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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________ to _________
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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 Offices) (Zip Code)
(212) 984-8033
(Registrant's Telephone Number, Including Area Code)
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Securities registered pursuant to Section
12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, Par Value $0.01 Per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. { }
At March 15, 2000, there were 20,853,648 shares of Common Stock outstanding.
Based on the reported closing price of $15.00 per share on the New York Stock
Exchange on such date, the aggregate market value of Registrant's Common Stock
held by non-affiliates was approximately $300 million.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders is incorporated by
reference in Part III of this Form 10-K.
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Part I
Item 1. Business
ORGANIZATION
Insignia Financial Group, Inc. ("Insignia" or the "Company"), headquartered
in New York, New York, is the parent company of an international real estate
organization. Insignia's service businesses specialize in commercial real estate
services, single-family home brokerage, mortgage origination, title services,
apartment brokerage and leasing, escrow agency services, condominium and
cooperative apartment management, real estate oriented financial services,
equity co-investment and other services. Additionally, Insignia has developed
substantial Internet-based business applications associated with real estate. As
more fully described below, Insignia's principal businesses are Insignia/ESG,
Inc. (U.S. commercial real estate services), Insignia Richard Ellis (U.K.
commercial real estate services - formerly known as Richard Ellis St. Quintin),
Realty One, Inc. (single-family home brokerage and mortgage origination),
Douglas Elliman (apartment brokerage and leasing) and Insignia Residential
Group, Inc. (condominium and cooperative apartment management). In addition,
Insignia has other European operations in Frankfurt, Germany; Milan, Italy;
Brussels, Belgium; and, with the recently acquired Colliers BDR (to operate as
Insignia BDR), in Amsterdam, the Netherlands (collectively, the "Insignia
Businesses").
Through Insignia/ESG, Insignia provides a broad spectrum of commercial real
estate services in the U.S., including tenant representation, property leasing
and management, property disposition and acquisition, investment sales, mortgage
financing, equity co-investment, development, redevelopment and consulting
services. Insignia/ESG provides these services for tenants, owners and investors
in office, industrial, retail, hospitality and mixed-use properties.
Insignia/ESG is among the leading providers of commercial real estate services
in the United States. Insignia/ESG enjoys a leadership market position in the
New York metropolitan area and significant market positions in property owner
and/or tenant services in Washington, D.C., Philadelphia, Boston, Chicago,
Atlanta, Phoenix, Los Angeles, San Francisco, Dallas, Miami and other major
business districts. In all, Insignia/ESG has operations in 47 markets in the
United States. In addition, Insignia/ESG engages in real estate investment
activities through ownership in co-investments with institutional partners and,
to a lesser extent, development property.
Insignia Richard Ellis is among the leading commercial property services
companies in the United Kingdom, with offices in London, Manchester, Glasgow,
Birmingham, Leeds, Liverpool, Belfast and Jersey. In addition, Insignia has
growing international capabilities, which allow it to meet clients' expanding
global needs, in the United Kingdom, Germany, Italy, Belgium and the
Netherlands. In 1999, the combined operations of Insignia/ESG and Insignia
Richard Ellis completed commercial transactions in excess of 220 million square
feet and arranged the sale of properties valued at over $12.0 billion.
Through Realty One, Insignia Residential Group and Douglas Elliman,
Insignia provides a diversified array of residential real estate services,
including single-family home brokerage, mortgage origination, title services,
escrow agency services, apartment brokerage and leasing and condominium and
cooperative apartment management. Realty One operates a full-service
single-family residential brokerage and mortgage origination business in
northern Ohio and is the eighth largest (based on unit volume) residential real
estate brokerage firm in the United States according to Real Trends "Big Broker
Report" published in May 1999. In 1999, Realty One closed approximately 20,400
transactions valued at over $3.0 billion. First Ohio Mortgage Corporation, a
mortgage loan subsidiary of Realty One that originates single-family home
mortgages for Realty One clients and third parties, underwrote $405 million of
mortgage loans in 1999.
Douglas Elliman, acquired in June 1999, operates the largest residential
real estate brokerage firm in New York City, commanding the number one market
position for both residential sales and rentals according to the annual ranking
of residential brokerage companies nation-wide as published by Real Trends.
Douglas Elliman closed more than 4,600 transactions valued at over $2.2 billion
during 1999.
Insignia Residential Group is the largest manager of cooperatives and
condominiums in the New York metropolitan area, according to a survey in the
February 2000 issue of The Cooperator, and one of the largest apartment managers
in the United States. Insignia Residential Group manages approximately 350
properties, consisting of cooperatives, condominiums and rental properties, and
comprising approximately 62,000 units.
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SPIN-OFF
Insignia, incorporated under the laws of the state of Delaware on May 6,
1998 under the name Insignia/ESG Holdings, Inc., originally was a wholly-owned
subsidiary of a company also named Insignia Financial Group, Inc. ("Former
Parent"). On September 21, 1998, Former Parent effected the spin-off of Insignia
through a pro rata distribution (the "Spin-Off") to the holders of common stock
of Former Parent of all the outstanding common stock of Insignia (the "Common
Stock"). On October 1, 1998, Former Parent (which then consisted solely of
businesses and assets relating to multi-family residential real estate) merged
into Apartment Investment and Management Company, a Maryland corporation
("AIMCO"), with AIMCO being the surviving corporation (the "Merger"). On
November 2, 1998, Insignia assumed the name of Former Parent, "Insignia
Financial Group, Inc.", and reclaimed Former Parent's original New York Stock
Exchange symbol, "IFS." Insignia's principal executive offices are located at
200 Park Avenue, New York, New York 10166, and its telephone number at that
address is (212) 984-8033.
COMMERCIAL REAL ESTATE SERVICES
INSIGNIA/ESG - UNITED STATES OPERATIONS
Real Estate Services
Insignia/ESG's U.S. commercial real estate services business is the largest
component of Insignia's operations, accounting for an estimated 57% of
Insignia's 1999 service revenues. Insignia/ESG's commercial services business
commenced operations in 1991 as a division of Former Parent's residential
property management business. Its growth has come principally through
acquisitions, most notably the June 30, 1996 purchase of Edward S. Gordon
Company Incorporated in New York. Insignia/ESG generated service revenues of
approximately $246.4 million in 1997, $312.9 million in 1998 and $389.2 million
in 1999.
Insignia/ESG provides a broad spectrum of commercial real estate services
to corporations and other major space users, property owners and investors.
These services include tenant representation, property leasing and management,
property acquisition and disposition services, investment sales, mortgage
financing, equity co-investment and consulting services. Insignia/ESG provides
these services in the office, industrial, retail and hospitality sectors of the
commercial real estate industry. At December 31, 1999, Insignia/ESG provided
tenant representation, property management, leasing and other real estate
services for over 223 million square feet of commercial real estate, including
147 million square feet of office space, 55 million square feet of industrial
space, 16 million square feet of retail space and 5 million square feet of mixed
use space. These services are provided on a third-party basis for owners such as
John Hancock Mutual Life, The Irvine Company, Teachers Insurance and Annuity
Association, Chase, J.P. Morgan and others. During 1999, Insignia/ESG completed
U.S. transactions totaling in excess of 178 million square feet of commercial
real estate and arranged the sale of more than $4.3 billion in commercial
properties.
All commercial real estate services in the U.S. are rendered under the
highly regarded Insignia/ESG brand name. Insignia/ESG prides itself on the
consistent, high-quality delivery of its services across geographic markets,
property types and disciplines. It is active to varying degrees in 47 U.S.
markets, and maintains substantial market share in key central business
districts, such as New York, Washington D.C., Philadelphia, Boston, Chicago,
Atlanta, Phoenix, Los Angeles, San Francisco, Dallas, Miami and others.
Specialized divisions within Insignia/ESG include the following: Capital
Advisors (investment sales and financing activities); Hotel Partners
(international hotel brokerage specialist); and Commercial Investments Group
(fee-development and redevelopment services).
The New York metropolitan area is the largest market for Insignia/ESG.
Insignia/ESG represents many leading corporations and property owners, helping
them to fulfill their real estate needs in this marketplace. During 1999,
Insignia/ESG was responsible for 17 of the 50 largest leasing transactions in
the New York metropolitan area according to the February 2000 issue of Crain's
New York Business - giving it a number one ranking for the third year in a row.
Insignia believes that the success and reputation of Insignia/ESG within
the New York metropolitan area serves as the primary catalyst for growth and
expansion of commercial real estate services both domestically and
internationally. Insignia/ESG's growth strategy combines targeted acquisitions
of companies that offer complementary skill sets as well as the establishment of
servicing capabilities in markets where it does not currently offer these
services. Insignia/ESG's expansion is primarily focused on first tier U.S. and
international markets (those comprising 75 million square feet or more) and
secondarily on opportunities in second tier U.S. and international markets
(those
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comprising 25 million to 74 million square feet). Since May 1998, Insignia/ESG
has completed acquisitions of real estate service companies in Chicago,
Philadelphia and Boston (including a hotel brokerage specialist with national
and international service capabilities), and expanded its service operations in
Los Angeles, San Francisco, Atlanta and Miami.
Principal Investment Activities
Equity Co-Investments in Real Estate
In addition to real estate services, Insignia/ESG owns and operates real
estate through the acquisition of existing properties in co-investment ventures
with its institutional partners. Insignia/ESG identifies investment
opportunities for select clients and invests alongside of these clients in the
purchase of qualifying properties. Co-investment partners include Citibank, ING
Barings, Blackacre Capital Management, The Witkoff Group, Lennar, Lone Star
Opportunity Fund, Prudential, GE Investments and Whitehall Street Real Estate.
Insignia/ESG does not compete for acquisitions with its advisory clients who do
not seek co-investment partners.
During 1999, the Company, in partnership with its co-investment clients,
concluded real estate investment purchases of 18 properties comprising
approximately 2.5 million square feet of commercial space and 400 residential
units and having an aggregate asset cost of over $295 million. At December 31,
1999, Insignia held ownership interests in 22 co-investment partnerships owning,
in the aggregate, 37 properties comprising approximately 3,700 apartment units
and 7.3 million square feet of commercial space. Insignia's ownership interests
in these partnerships range from 5% to 35%. Two of these partnerships own
property developed by Insignia. At December 31, 1999, Insignia held investments
of approximately $28.2 million in these real estate properties, which had an
asset cost of more than $850 million in the aggregate.
Insignia also owns three properties, with aggregate real estate carrying
amount of approximately $41.5 million, which are consolidated in the Company's
financial statements at December 31, 1999. Two of the properties, Brookhaven
Village (Norman, Oklahoma) and Dolphin Village (St. Petersburg, Florida), are
retail facilities comprising over 291,000 square feet in the aggregate. The
third is a 226,000 square foot office property located in Richardson, Texas.
This property was developed by Insignia, with 90% of the cost financed, and 100%
leased in late 1999 to Southwestern Bell.
Development Property
At December 31, 1999, the Company held investments of $4.3 million in two
office properties under development and a parcel of land held for development.
The office properties are held by joint ventures formed in 1999 with the
admission of 70% and 75% partners. Development activities on these properties
are not expected to be complete until later in 2000 or 2001.
INSIGNIA RICHARD ELLIS AND OTHER - EUROPEAN OPERATIONS
Insignia's European operations consist of Insignia Richard Ellis in the
United Kingdom, together with other businesses in Germany, Italy, Belgium and
the Netherlands. European operations, which produced approximately $108.6
million in service revenues for 1999, accounted for 16% of Insignia's total
service revenues. For the 1998 and 1997 years, Insignia's European operations
generated service revenues of $65.4 million and $647,000, respectively. The
British Pound (Sterling) represents the only foreign currency of a material
business operation, as more than 90% of Insignia's foreign operations were
attributable to Insignia Richard Ellis in 1999.
Insignia Richard Ellis, one of the three largest commercial real estate
service providers in the United Kingdom, represents the combined operations of
Richard Ellis Group Limited ("REGL") (the 226 year old London-based commercial
real estate firm acquired by Former Parent in February 1998) and St. Quintin
Holdings Limited ("St. Quintin") (the London-based real estate firm acquired in
March 1999). The operations of St. Quintin were merged with REGL in 1999.
Insignia Richard Ellis provides broad-ranging services, including
consulting, project management, appraisal, zoning and other general services.
The major income components, however, are agency leasing, tenant representation
and property sales and financing. Insignia Richard Ellis provides extensive
coverage of the entire United Kingdom market through full-service offices in
London, Glasgow, Birmingham, Leeds, Manchester, Liverpool, Belfast and
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Jersey. During 1999, Insignia Richard Ellis generated service revenues of
approximately $104.6 million, concluded 42 million square feet of transactions
and arranged the sale of more than $7.7 billion in commercial property. In
addition, Insignia Richard Ellis completed the two preeminent assignments in the
London marketplace during 1999 with the transaction value of each exceeding $225
million.
Insignia Richard Ellis's capabilities, culture, operating philosophy and
client base are very similar to Insignia/ESG's. As a result of these
similarities, Insignia has begun to experience synergies and cross-selling
opportunities from the pairing of Insignia Richard Ellis alongside the U.S.
operations of Insignia/ESG. With the ever-increasing global business
environment, particularly with respect to two of the world's leading financial
centers, New York and London, Insignia anticipates that synergies between
Insignia Richard Ellis and Insignia/ESG will become increasingly more
significant over time.
The Company views Insignia Richard Ellis as the springboard for global
expansion of the commercial real estate services business. Since the initial
acquisition of REGL in February 1998, this business unit has assisted in the
establishment of service operations in Frankfurt, Milan and Brussels and also
assisted in the recent acquisition of Colliers BDR in Amsterdam, the
Netherlands. Insignia is continually in search of attractive acquisition
opportunities in select European markets.
COMMERCIAL SERVICES
The full range of commercial services, both in the United States and
Europe, include:
Tenant Representation -- the acquisition or disposition of leased or owned
space on behalf of space users
Consulting -- specialization in large, multi-faceted transactions (usually
50,000 square feet or more) requiring in-depth planning, analysis and execution
Investment Sales -- the sale or acquisition of all types of commercial
property on behalf of owners
Mortgage Financing -- the arrangement of financing (either debt or equity)
on behalf of owners of all types of commercial properties
Agency Leasing -- the marketing of available space within commercial
properties on behalf of owners/landlords and the consummation of leases with
tenants
Property Management -- responsibility for the financial and operational
aspects of a commercial property, which sometime involve specialized services
such as construction management, engineering or energy management
Facilities Management -- responsibility for the delivery of services for
properties owned and occupied by corporations, institutions, government
agencies, hospitals, colleges and universities
Industrial Services -- specialized services performed for the owners and/or
users of manufacturing, warehouse, distribution or flex-space (combining office
and industrial uses) facilities
Property Development and Redevelopment -- development and construction
services for owners of office, industrial and retail properties, and the
re-development/re-positioning of properties for owners looking to create
enhanced value
Real Estate Investment -- primarily through ownership in equity
co-investment partnerships and development property with select clients
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MARKET TRENDS
United States
o Clients Demand More Services; Desire to Consolidate Service Providers
-- As real estate requirements become more sophisticated, clients'
needs follow. Increasingly, companies want to be able to turn to a
single source for all of their real estate use, investment and
management requirements. As a result, clients with multiple real
estate requirements ranging from occupancy needs to investment
objectives are consolidating service providers. Whereas several years
ago it might have been common for real estate owners, users and
investors to hire several different companies in different locations
to manage their needs, the industry is clearly seeing a trend towards
the hiring of fewer providers to address all of a client's
requirements.
o Increasing Sophistication of Transactions -- As companies grow, the
significance of their real estate issues follow suit. It is common
today for a company's real estate occupancy and investment issues to
be second only to labor as a component of overall operating costs.
Additionally, with the increasing sophistication of capital markets,
the trend toward real estate securitization, the tendency of companies
today to merge with others to achieve economies of scale and capture
market share, and the consolidation of worldwide locations that
accompany such mergers, the manner in which corporations manage such
issues can have profound impacts on their financial performance. As a
result, the level of sophistication required to manage such complex
requirements and interrelationships transcends the traditional role of
the real estate broker. Successful commercial real estate services
companies today must be able to manage these requirements in order to
effectively compete.
Insignia/ESG's response to the foregoing is to seek to become an advisor
for corporations and financial institutions with respect to their real estate
use, investment and management requirements in the same manner that major
investment banks are advisors to a corporation's corporate finance requirements.
By focusing on providing the highest quality services with the best talent in
the major business centers of the world, Insignia/ESG seeks to become the
"one-stop" resource for all real estate requirements, specializing in the more
complex and creative transactions that characterize today's worldwide
marketplace.
Europe
o The general consensus among forecasters is that the United Kingdom and
European economies, which are experiencing sustained growth, may see a
modest decline in the growth rate by mid 2001. Occupational demand is
likely to remain strong throughout 2000. In addition, the absence of
new development in a number of key markets in the United Kingdom,
especially in Southeast England, is likely to create further rental
growth and therefore sustain momentum in the property investment
sector.
o Property markets in mainland Europe also remain strong, especially in
the major economic markets in France, Germany, Italy and Spain.
Interest from overseas investors, particularly from the U.S., remains
strong and is tempered only by a general lack of suitable investment
product. However, increasing development activities in these major
markets are expected to bring supply more in line with demand in the
foreseeable future.
COMPETITIVE POSITION
Through Insignia/ESG and Insignia Richard Ellis, the Company believes that
it is well positioned to meet the competitive challenges present in the
commercial real estate marketplace. Among its competitive strengths are:
o strong reputation and the recognition of its brand name within the
industry;
o quality and depth of both its management and brokerage staff;
o entrepreneurial corporate culture, which allows it to respond quickly
to opportunities;
o unique methodologies for implementing large, complex transactions;
o complete array of services, which allows it to both meet existing
client needs and take advantage of
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cross-selling opportunities;
o extensive property services portfolio, which provides significant
economies of scale;
o proven mergers and acquisitions capability;
o strong balance sheet, with commercial assets in excess of $570 million
and minimal debt;
o commercial revenue growth in excess of 400% over the last three years;
o commercial EBITDA growth of approximately 275% over the last three
years;
o market leadership in two of the world's most important financial
centers-- New York and London; and
o focus on attracting, retaining, supporting and promoting the highest
quality, most skilled personnel in the industry.
RESIDENTIAL REAL ESTATE SERVICES
REALTY ONE
Realty One, a full-service residential real estate broker headquartered in
Cleveland, Ohio, was established in 1953 and acquired by Former Parent in
October 1997. Realty One's current business operation is the result of nearly 60
separate mergers and acquisitions. It is the largest residential real estate
brokerage firm in Ohio and the eighth largest (based on unit volume) in the
United States according to the Real Trends "Big Brokers Report" published in May
1999. With more than 1,500 sales associates and 605 corporate and support staff
located in 46 offices throughout northern Ohio, it represents more than 100
residential builders and handles more than 20,000 transactions valued at over $3
billion annually. First Ohio Mortgage Corporation, a subsidiary of Realty One,
originates single-family home mortgages for both Realty One clients and third
parties. Realty One, which produced $104.0 million in service revenues for 1999,
accounted for approximately 15% of Insignia's total service revenues. Realty One
generated service revenues of approximately $103.3 million in 1998 and $23.8
million in 1997 (for the period of ownership), respectively.
DOUGLAS ELLIMAN
Douglas Elliman, acquired in June 1999, operates a residential cooperative,
condominium and rental apartment brokerage and leasing firm in New York City.
Douglas Elliman commands the number one market position for both residential
sales and rentals in New York City and holds leadership positions in upscale
suburban markets through offices in Greenwich and Darien, Connecticut,
Bernardsville/Basking Ridge, New Jersey, and three on Long Island: Manhasset,
Locust Valley, and Port Washington/Sands Point. Founded in 1911, Douglas Elliman
has more than 780 brokers, supported by more than 115 corporate employees in 15
offices in the New York City area. Douglas Elliman closed more than 4,600
transactions valued at over $2.2 billion for the entire 1999 year and generated
service revenues of approximately $49.8 million, or 7% of Insignia's total 1999
service revenues, for the six months of ownership in 1999.
On a combined basis, Realty One and Douglas Elliman comprise the sixth
largest (based on sales volume) residential brokerage business in the United
States, with aggregate revenues of $153.8 million and transaction volume
exceeding $5.0 billion for 1999. On an annualized basis, these businesses
generated service revenues of approximating $200 million in the aggregate.
Insignia continues to evaluate a consolidation-based strategy in the
residential brokerage industry. The industry is currently defined by several key
trends, including:
o Margin Compression -- Margins are being compressed as a result of
increasing splits paid to agents and, for the larger, more progressive
firms, the investment in technology, marketing and development of
one-stop shopping services.
o Market Fragmentation -- There are more than 50,000 residential
brokerages in the U.S., one quarter of which are currently estimated
to be unprofitable, according to various industry research studies.
These
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consist of independent brokerages as well as franchise operations. No
single independent broker commands more than 1% of the national
market, and no national franchise company maintains more than an 11%
market share, with only three franchise companies holding more
than 3%.
The above trends, coupled with the available economies of scale, suggest
that pursuit of a consolidation-based strategy may be capable of reversing the
downward trend in margins and allow for the exploitation of proprietary
technology to build real competitive advantages and insure brand loyalty.
The residential brokerage industry has been consolidating for some time,
and with access to additional capital, Realty One and Douglas Elliman may
acquire key brokerage firms in their respective markets. Realty One already has
significant experience acquiring and assimilating companies, completing
approximately 60 acquisitions over the last 15 years. Insignia believes that the
exceptional brands of Realty One and Douglas Elliman position the Company to
launch the expansion of residential brokerage services throughout the U.S. and
U.K., into key markets where Insignia is already a leading provider of
commercial real estate services.
In addition to consolidation strategies, opportunities exist to increase
profit margins through the expansion of services into related areas, such as
mortgage, escrow, title, valuation and renovation services that, in combination
with e-commerce initiatives, will offer the consumer a true "one-stop shopping"
experience. The approach of both Realty One and Douglas Elliman is to use
advanced technology to bundle services more inexpensively and increase the value
to the consumer. As an example, Insignia expects the use of developing
Internet-based e-commerce capabilities to play an ever-increasing role in the
delivery of services in the residential marketplace.
INSIGNIA RESIDENTIAL GROUP
Insignia Residential Group is the largest manager of cooperative,
condominium and rental apartments in the New York metropolitan tri-state area
according to a recent survey in The Cooperator. Insignia Residential Group
provides full service third-party fee management for approximately 350 total
properties comprising 62,000 residential units in the greater New York
metropolitan area. In addition, Insignia Residential Group has expanded its
scope to include mortgage brokerage services, including resale and financing
arrangements for cooperative and condominium corporations through third-party
financial institutions. During 1999, Insignia Residential Group arranged
approximately $98.0 million of such financing, representing a 6% increase over
1998. Insignia Residential Group generated total service revenues of $26.9
million in 1999, representing 4% of Insignia's service revenues for the 1999
year.
Among the notable properties currently managed by Insignia Residential
Group in New York City are the San Remo, Worldwide Plaza, Fresh Meadows, Horizon
House and West Village Houses, respectively. Manhattan is the largest market for
Insignia Residential Group, although it does maintain a presence in each of the
other four boroughs of New York City as well as Long Island, Westchester County
and Northern New Jersey. Insignia Residential Group increased its New York
management portfolio by over 2,600 units with the August 1999 acquisition of RA
Cohen & Associates.
Insignia Residential Group's strategy is to focus on key markets where its
size and reputation allow it to become the leading player. The Company believes
that Insignia Residential Group's reputation for quality service and the broad
experience of its personnel in managing condominiums and cooperatives throughout
the New York metropolitan area enable it to successfully pursue new property
service opportunities. The Company anticipates that Insignia Residential Group's
economies of scale and state-of-the-art management information system should
allow it to increase profit margins by offering services efficiently and at a
competitive cost. Additionally, the Company expects newly developed e-commerce
initiatives to play a significant role in the delivery of Insignia Residential
Group's services in the residential marketplace.
RESIDENTIAL SERVICES
Realty One, Douglas Elliman and Insignia Residential Group provide the
following services:
Residential Brokerage -- the agency representation of both buyers and
sellers in the purchase and sale of residential housing, including assisting the
seller in pricing the property, marketing and advertising the property, showing
the property to prospective buyers, assisting the parties in negotiating the
terms of the sale and closing the transaction
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Leasing -- the marketing of available space for properties on behalf of
owners/landlords and the consummation of leases with tenants
Rental Brokerage -- the agency representation of rental clients in the
procurement of suitable apartment housing
Relocation Services -- assisting both corporations and individuals in the
sale, procurement and temporary management of residential properties for
corporations and transferees. Realty One assists in large group moves as well as
individual relocations
Builder Marketing Services -- representing and consulting with large
national and local developers providing marketing, research studies, product
development and brokerage services
Mortgage Origination -- through First Ohio Mortgage, Realty One offers
convenient and competitive mortgage services to its customers and many other
brokerages throughout northern Ohio. First Ohio Mortgage represents more than 15
mortgage lenders, each offering multiple financial products
Title Services -- through Insignia Title, a newly formed affiliate created
in January 2000, Realty One offers complete title services to its customers.
This expansion of services further streamlines the home-buying and selling
process by enabling customers to conduct their entire sale or purchase
transaction from one central site, with coordinated business services creating a
true "one-stop shopping" experience
Escrow Agency -- through First Ohio Escrow, Realty One provides residential
escrow agency services facilitating the closing of property sales
Property Management -- involves providing accounting services on a cash or
accrual basis, lease administration, central purchasing, cash management,
insurance oversight, collections and compliance monitoring, and construction
management
Transfer Agent -- On behalf of cooperative and condominium clients,
Insignia Residential Group processes applications of prospective purchasers,
arranges and attends closings, facilitates the assignment of proprietary leases
and provides safekeeping of leases and other documents
Mortgage Brokerage Services -- Insignia Residential Group engages, to a
limited extent, in mortgage brokerage services, including resale and financing
arrangements for its customers through third-party financial institutions
COMPETITION
COMMERCIAL REAL ESTATE SERVICES
Insignia/ESG
Competition is intense in the U.S. commercial property services industry,
particularly in the areas of tenant representation, property leasing and
management and other services in which Insignia/ESG is engaged. Historically,
most competitors have been regional or local companies specializing in one or
more aspects of the business (e.g., property management, tenant representation,
etc.). However, the consolidation trend has spawned fewer, larger international
competitors that are integrated across property types and disciplines.
Insignia/ESG competes increasingly with these full-service national competitors,
including CB Richard Ellis, Cushman & Wakefield, Grubb & Ellis, Jones Lang
LaSalle and Trammel Crow.
Different factors weigh heavily in the competition for tenant
representation and property services assignments. For major tenant
representation assignments, competition is based on quality of services,
demonstrated track record, breadth of resources, analytical skills and market
knowledge. Insignia/ESG has a distinct methodology for executing major tenant
representation assignments, which combines brokerage and consulting disciplines.
This methodology, honed in New York over the past decade, is being exported to
top tier markets throughout the United States. Further, Insignia/ESG has an
outstanding track record in completing major tenant representation assignments.
In 1999, as tenant representative, Insignia/ESG arranged major transactions for
such well-known entities as Marsh & McLennan, Winstar Communications, Martha
Stewart, On-line Media, Waterhouse Securities, and Citigroup. Moreover,
Insignia/ESG's creativity and transaction-structuring expertise have been
recognized by a leading trade group, which
8
<PAGE>
annually recognizes two New York City transactions as its "Deals of the Year."
Insignia/ESG has been the recipient of such awards in three of the past four
years, and has earned the top award overall in four of the past five years. The
Company believes that Insignia/ESG's outstanding track record provides a
distinct competitive advantage.
Competition for third-party commercial property service engagements is
based principally on cost and the quality of service, including the ability to
enhance asset values. Insignia/ESG's personnel are experienced in managing a
wide variety of property types in locations throughout the country. This enables
Insignia/ESG to offer an owner of a large diversified portfolio the ability to
obtain experienced management for most or all of its properties through one
organization. The Company believes that Insignia/ESG has demonstrated an ability
to effectively manage, lease and improve the value of properties. In addition,
the Company believes that Insignia/ESG has developed a reputation for quality
service and attention to detail for clients, investors and tenants alike. The
Company also believes that Insignia/ESG's economies of scale and
state-of-the-art management information systems should allow it to offer
services efficiently and at an overall cost that is competitive with or less
expensive than those offered by other property service companies. Because of its
size and diversity, Insignia/ESG is able to control operating costs by spreading
fixed overhead expenses across its large service base, which enhances
profitability and enables Insignia/ESG to pass cost savings on to the property
owners for which it provides services.
Insignia Richard Ellis
Competition is also intense among commercial service providers in the
United Kingdom. Only five commercial services firms in the United Kingdom
currently have annual revenues exceeding $100 million, and no firm maintains
greater than a 5% market share. Insignia Richard Ellis, with 1999 revenues of
$104.6 million, has established itself as a market leader with a "top three"
position (according to a survey published by the Estates Gazette) in commercial
property markets behind only DTZ and Jones Lang Lasalle. The Company believes
that Insignia Richard Ellis's operations and reputation place it at a strategic
advantage over other primary competitors including CB Hiller Parker, Knight
Frank, Cushman & Wakefield and Lambert Smith Hampton.
RESIDENTIAL REAL ESTATE SERVICES
Realty One
Realty One's business accounts for almost one-third of single-family home
sales or listings within the northern Ohio residential market. The number two
firm, Smythe, Cramer Company, is responsible for approximately 20% of the total
sales and listings. Other firms trail significantly further behind. The Company
believes that Realty One's success is due to a number of competitive advantages,
including its leading-edge use of technology and innovative marketing practices.
For example, Realty One's proprietary computer system defines the "readiness" of
potential customers to purchase a home, thus allowing for highly targeted
direct-marketing and advertising programs.
Realty One's marketing practices are spearheaded by its "Welcome Home For
First Time Buyer" and "Welcome Home Advantages" value package programs. These
programs include discounts and other promotional items from various national
vendor participants such as GE appliances, Glidden Paints, Carter Lumber and
Royal Dirt Devil Vacuums. To benefit from either of these programs, consumers
are required to use the brokerage and mortgage origination or title services
offered by Realty One and its subsidiaries. In addition, consumers receive a
free home warranty valued at over $350 when they elect to use the services of
First Ohio Mortgage. The Company believes that the combined value of the free
home warranty and the value packages give Realty One a significant competitive
advantage over its peers.
Douglas Elliman
Douglas Elliman enjoys a long-established presence in the New York City
marketplace with a well-recognized brand name and leading market share. Douglas
Elliman offers a comprehensive range of services and enjoys certain advantages
over its competitors, most notably The Corcoran Group and Halstead Property
Company, based on its size, geographic reach in the New York marketplace and its
alignment alongside the operations of Insignia/ESG and Insignia Residential
Group. For example, the Company expects Douglas Elliman to gain material
competitive benefits from the synergies to be realized by providing residential
brokerage services to Insignia/ESG clients as well as residents of Insignia
Residential Group managed properties.
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Insignia Residential Group
The cooperative, condominium and apartment management business is extremely
competitive. In addition to several large companies, including Charles
Greenthal, Inc. and Brown, Harris and Stevens, Inc., there are many small
entities that aggressively compete for business. Further, some owner
associations have opted for self-management, which eliminates the need for
third-party service providers altogether. Despite the competitive landscape, the
Company believes Insignia Residential Group has a proven record and that it has
the capability to continue to compete successfully. Insignia Residential Group
has grown to be an industry leader by offering superior service while providing
its clients cost benefits not available from smaller competitors. Examples are
the lower cost of supplies, insurance and other items that Insignia Residential
Group purchases on behalf of its clients using the buying power available
because of size.
INSIGNIA OPPORTUNITY TRUST
In 1999, Insignia sponsored the formation of a private real estate
investment trust ("REIT"), Insignia Opportunity Trust ("IOT"). IOT, through its
subsidiary operating partnership, Insignia Opportunity Partners, invests in real
estate debt and, to a lesser extent, other real estate equity instruments with a
focus on below investment grade commercial mortgage backed securities. IOT
commenced operations in October 1999 and as of December 31, 1999 had invested
approximately $16.3 million in such investments. At December 31, 1999, Insignia
held a $2.3 million investment, or approximately 13% ownership, in IOT. IOT has
received capital commitments for an aggregate $72 million, of which $10 million
is to be invested by Insignia and the remainder to be made by strategic partners
that have invested in other Insignia related transactions in prior years. Such
capital commitments are expected to be funded over the course of 2000 and 2001.
INTERNET INITIATIVES
During 1999, Insignia announced its Internet strategy, which involves an
extensive array of major e-commerce initiatives and strategic alliances,
including internally developed businesses and equity investments in existing
third-party Internet-based businesses. Insignia expects this Internet strategy
to expand the Company's market leadership in commercial and residential real
estate services through a fundamental repositioning of the Company into a
first-tier real estate-oriented Internet services company.
Insignia has developed Internet-based e-commerce models in virtually every
segment of the real estate services businesses in which it currently operates,
including residential sales, commercial and residential property management,
commercial leasing and tenant representation, investing (or committing to
invest) approximately $20 million of its own capital in these initiatives.
During 1999, the Company launched the following upgraded internally developed
Internet websites: www.insigniafinancial.com, www.insigniaesg.com,
www.douglaselliman.com, www.insignia-re.com, www.realtyone.com,
www.insigniaresidential.com and www.knowyourscore.com (a comprehensive
credit-scoring site operated by Realty One subsidiary First Ohio Mortgage).
Insignia also has made strategic investments of approximately $13.5 million
in third-party Internet-based businesses, including: eziaz inc. (formerly
Siteline, Inc.); LoopNet, Inc; PropertyFirst.com, Inc; MyContracts.com, Inc.;
Wireless, Inc.; Cubitz.com, Inc.; Granite Square, Inc.; Concrete Media, Inc.;
and Homestore.com, Inc. Insignia plans to continue to pursue its strategy of
making direct equity investments in third-party Internet-based businesses that
have a real estate oriented focus, and which are believed to have significant
potential for commercial success.
Insignia's first internally developed e-commerce initiative to go "live" on
the Internet is the EdificeRex.com (www.edificerex.com) website, which is
operated by its subsidiary EdificeRex.com, Inc. EdificeRex consists of the
following three principal business lines:
o RESIDENTIAL INTERNET PORTAL. The residential portal operated by
EdificeRex is a building-centric, ultra-local website targeted at
residents of high-end apartment building buildings in major
metropolitan areas. This service was launched in New York City in
February 2000, and is currently operational for more than 150
buildings containing approximately 25,000 apartments. EdificeRex has
entered into contractual agreements to provide its services to over
150,000 apartment units in total, and plans to launch the residential
portal service in major markets across the U.S., including Los
Angeles, San Francisco, Atlanta, Boston, Chicago, Miami, Washington,
D.C., as well as in London. In each market,
10
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EdificeRex will feature building-specific functionality and
ultra-local content patterned after the New York City portal.
o COMMERCIAL INTERNET PORTAL. The commercial portal currently under
development by EdificeRex will target small to mid-sized tenants of
commercial office space as well as employees of those tenants. This
portal will also feature ultra-local content and product and service
offerings, but will offer a "national" aggregated corporate buying
feature as well. In addition, the portal will offer both
building-centric and tenant-centric functionality (such as customized,
free Intranet services). The commercial portal service is scheduled to
be rolled-out in the Spring of 2000 in New York City, with service in
additional major metropolitan areas in the U.S. and the U.K. expected
to follow throughout the remainder of the year. EdificeRex has already
entered into contractual arrangements with owners and managers
(including Insignia/ESG) of buildings containing approximately 275
million square feet of commercial office space to provide the portal
in this portal service in those buildings.
o RESIDENTIAL "SMART BUILDING" SERVICES. This service offering features
the installation of building-centric local area networks (LANs) in
individual apartment buildings, which will be used to deliver
high-speed, always-on, wireless broadband Internet access and other
services to residents in the building. Other planned "smart building"
service offerings utilizing the wireless LAN infrastructure include
consumer (resident) oriented services, such as data storage and
back-up, content filtering and delivery of on-demand, rich content
such as video, as well as business (building) oriented services such
as monitoring and alarming of mechanical systems and video
monitor/intercom functionality.
In March 2000, EdificeRex completed a $36 million private equity financing
in which it sold 4,595,349 shares of its Series C Preferred Stock, representing
an approximately 14% equity interest in the company, for $7.81 per share to a
group of approximately 20 investors. Following the financing, Insignia owns
approximately 51% of EdificeRex, with the remainder owned by management,
employees and strategic real estate and operating partners. EdificeRex's
founding real estate partners include Blackacre Capital Management, Apollo Real
Estate Advisors, The Witkoff Group, Milford Management Corporation, The Related
Companies, and Casden Properties.
Insignia expects that its other internally developed Internet-based
businesses will raise third-party capital to fund ongoing operations in a
similar manner as the EdificeRex financing.
BRANDING
In February 2000, Insignia introduced a worldwide corporate branding
program that establishes a new logo for each of the Company's principal
businesses. The centerpiece for this worldwide branding change is a vibrant,
bright blue "i" logo. This logo unites the entire company internationally behind
a highly visible and recognizable face in the marketplace and differentiates the
Company's identity as the "new" Insignia - separate and distinct from that of
the Former Parent entity from which Insignia spun off in late 1998.
ACQUISITIONS
Over the past eight years, Insignia has demonstrated the ability to
recognize accretive acquisition opportunities and to successfully integrate them
within its existing infrastructure. Insignia continues to seek opportunities to
align its business with other market leading real estate service firms that fit
the Company's objectives for expansion. Insignia maintains an internal mergers
and acquisitions staff that includes all senior members of Former Parent's
investment banking group as well as the acquisition analysis staff currently
maintained by Insignia Richard Ellis in the United Kingdom.
Insignia pursues a global acquisition strategy that focuses on the
expansion of each of its international and domestic businesses, while
simultaneously seeking principal opportunities to invest capital in real estate
assets in partnership with its clients. Such undertakings are expected to be in
the areas of both commercial and residential real estate assets and services.
Insignia also expects that, with time, it may pursue opportunities to diversify
its lines of business and investment objectives as circumstances and
opportunities change. Due to the substantial non-cash amortization incurred by
the Company as a result of purchased goodwill and other intangibles,
depreciation of real estate and interest expense charges associated with
acquisition financing, past and future acquisitions may adversely affect net
income.
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Insignia has acquired the following material service businesses since January 1,
1999:
Colliers BDR
Subsequent to year-end, the Company entered into a definitive agreement to
acquire Colliers BDR, a Dutch real estate services company headquartered in
Amsterdam, the Netherlands. Colliers BDR provides a variety of commercial real
estate services with a specialization in corporate services and international
advisory assignments. The base purchase price was approximately $2.0 million,
all of which was paid in cash. Additional purchase consideration of
approximately $2.5 million, payable over three years, is contingent on the
future performance of this business, which will operate as Insignia BDR.
Douglas Elliman
On June 23, 1999, Insignia acquired Douglas Elliman, a residential real
estate brokerage firm located in New York City. The base purchase price was
approximately $65.0 million, paid in cash from borrowings under Insignia's
revolving credit facility. Additional purchase consideration of up to $10.0
million, payable over the next five years, is contingent on the future revenues
of Douglas Elliman.
St. Quintin Holdings Limited
On March 5, 1999, Insignia acquired St. Quintin, a British real estate
services firm headquartered in London. The operations of St. Quintin were merged
with REGL, and the combined entities now operate under the name Insignia Richard
Ellis throughout the United Kingdom. The base purchase price was approximately
$32.0 million. Additional purchase consideration of up to approximately $12.0
million, payable over the next four years, is contingent on the future
performance of Insignia Richard Ellis. The purchase was funded with
approximately $24.3 million in borrowings under the Company's revolving credit
facility, the issuance of 305,981 shares of the Company's Common Stock and
assumed options to purchase 611,962 shares of the Company's Common Stock.
Lynch Murphy Walsh & Partners
On March 1, 1999, Insignia acquired Lynch Murphy Walsh & Partners ("Lynch
Murphy"), a provider of commercial real estate services located in Boston,
Massachusetts. Lynch Murphy specializes in brokerage services, including
representation of tenants and landlords, investment sales and debt placements,
valuation services and advisory/consulting services. The base purchase price was
$12.0 million, all of which was paid in cash from borrowings under Insignia's
revolving credit facility. Additional purchase consideration of up to $10.0
million, payable over the next three years, is contingent on the future
performance of Lynch Murphy.
MERGER RELATED EXPENSES
Insignia incurred aggregate one-time charges of approximately $4.3 million
($3.1 million, net of tax) in 1999 for merger related expenses in connection
with the acquisition of St. Quintin in March 1999 and its subsequent operational
merger with REGL. The charges reflect the provision for estimated costs of
vacated excess office space sublet and other consolidation expenses incurred in
connection with the operational merger. At December 31, 1999, all such office
space had been disposed of and all other consolidation expenses, including
severance costs, had been incurred.
SEGMENT DATA
Insignia is a fully integrated international real estate services company
with operations in two principal reportable segments: commercial services and
residential services. The commercial services segment provides a diversified
array of services including tenant representation, agency leasing, investment
sales, property management, consulting, brokerage and development. Additionally,
the commercial services segment includes real estate operations, consisting
primarily of ownership in co-investment partnerships and development property.
The residential services segment provides property management services, real
estate brokerage services, mortgage origination services, and title and escrow
agency services.
Segment operations are disclosed in the notes to the accompanying financial
statements of Insignia included in Item 14 of this Form 10-K. These financial
statements should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7 of
this Form 10-K.
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SEASONALITY
Seasonal factors affecting the Company are disclosed in Item 7 of this Form
10-K, "Management's Discussion and Analysis of Financial Condition and Results
of Operations", under the caption "Nature of Operations."
ENVIRONMENTAL REGULATION
Under various federal and state environmental laws and regulations, a
current or previous owner or operator of real estate may be required to
investigate and remediate certain hazardous or toxic substances or
petroleum-product releases at the property, and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by such parties in connection with
contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. The owner or operator of a site may be liable
under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral. There can be no assurance that Insignia, or any assets owned or
controlled by Insignia, currently are in compliance with all of such laws and
regulations, or that Insignia will not become subject to liabilities that arise
in whole or in part out of any such laws, rules or regulations. Management is
not currently aware of any environmental liabilities that are expected to have a
material adverse effect upon the operations or financial condition of the
Company.
EMPLOYEES
Insignia has approximately 8,000 employees, including employee brokers and
other qualified real estate agents and sales associates. Insignia believes that
its employee relations are excellent.
EXECUTIVE OFFICERS
The following persons serve as executive officers of Insignia. All
executive officers of Insignia serve at the discretion of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITIONS
---- --- -------------------
<S> <C> <C>
Andrew L. Farkas 39 Chairman of the Board; Chief Executive Officer
Andrew J.M. Huntley 61 Director; Office of the Chairman; Chairman of Insignia Richard Ellis
Stephen B. Siegel 55 Director; President; Chairman and Chief Executive Officer of
Insignia/ESG, Inc.
James A. Aston 47 Chief Financial Officer
Jeffrey P. Cohen 32 Executive Vice President
Frank M. Garrison 45 Office of the Chairman; President of Insignia Financial Services,
Inc.
Adam B. Gilbert 47 Executive Vice President; General Counsel; Secretary
Edward S. Gordon 64 Office of the Chairman
Ronald Uretta 44 Chief Operating Officer; Treasurer; President of Insignia/ESG, Inc;
President of Insignia Residential Group, Inc.
</TABLE>
Andrew L. Farkas has been a director and Chairman of Insignia since its
inception in May 1998 and Chief Executive Officer of Insignia since August 1998,
and also serves as the President and Chief Executive Officer of EdificeRex.com,
Inc. Mr. Farkas served as a director of Former Parent from its inception in
August 1990 until the AIMCO merger in September 1998, and as Chairman and Chief
Executive Officer of Former Parent from January 1991 until September 1998. Mr.
Farkas also served as Chairman of the Board of Trustees of Insignia Properties
Trust, a publicly traded REIT subsidiary of Former Parent, from December 1996
until February 1999 (when it was merged into AIMCO) and as Chief Executive
Officer of Insignia Properties Trust from December 1996 until September 1998.
Andrew J.M. Huntley has been a director and member of the Office of the
Chairman of Insignia since its inception in May 1998. Mr. Huntley also serves as
Chairman of Insignia Richard Ellis, with whom he has been employed in various
capacities since February 1965.
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<PAGE>
James A. Aston has been Chief Financial Officer of Insignia since August
1998. Mr. Aston served as Chief Financial Officer of Former Parent from August
1996 until September 1998. Additionally, Mr. Aston served as a Trustee of
Insignia Properties Trust from December 1996 until February 1999 and President
of Insignia Properties Trust from December 1996 until September 1998. Mr. Aston
commenced employment with Former Parent in January 1991.
Jeffrey P. Cohen has been an Executive Vice President of Insignia since
March 2000, and was Senior Vice President of Insignia from May 1998 until that
time. Mr. Cohen also serves as an Executive Managing Director of Insignia
Financial Services, Inc., President of IFS Securities, Inc., a director and
Executive Vice President of EdificeRex.com, Inc. and President of RexSpeed, Inc.
He was a Senior Vice President of Former Parent from April 1997 until September
1998, and Executive Vice President and Secretary of Insignia Properties Trust
from May 1997 until February 1999. From September 1993 until March 1997, Mr.
Cohen was an attorney with the law firm of Rogers & Wells in New York, New York.
Frank M. Garrison has been a member of the Office of the Chairman since
August 1998, and also serves as President of Insignia Financial Services, Inc.
Mr. Garrison served as an Executive Managing Director of Former Parent and
President of its Financial Services division from July 1994 until September
1998. Additionally, Mr. Garrison served as a Trustee of Insignia Properties
Trust from December 1996 until February 1999 and Executive Managing Director of
Insignia Properties Trust from December 1996 until September 1998. Mr. Garrison
commenced employment with Former Parent in January 1992.
Adam B. Gilbert has been General Counsel and Secretary of Insignia since
its inception in May 1998 and Executive Vice President of Insignia since August
1998. Mr. Gilbert also serves as a Senior Vice President of Insignia/ESG and an
Executive Vice President of EdificeRex.com, Inc. He was General Counsel and
Secretary of Former Parent from March 1998 until September 1998. From January
1994 until February 1998, Mr. Gilbert served as a partner in the law firm of
Nixon, Hargrave, Devans & Doyle, LLP in New York, New York.
Edward S. Gordon has been with the Office of the Chairman of Insignia since
its inception in May 1998, and served as Chairman of Insignia/ESG from June 1996
until August 1998. Mr. Gordon was a member of the Office of the Chairman, of
Former Parent, from June 1996 until September 1998. He was Chairman of the
Edward S. Gordon Company Incorporated (now Insignia/ESG), which was acquired by
Former Parent in June 1996, since he founded the company in 1972.
Stephen B. Siegel has been a director of Insignia since its inception in
May 1998 and President of Insignia since August 1998 and is Chairman and Chief
Executive Officer of Insignia/ESG. Mr. Siegel served as President of the Edward
S. Gordon Company Incorporated (now Insignia/ESG) from June 1992 to May 1998.
Ronald Uretta has served as Chief Operating Officer and Treasurer of
Insignia since August 1998. Mr. Uretta also serves as President of Insignia/ESG
and President of Insignia Residential Group. He was Treasurer of Former Parent
from January 1992 until September 1998 and Chief Operating Officer of Former
Parent from August 1996 until September 1998. Mr. Uretta served as a Trustee of
Insignia Properties Trust from December 1996 until October 1998.
There are no family relationships among any of the executive officers of
Insignia.
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Item 2. Properties
Insignia's principal executive office is located at 200 Park Avenue, in New
York, New York. The following table sets forth information on the operating
leases for the principal headquarters for each of Insignia's principal operating
units:
<TABLE>
<CAPTION>
OPERATING UNIT LOCATION ANNUAL RENT SQUARE FT. EXPIRATION
-------------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Insignia/ESG 200 Park Avenue, New York, NY $4,425,000 120,000 June 2005
Insignia Richard Ellis Berkeley Square House, London 3,200,000 42,000 June 2003
Realty One 6000 Rockside Woods Blvd., Cleveland, OH 650,000 41,000 June 2005
Douglas Elliman 575 Madison Avenue, New York, NY 445,000 30,000 April 2004
Insignia Residential
Group 675 Third Avenue, New York, NY 1,668,000 72,500 April 2009
</TABLE>
The Company occupies additional office space in locations throughout the
United States, United Kingdom, Germany, Italy, Belgium and the Netherlands under
leases expiring at various dates between 2000 and 2009. Insignia believes its
facilities are adequate for current and future planned uses.
Item 3. Legal Proceedings
In 1994, Re/Max International and various franchisees filed suit in the
United States District Court for the Northern District of Ohio against Realty
One, alleging claims under the federal antitrust laws and related state law
claims. The suit alleges that Realty One conspired with Smythe, Cramer Company
to institute a series of differential commission splits intended to harm Re/Max
International and its franchisees in the northeast Ohio residential real estate
brokerage market. Plaintiffs' claim actual damages of $30 million. The
applicable federal antitrust law provides, among other things, for the trebling
of actual damages.
In 1997, the District Court granted summary judgment dismissing all of
plaintiffs' federal and state claims. In a ruling issued April 6, 1999, the
Sixth Circuit reversed the District Court's order in substantial part.
Subsequent to the Sixth Circuit ruling, plaintiffs voluntarily dismissed their
monopoly claims. The only remaining claims are the federal antitrust conspiracy
claims, which are set for trial in April 2000. Realty One denies the existence
of any conspiracy, and has defended and continues to defend this action
vigorously.
In connection with Insignia's acquisition of Realty One in October 1997,
the sellers indemnified the Company for any loss arising from such litigation up
to the purchase price of approximately $40 million.
Insignia and certain subsidiaries are defendants in other lawsuits arising
in the ordinary course of business. Claims may result in substantial
compensatory and punitive damages. Management does not expect that the results
of any such lawsuits will have a material adverse effect on the financial
condition, results of operations or cash flows of the Company or its
subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's stockholders, through
the solicitation of proxies or otherwise, during the fourth quarter of 1999.
15
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
COMMON STOCK
On September 21, 1998, Former Parent effected the Spin-Off of Insignia
through a pro rata distribution to the holders of common stock of Former Parent
of all the outstanding Common Stock of Insignia. Insignia's Common Stock
commenced trading on the New York Stock Exchange on September 22, 1998 under the
symbol "IEG". On November 2, 1998, the Company reclaimed Former Parent's
original New York Stock Exchange trading symbol and commenced trading under
"IFS".
The following table sets forth the high and low daily closing sale prices
for the Company's Common Stock as reported on the New York Stock Exchange for
the 1998 quarterly periods subsequent to the Spin-Off and for each quarter of
1999:
<TABLE>
<CAPTION>
CALENDAR PERIOD HIGH LOW
- --------------- ---- ---
<S> <C> <C>
1998
Third Quarter (commencing September 22, 1998)....... 12 11/16 11 1/2
Fourth Quarter...................................... 14 8 7/8
1999
First Quarter....................................... 15 7/16 12 1/2
Second Quarter...................................... 14 11/16 10 1/4
Third Quarter....................................... 12 1/8 8 1/8
Fourth Quarter...................................... 8 11/16 7 7/16
</TABLE>
The closing sales price for Insignia's Common Stock on March 15, 2000, as
reported on the New York Stock Exchange, was $15.00.
The Company's transfer agent is First Union National Bank of North
Carolina, 1525 West W. T. Harris Blvd. Suite 3C3, Charlotte, North Carolina
28262. As of March 15, 2000, there were approximately 1,700 shareholders of
record of the Company's Common Stock.
The Company has never paid dividends on its Common Stock and does not
currently intend to pay any dividends in the foreseeable future. Any payment of
future dividends and the amounts thereof will be dependent upon the Company's
earnings, financial requirements and other factors, including contractual
obligations. The payment of dividends is subject to certain restrictions under
the Company's revolving credit facility.
PREFERRED STOCK ISSUANCE
On February 9, 2000, Insignia sold 250,000 shares of perpetual convertible
preferred stock, with a stated value of $100 per share, to investment funds
advised by Blackacre Capital Management for an aggregate purchase price of $25.0
million. The issuance was exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4 (2) thereof. The preferred stock pays a
4% annual dividend, payable at Insignia's option in cash or Common Stock, and is
convertible into the Company's Common Stock at the option of the holder at $14
per share, subject to adjustment. The preferred stock is callable by the
Company, at face value, at any time on or after February 15, 2004.
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EMPLOYEE STOCK PURCHASE PROGRAM
The Company's 1998 Employee Stock Purchase Plan was adopted to provide
employees with an opportunity to purchase Common Stock through payroll
deductions at a price not less than 85% of the fair market value of the
Company's Common Stock. This plan is designed to qualify under Section 423 of
the Internal Revenue Code of 1986. During 1999, 112,006 shares of Common Stock
were issued under this plan.
STOCK REPURCHASES
As of December 31, 1999, Insignia had repurchased 1,502,600 shares of its
Common Stock at an aggregate cost of approximately $16.2 million. The repurchase
program, which was originally established in October 1998 to allow for the
purchase of up to $10 million of the Company's outstanding Common Stock, was
expanded in 1999 to permit repurchases up to an aggregate $17.5 million. Such
shares held in treasury at December 31, 1999 were reserved for the issuance of
warrants to certain executive officers, non-employee directors and other
employees of the Company. Warrants representing 1,494,500 repurchased shares
were issued in early 2000.
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<PAGE>
Item 6. Selected Financial Data
The following table sets forth certain selected historical financial data
of Insignia and those Insignia Businesses included in the Spin-Off for the years
ended December 31, 1999, 1998, 1997, 1996 and 1995. This information has been
derived from and is qualified by reference to the consolidated financial
statements of the Company and the notes thereto and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included as Item 7 in this Report.
The selected financial data presents the historical financial position,
results of continuing operations and cash flows of those Insignia Businesses
owned by Former Parent prior to the Spin-Off in September 1998 as if Insignia
were a separate entity for all periods presented. This financial information is
not necessarily indicative of results that would have occurred had Insignia
operated as a stand-alone entity separate from Former Parent during the periods
presented prior to the Spin-Off.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $686,366 $510,780 $295,753 $122,005 $ 38,658
Internet-based business expense 1,580 - - - -
Merger related expenses 4,272 - - - -
Provision for loss on subsidiary - 2,300 - - -
Depreciation and amortization 30,979 22,543 15,244 9,197 3,778
Net income (loss) 10,298 11,053 13,055 3,484 (2,278)
Net income per share - assuming dilution (1) 0.46 0.50 0.62 0.16 N/A
OTHER DATA:
EBITDA (2) $ 58,923 $ 48,345 $ 36,633 $ 14,561 $ 1,104
Cash provided by (used in) operating
activities 64,810 35,857 31,370 11,203 (1,399)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 61,600 $ 53,489 $ 5,514 $ 44 $ 36
Real estate interests 74,007 58,196 19,454 4,465 894
Total assets 795,313 595,489 337,945 171,787 43,074
Total long-term debt 164,322 44,438 19,969 - -
Investment and net advances from Former
Parent - - 208,444 137,777 39,948
Stockholders' equity 393,069 383,243 - - -
</TABLE>
(1) Earnings per share for 1998 is presented on a pro forma basis assuming the
Spin-Off occurred at the beginning of the year. Earnings per share for 1997 and
1996 are presented on a pro forma basis solely for comparison because Insignia
was not a separate entity during those periods.
(2) Defined as real estate services revenues less direct expenses and
administrative costs. EBITDA should not be construed to represent cash provided
by operations pursuant to generally accepted accounting principles ("GAAP"), as
it is not defined by GAAP and Insignia's usage of this term may differ from
other companies' usage of the same or similar terms.
18
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
Insignia is among the leading providers of commercial and residential real
estate services in the United States and United Kingdom, with a growing presence
throughout other parts of continental Europe. Insignia operates in two principal
business segments (commercial and residential real estate services) and offers a
diversified array of real estate services including: tenant representation;
agency leasing; property management; consulting; investment sales; development
and redevelopment; mortgage financing; single-family home brokerage; mortgage
origination; title and escrow agency services; and apartment brokerage.
Insignia's revenues from these services totaled $678.5 million in 1999, compared
to $507.4 million in 1998. This growth was attributable primarily to
contributions from 1999 acquisitions, most notably St. Quintin and Douglas
Elliman, and exceptionally strong performance in the U.S. and U.K. commercial
services operations.
In 1999, Insignia's commercial services businesses included Insignia/ESG's
U.S. operations, Insignia Richard Ellis in the United Kingdom and other European
operations in Germany, Italy and Belgium. The commercial businesses produced
aggregate service revenues of $497.8 million in 1999, accounting for
approximately 73% of the Company's total service revenues for the period.
Insignia strengthened its position as a leader in commercial real estate
services internationally through the acquisition of St. Quintin in March 1999
and the establishment of offices in Milan, Italy and Brussels, Belgium in
mid-1999. In addition, Insignia added to its growing capabilities in continental
Europe through the March 2000 acquisition of Colliers BDR, which will operate as
Insignia BDR.
Through Insignia Richard Ellis, which produced service revenues of $104.6
million in 1999, Insignia holds a "top three" market position for commercial
property services in the United Kingdom. The combined strength of Insignia
Richard Ellis in London and Insignia/ESG in New York gives Insignia a commanding
position in two of the world's most important global business centers.
Insignia also continues to pursue opportunities to invest in real estate
assets, primarily through co-investment ventures with its institutional partners
to acquire existing properties and, to a lesser extent, development property. At
December 31, 1999, Insignia held ownership interests in 22 co-investment
partnerships totaling 7.3 million square feet of commercial property and 3,700
multi-family apartment units. Insignia's ownership interests in these
partnerships range from 5% to 35%. At December 31, 1999, the Company also held
investments in two office properties under development and a parcel of land held
for development. The office properties are held by joint ventures formed in 1999
with the addition of 70% and 75% partners.
Insignia also owns three real estate properties - two retail properties
comprising 291,000 square feet and an office property with 226,000 square feet -
that are consolidated in the Company's financial statements at December 31,
1999. All real estate investment activities are managed as a component of the
Company's commercial services business.
In 1999, the residential services businesses included Realty One, Insignia
Residential Group and Douglas Elliman. Realty One, located in Cleveland, Ohio,
is the largest provider of residential real estate brokerage services in Ohio
and the eighth largest (based on unit volume) in the United States according to
Real Trends "Big Broker Report" published in May 1999. Douglas Elliman is the
largest provider of residential brokerage services in New York City. On a
combined basis, Realty One and Douglas Elliman comprise the sixth largest (based
on sales volume) residential brokerage business in the United States, with
aggregate sales transactions in 1999 valued at over $5.0 billion. Insignia
Residential Group is the largest provider of management services to cooperative
and condominium owners in the New York metropolitan area with a total portfolio
of approximately 62,000 units. The residential businesses produced aggregate
service revenues of $180.7 million in 1999.
19
<PAGE>
In addition to net income, Insignia uses EBITDA (defined as real estate
services revenues less direct expenses and administrative costs), Net EBITDA
(defined as income before depreciation, amortization, income taxes and
non-recurring one-time charges) and Net EBITDA less income taxes, as indicators
of the Company's financial performance. Management uses these supplemental
measures in the evaluation of operations and in making financial decisions.
BASIS OF PRESENTATION
The comparative financial results for the periods prior to the Spin-Off are
based on the historical financial statements of those Insignia Businesses
spun-off from Former Parent as if effected at the beginning of the applicable
year. Administrative expenses, which included, among other things, investment
banking, information technology, legal, finance, accounting and facilities
expenses of Former Parent, were allocated to Insignia for all periods prior to
the Spin-Off. The administrative allocations, totaling $5.5 million for the nine
months of 1998 prior to the Spin-Off and $6.8 million for 1997, were based on an
analysis of the operations of Former Parent using various methods, including
employee headcount, acquisition activities and estimated management time devoted
to the operations of those Insignia Businesses.
FINANCIAL CONDITION
Total assets increased by approximately $199.8 million to $795.3 million at
December 31, 1999. The primary source of the increase relates to the
acquisitions of Lynch Murphy in Boston (March 1999), St. Quintin in the United
Kingdom (March 1999) and Douglas Elliman in New York City (June 1999). These
acquisitions, comprised substantially of purchased intangibles, fueled the $97.7
million increase in costs in excess of net assets of acquired businesses. The
remainder of the asset growth was primarily attributable to increased
receivables from service activities, property and equipment purchases,
investments in real estate property and investments of approximately $20.0
million in third-party Internet-based businesses and internally developed
Internet-based intellectual property. Liabilities increased by $190.0 million to
$402.2 million at December 31, 1999. This increase is due principally to
borrowings of approximately $109.0 million on Insignia's revolving credit
facility for acquisition financing, increases in commission's payable resulting
from the expansion of commercial real estate service activities and non-recourse
real estate mortgage debt encumbering wholly-owned properties.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items derived from the Company's
consolidated statements of operations for the years ended December 31, 1999,
1998 and 1997, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
REVENUES
Commercial
United States $389,208 $312,940 $246,448
Europe 108,562 65,422 647
Residential 180,701 128,989 48,163
-------- -------- --------
Real Estate Services 678,471 507,351 295,258
Cost and expenses
Real estate services 607,722 451,774 251,855
Administrative 11,826 7,232 6,770
-------- -------- --------
EBITDA - REAL ESTATE SERVICES (1) 58,923 48,345 36,633
Real estate FFO (2) 3,758 1,735 804
Interest and other income 5,191 3,429 495
Foreign currency transaction gains 827 - -
Interest expense (8,206) (1,378) (318)
Minority interests - 371 41
-------- -------- --------
NET EBITDA (1) 60,493 52,502 37,655
Internet-based business expense (1,580) - -
-------- -------- --------
NET EBITDA AFTER INTERNET 58,913 52,502 37,655
Income tax provision (12,226) (12,975) (8,703)
-------- -------- --------
NET EBITDA LESS INCOME TAXES (1) 46,687 39,527 28,952
Provision for loss on subsidiary - (2,300) -
Merger related expenses, net of tax (3,117) - -
Gains on sale of real estate, net of tax 1,660 - -
Depreciation - property and equipment (6,644) (3,090) (1,429)
Amortization of intangibles (23,823) (19,453) (13,815)
Depreciation - real estate (4,465) (3,631) (653)
-------- -------- --------
NET INCOME $ 10,298 $ 11,053 $ 13,055
======== ======== ========
</TABLE>
(1) Neither EBITDA, Net EBITDA nor Net EBITDA less income taxes, as disclosed
above, should be construed to represent cash provided by operations determined
pursuant to generally accepted accounting principles ("GAAP"). These measures
are not defined by GAAP and Insignia's usage of these terms may differ from
other companies' usage of the same or similar terms.
(2) Funds From Operations ("FFO") is defined as income or loss from real estate
operations before depreciation, gains or losses on sales of property and
provisions for impairment.
21
<PAGE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
Insignia reported strong operating results for 1999, with service revenues
and Net EBITDA totaling $678.5 million and $58.9 million, respectively. These
operating results represented increases of 34% and 12%, respectively, over 1998.
Over $90 million, or approximately 55%, of the revenue growth was attributable
to 1999 acquisitions with the remainder representing internal growth from the
expansion of services and robust market conditions, primarily in the commercial
sector. Net EBITDA for the service businesses, before Internet related expenses
of $1.6 million, grew 15% to $60.5 million for 1999, in comparison to 1998. Net
EBITDA for 1999 was favorably impacted by foreign currency transaction gains of
$827,000 attributable to the portion of the Company's credit facility borrowings
denominated in European currencies. During 1999, Insignia held approximately $25
million of its credit facility borrowings in European currencies to act as a
partial hedge against decreases in European earnings from declines in currency
exchange rates against the U.S. Dollar. Net EBITDA less income taxes increased
18% to $46.7 million in 1999 from $39.5 million in 1998.
Net income for 1999 totaled $10.3 million, reflecting a 7% decline from
$11.1 million in 1998. Net income per share, on a diluted basis, was $0.46 for
1999 compared with $0.50 for 1998. The $4.3 million one-time charge for the
operational merger of St. Quintin and REGL and fourth quarter 1999 expenses of
$1.6 million related to the development of stand-alone Internet-based businesses
adversely affected earnings. On an after-tax basis, these items reduced net
income by approximately $4 million, or $0.17 per share.
The results of operations for the Company are more fully described below.
Commercial Real Estate Operations
Real Estate Services
Commercial real estate service businesses produced an aggregate service
revenue increase of 32% to $497.8 million for 1999, in comparison to $378.4
million for 1998. The increase in service revenue attributable to the
acquisitions of Lynch Murphy in Boston and St. Quintin in the U.K. totaled
approximately $49 million, or 41% of the overall growth over 1998. European
operations, most notably Insignia Richard Ellis, accounted for approximately 36%
of growth over 1998. The remainder of the revenue growth, approximately $70
million, was attributable to the full year impact of the mid-1998 acquisitions
of Hotel Partners and Jackson Cross, internal growth from the expansion of
services in key U.S. markets and favorable market conditions, most notably in
the New York metropolitan area. The commercial service businesses produced
aggregate EBITDA gains of 21% to $56.4 million for 1999 compared to $46.7
million for 1998.
The U.S. commercial service operations produced revenue increases of 24%
from $312.9 million in 1998 to $389.2 million in 1999. Lynch Murphy, acquired in
March 1999, contributed $13.9 million of the 1999 revenue growth. Additionally,
$17.5 million of the service revenue growth for 1999 was a result of the full
year impact of the mid-1998 acquisitions of Hotel Partners and Jackson Cross.
The New York metropolitan area was the primary catalyst behind the remaining
1999 internal growth of approximately $45 million. The New York region produced
record results, with service revenue totaling $186 million, reflecting a gain of
approximately $17.6 million over 1998 levels. Virtually every domestic operating
region reported revenue gains in 1999 in comparison to 1998.
The U.S. commercial service operations produced EBITDA of $41.6 million for
1999, reflecting an increase of 6% over $39.3 million for 1998. The lower
percentage increase in EBITDA, as compared to revenues, was substantially
attributable to an $8.0 million increase in back office support costs resulting
from internal growth and higher information technology costs. The EBITDA results
for 1999 again reflect favorable year-over-year gains by the New York region,
which produced an EBITDA increase of 7% to $36.5 million for 1999 as compared to
1998. In addition, the Company's investment sales unit, Capital Advisors,
produced a $3.2 million increase in EBITDA in 1999 compared to 1998. This
increase for Capital Advisors clearly indicates the full recovery from the
turmoil in the capital markets experienced in the fourth quarter of 1998 and
first quarter of 1999 that resulted in a downturn in investment sales activity.
In Europe, service revenues increased 66% over 1998 levels to $108.6
million in 1999. This increase was primarily attributable to the full year
impact of results for REGL in 1999 (compared to ten months in 1998), the
acquisition and operational merger of St. Quintin with REGL in March 1999 and
the full year impact of the German operation established in June 1998. In 1999,
the combined operation of Insignia Richard Ellis contributed service revenues of
$104.6 million and the German business contributed service revenues of $3.7
million. These results
22
<PAGE>
represented gains of 72% and 147%, respectively, compared to 1998. The Italian
and Belgian businesses, established in mid-1999, produced modest revenues of
$245,000 and $28,000, respectively, for the 1999 periods of operation. These
mainland businesses are expected to contribute more meaningful operating results
in the year 2000 and beyond.
European operations contributed EBITDA of $14.7 million for 1999,
reflecting an increase of 101% or $7.3 million over 1998. This significant
EBITDA gain reflects the full recognition of cost savings and revenue growth
associated with the acquisition of St. Quintin and its operational merger with
REGL, which now operate as Insignia Richard Ellis, and a robust real estate
market in the United Kingdom. The integration of these two U.K. market leaders
exceeded Insignia's expected timetable for expense recovery and operational
efficiency. In its first full year of operations, the German business
contributed EBITDA of $551,000 for 1999, reflecting a 51% increase over 1998.
Principal Investment Activities
The commercial operations of Insignia/ESG also include the property
operations of the three wholly-owned real estate properties that are
consolidated in the Company's financial statements for 1999. These properties
produced revenues and pre-tax losses of approximately $1.9 million and
($224,000), respectively. The results of operations for these properties are
excluded from service EBITDA and are included in FFO from real estate
operations.
FFO from real estate ownership produced increases of 117% from $1.7 million
in 1998 to $3.8 million in 1999. This increase reflects the continued
enhancement of operating performance at existing properties resulting from
improved occupancy and further cost efficiencies and the continued investment in
qualifying properties. During 1999, the Company, in partnership with select
clients, concluded real estate investment purchases of 18 properties comprising
approximately 2.5 million square feet of commercial space and 400 residential
units.
Equity earnings from real estate ownership totaled approximately $2.3
million for 1999, compared to losses of $1.9 million for 1998. This substantial
increase was fueled by aggregate realized gains of approximately $2.8 million
($1.7 million after tax) from the sale of eight co-investment properties in
1999. The difference between real estate FFO and equity earnings is represented
by depreciation of real estate, gains or losses from sales of property and
provisions for impairment. Real estate depreciation increased 23% from $3.6
million in 1998 to $4.5 million in 1999.
Residential Real Estate Operations
The residential service operations produced an aggregate service revenue
increase of 40% from $129.0 million for 1998 to $180.7 million for 1999. This
growth was essentially attributable to the acquisition of Douglas Elliman, which
produced service revenues totaling $49.8 million for the six months of ownership
since its acquisition in June 1999. Douglas Elliman experienced significant
growth in its 1999 sales volume over 1998 due to the robust market for
cooperative and condominium sales in New York City. For the full 1999 year,
Douglas Elliman closed transactions valued at more than $2.2 billion, reflecting
an increase of 25% compared to 1998. In addition, Douglas Elliman's average
sales price for 1999 closed transactions saw a 13% increase over 1998 to
$657,000. Realty One produced a service revenue increase of a modest 1% from
$103.3 million in 1998 to $104.0 million for 1999. This achievement of revenue
results nearly in line with the record level of 1998 is noteworthy given Realty
One's sensitivity to interest rates fluctuations. Insignia Residential Group,
which saw its management portfolio expand to more than 62,000 units during 1999,
reported a 5% increase in service revenues from $25.7 million in 1998 to $26.9
million in 1999. First Ohio Mortgage, Realty One's mortgage loan subsidiary,
experienced a 2% decline in loan volume to $405 million compared to 1998 levels,
however, this result was significantly more favorable than that experienced by
most competing mortgage banking companies, which generally saw loan volumes
shrink by more than 30% in 1999.
The residential service operations produced EBITDA gains of 62% from $8.9
million in 1998 to $14.4 million in 1999. Consistent with revenues, the EBITDA
increases are the result of the June 1999 acquisition of Douglas Elliman, which
produced EBITDA of $6.4 million for the six-month period since acquisition.
Realty One reported an EBITDA decline of 7% to $7.4 million in 1999. This
decrease reflects the effects of the year-over-year decline in first quarter
results attributable to the reversion to a more normal seasonal sales pattern in
1999 (compared to the record level experienced in the first quarter of 1998) and
the impact of rising interest rates on sales volume. Insignia Residential Group
reported an EBITDA decline of 36% from $915,000 in 1998 to $581,000 in 1999 as a
result of higher lease expense and support costs, compared to 1998.
23
<PAGE>
Internet-Based Business
As noted above, Internet-based business expenses of approximately $1.6
million adversely affected earnings for 1999. These expenses, incurred entirely
in the fourth quarter of 1999, related to the development of new Internet
applications and consisted primarily of costs for personnel and advertising and
marketing campaigns. As previously discussed (see Item 1 - "Internet
Initiatives"), Insignia anticipates such internally developed Internet-based
business models to eventually operate as free-standing enterprises through the
infusion of third-party capital in off balance sheet transactions. At December
31, 1999, Insignia had invested approximately $7.0 million in the development of
capitalized intellectual property for these businesses.
Other Items Affecting Net Income
Administrative expenses rose 64% from $7.2 million in 1998 to $11.8 million
in 1999. This increase reflects the anticipated higher costs following the
Spin-Off as a separate company, continued growth of the Company over the past
year through acquisitions and expansion of services, and certain atypical
expenses incurred in connection with abandoned acquisition transactions.
Administrative expenses of the Company through the time of the Spin-Off in
September 1998, which totaled approximately $5.5 million, consisted entirely of
estimated allocations of Former Parent overhead costs.
Interest expense increased by $6.8 million over 1998 levels to $8.2 million
for the 1999 year. The increase is due principally to interest charges on 1999
credit facility borrowings of approximately $109 million to finance the
acquisitions of Lynch Murphy, St. Quintin and Douglas Elliman. Interest expense
for 1998 was attributable solely to asset financing consisting of Realty One
borrowings, principally under its warehouse line used in the origination of
mortgage loans for sale, and REGL borrowings substantially secured by restricted
cash deposits. The results for 1998 do not include any interest expense
allocation from the indebtedness of Former Parent.
Depreciation and amortization of intangibles (exclusive of property
operations) increased 35% from $22.5 million in 1998 to $30.5 million in 1999.
These increases are the result of increased capital investments in property and
equipment and acquisitions substantially comprised of purchased intangibles.
Results for 1999 were adversely affected by one-time charges of $4.3
million for merger expenses in connection with the acquisition of St. Quintin in
March 1999 and its subsequent combination with REGL. As previously noted, the
one-time charges substantially relate to the provision for costs associated with
vacated excess office space being subleased. Earnings for 1998 were adversely
affected by the one-time impairment charge of $2.3 million for the write-down of
the Company's 60% investment in Insignia/CAGISA (Italy) to the then estimated
disposition value. The Company completed the disposition of its interest in
Insignia/CAGISA in March 1999.
Income taxes declined 6% to $12.2 million in 1999, in comparison to 1998,
as a result of lower pre-tax income.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Insignia reported record service revenues and Net EBITDA for 1998 of $507.4
million and $52.5 million, respectively, representing increases of 72% and 39%,
respectively, over 1997. Net income for 1998 was adversely affected by a
one-time charge of $2.3 million for the write-down of the Company's investment
in Insignia/CAGISA. As a result, net income and net income per share for 1998
declined to $11.1 million and $0.50, respectively.
The acquisitions of REGL (February 1998), Realty One (October 1997) and
Barnes Morris Pardoe & Foster ("Barnes Morris") (October 1997), together with
selective acquisitions of domestic commercial real estate services firms and
further expansion of services in Europe during 1998, through Insignia RE GmbH in
Germany, constituted a majority of these increases. In addition, favorable real
estate markets in the United States and United Kingdom coupled with the
strategic expansion of commercial services in certain key U.S. markets during
1998 contributed to this record growth.
24
<PAGE>
Commercial Real Estate Operations
Real Estate Services
Commercial real estate services in 1998 were conducted in the United States
through Insignia/ESG and in Europe through REGL in the United Kingdom, Insignia
RE GmbH in Germany and Insignia/CAGISA in Italy. These businesses produced
service revenue increases of 53% over 1997 to $378.4 million in 1998. The
increase in service revenues attributable to the acquisitions of Barnes Morris,
REGL, Hotel Partners and Jackson Cross was approximately $106.2 million. The
remaining $25 million in revenue growth was attributable primarily to internal
growth and expansion of services. The commercial segment produced EBITDA of
$46.7 million in 1998, which was 16% greater than its 1997 EBITDA.
Insignia/ESG's U.S. operations were led by strong results in the West Coast
and New York metropolitan areas in 1998. The West Coast region reported revenues
of $34.5 million for 1998, or 34% more than 1997 revenues of $25.7 million. This
region exhibited strength across all service lines, as virtually all of the
growth was from internal sources. This strength in the West Coast region was
aided by the launch of brokerage operations in Los Angeles and San Francisco and
by adding a tenant representation component to the existing owner services
business.
The New York metropolitan area enjoyed another strong year, even though the
fourth quarter performance did not reach the record levels achieved in the
fourth quarter of 1997. Service revenues for the New York area were $168.2
million for 1998 compared to $154.9 million in 1997, reflecting Insignia/ESG's
strong presence in this key U.S. market. In the annual ranking of the top New
York deals published in Crain's in February 1999, Insignia/ESG accounted for 19
of the top 50 leasing transactions in 1998, equaling the combined total of the
number two and three firms.
REGL, acquired in February 1998, performed ahead of acquisition date
expectations with the production of $60.9 million of service revenues and EBITDA
of $8.6 million for the period of ownership in 1998.
The foregoing commercial results were achieved in spite of the turmoil in
the U.S. capital markets in the fourth quarter of 1998, which resulted in a
downturn in investment sales activity. Results for the Company's investment
sales businesses, consisting of Insignia Capital Advisors and Hotel Partners,
fell materially short of management expectations in 1998. These businesses
produced revenues, in the aggregate, of only $16.6 million in 1998, which
resulted in a negative EBITDA, before common support costs of Insignia/ESG, of
approximately ($909,000). The significance in these results was that all other
commercial services, including property management, tenant representation,
agency leasing and brokerage, both domestic and international, continued to
provide such strong internal growth that overall results were not negatively
impacted.
Principal Investment Activities
Insignia's real estate investment activities produced an FFO increase of
116% from $804,000 in 1997 to $1.7 million in 1998. This increase was achieved
as a result of the continued strategy of purchasing minority equity interests in
selected real estate assets in partnership with institutional clients, coupled
with operating income growth from existing co-investment properties. During
1998, Insignia co-invested in the purchase of approximately 2.5 million square
feet of commercial property valued at more than $260 million.
Equity earnings from real estate investments reported a loss of $1.9
million for 1998. The difference between real estate FFO and equity earnings
represents depreciation of real estate, gains or losses from sales of property
and provisions for impairment. Results for 1998 reflected real estate
depreciation of $3.6 million, net of gains of approximately $145,000 on the sale
of property.
Residential Real Estate Operations
In 1998, residential real estate services were conducted through Realty One
and Insignia Residential Group. These businesses produced revenue increases of
168% over 1997 to $129.0 million in 1998. This growth was substantially the
result of the October 1997 acquisition of Realty One, which accounted for
approximately $103.3 million, or 20%, of the Company's total service revenues
for 1998. First Ohio Mortgage, Realty One's mortgage loan affiliate, experienced
an increase in loan volume of 41% to $411 million in 1998.
25
<PAGE>
Insignia Residential Group produced revenue increases of 5% over 1997 to
$25.7 million in 1998. During 1998, Insignia Residential Group expanded its
mortgage brokerage activities under which the company arranges financing for
cooperative and condominium corporations through third-party financial
institutions. In 1998, Insignia Residential Group arranged approximately $92
million of such financing, reflecting an increase of 85% over 1997.
The residential segment reported EBITDA of $8.9 million for 1998. Virtually
all of the increase over 1997 was a result of the October 1997 acquisition of
Realty One.
Other Items Affecting Net Income
Administrative costs increased by 7% over 1997 to $7.2 million in 1998.
These costs consisted entirely of allocations of Former Parent overhead costs
for the periods prior to the Spin-Off and direct costs of the Company after the
Spin-Off.
Interest expense was $1.4 million in 1998 compared to $318,000 in 1997. The
increase was attributable to asset financing consisting of Realty One borrowings
principally under its warehouse line used in the origination of loans for sale,
REGL borrowings substantially secured by restricted cash deposits and a
non-recourse mortgage note financing a real estate acquisition. The results for
1998 and 1997 do not include any interest expense allocation from the
indebtedness of Former Parent.
Depreciation and amortization, excluding depreciation on real estate
properties, increased 48% to $22.5 million in 1998 compared to $15.2 million in
1997. Amortization of acquisition intangibles, which reported an increase of 41%
or $5.6 million over 1997, was primarily responsible for this rise.
Results for 1998 included an impairment charge of $2.3 million recorded as
a write-down of the Company's 60% investment in Insignia/CAGISA to estimated
disposition value. This write-down reflected the Company's decision to
discontinue and sell its majority interest in its Italian subsidiary. The
Company completed the sale of its interest in Insignia/CAGISA in March 1999.
Income taxes increased at a greater rate than the rise in income before
taxes as a result of the non-deductibility of the aforementioned write-down
together with a $797,000 operating loss of Insignia/CAGISA in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Insignia's liquidity and capital resources consist of its cash on hand,
cash provided from operations and available credit under its $185 million
revolving credit facility. Unrestricted cash at December 31, 1999 was $61.6
million, representing a 15% increase over $53.5 million at December 31, 1998.
Insignia generated cash flows from operating activities of $64.8 million for the
1999 year, an 81% increase over $35.9 million in 1998. In addition to operating
cash flows, the Company uses Net EBITDA and Net EBITDA less income taxes as
measures of liquidity and working capital provided by operations. The Company
reported Net EBITDA of $58.9 million and $52.5 million for 1999 and 1998,
respectively. Net EBITDA less income taxes was $46.7 million and $39.5 million
for 1999 and 1998, respectively. These results reflect increases of 12% for Net
EBITDA and 18% for Net EBITDA less income taxes in 1999 over 1998.
As compared to net income, these Net EBITDA measures effectively eliminate
the impact of non-cash charges for depreciation, amortization of intangible
assets and other non-recurring charges. Management believes that the
presentation of such supplemental measures enhance a reader's understanding of
the Company's operating performance, as they provide a measure of generated cash
available for use to service debt and for other required or discretionary
purposes.
Insignia's total long-term debt at December 31, 1999 was approximately
$164.3 million. Such long-term debt included approximately $109 million
outstanding on its credit facility, notes issued to sellers of acquired
businesses of $8.9 million, a $6.2 million mortgage warehouse line of credit
(financing single family mortgages held for sale), mortgage notes of $28.5
million on wholly owned real estate assets (which are non-recourse to the
Company) and other debt of subsidiaries totaling $11.7 million.
In February 2000, Insignia raised $25 million through the issuance of
perpetual convertible preferred stock to investment funds advised by Blackacre
Capital Management. The preferred stock pays a 4% annual dividend, payable at
Insignia's option in cash or Common Stock, and is convertible into the Company's
Common Stock at the
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option of the holder at $14 per share, subject to adjustment. Insignia will
utilize this capital for general corporate purposes and to fund ongoing Internet
initiatives and real estate investing.
In March 2000, Insignia completed a $36 million private equity financing
through its EdificeRex subsidiary. EdificeRex sold 4,595,349 shares of its
Series C Preferred Stock, representing an approximately 14% equity interest in
the company, for $7.81 per share to a group of approximately 20 investors.
Following the financing, Insignia owns approximately 51% of EdificeRex, with the
remainder owned by management, employees and strategic real estate and operating
partners.
Insignia expects that its other internally developed Internet-based
businesses will raise third-party capital to fund ongoing operations in a
similar manner as the EdificeRex financing.
Fluctuations in elements of working capital are partly attributable to the
generation of revenues that are transactional in nature and therefore affected
by seasonality and capital market conditions. Such fluctuations are generally
temporary and minor, with the exception of incentive compensation, because
residential operations generally carry minimal receivables and domestic leasing
commissions in the commercial sector carry a corresponding commission liability
payable to brokers. Incentive compensation is accrued over the course of each
year based upon financial performance and generally paid in the first quarter of
the succeeding year.
Cash flows for capital expenditure requirements, which are not extensive
under normal circumstances, generally consist of periodic computer, furniture
and fixture replacements incurred in connection with acquisitions or other
personnel additions. During 1999, cash flow utilized to fulfill capital
replacement needs of the service businesses totaled over $37.0 million. These
expenditures in 1999, which the Company considers unusually high for its
business, consisted primarily of leasehold improvements and furniture and
fixtures from office relocation and expansion, computer equipment and management
systems, information technology infrastructure costs and internally developed
Internet-based e-commerce capabilities. Over $17 million of the total 1999
capital expenditures pertained to leasehold improvements and the development and
implementation of a single platform accounting and financial system for the U.S.
commercial operations of Insignia/ESG. In addition, over $7 million in capital
expenditures for 1999 related to internally developed Internet-based businesses.
Insignia expects capital expenditures to remain at significant levels throughout
fiscal 2000 due to the continuing development and implementation of such
accounting and financial systems at Insignia/ESG and other principal operating
units. Property and equipment costs, excluding expenditures for further
Internet-based business initiatives and acquisitions, are expected to again
exceed $30.0 million in 2000.
Insignia expects to use cash on hand and cash flow from operating
activities to fund capital expenditures needs, acquisitions (including the
payment of contingent payments earned), real estate investments, Internet
initiatives and to make principal payments on the Company's outstanding
indebtedness. The Company anticipates that its existing sources of liquidity,
including cash on hand, operating cash flows and available credit under its
revolving credit facility, will be sufficient to meet the Company's working
capital and capital replacement needs for the foreseeable future and, in any
event, for at least the next twelve months. The Company's working capital needs
are reassessed on a routine basis and as acquisitions are identified and
pursued.
THE YEAR 2000 ISSUE
The Year 2000 issue relates to the inability of many computer systems to
recognize dates for the Year 2000 and afterward. Systems that use only two
digits to designate a year (e.g., 2000 is entered as "00") can malfunction when
dates are used in processing data and recalling data from storage. The problems
arising from such programming came to be known as "Year 2000" or the "Year 2000
Issue." The effects of the Year 2000 Issue on operations and financial reporting
could range from minor errors to significant system failures or miscalculations
causing disruptions of operations, including such things as a temporary
inability to process transactions, pay invoices or conduct similar routine
business operations without interruption.
To address the Year 2000 Issue, Insignia established an in-house program
team and initiated a comprehensive plan to assess, remediate and test the
Company's internal computer systems, hardware and processes, including key
operational and financial systems. The plan consisted of the following seven key
phases: awareness, inventory, risk assessment, remediation, quality assurance,
implementation and contingency planning. The plan also included steps to verify
that all key customers, suppliers and other third parties with whom the Company
transacts business were taking the necessary measures to ensure their own
readiness and timely implementation. All phases of the Year 2000 readiness plan
were completed as scheduled prior to the end of 1999. To date, Insignia has not
experienced any Year
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2000 Issues with respect to its internal operating systems, customers, suppliers
or other third parties. In addition, Insignia has not experienced any material
loss in 2000 due to the Year 2000 Issue.
As of December 31, 1999, Insignia had spent a total of approximately $3.5
million in connection with addressing the Year 2000 Issue. These expenditures
included the costs of external consultants, internal resources dedicated to
achieving Year 2000 compliance and approximately $1.5 million in capital
expenditures. All costs, other than those amounts for capital expenditures, were
charged to expense as incurred. All costs of addressing the Year 2000 Issue were
funded from operating cash flows and cash on hand. Any additional expenses are
expected to be minimal.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 133 ("SFAS"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 requires companies to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
are either offset against the change in fair value of assets, liabilities or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
SFAS 133 is effective for financial statements for fiscal years beginning after
June 15, 2000. Management does not anticipate that its adoption will have a
material effect on the financial position or results of operations of the
Company.
In December 1999, the SEC staff issued Staff Accounting Bulletin 101
("SAB 101"), Revenue Recognition. SAB 101 discusses the SEC staff views on
certain revenue recognition transactions. The Company is required to adopt SAB
101 no later than the second quarter of 2000 and any change in accounting would
be recognized as a cumulative effect of a change in accounting principle as of
January 1, 2000. Management has not completed its review of SAB 101 and its
applicability to the Company's business. The adoption of SAB 101 might have a
material effect on the financial position and results of operations of the
Company; however, any change would have no impact on the Company's cash flow
from operations.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation has not had a significant impact on the results of operations of
Insignia in recent years and is not anticipated to have a significant negative
impact in the foreseeable future. Insignia's exposure to market risk from
changing prices consists primarily of fluctuations in rental rates of properties
managed, market interest rates on residential mortgages and debt obligations,
real estate property values and foreign currency fluctuations of its European
operations.
The revenues associated with the commercial services business are impacted
by fluctuations in interest rates, lease rates, real property values and the
availability of space and competition in the market place. Commercial service
revenues are derived from a broad range of services that are primarily
transaction driven and are therefore volatile in nature and highly competitive.
The revenues of the property management operations with respect to rental
properties are highly dependent upon the aggregate rents of the properties
managed, which are affected by rental rates and building occupancy rates. Rental
rate increases are dependent upon market conditions and the competitive
environments in the respective locations of the properties. Employee
compensation is the principal cost element of property management.
Changes in market interest rates on residential mortgage loans and changes
in real property values in northern Ohio and New York City impact the revenues
of the Company's residential brokerage and mortgage origination businesses.
Recent price and cost trends have not significantly affected profit margins;
however, changes in these trends in the future could have a potentially
significant adverse impact on the Company's profitability.
NATURE OF OPERATIONS
Revenues from tenant representation, investment sales, debt placements,
agency leasing and residential brokerage, which collectively comprise a
substantial portion of Insignia's service revenues, are transactional in nature
and therefore subject to seasonality and business and capital market conditions.
Such seasonal and other factors materially impact the Company's quarterly
results, particularly revenues, earnings and cash flows.
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Consistent with the industry in general, the commercial services segment
has historically experienced its lowest quarterly operating results in the first
quarter of each year as a result of the desire of clients to complete
transactions by calendar year-end. This phenomenon generally results in higher
revenues and income in the last half of the year and a gradual slowdown in
transactional activity and corresponding operating results during the first
quarter.
The residential services segment is materially impacted by the seasonal
factors of Realty One's home brokerage and mortgage origination business. Due to
the geographic location of Realty One's operations in Ohio, weather conditions
have historically had an adverse effect on single family home sales resulting in
operating losses during the first quarter of each year. The volume of Realty
One's home brokerage and mortgage transactions typically peak during the spring
and summer months, coinciding with both favorable weather conditions and the
increased tendency for moving between school years, resulting in higher revenues
and earnings during the second and third quarters of each year.
A significant portion of the expenses associated with transactional
activities in the commercial and residential segments is directly correlated to
revenue. As a consequence of the seasonality of revenues, the Company's income
is normally expected to be lowest in the first quarter and highest in the fourth
quarter of each year. Insignia continues to believes that its large, diversified
client base, geographical reach, overall size and number of annual transactions
help to minimize the impact of seasonality and other changes in business and
capital market conditions on annual revenues and earnings.
MARKET RISK AND RISK MANAGEMENT POLICIES
Insignia is exposed to a variety of market risks, including foreign
currency exchange rate fluctuations and changes in interest rates.
The Company's earnings and cash flows are subject to fluctuations due to
changes in foreign currency exchange rates from the Company's operations in
foreign jurisdictions. In addition to the United States, the Company conducts
business in the following foreign jurisdictions: United Kingdom, Germany, Italy,
Belgium and the Netherlands. As a result of these foreign operations, the
Company's financial results could be significantly affected by factors such as
fluctuations in foreign currency exchange rates and weak economic conditions in
these foreign markets. These foreign factors have not had a material adverse
effect on the Company and are not expected to have a material impact in the
foreseeable future.
The Company's interest income and expense are most sensitive to the changes
in the general level of interest rates. In this regard, changes in interest
rates affect the interest earned on the Company's cash equivalents and
short-term investments as well as interest paid on its debt. Interest rates are
sensitive to many factors including governmental monetary and tax policies,
domestic and international economic and political considerations and other
factors that are beyond the Company's control. An increase or decrease of 1% in
prevailing interest rates at current cash and debt levels would have an
estimated annual net impact of approximately $1 million on the Company's results
of operations.
FORWARD LOOKING STATEMENTS
Certain items discussed in this Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and, as such, 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. You can
identify such statements by the fact that they do not relate strictly to
historical or current facts. These statements use words such as "believe",
"expect", "should" and "anticipate". Such information includes, without
limitation, statements regarding the results of litigation, the effects of Year
2000 Issues, Insignia's future financial performance and estimated capital
expenditures. Actual results will be affected by a variety of risks and factors,
including, without limitation, international, national and local economic
conditions and real estate risks and financing risks.
All such forward-looking statements speak only as of the date of this
Report. The Company expressly disclaims any obligation or undertaking to release
publicly any updates of 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 on which any such statement
is based.
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Item 7A. Quantitative and Qualitative Disclosure of Market Risk
The information called for by this item is included in Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the caption "Market Risk and Risk Management Policies."
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted in Item 14 (a) of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
30
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Part III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to Registrant's definitive Proxy Statement to
be filed in connection with the 2000 Annual Meeting of Stockholders.
Item 11. Executive Compensation
Incorporated herein by reference to Registrant's definitive Proxy Statement to
be filed in connection with the 2000 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to Registrant's definitive Proxy Statement to
be filed in connection with the 2000 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to Registrant's definitive Proxy Statement to
be filed in connection with the 2000 Annual Meeting of Stockholders.
31
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Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2): The response to this portion of Item 14 is submitted as
a separate section of this Report. See Page F-2.
(3) Exhibits:
2.1 Amended and Restated Agreement and Plan of Merger, dated
as of May 26, 1998, by and among Apartment Investment
and Management Company, AIMCO Properties, L.P., Former
Parent and Insignia Financial Group, Inc. (incorporated
herein by reference to Exhibit 2.1 to the Registration
Statement on Form S-4 (the "Form S-4") filed by
Apartment Investment and Management Company on August 4,
1998)
2.2 Form of Agreement and Plan of Distribution, dated as of
September 16, 1998, by and between Former Parent and
Insignia Financial Group, Inc.
3.1(a) Certificate of Incorporation of Insignia Financial
Group, Inc. (incorporated herein by referenced to
Exhibit 3.1 of the Form 10)
3.1(b) Certificate of Amendment to the Certificate of
Incorporation of Insignia Financial Group, Inc., dated
October 16, 1998, changing the name of the corporation
from Insignia/ESG Holdings, Inc. to Insignia Financial
Group, Inc. (incorporated herein by reference to Exhibit
3.1 of the Report on Form 10-Q of Insignia Financial
Group, Inc. filed on November 16, 1998)
3.1(c) Certificate of Designation of Insignia Financial Group,
Inc. classifying 250,000 of the authorized shares of
Preferred Stock of the Company as "Convertible Preferred
Stock"
3.2 By-laws of Insignia Financial Group, Inc. (incorporated
herein by reference to Exhibit 3.2 of the Form 10)
4.1(a) Registration Rights Agreement, dated as of September 7,
1999, by and among Gotham Partners, L.P., Gotham
Partners III, L.P. and Insignia Financial Group, Inc.
4.1(b) Registration Rights Agreement, dated as of February 9,
2000, by and among Insignia Financial Group, Inc. and
the initial stockholders specified therein
10.1(a) Asset and Stock Purchase Agreement, dated as of June 17,
1996, among Former Parent, Insignia Buyer Corporation,
Edward S. Gordon Company Incorporated, Edward S. Gordon
Company of New Jersey, Inc. and Edward S. Gordon
(incorporated herein by reference to Exhibit 10.15 of
the Report on Form 10-K of Former Parent filed on March
24, 1998)
10.1(b) Stock Purchase Agreement, dated March 19, 1997, by and
among Insignia Commercial Group, Inc., Former Parent,
Kirkland B. Armour, Scott J. Brandwein, Harvey B.
Camins, James L. Deiter, Lyan Homewood Fender, Ronald T.
Frain, Jay Hinshaw, Thomas E. Moxley, Robert B. Rosen,
James H. Swartchild, Jr., David Tropp, Gregg F. Witt,
Frain, Camins & Swartchild Incorporated, FC&S Management
Company and Construction Interiors, Incorporated
(incorporated herein by reference to Exhibit 10.22 to
the Report on Form 10-K of Former Parent filed on March
24, 1998)
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10.1(c) Stock Purchase Agreement, dated as of September 18,
1997, by and among Former Parent, Insignia RO, Inc.,
Joseph T. Aveni, Vincent T. Aveni, James C. Miller,
Richard A. Golbach, Joseph T. Aveni as Trustee of the
Joseph T. Aveni Declaration of Trust dated April 25,
1988, as amended on August 10, 1995, Vincent T. Aveni as
Trustee of the Vincent T. Aveni Declaration of Trust
dated February 11, 1988, as restated on September 14,
1995, Joseph T. Aveni as Trustee of the Vincent T. Aveni
Declaration Trust, dated July 13, 1994, and Vincent T.
Aveni as Trustee of the Joseph T. Aveni Declaration
Trust, dated July 13, 1994 (incorporated herein by
reference to Exhibit 10.27 to Report on Form 10-K of
Former Parent filed on March 24, 1998)
10.1(d) Deed of Warranty & Indemnity, dated February 25, 1998,
by and among Former Parent and each of the Shareholders
of Richard Ellis Group Limited (incorporated herein by
referenced to Exhibit 10.4 of the Form 10)
10.1(e) Amended and Restated Indemnification Agreement, dated as
of May 26, 1998, by and between Apartment Investment and
Management Company and Insignia Financial Group, Inc.
(incorporated herein by reference to Exhibit 2.2 to the
Form S-4)
10.1(f) Deed of Assumption and Variation, dated September 30,
1998, by and among Former Parent, Certain Covenantors
and Insignia/ESG, Inc. (incorporated herein by reference
to Exhibit 10.1(f) to Report on Form 10-K of Insignia
Financial Group, Inc. filed on March 31, 1999)
10.1(g) Deed of Variation, dated as of March 5, 1999, between
Insignia Financial Group, Inc. and Alan Charles
Froggatt, as agent and attorney for the Covenantors
(incorporated herein by reference to Exhibit 10.1(g) to
Report on Form 10-K of Insignia Financial Group, Inc.
filed on March 31, 1999)
10.1(h) Agreement for the Sale and Purchase of Shares in the
Capital of St. Quintin Holdings Limited, dated March 5,
1999, by and among the Vendors listed therein and
Insignia Financial Group, Inc. (incorporated herein by
reference to the Report on Form 8-K of Insignia
Financial Group, Inc. filed on March 18, 1998)
10.1(i) Purchase Agreement, dated May 27, 1999, among Douglas
Elliman, Douglas Elliman, Inc. and Douglas Elliman
Insurance Brokerage Corp. as seller and DE Acquisition,
LLC as buyer (incorporated herein by reference to the
Report on Form 8-K of Insignia Financial Group, Inc.
filed on July 8, 1999)
10.2(a) Second Amended and Restated Employment Agreement, dated
as of July 31, 1998, by and between Insignia Financial
Group, Inc., Insignia/ESG, Inc. and Stephen B. Siegel
(incorporated herein by reference to Exhibit 10.6 of the
Form 10)
10.2(b) Employment Agreement, dated as of August 3, 1998, by and
between Insignia Financial Group, Inc. and Ronald Uretta
(incorporated herein by reference to Exhibit 10.7 of the
Form 10)
10.2(c) Employment Agreement, dated as of June 17, 1996, by and
among Former Parent, Insignia Buyer Corporation and
Edward S. Gordon (incorporated herein by reference to
Exhibit 10.2 to the Report on Form 8-K of Former Parent
dated July 12, 1996)
10.2(d) Amendment No. 1 to Employment Agreement, dated April 1,
1997, by and among Former Parent, Insignia/Edward S.
Gordon Co., Inc. and Edward S. Gordon (incorporated
herein by reference to Exhibit 10.24 to the Report on
Form 10-K of Former Parent filed on March 24, 1998)
10.2(e) Assignment, Assumption, Consent and Release Agreement,
dated as of July 1, 1998, by and among Former Parent,
Insignia Financial Group, Inc. and Edward S. Gordon
(Exhibit A thereto is omitted because it is the same
document as Exhibit 10.7 to the Form 10)
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<PAGE>
10.2(f) Employment Agreement, dated as of August 3, 1998, by and
between Insignia Financial Group, Inc. and Andrew L.
Farkas (incorporated herein by reference to Exhibit
10.11 of the Form 10)
10.2(g) Employment Agreement, dated as of August 3, 1998, by and
between Insignia Financial Group, Inc. and Frank M.
Garrison (incorporated herein by reference to Exhibit
10.12 of the Form 10)
10.2(h) Employment Agreement, dated as of August 3, 1998, by and
between Insignia Financial Group, Inc. and James A.
Aston (incorporated herein by reference to Exhibit 10.13
of the Form 10)
10.2(i) Amended and Restated Employment Agreement, dated as of
December 23, 1998, by and between Insignia Financial
Group, Inc. and Adam B. Gilbert (incorporated herein by
reference to Exhibit 10.2(i) to Report on Form 10-K of
Insignia Financial Group, Inc. filed on March 31, 1999)
10.2(j) Executive Service Agreement, dated February 4, 1998, by
and between Richard Ellis Group Limited and Andrew John
Mack Huntley (incorporated herein by reference to
Exhibit 10.2(j) to Report on Form 10-K of Insignia
Financial Group, Inc. filed on March 31, 1999)
10.2(k) Supplemental Service Agreement, dated February 24, 1998,
by and between Insignia Financial Group, Inc. and Andrew
John Mack Huntley (incorporated herein by reference to
Exhibit 10.2(k) to Report on Form 10-K of Insignia
Financial Group, Inc. filed on March 31, 1999)
10.2(l) Assignment, Assumption, Consent and Release Agreement,
dated July 1, 1998, by and among Former Parent, Insignia
Financial Group, Inc. and Andrew John Mack Huntley
(incorporated herein by reference to Exhibit 10.2(l) to
Report on Form 10-K of Insignia Financial Group, Inc.
filed on March 31, 1999)
10.2(m) [Intentionally Omitted]
10.2(n) Form of Transferee Agreement, dated as of September 24,
1999, by and between Insignia Financial Services, Inc.,
as a Member of Insignia Opportunity Directives, LLC, and
certain individuals (see attached schedule thereto)
10.2(o) Form of Transferee Agreement, dated as of November 17,
1999, by and between Insignia Internet Initiatives,
Inc., as a Member of IIII-SLI Holdings, LLC, and certain
individuals (see attached schedule thereto)
10.2(p) Form of Transferee Agreement, dated as of November 24,
1999, by and between Insignia Internet Initiatives,
Inc., as a Member of IIII-OSA Holdings, LLC, and certain
individuals (see attached schedule thereto)
10.2(q) Form of Transferee Agreement, dated as of December 30,
1999, by and between Insignia Internet Initiatives,
Inc., as a Member of IIII-MCI Holdings, LLC, and the
individuals listed on the schedule annexed thereto
10.2(r) Form of Transferee Agreement, dated as of December 30,
1999, by and between Insignia Internet Initiatives,
Inc., as a Member of IIII-LNI Holdings, LLC, and certain
individuals (see attached schedule thereto)
10.2(s) Form of Transferee Agreement, dated as of December 30,
1999, by and between Insignia Internet Initiatives,
Inc., as a Member of IIII-PFI Holdings, LLC, and certain
individuals (see attached schedule thereto)
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<PAGE>
10.2(t) Form of Transferee Agreement, dated as of January 21,
2000, by and between Insignia Financial Group, Inc., as
a Member of ERX Advisors, LLC, and certain individuals
(see attached schedule thereto)
10.2(u) Form of Transferee Agreement, dated as of December 30,
1999, by and between Insignia Internet Initiatives,
Inc., as a Member of IIII-CCI Holdings, LLC, and certain
individuals (see attached schedule thereto)
10.2(v) Form of Warrant Agreement, dated as of January 14, 2000,
between Insignia Financial Group, Inc. and each of the
executive officers listed on the schedule annexed
thereto
10.2(w) Form of Warrant Agreement, dated as of January 14, 2000,
between Insignia Financial Group, Inc. and each of the
non-employee directors listed on the schedule annexed
thereto
10.2(x) Form of Assignment of Limited Liability Company
Interest, dated as of January 12, 2000, by and between
[entity name] ("Assignor") and certain individuals (see
attached exhibit thereto) (Assignees")
10.2(y) Form of Assignment of Member or Limited Partner
Interests by and among Insignia Financial Group, Inc.,
Insignia/ESG, Inc. ("Assignors") and certain individuals
(see attached schedule thereto) (Assignees")
10.2(z) Form of Assignment of Member or Limited Partner
Interests by and among Insignia Financial Group, Inc.,
Insignia/ESG, Inc. ("Assignors") and the individual
identified therein (Assignee")
10.2(aa) Form of Agreement for potential incentive compensation
in connection with development activities, by and
between Insignia/ESG, Inc. ("Assignor") and certain
individuals (see attached schedule thereto) (Assignees")
10.3(a) Insignia Financial Group, Inc. 1998 Stock Incentive Plan
(incorporated herein by referenced to Exhibit 10.14 of
the Form 10)
10.3(b) Insignia Financial Group, Inc. 1998 Supplemental Stock
Purchase and Loan Program Under the Insignia Financial
Group, Inc. 1998 Stock Incentive Plan (incorporated
herein by referenced to Exhibit 10.15 of the Form 10)
10.3(c) Insignia Financial Group, Inc. Executive Performance
Incentive Plan (incorporated herein by referenced to
Exhibit 10.16 of the Form 10)
10.3(d) Insignia Financial Group, Inc. 1998 Employee Stock
Purchase Plan (incorporated herein by referenced to
Exhibit 10.17 of the Form 10)
10.3(e) Form of Indemnification Agreement to be entered into
separately by and between Insignia Financial Group, Inc.
and each of the directors and executive officers listed
on the schedule annexed thereto (incorporated herein by
referenced to Exhibit 10.18 of the Form 10)
10.3(f) Insignia Financial Group, Inc. 401(k) Savings Plan
(incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-8 filed by Insignia
Financial Group, Inc. on September 2, 1998)
10.3(g) Richard Ellis Group Limited 1997 Unapproved Share Option
Scheme (incorporated herein by reference to Exhibit 4.1
to the Registration Statement on Form S-8 filed by
Insignia Financial Group, Inc. on November 18, 1998)
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<PAGE>
10.3(h) Insignia Financial Group, Inc. 401(k) Restoration Plan
(incorporated herein by reference to Exhibit 10.3(h) to
Report on Form 10-K of Insignia Financial Group, Inc.
filed on March 31, 1999)
10.3(i) St. Quintin Holdings Limited 1999 Unapproved Share
Option Scheme, as amended (incorporated herein by
reference to Exhibit 4.1 to the Registration Statement
on Form S-8 filed by Insignia Financial Group, Inc. on
April 29, 1999)
10.3(i) Form of Non-Qualified Stock Option Agreement and form of
amendment thereto (incorporated herein by reference to
Exhibit 4 to the Registration Statement on Form S-8
filed by Insignia Financial Group, Inc. on October 4,
1999)
10.4 [Intentionally Omitted]
10.5(a) Credit Agreement, dated as of October 22, 1998, by and
among Insignia Financial Group, Inc., as Borrower, the
Lenders referred to therein, First Union National Bank,
as Administrative Agent, and Lehman Commercial Paper,
Inc., as Syndication Agent (incorporated herein by
reference to Exhibit 10.5 to Report on Form 10-K of
Insignia Financial Group, Inc. filed on March 31, 1999)
10.5(b) Amendment No. 1 to Credit Agreement, dated as of March
19, 1999, by and among Insignia Financial Group, Inc.,
as Borrower, the Lenders referred to therein, First
Union National Bank, as Administrative Agent, and Lehman
Commercial Paper, Inc., as Syndication Agent
10.5(c) Amendment No. 2 to Credit Agreement, dated as of July
21, 1999, by and among Insignia Financial Group, Inc.,
as Borrower, the Lenders referred to therein, First
Union National Bank, as Administrative Agent, and Lehman
Commercial Paper, Inc., as Syndication Agent
10.6(a) Warrant Agreement, dated as of September 15, 1998,
between Insignia/ESG Holdings, Inc. and APTS Partners,
L.P. (incorporated herein by reference to Exhibit 4.1 of
the Report on Form 10-Q of Insignia Financial Group,
Inc. filed on November 16, 1998)
10.6(b) Amendment No. 1 to Warrant Agreement, dated as of August
30, 1999, between Insignia Financial Group, Inc. and
APTS Partners, L.P.
10.6(c) Amendment No. 2 to Warrant Agreement, dated as of
September 15, 1999, between Insignia Financial Group,
Inc. and APTS Partners, L.P.
10.6(d) Warrant Agreement, dated as of September 15, 1998,
between Insignia/ESG Holdings, Inc. and APTS Partners,
L.P. (incorporated herein by reference to Exhibit 4.2 of
Form 10-Q of Insignia Financial Group, Inc. filed on
November 16, 1998)
10.6(e) Amendment No. 1 to Warrant Agreement, dated as of
September 15, 1999, between Insignia Financial Group,
Inc. and APTS Partners, L.P
10.6(f) Warrant Agreement, dated as of September 15, 1998,
between Insignia Financial Group, Inc. and APTS
Partners, L.P. (incorporated herein by reference to
Exhibit 4.3 of the Report on Form 10-Q of Insignia
Financial Group, Inc. filed on November 16, 1998)
10.6(g) Amendment No. 1 to Warrant Agreement, dated as of
September 14, 1999, between Insignia Financial Group,
Inc. and APTS Partners, L.P.
10.6(h) Warrant Agreement, dated as of September 15, 1998,
between Insignia Financial Group, Inc. and APTS V,
L.L.C. (incorporated herein by reference to Exhibit 4.4
of the Report on Form 10-Q of Insignia Financial Group,
Inc. filed on November 16, 1998)
36
<PAGE>
10.6(i) Amendment No. 1 to Warrant Agreement, dated as of
December 18, 1998, between Insignia Financial Group,
Inc. and APTS V, L.L.C.
10.6(j) Amendment No. 2 to Warrant Agreement, dated as of August
30, 1999, between Insignia Financial Group, Inc. and
APTS V, L.L.C.
10.6(k) Amendment No. 3 to Warrant Agreement, dated as of
September 15, 1999, between Insignia Financial Group,
Inc. and APTS V, L.L.C.
10.6(l) Warrant Agreement, dated as of September 30, 1998,
between Insignia Financial Group, Inc. and First Union
National Bank of Delaware (incorporated herein by
reference to Exhibit 4.6 of the Report on Form 10-Q of
Insignia Financial Group, Inc. filed on November 16,
1998)
10.7 Stock Subscription Agreement, dated as of February 9,
2000, among Insignia Financial Group, Inc. and the
purchasers named therein
10.8(a) Amended and Restated Series C Preferred Stock Purchase
Agreement, dated March 15, 2000, by and among
EdificeRex.com, Inc. and the investors identified
therein
10.8(b) Stockholders Agreement, dated as of March 15, 2000, by
and among EdificeRex.com, Inc., Insignia Financial
Group, Inc., the persons listed therein and any
transferee who subsequently becomes a party to the
Agreement in accordance with the terms thereof
10.8(c) Registration Rights Agreement, dated as of March 15,
2000, between EdificeRex.com, Inc. and the investors
listed therein
21.1 Subsidiaries of Insignia Financial Group, Inc.
23.1 Consent of Independent Auditors to Annual Report on Form
10-K for the year ended December 31, 1999.
27.1 Financial Data Schedule for the year ended December 31,
1999 (for SEC use only)
(b) Reports on Form 8-K filed in the fourth quarter of 1999:
None.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Andrew L. Farkas
-------------------------------
Andrew L. Farkas
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
By: /s/ Andrew L. Farkas By: /s/ Robin L. Farkas
------------------------------- -------------------------------
Andrew L. Farkas Robin L. Farkas
Chairman of the Board and Director
Chief Executive Officer
By: /s/ Stephen B. Siegel By: /s/ Robert G. Koen
------------------------------- -------------------------------
Stephen B. Siegel Robert G. Koen
Director and President Director
By: /s/ James A. Aston By: /s/ H. Strauss Zelnick
------------------------------- -------------------------------
James A. Aston H. Strauss Zelnick
Chief Financial Officer Director
(Principal Accounting Officer)
By: /s/ Robert J. Denison
-------------------------------
Robert J. Denison
Director
38
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(a)(1) AND (2)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31, 1999
INSIGNIA FINANCIAL GROUP, INC.
NEW YORK, NEW YORK
<PAGE>
FORM 10-K - ITEM 14(a)(1) AND (2)
INSIGNIA FINANCIAL GROUP, INC.
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Insignia Financial Group,
Inc. are included in Item 8:
INSIGNIA FINANCIAL GROUP, INC.
Consolidated balance sheets - December 31, 1999 and 1998
Consolidated statements of operations - Years ended December 31, 1999,
1998 and 1997
Consolidated statements of stockholders' equity - Years ended
December 31, 1999, 1998 and 1997
Consolidated statements of cash flows - Years ended December 31, 1999,
1998 and 1997
Notes to consolidated financial statements
ALL OTHER FINANCIAL STATEMENTS AND SCHEDULES FOR WHICH PROVISION IS MADE IN THE
APPLICABLE ACCOUNTING REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION ARE
NOT REQUIRED UNDER THE RELATED INSTRUCTIONS OR ARE INAPPLICABLE AND THEREFORE
HAVE BEEN OMITTED.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Insignia Financial Group, Inc.
We have audited the accompanying consolidated balance sheets of Insignia
Financial Group, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999 (see Note 1).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Insignia Financial
Group, Inc. at December 31, 1999 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
New York, New York
February 18, 2000
<PAGE>
Insignia Financial Group, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 61,600 $ 53,489
Receivables, net of allowance of $4,847 (1999) and $3,783 (1998) 198,364 153,807
Mortgage loans held for sale 8,290 18,409
Restricted cash 13,685 10,468
Property and equipment 60,842 27,897
Real estate interests 74,007 58,196
Investments 12,386 -
Property management contracts 30,802 38,033
Costs in excess of net assets of acquired businesses 311,481 213,829
Deferred taxes 7,380 9,703
Other assets 16,476 11,658
--------------------------------
Total assets $795,313 $595,489
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 25,306 $ 14,367
Commissions payable 82,547 56,391
Accrued incentives 44,509 32,662
Accrued and sundry liabilities 67,019 47,737
Deferred taxes 18,541 16,651
Mortgage warehouse line of credit 6,235 17,915
Notes payable 129,632 17,867
Real estate mortgage notes payable 28,455 8,656
--------------------------------
402,244 212,246
Stockholders' Equity:
Common Stock, par value $.01 per share - authorized 80,000,000
shares, 20,719,862 (1999) and 21,423,646 (1998) issued and
outstanding shares, net of 1,502,600 (1999) and 139,200 (1998)
shares held in treasury 207 214
Additional paid-in capital 382,784 383,075
Notes receivable for Common Stock (1,758) (1,843)
Retained earnings 11,954 1,656
Accumulated other comprehensive (loss) income (118) 141
--------------------------------
Total stockholders' equity 393,069 383,243
--------------------------------
Total liabilities and stockholders' equity $795,313 $595,489
================================
</TABLE>
See accompanying notes.
<PAGE>
Insignia Financial Group, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
REVENUES
Real estate services $678,471 $507,351 $295,258
Property operations 1,877 - -
Interest 5,118 3,196 457
Foreign currency transaction gains 827 - -
Other 73 233 38
-----------------------------------------------
686,366 510,780 295,753
COSTS AND EXPENSES
Real estate services 607,722 451,774 251,855
Property operations 757 - -
Administrative 11,826 7,232 6,770
Interest 8,206 1,378 318
Property interest 832 - -
Depreciation 6,644 3,090 1,429
Property depreciation 512 - -
Amortization of intangibles 23,823 19,453 13,815
Internet-based business expense 1,580 - -
Merger related expenses 4,272 - -
Provision for loss on subsidiary - 2,300 -
-----------------------------------------------
666,174 485,227 274,187
-----------------------------------------------
20,192 25,553 21,566
Equity earnings (losses) in real estate ventures 2,284 (1,896) 151
Minority interests - 371 41
-----------------------------------------------
Income before income taxes 22,476 24,028 21,758
Provision for income taxes 12,178 12,975 8,703
-----------------------------------------------
Net income $ 10,298 $ 11,053 $ 13,055
===============================================
Per share amounts:
Net income - basic $.48 $.52 N/A
Net income - assuming dilution $.46 $.50 N/A
Weighted average shares and assumed conversions 22,622 21,993 N/A
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Insignia Financial Group, Inc.
Consolidated Statements of Stockholders' Equity
<CAPTION>
INVESTMENT
AND NET NOTES ACCUMULATED
ADVANCES ADDITIONAL RECEIVABLE OTHER
FROM COMMON PAID-IN FOR COMMON RETAINED COMPREHENSIVE COMPREHENSIVE
FORMER PARENT STOCK CAPITAL STOCK EARNINGS INCOME INCOME TOTAL
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $137,777 $ - $ - $ - $ - $ - $ 137,777
Net income 13,055 - - - - - 13,055
Equity assumed in acquisitions - - - - - - -
Net transactions with Former 57,612 - - - - - 57,612
Parent
------------------------------------------------------------------------ ----------
Balances at December 31, 1997 208,444 - - - - - 208,444
Net transactions with Former 165,137 - - - - - 165,137
Parent
Net income (from January 1, 1998
through September 30, 1998) 9,397 - - - - - 9,397
Distribution of Common Stock in
connection with Spin-Off (382,978) 214 382,764 - - - -
Net income (from October 1, 1998
through December 31, 1998) - - - - 1,656 - $ 1,656 1,656
Other comprehensive income:
Foreign currency translation - - - - - 141 141 141
---------------
Total comprehensive income $ 1,797
===============
Exercise of stock options -
25,707 shares of Common Stock
issued - - 150 - - - 150
Notes receivable from employees
for shares of Common Stock - 1 1,842 (1,843) - - -
Purchase of treasury shares - (1 (1,852) - - - (1,853)
Restricted stock awards - - 171 - - - 171
------------------------------------------------------------------------ ----------
Balances at December 31, 1998 - 214 383,075 (1,843) 1,656 141 383,243
Net income - - - - 10,298 $ 10,298 10,298
Other comprehensive income, net
of tax:
Foreign currency translation - - - - - (1,474) (1,474) (1,474)
Unrealized gains on - - - - - 1,215 1,215 1,215
securities
---------------
Total comprehensive income $ 10,039
===============
Exercise of stock options and
warrants - 155,558 shares of - 2 1,166 - - - 1,168
Common Stock issued
Issuance of 112,006 shares of
Common Stock under Employee
Stock Purchase Program - 1 1,017 - - - 1,018
Issuance of 305,981 shares of
Common Stock pursuant to the
St. Quintin acquisition - 3 8,097 - - - 8,100
Notes receivable from employees
for shares of Common Stock - 1 299 (300) - - -
Payments on notes receivable for
shares of Common Stock - - - 385 - - 385
Purchase of treasury shares - (14 (14,323) - - - (14,337)
Restricted stock awards - - 737 - - - 737
Adjustment for certain amounts
estimated at Spin-Off - - 2,716 - - - 2,716
------------------------------------------------------------------------ ----------
Balances at December 31, 1999 $ - $ 207 $382,784 $ (1,758) $11,954 $ (118) $ 393,069
======================================================================== ==========
</TABLE>
See accompanying notes.
<PAGE>
Insignia Financial Group, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,298 $ 11,053 $ 13,055
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 30,979 22,543 15,490
Merger related expenses 4,272 - -
Provision for loss on subsidiary - 2,300 -
Equity (earnings) losses (2,284) 1,896 (151)
Minority interests - (371) (41)
Foreign currency transaction gains (827) - -
Deferred income taxes 4,213 3,966 3,415
Changes in operating assets and liabilities:
Receivables (37,142) (36,852) (49,074)
Other assets (3,843) 644 (667)
Accounts payable and accrued expenses 32,465 25,509 16,794
Commissions payable 26,679 5,169 32,549
------------------------------------------------------
Net cash provided by operating activities 64,810 35,857 31,370
INVESTING ACTIVITIES
Payments made for acquisition of businesses,
net of acquired cash (107,835) (65,357) (62,672)
Investments in Internet-based businesses and other (10,191) - -
Investment in real estate (38,420) (40,563) (17,014)
Additions to property and equipment, net (37,262) (18,167) (5,882)
Net decrease (increase) in mortgage loans held for sale 10,119 (6,418) (3,577)
Distributions from real estate investments 24,589 9,097 5,214
Net increase in restricted cash (6,844) (6,732) (3,736)
------------------------------------------------------
Net cash used in investing activities (165,844) (128,140) (87,667)
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock 1,018 150 -
Proceeds from exercise of stock options 1,168 - -
Purchase of treasury stock (14,337) (1,853) -
Net (payments) advances on mortgage warehouse line (11,680) 5,420 3,411
Payments on notes payable (5,192) (6,129) (2,985)
Proceeds from notes payable 118,653 5,949 3,729
Net proceeds from real estate mortgage notes payable 19,799 - -
Debt issuance costs - (1,262) -
Net transactions with Former Parent - 137,919 57,612
------------------------------------------------------
Net cash provided by financing activities 109,429 140,194 61,767
Effect of exchange rate changes in cash (284) 64 -
------------------------------------------------------
Net increase in cash and cash equivalents 8,111 47,975 5,470
Cash and cash equivalents at beginning of year 53,489 5,514 44
------------------------------------------------------
Cash and cash equivalents at end of year $ 61,600 $ 53,489 $ 5,514
======================================================
</TABLE>
See accompanying notes.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
1. BUSINESS
ORGANIZATION
Insignia Financial Group, Inc. ("Insignia" or the "Company"), a Delaware
corporation headquartered in New York, New York, comprises a fully integrated
international real estate services company with operations throughout the United
States, the United Kingdom, and mainland Europe. Insignia provides commercial
leasing, brokerage, tenant representation, property and asset management,
investment sales, development, redevelopment and consulting services, mortgage
origination and title services, escrow agency, real estate oriented financial
services, equity co-investment and other services to owners and users of real
estate. Insignia also engages in real estate investment activities through
ownership in co-investments with institutional partners and, to a lesser extent,
development property. In addition, Insignia has developed substantial
Internet-based business applications associated with real estate. Insignia's
principal businesses consist of Insignia/ESG, Inc., the Company's U.S.
commercial real estate services unit; Insignia Richard Ellis (formerly known as
Richard Ellis St. Quintin), the Company's U.K commercial property services
business; Realty One, Inc., a full service residential real estate brokerage and
mortgage origination firm headquartered in Cleveland, Ohio; Douglas Elliman, a
New York based apartment brokerage and leasing business; and Insignia
Residential Group, Inc., a New York based cooperative and condominium management
company. In addition, Insignia has other European operations in Germany, Italy,
Belgium and the Netherlands (collectively, the "Insignia Businesses").
SPIN-OFF
Insignia, incorporated on May 6, 1998 (formerly known as Insignia/ESG Holdings,
Inc.), originally was a wholly owned subsidiary of a company known as Insignia
Financial Group, Inc. ("Former Parent"). On September 21, 1998, Former Parent
effected the spin-off of Insignia through a pro rata distribution (the
"Spin-Off") to the holders of common stock of Former Parent of all the
outstanding common stock, par value $0.01 per share, of Insignia ("Common
Stock").
On October 1, 1998, Former Parent (which then consisted solely of businesses and
assets relating to multi-family residential real estate) merged into Apartment
Investment and Management Company, a Maryland corporation ("AIMCO"), with AIMCO
being the surviving corporation (the "Merger"). On November 2, 1998, Insignia
assumed the name of Former Parent, "Insignia Financial Group, Inc.," and
reclaimed Former Parent's original New York Stock Exchange symbol, "IFS."
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements present the consolidated balance sheets of Insignia
as of December 31, 1999, and 1998, and the related consolidated statements of
operations and cash flows for the years ended December 31, 1999 and 1998 (which
included the combined results of the Insignia Businesses prior to Spin-Off) and
the results of the operations and cash flows for the year ended December 31,
1997 of those Insignia Businesses included in the Spin-Off. Insignia's
historical cost basis in the assets and liabilities of those Insignia Businesses
has been reflected in these financial statements.
Prior to Spin-Off, Insignia utilized Former Parent's centralized systems for
cash management, payroll, employee benefit plans, insurance and various
administrative services. As a result, real estate services and administrative
expenses, capital expenditures and other cash requirements of the Insignia
Businesses generally were paid by Former Parent and charged directly or
allocated to the Insignia Businesses. Administrative expenses, which included,
among other things, investment banking, information technology, legal, finance,
accounting, and facilities expenses of the Former Parent, were allocated to
Insignia for all periods prior to the Spin-Off which occurred in September 1998.
The allocations prior to Spin-Off approximated $5,543,000 and $6,770,000 in 1998
and 1997, respectively. The administrative allocations were based upon an
analysis of the operations of Former Parent using various methods, including
acquisition activities, employee headcount and estimated management time devoted
to the operations of those Insignia Businesses.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
subsidiaries; all of which are wholly owned or majority owned. All significant
intercompany balances and transactions have been eliminated. Certain amounts for
prior years have been reclassified to conform to the 1999 presentation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The amount of cash on deposit in federally insured institutions generally
exceeds the limit on insured deposits. The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
RESTRICTED CASH
At December 31, 1999, restricted cash consisted of approximately $1.4 million
pledged to collateralize notes payable of REGL, approximately $9.4 million in
cash pledged to collateralize deferred notes in connection with the REGL and St.
Quintin acquisitions, and approximately $2.9 million restricted for contingent
payments related to other business acquisitions. At December 31, 1998,
restricted cash consisted of approximately $4.3 million pledged to collateralize
notes payable and deferred loan notes of REGL, approximately $2.9 million
reserved for contingent payments of other businesses and approximately $3.3
million segregated for the benefit of property management customers of
Insignia/CAGISA (see Note 3).
REAL ESTATE INTERESTS
Real estate interests represents co-investment partnership interests in
commercial and residential real estate and land held for development. These
investments are accounted for using the equity method.
MINORITY INTEREST
Minority interests consisted of the 40% minority equity of Insignia/CAGISA,
which was sold in March 1999 (see Note 3).
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $16,850,000, $12,800,000, and $2,800,000 in advertising costs
during 1999, 1998, and 1997, respectively.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST EXPENSE
Interest expense is based upon the historical debt of the Insignia Businesses
and does not include interest expense related to Former Parent's indebtedness
prior to Spin-Off.
INTANGIBLE ASSETS
The Company's intangible assets consist of property management contracts and
costs paid in excess of net assets of acquired businesses. Property management
contracts are stated at cost, less accumulated amortization of $38,828,000
(1999) and $30,068,000 (1998). The Company capitalizes costs paid or payable to
third parties in the successful pursuit of acquiring management contracts. These
contracts are amortized using the straight-line method over 3 to 10 years. Costs
in excess of net assets of acquired businesses are being amortized by the
straight-line method, over 5 to 25 years. Accumulated amortization was
$30,125,000 (1999) and $16,526,000 (1998).
Property management contracts and costs in excess of net assets of acquired
businesses are reviewed when indicators of impairment are present, using an
undiscounted cash flow methodology.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets, typically ranging from 3 to 10 years.
REVENUE RECOGNITION
Real estate services revenue includes commercial leasing, tenant representation,
property and asset management, investment sales, consulting, residential
brokerage, mortgage origination, escrow agency, and commission revenue related
to real estate sales. Such revenues are recorded when the related services are
performed, unless significant contingencies exist, or at closing in the case of
real estate sales.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries are measured
using the local currency as the functional currency. Revenues and expenses of
such subsidiaries have been translated into U.S. dollars at the average exchange
rates prevailing during the period. Assets and liabilities have been translated
at the rates of exchange at the balance sheet date. Translation gains and losses
are deferred as a separate component of stockholders' equity in other
comprehensive income, unless there is a sale or complete liquidation of the
underlying foreign investment. Gains and losses from foreign currency
transactions, such as those resulting from the settlement of foreign receivables
or payables, are included in the statement of operations in determining net
income.
EARNINGS PER SHARE
Basic earnings per share is calculated using income available to common
shareholders divided by the weighted average of common shares outstanding during
the year. Diluted earnings per share is similar to basic earnings per share
except that the weighted average of common shares outstanding is increased to
include the number of additional common shares that would have been outstanding
if the potentially dilutive securities, such as options and warrants, had been
issued or exercised.
INCOME TAXES
Deferred income tax assets and liabilities are recorded to reflect the tax
consequences on future years of temporary differences of revenue and expense
items for financial statement and income tax purposes. Valuation allowances are
provided against deferred tax assets that are not likely to be realized. Federal
income taxes are not provided on the unremitted earnings of foreign subsidiaries
because it has been the practice of the Company to reinvest those earnings in
the businesses outside the United States.
IMPAIRMENT
Impairment losses are recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying amount. Impairment losses are
measured for assets held for sale by comparing the fair value of assets (less
costs to dispose) to their respective carrying amounts.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires
companies to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives are either offset against the change in fair value
of assets, liabilities, or firm commitments through earnings or recognized in
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. SFAS 133 is effective for financial statements for
fiscal years beginning after June 15, 2000. Management does not anticipate that
its adoption will have a material effect on the financial position or results of
operations of the Company.
In December 1999, the SEC staff issued Staff Accounting Bulletin 101 ("SAB
101"), Revenue Recognition. SAB 101 discusses the SEC staff views on certain
revenue recognition transactions. The Company is required to adopt SAB 101 no
later than the second quarter of 2000 and any change in accounting would be
recognized as a cumulative effect of a change in accounting principle as of
January 1, 2000. Management has not completed its review of SAB 101 and its
applicability to the Company's business. The adoption of SAB 101 might have a
material effect on the financial position and results of operations of the
Company; however, any change would have no impact on the Company's cash flow
from operations.
3. ASSET IMPAIRMENT
A one-time charge of $2.3 million was recorded in 1998 to write down the
Company's 60% investment in Insignia/CAGISA (principally costs in excess of net
assets of acquired businesses) to then estimated disposition value. This
decision was made in light of the Company's sale of the majority of its U.S.
residential apartment management business to AIMCO in 1998. The Company
completed the disposition of its interest in Insignia/CAGISA in March 1999.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the periods indicated. The earnings per share information for 1998 is
presented on a pro-forma basis assuming the Spin-Off occurred at the beginning
of the year. Earnings per share information is not presented for 1997 because
the Company was not a separate publicly traded entity for that period.
<TABLE>
<CAPTION>
1999 1998
------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
NUMERATOR
Numerator for basic and diluted earnings per share -
net income available to common stockholders $ 10,298 $ 11,053
==============================
DENOMINATOR
Denominator for basic earnings per share - weighted
average shares 21,294 21,063
Effect of dilutive securities:
Stock options 957 465
Warrants 235 351
Restricted stock 136 114
------------------------------
Dilutive securities 1,328 930
------------------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 22,622 21,993
==============================
Per share amounts:
Net income - basic $.48 $.52
==============================
Net income - assuming dilution $.46 $.50
==============================
</TABLE>
5. ACQUISITIONS
During 1999, Insignia continued its expansion both domestically and
internationally through the acquisition of the following real estate services
companies: Lynch Murphy Walsh & Partners; St. Quintin Holdings Limited; and
Douglas Elliman. The Company's significant acquisitions during the last three
years are discussed below. The acquisitions for 1998 and 1997 were completed by
Former Parent and contributed to Insignia at the date of the Spin-Off. All
acquisitions were accounted for as purchases.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. ACQUISITIONS (CONTINUED)
1999 ACQUISITIONS
LYNCH MURPHY WALSH & PARTNERS
On March 1, 1999, Insignia acquired Lynch Murphy Walsh & Partners ("Lynch
Murphy"), a provider of commercial real estate services located in Boston,
Massachusetts. Lynch Murphy specializes in brokerage services, including
representation of tenants and landlords, investment sales and debt placements,
valuation services and advisory/consulting services. The base purchase price was
$12.0 million, all of which was paid in cash from borrowings under Insignia's
revolving credit facility. Additional purchase consideration of up to $10.0
million over the next three years is contingent on the future performance of
Lynch Murphy.
ST. QUINTIN HOLDINGS LIMITED
On March 5, 1999, Insignia acquired St. Quintin, a British real estate services
firm headquartered in London. The operations of St. Quintin were merged with
Richard Ellis Group Limited ("REGL") and the combined entities now operate under
the name Insignia Richard Ellis throughout the United Kingdom. The base purchase
price for St. Quintin was approximately $32.0 million. Additional purchase
consideration of up to approximately $12.0 million over the next four years is
contingent on the future performance of Insignia Richard Ellis. The purchase was
funded with approximately $24.3 million in borrowings under Insignia's revolving
credit facility, the issuance of approximately 306,000 shares of the Company's
Common Stock and assumed options to purchase approximately 612,000 shares of the
Company's Common Stock.
DOUGLAS ELLIMAN
On June 23, 1999, Insignia acquired Douglas Elliman Brokerage, a residential
real estate brokerage firm located in New York City. The base purchase price was
approximately $65 million, paid in cash from borrowings under Insignia's
revolving credit facility. Additional purchase consideration of up to $10
million over the next five years is contingent on the future revenues of Douglas
Elliman.
1998 ACQUISITIONS
GOLDIE B. WOLFE & COMPANY
On January 20, 1998, 100% of the stock of Goldie B. Wolfe & Company ("Goldie
Wolfe") was acquired. Goldie Wolfe is a commercial real estate services firm
located in Chicago, Illinois. The purchase price was approximately $5.3 million,
all of which was paid in cash.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. ACQUISITIONS (CONTINUED)
RICHARD ELLIS GROUP LIMITED
In February 1998, 100% of the stock of REGL was acquired. The base purchase
price was approximately $71.5 million, inclusive of approximately $3.3 million
paid in April 1999. Additional purchase consideration of up to approximately
$12.0 million is contingent on future performance measures of Insignia Richard
Ellis. The acquisition was funded by Former Parent from borrowings on its
revolving credit facility, and the issuance of 617,371 shares of Former Parent
common stock and the assumption of options enabling REGL employees to purchase
853,741 shares of Former Parent common stock (which options were assumed by
Insignia in the Spin-Off for options to purchase up to 1,289,329 shares of the
Company's Common Stock).
HOTEL PARTNERS
On May 11, 1998, Hotel Partners was acquired. Hotel Partners is a Chicago-based
international brokerage firm focused exclusively on the hospitality segment of
the real estate industry. The base purchase consideration paid for Hotel
Partners was approximately $7.0 million, which was paid in cash at closing.
Additional purchase consideration of up to $29.1 million, over a five-year
period, is contingent on the future performance of Hotel Partners. As of
December 31, 1999, no additional purchase consideration had been paid and the
maximum remaining potential consideration was approximately $24.7 million.
JACKSON CROSS COMPANY
On June 15, 1998, Jackson Cross Company ("Jackson Cross"), a prominent
commercial real estate service firm with operations primarily in the
Philadelphia area, was acquired. The base purchase consideration paid for
Jackson Cross was approximately $9.1 million, consisting of $8.6 million paid in
cash at closing and $500,000 in guaranteed deferred payments. Additional
purchase consideration of up to $5.4 million is contingent on the future
performance of Jackson Cross. As of December 31, 1999, no additional purchase
consideration had been paid and the maximum remaining potential consideration
was approximately $3.7 million.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. ACQUISITIONS (CONTINUED)
1997 ACQUISITIONS
FRAIN, CAMINS & SWARTCHILD, INC.
On April 1, 1997, Frain, Camins & Swartchild, Inc. ("FC&S") was acquired. FC&S
is a full service commercial, retail and industrial real estate brokerage firm
located in Chicago, Illinois. The base purchase price was approximately $4.4
million, and in addition, up to $4.5 million in contingent payments may be paid
based on certain future performance measures. Additional purchase consideration
of $1.5 million and $900,000 was paid in 1999 and 1998, respectively. The
maximum remaining potential consideration was approximately $1.5 million at
December 31, 1999.
REALTY ONE, INC.
Effective October 1, 1997, the outstanding stock of Realty One, Inc. and
affiliated companies, including First Ohio Mortgage Corporation were acquired.
Realty One is a full service residential real estate brokerage firm
headquartered in Cleveland, Ohio and serving primarily the northern region of
Ohio. First Ohio Mortgage Corporation originates single family home mortgages
for both Realty One clients and third parties. The total purchase consideration
was approximately $40 million.
BARNES, MORRIS, PARDOE & FOSTER
On October 30, 1997, substantially all of the assets of Barnes, Morris, Pardoe &
Foster ("Barnes Morris"), a commercial real estate services firm located in the
greater Washington, D.C. area were acquired. The total purchase price was
approximately $17.0 million.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. ACQUISITIONS (CONTINUED)
OTHER INFORMATION (UNAUDITED)
Pro forma unaudited results of operations for the years ended December 31, 1999,
1998 and 1997 assuming consummation of the Lynch Murphy, St. Quintin and Douglas
Elliman acquisitions at January 1, 1999 and 1998, assuming consummation of the
Goldie Wolfe, REGL, Hotel Partners, and Jackson Cross acquisitions at January 1,
1998 and 1997, and assuming consummation of the FC&S, Realty One, and Barnes
Morris acquisitions at January 1, 1997, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------
(In thousands)
<S> <C> <C> <C>
Revenues $733,215 $665,638 $493,514
Net income 13,834 17,470 16,256
Pro forma per share data:
Net income - basic 0.65 0.82 N/A
Net income - assuming dilution 0.61 0.77 N/A
</TABLE>
The 1998 and 1997 acquisitions were funded utilizing the working capital of
Former Parent and no debt or interest was allocated to the Company.
These results do not purport to represent the operations of the Company nor are
they necessarily indicative of the results that actually would have been
realized by the Company if the purchase of these businesses had occurred at the
beginning of the period.
The consideration for the Lynch Murphy, St. Quintin and Douglas Elliman (1999),
Goldie Wolfe, REGL, Hotel Partners and Jackson Cross (1998), FC&S, Realty One,
and Barnes Morris (1997) acquisitions are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------
(In thousands)
<S> <C> <C> <C>
Notes payable $ - $ 2,405 $ 16,735
Common Stock 8,100 22,865 4,200
Accrued and sundry liabilities 4,316 36,428 14,453
Pension liability 2,105 - -
Cash paid at the closing dates 101,609 54,928 50,474
-------------------------------------------
$116,130 $116,626 $ 85,862
===========================================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. ACQUISITIONS (CONTINUED)
The consideration was allocated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash acquired $ - $ 6,624 $ 1,383
Receivables 873 12,181 2,623
Mortgage loans held for sale - - 8,414
Property and equipment 2,824 1,810 2,123
Property management contracts - 175 6,343
Non-compete agreements 120 238 -
Costs in excess of net assets of
acquired businesses 107,280 89,389 62,415
Other assets 5,033 6,209 2,561
-------------------------------------------
$116,130 $116,626 $ 85,862
===========================================
</TABLE>
6. MERGER RELATED EXPENSES
In connection with the acquisition of St. Quintin and its subsequent combination
with REGL, the Company incurred an aggregate one-time charge of $4,272,000 in
1999. This charge reflects the provision for the estimated costs of vacated
excess office space of REGL sublet as a result of combining the operations and,
to a lesser extent, severance costs. At December 31, 1999, all such office space
had been disposed of and all severance costs incurred.
7. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------------
(In thousands)
<S> <C> <C>
Accounts receivable $ 10,948 $ 8,565
Commissions receivable 179,742 125,652
Receivable from AIMCO - 9,500
Other - 3,200
Notes receivable:
Brokerage and other employees 6,897 3,119
Chairman, executive officers and other employees
with interest ranging from 6.7% to 8.4% 444 1,244
Co-investment affiliate with interest at 24% - 2,069
Other 333 458
-------------------------
$198,364 $153,807
=========================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
7. RECEIVABLES (CONTINUED)
Accounts receivable consists primarily of property management fees and cost
reimbursements. Commissions receivable consists primarily of brokerage and
leasing commissions from users of the Company's real estate services. The
receivable from AIMCO in 1998 represented the estimated income tax refund of
Former Parent for the period prior to the Merger and was collected in 1999. The
Company's receivables are not collateralized; however, credit losses have been
insignificant and within management's estimate. Long-term commissions receivable
have been discounted to their present value.
Principal collections on notes and commissions receivable are scheduled as
follows:
<TABLE>
<CAPTION>
NOTES COMMISSIONS
RECEIVABLE RECEIVABLE
------------------------------
(In thousands)
<S> <C> <C>
2000 $ 7,311 $162,235
2001 198 14,476
2002 94 1,956
2003 51 496
2004 2 350
Thereafter 18 229
------------------------------
$ 7,674 $179,742
==============================
</TABLE>
8. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------------
(In thousands)
<S> <C> <C>
Data processing equipment $17,591 $11,496
Computer software 22,698 2,560
Furniture and fixtures 11,732 8,668
Leasehold improvements 13,501 6,332
Other equipment 7,238 5,475
--------------------------
72,760 34,531
Less: Accumulated depreciation (11,918) (6,634)
--------------------------
$60,842 $27,897
==========================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
9. REAL ESTATE INTERESTS
At December 31, 1999, the Company held investments totaling approximately $28.2
million, in 22 co-investment partnerships that own real estate consisting
primarily of apartment and commercial property throughout the United States and
United Kingdom. The Company's ownership interests in these partnerships ranged
from 5% to 35%. These partnerships owned 37 operating properties comprising
approximately 3,700 apartment units and 7.3 million square feet of commercial
space. Summarized financial information of the unconsolidated partnerships is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998 1997
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF EARNINGS INFORMATION
Revenues $110,324 $ 91,968 $ 27,267
Property operating expenses 49,789 45,691 11,946
Depreciation and amortization 23,483 17,767 3,231
Interest 37,907 32,188 8,522
Administrative 1,547 1,169 1,411
----------------------------------------------
Total operating expenses 112,726 96,815 25,110
----------------------------------------------
Loss before gains on sale of property (2,402) (4,847) 2,157
Gains on sale of property 18,196 3,691 -
----------------------------------------------
Net income (loss) $ 15,794 $ (1,156) $ 2,157
==============================================
Company's share of net income (loss) $ 2,284 $ (1,896) $ 151
==============================================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
9. REAL ESTATE INTERESTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---------------------------
(In thousands)
<S> <C> <C>
CONDENSED BALANCE SHEET INFORMATION
Cash and investments $ 14,481 $ 17,265
Receivables and deposits 14,432 17,817
Other assets 37,681 13,166
Real estate 832,797 619,867
Less accumulated depreciation (29,545) (14,361)
---------------------------
Net real estate 803,252 605,506
---------------------------
Total assets $869,846 $653,754
===========================
Mortgage notes payable $640,357 $469,625
Other liabilities 18,790 16,599
---------------------------
Total liabilities 659,147 486,224
Partners' capital 210,699 167,530
---------------------------
Total liabilities and partners' capital $869,846 $653,754
===========================
</TABLE>
At December 31, 1999, the Company also owned three real estate properties that
are consolidated in the Company's financial statements. Brookhaven Village
(Norman, Oklahoma) and Dolphin Village (St. Petersburg, Florida) are retail
properties with over 291,000 square feet in the aggregate. The third is a
226,000 square foot office property (Richardson, Texas) developed by Insignia,
with 90% of the cost financed, and 100% leased to a single tenant in late 1999.
The aggregate carrying amount of these properties was approximately $41.5
million at December 31, 1999.
In addition, at December 31, 1999, the Company held investments of $4.3 million
in two office properties under development and a parcel of land held for
development. The office properties are held by joint ventures formed in 1999
with the admission of 70% and 75% partners. At December 31, 1998, the Company
owned four properties under development with a carrying amount of approximately
$28.8 million. Interest capitalized in connection with development properties
was $1,074,000 and $1,333,000 for 1999 and 1998, respectively.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
10. INVESTMENTS
Investments totaling $12,386,000 at December 31, 1999 consisted of equity
ownership interests in Internet-based real estate companies and Insignia
Opportunities Trust ("IOT") an affiliated Real Estate Investment Trust ("REIT")
holding mortgage backed securities and loans. The Company has a $2,291,000
investment in IOT, which commenced operations in October 1999. The Company's 13%
ownership in IOT is accounted for using the equity method because it exercises
significant influence.
In total, the Company held direct equity investments of $10,095,000 in six
Internet-based businesses that offer a wide range of on-line services to owners
and users of real estate. The Company's ownership percentages of such
investments as of December 31, 1999 ranged from 1% to 12%. One of the equity
investments is classified as an available for sale security in accordance with
the requirements of SFAS 115, Accounting for Certain Investments in Debt and
Equity Securities, and is carried at fair value with all unrealized gains or
losses included in other comprehensive income as a component of stockholders'
equity. Unrealized gains at December 31, 1999 of $1,215,000 (net of deferred
taxes of $900,000) were included in other comprehensive income. The remaining
five equity investments, acquired in the fourth quarter of 1999, are carried at
cost.
11. ACCRUED AND SUNDRY LIABILITIES
Accrued and sundry liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------------
(In thousands)
<S> <C> <C>
Employee compensation and benefits $ 14,045 $ 13,643
Lease and annuity liabilities 10,305 8,755
Amounts payable in connection with acquisitions 4,844 5,803
Deferred compensation 9,955 6,871
Settlement obligation to AIMCO - 1,873
Deferred revenue 4,524 2,416
Current taxes payable 6,100 -
U.K. value added taxes 3,681 1,256
Accrued rent 2,547 1,056
Other 11,018 6,064
-----------------------------
$ 67,019 $ 47,737
=============================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
12. NOTES PAYABLE AND OTHER LONG-TERM DEBT
In October 1998, the Company closed on a three-year revolving credit facility
totaling $185 million. The revolving credit facility bears interest at the
annual rate of either prime rate or Federal Funds Rate plus an applicable margin
ranging from .75% - 1.25%, or LIBOR plus an applicable margin ranging from 1.5%
- - 2.0%. At December 31, 1999, all outstanding borrowings were subject to the
LIBOR based rates.
The facility provides for borrowings up to an aggregate $50,000,000 in British
Pounds (Sterling), Euro, or Canadian Dollars, provided that only $20,000,000 may
at any time be denominated in Canadian Dollars. The facility is collateralized
by a pledge of the stock of substantially all material subsidiaries. The
outstanding balance on the revolving credit facility as of December 31, 1999 was
$109,025,000 and included foreign denominated borrowings of (pound)7,750,000
British Pound (Sterling) and 11,450,000 Euros. The interest rates on these
borrowings at December 31, 1999 were as follows: 8.25% for U.S. denominated
borrowings; 7.875% for British Pounds (Sterling); and 5.125% for Euros. In
addition, the Company had letters of credit outstanding against the facility in
the amount of $17,350,000 at December 31, 1999.
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------------
(In thousands)
<S> <C> <C>
Revolving credit facility with interest only due quarterly at LIBOR
plus 1.75%. Final payment due date is October 22, 2001. $109,025 $ -
Realty One $5.5 million revolving credit agreement with a bank,
collateralized by property and receivables, with a maturity date
of September 30, 2000. The interest rate was 7.2% and 6.3% at
December 31, 1999 and 1998, respectively. 5,500 5,500
Realty One $3 million revolving line, collateralized by accounts
receivable and due on demand. The interest rate was 8.5% and
7.75% at December 31, 1999 and 1998, respectively. 1,111 1,446
Insignia Richard Ellis $4.3 million term loan with a bank,
collateralized by restricted cash, with a maturity date of July
2000. 2,181 2,239
Insignia Richard Ellis $3 million revolving line collateralized by
restricted cash and due on demand. The interest rate was 6.8%
and 6.5% at December 31, 1999 and 1998, respectively. 2,888 2,964
Insignia Richard Ellis unsecured revolving credit agreement with
interest at 7.75% and due on demand. - 2,417
Other 8,927 3,301
------------------------
$129,632 $ 17,867
========================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
12. NOTES PAYABLE AND OTHER LONG-TERM DEBT (CONTINUED)
Realty One's carrying amount of property and equipment was approximately $8.6
million and $4.5 million and receivables were approximately $2.2 million and
$2.6 million at December 31, 1999 and 1998, respectively under the $5.5 million
revolving credit facility.
Certain notes payable and long-term debt agreements contain various restrictive
covenants requiring, among other things, minimum consolidated net worth, minimum
liquidity, and other financial ratios. At December 31, 1999, the Company is in
compliance with all such covenants.
Scheduled principal maturities on notes payable after December 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 20,607
2001 109,025
---------
$129,632
=========
</TABLE>
The Company paid interest of approximately $6,445,000, $1,601,000 and $309,000
in 1999, 1998 and 1997, respectively.
MORTGAGE WAREHOUSE LINE OF CREDIT
Realty One's affiliate First Ohio Mortgage Corporation maintains a $30,000,000
line of credit. Borrowings on the line of credit were $6,235,000 and $17,915,000
at December 31, 1999 and 1998, respectively. The line of credit is
collateralized by substantially all the assets of First Ohio Mortgage Company
and a $10,000,000 guaranty by Insignia. At December 31, 1999 and 1998, First
Ohio Mortgage Corporation had assets, comprised primarily of mortgage loans held
for sale, totaling approximately $13.5 million and $23.0 million, respectively.
Advances on the line of credit can only be drawn with evidence of a committed
residential mortgage and each advance is limited to the committed sales price of
the related mortgage loan. Repayment of each advance is to be made within 14
business days of the funding. The line of credit cannot be used to fund any
single residential mortgage in excess of $400,000. The interest rate on all
advances under the line of credit is at a rate per annum equal to 1% below the
prime rate (7.5% at December 31, 1999).
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
12. NOTES PAYABLE AND OTHER LONG-TERM DEBT (CONTINUED)
REAL ESTATE MORTGAGE NOTES PAYABLE
Real estate mortgage notes payable represent non-recourse loans collateralized
by real estate properties consisting of the following:
<TABLE>
<CAPTION>
1999 1998
------------------------
<S> <C> <C>
Brookhaven Village, mortgage loan bearing interest at 9.0% and
8.7% at December 31, 1999 and 1998, respectively. The note
matures on December 7, 2002 with principal payable in full on
such date. $ 8,305 $ 8,656
Dolphin Village, mortgage loan bearing interest at 9.27% and
maturing on October 8, 2003. 6,875 -
One Telecom, $21.1 million credit facility bearing interest at
9.16% and having a maturity date of April 1, 2004. 13,275 -
------------------------
$ 28,455 $ 8,656
========================
</TABLE>
The mortgage note encumbering Brookhaven Village includes a participation
feature whereby the lender is entitled to 35% of the net cash flow, net
refinancing proceeds or net sales proceeds after the Company has achieved a 10%
annual return on equity. The present value of amounts due the lender was
approximately $438,000 at December 31, 1999.
13. COMPENSATION PLANS
The Company's 1998 Stock Incentive Plan (the "1998 Plan") authorized the grant
of options and restricted stock awards to management personnel totaling up to
3,500,000 shares of the Company's Common Stock. The term of each option is
determined by the Company's Board of Directors but will in no event exceed ten
years from the date of grant. Options granted typically have 5-year terms and
are granted at prices not less than 100% of the fair market value of the
Company's Common Stock on the date of grant. The 1998 Plan may be terminated by
the Board of Directors at any time. At the Spin-Off date, the Company assumed,
under this plan, approximately 1,787,000 options issued by Former Parent to
employees of the Insignia Businesses. Subsequent to the Spin-Off, the Company
granted approximately 1,078,000 options to purchase Insignia Common Stock under
the 1998 Plan. At December 31, 1999, approximately 2,633,000 options were
outstanding under the 1998 Plan.
At December 31, 1999, approximately 239,000 restricted stock awards to acquire
shares of the Company's Common Stock were outstanding under the 1998 Plan. These
awards, which have a 5-year vesting period, were granted to executive officers
and other employees of the Company in 1998 and 1999. Compensation expense
recognized by the Company for these awards totaled approximately $737,000 and
$720,000 for 1999 and 1998, respectively.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
13. COMPENSATION PLANS (CONTINUED)
The Company assumed 1,482,879 options under Non-Qualified Stock Option
Agreements in connection with the acquisition of Edward S. Gordon Company
Incorporated and Edward S. Gordon Company of New Jersey, Inc. on June 30, 1996.
The options had 5-year terms at the date of grant and the terms remained
unchanged at the date of assumption. At December 31, 1999, approximately 106,000
options remain outstanding.
The Company assumed 1,289,329 options under Non-Qualified Stock Option
Agreements in connection with the acquisition of REGL. The options had 5-year
terms at the date of grant and the terms remained unchanged at the date of
assumption. At December 31, 1999, approximately 1,233,000 options remain
outstanding.
The Company assumed approximately 612,000 options under Non-Qualified Stock
Option Agreements in connection with the acquisition of St. Quintin. The options
had 5-year terms at the date of grant and the terms remained unchanged at the
date of assumption. At December 31, 1999, approximately 524,000 options remain
outstanding.
The Company also has sold shares of its Common Stock to certain employees in
exchange for notes receivable collateralized by the common shares. The
outstanding principal balances of these notes amounted to approximately
$1,758,000 and $1,843,000 at December 31, 1999 and 1998, respectively. These
notes receivable are classified as a reduction of stockholders' equity.
The Company's 1998 Employee Stock Purchase Plan (the "Employee Plan") was
adopted to provide employees with an opportunity to purchase Common Stock
through payroll deductions at a price not less than 85% of the fair market value
of the Company's Common Stock. The Employee Plan was developed to qualify under
Section 423 of the Internal Revenue Code of 1986.
In connection with the Spin-Off, 1,196,000 warrants to purchase Common Stock of
the Company were issued to holders of the Convertible Preferred Securities of
Former Parent. The terms of each warrant is five years, and no warrant is
exercisable for the first two years. Former Parent purchased the warrants from
Insignia in 1998 for approximately $8.5 million.
The Company has elected to follow Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), in accounting for its employee stock based compensation
because, as discussed below, the alternative fair value accounting provided for
under SFAS 123, Accounting for Stock-Based Compensation, requires use of option
valuation models that were not developed for use in valuing employee stock
options, warrants and unvested restricted stock awards. Under APB 25, when the
exercise price equals the market price, no compensation expense is recognized.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
13. COMPENSATION PLANS (CONTINUED)
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options, warrants and restricted
stock awards granted subsequent to December 31, 1994 under the fair value method
required by that Statement. The fair value for these options, warrants and
restricted stock awards have been estimated at the date of grant using a
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1999 1998
-------------------
<S> <C> <C>
Risk-free interest rate 6.2% 4.9%
Dividend yield N/A N/A
Volatility factors of the expected market price 0.43 0.45
Weighted-average expected life of the options 3.3 4.4
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options and warrants having no vesting restrictions and
that are fully transferable. In addition, option valuation models required the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options, warrants and
restricted stock awards have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options, warrants and restricted stock awards.
For purposes of pro forma disclosures, the estimated fair values of all options,
warrants and restricted stock awards are amortized to expense over the
respective vesting periods. The Company's pro forma information follows (in
thousands, except for earnings per share information):
<TABLE>
<CAPTION>
1999 1998
-------------------
<S> <C> <C>
Pro forma net income $7,116 $8,929
Pro forma earnings per share - basic $0.33 $0.42
Pro forma earnings per share - assuming dilution $0.31 $0.41
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
13. COMPENSATION PLANS (CONTINUED)
Summaries of the Company's stock option, warrant and restricted stock activity,
and related information for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 6,643,398 $ 10.29 4,614,120 $ 10.66
Options and restricted stock granted 128,897 6.65 1,077,949 12.67
Options assumed in connection with St. Quintin
acquisition 611,962 6.58 - -
Warrants issued to holders of Convertible Preferred
Securities of Former Parent - - 1,196,000 14.50
Exercised (155,558) 5.87 (25,707) 3.67
Forfeited/canceled (369,331) 11.27 (218,964) 9.49
----------------------------------------------------------------
Outstanding at end of year 6,859,368 $ 10.02 6,643,398 $ 10.29
================================================================
Exercisable at end of year 2,200,701 $ 9.45 1,585,955 $ 8.82
================================================================
Weighted-average fair value of securities granted
during the year $ 6.59 $ 13.58
================ ===============
</TABLE>
Significant option, warrant and restricted stock groups outstanding at December
31, 1999 and related weighted average price and life information follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- ---------------------------------------------------------------------------------------- -------------------------------
WEIGHTED
WEIGHTED AVERAGE AVERAGE WEIGHTED
RANGE OF NUMBER REMAINING CONTRACTUAL EXERCISE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
$0.00 to $2.85 243,059 2.8 years $ 0.02 4,030 $ 0.16
$2.86 to $5.70 101,656 1.4 years 3.98 101,656 4.01
$5.71 to $8.55 2,818,849 3.9 years 7.08 1,191,755 7.84
$8.56 to $11.40 384,357 1.8 years 10.01 189,980 9.79
$11.41 to $14.25 3,243,529 3.5 years 13.31 669,542 13.97
$14.26 to $17.10 67,918 3.1 years 15.05 43,738 15.35
-------------------- -------------- -------------------------------
6,859,368 $ 10.02 2,200,701 $ 9.45
==================== ============== ===============================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
14. INCOME TAXES
In 1998, the Insignia Businesses were included in the consolidated federal
income tax return of Former Parent until the Spin-Off. After the Spin-Off, the
U.S. entities file a U.S. consolidated income tax return and the U.K. entities
file a U.K. consolidated return. In 1998 and 1997, the income tax provision
reflects the portion of Former Parent's historical income tax provision
estimated attributable to the operations of the Insignia Businesses as if they
were not included in Former Parent's consolidated federal income tax return.
Management believes the income tax provision, as shown, is comparable to what
the income tax provision would have been if the Insignia Businesses had filed a
separate return during the periods presented. Income tax benefit credited to
equity in connection with the Spin-Off was approximately $5,724,000.
During the portion of 1998 subsequent to the Spin-Off, Insignia generated net
operating losses for federal tax purposes in the U.S. of approximately
$13,506,000. These losses may be carried forward for 20 years. During this same
time period, Insignia generated net operating losses for U.S. state income tax
purposes of approximately $14,931,000. The Company has carryforward state losses
from prior years of approximately $13,071,000. Due to differences in state laws
in the jurisdictions in which the Company operates, the ability and time
available to use these losses varies among the different states. In 1999, the
federal net operating loss carryforward was fully utilized.
A substantial amount of the state net operating loss carryforwards were also
utilized in 1999. Of the total state tax losses being carried forward of
approximately $13,000,000, the Company has provided a valuation allowance for
the deferred tax asset of approximately $11,056,000 of these state losses. The
current year impact of this valuation allowance resulted in an increase in
income tax expense of approximately $303,000.
During 1999, the Company's U.K. operations utilized the operating losses
recorded on acquisition of approximately $5,575,000. During 1999, the Company's
Italian and Belgian operations generated operating losses of approximately
$90,000 and $75,000 respectively. In 1998, the Company recorded a loss of
$2,300,000 million to reflect the net realizable value in its Insignia/CAGISA
Italian subsidiary. Due to the lack of other profitable operations in Italy,
which could benefit from the use of the loss, the Company has provided a
valuation allowance for the tax benefit of this loss.
As a result of a 1995 acquisition, net operating losses of approximately
$5,000,000 were acquired. These losses carryforward to the calendar year ended
December 31, 2009. The carryforward is subject to provisions of the Internal
Revenue Code Section 382, which limits the use of the carryforward to the lesser
of the value of the stock multiplied by the Federal long-term tax-exempt rate or
the subsidiary's income.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
14. INCOME TAXES (CONTINUED)
Undistributed earnings of Insignia Richard Ellis amounted to approximately
$8,612,000 in aggregate. Deferred income taxes are not provided on these
earnings as it is intended that the earnings will be permanently reinvested
outside of the U.S.
Subsequent to the close of the fiscal year, the Internal Revenue Service ("IRS")
informed the Former Parent that the IRS was going to conduct an examination of
the income tax returns for the 1998 (January 1, 1998 through September 30,
1998), 1997 and 1996 tax years. No determinations have been made as to any
potential tax liability that may arise as a result of the examination,
therefore, no amounts have been provided for the possible outcome of such
examination.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---------------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Acquisition related intangibles $ (8,974) $(10,035)
Tax over book depreciation (3,043) (1,288)
Commission income, net (231) (4,519)
Partnership earnings differences (142) -
Compensation (4,966) -
Other, net (1,185) (809)
---------------------------
Total deferred tax liabilities (18,541) (16,651)
Deferred tax assets:
Net operating losses 3,486 5,895
Partnership earnings differences - 430
Bad debt reserves 1,272 1,105
Valuation reserve 943 943
Compensation and benefits 3,874 2,946
Other, net - 214
---------------------------
Total deferred tax assets 9,575 11,533
Valuation allowance for deferred tax assets (2,195) (1,830)
---------------------------
Deferred tax assets, net of valuation allowance 7,380 9,703
---------------------------
Net deferred tax liabilities $(11,161) $ (6,948)
===========================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
14. INCOME TAXES (CONTINUED)
For financial reporting purposes, income before income taxes includes the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------
(In thousands)
<S> <C> <C> <C>
Pretax income (loss):
United States $17,400 $21,953 $21,846
Foreign 5,076 2,075 (88)
-------------------------------------
$22,476 $24,028 $21,758
=====================================
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 5,679 $ 5,809 $ 4,595
Foreign 808 1,057 -
State 1,478 2,143 693
-------------------------------------
Total current 7,965 9,009 5,288
Deferred:
Federal 2,260 1,598 2,765
Foreign (142) 1,481 -
State 2,095 887 650
-------------------------------------
Total deferred 4,213 3,966 3,415
-------------------------------------
$12,178 $12,975 $ 8,703
=====================================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
14. INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to continuing operations computed
at the U.S. statutory rate to income tax expense is shown below (Dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- -------------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------------------- -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $ 7,867 35.0% $ 8,410 35.0% $7,615 35.0%
Effect of incremental tax rates - - (82) (0.3) (100) (0.5)
Effect of different tax rates in
foreign jurisdictions (310) (1.3) (410) (1.7) - -
State income taxes, net of federal
tax benefit 1,437 6.4 1,605 6.7 1,074 4.9
Effect of nondeductible meals and
entertainment expenses 1,150 5.1 993 4.1 372 1.7
Effect of nondeductible goodwill
amortization 1,009 4.5 659 2.7 35 0.2
Valuation allowance for Italian
subsidiary write-down - - 943 3.9 - -
Valuation allowance for Italian
operating losses - - 306 1.3 - -
Change in valuation allowance for
U.S. operating losses 303 1.3 281 1.2 300 1.4
Other 722 3.2 270 1.1 (593) (2.7)
------------------------- -------------------------- -------------------------
$ 12,178 54.2% $12,975 54.0% $8,703 40.0%
========================= ========================== =========================
</TABLE>
Income tax payments were approximately $766,000 (1999), $6,081,000 (1998) for
the nine months prior to Spin-Off, and $11,786,000 (1997). Taxes paid by the
Company in the fourth quarter of 1998, subsequent to the Spin-Off, totaled
approximately $795,000.
15. EMPLOYEE BENEFIT PLANS
401(K) RETIREMENT PLANS
The Company established a 401(k) savings plan covering substantially all U.S.
employees. The Company may make a contribution equal to 50% of the employees'
contribution up to a maximum of 3% of the employees' compensation and
participants fully vest in employer contributions after 5 years. The Company
expensed approximately $1,681,000, $1,340,000 and $1,302,000 in contributions to
the plan during 1999, 1998 and 1997, respectively.
The Company participated in Former Parent's 401(k) savings plan, which covered
substantially all of its employees, prior to the Spin-Off in September 1998. The
Company's share of contributions for the 1998 period prior to Spin-Off were
approximately $1,020,000.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
15. EMPLOYEE BENEFIT PLANS (CONTINUED)
Realty One maintains a separate 401(k) savings plan covering its employees.
Realty One may make a contribution equal to 20% of the employees' contribution
up to a maximum of $1,000 or 5% of the employees' compensation and participants
fully vest in employer contributions immediately. Realty One, acquired in
October 1997, expensed approximately $87,000, $94,000 and $20,000 in
contributions to the plan during 1999, 1998 and 1997, respectively.
DEFINED CONTRIBUTION PLAN
Insignia Richard Ellis maintains a defined contribution plan that is available
to all employees at their option after the completion of six months of service
and the attainment of 25 years of age. Insignia Richard Ellis contributions are
3.5% of salary for ages 25 to 30, 4.5% of salary for ages 31 to 35 and 5.5% of
salary for ages 36 and over. Insignia Richard Ellis expensed approximately
$996,000 and $768,000 in contributions to the plan during 1999 and 1998,
respectively.
DEFINED BENEFIT PLAN
Insignia Richard Ellis maintains two defined benefit plans for certain of its
employees. The plans provide for benefits based upon the final salary of
participating employees. The funding policy is to contribute annually an amount
to fund pension cost as actuarially determined by an independent pension
consulting firm.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
15. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes the funded status and net periodic pension cost
of the Insignia Richard Ellis defined benefit plans:
<TABLE>
<CAPTION>
DECEMBER 31
PROJECTED BENEFIT OBLIGATION ("PBO") 1999 1998
--------------------------
(In thousands)
<S> <C> <C>
PBO - Beginning of year $ 23,792 $ -
Service cost 1,401 567
Interest cost 2,326 1,215
Plan participants' contributions 205 -
Net actuarial loss 2,185 1,216
Foreign currency exchange rate changes (652) 112
Benefits paid (2,429) (1,593)
PBO in acquisition 24,399 22,275
--------------------------
PBO - End of year 51,227 23,792
--------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 23,828 -
Actual return on plan assets 6,529 1,619
Employer contributions 1,280 582
Plan participants' contributions 205 -
Foreign currency exchange rate changes (645) 120
Benefits paid (2,429) (1,593)
Plan assets at acquisition 22,294 23,100
--------------------------
Fair value of plan assets at end of year 51,062 23,828
--------------------------
Funded status of the plans (165) 36
Unrecognized net actuarial (gain) loss (381) 1,042
--------------------------
Net pension (liability) asset recognized in the
consolidated balance sheet $ (546) $ 1,078
==========================
NET PERIODIC PENSION COST
Service cost $ 1,401 $ 566
Interest cost 2,326 1,215
Actual return on plan assets (2,949) (1,181)
--------------------------
$ 778 $ 600
==========================
ASSUMPTIONS USED IN DETERMINING PBO
Discount rate 5.5% 6.5%
Weighted average increase in compensation levels 5.0% 5.0%
Rate of return on plan assets 7.0% 7.5%
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
INDEMNIFICATION AGREEMENT
In connection with the Merger, Insignia and AIMCO entered into an
Indemnification Agreement. The Indemnification Agreement provides that following
consummation of the Merger, Insignia will indemnify and hold harmless AIMCO from
and against all losses in excess of $9,100,000 resulting from (i) breaches of
representations, warranties or covenants of Former Parent or Insignia in the
merger agreement, (ii) actions taken by or on behalf of Former Parent prior to
consummation of the Merger and (iii) the Spin-Off. Insignia also is required to
indemnify AIMCO against all losses (without regard to any dollar value
limitation) resulting from (a) amounts paid or payable to employees of Former
Parent actually paid by AIMCO, other than those employees AIMCO has agreed to
retain following the consummation of the Merger, (b) obligations to third
parties for goods, services, taxes or indebtedness incurred prior to the
consummation of the Merger, other than as agreed to by AIMCO or included in the
approximately $458 million of indebtedness and liabilities of Former Parent and
its subsidiaries which were assumed by AIMCO in the Merger, and (c) Insignia's
ownership and operation of the Insignia Businesses.
The Indemnification Agreement requires AIMCO to indemnify and hold harmless
Insignia from all losses that arise out of the operation of the business of
Former Parent acquired by AIMCO after the Merger and for all losses in excess of
$9,100,000 arising from breach of any representation, warranty or covenant of
AIMCO in the merger agreement.
Pursuant to the merger agreement, Insignia and AIMCO were required to settle in
cash any differences between the actual adjusted net liabilities of Former
Parent on the date of the Merger and the $458 million of such adjusted net
liabilities stipulated in the Merger Agreement. Settlement negotiations were
concluded in 1999, resulting in a final payment by AIMCO to Insignia of
approximately $1,400,000. This payment was recorded to stockholders' equity as
additional paid-in capital attributable to the Spin-Off.
LITIGATION
In 1994, Re/Max International and various franchisees filed suit in the United
States District Court for the Northern District of Ohio against Realty One,
alleging claims under the federal antitrust laws and related state law claims.
The suit alleges that Realty One conspired with Smythe, Cramer Company to
institute a series of differential commission splits intended to harm Re/Max
International and its franchisees in the northeast Ohio residential real estate
brokerage market. Plaintiffs' claim actual damages of $30.0 million. The
applicable federal antitrust law provides, among other things, for the trebling
of actual damages.
In 1997, the District Court granted summary judgment dismissing all of
plaintiffs' federal and state claims.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
In a ruling issued April 6, 1999, the Sixth Circuit reversed the District
Court's order in substantial part. Subsequent to the Sixth Circuit ruling,
plaintiffs voluntarily dismissed their monopoly claims. The only remaining
claims are the federal antitrust conspiracy claims, which are set for trial in
April 2000. Realty One denies the existence of any conspiracy, and has defended
and continues to defend this action vigorously.
In connection with Insignia's acquisition of Realty One in October 1997, the
sellers indemnified the Company for any loss arising from such litigation up to
the purchase price of approximately $40 million.
The Company and certain subsidiaries are defendants in lawsuits arising in the
ordinary course of business. Although claimants may seek substantial
compensatory and punitive damages, management does not expect that the results
of any such lawsuits will have a material adverse effect on the financial
condition, results of operations or cash flows of the Company or its
subsidiaries.
IRS EXAMINATION
Subsequent to year-end, the IRS informed the Former Parent of their intention to
conduct an examination of the income tax returns for the tax years 1998 (January
1, 1998 through September 30, 1998), 1997 and 1996. No determinations have been
made or can be made at this time as to any potential tax liability that may
arise as a result of this examination.
ENVIRONMENTAL LIABILITIES
Under various federal and state environmental laws and regulations, a current or
previous owner or operator of real estate may be required to investigate and
clean up certain hazardous or toxic substances or petroleum product releases at
the property, and may be held liable to a governmental entity or to third
parties for property damage and for investigation and cleanup costs incurred by
such parties in connection with contamination. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs it incurs in connection with the contamination. The owner or
operator of a site may be liable under common law to third parties for damages
and injuries resulting from environmental contamination emanating from the site.
The presence of contamination or the failure to remediate contamination may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral. There can be no assurance that the Company,
or any assets owned or controlled by the Company, currently are in compliance
with all of such laws and regulations, or that the Company will not become
subject to liabilities that arise in whole or in part out of any such laws,
rules, or regulations. Management is not currently aware of any environmental
liabilities that are expected to have a material adverse effect on the
operations or financial condition of the Company.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
16. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
OPERATING LEASES
The Company leases office space and equipment under noncancelable operating
leases. Minimum annual rentals under operating leases for the five years ending
after December 31, 1999 are as follows (In thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 26,998
2001 23,735
2002 20,798
2003 17,561
2004 18,200
Thereafter 17,202
--------
Total minimum payments $124,494
========
</TABLE>
Rental expense was approximately $28,267,000 (1999) $21,753,000 (1998) and
$9,967,000 (1997). Certain of the leases are subject to annual escalation based
on the Consumer Price Index or annual increases in operating expenses.
STOCK REPURCHASE
As of December 31, 1999, the Company had repurchased 1,502,600 shares of its
Common Stock at an aggregate cost of approximately $16,175,000. The repurchase
program, which was originally established in October 1998 to purchase up to
$10,000,000 of the Company's outstanding Common Stock, was expanded in 1999 to
permit the repurchase of up to an aggregate $17,500,000. At December 31, 1998,
139,200 shares of the Company's Common Stock had been repurchased at an
aggregate cost of approximately $1,850,000.
In early 2000, warrants representing 1,494,500 shares held in treasury were
issued to certain executive officers, non-employee directors and other employees
of the Company.
17. INDUSTRY SEGMENTS
The Company has two reportable segments: commercial services and residential
services. The commercial services segment provides tenant representation,
property and asset management services, leasing and brokerage, investment sales,
development, consulting and other services. Additionally, the commercial
services segment includes real estate ownership, consisting primarily of
co-investment partnerships and development property. The residential services
segment provides property management services, originates mortgage loans, and
brokers residential real estate. Other includes unallocated corporate
administration of the Company and Internet-based business expenses. Assets
included in other consist primarily of cash, property and equipment,
Internet-based business activities and investments.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
17. INDUSTRY SEGMENTS (CONTINUED)
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. The Company's
reportable segments are business units that offer similar products and services
and are managed separately because of the distinction between services.
The following tables summarize certain financial information by industry
segment:
<TABLE>
<CAPTION>
COMMERCIAL RESIDENTIAL OTHER TOTAL
-------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999 Revenues:
Real estate services $497,770 $180,701 $ - $678,471
Property operations 1,877 - - 1,877
Interest 1,357 1,088 2,673 5,118
Foreign currency translation gains - - 827 827
Other - - 73 73
-------------------------------------------------------------------
501,004 181,789 3,573 686,366
-------------------------------------------------------------------
Costs and expenses:
Real estate services 441,416 166,306 - 607,722
Property operations 757 - - 757
Administrative - - 11,826 11,826
Interest 1,419 1,189 5,598 8,206
Property interest 832 - - 832
Depreciation and amortization 23,764 6,586 117 30,467
Property depreciation 512 - - 512
Internet-based business expense - - 1,580 1,580
Merger related expenses 4,272 - - 4,272
-------------------------------------------------------------------
472,972 174,081 19,121 666,174
-------------------------------------------------------------------
28,032 7,708 (15,548) 20,192
Equity earnings in real estate ventures 2,284 - - 2,284
-------------------------------------------------------------------
Income before income taxes 30,316 7,708 (15,548) 22,476
Provision for income taxes 15,383 3,356 (6,561) 12,178
-------------------------------------------------------------------
Net income $ 14,933 $ 4,352 $ (8,987) $ 10,298
===================================================================
Total assets $573,095 $156,649 $ 65,569 $795,313
Real estate interests 74,007 - - 74,007
Capital expenditures 21,414 9,103 7,453 37,970
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
17. INDUSTRY SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
COMMERCIAL RESIDENTIAL OTHER TOTAL
-------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998 Revenues:
Real estate services $378,362 $128,989 $ - $507,351
Interest 1,196 1,153 847 3,196
Other 233 - - 233
-------------------------------------------------------------------
379,791 130,142 847 510,780
-------------------------------------------------------------------
Costs and expenses:
Real estate services 331,686 120,088 - 451,774
Administrative - - 7,232 7,232
Interest - 1,301 77 1,378
Depreciation and amortization 18,064 4,475 4 22,543
Provision for loss on disposal 2,300 - - 2,300
-------------------------------------------------------------------
352,050 125,864 7,313 485,227
-------------------------------------------------------------------
27,741 4,278 (6,466) 25,553
Equity losses in real estate ventures (1,896) - - (1,896)
Minority interests 371 - - 371
-------------------------------------------------------------------
Income before income taxes 26,216 4,278 (6,466) 24,028
Provision for income taxes 13,850 1,840 (2,715) 12,975
-------------------------------------------------------------------
Net income $ 12,366 $ 2,438 $ (3,751) $ 11,053
===================================================================
Total assets $458,293 $ 96,347 $ 40,849 $595,489
Real estate interests 58,196 - - 58,196
Capital expenditures 12,402 7,221 - 19,623
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
17. INDUSTRY SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
COMMERCIAL RESIDENTIAL OTHER TOTAL
-------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997 Revenues:
Real estate services $247,095 $ 48,163 $ - $295,258
Interest 264 193 - 457
Other 38 - - 38
-------------------------------------------------------------------
247,397 48,356 - 295,753
-------------------------------------------------------------------
Costs and expenses:
Real estate services 206,905 44,950 - 251,855
Administrative - - 6,770 6,770
Interest - 318 - 318
Depreciation and amortization 12,946 2,298 - 15,244
-------------------------------------------------------------------
219,851 47,566 6,770 274,187
-------------------------------------------------------------------
27,546 790 (6,770) 21,566
Equity earnings in real estate ventures 151 - - 151
Minority interests 41 - - 41
-------------------------------------------------------------------
Income before income taxes 27,738 790 (6,770) 21,758
Provision for income taxes 11,095 316 (2,708) 8,703
-------------------------------------------------------------------
Net income $ 16,643 $ 474 $ (4,062) $ 13,055
===================================================================
Total assets $245,948 $ 87,284 $ 4,713 $337,945
Real estate interests 19,454 - - 19,454
Capital expenditures 4,990 650 300 5,940
</TABLE>
Certain geographic information for the Company is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------
REVENUES LONG-LIVED ASSETS REVENUES LONG-LIVED ASSETS
----------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
United States $576,620 $299,267 $444,676 $209,720
United Kingdom 105,726 102,765 61,551 65,791
Other countries 4,020 1,093 4,553 4,248
----------------------------------------------------------------------
$686,366 $403,125 $510,780 $279,759
======================================================================
</TABLE>
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
18. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value estimates of financial instruments are not necessarily indicative
of the amounts the Company might pay or receive in actual market transactions.
Potential taxes and other taxes have also not been considered in estimating fair
value. The carrying amount reported on the balance sheet for cash and cash
equivalents approximates its fair value. Receivables reported on the balance
sheet consist of property and lease commission receivables and various note
receivables. The property receivables approximate their fair values. Lease
commission receivables are carried at their discounted present value; therefore
the carrying amount and fair value amount are the same. The mortgage loan
receivables and notes receivables earn interest at either fixed or variable
rates. Interest rates generally approximate current market interest rates for
similar instruments, therefore, the carrying amounts for notes payable, real
estate mortgage notes payable and the mortgage warehouse line approximate their
respective fair value.
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------------------
FOURTH THIRD SECOND FIRST
TOTAL QUARTER QUARTER QUARTER QUARTER
-----------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $686,366 $217,701 $194,810 $158,077 $115,778
Net income 10,298 6,965 5,406 3,033 (5,106)
EBITDA (1) 58,923 22,771 20,884 13,384 1,884
Pro forma per common share:
Net income - basic $.48 $.33 $.25 $.14 ($.24)
Net income - assuming dilution $.46 $.33 $.24 $.13 ($.24)
</TABLE>
First quarter results of 1999 include a $5.5 million pre-tax provision for costs
primarily associated with surplus office space of REGL vacated as a result of
the combining of operations with St. Quintin. Fourth quarter results of 1999
include a pre-tax reduction of $1.2 million to the provision based on the
disposal of such surplus office space on more favorable terms than originally
estimated (see also Note 6).
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
19. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------------------
FOURTH THIRD SECOND FIRST
TOTAL QUARTER QUARTER QUARTER QUARTER
-----------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $510,780 $150,317 $132,664 $124,998 $102,801
Net income 11,053 1,656 3,006 3,632 2,759
EBITDA (1) 48,345 13,947 11,597 12,066 10,735
Pro forma per common share:
Net income - basic $.52 $.08 $.14 $.17 $.13
Net income - assuming dilution $.50 $.07 $.14 $.17 $.12
</TABLE>
Fourth quarter results of 1998 included a $2.3 million provision for the
anticipated disposal of the Company's investment in Insignia/CAGISA in 1999 (see
also Note 3).
(1) EBITDA is defined as real estate services revenue less direct expenses and
administrative costs.
20. SUBSEQUENT EVENTS
PREFERRED STOCK ISSUANCE
On February 9, 2000, Insignia sold 250,000 shares of perpetual convertible
preferred stock with a stated value of $100 per share to investment funds
advised by Blackacre Capital Management, LLC for an aggregate purchase price of
$25 million. The preferred stock pays a 4% annual dividend, payable at
Insignia's option in cash or Common Stock, and is convertible into the Company's
Common Stock at the option of the holder at $14 per share, subject to
adjustment. The preferred stock is callable by the Company, at face value, at
any time on or after February 15, 2004.
<PAGE>
Insignia Financial Group, Inc.
Notes to Consolidated Financial Statements (continued)
20. SUBSEQUENT EVENTS (CONTINUED)
COLLIERS BDR ACQUISITION
Subsequent to year-end, Insignia entered into a definitive agreement to acquire
Colliers BDR, a Dutch real estate services company headquartered in Amsterdam.
Colliers BDR provides a variety of commercial real estate services with a
specialization in corporate services and international advisory assignments. The
base purchase price was approximately $2 million, all of which was paid in cash.
Additional purchase consideration of approximately $2.5 million, over three
years, is contingent on the future performance of this business, which will
operate as Insignia BDR.
INTERNET PRIVATE FINANCING
Subsequent to year-end, Insignia completed a $36 million private equity
financing in its Internet subsidiary EdificeRex.com, Inc. EdificeRex sold
4,595,349 shares of Series C Preferred Stock, representing approximately 14%
equity interest in the company, for $7.81 per share to a group of approximately
20 institutional investors. EdificeRex was launched in February 2000 as a
building-specific Internet portal and has since entered into contractual
agreements to provide its website portal service to more than 150,000 apartment
units in New York City. Following the financing, Insignia owns approximately 51%
of EdificeRex, with the remainder owned by management, employees and strategic
real estate and operating partners.
<PAGE>
AGREEMENT AND PLAN OF DISTRIBUTION
BY AND BETWEEN
INSIGNIA FINANCIAL GROUP, INC.
and
INSIGNIA/ESG HOLDINGS, INC.
Dated as of September 16, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I...............................................DEFINITIONS 2
1.1...............................................Definitions 2
ARTICLE II.........................................THE DISTRIBUTION 10
2.1.............................Mechanics of the Distribution 10
2.2................................Timing of the Distribution 10
ARTICLE III.............................................TAX MATTERS 10
3.1.........Assumption and Indemnification of Tax Liabilities 10
3.2............................Failure of the Merger to Occur 11
3.3................................Indemnification Procedures 11
ARTICLE IV............TRANSFER OF ASSETS AND PAYMENT OF LIABILITIES 12
4.1............................Transfer of Assets to Holdings 12
4.2....................................Payment of Liabilities 12
ARTICLE V..........................................OTHER AGREEMENTS 12
5.1.........Use of "Insignia," "ESG," or "Insignia/ESG" Names 12
5.2..............Release of Holdings by the Company's Lenders 13
5.3.........................................Books and Records 13
5.4.....................................Access to Information 14
5.5......................................Retention of Records 14
5.6...........................................Confidentiality 14
5.7...........................................Listing on NYSE 15
5.8........................................Further Assurances 15
5.9.............Treatment of Certain Participation Interests 15
5.10..............................................Cooperation 16
5.11..............Assumption of Certain Contracts by Holdings 16
5.12 Payments With Respect to Consulting Agreements;
Restricted Stock; Stock Options........................ 16
5.13........................................Conflicting Terms 17
5.14..................................Performance of Services 17
ARTICLE VI.............................INDEMNIFICATION AND RELEASES 17
6.1............................................Mutual Release 17
6.2............................Indemnification by the Company 18
6.3...............................Indemnification by Holdings 18
6.4..............Insurance Proceeds; Tax Benefits; Mitigation 19
6.5.............................Procedure for Indemnification 19
6.6.......................................Remedies Cumulative 21
6.7...................................Survival of Indemnities 21
ARTICLE VII........................................EMPLOYEE MATTERS 22
7.1.................................................Employees 22
7.2.........................................Employee Benefits 22
7.3.........................Other Liabilities and Obligations 24
(i)
<PAGE>
ARTICLE VIII.............................................CONDITIONS 24
8.1......................................Stockholder Approval 24
8.2....................................Opinion of Tax Counsel 24
8.3......................................Certain Transactions 25
8.4..........................................Adequate Surplus 25
8.5....................................Release of Obligations 25
8.6..............................................Bank Consent 25
ARTICLE IX................................MISCELLANEOUS AND GENERAL 25
9.1...............................................Termination 25
9.2.....................................Effect of Termination 25
9.3.................................Modification or Amendment 25
9.4..........................................Waiver; Remedies 25
9.5..............................................Counterparts 26
9.6.............................................Governing Law 26
9.7...................................................Notices 26
9.8..................................................Captions 27
9.9 ...............................No Third Party Beneficiary 27
9.10...................................Successors and Assigns 27
9.11......................................Certain Obligations 28
9.12.....................................Specific Performance 28
9.13.............................................Severability 28
9.14.............................................Jurisdiction 28
SCHEDULE 3.1................................................. 30
SCHEDULE 4.1................................................. 31
(ii)
<PAGE>
AGREEMENT AND PLAN OF DISTRIBUTION, dated as of September 16, 1998
("Agreement"), between Insignia Financial Group, Inc., a Delaware corporation
(the "Company"), and Insignia/ESG Holdings, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of the Company ("Holdings").
WHEREAS, the Company, Holdings, Apartment Investment and Management
Company, a Maryland corporation ("AIMCO"), and AIMCO Properties, L.P., a
Delaware limited partnership and a subsidiary of AIMCO ("AIMCO Properties"),
have entered into an Amended and Restated Agreement and Plan of Merger, dated
as of May 26, 1998 (the "Merger Agreement"), providing for the Merger (as
defined in the Merger Agreement) of the Company with and into AIMCO, with AIMCO
as the surviving corporation;
WHEREAS, the Boards of Directors of the Company and Holdings have approved
this Agreement, which is being entered into prior to the Effective Time (as
defined in Section 1.3 of the Merger Agreement), pursuant to which the
Distribution (as defined below) will be consummated;
WHEREAS, as soon as practicable after the Company Meeting (as hereinafter
defined), subject to the satisfaction or waiver of the conditions set forth in
Article VIII of this Agreement, the Company will distribute (the
"Distribution") to each holder of record of shares of Class A Common Stock, par
value $.01 per share, of the Company ("Company Common Stock"), a number of
shares of Common Stock, par value $.01 per share, of Holdings ("Holdings Common
Stock") equal to two-thirds of the number of shares of Company Common Stock
held by such holder;
WHEREAS, the purpose of the Distribution is to allow the management of
Holdings and its subsidiaries to focus exclusively on the operation and growth
of the Holdings Business (as defined below), and to provide Holdings with
greater access to the capital markets to develop its commercial real estate
operations, to facilitate future acquisitions of other commercial real estate
operations and to make Holdings better able to attract and retain top quality
professionals in its commercial real estate operations, as well as to make
possible the Merger by divesting the Company of all businesses and operations
(other than the Retained Business (as defined below)) conducted by the Company
and its Subsidiaries (as defined below) which AIMCO is unwilling to acquire;
WHEREAS, the Company and Holdings wish to set forth and provide for
certain agreements between the Company and Holdings in consideration of the
separation of their ownership; and
WHEREAS, it is the intention of the parties to this Agreement that the
Distribution shall qualify as a transaction described in Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
I.1 Definitions. As used in this Agreement, the following terms shall have
the following respective meanings (capitalized terms used but not defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement):
"Additional Interests" shall have the meaning set forth in Section
5.9(c) hereto.
"Affiliate" of any Person shall mean another Person that directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with, such first Person; provided, however, that for the
purposes of this Agreement from and after the Time of Distribution, no Retained
Company shall be deemed to be an Affiliate of any Holdings Company, and no
Holdings Company shall be deemed to be an Affiliate of any Retained Company. The
Affiliates of Holdings also include the Commercial Joint Venture Entities.
"Agreement" shall have the meaning set forth in the Preamble.
"AIMCO" shall have the meaning set forth in the Recitals hereto.
"AIMCO Properties" shall have the meaning set forth in the Recitals
hereto.
"Closing Date" shall have the meaning set forth in Section 3.1 of the
Merger Agreement.
"Code" shall have the meaning set forth in the Recitals hereto.
"Commercial Joint Venture Entities" shall mean the following entities:
Brickyard Investors, L.P., Brookhollow Associates, L.P., Courtyard Plaza
Associates, L.P., Glades Plaza, L.P., Hiawassee Oak Partners, L.P., Nashpike
Partners, L.P., Sleepy Lake Partners, L.P., Bingham Partners, L.P., Clayton
Investors Associates, LLC, Northpoint Partners, L.P., Mockingbird Associates,
L.P., 101 Marietta Street Associates, Fresh Meadows Development, LLC, W/9FIG
Realty, L.L.C., Dallas RPFIV Campbell Centre Associates Limited Partnership, St.
Louis RPFIV Gateway One Associates Limited Partnership, Santa Rosa L.L.C. and
any other entities owning commercial or non-residential real estate assets or
interests therein, or entities owning residential real estate assets related to
the New York Residential Business (as that term is defined in Section 4.1(i) of
the Merger Agreement) other than those in which a subsidiary of Insignia
Properties Trust, a Maryland real estate investment trust, serves as a general
partner, whether now existing or hereafter formed.
"Company" shall have the meaning set forth in the Preamble.
"Company 401(k) Plan" shall have the meaning set forth in Section
7.2(b) hereof.
"Company Common Stock" shall have the meaning set forth in the
Recitals hereto.
"Company Disclosure Letter" shall mean that certain letter dated March
17, 1998 from the Company to AIMCO annexed to and deemed part of the Merger
Agreement.
"Company Flex Plan" shall have the meaning set forth in Section 7.2(c)
hereof.
2
<PAGE>
"Company Indemnifiable Losses" shall have the meaning set forth in
Section 6.3 hereof.
"Company Indemnitees" shall have the meaning set forth in Section 6.3
hereof.
"Company LTD Plan" shall have the meaning set forth in Section 7.2(c)
hereof.
"Company Meeting" shall mean the special meeting of Company
stockholders at which the stockholders will be asked to approve the Distribution
and the Merger Agreement.
"Company Restoration Plan" shall have the meaning set forth in Section
7.2(b) hereof.
"Company Stock Plans" shall mean the Insignia Financial Group, Inc.
Amended and Restated 1992 Stock Incentive Plan, as amended, and the Insignia
Financial Group, Inc. 1995 Non-Employee Director Stock Option Plan.
"Company VEBA" shall have the meaning set forth in Section 7.2(c)
hereof.
"Company Welfare Plans" shall have the meaning set forth in Section
7.2(c) hereof.
"Consulting Agreements" shall mean the agreements listed in Schedule
5.12(a) hereto.
"Contingent Incentive Award" shall have the meaning set forth in the
Incentive Award Letters.
"Contract" shall mean any note, bond, mortgage, indenture, lease,
contract, agreement, obligation, understanding, commitment or other similar
arrangement, whether written or oral.
"Covered Person" shall have the meaning set forth in Section 2.1 of
the Merger Agreement.
"Credit Agreement" shall have the meaning set forth in Section 5.2
hereof.
"DGCL" shall mean the General Corporation Law of the State of
Delaware.
"Distribution" shall have the meaning set forth in the Recitals
hereto.
"Effective Time" shall have the meaning set forth in Section 1.3 of
the Merger Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Existing 401(k) Plan" shall have the meaning set forth in Section
7.2(b) hereof.
3
<PAGE>
"Existing LTD Plan" shall have the meaning set forth in Section 7.2(c)
hereof.
"Existing Restoration Plan" shall have the meaning set forth in
Section 7.2(b) hereof.
"Existing Welfare Plans" shall have the meaning set forth in Section
7.2(c) hereof.
"Flex Plan" shall have the meaning set forth in Section 7.2(c) hereof.
"Former Employees" shall have the meaning set forth in Section 7.12(a)
of the Merger Agreement.
"Holdings" shall have the meaning set forth in the Preamble.
"Holdings 40l(k) Plan" shall have the meaning set forth in Section
7.2(b) hereof.
"Holdings Assets" shall have the meaning set forth in Section 4.1
hereof.
"Holdings Businesses" shall mean all of the businesses conducted at or
at any time prior to the Distribution by the Company or any of its Subsidiaries,
excluding the Retained Business.
"Holdings Common Stock" shall have the meaning set forth in the
Recitals hereto.
"Holdings Companies" shall mean Holdings and its Subsidiaries
(determined after giving effect to the transactions contemplated by Article IV
of this Agreement).
"Holdings Entities" shall have the meaning set forth in Section 4.1
hereof.
"Holdings Employees" shall mean all current and former employees of
the Company and its Subsidiaries other than the Retained Employees.
"Holdings Flex Plan" shall have the meaning set forth in Section
7.2(c) hereof.
"Holdings Indemnifiable Losses" shall have the meaning set forth in
Section 6.2 hereof.
"Holdings Indemnities" shall have the meaning set forth in Section 6.2
hereof.
"Holdings Liabilities" shall mean (i) all Liabilities or portions of
Liabilities arising primarily out of or in connection with the Holdings Assets
or the Holdings Businesses; (ii) all Liabilities under Contracts included in the
Holdings Assets, whether such Liabilities arise before, upon or after the
transactions contemplated by this Agreement and including any Liabilities under
such Contracts resulting from the consummation of the transactions contemplated
by this Agreement (including actions, claims or proceedings relating thereto);
(iii) all Liabilities of Holdings and its Subsidiaries pursuant to this
Agreement, the Merger Agreement, the Indemnification Agreement or any of the
Transaction Documents; and (iv) all Liabilities for payment of outstanding
drafts and checks of Holdings and its Subsidiaries to the extent attributable to
the Holdings Assets and the Holdings Businesses existing as of the Time of
Distribution.
4
<PAGE>
"Holdings LTD Plan" shall have the meaning set forth in Section 7.2(c)
hereof.
"Holdings Restoration Plan" shall have the meaning set forth in
Section 7.2(b) hereof.
"Holdings Vacation Obligation" shall have the meaning set forth in
Section 7.2(a) hereof.
"Holdings VEBA" shall have the meaning set forth in Section 7.2(c)
hereof.
"Holdings Welfare Plans" shall have the meaning set forth in Section
7.2(c) hereof.
"Incentive Award Letters" shall have the meaning set forth in Section
5.9(b) hereof.
"Indemnifiable Losses" shall have the meaning set forth in Section 6.3
hereof.
"Indemnification Agreement" shall mean that certain Amended and
Restated Indemnification Agreement dated as of May 26, 1998 by and between AIMCO
and Holdings, as the same may be amended and supplemented from time to time.
"Indemnifying Party" shall have the meaning set forth in Section 6.4
hereof.
"Indemnitee" shall have the meaning set forth in Section 6.4 hereof.
"Information" of a party shall mean any and all information that such
party or any of its Representatives furnish or have furnished to the receiving
party or any of its Representatives whether furnished orally or in writing or by
any other means or gathered by inspection and regardless of whether the same is
specifically marked or designated as "confidential" or "proprietary," together
with any and all notes, memoranda, analyses, compilations, studies or other
documents (whether in hard copy or electronic media) prepared by the receiving
party of any of its Representatives which contain or otherwise reflect such
Information, together with any and all copies, extracts or other reproductions
of any of the same; provided, however, that for the purposes hereof all
information relating to the Retained Companies and the Retained Business in the
possession of any Holdings Company at the Time of Distribution shall be deemed
to have been furnished by the Retained Companies and all information relating to
the Holdings Companies and the Holdings Businesses in the possession of any
Retained Company at the Time of Distribution shall be deemed to have been
furnished by the Holdings Companies; and further provided that the term
"Information" does not include information that:
(a) is or becomes generally available to the public
through no wrongful act of the receiving party or its
Representatives;
(b) is or becomes available to the receiving party on
a non-confidential basis from a source other than the
providing party or its Representatives, provided that such
source is not
5
<PAGE>
known by the receiving party to be subject to a
confidentiality agreement with the providing party; or
(c) has been independently acquired or developed by
the receiving party without violation of any of the
obligations of the receiving party or its Representatives
under this Agreement.
"IRS" shall mean the United States Internal Revenue Service.
"Lenders" shall have the meaning set forth in Section 5.2 hereof.
"Liabilities" shall mean any and all debts, liabilities, commitments
and obligations, whether fixed, contingent or absolute, matured or unmatured,
liquidated or unliquidated, accrued or not accrued, known or unknown, whenever
or however arising and whether or not the same would be required by generally
accepted accounting principles to be reflected in financial statements or
disclosed in the notes thereto.
"Merger" shall have the meaning set forth in the recitals to the
Merger Agreement.
"Merger Agreement" shall have the meaning set forth in the Recitals
hereto.
"Participation Interests" shall mean the interests of Holdings in or
with respect to Proceeds from or arising out of any investment by the Company or
any Affiliates thereof in the Residential Joint Venture Entities listed below
and in the REMIC, as set forth below:
Entity Participation Interest
------ ----------------------
REMIC 30% of Proceeds
Southwest Associates, L.P. 35% of Proceeds
Western Hills Associates, LLC 40% of Proceeds
Cobble Creek Associates LLC 40% of Proceeds
Chimney Ridge Associates 40% of Proceeds
Bennington Square Associates LP 40% of Proceeds
Willow Park Associates 50% of Proceeds
Dallas Glen Associates, L.P. 50% of Proceeds
Watermans Crossing Associates, L.P. 50% of Proceeds
Louisville Apartments Limited Partnership 50% of Proceeds
"Person" shall mean any natural person, corporation, general or
limited partnership, limited liability company, joint venture, trust,
association or entity of any kind.
"Proceeds" means the proceeds actually received by the Company or any
of its Affiliates derived from or arising out of its investment in (i) each
Residential Joint Venture Entity, and (ii) the REMIC, in each case after the
Company or such Affiliate has received 100% of its investment plus a return
thereon equal to 10% per annum.
6
<PAGE>
"NYSE" shall mean The New York Stock Exchange, Inc.
"Record Date" shall mean the date designated by or pursuant to the
authorization of the Board of Directors of the Company for the purpose of
determining the stockholders of the Company entitled to participate in the
Distribution.
"REMIC" shall mean the obligations known as Structured Asset
Securities Corporation Trust I Collateralized Mortgage Obligation Series
1992-MI, Class D
"Representatives" of a party shall mean such party's officers,
directors, employees, accountants, counsel, investment bankers, financial
advisors, consultants and other representatives.
"Residential Joint Venture Entities" shall mean the following
partnerships and limited liability companies: Southwest Associates L.P., Western
Hills Associates LLC, Cobble Creek Associates LLC, Chimney Ridge Associates,
Bennington Square Associates LP, Willow Park Associates, Dallas Glen Associates,
L.P., Watermans Crossing Associates, L.P., and Louisville Apartments Limited
Partnership.
"Retained Assets" shall mean the assets relating to the Company's
existing residential multifamily property management and ownership and
partnership administration businesses but excluding the entities and assets
listed in Schedule 4.1 hereto.
"Retained Business" shall mean the Company's existing residential
multifamily property management and ownership and partnership administration
businesses, including related assets and liabilities but excluding the entities
and assets listed in Schedule 4.1 hereto.
"Retained Companies" shall mean the Company and its Subsidiaries,
other than Holdings and its Subsidiaries.
"Retained Employees" shall mean those Persons who are employees of the
Retained Companies immediately after the Time of Distribution.
"Retained Liabilities" shall mean (i) all Liabilities or portions of
Liabilities arising primarily out of or in connection with the Retained Assets
or the Retained Business; (ii) all Liabilities under Contracts included in the
Retained Assets, whether such Liabilities arise before, upon or after the
transactions contemplated by this Agreement and including any Liabilities under
such Contracts resulting from the consummation of the transactions contemplated
by this Agreement (including actions, claims or proceedings relating thereto);
(iii) all Liabilities of the Company and its Subsidiaries (other than Holdings
and its Subsidiaries) pursuant to this Agreement, the Merger Agreement, the
Indemnification Agreement and the Transaction Documents; and (iv) all
Liabilities for the payment of outstanding drafts and checks of the Company and
its Subsidiaries to the extent attributable to the Retained Assets or the
Retained Business existing as of the Time of Distribution.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
7
<PAGE>
"Subsidiary" shall mean, with respect to any Person, any corporation
or other organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner or (ii) at
least 50% of the securities or other interests having by their terms ordinary
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization or at
least 50% of the value of the outstanding equity is directly or indirectly owned
or controlled by such Person or by any one or more of its Subsidiaries, or by
such Person and one or more of its Subsidiaries. The Subsidiaries of Holdings
include the Commercial Joint Venture Entities but do not include the Residential
Joint Venture Entities.
"Taxes" shall mean any federal, state, county, local or foreign taxes,
charges, fees, levies or other assessments, including all net income, gross
income, sales and use, ad valorem, transfer, gains, profits, excise, franchise,
real and personal property, gross receipt, capital stock, share, production,
business and occupation, disability, employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges imposed by any
governmental entity, and includes any interest and penalties (civil or criminal)
on or additions to any such taxes.
"Tax Indemnifying Party" shall have the meaning set forth in Section
3.3(a) hereof.
"Tax Indemnitee" shall have the meaning set forth in Section 3.3(a)
hereof.
"Tax Return" shall mean any report, return or other information
required to be supplied to a governmental entity with respect to Taxes.
"Technical Services Agreement" shall have the meaning set forth in
Section 5.14 hereof.
"Time of Distribution" shall mean the time as of which the
Distribution is effective.
"Third Party Claim" shall have the meaning set forth in Section 6.5
hereof.
"Trade Marks" shall have the meaning set forth in Section 5.1(b)
hereof.
"Transaction Documents" shall have the meaning set forth in Section
5.8 hereof.
"Transfer Agent" shall mean First Union National Bank, the transfer
agent for the Company Common Stock.
"VEBA" shall have the meaning set forth in Section 7.2(c) hereof.
8
<PAGE>
ARTICLE II
THE DISTRIBUTION
II.1 Mechanics of the Distribution. The Distribution shall be effected by
the distribution, to each holder of record of shares of Company Common Stock as
of the Record Date, of certificates representing the number of shares of
Holdings Common Stock equal to two-thirds of the number of shares of Company
Common Stock held by such holder; provided, however, that no fractional shares
of Holdings Common Stock shall be issued or delivered. In the event there are
holders of Company Common Stock holding of record on the Record Date a number
of shares of Company Common Stock not wholly divisible by three, the Transfer
Agent shall distribute certificates representing shares of Holdings Common
Stock to such holders on the basis of the next number of shares of Company
Common Stock held below the actual number of shares held which is wholly
divisible by three, multiplied by two. The Transfer Agent shall aggregate all
shares of Holdings Common Stock that would be distributable but for the proviso
to the first sentence of this Section 2.1, shall sell such shares in the public
market as soon as practicable after the Time of Distribution and shall
distribute the proceeds of the sale of such shares pro rata among the holders
of record of Company Common Stock holding such numbers of shares of Company
Common Stock not wholly divisible by three.
II.2 Timing of the Distribution. The Board of Directors of the Company
shall formally declare the Distribution and shall authorize the Company to
effect the Distribution following the approval of the Distribution by the
stockholders of the Company and prior to the Closing Date, subject to the
satisfaction or waiver of the conditions set forth in Article VIII of this
Agreement, by delivery of certificates representing shares of Holdings Common
Stock to the Transfer Agent for delivery to the holders entitled thereto. The
Distribution shall be deemed to be effective upon notification by the Company
to the Transfer Agent that the Distribution has been effected and that the
Transfer Agent is authorized to proceed with the distribution of certificates
representing shares of Holdings Common Stock.
ARTICLE III
TAX MATTERS
III.1 Assumption and Indemnification of Tax Liabilities. Except as
provided in the attached Schedule 3.1, and except as otherwise specifically
provided in the Merger Agreement or the Indemnification Agreement, the
respective Tax liabilities of the Company and its Subsidiaries (other than
Holdings and its Subsidiaries) and of Holdings and its Subsidiaries, whether
arising before, at or after the Time of Distribution, will continue to be the
Tax liabilities of each such party, and each party hereto agrees to save,
indemnify, defend and hold harmless the other, its Subsidiaries and each of
their respective directors, officers, employees, agents, successors and assigns
from and against all such Tax liabilities.
9
<PAGE>
III.2 Failure of the Merger to Occur. In the event the Merger does not
occur, Holdings agrees to save, indemnify, defend and hold harmless the Company
and each of its Subsidiaries and their successors and assigns from and against
any Taxes that arise under Sections 355(e), 355(c)(2) and 361(c)(2) of the Code
and corresponding state or local income and franchise Taxes as a result or on
account of (i) any plan (or series of transactions) of Holdings pursuant to
which one or more persons acquire, directly or indirectly, stock representing a
50% or greater interest in Holdings or (ii) any action of Holdings or any of
its Subsidiaries after the Time of Distribution that is the principal cause of
the Distribution not qualifying as a reorganization and distribution under
Sections 368(a)(1)(D) and 355 of the Code.
III.3 Indemnification Procedures.
(a) Any claim for indemnification under this Article III shall be
made by written notice from the party seeking to be indemnified (the "Tax
Indemnitee") to the party from which indemnification is sought (the "Tax
Indemnifying Party") in the same manner as set forth in Section 5 of the
Indemnification Agreement. Except as otherwise provided in the
Indemnification Agreement, if a Tax Indemnitee becomes aware during an
examination of a Tax Return that the tax authority conducting the
examination is considering asserting a Tax subject to indemnification, the
Tax Indemnitee will (i) promptly notify the Tax Indemnifying Party of this
fact, (ii) to the extent reasonably practicable, segregate the issue from
any other issues being examined, (iii) permit the Tax Indemnifying Party
to control the Tax examination insofar as it relates to that issue and any
administrative or judicial appeals relating to the issue (including
whether to settle the issue or to appeal from an adverse determination
with regard to the issue) and (iv) cooperate with the Tax Indemnifying
Party in all reasonable respects to establish that such Tax is not due and
payable.
(b) Upon a determination that a Tax Indemnifying Party is liable for
a payment of Taxes to a Tax Indemnitee, the Tax Indemnifying Party shall
pay the Tax Indemnitee such Taxes. Except as otherwise provided under the
Indemnification Agreement, such payment will be made on an after-Tax basis
promptly following the submission by the Tax Indemnitee of written
evidence of the payment of indemnified Tax.
(c) Except as otherwise provided in the Merger Agreement, the Company
will be responsible for the preparation and filing of all Tax Returns with
respect to all periods ending on or before the Time of Distribution and
for the payment of all Taxes shown on those Tax Returns to be due.
Holdings and its Subsidiaries will be responsible for the preparation and
filing of all other Tax Returns relating to them or their assets or the
Holdings Businesses which are required to be filed after the Time of
Distribution and for the payment of all Taxes shown on those Tax Returns
to be due and all related estimated Taxes payable after the Time of
Distribution.
(d) Each of the Company and Holdings will, and will cause their
respective personnel to, cooperate fully with each other of them in
connection with the preparation and review of Tax Returns and in
connection with any examinations of any Tax Returns filed by either of
them or their respective Subsidiaries.
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ARTICLE IV
TRANSFER OF ASSETS AND PAYMENT OF LIABILITIES
IV.1 Transfer of Assets to Holdings. Prior to the Time of Distribution, the
Company shall take or cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to Holdings of all of the
Company's and its Subsidiaries' right, title and interest in the Holdings
Entities and the Holdings Assets. "Holdings Entities" and "Holdings Assets"
mean, respectively, the entities and assets identified on Schedule 4.1 under the
headings "Holdings Entities" and "Holdings Assets."
IV.2 Payment of Liabilities. Except as set forth in the Merger Agreement,
the Indemnification Agreement, and the Transaction Documents, from and after
the Time of Distribution, (i) Holdings shall, and shall use its reasonable best
efforts to cause its Subsidiaries to pay, perform and discharge in due course
all of the Holdings Liabilities for which such entity is liable, and (ii) the
Company shall, and shall use its reasonable best efforts to cause its
Subsidiaries (other than Subsidiaries that are not wholly owned Subsidiaries of
Holdings or one of its Affiliates) to, pay, perform and discharge in due course
all of the Retained Liabilities for which such entity is liable.
ARTICLE V
OTHER AGREEMENTS
V.1 Use of "Insignia," "ESG," or "Insignia/ESG" Names.
(a) From and after the Time of Distribution, Holdings shall have all
rights in and use of the name "Insignia," "ESG," "Insignia/ESG" and all
derivatives thereof. Subject to the terms of this Agreement, no later than the
later of (i) 90 days after the Time of Distribution or (ii) 90 days after the
Closing Date, but in no event later than December 31, 1998, the Company agrees
(A) to cause each of the Company and its Subsidiaries (other than Holdings and
its Subsidiaries) to change its name and all of its trade names, trademarks,
service marks and all derivatives thereof, to a name or names which does/do not
include the words "Insignia," "ESG" or "Insignia/ESG" and is/are not
confusingly similar to the words "Insignia," "ESG," "Insignia/ESG" or any other
trademarks, service marks, trade names or logos or all derivatives thereof used
by the Holdings Companies, (B) to cause the word "Insignia," "ESG," and
"Insignia/ESG" and all corporate names, trademarks, service marks, trade names
and logos and all derivatives thereof which are used in any way by the Holdings
Companies to be removed from all marketing, advertising and business materials,
including without limitation, telephone listings, signage, brochures and all
other property used by the Company or any Subsidiary of the Company, except
that the Company and its Subsidiaries may continue to use any remaining
stationary, business cards and other similar property which bears the word
"Insignia" until the stock thereof on hand at the Time of Distribution has been
depleted and (C) to use its reasonable best efforts to cause buildings which
the Company or its Subsidiaries own or in which the Company or its Subsidiaries
rent
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space, to change their names to names not including any reference to
"Insignia," "ESG" or "Insignia/ESG."
(b) Effective upon the Time of Distribution and continuing until the later
of (i) 90 days after the Time of Distribution or (ii) 90 days after the Closing
Date, but in no event later than December 31, 1998, and subject to the terms of
this Agreement, Holdings hereby grants to the Company, solely for the purpose
of complying with the terms of Section 5.1(a) hereof, a limited, non-exclusive,
royalty free license to use the name "Insignia" and the Holdings corporate
name, trade name, trademark, service mark and logo and all derivatives thereof
(collectively, the "Trade Marks") only in connection with the marketing and
sale of goods and/or residential property and asset management services which
are currently undertaken by the Company and each Subsidiary of the Company
(other than the Holdings Companies). All use of the Trade Marks by the Company
shall inure to the benefit of Holdings.
(c) The Trade Marks shall only be used in the same manner in which they
are currently used by the Company and each of its Subsidiaries. In the event
that the Trade Marks are used in a manner inconsistent with the terms of this
sub-section, Holdings shall have the right to terminate the limited license of
Section 5.1(b) upon ten (10) calendar days' prior notice to the Company.
V.2 Release of Holdings by the Company's Lenders. As soon as practicable
after the Time of Distribution, the Company shall use its reasonable best
efforts to cause the Company's Lenders (as defined below) to release Holdings
and its Subsidiaries from any and all obligations under the Credit Agreement (as
defined below) and all ancillary agreements and documents related thereto and to
release all related liens on the assets of Holdings and its Subsidiaries within
a reasonable time after the Distribution; provided, however, that at the
Effective Time, the Company or its successors in interest shall cause the
Lenders to release Holdings and its Subsidiaries from any and all obligations
under the Credit Agreement and all ancillary agreements and documents related
thereto and release all related liens on the assets of Holdings and its
Subsidiaries. The "Credit Agreement" shall mean that certain Amended and
Restated Credit Agreement, dated as of March 19, 1997, by and among the Company,
the lenders party thereto (the "Lenders"), First Union National Bank, as
administrative agent, and Lehman Commercial Paper Inc., as syndication agent, as
amended.
V.3 Books and Records. Prior to or as promptly as practicable after the
Time of Distribution, the Company shall deliver to Holdings all corporate books
and records of the Holdings Companies in the possession of the Retained
Companies and the relevant portions (or copies thereof) of all corporate books
and records of the Retained Companies relating directly and primarily to the
Holdings Companies, the Holdings Businesses or the Holdings Liabilities,
including, in each case, all agreements, litigation files and government
filings. From and after the Time of Distribution, all such books, records and
copies shall be the property of Holdings. The Company may retain copies of all
such corporate books and records. Prior to the Distribution, Holdings shall
deliver to the Company all corporate books and records of the Retained
Companies in the possession of any of the Holdings Companies and relevant
portions (or copies thereof) of all corporate books and records of
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the Holdings Companies relating directly and primarily to the Retained
Companies, the Retained Business or the Retained Liabilities, including, in
each case, all agreements, active litigation files and government filings. From
and after the Time of Distribution, all such books, records and copies shall be
the property of the Company. Holdings may retain copies of all such corporate
books and records.
V.4 Access to Information. Upon reasonable notice, each party shall, and
shall cause its Subsidiaries to, afford to Representatives of the other
reasonable access, during normal business hours throughout the period prior to
and following the Time of Distribution, to all of its properties, books,
contracts, commitments and records (including, but not limited to, Tax Returns)
and, during such period, each party shall, and shall cause its Subsidiaries to,
furnish promptly to the other (i) access to each report, schedule and other
document filed or received by it or any of its Subsidiaries pursuant to the
requirements of federal or state securities laws or filed with or sent to the
United States Securities and Exchange Commission or any other federal or state
regulatory agency or commission and (ii) access to all information concerning
themselves, their Subsidiaries, directors, officers and stockholders and such
other matters as may be reasonably requested by the other party in connection
with any filings, applications or approvals required or contemplated by this
Agreement or for any other reason related to the transactions contemplated by
this Agreement; provided, however, that the foregoing shall apply to Holdings
and the Holding Companies only with respect to information and access necessary
to or required by the Company in preparation of Tax Returns. Nothing in this
Section 5.4 shall require the parties to take any action or furnish any access
or information which would cause or could reasonably be expected to cause the
waiver of any applicable attorney client privilege. In addition, nothing herein
shall require the parties to provide information other than with respect to
itself and its Subsidiaries, or the conduct of their businesses.
V.5 Retention of Records. If any information relating to the businesses,
assets or liabilities of a Retained Company or a Holdings Company is retained
by a Holdings Company or Retained Company, respectively, each of the Company
and Holdings shall, and shall cause the other Retained Companies and Holdings
Companies, respectively, to retain all such information in the Retained
Companies' or Holdings Companies' possession or under its control until such
information is at least ten years old except that if, prior to the expiration
of such period, any Retained Company or Holdings Company wishes to destroy or
dispose of any such information that is at least three years old, prior to
destroying or disposing of any of such information, (a) the Company or
Holdings, on behalf of the Retained Company or the Holdings Company that is
proposing to dispose of or destroy any such information, shall provide no less
than 45 days' prior written notice to the other party, specifying the
information proposed to be destroyed or disposed of, and (b) if, prior to the
scheduled date of such destruction or disposal, the other party requests in
writing that any of the information proposed to be destroyed or disposed of be
delivered to such other party, the Company or Holdings, as applicable, promptly
shall arrange for the delivery of the requested information to a location
specified by, and at the expense of, the requesting party.
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V.6 Confidentiality.
(a) Each party hereto shall keep, and shall cause its Representatives to
keep, the other party's Information strictly confidential and will disclose
such Information only to such of its Representatives who need to know such
Information and who agree to be bound by this Section 5.6 and not to disclose
such Information to any other Person. Without the prior written consent of the
other party, neither party nor any of their respective Representatives shall
disclose the other party's Information to any Person or entity except as may be
required by law or judicial process and in accordance with this Section 5.6.
(b) In the event that either party or any of its Representatives receives
a request or is required by law or judicial process to disclose to a court or
other tribunal all or any part of the other party's Information, the receiving
party or its Representatives shall promptly notify the other party of the
request in writing, and consult with and assist the other party in seeking a
protective order or request for other appropriate remedy. In the event that
such protective order or other remedy is not obtained or the other party waives
compliance with the terms hereof, such receiving party or its Representatives,
as the case may be, shall disclose only that portion of the Information or
facts which, in the written opinion of the receiving party's outside counsel,
is legally required to be disclosed, and will exercise its respective
reasonable best efforts to assure that confidential treatment will be accorded
such Information or facts by the Persons or entities receiving the same. The
providing party will be given an opportunity to review the Information or facts
prior to disclosure.
V.7 Listing on NYSE. Holdings shall use its reasonable best efforts to
list the shares of Holdings Common Stock to be issued pursuant to the
Distribution on the NYSE.
V.8 Further Assurances. The parties agree that if, after the Time of
Distribution, a Holdings Company or a Retained Company holds assets which by
the terms hereof or of the Merger Agreement were intended to be assigned and
transferred to, or retained by, a Retained Company or a Holdings Company,
respectively, each of Holdings and the Company shall, and shall cause the other
Holdings Companies and Retained Companies, respectively, at their expense, to
take all commercially reasonable actions required promptly to assign and
transfer or cause to be assigned and transferred such assets to the applicable
Holdings Company or Retained Company, without the payment of additional
consideration, and the parties agree that the transferring Holdings Company or
Retained Company, as applicable, will hold such assets as agent for the sole
benefit of the transferee Retained Company or Holdings Company, as applicable,
and all income and risk of loss of the transferred assets to the Time of
Distribution shall be for the account of the intended owner. Each of the
parties hereto, at its own cost and expense, promptly shall, or shall cause its
Subsidiaries to, execute such documents (the "Transaction Documents") and take
such further actions as may be reasonably required or desirable to carry out
the provisions hereof and to consummate the transactions contemplated hereby.
As used herein, the term "Transaction Documents" includes, but is not limited
to, the Technical Services Agreement.
V.9 Treatment of Certain Participation Interests.
(a) From and after the Time of Distribution, the Company promptly shall
pay to Holdings that percentage of all Proceeds received by the Company or any
of its Affiliates, or their respective successors and assigns, from the
respective Residential Joint Venture
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Entities and the obligations known as the REMIC in accordance with Holdings'
applicable Participation Interest.
(b) Effective at the Time of Distribution and without further action by
the Company or Holdings, the Company hereby assigns to Holdings, and Holdings
hereby assumes, the Company's duties, obligations and liabilities arising from
or relating to the Incentive Award Letters (as defined below). The Company
agrees to use its reasonable best efforts to obtain the consent of the other
parties to the Incentive Award Letters to said assignments and assumptions and
to the release of the Company from its duties, obligations and liabilities
arising from or relating to the Incentive Award Letters. The "Incentive Award
Letters" shall mean all of the agreements pursuant to which the Company has
granted to any officer or employee of the Company any right to receive a
portion of the Proceeds or any member or partnership interest, including, but
not limited to, the letter agreements listed on Schedule 5.9(b) hereto.
(c) The Company agrees that in the event the Company acquires additional
membership interests or partnership units (the "Additional Interests") in any
Residential Joint Venture Entity after the Time of Distribution which, together
with interests or units owned by the Company at the Time of Distribution, would
constitute a majority of the interests or units of such Residential Joint
Venture Entity, the Company shall pay Holdings an amount equal to the amount
Holdings would have received if such Residential Joint Venture Entity had sold
all of its assets for an aggregate price equal to the per unit price paid by
the Company for the Additional Interests multiplied by the total number of
issued and outstanding membership interests or partnership units of such
Residential Joint Venture Entity.
V.10 Cooperation. The parties shall cooperate with each other in all
reasonable respects to ensure (a) that the Distribution and the assumption (to
the extent necessary) of the Retained Liabilities and of the Holdings
Liabilities are consummated in accordance with the terms hereof, (b) the
retention by the Company of the Retained Business, including, without
limitation, allocating rights and obligations under Contracts, if any, of the
Retained Companies or the Holdings Companies that relate to the Retained
Business, and (c) the retention by Holdings of the Holdings Businesses,
including, without limitation, allocating rights and obligations under
Contracts, if any, of the Holdings Companies or the Retained Companies that
relate to the Holdings Businesses.
V.11 Assumption of Certain Contracts by Holdings. At the Time of
Distribution, the Company will, and will cause its Subsidiaries (other than
Holdings and its Subsidiaries) to, assign to Holdings, and Holdings will
assume, all rights, liabilities and obligations attributable to (i) Holdings
Employees under their respective employment, consulting and severance
agreements with the Company, including, but not limited to, the Contracts
listed in Schedule 5.11 hereto, and (ii) all other Contracts relating to the
Holdings Businesses, including, but not limited to, the Contracts listed in
Schedule 5.11 hereto. The Company will use its reasonable best efforts to
obtain the consent of the other parties to the aforementioned Contracts to the
assignment to Holdings and to the substitution of Holdings for the Company as a
party thereto.
V.12 Payments With Respect to Consulting Agreements; Restricted Stock;
Stock Options.
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(a) From and after the Time of Distribution, in the event that
the Company for any reason does not make a payment to a signatory to
any of the consulting agreements listed in Schedule 5.12(a) hereto
(the "Consulting Agreements") pursuant to a Consulting Agreement, the
Company shall immediately make such payment to Holdings.
(b) From and after the Time of Distribution, in the event that
the Company receives any payment (whether principal or interest) on a
loan made by the Company pursuant to a Consulting Agreement, the
Company shall assign and transfer such loan payment to Holdings
within ten days of the receipt thereof.
(c) From and after the Time of Distribution, in the event the
Company for any reason does not cause the shares of restricted stock
identified in Schedule 5.12(c) (the "Restricted Stock") to vest in
the holder thereof at the times set forth in the terms of grant of
such Restricted Stock, the Company shall immediately pay to Holdings
in cash an amount equal to the fair market value of the shares of
Restricted Stock which did not so vest, determined as of the date on
which such shares of Restricted Stock were to vest as if they had so
vested and were freely transferable.
(d) From and after the Time of Distribution, if the employment
of any Covered Person (as defined in Section 2.1 of the Merger
Agreement) should terminate prior to the vesting of all options to
purchase shares of Company Common Stock held by such Covered Person,
then the Company shall, promptly after such termination, pay to
either such Covered Person or Holdings an amount equal to the "in the
money" spread value of such remaining unvested options as of the Time
of Distribution.
V.13 Conflicting Terms. The terms of this Agreement shall continue
unabridged at and after the Effective Time, except that at and after the
Effective Time, in the event that there are any conflicts between the terms of
this Agreement on the one hand and the terms of the Merger Agreement and the
Indemnification Agreement on the other hand, the terms of the Merger Agreement
and the Indemnification Agreement shall control with respect to such
inconsistent terms.
V.14 Performance of Services. Beginning at the Time of Distribution, (i)
the Company will provide, or cause one or more of its Subsidiaries to provide,
to Holdings or another member of the Holdings Companies computer services and
data processing for accounting and payroll functions at the Company's actual
direct cost through December 31, 1998 and on a month-to-month basis thereafter
pursuant to a Technical Services Agreement, dated as of _____, 1998, by and
among Insignia, Holdings and AIMCO (the "Technical Services Agreement"); and
(ii) Holdings will continue to provide, or cause one or more of its
Subsidiaries to continue provide, to the Company or one or more of its
Subsidiaries management services for certain properties owned by partnerships
whose general partners are Affiliates of the Company on substantially the same
terms and conditions as management agreements currently in effect.
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ARTICLE VI
INDEMNIFICATION AND RELEASES
VI.1 Mutual Release. Effective as of the Time of Distribution and except
as otherwise specifically set forth in this Agreement or the Transaction
Documents, the Merger Agreement or the Indemnification Agreement, each of the
Company, on the one hand, and Holdings, on the other hand, releases and forever
discharges the other and its affiliates, and its and their directors, officers,
employees and agents of and from all debts, demands, actions, causes of action,
suits, accounts, covenants, contracts, agreements, damages, and any and all
claims, demands and liabilities whatsoever of every name and nature, both in
law and in equity, against such other party or any of its assigns, which the
releasing party has or ever had, which arise out of or relate to events,
circumstances or actions taken by such other party prior to the Time of
Distribution; provided, however, that the foregoing general release shall not
apply to this Agreement, the Transaction Documents, the Merger Agreement or the
Indemnification Agreement or the transactions contemplated hereby or thereby
and shall not affect either party's right to enforce this Agreement or the
Transaction Documents, the Merger Agreement, the Indemnification Agreement or
any other agreement contemplated hereby or thereby in accordance with its
terms. Each party understands and agrees that, except as otherwise specifically
provided herein or in the Transaction Documents, the Merger Agreement or the
Indemnification Agreement, neither the other party nor any of its Subsidiaries
is, in this Agreement or any other agreement or document, representing or
warranting to such party in any way as to the assets, business or Liabilities
transferred or assumed as contemplated hereby or thereby or as to any consents
or approvals required in connection with the consummation of the transactions
contemplated by this Agreement, the Transaction Documents, the Merger Agreement
or the Indemnification Agreement.
VI.2 Indemnification by the Company. Except as otherwise expressly set
forth in the Merger Agreement, the Indemnification Agreement, and the
Transaction Documents, the Company shall indemnify, defend and hold harmless
Holdings and each of its Subsidiaries, and each of their respective directors,
officers, employees, agents and Affiliates, and each of the heirs, executors,
successors and assigns of any of the foregoing (the "Holdings Indemnities")
from and against the Retained Liabilities and any and all losses, Liabilities
and damages, including the costs and expenses of any and all actions,
threatened actions, demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such actions or threatened actions (collectively, "Holdings Indemnifiable
Losses" and, individually, a "Holdings Indemnifiable Loss") of the Holdings
Indemnitees arising out of or due to the failure or alleged failure of the
Company or any of its Subsidiaries to pay, perform or otherwise discharge in
due course any of the Retained Liabilities.
VI.3 Indemnification by Holdings. Except as otherwise expressly set forth
in the Merger Agreement, the Indemnification Agreement and the Transaction
Documents, Holdings shall indemnify, defend and hold harmless the Company and
each of its Subsidiaries, and each of their directors, officers, employees,
agents and Affiliates and each of the heirs, executors, successors and assigns
of any of the foregoing (the "Company Indemnitees") from and against the
Holdings Liabilities and any and all losses, Liabilities and damages, including
the costs and expenses of any and all actions, threatened actions, demands,
assessments, judgments, settlements and compromises relating thereto and
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such actions or threatened
actions (collectively,
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"Company Indemnifiable Losses" and, individually, a "Company Indemnifiable
Loss") of the Company Indemnitees arising out of or due to the failure or
alleged failure of Holdings or any of its Affiliates to pay, perform or
otherwise discharge in due course any of the Holdings Liabilities. The "Holdings
Indemnifiable Losses" and the "Company Indemnifiable Losses" are collectively
referred to as the "Indemnifiable Losses."
VI.4 Insurance Proceeds; Tax Benefits; Mitigation. The amount which any
party (an "Indemnifying Party") is or may be required to pay to any other
Person (an "Indemnitee") pursuant to Sections 6.2 or 6.3 shall be reduced
(including retroactively) by (i) any insurance proceeds or other amounts
actually recovered by or on behalf of such Indemnitee in reduction of the
related Indemnifiable Loss and (ii) any Tax benefits realized or realizable by
such Indemnitee based on the present value thereof by reason of such loss and
shall be increased by any Tax liability incurred by such Indemnitee based on
such indemnity payment. If an Indemnitee shall have received the payment
required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and shall subsequently actually receive insurance proceeds,
Tax benefits or other amounts in respect of such Indemnifiable Loss as
specified above, then such Indemnitee shall pay to such Indemnifying Party a
sum equal to the amount of such insurance proceeds, Tax benefits or other
amounts actually received. The Indemnitee shall take all reasonable steps to
mitigate all Losses, including availing itself of any defenses, limitations,
rights of contribution, claims against third parties and other rights at law
(it being understood that any out-of-pocket costs paid to third parties in
connection with such mitigation shall constitute Losses), and shall provide
such evidence and documentation of the nature and extent of any Loss as may be
reasonably requested by the Indemnifying Party.
VI.5 Procedure for Indemnification.
(a) If an Indemnitee shall receive notice or otherwise learn of the
assertion by a person (including any governmental entity) who is not a party to
this Agreement or to any of the Transaction Documents of any claim or of the
commencement by any such Person of any action (a "Third-Party Claim") with
respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; provided, however, that the failure of any Indemnitee to
give notice as required by this Section 6.5 shall not relieve the Indemnifying
Party of its obligations under this Article VI, except to the extent that such
Indemnifying Party is prejudiced by such failure to give notice. Such notice
shall describe the Third-Party Claim in reasonable detail, and shall indicate
the amount (estimated if necessary) of the Indemnifiable Loss that has been or
may be sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel reasonably acceptable to the Indemnitee, any Third-Party
Claim, provided that the Indemnifying Party must confirm in writing that it
agrees that the Indemnitee is entitled to indemnification hereunder in respect
of such Third-Party Claim. Within 30 days of the receipt of notice from an
Indemnitee in accordance with Section 6.5(a) (or sooner, if the nature of such
Third-Party Claim so requires), the Indemnifying Party shall notify the
Indemnitee of its election whether to assume responsibility for such
Third-Party Claim (provided that if the Indemnifying Party does not
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so notify the Indemnitee of its election within 30 days after receipt of such
notice from the Indemnitee, the Indemnifying Party shall be deemed to have
elected not to assume responsibility for such Third-Party Claim), and such
Indemnitee shall cooperate in the defense or settlement or compromise of such
Third-Party Claim. After notice from an Indemnifying Party to an Indemnitee of
its election to assume responsibility for a Third-Party Claim, such
Indemnifying Party shall not be liable to such Indemnitee under this Article VI
for any legal or other expenses (except expenses approved in advance by the
Indemnifying Party) subsequently incurred by such Indemnitee in connection with
the defense thereof; provided, however, that if the defendants in any such
claim include both the Indemnifying Party and one or more Indemnitees and in
such Indemnitees' reasonable judgment there exists a conflict of interest
between such Indemnitees and the Indemnifying Party, such Indemnitees shall
have the right to employ separate counsel and in that event the reasonable fees
and expenses of such separate counsel (but not more than one separate counsel
reasonably satisfactory to the Indemnifying Party) shall be paid by such
Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was inappropriately tendered under
Section 6.2 or 6.3, as the case may be) such Indemnitee may defend or (subject
to the following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnitee may not settle or compromise any
Third-Party Claim without prior written notice to the Indemnifying Party, which
shall have the option within fifteen days following the receipt of such notice
(i) to disapprove the settlement and assume all past and future responsibility
for the claim, including reimbursing the Indemnitee for prior expenditures in
connection with the claim, or (ii) to disapprove the settlement and continue to
refrain from participation in the defense of the claim, in which event the
Indemnifying Party shall have no further right to contest the amount or
reasonableness of the settlement if the Indemnitee elects to proceed therewith,
or (iii) to approve the amount of the settlement, reserving the Indemnifying
Party's right to contest the Indemnitee's right to indemnity, or (iv) to
approve and agree to pay the settlement. In the event the Indemnifying Party
makes no response to such written notice from the Indemnitee, the Indemnifying
Party shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to compromise
any Third-Party Claim, the Indemnitee shall make available to such Indemnifying
Party any personnel and any books, records or other documents within its
control or which it otherwise has the ability to make available that are
necessary or appropriate for such defense.
(d) Notwithstanding anything else in this Section 6.5 to the contrary, an
Indemnifying Party shall not settle or compromise any Third-Party Claim unless
(i) such settlement or compromise contemplates as an unconditional term thereof
the giving by such claimant or plaintiff to the Indemnitee of a written release
from all liability in respect of such Third-Party Claim and (ii) such
settlement does not provide for any non-monetary relief by Indemnitee unless
Indemnitee consents thereto. In the event the Indemnitee shall notify the
Indemnifying Party in writing that such Indemnitee declines to accept any such
settlement or compromise, such Indemnitee may continue to contest such
Third-Party Claim, free of any participation by such Indemnifying Party, at
such Indemnitee's sole expense. In such event, the obligation of such
Indemnifying Party to such Indemnitee with respect to such Third-Party Claim
shall be equal to (i) the costs and expenses of such Indemnitee prior to the
date such Indemnifying Party notifies such Indemnitee of such offer of
settlement or compromise (to the extent such costs and expenses are otherwise
indemnifiable
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hereunder) plus (ii) the lesser of (A) the amount of any offer of
settlement or compromise which such Indemnitee declined to accept and (B) the
actual out-of-pocket amount such Indemnitee is obligated to pay subsequent to
such date as a result of such Indemnitee's continuing to pursue such
Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not result
from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 30 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 30-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 30-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement, the Merger Agreement or the
Indemnification Agreement.
(f) In addition to any adjustments required pursuant to Section 6.4, if
the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third-Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or
claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
VI.6 Remedies Cumulative. The remedies provided in this Article VI shall
be cumulative and shall not preclude assertion by any Indemnitee of any other
rights or the seeking of any and all other remedies against any Indemnifying
Party.
VI.7 Survival of Indemnities. The obligations of each of Holdings and the
Company under this Article VI shall survive the sale or other transfer by it of
any assets or businesses or the assignment by it of any Liabilities, with
respect to any Indemnifiable Loss of the other related to such assets,
businesses or Liabilities.
VI.8 Tax Matters. Notwithstanding anything to the contrary in this Article
VI, any claim for indemnification with respect to any Liabilities which are Tax
liabilities of the Company and Holdings shall be governed by the terms and
provisions of Article III hereof.
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ARTICLE VII
EMPLOYEE MATTERS
VII.1 Employees. Immediately prior to, and subject to, the Distribution,
the Company shall transfer to Holdings (or the Holdings Companies) the
employees whose employment relates to the Holdings Companies and Holdings
Businesses, as determined by the Company in its sole discretion, so that no
such employee who becomes employed by Holdings experiences any termination or
other interruption in employment. The employees who become employees of
Holdings upon the Distribution shall not be employees of the Company or any
Subsidiary of the Company at the Time of Distribution, except as otherwise
agreed to in writing by the parties. Effective as of the Time of Distribution,
(a) Retained Employees shall remain or become employees of the Retained
Companies in the same capacities as then held by such employees (or in such
other capacities and upon such terms and conditions as the Company shall
determine in its sole discretion) and (b) Holdings Employees shall remain or
become employees of the Holdings Companies in the same capacities as then held
by such employee (or in such other capacities and upon such terms and
conditions as Holdings shall determine in its sole discretion). Nothing
contained in this Section 7.1 shall confer on any Retained Employee or any
Holdings Employee any right to continued employment after the Time of
Distribution, and such employees shall continue to be employed "at-will." At
and from the Time of Distribution, except as set forth in this Article VII,
Holdings shall assume all obligations relating to all employees, including the
Former Employees and employees of the Holdings Companies, arising prior to or
at the Time of Distribution or, if the Merger is consummated, prior to or at
the Effective Time, including all obligations or liabilities relating to
employee benefits, health insurance and severance, if any.
VII.2 Employee Benefits. Without limiting the generality of Section 7.1
above:
(a) Accrued Vacation. The Company and Holdings agree that all accrued
vacation for Retained Employees on and after the Time of Distribution shall be
the Company's obligation; provided, however, that if a Retained Employee (other
than on-site employees) is terminated or quits prior to December 31, 1998 (or
December 31, 1999 if the Closing Date occurs in 1999) and such Retained
Employee (other than on-site employees) was entitled to accrued vacation
relating to his employment prior to the Effective Time (the "Holdings Vacation
Obligation") at the time of his departure and received a cash payment for such
Holdings Vacation Obligation, Holdings shall promptly reimburse the Company for
such amount.
(b) 401(k) Plan and Restoration Plan. Immediately prior to, and subject
to, the Distribution, the Company shall cause a "spin-off" of the assets and
liabilities of the Company's 401(k) Retirement Plan (the "Existing 401(k)
Plan") resulting in the division of the Existing 401(k) Plan into two separate,
identical, component plans and trusts, in accordance with applicable law
(including, without limitation, Section 414(l) of the Code), covering,
respectively, (i) the Retained Employees (and their beneficiaries) (the
"Company 401(k) Plan") and (ii) all other Existing 401(k) Plan participants
(and their beneficiaries) (the "Holdings 40l(k)Plan"). Immediately prior to,
and subject to, the Distribution, the Company shall cause a "spin-off" of the
assets and liabilities of the Company 401(k) Restoration Plan (the "Existing
Restoration Plan") resulting in the division of the Existing Restoration Plan
into two separate, identical component plans and trusts, covering,
respectively, (i) the Retained Employees (and their beneficiaries) (the
"Company Restoration Plan") and (ii) all other Existing Restoration Plan
participants (and their beneficiaries) (the "Holdings Restoration Plan").
Immediately prior to, and subject to, the Distribution, the Company shall cause
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the Holdings 401(k) Plan and the Holdings Restoration Plan to be transferred to
Holdings but shall retain the Company 401(k) Plan and the Company Restoration
Plan. Prior to the Distribution, the Company shall draft the appropriate
documents and us its reasonable best efforts to take all actions necessary, to
the extent possible, to effectuate the intent of this Section 7.2(b).
(c) Welfare Plans. Except as otherwise provided herein, immediately prior
to, and subject to, the Distribution, the Company shall cause all Company
employee benefit plans that are employee welfare benefit plans, as defined in
Section 3(l) of ERISA (the "Existing Welfare Plans"), to be divided into
separate, identical component plans covering, respectively, (i) the Retained
Employees (and their beneficiaries) (the "Company Welfare Plans") and (ii) all
other Existing Welfare Plan participants, including without limitation,
participants (and their beneficiaries) who experienced a "qualifying event" for
purposes of the group health plan continuation coverage requirements of Section
4980 of the Code and Title I, Subtitle B of ERISA prior to the Closing Date
regardless of when an election for continuation coverage is made by the
participant (the "Holdings Welfare Plans"). Notwithstanding the foregoing, the
Company shall cause the Company Long Term Disability Plan (the "Existing LTD
Plan") to be divided into two separate, identical component plans covering,
respectively, (i) employees who work for the Company after the Distribution and
employees who were working in the United States based multifamily apartment
business of the Company and the Subsidiaries not set forth on Section 4.2(h) of
the Company Disclosure Letter at the time they became eligible for benefits
under the Existing LTD Plan (the "Company LTD Plan") and (ii) all other
participants in the Existing LTD Plan (the " Holdings LTD Plan"). Without
limiting the generality of the foregoing, immediately prior to, and subject to,
the Distribution, the Company shall cause a "spin-off" of the assets and
liabilities of each of the Company Voluntary Employees' Beneficiary Association
and the Company's existing Flexible Spending Plan (which contains premium,
dependent care and medical health reimbursement component parts) (respectively,
the "VEBA" and the "Flex Plan") resulting in the division of each of the VEBA
and the Flex Plan into separate, identical, component plans and trusts, in
accordance with applicable law, covering, respectively, (i) the Retained
Employees (and their beneficiaries) (respectively, the "Company VEBA" and
"Company Flex Plan") and (ii) all other participants (and their beneficiaries)
in the VEBA and the Flex Plan (respectively, the "Holdings VEBA" and the
"Holdings Flex Plan"). Immediately prior to and subject to, the Distribution,
the Company shall cause the Holdings Welfare Plans, Holdings LTD Plan, Holdings
VEBA and Holdings Flex Plan to be transferred to Holdings but shall retain the
Company Welfare Plans, Company LTD Plan, Company VEBA and Company Flex Plan.
Prior to the Distribution, the Company shall draft the appropriate documents
and use its reasonable best efforts to take all actions necessary, to the
extent possible, to effectuate the intent of this Section 7.2(c).
(d) Stock Plans. Immediately prior to, and subject to, the Distribution,
the Company shall cause Holdings to assume all options and awards of restricted
stock (whether vested or unvested) held under the Company Stock Plans by
employees of the Company who become employees of Holdings and convert such
options and awards of restricted stock into an option to purchase shares of
common stock of Holdings or an award of restricted shares of common stock of
Holdings, as applicable, as the Company deems appropriate to reflect the
Distribution. Prior to the Distribution, the Company shall draft the
appropriate documents and use its reasonable best efforts to take all actions
necessary, to the extent possible, to effectuate the intent of this Section
7.2(d).
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(e) Continuation of Group Health Plan Coverage. Holdings and the Holdings
Companies shall be responsible for all obligations and liabilities relating to
or arising under the group health plan continuation coverage requirements of
Section 4980B of the Code and Title I, Subtitle B of ERISA for employees
employed by the Company prior to the Closing Date other than the Retained
Employees. Holdings and the Holdings Companies shall also be responsible for
any liabilities or obligations for severance obligations relating to employees
of the Company employed by the Company prior to the Closing Date other than the
Retained Employees.
VII.3 Other Liabilities and Obligations. Effective as of the Time of
Distribution, Holdings shall assume and be solely responsible for (i) all
liabilities and obligations related to the Holdings Employees and (ii) except
as specifically provided in this Article VII and except to the extent otherwise
provided in this Agreement, the Merger Agreement, the Indemnification Agreement
or the Transaction Documents, all liabilities and obligations related to the
Retained Employees that were incurred on or before the Time of Distribution.
Effective as of the Time of Distribution, the Company shall assume and be
solely responsible for (i) all liabilities and obligations related to the
Retained Employees incurred after the Time of Distribution, (ii) all holiday,
vacation and sick day benefits of the Retained Employees accrued as of the Time
of Distribution, except as otherwise provided for in this Article VII, and
(iii) all other liabilities, including, without limitation, for worker's
compensation and medical benefits. For purposes of this Section 7.3, a
liability is "incurred" on either the date the event giving rise to the
liability occurs or, if the liability is related to more than one event, the
date the first event to which the liability relates occurs. Notwithstanding the
foregoing, deferred directors' fees shall be the sole responsibility of
Holdings.
VII.4 Actions by Holdings. Any action required to be taken under this
Article VII may be taken by any member of the Holdings Companies.
ARTICLE VIII
CONDITIONS
The obligations of the Company and Holdings to consummate the Distribution
shall be subject to the fulfillment of each of the following conditions:
VIII.1 Stockholder Approval. The stockholders of the Company shall have
approved the Distribution.
VIII.2 Opinion of Tax Counsel. The Company shall have received an opinion
of Rogers & Wells LLP (or another recognized law firm acceptable to the
recipient) that, based upon certificates and letters acceptable to Rogers &
Wells LLP (or another nationally recognized law firm acceptable to the Company)
dated as of the Time of Distribution, the Distribution should qualify as a
tax-deferred distribution to the Company's stockholders (with customary
exceptions, assumptions and qualifi cations and based on customary
representations).
VIII.3 Certain Transactions. The actions provided for in Section 4.1 shall
have been consummated in accordance with Section 4.1 in all material respects.
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VIII.4 Adequate Surplus. The Boards of Directors of the Company and
Holdings shall be reasonably satisfied that, after giving effect to the
Distribution, (i) the Company will not be insolvent and will not have
unreasonably small capital with which to engage in its businesses and (ii) the
Company's surplus will be sufficient to permit, without violation of Section
170 of the DGCL, the Distribution.
VIII.5 Release of Obligations. The Boards of Directors of the Company and
Holdings shall be reasonably satisfied that the obligations of Holdings and its
Subsidiaries under the Credit Agreement and the related liens on the assets of
Holdings and its Subsidiaries will be released within a reasonable time after
the Distribution.
VIII.6 Bank Consent. The Lenders under the Credit Agreement shall have
consented to the Distribution and the other transactions provided for herein on
terms acceptable to the Boards of Directors of the Company and Holdings.
ARTICLE IX
MISCELLANEOUS AND GENERAL
IX.1 Termination. This Agreement may be terminated by the Company at any
time prior to the Time of Distribution.
IX.2 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 9.1, no party to this Agreement (or any of its
directors or officers) shall have any liability or further obligation to any
other party.
IX.3 Modification or Amendment. The parties hereto may modify or amend
this Agreement by written agreement executed and delivered by authorized
officers of the respective parties.
IX.4 Waiver; Remedies. The conditions to the Company's obligation to
consummate the Distribution are for the sole benefit of the Company and may be
waived in writing by the Company in whole or in part to the extent permitted by
applicable law. No delay on the part of any party hereto in exercising any
right, power or privilege hereunder will operate as a waiver thereof, nor will
any waiver on the part of any party hereto of any right, power or privilege
hereunder operate as a waiver of any other right, power or privilege hereunder,
nor will any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder. Unless otherwise provided, the
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties may otherwise have at law or in equity.
IX.5 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in separate counterparts, each such counterpart being
deemed to be an original instrument, and which counterparts shall together
constitute the same agreement.
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IX.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to its
conflicts of law principles.
IX.7 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered by
facsimile (upon confirmation of receipt) or personally, (ii) on the first
business day following the date of dispatch if delivered by Federal Express or
other next-day courier service, or (iii) on the third business day following
the date of mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
If to the Company before the Effective Time:
Insignia Financial Group, Inc.
102 Woodmont Blvd.
Suite 400
Nashville, TN 37205
Attn: Frank Garrison
Telecopy: (615) 783-1021
Telephone: (615) 783-1099
with a copy (which shall not constitute notice) to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Attn: Arnold S. Jacobs, Esq.
Telecopy: (212) 969-2900
Telephone: (212) 969-3210
If to the Company or after the Effective Time, to the above address for
the Company (but not to Proskauer Rose LLP) and to:
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
Attn: Peter K. Kompaniez
Telecopy: (303) 757-8735
Telephone: (303) 757-8101
with a copy (which shall not constitute notice) to:
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Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Thomas C. Janson, Esq.
Telecopy: (213) 687-5221
Telephone: (213) 687-5600
If to Insignia/ESG Holdings, Inc., to:
Insignia/ESG Holdings, Inc.
200 Park Avenue
New York, New York 10166
Attn: Adam B. Gilbert, Esq.
Telecopy: (212) 984-6655
Telephone: (212) 984-6644
with a copy (which shall not constitute notice) to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Attn: Arnold S. Jacobs, Esq.
Telecopy: (212) 969-2900
Telephone: (212) 969-3210
IX.8 Captions. All Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
IX.9 No Third Party Beneficiary. This Agreement is for the purpose of
defining the respective rights and obligations of the parties hereto and is not
for the benefit of any employee, creditor or other third party, except as may
be expressly set forth herein.
IX.10 Successors and Assigns. No party to this Agreement shall convey,
assign or otherwise transfer any of its rights or obligations under this
Agreement without the express written consent of the other party hereto in its
sole and absolute discretion. Any such conveyance, assignment or transfer
without the express written consent of the other party shall be void ab initio.
No assignment of this Agreement or any rights hereunder shall relieve the
assigning party of its obligations hereunder. Any successor by merger to a
party to this Agreement shall be substituted for such party as a party to this
Agreement, and all obligations, duties and liabilities of the substituted party
under this Agreement shall continue in full force and effect as obligations,
duties and liabilities of the substituting party, enforceable against the
substituting party as a principal, as though no substitution had been made.
IX.11 Certain Obligations. Whenever this Agreement requires any of the
Subsidiaries of any party to take any action, this Agreement will be deemed to
include an undertaking on the part of such party to cause such Subsidiary to
take such action.
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<PAGE>
IX.12 Specific Performance. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, the party or parties who are or are to be thereby aggrieved shall
have the right of specific performance and injunctive relief giving effect to
its or their rights under this Agreement, in addition to any and all other
rights and remedies at law or in equity, and all such rights and remedies shall
be cumulative. The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
IX.13 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
IX.14 Jurisdiction. Each of the Company and Holdings hereby (i)
consents to be subject to the jurisdiction of the United States District Court
for the Southern District of New York and the jurisdiction of the courts of the
State of New York in any suit, action or proceeding seeking to enforce any
provision of, or based in any matter arising out of or in connection with, this
Agreement or the transaction contemplated hereby, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, (iii) agrees that it will not bring any action
relating to this Agreement or the transactions contemplated hereby in any court
other than the United States District Court for the Southern District of New
York or the courts of the State of New York, (iv) irrevocably waives (x) any
objection that it may have or hereafter have to the changing of venue of any
such suit, action or proceeding in such court and (y) any claim that any such
suit, action or proceeding in any such court has been brought in an inconvenient
forum, and (v) irrevocably consents to the service of any and all process in any
such suit, action or proceeding by the delivery of such process to such party at
the address and in the manner provided in Section 9.7 hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first above
written.
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INSIGNIA FINANCIAL GROUP, INC.
By: /s/Andrew L. Farkas
-----------------------
Andrew L. Farkas
Chairman, President and
Chief Executive Officer
INSIGNIA/ESG HOLDINGS, INC.
By: /s/ Stephen B. Siegel
------------------------
Stephen B. Siegel
President
(EXCLUDES ALL SCHEDULES)
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CERTIFICATE OF DESIGNATION
OF
INSIGNIA FINANCIAL GROUP, INC.
UNDER SECTION 151 OF THE DELAWARE GENERAL CORPORATION LAW,
INSIGNIA FINANCIAL GROUP, INC., a Delaware corporation (the "Corporation"),
certifies as follows:
FIRST: Under the authority contained in Article FOURTH of the Certificate
of Incorporation of the Corporation, as amended, the Board of Directors of the
Corporation has classified 250,000 of the authorized but unissued shares of
Preferred Stock of the Corporation, par value $.01 per share, as shares of
"Convertible Preferred Stock".
SECOND: The following resolution was duly adopted by the Board of
Directors on February 3, 2000 and such resolution has not been modified and is
in full force and effect on the date hereof:
RESOLVED, that the Board of Directors hereby creates, from the authorized
but unissued shares of Preferred Stock of the Corporation, par value $.01 per
share (hereinafter the "Preferred Stock"), a series of Preferred Stock to
consist of 250,000 shares, and hereby fixes the voting powers, designation,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, of the shares of such
series, in addition to those set forth in the Certificate of Incorporation, as
follows:
(a) Designation. The designation of the series of Preferred Stock created
by this resolution shall be "Convertible Preferred Stock" (hereinafter the
"Convertible Preferred Stock") and the number of shares constituting the
Convertible Preferred Stock shall be 250,000 shares. Shares of the Convertible
Preferred Stock shall have a stated value of $100.00 per share. The number of
authorized shares of the Convertible Preferred Stock may be reduced by further
resolution duly adopted by the Board of Directors and by the filing of a
certificate pursuant to the provisions of the General Corporation Law of the
State of Delaware stating that such reduction has been so authorized, but the
number of authorized shares of the Convertible Preferred Stock shall not be
increased.
<PAGE>
(b) Dividends.
(1) The Corporation shall pay on February 1, May 1, August 1 and November
1 (each of such dates being a "Dividend Payment Date" and each of such
quarterly periods being a "Dividend Payment Period") of each twelve-month
period following the date of the initial issuance of the Convertible Preferred
Stock (the "Initial Issuance Date"), a dividend per share of Convertible
Preferred Stock outstanding on such Dividend Payment Date, at a rate per annum
of 4%, payable, at the option of the Corporation, (i) in cash equal to 4% of
the stated value divided by 4, (ii) in shares of Common Stock (with any
fractional shares being rounded up or down to the nearest whole share) equal to
4% of the stated value divided by 4, and further divided by the Market Price
per Common Share on such Dividend Payment Date or (iii) a combination thereof;
provided, however, that the cash or the number of shares of Common Stock
payable as a dividend for the initial Dividend Payment Period, or any other
period shorter or longer than a full Dividend Payment Period, on the
Convertible Preferred Stock shall be computed by multiplying the result of the
previous calculation by a fraction the numerator of which shall be the number
of days in such Dividend Payment Period and the denominator of which shall be
90. If dividends are not paid in cash, out of funds then legally available
therefor, the Board of Directors of the Corporation shall declare and pay the
dividends in shares of Common Stock.
Accrued dividends, whether or not declared, not paid on the Dividend
Payment Date therefor shall compound quarterly, at a rate per annum equal to 4%
per annum until the date of payment of such dividend. Each such dividend shall
be paid to the holders of record of shares of the Convertible Preferred Stock
as they appear on the stock books of the Corporation on such record date, not
more than 60 nor less than 10 days preceding the payment date thereof, as shall
be fixed by the Board of Directors or a duly authorized committee thereof.
Accumulated but unpaid dividends for any past quarterly dividend periods may be
declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not more than 60 nor less than
10 days preceding the payment date thereof, as may be fixed by the Board of
Directors or a duly authorized committee thereof. Dividends shall be paid in
cash or Common Stock as provided above.
(2) So long as any shares of Convertible Preferred Stock are outstanding,
no dividends shall, for any period, be declared or paid or set apart for
payment on the Preferred Stock of any series ranking, as to dividends, on a
parity with or junior to the Convertible Preferred Stock, and no such Preferred
Stock of any such series shall be redeemed, purchased or otherwise acquired by
the Corporation or any Subsidiary (as hereinafter defined) for any
consideration (except by conversion into or exchange for capital stock of the
Corporation ranking junior to the Convertible Preferred Stock as to dividends
and liquidation rights) unless full cumulative compound dividends have been or
contemporaneously are declared and paid (or declared and a sum sufficient for
the payment thereof set apart for such payment) on the Convertible Preferred
Stock for all Dividend Payment Periods terminating on or prior to the date of
payment of such dividends; provided, however, that the foregoing restriction on
redemption, purchase or acquisition of Preferred Stock shall be inapplicable to
the conversion of the Convertible Preferred Stock into Common Stock of the
Corporation (hereinafter the "Common Stock") pursuant to the terms hereof. When
dividends are not paid in full upon the shares of the
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Convertible Preferred Stock and such other Preferred Stock ranking on a parity
as to dividends with the Convertible Preferred Stock, all compound dividends
declared upon shares of the Convertible Preferred Stock and such other
Preferred Stock shall be declared pro rata so that the amount of compound
dividends declared per share on the Convertible Preferred Stock and such other
Preferred Stock shall in all cases bear to each other the same ratio that
dividends per share on the shares of the Convertible Preferred Stock and such
other Preferred Stock bear to each other. Holders of shares of the Convertible
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
property or securities, in excess of full cumulative compound dividends, as
herein provided, on the Convertible Preferred Stock. Other than as provided in
Paragraph (b)(1) above, no interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on the Convertible
Preferred Stock, whether or not accumulated and unpaid. "Subsidiary" means any
corporation or other entity of which the Corporation shall at the time own
directly or indirectly through one or more Subsidiaries at least a majority of
the outstanding capital stock (or other equity interest) entitled to vote
generally for the election of directors.
(3) So long as any shares of the Convertible Preferred Stock are
outstanding, unless all payments for the redemption or retirement pursuant to
Paragraph (c) below have been made or set aside for payment and full cumulative
compound dividends on the Convertible Preferred Stock have been paid (or
declared and a sum sufficient for the payment thereof set apart for such
payment), no dividends (other than a dividend in the form of shares of Common
Stock or of shares of any other capital stock of the Corporation ranking junior
to the Convertible Preferred Stock as to dividends and liquidation rights) or
distribution shall be declared or paid or set apart for payment or other
distribution declared or made upon the Common Stock or upon any other capital
stock of the Corporation ranking junior to or on a parity with the Convertible
Preferred Stock as to dividends or liquidation rights, and no Common Stock or
any other stock of the Corporation ranking junior to or on a parity with the
Convertible Preferred Stock as to dividends or liquidation rights shall be
redeemed, purchased or otherwise acquired for any consideration by the
Corporation or any Subsidiary (except by conversion into or exchange for
capital stock of the Corporation ranking junior to the Convertible Preferred
Stock as to dividends and liquidation rights). The foregoing restriction on
redemption, purchase or acquisition of Common Stock or any other capital stock
of the Corporation ranking junior to or on a parity with the Convertible
Preferred Stock shall be inapplicable to (a) any payments in lieu of issuance
of fractional shares thereof whether upon any merger, conversion, stock
dividend or otherwise; (b) the acquisition of any shares of Common Stock or
other capital stock of the Corporation in connection with the settlement of
disputes arising out of acquisitions by the Corporation pursuant to which such
stock was issued; (c) the rescission of any acquisition or disposition by the
Corporation pursuant to which such stock was issued; (d) the purchase or
redemption of any warrants to purchase capital stock of the Corporation; or (e)
the conversion of shares of Convertible Preferred Stock into Common Stock.
(4) Notwithstanding the foregoing provisions of this paragraph (b),
dividends on the Convertible Preferred Stock may not be paid if (i) the
Corporation is insolvent or would be rendered insolvent thereby or (ii) such
payment would impair the Corporation's capital.
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(c) Redemption.
(1) Optional Redemption. The shares of the Convertible Preferred Stock
will be redeemable at any time on or after February 15, 2004 at the option of
the Corporation (hereinafter an "Optional Redemption Date"), either in whole at
any time, or in part from time to time, at the stated value thereof, together
with accrued and unpaid compound dividends on the shares of Convertible
Preferred Stock redeemed.
(2) Notice of any redemption of shares of the Convertible Preferred Stock,
specifying the time and place of redemption and the date and time at which the
shares shall cease to be convertible, shall be mailed to each holder of record
of the shares to be redeemed, at his address of record, not more than 60 days
nor less than 30 days prior to the Optional Redemption Date; if less than all
the shares owned by such stockholder are then to be redeemed, the notice shall
also specify the number of shares thereof which are to be redeemed and the
numbers of the certificates representing such shares.
(3) Unless default be made in the payment in full of the redemption price
and any accrued and unpaid compound dividends, (a) the shares of Convertible
Preferred Stock will cease to be convertible into shares of Common Stock at the
close of business on the Optional Redemption Date (unless such day is not a
Business Day, in which event the shares of Convertible Preferred Stock shall
cease to be convertible on the next succeeding business day); (b) dividends on
the shares called for redemption shall cease to accrue on the Optional
Redemption Date; (c) all rights of the holders of such shares as stockholders
of the Corporation by reason of the ownership of such shares shall cease on the
Optional Redemption Date, except the right to receive the amount payable upon
redemption of such shares, on presentation and surrender of the respective
certificates representing such shares; and (d) such shares shall not after the
Optional Redemption Date be deemed to be outstanding. In case less than all the
shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares without cost to the holder
thereof.
(4) Any shares of the Convertible Preferred Stock which shall at any time
have been redeemed shall, after such redemption, have the status of authorized
but unissued shares of Preferred Stock, without designation as to series until
such shares are once more designated as part of a particular series by the
Board of Directors.
(5) If less than all of the outstanding shares of the Convertible
Preferred Stock are to be redeemed, the Corporation shall select the shares to
be redeemed, if the shares of the Convertible Preferred Stock are listed on a
national securities exchange, in accordance with the rules of such exchange,
or, if the shares of Convertible Preferred Stock are not so listed, as nearly
pro rata as practicable or by lot, at the discretion of the Board of Directors.
The Corporation shall make the selection from the shares outstanding, not
previously called for redemption.
(6) Notwithstanding the foregoing provisions of this Paragraph (c), the
shares of the Convertible Preferred Stock may not be redeemed in whole or in
part if (i) the
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Corporation is insolvent or would be rendered insolvent thereby or (ii) such
redemption would impair the Corporation's capital.
(d) Voting.
(1) Unless the vote of the holders of a greater number of shares shall
then be required by law, (i) the approval of holders of at least two-thirds of
the votes entitled to be cast by the holders of all of the outstanding shares
of the Convertible Preferred Stock at the time outstanding, voting as a single
class (and in such instances each share of Convertible Preferred Stock shall be
entitled to one vote per share), given in person or by proxy, by vote at a
meeting called for that purpose, shall be necessary for authorizing, effecting
or validating any amendment, alteration or repeal of any of the provisions of
the Certificate of Incorporation or By-laws of the Corporation which would
materially adversely affect the preferences, rights or powers of the
Convertible Preferred Stock; provided, however, that any amendment of the
provisions of the Certificate of Incorporation which would authorize or create
or increase the authorized amount of any capital stock ranking senior to, on a
parity with or junior to the Convertible Preferred Stock as to dividends and
liquidation rights shall not be deemed to adversely affect the preferences,
rights or powers of the Convertible Preferred Stock.
(2) If the equivalent of four quarterly dividends payable on the
Convertible Preferred Stock are in arrears (whether or not consecutive)
(hereinafter a "Default"), the holders of all outstanding shares of Convertible
Preferred Stock voting together with the holders of all other series of the
Preferred Stock then having a similar special voting right because of the
existence of a similar condition with respect thereto (the Convertible
Preferred Stock and all such other series are hereinafter referred to as the
"Defaulted Series") will be entitled, as a single class, to elect to the Board
of Directors two directors, and in such instances will be entitled to one vote
per share. Such voting rights shall remain vested until such time as all
dividends in arrears shall have been paid in full (or declared and a sum
sufficient for the payment thereof set aside for payment). Each director
elected by the holders of the Defaulted Series (hereinafter a "Preferred
Director") shall serve, in accordance with the By-laws of the Corporation, as
such a director until the payment in full of the dividend arrearage. Any
Preferred Director may be removed by, and shall not be removed except by, the
vote of the holders of record of a majority of the shares of the Defaulted
Series, voting as a single class at a meeting of the stockholders, or of the
holders of the Defaulted Series, called for the purpose. So long as all
dividends on the Defaulted Series in arrears have not been paid or declared and
set apart for payment, (a) any vacancy in the office of a Preferred Director
may be filled (except as provided in the following clause (b)) by an instrument
in writing signed by a majority of the remaining Preferred Directors and filed
with the Corporation, and (b) in the case of the removal of any Preferred
Director, the vacancy may be filled by the majority vote of the holders of the
Defaulted Series, voting as a separate class. Each director elected as
aforesaid by a majority of the remaining Preferred Directors shall be deemed,
for all purposes hereof, to be a Preferred Director.
Such special voting rights may be initially exercised either at a special
meeting of holders of the Defaulted Series or at any annual stockholders'
meeting. A special meeting for the exercise of such rights shall be called by
the Secretary of the Corporation as promptly as
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possible, and in any event within 10 days after receipt of a written request
signed by the holders of record of at least 10% of the outstanding shares of
the Defaulted Series addressed to him at the principal office of the
Corporation, in each case by sending written notice of such meeting to each
Defaulted Series stockholder at his registered address. Such notice shall state
the purpose of the meeting and the place and time for the meeting.
A meeting for the removal of a director elected by the holders of the
Defaulted Series and the filling of the vacancy created thereby shall be called
by the Secretary of the Corporation within 10 days after receipt of a written
request signed by the holders of record of at least 10% of the outstanding
shares of the Defaulted Series by sending, in each case, written notice of such
meeting to each holder of the Defaulted Series at his registered address. Such
meeting shall be held at the earliest practicable date thereafter. Such notice
shall state the purpose of the meeting and the place and time for the meeting.
If any meeting of holders of the Defaulted Series required to be called
shall not have been called within 10 days after personal service of a written
request therefor upon the Secretary of the Corporation, or within 15 days after
mailing the same within the United States of America by registered mail
addressed to the Secretary of the Corporation at its principal office, then the
holders of record of at least 10% of the outstanding shares of the Defaulted
Series may designate in writing one of their number to give notice of such
meeting at the expense of the Corporation and such meeting may be called by
such person so designated upon the notice required for annual meetings of
stockholders. Any holder of the Defaulted Series so designated shall have
access to the stock books of the Corporation relating to the Defaulted Series
for the purpose of causing meetings of holders of the Defaulted Series to be
called pursuant to these provisions.
At any meeting of the holders of the Defaulted Series to vote as a class
for the election or removal of directors, the presence in person or by proxy of
the holders of one-fifth of the outstanding shares of the Defaulted Series
shall be required to constitute a quorum; in the absence of a quorum, a
majority of the holders present in person or by proxy shall have the power to
adjourn the meeting from time to time without notice, other than announcement
at the meeting, until the quorum shall be present.
(e) Liquidation Rights.
(1) Upon the dissolution, liquidation or winding up of the Corporation,
the holders of shares of the Convertible Preferred Stock shall be entitled to
receive and to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment or distribution shall be
made on the Common Stock or any other class of capital stock ranking junior to
the Convertible Preferred Stock upon liquidation, the amount of $100.00 per
share, plus a sum equal to all compound dividends (whether or not declared) on
such shares accrued and unpaid thereon to the date of final distribution.
(2) None of the sale of all or substantially all the property or business
of the Corporation, the merger or consolidation of the Corporation into or with
any other Corporation or the merger or consolidation of any other Corporation
into or with the Corporation
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or any dissolution, liquidation, winding up or reorganization of the Corporation
immediately followed, in each case, by reincorporation of another corporation
succeeding to the business and obligations of the Corporation, shall be deemed
to be a dissolution, liquidation or winding up, voluntary or involuntary, for
the purposes of this Paragraph (e).
(3) After the payment to the holders of shares of the Convertible
Preferred Stock of the full preferential amounts provided for in this Paragraph
(e), the holders of the Convertible Preferred Stock as such shall have no right
or claim to any of the remaining assets of the Corporation.
(4) In the event the assets of the Corporation available for distribution
to the holders of shares of the Convertible Preferred Stock upon any
dissolution, liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Paragraph (e)(1) above, no such distribution
shall be made on account of any shares of any other class or series of capital
stock of the Corporation ranking on a parity with the shares of the Convertible
Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
the Convertible Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(f) Ranking.
For purposes of this resolution, any capital stock of any class or series
of the Corporation shall be deemed to rank:
(1) prior to shares of the Convertible Preferred Stock, either as to
dividends or upon liquidation, if the holders of such stock shall be entitled
to the receipt of dividends, or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in preference
or priority to the holders of shares of the Convertible Preferred Stock;
(2) on a parity with shares of the Convertible Preferred Stock, either as
to dividends or upon liquidation, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share, be different from
those of the Convertible Preferred Stock, if the holders of such capital stock
shall be entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in proportion to their respective dividend rates or liquidation prices, without
preference or priority, one over the other, as between the holders of such
capital stock and the holders of shares of the Convertible Preferred Stock; and
(3) junior to shares of the Convertible Preferred Stock, either as to
dividends or upon liquidation, if such capital stock shall be Common Stock or
if the holders of shares of the Convertible Preferred Stock shall be entitled
to receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in preference
or priority to the holders of shares of such class or series.
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(g) Conversion
(1) Each share of the Convertible Preferred Stock shall be convertible at
any time at the option of the holder thereof into fully paid and non-assessable
shares of Common Stock at the conversion price, determined as hereinafter
provided, in effect at the time of conversion. The price at which shares of the
Common Stock shall be delivered upon conversion of shares of the Convertible
Preferred Stock (hereinafter the "Conversion Price") shall be initially $14.00
per share. The number of shares of Common Stock issuable upon conversion of
shares of the Convertible Preferred Stock is determined by dividing the stated
value of a share of Convertible Preferred Stock plus accrued and unpaid
compound dividends by the Conversion Price in effect on the conversion date and
rounding the result to the nearest 1/100th of a share. The conversion price
shall be subject to adjustment as provided below. If a holder converts more
than one share at the same time, the number of shares issuable upon the
conversion shall be based upon the total number of shares converted.
(2) In order to convert shares of the Convertible Preferred Stock into
shares of Common Stock, the holder thereof shall surrender at the office of the
Corporation or, if appointed by the Corporation, any transfer agent for the
Convertible Preferred Stock the certificate or certificates therefor, duly
endorsed to the Corporation or in blank, and give written notice to the
Corporation at said office that he or she elects to convert such shares. Shares
of the Convertible Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the date of surrender of such
shares for conversion in accordance with the foregoing provisions (hereinafter
the "Conversion Date"), the person or persons entitled to receive shares of the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of the Common Stock at such time
and the shares of Convertible Preferred Stock so converted shall not be deemed
to be retired, but shall be held as treasury shares. As promptly as practicable
after the Conversion Date, the Corporation shall issue and deliver at said
office the certificate or certificates for the number of shares (including
fractional shares) of the Common Stock issuable upon such conversion, as
hereinafter provided, to the person or persons entitled to receive the same or
to the nominee or nominees of such person or persons.
(3) In order to prevent dilution of the rights hereunder, the Conversion
Price will be subject to adjustment from time to time as provided in this
Paragraph (g)(3):
(A) Dividends and Distributions. If the Corporation shall declare or pay
to the holders of the Common Stock a dividend or other distribution payable in
shares of Common Stock or any other security convertible into or exchangeable
for shares of Common Stock, the holder of any Convertible Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number
of shares of Common Stock or other securities convertible into or exchangeable
for shares of Common Stock, as applicable, which such holder would have owned
or been entitled to receive after the declaration and payment of such dividend
or other distribution as if the Convertible Preferred Stock had been converted
immediately prior to the record date for the determination of stockholders
entitled to receive such dividend or other distribution. The adjustment
described in this Paragraph (g)(3)(A) shall become effective immediately after
such record date.
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(B) Stock Splits and Combinations. If the Corporation shall subdivide (by
means of any stock split, stock dividend, recapitalization or otherwise) the
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or combine (by means of any combination, reverse stock split or
otherwise) the outstanding shares of Common Stock into a lesser number of
shares, or issue by reclassification of shares of Common Stock any shares of
the Corporation, the Conversion Price shall be adjusted so that the holder
shall receive the number of shares of Common Stock which the holder would have
owned or been entitled to receive after the happening of any and each of the
events described above if the Convertible Preferred Stock had been converted
immediately prior to the happening of each such event on the day upon which
such subdivision or combination, as the case may be, becomes effective. The
adjustment described in this Paragraph (g)(3)(B) shall become effective
immediately after the effective date of such subdivision, combination or
reclassification.
(C) Reclassifications, Consolidations, Mergers, Sales, Etc. If any of the
following shall occur, namely: (i) any reorganization, reclassification or
change of Common Stock issuable upon conversion of any Convertible Preferred
Stock; (ii) any consolidation or merger to which the Corporation is a party
other than a merger in which the Corporation is the surviving entity and which
does not result in any reclassification of, or change (other than a change in
name or as a result of a subdivision or combination) in, Common Stock; or (iii)
any sale or conveyance of all or substantially all of the assets of the
Corporation as an entirety, then the Corporation, or such successor or
purchasing entity, as the case may be, shall, as a condition precedent to such
reorganization, reclassification, change, consolidation, merger, sale or
conveyance, execute and deliver to the holders an undertaking providing that
the holders shall have the right, immediately following such reorganization,
reclassification, change, consolidation, merger, sale or conveyance, to convert
the Convertible Preferred Stocks into the kind and amount of securities and
property (including cash) receivable upon such reorganization,
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock deliverable upon conversion of the
Convertible Preferred Stocks immediately prior to such reorganization,
reclassification, change, consolidation, merger, sale or conveyance. If, in the
case of any such consolidation, merger, sale or conveyance, of the securities
and property (including cash) receivable thereupon by a security holder include
securities and property of a corporation other than the successor or purchasing
entity, as the case may be, in such consolidation, merger, sale or conveyance,
then such agreement shall also be executed by such other entity and shall
contain such additional provisions to protect the conversion rights of the
holders. The provisions of this Paragraph (g)(3) shall similarly apply to
successive consolidations, mergers, sales or conveyances.
(D) Extraordinary Dividends and Distributions. If the Corporation at any
time or from time to time after the date hereof shall declare, order, pay or
make a distribution (including, without limitation, any distribution of other
or additional stock or other securities or property or options by way of
dividend or spin-off, reclassification, recapitalization or similar corporate
rearrangement) on the Common Stock, other than (i) a distribution payable in
Additional Shares of Common Stock, (ii) a regularly scheduled cash
distribution, or (iii) for which an adjustment is made pursuant to Paragraph
(g)(3)(A), (B) or (C) above, the Conversion Price in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of any class of securities entitled to receive such distribution shall
be
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reduced, effective as of the close of business on such record date, to a
price determined by multiplying such Conversion Price by a fraction
(i) the numerator of which shall be the Market Price in effect on such
record date or, if the Common Stock trades on an ex-distribution basis, on the
date prior to the commencement of ex-distribution trading, less the Fair Value
of such distribution applicable to one share of Common Stock, and
(ii) the denominator of which shall be such Market Price.
(E) Adjustment upon Issuance of Options and Convertible Securities. If the
Corporation in any manner issues, grants, sells or assumes any rights or
options to subscribe for or to purchase one or more classes of its Common Stock
(other than pursuant to an Approved Stock Plan or upon conversion of any
Convertible Preferred Stock) or any stock or other securities convertible into
or exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") and the price per share for which Common Stock
is issuable upon the exercise of such Options (together with the amount
received by the Company for such Options on a per share basis) or upon
conversion or exchange of such Convertible Securities (together with any
additional amount to be received by the Company upon such conversion or
exchange on a per share basis) (the "New Option Issuance Price") is less than
the Conversion Price which would have been in effect immediately prior to such
issuance, grant, sale or assumption, then the maximum number of shares of
Common Stock (as set forth in the instrument relating thereto without regard to
any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue, and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued, upon the expiration or termination of any
unexercised Option, the Conversion Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Price. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such Common Stock or
of such Convertible Securities upon the exercise of such Options or upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(F) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for any
class of Common Stock change at any time, the Conversion Price at the time of
such change shall be readjusted, effective on and after the date of such
change, to the Conversion Price which would have been in effect on the date of
such change had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold; provided that no adjustment shall be made if such adjustment would result
in an increase of the Conversion Price then in effect.
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(G) Issuance of Additional Shares of Common Stock. In case the Corporation
at any time or from time to time after the date hereof shall issue or sell
Additional Shares of Common Stock, including Additional Shares of Common Stock
deemed to be issued without consideration or for a consideration per share less
than the Conversion Price which would have been in effect immediately prior to
such issuance or sale, then, and in each such case, the Conversion Price shall
be reduced, to a price determined by multiplying such Conversion Price by a
fraction
(i) the numerator of which shall be the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such issuance
or sale and (y) the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total
number of such Additional Shares of Common Stock so issued or sold
would purchase at the Conversion Price which would have been in
effect immediately prior to such issuance or sale, and
(ii) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issuance or sale,
provided that, for the purposes of this Paragraph (g)(3)(G), (x)
immediately after any Additional Shares of Common Stock are deemed to
have been issued pursuant to Paragraph (g)(3), such Additional Shares
of Common Stock shall be deemed to be outstanding, and (y) treasury
shares of Common Stock shall not be deemed to be outstanding.
(H) Abandoned Dividend or Distribution. If the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a distribution (which results in an adjustment to the Conversion Price
under the terms of this Agreement) and shall, thereafter, and before such
distribution is paid or delivered to members entitled thereto, legally abandon
its plan to pay or deliver such dividend or distribution, then any adjustment
made to the Conversion Price and number of shares of Common Stock into which
any Convertible Preferred Stock is convertible by reason of the taking of such
record shall be reversed, and any subsequent adjustments, based thereon, shall
be recomputed.
(I) Other Dilutive Events. In case any event shall occur as to which the
provisions of this Paragraph (g)(3) are not strictly applicable or if strictly
applicable would not fairly protect the conversion rights of the holders in
accordance with the essential intent and principles of this Paragraph (g)(3),
then, in each such case, the Board of Directors of the Corporation shall make
an adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to preserve, without dilution, the
conversion rights represented herein.
(J) Computation of Consideration. For the purposes of this Paragraph
(g)(3),
(i) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting
treatment of such consideration,
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(x) insofar as it consists of cash, be computed at the net
amount of cash received by the Corporation, without deducting
any expenses paid or incurred by the Corporation or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issuance or sale,
(y) insofar as it consists of property (including
securities) other than cash, be computed at the Fair Value
thereof at the time of such issuance or sale, and
(z) in case Additional Shares of Common Stock are issued or
sold together with other stock or securities or other assets of
the Corporation for a consideration which covers both, be the
portion of such consideration so received, computed as provided
in clauses (x) and (y) above, allocable to such Additional
Shares of Common Stock, such allocation to be determined in the
same manner that the Fair Value of property not consisting of
cash or securities is to be determined as provided in the
definition of "Fair Value" herein; and
(ii) Additional Shares of Common Stock deemed to
have been issued pursuant to this Paragraph (g)(3), relating to stock
dividends, stock splits, etc. or to employee benefit plans, employee
compensation or incentives of the Corporation or any Affiliate thereof
or otherwise to employees of the Corporation or any Affiliate thereof
(except in a public offering open to the public generally on the same
terms as such employees) shall be deemed to have been issued for no
consideration, except to the extent the Corporation receives cash or
property therefor.
(K) No Dilution or Impairment. The Corporation shall not, by amendment of
its Certificate of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Paragraph (g), but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holders against dilution or other impairment. Without limiting
the generality of the foregoing, the Corporation (i) shall take all such action
as may be necessary or appropriate in order that the Corporation may validly
and legally issue fully paid and nonassessable shares of Common Stock, free
from all taxes, liens, security interests, encumbrances, preemptive rights and
charges on the conversion of the Convertible Preferred Stock from time to time
outstanding, (ii) shall not take any action which results in any adjustment of
the Conversion Price if the total number of shares of Common Stock issuable
after the action upon the conversion of the Convertible Preferred Stock would
exceed the total number of shares of Common Stock then authorized by the
Corporation's Certificate of Incorporation and available for the purpose of
issue upon such exercise, (iii) shall not permit the par value of any shares of
stock receivable upon the conversion of the Convertible Preferred Stock to
exceed the amount payable therefor upon such exercise, and (iv) shall not issue
any capital stock of any class which, as to the holders, is preferred as to
dividends or as to the distribution of assets upon voluntary or involuntary
dissolution, liquidation or winding-up, unless the rights of the holders
thereof shall be limited to a fixed sum or percentage of par value or a
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sum determined by reference to a formula based on a published index of interest
rates, an interest rate publicly announced by a financial institution or a
similar indicator of interest rates in respect of participation in dividends
and to a fixed sum or percentage of par value in any such distribution of
assets.
(L) Notice of Corporate Action.
(a) Immediately upon any adjustment pursuant to Paragraph (g)(3) of the
Conversion Price, the Corporation will give written notice thereof to the
holders, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(b) The Corporation will give written notice to the holders at least
twenty (20) days prior to the date on which the Corporation closes its books or
takes a record (i) with respect to any dividend or distribution upon the Common
Stock, or (ii) for determining rights to vote with respect to any capital
reorganization of the Corporation, any reclassification or recapitalization of
the capital stock of the Corporation or any consolidation or merger involving
the Corporation and any other Person or any transfer of all or substantially
all of the assets of the Corporation to any other Person.
(c) The Corporation will also give written notice to the holders at least
twenty (20) days prior to the date on which any voluntary or involuntary
dissolution, liquidation or winding-up will take place.
(M) Further Adjustments. Successive adjustments in the Conversion Price
shall be made whenever any event specified in Paragraph (g)(3) shall occur. All
calculations under Paragraph (g)(3) shall be made to the nearest cent. No
adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than $0.01, but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of and
together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate $0.01 or more.
"Additional Shares of Common Stock" means all shares (including treasury
shares) of Common Stock issued (or, pursuant hereto, deemed to be issued) or
sold by the Corporation after the date hereof, whether or not subsequently
reacquired or retired by the Corporation other than (a) shares of Common Stock
issued pursuant to Approved Stock Plans and (b) shares issued upon exercise of
options and warrants outstanding as of the Sale Closing.
"Approved Stock Plan" means (i) any contract, plan, arrangement or
agreement which has been or shall be approved by the Board of Directors and
stockholders of the Corporation, pursuant to which the Corporation's securities
may be issued to any employee, officer, director, consultant or other service
provider of the Corporation or any of its Subsidiaries, and (ii) any such
contract, plan, arrangement, or agreement existing as of the Sale Closing and
any such contract, plan, arrangement or agreement assumed by the Corporation
after the Sale Closing pursuant to an acquisition or business combination, in
either case whether or not approved by stockholders of the Corporation.
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"Business Day" means any day, other a Saturday, Sunday or legal holiday,
on which banks in Greenville, South Carolina, Charlotte, North Carolina and New
York, New York are open for the conduct of their domestic or international
commercial banking business.
"Fair Value" means, on any date (a) in the case of cash, the dollar amount
thereof, (b) in the case of a security, the Market Price on such date, and (c)
in all other cases, the fair value thereof (as of a date not more than 20 days
prior to the date as of which the determination is to be made) determined in
good faith by the Board of Directors of the Corporation.
"Market Price" means, on any date specified herein, the amount per share
of the Common Stock equal to (a) the last reported sale price of such Common
Stock, regular way, on such date or, in case no such sale takes place on such
date, the average of the closing bid and asked prices thereof, regular way, on
such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, (b) if such Common Stock is not then listed or admitted for trading on
any national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, or in case no such sale takes place on such date, or if the Common
Stock is not so designated, the average of the closing bid and asked prices of
the Common Stock on such date as shown by the NASD automated quotations system,
or (c) if such Common Stock is not then listed or admitted for trading on any
national exchange or quoted in the over-the-counter market, the fair value
thereof (as of a date which is within 20 days of the date as of which the
determination is to be made) determined in good faith by the Board of Directors
of the Corporation.
(h) No Other Rights.
The shares of the Convertible Preferred Stock shall not have any relative,
participating, optional or other special rights and powers other than as set
forth above in this Certificate of Designation and in the Certificate of
Incorporation.
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IN WITNESS WHEREOF, INSIGNIA FINANCIAL GROUP, INC. has caused its corporate
seal to be hereunto affixed and this Certificate of Designation to be signed by
its Executive Vice President, and attested by its Assistant Secretary, this 9th
day of February 2000.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
------------------------------------
Adam B. Gilbert
Executive Vice President
[Corporate Seal]
ATTEST:
/s/ Kathleen Gallagher
- -----------------------------
Kathleen Gallagher
Assistant Secretary
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
September 7, 1999, is by and among GOTHAM PARTNERS, L.P., a Delaware limited
partnership ("Gotham"), GOTHAM PARTNERS III, L.P., a Delaware limited
partnership ("Gotham III"), and INSIGNIA FINANCIAL GROUP, INC., a Delaware
corporation (the "Company").
WITNESSETH:
WHEREAS, the Company and Gotham had entered into a registration rights
agreement dated as of September 15, 1998 regarding the registration of an
aggregate of 42,500 shares of Common Stock, par value $0.01 per share, of the
Company (the "Common Stock"), which shares were subject to the Gotham Warrants
(as defined below);
WHEREAS, on September 1, 1999 Gotham and Gotham III, exercised the Gotham
Warrants and received an aggregate of 42,500 shares of Common Stock (the
"Gotham Shares");
WHEREAS, the parties hereto desire to terminate the existing registration
rights agreement covering the Gotham Shares and to enter into this Agreement to
provide for registration rights for such shares;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. The following terms shall have the following
meanings:
"COMMISSION" means the Securities and Exchange Commission or any similar
federal agency then having jurisdiction to enforce the Securities Act and other
federal securities laws.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"GOTHAM WARRANTS" means (i) Warrant Certificate No. G-2 dated October 9,
1998 for 42,037 shares of Common Stock registered in the name of Gotham and
(ii) Warrant Certificate No. G-3 dated October 9, 1998 for 463 shares of Common
Stock registered in the name of Gotham III.
"HOLDER" means any Person owning or having the right to acquire
Registrable Securities, or any assignee thereof in accordance with Section
8(d).
<PAGE>
"INVESTOR REQUEST" means a request from Holders that in the aggregate
beneficially own at least 50% of the Registrable Securities outstanding as of
the date of such request, which shall set forth the number of Registrable
Securities to be registered (which shall be at least 50% of the Registrable
Securities outstanding as of the date of the request).
"ORIGINAL REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of September 15, 1998 between the Company and Gotham
regarding the registration of 42,500 shares of Common Stock subject to the
Gotham Warrants.
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency or political subdivision thereof), or other entity of
any kind.
"REGISTERABLE SECURITIES," collectively, means (i) the Gotham Shares and
(ii) any shares of Common Stock or other securities of the Company hereafter
distributed to the Holders by the Company with respect to the Gotham Shares as
a stock dividend or otherwise; provided, however, that any such securities
shall cease to be Registerable Securities when (a) such securities shall have
been registered under the Securities Act, the registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act, and such securities shall have been disposed of pursuant to
such effective registration statement, (b) such securities shall have been
otherwise transferred, if new certificates or other evidences of ownership for
them not bearing a legend restricting further transfer and not subject to any
stop transfer order or other restrictions on transfer shall have been delivered
by the Company and subsequent disposition of such securities shall not require
registration or qualification of such securities under the Securities Act or
any state securities law then in force, or (c) such securities shall cease to
be outstanding.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
SECTION 2. REGISTRATION RIGHTS.
(a) Upon the receipt of a written Investor Request that the Company file a
registration statement under the Securities Act to register that number of
Registrable Securities set forth in the Investor Request, the Company shall,
within twenty (20) days from receipt thereof, give written notice of such
request to all Holders and, subject to the other provisions of this Agreement,
the Company shall file (as expeditiously as possible, and in any event within
sixty (60) days after receipt of the Investor Request), and use its
commercially reasonable best efforts to have declared effective a registration
statement under the Securities Act with respect to the resale (in a
non-underwritten offering) of all Registrable Securities which Holders request
to be registered by the giving of notice to the Company within twenty (20) days
after the mailing of the Company's notice referred to above, each such notice
to be given in accordance with Section 8 below. The Company shall be obligated
to effect only one registration pursuant to this Agreement.
2
<PAGE>
(b) Notwithstanding Section 2(a) above, if the Company shall furnish to
the Holders who have submitted the Investor Request a certificate signed by an
executive officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be detrimental to the Company and
its stockholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for up to one hundred twenty
(120) days after receipt of the Investor Request; provided, however, that, if
at the time of receipt of the Investor Request for a registration, the Company
has fixed plans to file within sixty (60) days after such request a
registration statement covering the sale of any of its securities in a public
offering under the Securities Act, no registration shall be required to be
initiated pursuant to Section 2(a) until ninety (90) days after the effective
date of such Company registration unless the Company is no longer proceeding
diligently to effect such registration.
(c) In addition to its obligations pursuant to Section 2(a), the Company
shall, as expeditiously as possible:
(i) file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to the sale
or other disposition of all Registerable Securities covered by such
registration statement until such time as all of such securities have been
disposed of in a public offering or otherwise cease to be Registerable
Securities.
(ii) furnish to such selling security holders such number of copies
of a prospectus or other prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such other
documents as such selling security holders may reasonably request;
(iii) use its commercially reasonable best efforts to register or
qualify the securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions within the United
States and Puerto Rico as each Holder shall request (provided, however,
that the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any jurisdiction in which it
is not then qualified or to file any general consent to service of
process), and do such other reasonable acts and things as may be required
of it to enable such Holder to consummate the disposition in such
jurisdiction of the securities covered by such registration statement; and
(iv) otherwise use its commercially reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, but
not less than 18 months after the effective date of the registration
statement, an earnings statement covering the period of at least 12 months
beginning with the first full month after the effective date of such
registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act.
(d) It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Section 2 in respect of the Registerable
Securities which are to be registered for any
3
<PAGE>
Holder that such Holder shall furnish to the Company in writing such
information regarding the securities held by such Holder and the intended
method of disposition thereof as the Company shall reasonably request and as
shall be required under the Securities Act in connection with the action to be
taken by the Company.
(e) If the Company has delivered preliminary or final prospectuses to a
Holder and after having done so the prospectus is amended or supplemented to
comply with the requirements of the Securities Act, the Company shall promptly
notify such Holder and, if requested by the Company, such Holder shall
immediately cease making offers of securities and return all prospectuses to
the Company. The Company shall promptly provide such holder with revised
prospectuses and, following receipt of the revised prospectuses, such Holder
shall be free to resume making offers of the securities.
SECTION 3. REGISTRATION EXPENSES. All expenses incurred in complying with
Section 2 of this Agreement, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel for the
Company, expense of any special audits incident to or required by such
registration, time charges of Company personnel and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to Section
2(c)(iii), shall be paid by the Company, except that the Company shall not be
liable for or pay the fees and disbursements of counsel for any Holder or any
fees, discounts, or commissions to any Person in respect of the Registerable
Securities sold by such Holder.
SECTION 4. INDEMNIFICATION AND CONTRIBUTION. (a) In connection with the
registration of Registerable Securities under the Securities Act pursuant to
this Agreement, the Company shall indemnify and hold harmless the seller of
such Registerable Securities and each other Person, if any, who controls such
seller within the meaning of the Securities Act or the Exchange Act, against
any losses, claims, damages, or liabilities, joint or several to which such
seller or controlling person may become subject under the Securities Act, the
Exchange Act or any other statute or at common law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (ii)
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and the Company shall reimburse such seller and each such controlling person
for any legal or any other expenses reasonably incurred by such Person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon any untrue or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary
prospectus, prospectus, or amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf
such Person specifically for use therein.
(b) In connection with the registration of Registerable Securities under
the Securities Act pursuant to this Agreement, each Holder, by acceptance
thereof and as a condition to the rights granted in this Agreement, agrees to
indemnify and hold harmless the Company, each of its directors
4
<PAGE>
and officers, and each Person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities, joint or several, to which the Company or any such
director or officer or any such Person may become subject under the Securities
Act, the Exchange Act or any other statute or at common law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such
securities were registered on behalf of the holder under the Securities Act,
any preliminary prospectus or final prospectus contained in the registration
statement, or any amendment or supplement to the registration statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statement
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of the holder, specifically for use in connection with the preparation
of such registration statement, prospectus, amendment or supplement.
(c) Each party entitled to indemnification under this Section 4 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnifying
Party has actual knowledge of any claim as to which indemnify may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 4, except to the
extent that such failure to give notice prejudices the Indemnifying Party. The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay the expense of one law
firm for all Indemnified Parties if representation of such Indemnified Parties
by the counsel retained by the Indemnifying Party would be inappropriate due to
actual or potential differing interests between an Indemnified Party and any
other party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party.
(d) If the indemnification provided for in this Section 4 from the
Indemnifying Party is unavailable to an Indemnified Party hereunder in respect
of any losses, claims, damages, liabilities, or expenses referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages, liabilities, or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and the Indemnified Parties in connection with the actions which resulted
in such losses, claims, damages, liabilities, or expenses, as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Parties shall be determined by reference to, among other
things, whether any action in question, including any
5
<PAGE>
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Parties, as the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities, and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 4(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not also guilty of such fraudulent misrepresentation.
SECTION 5. "STAND-OFF" AGREEMENT. Each Holder, if requested by the Company
and an underwriter of Common Stock, shall agree not to sell or otherwise
transfer or dispose of any Common Stock held by it for a specified period of
time (not to exceed an aggregate of ninety (90) days in any three hundred
sixty-five (365) day period) following the effective date of a registration
statement under the Securities Act filed by the Company with respect to an
underwritten offering to the public; provided, that:
(i) the Company shall not make such a request more than twice in any
calendar year; and
(ii) all investors in Common Stock of the Company (other than holders
which purchased registered shares in the open market) holding not less
than the number of shares of Common Stock held by such Holder (in each
case including shares of Common Stock issuable upon the conversion of
convertible securities, or upon the exercise of options, warrants or
rights) and all executive officers and directors of the Company enter into
similar agreements.
SECTION 6. CERTAIN LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding the
other provisions of this Agreement, the Company shall not be obligated to
register or maintain the registration of the Registerable Securities of any
holder if, in the opinion of Proskauer Rose LLP or such other counsel to the
Company knowledgeable in securities law matters, the public sale of such
holder's Registerable Securities may be effected without registering such
Registerable Securities under the Securities Act.
SECTION 7. TERMINATION OF ORIGINAL REGISTRATION RIGHTS AGREEMENT. The
parties hereto agree that the Original Registration Rights Agreement is hereby
terminated and all obligations of the Company thereunder are hereby
extinguished.
6
<PAGE>
SECTION 8. MISCELLANEOUS.
(a) REMEDIES. Each Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate. In any action or proceeding brought to enforce
any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to receive
reasonable attorneys' fees in addition to any other available remedy.
(b) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified, or supplemented, and
waivers or consents to departure from the provisions hereof may not be given,
unless the Company has obtained the written consent of Holders of at least a
majority of the Registerable Securities then outstanding.
(c) NOTICES. Any notice, demand, request, consent, approval, declaration,
delivery or other communication hereunder to be made pursuant to the provisions
of this Agreement shall be sufficiently given or made if in writing and either
delivered in person with receipt acknowledged or sent by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to Gotham or Gotham III:
Gotham Partners, L.P.
110 East 42nd Street
18th Floor
New York, New York 10017
(i) If to the Company:
Insignia Financial Group, Inc.
200 Park Avenue
New York, New York 10166
Attention: General Counsel
(ii) If to any Holder other than the Persons listed above, at its last
known address appearing on the books of the Company maintained for such
purpose, or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval declaration, delivery, or other communication
hereunder shall be deemed to have been duly given or served on the date on
which personally delivered, with receipt acknowledged, or three (3) business
days after the same shall have been deposited in the United States mail.
7
<PAGE>
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto,
including any Person to whom Registerable Securities are transferred.
(e) HEADINGS. The headings in this Agreement are for convenience of
reference only, and shall not limit or otherwise affect the meaning thereof.
(f) GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York, without regard to the provisions thereof relating to
conflict of laws.
(g) SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
(h) ENTIRE AGREEMENT. This Agreement represents the complete agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: DPB Corp, a general partner
By: /s/ David Berkowitz
---------------------------
David Berkowitz
President
GOTHAM PARTNERS III, L.P.
By: Section H Partners, L.P.,
its general partner
By: DPB Corp, a general partner
By: /s/ David Berkowitz
---------------------------
Name: David Berkowitz
Title: President
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
-----------------------
Name: Adam B. Gilbert
Title: Executive Vice President
9
<PAGE>
REGISTRATION RIGHTS AGREEMENT
by and among
INSIGNIA FINANCIAL GROUP, INC.
and
THE INITIAL STOCKHOLDERS SPECIFIED ON
THE SIGNATURE PAGES HEREOF
Dated as of February 9, 2000
<PAGE>
REGISTRATION RIGHTS AGREEMENT (this or the "Agreement") dated as of
February 9, 2000, by and among Insignia Financial Group, Inc., a Delaware
corporation (the "Company") and the Initial Stockholders specified on the
signature pages of this Agreement (the "Initial Stockholders").
W I T N E S S E T H :
WHEREAS, the Company and the Initial Stockholders have entered into a
Stock Subscription Agreement, dated as of February 9, 2000 (such Stock
Subscription Agreement, as amended or otherwise modified from time to time, the
"Stock Subscription Agreement"), pursuant to which the Stockholders have agreed
to purchase Series A Convertible Preferred Stock from the Company in the
aggregate stated amount of $25 million.
WHEREAS, each share of Convertible Preferred Stock ("Convertible Preferred
Stock") acquired pursuant to the Stock Subscription Agreement is convertible
into Common Shares (as defined below), and the Company has further agreed to
provide certain registration rights in respect of the Registrable Securities
(as defined below) on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
"Affiliate" shall mean (i) with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person, and (ii) with respect to any individual, shall
also mean the spouse, sibling, child, stepchild, grandchild, niece, nephew or
parent of such Person, or the spouse thereof.
"Blackout Period" shall have the meaning set forth in Section 2.7.
"Common Shares" shall mean shares of common stock, par value $0.01 per
share, of the Company.
"Company" shall have the meaning set forth in the preamble.
"Convertible Preferred Stock" shall have the meaning set forth in the
recitals hereto.
"Demand Registration" shall mean a registration required to be effected by
the Company pursuant to Section 2.1.
"Demand Registration Statement" shall mean a registration statement of the
Company which covers the Registrable Securities requested to be included
therein pursuant to
<PAGE>
the provisions of Section 2.1 and all amendments and supplements to such
registration statement, including posteffective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference (or deemed to be incorporated by reference)
therein.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations thereunder, or any successor
statute.
"Incidental Registration" shall mean a registration required to be
effected by the Company pursuant to Section 2.2.
"Incidental Registration Statement" shall mean a registration statement of
the Company which covers the Registrable Securities requested to be included
therein pursuant to the provisions of Section 2.2 and all amendments and
supplements to such registration statement, including posteffective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference (or deemed to be incorporated by
reference) therein.
"Initial Stockholders" shall have the meaning set forth in the preamble.
"Initiating Stockholders" shall mean, with respect to a particular
registration, the Stockholders who initiated the Request for such registration.
"Inspectors" shall have the meaning set forth in Section 4.1(g).
"Majority Stockholders" shall mean one or more Stockholders of Registrable
Securities who would hold a majority of the Registrable Securities then
outstanding.
"Majority Stockholders of the Registration" shall mean, with respect to a
particular registration, one or more Stockholders of Registrable Securities who
would hold (or will hold upon conversion of the Convertible Preferred Stock) a
majority of the Registrable Securities to be included in such registration.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Offer" shall have the meaning set forth in Section 2.8(a).
"Offeree" shall have the meaning set forth in Section 2.8(a).
"Person" shall mean any individual, firm, partnership, corporation, trust,
joint venture, association, joint stock company, limited liability company,
unincorporated organization or any other entity or organization, including a
government or agency or political subdivision thereof, and shall include any
successor (by merger or otherwise) of such entity.
"Prospectus" shall mean the prospectus included in a
Registration Statement (including, without limitation, any preliminary
prospectus and any prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration
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<PAGE>
statement in reliance upon Rule 430A promulgated under the Securities Act), and
any such Prospectus as amended or supplemented by any prospectus supplement,
and all other amendments and supplements to such Prospectus, including
posteffective amendments, and in each case including all material incorporated
by reference (or deemed to be incorporated by reference) therein.
"Purchaser" shall have the meaning set forth in Section 2.8(a).
"Registrable Securities" shall mean (i) any Common Shares issued or
issuable upon conversion of the Convertible Preferred Stock and (ii) any other
securities of the Company (or any successor or assign of the Company, whether
by merger, consolidation, sale of substantially all the assets or otherwise)
which may be issued or issuable with respect to, in exchange for, or in
substitution of, the Convertible Preferred Stock or the Registrable Securities
referenced in clause (i) above by reason of any dividend or stock split,
combination of shares, merger, consolidation, recapitalization,
reclassification, reorganization, sale of assets or similar transaction. As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (A) a registration statement with respect to the
sale of such securities shall have been declared effective under the Securities
Act and such securities shall have been disposed of in accordance with such
registration statement, (B) such securities are sold pursuant to Rule 144 (or
any similar provisions then in force) under the Securities Act, (C) such
securities have been otherwise transferred, a new certificate or other evidence
of ownership for them not bearing the legend restricting further transfer shall
have been delivered by the Company and subsequent public distribution of them
shall not require registration under the Securities Act, or (D) such securities
shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with this Agreement by the Company and its
subsidiaries, including, without limitation, (i) all SEC, stock exchange, NASD
and other registration, listing and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
and compliance with the rules of any U.S. stock exchange (including fees and
disbursements of counsel in connection with such compliance and the preparation
of a blue sky memorandum), (iii) all reasonable expenses of any Persons in
preparing or assisting in preparing, printing, distributing and mailing any
Registration Statement, any Prospectus, any underwriting agreements and
transmittal letters, (iv) the fees and disbursements of counsel for the
Company, (v) the fees and disbursements of Stockholders' Counsel to the extent
that such fees and expenses do not exceed $25,000, and (vi) the fees and
disbursements of all independent public accountants (including the expenses of
any audit and/or "cold comfort" letters) and the fees and expenses of other
Persons, including experts, retained by the Company; provided, however,
Registration Expenses shall not include discounts and commissions payable to
underwriters, selling brokers, dealer managers or other similar Persons engaged
in the distribution of any of the Registrable Securities; and provided further,
that in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees or other expenses for
the preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business.
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"Registration Statement" shall mean any registration statement of the
Company which covers any Registrable Securities and all amendments and
supplements to any such Registration Statement, including posteffective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Request" shall have the meaning set forth in Section 2.1(a).
"S-3 Registration" shall mean a registration required to be effected by the
Company pursuant to Section 2.3(a).
"SEC" shall mean the Securities and Exchange Commission, or any successor
agency having jurisdiction to enforce the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder, or any successor
statute.
"Shelf Registration" shall have the meaning set forth in Section 2.1(a).
"Stockholders" shall mean each of the Initial Stockholders for so long as
such Person owns any Registrable Securities and such of its respective heirs,
successors and permitted assigns (including any permitted transferees of
Registrable Securities) who acquire or are otherwise the transferee of
Registrable Securities, directly or indirectly, from such Initial Stockholder
(or any subsequent Stockholder), for so long as such heirs, successors and
permitted assigns own any Registrable Securities. For purposes of this
Agreement, a Person will be deemed to be a Stockholder whenever such Person
holds any Convertible Preferred Stock that is convertible into Registrable
Securities, whether or not such conversion has actually been effected.
Registrable Securities issuable upon conversion of any Convertible Preferred
Stock shall be deemed outstanding for the purposes of this Agreement.
"Stockholders' Counsel" shall mean one firm of counsel (per registration)
to the Stockholders owning the Registrable Securities participating in such
registration, which counsel shall be selected (i) in the case of a Demand
Registration or an S-3 Registration, by the Initiating Stockholders holding a
majority of the Registrable Securities for which registration was requested in
the Request, and (ii) in all other cases, by the Majority Stockholders
participating in the Registration.
"Stock Subscription Agreement" shall have the meaning set forth in the
recitals hereto.
"Underwriters" shall mean the underwriters, if any, of the offering being
registered under the Securities Act.
"Underwritten Offering" shall mean a sale of securities of the Company to
an Underwriter or Underwriters for reoffering to the public.
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"Withdrawn Demand Registration" shall have the meaning set forth in
Section 2.1(a).
"Withdrawn Request" shall have the meaning set forth in Section 2.1(a).
2. REGISTRATION UNDER THE SECURITIES ACT.
2.1 Demand Registration.
(a) Right to Demand Registration. Subject to Section 2.1(c) and to this
Section, at any time or from time to time, the Majority Stockholders shall have
the right to request in writing that the Company register all or part of such
Stockholders' Registrable Securities having an aggregate expected offering
price of at least $10 million (or, if the expected offering price of all
remaining Registrable Securities should be less than $10 million, such lesser
amount) (a "Request") (which Request shall specify the amount of Registrable
Securities intended to be disposed of by such Stockholders and the intended
method of disposition thereof) by filing with the SEC a Demand Registration
Statement. As promptly as practicable, but no later than 20 days after receipt
of a Request, the Company shall give written notice of such requested
registration to all Stockholders owning Registrable Securities. Subject to
Section 2.1(b), the Company shall include in a Demand Registration, in addition
to any other securities it may elect to include, (i) the Registrable Securities
intended to be disposed of by the Initiating Stockholders and (ii) the
Registrable Securities intended to be disposed of by any other Stockholder
which shall have made a written request (which request shall specify the amount
of Registrable Securities to be registered and the intended method of
disposition thereof) to the Company for inclusion thereof in such registration
within 20 days after the receipt of such written notice from the Company. The
Company shall, as expeditiously as possible following a Request, use its
commercially reasonable efforts to cause to be filed with the SEC a Demand
Registration Statement providing for the registration under the Securities Act
of the Registrable Securities which the Company has been so requested to
register by all such Stockholders, to the extent necessary to permit the
disposition of such Registrable Securities so to be registered in accordance
with the intended methods of disposition thereof specified in such Request
(including, without limitation, by means of a shelf registration pursuant to
Rule 415 under the Securities Act (a "Shelf Registration") if so requested and
if the Company is then eligible to use such a registration). The Company shall
use its commercially reasonable efforts to have such Demand Registration
Statement declared effective by the SEC as soon as practicable thereafter and
to keep such Demand Registration Statement continuously effective for the
period specified in Section 4.1(b).
A Request may be withdrawn prior to the filing of the Demand Registration
Statement by the Majority Stockholders of the Registration (a "Withdrawn
Request") and a Demand Registration Statement may be withdrawn prior to the
effectiveness thereof by the Majority Stockholders of the Registration (a
"Withdrawn Demand Registration"), and such withdrawals shall be treated as a
Demand Registration which shall have been effected pursuant to this Section
2.1, unless the Stockholders of Registrable Securities to be included in such
Registration Statement reimburse the Company for its reasonable out-of-pocket
Registration Expenses relating to the preparation and filing of such Demand
Registration Statement (to the
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extent actually incurred and no Request for a Demand Registration may be made
for 90 days following the date of such withdrawal); provided; however, that if
a Withdrawn Request or Withdrawn Demand Registration is made (A) because of a
material adverse change in the business, financial condition or prospects of
the Company, or (B) because of a postponement of such registration pursuant to
Section 2.7, then such withdrawal shall not be treated as a Demand Registration
effected pursuant to this Section 2.1 (and shall not be counted toward the
number of Demand Registrations), the Company shall pay all Registration
Expenses in connection therewith and the 90 day limitation referred to above
shall not be applicable.
The registration rights granted pursuant to the provisions of this Section
2.1 shall be in addition to the registration rights granted pursuant to the
other provisions of Section 2 hereof.
(b) Priority in Demand Registrations. If a Demand Registration involves an
Underwritten Offering, and the sole or lead managing Underwriter, as the case
may be, of such Underwritten Offering shall advise the Company in writing (with
a copy to each Stockholder requesting registration) on or before the date five
days prior to the date then scheduled for such offering that, in its opinion,
the amount of Registrable Securities requested to be included in such Demand
Registration exceeds the number which can be sold in such offering without
interfering with the successful marketing of the securities being offered, the
Company shall include in such Demand Registration, to the extent of the number
which the Company is so advised may be included in such offering, first, the
Registrable Securities requested to be included in the Demand Registration by
the Initiating Stockholders and those other Stockholders who have made a
written request to the Company for inclusion thereof, allocated pro rata in
proportion to the number of Registrable Securities requested to be included in
such Demand Registration by each of them, and second, any other securities to
be registered.
(c) Limitations on Registrations. In no event shall the Company be
required to effect more than three (3) Demand Registrations in total, or more
than one (1) Demand Registration in any six (6) month period, pursuant to
Section 2.1(a).
(d) Underwriting; Selection of Underwriters. Notwithstanding anything to
the contrary contained in Section 2.1(a), if the Initiating Stockholders so
elect, the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of a firm commitment Underwritten Offering;
and such Initiating Stockholders may require that all Persons participating in
such registration sell their securities to the Underwriters at the same price
and on the same terms of underwriting applicable to the Initiating
Stockholders. If any Demand Registration involves an Underwritten Offering, the
sole or managing Underwriters and any additional investment bankers and
managers to be used in connection with such registration shall be selected by
the Initiating Stockholders, subject to the approval of the Company (such
approval not to be unreasonably withheld).
(e) Effective Registration Statement; Suspension. A Demand Registration
Statement shall not be deemed to have become effective (and the related
registration will not be deemed to have been effected) (i) unless it has been
declared effective by the SEC and remains effective in compliance with the
provisions of the Securities Act with respect to the disposition
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of all Registrable Securities covered by such Demand Registration Statement for
the time period specified in Section 4.1(b), (ii) if the offering of any
Registrable Securities pursuant to such Demand Registration Statement is
interfered with by any stop order or injunction of the SEC or any other
governmental agency or court, or (iii) if, in the case of an Underwritten
Offering, the conditions to closing specified in an underwriting agreement to
which the Company is a party are not satisfied (other than by the sole reason
of (x) any breach or failure by the Stockholders owning the Registrable
Securities and (y) any breach or failure by the Underwriters) or are not
otherwise waived.
(f) Other Registrations. During the period (i) beginning on the date of a
Request and (ii) ending on the date that is 60 days after the date that a
Demand Registration Statement pertaining to an Underwritten Offering filed
pursuant to such Request has been declared effective by the SEC, the Company
shall not, without the consent of the Majority Stockholders of the
Registration, file a registration statement pertaining to the Common Shares
(other than a registration on Form S-8 or Form S-4 or any successor form to such
forms).
(g) Registration Statement Form. Registrations under this Section 2.1
shall be on such appropriate registration form of the SEC which shall be
available for the sale of Registrable Securities in accordance with the
intended method or methods of disposition specified in the requests for
registration.
2.2 Incidental Registration.
(a) Right to Include Registrable Securities. If the Company
at any time or from time to time proposes to register any of its Common Shares
under the Securities Act (other than in a registration on Form S-4 or S-8 or
any successor form to such forms and other than pursuant to Section 2.1 or 2.3)
whether or not pursuant to registration rights granted to other holders of its
securities and whether or not for sale for its own account, the Company shall
deliver prompt written notice (which notice shall be given at least 30 days
prior to such proposed registration) to all Stockholders known to the Company
of its intention to undertake such registration, describing in reasonable
detail the proposed registration and distribution (including the anticipated
range of the proposed offering price, the number of securities proposed to be
registered and the distribution arrangements) and of such Stockholders' right
to participate in such registration under this Section 2.2 as hereinafter
provided. Subject to the other provisions of this paragraph (a) and Section
2.2(b), upon the written request of any Stockholder made within 20 days after
the receipt of such written notice (which request shall specify the amount of
Registrable Securities to be registered), the Company shall effect the
registration under the Securities Act of all Registrable Securities requested
by Stockholders to be so registered (an "Incidental Registration"), by
inclusion of such Registrable Securities in the Registration Statement which
covers the Common Shares which the Company proposes to register and shall cause
such Registration Statement to become and remain effective with respect to such
Registrable Securities in accordance with the registration procedures set forth
in Section 4. If an Incidental Registration involves an Underwritten Offering,
immediately upon notification to the Company from the Underwriter of the price
at which such securities are to be sold, the Company shall so advise each
participating Stockholder. The Stockholders requesting inclusion in an
Incidental Registration may, at any time prior to the effective date of the
Incidental Registration
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Statement (and for any reason), revoke such request by delivering written
notice to the Company revoking such requested inclusion if such pricing is
anticipated to be lower than the lower end of the anticipated range of the
proposed offering price specified in the Company's notice of registration. If
such Incidental Registration is an Underwritten Offering, the Company may
require all Persons participating in such Incidental Registration (not to
include any Stockholder that has revoked its request for inclusion prior to the
effective date) to sell all of its securities so registered in the Underwritten
Offering.
If at any time after giving written notice of its intention to register
any Common Shares and prior to the effective date of the Incidental
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
Common Shares, the Company may, at its election, give written notice of such
determination to each Stockholder owning Registrable Securities who had elected
to participate and, thereupon, (A) i the case of a determination not to
register, the Company shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from its
obligation to pay the reasonable out-of-pocket Registration Expenses actually
incurred in connection therewith), without prejudice, however, to the rights of
Stockholders to cause such registration to be effected as a registration under
Section 2.1 or 2.3(a), and (B) in the case of a determination to delay such
registration, the Company shall be permitted to delay the registration of such
Registrable Securities for the same period as the delay in registering such
other Common Shares ; provided, however, that if such delay shall extend beyond
120 days from the date the Company received a request to include Registrable
Securities in such Incidental Registration, then the Company shall again give
all Stockholders the opportunity to participate therein and shall follow the
notification procedures set forth in the preceding paragraph. There is no
limitation on the number of such Incidental Registrations pursuant to this
Section 2.2 which the Company is obligated to effect.
The registration rights granted pursuant to the provisions of this Section
2.2 shall be in addition to the registration rights granted pursuant to the
other provisions of Section 2 hereof.
(b) Priority in Incidental Registration. If an Incidental Registration
involves an Underwritten Offering (on a firm commitment basis), and the sole or
the lead managing Underwriter, as the case may be, of such Underwritten
Offering shall advise the Company in writing (which advice the Company shall
promptly forward to each Stockholder requesting registration) on or before the
date five days prior to the date then scheduled for such offering that, in its
opinion, the amount of Common Shares (including Registrable Securities)
requested to be included in such registration exceeds the amount which can be
sold in such offering without interfering with the successful marketing of the
securities being offered, the Company shall include in such registration, to
the extent of the number which the Company is so advised may be included in
such offering without such effect, (i) in the case of a registration initiated
by the Company, (A) first, the securities that the Company proposes to register
for its own account, (B) second, the Registrable Securities requested to be
included in such registration by the Stockholders and those other holders of
Common Shares that shall be entitled to piggyback registration rights on the
same level of priority as the Stockholders, allocated pro rata in proportion to
the number of Registrable Securities and Common Shares requested to be included
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in such registration by each of them, and (C) third, other securities of the
Company to be registered on behalf of any other Person, and (ii) in the case of
a registration initiated by a Person other than the Company, (A) first, the
Registrable Securities requested to be included in such registration by any
Persons initiating such registration, (B) second to the Stockholders, (C)
third, the securities that the Company proposes to register for its own
account, and (D) fourth, other securities of the Company to be registered on
behalf of any other Person.
2.3 S-3 Registration; Shelf Registration.
(a) S-3 Registration. If at any time (i) one or more Stockholders of
Registrable Securities representing 50% or more of the Registrable Securities
then outstanding request that the Company file a registration statement on Form
S-3 or any successor form thereto for a public offering of all or any portion of
the shares of Registrable Securities held by such Stockholder or Stockholders,
the reasonably anticipated aggregate price to the public of which would exceed
$10,000,000, and (ii) the Company is a registrant entitled to use Form S-3 or
any successor form thereto to register such securities, then the Company shall,
as expeditiously as possible following such Request, use its commercially
reasonable efforts to register under the Securities Act on Form S-3 or any
successor form thereto, for public sale in accordance with the intended methods
of disposition specified in such Request or any subsequent requests (including,
without limitation, by means of a Shelf Registration) the Registrable
Securities specified in such Request and any subsequent requests; provided,
that if such registration is for an Underwritten Offering, the terms of
Sections 2.1(b) and 2.1(d) shall apply (and any reference to "Demand
Registration" therein shall, for purposes of this Section 2.3, instead be
deemed a reference to "S-3 Registration"). Whenever the Company is required by
this Section 2.3 to use its commercially reasonable efforts to effect the
registration of Registrable Securities, each of the procedures and requirements
of Section 2.1(a) (including but not limited to the requirements that the
Company (A) notify all Stockholders owning Registrable Securities from whom
such Request for registration has not been received and provide them with the
opportunity to participate in the offering and (B) use its commercially
reasonable efforts to have such S-3 Registration Statement declared and remain
effective for the time period specified herein) shall apply to such
registration (and any reference in such Section 2.1(a) to "Demand Registration"
shall, for purposes of this Section 2.3, instead be deemed a reference to "S-3
Registration"). Notwithstanding anything to the contrary contained herein, no
Request may be made under this Section 2.3 within 90 days after the effective
date of a Registration Statement filed by the Company covering a firm
commitment Underwritten Offering in which the Stockholders owning Registrable
Securities shall have been entitled to join pursuant to this Agreement. The
number of S-3 Registrations that the Company is obligated to effect shall be
limited to three, and the Company shall not be obligated to effect more than
two S-3 Registrations in any calendar year.
The registration rights granted pursuant to the provisions of this Section
2.3(a) shall be in addition to the registration rights granted pursuant to the
other provisions of this Section 2.
(b) Shelf Registration. If a request made pursuant to Section 2.1 or
2.3(a) is for a Shelf Registration, the Company shall use its commercially
reasonable efforts to keep the Shelf Registration continuously effective for a
period of 180 days or through the date on which
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all of the Registrable Securities covered by such Shelf Registration may be
sold pursuant to Rule 144(k) under the Securities Act (or any successor
provision having similar effect) (whichever is shorter).
2.4 Expenses. The Company shall pay all Registration Expenses in
connection with any Demand Registration, Incidental Registration, S-3
Registration or Shelf Registration, whether or not such registration shall
become effective and whether or not all Registrable Securities originally
requested to be included in such registration are withdrawn or otherwise
ultimately not included in such registration, except as otherwise provided with
respect to a Withdrawn Request and a Withdrawn Demand Registration in Section
2.1(a). Each Stockholder shall pay all fees, discounts and commissions payable
to underwriters, selling brokers, managers or other similar Persons engaged in
the distribution of such Stockholder's Registrable Securities pursuant to any
registration pursuant to this Section 2.
2.5 Underwritten Offerings.
(a) Demand Underwritten Offerings. If requested by the sole or lead
managing Underwriter for any Underwritten Offering effected pursuant to a
Demand Registration or an S-3 Registration, the Company shall enter into a
customary underwriting agreement with the Underwriters for such offering, such
agreement to be reasonably satisfactory in substance and form to each
Stockholder of Registrable Securities participating in such offering and to
contain such representations and warranties by the Company and such other terms
as are generally prevailing in agreements of that type, including, without
limitation, indemnification and contribution to the effect and to the extent
provided in Section 5.
(b) Stockholders of Registrable Securities to be Parties to Underwriting
Agreement. The Stockholders owning Registrable Securities to be distributed by
Underwriters in an Underwritten Offering contemplated by Section 2 shall be
parties to the underwriting agreement between the Company and such Underwriters
and may, at such Stockholders' option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such Underwriters shall also be made to and
for the benefit of such Stockholders owning Registrable Securities and that any
or all of the conditions precedent to the obligations of such Underwriters
under such underwriting agreement be conditions precedent to the obligations of
such Stockholders owning Registrable Securities; provided, however, that the
Company shall not be required to make any representations or warranties with
respect to written information specifically provided by a selling Stockholder
for inclusion in the Registration Statement. No Stockholder shall be required
to make any representations or warranties to, or agreements with, the Company
or the Underwriters other than representations, warranties or agreements
regarding such Stockholder, such Stockholder's Registrable Securities and such
Stockholder's intended method of disposition.
(c) Participation in Underwritten Registration. Notwithstanding anything
herein to the contrary, no Person may participate in any Registration Statement
which involves an Underwritten Offering hereunder unless such Person (i) agrees
to sell its securities on the same terms and conditions provided in such
underwritten arrangements and (ii) accurately completes and executes in a
timely manner all questionnaires, powers of attorney, indemnities, custody
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agreements, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
2.6 Conversions; Exercises. Notwithstanding anything to the contrary
herein, in order for any Registrable Securities that are issuable upon the
conversion of the Convertible Preferred Stock to be included in any
registration pursuant to Section 2 hereof, the conversion of the Convertible
Preferred Stock must be effected no later than immediately prior to the closing
of any sales under the Registration Statement pursuant to which such
Registrable Securities are to be sold.
2.7 Postponements. The Company shall be entitled to postpone a Demand
Registration or an S-3 Registration and to require the Stockholders owning
Registrable Securities to discontinue the disposition of their securities
covered by a Shelf Registration during any Blackout Period (as defined below)
(i) if the Board of Directors of the Company determines in good faith that
effecting such a registration or continuing such disposition at such time would
have an adverse effect upon a material proposed transaction affecting or by the
Company, or (ii) if the Company is in possession of material information which
the Board of Directors of the Company determines in good faith is not in the
best interests of the Company to disclose in a registration statement at such
time provided, however, that the Company may delay a Demand Registration or an
S-3 Registration and require the Stockholders owning Registrable Securities to
discontinue the disposition of their securities covered by a Shelf Registration
only for a reasonable period of time not to exceed 90 days (or such earlier
time as such transaction is consummated or no longer proposed or the material
information has been made public) (the "Blackout Period"); provided, further
that the effectiveness period shall be extended by the number of days in any
Blackout Period to the extent that the Registration Statement already was
effective at the commencement of the Blackout Period. There shall not be more
than two Blackout Periods in any 12 month period. The Company shall promptly
notify the Stockholders in writing (a "Blackout Notice") of any decision to
postpone a Demand Registration or an S-3 Registration or to discontinue sales of
Registrable Securities covered by a Shelf Registration or an S-3 Registration
pursuant to this Section 2.7 and shall include an undertaking by the Company to
promptly notify the Stockholders as soon as a Demand Registration may be
effected or sales of Registrable Securities covered by a Shelf Registration may
resume. In making any such determination to initiate or terminate a Blackout
Period, the Company shall not be required to consult with or obtain the consent
of any Stockholder, and any such determination shall be the Company's sole
responsibility. Each Stockholder shall treat all notices received from the
Company pursuant to this Section 2.7 in the strictest confidence and shall not
disseminate such information. If the Company shall postpone the filing of a
Demand Registration Statement or an S-3 Registration pursuant to this Section
2.7, the Majority Stockholders of Registrable Securities who were to
participate therein shall have the right to withdraw the request for
registration. Any such withdrawal shall be made by giving written notice to the
Company within 30 days after receipt of the Blackout Notice. Such withdrawn
registration request shall not be treated as a Demand Registration effected
pursuant to Section 2.1 (and shall not be counted towards the number of Demand
Registrations effected), and the Company shall pay all Registration Expenses in
connection therewith.
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3. HOLDBACK ARRANGEMENTS.
3.1 Restrictions on Sale by Stockholders Owning Registrable Securities.
Each Stockholder owning Registrable Securities agrees, by acquisition of such
Registrable Securities, if requested in writing by the sole or lead managing
Underwriter in an Underwritten Offering of any Registrable Securities, not to
transfer, hedge or make any short sale of, loan, grant any option for the
purchase of or effect any public sale or distribution, including a sale
pursuant to Rule 144, of any Registrable Securities or any other equity
security of the Company (or any security convertible into or exchangeable or
exercisable for any equity security of the Company) (except as part of such
underwritten registration), during the five business days (as such term is used
in Regulation M under the Exchange Act) prior to, and during the time period
reasonably requested by the sole or lead managing Underwriter not to exceed 90
days, beginning on the effective date of the applicable Registration Statement.
3.2 Restrictions on Sale by the Company and Others. The Company agrees
that if timely requested in writing by the sole or lead managing Underwriter in
an Underwritten Offering of any Registrable Securities, it will not effect any
public sale or distribution of any of the Company's equity securities (or any
security convertible into or exchangeable or exercisable for any of the
Company's equity securities) during the five business days (as such term is
used in Regulation M under the Exchange Act) prior to, and during the time
period reasonably requested by the sole or lead managing Underwriter not to
exceed 90 days, beginning on the effective date of the applicable Registration
Statement (except as part of such underwritten registration or pursuant to
registrations on Forms S-4 or S-8 or any successor form to such forms).
4. REGISTRATION PROCEDURES.
4.1 Obligations of the Company. Whenever the Company is required to effect
the registration of Registrable Securities under the Securities Act pursuant to
Section 2 of this Agreement, the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC (promptly, and in any event within 60
days after receipt of a request to register Registrable Securities) the
requisite Registration Statement to effect such registration, which
Registration Statement shall comply as to form in all material respects with
the requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and the Company shall use its
commercially reasonable efforts to cause such Registration Statement to become
effective (provided, that the Company may discontinue any registration of its
securities that are not Registrable Securities, and, under the circumstances
specified in Sections 2.2 or 2.7, its securities that are Registrable
Securities); provided, however, that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, or comparable statements
under securities or blue sky laws of any U.S. jurisdiction, the Company shall
(i) provide Stockholders' Counsel with an adequate and appropriate opportunity
to participate in the preparation of such Registration Statement and each
Prospectus included therein (and each amendment or supplement thereto or
comparable statement) to be filed with the SEC, which documents shall be
subject to the review and comment of Stockholders' Counsel, and (ii) not file
any such Registration Statement or Prospectus (or amendment or supplement
thereto or comparable statement) with the SEC to
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which Stockholder's Counsel, any selling Stockholder shall have reasonably
objected on the grounds that such filing does not comply in all material
respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
(b) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may
be necessary (i) to keep such Registration Statement effective, and (ii) to
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such Registration
Statement, in each case until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller(s) thereof set forth in such Registration Statement or 180 days,
whichever is shorter; provided, that with respect to any Shelf Registration,
such period need not extend beyond the time period provided in Section 2.3, and
which periods, in any event, shall terminate when all Registrable Securities
covered by such Registration Statement have been sold (but not before the
expiration of the 90 day period referred to in Section 4(3) of the Securities
Act and Rule 174 thereunder, if applicable);
(c) furnish, without charge, to each selling Stockholder of such
Registrable Securities and each Underwriter, if any, of the securities covered
by such Registration Statement, such number of copies of such Registration
Statement, each amendment and supplement thereto, and the Prospectus included
in such Registration Statement (including each preliminary Prospectus) in
conformity with the requirements of the Securities Act, as such selling
Stockholder and Underwriter may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities owned by such
selling Stockholder (the Company hereby consenting (subject only to the
provisions of subparagraph (f) below to the use in accordance with applicable
law of each such Registration Statement (or amendment or posteffective
amendment thereto) and each such Prospectus (or preliminary prospectus or
supplement thereto) by each such selling Stockholder of Registrable Securities
and the Underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Registration Statement or Prospectus);
(d) prior to any public offering of Registrable Securities, use its
commercially reasonable efforts to register or qualify all Registrable
Securities under such other securities or blue sky laws of such U.S.
jurisdictions as any selling Stockholder of Registrable Securities covered by
such Registration Statement or the sole or lead managing Underwriter, if any,
may reasonably request to enable such selling Stockholder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
selling Stockholder and to continue such registration or qualification in
effect in each such jurisdiction for as long as such Registration Statement
remains in effect (including through new filings or amendments or renewals),
and do any and all other acts and things which may be reasonably necessary or
advisable to enable any such selling Stockholder to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such selling
Stockholder; provided, however, that the Company shall not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 4.1(d), (ii) subject
itself to taxation in any such jurisdiction, or (iii) consent to general
service of process in any such jurisdiction;
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(e) [intentionally omitted]
(f) promptly notify Stockholders' Counsel, each Stockholder owning
Registrable Securities covered by such Registration Statement and the sole or
lead managing Underwriter, if any: (i) when the Registration Statement, any
preeffective amendment, the Prospectus or any prospectus supplement related
thereto or posteffective amendment to the Registration Statement has been filed
and, with respect to the Registration Statement or any posteffective amendment,
when the same has become effective, (ii) of any request by the SEC or any state
securities or blue sky authority for amendments or supplements to the
Registration Statement or the Prospectus related thereto or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation or threat of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose, (v) of the
existence of any fact of which the Company becomes aware or the happening of
any event which results in (A) the Registration Statement containing an untrue
statement of a material fact or omitting to state a material fact required to
be stated therein or necessary to make any statements therein not misleading,
or (B) the Prospectus included in such Registration Statement containing an
untrue statement of a material fact or omitting to state a material fact
required to be stated therein or necessary to make any statements therein, in
the light of the circumstances under which they were made, not misleading, (vi)
if at any time the representations and warranties contemplated by Section
2.5(b) cease to be true and correct in all material respects, and (vii) of the
Company's reasonable determination that a posteffective amendment to a
Registration Statement would be appropriate or that there exists circumstances
not yet disclosed to the public which make further sales under such
Registration Statement inadvisable pending such disclosure and posteffective
amendment; and, if the notification relates to an event described in any of the
clauses (ii) through (vii) of this Section 4.1(f), the Company shall promptly
prepare a supplement or posteffective amendment to such Registration Statement
or related Prospectus or any document incorporated therein by reference or file
any other required document so that (1) such Registration Statement shall not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (2) as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such Prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein in
the light of the circumstances under which they were made not misleading (and
shall furnish to each such Stockholder and each Underwriter, if any, a
reasonable number of copies of such Prospectus so supplemented or amended); and
if the notification relates to an event described in clause (iii) of this
Section 4.1(f), the Company shall take all reasonable action required to
prevent the entry of such stop order or to remove it if entered;
(g) make available for inspection by any selling Stockholder of
Registrable Securities, any sole or lead managing Underwriter participating in
any disposition pursuant to such Registration Statement, Stockholders' Counsel
and any attorney retained by any such seller or any Underwriter (each, an
"Inspector" and, collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and any
subsidiaries
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thereof as may be in existence at such time (collectively, the "Records") as
shall be necessary, in the opinion of such Stockholders' and such Underwriters'
respective counsel, to enable them to exercise their due diligence
responsibility and to conduct a reasonable investigation within the meaning of
the Securities Act, and cause the Company's and any subsidiaries' officers,
directors and employees, and the independent public accountants of the Company,
to supply all information reasonably requested by any such Inspectors in
connection with such Registration Statement;
(h) in the event of an Underwritten Offering, obtain an opinion from the
Company's counsel and a "cold comfort" letter from the Company's independent
public accountants who have certified the Company's financial statements
included or incorporated by reference in such Registration Statement, in each
case dated the effective date of such Registration Statement (and if such
registration involves an Underwritten Offering, dated the date of the closing
under the underwriting agreement), in customary form and covering such matters
as are customarily covered by such opinions and "cold comfort" letters
delivered to underwriters in underwritten public offerings, which opinion and
letter shall be reasonably satisfactory to the sole or lead managing
Underwriter, if any, and furnish to each Underwriter, if any, a copy of such
opinion and letter addressed to such Underwriter;
(i) provide a CUSIP number for all Registrable Securities and provide and
cause to be maintained a transfer agent and registrar for all such Registrable
Securities covered by such Registration Statement not later than the
effectiveness of such Registration Statement;
(j) otherwise use its commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC and any other governmental agency
or authority having jurisdiction over the offering, and make available to its
security holders, as soon as reasonably practicable but no later than 90 days
after the end of any 12-month period, an earnings statement (i) commencing at
the end of any month in which Registrable Securities are sold to Underwriters
in an Underwritten Offering and (ii) commencing with the first day of the
Company's calendar month next succeeding each sale of Registrable Securities
after the effective date of a Registration Statement, which statement shall
cover such 12-month periods, in a manner which satisfies the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) if so requested by the Majority Stockholders of the Registration, use
its commercially reasonable efforts to cause all such Registrable Securities to
be listed on each national securities exchange on which the Common Shares are
then listed;
(l) keep each selling Stockholder of Registrable Securities reasonably
advised in writing as to the initiation and progress of any registration under
Section 2 hereunder;
(m) enter into and perform customary agreements (including, if applicable,
an underwriting agreement in customary form) and provide officers' certificates
and other customary closing documents;
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(n) cooperate with each selling Stockholder of Registrable Securities and
each Underwriter participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings required
to be made with the NASD;
(o) [intentionally omitted]
(p) cooperate with the selling Stockholders of Registrable Securities and
the sole or lead managing Underwriter, if any, to facilitate the timely
preparation and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause such Registrable
Securities to be issued in such denominations and registered in such names in
accordance with the underwriting agreement prior to any sale of Registrable
Securities to the Underwriters or, if not an Underwritten Offering, in
accordance with the instructions of the selling Stockholders of Registrable
Securities at least three business days prior to any sale of Registrable
Securities;
(q) if requested by the sole or lead managing Underwriter or any selling
Stockholder of Registrable Securities, as promptly as practicable incorporate
in a prospectus supplement or posteffective amendment such information
concerning such selling Stockholder of Registrable Securities, the Underwriters
or the intended method of distribution as the sole or lead managing Underwriter
or the selling Stockholder of Registrable Securities reasonably requests to be
included therein and as is appropriate in the reasonable judgment of the
Company, including, without limitation, information with respect to the number
of shares of the Registrable Securities being sold to the Underwriters, the
purchase price being paid therefor by such Underwriters and with respect to any
other terms of the Underwritten Offering of the Registrable Securities to be
sold in such offering; make all required filings of such Prospectus supplement
or posteffective amendment as soon as notified of the matters to be
incorporated in such Prospectus supplement or posteffective amendment; and
supplement or make amendments to any Registration Statement if requested by the
sole or lead managing Underwriter of such Registrable Securities; and
(r) use all commercially reasonable efforts to take all other steps
necessary to expedite or facilitate the registration and disposition of the
Registrable Securities contemplated hereby.
4.2 Seller Information. The Company may require each selling Stockholder
of Registrable Securities as to which any registration is being effected to
furnish to the Company such information regarding such Stockholder, such
Stockholder's Registrable Securities and such Stockholder's intended method of
disposition as the Company may from time to time reasonably request in writing;
provided that such information shall be used only in connection with such
registration.
4.3 Notice to Discontinue. Each Stockholder owning Registrable Securities
agrees by acquisition of such Registrable Securities that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 4.1(f)(ii) through (vii), such Stockholder shall forthwith discontinue
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Stockholder's receipt of
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the copies of the supplemented or amended prospectus contemplated by Section
4.1(f) and, if so directed by the Company, such Stockholder shall deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies, then in such Stockholder's possession of the Prospectus covering such
Registrable Securities which is current at the time of receipt of such notice.
If the Company shall give any such notice, the Company shall extend the period
during which such Registration Statement shall be maintained effective pursuant
to this Agreement (including, without limitation, the period referred to in
Section 4.1(b)) by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 4.1(f) to and including
the date when the Stockholder shall have received the copies of the
supplemented or amended prospectus contemplated by and meeting the requirements
of Section 4.1(f).
5. INDEMNIFICATION; CONTRIBUTION.
5.1 Indemnification by the Company. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law, each Stockholder owning
Registrable Securities, and each Person who controls such Stockholder (within
the meaning of the Securities Act) with respect to each registration which has
been effected pursuant to this Agreement, against any and all losses, claims,
damages or liabilities, joint or several, actions or proceedings (whether
commenced or threatened) in respect thereof, and out-of-pocket expenses (as
incurred or suffered and including, but not limited to, any and all reasonable
expenses incurred in investigating, preparing or defending any litigation or
proceeding, whether commenced or threatened, and the reasonable fees,
disbursements and other charges of legal counsel) in respect thereof
(collectively, "Claims"), insofar as such Claims arise out of or are based upon
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement thereto) related to any such
registration or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such Claims arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact or omission or
alleged omission of a material fact so made in reliance upon and in conformity
with written information furnished by the Stockholder or its representative to
the Company for use therein. The Company shall also indemnify any Underwriters
of the Registrable Securities, and each Person who controls any such
Underwriter (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the Stockholders owning
Registrable Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any Person who may be
entitled to indemnification pursuant to this Section 5 and shall survive the
transfer of securities by such Stockholder or Underwriter.
5.2 Indemnification by Stockholders. Each Stockholder, if Registrable
Securities held by it are included in the securities as to which a registration
is being effected, agrees to, severally and not jointly, indemnify and hold
harmless, to the fullest extent permitted by law, the Company, its directors
and officers, each other Person who participates as an Underwriter in the
offering or sale of such securities, each Person who controls the Company or
any such Underwriter (within the meaning of the Securities Act) and any other
Person selling Common
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Shares in such Registration Statement against any and all Claims, insofar as
such Claims arise out of or are based upon any untrue or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus (including any preliminary, final or summary prospectus and any
amendment or supplement thereto) related to such registration, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by the Stockholder
or its representative for use therein; provided, however, that the aggregate
amount which any such Stockholder shall be required to pay pursuant to this
Section 5.2 shall in no event be greater than the amount of the net proceeds
received by such Stockholder upon the sale of the Registrable Securities
pursuant to the Registration Statement giving rise to such Claims less all
amounts previously paid by such Stockholder with respect to any such Claims.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such indemnified party and shall survive
the transfer of such securities by such Stockholder or Underwriter.
5.3 Conduct of Indemnification Proceedings. Promptly after receipt by an
indemnified party of notice of any Claim or the commencement of any action or
proceeding involving a Claim under this Section 5, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party pursuant to Section 5, (i) notify the indemnifying party in writing of
the Claim or the commencement of such action or proceeding; provided, that the
failure of any indemnified party to provide such notice shall not relieve the
indemnifying party of its obligations under this Section 5, except to the
extent the indemnifying party is actually prejudiced thereby and shall not
relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 5, and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any indemnified
party shall have the right to employ separate counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (A) the indemnifying party has
agreed in writing to pay such fees and expenses, (B) the indemnifying party
shall have failed to assume the defense of such claim and employ counsel
reasonably satisfactory to such indemnified party within 20 days after
receiving notice from such indemnified party, (C) in the reasonable judgment of
any such indemnified party, based upon advice of counsel, a conflict of
interest is reasonably likely to exist between such indemnified party and the
indemnifying party with respect to such claims (in which case, if the
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such indemnified party) or (D) such indemnified party is a
defendant in an action or proceeding which is also brought against the
indemnifying party and reasonably shall have concluded that there may be one or
more legal defenses available to such indemnified party which are not available
to the indemnifying party. No indemnifying party shall be liable for any
settlement of any such claim or action effected without its written consent,
which consent shall not be unreasonably withheld. In addition, without the
consent of the indemnified party (which consent shall not be unreasonably
withheld), no indemnifying party
18
<PAGE>
shall be permitted to consent to entry of any judgment with respect to, or to
effect the settlement or compromise of any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim), unless such settlement, compromise or judgment (1)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim, and (2) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party, and (3) does not provide for any action on the part of
any party other than the payment of money damages which is to be paid in full
by the indemnifying party.
5.4 Contribution. If the indemnification provided for in Section 5.1 or
5.2 from the indemnifying party for any reason is unavailable to (other than by
reason of exceptions provided therein), or is insufficient to hold harmless, an
indemnified party hereunder in respect of any Claim, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such Claim in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and the indemnified party, on the other
hand, in connection with the actions which resulted in such Claim, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. If, however, the foregoing allocation is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative benefits of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by a party as a result of any Claim
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth in Section 5.3, any legal or other fees,
costs or expenses reasonably incurred by such party in connection with any
investigation or proceeding. Notwithstanding anything in this Section 5.4 to
the contrary, no indemnifying party (other than the Company) shall be required
pursuant to this Section 5.4 to contribute any amount in excess of the net
proceeds received by such indemnifying party from the sale of the Registrable
Securities pursuant to the Registration Statement giving rise to such Claims,
less all amounts previously paid by such indemnifying party with respect to
such Claims. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
5.5 Other Indemnification. Indemnification similar to that specified
in the preceding Sections 5.1 and 5.2 (with appropriate modifications) shall be
given by the Company and each
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selling Stockholder of Registrable Securities with respect to any required
registration or other qualification of securities under any Federal or state
law or regulation of any governmental authority, other than the Securities Act.
The indemnity agreements contained herein shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract.
5.6 Indemnification Payments. The indemnification and contribution
required by this Section 5 shall be made by periodic payments of the amount
thereof during the course of any investigation or defense, as and when bills
are received or any expense, loss, damage or liability is incurred.
6. GENERAL.
6.1 Registration Rights to Others. Other than as set forth on Schedule A
attached hereto, the Company is not party to any agreement with respect to its
securities granting any registration rights to any Person. If the Company shall
at any time hereafter provide to any holder of any securities of the Company
rights with respect to the registration of such securities under the Securities
Act, such rights shall not be in conflict with or materially adversely affect
any of the rights provided in this Agreement to the Stockholders.
6.2 Availability of Information. The Company covenants that it shall
timely file any reports required to be filed by it under the Securities Act or
the Exchange Act (including, but not limited to, the reports under Sections 13
and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 under
the Securities Act), all to the extent required from time to time to enable
such Stockholder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
and Rule 144A under the Securities Act, as such rules may be amended from time
to time, or (ii) any other rule or regulation now existing or hereafter adopted
by the SEC.
6.3 Amendments and Waivers. The provisions of this Agreement may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, without the written
consent of the Company and the Stockholders beneficially owning more than 50%
of the Registrable Securities then outstanding; provided, however, that no such
amendment, modification, supplement, waiver or consent to departure shall
reduce the aforesaid percentage of Registrable Securities without the written
consent of all of the Stockholders beneficially owning Registrable Securities;
and provided further, that nothing herein shall prohibit any amendment,
modification, supplement, termination, waiver or consent to departure the
effect of which is limited only to those Stockholders who have agreed to such
amendment, modification, supplement, termination, waiver or consent to
departure.
6.4 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, telecopier, any
courier guaranteeing overnight delivery or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to the applicable
party at the address set forth below or such other address as
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<PAGE>
may hereafter be designated in writing by such party to the other parties in
accordance with the provisions of this Section:
(i) If to the Company, to:
Insignia Financial Group, Inc.
200 Park Avenue
New York, NY 10166
Attn: Adam B. Gilbert, Esq.
Telecopy: 212-984-6644
Telephone: 212-984-6649
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attn: Arnold S. Jacobs, Esq.
Telecopy: 212-969-2900
Telephone: 212-969-3000
(ii) If to the Initial Stockholders, to:
Blackacre Capital Management L.L.C.
450 Park Avenue
New York, NY 10022
Attn: Ronald J. Kravit
Telecopy: 212-891-2104
Telephone: 212-891-2100
With a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attn: Stuart D. Freedman, Esq.
Telecopy: 212-593-5955
Telephone: 212-756-2000
(iii) If to any subsequent Stockholder, to the address of
such Person set forth in the records of the Company.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt is
acknowledged, if telecopied; on the next business day, if timely delivered to a
courier guaranteeing overnight delivery; and
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five days after being deposited in the mail, if sent first class or certified
mail, return receipt requested, postage prepaid.
6.5 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successors
and permitted assigns (including any permitted transferee of Registrable
Securities). Any Stockholder may assign to any permitted (as determined under
the Stock Subscription Agreement) transferee of its Registrable Securities
(other than a transferee that acquires such Registrable Securities in a
registered public offering or pursuant to a sale under Rule 144 of the
Securities Act (or any successor rule)), its rights and obligations under this
Agreement; provided, however, if any permitted transferee shall take and hold
Registrable Securities, such transferee shall promptly notify the Company and
by taking and holding such Registrable Securities such permitted transferee
shall automatically be entitled to receive the benefits of and be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement as if it were a party hereto (and shall, for all
purposes, be deemed a Stockholder under this Agreement). If the Company shall
so request, any heir, successor or permitted assign (including any permitted
transferee) shall agree in writing to acquire and hold the Registrable
Securities subject to all of the terms hereof. For purposes of this Agreement,
"successor" for any entity other than a natural person shall mean a successor
to such entity as a result of such entity's merger, consolidation, sale of
substantially all of its assets, or similar transaction. Except as provided
above or otherwise permitted by this Agreement, neither this Agreement nor any
right, remedy, obligation or liability arising hereunder or by reason hereof
shall be assignable by any Stockholder without the consent of the Company.
6.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original, but all of which counterparts, taken together, shall constitute
one and the same instrument.
6.7 Descriptive Headings, Etc. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; (3) the words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and paragraph references are to the Sections and
paragraphs of this Agreement unless otherwise specified; (4) the word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless otherwise specified; (5) "or" is not
exclusive; and (6) provisions apply to successive events and transactions.
6.8 Severability. In the event that any one or more of the provisions,
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or
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sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
6.9 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (without giving effect to
the conflict of laws principles thereof).
6.10 Remedies; Specific Performance. The parties hereto acknowledge that
money damages would not be an adequate remedy at law if any party fails to
perform in any material respect any of its obligations hereunder, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to seek to compel
specific performance of the obligations of any other party under this
Agreement, without the posting of any bond, in accordance with the terms and
conditions of this Agreement in any court of the United States or any State
thereof having jurisdiction, and if any action should be brought in equity to
enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law. Except as
otherwise provided by law, a delay or omission by a party hereto in exercising
any right or remedy accruing upon any such breach shall not impair the right or
remedy or constitute a waiver of or acquiescence in any such breach. No remedy
shall be exclusive of any other remedy. All available remedies shall be
cumulative.
6.11 Entire Agreement. This Agreement, the Convertible Preferred Stock
(and the Certificate of Designation describing the rights and preferences
thereof) and the Stock Subscription Agreement (collectively, the "Other
Agreements") are intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants or undertakings relating to such subject matter, other
than those set forth or referred to herein or in the Other Agreements. This
Agreement and the Other Agreements supersede all prior agreements and
understandings between the Company and the other parties to this Agreement with
respect to such subject matter.
6.12 Nominees for Beneficial Owners. In the event that any Convertible
Preferred Stock or Registrable Securities are held by a nominee for the
beneficial owner thereof, the beneficial owner thereof may, at its election in
writing delivered to the Company, be treated as the holder of such Convertible
Preferred Stock or Registrable Securities for purposes of any request or other
action by any holder or holders of Convertible Preferred Stock or Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any holder or holders of
Convertible Preferred Stock or Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Convertible Preferred Stock or
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Convertible
Preferred Stock or Registrable Securities.
6.13 Consent to Jurisdiction; Waiver of Jury. Each party to this Agreement
hereby irrevocably and unconditionally agrees that any legal action, suit or
proceeding arising out of or
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relating to this Agreement or any agreements or transactions contemplated
hereby may be brought in any federal court of the Southern District of New York
or any state court located in New York County, State of New York, and hereby
irrevocably and unconditionally expressly submits to the personal jurisdiction
and venue of such courts for the purposes thereof and hereby irrevocably and
unconditionally waives any claim (by way of motion, as a defense or otherwise)
of improper venue, that it is not subject personally to the jurisdiction of
such court, that such courts are an inconvenient forum or that this Agreement
or the subject matter may not be enforced in or by such court. Each party
hereby irrevocably and unconditionally consents to the service of process of
any of the aforementioned courts in any such action, suit or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
the address set forth or provided for in Section 6.4 of this Agreement, such
service to become effective 10 days after such mailing. Nothing herein
contained shall be deemed to affect the right of any party to serve process in
any manner permitted by law or commence legal proceedings or otherwise proceed
against any other party in any other jurisdiction to enforce judgments obtained
in any action, suit or proceeding brought pursuant to this Section. Each of the
parties hereby irrevocably waives trial by jury in any action, suit or
proceeding, whether at law or equity, brought by any of them in connection with
this Agreement or the transactions contemplated hereby.
6.14 Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
6.15 Construction. The Company and the Initial Stockholders acknowledge
that each of them has had the benefit of legal counsel of its own choice and
has been afforded an opportunity to review this Agreement with its legal
counsel and that this Agreement shall be construed as if jointly drafted by the
Company and the Stockholders.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed as of the date first written above.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ A.B. Gilbert
----------------------------------
Name: A.B. Gilbert
Title: EVP
INITIAL HOLDERS:
MADELEINE L.L.C.
By: /s/ Ronald J. Kravit
--------------------------
Name: Ronald J. Kravit
Title: Managing Director
<PAGE>
TRANSFEREE AGREEMENT
THIS TRANSFEREE AGREEMENT (this "Agreement") is made as of the 24th day of
September, 1999, by and between Insignia Financial Services, Inc., as a Member
("Transferor") of Insignia Opportunity Directives, LLC, a Delaware limited
liability company (the "Company"), and ____________________, an individual who
desires to become a Member ("Transferee") pursuant to this Agreement. All
capitalized terms used but not defined herein have the same meanings as in the
limited liability company agreement of the Company, attached hereto as Annex A
(the "LLC Agreement").
WHEREAS, Transferor is a wholly-owned subsidiary of Insignia Financial
Group, Inc., a Delaware corporation (collectively with its subsidiaries,
"Insignia"), and Insignia is causing Transferor to enter into this Agreement;
WHEREAS, Insignia desires to incentivize and retain in the employ of
Insignia certain individuals and to compensate them for their contributions to
the growth and profits of Insignia and thereby induce them to continue to make
such contributions in the future;
WHEREAS, Transferee is an employee of Insignia;
WHEREAS, in furtherance thereof, and pursuant to and in accordance with
the LLC Agreement, this Agreement is designed to transfer and assign
("Transfer") ____ Class B Units and ____ Class C Units in the Company from
Transferor to Transferee, subject to forfeiture as provided herein; and
WHEREAS, the parties hereto desire to execute this Agreement to further
evidence the Transfer by Transferor;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1. Definitions.
Whenever used herein, the following capitalized terms shall have the
meanings set forth below:
"Cause" means: (1) if Transferee has a written employment agreement with
Insignia containing a definition of the term "Cause," such definition;
otherwise, (2) (i) engaging in willful or gross misconduct or neglect, (ii)
repeatedly failing to adhere to the directions of superiors or the written
policies and practices of Insignia, (iii) the commission of a felony or a crime
of moral turpitude or any crime involving Insignia, (iv) fraud,
misappropriation or embezzlement, (v) a material breach of Transferee's
employment agreement (if any) with Insignia, or (vi) any other illegal act
detrimental to Insignia.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the recitals.
"Disability" means a disability which renders Transferee incapable of
performing substantially all of his or her material duties for Insignia for a
period of at least 180 consecutive days.
"Insignia" has the meaning set forth in the recitals.
"IRS" means the Internal Revenue Service.
<PAGE>
"Managing Member" means Insignia Financial Services, Inc., a Delaware
corporation, in its capacity as the managing member of the Company.
"Transfer" has the meaning set forth in the recitals.
"Transferee" has the meaning set forth in the recitals.
"Transferor" has the meaning set forth in the recitals.
"Units" means the Class B Units and Class C Units Transferred pursuant to
this Agreement.
"Unvested Unit" means a Unit that was Transferred to Transferee pursuant
to this Agreement which continues to be subject to forfeiture pursuant to
Section 4 at the time in question.
"Vested Unit" means a Unit that was Transferred to Transferee pursuant to
this Agreement which is no longer subject to forfeiture pursuant to Section 4
at the time in question.
2. Transfer of Units.
(a) Transferor hereby Transfers ____ Class B Units and ____ Class C Units
to Transferee, and Transferee hereby accepts such Units, in each case subject
to forfeiture as provided in Section 4 hereof and the other terms and
conditions of this Agreement.
(b) Transferee will be entered into the records of the Company as the
holder of the Units Transferred pursuant to this Agreement, and Transferee
shall be subject to the provisions and restrictions set forth in the LLC
Agreement.
3. Effective Date of Agreement.
This Agreement is effective as of the date first above written. As
required by the LLC Agreement, the Managing Member of the Company has approved
this Agreement and the Transfer of Units pursuant hereto as evidenced by its
signature on the signature page hereto.
4. Restrictions and Conditions; Forfeiture.
(a) The Class B Units and Class C Units Transferred pursuant to this
Agreement are subject to forfeiture back to Transferor during such periods, in
such percentage amounts and upon the occurrence of such conditions and events
as are indicated on Schedule I attached hereto.
(b) Except as provided in Section 4(a), Transferee shall have, in respect
of the Units, all of the rights of a Member of the Company, including the right
to vote the Units and the right to receive and retain any cash distributions in
respect of such Units, until such time (if ever) as such Units are forfeited
back to the Company. Transferee shall not be required to return to Transferor
any distributions received in respect of subsequently forfeited Units.
(c) Upon forfeiture of Units held by Transferee back to Transferor
pursuant to Section 4(a), Transferee shall (i) cease to be a Member of the
Company and shall have no further rights to distributions or allocations of
Profits and Losses of the Company, if as a result of such forfeiture no Units
continue to be held by Transferee, or (ii) continue to be a Member of the
Company but shall have no further rights to distributions or allocations of
Profits and Losses of the Company in respect of such
2
<PAGE>
forfeited Units, if Transferee continues to hold other Units. Any forfeiture of
Units shall, without any further action by Managing Member, Transferee, the
Company or any other Person, result in an automatic Transfer of the Units so
forfeited hereunder from Transferee to Transferor.
5. Section 83(b) Tax Election.
On the date of Transfer of Units to Transferee pursuant to this Agreement,
Transferee shall execute and deliver three copies of a Section 83(b) Tax
Election Form, substantially in the form attached as Annex B hereto, to the
Managing Member with respect to the Units received. Upon receipt of such duly
executed form, the Managing Member shall promptly file two copies with the IRS
and keep one copy in the records maintained by the Company. Notwithstanding
anything contained in this Agreement to the contrary, Transferee's execution
and delivery of the Section 83(b) Tax Election Form shall be a condition
precedent to Transferor's obligation as may otherwise be provided hereunder to
provide Units to Transferee, and the failure of Transferee to satisfy such
requirement with respect to the Units shall cause such Units to be forfeited in
accordance with Section 5 hereof.
6. Nontransferability of Unvested Units.
Unvested Units shall not be transferred or assigned by Transferee in any
manner whatsoever. Vested Units will be transferable if and to the extent
permitted by Article V of the LLC Agreement.
7. Miscellaneous.
(a) Without limiting any power and authority otherwise possessed by
Transferor, Transferor shall have the full power and authority to interpret and
administer this Agreement and any other instrument or agreements relating to
this Agreement. The Managing Member's actions in this regard shall be final,
conclusive and binding upon all persons, including without limitation
Transferee and Transferee's beneficiaries.
(b) The failure of Transferor, Transferee or the Company to insist upon
strict compliance with any provision of this Agreement, or to assert any right
Transferor, Transferee or the Company, respectively, may have under this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement or the LLC Agreement.
(c) Nothing in this Agreement shall confer on Transferee any right to
continue in the employ or other service of Insignia or interfere in any way
with the right of Insignia to terminate Transferee's employment or other
service at any time.
(d) The Company is an express third-party beneficiary of this Agreement.
(e) TRANSFEREE EXPRESSLY ACKNOWLEDGES THAT PURSUANT TO SECTION 2.10 OF THE
LLC AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN THE LLC AGREEMENT THE MANAGING
MEMBER HAS NO DUTY TO TRANSFEREE, FIDUCIARY OR OTHERWISE, AND MAY TAKE WHATEVER
ACTIONS IT DEEMS APPROPRIATE IN ITS SOLE AND ABSOLUTE DISCRETION INCLUDING, BUT
NOT LIMITED TO, REDUCING OR FORFEITING ITS ENTIRE INTEREST IN IOP WITHOUT ANY
CONSIDERATION, AND TRANSFEREE HEREBY CONFIRMS AND AGREES TO SUCH LIMITATION ON
THE DUTY OF THE MANAGING MEMBER.
3
<PAGE>
8. Notices.
All notices under this Agreement shall be in writing and delivered
personally or by recognized overnight courier, as follows:
if to Transferor:
Insignia Financial Services, Inc.
102 Woodmont Boulevard
Suite 400
Nashville, Tennessee 37205
Attn: Frank M. Garrison
if to Transferee:
--------------------
--------------------
--------------------
if to the Company:
Insignia Opportunity Directives, LLC
c/o Insignia Financial Services, Inc.
102 Woodmont Boulevard
Suite 400
Nashville, Tennessee 37205
Attn: Frank M. Garrison
Such addresses may be changed at any time by written notice to the other party
given in accordance with this Section 8.
9. Captions.
The use of captions in this Agreement is for convenience. The captions are
not intended to and do not provide substantive rights.
10. Amendment; Waiver; Severability.
This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives. No waiver of any provision of this Agreement shall be
valid unless it is in writing and signed by the party charged therewith. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF DELAWARE, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
4
<PAGE>
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRANSFEROR:
INSIGNIA FINANCIAL SERVICES, INC.
By:
---------------------------------------
Name:
Title:
TRANSFEREE:
---------------------------------------
[Name]
AS REQUIRED BY THE LLC AGREEMENT,
THIS AGREEMENT AND THE TRANSFER
OF UNITS PURSUANT HERETO IS HEREBY
APPROVED BY THE MANAGING MEMBER
OF THE COMPANY:
INSIGNIA FINANCIAL SERVICES, INC.
By:
---------------------------------
Name:
Title:
6
<PAGE>
SCHEDULE II
TRANSFEREE CLASS B UNITS CLASS C UNITS
- --------------------------------------------------------------------
Insignia Financial Services, Inc. 160 160
Andrew L. Farkas 100 100
Frank M. Garrison 50 50
James A. Aston 20 20
Jeffrey P. Cohen 20 20
George Carleton 20 20
Steve B. Siegel 10 10
Ronald Uretta 10 10
Adam B. Gilbert 10 10
7
<PAGE>
TRANSFEREE AGREEMENT
THIS TRANSFEREE AGREEMENT (this "Agreement") is made as of the 17th day of
November, 1999, by and between Insignia Internet Initiatives, Inc.
("Transferor"), as a Member of IIII-SLI Holdings, LLC, a Delaware limited
liability company (the "Company"), and ____________________, an individual who
desires to become a Member ("Transferee") pursuant to this Agreement. All
capitalized terms used but not defined herein have the same meanings as in the
limited liability company agreement of the Company, attached hereto as Annex A
(the "LLC Agreement").
WHEREAS, Transferor is a wholly-owned subsidiary of Insignia Financial
Group, Inc., a Delaware corporation (collectively with its subsidiaries,
"Insignia"), and Insignia is causing Transferor to enter into this Agreement;
WHEREAS, Insignia desires to incentivize and retain in the employ of
Insignia certain individuals and to compensate them for their contributions to
the growth and profits of Insignia and thereby induce them to continue to make
such contributions in the future;
WHEREAS, Transferee is an employee of Insignia;
WHEREAS, in furtherance thereof, and pursuant to and in accordance with
the LLC Agreement, this Agreement is designed to Transfer Class A Units and
Class B Units in the Company from Transferor to Transferee, subject to
forfeiture as provided herein; and
WHEREAS, the parties hereto desire to execute this Agreement to further
evidence the Transfer by Transferor;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1. Definitions.
Whenever used herein, the following capitalized terms shall have the
meanings set forth below:
"Cause" means: (a) if Transferee has a written employment agreement with
Insignia containing a definition of the term "Cause," such definition;
otherwise, (b) (i) engaging in willful or gross misconduct or neglect, (ii)
repeatedly failing to adhere to the directions of superiors or the written
policies and practices of Insignia, (iii) the commission of a felony or a crime
of moral turpitude or any crime involving Insignia, (iv) fraud,
misappropriation or embezzlement, (v) a material breach of Transferee's
employment agreement (if any) with Insignia, or (vi) any other illegal act
detrimental to Insignia.
"Managing Member" means Insignia Internet Initiatives, Inc., a Delaware
corporation, in its capacity as the managing member of the Company.
"Unvested Unit" means a Unit that was Transferred to Transferee pursuant
to this Agreement which continues to be subject to forfeiture pursuant to
Section 4 at the time in question.
"Vested Unit" means a Unit that was Transferred to Transferee pursuant to
this Agreement which is no longer subject to forfeiture pursuant to Section 4
at the time in question.
<PAGE>
2. Transfer of Units.
(a) Transferor hereby Transfers ____ Class A Units and ____ Class B Units
to Transferee, and Transferee hereby accepts such Units, in each case subject
to forfeiture as provided in Section 4 hereof and the other terms and
conditions of this Agreement.
(b) Transferee will be entered into the records of the Company as the
holder of the Units Transferred pursuant to this Agreement, and Transferee
shall be subject to the provisions and restrictions set forth in the LLC
Agreement.
3. Effective Date of Agreement.
This Agreement is effective as of the date first above written. As
required by the LLC Agreement, the Managing Member of the Company has approved
this Agreement and the Transfer of Units pursuant hereto as evidenced by its
signature on the signature page hereto.
4. Restrictions and Conditions; Forfeiture.
(a) The Units are subject to forfeiture back to Transferor during such
periods, in such percentage amounts and upon the occurrence of such conditions
and events as are indicated on Schedule I attached hereto.
(b) Except as provided in Section 4(a), Transferee shall have, in respect
of the Units, all of the rights of a Member of the Company, including the right
to vote the Units and the right to receive and retain any cash distributions in
respect of such Units, until such time (if ever) as such Units are forfeited
back to the Company. Transferee shall not be required to return to Transferor
any distributions received in respect of subsequently forfeited Units.
(c) Upon forfeiture of Units held by Transferee back to Transferor
pursuant to Section 4(a), Transferee shall (i) cease to be a Member of the
Company and shall have no further rights to distributions or allocations of
Profits and Losses of the Company, if as a result of such forfeiture no Units
continue to be held by Transferee, or (ii) continue to be a Member of the
Company but shall have no further rights to distributions or allocations of
Profits and Losses of the Company in respect of such forfeited Units, if
Transferee continues to hold other Units. Any forfeiture of Units shall,
without any further action by Managing Member, Transferee, the Company or any
other Person, result in an automatic Transfer of the Units so forfeited
hereunder from Transferee to Transferor.
5. Section 83(b) Tax Election.
On the date of Transfer of Units to Transferee pursuant to this Agreement,
Transferee shall execute three copies of a Section 83(b) Tax Election Form,
substantially in the form attached as Annex B hereto with respect to the Units
received. Transferee shall promptly file one copy of the Section 83(b) Tax
Election Form with the IRS and deliver one copy of the Section 83(b) Tax
Election Form to the Special Member. Upon receipt of such duly executed form,
the Special Member shall cause such copy to be filed in the records maintained
by the Company. Notwithstanding anything contained in this Agreement to the
contrary, Transferee's execution and delivery of the Section 83(b) Tax Election
Form shall be a condition precedent to Transferor's obligation as may otherwise
be provided hereunder to Transfer Units to Transferee, and the failure of
Transferee to satisfy such requirement with respect to the Units shall cause
such Units to be forfeited in accordance with Section 4 hereof.
2
<PAGE>
6. Nontransferability of Unvested Units.
Unvested Units shall not be transferred or assigned by Transferee in any
manner whatsoever. Vested Units will be transferable if and to the extent
permitted by Article V of the LLC Agreement.
7. Miscellaneous.
(a) Without limiting any power and authority otherwise possessed by
Transferor, Transferor shall have the full power and authority to interpret and
administer this Agreement and any other instrument or agreements relating to
this Agreement. The Managing Member's actions in this regard shall be final,
conclusive and binding upon all persons, including without limitation
Transferee and Transferee's beneficiaries.
(b) The failure of Transferor, Transferee or the Company to insist upon
strict compliance with any provision of this Agreement, or to assert any right
Transferor, Transferee or the Company, respectively, may have under this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement or the LLC Agreement.
(c) Nothing in this Agreement shall confer on Transferee any right to
continue in the employ or other service of Insignia or interfere in any way
with the right of Insignia to terminate Transferee's employment or other
service at any time.
(d) The Company is an express third-party beneficiary of this Agreement.
(e) TRANSFEREE EXPRESSLY ACKNOWLEDGES THAT PURSUANT TO SECTION 2.10 OF THE
LLC AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN THE LLC AGREEMENT THE MANAGING
MEMBER HAS NO DUTY TO TRANSFEREE, FIDUCIARY OR OTHERWISE, AND MAY TAKE WHATEVER
ACTIONS IT DEEMS APPROPRIATE IN ITS SOLE AND ABSOLUTE DISCRETION, AND
TRANSFEREE HEREBY CONFIRMS AND AGREES TO SUCH LIMITATION ON THE DUTY OF THE
MANAGING MEMBER.
8. Notices.
All notices under this Agreement shall be in writing and delivered
personally or by recognized overnight courier, as follows:
if to Transferor:
Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
if to Transferee:
------------------------------
------------------------------
------------------------------
3
<PAGE>
if to the Company:
IIII-SLI Holdings, LLC
c/o Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
Such addresses may be changed at any time by written notice to the other
party given in accordance with this Section 8.
9. Captions.
The use of captions in this Agreement is for convenience. The captions are
not intended to and do not provide substantive rights.
10. Amendment; Waiver; Severability.
This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives. No waiver of any provision of this Agreement shall be
valid unless it is in writing and signed by the party charged therewith. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF DELAWARE, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
TRANSFEROR:
INSIGNIA INTERNET INITIATIVES, INC.
By:
------------------------------------
Name:
Title:
TRANSFEREE:
------------------------------------
Name:
AS REQUIRED BY THE LLC AGREEMENT,
THIS AGREEMENT AND THE TRANSFER
OF UNITS PURSUANT HERETO IS HEREBY
APPROVED BY THE MANAGING MEMBER
OF THE COMPANY:
INSIGNIA INTERNET INITIATIVES, INC.
By:
------------------------------------
Name:
Title:
5
<PAGE>
SCHEDULE I
VESTING AND FORFEITURE
VESTING
Initially, 88% of the Class A Units and 88% of the Class B Units are subject to
forfeiture back to Transferor under the circumstances hereinafter described
(i.e., such Units are "Unvested"), and 12% of the Class A Units and 12% of the
Class B Units are not subject to forfeiture back to Transferor (i.e., such
Units are "Vested").
Subject to the following provision providing for accelerated time-based vesting
of Units under certain circumstances, until the earlier of (i) such time as all
of the Class A Units and Class B Units become Vested or (ii) such time as
Unvested Class A Units and Unvested Class B Units are forfeited back to
Transferor pursuant to this Agreement, on the last day of each calendar month
following the date of this Agreement, the percentages of Class A Units and
Class B Units that are Unvested (and thus subject to forfeiture back to
Transferor) shall be decreased by 2% (in absolute terms), and the percentages
of Class A Units and Class B that are Vested shall be increased by 2% (in
absolute terms).
If Transferee's employment (or other service, if applicable) with Insignia is
terminated by Insignia for any reason other than Cause, then all of the Class A
Units and Class B Units that are Unvested at such time shall immediately and
automatically become Vested.
FORFEITURE
If Transferee's employment (or other service, if applicable) with Transferor is
terminated (i) by Insignia for Cause, (ii) by Transferee for any reason or
(iii) as a result of the death or disability of Transferee, then all Class A
Units and all Class B Units that are Unvested at such time shall thereupon, and
with no further action, be forfeited by Transferee back to Transferor.
EMPLOYMENT AGREEMENT CONTROLS
If at any given time of determination Transferee is a party to a written
employment agreement with Insignia (or a subsidiary of Insignia) containing
terms that are more favorable to Transferee than those set forth in this
Schedule I, then the more favorable terms of such employment agreement shall
control.
<PAGE>
SCHEDULE II
MEMBER CLASS A UNITS CLASS B UNITS
- ------------------------------------------------------------------------
Andrew L. Farkas 70 70
Steve B. Siegel 10 10
Ronald Uretta 8 8
James A. Aston 4 4
Frank M. Garrison 4 4
Adam B. Gilbert 4 4
Jeffrey P. Cohen 8 8
John Combs 8 8
2
<PAGE>
TRANSFEREE AGREEMENT
THIS TRANSFEREE AGREEMENT (this "Agreement") is made as of the 24th day of
November, 1999, by and between Insignia Internet Initiatives, Inc.
("Transferor"), as a Member of IIII-OSA Holdings, LLC, a Delaware limited
liability company (the "Company"), and ____________________, an individual who
desires to become a Member ("Transferee") pursuant to this Agreement. All
capitalized terms used but not defined herein have the same meanings as in the
limited liability company agreement of the Company, attached hereto as Annex A
(the "LLC Agreement").
WHEREAS, Transferor is a wholly-owned subsidiary of Insignia Financial
Group, Inc., a Delaware corporation (collectively with its subsidiaries,
"Insignia"), and Insignia is causing Transferor to enter into this Agreement;
WHEREAS, Insignia desires to incentivize and retain in the employ of
Insignia certain individuals and to compensate them for their contributions to
the growth and profits of Insignia and thereby induce them to continue to make
such contributions in the future;
WHEREAS, Transferee is an employee of Insignia;
WHEREAS, in furtherance thereof, and pursuant to and in accordance with
the LLC Agreement, this Agreement is designed to Transfer Units in the Company
from Transferor to Transferee, subject to forfeiture as provided herein; and
WHEREAS, the parties hereto desire to execute this Agreement to further
evidence the Transfer by Transferor;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1. Definitions.
Whenever used herein, the following capitalized terms shall have the
meanings set forth below:
"Cause" means: (a) if Transferee has a written employment agreement with
Insignia containing a definition of the term "Cause," such definition;
otherwise, (b) (i) engaging in willful or gross misconduct or neglect, (ii)
repeatedly failing to adhere to the directions of superiors or the written
policies and practices of Insignia, (iii) the commission of a felony or a crime
of moral turpitude or any crime involving Insignia, (iv) fraud,
misappropriation or embezzlement, (v) a material breach of Transferee's
employment agreement (if any) with Insignia, or (vi) any other illegal act
detrimental to Insignia.
"Managing Member" means Insignia Internet Initiatives, Inc., a Delaware
corporation, in its capacity as the managing member of the Company.
"Unvested Unit" means a Unit that was Transferred to Transferee pursuant
to this Agreement which continues to be subject to forfeiture pursuant to
Section 4 at the time in question.
"Vested Unit" means a Unit that was Transferred to Transferee pursuant to
this Agreement which is no longer subject to forfeiture pursuant to Section 4
at the time in question.
<PAGE>
2. Transfer of Units.
(a) Transferor hereby Transfers ____ Units to Transferee, and Transferee
hereby accepts such Units, in each case subject to forfeiture as provided in
Section 4 hereof and the other terms and conditions of this Agreement.
(b) Transferee will be entered into the records of the Company as the
holder of the Units Transferred pursuant to this Agreement, and Transferee
shall be subject to the provisions and restrictions set forth in the LLC
Agreement.
3. Effective Date of Agreement.
This Agreement is effective as of the date first above written. As
required by the LLC Agreement, the Managing Member of the Company has approved
this Agreement and the Transfer of Units pursuant hereto as evidenced by its
signature on the signature page hereto.
4. Restrictions and Conditions; Forfeiture.
(a) The Units are subject to forfeiture back to Transferor during such
periods, in such percentage amounts and upon the occurrence of such conditions
and events as are indicated on Schedule I attached hereto.
(b) Except as provided in Section 4(a), Transferee shall have, in respect
of the Units, all of the rights of a Member of the Company, including the right
to vote the Units and the right to receive and retain any cash distributions in
respect of such Units, until such time (if ever) as such Units are forfeited
back to the Company. Transferee shall not be required to return to Transferor
any distributions received in respect of subsequently forfeited Units.
(c) Upon forfeiture of Units held by Transferee back to Transferor
pursuant to Section 4(a), Transferee shall (i) cease to be a Member of the
Company and shall have no further rights to distributions or allocations of
Profits and Losses of the Company, if as a result of such forfeiture no Units
continue to be held by Transferee, or (ii) continue to be a Member of the
Company but shall have no further rights to distributions or allocations of
Profits and Losses of the Company in respect of such forfeited Units, if
Transferee continues to hold other Units. Any forfeiture of Units shall,
without any further action by Managing Member, Transferee, the Company or any
other Person, result in an automatic Transfer of the Units so forfeited
hereunder from Transferee to Transferor.
5. Section 83(b) Tax Election.
On the date of Transfer of Units to Transferee pursuant to this Agreement,
Transferee shall execute three copies of a Section 83(b) Tax Election Form,
substantially in the form attached as Annex B hereto with respect to the Units
received. Transferee shall promptly file one copy of the Section 83(b) Tax
Election Form with the IRS and deliver one copy of the Section 83(b) Tax
Election Form to the Special Member. Upon receipt of such duly executed form,
the Special Member shall cause such copy to be filed in the records maintained
by the Company. Notwithstanding anything contained in this Agreement to the
contrary, Transferee's execution and delivery of the Section 83(b) Tax Election
Form shall be a condition precedent to Transferor's obligation as may otherwise
be provided hereunder to Transfer Units to Transferee, and the failure of
Transferee to satisfy such requirement with respect to the Units shall cause
such Units to be forfeited in accordance with Section 4 hereof.
2
<PAGE>
6. Nontransferability of Unvested Units.
Unvested Units shall not be transferred or assigned by Transferee in any
manner whatsoever. Vested Units will be transferable if and to the extent
permitted by Article V of the LLC Agreement.
7. Miscellaneous.
(a) Without limiting any power and authority otherwise possessed by
Transferor, Transferor shall have the full power and authority to interpret and
administer this Agreement and any other instrument or agreements relating to
this Agreement. The Managing Member's actions in this regard shall be final,
conclusive and binding upon all persons, including without limitation
Transferee and Transferee's beneficiaries.
(b) The failure of Transferor, Transferee or the Company to insist upon
strict compliance with any provision of this Agreement, or to assert any right
Transferor, Transferee or the Company, respectively, may have under this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement or the LLC Agreement.
(c) Nothing in this Agreement shall confer on Transferee any right to
continue in the employ or other service of Insignia or interfere in any way
with the right of Insignia to terminate Transferee's employment or other
service at any time.
(d) The Company is an express third-party beneficiary of this Agreement.
(e) TRANSFEREE EXPRESSLY ACKNOWLEDGES THAT PURSUANT TO SECTION 2.10 OF THE
LLC AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN THE LLC AGREEMENT THE MANAGING
MEMBER HAS NO DUTY TO TRANSFEREE, FIDUCIARY OR OTHERWISE, AND MAY TAKE WHATEVER
ACTIONS IT DEEMS APPROPRIATE IN ITS SOLE AND ABSOLUTE DISCRETION, AND TRANSFEREE
HEREBY CONFIRMS AND AGREES TO SUCH LIMITATION ON THE DUTY OF THE MANAGING
MEMBER.
8. Notices.
All notices under this Agreement shall be in writing and delivered
personally or by recognized overnight courier, as follows:
if to Transferor:
Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
if to Transferee:
---------------------------------
---------------------------------
---------------------------------
3
<PAGE>
if to the Company:
IIII-OSA Holdings, LLC
c/o Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
Such addresses may be changed at any time by written notice to the other
party given in accordance with this Section 8.
9. Captions.
The use of captions in this Agreement is for convenience. The captions are
not intended to and do not provide substantive rights.
10. Amendment; Waiver; Severability.
This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives. No waiver of any provision of this Agreement shall be
valid unless it is in writing and signed by the party charged therewith. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF DELAWARE, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
TRANSFEROR:
INSIGNIA INTERNET INITIATIVES, INC.
By:
---------------------------------
Name:
Title:
TRANSFEREE:
---------------------------------
Name:
AS REQUIRED BY THE LLC AGREEMENT,
THIS AGREEMENT AND THE TRANSFER
OF UNITS PURSUANT HERETO IS HEREBY
APPROVED BY THE MANAGING MEMBER
OF THE COMPANY:
INSIGNIA INTERNET INITIATIVES, INC.
By:
---------------------------------
Name:
Title:
5
<PAGE>
SCHEDULE I
VESTING AND FORFEITURE
VESTING
Initially, 98% of the Units are subject to forfeiture back to Transferor under
the circumstances hereinafter described (i.e., such Units are "Unvested"), and
2% of the Units are not subject to forfeiture back to Transferor (i.e., such
Units are "Vested").
Subject to the following provision providing for accelerated time-based vesting
of Units under certain circumstances, until the earlier of (i) such time as all
of the Units become Vested or (ii) such time as Unvested Units are forfeited
back to Transferor pursuant to this Agreement, on the last day of each calendar
month following the date of this Agreement, the percentage of Units that is
Unvested (and thus subject to forfeiture back to Transferor) shall be decreased
by 2% (in absolute terms), and the percentage of Units that is Vested shall be
increased by 2% (in absolute terms).
If Transferee's employment (or other service, if applicable) with Insignia is
terminated by Insignia for any reason other than Cause, then all of the Units
that are Unvested at such time shall immediately and automatically become
Vested.
FORFEITURE
If Transferee's employment (or other service, if applicable) with Transferor is
terminated (i) by Insignia for Cause, (ii) by Transferee for any reason or
(iii) as a result of the death or disability of Transferee, then all Units that
are Unvested at such time shall thereupon, and with no further action, be
forfeited by Transferee back to Transferor.
EMPLOYMENT AGREEMENT CONTROLS
If at any given time of determination Transferee is a party to a written
employment agreement with Insignia (or a subsidiary of Insignia) containing
terms that are more favorable to Transferee than those set forth in this
Schedule I, then the more favorable terms of such employment agreement shall
control.
6
<PAGE>
SCHEDULE II
MEMBER UNITS
- -------------------------------------------------------
Andrew L. Farkas 70
Steve B. Siegel 10
Ronald Uretta 8
James A. Aston 4
Frank M. Garrison 4
Adam B. Gilbert 4
Jeffrey P. Cohen 8
John Combs 8
7
<PAGE>
TRANSFEREE AGREEMENT
THIS TRANSFEREE AGREEMENT (this "Agreement") is made as of the 30th day of
December, 1999, by and between Insignia Internet Initiatives, Inc.
("Transferor"), as a Member of IIII-MCI Holdings, LLC, a Delaware limited
liability company (the "Company"), and ____________________, an individual who
desires to become a Member ("Transferee") pursuant to this Agreement. All
capitalized terms used but not defined herein have the same meanings as in the
limited liability company agreement of the Company, attached hereto as Annex A
(the "LLC Agreement").
WHEREAS, Transferor is a wholly-owned subsidiary of Insignia Financial
Group, Inc., a Delaware corporation (collectively with its subsidiaries,
"Insignia"), and Insignia is causing Transferor to enter into this Agreement;
WHEREAS, Insignia desires to incentivize and retain in the employ of
Insignia certain individuals and to compensate them for their contributions to
the growth and profits of Insignia and thereby induce them to continue to make
such contributions in the future;
WHEREAS, Transferee is an employee of Insignia;
WHEREAS, in furtherance thereof, and pursuant to and in accordance with
the LLC Agreement, this Agreement is designed to Transfer Class A Units and
Class B Units in the Company from Transferor to Transferee, subject to
forfeiture as provided herein; and
WHEREAS, the parties hereto desire to execute this Agreement to further
evidence the Transfer by Transferor;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1. Definitions.
Whenever used herein, the following capitalized terms shall have the
meanings set forth below:
"Cause" means: (a) if Transferee has a written employment agreement with
Insignia containing a definition of the term "Cause," such definition;
otherwise, (b) (i) engaging in willful or gross misconduct or neglect, (ii)
repeatedly failing to adhere to the directions of superiors or the written
policies and practices of Insignia, (iii) the commission of a felony or a crime
of moral turpitude or any crime involving Insignia, (iv) fraud,
misappropriation or embezzlement, (v) a material breach of Transferee's
employment agreement (if any) with Insignia, or (vi) any other illegal act
detrimental to Insignia.
"Managing Member" means Insignia Internet Initiatives, Inc., a Delaware
corporation, in its capacity as the managing member of the Company.
"Unvested Unit" means a Unit that was Transferred to Transferee pursuant
to this Agreement which continues to be subject to forfeiture pursuant to
Section 4 at the time in question.
"Vested Unit" means a Unit that was Transferred to Transferee pursuant to
this Agreement which is no longer subject to forfeiture pursuant to Section 4
at the time in question.
<PAGE>
2. Transfer of Units.
(a) Transferor hereby Transfers ____ Class A Units and ____ Class B Units
to Transferee, and Transferee hereby accepts such Units, in each case subject
to forfeiture as provided in Section 4 hereof and the other terms and
conditions of this Agreement.
(b) Transferee will be entered into the records of the Company as the
holder of the Units Transferred pursuant to this Agreement, and Transferee
shall be subject to the provisions and restrictions set forth in the LLC
Agreement.
3. Effective Date of Agreement.
This Agreement is effective as of the date first above written. As
required by the LLC Agreement, the Managing Member of the Company has approved
this Agreement and the Transfer of Units pursuant hereto as evidenced by its
signature on the signature page hereto.
4. Restrictions and Conditions; Forfeiture.
(a) The Units are subject to forfeiture back to Transferor during such
periods, in such percentage amounts and upon the occurrence of such conditions
and events as are indicated on Schedule I attached hereto.
(b) Except as provided in Section 4(a), Transferee shall have, in respect
of the Units, all of the rights of a Member of the Company, including the right
to vote the Units and the right to receive and retain any cash distributions in
respect of such Units, until such time (if ever) as such Units are forfeited
back to the Company. Transferee shall not be required to return to Transferor
any distributions received in respect of subsequently forfeited Units.
(c) Upon forfeiture of Units held by Transferee back to Transferor
pursuant to Section 4(a), Transferee shall (i) cease to be a Member of the
Company and shall have no further rights to distributions or allocations of
Profits and Losses of the Company, if as a result of such forfeiture no Units
continue to be held by Transferee, or (ii) continue to be a Member of the
Company but shall have no further rights to distributions or allocations of
Profits and Losses of the Company in respect of such forfeited Units, if
Transferee continues to hold other Units. Any forfeiture of Units shall,
without any further action by Managing Member, Transferee, the Company or any
other Person, result in an automatic Transfer of the Units so forfeited
hereunder from Transferee to Transferor.
5. Section 83(b) Tax Election.
On the date of Transfer of Units to Transferee pursuant to this Agreement,
Transferee shall execute three copies of a Section 83(b) Tax Election Form,
substantially in the form attached as Annex B hereto with respect to the Units
received. Transferee shall promptly file one copy of the Section 83(b) Tax
Election Form with the IRS and deliver one copy of the Section 83(b) Tax
Election Form to the Special Member. Upon receipt of such duly executed form,
the Special Member shall cause such copy to be filed in the records maintained
by the Company. Notwithstanding anything contained in this Agreement to the
contrary, Transferee's execution and delivery of the Section 83(b) Tax Election
Form shall be a condition precedent to Transferor's obligation as may otherwise
be provided hereunder to Transfer Units to Transferee, and the failure of
Transferee to satisfy such requirement with respect to the Units shall cause
such Units to be forfeited in accordance with Section 4 hereof.
2
<PAGE>
6. Nontransferability of Unvested Units.
Unvested Units shall not be transferred or assigned by Transferee in any
manner whatsoever. Vested Units will be transferable if and to the extent
permitted by Article V of the LLC Agreement.
7. Miscellaneous.
(a) Without limiting any power and authority otherwise possessed by
Transferor, Transferor shall have the full power and authority to interpret and
administer this Agreement and any other instrument or agreements relating to
this Agreement. The Managing Member's actions in this regard shall be final,
conclusive and binding upon all persons, including without limitation
Transferee and Transferee's beneficiaries.
(b) The failure of Transferor, Transferee or the Company to insist upon
strict compliance with any provision of this Agreement, or to assert any right
Transferor, Transferee or the Company, respectively, may have under this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement or the LLC Agreement.
(c) Nothing in this Agreement shall confer on Transferee any right to
continue in the employ or other service of Insignia or interfere in any way
with the right of Insignia to terminate Transferee's employment or other
service at any time.
(d) The Company is an express third-party beneficiary of this Agreement.
(e) TRANSFEREE EXPRESSLY ACKNOWLEDGES THAT PURSUANT TO SECTION 2.10 OF THE
LLC AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN THE LLC AGREEMENT THE MANAGING
MEMBER HAS NO DUTY TO TRANSFEREE, FIDUCIARY OR OTHERWISE, AND MAY TAKE WHATEVER
ACTIONS IT DEEMS APPROPRIATE IN ITS SOLE AND ABSOLUTE DISCRETION, AND
TRANSFEREE HEREBY CONFIRMS AND AGREES TO SUCH LIMITATION ON THE DUTY OF THE
MANAGING MEMBER.
8. Notices.
All notices under this Agreement shall be in writing and delivered
personally or by recognized overnight courier, as follows:
if to Transferor:
Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
if to Transferee:
---------------------------------
---------------------------------
---------------------------------
3
<PAGE>
if to the Company:
IIII-MCI Holdings, LLC
c/o Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
Such addresses may be changed at any time by written notice to the other
party given in accordance with this Section 8.
9. Captions.
The use of captions in this Agreement is for convenience. The captions are
not intended to and do not provide substantive rights.
10. Amendment; Waiver; Severability.
This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives. No waiver of any provision of this Agreement shall be
valid unless it is in writing and signed by the party charged therewith. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF DELAWARE, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRANSFEROR:
INSIGNIA INTERNET INITIATIVES, INC.
By
---------------------------------
Name:
Title:
TRANSFEREE:
---------------------------------
Name:
AS REQUIRED BY THE LLC AGREEMENT,
THIS AGREEMENT AND THE TRANSFER
OF UNITS PURSUANT HERETO IS HEREBY
APPROVED BY THE MANAGING MEMBER
OF THE COMPANY:
INSIGNIA INTERNET INITIATIVES, INC.
By:
---------------------------------
Name:
Title:
5
<PAGE>
SCHEDULE I
VESTING AND FORFEITURE
VESTING
Initially, 96% of the Class A Units and 96% of the Class B Units are subject to
forfeiture back to Transferor under the circumstances hereinafter described
(i.e., such Units are "Unvested"), and 4% of the Class A Units and 4% of the
Class B Units are not subject to forfeiture back to Transferor (i.e., such
Units are "Vested").
Subject to the following provision providing for accelerated time-based vesting
of Units under certain circumstances, until the earlier of (i) such time as all
of the Class A Units and Class B Units become Vested or (ii) such time as
Unvested Class A Units and Unvested Class B Units are forfeited back to
Transferor pursuant to this Agreement, on the last day of each calendar month
following the date of this Agreement, the percentages of Class A Units and
Class B Units that are Unvested (and thus subject to forfeiture back to
Transferor) shall be decreased by 2% (in absolute terms), and the percentages
of Class A Units and Class B that are Vested shall be increased by 2% (in
absolute terms).
If Transferee's employment (or other service, if applicable) with Insignia is
terminated by Insignia for any reason other than Cause, then all of the Class A
Units and Class B Units that are Unvested at such time shall immediately and
automatically become Vested.
FORFEITURE
If Transferee's employment (or other service, if applicable) with Transferor is
terminated (i) by Insignia for Cause, (ii) by Transferee for any reason or
(iii) as a result of the death or disability of Transferee, then all Class A
Units and all Class B Units that are Unvested at such time shall thereupon, and
with no further action, be forfeited by Transferee back to Transferor.
EMPLOYMENT AGREEMENT CONTROLS
If at any given time of determination Transferee is a party to a written
employment agreement with Insignia (or a subsidiary of Insignia) containing
terms that are more favorable to Transferee than those set forth in this
Schedule I, then the more favorable terms of such employment agreement shall
control.
<PAGE>
SCHEDULE II
MEMBER CLASS A UNITS CLASS B UNITS
- ---------------------------------------------------------------------------
Andrew L. Farkas 56 48
Steve B. Siegel 6 8
Ronald Uretta 6 6
James A. Aston 6 7
Frank M. Garrison 6 11
Adam B. Gilbert 8 6
Jeffrey P. Cohen 6 6
John Combs 6 8
2
<PAGE>
TRANSFEREE AGREEMENT
THIS TRANSFEREE AGREEMENT (this "Agreement") is made as of the 30th day of
December, 1999, by and between Insignia Internet Initiatives, Inc.
("Transferor"), as a Member of IIII-LNI Holdings, LLC, a Delaware limited
liability company (the "Company"), and ____________________, an individual who
desires to become a Member ("Transferee") pursuant to this Agreement. All
capitalized terms used but not defined herein have the same meanings as in the
limited liability company agreement of the Company, attached hereto as Annex A
(the "LLC Agreement").
WHEREAS, Transferor is a wholly-owned subsidiary of Insignia Financial
Group, Inc., a Delaware corporation (collectively with its subsidiaries,
"Insignia"), and Insignia is causing Transferor to enter into this Agreement;
WHEREAS, Insignia desires to incentivize and retain in the employ of
Insignia certain individuals and to compensate them for their contributions to
the growth and profits of Insignia and thereby induce them to continue to make
such contributions in the future;
WHEREAS, Transferee is an employee of Insignia;
WHEREAS, in furtherance thereof, and pursuant to and in accordance with
the LLC Agreement, this Agreement is designed to Transfer Units in the Company
from Transferor to Transferee, subject to forfeiture as provided herein; and
WHEREAS, the parties hereto desire to execute this Agreement to further
evidence the Transfer by Transferor;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1. Definitions.
Whenever used herein, the following capitalized terms shall have the
meanings set forth below:
"Cause" means: (a) if Transferee has a written employment agreement with
Insignia containing a definition of the term "Cause," such definition;
otherwise, (b) (i) engaging in willful or gross misconduct or neglect, (ii)
repeatedly failing to adhere to the directions of superiors or the written
policies and practices of Insignia, (iii) the commission of a felony or a crime
of moral turpitude or any crime involving Insignia, (iv) fraud,
misappropriation or embezzlement, (v) a material breach of Transferee's
employment agreement (if any) with Insignia, or (vi) any other illegal act
detrimental to Insignia.
"Managing Member" means Insignia Internet Initiatives, Inc., a Delaware
corporation, in its capacity as the managing member of the Company.
"Unvested Unit" means a Unit that was Transferred to Transferee pursuant
to this Agreement which continues to be subject to forfeiture pursuant to
Section 4 at the time in question.
"Vested Unit" means a Unit that was Transferred to Transferee pursuant to
this Agreement which is no longer subject to forfeiture pursuant to Section 4
at the time in question.
<PAGE>
2. Transfer of Units.
(a) Transferor hereby Transfers ____ Units to Transferee, and Transferee
hereby accepts such Units, in each case subject to forfeiture as provided in
Section 4 hereof and the other terms and conditions of this Agreement.
(b) Transferee will be entered into the records of the Company as the
holder of the Units Transferred pursuant to this Agreement, and Transferee
shall be subject to the provisions and restrictions set forth in the LLC
Agreement.
3. Effective Date of Agreement.
This Agreement is effective as of the date first above written. As
required by the LLC Agreement, the Managing Member of the Company has approved
this Agreement and the Transfer of Units pursuant hereto as evidenced by its
signature on the signature page hereto.
4. Restrictions and Conditions; Forfeiture.
(a) The Units are subject to forfeiture back to Transferor during such
periods, in such percentage amounts and upon the occurrence of such conditions
and events as are indicated on Schedule I attached hereto.
(b) Except as provided in Section 4(a), Transferee shall have, in respect
of the Units, all of the rights of a Member of the Company, including the right
to vote the Units and the right to receive and retain any cash distributions in
respect of such Units, until such time (if ever) as such Units are forfeited
back to the Company. Transferee shall not be required to return to Transferor
any distributions received in respect of subsequently forfeited Units.
(c) Upon forfeiture of Units held by Transferee back to Transferor
pursuant to Section 4(a), Transferee shall (i) cease to be a Member of the
Company and shall have no further rights to distributions or allocations of
Profits and Losses of the Company, if as a result of such forfeiture no Units
continue to be held by Transferee, or (ii) continue to be a Member of the
Company but shall have no further rights to distributions or allocations of
Profits and Losses of the Company in respect of such forfeited Units, if
Transferee continues to hold other Units. Any forfeiture of Units shall,
without any further action by Managing Member, Transferee, the Company or any
other Person, result in an automatic Transfer of the Units so forfeited
hereunder from Transferee to Transferor.
5. Section 83(b) Tax Election.
On the date of Transfer of Units to Transferee pursuant to this Agreement,
Transferee shall execute three copies of a Section 83(b) Tax Election Form,
substantially in the form attached as Annex B hereto with respect to the Units
received. Transferee shall promptly file one copy of the Section 83(b) Tax
Election Form with the IRS and deliver one copy of the Section 83(b) Tax
Election Form to the Special Member. Upon receipt of such duly executed form,
the Special Member shall cause such copy to be filed in the records maintained
by the Company. Notwithstanding anything contained in this Agreement to the
contrary, Transferee's execution and delivery of the Section 83(b) Tax Election
Form shall be a condition precedent to Transferor's obligation as may otherwise
be provided hereunder to Transfer Units to Transferee, and the failure of
Transferee to satisfy such requirement with respect to the Units shall cause
such Units to be forfeited in accordance with Section 4 hereof.
2
<PAGE>
6. Nontransferability of Unvested Units.
Unvested Units shall not be transferred or assigned by Transferee in any
manner whatsoever. Vested Units will be transferable if and to the extent
permitted by Article V of the LLC Agreement.
7. Miscellaneous.
(a) Without limiting any power and authority otherwise possessed by
Transferor, Transferor shall have the full power and authority to interpret and
administer this Agreement and any other instrument or agreements relating to
this Agreement. The Managing Member's actions in this regard shall be final,
conclusive and binding upon all persons, including without limitation
Transferee and Transferee's beneficiaries.
(b) The failure of Transferor, Transferee or the Company to insist upon
strict compliance with any provision of this Agreement, or to assert any right
Transferor, Transferee or the Company, respectively, may have under this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement or the LLC Agreement.
(c) Nothing in this Agreement shall confer on Transferee any right to
continue in the employ or other service of Insignia or interfere in any way
with the right of Insignia to terminate Transferee's employment or other
service at any time.
(d) The Company is an express third-party beneficiary of this Agreement.
(e) TRANSFEREE EXPRESSLY ACKNOWLEDGES THAT PURSUANT TO SECTION 2.10 OF THE
LLC AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN THE LLC AGREEMENT THE MANAGING
MEMBER HAS NO DUTY TO TRANSFEREE, FIDUCIARY OR OTHERWISE, AND MAY TAKE WHATEVER
ACTIONS IT DEEMS APPROPRIATE IN ITS SOLE AND ABSOLUTE DISCRETION, AND
TRANSFEREE HEREBY CONFIRMS AND AGREES TO SUCH LIMITATION ON THE DUTY OF THE
MANAGING MEMBER.
8. Notices.
All notices under this Agreement shall be in writing and delivered
personally or by recognized overnight courier, as follows:
if to Transferor:
Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
if to Transferee:
---------------------------------
---------------------------------
---------------------------------
3
<PAGE>
if to the Company:
IIII-LNI Holdings, LLC
c/o Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
Such addresses may be changed at any time by written notice to the other
party given in accordance with this Section 8.
9. Captions.
The use of captions in this Agreement is for convenience. The captions are
not intended to and do not provide substantive rights.
10. Amendment; Waiver; Severability.
This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives. No waiver of any provision of this Agreement shall be
valid unless it is in writing and signed by the party charged therewith. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF DELAWARE, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRANSFEROR:
INSIGNIA INTERNET INITIATIVES, INC.
By:
--------------------------------
Name:
Title:
TRANSFEREE:
--------------------------------
Name:
AS REQUIRED BY THE LLC AGREEMENT,
THIS AGREEMENT AND THE TRANSFER
OF UNITS PURSUANT HERETO IS HEREBY
APPROVED BY THE MANAGING MEMBER
OF THE COMPANY:
INSIGNIA INTERNET INITIATIVES, INC.
By:
----------------------------
Name:
Title:
5
<PAGE>
SCHEDULE I
VESTING AND FORFEITURE
VESTING
Initially, 96% of the Units are subject to forfeiture back to Transferor under
the circumstances hereinafter described (i.e., such Units are "Unvested"), and
4% of the Units are not subject to forfeiture back to Transferor (i.e., such
Units are "Vested").
Subject to the following provision providing for accelerated time-based vesting
of Units under certain circumstances, until the earlier of (i) such time as all
of the Units become Vested or (ii) such time as Unvested Units are forfeited
back to Transferor pursuant to this Agreement, on the last day of each calendar
month following the date of this Agreement, the percentage of Units that is
Unvested (and thus subject to forfeiture back to Transferor) shall be decreased
by 2% (in absolute terms), and the percentage of Units that is Vested shall be
increased by 2% (in absolute terms).
If Transferee's employment (or other service, if applicable) with Insignia is
terminated by Insignia for any reason other than Cause, then all of the Units
that are Unvested at such time shall immediately and automatically become
Vested.
FORFEITURE
If Transferee's employment (or other service, if applicable) with Transferor is
terminated (i) by Insignia for Cause, (ii) by Transferee for any reason or
(iii) as a result of the death or disability of Transferee, then all Units that
are Unvested at such time shall thereupon, and with no further action, be
forfeited by Transferee back to Transferor.
EMPLOYMENT AGREEMENT CONTROLS
If at any given time of determination Transferee is a party to a written
employment agreement with Insignia (or a subsidiary of Insignia) containing
terms that are more favorable to Transferee than those set forth in this
Schedule I, then the more favorable terms of such employment agreement shall
control.
6
<PAGE>
SCHEDULE II
MEMBER UNITS
- ----------------------------------------------
Andrew L. Farkas 60
Steve B. Siegel 10
Ronald Uretta 10
James A. Aston 6
Frank M. Garrison 6
Adam B. Gilbert 4
Jeffrey P. Cohen 4
7
<PAGE>
TRANSFEREE AGREEMENT
THIS TRANSFEREE AGREEMENT (this "Agreement") is made as of the 30th day of
December, 1999, by and between Insignia Internet Initiatives, Inc.
("Transferor"), as a Member of IIII-PFI Holdings, LLC, a Delaware limited
liability company (the "Company"), and ____________________, an individual who
desires to become a Member ("Transferee") pursuant to this Agreement. All
capitalized terms used but not defined herein have the same meanings as in the
limited liability company agreement of the Company, attached hereto as Annex A
(the "LLC Agreement").
WHEREAS, Transferor is a wholly-owned subsidiary of Insignia Financial
Group, Inc., a Delaware corporation (collectively with its subsidiaries,
"Insignia"), and Insignia is causing Transferor to enter into this Agreement;
WHEREAS, Insignia desires to incentivize and retain in the employ of
Insignia certain individuals and to compensate them for their contributions to
the growth and profits of Insignia and thereby induce them to continue to make
such contributions in the future;
WHEREAS, Transferee is an employee of Insignia;
WHEREAS, in furtherance thereof, and pursuant to and in accordance with
the LLC Agreement, this Agreement is designed to Transfer Units in the Company
from Transferor to Transferee, subject to forfeiture as provided herein; and
WHEREAS, the parties hereto desire to execute this Agreement to further
evidence the Transfer by Transferor;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1. Definitions.
Whenever used herein, the following capitalized terms shall have the
meanings set forth below:
"Cause" means: (a) if Transferee has a written employment agreement with
Insignia containing a definition of the term "Cause," such definition;
otherwise, (b) (i) engaging in willful or gross misconduct or neglect, (ii)
repeatedly failing to adhere to the directions of superiors or the written
policies and practices of Insignia, (iii) the commission of a felony or a crime
of moral turpitude or any crime involving Insignia, (iv) fraud,
misappropriation or embezzlement, (v) a material breach of Transferee's
employment agreement (if any) with Insignia, or (vi) any other illegal act
detrimental to Insignia.
"Managing Member" means Insignia Internet Initiatives, Inc., a Delaware
corporation, in its capacity as the managing member of the Company.
"Unvested Unit" means a Unit that was Transferred to Transferee pursuant
to this Agreement which continues to be subject to forfeiture pursuant to
Section 4 at the time in question.
"Vested Unit" means a Unit that was Transferred to Transferee pursuant to
this Agreement which is no longer subject to forfeiture pursuant to Section 4
at the time in question.
<PAGE>
2. Transfer of Units.
(a) Transferor hereby Transfers ____ Units to Transferee, and Transferee
hereby accepts such Units, in each case subject to forfeiture as provided in
Section 4 hereof and the other terms and conditions of this Agreement.
(b) Transferee will be entered into the records of the Company as the
holder of the Units Transferred pursuant to this Agreement, and Transferee
shall be subject to the provisions and restrictions set forth in the LLC
Agreement.
3. Effective Date of Agreement.
This Agreement is effective as of the date first above written. As
required by the LLC Agreement, the Managing Member of the Company has approved
this Agreement and the Transfer of Units pursuant hereto as evidenced by its
signature on the signature page hereto.
4. Restrictions and Conditions; Forfeiture.
(a) The Units are subject to forfeiture back to Transferor during such
periods, in such percentage amounts and upon the occurrence of such conditions
and events as are indicated on Schedule I attached hereto.
(b) Except as provided in Section 4(a), Transferee shall have, in respect
of the Units, all of the rights of a Member of the Company, including the right
to vote the Units and the right to receive and retain any cash distributions in
respect of such Units, until such time (if ever) as such Units are forfeited
back to the Company. Transferee shall not be required to return to Transferor
any distributions received in respect of subsequently forfeited Units.
(c) Upon forfeiture of Units held by Transferee back to Transferor
pursuant to Section 4(a), Transferee shall (i) cease to be a Member of the
Company and shall have no further rights to distributions or allocations of
Profits and Losses of the Company, if as a result of such forfeiture no Units
continue to be held by Transferee, or (ii) continue to be a Member of the
Company but shall have no further rights to distributions or allocations of
Profits and Losses of the Company in respect of such forfeited Units, if
Transferee continues to hold other Units. Any forfeiture of Units shall,
without any further action by Managing Member, Transferee, the Company or any
other Person, result in an automatic Transfer of the Units so forfeited
hereunder from Transferee to Transferor.
5. Section 83(b) Tax Election.
On the date of Transfer of Units to Transferee pursuant to this Agreement,
Transferee shall execute three copies of a Section 83(b) Tax Election Form,
substantially in the form attached as Annex B hereto with respect to the Units
received. Transferee shall promptly file one copy of the Section 83(b) Tax
Election Form with the IRS and deliver one copy of the Section 83(b) Tax
Election Form to the Special Member. Upon receipt of such duly executed form,
the Special Member shall cause such copy to be filed in the records maintained
by the Company. Notwithstanding anything contained in this Agreement to the
contrary, Transferee's execution and delivery of the Section 83(b) Tax Election
Form shall be a condition precedent to Transferor's obligation as may otherwise
be provided hereunder to Transfer Units to Transferee, and the failure of
Transferee to satisfy such requirement with respect to the Units shall cause
such Units to be forfeited in accordance with Section 4 hereof.
2
<PAGE>
6. Nontransferability of Unvested Units.
Unvested Units shall not be transferred or assigned by Transferee in any
manner whatsoever. Vested Units will be transferable if and to the extent
permitted by Article V of the LLC Agreement.
7. Miscellaneous.
(a) Without limiting any power and authority otherwise possessed by
Transferor, Transferor shall have the full power and authority to interpret and
administer this Agreement and any other instrument or agreements relating to
this Agreement. The Managing Member's actions in this regard shall be final,
conclusive and binding upon all persons, including without limitation
Transferee and Transferee's beneficiaries.
(b) The failure of Transferor, Transferee or the Company to insist upon
strict compliance with any provision of this Agreement, or to assert any right
Transferor, Transferee or the Company, respectively, may have under this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement or the LLC Agreement.
(c) Nothing in this Agreement shall confer on Transferee any right to
continue in the employ or other service of Insignia or interfere in any way
with the right of Insignia to terminate Transferee's employment or other
service at any time.
(d) The Company is an express third-party beneficiary of this Agreement.
(e) TRANSFEREE EXPRESSLY ACKNOWLEDGES THAT PURSUANT TO SECTION 2.10 OF THE
LLC AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN THE LLC AGREEMENT THE MANAGING
MEMBER HAS NO DUTY TO TRANSFEREE, FIDUCIARY OR OTHERWISE, AND MAY TAKE WHATEVER
ACTIONS IT DEEMS APPROPRIATE IN ITS SOLE AND ABSOLUTE DISCRETION, AND
TRANSFEREE HEREBY CONFIRMS AND AGREES TO SUCH LIMITATION ON THE DUTY OF THE
MANAGING MEMBER.
8. Notices.
All notices under this Agreement shall be in writing and delivered
personally or by recognized overnight courier, as follows:
if to Transferor:
Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
if to Transferee:
---------------------------------
---------------------------------
---------------------------------
3
<PAGE>
if to the Company:
IIII-PFI Holdings, LLC
c/o Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
Such addresses may be changed at any time by written notice to the other
party given in accordance with this Section 8.
9. Captions.
The use of captions in this Agreement is for convenience. The captions are
not intended to and do not provide substantive rights.
10. Amendment; Waiver; Severability.
This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives. No waiver of any provision of this Agreement shall be
valid unless it is in writing and signed by the party charged therewith. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF DELAWARE, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRANSFEROR:
INSIGNIA INTERNET INITIATIVES, INC.
By:
----------------------------------
Name:
Title:
TRANSFEREE:
-------------------------------------
Name:
AS REQUIRED BY THE LLC AGREEMENT,
THIS AGREEMENT AND THE TRANSFER
OF UNITS PURSUANT HERETO IS HEREBY
APPROVED BY THE MANAGING MEMBER
OF THE COMPANY:
INSIGNIA INTERNET INITIATIVES, INC.
By:
--------------------------------
Name:
Title:
5
<PAGE>
SCHEDULE I
VESTING AND FORFEITURE
VESTING
Initially, 94% of the Units are subject to forfeiture back to Transferor under
the circumstances hereinafter described (i.e., such Units are "Unvested"), and
6% of the Units are not subject to forfeiture back to Transferor (i.e., such
Units are "Vested").
Subject to the following provision providing for accelerated time-based vesting
of Units under certain circumstances, until the earlier of (i) such time as all
of the Units become Vested or (ii) such time as Unvested Units are forfeited
back to Transferor pursuant to this Agreement, on the last day of each calendar
month following the date of this Agreement, the percentage of Units that is
Unvested (and thus subject to forfeiture back to Transferor) shall be decreased
by 2% (in absolute terms), and the percentage of Units that is Vested shall be
increased by 2% (in absolute terms).
If Transferee's employment (or other service, if applicable) with Insignia is
terminated by Insignia for any reason other than Cause, then all of the Units
that are Unvested at such time shall immediately and automatically become
Vested.
FORFEITURE
If Transferee's employment (or other service, if applicable) with Transferor is
terminated (i) by Insignia for Cause, (ii) by Transferee for any reason or
(iii) as a result of the death or disability of Transferee, then all Units that
are Unvested at such time shall thereupon, and with no further action, be
forfeited by Transferee back to Transferor.
EMPLOYMENT AGREEMENT CONTROLS
If at any given time of determination Transferee is a party to a written
employment agreement with Insignia (or a subsidiary of Insignia) containing
terms that are more favorable to Transferee than those set forth in this
Schedule I, then the more favorable terms of such employment agreement shall
control.
6
<PAGE>
SCHEDULE II
MEMBER UNITS
- ----------------------------------------------
Andrew L. Farkas 60
Steve B. Siegel 10
Ronald Uretta 10
James A. Aston 6
Frank M. Garrison 6
Adam B. Gilbert 4
Jeffrey P. Cohen 4
7
<PAGE>
TRANSFEREE AGREEMENT
THIS TRANSFEREE AGREEMENT (this "Agreement") is made as of the 21st day of
January, 2000 by and between Insignia Financial Group, Inc. ("Transferor"), as
a Member of ERX Advisors, LLC, a Delaware limited liability company (the
"Company"), and ____________________, an individual who desires to become a
Member ("Transferee") pursuant to this Agreement. All capitalized terms used
but not defined herein have the same meanings as in the limited liability
company agreement of the Company, attached hereto as Annex A (the "LLC
Agreement").
WHEREAS, Transferor is a corporation and desires to enter into this
Agreement in order to incentivize and retain in its employ certain individuals
and to compensate them for their contributions to the growth and profits of
Transferor and thereby induce them to continue to make such contributions in
the future;
WHEREAS, Transferee is an employee of Transferor or a subsidiary of
Transferor;
WHEREAS, in furtherance thereof, and pursuant to and in accordance with
the LLC Agreement, this Agreement is designed to Transfer Units in the Company
from Transferor to Transferee, subject to forfeiture as provided herein; and
WHEREAS, the parties hereto desire to execute this Agreement to further
evidence the Transfer by Transferor;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1. Definitions.
Whenever used herein, the following capitalized terms shall have the
meanings set forth below:
"Cause" means: (a) if Transferee has a written employment agreement with
Transferor or a subsidiary of Transferor containing a definition of the term
"Cause," such definition; otherwise, (b) (i) engaging in willful or gross
misconduct or neglect, (ii) repeatedly failing to adhere to the directions of
superiors or the written policies and practices of Transferor or a subsidiary
of Transferor, (iii) the commission of a felony or a crime of moral turpitude
or any crime involving Transferor or a subsidiary of Transferor, (iv) fraud,
misappropriation or embezzlement, (v) a material breach of Transferee's
employment agreement (if any) with Transferor or a subsidiary of Transferor, or
(vi) any other illegal act detrimental to Transferor or a subsidiary of
Transferor.
"Managing Member" means the managing member of the Company under the LLC
Agreement.
"Transferred Property" means the Units Transferred to Transferee pursuant
to this Agreement, together with all distributions received from the Company in
respect thereof, including distributions received in connection with a
dissolution of the Company.
"Unvested Transferred Property" means Transferred Property that continues
to be subject to forfeiture pursuant to Section 4 at the time in question.
<PAGE>
"Vested Transferred Property" means Transferred Property that is no longer
subject to forfeiture pursuant to Section 4 at the time in question.
2. Transfer of Units.
(a) Transferor hereby Transfers ____ Units to Transferee, and Transferee
hereby accepts such Units, in each case subject to forfeiture as provided in
Section 4 hereof and the other terms and conditions of this Agreement.
(b) Transferee will be entered into the records of the Company as the
holder of the Units Transferred pursuant to this Agreement, and Transferee
shall be subject to the provisions and restrictions set forth in the LLC
Agreement.
3. Effective Date of Agreement.
This Agreement is effective as of the date first above written. As
required by the LLC Agreement, the Managing Member of the Company has approved
this Agreement and the Transfer of Units pursuant hereto as evidenced by his
signature on the signature page hereto.
4. Restrictions and Conditions; Forfeiture.
(a) The Transferred Property is subject to forfeiture back to Transferor
during such periods, in such percentage amounts and upon the occurrence of such
conditions and events as are set forth on Schedule I attached hereto.
(b) Except as provided in Section 4(a), Transferee shall have, in respect
of the Transferred Property, all of the rights of a Member of the Company,
including the right to vote and the right to receive distributions, until such
time (if ever) as such Transferred Property is forfeited back to Transferor.
(c) Upon forfeiture by Transferee of any Transferred Property back to
Transferor pursuant to Section 4(a), Transferee shall (A)(i) cease to be a
Member of the Company and shall have no further rights to distributions or
allocations of Profits and Losses of the Company, if as a result of such
forfeiture no Units continue to be held by Transferee, or (ii) continue to be a
Member of the Company but shall have no further rights to distributions or
allocations of Profits and Losses of the Company in respect of such forfeited
Units, if Transferee continues to hold other Units, and (B) be obligated to
transfer and deliver to Transferor, without any additional consideration
therefor, all other Transferred Property that has been forfeited. Any
forfeiture of Units shall, without any further action by the Managing Member,
Transferor, Transferee, the Company or any other Person, result in an automatic
Transfer of the Units so forfeited hereunder from Transferee to Transferor.
5. Section 83(b) Tax Election.
On the date of Transfer of Units to Transferee pursuant to this Agreement,
Transferee shall execute three copies of a Section 83(b) Tax Election Form,
substantially in the form attached as Annex B hereto with respect to the Units
received. Transferee shall promptly file one copy of the Section 83(b) Tax
Election Form with the IRS and deliver one copy of the Section 83(b) Tax
Election Form to the Special Member. Upon receipt of such duly executed form,
the Special Member shall cause such copy to be filed in the records maintained
by the Company. Notwithstanding anything contained in this Agreement to the
contrary, Transferee's execution and delivery of the Section 83(b) Tax Election
Form shall be a condition precedent to Transferor's obligation as may otherwise
be provided hereunder to
2
<PAGE>
Transfer Units to Transferee, and the failure of Transferee to satisfy such
requirement with respect to the Units shall cause such Units to be forfeited in
accordance with Section 4 hereof.
6. Nontransferability of Unvested Transferred Property.
Unvested Transferred Property may not be Transferred by Transferee in any
manner whatsoever. Vested Transferred Property may be Transferred if and to the
extent permitted by Article V of the LLC Agreement.
7. Miscellaneous.
(a) Without limiting any power and authority otherwise possessed by
Transferor, the Managing Member shall have the full power and authority to
interpret and administer this Agreement and any other instrument or agreements
relating to this Agreement. The Managing Member's actions in this regard shall
be final, conclusive and binding upon all persons, including without limitation
Transferor, Transferee and Transferee's beneficiaries.
(b) The failure of Transferor, Transferee or the Company to insist upon
strict compliance with any provision of this Agreement, or to assert any right
Transferor, Transferee or the Company, respectively, may have under this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement or the LLC Agreement.
(c) Nothing in this Agreement shall confer on Transferee any right to
continue in the employ or other service of Transferor or interfere in any way
with the right of Transferor to terminate Transferee's employment or other
service at any time.
(d) The Company is an express third-party beneficiary of this Agreement.
(e) TRANSFEREE EXPRESSLY ACKNOWLEDGES THAT PURSUANT TO SECTION 2.10 OF THE
LLC AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN THE LLC AGREEMENT THE MANAGING
MEMBER HAS NO DUTY TO TRANSFEREE, FIDUCIARY OR OTHERWISE, AND MAY TAKE WHATEVER
ACTIONS HE DEEMS APPROPRIATE IN HIS SOLE AND ABSOLUTE DISCRETION, AND
TRANSFEREE HEREBY CONFIRMS AND AGREES TO SUCH LIMITATION ON THE DUTY OF THE
MANAGING MEMBER.
8. Notices.
All notices under this Agreement shall be in writing and delivered
personally or by recognized overnight courier, as follows:
if to Transferor:
Insignia Financial Group, Inc.
200 Park Avenue
New York, New York 10166
Attention: Adam B. Gilbert
if to Transferee:
---------------------------------
---------------------------------
---------------------------------
3
<PAGE>
if to the Company:
ERX Advisors, LLC
c/o Insignia Financial Group, Inc.
200 Park Avenue
New York, New York 10166
Attention: Andrew L. Farkas
with a copy to:
Insignia Financial Group, Inc.
200 Park Avenue
New York, New York 10166
Attention: Jeffrey P. Cohen
Such addresses may be changed at any time by written notice to the other
party given in accordance with this Section 8.
9. Captions.
The use of captions in this Agreement is for convenience. The captions are
not intended to and do not provide substantive rights.
10. Amendment; Waiver; Severability.
This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives. No waiver of any provision of this Agreement shall be
valid unless it is in writing and signed by the party charged therewith. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF DELAWARE, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
12. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which taken together shall
constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRANSFEROR:
INSIGNIA FINANCIAL GROUP, INC.
By:
---------------------------------
Name:
Title:
TRANSFEREE:
Name:
AS REQUIRED BY THE LLC AGREEMENT,
THIS AGREEMENT AND THE TRANSFER
OF UNITS PURSUANT HERETO IS HEREBY
APPROVED BY THE MANAGING MEMBER
OF THE COMPANY:
ANDREW L. FARKAS, in his capacity as
Managing Member of ERX Advisors, LLC
- --------------------------------------
Andrew L. Farkas
5
<PAGE>
SCHEDULE I
VESTING AND FORFEITURE
DEFINITIONS
For purposes of this Schedule I, the following terms have the meanings set
forth below:
"Award" means a transfer or other direct or indirect grant (by means of
direct or indirect transfer, contractual arrangement or otherwise) of Base ERX
Equity made by Transferor or a subsidiary thereof, at the direction of the
Chief Executive Officer of Transferor, pursuant to and in accordance with the
resolutions adopted by the Compensation Committee of the Board of Directors of
Transferor on January 14, 2000.
"Base ERX Equity" means the capital stock of EdificeRex originally issued
to Transferor in exchange for or as a result of the actual or deemed (for
accounting purposes) contributions made to the equity capital of EdificeRex by
Transferor and its subsidiaries, regardless of whether such contributions are
made in the form of cash, tangible property or other assets (such as services),
but only to the extent that the aggregate amount of such contributions does not
exceed $7,500,000 (or such greater amount as may be approved by the
Compensation Committee of the Board of Directors of Transferor).
"Change of Control" means, with respect to EdificeRex, any of the
following events, provided such event occurs following satisfaction of the
Third-Party Investment Condition: (i) the sale of all or substantially all of
the outstanding equity securities of EdificeRex to one or more persons or
entities not controlled by Transferor; or (ii) a merger, consolidation or
similar transaction involving EdificeRex if as a result thereof the
equityholders of EdificeRex immediately prior to such transaction own equity
securities representing less than 50% of either the common equity securities of
the surviving or resultant entity or the combined voting power of all
outstanding securities of the surviving or resultant entity.
"EdificeRex" means EdificeRex.com, Inc., a Delaware corporation, or any
successor thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Liquidity Event" means any of the following events: (i) a sale by
EdificeRex of all or substantially all of its assets to one or more persons or
entities not controlled by Transferor, in exchange for consideration consisting
primarily of cash, Marketable Securities or a combination of both; (ii) a sale
of all or substantially all of the outstanding equity securities of EdificeRex
to one or more persons or entities not controlled by Transferor, in exchange
for consideration consisting primarily of cash, Marketable Securities or a
combination of both; (iii) the closing of an initial underwritten public
offering of common stock of EdificeRex; (iv) a merger or consolidation of
EdificeRex with another entity, as a result of which the holders of the common
stock of EdificeRex receive consideration consisting primarily of cash,
Marketable Securities or a combination of both; or (v) a liquidation of
EdificeRex.
"Marketable Security" means any security (A) of a class (or series of a
class) that is (i) registered under Section 12 of the Exchange Act and (ii)
traded or listed on a national securities exchange or The NASDAQ Stock Market,
or (B) exchangeable or exercisable for or convertible into a security of a
class (or series of a class) that is (i) registered under Section 12 of the
Exchange Act and (ii) traded or listed on a national securities exchange or The
NASDAQ Stock Market.
"Minimum Return Condition" means the condition that the value of the
portion of Base ERX Equity not subject to any outstanding Award (regardless of
whether such Base ERX Equity is still owned
<PAGE>
by Transferor or one or more of its subsidiaries at such time) is at least
equal to the aggregate amount of actual or deemed (for accounting purposes)
contributions made to the equity capital of EdificeRex in exchange for the Base
ERX Equity, plus an annual, compounded 10% return thereon.
"Third-Party Investment Condition" means the condition that one or more
persons or entities not controlled by Transferor shall have made equity
"investments" in EdificeRex in an aggregate amount at least equal to the
aggregate amount of actual or deemed (for accounting purposes) contributions
made to the equity capital of EdificeRex made by the Company and its
subsidiaries in exchange for the Base ERX Equity. For this purpose, (i) the
term "investments" shall be broadly interpreted to include any and all
contributions of cash or property to the equity capital of EdificeRex,
including pursuant to a merger or similar transaction or an initial
underwritten public offering of the common stock of EdificeRex, and (ii)
contributions of property other than cash shall be valued at fair market value
at the time of contribution.
TIME VESTING AND RELATED FORFEITURE EVENTS
Vesting
(1) Transferred Property which is subject to forfeiture back to Transferor
upon the occurrence of a forfeiture event specified in this section is
hereinafter referred to as "Non-Time-Vested Transferred Property"), and
Transferred Property which is not subject to forfeiture back to Transferor
upon the occurrence of a forfeiture event specified in this section is
hereinafter referred to as "Time-Vested Transferred Property".
(2) Initially, 94% of the Transferred Property is Non-Time-Vested Transferred
Property, and 6% of the Transferred Property is Time-Vested Transferred
Property. Subject to the following provisions providing for accelerated
time-based vesting of Transferred Property under certain circumstances,
until the earlier of (i) such time as all of the Transferred Property
becomes Time-Vested Transferred Property or (ii) such time as
Non-Time-Vested Transferred Property is forfeited back to Transferor
pursuant to this Agreement, on the last day of each calendar month
following the date of this Agreement, the percentage of Transferred
Property that is Non-Time-Vested Transferred Property shall be decreased
by 2% (in absolute terms), and the percentage of Transferred Property that
is Time-Vested Transferred Property shall be increased by 2% (in absolute
terms).
(3) In the event of a Change of Control of EdificeRex, simultaneously with the
occurrence thereof 100% of the then Non-Time-Vested Transferred Property
shall automatically become Time-Vested Transferred Property.
(4) In the event of an underwritten initial public offering of common stock of
EdificeRex, and provided that the managing underwriter(s) of such offering
do not object in writing, simultaneously with the closing thereof 50% of
the then Non-Time-Vested Transferred Property shall automatically vest and
become Time-Vested Transferred Property, and the balance of the
Non-Time-Vested Transferred Property shall continue to vest over time in
accordance with (2) above.
(5) If Transferee's employment (or other service, if applicable) with
Transferor is terminated by Insignia for any reason other than Cause, then
all then Non-Time-Vested Transferred Property shall immediately and
automatically become Time-Vested Transferred Property.
<PAGE>
Forfeiture
If Transferee's employment (or other service, if applicable) with Transferor is
terminated (i) by Transferor for Cause, (ii) by Transferee for any reason or
(iii) as a result of the death or disability of Transferee, then all then
Non-Time-Vested Transferred Property shall thereupon, and with no further
action, be forfeited by Transferee back to Transferor (notwithstanding that
such Transferred Property may be Performance-Vested Transferred Property at the
time).
PERFORMANCE VESTING AND RELATED FORFEITURE EVENTS
Performance Vesting
(1) Transferred Property which is subject to forfeiture back to Transferor
upon the occurrence of a forfeiture event specified in this section is
hereinafter referred to as "Non-Performance-Vested Transferred Property",
and Transferred Property which is not subject to forfeiture back to
Transferor upon the occurrence of a forfeiture event specified in this
section is hereinafter referred to as "Performance-Vested Transferred
Property".
(2) If a Liquidity Event occurs and simultaneously therewith or at some point
within the 360-day period following the occurrence thereof the Minimum
Return Condition is satisfied, 100% of the Transferred Property shall
automatically become Performance-Vested Transferred Property
simultaneously with the satisfaction of the Minimum Return Condition.
Forfeiture
If (i) a Liquidity Event does not occur within ten (10) years from the date of
this Agreement, (ii) a Liquidity Event occurs but the Third-Party Investment
Condition has not been or is not satisfied prior to or simultaneously with the
occurrence of such Liquidity Event or (iii) a Liquidity Event occurs but the
Minimum Return Condition is not satisfied either simultaneously with or at some
point within the 360-day period following the occurrence thereof, then all
Non-Performance-Vested Transferred Property shall thereupon, and with no
further action, be forfeited by Transferee back to Transferor (notwithstanding
that such Transferred Property may be Time-Vested Transferred Property at the
time); provided, however, that in the event of the circumstances described in
the foregoing clause (iii), Transferor shall afford Transferee a fair
opportunity (as determined by the Compensation Committee of the Board of
Directors of Transferor in good faith) to forfeit an appropriate portion of the
Non-Performance-Vested Transferred Property back to Transferor in lieu of
actual satisfaction of the Minimum Return Condition, and if Transferor accepts
such opportunity and forfeits the applicable portion of the
Non-Performance-Vested Transferred Property, the Minimum Return Condition shall
be deemed satisfied and the balance of the Transferred Property shall
automatically become Performance-Vested Transferred Property.
EMPLOYMENT AGREEMENT CONTROLS
If at any given time of determination Transferee is a party to a written
employment agreement with Transferor (or a subsidiary of Transferor) containing
terms that are more favorable to Transferee than those set forth in this
Schedule I, then the more favorable terms of such employment agreement shall
control.
<PAGE>
SCHEDULE II
MEMBER UNITS
Andrew L. Farkas 80
Steve B. Siegel 4
Ronald Uretta 4
James A. Aston 4
Frank M. Garrison 4
Adam B. Gilbert 4
Jeffrey P. Cohen 4
Edward S. Gordon 1
Alan Rogers 1
Paul Purcell 1
Ron Mecshner 1
Richard Malpica 1
Jim O'Conner 2
Larry Vitelli 1
Alan Froggatt 1
<PAGE>
TRANSFEREE AGREEMENT
THIS TRANSFEREE AGREEMENT (this "Agreement") is made as of the 18th day of
February, 2000, by and between Insignia Internet Initiatives, Inc.
("Transferor"), as a Member of IIII-CCI Holdings, LLC, a Delaware limited
liability company (the "Company"), and ____________________, an individual who
desires to become a Member ("Transferee") pursuant to this Agreement. All
capitalized terms used but not defined herein have the same meanings as in the
limited liability company agreement of the Company, attached hereto as Annex A
(the "LLC Agreement").
WHEREAS, Transferor is a wholly-owned subsidiary of Insignia Financial
Group, Inc., a Delaware corporation (collectively with its subsidiaries,
"Insignia"), and Insignia is causing Transferor to enter into this Agreement;
WHEREAS, Insignia desires to incentivize and retain in the employ of
Insignia certain individuals and to compensate them for their contributions to
the growth and profits of Insignia and thereby induce them to continue to make
such contributions in the future;
WHEREAS, Transferee is an employee of Insignia;
WHEREAS, in furtherance thereof, and pursuant to and in accordance with
the LLC Agreement, this Agreement is designed to Transfer Units in the Company
from Transferor to Transferee, subject to forfeiture as provided herein; and
WHEREAS, the parties hereto desire to execute this Agreement to further
evidence the Transfer by Transferor;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
1. Definitions.
Whenever used herein, the following capitalized terms shall have the
meanings set forth below:
"Cause" means: (a) if Transferee has a written employment agreement with
Insignia containing a definition of the term "Cause," such definition;
otherwise, (b) (i) engaging in willful or gross misconduct or neglect, (ii)
repeatedly failing to adhere to the directions of superiors or the written
policies and practices of Insignia, (iii) the commission of a felony or a crime
of moral turpitude or any crime involving Insignia, (iv) fraud,
misappropriation or embezzlement, (v) a material breach of Transferee's
employment agreement (if any) with Insignia, or (vi) any other illegal act
detrimental to Insignia.
"Managing Member" means Insignia Internet Initiatives, Inc., a Delaware
corporation, in its capacity as the managing member of the Company.
"Unvested Unit" means a Unit that was Transferred to Transferee pursuant
to this Agreement which continues to be subject to forfeiture pursuant to
Section 4 at the time in question.
"Vested Unit" means a Unit that was Transferred to Transferee pursuant to
this Agreement which is no longer subject to forfeiture pursuant to Section 4
at the time in question.
<PAGE>
2. Transfer of Units.
(a) Transferor hereby Transfers ____ Units to Transferee, and Transferee
hereby accepts such Units, in each case subject to forfeiture as provided in
Section 4 hereof and the other terms and conditions of this Agreement.
(b) Transferee will be entered into the records of the Company as the
holder of the Units Transferred pursuant to this Agreement, and Transferee shall
be subject to the provisions and restrictions set forth in the LLC Agreement.
3. Effective Date of Agreement.
This Agreement is effective as of the date first above written. As
required by the LLC Agreement, the Managing Member of the Company has approved
this Agreement and the Transfer of Units pursuant hereto as evidenced by its
signature on the signature page hereto.
4. Restrictions and Conditions; Forfeiture.
(a) The Units are subject to forfeiture back to Transferor during such
periods, in such percentage amounts and upon the occurrence of such conditions
and events as are indicated on Schedule I attached hereto.
(b) Except as provided in Section 4(a), Transferee shall have, in respect
of the Units, all of the rights of a Member of the Company, including the right
to vote the Units and the right to receive and retain any cash distributions in
respect of such Units, until such time (if ever) as such Units are forfeited
back to the Company. Transferee shall not be required to return to Transferor
any distributions received in respect of subsequently forfeited Units.
(c) Upon forfeiture of Units held by Transferee back to Transferor
pursuant to Section 4(a), Transferee shall (i) cease to be a Member of the
Company and shall have no further rights to distributions or allocations of
Profits and Losses of the Company, if as a result of such forfeiture no Units
continue to be held by Transferee, or (ii) continue to be a Member of the
Company but shall have no further rights to distributions or allocations of
Profits and Losses of the Company in respect of such forfeited Units, if
Transferee continues to hold other Units. Any forfeiture of Units shall,
without any further action by Managing Member, Transferee, the Company or any
other Person, result in an automatic Transfer of the Units so forfeited
hereunder from Transferee to Transferor.
5. Section 83(b) Tax Election.
On the date of Transfer of Units to Transferee pursuant to this Agreement,
Transferee shall execute three copies of a Section 83(b) Tax Election Form,
substantially in the form attached as Annex B hereto with respect to the Units
received. Transferee shall promptly file one copy of the Section 83(b) Tax
Election Form with the IRS and deliver one copy of the Section 83(b) Tax
Election Form to the Special Member. Upon receipt of such duly executed form,
the Special Member shall cause such copy to be filed in the records maintained
by the Company. Notwithstanding anything contained in this Agreement to the
contrary, Transferee's execution and delivery of the Section 83(b) Tax Election
Form shall be a condition precedent to Transferor's obligation as may otherwise
be provided hereunder to Transfer Units to Transferee, and the failure of
Transferee to satisfy such requirement with respect to the Units shall cause
such Units to be forfeited in accordance with Section 4 hereof.
2
<PAGE>
6. Nontransferability of Unvested Units.
Unvested Units shall not be transferred or assigned by Transferee in any
manner whatsoever. Vested Units will be transferable if and to the extent
permitted by Article V of the LLC Agreement.
7. Miscellaneous.
(a) Without limiting any power and authority otherwise possessed by
Transferor, Transferor shall have the full power and authority to interpret and
administer this Agreement and any other instrument or agreements relating to
this Agreement. The Managing Member's actions in this regard shall be final,
conclusive and binding upon all persons, including without limitation
Transferee and Transferee's beneficiaries.
(b) The failure of Transferor, Transferee or the Company to insist upon
strict compliance with any provision of this Agreement, or to assert any right
Transferor, Transferee or the Company, respectively, may have under this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement or the LLC Agreement.
(c) Nothing in this Agreement shall confer on Transferee any right to
continue in the employ or other service of Insignia or interfere in any way
with the right of Insignia to terminate Transferee's employment or other
service at any time.
(d) The Company is an express third-party beneficiary of this Agreement.
(e) TRANSFEREE EXPRESSLY ACKNOWLEDGES THAT PURSUANT TO SECTION 2.10 OF THE
LLC AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN THE LLC AGREEMENT THE MANAGING
MEMBER HAS NO DUTY TO TRANSFEREE, FIDUCIARY OR OTHERWISE, AND MAY TAKE WHATEVER
ACTIONS IT DEEMS APPROPRIATE IN ITS SOLE AND ABSOLUTE DISCRETION, AND
TRANSFEREE HEREBY CONFIRMS AND AGREES TO SUCH LIMITATION ON THE DUTY OF THE
MANAGING MEMBER.
8. Notices.
All notices under this Agreement shall be in writing and delivered
personally or by recognized overnight courier, as follows:
if to Transferor:
Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
if to Transferee:
---------------------------------
---------------------------------
---------------------------------
3
<PAGE>
if to the Company:
IIII-CCI Holdings, LLC
c/o Insignia Internet Initiatives, Inc.
300 Delaware Avenue
Suite 900
Wilmington, Delaware 19801
Attn: President
Such addresses may be changed at any time by written notice to the other
party given in accordance with this Section 8.
9. Captions.
The use of captions in this Agreement is for convenience. The captions are
not intended to and do not provide substantive rights.
10. Amendment; Waiver; Severability.
This Agreement may not be amended or modified except by a written
agreement executed by the parties hereto or their respective successors and
legal representatives. No waiver of any provision of this Agreement shall be
valid unless it is in writing and signed by the party charged therewith. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF DELAWARE, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRANSFEROR:
INSIGNIA INTERNET INITIATIVES, INC.
By:
----------------------------------
Name:
Title:
TRANSFEREE:
-----------------------------------
Name:
AS REQUIRED BY THE LLC AGREEMENT,
THIS AGREEMENT AND THE TRANSFER
OF UNITS PURSUANT HERETO IS HEREBY
APPROVED BY THE MANAGING MEMBER
OF THE COMPANY:
INSIGNIA INTERNET INITIATIVES, INC.
By:
--------------------------------------
Name:
Title:
5
<PAGE>
SCHEDULE I
VESTING AND FORFEITURE
VESTING
Initially, 96% of the Units are subject to forfeiture back to Transferor under
the circumstances hereinafter described (i.e., such Units are "Unvested"), and
4% of the Units are not subject to forfeiture back to Transferor (i.e., such
Units are "Vested").
Subject to the following provision providing for accelerated time-based vesting
of Units under certain circumstances, until the earlier of (i) such time as all
of the Units become Vested or (ii) such time as Unvested Units are forfeited
back to Transferor pursuant to this Agreement, on the last day of each calendar
month following the date of this Agreement, the percentage of Units that is
Unvested (and thus subject to forfeiture back to Transferor) shall be decreased
by 2% (in absolute terms), and the percentage of Units that is Vested shall be
increased by 2% (in absolute terms).
If Transferee's employment (or other service, if applicable) with Insignia is
terminated by Insignia for any reason other than Cause, then all of the Units
that are Unvested at such time shall immediately and automatically become
Vested.
FORFEITURE
If Transferee's employment (or other service, if applicable) with Transferor is
terminated (i) by Insignia for Cause, (ii) by Transferee for any reason or
(iii) as a result of the death or disability of Transferee, then all Units that
are Unvested at such time shall thereupon, and with no further action, be
forfeited by Transferee back to Transferor.
EMPLOYMENT AGREEMENT CONTROLS
If at any given time of determination Transferee is a party to a written
employment agreement with Insignia (or a subsidiary of Insignia) containing
terms that are more favorable to Transferee than those set forth in this
Schedule I, then the more favorable terms of such employment agreement shall
control.
6
<PAGE>
SCHEDULE II
MEMBER UNITS
Andrew L. Farkas 78
Steve B. Siegel 6
Ronald Uretta 2
James A. Aston 1
Frank M. Garrison 8
Adam B. Gilbert 1
Jeffrey P. Cohen 2
Anthony M. Ciepiel 1
Steve Verba 1
7
<PAGE>
WARRANT NO. E __
INSIGNIA FINANCIAL GROUP, INC.
WARRANT AGREEMENT
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE
STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
EXCHANGED, MORTGAGED, PLEDGED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM AND ARE SUBJECT TO OTHER RESTRICTIONS ON
TRANSFER SET FORTH HEREIN. BY HIS ACCEPTANCE HEREOF, THE HOLDER OF THIS
AGREEMENT REPRESENTS THAT HE IS ACQUIRING SUCH SECURITIES FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE THEREOF.
WARRANT AGREEMENT, dated as of January 14, 2000 (this "Agreement"), by and
between Insignia Financial Group, Inc. (the "Company") and _________ (the
"Executive").
Preliminary Statement
The purpose of this Agreement is to evidence the grant of a warrant to
purchase common stock of the Company to the Executive, who is a key employee of
the Company. The general purpose of the grant is to promote the interests of
the Company and its stockholders by providing to the Executive additional
incentives to continue and increase his efforts with respect to, and to remain
in the employ of, the Company.
The Board of Directors and the Compensation Committee of the Board of
Directors of the Company (the "Committee") have authorized the granting to the
Executive of a warrant (the "Warrant") to purchase the number of shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), set
forth below. The Committee shall have the authority to administer and interpret
the terms of this Agreement.
Accordingly, the parties hereto agree as follows:
1. Grant of Warrant. Subject in all respects to the terms and conditions
set forth herein, the Executive is hereby granted a Warrant to purchase from
the Company up to _______
<PAGE>
shares of Common Stock at a price per share of $8.00 (the "Exercise Price").
This Agreement shall be numbered and registered on the books of the Company.
2. Exercise. The Warrant shall vest and become exercisable at the rate of
_______ shares per month on the first day of each month commencing February 1,
2000, and continuing for 34 months thereafter, with a final installment of
______ shares to vest and become exercisable on January 1, 2003.
There shall be no proportionate or partial vesting in the period prior to
each monthly vesting date, provided that the Warrant will become fully vested
and immediately exercisable in full if (i) the Executive's employment with the
Company terminates due to his death or a Disability Termination Event (as
defined in the Executive's employment agreement), or (ii) there is an
Extraordinary Transaction, Influence Change Event or Extraordinary Stock Event
(each term as defined in the Executive s employment agreement). The Committee,
at any time before expiration of the Warrant, may, in its sole discretion,
accelerate the time or times at which the Warrant may be exercised, including,
without limitation, whether or not to vest the Warrant upon a Termination
Without Cause (as defined in the Executive's employment agreement).
The Executive may exercise the Warrant in whole or in part at any time and
from time to time prior to the expiration of the Warrant as provided herein by
serving written notice of such exercise on the Committee accompanied by payment
in full of the aggregate Exercise Price. The Company will not be under
obligation to deliver to the Executive any Common Stock unless and until all
legal matters in connection with the issuance and delivery of the Common Stock
have been approved by the Company's counsel. Payment of the aggregate Exercise
Price shall be made in a manner acceptable to the Committee, in its sole
discretion, and payment shall generally be made in cash or in shares of Common
Stock which the Executive has owned for at least six months (and for which the
Executive has good title free and clear of any liens and encumbrances) based on
the fair market value of the Common Stock on the payment date as determined by
the Committee (or any combination thereof) against delivery of the shares of
Common Stock.
The Company shall not be required to issue fractional shares of Common
Stock on the exercise of the Warrant. If any fractional share of Common Stock
would, except for this provision, be issuable upon the exercise of the Warrant,
the Company shall pay an amount in cash equal to the current fair market value
of such fractional share of Common Stock.
3. Termination. (a) In the event of termination of employment with the
Company other than due to death, a Disability Termination Event or an
Extraordinary Transaction, Influence Change Event or Extraordinary Stock Event
prior to complete exercise of the Warrant, the Warrant shall expire on the
earlier of (i) the fifth (5th) anniversary of the date of this Agreement, or
(ii) three (3) months following such termination.
(b) In the event of termination of employment due to death or a Disability
Termination Event, the Warrant shall expire on the earlier of (i) the fifth
(5th) anniversary of the date of this Agreement, or (ii) one (1) year following
such termination.
2
<PAGE>
(c) In the event of an Extraordinary Transaction, Influence Change Event
or Extraordinary Stock Event (regardless of whether the Executive's employment
terminates), the Warrant shall remain exercisable for the remaining term of the
Warrant.
(d) Notwithstanding Sections (a), (b) and (c) above, if the Executive is
Terminated For Cause (as defined in the Executive's employment agreement), the
Warrant shall immediately expire.
4. Term. Subject to the provisions of Section 3, the Warrant will expire
on the fifth (5th) anniversary of the date of this Agreement.
5. Character of Shares. Shares of Common Stock deliverable under the terms
of this Agreement shall be shares of Common Stock held in the Company's
treasury.
6. Reservation of Shares. The Company shall at all times reserve a number
of shares of Common Stock held in the Company's treasury equal to the maximum
number of shares of Common Stock that may be subject to the Warrant.
7. Restriction on Transfer of Warrant. The Warrant is not transferable
otherwise than by will or under the applicable laws of descent and
distribution. During the lifetime of the Executive, the Warrant may be
exercised only by the Executive or the Executive's guardian or legal
representative. In addition, the Warrant shall not be assigned, negotiated,
pledged or hypothecated in any way (whether by operation of law or otherwise),
and the Warrant shall not be subject to execution, attachment or similar
process. Any other attempt to transfer, assign, negotiate, pledge or
hypothecate the Warrant shall be void.
8. Restrictions on Transfer of Shares of Common Stock. Neither any of the
shares of Common Stock purchased upon exercise of the Warrant, nor any interest
therein, may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act and applicable state securities laws, or an exemption therefrom.
Unless the sale of the shares of Common Stock to be purchased upon
exercise of the Warrant is registered pursuant to an effective registration
statement under the Securities Act at the time of such exercise, each
certificate for shares of Common Stock initially issued upon exercise of the
Warrant shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, EXCHANGED, MORTGAGED, PLEDGED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE
3
<PAGE>
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. BY ITS ACCEPTANCE
HEREOF, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS
ACQUIRING SUCH SECURITIES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TOWARD THE DISTRIBUTION OR RESALE THEREOF."
9. Investment Letter. Unless the sale of the shares of Common Stock to be
purchased upon exercise of the Warrant is registered pursuant to an effective
registration statement under the Securities Act at the time of such exercise,
prior to the delivery to the Executive of certificates or other documents
representing the shares of Common Stock, the Executive will execute and deliver
to the Company a letter, in form and substance satisfactory to the Company,
containing the following representations, warranties, covenants, and
agreements:
(a) The Executive is acquiring the shares of Common Stock for his own
account (and not for the account of others), for investment purposes only, and
not with a view toward the resale or distribution thereof;
(b) By virtue of the Executive's position, he has access to the same kind
of information which would be available in a registration statement filed under
the Securities Act and he has received copies of all Reports on Forms 10-K,
10-Q, and 8-K, and other forms, required to be filed and filed by the Company
with the Securities and Exchange Commission;
(c) The Executive understands that he may not sell or dispose of the
shares of Common Stock in the absence of either a registration statement under
the Securities Act or an exemption from the registration provisions of the
Securities Act and applicable state securities laws;
(d) The Executive understands and agrees that if he should decide to
dispose of or transfer any of the shares of Common Stock, he may dispose of
them (i) only in compliance with the Securities Act as then in effect, and (ii)
upon delivery to the Company of an opinion, in form and substance reasonably
satisfactory to the Company, or recognized securities counsel to the effect
that the disposition or transfer is to be made in compliance with all
applicable federal and state securities laws; and
(e) The Executive understands that stop transfer instructions to the
foregoing effect will be in effect with respect to the shares of Common Stock.
10. Rights as a Stockholder. The Executive shall have no rights as a
stockholder with respect to any shares of Common Stock covered by the Warrant
until the Executive shall have become the holder of record of the shares of
Common Stock, and no adjustments shall be made for dividends in cash or other
property, distributions or other rights in respect of any such shares of Common
Stock.
4
<PAGE>
11. Provisions of Employment Agreement Control. This Agreement is intended
to incorporate the provisions of the Executive's employment agreement, where
applicable. In the event a conflict between this Agreement and the employment
agreement should arise, the relevant terms of the employment agreement shall
apply, be controlling and be deemed to be incorporated herein.
12. Adjustment Upon Changes in Capitalization. The Committee may make or
provide for such adjustments in the maximum number of shares of Common Stock
specified in Section 1, in the number of shares of Common Stock covered by the
Warrant granted hereunder, and/or in the Exercise Price applicable to the
Warrant or such other adjustments in the number and kind of securities received
upon the exercise of the Warrant, as the Committee in its sole discretion may
determine is equitably required to prevent dilution or enlargement of the
rights of the Executive or to otherwise recognize the effect that otherwise
would result from any stock split, stock dividend, combination or
reclassification of shares, recapitalization or other change in the capital
structure of the Company, merger, consolidation, spin-off, reorganization,
partial or complete liquidation, issuance of rights or warrants to purchase
securities or any other corporate transaction or event having an effect similar
to any of the foregoing. If any merger, consolidation or similar transaction
affects the Common Stock subject to the unexercised or unvested portion of the
Warrant, the Committee or a committee of the board of directors of any
surviving or acquiring corporation shall take such action as is equitable and
appropriate to substitute a new warrant for the Warrant or to assume the
Warrant in order to make such new or assumed warrant, as nearly as may be
practicable, equivalent to the Warrant.
13. Non-alienation of Benefits. Except as provided herein, no right or
benefit under this Agreement shall be subject to anticipation, alienation,
sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, hypothecate,
pledge, exchange, transfer, encumber or charge the same shall be void. No right
or benefit hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefits.
14. Termination and Amendment. Subject to the Executive's consent as
described below, the Board of Directors of the Company may at any time
terminate, modify or amend this Agreement in such respects as it shall deem
advisable; provided, however, that any such termination, modification or
amendment shall comply with all applicable laws, applicable stock exchange
listing requirements and applicable requirements for exemption (to the extent
necessary) under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). No termination, modification or amendment of this
Agreement may, without the consent of the Executive, adversely affect the
rights of the Executive with respect to the Warrant. With the consent of the
Executive, the Committee may agree to cancel the Warrant and issue a new
warrant in substitution therefor, provided that the new warrant shall satisfy
all of the requirements of this Agreement as of the date such new warrant is
granted.
15. Withholding. The Company shall have the right to deduct from any
payment to be made to the Executive, or to otherwise require, prior to the
delivery of any shares of Common
5
<PAGE>
Stock or the payment of any cash hereunder, payment by the Executive of, any
federal, state or local taxes required by law to be withheld. The Committee may
in its discretion permit any such withholding obligation with regard to the
Executive to be satisfied by reducing the number of shares of Common Stock
otherwise deliverable or by delivering shares of Common Stock already owned by
the Executive. Any fraction of a share of Common Stock required to satisfy such
tax obligations shall be disregarded and the amount due shall be paid instead
in cash by the Executive.
16. No Obligation to Continue Employment. This Agreement does not
guarantee that the Company will employ the Executive for any specific time
period, nor does it modify in any respect the Company's right to terminate or
modify the Executive's employment or compensation.
17. Effectiveness of the Agreement. This Agreement is effective as of the
date first set forth above.
18. Separability. This Agreement shall be administered in accordance with
Rule 16b-3 under the Exchange Act. If any of the terms and provisions of this
Agreement conflict with the requirements of Rule 16b-3 under the Exchange Act,
then such terms and provisions shall be deemed inoperative to the extent they
so conflict with the requirements of Rule 16b-3.
19. Non-exclusivity of this Agreement. The execution of this Agreement by
the Company shall not be construed as creating any limitations on the power of
the Board of Directors of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and the awarding of stock and cash, and such
arrangements may be either generally applicable or applicable only in specific
cases.
6
<PAGE>
20. Exclusion from Pension and Profit-Sharing Computation. By acceptance
of the Warrant, the Executive shall be deemed to have agreed that the Warrant
is special incentive compensation and that it will not be taken into account,
in any manner, as salary, compensation or bonus in determining the amount of
any payment under any pension, retirement or other employee benefit plan of the
Company. In addition, each beneficiary of the Executive shall be deemed to have
agreed that the Warrant will not affect the amount of any life insurance
coverage, if any, provided by the Company on the life of the Executive which is
payable to such beneficiary under any life insurance plan covering employees of
the Company.
21. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the state of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
22. Notices. Any notice or communication given hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person,
or by United States mail, to the appropriate party at the address set forth
below (or such other address as the party shall from time to time specify):
If to the Company, to:
Insignia Financial Group, Inc.
200 Park Avenue
New York, New York 10166
Attn: General Counsel
If to the Executive, to:
the address indicated after his signature
at the end of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
INSIGNIA FINANCIAL GROUP, INC.
By:
----------------------------------
Authorized Officer
EXECUTIVE
By:
-------------------------------
Name:
Social Security No.:
Address:
8
<PAGE>
SCHEDULE I
NAME WARRANT NO. DATE PRICE NO. OF SHARES
- ---- ----------- ---- ----- -------------
Andrew L. Farkas E 1 1/14/00 $8.00 500,000
James A. Aston E 2 1/14/00 $8.00 200,000
Frank M. Garrison E 3 1/14/00 $8.00 200,000
Ronald Uretta E 4 1/14/00 $8.00 200,000
-------
TOTAL 1,100,000
=========
9
<PAGE>
WARRANT NO. ND _____
INSIGNIA FINANCIAL GROUP, INC.
WARRANT AGREEMENT
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE
STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
EXCHANGED, MORTGAGED, PLEDGED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM AND ARE SUBJECT TO OTHER RESTRICTIONS ON
TRANSFER SET FORTH HEREIN. BY HIS ACCEPTANCE HEREOF, THE HOLDER OF THIS
AGREEMENT REPRESENTS THAT HE IS ACQUIRING SUCH SECURITIES FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION OR RESALE THEREOF.
WARRANT AGREEMENT, dated as of January 14, 2000 (this "Agreement"), by and
between Insignia Financial Group, Inc. (the "Company") and _________ (the
"Executive").
Preliminary Statement
The purpose of this Agreement is to evidence the grant of a warrant to
purchase common stock of the Company to the Executive, who is a key employee of
the Company. The general purpose of the grant is to promote the interests of
the Company and its stockholders by providing to the Executive additional
incentives to continue and increase his efforts with respect to, and to remain
in the employ of, the Company.
The Board of Directors and the Compensation Committee of the Board of
Directors of the Company (the "Committee") have authorized the granting to the
Executive of a warrant (the "Warrant") to purchase the number of shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), set
forth below. The Committee shall have the authority to administer and interpret
the terms of this Agreement.
Accordingly, the parties hereto agree as follows:
<PAGE>
1. Grant of Warrant. Subject in all respects to the terms and conditions
set forth herein, the Executive is hereby granted a Warrant to purchase from
the Company up to _______ shares of Common Stock at a price per share of $8.00
(the "Exercise Price"). This Agreement shall be numbered and registered on the
books of the Company.
2. Exercise. The Warrant shall vest and become exercisable at the rate of
_______ shares per month on the first day of each month commencing February 1,
2000, and continuing for 34 months thereafter, with a final installment of
______ shares to vest and become exercisable on January 1, 2003.
There shall be no proportionate or partial vesting in the period prior to
each monthly vesting date, provided that the Warrant will become fully vested
and immediately exercisable in full if (i) the Executive's employment with the
Company terminates due to his death or a Disability Termination Event (as
defined in the Executive's employment agreement), or (ii) there is an
Extraordinary Transaction, Influence Change Event or Extraordinary Stock Event
(each term as defined in the Executive's employment agreement). The Committee,
at any time before expiration of the Warrant, may, in its sole discretion,
accelerate the time or times at which the Warrant may be exercised, including,
without limitation, whether or not to vest the Warrant upon a Termination
Without Cause (as defined in the Executive's employment agreement).
The Executive may exercise the Warrant in whole or in part at any time and
from time to time prior to the expiration of the Warrant as provided herein by
serving written notice of such exercise on the Committee accompanied by payment
in full of the aggregate Exercise Price. The Company will not be under
obligation to deliver to the Executive any Common Stock unless and until all
legal matters in connection with the issuance and delivery of the Common Stock
have been approved by the Company's counsel. Payment of the aggregate Exercise
Price shall be made in a manner acceptable to the Committee, in its sole
discretion, and payment shall generally be made in cash or in shares of Common
Stock which the Executive has owned for at least six months (and for which the
Executive has good title free and clear of any liens and encumbrances) based on
the fair market value of the Common Stock on the payment date as determined by
the Committee (or any combination thereof) against delivery of the shares of
Common Stock.
The Company shall not be required to issue fractional shares of Common
Stock on the exercise of the Warrant. If any fractional share of Common Stock
would, except for this provision, be issuable upon the exercise of the Warrant,
the Company shall pay an amount in cash equal to the current fair market value
of such fractional share of Common Stock.
3. Termination.
(a) In the event of termination of employment with the Company other than
due to death, a Disability Termination Event or an Extraordinary Transaction,
Influence Change Event or Extraordinary Stock Event prior to complete exercise
of the Warrant, the Warrant shall expire on the earlier of (i) the fifth (5th)
anniversary of the date of this Agreement, or (ii) three (3) months following
such termination.
(b) In the event of termination of employment due to death or a Disability
Termination Event, the Warrant shall expire on the earlier of (i) the fifth
(5th) anniversary of the date of this Agreement, or (ii) one (1) year following
such termination.
(c) In the event of an Extraordinary Transaction, Influence Change Event
or Extraordinary Stock Event (regardless of whether the Executive's employment
terminates), the Warrant shall remain exercisable for the remaining term of the
Warrant.
(d) Notwithstanding Sections (a), (b) and (c) above, if the Executive is
Terminated For Cause (as defined in the Executive's employment agreement), the
Warrant shall immediately expire.
2
<PAGE>
4. Term. Subject to the provisions of Section 3, the Warrant will expire
on the fifth (5th) anniversary of the date of this Agreement.
5. Character of Shares. Shares of Common Stock deliverable under the terms
of this Agreement shall be shares of Common Stock held in the Company's
treasury.
6. Reservation of Shares. The Company shall at all times reserve a number
of shares of Common Stock held in the Company's treasury equal to the maximum
number of shares of Common Stock that may be subject to the Warrant.
7. Restriction on Transfer of Warrant. The Warrant is not transferable
otherwise than by will or under the applicable laws of descent and
distribution. During the lifetime of the Executive, the Warrant may be
exercised only by the Executive or the Executive's guardian or legal
representative. In addition, the Warrant shall not be assigned, negotiated,
pledged or hypothecated in any way (whether by operation of law or otherwise),
and the Warrant shall not be subject to execution, attachment or similar
process. Any other attempt to transfer, assign, negotiate, pledge or
hypothecate the Warrant shall be void.
8. Restrictions on Transfer of Shares of Common Stock. Neither any of the
shares of Common Stock purchased upon exercise of the Warrant, nor any interest
therein, may be sold, transferred, or otherwise disposed of in the absence of
registration or qualification, as the case may be, of the same under the
Securities Act and applicable state securities laws, or an exemption therefrom.
Unless the sale of the shares of Common Stock to be purchased upon
exercise of the Warrant is registered pursuant to an effective registration
statement under the Securities Act at the time of such exercise, each
certificate for shares of Common Stock initially issued upon exercise of the
Warrant shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
EXCHANGED, MORTGAGED, PLEDGED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS CERTIFICATE REPRESENTS THAT IT IS ACQUIRING SUCH SECURITIES
FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD THE DISTRIBUTION
OR RESALE THEREOF."
3
<PAGE>
9. Investment Letter. Unless the sale of the shares of Common Stock to be
purchased upon exercise of the Warrant is registered pursuant to an effective
registration statement under the Securities Act at the time of such exercise,
prior to the delivery to the Executive of certificates or other documents
representing the shares of Common Stock, the Executive will execute and deliver
to the Company a letter, in form and substance satisfactory to the Company,
containing the following representations, warranties, covenants, and
agreements:
(a) The Executive is acquiring the shares of Common Stock for his own
account (and not for the account of others), for investment purposes only, and
not with a view toward the resale or distribution thereof;
(b) By virtue of the Executive's position, he has access to the same kind
of information which would be available in a registration statement filed under
the Securities Act and he has received copies of all Reports on Forms 10-K,
10-Q, and 8-K, and other forms, required to be filed and filed by the Company
with the Securities and Exchange Commission;
(c) The Executive understands that he may not sell or dispose of the
shares of Common Stock in the absence of either a registration statement under
the Securities Act or an exemption from the registration provisions of the
Securities Act and applicable state securities laws;
(d) The Executive understands and agrees that if he should decide to
dispose of or transfer any of the shares of Common Stock, he may dispose of
them (i) only in compliance with the Securities Act as then in effect, and (ii)
upon delivery to the Company of an opinion, in form and substance reasonably
satisfactory to the Company, or recognized securities counsel to the effect
that the disposition or transfer is to be made in compliance with all
applicable federal and state securities laws; and
(e) The Executive understands that stop transfer instructions to the
foregoing effect will be in effect with respect to the shares of Common Stock.
10. Rights as a Stockholder. The Executive shall have no rights as a
stockholder with respect to any shares of Common Stock covered by the Warrant
until the Executive shall have become the holder of record of the shares of
Common Stock, and no adjustments shall be made for dividends in cash or other
property, distributions or other rights in respect of any such shares of Common
Stock.
11. Provisions of Employment Agreement Control. This Agreement is intended
to incorporate the provisions of the Executive's employment agreement, where
applicable. In the event a conflict between this Agreement and the employment
agreement should arise, the relevant terms of the employment agreement shall
apply, be controlling and be deemed to be incorporated herein.
4
<PAGE>
12. Adjustment Upon Changes in Capitalization. The Committee may make or
provide for such adjustments in the maximum number of shares of Common Stock
specified in Section 1, in the number of shares of Common Stock covered by the
Warrant granted hereunder, and/or in the Exercise Price applicable to the
Warrant or such other adjustments in the number and kind of securities received
upon the exercise of the Warrant, as the Committee in its sole discretion may
determine is equitably required to prevent dilution or enlargement of the
rights of the Executive or to otherwise recognize the effect that otherwise
would result from any stock split, stock dividend, combination or
reclassification of shares, recapitalization or other change in the capital
structure of the Company, merger, consolidation, spin-off, reorganization,
partial or complete liquidation, issuance of rights or warrants to purchase
securities or any other corporate transaction or event having an effect similar
to any of the foregoing. If any merger, consolidation or similar transaction
affects the Common Stock subject to the unexercised or unvested portion of the
Warrant, the Committee or a committee of the board of directors of any
surviving or acquiring corporation shall take such action as is equitable and
appropriate to substitute a new warrant for the Warrant or to assume the
Warrant in order to make such new or assumed warrant, as nearly as may be
practicable, equivalent to the Warrant.
13. Non-alienation of Benefits. Except as provided herein, no right or
benefit under this Agreement shall be subject to anticipation, alienation,
sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, hypothecate,
pledge, exchange, transfer, encumber or charge the same shall be void. No right
or benefit hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefits.
14. Termination and Amendment. Subject to the Executive's consent as
described below, the Board of Directors of the Company may at any time
terminate, modify or amend this Agreement in such respects as it shall deem
advisable; provided, however, that any such termination, modification or
amendment shall comply with all applicable laws, applicable stock exchange
listing requirements and applicable requirements for exemption (to the extent
necessary) under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). No termination, modification or amendment of this
Agreement may, without the consent of the Executive, adversely affect the
rights of the Executive with respect to the Warrant. With the consent of the
Executive, the Committee may agree to cancel the Warrant and issue a new
warrant in substitution therefor, provided that the new warrant shall satisfy
all of the requirements of this Agreement as of the date such new warrant is
granted.
15. Withholding. The Company shall have the right to deduct from any
payment to be made to the Executive, or to otherwise require, prior to the
delivery of any shares of Common Stock or the payment of any cash hereunder,
payment by the Executive of, any federal, state or local taxes required by law
to be withheld. The Committee may in its discretion permit any such withholding
obligation with regard to the Executive to be satisfied by reducing the number
of shares of Common Stock otherwise deliverable or by delivering shares of
Common Stock already owned by the Executive. Any fraction of a share of Common
Stock required to satisfy such tax obligations shall be disregarded and the
amount due shall be paid instead in cash by the Executive.
16. No Obligation to Continue Employment. This Agreement does not
guarantee that the Company will employ the Executive for any specific time
period, nor does it modify in any respect the Company's right to terminate or
modify the Executive's employment or compensation.
5
<PAGE>
17. Effectiveness of the Agreement. This Agreement is effective as of the
date first set forth above.
18. Separability. This Agreement shall be administered in accordance with
Rule 16b-3 under the Exchange Act. If any of the terms and provisions of this
Agreement conflict with the requirements of Rule 16b-3 under the Exchange Act,
then such terms and provisions shall be deemed inoperative to the extent they
so conflict with the requirements of Rule 16b-3.
19. Non-exclusivity of this Agreement. The execution of this Agreement by
the Company shall not be construed as creating any limitations on the power of
the Board of Directors of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and the awarding of stock and cash, and such
arrangements may be either generally applicable or applicable only in specific
cases.
20. Exclusion from Pension and Profit-Sharing Computation. By acceptance
of the Warrant, the Executive shall be deemed to have agreed that the Warrant
is special incentive compensation and that it will not be taken into account,
in any manner, as salary, compensation or bonus in determining the amount of
any payment under any pension, retirement or other employee benefit plan of the
Company. In addition, each beneficiary of the Executive shall be deemed to have
agreed that the Warrant will not affect the amount of any life insurance
coverage, if any, provided by the Company on the life of the Executive which is
payable to such beneficiary under any life insurance plan covering employees of
the Company.
21. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the state of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
22. Notices. Any notice or communication given hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person,
or by United States mail, to the appropriate party at the address set forth
below (or such other address as the party shall from time to time specify):
If to the Company, to:
Insignia Financial Group, Inc.
200 Park Avenue
New York, New York 10166
Attn: General Counsel
If to the Executive, to:
the address indicated after his signature
at the end of this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year first above written.
INSIGNIA FINANCIAL GROUP, INC.
By:
---------------------------
Authorized Officer
EXECUTIVE
By:
---------------------------
Name:
Social Security No.:
Address:
7
<PAGE>
Schedule I
Name Warrant No. Date Price No. of Shares
H. Strauss Zelnick ND 1 1/14/00 $8.00 25,000
Robert J. Denison ND 2 1/14/00 $8.00 25,000
Robert G. Koen ND 3 1/14/00 $8.00 25,000
Robin L. Farkas ND 4 1/14/00 $8.00 25,000
--------
100,000
--------
8
<PAGE>
ASSIGNMENT OF LIMITED LIABILITY COMPANY INTEREST
This Assignment of Limited Liability Company Interest (this
"Assignment") is entered into as of January 12, 2000 by and between [entity
name] ("Assignor"), and [name]("Assignee").
W I T N E S S T H :
In order to provide a mechanism whereby Assignee will be entitled to
receive the percentage of Proceeds (defined below) set forth opposite Assignee's
name on Exhibit A attached hereto, Assignor desires to transfer to Assignee a
portion of Assignor's right, title and interest in and to Assignor's limited
liability company interest in [co-investment entity name] (the "LLC")
(including, without limitation, Assignor's rights to any proceeds, income, tax
credits, profits and distributions of the LLC), which interest is more
particularly described in that LLC Agreement of the LLC dated on or about
[_______] (the "LLC Agreement"), as amended (the "LLC Interest").
AGREEMENTS
For a good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Definition of "Proceeds". "Proceeds" as used herein, shall mean,
with respect to the LLC, any proceeds actually received by Assignor with respect
to the LLC after Assignor has received 100% of its original capital contribution
to the LLC, any additional capital contributions and any allocated costs plus a
return thereon equal to 10% per annum. In calculating Proceeds, any amounts to
which Insignia Financial Group, Inc. or any of its wholly owned affiliates may
be entitled which are compensation for performing services including, but not
limited to, acquisition services, advisory, consulting, management, leasing,
construction supervision or management, development, redevelopment or
development or redevelopment supervision, financing or refinancing or
disposition services, will be excluded from such calculation.
2. Conveyance. Assignor hereby grants, assigns, and conveys to Assignee
all of Assignor's right, title and interest in and to a portion of Assignor's
LLC Interest equivalent in value to the percentage of Proceeds set forth
opposite Assignee's name on Exhibit A attached hereto.
3. Effect of Transfer. Assignee acknowledges and agrees that he is not
being admitted to the LLC as a substitute member, but is merely an assignee of a
certain portion (as set forth in Exhibit A) of the economic benefits
attributable to the LLC Interest. Accordingly, Assignee hereby irrevocably and
unconditionally grants
1
<PAGE>
to Assignor a proxy to vote on his behalf with respect to any and all LLC
matters which Assignee would otherwise be entitled to vote upon as a result of
the transfers contained herein. Furthermore, Assignee agrees to be bound by each
of the terms and conditions contained in the LLC Agreement. Notwithstanding the
foregoing, Assignor shall remain solely responsible for the performance of all
obligations and duties previously attributed to the LLC Interest (including,
without limitation, the obligation to fund all additional capital contributions
associated with the LLC Interest) as if the assignments contained herein were
never effected.
4. Forfeiture of Interest. Notwithstanding anything to the contrary
contained in this Assignment, Assignee hereby acknowledges and agrees that the
assignments contained herein are subject in all respects to the terms and
conditions set forth in that certain letter agreement between Assignee and
Insignia Financial Group, Inc. dated [______] ("Letter Agreement"). Without
limiting the generality of the foregoing, Assignee hereby acknowledges and
agrees that the assignment to it contained herein shall be automatically
rescinded and Assignee's right to participate in the Proceeds shall be
automatically forfeited upon a breach of the terms of or upon the occurrence of
any condition specified in its Letter Agreement.
5. Legal Fees and Costs. If a party elects to incur legal expenses to
enforce or interpret any provision of this Assignment by judicial proceedings,
the prevailing party will be entitled to recover such legal expense, including,
without limitation, reasonable attorney's fees, costs and necessary
disbursements, in addition to any other relief to which such party be entitled.
6. Entire Agreement; Amendment. This Assignment constitutes the entire
agreement, and supersedes all other prior agreements and understandings, both
oral and written, among the parties or any of them, with respect to the subject
matter hereof, and this Assignment is not intended to confer upon any person not
a party hereto any rights or remedies hereunder. This Assignment may not be
amended except by an instrument in writing signed by the parties hereto. This
Assignment may be executed in two or more counterparts, each and all of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.
7. Certain Interpretive Matters. No provision of this Assignment will
be interpreted in favor of, or against, any of the parties hereto by reason of
the extent to which any such party or its counsel participated in the drafting
thereof or by reason of the extent to which any such provision is inconsistent
with any prior draft hereof or thereof.
8. Effective Date. This Assignment shall be effective as of the date
hereof.
9. Governing Law; Binding Effect. This Assignment shall be governed by
South Carolina law and shall be binding upon and inure to the benefit of
Assignor and Assignee and their respective successors and assigns.
2
<PAGE>
Executed as of the date first written above.
ASSIGNOR: [name]
By: [name], its managing member
By:
------------------------------
Name:
Title:
ASSIGNEE:
Name:
--------------------------------
3
<PAGE>
EXHIBIT A
ASSIGNEE PROCEEDS
Andrew L. Farkas
James A. Aston
Ronald Uretta
Frank M. Garrison
Stephen B. Siegel
4
<PAGE>
[Date]
Mr. NAME
Company
Address
Address
RE: Assignment of Member or Limited Partner Interest(s)
Dear NAME:
This letter sets forth the terms upon which you ( "Employee") have been
assigned, as of the date hereof, a partnership interest or member interest or
interests in one or more limited partnerships or limited liability companies
which will in turn entitle you to certain potential distributions in the future,
subject to all the terms and conditions as set forth herein (individually a "
Member Interest " and collectively "Member Interests"). The interests assigned
to you hereby are owned by subsidiaries of Insignia/ESG or subsidiaries of
Insignia Financial Group, Inc. As used herein, "Insignia/ESG" shall mean,
respectively, Insignia/ESG, Inc. and its wholly owned subsidiaries and/or parent
or sister corporations. "Transaction Date" shall mean the date shown under the
column of the "Closing Date" of each respective transaction as specifically set
forth on Exhibit A, which shall be the effective date of each assignment. You
are being assigned Member Interests only with respect to the one or more
partnerships or limited liability companies listed on Exhibit A (individually a
"Company" and collectively, the "Companies") under the column headed "Name of
Company".
The Companies were formed for the purpose of acquiring, operating, and
ultimately disposing of real estate and real estate assets. The Member
Interest(s) assigned to you hereby shall equal the percentage interest in each
Company necessary for you to receive the percentage, as shown on Exhibit A under
the column headed "Applicable Percentage", of Proceeds. The Member Interest(s)
assigned to you hereby are in addition to any other assignments made to you
previously. "Proceeds" as used herein, shall mean any proceeds actually received
by Insignia/ESG or IFG, respectively, from or with respect to an investment in a
Company after Insignia/ESG, or IFG, respectively, has received 100% of its
original capital contribution, any additional capital contributions and any
allocated costs plus a return thereon equal to 10% per annum (the "Insignia/ESG
Minimum Return"). Any acquisition fees paid or payable to Insignia/ESG shall be
included in the amount of Insignia/ESG's investment for purposes of determining
Insignia/ESG's return and the Insignia Minimum Return, including any imputed
acquisition fee with respect to assets 100% owned by Insignia/ESG.
<PAGE>
Page 2
You acknowledge and understand that the definition of "Proceeds" may result
in your percentage interest in any of the Companies being zero (resulting in no
distribution(s) to you with respect to one or more of the Member Interest(s))
because your interest is effectively subordinated to preferential
payments/distributions to Insignia/ESG. Notwithstanding the following paragraph,
with respect to the Companies in which an affiliate of the Praedium Fund serves
as a member or partner any incentive fees as so defined or described in the
respective Asset Management Agreements (but not including any asset management
fees paid on a regular or recurring basis) shall be deemed to be part of
Proceeds. Insignia/ESG and IFG will promptly, and will cause their controlled
affiliates to promptly execute and deliver to Employee, upon request from
Employee, a such other documents as may be reasonably requested by Employee to
evidence the assignment of the Membership Interest(s).
In calculating Insignia/ESG's and IFG's return and the Insignia/ESG Minimum
Return, any amounts to which Insignia/ESG, or IFG, respectively, may be entitled
which are compensation for performing services including, but not limited to,
acquisition services, advisory, consulting, management, leasing, construction
supervision or management, development or development supervision, financing or
refinancing or disposition services, will be excluded from such calculation. In
the event that the calculation of the Insignia/ESG Minimum Return or Proceeds is
affected by the terms and conditions of any loans, including but not limited to
the existing line of credit with General Electric Capital Corporation ("GE") in
favor of an Insignia/ESG affiliate in partnership with Blackacre Capital, then
any calculations made or to be made with respect thereto shall be made by
Insignia/ESG in its sole and absolute discretion. In the event that Proceeds
from any investments or properties secured by the indebtedness evidenced by the
GE line of credit are received by Insignia/ESG but utilized, directly or
indirectly, to reduce such indebtedness, then, at Insignia/ESG's discretion, any
amounts so used shall not be deemed to constitute Proceeds, and your right to
receive any portion of the Member Interest(s) shall not arise until all such
debt has been paid in full.
For the purposes of this Agreement, any entity in which Insignia/ESG
participates in ownership of a real estate asset with a non-affiliated third
party shall be deemed to be a "partnership" and such non-affiliated third party
shall be deemed to be a "partner" irrespective of whether such entity is a
general or limited partnership, joint venture, limited liability company, or
other form of entity.
The additional terms and conditions governing the Member Interest(s) are as
follows:
1) Your rights with respect to the Member Interest(s) assigned to you
hereunder shall vest as follows:
<PAGE>
Page 3
DATE CUMULATIVE AMOUNT VESTED
---- ------------------------
1 Year from Transaction Date 50% of Member Interest(s)
2 Years from Transaction Date 75% of Member Interest(s)
3 Years from Transaction Date 100% of Member Interest(s)
2) In the event that Proceeds are actually received by Insignia/ESG, or
IFG, respectively, with respect to Insignia/ESG's or IFG's investment in a
particular Company prior to an applicable vesting date, you will be deemed to
have been fully vested with respect to such Proceeds as of the date of receipt
of such Proceeds. Involuntary termination for "cause" shall immediately
extinguish any rights with respect to any unvested portions of the Member
Interest(s) and should Employee voluntarily terminate his employment with
Insignia/ESG he shall, as a condition to continued vesting, be reasonably
available to Insignia/ESG to consult with Insignia/ESG with respect to the
Membership Interest(s). As used herein, "cause" shall mean any element of action
or inaction constituting cause under any applicable written agreement between
you and Insignia/ESG existence as of the date of such determination.
3) Any dispute with respect to this agreement and the Member Interest(s)
shall be governed by the laws of the State of New York and shall, at the option
of Insignia/ESG, be resolved by arbitration on terms and conditions determined
in the reasonable discretion of Insignia/ESG.
Any amounts you receive hereunder may be characterized as ordinary income
for federal tax purposes. However, you may choose to make an election under
Section 83(b) of the Internal Revenue Code which may result in such amounts
being treated as capital gains. Such an election would require to value the
Member Interests assigned to you hereunder and to recognize such value as income
presently. Such election, if made by you, must be made within thirty (30) days
of assignment to you of the Member Interests. In determining a value for the
Member Interests assigned to you hereunder you should take into account all
factors known to you including the fact that the Member Interests are
subordinated to certain returns and subject to vesting and forfeiture. You are
encouraged to consult your tax advisor for guidance on this matter and
Insignia/ESG accepts no responsibility for the manner in which you treat the
Member Interests.
Please acknowledge your understanding of and agreement to the terms set
forth above by executing this agreement in the space indicated below and on the
attached Exhibit A.
Yours truly,
Insignia/ESG , Inc.
<PAGE>
Page 4
By:
------------------------------
Insignia Financial Group, Inc
By:
------------------------------
I understand the terms of the foregoing and agree that the assignment of
the Member Interest(s) shall be governed thereby.
Date:
- ------------------------------ ------------------------------
NAME
<PAGE>
Page 5
SCHEDULE I
ASSIGNEE
Andrew L. Farkas
James A. Aston
Ronald Uretta
Frank M. Garrison
<PAGE>
Form 2
Mr. NAME
Company
Address
Address
RE: Assignment of Member or Limited Partner Interest(s)
Dear NAME:
This letter sets forth the terms upon which you ( "Employee") have been
assigned, as of the date hereof, a partnership interest or member interest or
interests in one or more limited partnerships or limited liability companies
which will in turn entitle you to certain potential distributions in the future,
subject to all the terms and conditions as set forth herein (individually a "
Member Interest " and collectively "Member Interests"). The interests assigned
to you hereby are owned by subsidiaries of Insignia/ESG or subsidiaries of
Insignia Financial Group, Inc. As used herein, "Insignia/ESG" shall mean,
respectively, Insignia/ESG, Inc. and its wholly owned subsidiaries and/or parent
or sister corporations. "Transaction Date" shall mean the date shown under the
column of the "Closing Date" of each respective transaction as specifically set
forth on Exhibit A, which shall be the effective date of each assignment. You
are being assigned Member Interests only with respect to the one or more
partnerships or limited liability companies listed on Exhibit A (individually a
"Company" and collectively, the "Companies") under the column headed "Name of
Company".
The Companies were formed for the purpose of acquiring, operating, and
ultimately disposing of real estate and real estate assets. The Member
Interest(s) assigned to you hereby shall equal the percentage interest in each
Company necessary for you to receive the percentage, as shown on Exhibit A under
the column headed "Applicable Percentage", of Proceeds. The Member Interest(s)
assigned to you hereby are in addition to any other assignments made to you
previously. "Proceeds" as used herein, shall mean any proceeds actually received
by Insignia/ESG or IFG, respectively, from or with respect to an investment in a
Company after Insignia/ESG, or IFG, respectively, has received 100% of its
original capital contribution, any additional capital contributions and any
allocated costs plus a return thereon equal to 10% per annum (the "Insignia/ESG
Minimum Return"). Any acquisition fees paid or payable to Insignia/ESG shall be
included in the amount of Insignia/ESG's investment for purposes of determining
Insignia/ESG's return and the Insignia Minimum Return, including any imputed
acquisition fee with respect to assets 100% owned by Insignia/ESG.
<PAGE>
Page 2
You acknowledge and understand that the definition of "Proceeds" may result in
your percentage interest in any of the Companies being zero Resulting in no
distribution(s) to you with respect to one or more of the Member Interest(s))
because your interest is effectively subordinated to preferential
payments/distributions to Insignia/ESG. Notwithstanding the following paragraph,
with respect to the Companies in which an affiliate of the Praedium Fund serves
as a member or partner any incentive fees as so defined or described in the
respective Asset Management Agreements (but not including any asset management
fees paid on a regular or recurring basis) shall be deemed to be part of
Proceeds. Insignia/ESG and IFG will promptly, and will cause their controlled
affiliates to promptly execute and deliver to Employee, upon request from
Employee, a such other documents as may be reasonably requested by Employee to
evidence the assignment of the Membership Interest(s).
In calculating Insignia/ESG's and IFG's's return and the Insignia/ESG
Minimum Return, any amounts to which Insignia/ESG, or IFG, respectively, may be
entitled which are compensation for performing services including, but not
limited to, acquisition services, advisory, consulting, management, leasing,
construction supervision or management, development or development supervision,
financing or refinancing or disposition services, will be excluded from such
calculation. In addition, with respect to any Company, it is understood and
agreed that allocations of all costs, including but not limited to the costs of
accounting and asset management, and uses of capital with respect to any asset
or investment shall be made at the sole and absolute discretion of Insignia/ESG.
Such allocations of costs and uses of capital shall be taken into account in
determining the Insignia/ESG Minimum Return and the amount of Proceeds received
from a particular investment with respect to a Company. In the event that the
calculation of the Insignia/ESG Minimum Return or Proceeds is affected by the
terms and conditions of any loans, including but not limited to the existing
line of credit with General Electric Capital Corporation ("GE") in favor of an
Insignia/ESG affiliate in partnership with Blackacre Realty Advisors, then any
calculations made or to be made with respect thereto shall be made by
Insignia/ESG in its sole and absolute discretion. In the event that Proceeds
from any investments or properties secured by the indebtedness evidenced by the
GE line of credit are received by Insignia/ESG but utilized, directly or
indirectly, to reduce such indebtedness, then, at Insignia/ESG's discretion, any
amounts so used shall not be deemed to constitute Proceeds, and your right to
receive any portion of the Member Interest(s) shall not arise until all such
debt has been paid in full.
The additional terms and conditions governing the Member Interest(s) are as
follows:
1) Your rights with respect to the Member Interest(s) assigned to you
hereunder shall vest as follows:
DATE CUMULATIVE AMOUNT VESTED
---- ------------------------
<PAGE>
Page 3
1 Year from Transaction Date 25% of Member Interest(s)
2 Years from Transaction Date 50% of Member Interest(s)
3 Years from Transaction Date 75% of Member Interest(s)
2) In the event that Proceeds are actually received by , or IFG,
respectively, with respect to Insignia/ESG's or IFG's investment in a particular
Company prior to an applicable vesting date, you will be deemed to have been
fully vested with respect to such Proceeds as of the date of receipt of such
Proceeds. Amounts payable with respect to the Member Interest(s), if any, shall
be payable at any time that Proceeds (whether derived from a sale, refinancing
or other disposition of all or part of any interest in a building, project or in
or in respect of the partnership or other entity that serves as the owner
thereof, as the case may be) are actually received by Insignia/ESG and shall
include any sums distributed from time to time from the proceeds of net
operating income.
3) Your Member Interest(s) shall be subject to vesting, reduction or
termination only if at any time you no longer are employed by Insignia/ESG or an
affiliate thereof due to either the termination of your employment for cause or
your voluntary resignation (each, a "Termination") and any other termination of
your employment shall not reduce or impair your right to receive payment with
respect to your Member Interest(s). Any Termination shall extinguish any rights
with respect to any unvested portions of the Member Interest(s).
As used herein, "cause" shall mean any action or inaction by you
constituting reasonable cause for termination and shall specifically
include, but not be limited to, (a) your conviction of a felony under state,
federal or foreign law, (b) your breach of any of the provisions of any
agreement between you and Insignia/ESG or any written policy of
Insignia/ESG, (c) failure by you to comply with any material directive of
Insignia/ESG, (d) the taking by you of any action on behalf of Insignia/ESG
without possession of the appropriate authority to take such action, (e) the
taking by you of action in conflict of interest with or its subsidiaries or
affiliates, given your position with Insignia/ESG and its subsidiaries and
affiliates, (f) the usurpation of a corporate opportunity of Insignia/ESG,
its subsidiaries or affiliates, (g) the recurring failure to attend or
participate in meetings as reasonable requested by your supervisor; or (h)
any element of action or inaction constituting cause
<PAGE>
Page 4
under any other written agreement between you and Insignia whether in
existence as of the date hereof or at any time in the future. The grant of
the Member Interest(s) do not confer on you any legal right for continuation
of employment nor shall it interfere with the right of Insignia/ESG to
discharge you at any time regardless of the effect on the Member
Interest(s).
4) Any dispute with respect to this agreement and the Member Interest(s)
shall be governed by the laws of the State of New York and shall, at the option
of Insignia/ESG, be resolved by arbitration on terms and conditions determined
in the reasonable discretion of Insignia/ESG.
Any amounts you receive hereunder may be characterized as ordinary income
for federal tax purposes. However, you may choose to make an election under
Section 83(b) of the Internal Revenue Code which may result in such amounts
being treated as capital gains. Such an election would require to value the
Member Interests assigned to you hereunder and to recognize such value as income
presently. Such election, if made by you, must be made within thirty (30) days
of assignment to you of the Member Interests. In determining a value for the
Member Interests assigned to you hereunder you should take into account all
factors known to you including the fact that the Member Interests are
subordinated to certain returns and subject to vesting and forfeiture. You are
encouraged to consult your tax advisor for guidance on this matter and
Insignia/ESG accepts no responsibility for the manner in which you treat the
Member Interests.
Please acknowledge your understanding of and agreement to the terms set
forth above by executing this agreement in the space indicated below and on the
attached Exhibit A.
Yours truly,
Insignia/ESG, Inc.
By:
--------------------------
Insignia Financial Group, Inc
By:
--------------------------
<PAGE>
Page 5
I understand the terms of the foregoing and agree that the assignment of
the Member Interest(s) shall be governed thereby.
/s/ Stephen B. Siegel Date:
- ------------------------------- -------------------------------
Stephen B. Siegel
<PAGE>
[Date]
Addressee
Dear__________:
In connection with your duties and assistance in connection with
Insignia Commercial Group,Inc's development program, Insignia/ESG, Inc.
("Insignia/ESG") has agreed to provide you with potential incentive
compensation. This letter will serve as evidence of Insignia/ESG's agreement to
provide you with certain potential incentive compensation in connection with
your role in Insignia/ESG's development activities. This potential incentive
compensation is in the form of a right to receive a payment (a "Net Profits
Right") equal to a percentage of "Net Profits" as defined herein with respect to
the development projects described on the attached Exhibit A (individually, a
"Development Project" and collectively, "Development Projects").
References to "Insignia/ESG" herein shall mean and refer to Insignia
Commercial Investments, Inc. ("ICIG") and/or Insignia /ESG, Inc. and/or any
parent, sister or wholly owned subsidiary entity except that your right to
receive any payments hereunder shall run solely to and be solely the obligation
of Insignia/ESG, Inc.
With respect to any Development Project undertaken by Insignia/ESG in
partnership with a third party, "Net Profits" shall mean the incremental amount
of distributions allocated and actually paid to Insignia/ESG pursuant to the
applicable partnership agreement, or operating agreement in the case of a
limited liability company, over and above what would have been allocated to
Insignia/ESG based on its pro-rata interest in the partnership or joint venture
as determined by the amount of its investment, such incremental amount being
commonly referred to as the "promote" or "promoted interest". With respect to
any Development Project undertaken by Insignia/ESG on its own behalf without any
partners, "Net Profits" shall mean the "Imputed Promote" as hereinafter defined.
The Imputed Promote means the total amount actually received by Insignia/ESG
with respect to a Development Project less the sum of a)100% of Insignia/ESG's
original investment or capital contribution , any additional capital
contributions, an imputed development cost of 1.75% of project costs and any
costs reasonably allocated to such Development Project (the "Insignia
Investment") plus an 10% return per annum thereon; and b) 75% of all additional
amounts actually received by Insignia/ESG above the foregoing amounts (the
"Insignia/ESG Minimum Return"). Notwithstanding anything to the contrary
contained herein, Net Profits shall be reduced by any amounts paid to third
parties , including but not limited to, payments to Avex or its affiliates in
connection with the Development Projects known as One Telecom and Gateway One.
<PAGE>
For the purposes of this Agreement, any entity in which Insignia/ESG
participates in ownership of a Development Project with a non-affiliated third
party shall be deemed to be a "partnership" and such non-affiliated third party
shall be deemed to be a "partner" irrespective of whether such entity is a
general or limited partnership, joint venture, limited liability company, or
other form of entity.
Amounts payable with respect to the Net Profits Right, if any, shall
be payable at any time that Net Profits (whether derived from a sale,
refinancing or other disposition of all or part of any interest in a building,
project or in or in respect of the partnership or other entity that serves as
the owner thereof, as the case may be) are actually received by Insignia/ESG and
shall include any sums distributed from time to time from the proceeds of net
operating income.
In calculating Insignia/ESG's return and the Insignia/ESG Minimum
Return, any amounts to which Insignia/ESG receives or may be entitled which are
compensation for performing services including, but not limited to, acquisition
services, advisory, consulting, property management, asset management, leasing,
construction supervision or management, development or development supervision,
financing or refinancing or disposition services, will be excluded as proceeds
in connection with such calculation.
The right to receive payments with respect to the Net Profits Right
described herein are solely a right to receive payment, if and when payment is
actually received by Insignia/ESG subject to all of the terms and conditions,
including but not limited to potential forfeiture, set forth herein. Under no
circumstances are you intended to be or will you be deemed to be a partner with
Insignia/ESG or any other person or entity in or with respect to any
partnerships or otherwise. Insignia/ESG has and shall have no duty to you not
expressly set forth in this letter as a result of the Net Profits Right,
fiduciary or otherwise, and may take whatever actions (except actions intended
and undertaken for the sole purpose of the reduction or elimination of any
payment otherwise due hereunder) it deems appropriate in its sole and absolute
discretion including, but not limited to, reducing or forfeiting its entire
interest in any or all of the Development Projects without any consideration to
anyone, including, but not limited to, you.
Insignia/ESG shall, upon request, provide you with such information as
you may reasonably request to calculate and verify the determination of your
right to receive any payments with respect to the Net Profits Right regarding
any project and/or transaction, shall upon request provide you with a copy of
each report in respect of each project as and when such report is prepared (and
in any event no later than when such report is available to investors and other
project participants), and shall also promptly deliver written notice to you of
any sale, financing or other capital transaction in respect of any project
subject to this agreement.
In the event that Net Profits are actually received by Insignia/ESG
prior to an applicable vesting date, you will be deemed to have been fully
vested with respect to such Net Profits as of the date of receipt of such Net
Profits. . Involuntary termination for "cause" shall immediately extinguish any
rights with respect to any unvested portions of the Member Interest(s) and
should Employee voluntarily terminate his employment with Insignia/ESG he shall,
as a condition to continued vesting, be reasonably available to Insignia/ESG to
consult with Insignia/ESG with respect to the Development Projects. As used
herein, "cause" shall mean any element of action or inaction constituting cause
under any applicable written agreement between you and Insignia/ESG in existence
as of the date of such determination. The Net Profits Rights do not
<PAGE>
confer on you any legal right for continuation of employment nor shall it
interfere with the right of Insignia/ESG to discharge you at any time.
In the event of any Termination, your Net Profits Right and rights to
payments, if any, which would have otherwise accrued subsequent to the
termination of your employment in respect of any project and your Net Profits
Right will depend on the status of the Development Project on the date of
Termination If any of the "Vesting Events" described below has occurred on or
before the date of Termination, you shall be entitled to receive the portion of
your Net Profits Right equal to the "Vested Percentage of Net Profits" specified
opposite each of such Vesting Event, as determined in accordance with the
following vesting schedule:
VESTED PERCENTAGE OF
VESTING EVENTS NET PROFITS RIGHTS
-------------- --------------------
Closing of land acquisition 20%
Certificate of Occupancy 70%
2 Years from First Occupancy or Sale 100%
Notwithstanding the foregoing vesting schedule, your Net Profits Rights
shall vest at the greater of: i) the amount set forth in the foregoing vesting
schedule; and ii) 1% for each percentage of net rentable area of the building
that is leased, up to a maximum of 95%. In addition, the vesting events
described in the foregoing vesting schedule are cumulative and therefore, for
example, should a building be sold on or before a Termination, the entire Net
Profits Right with respect to the building would be 100% vested, irrespective of
whether any of the other described vesting events had occurred. In any event, if
a Termination occurs after two years from the initial occupancy of the subject
building, the entire Net Profits Right with respect to such building shall be
100% vested.
This letter sets forth our entire agreement with respect to the matters
addressed herein, shall be governed by the laws of the State of New York, and
may not be modified, amended, or waived except with the express written
agreement of both parties.
Please acknowledge your understanding of and agreement to the terms set
forth above by executing this agreement in the space indicated below and on
Exhibit A hereto. This grant and any rights you are to receive hereunder shall
be null and void unless you have executed a counterpart of both this agreement
and Exhibit A and delivered the same to the undersigned.
Yours truly,
Insignia/ESG,Inc.
By: _________________________
<PAGE>
I understand the terms of the foregoing and agree that the Net Profits
Right shall be governed thereby.
_______________________________ Date: _________________________
<PAGE>
SCHEDULE I
ASSIGNEE
- --------
Andrew L. Farkas
James A. Aston
Ronald Uretta
Frank M. Garrison
<PAGE>
FIRST AMENDMENT
THIS FIRST AMENDMENT (the "Amendment"), to the Credit Agreement referred to
below is entered into as of the 19th day of March, 1999, by and among INSIGNIA
FINANCIAL GROUP, INC. (FORMERLY KNOWN AS "INSIGNIA/ESG HOLDINGS, INC."), a
corporation organized under the laws of Delaware (the "Borrower"), THE LENDERS
SIGNATORY HERETO (collectively, the "Lenders"), FIRST UNION NATIONAL BANK, as
Administrative Agent, and LEHMAN COMMERCIAL PAPER INC., as Syndication Agent
(collectively, the "Agents").
STATEMENT OF PURPOSE
--------------------
The Borrower, the Lenders and the Agents are parties to a certain Credit
Agreement dated as of October 22, 1998 (the "Credit Agreement"), pursuant to
which the Lenders have agreed to make, and have made, certain Loans to the
Borrower.
The Borrower has requested the Lenders to amend the Credit Agreement in the
respects provided in this Amendment.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, the parties hereto hereby agree as follows:
I. AMENDMENT OF CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement is hereby amended by deleting
the definitions of "Alternative Currency" and "Alternative Currency
Commitment" in their entirety and by substituting therefor the following:
"Alternative Currency" means Pounds Sterling, provided that up to
an aggregate of the lesser of $20,000,000 or the Alternative Currency
Commitment may be denominated in Canadian Dollars, Dutch Guilders,
French Francs or Deutsche Marks, and, with the prior written consent
of the Administrative Agent and each of the Lenders, any other lawful
currency (other than Dollars) which is freely transferable and
convertible into Dollars in the United States currency market and
freely available to all of the Lenders in the London interbank deposit
market.
"Alternative Currency Commitment" means Fifty Million Dollars
($50,000,000), as such amount may be reduced or modified at any time
or from time to time pursuant to the terms hereof, provided that up to
an aggregate of the lesser of Twenty Million Dollars ($20,000,000) or
the Alternative Currency Commitment may at any time be denominated in
Canadian Dollars, Dutch Guilders, French Francs or Deutsche Marks.
(b) Section 4.12(b) of the Credit Agreement is hereby amended by
deleting the first sentence thereof in its entirety and by substituting
therefor the following:
<PAGE>
If, as result of the implementation of the European economic and
monetary union ("EMU"), (i) any Alternative Currency ceases to be the
lawful currency of the nation issuing such currency and is replaced by
the euro or (ii) any Alternative Currency and the euro are at the same
time recognized by any Governmental Authority of the nation issuing
such Alternative Currency as lawful currency of such nation, then (A)
any Loan in the currency of a Participating Member State shall be made
in the euro, provided that any loan may, if so requested by the
Borrower, be made in the National Currency Unit (based upon the fixed
exchange rate) of any Participating Member State so long as such
National Currency Unit continues to be available as legal tender for
obligations of the same type or character as the obligations set forth
in this Agreement, is freely convertible and is not subject to
exchange controls; and (B) any amount payable hereunder by the
Borrower in such Alternative Currency shall instead be payable in the
euro and the amount so payable shall be determined by translating the
amount so payable in such other Alternative Currency to the euro at
the exchange rate recognized by the European central bank (or such
other governmental or regulatory authority designated by the EMU for
establishing such exchange rate) for the purpose of implementing the
EMU, provided that any amount payable may, if so requested by the
Borrower, be payable in the National Currency Unit (based upon the
fixed exchange rate) of any Participating Member State so long as such
National Currency Unit continues to be available as legal tender for
obligations of the same type or character as the obligations set forth
in this Agreement, is freely convertible and is not subject to
exchange controls.
II. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to
the Agents and Lenders that:
(a) The execution and delivery of this Amendment by the Borrower and
the performance of the Credit Agreement, as amended and modified by this
Amendment, and the other Loan Documents, do not and will not violate any
law, rule or regulation, or constitute a breach of the Articles of
Incorporation, Bylaws or corporate resolutions of the Borrower or any
agreement to which the Borrower is a party or by which its assets are
bound. The Credit Agreement, as amended and modified by this Amendment, and
the other Loan Documents, constitute legal, valid and binding obligations
of the Borrower, enforceable in accordance with their respective terms.
(b) No Default or Event of Default exists.
III. GENERAL PROVISIONS.
(a) Limited Amendment. Except as otherwise provided herein, the Credit
Agreement and each other Loan Document shall continue to be, and shall remain,
in full force and effect. This Amendment shall not be deemed (i) to be a waiver
of, or consent to, or a modification or amendment of, any other term or
condition of the Credit Agreement or of any other term or condition of the other
Loan Documents or (ii) to prejudice any other right or rights which the
2
<PAGE>
Agents or any Lender may now have or may have in the future under or in
connection with the Credit Agreement or the other Loan Documents or any of the
instruments or agreements referred to therein, as the same may be amended or
modified from time to time.
(b) Counterparts. This Amendment may be executed by one or more of the
parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(c) Definitions. All capitalized terms used and not defined herein shall
have the meanings given thereto in the Credit Agreement.
(d) GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(e) Expenses. All expenses incurred in connection with the preparation and
negotiation of this Amendment and with the fulfillment of the requirements
thereunder shall be borne by the Borrower. If any documentary or recording tax
should be assessed or the affixing of any stamps be required by local, state or
federal governments, the Borrower shall pay the tax and cost of such stamps.
(f) Conflicting Terms. In the event of any conflict or inconsistency
between the terms of this Amendment and the Credit Agreement and the other Loan
Documents, this Amendment shall control.
(g) Cross-References. All references in the Credit Agreement, or in any
other Loan Document, to the terms "Credit Agreement" or "Agreement" or other
similar reference shall be deemed to refer to the Credit Agreement as amended or
modified by this Amendment. In addition, all notices, requests, certificates and
other instruments executed and delivered after the execution and delivery of
this Amendment may refer to the Credit Agreement without making specific
reference to this Amendment, but nevertheless all such references shall include
this amendment of the Credit Agreement unless the context otherwise requires.
(h) Successors and Assigns. Whenever in this Amendment any of the parties
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such party and all covenants, provisions and agreements by or on
behalf of the Borrower which are contained in this Amendment shall inure to the
benefit of the successors and assigns of the Agents and Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
INSIGNIA FINANCIAL GROUP, INC.
(formerly known as Insignia/ESG Holdings, Inc.)
By: /s/James A. Aston
--------------------------------
Name: James A. Aston
--------------------------------
Title: Chief Financial Officer
--------------------------------
3
<PAGE>
FIRST UNION NATIONAL BANK, as
Administrative Agent and Lender
By: /s/Chuck P. Cecil
-------------------------------
Name: Chuck P. Cecil
-------------------------------
Title: Senior VP
-------------------------------
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and Lender
By: /s/Michele Swanson
------------------------------
Name: Michele Swanson
------------------------------
Title: Authorized Signatory
------------------------------
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By: /s/Robert M. Biringer
-------------------------------
Name: Robert M. Biringer
-------------------------------
Title: _Exec. VP
-------------------------------
THE BANK OF NEW YORK
By: /s/Anthony Verzi
------------------------------
Name: Anthony Verzi
------------------------------
Title: Vice President
------------------------------
BARCLAYS BANK PLC
By: /s/Matthew Tuck
------------------------------
Name: Matthew Tuck
------------------------------
Title: Associate Director
-----------------------------
4
<PAGE>
LASALLE NATIONAL BANK
By: /s/Julie Anne Eck
------------------------------------
Name: Julie Anne Eck
------------------------------------
Title: Commercial Banking Officer
------------------------------------
NATIONAL CITY BANK
By: /s/Andrew J. Wacshaw
------------------------------
Name: Andrew J. Wacshaw
------------------------------
Title: Vice President
------------------------------
NATIONSBANK, N.A.
By: /s/Ann K. Robinson
------------------------------
Name: Ann K. Robinson
------------------------------
Title: Vice President
------------------------------
5
<PAGE>
SECOND AMENDMENT
THIS SECOND AMENDMENT (the "Amendment"), to the Credit Agreement
referred to below is entered into as of the 21st day of July, 1999, by and among
INSIGNIA FINANCIAL GROUP, INC. (FORMERLY KNOWN AS "INSIGNIA/ESG HOLDINGS,
INC."), a corporation organized under the laws of Delaware (the "Borrower"), THE
LENDERS SIGNATORY HERETO (collectively, the "Lenders"), FIRST UNION NATIONAL
BANK, as Administrative Agent, and LEHMAN COMMERCIAL PAPER INC., as Syndication
Agent (collectively, the "Agents").
STATEMENT OF PURPOSE
The Borrower, the Lenders and the Agents are parties to a certain
Credit Agreement dated as of October 22, 1998 (as amended by the First Amendment
dated March 19, 1999 and as further amended, restated, supplemented or otherwise
modified the "Credit Agreement"), pursuant to which the Lenders have agreed to
make, and have made, certain Extensions of Credit to the Borrower.
The Borrower has requested the Lenders to amend the Credit Agreement in
the respects provided in this Amendment.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, the parties hereto hereby agree as follows:
I. AMENDMENT OF CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement is hereby amended by
deleting the definitions of "Alternative Currency" and "Alternative
Currency Commitment" in their entirety and by substituting therefor the
following:
"Alternative Currency" means Pounds Sterling, the
euro or Canadian Dollars, and, with the prior written consent
of the Administrative Agent and each of the Lenders, any other
lawful currency (other than Dollars) which is freely
transferable and convertible into Dollars in the United States
currency market and freely available to all of the Lenders in
the London interbank deposit market.
"Alternative Currency Commitment" means Fifty Million
Dollars ($50,000,000), as such amount may be reduced or
modified at any time or from time to time pursuant to the
terms hereof, provided that only up to Twenty Million Dollars
($20,000,000) of the Alternative Currency Loans made under the
Alternative Currency Commitment may at any time be denominated
in Canadian Dollars.
<PAGE>
(b) Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of "Co-Investment Entity" in its entirety and
inserting the following in lieu thereof:
"Co-Investment Entity" means any corporation, limited
liability company, partnership or other form of entity (i) in
which the Borrower or a Subsidiary of the Borrower owns an
equity interest pursuant to a joint venture or similar
arrangement with one or more Persons who own more than fifty
percent (50%) of the ownership or other equity interests in
such entity, (ii) which has as its sole business the ownership
of real property, the rendering of services and furnishing of
products customarily provided by landlords, and the ownership
of the debt of entities which own real property, and (iii)
which does not engage in any real estate development
activities for its own account.
(c) Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of "Debt" in its entirety and inserting the
following in lieu thereof:
"Debt" means, with respect to the Borrower and its
Subsidiaries at any date and without duplication, the sum of
the following calculated in accordance with GAAP: (a) all Debt
for Money Borrowed, (b) all obligations to pay the deferred
purchase price of property or services of any such Person,
except trade payables arising in the ordinary course of
business not more than ninety (90) days past due, (c) all Debt
of any Person secured by a Lien on any asset of the Borrower
and its Restricted Subsidiaries, (d) all Contingent
Obligations of any such Person with respect to Debt, (e) Debt
in the form of earn-out obligations to be paid in cash to the
extent such earn-out obligations have been incurred and are
required to be included on a Consolidated balance sheet of the
Borrower and its Restricted Subsidiaries prepared in
accordance with GAAP and (f) all net obligations incurred by
any such Person pursuant to Hedging Agreements.
Notwithstanding the foregoing, there shall be excluded from
the definition of Debt: (a) all obligations for the deferred
purchase price of property to the extent the obligation of the
Borrower or any of its Subsidiaries is secured by cash
deposits access to which is restricted to the seller of such
property, or any third party guarantor, or any of their
respective successors and assigns; (b) Debt incurred in
connection with an arbitrage loan facility between the
Borrower and Wells Fargo Bank in an amount not to exceed
$20,000,000, to the extent the obligation of the Borrower to
repay advances under such loan facility is collateralized at
all times by cash or Cash Equivalents; and (c) guarantee
obligations of the Borrower of up to $10,000,000 on account of
Debt of First Ohio Mortgage Corporation, Inc or any other
Unrestricted Subsidiary with respect to lines of credit, the
proceeds of which are used solely to fund mortgage loans.
2
<PAGE>
(d) Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of "L/C Commitment" in its entirety and by
substituting the following in lieu thereof:
""L/C Commitment" means the lesser of (a) Twenty
Million Dollars ($20,000,000) or (b) the Aggregate
Commitment."
(e) Section 1.1 of the Credit Agreement is hereby amended by
adding the following definition of "Cash Equivalents": in alphabetical
order:
"Cash Equivalents" means investments of the type
permitted pursuant to Section 10.4(b).
(f) Section 9.3 of the Credit Agreement is hereby amended by
deleting such section in its entirety and by substituting the following
in lieu thereof:
"SECTION 9.3 Maximum Leverage. Permit, as of any
fiscal quarter end, the ratio of (a) Total Debt as of such
fiscal quarter end to (b) Total Capitalization as of such
fiscal quarter end to exceed .4 to 1.00."
(g) Section 10.4(e) of the Credit Agreement is hereby amended
by deleting such section in its entirety and inserting the following in
lieu thereof:
(e) investments in or loans to Unrestricted
Subsidiaries, provided that the aggregate amount of such loans
and investments, together with all Contingent Obligations of
the Borrower and its Restricted Subsidiaries on account of
Debt of Unrestricted Subsidiaries shall at no time exceed an
amount equal to twenty percent (20%) of the Consolidated Net
Worth of the Borrower and its Subsidiaries;
(h) Section 10.7(d) of the Credit Agreement is hereby amended
by deleting such section in its entirety and inserting the following in
lieu thereof:
(d) during such time as no Default or Event of
Default shall have occurred and be continuing or would result
therefrom, the Borrower may purchase, redeem or otherwise
acquire (by way of open market purchases, tender offers and/or
put agreements) shares of the capital stock of the Borrower;
provided, that the aggregate amount spent by the Borrower on
account of such purchases, redemptions and other acquisitions
shall not exceed an amount equal to the sum of (i) $17,500,000
plus (ii) twenty-five percent (25%) of the Net Cash Proceeds
of any equity issuance by the Borrower subsequent to the
Closing Date (other than the issuance of capital stock
pursuant to the Borrower's executive stock purchase program)
plus (iii) fifty percent (50%) of the amount realized by the
Borrower from the
3
<PAGE>
exercise subsequent to the Closing Date by third Persons of stock options
granted by the Borrower.
II. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Agents and Lenders that:
(a) The execution and delivery of this Amendment by the
Borrower and the performance of the Credit Agreement, as amended and
modified by this Amendment, and the other Loan Documents, do not and
will not violate any law, rule or regulation, or constitute a breach of
the Articles of Incorporation, Bylaws or corporate resolutions of the
Borrower or any agreement to which the Borrower is a party or by which
its assets are bound. The Credit Agreement, as amended and modified by
this Amendment, and the other Loan Documents, constitute legal, valid
and binding obligations of the Borrower, enforceable in accordance with
their respective terms.
(b) The representations and warranties of the Borrower and its
Subsidiaries contained in Article VI of the Credit Agreement and in the
other Loan Documents are true and correct in all material respects on
and as of the date of this Amendment with the same effect as if made on
and as of such date, except to the extent that such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties were true and correct in all material
respects on and as of such earlier date).
(c) No Default or Event of Default exists.
III. GENERAL PROVISIONS.
(a) Limited Amendment. Except as otherwise provided herein, the Credit
Agreement and each other Loan Document shall continue to be, and shall remain,
in full force and effect. This Amendment shall not be deemed (i) to be a waiver
of, or consent to, or a modification or amendment of, any other term or
condition of the Credit Agreement or of any other term or condition of the other
Loan Documents or (ii) to prejudice any other right or rights which the Agents
or any Lender may now have or may have in the future under or in connection with
the Credit Agreement or the other Loan Documents or any of the instruments or
agreements referred to therein, as the same may be amended or modified from time
to time.
(b) Counterparts. This Amendment may be executed by one or more of the
parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(c) Definitions. All capitalized terms used and not defined herein
shall have the meanings given thereto in the Credit Agreement.
(d) GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4
<PAGE>
(e) Expenses. All expenses incurred in connection with the preparation
and negotiation of this Amendment and with the fulfillment of the requirements
hereunder shall be borne by the Borrower. If any documentary or recording tax
should be assessed or the affixing of any stamps be required by local, state or
federal governments, the Borrower shall pay the tax and cost of such stamps.
(f) Conflicting Terms. In the event of any conflict or inconsistency
between the terms of this Amendment and the Credit Agreement and the other Loan
Documents, this Amendment shall control.
(g) Cross-References. All references in the Credit Agreement, or in any
other Loan Document, to the terms "Credit Agreement" or "Agreement" or other
similar reference shall be deemed to refer to the Credit Agreement as amended or
modified by this Amendment. In addition, all notices, requests, certificates and
other instruments executed and delivered after the execution and delivery of
this Amendment may refer to the Credit Agreement without making specific
reference to this Amendment, but nevertheless all such references shall include
this amendment of the Credit Agreement unless the context otherwise requires.
(h) Successors and Assigns. Whenever in this Amendment any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party and all covenants, provisions and
agreements by or on behalf of the Borrower which are contained in this Amendment
shall inure to the benefit of the successors and assigns of the Agents and
Lenders.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
INSIGNIA FINANCIAL GROUP, INC.
(formerly known as Insignia/ESG Holdings, Inc.)
By: /s/James A. Aston
-------------------------------------------
Name: James A. Aston
Title: Chief Financial Officer
FIRST UNION NATIONAL BANK, as
Administrative Agent and Lender
By: /s/Chuck P. Cecil
-------------------------------------------
Name: Chuck P. Cecil
Title: Senior VP
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and Lender
By: /s/Michele Swanson
-------------------------------------------
Name: Michele Swanson
Title: Authorized Signatory
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By: /s/Robert M. Biringer
-------------------------------------------
Name: Robert M. Biringer
Title: Exec. VP
6
<PAGE>
THE BANK OF NEW YORK
By: /s/Anthony Verzi
-------------------------------------------
Name: Anthony Verzi
Title: Vice President
BARCLAYS BANK PLC
By: /s/Matthew Tuck
-------------------------------------------
Name: Matthew Tuck
Title: Associate Director
LASALLE NATIONAL BANK
By: /s/Julie Anne Eck
-------------------------------------------
Name: Julie Anne Eck
Title: Commercial Banking Officer
NATIONAL CITY BANK
By: /s/Andrew J. Wacshaw
-------------------------------------------
Name: Andrew J. Wacshaw
Title: Vice President
NATIONSBANK, N.A.
By: /s/Ann K. Robinson
-------------------------------------------
Name: Ann K. Robinson
Title: Vice President
7
<PAGE>
AMENDMENT No. 1, dated as of August 30, 1999, to WARRANT AGREEMENT
dated as of September 15, 1998 (the "Original Agreement") between Insignia
Financial Group, Inc., a Delaware corporation formerly known as Insignia/ESG
Holdings, Inc. (the "Corporation"), and APTS PARTNERS, L.P., a Delaware limited
partnership ("APTS"), providing for the issuance of warrants to purchase 316,667
shares of common stock, par value $.01 per share, of the Corporation.
WHEREAS, the Corporation and APTS desire to extend the Expiration Date
(as defined in the Original Agreement) of the Warrants provided for in the
Original Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Terms used herein shall have the meanings set forth in the Original
Agreement, unless otherwise defined herein.
2. The Expiration Date of the Warrants is hereby extended from
September 1, 1999 to September 15, 1999.
3. Except as set forth in this Amendment No. 1, the Original Agreement
is hereby ratified and conformed in all respects.
4. Any Warrant Certificate evidencing Warrants need not be amended to
reflect the change in Expiration Date provided for herein in order to give full
effect to such change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to the Original Warrant Agreement to be duly executed and delivered by their
proper and duly authorized officers, as of the date and year first above
written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
---------------------------------
Name: Adam B. Gilbert
Title: Executive Vice President
APTS PARTNERS, L.P.
By: APTS GP Partner, L.P., its general partner
By: APTS Acquisition Corporation, its general
partner
By: /s/ John R. S. Jacobsson
---------------------------------
Name: John R. S. Jacobsson
Title: Vice President
<PAGE>
AMENDMENT No. 2, dated as of September 15, 1999, to WARRANT AGREEMENT
dated as of September 15, 1998, as previously amended by Amendment No. 1 dated
as of August 30, 1999 (as amended, the "Original Agreement") between Insignia
Financial Group, Inc., a Delaware corporation formerly known as Insignia/ESG
Holdings, Inc. (the "Corporation"), and APTS Partners, L.P., a Delaware limited
partnership ("APTS"), providing for the issuance of warrants to purchase 316,667
shares of common stock, par value $.01 per share, of the Corporation.
WHEREAS, pursuant to that certain letter agreement dated the date
hereof, the Corporation and APTS desire to extend the Expiration Date (as
defined in the Original Agreement) of the Warrants provided for in the Original
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Terms used herein shall have the meanings set forth in the Original
Agreement, unless otherwise defined herein.
2. The Expiration Date of the Warrants is hereby extended from
September 15, 1999 to June 1, 2000.
3. Except as set forth in this Amendment No. 2, the Original Agreement
is hereby ratified and conformed in all respects.
4. Any Warrant Certificate evidencing Warrants need not be amended to
reflect the change in Expiration Date provided for herein in order to give full
effect to such change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2
to the Original Agreement to be duly executed and delivered by their proper and
duly authorized officers, as of the date and year first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Andrew L. Farkas
-------------------------------------------
Name: Andrew L. Farkas
Title: Chairman and Chief Executive Officer
APTS PARTNERS, L.P.
By: APTS GP Partners, L.P., its general partner
By: APTS Acquisition Corporation, its general
partner
By: /s/ John R. S. Jacobsson
-------------------------------------------
Name: John R. S. Jacobsson
Title: Vice President
<PAGE>
AMENDMENT No. 1, dated as of September 15, 1999, to WARRANT AGREEMENT
dated as of September 15, 1998 (the "Original Agreement") between Insignia
Financial Group, Inc., a Delaware corporation formerly known as Insignia/ESG
Holdings, Inc. (the "Corporation"), and APTS Partners, L.P., a Delaware limited
partnership ("APTS"), providing for the issuance of warrants to purchase 293,333
shares of common stock, par value $.01 per share, of the Corporation.
WHEREAS, pursuant to that certain letter agreement dated the date
hereof, the Corporation and APTS desire to shorten the Expiration Date (as
defined in the Original Agreement) of the Warrants provided for in the Original
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Terms used herein shall have the meanings set forth in the Original
Agreement, unless otherwise defined herein.
2. The Expiration Date of the Warrants is hereby shortened from January
17, 2002 to August 1, 2000.
3. Except as set forth in this Amendment No. 1, the Original Agreement
is hereby ratified and confirmed in all respects.
4. Any Warrant Certificate evidencing Warrants need not be amended to
reflect the change in Expiration Date provided for herein in order to give full
effect to such change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to the Original Agreement to be duly executed and delivered by their proper and
duly authorized officers, as of the date and year first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
-------------------------------------------
Name: Adam B. Gilbert
Title: Executive Vice President
APTS PARTNERS, L.P.
By: APTS GP Partners, L.P., its general partner
By: APTS Acquisition Corporation, its general
partner
By: /s/ John R. S. Jacobsson
-------------------------------------------
Name: John R. S. Jacobsson
Title: Vice President
<PAGE>
AMENDMENT No. 1, dated as of September 14, 1999, to WARRANT AGREEMENT
dated as of September 15, 1998 (the "Original Agreement") between Insignia
Financial Group, Inc., a Delaware corporation formerly known as Insignia/ESG
Holdings, Inc. (the "Corporation"), and APTS Partners, L.P., a Delaware limited
partnership ("APTS"), providing for the issuance of warrants to purchase 266,667
shares of common stock, par value $.01 per share, of the Corporation.
WHEREAS, pursuant to that certain letter agreement dated the date
hereof, the Corporation and APTS desire to extend the Expiration Date (as
defined in the Original Agreement) of the Warrants provided for in the Original
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Terms used herein shall have the meanings set forth in the Original
Agreement, unless otherwise defined herein.
2. The Expiration Date of the Warrants is hereby extended from May 1,
2000 to June 1, 2000.
3. Except as set forth in this Amendment No. 1, the Original Agreement
is hereby ratified and confirmed in all respects.
4. Any Warrant Certificate evidencing Warrants need not be amended to
reflect the change in Expiration Date provided for herein in order to give full
effect to such change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to the Original Agreement to be duly executed and delivered by their proper and
duly authorized officers, as of the date and year first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Andrew L. Farkas
-------------------------------------------
Name: Andrew L. Farkas
Title: Chairman and Chief Executive Officer
APTS PARTNERS, L.P.
By: APTS GP Partners, L.P., its general partner
By: APTS Acquisition Corporation, its general
partner
By: /s/ John R. S. Jacobsson
-------------------------------------------
Name: John R. S. Jacobsson
Title: Vice President
<PAGE>
AMENDMENT No. 1, dated as of December 18, 1998, to WARRANT AGREEMENT
dated as of September 15, 1998 (the "Original Agreement") between Insignia
Financial Group, Inc., a Delaware corporation formerly known as Insignia/ESG
Holdings, Inc. (the "Corporation"), and APTS V, L.L.C., a Delaware limited
liability company ("APTS"), providing for the issuance of warrants to purchase
51,944 shares of common stock, par value $.01 per share, of the Corporation.
WHEREAS, the Corporation and APTS desire to extend the Expiration Date
(as defined in the Original Agreement) of the Warrants provided for in the
Original Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Terms used herein shall have the meanings set forth in the Original
Agreement, unless otherwise defined herein.
2. The Expiration Date of the Warrants is hereby extended from January
1, 1999 to September 1, 1999.
3. Except as set forth in this Amendment No. 1, the Original Agreement
is hereby ratified and conformed in all respects.
4. Any Warrant Certificate evidencing Warrants need not be amended to
reflect the change in Expiration Date provided for herein in order to give full
effect to such change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to the Original Warrant Agreement to be duly executed and delivered by their
proper and duly authorized officers, as of the date and year first above
written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Andrew L. Farkas
-------------------------------------------
Name: Andrew L. Farkas
Title: Chairman and Chief Executive Officer
APTS V, L.L.C.
By: APTS Partners, L.P., the managing member
By: APTS GP Partner, L.P., its general partner
By: APTS Acquisition Corporation, its general
partner
By: /s/ John R. S. Jacobsson
-------------------------------------------
Name: John R. S. Jacobsson
Title: Vice President
<PAGE>
AMENDMENT No. 2, dated as of August 30, 1999, to WARRANT AGREEMENT
dated as of September 15, 1998, as previously amended by Amendment No. 1 dated
as of December 18, 1998 (the "Original Agreement"), between Insignia Financial
Group, Inc., a Delaware corporation formerly known as Insignia/ESG Holdings,
Inc. (the "Corporation"), and APTS V, L.L.C., a Delaware limited liability
company ("APTS"), providing for the issuance of warrants to purchase 51,944
shares of common stock, par value $.01 per share, of the Corporation.
WHEREAS, the Corporation and APTS desire to extend the Expiration Date
(as defined in the Original Agreement) of the Warrants provided for in the
Original Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Terms used herein shall have the meanings set forth in the Original
Agreement, unless otherwise defined herein.
2. The Expiration Date of the Warrants is hereby extended from
September 1, 1999 to September 15, 1999.
3. Except as set forth in this Amendment No. 2, the Original Agreement
is hereby ratified and conformed in all respects.
4. Any Warrant Certificate evidencing Warrants need not be amended to
reflect the change in Expiration Date provided for herein in order to give full
effect to such change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2
to the Original Warrant Agreement to be duly executed and delivered by their
proper and duly authorized officers, as of the date and year first above
written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
-------------------------------------------
Name: Adam B. Gilbert
Title: Executive Vice President
APTS V, L.L.C.
By: APTS Partners, L.P., the managing member
By: APTS GP Partner, L.P., its general partner
By: APTS Acquisition Corporation, its general
partner
By: /s/ John R. S. Jacobsson
-------------------------------------------
Name: John R. S. Jacobsson
Title: Vice President
<PAGE>
AMENDMENT No. 3, dated as of September 15, 1999, to WARRANT AGREEMENT
dated as of September 15, 1998, as previously amended by Amendment No. 1 dated
as of December 18, 1998 and Amendment No. 2 dated as of August 30, 1999 (as
amended, the "Original Agreement") between Insignia Financial Group, Inc., a
Delaware corporation formerly known as Insignia/ESG Holdings, Inc. (the
"Corporation"), and APTS V, L.L.C., a Delaware limited liability company
("APTS"), providing for the issuance of warrants to purchase 51,944 shares of
common stock, par value $.01 per share, of the Corporation.
WHEREAS, pursuant to that certain letter agreement dated the date
hereof, the Corporation and APTS desire to extend the Expiration Date (as
defined in the Original Agreement) of the Warrants provided for in the Original
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Terms used herein shall have the meanings set forth in the Original
Agreement, unless otherwise defined herein.
2. The Expiration Date of the Warrants is hereby extended from
September 15, 1999 to August 1, 2000.
3. Except as set forth in this Amendment No. 3, the Original Agreement
is hereby ratified and confirmed in all respects.
4. Any Warrant Certificate evidencing Warrants need not be amended to
reflect the change in Expiration Date provided for herein in order to give full
effect to such change.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3
to the Original Agreement to be duly executed and delivered by their proper and
duly authorized officers, as of the date and year first above written.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
-------------------------------------------
Name: Adam B. Gilbert
Title: Executive Vice President
APTS V, L.L.C.
By: APTS Partners, L.P., the managing member
By: APTS GP Partners, L.P., its general partner
By: APTS Acquisition Corporation, its general
partner
By: /s/ John R. S. Jacobsson
-------------------------------------------
Name: John R. S. Jacobsson
Title: Vice President
<PAGE>
STOCK SUBSCRIPTION AGREEMENT
AMONG
INSIGNIA FINANCIAL GROUP, INC.
and
THE PURCHASERS NAMED HEREIN
Dated as of February 9, 2000
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C>
Page
----
ARTICLE I DEFINITIONS.................................................................................1
1.1. Definitions..................................................................................1
1.2. Terms Generally..............................................................................7
ARTICLE II PURCHASE, SALE AND EXCHANGE OF SHARES........................................................7
2.1. Agreement to Purchase and Sell...............................................................7
2.2. Sale Closing.................................................................................7
ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY..............................................8
3.1. Organization; Power; Qualification...........................................................8
3.2. Capitalization...............................................................................8
3.3. Subsidiaries.................................................................................9
3.4. Authorization................................................................................9
3.5. No Violation; Consents.......................................................................9
3.6. Compliance with Law; Governmental Approvals.................................................10
3.7. Litigation..................................................................................10
3.8. SEC Documents, Financial Statements.........................................................11
3.9. Debt and Contingent Obligations.............................................................12
3.10. Tax Returns and Payments....................................................................12
3.11. ERISA.......................................................................................12
3.12. Absence of Defaults.........................................................................13
3.13. Environmental Matters.......................................................................13
3.14. Material Contracts..........................................................................15
3.15. Titles to Properties........................................................................15
3.16. Insurance...................................................................................15
3.17. Employee Relations..........................................................................15
3.18. Material Disclosure.........................................................................15
3.19. No Broker...................................................................................16
3.20. Intellectual Property Matters...............................................................16
3.21. Minute Books................................................................................16
3.22. Liens.......................................................................................16
3.23. Government Regulation.......................................................................16
3.24. Financial Statements........................................................................16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...........................................17
4.1. Organization; Authorization..................................................................17
4.2. No Violation; Consents.......................................................................17
4.3. Funds........................................................................................18
4.4. Status.......................................................................................18
4.5. Investment Representation....................................................................18
4.6. No Broker....................................................................................18
4.7. Litigation...................................................................................18
i
<PAGE>
ARTICLE V COVENANTS OF THE COMPANY...................................................................19
5.1. Securities Compliance.......................................................................19
ARTICLE VI ADDITIONAL AGREEMENTS OF THE PARTIES......................................................19
6.1. Restrictive Legend..........................................................................19
ARTICLE VII CONDITIONS TO THE SALE CLOSING...........................................................20
7.1. Conditions to Obligations of the Purchasers.................................................20
7.2. Conditions to Obligations of the Company....................................................22
ARTICLE VIII MISCELLANEOUS...........................................................................22
8.1. Survival of Representations, Warranties and Agreements......................................22
8.2. Notices.....................................................................................23
8.3. Complete Agreement..........................................................................23
8.4. Binding Notice of Agreement; No Third Party Beneficiary.....................................23
8.5. Modifications, Amendments and Waivers.......................................................24
8.6. Counterparts................................................................................24
8.7. Expenses....................................................................................24
8.8. Indemnification.............................................................................24
8.9. Nominee; Benefits...........................................................................26
8.10. Governing Law...............................................................................26
8.11. Headings....................................................................................26
8.12. Severability................................................................................26
8.13. Assignment..................................................................................26
EXHIBITS
- --------
Exhibit A Form of Certificate of Designation
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Opinion of Proskauer Rose LLP
SCHEDULES
- ---------
Schedule 2.2(b) Wire Transfer Instructions
Schedule 3.1 Company and Subsidiaries
Schedule 3.2 Capitalization
Schedule 3.7 Litigation
Schedule 3.9 Debt and Contingent Obligations
Schedule 3.11 Employee Benefit Plans
Schedule 3.14 Material Contracts
</TABLE>
ii
<PAGE>
STOCK SUBSCRIPTION AGREEMENT
STOCK SUBSCRIPTION AGREEMENT (the "Agreement"), dated as of February 9,
2000, by and among Insignia Financial Group, a Delaware corporation (the
"Company"), and the Purchasers specified on the signature pages to this
Agreement (the "Purchasers").
WHEREAS, the Company desires to issue and sell 250,000 shares of Preferred
Stock (for an aggregate purchase price of $25,000,000); and
WHEREAS, the Purchasers desire to subscribe for and purchase the securities
described above upon the terms and subject to the conditions specified herein
(the "Sale Transaction").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
"Actual Knowledge" means information actually known to Andrew L. Farkas,
Chairman of the Board and Chief Executive Officer; James A. Aston, Chief
Financial Officer; Ronald Uretta, Chief Operating Officer and Treasurer; Adam B.
Gilbert, General Counsel and Secretary; or Stephen Siegel, President, or any
other individual hereafter holding the office of the Company currently held by
such individuals, in each case at the date of determination.
"Affiliate" means, with respect to any Person, any other Person (other than
a Subsidiary of such first Person) which directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, such first Person or any of its Subsidiaries.
"Applicable Law" means in respect of any Person all provisions of
constitutions, statutes, laws, rules, treaties, regulations and orders of all
Governmental Authorities and all orders and decrees of all courts and
arbitrators applicable to such Person.
"Blue Sky Laws" means the state securities and takeover laws.
"Capital Lease" means, with respect to the Company and its Subsidiaries,
any lease of any property that is, in accordance with GAAP, classified and
accounted for as a capital lease on a Consolidated balance sheet of the Company
and its Subsidiaries.
<PAGE>
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock or any and all
equivalent ownership interests in a Person (other than a corporation).
"Certificate of Designation" means the Certificate of Designation of
Convertible Preferred Stock, attached hereto as Exhibit A, filed with the
Secretary of State of the State of Delaware on February 9, 2000.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Consolidated" means, when used with reference to financial statements or
financial statement items of the Company and its Subsidiaries, such statements
or items on a consolidated basis in accordance with applicable principles of
consolidation under GAAP.
"Contingent Obligation" means, with respect to any Person, without
duplication, any obligation, contingent or otherwise, of such Person pursuant to
which such Person has directly or indirectly guaranteed any Debt or other
material asserted payment obligation of any other Person and, without limiting
the generality of the foregoing, any obligation, direct or indirect, contingent
or otherwise, of such first Person (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or other obligation (whether
arising by agreement to keep well, to purchase assets, goods, securities or
services or to take-or-pay) or (b) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term Contingent Obligation shall not include (i)
endorsements for collection or deposit in the ordinary course of business and
(ii) earn-out obligations (which are included in Debt).
"Debt" means, with respect to the Company and its Subsidiaries at any date
and without duplication, the sum of the following calculated in accordance with
GAAP: (a) all Debt for Money Borrowed, (b) all obligations to pay the deferred
purchase price of property or services of any such Person, except trade payables
arising in the ordinary course of business not more than ninety (90) days past
due, (c) all Debt of any Person secured by a Lien on any asset of the Company
and its Restricted Subsidiaries, (d) all Contingent Obligations of any such
Person with respect to Debt, (e) the Company's reasonable estimate of the
aggregate liability of the Company and its Restricted Subsidiaries with respect
to all earn-out obligations and (f) all net obligations incurred by any such
Person pursuant to Hedging Agreements.
"Debt for Money Borrowed" means, with respect to the Company and its
Restricted Subsidiaries at any date and without duplication, the sum of the
following calculated in accordance with GAAP: (a) all liabilities, obligations
and indebtedness for borrowed money, including, but not limited to, obligations
evidenced by bonds, debentures, notes or other similar instruments of any
Person, (b) all obligations of any Person as lessee under Capital Leases, (c)
all
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Contingent Obligations of any such Person with respect to Debt for Money
Borrowed, and (d) all obligations, contingent or otherwise, of any such Person
relative to the face amount of letters of credit, whether or not drawn, and
banker's acceptances issued for the account of any such Person.
"Employee Benefit Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of the Company or
any ERISA Affiliate or (b) has at any time within the preceding six years been
maintained for the employees of the Company or any current or former ERISA
Affiliate.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including, but not limited
to, requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials. Environmental
Laws include, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous
Material Transportation Act (49 U.S.C. ss. 331 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C.
ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et
seq.), the Safe Drinking Water Act (42 U.S.C. ss. 300, et seq.), the
Environmental Protection Agency's regulations relating to underground storage
tanks (40 C.F.R. Parts 280 and 281), and the Occupational Safety and Health Act
(29 U.S.C. ss. 651 et seq.), analogous state statutes, and the rules and
regulations promulgated under the foregoing as such statutes are amended or
modified from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, and the
rules and regulations thereunder, each as amended or modified from time to time.
"ERISA Affiliate" means any Person which is a Restricted Subsidiary and
which, together with the Company, is treated as a single employer within the
meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of
ERISA. For purposes of the definition of "Termination Event," and the definition
of "Multiemployer Plan", however, the meaning of "ERISA Affiliate" shall be
determined by disregarding the phrase "which is a Restricted Subsidiary and" in
the immediately preceding sentence.
"Financial Statements" means (a) the Consolidated balance sheet of the
Borrower and its Subsidiaries as at September 30, 1999 and the related
Consolidated statements of operations, stockholders' equity and cash flows for
the fiscal quarter ended on such date and for the period commencing at the end
of the previous Fiscal Year and ending with the end of such fiscal quarter and
(b) the Consolidated balance sheet of the Borrower and its Subsidiaries as at
December 31, 1998 and the related Consolidated statements of operations,
stockholders' equity and cash flows of the Borrower and its Subsidiaries for the
Fiscal Year ended on such date.
"GAAP" means generally accepted accounting principles, as recognized by the
American Institute of Certified Public Accountants or the Financial Accounting
Standards Board, consistently applied and maintained on a consistent basis for
the Company and its Subsidiaries
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throughout the period indicated and consistent with the prior financial
practice of the Company, provided, however, that any accounting principle or
practice required to be changed by the American Institute of Certified Public
Accounts or the Financial Accounting Standards Board (or other appropriate board
or committee of either) in order to continue as a generally accepted accounting
principle or practice may be so changed.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Hazardous Materials" means any substances or materials (a) which are or
become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Environmental Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human
health or the environment and are or become regulated by any Governmental
Authority, (c) the presence of which require investigation or remediation under
any Environmental Law, (d) the discharge or emission or release of which
requires a permit or license under any Environmental Law or other Governmental
Approval, (e) which are deemed by a court of law or a Governmental Authority to
constitute a nuisance or a trespass or pose a health or safety hazard to persons
or neighboring properties, (f) which are materials consisting of underground or
aboveground storage tanks, whether empty, filled or partially filled with any
substance, or (g) which contain asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.
"Hedging Agreement" means any agreement with respect to an interest rate
swap, collar, cap or floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection with
hedging the interest rate exposure of the Company under the Senior Credit
Agreement, and any confirming letter executed pursuant to such hedging
agreement, all as amended or modified.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
"Material Adverse Effect" means, with respect to the Company and its
Restricted Subsidiaries, a material adverse effect on the properties, business,
operations or condition (financial or otherwise) of such Persons on a
Consolidated basis taken as a whole or the ability of any such Person to perform
the payment or other material obligations under the Transaction
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Documents to which it is a party or which would materially impair the
validity or enforceability of any of the Transaction Documents against any
Person party thereto, other than the Purchasers or their Affiliates.
"Material Contract" means (a) any contract or other agreement, written or
oral, of the Company or any of its Restricted Subsidiaries involving monetary
liability of any such Person in an amount in excess of $1,000,000 per annum, or
(b) any other contract or agreement, written or oral, of the Company or any of
its Restricted Subsidiaries the failure to comply with which could reasonably be
expected to have a Material Adverse Effect.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate is making, or is
accruing an obligation to make, contributions within the preceding six years.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of
the Code and which (a) is maintained for employees of the Company or any ERISA
Affiliates or (b) has at any time within the preceding six years been maintained
for the employees of the Company or any of their current ERISA Affiliates.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust, business trust, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group thereof.
"Preferred Stock" means the Convertible Preferred Stock of the Company, par
value $.01 per share, having a liquidation preference of $100.00 per share and
such other rights and preferences as are set forth in the Certificate of
Designation.
"Purchase Price" has the meaning set forth in Section 2.1 hereof.
"Registration Rights Agreement" means the Registration Rights Agreements to
be entered into on the date hereof between the Company and the Purchasers,
substantially in the form attached hereto as Exhibit B.
"Registration Statement" means any registration statement of the Company
covering any shares of Common Stock to be registered pursuant to the terms of
the Registration Rights Agreement.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale Closing" has the meaning set forth in Section 2.2 hereof.
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"Sale Transaction" shall have the meaning set forth in the recitals hereto.
"SEC" means the United States Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section 3.8 hereof.
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Senior Credit Agreement" means the Credit Agreement, dated as of October
22, 1998, as amended March 19, 1999 and July 21, 1999, by and among the
Borrower, the lenders party thereto and First Union National Bank, as
administrative agent, and Lehman Commercial Paper, Inc., as syndication agent,
and any and all agreements refinancing or refunding the Obligations (as defined
therein) and all amendments, renewals, extensions and modifications thereto,
including increases in amount.
"Subsidiary" means, as to any Person, any corporation, partnership or other
entity of which more than fifty percent (50%) of the outstanding capital stock
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity is at the time, directly or indirectly, owned by such Person
(irrespective of whether, at such time, capital stock or other ownership
interest of any other class or classes shall have or might have voting power by
reason of the happening of any contingency). Unless otherwise qualified,
references to "Subsidiary" or "Subsidiaries" herein shall refer to those of the
Company.
"Termination Event" means: (a) a "Reportable Event" described in Section
4043 of ERISA for which notice has not been waived which results in a Material
Adverse Effect, or (b) the withdrawal of the Company or any ERISA Affiliate from
a Pension Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA which results in a Material Adverse
Effect, or (c) the institution of proceedings to terminate, or the appointment
of a trustee with respect to, any Pension Plan by the PBGC which results in a
Material Adverse Effect, or (d) any other event or condition which would
constitute grounds under Section 4042(a) of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan, or (e) the imposition
of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA which
results in a Material Adverse Effect, or (f) any event or condition which
results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA which results in a Material Adverse Effect, or
(g) any event or condition which results in the termination of a Multiemployer
Plan under Section 4041A of ERISA or the institution by PBGC of proceedings to
terminate a Multiemployer Plan under Section 4042 of ERISA which results in a
Material Adverse Effect.
"Transaction Documents" means, collectively, this Agreement, the
Certificate of Designation and the Registration Rights Agreement, and each other
document and agreement
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executed and delivered by the Company, its Subsidiaries or their counsel in
connection with this Agreement or otherwise referred to herein or contemplated
hereby.
"Unrestricted Subsidiary" means any Subsidiary of the Company and of any
other Subsidiary whose Debt and Contingent Obligations are non-recourse to the
Company and its other Restricted Subsidiaries and which has been designated, in
writing, by the Company as such (without such designation having been rescinded
by the Company). As of the Sale Closing, the Unrestricted Subsidiaries are those
set forth as such on Schedule 3.1.
1.2. Terms Generally. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person's successors and assigns, (c) the words "herein", "hereof"
and "hereunder", and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
ARTICLE II
PURCHASE, SALE AND EXCHANGE OF SHARES
2.1. Agreement to Purchase and Sell. Upon the terms and subject to the
conditions hereinafter set forth, the Purchasers hereby, severally but not
jointly, subscribe for and agree to purchase from the Company, in the amount for
each Purchaser set forth below such Purchaser's name on the signature pages
hereto, and the Company agrees to issue and sell to the Purchasers in such
amounts, on the date hereof, an aggregate of 250,000 shares of Preferred Stock
(the "Preferred Stock") for an aggregate cash price (the "Purchase Price") equal
to $25,000,000.
2.2. Sale Closing. (a) The closing of the purchase and sale of the
Preferred Stock pursuant to Section 2.1 hereof (the "Sale Closing") shall take
place at the time of the execution of this Agreement. The Sale Closing shall be
held at the offices of Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New
York, or at such other place as the parties hereto shall mutually agree.
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(b) At the Sale Closing, (i) the Company shall deliver to each Purchaser,
against payment of the Purchase Price therefor, one or more certificates for the
shares of Preferred Stock being purchased by such Purchaser, in definitive form
and registered in the name of such Purchaser or its nominee, which name shall be
designated in writing at least two (2) business days prior to the Sale Closing,
representing the Preferred Stock being purchased by it, (ii) the Purchasers
shall deliver to the Company against delivery of the certificate or certificates
representing the Preferred Stock, by wire transfer to the account set forth on
Schedule 2.2(b), the Purchase Price payable in immediately available funds, and
(iii) each party to this Agreement shall deliver to the other such other
documents, instruments and writings as may be required to be delivered in
accordance with this Agreement or as may be reasonably requested by such other
party.
ARTICLE III
REPRESENTATION AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers as follows:
3.1. Organization; Power; Qualification. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or formation, has the power and
authority to own its properties and to carry on its business as now being and
hereafter proposed to be conducted and is duly qualified and authorized to do
business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification and authorization, except
where the failure to so qualify could not reasonably be expected to have a
Material Adverse Effect. The jurisdictions in which the Company and its
Subsidiaries are organized are described on Schedule 3.1.
3.2. Capitalization. (a) Part I of Schedule 3.2 sets forth the number and
par value of the shares of Capital Stock that the Company as of the date hereof
is authorized to issue, has issued, has outstanding and has reserved for
issuance upon conversion of or as dividends on the Preferred Stock. All the
outstanding Common Stock as of the date hereof is fully paid and nonassessable.
All the outstanding Common Stock has been issued in full compliance with
applicable law. 1,502,600 shares of the Common Stock are held in the Company's
treasury. The Common Stock is not entitled to cumulative voting rights,
preemptive rights and antidilution rights, except as otherwise provided in this
Agreement. The Common Stock has the preferences, voting powers, qualifications,
and special or relative rights or privileges set forth in the Company's
Certificate of Incorporation. Except as provided in Part II of Schedule 3.2, the
Company has outstanding no option, warrant or other commitment to issue or to
acquire any shares of its Capital Stock, or any securities or obligations
convertible into or exchangeable for its Capital Stock, except as set forth in
the Certificate of Designation, nor, has it given any Person any right to
acquire from the Company or sell to the Company any shares of its Capital Stock.
Except as set forth on Schedule 3.2 and in the Registration Rights Agreement,
the Company has no obligation to register any of its presently outstanding
securities or any of its securities which may thereafter be issued under the
Securities Act.
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(b) Upon delivery of the certificate(s) representing the Preferred Stock,
and payment of the Purchase Price therefor, pursuant to the Sale Transaction in
accordance with the terms of this Agreement, the Company will transfer to the
Purchasers good and valid title to the Preferred Stock, which Preferred Stock
shall be (i) validly issued, fully paid and non-assessable, (ii) free from all
preemptive rights and taxes, liens and charges with respect to the issue thereof
and (iii) entitled to the rights and preferences set forth in the Certificate of
Designation. A sufficient number of shares of Common Stock necessary to provide
for the conversion of the Preferred Stock has been duly authorized and reserved
for issuance upon conversion of or as dividends on the Preferred Stock. Upon
conversion in accordance with the Certificate of Designation, such Common Stock
will be validly issued, fully paid and nonassessable and free from all
preemptive rights and taxes, liens and charges with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder of
Common Stock.
3.3. Subsidiaries. Each Subsidiary as of the Sale Closing is listed on
Schedule 3.1. All outstanding shares or other equity interests in such
Subsidiaries have been duly authorized and validly issued and, with respect to
capital stock, are fully paid and nonassessable.
3.4. Authorization. The Company has full corporate power and authority to
execute and deliver this Agreement and the Registration Rights Agreement, to
execute and file the Certificate of Designation and to consummate the
transactions contemplated hereby and thereby in accordance with the terms hereof
and thereof and to issue the Preferred Stock and the Common Stock issuable upon
conversion of or as dividends on the Preferred Stock in accordance with the
terms of the Certificate of Designation. The execution and delivery of this
Agreement and the Registration Rights Agreement, the execution and filing of the
Certificate of Designation and the issuance of the Preferred Stock and of the
Common Stock issuable upon conversion of or as dividends on the Preferred Stock
have been duly authorized by the Board of Directors of the Company and no other
corporate proceedings on the part of the Company are necessary to approve and
authorize the execution and delivery of this Agreement and the Registration
Rights Agreement, the execution and filing of the Certificate of Designation,
the issuance of the Preferred Stock and the Common Stock issuable upon
conversion of or as dividends on the Preferred Stock and the consummation of the
transactions contemplated hereby and thereby in accordance with the terms hereof
and thereof. This Agreement and the Registration Rights Agreement have been duly
executed and delivered by the Company, the Certificate of Designation has been
duly executed and filed in accordance with the Delaware General Corporation Law
and, when issued in accordance with the terms hereof, the Preferred Stock will
be duly issued, and each of this Agreement, the Registration Rights Agreement
and the Certificate of Designation constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except to the extent limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity.
3.5. No Violation; Consents. (a) Assuming the making or receipt of all
filings, notices, registrations, consents, approvals, permits and authorizations
described in the following paragraph and that the Purchasers' representations in
Article IV are true and correct, the execution and delivery of this Agreement
and the Registration Rights Agreement, the execution and filing of the
Certificate of Designation by the Company, the issuance of the Preferred Stock
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and the Common Stock issuable upon conversion of or as dividends on the
Preferred Stock by the Company, the consummation of the transactions
contemplated hereby, by the Registration Rights Agreement or by the Certificate
of Designation, the compliance by the Company with any of the provisions hereof
or of the Registration Rights Agreement or the Certificate of Designation will
not (i) conflict with, violate or result in any breach of the Certificate of
Incorporation, by-laws or other charter documents of the Company, (ii) result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default or give rise to any right of termination, cancellation
or acceleration under, or result in the creation of any Lien on or against any
of the properties of the Company pursuant to any of the terms or conditions of
any note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which the Company is a party or by which any of them or any of
their properties or assets may be bound, or (iii) violate any statute, law,
rule, regulation, writ, injunction, judgment, order or decree of any
Governmental Authority, binding on the Company or any of their properties or
assets, excluding from the foregoing clauses (i) and (ii) conflicts, violations,
breaches, defaults, rights of termination, cancellation or acceleration, and
liens which, individually or in the aggregate, would not have a Material Adverse
Effect, would not prevent or materially delay consummation of the transactions
contemplated hereby and would not affect the validity of the issuance of the
Preferred Stock or of the Common Stock issuable upon conversion of or as
dividends on the Preferred Stock.
(b) Except for (i) the filing of the Certificate of Designation in
accordance with the Delaware General Corporation Law, (ii) applicable
requirements, if any, under Blue Sky Laws, (iii) the filing of a Registration
Statement as set forth in the Registration Rights Agreement, and (iv) the
listing on the New York Stock Exchange of the Common Stock issuable upon
conversion of and as dividends on the Preferred Stock, no filing, consent,
approval, permit, authorization, notice, registration or other action of or with
any Governmental Authority, is required to be made or obtained by or with
respect to the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement and the Registration Rights Agreement
by the Company, the issuance of the Preferred Stock and the Common Stock
issuable upon conversion of or as dividends on the Preferred Stock by the
Company or the consummation by the Company of the transactions contemplated
hereby and thereby.
3.6. Compliance with Law; Governmental Approvals. Each of the Company and
its Subsidiaries (i) has all Governmental Approvals required by any Applicable
Law for it to conduct its business, each of which is in full force and effect,
is final and not subject to review on appeal and is not the subject of any
pending or, to the best of its knowledge, threatened attack by direct or
collateral proceedings, except for such Governmental Approvals the absence of
which could not reasonably be expected to have a Material Adverse Effect and
(ii) is in compliance with each Governmental Approval applicable to it and in
compliance with all other Applicable Laws relating to it or any of its
respective properties, except in each case where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.
3.7. Litigation. Except for matters existing as of the Sale Closing and set
forth either in the public filings of the Company with the Securities and
Exchange Commission made prior to the Sale Closing or on Schedule 3.7, there are
no actions, suits or proceedings pending nor, to the knowledge of the Company,
threatened against or in any other way relating adversely
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to or affecting the Company or any Subsidiary thereof or any of their
respective properties in any court or before any arbitrator of any kind or
before or by any Governmental Authority which individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect or that seek to
have, or are reasonably likely to have the effect of making illegal, materially
delaying or otherwise directly or indirectly prohibiting or materially
restraining or making materially more costly the Sale Transaction.
3.8. SEC Documents, Financial Statements. (i) The Common Stock is
registered pursuant to Section 12(b) of the Securities Exchange Act and the
Company has filed all reports, schedules, forms, statements and other documents,
together with all exhibits, financial statements and schedules thereto required
to be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act, including material filed pursuant to Section 13(a) or
15(d), (all of the foregoing, whether heretofore or hereafter filed with the
SEC, and the Registration Statement, when declared effective, being hereinafter
referred to as the "SEC Documents"). The Company has not provided to the
Purchasers any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed, other than with respect to the transactions contemplated by
this Agreement. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act or the
Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and as of their respective dates,
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of the date of delivery by the Purchasers of
the prospectus contained in the Registration Statement in connection with sales
of Common Stock by the Purchasers, such prospectus will comply in all material
respects with the requirements of the Securities Act and the rules and
regulations of the SEC promulgated thereunder, and other federal, state and
local laws, rules and regulations applicable to such prospectus. The financial
statements of the Company included (or incorporated by reference) in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(ii) During the three years preceding the date hereof, the SEC has not
issued an order preventing or suspending the use of any prospectus relating to
the offering of any shares of Common Stock or instituted proceedings for that
purpose.
3.9. Debt and Contingent Obligations. Schedule 3.9 is a complete and
correct listing of all Debt and Contingent Obligations of the Company and its
Subsidiaries as of the Sale
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Closing in excess of $1,000,000. The Company and its Subsidiaries have
performed and are in material compliance with all of the terms of such Debt and
Contingent Obligations and all instruments and agreements relating thereto.
3.10. Tax Returns and Payments. Each of the Company and its Subsidiaries
has duly filed or caused to be filed all material federal, state, local and
other tax returns required by Applicable Law to be filed, and has paid, or made
adequate provision for the payment of, all material federal, state, local and
other taxes, assessments and governmental charges or levies upon it and its
property, income, profits and assets which are due and payable (other than
taxes, assessments and governmental charges or levies which are being challenged
in good faith by the Company and are adequately reserved for in accordance with
GAAP). No Governmental Authority has asserted any Lien or other material claim
against the Company or any Subsidiary with respect to unpaid taxes which could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
federal, state, local and other taxes for all fiscal years and portions thereof
since the organization of the Company and its Subsidiaries are in the judgment
of the Company adequate, and the Company does not anticipate any additional
taxes or assessments for any of such years, the result of which could reasonably
be expected to have a Material Adverse Effect.
3.11. ERISA.
(i) Neither the Company nor any ERISA Affiliate maintains or contributes
to, or has any obligation under, any Employee Benefit Plans other than
those identified on Schedule 3.11;
(ii) the Company and each ERISA Affiliate is in material compliance with
all applicable provisions of ERISA and the regulations and published
interpretations thereunder with respect to all Employee Benefit Plans
except for any required amendments for which the remedial amendment
period as defined in Section 401(b) of the Code has not yet expired.
No material liability has been incurred by the Company or any ERISA
Affiliate which remains unsatisfied for any taxes or penalties with
respect to any Employee Benefit Plan or any Multiemployer Plan;
(iii) No Pension Plan of the Company has been terminated, and to the
knowledge of the Company no Pension Plan of any ERISA Affiliate has
been terminated, nor has any accumulated funding deficiency (as
defined in Section 412 of the Code) been incurred (without regard to
any waiver granted under Section 412 of the Code), nor has any funding
waiver from the Internal Revenue Service been received or requested
with respect to any Pension Plan, nor has the Company or any ERISA
Affiliate failed to make any contributions or to pay any amounts due
and owing as required by Section 412 of the Code, Section 302 of ERISA
or the terms of any Pension Plan prior to the due dates of such
contributions under
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Section 412 of the Code or Section 302 of ERISA, nor has there been
any event requiring any disclosure under Section 4041(c)(3)(C) or
4063(a) of ERISA with respect to any Pension Plan, in each case
which could reasonably be expected to result in a Material
Adverse Effect;
(iv) Neither the Company nor any ERISA Affiliate has: (A) engaged in a
nonexempt prohibited transaction described in Section 406 of the ERISA
or Section 4975 of the Code, (B) incurred any liability to the PBGC
which remains outstanding other than the payment of premiums and there
are no premium payments which are due and unpaid, (C) failed to make a
required contribution or payment to a Multiemployer Plan, or (D)
failed to make a required installment or other required payment under
Section 412 of the Code;
(v) No Termination Event has occurred or, to the knowledge of the Company,
is reasonably expected to occur; and
(vi) No proceeding, claim, lawsuit and/or investigation (other than routine
claims for benefits in the ordinary course) is existing or, to the
best knowledge of the Company after due inquiry, threatened concerning
or involving any (A) employee welfare benefit plan (as defined in
Section 3(1) of ERISA) currently maintained or contributed to by the
Company or any ERISA Affiliate or (B) Pension Plan.
3.12. Absence of Defaults. No event has occurred or is continuing which
constitutes, or which with the passage of time or giving of notice or both would
constitute, a default or event of default by the Company or any Subsidiary
thereof under any Material Contract or judgment, decree or order to which the
Company or its Subsidiaries is a party or by which the Company or its
Subsidiaries or any of their respective properties may be bound, which could
reasonably be expected to have a Material Adverse Effect or which would require
the Company or any of its Subsidiaries to make any payment thereunder in excess
of $1,000,000 prior to the scheduled maturity date therefor.
3.13. Environmental Matters.
(i) To the Company's Actual Knowledge, the properties owned or managed by
the Company and its Subsidiaries do not contain, and to their Actual
Knowledge have not previously contained, any Hazardous Materials in
amounts or concentrations which (A) constitute or constituted a
violation of, or (B) could give rise to liability under, applicable
Environmental Laws, in each case which could reasonably be expected to
have a Material Adverse Effect;
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(ii) To the Company's Actual Knowledge, such properties and all operations
of the Company and its Subsidiaries are conducted in compliance in all
respects, and have been in compliance in all respects, with all
applicable Environmental Laws the violation of which could reasonably
be expected to have a Material Adverse Effect, and the Company and its
Subsidiaries have not caused contamination at, under or about such
properties or such operations which could reasonably be expected to
have a Material Adverse Effect;
(iii) Neither the Company nor any Subsidiary (a) has received any notice of
violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with
Environmental Laws with regard to any of their properties or their
operations, or (b) have Actual Knowledge that any such notice will be
received or is being overtly threatened, in each case which could
reasonably be expected to have a Material Adverse Effect;
(iv) To the Company's Actual Knowledge, the Company and its Subsidiaries
have not caused Hazardous Materials to be transported or disposed of
from the properties of the Company and its Subsidiaries in violation
of, or in a manner or to a location which gives rise to liability
under, Environmental Laws, which violation or liability could
reasonably be expected to have a Material Adverse Effect, nor to the
Company's Actual Knowledge have the Company and its Subsidiaries
caused any Hazardous Materials to be generated, treated, stored or
disposed of at, on or under any of such properties in violation of, or
in a manner that could give rise to liability under, any applicable
Environmental Laws which could reasonably be expected to have a
Material Adverse Effect;
(v) No judicial proceedings or governmental or administrative action is
pending, or, to the Actual Knowledge of the Company, overtly
threatened, under any Environmental Law to which the Company or any
Subsidiary is or will be named as a party with respect to such
properties or operations of the Company and its Subsidiaries conducted
thereon, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with
respect to such properties or such operations which in each case could
reasonably be expected to have a Material Adverse Effect; and
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(vi) To its Actual Knowledge, neither the Company nor its Subsidiaries have
caused any release, or to the Company's Actual Knowledge, the threat
of release, of Hazardous Materials at or from such properties, in
violation of or in amounts or in a manner that gives rise to liability
under Environmental Laws, in each case which could reasonably be
expected to have a Material Adverse Effect.
3.14. Material Contracts. Schedule 3.14 sets forth a complete and accurate
list of all Material Contracts of the Company and its Subsidiaries in effect as
of the Sale Closing; other than as set forth in Schedule 3.14, each such
Material Contract is, and after giving effect to the consummation of the
transactions contemplated by the Transaction Documents will be, in full force
and effect on the Sale Closing in accordance with the terms thereof. The Company
and its Subsidiaries have delivered to the Purchasers a true and complete copy
of each Material Contract required to be listed on Schedule 3.14 or any other
Schedule hereto.
3.15. Titles to Properties. Each of the Company and its Subsidiaries has
such title to the real property owned by it as is necessary or desirable to the
conduct of its business and valid and legal title to all of its personal
property and assets, including, but not limited to, those reflected on the
September 30, 1999 balance sheets of the Company and its Subsidiaries referred
to in the Financial Statements, except those which have been disposed of by the
Company or its Subsidiaries subsequent to such date which dispositions have been
in the ordinary course of business or as otherwise expressly permitted
hereunder.
3.16. Insurance. All current primary, excess and umbrella policies of
insurance owned or held by or on behalf of or providing insurance coverage to
the Company or any of its Subsidiaries are in full force and effect. With
respect to all such insurance policies providing insurance coverage to the
Company or any of its Subsidiaries, no premiums are in arrears, no notice or
cancellation or termination has been received with respect to any such policy,
other than notices of cancellation or termination routinely sent at the end of a
policy term. The Company believes that the insurance coverage of the Company and
its Subsidiaries is consistent with the coverage generally maintained by
corporations of similar size and engaged in similar lines of business.
3.17. Employee Relations. Each of the Company and its Subsidiaries has an
adequate work force in place and is not, as of the Sale Closing, party to any
collective bargaining agreement nor has any labor union been recognized as the
representative of its employees. The Company knows of no pending or threatened
strikes, work stoppage or similar collective labor actions involving its
employees or those of its Subsidiaries, which could reasonably be expected to
have a Material Adverse Effect.
3.18. Material Disclosure. To the best knowledge of the Company, there is
no fact, transaction or development which the Company has not disclosed to the
Purchasers in writing (including pursuant to the SEC Documents filed prior to
the date hereof) which would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
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3.19. No Broker. No broker, finder, agent or similar intermediary has acted
for or on behalf of the Company in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's, or similar fee or other
commission in connection therewith based on any contract or other agreement with
the Company or any action taken by the Company.
3.20. Intellectual Property Matters. Each of the Company and its
Subsidiaries owns or possesses rights to use all franchises, licenses,
copyrights, copyright applications, patents, patent rights or licenses, patent
applications, trademarks, trademark rights, service marks, service mark rights,
trade names, trade name rights and rights with respect to the foregoing which
are required to conduct its business, except where the failure to so own or
possess such rights could not reasonably be expected to have a Material Adverse
Effect. No event has occurred which permits, or after notice or lapse of time or
both would permit, the revocation or termination of any such rights, and, to the
best of its knowledge, neither the Company nor any Subsidiary thereof is liable
to any Person for infringement under Applicable Law with respect to any such
rights as a result of its business operations, the result of which could
reasonably be expected to have a Material Adverse Effect.
3.21. Minute Books. The minute books of the Company contain a complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflect accurately in all material respects all transactions
referred to in such minutes.
3.22. Liens. None of the properties and assets of the Company or any
Subsidiary is subject to any Lien, except Liens permitted pursuant to Section
10.3 of the Senior Credit Agreement.
3.23. Government Regulation. Neither the Company nor any Subsidiary thereof
is an "investment company" or a company "controlled" by an "investment company"
(as each such term is defined or used in the Investment Company Act of 1940, as
amended).
3.24. Financial Statements.
(i) The Financial Statements, copies of which have been furnished to
the Purchasers, are complete and correct and fairly present the financial
condition of the Company and its Subsidiaries as of the respective dates
thereof and the results of operations of the Company and its Subsidiaries
for the fiscal periods covered thereby, in each case in accordance with
GAAP, subject in the case of unaudited statements to normal year-end
adjustments. As of December 31, 1998, the Company and its Subsidiaries had
no Debt, obligation or other unusual forward or long-term commitment which
was not fairly reflected on the December 31, 1998 balance sheets of the
Company and its Subsidiaries referred to in the Financial Statements or in
the notes thereto.
(ii) Since September 30, 1999, there has been (A) no material adverse
change in the business, operations, prospects or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole, and (B) no
event has occurred or condition arisen that could be reasonably expected to
have a Material Adverse Effect.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS
Each Purchaser hereby, severally but not jointly, represents and warrants,
on behalf of itself and each Person for whom it is a nominee, to the Company as
follows:
4.1. Organization; Authorization. Such Purchaser is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has full power and authority to execute and deliver this Agreement and the
Registration Rights Agreement, to purchase the Preferred Stock and to consummate
the transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof. The execution and delivery of this Agreement and the
Registration Rights Agreement, the purchase by such Purchaser of the Preferred
Stock and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by such Purchaser, and no other proceedings on the
part of such Purchaser are necessary to approve and authorize the execution and
delivery of this Agreement and the Registration Rights Agreement, the purchase
by such Purchaser of the Preferred Stock and the consummation of the
transactions by such Purchaser contemplated hereby and thereby in accordance
with the terms hereof and thereof. This Agreement and the Registration Rights
Agreement have been duly executed and delivered by such Purchaser and constitute
valid and binding agreements of such Purchaser, enforceable against such
Purchaser in accordance with their terms, except to the extent limited by (i)
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity.
4.2. No Violation; Consents. (a) Assuming the making or receipt of all
filings, notices, registrations, consents, approvals, permits and authorizations
described in the following paragraph, neither the execution and delivery by such
Purchaser of this Agreement and the Registration Rights Agreement, nor the
purchase by such Purchaser of the Preferred Stock nor the consummation by such
Purchaser of the transactions contemplated hereby or thereby will (i) conflict
with, violate or result in a breach of the governing documents of such
Purchaser, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default or give rise to any right
of termination, cancellation or acceleration under, or result in the creation of
any Lien on or against any of the properties of such Purchaser pursuant to, any
of the terms or conditions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which such Purchaser is a party
or by which it or any of its properties or assets may be bound, or (iii) violate
any statute, law, rule, regulation, writ, injunction, judgment, order or decree
of any Governmental Authority, binding on such Purchaser or any of its
properties or assets, excluding from the foregoing clause (ii) violations,
breaches and defaults that individually or in the aggregate, would not prevent
or materially delay consummation of or justify recission of the transactions
contemplated hereby.
(b) Except for the filing of a Registration Statement for the resale of the
Common Stock contemplated by the Registration Rights Agreement, no filing,
consent, approval, permit, authorization, notice, registration or other action
of or with any Governmental Authority
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is required to be made or obtained by or with respect to such Purchaser in
connection with the execution and delivery of this Agreement and the
Registration Rights Agreement, the purchase of the Preferred Stock or the
consummation by such Purchaser of the transactions contemplated hereby and
thereby.
4.3. Funds. Such Purchaser has the funds necessary to consummate the
purchase of the Preferred Stock to be purchased by it hereunder.
4.4. Status. Such Purchaser has sufficient knowledge and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of an investment in the Preferred Stock, and is capable of bearing the
economic risks of such investment, including a complete loss of such investment.
4.5. Investment Representation. Each Person for whom the Purchaser is a
nominee is a "qualified institutional buyer," as such term is defined in Rule
144A promulgated under the Securities Act. Such Purchaser is purchasing the
Preferred Stock for its own account. Such Purchaser has no present intention to
sell any Preferred Stock or the Common Stock received upon conversion of or as
dividends on the Preferred Stock in accordance with the terms of the Certificate
of Designation, and such Purchaser has no present arrangement (whether or not
legally binding) at any time to sell Preferred Stock or such Common Stock to or
through any Person or entity; provided, however, that by making the
representations herein, no Purchaser agrees to hold the Preferred Stock or the
Common Stock received upon conversion of or as dividends on the Preferred Stock
in accordance with the terms of the Certificate of Designation for any minimum
or other specific term and each Purchaser reserves the right to dispose of all
Preferred Stock or Common Stock at any time in accordance with federal and state
securities laws applicable to any such disposition. Such Purchaser acknowledges
that each certificate representing the Preferred Stock shall contain a legend
relating to restrictions on resale arising under the Securities Act and Blue Sky
Laws as provided in Section 6.1 hereof until such time as such shares are
registered under the Securities Act or, in the opinion of counsel reasonably
satisfactory to the Company, such legend may be removed.
4.6. No Broker. No broker, finder, agent or similar intermediary has acted
for or on behalf of the Purchasers in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's, or similar fee or other
commission in connection therewith based on any contract or other agreement with
the Purchasers or any action taken by the Purchasers.
4.7 Litigation. There are no actions, suits or proceedings pending nor, to
the knowledge of such Purchaser, threatened against or in any other way relating
adversely to or affecting such Purchaser that seek to have, or are reasonably
likely to have the effect of making illegal, materially delaying or otherwise
directly or indirectly prohibiting or materially restraining or making
materially more costly the Sale Transaction.
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ARTICLE V
COVENANTS OF THE COMPANY
5.1. Securities Compliance.
(a) The Company shall take all necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation for the legal and
valid issuance of the Preferred Stock to the Purchasers.
(b) The Company will cause the Common Stock to continue to be registered
under Section 12(b) of the Securities Exchange Act (or successor provision of
such act or successor act), will comply in all respects with its reporting and
filing obligations pursuant to the Securities Exchange Act, and will not take
any action to terminate or suspend its reporting and filing obligations under
the Securities Exchange Act. The Company will take all action necessary to
continue the listing or trading of the Common Stock (including, upon issuance,
all of the Common Stock issued upon conversion of or as dividends on the
Preferred Stock) on the NYSE or on the NASDAQ National Market System; and will
comply in all material respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NYSE or the NASDAQ National Market
System.
ARTICLE VI
ADDITIONAL AGREEMENTS OF THE PARTIES
6.1. Restrictive Legend. Each certificate representing the Preferred Stock
shall contain a legend relating to restrictions on resale arising under the
Securities Act and Blue Sky Laws substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES OR "BLUE SKY" LAWS AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS SUCH SECURITIES HAVE BEEN
REGISTERED UNDER THAT ACT OR THE COMPANY SHALL HAVE RECEIVED
AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY TO
THE EFFECT THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
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ARTICLE VII
CONDITIONS TO THE SALE CLOSING
7.1. Conditions to Obligations of the Purchasers. The obligation of the
Purchasers to purchase the Preferred Stock hereunder pursuant to the Sale
Transaction is subject to the satisfaction or waiver at, or prior to, the Sale
Closing of the following conditions:
(a) Representations and Warranties; Agreements and Covenants. (i) The
representations and warranties of the Company contained in this Agreement and in
any certificate or agreement of the Company delivered pursuant hereto shall be
true and correct in all material respects, and if qualified by materiality,
shall be true and correct, as of the date hereof, (ii) the Company shall have
performed or complied with in all material respects all agreements and covenants
contained in this Agreement and in any certificate or agreement of the Company
delivered pursuant hereto to be performed or complied with by the Company at or
before the Sale Closing, and (iii) the Purchasers shall have received a
certificate of the Company, signed by the President or a Vice President thereof,
on behalf of the Company, as to the fulfillment of the conditions set forth in
the foregoing clauses (i) and (ii).
(b) Principal Market. Trading in the Common Stock shall not have been
suspended by the SEC or the NYSE, (except for any suspension of trading of
limited duration agreed to between the Company and the NYSE, solely to permit
dissemination of material information regarding the Company), and trading in
securities generally as reported by NYSE shall not have been suspended or
limited or minimum prices shall not have been established on securities whose
trades are reported by the NYSE.
(c) Litigation. There shall have been no order or preliminary or permanent
injunction entered in any action or proceeding before any Governmental
Authority, nor other action taken by any Governmental Authority, nor any
statute, rule, regulation, legislation, interpretation, judgment or order
enacted, entered, enforced, promulgated, amended, issued or deemed applicable to
the Purchasers, the Company or any of its Subsidiaries, by any Governmental
Authority that shall have remained in effect and that in the good faith judgment
of a majority of the Purchasers shall have had, or threaten to have or would be
reasonably likely to have the effect of (i) making illegal, materially delaying
or otherwise directly or indirectly prohibiting or materially restraining or
making materially more costly the Sale Transaction, (ii) prohibiting or
materially limiting the ownership or operation by the Company or any of its
Subsidiaries of all or any material portion of its respective businesses or
assets, or compelling the Company or any of its Subsidiaries to dispose of or
hold separate all or any material portion of its respective businesses or
assets, (iii) imposing or confirming material limitations on the ability of the
Purchasers to effectively exercise full rights of ownership of the Preferred
Stock to be acquired pursuant to this Agreement, including, without limitation,
the right to vote any Common Stock subsequently acquired upon conversion of or
as dividends on the Preferred Stock on all matters properly presented to
stockholders; (iv) requiring divestiture by the Purchasers of any of the
Preferred Stock; or (v) causing a Material Adverse Effect.
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(d) No Action or Proceeding. No action, suit, claim or proceeding by or
before any Governmental Authority shall have been commenced and be pending that
seeks to have, or is reasonably likely to have, any of the effects described in
clauses (i) through (v) of Section 7.1(c) above.
(e) Bankruptcy; Insolvency; etc. The Company or any of its Subsidiaries
shall not be the subject of a case under the Bankruptcy Code, and no proceeding
shall have been instituted (and not dismissed) or consented to by or against the
Company or any of its Subsidiaries seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for any of the Company or of its
Subsidiaries or any substantial part of any of their property and neither the
Company nor any of its Subsidiaries shall have taken any corporate action to
authorize any such proceeding.
(f) Material Adverse Change. No change, condition or event shall have
occurred that has had, or would be reasonably likely to have, a Material Adverse
Effect.
(g) Opinion of Counsel, etc. The Purchasers shall have received a written
opinion in form and substance (including qualifications) satisfactory to the
Purchasers, dated the date hereof, from Proskauer Rose LLP, substantially in the
form of Exhibit C hereto, and such other certificates, opinions of other
counsel, and documents, as the Purchasers or their counsel shall reasonably
require.
(h) Registration Rights Agreement. The Registration Rights Agreement shall
have been duly executed and delivered by the Company and the other parties
thereto, if any, other than the Purchasers.
7.2. Conditions to Obligations of the Company. The obligation of the
Company to issue and sell the Preferred Stock hereunder pursuant to the Sale
Transaction is subject to the satisfaction or waiver at, or prior to, the Sale
Closing of the following conditions:
(a) Representations and Warranties, Agreements And Covenants. (i) The
representations and warranties of the Purchasers contained in this Agreement and
in any certificate or agreement of the Purchasers delivered pursuant hereto
shall be true and correct in all material respects as of the date hereof and
(ii) the Purchasers shall have performed or complied with in all material
respects all agreements and covenants contained in this Agreement and in any
certificate or agreement of the Purchasers delivered pursuant hereto to be
performed or complied with by the Purchasers, at or before the Sale Closing, and
(iii) the Company shall have received a certificate of each Purchaser, signed by
an officer thereof, on behalf of such Purchaser, as to the fulfillment of the
conditions set forth in the foregoing clauses (i) and (ii).
(b) Litigation. There shall have been no order or preliminary or permanent
injunction entered in any action or proceeding before any Governmental
Authority, nor other action taken by any Governmental Authority nor any statute,
rule, regulation, legislation,
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interpretation, judgment or order enacted, entered, enforced, promulgated,
amended, issued or deemed applicable to the Company or any of its Subsidiaries
by any Governmental Authority that shall have remained in effect and that shall
have had the effect of making illegal, materially delaying or otherwise directly
or indirectly prohibiting or materially restraining or making materially more
costly the Sale Transaction.
(c) No Action or Proceeding. No action, suit, claim or proceeding by or
before any Governmental Authority shall have been commenced and be pending that
seeks to have, or is reasonably likely to have the effect of making illegal,
materially delaying or otherwise directly or indirectly prohibiting or
materially restraining or making materially more costly the Sale Transaction.
(d) Registration Rights Agreement. The Registration Rights Agreement shall
have been duly executed and delivered by each Purchaser.
ARTICLE VIII
MISCELLANEOUS
8.1. Survival of Representations, Warranties and Agreements. The
representations, warranties, covenants and agreements contained in this
Agreement shall survive the execution of this Agreement until the date that the
Purchasers have sold or otherwise disposed of all shares of Preferred Stock and
Common Stock issuable on conversion of the Preferred Stock.
8.2. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, telecopier, any
courier guaranteeing overnight delivery or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to the applicable
party at the address set forth below or such other address as may hereafter be
designated in writing by such party to the other parties in accordance with the
provisions of this Section:
(i) If to the Company, to:
Insignia Financial Group, Inc.
200 Park Avenue
New York, NY 10166
Attn: Adam B. Gilbert, Esq.
Telecopy: 212-984-6644
Telephone: 212-984-6649
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With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attn: Arnold S. Jacobs, Esq.
Telecopy: 212-969-2900
Telephone: 212-969-3000
(ii) If to the Purchasers, to the addresses specified on the signature
pages hereto.
With a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attn: Stuart D. Freedman, Esq.
Telecopy: 212-593-5955
Telephone: 212-756-2000
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt is
acknowledged, if telecopied; on the next business day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid.
8.3. Complete Agreement. This Agreement, the Registration Rights Agreement
and the Certificate of Designation contain the entire understanding of the
parties with respect to the transactions contemplated hereby and supersede all
prior agreements, arrangements or understandings with respect thereto. There are
no restrictions, agreements, promises, representations, warranties, covenants or
undertakings by or on behalf of any party hereto with respect to the
transactions contemplated hereby or thereby, other than those expressly set
forth herein or therein.
8.4. Binding Notice of Agreement; No Third Party Beneficiary. This
Agreement shall be binding upon and inure to the benefits of the parties hereto,
their successors and permitted assigns. Nothing herein express or implied is
intended to or shall be construed to confer upon or give to any Person,
corporation, group or other entity (of any nature) other than the parties
hereto, their successors or permitted assigns any rights or remedies under or by
reason of this Agreement.
8.5. Modifications, Amendments and Waivers. Any term or provision of this
Agreement may be waived by the party which is entitled to the benefits thereof.
No waiver shall be deemed to have been made by any party hereto of any of its
rights hereunder or any provision or term hereof unless the same shall be in
writing and is signed on its behalf by its authorized
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officer or representative. Any such waiver or extension shall constitute a
waiver or extension only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or any other time. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have in law or
equity. The rights and remedies of any party based upon, arising out of or
otherwise in respect of any inaccuracies in or breach of any representation,
warranty, covenant or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of fact
upon which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant or agreement
contained in this Agreement as to which there is no inaccuracy or breach. The
representations and warranties of the Company contained in this Agreement shall
not be affected or deemed waived by reason of any investigation made by or on
behalf of the Purchasers or its representatives or by reason of the fact that
the Purchasers or such representatives knew or should have known that any such
representation or warranty is or might be inaccurate.
8.6. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
8.7. Expenses. The fees and expenses of counsel for the Purchasers, not to
exceed $50,000, shall be paid by the Company. The foregoing payment shall be in
addition to, and not in lieu of, the fees and expenses payable by the Company to
the holders of Preferred Stock pursuant to the terms of the Registration Rights
Agreement.
8.8. Indemnification..(a) The Company agrees to indemnify and hold harmless
each Purchaser, its directors and officers and each Person, if any, who controls
each Purchaser within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act from and against any and all losses,
claims, suits, damages, causes of action, liabilities, costs and expenses
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) to which
such Purchaser or other Person may become subject to under the Securities Act or
under the Securities Exchange Act or otherwise, arising from or relating to the
Company's breach of any representation, warranty, covenant or agreement
contained in this Agreement.
(b) Each Purchaser agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors and officers and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Securities Exchange Act, from and against any and all
losses, claims, suits, damages, causes of action, liabilities, costs and
expenses (including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or claim)
to which the Company or such Person may become subject to under the Securities
Act or under the Securities Exchange Act or otherwise, arising from or relating
to the Purchasers' breach of any representation, warranty, covenant or agreement
contained in this Agreement.
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(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any Person in respect of which indemnity may be sought
pursuant to paragraph (a) or (b) of this Section 8.8, such Person (the
"indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of other counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them;
provided, however, that it is understood that the indemnifying party shall not,
in respect of the legal expenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for each indemnified party, its directors, officers and all Persons, if
any, who control each indemnified party within the meaning of either Section 15
of the Securities Act or Section 20 of the Securities Exchange Act, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm, such firm shall be designated in writing by a majority
of all the indemnified parties. All such fees and expenses shall be reimbursed
as they are incurred; provided, however, that if it is subsequently determined
that such indemnified party was not entitled to such indemnification, then the
indemnified party shall promptly reimburse the indemnifying party for all such
fees and expenses previously paid by the indemnifying party. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by this
paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(d) The indemnity provisions contained in this Section 8.8 shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of the Purchasers, their
officers or directors or any Person controlling the Purchasers; or the Company,
its officer or directors or any Person controlling the Company and (iii)
acceptance of any payment for any of the Preferred Stock.
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<PAGE>
8.9. Nominee; Benefits. All references to Purchasers in this Agreement
shall include the Person or Persons for whom the Purchasers are a nominee, and
the benefits of and rights and obligations under the Agreement shall accrue to
such Person or Persons which have a beneficial interest in the Preferred Stock
being acquired hereunder and for whom the Purchasers are a nominee. The
Purchaser makes the representations in Article IV for all such Persons for whom
the Purchaser is a nominee.
8.10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to applicable
principles of conflicts of law thereof.
8.11. Headings. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
8.12. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement, except to the extent that such prohibition or invalidity
would constitute a material change in the terms of this Agreement taken as a
whole.
8.13. Assignment. The Purchasers may assign their rights hereunder to any
of their Affiliates, provided that such assignment shall not release the
Purchasers from their obligations hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Subscription
Agreement to be executed as of the day and year first above written.
COMPANY:
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
--------------------------------
Name: Adam B. Gilbert
Title: EVP
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<PAGE>
STOCK SUBSCRIPTION AGREEMENT
PURCHASERS:
MADELEINE L.L.C.
By: /s/ Ronald J. Kravit
--------------------------
Name: Ronald J. Kravit
Title: Managing Director
Address for notices:
450 Park Avenue
New York, NY 10022
Attn: Ronald J. Kravit
Telecopy: 212-891-2104
Telephone: 212-891-2100
Subscription Amount: $25,000,000.00
28
<PAGE>
EDIFICEREX.COM, INC.
AMENDED AND RESTATED
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
MARCH 15 , 2000
<PAGE>
AMENDED AND RESTATED
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Amended and Restated Series C Preferred Stock Purchase Agreement
(this "Agreement") is made as of this 15th day of March, 2000 by and among
EdificeRex.com, Inc., a Delaware corporation (the "Company"), and the Investors
identified on the signature pages hereto (each, an "Investor").
WHEREAS, the Company and the Investors have entered into that certain
Series C Preferred Stock Purchase Agreement, dated as of March 15, 2000 (the
"Original Agreement"), pursuant to which the Investors agreed to purchase shares
of Series C Preferred Stock, par value $.001 per share (the "Series C Stock"),
of the Company; and
WHEREAS, the Company and the Investors wish to amend and restate the
Original Agreement for the purpose of amending the number of shares of Series C
Stock purchased by Metropolitan Internet Partners I, LLC;
NOW, THEREFORE, in consideration of the covenants and agreements made
herein, the Company and the Investors, intending to be legally bound, hereby
agree to amend and restate in its entirety the Original Agreement, and hereby
agree as follows:
1. Purchase and Sale of Series C Preferred Stock.
1.1 Sale and Issuance of Series C Preferred Stock. Subject to the terms and
conditions of this Agreement, each Investor agrees to purchase at the Closing
(as hereinafter defined), and the Company agrees to sell and issue to each
Investor, the number of shares of Series C Stock set forth opposite such
Investor's name on Schedule I hereto, having the terms set forth in the amended
and restated certificate of incorporation of the Company in the form of Exhibit
A hereto and the certificate of designations of the Company in the form of
Exhibit B hereto (collectively, the "Certificate"), at a price of $7.81 per
share, for an aggregate purchase price in the amount set forth opposite such
Investor's name on Schedule I hereto.
The total amount of shares of Series C Stock sold to the Investors pursuant
to this Agreement is sometimes hereinafter referred to as the "Shares," and the
Class A Common Stock, par value $.001 per share, of the Company (the "Class A
Common Stock") issuable upon conversion of the Shares is sometimes hereinafter
referred to as the "Conversion Stock." The Shares and the Conversion Stock are
sometimes hereinafter collectively referred to as the "Securities."
1.2 Closing. The purchase and sale of the Shares shall take place at the
offices of the Company, 200 Park Avenue, New York, New York 10166, at 10:00
a.m., on the date hereof, or at such other time and place as the Company and the
Investors mutually agree upon orally or in writing (which time and place are
designated as the "Closing"). At the Closing, the Company shall deliver to each
Investor a certificate representing the Series C Stock to be purchased by such
Investor, against delivery to the Company by such Investor of a wire transfer of
immediately available funds to an account designated by the Company, or
certified check, in the amount of the aggregate purchase price therefor.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor, except as set forth on the Schedule of
Exceptions furnished to the Investors and attached hereto as Schedule II,
specifically identifying the relevant subsection hereof, which exceptions shall
be deemed to qualify the representations and warranties made hereunder, as
follows:
<PAGE>
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite corporate power
and authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify will have a material adverse effect on its
business, properties, operations, assets, liabilities or condition (financial
or otherwise) (collectively, "Condition").
2.2 Capitalization. Immediately prior to the Closing, the capital stock of
the Company, as authorized by the Certificate, will consist of: (i) 155,000,000
shares of common stock, par value $.001 per share, of which (x) 150,000,000
shares will be designated as Class A Common Stock, of which 15,383,001 shares
will be issued and outstanding, and (y) 5,000,000 shares will be designated as
Class B Common Stock, par value $.001 per share (the "Class B Common Stock"
and, together with the Class A Common Stock, the "Common Stock"), all of which
will be issued and outstanding; and (ii) 30,000,000 shares of preferred stock,
par value $.001 per share, of which (x) 7,500,000 shares will be designated as
Series A Preferred Stock, par value $.001 per share (the "Series A Stock"), all
of which will be issued and outstanding, (y) 154,127 shares will be designated
as Series B Preferred Stock, par value $.001 per share (the "Series B Stock"),
of which 153,846 shares will be issued and outstanding, and (z) 5,000,000
shares will be designated as Series C Stock (together with the Series A Stock
and the Series B Stock, the "Preferred Stock"), none of which will be issued
and outstanding. Immediately prior to the Closing, 5,000,000 shares of Class A
Common Stock will be reserved for issuance upon conversion of issued and
outstanding shares of Class B Common Stock, 7,500,000 shares of Class A Common
Stock will be reserved for issuance upon conversion of issued and outstanding
shares of Series A Stock, 153,846 shares of Class A Common Stock will be
reserved for issuance upon conversion of issued and outstanding shares of
Series B Stock, and 6,000,000 shares of Class A Common Stock will be reserved
for issuance to key employees, officers and directors of, and consultants to,
the Company in respect of stock options, restricted stock and other awards
authorized under the Company's 2000 Long-Term Incentive Compensation Plan
(under which 190,000 options will be outstanding). The rights, privileges and
preferences of the Common Stock and the Preferred Stock are as stated in the
Certificate. Except as described in the first sentence of this Section 2.2, and
except for conversion rights of issued and outstanding shares of Preferred
Stock, as of the Closing, the Company will not (i) have outstanding any capital
stock or other securities convertible into or exchangeable for any shares of
its capital stock and, except for the preemptive rights contained in the
Stockholders' Agreement (as defined in Section 2.3), no Person (as defined in
Section 2.3(b)) will have any right to subscribe for or to purchase (including
conversion or preemptive rights), or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or other claims of any character relating to, any capital
stock or any stock or securities convertible into or exchangeable for any
capital stock of the Company; (ii) have any capital stock, equity interests or
other securities reserved for issuance for any purpose; or (iii) be subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any convertible securities, rights or
options of the type described in the preceding clause (i) (other than for
nominal consideration). All of the issued and outstanding shares of Common
Stock and Preferred Stock have been duly and validly issued and are fully paid
and nonassessable and all of the shares of Series C Stock, when issued as
contemplated hereby, and Class A Common Stock, when issued upon conversion of
the Preferred Stock, will be validly issued, fully paid and nonassessable.
There are no agreements to which the Company is a party with respect to the
voting or transfer of the Company's capital stock.
2.3 Authority; Execution and Delivery; Requisite Consents; Non-Violation.
(a) The Company has all requisite corporate power and authority to execute,
deliver and perform this Agreement, the Stockholders' Agreement in the form of
Exhibit C attached hereto (the "Stockholders' Agreement") and the Registration
Rights Agreement in the form of Exhibit D attached hereto (the "Registration
Rights Agreement" and, together with the Stockholders' Agreement, the
"Ancillary Agreements") and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of this Agreement
2
<PAGE>
and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Ancillary Agreements have been duly executed and delivered by the Company and
constitute the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with their respective terms.
(b) The execution, delivery and performance of this Agreement and the
Ancillary Agreements and the consummation by the Company of the transactions
contemplated hereby and thereby will not: (a) except for those that have been
or will timely be obtained or made, require any consent, license, permit,
waiver, approval, authorization or other action of or by, or registration,
declaration or filing with, any court or governmental authority, department,
commission, board, bureau, agency or instrumentality ("Governmental Authority")
or any other individual, partnership, corporation, unincorporated organization
or association, limited liability company, trust or other entity (each, a
"Person"); (b) violate or conflict with any provision of the Certificate or of
the By-Laws of the Company as in effect immediately prior to the execution and
delivery of this Agreement; or (c) with or without the giving of notice or the
lapse of time or both, constitute a default under, violate or conflict with, or
give rise to a right of termination, cancellation or acceleration under any Law
(as defined in Section 2.6 below), any Contract (as defined in Section 2.9
below) to which the Company is a party, or any Order (as defined in Section 2.5
below) by which the Company or any of its assets is bound.
2.4 Subsidiaries. The Company does not control, directly or indirectly,
any partnership, stock or other equity interests in any partnership,
corporation or other entity or have any voting rights or right to control the
policies and direction of any partnership, corporation or other entity.
2.5 Litigation. There is no action, suit or proceeding (collectively,
"Actions") pending or, to the knowledge of the Company, threatened against the
Company, or affecting any of the properties or assets of the Company, which is
reasonably likely to have a material adverse effect on the Company's Condition.
To the knowledge of the Company, there is no Action against any director,
officer or employee of the Company in connection with the business of the
Company. Neither the Company nor any of its assets or properties, nor, to the
knowledge of the Company, in connection with its business, any director,
officer or employee of the Company, is subject to any order, judgment, writ,
injunction, decree, ruling or decision (collectively, an "Order") of any
Governmental Authority which is material to the Condition of the Company. There
is no Action by the Company currently pending or which the Company currently
intends to initiate.
2.6 Compliance with Laws; Permits. To the knowledge of the Company, the
Company has not violated or failed to comply with, in any material respect, any
statute, law, ordinance, rule or regulation of any Governmental Authority that
is material to it or any of its properties or assets (collectively, "Laws").
The Company has all permits, licenses, orders, certificates, authorizations and
approvals of any Governmental Authority that are material to the conduct of its
business as presently conducted (collectively, the "Permits"); all such Permits
are in full force and effect; no violations or notices of failure to comply
have been issued or recorded in respect of any such Permits; and the Company
does not know of any reason why such Permits may be revoked or suspended.
2.7 Taxes. All material federal, state, city, county, local and foreign
income, franchise, sales, use and value added tax returns and reports
(collectively, "Returns") have been timely filed. All such Returns are true,
correct and complete in all material respects. All material taxes, assessments,
fees, interest, penalties and other charges with respect thereto (collectively,
"Taxes") due from the Company have been paid. No income tax return of the
Company has been audited by the applicable Governmental Authority, and there
are in effect no waivers of the applicable statute of limitations for Taxes in
any jurisdiction for the Company for any period.
3
<PAGE>
2.8 Title to Assets. The Company has good and marketable title to all of
its assets and properties, free and clear of any liens, pledges, security
interests, claims, encumbrances or other restrictions of any kind whatsoever
(collectively, "Liens"), except for Liens which individually and in the
aggregate are not material in amount, do not materially detract from the value
of such assets and properties and do not impair the use of such assets and
properties. With respect to any assets or properties it leases, the Company
holds a valid and subsisting leasehold interest therein, free and clear of any
Liens (except for Liens which individually and in the aggregate are not
material in amount, do not materially detract from the value of such assets and
properties and do not impair the use of such assets and properties), is in
compliance, in all material respects, with the terms of the applicable lease,
and enjoys peaceful and undisturbed possession under such lease. All of the
assets and properties of the Company that are material to the conduct of
business as presently conducted or as presently contemplated to be conducted by
the Company are in good operating condition and repair, subject to ordinary
wear and tear.
2.9 Contracts. Section 2.9 of Schedule II contains a true and complete
list of each contract to which the Company is a party that is material to the
business of the Company and which obligates the Company to pay, or contemplates
payment by the Company of, $250,000 or more (each, a "Contract"). True and
complete copies of all Contracts have been made available to the Investors. All
of the Contracts are in full force and effect and constitute legal, valid and
binding obligations of the Company and, to the knowledge of the Company, the
other parties thereto. The Company and, to the knowledge of the Company, each
other party thereto has performed in all material respects all obligations
required to be performed by it under the Contracts, and no violation exists in
respect thereof on the part of the Company or, to the knowledge of the Company,
any other party thereto. None of the Contracts is currently being renegotiated,
and the validity, effectiveness and continuation of all Contracts will not be
materially adversely affected by the transactions contemplated by this
Agreement.
2.10 Intellectual Property.
(a) The Company has exclusive ownership of, with the exclusive right to
use, sell, license, dispose of and bring actions for infringement of, all
Intellectual Property Rights (as defined in this Section 2.10) material to the
conduct of its business as presently conducted, and as presently contemplated
to be conducted, including, without limitation, all rights to the Company name
"EdificeRex.com" (the "Company Rights").
(b) The business of the Company as presently conducted, and as presently
contemplated to be conducted, and the provision of services by the Company do
not, and will not, violate any agreements which the Company has with any third
party or infringe any Intellectual Property Rights of any third party.
(c) No claim is pending or, to the knowledge of the Company, threatened
against the Company, nor has the Company received any notice from any Person,
asserting that any of the Company's present or contemplated activities infringe
or may infringe any Intellectual Property Rights of such Person, and the
Company is not aware of any infringement by any other Person of any of the
Company Rights.
(d) The Company has taken all commercially reasonable steps required to
establish and preserve its ownership of all of the Company Rights. Each
employee of the Company, and each of the Company's consultants and independent
contractors involved in development of any of the Company Rights, has executed
an agreement regarding confidentiality and proprietary information, and, to the
knowledge of the Company, none of such employees, consultants or independent
contractors is in violation of any agreement or in breach of any agreement or
arrangement with former or present employers relating to confidentiality or
proprietary information.
4
<PAGE>
As used herein, the "Intellectual Property Rights" of a Person shall mean
all intellectual property rights necessary for the operation of such Person's
business, including, without limitation, all patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
service mark applications, copyrights, copyright applications, domain names,
URLs, computer programs and other computer software, inventions, designs,
samples, specifications, schematics, know-how, trade secrets, proprietary
processes and formulae, including production technology and processes, all
source and object code, algorithms, promotional materials, customer lists,
supplier and dealer lists and marketing research, and all documentation and
media constituting, describing or relating to the foregoing, including, without
limitation, manuals, memoranda and records.
2.11 Minute Books. The minute books of the Company fully set forth all
action taken by the Board of Directors (including any committee thereof) and
the stockholders of the Company.
2.12 Registration Rights. Except as provided in the Registration Rights
Agreement and in the registration rights agreement that the Company has entered
into with i-Hatch Ventures, LLC and i-Hatch Advisors, LLC relating to the
Series B Stock, no Person has demand, "piggy-back" or other rights to cause the
Company to file any registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), relating to any securities of the Company or to
participate in any such registration statement.
2.13 No Brokers or Finders. Neither the Company nor any of its affiliates
has entered or will enter into any agreement pursuant to which the Company or
the Investors will be liable, as a result of the transactions contemplated by
this Agreement or the Ancillary Agreements, for any claim of any Person for any
commission, fee or other compensation as finder or broker.
2.14 Investment Company Act. The Company is not an "investment company"
nor is the Company directly or indirectly controlled by or acting on behalf of
any Person which is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
2.15 Use of Proceeds. The Company will use the proceeds from the sale of
the Shares to the Investors for general corporate purposes arising in the
ordinary course of business, including, without limitation, the development of
the Company's web site and broadband service offerings and the marketing,
advertising and promotion thereof, and may be required to use a portion of such
proceeds to repay funds loaned to it by Insignia Financial Group, Inc.
("Insignia") to finance the organization and operations of the Company.
3. Representations and Warranties of the Investors. Each Investor hereby
severally represents and warrants to the Company as follows:
3.1 Organization. The Investor is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization.
3.2 Authorization; Execution and Delivery; Requisite Consents;
Non-Violation. (a) The Investor has all requisite power and authority to
execute, deliver and perform this Agreement and the Ancillary Agreements and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Ancillary Agreements, and
the consummation of the transactions contemplated hereby and thereby, have been
duly and validly authorized by all necessary action on the part of the
Investor. This Agreement and each of the Ancillary Agreements have been duly
executed and delivered by the Investor and constitute the legal, valid and
binding obligation of the Investor, enforceable against the Investor in
accordance with their respective terms.
5
<PAGE>
(b) The execution, delivery and performance of this Agreement and the
Ancillary Agreements and the consummation by the Investor of the transactions
contemplated hereby and thereby will not: (a) except for those that have been
or will timely be obtained or made, require any consent, license, permit,
waiver, approval, authorization or other action of or by, or registration,
declaration or filing with, any Governmental Authority or Person; (b) violate
or conflict with any provision of the organizational documents of the Investor
as in effect immediately prior to the execution and delivery of this Agreement;
or (c) with or without the giving of notice or the lapse of time or both,
constitute a default under, violate or conflict with, or give rise to a right
of termination, cancellation or acceleration under any material law to which
the Investor is subject, any material contract to which the Investor is a
party, or any Order by which the Investor or any of its assets is bound.
3.3 No Intended Resale. The Shares are being acquired by the Investor
solely for its own account for investment purposes only and not with a view to
or in connection with any resale or distribution thereof in violation of the
Securities Act.
3.4 Investment Experience; Accredited Investor. The Investor understands
that the Company is recently formed and has only a limited operating history.
The Investor can bear the economic risk (including the complete loss) of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Shares. The Investor is an "accredited investor" within the meaning of
Rule 501 of Regulation D promulgated under the Securities Act.
3.5 Restricted Securities. The Investor understands that the Shares it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances. In this connection,
the Investor represents that it is familiar with Rule 144 under the Securities
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
3.6 Conflicts of Interest. The Investor acknowledges that: (a) the Company
and Insignia are parties to an Advisory and Administrative Services Agreement,
pursuant to which the Company will pay Insignia to perform management,
financial and legal advisory services on behalf of the Company and will
reimburse Insignia for related out-of-pocket expenses, and that, because
Insignia is the parent of the Company, such agreement was not negotiated on an
arm's-length basis; (b) Insignia and/or one or more of its affiliates and the
Company may in the future enter into various other agreements that could be
deemed to benefit Insignia and that, because Insignia is the parent of the
Company, such agreements would not be negotiated on an arm's-length basis; and
(c) Insignia may require the Company to use a portion of the proceeds from the
sale of the Shares to repay funds loaned by Insignia to the Company to finance
the organization and operations of the Company.
3.7 Legends. The Investor understands that the certificates evidencing the
Shares will bear the legends set forth in the Stockholders' Agreement.
3.8 No Brokers or Finders. The Investor has not entered and will not enter
into any agreement pursuant to which the Company or the Investors will be
liable, as a result of the transactions contemplated by this Agreement or the
Ancillary Agreements, for any claim of any Person for any commission, fee or
other compensation as finder or broker.
4. Conditions of each Investor's Obligations at Closing. The obligation of
each Investor to purchase the Shares to be purchased by it at the Closing is
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions, any of which may be waived by the Investor:
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<PAGE>
4.1 Representations and Warranties. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects on and as of the date of the Closing as if made on and as of
such date.
4.2 Performance. The Company shall have performed or complied with all
agreements and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing.
4.3 Compliance Certificate. The Investor shall have received a certificate
dated as of the date of the Closing executed by a senior officer of the Company
certifying that, to such officer's knowledge, the conditions specified in
Sections 4.1 and 4.2 have been fulfilled.
4.4 Stock Certificates. At the Closing, the Company shall have tendered to
the Investor a certificate representing the Shares to be purchased by the
Investor pursuant to this Agreement, in form and substance reasonably
satisfactory to the Investor and sufficient to transfer to and vest in the
Investor good and valid title to the Shares.
4.5 Consents. The Company shall have obtained all consents, approvals or
waivers from Governmental Authorities and Persons necessary for the execution,
delivery and performance of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby, all without
material cost to the Company.
4.6 No Litigation. There shall not be any Action of or before any
Governmental Authority pending with respect to this Agreement, the Ancillary
Agreements or the transactions contemplated hereby or thereby that might
materially adversely affect the Condition of the Company or that would
restrain, enjoin or otherwise prohibit such transactions.
4.7 Ancillary Agreements; Certificate. The Ancillary Agreements shall have
been executed and delivered by each of the parties thereto (other than other
Investors) and shall be in full force and effect. The Certificate shall have
been duly filed and shall be in full force and effect.
4.8 Proceedings and Documents. All proceedings in connection with the
transactions contemplated hereby and all documents and instruments incident to
such transactions shall be reasonably satisfactory in substance and form to the
Investor and its counsel, and the Investor shall have received all such
counterpart originals or certified or other copies of such documents as the
Investor may reasonably request.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company to each Investor under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
any of which may be waived by the Company:
5.1 Representations and Warranties. The representations and warranties of
each Investor contained in this Agreement shall be true and correct in all
material respects on and as of the date of the Closing as if made on and as of
such date.
5.2 Performance. Each Investor shall have performed or complied with all
agreements and conditions required by this Agreement and the Ancillary
Agreements to be performed or complied with by it prior to or at the Closing.
5.3 Payment of Purchase Price. Each Investor shall have delivered to the
Company the aggregate purchase price payable for the Shares purchased by the
Investor pursuant to this Agreement.
7
<PAGE>
6. Miscellaneous.
6.1 Expenses. All fees and expenses incurred by any party hereto in
connection with this Agreement shall be borne by such party.
6.2 Survival. All representations, warranties, covenants and agreements
contained in or made pursuant to this Agreement or contained in any certificate
delivered pursuant to this Agreement shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any party
hereto, and shall survive the transfer and payment for the Shares and the
consummation of the transactions contemplated hereby; provided, however, that
the representations and warranties contained in Sections 2 and 3 (other than
the representations and warranties contained in Sections 2.1 through 2.4, 2.7
and 2.12, which shall survive so long as any Investor or any of its successors
or permitted assigns holds any Securities) shall terminate on the later to
occur of (i) two years from the date hereof and (ii) the consummation of a
Qualified Initial Public Offering (as such term is defined in the Registration
Rights Agreement), provided further, however, that no representation or
warranty shall terminate until after the final non-appealable resolution of any
claim relating to such representation or warranty, which claim shall have been
made prior to the expiration of such representation or warranty.
6.3 Further Assurances. Each party hereto shall do and perform or cause to
be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement.
6.4 Amendment; Waiver. Any term, covenant, agreement or condition of this
Agreement may be amended, and compliance therewith may be waived (either
generally or in a particular circumstance and either retroactively or
prospectively), by a written instrument signed by the Company and the
applicable Investor. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon such Investor and the Company.
6.5 Assignment; Binding Effect. This Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective legal
representatives, successors and permitted assigns, except that neither this
Agreement nor any rights or obligations hereunder shall be assigned or
delegated by (a) the Company without the prior written consent of the Investors
or (b) by any Investor without the prior written consent of the Company.
Nothing in this Agreement, express or implied, is intended to confer upon any
Person, other than the parties hereto and their respective legal
representatives, successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
6.6 APPLICABLE LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT,
REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF
LAW.
6.7 JUDICIAL PROCEEDINGS. ANY JUDICIAL PROCEEDING INVOLVING ANY DISPUTE,
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE RIGHTS
OR INTERESTS OF ANY INVESTOR OR THE COMPANY OR THE BREACH OR ALLEGED BREACH OF
THIS AGREEMENT, WHETHER ARISING DURING, AT OR AFTER THE TERMINATION OF THIS
AGREEMENT (EACH OF THE FOREGOING DISPUTES, CONTROVERSIES AND CLAIMS HEREINAFTER
REFERRED TO AS AN "AGREEMENT DISPUTE"), SHALL BE
8
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BROUGHT ONLY IN A FEDERAL OR STATE COURT LOCATED IN THE COUNTY, CITY AND STATE
OF NEW YORK, AND EACH OF THE PARTIES HERETO (i) UNCONDITIONALLY ACCEPTS THE
EXCLUSIVE JURISDICTION OF SUCH COURTS AND ANY RELATED APPELLATE COURT AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY AND (ii)
IRREVOCABLY WAIVES ANY OBJECTION SUCH PARTY MAY NOW HAVE OR HEREAFTER HAS AS TO
THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS
AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY JURY
IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING AN AGREEMENT
DISPUTE.
6.8 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be personally delivered, mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by a nationally recognized overnight courier, addressed to
the applicable party at its address set forth under its name on the signature
page hereto (or such other address as such party shall hereafter specify by
written notice in writing to the other parties hereto). Any such notice or
communication shall be deemed to have been received (A) in the case of personal
delivery, on the date of such delivery, (B) in the case of a nationally
recognized overnight courier, on the next business day after the date when
sent, and (C) in the case of mailing, on the third business day following that
on which the piece of mail containing such communication is posted.
6.9 Entire Agreement. This Agreement and the documents referred to herein
or delivered pursuant hereto or pursuant to such documents, including all
exhibits and schedules, contain the entire understanding of the parties with
respect to their subject matter and supersede all prior agreements and
understandings among the parties with respect to their subject matter.
6.10 Severability. Each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this
Agreement.
6.11 Descriptive Headings. The section and other headings contained in
this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.
9
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6.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which together shall be deemed to be one and the same
agreement.
[Signature page(s) follow]
10
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EDIFICEREX.COM, INC.
By: /s/ Jeffrey P. Cohen
--------------------------
Jeffrey P. Cohen
Executive Vice President
Address:
200 Park Avenue
New York, New York 10166
Attention: Jeffrey P. Cohen
METROPOLITAN INTERNET PARTNERS I, LLC
By: MIP I, LLC, its Managing Member
By: Insignia Internet Initiatives, Inc.,
its Managing Member
By: /s/ Adam B. Gilbert
--------------------------
Adam B. Gilbert
President
Address:
c/o Insignia Internet Initiatives, Inc.
300 Delaware Avenue, Suite 900
Wilmington, Delaware 19801
Attention: Adam B. Gilbert
BLACKACRE CAPITAL MANAGEMENT, LLC
By: /s/ Ronald Kravit
--------------------------
Ronald Kravit
Managing Director
Address:
450 Park Avenue
New York, New York 10022
Attention: Ronald Kravit
11
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SCHEDULE I
March 15, 2000
Name of Investor Number of Shares Purchase Price
of Series C
Preferred Stock
Purchased
- ---------------------------------------- ------------------ --------------------
Metropolitan Internet Partners I, LLC 4,543,040 $35,481,142.40
Blackacre Capital Management, LLC 52,309 $408,533.29
12
<PAGE>
EDIFICEREX.COM, INC.
STOCKHOLDERS' AGREEMENT
March 15, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Article I Definitions................................................................................1
1.1 Certain Definitions........................................................................1
Article II Securities Act.............................................................................3
2.1 Restrictive Legend.........................................................................3
Article III Reports; Confidentiality...................................................................3
3.1 Delivery of Financial Statements...........................................................3
3.2 Confidentiality............................................................................4
3.3 Termination of Covenants...................................................................4
Article IV Preemptive Rights..........................................................................4
4.1 Rights of First Offer......................................................................4
4.2 Sale of Securities by Company..............................................................5
Article V Transfers of Shares........................................................................5
5.1 General Restrictions on Transfer...........................................................5
5.2 Requirements Applicable to Transfers.......................................................5
5.3 [Reserved].................................................................................6
5.4 Tag-Along Option...........................................................................6
5.5 Prohibited Transfers.......................................................................7
Article VI Miscellaneous..............................................................................7
6.1 Termination................................................................................7
6.2 Governing Law; Jurisdiction................................................................7
6.3 Successors and Assigns.....................................................................8
6.4 Notices, Etc...............................................................................8
6.5 Delays or Omissions........................................................................8
6.6 Third Parties..............................................................................8
6.7 Severability...............................................................................8
6.8 Amendment and Waiver.......................................................................8
6.9 Rights of Stockholder......................................................................9
6.10 Titles and Subtitles.......................................................................9
6.11 Entire Agreement...........................................................................9
6.12 Neutral Construction.......................................................................9
6.13 Counterparts...............................................................................9
</TABLE>
<PAGE>
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement"), dated as of March 15,
2000, is made by and among EdificeRex.com, Inc., a Delaware corporation (the
"Company"), Insignia Financial Group, Inc., a Delaware corporation ("Insignia"),
the persons listed on the signature pages hereto (the "Investors") and any
transferee who subsequently becomes a party to this Agreement in accordance with
the terms hereof (such transferees, together with the Investors, the
"Stockholders").
W I T N E S S E T H
WHEREAS, pursuant to the terms of one or more Series C Preferred Stock
Purchase Agreements between the Company and the Investors (each, a "Purchase
Agreement"), and as an inducement to consummate the transactions contemplated by
the Purchase Agreements, it is a condition to the consummation of the
transactions contemplated by the Purchase Agreements that the Company, Insignia
and the Stockholders enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
and agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"AFFILIATE" of a person is (A) in respect of a person which is not an
individual, any other person that, directly or indirectly, Controls or is
Controlled by, or is under common Control with such person, and (B) with respect
to an individual, such person's spouse, a parent or lineal descendant (including
an adopted child) of a parent, or the spouse of a lineal descendant of a parent,
a trustee, guardian or custodian for, or an executor, administrator or other
legal representative of the estate of, such person, or a trustee, guardian or
custodian for an Affiliate of such person, or the trustee of a trust (including
a voting trust) for the benefit of such person. In addition, for purposes of
this definition, all employees, directors, officers, stockholders, consultants
and advisors of Insignia and all Controlled subsidiaries of Insignia shall be
deemed to be Affiliates of Insignia.
"BOARD" shall mean the board of directors of the Company as constituted
from time to time.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK EQUIVALENTS" shall mean, with respect to any Securities
at any given time, the aggregate number of shares of Class A Common Stock, par
value $.001 per share, included in or for or into which such Securities are
exchangeable, convertible, or exercisable at such time.
"CONTROL" (including the terms "Controlling," "Controlled,"
"Controlled by" and "under common Control with"), as used with respect to any
entity, shall mean ownership of 50% or more of the voting securities of such
entity.
<PAGE>
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"FINANCING" shall mean any offering or series of related offerings of
Securities by the Company for cash, except the following: (i) the issuance or
sale of Securities to employees, officers, directors or consultants of the
Company for the primary purpose of soliciting or retaining their services as
shall have been approved by the Board; (ii) the issuance or sale of Securities
to strategic business partners, leasing entities, vendors or financial
institutions in connection with transactions approved by the Board, provided
that the primary business purpose of any such transaction is something other
than raising capital; (iii) the sale of Securities in an Initial Public
Offering; (iv) any issuances of Securities in connection with any stock split,
reverse split, stock dividend or recapitalization by the Company (provided that
none of the foregoing is in connection with raising capital); or (v) the
issuance of Securities in connection with the acquisition of another entity by
the Company by merger, consolidation, or purchase of all or substantially all of
the assets, shares or other interests of such entity.
"GAAP" shall mean U.S. generally accepted accounting principles in
effect from time to time.
"INITIAL PUBLIC OFFERING" shall mean an offering by the Company of its
equity securities to the general public in which the net proceeds to the Company
are in excess of $20,000,000 (after deduction of underwriters' discounts and
commissions and expenses of the offering) and the public offering price per
share is equal to or greater than $10.00 (as adjusted for stock splits, reverse
splits, divisions, combinations or similar events) and the underwritten equity
securities are listed for trading on either the New York Stock Exchange, the
American Stock Exchange or The Nasdaq Stock Market's National Market.
"INSIGNIA GROUP" means Insignia and its Controlled Affiliates taken as
a whole.
"OWNERSHIP PERCENTAGE" shall mean, with respect to any particular
Stockholder at any given time, the fully-diluted common economic interest in the
Company (assuming full conversion, exchange or exercise of all then outstanding
Securities which are convertible into or exchangeable or exercisable for common
equity securities of the Company in accordance with their terms) represented by
the Shares held of record by such Stockholder at such time, expressed as a
percentage.
"SECURITY" shall mean any equity security of the Company and any
security which by its terms is convertible into or exchangeable or exercisable
for any equity security of the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SHARES" shall mean the shares of Series C Preferred Stock, par value
$.001 per share, of the Company purchased by the Investors pursuant to the
Purchase Agreement, together with any shares of Class A Common Stock, par value
$.001 per share, into which such shares of Series C Preferred Stock are
converted.
2
<PAGE>
ARTICLE II
SECURITIES ACT
--------------
2.1 RESTRICTIVE LEGEND. Each certificate representing Shares shall be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable state securities laws):
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY
STATE. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM."
(b) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A
STOCKHOLDERS AGREEMENT AMONG THE COMPANY AND CERTAIN OF ITS
STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY."
The legend set forth in Section 2.1(a) hereof will be removed by the
Company from any certificate representing Shares (i) at the request of any
Stockholder if such Stockholder shall have obtained and delivered to the Company
a written opinion (addressed to the Company) of counsel reasonably acceptable to
the Company to the effect that the Shares proposed to be disposed of may
lawfully be so disposed without registration, qualification or legend or (ii) at
such time as a registration statement under the Securities Act is in effect with
respect to such Shares.
The legend set forth in Section 2.1(b) hereof will be removed by the
Company from any certificate representing Shares at such time as this Agreement
is terminated in accordance with Section 6.1 hereof.
ARTICLE III
REPORTS; CONFIDENTIALITY
------------------------
3.1 DELIVERY OF FINANCIAL STATEMENTS.
---------------------------------
(a) Within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of the Company, the Company shall deliver to each
Stockholder owning Shares, a consolidated balance sheet of the Company and its
subsidiaries as at the end of such fiscal quarter and the related consolidated
statements of operations, shareholders' equity and cash flows for such fiscal
quarter and for the portion of the fiscal year then ended, without footnote
disclosure, setting forth in the case of each fiscal quarter ending after
completion of the Company's first fiscal year, in comparative form, the figures
for the corresponding periods of the previous fiscal year, certified by the
chief financial officer or other senior officer designated by the chief
executive officer of the Company as fairly presenting in all material respects
the consolidated financial condition and results of operations of the Company
and its subsidiaries as at the end of such fiscal quarter and for the period(s)
then ended and as having been prepared in accordance with GAAP (except for the
absence of footnotes) applied on a basis consistent with the
3
<PAGE>
audited financial statements of the Company, subject to changes resulting from
audit and normal year-end adjustments.
(b) Within 90 days after the end of each fiscal year, the Company shall
deliver to each Stockholder owning Shares, an audited consolidated balance sheet
of the Company and its subsidiaries as of the end of such fiscal year and the
related audited consolidated statements of operations, shareholders' equity and
cash flows for such fiscal year, setting forth in the case of each fiscal year
ending after completion of the Company's first fiscal year, in comparative form,
the figures for the previous fiscal year, certified by the Company's independent
accountants (which shall be a firm of nationally recognized standing).
3.2 CONFIDENTIALITY. Each Stockholder agrees that any information
obtained by such Stockholder pursuant to this Article III will not be disclosed
without the prior written consent of the Company. Each Stockholder further
acknowledges and understands that any information so obtained may be considered
"inside" non-public information and may not be utilized by such Stockholder in
connection with purchases and/or sales of the securities of the Company or
Insignia except in compliance with applicable state and federal securities laws.
The foregoing notwithstanding, a Stockholder may provide information obtained by
it pursuant to this Article III to (i) a prospective transferee, in connection
with any Transfer permitted under this Agreement, provided that such prospective
transferee has executed a nondisclosure agreement in form and substance
satisfactory to the Company, or (ii) to any party, provided that such disclosure
is compelled by judicial or administrative process or by other requirements of
law, and notice of such disclosure is furnished to the Company, or is
information otherwise in the public domain (other than by reason of a breach of
this Section 3.2 by any Stockholder).
3.3 TERMINATION OF COVENANTS. The covenants set forth in Article III
shall terminate, and be of no further force or effect, upon the earlier of (i)
the termination of this Agreement pursuant to Section 6.1 or (ii) such time as
the Company initially becomes subject to the periodic reporting requirements of
Section 13 or 15(d) of the Exchange Act.
ARTICLE IV
PREEMPTIVE RIGHTS
-----------------
4.1 RIGHTS OF FIRST OFFER. Subject to the terms and conditions
specified in this Article IV, the Company hereby grants to each Stockholder
owning Shares a right of first offer with respect to future sales by the Company
of its Securities in connection with any Financing. Each time the Company
proposes to offer any Securities in a Financing, the Company shall first offer
such Securities to each Stockholder owning Shares in accordance with the
following provisions:
(a) The Company shall deliver a notice ("Notice") to each Stockholder
owning Shares stating (i) its intention to offer such Securities for sale, (ii)
the number of such Securities to be offered (the "Offered Securities"), (iii)
the price for which it proposes to offer such Securities, (iv) the terms and
conditions of such offer and (v) such Stockholder's Ownership Percentage as of
the date of such Notice.
(b) Within ten (10) calendar days after receipt of the Notice, each
Stockholder (or Controlled Affiliate of such Stockholder) may elect to purchase,
at the price and on the terms specified in the Notice, up to that number of
Offered Securities equal to such Stockholder's Ownership Percentage multiplied
by the Offered Securities, by providing the Company with written notice of its
election, provided that such Stockholder (or a Controlled Affiliate) is an
"accredited investor" (as defined in Rule 501(a) under the Securities Act) at
the time of purchase.
4
<PAGE>
4.2 SALE OF SECURITIES BY COMPANY. Within sixty (60) days of the
expiration of the 10-day period described in Section 4.1(b), any Offered
Securities which the Stockholders have not elected to purchase may be sold by
the Company to any person or persons at a price not less than, and upon terms no
more favorable to such person or persons than, those specified in the Notice. If
the Company does not complete the sale of all such Offered Securities within
such 60-day period, the rights of the Stockholders under this Article IV with
respect to any such unsold Offered Securities shall be revived.
ARTICLE V
TRANSFERS OF SHARES
-------------------
5.1 GENERAL RESTRICTIONS ON TRANSFER.
(a) No Stockholder may give, sell, assign, transfer, exchange or
otherwise dispose of any Shares (each such activity, a "Transfer") in
contravention of the terms and conditions of this Article V. A pledge or the
grant of a security interest in Shares to secure a bona fide loan shall not
constitute a Transfer. A Transfer of the equity interests in a special-purpose
entity whose only significant asset is Shares of the Company (or its equity in
another such special-purpose entity) shall also be subject to the provisions of
this Article V as if such equity interests represented the underlying Shares;
provided, however, that this clause shall not be applicable to Metropolitan
Internet Partners I, LLC.
(b) The Company shall be entitled to treat the record owner of
Shares as the absolute owner thereof in all respects, and shall incur no
liability for distributions of cash or other property made in good faith to such
owner until, subject to compliance with this Article V, such time as a written
assignment of such Shares has been received and accepted by the Company and
recorded on the books of the Company.
5.2 REQUIREMENTS APPLICABLE TO TRANSFERS.
(a) Every Transfer shall be subject to all of the following
conditions and requirements:
(i) The proposed Transfer must not cause or result in
any violation of law, including without limitation federal or
state securities laws. Without limiting the foregoing, the
proposed Transfer must not (i) cause the Company to become an
investment company as defined in the Investment Company Act of
1940, as amended, or (ii) require the registration of the
Company's securities under federal or state securities laws.
(ii) The transferee must execute and deliver to the
Company a joinder agreement, in form and substance reasonably
satisfactory to the Company, pursuant to which it agrees to
become a party to and be bound by this Agreement, and to be
subject to the same provisions applicable to the transferor in
this Agreement.
(iii) Prior to any proposed Transfer, the transferor
must give written notice to the Company of such transferor's
intention to effect such Transfer, which notice must describe
the manner and circumstances of the proposed Transfer in
reasonable detail as well as the identity of the transferee.
(iv) If requested by the Company, the transferor must
deliver to the Company, at such transferor's expense, a written
opinion, addressed to the Company, of legal counsel reasonably
satisfactory to the Company to the effect that the proposed
5
<PAGE>
Transfer of Shares may be effected without registration under
the Securities Act and applicable state securities laws.
(v) Shares may only be Transferred in exchange for
consideration consisting solely of cash.
(vi) The transferee may not be a competitor of the
Company (as determined by the Board acting in good faith).
(b) No Transfer of Shares by a Stockholder in accordance with
the terms hereof shall relieve such Stockholder from its obligations under this
Agreement.
(c) Notwithstanding the foregoing, the provisions of Sections
5.2(a)(v) shall not apply to a Transfer by a Stockholder to an Affiliate.
5.3 [RESERVED].
5.4 TAG-ALONG OPTION. In the event that one or more members of the
Insignia Group proposes to Transfer Securities representing on a fully-diluted
basis 10% or more of the combined voting power of the Company at the time of
such Transfer in any one or a series of transactions (other than Transfers to
Controlled Affiliates), then the Stockholders shall have the right to
participate in such Transfer (the "Tag-Along Option") as follows:
(a) Insignia shall deliver to each Stockholder holding Shares a
notice (the "Tag-Along Notice") setting forth the name of the transferee, the
Securities to be Transferred, the price (expressed in terms of dollars per
Common Stock Equivalent) and other material terms of the Transfer, and any other
relevant material information available regarding the proposed Transfer at least
fifteen (15) days prior to such Transfer.
(b) Each such Stockholder shall have the right (exercisable
within ten (10) days of such Stockholder's receipt of the Tag-Along Notice) to
sell a portion of its Shares to such transferee which is equal to or less than
the product obtained by multiplying (i) the total number of Shares owned by such
Stockholder by (ii) a fraction, the numerator of which is the total number of
Common Stock Equivalents represented by the Securities proposed to be
Transferred by the Insignia Group, and the denominator of which is the total
number of Common Stock Equivalents represented by all Securities then owned by
the Insignia Group. Any such election to participate shall be made by written
notice (a "Tag Along Notice of Election") to Insignia within ten (10) days of
such Stockholder's receipt of the Tag-Along Notice. The right of each
Stockholder to participate in such Transfer shall be conditioned upon such
Stockholder's execution of such documents and agreements as the proposed
transferee may require; provided, however, that the terms of such documents and
agreements shall be no more onerous than those set forth in the documents and
agreements to be executed by the Insignia Group in connection with such
Transfer; and further provided that no such Stockholder shall be required to
indemnify a transferee for an amount in excess of the total consideration to be
received by such Stockholder pursuant to such Transfer.
(c) If no Stockholder elects to participate by delivering a
Tag-Along Notice of Election within ten (10) days of the receipt of the
Tag-Along Notice, Insignia may sell the Securities to be Transferred on the
terms and conditions set forth in the Tag-Along Notice.
(d) If one or more Stockholders elects to participate by
delivering a Tag-Along Notice of Election within ten (10) days of the receipt of
the Tag-Along Notice, Insignia shall use all reasonable efforts to cause the
prospective transferee(s) to agree to acquire all Securities included in the
Tag-Along
6
<PAGE>
Notice and all Shares included in the Tag-Along Notice(s) of Election, upon the
same terms and conditions set forth in the Tag-Along Notice. If such prospective
transferee is unwilling or unable to acquire all of such additional Shares upon
such terms, then Insignia may elect either to cancel such Transfer or to proceed
with such Transfer by reducing the number of Securities to be sold pursuant to
the Tag-Along Notice and Shares to be sold pursuant to the Tag-Along Notice(s)
of Election such that the total number of Common Stock Equivalents represented
by the Securities to be sold by the Insignia Group, on the one hand, and the
total number of Common Stock Equivalents represented by Shares to be sold by the
Stockholders that delivered Tag-Along Notices of Election, on the other hand,
does not exceed the total number of Common Stock Equivalents such transferee is
willing to purchase. Specifically, pursuant to the preceding sentence, the
number of Common Stock Equivalents represented by the Securities proposed to be
sold by the Insignia Group and the number of Common Stock Equivalents
represented by Shares proposed to be sold by the Stockholders who delivered
Tag-Along Notices of Election shall each be reduced by being multiplied by a
fraction, the numerator of which is equal to the total number of Common Stock
Equivalents the transferee is willing to purchase and the denominator of which
is equal to the total number of Common Stock Equivalents represented by
Securities proposed to be sold by the Insignia Group plus the total number of
Common Stock Equivalents represented by Shares proposed to be sold by the
Stockholders who delivered Tag-Along Notices of Election.
(e) Within ten (10) days after the date by which the
Stockholders were first required to notify Insignia of their intent to
participate, Insignia shall notify each Stockholder who has elected to
participate of the number of Shares held by such Stockholder that will be
included in the Transfer and the date on which the Transfer will be consummated.
(f) Each of the Stockholders electing to Transfer his or its
Shares pursuant to this Section 5.4 shall deliver to the transferee, or to
Insignia for delivery to the transferee, the Share certificate(s) representing
such Stockholder's Shares to be Transferred in genuine and unaltered form, duly
endorsed in blank or accompanied by duly executed stock powers in blank, with
all requisite transfer stamps, if any, attached thereto. At the time of
consummation of the Transfer, the transferee shall remit directly to each such
Stockholder that portion of the sale proceeds to which such Stockholder is
entitled by reason of his participation therein.
5.5 PROHIBITED TRANSFERS. Any purported Transfer of Securities in
violation of any provision of this Agreement shall be null and void and
ineffective to Transfer any Securities and shall not be binding upon or be
recognized by the Company, and no such Transfer shall be made or recorded on the
books of the Company. In the event that any Stockholder or member of the
Insignia Group shall at any time attempt to Transfer Securities in violation of
any of the provisions of this Agreement, the Company, Insignia and the
Stockholders, as the case may be, in addition to all rights and remedies at law
and equity, shall have and be entitled to an order restraining or enjoining such
Transfer (without the need to post a bond or other security), it being expressly
acknowledged and agreed that damages at law would be an inadequate remedy for a
Transfer in violation of this Agreement.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 TERMINATION. This Agreement shall terminate upon the closing of an
Initial Public Offering.
6.2 GOVERNING LAW; JURISDICTION. This Agreement shall be construed in
accordance with, and governed in all respects by, the laws of the State of
Delaware, as applied to agreements entered into, and to be performed entirely in
such state, between residents of such state. The parties hereto agree to submit
to the jurisdiction of the federal and state courts of the State of New York
with respect to the breach or
7
<PAGE>
interpretation of this Agreement or the enforcement of any and all rights,
duties, liabilities, obligations, powers and other relations between the parties
arising under this Agreement.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
6.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder, shall be in writing and shall be personally delivered,
mailed by registered or certified mail, postage prepaid, return receipt
requested, or otherwise delivered by a nationally-recognized overnight courier,
addressed (a) if to Insignia, at Insignia's address set forth on the signature
page hereto, or such other address as Insignia shall have furnished to the
Company in writing, (b) if to a Stockholder, at its address set forth on the
signature page hereto, or the address set forth in the applicable joinder
agreement, as the case may be, or such other address as such Stockholder shall
have furnished to the Company in writing, or (c) if to the Company, at its
address set forth on the signature page hereto addressed to the attention of the
Corporate Secretary, or at such other address as the Company shall have
furnished to the Stockholders. Any such notice or communication shall be deemed
to have been received (A) in the case of personal delivery, on the date of such
delivery, (B) in the case of a nationally-recognized overnight courier, on the
next business day after the date when sent, and (C) in the case of mailing, on
the third business day following that on which the piece of mail containing such
communication is posted.
6.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Securities upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any Stockholder, shall be cumulative and not alternative.
6.6 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
6.7 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
6.8 AMENDMENT AND WAIVER. Any provision of this Agreement may be
amended with the written consent of the Company, Insignia and the holders of at
least a majority of the outstanding Shares then held by the Stockholders. Any
amendment effected in accordance with this paragraph shall be binding upon each
Stockholder, Insignia and the Company. In addition, any party may waive
performance of any obligation owing to it by any other party, or agree to accept
alternatives to such performance, without obtaining the consent of any other
party, provided such waiver is in writing and signed by the party charged
therewith.
8
<PAGE>
6.9 RIGHTS OF STOCKHOLDER. Each Stockholder shall have the absolute
right to exercise or refrain from exercising any right or rights that such
Stockholder may have by reason of this Agreement, including, without limitation,
the right to consent to the waiver or modification of any obligation under this
Agreement, and such Stockholder shall not incur any liability to any other
Stockholder as a result of exercising or refraining from exercising any such
right or rights.
6.10 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.11 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and supersedes all
prior understandings or agreements, whether written or oral, with respect to the
subject matter hereof.
6.12 NEUTRAL CONSTRUCTION. The parties to this Agreement agree that
this Agreement was negotiated fairly between them at arm's length and that the
final terms of this Agreement are the product of the parties' negotiations. Each
party represents and warrants that it has sought and received legal counsel of
its own choosing with regard to the content of this Agreement and the rights and
obligations affected hereby. The parties agree that this Agreement shall be
deemed to have been jointly and equally drafted by them, and that the provisions
of this Agreement therefore should not be construed against a party or parties
on the grounds that the party or parties drafted or was more responsible for
drafting the provision(s).
6.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, by manual and facsimile signatures, each of which shall be an
original document enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
--------
Address: EDIFICEREX.COM, INC.
- --------
EdificeRex.com, Inc.
200 Park Avenue
New York, New York 10166 By: /s/Jeffrey P. Cohen
---------------------------
Attention: Jeffrey P. Cohen Jeffrey P. Cohen
Executive Vice President
INSIGNIA:
---------
Address: INSIGNIA FINANCIAL GROUP, INC.
- --------
Insignia Financial Group, Inc.
200 Park Avenue
New York, New York 10166 By: /s/Jeffrey P. Cohen
---------------------------
Attention: Jeffery P. Cohen Jeffrey P. Cohen
Executive Vice President
INVESTORS:
----------
Address: METROPOLITAN INTERNET PARTNERS I,
- -------- LLC
c/o Insignia Internet Initiatives, Inc.
300 Delaware Avenue, Suite 900
Wilmington, Delaware 19801 By: MIP I, LLC, its Managing Member
Attention: President
By: Insignia Internet Initiatives, Inc.,
its Managing Member
By: /s/Adam Gilbert
---------------------------
Adam Gilbert
President
Address: BLACKACRE CAPITAL MANAGEMENT, LLC
- --------
Blackacre Capital Management, LLC
450 Park Avenue
28th Floor
New York, NY 10022 By: Ronald Kravit
---------------------------
Attention: Ronald Kravit Ronald Kravit
Managing Director
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
March 15, 2000 between EdificeRex.com, Inc., a Delaware corporation (the
"Company"), and the investors listed on the signature page hereto (each, an
"Investor").
RECITALS:
A. Concurrently with the execution of this Agreement, each Investor is
acquiring from the Company shares of the Company's Series C Preferred Stock, par
value $.001 per share ("Series C Stock"), pursuant to a Series C Preferred Stock
Purchase Agreement between the Company and such Investor (a "Purchase
Agreement").
B. By entering into this Agreement and granting the registration rights
provided for herein, the Company wishes to provide a further inducement to each
Investor to purchase Series C Stock pursuant to a Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Certain Definitions. For purposes of this Agreement:
(a) "Class A Common Stock" means the Class A Common Stock, par
value $.001 per share, of the Company, or any successor security.
(b) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act.
(d) "Holder" means any Person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance
with Section 12 below.
(e) "majority in interest of the Initiating Holders" means
Initiating Holders holding a majority of the Registrable Securities held
by all Initiating Holders.
(f) "Person" means any individual, partnership, corporation,
unincorporated organization or association, limited liability company,
trust or other firm or entity.
(g) "Qualified Initial Public Offering" means an offering by the
Company of its equity securities to the general public in which the net
proceeds to the Company are in excess of $20,000,000 (after deduction of
underwriters' discounts and commissions and expenses of the offering)
and the public offering price per share is equal to or greater than
$10.00 (as adjusted for stock splits, divisions, combinations or similar
events) and the underwritten equity securities are listed for trading on
either the New York Stock Exchange, the American Stock Exchange or The
Nasdaq Stock Market's National Market
<PAGE>
(h) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act and the
declaration or ordering of effectiveness of such registration statement
or document.
(i) "Registrable Securities" means (1) any shares of Class A
Common Stock (or any successor security) issued or issuable to the
Holders upon conversion of their shares of Series C Stock and (2) any
shares of Class A Common Stock (or any successor security) issued as a
dividend or other distribution with respect to such Series C Stock or
shares of Class A Common Stock issued or issuable upon conversion of
such Series C Stock and (3) any securities of the Company convertible
into, or exercisable or exchangeable for, shares of Class A Common Stock
and issued as a dividend or distribution with respect to such Series C
Stock or Class A Common Stock issued or issuable upon conversion of such
Series C Stock; provided, however, that any Registrable Securities sold
by a Person in a transaction in which such Person's rights under this
Agreement are not assigned pursuant to Section 12 below shall cease to
be Registrable Securities from and after the time of such sale.
Notwithstanding the foregoing, securities shall not be treated as
Registrable Securities if (A) a registration statement with respect to
the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in
accordance with such registration statement or (B) such securities have
been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act.
(j) "SEC" means the Securities and Exchange Commission.
(k) "Securities Act" means the Securities Act of 1933, as
amended.
(l) "Violation" means any of the following statements, omissions
or violations: (i) any untrue statement or alleged untrue statement of a
material fact contained in a registration statement under this
Agreement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; or (ii) the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
2. Request for Registration.
(a) If the Company shall receive, at any time after the earlier
of (i) five years after the date hereof or (ii) nine months after the
closing of a Qualified Initial Public Offering (other than a
registration relating solely to any Company employee benefit plan), a
written request from the Holders (the "Initiating Holders") of at least
50% of the Registrable Securities then outstanding that the Company file
a registration statement under the Securities Act covering the
registration of all or part of the Registrable Securities then held by
such Initiating Holders (and covering at least 50% of the Registrable
Securities then outstanding) (a "Qualifying Request"), then the Company
shall, subject to Section 2(b) below:
(i) Promptly give written notice of the proposed
registration to all other Holders; and
(ii) As soon as practicable, use its reasonable diligent
efforts to effect such registration (including, without
limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state
securities laws, and appropriate compliance with the Securities
Act) as would permit or facilitate the sale and distribution of
the portion of the Registrable Securities as are specified in
the Qualifying Request, together with the portion of the
Registrable Securities of any Holder or Holders joining in such
Qualifying Request as are specified in a written request made by
such Holder(s) and received by the Company within 20 days after
the written notice from the Company described in clause (i)
above is received by such Holder(s).
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<PAGE>
(b) The Company shall not be obligated to effect, or to take
any action to effect, any registration pursuant to this Section 2 (i)
after the Company has initiated two such registrations pursuant to this
Section 2 (counting for these purposes only registrations which have
been declared or ordered effective and pursuant to which securities have
been sold), (ii) during any period starting 60 days prior to the
proposed filing date of a registration statement of the Company and
ending 180 days after the effective date of such registration statement
or (iii) if the Registrable Securities requested to be included in a
registration pursuant to this Section 2 may be registered on Form S-3
pursuant to Section 4 hereof.
(c) Subject to Section 2(b) above, the Company shall file a
registration statement covering the Registrable Securities requested to
be registered pursuant to Section 2(a) as soon as practicable after
receipt of the Qualifying Request; provided, however, that if (i) in the
good faith judgment of the Board of Directors of the Company, such
registration would be detrimental to the Company, and the Board of
Directors of the Company concludes, as a result, that it is essential to
defer the filing of such registration statement at such time, and (ii)
the Company shall furnish to the Initiating Holders a certificate signed
by a senior officer of the Company to such effect, then the Company
shall have the right to defer such filing for a period of not more than
120 days after receipt of the Qualifying Request; and, further provided
that the Company shall not defer its obligation in this manner more than
once in any twelve-month period.
(d) The registration statement filed pursuant to a Qualifying
Request may, subject to the provisions of Section 2(e) hereof, include
other securities of the Company with respect to which registration
rights have been granted, and may include securities of the Company
being sold for the account of the Company. Any securities to be
registered pursuant to a Qualifying Request shall be allocated in the
same manner as set forth in Section 9 hereof.
(e) If the Initiating Holders intend to distribute the
Registrable Securities covered by their Qualifying Request by means of
an underwriting, they shall so advise the Company as part of their
Qualifying Request made pursuant to Section 2(a), and the Company shall
include such information in its written notice referred to in Section
2(a)(i). In such event, the right of any Holder to registration pursuant
to this Section 2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. If the
Company requests inclusion in any registration pursuant to this Section
2 of securities being sold for its own account, or if other Persons
shall request inclusion in any registration pursuant to this Section 2,
the Initiating Holders shall, on behalf of all Holders, offer to include
such securities in the underwriting and may condition such offer on the
Company's and such Persons' acceptance of the applicable provisions of
this Agreement. The Company shall (together with all Holders and other
Persons proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected for
such underwriting by a majority in interest of the Initiating Holders,
which underwriters must be reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 2, if the
representative of the underwriters advises the Initiating Holders in
writing that marketing factors require a limitation on the number of
shares to be underwritten, then the number of shares sought to be
included by the Company and any Persons other than the Holders
requesting inclusion in such registration shall be reduced to the extent
required by the representative of the underwriters and the number of
shares of Registrable Securities to be included in such underwriting
shall not be reduced unless all such other securities are first entirely
excluded; thereafter, the number of shares to be included in the
underwriting or registration shall be allocated as set forth in Section
9 hereof. If a Person who has requested inclusion in such registration
as provided above does not agree to the terms of any such underwriting,
such Person shall be excluded therefrom by written notice from the
Company, the representative of the underwriters or the Initiating
Holders, and the securities so excluded shall also be withdrawn from
such registration. If shares are so withdrawn from the registration and
if the number of Registrable Securities to be included in such
registration was previously
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<PAGE>
reduced as a result of marketing factors pursuant to this Section 2(e),
then the Company shall offer to all Holders who have retained rights to
include Registrable Securities in the registration the right to include
additional Registrable Securities (that were initially requested to be
included in such registration) in such registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to
be allocated among such Holders in accordance with Section 9.
3. Company Registration.
(a) Subject to Section 3(e) below, if at any time or times
after the date hereof the Company determines to register any of its
equity securities either for its own account or the account of a
security holder or holders exercising its or their demand registration
rights, the Company will:
(i) Promptly give to each Holder written notice thereof;
and
(ii) Use its reasonable diligent efforts to include in
such registration (and any related qualifications under
applicable blue sky or other state securities laws and other
compliance with the Securities Act), except as set forth in
Section 3(c) below, and in any underwriting involved therein,
all the Registrable Securities specified in a written request
made by any Holder and received by the Company within 20 days
after the written notice from the Company described in clause
(i) above is received by such Holder. Such written request may
specify all or a part of a Holder's Registrable Securities.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company
shall so advise the Holders as a part of the written notice given
pursuant to Section 3(a)(i) above. In such event, the right of any
Holder to registration pursuant to this Section 3 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion
of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company
and the other holders of securities of the Company that have exercised
their registration rights to participate therein and are distributing
their securities through such underwriting) enter into an underwriting
agreement in customary form with the representative of the underwriter
or underwriters selected by the Company.
(c) Notwithstanding any other provision of this Section 3, if
the representative of the underwriters advises the Company in writing
that marketing factors require a limitation on the number of shares to
be underwritten, the Company shall so advise all Holders of Registrable
Securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and
underwriting shall be allocated (i) first to the Company for securities
being sold for its own account and to security holders that have
exercised their demand registration rights with respect to such
registration, (ii) then to all other holders of equity securities of the
Company included in such registration on a pro rata basis. If any Person
does not agree to the terms of any such underwriting, such Person shall
be excluded therefrom by written notice from the Company or the
representative of the underwriters, and the securities so excluded shall
also be withdrawn from such registration.
(d) If shares are so withdrawn from the registration and if
the number of Registrable Securities to be included in such registration
was previously reduced as a result of marketing factors, the Company
shall then offer to all Holders who have retained the right to include
Registrable Securities in the registration the right to include
additional Registrable Securities (that were initially requested to be
included in such registration) in such registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to
be allocated in accordance with the first sentence of Section 3(c).
4
<PAGE>
(e) This Section 3 shall not apply to a registration on any
registration form that does not include substantially the same
information as would be required to be included in a registration
statement covering the sale of Registrable Securities or to
registrations relating solely to (i) any Company employee benefit plan
or (ii) transactions pursuant to Rule 145 or any other similar rule
promulgated under the Securities Act.
4. Registration on Form S-3.
(a) After the Company has qualified for the use of Form S-3,
in addition to the rights contained in the foregoing provisions of this
Agreement, the Holders of at least 50% of the Registrable Securities
then outstanding shall have the right to request registrations on Form
S-3 (such requests shall be in writing and shall state the number of
Registrable Securities to be sold by such Holders). As soon as
practicable after receiving any such request, the Company shall effect
such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or
other state securities laws, and appropriate compliance with the
Securities Act) as would permit or facilitate the sale and distribution
of the Registrable Securities requested to be included in such
registration; provided, however, that the Company shall not be obligated
to effect, or take any action to effect, any such registration if (i)
the Registrable Securities to be sold by the requesting Holders
constitute less than 50% of the Registrable Securities then outstanding;
(ii) Form S-3 is not then available for use in such offering; (iii) the
Company shall furnish to the requesting Holders the certification
described in Section 2(c) (but subject to the limitations set forth
therein); (iv) the Company shall have already completed two
registrations on Form S-3 during the prior 12 months (counting for this
purpose only registrations which have been declared or ordered
effective); (v) the sale of Registrable Securities in such offering
would occur in any jurisdiction in which the Company would be required
to qualify to do business (and in which it would not otherwise be
required to qualify but for the sale of such Registrable Securities) or
to file a general consent to service of process; or (vi) the sale of
Registrable Securities in such offering would occur during any period
starting on the effective date of any registration statement of the
Company (other than such Form S-3) and ending 180 days after the
effective date of such registration statement.
(b) Regardless of whether any Holder has completed the sale of
its Registrable Securities covered by a Form S-3, if, at any time after
the effective date of such Form S-3, the Company notifies such Holder
that such Form S-3 includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing, then the Company may require such
Holder to cease such Holder's sales of Registrable Securities covered by
such Form S-3 until such time as the Company files an amendment to such
Form S-3 correcting such untrue statement or including such material
fact, which amendment shall be filed by the Company no later than 90
days after the date of the Company's notice given to such Holder under
this Section 4(b).
5. Obligations of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
soon as practicable:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its reasonable efforts to
cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities being
registered thereunder, keep such registration statement effective for up
to 90 days or until the Holders have completed the distribution referred
to in such registration statement, whichever occurs first; provided,
however, that before filing such registration statement or any amendment
thereto, the Company will furnish to the Holders of Registrable
Securities covered by such registration statement copies of all such
documents proposed to be filed.
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<PAGE>
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration
statement.
(c) Furnish to the Holders of Registrable Securities covered by
such registration statement such number of copies of such registration
statement and of each amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary
prospectus and any summary prospectus) and any prospectus filed under
Rule 424 under the Securities Act, in conformity with the requirements
of the Securities Act, and such other documents as Holders of
Registrable Securities covered by such registration statement may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual
and customary form, with the representative of the underwriters of such
offering.
(e) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(f) Notify each Holder of Registrable Securities covered by such
registration statement: (i) when the registration statement has become
effective; (ii) when any post-effective amendment to the registration
statement becomes effective; and (iii) of any request by the SEC for any
amendment or supplement to the registration statement or prospectus or
for additional information.
(g) Notify each Holder of Registrable Securities covered by such
registration statement if at any time the SEC should institute or
threaten to institute any proceedings for the purpose of issuing, or
should issue, a stop order suspending the effectiveness of such
registration statement. Upon the occurrence of any of the events
mentioned in the preceding sentence, the Company will use its reasonable
efforts to prevent the issuance of any such stop order or to obtain the
withdrawal thereof as soon as reasonably possible. The Company will
advise each Holder of Registrable Securities covered by such
registration statement promptly of any order or communication of any
public board or body addressed to the Company suspending or threatening
to suspend the qualification of any Registrable Securities for sale in
any jurisdiction.
(h) As soon as practicable after the effective date of such
registration statement, and in any event within 16 months thereafter,
have "made generally available to its security holders" (within the
meaning of Rule 158 under the Securities Act) an earnings statement
(which need not be audited) covering a period of at least 12 months
beginning after the effective date of such registration statement and
otherwise complying with Section 11(a) of the Securities Act.
6. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of such Registrable
Securities as shall be required to effect the registration of such Holder's
Registrable Securities.
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<PAGE>
7. Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 2 or 4, including without limitation all
registration, filing and qualification fees, printers' and accounting fees and
fees and disbursements of counsel for the Company (including fees and
disbursements of counsel for the Company in its capacity as counsel to the
selling Holders of Registrable Securities hereunder; if Company counsel does not
make itself available for this purpose, the Company will pay the reasonable fees
and disbursements of one counsel for the selling Holders of Registrable
Securities on behalf of all selling shareholders at the time, such fees and
disbursements not to exceed $15,000) shall be borne by the Company; provided,
however, that with respect to registrations pursuant to Section 4, the Company
shall only be required to bear such expenses in connection with the first three
requests for registrations on Form S-3 (counting for this purpose any request
for registration which is withdrawn by the Holders, regardless of the reason for
such withdrawal, but not counting for this purpose any registration which is
withdrawn by the Company, regardless of the reason for such withdrawal).
8. Expenses of Company Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including
without limitation all registration, filing and qualification fees, printers'
and accounting fees and fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders of Registrable Securities hereunder; if Company
counsel does not make itself available for this purpose, the Company will pay
the reasonable fees and disbursements of one counsel for the selling Holders of
Registrable Securities on behalf of all selling shareholders at the time, such
fees and disbursements not to exceed $15,000) shall be borne by the Company.
9. Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities requested to be included in a
registration on behalf of the Holders cannot be so included as a result of
limitations imposed by any underwriter or underwriters of the aggregate number
of Registrable Securities that may be so included, the number of Registrable
Securities that may be so included shall be allocated among the Holders
requesting inclusion pro rata on the basis of the number of Registrable
Securities that would be held by such Holders, assuming conversion; provided,
however, that if any Holder does not request inclusion of the minimum number of
shares of Registrable Securities allocated to such Holder pursuant to the
above-described procedure, the remaining portion of such Holder's allocation
shall be reallocated among those requesting Holders whose allocations did not
satisfy their requests, pro rata on the basis of the number of Registrable
Securities that would be held by such Holders, assuming conversion, and this
procedure shall be repeated until all of the Registrable Securities which may be
included in the registration on behalf of the requesting Holders have been so
allocated.
10. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) The Company will indemnify and hold harmless each Holder and
each Holder's officers, directors and employees, any underwriter (as
defined in the Securities Act) for such Holder and each Person, if any,
who controls (within the meaning of the Securities Act or the Exchange
Act) such Holder or underwriter against any losses, claims, damages or
liabilities, whether or not involving a third party, to which they may
become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon a Violation by the Company (provided, however, that the Company
will not be required to indemnify any of the foregoing Persons on
account of any losses, claims, damages or liabilities arising out of or
based upon a Violation by the Company if and to the extent that such
Violation was made in a preliminary prospectus and was corrected in a
subsequent prospectus that was required by law to be delivered to the
Person making the claim with respect to which indemnification is sought
hereunder (and
7
<PAGE>
such subsequent prospectus was made available by the Company to permit
delivery of such prospectus in a timely manner) and such subsequent
prospectus was not so delivered to such Person); and the Company will
pay to each indemnified party under this Section 10(a), as incurred, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement
contained in this Section 10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in
any such case to a particular indemnified party for any such loss,
claim, damage, liability or action to the extent that it arises out of
or is based upon a Violation by the Company which occurs in reliance
upon and in conformity with written information furnished by or on
behalf of such indemnified party expressly for use in connection with
any registration.
(b) Each selling Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each Person, if any, who controls (within the
meaning of the Securities Act or the Exchange Act) the Company, any
underwriter (as defined in the Securities Act), any other Holder selling
securities covered by such registration statement and each Person, if
any, who controls (within the meaning of the Securities Act or the
Exchange Act) such underwriter or other Holder, against any losses,
claims, damages or liabilities, whether or not involving a third party,
to which any of the foregoing Persons may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon a Violation by the selling
Holder, in each case to the extent that such Violation by the selling
Holder occurs in reliance upon and in conformity with written
information furnished by or on behalf of the indemnifying Holder
expressly for use in connection with any registration; and each
indemnifying Holder will pay to each indemnified party under this
Section 10(b), as incurred, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 10(b)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the indemnifying Holder (which consent shall not be
unreasonably withheld); and further provided that in no event shall the
liability of any Holder under this Section 10(b) exceed the net proceeds
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
10, deliver to the indemnifying party a written notice of the
commencement of such action, and the indemnifying party shall have the
right to participate in and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume the defense of such action with counsel reasonably satisfactory
to the indemnified party. The failure to deliver written notice to the
indemnifying party within a reasonable time after the commencement of
any such action shall not relieve such indemnifying party of any
liability to the indemnified party under this Section 10 except if, and
only to the extent that, the indemnifying party is actually prejudiced
thereby; and such failure to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 10.
(d) The obligations of the Company to any particular Holder and
of such Holder to the Company shall survive for a period of two (2)
years from the completion of any offering of Registrable Securities of
such Holder pursuant to the last registration statement under this
Agreement in which such Holder's Registrable Securities were included.
8
<PAGE>
(e) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and the indemnified
party as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by or on behalf of the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement
or omission. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person that was not guilty of fraudulent
misrepresentation. Notwithstanding anything to the contrary in this
Section 10, no Holder shall be required, pursuant to this Section 10, to
contribute any amount in excess of the net proceeds received by such
Holder from the sale of Registrable Securities in the offering to which
the losses, claims, damages, liabilities or expenses of the indemnified
party relate.
11. Termination. This Agreement will terminate as between the Company
and any particular Holder upon the earlier of (i) three (3) years after the
closing of a Qualified Initial Public Offering and (ii) such time when Rule
144(k) or another similar exception under the Securities Act is available for
the sale of all of such Holder's Registrable Securities; provided, however, that
the obligations of the Company and such Holder contained in Section 10 hereof
shall survive any such termination for a period of two (2) years from the
completion of any offering of Registrable Securities of such Holder pursuant to
the last registration statement under this Agreement in which such Holder's
Registrable Securities were included.
12. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned in
whole or in part by a Holder to one or more transferees or assignees of not less
than 50,000 shares of Registrable Securities owned by such Holder (as adjusted
for any stock splits, stock dividends, stock combinations or similar events);
provided that, in each case, as a condition to such transfer or assignment, the
Holder shall give prior written notice to the Company of such transfer or
assignment (which notice shall set forth the identity of the transferee or
assignee) and such transferee or assignee shall deliver to the Company a written
instrument by which such transferee or assignee agrees to be bound by the
obligations imposed on the transferring Holder under this Agreement, to the same
extent as if such transferee or assignee was a party hereto.
13. "Market Stand-Off" Agreement. Each Holder hereby agrees that, during
the period not to exceed 270 days following the effective date of a registration
statement of the Company filed under the Securities Act in connection with the
Company's Qualified Initial Public Offering, it shall not, to the extent
requested by the Company and the representative of the underwriters of such
Qualified Initial Public Offering, sell or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any shares of Class A
Common Stock issuable upon conversion of the Series C Stock, except for shares
of Class A Common Stock included in such registration (if any), provided that
all officers and directors of the Company are similarly restricted.
14. Changes in Registrable Securities. If, and as often as, there are
any changes in the Registrable Securities by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions of this Agreement, as may be
required, so that the rights and privileges granted hereby shall continue with
respect to the Registrable Securities as so changed. Without limiting the
generality of the foregoing, the Company will require any successor by merger or
consolidation to assume and agree to be bound by the terms of this Agreement as
a condition to any such merger or consolidation.
9
<PAGE>
15. Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement.
16. Amendment; Waiver. Any term, covenant, agreement or condition of
this Agreement may be amended, and compliance therewith may be waived (either
generally or in a particular circumstance and either retroactively or
prospectively), (i) as to the Company, by a written instrument signed by the
Company, and (ii) as to the Holders, by one or more written instruments signed
by the Holders that hold 51% or more of the Common Share Equivalents then held
by all Holders. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the Holders and the Company. As used herein,
"Common Share Equivalents" means shares of Class A Common Stock at the time
outstanding as a result of conversion of Series C Stock and shares of Class A
Common Stock issuable upon conversion of shares of Series C Stock at the time
outstanding.
17. Binding Effect. This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective legal representatives,
successors and permitted assigns (as provided in Section 12 hereof). Nothing in
this Agreement, express or implied, is intended to confer upon any Person, other
than the parties hereto and their respective legal representatives, successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided herein.
18. Applicable Law. The laws of the state of New York shall govern the
interpretation, validity and performance of the terms of this Agreement.
19. Judicial Proceedings. Any judicial proceeding involving any dispute,
controversy or claim arising out of or relating to this Agreement or the rights
or interests of any of the parties hereto or the breach or alleged breach of
this Agreement, whether arising during, at or after the termination of this
Agreement (each of the foregoing disputes, controversies and claims hereinafter
referred to as an "Agreement Dispute"), shall be brought only in a federal or
state court located in the county, city and state of New York, and each of the
parties hereto (i) unconditionally accepts the exclusive jurisdiction of such
courts and any related appellate court and irrevocably agrees to be bound by any
judgment rendered thereby and (ii) irrevocably waives any objection such party
may now have or hereafter has as to the venue of any such proceeding brought in
such a court or that such court is an inconvenient forum. Each of the parties
hereto hereby waives trial by jury in any judicial proceeding to which they are
parties involving an Agreement Dispute.
10
<PAGE>
20. Notices. All notices and other communications required or permitted
hereunder, shall be dated and in writing and shall be personally delivered,
mailed by registered or certified mail, postage prepaid, return receipt
requested, or otherwise delivered by a nationally-recognized overnight courier,
addressed to the address set forth below:
If to the Company:
EdificeRex.com, Inc.
200 Park Avenue
New York, New York 10166
Attention: General Counsel
with a copy to:
EdificeRex.com, Inc.
200 Park Avenue
New York, New York 10166
Attention: Jeffrey P. Cohen
If to any Investor, to the address set forth next to its name on
any signature page attached hereto.
If to any Holder, to such Holder's address as set forth in the
books and records of the Company.
Any such notice or communication shall be deemed to have been
received (A) in the case of personal delivery, on the date of such
delivery, (B) in the case of a nationally-recognized overnight courier,
on the next business day after the date when sent, and (C) in the case
of mailing, on the third business day following that on which the piece
of mail containing such communication is posted.
21. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to its subject matter and supersedes all prior
agreements and understandings between the parties with respect to its subject
matter.
22. Severability. Each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited or invalid under applicable
law, such provision will be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of this Agreement.
23. Descriptive Headings. The section and other headings contained in
this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.
24. Neutral Construction. The parties to this Agreement agree that this
Agreement was negotiated fairly between them at arm's length and that the final
terms of this Agreement are the product of the parties' negotiations. Each party
represents and warrants that it has sought and received legal counsel of its own
choosing with regard to the content of this Agreement and the rights and
obligations affected hereby. The parties agree that this Agreement shall be
deemed to have been jointly and equally drafted by them, and that the provisions
of this Agreement therefore should not be construed against a party or parties
on the grounds that the party or parties drafted or was more responsible for
drafting the provision(s).
11
<PAGE>
25. Counterparts. This Agreement may be executed in two or more
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which together shall be deemed to be one and the same
agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
EDIFICEREX.COM, INC.
By: /s/ Jeffrey P. Cohen
-----------------------------------
Jeffrey P. Cohen
Executive Vice President
INVESTORS:
Address: METROPOLITAN INTERNET PARTNERS I, LLC
-------
c/o Insignia Internet
Initiatives, Inc.
300 Delaware Avenue,
Suite 900 By: MIP I, LLC, its Managing Member
Wilmington, Delaware 19801
Attention: President By: Insignia Internet Initiatives, Inc.,
its Managing Member
By: /s/ Adam Gilbert
------------------------------------
Adam Gilbert
President
Address: BLACKACRE CAPITAL MANAGEMENT, LLC
-------
Blackacre Capital
Management, LLC
450 Park Avenue
28th Floor
New York, NY 10022 By: /s/Ronald Kravit
-----------------------------------
Attention: Ronald Kravit Ronald Kravit
Managing Director
<PAGE>
INSIGNIA FINANCIAL GROUP, INC.
(FORMERLY INSIGNIA/ESG HOLDINGS, INC.)
AS OF MARCH 17, 2000
I. SUBSIDIARIES
ENTITY STATE OF FORMATION
American Housing, L.L.C. Delaware
Barnes Morris Pardoe & Foster Management Services, LLC Delaware
Beattie Place, LLC Delaware
Centennial Directives, LLC Delaware
Construction Interiors, Inc. Delaware
Corporate Relocation Management, Inc. Ohio
Douglas Elliman, LLC Delaware
E.S.G. Operating Co., Inc. New York
Edward S. Gordon Management Corporation New York
EdificeRex.com, Inc. Delaware
FC&S Management Company Illinois
First Ohio Escrow Corporation, Inc. Ohio
First Ohio Mortgage Corporation, Inc. Ohio
Forum Properties, Inc. Oregon
Goldie B. Wolfe & Company Illinois
Hotel Partners Limited United Kingdom
I/ESG Kensington Investors, LLC Delaware
ICIG 101 Marietta, LLC Delaware
ICIG Airport Technology, LLC Delaware
ICIG Bingham, LLC Delaware
ICIG Brookhaven, LLC Delaware
ICIG Country Club Manor, L.L.C. Delaware
ICIG Directives, L.L.C. Delaware
ICIG Dolphin Village, L.L.C. Delaware
ICIG Fresh Meadows, L.L.C. Delaware
ICIG Mockingbird, L.L.C. Delaware
ICIG Oakhill Directives, L.L.C. Delaware
ICIG Parkway Tower, L.L.C. Delaware
ICIG Peakview Place, LLC Delaware
ICIG Santa Rosa, LLC Delaware
IFC Acquisition Corp. I Delaware
IFC Acquisition Corp. II Delaware
IFS Acquisition LLC Delaware
IFS Acquisition LLC II Delaware
IFSE Holding Co., LLC Delaware
IIII-CCI Holdings, LLC Delaware
IIII-CMI Holdings, LLC Delaware
IIII-GSI Holdings, LLC Delaware
IIII-LNI Holdings, LLC Delaware
IIII-MCI Holdings, LLC Delaware
IIII-MDUBB Holdings, LLC Delaware
1
<PAGE>
I. SUBSIDIARIES
ENTITY STATE OF FORMATION
IIII-OSA Holdings, LLC Delaware
IIII-PFI Holdings, LLC Delaware
IIII-SLI Holdings, LLC Delaware
IIII-TCI Holdings, LLC Delaware
IIII-WI Holdings, LLC Delaware
IIII-WMI Holdings, LLC Delaware
IFS Securities, Inc. Delaware
IPCG, Inc. Delaware
IVR, Inc. Delaware
Insignia/ESG, Inc. Delaware
Insignia/ESG of Alabama, Inc. Delaware
Insignia/ESG of California, Inc. Delaware
Insignia/ESG of Colorado, Inc. Delaware
Insignia/ESG of Texas, Inc. Delaware
Insignia/ESG Capital Corporation Delaware
Insignia BV Dutch
Insignia Commercial Group West, Inc. Delaware
Insignia Commercial Investments Group, Inc. Delaware
Insignia Commercial Management, Inc. Delaware
Insignia Construction Management Services - New York, Inc. Delaware
Insignia Development Company, L.L.C. Delaware
Insignia Development Corporation Delaware
Insignia EC Corporation Delaware
Insignia Financial Services, Inc. Delaware
Insignia GmbH Germany
Insignia Hotel Partners Limited United Kingdom
Insignia Hotels, L.L.C. Delaware
Insignia Hotels II, L.L.C. Delaware
Insignia Hotels III, L.L.C. Delaware
Insignia Internet Initiatives, Inc. Delaware PIC
Insignia Investment Management, Inc. Delaware
Insignia IP Inc. Delaware PIC
Insignia Opportunity Directives, LLC Delaware
Insignia Opportunity Partners Delaware general
partnership
Insignia Opportunity Trust (REIT) Maryland
Insignia RE Advisors Limited Ireland
Insignia RE Europe Limited United Kingdom
Insignia RO, Inc. Delaware
Insignia Realty Investors, LLC Delaware
Insignia Residential Group, Inc. Delaware
Insignia Residential Investment Corporation Delaware
Insignia Richard Ellis Europe Limited (see attachment) United Kingdom
Insignia Richard Ellis Limited United Kingdom
Insignia Rooney Management, Inc. Delaware
2
<PAGE>
I. SUBSIDIARIES
ENTITY STATE OF FORMATION
Insignia S.A. Belgium
Insignia SpA Italy
Insignia Title Agency, Ltd. Ohio LLC
Insignia (UK) Holdings Limited United Kingdom
Lynch Murphy Walsh & Partners, LLC Delaware
MAP VII Acquisition Corporation Delaware
Metropolitan Acquisition VII, L.L.C. Delaware
MIP I, LLC Delaware
MIP II, LLC Delaware
O'Donnell Property Services, Inc. California
Oppenheimer-West Village Properties, Inc. New York
Payroll Services, Inc. Pennsylvania
Property Consulting Services, Inc. Delaware
RAC Acquisition, LLC Delaware
RAQZ Corp. New York
RJN Corporation Delaware
Realty One, Inc. Ohio
RexSpeed, Inc. Delaware
Richard Ellis St. Quintin Limited United Kingdom
Rostenberg-Doern Management Corp. New York
S.I.A., Inc. New York
Strategic Acquisition Corporation Delaware
Washington Village Housing Corporation New York
Westville Properties, Inc. New York
3
<PAGE>
ATTACHMENT 1
30 Marsh Wall Limited
Richard Ellis Holdings Limited
Richard Ellis Financial Holdings Limited
Richard Ellis Corporate Finance Limited
Richmount Enterprise Zone Managers Limited
Richmount Management Limited
Richmount Underwriting Limited
Richmount Marketing Limited
Richard Ellis Fund Management Limited
Richard Ellis Structured Finance Limited
Richard Ellis Financial Limited
Richard Ellis Limited
R.E.F. Services Limited
Richard Ellis Gunne (Northern Ireland) Limited
Richard Ellis (Ireland) Limited
Richard Ellis Gunne Limited Waresure Limited
Richard Ellis Services Limited
REFS Holdings Limited
Richard Ellis Corporate Capital Limited
Richard Ellis (Incorporating Hepper Robinson) Limited
Richard Ellis Midlands Limited
Richard Ellis Regional Limited
Business Parks Consultancy Limited
Capital and County Properties Limited
Laser Richmount Limited
Richard Ellis St. Quintin Facilities Management Limited
Richard Ellis St. Quintin Jersey Limited
St. Quintin Property Finance Limited (will be transferred to Richard
Ellis Corporate Finance Limited)
St. Quintin (unlimited)
St. Quintin Channel Islands Limited
St. Quintin Jersey Limited
St. Quintin Isle of Man Limited
St. Quintin Europe Limited
Studley St. Quintin International Limited
Consultores de Investimentos Lda (20% interest through Channel Islands co.)
Sociedede de Mediacao imobiliaria Lda (25% interest through the
Channel Islands co.)
4
<PAGE>
Exhibit 23.1 - Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in (1) the Registration Statement
(Form S-8 No. 333-62725) pertaining to the registration of 400,000 shares of
Common Stock in the Insignia/ESG Holdings, Inc. 401(k) Savings Plan, (2) the
Registration Statement (Form S-8 No. 333-62727) pertaining to the registration
of 1,500,000 shares of Common Stock under Insignia/ESG Holdings, Inc. 1998
Employee Stock Purchase Plan, (3) the Registration Statement (Form S-8 No.
333-62731) pertaining to the registration of 3,500,000 shares of Common Stock
under Insignia/ESG Holdings, Inc. 1998 Stock Incentive Plan, (4) the
Registration Statement (Form S-8 No. 333-67475) pertaining to the registration
of 1,289,329 shares of Common Stock of Insignia Financial Group, Inc.(f/k/a
Insignia/ESG Holdings, Inc.) under the Richard Ellis Group Limited 1997
Unapproved Share Option Scheme, (5) the Registration Statement (Form S-8 No.
333-77353) of Insignia Financial Group, Inc. (f/k/a Insignia/ESG Holdings, Inc.)
pertaining to the registration of 611,962 shares of Common Stock of Insignia
Financial Group, Inc. (f/k/a Insignia/ESG Holdings, Inc.) under the St. Quintin
Holdings Limited 1999 Unapproved Share Option Scheme, (6) the Registration
Statement (Form S-8 No. 333-78639) of Insignia Financial Group, Inc. (f/k/a
Insignia/ESG Holdings, Inc.) under the Insignia Financial Group, Inc. 401(k)
Restoration Plan and (7) the Registration Statement (Form S-8 No. 333-88371)
pertaining to the registration of 105,686 shares of Common Stock of Insignia
Financial Group, Inc. (f/k/a Insignia/ESG Holdings, Inc.) under the
Non-Qualified Stock Option Agreements, of our report dated February 18, 1999
with respect to the consolidated financial statements of Insignia Financial
Group, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
/s/ Ernst & Young LLP
New York, New York
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 61,600
<SECURITIES> 0
<RECEIVABLES> 198,364
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 60,842
<DEPRECIATION> 0
<TOTAL-ASSETS> 795,313
<CURRENT-LIABILITIES> 0
<BONDS> 164,322
0
0
<COMMON> 207
<OTHER-SE> 392,862
<TOTAL-LIABILITY-AND-EQUITY> 795,313
<SALES> 0
<TOTAL-REVENUES> 686,366
<CGS> 0
<TOTAL-COSTS> 620,305
<OTHER-EXPENSES> 34,547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,038
<INCOME-PRETAX> 22,476
<INCOME-TAX> 12,178
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,298
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.46
</TABLE>
