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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K
--------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 23, 1999
(Date of earliest event reported)
Commission File Number 1-14373
INSIGNIA FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 56-2084290
(State of Incorporation) (I.R.S. Employer Identification No.)
200 PARK AVENUE, NEW YORK, NEW YORK 10166
(Address of Principal Executive Officers) (Zip Code)
(212) 984-8000
(Registrant's Telephone Number, Including Area Code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 23, 1999, Insignia Financial Group, Inc. (the "Company" or
"Insignia"), through its DE Acquisition, LLC subsidiary, completed the
previously announced acquisition of substantially all of the assets of Douglas
Elliman and affiliated companies. Douglas Elliman, located in New York City, is
a residential real estate brokerage firm that holds the number one market
position for both residential sales and rentals in New York City according to
the annual ranking of residential brokerage companies nation-wide published by
Real Trends.
The base purchase price for Douglas Elliman was approximately $65 million
paid in cash from borrowings under the Company's revolving credit facility.
Additional purchase consideration of up to $10 million over the next five years
is contingent on the future performance measures of Douglas Elliman. The
physical assets acquired, which include furniture, fixtures and computer
equipment under capital leases, will continue to be used in Douglas Elliman's
residential brokerage business. The acquisition was accounted for as a purchase
and was substantially comprised of goodwill.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits - The following are furnished as exhibits to this report:
Exhibit No.
10.1 Purchase Agreement, dated as of May 27, 1999, between Douglas
Elliman, Douglas Elliman, Inc. and Douglas Elliman Insurance
Brokerage Corp. as seller and DE Acquisition, LLC as buyer.
99.1 Press Release dated June 23, 1999.
The financial statements of Douglas Elliman and required pro forma information
to be filed as exhibits to this report are not included and will be filed as
soon as practicable but no later than September 6, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to the signed on its behalf by the
undersigned hereunto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
----------------------------------
Adam B. Gilbert
Executive Vice President
DATE: July 8, 1999
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PURCHASE AGREEMENT
BETWEEN
DOUGLAS ELLIMAN,
DOUGLAS ELLIMAN, INC.
and
DOUGLAS ELLIMAN INSURANCE BROKERAGE CORP.
as Seller
and
DE ACQUISITION, LLC
as Buyer
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Dated as of May 27, 1999
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Table of Contents
Page
1. PURCHASE AND SALE...................................................7
1.1 Agreement to Purchase and Sell......................................7
1.2 Excluded Assets.....................................................9
1.3 Third Party Consents................................................9
1.4 Leases.............................................................10
2. PURCHASE PRICE.....................................................10
2.1 Amount and Payment.................................................10
2.2 Contingent Payments................................................13
2.3 Liabilities........................................................16
2.4 Interim Period.....................................................18
2.5 Commission Receivables and Commission Payables.....................18
2.6 Lease Renewal Commissions..........................................19
2.7 Dispute Resolution.................................................20
2.8 Allocation of Purchase Price.......................................21
3. REPRESENTATIONS AND WARRANTIES OF SELLER...........................21
3.1 Existence..........................................................21
3.2 Power; Authorization; Enforceable Obligations......................21
3.3 Validity of Transactions, Etc......................................21
3.4 Permits............................................................22
3.5 Pipeline Transactions..............................................22
3.6 Financial Statements...............................................22
3.7 Absence of Undisclosed Liabilities.................................22
3.8 Absence of Certain Changes.........................................22
3.9 Contracts; Listings................................................23
3.10 Tangible Personal Property.........................................23
3.11 Real Property......................................................23
3.12 Intellectual Property..............................................24
3.13 Title to Purchased Assets, Etc.....................................25
3.14 Tax and Other Returns and Reports..................................25
3.15 Compliance with Law................................................25
3.16 Conditions Affecting the DE Brokerage Business.....................25
3.17 Employee Plans.....................................................25
3.18 Insurance..........................................................26
3.19 Litigation; Decrees................................................26
3.20 Employees, Independent Contractors and Relations...................26
3.21 No Third Party Options.............................................27
3.22 Environmental Laws.................................................27
3.23 FIRPTA.............................................................27
3.24 Completeness of Disclosure.........................................28
4. REPRESENTATIONS AND WARRANTIES OF BUYER............................28
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4.1 Existence..........................................................28
4.2 Power and Authorization............................................28
4.3 Validity of Transactions, Etc......................................28
4.4 Buyer Financing....................................................28
5. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING..........................28
5.1 Conduct of Business................................................28
5.2 Certain Changes or Events..........................................29
5.3 Access.............................................................29
5.4 Notice of Transaction..............................................29
5.5 HSR Act Compliance.................................................30
5.6 Additional Agreements..............................................30
5.7 Exclusivity........................................................30
6. EMPLOYEES AND INDEPENDENT CONTRACTORS..............................30
6.1 Designated Employees...............................................30
6.2 Employee Costs and Payments to Independent Contractors.............30
6.3 Post-Closing Benefits for Employees Generally......................31
6.4 Confidentiality, Non-Competition Agreements........................31
6.5 Employee and Independent Contractor Information....................31
7. CLOSING............................................................31
7.1 Closing Date.......................................................31
7.2 Deliveries by Seller...............................................31
7.3 Deliveries by Buyer................................................33
7.4 Deliveries by Buyer and Seller.....................................33
8. CONDITIONS TO BUYER'S OBLIGATIONS AT CLOSING.......................34
8.1 Representations and Warranties.....................................34
8.2 Performance........................................................34
8.3 Compliance Certificate.............................................34
8.4 Proceedings and Documents..........................................34
8.5 Opinion of Seller's Counsel........................................34
8.6 HSR; Licenses; Consents............................................34
8.7 No Action or Proceeding............................................34
8.8 No Material Adverse Effect.........................................34
9. CONDITIONS TO SELLER'S OBLIGATIONS AT CLOSING......................35
9.1 Representations and Warranties.....................................35
9.2 Performance........................................................35
9.3 Compliance Certificate.............................................35
9.4 Proceedings and Documents..........................................35
9.5 Opinion of Buyer's Counsel.........................................35
9.6 HSR................................................................35
9.7 No Action or Proceeding............................................35
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10. ADDITIONAL COVENANTS; POST-CLOSING MATTERS...........................35
10.1 Further Assurances.................................................35
10.2 Transition Period..................................................35
10.3 Change of Name.....................................................36
10.4 Public Disclosure..................................................36
10.5 Access; Cooperation................................................36
10.6 Audited Financial Statements.......................................37
10.7 Payment of Excluded Liabilities....................................38
10.8 Survival of Representations, Warranties, Covenants, Etc............38
10.9 Pipeline Transactions..............................................38
10.10 Rogers Employment Agreement........................................38
10.11 Year 2000..........................................................38
10.12 Work Station Wiring................................................39
11. INDEMNIFICATION......................................................39
11.1 Indemnification by Seller..........................................39
11.2 Indemnification by Buyer...........................................39
11.3 Procedure..........................................................40
11.4 Payment of Indemnification Obligations.............................41
11.5 Other Rights and Remedies Not Affected.............................41
11.6 Indemnification Threshold for Certain Representations
and Warranties...................................................41
12. TERMINATION OF AGREEMENT.............................................42
12.1 Events of Termination..............................................42
12.2 Liquidated Damages; Specific Performance...........................42
13. NOTICES..............................................................42
14. MISCELLANEOUS........................................................43
14.1 Entire Agreement...................................................43
14.2 Amendments and Waivers.............................................43
14.3 Successors and Assigns.............................................44
14.4 Governing Law......................................................44
14.5 Severability.......................................................44
14.6 Captions; Number and Gender........................................44
14.7 Counterparts.......................................................44
14.8 Bulk Sales.........................................................44
14.9 Transaction Taxes..................................................44
14.10 Finders' Fees......................................................45
14.11 Expenses...........................................................45
14.12 Interest; Attorneys' Fees..........................................45
14.13 Remedies...........................................................45
14.14 Authority..........................................................45
14.15 No Partnership, Etc................................................45
14.16 No Presumption.....................................................45
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15. DEFINITIONS..........................................................46
Exhibits
Exhibit 7.2.1 Form of Bill of Sale
Exhibit 7.2.2(a) Form of Assignment and Assumption of Lease
Exhibit 7.2.2(b) Form of Estoppel Certificate (Assignment)
Exhibit 7.2.3 Form of Assignment of Management Agreement
Exhibit 7.4.1 Form of Amendment to Management Purchase Agreement
Exhibit 7.4.2(a) Form of Sublease (575 Premises)
Exhibit 7.4.2(b) Form of Sublease (all other Leased Premises)
Exhibit 7.4.2(c) Form of Estoppel Certificate (Sublease)
Exhibit 7.4.2(d) Form of Non-Disturbance Agreement (575 Premises)
Exhibit 7.4.3 Form of Transitional Services Agreement
Exhibit 7.4.4 Form of Trademark License Agreement
Exhibit 7.4.5 Form of Advertising Services Agreement
Exhibit 7.4.7 Form of License Agreement (767 Fifth Avenue)
Exhibit 7.4.8 Form of Non-Competition Agreement
Exhibit 7.4.9 Form of Phone Services Agreement
Exhibit 8.5 Form of Legal Opinion (Seller)
Exhibit 9.5 Form of Legal Opinion (Buyer)
Schedules
Schedule 1.1(b) Equipment and Equipment Leases
Schedule 1.1(c) Supplies
Schedule 1.1(d) Permits
Schedule 1.1(g) Contracts
Schedule 1.1(h) Pipeline Transactions
Schedule 1.1(j) Marks
Schedule 1.1(p) Broker Loans
Schedule 2.5.1 Commission Receivables at 4/30/99
Schedule 2.8 Allocation Schedule
Schedule 3.3 Required Third Party Consents
Schedule 3.6 DE Financial Statements
Schedule 3.8 Certain Changes
Schedule 3.9(a) Exclusive and General Real Estate Listings and
Exclusive Sales Representative Arrangements
Schedule 3.11 Leases
Schedule 3.12 Intellectual Property Rights
Schedule 3.13 Encumbrances
Schedule 3.17(a) Employee Plans
Schedule 3.17(b) Deferred Bonus Plan
Schedule 3.18 Insurance
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Schedule 3.19 Litigation and Proceedings
Schedule 3.20(a) Employees
Schedule 3.20(b) Independent Contractors
Schedule 3.20(c) Employment Agreements
Schedule 3.20(e) Employee Accruals at 4/30/99
Schedule 6.1 Designated Employees
Schedule 6.4 Employee Confidentiality, Non-Competition, Etc.,
Agreements
Schedule 8.6 Third Party Consents to be Delivered at Closing
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), is entered into as of the
27th day of May, 1999, by and among Douglas Elliman, a New York general
partnership ("Douglas Elliman"), Douglas Elliman, Inc., a Delaware corporation
("DEI"), and Douglas Elliman Insurance Brokerage Corp., a Delaware corporation
("DEIBC", and together with Douglas Elliman and DEI, "Seller"), and DE
Acquisition, LLC, a Delaware limited liability company ("Buyer").
RECITALS:
WHEREAS, Seller is engaged in the business of providing, in the DE
Brokerage Area (as hereinafter defined), (i) Residential Real Estate Brokerage
Services (as hereinafter defined), (ii) investment, professional and retail real
estate sales and leasing brokerage services and (iii) with respect to the
building at 790 Madison Avenue, New York, New York, property management services
(collectively, the "DE Brokerage Business");
WHEREAS, upon the terms and subject to the conditions of this
Agreement, Seller desires to sell, assign and transfer to Buyer, and Buyer
desires to purchase and acquire from Seller, the DE Brokerage Business and
substantially all of the assets, properties and business of the DE Brokerage
Business, including, without limitation, those certain assets and rights of
Seller described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter contained and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. PURCHASE AND SALE.
1.1 Agreement to Purchase and Sell. Subject to the terms and conditions of
this Agreement, and to the accuracy of the representations and warranties herein
contained, on the Closing Date (as hereinafter defined), Seller shall sell,
assign, convey, transfer and deliver to Buyer, and Buyer shall purchase, receive
and accept, as they exist on the Closing Date, all of the DE Brokerage Business
and goodwill of Seller and all of Seller's right, title and interest in or to
the assets and properties owned by, leased to or otherwise used by Seller in
connection with the DE Brokerage Business, whether tangible or intangible, and
wherever located (the "Purchased Assets"), other than the Excluded Assets (as
hereinafter defined); it being understood that the Purchased Assets include, and
as of the Closing Date shall include, all of the assets necessary for the
conduct by Buyer of the DE Brokerage Business as it is now and on the Closing
Date shall be conducted by Seller. Without limiting the generality of the
foregoing, the Purchased Assets shall include:
(a) all rights and other assets constituting or generated by the DE
Brokerage Business or used directly or indirectly in the conduct of the DE
Brokerage Business or that are otherwise described in this Agreement as part of
the Purchased Assets, including (i) all customer and client lists of the DE
Brokerage Business, (ii) all exclusive and general real estate listings of the
DE Brokerage Business and (iii) the exclusive right to seek to renew, extend or
supersede any such listings ((ii) and (iii), collectively, the "Listings"), (iv)
all publications of the DE Brokerage Business, including the "Treasury of Fine
Homes" and "Folio of Fine Homes", and (v) any equity or other ownership interest
in a corporation, partnership, limited liability company or other entity
presently held directly in connection with the DE Brokerage Business;
(b) all furniture, furnishings, fixtures, machinery, equipment, computers and
printers (and all connections, terminals, upgrades, replacements and
modifications thereto), leasehold improvements, spare parts and goods owned or
leased by Seller and used in the DE Brokerage Business, including, without
limitation, (i) all artwork, photographs and memorabilia relating to the history
and development of the DE Brokerage Business or its predecessors (other than
personal photographs and personal memorabilia not relating to the DE Brokerage
Business, but relating to or belonging to Seller's Principals and employees) and
(ii) all of Seller's right, title and interest in and to the AS 400 mainframe
computer (the "AS 400"), the NYNEX Meridian telephone system (the "NYNEX
System") and the agreement for telephone services (the "Phone Services") used in
the
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operations of the DE Brokerage Business, and the personal property and the
personal property leases listed on Schedule 1.1(b) hereto, together with an
assignment by Seller to Buyer (without recourse) of all of Seller's right,
title, and interest in all manufacturer's and vendor's warranties and any
similar rights, if any, pertaining to such Purchased Assets (collectively,
"Equipment");
(c) all office and other supplies, sales promotion materials and any
other inventory of the DE Brokerage Business, including those items listed on
Schedule 1.1(c) hereto (collectively, "Supplies");
(d) except for those which are not transferable by law, all federal,
state, local and other governmental licenses, permits, approvals, authorizations
and rights necessary for or related to the conduct of the DE Brokerage Business
as conducted on the Closing Date (collectively, "Permits"), including, without
limitation, those listed on Schedule 1.1(d);
(e) all of Seller's right, title and interest in and to any Seller or
third party software (including licenses therefor, to the extent assignable),
trade secrets, processes, know-how and confidential data (including data bases,
reports and customer lists) used in or in connection with the DE Brokerage
Business;
(f) all causes of action or other rights of the DE Brokerage Business
arising out of occurrences from and after the Effective Time, including, without
limitation, all rights under express or implied warranties relating to the
Purchased Assets;
(g) all contracts, agreements (including agreements evidencing Broker
Loans), personal property leases (including the personal property leases listed
on Schedule 1.1(b) hereto), arrangements, understandings, commitments and other
contractual obligations, whether written or oral, which relate to the DE
Brokerage Business or its operations, other than the Leases (collectively, the
"Contracts"), including, but not limited to, those Contracts listed or described
in reasonable detail on Schedule 1.1(g) hereto;
(h) all receivables and all other rights to receive real estate sales
and leasing brokerage commissions, the proceeds thereof and contingent rights
relating thereto of the DE Brokerage Business (collectively, the "Pipeline
Transactions"), including, without limitation, the Pipeline Transactions listed
on Schedule 1.1(h) hereto, but not including Commission Receivables (as
hereinafter defined). Pipeline Transactions shall also include all rights to
Lease Renewal Commissions, subject to Buyer's obligation to remit a portion of
the Lease Renewal Commissions to Seller in accordance with Section 2.6 hereof;
(i) all prepaid expenses relating to the DE Brokerage Business,
including, but not limited to, prepaid rents, subscriptions, licenses, and
advertising and promotional materials, all utility deposits, and all cash
security deposits (plus any interest thereon) with respect to Assigned Leases
(as hereinafter defined);
(j) all of Seller's right, title and interest in and ownership of the
copyrights (registered or not), trademarks (registered or not), common law
marks, service marks, rights of publicity, trade names, logos, trade secrets,
technical information, confidential information, proprietary rights, know-how,
designs, patents, inventions, copyright applications, trademark applications and
computer software (all of which computer software is listed on Schedule 1.1(j)),
customer lists, marketing and promotional material and other information, data
(including, without limitation, computer data, in source and object code
format), processes, technology, computer-software licenses, Internet domains
(including, without limitation, the domain name registration, the Internet
address, underlying software applications and content of all Web pages owned,
leased or otherwise used by Seller) and other proprietary rights owned or
licensed by Seller and used primarily in, or otherwise necessary to the conduct
of, the DE Brokerage Business and all improvements or changes made to any of the
above, now or previously used or conceived by or in connection with the DE
Brokerage Business or related thereto (including registrations and applications
for registration of any of the above), including, without limitation, all of
Seller's rights in or ownership of the trademarks, trade names, service marks
and/or personal names set forth on Schedule 1.1(j) and all goodwill associated
with any of the above, including but not limited to uses authorized, sponsored
or endorsed by or affiliated with the DE Brokerage Business (collectively, the
"Intellectual Property Rights");
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(k) all of Seller's right, title and interest in and to and ownership
of websites, domain name registrations, the content incorporated in any Internet
Web site owned, leased or used by Seller, regardless of the form or
manifestation of such content, Internet linking, advertising or preferential
placement rights and interest and Internet addresses now or previously used in
connection with the DE Brokerage Business, including the "Douglas Elliman
Online" websites identified as www.douglaselliman.com and www.elliman.com, and
any and all computer servers, equipment, software or rights arising under
third-party agreements (including hosting agreements with internet service
providers) necessary to maintain and operate such websites as currently
maintained and operated;
(l) all of Seller's right, title and interest in and to all software
(in source and object code format) required to operate and make modifications to
the broker accounting, commission and accounts receivable system and any and all
listing systems, including multiple listing systems, utilized by the DE
Brokerage Business;
(m) all of Seller's records, files, manuals and guidebooks, price books
and price lists, customer and subscriber lists, supplier lists, sales records,
marketing and promotional materials, brochures, books, documents and other data
relating to the Purchased Assets and the DE Brokerage Business, and all
personnel records and payroll records for Designated Employees (as hereinafter
defined), or copies thereof (collectively, "Books and Records");
(n) all right, title and interest of Seller in and to all telephone and
facsimile numbers and e-mail addresses used in the DE Brokerage Business, and
all keys (including master keys) and lock combinations;
(o) the tenant's leasehold interest in the Leases that in accordance
with Sections 1.3 and 1.4 are to be assigned to Buyer; and
(p) all broker and employee loans receivable from Designated Employees
relating to the DE Brokerage Business ("Broker Loans") (with respect to which
Seller represents to Buyer that Schedule 1.1(p) lists all such loans existing at
the date hereof), subject to adjustment in accordance with Section 2.1.2.
1.2 Excluded Assets. Notwithstanding anything to the contrary contained
herein, it is understood that Seller is not selling and Buyer is not purchasing:
(i) any assets of Seller not related to the DE Brokerage Business, including,
without limitation, (A) the outstanding capital stock of or other equity
interests in DEI, DEIBC or any of their respective Affiliates, and (B) any
businesses other than the DE Brokerage Business operated by or affiliated with
Seller, including Douglas Elliman Commercial and Douglas Elliman Beitler
(collectively, the "DE Commercial Business"), Douglas Elliman Realty Investors,
and Douglas Elliman Canada, and all assets of Seller exclusively relating
thereto; (ii) the Commission Receivables (as provided in Section 2.5); (iii) any
tort claims or contract claims relating to Commission Receivables; (iv) the VAX
mainframe computer together with two server/storage cabinets and Integrated
Business System Software thereon located at 575 Madison Avenue, New York, New
York; and (v) the telephone and facsimile numbers presently used by Seller's
Principals and employees of the DE Commercial Business located on the 3rd floor
at 575 Madison Avenue, New York, New York (but only to the extent that such
retention by Seller does not interfere with Buyer's ability to continue the use
of the telephone and facsimile numbers transferred to Buyer as part of the
Purchased Assets) (collectively, the "Excluded Assets").
1.3 Third Party Consents. Notwithstanding any other provision of this
Agreement, to the extent that Seller's rights under or with respect to any
Contract, Lease, Listing, Permit or other asset to be assigned or transferred to
or sublet by Buyer may not be so assigned or transferred or sublet without the
consent or other approval of another Person which consent or other approval has
not been obtained, this Agreement shall not constitute an assignment or
agreement to assign such asset if an attempted assignment or agreement to assign
such asset would constitute a breach or be unlawful, and Seller shall use its
commercially reasonable efforts to obtain any such consent or other approval
promptly; Seller's obligation to seek to obtain such consent or other approval,
to the extent Buyer may so request, shall continue after the Closing. If any
such consent or other approval shall not be obtained or if any attempted
assignment would be ineffective or would materially impair Buyer's rights under
the instrument in question so that Buyer would not in effect acquire the benefit
of all such rights, Seller, to the maximum extent permitted by law and the
instrument, shall act as Buyer's agent in order to obtain for it the benefits
9
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pursuant thereto and shall cooperate, to the maximum extent permitted by law and
the instrument, with Buyer in any other reasonable arrangement designed to
provide such benefits to Buyer; provided that Seller's agreement to act as agent
for Buyer pursuant to this sentence shall not require Seller to expend any sum
or commence any action or proceeding unless Buyer shall so request, in which
case Buyer shall pay or reimburse Seller for any such sum or the cost of such
action or proceeding.
1.4 Leases. Seller shall transfer to Buyer its rights to and occupancy of
each of the Leased Premises either by assigning to Buyer all of its right, title
and interest in and to the related Lease or by subletting such Leased Premises
to Buyer, as indicated with respect to each Leased Premises on Schedule 3.11
hereto. All Leases that are actually assigned to Buyer pursuant to this
Agreement are referred to herein as "Assigned Leases." With respect to Assigned
Leases, (i) Buyer shall reimburse Seller at the Closing for the amount of any
unapplied cash security (including any interest accrued thereon for the benefit
of Seller) deposited by Seller thereunder, provided the tenant's right to such
security deposit (and interest thereon) is assigned by Seller to Buyer together
with the assignment to Buyer of such Assigned Lease, and (ii) if a letter of
credit has been furnished by Seller as a security deposit thereunder, Buyer
shall promptly after the Closing arrange to substitute its own letter of credit
in order to permit Seller to obtain the return of Seller's letter of credit.
2. PURCHASE PRICE.
2.1 Amount and Payment.
2.1.1 Amount. The purchase price for the Purchased Assets (the "Purchase
Price") shall be the sum of (a) Sixty-Five Million Two Hundred Nine Thousand
Seven Hundred dollars ($65,209,700) (the "Cash Payment"), and (b) the Contingent
Payments (as hereinafter defined).
2.1.2 Adjustments.
(a) The Cash Payment of the Purchase Price shall be adjusted by: (i)
increasing the Cash Payment by an amount equal to interest thereon at the rate
of seven percent (7%) per annum for the period from the Effective Time through
the Closing Time; (ii) decreasing the Cash Payment by an amount equal to the Net
Receipts (as hereinafter defined); (iii) increasing the Cash Payment by an
amount equal to the Net Disbursements (as hereinafter defined); (iv) decreasing
the Cash Payment by an amount equal to the Vacation Accrual Adjustment (as
hereinafter defined); and (v) increasing the Cash Payment by the amount of
Broker Loans at the Closing Time. The Cash Payment, as adjusted pursuant to this
Section 2.1.2, is referred to herein as the "Adjusted Cash Payment."
(b) Certain Definitions. For purposes hereof:
(i) "Vacation Accrual Adjustment" shall mean the amount (together
with related payroll taxes and benefits) of accrued vacation
payable to Designated Employees as of the Effective Time for
the current fiscal year of the DE Brokerage Business.
(ii) "Receipts" and "Disbursements" shall mean receipts and
disbursements, with respect to revenues and expenses and
other expenditures (subject to the provisions of Section 2.4)
incurred in the ordinary course of business and not
prohibited by this Agreement, of the DE Brokerage Business
attributable to the Interim Period, provided that (x) Broker
Loans made in accordance with this Agreement or repaid shall
not be included in "Receipts" or "Disbursements",
respectively, (y) any disbursements and expenditures made
with respect to Excluded Liabilities shall not be included in
"Disbursements" and any receipts or revenues with respect to
Excluded Assets shall not be included in "Receipts" and (z)
the Special Bonus shall not be included in "Disbursements".
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(iii) "Net Receipts" shall mean the excess, if any, of Receipts
over Disbursements as of the Closing Time.
(iv) "Net Disbursements" shall mean the excess, if any, of
Disbursements over Receipts as of the Closing Time.
(c) Procedures.
(i) Within sixty (60) days after the Closing, Seller shall
deliver to Buyer a statement, detailing, as of the Closing
Date, (A) the Net Receipts or Net Disbursements, as
applicable, (B) the Vacation Accrual Adjustment, and (C) the
amount of Broker Loans at the Closing Time, such statement to
contain the basis for, and calculation of, each of such items
(the "Adjustment Statement"). The Adjustment Statement shall
include the report of Seller's auditors with respect to such
items, and all related work papers. Within thirty (30) days
after receipt of the Adjustment Statement, if Buyer disputes
the calculation of any such item, Buyer shall deliver to
Seller a written statement describing the objections of
Buyer, which objections shall set forth Buyer's basis for
dispute in reasonable detail. If Buyer does not raise any
objections within such thirty (30) day period or if Buyer
notifies Seller in writing that Buyer accepts Seller's
determination of such items, Seller's determination of the
Net Receipts or Net Disbursements, as applicable, the
Vacation Accrual Adjustment and Broker Loans shall become
final and binding upon the parties. If Buyer raises
objections to Seller's determination as provided above, then
Buyer and Seller shall attempt in good faith to resolve such
dispute. If a final resolution is not obtained within thirty
(30) days after Buyer shall have submitted its objections to
Seller as provided above, such matter shall be a Disputed
Matter and may be submitted to arbitration in accordance with
Section 2.7.
(ii) Within ten (10) days after the determination of the Net
Receipts or Net Disbursements, as applicable, the Vacation
Accrual Adjustment and Broker Loans becomes final and
binding, Buyer shall pay Seller, or Seller shall pay Buyer,
as the case may be, the amount of the difference between the
Cash Payment and the Adjusted Cash Payment, together with
interest on such amount at the rate of seven percent (7%) per
annum for the period between the Closing Time and the date of
such payment. If such payment is due from Seller to Buyer and
is not made within such 10-day period then, at Buyer's
option, Buyer may treat all or any portion of such payment as
a Commission Payable or apply payments with respect to the
Contingent Payments otherwise due Seller to the satisfaction
thereof.
2.1.3 Payments.
(a) All payments on account of the Purchase Price or otherwise pursuant
to this Article 2 (other than Sections 2.5 and 2.6) shall be paid by wire
transfer of immediately available funds to an account or accounts of the
receiving party at a bank or banks specified by the receiving party in writing
at least three business days prior to the Closing or such other date on which
such payment is to be made, or, if no such notice is given, by official bank or
certified check of a bank which is a member of the New York Clearinghouse
Association.
(b) Buyer shall pay the Cash Payment to Seller in the following manner:
(i) the sum of $30,000,000 (the "Initial Payment"), by paying
such amount to a bank or trust company mutually approved by
Seller and
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Buyer (the "Escrow Agent") on or before June 8, 1999, such
amount to be held in escrow and paid to Seller on the Closing
Date in accordance with the terms of a mutually acceptable
escrow agreement (which agreement shall provide for placing
such monies in an interest-bearing account with interest
accruing for the account of Buyer) to be entered into among
Seller, Buyer and the Escrow Agent; and
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(ii) the sum of $35,209,700 on the Closing Date.
(c) In the event of a failure to close the Transactions due to any
breach by Seller hereunder, Seller shall pay Buyer interest on the $30,000,000
amount placed in escrow pursuant to (b)(i) above, from the date placed in escrow
through the date released to Buyer, at a rate equal to Buyer's cost of borrowing
(not to exceed LIBOR (90-day) plus two (2%) percent), less any interest payable
to Buyer under the escrow agreement up to the date of release.
(d) The difference between the Cash Payment and the Adjusted Cash
Payment shall be determined and paid in accordance with Section 2.1.2(c).
2.2 Contingent Payments.
2.2.1 Entitlement.
(a) In addition to the Cash Payment, Buyer shall pay Seller in
accordance with the terms of this Section 2.2, with respect to each Post-Closing
Annual Period (as hereinafter defined), the following amounts (each, a
"Contingent Payment" and collectively, "Contingent Payments"):
(i) if the Qualified Revenue (as hereinafter defined) exceeds
$78,500,000, the sum of $15,000 for each $100,000 of
Qualified Revenue in excess of $78,500,000, up to a maximum
payment under this clause (i) of $300,000; and
(ii) if the Qualified Revenue exceeds $80,500,000, the sum of
$35,000 for each $100,000 of Qualified Revenue in excess of
$80,500,000, up to a maximum payment under this clause (ii)
of $700,000; and
(iii) if the Qualified Revenue exceeds $82,500,000, the sum of
$50,000 for each $100,000 of Qualified Revenue in excess of
$82,500,000, up to a maximum payment under this clause (iii)
of $1,000,000.
(b) As used herein, a "Post-Closing Annual Period" shall mean each of
the first five (5) twelve-month periods commencing with the period June 1, 1999
through May 31, 2000.
(c) In no event shall the total Contingent Payments aggregate more than
$2,000,000 for any one Post-Closing Annual Period or more than $10,000,000 for
all five (5) Post-Closing Annual Periods. There shall be no carryover of
Qualified Revenue from any one Post-Closing Annual Period to any other
Post-Closing Annual Period.
(d) Notwithstanding anything to the contrary contained herein, Buyer
shall not be required to pay the first $500,000 of Contingent Payments becoming
due hereunder.
(e) Notwithstanding anything to the contrary contained in this
agreement, if for any reason the Audited Financials (as such term is defined,
and subject to modification as set forth in, Section 10.6 hereof) are not
completed by the date that is sixty (60) days after the Closing Date, Buyer
shall have no obligation to pay any Contingent Payment.
2.2.2 Procedures.
(a) For each Post-Closing Annual Period, Buyer shall provide to Seller,
within seventy-five (75) days following the end of such Post-Closing Annual
Period, a statement from an appropriate representative of Buyer, such statement
to contain the basis for, and a calculation of, Qualified Revenue for such
Post-Closing Annual Period (a "Qualified Revenue Statement"). Within thirty (30)
days after receipt of the
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Qualified Revenue Statement, if Seller disputes the calculation of Qualified
Revenue for the applicable Post-Closing Annual Period, Seller shall deliver to
Buyer a written statement describing the objections of Seller, which objections
shall set forth Seller's basis for dispute in reasonable detail. If Seller does
not raise any objections within such thirty (30) day period or if Seller
notifies Buyer in writing that Seller accepts its determination of such
Qualified Revenue, Buyer's determination of the Qualified Revenue shall become
final and binding upon the parties. If Seller raises objections to Buyer's
determination as provided above, then Seller and Buyer shall attempt in good
faith to resolve such dispute. If a final resolution is not obtained within
thirty (30) days after Seller shall have submitted its objections to Buyer as
provided above, such matter shall be a Disputed Matter and may be submitted to
arbitration in accordance with Section 2.7.
(b) Any Contingent Payment that is due to Seller shall be made within
ten (10) days following the date on which the determination of Qualified Revenue
for the applicable Post-Closing Annual Period becomes final and binding.
(c) In addition to the Qualified Revenue Statement, Buyer shall provide
Seller, within forty-five (45) days following the end of the first six (6)
months of each Post-Closing Annual Period, a statement showing Buyer's estimate
of the Qualified Revenues for such six-month period. Such statement need not be
prepared in accordance with GAAP. Such statement shall be for informational
purposes only, and Buyer shall not be liable to Seller in the event the
Qualified Revenue Statement provided at the end of the Post-Closing Annual
Period does not reflect Buyer's estimate of Qualified Revenue set forth in such
statement.
2.2.3 Qualified Revenue.
(a) As used herein, the term "Qualified Revenue" shall mean the amount
of revenues accrued by Buyer or an Affiliate of Buyer during an applicable
Post-Closing Annual Period in accordance with GAAP, consistently applied, that
is earned by or credited to: (i) any DE Broker whose home office is located
within the DE Brokerage Area, with respect to any property wherever located;
(ii) a Closing DE Broker whose home office is located within the Expanded DE
Brokerage Area, with respect to any property wherever located; (iii) any DE
Broker with respect to a property located in the DE Brokerage Area for which the
DE Brokerage Business has a listing; (iv) an internet-based or other electronic
brokerage system operated by the DE Brokerage Business with respect to a
property located in the DE Brokerage Area; and (v) property management services
with respect to the building located at 790 Madison Avenue, New York, New York,
(collectively, the "Services"); provided, however, that:
(A) Qualified Revenue shall be reduced by the amount of bad debt
expense related to Qualified Revenue recorded with respect to the
applicable Post-Closing Annual Period in accordance with GAAP, consistently
applied (provided that if such bad debt is subsequently collected, such
amount shall be included in Qualified Revenue for the originally applicable
Post-Closing Annual Period and the Contingent Payment shall be adjusted
retroactively);
(B) to the extent revenue arising from a transaction is otherwise
included as Qualified Revenue, Qualified Revenue shall not include the
amount of any fee split applicable to such transaction and the amount of
bona fide earned brokerage fees and commissions payable to Persons
unaffiliated with Buyer, to the extent such brokerage fees and commissions
were incurred directly in connection with the transaction from which the
included amount of Qualified Revenue arose;
(C) to the extent otherwise included in Qualified Revenue, the amount
of any commissions generated by the on-site sales-force of Buyer or its
Affiliate from the sale of cooperative or condominium units in West Village
Houses, New York City;
(D) to the extent revenues of a Buyer Subsequent Acquiree are otherwise
included as Qualified Revenue, for each Post-Closing Annual Period during
which a Buyer Subsequent Acquiree is acquired and for any Post-Closing
Annual Period thereafter, Qualified Revenue shall not include an amount
equal to the lesser of (x) all revenues for Services earned by (or
attributable to) a Buyer Subsequent Acquiree during the twelve-month period
preceding the Subsequent Acquiree Acquisition Date and (y) seventy-five
percent (75%) of the present value (discounted at the rate of seven percent
(7%) per annum) of
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consideration paid or payable by Buyer or an Affiliate of Buyer for Buyer
Subsequent Acquiree, in the case of either (x) or (y) multiplied by a
fraction the numerator of which is the number of days remaining in each
Post-Closing Annual Period following the Subsequent Acquiree Acquisition
Date and the denominator of which is 365 (or 366 in the case of a leap
year);
(E) to the extent revenues are otherwise included as Qualified Revenue,
if Buyer Subsequent Acquiree or the Affiliate of Buyer that acquires Buyer
Subsequent Acquiree is not 100% directly or indirectly owned by Insignia
Financial Group, Inc. ("IFG"), then Qualified Revenue shall not include the
percentage of such Qualified Revenue that is not owned, directly or
indirectly, by IFG or employees of IFG or its Affiliates. Buyer agrees that
it will not, at any time prior to the expiration of the final Post-Closing
Annual Period, without Seller's consent, enter into a joint venture or
similar arrangement with a third party in connection with the acquisition
of Buyer Subsequent Acquiree, pursuant to which (x) Buyer and its employees
hold less than a 100% interest and (y) such venture or similar arrangement
is coupled with marketing services or any other agreements with Buyer (or
an Affiliate) that result in the realization by Buyer of economic benefits
exceeding those which would otherwise accrue to Buyer as a result of Buyer
participating in such joint venture or similar arrangement on a pro rata
basis with such third party.
(F) in the event Buyer elects to consolidate either or both of
professional real estate sales and leasing brokerage services
("Professional Services") and/or retail real estate sales and leasing
brokerage services ("Retail Services") operating under the "Douglas
Elliman" name within the DE Brokerage Area with any other division or line
of business of Insignia/ESG, Inc. or its affiliates ("I/ESG"), then
Qualified Revenue shall not include revenue, from the date of such
consolidation, from Professional Services and/or Retail Services, as
applicable, but shall include the greater of (x) $1,000,000 if Professional
Services are so consolidated, $1,000,000 if Retail Services are so
consolidated, and $2,000,000 if both such Services are so consolidated and
(y) the revenues for such portion of the Services during the twelve-month
period preceding the date of such consolidation, in the case of either (x)
or (y) multiplied by a fraction the numerator of which is the number of
days remaining in each Post-Closing Annual Period following the date of
such election and the denominator of which is 365 (or 366 in the case of a
leap year);
(G) in the case of revenues from commissions earned with respect to a
property located outside the DE Brokerage Area for which an Affiliate of
IFG (other than Buyer or its successors and assigns with respect to the DE
Brokerage Business) has an exclusive listing, Qualified Revenue shall not
include such revenues;
(H) Lease Renewal Commissions shall not be included in Qualified
Revenue; and
(I) in the event Buyer sells a Branch Office of the DE Brokerage
Business then, notwithstanding such sale, from and after the date of such
sale, Qualified Revenue shall include the revenues attributable to such
Branch Office during the twelve-month period preceding the date of such
sale, multiplied by a fraction, the numerator of which is the number of
days remaining in each Post-Closing Annual Period following the date of
such sale and the denominator of which is 365 (or 366 in the case of a leap
year). As used herein, "Branch Office" shall mean, exclusively, the offices
of the DE Brokerage Business at (i) Basking Ridge, New Jersey, (ii)
Greenwich, Connecticut, (iii) Port Washington, New York, (iv) Locust
Valley, New York, and (v) Manhasset, New York. The foregoing adjustment
shall not be made with respect to any Branch Office that is closed by
Buyer.
(b) As used herein, a "DE Broker" shall mean any employee or
independent contractor of the DE Brokerage Business offering (x) Residential
Real Estate Brokerage Services or (y) investment, professional and retail real
estate sales and leasing brokerage services operating under the "Douglas
Elliman" name.
(c) As used herein, a "Buyer Subsequent Acquiree" shall mean (i) a
Person that is engaged in the rendering of services that, if performed by the DE
Brokerage Business, would be Services hereunder, or (ii) a division or line of
business of a Person that is engaged in the rendering of services that, if
performed by the DE Brokerage Business, would be Services hereunder or (iii) a
contract providing for the rendering of services that, if performed by the DE
Brokerage Business, would be Services, that is acquired by Buyer or an Affiliate
of Buyer
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subsequent to the date of this Agreement; and a "Subsequent Acquiree Acquisition
Date" shall mean the closing date of the transaction in which Buyer or an
Affiliate of Buyer acquires a Buyer Subsequent Acquiree.
(d) Buyer agrees that it will not, at any time prior to the expiration
of the final Post-Closing Annual Period, re-assign any Designated Employee that
is a DE Broker (a "Closing DE Broker") to another division or line of business
of Buyer or an Affiliate of Buyer without Seller's consent (and in the event of
receipt of such consent, such person shall not be considered a Closing DE Broker
for purposes of subparagraph (a) above), unless all revenues accrued by Buyer or
an Affiliate of Buyer that are earned by or credited to such person with respect
to any property located within the Expanded DE Brokerage Area are included in
Qualified Revenue.
(e) Buyer shall use reasonable efforts to operate the DE Brokerage
Business in a commercially reasonable manner making good faith efforts to
generate Qualified Revenue. Notwithstanding anything seemingly to the contrary
contained in this Agreement, Buyer and its Affiliates shall have the right to
decline, reject or allocate any business made available to any of such entities
and to allocate revenues resulting from such business provided those entities
act in good faith in any such decision, such decision is based upon reasonably
prudent business standards followed within the real estate brokerage industry
generally not inconsistent with Buyer's corporate plans and strategies, and such
decision is not based upon an attempt to reduce Qualified Revenue. Buyer shall
not, directly or indirectly, delay the closing of any transaction where the DE
Brokerage Business will have rights to receive real estate brokerage commissions
includable in Qualified Revenues with respect to any Post-Closing Annual Period
other than in the ordinary course of business without intention to decrease
Qualified Revenue.
2.3 Liabilities.
2.3.1 Assumed Liabilities. Buyer hereby agrees that from and after the
Closing Time it will assume and agree to pay, perform and discharge the
following liabilities and obligations of the DE Brokerage Business: (i) all
obligations which are required to be performed and fulfilled and which relate to
the period from and after the Effective Time under (x) the Contracts assigned to
Buyer pursuant to Section 1.1(g) hereof, except as provided in the immediately
following sentence, and (y) the Assigned Leases, (ii) accrued vacation payable
to Designated Employees at the Effective Time, but only to the extent of the
Vacation Accrual Adjustment, (iii) obligations existing at the Effective Time
under the Deferred Bonus Plan to the extent provided in Section 2.3.3 and (iv)
the Current Bonuses to the extent provided in Section 2.3.4 (collectively, the
"Assumed Liabilities"). Notwithstanding anything to the contrary contained
herein, Buyer shall not be obligated to assume any obligations under any
Contract which is not listed or described in reasonable detail on Schedule
1.1(g).
2.3.2 Excluded Liabilities. Notwithstanding any provision in this
Agreement to the contrary, Buyer shall not assume and shall not be liable for,
any Liabilities or other obligations of Seller of any nature whatsoever
pertaining to the Purchased Assets or the DE Brokerage Business, other than as
expressly provided in Section 2.3.1 hereof. All such other liabilities and
obligations shall be retained by and remain liabilities and obligations of
Seller (collectively, the "Excluded Liabilities"). Neither Buyer, nor any
Affiliate of Buyer, assumes or shall assume, and Seller shall indemnify and hold
harmless Buyer and Buyer's Affiliates against, any of the Excluded Liabilities.
Without limiting the generality of the foregoing, the following are liabilities
or obligations of Seller: (i) any and all taxes or withholdings levied by or
owing to any foreign, federal, state or local taxing authority with respect to
the ownership or use of the Purchased Assets or the conduct of the DE Brokerage
Business prior to the Effective Time; (ii) any liabilities or obligations
related to the Excluded Assets; (iii) any lawsuits, claims and other liabilities
or obligations arising in connection with all actions, suits, claims,
investigations or proceedings (A) arising out of or related to occurrences or
the ownership of the Purchased Assets prior to the Effective Time or (B) arising
between the Effective Time and the Closing Time, but only to the extent arising
out of or related to intentional misconduct, negligence, gross negligence or
acts or omissions in violation of law or the terms of this Agreement; (iv) all
liabilities or obligations relating to the employment, failure to employ or
termination of employment of any individual with respect to the DE Brokerage
Business prior to the Effective Time or relating to or under any Employee Plan
(excluding, however, the Deferred Bonus Plan to the extent provided in
Section 2.3.3 and the Current Bonuses to the extent provided in Section 2.3.4)
of the DE Brokerage Business existing prior to the Effective Time (except as
expressly provided in Section 2.3.1) that arises prior to the Effective Time;
(v) any liabilities or obligations for property damage and injuries to persons
or attributable to events occurring during the use or occupancy of the Leased
Premises (A) prior to the Effective Time or (B) arising between the Effective
Time
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and the Closing Time, but only to the extent arising out of or related to
intentional misconduct, negligence, gross negligence or acts or omissions in
violation of law or the terms of this Agreement; (vi) any indebtedness for
borrowed money or otherwise; and (vii) any additional payments, contingent or
otherwise, due in connection with any acquisitions by Seller of assets or
businesses or interests therein.
2.3.3 Deferred Bonus Plan.
(a) Subject to the provisions of Section 2.3.3(b), at the Closing Time
Buyer shall assume Seller's obligation to pay all deferred bonuses granted as of
the Effective Time to Designated Employees pursuant to the Deferred Bonus Plan,
but only with respect to the period through the Effective Time (the "Assumed
Deferred Bonuses"), provided that Buyer shall assume the payment of such
deferred bonuses only to the extent same are vested and otherwise payable in
accordance with the terms and conditions of the Deferred Bonus Plan. Nothing
contained herein shall require Buyer to pay, or prohibit Buyer from paying, the
Assumed Deferred Bonuses prior to the date same are payable in accordance with
the Deferred Bonus Plan. Seller covenants and agrees that it will make an
additional $125,000 grant under the Deferred Bonus Plan (the "Special Bonus")
prior to the Closing Time.
(b) Within thirty (30) days following May 31, 2004, the parties shall
determine the amount of the Assumed Deferred Bonuses that are vested and the
payment dates thereof, and based thereon, shall calculate the present value, as
of May 31, 2004, of the Assumed Deferred Bonus (assuming that all such Bonuses
will become fully vested with respect to a Designated Employee if such
Designated Employee is employed as of May 31, 2004) required to be paid by Buyer
pursuant to the Deferred Bonus Plan, using a discount rate equal to the 10-year
U.S. Treasury rate as published in The Wall Street Journal's Government Bonds
and Notes Section, plus 2.5%, at May 31, 2004 (or the preceding business day, if
such day is not a business day) (the "Present Value"). Within ten (10) days
following the end of such 30-day period, Seller shall pay to Buyer, in cash, the
amount equal to the Present Value, upon which Buyer shall be fully responsible
for payment of the Assumed Deferred Bonuses in accordance with the Deferred
Bonus Plan. If Seller fails to pay the Present Value within such 10-day period
then, at Buyer's option, Buyer may apply payments with respect to the Contingent
Payments otherwise due Seller to the satisfaction thereof. Within thirty (30)
days after January 1, 2006, the Present Value shall be recalculated based on the
amount of the Assumed Deferred Bonuses that actually are vested, and if such
recalculated Present Value shall be less than the originally calculated Present
Value, Buyer shall refund the difference to Seller, together with interest
thereon from the date paid at the rate of seven percent (7%) per annum. If the
parties are unable to agree on any matter concerning such calculation, such
matters shall be a Disputed Matter and may be submitted to arbitration in
accordance with Section 2.7.
2.3.4 Current Bonuses.
(a) Subject to the provisions of this Section 2.3.4, at the Closing
Time Buyer shall assume Seller's obligation to pay annual bonuses (together with
related payroll taxes and benefits) to employees or independent contractors of
the DE Brokerage Business with respect to the portion of the current fiscal year
ending at the Effective Time ("Current Bonuses"), provided that nothing herein
shall require Buyer to pay such bonuses, or to pay such bonuses in any
particular sum or to any particular employees or independent contractors of the
DE Brokerage Business.
(b) Seller shall pay Buyer, within ten (10) days after Buyer's request
therefor certifying the amount of the Current Bonuses that Buyer has paid to
employees or independent contractors engaged in the day-to-day operation of the
DE Brokerage Business, the actual amount so paid by Buyer (the "Bonuses Paid")
provided that Seller's maximum obligation under this Section 2.3.4 shall not
exceed an amount which shall be determined by multiplying the Bonuses Paid by
the Ratio (as hereinafter defined), provided, further, that such amount shall
not exceed $600,000 multiplied by the Ratio (the "Maximum Bonus Contribution").
For purposes hereof, the "Ratio" shall mean a fraction, the numerator of which
is the gross revenues of the DE Brokerage Business for the current fiscal year
as shown on an income statement of the DE Brokerage Business prepared for the
period January 1, 1999 through the Effective Time by Seller's regular auditors
in accordance with GAAP, consistently applied, and the denominator of which is
$84,721,825. If the parties are unable to agree on the amount of the Maximum
Bonus Contribution, such matter shall be a Disputed Matter and may be submitted
to arbitration in accordance with Section 2.7.
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(c) To secure Seller's obligation to pay Buyer the Current Bonuses (up
to the Maximum Bonus Contribution), Seller shall deliver to Buyer on the Closing
Date a clean, irrevocable unconditional letter of credit in form and substance
satisfactory to Buyer, in the amount of $300,000 issued by, drawn on and payable
directly by a bank which is a member of the New York Clearinghouse Association,
for the account of Buyer, for a term expiring not sooner than April 30, 2000
(the "Letter of Credit"). If a payment that is due from Seller to Buyer pursuant
to this Section 2.3.4 is not paid within the 10-day period set forth above,
Buyer may (i) present the Letter of Credit for payment and apply the whole or
any part of the proceeds thereof, as the case may be, toward the satisfaction of
such payment and (ii) if the proceeds of the Letter of Credit are not sufficient
to satisfy such payment, may treat all or any portion of such payment as a
Commission Payable or apply payments with respect to the Contingent Payments
otherwise due Seller to the satisfaction thereof. Upon payment of all of
Seller's obligations pursuant to this Section 2.3.4, Buyer shall return the
Letter of Credit to Seller. Seller shall have no further obligation to reimburse
Buyer for Current Bonuses pursuant to this Section 2.3.4 after June 30, 2000,
except with respect to notices given by Buyer hereunder prior to such date.
2.4 Interim Period. For the period between the Effective Time and the
Closing Time (the "Interim Period"), Seller shall manage the DE Brokerage
Business on behalf of and for the account of Buyer (provided the Closing shall
occur). Seller shall manage the DE Brokerage Business, including but not limited
to the collection of revenues and payment of expenses and other expenditures, in
good faith and in the ordinary course of business, except as otherwise provided
in this Agreement. Seller shall not, directly or indirectly, take any action so
as to reduce Receipts or increase Disbursements to an amount less or greater
than they would be in the absence of this Agreement. For purposes of the
foregoing, the aggregate of Disbursements paid or expenses accrued with respect
to (i) general and administrative expenses and (ii) compensation to Alan Rogers
paid during or with respect to the Interim Period shall not exceed $1,150,000,
multiplied by a fraction, the numerator of which is the number of days in the
Interim Period and the denominator of which is 365.
2.5 Commission Receivables and Commission Payables.
2.5.1 Definitions. For purposes hereof:
(a) "Commission Payables" shall mean (i) commissions and obligations to
brokers and to any other Person that are properly payable in accordance with the
ordinary course of business of the DE Brokerage Business from proceeds of
Commission Receivables and (ii) reasonable expenses and costs of collection and
settlement payable to a third party incurred in connection with Commission
Receivables.
(b) "Commission Receivables" shall mean all receivables of the DE
Brokerage Business in existence as of the Effective Time, as reflected on the
Closing Date Statement, which have been earned in accordance with GAAP, except
that (i) a receivable arising from a sale of property shall be treated as a
Commission Receivable only if the closing of the sale and transfer of title
occur prior to the Effective Time; and (ii) a receivable arising from a lease of
property shall be treated as a Commission Receivable only if the applicable
lease agreement has been fully executed by all parties prior to the Effective
Time and if the commission related thereto is earned prior to the Effective Time
(excepting only if part of a commission is paid prior to the Effective Time but
payment of a remaining portion thereof is contingent on the future payment of
rent by the tenant, in which case the remaining portion of the commission as and
when paid after the Effective Time shall be treated as a Commission Receivable),
but in no event shall Lease Renewal Commissions be treated as a Commission
Receivable. Schedule 2.5.1 sets forth a list provided by Seller of all
Commission Receivables as of April 30, 1999.
2.5.2 Procedures. Within thirty (30) days after the Closing, Seller shall
prepare and deliver to Buyer a statement detailing, as of the Effective Time,
the Commission Receivables and the Commission Payables (the "Closing Date
Statement"). Within thirty (30) days after receipt of the Closing Date
Statement, if Buyer disputes the calculation of any such item, Buyer shall
deliver to Seller a written statement describing the objections of Buyer, which
objections shall set forth Buyer's basis for dispute in reasonable detail. If
Buyer does not raise any objections within such thirty (30) day period or if
Buyer notifies Seller in writing that Buyer accepts Seller's determination of
such items, Seller's determination of the items contained in the Closing Date
Statement shall become final and binding upon the parties. If Buyer raises
objections to Seller's determination as provided above, then Buyer and Seller
shall attempt in good faith to resolve such dispute. If a final resolution is
not obtained within
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thirty (30) days after Buyer shall have submitted its objections to Seller as
provided above, such matter shall be a Disputed Matter and may be submitted to
arbitration in accordance with Section 2.7.
2.5.3 Collections and Payments. Buyer agrees to collect, on behalf of
Seller, using commercially reasonable efforts, the Commission Receivables and to
pay, on behalf of Seller, solely from the collection of Commission Receivables,
the Commission Payables. Seller shall cooperate with Buyer in the collection of
the Commission Receivables; provided, however, that Seller may not initiate
litigation, settle or compromise any account or pursue a collection action in
respect of a disputed Commission Receivable, without the written consent of
Buyer, such consent not to be unreasonably withheld, conditioned or delayed.
Seller shall promptly remit to Buyer, for the purposes of netting Commission
Receivables and Commission Payables, any proceeds of any of the Commission
Receivables realized after the Closing by Seller. Buyer may not settle or
compromise any Commission Receivables or any obligations, expenses or costs
related, arising under, or otherwise payable in connection with the Commission
Receivables, including, without limitation, costs of collection and commissions
and obligations to brokers, without the consent of Seller, such consent not to
be unreasonably withheld, delayed or conditioned. Buyer may, upon notice to
Seller, decline to pursue collection of any Commission Receivables and, in that
event, shall not pay the Commission Payables related thereto, but Buyer shall
instead assign, without recourse, any right, title and interest in such
Commission Receivables to Seller, and Seller may use its reasonable efforts to
collect such Commission Receivables and shall be obligated to pay the Commission
Payables related thereto. Seller hereby agrees to indemnify, defend and hold
Buyer and its Affiliates harmless from and against any Tax liability incurred in
connection with the collection, pursuant to this Section 2.5.3, by Buyer and
Affiliates of the Commission Receivables and payment of the Commission Payables
on behalf of Seller.
2.5.4 Remittances. Buyer shall remit to an account designated by Seller
the net proceeds realized from the Commission Receivables as and when collected
by Buyer, or any Affiliate of Buyer, after the Effective Time pursuant to this
Section 2.5.4, after deduction for payment of the Commission Payables ("Net
Proceeds of the Commission Receivables"). The first such payment shall be made
on or before the fifteenth (15th) business day after the Closing Date Statement
becomes final and binding, and shall thereafter be made on the tenth day of each
month, through December 1999 and thereafter on the tenth day following the end
of each calendar quarter (commencing April 10, 2000). Buyer shall deliver at the
time of each remittance a report to Seller detailing the calculation of the
amount of, and basis for, the payment. If the amount of Net Proceeds of the
Commission Receivables available to be remitted is less than $5,000 as of the
date of any scheduled remittance, Buyer may, upon written notice to Seller,
combine such Net Proceeds of the Commission Receivables with subsequently
received Net Proceeds of the Commission Receivables until the aggregate
remaining as of the date of any scheduled remittance equals at least $5,000. In
any event, Buyer shall remit any amounts of such retained Net Proceeds of the
Commission Receivables no less frequently than annually. If the amount of
remaining Commission Payables ever exceeds the amount of remaining Commission
Receivables, Seller shall pay or discharge or cause to be paid or discharged the
remaining unpaid Commission Payables within five (5) days after receipt of
notice thereof. If Seller fails to timely pay or cause to be discharged any such
obligations, Buyer may, but shall not be required to, apply payments with
respect to the Contingent Payments otherwise due to Seller to the satisfaction
of such obligations. In addition to the foregoing, Seller hereby agrees to
indemnify, defend and hold Buyer and its Affiliates harmless from and against
any liability for any such unpaid Commission Payables pursuant to this Section
2.5.4.
2.6 Lease Renewal Commissions.
2.6.1 Certain Definitions. For purposes hereof:
(a) "Lease Renewal Payables" shall mean (i) commissions and obligations
to brokers and to any other Person that are properly payable in accordance with
the ordinary course of business of the DE Brokerage Business from proceeds of
Lease Renewal Commissions and (ii) reasonable expenses and costs of collection
and settlement payable to a third party incurred in connection with Lease
Renewal Commissions.
(b) "Lease Renewal Commissions" shall mean commissions of the DE
Brokerage Business earned after the Effective Time in connection with the
exercise of lease options, lease renewals and lease expansions arising from
leases existing prior to the Effective Time and the exercise of purchase options
set forth in leases existing prior to the Effective Time and with respect to
which the original leasing commission was earned by the DE Brokerage Business
(or a predecessor) prior to the Effective Time.
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2.6.2 Collections and Payments. Following receipt by Buyer of a written
notice form Seller stating that a Lease Renewal Commission is then due and
payable, Buyer agrees to collect, on behalf of Seller, using commercially
reasonable efforts, the Lease Renewal Commission and to pay, on behalf of
Seller, solely from the collection of Lease Renewal Commissions, the Lease
Renewal Payables. Seller shall cooperate with Buyer in the collection of the
Lease Renewal Commissions; provided, however, that Seller may not initiate
litigation, settle or compromise any account or pursue a collection action in
respect of a disputed Lease Renewal Commissions, without the written consent of
Buyer, such consent not to be unreasonably withheld, conditioned or delayed.
Seller shall promptly remit to Buyer, for the purposes of netting Lease Renewal
Commissions and Lease Renewal Payables, any proceeds of any of the Lease Renewal
Commissions realized after the Closing by Seller. Buyer may not settle or
compromise any Lease Renewal Commissions or any obligations, expenses or costs
related, arising under, or otherwise payable in connection with the Lease
Renewal Commissions, including, without limitation, costs of collection and
commissions and obligations to brokers, without the consent of Seller, such
consent not to be unreasonably withheld, delayed or conditioned. Buyer may, upon
notice to Seller, decline to pursue collection of any Lease Renewal Commissions
and, in that event, shall not pay the Lease Renewal Payables related thereto,
but Buyer shall instead assign, without recourse, any right, title and interest
in such Lease Renewal Commissions to Seller, and Seller may use its reasonable
efforts to collect such Lease Renewal Commissions and shall be obligated to pay
the Lease Renewal Payables related thereto. Seller hereby agrees to indemnify,
defend and hold Buyer and its Affiliates harmless from and against any Tax
liability incurred in connection with the collection, pursuant to this Section
2.6, by Buyer and Affiliates of the Lease Renewal Commissions and payment of the
Lease Renewal Payables on behalf of Seller.
2.6.3 Remittances. Buyer shall remit to an account designated by Seller
an amount equal to eighty percent (80%) of the net proceeds realized from the
Lease Renewal Commissions as and when collected by Buyer, or any Affiliate of
Buyer, after the Effective Time pursuant to this Section 2.6, after deduction
for payment of the Lease Renewal Payables ("Net Proceeds of the Lease Renewal
Commissions"). Any such payment shall be made on the tenth day following the end
of each calendar quarter. Buyer shall deliver at the time of each remittance a
report to Seller detailing the calculation of the amount of, and basis for, the
payment. If the amount to be paid to Seller from the Net Proceeds of the Lease
Renewal Commissions available to be remitted is less than $5,000 as of the date
of any scheduled remittance, Buyer may, upon written notice to Seller, combine
such amount with subsequently received Net Proceeds of the Lease Renewal
Commissions until the aggregate remaining as of the date of any scheduled
remittance equals at least $5,000. In any event, Buyer shall remit any amounts
to be paid to Seller from such retained Net Proceeds of the Lease Renewal
Commissions no less frequently than annually. If the amount of remaining Lease
Renewal Payables ever exceeds the amount of remaining Lease Renewal Commissions,
Seller shall pay or discharge or cause to be paid or discharged the remaining
unpaid Lease Renewal Payables within five (5) days after receipt of notice
thereof. If Seller fails to timely pay or cause to be discharged any such
obligations, Buyer may, but shall not be required to, apply payments with
respect to the Contingent Payments otherwise due to Seller to the satisfaction
of such obligations. In addition to the foregoing, Seller hereby agrees to
indemnify, defend and hold Buyer and its Affiliates harmless from and against
any liability for any such unpaid Lease Renewal Payables pursuant to this
Section 2.6.
2.6.4 Disputes. If the parties shall be unable to resolve any matter
arising under this Section 2.6, such matter shall be a Disputed Matter and may
be submitted to arbitration in accordance with Section 2.7.
2.7 Dispute Resolution. If the party receiving any of (i) the Adjustment
Statement, (ii) the Closing Date Statement or (iii) a Qualified Revenue
Statement shall notify the other party within thirty (30) days after the receipt
thereof that such party disputes any matter with respect to such Statement, or
if the parties shall have a dispute as to any matter under Section 2.3.3,
Section 2.3.4 or Section 2.6, then any such matters (the "Disputed Matters")
shall be submitted to arbitration before a single arbitrator within thirty (30)
days after such notice unless the parties agree in writing to extend such 30-day
period in an attempt to negotiate a settlement of such Disputed Matters. The
arbitrator (the "Arbitrator") shall be any one of the nationally recognized
independent accounting firms which is on the date hereof among the ten largest
such firms other than Ernst & Young (a "National Accounting Firm") mutually
agreed to by Seller and Buyer. Any reference herein to National Accounting Firms
shall be deemed to include a reference to any member or employee thereof (who is
a certified public accountant) which any such firm may designate as the
Arbitrator on its behalf. If within twenty (20) days following the expiration of
the 30-day period referred to above or any extension thereof Seller and Buyer
shall have failed to agree upon the selection of the Arbitrator or any such
Arbitrator selected by them shall not have agreed to perform the
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services called for hereunder, the Arbitrator shall thereafter be selected from
among persons available in New York County and in accordance with the rules of
the American Arbitration Association ("AAA"), with preference given to any one
of the National Accounting Firms or any member or employee thereof (who is a
certified public accountant) which or who may be willing to perform such
services, other than any such firm which is then employed by Seller or Buyer.
The Arbitrator shall consider only the Disputed Matters, and the arbitration
shall be conducted in New York County in accordance with the rules of the AAA
then in effect. The Arbitrator shall act promptly to resolve all Disputed
Matters and its decision with respect to all Disputed Matters shall be final and
binding upon the parties hereto and shall not be appealable to any court. The
costs and expenses of the Arbitrator and reasonable costs and expenses of all
parties to such arbitration, including professional fees, shall be borne and
paid solely by the party (either Buyer or Seller) whose proposed resolution of
the Disputed Matter has the largest dollar amount of discrepancy (collectively,
if there is more than one disputed item with respect to such arbitration) from
the final dollar amount stated in the decision of the Arbitrator.
2.8 Allocation of Purchase Price. The Purchase Price was arrived at in
arm's-length negotiations between the parties. The Purchase Price (including the
Contingent Payments) shall be allocated among the Purchased Assets in accordance
with the rules of Section 1060 of the Code pursuant to which the Purchase Price
will be allocated among the Purchased Assets under the residual method as set
forth under Temp. Treas. Reg 1.1060-1T(d) as set forth in Schedule 2.8 hereto
(the "Allocation Schedule"). Neither party, nor their respective Affiliates,
will take a position on any tax return or in any action or other proceeding that
is in any way inconsistent with the allocation set forth in the Allocation
Schedule.
3.REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller (jointly and severally) represents and warrants to Buyer, as of the
date of this Agreement and as of the Closing Date, as follows:
3.1 Existence. Douglas Elliman is a general partnership duly organized,
validly existing and in good standing under the laws of the State of New York,
and is qualified to transact business and is in good standing in the States of
Connecticut and New Jersey and is not required to be so qualified in any other
State. The only partners of Douglas Elliman are DEI and DEIBC, each of which are
Delaware corporations duly organized, validly existing and in good standing
under the laws of the State of Delaware. Seller has the full power and authority
to own its properties, to carry on the DE Brokerage Business as presently
conducted, and to sell and convey the Purchased Assets to Buyer.
3.2 Power; Authorization; Enforceable Obligations. Seller has the power,
authority and legal right to execute, deliver and perform this Agreement. The
execution, delivery and performance of this Agreement by Seller and the
consummation of the Transactions have been duly authorized by all necessary
partnership, corporate and shareholder actions. This Agreement has been, and the
instruments of transfer of the Purchased Assets will be, duly executed and
delivered by a duly authorized representative of a duly authorized partner of
Douglas Elliman and authorized officers of each of DEI and DEIBC and this
Agreement constitutes, and such instruments when executed and delivered will
constitute, legal, valid, and binding obligations of Seller enforceable against
Seller in accordance with their respective terms.
3.3 Validity of Transactions, Etc. The execution, delivery, and performance
of this Agreement (including the consummation of the Transactions) by Seller
will not contravene, conflict with or violate (a) any law, rule, regulation or
other legal requirement to which Seller is subject, (b) any judgment, order,
writ, injunction, decree, or award of any court, arbitrator, or Governmental
Authority that is applicable to Seller nor will the same result in the creation
of any Encumbrances upon any of the Purchased Assets, or (c) the partnership
agreement or organizational documents of Seller or any securities issued by
Seller; nor will such execution, delivery, or performance violate, be in
conflict with or result in the breach (with or without the giving of notice or
lapse of time, or both) of any term, condition, or other provision of, or
require the consent of any other party to, any indenture, agreement, contract,
commitment, lease, plan, license, permit, authorization, or other document or
understanding, oral or written, to which either Seller or any Affiliate of
Seller is a party or is otherwise bound, by which Seller may have rights, or by
which any of the assets or properties of Seller may be bound or otherwise
affected, or give any party with rights thereunder the right to terminate,
modify, accelerate, or otherwise change the existing rights or obligations of
Seller thereunder, except as set forth on Schedule 3.3 hereto. Except for (i) a
requirement to make
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appropriate filings and/or re-register with the States of New York, Connecticut
and New Jersey all real estate brokers and real estate sales persons employed by
or otherwise engaged by Seller as part of the DE Brokerage Business, and (ii)
compliance with the HSR Act, to the best of Seller's knowledge, no
authorization, consent, or other approval, and no registration or filing with,
any Governmental Authority, is required in connection with the execution,
delivery, and performance of this Agreement by Seller. Buyer acknowledges that
maintaining appropriate brokerage licenses is required for the continued
operation of the DE Brokerage Business.
3.4 Permits. Set forth on Schedule 1.1(d) is a true and complete list of
all Permits which relate to the DE Brokerage Business. All of such Permits are
in full force and effect and represent all Permits necessary or required for the
conduct of the DE Brokerage Business as presently conducted by Seller, except
where the failure to have such Permits would not reasonably be expected to have
a Material Adverse Effect. Since January 1, 1998, Seller has not received a
written notice alleging a violation or probable violation or notice of
revocation or other written communication alleging (i) any violation of any
Permit of the DE Brokerage Business, or (ii) that Seller requires any Permit to
conduct the operations of the DE Brokerage Business which is not currently held
by Seller.
3.5 Pipeline Transactions. Set forth on Schedule 1.1(h) hereto is a true
and complete list or description in reasonable detail of all Pipeline
Transactions, as of April 30, 1999. All Pipeline Transactions have been and will
be created in the ordinary course of business of the DE Brokerage Business. None
of Seller, any of its Affiliates, including Seller's Principals or Alan Rogers,
has knowledge of any fact or circumstance which would prevent or otherwise
prohibit the consummation of any of the Pipeline Transactions and none of such
persons has any other reason to believe that such consummation will not occur.
Since April 1, 1999, none of Seller, any of its Affiliates, including Seller's
Principals or Alan Rogers has, directly or indirectly, accelerated the closing
of any transaction where the DE Brokerage Business had rights to receive real
estate brokerage commissions.
3.6 Financial Statements. Seller has delivered to Buyer an unaudited
balance sheet and income statement for the DE Brokerage Business for the fiscal
quarters ended March 31, 1998, June 30, 1998, September 30, 1998, December 31,
1998 and March 31, 1999 (collectively, the "DE Financial Statements"). A true
and complete copy of the DE Financial Statements is attached as Schedule 3.6
hereto. The DE Financial Statements were prepared in good faith by Seller, are
complete and correct in all material respects and have been prepared from the
books and records of the DE Brokerage Business, in accordance with GAAP
consistently applied (except with respect to the compensation paid or payable to
Alan Rogers and with respect to administrative and general expenses) and fairly
present the financial position of the DE Brokerage Business and the results of
its operations and cash flows as of the respective dates thereof and for the
periods covered thereby. By their execution hereof, Seller's Principals shall
certify to Buyer the accuracy of the DE Financial Statements. Seller has
maintained its books and records, and possesses all such books, records, papers
and other information, as necessary to permit the Audit Firm to prepare the
Audited Financials in accordance with Section 10.6 hereof.
3.7 Absence of Undisclosed Liabilities. Seller has no material Liabilities
or other obligations, either accrued, absolute, contingent or otherwise,
pertaining to the DE Brokerage Business, except those Liabilities and other
obligations set forth on the DE Financial Statements. To the extent that any
such Liabilities or other obligations may exist, whether or not disclosed in the
DE Financial Statements, whether or not in breach of this representation and
warranty, or otherwise, nothing in this Section 3.7 or this Agreement shall
imply that Buyer shall assume or otherwise be responsible in any way for any
Liability or other obligation, except to the extent specifically provided in
Section 2.3.1 hereof.
3.8 Absence of Certain Changes. Except as disclosed on Schedule 3.8 hereto,
since December 31, 1998, with respect to the DE Brokerage Business, Seller has
not:
(a) sold, assigned, or otherwise transferred any of its properties or
other assets relating to the DE Brokerage Business, other than in the ordinary
course of its business;
(b) created any Encumbrance on any Purchased Asset or made or suffered
any amendment or termination of any agreement, commitment, lease, plan, or other
instrument to which it is a party or by which it is bound which relates to or
affects the DE Brokerage Business, or canceled, modified or otherwise changed,
or waived any debts or claims held by it, or waived any rights of substantial
value;
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(c) suffered any damage, destruction or casualty loss, whether or not
covered by insurance, with respect to any of the Purchased Assets or suffered
any change in its financial condition or in the nature of its business or
operations that has had or might have a Material Adverse Effect;
(d) except in the ordinary course of business consistent with past
practice, increased or committed to increase the salaries or other compensation
of, or made any advance (excluding advances for ordinary and necessary business
expenses) or loan to, any independent contractors engaged by the DE Brokerage
Business or any of its directors, officers, or employees, or made any increase
in, or any addition to, other benefits to which any of its directors, officers,
employees or independent contractors may be entitled;
(e) entered into any transaction other than in the ordinary course of
its business consistent with past practice; or
(f) entered into any agreement or commitment to take any of the
foregoing actions.
3.9 Contracts; Listings.
(a) Set forth on Schedule 1.1(g) hereto is a true and complete list of
all Contracts (other than the Leases) which relate to the DE Brokerage Business
or its operations. Seller has previously delivered to Buyer a complete and
accurate copy of all such Contracts that are in writing. Any such Contract that
is not in writing is described accurately and in reasonable detail on Schedule
1.1(g). All such Contracts were entered into in the ordinary course of business
of the DE Brokerage Business. Set forth on Schedule 3.9(a) hereto is a true and
complete list and description in reasonable detail of all Listings of the DE
Brokerage Business and all properties which have exclusive sales representative
arrangements with the DE Brokerage Business. Except as set forth in Schedule 3.3
hereto, no consent of any third party is required for the assignment of such
Contracts or Listings (other than the Exclusive Listings (as defined below)) to
Buyer. All of the exclusive real estate listings of the DE Brokerage Business in
existence on the date hereof, including any right to renew, extend or supersede
such exclusive listing (each, an "Exclusive Listing"), are, to the best of
Seller's knowledge after due inquiry, fully assignable to Buyer and no consent
of any third party is required for the assignment of such Exclusive Listings to
Buyer.
(b) Except as set forth on Schedule 1.1(g) and Schedule 3.9(a) hereto,
respectively, each of the Contracts and the Listings (i) is valid and in full
force and effect, (ii) is enforceable in accordance with its terms, (iii) to the
best of Seller's knowledge after due inquiry of Seller's Principals and Alan
Rogers, is not subject to an outstanding dispute and neither Seller nor, to the
best of Seller's knowledge, any other party thereto is (with or without notice
or lapse of time or both) in breach or default in any respect thereunder, except
for such breaches and defaults that, individually or in the aggregate, will not
have a Material Adverse Effect, (iv) contains no material contractual
requirement with which there is a reasonable likelihood any party thereto will
be unable to comply, and (v) neither Seller nor any other party thereto has
notified the other of any intent or desire to terminate such Contract or Listing
or to modify or otherwise change such Contract or Listing in any material
respect.
3.10 Tangible Personal Property. All facilities, Equipment and other items
of tangible personal property owned or leased by Seller, including those items
listed on Schedule 1.1(b) hereto, which are to be transferred to Buyer
hereunder, (i) are in such operating condition and state of repair sufficient to
operate the DE Brokerage Business in the ordinary course, subject to normal
maintenance; (ii) are in conformity with all applicable laws, rules,
regulations, and other legal requirements, including the Uniform Commercial Code
and customary trade standards of marketability; and (iii) are usable in the
regular and ordinary course of the DE Brokerage Business. All tangible Purchased
Assets are now, and at the time of Closing will be, located at the Leased
Premises.
3.11 Real Property.
(a) Seller does not own any real property that is used in connection
with the DE Brokerage Business.
(b) Schedule 3.11 hereto contains a true and complete list of all real
property used in the DE Brokerage Business (each, a "Leased Premises") under
which Seller or its Affiliate is a lessee (each such
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lease, a "Lease"), and Seller has described each such Lease on Schedule 3.11 by
listing the location, lessor, lessee (or current assignee), date of lease (and
any amendment or supplement thereto), the term thereof and the amount of any
cash security deposit (including interest earned thereon) or letter of credit
furnished as security thereunder. With respect to each Lease listed on Schedule
3.11: (i) Seller has provided Buyer with a true and complete copy of such Lease
and, if such Lease is a sublease, the overlease relating thereto (including each
amendment or supplement thereto), and Seller does not have any rights in or to
the related Leased Premises under any instrument or document or under any
agreement, written or oral, other than such Lease; (ii) the lessee listed on
Schedule 3.11 is the sole lessee under such Lease, and except as described on
Schedule 3.11 Seller has not granted or permitted nor does there exist any
sublease, license or other right of occupancy by any third party with respect to
such Leased Premises; (iii) such Lease is currently in full force and effect
without any default thereunder by Seller or by the lessor thereunder and Seller
has not given to the lessor thereunder nor received from the lessor thereunder
any notice of default that remains uncured, (iv) neither Seller nor, to the best
knowledge of Seller, the lessor under such Lease has notified the other of any
intent or desire to terminate such Lease or modify or otherwise change it in any
material respect; (v) such Lease has not been assigned (as collateral or
otherwise), or further modified, supplemented or amended; (vi) Seller has timely
and properly exercised any renewal option under such Lease which renewal option
was required to be exercised prior to the date of this Agreement in order to
renew the term thereof beyond its current expiration date; (vii) Seller has
paid, or will have paid prior to the Closing Date, all costs of labor and
materials with respect to all improvements installed by or on behalf of Seller
in or about such Leased Premises for which Seller was obligated to pay, and
there are no mechanics', materialmen's or similar liens against such Leased
Premises resulting from any non-payment by Seller or any of Seller's agents; and
(viii) Seller has paid, or will have paid prior to the Closing Date, in a timely
manner in the ordinary course of business, all rents and additional rents due
and payable under such Lease, and has not prepaid, and will not have prepaid
under such Lease, any rents or additional rents for any period more than thirty
(30) days after the Closing Date (except as otherwise required by such Lease).
With respect to any sublease listed on Schedule 3.11 with respect to which
Seller or its Affiliate is the sublessor, the representations set forth above in
clauses (iii), (iv) and (v) shall apply mutatis mutandis, except that such
provisions shall for this purpose refer to the sublessee in lieu of the lessor.
(c) The consummation of the Transactions will not (i) permit the lessor
under any of the Leases to recapture any of the Leased Premises or terminate any
of the Leases, accelerate the rent due thereunder or cause any material lease
term to be renegotiated, (ii) constitute a material default under any of the
Leases, except for any default that could arise from the failure to obtain those
required consents set forth on Schedule 3.3 hereto, (iii) require the consent of
the lessor under any of the Leases or any other third party, except for those
required consents set forth on Schedule 3.3 hereto, or (iv) require the
relocation of any of the operations of the DE Brokerage Business following the
Closing Date due to a conflict with, violation of or breach (with or without the
giving of notice or lapse of time, or both) of any term, condition or other
provision of any of the Leases.
3.12 Intellectual Property.
(a) Schedule 3.12 hereto contains a true and complete list or
description in reasonable detail of the Intellectual Property Rights. Except as
set forth on Schedule 3.12 hereto, Seller owns all right title and interest or
has the right to use all Intellectual Property Rights currently and as used by
it in the conduct of the DE Brokerage Business, free of any Encumbrance and such
use does not conflict with, infringe upon or violate any patent, trademark,
tradename, copyright, trade-secret or other proprietary rights of any third
party, and Seller has not received any notice, actual or threatened, of a
conflict or asserted conflict with the rights of others in connection with
Intellectual Property Rights. Without limiting the generality of the foregoing,
Seller has all licenses applicable to or otherwise required in connection with
the computer software used in the DE Brokerage Business, and has complied with
the provisions of all such licenses. To the best knowledge of Seller, none of
the Intellectual Property Rights is being infringed by any third party, and no
claim is pending or threatened as to the validity, misuse of, or
unenforceability of rights or interest to, any Intellectual Property Rights, all
of the Intellectual Property Rights are valid and enforceable and Seller and the
respective owners have taken all actions necessary to maintain and protect the
Intellectual Property Rights. Seller is not, with respect to the DE Brokerage
Business, obligated to pay any royalty or license fee or other compensation to
any person with regard to any of the Intellectual Property Rights, except to the
extent set forth in a Contract listed on Schedule 1.1(g).
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(b) Included in the Intellectual Property Rights are the names, logos,
graphics, original works of authorship and all other rights pertaining to the
publications of the DE Brokerage Business, including, without limitation, those
set forth on Schedule 1.1(j) and "Folio of Fine Homes" and "Treasury of Fine
Homes", now or previously use or published by or on behalf of Seller
(collectively, the "Publications"). Following the Closing, Buyer will have all
of Seller's right title and interest in or to the Publications and all of
Seller's right, title and interest in and to the names set forth on Schedule
1.1(j), all of which are fully assignable to Buyer and no consent of any third
party is required for the assignment of such names to Buyer.
3.13 Title to Purchased Assets, Etc. Other than the Encumbrances
specifically listed or described on Schedule 3.13 hereto, Seller has good,
valid, and marketable title to all the Purchased Assets, including all of the
properties and other assets reflected on the most recent Audited Financial
Statement and those acquired since the date thereof, and by execution and
delivery on the Closing Date of appropriate instruments of transfer, Buyer will
be vested with good, valid and marketable title to all of the Purchased Assets,
free and clear of all Encumbrances of any nature whatsoever. Other than the
Encumbrances specifically listed or described on Schedule 3.13 hereto, there are
no Encumbrances on any of the Purchased Assets. Seller has the unrestricted
right to sell and transfer the Purchased Assets pursuant to this Agreement.
3.14 Tax and Other Returns and Reports. All federal, state, and local tax
returns, reports, and statements (including those relating to all income,
unemployment compensation, social security, payroll, sales and use, excise,
privilege, property, ad valorem, franchise, license, school, withholding and any
other tax under the laws of the United States or any state or municipal or
political subdivision thereof (collectively, "Taxes") required to be filed by
Seller have been filed with the appropriate governmental agencies in all
jurisdictions in which such returns, reports, and statements are required to be
filed; all such returns, reports, and statements are true, complete and correct
in all material respects; there is no claim or assessment for Taxes pending or
threatened against Seller and Seller does not know of any audit or investigation
with respect to Taxes due from Seller for the periods covered thereby; and all
Taxes of Seller have been fully paid. There are no Tax liens (other than any
lien for current Taxes not yet due and payable) on any of the assets or
properties of Seller. Seller has made all deposits required by law to be made
with respect to employees' withholding taxes.
3.15 Compliance with Law. Seller has complied with each, and is not in
violation of any, law, rule, regulation or other legal requirement to which it,
the DE Brokerage Business, the operations of the DE Brokerage Business or the
Purchased Assets is subject and has not failed to obtain or to adhere to the
requirements of any license, permit, or other authorization necessary to the
ownership of the Purchased Assets or to the conduct of the DE Brokerage
Business, in each case which noncompliance, violation, or failure to obtain or
adhere might adversely affect the business, operations, assets, prospects or
condition (financial or otherwise) of the DE Brokerage Business. Each of the
Leased Premises and other premises used by Seller in the conduct of the DE
Brokerage Business, and all fixtures, improvements, alternations and
installations therein, complies in all material respects with any law, rule,
regulation or other legal requirement applicable to it. Neither Seller nor any
officer, employee, or agent or other representative of, nor any consultant to,
Seller has unlawfully offered, paid, or agreed to pay, directly or indirectly,
any money or any other thing of value to, or for the benefit of, any individual
who is or was a candidate for public office (other than lawful campaign
contributions), or an official or employee of any Governmental Authority or an
officer, employee, or agent or other representative of any client, customer, or
supplier of Seller.
3.16 Conditions Affecting the DE Brokerage Business. In respect of the DE
Brokerage Business, there are no conditions existing with respect to Seller's
markets, products, services, clients, customers, facilities, personnel, or
suppliers that are known to Seller or that should be known to a prudent business
person in charge of the DE Brokerage Business that would adversely affect the DE
Brokerage Business or its operations or prospects, other than such conditions as
may affect as a whole the industry in which Seller operates the DE Brokerage
Business.
3.17 Employee Plans.
(a) Schedule 3.17(a) hereto contains a true and complete list or
description in reasonable detail of all Employee Plans, including, without
limitation, a description of Seller's current employee bonus policy and
practices. Except as set forth on Schedule 3.17(a) hereto, each Employee Plan
has been maintained in accordance with its terms and with the Employment
Retirement Income Security Act of 1974, as
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amended ("ERISA"), if applicable. Except as set forth on Schedule 3.17(a)
hereto, neither Seller nor any member of a controlled group of corporations
(within the meaning of Code Section 414(b)), entities under common control
(within the meaning of Code Section 414(c)), or member of an affiliated service
group (within the meaning of Code Section 414(m)) of which Seller is or was in
the last five (5) years a member (collectively, the "Control Group") contributes
to any Multiemployer Plan providing benefits for any employee of the DE
Brokerage Business, and no defined benefit plan is maintained by Seller and/or
the Control Group. Seller does not have any "leased employees" as that term is
defined in Code Section 414(n).
(b) Schedule 3.17(b) hereto sets forth a true and complete copy of the
Douglas Elliman Deferred Bonus Plan (the "Deferred Bonus Plan") and a true and
complete list stating, as of the date hereof, the name of each employee that has
been granted a bonus under such Plan, the date of such grant and the vesting
period in respect thereof, and the portion of such grant that is fully vested.
No grant of any bonus pursuant to the Deferred Bonus Plan has been made on any
terms or conditions other than as set forth in the Plan attached hereto, and no
such grant has been modified, amended or terminated.
3.18 Insurance. Set forth on Schedule 3.18 hereto is a list of all material
policies of fire, liability, workers' compensation and other forms of insurance
which relate to the DE Brokerage Business, including coverage amount, limits and
the deductible applicable thereto. All such policies are of such types and in
such amounts and covering such risks as are consistent with customary practices
of companies engaged in businesses and operations similar to the DE Brokerage
Business. Buyer shall be named as an additional insured on all such policies
with respect to the Interim Period. All such policies are in full force and
effect, the premiums due thereon have been paid, Seller has complied in all
material respects with the provisions of such policies and no notice of
cancellation or termination has been received with respect to any such policy
(except for the lapse of any thereof at the end of its term), it being
understood, however, that Seller may terminate all such policies as to the DE
Brokerage Business as of the Closing Date.
3.19 Litigation; Decrees. Schedule 3.19 hereto sets forth a true and
complete description in reasonable detail of all pending or, to the best of
Seller's knowledge after due inquiry, threatened disputes with employees of,
independent contractors engaged by or present or former clients or customers of
the DE Brokerage Business. Except (i) as listed or described on Schedule 3.19
hereto, (ii) for claims under workers' compensation or similar laws or other
legal requirements, (iii) for claims that are fully insured, (iv) for claims for
money damages alone of less than $10,000 (the total of which claims does not
exceed in the aggregate $40,000), and (v) for claims arising in connection with
any Employee Plan, (A) there is no other suit, action, arbitration, audit,
hearing, investigation, litigation or other proceeding (whether civil, criminal,
administrative, investigative or informal) pending or, to the best of Seller's
knowledge after due inquiry, threatened by, against, or otherwise affecting or
directly or indirectly related to Seller, any of its Affiliates, the DE
Brokerage Business or any of their present or former partners, officers,
employees, or the Transactions, nor does Seller know or have reasonable grounds
to know of any basis for any such litigation, arbitration, investigation or
other proceeding; and (B) Seller is not a party to or subject to the provisions
of any judgment, order, writ, injunction, decree, or award of any court,
arbitrator, or Governmental Authority, arising out of or relating to the conduct
of the DE Brokerage Business, and Seller is not in default under any judgment,
order, or decree of any court or Governmental Authority applicable to the
conduct of the DE Brokerage Business.
3.20 Employees, Independent Contractors and Relations.
(a) Schedule 3.20(a) hereto sets forth the name of each current
employee of the DE Brokerage Business and each such employee's title, employment
date and compensation rate, and Schedule 3.20(b) hereto sets forth the name of
each independent contractor currently providing services to the DE Brokerage
Business, such independent contractor's tenure with the DE Brokerage Business, a
description of the type of services provided by such independent contractor,
such independent contractor's compensation rate and the dollar amount of real
estate brokerage commissions generated by such independent contractor during the
past two years.
(b) Except as otherwise disclosed in this Agreement or in the Schedules hereto,
Seller is not a party to any (i) contract with any guild or labor union or any
other collective bargaining agreement, or (ii) pension, profit-sharing,
retirement, bonus, insurance, or similar plan in effect with respect to its
employees or others, and without limiting the generality of the foregoing,
following consummation of the Transactions contemplated by this Agreement, Buyer
will not be deemed a successor to or otherwise bound by any collective
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bargaining agreement or other union obligations. Except as listed or described
on Schedule 3.19 hereto, there is no, and within the last three years, Seller
has not experienced any, strike, picketing, boycott, work stoppage or slowdown,
or other labor dispute, union organizational activity, allegation, charge, or
complaint of unfair labor practice, employment-discrimination, or other matters
relating to the employment of labor pending or, to the best knowledge of Seller,
threatened against Seller. With respect to the DE Brokerage Business, there is
no request for union representation pending and, to the best knowledge of
Seller, no question concerning union representation has been raised.
(c) Except as disclosed on Schedule 3.20(c), Seller is not a party to
or bound by, with respect to any officer, employee or independent contractor of
the DE Brokerage Business, any (i) employment, termination or severance
agreement not terminable on thirty (30) days or less notice, (ii) agreement (A)
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving Seller of the nature of
any of the Transactions contemplated by this Agreement, (B) providing any term
of employment or compensation guarantee extending for a period of one year or
longer or (C) providing severance benefits or other benefits after the
termination of employment not comparable to benefits available to employees
generally, (iii) agreement, plan or arrangement under which any person may
receive payments that may be subject to the tax imposed by Section 4999 of the
Code or included in the determination of such person's "parachute payment" under
Section 280G of the Code and (iv) agreement or plan, including any stock option
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting or other realization of the benefits of which will be accelerated,
by the occurrence of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of the
transactions contemplated by this Agreement.
(d) None of the independent contractors currently providing services to
the DE Brokerage Business (i) is an employee of the DE Brokerage Business,
Seller or any of Seller's Affiliates, or (ii) is receiving any benefit under any
Employee Plan. None of Seller, any of its Affiliates, including Seller's
Principals or Alan Rogers, has received any notice, whether written or oral,
from any employee or independent contractor indicating that such employee or
independent contractor intends to terminate his or her employment or
relationship with the DE Brokerage Business and none of such persons has any
other reason to believe that any such employee or independent contractor will
terminate such employment or relationship.
(e) Schedule 3.20(e) hereto sets forth a true and complete list of all
accrued severance, accrued vacation pay, accrued bonus and any other benefits
accrued for each of the Designated Employees set forth on Schedule 6.1 as of
April 30, 1999.
3.21 No Third Party Options. There are no existing agreements, options,
commitments, or other rights with, to, or in any person to acquire the DE
Brokerage Business, any of the Purchased Assets or any interest therein, except
for those contracts entered into in the ordinary course of business consistent
with past practice for the sale of Seller's products and services.
3.22 Environmental Laws. The DE Brokerage Business is in compliance with
all applicable Environmental Laws and orders or directives of any Governmental
Authorities having jurisdiction under such Environmental Laws except where the
failure to comply would not result in a Material Adverse Effect. Sellers have
not received any citation, directive or notice of any proceedings, claims or
other actions from any Governmental Authority arising out of the ownership or
occupation of its properties or premises or the conduct of its operations, nor
is it aware of any basis therefor. To Seller's knowledge, no material
expenditure on behalf of the DE Brokerage Business is or will be required in
order to comply with any Environmental Law. The 575 Premises do not contain any
asbestos-containing materials. As used herein, "Environmental Laws" means any
federal, state, municipal, local or foreign law, statute, ordinance, code, rule
or regulation pertaining to land use, air, soil, surface water, groundwater
(including protection, cleanup, removal, remediation or damage thereof), public
or employee health or safety or any other environmental matter.
3.23 FIRPTA. Seller is not a "foreign person" as defined in Section
1445(f)(3) of the Code. At the Closing, Seller shall deliver to Buyer the
certificate required by Section 1445 of the Code. Seller shall also deliver to
Buyer a form W-9 as required to avoid back-up withholding.
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3.24 Completeness of Disclosure. Neither this Agreement nor any
certificate, Exhibit, Schedule, statement, or other document furnished or to be
furnished to Buyer pursuant hereto, or in connection with the negotiation,
execution, or performance of this Agreement, contains or will contain any untrue
statement of a fact or omits or will omit to state a fact required to be stated
herein or therein or necessary to make any statement herein or therein not
misleading. There is no fact, development, or threatened development (excluding
general economic factors affecting business in general) that Seller has not
disclosed to Buyer in writing that materially adversely affects or, so far as
Seller can now foresee, may adversely affect, the business, operations, assets,
properties, prospects, or condition (financial or otherwise) of the DE Brokerage
Business.
All representations and warranties of Seller to Buyer may be relied upon by
any successor or assign of Buyer to the extent of such successor or assign's
interest in the Purchased Assets or any portion thereof, and are assignable to
any person to whom all or part of the Purchased Assets may be transferred.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller, as of the date of this Agreement
and the Closing Date, as follows:
4.1 Existence. Buyer is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of Delaware. Buyer
has the full power and authority to own its properties, to carry on its business
as presently conducted and to purchase the Purchased Assets from Seller.
4.2 Power and Authorization. Buyer has the power, authority and legal right
to execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by Buyer and the consummation of the Transactions
have been duly authorized by all necessary limited liability company action on
the part of Buyer. This Agreement has been duly executed and delivered by Buyer
and constitutes the legal, valid, and binding obligation of Buyer enforceable
against Buyer in accordance with its terms.
4.3 Validity of Transactions, Etc. The execution, delivery, and performance
of this Agreement (including the consummation of the Transactions) by Buyer will
not contravene, conflict with or violate (a) any law, rule, regulation, or other
legal requirement to which Buyer is subject, (b) any judgment, order, writ,
injunction, decree, or award of any court, arbitrator, or Governmental Authority
that is applicable to Buyer, or (c) the certificate of formation or limited
liability company agreement of Buyer or any securities issued by Buyer; nor will
such execution, delivery, or performance violate, be in conflict with or result
in the breach (with or without the giving of notice or lapse of time, or both)
of any term, condition, or other provision of, or require the consent or other
approval of any other party to, any mortgage, indenture, agreement, contract,
commitment, lease, plan, or other document or understanding, oral or written, to
which Buyer is a party or by which Buyer is otherwise bound. Other than (i)
obtaining appropriate licenses from the States of New York, Connecticut and New
Jersey and making appropriate filings for all real estate sales persons who will
be engaged in the DE Brokerage Business after the Closing Date, and (ii)
compliance with the HSR Act, no authorization, consent, or other approval, and
no registration or filing with, any Governmental Authority is required in
connection with the execution, delivery, and performance of this Agreement by
Buyer.
4.4 Buyer Financing. Buyer, together with its Affiliates, will have
adequate liquidity available at the Closing to make the payment of the Cash
Payment.
5. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.
5.1 Conduct of Business. From the date hereof until the Closing, Seller
shall conduct the business and operations of the DE Brokerage Business in
accordance with past practice and in the ordinary course of business, shall
maintain the current business organization and goodwill of the DE Brokerage
Business, shall use commercially reasonable efforts to continue to retain the
services of the present employees, independent contractors and consultants of
the DE Brokerage Business, shall preserve its relationship with customers,
suppliers and others having business dealings with the DE Brokerage Business,
and shall not enter into any transaction or perform any act which would
constitute a breach of the representations, warranties, covenants and agreements
contained herein. Without limiting the generality of the foregoing, Seller shall
continue to prepare and purchase, at its own expense,
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all promotional and marketing materials in connection with Seller's listings in
connection with the DE Brokerage Business as are prepared and purchased by
Seller in accordance with past practice and in the ordinary course of business.
5.2 Certain Changes or Events. From the date hereof until the Closing,
except as specifically provided herein or with the prior written consent of
Buyer, Seller shall not (a) make or become liable for any wage or salary
increase, bonus, profit-sharing or incentive payment to any of the Designated
Employees (as defined in Section 6.1), (b) sell or otherwise dispose of or
encumber any of the properties or assets of the DE Brokerage Business other than
in sales or dispositions in the ordinary course of business or in connection
with normal repairs, renewals and replacements, (c) modify, amend or cancel any
of the Leases or Contracts or enter into any commitments, contracts, agreements,
leases, warranties, guarantees or understandings with respect to the DE
Brokerage Business (x) other than in the ordinary course of business or (y) with
an Affiliate of Seller or its employees (except for advertising in the ordinary
course of business), (d) fail to operate the DE Brokerage Business in the
customary manner and in the ordinary and regular course of business and to
maintain its business premises and Equipment in such condition and state of
repair as is sufficient to operate the DE Brokerage Business in the ordinary
course, (e) cancel, settle or compromise any debt, claim or dispute related to
the Purchased Assets or the DE Brokerage Business, other than in the ordinary
course of business, (f) waive or release any rights of value relating to the
Purchased Assets or the DE Brokerage Business, other than in the ordinary course
of business, (g) transfer or grant any rights in or under any of its
Intellectual Property Rights, (h) enter into any employment contract or other
agreement with any Designated Employee or independent contractor, or make any
loan to, or enter into any transaction of any other nature with any Designated
Employee or independent contractor, or make any new grant under the Deferred
Bonus Plan, or modify the terms of any existing grant under the Deferred Bonus
Plan, (i) enter into any transaction, contract or commitment with respect to the
Purchased Assets, other than in the ordinary course of business, (j) suffer any
casualty loss or damage (whether or not such loss or damage shall have been
covered by insurance) which materially affects its ability to conduct the DE
Brokerage Business or materially affects the value of the Purchased Assets as
carried on its books, (k) suffer any material adverse change in the financial
condition or results of operations of the DE Brokerage Business or in the
Purchased Assets, (l) take any other action which might adversely affect the
interest of Buyer hereunder or diminish the value of the DE Brokerage Business
as a going concern, (m) alter the manner of keeping the books, accounts or
records of the DE Brokerage Business or the accounting practices therein
reflected, (n) make any new Broker Loans, or extend or modify the terms of any
existing Broker Loans, or (o) enter into any contract, agreement or commitment
with respect to, or propose or authorize, any of the actions described in the
foregoing clauses (a) through (n).
5.3 Access. From the date hereof until the Closing Date, Seller shall
afford Buyer and its representatives access, during normal business hours, to
all of Seller's business operations, properties, books, files and records
relating to the DE Brokerage Business, to cooperate in the examination thereof,
and to furnish Buyer all information with respect to the business and affairs of
Seller relating to the DE Brokerage Business as Buyer may reasonably request,
provided that Buyer shall not unduly disrupt the ordinary operation of the DE
Brokerage Business. Buyer and its representatives shall have the right to
discuss the affairs of Seller with the officers, employees, independent
contractors, consultants, advisors and agents of Seller, including the right to
discuss the retention or continuation of such person's services with respect to
the DE Brokerage Business following the Effective Time. No such examination,
however, shall constitute a waiver or relinquishment by Buyer of its right to
rely upon Seller's representations, warranties, covenants and agreements as made
herein or pursuant hereto.
5.4 Notice of Transaction.
5.4.1 Press Release. Buyer, at its option, may at any time after the
execution of this Agreement issue a press release announcing the Transactions
contemplated by this Agreement (the "Press Release"). The Press Release may be
publicly issued and the form thereof shall be determined by and in the sole
discretion of Buyer. Except as provided in Section 5.4.2, no disclosure of the
Transactions, including the existence or the status thereof, shall be made by
any party or its Affiliate pending the issuance of the Press Release as provided
in this Section 5.4.1.
5.4.2 Public Disclosure. Any party may make or cause to be made any
public announcement or issue any public notice with respect to this Agreement or
the Transactions contemplated hereby, if in the opinion
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of such party's counsel it is required by the securities laws of the United
States or the rules of the New York Stock Exchange to make such disclosure.
5.5 HSR Act Compliance. Promptly after the date hereof, each of Seller and
Buyer shall file any notification required to be filed under the HSR Act to
tconsummate the transactions contemplated hereby, and shall request early
termination of the waiting period thereunder. The parties shall use all
reasonable efforts to comply as promptly as practicable with any request made
pursuant to the HSR Act for additional information. Each party shall reasonably
cooperate with the other party in such compliance. Seller and Buyer each shall
pay one-half the statutory filing fees required by the HSR Act.
5.6 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable efforts to
take promptly, or cause to be taken, all actions and to do promptly, or cause to
be done promptly, all things necessary, proper or advisable under applicable
laws to consummate and make effective the transactions contemplated by this
Agreement, and to satisfy all of the conditions to the Closing to be satisfied
by such party, including using its commercially reasonable efforts to obtain all
necessary actions or non-actions, extensions, waivers, consents and approvals
from all applicable governmental entities and third parties, and effecting all
necessary registrations and filings. Each of the parties hereto agrees not to
take any action or fail to take any action that would be likely to cause any
representation or warranty contained in this Agreement to cease to be true or
accurate or that would be reasonably likely to prevent the performance of any
covenant or the satisfaction of any condition contained in this Agreement.
5.7 Exclusivity. For so long as this Agreement is in effect, neither Seller nor
Seller's Principals shall, and Seller shall use its best efforts to cause its
Affiliates, officers, directors, employees, representatives and agents not to,
directly or indirectly, solicit, initiate or participate in discussions or
negotiations with, or provide any information to, any other Person, other than
Buyer and its Affiliates, or enter into any agreement providing for (i) any sale
of all or substantially all of the assets of the DE Brokerage Business, (ii) any
merger, consolidation, liquidation, dissolution or business combination
affecting the DE Brokerage Business, or (iii) any similar transaction affecting
the DE Brokerage Business.
6. EMPLOYEES AND INDEPENDENT CONTRACTORS.
6.1 Designated Employees. Set forth on Schedule 6.1 hereto is the name of
each current employee and independent contractor of the DE Brokerage Business to
whom Buyer wishes to offer employment (subject at all times to employment at
will in the absence of a written agreement effective at or after the Closing
between such individual and Buyer) or engagement as an independent contractor,
as applicable, from and after the Closing Date (the "Designated Employees").
Buyer shall offer to each Designated Employee employment from and after the
Closing Date, and if such employment is accepted by such person, such person
shall thereafter be an employee or independent contractor of Buyer; provided,
that all such employees shall be employees at will, and Buyer shall have no
obligation to employ any such employees for any specific amount of time. Except
as otherwise set forth in Section 2.3.1, Seller shall pay all Employee Costs (as
defined below) for such persons accrued prior to the Effective Time (including,
without limitation, a proportionate share of all accrued amounts or benefits for
1999) pursuant to and in accordance with Section 6.2 hereof. If the offered
employment is not accepted by any such person for any reason, then such person
shall not be a "Designated Employee" hereunder and Seller shall pay all Employee
Costs of that employee accruing prior to, including and after the Closing Date,
including any severance obligations pursuant to and in accordance with Section
6.2 hereof.
6.2 Employee Costs and Payments to Independent Contractors. Except as
otherwise set forth in Section 2.3.1, Seller shall remain responsible for and
shall promptly pay when the same shall become due and payable, at Seller's sole
cost and expense, (a) all employment-related liabilities, benefits and costs,
including, without limitation, wages, benefits, pension contributions,
profit-sharing, bonuses, payroll taxes, accrued vacation pay, health-coverage
costs, insurance, severance and accrued sick leave (collectively, "Employee
Costs") to all current employees of the DE Brokerage Business who are (i) not
Designated Employees, and (ii) Designated Employees to the extent provided in
Section 6.1 hereof, and (b) all amounts owing to any independent contractor
engaged by the DE Brokerage Business for all periods prior to and ending at the
Effective Time, other than amounts owing, if any, to such persons with respect
to Pipeline Transactions.
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6.3 Post-Closing Benefits for Employees Generally. Buyer shall provide to
the Designated Employees who become employees of Buyer employee benefit plans
that are generally comparable to those provided to other persons employed by
Buyer of generally similar levels of responsibility, compensation, seniority and
performance. For purposes of their right to vacation time and sick leave, and
participation in, but not vesting, with respect to, any Buyer pension plan after
the Effective Time as employees of Buyer, such Designated Employees after the
Effective Time shall receive full credit for their employment tenure with the DE
Brokerage Business; provided, however, that, except as otherwise provided in any
employment agreement signed in connection with this Agreement, no employee of
the DE Brokerage Business who becomes an employee of Buyer may accrue vacation
for periods occurring after the Effective Time beyond periods permitted in
accordance with the standard policies of Buyer; and, further provided that no
employee or independent contractor shall receive or be credited with employer
matching contributions to any pension plan of Buyer with respect to any
commission compensation.
6.4 Confidentiality, Non-Competition Agreements. All agreements with
respect to confidentiality, non-competition, and the like pertaining to (a)
employees of Seller or Seller's Affiliates who become employees of Buyer or an
Affiliate of Buyer, or (b) independent contractors engaged by the DE Brokerage
Business prior to the Closing, in each case, shall inure to the benefit of
Buyer. Seller represents and warrants to Buyer that a true and complete list of
all such agreements is attached as Schedule 6.4 hereto. At the Closing, Seller
shall assign (to the extent of all of Seller's right, title, and interest) all
such agreements to Buyer, to which assignment Seller shall attach true and
complete copies of such agreements. If such agreements cannot be assigned then
Seller, to the maximum extent permitted by law, shall act as Buyer's agent in
order to obtain for Buyer the benefits pursuant thereto; provided that Seller's
agreement to act as agent for Buyer pursuant to this sentence shall not require
Seller to expend any sum or commence any action or proceeding unless Buyer shall
so request, in which case Buyer shall pay or reimburse Seller for any such sum
or the cost of such action or proceeding.
6.5 Employee and Independent Contractor Information. Seller and Buyer will
each provide the other, in a timely manner, with all information relating to any
employee's employment with and compensation from, and any independent
contractor's engagement by and compensation from, Seller or Buyer or their
respective Affiliates, as the case may be, or rights or benefits under any
Employee Plan, that either party may reasonably request, except to the extent,
if any, that such disclosure is prohibited by applicable law. Seller and its
Affiliates will cooperate with Buyer's efforts to employ or retain the
Designated Employees.
7. CLOSING.
7.1 Closing Date.
(a) The closing of the Transactions contemplated by this Agreement (herein
called the "Closing") shall take place at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York, at 10:00 a.m. on
the third (3rd) business day following the receipt of notice by one party from
the other stating that the conditions set forth in Sections 8.6 and 9.6 have
been satisfied or waived (a "Closing Notice"), or on such other date as the
parties may mutually agree, provided that the Closing shall not in any event
occur prior to June 23, 1999 unless the parties otherwise agree. The date on
which the Closing actually occurs is referred to herein as the "Closing Date."
(b) Notwithstanding the foregoing, Seller shall have the right to extend
the date of the Closing up to three (3) separate times for periods of ten (10)
days each by giving written notice of the first such extension to Buyer within
two (2) business days after receipt by Seller from Buyer of a Closing Notice,
and by giving written notice of each subsequent extension to Buyer not later
than three (3) business days prior to the end of any 10-day extension period,
provided, however, that Seller shall not exercise any such right to extend
unless Seller, in connection with each such extension and based on discussions
with the Audit Firm, believes in good faith that the Audited Financials (as such
term is defined, and subject to modification as set forth in, Section 10.6
hereof) may not be completed within sixty (60) days after the Closing Date (as
the same may previously have been extended).
7.2 Deliveries by Seller.
At the Closing, Seller shall deliver, cause to be delivered, or, as
applicable, execute and deliver to Buyer the following:
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7.2.1 Bill of Sale, Etc. A bill of sale substantially in the form of
Exhibit 7.2.1 hereto, together with such assignments, endorsements and other
good and sufficient instruments and documents of conveyance and transfer, in
each case in form and substance satisfactory to Buyer and its counsel, as shall
be necessary and effective to convey, assign and otherwise transfer to, and vest
in, Buyer all of Seller's right, title and interest in and to the Purchased
Assets to be sold under this Agreement, including, without limitation, (i) good,
valid and marketable title in and to all of the Purchased Assets owned by
Seller, including all of Seller's rights under all Contracts and Listings and
all licenses, permits and authorizations, as permitted by law, and other
documents to which Seller is a party or by which it has rights relating to the
DE Brokerage Business or the Purchased Assets at the Closing Time, and (ii) good
and valid leasehold interests in and to all of the Purchased Assets leased by
Seller.
7.2.2 Assumption and Assignment of Leases. An instrument of assignment
and assumption of lease, duly executed by Seller or its Affiliate, as
applicable, with respect to each Lease which pursuant to Sections 1.3 and 1.4 is
to be assigned to Buyer, in substantially the form of Exhibit 7.2.2(a) hereto,
assigning to Buyer all of the right, title and interest of Seller or such
Affiliate in and to such Lease (each, a "Lease Assignment and Assumption");
provided, however, that if a lessor under a Lease shall require a different form
of Lease Assignment and Assumption, (x) such form shall be reasonably
satisfactory to counsel for Buyer and Seller and (y) notwithstanding the
provisions of any form of assignment, as between Buyer and Seller, Buyer shall
not be liable for any obligations of the lessee under any Lease relating to any
period prior to the Effective Time and Seller shall not be liable for any
obligations of the lessee under any Lease relating to any period on or after the
Closing Time, except as may be otherwise expressly set forth in this Agreement.
Seller shall deliver to Buyer together with each such Lease Assignment and
Assumption, (i) a landlord consent in form reasonably satisfactory to Buyer (to
the extent such consent is required as set forth in Schedule 3.3 hereto) and
(ii) an estoppel certificate substantially in the form of Exhibit 7.2.2(b)
hereto, in each case duly executed by the respective lessor.
7.2.3 Assignment of Management Agreement. An assignment from Seller or
its Affiliate, as applicable, to Buyer (or Buyer's designee), in the form of
Exhibit 7.2.3 hereto, of all of Seller's or its Affiliate's right, title and
interest in and to the management agreement with respect to the building located
at 790 Madison Avenue, New York, New York, together with any and all other
rights and benefits of Seller or its Affiliate with respect to such management
agreement and the management of such building.
7.2.4 Tangible Property. All Contracts, Listings, Leases, Permits,
Equipment, Supplies, Books and Records, software, correspondence, and other
documents, papers, files, and data belonging to Seller with respect to the
Purchased Assets or the DE Brokerage Business; and concurrently with such
delivery, all such steps will be taken as may be required to put Buyer in actual
possession and operating control of the Purchased Assets.
7.2.5 NY Sales Tax Return. A New York State Sales Tax Return for its
sales tax liability for the taxable portion, if any, of the Purchased Assets,
and Seller shall file that return with its check for the sales tax disclosed
upon the return with the New York State Sales Tax Department.
7.2.6 Business Certificate for Partners. A true and complete copy of
the duly filed Business Certificate for Partners with respect to Seller,
certified by the New York County Clerk as of a date not more than twenty (20)
days prior to the Closing Date.
7.2.7 General Partners of Seller. With respect to each of DEI and
DEIBC: (i) a current good standing certificate issued by the Delaware Secretary
of State dated not more than ten (10) days prior to the Closing Date,
accompanied by a short-form "bring down" good standing certificate dated not
more than one (1) day prior to the Closing Date, (ii) a certificate of
incumbency concerning officers of each general partner, and (iii) board of
director and stockholder resolutions certified by the secretary or an assistant
secretary of each general partner as duly adopted and in full force and effect,
authorizing the consummation of the Transactions, in each case, in form and
substance reasonably acceptable to Buyer.
7.2.8 Certifications of Documents. (a) Updated, as of the Closing Date,
Schedules 1.1(g), 1.1(h), 1.1(p), 2.5.1, 3.20(e), 3.8 and 3.9(a), each as
estimated in good faith by Seller, and (b) duly executed certificates of Seller
and of Seller's Principals certifying such Schedules and that the Contracts,
Listings, Leases and other documents constituting or pertaining to the Purchased
Assets as are turned over to Buyer at the Closing are true and complete
counterparts of what they purport to be.
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7.2.9 Releases. Original releases, termination statements or similar
instruments as necessary to release, discharge and terminate any Encumbrances on
or with respect to any of the Purchased Assets (whether or not disclosed on
Schedule 3.13).
7.2.10 General. All other agreements, instruments, certificates,
resolutions, opinions and other documents required to be delivered by Seller on
or before the Closing pursuant to this Agreement.
7.3 Deliveries by Buyer.
At the Closing, Buyer shall deliver, cause to be delivered, or, as
applicable, execute and deliver, to Seller the following:
7.3.1 Closing Payment. The payment of the portion of the Cash Payment
to be delivered at the Closing pursuant to Section 2.1.3(b)(ii).
7.3.2 General. All other agreements, instruments, certificates,
resolutions, opinions and other documents required to be delivered by Buyer on
or before the Closing pursuant to this Agreement.
7.4 Deliveries by Buyer and Seller.
At the Closing, Buyer and/or Seller, as applicable, shall deliver, cause to
be delivered, or, as applicable, execute and deliver, the following additional
agreements, it being agreed that each such agreement is material to the
Transactions and that each party's agreement to enter into each such agreement
is a material inducement to the other party to enter into this Agreement:
7.4.1 Amendment to Management Purchase Agreement. A duly executed
amendment to the Purchase Agreement, dated September 5, 1995, between Douglas
Elliman and Insignia Residential Group, Inc. (f/k/a Insignia Management
Services-New York, Inc.), substantially in the form of Exhibit 7.4.1 hereto.
7.4.2 Subleases. A duly-executed sublease between Seller (or its
Affiliate), as sublessor, and Buyer, as sublessee, with respect to (a) the 575
Premises, substantially in the form of Exhibit 7.4.2(a) hereto, and (b) each
other Leased Premises that in accordance with Sections 1.3 and 1.4 is to be
sublet to Buyer, substantially in the form of Exhibit 7.4.2(b) hereto (each, a
"Sublease"), and Seller shall deliver to Buyer together with each such Sublease,
(i) a landlord consent in form satisfactory to Buyer in its sole discretion,
(ii) an estoppel certificate substantially in the form of Exhibit 7.4.2(c)
hereto and (iii) with respect to the 575 Premises, a non-disturbance agreement
substantially in the form of Exhibit 7.4.2(d) hereto, in each case duly executed
by the respective lessor.
7.4.3 Transitional Services Agreement. A duly executed transitional
services agreement between Seller and Buyer, substantially in the form of
Exhibit 7.4.3 hereto.
7.4.4 Trademark License Agreement. A duly executed trademark license
agreement between Seller and Buyer, substantially in the form of Exhibit 7.4.4
hereto.
7.4.5 Advertising Services Agreement. A duly executed advertising
services agreement between Milford Advertising Agency (an Affiliate of Seller)
and Buyer, substantially in the form of Exhibit 7.4.5 hereto.
7.4.6 Lease. A duly-executed lease between Seller (or its Affiliate),
as landlord, and Buyer, as tenant, of the premises used in connection with the
DE Brokerage Business at 99 Battery Place, New York, New York, on a standard
NYBTU form (to be negotiated) together with pre-negotiated riders, for an
initial term of two (2) years at a rental of $36,000 per annum and a two (2)
year renewal option at a rental of $36,000 per annum for the first option year
and $37,200 for the second option year, and providing for a right of
cancellation by Buyer at any time on 120 days' notice.
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7.4.7 License. A duly-executed license agreement between Seller (or its
Affiliate), as licensor, and Buyer, as licensee, with respect to the premises
used in connection with the DE Brokerage Business at 767 Fifth Avenue, New York,
New York, substantially in the form of Exhibit 7.4.7 hereto.
7.4.8 Non-Competition Agreement. A duly-executed non-competition
agreement, substantially in the form of Exhibit 7.4.8 hereto, between Seller and
Seller's Principals and Buyer.
7.4.9 Phone Services Agreement. A duly-executed phone services
agreement, substantially in the form of Exhibit 7.4.9 hereto, between Seller and
Buyer.
8. CONDITIONS TO BUYER'S OBLIGATIONS AT CLOSING.
The obligations of Buyer under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against Buyer unless Buyer gives its
consent in writing thereto:
8.1 Representations and Warranties. The representations and warranties
of Seller contained in this Agreement shall be true in all material respects on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date (or on the date when
made in the case of any representation or warranty which expressly relates to an
earlier date), except (a) as otherwise expressly permitted by this Agreement and
(b) for changes in such representations and warranties which would not have (i)
a Material Adverse Effect, or (ii) a material adverse effect on Seller's valid
execution, delivery or performance of this Agreement, or any other agreements to
be executed by Seller pursuant hereto, or the Transactions.
8.2 Performance. Seller shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.
8.3 Compliance Certificate. Buyer shall have received at the Closing
certificates executed by a senior executive officer of Seller certifying that
the conditions specified in Sections 8.1, 8.2 and 8.7 have been fulfilled.
8.4 Proceedings and Documents. All corporate and other proceedings in
connection with the authorization of the transactions contemplated at the
Closing and all documents incident thereto shall be reasonably satisfactory in
form and substance to Buyer's counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
8.5 Opinion of Seller's Counsel. Buyer shall have received from Andrew
S. Berkman, counsel for Seller, an opinion, dated the Closing Date, in
substantially the form annexed as Exhibit 8.5.
8.6 HSR; Licenses; Consents. (i) All applicable waiting periods under
the HSR Act shall have been terminated or shall have expired; and (ii) Buyer
shall have received duly executed third party consents, in form and substance
reasonably satisfactory to Buyer, with respect to the Contracts, Leases and
Subleases listed on Schedule 8.6 annexed hereto, or Buyer shall have waived (or
be deemed to have waived) same.
8.7 No Action or Proceeding. No claim, action, suit, investigation or
other proceeding shall be pending which, if adversely determined, would (i)
result in an order, writ, injunction or decree prohibiting Buyer from
consummating, (ii) grant relief from or against Buyer with respect to, or (iii)
render it unlawful for Buyer as of the Closing Date to consummate, the
Transactions contemplated by this Agreement, except to the extent any of the
foregoing results from (x) acts or omissions of Buyer, (y) in connection with
third-party landlord actions against Buyer or (z) in connection with securities
law claims against Buyer.
8.8 No Material Adverse Effect. Between the date of this Agreement and
the Closing Date, there shall not have occurred any event or condition which has
had or may reasonably be expected to have a Material Adverse Effect.
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9. CONDITIONS TO SELLER'S OBLIGATIONS AT CLOSING.
The obligations of Seller to Buyer under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against Seller unless Seller gives its
consent in writing thereto:
9.1 Representations and Warranties. The representations and warranties of
Buyer contained in this Agreement shall be true in all material respects on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (or on the date when made
in the case of any representation or warranty which expressly relates to an
earlier date), except for changes in such representations and warranties which
would not have a material adverse effect on Buyer's valid execution, delivery or
performance of this Agreement, or any other agreements to be executed by Buyer
pursuant hereto, or the Transactions.
9.2 Performance. Buyer shall have performed and complied in all material
respects with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
9.3 Compliance Certificate. Seller shall have received at the Closing a
certificate executed by a senior executive officer of Buyer certifying that the
conditions specified in Sections 9.1, 9.2 and 9.7 have been fulfilled.
9.4 Proceedings and Documents. All corporate and other proceedings in
connection with the authorization of the transactions contemplated at the
Closing and all documents incident thereto shall be reasonably satisfactory in
form and substance to Seller's counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
9.5 Opinion of Buyer's Counsel. Seller shall have received from Akin, Gump,
Strauss, Hauer & Feld, L.L.P., counsel for Buyer, an opinion, dated the Closing
Date, in substantially the form annexed as Exhibit 9.5.
9.6 HSR. All applicable waiting periods under the HSR Act shall have been
terminated or shall have expired.
9.7 No Action or Proceeding. No claim, action, suit, investigation or other
proceeding shall be pending which, if adversely determined, would (i) result in
an order, writ, injunction or decree prohibiting Seller from consummating, (ii)
grant relief from or against Seller with respect to, or (iii) render it unlawful
for Seller as of the Closing Date to consummate, the Transactions contemplated
by this Agreement, except to the extent any of the foregoing results from (x)
acts or omissions of Seller or (y) in connection with third-party landlord
actions against Seller.
10. ADDITIONAL COVENANTS; POST-CLOSING MATTERS.
10.1 Further Assurances. From time to time after the Closing, at Buyer's
request, Seller will execute, acknowledge, and deliver to Buyer such other
instruments of conveyance and transfer and will take such other actions and
execute and deliver such other documents, certifications, and further assurances
as Buyer may reasonably request in order to vest more effectively in Buyer, or
to put Buyer more fully in possession of, the DE Brokerage Business or any of
the Purchased Assets.
10.2 Transition Period.
(a) In General. Seller will, and will cause Seller's Affiliates to,
cooperate and use its commercially reasonable efforts to coordinate and assist
in a smooth transition of the Purchased Assets and the DE Brokerage Business,
from Seller's to Buyer's control.
(b) Certain Accounting and Financial Matters. Without limiting the
generality of Seller's obligations to assist in the transfer of the DE Brokerage
Business, after the Closing, Seller shall, and shall
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cause Seller's Affiliates to, cooperate fully with Buyer and its Affiliates and
avail Seller's resources to transfer information, resolve any outstanding
accounting issues and complete back-office transition.
(c) Transition Consultation. At the request of Buyer, Kevin Buckley, as
well as any employees of Seller or its Affiliates who have been engaged in the
DE Brokerage Business, shall be made available at no cost to Buyer and its
Affiliates by Seller for a period of up to 120 days following the Closing, to
the extent reasonably requested by Buyer, to assist in transition matters.
10.3 Change of Name. Effective as of the Closing Date, Seller shall and
shall cause its Affiliates to (a) commence taking and promptly complete all
requisite actions necessary to change their respective partnership, corporate or
other business entity names to any name other than the names set forth on
Schedule 1.1(j) or used by or affiliated with the DE Brokerage Business or names
that, in Buyer's sole discretion, are confusingly similar thereto, or any
derivatives thereof, and (b) except as expressly permitted by the Trademark
License Agreement, cease using in any manner whatsoever any of the names set
forth on Schedule 1.1(j) or any derivatives thereof or other names confusingly
similar thereto. Seller expressly agrees and understands that the remedy at law
for any breach by it or its Affiliates of this Section 10.3 will be inadequate
and that the damages flowing from such breach are not readily susceptible to
being measured in monetary terms. Accordingly, Seller acknowledges that upon a
violation of any provision of this Section 10.3, Buyer shall be entitled to
immediate injunctive relief and may obtain a temporary restraining order
restraining any further breach. Nothing contained in this Section 10.3 shall be
deemed to limit Buyer's remedies at law or in equity for any breach of the
provisions of this Section 10.3 and any covenant on Seller's part contained in
this Section 10.3 which may not be specifically enforceable shall nevertheless,
if breached, give rise to a cause of action for monetary damages.
10.4 Public Disclosure. Both before, and following, the Closing, other than
the Press Release, neither Seller nor any principals of or Affiliates of Seller
(including Seller's Principals) shall make any public or private statements
concerning the Transactions whatsoever; except to the extent that Buyer may have
approved in writing a standard response, for dissemination to the public,
vendors, and/or employees, and all inquiries directed to Seller, its principals
or its Affiliates concerning the Transactions shall be referred as Buyer may
direct; and except to the extent any disclosure is required by law, provided
that if any requirement or process of law requires or purports to require any
disclosure, Seller shall furnish Buyer with immediate notice of that fact, and
Buyer shall have the opportunity to contest the requirement or process at
Buyer's sole cost and expense, and Seller shall not make any such disclosure so
long as Buyer is contesting the requirement or process in good faith provided
that the continued failure to make such disclosure does not impose upon Seller
or its principals any criminal liability. Any violation of the foregoing
provisions shall be deemed a material breach of this Agreement; and without
limiting any other rights or remedies that may be available to Buyer or its
Affiliates, or any other person under this Agreement or in law or equity, Buyer
and its Affiliates shall have the right to obtain an injunction and/or specific
performance with respect to any such actual or proposed violation(s).
10.5 Access; Cooperation.
10.5.1 Buyer. For a period of five (5) years following the Closing,
upon reasonable notice, Buyer will give, or cause to be given, to the
representatives, employees, counsel, and accountants of Seller and its
Affiliates, reasonable access, during normal business hours, to all books and
records of the DE Brokerage Business, including, without limitation, all books
of account, together with all files, contracts, instruments, data (including,
without limitation, data stored on electronic media), correspondence and other
documents pertaining to the assets, properties and business being acquired by
Buyer hereunder, relating to periods prior to the Closing, and will permit such
persons to examine and copy, at Seller's cost and expense, such books and
records to the extent reasonably requested in connection with the preparation of
tax returns and financial reporting matters (including, without limitation, any
return or report relating to state or local real property transfer taxes),
audits, proceedings, governmental investigations, and other proper business
purposes; and Buyer shall also provide access for such purpose to the employees
and independent contractors of the DE Brokerage Business; provided, however,
that nothing herein will obligate Buyer to take actions that would unreasonably
disrupt the normal course of its business, or violate the provisions of any
contract or other agreement or instrument to which it is a party or to which it
or any of its assets is subject. Notwithstanding the foregoing, Seller agrees
that neither it nor its Affiliates or their respective agents shall communicate
with any employees or independent contractors or consultants of the DE
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Brokerage Business following the Closing with respect to any matters concerning
the post-Closing operation of the DE Brokerage Business without the prior
written consent of Buyer.
10.5.2 Seller. For a period of five (5) years following the Closing,
upon reasonable notice, Seller will give, or cause to be given, to the
representatives, employees, counsel, and accountants of Buyer and its
Affiliates, reasonable access, during normal business hours, to all books and
records of Seller relating to its ownership of the DE Brokerage Business, and,
if in Seller's possession, all books of account, together with all files,
contracts, instruments, data (including, without limitation, data stored on
electronic media), correspondence and other documents pertaining to the assets,
properties and business being acquired by Buyer hereunder, and will permit such
persons to examine and copy, at Buyer's cost and expense, such books and records
to the extent reasonably requested in connection with the preparation of tax
returns and financial reporting matters (including, without limitation, any
return or report relating to state or local real property transfer taxes),
audits, proceedings, governmental investigations, and other proper business
purposes; and shall also provide access for such purpose to the employees and
independent contractors of Seller, provided, however, that nothing herein will
obligate Seller to take actions that would unreasonably disrupt the normal
course of its business, or violate the provisions of any contract or other
agreement or instrument to which it is a party or to which it or any of its
assets is subject.
10.5.3 Confidentiality. Each party agrees that any classified,
proprietary or confidential information provided by the other pursuant to
Section 10.5 shall be kept strictly confidential and shall not, without the
prior written consent of the other party, be disclosed or revealed, in any
manner whatsoever, directly or indirectly, in whole or in part, to any other
Person (other than such party's financial advisor, attorney, accountant or other
representative). The provisions of this Section shall be inoperative as to any
information which is or becomes generally available to the public other than as
a result of any breach of these provisions by such party or its representatives.
In the event that any party or any person to whom such party furnishes any
confidential information is requested or becomes legally compelled (by oral
questions, interrogatories, request for information or documents, subpoena,
criminal or civil investigative demand or similar process) to disclose any
confidential information, such party will provide the other party with prompt
written notice so that the other party may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions hereof, and such
party will cooperate with the other party in any effort the other party
undertakes to obtain a protective order or other remedy. In the event that such
protective order or remedy is not obtained, or that the other party, in its sole
discretion, waives compliance with the provisions hereof, such party will
furnish only that portion of the information which is legally required and will
use its commercially reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded the information.
10.6 Audited Financial Statements. Promptly after the Closing Date, Seller
will retain Ernst & Young, or another National Accounting Firm approved by
Seller (the "Audit Firm") to prepare audited financial statements for the fiscal
years ended December 31, 1998, 1997 and 1996 and unaudited financial statements
for the period January 1, 1999 through the Closing Time in accordance with GAAP,
consistently applied, with respect to the DE Brokerage Business (collectively,
"Audited Financials"), so as to enable IFG to prepare and file, not later than
sixty (60) days following the Closing Date, an appropriate report on Form 8-K
(or other appropriate form) in connection with the Transactions, or any other
securities filings as IFG may deem necessary or desirable, including, without
limitation, registration statements, or as may be otherwise required under any
laws or legal requirements. If the Audit Firm is not Ernst & Young, Buyer shall
have the right to reasonably approve the terms of such retention, including the
cost thereof, such approval not to be unreasonably withheld or delayed. Seller
hereby covenants and agrees to provide all books, records, papers and other
information to, and otherwise cooperate fully with, Buyer and its Affiliates and
the Audit Firm as may be necessary or required to enable the Audit Firm to
prepare and complete the Audited Financials within such time period. Seller
shall keep Buyer promptly apprised of the status and progress of such audit, and
shall provide Buyer with all draft financial statements prepared by the Audit
Firm. Without limiting the generality of Seller's obligations to cooperate with
Buyer and the Audit Firm, Kevin Buckley, as well as any employees of Seller or
its Affiliates who have been involved in the financial or accounting functions
of the DE Brokerage Business, shall be made available at no cost to Buyer or its
Affiliates by Seller, to the extent reasonably requested by Buyer, for such
purpose. Seller shall provide such consent and comfort letters to the Audit Firm
as are customarily required in connection with the preparation of audited
financial statements. Buyer shall pay the fees and expenses of the Audit Firm.
In the event Buyer determines that it is not required by relevant securities
laws to include in its report on Form 8-K an audited financial statement for the
fiscal year ended December 31, 1996 with respect to the DE Brokerage Business,
Buyer shall promptly inform Seller; in such event, the Audit Firm shall
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continue to prepare audited financial statements with respect to such fiscal
year, but the term "Audited Financials" for purposes of Section 2.2.1(e) shall
not include the audited financial statement for the fiscal year ended December
31, 1996.
10.7 Payment of Excluded Liabilities. Seller shall pay and discharge,
promptly when due, all Excluded Liabilities. If, in Buyer's sole discretion, the
failure to pay or discharge such Excluded Liabilities could reasonably be
expected to have a material adverse effect on Buyer, the DE Brokerage Business
or on the ability of the parties to consummate the Transactions contemplated by
this Agreement (including the ability of the parties to obtain third party
consents or approvals) then, at Buyer's option, Buyer may pay or discharge any
such Excluded Liabilities and, thereupon, Seller shall reimburse Buyer to the
extent paid or discharged by Buyer, upon presentation by Buyer of invoices or
other documentation reasonably satisfactory to Seller indicating the amounts
paid. If Seller fails to timely reimburse Buyer for the amounts paid, Buyer may,
but shall not be required to, treat such amount as a Commission Payable or apply
payments with respect to the Contingent Payments otherwise due to Seller to the
satisfaction of such payments. To the extent practicable, Buyer will give Seller
prior notice of its intention to pay or discharge any Excluded Liabilities and
the opportunity to settle such matter with the third party prior to payment or
discharge thereof by Buyer. The provisions of this Section 10.7 are for the sole
benefit of Buyer and Affiliates of Buyer and are not intended, nor shall they be
construed, to confer any rights upon any third party.
10.8 Survival of Representations, Warranties, Covenants, Etc. All
representations, warranties, covenants and agreements made by the parties in
this Agreement or in any certificate, Schedule, Exhibit, statement or other
document furnished under this Agreement shall survive the Closing.
Notwithstanding any investigation or audit conducted before or after the Closing
Date or the decision of any party to complete the Closing, each party shall be
entitled to rely upon the representations, warranties, covenants, and agreements
set forth in this Agreement.
10.9 Pipeline Transactions. If, in any case following the Closing Date a
commission or other fee is payable in connection with a Pipeline Transaction,
and for any reason Buyer is not permitted to collect or receive such commission
by reason of any real estate broker licensing requirement, including any delay,
error or failure by Buyer, Seller or any Governmental Authority in processing
any notice, filing, application or other matter related to a licensing
requirement, then Seller shall upon request of Buyer collect and receive such
commission or other fee. In such case, Seller shall promptly pay to Buyer the
full amount of such commission or fee received, it being understood that, as
between Seller and Buyer, Buyer is entitled to receive all of Seller's right,
title and interest in and to the Pipeline Transactions.
10.10 Rogers Employment Agreement. In the event that at any time prior to
the fourth (4th) anniversary of the Closing Date Alan Rogers shall voluntarily
resign (other than for reasons of disability (as defined in the Rogers
Employment Agreement)) from his employment with Buyer or its Affiliate, or Alan
Rogers shall be terminated from such employment by Buyer or its Affiliate for
cause (as defined in the Rogers Employment Agreement), or if Seller terminates
Alan Rogers for cause or Alan Rogers resigns or repudiates the Rogers Employment
Agreement prior to the Closing, then, in any such event, Buyer shall be entitled
to receive an amount equal to the lesser of (i) eighty percent (80%) of the
excess of (x) the combined annual salary and bonus compensation that Buyer
agrees in good faith to pay an executive hired to replace Alan Rogers, for the
period between the date of such replacement's hire and the fourth (4th)
anniversary of the Closing Date, over (y) the combined annual salary and bonus
compensation that Buyer otherwise would have been required to pay to Alan Rogers
pursuant to the Rogers Employment Agreement, for the same period and (ii)
$600,000 per annum, for the same period (such excess, the "Compensation
Differential"). Such portion of the Compensation Differential shall be paid to
Buyer solely by deducting such amount from payments with respect to the
Contingent Payments otherwise due Seller hereunder; provided, however, that if
the bonus compensation cannot be calculated until after the payments with
respect to the Contingent Payments are made, then upon such calculation Seller
shall promptly pay over such portion of the Compensation Differential to Buyer
to the extent of Contingent Payments previously received by Seller.
10.11 Year 2000. Buyer acknowledges that it has been advised by Seller that
the computer systems and software used in connection with the DE Brokerage
Business presently are not fully able to accurately process date data,
including, but not limited to, calculating, comparing and sequencing from, into
and between the twentieth century (through year 1999), the year 2000 and the
twenty-first century, including leap year calculations, and otherwise perform as
per the specifications thereof, before, during and following September 9, 1999
and January 1,
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2000 (collectively, "Y2K Compliant"). Buyer agrees that Seller will not be
responsible to make such systems or software Y2K Compliant. However, Seller
shall provide Buyer with assistance and cooperate with Buyer as requested (at no
cost to Seller) in connection with Buyer's efforts to make such systems and
software Y2K Compliant and Seller further agrees to assist (and not to interfere
with) Buyer's retention of Seller's Y2K consultant, Barry Fagin, in connection
with Buyer's efforts to make such systems and software Y2K Compliant. Seller
represents and warrants to Buyer that neither Seller nor Seller's Principals
have any reason to believe that the computer systems and software of the DE
Brokerage Business cannot be made Y2K Compliant on or before December 31, 1999.
10.12 Work Station Wiring. Seller, at its sole cost and expense, shall
cause all work station wiring at the 575 Premises to be revised in such a manner
so as to obtain a certification from an independent network engineer stating
that such wiring is in compliance with (i) EIA/TIA 568B and (ii) certified to
100 Megabits standards. If Seller does not perform such work and obtain such
certification within forty-five (45) days following the Closing Date, then, at
Buyer's option, Buyer may, through its own engineer, assume control of such work
and complete same at Seller's sole cost and expense. If Seller fails to pay or
reimburse Buyer for any such sum within ten (10) days after request therefor,
Buyer may apply payments with respect to Contingent Payments otherwise due
Seller to the satisfaction thereof. Any work performed by Seller in the 575
Premises shall be performed in a manner that will minimize any interference with
the conduct of the DE Brokerage Business, and the indemnification provisions of
Section 7(A) of the Sublease for the 575 Premises shall be applicable to such
work as if fully set forth herein.
11. INDEMNIFICATION.
11.1 Indemnification by Seller. From and after the Closing, Seller jointly
and severally will remain responsible for, and shall indemnify and hold harmless
Buyer and each of its Affiliates, and all of their respective partners,
officers, directors, employees, agents and other representatives or consultants
(each such person, and its successors and assigns, is referred to herein as a
"Buyer Indemnified Party"), from and against, any and all damages, losses,
deficiencies, Liabilities, costs and expenses (including reasonable legal fees
and expenses) (collectively, "Losses") and any and all claims, demands, suits,
investigations, proceedings, settlements and compromises (collectively, "Suits")
incurred or suffered by any Buyer Indemnified Party that result from, relate to,
or otherwise arise out of:
(a) the Purchased Assets or the DE Brokerage Business or the ownership
or operation thereof prior to the Effective Time, or relating to the Excluded
Assets or the Excluded Liabilities at any time (including after the Closing);
(b) any event, occurrence, action, inaction or transaction relating to
the Purchased Assets or the DE Brokerage Business or the ownership or operation
thereof occurring prior to the Effective Time or relating to the Excluded Assets
or the Excluded Liabilities at any time (including after the Effective Time);
(c) any breach of any representation or warranty on the part of Seller
contained in this Agreement, or nonfulfillment of any agreement, covenant or
other obligation on the part of Seller or its Affiliates under this Agreement or
any Exhibit hereto or any misrepresentation in or omission from any certificate,
Schedule, Exhibit, written statement or other document furnished to Buyer
pursuant to this Agreement;
(d) any claim whatsoever (i) by any independent contractor, officer or
employee of Seller or former independent contractor, officer or employee of
Seller that is not engaged by Buyer or an Affiliate of Buyer, and (ii) with
respect to matters that are to be the responsibility of Seller or its Affiliates
under this Agreement; and
(e) the enforcement of the indemnification obligations under this
Section 11.1.
11.2 Indemnification by Buyer. From and after the Closing, Buyer will be
responsible for, and shall indemnify and hold harmless Seller and its
Affiliates, and all of their respective partners, officers, directors,
employees, agents, and other representatives or consultants (each such person,
and its successors and assigns, is
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referred to herein as a "Seller Indemnified Party"), from and against, any and
all Losses and Suits incurred or suffered by any Seller Indemnified Party that
result from, relate to, or otherwise arise out of:
(a) the Purchased Assets or the DE Brokerage Business or the ownership
or operation thereof after the Effective Time (except as Buyer's liability is
limited with respect to the foregoing pursuant to the provisions of Section
2.3.2 hereof) or the other business operations or affairs of Buyer and/or
Buyer's Affiliates at any time;
(b) any event, occurrence, action, inaction or transaction relating to
the Purchased Assets or the DE Brokerage Business or the ownership or operation
thereof occurring after the Effective Time (except as Buyer's liability is
limited with respect to the foregoing pursuant to the provisions of Section
2.3.2 hereof), other than with respect to any Lease or Contract that is not
assigned to and assumed by Buyer or its Affiliates pursuant to the terms hereof;
(c) any breach of any representation or warranty on the part of Buyer
contained in this Agreement or nonfulfillment of any agreement, covenant or
other obligation on the part of Buyer under this Agreement or any Exhibit hereto
or any misrepresentation in or omission from any certificate, Schedule, Exhibit,
written statement or other document furnished to Seller pursuant to this
Agreement; and
(d) the enforcement of the indemnification obligations under this
Section 11.2.
11.3 Procedure.
11.3.1 Notices of Claims. Seller, Buyer or any other person entitled to
indemnification under this Article 11 (each an "Indemnified Person") must give
notice to the Indemnifying Party (as such term is defined below) within a
reasonable time after discovery of any fact or circumstance pursuant to which
such Indemnified Person could claim indemnification ("Claim" or "Claims")
against the party obligated to provide indemnification under this Article 11
(the "Indemnifying Party"); provided, however, that the failure to provide such
notice shall in no event impair the rights of the Indemnified Person hereunder
except to the extent that such failure has a material adverse effect on the
ability of the Indemnifying Party adequately to defend such Claim. Such notice
shall describe the nature of the Claim and the amount thereof, if determinable,
or if not determinable, an estimate of the amount of such Claim.
11.3.2 Mitigation. Each party or other Indemnified Person shall use
commercially reasonable efforts to minimize the amount of the loss or injury for
which it is entitled to indemnification under this Article 11.
11.3.3 Assumption of Claims.
(a) If the indemnification obligation arises out of a Claim made by a
third party, that is not an Affiliate of either Seller or Buyer (a "Third-Party
Claim"), then within ten (10) days after notice of such Third-Party Claim, the
Indemnifying Party shall notify the Indemnified Person, in writing, whether or
not it assumes the defense of such Third-Party Claim, at the Indemnifying
Party's expense, and if so, its willingness and ability (with reasonable
evidence of same) to satisfy any such Claim. If the Indemnifying Party assumes
the defense of such Third-Party Claim, then the Indemnifying Party shall defend
such Third-Party Claim using reputable counsel selected by the Indemnifying
Party and reasonably satisfactory to the Indemnified Person. The Indemnified
Person shall, at the Indemnifying Party's expense, make available to the
Indemnifying Party and its attorneys, accountants, or other duly designated
agents, all books and records of the Indemnified Person relating to any such
Third-Party Claim, and the parties shall to render to each other assistance (at
the expense of the Indemnifying Party) as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such Third-Party
Claim.
(b) The Indemnified Person shall be entitled, with counsel selected by
the Indemnified Person, to participate in (but not control), at its own expense,
the defense of any Claim that the Indemnifying Party has, in accordance with the
provisions hereof, elected to defend, and to be kept fully informed of the
status thereof at all stages, including the right to receive, at the
Indemnifying Party's expense, copies of all pleadings and other material papers
in connection with such Claim; provided, however, that the Indemnifying Party
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shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the Indemnifying Party to represent the
Indemnified Person would present such counsel with a conflict of interest that
would preclude such counsel from representing the Indemnified Person pursuant to
legal canons of ethics or other applicable law, (ii) the Indemnifying Party
shall not have employed counsel reasonably satisfactory to the Indemnified
Person to represent it within thirty (30) days after notice to the Indemnifying
Party of the institution of a Third-Party Claim, or (iii) the Indemnifying Party
shall authorize the Indemnified Person to employ separate counsel at the
Indemnifying Party's expense. The Indemnifying Party shall not settle any
Third-Party Claim without the consent of the Indemnified Person, such consent
not to be unreasonably withheld or delayed, unless (A) the Indemnifying Party
fully indemnifies the Indemnified Person for all damages, losses, deficiencies,
liabilities, costs, and expenses in connection with such settlement of such
Claim, (B) there is no finding or admission of any violation of law by, or
effect on any other Claims that may be made against the Indemnified Person, and
(C) the relief granted in connection therewith requires no action on the part
of, and has no economic or other effect on, the Indemnified Person.
(c) Notwithstanding anything to the contrary set forth above, in the
event an Indemnified Person reasonably believes and so notifies the Indemnifying
Party in writing that the applicable Claim, even if fully indemnified for, is
reasonably likely to have a material adverse effect on the Indemnified Person's
business, financial condition, or results of operations, then the Indemnifying
Party shall not have the right to assume the defense of such Claim but shall
have the right to employ separate counsel and to participate in the defense of
such action at its own expense. In such an event, the Indemnified Person and its
counsel shall consult, whenever reasonably practicable, with the Indemnifying
Party and its counsel with respect to the status of the Claim and any related
litigation or other proceedings.
11.3.4 No Assumption of Defense.
(a) If the defense of a Third-Party Claim is not timely assumed and
diligently continued by the Indemnifying Party as provided above, then the
Indemnified Person may (to the extent that the Indemnified Person determines to
do so in its sole discretion) conduct any such proceeding as it may deem
appropriate, may take whatever action it deems necessary or appropriate to
resolve or settle such claim or dispute, but shall in no event have any
obligation to defend any such claim or proceeding or to appeal any adverse
finding or determination or defend any such appeal by any other party to a
favorable determination; any actions taken or omitted with respect to the
foregoing shall not avoid, reduce or mitigate the Indemnifying Party's liability
hereunder.
(b) The Indemnified Person shall not settle any Third-Party Claim
without first giving notice of the proposed settlement to the Indemnifying Party
(a "Settlement Notice"). The Indemnifying Party shall have the right,
exercisable within five (5) business days following receipt of a Settlement
Notice, to instruct the Indemnified Person not to so settle such Third Party
Claim; provided that, in such event, the Indemnifying Party shall be required to
assume the defense of any such Third- Party Claim subject to and in accordance
with the provisions of set forth above.
11.4 Payment of Indemnification Obligations. Buyer shall pay to any Seller
Indemnified Party, and Seller shall pay to any Buyer Indemnified Party, within
fifteen (15) days following demand therefor, the amount of all Losses and other
obligations owing pursuant to this Article 11. If Seller fails to timely pay or
cause to be discharged any such obligations, Buyer may, but shall not be
required to, apply payments with respect to the Contingent Payments otherwise
due to Seller to the satisfaction of such obligations.
11.5 Other Rights and Remedies Not Affected. The indemnification rights of
the persons under this Article are independent of and in addition to such rights
and remedies as such persons may have at law or in equity or otherwise for any
misrepresentation, breach of warranty, or failure to fulfill any agreement,
covenant, or other obligation under this Agreement, including, without
limitation, the right to seek specific performance, rescission, or restitution,
none of which rights or remedies shall be affected or diminished hereby.
11.6 Indemnification Threshold for Certain Representations and Warranties.
Seller shall not have any liability (for indemnification or otherwise) arising
out of any breach of any representation or warranty of Seller contained in
Section 3, the breach of which neither Seller nor Seller's Principals had
knowledge as of the date hereof, until and to the extent that the total of all
Losses with respect to such breaches exceeds $350,000, provided,
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however, that at such time as such Losses exceeds $350,000, then Seller shall be
liable for all such Losses, including such $350,000.
12. TERMINATION OF AGREEMENT.
12.1 Events of Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time prior to the
Closing Date: (a) by the mutual written consent of Seller and Buyer; (b) by
Buyer, if Seller breaches in any material respect any of its representations,
warranties, covenants or agreements contained in this Agreement and such breach
is not cured to the reasonable satisfaction of Buyer within ten (10) days after
notice of such breach is given to Seller; (c) by Seller, if Buyer breaches in
any material respect any of its representations, warranties, covenants or
agreements contained in this Agreement and such breach is not cured to the
reasonable satisfaction of Seller within ten (10) days after notice of such
breach is given to Buyer; or (d) by either Buyer or Seller, if, for any reason
(including the failure of any of the conditions to Closing to be fulfilled)
other than the breach of this Agreement by the terminating party, the Closing
has not occurred on or prior to July 25, 1999.
12.2 Liquidated Damages; Specific Performance. Buyer and Seller acknowledge
that it would be extremely impractical and difficult to ascertain the actual
damages that would be suffered by Seller if Buyer fails to consummate the
Transactions contemplated herein (for any reason other than Seller's failure,
refusal or inability to perform any of Seller's covenants and agreements
hereunder or the failure of any other of the conditions to Buyer's obligation to
consummate the Transactions herein). Buyer and Seller have considered carefully
the loss to Seller that would result from the failure of the Transactions to be
consummated as a result of a breach or default hereunder by Buyer; and other
damages that Seller will sustain but which Seller cannot calculate with absolute
certainty. Based on all those considerations, Buyer and Seller have agreed that
the damage to Seller would reasonably be expected to amount to the sum of Six
Million Nine Hundred Thousand dollars ($6,900,000). Accordingly, if all
conditions precedent to Buyer's obligation to consummate the Transactions
contemplated herein have been waived (or deemed waived) by Buyer or satisfied
and if Seller has performed its covenants and agreements hereunder but Buyer has
breached its covenants and agreements hereunder and has failed, refused or is
unable to consummate the Transactions contemplated herein by the Closing Date,
then Escrow Agent shall pay to Seller from the Initial Payment, the sum of Six
Million Nine Hundred Thousand dollars ($6,900,000) as full and complete
liquidated damages, and not as a penalty, and shall constitute Seller's sole and
exclusive remedy for such breach. Upon payment of the sum of Six Million Nine
Hundred Thousand dollars ($6,900,000) to Seller, as above provided, Buyer shall
have no further obligation or liability under this Agreement. If Seller has
breached its covenants and agreements under this Agreement and has failed,
refused or is unable to consummate the Transactions contemplated herein or if
any conditions to Buyer's obligation to consummate the Transactions contemplated
herein have not been waived (or deemed waived) by Buyer or satisfied by the
Closing Date, then Escrow Agent, upon the request of Buyer, shall return the
Initial Payment and interest thereon to Buyer and, in addition, Buyer shall be
entitled to the payment of interest in accordance with Section 2.1.3(c);
provided, however, that such return shall not limit Buyer's right to maintain an
action for breach of this Agreement, damages, specific performance or any other
relief whatsoever.
13. NOTICES.
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
actual receipt by the party (but not necessarily the individual person) to be
notified. Any notice shall be sent by personal delivery, by a nationally
recognized overnight courier service or by registered or certified mail, postage
prepaid, or by facsimile transmission, and addressed to the party to be notified
at the address indicated below for such party, or at such other address as such
party may designate upon written notice to the other parties.
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(1) If to Buyer, to:
DE Acquisition, LLC
c/o Insignia Financial Group, Inc.
200 Park Avenue, 19th Floor
New York, NY 10166
Facsimile No.: (212) 984-8183
Attention: Ronald Uretta
and:
Insignia Financial Group, Inc.
200 Park Avenue, 19th Floor
New York, NY 10166
Facsimile No.: (212) 984-8183
Attention: Adam B. Gilbert, Esq.
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, NY 10022
Facsimile No.: (212) 872-1002
Attention: Steven H. Scheinman, Esq.
(2) If to Seller, to:
Douglas Elliman
575 Madison Avenue, 3rd Floor
New York, NY 10022
Facsimile No.: (212) 891-7224
Attention: Howard P. Milstein, Edward L. Milstein
and Kevin M. Buckley
with a copy to:
Andrew S. Berkman, Esq.
477 Madison Avenue, 11th Floor
New York, NY 10022
Facsimile No.: (212) 350-2701
No facsimile transmission of a notice shall be deemed effective unless given
within ordinary business hours and only if the transmitting machine prints a
message that such facsimile has been received at the proper number or by the
relevant party "OK" (or such similar notation) for the requisite number of pages
sent.
14. MISCELLANEOUS.
14.1 Entire Agreement. This Agreement, the Schedules and Exhibits hereto,
and the certificates, statements or other documents delivered pursuant hereto
constitute the entire agreement among the parties with respect to the subject
matter hereof, supersede all prior agreements and understandings, written or
oral, among the parties with respect thereto, and no party shall be liable or
bound to any other party in any manner by any promises, conditions, warranties,
representations, or covenants except as specifically set forth herein or
therein. All Schedules, Exhibits, certificates, statements or other documents
delivered pursuant to this Agreement are intended to be and hereby are
specifically made a part of this Agreement.
14.2 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or
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prospectively), only by an instrument in writing and signed by the party against
whom such amendment or waiver is sought to be enforced. The failure of a party
to enforce, or the delay by a party in seeking to enforce, any of its rights
under this Agreement shall not be deemed a continuing waiver or a modification
by that party of any of its rights under this Agreement, and a party may, within
the time provided by the applicable law, commence appropriate proceedings to
enforce any or all of its rights under this Agreement, and any prior failure to
enforce or delay in enforcement shall not constitute a defense.
14.3 Successors and Assigns. Except as otherwise expressly provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
Neither party shall have the right to assign this Agreement or any of its rights
or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, Buyer shall have the right, upon notice to
Seller, to assign all or any part of its rights and obligations under this
Agreement to any Affiliate of Buyer, provided (i) such Affiliate assumes the
obligations (or part thereof) of Buyer hereunder, and (ii) no such assignment
shall release Buyer from any obligations hereunder. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
14.4 Governing Law. This Agreement, including the validity hereof and the
rights and obligations of the parties hereunder, and all amendments and
supplements hereof and all waivers and consents hereunder, shall be construed in
accordance with and governed by the domestic substantive laws of the State of
New York without giving effect to any choice of law or conflicts of law
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.
14.5 Severability. If any provisions of this Agreement as applied to any
part or to any circumstance shall be adjudged by a court to be invalid or
unenforceable, the same shall in no way affect any other provision of this
Agreement, the application of such provision in any other circumstances or the
validity or enforceability of this Agreement.
14.6 Captions; Number and Gender. The table of contents, headings and
captions used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. Words used in this
Agreement, regardless of the number and gender specifically used, shall be
deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine, or neuter, as the context requires.
14.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.8 Bulk Sales. In lieu of complying with the provisions of Article 6
(Bulk Transfers) of the Uniform Commercial Code, Seller shall hold harmless and
indemnify Buyer and Buyer's Affiliates from and against any and all loss,
liability, damage, or claim arising out of the failure or alleged failure to
comply with Article 6 and all reasonable costs and expenses including reasonable
legal fees and expenses.
14.9 Transaction Taxes. Except as otherwise expressly stated herein,
neither party shall be responsible for the other's sales, transfer or
documentary stamps taxes, if any, imposed by law upon the other party with
respect to the Transactions contemplated by this Agreement or the transfer of
the Purchased Assets to Buyer, or any other fees directly relating to the
transfer of the Purchased Assets. The parties shall cooperate with each other
with respect to the filing of all sales, transfer and documentary stamps tax
returns required to be filed with respect to the Transactions contemplated by
this Agreement or the transfer of the Purchased Assets to Buyer, and shall make
such joint filings as may reasonably be requested by either party. Buyer agrees
to indemnify and hold harmless Seller from any liability for any such taxes
(including interest and penalties thereon) and the costs and expenses of
defending against such liability or asserted liability for which Buyer is
responsible pursuant to this Section. Seller agrees to indemnify and hold
harmless Buyer from any liability for any such taxes (including interest and
penalties thereon) and the costs and expenses of defending against such
liability or asserted liability for which Seller is responsible pursuant to this
Section.
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14.10 Finders' Fees. Each party represents that it neither is nor will be
obligated for any brokerage, advisory or finders' fee or commission or other
compensation in connection with the Transactions Buyer agrees to indemnify and
hold harmless Seller from any liability for any commission or compensation in
the nature of an advisory or finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which Buyer or any
of Buyer's officers, employees, or representatives is responsible. Seller agrees
to indemnify and hold harmless Buyer from any liability for any commission or
compensation in the nature of an advisory or finders' fee (and the costs and
expenses of defending against such liability of asserted liability) for which
Seller or any of Seller's respective officers, employees, or representatives is
responsible. The provisions of this Section 14.10 shall survive any termination
of this Agreement.
14.11 Expenses. Irrespective of whether the Closing is effected, and except
as otherwise expressly provided herein or therein, each party shall pay all
costs and expenses (including, but not limited to, legal and accounting fees and
expenses) that it incurs with respect to the negotiation and execution of this
Agreement and any other agreements to be executed pursuant hereto, and the
performance of any covenants to be performed by such party and satisfaction of
any conditions to be satisfied by such party which are contained herein or
therein. Without limiting the generality of the foregoing, Seller shall pay the
costs of filing or recording any releases, termination statements or similar
instruments necessary to discharge any Encumbrances on or with respect to any of
the Transferred Assets. The provisions of this Section 14.11 shall survive any
termination of this Agreement.
14.12 Interest; Attorneys' Fees.
(a) Unless the payment of interest is otherwise provided in any
provision or clause hereof, in the event either party fails to make any payment
due to the other under this Agreement for more than five (5) days after the date
such payment is due, then such payment shall accrue interest at the rate of
seven percent (7%) per annum from the date such payment was due until the date
such payment (including such interest thereon) is made in full.
(b) If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement or any other agreement or document to be
executed or delivered pursuant hereto, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which such party may be entitled.
14.13 Remedies. In case any one or more of the covenants and/or agreements
set forth in this Agreement shall have been breached by any party hereto, the
party or parties entitled to the benefit of such covenants or agreements may,
except as may otherwise be expressly provided in this Agreement, proceed to
protect and enforce their rights either by suit in equity and/or by action at
law, including, but not limited to, an action for damages as a result of any
such breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement. The rights, powers and remedies of the
parties under this Agreement are cumulative and not exclusive of any other
right, power or remedy which such parties may have under any other agreement or
law. No single or partial assertion or exercise of any right, power or remedy of
a party hereunder shall preclude any other or further assertion or exercise
thereof.
14.14 Authority. The persons executing this Agreement on behalf of each
party represent that they have been duly authorized to execute this Agreement
and bind the respective party hereto.
14.15 No Partnership, Etc. Nothing contained in this Agreement shall be
construed to place the parties in relationship of partners or joint venturers,
or as making the parties agents for one another or otherwise having the power to
bind one another to any contracts or other instruments or to any undertakings,
obligations, or other liabilities. If any party hereunder is made up of one or
more distinct legal persons, such persons shall be jointly and severally liable
wherever such party is liable hereunder.
14.16 No Presumption. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted.
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15. DEFINITIONS.
The following definitions shall apply in this Agreement:
(a) "Adjusted Cash Payment" shall have the meaning set forth in Section
2.1.2(a).
(b) "Affiliate" of a specified person shall mean any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified person.
(c) "Assigned Leases" shall have the meaning set forth in Section 1.4.
(d) "Assumed Deferred Bonuses" shall have the meaning set forth in
Section 2.3.3.
(e) "Assumed Liabilities" shall have the meaning set forth in Section
2.3.1.
(f) "Audited Financials" shall have the meaning set forth in Section
10.6.
(g) "Broker Loans" shall have the meaning set forth in Section 1.1(p).
(h) "Cash Payment" shall have the meaning set forth in Section 2.1.1.
(i) "Closing" shall mean the consummation of the Transactions
contemplated by this Agreement.
(j) "Closing Date" shall have the meaning set forth in Section 7.1(a)
(k) "Closing Date Statement" shall have the meaning set forth in
Section 2.5.2.
(l) "Closing DE Broker" shall have the meaning set forth in Section
2.2.3.
(m) "Closing Time" shall mean 11:59 p.m. on the date preceding the
Closing Date.
(n) "Code" shall mean the Internal Revenue Code of 1986, as amended,
together with the regulations promulgated pursuant thereto.
(o) "Commission Payables" shall have the meaning set forth in Section
2.5.1.
(p) "Commission Receivables" shall have the meaning set forth in
Section 2.5.1.
(q) "Contingent Payment" shall have the meaning set forth in Section
2.2.1.
(r) "Contracts" shall have the meaning set forth in Section 1.1(g).
(s) "DE Broker" shall have the meaning set forth in Section 2.2.3.
(t) "DE Brokerage Area" shall mean all of New York County (Borough of
Manhattan), Kings County (Borough of Brooklyn) and Nassau County in New York,
Morris County in New Jersey, and Fairfield County in Connecticut.
(u) "DE Brokerage Business" shall have the meaning set forth in the
first recital hereto.
(v) "Deferred Bonus Plan" shall have the meaning set forth in Section
3.17(b).
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(w) "DE Financial Statements" shall have the meaning set forth in
Section 3.6.
(x) "Designated Employees" shall have the meaning set forth in Section
6.1.
(y) "Disputed Matters" shall have the meaning set forth in Section 2.7.
(z) "Effective Time" shall mean 11:59 p.m. on May 31, 1999.
(aa) "Employee Costs" shall have the meaning set forth in Section 6.2.
(bb) "Employee Plan" shall mean each payroll practice, employee bonus,
retirement, pension, profit sharing, stock option, stock appreciation, stock
purchase, incentive, deferred compensation, hospitalization, medical, dental,
vision, life and health and disability (whether provided by insurance or
otherwise), severance, termination, and every other plan, program, arrangement,
policy, or payroll practice that provides employee benefits, including without
limitation each employee benefit plan as defined in Section 3(3) of ERISA, other
than a multiemployer plan within the meaning of Section 3(37) of ERISA
("Multiemployer Plan"), maintained by Seller, or to which Seller contributes, as
of the Effective Time, and in which any employee (or the dependents or
beneficiaries thereof) of the DE Brokerage Business participates.
(cc) "Encumbrance" shall mean any mortgage, deed-of-trust, lien,
pledge, hypothecation, security interest, claim, charge, imperfection of title,
restriction, prior assignment or other encumbrance of any kind or nature
whatsoever.
(dd) "Excluded Assets" shall have the meaning set forth in Section 1.2.
(ee) "Excluded Liabilities" shall have the meaning set forth in Section
2.3.2.
(ff) "Expanded DE Brokerage Area" shall mean the DE Brokerage Area,
plus Queens County, Bronx County and Richmond County (Boroughs of Queens, the
Bronx and Staten Island, respectively), Suffolk County, Westchester County and
Rockland County in New York, and Bergen County, Essex County, Hudson County and
Union County in New Jersey.
(gg) "575 Premises" shall mean the Leased Premises consisting of the
second floor and portions of the fourth and sixth floors of the building located
at 575 Madison Avenue, New York, New York, as more fully described in the
Sublease annexed as Exhibit 7.4.2(a) hereto.
(hh) "GAAP" shall mean generally accepted accounting principles,
consistently applied.
(ii) "Governmental Authority" shall mean any federal, state, local, or
foreign government or any subdivision, agency, authority, or other
instrumentality thereof.
(jj) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
(kk) "IFG" shall have the meaning set forth in Section 2.2.3.
(ll) "Initial Payment" shall have the meaning set forth in Section
2.1.3(b).
(mm) "Intellectual Property Rights" shall have the meaning set forth in
Section 1.1(j).
(nn) "Lease Renewal Commissions" shall have the meaning set forth in
Section 2.6.1(b).
(oo) "Leased Premises" shall have the meaning set forth in Section
3.11.
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<PAGE>
(pp) "Leases" shall have the meaning set forth in Section 3.11.
(qq) "Liabilities" shall mean all liabilities, including, without
limitation, any direct or indirect indebtedness, guaranty, endorsement, claim,
loss, damage, deficiency, cost, expense, obligation, or responsibility, whether
known or unknown, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured.
(rr) "Material Adverse Effect" shall mean any occurrence or event
which, individually or in the aggregate, does or reasonably could materially and
adversely affect the business, assets, results, operations, prospects or
condition (financial or otherwise) of the DE Brokerage Business, other than
occurrences or events affecting as a whole the industry in which Seller operates
the DE Brokerage Business.
(ss) "National Accounting Firm" shall have the meaning set forth in
Section 2.7.
(tt) "Net Disbursements" shall have the meaning set forth in Section
2.1.2(b).
(uu) "Net Receipts" shall have the meaning set forth in Section
2.1.2(b).
(vv) "Person" shall mean any individual, partnership, limited liability
company, corporation, trust, association, or other legal or business entity.
(ww) "Pipeline Transactions" shall have the meaning set forth in
Section 1.1(h).
(xx) "Post-Closing Annual Period" shall have the meaning set forth in
Section 2.2.1(b).
(yy) "Purchase Price" shall have the meaning set forth in Section
2.1.1.
(zz) "Purchased Assets" shall have the meaning set forth in Section
1.1.
(aaa) "Qualified Revenue" shall have the meaning set forth in Section
2.2.3.
(bbb) "Residential Real Estate Brokerage Services" shall mean brokerage
services in connection with the sale or lease of single family homes,
brownstones, townhouses, multi-family dwellings not exceeding six (6) units,
residential apartment units, residential condominium units and/or residential
cooperative units.
(ccc) "Rogers Employment Agreement" shall mean the written employment
and non-competition agreement with Alan Rogers entered into on or before the
date of this Agreement.
(ddd) "Seller's Principals" shall mean Edward L. Milstein and Howard P.
Milstein.
(eee) "Special Bonus" shall have the meaning set forth in Section
2.3.3.
(fff) "Taxes" shall have the meaning set forth in Section 3.14.
(ggg) "Transactions" shall mean the transactions contemplated by this
Agreement and by the documents and instruments to be executed and delivered and
the actions to be taken by the parties pursuant to or in accordance with this
Agreement.
(hhh) "Vacation Accrual Adjustment" shall have the meaning set forth in
Section 2.1.2(b).
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IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first above written.
DOUGLAS ELLIMAN
By: Douglas Elliman, Inc., as general partner
By: /s/ Edward L. Milstein
------------------------------------------
Name: Edward L. Milstein
Title: Vice Chairman
By: Douglas Elliman Insurance Brokerage Corp.,
as general partner
By: /s/ Edward L. Milstein
------------------------------------------
Name: Edward L. Milstein
Title: Vice Chairman
DOUGLAS ELLIMAN, INC.
By: /s/ Edward L. Milstein
------------------------------------------
Name: Edward L. Milstein
Title: Vice Chairman
DOUGLAS ELLIMAN INSURANCE BROKERAGE CORP.
By: /s/ Edward L. Milstein
------------------------------------------
Name: Edward L. Milstein
Title: Vice Chairman
DE ACQUISITION, LLC
By: Insignia Residential Group, Inc., as manager
By/s/ Edward L. Milstein
------------------------------------------
Name: James W. Sheehan
Title: Senior Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
solely for purposes of (i) certifying the DE Financial Statements in accordance
with Section 3.6, and (ii) agreeing to be bound by Sections 5.7 and 7.4.8, as of
the date first above written.
/s/ Edward L. Milstein
---------------------------
Edward L. Milstein
/s/ Howard P. Milstein
---------------------------
Howard P. Milstein
Each of the undersigned, having a financial interest in Seller and in
consideration of this Agreement, knowing that Buyer would not enter into this
Agreement without the guaranty hereinafter set forth, individually, jointly and
severally guarantees to Buyer and IFG all of the representations, warranties,
covenants, and other obligations and liabilities of Seller or its Affiliates
under the foregoing Agreement, including the Schedules and Exhibits thereto.
This guaranty is an absolute, unconditional, and primary guaranty of payment and
performance, and no recourse need be first sought against Seller or any of its
general partners or any of their assignees. This guaranty shall be binding upon
successors and assigns of the below-named guarantor, without the necessity of
any express assumption of such liability by any such successor or assign. The
undersigned each waives notice of acceptance of this guaranty.
/s/ Edward L. Milstein
- -----------------------------------------
Edward L. Milstein, Individually
/s/ Howard P. Milstein
- -----------------------------------------
Howard P. Milstein, Individually
The undersigned, having a financial interest in Buyer and in
consideration of this Agreement, knowing that Seller would not enter into this
Agreement without the guaranty hereinafter set forth, guarantees to Seller all
of the representations, warranties, covenants, and other obligations and
liabilities of Buyer under the foregoing Agreement, including the Schedules and
Exhibits thereto. This guaranty is an absolute, unconditional, and primary
guaranty of payment and performance, and no recourse need be first sought
against Buyer or any assignee of Buyer. This guaranty shall be binding upon
successors and assigns of the below-named guarantor, without the necessity of
any express assumption of such liability by any such successor or assign. The
undersigned waives notice of acceptance of this guaranty.
Insignia Financial Group, Inc.
By: /s/ Frank M. Garrison
- -----------------------------------------
Name: Frank M. Garrison
Title: Office of the Chairman
Title:
<PAGE>
[LOGO]
PRESS RELEASE
For Immediate Release
Contact: Steve Iaco
(212) 984-6535
Patric Dolan
(212) 984-8073
INSIGNIA FINANCIAL GROUP COMPLETES
ACQUISITION OF DOUGLAS ELLIMAN
INSIGNIA SEIZES COMMANDING POSITION IN NEW YORK MARKETPLACE
NEW YORK, June 23, 1999 -- Insignia Financial Group, Inc. (NYSE:IFS) today
announced that it has completed its previously announced acquisition of Douglas
Elliman, the leading residential real estate brokerage firm in New York City.
The purchase price is approximately $65 million in cash, plus an
earn-out of up to an additional $10 million over the next five years, contingent
upon Douglas Elliman's achievement of certain performance standards.
Douglas Elliman commands the number one market position for both
residential sales and rentals in New York City. The firm also holds leadership
positions in upscale suburban markets of New York City through offices in
Greenwich, CT, Bernardsville/Basking Ridge, NJ and three on Long Island:
Manhasset, Locust Valley and Port Washington/Sands Point. Besides residential
brokerage, other Douglas Elliman operations included in the sale are commercial
retail leasing and professional office sales and leasing.
The acquisition bolsters Insignia's leadership position in the New York
market, adding the number one residential brokerage firm to a portfolio of
Insignia companies that also includes the region's largest manager of
cooperative and condominium housing and premier provider of commercial real
estate services.
Insignia expects the Douglas Elliman transaction to be accretive to Net
Income per share by $0.10 on an annual basis, to after-tax cash flow per share
by $0.24 on an annual basis and to Net EBITDA per share by $0.33 on an annual
basis. The financial contributions for 1999 will be lower due to the inclusion
of Douglas Elliman for only part of the year and the additional expenses arising
from the change in ownership.
Douglas Elliman closed more than 4,100 transactions valued at nearly
$1.8 billion during 1998. The firm, founded in 1911, has more than 780 brokers,
supported by more than 100 corporate employees in 15 offices in the New York
area.
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Insignia Financial Group, Inc., based in New York, is among the leading
providers of commercial and residential real estate services in the United
States, with a growing presence in Europe. Its major operating units are:
Insignia/ESG, Inc., one of the largest providers of commercial real estate
services in the United States and the pre-eminent commercial real estate service
provider in the New York metropolitan area; Richard Ellis St. Quintin, one the
premier real estate services firms in the United Kingdom; Realty One, the
eighth-largest residential real estate brokerage firm in the United States and
the largest in Ohio; and Insignia Residential Group, the largest manager of
cooperative and condominium housing in the New York metropolitan area.
Certain items discussed in this press release may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and, as such, may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Statements
which make reference to the expectations or beliefs of the Company or any of its
management are such forward-looking statements. These statements include the
expected accretiveness of this transaction to the Company's earnings. Such
forward-looking statements speak only as of the date of this press release. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances upon which any such statement is
based.
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