out-of-pocket expenses incurred by him in connection with the performance of his
duties hereunder, including professional activities and membership fees and dues
relating to professional organizations of which the Executive currently is a
member or is directed in writing to be a member by the Chief Executive Officer
of the Company and including, without limitation, expenses required for
professional licensing of the Executive, and business related cell phone expense
in accordance with the Company's written policies and procedures, all upon the
presentation of appropriate documentation therefore in accordance with the then
regular procedures of the Company.
(g) PERQUISITES. In addition to the other benefits provided to the
Executive hereunder, and at the sole cost and expense of the Company, except as
otherwise provided herein:
(i) the Executive shall be entitled to reasonable business usage of
aircraft owned or leased by the Company as determined by the Chief Executive
Officer of the Company.
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With prior consent from the Chief Executive Officer of the Company, the
Executive may utilize such aircraft for personal use and in such event the cost
of such use shall be added to and included in the Executive's compensation for
federal, state and local income tax purposes;
(ii) subject to the provisions of Section 7 hereof, the Company will
provide to the Executive disability insurance coverage identical to the
disability insurance coverage provided to senior executives of the Company from
time to time;
(iii) the Executive shall be entitled to use of a full-time car and
driver in New York City, New York, which car and driver shall also be available
for use by all other executives of the Company as the need shall arise;
(iv) the Executive shall be entitled to full reimbursement for
expenses incurred in respect of professional continuing education; and
(v) the Executive shall be entitled to reasonable consultations with
financial and tax advisors or counselors, including annual income tax
preparation and audits relating to the period during which the Executive was
employed by the Company (whether or not under this Agreement) and whether such
audit expense is incurred during or after the Employment Period.
(h) VACATIONS, ETC. Leaves-of-absence in accordance with the then regular
procedures of the Company governing senior executives, and four weeks of paid
vacation per year on a noncumulative basis.
(i) PARACHUTE LIMIT. Notwithstanding anything else herein, to the extent
the Executive would be subject to the excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), on such amounts or
benefits received from the Company required to be included in the calculation of
parachute payments for purposes of Sections 280G and 4999 of the Code (the
"Parachute Payments"), the amounts of any Parachute Payments shall be
automatically reduced as described herein to an amount one dollar less than an
amount that would subject the Executive to the excise tax under Section 4999 of
the Code (the "Parachute Limit"); provided, however, that this Section 4(i)
shall apply only if the reduced Parachute Payments received by the Executive
(after taking into account further reductions for applicable federal, state and
local income, social security and other taxes) would be greater than the
unreduced Parachute Payments to be received by the Executive minus (i) the
excise tax payable under Section 4999 of the Code with respect to such Parachute
Payments and (ii) all applicable federal, state and local income, social
security and other taxes on such Parachute Payments. The foregoing reduction
shall be applied to the Parachute Payments as follows: (i) first by reducing the
amounts payable under Section 4(c) (if such amounts are included in such
computation) until such amounts have been exhausted up to the Parachute Limit,
(ii) then by reducing any such other amounts and benefits (other than awards
described in (iii) below) as determined by the Company, and (iii)
notwithstanding anything contained herein or in an option, warrant or restricted
stock agreement, award or plan relating to the Executive then, on a pro-rata
basis up to the Parachute Limit, by failing to accelerate the vesting (without
affecting the right to vest) upon
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<PAGE> 9
a change in ownership or effective control or change in ownership of a
substantial portion of assets (as described in Code Section 280G(b)(2)(A)(i)) of
any unvested awards of shares of restricted stock of the Company previously
granted to Executive and options or warrants to purchase shares of the Company
previously granted to Executive. Notwithstanding the foregoing, the Company
shall treat any of the amounts described in (i) through (iii) above as a
Parachute Payment solely to the extent required under applicable law.
(j) PURCHASE OF INSURANCE. Following the Executive's cessation of
employment with the Company for any reason, (i) the Executive shall have the
right to continue, at the Executive's sole cost, any or all life insurance
policies on the life of the Executive maintained by the Company during the
Employment Period and to designate the beneficiaries and owners thereof, and
(ii) the Executive and his dependents shall have the right to purchase from or
through the Company or its successor, at the Executive's or his dependents' sole
cost, individual and dependent care health insurance coverage. Notwithstanding
anything in this Agreement to the contrary, the provisions of this Section 4(j)
shall continue regardless of the cessation of the Executive's employment by the
Company. In the case of the death of the Executive, whether during or after the
Employment Period, the rights under Section 4(j)(ii) of the persons who were the
Executive's dependents at the time of his death shall continue in full force and
effect for the duration of each of their lives.
(k) VESTING. In the event of (a) a termination of Executive's employment
for any reason other than a Termination for Cause or voluntary termination by
the Executive, including, but not limited to a Death Termination Event,
Disability Termination Event, Termination Without Cause or in the event of (b)
the occurrence of an Extraordinary Transaction, an Influence Change Event (as
such term is defined in the Farkas Employment Agreement), or an Extraordinary
Stock Event (as such term is defined in the Farkas Employment Agreement)
(whether or not resulting in a termination of Executive's employment), all
options and warrants then granted to the Executive will immediately vest and be
exercisable by the Executive.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EXECUTIVE. The
Executive represents and warrants to the Company as follows:
(a) He is under no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of his duties
hereunder, or the other rights of the Company hereunder; and
(b) He is able to perform the essential functions of his duties hereunder
with or without reasonable accommodations.
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SECTION 6. NON-SOLICITATION; CONFIDENTIALITY.
(a) NON-SOLICITATION.
(1) In recognition of the close personal contact the Executive
has or will have with the Company's and its affiliates' trade secrets,
confidential information, records and business relationships, and the position
of trust in which the Company holds the Executive, the Executive further
covenants and agrees that while the Executive is employed by the Company and for
a period lasting for one (1) year following the cessation of the Executive's
employment with the Company, the Executive will not, if such action would have a
material adverse effect on the Company, in direct competition with the Company
(where competition is measured as of the date the Executive ceases to be
employed by the Company), either for himself or as an officer, director,
employee, agent, representative, independent contractor or in any relationship
to any person, partnership, corporation, or other entity (except the Company or
its Affiliates or subsidiaries), solicit, directly or by assisting others,
business from any of the Company's customers or clients who were customers or
clients of the Company as of the date of the cessation of the Executive's
employment and with whom the Executive has had material contact (as defined
below) during the twelve (12) month period preceding the date of cessation of
the Executive's employment with the Company in the event of a cessation of
employment with the Company or, absent such cessation, during the twelve (12)
months preceding the solicitation, for the purpose of providing goods or
services to said customers and clients. For purposes of this Agreement,
"material contact" exists between the Executive and any of the Company's
customers or clients (i) with whom the Executive actually dealt; or (ii) whose
dealings with the Company were handled, coordinated or supervised by the
Executive; or (iii) about whom the Executive obtained confidential information
in the ordinary course of business through the Executive's association with the
Company.
(2) The Executive covenants and agrees that, for a period ending
on the second anniversary of the date on which the Executive's employment with
the Company ceases, the Executive will not solicit any employee, broker or sales
person of the Company, or any of its respective subsidiaries or affiliates to
leave their employ for the employ of a person or entity which directly competes
with the Company, or any of its respective subsidiaries or affiliates.
(3) The Executive covenants and agrees that, for a period ending
on the second anniversary of the date on which the Executive's employment with
the Company ceases, the Executive will not purchase for his own account any
limited partnership units of partnerships that, on the date of purchase, are
controlled directly or indirectly by the Company, except that the provisions of
this sentence shall not be deemed breached merely because the Executive owns,
immediately after a purchase, not more than one percent of the outstanding
units. Should the Executive breach the foregoing sentence, all his options
issued by the Company or any of its subsidiaries shall be canceled and all of
his restricted stock issued by the Company or any of its subsidiaries (whether
or not then vested) which he then owns shall be forfeited. For purposes of this
Section 6(a)(3), "purchase" shall mean the payment of cash only
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for such limited partnership units and shall not include payment of cash for
interests in an entity whose assets consist in whole or in part of such limited
partnership units.
(4) The Executives covenants and agrees that he will not, either
for himself or as an officer, director, employee, agent, representative, or
independent contractor of any person, partnership, corporation, or other entity
(except the Company or its Affiliates or subsidiaries), interfere with any
contract that exists between the Company and any customers or clients of the
Company as of the effective date of this Agreement.
The Executive acknowledges that the foregoing provisions are intended to
protect the Company's and its subsidiaries' and Affiliates' business and
customer contacts, not to prevent the Executive from pursuing a livelihood in
the general area of his previous training, and they should be interpreted
accordingly.
(b) CONFIDENTIALITY. All confidential information which the Executive may
now possess, may obtain during or after his employment with Company, or may
create prior to the end of his employment with the Company or otherwise relating
to the business of the Company or any of its subsidiaries or affiliates or of
any customer or supplier of any of them shall not be published, disclosed, or
made accessible by him to any other person, either during or after the cessation
of his employment, or used by him except during his employment with the Company
in the business and for the benefit of the Company and its subsidiaries and
Affiliates. In addition, the Executive agrees not to disclose, publish or make
accessible to any other person, from and after the date of this Agreement,
during the Employment Period or at any time thereafter, any of the terms or
provisions of this Agreement, except the Executive's accountants who need such
information to advise him, prepare his tax returns, make required filings and
the like; provided, however, that the Executive will be responsible for causing
any such accountants to be aware of and to abide by the obligations contained in
this Section 6(b) and will be responsible for any breach of such obligations by
any of them. In the event that the Executive becomes legally compelled to
disclose any of the confidential information, the Executive will provide the
Company with prompt written notice so that the Company may seek a protective
order or other appropriate remedy and/or waive in writing compliance with the
provisions of this Section 6(b) and in the event that such protective order or
other remedy is not obtained, or should the Company waive in writing compliance
with the provisions of this Section 6(b), the Executive will furnish only that
portion of the confidential information which is so legally required. The
Executive shall return all tangible evidence of such confidential information to
the General Counsel of the Company prior to or at the cessation of his
employment.
(c) INTERPRETATION. Since a breach of the provisions of this Section 6
could not adequately be compensated by money damages, the Company shall be
entitled, in addition to any other right and remedy available to it, to an
injunction restraining such breach and the Company shall not be required to post
a bond in any proceeding brought for such purpose. The Executive agrees that the
provisions of this Section 6 are necessary and reasonable to protect the Company
in the conduct of its businesses. If any restriction contained in this Section 6
shall be deemed to be invalid, illegal, or unenforceable by reason of the
extent, duration, or geographical scope
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thereof, or otherwise, then the court making such determination shall have the
right to reduce such extent, duration, geographical scope, or other provisions
hereof, and in its reduced form such restriction shall then be enforceable in
the manner contemplated hereby. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies, at law or in equity, for such
breach or threatened breach.
(d) INVESTORS. Notwithstanding anything herein to the contrary, nothing in
this Agreement shall restrict the right of the Executive to solicit or receive,
on his own behalf or on behalf of others, any investment or any funds in any
form from any person, regardless of whether such person is an investor in the
Company or in any current or former affiliate of the Company.
SECTION 7. TERMINATION.
(a) DEFINITIONS.
(i) Death Termination Event. As used herein, "Death Termination
Event" shall mean the death of the Executive.
(ii) Disability Termination Event. As used herein, "Disability
Termination Event" shall mean a circumstance where the Executive is physically
or mentally incapacitated or disabled or otherwise unable to fully discharge his
duties hereunder for a period of 185 consecutive days.
(iii) Estate. As used herein, "Estate" shall mean (A) in the event
that the last will and testament of the Executive has not been probated at the
time of determination, the estate of the Executive and (B) in the event that the
last will and testament of the Executive has been probated at the time of
determination, the legatees of the Executive who are entitled under such will to
the assets or payments at issue.
(iv) Termination For Cause. As used herein, the term "Termination For
Cause" shall mean the termination by the Company of the Executive's employment
hereunder upon a good faith determination by a majority vote of the members of
the Board of Directors of the Company that termination of this Agreement is
necessary by reason of (A) the Executive shall be convicted of a felony, (B) the
Executive shall commit any act or omit to take any action in bad faith and to
the material detriment of the Company and Executive shall not have cured the
same within 30 days after the Company sends written notice thereof, or (C)
Executive shall breach in a material way any material term of this Agreement and
fail to correct such breach within 30 days after the Company sends written
notice thereof.
(v) Termination Without Cause. As used herein, "Termination Without
Cause" shall mean any termination of the Executive's employment by the Company
hereunder that is not a Termination For Cause, a Death Termination Event, or a
Disability Termination Event but shall not include a conversion of this
Agreement to a consulting agreement.
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(b) DEATH TERMINATION EVENT. Upon the occurrence of a Death Termination
Event, this Agreement will terminate automatically upon the date that such Death
Termination Event occurred (subject to the last sentence of this Section 7 and
to the last two sentences of Section 4(j)), whereupon the Executive's Estate
shall receive the consideration set forth in Sections 4(a) through (d) through
the date three years from the Commencement Date. In addition, the Executive's
Estate shall be entitled to receive the payments contemplated by Section 4(c)
and Section 4(d) if the event giving rise to such payment occurs, or a
definitive agreement regarding such event is executed, before or within 180 days
after the Death Termination Event.
(c) DISABILITY TERMINATION EVENT. Upon the occurrence of a Disability
Termination Event, this Agreement shall terminate automatically upon the date
that such Disability Termination Event occurred (subject to the last sentence of
this Section 7 and to the last two sentences of Section 4(j)), whereupon the
Executive shall continue to receive the consideration set forth in Sections 4(a)
through (d) and Section 4(g)(iii) through the date three years from the
Commencement Date. In addition, the Executive shall be entitled to receive the
payments contemplated by Section 4(c) and Section 4(d) if the event giving rise
to such payment occurs, or a definitive agreement regarding such event is
executed, before or within 180 days after the Disability Termination Event.
(d) TERMINATION FOR CAUSE. The Executive and the Company agree that the
Company shall have the right to effectuate a Termination For Cause in accordance
with the terms of this Agreement at any time. Upon the occurrence of a
Termination For Cause, this Agreement will terminate upon the date that such
Termination For Cause occurs (subject to the provisions of Section 9), whereupon
(i) the Executive shall not be entitled to receive any additional payments
hereunder other than the Base Salary, as then in effect, to and including the
date that such Termination For Cause occurs and (ii) the Company shall be
entitled to any and all remedies and damages available to it.
(e) TERMINATION WITHOUT CAUSE. Upon the occurrence of a Termination
Without Cause, this Agreement shall terminate upon the date that such
Termination Without Cause occurs (subject to the provisions of Section 9 and to
the last two sentences of Section 4(j)), whereupon the Executive shall continue
to receive the consideration set forth in Sections 4(a) through (d) and Section
4(g)(iii) through the date three years from the Commencement Date. In addition,
the Executive shall be entitled to receive the payments contemplated by Section
4(c) and Section 4(d) if the event giving rise to such payment occurs, or a
definitive agreement regarding such event is executed, on or before the date
three years from the Commencement Date.
In the event of a termination of Executive's employment for any reason
other than a Termination for Cause or voluntary termination by the Executive,
including, but not limited to a Death Termination Event, Disability Termination
Event, or Termination Without Cause, all options, warrants and restricted stock
then held by and/or granted to the Executive will immediately vest and be
exercisable by the Executive but in the event of the occurrence of an
Extraordinary Transaction, no options, warrants or restricted stock then held by
and/or granted to the Executive will immediately vest as a result thereof.
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SECTION 8. WITHHOLDING. The Company shall be entitled to withhold from
amounts payable to the Executive hereunder such amounts as may be required by
applicable law to be so withheld.
SECTION 9. SURVIVAL. Notwithstanding anything in this Agreement to the
contrary, Section 6 of this Agreement shall survive any termination of this
Agreement or cessation of the Executive's employment hereunder for the periods
stated therein.
SECTION 10. MODIFICATION. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
SECTION 11. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given, at the address of such party set forth in the
preamble to this Agreement (or to such other address as such party shall have
furnished in writing in accordance with the provisions of this Section 11).
Notice to the Estate shall be sufficient if addressed to the Executive as
provided in this Section 11. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
SECTION 12. WAIVER. Any waiver by either party of a breach of any
provision of Agreement shall not operate as a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
SECTION 13. BINDING EFFECT. The Executive's rights and obligations under
this Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance or the claims of the
Executive's creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the Executive and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors.
SECTION 14. HEADINGS. The headings in this Agreement are solely for
convenience of reference, and shall be given no effect in the construction or
interpretation of this Agreement.
SECTION 15. ENFORCEMENT. Should the Executive sue to enforce any of his
rights under this Agreement and should the Executive prevail on any issue in
such suit, then the Company shall pay all the Executive's costs of such suit
(including attorneys fees and disbursements). If any taxes are imposed on such
payment, the Company shall make such additional payments to
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the Executive as may be necessary, so that after deducting the taxes imposed on
all payments made to the Executive pursuant to this paragraph, the Executive is
left on an after tax basis with an amount equal to his claim for indemnification
prior to the payments described in this sentence.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina, without
reference to the conflict of law provisions thereof.
SECTION 18. CONSTRUCTION AND INTERPRETATION. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself, or through its agent, prepared the same, and it is
expressly agreed and acknowledged that the Executive, the Company and their
respective attorneys and representatives have participated in the preparation
hereof.
SECTION 19. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY DEALING BETWEEN OR AMONG THEM RELATING TO THE SUBJECT
MATTER OF THIS AGREEMENT AND THE RELATIONSHIPS BEING ESTABLISHED. THE SCOPE OF
THIS WAIVER IS INTENDED TO ENCOMPASS ANY AND ALL DISPUTES THAT MAY BE FILED IN
ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING,
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT, AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY
HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO THE TRIAL BY THE
COURT.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
INSIGNIA/ESG HOLDINGS, INC.
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
EXECUTIVE
----------------------------------------
Name: Ronald Uretta
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EXHIBIT 10.10
ASSIGNMENT, ASSUMPTION, CONSENT AND RELEASE AGREEMENT
THIS ASSIGNMENT, ASSUMPTION, CONSENT AND RELEASE AGREEMENT (this
"Agreement") is made and entered into as of July 1, 1998, by and among Insignia
Financial Group, Inc., a Delaware corporation ("Assignor"), Insignia/ESG
Holdings, Inc., a Delaware corporation ("Assignee") and Edward S. Gordon
("Employee").
W I T N E S S E T H :
WHEREAS Assignor and Employee are currently parties to that certain
Employment Agreement dated as of June 17, 1996, as amended by Amendment No. 1
thereto dated April 1, 1997 (as amended, the "Employment Agreement"), a copy of
which is attached hereto as Exhibit A;
WHEREAS, it is contemplated that Assignor will distribute 100% of the
outstanding common stock of Assignee to Assignor's stockholders (the
"Distribution");
WHEREAS, Assignee desires to assure itself of the services of Employee
from and after the Distribution through the period contemplated by the
Employment Agreement, and Employee desires and is willing to serve in the
employ of Assignee for such period; and
WHEREAS, each of Assignor, Assignee and Employee desires to enter into
this Agreement for their mutual benefit and in order to facilitate the
Distribution;
NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Assignor hereby irrevocably assigns and delegates to Assignee
all of Assignor's existing and future rights and obligations under the
Employment Agreement, and Assignee hereby irrevocably accepts and assumes all
of such rights and obligations, in each case effective simultaneously with the
consummation of the Distribution and without any further action on the part or
any party hereto (the "Assignment").
2. Subject to the provisions of Section 4 hereof, Employee hereby
irrevocably and unconditionally consents to the Assignment and, on behalf of
himself and his heirs, executors, administrators and estate, releases Assignor
and its subsidiaries and affiliates (other than Assignee) from any and all
actions, causes of action, obligations, liabilities, judgments, suits, debts,
sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
extents, executions, claims and demands whatsoever, in law, admiralty or
equity, whether liquidated or unliquidated, contingent or otherwise, whether
specifically mentioned or not, which Employee ever had, now has or hereafter
can, shall or may have under, arising out of or relating to the Employment
Agreement, it being understood and agreed that any liability for any such
claim, etc. shall instead be the sole responsibility of Assignee.
<PAGE> 2
3. By signing this Agreement, Employee acknowledges and agrees
that:
(a) He has been afforded a reasonable and sufficient
period of time of at least twenty-one (21) days to review this
Agreement, for deliberation hereon and for negotiation of the terms
hereof, and that, at Employee's initiative, Employee has waived said
period and any possible renewals or extensions thereof;
(b) He has been specifically urged by Assignor to consult
with legal counsel or the representative of his choice before signing
this Agreement, and that he did, in fact, consult an attorney of his
own choosing before signing this Agreement and said attorney reviewed
this Agreement before Employee signed it;
(c) He has carefully read and understands the terms of
this Agreement, all of which have been fully explained to him;
(d) He has signed this Agreement freely and voluntarily
and without duress or coercion and with full knowledge and
understanding of its significance and consequences and of the rights
relinquished, surrendered, released and discharged hereunder; and
(e) The only consideration for signing this Agreement are
the terms stated herein and no other promise, agreement or
representation of any kind has been made to him by any person or
entity whatsoever to cause him to sign this Agreement.
4. This Agreement may be revoked in writing by Employee at any
time during the period of seven (7) calendar days following the date of
execution by Employee as indicated on the Signature Page hereto. If such
seven-day revocation period expires without Employee exercising his revocation
right, the obligations of this Agreement will then become fully effective.
5. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
conflicts of law principles thereof.
6. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which, when taken
together, shall constitute one and the same instrument.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have duly executed this
Assignment, Assumption, Consent and Release Agreement on the respective dates
indicated below.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ FRANK M. GARRISON
---------------------------
Frank M. Garrison
Executive Managing Director
Date: July 1, 1998
INSIGNIA/ESG HOLDINGS, INC.
By: /s/ JEFFREY P. COHEN
---------------------------
Jeffrey P. Cohen
Executive Vice President
Date: July 1, 1998
EMPLOYEE
/s/ EDWARD S. GORDON
------------------------------
Edward S. Gordon
Date: 7-6 , 1998
----------------
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<PAGE> 1
EXHIBIT 10.11
FARKAS-Insignia/ESG Holdings
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is entered into as of August
3, 1998, by and between Insignia/ESG Holdings, Inc., a Delaware corporation
with an office at 200 Park Avenue, New York, NY 10166 (the "Company"), and
Andrew Lawrence Farkas, an individual with an office at 375 Park Avenue, New
York, N.Y. (the "Executive "). This Agreement is effective as of the date of
the consummation of the spin-off of the Company from Insignia Financial Group,
Inc. ("IFG") to its shareholders, and as of such date the obligations of IFG
under the Amended and Restated Employment Agreement between IFG and the
Executive dated as of January 1, 1998 shall be assumed by the Company, and the
Company hereby assumes and agrees to pay (without duplication under this
Agreement) the rights thereunder regarding amounts owed by IFG thereunder if
IFG does not timely pay such amounts (in which case the Company will be
subrogated to the right of the Executive to collect such amounts from IFG).
BACKGROUND
The Company desires to assure itself of the services of the Executive
for the period provided in this Agreement, and the Executive is willing to
serve in the employ of the Company for such period upon the terms and
conditions provided in this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts such employment, in each case upon
the terms and conditions set forth herein, for a period commencing on the
effective date hereof (the "Commencement Date") and ending three years from the
Commencement Date, or on such earlier date as provided herein (the "Expiration
Date") (such period, as it may be so terminated, being referred to herein as
the "Employment Period").
SECTION 2. DUTIES AND SERVICES.
(a) OFFICES. Subject to Section 2(e), during the Employment
Period the Executive shall serve as Chief Executive Officer of the Company and,
at the Company's request, as an officer or director of one or more of its
subsidiaries. In the performance of his duties hereunder, the Executive shall
report to and shall be responsible only to the Board of Directors of the
Company. The Executive agrees to his employment as described in this Section
2. The parties hereto understand and agree that the Executive has substantial
business interests outside of the scope of this Agreement, including, without
limitation, at Metropolitan Asset Enhancement, L.P.
<PAGE> 2
("MAE"), Insignia Properties Trust, as a strategic partner at Charterhouse, and
under an employment or consulting agreement with IFG, and both parties hereby
consent to such arrangements. The Executive shall be available to travel as
the needs of the business of the Company reasonably require.
(b) NOMINATION TO THE BOARD OF DIRECTORS AND COMMITTEES THEREOF.
The Company agrees that the Executive shall be nominated by its Board of
Directors to be elected to such Board of Directors as a Director of the Company
at each meeting of its stockholders at which Directors of the Company are to be
elected for so long as the Executive shall be employed by the Company. The
Company further agrees that, for so long as the Executive shall be employed by
the Company and shall be a Director of the Company, he shall be elected or
appointed, as the case may be, to serve (i) as Chairman of the Board of
Directors of the Company, (ii) on the Executive Committee of the Board of
Directors of the Company as the Chairman thereto, and (iii) on the Compensation
Committee of the Board of Directors as an ex officio member thereof
(collectively, the "Board Positions"). This Section 2(b) shall terminate upon
the conversion of this Agreement into a consulting agreement pursuant to
Section 2(e) of this Agreement.
(c) LOCATION OF OFFICE. Subject to Section 2(e), during the
Employment Period the Company shall provide the Executive with an office in
both the principal executive offices of the Company in New York, New York. The
Company will provide the Executive with two executive secretaries acceptable to
him, and other support appropriate to his duties hereunder, in the sole
discretion of the Executive.
(d) PRIMARY RESPONSIBILITIES. Subject to Section 2(e), during the
Employment Period, the Executive shall have primary responsibility for the
business of the Company and its subsidiaries, including, without limitation,
the following areas:
(i) Underwriting decisions;
(ii) Securitization decisions;
(iii) Acquisition and disposition decisions;
(iv) Hiring and termination of employees;
(v) Setting executive and other employee compensation;
(vi) Setting the location of the Company's principal executive offices at any
time and from time to time; and
(vii) Other similar general management decisions affecting the operations of
the Company,
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in each case subject to the approval of the Board of Directors of the Company
or the appropriate committee thereof to the extent required by the laws of the
State of Delaware or the By-Laws of the Company.
(e) CONSULTING. If (i) without the prior written consent of the
Executive the Executive's title, powers or duties within the Company have been
substantially diminished, other than as a result of a Termination For Cause, or
(ii) if an Influence Change Event (as defined in Section 8(a)(iv)) after or in
connection with an Extraordinary Transaction (as defined in Section 8(a)(i), an
Extraordinary Stock Event (as defined in Section (8(a)(v)), or a Material Asset
Disposition (as defined in Section 4(e)), has taken place, then Executive may
elect in writing to convert this Agreement into a consulting agreement. Under
the terms of the consulting agreement, the Executive shall consult with respect
to the assets and liabilities of the Company as they existed immediately before
the Extraordinary Transaction, Extraordinary Stock Event, or Material Asset
Disposition. Such consultation shall be at the reasonable times convenient to
the Executive on no less than five business days' notice, the parties
recognizing that the Executive during the consulting period likely will have
substantial other business interests, including under including, without
limitation, at Metropolitan Asset Enhancement, L.P. ("MAE"), as a strategic
partner at Charterhouse, and under an employment or consulting agreement with
IFG. The terms and conditions of this Agreement (including all rights
hereunder of the Executive as to compensation, bonus, payments and benefits)
shall continue unabridged during the period of consulting. The other
provisions of this Agreement also shall remain in effect except that (i)
Section 2(a) shall be deleted and the remainder of Section 2 shall be modified
by this Section 2(d), (ii) Section 7(a)(iv)(B) and Section 7(a)(iv)(C) shall be
deleted, and (iii) references to salary (and Base Salary) in Section 4(a) and
elsewhere in this Agreement shall be deemed to refer to a consulting fee (and
Base Consulting Fee), and such Base Consulting Fee shall be paid to the
executive in twelve monthly installments, payable on the first day of each
calendar month. The "Employment Period" shall be deemed to include the period
during which the Executive is obligated to provide consulting services
hereunder and therefore, to the extent permitted by law, the conversion shall
not be deemed a termination or resignation for any purpose and, if the law
requires that the conversion be treated as a termination, then the Company must
provide the Executive with benefits equivalent to those he would have received
had there been no termination. The Executive shall not be obligated to consult
for more than five days or portions of a day in any calendar month.
SECTION 3. KEY MAN LIFE INSURANCE. The Company shall have the
right to place a "key man" life insurance policy, providing a death benefit of
up to $15,000,000 upon the life of the Executive, for which the Company is the
beneficiary (the "Key Man Insurance Policy"). In connection therewith, the
Executive hereby authorizes the Company, at its sole cost and expense, to
purchase and maintain upon the life of the Executive such insurance policy, and
agrees to submit to such reasonable medical examinations, and to provide and/or
consent to the release of such medical information, as may be necessary or
desirable in order to secure the issuance thereof. Except as may be required
in order to obtain insurance coverage as described in this
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Section 3, any and all information about Executive's health or medical records
shall be kept confidential by the Company and shall not be disclosed by the
Company to any party without the Executive's prior written consent.
SECTION 4. COMPENSATION. As full compensation for his services
hereunder, the Company shall pay, grant, issue or give, as the case may be, to
the Executive the compensation and benefits specified below:
(a) BASE SALARY. Subject to the provisions of Sections 7 and 8, a
base salary at the rate of $750,000 per annum ("Base Salary"), which Base
Salary shall be paid to the Executive in accordance with the customary
executive payroll policy of the Company as in effect from time to time;
provided, however, that the Base Salary, as in effect at any time and from time
to time, may be further increased by action of the Board of Directors; and
further provided, however, that in no event shall the Base Salary be decreased
at any time or from time to time without the prior consent of the Executive,
which consent may be granted or withheld in the Executive's sole discretion.
(b) ANNUAL DISCRETIONARY BONUS. An annual discretionary bonus
("Discretionary Bonus"), the amount of which, if any, shall be determined by
the Board of Directors of the Company in its sole and absolute discretion,
which shall be paid to the Executive, with respect to any fiscal year of the
Company, before the expiration of 74 days after the end of such fiscal year.
In making bonus determinations, the Company shall evaluate the Executive's
performance in accordance with the bonus guidelines used by the Company for
executives of the Company in the same or a similar position as the Executive.
In the event of the consummation of the sale of the present residential
business of IFG to Apartment Investment and Management Company pursuant to an
amended and restated merger agreement dated May 26, 1998 (the "AIMCO Merger")
in any year, the Company shall, immediately after the consummation of the AIMCO
Merger, pay to the Executive an amount equal to X times Y, where X equals: (a)
if the consummation of the AIMCO Merger occurs in 1998, the amount of the
discretionary bonus the Executive received from IFG with respect to 1997, (b)
if the consummation of the AIMCO Merger occurs in 1999, the amount of the
discretionary bonus the Executive received from the Company with respect to
1998, divided by the number of days between the effective date of this
Agreement and the end of 1998, and multiplied by 365, or (c) if the
consummation of the AIMCO Merger occurs after 1999, the amount of the
discretionary bonus the Executive received with respect to the year prior to
the year in which the consummation of the AIMCO Merger occurred, and Y equals a
fraction the numerator of which is the number of days between the beginning of
the year and the occurrence of the consummation of the AIMCO Merger and the
denominator of which is 365.
(c) EXTRAORDINARY TRANSACTION, INFLUENCE CHANGE EVENT, OR
EXTRAORDINARY STOCK EVENT. Upon the occurrence of an Extraordinary
Transaction, an Influence Change Event, or an Extraordinary Stock Event, the
Company shall, in addition to remaining obligated under the terms of this
Agreement, immediately before the Extraordinary Transaction, Influence Change
Event, or Extraordinary Stock Event, pay the Executive a payment (the
"Extraordinary
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<PAGE> 5
Transaction Payment") equal to one percent (1%) of the total equity market
capitalization of the Company on the date the Extraordinary Transaction, the
Influence Change Event, or the Extraordinary Stock Event occurred. In
addition, the Company shall pay the Executive the amounts and benefits
contemplated in Section 7(e). Notwithstanding the foregoing, (A) the Company
shall not be obligated to make any payment under this Section 4(c) (or under
Section 8(b)(iii)) with respect to a matter if it must also make a payment with
respect to such matter under Section 4(d) and (B) no more than one payment
shall be made under this Section 4(c)(or under Section 8(b)(iii)) with respect
to any single matter, regardless of whether that matter qualifies as more than
one of an Extraordinary Transaction, an Influence Change Event, or an
Extraordinary Stock Event.
(d) MATERIAL ASSET DISPOSITION BONUS. In the event of a Material
Asset Disposition, as defined below, in consideration of the services performed
by the Executive and consistent with the prior terms of the Executive's
employment, the Company (or, in the case of clause (iii) below, the spin-off
entity or, in default thereof, the Company) shall pay to the Executive
immediately before the consummation of such Material Asset Disposition, a cash
bonus equal to 1.00% of the consideration (valued as set forth below) received
by the Company or its shareholders as a result of such Material Asset
Disposition, provided, however, that if the Material Asset Disposition giving
rise to the cash bonus contemplated by this Section 4(d) is the consummation of
the AIMCO Merger, the Company shall pay such cash bonus immediately after the
consummation of the AIMCO Merger, and the amount of such cash bonus shall be
equal to 1.00% of the consideration (valued as set forth below) received by IFG
or its shareholders as a result of the consummation of the AIMCO Merger (not
including the value of the distribution of the shares of the Company to
shareholders of IFG). A "Material Asset Disposition" as used herein means,
without duplication for the same matter: (i) a transaction which results in a
majority of the equity interest in the Company being beneficially owned by any
"person" or "persons," including any "group" (as such terms are used in Section
13(d) and 14(d) of the Exchange Act), other than any of the Company's present
Affiliates; (ii) a sale or series of sales by the Company of subsidiaries,
divisions, assets (other than marketable securities), or operating businesses
representing in the aggregate 20% or more of the Company's 1998 budgeted EBITDA
(which shall include for purposes of this Agreement EBITDA for all contemplated
subsidiaries of the Company) and each such sale after such threshold has been
reached or, if the AIMCO Merger is consummated, a sale or series of sales by
the Company of subsidiaries, divisions or assets (other than marketable
securities), or operating businesses, regardless of size; (iii) a spin off, or
series of spin offs, of any of the Company's divisions, operating businesses or
subsidiaries that meet the 1998 budgeted EBITDA threshold set forth in (ii)
above (or, if the AIMCO Merger is consummated, any such spin off regardless of
size) which is followed by a subsequent Extraordinary Transaction (as defined
above, but with reference to the spun off entity rather than the Company) of
the subsidiary, division or business spun off within five years following such
spin off; (iv) any transaction which results in any one or more of the
Company's divisions, subsidiaries or operating businesses, representing in the
aggregate 20% or more of the Company's EBITDA, being owned by a third party or,
if the AIMCO Merger is consummated, any transaction, regardless of size, which
results in any one or more of the Company's divisions, subsidiaries, or
operating businesses being owned by a third party; or (v) the consummation of
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<PAGE> 6
the AIMCO Merger. In the event a Material Asset Disposition is consummated in
one or more steps, including, without limitation, by way of second-step merger,
any additional consideration paid or to be paid in any subsequent step in the
Material Asset Disposition in respect of (x) subsidiaries, divisions, assets
(other than marketable securities), or operating businesses of the Company and
(y) capital stock of the Company (and any securities convertible into, or
options, warrants or other rights to acquire, such capital stock) shall be
included for purposes of calculating the bonus payable pursuant to this Section
4(d). "Consideration" shall not include the assumption, directly or
indirectly, or repayment of indebtedness or other liabilities of the Company
but shall include the assumption, directly or indirectly, or repayment
securities similar to the IFG Trust Convertible Preferred Securities now
outstanding. If all or a portion of the consideration paid in the Material
Asset Disposition is other than cash or securities, then the value of such
non-cash consideration shall be the fair market value thereof on the date the
Material Asset Disposition is consummated as mutually agreed upon in good faith
by the Company's Board of Directors and the Executive. If the Board of
Directors and the Executive are unable to come to agreement on the fair market
value of such non-cash consideration following the provisions of this Section
4(d), then, at the request of either, an independent valuation expert agreeable
to both shall be appointed to determine the fair market value of such non-cash
consideration, and the determination of such independent expert shall be
binding on both the Executive and the Company. If such non-cash consideration
consists of common stock, options, warrants or rights for which a public
trading market existed prior to the consummation of the Material Asset
Disposition, then the value of such securities shall be determined by the
closing or last sales price thereof on the date of the consummation of the
Material Asset Disposition; provided, however, that if such non-cash
consideration consists of newly-issued, publicly-traded common stock, options,
warrants or rights for which no public trading market existed prior to the
consummation of the Material Asset Disposition, then the value thereof shall be
the average of the closing prices for the 20 trading days subsequent to the
fifth trading day after the consummation of the Material Asset Disposition. In
such event, the portion of the bonus payable to the Executive pursuant to this
Section 4(d) attributable to such securities shall be paid on the 30th trading
day subsequent to consummation of the Material Asset Disposition. If no public
market exists for the common stock, options, warrants or other rights issued in
the Material Asset Disposition, then the value of thereof shall be as mutually
agreed upon in good faith by the Company's Board of Directors and the
Executive. If the non-cash consideration paid in the Material Asset
Disposition consists of preferred stock or debt securities (regardless of
whether a public trading market existed for such preferred stock or debt
securities prior to consummation of the Material Asset Disposition or exists
thereafter), the value hereof shall be the face or principal amount, as the
case may be. Any amounts payable by a purchaser to the Company, any
shareholder of the Company or any Affiliate of either the Company or any
shareholder of the Company in connection with a non-competition, employment,
consulting, licensing, supply or other agreement shall be deemed to be part of
the consideration paid in the Material Asset Disposition. If all or a portion
of the consideration payable in connection with the Material Asset Disposition
includes contingent future payments, then the Company shall pay to the
Executive, upon consummation of such Material Asset Disposition, an additional
cash fee, determined in accordance with this Section 4(d) as, when and if such
contingency payments are received. However, in the event of an installment
purchase at a fixed price and a fixed time
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schedule, the Company agrees to pay the Executive, upon consummation of the
Material Asset Disposition, a cash fee determined in accordance with this
Section 4(d) based on the present value of such installment payments using a
discount rate of 6.5%. For purposes of this Section 4(d), in no case shall the
"consideration" received by the Company be greater than the total market
capitalization of the Company at the time of the Material Asset Disposition.
(e) FRINGE BENEFIT PROGRAMS. In addition to the other benefits
provided to the Executive hereunder and to the extent he satisfies the
eligibility requirements thereof and to the extent permitted by law,
participation in fringe benefit programs made available generally to employees
or independent contractors of the Company, including, without limitation,
pension, profit sharing, stock purchase, savings, bonus, disability, life
insurance, health insurance, hospitalization, dental, deferred compensation and
other plans and policies authorized on the date hereof or in the future.
(f) EXPENSE REIMBURSEMENT. Reimbursement of the Executive for all
out-of-pocket expenses incurred by him in connection with the performance of
his duties hereunder, and business related mobile or cellular phone expense in
accordance with the Company's written policies and procedures, all upon the
presentation of appropriate documentation therefore in accordance with the then
regular procedures of the Company.
(g) PERQUISITES. In addition to the other benefits provided to
the Executive hereunder, and at the sole cost and expense of the Company,
except as otherwise provided in Section 7(d), the Company shall provide:
(i) $3,750 to the Executive on the first day of each month,
for car and driver expenses; and
(ii) full reimbursement for expenses incurred in respect of
professional continuing education.
(h) DISABILITY PROTECTION. Subject to the provisions of Sections
7 and 8 hereof, the Company will provide to the Executive disability insurance
coverage identical to the disability insurance coverage provided to senior
executives of the Company from time to time at the Company's sole cost and
expense.
(i) PARACHUTE LIMIT. Notwithstanding anything else herein, to the
extent the Executive would be subject to the excise tax under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), on such amounts or
benefits received from the Company required to be included in the calculation
of parachute payments for purposes of Sections 280G and 4999 of the Code (the
"Parachute Payments "), the amounts of any Parachute Payments shall be
automatically reduced as described herein to an amount one dollar less than an
amount that would subject the Executive to the excise tax under Section 4999 of
the Code (the "Parachute Limit "); provided, however, that this Section 4(i)
shall apply only if the reduced Parachute Payments received by the Executive
(after taking into account further reductions for applicable
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federal, state and local income, social security and other taxes) would be
greater than the unreduced Parachute Payments to be received by the Executive
minus (i) the excise tax payable under Section 4999 of the Code with respect to
such Parachute Payments and (ii) all applicable federal, state and local
income, social security and other taxes on such Parachute Payments. The
foregoing reduction shall be applied to the Parachute Payments as follows: (i)
first by reducing the amounts payable under Section 4(c) (if such amounts are
included in such computation) until such amounts have been exhausted up to the
Parachute Limit, (ii) then by reducing any such other amounts and benefits
(other than awards described in (iii) below) as determined by the Company, and
(iii) notwithstanding anything contained herein or in an option, warrant or
restricted stock agreement, award or plan relating to the Executive then, on a
pro-rata basis up to the Parachute Limit, by failing to accelerate the vesting
(without affecting the right to vest) upon a change in ownership or effective
control or change in ownership of a substantial portion of assets (as described
in Code Section 280G(b)(2)(A)(i)) of any unvested awards of shares of
restricted stock of the Company previously granted to Executive and options or
warrants to purchase shares of the Company previously granted to Executive.
Notwithstanding the foregoing, the Company shall treat any of the amounts
described in (i) through (iii) above as a Parachute Payment solely to the
extent required under applicable law.
(j) REGISTRATION RIGHTS. The Company hereby ratifies the
Executive's registration rights with respect to all of the securities of the
Company beneficially owned by the Executive as set forth in the Registration
Rights Agreement heretofore executed by the Executive and the Company.
(k) VESTING. In the event of (a) a termination of Executive's
employment for any reason other than a Termination for Cause or voluntary
termination by the Executive, including, but not limited to a Death Termination
Event, Disability Termination Event, Termination Without Cause or in the event
of (b) the occurrence of an Extraordinary Transaction, an Influence Change
Event, or an Extraordinary Stock Event (whether or not resulting in a
termination of Executive's employment), all options and warrants then granted
to the Executive will immediately vest and be exercisable by the Executive.
(l) PURCHASE OF INSURANCE. Provided Executive does not
voluntarily terminate his employment during the Employment Period or is not
subject to a Termination For Cause by the Company, the Company will continue,
at the Company's sole cost, individual and dependent care health insurance
coverage on the Executive through the Employment Period, or through the date
three years from the Commencement Date, whichever is later, and, following
Executive's cessation of employment with the Company for any reason, (i)
thereafter, the Executive shall have the right to continue, at the Executive's
sole cost, any or all life insurance policies on the life of the Executive
maintained by the Company during the Employment Period and to determine the
beneficiaries and owners thereof, and (ii) the Executive and his dependents
shall have the right to purchase from or through the Company or its successor,
at the Executive's or his dependents' sole cost, individual and dependent care
health insurance coverage upon terms and conditions identical to the terms and
conditions upon which health insurance coverage is provided to employees of the
Company and their dependents. Notwithstanding anything in this
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Agreement to the contrary, the provisions of this Section 4(l) shall continue
regardless of the cessation of the Executive's employment with the Company. In
the case of the death of the Executive, whether during or after the Employment
Period, the rights under Section 4(l)(ii) of the persons who were the
Executive's dependents at the time of his death shall continue in full force
and effect for the duration of each of their lives.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
EXECUTIVE. The Executive represents and warrants to the Company as follows:
(a) He is under no contractual or other restriction or obligation
which is inconsistent with the execution of this Agreement, the performance of
his duties hereunder, or the other rights of the Company hereunder; and
(b) He is able to perform the essential functions of his duties
hereunder with or without reasonable accommodations.
SECTION 6. NON-SOLICITATION; CONFIDENTIALITY.
(a) NON-SOLICITATION.
(1) In recognition of the close personal contact
the Executive has or will have with the Company's and its affiliates' trade
secrets, confidential information, records and business relationships, and the
position of trust in which the Company holds the Executive, the Executive
further covenants and agrees that while the Executive is employed by the
Company and for a period lasting for one (1) year following the date of
cessation of the Executive's employment with the Company, the Executive will
not, if such action would have a material adverse effect on the Company, in
direct competition with the Company (where competition is measured as of the
date the Executive ceases to be employed by the Company), either for himself or
as an officer, director, employee, agent, representative, independent
contractor or in any relationship to any person, partnership, corporation, or
other entity (except the Company or its Affiliates or subsidiaries), solicit,
directly or by assisting others, business from any of the Company's customers
or clients who were customers or clients of the Company as of the date of the
cessation of the Executive's employment and with whom the Executive has had
material contact (as defined below) during the twelve (12) month period
preceding the date of cessation of the Executive's employment with the Company
in the event of a cessation of employment with the Company or, absent such
cessation, during the twelve (12) month period preceding the solicitation, for
the purpose of providing goods or services to said customers and clients. For
purposes of this Agreement, "material contact" exists between the Executive and
any of the Company's customers or clients (i) with whom the Executive actually
dealt; or (ii) whose dealings with the Company were handled, coordinated or
supervised by the Executive; or (iii) about whom the Executive obtained
confidential information in the ordinary course of business through the
Executive's association with the Company.
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(2) The Executive covenants and agrees that, for
a period ending on the second anniversary of the date on which the Executive's
employment with the Company ceases, the Executive will not solicit any
employee, broker or sales person of the Company, or any of its respective
subsidiaries or affiliates to leave their employ for the employ of a person or
entity which directly competes with the Company, or any of its respective
subsidiaries or affiliates.
(3) The Executive covenants and agrees that, for
a period ending on the second anniversary of the date on which the Executive's
employment with the Company ceases, the Executive will not purchase for his own
account any limited partnership units of partnerships that, on the date of
purchase, are controlled directly or indirectly by the Company, except that the
provisions of this sentence shall not be deemed breached merely because the
Executive owns, immediately after a purchase, not more than one percent of the
outstanding units. Should the Executive breach the foregoing sentence, all his
options issued by the Company or any of its subsidiaries shall be canceled and
all of his restricted stock issued by the Company or any of its subsidiaries
(whether or not then vested) which he then owns shall be forfeited. For
purposes of this Section 6(a)(3), "purchase" shall mean the payment of cash
only for such limited partnership units and shall not include payment of cash
for interests in an entity whose assets consist in whole or in part of such
limited partnership units.
(4) The Executives covenants and agrees that he
will not, either for himself or as an officer, director, employee, agent,
representative, or independent contractor of any person, partnership,
corporation, or other entity (except the Company or its Affiliates or
subsidiaries), interfere with any contract that exists between the Company and
any customers or clients of the Company as of the effective date of this
Agreement.
The Executive acknowledges that the foregoing provisions are intended
to protect the Company's and its subsidiaries' and Affiliates' business and
customer contacts, not to prevent the Executive from pursuing a livelihood in
the general area of his previous training, and they should be interpreted
accordingly.
(b) CONFIDENTIALITY. All confidential information which the
Executive may now possess, may obtain during or after his employment with
Company, or may create prior to the end of his employment with the Company or
otherwise relating to the business of the Company or any of its subsidiaries or
affiliates or of any customer or supplier of any of them shall not be
published, disclosed, or made accessible by him to any other person, either
during or after the cessation of his employment, or used by him except during
his employment with the Company in the business and for the benefit of the
Company and its subsidiaries and Affiliates. In addition, the Executive agrees
not to disclose, publish or make accessible to any other person, from and after
the date of this Agreement, during the Employment Period or at any time
thereafter, any of the terms or provisions of this Agreement, except the
Executive's accountants or legal counsel who need such information to advise
him, prepare his tax returns, make required filings, represent him and the
like; provided, however, that the Executive will be responsible for causing
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any such accountants and legal counsel to be aware of and to abide by the
obligations contained in this Section 6(b) and will be responsible for any
breach of such obligations by any of them. In the event that the Executive
becomes legally compelled to disclose any of the confidential information, the
Executive will provide the Company with prompt written notice so that the
Company may seek a protective order or other appropriate remedy and/or waive in
writing compliance with the provisions of this Section 6(b) and in the event
that such protective order or other remedy is not obtained, or should the
Company waive in writing compliance with the provisions of this Section 6(b),
the Executive will furnish only that portion of the confidential information
which is so legally required. The Executive shall return all tangible evidence
of such confidential information to the General Counsel of the Company prior to
or at the cessation of his employment.
(c) INTERPRETATION. Since a breach of the provisions of this
Section 6 could not adequately be compensated by money damages, the Company
shall be entitled, in addition to any other right and remedy available to it,
to an injunction restraining such breach and the Company shall not be required
to post a bond in any proceeding brought for such purpose. The Executive
agrees that the provisions of this Section 6 are necessary and reasonable to
protect the Company in the conduct of its businesses. If any restriction
contained in this Section 6 shall be deemed to be invalid, illegal, or
unenforceable by reason of the extent, duration, or geographical scope thereof,
or otherwise, then the court making such determination shall have the right to
reduce such extent, duration, geographical scope, or other provisions hereof,
and in its reduced form such restriction shall then be enforceable in the
manner contemplated hereby. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies, at law or in equity, for such
breach or threatened breach.
(d) INVESTORS. Notwithstanding anything herein to the contrary,
nothing in this Agreement shall restrict the right of the Executive to solicit
or receive, on his own behalf or on behalf of others, any investment or any
funds in any form from any person, regardless of whether such person is an
investor in the Company or in any current or former affiliate of the Company.
SECTION 7. TERMINATION.
(a) DEFINITIONS.
(i) Death Termination Event. As used herein, "Death
Termination Event" shall mean the death of the Executive.
(ii) Disability Termination Event. As used herein,
"Disability Termination Event" shall mean a circumstance where the Executive is
physically or mentally incapacitated or disabled or otherwise unable to fully
discharge his duties hereunder for a period of 185 consecutive days.
(iii) Estate. As used herein, "Estate" shall mean (A) in
the event that the last will and testament of the Executive has not been
probated at the time of determination, the estate
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of the Executive and (B) in the event that the last will and testament of the
Executive has been probated at the time of determination, the legatees of the
Executive who are entitled under such will to the assets or payments at issue.
(iv) Termination For Cause. As used herein, the term
"Termination For Cause" shall mean the termination by the Company of the
Executive's employment hereunder upon a good faith determination by a majority
vote of the members of the Board of Directors of the Company that termination
of this Agreement is necessary by reason of (A) the Executive shall be
convicted of a felony, (B) the Executive shall commit any act or omit to take
any action in bad faith and to the material detriment of the Company and
Executive shall not have cured the same within 30 days after the Company sends
written notice thereof, or (C) Executive shall breach in a material way any
material term of this Agreement and fail to correct such breach within 30 days
after the Company sends written notice thereof.
(v) Termination Without Cause. As used herein,
"Termination Without Cause" shall mean any termination of the Executive's
employment hereunder that is not a Termination For Cause, a Death Termination
Event, or a Disability Termination Event, and shall include, without
limitation, a termination of the Executive's employment hereunder due to the
scheduled expiration of the Employment Period on the date three years from the
Commencement Date or (as contemplated by Section 8(b)(i)), an Extraordinary
Transaction, an Influence Change Event, or an Extraordinary Stock Event.
(b) DEATH TERMINATION EVENT. Upon the occurrence of a Death
Termination Event, this Agreement shall terminate automatically upon the date
that such Death Termination Event occurred (subject to the last sentence of
this Section 7), whereupon the Executive's estate shall receive the
consideration set forth in Sections 4(a) and 4(g)(i) and (ii), through the date
three years from the Commencement Date. In addition, the Executive's Estate
shall be entitled to receive the payments contemplated by Section 4(c) and
Section 4(d) if the event giving rise to such payment occurs, or a definitive
agreement regarding such event is executed, before or within 180 days after the
Death Termination Event.
(c) DISABILITY TERMINATION EVENT. Upon the occurrence of a
Disability Termination Event, this Agreement shall terminate automatically upon
the date that such Disability Termination Event occurred (subject to the last
sentence of this Section 7), whereupon (i) the Company shall continue to pay
seventy-five percent (75%) of the then- current Base Salary to the Executive
for twice the period equal to the remaining term of the Employment Period (such
calculation will be determined upon the assumptions: (A) that the Employment
Period will not be terminated prior to the date three years from the
Commencement Date, and (B) that the remaining term of the Employment Period
will not in any event be less than two years), (ii) the Company shall continue
to provide to the Executive the disability protection contemplated by Section
4(h) of this Agreement until such time as the Executive elects to discontinue
such coverage, (iii) the Company will arrange for the Executive (x) to have the
ability to maintain the Key Man Insurance Policy thereafter at the sole expense
of the Executive, and (y) to designate the beneficiaries thereof, in each case
to the exclusion of the Company and as promptly as
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practicable after such termination, and (iv) the Executive shall receive the
consideration set forth in Sections 4(b) and 4(g)(i) and (ii) through the date
three years from the Commencement Date. In addition, the Executive shall be
entitled to receive the payments contemplated by Section 4(c) and Section 4(d)
if the event giving rise to such payment occurs, or a definitive agreement
regarding such event is executed, before or within 180 days after the
Disability Termination Event.
(d) TERMINATION FOR CAUSE. The Executive and the Company agree
that the Company shall have the right to effectuate a Termination for Cause
prior to the date three years from the Commencement Date. Upon the occurrence
of a Termination For Cause, this Agreement will terminate upon the date of that
such Termination For Cause occurs (subject to the last sentence of this Section
7), whereupon (i) the Executive shall be entitled to receive the Base Salary,
as then in effect, to and including the date that such Termination for Cause
occurs, and (ii) the Company will arrange for the Executive (x) to have the
ability to maintain the Key Man Insurance Policy thereafter at the sole expense
of the Executive, and (y) to designate the beneficiaries thereof, in each case
to the exclusion of the Company and as promptly as practicable after such
termination.
(e) TERMINATION WITHOUT CAUSE. Upon the occurrence of a
Termination Without Cause, this Agreement shall terminate upon the date that
such Termination Without Cause occurs (subject to the last sentence of this
Section 7), whereupon (i) the Company shall (A) in the event that such
Termination Without Cause is not an Extraordinary Transaction, an Influence
Change Event, or an Extraordinary Stock Event, continue to pay the then-current
Base Salary to the Executive until the date three years from the Commencement
Date, and (B) in the event that such Termination Without Cause is an
Extraordinary Transaction, an Influence Change Event, or an Extraordinary Stock
Event, the Company shall pay to the Executive the Extraordinary Transaction
Payment (as defined in Section 4(c)) in accordance with the provisions of
Section 8, and (ii) the Company shall continue to provide to the Executive the
disability protection contemplated by Section 4(h) of this Agreement until such
time as the Executive elects to discontinue such coverage, and (iii) the
Company will arrange for the Executive (x) to have the ability to maintain the
Key Man Insurance Policy thereafter at the sole expense of the Executive, and
(y) to designate the beneficiaries thereof, in each case to the exclusion of
the Company and as promptly as practicable after such termination. In
addition, the Company shall pay the Executive the amounts and benefits
contemplated by Sections 4(b) and 4(g)(i) and (ii). Also, the Executive shall
be entitled to receive the payments contemplated by Section 4(c) and Section
4(d) if the event giving rise to such payment occurs, or a definitive agreement
regarding such event is executed, on or before the date three years from the
Commencement Date.
Notwithstanding anything in this Agreement to the contrary, (i)
Sections 3, 4(k), 4(l), 5, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18 and 19
of this Agreement shall survive any termination of this Agreement or of the
Executive's employment hereunder until the expiration of the statute of
limitations applicable hereto; and (ii) the Company will pay to the Executive
(or the Estate), regardless of the termination of this Agreement for any reason
other than a Termination For Cause, any amounts pursuant to Sections 4(c), 4(d)
and 8(b) with regard to Material Asset
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Disposition, Extraordinary Transaction, Extraordinary Stock Event, or Influence
Change Event (A) where definitive agreements regarding such transaction have
been executed before the termination of this Agreement, (B) where definitive
agreements regarding such transaction have been executed before the date three
years from the Commencement Date and the Executive has not as of such date
voluntarily resigned as Chairman of the Board of the Company, or (C) in the
event of a Termination Without Cause, where the event giving rise to such
payment occurs, or a definitive agreement regarding such event is executed, on
or before the date three years from the Commencement Date.
SECTION 8. EXTRAORDINARY TRANSACTION.
(a) DEFINITIONS.
(i) Extraordinary Transaction. As used herein,
"Extraordinary Transaction" shall mean the occurrence of any one or more of the
following:
(1) the Company ceases to be required to file
reports under Section 13 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or any successor to that Section;
(2) a majority of the members of the Board of
Directors of the Company are not persons who (a) had been directors of the
Company for at least the preceding 12 consecutive months or (b) when they
initially were elected to the Board (x) were nominated (if they were elected by
the stockholders) or elected (if they were elected by the directors) with the
affirmative vote of two-thirds of the directors who were Continuing Directors
at the time of the nomination or election by the Board and (y) were not elected
as a result of an actual or threatened solicitation of proxies or consents by a
person other than the Board of Directors of the Company or an agreement
intended to avoid or settle such a proxy solicitation (the directors described
in clauses (a) and (b) being "Continuing Directors");
(3) any "person," including a "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding
the Company, any of its present affiliates (as such term is defined in Rule 405
promulgated under the Securities Act of 1933, as amended) ("Affiliates"), or
any employee benefit plan of the Company or any of its present Affiliates) is
or becomes the "beneficial owner" (as defined in Rule 13(d) (3) under the
Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities;
(4) the purchase of Common Stock of the Company
("Common Stock") pursuant to any tender or exchange offer or otherwise made by
any "person," including a "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than the Company, any of its present
Affiliates, or any employee benefit plan of the Company or any of its present
Affiliates, which results in "beneficial ownership" (as so defined) of 30% or
more of the outstanding Common Stock;
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(5) the execution and delivery of a definitive
agreement by the Company that provides for a merger or consolidation, or a
transaction having a similar effect (unless such merger, consolidation or
similar action is with a subsidiary of the Company or with another company, a
majority of whose outstanding capital stock is owned by the same persons or
entities who own a majority of the Company's outstanding Common Stock at such
time), where (A) the majority of the Common Stock of the Company is no longer
held by the persons who were the stockholders of the Company immediately prior
to the transaction, (B) the sale, lease, exchange or other disposition of all
or substantially all of the assets of the Company, but excluding the trading of
marketable securities held as portfolio securities or (C) the Company's Common
Stock is converted into cash, securities or other property (other than the
common stock of a company into which the Company is merged), provided, however,
that, in the event that the contemplated merger, consolidation or similar
transaction is not consummated, then any rights that may arise under this
paragraph (5) by virtue of such Change of Control shall not apply;
(6) upon the consummation of any transaction
requiring stockholder approval for the acquisition of the Company by an entity
other than the Company or a subsidiary through purchase of assets, or by
merger, or otherwise;
(7) the election to the Board of Directors of the
Company, by vote of the stockholders of the Company, of one individual under
circumstances where (A) the Board of Directors of the Company, after such
election, is comprised of one individual, and (B) all of the Farkas Shares (as
defined in Section 8(a)(iii)) at the time of such election were not voted for
such election to the Board of Directors of the Company of such individual;
(8) the appointment to the Board of Directors of
the Company, by vote of the Board of Directors of the Company, of one
individual under circumstances where (A) the Board of Directors of the Company,
after such appointment, is comprised of one individual, and (B) the Executive
did not so vote for such appointment to the Board of Directors of the Company
of such individual, either because the Executive was not a Director of the
Company at such time or because the Executive did not vote affirmatively for
the appointment to the Board of Directors of the Company of such individual;
(9) the election to the Board of Directors of the
Company, by the stockholders of the Company, of one or more individuals under
circumstances where (A) the Board of Directors of the Company, after such
election, is comprised of more than one individual under the By-Laws of the
Company, as then in effect, and (B) a majority of the Directors of the Company
in office after such election did not receive Executive Approval (as defined in
Section 8(a)(ii)); or
(10) the appointment to the Board of Directors of
the Company, by vote of the Board of Directors of the Company, of one or more
individuals under circumstances where (A) the Board of Directors of the
Company, after such appointment, is comprised of more than one individual under
the By-Laws of the Company, as then in effect, and (B) a majority of the
Directors of the Company in office after such appointment did not receive
Executive Approval.
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(ii) Executive Approval. As used herein, the term
"Executive Approval" shall mean, with respect to any member of the Board of
Directors of the Company in office at the time of determination, (A) if such
individual is not then a member of the Board of Directors of the Company by
virtue of election to the Board of Directors of the Company by vote of the
stockholders of the Company, the Executive, as a Director of the Company, voted
for the appointment of such individual to the Board of Directors of the Company
pursuant to which such individual is then a member of the Board of Directors of
the Company, and (B) if such individual is then a member of the Board of
Directors of the Company by virtue of election to the Board of Directors of the
Company by vote of the stockholders of the Company, all of the Farkas Shares at
the time of such election were voted in favor of the election of such
individual to the Board of Directors of the Company pursuant to which such
individual is then a member of the Board of Directors of the Company.
(iii) Farkas Shares. As used herein, the term "Farkas
Shares," as of any time, shall mean the securities of the Company entitled to
vote generally in the election of Directors of the Company as to which, at such
time, the Executive had the sole power to vote or to direct the voting of.
(iv) Influence Change Event. As used herein "Influence
Change Event" shall mean the occurrence of the loss by the Executive of any of
the Board Positions or if the Executive's title, powers and duties within the
Company or the Board of Directors of the Company have been diminished, in each
case other than as a result of a Termination For Cause, without the prior
written consent of the Executive.
(v) Extraordinary Stock Event. As used herein
"Extraordinary Stock Event" shall mean either (i) the occurrence of more than
fifteen (15%) percent of the outstanding securities of the Company entitled to
vote in the election of directors of the Company being owned (by beneficial
ownership, as such term is used in Section 13(d) of the Exchange Act, and the
rules and regulations thereunder or otherwise) or acquired by any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than
the Executive, a person over whom the Executive has the power to exercise a
controlling influence exclusive of any other person, or a person whose
beneficial ownership has been approved by the Executive in writing (such person
being referred to herein as the "Acquiror") and the Acquiror either describes,
is required to describe, or would be required to describe in the event that the
Acquiror was subject to Section 13(d) of the Exchange Act, as in effect on the
date hereof, any plans or proposals which it may have which relate to or would
result in any of the events described in paragraphs (a) through (j) of Item 4
of Schedule 13D, as in effect on the date hereof, in a Schedule 13D, or
amendments thereto, filed with the Securities and Exchange Commission with
respect to such ownership or acquisition or (ii) the occurrence of more than
forty (40%) percent of the outstanding securities of the Company entitled to
vote in the election of directors of the Company being owned (by beneficial
ownership, as such term is used in Section 13(d) of the Exchange Act and the
rules and regulations thereunder, or otherwise) or acquired by any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), whether or
not such ownership has been consented to by the Executive.
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(b) EXTRAORDINARY TRANSACTION; INFLUENCE CHANGE EVENT;
EXTRAORDINARY STOCK EVENT. Upon the occurrence of either an Extraordinary
Transaction, an Influence Change Event, or an Extraordinary Stock Event, (i)
this Agreement may, at Executive's option exercised in writing, be terminated
as of the date of such Extraordinary Transaction, Influence Change Event, or
Extraordinary Stock Event, as the case may be (an "Extraordinary Transaction
Termination"), (ii) in the event of such termination contemplated by Section
8(b)(i), the provisions of Section 7(e) of this Agreement shall be in effect as
of the date of such Extraordinary Transaction, Influence Change Event, or
Extraordinary Stock Event, as the case may be, and (iii) whether or not there
is such termination, the Company shall pay to the Executive, in immediately
available funds, the Extraordinary Transaction Payment, as described in Section
4(c), immediately before the occurrence of such Extraordinary Transaction,
Influence Change Event, or Extraordinary Stock Event, as the case may be.
SECTION 9. INDEMNIFICATION. The Company hereby ratifies the
indemnification of the Executive pursuant to the terms of an Indemnification
Agreement to be executed by the Executive and the Company.
SECTION 10. WITHHOLDING. The Company shall be entitled to
withhold from amounts payable to the Executive hereunder such amounts as may be
required by applicable law to be so withheld.
SECTION 11. MODIFICATION. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
SECTION 12. NOTICES. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given, at the address of such party set forth in the
preamble to this Agreement (or to such other address as such party shall have
furnished in writing in accordance with the provisions of this Section 12).
Notice to the Estate shall be sufficient if addressed to the Executive as
provided in this Section 12. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
SECTION 13. WAIVER. Any waiver by either party of a breach of
any provision of Agreement shall not operate as a waiver of any other breach of
such provision or of any breach of any other provision of this Agreement. The
failure of a party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement. Any waiver must be in writing.
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SECTION 14. BINDING EFFECT. The Executive's rights and
obligations under this Agreement shall not be transferable by assignment or
otherwise, such rights shall not be subject to commutation, encumbrance or the
claims of the Executive's creditors, and any attempt to do any of the foregoing
shall be void. The provisions of this Agreement shall be binding upon and
inure to the benefit of the Executive and his heirs and personal
representatives, and shall be binding upon and inure to the benefit of the
Company and its successors.
SECTION 15. THIRD PARTY BENEFICIARIES. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement; provided, however, that notwithstanding
any provision of this Agreement to the contrary, each of the successors,
spouse, issue, legatees, estate, administrators, executors, and legal
representatives of the Executive shall be entitled to rely upon and to enforce
this Agreement as a third party beneficiary hereof.
SECTION 16. HEADINGS. The headings in this Agreement are solely
for convenience of reference, and shall be given no effect in the construction
or interpretation of this Agreement.
SECTION 17. ENFORCEMENT. Should the Executive sue to enforce any
of his rights under this Agreement and should the Executive prevail on any
issue in such suit, then the Company shall pay all the Executive's costs of
such suit (including attorneys fees and disbursements). If any taxes are
imposed on such payment, the Company shall make such additional payments to the
Executive as may be necessary, so that after deducting the taxes imposed on all
payments made to the Executive pursuant to this paragraph, the Executive is
left on an after tax basis with an amount equal to his claim for
indemnification prior to the payments described in this sentence.
SECTION 18. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 19. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of South Carolina,
without reference to the conflict of law provisions thereof.
SECTION 20. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALING BETWEEN OR AMONG THEM
RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIPS BEING
ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO ENCOMPASS ANY AND ALL
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER
OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND
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STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE
TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY HERETO
FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO THE TRIAL BY
THE COURT.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
INSIGNIA/ESG HOLDINGS, INC.
By:
------------------------------------
Name:
------------------------------------
Its:
------------------------------------
EXECUTIVE
---------------------------------------
Name: Andrew L. Farkas
19
<PAGE> 1
EXHIBIT 10.12
GARRISON - INSIGNIA/ESG HOLDINGS
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is entered into as of August
3, 1998, by and between Insignia/ESG Holdings, Inc., a Delaware corporation with
an office at 200 Park Avenue, New York, New York, 10166 (the "Company"), and
Frank M. Garrison, an individual with an office at 102 Woodmont Boulevard, Suite
400, Nashville TN, 37205 (the "Executive"). This Agreement is effective as of
the date of the consummation of the spin-off of the Company from Insignia
Financial Group, Inc. ("IFG") to its shareholders, and as of such date the
obligations of IFG under the Amended and Restated Employment Agreement between
IFG and the Executive dated as of January 1, 1998 shall be assumed by the
Company, and the Company hereby assumes and agrees to pay (without duplication
under this Agreement) the rights thereunder regarding amounts owed by IFG
thereunder if IFG does not timely pay such amounts (in which case the Company
will be subrogated to the right of the Executive to collect such amounts from
IFG).
BACKGROUND
The Company desires to assure itself of the services of the Executive
for the period provided in this Agreement, and the Executive is willing to serve
in the employ of the Company for such period upon the terms and conditions
provided in this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts such employment, in each case upon
the terms and conditions set forth herein, for a period commencing on the
effective date hereof (the "Commencement Date") and ending three years from the
Commencement Date, or on such earlier date as provided herein (the "Expiration
Date") (such period, as it may be so terminated, being referred to herein as the
"Employment Period").
SECTION 2. DUTIES AND SERVICES.
(a) DUTIES. Subject to Section 2(d), during the Employment Period the
Executive shall serve as Executive Managing Director (Mergers & Acquisitions and
Investment Banking) of the Company and, at the Company's request, as an officer
or director of one or more of its subsidiaries. In the performance of his duties
hereunder, the Executive shall report to and shall be responsible only to the
Chief Executive Officer and the Board of Directors of the Company.
<PAGE> 2
The Executive agrees to his employment as described in this Section 2. The
parties hereto understand and agree that the Executive has substantial business
interests outside of the scope of this Agreement, including, without limitation,
at Metropolitan Asset Enhancement, L.P. and Insignia Properties Trust, and under
an employment or consulting agreement with IFG, and both parties hereby consent
to such arrangements. The Executive shall be available to travel as the needs of
the business of the Company reasonably require.
(b) OFFICE. During the Employment Period, the Company shall provide the
Executive with an office located in Nashville, TN or at 200 Park Avenue, New
York, NY, whichever the Executive chooses, or at such other location as the
Company and the Executive shall mutually agree. The Company will provide the
Executive with an office and executive secretary reasonably acceptable to him,
and other reasonable support appropriate to his duties hereunder.
(c) PRIMARY RESPONSIBILITIES. Subject to Section 2(a) and 2(d), during
the Employment Period, the Executive shall have such responsibilities as are
assigned to him by the Chief Executive Officer and the Board of Directors of the
Company. The Executive shall comply with all written policies and procedures of
the Company.
(d) CONSULTING. If (i) without the prior written consent of the
Executive the Executive's title, powers or duties within the Company have been
substantially diminished, other than as a result of a Termination For Cause (as
defined in Section 7(a)(iv)), (ii) a Extraordinary Transaction (as defined in
Section 4(c)) or a Material Asset Disposition (as defined in Section 4(d)) has
taken place, or (iii) Andrew L. Farkas has elected to convert that certain
Employment Agreement, dated as of August 3, 1998, by and between the Company and
Mr. Farkas (the "Farkas Employment Agreement") into a consulting agreement, then
the Executive may elect in writing to convert this Agreement into a consulting
agreement. Under the terms of the consulting agreement, the Executive shall
consult with respect to the assets and liabilities of the Company as they
existed immediately before the Extraordinary Transaction or the Material Asset
Disposition. Such consultation shall be at the reasonable times convenient to
the Executive on no less than five business days' notice, the parties
recognizing that the Executive during the consulting period likely will have
substantial other business interests, including under an employment or
consulting agreement with IFG. The terms and conditions of this Agreement
(including all rights hereunder of the Executive as to compensation, bonus,
payments and benefits) shall continue unabridged during the period of
consulting. The other provisions of this Agreement also shall remain in effect
except that (i) Section 2(a) shall be deleted and the remainder of Section 2
shall be modified by this Section 2(d), (ii) Section 7(a)(iv)(B) and Section
7(a)(iv)(C) shall be deleted, and (iii) references to salary (and Base Salary)
in Section 4(a) and elsewhere in this Agreement shall be deemed to refer to a
consulting fee (and Base Consulting Fee), and such Base Consulting Fee shall be
paid to the executive in twelve monthly installments, payable on the first day
of each calendar month. The "Employment Period" shall be deemed to include the
period during which the Executive is obligated to provide consulting services
hereunder and therefore, to the extent permitted by law, the conversion shall
not be deemed a termination or resignation for any purpose and, if the law
requires that the conversion be treated as a termination, then the Company must
provide the Executive with benefits
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equivalent to those he would have received had there been no termination. The
Executive shall not be obligated to consult for more than five days or portions
of a day in any calendar month.
SECTION 3. KEY MAN LIFE INSURANCE. The Company shall have the right to
place a "key man" life insurance policy, providing a death benefit of up to
$15,000,000 upon the life of the Executive, for which the Company is the
beneficiary. In connection therewith, the Executive hereby authorizes the
Company, at its sole cost and expense, to purchase and maintain upon the life of
the Executive such insurance policy, and agrees to submit to such reasonable
medical examinations, and to provide and/or consent to the release of such
medical information, as may be necessary or desirable in order to secure the
issuance thereof. Except as may be required in order to obtain insurance
coverage as described in this Section 3, any and all information about
Executive's health or medical records shall be kept confidential by the Company
and shall not be disclosed by the Company to any party without the Executive's
prior written consent.
SECTION 4. COMPENSATION. As full compensation for his services
hereunder, the Company shall pay, grant, issue or give, as the case may be, to
the Executive the compensation and benefits specified below:
(a) BASE SALARY. Subject to the provisions of Section 7, a base salary
at the rate of $400,000 per annum ("Base Salary"), which Base Salary shall be
paid to the Executive in accordance with the customary executive payroll policy
of the Company as in effect from time to time; provided, however, that the Base
Salary, as in effect at any time and from time to time, may be further increased
by action of the Board of Directors; and further provided, however, that in no
event shall the Base Salary be decreased at any time or from time to time
without the prior consent of the Executive, which consent may be granted or
withheld in the Executive's sole discretion.
(b) ANNUAL DISCRETIONARY BONUS. An annual discretionary bonus
("Discretionary Bonus"), the amount of which, if any, shall be determined by the
Board of Directors of the Company in its sole and absolute discretion, which
shall be paid to the Executive, with respect to any fiscal year of the Company,
before the expiration of 74 days after the end of such fiscal year. In making
bonus determinations, the Company shall evaluate the Executive's performance in
accordance with the standard bonus guidelines used by the Company for executives
of the Company in the same or a similar position as the Executive. In the event
of the consummation of the sale of the present residential business of IFG to
Apartment Investment and Management Company pursuant to an amended and restated
merger agreement dated May 26, 1998 (the "AIMCO Merger") in any year, the
Company shall, immediately after the consummation of the AIMCO Merger, pay to
the Executive an amount equal to X times Y, where X equals: (a) if the
consummation of the AIMCO Merger occurs in 1998, the amount of the discretionary
bonus the Executive received from IFG with respect to 1997, (b) if the
consummation of the AIMCO Merger occurs in 1999, the amount of the discretionary
bonus the Executive received from the Company with respect to 1998, divided by
the number of days between the effective date of this Agreement and the end of
1998, and multiplied by 365, or (c) if the consummation of the AIMCO Merger
occurs after 1999, the amount of the discretionary bonus the Executive received
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with respect to the year prior to the year in which the consummation of the
AIMCO Merger occurred, and Y equals a fraction the numerator of which is the
number of days between the beginning of the year and the occurrence of the
consummation of the AIMCO Merger and the denominator of which is 365.
(c) EXTRAORDINARY TRANSACTION.
An "Extraordinary Transaction" as used herein means the occurrence of
any one or more of the following:
(i) the Company ceases to be required to file reports under
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor to that Section;
(ii) a majority of the members of the Board of Directors of
the Company are not persons who (a) had been directors of the Company for at
least the preceding 12 consecutive months or (b) when they initially were
elected to the Board (x) were nominated (if they were elected by the
stockholders) or elected (if they were elected by the directors) with the
affirmative vote of two-thirds of the directors who were Continuing Directors at
the time of the nomination or election by the Board and (y) were not elected as
a result of an actual or threatened solicitation of proxies or consents by a
person other than the Board of Directors of the Company or an agreement intended
to avoid or settle such a proxy solicitation (the directors described in clauses
(a) and (b) being "Continuing Directors");
(iii) any "person," including a "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act, but excluding the Company,
any of its present affiliates (as such term is defined in Rule 405 promulgated
under the Securities Act of 1933, as amended) ("Affiliates"), or any employee
benefit plan of the Company or any of its present Affiliates) is or becomes the
"beneficial owner" (as defined in Rule 13(d) (3) under the Exchange Act),
directly or indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities;
(iv) the purchase of Common Stock of the Company ("Common
Stock") pursuant to any tender or exchange offer or otherwise made by any
"person," including a "group" (as such terms are used in Sections 13 (d) and 14
(d) of the Exchange Act), other than the Company, any of its present Affiliates,
or any employee benefit plan of the Company or any of its present Affiliates,
which results in "beneficial ownership" (as so defined) of 30% or more of the
outstanding Common Stock;
(v) the execution and delivery of a definitive agreement by
the Company that provides for a merger or consolidation, or a transaction having
a similar effect (unless such merger, consolidation or similar action is with a
subsidiary of the Company or with another company, a majority of whose
outstanding capital stock is owned by the same persons or entities who own a
majority of the Company's outstanding Common Stock at such time), where (A) the
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majority of the Common Stock of the Company is no longer held by the persons who
were the stockholders of the Company immediately prior to the transaction, (B)
the sale, lease, exchange or other disposition of all or substantially all of
the assets of the Company but excluding the trading of marketable securities
held as portfolio securities or (C) the Company's Common Stock is converted into
cash, securities or other property (other than the common stock of a company
into which the Company is merged), provided, however, that, in the event that
the contemplated merger, consolidation or similar transaction is not
consummated, then any rights that may arise under this paragraph (v) by virtue
of such Change of Control shall not apply; and
(vi) upon the consummation of any transaction requiring
stockholder approval for the acquisition of the Company by an entity other than
the Company or a subsidiary through purchase of assets, or by merger, or
otherwise.
(d) MATERIAL ASSET DISPOSITION BONUS. In the event of a Material
Asset Disposition, as defined below, in consideration of the services performed
by the Executive and consistent with the prior terms of the Executive's
employment, the Company (or, in the case of clause (iii) below, the spin-off
entity or, in default thereof, the Company) shall pay to the Executive
immediately before the consummation of such Material Asset Disposition, a cash
bonus equal to the Bonus Percentage of the consideration (valued as set forth
below) received by the Company or its shareholders as a result of such Material
Asset Disposition; provided, however, that if the Material Asset Disposition
giving rise to the cash bonus contemplated by this Section 4(d) is the
consummation of the AIMCO Merger, the Company shall pay such cash bonus
immediately after the consummation of the AIMCO Merger, and the amount of such
cash bonus shall be equal to .25% of the consideration (valued as set forth
below) received by IFG or its shareholders as a result of the consummation of
the AIMCO Merger (not including the value of the distribution of shares of the
Company to shareholders of IFG). The Bonus Percentage shall be .25% if the
Executive is a consultant to the Company, or makes himself reasonably available
to consult for the Company, with respect to the assets and liabilities of the
Company as they existed immediately after the spin-off of Insignia/ESG Holdings,
Inc. to the Company's shareholders, at the time the definitive agreement
regarding such Material Asset Disposition is executed. The Bonus Percentage
shall be .5% if the Executive is an employee of the Company (for this purpose
only, the word "employee" not including a consultant under this Agreement),
whether under this Agreement or otherwise, at the time the definitive agreement
regarding such Material Asset Disposition is executed. If the Executive has been
Terminated For Cause, or is otherwise not employed by the Company and not
available to consult for the Company, at the time the definitive agreement
regarding such Material Asset Disposition is executed, then the Bonus Percentage
shall be 0%.
A "Material Asset Disposition" as used herein means, without
duplication for the same matter: (i) a transaction which results in a majority
of the equity interest in the Company being beneficially owned by any "person"
or "persons," including any "group" (as such terms are used in Section 13(d) and
14(d) of the Exchange Act), other than any of the Company's present Affiliates;
(ii) a sale or series of sales by the Company of subsidiaries, divisions, assets
(other than marketable securities), or operating businesses representing in the
aggregate 20% or more of
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the Company's 1998 budgeted EBITDA (which shall include for purposes of this
Agreement EBITDA for all contemplated subsidiaries of the Company) and each such
sale after such threshold has been reached or, if the AIMCO Merger is
consummated, a sale or series of sales by the Company of subsidiaries,
divisions, or assets (other than marketable securities), or operating businesses
regardless of size; (iii) a spin off, or series of spin offs, of any of the
Company's divisions, operating businesses or subsidiaries that meet the 1998
budgeted EBITDA threshold set forth in (ii) above (or, if the AIMCO Merger is
consummated, any such spin off, regardless of size) which is followed by a
subsequent Extraordinary Transaction (as defined above, but with reference to
the spun off entity rather than the Company) of the subsidiary, division or
business spun off within five years following such spin off; (iv) any
transaction which results in any one or more of the Company's divisions,
subsidiaries or operating businesses, representing in the aggregate 20% or more
of the Company's EBITDA, being owned by a third party or, if the AIMCO Merger is
consummated, any transaction, regardless of size, which results in any one or
more of the Company's divisions, subsidiaries, or operating businesses being
owned by a third party; or (v) the consummation of the AIMCO Merger. In the
event a Material Asset Disposition is consummated in one or more steps,
including, without limitation, by way of second-step merger, any additional
consideration paid or to be paid in any subsequent step in the Material Asset
Disposition in respect of (x) subsidiaries, divisions, assets (other than
marketable securities), or operating businesses of the Company and (y) capital
stock of the Company (and any securities convertible into, or options, warrants
or other rights to acquire, such capital stock) shall be included for purposes
of calculating the bonus payable pursuant to this Section 4(d). "Consideration"
shall not include the assumption, directly or indirectly, or repayment of
indebtedness or other liabilities of the Company but shall include the
assumption, directly or indirectly, or repayment of securities similar to the
IFG Trust Convertible Preferred Securities now outstanding. If all or a portion
of the consideration paid in the Material Asset Disposition is other than cash
or securities, then the value of such non-cash consideration shall be the fair
market value thereof on the date the Material Asset Disposition is consummated
as mutually agreed upon in good faith by the Company's Board of Directors and
the Executive. If the Board of Directors and the Executive are unable to come to
agreement on the fair market value of such non-cash consideration following the
provisions of this Section 4(d), then, at the request of either, an independent
valuation expert agreeable to both shall be appointed to determine the fair
market value of such non-cash consideration, and the determination of such
independent expert shall be binding on both the Executive and the Company. If
such non-cash consideration consists of common stock, options, warrants or
rights for which a public trading market existed prior to the consummation of
the Material Asset Disposition, then the value of such securities shall be
determined by the closing or last sales price thereof on the date of the
consummation of the Material Asset Disposition; provided, however, that if such
non-cash consideration consists of newly-issued, publicly-traded common stock,
options, warrants or rights for which no public trading market existed prior to
the consummation of the Material Asset Disposition, then the value thereof shall
be the average of the closing prices for the 20 trading days subsequent to the
fifth trading day after the consummation of the Material Asset Disposition. In
such event, the portion of the bonus payable to the Executive pursuant to this
Section 4(d) attributable to such securities shall be paid on the 30th trading
day subsequent to consummation of the Material Asset Disposition. If no public
market exists for the common stock, options, warrants or other
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rights issued in the Material Asset Disposition, then the value of thereof shall
be as mutually agreed upon in good faith by the Company's Board of Directors and
the Executive. If the non-cash consideration paid in the Material Asset
Disposition consists of preferred stock or debt securities (regardless of
whether a public trading market existed for such preferred stock or debt
securities prior to consummation of the Material Asset Disposition or exists
thereafter), the value hereof shall be the face or principal amount, as the case
may be. Any amounts payable by a purchaser to the Company, any shareholder of
the Company or any Affiliate of either the Company or any shareholder of the
Company in connection with a non-competition, employment, consulting, licensing,
supply or other agreement shall be deemed to be part of the consideration paid
in the Material Asset Disposition. If all or a portion of the consideration
payable in connection with the Material Asset Disposition includes contingent
future payments, then the Company shall pay to the Executive, upon consummation
of such Material Asset Disposition, an additional cash fee, determined in
accordance with this Section 4(d) as, when and if such contingency payments are
received. However, in the event of an installment purchase at a fixed price and
a fixed time schedule, the Company agrees to pay the Executive, upon
consummation of the Material Asset Disposition, a cash fee determined in
accordance with this Section 4(d) based on the present value of such installment
payments using a discount rate of 6.5%. For purposes of this Section 4(d), in no
case shall the "consideration" received by the Company be greater than the total
market capitalization of the Company at the time of the Material Asset
Disposition.
(e) FRINGE BENEFIT PROGRAMS. In addition to the other benefits
provided to the Executive hereunder and to the extent he satisfies the
eligibility requirements thereof and to the extent permitted by law,
participation in fringe benefit programs made available generally to employees
or independent contractors of the Company, including, without limitation,
pension, profit sharing, stock purchase, savings, bonus, disability, life
insurance, health insurance, hospitalization, dental, deferred compensation and
other plans and policies authorized on the date hereof or in the future.
(f) EXPENSE REIMBURSEMENT. Reimbursement of the Executive for all
out-of-pocket expenses incurred by him in connection with the performance of his
duties hereunder, including professional activities and membership fees and dues
relating to professional organizations of which the Executive currently is a
member or is directed in writing to be a member by the Chief Executive Officer
of the Company and including, without limitation, expenses required for
professional licensing of the Executive, and business related cell phone expense
in accordance with the Company's written policies and procedures, all upon the
presentation of appropriate documentation therefore in accordance with the then
regular procedures of the Company.
(g) PERQUISITES. In addition to the other benefits provided to the
Executive hereunder, and at the sole cost and expense of the Company, except as
otherwise provided herein:
(i) the Executive shall be entitled to reasonable business
usage of aircraft owned or leased by the Company as determined by the Chief
Executive Officer of the Company.
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With prior consent from the Chief Executive Officer of the Company, the
Executive may utilize such aircraft for personal use and in such event the cost
of such use shall be added to and included in the Executive's compensation for
federal, state and local income tax purposes;
(ii) subject to the provisions of Section 7 hereof, the
Company will provide to the Executive disability insurance coverage identical to
the disability insurance coverage provided to senior executives of the Company
from time to time; and
(iii) the Executive shall be fully reimbursed for expenses
incurred in respect of professional continuing education.
(h) VACATIONS, ETC. Leaves-of-absence in accordance with the then
regular procedures of the Company governing senior executives, and four weeks of
paid vacation per year on a noncumulative basis.
(i) PARACHUTE LIMIT. Notwithstanding anything else herein, to the
extent the Executive would be subject to the excise tax under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), on such amounts or
benefits received from the Company required to be included in the calculation of
parachute payments for purposes of Sections 280G and 4999 of the Code (the
"Parachute Payments"), the amounts of any Parachute Payments shall be
automatically reduced as described herein to an amount one dollar less than an
amount that would subject the Executive to the excise tax under Section 4999 of
the Code (the "Parachute Limit"); provided, however, that this Section 4(i)
shall apply only if the reduced Parachute Payments received by the Executive
(after taking into account further reductions for applicable federal, state and
local income, social security and other taxes) would be greater than the
unreduced Parachute Payments to be received by the Executive minus (i) the
excise tax payable under Section 4999 of the Code with respect to such Parachute
Payments and (ii) all applicable federal, state and local income, social
security and other taxes on such Parachute Payments. The foregoing reduction
shall be applied to the Parachute Payments as follows: (i) first by reducing the
amounts payable under Section 4(c) (if such amounts are included in such
computation) until such amounts have been exhausted up to the Parachute Limit,
(ii) then by reducing any such other amounts and benefits (other than awards
described in (iii) below) as determined by the Company, and (iii)
notwithstanding anything contained herein or in an option, warrant or restricted
stock agreement, award or plan relating to the Executive then, on a pro-rata
basis up to the Parachute Limit, by failing to accelerate the vesting (without
affecting the right to vest) upon a change in ownership or effective control or
change in ownership of a substantial portion of assets (as described in Code
Section 280G(b)(2)(A)(i)) of any unvested awards of shares of restricted stock
of the Company previously granted to Executive and options or warrants to
purchase shares of the Company previously granted to Executive. Notwithstanding
the foregoing, the Company shall treat any of the amounts described in (i)
through (iii) above as a Parachute Payment solely to the extent required under
applicable law.
(j) PURCHASE OF INSURANCE. Following the Executive's cessation of
employment with the Company for any reason, (i) the Executive shall have the
right to continue, at the
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Executive's sole cost, any or all life insurance policies on the life of the
Executive maintained by the Company during the Employment Period and to
designate the beneficiaries and owners thereof, and (ii) the Executive and his
dependents shall have the right to purchase from or through the Company or its
successor, at the Executive's or his dependents' sole cost, individual and
dependent care health insurance coverage. Notwithstanding anything in this
Agreement to the contrary, the provisions of this Section 4(j) shall continue
regardless of the cessation of the Executive's employment by the Company. In the
case of the death of the Executive, whether during or after the Employment
Period, the rights under Section 4(j)(ii) of the persons who were the
Executive's dependents at the time of his death shall continue in full force and
effect for the duration of each of their lives.
(k) VESTING. In the event of (a) a termination of Executive's
employment for any reason other than a Termination for Cause or voluntary
termination by the Executive, including, but not limited to a Death Termination
Event, Disability Termination Event, Termination Without Cause or in the event
of (b) the occurrence of an Extraordinary Transaction, an Influence Change Event
(as such term is defined in the Farkas Employment Agreement), or an
Extraordinary Stock Event (as such term is defined in the Farkas Employment
Agreement) (whether or not resulting in a termination of Executive's
employment), all options and warrants then granted to the Executive will
immediately vest and be exercisable by the Executive.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE EXECUTIVE.
The Executive represents and warrants to the Company as follows:
(a) He is under no contractual or other restriction or obligation which
is inconsistent with the execution of this Agreement, the performance of his
duties hereunder, or the other rights of the Company hereunder; and
(b) He is able to perform the essential functions of his duties
hereunder with or without reasonable accommodations.
SECTION 6. NON-SOLICITATION; CONFIDENTIALITY.
(a) NON-SOLICITATION.
(1) In recognition of the close personal contact the
Executive has or will have with the Company's and its affiliates' trade secrets,
confidential information, records and business relationships, and the position
of trust in which the Company holds the Executive, the Executive further
covenants and agrees that while the Executive is employed by the Company and for
a period lasting for one (1) year following the cessation of the Executive's
employment with the Company, the Executive will not, if such action would have a
material adverse effect on the Company, in direct competition with the Company
(where competition is measured as of the date the Executive ceases to be
employed by the Company), either for himself or as an officer, director,
employee, agent, representative, independent contractor or in any relationship
to any person, partnership, corporation, or other entity (except the Company or
its
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Affiliates or subsidiaries), solicit, directly or by assisting others, business
from any of the Company's customers or clients who were customers or clients of
the Company as of the date of the cessation of the Executive's employment and
with whom the Executive has had material contact (as defined below) during the
twelve (12) month period preceding the date of cessation of the Executive's
employment with the Company in the event of a cessation of employment with the
Company or, absent such cessation, during the twelve (12) months preceding the
solicitation, for the purpose of providing goods or services to said customers
and clients. For purposes of this Agreement, "material contact" exists between
the Executive and any of the Company's customers or clients (i) with whom the
Executive actually dealt; or (ii) whose dealings with the Company were handled,
coordinated or supervised by the Executive; or (iii) about whom the Executive
obtained confidential information in the ordinary course of business through the
Executive's association with the Company.
(2) The Executive covenants and agrees that, for a
period ending on the second anniversary of the date on which the Executive's
employment with the Company ceases, the Executive will not solicit any employee,
broker or sales person of the Company, or any of its respective subsidiaries or
affiliates to leave their employ for the employ of a person or entity which
directly competes with the Company, or any of its respective subsidiaries or
affiliates.
(3) The Executive covenants and agrees that, for a
period ending on the second anniversary of the date on which the Executive's
employment with the Company ceases, the Executive will not purchase for his own
account any limited partnership units of partnerships that, on the date of
purchase, are controlled directly or indirectly by the Company, except that the
provisions of this sentence shall not be deemed breached merely because the
Executive owns, immediately after a purchase, not more than one percent of the
outstanding units. Should the Executive breach the foregoing sentence, all his
options issued by the Company or any of its subsidiaries shall be canceled and
all of his restricted stock issued by the Company or any of its subsidiaries
(whether or not then vested) which he then owns shall be forfeited. For purposes
of this Section 6(a)(3), "purchase" shall mean the payment of cash only for such
limited partnership units and shall not include payment of cash for interests in
an entity whose assets consist in whole or in part of such limited partnership
units.
(4) The Executives covenants and agrees that he will
not, either for himself or as an officer, director, employee, agent,
representative, or independent contractor of any person, partnership,
corporation, or other entity (except the Company or its Affiliates or
subsidiaries), interfere with any contract that exists between the Company and
any customers or clients of the Company as of the effective date of this
Agreement.
The Executive acknowledges that the foregoing provisions are intended
to protect the Company's and its subsidiaries' and Affiliates' business and
customer contacts, not to prevent the Executive from pursuing a livelihood in
the general area of his previous training, and they should be interpreted
accordingly.
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(b) CONFIDENTIALITY. All confidential information which the Executive
may now possess, may obtain during or after his employment with Company, or may
create prior to the end of his employment with the Company or otherwise relating
to the business of the Company or any of its subsidiaries or affiliates or of
any customer or supplier of any of them shall not be published, disclosed, or
made accessible by him to any other person, either during or after the cessation
of his employment, or used by him except during his employment with the Company
in the business and for the benefit of the Company and its subsidiaries and
Affiliates. In addition, the Executive agrees not to disclose, publish or make
accessible to any other person, from and after the date of this Agreement,
during the Employment Period or at any time thereafter, any of the terms or
provisions of this Agreement, except the Executive's accountants who need such
information to advise him, prepare his tax returns, make required filings and
the like; provided, however, that the Executive will be responsible for causing
any such accountants to be aware of and to abide by the obligations contained in
this Section 6(b) and will be responsible for any breach of such obligations by
any of them. In the event that the Executive becomes legally compelled to
disclose any of the confidential information, the Executive will provide the
Company with prompt written notice so that the Company may seek a protective
order or other appropriate remedy and/or waive in writing compliance with the
provisions of this Section 6(b) and in the event that such protective order or
other remedy is not obtained, or should the Company waive in writing compliance
with the provisions of this Section 6(b), the Executive will furnish only that
portion of the confidential information which is so legally required. The
Executive shall return all tangible evidence of such confidential information to
the General Counsel of the Company prior to or at the cessation of his
employment.
(c) INTERPRETATION. Since a breach of the provisions of this Section 6
could not adequately be compensated by money damages, the Company shall be
entitled, in addition to any other right and remedy available to it, to an
injunction restraining such breach and the Company shall not be required to post
a bond in any proceeding brought for such purpose. The Executive agrees that the
provisions of this Section 6 are necessary and reasonable to protect the Company
in the conduct of its businesses. If any restriction contained in this Section 6
shall be deemed to be invalid, illegal, or unenforceable by reason of the
extent, duration, or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies, at law or in equity, for such breach or threatened breach.
(d) INVESTORS. Notwithstanding anything herein to the contrary, nothing
in this Agreement shall restrict the right of the Executive to solicit or
receive, on his own behalf or on behalf of others, any investment or any funds
in any form from any person, regardless of whether such person is an investor in
the Company or in any current or former affiliate of the Company.
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SECTION 7. TERMINATION.
(a) DEFINITIONS.
(i) Death Termination Event. As used herein, "Death
Termination Event" shall mean the death of the Executive.
(ii) Disability Termination Event. As used herein,
"Disability Termination Event" shall mean a circumstance where the Executive is
physically or mentally incapacitated or disabled or otherwise unable to fully
discharge his duties hereunder for a period of 185 consecutive days.
(iii) Estate. As used herein, "Estate" shall mean (A) in the
event that the last will and testament of the Executive has not been probated at
the time of determination, the estate of the Executive and (B) in the event that
the last will and testament of the Executive has been probated at the time of
determination, the legatees of the Executive who are entitled under such will to
the assets or payments at issue.
(iv) Termination For Cause. As used herein, the term
"Termination For Cause" shall mean the termination by the Company of the
Executive's employment hereunder upon a good faith determination by a majority
vote of the members of the Board of Directors of the Company that termination of
this Agreement is necessary by reason of (A) the Executive shall be convicted of
a felony, (B) the Executive shall commit any act or omit to take any action in
bad faith and to the material detriment of the Company and Executive shall not
have cured the same within 30 days after the Company sends written notice
thereof, or (C) Executive shall breach in a material way any material term of
this Agreement and fail to correct such breach within 30 days after the Company
sends written notice thereof.
(v) Termination Without Cause. As used herein, "Termination
Without Cause" shall mean any termination of the Executive's employment by the
Company hereunder that is not a Termination For Cause, a Death Termination
Event, or a Disability Termination Event but shall not include a conversion of
this Agreement to a consulting agreement.
(b) DEATH TERMINATION EVENT. Upon the occurrence of a Death
Termination Event, this Agreement will terminate automatically upon the date
that such Death Termination Event occurred (subject to the last sentence of this
Section 7 and to the last two sentences of Section 4(j)), whereupon the
Executive's Estate shall receive the consideration set forth in Sections 4(a)
through (d) through the date three years from the Commencement Date. In
addition, the Executive's Estate shall be entitled to receive the payments
contemplated by Section 4(c) and Section 4(d) if the event giving rise to such
payment occurs, or a definitive agreement regarding such event is executed,
before or within 180 days after the Death Termination Event.
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(c) DISABILITY TERMINATION EVENT. Upon the occurrence of a Disability
Termination Event, this Agreement shall terminate automatically upon the date
that such Disability Termination Event occurred (subject to the last sentence of
this Section 7 and to the last two sentences of Section 4(j)), whereupon the
Executive shall continue to receive the consideration set forth in Sections 4(a)
through (d) and Section 4(g)(iii) through the date three years from the
Commencement Date. In addition, the Executive shall be entitled to receive the
payments contemplated by Section 4(c) and Section 4(d) if the event giving rise
to such payment occurs, or a definitive agreement regarding such event is
executed, before or within 180 days after the Disability Termination Event.
(d) TERMINATION FOR CAUSE. The Executive and the Company agree that the
Company shall have the right to effectuate a Termination For Cause in accordance
with the terms of this Agreement at any time. Upon the occurrence of a
Termination For Cause, this Agreement will terminate upon the date that such
Termination For Cause occurs (subject to the provisions of Section 9), whereupon
(i) the Executive shall not be entitled to receive any additional payments
hereunder other than the Base Salary, as then in effect, to and including the
date that such Termination For Cause occurs and (ii) the Company shall be
entitled to any and all remedies and damages available to it.
(e) TERMINATION WITHOUT CAUSE. Upon the occurrence of a Termination
Without Cause, this Agreement shall terminate upon the date that such
Termination Without Cause occurs (subject to the provisions of Section 9 and to
the last two sentences of Section 4(j)), whereupon the Executive shall continue
to receive the consideration set forth in Sections 4(a) through (d) and Section
4(g)(iii) through the date three years from the Commencement Date. In addition,
the Executive shall be entitled to receive the payments contemplated by Section
4(c) and Section 4(d) if the event giving rise to such payment occurs, or a
definitive agreement regarding such event is executed, on or before the date
three years from the Commencement Date.
In the event of a termination of Executive's employment for any reason
other than a Termination for Cause or voluntary termination by the Executive,
including, but not limited to a Death Termination Event, Disability Termination
Event, or Termination Without Cause, all options, warrants and restricted stock
then held by and/or granted to the Executive will immediately vest and be
exercisable by the Executive but in the event of the occurrence of an
Extraordinary Transaction, no options, warrants or restricted stock then held by
and/or granted to the Executive will immediately vest as a result thereof.
SECTION 8. WITHHOLDING. The Company shall be entitled to withhold from
amounts payable to the Executive hereunder such amounts as may be required by
applicable law to be so withheld.
SECTION 9. SURVIVAL. Notwithstanding anything in this Agreement to the
contrary, Section 6 of this Agreement shall survive any termination of this
Agreement or cessation of the Executive's employment hereunder for the periods
stated therein.
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SECTION 10. MODIFICATION. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
SECTION 11. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given, at the address of such party set forth in the
preamble to this Agreement (or to such other address as such party shall have
furnished in writing in accordance with the provisions of this Section 11).
Notice to the Estate shall be sufficient if addressed to the Executive as
provided in this Section 11. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
SECTION 12. WAIVER. Any waiver by either party of a breach of any
provision of Agreement shall not operate as a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
SECTION 13. BINDING EFFECT. The Executive's rights and obligations
under this Agreement shall not be transferable by assignment or otherwise, such
rights shall not be subject to commutation, encumbrance or the claims of the
Executive's creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the Executive and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors.
SECTION 14. HEADINGS. The headings in this Agreement are solely for
convenience of reference, and shall be given no effect in the construction or
interpretation of this Agreement.
SECTION 15. ENFORCEMENT. Should the Executive sue to enforce any of his
rights under this Agreement and should the Executive prevail on any issue in
such suit, then the Company shall pay all the Executive's costs of such suit
(including attorneys fees and disbursements). If any taxes are imposed on such
payment, the Company shall make such additional payments to the Executive as may
be necessary, so that after deducting the taxes imposed on all payments made to
the Executive pursuant to this paragraph, the Executive is left on an after tax
basis with an amount equal to his claim for indemnification prior to the
payments described in this sentence.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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SECTION 17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina, without
reference to the conflict of law provisions thereof.
SECTION 18. CONSTRUCTION AND INTERPRETATION. Should any provision of
this Agreement require judicial interpretation, the parties hereto agree that
the court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason of
the rule of construction that a document is to be more strictly construed
against the party that itself, or through its agent, prepared the same, and it
is expressly agreed and acknowledged that the Executive, the Company and their
respective attorneys and representatives have participated in the preparation
hereof.
SECTION 19. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALING BETWEEN OR AMONG THEM RELATING TO
THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIPS BEING ESTABLISHED.
THE SCOPE OF THIS WAIVER IS INTENDED TO ENCOMPASS ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT,
INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS
AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO THE TRIAL BY THE COURT.
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
INSIGNIA/ESG HOLDINGS, INC.
By:
--------------------------------
Name:
------------------------------
Its:
------------------------------
EXECUTIVE
-----------------------------------
Name: Frank M. Garrison
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EXHIBIT 10.13
ASTON - INSIGNIA/ESG HOLDINGS
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is entered into as of August
3, 1998, by and between Insignia/ESG Holdings, Inc., a Delaware corporation
with an office at 200 Park Avenue, New York, New York, 10166 (the "Company"),
and James A. Aston, an individual with an office at One Insignia Financial
Plaza, Greenville, SC 29062 (the "Executive"). This Agreement is effective as
of the date of the consummation of the spin-off of the Company from Insignia
Financial Group, Inc. ("IFG") to its shareholders, and as of such date the
obligations of IFG under the Amended and Restated Employment Agreement between
IFG and the Executive dated as of January 1, 1998 shall be assumed by the
Company, and the Company hereby assumes and agrees to pay (without duplication
under this Agreement) the rights thereunder regarding amounts owed by IFG
thereunder if IFG does not timely pay such amounts (in which case the Company
will be subrogated to the right of the Executive to collect such amounts from
IFG).
BACKGROUND
The Company desires to assure itself of the services of the Executive
for the period provided in this Agreement, and the Executive is willing to
serve in the employ of the Company for such period upon the terms and
conditions provided in this Agreement.
STATEMENT OF AGREEMENT
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts such employment, in each case upon
the terms and conditions set forth herein, for a period commencing on the
effective date hereof (the "Commencement Date") and ending three years from the
Commencement Date, or on such earlier date as provided herein (the "Expiration
Date") (such period, as it may be so terminated, being referred to herein as
the "Employment Period").
SECTION 2. DUTIES AND SERVICES.
(a) DUTIES. Subject to Section 2(d), during the Employment Period
the Executive shall serve as Chief Financial Officer of the Company and, at the
Company's request, as an officer or director of one or more of its subsidiaries.
In the performance of his duties hereunder, the Executive shall report to and
shall be responsible only to the Chief Executive Officer and the Board of
Directors of the Company. The Executive agrees to his employment as described
in
<PAGE> 2
this Section 2. The parties hereto understand and agree that the Executive has
substantial business interests outside of the scope of this Agreement,
including, without limitation, at Metropolitan Asset Enhancement, L.P. and
Insignia Properties Trust, and under an employment or consulting agreement with
IFG, and both parties hereby consent to such arrangements. The Executive shall
be available to travel as the needs of the business of the Company reasonably
require.
(b) OFFICE. During the Employment Period, the Company shall
provide the Executive with an office located in Greenville, SC or at 200 Park
Avenue, New York, NY, whichever the Executive chooses, or at such other
location as the Company and the Executive shall mutually agree. The Company
will provide the Executive with an office and executive secretary reasonably
acceptable to him, and other reasonable support appropriate to his duties
hereunder.
(c) PRIMARY RESPONSIBILITIES. Subject to Section 2(a) and 2(d),
during the Employment Period, the Executive shall have such responsibilities as
are assigned to him by the Chief Executive Officer and the Board of Directors
of the Company. The Executive shall comply with all written policies and
procedures of the Company.
(d) CONSULTING. If (i) without the prior written consent of the
Executive the Executive's title, powers or duties within the Company have been
substantially diminished, other than as a result of a Termination For Cause (as
defined in Section 7(a)(iv)), (ii) a Extraordinary Transaction (as defined in
Section 4(c)) or a Material Asset Disposition (as defined in Section 4(d)) has
taken place, or (iii) Andrew L. Farkas has elected to convert that certain
Employment Agreement, dated as of August 3, 1998, by and between the Company
and Mr. Farkas (the "Farkas Employment Agreement") into a consulting agreement,
then the Executive may elect in writing to convert this Agreement into a
consulting agreement. Under the terms of the consulting agreement, the
Executive shall consult with respect to the assets and liabilities of the
Company as they existed immediately before the Extraordinary Transaction or the
Material Asset Disposition. Such consultation shall be at the reasonable times
convenient to the Executive on no less than five business days' notice, the
parties recognizing that the Executive during the consulting period likely will
have substantial other business interests, including under an employment or
consulting agreement with IFG. The terms and conditions of this Agreement
(including all rights hereunder of the Executive as to compensation, bonus,
payments and benefits) shall continue unabridged during the period of
consulting. The other provisions of this Agreement also shall remain in effect
except that (i) Section 2(a) shall be deleted and the remainder of Section 2
shall be modified by this Section 2(d), (ii) Section 7(a)(iv)(B) and Section
7(a)(iv)(C) shall be deleted, and (iii) references to salary (and Base Salary)
in Section 4(a) and elsewhere in this Agreement shall be deemed to refer to a
consulting fee (and Base Consulting Fee), and such Base Consulting Fee shall be
paid to the executive in twelve monthly installments, payable on the first day
of each calendar month. The "Employment Period" shall be deemed to include the
period during which the Executive is obligated to provide consulting services
hereunder and therefore, to the extent permitted by law, the conversion shall
not be deemed a termination or resignation for any purpose and, if the law
requires that the conversion be treated as a termination, then the Company must
provide the Executive with benefits
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equivalent to those he would have received had there been no termination. The
Executive shall not be obligated to consult for more than five days or portions
of a day in any calendar month.
SECTION 3. KEY MAN LIFE INSURANCE. The Company shall have the
right to place a "key man" life insurance policy, providing a death benefit of
up to $15,000,000 upon the life of the Executive, for which the Company is the
beneficiary. In connection therewith, the Executive hereby authorizes the
Company, at its sole cost and expense, to purchase and maintain upon the life
of the Executive such insurance policy, and agrees to submit to such reasonable
medical examinations, and to provide and/or consent to the release of such
medical information, as may be necessary or desirable in order to secure the
issuance thereof. Except as may be required in order to obtain insurance
coverage as described in this Section 3, any and all information about
Executive's health or medical records shall be kept confidential by the Company
and shall not be disclosed by the Company to any party without the Executive's
prior written consent.
SECTION 4. COMPENSATION. As full compensation for his services
hereunder, the Company shall pay, grant, issue or give, as the case may be, to
the Executive the compensation and benefits specified below:
(a) BASE SALARY. Subject to the provisions of Section 7, a base
salary at the rate of $400,000 per annum ("Base Salary"), which Base Salary
shall be paid to the Executive in accordance with the customary executive
payroll policy of the Company as in effect from time to time; provided,
however, that the Base Salary, as in effect at any time and from time to time,
may be further increased by action of the Board of Directors; and further
provided, however, that in no event shall the Base Salary be decreased at any
time or from time to time without the prior consent of the Executive, which
consent may be granted or withheld in the Executive's sole discretion.
(b) ANNUAL DISCRETIONARY BONUS. An annual discretionary bonus
("Discretionary Bonus"), the amount of which, if any, shall be determined by
the Board of Directors of the Company in its sole and absolute discretion, which
shall be paid to the Executive, with respect to any fiscal year of the Company,
before the expiration of 74 days after the end of such fiscal year. In making
bonus determinations, the Company shall evaluate the Executive's performance in
accordance with the standard bonus guidelines used by the Company for executives
of the Company in the same or a similar position as the Executive. In the event
of the consummation of the sale of the present residential business of IFG to
Apartment Investment and Management Company pursuant to an amended and restated
merger agreement dated May 26, 1998 (the "AIMCO Merger") in any year, the
Company shall, immediately after the consummation of the AIMCO Merger, pay to
the Executive an amount equal to X times Y, where X equals: (a) if the
consummation of the AIMCO Merger occurs in 1998, the amount of the discretionary
bonus the Executive received from IFG with respect to 1997, (b) if the
consummation of the AIMCO Merger occurs in 1999, the amount of the discretionary
bonus the Executive received from the Company with respect to 1998, divided by
the number of days between the effective date of this Agreement and the end of
1998, and multiplied by 365, or (c) if the consummation of the AIMCO Merger
occurs after 1999, the amount of the discretionary bonus the Executive received
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with respect to the year prior to the year in which the consummation of the
AIMCO Merger occurred, and Y equals a fraction the numerator of which is the
number of days between the beginning of the year and the occurrence of the
consummation of the AIMCO Merger and the denominator of which is 365.
(c) EXTRAORDINARY TRANSACTION.
An "Extraordinary Transaction" as used herein means the occurrence of
any one or more of the following:
(i) the Company ceases to be required to file reports
under Section 13 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor to that Section;
(ii) a majority of the members of the Board of Directors
of the Company are not persons who (a) had been directors of the Company for at
least the preceding 12 consecutive months or (b) when they initially were
elected to the Board (x) were nominated (if they were elected by the
stockholders) or elected (if they were elected by the directors) with the
affirmative vote of two-thirds of the directors who were Continuing Directors
at the time of the nomination or election by the Board and (y) were not elected
as a result of an actual or threatened solicitation of proxies or consents by a
person other than the Board of Directors of the Company or an agreement
intended to avoid or settle such a proxy solicitation (the directors described
in clauses (a) and (b) being "Continuing Directors");
(iii) any "person," including a "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act, but excluding the
Company, any of its present affiliates (as such term is defined in Rule 405
promulgated under the Securities Act of 1933, as amended) ("Affiliates"), or
any employee benefit plan of the Company or any of its present Affiliates) is
or becomes the "beneficial owner" (as defined in Rule 13(d) (3) under the
Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities;
(iv) the purchase of Common Stock of the Company ("Common
Stock") pursuant to any tender or exchange offer or otherwise made by any
"person," including a "group" (as such terms are used in Sections 13 (d) and 14
(d) of the Exchange Act), other than the Company, any of its present
Affiliates, or any employee benefit plan of the Company or any of its present
Affiliates, which results in "beneficial ownership" (as so defined) of 30% or
more of the outstanding Common Stock;
(v) the execution and delivery of a definitive agreement
by the Company that provides for a merger or consolidation, or a transaction
having a similar effect (unless such merger, consolidation or similar action is
with a subsidiary of the Company or with another company, a majority of whose
outstanding capital stock is owned by the same persons or entities who own a
majority of the Company's outstanding Common Stock at such time), where (A) the
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majority of the Common Stock of the Company is no longer held by the persons
who were the stockholders of the Company immediately prior to the transaction,
(B) the sale, lease, exchange or other disposition of all or substantially all
of the assets of the Company but excluding the trading of marketable securities
held as portfolio securities or (C) the Company's Common Stock is converted
into cash, securities or other property (other than the common stock of a
company into which the Company is merged), provided, however, that, in the
event that the contemplated merger, consolidation or similar transaction is not
consummated, then any rights that may arise under this paragraph (v) by virtue
of such Change of Control shall not apply; and
(vi) upon the consummation of any transaction requiring
stockholder approval for the acquisition of the Company by an entity other than
the Company or a subsidiary through purchase of assets, or by merger, or
otherwise.
(d) MATERIAL ASSET DISPOSITION BONUS. In the event of a Material
Asset Disposition, as defined below, in consideration of the services performed
by the Executive and consistent with the prior terms of the Executive's
employment, the Company (or, in the case of clause (iii) below, the spin-off
entity or, in default thereof, the Company) shall pay to the Executive
immediately before the consummation of such Material Asset Disposition, a cash
bonus equal to the Bonus Percentage of the consideration (valued as set forth
below) received by the Company or its shareholders as a result of such Material
Asset Disposition; provided, however, that if the Material Asset Disposition
giving rise to the cash bonus contemplated by this Section 4(d) is the
consummation of the AIMCO Merger, the Company shall pay such cash bonus
immediately after the consummation of the AIMCO Merger, and the amount of such
cash bonus shall be equal to .25% of the consideration (valued as set forth
below) received by IFG or its shareholders as a result of the consummation of
the AIMCO Merger (not including the value of the distribution of shares of the
Company to shareholders of IFG). The Bonus Percentage shall be .25% if the
Executive is a consultant to the Company, or makes himself reasonably available
to consult for the Company with respect to the assets and liabilities of the
Company as they existed immediately after the spin-off of Insignia/ESG
Holdings, Inc. to the Company's shareholders, at the time the definitive
agreement regarding such Material Asset Disposition is executed. The Bonus
Percentage shall be .5% if the Executive is an employee of the Company (for
this purpose only, the word "employee" not including a consultant under this
Agreement), whether under this Agreement or otherwise, at the time the
definitive agreement regarding such Material Asset Disposition is executed. If
the Executive has been Terminated For Cause, or is otherwise not employed by
the Company and not available to consult for the Company, at the time the
definitive agreement regarding such Material Asset Disposition is executed,
then the Bonus Percentage shall be 0%.
A "Material Asset Disposition" as used herein means, without
duplication for the same matter: (i) a transaction which results in a majority
of the equity interest in the Company being beneficially owned by any "person"
or "persons," including any "group" (as such terms are used in Section 13(d)
and 14(d) of the Exchange Act), other than any of the Company's present
Affiliates; (ii) a sale or series of sales by the Company of subsidiaries,
divisions, assets (other than marketable securities), or operating businesses
representing in the aggregate 20% or more of
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the Company's 1998 budgeted EBITDA (which shall include for purposes of this
Agreement EBITDA for all contemplated subsidiaries of the Company) and each
such sale after such threshold has been reached or, if the AIMCO Merger is
consummated, a sale or series of sales by the Company of subsidiaries,
divisions, or assets (other than marketable securities), or operating
businesses regardless of size; (iii) a spin off, or series of spin offs, of any
of the Company's divisions, operating businesses or subsidiaries that meet the
1998 budgeted EBITDA threshold set forth in (ii) above (or, if the AIMCO Merger
is consummated, any such spin off, regardless of size) which is followed by a
subsequent Extraordinary Transaction (as defined above, but with reference to
the spun off entity rather than the Company) of the subsidiary, division or
business spun off within five years following such spin off; (iv) any
transaction which results in any one or more of the Company's divisions,
subsidiaries or operating businesses, representing in the aggregate 20% or more
of the Company's EBITDA, being owned by a third party or, if the AIMCO Merger
is consummated, any transaction, regardless of size, which results in any one
or more of the Company's divisions, subsidiaries, or operating businesses being
owned by a third party; or (v) the consummation of the AIMCO Merger. In the
event a Material Asset Disposition is consummated in one or more steps,
including, without limitation, by way of second-step merger, any additional
consideration paid or to be paid in any subsequent step in the Material Asset
Disposition in respect of (x) subsidiaries, divisions, assets (other than
marketable securities), or operating businesses of the Company and (y) capital
stock of the Company (and any securities convertible into, or options, warrants
or other rights to acquire, such capital stock) shall be included for purposes
of calculating the bonus payable pursuant to this Section 4(d).
"Consideration" shall not include the assumption, directly or indirectly, or
repayment of indebtedness or other liabilities of the Company but shall include
the assumption, directly or indirectly, or repayment of securities similar to
the IFG Trust Convertible Preferred Securities now outstanding. If all or a
portion of the consideration paid in the Material Asset Disposition is other
than cash or securities, then the value of such non-cash consideration shall be
the fair market value thereof on the date the Material Asset Disposition is
consummated as mutually agreed upon in good faith by the Company's Board of
Directors and the Executive. If the Board of Directors and the Executive are
unable to come to agreement on the fair market value of such non-cash
consideration following the provisions of this Section 4(d), then, at the
request of either, an independent valuation expert agreeable to both shall be
appointed to determine the fair market value of such non-cash consideration,
and the determination of such independent expert shall be binding on both the
Executive and the Company. If such non-cash consideration consists of common
stock, options, warrants or rights for which a public trading market existed
prior to the consummation of the Material Asset Disposition, then the value of
such securities shall be determined by the closing or last sales price thereof
on the date of the consummation of the Material Asset Disposition; provided,
however, that if such non-cash consideration consists of newly-issued,
publicly-traded common stock, options, warrants or rights for which no public
trading market existed prior to the consummation of the Material Asset
Disposition, then the value thereof shall be the average of the closing prices
for the 20 trading days subsequent to the fifth trading day after the
consummation of the Material Asset Disposition. In such event, the portion of
the bonus payable to the Executive pursuant to this Section 4(d) attributable
to such securities shall be paid on the 30th trading day subsequent to
consummation of the Material Asset Disposition. If no public market exists for
the common stock, options, warrants or other
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rights issued in the Material Asset Disposition, then the value of thereof
shall be as mutually agreed upon in good faith by the Company's Board of
Directors and the Executive. If the non-cash consideration paid in the
Material Asset Disposition consists of preferred stock or debt securities
(regardless of whether a public trading market existed for such preferred stock
or debt securities prior to consummation of the Material Asset Disposition or
exists thereafter), the value hereof shall be the face or principal amount, as
the case may be. Any amounts payable by a purchaser to the Company, any
shareholder of the Company or any Affiliate of either the Company or any
shareholder of the Company in connection with a non-competition, employment,
consulting, licensing, supply or other agreement shall be deemed to be part of
the consideration paid in the Material Asset Disposition. If all or a portion
of the consideration payable in connection with the Material Asset Disposition
includes contingent future payments, then the Company shall pay to the
Executive, upon consummation of such Material Asset Disposition, an additional
cash fee, determined in accordance with this Section 4(d) as, when and if such
contingency payments are received. However, in the event of an installment
purchase at a fixed price and a fixed time schedule, the Company agrees to pay
the Executive, upon consummation of the Material Asset Disposition, a cash fee
determined in accordance with this Section 4(d) based on the present value of
such installment payments using a discount rate of 6.5%. For purposes of
this Section 4(d), in no case shall the "consideration" received by the Company
be greater than the total market capitalization of the Company at the time of
the Material Asset Disposition.
(e) FRINGE BENEFIT PROGRAMS. In addition to the other benefits
provided to the Executive hereunder and to the extent he satisfies the
eligibility requirements thereof and to the extent permitted by law,
participation in fringe benefit programs made available generally to employees
or independent contractors of the Company, including, without limitation,
pension, profit sharing, stock purchase, savings, bonus, disability, life
insurance, health insurance, hospitalization, dental, deferred compensation and
other plans and policies authorized on the date hereof or in the future.
(f) EXPENSE REIMBURSEMENT. Reimbursement of the Executive for all
out-of-pocket expenses incurred by him in connection with the performance of
his duties hereunder, including professional activities and membership fees and
dues relating to professional organizations of which the Executive currently is
a member or is directed in writing to be a member by the Chief Executive
Officer of the Company and including, without limitation, expenses required for
professional licensing of the Executive, and business related cell phone
expense in accordance with the Company's written policies and procedures, all
upon the presentation of appropriate documentation therefore in accordance with
the then regular procedures of the Company.
(g) PERQUISITES. In addition to the other benefits provided to
the Executive hereunder, and at the sole cost and expense of the Company,
except as otherwise provided herein:
(i) the Executive shall be entitled to reasonable
business usage of aircraft owned or leased by the Company as determined by the
Chief Executive Officer of the Company.
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With prior consent from the Chief Executive Officer of the Company, the
Executive may utilize such aircraft for personal use and in such event the cost
of such use shall be added to and included in the Executive's compensation for
federal, state and local income tax purposes;
(ii) subject to the provisions of Section 7 hereof, the
Company will provide to the Executive disability insurance coverage identical
to the disability insurance coverage provided to senior executives of the
Company from time to time; and
(iii) the Executive shall be fully reimbursed for expenses
incurred in respect of professional continuing education.
(h) VACATIONS, ETC. Leaves-of-absence in accordance with the then
regular procedures of the Company governing senior executives, and four weeks
of paid vacation per year on a noncumulative basis.
(i) PARACHUTE LIMIT. Notwithstanding anything else herein, to the
extent the Executive would be subject to the excise tax under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), on such amounts or
benefits received from the Company required to be included in the calculation
of parachute payments for purposes of Sections 280G and 4999 of the Code (the
"Parachute Payments"), the amounts of any Parachute Payments shall be
automatically reduced as described herein to an amount one dollar less than an
amount that would subject the Executive to the excise tax under Section 4999 of
the Code (the "Parachute Limit"); provided, however, that this Section 4(i)
shall apply only if the reduced Parachute Payments received by the Executive
(after taking into account further reductions for applicable federal, state and
local income, social security and other taxes) would be greater than the
unreduced Parachute Payments to be received by the Executive minus (i) the
excise tax payable under Section 4999 of the Code with respect to such
Parachute Payments and (ii) all applicable federal, state and local income,
social security and other taxes on such Parachute Payments. The foregoing
reduction shall be applied to the Parachute Payments as follows: (i) first by
reducing the amounts payable under Section 4(c) (if such amounts are included
in such computation) until such amounts have been exhausted up to the Parachute
Limit, (ii) then by reducing any such other amounts and benefits (other than
awards described in (iii) below) as determined by the Company, and (iii)
notwithstanding anything contained herein or in an option, warrant or
restricted stock agreement, award or plan relating to the Executive then, on a
pro-rata basis up to the Parachute Limit, by failing to accelerate the vesting
(without affecting the right to vest) upon a change in ownership or effective
control or change in ownership of a substantial portion of assets (as described
in Code Section 280G(b)(2)(A)(i)) of any unvested awards of shares of
restricted stock of the Company previously granted to Executive and options or
warrants to purchase shares of the Company previously granted to Executive.
Notwithstanding the foregoing, the Company shall treat any of the amounts
described in (i) through (iii) above as a Parachute Payment solely to the
extent required under applicable law.
(j) PURCHASE OF INSURANCE. Following the Executive's cessation
of employment with the Company for any reason, (i) the Executive shall have the
right to continue, at the
8
<PAGE> 9
Executive's sole cost, any or all life insurance policies on the life of the
Executive maintained by the Company during the Employment Period and to
designate the beneficiaries and owners thereof, and (ii) the Executive and his
dependents shall have the right to purchase from or through the Company or its
successor, at the Executive's or his dependents' sole cost, individual and
dependent care health insurance coverage. Notwithstanding anything in this
Agreement to the contrary, the provisions of this Section 4(j) shall continue
regardless of the cessation of the Executive's employment by the Company. In
the case of the death of the Executive, whether during or after the Employment
Period, the rights under Section 4(j)(ii) of the persons who were the
Executive's dependents at the time of his death shall continue in full force
and effect for the duration of each of their lives.
(k) VESTING. In the event of (a) a termination of Executive's
employment for any reason other than a Termination for Cause or voluntary
termination by the Executive, including, but not limited to a Death Termination
Event, Disability Termination Event, Termination Without Cause or in the event
of (b) the occurrence of an Extraordinary Transaction, an Influence Change
Event (as such term is defined in the Farkas Employment Agreement)), or an
Extraordinary Stock Event (as such term is defined in the Farkas Employment
Agreement) (whether or not resulting in a termination of Executive's
employment), all options and warrants then granted to the Executive will
immediately vest and be exercisable by the Executive.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
EXECUTIVE. The Executive represents and warrants to the Company as follows:
(a) He is under no contractual or other restriction or obligation
which is inconsistent with the execution of this Agreement, the performance of
his duties hereunder, or the other rights of the Company hereunder; and
(b) He is able to perform the essential functions of his duties
hereunder with or without reasonable accommodations.
SECTION 6. NON-SOLICITATION; CONFIDENTIALITY.
(a) NON-SOLICITATION.
(1) In recognition of the close personal contact
the Executive has or will have with the Company's and its affiliates' trade
secrets, confidential information, records and business relationships, and the
position of trust in which the Company holds the Executive, the Executive
further covenants and agrees that while the Executive is employed by the
Company and for a period lasting for one (1) year following the cessation of
the Executive's employment with the Company, the Executive will not, if such
action would have a material adverse effect on the Company, in direct
competition with the Company (where competition is measured as of the date the
Executive ceases to be employed by the Company), either for himself or as an
officer, director, employee, agent, representative, independent contractor or
in any relationship to any person, partnership, corporation, or other entity
(except the Company or its
9
<PAGE> 10
Affiliates or subsidiaries), solicit, directly or by assisting others, business
from any of the Company's customers or clients who were customers or clients of
the Company as of the date of the cessation of the Executive's employment and
with whom the Executive has had material contact (as defined below) during the
twelve (12) month period preceding the date of cessation of the Executive's
employment with the Company in the event of a cessation of employment with the
Company or, absent such cessation, during the twelve (12) months preceding the
solicitation, for the purpose of providing goods or services to said customers
and clients. For purposes of this Agreement, "material contact" exists between
the Executive and any of the Company's customers or clients (i) with whom the
Executive actually dealt; or (ii) whose dealings with the Company were handled,
coordinated or supervised by the Executive; or (iii) about whom the Executive
obtained confidential information in the ordinary course of business through
the Executive's association with the Company.
(2) The Executive covenants and agrees that, for
a period ending on the second anniversary of the date on which the Executive's
employment with the Company ceases, the Executive will not solicit any
employee, broker or sales person of the Company, or any of its respective
subsidiaries or affiliates to leave their employ for the employ of a person or
entity which directly competes with the Company, or any of its respective
subsidiaries or affiliates.
(3) The Executive covenants and agrees that, for
a period ending on the second anniversary of the date on which the Executive's
employment with the Company ceases, the Executive will not purchase for his own
account any limited partnership units of partnerships that, on the date of
purchase, are controlled directly or indirectly by the Company, except that the
provisions of this sentence shall not be deemed breached merely because the
Executive owns, immediately after a purchase, not more than one percent of the
outstanding units. Should the Executive breach the foregoing sentence, all his
options issued by the Company or any of its subsidiaries shall be canceled and
all of his restricted stock issued by the Company or any of its subsidiaries
(whether or not then vested) which he then owns shall be forfeited. For
purposes of this Section 6(a)(3), "purchase" shall mean the payment of cash
only for such limited partnership units and shall not include payment of cash
for interests in an entity whose assets consist in whole or in part of such
limited partnership units.
(4) The Executives covenants and agrees that he
will not, either for himself or as an officer, director, employee, agent,
representative, or independent contractor of any person, partnership,
corporation, or other entity (except the Company or its Affiliates or
subsidiaries), interfere with any contract that exists between the Company and
any customers or clients of the Company as of the effective date of this
Agreement.
The Executive acknowledges that the foregoing provisions are intended
to protect the Company's and its subsidiaries' and Affiliates' business and
customer contacts, not to prevent the Executive from pursuing a livelihood in
the general area of his previous training, and they should be interpreted
accordingly.
10
<PAGE> 11
(b) CONFIDENTIALITY. All confidential information which the
Executive may now possess, may obtain during or after his employment with
Company, or may create prior to the end of his employment with the Company or
otherwise relating to the business of the Company or any of its subsidiaries or
affiliates or of any customer or supplier of any of them shall not be
published, disclosed, or made accessible by him to any other person, either
during or after the cessation of his employment, or used by him except during
his employment with the Company in the business and for the benefit of the
Company and its subsidiaries and Affiliates. In addition, the Executive agrees
not to disclose, publish or make accessible to any other person, from and after
the date of this Agreement, during the Employment Period or at any time
thereafter, any of the terms or provisions of this Agreement, except the
Executive's accountants who need such information to advise him, prepare his
tax returns, make required filings and the like; provided, however, that the
Executive will be responsible for causing any such accountants to be aware of
and to abide by the obligations contained in this Section 6(b) and will be
responsible for any breach of such obligations by any of them. In the event
that the Executive becomes legally compelled to disclose any of the
confidential information, the Executive will provide the Company with prompt
written notice so that the Company may seek a protective order or other
appropriate remedy and/or waive in writing compliance with the provisions of
this Section 6(b) and in the event that such protective order or other remedy
is not obtained, or should the Company waive in writing compliance with the
provisions of this Section 6(b), the Executive will furnish only that portion
of the confidential information which is so legally required. The Executive
shall return all tangible evidence of such confidential information to the
General Counsel of the Company prior to or at the cessation of his employment.
(c) INTERPRETATION. Since a breach of the provisions of this
Section 6 could not adequately be compensated by money damages, the Company
shall be entitled, in addition to any other right and remedy available to it,
to an injunction restraining such breach and the Company shall not be required
to post a bond in any proceeding brought for such purpose. The Executive
agrees that the provisions of this Section 6 are necessary and reasonable to
protect the Company in the conduct of its businesses. If any restriction
contained in this Section 6 shall be deemed to be invalid, illegal, or
unenforceable by reason of the extent, duration, or geographical scope thereof,
or otherwise, then the court making such determination shall have the right to
reduce such extent, duration, geographical scope, or other provisions hereof,
and in its reduced form such restriction shall then be enforceable in the
manner contemplated hereby. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies, at law or in equity, for such
breach or threatened breach.
(d) INVESTORS. Notwithstanding anything herein to the contrary,
nothing in this Agreement shall restrict the right of the Executive to solicit
or receive, on his own behalf or on behalf of others, any investment or any
funds in any form from any person, regardless of whether such person is an
investor in the Company or in any current or former affiliate of the Company.
11
<PAGE> 12
SECTION 7. TERMINATION.
(a) DEFINITIONS.
(i) Death Termination Event. As used herein, "Death
Termination Event" shall mean the death of the Executive.
(ii) Disability Termination Event. As used herein,
"Disability Termination Event" shall mean a circumstance where the Executive is
physically or mentally incapacitated or disabled or otherwise unable to fully
discharge his duties hereunder for a period of 185 consecutive days.
(iii) Estate. As used herein, "Estate" shall mean (A) in
the event that the last will and testament of the Executive has not been
probated at the time of determination, the estate of the Executive and (B) in
the event that the last will and testament of the Executive has been probated
at the time of determination, the legatees of the Executive who are entitled
under such will to the assets or payments at issue.
(iv) Termination For Cause. As used herein, the term
"Termination For Cause" shall mean the termination by the Company of the
Executive's employment hereunder upon a good faith determination by a majority
vote of the members of the Board of Directors of the Company that termination
of this Agreement is necessary by reason of (A) the Executive shall be
convicted of a felony, (B) the Executive shall commit any act or omit to take
any action in bad faith and to the material detriment of the Company and
Executive shall not have cured the same within 30 days after the Company sends
written notice thereof, or (C) Executive shall breach in a material way any
material term of this Agreement and fail to correct such breach within 30 days
after the Company sends written notice thereof.
(v) Termination Without Cause. As used herein,
"Termination Without Cause" shall mean any termination of the Executive's
employment by the Company hereunder that is not a Termination For Cause, a
Death Termination Event, or a Disability Termination Event but shall not
include a conversion of this Agreement to a consulting agreement.
(b) DEATH TERMINATION EVENT. Upon the occurrence of a Death
Termination Event, this Agreement will terminate automatically upon the date
that such Death Termination Event occurred (subject to the last sentence of
this Section 7 and to the last two sentences of Section 4(j)), whereupon the
Executive's Estate shall receive the consideration set forth in Sections 4(a)
through (d) through the date three years from the Commencement Date. In
addition, the Executive's Estate shall be entitled to receive the payments
contemplated by Section 4(c) and Section 4(d) if the event giving rise to such
payment occurs, or a definitive agreement regarding such event is executed,
before or within 180 days after the Death Termination Event.
12
<PAGE> 13
(c) DISABILITY TERMINATION EVENT. Upon the occurrence of a
Disability Termination Event, this Agreement shall terminate automatically upon
the date that such Disability Termination Event occurred (subject to the last
sentence of this Section 7 and to the last two sentences of Section 4(j)),
whereupon the Executive shall continue to receive the consideration set forth
in Sections 4(a) through (d) and Section 4(g)(iii) through the date three years
from the Commencement Date. In addition, the Executive shall be entitled to
receive the payments contemplated by Section 4(c) and Section 4(d) if the event
giving rise to such payment occurs, or a definitive agreement regarding such
event is executed, before or within 180 days after the Disability Termination
Event.
(d) TERMINATION FOR CAUSE. The Executive and the Company agree
that the Company shall have the right to effectuate a Termination For Cause in
accordance with the terms of this Agreement at any time. Upon the occurrence
of a Termination For Cause, this Agreement will terminate upon the date that
such Termination For Cause occurs (subject to the provisions of Section 9),
whereupon (i) the Executive shall not be entitled to receive any additional
payments hereunder other than the Base Salary, as then in effect, to and
including the date that such Termination For Cause occurs and (ii) the Company
shall be entitled to any and all remedies and damages available to it.
(e) TERMINATION WITHOUT CAUSE. Upon the occurrence of a
Termination Without Cause, this Agreement shall terminate upon the date that
such Termination Without Cause occurs (subject to the provisions of Section 9
and to the last two sentences of Section 4(j)), whereupon the Executive shall
continue to receive the consideration set forth in Sections 4(a) through (d)
and Section 4(g)(iii) through the date three years from the Commencement Date.
In addition, the Executive shall be entitled to receive the payments
contemplated by Section 4(c) and Section 4(d) if the event giving rise to such
payment occurs, or a definitive agreement regarding such event is executed, on
or before the date three years from the Commencement Date.
In the event of a termination of Executive's employment for any reason
other than a Termination for Cause or voluntary termination by the Executive,
including, but not limited to a Death Termination Event, Disability Termination
Event, or Termination Without Cause, all options, warrants and restricted stock
then held by and/or granted to the Executive will immediately vest and be
exercisable by the Executive but in the event of the occurrence of an
Extraordinary Transaction, no options, warrants or restricted stock then held
by and/or granted to the Executive will immediately vest as a result thereof.
SECTION 8. WITHHOLDING. The Company shall be entitled to
withhold from amounts payable to the Executive hereunder such amounts as may be
required by applicable law to be so withheld.
SECTION 9. SURVIVAL. Notwithstanding anything in this Agreement
to the contrary, Section 6 of this Agreement shall survive any termination of
this Agreement or cessation of the Executive's employment hereunder for the
periods stated therein.
13
<PAGE> 14
SECTION 10. MODIFICATION. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
SECTION 11. NOTICES. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given, at the address of such party set forth in the
preamble to this Agreement (or to such other address as such party shall have
furnished in writing in accordance with the provisions of this Section 11).
Notice to the Estate shall be sufficient if addressed to the Executive as
provided in this Section 11. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
SECTION 12. WAIVER. Any waiver by either party of a breach of
any provision of Agreement shall not operate as a waiver of any other breach of
such provision or of any breach of any other provision of this Agreement. The
failure of a party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement. Any waiver must be in writing.
SECTION 13. BINDING EFFECT. The Executive's rights and
obligations under this Agreement shall not be transferable by assignment or
otherwise, such rights shall not be subject to commutation, encumbrance or the
claims of the Executive's creditors, and any attempt to do any of the foregoing
shall be void. The provisions of this Agreement shall be binding upon and
inure to the benefit of the Executive and his heirs and personal
representatives, and shall be binding upon and inure to the benefit of the
Company and its successors.
SECTION 14. HEADINGS. The headings in this Agreement are solely
for convenience of reference, and shall be given no effect in the construction
or interpretation of this Agreement.
SECTION 15. ENFORCEMENT. Should the Executive sue to enforce any
of his rights under this Agreement and should the Executive prevail on any
issue in such suit, then the Company shall pay all the Executive's costs of
such suit (including attorneys fees and disbursements). If any taxes are
imposed on such payment, the Company shall make such additional payments to the
Executive as may be necessary, so that after deducting the taxes imposed on all
payments made to the Executive pursuant to this paragraph, the Executive is
left on an after tax basis with an amount equal to his claim for
indemnification prior to the payments described in this sentence.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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<PAGE> 15
SECTION 17. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of South Carolina,
without reference to the conflict of law provisions thereof.
SECTION 18. CONSTRUCTION AND INTERPRETATION. Should any
provision of this Agreement require judicial interpretation, the parties hereto
agree that the court interpreting or construing the same shall not apply a
presumption that the terms hereof shall be more strictly construed against one
party by reason of the rule of construction that a document is to be more
strictly construed against the party that itself, or through its agent,
prepared the same, and it is expressly agreed and acknowledged that the
Executive, the Company and their respective attorneys and representatives have
participated in the preparation hereof.
SECTION 19. WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALING BETWEEN OR AMONG THEM
RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIPS BEING
ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO ENCOMPASS ANY AND ALL
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER
OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH
PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER
INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR
RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO THE TRIAL BY THE COURT.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
INSIGNIA/ESG HOLDINGS, INC.
By:
------------------------------------------
Name:
----------------------------------------
Its:
-----------------------------------------
EXECUTIVE
---------------------------------------------
Name: James A. Aston
16
<PAGE> 1
EXHIBIT 10.14
INSIGNIA/ESG HOLDINGS, INC.
1998 STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I PURPOSE ............................................... 1
ARTICLE II DEFINITIONS ........................................... 1
ARTICLE III ADMINISTRATION ........................................ 7
ARTICLE IV SHARE AND OTHER LIMITATIONS ........................... 10
ARTICLE V ELIGIBILITY ........................................... 14
ARTICLE VI STOCK OPTIONS ......................................... 14
ARTICLE VII STOCK APPRECIATION RIGHTS ............................. 17
ARTICLE VIII RESTRICTED STOCK ...................................... 19
ARTICLE IX PERFORMANCE SHARES .................................... 22
ARTICLE X PERFORMANCE UNITS ..................................... 23
ARTICLE XI OTHER STOCK-BASED AWARDS .............................. 25
ARTICLE XII NON-TRANSFERABILITY AND TERMINATION OF
EMPLOYMENT/CONSULTANCY ................................ 27
ARTICLE XIII NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS ............. 29
ARTICLE XIV CHANGE IN CONTROL PROVISIONS .......................... 33
ARTICLE XV TERMINATION OR AMENDMENT OF PLAN ...................... 34
ARTICLE XVI UNFUNDED PLAN ......................................... 35
ARTICLE XVII GENERAL PROVISIONS .................................... 36
ARTICLE XVIII EFFECTIVE DATE OF PLAN ................................ 38
ARTICLE XIX TERM OF PLAN .......................................... 39
EXHIBIT A PERFORMANCE CRITERIA .................................. A-1
</TABLE>
i
<PAGE> 3
INSIGNIA/ESG HOLDINGS, INC.
--------------------------
1998 STOCK INCENTIVE PLAN
--------------------------
ARTICLE I
PURPOSE
The purpose of this Insignia/ESG Holdings, Inc. 1998 Stock Incentive
Plan is to enhance the profitability and value of the Company for the benefit of
its stockholders by enabling the Company (i) to offer employees of and
Consultants to the Company and its Affiliates stock-based incentives and other
equity interests in the Company, thereby creating a means to raise the level of
stock ownership by employees and Consultants in order to attract, retain and
reward such individuals and strengthen the mutuality of interests between such
individuals and the Company's stockholders, and (ii) to make equity based awards
to Non-Employee Directors, thereby creating a means to attract, retain and
reward such Non-Employee Directors and strengthen the mutuality of interests
between Non-Employee Directors and the Company's stockholders.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Acquisition Event" has the meaning set forth in Section
4.2(d).
2.2 "Affiliate" means each of the following: (i) any
Subsidiary; (ii) any Parent; (iii) any corporation, trade or business
(including, without limitation, a partnership or limited liability
company) which is directly or indirectly controlled 50% or more
(whether by ownership of stock, assets or an equivalent ownership
interest or voting interest) by the Company or one of its Affiliates;
and (iv) any other entity in which the Company or any of its Affiliates
has a material equity interest and which is designated as an
"Affiliate" by resolution of the Committee.
2.3 "Award" means any award under this Plan of any: (i) Stock
Option; (ii) Stock Appreciation Right; (iii) Restricted Stock; (iv)
Performance Share; (v) Performance Unit;
<PAGE> 4
(vi) Other Stock-Based Award; or (vii) other award providing benefits
similar to (i) through (vi) designed to meet the requirements of a
Foreign Jurisdiction.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Cause" means, with respect to a Participant's Termination
of Employment or Termination of Consultancy: (i) in the case where
there is no employment agreement, consulting agreement, change in
control agreement or similar agreement in effect between the Company or
an Affiliate and the Participant at the time of the grant of the Award
(or where there is such an agreement but it does not define "cause" (or
words of like import)), termination due to a Participant's
insubordination, dishonesty, incompetence, moral turpitude, other
misconduct of any kind or the refusal to perform his or her duties or
responsibilities for any reason other than illness or incapacity; or
(ii) in the case where there is an employment agreement, consulting
agreement, change in control agreement or similar agreement in effect
between the Company or an Affiliate and the Participant at the time of
the grant of the Award that defines "cause" (or words of like import),
as defined under such agreement; provided, however, that with regard to
any agreement that conditions "cause" on occurrence of a change in
control, such definition of "cause" shall not apply until a change in
control actually takes place and then only with regard to a termination
thereafter. With respect to a Participant's Termination of
Directorship, "cause" shall mean an act or failure to act that
constitutes cause for removal of a director under applicable Delaware
law.
2.6 "Change in Control" has the meaning set forth in Article
XIII or Article XIV, as applicable.
2.7 "Code" means the Internal Revenue Code of 1986, as
amended. Any reference to any section of the Code shall also be a
reference to any successor provision.
2.8 "Committee" means: (a) with respect to the application of
this Plan to Eligible Employees and Consultants, a committee or
subcommittee of the Board appointed from time to time by the Board,
which committee or subcommittee shall consist of two or more
non-employee directors, each of whom is intended to be, to the extent
required by Rule 16b-3, a "non-employee director" as defined in Rule
16b-3 and, to the extent required by Section 162(m) of the Code and any
regulations thereunder, an "outside director" as defined under Section
162(m) of the Code; provided, however, that if and to the extent that
no Committee exists which has the authority to administer this Plan,
the functions of the Committee shall be exercised by the Board and all
references herein to the Committee shall be deemed to be references to
the Board; and (b) with respect to the application of this Plan to
Non-Employee Directors, the Board.
2.9 "Common Stock" means the common stock, $.01 par value per
share, of the Company.
2
<PAGE> 5
2.10 "Company" means Insignia/ESG Holdings, Inc., a Delaware
corporation, and its successors by operation of law.
2.11 "Consultant" means any advisor or consultant to the
Company or its Affiliates.
2.12 "Disability" means, with respect to an Eligible Employee,
Consultant or Non-Employee Director, a permanent and total disability
as defined in Section 22(e)(3) of the Code. A Disability shall only be
deemed to occur at the time of the determination by the Committee of
the Disability.
2.13 "Distribution Date" means the date of distribution of
Common Stock by Insignia Financial Group, Inc. to holders of Class A
Common Stock, par value $.01 per share, of Insignia Financial Group,
Inc.
2.14 "Effective Date" means the effective date of this Plan as
defined in Article XVIII.
2.15 "Eligible Employee" means each employee of the Company or
an Affiliate.
2.16 "Exchange Act" means the Securities Exchange Act of 1934,
as amended. Any references to any section of the Exchange Act shall
also be a reference to any successor provision.
2.17 "Fair Market Value" means, unless otherwise required by
any applicable provision of the Code or any regulations issued
thereunder, as of any date, the last sales price for the Common Stock
on the applicable date: (i) as reported on the principal national
securities exchange on which it is then traded or the Nasdaq Stock
Market, Inc. or (ii) if not traded on any such national securities
exchange or the Nasdaq Stock Market, Inc. as quoted on an automated
quotation system sponsored by the National Association of Securities
Dealers, Inc. If the Common Stock is not readily tradable on a national
securities exchange, the Nasdaq Stock Market, Inc. or any automated
quotation system sponsored by the National Association of Securities
Dealers, Inc., its Fair Market Value shall be set in good faith by the
Committee. Notwithstanding anything herein to the contrary, "Fair
Market Value" means the price for Common Stock set by the Committee in
good faith based on reasonable methods set forth under Section 422 of
the Code and the regulations thereunder including, without limitation,
a method utilizing the average of prices of the Common Stock reported
on the principal national securities exchange on which it is then
traded during a reasonable period designated by the Committee. For
purposes of the grant of any Stock Option, the applicable date shall be
the date for which the last sales price is available at the time of
grant. For purposes of the conversion of a Performance Unit to shares
of Common Stock for reference purposes, the applicable date shall be
the date determined by the Committee in accordance with Section 10.1.
For purposes of the exercise of any Stock Appreciation Right, the
applicable date shall be the
3
<PAGE> 6
date a notice of exercise is received by the Committee or, if not a day
on which the applicable market is open, the next day that it is open.
2.18 "Foreign Jurisdiction" means any jurisdiction outside of
the United States including, without limitation, countries, states,
provinces and localities.
2.19 "Incentive Stock Option" means any Stock Option awarded
to an Eligible Employee under this Plan intended to be and designated
as an "Incentive Stock Option" within the meaning of Section 422 of the
Code.
2.20 "Limited Stock Appreciation Right" means an Award of a
limited Tandem Stock Appreciation Right or a Non-Tandem Stock
Appreciation Right made pursuant to Section 7.5 of this Plan.
2.21 "Non-Employee Director" means a director of the Company
who is not an active employee of the Company or an Affiliate and who is
not an officer, director or employee of (i) any entity which, directly
or indirectly, beneficially owns or controls 5% or more of the combined
voting power of the then outstanding voting securities of the Company
(or any Subsidiary) entitled to vote generally in the election of
directors of the Company (or, if applicable, the Subsidiary) or (ii)
any entity controlling, controlled by or under common control (within
the meaning of Rule 405 of the Securities Act) with any such entity.
2.22 "Non-Qualified Stock Option" means any Stock Option
awarded under this Plan that is not an Incentive Stock Option.
2.23 "Non-Tandem Stock Appreciation Right" means a Stock
Appreciation Right entitling a Participant to receive an amount in cash
or Common Stock (as determined by the Committee in its sole discretion)
equal to the excess of: (i) the Fair Market Value of a share of Common
Stock as of the date such right is exercised, over (ii) the aggregate
exercise price of such right.
2.24 "Other Stock-Based Award" means an Award of Common Stock
and other Awards made pursuant to Article XI that are valued in whole
or in part by reference to, or are payable in or otherwise based on,
Common Stock, including, without limitation, an Award valued by
reference to performance of an Affiliate.
2.25 "Parent" means any parent corporation of the Company
within the meaning of Section 424(e) of the Code.
2.26 "Participant" means any Eligible Employee or Consultant
to whom an Award has been made under this Plan and each Non-Employee
Director of the Company; provided, however, that a Non-Employee
Director shall be a Participant for purposes of the Plan solely with
respect to awards of Stock Options pursuant to Article XIII.
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2.27 "Performance Criteria" has the meaning set forth in
Exhibit A.
2.28 "Performance Cycle" has the meaning set forth in Section
10.1.
2.29 "Performance Goal" means the objective performance goals
established by the Committee in accordance with Section 162(m) of the
Code and based on one or more Performance Criteria.
2.30 "Performance Period" has the meaning set forth in Section
9.1.
2.31 "Performance Share" means an Award made pursuant to
Article IX of this Plan of the right to receive Common Stock or, as
determined by the Committee in its sole discretion, cash of an
equivalent value at the end of the Performance Period or thereafter.
2.32 "Performance Unit" means an Award made pursuant to
Article X of this Plan of the right to receive a fixed dollar amount,
payable in cash or Common Stock (or a combination of both) as
determined by the Committee in its sole discretion, at the end of a
specified Performance Cycle or thereafter.
2.33 "Plan" means this Insignia/ESG Holdings, Inc. 1998 Stock
Incentive Plan, as amended from time to time.
2.34 "Reference Stock Option" has the meaning set forth in
Section 7.1.
2.35 "Restricted Stock" means an Award of shares of Common
Stock under this Plan that is subject to restrictions under Article
VIII.
2.36 "Restriction Period" has the meaning set forth in Section
8.3(a) with respect to Restricted Stock.
2.37 "Retirement" means a Termination of Employment or
Termination of Consultancy without Cause by a Participant at or after
age 65 or such earlier date after age 50 as may be approved by the
Committee with regard to such Participant. With respect to a
Participant's Termination of Directorship, Retirement shall mean the
failure to stand for reelection or the failure to be reelected at or
after a Participant has attained age 65 or, with the consent of the
Board, before age 65 but after age 50.
2.38 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
2.39 "Section 162(m) of the Code" means Section 162(m) of the
Code and any Treasury regulations thereunder.
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2.40 "Securities Act" means the Securities Act of 1933, as
amended. Any reference to any section of the Securities Act shall also
be a reference to any successor provision.
2.41 "Stock Appreciation Right" or "SAR" means the right
pursuant to an Award granted under Article VII.
2.42 "Stock Option" or "Option" means any option to purchase
shares of Common Stock granted to Eligible Employees or Consultants
under Article VI or to Non-Employee Directors under Article XIII.
2.43 "Subsidiary" means any subsidiary corporation of the
Company within the meaning of Section 424(f) of the Code.
2.44 "Tandem Stock Appreciation Right" means a Stock
Appreciation Right entitling the holder to surrender to the Company all
(or a portion) of a Stock Option in exchange for an amount in cash or
Common Stock (as determined by the Committee in its sole discretion)
equal to the excess of: (i) the Fair Market Value, on the date such
Stock Option (or such portion thereof) is surrendered, of the Common
Stock covered by such Stock Option (or such portion thereof), over (ii)
the aggregate exercise price of such Stock Option (or such portion
thereof).
2.45 "Ten Percent Stockholder" means a person owning stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company, its Subsidiaries or its Parent.
2.46 "Termination of Consultancy" means, with respect to a
Consultant, that the Consultant is no longer acting as a consultant to
the Company or an Affiliate. In the event an entity shall cease to be
an Affiliate, there shall be deemed a Termination of Consultancy of any
individual who is not otherwise a Consultant to the Company or another
Affiliate at the time the entity ceases to be an Affiliate.
2.47 "Termination of Directorship" means, with respect to a
Non-Employee Director, that the Non-Employee Director has ceased to be
a director of the Company.
2.48 "Termination of Employment" means: (i) a termination of
employment (for reasons other than a military or personal leave of
absence granted by the Company) of a Participant from the Company and
its Affiliates; or (ii) when an entity which is employing a Participant
ceases to be an Affiliate, unless the Participant otherwise is, or
thereupon becomes, employed by the Company or another Affiliate.
2.49 "Transfer" means anticipate, alienate, attach, sell,
assign, pledge, encumber, charge, hypothecate or otherwise transfer and
"Transferred" has a correlative meaning.
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ARTICLE III
ADMINISTRATION
3.1 The Committee. The Plan shall be administered and
interpreted by the Committee. If for any reason the appointed Committee
does not meet the requirements of Rule 16b-3 or Section 162(m) of the
Code, such noncompliance with the requirements of Rule 16b-3 and
Section 162(m) of the Code shall not affect the validity of Awards,
grants, interpretations or other actions of the Committee.
3.2 Grants of Awards. The Committee shall have full authority
to grant to Eligible Employees and Consultants, pursuant to the terms
of this Plan: (i) Stock Options; (ii) Tandem Stock Appreciation Rights
and Non-Tandem Stock Appreciation Rights; (iii) Restricted Stock; (iv)
Performance Shares; (v) Performance Units; (vi) Other Stock-Based
Awards; and (vii) other awards providing benefits similar to (i)
through (vi) designed to meet the requirements of Foreign
Jurisdictions. All Awards shall be granted by, confirmed by, and
subject to the terms of, a written agreement executed by the Company
and the Participant. In particular, the Committee shall have the
authority:
(a) to select the Eligible Employees and Consultants
to whom Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Awards,
including any combination of two or more Awards, are to be
granted hereunder to one or more Eligible Employees or
Consultants;
(c) to determine, in accordance with the terms of
this Plan, the number of shares of Common Stock to be covered
by each Award granted hereunder;
(d) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of any Award granted
hereunder (including, but not limited to, the exercise or
purchase price (if any), any restriction or limitation, any
vesting schedule or acceleration thereof and any forfeiture
restrictions or waiver thereof, regarding any Award and the
shares of Common Stock relating thereto, based on such
factors, if any, as the Committee shall determine, in its sole
discretion);
(e) to determine whether and under what circumstances
a Stock Option may be settled in cash, Common Stock and/or
Restricted Stock under Section 6.3(d) or, with respect to
Stock Options granted to Non-Employee Directors, Section
13.4(d);
(f) to determine whether, to what extent and under
what circumstances to provide loans (which shall bear interest
at the rate the Committee shall provide) to Eligible Employees
and Consultants in order to exercise Stock Options under this
Plan or to purchase Awards under this Plan (including shares
of Common Stock);
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(g) to determine whether a Stock Option is an
Incentive Stock Option or Non-Qualified Stock Option, whether
a Stock Appreciation Right is a Tandem Stock Appreciation
Right or Non-Tandem Stock Appreciation Right or whether an
Award is intended to satisfy Section 162(m) of the Code;
(h) to determine whether to require an Eligible
Employee or Consultant, as a condition of the granting of any
Award, not to sell or otherwise dispose of shares of Common
Stock acquired pursuant to the exercise of an Option or an
Award for a period of time as determined by the Committee, in
its sole discretion, following the date of the acquisition of
such Option or Award;
(i) to modify, extend or renew an Award, subject to
Article XV herein, provided, however, that if an Award is
modified, extended or renewed and thereby deemed to be the
issuance of a new Award under the Code or the applicable
accounting rules, the exercise price of an Award may continue
to be the original exercise price even if less than the Fair
Market Value of the Common Stock at the time of such
modification, extension or renewal; and
(j) to offer to buy out an Option previously granted,
based on such terms and conditions as the Committee shall
establish and communicate to the Participant at the time such
offer is made.
3.3 Guidelines. Subject to Article XV hereof, the Committee
shall have the authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing this Plan and perform all
acts, including the delegation of its administrative responsibilities,
as it shall, from time to time, deem advisable; to construe and
interpret the terms and provisions of this Plan and any Award issued
under this Plan (and any agreements relating thereto); and to otherwise
supervise the administration of this Plan. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in this
Plan or in any agreement relating thereto in the manner and to the
extent it shall deem necessary to effectuate the purpose and intent of
this Plan. The Committee may adopt special guidelines and provisions
for persons who are residing in, or subject to, the taxes of, Foreign
Jurisdictions to comply with applicable tax and securities laws and may
impose any limitations and restrictions that it deems necessary to
comply with the applicable tax and securities laws of such Foreign
Jurisdictions. To the extent applicable, this Plan is intended to
comply with Section 162(m) of the Code and the applicable requirements
of Rule 16b-3 and shall be limited, construed and interpreted in a
manner so as to comply therewith.
3.4 Decisions Final. Any decision, interpretation or other
action made or taken in good faith by or at the direction of the
Company, the Board or the Committee (or any of its members) arising out
of or in connection with this Plan shall be within the absolute
discretion of all and each of them, as the case may be, and shall be
final, binding and
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conclusive on the Company and all employees and Participants and their
respective heirs, executors, administrators, successors and assigns.
3.5 Reliance on Counsel. The Company, the Board or the
Committee may consult with legal counsel, who may be counsel for the
Company or other counsel, with respect to its obligations or duties
hereunder, or with respect to any action or proceeding or any question
of law, and shall not be liable with respect to any action taken or
omitted by it in good faith pursuant to the advice of such counsel.
3.6 Procedures. If the Committee is appointed, the Board shall
designate one of the members of the Committee as chairman and the
Committee shall hold meetings, subject to the By-Laws of the Company,
at such times and places as it shall deem advisable. A majority of the
Committee members shall constitute a quorum. All determinations of the
Committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by all the Committee
members in accordance with the By-Laws of the Company, shall be fully
as effective as if it had been made by a vote at a meeting duly called
and held. The Committee shall keep minutes of its meetings and shall
make such rules and regulations for the conduct of its business as it
shall deem advisable.
3.7 Designation of Consultants/Liability.
(a) The Committee may designate employees of the
Company and professional advisors to assist the Committee in
the administration of this Plan and may grant authority to
officers to execute agreements or other documents on behalf of
the Committee.
(b) The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the
administration of this Plan and may rely upon any opinion
received from any such counsel or consultant and any
computation received from any such consultant or agent.
Expenses incurred by the Committee in the engagement of any
such counsel, consultant or agent shall be paid by the
Company. The Committee, its members and any employee of the
Company designated pursuant to paragraph (a) above shall not
be liable for any action or determination made in good faith
with respect to this Plan. To the maximum extent permitted by
applicable law, no officer of the Company or member or former
member of the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or
any Award granted under it. To the maximum extent permitted by
applicable law or the Certificate of Incorporation or By-Laws
of the Company and to the extent not covered by insurance,
each officer and member or former member of the Committee
shall be indemnified and held harmless by the Company against
any cost or expense (including reasonable fees of counsel
reasonably acceptable to the Company) or liability (including
any sum paid in settlement of a claim with the approval of the
Company), and advanced amounts necessary to pay the foregoing
at the earliest time and to the fullest extent
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<PAGE> 12
permitted, arising out of any act or omission to act in
connection with this Plan, except to the extent arising out of
such officer's, member's or former member's own fraud or bad
faith. Such indemnification shall be in addition to any rights
of indemnification the officers, directors or members or
former officers, directors or members may have under
applicable law or under the Certificate of Incorporation or
By-Laws of the Company or any Affiliate. Notwithstanding
anything else herein, this indemnification will not apply to
the actions or determinations made by an individual with
regard to Awards granted to him or her under this Plan.
ARTICLE IV
SHARE AND OTHER LIMITATIONS
4.1 Shares.
(a) General Limitation. The aggregate number of
shares of Common Stock which may be issued or used for
reference purposes under this Plan or with respect to which
Awards may be granted shall not exceed the greater of (i)
3,500,000 shares of Common Stock (subject to any increase or
decrease pursuant to Section 4.2) with respect to all types of
Awards or (ii) 12% of the number of shares of Common Stock
issued and outstanding (assuming full dilution of all
outstanding Awards and equity convertible into Common Stock),
determined as of the Company's most recent fiscal quarter
immediately preceding the grant of any Award (subject to any
increase or decrease pursuant to Section 4.2) with respect to
all types of Awards other than Incentive Stock Options. The
shares of Common Stock available under this Plan may be either
authorized and unissued Common Stock or Common Stock held in
or acquired for the treasury of the Company. To the extent
that an Incentive Stock Option is disqualified and no longer
an Incentive Stock Option, the number of shares of Common
Stock underlying the Stock Option shall continue to count
against the aggregate limit of 3,500,000 shares of Common
Stock set forth herein. If any Stock Option or Stock
Appreciation Right granted under this Plan expires, terminates
or is canceled for any reason without having been exercised in
full or, with respect to Stock Options, the Company
repurchases any Stock Option, the number of shares of Common
Stock underlying such unexercised or repurchased Stock Option
or any unexercised Stock Appreciation Right shall again be
available for the purposes of Awards under this Plan. If any
shares of Restricted Stock, Performance Shares or Performance
Units awarded under this Plan to a Participant are forfeited
or repurchased by the Company for any reason, the number of
forfeited or repurchased shares of Restricted Stock,
Performance Shares or Performance Units shall again be
available for the purposes of Awards under this Plan. If a
Tandem Stock Appreciation Right is granted or a Limited Stock
Appreciation Right is granted in tandem with a Stock Option,
such grant shall only apply once against the maximum number of
shares of Common
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Stock which may be issued under this Plan. In determining the
number of shares of Common Stock available for Awards other
than Awards of Incentive Stock Options, if Common Stock has
been exchanged by a Participant as full or partial payment to
the Company, or for withholding, in connection with the
exercise of a Stock Option or the number shares of Common
Stock otherwise deliverable has been reduced for withholding,
the number of shares of Common Stock exchanged as payment in
connection with the exercise or for withholding or reduced
shall again be available for purposes of Awards under this
Plan.
(b) Individual Participant Limitations. (i) The
maximum number of shares of Common Stock subject to any Award
of Stock Options, Stock Appreciation Rights, Performance
Shares or shares of Restricted Stock for which the grant of
such Award or the lapse of the relevant Restriction Period is
subject to the attainment of Performance Goals in accordance
with Section 8.3(a)(ii) herein which may be granted under this
Plan during any fiscal year of the Company to each Eligible
Employee or Consultant shall be 500,000 shares per type of
Award (subject to any increase or decrease pursuant to Section
4.2), provided that the maximum number of shares of Common
Stock for all types of Awards does not exceed 500,000 during
any fiscal year of the Company. If a Tandem Stock Appreciation
Right is granted or a Limited Stock Appreciation Right is
granted in tandem with a Stock Option, it shall apply against
the Eligible Employee's or Consultant's individual share
limitations for both Stock Appreciation Rights and Stock
Options.
(ii) There are no annual individual Eligible
Employee or Consultant share limitations on Restricted Stock
for which the grant of such Award or the lapse of the relevant
Restriction Period is not subject to attainment of Performance
Goals in accordance with Section 8.3(a)(ii) hereof.
(iii) The maximum value at grant of
Performance Units which may be granted under this Plan during
any fiscal year of the Company to each Eligible Employee or
Consultant shall be $250,000. Each Performance Unit shall be
referenced to one share of Common Stock and shall be charged
against the available shares under this Plan at the time the
unit value measurement is converted to a referenced number of
shares of Common Stock in accordance with Section 10.1.
(iv) The individual Participant limitations
set forth in this Section 4.1(b) shall be cumulative; that is,
to the extent that shares of Common Stock for which Awards are
permitted to be granted to an Eligible Employee or a
Consultant during a fiscal year are not covered by an Award to
such Eligible Employee or Consultant in a fiscal year, the
number of shares of Common Stock available for Awards to such
Eligible Employee or Consultant shall automatically increase
in the subsequent fiscal years during the term of the Plan
until used.
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4.2 Changes.
(a) The existence of this Plan and the Awards granted
hereunder shall not affect in any way the right or power of
the Board or the stockholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its
business, any merger or consolidation of the Company or any
Affiliate, any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting Common Stock, the
dissolution or liquidation of the Company or any Affiliate,
any sale or transfer of all or part of the assets or business
of the Company or any Affiliate or any other corporate act or
proceeding.
(b) Subject to the provisions of Section 4.2(d), in
the event of any such change in the capital structure or
business of the Company by reason of any stock split, reverse
stock split, stock dividend, combination or reclassification
of shares, recapitalization, or other change in the capital
structure of the Company, merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of
rights or warrants to purchase any Common Stock or securities
convertible into Common Stock, or any other corporate
transaction or event having an effect similar to any of the
foregoing and effected without receipt of consideration by the
Company, then the aggregate number and kind of shares which
thereafter may be issued under this Plan, the number and kind
of shares or other property (including cash) to be issued upon
exercise of an outstanding Stock Option or other Awards
granted under this Plan and the purchase price thereof shall
be appropriately adjusted consistent with such change in such
manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to,
or available for, Participants under this Plan, and any such
adjustment determined by the Committee in good faith shall be
final, binding and conclusive on the Company and all
Participants and employees and their respective heirs,
executors, administrators, successors and assigns.
(c) Fractional shares of Common Stock resulting from
any adjustment in Options or Awards pursuant to Section 4.2(a)
or (b) shall be aggregated until, and eliminated at, the time
of exercise by rounding-down for fractions less than one-half
and rounding-up for fractions equal to or greater than
one-half. No cash settlements shall be made with respect to
fractional shares eliminated by rounding. Notice of any
adjustment shall be given by the Committee to each Participant
whose Award has been adjusted and such adjustment (whether or
not such notice is given) shall be effective and binding for
all purposes of this Plan.
(d) In the event of a merger or consolidation in
which the Company is not the surviving entity or in the event
of any transaction that results in the acquisition of
substantially all of the Company's outstanding Common Stock by
a single person or entity or by a group of persons and/or
entities acting in concert, or in the event
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of the sale or transfer of all or substantially all of the
Company's assets (all of the foregoing being referred to as
"Acquisition Events"), then the Committee may, in its sole
discretion, terminate all outstanding Stock Options and Stock
Appreciation Rights, effective as of the date of the
Acquisition Event, by delivering notice of termination to each
Participant at least 30 days prior to the date of consummation
of the Acquisition Event, in which case during the period from
the date on which such notice of termination is delivered to
the consummation of the Acquisition Event, each such
Participant shall have the right to exercise in full all of
his or her Stock Options and Stock Appreciation Rights that
are then outstanding (without regard to any limitations on
exercisability otherwise contained in the Stock Option or
Award Agreements), but any such exercise shall be contingent
upon and subject to the occurrence of the Acquisition Event,
and, provided that, if the Acquisition Event does not take
place within a specified period after giving such notice for
any reason whatsoever, the notice and exercise pursuant
thereto shall be null and void.
If an Acquisition Event occurs but the Committee does not
terminate the outstanding Stock Options and Stock Appreciation Rights
pursuant to this Section 4.2(d), then the provisions of Section 4.2(b)
shall apply.
4.3 Minimum Purchase Price. Notwithstanding any provision of
this Plan to the contrary, if authorized but previously unissued shares
of Common Stock are issued under this Plan, such shares shall not be
issued for a consideration which is less than as permitted under
applicable law.
4.4 Assumption of Awards. Except with regard to awards that
are subject to termination agreements with Insignia Financial Group
Inc. providing for the cash-out and cancellation of the award, awards
that were granted prior to the Effective Date under the Insignia
Financial Group Inc.'s 1992 Stock Incentive Plan, as amended, to
individuals who became Eligible Employees of or Consultants to the
Company or an Affiliate as of the Distribution Date and that were
outstanding immediately prior to the Distribution Date will be assumed
by the Company as of the Distribution Date and converted into Awards
hereunder based on the Company's Common Stock in a manner determined by
the Committee. The terms of such Awards shall be governed by the terms
of this Plan as of the Effective Date. Notwithstanding the foregoing,
such Awards shall continue to be governed by the terms of the
applicable agreement in effect prior to the Effective Date, except as
adjusted to reflect the appropriate number of shares of Common Stock
and, with respect to Stock Options, the appropriate exercise price.
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ARTICLE V
ELIGIBILITY
5.1 General Eligibility. All Eligible Employees and
Consultants and prospective employees of and Consultants to the Company
and its Affiliates are eligible to be granted Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock, Performance
Shares, Performance Units, Other Stock-Based Awards and awards
providing benefits similar to each of the foregoing designed to meet
the requirements of Foreign Jurisdictions under this Plan. Eligibility
for the grant of an Award and actual participation in this Plan shall
be determined by the Committee in its sole discretion. The vesting and
exercise of Awards granted to a prospective employee or Consultant are
conditioned upon such individual actually becoming an Eligible Employee
or Consultant.
5.2 Incentive Stock Options. All Eligible Employees of the
Company, its Subsidiaries and its Parent (if any) are eligible to be
granted Incentive Stock Options under this Plan. Notwithstanding the
foregoing, unless otherwise permitted pursuant to the Code, "qualified
real estate agents" (as defined in Section 3508 of the Code) shall not
be eligible to be granted Incentive Stock Options under this Plan.
Eligibility for the grant of an Award and actual participation in this
Plan shall be determined by the Committee in its sole discretion.
5.3 Non-Employee Directors. Non-Employee Directors are only
eligible to receive an Award of Stock Options in accordance with
Article XIII of the Plan.
ARTICLE VI
STOCK OPTIONS
6.1 Stock Options. Each Stock Option granted hereunder shall
be one of two types: (i) an Incentive Stock Option intended to satisfy
the requirements of Section 422 of the Code; or (ii) a Non-Qualified
Stock Option.
6.2 Grants. The Committee shall have the authority to grant to
any Eligible Employee one or more Incentive Stock Options,
Non-Qualified Stock Options or both types of Stock Options (in each
case with or without Stock Appreciation Rights). To the extent that any
Stock Option does not qualify as an Incentive Stock Option (whether
because of its provisions or the time or manner of its exercise or
otherwise), such Stock Option or the portion thereof which does not
qualify, shall constitute a separate NonQualified Stock Option. The
Committee shall have the authority to grant any Consultant one or more
Non-Qualified Stock Options (with or without Stock Appreciation
Rights). Notwithstanding any other provision of this Plan to the
contrary or any provision in an agreement evidencing the grant of a
Stock Option to the contrary, any Stock Option
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granted to an Eligible Employee of an Affiliate (other than an
Affiliate which is a Parent or a Subsidiary) shall be a Non-Qualified
Stock Option.
6.3 Terms of Stock Options. Stock Options granted under this
Plan shall be subject to the following terms and conditions, and shall
be in such form and contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem
desirable:
(a) Exercise Price. The exercise price per share of
Common Stock purchasable under an Incentive Stock Option or a
Stock Option intended to be "performance-based" for purposes
of Section 162(m) of the Code shall be determined by the
Committee at the time of grant, but shall not be less than
100% of the Fair Market Value of the share of Common Stock at
the time of grant; provided, however, that if an Incentive
Stock Option is granted to a Ten Percent Stockholder, the
exercise price shall be no less than 110% of the Fair Market
Value of the Common Stock. The exercise price per share of
Common Stock purchasable under a Non-Qualified Stock Option
shall be determined by the Committee.
(b) Stock Option Term. The term of each Stock Option
shall be fixed by the Committee; provided, however, that no
Stock Option shall be exercisable more than 10 years after the
date such Stock Option is granted; and further provided that
the term of an Incentive Stock Option granted to a Ten Percent
Stockholder shall not exceed 5 years.
(c) Exercisability. Stock Options shall be
exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Committee at
grant. If the Committee provides, in its discretion, that any
Stock Option is exercisable subject to certain limitations
(including, without limitation, that such Stock Option is
exercisable only in installments or within certain time
periods), the Committee may waive such limitations on the
exercisability at any time at or after grant in whole or in
part (including, without limitation, waiver of the installment
exercise provisions or acceleration of the time at which such
Stock Option may be exercised), based on such factors, if any,
as the Committee shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever
installment exercise and waiting period provisions apply under
subsection (c) above, Stock Options may be exercised in whole
or in part at any time and from time to time during the Stock
Option term by giving written notice of exercise to the
Committee specifying the number of shares to be purchased.
Such notice shall be accompanied by payment in full of the
purchase price as follows: (i) in cash or by check, bank draft
or money order payable to the order of the Company; (ii) if
the Common Stock is traded on a national securities exchange,
the Nasdaq Stock Market, Inc. or quoted on a national
quotation system sponsored by the National Association of
Securities
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Dealers, through a "cashless exercise" procedure whereby the
Participant delivers irrevocable instructions to a broker to
deliver promptly to the Company an amount equal to the
purchase price; or (iii) on such other terms and conditions as
may be acceptable to the Committee (including, without
limitation, the relinquishment of Stock Options or by payment
in full or in part in the form of Common Stock owned by the
Participant for a period of at least 6 months (and for which
the Participant has good title free and clear of any liens and
encumbrances) based on the Fair Market Value of the Common
Stock on the payment date as determined by the Committee). No
shares of Common Stock shall be issued until payment therefor,
as provided herein, has been made or provided for.
(e) Incentive Stock Option Limitations. To the extent
that the aggregate Fair Market Value (determined as of the
time of grant) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by
an Eligible Employee during any calendar year under this Plan
and/or any other stock option plan of the Company, any
Subsidiary or any Parent exceeds $100,000, such Options shall
be treated as Non-Qualified Stock Options. In addition, if an
Eligible Employee does not remain employed by the Company, any
Subsidiary or any Parent at all times from the time an
Incentive Stock Option is granted until 3 months prior to the
date of exercise thereof (or such other period as required by
applicable law), such Stock Option shall be treated as a
Non-Qualified Stock Option. Should any provision of this Plan
not be necessary in order for the Stock Options to qualify as
Incentive Stock Options, or should any additional provisions
be required, the Committee may amend this Plan accordingly,
without the necessity of obtaining the approval of the
stockholders of the Company.
(f) Form, Modification, Extension and Renewal of
Stock Options. Subject to the terms and conditions and within
the limitations of this Plan, Stock Options shall be evidenced
by such form of agreement or grant as is approved by the
Committee, and the Committee may (i) modify, extend or renew
outstanding Stock Options granted under this Plan (provided
that the rights of a Participant are not reduced without his
consent), and (ii) accept the surrender of outstanding Stock
Options (up to the extent not theretofore exercised) and
authorize the granting of new Stock Options in substitution
therefor (to the extent not theretofore exercised).
(g) Other Terms and Conditions. Stock Options may
contain such other provisions, which shall not be inconsistent
with any of the terms of this Plan, as the Committee shall
deem appropriate including, without limitation, permitting
"reloads" such that the same number of Stock Options are
granted as the number of Stock Options exercised, shares used
to pay for the exercise price of Stock Options or shares used
to pay withholding taxes ("Reloads"). With respect to Reloads,
the exercise price of the new Stock Option shall be the Fair
Market Value on the date of the "reload" and the term of the
Stock Option shall be the same as
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the remaining term of the Stock Options that are exercised, if
applicable, or such other exercise price and term as
determined by the Committee.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 Tandem Stock Appreciation Rights. Stock Appreciation
Rights may be granted in conjunction with all or part of any Stock
Option (a "Reference Stock Option") granted under this Plan ("Tandem
Stock Appreciation Rights"). In the case of a Non-Qualified Stock
Option, such rights may be granted either at or after the time of the
grant of such Reference Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant of
such Reference Stock Option. Consultants shall not be eligible for a
grant of Tandem Stock Appreciation Rights granted in conjunction with
all or part of an Incentive Stock Option.
7.2 Terms and Conditions of Tandem Stock Appreciation Rights.
Tandem Stock Appreciation Rights shall be subject to such terms and
conditions, not inconsistent with the provisions of this Plan, as shall
be determined from time to time by the Committee, including Article XII
and the following:
(a) Term. A Tandem Stock Appreciation Right or
applicable portion thereof granted with respect to a Reference
Stock Option shall terminate and no longer be exercisable upon
the termination or exercise of the Reference Stock Option,
except that, unless otherwise determined by the Committee, in
its sole discretion, at the time of grant, a Tandem Stock
Appreciation Right granted with respect to less than the full
number of shares covered by the Reference Stock Option shall
not be reduced until and then only to the extent the exercise
or termination of the Reference Stock Option causes the number
of shares covered by the Tandem Stock Appreciation Right to
exceed the number of shares remaining available and
unexercised under the Reference Stock Option.
(b) Exercisability. Tandem Stock Appreciation Rights
shall be exercisable only at such time or times and to the
extent that the Reference Stock Options to which they relate
shall be exercisable in accordance with the provisions of
Article VI and this Article VII.
(c) Method of Exercise. A Tandem Stock Appreciation
Right may be exercised by a Participant by surrendering the
applicable portion of the Reference Stock Option. Upon such
exercise and surrender, the Participant shall be entitled to
receive an amount determined in the manner prescribed in this
Section 7.2. Stock Options which have been so surrendered, in
whole or in part, shall no longer
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be exercisable to the extent the related Tandem Stock
Appreciation Rights have been exercised.
(d) Payment. Upon the exercise of a Tandem Stock
Appreciation Right, a Participant shall be entitled to receive
up to, but no more than, an amount in cash and/or Common Stock
(as chosen by the Committee in its sole discretion at grant,
or thereafter if no rights of a Participant are reduced) equal
in value to the excess of the Fair Market Value of one share
of Common Stock over the option price per share specified in
the Reference Stock Option, multiplied by the number of shares
in respect of which the Tandem Stock Appreciation Right shall
have been exercised.
(e) Deemed Exercise of Reference Stock Option. Upon
the exercise of a Tandem Stock Appreciation Right, the
Reference Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been
exercised for the purpose of the limitation set forth in
Article IV of this Plan on the number of shares of Common
Stock to be issued under this Plan.
7.3 Non-Tandem Stock Appreciation Rights. Non-Tandem Stock
Appreciation Rights may also be granted without reference to any Stock
Option granted under this Plan.
7.4 Terms and Conditions of Non-Tandem Stock Appreciation
Rights. Non-Tandem Stock Appreciation Rights shall be subject to such
terms and conditions, not inconsistent with the provisions of this
Plan, as shall be determined from time to time by the Committee,
including Article XII and the following:
(a) Term. The term of each Non-Tandem Stock
Appreciation Right shall be fixed by the Committee, but shall
not be greater than ten (10) years after the date the right is
granted.
(b) Exercisability. Non-Tandem Stock Appreciation
Rights shall be exercisable at such time or times and subject
to such terms and conditions as shall be determined by the
Committee at grant. If the Committee provides, in its
discretion, that any such right is exercisable subject to
certain limitations (including, without limitation, that it is
exercisable only in installments or within certain time
periods), the Committee may waive such limitation on the
exercisability at any time at or after grant in whole or in
part (including, without limitation, waiver of the installment
exercise provisions or acceleration of the time at which
rights may be exercised), based on such factors, if any, as
the Committee shall determine, in its sole discretion.
(c) Method of Exercise. Subject to whatever
installment exercise and waiting period provisions apply under
subsection (b) above, Non-Tandem Stock Appreciation Rights may
be exercised in whole or in part at any time and from time
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<PAGE> 21
to time during the option term, by giving written notice of
exercise to the Company specifying the number of Non-Tandem
Stock Appreciation Rights to be exercised.
(d) Payment. Upon the exercise of a Non-Tandem Stock
Appreciation Right a Participant shall be entitled to receive,
for each right exercised, up to, but no more than, an amount
in cash and/or Common Stock (as chosen by the Committee in its
sole discretion at grant, or thereafter if no rights of a
Participant are reduced) equal in value to the excess of the
Fair Market Value of one share of Common Stock on the date the
right is exercised over the Fair Market Value of one share of
Common Stock on the date the right was awarded to the
Participant.
7.5 Limited Stock Appreciation Rights. The Committee may, in
its sole discretion, grant a Tandem Stock Appreciation Right or a
Non-Tandem Stock Appreciation Right as a Limited Stock Appreciation
Right. Limited Stock Appreciation Rights may be exercised only upon the
occurrence of a Change in Control or such other event as the Committee
may, in its sole discretion, designate at the time of grant or
thereafter. Upon the exercise of limited Stock Appreciation Rights,
except as otherwise provided in an Award agreement, the Participant
shall receive in cash or Common Stock, as determined by the Committee,
an amount equal to the amount (i) set forth in Section 7.2(d) with
respect to Tandem Stock Appreciation Rights, or (ii) set forth in
Section 7.4(d) with respect to Non-Tandem Stock Appreciation Rights, as
applicable.
ARTICLE VIII
RESTRICTED STOCK
8.1 Awards of Restricted Stock. Shares of Restricted Stock may
be issued to Eligible Employees or Consultants either alone or in
addition to other Awards granted under this Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which,
grants of Restricted Stock will be made, the number of shares to be
awarded, the price (if any) to be paid by the recipient (subject to
Section 8.2), the time or times within which such Awards may be subject
to forfeiture, the vesting schedule and rights to acceleration thereof,
and all other terms and conditions of the Awards. The Committee may
condition the grant or vesting of Restricted Stock upon the attainment
of specified performance goals, including established Performance Goals
in accordance with Section 162(m) of the Code, or such other factors as
the Committee may determine, in its sole discretion.
8.2 Awards and Certificates. An Eligible Employee or
Consultant selected to receive Restricted Stock shall not have any
rights with respect to such Award, unless and until such Participant
has delivered to the Company a fully executed copy of the applicable
Award agreement relating thereto and has otherwise complied with the
applicable terms
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<PAGE> 22
and conditions of such Award. Further, such Award shall be subject to
the following conditions:
(a) Purchase Price. The purchase price of Restricted
Stock shall be fixed by the Committee. Subject to Section 4.3,
the purchase price for shares of Restricted Stock may be zero
to the extent permitted by applicable law, and, to the extent
not so permitted, such purchase price may not be less than par
value.
(b) Acceptance. Awards of Restricted Stock must be
accepted within a period of 90 days (or such shorter period as
the Committee may specify at grant) after the Award date by
executing a Restricted Stock Award agreement and by paying
whatever price (if any) the Committee has designated
thereunder.
(c) Legend. Each Participant receiving shares of
Restricted Stock shall be issued a stock certificate in
respect of such shares of Restricted Stock, unless the
Committee elects to use another system, such as book entries
by the transfer agent, as evidencing ownership of shares of
Restricted Stock. Such certificate shall be registered in the
name of such Participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:
"The anticipation, alienation, attachment, sale,
transfer, assignment, pledge, encumbrance or charge of the
shares of stock represented hereby are subject to the terms
and conditions (including forfeiture) of the Insignia/ESG
Holdings, Inc. (the "Company") 1998 Stock Incentive Plan (the
"Plan") and an Agreement entered into between the registered
owner and the Company dated. Copies of such Plan and
Agreement are on file at the principal office of the Company."
(d) Custody. The Committee may require that any stock
certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed and
that, as a condition to the grant of such Award of Restricted
Stock, the Participant shall have delivered a duly signed
stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
8.3 Restrictions and Conditions on Restricted Stock Awards.
Shares of Restricted Stock awarded pursuant to this Plan shall be
subject to Article XII and the following restrictions and conditions:
(a) Restriction Period; Vesting and Acceleration of
Vesting. (i) The Participant shall not be permitted to
Transfer shares of Restricted Stock awarded under this Plan
during the period or periods set by the Committee (the
"Restriction Period") commencing on the date of such Award, as
set forth in the Restricted Stock Award agreement and such
agreement shall set forth a vesting schedule and any events
which would accelerate vesting of the shares of Restricted
Stock.
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Within these limits, based on service, attainment of
Performance Goals pursuant to Section 8.3(a)(ii) below and/or
such other factors or criteria as the Committee may determine
in its sole discretion, the Committee may provide for the
lapse of such restrictions in installments in whole or in
part, or may accelerate the vesting of all or any part of any
Restricted Stock Award and/or waive the deferral limitations
for all or any part of any Restricted Stock Award.
(ii) Objective Performance Goals, Formulae
or Standards. If the grant of shares of Restricted Stock or
the lapse of restrictions is based on the attainment of
Performance Goals, the Committee shall establish the
Performance Goals and the applicable vesting percentage of the
Restricted Stock Award applicable to each Participant or class
of Participants in writing prior to the beginning of the
applicable fiscal year or at such later date as otherwise
determined by the Committee and while the outcome of the
Performance Goals are substantially uncertain. Such
Performance Goals may incorporate provisions for disregarding
(or adjusting for) changes in accounting methods, corporate
transactions (including, without limitation, dispositions and
acquisitions) and other similar type events or circumstances.
With regard to a Restricted Stock Award that is intended to
comply with Section 162(m) of the Code, to the extent any such
provision would create impermissible discretion under Section
162(m) of the Code or otherwise violate Section 162(m) of the
Code, such provision shall be of no force or effect. The
applicable Performance Goals shall be based on one or more of
the Performance Criteria set forth in Exhibit A hereto.
(b) Rights as Stockholder. Except as provided in this
subsection (b) and subsection (a) above and as otherwise
determined by the Committee, the Participant shall have, with
respect to the shares of Restricted Stock, all of the rights
of a holder of shares of Common Stock of the Company
including, without limitation, the right to receive any
dividends, the right to vote such shares and, subject to and
conditioned upon the full vesting of shares of Restricted
Stock, the right to tender such shares. The Committee may, in
its sole discretion, determine at the time of grant that the
payment of dividends shall be deferred until, and conditioned
upon, the expiration of the applicable Restriction Period.
(c) Lapse of Restrictions. If and when the
Restriction Period expires without a prior forfeiture of the
Restricted Stock subject to such Restriction Period, the
certificates for such shares shall be delivered to the
Participant. All legends shall be removed from said
certificates at the time of delivery to the Participant except
as otherwise required by applicable law.
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ARTICLE IX
PERFORMANCE SHARES
9.1 Award of Performance Shares. Performance Shares may be
awarded either alone or in addition to other Awards granted under this
Plan. The Committee shall, in its sole discretion, determine the
Eligible Employees and Consultants to whom and the time or times at
which such Performance Shares shall be awarded, the duration of the
period (the "Performance Period") during which, and the conditions
under which, a Participant's right to Performance Shares will be vested
and the other terms and conditions of the Award in addition to those
set forth in Section 9.2.
Each Performance Share awarded shall be referenced to one
share of Common Stock. Except as otherwise provided herein, the
Committee shall condition the right to payment of any Performance Share
Award upon the attainment of objective Performance Goals established
pursuant to Section 9.2(c) below and such other non-performance based
factors or criteria as the Committee may determine in its sole
discretion.
9.2 Terms and Conditions. A Participant selected to receive
Performance Shares shall not have any rights with respect to such
Awards, unless and until such Participant has delivered a fully
executed copy of a Performance Share Award agreement evidencing the
Award to the Company and has otherwise complied with the following
terms and conditions:
(a) Earning of Performance Share Award. At the
expiration of the applicable Performance Period, the Committee
shall determine the extent to which the Performance Goals
established pursuant to Section 9.2(c) are achieved and the
percentage of each Performance Share Award that has been
earned.
(b) Payment. Following the Committee's determination
in accordance with subsection (a) above, shares of Common
Stock or, as determined by the Committee in its sole
discretion, the cash equivalent of such shares shall be
delivered to the Participant, in an amount equal to such
Participant's earned Performance Share Award. Notwithstanding
the foregoing, except as may be set forth in the agreement
covering the Award, the Committee may, in its sole discretion
and in accordance with Section 162(m) of the Code, award an
amount less than the earned Performance Share Award and/or
subject the payment of all or part of any Performance Share
Award to additional vesting and forfeiture conditions as it
deems appropriate.
(c) Objective Performance Goals, Formulae or
Standards. The Committee shall establish the objective
Performance Goals for the earning of Performance Shares based
on a Performance Period applicable to each Participant or
class of Participants in writing prior to the beginning of the
applicable Performance Period
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or at such later date as permitted under Section 162(m) of the
Code and while the outcome of the Performance Goals are
substantially uncertain. Such Performance Goals may
incorporate, if and only to the extent permitted under Section
162(m) of the Code, provisions for disregarding (or adjusting
for) changes in accounting methods, corporate transactions
(including, without limitation, dispositions and acquisitions)
and other similar type events or circumstances. To the extent
any such provision would create impermissible discretion under
Section 162(m) of the Code or otherwise violate Section 162(m)
of the Code, such provision shall be of no force or effect.
The applicable Performance Goals shall be based on one or more
of the Performance Criteria set forth in Exhibit A hereto.
(d) Dividends and Other Distributions. At the time of
any Award of Performance Shares, the Committee may, in its
sole discretion, award an Eligible Employee or Consultant the
right to receive the cash value of any dividends and other
distributions that would have been received as though the
Eligible Employee or Consultant had held each share of Common
Stock referenced by the earned Performance Share Award from
the last day of the first year of the Performance Period until
the actual distribution to such Participant of the related
share of Common Stock or cash value thereof. Such amounts, if
awarded, shall be paid to the Participant as and when the
shares of Common Stock or cash value thereof are distributed
to such Participant and, at the discretion of the Committee,
may be paid with interest from the first day of the second
year of the Performance Period until such amounts and any
earnings thereon are distributed. The applicable rate of
interest shall be determined by the Committee in its sole
discretion; provided, however, that for each fiscal year or
part thereof, the applicable interest rate shall not be
greater than a rate equal to the four-year U.S. Government
Treasury rate on the first day of each applicable fiscal year.
ARTICLE X
PERFORMANCE UNITS
10.1 Awards of Performance Units. Performance Units may be
awarded either alone or in addition to other Awards granted under this
Plan. The Committee shall, in its sole discretion, determine the
Eligible Employees to whom and the time or times at which such
Performance Units shall be awarded, the duration of the period (the
"Performance Cycle") during which, and the conditions under which, a
Participant's right to Performance Units will be vested and the other
terms and conditions of the Award in addition to those set forth in
Section 10.2.
Performance Units shall be awarded in a dollar amount
determined by the Committee and shall be converted for purposes of
calculating growth in value to a referenced number of shares of Common
Stock based on the Fair Market Value of shares
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of Common Stock at the close of trading on the first business day
following the announcement of the annual financial results of the
Company for the fiscal year of the Company immediately preceding the
fiscal year of the commencement of the relevant Performance Cycle,
provided that the Committee may provide that the minimum price for such
conversion shall be the Fair Market Value on the date of grant.
Each Performance Unit shall be referenced to one share of
Common Stock. Except as otherwise provided herein, the Committee shall
condition the right to payment of any Performance Unit Award upon the
attainment of objective Performance Goals established pursuant to
Section 10.2(a) and such other non-performance based factors or
criteria as the Committee may determine in its sole discretion. The
cash value of any fractional Performance Unit Award subsequent to
conversion to shares of Common Stock shall be treated as a dividend or
other distribution under Section 10.2(e) to the extent any portion of
the Performance Unit Award is earned.
10.2 Terms and Conditions. The Performance Units awarded
pursuant to this Article 10 shall be subject to the following terms and
conditions:
(a) Performance Goals. The Committee shall establish
the objective Performance Goals for the earnings of
Performance Units based on a Performance Cycle applicable to
each Participant or class of Participants in writing prior to
the beginning of the applicable Performance Cycle or at such
later date as permitted under Section 162(m) of the Code and
while the outcome of the Performance Goals are substantially
uncertain. Such Performance Goals may incorporate, if and only
to the extent permitted under Section 162(m) of the Code,
provisions for disregarding (or adjusting for) changes in
accounting methods, corporate transactions (including, without
limitation, dispositions and acquisitions) and other similar
type events or circumstances. To the extent any such provision
would create impermissible discretion under Section 162(m) of
the Code or otherwise violate Section 162(m) of the Code, such
provision shall be of no force or effect. The applicable
Performance Goals shall be based on one or more of the
Performance Criteria set forth in Exhibit A hereto.
(b) Vesting. At the expiration of the Performance
Cycle, the Committee shall determine and certify in writing
the extent to which the Performance Goals have been achieved,
and the percentage of the Performance Units of each
Participant that have vested.
(c) Payment. Subject to the applicable provisions of
the Award agreement and this Plan, at the expiration of the
Performance Cycle, cash and/or shares of Common Stock (as the
Committee may determine in its sole discretion at grant, or
thereafter if no rights of a Participant are reduced) shall be
delivered to the Participant in payment of the vested
Performance Units covered by the Performance Unit Award.
Notwithstanding the foregoing, except as may be set
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<PAGE> 27
forth in the agreement covering the Award, the Committee may,
in its sole discretion, and to the extent applicable and
permitted under Section 162(m) of the Code, award an amount
less than the earned Performance Unit Award and/or subject the
payment of all or part of any Performance Unit Award to
additional vesting and forfeiture conditions as it deems
appropriate.
(d) Accelerated Vesting. Based on service,
performance and/or such other factors or criteria, if any, as
the Committee may determine, the Committee may, at or after
grant, accelerate the vesting of all or any part of any
Performance Unit Award and/or waive the deferral limitations
for all or any part of such Award.
(e) Dividends and Other Distributions. At the time of
any Award of Performance Units, the Committee may, in its sole
discretion, award an Eligible Employee or Consultant the right
to receive the cash value of any dividends and other
distributions that would have been received as though the
Eligible Employee or Consultant had held each share of Common
Stock referenced by the earned Performance Unit Award from the
last day of the first year of the Performance Cycle until the
actual distribution to such Participant of the related share
of Common Stock or cash value thereof. Such amounts, if
awarded, shall be paid to the Participant as and when the
shares of Common Stock or cash value thereof are distributed
to such Participant and, at the discretion of the Committee,
may be paid with interest from the first day of the second
year of the Performance Cycle until such amounts and any
earnings thereon are distributed. The applicable rate of
interest shall be determined by the Committee in its sole
discretion; provided, however, that for each fiscal year or
part thereof, the applicable interest rate shall not be
greater than a rate equal to the four-year U.S. Government
Treasury rate on the first day of each applicable fiscal year.
ARTICLE XI
OTHER STOCK-BASED AWARDS
11.1 Other Awards. Other Stock-Based Awards may be granted
either alone or in addition to or in tandem with Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or
Performance Units.
Subject to the provisions of this Plan, the Committee shall
have authority to determine the persons to whom and the time or times
at which such Awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such Awards, and all other conditions
of the Awards. The Committee may also provide for the grant of Common
Stock under such Awards upon the completion of a specified performance
period.
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11.2 Terms and Conditions. Other Stock-Based Awards made
pursuant to this Article XI shall be subject to the following terms and
conditions:
(a) Non-Transferability. Subject to the applicable
provisions of the Award agreement and this Plan, shares of
Common Stock subject to Awards made under this Article XI may
not be Transferred prior to the date on which the shares are
issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(b) Dividends. Unless otherwise determined by the
Committee at the time of Award, subject to the provisions of
the Award agreement and this Plan, the recipient of an Award
under this Article XI shall be entitled to receive, currently
or on a deferred basis, dividends or dividend equivalents with
respect to the number of shares of Common Stock covered by the
Award, as determined at the time of the Award by the
Committee, in its sole discretion.
(c) Vesting. Any Award under this Article XI and any
Common Stock covered by any such Award shall vest or be
forfeited to the extent so provided in the Award agreement, as
determined by the Committee, in its sole discretion.
(d) Waiver of Limitation. The Committee may, in its
sole discretion, waive in whole or in part any or all of the
limitations imposed hereunder (if any) with respect to any or
all of an Award under this Article XI.
(e) Price. Common Stock or Other Stock-Based Awards
issued on a bonus basis under this Article XI may be issued
for no cash consideration; Common Stock or Other Stock-Based
Awards purchased pursuant to a purchase right awarded under
this Article XI shall be priced as determined by the
Committee. Subject to Section 4.3, the purchase price of
shares of Common Stock or Other Stock-Based Awards may be zero
to the extent permitted by applicable law, and, to the extent
not so permitted, such purchase price may not be less than par
value. The purchase of shares of Common Stock or Other
Stock-Based Awards may be made on either an after-tax or
pre-tax basis, as determined by the Committee; provided,
however, that if the purchase is made on a pre-tax basis, such
purchase shall be made pursuant to a deferred compensation
program established by the Committee, which will be deemed a
part of this Plan.
11.3 Purchase and Loan Program. The Company's 1998
Supplemental Stock Purchase and Loan Program shall be an Other
Stock-Based Award under this Article XI and shall be deemed
incorporated herein.
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ARTICLE XII
NON-TRANSFERABILITY AND TERMINATION OF
EMPLOYMENT/CONSULTANCY
12.1 Non-Transferability. No Stock Option, Stock Appreciation Right,
Performance Unit, Performance Share or Other Stock-Based Award shall be
Transferable by the Participant otherwise than by will or by the laws of descent
and distribution. All Stock Options and all Stock Appreciation Rights shall be
exercisable, during the Participant's lifetime, only by the Participant. Tandem
Stock Appreciation Rights shall be Transferable, to the extent permitted above,
only with the underlying Stock Option. Shares of Restricted Stock under Article
VIII may not be Transferred prior to the date on which shares are issued, or, if
later, the date on which any applicable restriction, performance or deferral
period lapses. No Award shall, except as otherwise specifically provided by law
or herein, be Transferable in any manner, and any attempt to Transfer any such
Award shall be void, and no such Award shall in any manner be liable for or
subject to the debts, contracts, liabilities, engagements or torts of any person
who shall be entitled to such Award, nor shall it be subject to attachment or
legal process for or against such person. Notwithstanding the foregoing, the
Committee may determine at the time of grant or thereafter, that a Non-Qualified
Stock Option granted pursuant to Article VI (other than a Non-Qualified Stock
Option granted to a Non-Employee Director) that is otherwise not transferable
pursuant to this Article XII is transferable in whole or part and in such
circumstances, and under such conditions, as specified by the Committee.
12.2 Termination of Employment or Termination of Consultancy.
The following rules apply with regard to the Termination of Employment
or Termination of Consultancy of a Participant:
(a) Rules Applicable to Stock Options and Stock
Appreciation Rights. Unless otherwise determined by the
Committee at grant or, if no rights of the Participant are
reduced, thereafter:
(i) Termination by Reason of Death,
Disability or Retirement. If a Participant's Termination of
Employment or Termination of Consultancy is by reason of
death, Disability or Retirement, all Stock Options and Stock
Appreciation Rights held by such Participant may be exercised,
to the extent exercisable at the Participant's Termination of
Employment or Termination of Consultancy, by the Participant
(or, in the case of death, by the legal representative of the
Participant's estate) at any time within a period of one year
from the date of such Termination of Employment or Termination
of Consultancy, but in no event beyond the expiration of the
stated terms of such Stock Options and Stock Appreciation
Rights; provided, however, that, in the case of Retirement, if
the Participant dies within such exercise period, all
unexercised Stock Options and Non-Tandem Stock Appreciation
Rights held by such Participant shall thereafter be
exercisable, to the
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extent to which they were exercisable at the time of death,
for a period of one year from the date of such death, but in
no event beyond the expiration of the stated term of such
Stock Options and Non-Tandem Stock Appreciation Rights.
(ii) Involuntary Termination Without Cause.
If a Participant's Termination of Employment or Termination of
Consultancy is by involuntary termination without Cause, all
Stock Options and Stock Appreciation Rights held by such
Participant may be exercised, to the extent exercisable at
Termination of Employment or Termination of Consultancy, by
the Participant at any time within a period of 90 days from
the date of such Termination of Employment or Termination of
Consultancy, but in no event beyond the expiration of the
stated term of such Stock Options and Stock Appreciation
Rights.
(iii) Voluntary Termination. If a
Participant's Termination of Employment or Termination of
Consultancy is voluntary (other than a voluntary termination
described in Section 12.2(a)(iv)(B) below), all Stock Options
and Stock Appreciation Rights held by such Participant may be
exercised, to the extent exercisable at Termination of
Employment or Termination of Consultancy, by the Participant
at any time within a period of 30 days from the date of such
Termination of Employment or Termination of Consultancy, but
in no event beyond the expiration of the stated terms of such
Stock Options and Stock Appreciation Rights.
(iv) Termination for Cause. If a
Participant's Termination of Employment or Termination of
Consultancy (A) is for Cause or (B) is a voluntary termination
(as provided in subsection (iii) above) within 90 days after
an event which would be grounds for a Termination of
Employment or Termination of Consultancy for Cause, all Stock
Options and Stock Appreciation Rights held by such Participant
shall thereupon terminate and expire as of the date of such
Termination of Employment or Termination of Consultancy.
(b) Rules Applicable to Restricted Stock. Subject to
the applicable provisions of the Restricted Stock Award
agreement and this Plan, upon a Participant's Termination of
Employment or Termination of Consultancy for any reason during
the relevant Restriction Period, all Restricted Stock still
subject to restriction will vest or be forfeited in accordance
with the terms and conditions established by the Committee at
grant or thereafter.
(c) Rules Applicable to Performance Shares and
Performance Units. Subject to the applicable provisions of the
Award agreement and this Plan, upon a Participant's
Termination of Employment or Termination of Consultancy for
any reason during the Performance Period, the Performance
Cycle or other period or restriction as may be applicable for
a given Award, the Performance Shares or Performance Units in
question will vest (to the extent applicable and to the extent
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permissible under Section 162(m) of the Code) or be forfeited
in accordance with the terms and conditions established by the
Committee at grant or thereafter.
(d) Rules Applicable to Other Stock-Based Awards.
Subject to the applicable provisions of the Award agreement
and this Plan, upon a Participant's Termination of Employment
or Termination of Consultancy for any reason during any period
or restriction as may be applicable for a given Award, the
Other Stock-Based Awards in question will vest or be forfeited
in accordance with the terms and conditions established by the
Committee at grant or thereafter.
ARTICLE XIII
NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS
13.1 Stock Options. The terms of this Article XIII shall apply
only to Stock Options granted to Non-Employee Directors.
13.2 Grants. Without further action by the Board or the
stockholders of the Company, each Non-Employee Director shall, subject
to the terms of the Plan, be granted:
(a) Stock Options to purchase 20,000 shares of Common
Stock as of the date the Non-Employee Director begins service
as a Non-Employee Director on the Board; and
(b) In addition to Stock Options granted pursuant to
(a) above, Stock Options to purchase 2,000 shares of Common
Stock as of the first day of the month following the annual
meeting of stockholders of the Company, provided he or she has
not, as of such day, experienced a Termination of
Directorship.
13.3 Non-Qualified Stock Options. Stock Options granted under
this Article XIII shall be Non-Qualified Stock Options.
13.4 Terms of Stock Options. Stock Options granted under this
Article XIII shall be subject to the following terms and conditions,
and shall be in such form and contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Board
shall deem desirable:
(a) Stock Option Price. The Stock Option price per
share of Common Stock purchasable under a Stock Option shall
be determined by the Board at the time of grant but shall not
be less than 100% of the Fair Market Value of the share of
Common Stock at the time of grant.
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(b) Stock Option Term. The term of each Stock Option
shall be 5 years.
(c) Exercisability. (i) Stock Options granted to
Non-Employee Directors pursuant to Section 13.2(a) shall vest
and become exercisable as follows:
Stock Options to purchase 4,000 shares of
Common Stock shall be exercisable on or
after the later of (A) 6 months and one day
after the date of grant or (B) the
Effective Date;
Stock Options to purchase 4,000 shares of
Common Stock shall be exercisable on or
after the first anniversary of the date
that is 6 months and one day after the date
of grant.
Stock Options to purchase 4,000 shares of
Common Stock shall be exercisable on or
after the second anniversary of the date
that is 6 months and one day after the date
of grant.
Stock Options to purchase 4,000 shares of
Common Stock shall be exercisable on or
after the third anniversary of the date
that is 6 months and one day after the date
of grant.
Stock Options to purchase 4,000 shares of
Common Stock shall be exercisable on or
after the fourth anniversary of the date
that is 6 months and one day after the date
of grant.
(ii) Stock Options granted to Non-Employee
Directors pursuant to Section 13.2(b) shall be
exercisable on or after the later of (A) 6 months and
one day after the date of grant or (B) the Effective
Date.
(d) Method of Exercise. Subject to whatever waiting
period provisions apply under subsection (c) above, Stock
Options may be exercised in whole or in part at any time and
from time to time during the Stock Option term, by giving
written notice of exercise to the Company specifying the
number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price as
follows: (i) in cash or by check, bank draft or money order
payable to the Company; (ii) if the Common Stock is traded on
a national securities exchange, through a "cashless exercise"
procedure whereby the Participant delivers irrevocable
instructions to a broker to deliver promptly to the Company an
amount equal to the purchase price; or (iii) such other
arrangement for the satisfaction of the purchase price, as the
Board may accept. If and to the extent determined by the Board
in its sole discretion at or after grant, payment in full or
in part may also be made in the form of Common Stock owned by
the Participant for at least 6 months (and for which the
Participant has good title free and clear of any liens and
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encumbrances) based on the Fair Market Value of the Common
Stock on the payment date. No shares of Common Stock shall be
issued until payment, as provided herein, therefor has been
made or provided for.
(e) Form, Modification, Extension and Renewal of
Stock Options. Subject to the terms and conditions and within
the limitations of the Plan, a Stock Option shall be evidenced
by such form of agreement or grant as is approved by the
Board, and the Board may modify, extend or renew outstanding
Stock Options granted under the Plan (provided that the rights
of a Participant are not reduced without his consent).
13.5 Termination of Directorship. The following rules apply
with regard to Stock Options upon the Termination of Directorship:
(a) Termination of Directorship by Reason of Death,
Disability or Otherwise Ceasing to be a Director. Except as
otherwise provided herein, upon the Termination of
Directorship by reason of death, Disability, resignation,
failure to stand for reelection or failure to be reelected or
otherwise, all outstanding Stock Options exercisable and not
exercised shall remain exercisable by the Participant or, in
the case of death, by the Participant's estate or by the
person given authority to exercise such Stock Options by his
or her will or by operation of law, at any time within a
period of one year from the date of such Termination of
Directorship, but in no event beyond the expiration of the
stated term of such Stock Option.
(b) Cancellation of Options. Except as provided in
(a) above, no Stock Options that were not exercisable as of
the date of Termination of Directorship shall thereafter
become exercisable upon a Termination of Directorship for any
reason or no reason whatsoever, and such Stock Options shall
terminate and become null and void upon a Termination of
Directorship. If a Non-Employee Director's Termination of
Directorship is for Cause, all Stock Options held by the
Non-Employee Director shall thereupon terminate and expire as
of the date of termination.
13.6 Acceleration of Exercisability. All Stock Options granted
to Non-Employee Directors and not previously exercisable shall become fully
exercisable immediately upon a Change in Control (as defined herein). For this
purpose, a "Change in Control" shall be deemed to have occurred upon:
(a) An acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(1) of the
Exchange Act) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than
80% of the combined voting power of the then outstanding
voting securities of Company entitled to vote generally in the
election of directors,
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including, but not limited to, by merger, consolidation or
similar corporate transaction or by purchase; excluding,
however, the following: (x) any acquisition by the Company,
any Subsidiary or any Parent, or (y) any acquisition by an
employee benefit plan (or related trust) sponsored or
maintained by the Company, any Subsidiary or any Parent; or
(b) the approval of the stockholders of the Company
of (i) a complete liquidation or dissolution of the Company or
(ii) the sale or other disposition of more than 80% of the
gross assets of the Company and its Subsidiaries and Parent
(if any) on a consolidated basis (determined under generally
accepted accounting principles in accordance with prior
practice); excluding, however, such a sale or other
disposition to a corporation with respect to which, following
such sale or other disposition, (x) more than 20% of the
combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in
the election of directors will be then beneficially owned,
directly or indirectly, by the individuals and entities who
were beneficial owners of the outstanding shares of Common
Stock immediately prior to such sale or other disposition, (y)
no person (other than the Company, its Subsidiaries and Parent
(if any), and any employee benefit plan (or related trust) of
the Company, any Subsidiary or any Parent or such corporation
or any person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more
of the outstanding shares of Common Stock) will beneficially
own, directly or indirectly 20% or more of the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election or
directors, and (z) individuals who were members of the
incumbent board immediately prior to the sale or other
disposition will constitute at least a majority of the members
of the board of directors of such corporation.
13.7 Changes.
(a) The Awards to a Non-Employee Director shall be
subject to Sections 4.2(a), (b) and (c) of the Plan and this
Section 13.7, but shall not be subject to Section 4.2(d).
(b) If the Company shall not be the surviving
corporation in any merger or consolidation, or if the Company
is to be dissolved or liquidated, then, unless the surviving
corporation assumes the Stock Options or substitutes new Stock
Options which are determined by the Board in its sole
discretion to be substantially similar in nature and
equivalent in terms and value for Stock Options then
outstanding, upon the effective date of such merger,
consolidation, liquidation or dissolution, any unexercised
Stock Options shall expire without additional compensation to
the holder thereof; provided, that, the Board shall deliver
notice to each Non-Employee Director at least 30 days prior to
the date of consummation of such merger, consolidation,
dissolution or liquidation which would result in the
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expiration of the Stock Options and during the period from the
date on which such notice of termination is delivered to the
consummation of the merger, consolidation, dissolution or
liquidation, such Participant shall have the right to exercise
in full, effective as of such consummation, all Stock Options
that are then outstanding (without regard to limitations on
exercise otherwise contained in the Stock Options) but
contingent on occurrence of the merger, consolidation,
dissolution or liquidation, and, provided that, if the
contemplated transaction does not take place within a 90 day
period after giving such notice for any reason whatsoever, the
notice, accelerated vesting and exercise shall be null and
void and, if and when appropriate, new notice shall be given
as aforesaid.
ARTICLE XIV
CHANGE IN CONTROL PROVISIONS
14.1 Benefits. In the event of a Change in Control of the
Company, except as otherwise provided by the Committee upon the grant
of an Award and except as provided in Section 13.6 of this Plan with
regard to Non-Employee Directors, the Participant shall be entitled to
the following benefits:
(a) Except to the extent provided in the applicable
Award agreement, the Participant's employment agreement with
the Company or an Affiliate, as approved by the Committee, or
other written agreement approved by the Committee (as such
agreement may be amended from time to time), (i) Awards
granted and not previously exercisable shall not become
exercisable upon a Change in Control, (ii) restrictions to
which any shares of Restricted Stock granted prior to the
Change in Control are subject shall not lapse upon a Change in
Control, and (iii) the conditions required for vesting of any
unvested Performance Units and/or Performance Shares shall not
be deemed to be satisfied upon a Change in Control.
(b) The Committee, in its sole discretion, may
provide for the purchase of any Stock Option by the Company or
an Affiliate for an amount of cash equal to the excess of the
Change in Control Price (as defined below) of the shares of
Common Stock covered by such Stock Options, over the aggregate
exercise price of such Stock Options. For purposes of this
Section 14.1, Change in Control Price shall mean the higher of
(i) the highest price per share of Common Stock paid in any
transaction related to a Change in Control of the Company, or
(ii) the highest Fair Market Value per share of Common Stock
at any time during the sixty (60) day period preceding a
Change in Control.
(c) Notwithstanding anything to the contrary herein,
unless the Committee provides otherwise at the time a Stock
Option is granted hereunder or thereafter, no acceleration of
exercisability shall occur with respect to such Stock
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Options if the Committee reasonably determines in good faith,
prior to the occurrence of the Change in Control, that the
Stock Options shall be honored or assumed, or new rights
substituted therefor (each such honored, assumed or
substituted stock option hereinafter called an "Alternative
Option"), by a Participant's employer (or the parent or a
subsidiary of such employer) immediately following the Change
in Control, provided that any such Alternative Option must
meet the following criteria:
(i) the Alternative Option must be based on
stock which is traded on an established securities
market, or which will be so traded within 30 days of
the Change in Control;
(ii) the Alternative Option must provide
such Participant with rights and entitlements
substantially equivalent to or better than the
rights, terms and conditions applicable under such
Stock Option, including, but not limited to, an
identical or better exercise schedule; and
(iii) the Alternative Option must have
economic value substantially equivalent to the value
of such Stock Option (determined at the time of the
Change in Control).
For purposes of Incentive Stock Options, any assumed
or substituted Stock Option shall comply with the requirements
of Treasury Regulation Section 1.425-1 (and any amendments
thereto).
(d) Notwithstanding anything else herein, the
Committee may, in its sole discretion, provide for accelerated
vesting of an Award or accelerated lapsing of restrictions on
shares of Restricted Stock at any time.
14.2 Change in Control. A "Change in Control" shall have the
meaning specified in the applicable Award Agreement, the Participant's
employment agreement with the Company or an Affiliate, as approved by
the Committee, or other written agreement approved by the Committee (as
such agreement may be amended from time to time).
ARTICLE XV
TERMINATION OR AMENDMENT OF PLAN
Notwithstanding any other provision of this Plan, the Board or
the Committee may at any time, and from time to time, amend, in whole
or in part, any or all of the provisions of this Plan (including any
amendment deemed necessary to ensure that the Company may comply with
any regulatory requirement referred to in Article XVII), or suspend or
terminate it entirely, retroactively or otherwise; provided, however,
that, unless otherwise
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required by law or specifically provided herein, the rights of a
Participant with respect to Awards granted prior to such amendment,
suspension or termination, may not be impaired without the consent of
such Participant and, provided further, without the approval of the
shareholders of the Company in accordance with the laws of the State of
Delaware, to the extent required by the applicable provisions of Rule
16b-3 or Section 162(m) of the Code, or, to the extent applicable to
Incentive Stock Options, Section 422 of the Code, no amendment may be
made which would (i) increase the aggregate number of shares of Common
Stock that may be issued under this Plan; (ii) increase the maximum
individual Participant limitations for a fiscal year under Section
4.1(b); (iii) change the classification of employees or Consultants
eligible to receive Awards under this Plan; (iv) decrease the minimum
option price of any Stock Option or Stock Appreciation Right; (v)
extend the maximum option period under Section 6.3; (vi) materially
alter the Performance Criteria for the Award of Restricted Stock,
Performance Units or Performance Shares as set forth in Exhibit A; or
(vii) require stockholder approval in order for this Plan to continue
to comply with the applicable provisions of Section 162(m) of the Code
or, to the extent applicable to Incentive Stock Options, Section 422 of
the Code. In no event may this Plan be amended without the approval of
the stockholders of the Company in accordance with the applicable laws
of the State of Delaware to increase the aggregate number of shares of
Common Stock that may be issued under this Plan, decrease the minimum
exercise price of any Stock Option or Stock Appreciation Right, or to
make any other amendment that would require stockholder approval under
the rules of any exchange or system on which the Company's securities
are listed or traded at the request of the Company.
The Committee may amend the terms of any Award theretofore
granted, prospectively or retroactively, but, subject to Article IV
above or as otherwise specifically provided herein, no such amendment
or other action by the Committee shall impair the rights of any holder
without the holder's consent.
ARTICLE XVI
UNFUNDED PLAN
16.1 Unfunded Status of Plan. This Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation.
With respect to any payments as to which a Participant has a fixed and
vested interest but which are not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any
rights that are greater than those of a general creditor of the
Company.
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ARTICLE XVII
GENERAL PROVISIONS
17.1 Legend. The Committee may require each person receiving
shares pursuant to an Award under this Plan to represent to and agree
with the Company in writing that the Participant is acquiring the
shares without a view to distribution thereof. In addition to any
legend required by this Plan, the certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on Transfer.
All certificates for shares of Common Stock delivered under
this Plan shall be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed or
any national securities association system upon whose system the Stock
is then quoted, any applicable Federal or state securities law, and any
applicable corporate law, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
17.2 Other Plans. Nothing contained in this Plan shall prevent
the Board from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
17.3 No Right to Employment/Consultancy. Neither this Plan nor
the grant of any Award hereunder shall give any Participant or other
employee or Consultant any right with respect to continuance of
employment or Consultancy by the Company or any Affiliate, nor shall
they be a limitation in any way on the right of the Company or any
Affiliate by which an employee is employed or a Consultant is retained
to terminate his employment or Consultancy at any time.
17.4 Withholding of Taxes. The Company shall have the right to
deduct from any payment to be made to a Participant, or to otherwise
require, prior to the issuance or delivery of any shares of Common
Stock or the payment of any cash hereunder, payment by the Participant
of, any Federal, state or local taxes required by law to be withheld.
Upon the vesting of Restricted Stock, or upon making an election under
Code Section 83(b), a Participant shall pay all required withholding to
the Company.
Any such withholding obligation with regard to any Participant
may be satisfied, subject to the consent of the Committee, by reducing
the number of shares of Common Stock otherwise deliverable or by
delivering shares of Common Stock already owned. Any fraction of a
share of Common Stock required to satisfy such tax obligations shall be
disregarded and the amount due shall be paid instead in cash by the
Participant.
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17.5 Listing and Other Conditions.
(a) As long as the Common Stock is listed on a
national securities exchange or system sponsored by a national
securities association, the issue of any shares of Common
Stock pursuant to an Award shall be conditioned upon such
shares being listed on such exchange or system. The Company
shall have no obligation to issue such shares unless and until
such shares are so listed, and the right to exercise any Stock
Option with respect to such shares shall be suspended until
such listing has been effected.
(b) If at any time counsel to the Company shall be of
the opinion that any sale or delivery of shares of Common
Stock pursuant to an Award is or may in the circumstances be
unlawful or result in the imposition of excise taxes on the
Company under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation
to make such sale or delivery, or to make any application or
to effect or to maintain any qualification or registration
under the Securities Act or otherwise with respect to shares
of Common Stock or Awards, and the right to exercise any Stock
Option shall be suspended until, in the opinion of said
counsel, such sale or delivery shall be lawful or will not
result in the imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension
under this Section 17.5, any Award affected by such suspension
which shall not then have expired or terminated shall be
reinstated as to all shares available before such suspension
and as to shares which would otherwise have become available
during the period of such suspension, but no such suspension
shall extend the term of any Stock Option.
17.6 Governing Law. This Plan shall be governed and construed
in accordance with the laws of the State of Delaware (regardless of the
law that might otherwise govern under applicable Delaware principles of
conflict of laws).
17.7 Construction. Wherever any words are used in this Plan in
the masculine gender they shall be construed as though they were also
used in the feminine gender in all cases where they would so apply, and
wherever any words are used herein in the singular form they shall be
construed as though they were also used in the plural form in all cases
where they would so apply.
17.8 Other Benefits. No Award payment under this Plan shall be
deemed compensation for purposes of computing benefits under any
retirement plan of the Company or its subsidiaries nor affect any
benefits under any other benefit plan now or subsequently in effect
under which the availability or amount of benefits is related to the
level of compensation.
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17.9 Costs. The Company shall bear all expenses included in
administering this Plan, including expenses of issuing Common Stock
pursuant to any Awards hereunder.
17.10 No Right to Same Benefits. The provisions of Awards need
not be the same with respect to each Participant, and such Awards to
individual Participants need not be the same in subsequent years.
17.11 Death/Disability. The Committee may in its discretion
require the transferee of a Participant to supply it with written
notice of the Participant's death or Disability and to supply it with a
copy of the will (in the case of the Participant's death) or such other
evidence as the Committee deems necessary to establish the validity of
the transfer of an Award. The Committee may also require that the
agreement of the transferee to be bound by all of the terms and
conditions of this Plan.
17.12 Section 16(b) of the Exchange Act. All elections and
transactions under this Plan by persons subject to Section 16 of the
Exchange Act involving shares of Common Stock are intended to comply
with any applicable exemptive condition under Rule 16b-3. The Committee
may establish and adopt written administrative guidelines, designed to
facilitate compliance with Section 16(b) of the Exchange Act, as it may
deem necessary or proper for the administration and operation of this
Plan and the transaction of business thereunder.
17.13 Severability of Provisions. If any provision of this
Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and this
Plan shall be construed and enforced as if such provisions had not been
included.
17.14 Headings and Captions. The headings and captions herein
are provided for reference and convenience only, shall not be
considered part of this Plan, and shall not be employed in the
construction of this Plan.
ARTICLE XVIII
EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board, subject to
the approval of this Plan by the stockholders of the Company in accordance with
the requirements of the laws of the State of Delaware or such later date as
provided in the adopting resolution. Because the stockholders of Insignia
Financial Group, Inc. will be the stockholders of the Company as of the
Distribution Date, the approval of the stockholders of Insignia Financial Group,
Inc. shall be deemed to satisfy the stockholder approval requirement set forth
in the foregoing sentence.
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ARTICLE XIX
TERM OF PLAN
No Award shall be granted pursuant to this Plan on or after the tenth
anniversary of the earlier of the date this Plan is adopted or the date of
stockholder approval, but Awards granted prior to such tenth anniversary may
extend beyond that date.
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EXHIBIT A
PERFORMANCE CRITERIA
Performance Goals established for purposes of conditioning the grant of
an Award of Restricted Stock based on performance or the vesting of
performance-based Awards of Restricted Stock, Performance Units and/or
Performance Shares shall be based on one or more of the following performance
criteria ("Performance Criteria"): (i) the attainment of certain target levels
of, or a specified percentage increase in, revenues, income before income taxes
and extraordinary items, net income, earnings before income tax, earnings before
interest, taxes, depreciation and amortization, funds from operation of real
estate investments or a combination of any or all of the foregoing; (ii) the
attainment of certain target levels of, or a percentage increase in, after-tax
or pre-tax profits including, without limitation, that attributable to
continuing and/or other operations; (iii) the attainment of certain target
levels of, or a specified increase in, operational cash flow; (iv) the
achievement of a certain level of, reduction of, or other specified objectives
with regard to limiting the level of increase in, all or a portion of, the
Company's bank debt or other long-term or short-term public or private debt or
other similar financial obligations of the Company, which may be calculated net
of such cash balances and/or other offsets and adjustments as may be established
by the Committee; (v) the attainment of a specified percentage increase in
earnings per share or earnings per share from continuing operations; (vi) the
attainment of certain target levels of, or a specified increase in return on
capital employed or return on invested capital; (vii) the attainment of certain
target levels of, or a percentage increase in, after-tax or pre-tax return on
stockholders' equity; (viii) the attainment of certain target levels of, or a
specified increase in, economic value added targets based on a cash flow return
on investment formula; (ix) the attainment of certain target levels in the fair
market value of the shares of the Company's common stock; and (x) the growth in
the value of an investment in the Company's common stock assuming the
reinvestment of dividends. For purposes of item (i) above, "extraordinary items"
shall mean all items of gain, loss or expense for the fiscal year determined to
be extraordinary or unusual in nature or infrequent in occurrence or related to
a corporate transaction (including, without limitation, a disposition or
acquisition) or related to a change in accounting principle, all as determined
in accordance with standards established by Opinion No. 30 of the Accounting
Principles Board.
In addition, such Performance Criteria may be based upon the attainment
of specified levels of Company (or subsidiary, division or other operational
unit of the Company) performance under one or more of the measures described
above relative to the performance of other corporations. To the extent permitted
under Code Section 162(m), but only to the extent permitted under Code Section
162(m) (including, without limitation, compliance with any requirements for
stockholder approval), the Committee may: (i) designate additional business
criteria on which the Performance Criteria may be based or (ii) adjust, modify
or amend the aforementioned business criteria.
A-1
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EXHIBIT 10.15
INSIGNIA/ESG HOLDINGS, INC.
1998 SUPPLEMENTAL STOCK PURCHASE AND LOAN PROGRAM
UNDER THE
INSIGNIA/ESG HOLDINGS, INC. 1998 STOCK INCENTIVE PLAN
1. PURPOSE.
The Insignia/ESG Holdings, Inc. (the "Company") 1998 Supplemental Stock Purchase
and Loan Program (the "Program") is designated by the Committee established
under the Insignia/ESG Holdings, Inc. 1998 Stock Incentive Plan (the "Incentive
Plan") to provide the right to purchase shares of the common stock, par value
$.01 per share of the Company (the "Common Stock") to certain employees of the
Company, its Subsidiaries and Affiliates designated by the Committee (a
"Designated Affiliate") at a purchase price determined by the Committee as
described below, and to provide a source of financing to such employees to
facilitate the purchase of Common Stock. The right to purchase shares of Common
Stock under the Program shall be deemed to be an "Other Stock-Based Award" under
Article XI of the Incentive Plan and the terms of the Program shall be governed
by the provisions herein as well as the provisions of the Incentive Plan.
Capitalized terms that are not defined hereunder shall have the meaning set
forth in the Incentive Plan. The Program is not intended to be an employee stock
purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
2. ELIGIBILITY.
(a) PARTICIPATION.
All employees of the Company, its Subsidiaries and Designated Affiliates whose
annual Base Compensation equals or exceeds $100,000 (the "Covered Employees")
are eligible to participate in the Program.
"Base Compensation" means the total base compensation paid to a Covered Employee
in any calendar year including salary reduction contributions under Sections
401(k) and 125 of the Code but excluding overtime, bonus, commissions, or
contributions to or benefits paid under any pension, profit-sharing, fringe
benefit, group insurance or other welfare plan or deferred compensation
arrangement.
(b) CESSATION OF PARTICIPATION.
Participation in the Program shall cease automatically once the Covered Employee
is no longer a Covered Employee including, without limitation: (i) death; (ii)
incurring a Disability; (iii) going on a leave of absence; (iv) termination of
employment with the Company, any Subsidiary and any Designated Affiliate; and
(v) a reduction in Base Compensation below $100,000.
<PAGE> 2
3. PURCHASE OF COMMON STOCK.
(a) PURCHASE PRICE.
Each Covered Employee may purchase shares of Common Stock at the end of each
calendar quarter at a price per share of Common Stock equal to one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on the last
business day of each calendar quarter.
(b) METHOD OF PAYMENT.
Payment of the purchase price for the shares of Common Stock may be made by
Covered Employees by means of a check payable to the Company, payroll deductions
or pursuant to a loan granted to the Covered Employee by the Company, the
applicable Subsidiary or applicable Designated Affiliate. No Covered Employee
will be permitted to authorize payroll deductions for the payment of shares of
Common Stock in an amount which exceeds fifty percent (50%) of his or her annual
Base Compensation less any amounts to be repaid pursuant to a loan granted under
Section 5 hereof.
(c) TIMING OF PURCHASE ELECTION.
If payment of the purchase price for shares of Common Stock is to be made by
check or pursuant to a loan, the election to purchase must be made no less than
thirty (30) days prior to the end of the applicable calendar quarter or, within
such shorter period as the Committee may provide, in its sole discretion. If
payment of the purchase price for shares of Common Stock is to be made by means
of payroll deductions, authorization of payroll deductions must be made at least
fourteen (14) days prior to the commencement of the applicable calendar quarter.
(d) ACCOUNTS
All payroll deductions made by a Covered Employee shall be accumulated and
credited to such Participant's account (without interest) under the Program and
used to purchase shares of Common Stock.
(e) COORDINATION WITH 401(k) HARDSHIP RULES.
In the event a Covered Employee makes a hardship withdrawal of employee deferral
(401(k)) contributions under a 401(k) profit sharing plan of the Company or a
Subsidiary or an Affiliate or any other plan qualified under Section 401(a) of
the Code that contains a Code Section 401(k) feature, such Covered Employee's
payroll deductions and the purchase of shares of Common Stock under the Program
shall be suspended for the twelve (12) month period following such hardship
withdrawal.
4. ADMINISTRATION.
The Program shall be administered and interpreted by the Committee. The Program
shall be considered a part of the Incentive Plan. The Committee shall have the
exclusive authority and responsibility to make all determinations necessary in
connection with the administration of the Program, to adopt forms of loan
documents and agreements, to adopt forms authorizing payroll deductions, and to
take all other actions which the Committee deems are appropriate or necessary to
the proper administration of the Program. All decisions of the Committee with
respect to the Program shall be final, conclusive, and binding upon all parties.
2
<PAGE> 3
5. LOAN CONDITIONS.
(a) PURPOSE.
Loans shall be used solely for the purpose of (i) purchasing shares of Common
Stock under the Program and (ii) satisfying any tax liability relating to the
purchase of shares of Common Stock.
No other uses are permitted.
(b) LOAN AMOUNT.
The maximum aggregate amount of any loan or loans outstanding to any one Covered
Employee at any time under the Program shall be equal to fifty percent (50%) of
the Covered Employee's Base Compensation. In no event will a Covered Employee be
allowed to have more than five (5) loans outstanding at any time under the
Program.
(c) LOAN TERMS.
The term of each loan shall expire on the earlier of (a) the Covered Employee's
termination of employment with the Company, any Subsidiary and any Designated
Affiliate for any reason, including, but not limited to, voluntary termination,
retirement, Disability or death and (b) the date set forth in the applicable
promissory note, as determined by the Committee, which shall not exceed five (5)
years from the date of issuance of the loan. The loan will be payable upon
demand by the Committee no later than thirty (30) days following the expiration
of the term thereof. The Committee may delay the expiration of a loan for any
reason as it decides in its sole discretion including, without limitation, if
the Covered Employee terminates employment with the Company and each Subsidiary
but continues employment with an Affiliate. If the expiration of the loan is
extended, the Committee may, in its sole discretion, request that new loan
documentation be executed by the Covered Employee. If new loan documentation is
not requested by the Committee, the then existing loan documents shall continue
to govern any loan which is extended.
(d) INTEREST RATE.
The interest rate on each loan shall be determined by the Committee and set
forth in the applicable promissory note but in no event shall such interest rate
be less than the rate at which the Company may borrow from its principal
lenders.
(e) FORM OF REPAYMENT.
Repayment of all outstanding loans shall occur in substantially level amortized
payments over the term of each loan by means of payroll deduction, or through by
such other means as are authorized by the Committee at the time of the granting
of the loan, or thereafter, provided that no rights of a Covered Employee are
reduced. The unpaid principal balance of a loan, together with accrued interest
thereon, may be prepaid in full or in part at any time without premium or
penalty.
(f) SECURITY.
In order to obtain a loan under the Program, a Covered Employee must execute all
of the loan documents required by the Company and pledge collateral adequate to
secure the loan. The adequacy of the collateral pledged by a Covered Employee as
security for a loan will be
3
<PAGE> 4
determined by the Committee in its sole discretion, but in all events, a pledge
of the shares of Common Stock owned by the Covered Employee or the shares of
Common Stock to be acquired by the Covered Employee with the loan proceeds will
constitute adequate security. If the Committee determines in its sole discretion
that additional collateral is required and not provided, the loan shall become
immediately due and payable.
6. DELIVERY OF COMMON STOCK.
(a) ISSUANCE OF CERTIFICATES.
Certificates for whole shares of Common Stock shall not be issued to Covered
Employees unless and until requested. If a Covered Employee requests
certificates for shares of Common Stock, fractional shares of Common Stock shall
not be issued and cash shall be paid in lieu of such fractional shares if so
requested by the Covered Employee.
(b) AGENT.
The Company may designate an agent to administer the Program, purchase and sell
shares of Common Stock in accordance with the Program, keep records, and send
statements of account to Covered Employees, as the Committee may request from
time to time. The agent shall serve as a custodian for purposes of the Program
and, unless otherwise requested by the Covered Employee, Common Stock purchased
under the Program shall be held by and in the name of or in the name of a
nominee of, the custodian for the benefit of each Covered Employee, who shall
thereafter be a beneficial stockholder of the Common Stock.
7. MISCELLANEOUS PROVISIONS.
(a) AMENDMENT / TERMINATION.
The Company or the Committee may, at any time, subject to Article XV of the
Incentive Plan, amend, modify, terminate or freeze the Program, discontinue the
making of new loans or cancel any outstanding loan by forgiveness of the
outstanding debt or otherwise, and discontinue the right of Covered Employees'
to purchase Common Stock under the Program, provided, however, that neither the
Company nor the Committee may change the terms of any outstanding loan except to
require additional collateral as deemed necessary by the Committee nor take any
action which would affect the rights of a Covered Employee with respect to
Common Stock previously acquired by such Covered Employee under the Program.
(b) NO RIGHT TO CONTINUE AS A COVERED EMPLOYEE.
The Program is a voluntary undertaking on the part of the Company and shall not
constitute a contract between the Company (or any Affiliate thereof) and any
Covered Employee, or consideration for, or any inducement or condition of, the
employment of a Covered Employee. Nothing contained in the Program shall give
any individual the right to continue in the service of the Company as a Covered
Employee or restrict the right of the Company to terminate the service of a
Covered Employee at any time.
(c) RIGHTS AS A STOCKHOLDER.
The Covered Employee shall have all rights of ownership as a stockholder with
regard to all shares of Common Stock purchased under the Program including,
without limitation, the right to
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<PAGE> 5
receive any dividend, and the right to vote or, subject to Section 7(e) hereof,
tender such shares. All shares of Common Stock purchased under the Program shall
be fully vested at all times.
(d) NO THIRD PARTY BENEFICIARIES.
Nothing in this Program or the Incentive Plan shall create rights by any third
party to rely upon the terms hereof without the Committee's express written
consent, including rights of a spouse.
(e) SECTION 16(b) OF THE EXCHANGE ACT.
In order to comply with Section 16 of the Exchange Act and Rule 16b-3
thereunder, notwithstanding anything herein to the contrary, any shares of
Common Stock purchased under the Program must be held by the Covered Employee
for a period of at least six (6) months following the date of such purchase.
5
<PAGE> 1
EXHIBIT 10.16
INSIGNIA/ESG HOLDINGS, INC.
EXECUTIVE PERFORMANCE INCENTIVE PLAN
<PAGE> 2
INSIGNIA/ESG HOLDINGS, INC.
EXECUTIVE PERFORMANCE INCENTIVE PLAN
1. PURPOSE
The purpose of this Plan is to attract, retain and motivate key
employees by providing cash performance awards to designated key employees of
the Company, its Parent and its Subsidiaries. This Plan is effective for the
initial short fiscal year of the Company commencing on the date of distribution
of the common stock, par value $.01 per share, of the Company by Insignia
Financial Group, Inc. to holders of Class A Common Stock, par value $.01 per
share, of Insignia Financial Group, Inc. and for fiscal years thereafter,
subject to approval by the stockholders of the Company in accordance with the
laws of the State of Delaware.
2. DEFINITIONS
Unless the context otherwise requires, the words which follow shall
have the following meaning:
(a) "Award" - shall mean the total annual Performance
Award as determined under the Plan.
(b) "Board" - shall mean the Board of Directors of the
Company.
(c) "Change in Control of the Company" - shall have the
meaning set forth in the Participant's employment
agreement (if any) or other written agreement
approved by the Committee (if any).
(d) "Code" - shall mean the Internal Revenue Code of
1986, as amended and any successor thereto.
(e) "Code Section 162(m)" - shall mean the exception for
performance-based compensation under Section 162(m)
of the Code or any successor section and the Treasury
regulations promulgated thereunder.
(f) "Company" - shall mean Insignia/ESG Holdings, Inc.
and any successor by merger, consolidation or
otherwise.
(g) "Committee" - shall mean the Compensation Committee
of the Board or such other Committee of the Board
that is appointed
<PAGE> 3
by the Board all of whose members shall satisfy the
requirements to be "outside directors," as defined
under Code Section 162(m).
(h) "Individual Target Award" - shall mean the targeted
performance award for a Plan Year specified by the
Committee as provided in Section 5 hereof.
(i) "Parent" - shall mean, other than the Company, (i)
any corporation in an unbroken chain of corporations
ending with the Company which owns stock possessing
fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the
other corporations in such chain or (ii) any
corporation or trade or business (including, without
limitation, a partnership or limited liability
company) which controls fifty percent (50%) or more
(whether by ownership of stock, assets or an
equivalent ownership interest) of the Company.
(j) "Participant" - shall mean an employee of the
Company, the Parent or a Subsidiary selected, in
accordance with Section 4 hereof, to be eligible to
receive an Award in accordance with this Plan.
(k) "Performance Award" - shall mean the amount paid or
payable under Section 6 hereof.
(l) "Plan" - shall mean this Insignia/ESG Holdings, Inc.
Executive Performance Incentive Plan.
(m) "Plan Year" - shall mean the fiscal year of the
Company.
(n) "Subsidiary" - shall mean, other than the Company,
(i) any corporation in an unbroken chain of
corporations beginning with the Company which owns
stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock
in one of the other corporations in such chain; (ii)
any corporation or trade or business (including,
without limitation, a partnership or limited
liability company) which is controlled fifty percent
(50%) or more (whether by ownership of stock, assets
or an equivalent ownership interest or voting
interest) by the Company or one of its Subsidiaries;
or (iii) any other entity in which the Company or any
of its Subsidiaries has a material equity interest
and which is designated as a "Subsidiary" by
resolution of the Committee.
2
<PAGE> 4
3. ADMINISTRATION AND INTERPRETATION OF THE PLAN
The Plan shall be administered by the Committee. The Committee shall
have the exclusive authority and responsibility to: (i) interpret the Plan; (ii)
approve the designa tion of eligible Participants; (iii) set the performance
criteria for Awards within the Plan guidelines; (iv) certify attainment of
performance goals and other material terms; (v) reduce Awards as provided
herein; (vi) authorize the payment of all benefits and expenses of the Plan as
they become payable under the Plan; (vii) adopt, amend and rescind rules and
regulations relating to the Plan; and (viii) make all other determinations and
take all other actions necessary or desirable for the Plan's administration
including, without limitation, correcting any defect, supplying any omission or
reconciling any inconsistency in this Plan in the manner and to the extent it
shall deem necessary to carry this Plan into effect, but only to the extent any
such action would be permitted under Code Section 162(m).
Decisions of the Committee shall be made by a majority of its members.
All decisions of the Committee on any question concerning the selection of
Participants and the interpretation and administration of the Plan shall be
final, conclusive and binding upon all parties. The Committee may rely on
information, and consider recommendations, provided by the Board or the
executive officers of the Company. The Plan is intended to comply with Code
Section 162(m), and all provisions contained herein shall be limited, construed
and interpreted in a manner to so comply.
4. ELIGIBILITY AND PARTICIPATION
(a) For each Plan Year, the Committee shall select the employees
of the Company, its Parent and Subsidiaries who are to
participate in the Plan from among the executive key employees
of the Company, its Parent and Subsidiaries.
(b) No person shall be entitled to any Award under this Plan for
any Plan Year unless he or she is so designated as a
Participant for that Plan Year. The Committee may add to or
delete individuals from the list of designated Participants at
any time and from time to time, in its sole discretion,
subject to any limitations required to comply with Code
Section 162(m).
5. INDIVIDUAL TARGET AWARD
For each Participant for each Plan Year, the Committee may specify a
targeted performance award. The Individual Target Award may be expressed, at the
Committee's discretion, as a fixed dollar amount, a percentage of base pay or
total pay (excluding payments made under this Plan), or an amount determined
pursuant to an objective formula or standard. Establishment of an Individual
Target Award for an employee for a Plan Year shall not imply or require that the
same level Individual Target Award (if any such award is established by the
Committee for the relevant employee) be set for any subsequent Plan Year. At the
time the Performance Goals are
3
<PAGE> 5
established (as provided in subsection 6.2 below), the Committee shall prescribe
a formula to determine the percentages (which may be greater than one-hundred
percent (100%)) of the Individual Target Award which may be payable based upon
the degree of attainment of the Performance Goals during the Plan Year.
Notwithstanding anything else herein, the Committee may, in its sole discretion,
elect to pay a Participant an amount that is less than the Participant's
Individual Target Award (or attained percentage thereof) regardless of the
degree of attainment of the Performance Goals; provided that no such discretion
to reduce an Award earned based on achievement of the applicable Performance
Goals shall be permitted for the Plan Year in which a Change in Control of the
Company occurs, or during such Plan Year with regard to the prior Plan Year if
the Awards for the prior Plan Year have not been made by the time of the Change
in Control of the Company, with regard to individuals who were Participants at
the time of the Change in Control of the Company. If a Participant does not have
an employment agreement or other written agreement approved by the Committee
which defines Change in Control, the foregoing provision and any other provision
of this Plan relating to Change in Control shall not apply to such Participant.
6. PERFORMANCE AWARD PROGRAM
6.1 Performance Awards. Subject to Section 7 herein, each Participant
is eligible to receive up to the achieved percentage of their Individual Target
Award for such Plan Year (or, subject to the last sentence of Section 5, such
lesser amount as determined by the Committee in its sole discretion) based upon
the attainment of the objective Performance Goals established pursuant to
subsection 6.2 and the formula established pursuant to Section 5. Except as
specifically provided in Section 7, no Performance Award shall be made to a
Participant for a Plan Year unless the minimum Performance Goals for such Plan
Year are attained.
6.2 Objective Performance Goals, Formulae or Standards (the
"Performance Goals"). The Committee shall establish the objective performance
goals, formulae or standards and the Individual Target Award (if any) applicable
to each Participant or class of Participants for a Plan Year in writing prior to
the beginning of such Plan Year or at such later date as permitted under Code
Section 162(m) and while the outcome of the Performance Goals are substantially
uncertain. Such Performance Goals may incorporate, if and only to the extent
permitted under Code Section 162(m), provisions for disregarding (or adjusting
for) changes in accounting methods, corporate transactions (including, without
limitation, dispositions and acquisitions) and other similar type events or
circumstances. To the extent any such provision would create impermissible
discretion under Code Section 162(m) or otherwise violate Code Section 162(m),
such provision shall be of no force or effect. These Performance Goals shall be
based on one or more of the following criteria with regard to the Company (or a
subsidiary, division, or other operational unit of the Company): (i) the
attainment of certain target levels of, or a specified percentage increase in,
revenues, income before income taxes and extraordinary items, net income,
earnings before income tax, earnings before interest, taxes, depreciation and
amortization, funds from operation of real estate investments or a combination
of any or all of the foregoing; (ii) the attainment of certain target levels of,
or a percentage increase in, after-tax or pre-tax
4
<PAGE> 6
profits including, without limitation, that attributable to continuing and/or
other operations; (iii) the attainment of certain target levels of, or a
specified increase in, operational cash flow; (iv) the achievement of a certain
level of, reduction of, or other specified objectives with regard to limiting
the level of increase in, all or a portion of, the Company's bank debt or other
long-term or short-term public or private debt or other similar financial
obligations of the Company, which may be calculated net of such cash balances
and/or other offsets and adjustments as may be established by the Committee; (v)
the attainment of a specified percentage increase in earnings per share or
earnings per share from continuing operations; (vi) the attainment of certain
target levels of, or a specified increase in return on capital employed or
return on invested capital; (vii) the attainment of certain target levels of, or
a percentage increase in, after-tax or pre-tax return on stockholders' equity;
(viii) the attainment of certain target levels of, or a specified increase in,
economic value added targets based on a cash flow return on investment formula;
(ix) the attainment of certain target levels in the fair market value of the
shares of the Company's common stock; and (x) the growth in the value of an
investment in the Company's common stock assuming the reinvestment of dividends.
For purposes of item (i) above, "extraordinary items" shall mean all items of
gain, loss or expense for the Plan Year determined to be extraordinary or
unusual in nature or infrequent in occurrence or related to a corporate
transaction (including, without limitation, a disposition or acquisition) or
related to a change in accounting principle, all as determined in accordance
with standards established by opinion No. 30 of the Accounting Principles Board.
In addition, such Performance Goals may be based upon the attainment of
specified levels of Company (or subsidiary, division or other operational unit
of the Company) performance under one or more of the measures described above
relative to the performance of other corporations. To the extent permitted under
Code Section 162(m), but only to the extent permitted under Code Section 162(m)
(including, without limitation, compliance with any requirements for stockholder
approval), the Committee may: (i) designate additional business criteria on
which the Performance Goals may be based or (ii) adjust, modify or amend the
aforementioned business criteria.
6.3 Maximum Nondiscretionary Award. The maximum Performance Award
payable to a Participant for any Plan Year is $3,000,000.
6.4 Payment Date; Committee Certification. The Performance Awards will
be paid as soon as administratively feasible after the Plan Year in which they
are earned, but not before the Committee certifies in writing that the
Performance Goals specified (except to the extent permitted under Code Section
162(m) and provided in Section 7 with regard to death, disability or Change in
Control of the Company or certain other termination situations) pursuant to
subsection 6.2 were, in fact, satisfied, except as may otherwise be agreed by a
Participant and the Company in a written agreement executed prior to the
beginning of the Plan Year to which the Performance Award relates in accordance
with any deferred compensation program in effect applicable to such Participant.
The Committee shall use its best efforts to make a determination with regard to
satisfaction of the Performance Goals within two and one-half (2 1/2) months
after the end of each Plan Year. Any Performance Award deferred by a Participant
5
<PAGE> 7
shall not increase (between the date on which the Performance Award is credited
to any deferred compensation program applicable to such Participant and the
payment date) by a measuring factor for each Plan Year greater than the interest
rate on thirty (30) year Treasury Bonds on the first business day of such Plan
Year compounded annually, as elected by the Participant in the deferral
agreement. The Participant shall have no right to receive payment of any
deferred amount until he or she has a right to receive such amount under the
terms of the applicable deferred compensation program.
7. EMPLOYMENT AT YEAR END GENERALLY REQUIRED FOR AWARD
No Award shall be made to any Participant who is not an active employee
of the Company, its Parent or one of its Subsidiaries or affiliates at the end
of the Plan Year; provided, however, that the Committee, in its sole and
absolute discretion, may make Awards to Participants for a Plan Year in
circumstances that the Committee deems appropriate including, but not limited
to, a Participant's death, disability, retirement or other termination of
employment during such Plan Year and the Committee shall be required to make at
least a pro-rata Award through the date of a Change in Control of the Company to
each Participant who is a Participant at the time of such Change in Control of
the Company. All such Awards shall be based on achievement of the Performance
Goals for the Plan Year, except that, to the extent permitted under Code Section
162(m), in the case of death, disability or Change in Control of the Company
during the Plan Year (or such other termination situations as permitted under
Code Section 162(m)) an amount equal to or less than the Individual Target
Awards may be made by the Committee either during or after the Plan Year without
regard to actual achievement of the Performance Goals. Furthermore, upon a
Change in Control of the Company the Committee may, in its sole discretion but
only to the extent permitted under Code Section 162(m), make an award (payable
immediately) equal to a pro-rata portion (through the date of the Change in
Control of the Company) of the Individual Target Award payable upon achieving,
but not surpassing, the Performance Goals for the relevant Plan Year. Any such
immediate pro-rata payment shall reduce any other Award made for such Plan Year
under this Plan by the amount of the pro-rata payment.
8. NON-ASSIGNABILITY
No Award under this Plan nor any right or benefit under this Plan shall
be subject to anticipation, alienation, sale, assignment, pledge, encumbrance,
garnishment, execution or levy of any kind or charge, and any attempt to
anticipate, alienate, sell, assign, pledge, encumber and to the extent permitted
by applicable law, charge, garnish, execute upon or levy upon the same shall be
void and shall not be recognized or given effect by the Company.
9. NO RIGHT TO EMPLOYMENT
Nothing in the Plan or in any notice of award pursuant to the Plan
shall confer upon any person the right to continue in the employment of the
Company, its Parent, or
6
<PAGE> 8
one of its Subsidiaries or affiliates nor affect the right of the Company, its
Parent or any of its Subsidiaries or affiliates to terminate the employment of
any Participant.
10. AMENDMENT OR TERMINATION
The Board (or a duly authorized committee thereof) may, in its sole and
absolute discretion, amend, suspend or terminate the Plan or to adopt a new plan
in place of this Plan at any time; provided, that no such amendment shall,
without the prior approval of the stockholders of the Company in accordance with
the laws of the State of Delaware to the extent required under Code Section
162(m): (i) materially alter the Performance Goals as set forth in subsection
6.2; (ii) increase the maximum amount set forth in subsection 6.3 and the
interest factor under subsection 6.4, except to the extent permitted under Code
Section 162(m) to substitute an approximately equivalent rate in the event that
the thirty (30) year Treasury Bond rate ceases to exist; (iii) change the class
of eligible employees set forth in Section 4(a); or (iv) implement any change to
a provision of the Plan requiring stockholder approval in order for the Plan to
continue to comply with the requirements of Code Section 162(m). Furthermore, no
amendment, suspension or termination shall, without the consent of the
Participant, alter or impair a Participant's right to receive payment of an
Award for a Plan Year otherwise payable hereunder.
11. SEVERABILITY
In the event that any one or more of the provisions contained in the
Plan shall, for any reason, be held to be invalid, illegal or unenforceable, in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of the Plan and the Plan shall be construed as if such
invalid, illegal or unenforceable provisions had never been contained therein.
12. WITHHOLDING
The Company shall have the right to make such provisions as it deems
necessary or appropriate to satisfy any obligations it may have to withhold
federal, state or local income or other taxes incurred by reason of payments
pursuant to the Plan.
13. GOVERNING LAW
This Plan and any amendments thereto shall be construed, administered,
and governed in all respects in accordance with the laws of the State of
Delaware (regardless of the law that might otherwise govern under applicable
principles of conflict of laws).
7
<PAGE> 1
EXHIBIT 10.17
- ------------------------------------------------------------------------------
INSIGNIA/ESG HOLDINGS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
- ------------------------------------------------------------------------------
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Purpose.......................................................................................1
2. Definitions...................................................................................1
3. Eligibility...................................................................................4
4. Grant of Option; Participation................................................................4
5. Payroll Deductions............................................................................5
6. Exercise of Option............................................................................6
7. Delivery of Common Stock......................................................................6
8. Withdrawals; Termination of Employment; Disability or Leave of Absence Prior to
Termination of Employment.....................................................................7
9. Dividends and Interest........................................................................8
10. Stock.........................................................................................8
11. Administration................................................................................9
12. Designation of Beneficiary...................................................................10
13. Transferability..............................................................................10
14. Use of Funds.................................................................................11
15. Reports......................................................................................11
16. Effect of Certain Changes....................................................................11
17. Amendment or Termination.....................................................................12
18. Notices......................................................................................12
19. Regulations and Other Approvals; Governing Law...............................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
20. Withholding of Taxes.........................................................................13
21. No Employment Rights.........................................................................13
22. Severability of Provisions...................................................................13
23. Construction.................................................................................14
</TABLE>
ii
<PAGE> 4
INSIGNIA/ESG HOLDINGS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries and Designated Parent with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions. It
is the intention of the Company that the Plan qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code and the provisions
of the Plan shall be construed in a manner consistent with the requirements of
such section of the Code. The Plan is effective as of the Distribution Date.
2. DEFINITIONS.
(a) "Agent" shall mean the agent appointed by the
Committee pursuant to Section 11(b) hereof.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Code" shall mean the Internal Revenue Code of
1986, as amended.
(d) "Committee" shall mean the Compensation Committee
of the Board or such other committee or subcommittee appointed from time to time
by the Board. To the extent that no Committee exists which has the authority to
administer the Plan, the functions of the Committee shall be exercised by the
Board.
(e) "Common Stock" shall mean shares of the Company's
common stock, par value $.01 per share.
(f) "Company" shall mean Insignia/ESG Holdings, Inc.,
a Delaware corporation.
(g) "Compensation" shall mean the total cash
compensation paid during an Offering Period by the Company, any Designated
Subsidiary or Designated Parent or any affiliate of the Company to an Employee,
including overtime and bonuses, as reported by the Company, any Designated
Subsidiary or Designated Parent or any affiliate of the Company for federal
income tax purposes, and including an Employee's portion of salary deferral
contributions pursuant to Section 401(k) of the Code and any amount excludable
pursuant to Section 125 of the Code. Compensation shall not include any
contributions by the
<PAGE> 5
Company or any of its affiliates to, or benefits paid under, this Plan or under
any other pension, profit-sharing, fringe benefit, group insurance or other
employee welfare plan heretofore or hereafter adopted or any deferred
compensation arrangement. For purposes of this Section, affiliate shall mean any
entity required to be aggregated with the Company under Section 414 (b), (c),
(m) or (o) of the Code.
(h) "Designated Parent" shall mean the Parent
Corporation of the Company if so specifically designated as eligible to
participate in the Plan by the Board in its sole discretion.
(i) "Designated Subsidiaries" shall mean each
Subsidiary Corporation of the Company on the effective date of the Plan and
future Subsidiary Corporations which are not specifically excluded from
participation by the Board from time to time in its sole discretion.
Notwithstanding the foregoing, the term "Designated Subsidiaries" shall not
include Subsidiary Corporations located in Foreign Jurisdictions, unless the
Board specifically designates such Subsidiary Corporation as a Designated
Subsidiary.
(j) "Disability" or "Disabled" shall mean a permanent
and total disability as defined under Section 22(e)(3) of the Code.
(k) "Distribution Date" shall mean the date of
distribution of Common Stock by Insignia Financial Group, Inc. to holders of
Class A Common Stock, par value $.01 per share, of Insignia Financial Group,
Inc.
(l) "Employee" shall mean any person, including an
officer, who is regularly and continuously employed by the Company or a
Designated Subsidiary or a Designated Parent.
(m) "Employer" shall mean, with respect to any
Employee, the Company or Designated Subsidiary or Designated Parent by which the
Employee is employed.
(n) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(o) "Exercise Date" shall mean the last business day
of each Offering Period in which payroll deductions are made under the Plan.
(p) "Fair Market Value" for purposes of this Plan,
unless otherwise required by any applicable provision of the Code or any
regulations issued thereunder, shall mean, as of any date, the last sales price
reported for the Common Stock on the applicable date (i) as reported by the
principal national securities exchange in the United States on which it is then
traded, or (ii) if not traded on any such national securities exchange, as
quoted on an automated quotation system sponsored by the National Association of
Securities Dealers. If the Common Stock is not readily tradable on a national
securities exchange or any system
2
<PAGE> 6
sponsored by the National Association of Securities Dealers, its Fair Market
Value shall be set in good faith by the Committee on the advice of a registered
investment adviser (as defined under the Investment Advisers Act of 1940).
(q) "Foreign Jurisdiction" shall mean any
jurisdiction outside of the United States including, without limitation,
countries, states, provinces and localities.
(r) "Leave of Absence" shall mean a leave of absence
determined in accordance with the personnel policies of a Participant's
Employer.
(s) "Offering Date" shall mean the first day of each
calendar quarter or such other dates designated by the Committee in its sole
discretion.
(t) "Offering Period" shall mean each calendar
quarter during the effectiveness of the Plan, commencing on each Offering Date,
provided that the Committee shall have the power to change the duration of
Offering Periods.
(u) "Option" shall mean an option to purchase shares
of Common Stock of the Company.
(v) "Parent Corporation" shall mean any corporation
(other than the Company) in an unbroken chain of corporations ending with the
Company if, at the time of granting an Option, each of the corporations other
than the employer corporation owns stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
(w) "Participant" shall mean an Employee who
participates in the Plan.
(x) "Plan" shall mean this Insignia/ESG Holdings,
Inc. 1998 Employee Stock Purchase Plan, as amended from time to time.
(y) "Rule 16b-3" shall mean Rule 16b-3 under Section
16(b) of the Exchange Act as then in effect or any successor provisions.
(z) "Subsidiary Corporation" shall mean any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company at the time of granting an Option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
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<PAGE> 7
3. ELIGIBILITY.
(a) Subject to the requirements of Section 4(b)
hereof, any person who is (i) an Employee as of an Offering Date and (ii) who
customarily works more than twenty (20) hours per week for an Employer and more
than five (5) months per year for an Employer shall be eligible to participate
in the Plan and be granted an Option for the Offering Period commencing on such
Offering Date.
(b) Notwithstanding any provisions of the Plan to the
contrary, no Employee shall be granted an Option under the Plan:
(i) if, immediately after the grant, such Employee
(or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own
stock and/or hold outstanding Options to purchase stock
possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company
or of any Subsidiary Corporation or Parent Corporation; or
(ii) which permits such Employee's right to purchase
stock under all employee stock purchase plans (as described in
Section 423 of the Code) of the Company and any Subsidiary
Corporation or Parent Corporation to accrue at a rate which
exceeds twenty-five thousand dollars ($25,000) of fair market
value of such stock (determined at the time such option is
granted) for any calendar year in which such option is
outstanding at any time.
(c) Notwithstanding anything herein to the contrary,
unless otherwise permitted pursuant to the Code, "qualified real estate agents"
(as defined in Section 3508 of the Code) shall not be eligible to participate in
the Plan.
4. GRANT OF OPTION; PARTICIPATION.
(a) On each Offering Date, the Company shall commence
an offer by granting each eligible Employee an Option to purchase shares of
Common Stock, subject to the limitations set forth in Sections 3(b) and 10
hereof. The Committee shall specify the terms and conditions for each such
offer, including the number of shares of Common Stock that may be purchased
thereunder.
(b) Each eligible Employee may elect to become a
Participant in the Plan with respect to an Offering Period, only by filing an
agreement with the Employer authorizing payroll deductions (as set forth in
Section 5 hereof).
(c) The Option price per share of the Common Stock
subject to an offering shall be determined by the Board, in its sole discretion,
and shall remain in effect
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<PAGE> 8
unless modified at least thirty (30) days prior to the applicable Offering
Date, but in no event shall be less than the lesser of: (i) eighty-five percent
(85%) of the Fair Market Value of a share of Common Stock on the first business
day of the Offering Period or (ii) eighty-five (85%) of the Fair Market Value of
a share of Common Stock on the Exercise Date. Effective as of the Distribution
Date until modified by the Board, the price per share of the Common Stock
subject to an offering shall be the lesser of: (i) eighty-five percent (85%) of
the Fair Market Value of a share of Common Stock on the first business day of
the Offering Period or (ii) eighty-five (85%) of the Fair Market Value of a
share of Common Stock on the Exercise Date.
5. PAYROLL DEDUCTIONS.
(a) At least fourteen (14) days (or such shorter
period designated by the Committee) prior to each Offering Date, a Participant
may, in the manner prescribed by forms approved by the Committee, and subject to
the restriction set forth in Section 3(b)(ii) above, authorize payroll
deductions in any whole percentage up to ten percent (10%) of his or her
Compensation during the Offering Period. A Participant may increase or decrease
such payroll deductions prior to the beginning of any subsequent Offering
Period, upon fourteen (14) days' (or such shorter period designated by the
Committee) prior written notice to the Committee. A Participant may terminate a
payroll deduction authorization at any time, upon fourteen (14) days' (or such
shorter period designated by the Committee) prior written notice to the
Committee. An authorization shall remain in effect until modified or terminated
by the Participant or until the percentage used to determine the Option price
(as set forth in Section 4(c) above) is effectively increased.
(b) All payroll deductions made by a Participant
shall be credited to such Participant's account under the Plan. A Participant
may not make any additional payments into such account.
(c) In the event a Participant makes a hardship
withdrawal of employee deferral (401(k)) contributions under a 401(k) profit
sharing plan of the Company, a Designated Subsidiary, or a Designated Parent or
an affiliate or any other plan qualified under Section 401(a) of the Code that
contains a Code Section 401(k) feature, such Participant's payroll deductions
and the purchase of shares of Common Stock under the Plan shall be suspended
until the first payroll period following the Offering Date commencing after the
twelve (12) month period after such hardship withdrawal. If a Participant who
elects a hardship withdrawal under such a 401(k) profit sharing plan or such
other plan has a cash balance accumulated in his or her account at the time of
withdrawal that has not already been applied to purchase shares of Common Stock,
such cash balance shall be returned to the Participant as soon as
administratively practicable.
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<PAGE> 9
6. EXERCISE OF OPTION.
(a) Unless a Participant withdraws from the Plan as
provided in Section 8 hereof, such Participant's election to purchase shares of
Common Stock shall be exercised automatically on the Exercise Date, and the
maximum number of whole and/or fractional shares of Common Stock subject to such
Option shall be purchased for such Participant at the applicable Option price
with the accumulated payroll deductions in such Participant's account. If all or
any portion of the shares cannot reasonably be purchased on the Exercise Date in
the sole discretion of the Committee because of unavailability or any other
reason, such purchase shall be made as soon thereafter as feasible. In no event
shall certificates for any fractional shares be issued under the Plan.
(b) The shares of Common Stock purchased upon
exercise of an Option hereunder shall be credited to the Participant's account
under the Plan and shall be deemed to be transferred to the Participant on the
Exercise Date and, except as otherwise provided herein, the Participant shall
have all rights of a stockholder with respect to such shares, including, without
limitation, the right to receive dividends on the shares and the right to vote
or tender such shares.
7. DELIVERY OF COMMON STOCK.
(a) Certificates for whole shares of Common Stock
shall not be issued to Participants unless and until requested or as otherwise
provided pursuant to Section 8. Such certificates shall be issued as soon as
administratively feasible following the Participant's request for issuance. If a
Participant requests certificates for whole shares of Common Stock, any
fractional shares of Common Stock shall remain in the Participant's account
during his or her employment, unless he or she requests cash in lieu of the
fractional shares. A fee fixed by the Plan's Agent or transfer agent, as the
case may be, may be charged to the Participant for the issuance of certificates
of shares of Common Stock and for the replacement of lost certificates.
Certificates for a fractional share of Common Stock shall not be issued under
any circumstance.
(b) A Participant may request the Agent to sell all
or a portion of shares of Common Stock for which certificates have not been
issued and receive cash for such shares, subject to any brokerage fees or
commissions.
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<PAGE> 10
8. WITHDRAWALS; TERMINATION OF EMPLOYMENT; DISABILITY OR LEAVE OF ABSENCE
PRIOR TO TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw all, but not less than
all, the payroll deductions credited to such Participant's account (that have
not been used to purchase shares of Common Stock) under the Plan at any time
prior to the Exercise Date by giving fourteen (14) days' (or such shorter period
designated by the Committee) prior written notice to the Committee. All such
payroll deductions credited to such Participant's account shall be paid to such
Participant (without interest) promptly after receipt of such Participant's
written notice of withdrawal and such Participant's Option for the Offering
Period in which the withdrawal occurs shall be automatically terminated. No
further payroll deductions for the purchase of shares of Common Stock shall be
made for such Participant during such Offering Period. A Participant's
withdrawal from an offering shall not have any effect upon such Participant's
eligibility to participate in a subsequent offering or in any similar plan which
may hereafter be adopted by the Company.
(b) If a Participant retires or terminates his or her
employment with the Company, any Subsidiary Corporation and any Parent
Corporation for any reason other than death, the payroll deductions credited to
such Participant's account (that have not been used to purchase shares of Common
Stock) shall be returned or distributed to the Participant (without interest) as
soon as practicable following the Participant's retirement or other termination
of employment. The Participant shall elect, within the sixty (60) day period
following the Participant's retirement or other termination of employment with
the Company, any Subsidiary Corporation and any Parent Corporation (i) to
receive certificates for all of the whole shares of Common Stock and cash in
lieu of any fractional shares of Common Stock credited to the Participant's
account under the Plan, (ii) to have certificates for all shares of Common Stock
(including fractional shares) credited to the Participant's account under the
Plan transferred to an individual brokerage account established by the Agent for
the benefit of the Participant or for the benefit of the Participant and his or
her spouse as joint tenants with rights of survivorship, or (iii) a combination
of (i) and (ii). A fee fixed by the Plan's Agent may be charged to the
Participant for the issuance of certificates of shares of Common Stock.
(c) In the event of the Participant's death, the
Participant's Option shall be exercised in accordance with the terms of the Plan
such that the payroll deductions credited to such Participant's account after
the Offering Date (whether before or immediately following the Participant's
death) shall be used to purchase shares of Common Stock in accordance with the
terms of the Plan. The Participant's beneficiary shall elect, within the sixty
(60) day period following the Exercise Date following the Participant's death,
(i) to receive certificates for all of the whole shares of Common Stock and cash
in lieu of any fractional shares of Common Stock credited to the Participant's
account under the Plan, (ii) to have certificates for all shares of Common Stock
(including fractional shares) credited to the Participant's account under the
Plan transferred to an individual brokerage account established by the Agent for
the benefit of the Participant's beneficiary, or (iii) a combination of (i) and
7
<PAGE> 11
(ii). A fee fixed by the Plan's Agent may be charged to the Participant's
beneficiary for the issuance of certificates of shares of Common Stock.
(d) In the event of a Participant's Disability or
Leave of Absence, payroll deductions shall only be taken from Compensation that
is due and owing to the Participant. To the extent that any cash balance has
accumulated in the Participant's account, such balance shall be used to purchase
shares of Common Stock on the Exercise Date. With respect to a Participant who
becomes ineligible to participate due to a Disability or Leave of Absence,
shares of Common Stock held in such Participant's account shall continue to be
held in the Participant's account unless he or she elects otherwise under
Section 7(a). In the event that such individual's Disability or Leave of Absence
ends and such individual returns to work as an Employee and satisfies the
eligibility conditions under Section 3, payroll deductions shall resume
automatically in accordance with his or her most recent payroll deduction
authorization form in effect prior to the Disability or Leave of Absence, unless
he or she elects otherwise. Section 8(b) shall apply to any termination of
employment with the Company, any Subsidiary Corporation and any Parent
Corporation following a Participant's Disability or Leave of Absence.
9. DIVIDENDS AND INTEREST.
(a) Cash dividends, if any, on shares of Common Stock
acquired through the Plan will be automatically paid by check directly to the
Participant by the Company, or if applicable, the transfer agent. Dividends paid
in property other than cash or Common Stock shall be distributed to Participants
as soon as practicable.
(b) No interest shall accrue on or be payable with
respect to the payroll deductions of a Participant in the Plan.
10. STOCK.
(a) The maximum number of shares of Common Stock
which shall be reserved for sale under the Plan shall be 1,500,000 subject to
adjustment as provided in Section 16 hereof. If the total number of shares which
would otherwise be subject to Options granted pursuant to Section 4(a) hereof on
an Offering Date exceeds the number of shares then available under the Plan
(after deduction of all shares for which Options have been exercised or are then
outstanding), the Committee shall make a pro rata allocation of the shares
remaining available for Option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Committee shall give written notice to each Participant of such reduction of the
number of Option shares affected thereby and shall similarly reduce the rate of
payroll deductions, if necessary. Purchases of Common Stock under the Plan shall
be made by the Agent on the open market, or in the sole discretion of the
8
<PAGE> 12
Committee, may be made by the Company's delivery of treasury shares or
newly-issued and authorized shares to the Plan, upon such terms as the Committee
may approve.
(b) Shares of Common Stock to be delivered to a
Participant under the Plan shall be registered solely in the name of the
Participant or, at the election of the Participant, in the name of the
Participant and his or her spouse as joint tenants with rights of survivorship.
11. ADMINISTRATION.
(a) The Plan shall be administered by the Committee,
and the Committee may select an administrator to whom its duties and
responsibilities hereunder may be delegated. The Committee shall have full power
and authority, subject to the provisions of the Plan, to promulgate such rules
and regulations as it deems necessary for the proper administration of the Plan,
to interpret the provisions and supervise the administration of the Plan, and to
take all action in connection therewith or in relation thereto as it deems
necessary or advisable. The Committee may adopt special guidelines and
provisions for persons who are residing in, or subject to the laws of, Foreign
Jurisdictions to comply with applicable tax and securities laws. All
interpretations and determinations of the Committee shall be made in its sole
and absolute discretion based on the Plan document and shall be final,
conclusive and binding on all parties.
(b) The Committee may employ such legal counsel,
consultants, brokers and agents as it may deem desirable for the administration
of the Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant, broker or
agent. The Committee may, in its sole discretion, designate an Agent to
administer the Plan, purchase and sell shares of Common Stock in accordance with
the Plan, keep records, send statements of account to employees and to perform
other duties relating to the Plan, as the Committee may request from time to
time. The Agent shall serve as custodian for purposes of the Plan and, unless
otherwise requested by the Participant, Common Stock purchased under the Plan
shall be held by and in the name of, or in the name of a nominee of, the
custodian for the benefit of each Participant, who shall thereafter be a
beneficial stockholder of the Company. The Committee may adopt, amend or repeal
any guidelines or requirements necessary for the custody and delivery of the
Common Stock, including, without limitation, guidelines regarding the imposition
of reasonable fees in certain circumstances.
(c) The Company shall, to the fullest extent
permitted by law and the Certificate of Incorporation and By-laws of the Company
and, to the extent not covered by insurance, indemnify each director, officer or
employee of the Employer (including the heirs, executors, administrators and
other personal representatives of such person) and each member of the Committee
against all expenses, costs, liabilities and losses (including attorneys' fees,
judgments, fines, excise taxes or penalties, and amounts paid or to be paid in
settlement)
9
<PAGE> 13
actually and reasonably incurred by such person in connection with any
threatened, pending or actual suit, action or proceeding (whether civil,
criminal, administrative or investigative in nature or otherwise) in which such
person may be involved by reason of the fact that he or she is or was serving
this Plan in any capacity at the request of the Employer, except in instances
where any such person engages in willful neglect or fraud. Such right of
indemnification shall include the right to be paid by the Company for expenses
incurred or reasonably anticipated to be incurred in defending any such suit,
action or proceeding in advance of its disposition; provided, however, that the
payment of expenses in advance of the settlement or final disposition of a suit,
action or proceeding, shall be made only upon delivery to the Company of an
undertaking by or on behalf of such person to repay all amounts so advanced if
it is ultimately determined that such person is not entitled to be indemnified
hereunder. Such indemnification shall be in addition to any rights of
indemnification the person may have as a director, officer or employee or under
the Certificate of Incorporation of the Company or the By-Laws of the Company.
Expenses incurred by the Committee or the Board in the engagement of any such
counsel, consultant or agent shall be paid by the Company.
(d) Employees shall be fully responsible for (i) any
brokerage fees and commissions charged for the sale of Common Stock, (ii) any
fees for certificates of shares of Common Stock and (iii) any taxes owed by them
as a result of participation in the Plan.
12. DESIGNATION OF BENEFICIARY.
A Participant may file, on forms supplied by and delivered to
the Company, a written designation of a beneficiary who is to receive any shares
of Common Stock and cash remaining in such Participant's account under the Plan
in the event of the Participant's death. Such designation of beneficiary may be
changed by the Participant at any time by written notice. If a Participant is
married on the date of his death and no beneficiary had been designated by the
Participant prior to his death, the Participant's spouse will be presumed to be
his beneficiary. If a Participant is not married on the date of his death and no
beneficiary had been designated by the Participant prior to his death, the
Participant's beneficiary shall be his estate.
13. TRANSFERABILITY.
(a) Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an Option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in an way (other than by will, the laws of descent and
distribution or as provided in Section 10(b) or 12 hereof) by the Participant.
Any such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with Section 8 hereof.
10
<PAGE> 14
(b) All rights of a Participant granted under this
Plan, including but not limited to, the grant of an Option, the right to
exercise an Option and the ability to authorize payroll deductions shall relate
solely to a Participant, except as otherwise provided in Section 8(c) hereof.
14. USE OF FUNDS.
All payroll deductions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
15. REPORTS.
Individual accounts shall be maintained for each Participant
in the Plan. Statements of account shall be given to participating Employees at
such times prescribed by the Committee; such statements shall set forth the
amounts of payroll deductions, the per share purchase price, the number of
shares of Common Stock purchased, the aggregate shares in the Participant's
account and the remaining cash balance, if any.
16. EFFECT OF CERTAIN CHANGES.
(a) In the event of any increase, reduction, or
change or exchange of shares of Common Stock for a different number or kind of
shares or other securities of the Company by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, stock dividend, stock
split or reverse stock split, combination or exchange of shares, repurchase of
shares, change in corporate structure or otherwise, or the distribution of an
extraordinary dividend, the Committee shall conclusively determine the
appropriate equitable adjustments, if any, to be made under the Plan, including
without limitation adjustments to the number of shares of Common Stock which
have been authorized for issuance under the Plan but have not yet been placed
under Option, as well as the price per share of Common Stock covered by each
Option under the Plan which has not yet been exercised.
(b) In the event of the complete liquidation of the
Company or of a reorganization, consolidation or merger in which the Company is
not the surviving Corporation, any Option granted under the Plan shall continue
in full force and effect unless either (i) the Board modifies such Option so
that it is fully exercisable with respect to all of the Common Stock subject
thereto prior to the effective date of such transaction or (ii) the surviving
corporation issues or assumes a stock option as contemplated under Section
424(a) of the Code.
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<PAGE> 15
17. AMENDMENT OR TERMINATION.
The Company, by action of the Board (or a duly authorized
committee thereof), may at any time terminate, amend or freeze the Plan. No such
termination shall adversely affect Options previously granted and no amendment
may make any change in any Option theretofore granted which adversely affects
the rights of any Participant. No amendment shall be effective unless approved
by the stockholders of the Company if stockholder approval of such amendment is
required to comply with Section 423 of the Code or to comply with any other
applicable law, regulation or stock exchange rule. Upon termination of the Plan,
the Company shall return or distribute the payroll deductions credited to a
Participant's account (that have not been used to purchase shares of Common
Stock) and shall distribute or credit shares of Common Stock credited to a
Participant's account in accordance with Section 8(b) hereof. Upon the freezing
of the Plan, any payroll deductions credited to a Participant's account (that
have not been used to purchase shares of Common Stock) shall be used to purchase
shares of Common Stock in accordance with Section 6, substituting the term
Exercise Date with the effective date of the freezing of the Plan.
18. NOTICES.
All notices or other communications by a Participant to the
Company or the Committee under or in connection with the Plan shall be deemed to
have been duly given when received in the form specified by the Company or
Committee at the location, or by the person, designated for the receipt thereof.
Each Participant shall be responsible for furnishing the Committee with the
current and proper address for the mailing of notices and the delivery of other
information. Any notices or communications by the Company to a Participant shall
be deemed given if directed to such address and mailed by regular United States
mail, first-class and prepaid. If any item mailed to such address is returned as
undeliverable to the addressee, mailing shall be suspended until the Participant
furnishes the proper address.
19. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the
State of Delaware without giving effect to the choice of law principles thereof,
except to the extent that such law is preempted by federal law.
(b) The obligation of the Company to sell or deliver
shares of Common Stock with respect to Options granted under the Plan shall be
subject to all applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Committee.
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<PAGE> 16
(c) To the extent required, the Plan is intended to
comply with Rule 16b-3 and the Committee shall interpret and administer the
provisions of the Plan in a manner consistent therewith. Any provisions
inconsistent with Rule 16b-3 shall be inoperative and shall not affect the
validity of the Plan. The Committee may establish and adopt written
administrative guidelines, designed to facilitate compliance with Section 16(b)
of the Exchange Act and Rule 16b-3, as it may deem necessary or proper for the
administration and operation of the Plan and the transaction of business
thereunder.
20. WITHHOLDING OF TAXES.
(a) If the Participant makes a disposition, within
the meaning of Section 424(c) of the Code and regulations promulgated
thereunder, of any share or shares issued to such Participant pursuant to such
Participant's exercise of an Option, and such disposition occurs within the
two-year period commencing on the day after the Offering Date or within the
one-year period commencing on the day after the Exercise Date, such Participant
shall immediately, or as soon as practicable thereafter, notify the Company
thereof and thereafter immediately deliver to the Company any amount of federal,
state or local income taxes and other amounts which the Company informs the
Participant the Company is required to withhold.
(b) Notwithstanding anything herein to the contrary,
the Employer shall have the right to make such provisions as it deems necessary
to satisfy any obligations to withhold federal, state, or local income taxes or
other taxes incurred by reason of the issuance of Common Stock pursuant to the
Plan. Notwithstanding anything herein to the contrary, the Employer may require
a Participant to remit an amount equal to the required withholding amount and
may invalidate any election if the Participant does not remit applicable
withholding taxes.
21. NO EMPLOYMENT RIGHTS.
The establishment and operation of this Plan shall not confer
any legal rights upon any Participant or other person for a continuation of
employment, nor shall it interfere with the rights of an Employer to discharge
any Employee and to treat him without regard to the effect which that treatment
might have upon him as a Participant or potential Participant under the Plan.
22. SEVERABILITY OF PROVISIONS.
If any provision of the Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and the Plan shall be construed and enforced as if such
provisions had not been included.
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<PAGE> 17
23. CONSTRUCTION.
The use of a masculine pronoun shall include the feminine, and
the singular form shall include the plural form, unless the context clearly
indicates otherwise. The headings and captions herein are provided for reference
and convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
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<PAGE> 1
EXHIBIT 10.18
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") made and entered into
this ___ day of _________, 1998 by and between INSIGNIA/ESG HOLDINGS, INC., a
Delaware corporation (the "Company"), and _________ (the "Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as executive officers, directors or in other
capacities unless they are provided with adequate protection through insurance
and indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of such corporations;
and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the Indemnitee is willing to serve, continue to serve and to
take on additional service for or on behalf of the Company on the condition that
he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and the Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. The Indemnitee agrees to serve as a
director and/or executive of the Company. Subject to other agreements,
arrangements and understandings between the Indemnitee and the Company, the
Indemnitee may at any time and for any reason resign from such position (subject
to any other contractual obligation or other obligation imposed by operation of
law). Notwithstanding the foregoing, this Agreement shall not impose any
employment obligation upon the Company, provide Indemnitee with any right to
continuance of employment, or amend, modify or alter any agreement, arrangement
or understanding concerning the employment of Indemnitee. If the Indemnitee is
an executive of the Company, the Indemnitee's employment is and shall continue
to be at will (subject to any other agreements, arrangements or understandings
between the Company and the Indemnitee).
Section 2. Indemnification. The Company shall indemnify the Indemnitee
to the fullest extent permitted by applicable law in effect on the date hereof
or as such laws may from time to time be amended. Without diminishing the scope
of the indemnification provided by this Section 2, the rights of indemnification
of the Indemnitee provided hereunder shall
<PAGE> 2
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include but shall not be limited to those rights set forth hereunder, except to
the extent expressly prohibited by applicable law.
Section 3. Action or Proceeding Other Than an Action By or in the
Right of the Company. The Indemnitee shall be entitled to the indemnification
rights provided in this Section 3 if he is or was a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative in nature, other than
an action by or in the right of the Company, by reason of the fact that he is or
was, either prior to or after the execution of this Agreement, a director,
officer, employee, agent or fiduciary of the Company or any of its subsidiaries
or is or was, either prior to or after the execution of this Agreement, serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of any other entity or by reason of anything done or not done by him,
either prior to or after the execution of this Agreement, in any such capacity.
Pursuant to this Section 3, the Indemnitee shall be indemnified against all
expenses (including attorneys' fees), costs, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding (including, but not limited to, the
investigation, defense or appeal thereof), if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful.
Section 4. Actions By or in the Right of the Company. The Indemnitee
shall be entitled to the indemnification rights provided in this Section 4 if he
is or was a party or is threatened to be made a party to any threatened, pending
or completed action or suit brought by or in the right of the Company to procure
a judgment in its favor by reason of the fact that he is or was, either prior to
or after the execution of this Agreement, a director, officer, employee, agent
or fiduciary of the Company or any of its subsidiaries or is or was, either
prior to or after the execution of this Agreement, serving at the request of the
Company as a director, officer, employee, agent or fiduciary of any other entity
by reason of anything done or not done by him, either prior to or after the
execution of this Agreement, in any such capacity. Pursuant to this Section 4,
the Indemnitee shall be indemnified against all expenses (including attorneys'
fees) and costs actually and reasonably incurred by him in connection with such
action or suit (including, but not limited to, the investigation, defense,
settlement or appeal thereof) if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that no such indemnification shall be made in
respect of any claim, issue or matter as to which applicable law expressly
prohibits such indemnification by reason of an adjudication of liability of the
Indemnitee to the Company, unless, and only to the extent that, the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite such adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnification for such expenses and costs as
such court shall deem proper.
Section 5. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Agreement and in
addition to the rights to
<PAGE> 3
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indemnification set forth in Sections 3 and 4 hereof, to the extent that the
Indemnitee has served as a witness on behalf of the Company or has been
successful on the merits or otherwise, including without limitation the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Sections 3 and 4 hereof, or in defense of any claim,
issue or matter therein, he shall be indemnified against all costs, charges and
expenses (including attorneys' fees) actually and reasonably incurred by him or
on his behalf in connection therewith.
Section 6. Partial Indemnification. In addition to the rights to
indemnification set forth in Sections 3 and 4 hereof, if the Indemnitee is only
partially successful in the defense, investigation, settlement or appeal of any
action, suit, investigation or proceeding described in Section 3 or 4 hereof,
and as a result is not entitled under Section 3, 4 or 5 hereof to
indemnification by the Company for the total amount of the expenses (including
attorneys' fees), costs, judgments, penalties, fees and amounts paid in
settlement actually and reasonably incurred by him, the Company shall
nevertheless indemnify the Indemnitee, as a matter of right pursuant to Section
5 hereof, to the extent that the Indemnitee has been partially successful.
Section 7. Determination of Entitlement to Indemnification. (a) Upon
written request by the Indemnitee for indemnification pursuant to Section 3 or 4
hereof, the entitlement of the Indemnitee to indemnification pursuant to the
terms of this Agreement shall be determined by the following person or persons
who shall be empowered to make such determination: (i) the Board of Directors of
the Company by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined); or (ii) by a committee of Disinterested Directors
designated by majority vote of such Disinterested Directors, even though less
than a quorum; or (iii) if such a quorum referred to in clause (i) is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to the Indemnitee; or (iv) by the stockholders.
Independent Counsel shall be selected by the Disinterested Directors and
approved by the Indemnitee. Upon failure of the Board so to select Independent
Counsel or upon failure of the Indemnitee so to approve Independent Counsel,
Independent Counsel shall be selected by a Chancellor of the State of Delaware
or such other person as such Chancellor shall designate to make such selection.
Such determination of entitlement to indemnification shall be made not later
than 60 days after receipt by the Company of a written request for
indemnification. Such request shall include documentation or information which
is necessary for such determination and which is reasonably available to the
Indemnitee. Any costs or expenses (including attorneys' fees) incurred by the
Indemnitee in connection with his request for indemnification hereunder shall be
borne by the Company. The Company hereby indemnifies and agrees to hold the
Indemnitee harmless from such costs and expenses irrespective of the outcome of
the determination of the Indemnitee's entitlement to indemnification.
(b) Notwithstanding any other provision of this Agreement to the
contrary, if there is a Change in Control of the Company (as defined below),
other than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to such Change
in Control, then with respect to all matters thereafter arising
<PAGE> 4
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concerning the rights of Indemnitee to indemnity payments and advances of
expenses under this Agreement or any other agreement, the Company's Certificate
of Incorporation or the Company's by-laws relating to claims for
indemnification, the Company shall seek legal advice only from Independent
Counsel selected by Indemnitee and approved by the Company (which approval shall
not be unreasonably withheld). Such Independent Counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent the Indemnitee would be permitted to be indemnified under
applicable law. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and, to the extent permitted by applicable law, may
fully indemnify such Independent Counsel against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating to
this Agreement.
Section 8. Presumptions and Effect of Certain Proceedings. The
Secretary of the Company shall, promptly upon receipt of the Indemnitee's
request for indemnification, advise in writing the Board of Directors or such
other person or persons empowered to make the determination as provided in
Section 7 that the Indemnitee has made such request for indemnification. Upon
making such request for indemnification, the Indemnitee shall be presumed to be
entitled to indemnification hereunder and the Company shall have the burden of
proof in the making of any determination contrary to such presumption. If the
person or persons so empowered to make such determination shall have failed to
make the requested indemnification within 60 days after receipt by the Company
of such request, except as otherwise expressly prohibited by applicable law, the
requisite determination of entitlement to indemnification shall be deemed to
have been made and the Indemnitee shall be absolutely entitled to such
indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or 4 hereof by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself: (a) create a presumption that the Indemnitee did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, that the Indemnitee had reasonable cause to believe that his conduct
was unlawful; or (b) otherwise adversely affect the rights of the Indemnitee to
indemnification except as may be provided herein.
Section 9. Advancement of Expenses and Costs. All reasonable expenses
and costs incurred by the Indemnitee (including attorneys' fees, retainers and
advances of disbursements required of the Indemnitee) shall be paid by the
Company upon incurrence, in advance of the final disposition of such action,
suit or proceeding, at the request of the Indemnitee within 20 days after the
receipt by the Company of a statement or statements from the Indemnitee
requesting such advance or advances from time to time. The Indemnitee's
entitlement to such expenses shall include those incurred in connection with any
proceeding by the Indemnitee seeking an adjudication or award in arbitration
pursuant to this Agreement. Such statement or statements shall reasonably
evidence the expenses and costs incurred by him in connection therewith. The
Indemnitee hereby undertakes to repay such amount if it is ultimately determined
that the Indemnitee is not entitled to be indemnified against such expenses and
costs
<PAGE> 5
-5-
by the Company as provided by this Agreement or otherwise.
Section 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses. In the event that a determination is made that
the Indemnitee is not entitled to indemnification hereunder or if payment has
not been timely made following a determination of entitlement to indemnification
pursuant to Sections 7 and 8, or if expenses are not advanced pursuant to
Section 9, the Indemnitee shall be entitled to a final adjudication in an
appropriate court of the State of Delaware or any other court of competent
jurisdiction of his entitlement to such indemnification or advance.
Alternatively, the Indemnitee at his option may seek an award in arbitration to
be conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association, such award, if determined by the arbitrator to be
merited, to be made within 60 days following the filing of the demand for
arbitration. The Company shall not oppose the Indemnitee's right to seek any
such adjudication or award in arbitration or any other claim. Such judicial
proceeding or arbitration shall be made de novo and the Indemnitee shall not be
prejudiced by reason of a determination (if so made) that he is not entitled to
indemnification. If a determination is made or deemed to have been made pursuant
to the terms of Section 7 or Section 8 hereof that the Indemnitee is entitled to
indemnification, the Company shall be bound by such determination and is
precluded from asserting that such determination has not been made or that the
procedure by which such determination was made is not valid, binding and
enforceable. The Company further agrees to stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement and is precluded from making any assertion to the contrary. If the
court or arbitrator shall determine that the Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable expenses
(including attorneys' fees) and costs actually incurred by the Indemnitee in
connection with such adjudication or award in arbitration (including, but not
limited to, any appellate proceedings).
Section 11. Other Rights to Indemnification. The indemnification and
advancement of expenses (including attorney's fees) and costs provided by this
Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may now or in the future be entitled under any provision of the
by-laws, Certificate of Incorporation, vote of stockholders or disinterested
directors, provision of law, other agreement or otherwise.
Section 12. Attorneys' Fees and Other Expenses to Enforce Agreement
and Other Matters. (a) In the event that the Indemnitee is subject to or
intervenes in any proceeding in which the validity or enforceability of this
Agreement is at issue or seeks an adjudication or award in arbitration to
enforce his rights under, or to recover damages for breach of, this Agreement,
the Indemnitee, if he prevails in whole or in part in such action, shall be
entitled to recover from the Company and shall be indemnified by the Company
against, any actual expenses for attorneys' fees and disbursements reasonably
incurred by him.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, partners,
venturers, employees, agents or fiduciaries of the Company or of any other
corporation, partnership, joint venture, trust,
<PAGE> 6
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employee benefit plan or other enterprise which person serves at the request of
the Company, Indemnitee shall be covered by such policy or policies in
accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, partner, venturer, employee or agent
under the policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of the payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure the rights, including execution of documentation
necessary to enable the Company to bring suit to enforce these rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable if and to the extent that Indemnitee
has otherwise actually received such payment under any insurance policy,
contract, agreement, arrangement, understanding or otherwise.
Section 13. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the Indemnitee has ceased to
occupy any of the positions or have any of the relationships described in
Sections 3 and 4 of this Agreement; or (b) the final termination of all pending
or threatened actions, suits proceedings or investigations commenced prior to or
during such 10-year period with respect to the Indemnitee. Notwithstanding the
foregoing, this Agreement shall terminate and the Indemnitee shall have no
further rights under this Agreement, including but not limited to any rights to
indemnification or advancement of expenses, upon the commencement, directly or
indirectly, by or on behalf of the Indemnitee, of any suit or proceeding against
the Company other than (i) a suit or proceeding seeking a final adjudication of
the Indemnitee's right to indemnification under Section 10 of this Agreement or
(ii) a suit or proceeding seeking indemnification or contribution from the
Company where the Company is or may be liable for all or part of a claim against
the Indemnitee or (iii) a class action where the Indemnitee is not a class
representative. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of the Indemnitee's
spouse, assigns, heirs, devises, estate, executors, administrators or other
legal representatives, and the Company's successors and assigns.
Section 14. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality, and enforceability of the remaining
provisions of this Agreement (including without limitation all portions of any
paragraphs of this Agreement containing any such provision held to be invalid,
illegal, or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Agreement (including without
limitation all portions of any paragraph of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
Section 15. Identical Counterparts. This Agreement may be executed in
one or
<PAGE> 7
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more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 16. Headings. The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
<PAGE> 8
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Section 17. Definitions. For purposes of this Agreement:
(a) Change in Control." A Change in Control shall be deemed
to have occurred if (i) any "person" (as such term is used in Section 13 (d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than (x) unless otherwise determined by the Board of Directors of the
Company or a duly authorized committee thereof, Andrew L. Farkas, his associates
or affiliates, or any group of which he is a member (within the meaning of such
terms under the Exchange Act and rules thereunder), or (y), a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
20% or more of the total voting power represented by the Company's then
outstanding Voting Securities; or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board of Directors; or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior to such a merger
or consolidation continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity) at least 80% of
the total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company or an agreement for the sale
or disposition by the Company (in one transaction or a series of related
transactions) of all or substantially all the Company's assets.
(b) "Disinterested Director" shall mean a director of the
Company who is not or was not a party to the action, suit, investigation or
proceeding in respect of which indemnification is being sought by the
Indemnitee.
(c) "Independent Counsel" shall mean a law firm or a member
of a law firm that neither is presently nor in the past five years has been
retained to represent: (i) the Company or the Indemnitee in any matter material
to either such party, or (ii) any other party to the action, suit, investigation
or proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or the Indemnitee in an action to determine the Indemnitee's right to
indemnification under this Agreement.
(d) "Voting Securities" shall mean any securities of the
Company which vote generally in the election of directors.
<PAGE> 9
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Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by the Indemnitee. The Indemnitee agrees promptly
to notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
matter which may be subject to indemnification covered hereunder, either civil,
criminal or investigative.
Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) if delivered by hand, on the date of delivery, (ii) if sent by a
nationally recognized overnight courier, on the second business day after the
date on which it was sent, or (ii) if mailed by certified or registered mail
with postage prepaid, on the third business day after the date on which it is so
mailed. Such notices, requests, demands and other communications will be sent to
the address indicated below:
(a) If to the Indemnitee, to:
(b) If to the Company to:
Secretary
Insignia/ESG Holdings, Inc.
200 Park Avenue
New York, New York 10166
or to such other address as may have been furnished to the Indemnitee by the
Company or to the Company the Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware, in that giving effect to the conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INSIGNIA/ESG HOLDINGS, INC.
By:
--------------------------
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Adam B. Gilbert
Secretary
--------------------------
Indemnitee
<PAGE> 11
SCHEDULE TO FORM OF INDEMNIFICATION AGREEMENT
Directors and Officers of Insignia/ESG, Holdings, Inc.
Andrew L. Farkas
Robert J. Denison
Robin L. Farkas
Andrew J.M. Huntley
Robert G. Koen
Stephen B. Siegel
H. Strauss Zelnick
James A. Aston
Frank M. Garrison
Adam B. Gilbert
Edward S. Gordon
Ronald Uretta
<PAGE> 1
EXHIBIT 10.19
TECHNICAL SERVICES AGREEMENT
THIS AGREEMENT is made and entered into as of June 29, 1998, by and
between Insignia Financial Group, Inc., a Delaware corporation ("IFG"),
Insignia/ESG Holdings, Inc., a Delaware corporation ("I/ESG") and Apartment
Investment and Management Company, a Maryland real estate investment trust
("AIMCO").
BACKGROUND
IFG (which is the parent company of I/ESG) and AIMCO have entered into
a definitive agreement and plan of merger pursuant to which IFG will be merged
with and into AIMCO upon satisfaction of certain conditions (the "Merger").
Prior to consummation of the Merger, IFG intends to spin off I/ESG as
an independent, public company.
I/ESG currently utilizes certain information systems of IFG which will
be acquired by AIMCO upon consummation of the Merger. I/ESG is in the process of
establishing its own information systems in anticipation of its spin-off from
IFG; however, these new independent systems will not be fully operational until
after consummation of the Merger, but prior to March 31, 1999. Therefore, IFG,
AIMCO and I/ESG desire to enter into this Agreement whereby AIMCO will provide
I/ESG with the technical and information services described on Exhibit "A"
hereto upon the terms and conditions set forth herein.
AGREEMENT
In consideration of the mutual covenants and agreements contained
herein, and upon the terms and subject to the conditions hereinafter set forth,
the parties do hereby agree as follows:
1. SCOPE OF SERVICES. Subject to the terms and conditions of this
Agreement, AIMCO agrees to use its best efforts to provide I/ESG with the
services described in "Exhibit A" (collectively, the "Services"). AIMCO agrees
to use its best efforts to insure that such Services are delivered and performed
in a timely and careful manner consistent with past practices of Insignia
Financial Group, Inc. I/ESG may in its discretion, at its sole expense, retain
outside consultants to assist AIMCO in providing the Services. AIMCO agrees that
it will cooperate with any outside consultants retained by I/ESG to assist AIMCO
in providing the Services and in the transition of the Services to I/ESG's
internal information systems personnel.
2. TERM OF AGREEMENT.
A. The term of this Agreement shall be for the period commencing on
the Effective Date of the Merger ("Effective Date") and ending on December 31,
1998; provided, however, that I/ESG may extend the term of this Agreement on a
month-to-month basis thereafter until such time as I/ESG determines in its sole
and absolute discretion that the Services are no longer
<PAGE> 2
required, but in no event beyond March 31, 1999. Notwithstanding the foregoing,
I/ESG may terminate this Agreement at any time in its absolute and full
discretion, upon 15 days prior written notice to AIMCO. Upon termination of this
Agreement, all rights and obligations of each party hereunder, other than with
respect to any payments due hereunder, shall cease, as of the effective date of
such termination, and any amounts owed by either party hereunder shall be paid
in full. Upon any termination of any service hereunder, AIMCO will cooperate
with I/ESG in transferring such service function to such other technical service
providers as I/ESG shall designate. In addition, upon termination of this
Agreement, AIMCO shall return to I/ESG any property of I/ESG in its possession
used in connection with the Services.
B. I/ESG acknowledges that in the event I/ESG acquires additional
assets or merges with or acquires additional entities after the date hereof,
AIMCO's cost structure to provide the Services may increase. I/ESG shall,
therefore, notify, AIMCO in writing within five business days after the
execution of any binding definitive agreement pursuant to which additional
Services by AIMCO will be needed so that AIMCO may assess the effect such
agreement will have on AIMCO's cost of providing Services. AIMCO will notify
I/ESG in writing within 15 business days of any change in its cost structure,
and the Fee will be adjusted accordingly. Notwithstanding anything to the
contrary in this Agreement, AIMCO may terminate this Agreement upon 15 days
prior written notice in the event the parties cannot agree on the new cost
structure.
3. PLACE OF PERFORMANCE. AIMCO will perform the Services from the
locations where such Services were performed internally by IFG prior to
consummation of the Merger; provided, however, that such Services may be
performed from another location, if in AIMCO's reasonable business judgment it
preferable to do so and the performance of the Services from such other
location(s) will not have an adverse effect on the quality and timeliness of the
Services.
4. COMMUNICATIONS LINES. It is understood and agreed that I/ESG shall be
exclusively responsible for and shall pay all installation, monthly and other
charges relating to the installation and use of data communication lines in
connection with the Services. AIMCO shall not be responsible for loss of
availability of the communications lines used by I/ESG in accessing the
Services, except for any communication lines connecting I/ESG with AIMCO which
are the responsibility of AIMCO and except to the extent that AIMCO causes the
loss of any such communication lines.
5. FEES AND PAYMENTS.
A. I/ESG agrees to pay AIMCO a monthly fee (the "Fee") during the
term hereof in accordance with the fee schedule set forth on Exhibit C attached
hereto, subject to adjustment as provided in Section 2.B. The parties agree that
such Fee is intended to represent an approximation of the actual costs incurred
by AIMCO in performing and delivering the Services hereunder.
B. I/ESG shall pay the Fee each month in arrears within five
business days following receipt by I/ESG of an invoice from AIMCO specifying the
Fee amount owed for the
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<PAGE> 3
immediately preceding calendar month. Any invoice for a partial calendar month
shall be prorated. Such payments are to be made by wire transfer to the
following account of AIMCO (or another account designated in writing by AIMCO):
Bank:
City:
ABA Routing No.
Account No.
All invoices shall include any additional charges or credits
required to correct for any prior billing error, together with supporting
documentation explaining such error.
I/ESG shall be permitted to request from time to time copies
of supporting documentation relating to invoices it receives from AIMCO. I/ESG
shall also have the right, at its expense, to have fees and expenses which have
been invoiced by AIMCO to I/ESG audited by I/ESG's outside auditors for the
purpose of determining whether such fees and expenses have been correctly
computed in accordance with the provisions hereof. Such audits shall be
conducted during normal business hours and under reasonable terms and
conditions. AIMCO will cooperate with I/ESG's outside auditors by promptly
providing them with such documentation as they shall reasonably request in
connection with the audit.
D. All amounts not paid by I/ESG when due pursuant to this
Agreement shall bear interest at an annual rate equal to the Prime Rate, as
announced from time to time by First Union National Bank of South Carolina (or,
if not announced thereby, by another bank of national standing selected by
AIMCO), plus 1.5%, from the due date until such amounts are paid in full.
6. CONFIDENTIALITY OF I/ESG FILES; FILE SECURITY AND RETENTION.
A. Any I/ESG computer files or other information provided by
I/ESG to AIMCO for use in connection with provision of the Services shall remain
the exclusive and confidential property of I/ESG. AIMCO shall treat as
confidential and will not otherwise make available any I/ESG computer files or
other confidential information to any person other than employees of AIMCO on a
need-to-know basis. AIMCO will instruct its employees who have access to the
I/ESG computer files and other information to keep the same confidential by
using the same care and discretion that AIMCO uses with respect to its own
confidential property.
B. AIMCO and I/ESG will provide adequate security measures to
insure that third parties do not have access to the I/ESG computer files and
other information. AIMCO reserves the right to issue and change regulations and
procedures from time to time to improve file security upon notice and consent of
I/ESG.
C. AIMCO will take commercially reasonable precautions to prevent
the loss of or alteration to the I/ESG computer files. As a precaution, I/ESG
will, to the extent it deems necessary, keep copies of all source documents of
the information delivered to AIMCO or inputted by I/ESG into the AIMCO system
and will maintain a procedure external to the AIMCO system for the
reconstruction of lost or altered I/ESG computer files.
-3-
<PAGE> 4
D. AIMCO will, to the extent applicable, retain the I/ESG
computer files held by AIMCO at AIMCO's facility in accordance with, and to the
extent provided by, AIMCO's then prevailing records retention policies. AIMCO
will not dispose of any I/ESG computer files without providing adequate written
notice to I/ESG. At I/ESG's request, AIMCO will provide I/ESG, in a standard
AIMCO format, with any and all of the I/ESG computer files requested by I/ESG
which are then in AIMCO's possession. Upon termination of this Agreement and
prior written notice by AIMCO, AIMCO may transfer any or all of the I/ESG
computer files to I/ESG.
7. OWNERSHIP, LICENSES AND SUBLICENSES, CONFIDENTIALITY AND
NON-DISCLOSURE.
A. I/ESG acknowledges that all computer programs (other than
pre-packaged third party software, but not including modifications,
enhancements, or improvements to such pre-packaged software made for the benefit
of AIMCO) and related documentation made available, directly or indirectly, by
AIMCO to I/ESG as part of the Services (the "AIMCO Products") will, after the
Effective Date, be the exclusive and confidential property of AIMCO or the third
parties from whom AIMCO has secured the right to use such computer programs and
documentation. AIMCO and the third parties referred to in the immediately
preceding sentence shall retain all rights and title, to the extent of their
respective interests, to all copyrights, trademarks, service marks, trade
secrets, and other proprietary rights in the applicable logos, product names,
AIMCO Products and Services.
B. I/ESG shall receive all improvements, enhancements,
modifications and updates to any AIMCO Products which are delivered to I/ESG as
part of the Services if and as they are made generally available by AIMCO, at no
cost, to I/ESG; provided, however, that in no event will AIMCO be required to
take any action that would constitute a violation of its obligations under any
software license agreement that it assumes in connection with the Merger or
otherwise.
C. I/ESG WILL NOT MAKE ANY ALTERATION, CHANGE OR MODIFICATION TO
ANY OF THE AIMCO PRODUCTS OR TO ANY OF THE AIMCO SUPPORTED FILES USED BY AIMCO
IN CONNECTION WITH PROVIDING THE SERVICES TO I/ESG. I/ESG MAY NOT RECOMPILE,
DECOMPILE, DISASSEMBLE, REVERSE ENGINEER, OR MAKE OR DISTRIBUTE ANY OTHER FORM
OF, OR ANY DERIVATIVE WORK FROM THE AIMCO PRODUCTS AND/OR THE SERVICES.
D. I/ESG shall treat as confidential and will not disclose or
otherwise make available any of the AIMCO Products or any trade secrets,
processes, proprietary data, information or documentation related thereto, or
any pricing or product information furnished to I/ESG by AIMCO (collectively,
the "Confidential Information"), in any form, to any person other than
employees, agents, consultants and representatives of I/ESG. I/ESG will instruct
its employees who have access to the Confidential Information to keep the same
confidential by using the same care and discretion that is used with respect to
its own confidential property and trade secrets.
-4-
<PAGE> 5
E. I/ESG's use of any pre-packaged third party software during
the term of this Agreement will be governed by the terms and conditions of the
applicable third party license agreements contained in the package delivered to
I/ESG hereunder with such pre-packaged third party software.
8. REPRESENTATIONS AND WARRANTIES OF AIMCO. AIMCO hereby represents and
warrants to I/ESG that:
A. AIMCO will, immediately upon consummation of the Merger, have
the know-how and personnel necessary in order to comply with AIMCO's obligations
under this Agreement.
B. AIMCO will instruct its personnel who are or will be in charge
of overseeing the performance and delivery of the Services to I/ESG that AIMCO
has entered into this binding and enforceable Agreement obligating AIMCO to
perform and deliver the Services, and AIMCO will appoint Al Gossett as I/ESG's
contact person at AIMCO.
9. INDEMNIFICATION
A. Subject to Section 9.E, AIMCO shall indemnify, defend (using
counsel acceptable to I/ESG) and hold harmless I/ESG and its affiliates and each
of their respective officers, directors, employees, stockholders, partners,
agents and representatives, and each of their respective successors and assigns,
from and against any and all liabilities, obligations, claims, losses, causes of
action, suits, proceedings, awards, judgments, settlements, demands, damages
(but including only direct damages, costs, expenses, fines, penalties,
deficiencies, taxes and fees, (including without limitation the fees, expenses,
disbursements and investigation costs of attorneys and consultants) arising
directly out of or resulting in any way from or in connection with (i) any
breach by AIMCO of its obligations and duties hereunder, and (ii) any
negligence, fraud, or willful or intentional misconduct by AIMCO or its
employees in connection with the performance of its obligations hereunder. For
purposes of this Section 9.A, Skadden, Arps and Bryan Cave, LLP are deemed to be
acceptable by I/ESG.
B. Subject to Section 9.E, Insignia/ESG agrees to indemnify,
defend (using counsel acceptable to AIMCO) and hold harmless AIMCO and its
affiliates and each of their respective officers, directors, employees,
stockholders, partners, agents and representatives, and each of their respective
successors and assigns, from and against any and all liabilities, obligations,
claims, losses, causes of action, suits, proceedings, awards, judgments,
settlements, demands, damages, costs, expenses, fines, penalties, deficiencies,
taxes and fees, (including without limitation the fees, expenses, disbursements
and investigation costs of attorneys and consultants) arising directly or
indirectly out of or resulting in any way from or in connection with (i) any
breach by I/ESG of its obligations and duties hereunder and (ii) any negligence,
fraud, or willful or intentional misconduct of I/ESG in connection with the
performance of its obligations hereunder.
C. If any action or proceeding is brought against a party with
respect to which indemnity may be sought under this Section 8, the indemnifying
party, upon written notice from
-5-
<PAGE> 6
the indemnified party, shall assume the investigation and defense thereof,
including the employment of counsel and payment of all reasonable expenses. The
indemnified party shall have the right to employ separate counsel in any such
action or proceeding and to participate in the defense thereof, but the
indemnifying party shall not be required to pay the fees and expenses of such
separate counsel, unless such separate counsel is employed with the written
approval and consent of the indemnifying party, which consent may be withheld in
the indemnifying party's reasonable discretion.
D. The indemnities in this Section 9 shall survive the expiration
or termination of this Agreement.
E. Anything in this Agreement to the contrary notwithstanding,
AIMCO and I/ESG hereby waive and release each other of, and from, any and all
right of recovery, claim, action, or cause of action against each other, their
agents, officers, and employees, for any loss or damage that may occur to
property, by reason of fire or the elements, or other casualty, regardless of
cause or origin, including negligence of AIMCO or I/ESG and their officers,
employees or agents, to the extent the same is insured against under insurance
policies carried by AIMCO or I/ESG; however, neither party's waiver shall
include any deductible amounts on insurance policies carried by such party, nor
extend to acts of the type described in clauses (i) and (ii) of Section 8.A and
8.B. AIMCO and I/ESG agree to obtain a waiver of subrogation from the respective
insurance companies which have issued policies of insurance covering all risk of
direct physical loss and to have the insurance policies endorsed, if necessary,
to prevent the invalidation of the insurance coverages by reason of the mutual
waivers.
10. LAWS AND GOVERNMENTAL REGULATIONS. I/ESG shall be responsible (i) for
compliance with all laws and governmental regulations affecting its business and
(ii) for any use it may make of the Services to assist it in complying with such
laws and governmental regulations, and AIMCO shall not have any responsibility
relating thereto (including, without limitation, advising I/ESG of I/ESG's
responsibilities in complying with any laws or governmental regulations
affecting I/ESG's business). AIMCO agrees to use its best efforts to cause the
applicable Services to be designed and delivered in such a manner that they will
be able to assist I/ESG in complying with its applicable legal and regulatory
responsibilities; in no event shall I/ESG rely solely on its use of the Services
in complying with any laws and governmental regulations.
11. DEFAULT; REMEDIES UPON DEFAULT.
A. Should I/ESG (a) default in the payment of any sum of money
hereunder, (b) default in the performances of any of its other obligations under
this Agreement or (c) commit an act of bankruptcy or become the subject of any
proceeding under the Bankruptcy Act or become insolvent, or if any substantial
part of I/ESG's property becomes subject to any levy, seizure, assignment,
application, or sale for or by any creditor or governmental agency, then, in any
such event, AIMCO, at its option may, upon written notice thereof, immediately
terminate this Agreement. Nothing in this Section 11 shall in any way limit
AIMCO's rights and remedies under Section 9 hereof.
-6-
<PAGE> 7
B. Should AIMCO (a) default in the payment of any sum of money
hereunder, (b) default in the performance of any of its obligations under this
Agreement of (c) commit an act of bankruptcy or become the subject of any
proceeding under the Bankruptcy Act or become insolvent, or if any substantial
part of AIMCO's property becomes subject to any levy, seizure, assignment,
application, or sale for or by any creditor or governmental agency, then, in any
such event, I/ESG, at its option may, upon written notice thereof, immediately
terminate this Agreement. Nothing in this Section 11 shall in any way limit
I/ESG's rights and remedies under Section 9 hereof.
12. GENERAL.
A. This Agreement shall not be assigned by I/ESG or AIMCO without
the prior written consent of the other party, and any attempt by I/ESG or AIMCO
to assign any of its rights, duties or obligations which arise under this
Agreement without such consent will be void.
B. Both parties acknowledge that it has not been induced to enter
into this Agreement by any representation or warranty not set forth in this
Agreement. This Agreement contains the entire agreement of AIMCO and I/ESG with
respect to its subject matter and supersedes all existing agreements and all
other oral, written or other communications between them concerning its subject
matter. This Agreement shall not be modified in any way except by a writing
signed by both AIMCO and I/ESG.
C. If any provision of this Agreement (or any portion thereof)
shall be held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder of this Agreement shall not in any way be
affected or impaired thereby.
D. The failure by either AIMCO or I/ESG to insist upon strict
performance of any of the provisions contained herein shall in no way constitute
a waiver of any of its rights as set forth herein, at law or in equity, or a
waiver by either AIMCO or I/ESG of any other provision or subsequent default by
the other in the performance of or compliance with any of the terms and
conditions set forth herein.
E. The headings in this Agreement are intended for convenience of
reference and shall not affect its interpretation.
INSIGNIA/ESG HOLDINGS, INC.
By:/s/ ADAM B. GILBERT
--------------------------------------
Name: Adam B. Gilbert
Title: Executive Vice President
INSIGNIA FINANCIAL GROUP, INC.
By:/s/ ADAM B. GILBERT
--------------------------------------
Name: Adam B. Gilbert
Title: Secretary
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By:/s/ THOMAS W. TOOMEY
--------------------------------------
Name: Thomas W. Toomey
Title: Executive Vice President
-7-
<PAGE> 8
EXHIBIT "A"
At I/ESG's sole expense:
1. AIMCO will provide access to either of AIMCO's mainframe Corporate
Financials or the PeopleSoft Corporate Financials for processing
I/ESG's Corporate Financials. Corporate Financials consists of the
following applications: Accounts Receivable / Billing, Accounts
Payable, General Ledger, and Fixed Assets.
2. AIMCO will provide access to the central hardware for processing
Corporate Financials. (Mainframe or HP Server).
3. AIMCO will provide Operations personnel to run central computer
Operations.
4. AIMCO will provide on-line availability to Accounts Payable, Accounts
Receivable, and General Ledger between the hours of 08:00 and 21:00
(EST), provided on-line availability shall not be for total hours
greater than provided I/ESG today.
5. AIMCO will provide inquiry and input capability to the I/ESG Accounting
staff located in Greenville, SC. Inquiry and limited input will be
provided to regional accounting offices located in Irvine, CA; Dallas,
TX; and Tampa, FL.
6. AIMCO will provide I/ESG reports as listed in EXHIBIT "B", Report
Schedule.
7. AIMCO will provide Corporate Financials software maintenance for the
term of this Agreement.
8. AIMCO will be responsible for data backups and delivering to I/ESG upon
request.
9. AIMCO will provide Customer Response Center for I/ESG to contact with
issues and questions. Hours of Operation for Response Center is 08:30 -
17:30 (EST), Monday through Friday.
-8-
<PAGE> 9
EXHIBIT "B"
<TABLE>
<CAPTION>
===================================================================================================================================
APPLICATION JOB NAME REPORTS FILES JOB COMPLETION TIME
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
G/L PeopleSoft Financial Statements Day after each cutoff
(Overall, Supp A, Supp B),
08:30
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft Daily Cash Receipts Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft Daily Distribution of APs Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft AutoBank Transfer Report Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft Corporate ACH Report Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft Download Management Fee file Day after Supp A cutoff, 08:00
to network server
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft Control File Update Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft Daily Transaction File List Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft Daily Unposted JE Register Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft General Ledger Account Summary Monday - Friday, 08:00
IV
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft General Ledger Out of Balance Monday - Friday, 08:00
Report
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft GL Update Error-Audit Report Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft JE Exception - ES Gordon Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft JE Numeric Register Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft Daily Transaction Analysis Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft Postage 16th of every month, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft GL Consolidation Errors File Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
G/L PeopleSoft GL Inactive Report Monday - Friday, 08:00
- -----------------------------------------------------------------------------------------------------------------------------------
A/R PeopleSoft Daily Transaction Listing Monday - Friday, 08:30
===================================================================================================================================
</TABLE>
-9-
<PAGE> 10
EXHIBIT "B"
(CONTINUED)
** TIMES ARE EASTERN TIMES
<TABLE>
<CAPTION>
===================================================================================================================================
APPLICATION JOB NAME REPORTS FILES JOB COMPLETION TIME
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A/P PeopleSoft Check Register Check Stock Monday - Friday, 08:30
- -----------------------------------------------------------------------------------------------------------------------------------
A/P PeopleSoft Unpaid Invoice Register Monday - Friday, 08:30
- -----------------------------------------------------------------------------------------------------------------------------------
A/P PeopleSoft Unpaid Invoice Register Due Monday - Friday, 08:30
- -----------------------------------------------------------------------------------------------------------------------------------
A/P PeopleSoft Check Recaps Monday - Friday, 08:30
- -----------------------------------------------------------------------------------------------------------------------------------
A/P PeopleSoft Daily A/P Distribution Monday - Friday, 08:30
- -----------------------------------------------------------------------------------------------------------------------------------
A/P PeopleSoft Check Register Check Stock Monday after cutoff, 08:30
- -----------------------------------------------------------------------------------------------------------------------------------
A/P PeopleSoft Unpaid Invoice Register Monday after cutoff, 08:30
- -----------------------------------------------------------------------------------------------------------------------------------
A/P PeopleSoft Paid Invoices for Y/E Day after A run in March,
June, September, December,
08:30
===================================================================================================================================
</TABLE>
-10-
<PAGE> 11
EXHIBIT "C"
FEE SCHEDULE
A. Monthly charge for processing and support of the Services: $54,000
B. Other services outside the Services:
o Applications and Technical Services Personnel time: $60/hour plus
expenses
o CIO and Management Personnel time: $145/hour plus
expenses
-11-
<PAGE> 1
EXHIBIT 10.20
AMENDMENT NO. 1 TO TECHNICAL SERVICES AGREEMENT
This Amendment No. 1 to Technical Services Agreement ("Amendment") is
made and entered into as of July 28, 1998, by and among Insignia Financial
Group, Inc., a Delaware corporation ("IFG"), Insignia/ESG Holdings, Inc., a
Delaware corporation ("I/ESG") and Apartment Investment and Management Company,
a Maryland real estate investment trust ("AIMCO").
BACKGROUND
The parties entered into that certain Technical Services Agreement on
June 29, 1998 (the "Agreement") pursuant to which AIMCO has agreed to provide
certain technical services to I/ESG commencing on the effective date of the
merger of IFG with and into AIMCO; and
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and in the Agreement, the parties hereto do hereby covenant and
agree as follows:
1. Defined Terms. Terms defined in the Agreement and delineated herein
by initial capital letters shall have the same meaning ascribed thereto in the
Agreement, except to the extent that the meaning of any such term is
specifically modified by the provisions hereof. In addition, other terms not
defined in the Agreement but defined herein will, when delineated with initial
capital letters, have the meanings ascribed thereto in this Amendment. Terms and
phrases which are not delineated by initial capital letters shall have the
meanings commonly ascribed thereto.
2. Amendment. From and after the date hereof, the Agreement shall be
amended as follows:
The first sentence in Section 2.A. of the Agreement is hereby
deleted in its entirety and is hereby replaced by the following sentence:
"The term of this Agreement shall be for a period commencing on the
Effective Date of the Merger ("Effective Date") and ending on June
30, 1999."
3. Effect of Amendment. Except as expressly amended by the provisions
hereof, the terms and provisions contained in the Agreement shall continue to
govern the rights and obligations of the parties; and all provisions and
covenants in the Agreement shall remain in full
<PAGE> 2
force and effect as stated therein, except to the extent specifically modified
by the provisions of this Amendment. This Amendment and the Agreement shall be
construed as one instrument.
IN WITNESS WHEREOF, IFG, I/ESG and AIMCO have executed this Amendment
in multiple counterparts as of the date first written above, but it is intended
that this Amendment shall become effective simultaneously with the effectiveness
of the Agreement.
INSIGNIA/ESG HOLDINGS, INC.
By:/s/ ADAM B. GILBERT
---------------------------------
Name: Adam B. Gilbert
Title: Executive Vice President
INSIGNIA FINANCIAL GROUP, INC.
By:/s/ ADAM B. GILBERT
---------------------------------
Name: Adam B. Gilbert
Title: Secretary
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By:/s/ THOMAS W. TOOMEY
---------------------------------
Name: Thomas W. Toomey
Title: Chief Financial Officer
-2-
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
ENTITY STATE OF FORMATION
- ------ ------------------
<S> <C>
Insignia/ESG, Inc. Delaware
Barnes Morris Pardoe Delaware Limited Liability Company
& Foster Management Services, L.L.C.
Compagnie di Amministazgione Italy
c Gastioni Immobiliare S.p.A.
Construction Interiors, Inc. Delaware
Corporate Relocation Management, Inc. Ohio
E.S.G. Operating Co., Inc. New York
Edward S. Gordon Co., Inc. of Long Island, L.L.C. New York Limited Liability Company
Edward S. Gordon Management Corporation New York
FC&S Management Company Illinois
First Ohio Escrow Corporation, Inc. Ohio
First Ohio Mortgage Corporation, Inc. Ohio
Forum Properties, Inc. Oregon
Goldie B. Wolfe & Company Illinois
ICIG Directives, L.L.C. Delaware
IFC Acquisition Corp. I Delaware
IFC Acquisition Corp. II Delaware
IFSE Holding Co. LLC Delaware Limited Liability Company
IPCG, Inc. Delaware
Insignia Acquisition Corporation Delaware
Insignia Capital Advisors, Inc. South Carolina
Insignia/ESG Capital Corporation Delaware
Insignia/ESG of Alabama, Inc. Delaware
Insignia/ESG, of California, Inc. Delaware
Insignia/ESG of Colorado, Inc. Delaware
Insignia/ESG of Texas, Inc. Delaware
Insignia/ESG Hotel Partners, Inc. Delaware
Insignia Commercial Group West, Inc. Delaware
Insignia Commercial Investments Group, Inc. Delaware
Insignia Commercial Management, Inc. Delaware
Insignia Construction Management Services - Delaware
New York, Inc.
Insignia EC Corporation Delaware
Insignia RO, Inc. Delaware
Insignia Residential Group, Inc. Delaware
Insignia Retail Group, Inc. Delaware
Insignia Rooney Management, Inc. Delaware
Insignia (UK) Holdings Limited United Kingdom
Kreisel Company, Inc. New York
MAP VII Acquisition Corporation Delaware
Metropolitan Acquisition VII, L.L.C. Delaware Limited Liability Company
O'Donnell Property Services, Inc. California
Property Consulting Services, Inc. Delaware
RJN Corporation Delaware
Realty One, Inc. Ohio
Richard D. Ellis Group, Ltd. United Kingdom
Rostenberg-Doern Management Corp. New York
S.I.A., Inc. South Carolina
Soren Management Inc. New York
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 9,250 15,051
<SECURITIES> 0 0
<RECEIVABLES> 101,653 129,115
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 11,235 13,473
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 334,494 450,907
<CURRENT-LIABILITIES> 0 0
<BONDS> 20,891 31,208
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 208,444 288,720
<TOTAL-LIABILITY-AND-EQUITY> 334,494 450,907
<SALES> 0 0
<TOTAL-REVENUES> 295,753 102,801
<CGS> 0 0
<TOTAL-COSTS> 251,268 89,212
<OTHER-EXPENSES> 22,601 7,748
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 318 382
<INCOME-PRETAX> 21,758 5,016
<INCOME-TAX> 8,703 2,257
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 13,055 2,759
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
