UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2006
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number: 001-33280
HFF, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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51-0610340
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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One Oxford Centre
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301 Grant Street, Suite 600
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Pittsburgh, Pennsylvania 15219
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(412) 281-8714
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(Address of principal executive offices,
including zip code)
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(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of Exchange on which
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to be registered
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class is to be registered
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Class A Common Stock, par value $.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes
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No
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Indicate by checkmark if the Registrant is not required to file report pursuant to Section 13 or
Section 15(d) of the Act. Yes
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No
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Sections 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 reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
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No
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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 the 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.
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Indicate by checkmark whether the Registrant is a shell company (as defined in Exchange Act Rule
12b-2). Yes
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No
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As of
March 9, 2007, there were 16,445,000 shares of Class A common stock, par value $0.01 per share, of the
Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the document listed below have been incorporated by reference into the indicated parts
of this Form 10-K, as specified in the responses to the item numbers involved.
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Part III
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The Registrant’s definitive proxy statement, for use in
connection with the Annual Meeting of Stockholders, to be
filed within 120 days after the Registrant’s fiscal year
ended December 31, 2006.
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements, which reflect our current
views with respect to, among other things, our operations and financial performance. You can
identify these forward-looking statements by the use of words such as “outlook,” “believes,”
“expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,”
“intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other
comparable words. Such forward-looking statements are subject to various risks and uncertainties.
Accordingly, there are or will be important factors that could cause actual outcomes or results to
differ materially from those indicated in these statements. We believe these factors include, but
are not limited to, those described under “Risk Factors.” These factors should not be construed as
exhaustive and should be read in conjunction with the other cautionary statements that are included
in Annual Report on Form 10-K. We undertake no obligation to publicly update or review any
forward-looking statement, whether as a result of new information, future developments or
otherwise.
SPECIAL NOTE REGARDING THE REGISTRANT
In connection with our initial public offering of our Class A common stock in February 2007,
we effected a reorganization of our business, which had previously been conducted through HFF
Holdings LLC (“HFF Holdings”) and certain of its wholly owned subsidiaries, including Holliday
Fenoglio Fowler, L.P. and HFF Securities L.P. (together, the “Operating Partnerships”) and Holliday
GP Corp. (“Holliday GP”). In the reorganization, HFF, Inc., a newly-formed Delaware corporation,
purchased from HFF Holdings all of the shares of Holliday GP, which is the sole general partner of
each of the Operating Partnerships, and approximately 45% of the partnership units in each of the
Operating Partnerships (including partnership units in the Operating Partnerships held by Holliday
GP) in exchange for the net proceeds from the initial public offering and one share of Class B
common stock of HFF, Inc. Following this reorganization and as of the closing of the initial public
offering on February 5, 2007, HFF, Inc. is a holding company holding partnership units in the
Operating Partnerships and all of the outstanding shares of Holliday GP. HFF Holdings and HFF,
Inc., through their wholly-owned subsidiaries, are the only limited partners of the Operating
Partnerships. We refer to these transactions collectively in this Annual Report on Form 10-K as
the “Reorganization Transactions.” Unless we state otherwise, the information in this Annual
Report on Form 10-K gives effect to these Reorganization Transactions.
Unless the context otherwise requires, references to (1) ”HFF Holdings” refer solely to HFF
Holdings LLC, a Delaware limited liability company that was previously the holding company for our
consolidated subsidiaries, and not to any of its subsidiaries, (2) ”HFF LP” refer to Holliday
Fenoglio Fowler, L.P., a Texas limited partnership, (3) ”HFF Securities” refer to HFF Securities
L.P., a Delaware limited partnership and registered broker-dealer, (4) ”Holliday GP” refer to
Holliday GP Corp., a Delaware corporation and the general partner of HFF LP and HFF Securities, (5)
”HoldCo LLC” refer to HFF Partnership Holdings LLC, a Delaware limited liability company and a
wholly-owned subsidiary of HFF, Inc. and (6) ”Holdings Sub” refer to HFF LP Acquisition LLC, a
Delaware limited liability company and wholly-owned subsidiary of HFF Holdings. Our business
operations are conducted by HFF LP and HFF Securities which are sometimes referred to in this
Annual Report on Form 10-K as the “Operating Partnerships.” Also, except where specifically noted,
references in this Annual Report on Form 10-K to “the Company,” “we” or “us” mean HFF, Inc. , the
newly formed Delaware corporation and its consolidated subsidiaries after giving effect to the
reorganization transactions.
PART I
Item 1. Business
Overview
We are a leading provider of commercial real estate and capital markets services to the U.S.
commercial real estate industry based on transaction volume and are one of the largest full-service
commercial real estate financial intermediaries in the country. We operate out of 18 offices
nationwide with more than 130 transaction professionals and approximately 270 support associates.
In 2006, we advised on approximately $36.4 billion of completed commercial real estate
transactions, more than a 14.5% increase compared to the
approximately $31.8 billion of completed
transactions we advised on in 2005.
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Our fully-integrated national capital markets platform, coupled with our knowledge of the
commercial real estate markets, allows us to effectively act as a “one-stop shop” for our clients,
providing a broad array of capital markets services including:
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Private equity, investment banking and advisory services;
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Note sale and note sales advisory services; and
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Commercial loan servicing.
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Substantially
all of our revenues are in the form of capital markets services fees collected
from our clients, usually negotiated on a transaction-by-transaction basis. We believe that our
multiple product offerings, diverse client mix, expertise in a wide range of property types and our
national platform create a stable and diversified revenue stream. Furthermore, we believe our
business mix, operational expertise and the leveragability of our platform have enabled us to
achieve profit margins that are among the highest of our public company peers. Our revenues and net
income were $229.7 million and $51.6 million, respectively, for the year ended December 31, 2006,
compared to $205.8 million and $48.1 million, respectively, for the year ended December 31, 2005.
We have established strong relationships with our clients. Our clients are both users of
capital, such as property owners, and providers of capital, such as lenders and equity investors.
Many of our clients act as both users and providers of capital in different transactions, which
enables us to leverage our existing relationships and execute multiple transactions across multiple
services with the same clients.
We believe we have a reputation for high ethical standards, dedicated teamwork and a strong
focus on serving the interests of our clients. We take a long-term view of our business and client
relationships, and our culture and philosophy are firmly centered on putting the client’s interests
first. Furthermore, through their ownership of HFF Holdings, approximately 40 of our senior
transaction professionals in the aggregate own a majority interest in the Operating Partnerships.
We believe this further aligns their individual interests with those of the Company, our clients
and now our stockholders.
Reportable Segments
We operate in one reportable segment, the commercial real estate financial intermediary
segment and offer debt placement, investment sales, note sales, structured finance, equity
placement, investment banking service and commercial loan servicing.
Our Competitive Strengths
We attribute our success and distinctiveness to our ability to leverage a number of key
competitive strengths, including:
People, Expertise and Culture
We and our predecessor companies have been in the commercial real estate business for over 25
years, and our transaction professionals have significant experience and long-standing
relationships with our clients. We employ over 130 transaction professionals with an average of
nearly 16 years of commercial real estate transaction experience. The transaction history
accumulated among our transaction professionals ensures a high degree of market knowledge on a
macro level, intimate knowledge of local commercial real estate markets, long term relationships
with the most active investors, and a comprehensive understanding of
capital markets products. Our
employees come from a wide range of real estate related backgrounds, including investment advisors
and managers, investment bankers, attorneys, brokers and mortgage bankers.
Our culture is governed by our commitment to high ethical standards, putting the client’s
interest first and treating clients and our own associates fairly and with respect. These
distinctive characteristics of our culture are highly evident in our ability to retain and attract
employees. The average tenure for our senior transaction professionals is 10 years and the average
production tenure for the top 25 senior transaction professionals compiled by initial leads during
the last five years was 14 years (including tenure with predecessor companies). Furthermore,
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many
of our senior transaction professionals have a significant economic interest in our firm, which
aligns their
individual interests with those of the company as a whole and our clients. Following the
completion of our initial public offering, through their ownership of HFF Holdings, approximately
40 senior transaction professionals will in the aggregate own a majority interest in the company
which we believe will continue to align their interests with the company.
Integrated Capital Markets Services Platform
In the increasingly competitive commercial real estate and capital markets industry, we
believe our key differentiator is our ability to analyze all commercial real estate product types
and markets as well as our ability to provide clients with comprehensive analysis, advice and
execution expertise on all types of debt and equity capital markets solutions. Because of our broad
range of execution capabilities, our clients rely on us not only to provide capital market
alternatives but, more importantly, to advise them on how to optimize value by uncovering
inefficiencies in the non-public capital markets to maximize their commercial real estate
investments. Our capabilities provide our clients with the flexibility to pursue multiple capital
market options simultaneously so that, upon conclusion of our efforts, they can choose the best
risk-adjusted based solution.
Independent Objective Advice
Unlike many of our competitors, we do not currently offer services that compete with services
provided by our clients such as leasing or property management, nor do we currently engage in
principal capital investing activities. This allows us to offer independent objective advice to our
clients. We believe our independence distinguishes us from our competitors, enhances our reputation
in the market and allows us to retain and expand our client base.
Extensive Cross-Selling Opportunities
As some participants in the commercial real estate market are frequently buyers, sellers,
lenders and borrowers at various times, our relationships with these participants across all
aspects of their businesses provide us with multiple revenue opportunities throughout the life
cycle of their commercial real estate investments. In addition, we often provide more than one
service in a particular transaction, such as in an investment sale or note sale assignment where we
not only represent the seller of a commercial real estate investment but also represent the buyer
in arranging acquisition financing. From 2003 through 2005, we executed multiple transactions
across multiple platform services with 24 of our top 25 clients. In 2006, we executed multiple
transactions with all 25 of our top clients.
Broad and Deep Network of Relationships
We have developed broad and deep-standing relationships with the users and providers of
capital in the industry and have completed multiple transactions for many of the top institutional
commercial real estate investors in the U.S. as well as several global investors who invest in the
U.S. Importantly, our transaction professionals, analysts and closing specialists foster
relationships with their respective counterparts within each client’s organization. This provides,
in our opinion, a deeper relationship with our firm relative to our competitors. In 2005 and 2006,
no one borrower or no one seller client, respectively, represented more than 4% of our total
capital markets services revenues. The combined fees from our top 25 seller clients for the years
2005 and 2006, respectively, were less than 20% of our capital markets services revenues for each
year, and the combined fees from our top 25 borrower clients were less than 20% of our capital
markets services revenues for each year.
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Proprietary Transaction Database
We believe that the extensive volume of commercial real estate transactions that we advise on
throughout the U.S. and across multiple property type and capital market service lines provides our
transaction professionals with valuable, real-time market information. We maintain a proprietary
database on over 6,000 clients and potential clients as well as databases that track key terms and
provisions of all closed and pending transactions for which we are involved as well as historic and
current flows and the pricing of debt, structured finance, investment sales, note sales and equity
transactions. Included in the databases are real-time quotes and bids on pipeline transactions,
status reports on all current transactions as well as historic information on clients, lenders and
buyers. Furthermore, our internal databases maintain current and historical information on our loan
servicing portfolio, which enables us to track real-time property level performance and market
trends. These internal databases are updated regularly and are available to our transaction
professionals, analysts and other internal support groups to share client contact information and
real-time market information. We believe this information strengthens our competitive position by
enhancing the advice we provide to clients and improving the probability of successfully closing a
transaction. Our associates also understand the confidential nature of this information, and if it
is misused and depending on the circumstances, it can be cause for immediate dismissal from the
Company.
Our Strategic Growth Plan
We seek to improve our market position by focusing on the following strategic growth
initiatives:
Expand Our Geographic Footprint
We believe that opportunities exist to establish and increase our presence in several key
domestic, and potentially, international markets. While our transactional professionals, located in
18 offices throughout the U.S., advised clients on transactions in 45 states (and the District of
Columbia, Puerto Rico, and Canada) and in more than 550 cities in 2006, there are a number of major
metropolitan areas where we do not maintain an office, and we have no overseas offices. By
comparison, many of our large public competitors have over 100 offices worldwide. We constantly
review key demand drivers of commercial real estate by market, including growth in population,
households, employment, commercial real estate inventory by product type, and new construction. By
doing so, we can determine not only where future strategic growth should occur, but more
importantly, we can also ensure our transaction professionals are constantly calling on the most
attractive markets where we do not have offices. Since 1998, we have opened offices in Washington,
D.C., Los Angeles, San Francisco (opened in October 2006) and Chicago. In addition, during this
same period, we have significantly added to the platform services in our Miami, New York City, New
Jersey, Washington, D.C., Los Angeles and Chicago offices. While historical performance does not
assure similar results, the combined revenues from these new offices (Washington, D.C., Los Angeles
and Chicago) in the offices’ respective third year of operation were approximately 2.6 times higher
than these same offices’ respective first year of operation.
We expect to achieve future strategic geographic expansion through a combination of
recruitment of key transaction professionals, organic growth and possible acquisitions of smaller
local and regional firms across all services in both new and existing markets. However, in all
cases our strategic growth will be focused on serving our clients’ interests and predicated on
finding the most experienced professionals in the market who have the highest integrity, work ethic
and reputation, while fitting into our culture and sharing our philosophy and the way we conduct
our business.
Increase Market Share Across Each of our Capital Market Services
We have achieved significant growth in each of the services we provide through our integrated
capital markets platform. We believe that we have the opportunity to continue to increase our market
share in each of the various capital markets services we provide to our clients by penetrating
deeper into our national, regional and local client relationships. We also intend to increase our
market shares by selectively hiring transaction professionals in our existing offices and in new
locations, predicated on finding the most experienced professionals in the market who have the
highest integrity, work ethic and reputation, while fitting into our culture and sharing our
philosophy and the way we conduct our business. For example, since 1998, in addition to opening
offices in Washington, D.C., Los Angeles, San Francisco (opened in October 2006) and Chicago, we
have significantly added to the platform services in our Miami, New York City, New Jersey,
Washington, D.C., Los Angeles and Chicago offices. While historical performance does not assure
similar results, the combined additional platform services revenue in the third year were
approximately 5.6 times higher than the combined additional platform services revenue in the first
year.
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Debt Placement.
Our transaction value in debt placements were
approximately $22.1 billion and $22.0 billion in 2006 and 2005,
respectively. According to the Mortgage Bankers Association’s
“Commercial Real Estate/Multifamily Finance: Annual Origination Volume
Summation” report, debt issuances in 2005 and 2004 were $345 billion
and $230 billion, respectively.
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Investment Sales.
In 2006, we completed investment sales in excess of
$10.1 billion, an increase of approximately 32.9% over $7.6 billion
completed in 2005. According to Real Capital Analytics, commercial
real estate sales volume for office, industrial, multifamily and
retail properties in the U.S. in 2006 and 2005 were $312.7 billion and
$276.6 billion, respectively.
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Structured Finance, Private Equity and Advisory Services.
In 2006 and
2005, we completed approximately $3.8 billion and $2.1 billion of
structured finance, private equity and advisory services transactions
(which includes amounts that we internally allocate to the structured
finance reporting category, even though the transaction may have been
funded through a single mortgage note) for our clients. In April 2004,
we formed our broker-dealer subsidiary, HFF Securities, to undertake
both discretionary and non-discretionary private equity raises, select
property specific joint ventures, and select investment banking
activities for our clients.
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Note sale and note sales advisory.
Since formalizing our note sales
and note sales advisory services platform in 2004, we have consummated
over $698 million in note sale and note sales advisory transactions.
We see growth in this market as well due to the desire of lenders to
seek to diversify concentration risk (geographic, borrower or product
type), manage potential problems in their loan portfolios or sell
loans rejected from Commercial Mortgage Backed Securities (CMBS)
securitization pools.
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Loan servicing.
The principal balance of HFF’s loan servicing
portfolio increased nearly 21% from $14.9 billion at December 31,
2005, to over $18.0 billion at December 31, 2006. Currently, we have
33 formal correspondent lender relationships with life insurers and 17
CMBS sub servicing agreements. The majority of the CMBS contracts
having been put in place over the past 18 months due to our increased
focus on growing our servicing platform to better serve our clients.
As a result of our continued debt placements with correspondent
lenders as well as our new sub servicing relationships with CMBS
lenders, our loan servicing portfolio has grown from $14.9 billion in
2005 to $18.0 billion at December 31, 2006 with a large percentage of
this growth coming from CMBS sub servicing contracts we have been
executing since early 2005.
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Continue to Capitalize on Cross-Selling Opportunities
Participants in the commercial real estate market increasingly are buyers, sellers, lenders
and borrowers at various times. We believe our relationships with these participants across all
aspects of their businesses provide us with multiple revenue opportunities throughout the lifecycle
of their commercial real estate investments. Many of our clients are both users and providers of
capital. Our clients typically execute transactions throughout the U.S. utilizing the wide spectrum
of our services. By maintaining close relationships with these clients, we intend to continue to
generate significant repeat business across all of our business lines.
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Our debt transaction professionals originated approximately $2.2 billion and $1.4 billion of
debt for clients that purchased properties sold by our investment sales professionals for their
clients in 2006 and 2005, respectively. Our investment sales professionals also referred clients to
our debt transaction professionals who arranged debt financings totaling approximately $664 million
and $475 million in 2006 and 2005, respectively. Our debt professionals also referred clients to
our investment sales transaction professionals who sold approximately $2.1 billion and $1.8 billion
and of properties in 2006 and 2005, respectively. Also, from its inception in late 2004 through the
December 31, 2006, our HFF Securities subsidiary originated debt volumes of approximately $434
million, in addition to their other equity placement activities.
Our Services
Debt Placement Services
We offer our clients a complete range of debt instruments, including but not limited to
construction and construction/mini-permanent loans, adjustable and fixed rate mortgages, entity
level debt, mezzanine debt, forward delivery loans, tax exempt financing, and sale/leaseback
financing.
Our clients are owners of various types of property, including, but not limited to, office,
retail, industrial, hotel, multi-family, self-storage, assisted living, nursing homes, condominium
conversions, mixed-use properties and land. Our clients range in size from individual entrepreneurs
who own a single property to the largest real estate funds and institutional property owners
throughout the world who invest in the United States. Debt is placed with all major capital funding
sources, both domestic and foreign, including but not limited to life insurance companies,
conduits, investment banks, commercial banks, thrifts, agency lenders, pension funds, pension fund
advisors, REITs, credit companies, opportunity funds and individual investors.
Investment Sales Services
We provide investment sales services to commercial real estate owners who are seeking to sell
one or more properties or property interests. We seek to maximize proceeds and certainty of closure
for our clients through our knowledge of the commercial real estate and capital markets, our
extensive database of potential buyers, with whom we have deep and long-standing relationships, and
our experienced transaction professionals. Real time data on comparable transactions, recent
financings of similar assets and market trends, enable our transaction professionals to better
advise our clients on valuation and certainty of execution based on a prospective buyer’s proposed
capital structure.
Structured Finance Services
We offer a wide array of structured finance alternatives and solutions at both the property
and ownership entity level. This allows us to provide financing alternatives at every level of the
capital structure, including but not limited to mezzanine and equity, thereby providing potential
buyers and existing owners with the highest appropriate leverage at the lowest blended cost of
capital to purchase properties or recapitalize existing ones versus an out-right sales alternative.
By focusing on the inefficiencies in the structured finance capital markets, such as mezzanine,
preferred equity, participating and/or convertible debt structures, pay and accrual debt
structures, pre-sales, stand-by commitments and bridge loans, we are able to access capital for
properties in transition, predevelopment and development loans and/or joint ventures and/or
structured transactions, which provide maximum flexibility for our clients.
Private Equity, Investment Banking and Advisory Services
Through HFF Securities, our licensed broker-dealer subsidiary, we offer our clients the
ability to access the private equity markets for an identified commercial real estate asset and
discretionary and non-discretionary joint ventures, funds marketing, private equity placements, and
advisory services. HFF Securities’ services to its clients include:
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Joint Ventures
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Equity capital for our commercial real estate clients
to establish joint ventures relating to either identified properties
or properties to be acquired by a fund sponsor. These joint ventures
typically involve the acquisition, development, recapitalization or
restructuring of multi-asset commercial real estate portfolios, and
include a variety of property types and geographic areas.
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Private Placements.
Private placements of common, perpetual preferred
and convertible preferred securities. Issuances involve primary or
secondary shares that may be publicly registered, listed and traded.
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Advisory Services.
Entity-level advisory services for various types
of transactions including mergers and acquisition, sales and
divestitures, management buyouts, and recapitalizations and
restructurings.
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Marketing and Fund-Raising.
Institutional marketing and fund-raising
for public and private commercial real estate companies, with a focus
on opportunity and value-added commercial real estate funds. In this
capacity, we undertake private equity raises, both discretionary and
non-discretionary, and offer advisory services.
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Note Sale and Note Sales Advisory Services
We assist our clients in their efforts to sell all or portions of their commercial real estate
debt note portfolios. We are actively marketing our note sale and note sales advisory services to
our clients.
Commercial Loan Servicing
We provide commercial loan servicing (primary and sub-servicing) for life insurance companies
and CMBS originators. Our servicing platform, experienced personnel and hands-on service allow us
to maintain close contact with both borrowers and lenders. As a result, we are often the first
point of contact in connection with refinancing, restructuring or sales of commercial real estate
assets. Revenue is earned primarily from servicing fees charged to the lender, as well as from
investment income earned on escrow balances.
To avoid potential conflicts, our transaction professionals do not share in servicing revenue,
eliminating conflicts which can occur with serviced versus non-serviced lenders. However,
throughout the servicing life of a loan, the transaction professional who originated the loan
usually remains the main contact for both the borrower and lender, or the master servicer, as the
case may be, to assist our servicing group with annual inspections, operating statement reviews and
other major servicing issues affecting a property or properties.
Competition
The commercial real estate services industry, and all of the services that we provide, are
highly competitive, and we expect them to remain so. We compete on a national, regional and local
basis as well as on a number of other critical factors, including but not limited to the quality of
our people and client service, historical track record and expertise and range of services and
execution skills, absence of conflicts and business reputation. Depending on the product or
service, we face competition from other commercial real estate service providers, institutional
lenders, insurance companies, investment banking firms, investment managers and accounting firms,
some of which may have greater financial resources than we do. Consistently, the top competitors we
face on national, regional and local levels include, but are not limited to, CBRE Capital Markets
(formerly L.J. Melody & Company and recently combined with Trammell Crow), Cushman & Wakefield,
Eastdil Secured, Jones Lang LaSalle, Northmarq Capital (Marquette) and CapMark (formerly GMAC).
There are numerous other local and regional competitors in each of the local markets where we are
located as well as the markets we do business in.
Competition to attract and retain qualified employees is also intense in each of the capital
markets services we provide to our clients. We compete by offering a competitive compensation
package to our transaction professionals and our other associates as well as equity-based
incentives for key associates who lead our efforts in terms of running our offices or leading our
efforts in each of our capital markets services. Our ability to continue to compete effectively will
depend upon our ability to retain and motivate our existing transaction professionals and other key
associates as well as our ability to attract new ones, all predicated on finding the most
experienced professionals in the market who have the highest integrity, work ethic and reputation,
while fitting into our culture and sharing our philosophy and the way we conduct our business.
Regulation
Our U.S. broker-dealer subsidiary, HFF Securities, is subject to regulation. HFF Securities is
currently registered as a broker-dealer with the SEC and the NASD. HFF Securities is registered as
a broker dealer in California and is considering in which additional states it may register as a
broker-dealer. HFF Securities is subject to regulations governing effectively every aspect of the
securities business, including the effecting of securities transactions, minimum capital
requirements, record-keeping and reporting procedures, relationships with customers,
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experience and
training requirements for certain employees and business procedures with firms that are not subject
to regulatory controls. Violation of applicable regulations can result in the revocation of
broker-dealer licenses, the imposition of censures or fines and the suspension, expulsion or other
disciplining of a firm, its officers or employees.
Our broker-dealer subsidiary is also subject to the SEC’s uniform net capital rule, Rule
15c3-1, and the net capital rules of the NYSE and the NASD, which may limit our ability to make
withdrawals of capital from our broker-dealer subsidiary. The uniform net capital rule sets the
minimum level of net capital a broker-dealer must maintain and also requires that a portion of its
assets be relatively liquid. The NYSE and the NASD may prohibit a member firm from expanding its
business or paying cash dividends if resulting net capital falls below its requirements. In
addition, our broker-dealer subsidiary is subject to certain notification requirements related to
withdrawals of excess net capital. Our broker-dealer subsidiary is also subject to several new laws
and regulations that were recently enacted. The USA Patriot Act of 2001 has imposed new obligations
regarding the prevention and detection of money-laundering activities, including the establishment
of customer due diligence and other compliance policies and procedures. Additional obligations
under the USA Patriot Act regarding procedures for customer verification became effective on
October 1, 2003. Failure to comply with these new requirements may result in monetary, regulatory
and, in the case of the USA Patriot Act, criminal penalties.
HFF LP is licensed (in some cases, through our employees or its general partner) as a mortgage
broker and a real estate broker in multiple jurisdictions. Generally we are licensed in each state
where we have an office as well as where we frequently do business.
History
We have grown through the combination of several prominent commercial real estate brokerage
firms. Our namesake dates back to Holliday Fenoglio & Company, which was founded in Houston in
1982. Although our predecessor companies date back to the 1970s, our recent history began in 1994
when Holliday Fenoglio Dockerty & Gibson, Inc. was purchased by AMRESCO, Inc. to create Holliday
Fenoglio Inc. In 1998, Holliday Fenoglio acquired Fowler Goedecke Ellis & O’Connor, to create
Holliday Fenoglio Fowler, L.P. Later that year Holliday Fenoglio Fowler, L.P. acquired PNS Realty
Partners, LP and Vanguard Mortgage.
In March 2000, AMRESCO sold its commercial mortgage banking businesses, Holliday Fenoglio
Fowler, L.P., to Lend Lease (US) Inc., the U.S. subsidiary of the Australian real estate services
company. Finally, in June 2003, HFF Holdings completed an agreement for a management buyout from
Lend Lease. In April 2004, we established our broker-deal subsidiary, HFF Securities L.P.
As previously discussed, in connection with our initial public offering of our common stock in
February 2007, we effected a reorganization of our business. As a result of this reorganization
and as of the closing of the initial public offering on February 5, 2007, HFF, Inc. is a holding
company holding partnership units in the Operating Partnerships and all of the outstanding shares
of Holliday GP. HFF Holdings and HFF, Inc., through their wholly-owned subsidiaries, are the only
limited partners of the Operating Partnerships.
Available Information
We file electronically with the SEC annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The public may read and copy any
materials we have filed with or furnished to the SEC at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-3330. The SEC maintains an Internet site
(www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. Copies of our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, ownership reports for insiders and any
amendments to these reports filed or furnished with the SEC are available free of charge through
our Internet site (www.hfflp.com) as soon as reasonably practicable after filing with the SEC.
Additionally, we make available free of charge on our internet website:
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our Code of Conduct and Ethics;
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the charter of its Nominating and Governing Committee;
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the charter of its Compensation Committee;
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the charter of its Audit Committee; and
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our Corporate Governance Guidelines.
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Item 1A. Risk Factors
Investing in our securities involves a high degree of risk. You should consider carefully the
following risk factors and the other information in this Annual Report on Form 10-K, including our
consolidated financial statements and related notes, before making any investment decisions
regarding our securities. If any of the following risks actually occur, our business, financial
condition and operating results could be adversely affected. As a result, the trading price of our
securities could decline and you may lose part or all of your investment.
Risks Related to Our Business
General economic conditions and commercial real estate market conditions, both globally and
domestically, can have a negative impact on our business.
We have experienced in past years, and expect in the future to be negatively impacted by,
periods of economic slowdowns, recessions and disruptions in the capital markets, including
international, national, regional and local markets, and corresponding declines in the demand for
commercial real estate and related services, within one or more of the markets in which we operate.
Historically, commercial real estate markets, and in particular the U.S. commercial real estate
market, have tended to be cyclical and related to the condition of the economy as a whole and to
the perceptions of the market participants as to the relevant economic outlook. Negative economic
conditions, changes in interest rates, disruptions in capital markets and declines in the demand
for commercial real estate and related services in international or domestic markets or in
significant markets in which we do business could have a material adverse effect on our business,
results of operations and/or financial condition, including as a result of the following factors.
For example:
•
Slowdowns in economic activity could cause tenant demand for space to decline, which would
adversely affect the operation and income of commercial real estate properties and thereby affect
investor demand and the supply of capital for debt and equity investments in commercial real
estate.
•
Declines in the regional or local demand for commercial real estate, or significant
disruptions in other segments of the real estate market, could adversely affect our results of
operations. During 2006, approximately 21.0%, 8.4%, 10.8% and 8.4% of
our capital markets services
revenues was derived from transactions involving commercial real estate located in Texas,
California, Florida and the region consisting of the District of Columbia, Maryland and Virginia,
respectively. As a result, a significant portion of our business is dependent on the economic
conditions in general and the markets for commercial real estate in these areas, which, like other
commercial real estate markets, have experienced price volatility or economic downturns in the
past.
•
Significant fluctuations in interest rates as well as steady and protracted increases or
decreases of interest rates could adversely affect the operation and income of commercial real
estate properties as well as the demand from investors for commercial real estate investments. Both
of these events could adversely affect investor demand and the supply of capital for debt and
equity investments in commercial real estate. In particular, increased interest rates may reduce
the number of acquisitions, dispositions and loan originations, as well as the respective
transaction volumes, which could also adversely affect our servicing revenue. All of the above
could cause prices to decrease due to the reduced amount of financing available as well as the
increased cost of obtaining financing and could lead to a decrease in purchase and sale activity.
•
Significant disruptions or changes in capital market flows, regardless of their duration,
could adversely affect the supply and/or demand for capital from investors for commercial real
estate investments. In particular, while commercial real estate is now viewed as an accepted asset
class for portfolio diversification, if this perception changes there could be a significant
reduction in the amount of debt and equity capital available in the commercial real estate sector.
These and other types of events could lead to a general decline in transaction activity, which
would likely lead to a reduction in fees and commissions relating to such transactions, as well as
a significant reduction in our loan
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servicing activities as a result of increased delinquencies and
the lack of additional loans that we would have otherwise added to our servicing portfolio. These
effects would likely cause us to realize lower revenues from our transaction service fees,
including debt placement fees and investment sales commissions, which fees usually are tied to the
transaction value and are payable upon the successful completion of a particular transaction, and
from our loan servicing revenues due to reduced financing and refinancing transactions as well as
higher delinquencies.
If we are unable to retain and attract qualified and experienced transaction professionals and
associates, our growth may be limited and our business and operating results could suffer.
Our most important asset is our people, and our continued success is highly dependent upon the
efforts of our transaction professionals and other associates, including our analysts and
production coordinators as well as our key servicing and company overhead support associates. Our
transaction professionals generate a significant majority of our revenues. If any of these key
transaction professionals or other important associates leave, or if we lose a significant number
of transaction professionals, or if we are unable to attract other qualified transaction
professionals, our business, financial condition and results of operations may suffer. We have
experienced in the past, and expect to experience in the future, the negative impact of the
inability to retain and attract associates, analysts and experienced transaction professionals.
Additionally, such events may have a disproportionate adverse effect to our operations if they
occur in geographic areas where substantial amounts of our capital
markets services revenues are
generated.
As part of our transformation to a public company, we may also face additional retention
pressures as a result of reductions in distributions from HFF Holdings to approximately 40 of our
most valuable transaction professionals who are the members of HFF Holdings. Following the
termination of their employment contracts and expiration of their lock-ups, we may not be able to
retain these members of HFF Holdings. Even if we are able to retain them, we may not be able to
retain them at compensation levels that will allow us to achieve our target ratio of compensation
expense-to-operating revenue. We intend to use a combination of cash compensation, equity,
equity-based incentives and other employee benefits rather than solely cash compensation to
motivate and retain our transaction professionals. Our compensation mechanisms as a public company
may not be effective, especially if the market price of our Class A common stock declines.
In addition, our competitors may attempt to recruit our transaction professionals. The
employment arrangements, non-competition agreements and retention agreements we have entered into
with respect to the members of HFF Holdings or may enter into with our key associates may not
prevent our transaction professionals and other key associates from resigning or competing against
us. Any such arrangements and agreements will expire after a certain period of time, at which point
each such person would be free to compete against us and solicit our clients and employees.
A significant component of our growth has also occurred through the recruiting and hiring of
key experienced transaction professionals. Any future growth through recruiting these professionals
will be partially dependent upon the continued availability of attractive candidates fitting the
culture of our firm at advantageous terms and conditions. However, individuals whom we would like
to hire may not be available upon advantageous terms and conditions. In addition, the hiring of new
personnel involve risks that the persons acquired will not perform in accordance with expectations
and that business judgments concerning the value, strengths and weaknesses of persons acquired will
prove incorrect.
Our business could be hurt if we are unable to retain our business philosophy and partnership
culture as a result of becoming a public company, and efforts to retain our philosophy and culture
could adversely affect our ability to maintain and grow our business.
We are deeply committed to maintaining the philosophy and culture which we have built. Our
Mission and Vision Statement defines our business philosophy as well as the emphasis that we place
on our clients, our people and our culture. We seek to reinforce to each of our associates our
commitment to our clients, our culture and values by sharing with everyone in the firm what is
expected from each of them. We strive to maintain a work environment that reinforces our
owner-operator culture and the collaboration, motivation, alignment of interests and sense of
ownership and reward associates based on their value-added performance who adhere to this culture.
Our status as a public company, including potential changes in our compensation structure, could
adversely affect this culture. If we do not continue to develop and implement the right processes
and tools to manage our changing enterprise and
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maintain this culture, our ability to compete
successfully and achieve our business objectives could be impaired, which could negatively impact
our business, financial condition and results of operations.
In addition, in an effort to preserve our strong partnership culture, our process for hiring
new transaction professionals is lengthy and highly selective. In the past, we have interviewed a
significant number of individuals for each transaction professional that we hired, and we have in
the past and may in the future subordinate our growth plans to our objective of hiring transaction
professionals whom we think will adhere to and contribute to our culture. Our ability to maintain
and grow our business could suffer if we are not able to identify, hire and retain new
transaction professionals meeting our high standards, which could negatively impact our
business, financial condition and results of operations.
We have numerous significant competitors and potential future competitors, some of which may
have greater resources than we do, and we may not be able to continue to compete effectively.
We compete across a variety of businesses within the commercial real estate industry. In
general, with respect to each of our businesses, we cannot give assurance that we will be able to
continue to compete effectively or maintain our current fee arrangements or margin levels or that
we will not encounter increased competition. Each of the services we provide to our clients is
highly competitive on an international, national, regional and local level. Depending on the
product or service, we face competition from, including but not limited to, commercial real estate
service providers, private owners and developers, institutional lenders, insurance companies,
investment banking firms and investment managers, some of whom are clients and many of whom may
have greater financial resources than we do. In addition, future changes in laws and regulations
could lead to the entry of other competitors. Many of our competitors are local, regional, national
or international firms. Although some are substantially smaller than we are, some of these
competitors are larger on a local, regional, national or international basis. We may face increased
competition from even stronger competitors in the future due to a trend toward consolidation. In
recent years, there has been substantial consolidation and convergence among companies in our
industry. We are also subject to competition from other large national and multi-national firms as
well as regional and local firms that have similar service competencies to ours. Our existing and
future competitors may choose to undercut our fees, increase the levels of compensation they are
willing to pay to their employees and either recruit our employees or cause us to increase our
level of compensation necessary to retain our own employees or recruit new employees. These
occurrences could cause our revenue to decrease or negatively impact our target ratio of
compensation-to-operating revenue, both of which could have an adverse effect on our business,
financial condition and results of operations.
We could be adversely affected if the Terrorism Risk Insurance Act of 2002 is not renewed
beyond 2007, or is adversely amended, or if insurance for other natural or manmade disasters is
interrupted or constrained.
Our business could be adversely affected if the Terrorism Risk Insurance Act of 2002, or TRIA,
is not renewed beyond 2007, or is adversely amended, or if insurance for other natural and manmade
disasters is interrupted or constrained. In response to the tightening of supply in certain
insurance and reinsurance markets resulting from, among other things, the September 11, 2001
terrorist attack, the Terrorism Risk Insurance Act of 2002 was enacted to ensure the availability
of commercial insurance coverage for terrorist acts in the United States. This law established a
federal assistance program through the end of 2005 to help the commercial property and casualty
insurance industry cover claims related to future terrorism-related losses and required that
coverage for terrorist acts be offered by insurers. Although TRIA recently has been amended and
extended through 2007, it is possible that TRIA will not be renewed beyond 2007, or could be
adversely amended, which could adversely affect the commercial real estate markets and capital
markets if a material subsequent event occurred. Lenders generally require owners of commercial
real estate to maintain terrorism insurance. In the event TRIA is not renewed, terrorism insurance
may become difficult or impossible to obtain. Natural disasters such as Katrina and the lack of
commercially available wind damage and flood insurance could also have a negative impact on the
acquisition, disposition and financing of the commercial properties in certain areas. Any of these
events could result in a general decline in acquisition, disposition and financing activities,
which could lead to a reduction in our fees for arranging such transactions as well as a reduction
in our loan servicing activities due to increased delinquencies and lack of additional loans that
we would have otherwise added to our portfolio, all of which could adversely affect our business,
financial condition and results of operation.
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We have experienced significant growth over the past several years, which may be difficult to
sustain and which may place significant demands on our administrative, operational and financial
resources.
We expect our significant growth to continue, which could place additional demands on our
resources and increase our expenses. Our future growth will depend, among other things, on our
ability to successfully identify experienced transaction professionals to join our firm. It may
take years for us to determine whether new transaction professionals will be profitable or
effective. During that time, we may incur significant expenses and expend significant time and
resources toward training, integration and business development. If we are unable to hire and
retain profitable transaction professionals, we will not be able to implement our growth strategy,
which could adversely affect our business, financial condition and results of operations.
Sustaining our growth will also require us to commit additional management, operational and
financial resources to maintain appropriate operational and financial systems to adequately support
expansion. There can be no assurance that we will be able to manage our expanding operations
effectively or that we will be able to maintain or accelerate our growth, and any failure to do so
could adversely affect our ability to generate revenue and control our expenses which could
adversely affect our business, financial condition and results of operations.
If we acquire companies in the future, we may experience high transaction and integration
costs, the integration process may be disruptive to our business and the acquired businesses may
not perform as we expect.
Future acquisitions and any necessary related financings may involve significant
transaction-related expenses. Transaction-related expenditures include severance costs, lease
termination costs, transaction costs, deferred financing costs, possible regulatory costs and
merger-related costs, among others. We may also experience difficulties in integrating operations
and accounting systems acquired from other companies. These challenges include the diversion of
management’s attention from the regular operations of our business and the potential loss of our
key clients, our key associates or those of the acquired operations, each of which could harm our
financial condition and results of operation. We believe that most acquisitions will initially have
an adverse impact on revenues, expenses, operating income and net income. Acquisitions also
frequently involve significant costs related to integrating information technology, accounting,
reporting and management services and rationalizing personnel levels. If we are unable to fully
integrate the accounting, reporting and other systems of the businesses we acquire, we may not be
able to effectively manage them and our financial results may be materially affected. Moreover, the
integration process itself may be disruptive to our business as it requires coordination of
geographically diverse organizations and implementation of new accounting and information
technology systems.
In addition, acquisitions of businesses involve risks that the businesses acquired will not
perform in accordance with expectations, that the expected synergies associated with acquisitions
will not be achieved and that business judgments concerning the value, strengths and weaknesses of
businesses acquired will prove incorrect, which could have an adverse affect on our business,
financial condition and results of operations.
A failure to appropriately deal with actual or perceived conflicts of interest could adversely
affect our businesses.
Outside of our people, our reputation is one of our most important assets. As we have expanded
the scope of our businesses and our client base, we increasingly have to address potential actual
or perceived conflicts of interest relating to the capital markets services we provide to our
existing and potential clients. For example, conflicts may arise between our position as an advisor
to both the buyer and seller in commercial real estate sales transactions or in instances when a
potential buyer requests that we represent it in securing the necessary capital to acquire an asset
we are selling for another client. In addition, certain of our employees hold interests in real
property as well as invest in pools of funds outside of their capacity as our employees, and their
individual interests could be perceived to or actually conflict with the interests of our clients.
While we have attempted to adopt various policies, controls and procedures to address or limit
actual or perceived conflicts, these policies and procedures may not be adequate or carry attendant
costs and may not be adhered to by our employees. Appropriately dealing with conflicts of interest
is complex and difficult and our reputation could be damaged and cause us to lose existing clients
or fail to gain new clients if we fail, or appear to fail, to deal appropriately with conflicts of
interest, which could have an adverse affect on our business, financial condition and results of
operations.
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A
majority of our revenue is derived from capital markets services transaction fees, which are
not long-term contracted sources of revenue and are subject to intense competition, and declines in
those engagements could have a material adverse effect on our financial condition and results of
operations.
We
historically have earned over 90% of our revenue from capital markets services transaction
fees. We expect that we will continue to rely heavily on capital
markets services transaction fees
for a substantial portion of our revenue for the foreseeable future. A decline in our engagements
or in the value of the commercial real estate we sell or finance could significantly decrease our
capital markets services revenues which would adversely affect our business, financial condition and
results of operations. In addition, we operate in a highly competitive environment where typically
there are no long-term contracted sources of revenue; each revenue-generating engagement typically
is separately awarded and negotiated on a transaction-by-transaction basis, and the inability to
continue to be paid for services at the current levels or the loss of clients would adversely
affect our business, financial condition and results of operation.
Additional indebtedness may make us more vulnerable to economic downturns and limit our
ability to withstand competitive pressures.
We may require additional financing to fund our on-going capital needs as well as to fund our
working capital needs. Any additional indebtedness that we incur will make us more vulnerable to
economic downturns and limit our ability to withstand competitive pressures.
The level of our indebtedness could have important consequences, including:
•
a substantial portion of our cash flow from operations will be dedicated to debt service and
may not be available for other purposes;
•
making it more difficult for us to satisfy our obligations;
•
limiting our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate;
•
obtaining financing in the future for working capital, capital expenditures and general
corporate purposes, including acquisitions, and may impede our ability to secure favorable lease
terms;
•
making us more vulnerable to economic downturns and may limit our ability to withstand
competitive pressures;
•
making it more difficult to continue to fund our strategic growth initiatives and retain and
attract key individuals; and
•
placing us at a competitive disadvantage compared to our competitors with less debt and
greater financial resources.
Our future cash flow may not be sufficient to meet our obligations and commitments. If we are
unable to generate sufficient cash flow from operations in the future to service our indebtedness
and to meet our other commitments, we will be required to adopt one or more alternatives, such as
refinancing or restructuring our indebtedness, selling material assets, operations or seeking to
raise additional debt or equity capital or terminating significant numbers of key associates. These
actions may not be effected on a timely basis or on satisfactory terms or at all, and these actions
may not enable us to continue to satisfy our capital requirements. As a result, we may not be able
to maintain or accelerate our growth, and any failure to do so could adversely affect our ability
to generate revenue and control our expenses, which could adversely affect our business, financial
condition and results of operations.
Significant fluctuations in our revenues and net income may make it difficult for us to
achieve steady earnings growth on a quarterly or an annual basis, which may make the comparison
between periods difficult and may cause the price of our Class A common stock to decline.
We have experienced and continue to experience significant fluctuations in revenues and net
income as a result of many factors, including the timing of transactions, the commencement and
termination of contracts, revenue mix and the timing of additional selling, general and
administrative expenses to support new business activities. We provide many of our services without
written contracts or pursuant to contracts that are terminable at will.
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Consequently, many of our
clients can terminate or significantly reduce their relationships with us on very short notice for
any reason.
We plan our capital and operating expenditures based on our expectations of future revenues
and, if revenues are below expectations in any given quarter or year, we may be unable to adjust
capital or operating expenditures in a timely manner to compensate for any unexpected revenue
shortfall, which could have an immediate material adverse effect on our business, financial
condition and results of operation.
Our results of operation vary significantly among quarters during each calendar year, which
makes comparisons of our quarterly results difficult.
A significant portion of our revenue is seasonal. Historically, this seasonality has caused
our revenue, operating income, net income and cash flows from operating activities to be lower in
the first six months of the year and higher in the second half of the year. This variance among
periods during each calendar year makes comparison between such periods difficult, and it also
makes the comparison of the same periods during different calendar years difficult as well.
Employee misconduct, which is difficult to detect and deter, could harm us by impairing our
ability to attract and retain clients and subjecting us to significant legal liability and
reputational harm.
If our associates engage in misconduct, our business could be adversely affected. For example,
our business often requires that we deal with confidential matters of great significance to our
clients. It is not always possible to deter employee misconduct, and the precautions we take to
deter and prevent this activity may not be effective in all cases. If our associates were
improperly to use or disclose confidential information provided by our clients, we could be subject
to regulatory sanctions and suffer serious harm to our reputation, financial position and current
client relationships and significantly impair our ability to attract future clients, which could
adversely affect our business, financial condition and results of operation.
Compliance failures and changes in regulation could result in an increase in our compliance
costs or subject us to sanctions or litigation.
A number of our services are subject to regulation, including by the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. (the “NASD”) and state real estate
commissions and securities regulators. Our failure to comply or have complied with applicable laws
or regulations could result in fines, suspensions of personnel or other sanctions, including
revocation of the registration of us or any of our subsidiaries as a commercial real estate broker
or broker-dealer. Even if a sanction imposed against us or our personnel is small in monetary
amount, the adverse publicity arising from the imposition of sanctions against us by regulators
could harm our reputation and cause us to lose existing clients or significantly impair our ability
to gain new clients. Our broker-dealer operations are subject to periodic examination by the
Securities and Exchange Commission and the NASD. Because the Reorganization Transactions resulted
in HFF, Inc. acquiring a greater than 25% equity interest in HFF Securities, a registered
broker-dealer, HFF Securities filed an application with the NASD for approval of the change of
control that was deemed to result from such transactions. As a result, HFF Securities complied with
the NASD requirements to provide advance notice of, and apply for approval of, the deemed change of
control and was permitted under the rules of the NASD to complete the Reorganization Transactions.
However, in connection with the application for a change of control, the NASD may identify
deficiencies in the procedures and practices of HFF Securities and may require HFF Securities to
take remedial action. The NASD may also identify significant violations of law, rules or
regulations, resulting in formal disciplinary action and the imposition of sanctions, including
potentially the revocation of HFF Securities’ registration as a broker-dealer. We cannot predict
the outcome of any such examinations or processes, and any negative regulatory action may have a
significant and material adverse affect on our company. In addition, it is possible that the
regulatory scrutiny of, and litigation in connection with, conflicts of interest will make our
clients less willing to enter into transactions in which such a conflict may occur, and will
adversely affect our businesses as well as significantly impair our ability to gain new clients,
which could adversely affect our business, financial condition and results of operation.
In addition, we may be adversely affected as a result of new or revised legislation or
regulations adopted by the Securities and Exchange Commission, other United States or state or
local governmental regulatory authorities or self-regulatory organizations that supervise the
financial and commercial real estate markets.
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Risks Related to Our Organizational Structure
Our only material asset is our units in the Operating Partnerships, and we are accordingly
dependent upon distributions from the Operating Partnerships to pay our expenses, taxes and
dividends (if and when declared by our board of directors).
HFF, Inc. is a holding company and has no material assets other than its ownership of
partnership units in the Operating Partnerships. HFF, Inc. has no independent means of generating
revenue. We intend to cause the Operating Partnerships to make distributions to its partners in an
amount sufficient to cover all expenses, applicable taxes payable and dividends, if any, declared
by our board of directors. To the extent that HFF, Inc. needs funds, and the Operating Partnerships
are restricted from making such distributions under applicable law or regulation or under any
present or future debt covenants, or are otherwise unable to provide such funds, it could
materially adversely affect our business, liquidity, financial condition and results of operation.
We will be required to pay HFF Holdings for most of the benefits relating to any additional
tax depreciation or amortization deductions we may claim as a result of the tax basis step-up we
receive, subsequent sales of our common stock and related transactions with HFF Holdings.
As
part of the Reorganization Transactions, approximately 45% of the
partnership units in each of the Operating Partnerships (including
partnership units in the Operating Partnerships held by Holliday GP) held by Holdings Sub, a wholly-owned subsidiary of HFF Holdings, were sold to
HoldCo LLC, our wholly-owned subsidiary, for cash raised in the initial public offering. In the
future, partnership units in HFF LP and HFF Securities held by HFF Holdings may be exchanged by HFF
Holdings for shares of our Class A common stock. The initial sale and subsequent exchanges are
expected to result in increases in the tax basis of the assets of HFF LP and HFF Securities that
would be allocated to HFF, Inc. These increases in tax basis would likely reduce the amount of tax
that we would otherwise be required to pay in the future depending on the amount, character and
timing of our taxable income, but there can be no assurances that such treatment will continue in
the future.
HFF, Inc. entered into a tax receivable agreement with HFF Holdings that provides for the
payment by HFF, Inc. to HFF Holdings of 85% of the amount of cash savings, if any, in U.S. federal,
state and local income tax that we actually realize as a result of these increases in tax basis and
as a result of certain other tax benefits arising from our entering into the tax receivable
agreement and making payments under that agreement. For purposes of the tax receivable agreement,
cash savings in income tax will be computed by comparing our actual income tax liability to the
amount of such taxes that we would have been required to pay had there been no increase to the tax
basis of the assets of HFF LP and HFF Securities as a result of the initial sale and later
exchanges and had we not entered into the tax receivable agreement. The term of the tax receivable
agreement will continue until all such tax benefits have been utilized or expired, including the
tax benefits derived from future exchanges.
While the actual amount and timing of payments under the tax receivable agreement will depend
upon a number of factors, including the amount and timing of taxable income we generate in the
future, the value of our individual assets, the portion of our payments under the tax receivable
agreement constituting imputed interest and increases in the tax basis of our assets resulting in
payments to HFF Holdings, we expect that the payments that may be made to HFF Holdings will be
substantial. Future payments to HFF Holdings in respect of subsequent exchanges would be in
addition to these amounts and are expected to be substantial. The payments under the tax receivable
agreement are not conditioned upon HFF Holdings’ or its affiliates’ continued ownership of us. We
may need to incur debt to finance payments under the tax receivable agreement to the extent our
cash resources are insufficient to meet our obligations under the tax receivable agreement as a
result of timing discrepancies or otherwise.
In addition, although we are not aware of any issue that would cause the Internal Revenue
Service, or IRS, to challenge the tax basis increases or other benefits arising under the tax
receivable agreement, HFF Holdings will not reimburse us for any payments previously made if such
basis increases or other benefits were later not allowed. As a result, in such circumstances we
could make payments to HFF Holdings under the tax receivable agreement in excess of our actual cash
tax savings.
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If HFF, Inc. was deemed an “investment company” under the Investment Company Act of 1940 as a
result of its ownership of the Operating Partnerships, applicable restrictions could make it
impractical for us to continue our business as contemplated and could have a material adverse
effect on our business.
If HFF, Inc. were to cease participation in the management of the Operating Partnerships, its
interest in the Operating Partnerships could be deemed an “investment security” for purposes of the
Investment Company Act. Generally, a person is deemed to be an “investment company” if it owns
investment securities having a value exceeding 40% of the value of its total assets (exclusive of
U.S. government securities and cash items) on an unconsolidated basis, absent an applicable
exemption. HFF, Inc. has no material assets other than its equity interest in the Operating
Partnerships and Holliday GP. A determination that this interest was an investment security could
result in HFF, Inc. being an investment company under the Investment Company Act and becoming
subject to the registration and other requirements of the Investment Company Act. HFF, Inc. will
not be deemed an investment company because it will manage the Operating Partnerships through its
wholly owned subsidiary, Holliday GP. Holliday GP is the sole general partner of each of the
Operating Partnerships.
The 1940 Act and the rules thereunder contain detailed parameters for the organization and
operations of investment companies. Among other things, the 1940 Act and the rules thereunder limit
or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity
securities, prohibit the issuance of stock options, and impose certain governance requirements. We
intend to conduct our operations so that HFF, Inc. will not be deemed to be an investment company
under the 1940 Act. However, if anything were to happen which would cause HFF,
Inc. to be deemed to be an investment company under the 1940 Act, we could, among other
things, be required to substantially change the manner in which we conduct our operations either to
avoid being required to register as an investment company or to register as an investment company.
If we were required to register as an investment company under the 1940 Act, we would be subject to
substantial regulation with respect to, among other things, our capital structure (including our
ability to use leverage), management, operations, ability to transact business with affiliated
persons as defined in the 1940 Act (including our subsidiaries), portfolio composition (including
restrictions with respect to diversification and industry concentrations) and ability to compensate
key employees. These restrictions and limitations could make it impractical for us to continue our
business as currently conducted, impair our agreements and arrangements and materially adversely
affect our business, financial condition and results of operations.
Risks Related to Our Class A Common Stock
Control by HFF Holdings of the voting power in HFF, Inc. may give rise to conflicts of
interests and may prevent new investors from influencing significant corporate decisions.
Our certificate of incorporation provides that the holders of our Class B common stock (other
than HFF, Inc. or any of its subsidiaries) will be entitled to a number of votes that is equal to
the total number of shares of Class A common stock for which the partnership units that HFF
Holdings holds in the Operating Partnerships are exchangeable.
HFF Holdings currently has approximately 55% of the voting power in HFF, Inc. As a result,
because HFF Holdings will have a majority of the voting power in HFF, Inc. and our certificate of
incorporation does not provide for cumulative voting, HFF Holdings has the ability to elect all of
the members of our board of directors and thereby to control our management and affairs, including
determinations with respect to acquisitions, dispositions, borrowings, issuances of common stock or
other securities, and the declaration and payment of dividends. In addition, HFF Holdings will be
able to determine the outcome of all matters requiring stockholder approval and will be able to
cause or prevent a change of control of our company or a change in the composition of our board of
directors and could preclude any unsolicited acquisition of our company. We cannot assure you that
the interests of HFF Holdings and its members will not conflict with your interests.
The concentration of ownership could deprive our Class A stockholders of an opportunity to
receive a premium for their shares as part of a sale of our company and might ultimately affect the
market price of our Class A common stock. As a result of the control exercised by HFF Holdings over
us, we cannot assure you that we would not have received more favorable terms from an unaffiliated
party in our agreements with HFF Holdings.
In addition, the HFF LP and HFF Securities Profit Participation Bonus Plans may only be
amended or terminated with the written approval of all of the limited partners and general partners
of each Operating Partnership. Accordingly, so long as HFF Holdings continues to hold any
partnership units in the Operating
16
Partnerships, the consent of HFF Holdings will required to amend
or terminate these plans. This could prevent our board of directors or management from amending or
terminating these plans.
Transformation into a public company may increase our costs and disrupt the regular operations
of our business.
Our business has historically operated as a privately-owned company, and we expect to incur
significant additional legal, accounting, reporting and other expenses as a result of having
publicly traded common stock. We will also incur costs which we have not previously incurred,
including, but not limited to, costs and expenses for directors fees, increased directors and
officers insurance, investor relations fees, expenses for compliance with the Sarbanes-Oxley Act
and new rules implemented by the Securities and Exchange Commission and the New York Stock
Exchange, and various other costs of a public company. On an annual basis, we estimate that we will
incur costs of more than $3 million per year as a result of becoming a publicly-traded company.
Since we have not operated as a public company before, there can be no assurance that this estimate
is accurate and our actual costs may be significantly higher.
We also anticipate that we will incur costs associated with recently adopted corporate
governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as amended,
as well as rules implemented by the SEC and the NYSE. We expect these rules and regulations to
increase our legal and financial compliance costs and make some management and corporate governance
activities more time-consuming and costly. These rules and regulations may make it more difficult
and more expensive for us to obtain director and officer liability insurance
and we may be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage, and therefore could have an adverse impact on
our ability to recruit and bring on a qualified independent board. We cannot predict or estimate
the amount of additional costs we may incur as a result of these requirements or the timing of such
costs.
The individuals who now constitute our management have never had responsibility for managing a
publicly-traded company, and we may experience difficulty attracting and retaining qualified
individuals to serve on our board of directors or as executive officers. The additional demands
associated with being a public company may disrupt regular operations of our business by diverting
attention of some of our most active senior transaction professionals away from revenue producing
activities to management and administrative oversight, adversely affecting our ability to attract
and complete business opportunities with clients and increasing difficulty in retaining transaction
professionals and managing and growing our businesses, the occurrence of any of which could harm
our business, financial condition and results of operations.
Our internal controls over financial reporting may not be effective and our independent
registered public accounting firm may not be able to certify as to their effectiveness, which could
have a significant and adverse effect on our business and reputation.
We will evaluate our internal controls over financial reporting in order to allow management
to report on, and our independent registered public accounting firm to attest to, our internal
controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, as
amended, and rules and regulations of the SEC thereunder, which we refer to as “Section 404.” The
process of documenting and testing our internal control procedures in order to satisfy the
requirements of Section 404 requires annual management assessments of the effectiveness of our
internal controls over financial reporting and a report by our independent registered public
accounting firm addressing these assessments. During the course of our testing, we may identify
deficiencies which we may not be able to remediate in time to meet the deadline imposed by the
Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to
achieve and maintain the adequacy of our internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal controls over financial reporting in accordance with
Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and any
remediation actions or the impact of the same on our operations. If we are not able to implement
the requirements of Section 404 in a timely manner or with adequate compliance, our independent
registered public accounting firm may not be able to certify as to the effectiveness of our
internal control over financial reporting and we may be subject to sanctions or investigation by
regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the
financial markets due to a loss of confidence in the reliability of our financial statements. In
addition, we may be required to incur costs in improving our internal control system and the hiring
of additional personnel. Any such action could harm our reputation and cause us to lose existing
clients or fail to gain new clients and otherwise
17
negatively affect our results of operations.
While our management has not identified any material weaknesses in our internal controls over
financial reporting at December 31, 2006, management has identified significant deficiencies
involving, among other things, the documentation of and adherence to certain accounting policy and
financial reporting matters and management and governance of information systems, which could have
an adverse effect on our business, financial condition or results of operations if not remediated
timely.
If securities analysts do not publish research or reports about our business or if they
downgrade our company or our sector, the price of our Class A common stock could decline.
The trading market for our Class A common stock will depend in part on the research and
reports that industry or financial analysts publish about us or our business. We do not control
these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our company
or our industry, or the stock of any of our competitors, the price of our Class A common stock
could decline. If one or more of these analysts ceases coverage of our company, we could lose
visibility in the market, which in turn could cause the price of our Class A common stock to
decline.
Our share price may decline due to the large number of shares eligible for future sale and for
exchange.
The market price of our Class A common stock could decline as a result of sales of a large
number of shares of Class A common stock in the market after the offering or the perception that
such sales could occur. These sales, or the possibility that these sales may occur, also might make
it more difficult for us to sell equity securities in the future at a time and at a price that we
deem appropriate.
We have agreed with the underwriters not to dispose of or hedge any of our Class A common
stock or securities convertible into or exchangeable for shares of our Class A common stock,
subject to specified exceptions, until 180 days after the date of the prospectus used in connection
with our initial public offering, except with the prior written consent of the underwriters.
Subject to these agreements, we may issue and sell in the future additional shares of Class A
common stock.
In addition, HFF Holdings owns 20,355,000 partnership units in each of the Operating
Partnerships. Our amended and restated certificate of incorporation will allow the exchange of
partnership units in the Operating Partnerships (other than those held by us) for shares of our
Class A common stock on the basis of two partnership units (one in each Operating Partnership) for
one share of Class A common stock, subject to customary conversion rate adjustments for stock
splits, stock dividends and reclassifications. HFF Holdings has agreed with the underwriters not to
dispose of or hedge any of our Class A common stock or securities convertible into or exchangeable
for shares of our Class A common stock (including partnership units in the Operating Partnerships),
subject to specified exceptions, until 180 days after the date of the prospectus used in connection
with our initial public offering,, except with the prior written consent of the underwriters. After
the expiration of the 180-day lock-up period, the shares of Class A common stock issuable upon
exchange of the partnership units in the Operating Partnerships will be eligible for resale from
time to time, subject to certain contractual and Securities Act restrictions. Pursuant to
contractual provisions and subject to certain exceptions, HFF Holdings will be restricted from
exchanging partnership units for Class A common stock for two years. After two years, HFF Holdings
will have the right to exchange 25% of its partnership units, with an additional 25% becoming
available for exchange each year thereafter. However, these contractual provisions may be waived,
amended or terminated by the members of Holdings LLC following consultation with our Board of
Directors.
HFF Holdings has entered into a registration rights agreement with us. Under that agreement,
after the expiration of the 180-day lock-up period, HFF Holdings will have the ability to cause us
to register the shares of our Class A common stock it could acquire upon exchange of its
partnership units in the Operating Partnerships.
The market price of our Class A common stock may be volatile, which could cause the value of
your investment to decline or subject us to litigation.
Our stock price will be affected by a number of factors, including quarterly and annual
variations in our results and those of our competitors; changes to the competitive landscape;
estimates and projections by the investment community; the arrival or departure of key personnel,
especially the retirement or departure of key senior transaction professionals and management,
including members of HFF Holdings; the introduction of new services by us or our competitors; and
acquisitions, strategic alliances or joint ventures involving us or our competitors. Securities
markets worldwide experience significant price and volume fluctuations. This market volatility, as
well as general global and domestic economic, market or political conditions, could reduce the
market price of our Class A common
18
stock. In addition, our operating results could be below the
expectations of public market analysts and investors, and in response, the market price of our
Class A common stock could decrease significantly. You may be unable to resell your shares of our
Class A common stock at or above the initial public offering price.
When the market price of a company’s common stock drops significantly, stockholders sometimes
institute securities class action lawsuits against the company. A securities class action lawsuit
against us could cause us to incur substantial costs and could divert the time and attention of our
management and other resources from our business.
Anti-takeover provisions in our charter documents and Delaware law could delay or prevent a
change in control.
Our certificate of incorporation and by-laws may delay or prevent a merger or acquisition that
a stockholder may consider favorable by permitting our board of directors to issue one or more
series of preferred stock, requiring advance notice for stockholder proposals and nominations,
providing for a classified board of directors, providing for super-majority votes of stockholders
for the amendment of the bylaws and certificate of incorporation, and placing limitations on
convening stockholder meetings and not permitting written consents of stockholders. In addition, we
are subject to provisions of the Delaware General Corporation Law that restrict certain business
combinations with interested stockholders. These provisions may also discourage acquisition
proposals or delay or prevent a change in control, which could harm our stock price.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive offices are located in leased office space at One Oxford Centre, 301
Grant Street, Suite 600, Pittsburgh, Pennsylvania. We also lease or sublease space for our offices
at Boston, Massachusetts; Hartford, Connecticut; Westport, Connecticut; New York, New York; Florham
Park, New Jersey; Washington, D.C.; Miami, Florida; Atlanta, Georgia; Indianapolis, Indiana;
Chicago, Illinois; Houston, Texas; Dallas, Texas; San Diego, California; Orange County, California;
Los Angeles, California; San Francisco, California and Portland, Oregon. We do not own any real
property. We believe that our existing facilities will be sufficient for the conduct of our
business during the next fiscal year.
Item 3. Legal Proceedings
We are party to various litigation matters, in most cases involving ordinary course and
routine claims incidental to our business. We cannot estimate with certainty our ultimate legal
and financial liability with respect to any pending matters. However, we believe, based on our
examination of such pending matters, that our ultimate liability for these matters will not have a
material adverse effect on our business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of our security holders during the fourth quarter of 2006.
19
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market Information
Our Class A common stock, par value $0.01 per share, trades on the New York Stock Exchange
(“NYSE”) under the symbol “HF.” In connection with our initial public offering, our Class A common
stock was priced for initial sale on January 30, 2007. There was no established public trading
market for our common stock prior to that date. On March 9, 2007 the closing sales price, as
reported by the NYSE was $17.59.
Holders
On
March 9, 2007, we had 1 stockholder of record of our common stock.
Dividends
We currently do not intend to pay cash dividends on our Class A common stock. If we do declare
a dividend at some point in the future, the Class B common stock will not be entitled to dividend
rights. The declaration and payment of any future dividends will be at the sole discretion of our
board of directors.
HFF, Inc. is a holding company and has no material assets other than its ownership of
partnership units in the Operating Partnerships. If we declare a dividend at some point in the
future, we intend to cause the Operating Partnerships to make distributions to HFF, Inc. in an
amount sufficient to cover any such dividends. If the Operating Partnerships make such
distributions, HFF Holdings will be entitled to ratably receive equivalent distributions on its
partnership units in the Operating Partnerships.
Initial Public Offering Use of Proceeds
We completed an initial public offering of our Class A common stock, par value $.01 per share,
on February 5, 2007 and the sale of additional shares pursuant to the underwriters’ over-allotment
option on February 22, 2007. In the offering, we sold 16,445,000 shares of Class A common stock
for an aggregate gross offering price of $296.0 million. These shares were registered for sale
under the Securities Act of 1933, as amended, pursuant to our Registration Statement on Form S-1
(File number 333-138579) which was declared effective by the Securities and Exchange Commission on
January 30, 2007. Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated acted as joint
book-running managers.
Net proceeds to us, after deducting underwriting discounts and commissions and offering
expenses, totaled approximately $271.6 million. Aggregate underwriting discounts and commissions
totaled approximately $20.7 million and aggregate offering expenses totaled approximately $3.7
million.
We used the net offering proceeds to us of $271.6 million to purchase from HFF Holdings all of
the shares of Holliday GP and the partnership units representing approximately 45% of each of the
Operating Partnerships (including partnership units in the Operating Partnerships held by Holliday
GP). HFF Holdings used approximately $56.3 million its proceeds to repay all outstanding
indebtedness under HFF LP’s credit agreement. Accordingly, we did not retain any of the proceeds
from this offering.
Performance Graph
In connection with our initial public offering, our Class A common stock was priced for
initial sale on January 30, 2007. There was no established public trading market for our common
stock prior to that date.
Recent Sales of Unregistered Securities
On November 2, 2006, we issued 1 share of our common stock, par value $0.01 per share, to an
officer of the Company for $1.00. The issuance of such share of common stock was not registered
under the Securities Act,
20
because the share was offered and sold in a transaction exempt from
registration under Section 4(2) of the Securities Act.
Issuer Purchases of Equity Securities.
On February 5, 2007, in connection with the closing of our initial public offering of Class A
common stock, we purchased the 1 share of common stock, par value $0.01 per share, held by an
officer of the Company (discussed above) for $1.00.
Item 6. Selected Financial Data
The following tables present our selected combined financial data, which reflects the
financial position and results of operations as if Holliday GP, the Operating Partnerships and HFF,
Inc., were combined for all periods presented. The selected historical combined financial data as
of and for the years ended December 31, 2006, 2005, and 2004 have been derived from our audited
combined financial statements included elsewhere in this Annual Report on Form 10-K, which have
been audited by Ernst & Young LLP, our independent registered public accounting firm. The selected
historical combined financial data for the period from June 16, 2003 through December 31, 2003 was
also derived from our audited consolidated financial statements, which have been audited by Ernst &
Young LLP, our independent registered public accounting firm, but are not otherwise included in
this Annual report on form 10-K. We derived the selected historical combined financial data set
forth below as of December 31, 2003, and 2002, and for the period from January 1, 2003 through June
15, 2003 and for the year ended December 31, 2002 from our unaudited combined financial information
not included elsewhere in this Annual Report on Form 10-K. Our historical results are not
necessarily indicative of future performance or results of operations. You should read the combined
historical financial data together with our combined financial statements and related notes
included in Item 8 of this Annual Report on Form 10-K and with Item 7—Management’s Discussion and
Analysis of Financial Condition and Results of Operations and the combined financial statements and
the related notes thereto and other financial data included elsewhere in this Annual Report on Form
10-K.
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor (a)
|
|
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
6/16/03 -
|
|
|
|
1/1/03 -
|
|
|
December 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
12/31/03
|
|
|
|
6/15/03
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
229,697
|
|
|
$
|
205,848
|
|
|
$
|
143,691
|
|
|
$
|
72,474
|
|
|
|
$
|
36,725
|
|
|
$
|
84,661
|
|
|
Operating expenses
|
|
|
174,903
|
|
|
|
157,619
|
|
|
|
113,961
|
|
|
|
58,579
|
|
|
|
|
32,461
|
|
|
|
78,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
54,794
|
|
|
|
48,229
|
|
|
|
29,730
|
|
|
|
13,895
|
|
|
|
|
4,264
|
|
|
|
6,003
|
|
|
Interest and other income
|
|
|
632
|
|
|
|
274
|
|
|
|
67
|
|
|
|
63
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest expense
|
|
|
( 3,541
|
)
|
|
|
( 80
|
)
|
|
|
( 86
|
)
|
|
|
(38
|
)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
51,885
|
|
|
|
48,423
|
|
|
|
29,711
|
|
|
|
13,920
|
|
|
|
|
4,264
|
|
|
|
6,003
|
|
|
Income taxes (b)
|
|
|
332
|
|
|
|
288
|
|
|
|
296
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
51,553
|
|
|
$
|
48,135
|
|
|
$
|
29,415
|
|
|
$
|
13,920
|
|
|
|
$
|
4,264
|
|
|
$
|
6,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
154,302
|
|
|
$
|
38,630
|
|
|
$
|
23,940
|
|
|
$
|
34,361
|
|
|
|
|
|
|
|
$
|
44,430
|
|
|
Long term debt, excluding current
portion
|
|
$
|
91
|
|
|
$
|
150
|
|
|
$
|
193
|
|
|
$
|
243
|
|
|
|
|
|
|
|
$
|
—
|
|
|
Total liabilities
|
|
$
|
198,620
|
|
|
$
|
29,521
|
|
|
$
|
11,568
|
|
|
$
|
10,205
|
|
|
|
|
|
|
|
$
|
11,749
|
|
|
|
|
|
|
(a)
|
|
The financial information for the period from January 1, 2002 through June 15, 2003, is derived from unaudited financial
information and general ledger reports provided by HFF LP’s parent company at that time. Prior to June 15, 2003, HFF LP was
an indirect wholly-owned subsidiary of Lend Lease, an Australian company with a June 30 fiscal year. The acquisition of HFF
LP on June 16, 2003 by HFF Holdings created a new basis of accounting and, accordingly, the financial information for the
periods through December 31, 2003 are not comparable to recent periods and comparisons of those periods to recent periods may
not be accurate indicators of our relative financial performance.
|
|
|
|
(b)
|
|
We have historically operated as two limited liability companies (HFF Holdings and Holdings Sub), a corporation (Holliday GP)
and two limited partnerships (HFF LP and HFF Securities), which two partnerships we refer to as the Operating Partnerships.
As a result, our income has been subject to limited U.S. federal income taxes and our income and expenses have been passed
through and reported on the individual tax returns of the members of HFF Holdings. Income taxes shown on the Company’s
combined statements of income reflect federal income taxes of the corporation and business and corporate income taxes in
various jurisdictions. Following the offering, the Company will be subject to additional entity-level taxes that will be
reflected in our consolidated financial statements. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operation – Key Financial Measures and Indicators – Costs and Expenses – Income Tax Expense.”
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Selected Financial Data and
our audited financial statements and the accompanying notes thereto included elsewhere herein. The
following discussion is based on the combined results of Holliday GP, the Operating Partnerships
and HFF, Inc. In addition to historical information, the following discussion also contains
forward-looking statements that include risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of certain
factors, including those factors set forth under Item 1A—Risk Factors of this Annual Report on Form
10-K.
22
Overview
Our Business
We are a leading provider of commercial real estate and capital markets services to the U.S.
commercial real estate industry based on transaction volume and are one of the largest private
full-service commercial real estate financial intermediaries in the country. We operate out of 18
offices nationwide with more than 130 transaction professionals and approximately 270 support
associates. In 2006, we advised on approximately $36.4 billion of completed commercial real estate
transactions, approximately a 14.5% increase compared to the
approximately $31.8 billion of
completed transactions we advised on in 2005.
Substantially
all of our revenues are in the form of capital markets service fees collected
from our clients, usually negotiated on a transaction-by-transaction basis. We also earn fees from
commercial loan servicing activities. We believe that our multiple product offerings, diverse
client mix, expertise in a wide range of property types and national platform create a stable and
diversified revenue stream. Furthermore, we believe our business mix, operational expertise and the
leveragability of our platform have enabled us to achieve profit margins that are among the highest
of our public company peers. Our revenues and net income were $229.7 million and $51.6 million,
respectively, for the year ended December 31, 2006, compared to $205.8 million and $48.1 million,
respectively, for the year ended December 31, 2005.
Our business may be significantly affected by factors outside of our control, particularly
including:
|
|
•
|
|
Economic and commercial real estate market downturns.
Our business is dependent on
international and domestic economic conditions and the demand for commercial real estate and
related services in the markets in which we operate and even a regional economic downturn
could adversely affect our business. A general decline in acquisition and disposition
activity can lead to a reduction in fees and commission for arranging such transactions, as
well as in fees and commissions for arranging financing for acquirers and property owners
that are seeking to recapitalize their existing properties. Likewise, a general decline in
commercial real estate investment activity can lead to a reduction in fees and commissions
for arranging acquisitions, dispositions and financings for acquisitions as well as for
recapitalizations for existing property owners as well as a significant reduction in our
loan servicing activities, due to increased delinquencies and lack of additional loans that
we would have otherwise added to our loan servicing portfolio, all of which would have an
adverse effect on our business.
|
|
|
|
|
•
|
|
Decreased investment allocation to commercial real estate class.
Allocations to
commercial real estate as an asset class for investment portfolio diversification may
decrease for a number of reasons beyond our control, including but not limited to poor
performance of the asset class relative to other asset classes or superior performance of
other asset classes when compared with continued good performance of the commercial real
estate asset class. In addition, while commercial real estate is now viewed as an accepted
and valid class for portfolio diversification, if this perception changes, there could be a
significant reduction in the amount of debt and equity capital available in the commercial
real estate sector.
|
|
|
|
|
•
|
|
Fluctuations in interest rates.
Significant fluctuations in interest rates as well as
steady and protracted movements of interest rates in one direction (increases or decreases)
could adversely affect the operation and income of commercial real estate properties as well
as the demand from investors for commercial real estate investments. Both of these events
could adversely affect investor demand and the supply of capital for debt and equity
investments in commercial real estate. In particular, increased interest rates may cause
prices to decrease due to the increased costs of obtaining financing and could lead to
decreases in purchase and sale activities thereby reducing the amounts of investment sales
and loan originations and related servicing fees. If our investment sales origination and
servicing businesses are negatively impacted, it is likely that our other lines of business
would also suffer due to the relationship among our various capital
markets services.
|
Other factors that may adversely affect our business are discussed under the heading
“Forward-Looking Statements” and under the caption “Risk Factors” in this Annual Report on Form
10-K.
23
Key Financial Measures and Indicators
Revenues
Substantially
all of our revenues are derived from capital markets services. These capital
markets services revenues are in the form of fees collected from our clients, usually negotiated on a
transaction-by-transaction basis, which includes origination fees, investment sales fees earned for
brokering sales of commercial real estate, loan servicing fees and note sale and note sales
advisory and other production fees. We also earn interest on mortgage notes receivable. For the
year ended December 31, 2006, we had total revenues of approximately $229.7 million, of which
approximately 98% were attributable to capital markets services revenue, 0.6% were attributable to
interest on mortgage notes receivable and 1.4% were attributable to other revenue sources. For the
year ended December 31, 2005, our total revenues equaled approximately $205.8 million, of which
approximately 99% were generated by our capital markets services, 0.2% were attributable to
interest on mortgage notes receivable and 0.8% were attributable to other revenue sources.
Total Revenues:
Capital markets services revenues.
We earn our capital markets services revenue through the
following activities and sources:
|
|
•
|
|
Origination fees.
Our origination fees are earned through the placement of debt, equity
and structured financing. Debt placements represent the majority of our business, with
approximately $22.1 billion of debt transaction volume in 2006. Fees earned by HFF
Securities for discretionary and non-discretionary equity capital raises and other
investment banking services are also included with capital markets services revenue in our
consolidated statements of income. We recognize origination revenues at the closing of the
applicable financing and funding of capital, when such fees are generally collected.
|
|
|
|
|
•
|
|
Investment sales fees.
We earn investment sales fees by acting as a broker for
commercial real estate owners seeking to sell a property(ies) or an interest in a
property(ies). We recognize investment sales revenues at the close and funding of the sale,
when such fees are generally collected.
|
|
|
|
|
•
|
|
Loan servicing fees.
We generate loan servicing fees through the provision of
collection, remittance, recordkeeping, reporting and other related loan servicing functions,
activities and services. We also earn fees through escrow balances maintained as a result of
required reserve accounts and tax and insurance escrows for the loans we service. We
recognize loan servicing revenues at the time services are rendered, provided the loans are
current and the debt service payments are actually made by the borrowers. We recognize the
other fees related to escrows and other activities at the time the fees are paid.
|
|
|
|
|
•
|
|
Note sale, note sales advisory and other production fees.
We generate note sale, note
sales advisory and other production fees through assisting our clients in their efforts to
sell all or portions of commercial real estate debt notes. We recognize note sale, note
sales advisory and other production revenues at the close and funding of the capital to
consummate sale, when such fees are generally collected.
|
Interest on mortgage notes receivable.
We recognize interest income on the accrual basis
during the approximately one month holding period based on the contract interest rate in the loan
that is to be purchased by Freddie Mac, provided that the debt service is paid by the borrower.
Other.
Our other revenues include expense reimbursements from clients related to out of
pocket costs incurred, which reimbursements are considered revenue for accounting purposes.
A substantial portion of our transactions are success based, with a small percentage including
retainer fees (such retainer fees typically being included in a success-based fee upon the closing
of a transaction). Transactions that are terminated before completion will sometimes generate
breakage fees, which are usually calculated as a set amount or a percentage (which varies by deal
size and amount of work done at the time of breakage) of the fee we would
24
have received had the
transaction closed. The amount and timing of all of the fees paid vary by the type of transaction
and are generally negotiated on a transaction-by-transaction basis.
Costs and Expenses
The largest components of our expenses are our operating expenses, which consist of cost of
services, personnel expenses not directly attributable to providing services to our clients,
occupancy expenses, travel and entertainment expenses, supplies, research and printing expenses and
other expenses. For the year ended December 31, 2006, our total operating expenses were
approximately $174.9 million. In addition, we incur non-operating expenses relating to interest
expense and income tax expense.
Operating Expenses:
Cost of Services.
The largest portion of our expenses is cost of services. We consider
personnel expenses directly attributable to providing services to our clients and certain purchased
services to be directly attributable to the generation of our capital markets services revenue, and
classify these expenses as cost of services in the combined statements of income. Personnel
expenses include employee-related compensation and benefits. Most of our transaction professionals
are paid commissions; however, there are some transaction professionals who are initially paid a
salary with commissions credited against the salary. Analysts, who support transaction
professionals in executing transactions, are paid a salary plus a discretionary bonus, which is
usually calculated as a percentage of an analyst bonus pool or as direct bonuses for each
transaction, depending on the policy of each regional office. All other employees receive a
combination of salary and an incentive bonus based on performance, job function, individual office
policy/profitability, and overall corporate profitability.
Personnel.
Personnel expenses include employee-related compensation and benefits that are not
directly attributable to providing services to our clients. In addition, personnel expense includes
profit participation bonuses in which offices or lines of business that generate profit margins of
14.5% or more are entitled to additional bonuses of 15% of net income from the office. The
allocation of the profit participation and how it is shared within the office are determined by the
office head with a review by the managing member of HFF Holdings. In 2006, total profit
participation bonuses paid were approximately 14% of operating profit before the profit
participation bonus.
Occupancy.
Occupancy expenses include rental expenses and other expenses related to our 18
offices nationwide.
Travel and entertainment.
Travel and entertainment expenses include travel and other
entertainment expenses incurred in conducting our business activities.
Supplies, research and printing.
Supplies, research and printing expenses represent expenses
related to office supplies, market and other research (including expenses relating to our
proprietary database) and printing.
Other.
The balance of our operating expenses include costs for insurance, professional fees,
depreciation and amortization, interest on our warehouse line of credit and other operating
expenses. We refer to all of these expenses below as “Other” expenses.
As a result of our initial public offering, we are no longer a privately-owned company and our
costs for such items as insurance, accounting and legal advice will increase substantially relative
to our historical costs for such services. We will also incur costs which we have not previously
incurred for directors fees, increased directors and officers insurance, investor relations fees,
expenses for compliance with the Sarbanes-Oxley Act and new rules implemented by the Securities and
Exchange Commission and the New York Stock Exchange, and various other costs of a public company.
On an annual basis, we estimate that we will incur costs of more than $3 million per year as a
result of becoming a publicly-traded company. Since we have not operated as a public company
before, there can be no guarantee that this estimate is accurate and our actual costs may be
significantly higher. In addition, we expect to incur substantial one-time costs in meeting the
legal and regulatory requirements of a public company, including Section 404 of the Sarbanes-Oxley
Act.
25
Interest and Other Income:
Interest and other income consist primarily of interest earned from the investment of our cash
and cash equivalents and short-term investments.
Interest Expense:
Interest expense represents the interest on our outstanding debt instruments, including
indebtedness outstanding under our credit agreement.
Income Tax Expense:
We have historically operated as two limited liability companies (HFF Holdings and Holdings
Sub), a corporation (Holliday GP) and two limited partnerships (HFF LP and HFF Securities, which
two partnerships we refer to collectively as the Operating Partnerships). As a result, our income
has been subject to limited U.S. federal corporate income taxes (allocable to Holliday GP), and the
remainder of our income and expenses have been passed through and reported on the individual tax
returns of the members of HFF Holdings. Income taxes shown on our combined statements of income are
attributable to taxes incurred at the state and local level.
Following our initial public offering, the Operating Partnerships have and will continue to
operate in the U.S. as partnerships for U.S. federal income tax purposes. In addition, however,
HFF, Inc. is subject to additional entity-level taxes that will be reflected in our consolidated
financial statements.
In accordance with the partnership agreements, we intend to cause the Operating Partnerships
to make cash distributions to the holders of partnership units of the Operating Partnerships for
purposes of funding their tax obligations in respect of the income of the Operating Partnerships
that is allocated to them. Generally, these tax distributions will be computed based on our
estimate of the net taxable income of the Operating Partnerships allocable to such holder of
partnership units multiplied by an assumed tax rate equal to the highest effective marginal
combined U.S. federal, state and local income tax rate prescribed for an individual or corporate
resident of New York, New York (taking into account the nondeductibility of certain expenses and
the character of our income). If we had effected the Reorganization Transactions on January 1,
2006, this assumed tax rate for 2006 would have been approximately 46%.
Minority Interest:
On a historical basis, we have not reflected any minority interest in our financial results.
Following this offering, however, we will record significant minority interest relating to the
ownership interest of HFF Holdings in the Operating Partnerships. HoldCo LLC, a wholly-owned
subsidiary of HFF, Inc., will own the sole general partner of the Operating Partnerships.
Accordingly, although HFF, Inc. will have a minority economic interest in the Operating
Partnerships, it will have a majority voting interest and control the management of the Operating
Partnerships. The limited partners in the Operating Partnerships do not have kick-out rights or
other substantive participating rights. As a result, HFF, Inc. will consolidate the Operating
Partnerships and record a minority interest for the economic interest in the Operating Partnerships
indirectly held by HFF Holdings.
Results of Operations
Following is a discussion of our results of operation for the years ended December 31, 2006,
2005 and 2004. The tables included in the period comparisons below provide summaries of our
results of operations. The period-to-period comparisons of financial results are not necessarily
indicative of future results.
26
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Change
|
|
|
Change
|
|
|
|
|
(dollars in thousands, unless percentages)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital markets services revenue
|
|
$
|
225,242
|
|
|
|
|
|
|
$
|
203,457
|
|
|
|
|
|
|
$
|
21,785
|
|
|
|
|
|
|
Interest on mortgage notes receivable
|
|
|
1,354
|
|
|
|
|
|
|
|
412
|
|
|
|
|
|
|
|
942
|
|
|
|
|
|
|
Other
|
|
|
3,101
|
|
|
|
|
|
|
|
1,979
|
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
229,697
|
|
|
|
100
|
%
|
|
|
205,848
|
|
|
|
100
|
%
|
|
|
23,849
|
|
|
|
11.6
|
%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
130,708
|
|
|
|
56.9
|
%
|
|
|
119,106
|
|
|
|
57.9
|
%
|
|
|
11,602
|
|
|
|
9.7
|
%
|
|
Personnel
|
|
|
13,471
|
|
|
|
5.9
|
%
|
|
|
14,019
|
|
|
|
6.8
|
%
|
|
|
(548
|
)
|
|
|
(3.9
|
)%
|
|
Occupancy
|
|
|
6,319
|
|
|
|
2.8
|
%
|
|
|
5,357
|
|
|
|
2.6
|
%
|
|
|
962
|
|
|
|
18.0
|
%
|
|
Travel and entertainment
|
|
|
5,789
|
|
|
|
2.5
|
%
|
|
|
5,067
|
|
|
|
2.5
|
%
|
|
|
722
|
|
|
|
14.2
|
%
|
|
Supplies, research and printing
|
|
|
6,463
|
|
|
|
2.8
|
%
|
|
|
5,089
|
|
|
|
2.5
|
%
|
|
|
1,374
|
|
|
|
27.0
|
%
|
|
Other
|
|
|
12,153
|
|
|
|
5.3
|
%
|
|
|
8,981
|
|
|
|
4.4
|
%
|
|
|
3,172
|
|
|
|
35.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
174,903
|
|
|
|
76.2
|
%
|
|
|
157,619
|
|
|
|
76.7
|
%
|
|
|
17,284
|
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
54,794
|
|
|
|
23.8
|
%
|
|
|
48,229
|
|
|
|
23.3
|
%
|
|
|
6,565
|
|
|
|
13.6
|
%
|
|
Interest and other income
|
|
|
632
|
|
|
NM
|
|
|
|
274
|
|
|
NM
|
|
|
|
358
|
|
|
NM
|
|
|
Interest expense
|
|
|
(3,541
|
)
|
|
NM
|
|
|
|
(80
|
)
|
|
NM
|
|
|
|
(3,461
|
)
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
51,885
|
|
|
|
22.6
|
%
|
|
|
48,423
|
|
|
|
23.5
|
%
|
|
|
3,462
|
|
|
|
7.1
|
%
|
|
Income tax expense
|
|
|
332
|
|
|
NM
|
|
|
|
288
|
|
|
NM
|
|
|
|
44
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
51,553
|
|
|
|
22.5
|
%
|
|
$
|
48,135
|
|
|
|
23.4
|
%
|
|
$
|
3,418
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues.
Our total revenues were $229.7 million for the year ended December 31, 2006
compared to $205.8 million for the same period in 2005, an increase of $23.9 million, or 11.6%.
Revenues increased primarily as a result of increased production.
|
|
•
|
|
The revenues we generated from capital markets services for the year ended December 31,
2006 increased $21.8 million, or 10.7%, to $225.2 million from $203.5 million for the same
period in 2005. The increase is primarily attributable to increased production.
|
|
|
|
|
•
|
|
The revenues derived from interest on mortgage notes were $1.4 million for the year ended
December 31, 2006 compared to $0.4 million for the same period in 2005, an increase of $1.0
million. Revenues increased primarily as a result of increased production of Freddie Mac
loans.
|
|
|
|
|
•
|
|
The other revenues we earned were $3.1 million for the year ended December 31, 2006
compared to $2.0 million for the same period in 2005, an increase of $1.1 million, or 56.7%.
Other revenues increased primarily as a result of expense reimbursements on a larger number
of transactions with expense reimbursement compared to the number of transactions with
expense reimbursement in 2005.
|
Total Operating Expenses.
Our total operating expenses were $174.9 million for the year ended
December 31, 2006 compared to $157.6 million for the same period in 2005, an increase of $17.3
million, or 11.0%. Expenses increased primarily due to commissions on increased production.
|
|
•
|
|
The costs of services for the year ended December 31, 2006 increased $11.6 million, or
9.7%, to $130.7 million from $119.1 million for the same period in 2005. The increase is
most significantly a result of commissions on increased capital
markets services provided for
clients.
|
|
|
|
|
•
|
|
Personnel expenses that are not directly attributable to providing services to our
clients for the year ended December 31, 2006 decreased $0.5 million, or 3.9%, to $13.5
million from $14.0 million for the same period in 2005. The decrease is primarily related to
a lower profit participation payout in 2006.
|
27
|
|
•
|
|
Occupancy, travel and entertainment, and supplies, research and printing expenses for the
year ended December 31, 2006 increased $3.1 million, or 19.7%, to $18.6 million compared to
the same period in 2005. These increases are primarily due to increased business activity,
and additional space occupied, higher rents and new office space.
|
|
|
|
|
•
|
|
Other expenses, including costs for insurance, professional fees, depreciation and
amortization, interest on our warehouse line of credit and other operating expenses, were
$12.2 million in the year ended December 31, 2006, an increase of $3.2 million, or 35.3%,
versus $9.0 million in the year ended December 31, 2005. This increase is primarily related
to costs associated with increased Freddie Mac volume
resulting in interest expense on our warehouse line and increased professional fees in relation
to the contemplated reorganization transaction.
|
Net Income.
Our net income for the year ended December 31, 2006 was $51.6 million, an
increase of $3.5 million, or 7.1%, versus $48.1 million for the same fiscal period in 2005. We
attribute this increase to several factors, with the more significant cause being an increase of
operating income of $6.6 million. Other factors included:
|
|
•
|
|
Interest and other income, partially offsetting the costs we incurred in these periods,
increased $0.3 million, to $0.6 million versus $0.3 million earned in the year ended
December 31, 2005. This increase is principally attributable to increased cash balances as a
result of increased production.
|
|
|
|
|
•
|
|
The interest expense we incurred in the year ended December 31, 2006 totaled $3.5
million, an increase of $3.4 million from $0.1 million of similar expenses incurred in the
year ended December 31, 2005. This increase resulted from the term loan of $60.0 million
funded in March 2006.
|
|
|
|
|
•
|
|
Expenses from income tax were approximately $0.3 million for the years ended December 31,
2006 and 2005.
|
28
Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Dollars
|
|
|
Revenue
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, unless percentages)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital markets services revenue
|
|
$
|
203,457
|
|
|
|
|
|
|
$
|
142,192
|
|
|
|
|
|
|
$
|
61,265
|
|
|
|
|
|
|
Interest on mortgage notes receivable
|
|
|
412
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
412
|
|
|
|
|
|
|
Other
|
|
|
1,979
|
|
|
|
|
|
|
|
1,499
|
|
|
|
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
205,848
|
|
|
|
100
|
%
|
|
|
143,691
|
|
|
|
100
|
%
|
|
|
62,157
|
|
|
|
43.3
|
%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
119,106
|
|
|
|
57.9
|
%
|
|
|
85,778
|
|
|
|
59.7
|
%
|
|
|
33,328
|
|
|
|
38.9
|
%
|
|
Personnel
|
|
|
14,019
|
|
|
|
6.8
|
%
|
|
|
8,882
|
|
|
|
6.2
|
%
|
|
|
5,137
|
|
|
|
57.8
|
%
|
|
Occupancy
|
|
|
5,357
|
|
|
|
2.6
|
%
|
|
|
5,047
|
|
|
|
3.5
|
%
|
|
|
310
|
|
|
|
6.1
|
%
|
|
Travel and entertainment
|
|
|
5,067
|
|
|
|
2.5
|
%
|
|
|
3,617
|
|
|
|
2.5
|
%
|
|
|
1,450
|
|
|
|
40.1
|
%
|
|
Supplies, research and printing
|
|
|
5,089
|
|
|
|
2.5
|
%
|
|
|
2,933
|
|
|
|
2.0
|
%
|
|
|
2,156
|
|
|
|
73.5
|
%
|
|
Other
|
|
|
8,981
|
|
|
|
4.4
|
%
|
|
|
7,704
|
|
|
|
5.4
|
%
|
|
|
1,277
|
|
|
|
16.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
157,619
|
|
|
|
76.7
|
%
|
|
|
113,961
|
|
|
|
79.3
|
%
|
|
|
43,658
|
|
|
|
38.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
48,229
|
|
|
|
23.3
|
%
|
|
|
29,730
|
|
|
|
20.7
|
%
|
|
|
18,499
|
|
|
|
62.2
|
%
|
|
Interest and other income
|
|
|
274
|
|
|
NM
|
|
|
|
67
|
|
|
NM
|
|
|
|
207
|
|
|
NM
|
|
|
Interest expense
|
|
|
(80
|
)
|
|
NM
|
|
|
|
(86
|
)
|
|
NM
|
|
|
|
6
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
48,423
|
|
|
|
23.5
|
%
|
|
|
29,711
|
|
|
|
20.7
|
%
|
|
|
18,712
|
|
|
|
63.0
|
%
|
|
Income tax expense
|
|
|
288
|
|
|
NM
|
|
|
|
296
|
|
|
NM
|
|
|
|
(8
|
)
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
48,135
|
|
|
|
23.4
|
%
|
|
$
|
29,415
|
|
|
|
20.5
|
%
|
|
$
|
18,720
|
|
|
|
63.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues.
Our total revenues were $205.8 million for the year ended December 31, 2005
compared to $143.7 million for 2004, an increase of $62.1 million, or 43.3%. Revenues increased
primarily as a result of increased business volume across all capital
markets services transaction
types.
|
|
•
|
|
The revenues earned from our capital markets services for the year ended December 31,
2005 increased $61.3 million, or 43.1%, to $203.5 million from $142.2 million for the year
ended December 31, 2004. The increase resulted from a number of factors, most significantly
an increase in number of transactions as well as higher fees per transaction professional
and an increase in the number of transaction professionals, a larger servicing portfolio and
an increased focus on certain revenue sources that were not previously a main focus for the
company including service fees from CMBS loans and expanding activity of HFF Securities.
|
|
|
|
|
•
|
|
The revenues derived from interest on mortgage notes receivable were $0.4 million for the
year ended December 31, 2005. No such revenue was recorded in 2004. We earn interest on
mortgage notes receivable in connection with our loan servicing business and our
participation in Freddie Mac’s Program Plus Seller Servicer program. HFF LP qualified for
this program in December 2004; accordingly, we did not begin earning revenue derived from
this program until 2005.
|
|
|
|
|
•
|
|
Our other revenues increased $0.5 million to $2.0 million for the year ended December 31,
2005 compared with $1.5 million in 2004. Other revenues increased primarily as a result of
expense reimbursements on a larger number of transactions.
|
Total Operating Expenses.
Our total operating expenses were $157.6 million for the year ended
December 31, 2005 compared to $114.0 million for the same period in 2004, an increase of $43.6
million, or 38.3%. Expenses increased primarily due to a $33.3 million increase in
employee-compensation related costs of services and certain purchased services directly
attributable to the generation of capital markets services revenue, a $5.1 million increase
29
in personnel expenses, a $0.3 million increase in occupancy expenses, a $1.5 million increase
in travel and entertainment expenses and a $2.2 million increase in expenses related to supplies,
research and printing.
|
|
•
|
|
Our cost of services for the year ended December 31, 2005 was $119.1 million, which
represented a $33.3 million, or 38.9%, increase over $85.8 million in similar expenses
incurred in 2004. We attribute this increase primarily to increased commissions we paid in
2005, which increase was directly attributable to our increased
capital markets services
revenue.
|
|
|
|
|
•
|
|
Personnel expenses for 2005 increased $5.1 million, or 57.8%, to $14.0 million from $8.9
million for the year ended December 31, 2004. The increase was primarily a result of an
increase in the profit participation bonus that is calculated based on the net income of
each office.
|
|
|
|
|
•
|
|
Our occupancy expenses were $5.4 million for 2005, which represented an increase of $0.3
million, or 6.1%, from $5.1 million in 2004. The primary reason for this increase was an
increase in office space and operating leases to support our growth and expansion in several
locations. Our travel and entertainment expenses increased $1.5 million, or 40.1%, to $5.1
million in 2005 from $3.6 million in 2004, while our supply, research and printing expenses
increased $2.2, or 73.5% to $5.1 million for the year ended 2005 compared with $2.9 million
in 2004.
|
|
|
|
|
•
|
|
Other expenses were $9.0 million in the year ended December 31, 2005, an increase of $1.3
million, or 16.6%, versus $7.7 million in 2004. This increase was most significantly
attributable to an increase of our occupancy, depreciation and amortization expenses.
|
Net Income.
Our net income increased $18.7 million, or 63.6%, to $48.1 million for the year
ended December 31, 2005 versus $29.4 million in 2004. The primary reason underlying this increase
was a $18.5 million increase in operating income, which was principally driven by increased
business volume. Less significant factors included:
|
|
•
|
|
Interest and other income increased $0.2 million to $0.3 million in the year ended 2005
compared with $0.1 million in 2004. This increase primarily arose as a consequence of higher
cash balances resulting from increased net income.
|
|
|
|
|
•
|
|
Our interest expense incurred in each of 2005 and 2004 equaled $0.1 million.
|
|
|
|
|
•
|
|
Income tax expense incurred in each of 2005 and 2004 equaled $0.3 million.
|
30
Cash Flows
Our historical cash flows are primarily related to the timing of receipt of transaction fees,
the timing of distributions to members of HFF Holdings and payment of commissions and bonuses to
employees.
2006
Cash and cash equivalents decreased $5.5 million in the year ended December 31, 2006. Net cash
of $64.0 million was used in operating activities, primarily resulting from a $111.0 million
increase in mortgage notes receivable partially offset by $51.6 million from net income. Cash of
$2.6 million was used for investing in property and equipment. Financing activities provided $61.1
million of cash primarily due to a $111.0 million increase on our warehousing line of credit and
borrowings under our credit agreement of $60.0 million, which was partially offset by distributions
to HFF Holdings of $105.0 million.
2005
Cash and cash equivalents increased $0.1 million in the year ended December 31, 2005.
Operating activities provided $38.4 million, primarily resulting from $48.1 million in net income
partially offset by a $14.7 million increase in mortgage notes receivable. Cash of $1.5 million was
used to invest in property and equipment. Financing activities used $36.8 million of cash primarily
as a result of distributions to HFF Holdings of $51.4 million, which was partially offset by
borrowing in 2005 of $14.7 million under our warehouse line of credit.
2004
Cash and cash equivalents decreased $9.7 million in the twelve month period ended December 31,
2004. Cash of $33.4 million was provided by operating activities primarily due to $29.4 million
from net income. Investing activities used $1.6 million to purchase property and equipment. Net
cash used in financing activities was $41.5 million which was primarily related to distributions to
HFF Holdings of $41.2 million.
Liquidity and Capital Resources
Our current assets typically have consisted primarily of cash and accounts receivable in
relation to earned transaction fees. Our liabilities have typically consisted of accounts payable
and accrued compensation.
Cash distributions to HFF Holdings were generally made two times each year, although
approximately 75% to 90% of the anticipated total annual distribution was distributed to HFF
Holdings each January. Therefore, levels of cash on hand decrease significantly after the January
distribution of cash to HFF Holdings, and gradually increase until year end. As a result of the
offering, we will no longer make distributions as described above. Following the offering and in
accordance with the Operating Partnerships’ partnership agreements, we intend to cause the
Operating Partnerships to make distribution to its partners, including HFF, Inc., in an amount
sufficient to cover all applicable taxes payable by the members of HFF Holdings and by us and to
cover dividends, if any, declared by the board of directors.
Over the twelve month period ended December 31, 2006, we generated approximately $47.0 million
of cash from operations, excluding the funding of Freddie Mac loan closings discussed below. Our
short-term liquidity needs are typically related to compensation expenses and other operating
expenses such as occupancy, supplies, marketing, professional fees and travel and entertainment.
For the year ended December 31, 2006, we incurred approximately $174.9 million in total operating
expenses. The majority of our operating expenses are variable, highly correlated to our revenue
streams and dependent on the collection of transaction fees. During the year ended December 31,
2006, approximately 66% of our operating expenses were variable expenses. Our liquidity needs
related to our long term obligations are primarily related to our facility leases and long-term
debt obligations. In connection with our initial public offering, we paid off the entire balance of
our credit facility of $56.3 million and entered into a new credit facility that provides us with a
$40.0 million line of credit. We believe that cash flows from operating activities will be
sufficient to satisfy our long-term obligations. For the year ended December 31, 2006, we incurred
approximately $6.3 million in occupancy expenses and approximately $3.5 million in interest
expense.
31
Our cash flow generated from operations historically has been sufficient to enable us to meet
our objectives. Assuming current conditions remain unchanged and our pipeline remains strong. We
believe that cash flows from operating activities should be sufficient for us to fund our current
obligations for the next 12 months and beyond. In addition, we maintain and intend to continue to
maintain lines of credit that can be utilized should the need arise. In the course of the past
several years, we have entered into financing arrangements designed to strengthen our liquidity.
Our current principal financing arrangements are described below.
On March 29, 2006, we entered into an $80.0 million credit agreement with Bank of America,
N.A. that matures on March 29, 2010, subject to our option to extend the maturity date an
additional 12 months upon the satisfaction of certain conditions set forth in the credit agreement.
The agreement consisted of a senior secured term loan facility in an aggregate amount of $60.0
million and a senior secured revolving credit facility in an aggregate amount of $20.0 million.
Borrowings under the credit agreement accrued interest at the applicable thirty-day London
Interbank Offered Rate, or LIBOR (5.33% at December 31, 2006), plus 250 basis points. We recognized
approximately $1 million of debt issuance cost and $3.5 million of interest expense for the twelve
months ended December 31, 2006. The proceeds from this term loan facility borrowings have been used
for distribution payments to the members of HFF Holdings and for working capital purposes. As a
result of the initial public offering, all amounts outstanding under this facility, including the
$20.0 million line of credit, became immediately due and payable upon the offering. A portion of
the proceeds received from HFF Holdings from the initial public offering was used to repay all outstanding borrowing under the
term loan facility and the revolving credit facility. We then entered into a new credit facility
with Bank of America, N.A. for a new $40 million line of credit that was put in place
contemporaneously with the consummation of the initial public offering. We believe that our
results from operations plus our new revolver of $40.0 million are sufficient to meet our working
capital needs.
In 2005, we entered into an uncommitted financing arrangement with Red Mortgage Capital, Inc.
to fund our Freddie Mac loan closings. Pursuant to this arrangement, Red Mortgage Capital funds
multifamily Freddie Mac loan closings on a transaction-by-transaction basis, with each loan being
separately collateralized by a loan and mortgage on a multifamily property that is ultimately
purchased by Freddie Mac. Red Mortgage Capital documents each funding with standard agreements,
including a Letter Agreement Regarding Participation Interest, a Participation and Servicing
Agreement and a Participation Certificate. Each of these documents generally remains unchanged from
transaction to transaction with the exception of the exhibit which outlines the specific terms of
the loan. As of December 31, 2006, we had outstanding borrowing of $125.7 million under this
arrangement and a corresponding amount of mortgage notes receivable. Borrowings under this
arrangement generally bear interest at the thirty day LIBOR rate plus 75 basis points, although
rates may be negotiated to a lower amount if the rate associated with the underlying Freddie Mac
loan does not cover the rate charged by Red Capital on the warehouse line of credit. Although we
intend to maintain this arrangement, we cannot guarantee that we will be able to do so. In the
event we are not able to secure a warehouse line of credit for our Freddie Mac loan closings, we
will cease originating Freddie Mac loans until we have an available warehouse line of credit. We
are also paid interest on our loan secured by a multifamily loan at the interest rate set forth in
the Freddie Mac note.
We regularly monitor our liquidity position, including cash levels, credit lines, interest and
payments on debt, capital expenditures and matters relating to liquidity and to compliance with
regulatory net capital requirements. We maintain a line of credit under our revolving credit
facility in excess of anticipated liquidity requirements. As of December 31, 2006, we had $20
million in undrawn line of credit available to us under our credit agreement with Bank of America,
N.A. This facility provides us with the ability to meet short-term cash flow needs resulting from
our various business activities. If this facility proves to be insufficient or unavailable to us,
we would seek additional financing in the credit or capital markets, although we may be
unsuccessful in obtaining such additional financing on acceptable terms or at all. In addition, we
entered into a tax receivable agreement with HFF Holdings that will provide for the payment by us
to HFF Holdings of 85% of the amount of cash savings, if any, in U.S. federal, state and local
income tax that we actually realize as a result of these increases in tax basis and as a result of
certain other tax benefits arising from our entering into the tax receivable agreement and making
payments under that agreement.
32
Critical Accounting Policies; Use of Estimates
We prepare our financial statements in accordance with U.S. generally accepted accounting
principles. In applying many of these accounting principles, we need to make assumptions, estimates
and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in
our consolidated financial statements. We base our estimates and judgments on historical experience
and other assumptions that we believe are reasonable under the circumstances. These assumptions,
estimates and/or judgments, however, are often subjective and they and our actual results may
change negatively based on changing circumstances or changes in our analyses. If actual amounts are
ultimately different from our estimates, the revisions are included in our results of operations
for the period in which the actual amounts become known. We believe the following critical
accounting policies could potentially produce materially different results if we were to change
underlying assumptions, estimates and/or judgments. See the notes to our consolidated financial
statements for a summary of our significant accounting policies.
Goodwill.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
“Goodwill and Other Intangible Assets,”
we evaluate goodwill for potential impairment annually or
more frequently if circumstances indicate impairment may have occurred. In this process, we make
estimates and assumptions in order to determine the fair value of the Company. In determining the
fair value of the Company for purposes of evaluating goodwill for impairment, we utilize a
valuation multiple approach. In applying this approach, we use recent historical EBITDA amounts and
multiply by EBITDA multiples observed in transactions in the market. We utilize judgment in
determining which market transactions best represent our Company and the mix of our revenue
streams. We evaluate goodwill for impairment at the reporting unit level, which is the financial
statements of HFF LP. Based on HFF LP’s EBITDA levels as of December 31, 2006 and the results of
recent transactions in the market, HFF LP’s twelve-month rolling EBITDA could decrease by more than
$50 million before our estimated fair value of the Company would be lower than the book value of
the Company. Goodwill is considered impaired if the recorded book value of goodwill exceeds the
implied fair value of goodwill as determined under this valuation technique. We use our best
judgment and information available to us at the time to perform this review. Because our
assumptions and estimates are used in projecting future earnings as part of the valuation, actual
results could differ.
Intangible Assets.
Our intangible assets primarily include servicing rights under agreements
with third party lenders and deferred financing costs. Servicing rights are recorded at the lower
of cost or market. Management makes certain judgments and estimates in determining the fair value
of servicing rights. These judgments and estimates include prepayment levels of the underlying
mortgages, the income margin expected to be realized by the Company and the discount rate. The
prepayment level is the most important factor affecting the value of the servicing rights.
Management estimates the prepayment levels of the underlying mortgages by analyzing recent
historical experience. Many of the commercial loans being serviced have financial penalties for
prepayment or early payoff before the stated maturity date. As a result, the Company has
consistently experienced a low level of loan runoff. The estimated value of the servicing rights is
impacted by changes in these assumptions. As of December 31, 2006, the fair value and net book
value of the servicing rights were $2.8 million and $2.4 million, respectively. A 10% and 20%
increase in the level of assumed prepayments would decrease the estimated fair value of the
servicing rights by 35% and 49%, respectively. A 10% and 20% decrease in the estimated net income
margin of the servicing business would decrease the estimated fair value of the servicing rights by
29% and 37%, respectively. A 10% and 20% increase in the discount rate would decrease the estimated
fair value of the servicing rights by 25% and 29%, respectively. The effect of a variation in each
of these assumptions on the estimated fair value of the servicing rights is calculated
independently without changing any other assumption. Servicing rights are amortized over their
estimated useful life using a method of amortization that reflects the pattern of economic benefit,
which results in an accelerated level of amortization over eight years. In accordance with
Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets,”
we
evaluate amortizable intangible assets on an annual basis, or more frequently if circumstances so
indicate, for potential impairment.
Leases
. The Company leases all of its facilities under operating lease agreements. These
lease agreements typically contain tenant improvement allowances and rent holidays. In instances
where one or more of these items are included in a lease agreement, the Company records these
allowances as a leasehold improvement asset, included in property and equipment, net in the
consolidated balance sheet, and a related deferred rent liability and amortizes these items on a
straight-line basis over the shorter of the term of the lease or useful life of the asset as
additional depreciation expense and a reduction to rent expense, respectively. Lease agreements
sometimes contain
33
rent escalation clauses, which are recognized on a straight-line basis over the life of the
lease in accordance with SFAS No. 13, Accounting for Leases. Lease terms generally range from two
to ten years. Before entering into a lease, an analysis is performed to determine whether a lease
should be classified as a capital or an operating lease according to SFAS No. 13, as amended.
Certain Information Concerning Off-Balance Sheet Arrangements
We do not currently invest in any off-balance sheet vehicles that provide liquidity, capital
resources, market or credit risk support, or engage in any leasing activities that expose us to any
liability that is not reflected in our combined financial statements.
Contractual and Other Cash Obligations
The following table summarizes our contractual and other cash obligations at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
|
Total
|
|
|
1 year
|
|
|
years
|
|
|
years
|
|
|
5 years
|
|
|
Long-term debt
|
|
$
|
56,250
|
|
|
$
|
56,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Capital lease obligations
|
|
|
234
|
|
|
|
143
|
|
|
|
86
|
|
|
|
5
|
|
|
|
—
|
|
|
Operating lease obligations
|
|
|
28,662
|
|
|
|
4,754
|
|
|
|
8,746
|
|
|
|
6,749
|
|
|
|
8,413
|
|
|
Purchase obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other long-term liabilities
reflected on the balance
sheet
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
85,146
|
|
|
$
|
61,147
|
|
|
$
|
8,832
|
|
|
$
|
6,754
|
|
|
$
|
8,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seasonality
Our capital markets services revenue are seasonal, which can affect an investor’s ability to
compare our financial condition and results of operation on a quarter-by-quarter basis.
Historically, this seasonality has caused our revenue, operating income, net income and cash flows
from operating activities to be lower in the first six months of the year and higher in the second
half of the year. The concentration of earnings and cash flows in the last six months of the year
is due to an industry-wide focus of clients to complete transactions towards the end of the
calendar year.
Effect of Inflation
Inflation will significantly affect our compensation costs, particularly those not directly
tied to our transaction professionals’ compensation, due to factors such as increased costs of
capital. The rise of inflation could also significantly and adversely affect certain of expenses,
such as debt service costs, information technology and occupancy costs. To the extent that
inflation results in rising interest rates and has other effects upon the commercial real estate
markets in which we operate and, to a lesser extent, the securities markets, it may affect our
financial position and results of operations by reducing the demand for commercial real estate and
related services which could have a material adverse effect on our financial condition. See “Risk
Factors — General Economic Conditions and Commercial Real Estate Market Conditions.”
Recent Accounting Pronouncements
SFAS 123(R). On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 123 (revised 2003), Share-Based Payment, or SFAS 123(R), which is a revision of SFAS No.
123, Accounting for Stock-Based Compensation. SFAS 123(R) supersedes Accounting Principles Board
(“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement
of Cash Flows. Generally, the
34
approach in SFAS 123(R) is similar to the approach described in SFAS
123. However, SFAS 123(R) requires all
share-based payments to employees, including grants of employee stock options, to be
recognized in the consolidated statements of income based on their fair values. Pro forma
disclosure is no longer an option. We have operated as a series of partnerships and limited
liability companies and have not historically issued stock-based compensation awards. The Company
adopted SFAS 123(R) on January 1, 2006, using the modified prospective method. The impact of
adopting SFAS 123(R) will depend on the nature and level of share-based awards granted in the
future.
SFAS 154. In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections,
or SFAS 154. SFAS 154 replaces APB Opinion No. 20, Accounting Changes, and FASB SFAS No. 3,
Reporting Accounting Charges in Interim Financial Statements. SFAS 154 requires that a voluntary
change in accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is impracticable to do so. SFAS 154
also provides that a correction of errors in previously issued financial statements should be
termed a “restatement.” The new standard is effective for accounting changes and correction of
errors beginning July 1, 2005. The Company adopted SFAS 154 on January 1, 2006. The adoption of
SFAS 154 did not have a material effect on the Company’s consolidated financial condition or result
of operations.
SFAS 156. In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets — an amendment of FASB Statement No. 140,” or SFAS 156. SFAS No. 156 requires an entity to
recognize a servicing asset or servicing liability at fair value each time it undertakes an
obligation to service a financial asset by entering into a servicing contract, regardless of
whether explicit consideration is exchanged. The statement also permits a company to choose to
either subsequently measure servicing rights at fair value and to report changes in fair value in
earnings, or to retain the amortized method whereby servicing rights are recorded at the lower of
cost or fair value and are amortized over their expected life, including servicing contracts with
no recorded value. The provisions of SFAS 156 are effective for fiscal years beginning after
September 15, 2006. The Company plans to retain the amortization method upon adoption of FAS 156,
but will begin recognizing the fair value of servicing assets and liabilities on any new servicing
contracts involving no consideration acquired after January 1, 2007. The impact of adopting this
provision of FAS 156 will likely be material to the Company’s financial condition and results of
operations and will depend on the volume and timing of servicing received after January 1, 2007.
SFAS 157. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157
or Statement). The Statement was issued to define fair value, establish a framework for measuring
fair value in generally accepted accounting principles (GAAP), and to expand fair value disclosure
requirements. Prior to issuance of this Statement, different definitions of fair value existed
within GAAP, and there was limited guidance available on applying existing fair value definitions.
The Statement does not require any new fair value measurements. SFAS 157 is effective for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal years. Prior to
adoption, we will evaluate the impact of adopting SFAS 157 on our consolidated financial
statements.
FIN 48. In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). This interpretation clarifies
the application of SFAS No. 109, Accounting for Income Taxes, by defining a criterion that an
individual tax position must meet for any part of the benefit of that position to be recognized in
an enterprise’s financial statements and also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 is effective for fiscal years beginning after December 15, 2006, but earlier adoption is
permitted. We will adopt FIN 48 for the first quarter ended March 31, 2007. We are currently
assessing the impact the adoption of FIN 48 will have on our financial position and results of
operations.
Recent Developments
In connection with our initial public offering, in February 2007, we entered into an amended
and restated credit agreement with Bank of America, N.A.. This credit agreement consists of a
revolving credit facility in the maximum principal amount of $40.0 million. Borrowings under the
credit agreement bear interest at (a) the applicable London Interbank Offered Rate, or LIBOR rate
(for interest periods of one, two, three, six or twelve months) plus (b) the applicable margin of
200 basis points, 175 basis points or 150 basis points (such margin is
35
determined from time to time
in accordance with the credit agreement, based on our then applicable consolidated leverage ratio). We may also elect, subject to the terms of the credit agreement, to cause
borrowings to accrue interest at the Base Rate, which is equal to the greater of (i) the federal
funds rate plus 50 basis points or (ii) the prime rate, as determined pursuant to the credit
agreement, plus 150 basis points. As of March 9, 2007, we had no borrowings under our revolving
credit facility. The credit agreement matures on April 5, 2010, subject to our option to extend
the maturity date an additional twelve months upon the satisfaction of certain conditions set forth
in the credit agreement.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Due to the nature of our business and the manner in which we conduct our operations, in
particular that our financial instruments which are exposed to concentrations of credit risk
consist primarily of short-term cash investments, we believe we do not face any material interest
rate risk, foreign currency exchange rate risk, equity price risk or other market risk.
36
Item 8. Financial Statements and Supplementary Data
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|
|
|
|
Page
|
|
HFF, Inc.:
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|
|
|
|
|
|
|
38
|
|
|
|
|
|
39
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
HFF, Inc., Combined:
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
46
|
|
|
|
|
|
47
|
|
|
|
|
|
48
|
|
|
|
|
|
49
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
HFF Holdings, LLC and Subsidiaries:
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
70
|
|
|
|
|
|
71
|
|
|
|
|
|
72
|
|
|
|
|
|
73
|
|
|
|
|
|
75
|
|
37
Report of Independent Registered Public Accounting Firm
The Board of Directors and
Stockholders
HFF, Inc.
We have audited the accompanying statement of financial condition of HFF, Inc. as of December
31, 2006. This statement of financial condition is the responsibility of the Company’s management.
Our responsibility is to express an opinion on this statement of financial condition based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of financial condition is free of material
misstatement. We were not engaged to perform an audit of the Company’s internal control over
financial reporting. Our audit included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
statement of financial condition,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall statement of financial condition presentation.
We believe that our audit of the statement of financial condition provides a
reasonable basis for our opinion.
In
our opinion, the statement of financial condition referred to above presents fairly, in all material
respects, the financial position of HFF, Inc. as of December 31, 2006, in conformity with
U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 8, 2007
38
HFF, Inc.
Statement of Financial Condition
As of December 31, 2006
|
|
|
|
|
|
|
Assets — Cash
|
|
$
|
1
|
|
|
|
|
|
|
|
Stockholder’s Equity:
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock, par value $.01 per share, 1,000 shares authorized 1 share issued and outstanding
|
|
$
|
—
|
|
|
Additional Paid in Capital
|
|
|
1
|
|
|
|
|
|
|
|
Total Stockholder’s Equity
|
|
$
|
1
|
|
|
|
|
|
|
See accompanying notes.
39
HFF, Inc
Notes to Statement of Financial Condition
NOTES TO STATEMENT OF FINANCIAL CONDITION
1. Organization
HFF, Inc., a Delaware corporation, was formed in November 2006 in connection with a proposed
initial public offering of its Class A common stock (the “Offering”). HFF, Inc. has not engaged in
any business or other activities except in connection with its formation.
As a result of a reorganization into a holding company structure to be effected simultaneously with
the Offering, HFF, Inc. will become a holding company through a series of transactions pursuant to
a sale and purchase agreement. Upon consummation of the Offering and reorganization, HFF, Inc.’s
sole assets will be, through its wholly-owned subsidiary HFF Partnership Holdings LLC, a Delaware
limited liability company (“HoldCo LLC”), partnership interests in Holliday Fenoglio Fowler, L.P.,
a Texas limited partnership (“HFF LP”) and HFF Securities L.P., a Delaware limited partnership and
registered broker-dealer (“HFF Securities” and together with HFF LP, the “Operating Partnerships”)
and all of the shares of Holliday GP Corp., a Delaware corporation and the sole general partner of
each of the Operating Partnerships (“Holliday GP”).
As the controlling owner of Holliday GP, the sole general partner of the Operating Partnerships,
HFF, Inc. will operate and control all of the business and affairs of the Operating Partnerships
and continue to conduct the business now conducted by the Operating Partnerships, acting as a
financial intermediary and advisor in the commercial real estate industry, and engaging in debt,
private equity, and structured financing placements, as well as investment sales, note sales, and
loan servicing out of offices in 18 cities nationwide. The “Company,” as used in Note 4 below,
refers to HFF, Inc., the newly formed Delaware corporation and its consolidated subsidiaries, after
giving effect to the reorganization transactions.
HFF, Inc. will consolidate the financial results of the Operating Partnerships and the ownership
interest of HFF Holdings in the Operating Partnerships will be treated as a minority interest in
HFF, Inc.’s consolidated financial statements.
2. Summary of Significant Accounting Policies
Basis of Presentation
The statement of financial condition has been prepared in accordance with accounting principles
generally accepted in the United States. Separate statements of income, changes in stockholders’
equity and cash flows have not been presented in the financial statements because there have been
no activities of this entity.
40
HFF, Inc.
Notes to Statement of Financial Position (continued)
3. Stockholders’ Equity
HFF, Inc. is authorized to issue 1,000 shares of Class A common stock, $.01 par value per share.
HFF, Inc. has issued one share of Class A common stock in exchange for $1.00.
4. Subsequent Events
On November 9, 2006, HFF, Inc. filed a registration statement on Form S-1 with the United States
Securities and Exchange Commission (the “SEC”) relating to a proposed underwritten initial public
offering of 14,300,000 shares of Class A common stock of HFF, Inc. On January 30, 2007, the SEC
declared the registration statement on Form S-1 effective and the Company priced 14,300,000 shares
for the initial public offering at a price of $18.00 per share. On January 31, 2007, the Company’s
common stock began trading on the New York Stock Exchange under the symbol “HF.”
On February 5, 2007, the Company closed its initial public offering of 14,300,000 shares of
common stock. Net proceeds from the sale of the stock were $235.7 million, net of $18.0 million of
underwriting commissions and $3.7 million of offering expenses. The proceeds of the public offering
were used to purchase from HFF Holdings all of the shares of Holliday GP and purchase from HFF
Holdings partnership units representing approximately 39% of each of the Operating Partnerships
(including partnership units in the Operating Partnerships held by Holliday GP). HFF Holdings used
approximately $56.3 million of its proceeds to repay all outstanding indebtedness under HFF LP’s
credit agreement. Accordingly the Company did not retain any of the proceeds from this offering.
On February 22, 2007, the underwriters exercised their option to purchase an additional 2,145,000
shares of Class A common stock (15% of original issuance) at $18.00 per share. Net proceeds of the
overallotment were $35.9 million, net of $2.7 million of underwriting commissions and other
expenses. These proceeds were used to purchase HFF Holdings partnership units representing
approximately 6.0% of each of the Operating Partnerships.
In addition to cash received for its sale of all of the shares of Holliday GP and approximately 45%
of partnership units of each of the Operating Partnerships (including partnership units in the
Operating Partnerships held by Holliday GP), HFF Holdings also received an exchange right that will
permit HFF Holdings to exchange interests in the Operating Partnerships for shares of (i) HFF,
Inc.’s Class A common stock (the “Exchange Right”) and (ii) rights under a tax receivable agreement
between HFF, Inc. and HFF Holdings (the “TRA”).
As a result of the offering, HFF Holdings beneficially owns 20,355,000 partnership units in each of
the Operating Partnerships. Pursuant to the terms of HFF, Inc.’s amended and restated certificate
of incorporation, HFF Holdings could from time to time exchange its partnership units
41
HFF, Inc.
Notes to
Statement of Financial Position (continued)
in the Operating Partnerships for shares of the Company’s Class A common stock on the basis of
two partnership units, one of each Operating Partnership, for one share of Class A common stock,
subject to customary conversion rate adjustments for stock splits, stock dividends and
reclassifications. The following table reflects HFF Holdings’ right to
exchange its partnership units in the Operating Partnerships for shares of the Company’s Class A
common stock pursuant to contractual provisions in the HFF Holdings Operating Agreement. However,
these contractual provisions may be waived, amended or terminated by a vote of the members holding
65% of the interests of HFF Holdings following consultation with the board of directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of HFF
|
|
|
|
Number of
|
|
Holdings’ Partnership
|
|
|
|
Additional Shares
|
|
Units in the
|
|
|
|
of Class A Common
|
|
Operating
|
|
|
|
Stock Expected to
|
|
Partnerships
|
|
|
|
Become Available
|
|
Becoming Eligible
|
|
Anniversary of the Offering
|
|
for Exchange
|
|
for Exchange
|
|
Second
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
Third
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
Fourth
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
Fifth
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,355,000
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
HFF Holdings was issued one share of the Company’s Class B common stock. Class B common stock
has no economic rights but will entitle the holder to a number of votes that is equal to the total
number of shares of Class A common stock for which the partnership units that HFF Holdings holds in
the Operating Partnerships as of the relevant record date for the HFF, Inc. stockholder action are
exchangeable.
HFF LP and HFF Securities intend to have an election under Section 754 of the Internal Revenue Code
effective for 2007 and for each taxable year in which an exchange of partnership units for shares
occurs. The initial sale is expected to produce (and later exchanges may produce) increases to the
tax basis of the assets owned by HFF LP and HFF Securities at the time of the initial public
offering (and at the time of each exchange of partnership units). These anticipated increases in
tax basis would be allocated to the Company and would likely reduce the amount of tax that the
Company would otherwise be required to pay in the future. HFF, Inc. entered into a tax receivable
agreement with HFF Holdings that provides for the payment by HFF, Inc. to HFF Holdings of 85% of
the amount of cash savings, if any, in U.S. federal, state and local income tax that the Company
actually realizes as a result of these increases in tax basis and as a result of certain other tax
benefits arising from the Company entering into the tax receivable agreement and making payments
under that agreement. For purposes of the tax receivable agreement, cash savings in income tax will
be computed by comparing the Company’s actual income tax liability to the amount of such taxes that
it would have been required to pay had there been no increase to the tax basis of the assets of HFF
LP and HFF Securities as a result of the initial sale and later
42
HFF, Inc.
Notes to
Statement of Financial Position (continued)
exchanges and had the Company not entered into the tax receivable agreement. The term of the
tax receivable agreement commences upon consummation of the offering and will continue until all
such tax benefits have been utilized or expired, including the tax benefits derived from future
exchanges. While the actual amount and timing of payments under the tax receivable agreement will
depend upon a number of factors, including the amount and timing of taxable income generated in the
future, the value of individual assets, the portion of the Company’s payments under the tax
receivable agreement constituting imputed interest and increases in the tax basis of the Company’s
assets resulting in payments to HFF Holdings, the Company expects that the payments that may be
made to HFF Holdings will be substantial. Assuming no material changes in the relevant tax law and
that the Company earns significant taxable income to realize the full tax benefit of the increased
amortization of its assets, the Company expects that future payments to HFF Holdings in respect of
the initial sale and the overallotment to aggregate approximately $127.0 million and range from
approximately $5.0 million to $14.0 million per year over the next 15 years. Future payments to HFF
Holdings in respect of subsequent exchanges would be in addition to these amounts and are expected
to be substantial. The payments under the tax receivable agreement are not conditioned upon HFF
Holdings’ or its affiliates’ continued ownership of the Company.
The Company will account for the income tax effects and corresponding tax receivable agreement
effects as a result of the initial purchase and the sale of units of the Operating Partnerships in
connection with the reorganization transactions and future exchanges of Operating Partnership units
for the Company’s Class A shares by recognizing an increase in its deferred tax asset for the
estimated income tax effects of the increase in the tax basis of the assets owned by the Operating
Partnerships, based on enacted tax rates at the date of the transaction, less any tax valuation
allowance the Company believes is required if the Company evaluates it is more likely than not
that it will realize the benefit represented by the deferred tax asset, and the Company will record
85% of the estimated amount of the increase in deferred tax assets, net of any valuation allowance,
as a liability to HFF Holdings under the tax receivable agreement and the remaining 15% of the
increase in deferred tax assets directly in additional paid-in capital in stockholders’ equity.
All of the effects of changes in any of the Company’s estimates after the date of any exchange will
be included in net income. Similarly, the effect of subsequent changes in the enacted tax rates
will be included in net income.
Prior to
the effective date of the offering, the sole Stockholder of HFF, Inc. and the Board of
Directors adopted the HFF, Inc., 2006 Omnibus Incentive Compensation Plan (the “Plan”). Upon the
effective date of the registration statement, grants were awarded under the Plan to certain
employees and the Board of Directors. The Plan imposes limits on the awards that may be made to
any individual during a calendar year. The number of shares available for awards under the terms
of the Plan is 3,500,000 (subject to stock splits, stock dividends and similar transactions).
43
HFF, Inc.
Notes to
Statement of Financial Position (continued)
4. Subsequent Event (continued)
On February 5, 2007, HFF LP entered into an Amended and Restated Credit Agreement with Bank of
America, N.A. (Amended Credit Agreement). The Amended Credit Agreement is comprised of a $40.0
million revolving credit facility, which replaced The New Credit Agreement mentioned in note 5.
The Amended Credit Agreement matures on February 5, 2010 and may be extended for one year based on
certain conditions as defined in the agreement.
44
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
HFF, Inc.
We have
audited the accompanying combined balance sheets as of
December 31, 2006 and 2005, of HFF, Inc., Holliday GP Corp.,
Holliday Fenoglio Fowler, L.P. and HFF Securities L.P. (the Combined
Companies) and the related combined statements of income, stockholders’
equity/partners’ capital (deficiency), and cash flows for each of the three years in the period
ended December 31, 2006. These financial statements are the
responsibility of the Combined Companies’
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (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. We
were not engaged to perform an audit of the Combined Companies’ internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Combined Companies’ internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 1, the combined financial statements reflect the financial position and
results of operations and cash flows as if the Combined Companies were combined for all
periods presented.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the combined financial position at December 31, 2006 and 2005, of the Combined Companies and the combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 8, 2007
45
HFF, Inc.
Combined Balance Sheets
(Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,345
|
|
|
$
|
8,836
|
|
|
Restricted cash
(Note 5)
|
|
|
2,440
|
|
|
|
389
|
|
|
Accounts receivable
|
|
|
2,508
|
|
|
|
921
|
|
|
Receivable
from affiliate
(Note 12)
|
|
|
3,003
|
|
|
|
468
|
|
|
Mortgage notes receivable
(Note 6)
|
|
|
125,700
|
|
|
|
14,700
|
|
|
Prepaid expenses and other current assets
|
|
|
4,533
|
|
|
|
1,671
|
|
|
|
|
|
|
Total current assets
|
|
|
141,529
|
|
|
|
26,985
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
(Note 3)
|
|
|
5,040
|
|
|
|
4,276
|
|
|
Goodwill
|
|
|
3,712
|
|
|
|
3,712
|
|
|
Intangible assets, net
(Note 4)
|
|
|
3,293
|
|
|
|
2,889
|
|
|
Other noncurrent assets
|
|
|
728
|
|
|
|
768
|
|
|
|
|
|
|
|
|
$
|
154,302
|
|
|
$
|
38,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity/partners’ capital:
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
(Note 5)
|
|
$
|
56,393
|
|
|
$
|
122
|
|
|
Warehouse line of credit
(Note 6)
|
|
|
125,700
|
|
|
|
14,700
|
|
|
Accrued compensation and related taxes
|
|
|
10,836
|
|
|
|
10,800
|
|
|
Accounts payable
|
|
|
856
|
|
|
|
330
|
|
|
Other current liabilities
|
|
|
2,162
|
|
|
|
905
|
|
|
|
|
|
|
Total current liabilities
|
|
|
195,947
|
|
|
|
26,857
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rent credit
|
|
|
2,404
|
|
|
|
2,366
|
|
|
Other long-term liabilities
|
|
|
178
|
|
|
|
148
|
|
|
Long-term debt, less current portion
(Note 5)
|
|
|
91
|
|
|
|
150
|
|
|
|
|
|
|
Total liabilities
|
|
|
198,620
|
|
|
|
29,521
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity/partners’ capital:
|
|
|
|
|
|
|
|
|
|
Class A common stock, par value $0.01 per share, 1,000
shares authorized, 1 share outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Partners’ capital (deficiency)
|
|
|
(44,318
|
)
|
|
|
9,109
|
|
|
|
|
|
|
Total stockholders’ equity/partners’ capital (deficiency)
|
|
|
(44,318
|
)
|
|
|
9,109
|
|
|
|
|
|
|
|
|
$
|
154,302
|
|
|
$
|
38,630
|
|
|
|
|
|
See accompanying notes.
46
HFF, Inc.
Combined Statements of Income
(Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital markets services revenue
|
|
$
|
225,242
|
|
|
$
|
203,457
|
|
|
$
|
142,192
|
|
|
Interest on mortgage notes receivable
|
|
|
1,354
|
|
|
|
412
|
|
|
|
—
|
|
|
Other
|
|
|
3,101
|
|
|
|
1,979
|
|
|
|
1,499
|
|
|
|
|
|
|
|
|
|
229,697
|
|
|
|
205,848
|
|
|
|
143,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
130,708
|
|
|
|
119,106
|
|
|
|
85,778
|
|
|
Personnel
|
|
|
13,471
|
|
|
|
14,019
|
|
|
|
8,882
|
|
|
Occupancy
|
|
|
6,319
|
|
|
|
5,357
|
|
|
|
5,047
|
|
|
Travel and entertainment
|
|
|
5,789
|
|
|
|
5,067
|
|
|
|
3,617
|
|
|
Supplies, research, and printing
|
|
|
6,463
|
|
|
|
5,089
|
|
|
|
2,933
|
|
|
Insurance
|
|
|
1,457
|
|
|
|
1,459
|
|
|
|
1,046
|
|
|
Professional fees
|
|
|
2,023
|
|
|
|
1,101
|
|
|
|
807
|
|
|
Depreciation and amortization
|
|
|
2,806
|
|
|
|
2,595
|
|
|
|
2,466
|
|
|
Interest on warehouse line of credit
|
|
|
1,375
|
|
|
|
409
|
|
|
|
—
|
|
|
Other operating
|
|
|
4,492
|
|
|
|
3,417
|
|
|
|
3,385
|
|
|
|
|
|
|
|
|
|
174,903
|
|
|
|
157,619
|
|
|
|
113,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
54,794
|
|
|
|
48,229
|
|
|
|
29,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
632
|
|
|
|
274
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,541
|
)
|
|
|
(80
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
Income before taxes
|
|
|
51,885
|
|
|
|
48,423
|
|
|
|
29,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
332
|
|
|
|
288
|
|
|
|
296
|
|
|
|
|
|
|
Net income
|
|
$
|
51,553
|
|
|
$
|
48,135
|
|
|
$
|
29,415
|
|
|
|
|
|
See accompanying notes.
47
HFF, Inc.
Combined Statements of Stockholders’ Equity/Partners’ Capital (Deficiency)
(Dollars In Thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Partners’
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Total
|
|
|
|
|
|
Stockholders’ equity/partners’ capital,
December 31, 2003
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
24,156
|
|
|
$
|
24,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
29,415
|
|
|
|
29,415
|
|
|
Distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
(41,199
|
)
|
|
|
(41,199
|
)
|
|
|
|
|
|
Stockholders’ equity/partners’ capital,
December 31, 2004
|
|
|
—
|
|
|
|
—
|
|
|
|
12,372
|
|
|
|
12,372
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
48,135
|
|
|
|
48,135
|
|
|
Distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
(51,398
|
)
|
|
|
(51,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity/partners’ capital,
December 31, 2005
|
|
|
—
|
|
|
|
—
|
|
|
|
9,109
|
|
|
|
9,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of class A common stock
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
51,553
|
|
|
|
51,553
|
|
|
Distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
(104,980
|
)
|
|
|
(104,980
|
)
|
|
|
|
|
|
Stockholders’ equity/partners’ capital
(deficiency), December 31, 2006
|
|
|
1
|
|
|
$
|
—
|
|
|
$
|
(44,318
|
)
|
|
$
|
(44,318
|
)
|
|
|
|
|
See accompanying notes.
48
HFF, Inc.
Combined Statements of Cash Flows
(Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
51,553
|
|
|
$
|
48,135
|
|
|
$
|
29,415
|
|
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
1,728
|
|
|
|
1,611
|
|
|
|
1,352
|
|
|
Intangibles
|
|
|
1,078
|
|
|
|
984
|
|
|
|
1,114
|
|
|
(Gain) loss on sale or
disposition of assets
|
|
|
(507
|
)
|
|
|
(140
|
)
|
|
|
28
|
|
|
Purchase of NASD license
|
|
|
—
|
|
|
|
—
|
|
|
|
(100
|
)
|
|
Increase (decrease) in cash from
changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(2,051
|
)
|
|
|
392
|
|
|
|
(244
|
)
|
|
Accounts receivable
|
|
|
(1,587
|
)
|
|
|
(721
|
)
|
|
|
944
|
|
|
Receivable from affiliate
|
|
|
(2,535
|
)
|
|
|
567
|
|
|
|
160
|
|
|
Mortgage notes receivable
|
|
|
(111,000
|
)
|
|
|
(14,700
|
)
|
|
|
—
|
|
|
Prepaid expenses and other
current assets
|
|
|
(2,862
|
)
|
|
|
(569
|
)
|
|
|
(684
|
)
|
|
Other noncurrent assets
|
|
|
40
|
|
|
|
(449
|
)
|
|
|
(230
|
)
|
|
Accrued compensation and
related taxes
|
|
|
36
|
|
|
|
2,935
|
|
|
|
985
|
|
|
Accounts payable
|
|
|
526
|
|
|
|
25
|
|
|
|
7
|
|
|
Other accrued liabilities
|
|
|
1,257
|
|
|
|
466
|
|
|
|
(25
|
)
|
|
Other long-term liabilities
|
|
|
290
|
|
|
|
(162
|
)
|
|
|
654
|
|
|
|
|
|
|
Net cash (used) provided by operating activities
|
|
|
(64,034
|
)
|
|
|
38,374
|
|
|
|
33,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(2,624
|
)
|
|
|
(1,447
|
)
|
|
|
(1,646
|
)
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,624
|
)
|
|
|
(1,447
|
)
|
|
|
(1,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings on warehouse line of credit
|
|
|
111,000
|
|
|
|
14,700
|
|
|
|
—
|
|
|
Borrowings on long-term debt
|
|
|
60,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Payments on long-term debt
|
|
|
(3,878
|
)
|
|
|
(86
|
)
|
|
|
(274
|
)
|
|
Deferred financing costs
|
|
|
(975
|
)
|
|
|
(14
|
)
|
|
|
—
|
|
|
Partners’ distributions
|
|
|
(104,980
|
)
|
|
|
(51,398
|
)
|
|
|
(41,199
|
)
|
|
|
|
|
|
Net cash provided by (used) in financing
activities
|
|
|
61,167
|
|
|
|
(36,798
|
)
|
|
|
(41,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(5,491
|
)
|
|
|
129
|
|
|
|
(9,743
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
8,836
|
|
|
|
8,707
|
|
|
|
18,450
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
3,345
|
|
|
$
|
8,836
|
|
|
$
|
8,707
|
|
|
|
|
|
49
HFF, Inc.
Combined Statements of Cash Flows — continued
(Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Supplemental disclosure of cash flow
information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
362
|
|
|
$
|
288
|
|
|
$
|
296
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,442
|
|
|
$
|
444
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquired under capital leases
|
|
$
|
90
|
|
|
$
|
89
|
|
|
$
|
28
|
|
|
|
|
|
See accompanying notes.
50
HFF, Inc.
Notes to Combined Financial Statements
1. Organization
HFF, Inc., a Delaware corporation, was formed in November 2006 in connection with a proposed
initial public offering of its Class A common stock (the “Offering”). HFF, Inc. has not engaged
in any business or other activities except in connection with its formation.
As a result of the reorganization into a holding company structure in connection with the Offering,
HFF, Inc. became a holding company through a series of transactions pursuant to a sale and purchase
agreement. Pursuant to the Offering and reorganization, HFF, Inc.’s sole assets are through its
wholly-owned subsidiary HFF Partnership Holdings, LLC, a Delaware limited liability company,
partnership interests in Holliday Fenoglio Fowler, L.P. a Texas limited partnership (“HFF LP”) and
HFF Securities L.P., a Delaware limited partnership and registered broker-dealer (“HFF Securities”
and together with HFF LP, the “Operating Partnerships”) and all of the shares of Holliday GP Corp.,
a Delaware corporation and the sole general partner of each of the Operating Partnerships
(“Holliday GP”).
HFF, Inc., through its Operating Partnerships, is a financial intermediary and advisor in the
commercial real estate industry, and engages in debt, private equity, and structured financing
placements, as well as investment sales, note sales, and loan servicing in 18 major cities
nationwide.
HFF LP was acquired on June 16, 2003 and accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No, 141,
Business Combinations
(SFAS No. 141). The total purchase
price of $8.8 million was allocated to the assets acquired and liabilities assumed based on
estimated fair values at the date of acquisition.
During 2004, HFF LP and Holliday GP formed HFF Securities. HFF Securities is a broker-dealer that
performs private placements of securities by raising equity capital from institutional investors
for discretionary, commingled real estate funds to execute real estate acquisitions,
recapitalizations, developments, debt investments, and other real estate-related strategies. HFF
Securities may also provide other investment banking and advisory services on various project or
entity-level strategic assignments such as mergers and acquisitions, sales and divestitures,
recapitalizations and restructurings, privatizations, management buyouts, and arranging joint
ventures for specific real estate strategies.
The reorganization transaction is being treated, for financial reporting purposes, as a
reorganization of entities under common control. As such, these financial statements present the
combined financial position and results of operations as if HFF, Inc., Holliday GP and the
Operating Partnerships (collectively referred to as the Company) were combined for all periods
presented.
51
HFF, Inc.
Notes to
Combined Financial Statements (continued)
1. Organization (continued)
Distributions
Distributions of distributable cash flow (as defined) are made upon approval of the Operating
Committee. Such distributions generally must be made to members first to the extent of unpaid
cumulative preferred returns (15% per year) on the initial capital contribution, and second in
proportion to their respective percentage interests.
2. Summary of Significant Accounting Policies
Combination
The combined financial statements reflect the financial position and results of operations as if
HFF, Inc., Holliday GP, HFF LP, and HFF Securities were combined for all periods presented. All
intercompany accounts have been eliminated.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist
primarily of cash. The Company places its cash with financial institutions in amounts which at
times exceed the FDIC insurance limit. The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk on cash.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in bank accounts, and short-term investments
with original maturities of three months or less.
52
HFF, Inc.
Notes to
Combined Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Capital markets services revenues consist of origination fees, investment sale fees, note sale
fees, placement fees, and servicing fees. Origination fees are earned for the placement of debt,
equity, or structured financing for real estate transactions. Investment sales and note sales fees
are earned for brokering sales of real estate and/or notes. Placement fees are earned by HFF
Securities for discretionary and nondiscretionary equity capital raises and other investment
banking services. These fees are negotiated between the Company and its clients, generally on a
case-by-case basis and are recognized and generally collected at the closing and the funding of the
transaction. The Company’s fee agreements do not include terms or conditions that require the
Company to perform any service or fulfill any obligation once the transaction closes and revenue is
recognized. Servicing fees are compensation for providing collection, remittance, recordkeeping,
reporting, and other services for either lenders or borrowers on mortgages placed with third-party
lenders. Servicing fees are recognized when cash is collected as these fees are contingent upon the
borrower making its payments on the loan.
Certain of the Company’s fee agreements provide for reimbursement of employee-related costs which
the Company recognizes as revenue. In accordance with EITF 00-14,
Income Statement Characterization
of Reimbursements Received for “Out-of-Pocket” Expenses Incurred,
certain reimbursements received
from clients for out-of-pocket expenses are characterized as revenue in the statement of income
rather than as a reduction of expenses incurred. Since the Company is the primary obligor, has
supplied discretion, and bears the credit risk for such expenses, the Company records reimbursement
revenue for such out-of-pocket expenses. Reimbursement revenue is recognized when the fees for the
related transaction are collected at the closing of the transaction. Reimbursement revenue is
classified as other revenue in the combined statement of income.
Mortgage Notes Receivable
The Company is qualified with the Federal Home Loan Mortgage Corporation (Freddie Mac) as a Freddie
Mac Multifamily Program Plus
®
Seller/Servicer. Under this Program, the Company originates mortgages
based on commitments from Freddie Mac, and then sells the loans to Freddie Mac approximately one
month following the loan originations. The Company recognizes interest income on the accrual basis
during this holding period based on the contract interest rate in the loan that will be purchased
by Freddie Mac.
53
HFF, Inc.
Notes to
Combined Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The loans are initially recorded and then subsequently sold to Freddie Mac at the Company’s cost.
The Company monitors the market value of these loans for declines in value from the origination
date to the sale date. Based on the Company’s evaluation, no valuation allowance for lower of cost
or market adjustments was necessary as of December 31, 2006 and 2005.
Freddie
Mac requires HFF LP to meet minimum net worth and liquid assets requirements and to comply
with certain other standards. Following the closing of the Credit Agreement in March 2006 and the
distribution of the proceeds to the members, HFF LP did not meet such minimum net worth requirement, therefore, HFF LP entered into a $2.0 million letter of credit backed by
$2.0 million in cash which is classified as Restricted Cash on the balance sheet as of December 31,
2006. In connection with the Company’s initial public offering, discussed in Note 13 below, and the resulting
payoff of the entire outstanding balance under the Credit Agreement in February 2007, HFF LP now meets Freddie
Mac’s minimum net worth requirement (see note 5).
Advertising
Costs associated with advertising are expensed as incurred. Advertising expense was $0.8 million,
$0.8 million and $0.6 million for the years ended December 31, 2006, 2005 and 2004, respectively.
These amounts are included in other operating expenses in the accompanying combined statements of
income.
Property and Equipment
Property and equipment are recorded at cost, except for those assets acquired on June 16, 2003,
which were recorded at their estimated fair values. Depreciation of furniture and computer
equipment is computed using accelerated methods over five to seven years. Depreciation of software
costs is computed using the straight-line method over three years. Leasehold improvements are
depreciated using the straight-line method over the shorter of the term of the lease or useful life
of the asset.
Expenditures for routine maintenance and repairs are charged to expense as incurred. Renewals and
betterments which substantially extend the useful life of an asset are capitalized.
Leases
The Company leases all of its facilities under operating lease agreements. These lease agreements
typically contain tenant improvement allowances and rent holidays. In instances where one or more
of these items are included in a lease agreement, the Company records these allowances as a
leasehold improvement asset, included in property and equipment, net in the
54
HFF, Inc.
Notes to
Combined Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
combined
balance sheets and a related deferred rent liability and amortizes these items on a
straight-line basis over the shorter of the term of the lease or useful life of the asset as
additional depreciation expense and a reduction to rent expense, respectively. Lease agreements
sometimes contain rent escalation clauses, which are recognized on a straight-line basis over the
life of the lease in accordance with SFAS No. 13,
Accounting for Leases
. Lease terms generally
range from two to ten years. Before entering into a lease, an analysis is performed to determine
whether a lease should be classified as a capital or an operating lease according to SFAS No. 13,
as amended.
Computer Software Costs
Certain costs related to the development or purchases of internal-use software are capitalized in
accordance with the American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
. Internal computer software costs that are incurred in the preliminary project stage
are expensed as incurred. Direct consulting costs as well as payroll and related costs, which are
incurred during the development stage of a project are capitalized and amortized using the
straight-line method over estimated useful lives of three years when placed into production.
Goodwill
Goodwill of $3.7 million represents the excess of the purchase price over the estimated fair value
of the acquired net assets of HFF on June 16, 2003 (see Note 1). In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets
, the Company does not amortize goodwill, but evaluates
goodwill on an annual basis for potential impairment.
Prepaid Compensation Under Employment Agreements
The Company has employment agreements with certain employees whereby sign-up bonuses and incentive
compensation payments were made during 2004, 2005 and 2006. In most cases, the sign-up bonuses and
the incentive compensation are to be repaid to the Company upon voluntary termination by the
employee or termination by cause (as defined) by the Company prior to the termination of the
employment agreement. The total cost of the employment agreements is being amortized by the
straight-line method over the term of the agreements and is included in cost of services on the
accompanying combined statements of income.
55
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Producer Draws
As part of the Company’s overall compensation program, the Company offers a new producer draw
arrangement which generally lasts until such time as a producer’s pipeline of business is
sufficient to allow the producer to earn sustainable commissions. This program is intended to
provide the producer with a minimal amount of cash flow to allow adequate time for the producer to
develop business relationships. Similar to traditional salaries, the producer draws are paid
irrespective of the actual fees generated by the producer. Often these producer draws represent the
only form of compensation received by the producer. Furthermore, it is not the Company’s policy to
seek collection of unearned producer draws under this arrangement. As a result, the Company has
concluded that producer draws are economically equivalent to salaries paid and accordingly, charges
them to compensation as incurred. The producer is also entitled to earn a commission on closed
revenue transactions. Commissions are calculated as the commission that would have been earned by
the broker under one of the Company’s commission programs, less any amount previously paid to the
producer in the form of a draw.
Intangible Assets
Intangible assets include servicing rights under agreements with third-party lenders, costs
associated with obtaining a NASD license, and deferred financing costs.
Servicing rights were recorded at their estimated fair value of $5.4 million on June 16, 2003, and
are being amortized over the expected life of the mortgage servicing rights in proportion to the
estimated future net servicing income. Additionally, servicing rights are capitalized on loans
originated and sold to FHLMC with servicing retained based on an allocation of the carrying amount
of the loan and the servicing right in proportion to the relative fair values at the date of sale.
These servicing rights are recorded at the lower of cost or fair value and are being amortized over
their expected life. The determination of fair value of the servicing rights is determined using a
discounted cash flow model which considers various factors such as estimated prepayment speeds of
the underlying mortgages, the estimated life of the mortgages, the estimated cost to service the
loans, and the discount rate.
Deferred financing costs were deferred and are being amortized by the straight-line method over
four years, which approximates the effective interest method.
56
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
HFF Securities has recognized an intangible asset in the amount of $0.1 million for the costs of
obtaining a NASD license as a broker-dealer. The license is determined to have an indefinite useful
economic life and is, therefore, not being amortized.
The Company periodically evaluates the remaining useful lives and carrying values of the intangible
assets to determine whether events and circumstances indicate that a change in the useful life or
impairment in value may have occurred. Indicators of impairment monitored by management include a
decline in the level of serviced loans. No indicators of impairment were noted as a result of
management’s evaluation. This evaluation is performed at least annually.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Income Taxes
The Company has historically operated as two limited liability companies (HFF Holdings and Holdings
Sub), a corporation (Holliday GP) and two limited partnerships (HFF LP and HFF Securities). As a
result, income has been subject to limited U.S. federal income taxes and income and expenses have
been passed through and reported on the individual tax returns of the members of HFF Holdings.
Income taxes shown on the Company’s combined statements of income reflect federal income taxes of
the corporation and business and corporate income taxes in various jurisdictions. Following the
offering, the Company will be subject to additional entity-level taxes that will be reflected in
its combined financial statements.
Cost of Services
The Company considers personnel expenses directly attributable to providing services to its
clients, such as salaries, commission and bonuses to producers and analysts, and certain purchased
services to be directly attributable to the generation of capital markets services revenue and has
classified these expenses as costs of services in the combined statements of income.
57
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Segment Reporting
The Company operates in one reportable segment, the commercial real estate financial intermediary
segment and offers debt placement, investment sales, note sales, structured finance, equity
placement and investment banking services through its 18 offices. The results of each office have
been aggregated for segment reporting purposes as they have similar economic characteristics and
provide similar services to a similar class of customer.
Recent Accounting Pronouncements
SFAS 123(R)
. On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 123 (revised 2003),
Share-Based Payment
, or SFAS 123(R), which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation
. SFAS 123(R) supersedes Accounting Principles Board (“APB”)
Opinion No. 25,
Accounting for Stock Issued to Employees
, and amends SFAS No. 95,
Statement of Cash
Flows
. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123.
However, SFAS 123(R) requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the combined statements of income based on their fair values.
Pro forma disclosure is no longer an option. We have operated as a series of partnerships and
limited liability companies and have not historically issued stock-based compensation awards. The
Company adopted SFAS 123(R) on January 1, 2006, using the modified prospective method. The impact
of adopting SFAS 123(R) will depend on the nature and level of share-based awards granted in the
future.
SFAS 154
. In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
, or
SFAS 154. SFAS 154 replaces APB Opinion No. 20,
Accounting Changes
, and FASB SFAS No. 3,
Reporting
Accounting Charges in Interim Financial Statements
. SFAS 154 requires that a voluntary change in
accounting principle be applied retrospectively with all prior period financial statements
presented on the new accounting principle, unless it is impracticable to do so. SFAS 154 also
provides that a correction of errors in previously issued financial statements should be termed a
“restatement.” The new standard is effective for accounting changes and correction of errors
beginning July 1, 2005. The Company adopted SFAS 154 on January 1, 2006. The adoption of SFAS 154
did not have a material effect on the Company’s combined financial condition or result of
operations.
58
HFF, Inc.
Notes to
Combined Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
SFAS 156
. In March 2006, the FASB issued SFAS No. 156, “
Accounting for Servicing of Financial
Assets — an amendment of FASB Statement No. 140
,” or SFAS 156. SFAS No. 156 requires an entity to
recognize a servicing asset or servicing liability at fair value each time it undertakes an
obligation to service a financial asset by entering into a servicing contract, regardless of
whether explicit consideration is exchanged. The statement also permits a company to choose to
either subsequently measure servicing rights at fair value and to report changes in fair value in
earnings, or to retain the amortized method whereby servicing rights are recorded at the lower of
cost or fair value and are amortized over their expected life, including servicing contracts with
no recorded value. The provisions of SFAS 156 are effective for fiscal years beginning after
September 15, 2006. The Company plans to retain the amortization method upon adoption of FAS 156,
but will begin recognizing the fair value of servicing assets and liabilities on any new servicing
contracts involving no consideration acquired after January 1, 2007. The impact of adopting this
provision of FAS 156 will likely be material to the Company’s financial condition and results of
operations and will depend on the volume and timing of servicing received after January 1, 2007.
SFAS 157
. In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157 or
Statement). The Statement was issued to define fair value, establish a framework for measuring fair
value in generally accepted accounting principles (GAAP), and to expand fair value disclosure
requirements. Prior to issuance of this Statement, different definitions of fair value existed
within GAAP, and there was limited guidance available on applying existing fair value definitions.
The Statement does not require any new fair value measurements. SFAS 157 is effective for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal years. Prior to
adoption, the Company will evaluate the impact of adopting SFAS 157 on its combined financial
statements.
FIN 48.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). This interpretation clarifies
the application of SFAS No. 109, Accounting for Income Taxes, by defining a criterion that an
individual tax position must meet for any part of the benefit of that position to be recognized in
an enterprise’s financial statements and also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 is effective for fiscal years beginning after December 15, 2006, but earlier adoption is
permitted. The Company will adopt FIN 48 for the first quarter ended
March 31, 2007. The Company is currently
assessing the impact the adoption of FIN 48 will have on its financial position and results of
operations.
59
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
3. Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
3,202
|
|
|
$
|
2,199
|
|
|
Computer equipment
|
|
|
1,530
|
|
|
|
1,199
|
|
|
Capitalized software costs
|
|
|
831
|
|
|
|
739
|
|
|
Leasehold improvements
|
|
|
5,005
|
|
|
|
3,718
|
|
|
|
|
|
|
Subtotal
|
|
|
10,568
|
|
|
|
7,855
|
|
|
Less accumulated depreciation and amortization
|
|
|
(5,528
|
)
|
|
|
(3,579
|
)
|
|
|
|
|
|
|
|
$
|
5,040
|
|
|
$
|
4,276
|
|
|
|
|
|
At December 31, 2006 and 2005, the Company has recorded office equipment, within furniture and
equipment, under capital leases of $0.5 million and $0.4 million, respectively, including
accumulated amortization of $0.3 million and $0.2 million, respectively, which is included within
depreciation and amortization expense on the accompanying combined statements of income. See Note 7
for discussion of the related capital lease obligations.
4. Intangible Assets
The Company’s intangible assets are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
December 31, 2005
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Net Book
|
|
Carrying
|
|
Accumulated
|
|
Net Book
|
|
|
|
Amount
|
|
Amortization
|
|
Value
|
|
Amount
|
|
Amortization
|
|
Value
|
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
6,085
|
|
|
$
|
(3,695
|
)
|
|
$
|
2,390
|
|
|
$
|
5,578
|
|
|
$
|
(2,803
|
)
|
|
$
|
2,775
|
|
|
Deferred financing costs
|
|
|
988
|
|
|
|
(185
|
)
|
|
|
803
|
|
|
|
14
|
|
|
|
—
|
|
|
|
14
|
|
|
Unamortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASD license
|
|
|
100
|
|
|
|
—
|
|
|
|
100
|
|
|
|
100
|
|
|
|
—
|
|
|
|
100
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
7,173
|
|
|
$
|
(3,880
|
)
|
|
$
|
3,293
|
|
|
$
|
5,692
|
|
|
$
|
(2,803
|
)
|
|
$
|
2,889
|
|
|
|
|
|
60
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
4. Intangible Assets (continued)
Amortization
expense related to intangible assets was $1.1 million,
$1.0 million, and $1.1 million
for the years ended December 31, 2006, 2005 and 2004, respectively.
Estimated amortization expense for the next five years is as follows (in thousands):
|
|
|
|
|
|
|
2007
|
|
$
|
1,008
|
|
|
2008
|
|
|
848
|
|
|
2009
|
|
|
676
|
|
|
2010
|
|
|
306
|
|
|
2011
|
|
|
74
|
|
The weighted-average life of these intangibles was five years at December 31, 2006.
5. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consist of the following at December 31, 2006, and
2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Bank term note payable
|
|
$
|
56,250
|
|
|
$
|
—
|
|
|
Capital lease obligations
|
|
|
234
|
|
|
|
272
|
|
|
|
|
|
|
Total long-term debt and capital leases
|
|
|
56,484
|
|
|
|
272
|
|
|
Less current maturities
|
|
|
56,393
|
|
|
|
122
|
|
|
|
|
|
|
Long-term debt and capital leases
|
|
$
|
91
|
|
|
$
|
150
|
|
|
|
|
|
61
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
5. Long-Term Debt and Capital Lease Obligations (continued)
(a) The Credit Agreement
In March 2006, HFF LP entered into a credit agreement (the Credit Agreement) with a financial
institution. The Credit Agreement was comprised of a $60.0 million term loan and a $20.0 million
revolving credit facility, which replaced the revolving credit agreement. HFF Holdings distributed
the $60.0 million proceeds from the term loan to the members generally based on their respective
ownership interests, and are reflected as distributions in the financial statements. The terms of
the Credit Agreement require quarterly payments of $1.25 million and annual payments equal to 22.5%
of adjusted annual net income. In connection with the Credit Agreement, each member signed a
revised operating agreement which requires each member to repay their portion of the remaining
outstanding balance of the loan in the event the member leaves the Company prior to the loan being
repaid in full. The Company is obligated under the Credit Agreement to remit all amounts collected
from withdrawing members to the financial institution for repayment of the loan.
The Credit Agreement expires in March 29, 2010, and may be extended for one year at the option of
the Company. Interest on outstanding balances is payable at the 30-day LIBOR rate (5.33% at
December 31, 2006) plus 2.50%. The Company has the option to convert revolving credit borrowings,
subject to certain restrictions, to Base Note Rates upon which interest is calculated at the
greater of the bank’s prime rate (8.25% at
December 31, 2006) plus 1.50% or the Federal Funds
Effective Rate (5.17% at December 31, 2006) plus 2.00%. The agreement also requires payment of a
commitment fee of .35% on the unused amount of credit. The Company did not borrow on this revolving
credit facility during the year ended December 31, 2006.
The Credit Agreement contains various restrictive covenants relating to financial ratios, permitted
investments, incurrence of indebtedness, distributions to members, and transactions with related
parties. Obligations outstanding under the revolving credit agreement are collateralized by the
ownership interests in HFF LP, Holliday GP, and HFF Securities
.
This Agreement was paid in full in
connection with the proceeds from the initial public offering discussed in Note 11 below.
(b) Letters of Credit and Capital Lease Obligation
The
Company has outstanding letters of credit of approximately
$2.3 million and $0.2 million at December 31, 2006 and 2005, respectively, with the same bank as the term note and
revolving credit arrangements, to comply with bonding requirements of certain state regulatory
agencies, as security for three leases and as collateral to meet Freddie Mac net worth
requirements. The Company segregated cash in a separate bank account to collateralize the letters
of credit. The letters of credit expire through 2007 but can be automatically extended for one year
except for the $2.0 million letter of credit with Freddie Mac,
which expired on February 28, 2007. Additionally, in connection with the Company’s initial public
offering and the resulting pay-off of the entire outstanding balance under the Credit Agreement in February 2007, HFF LP now meets
Freddie Mac’s minimum net worth requirement.
62
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
5. Long-Term Debt and Capital Lease Obligations (continued)
Capital lease obligations consist primarily of office equipment leases that expire at various dates
through May 2010 and bear interest at rates ranging from 3.65% to 6.19%. A summary of future
minimum lease payments under capital leases at December 31, 2006, is as follows (in thousands):
|
|
|
|
|
|
|
2007
|
|
$
|
143
|
|
|
2008
|
|
|
47
|
|
|
2009
|
|
|
39
|
|
|
2010
|
|
|
5
|
|
|
|
|
|
|
|
|
|
$
|
234
|
|
|
|
|
|
|
6. Warehouse Line of Credit
In 2005, HFF LP obtained an uncommitted warehouse line of credit for the purpose of funding the
Freddie Mac mortgage loans that it originates. Each funding is separately approved on a
transaction-by-transaction basis and is collateralized by a loan and mortgage on a multifamily
property that is ultimately purchased by Freddie Mac. As of December 31, 2006, and 2005, HFF LP had
$125.7 million and $14.7 million, respectively, outstanding on the warehouse line of credit and a
corresponding amount of mortgage notes receivable. Interest on the warehouse line of credit is at
the 30-day LIBOR rate plus a spread (5.84% at December 31, 2006, and 5.40% at December 31, 2005)
and HFF LP is also paid interest on its loan secured by a multifamily loan at the rate in the
Freddie Mac note.
7. Lease Commitments
The Company leases various corporate offices, parking spaces, and office equipment under
noncancelable operating leases. These leases have initial terms of two to ten years. The majority
of the leases have termination clauses whereby the term may be reduced by two to seven years upon
prior notice and payment of a termination fee by the Company. Total rental expense charged to
operations was $4.6 million, $3.9 million, and $3.6 million for the years ended December 31, 2006,
2005 and 2004, respectively.
63
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
7. Lease Commitments (continued)
Future minimum rental payments for the next five years under operating leases with noncancelable
terms in excess of one year and without regard to early termination provisions are as follows (in
thousands):
|
|
|
|
|
|
|
2007
|
|
$
|
4,754
|
|
|
2008
|
|
|
4,802
|
|
|
2009
|
|
|
3,944
|
|
|
2010
|
|
|
3,615
|
|
|
2011
|
|
|
3,134
|
|
|
Thereafter
|
|
|
8,413
|
|
|
|
|
|
|
|
|
|
$
|
28,662
|
|
|
|
|
|
|
The Company subleases certain office space to subtenants which may be canceled at any time. The
rental income received from these subleases is included as a reduction of occupancy expenses in the
accompanying combined statements of income.
The Company also leases certain office equipment under capital leases that expire at various dates
through 2010. See Note 3 and Note 5 above for further description of the assets and related
obligations recorded under these capital leases at December 31, 2006 and 2005, respectively.
HFF Holdings is not an obligor, nor does it guarantee any of the Company’s leases.
8. Retirement Plan
The Company maintains a retirement savings plan for all eligible employees, in which employees may
make deferred salary contributions up to the maximum amount allowable by the IRS. After-tax
contributions may also be made up to 50% of compensation. The Company makes matching contributions
equal to 50% of the first 6% of both deferred and after-tax salary contributions, up to a maximum
of $5,000. The Company match was fully vested after two years of service during 2003 and 2004,
after one year of service in 2005, and after one month of service effective January 1, 2006. The
Company’s contributions charged to expense for the plan were $1.2 million, $0.9 million, and $0.7
million for the years ended December 31, 2006, 2005 and 2004, respectively.
64
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
9. Servicing
The Company services commercial real estate loans for investors. The servicing portfolio totaled
$18.0 billion, $14.9 billion, and $13.0 billion at December 31, 2006, December 31, 2005 and
December 31, 2004, respectively.
In connection with its servicing activities, the Company holds funds in escrow for the benefit of
mortgagors for hazard insurance, real estate taxes and other financing arrangements. At December
31, 2006, 2005 and 2004, the funds held in escrow totaled $104.4 million, $113.0 million and $107.0
million, respectively. These funds, and the offsetting liabilities, are not presented in the
Company’s financial statements as they do not represent the assets and liabilities of the Company.
Pursuant to the requirements of the various investors for which the Company services loans, the
Company maintains bank accounts, holding escrow funds, which have balances in excess of the FDIC
insurance limit. The fees earned on these escrow funds are reported in capital markets services
revenue in the combined statements of income.
10. Legal Proceedings
The Company is party to various litigation matters, in most cases involving ordinary course and
routine claims incidental to its business. The Company cannot estimate with certainty its ultimate
legal and financial liability with respect to any pending matters. In accordance SFAS 5,
Accounting for Contingencies,
a reserve for estimated losses is recorded when the amount is
probable and can be reasonably estimated. However, the Company believes, based on examination of
such pending matters that its ultimate liability will not have a material adverse effect on its
business or financial condition.
11.
Concentrations
A
significant portion of the Company’s capital markets services
revenues is derived from transactions involving commercial real
estate located in specific geographic areas. During 2006,
approximately 10.8% and 21.1% of the Company’s capital markets
services revenues were derived from transactions involving commercial
real estate located in Florida and Texas, respectively. During 2005,
approximately 12.7% and 21.7% of the Company’s capital markets
services revenues were derived from transactions involving commercial
real estate located in California and Texas, respectively. As a
result, a significant portion of the Company’s business is
dependent on the economic conditions in general and the markets for
commercial real estate in these areas.
12. Related Party Transactions
The Company allocated expenses to two affiliates of approximately $0.55 million, $0.41 million and
$0.25 million during the years ending December 31, 2006, 2005 and 2004, respectively, for services
performed on behalf of the affiliates. The Company made payments on behalf of two affiliates of
approximately $0.8 million, $0.3 million and $5.7 million during the years ending December 31,
2006, 2005 and 2004, respectively. The Company received amounts from two affiliates of
approximately $1.1 million, $1.25 million and $6.1 million during the years ending December 31,
2006, 2005 and 2004, respectively. Also during 2006, the Company paid approximately $2.3 million
of costs in connection with the initial public offering on behalf of one of the affiliates. The
Company is due $3.0 million and $0.5 million from the two affiliates as of December 31, 2006 and
2005, respectively.
13. Subsequent Events
On November 9, 2006, HFF, Inc. filed a registration statement on Form S-1 with the United States
Securities and Exchange Commission (the “SEC”) relating to a proposed underwritten
65
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
initial public offering of 14,300,000 shares of Class A common stock of HFF, Inc.. On January 30,
2007, the SEC declared the registration statement on Form S-1 effective and the Company priced
14,300,000 shares for the initial public offering at a price of $18.00 per share. On January 31,
2007, the Company’s common stock began trading on the New York Stock Exchange under the symbol
“HF.”
On February 5, 2007, the Company closed its initial public offering of 14,300,000 shares of
common stock. Net proceeds from the sale of the stock were $235.7 million, net of $18.0 million of
underwriting commissions and $3.7 million of offering expenses. The proceeds of the public offering
were used to purchase from HFF Holdings all of the shares of Holliday GP and purchase from HFF
Holdings partnership units representing approximately 39% of each of the Operating Partnerships
(including partnership units in the Operating Partnerships held by Holliday GP). HFF Holdings used
approximately $56.3 million of its proceeds to repay all outstanding indebtedness under HFF LP’s
credit agreement. Accordingly the Company did not retain any of the proceeds from this offering.
On February 22, 2007, the underwriters exercised their option to purchase an additional 2,145,000
shares of Class A common stock (15% of original issuance) at $18.00 per share. Net proceeds of the
overallotment were $35.9 million, net of $2.7 million of underwriting commissions and other
expenses. These proceeds were used to purchase HFF Holdings partnership units representing
approximately 6.0% of each of the Operating Partnerships.
In addition to cash received for its sale of all of the shares of Holliday GP and approximately 45%
of partnership units of each of the Operating Partnerships (including partnership units in the
Operating Partnerships held by Holliday GP). HFF Holdings also received an exchange right that will
permit HFF Holdings to exchange interests in the Operating Partnerships for shares of (i) HFF,
Inc.’s Class A common stock (the “Exchange Right”) and (ii) rights under a tax receivable agreement
between HFF, Inc. and HFF Holdings (the “TRA”).
As a result of the offering, HFF Holdings beneficially owns 20,355,000 partnership units in each of
the Operating Partnerships. Pursuant to the terms of HFF, Inc.’s amended and restated certificate
of incorporation, HFF Holdings could from time to time exchange its partnership units in the
Operating Partnerships for shares of the Company’s Class A common stock on the basis of two
partnership units, one of each Operating Partnership, for one share of Class A common stock,
subject to customary conversion rate adjustments for stock splits, stock dividends and
reclassifications. The following table reflects HFF Holdings’ right to
exchange its partnership units in the Operating Partnerships for shares of the Company’s Class A
common stock pursuant to contractual provisions in the HFF Holdings Operating Agreement. However,
these contractual provisions may be waived, amended or terminated by a vote of the members holding
65% of the interests of HFF Holdings following consultation with the board of directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of HFF
|
|
|
|
Number of
|
|
Holdings’
|
|
|
|
Additional Shares
|
|
Partnership
|
|
|
|
of Class A
|
|
Units in the
|
|
|
|
Common
|
|
Operating
|
|
|
|
Stock Expected to
|
|
Partnerships
|
|
|
|
Become Available
|
|
Becoming Eligible
|
|
Anniversary of the Offering
|
|
for Exchange
|
|
for Exchange
|
|
Second
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
Third
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
Fourth
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
Fifth
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,355,000
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
66
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
HFF Holdings was issued one share of the Company’s Class B common stock. Class B common stock has
no economic rights but will entitle the holder to a number of votes that is equal to the total
number of shares of Class A common stock for which the partnership units that HFF Holdings holds in
the Operating Partnerships as of the relevant record date for the HFF, Inc. stockholder action are
exchangeable.
HFF LP and HFF Securities intend to have an election under Section 754 of the Internal Revenue Code
effective for 2007 and for each taxable year in which an exchange of partnership units for shares
occurs. The initial sale is expected to produce (and later exchanges may produce) increases to the
tax basis of the assets owned by HFF LP and HFF Securities at the time of the initial public
offering (and at the time of each exchange of partnership units). These anticipated increases in
tax basis would be allocated to the Company and would likely reduce the amount of tax that the
Company would otherwise be required to pay in the future. HFF, Inc. entered into a tax receivable
agreement with HFF Holdings that provides for the payment by HFF, Inc. to HFF Holdings of 85% of
the amount of cash savings, if any, in U.S. federal, state and local income tax that the Company
actually realizes as a result of these increases in tax basis and as a result of certain other tax
benefits arising from the Company entering into the tax receivable agreement and making payments
under that agreement. For purposes of the tax receivable agreement, cash savings in income tax will
be computed by comparing the Company’s actual income tax liability to the amount of such taxes that
it would have been required to pay had there been no increase to the tax basis of the assets of HFF
LP and HFF Securities as a result of the initial sale and later exchanges and had the Company not
entered into the tax receivable agreement. The term of the tax receivable agreement commences upon
consummation of the offering and will continue until all such tax benefits have been utilized or
expired, including the tax benefits derived from future exchanges. While the actual amount and
timing of payments under the tax receivable agreement will depend upon a number of factors,
including the amount and timing of taxable income generated in the future, the value of individual
assets, the portion of the Company’s payments under the tax receivable agreement constituting
imputed interest and increases in the tax basis of the Company’s assets resulting in payments to
HFF Holdings, the Company expects that the payments that may be made to HFF Holdings will be
substantial. Assuming no material changes in the relevant tax law and that the Company earns
significant taxable income to realize the full tax benefit of the increased amortization of its
assets, the Company expects that future payments to HFF Holdings in respect of the initial sale and
the overallotment to aggregate approximately $127.0 million and range from approximately $5.0
million to $14.0 million per year over the next 15 years. Future payments to HFF Holdings in
respect of subsequent exchanges would be in addition to these amounts and are expected to be
substantial. The payments under the tax receivable agreement are not conditioned upon HFF Holdings’
or its affiliates’ continued ownership of the Company.
The Company will account for the income tax effects and corresponding tax receivable agreement
effects as a result of the initial purchase and the sale of units of the Operating Partnerships in
connection with the reorganization transactions and future exchanges of Operating Partnership units
for the Company’s Class A shares by recognizing an increase in its deferred tax asset for the
estimated income tax effects of the increase in the tax basis of the assets owned by the Operating
Partnerships, based on enacted tax rates at the date of the transaction, less any tax valuation
allowance the Company believes is required if the Company evaluates it is more likely than not
that it will realize the benefit represented by the deferred tax asset, and the Company will record
85% of the estimated amount of the increase in deferred tax assets, net of any valuation allowance,
as a liability to HFF Holdings under the tax receivable agreement and the remaining 15% of the
increase in deferred tax assets directly in additional paid-in capital in stockholders’ equity.
All of the effects of changes in any of the Company’s estimates after the date of any exchange will
be included in net income. Similarly, the effect of subsequent changes in the enacted tax rates
will be included in net income.
Prior to
the effective date of the offering, the sole Stockholder of HFF, Inc. and the Board of
Directors adopted the HFF, Inc., 2006 Omnibus Incentive Compensation Plan (the “Plan”). Upon the
effective date of the registration statement, grants were awarded under the Plan to certain
employees and the Board of Directors. The Plan imposes limits on the awards that may be made to
any individual during a calendar year. The number of shares available for awards under the terms
of the Plan is 3,500,000 (subject to stock splits, stock dividends and similar transactions).
67
HFF,
Inc.
Notes to
Combined Financial Statements (continued)
On February 5, 2007, the Company entered into an Amended and Restated Credit Agreement with
Bank of America (Amended Credit Agreement). The Amended Credit Agreement is comprised of a $40.0
million revolving credit facility, which replaced The New Credit Agreement mentioned in note 5.
The Amended Credit Agreement matures on February 5, 2010 and may be extended for one year based on
certain conditions as defined in the agreement.
68
Report of Independent Registered Public Accounting Firm
The Operating Committee and Members of
HFF Holdings, LLC
We have audited the accompanying consolidated balance sheets of HFF Holdings, LLC and subsidiaries
as of December 31, 2006 and 2005, and the related consolidated statements of income, members’
equity, and cash flows for each of the three years in the period ended December 31, 2006. 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 the standards of the Public Company Accounting Oversight
Board (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. We
were not engaged to perform an audit of the Company’s internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and 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 HFF Holdings, LLC and subsidiaries at December 31,
2006 and 2005 and the consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2006, in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst & Young LLP
Pittsburgh,
Pennsylvania
March 8, 2007
69
HFF Holdings, LLC and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
57,198
|
|
|
$
|
59,595
|
|
|
Restricted cash
(Note 5)
|
|
|
3,485
|
|
|
|
389
|
|
|
Accounts receivable
|
|
|
2,508
|
|
|
|
921
|
|
|
Mortgage notes receivable
(Note 6)
|
|
|
125,700
|
|
|
|
14,700
|
|
|
Prepaid expenses and other current assets
|
|
|
7,843
|
|
|
|
2,691
|
|
|
|
|
|
|
Total current assets
|
|
|
196,734
|
|
|
|
78,296
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
(Note 3)
|
|
|
5,040
|
|
|
|
4,276
|
|
|
Goodwill
|
|
|
3,712
|
|
|
|
3,712
|
|
|
Intangible assets, net
(Note 4)
|
|
|
3,293
|
|
|
|
2,889
|
|
|
Other noncurrent assets
|
|
|
728
|
|
|
|
768
|
|
|
|
|
|
|
|
|
$
|
209,507
|
|
|
$
|
89,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and members’ equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
(Note 5)
|
|
$
|
56,393
|
|
|
$
|
122
|
|
|
Warehouse line of credit
(Note 6)
|
|
|
125,700
|
|
|
|
14,700
|
|
|
Accrued compensation and related taxes
|
|
|
10,836
|
|
|
|
10,800
|
|
|
Accounts payable
|
|
|
868
|
|
|
|
330
|
|
|
Other current liabilities
|
|
|
2,260
|
|
|
|
1,027
|
|
|
|
|
|
|
Total current liabilities
|
|
|
196,057
|
|
|
|
26,979
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred rent credit
|
|
|
2,404
|
|
|
|
2,366
|
|
|
Other long-term liabilities
|
|
|
438
|
|
|
|
408
|
|
|
Long-term debt, less current portion
(Note
5)
|
|
|
91
|
|
|
|
150
|
|
|
|
|
|
|
Total liabilities
|
|
|
198,990
|
|
|
|
29,903
|
|
|
|
|
|
|
|
|
|
|
|
|
Members’ equity
(Note 1)
|
|
|
10,517
|
|
|
|
60,038
|
|
|
|
|
|
|
|
|
$
|
209,507
|
|
|
$
|
89,941
|
|
|
|
|
|
See accompanying notes.
70
HFF Holdings, LLC and Subsidiaries
Consolidated Statements of Income
(Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital markets services revenue
|
|
$
|
225,242
|
|
|
$
|
203,457
|
|
|
$
|
142,192
|
|
|
Interest on mortgage notes receivable
|
|
|
1,354
|
|
|
|
412
|
|
|
|
—
|
|
|
Other
|
|
|
3,101
|
|
|
|
1,979
|
|
|
|
1,499
|
|
|
|
|
|
|
|
|
|
229,697
|
|
|
|
205,848
|
|
|
|
143,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
130,708
|
|
|
|
119,106
|
|
|
|
85,778
|
|
|
Personnel
|
|
|
13,938
|
|
|
|
14,369
|
|
|
|
9,107
|
|
|
Occupancy
|
|
|
6,319
|
|
|
|
5,357
|
|
|
|
5,047
|
|
|
Travel and entertainment
|
|
|
5,789
|
|
|
|
5,067
|
|
|
|
3,617
|
|
|
Supplies, research, and printing
|
|
|
6,463
|
|
|
|
5,089
|
|
|
|
2,933
|
|
|
Insurance
|
|
|
3,126
|
|
|
|
2,470
|
|
|
|
1,500
|
|
|
Professional fees
|
|
|
3,030
|
|
|
|
1,201
|
|
|
|
871
|
|
|
Depreciation and amortization
|
|
|
2,806
|
|
|
|
2,735
|
|
|
|
2,506
|
|
|
Interest on warehouse line of credit
|
|
|
1,375
|
|
|
|
409
|
|
|
|
—
|
|
|
Other operating
|
|
|
4,474
|
|
|
|
3,483
|
|
|
|
3,441
|
|
|
|
|
|
|
|
|
|
178,028
|
|
|
|
159,286
|
|
|
|
114,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
51,669
|
|
|
|
46,562
|
|
|
|
28,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
2,339
|
|
|
|
1,267
|
|
|
|
317
|
|
|
Interest expense
|
|
|
(3,541
|
)
|
|
|
(271
|
)
|
|
|
(406
|
)
|
|
|
|
|
|
Income before taxes
|
|
|
50,467
|
|
|
|
47,558
|
|
|
|
28,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
774
|
|
|
|
715
|
|
|
|
728
|
|
|
|
|
|
|
Net income
|
|
$
|
49,693
|
|
|
$
|
46,843
|
|
|
$
|
28,074
|
|
|
|
|
|
See accompanying notes.
71
HFF Holdings, LLC and Subsidiaries
Consolidated Statements of Members’ Equity
(Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
Receivable
|
|
Payable
|
|
|
|
|
|
Capital
|
|
Earnings
|
|
From Members
|
|
To Members
|
|
Total
|
|
|
|
|
|
Members’ equity,
December 31, 2003
|
|
$
|
7,000
|
|
|
$
|
13,529
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,529
|
|
|
Net income
|
|
|
—
|
|
|
|
28,074
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,074
|
|
|
Distributions
|
|
|
—
|
|
|
|
(11,491
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,491
|
)
|
|
|
|
|
|
Members’ equity,
December 31, 2004
|
|
|
7,000
|
|
|
|
30,112
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,112
|
|
|
Withdrawal of member
|
|
|
(71
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(71
|
)
|
|
Net income
|
|
|
—
|
|
|
|
46,843
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,843
|
|
|
Distributions
|
|
|
—
|
|
|
|
(23,846
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,846
|
)
|
|
|
|
|
|
Members’ equity,
December 31, 2005
|
|
|
6,929
|
|
|
|
53,109
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60,038
|
|
|
Contributions
|
|
|
71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71
|
|
|
Net income
|
|
|
—
|
|
|
|
49,693
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,693
|
|
|
Distributions
|
|
|
—
|
|
|
|
(100,330
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(100,330
|
)
|
|
Reset of equity
(Note 1)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,709
|
)
|
|
|
5,754
|
|
|
|
1,045
|
|
|
|
|
|
|
Members’ equity,
December 31, 2006
|
|
$
|
7,000
|
|
|
$
|
2,472
|
|
|
$
|
(4,709
|
)
|
|
$
|
5,754
|
|
|
$
|
10,517
|
|
|
|
|
|
See accompanying notes.
72
HFF Holdings, LLC and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,693
|
|
|
$
|
46,843
|
|
|
$
|
28,074
|
|
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
1,728
|
|
|
|
1,611
|
|
|
|
1,352
|
|
|
Intangibles
|
|
|
1,078
|
|
|
|
1,124
|
|
|
|
1,154
|
|
|
(Gain) loss on sale or disposition of assets
|
|
|
(507
|
)
|
|
|
(140
|
)
|
|
|
28
|
|
|
Purchase of NASD license
|
|
|
—
|
|
|
|
—
|
|
|
|
(100
|
)
|
|
Increase (decrease) in cash from changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(3,096
|
)
|
|
|
392
|
|
|
|
(244
|
)
|
|
Accounts receivable
|
|
|
(1,587
|
)
|
|
|
(721
|
)
|
|
|
944
|
|
|
Mortgage notes receivable
|
|
|
(111,000
|
)
|
|
|
(14,700
|
)
|
|
|
—
|
|
|
Prepaid expenses and other current assets
|
|
|
(5,152
|
)
|
|
|
(1,138
|
)
|
|
|
(1,011
|
)
|
|
Other noncurrent assets
|
|
|
40
|
|
|
|
(449
|
)
|
|
|
(230
|
)
|
|
Accrued compensation and related taxes
|
|
|
36
|
|
|
|
2,935
|
|
|
|
985
|
|
|
Accounts payable
|
|
|
538
|
|
|
|
25
|
|
|
|
9
|
|
|
Other accrued liabilities
|
|
|
1,233
|
|
|
|
553
|
|
|
|
(5
|
)
|
|
Other long-term liabilities
|
|
|
290
|
|
|
|
98
|
|
|
|
654
|
|
|
|
|
|
|
Net cash (used) provided by operating
activities
|
|
|
(66,706
|
)
|
|
|
36,433
|
|
|
|
31,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(2,624
|
)
|
|
|
(1,447
|
)
|
|
|
(1,646
|
)
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,624
|
)
|
|
|
(1,447
|
)
|
|
|
(1,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings on warehouse line of credit
|
|
|
111,000
|
|
|
|
14,700
|
|
|
|
—
|
|
|
Net borrowings on short-term debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(217
|
)
|
|
Borrowings on long-term debt
|
|
|
60,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Payments on long-term debt
|
|
|
(3,878
|
)
|
|
|
(7,461
|
)
|
|
|
(2,433
|
)
|
|
Deferred financing costs
|
|
|
(975
|
)
|
|
|
(14
|
)
|
|
|
—
|
|
|
Members’ contributions (withdrawals)
|
|
|
1,116
|
|
|
|
(71
|
)
|
|
|
—
|
|
|
Members’ distributions
|
|
|
(100,330
|
)
|
|
|
(23,846
|
)
|
|
|
(11,491
|
)
|
|
|
|
|
|
Net cash provided by (used) in financing
activities
|
|
|
66,933
|
|
|
|
(16,692
|
)
|
|
|
(14,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(2,397
|
)
|
|
|
18,294
|
|
|
|
15,823
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
59,595
|
|
|
|
41,301
|
|
|
|
25,478
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
57,198
|
|
|
$
|
59,595
|
|
|
$
|
41,301
|
|
|
|
|
|
73
HFF Holdings, LLC and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Supplemental disclosure of cash flow
information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
771
|
|
|
$
|
715
|
|
|
$
|
728
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,442
|
|
|
$
|
650
|
|
|
$
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash
financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquired under capital leases
|
|
$
|
90
|
|
|
$
|
89
|
|
|
$
|
28
|
|
|
|
|
|
See accompanying notes.
74
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization
HFF Holdings, LLC (HFF Holdings) was incorporated as a Delaware Limited Liability Company on June
16, 2003. HFF Holdings then formed HFF LP Acquisition LLC (Holdings Sub), Holliday GP Acquisition
LLC (HFF GP), and Holliday GP Corp. (Holliday GP) in connection with HFF Holdings’ acquisition of
Holliday Fenoglio Fowler, L.P. (HFF LP) from the prior owners. Upon such acquisition, Holdings Sub
became the sole limited partner of HFF LP, HFF GP became a general partner of HFF LP, and Holliday
GP became the managing general partner of HFF LP. HFF GP subsequently merged into Holliday GP; as a
result, Holliday GP became the sole general partner of HFF LP. The acquisition was financed
primarily with long-term borrowings and was accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 141,
Business Combinations
(SFAS No. 141). The total purchase price
of $8.8 million (as adjusted from a base purchase price of $10.0 million for the difference between
estimated net assets and closing net assets and for other adjustments and costs of completing the
closing) was allocated to the assets acquired and liabilities assumed based on estimated fair
values at the date of acquisition.
During
2004, Holdings Sub and Holliday GP formed HFF Securities L.P. (HFF Securities). HFF
Securities is a broker-dealer that performs private placements of securities by raising equity
capital from institutional investors for discretionary, commingled real estate funds to execute
real estate acquisitions, recapitalizations, developments, debt investments, and other real
estate-related strategies. HFF Securities may also provide other investment banking and advisory
services on various project or entity-level strategic assignments such as mergers and acquisitions,
sales and divestitures, recapitalizations and restructurings, privatizations, management buyouts,
and arranging joint ventures for specific real estate strategies.
HFF Holdings, through its Operating Partnerships, HFF, LP and HFF Securities, is a financial
intermediary and advisor in the commercial real estate industry, and engages in debt, private
equity, and structured financing placements, as well as investment sales, note sales, and loan
servicing in 18 major cities nationwide.
These financial statements present the consolidated financial position of HFF Holdings and its
wholly owned subsidiaries (collectively referred to as Holdings Consol) as of December 31, 2006 and
2005 and the consolidated results of Holdings Consol for each of the three years in the period
ended December 31, 2006.
75
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Organization (continued)
Capital Contributions
At inception, HFF Holdings’ members made capital contributions of $7.0 million. In accordance with
the Operating Agreement, additional capital contributions may be required upon recommendation by
the Operating Committee and approval by 65% of the members.
Percentage interests of the members may be adjusted every three years upon recommendation by a
committee appointed by the members and then subsequently approved by 65% of the members. If the
recommended adjustments are approved, additional capital contributions will be required from
members whose percentage interests (or new members) are increased, and members whose interests are
decreased will be entitled to receive payments from HFF Holdings, based on a comparison of the fair
value of HFF Holdings immediately prior to and as of the reset date.
During 2006, the HFF Holdings reset the ownership percentages of existing members and admitted six
new members. The equity reset and addition of new members resulted in an increase or decrease in
ownership percentage for existing members. The purchase of additional ownership interests by the
new and existing members was funded by $9.8 million in cash and promissory notes receivable of $5.6
million from members to HFF Holdings. The cash received was paid to existing members based upon the
percentage dilution of their ownership. The notes receivable are payable to HFF Holdings in three
equal installments over a three year period (January 2007–2009) with full recourse secured by each
member’s interest in HFF Holdings and all amounts payable to the member by HFF Holdings. The
remaining amounts due to the members whose ownership interest was diluted by the reset are
contingent on the payment of cash by the new members under the notes. The note receivable of $4.6
million plus accrued interest of $0.1 million and the related payable of $5.6 million plus accrued
interest of $0.1 million due diluted members are reflected on Holdings Consol’s consolidated
financial statements as components of members’ equity under the provisions of
Staff Accounting
Bulletin
No. 40. In connection with the initial public offering of HFF, Inc., discussed in Note
12 below, the promissory notes receivable and the related payable were paid in full by the members with the proceeds
received from the offering.
The liability of HFF Holdings’ members is generally limited to their capital contributions.
76
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Organization (continued)
Distributions
Distributions of distributable cash flow (as defined) are made upon approval of the Operating
Committee. Such distributions generally must be made to members first to the extent of unpaid
cumulative preferred returns (15% per year) on the initial capital contribution, and second in
proportion to their respective percentage interests.
Redemption
Withdrawing members may require HFF Holdings to redeem their interests for an amount equal to the
Redemption Price as defined in the Operating Agreement, except in cases such as termination for
cause or competing or solicitation as defined in the Operating Agreement. In the event a
withdrawing member subsequently competes or solicits as defined in the Operating Agreement, his
right to receipt of the redemption price is subject to reduction based on the time period within
which such activity occurs. Upon withdrawing, HFF Holdings is required to pay the withdrawing
member his initial capital contribution and redemption payments over five years starting one year
after the withdrawal date. The redemption payments are based on the Redemption Price determined by
the Operating Committee, as defined in the Operating Agreement, and are subject to available cash
flow, as defined in the Operating Agreement.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of HFF Holdings and its wholly owned
subsidiaries, Holdings Sub, Holliday GP, HFF Securities, and HFF LP. All intercompany accounts have
been eliminated.
Concentrations of Credit Risk
Holdings Consol’s financial instruments that are exposed to concentrations of credit risk consist
primarily of cash. Holdings Consol places its cash with financial institutions in amounts which at
times exceed the FDIC insurance limit. Holdings Consol has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash.
77
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in bank accounts, and short-term investments
with original maturities of three months or less.
Revenue Recognition
Capital markets services revenues consist of origination fees, investment sale fees, note sale
fees, placement fees, and servicing fees. Origination fees are earned for the placement of debt,
equity, or structured financing for real estate transactions. Investment sales and note sales fees
are earned for brokering sales of real estate and/or notes. Placement fees are earned by HFF
Securities for discretionary and nondiscretionary equity capital raises and other investment
banking services. These fees are negotiated between Holdings Consol and its clients, generally on a
case-by-case basis and are recognized and generally collected at the closing and the funding of the
transaction. Holdings Consol’s fee agreements do not include terms or conditions that require
Holdings Consol to perform any service or fulfill any obligation once the transaction closes and
revenue is recognized. Servicing fees are compensation for providing collection, remittance,
recordkeeping, reporting, and other services for either lenders or borrowers on mortgages placed
with third-party lenders. Servicing fees are recognized when cash is collected as these fees are
contingent upon the borrower making its payments on the loan.
Certain of Holdings Consol’s fee agreements provide for reimbursement of employee-related costs
which Holdings Consol recognizes as revenue. In accordance with EITF 00-14,
Income Statement
Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred,
certain
reimbursements received from clients for out-of-pocket expenses are characterized as revenue in the
statement of income rather than as a reduction of expenses incurred. Since Holdings Consol is the
primary obligor, has supplied discretion, and bears the credit risk for such expenses, Holdings
Consol records reimbursement revenue for such out-of-pocket expenses. Reimbursement revenue is
recognized when the fees for the related transaction are collected at the closing of the
transaction. Reimbursement revenue is classified as other revenue in the consolidated statement of
income.
78
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Mortgage Notes Receivable
HFF LP is qualified with the Federal Home Loan Mortgage Corporation (Freddie Mac) as a Freddie Mac
Multifamily Program Plus
®
Seller/Servicer. Under this Program, HFF LP originates mortgages based on
commitments from Freddie Mac, and then sells the loans to Freddie Mac approximately one month
following the loan originations. HFF LP recognizes interest income on the accrual basis during this
holding period based on the contract interest rate in the loan that will be purchased by Freddie
Mac.
The loans are initially recorded and then subsequently sold to Freddie Mac at HFF LP’s cost.
Holdings Consol monitors the market value of these loans for declines in value from the origination
date to the sale date. Based on Holdings Consol’s evaluation, no valuation allowance for lower of
cost or market adjustments was necessary as of December 31, 2006 and 2005.
Freddie Mac requires HFF LP to meet minimum net worth and liquid assets requirements and to comply with
certain other standards. Following the closing of the Credit Agreement in March 2006 and the
distribution of the proceeds to the members, HFF LP did not meet such minimum net worth requirement; therefore, HFF LP entered into a $2.0 million letter of credit backed by
$2.0 million in cash which is classified as Restricted Cash on the balance sheet as of December 31,
2006. In connection with HFF Inc.’s initial public offering, discussed in Note 12 below, and the resulting payoff of the entire
outstanding balance under the New Credit Agreement in February 2007, HFF LP now meets Freddie Mac’s minimum net worth requirements (see note 5).
Advertising
Costs associated with advertising are expensed as incurred. Advertising expense was $0.8 million,
$0.8 million and $0.6 million for the years ended December 31, 2006, 2005 and 2004, respectively.
These amounts are included in other operating expenses in the accompanying consolidated statements
of income.
79
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are recorded at cost, except for those assets acquired on June 16, 2003,
which were recorded at their estimated fair values. Depreciation of furniture and computer
equipment is computed using accelerated methods over five to seven years. Depreciation of software
costs is computed using the straight-line method over three years. Leasehold improvements are
depreciated using the straight-line method over the shorter of the term of the lease or useful life
of the asset
Expenditures for routine maintenance and repairs are charged to expense as incurred. Renewals and
betterments which substantially extend the useful life of an asset are capitalized.
Leases
Holdings Consol leases all of its facilities under operating lease agreements. These lease
agreements typically contain tenant improvement allowances and rent holidays. In instances where
one or more of these items are included in a lease agreement, Holdings Consol records these
allowances as a leasehold improvement asset, included in property and equipment, net in the
consolidated balance sheets and a related deferred rent liability and amortizes these items on a
straight-line basis over the shorter of the term of the lease or useful life of the asset as
additional depreciation expense and a reduction to rent expense, respectively. Lease agreements
sometimes contain rent escalation clauses, which are recognized on a straight-line basis over the
life of the lease in accordance with SFAS No. 13,
Accounting for Leases
. Lease terms generally
range from two to ten years. Before entering into a lease, an analysis is performed to determine
whether a lease should be classified as a capital or an operating lease according to SFAS No. 13,
as amended.
Computer Software Costs
Certain costs related to the development or purchases of internal-use software are capitalized in
accordance with the American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
. Internal computer software costs that are incurred in the preliminary project stage
are expensed as incurred. Direct consulting costs as well as payroll and related costs, which are
incurred during the development stage of a project are capitalized and amortized using the
straight-line method over estimated useful lives of three years when placed into production.
80
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Goodwill
Goodwill of $3.7 million represents the excess of the purchase price over the estimated fair value
of the acquired net assets of HFF LP on June 16, 2003 (see Note 1). In accordance with SFAS No.
142,
Goodwill and Other Intangible Assets
, the Company does not amortize goodwill, but evaluates
goodwill on an annual basis for potential impairment.
Prepaid Compensation Under Employment Agreements
Holdings Consol has employment agreements with certain employees whereby sign-up bonuses and
incentive compensation payments were made during 2004, 2005 and 2006. In most cases, the sign-up
bonuses and the incentive compensation are to be repaid to Holdings Consol upon voluntary
termination by the employee or termination by cause (as defined) by Holdings Consol prior to the
termination of the employment agreement. The total cost of the employment agreements is being
amortized by the straight-line method over the term of the agreements and is included in cost of
services on the accompanying consolidated statements of income.
Producer Draws
As part of Holdings Consol’s overall compensation program, it offers a new producer draw
arrangement which generally lasts until such time as a producer’s pipeline of business is
sufficient to allow the producer to earn sustainable commissions. This program is intended to
provide the producer with a minimal amount of cash flow to allow adequate time for the producer to
develop business relationships. Similar to traditional salaries, the producer draws are paid
irrespective of the actual fees generated by the producer. Often these producer draws represent the
only form of compensation received by the producer. Furthermore, it is not Holdings Consol’s policy
to seek collection of unearned producer draws under this arrangement. As a result, Holdings Consol
has concluded that producer draws are economically equivalent to salaries paid and accordingly,
charges them to compensation as incurred. The producer is also entitled to earn a commission on
closed revenue transactions. Commissions are calculated as the commission that would have been
earned by the broker under one of Holdings Consol’s commission programs, less any amount previously
paid to the producer in the form of a draw.
81
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Intangible Assets
Intangible assets include servicing rights under agreements with third-party lenders, costs
associated with obtaining a NASD license, and deferred financing costs.
Servicing rights were recorded at their estimated fair value of $5.4 million on June 16, 2003, and
are being amortized over the expected life of the mortgage servicing rights in proportion to the
estimated future net servicing income. Additionally, servicing rights are capitalized on loans
originated and sold to FHLMC with servicing retained based on an allocation of the carrying amount
of the loan and the servicing right in proportion to the relative fair values at the date of sale.
These servicing rights are recorded at the lower of cost or fair value and are being amortized over
their expected life. The determination of fair value of the servicing rights is determined using a
discounted cash flow model which considers various factors such as estimated prepayment speeds of
the underlying mortgages, the estimated life of the mortgages, the estimated cost to service the
loans, and the discount rate.
Deferred financing costs were deferred and are being amortized by the straight-line method over
four years, which approximates the effective interest method.
HFF Securities has recognized an intangible asset in the amount of $0.1 million for the costs of
obtaining a NASD license as a broker-dealer. The license is determined to have an indefinite useful
economic life and is, therefore, not being amortized.
Holdings Consol periodically evaluates the remaining useful lives and carrying values of the
intangible assets to determine whether events and circumstances indicate that a change in the
useful life or impairment in value may have occurred. Indicators of impairment monitored by
management include a decline in the level of serviced loans. No indicators of impairment were noted
as a result of management’s evaluation. This evaluation is performed at least annually.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
82
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
Holdings Consol consists of two limited liability companies (HFF Holdings and Holdings Sub), a
corporation (Holliday GP), and two limited partnerships (HFF LP and HFF Securities). The limited
liability companies and the limited partnerships are not taxpaying entities for federal purposes
and their income and expenses are passed through and reported on the individual income tax returns
of the members of HFF Holdings. Income taxes shown on Holdings Consol’s consolidated statements of
income reflect federal income taxes of the corporation and business and corporate income taxes in
various jurisdictions. For tax purposes, HFF LP’s goodwill of $9.0 million is being amortized by
the straight-line method over 15 years.
Cost of Services
Holdings Consol considers personnel expenses directly attributable to providing services to its
clients, such as salaries, commission and bonuses to producers and analysts, and certain purchased
services to be directly attributable to the generation of capital markets services revenue and has
classified these expenses as costs of services in the consolidated statements of income.
Segment Reporting
Holdings Consol operates in one reportable segment, the commercial real estate financial
intermediary segment and offers debt placement, investment sales, note sales, structured finance,
equity placement and investment banking services through its 18 offices. The results of each office
have been aggregated for segment reporting purposes as they have similar economic characteristics
and provide similar services to a similar class of customer.
83
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
SFAS 123(R)
. On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 123 (revised 2003),
Share-Based Payment
, or SFAS 123(R), which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation
. SFAS 123(R) supersedes Accounting Principles Board (“APB”)
Opinion No. 25,
Accounting for Stock Issued to Employees
, and amends SFAS No. 95,
Statement of Cash
Flows
. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123.
However, SFAS 123(R) requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the consolidated statements of income based on their fair
values. Pro forma disclosure is no longer an option. We have operated as a series of partnerships
and limited liability companies and have not historically issued stock-based compensation awards.
Holdings Consol adopted SFAS 123(R) on January 1, 2006, using the modified prospective method. The
impact of adopting SFAS 123(R) will depend on the nature and level of share-based awards granted in
the future.
SFAS 154
. In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
, or
SFAS 154. SFAS 154 replaces APB Opinion No. 20,
Accounting Changes
, and FASB SFAS No. 3,
Reporting
Accounting Charges in Interim Financial Statements
. SFAS 154 requires that a voluntary change in
accounting principle be applied retrospectively with all prior period financial statements
presented on the new accounting principle, unless it is impracticable to do so. SFAS 154 also
provides that a correction of errors in previously issued financial statements should be termed a
“restatement.” The new standard is effective for accounting changes and correction of errors
beginning July 1, 2005. Holdings Consol adopted SFAS 154 on January 1, 2006. The adoption of SFAS
154 did not have a material effect on Holdings Consol’s consolidated financial condition or result
of operations.
84
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
SFAS 156
. In March 2006, the FASB issued SFAS No. 156, “
Accounting for Servicing of Financial
Assets — an amendment of FASB Statement No. 140
,” or SFAS 156. SFAS No. 156 requires an entity to
recognize a servicing asset or servicing liability at fair value each time it undertakes an
obligation to service a financial asset by entering into a servicing contract, regardless of
whether explicit consideration is exchanged. The statement also permits a company to choose to
either subsequently measure servicing rights at fair value and to report changes in fair value in
earnings, or to retain the amortized method whereby servicing rights are recorded at the lower of
cost or fair value and are amortized over their expected life, including servicing contracts with
no recorded value. The provisions of SFAS 156 are effective for fiscal years beginning after
September 15, 2006. Holdings Consol plans to retain the amortization method upon adoption of FAS
156, but will begin recognizing the fair value of servicing assets and liabilities on any new
servicing contracts involving no consideration acquired after January 1, 2007. The impact of
adopting this provision of FAS 156 will likely be material to Holdings Consol’s financial condition
and results of operations and will depend on the volume and timing of servicing received after
January 1, 2007.
SFAS 157
. In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157 or
Statement). The Statement was issued to define fair value, establish a framework for measuring fair
value in generally accepted accounting principles (GAAP), and to expand fair value disclosure
requirements. Prior to issuance of this Statement, different definitions of fair value existed
within GAAP, and there was limited guidance available on applying existing fair value definitions.
The Statement does not require any new fair value measurements. SFAS 157 is effective for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal years. Prior to
adoption, Holdings Consol will evaluate the impact of adopting SFAS 157 on its consolidated financial
statements.
FIN 48.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). This interpretation clarifies
the application of SFAS No. 109, Accounting for Income Taxes, by defining a criterion that an
individual tax position must meet for any part of the benefit of that position to be recognized in
an enterprise’s financial statements and also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 is effective for fiscal years beginning after December 15, 2006, but earlier adoption is
permitted. Holdings Consol will adopt FIN 48 for the first quarter ended
March 31, 2007. Holdings Consol is currently
assessing the impact the adoption of FIN 48 will have on its financial position and results of
operations.
85
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
3,202
|
|
|
$
|
2,199
|
|
|
Computer equipment
|
|
|
1,530
|
|
|
|
1,199
|
|
|
Capitalized software costs
|
|
|
831
|
|
|
|
739
|
|
|
Leasehold improvements
|
|
|
5,005
|
|
|
|
3,718
|
|
|
|
|
|
|
Subtotal
|
|
|
10,568
|
|
|
|
7,855
|
|
|
Less accumulated depreciation and amortization
|
|
|
(5,528
|
)
|
|
|
(3,579
|
)
|
|
|
|
|
|
|
|
$
|
5,040
|
|
|
$
|
4,276
|
|
|
|
|
|
At December 31, 2006 and 2005, Holdings Consol has recorded office equipment, within furniture and
equipment, under capital leases of $0.5 million and $0.4 million, respectively, including
accumulated amortization of $0.3 million and $0.2 million, respectively, which is included within
depreciation and amortization expense on the accompanying consolidated statements of income. See
Note 7 for discussion of the related capital lease obligations.
4. Intangible Assets
Holdings Consol’s intangible assets are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
December 31, 2005
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Net Book
|
|
Carrying
|
|
Accumulated
|
|
Net Book
|
|
|
|
Amount
|
|
Amortization
|
|
Value
|
|
Amount
|
|
Amortization
|
|
Value
|
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
6,085
|
|
|
$
|
(3,695
|
)
|
|
$
|
2,390
|
|
|
$
|
5,578
|
|
|
$
|
(2,803
|
)
|
|
$
|
2,775
|
|
|
Deferred financing costs
|
|
|
988
|
|
|
|
(185
|
)
|
|
|
803
|
|
|
|
14
|
|
|
|
—
|
|
|
|
14
|
|
|
Unamortizable intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASD license
|
|
|
100
|
|
|
|
—
|
|
|
|
100
|
|
|
|
100
|
|
|
|
—
|
|
|
|
100
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
7,173
|
|
|
$
|
(3,880
|
)
|
|
$
|
3,293
|
|
|
$
|
5,692
|
|
|
$
|
(2,803
|
)
|
|
$
|
2,889
|
|
|
|
|
|
86
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Intangible Assets (continued)
Amortization expense related to intangible assets was $1.1 million, $1.1 million, and $1.2 million
for the years ended December 31, 2006, 2005 and 2004, respectively.
Estimated amortization expense for the next five years is as follows (in thousands):
|
|
|
|
|
|
|
2007
|
|
$
|
1,008
|
|
|
2008
|
|
|
848
|
|
|
2009
|
|
|
676
|
|
|
2010
|
|
|
306
|
|
|
2011
|
|
|
74
|
|
The weighted-average life of these intangibles was five years at December 31, 2006.
5. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consist of the following at December 31, 2006 and 2005
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Bank term note payable
|
|
$
|
56,250
|
|
|
$
|
—
|
|
|
Capital lease obligations
|
|
|
234
|
|
|
|
272
|
|
|
|
|
|
|
Total long-term debt and capital leases
|
|
|
56,484
|
|
|
|
272
|
|
|
Less current maturities
|
|
|
56,393
|
|
|
|
122
|
|
|
|
|
|
|
Long-term debt and capital leases
|
|
$
|
91
|
|
|
$
|
150
|
|
|
|
|
|
87
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Capital Lease Obligations (continued)
(a) The Credit Agreement
In connection with HFF Holdings’ acquisition of HFF LP from the prior owners, HFF Holdings entered
into a Credit Agreement (Credit Agreement) with a financial institution which was comprised of a
$10.0 million term loan and a revolving line of credit. The bank term note payable required
quarterly principal installments of $0.1 million by HFF Holdings. The bank term note payable at
December 31, 2004, was $7.4 million. In December 2005, this note was paid in full.
Interest on the note was payable at the applicable LIBOR rate plus 2.50%. The interest rate could
be converted to prime plus 1.50% at the option of HFF Holdings. In June 2005, HFF Holdings agreed
to a fixed rate of 6.12% through December 2005.
In 2005, borrowings under the revolving credit agreement were limited to $7.0 million. Interest on
outstanding balances was payable at the 30-day LIBOR rate (4.39% at December 31, 2005) plus 2.50%.
The agreement required payment of a commitment fee of 0.35% on the unused amount of credit. HFF LP
did not borrow on this revolving credit facility during 2005 and 2004.
The loan agreements for the term note and revolving credit arrangement contain various restrictive
covenants relating to financial ratios, permitted investments, incurrence of indebtedness,
distributions to members, and transactions with related parties. Obligations outstanding under the
revolving credit agreement are collateralized by the ownership interests in Holdings Sub, Holliday
GP, HFF Securities, and HFF LP.
(b) The New Credit Agreement
In March 2006, HFF LP entered into a new credit agreement (The New Credit Agreement) with a
financial institution. The New Credit Agreement was comprised of a $60.0 million term loan and a
$20.0 million revolving credit facility, which replaced the revolving credit agreement above. HFF
LP distributed the $60.0 million proceeds from the term loan to the members generally based on
their respective ownership interests, which are reflected as distributions in the consolidated
statements of members’ equity. The terms of the New Credit Agreement require quarterly
payments of $1.25 million and annual payments equal to 22.5% of adjusted annual net income. In
connection with The New Credit Agreement,
each member signed a revised operating agreement which requires each member to repay their portion
of the
88
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Capital Lease Obligations (continued)
remaining outstanding balance of the loan in the event the member leaves the Company prior to the
loan being repaid in full. Holdings Consol is obligated under the New Credit Agreement to remit all
amounts collected from withdrawing members to the financial institution for repayment of the loan.
The New Credit Agreement expires in March 29, 2010, and may be extended for one year at the option
of HFF LP. Interest on outstanding balances is payable at the 30-day LIBOR rate (5.33% at December
31, 2006) plus 2.50%. HFF LP has the option to convert revolving credit borrowings, subject to
certain restrictions, to Base Note Rates upon which interest is calculated at the greater of the
bank’s prime rate (8.25% at December 31, 2006) plus 1.50% or the Federal Funds Effective Rate
(5.17% at December 31, 2006) plus 2.00% . The agreement also requires payment of a commitment fee
of .35% on the unused amount of credit. HFF LP did not borrow on this revolving credit facility
during the year ended December 31, 2006.
The New Credit Agreement contains various restrictive covenants relating to financial ratios,
permitted investments, incurrence of indebtedness, distributions to members, and transactions with
related parties. Obligations outstanding under the revolving credit agreement are collateralized by
the ownership interests in Holdings Sub, Holliday GP, and HFF
LP
.
This Agreement was paid in full from the
proceeds of the initial public offering discussed in Note 12 below.
(c) Letters of Credit and Capital Lease Obligation
Holdings Consol has outstanding letters of credit of approximately $2.3 million and $0.2 million at
December 31, 2006 and 2005, respectively, with the same bank as the term note and revolving credit
arrangements, to comply with bonding requirements of certain state regulatory agencies, as security
for three leases and as collateral to meet Freddie Mac net worth requirements. HFF LP segregated
cash in a separate bank account to collateralize the letters of credit. The letters of credit
expire through 2007 but can be automatically extended for one year except for the $2.0 million
letter of credit with Freddie Mac, which expired on February 28,
2007. Additionally, in connection with HFF Inc.’s initial public
offering and the resulting pay-off of the entire outstanding balance
under the New Credit Agreement in February 2007, HFF LP now meets
Freddie Mac’s minimum net worth requirement.
89
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt and Capital Lease Obligations (continued)
Capital lease obligations consist primarily of office equipment leases that expire at various dates
through May 2010 and bear interest at rates ranging from 3.65% to 6.19%. A summary of future
minimum lease payments under capital leases at December 31, 2006, is as follows (in thousands):
|
|
|
|
|
|
|
2007
|
|
$
|
143
|
|
|
2008
|
|
|
47
|
|
|
2009
|
|
|
39
|
|
|
2010
|
|
|
5
|
|
|
|
|
|
|
|
|
|
$
|
234
|
|
|
|
|
|
|
6. Warehouse Line of Credit
In 2005, HFF LP obtained an uncommitted warehouse line of credit for the purpose of funding the
Freddie Mac mortgage loans that it originates. Each funding is separately approved on a
transaction-by-transaction basis and is collateralized by a loan and mortgage on a multifamily
property that is ultimately purchased by Freddie Mac. As of December 31, 2006, and 2005, HFF LP had
$125.7 million and $14.7 million, respectively, outstanding on the warehouse line of credit and a
corresponding amount of mortgage notes receivable. Interest on the warehouse line of credit is at
the 30-day LIBOR rate plus a spread (5.84% at December 31, 2006, and 5.40% at December 31, 2005)
and HFF LP is also paid interest on its loan secured by a multifamily loan at the rate in the
Freddie Mac note.
7. Lease Commitments
HFF LP leases various corporate offices, parking spaces, and office equipment under noncancelable
operating leases. These leases have initial terms of two to ten years. The majority of the leases
have termination clauses whereby the term may be reduced by two to seven years upon prior notice
and payment of a termination fee by HFF LP. Total rental expense charged to operations was $4.6
million, $3.9 million, and $3.6 million for the years ended December 31, 2006, 2005 and 2004,
respectively.
90
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Lease Commitments (continued)
Future minimum rental payments for the next five years under operating leases with noncancelable
terms in excess of one year and without regard to early termination provisions are as follows (in
thousands):
|
|
|
|
|
|
|
2007
|
|
$
|
4,754
|
|
|
2008
|
|
|
4,802
|
|
|
2009
|
|
|
3,944
|
|
|
2010
|
|
|
3,615
|
|
|
2011
|
|
|
3,134
|
|
|
Thereafter
|
|
|
8,413
|
|
|
|
|
|
|
|
|
|
$
|
28,662
|
|
|
|
|
|
|
HFF LP subleases certain office space to subtenants which may be canceled at any time. The rental
income received from these subleases is included as a reduction of occupancy expenses in the
accompanying consolidated statements of income.
HFF LP also leases certain office equipment under capital leases that expire at various dates
through 2010. See Note 3 and Note 5 above for further description of the assets and related
obligations recorded under these capital leases at December 31, 2006 and 2005, respectively.
HFF Holdings is not an obligor, nor does it guarantee any of the HFF LP leases.
8. Retirement Plan
Holdings Consol maintains a retirement savings plan for all eligible employees, in which employees
may make deferred salary contributions up to the maximum amount allowable by the IRS. After-tax
contributions may also be made up to 50% of compensation. HFF LP makes matching contributions equal
to 50% of the first 6% of both deferred and after-tax salary contributions, up to a maximum of
$5,000. The Holdings Consol match was fully vested after two years of service during 2003 and 2004,
after one year of service in 2005, and after one month of service effective January 1, 2006.
Holdings Consol’s contributions charged to expense for the plan were $1.2 million, $0.9 million,
and $0.7 million for the years ended December 31, 2006, 2005 and 2004, respectively.
91
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Servicing
HFF LP services commercial real estate loans for investors. The servicing portfolio totaled $18.0
billion, $14.9 billion, and $13.0 billion at December 31, 2006, December 31, 2005 and December 31,
2004, respectively.
In connection with its servicing activities, the HFF LP holds funds in escrow for the benefit of
mortgagors for hazard insurance, real estate taxes and other financing arrangements. At December
31, 2006, 2005 and 2004, the funds held in escrow totaled $104.4 million, $113.0 million and $107.0
million, respectively. These funds, and the offsetting liabilities, are not presented in Holdings
Consol’s financial statements as they do not represent the assets and liabilities of Holdings
Consol. Pursuant to the requirements of the various investors for which HFF LP services loans, HFF
LP maintains bank accounts, holding escrow funds, which have balances in excess of the FDIC
insurance limit. The fees earned on these escrow funds are reported in capital markets services
revenue in the consolidated statements of income.
10. Legal Proceedings
Holdings Consol is party to various litigation matters, in most cases involving ordinary course and
routine claims incidental to its business. Holdings Consol cannot estimate with certainty its
ultimate legal and financial liability with respect to any pending matters. In accordance SFAS 5,
Accounting for Contingencies,
a reserve for estimated losses is recorded when the amount is
probable and can be reasonably estimated. However, Holdings Consol believes, based on examination
of such pending matters that its ultimate liability will not have a material adverse effect on its
business or financial condition.
11.
Concentrations
A
significant portion of the Holdings Consol’s capital markets services
revenues is derived from transactions involving commercial real
estate located in specific geographic areas. During 2006,
approximately 10.8% and 21.1% of Holdings Consol’s capital markets
services revenues were derived from transactions involving commercial
real estate located in Florida and Texas, respectively. During 2005,
approximately 12.7% and 21.7% of the Holdings Consol’s capital markets
services revenues were derived from transactions involving commercial
real estate located in California and Texas, respectively. As a
result, a significant portion of Holdings Consol’s business is
dependent on the economic conditions in general and the markets for
commercial real estate in these areas.
12. Subsequent Events
On November 9, 2006, HFF, Inc., an affiliate formed for the purpose of completing an initial public
offering, filed a registration statement on Form S-1 with the United States Securities and Exchange
Commission (the “SEC”) relating to a proposed underwritten initial public offering of 14,300,000
shares of Class A common stock of HFF, Inc. On January 30, 2007, the SEC declared HFF, Inc.’s
registration statement on Form S-1 effective and 14,300,000 shares for the initial public offering
were priced at $18.00 per share. On January 31, 2007, HFF, Inc.’s common stock began trading on the
New York Stock Exchange under the symbol “HF.”
On February 5, 2007, HFF, Inc. closed the initial public offering of 14,300,000 shares of common
stock. Net proceeds from the sale of the stock were $235.7 million, net of $18.0 million of
underwriting commissions and $3.7 million of offering expenses. The proceeds of
92
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
the public offering were used to purchase from HFF Holdings all of the shares of Holliday GP and
purchase from HFF Holdings partnership units representing approximately 39% of each of the
Operating Partnerships (including partnership units in the Operating Partnerships held by Holliday
GP). HFF Holdings used approximately $56.3 million of its proceeds to repay all outstanding
indebtedness under HFF LP’s credit agreement. Accordingly HFF, Inc. did not retain any of the
proceeds from this offering.
On February 22, 2007, the underwriters exercised their option to purchase an additional 2,145,000
shares of Class A common stock (15% of original issuance) at $18.00 per share. Total proceeds of
the overallotment were $38.6 million, net of $2.7 million of underwriting commissions and other
expenses. These proceeds were used to purchase HFF Holdings partnership units representing
approximately 6.0% of each of the Operating Partnerships.
In addition to cash received for its sale of all of the shares of Holliday GP and approximately 45%
of partnership units of each of the Operating Partnerships (including partnership units in the
Operating Partnerships held by Holliday GP) , HFF Holdings also received an exchange right that
will permit HFF Holdings to exchange interests in the Operating Partnerships for shares of HFF,
Inc.’s Class A common stock (the “Exchange Right”) and rights under a tax receivable agreement
between HFF, Inc. and HFF Holdings (the “TRA”).
As a result of the offering, HFF Holdings beneficially own 20,355,000 partnership units in each of
the Operating Partnerships. Pursuant to the terms of HFF, Inc.’s amended and restated certificate
of incorporation, HFF Holdings could from time to time exchange its partnership units in the
Operating Partnerships for shares of HFF, Inc.’s Class A common stock on the basis of two
partnership units, one of each Operating Partnership, for one share of Class A common stock,
subject to customary conversion rate adjustments for stock splits, stock dividends and
reclassifications. The following table reflects the exchangeability of HFF Holdings’ rights to
exchange its partnership units in the Operating Partnerships for shares of HFF, Inc.’s Class A
common stock, pursuant to contractual provisions in the HFF Holdings Operating Agreement. However,
these contractual provisions may be waived, amended or terminated by a vote of the members holding
65% of the interests of HFF Holdings following consultation with the board of directors.
93
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of HFF
|
|
|
|
|
Number of
|
|
|
Holdings’ Partnership
|
|
|
|
|
Additional Shares
|
|
|
Units in the
|
|
|
|
|
of Class A Common
|
|
|
Operating
|
|
|
|
|
Stock Expected to
|
|
|
Partnerships
|
|
|
|
|
Become Available
|
|
|
Becoming Eligible
|
|
|
Anniversary of the Offering
|
|
for Exchange
|
|
|
for Exchange
|
|
|
Second
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
Third
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
Fourth
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
Fifth
|
|
|
5,088,750
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,355,000
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
HFF Holdings was issued one share of HFF, Inc.’s Class B common stock. Class B common stock has no
economic rights but will entitle the holder to a number of votes that is equal to the total number
of shares of Class A common stock for which the partnership units that HFF Holdings holds in the
Operating Partnerships as of the relevant record date for the HFF, Inc. stockholder action are
exchangeable.
HFF LP and HFF Securities intend to have an election under Section 754 of the Internal Revenue Code
effective for 2007 and for each taxable year in which an exchange of partnership units for shares
occurs. The initial sale is expected to produce (and later exchanges may produce) increases to the
tax basis of the assets owned by HFF LP and HFF Securities at the time of the initial public
offering (and at the time of each exchange of partnership units). These anticipated increases in
tax basis would be allocated to HFF, Inc. and would likely reduce the amount of tax that HFF, Inc.
would otherwise be required to pay in the future. HFF, Inc. entered into a tax receivable
agreement with HFF Holdings that provides for the payment by HFF, Inc. to HFF Holdings of 85% of
the amount of cash savings, if any, in U.S. federal, state and local income tax that HFF, Inc.
actually realizes as a result of these increases in tax basis and as a result of certain other tax
benefits arising from entering into the tax receivable agreement and making payments under that
agreement. For purposes of the tax receivable agreement, cash savings in income tax will be
computed by comparing HFF, Inc.’s actual income tax liability to the amount of such taxes that HFF,
Inc. would have been required to pay had there been no increase to the tax basis of the assets of
HFF LP and HFF
94
HFF Holdings, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Securities as a result of the initial sale and later exchanges and had HFF, Inc. not entered into
the tax receivable agreement. The term of the tax receivable agreement commences upon consummation
of the offering and will continue until all such tax benefits have been utilized or expired,
including the tax benefits derived from future exchanges. While the actual amount and timing of
payments under the tax receivable agreement will depend upon a number of factors, including the
amount and timing of taxable income HFF, Inc. generates in the future, the value of its individual
assets, the portion of its payments under the tax receivable agreement constituting imputed
interest and increases in the tax basis of its assets resulting in payments to HFF Holdings, HFF,
Inc. expects that the payments that may be made to HFF Holdings will be substantial. Assuming no
material changes in the relevant tax law and that HFF, Inc. earns significant taxable income to
realize the full tax benefit of the increased amortization of its assets, HFF, Inc. expects that
future payments to HFF Holdings in respect of the initial sale and the overallotment to aggregate
$127.0 million and range from approximately $5.0 million to $14.0 million per year over the next 15
years. Future payments to HFF Holdings in respect of subsequent exchanges would be in addition to
these amounts and are expected to be substantial. The payments under the tax receivable agreement
are not conditioned upon HFF Holdings’ or its affiliates’ continued ownership of HFF, Inc.
HFF, Inc. will account for the income tax effects and corresponding tax receivable agreement
effects as a result of the initial purchase and the sale of units of the Operating Partnerships in
connection with the reorganization transactions and future exchanges of Operating Partnership units
for HFF, Inc.’s Class A shares by recognizing an increase in its deferred tax asset for the
estimated income tax effects of the increase in the tax basis of the assets owned by the Operating
Partnerships, based on enacted tax rates at the date of the transaction, less any tax valuation
allowance it believes is required if HFF, Inc. evaluates it is more likely than not that it will
realize the benefit represented by the deferred tax asset, and HFF, Inc. will record 85% of the
estimated amount of the increase in deferred tax assets, net of any valuation allowance, as a
liability to HFF Holdings under the tax receivable agreement and the remaining 15% of the increase
in deferred tax assets directly in additional paid-in capital in stockholders’ equity.
All of the effects of changes in any of HFF, Inc;’s estimates after the date of any exchange
will be included in net income. Similarly, the effect of subsequent changes in the enacted tax
rates will be included in net income.
On February 5, 2007, HFF LP entered into an Amended and Restated Credit Agreement with a financial
institution (Amended Credit Agreement). The Amended Credit Agreement is comprised of a $40.0
million revolving credit facility, which replaced The New Credit Agreement mentioned in note 5.
The Amended Credit Agreement matures on February 5, 2010 and may be extended for one year based on
certain conditions as defined in the agreement.
95
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that the Company files or furnishes under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to the Company’s management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required financial disclosure.
Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and
principal financial officer, respectively) have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this Annual Report on Form 10-K.
Based on this evaluation, our principal executive officer and principal financial officer have
concluded that, as of December 31, 2006, our current disclosure controls and procedures are
effective to provide reasonable assurance that material information required to be included in our
periodic SEC reports is recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms.
The design of any system of control is based upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated
objectives under all future events, no matter how remote, or that the degree of compliance with the
policies or procedures may not deteriorate. Because of its inherent limitations, disclosure
controls and procedures may not prevent or detect all misstatements. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of achieving their control
objectives.
There have been no changes in our internal controls over financial reporting that occurred
during the three month period ended December 31, 2006 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference from the Company’s
definitive proxy statement for use in connection with the 2007 Annual Meeting of Stockholders (the
“Proxy Statement”) to be filed within 120 days after the end of the Company’s fiscal year ended
December 31, 2006.
The Company has adopted a code of conduct that applies to its Chief Executive Officer and
Chief Financial Officer. This code of conduct is available on the Company’s Web site at
www.hfflp.com. If the Company makes any amendments to this code other than technical,
administrative or other non-substantive amendments, or grants any waivers, including implicit
waivers, from a provision of this code to the Company’s Chief Executive Officer or Chief Financial
Officer, the Company will disclose the nature of the amendment or waiver, its effective date and to
whom it applies in a Current Report on Form 8-K filed with the SEC.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference from the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is incorporated herein by reference from the Proxy
Statement.
Item 13. Certain Relationships, Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference from the Proxy
Statement.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated herein by reference from the Proxy
Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report:
(1) Financial Statements
The
Company’s combined financial statements listed below have been filed as part of this
report.
All schedules are omitted because they are not applicable or not required, or the information
appears in the Company’s combined financial statements or notes thereto.
(3) Exhibits
See Exhibit Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) or 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 on March 15, 2007.
|
|
|
|
|
|
|
|
HFF, INC.
|
|
|
|
By:
|
/s/ John H. Pelusi, Jr.
|
|
|
|
|
John H. Pelusi, Jr.
|
|
|
|
|
Its: Chief Executive Officer
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/
John H. Pelusi, Jr.
John H. Pelusi, Jr.
|
|
Chief Executive Officer, Director and Executive
Managing Director
(Principal Executive Officer)
|
|
March 15, 2007
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Gregory R. Conley
Gregory R. Conley
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 15, 2007
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ John P. Fowler
|
|
Director
|
|
March 15, 2007
|
|
|
|
John P. Fowler
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Mark D. Gibson
|
|
Director
|
|
March 15, 2007
|
|
|
|
Mark D. Gibson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ John Z. Kukral
|
|
Director
|
|
March 15, 2007
|
|
|
|
John Z. Kukral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Deborah H. McAneny
|
|
Director
|
|
March 15, 2007
|
|
|
|
Deborah H. McAneny
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ George L. Miles, Jr.
|
|
Director
|
|
March 15, 2007
|
|
|
|
George L. Miles, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Lenore M. Sullivan
|
|
Director
|
|
March 15, 2007
|
|
|
|
Lenore M. Sullivan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Joe B. Thornton, Jr.
|
|
Director
|
|
March 15, 2007
|
|
|
|
Joe B. Thornton, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ McHenry T. Tichenor, Jr.
|
|
Director
|
|
March 15, 2007
|
|
|
|
McHenry T. Tichenor, Jr.
|
|
|
|
|
Exhibit Index
|
2.1
|
|
Sale and Merger Agreement, dated January 30, 2007 (incorporated by reference to Exhibit 10.5 to the
Registrant’s Registration Statement on Form S-l (File No. 333-138579) (“Form S-l”) filed with the
SEC on December 22, 2006)
|
|
|
|
3.1
|
|
Amended and Restated Certificate of incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 to the Form S-l filed with the SEC on December 22, 2006)
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Form S-1 filed with the SEC on December 22, 2006)
|
|
|
|
10.1
|
|
Holliday Fenoglio Fowler, L.P. Partnership Agreement, dated
February 5, 2007
|
|
|
|
10.2
|
|
HFF Securities L.P. Partnership Agreement, dated February
5, 2007
|
|
|
|
10.3
|
|
Tax Receivable Agreement, dated February 5, 2007 (incorporated by reference to Exhibit 10.3 to the
Form S-1 filed with the SEC on December 22, 2006)
|
|
|
|
10.4
|
|
Registration Rights Agreement, dated February 5, 2007 (incorporated by reference to Exhibit 10.4 to
the Form S-1 filed with the SEC on December 22, 2006)
|
|
|
|
10.5
|
|
HFF, Inc. 2006 Omnibus Incentive Compensation Plan,
dated January 30, 2007 (incorporated by
reference to Exhibit 10.9 to the Form S-l filed with the SEC on
January 8, 2007)
|
|
|
|
10.6
|
|
Holliday Fenoglio Fowler, L.P. Profit Participation Bonus Plan (incorporated by reference to Exhibit
10.10 to the Form S-1 filed with the SEC on January 8, 2007)
|
|
|
|
10.7
|
|
HFF Securities, L.P. Profit Participation Bonus Plan
(incorporated by reference to Exhibit 10.11 to the Form S-l filed
with the SEC on January 8, 2007)
|
|
|
|
10.8
|
|
Employment Agreement between the Registrant and John H. Pelusi, Jr., dated January 30, 2007
|
|
|
|
10.9
|
|
Employment Agreement between the Registrant and Gregory R.
Conley, dated January 30, 2007
|
|
|
|
10.10
|
|
Employment Agreement between the Registrant and Nancy
Goodson, dated January 30, 2007
|
|
|
|
10.11
|
|
Amended and Restated Credit Agreement dated January 5, 2007*
|
|
|
|
21.1
|
|
Subsidiaries of the registrant.
|
|
|
|
23.1
|
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
|
|
|
|
31.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
*
|
|
The schedules and annexes to the exhibits attached to Exhibit 10.11 have been omitted. The
Registrant hereby agrees to furnish supplementally a copy of any omitted schedule or annex
to the exhibits attached thereto to the Securities and Exchange Commission upon its request.
|
Exhibit 10.2
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT OF
HFF SECURITIES L.P.
Dated as of February 5, 2007
by and among
HOLLIDAY GP CORP., a Delaware corporation,
HFF LP ACQUISITION LLC, a Delaware limited liability company, and
HFF PARTNERSHIP HOLDINGS LLC, a Delaware limited liability company
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE I. DEFINITIONS
|
|
|
2
|
|
|
ARTICLE II. FORMATION, NAME, PURPOSES AND OFFICES
|
|
|
9
|
|
|
Section 2.1. Organization
|
|
|
9
|
|
|
Section 2.2. Partnership Name
|
|
|
9
|
|
|
Section 2.3. Purposes
|
|
|
10
|
|
|
Section 2.4. Registered Office
|
|
|
10
|
|
|
Section 2.5. Term
|
|
|
10
|
|
|
ARTICLE III. MANAGEMENT OF THE PARTNERSHIP
|
|
|
10
|
|
|
Section 3.1. Authority of General Partner
|
|
|
10
|
|
|
Section 3.2. Expenses
|
|
|
11
|
|
|
Section 3.3. Officers
|
|
|
11
|
|
|
Section 3.4. Intentionally Omitted
|
|
|
14
|
|
|
Section 3.5. Authority of Limited Partners
|
|
|
14
|
|
|
ARTICLE IV. PARTNERS’ CAPITAL CONTRIBUTIONS
|
|
|
14
|
|
|
Section 4.1. Capital Contributions To Date
|
|
|
14
|
|
|
Section 4.2. Intentionally Omitted
|
|
|
14
|
|
|
Section 4.3. Capital Accounts
|
|
|
14
|
|
|
ARTICLE V. UNITS; CLASS A COMMON STOCK
|
|
|
15
|
|
|
Section 5.1. Units
|
|
|
15
|
|
|
Section 5.2. Splits; Distributions and Reclassifications
|
|
|
15
|
|
|
Section 5.3. Cancellation of Class A Common Stock and Units
|
|
|
15
|
|
|
Section 5.4. Incentive Plans
|
|
|
15
|
|
|
Section 5.5. Offerings of Class A Common Stock
|
|
|
16
|
|
|
Section 5.6. Forfeiture
|
|
|
16
|
|
|
Section 5.7. Class A Common Stock
|
|
|
16
|
|
|
Section 5.8. Register
|
|
|
16
|
|
|
ARTICLE VI. DISTRIBUTIONS
|
|
|
17
|
|
|
Section 6.1. Distributions of Net Cash Flow
|
|
|
17
|
|
|
Section 6.2. Tax Distributions
|
|
|
17
|
|
|
Section 6.3. Liquidation Distributions
|
|
|
18
|
|
-i-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE VII. ALLOCATIONS
|
|
|
18
|
|
|
Section 7.1. Allocations of Profits
|
|
|
18
|
|
|
Section 7.2. Allocation of Losses
|
|
|
18
|
|
|
Section 7.3. Special Allocations
|
|
|
18
|
|
|
Section 7.4. Tax Allocations
|
|
|
19
|
|
|
Section 7.5. Tax Advances
|
|
|
20
|
|
|
Section 7.6. Tax Matters
|
|
|
20
|
|
|
Section 7.7. Other Allocation Provisions
|
|
|
21
|
|
|
ARTICLE
VIII. BOOKS AND RECORDS
|
|
|
21
|
|
|
Section 8.1. Books and Records; Periodic Reporting
|
|
|
21
|
|
|
Section 8.2. Right to Inspection
|
|
|
21
|
|
|
ARTICLE IX. ADMISSION AND WITHDRAWAL OF PARTNERS; ASSIGNMENT; REMOVAL OF GENERAL
PARTNER
|
|
|
22
|
|
|
Section 9.1. Transfer by Limited Partner
|
|
|
22
|
|
|
Section 9.2. Admission of Substituting Partners
|
|
|
22
|
|
|
Section 9.3. Additional and Substitute General Partners; Transfer
by General Partner
|
|
|
22
|
|
|
Section 9.4. Further Restrictions on Transfer
|
|
|
23
|
|
|
Section 9.5. Exchange Rights
|
|
|
23
|
|
|
Section 9.6. Permitted Transfers
|
|
|
23
|
|
|
Section 9.7. Withdrawal
|
|
|
24
|
|
|
ARTICLE X. DISSOLUTION OF PARTNERSHIP
|
|
|
24
|
|
|
Section 10.1. No Dissolution
|
|
|
24
|
|
|
Section 10.2. Events of Dissolution
|
|
|
24
|
|
|
ARTICLE XI. LIQUIDATION OF THE PARTNERSHIP
|
|
|
25
|
|
|
Section 11.1. Liquidation
|
|
|
25
|
|
|
Section 11.2. Deemed Distribution and Reconstitution
|
|
|
25
|
|
|
Section 11.3. Rights of Limited Partners
|
|
|
26
|
|
|
ARTICLE XII. LIABILITY AND INDEMNIFICATION
|
|
|
26
|
|
|
Section 12.1. Liability of Partners
|
|
|
26
|
|
|
Section 12.2. Indemnification
|
|
|
26
|
|
-ii-
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE
XIII. MISCELLANEOUS
|
|
|
28
|
|
|
Section 13.1. Additional Documents and Acts
|
|
|
28
|
|
|
Section 13.2. Governing Law
|
|
|
28
|
|
|
Section 13.3. Severability
|
|
|
28
|
|
|
Section 13.4. Entire Agreement
|
|
|
29
|
|
|
Section 13.5. Binding Effect
|
|
|
29
|
|
|
Section 13.6. Agreement Restricted to Partners
|
|
|
29
|
|
|
Section 13.7. Counterparts
|
|
|
29
|
|
|
Section 13.8. Power of Attorney; Amendments
|
|
|
29
|
|
|
Section 13.9. Notices
|
|
|
30
|
|
|
Section 13.10. Authorized Representative
|
|
|
31
|
|
|
Section 13.11. Amended and Restated Agreement
|
|
|
31
|
|
-iii-
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT OF
HFF SECURITIES L.P.
This Amended and Restated Limited Partnership Agreement of HFF Securities L.P. (this
“Agreement”), dated as of February 5, 2007, is by and among (a) HOLLIDAY GP CORP., a Delaware
corporation (the “General Partner”), and (b) HFF LP ACQUISITION LLC, a Delaware limited liability
company (“Acquisition”) and HFF PARTNERSHIP HOLDINGS LLC, a Delaware limited liability company
(“Holdco” and together with Acquisition, each a “Limited Partner” and collectively, the “Limited
Partners”). The General Partner and the Limited Partners are each referred to herein as a
“Partner” and collectively referred to herein as the “Partners”.
RECITALS:
A. The Partnership (as hereinafter defined) was formed as a limited partnership pursuant to
the Act (as hereinafter defined) by the filing of the Certificate (as hereinafter defined).
B. Prior to the effectiveness of this Agreement, the Partnership was (a) governed by the terms
of that certain Limited Partnership Agreement of HFF Securities L.P., dated as of April ___, 2004,
as amended by that certain amendment dated as of March 29, 2006 (such agreement as amended, the
“Existing Agreement”) and (b) comprised of Acquisition, as the sole limited partner (owning 99% of
the Percentage Interests (as hereinafter defined)) and General Partner, as the sole general partner
(owning 1% of the Percentage Interests).
C. Immediately prior to (or, as applicable, simultaneous with) the effectiveness of this
Agreement, pursuant to that certain Sale and Merger Agreement dated as of the date hereof (as the
same may be amended, restated, supplemented, substituted, replaced or otherwise modified from time
to time in accordance with its terms, the “Transaction Agreement”), by and among Acquisition,
Holdings (as hereinafter defined), Holdco, General Partner, Publico (as hereinafter defined) and GP
Acquisition (as hereinafter defined), (a) Acquisition will transfer 38% of the Percentage Interests
to Holdco in return for certain cash to be raised in an initial public offering of the Class A
Common Stock (as hereinafter defined) of Holdco’s parent company, HFF, Inc., a Delaware corporation
(“Publico”) (such offering, the “IPO”), and Holdco will be admitted as a limited partner in the
Partnership, (b) GP Acquisition Corp., a wholly owned subsidiary of Holdco (“GP Acquisition”), will
merge into General Partner, with General Partner surviving the merger as a wholly owned subsidiary
of Holdco and continuing as the general partner of the Partnership, (c) the outstanding balance of
the term loan to Holliday Fenoglio Fowler, L.P., a Texas limited partnership (“HFF”), an affiliate
of the Partnership, in the original principal amount of $60,000,000, comprising a portion of the
Loan Facility (as hereinafter defined) will be repaid in full from the cash received by Acquisition
in accordance with the transactions described in clause (a) above and certain additional cash
received from Acquisition in connection with a companion transaction also governed by the
Transaction Agreement and involving the sale of partnership interests in HFF (and, in connection
therewith all certificates of ownership interests in the Partnership held as security for the Loan
Facility shall be returned to the Partnership and will cease to be of any force and effect) and (d)
Acquisition
will,
inter
alia
, be granted certain rights to exchange from time to time all or a
portion of the Units then held by Acquisition for Class A Common Stock.
D. In connection with the transactions noted in the preceding Recital C, the parties hereto
desire to amend and restate the Existing Agreement in its entirety in accordance with the terms
hereof.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
The following capitalized terms shall have the following meanings when used in this Agreement:
“Act” means the Delaware Revised Uniform Limited Partnership Act, Delaware Code Annotated,
Title 6, Chapter 17, as amended from time to time (or any corresponding provisions of succeeding
law).
“Acquisition” shall have the meaning set forth in the introductory paragraph hereof.
“Agreement” shall have the meaning set forth in the introductory paragraph hereof.
“Additional Credit Amount” shall have the meaning set forth in
Section 6.2
hereof.
“Adjusted Capital Account Balance” means, with respect to each Partner, the balance in such
Partner’s Capital Account adjusted (i) by taking into account the adjustments, allocations and
distributions described in Regulations Sections 1.704-1(b)(2)(ii)(c)(4), (5) and (6); and (ii) by
adding to such balance such Partner’s share of Partnership Minimum Gain and Partner Nonrecourse
Debt Minimum Gain, determined pursuant to Regulations Sections 1.704-2(g) and 1.704-2(i)(5), and
any amounts such Partner is obligated to restore pursuant to any provision of this Agreement or by
applicable Law. The foregoing definition of Adjusted Capital Account Balance is intended to comply
with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
“Affiliate” means, with respect to a specified Person, any other Person that directly, or
indirectly through one or more intermediaries, Controls, is Controlled by, or is under common
Control with, such specified Person.
“Amended Tax Amount” shall have the meaning set forth in
Section 6.2
hereof.
“Annual Budget” means the annual operating budget for the Partnership, which shall be
proposed, submitted and approved in accordance with
Section 3.3(o)
hereof.
“Applicable Securities Laws” means the Securities Act (as hereinafter defined) and the
Exchange Act (as hereinafter defined), the rules promulgated thereunder, the rules of the NASD,
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Inc. and any other applicable self-regulatory organizations, and the statutes and rules of the
various states in which the Partnership shall conduct its securities business.
“Assignee” shall have the meaning set forth in
Section 9.1
hereof.
“Assumed Tax Rate” shall mean the highest effective marginal combined U.S. federal, state and
local income tax rate for each Fiscal Year prescribed for an individual or corporation whose
residence or commercial domicile is New York, New York assuming such taxpayer: (1) had no itemized
deductions or tax credits, (2) was not subject to the alternative minimum tax, the self-employment
tax or other U.S. federal (or comparable state or local) income taxes not imposed under sections 1
or 11 or the Code (as defined herein), and (3) was subject to income tax only in the jurisdictions
where the taxpayer resides or is commercially domiciled. For the avoidance of doubt, the Assumed
Tax Rate will be the same for all Partners.
“Budget Officers” shall have the meaning set forth in
Section 3.3(o)
hereof.
“Business Plan” shall have the meaning set forth in
Section 3.3(o)
hereof.
“Capital Account” shall have the meaning set forth in
Section 4.3
hereof.
“Capital Contribution” means, with respect to any Partner, the aggregate amount of money
contributed to the Partnership and the Carrying Value of any property (other than money), net of
any liabilities assumed by the Partnership upon contribution of the same or to which such property
is subject.
“Carrying Value” means, with respect to any asset of the Partnership, the asset’s adjusted
basis for U.S. federal income tax purposes, except that the Carrying Values of all such assets
shall be adjusted to equal their respective fair market values (as reasonably determined by the
General Partner) in accordance with the rules set forth in Regulations Section 1.704-1(b)(2)(iv)(f)
or (m), except as otherwise provided herein, immediately prior to: (a) the date of the acquisition
of any additional Units by any new or existing Partner in exchange for more than a
de
minimis
capital contribution to the Partnership, (b) the date of the distribution of more
than a
de
minimis
amount of Partnership property (other than a pro rata
distribution) to a Partner or (c) the date of a grant of any additional Units to any new or
existing Partner as consideration for the provision of services to or for the benefit of the
Partnership;
provided
, that adjustments pursuant to clauses (a), (b) and (c) above shall be
made only if the General Partner in good faith determines that such adjustments are (x) necessary
or appropriate to reflect the relative economic interests of the Partners or (y) required by the
Regulations. The Carrying Value of any asset distributed to any Partner shall be adjusted
immediately prior to such distribution to equal its gross fair market value. The Carrying Value of
any asset contributed by a Partner to the Partnership shall be the gross fair market value of the
asset as of the date of its contribution thereto. In the case of any asset that has a Carrying
Value that differs from its adjusted tax basis, Carrying Value shall be adjusted by the amount of
depreciation calculated for purposes of the definition of “Profits and Losses” rather than the
amount of depreciation determined for U.S. federal income tax purposes.
“Cause” shall have the meaning set forth in the Holdings Operating Agreement as the same
exists on the date hereof (or as may otherwise be agreed to by the parties hereto).
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“Certificate” means the Certificate of Limited Partnership of HFF Securities L.P., as filed in
the Office of the Secretary of State of Delaware, as the same has been and may be amended from time
to time.
“Charity” means any organization that is organized and operated for a purpose described in
Section 170(c) of the Code (determined without reference to Code Section 170(c)(2)(A)) and
described in Code Sections 2055(a) and 2522 and is incorporated for the realization of a common
goal, which should not be mainly of an economic nature.
“Class A Common Stock” means Class A Common Stock of Publico.
“Class B Common Stock” means Class B Common Stock of Publico.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any
corresponding provisions of subsequent superseding federal laws.
“Compete(s)” shall have the meaning set forth in the Employment Agreement executed by the
applicable Member of Holdings. In the event an Employment Agreement with respect to a Member of
Holdings is not then in effect, the definition of Compete(s) as set forth in the Employment
Agreement attached hereto as
Exhibit D
shall be deemed to be fully restated and
incorporated herein as the definition of Compete(s).
“Control” (including the terms “Controlled by” and “under common Control with”) means the
possession, directly or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of directors or similar
body governing the affairs of such Person.
“Credit Amount” shall have the meaning set forth in
Section 6.2
hereof.
“Disabling Event” means the General Partner ceasing to be the general partner of the
Partnership pursuant to Section 17 — 402 of the Act.
“Effective Time” means the closing of the transactions noted in Recital C hereof.
“Employment Agreement(s)” means each of those certain Amended and Restated Employment
Agreements between each Member of Holdings and HFF, substantially in the form of
Exhibit D
hereof.
“Exchange Act” means the United States Securities Exchange Act of 1934, and the rules and
regulations promulgated thereunder, in each instance as amended and as the same may be further
amended from time to time.
“Existing Agreement” shall have the meaning set forth in Recital B hereof.
“Final Tax Amount” shall have the meaning set forth in
Section 6.2
hereof.
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“Fiscal Year” means the applicable calendar year (or, if otherwise, the applicable taxable
year of the Partnership under the Code).
“Forfeited Units” shall have the meaning set forth in
Section 5.6
hereof.
“Forfeited Units in Holdings” means all Units in Holdings which are forfeited by a Member of
Holdings (a) as a result of (i) the termination or removal of any Person as a Member of Holdings
for Cause, (ii) the termination of any Member of Holdings as an employee of the Partnership for
Cause or (b) in the event that following any Voluntary Withdrawal of a Member of Holdings, such
Person Competes or Solicits. Such Units in Holdings are only subject to forfeiture to the extent
the same may not then be redeemed pursuant to the “Exchange Right” as defined in the Holdings
Operating Agreement as the same exists on the date hereof (or as may be otherwise agreed to by the
parties hereto).
“General Partner” shall have the meaning set forth in the introductory paragraph hereof.
“Gross Receipts” means all cash receipts of any kind received by the Partnership (including,
without limitations, all cash received by the Partnership from (a) the operations of the
Partnership or any of its Subsidiaries and/or (b) capital transactions involving the Partnership,
the Subsidiaries or any assets and/or equity interests related thereto).
“HFF” shall have the meaning set forth in Recital C hereof.
“Holdco” shall have the meaning set forth in the introductory paragraph hereof.
“Holdings” shall mean HFF Holdings LLC, a Delaware limited liability company, the holder as of
the Effective Time of, among other things, 100% of the membership interests in Acquisition and one
share of Class B Common Stock.
“Holdings Operating Agreement” means that certain Second Amended and Restated Limited
Liability Company Agreement of HFF Holdings LLC dated as of the date hereof by and among the
Members of Holdings (as such members exist as of the date hereof).
“Incapacity” means, with respect to any Person, the bankruptcy, dissolution, termination,
entry of an order of incompetence, or the insanity, permanent disability or death of such Person.
“Incentive Plan” means any equity incentive or similar plan pursuant to which Publico may
issue shares of Class A Common Stock or other interests to one or more employees of the Partnership
from time to time.
“Involuntary Withdrawal” shall have the meaning set forth in the Holdings Operating Agreement
as the same exists on the date hereof (or as may otherwise be agreed to by the parties hereto).
“IPO” shall have the meaning set forth in Recital C hereof.
“Law” means any statute, law, ordinance, regulation, rule, code, executive order, injunction,
judgment decree or other order issued or promulgated by any national, supranational,
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state, federal, provincial, local or municipal government or any administrative or regulatory
body with authority therefrom with jurisdiction over the Partnership or any Partner, as the case
may be.
“Limited Partner” and “Limited Partners” shall have the applicable meaning set forth in the
introductory paragraph hereof.
“Loan Facility” shall mean, collectively, the term loan and revolving credit facility more
particularly described in that certain Credit Agreement dated as of March 29, 2006 by and among
HFF, Holdings and Bank of America, N.A., as the same may be amended, modified, supplemented,
renewed, replaced and/or refinanced from time to time with Bank of America, N.A. or any other
lender(s). It being understood and agreed that the Partnership shall in no event be obligated
under the terms of any Loan Facility (unless approved in advance by all the Partners and counsel to
the Partnership), provided that the Partners shall agree to pledge all or a portion of their
Partnership Interests as security therefor (provided that no such pledge shall result in the
Partnership being obligated (or being deemed to be obligated) for the repayment of all or any
portion of the Loan Facility under Applicable Securities Laws or otherwise).
“Majority in Interest of the Limited Partners” means those Limited Partners holding and voting
more than 50% of the Partnership Interests. For purposes of calculating any vote of Limited
Partners as set forth herein, any interest held by an Assignee which has not been admitted as a
Limited Partner shall be excluded.
“Market Price” means on any given day on which Class A Common Stock is traded on the relevant
exchange, the closing sales price of such Class A Common Stock.
“Members of Holdings” shall mean each “Member” of Holdings, as defined in the Holdings
Operating Agreement (as the same exists as of the date hereof). As of the date hereof the Members
of Holdings are as set forth in the first column of
Exhibit B
attached hereto.
“Net Cash Flow” means with respect to the applicable time period, the excess of Gross Receipts
for such time period over the sum of all Operating Expenses and/or amounts applied to Reserves
during such time period.
“Net Taxable Income” shall have the meaning set forth in
Section 6.2
hereof.
“Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(b). The
amount of Nonrecourse Deductions of the Partnership for a fiscal year equals the net increase, if
any, in the amount of Partnership Minimum Gain of the Partnership during that Fiscal Year,
determined according to the provisions of Regulations Section 1.704-2(c).
“Officers” means collectively, each Executive Managing Director, Senior Managing Director,
Managing Director, Director, Supervisory Principal and Registered Representative and such other
Persons and titles as may be designated from time to time by the General Partner, as set forth in
this Agreement.
-6-
“Operating Expenses” means all cash expenditures of every kind and nature which the
Partnership shall pay, including, without limitation, Transaction Expenses, debt service payments,
capital expenditures and audit and legal expenses.
“Partner” and “Partners” shall have the applicable meanings set forth in the introductory
paragraph hereof.
“Partner Nonrecourse Debt Minimum Gain” means an amount with respect to each partner
nonrecourse debt (as defined in Regulations Section 1.704-2(b)(4)) equal to the Partnership Minimum
Gain that would result if such partner nonrecourse debt were treated as a nonrecourse liability (as
defined in Regulations Section 1.752-1(a)(2)) determined in accordance with Regulations Section
1.704-2(i)(3).
“Partner Nonrecourse Deductions” has the meaning ascribed to the term “partner nonrecourse
deductions” set forth in Regulations Section 1.704-2(i)(2).
“Partnership” means HFF Securities L.P., a Delaware limited partnership.
“Partnership Interest” of a Partner means a Partner’s entire interest in the Partnership,
including, without limitation, the right to vote on, consent to, or otherwise participate in, any
decision or action of or by the Partners granted pursuant to this Partnership Agreement.
“Partnership Minimum Gain” has the meaning set forth in Regulations Sections 1.704-2(b)(2)
and 1.704-2(d).
“Percentage Interest” shall mean as of the date of determination with respect to each Partner,
the percentage obtained by dividing the Units then held by such Partner by the Units then held by
all Partners. The Percentage Interest of each Partner as of the date hereof is as set forth in the
third column of
Exhibit A
attached hereto.
“Person” means any individual, partnership, corporation, trust or other entity.
“Profit Participation Plan” shall mean that certain Profit Participation Bonus Plan dated as
of the date hereof.
“Profits” and “Losses” means, for each Fiscal Year or other period, the taxable income or loss
of the Partnership, or particular items thereof, determined in accordance with the accounting
method used by the Partnership for U.S. federal income tax purposes with the following adjustments:
(a) all items of income, gain, loss or deduction allocated pursuant to
Section 7.3
shall
not be taken into account in computing such taxable income or loss; (b) any income of the
Partnership that is exempt from U.S. federal income taxation and not otherwise taken into account
in computing Profits and Losses shall be added to such taxable income or loss; (c) if the Carrying
Value of any asset differs from its adjusted tax basis for U.S. federal income tax purposes, any
gain or loss resulting from a disposition of such asset shall be calculated with reference to such
Carrying Value; (d) upon an adjustment to the Carrying Value (other than an adjustment in respect
of depreciation) of any asset, pursuant to the definition of Carrying Value, the amount of the
adjustment shall be included as gain or loss in computing such taxable income or loss; (e) if the
Carrying Value of any asset differs from its adjusted tax basis for U.S. federal
-7-
income tax purposes, the amount of depreciation, amortization or cost recovery deductions with
respect to such asset for purposes of determining Profits and Losses, if any, shall be an amount
which bears the same ratio to such Carrying Value as the U.S. federal income tax depreciation,
amortization or other cost recovery deductions bears to such adjusted tax basis (
provided
,
that if the U.S. federal income tax depreciation, amortization or other cost recovery deduction is
zero, the General Partner may use any reasonable method for purposes of determining depreciation,
amortization or other cost recovery deductions in calculating Profits and Losses); and (f) except
for items noted in (a) above, any expenditures of the Partnership not deductible in computing
taxable income or loss, not properly capitalizable and not otherwise taken into account in
computing Profits and Losses pursuant to this definition shall be treated as deductible items.
“Properties” means all real and personal properties and assets acquired by the Partnership and
shall include both tangible and intangible property.
“Regulations” shall include proposed, temporary and final regulations promulgated under the
Code.
“Reserves” means the amounts used to pay or establish reserves for future Operating Expenses
and other expected and unexpected expenses of the Partnership, including reserves for taxes and
insurance, debt payments, repayment of loans to Partners, capital improvements, replacements and
contingencies, if any. The Officers may propose certain Reserves as a non-binding recommendation
for submission to the General Partner.
“Securities Act” means the U.S. Securities Act of 1933, and the rules and regulations
promulgated thereunder, in each instance as amended and as the same may be further amended from
time to time.
“Solicit(s)” shall have the meaning set forth in Section 7 of the Employment Agreement
executed by the applicable Member of Holdings. In the event an Employment Agreement with respect
to a Member of Holdings is not then in effect, the definitions of Solicit(s) as set forth in
Section 7 of the Employment Agreement attached hereto as
Exhibit D
shall be deemed to be
fully restated and incorporated herein as the definition of Solicit(s).
“Subsidiary(ies)” means, with respect to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity, are at the time owned, or the management
of which is otherwise controlled, directly or indirectly through one or more intermediaries, by
such Person.
“Super Majority Vote” shall have the meaning set forth in the Holdco Operating Agreement.
“Supervisory Principals” means those Officers of the Partnership who have qualified with the
NASD Series 7 and 24 examinations and have been designated by the General Partner as the principals
responsible for the day to day management of the securities business of the Partnership.
-8-
“Tax Advance” shall have the meaning set forth in
Section 7.5
hereof.
“Tax Amount” shall have the meaning set forth in
Section 6.2
hereof.
“Tax Distributions” shall have the meaning set forth in
Section 6.2
hereof.
“Tax Matters Partner” shall have the meaning set forth in
Section 7.6
hereof.
“Transaction Agreement” shall have the meaning set forth in Recital C hereof.
“Transaction Expenses” shall mean all expenses incurred by (or allocated to) the Partnership
(or any of its direct or indirect equity owners) from time to time under and in accordance with the
terms of the Transaction Agreement.
“Transfer” means, in respect of any direct or indirect interest in any Unit, or any Property
or other asset of the Partnership, any sale, assignment, pledge, transfer or other disposition
thereof (specifically excluding any distributions made in accordance with the provisions of Article
VI hereof and/or the applicable provisions of the constituent documents of any Partner, HFF
Holdings and/or Publico), whether voluntarily or by operation of Law, including, without
limitation, the exchange of any direct or indirect interest in any Unit for any other security.
“Unit” shall mean with respect to each Partner (or assignee) the Units assigned to such
Partner or Assignee, as set forth in the second column of
Exhibit A
, as the same may be
adjusted in accordance with the terms hereof.
“Units in Holdings” shall mean all “Units” issued to the Members in Holdings pursuant to the
Holdings Operating Agreement. The Units in Holdings as of the date hereof are as set forth in the
second column of
Exhibit B
attached hereto and are subject to adjustment in accordance with
the Holdings Operating Agreement.
“Voting Right Holder” shall have the meaning set forth in the Holdco Operating Agreement.
“Voting Rights” shall have the meaning set forth in the Holdco Operating Agreement.
ARTICLE II.
FORMATION, NAME, PURPOSES AND OFFICES
Section 2.1.
Organization
. The Partners confirm and ratify the organization and
formation of the Partnership as a limited partnership pursuant to the provisions of the Act for the
limited purposes set forth in Section 2.3 below and upon the terms and conditions set forth in this
Agreement.
Section 2.2.
Partnership Name
. The name of the Partnership shall be HFF Securities
L.P., and all business of the Partnership shall be conducted in such name, or any another assumed
name(s) designated by the General Partner.
-9-
Section 2.3.
Purposes
. The purposes and business of the Partnership shall be to act
as a registered broker dealer in connection with its efforts, on behalf of its clients, to (1)
raise equity capital for discretionary, commingled real estate funds marketed to institutional
investors, (2) raise equity capital for real estate projects, (3) raise equity capital from
institutional investors to fund future real estate acquisitions, recapitalizations, developments,
debt investments and other real estate-related strategies, and (4) execute private placements of
securities in real estate companies. In addition, the Partnership will provide advisory services
on various project or entity-level strategic assignments such as mergers and acquisitions, sales
and divestitures, recapitalizations and restructurings, privatizations, management buyouts, and
arranging joint ventures for specific real estate strategies and to engage in any and all purposes
and activities that are ancillary thereto as permitted under the Act and under all Applicable
Securities Laws.
Section 2.4.
Registered Office
. The registered office of the Partnership in the State
of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware, and the name and address of
the registered agent for service of process on the Partnership in the State of Delaware is CT
Corporation, 1209 Orange Street, Wilmington, Delaware 19801. The name and business address of the
General Partner is Holliday GP Corp., 2000 Post Oak Boulevard, Suite 2000, One Post Oak Central,
Houston, Texas 77056. The General Partner may change the registered office of the Partnership to
any other place within the State of Delaware upon ten days’ written notice to the Limited Partners
and the preparation and filing of an amendment to the Certificate reflecting such change. The
Partnership may maintain other offices at such other locations as the General Partner shall
determine from time to time.
Section 2.5.
Term
. The term of the Partnership commenced upon the initial filing of
the Certificate and shall continue until the winding up and liquidation of the Partnership and its
business following an event of dissolution as described in Section 10.2 hereof.
ARTICLE III.
MANAGEMENT OF THE PARTNERSHIP
Section 3.1.
Authority of General Partner
. Subject to the terms hereof, the
management and control of the business and affairs of the Partnership and the Properties of the
Partnership shall be exclusively vested in the General Partner who shall (subject to the terms
hereof) have (a) the sole and exclusive right to manage the business of the Partnership and (b) all
of the rights and powers which may be possessed by general partners under the Act. Notwithstanding
the foregoing, the General Partner shall manage and control the business affairs of the Partnership
in accordance with (and not in violation of) Applicable Securities Laws. Without limiting the
generality of the foregoing, the Partners hereby authorize the General Partner to: (a) take such
actions as the General Partner may deem necessary or appropriate in connection with the furtherance
of the purposes of the Partnership; (b) incur indebtedness on behalf of the Partnership; (c)
prosecute and settle claims by or against the Partnership; and (d) exercise any right of the
Partnership under any agreement or instrument as the General Partner in its sole discretion shall
deem necessary or desirable. The General Partner agrees to carry out the purposes and business of
the Partnership in accordance with this Agreement and Applicable Securities Laws; to devote to the
Partnership’s business such time as the General Partner, in its sole discretion, shall determine to
be required for the efficient conduct of such business; and to
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perform, or cause and supervise the performance of all supervisory, management and operational
services and functions of the Partnership.
Section 3.2.
Expenses
. The Partnership shall bear and/or reimburse the General
Partner for any expenses incurred by the General Partner.
Section 3.3.
Officers
.
(a) The General Partner may, and does hereby, delegate its rights and authority hereunder with
respect to the management of the day to day business and operation of the Partnership to the
Officers of the Partnership having the title Supervisory Principal. Without limiting the
foregoing, the General Partner shall have the right to (i) confer individual titles and
designations to employees of the Partnership, (ii) remove such titles and designations from any
such employee with or without cause, (iii) determine compensation levels of all employees of the
Partnership, including, without limitation, all Officers and (iv) delegate levels of authority to
the holders of such titles and designations. The General Partner hereby ratifies and confirms all
titles and designations (and associated authority) granted employees of the Partnership, as such
titles and designations (and associated authority) existed immediately prior to the Effective
Time, including without limitation the titles: “Executive Managing Director” (Scott F. McMullin is
an Executive Managing Director), “Senior Managing Director” (each of Daniel M. Cashdan, W. Douglass
Bond, Thomas J. Mizo and Whitaker M. Johnson is a Senior Managing Director), “Managing Director”
(Michael White is a Managing Director); “Director” (each of Michael S. Joseph, Janet Krollman and
Larry Muller is a Director), “Supervisory Principal” (each of Scott F. McMullin and Daniel M.
Cashdan is a Supervisory Principal) and “Registered Representative” (Scott F. McMullin is a
Registered Representative).
(b) Any number of offices may be held by the same person. In its discretion, the General
Partner may choose not to fill any office for any period as it may deem advisable except that the
offices of President and Secretary shall be filled as expeditiously as possible.
(c) The Officers of the Partnership shall be so designated annually by the General Partner at
the first meeting held after each annual meeting of Partners or as soon thereafter as may be
convenient. Vacancies may be filled or new offices created and filled at any time by the General
Partner. Each Officer shall hold office until a successor is duly designated and qualified or
until his or her earlier death, resignation or removal as hereinafter provided.
(d) Any Officer or agent designated by the General Partner may be removed by the General
Partner whenever in its judgment the best interests of the Partnership would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the person so removed.
(e) Any vacancy occurring in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by designation from the General Partner for the
unexpired portion of such Officer’s term.
(f) Compensation of all Officers shall be fixed by the General Partner, subject to the terms
of any applicable employment agreements.
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(g) The Officers designated under this Agreement, or otherwise by the General Partner, as
having responsibility to manage the day to day business affairs and operations of the Partnership,
shall do so in accordance with the Annual Budget and Business Plan.
(h) The Executive Managing Director and at the written election (or in the absence of) the
Executive Managing Director one or more Senior Managing Directors shall in general supervise and
control all the day to day business affairs and operations of the Partnership, subject to the
powers of the General Partner set forth in this Agreement and the limitations set forth in this
Article III. The Executive Managing Director and any applicable Senior Managing Directors shall
oversee the other Officers, agents and employees of the Partnership; and shall see that all orders
and resolutions of the Partners are carried into effect. The Executive Managing Director and any
applicable Senior Managing Directors shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Partnership, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be expressly delegated
by the General Partner to some other Officer or agent of the Partnership. The Executive Managing
Director and any applicable Senior Managing Directors shall have such other powers and perform such
other duties as may be prescribed by the General Partner or as may be provided in this Agreement.
(i) The Supervisory Principals shall have qualified with the NASD Series 7 and 24 examinations
and shall be responsible for the day to day management of the securities business of the
Partnership.
(j) The Managing Directors, Directors and Registered Representatives, in the order determined
by the General Partner, shall, in the absence or disability of the Executive Managing Director and
any Senior Managing Directors, act with all of the powers and be subject to all the restrictions of
the Senior Managing Directors. The Managing Directors, Directors and Registered Representatives
shall also perform such other duties and have such other powers as the General Partner, the
Executive Managing Director and any applicable Senior Managing Directors or this Agreement may,
from time to time, prescribe.
(k) Officers, assistant Officers and agents, if any, other than those whose duties are
provided for in this Agreement, shall have such authority and perform such duties as may from time
to time be prescribed by resolution of the General Partner.
(l) In the case of the absence or disability of any Officer of the Partnership and of any
person hereby authorized to act in such Officer’s place during such Officer’s absence or
disability, the General Partner may by resolution delegate the powers of such Officer to any other
Officer or to any other person whom it may select.
(m) Notwithstanding anything to the contrary contained in this Agreement, the Officers shall
not be authorized to cause the Partnership to take any of the following actions without the
specific written consent of the General Partner:
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(i) Execute any contract or become a party to any agreement relating to the business of the
Partnership that is not provided for in the Annual Budget or that provides for payments thereunder
in excess of Five Thousand Dollars ($5,000.00);
(ii) Make any payment (x) in excess of Five Thousand Dollars ($5,000), or which in the
aggregate are in excess of Twenty-Five Thousand Dollars ($25,000.00) which are not provided for in
the Annual Budget, or (y) which deviates by more than three percent (3%) from the amount of such
payment provided for in the Annual Budget;
(iii) Pay, settle or compromise, in any respect, or enter into any agreement with respect to,
any legal action or threat thereof in connection with the Partnership, except for matters covered
by insurance in the normal course of business, provided such matters do not involve an amount
greater than Five Thousand Dollars ($5,000.00) and further provided that the total amount of such
matters settled or compromised do not exceed the sum of Fifteen Thousand Dollars ($15,000.00) in
any twelve (12) month period;
(iv) Commence any federal, state or foreign bankruptcy, insolvency, reorganization,
arrangement or liquidation proceeding, or consent to the appointment of a receiver, liquidator,
assignee, trustee, conservator or sequester (or other similar official) of the Partnership or of
all or a substantial part of its assets;
(v) Obtain financing or otherwise incur indebtedness of any kind or nature in excess of Five
Thousand Dollars ($5,000.00), other than specified items set forth in an approved Annual Budget;
(vi) Waive or compromise any claim or right the Partnership may have against any person or
party; and
(vii) Establish Reserves except as provided in the Annual Budget.
(n)
Partner Rights
. The Partners shall be entitled to the rights provided by the laws
of the State of Delaware and as are set forth elsewhere in this Agreement and shall not in any way
be prohibited from or restricted from engaging or owning an interest in any other business venture
of any nature, including any venture which might be or is competitive with the business of the
Partnership.
(o)
Annual Budget
. The Executive Managing Director (or his designee) and the
Supervisory Principal(s) (and such other Officers as may be designated from time to time by the
General Partner) (collectively, the “Budget Officers”) shall prepare and submit the Annual Budget
and Business Plan no later than December 1 of each Fiscal Year for the next Fiscal Year (or such
other date as may be designated by the General Partner) to the Holdco Operating Committee for
approval prior to submission to the General Partner in accordance with the terms hereof. The
Annual Budget and Business Plan shall be submitted by the Budget Officers to the General Partner
both in hard copy and in an electronic format, that conforms with the General Partner’s reasonable
internal requirements. The Annual Budget shall set forth, in addition to any other information
deemed relevant by the General Partner, the projected income, expenses, capital expenditures and
financing needs for the Partnership for the next Fiscal Year, together with any other information
reasonably requested by the General Partner (including, without
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limitation, estimated bonus payments). Upon approval by the Holdco Operating Committee the
Business Plan shall be submitted to the Voting Right Holders for approval by a Super Majority Vote.
If the Voting Right Holders fail to approve the Annual Budget and Business Plan, the same will be
revised and resubmitted for approval as set forth above; this process will be followed until an
Annual Budget and Business Plan is approved by the Voting Right Holders as set forth above. Upon
such approval, the Annual Budget and Business Plan will then be submitted as a non-binding
recommendation to the General Partner. The General Partner may revise in any and all respects the
process by which the Annual Budget and Business Plan is prepared at any time and from time to time
in its discretion. As discussed above, the duly authorized Officers shall have the right to incur
expenses and make expenditures in accordance with the terms of the Approved Budget. As used in
this Agreement the term “Business Plan” shall mean a narrative business/operating plan for the
Partnership for the coming Fiscal Year and being in such detail and covering such matters as the
General Partner may from time to time request.
Section 3.4.
Intentionally Omitted
.
Section 3.5.
Authority of Limited Partners
. Subject to the terms hereof, no Limited
Partner, in its capacity as such, shall participate in or have any control over the business of the
Partnership. Except as expressly provided herein, the Units (and associated Partnership Interests)
do not confer any rights upon the Limited Partners to participate in the conduct, control or
management of the business of the Partnership described in this Agreement, which as described
above shall be vested exclusively in the General Partner. Subject to the rights delegated to the
Officers hereunder, in all matters relating to or arising out of the conduct of the operation of
the Partnership, the decision of the General Partner shall be the decision of the Partnership.
Except as required or permitted by applicable Law, or expressly provided herein or by separate
agreement with the Partnership, no Partner (other than the General Partner, acting in such
capacity) shall take any part in the management or control of the operation or business of the
Partnership in its capacity as a Partner, nor shall any Partner (other than the General Partner,
acting in such capacity) have any right, authority or power to act for or on behalf of or bind the
Partnership in his or its capacity as a Partner in any respect or assume any obligation or
responsibility of the Partnership or of any other Partner.
ARTICLE IV.
PARTNERS’ CAPITAL CONTRIBUTIONS
Section 4.1.
Capital Contributions To Date
. The Capital Contributions of the Partners
as in effect immediately following the Effective Time are reflected in the books and records of the
Partnership as provided to and approved by each Partner.
Section 4.2.
Intentionally Omitted
.
Section 4.3.
Capital Accounts
. A separate capital account has been established for
each Partner (each a “Capital Account”) on the books of the Partnership (a) in connection with the
Capital Contributions made by the Partners hereto (and/or their predecessors in interest) and (b)
in accordance with the provisions of Section 1.704-1(b)(2)(iv) of the Regulations. The Capital
Account of each Partner shall be credited with such Partner’s Capital Contributions, if
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any, all Profits allocated to such Partner pursuant to Section 7.1 and any items of income or
gain which are specially allocated pursuant to Section 7.3; and shall be debited with all Losses
allocated to such Partner pursuant to Section 7.2, and any items of loss or deduction of the
Partnership specially allocated to such Partner pursuant to Section 7.3, and all cash and the
Carrying Value of any property (net of liabilities assumed by such Partner and the liabilities to
which such property is subject) distributed by the Partnership to such Partner. Any references in
any section of this Agreement to the Capital Account of a Partner shall be deemed to refer to such
Capital Account as the same may be credited or debited from time to time as set forth above. In the
event of any Transfer in accordance with the terms of this Agreement, the Assignee shall succeed to
the Capital Account of the transferor to the extent the same relates to the Units transferred. In
connection with Holdco’s acquisition of Units in the Partnership from Acquisition, which the
Partners shall treat as a purchase of a partnership interest from an existing Partner for which an
election under Code Section 754 shall be made by the Partnership, the Partners acknowledge and
agree that any adjustment to the basis of Partnership property arising under Code Sections 754 and
743 and any subsequent depreciation, depletion, amortization and gain or loss adjustments resulting
from such basis adjustments shall not be reflected in the Capital Accounts of the Partners, in
accordance with Section 1.704-1(b)(2)(iv)(m)(2) of the Regulations. As a consequence of Holdco’s
acquisition of Units in the Partnership from Acquisition, Holdco will succeed to a portion of the
Capital Account of Acquisition, with such portion equal to the Capital Account of Holdco prior to
such acquisition multiplied by the Percentage Interest of Holdco.
ARTICLE V.
UNITS; CLASS A COMMON STOCK
Section 5.1.
Units
. Interests in the Partnership shall be represented by the Units.
Section 5.2.
Splits; Distributions and Reclassifications
. The Partnership shall not
in any manner subdivide (by any Unit split, Unit distribution, reclassification or recapitalization
or otherwise) or combine (by reverse Unit split, reclassification, recapitalization or otherwise)
the outstanding Units unless an identical event simultaneously occurs with respect to the Class A
Common Stock, in which event the Units shall be subdivided or combined concurrently with and in the
same manner as the Class A Common Stock as and to the extent necessary to ensure that the ratio of
(a) Class A Common Stock then outstanding to (b) the aggregate Units held by Holdco and the General
Partner immediately prior to any such event shall remain the same immediately following any such
event.
Section 5.3.
Cancellation of Class A Common Stock and Units
. At any time a share of
Class A Common Stock is redeemed, repurchased, acquired, cancelled or terminated by Publico, one
Unit registered in the name of Holdco (or in the event Holdco no longer holds Units, the General
Partner) will automatically be cancelled for no consideration by the Partnership, in order that the
ratio of (a) Class A Common Stock then outstanding to (b) the aggregate Units held by Holdco and
the General Partner immediately prior to any such event shall remain the same immediately following
any such event.
Section 5.4.
Incentive Plans
. At any time Publico issues a share of Class A Common
Stock to an employee of the Partnership or HFF pursuant to an Incentive Plan (whether pursuant
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to the exercise of a stock option or the grant of a restricted share award or otherwise), the
following shall occur: (a) Publico shall be deemed to contribute to the capital of Holdco an amount
of cash equal to the current per share Market Price of a share of Class A Common Stock on the date
such share is issued (or, if earlier, the date the related option is exercised), and Holdco shall
in turn be deemed to contribute to the capital of (i) the Partnership an amount equal to one-half
of such amount and (ii) HFF an amount equal to one-half of such amount, and the Capital Account of
Holdco in the Partnership and HFF shall be adjusted accordingly; (b) the Partnership and HFFS shall
together be deemed to purchase from Holdco a share of Class A Common Stock for an amount of cash
equal to the amount of cash deemed contributed by Holdco to the Partnership in clause (a) above
(and such share of Class A Common Stock shall be deemed delivered to its owner under the Incentive
Plan); (c) the net proceeds (including the amount of any payments made on a loan with respect to a
stock purchase award) received by Holdco with respect to any such share, if any, shall be
concurrently transferred and paid to the Partnership (and such net proceeds so transferred shall
not constitute a Capital Contribution), in such amount as the General Partner shall determine and
the balance of any such net proceeds shall be concurrently transferred and paid to HFF (and such
net proceeds shall not constitute a capital contribution to HFF); and (d) the Partnership shall
issue to Holdco a Unit registered in the name of Holdco. The Partnership shall retain any net
proceeds that are paid directly to the Partnership.
Section 5.5.
Offerings of Class A Common Stock
. At any time Publico issues a share of
Class A Common Stock other than in connection with an Incentive Plan or the IPO (it being agreed
that Holdco will acquire the Units noted in Exhibit A in connection with the IPO pursuant to the
terms of the Transaction Agreement), net proceeds received by Publico with respect to such share
shall be concurrently transferred to Holdco for transfer to the Partnership and HFF in such manner
as the General Partner shall determine and the Partnership shall in return issue to Holdco one Unit
registered in the name of Holdco, and the Capital Account of Holdco shall be adjusted accordingly.
Section 5.6.
Forfeiture
. Upon the occurrence of any event resulting in Forfeited
Units in Holdings, (a) pursuant to the Holdings Operating Agreement, the affected Member of
Holdings shall cease to have any rights with respect to the Forfeited Units in Holdings, and (b)
simultaneous with the occurrence of such forfeiture, Acquisition shall forfeit a portion of the
Units it then holds (such forfeited Units, the “Forfeited Units”) as determined based on the
product of (i) the total Units then held by Acquisition (prior to giving effect to the forfeiture
of such Forfeited Units) multiplied by (ii) the fraction obtained by dividing the Forfeited Units
in Holdings at issue by the total Units in Holdings then outstanding (prior to giving effect to the
forfeiture of such Forfeited Units in Holdings).
Section 5.7.
Class A Common Stock
. Notwithstanding anything herein to the contrary,
the Partnership shall not at any time permit the Transfer of any Units that would allow Acquisition
and Holdings to become the beneficial owner in the aggregate of greater than 9.99% of the then
outstanding shares of Class A Common Stock of Publico (determined in accordance with Rule 13d-3
promulgated under the Securities Act).
Section 5.8.
Register
. The register of the Partnership shall be the definitive record
of ownership of each Unit and all relevant information with respect to each Partner. Unless the
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General Partner shall determine otherwise, Units shall not be certificated and recorded in the
books and records of the Partnership.
ARTICLE VI.
DISTRIBUTIONS
Section 6.1.
Distributions of Net Cash Flow
. The General Partner, in its discretion,
may authorize distributions by the Partnership to the Partners, it being agreed that all
distributions shall be made pro rata in accordance with the Partners’ respective Percentage
Interests.
Section 6.2.
Tax Distributions
. Without limiting the foregoing, except to the extent
otherwise provided under Section 7.5, if the General Partner reasonably determines that the taxable
income of the Partnership for any Fiscal Year will give rise to taxable income for the Partners
(“Net Taxable Income”), the General Partner shall to the extent of Net Cash Flow, first cause the
Partnership to distribute Net Cash Flow for purposes of allowing Partners (and their constituents)
to fund their (or their members’) respective income tax liabilities deemed to be attributable for
purposes of this Agreement to their (or their members’) respective shares of Net Taxable Income
(the “Tax Distributions”). The Tax Distributions payable to each such Partner with respect to any
Fiscal Year shall be computed based upon the General Partner’s estimate of the Net Taxable Income
allocable to such Partner in accordance with the terms hereof, multiplied by the Assumed Tax Rate
(the “Tax Amount”). For purposes of computing the Tax Amount, the effect of any benefit to a
Partner under Section 743(b) of the Code or other special allocations of income or deductions shall
be ignored. Tax Distributions shall only be effected through distributions with respect to
Partnership Interests, and shall only be made to Partners. Tax Distributions shall be calculated
and paid no later than one day prior to each quarterly due date (without giving effect to any
extensions) for the payment by corporations of estimated taxes under the Code in the following
manner (A) for the first quarterly period, 25% of the Tax Amount, (B) for the second quarterly
period, 50% of the Tax Amount, less the prior Tax Distributions for such Fiscal Year, (C) for the
third quarterly period, 75% of the Tax Amount, less the prior Tax Distributions for such Fiscal
Year and (D) for the fourth quarterly period, 100% of the Tax Amount, less the prior Tax
Distributions for such Fiscal Year. Following each Fiscal Year, and no later than one day prior to
the due date (without giving effect to any extensions) for the payment by corporations of income
taxes for such Fiscal Year, the General Partner shall make an amended calculation of the Tax Amount
for such Fiscal Year (the “Amended Tax Amount”), and shall cause the Partnership to distribute a
Tax Distribution, out of Net Cash Flow, to the extent that the Amended Tax Amount so calculated
exceeds the cumulative Tax Distributions previously made by the Partnership in respect of such
Fiscal Year. If the Amended Tax Amount is less than the cumulative Tax Distributions previously
made by the Partnership in respect of the relevant Fiscal Year, then the difference (the “Credit
Amount”) shall be applied against, and shall reduce, the amount of Tax Distributions made to the
Partners for subsequent Fiscal Years. Within thirty (30) days following the date on which the
Partnership files its U.S. federal income tax return for a Fiscal Year, the General Partner shall
make a final calculation of the Tax Amount for such Fiscal Year (the “Final Tax Amount”) and shall
cause the Partnership to distribute a Tax Distribution, out of Net Cash Flow, to the extent that
the Final Tax Amount so calculated exceeds the Amended Tax Amount. If the Final Tax Amount is less
than the Amended Tax Amount in respect of the relevant Fiscal Year, then the difference
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(“Additional Credit Amount”) shall be applied against, and shall reduce, the amount of Tax
Distributions made to the Partners for subsequent Fiscal Years. Any Credit Amount and Additional
Credit Amount applied against future Tax Distributions shall be treated as an amount actually
distributed pursuant to this Section 6.2 for purposes of the computations described herein.
Section 6.3.
Liquidation Distributions
. Distributions upon liquidation shall be made
as provided in Section 11.1.
Section 6.4.
Limitation on Distribution
s. Notwithstanding any provision to the
contrary contained in this Agreement, the General Partner shall not make a Partnership distribution
to any Partner if such distribution would violate Section 6.07 of the Act or other applicable Law.
ARTICLE VII.
ALLOCATIONS
Section 7.1.
Allocations of Profits
. Profits for any Fiscal Year shall be allocated
to the Partners:
(a) first, in an amount equal to the aggregate excess of the Losses allocated to each Partner
pursuant to Section 7.2(a) hereof over the aggregate amount of Profits allocated to such Partner
under this Section 7.1(a) in proportion to such excesses until such excesses equal zero; and
(b) thereafter to the Partners, in proportion to their Percentage Interests which shall be
determined based on the daily weighted average Percentage Interest held by each Partner during the
applicable Fiscal Year.
Section 7.2.
Allocation of Losses
. Losses for any Fiscal Year shall be allocated as
set forth in Section 7.2(a) below, subject to the limitations of Section 7.2(b) below.
(a) Losses for any Fiscal Year shall be allocated to the Partners in accordance with their
Percentage Interests which shall be determined based on the daily weighted average Percentage
Interest held by each Partner during the applicable Fiscal Year.
(b) The Losses allocated pursuant to Section 7.2(a) hereof shall not exceed the maximum amount
of Losses that can be so allocated without causing any Limited Partner to have an adjusted capital
account deficit at the end of any Fiscal Year. All Losses in excess of the limitations set forth
in this Section 7.2(b) shall be allocated to the General Partner.
Section 7.3.
Special Allocations
.
(a) If there is a net decrease in Partnership Minimum Gain or Partner Nonrecourse Debt Minimum
Gain (determined in accordance with the principles of Regulations Sections 1.704-2(d) and
1.704-2(i)) during any Partnership taxable year, the Partners shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal
to their respective shares of such net decrease during such year, determined pursuant to
Regulations Sections 1.704-2(g) and 1.704-2(i)(5). The items to be
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so allocated shall be determined in accordance with Regulations Section 1.704-2(f). This
Section 7.3(a) is intended to comply with the minimum gain chargeback requirements in such Sections
of the Regulations and shall be interpreted consistently therewith; including that no chargeback
shall be required to the extent of the exceptions provided in Regulations Sections 1.704-2(f) and
1.704-2(i)(4).
(b) If any Partner unexpectedly receives any adjustments, allocations, or distributions
described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income
and gain shall be specially allocated to such Partner in an amount and manner sufficient to
eliminate the deficit balance in such Partner’s Adjusted Capital Account Balance created by such
adjustments, allocations or distributions as promptly as possible; provided, that an allocation
pursuant to this Section 7.3(b) shall be made only to the extent that a Partner would have a
deficit Adjusted Capital Account Balance in excess of such sum after all other allocations provided
for in this Article VII have been tentatively made as if this Section 7.3(b) were not in this
Agreement. This Section 7.3(b) is intended to comply with the “qualified income offset” requirement
of the Code and shall be interpreted consistently therewith.
(c) If any Partner has a deficit Capital Account at the end of any Fiscal Year which is in
excess of the sum of (i) the amount such Partner is obligated to restore, if any, pursuant to any
provision of this Agreement, and (ii) the amount such Partner is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5), each
such Partner shall be specially allocated items of Partnership income and gain in the amount of
such excess as quickly as possible; provided, that an allocation pursuant to this Section 7.3(c)
shall be made only if and to the extent that a Partner would have a deficit Capital Account in
excess of such sum after all other allocations provided for in this Article VII have been
tentatively made as if Section 7.3(b) and this Section 7.3(c) were not in this Agreement.
(d) Nonrecourse Deductions shall be allocated to the Partners in accordance with their
respective Percentage Interests.
(e) Partner Nonrecourse Deductions for any taxable period shall be allocated to the Partner
who bears the economic risk of loss with respect to the liability to which such Partner Nonrecourse
Deductions are attributable in accordance with Regulations Section 1.704-2(j).
(f) Any special allocations of income or gain pursuant to Sections 7.3(b) or 7.3(c) hereof
shall be taken into account in computing subsequent allocations pursuant to Section 7.1 and 7.2 and
this Section 7.3(f), so that the net amount of any items so allocated and all other items allocated
to each Partner shall, to the extent possible, be equal to the net amount that would have been
allocated to each Partner if such allocations pursuant to Sections 7.3(b) or 7.3(c) had not
occurred.
Section 7.4.
Tax Allocations
. For income tax purposes, each item of income, gain,
loss and deduction of the Partnership shall be allocated among the Partners in the same manner as
the corresponding items of Profits and Losses and specially allocated items are allocated for
Capital Account purposes; provided, that in the case of any asset the Carrying Value of which
differs
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from its adjusted tax basis for U.S. federal income tax purposes, income, gain, loss and
deduction with respect to such asset shall be allocated solely for income tax purposes in
accordance with the principles of Sections 704(b) and (c) of the Code (in any manner determined by
the General Partner and permitted by the Code and the Regulations) so as to take account of the
difference between Carrying Value and adjusted basis of such asset; provided, further, that the
Partnership shall use the traditional method (as such term is defined in Regulations Section
1.704-3(b)(1)) for all Section 704(c) allocations and “reverse Section 704(c) allocations”. As a
consequence of the election that the Partnership is to make under Code Section 754, Holdco will
timely furnish the Partnership with the notice required under Section 1.743-1(k)(2) of the
Regulations that relates to its purchase of Units in the Partnership from Acquisition and following
that, the Partnership will timely make any resulting adjustments to income, gain, loss or deduction
as well as to basis of Partnership property under Section 743(b) in accordance with Section
1.743-1(k) and duly inform Holdco of those adjustments.
Section 7.5.
Tax Advances
. To the extent the Partnership reasonably believes that it
is required by Law to withhold or to make tax payments on behalf of or with respect to any Partner
or the Partnership is subjected to tax itself by reason of the status of any Partner (“Tax
Advances”), the General Partner may withhold such amounts and make such tax payments as so
required. All Tax Advances made on behalf of a Partner shall be repaid by reducing the amount of
the current or next succeeding distribution or distributions which would otherwise have been made
to such Partner or, if such distributions are not sufficient for that purpose, by so reducing the
proceeds of liquidation otherwise payable to such Partner. For all purposes of this Agreement such
Partner shall be treated as having received the amount of the distribution that is equal to the Tax
Advance. Each Partner hereby agrees to indemnify and hold harmless the Partnership and the other
Partners from and against any liability (including, without limitation, any liability for taxes,
penalties, additions to tax or interest other than any penalties, additions to tax or interest
imposed as a result of the Partnership’s failure to withhold or make a tax payment on behalf of
such Partner which withholding or payment is required pursuant to applicable Law but only to the
extent amounts sufficient to pay such taxes were not timely distributed to the Partner pursuant to
Section 6.2) with respect to income attributable to or distributions or other payments to such
Partner.
Section 7.6.
Tax Matters
. The General Partner shall be the initial “tax matters
partner” within the meaning of Section 6231(a)(7) of the Code (the “Tax Matters Partner”). The
Partnership shall file as a partnership for federal, state and local income tax purposes, except
where otherwise required by Law. All elections required or permitted to be made by the Partnership,
and all other tax decisions and determinations relating to federal, state or local tax matters of
the Partnership, shall be made by the Tax Matters Partner, in consultation with the Partnership’s
attorneys and/or accountants. Tax audits, controversies and litigations shall be conducted under
the direction of the Tax Matters Partner. The Tax Matters Partner shall keep the other Partners
reasonably informed as to any tax actions, examinations or proceedings relating to the Partnership
and shall submit to the other Partners, for their review and comment, any settlement or compromise
offer with respect to any disputed item of income, gain, loss, deduction or credit of the
Partnership. As soon as reasonably practicable after the end of each Fiscal Year, the Partnership
shall send to each Partner a copy of U.S. Internal Revenue Service Schedule K-1, and any comparable
statements required by applicable state or local income tax Law, with respect to such Fiscal Year.
The Partnership also shall provide the Partners with such
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other information as may be reasonably requested for purposes of allowing the Partners to
prepare and file their own tax returns. The General Partner shall maintain and not revoke the
election pursuant to Section 754 for the Partnership which is currently in effect.
Section 7.7.
Other Allocation Provisions
. Certain of the foregoing provisions and the
other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to
comply with Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner
consistent with such regulations.
Sections 4.3, 7.1, 7.2
and
7.3
may be amended at
any time by the General Partner if necessary, in the opinion of tax counsel to the Partnership, to
comply with such regulations, so long as any such amendment does not materially change the relative
economic interests of the Partners.
ARTICLE VIII.
BOOKS AND RECORDS
Section 8.1.
Books and Records; Periodic Reporting
.
(a) The Partnership shall keep accurate and complete books of account and records on an
accrual basis prepared in accordance with generally accepted accounting principles. All financial
statements shall be accurate in all material respects and shall present fairly the financial
position and results of operations of the Partnership. The books of account and records of the
Partnership shall at all times be maintained at the principal office of the Partnership.
(b) No later than 90 days after the end of each Fiscal Year, the General Partner shall furnish
the Limited Partners with financial statements prepared in accordance with generally accepted
accounting principles.
(c) No later than 60 days after the end of each fiscal quarter (other than the last fiscal
quarter) in each Fiscal Year, the General Partner shall furnish the Limited Partners with financial
statements for such fiscal quarter and for the period from the beginning of the then current Fiscal
Year to the end of such fiscal quarter prepared in accordance with generally accepted accounting
principles, subject to normal year end adjustments.
(d) The Partnership’s federal, state and local income and other tax returns shall be prepared
at the expense of the Partnership by a firm of certified public accountants selected by the General
Partner. All tax returns shall be signed on behalf of the Partnership and filed by the General
Partner.
Section 8.2.
Right to Inspection
. Each Limited Partner shall have the right at all
reasonable times upon reasonable notice to examine and copy at its expense the books and records of
the Partnership.
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ARTICLE IX.
ADMISSION AND WITHDRAWAL OF PARTNERS; ASSIGNMENT; REMOVAL OF
GENERAL PARTNER
Section 9.1.
Transfer by Limited Partner
. No Limited Partner, owner of any beneficial
ownership interest in any Limited Partner, nor any Assignee (as hereinafter defined) may, absent
the prior written consent of the General Partner, which consent may be withheld for any reason or
no reason, cause or permit a Transfer. Without such written consent of the General Partner, any
transferee of a Limited Partner (an “Assignee”) shall not be entitled to become a substitute
Limited Partner and upon any transfer to, or foreclosure or other realization of, any Partnership
Interest by an Assignee, such Assignee shall only be entitled to receive any distributions payable
with respect to the Units which were the subject of such Transfer and shall not be entitled to
consent or vote on any matter requiring the consent or approval of the Partners (or any of them).
The transferring Limited Partner will remain a Partner even if it has transferred all of its Units
to one or more Assignee(s) until such time as the Assignee(s) is admitted to the Partnership as a
Limited Partner in accordance with the terms of Section 9.2 below.
Section 9.2.
Admission of Substituting Partners
. An Assignee will become a substitute
Limited Partner only if and when each of the following conditions is satisfied:
(a) the General Partner consents in writing to such admission, which consent may be given or
withheld, or made subject to such conditions as are determined by the General Partner, in each case
in the General Partner’s sole discretion;
(b) if required by the General Partner, the General Partner receives written instruments
(including, without limitation, copies of any instruments of Transfer and such Assignee’s consent
to be bound by this Agreement as a substitute Limited Partner) that are in a form satisfactory to
the General Partner (as determined in its sole discretion);
(c) if required by the General Partner, the General Partner receives an opinion of counsel
satisfactory to the General Partner to the effect that such Transfer is in compliance with this
Agreement and all applicable laws;
(d) if required by the General Partner, the parties to the Transfer, or any one of them, pay
all of the Partnership’s reasonable expenses connected with such Transfer (including, but not
limited to, the reasonable legal and accounting fees of the Partnership); and
(e) General Partner’s determination that such Transfer is not prohibited under the provisions
of Section 9.4 hereof.
Section 9.3.
Additional and Substitute General Partners; Transfer by General Partner
.
No Person may be admitted to the Partnership as an additional or substitute general partner (and
the General Partner or any additional or substitute general partner shall not cause or permit a
Transfer of all or any portion of its interests hereunder or admit any additional or substitute
general partner) without the prior written consent or ratification of all the Limited Partners. The
consent of all the Limited Partners shall be deemed to have been given in the event (and each
Limited Partner agrees to provide a written consent or ratification to such admission, substitution
or other Transfer as requested by the General Partner) such additional general partner, substitute
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general partner or other transferee has been approved of by a Majority in Interest of the
Limited Partners. Without limiting any other provisions contained herein, no general partner
(including, without limitation, the General Partner) shall be entitled to Transfer all of its Units
or to withdraw from being a general partner of the Partnership unless following such Transfer or
withdrawal at least one general partner of the Partnership having the authority granted to the
General Partner hereunder (and subject to the requirements of Section 3.4 hereof) shall remain in
place. To the fullest extent permitted by Law, any purported admission, withdrawal or removal of
the General Partner that is not in accordance with this Agreement shall be null and void.
Section 9.4.
Further Restrictions on Transfer
. In no event may a Partner, any owner
of any beneficial ownership interest in any Partner or any Assignee, Transfer all or any portion of
its Partnership Interest if the effect of such action would cause the Partnership to breach or be
in default under any agreement, document, contract or instrument to which the Partnership is a
party, or by which the Partnership or the assets of the Partnership are bound. Additionally, in no
event may a Transfer be made by any Partner or Assignee if:
(a) such Transfer is made to any Person who lacks the legal right, power or capacity to own
such Unit;
(b) such Transfer would require the registration of the applicable transferred Unit pursuant
to any applicable United States federal or state securities laws (including, without limitation,
any Applicable Securities Laws) or other foreign securities laws or would constitute a non-exempt
distribution pursuant to applicable state securities laws;
(c) such Transfer would cause any portion of the assets of the Partnership to constitute
assets of any employee benefit plan pursuant to the regulations issued by the U.S. Department of
Labor at Section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the Code of Federal
Regulations, or any successor regulations;
(d) such Transfer would cause any portion of the assets of the Partnership to become “plan
assets” of any benefit plan investor within the meaning of regulations issued by the U.S.
Department of Labor at Section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the Code of
Federal Regulations, or any successor regulations, or to be regulated under the Employee Retirement
Income Security Act of 1974, as amended from time to time; or
(e) to the extent requested, the Partnership does not receive such legal and/or tax opinions
and written instruments (including, without limitation, copies of any instruments of Transfer and
such Assignee’s consent to be bound by this Agreement as an Assignee) that are in a form
satisfactory to the applicable Partner’s, as determined in any such Partner’s sole discretion.
Section 9.5.
Exchange Rights
. Notwithstanding anything to the contrary contained
herein, any Transfer of Units by Acquisition to Holdco in accordance with the provisions of Article
V of that certain Amended and Restated Certificate of Incorporation of HFF, Inc. shall not be
subject to the prior written consent of any of the Partners.
Section 9.6.
Permitted Transfers
. Further notwithstanding anything to the contrary
contained herein (but subject to the provisions of Section 9.4), (i) Holdings or any Member of
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Holdings (or its representatives) may Transfer all or a portion of any Units in Holdings (A)
to (x) such transferor’s immediate family members or trusts established for the benefit of such
family members for estate planning purposes, (y) a Charity for gratuitous purposes or (z) Holdings
or any other Member of Holdings, or (B) by devise or descent or by operation of law upon the death
or disability of such Member of Holdings, (ii) without limiting any of the foregoing, a Member of
Holdings may withdraw or be involuntarily withdrawn as a Member of Holdings but continue to
exercise rights as an interest holder and/or a member thereof, in all events to the extent provided
in the Holdings Operating Agreement, (iii) Units in Holdings and/or related rights may be directly
or indirectly sold, assigned, pledged, transferred or otherwise disposed of pursuant to the terms
of the Holdings Operating Agreement, (iv) “TRA Units” in Holdings (as defined in the Holdings
Operating Agreement) and/or related rights may be directly or indirectly sold, assigned, pledged,
transferred or otherwise disposed of in accordance with the Holdings Operating Agreement, (v) any
interests of Holdings in Acquisition may be sold, assigned, pledged, transferred, or otherwise
disposed of in accordance with the terms of the Holdings Operating Agreement and any interests of
Publico in Holdco may be sold, assigned, pledged, transferred or otherwise disposed of in
accordance with the terms of the organizational documents of Publico, and (vi) any Transfer of
shares of Class A Common Stock or Class B Common Stock in accordance with applicable Law, the
Transaction Agreement and the organizational documents of Publico shall not be deemed to be a
prohibited Transfer hereunder. Additionally, the Partners hereby agree (absent a determination
that the same will result in the Partnership being obligated (or being deemed to be obligated) for
the repayment of all or any portion of the Loan Facility under Applicable Securities Laws or
otherwise) to pledge their Units as and to the extent required under the Loan Facility.
Section 9.7.
Withdrawal
. If a Partner ceases to hold any Units, then such Partner
shall withdraw from the Partnership and cease to be a Partner and to have the power to exercise any
rights or powers of a Partner when all of such Partner’s Assignees have been admitted as Partners
in accordance with the provisions hereof.
ARTICLE X.
DISSOLUTION OF PARTNERSHIP
Section 10.1.
No Dissolution
. The Partnership shall not be dissolved by the admission
of additional Partners in accordance with the terms of this Agreement. The Partnership may be
dissolved, liquidated and terminated only pursuant to the provisions of this Article X, and the
Partners hereby irrevocably waive any and all other rights they may have to cause a dissolution of
the Partnership or a sale or partition of any or all of the Partnership assets.
Section 10.2.
Events of Dissolution
. The Partnership shall be dissolved upon the
occurrence of any of the following events:
(a) the voluntary agreement of the General Partner and the Limited Partners to dissolve the
Partnership;
(b) the Incapacity or removal of the General Partner or the occurrence of a Disabling Event
with respect to the General Partner; provided, that the Partnership will not be dissolved or
required to be wound up in connection with any of the events specified in this
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Section 10.2(b) if: (i) at the time of the occurrence of such event there is at least one
other general partner of the Partnership who is hereby authorized to, and elects to, carry on the
business of the Partnership; or (ii) all remaining Limited Partners consent in writing to (or
otherwise ratify) the continuation of the business of the Partnership and the appointment of
another general partner of the Partnership within 90 days following the occurrence of any such
Incapacity or removal; or
(c) any other act constituting a dissolution under applicable Law.
ARTICLE XI.
LIQUIDATION OF THE PARTNERSHIP
Section 11.1.
Liquidation
. In the event of a dissolution of the Partnership where the
business of the Partnership shall not be continued, liquidation shall occur. The General Partner
shall supervise the liquidation of the Partnership. In the event of any liquidation of the
Partnership under this Agreement or the Act, the proceeds of liquidating the Partnership shall be
applied and distributed in the following order of priority (each item to be satisfied in full in
the order listed below before any of such proceeds are allocated to the subsequent item):
(a) first, to creditors, including Partners who are creditors (to the extent not otherwise
prohibited by Law), in satisfaction of liabilities of the Partnership (whether by payment or the
making of reasonable provision for payment therefor), other than liabilities for which reasonable
provision for payment has been made and liabilities for interim distributions to Partners and
distributions to Partners on withdrawal; then
(b) second, to the setting up of any Reserves which the General Partner (or, if applicable,
the liquidating trustee) determines to be reasonably necessary for any contingent liabilities of
the Partnership arising out of, or in connection with, a Partnership liability; then
(c) third, to the Partners in proportion to their Percentage Interests.
Notwithstanding anything to the contrary in this Agreement, upon a liquidation within the
meaning of Section 1.704-l(b)(2)(ii)(g) of the Regulations, if any Partner has a deficit Capital
Account (after giving effect to all contributions, distributions, allocations and other Capital
Account adjustments for all taxable years, including the year during which such liquidation
occurs), such Partner shall have no obligation to make any Capital Contribution, and the negative
balance of such Partner’s Capital Account shall not be considered a debt owed by such Partner to
the Partnership or to any other Person for any purpose whatsoever.
Upon completion of the winding up, liquidation and distribution of the assets, the Partnership
shall be deemed terminated. The General Partner shall not receive any additional compensation for
any services performed pursuant to this
Article XI
.
Section 11.2.
Deemed Distribution and Reconstitution
. Notwithstanding any other
provision of this Article XI, in the event the Partnership is liquidated within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g) but the Partnership is not liquidated under this Article
XI, the assets and liabilities shall be deemed to be distributed and recontributed in a manner
consistent with Regulations Section 1.704-1(b).
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Section 11.3.
Rights of Limited Partners
. Except as otherwise provided in this
Agreement, each Limited Partner shall look solely to the assets of the Partnership for the return
of his Capital Contribution and shall have no right or power to demand or receive property other
than cash from the Partnership. No Limited Partner shall have priority over any other Limited
Partner as to the return of its Capital Contributions, distributions or allocations.
ARTICLE XII.
LIABILITY AND INDEMNIFICATION
Section 12.1.
Liability of Partners
.
(a) No Limited Partner shall be liable for any debt obligation or liability of the Partnership
or of any other Partner or have any obligation to restore any deficit balance in its Capital
Account solely by reason of being a Partner of the Partnership.
(b) This Agreement is not intended to, and does not, create or impose any fiduciary duty on
any of the Partners (including without limitation, the General Partner) hereto or on their
respective Affiliates. Further, the Partners hereby waive any and all fiduciary duties that, absent
such waiver, may be implied by Law, and in doing so, recognize, acknowledge and agree that their
duties and obligations to one another and to the Partnership are only as expressly set forth in
this Agreement.
(c) To the extent that, at law or in equity, any Partner (including without limitation, the
General Partner) has duties (including fiduciary duties) and liabilities relating thereto to the
Partnership or to another Partner, the Partners (including without limitation, the General Partner)
acting under this Agreement will not be liable to the Partnership or to any such other Partner for
their good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to
the extent that they expand or restrict the duties and liabilities of any Partner (including
without limitation, the General Partner) otherwise existing at Law or in equity, are agreed by the
Partners to modify to that extent such other duties and liabilities of the Partners (including
without limitation, the General Partner).
(d) The General Partner may consult with legal counsel, accountants and financial or other
advisors and any act or omission suffered or taken by the General Partner on behalf of the
Partnership or in furtherance of the interests of the Partnership in good faith in reliance upon
and in accordance with the advice of such counsel, accountants or financial or other advisors will
be full justification for any such act or omission, and the General Partner will be fully protected
in so acting or omitting to act so long as such counsel or accountants or financial or other
advisors were selected with reasonable care.
Section 12.2.
Indemnification
.
(a) To the fullest extent permitted by law, the Partnership shall indemnify any person (and
such person’s heirs, executors or administrators) who was or is made or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed action, suit or
proceeding (brought in the right of the Partnership or otherwise), whether civil, criminal,
administrative or investigative, and whether formal or informal, including appeals, by reason of
the fact that such person, or a person for whom such person was the legal representative, is or
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was a Partner (including without limitation, the General Partner) or a director, officer or
agent of a Partner (including without limitation, the General Partner) or the Partnership or, while
a director, officer or agent of a Partner (including without limitation, the General Partner) or
the Partnership, is or was serving at the request of the Partnership as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint venture, trust,
limited liability company, nonprofit entity or other enterprise, for and against all loss and
liability suffered and expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement reasonably incurred by such person or such heirs, executors or administrators in
connection with such action, suit or proceeding, including appeals; provided that such person shall
not be entitled to indemnification hereunder only to the extent such person’s conduct constituted
fraud, bad faith or willful misconduct. Notwithstanding the preceding sentence, except as otherwise
provided in Section 12.2(c), the Partnership shall be required to indemnify a person described in
such sentence in connection with any action, suit or proceeding (or part thereof) commenced by such
person only if the commencement of such action, suit or proceeding (or part thereof) by such person
was authorized by the General Partner.
(b) To the fullest extent permitted by Law, the Partnership shall promptly pay expenses
(including attorneys’ fees) incurred by any Person described in Section 12.2(a) in appearing at,
participating in or defending any action, suit or proceeding in advance of the final disposition of
such action, suit or proceeding, including appeals, upon presentation of an undertaking on behalf
of such person to repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified under this Section 12.2 or otherwise. Notwithstanding the preceding
sentence, except as otherwise provided in Section 12.2(c), the Partnership shall be required to pay
expenses of a person described in such sentence in connection with any action, suit or proceeding
(or part thereof) commenced by such person only if the commencement of such action, suit or
proceeding (or part thereof) by such person was authorized by the General Partner.
(c) If a claim for indemnification (following the final disposition of such action, suit or
proceeding) or advancement of expenses under this Section 12.2 is not paid in full within thirty
(30) days after a written claim therefor by any person described in Section 12.2(a) has been
received by the Partnership, such person may file suit to recover the unpaid amount of such claim
and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting
such claim. In any such action the Partnership shall have the burden of proving that such person is
not entitled to the requested indemnification or advancement of expenses under applicable law.
(d) To the fullest extent permitted by law, the Partnership may purchase and maintain
insurance on behalf of any Person described in Section 12.2(a) against any liability asserted
against such Person, whether or not the Partnership would have the power to indemnify such person
against such liability under the provisions of this Section 12.2 or otherwise.
(e) The provisions of this Section 12.2 shall be applicable to all actions, claims, suits or
proceedings made or commenced after the date of this Agreement, whether arising from acts or
omissions to act occurring before or after its adoption. The provisions of this Section 12.2 shall
be deemed to be a contract between the Partnership and each person entitled to indemnification
under this Section 12.2 (or legal representative thereof) who serves in such
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capacity at any time while this Section 12.2 and the relevant provisions of applicable law, if
any, are in effect, and any amendment, modification or repeal hereof shall not affect any rights or
obligations then existing with respect to any state of facts or any action, suit or proceeding then
or theretofore existing, or any action, suit or proceeding thereafter brought or threatened based
in whole or in part on any such state of facts. If any provision of this Section 12.2 shall be
found to be invalid or limited in application by reason of any law or regulation, it shall not
affect the validity of the remaining provisions hereof. The rights of indemnification provided in
this Section 12.2 shall neither be exclusive of, nor be deemed in limitation of, any rights to
which any person may otherwise be or become entitled or permitted by contract, this Partnership
Agreement or as a matter of law, both as to actions in such person’s official capacity and actions
in any other capacity, it being the policy of the Partnership that indemnification of any person
whom the Partnership is obligated to indemnify pursuant to Section 12.2(a) shall be made to the
fullest extent permitted by law.
For purposes of this
Section 12.2
, references to “other enterprises” shall include
employee benefit plans; references to “fines” shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to “serving at the request of the
Partnership” shall include any service as a director, officer, employee or agent of the Partnership
which imposes duties on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries.
This
Section 12.2
shall not limit the right of the Partnership, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to, and purchase and maintain
insurance on behalf of, persons other than persons described in
Section 12.2(a)
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ARTICLE XIII.
MISCELLANEOUS
Section 13.1.
Additional Documents and Acts
. In connection with this Agreement, as
well as all transactions contemplated by this Agreement, each Partner agrees to execute and deliver
such additional documents and instruments, and to perform such additional acts as may be necessary
or appropriate to effectuate, carry out and perform all of the terms, provisions and conditions of
this Agreement, and all such transactions. All approvals of a Partner hereunder shall be in
writing.
Section 13.2.
Governing Law
. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, INCLUDING BOTH MATTERS OF INTERNAL
LAW AND CONFLICT OF LAWS.
Section 13.3.
Severability
. If this Agreement or any portion thereof is, or the
operations contemplated hereby are, found to be inconsistent with or contrary to any valid
applicable laws or official orders, rules and regulations, the inconsistent or contrary provisions
of this Agreement shall be null and void and such laws, orders, rules and regulations shall control
and, as so modified, shall continue in full force and effect; provided, however, that nothing
herein contained shall be construed as a waiver of any right to question or contest any such Law,
order, rule or regulation in any forum having jurisdiction.
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Section 13.4.
Entire Agreement
. This instrument contains all of the understandings
and agreements of whatsoever kind and nature existing between the parties hereto with respect to
this Agreement and the rights, interests, understandings, agreements and obligations of the
respective parties pertaining to the subject matter set forth herein.
Section 13.5.
Binding Effect
. Except as herein otherwise expressly stipulated to the
contrary, this Agreement shall be binding upon and inure to the benefit of the parties signatory
hereto, and their respective successors and permitted assigns.
Section 13.6.
Agreement Restricted to Partners
. This Agreement is solely for the
parties hereto and no covenant or other provision herein, including, but not limited to, any
obligation to make any Capital Contribution, shall create any rights in, or give rise to any
obligation to or any cause of action by, any person not a party hereto.
Section 13.7.
Counterparts
. This Agreement may be executed in a number of
counterparts, each of which shall be deemed an original and all of which shall constitute one and
the same Agreement.
Section 13.8.
Power of Attorney; Amendments
. This Agreement (including any exhibits
hereto) may be amended, supplemented, waived or modified by the written consent of the General
Partner; provided that no such amendment, supplement, waiver or modification shall adversely affect
the Partnership Interests held by any Limited Partner in any material respect without the prior
written consent of each Limited Partner so affected (it being agreed, without limitation, that any
amendment, supplement, waiver or modification with respect to the management of the Partnership as
contemplated in this Agreement, the determination of each Partner’s Percentage Interest, the rights
of each Partner to distributions hereunder (including, without limitation, Tax Distributions), the
allocation provisions, the transfer provisions and this Section 13.8, which in any such instance is
any way adverse to any Limited Partner (or its constituent members) shall be deemed to adversely
affect the Partnership Interests held by such Limited Partner in a material respect and shall thus
be subject to such Partner’s prior written consent); provided further, that Exhibit A to this
Agreement shall be deemed amended from time to time to reflect the admission or substitution of a
new Partner, the withdrawal or resignation of a Partner, and the adjustment of the Units resulting
from any Transfer, forfeiture or other disposition of a Unit, in each case as and to the extent the
same is performed in accordance with (or otherwise expressly permitted under) the provisions
hereof; and Exhibit B shall be deemed amended from time to time upon notice to the Partnership by
Acquisition of any transfer, exchange or redemption of Units in Holdings in accordance with the
terms of the Holdings Operating Agreement. Notwithstanding anything to the contrary contained
herein, the General Partner shall not in any way amend the Profit Participation Plan absent the
written consent of each Partner hereto.
No failure or delay by any party in exercising any right, power or privilege hereunder (other
than a failure or delay beyond a period of time specified herein) shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by Law.
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The General Partner may, in its sole discretion, unilaterally amend this Agreement on or
before the effective date of the final regulations to provide for (i) the election of a safe harbor
under Proposed Treasury Regulation Section 1.83-3(l) (or any similar provision) under which the
fair market value of a partnership interest that is transferred is treated as being equal to the
liquidation value of that interest, (ii) an agreement by the Partnership and each of its Partners
to comply with all of the requirements set forth in such regulations and Notice 2005-43 (and any
other guidance provided by the Internal Revenue Service with respect to such election) with respect
to all Partnership Interests transferred in connection with the performance of services while the
election remains effective, (iii) the allocation of items of income, gains, deductions and losses
required by the final regulations similar to Proposed Treasury Regulation Section
1.704-1(b)(4)(xii)(b) and (c), and (iv) any other related amendments.
Section 13.9.
Notices
. Any notices and other communications required or permitted in
this Agreement shall be in writing, and delivered personally or sent (a) by overnight courier, (b)
by facsimile or (c) by registered or certified mail, postage prepaid in each instance, addressed to
each Limited Partner and the General Partner at the applicable address set forth below:
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If to Acquisition:
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c/o HFF Holdings LLC
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2000 Post Oak Boulevard, Suite 2000
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One Post Oak Central
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Houston, TX 77056
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Facsimile: 713.527.8725
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Attn: Nancy Goodson, Chief Operating Officer
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with a copy to:
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c/o HFF Holdings LLC
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429 Fourth Avenue, Suite 200
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Pittsburgh, PA 15219
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Facsimile: 412.281.2792
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Attn: John H. Pelusi, Jr., Managing Member
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with a copy to:
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Dechert LLP
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90 State House Square, 12
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Floor
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Hartford, CT 06103-3702
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Facsimile: 860.524.3930
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Attn: John J. Gillies, Esq.
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If to Holdco:
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c/o HFF Holdings LLC
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429 Fourth Avenue, Suite 200
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Pittsburgh, PA 15219
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Facsimile: 412.281.2792
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Attn: John H. Pelusi, Jr., Managing Member
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with a copy to:
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Dechert LLP
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90 State House Square, 12
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Floor
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Hartford, CT 06103-3702
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Facsimile: 860.524.3930
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Attn: John J. Gillies, Esq.
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If to General Partner:
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c/o HFF Holdings LLC
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429 Fourth Avenue, Suite 200
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Pittsburgh, PA 15219
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Facsimile: 412.281.2792
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Attn: John H. Pelusi, Jr., Managing Member
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with a copy to:
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Dechert LLP
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90 State House Square, 12
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Floor
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Hartford, CT 06103-3702
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Facsimile: 860.524.3930
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Attn: John J. Gillies, Esq.
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Unless otherwise specified herein, such notices or other communications shall be deemed effective
(a) on the date received, if personally delivered, (b) two business days after been sent by
overnight courier, (c) one business day after receipt of confirmation of deliver if sent by
facsimile and (d) three business days after being sent by registered or certified mail. Each of
the parties hereto shall be entitled to specify a different address or facsimile number by giving
notice as aforesaid to each of the other parties hereto.
Section 13.10.
Authorized Representative
. Each Partner may from time to time
designate in writing to the other Partners one or more duly authorized representatives of such
Partner having the authority to act on behalf of such Partner (and such representative(s) may
thereafter act on behalf such Partner absent further notice in writing from such Partner to the
other Partners).
Section 13.11.
Amended and Restated Agreement
. This Agreement amends and restates the
Existing Agreement in its entirety, as such upon the occurrence of the Effective Time, the Existing
Agreement and the provisions thereof (including, without limitation, those relating to any election
to “opt-in” to Article 8 of the Delaware Uniform Commercial Code and any and all certificates
issued in connection herewith) shall cease to be of any force and effect, and the Partnership shall
thereafter be governed in accordance with the terms hereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first above written.
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GENERAL PARTNER:
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HOLLIDAY GP CORP., a Delaware corporation
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By:
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/s/ John H. Pelusi, Jr.
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Name: John H. Pelusi, Jr.
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Title: President
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LIMITED PARTNERS:
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HFF LP ACQUISITION LLC, a Delaware limited
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liability company
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By:
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HFF Holdings LLC, a Delaware limited
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liability company, its Member
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By:
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/s/ John H. Pelusi, Jr.
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Name: John H. Pelusi, Jr.
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Title: Managing Member
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HFF PARTNERSHIP HOLDINGS LLC, a
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Delaware limited liability company
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By:
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HFF Inc., a Delaware corporation, its sole Member
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By:
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/s/ John H. Pelusi, Jr.
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Name: John H. Pelusi, Jr.
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Title: Chief Executive Officer
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EXHIBIT A
PARTNERSHIP INTERESTS
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INITIAL
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PARTNER
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INITIAL UNITS
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PARTNERSHIP INTEREST
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Holliday GP Corp.
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368,000
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1
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%
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HFF LP Acquisition LLC
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22,500,000
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61
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%
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HFF Partnership Holdings LLC
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13,932,000
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38
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%
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Total
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36,800,000
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100
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%
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EXHIBIT B
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MEMBERS
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UNITS
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Mark Gibson
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1,944,000
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John Pelusi
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1,944,000
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Jody Thornton
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1,903,725
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John Fowler
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1,534,950
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Scott McMullin
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1,284,975
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Stephen Conley
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1,169,775
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Scott Galloway
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836,325
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John Duffy
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831,375
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Riaz Cassum
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806,175
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Gerard Sansosti
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806,175
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Fred Wittmann
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806,175
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Grady Roberts
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735,525
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David Nackoul
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654,975
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Todd Armstrong
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604,575
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Mona Carlton
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604,575
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Don Curtis
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402,975
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Todd Stressenger
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402,975
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Mike Tepedino
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402,975
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Whit Wilcox
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402,975
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Greg Pappas
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241,875
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Paul Brindley
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224,100
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John Brownlee
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201,600
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Dan Carlo
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201,600
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Manny deZarraga
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537,750
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Bob Donhauser
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201,600
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Whitaker Johnson
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201,600
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Matthew Larson
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537,750
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Andrew Levy
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201,600
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Glenn Whitmore
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426,600
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Tim Wright
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151,200
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William Asbill
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100,800
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Dana Brome
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100,800
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Dave Keller
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100,800
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Lloyd Minten
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100,800
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Mike Kavanau
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100,800
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Trey Morsbach
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225,000
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Robert Herron
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112,500
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Joseph Morningstar
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112,500
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Timothy Jordan
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112,500
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Barry Brown
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112,500
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James Batjer
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112,500
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EXHIBIT C
FORM OF CERTIFICATE
None
EXHIBIT D
FORM OF EMPLOYMENT AGREEMENT
See attached
Exhibit 10.11
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of February 5, 2007
among
HOLLIDAY FENOGLIO FOWLER, L.P.
,
as Borrower,
BANK OF AMERICA, N.A.,
as Administrative Agent,
and
THE LENDERS PARTY HERETO
BANC OF AMERICA SECURITIES LLC,
As
Sole Lead Arranger and Book Manager
TABLE OF CONTENTS
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Section
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Page
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ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
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1
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Section 1.01 Defined Terms
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1
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Section 1.02 Other Interpretive Provisions
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27
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Section 1.03 Accounting Terms
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28
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Section 1.04 Rounding
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29
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Section 1.05 Times of Day
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29
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ARTICLE II THE LOANS
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29
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Section 2.01 The Loans
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29
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Section 2.02 Borrowings, Conversions and Continuations of Loans
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29
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Section 2.03 Prepayments
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31
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Section 2.04 Termination or Reduction of Commitments
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31
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Section 2.05 Repayment of Loans
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32
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Section 2.06 Interest
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|
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32
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Section 2.07 Fees
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|
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32
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Section 2.08 Computation of Interest and Fees
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33
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Section 2.09 Evidence of Debt
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33
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Section 2.10 Payments Generally; Administrative Agent’s Clawback
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34
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Section 2.11 Sharing of Payments by Lenders
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35
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Section 2.12 Extension Option
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36
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Section 2.13 Increase in Credit Facility
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36
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ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY
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38
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Section 3.01 Taxes
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38
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Section 3.02 Illegality
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|
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40
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Section 3.03 Inability to Determine Rates
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40
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Section 3.04 Increased Costs; Reserves on Eurodollar Rate Loans
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40
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Section 3.05 Compensation for Losses
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42
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Section 3.06 Mitigation Obligations; Replacement of Lenders
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43
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Section 3.07 Survival
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43
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ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
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43
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Section 4.01 Conditions of Initial Credit Extension
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43
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Section 4.02 Conditions to all Credit Extensions
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48
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ARTICLE V REPRESENTATIONS AND WARRANTIES
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48
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Section 5.01 Existence, Qualification and Power
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48
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Section 5.02 Authorization; No Contravention
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49
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Section 5.03 Governmental Authorization; Other Consents
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49
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Section 5.04 Binding Effect
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50
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Section 5.05 Financial Statements; No Material Adverse Effect
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|
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50
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Section 5.06 Litigation
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|
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51
|
|
i
TABLE OF CONTENTS
(continued)
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Section
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Page
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Section 5.07 No Default
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51
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Section 5.08 Subsidiaries and Equity Investments
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51
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Section 5.09 Ownership
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51
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Section 5.10 Ownership of Property; Liens
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52
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Section 5.11 Intellectual Property; Licenses, Etc
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52
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Section 5.12 Environmental Matters
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52
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Section 5.13 Security Documents
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52
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Section 5.14 Insurance
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53
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Section 5.15 Transactions with Affiliates
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53
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Section 5.16 Taxes
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53
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Section 5.17 ERISA Compliance
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53
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Section 5.18 Purpose of Loans
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54
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Section 5.19 Margin Regulations; Investment Company Act; Public Utility Holding
Company Act
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54
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Section 5.20 Disclosure
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54
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Section 5.21 Compliance with Laws
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55
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Section 5.22 Labor Matters
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55
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Section 5.23 Solvency
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55
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Section 5.24 Material Contracts
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55
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ARTICLE VI AFFIRMATIVE COVENANTS
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|
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56
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Section 6.01 Financial Statements
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|
|
56
|
|
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Section 6.02 Certificates; Other Information
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|
|
57
|
|
|
Section 6.03 Notices
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|
|
58
|
|
|
Section 6.04 Payment of Obligations
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|
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59
|
|
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Section 6.05 Preservation of Existence, Etc
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|
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59
|
|
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Section 6.06 Maintenance of Properties
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|
|
59
|
|
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Section 6.07 Maintenance of Insurance
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|
|
60
|
|
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Section 6.08 Compliance with Laws
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|
|
60
|
|
|
Section 6.09 Books and Records
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|
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60
|
|
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Section 6.10 Inspection Rights
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|
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61
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|
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Section 6.11 Further Assurances with Respect to Additional Subsidiary
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|
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61
|
|
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Section 6.12 Further Assurances with Respect to Additional Collateral
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|
|
61
|
|
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Section 6.13 Performance of Material Contracts, etc
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|
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62
|
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Section 6.14 Use of Proceeds
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|
|
62
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|
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|
|
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ARTICLE VII NEGATIVE COVENANTS
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|
|
62
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Section 7.01 Liens
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62
|
|
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Section 7.02 Investments
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|
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64
|
|
|
Section 7.03 Indebtedness
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|
|
64
|
|
|
Section 7.04 Fundamental Changes
|
|
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65
|
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Section 7.05 Dispositions
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|
|
67
|
|
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Section 7.06 Restricted Payments
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|
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68
|
|
ii
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
Section
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Page
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Section 7.07 Amendment, Etc
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|
|
68
|
|
|
Section 7.08 Change in Nature of Business
|
|
|
69
|
|
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Section 7.09 Transactions with Affiliates
|
|
|
69
|
|
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Section 7.10 Limitations on Restricted Actions
|
|
|
69
|
|
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Section 7.11 Sale-Leasebacks; Off-Balance Sheet Obligation
|
|
|
69
|
|
|
Section 7.12 [Reserved]
|
|
|
69
|
|
|
Section 7.13 Use of Proceeds
|
|
|
70
|
|
|
Section 7.14 Impairment of Security Interests
|
|
|
70
|
|
|
Section 7.15 Ownership of Subsidiaries and Other Restrictions Relating to the
Subsidiaries and the Loan Parties
|
|
|
70
|
|
|
Section 7.16 Partnerships, etc
|
|
|
70
|
|
|
Section 7.17 Fiscal Year and Accounting Method
|
|
|
70
|
|
|
Section 7.18 Financial Covenants
|
|
|
70
|
|
|
Section 7.19 Independent of Covenants
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|
|
70
|
|
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|
|
|
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|
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ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES
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|
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71
|
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|
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Section 8.01 Events of Default
|
|
|
71
|
|
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Section 8.02 Remedies Upon Event of Default
|
|
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73
|
|
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Section 8.03 Application of Funds
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|
74
|
|
|
|
|
|
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|
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ARTICLE IX ADMINISTRATIVE AGENT
|
|
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74
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|
|
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Section 9.01 Appointment and Authority
|
|
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74
|
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Section 9.02 Rights as a Lender
|
|
|
75
|
|
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Section 9.03 Exculpatory Provisions
|
|
|
75
|
|
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Section 9.04 Reliance by Administrative Agent
|
|
|
76
|
|
|
Section 9.05 Delegation of Duties
|
|
|
76
|
|
|
Section 9.06 Resignation of Administrative Agent
|
|
|
76
|
|
|
Section 9.07 Non-Reliance on Administrative Agent and Other Lenders
|
|
|
77
|
|
|
Section 9.08 No Other Duties, Etc
|
|
|
77
|
|
|
Section 9.09 Administrative Agent May File Proofs of Claim
|
|
|
77
|
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|
Section 9.10 Collateral and Guaranty Matters
|
|
|
78
|
|
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|
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|
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ARTICLE X MISCELLANEOUS
|
|
|
78
|
|
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|
|
|
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|
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Section 10.01 Amendments, Etc
|
|
|
78
|
|
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Section 10.02 Notices; Effectiveness; Electronic Communication
|
|
|
80
|
|
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Section 10.03 No Waiver; Cumulative Remedies
|
|
|
81
|
|
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Section 10.04 Expenses; Indemnity; Damage Waiver
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|
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82
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Section 10.05 Payments Set Aside
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|
|
83
|
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Section 10.06 Successors and Assigns
|
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|
84
|
|
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Section 10.07 Treatment of Certain Information; Confidentiality
|
|
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87
|
|
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Section 10.08 Right of Setoff
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|
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88
|
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Section 10.09 Interest Rate Limitation
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88
|
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Section 10.10 Counterparts; Integration; Effectiveness
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88
|
|
iii
TABLE OF CONTENTS
(continued)
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|
|
|
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|
|
Section
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Page
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Section 10.11 Survival of Representations and Warranties
|
|
|
89
|
|
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Section 10.12 Severability
|
|
|
89
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Section 10.13 Replacement of Lenders
|
|
|
89
|
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Section 10.14 Governing Law; Jurisdiction; Etc
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|
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90
|
|
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Section 10.15 Waiver of Jury Trial
|
|
|
91
|
|
|
Section 10.16 No Advisory or Fiduciary Responsibility
|
|
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91
|
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Section 10.17 Entire Agreement
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|
|
92
|
|
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Section 10.18 USA Patriot Act Notice
|
|
|
92
|
|
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Section 10.19 Time of the Essence
|
|
|
92
|
|
iv
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SCHEDULES
|
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|
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1.01A
|
|
Red Capital Term Sheet
|
|
2.01
|
|
Commitments and Applicable Percentages
|
|
5.03
|
|
Approvals and Consents
|
|
5.06
|
|
Litigation
|
|
5.09(b)
|
|
Ownership Structure
|
|
5.15
|
|
Transactions with Affiliates
|
|
5.24
|
|
Material Contracts
|
|
7.01
|
|
Existing Liens
|
|
7.03
|
|
Existing Indebtedness
|
|
10.02
|
|
Administrative Agent’s Office, Certain Addresses for Notices
|
|
|
|
|
|
EXHIBITS
|
|
|
|
|
|
|
|
Exhibit A
|
|
Form of Loan Notice
|
|
Exhibit B
|
|
Reserved
|
|
Exhibit C
|
|
Form of Note
|
|
Exhibit D
|
|
Form of Compliance Certificate
|
|
Exhibit E
|
|
Form of Assignment of Assumption
|
|
Exhibit F
|
|
Form of Guaranty Agreement
|
|
Exhibit G
|
|
Form of Joinder Agreement
|
|
Exhibit H
|
|
Opinion Matters
|
|
Exhibit I
|
|
Form of Pledge and Security Agreement
|
v
CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT (this “
Agreement
”) is entered into as of
February 5, 2007 among HOLLIDAY FENOGLIO FOWLER, L.P., a limited partnership organized under the
laws of the State of Texas (“
Borrower
”), each lender from time to time party hereto
(collectively, the “
Lenders
” and individually, a “
Lender
”), and BANK OF AMERICA,
N.A., as Administrative Agent. Capitalized terms used herein shall have the meanings assigned
thereto in
Section 1.01
of this Agreement.
RECITALS:
WHEREAS, the Borrower, HFF Holdings LLC, a Delaware limited liability company, each lender
party thereto and the Administrative Agent are parties to that certain Credit Agreement, dated as
of March 29, 2006 (as amended to the date hereof, the “
Existing Credit Agreement
”),
pursuant to which certain credit facilities have been made available to the Borrower;
WHEREAS, the Borrower has requested that the Lenders amend and restate the Existing Credit
Facility to provide a revolving credit facility to the Borrower in the aggregate principal amount
of $40,000,000; and
WHEREAS, the Lenders are willing to amend and restate the Existing Credit Facility and make
such revolving credit facility available to the Borrower on the terms and conditions set forth
herein;
NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the
parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 Defined Terms
. As used in this Agreement, the following terms shall have the
meanings set forth below:
“
Acquisition
”, by any Person, means the purchase or acquisition in a single
transaction or a series of related transactions by any such Person, individually or, together with
its Affiliates, of (a) any Equity Interest of any other Person (other than a Loan Party) which are
sufficient such that such other Person becomes a direct or indirect Subsidiary of such Person (or
either of them) or (b) all or a substantial portion of the Property, including, without limitation,
all or a substantial portion of the property comprising a division, unit or line of business, of
any other Person (other than a Loan Party), whether involving a merger or consolidation with such
other Person. “
Acquire
” has a meaning correlative thereto.
“
Administrative Agent
” means Bank of America in its capacity as administrative agent
and collateral agent, as applicable, under any of the Loan Documents, or any successor
administrative agent and collateral agent, as provided in
Section 9.06
.
“
Administrative Agent’s Office
” means the Administrative Agent’s address and, as
appropriate, account as set forth on
Schedule 10.02
, or such other address or account as to
which the Administrative Agent may from time to time notify to the Borrower and the Lenders.
“
Administrative Questionnaire
” means an Administrative Questionnaire in a form
supplied by the Administrative Agent.
“
Affiliate
” means, with respect to any Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.
“
Agreement
” means this Amended and Restated Credit Agreement, as amended, amended and
restated, supplemented or otherwise modified from time to time.
“
Applicable Percentage
” means with respect to any Lender at any time, the percentage
(carried out to the ninth decimal place) of (i) the Commitment of such Lender at such time as
compared to the aggregate Commitments of all Lenders at such time, and (ii) if the Commitment of
each Lender to make Loans has been terminated pursuant to
Section 8.02
or if the aggregate
Commitments of all Lenders have expired, then the Applicable Percentage of each Lender shall be
determined based on the Applicable Percentage of such Lender most recently in effect, giving effect
to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth
opposite the name of such Lender on
Schedule 2.01
or in the Assignment and Assumption
pursuant to which such Lender becomes a party hereto, as applicable.
“
Applicable Rate
” means, a per annum rate equal to: (a) with respect to Base Rate
Loans, one and one-half of one percent (1.50%), and (b) with respect to Eurodollar Rate Loans, the
applicable percentage per annum set forth below determined by reference to the Consolidated
Leverage Ratio as set forth in the most recent Compliance Certificate received by the
Administrative Agent pursuant to Section 6.02(b):
|
|
|
|
|
|
|
Applicable Rate
|
|
Pricing
|
|
Consolidated
|
|
|
|
Level
|
|
Leverage Ratio
|
|
Eurodollar Rate
|
|
1
|
|
£
1.00:1
|
|
1.50%
|
|
2
|
|
>1.00:1 but
£
2.00:1
|
|
1.75%
|
|
3
|
|
>2.00:1
|
|
2.00%
|
Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated
Leverage Ratio shall become effective as of the first Business Day immediately following the date a
Compliance Certificate is delivered pursuant to
Section 6.02(b)
;
provided
,
however
, that if a Compliance Certificate is not delivered when due in accordance with such
Section, then Pricing Level 3 shall apply as of the first Business Day after the date on which such
Compliance Certificate was required to have been delivered.
“
Approved Bank
” has the meaning specified in the definition of “
Cash
Equivalents
”.
2
“
Approved Fund
” means any Fund that is administered or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a
Lender.
“
Arranger
” means Banc of America Securities in its capacity as sole lead arranger and
sole book manager.
“
Assignee Group
” means two or more Eligible Assignees that are Affiliates of one
another or two or more Approved Funds managed by the same investment advisor.
“
Assignment and Assumption
” means an assignment and assumption entered into by a
Lender and an Eligible Assignee (with the consent of any party whose consent is required by
Section 10.06(b))
, and accepted by the Administrative Agent, in substantially the form of
Exhibit E
or any other form approved by the Administrative Agent.
“
Attorney Costs
” means and includes all reasonable fees, expenses and disbursements of
any law firm or other external counsel, and without duplication, the allocated cost of internal
legal services and all expenses and disbursements of internal counsel.
“
Attributable Indebtedness
” means, on any date, (a) in respect of any Capitalized
Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such
Person prepared as of such date in accordance with GAAP, and (b) in respect of any Off-Balance
Sheet Obligation, the capitalized amount of the remaining lease payments under the relevant lease
that would appear on a balance sheet of such Person prepared as of such date in accordance with
GAAP if such lease were accounted for as a Capitalized Lease.
“
Audited Financial Statements
” means the audited consolidated balance sheet of the
Operating Companies for the fiscal quarter ended September 30, 2006, and the related consolidated
statements of income or operations, shareholders’ equity and cash flows for each fiscal year of the
Borrower and its Subsidiaries, including the notes thereto.
“
Availability
” means, as of any date of determination, an amount equal to 300% of Free
Cash Flow as of such date. Any increase or decrease in Availability shall become effective as of
the first Business Day immediately following the date a Compliance Certificate is delivered
pursuant to
Section 6.02(b)
.
“
Availability Period
” means the period from and including the Closing Date to the
earliest of (a) the Maturity Date, (b) the date of termination of the Commitments pursuant to
Section 2.04
, and (c) the date of termination of the Commitment of each Lender to make
Loans pursuant to
Section 8.02
.
“
Bank of America
” means Bank of America, N.A. and its successors.
“
Banc of America Securities
” means Banc of America Securities LLC and its successors.
“
Base Rate
” means for any day a fluctuating rate per annum equal to the higher of (a)
the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as
publicly
3
announced from time to time by Bank of America as its “prime rate.” The “prime rate” is a
rate set by Bank of America based upon various factors including Bank of America’s costs and
desired return, general economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such announced rate. Any change in
such rate announced by Bank of America shall take effect at the opening of business on the day
specified in the public announcement of such change.
“
Base Rate Loan
” means a Loan that bears interest at the Base Rate.
“
Borrower
” has the meaning specified in the introductory paragraph hereto.
“
Borrower Warehoused Loans
” means mortgage loans made by the Borrower using the
proceeds of the Warehousing Facilities (or any one of them), underwritten in accordance with
Freddie Mac or Fannie Mae multifamily loan standards, and for which Freddie Mac or Fannie Mae has
issued a purchase commitment to purchase such loan(s) within sixty (60) days of such loan(s)
initial loan closing (or such longer period of time as may then be provided under form Freddie Mac
or Fannie Mae commitments with respect to such loans not to exceed ninety (90) days). The parties
hereby acknowledge that the Borrower is a Freddie Mac Seller/Servicer, but is not presently a
Fannie Mae DUS lender, and that the provisions with respect to Fannie Mae shall have no force or
effect until such time, if ever, that HFF becomes a Fannie Mae DUS lender.
“
Borrowing
” means a borrowing consisting of simultaneous Loans of the same Type and,
in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Lenders
pursuant to
Section 2.01(a)
.
“
Business Day
” means any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the Laws of, or are in fact closed in, the state
where the Administrative Agent’s Office is located and, if such day relates to any Eurodollar Rate
Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in
the London interbank eurodollar market.
“
Capital Assets
” means, with respect to any Person, all equipment, fixed assets and
real property or improvements of such Person, or replacements or substitutions therefor or
additions thereto, that, in accordance with GAAP, have been or should be reflected as additions to
property, plant or equipment on the balance sheet of such Person or that have a useful life of more
than one year.
“
Capitalized Lease
” means, as applied to any Person, any lease of any Property
(whether real, personal or mixed) by that Person as lessee, which in accordance with GAAP, is or
should be accounted for as a capital lease on the balance sheet of such Person.
“
Cash Equivalents
” means:
(a) securities issued or directly and fully guaranteed or insured by the United States
of America or any agency or instrumentality thereof (
provided
that the full faith
4
and credit of the United States of America is pledged in support thereof) having maturities
of not more than twelve (12) months from the date of acquisition;
(b) marketable obligations issued by any State of the United States of America or any
local government or other political subdivision thereof rated (at the time of acquisition of
such security) at least “
AA
” by S&P, or the equivalent thereof by Moody’s having maturities
of not more than one year from the date of acquisition;
(c) time deposits (including eurodollar time deposits), certificates of deposit
(including eurodollar certificates of deposit) and bankers’ acceptances of (i) any Lender or
any Affiliate of any Lender, (ii) any commercial bank of recognized standing either
organized under the laws of the United States (or any State or territory thereof) having
capital and surplus in excess of $100,000,000 and fully insured by FDIC or (iii) any bank
whose short-term commercial paper rating (at the time of acquisition of such security) by
S&P is at least “
A-1
” or the equivalent thereof (any such bank, an “
Approved Bank
”),
in each case with maturities of not more than one year from the date of acquisition;
(d) commercial paper and variable or fixed rate notes issued by any Lender or Approved
Bank or by the parent company of any Lender or Approved Bank and commercial paper and
variable rate notes issued by, or guaranteed by, any industrial or financial company with a
short-term commercial paper rating (at the time of acquisition of such security) of at least
“
A-1
” or the equivalent thereof by S&P or at least “
P-1
” or the equivalent thereof by
Moody’s, or guaranteed by any industrial company with a long-term unsecured debt rating (at
the time of acquisition of such security) of at least “
Aa
” or the equivalent thereof by
Moody’s and in each case maturing within one year after the date of acquisition;
(e) debt instruments of a domestic issuer (other than any Loan Party) which mature in
one (1) year or less and which are rated “A” or better by Moody’s or S&P on the date of
acquisitions of such investment;
(f) short term tax exempt securities including municipal notes, commercial paper,
auction rate floaters, and floating rate notes rated either “P-1” by Moody’s or “A-1” by
S&P;
(g) shares of money market, mutual, or similar funds which invest primarily in
securities of the type described in (a) – (f) above; and
(h) repurchase agreements with any Lender or any primary dealer maturing within one
year from the date of acquisition that are fully collateralized by investment instruments
that would otherwise be Cash Equivalents;
provided
that the terms of such repurchase
agreements comply with the guidelines set forth in the “
Federal Financial
Institutions Examinations Council Supervisory Policy – Repurchase Agreements of
Depository Institutions With Securities Dealers and Others, as adopted by the Comptroller of
the Currency in October 31, 1985
”.
5
“
Cash Management Bank
” means any party to a Cash Management Services Agreement with
the Loan Parties, or any of them, which party was a Lender or an Affiliate of a Lender under this
Agreement at the time it entered into such Cash Management Services Agreement.
“
Cash Management Services Agreement
” means any agreement to provide management
services, including treasury, depository, overdraft, credit or debit card, electronic funds
transfer and other cash management services that is entered into by and between a Loan Party and
any Cash Management Bank.
“
Casualty
” means any casualty or other loss, damage or destruction to any property of
a Loan Party.
“
Change in Law
” means the occurrence, after the date of this Agreement, of any of the
following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change
in any law, rule, regulation or treaty or in the administration, interpretation or application
thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or
directive (whether or not having the force of law) by any Governmental Authority.
“
Change of Control
” means, an event or series of events by which:
(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, but excluding HFF Holdings) becomes the “beneficial owner”
(as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that
a person or group shall be deemed to have “beneficial ownership” of all securities that such
person or group has the right to acquire (such right, an “
option right
”), whether
such right is exercisable immediately or only after the passage of time), directly or
indirectly, of thirty percent (30.00%) or more of the Voting Securities of HFF on a
fully-diluted basis (and taking into account all such securities that such person or group
has the right to acquire pursuant to any option right); or
(b) during any period of 12 consecutive months, a majority of the members of the board
of directors or other equivalent governing body of HFF cease to be composed of individuals
(i) who were members of that board or equivalent governing body on the first day of such
period, (ii) whose election or nomination to that board or equivalent governing body was
approved by individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing body or
(iii) whose election or nomination to that board or other equivalent governing body was
approved by individuals referred to in clauses (i) and (ii) above constituting at the time
of such election or nomination at least a majority of that board or equivalent governing
body (excluding, in the case of both clause (ii) and clause (iii), any individual whose
initial nomination for, or assumption of office as, a member of that board or equivalent
governing body occurs as a result of an actual or threatened
solicitation of proxies or consents for the election or removal of one or more
directors by any Person or group holding shares of Class A common Equity Interests in HFF
other than a solicitation for the election of one or more directors by or on behalf of the
board of directors); or
6
(d) GP Corp. shall cease to be the only general partner of the Operating Companies; or
(e) HFF Acquisition, HFF Partnership Holdings or at least one of them, shall cease to
be the only limited partner(s) of the Operating Companies; or
(f) HFF shall cease to be the sole member of HFF Partnership Holdings; or
(g) HFF Holdings shall cease to be the sole member of HFF Acquisition for so long as
HFF Acquisition is a limited partner of the Operating Companies.
“
Closing Date
” means the first date all the conditions precedent in
Section
4.01
are satisfied or waived in accordance with
Section 4.01
(or, in the case of
Section 4.01 (k)
, waived by the Person entitled to receive the applicable payment).
“
Code
” means the Internal Revenue Code of 1986.
“
Collateral
” means all the “Collateral” referred to in the Collateral Documents and
any other assets and property that are or are intended under the terms of the Collateral Documents
to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties;
provided
,
that
, the parties acknowledge that assets and property acquired after the
Closing Date, as permitted herein or otherwise, of the type described in the Collateral Documents
are and shall be pledged to the Administrative Agent for the benefit of the Secured Parties as
contemplated by
Sections 6.11
and
6.12
.
“
Collateral Documents
” means, collectively, the Pledge and Security Agreement, the
Perfection Certificate, each Perfection Certificate Supplement and any other security agreements,
pledge agreements or similar instruments delivered to the Administrative Agent as collateral agent
from time to time pursuant to
Sections 6.11
and
6.12
, and each other agreement,
instrument or document that creates or purports to create a Lien in favor of the Administrative
Agent for the benefit of the Secured Parties.
“
Commitment
” means, as to each Lender, its obligation to (a) make Loans to the
Borrower pursuant to
Section 2.01(a)
, in an aggregate principal amount at any one time
outstanding not to exceed the amount set forth opposite such Lender’s name on
Schedule 2.01
or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as
applicable, as such amount may be adjusted from time to time in accordance with this Agreement and
“
Commitments
” means the Commitments of all the Lenders.
“
Commitment Fee
” has the meaning specified in
Section 2.07(a)
.
“
Compliance Certificate
” means a certificate substantially in the form of
Exhibit
D
hereto.
“
Condemnation
” means any taking of Property, or any part thereof or interest therein,
for public or quasi-public use under the power of eminent domain, by reason of any public
improvement or condemnation proceeding, or in any other manner.
7
“
Condemnation Award
” means all proceeds of any Condemnation or transfer in lieu
thereof.
“
Consolidated Capital Expenditures
” means, for any period, for the HFF Consolidated
Group determined on a consolidated basis, without duplication (a) all expenditures made directly or
indirectly during such period for Capital Assets (whether paid in cash or other consideration or
accrued as a liability and including, without limitation, all expenditures for maintenance and
repairs which are required, in accordance with GAAP, to be capitalized on the books of such
Persons) and (b) solely to the extent not otherwise included in clause (a) of this definition, the
aggregate principal amount of all Indebtedness (including, without limitation, obligations in
respect of Capitalized Leases) assumed or incurred during such period in connection with any such
expenditures for Capital Assets. For purposes of this definition, the purchase price of equipment
that is purchased simultaneously with the trade-in of existing equipment or with insurance proceeds
with respect to any Casualty shall be included in Consolidated Capital Expenditures only to the
extent of the gross amount by which such purchase price exceeds the credit granted by the seller of
such equipment for the equipment being traded in at such time or the amount of such insurance
proceeds, as the case may be.
“
Consolidated Cash Interest Charges
” means for any period, for the HFF Consolidated
Group (including the pro-rata share of any recourse obligations of non-consolidated Affiliates)
determined on a consolidated basis, Consolidated Interest Charges for such period;
provided
that all non-cash interest expense shall be excluded.
“
Consolidated Cash Taxes
” means, for any period, for the HFF Consolidated Group
determined on a consolidated basis, the aggregate amount of all taxes of such Persons, determined
on a consolidated basis to the extent the same are paid or payable in cash, accrued or capitalized
by such Persons during such period.
“
Consolidated EBITDA
” means, for any period, for the HFF Consolidated Group (including
the pro-rata share of any recourse obligations of non-consolidated Affiliates) determined on a
consolidated basis, an amount equal to Consolidated Net Income for such period,
plus
(a)
the following, to the extent deducted in calculating such Consolidated Net Income: (i)
Consolidated Interest Charges for such period; (ii) the provision for federal, state, local and
foreign income taxes payable by such Person for such period; (iii) depreciation and amortization
expense; and (iv) other non-recurring expenses reducing Consolidated Net Income which do not
represent a cash item in such period or any future period and
minus
(b) the following to
the extent included in calculating such Consolidated Net Income: (i) Federal, state, local and
foreign income tax credits of the Loan Parties and their Subsidiaries for such period and (ii) all
non-cash items increasing Consolidated Net Income for such period.
“
Consolidated Fixed Charge Coverage Ratio
” means, for any Reference Period, the ratio
of (a) Consolidated EBITDA for such period, to (b) Consolidated Fixed Charges for such period;
provided
,
that,
Consolidated EBIDTA shall not include amounts attributable to
Warehousing Collateral and Consolidated Fixed Charges shall not include amounts attributable to the
Warehousing Facilities.
8
“
Consolidated Fixed Charges
” means, for any period, for the HFF Consolidated Group
determined on a consolidated basis, the sum of (a) Consolidated Cash Interest Charges for such
period
plus
(b) Consolidated Scheduled Debt Payments for such period
plus
(c) all
mandatory tax payments (whether by contract or otherwise) made or to be made by any Loan Party to
HFF, HFF Holdings or any holder of their respective Equity Interests,
plus
(d) all tax
distributions (including without limitation all Quarterly Tax Distributions) made by the HFF
Consolidated Group to any of HFF or HFF Holdings, without duplication of amounts paid under clause
(c) above,
plus
(e) to the extent not covered by clauses (c) or (d) above, Consolidated
Cash Taxes for such period.
“
Consolidated Funded Indebtedness
” means, for the HFF Consolidated Group determined on
a consolidated basis, as of any date of determination, the sum of (a) the outstanding principal
amount of all obligations, whether current or long-term, for borrowed money (including the
Obligations hereunder) and all obligations evidenced by bonds, debentures, notes, loan agreements
or other similar instruments, (b) all purchase money Indebtedness (except as provided in clause (d)
below), (c) all direct obligations arising under letters of credit (including standby and
commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments, (d) all
obligations in respect of the deferred purchase price of property or services (other than trade
accounts payable in the ordinary course of business), (e) Attributable Indebtedness in respect of
Capitalized Leases and Off-Balance Sheet Obligations (for the avoidance of doubt, payments under
Operating Leases shall not be included in the determination of Consolidated Funded Indebtedness
unless such Operating Leases result in Off-Balance Sheet Obligations), (f) without duplication all
Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through
(e) above, and (g) all Indebtedness of the types referred to in clauses (a) through (f) above of
any partnership or joint venture (other than a joint venture that is itself a corporation or
limited liability company) in which such Person is a general partner or joint venturer, unless such
Indebtedness is expressly made non-recourse (except for customary exceptions to non-recourse
provisions such as fraud, misappropriation of funds and environmental liabilities) to such Person
or any such Subsidiary.
“
Consolidated Interest Charges
” means, for any period, for the HFF Consolidated Group
(including the pro-rata share of any recourse obligations of non-consolidated Affiliates)
determined on a consolidated basis, the sum of all interest, premium payments, debt discount, fees,
charges and related expenses in connection with Indebtedness (including capitalized interest) or in
connection with the deferred purchase price of assets, in each case to the extent treated as
interest in accordance with GAAP, including the portion of rent expense with respect to such period
under Capitalized Leases that is treated as interest in accordance with GAAP.
“
Consolidated Leverage Ratio
” means, as of any date of determination, the ratio of (a)
Consolidated Funded Indebtedness as of such date, to (b) Consolidated EBITDA for the Reference
Period most recently ended on or prior to such date;
provided
,
that
, Consolidated
Funded Indebtedness shall not include any amounts attributable to the Warehousing Facilities and
Consolidated EBITDA shall not include any amounts attributable to the Warehousing Collateral.
9
“
Consolidated Net Income
” means, for any period, for the HFF Consolidated Group
determined on a consolidated basis, the Net Income of such Persons for that period.
“
Consolidated Scheduled Debt Payments
” means, for any period for the HFF Consolidated
Group (including the pro-rata share of any recourse obligations of non-consolidated Affiliates)
determined on a consolidated basis, the sum of all scheduled payments of principal on Consolidated
Funded Indebtedness (including, without limitation, the principal component of Capitalized Leases
paid or payable during such period, but excluding payments due on Loans during such period);
provided
that Consolidated Scheduled Debt Payments for any period shall not include (i)
voluntary prepayments of Consolidated Funded Indebtedness, (ii) mandatory prepayments of
Consolidated Funded Indebtedness, or (iii) any balloon, bullet or similar final payment.
“
Consolidated Subsidiary
” means with respect to any Person at any date any Subsidiary
of such Person or other entity the accounts of which would be consolidated with those of such
Person in its consolidated financial statements if such statements were prepared as of such date in
accordance with GAAP.
“
Contractual Obligation
” means, as to any Person, any provision of any security issued
by such Person, or of any agreement, instrument or other undertaking to which such Person is a
party or by which it or any of its property is bound.
“
Control
” means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise. “
Controlling
” and “
Controlled
”
have meanings correlative thereto.
“
Credit Extension
” means a Borrowing.
“
Credit Facility
” as of any date means (a) on any date during the Availability Period,
the aggregate Commitments of all Lenders and (b) at any time after the Commitment of each Lender to
make Loans has been terminated pursuant to
Section 8.02
or if the aggregate Commitments of
all Lenders has expired, the Total Outstandings on such date.
“
Debt Issuance
” means the issuance by any Loan Party of any Indebtedness for borrowed
money;
provided
,
that
, the foregoing shall not be deemed to imply that any such
Debt Issuance is permitted under this Agreement.
“
Debtor Relief Laws
” means the Bankruptcy Code of the United States, and all other
liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the
United States or other applicable jurisdictions from time to time in effect and affecting the
rights of creditors generally.
“
Default
” means any event or condition that constitutes an Event of Default or that,
with the giving of any notice, the passage of time, or both, would be an Event of Default.
10
“
Default Rate
” means an interest rate equal to (a) in the case of Eurodollar Rate
Loans, the sum of (i) the Eurodollar Rate for such Loans,
plus
(ii) the Applicable Rate
applicable to such Loans,
plus
(iii) 2% per annum, and (b) in the case of Base Rate Loans
and for all other Obligations, the sum of (i) the Base Rate
plus
(ii) the Applicable Rate,
if any, applicable to Base Rate Loans,
plus
(iii) 2% per annum.
“
Defaulting Lender
” means any Lender that (a) has failed to fund any portion of a
Borrowing required to be funded by it hereunder within one Business Day of the date required to be
funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any
other Lender any other amount required to be paid by it hereunder within one Business Day of the
date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or
become the subject of a bankruptcy or insolvency proceeding.
“
Disposition
” or “
Dispose
” means the sale, transfer, license, lease, Casualty
or Condemnation or other disposition (including any Sale and Leaseback Transaction or any sale of
any Equity Interest of any Subsidiary) of any property by any Person, including any sale,
assignment, transfer or other disposal, with or without recourse, of any notes issued by any other
Person or accounts receivable or any rights and claims associated therewith or any capital stock
of, or other Equity Interests in, any other Person;
provided
that the foregoing shall not
be deemed to imply that any such disposition is permitted under this Agreement. The term
“Disposition” shall not include any Equity Issuance.
“
Dollar
” and “
$
” mean lawful money of the United States.
“
Domestic Subsidiary
” means a Subsidiary that is organized under the Laws of a
political subdivision of the United States.
“
Eligible Assignee
” means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved
Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative
Agent and (ii) unless an Event of Default has occurred and is continuing, the Borrower (such
approval not to be unreasonably withheld or delayed);
provided
that notwithstanding the
foregoing, “Eligible Assignee” shall not include the Loan Parties or any of their Affiliates or
Subsidiaries.
“
Environmental Laws
” means any and all Federal, state, local, and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the environment, including
those related to hazardous substances or wastes, air emissions and discharges to waste or public
systems.
“
Environmental Liability
” means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any
Loan Party directly or indirectly resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any
Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release
of any Hazardous Materials into the environment or (e) any contract, agreement or other
11
consensual
arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“
Equity Interests
” means, with respect to any Person, all of the shares of capital
stock of (or other ownership or profit interests in) such Person, all of the warrants, options or
other rights for the purchase or acquisition from such Person of shares of capital stock of (or
other ownership or profit interests in) such Person, all of the securities convertible into or
exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person
or warrants, rights or options for the purchase or acquisition from such Person of such shares (or
such other interests), and all of the other ownership or profit interests in such Person (including
partnership, member or trust interests therein), whether voting or nonvoting, and whether or not
such shares, warrants, options, rights or other interests are outstanding on any date of
determination;
provided
,
however
, that “Voting Units” and “Voting Interests” issued
to “Voting Right Holders” (each as defined in the Partnership Agreements) pursuant to and as
governed by Section 3.3 of the Partnership Agreement of Borrower in effect on the date hereof, and
as such provisions may be amended with the consent of the Required Lenders, shall not constitute
Equity Interests.
“
Equity Issuance
” means any issuance by any Loan Party of any capital stock or other
Equity Interests to any Person or receipt by any Loan Party of a capital contribution from any
Person, including the issuance of Equity Interests pursuant to the exercise of options or warrants
and the conversion of any Indebtedness to equity;
provided
that the foregoing shall not be
deemed to imply that any such issuance is permitted under this Agreement.
“
ERISA
” means the Employee Retirement Income Security Act of 1974.
“
ERISA Affiliate
” means any trade or business (whether or not incorporated) under
common control with any Loan Party within the meaning of Section 414(b) or (c) of the Code (and
Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the
Code).
“
ERISA Event
” means (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2)
of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e)
of ERISA; (c) a complete or partial withdrawal by any Loan Party or any ERISA Affiliate from a
Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan
amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon any Loan Party or any ERISA Affiliate.
“
Eurodollar Rate
” means for any Interest Period with respect to any Eurodollar Rate
Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as
published by Reuters (or other commercially available source providing quotations
12
of BBA LIBOR as
designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for
delivery on the first day of such Interest Period) with a term equivalent to such Interest Period.
If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such
Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate
at which deposits in Dollars for delivery on the first day of such Interest Period in same day
funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by
Bank of America and with a term equivalent to such Interest Period would be offered by Bank of
America’s London Branch to major banks in the London interbank eurodollar market at their request
at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such
Interest Period.
“
Eurodollar Rate Loan
” means a Loan that bears interest at the Eurodollar Rate.
“
Event of Default
” has the meaning specified in
Section 8.01
.
“
Excess Cash Flow
” means, for any fiscal year, an amount equal to the sum of
Consolidated Net Income (after all interest payments on the Loans) for such period
minus
(i) in each case to the extent not already deducted from Consolidated Net Income, Profit
Participation Payments, (ii) all other Restricted Payments theretofore made as of the end of such
year and (iii) Consolidated Capital Expenditures made as of such year.
“
Exchange Right
” means the right of HFF Holdings LLC (or its members) from time to
time to cause HFF Acquisition to exchange, on a cash-less basis, all or a portion of HFF
Acquisition’s limited partnership interests in the Operating Companies for shares of Class A common
Equity Interests of HFF pursuant to the terms of the Organization Documents of HFF, HFF Holdings
LLC and their subsidiaries; provided that at all times the Administrative Agent, for the benefit of
the Secured Parties, shall have, directly or indirectly, a valid, first-priority, perfected
security interest in 100% of the Pledged Equity Interests.
“
Excluded Subsidiary
” means HFF Securities and any Subsidiary of any member of the HFF
Consolidated Group which is a Subchapter C Corporation that (i) exists solely for the purpose of
holding broker or similar type licenses, (ii) whose only assets are broker or similar
type licenses, and (iii) is prohibited from pledging its assets as Collateral pursuant to the
terms of such licenses. As of the Closing Date, HFF Securities is the only Excluded Subsidiary.
“
Excluded Taxes
” means, with respect to the Administrative Agent, any Lender, or any
other recipient of any payment to be made by or on account of any obligation of the Borrower
hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and
franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political
subdivision thereof) under the laws of which such recipient is organized or in which its principal
office is located or, in the case of any Lender, in which its applicable Lending Office is located,
(b) any branch profits taxes imposed by the United States or any similar tax imposed by any other
jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender, any
withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign
Lender becomes a party hereto (or designates a new Lending Office) or is attributable to
13
such
Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with
Section 3.01(e)
, except to the extent that such Foreign Lender (or its assignor, if any)
was entitled, at the time of designation of a new Lending Office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax pursuant to
Section
3.01(a)
.
“
Existing Credit Agreement
” has the meaning specified in the Recitals to this
Agreement.
“
Extension Fee
” means the amount equal to the product of (i) the aggregate principal
amount of all Commitments as of the date of extension, multiplied by, (ii) two tenths of one
percent (0.20%).
“
Extension Option
” has the meaning specified in
Section 2.12
.
“
Fannie Mae
” means the Federal National Mortgage Association, and its successors.
“
Federal Funds Rate
” means, for any day, the rate per annum equal to the weighted
average of the rates on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding such day;
provided
that (a) if such day is not
a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such
rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%)
charged to Bank of America on such day on such transactions as determined by the Administrative
Agent.
“
Fee Letter
” means the fee letter agreement dated January 8, 2007, among the Borrower,
Bank of America, and the Arranger.
“
Foreign Lender
” means any Lender that is organized under the laws of a jurisdiction
other than that in which the Borrower is resident for tax purposes. For purposes of this
definition, the United States, each State thereof and the District of Columbia shall be deemed to
constitute a single jurisdiction.
“
Foreign Subsidiary
” means a Subsidiary that is not organized under the Laws of a
political subdivision of the United States or a state thereof.
“
FRB
” means the Board of Governors of the Federal Reserve System of the United States.
“
Freddie Mac
” means the Federal Home Loan Mortgage Corporation and its successors.
“
Free Cash Flow
” means, as of any date of determination, Consolidated EBITDA
minus
Consolidated Fixed Charges, in each case, determined by reference to the most recent
Compliance Certificate received by the Administrative Agent pursuant to
Section 6.02(b)
.
14
“
Fund
” means any Person (other than a natural person) that is (or will be) engaged in
making, purchasing, holding or otherwise investing in commercial loans and similar extensions of
credit in the ordinary course of its activities.
“
GAAP
” means generally accepted accounting principles in the United States set forth
in the opinions and pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial Accounting
Standards Board or such other principles as may be approved by a significant segment of the
accounting profession in the United States, that are applicable to the circumstances as of the date
of determination, consistently applied.
“
GP Corp
.” means Holliday GP Corp., a corporation organized under the laws of the
State of Delaware.
“
Governmental Authority
” means the government of the United States or any other
nation, or of any political subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government (including any supra-national bodies such as the European Union or the European Central
Bank).
“
Guarantee
” means, as to any Person, (a) any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other
obligation payable or performable by another Person (the “primary obligor”) in any manner, whether
directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or
other obligation, (ii) to purchase or lease property, securities or services for the purpose of
assuring the obligee in respect of such Indebtedness or other obligation of the payment or
performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity
capital or any other financial statement condition or liquidity or level of income or cash flow of
the primary obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in
respect of such Indebtedness or other obligation of the payment or performance thereof or to
protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any
assets of such Person securing any Indebtedness or other obligation of any other Person,
whether or not such Indebtedness or other obligation is assumed by such Person (or any right,
contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount
of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the
related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if
not stated or determinable, the maximum reasonably anticipated liability in respect thereof as
determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a
corresponding meaning.
“
Guaranty Agreement
” means the Guaranty Agreement duly executed by GP Corp., HFF
Acquisition, HFF Partnership Holdings and each Subsidiary Guarantor which may hereafter be
15
joined
as a Guarantor pursuant to the provisions hereof substantially in the form of
Exhibit F
hereto.
“
Hazardous Materials
” means all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to
any Environmental Law.
“
HFF
” means HFF, Inc., a corporation organized under the laws of the State of
Delaware.
“
HFF Acquisition
” means HFF LP Acquisition LLC, a limited liability company organized
under the laws of the State of Delaware.
“
HFF Consolidated Group
” means HFF Partnership Holdings, HFF Acquisition, GP Corp.,
the Borrower and HFF Securities and, without duplication, their Consolidated Subsidiaries. For the
avoidance of doubt, neither HFF nor HFF Holdings shall be considered or deemed to be part of the
HFF Consolidated Group.
“
HFF Holdings
” means HFF Holdings LLC, a limited liability company organized under the
laws of the State of Delaware.
“
HFF Holdings Operating Agreement
” means the Amended and Restated Limited Liability
Company Agreement of HFF Holdings dated as of March 29, 2006, as the same may be further amended,
supplemented or otherwise modified from time to time as permitted by this Agreement.
“
HFF Partnership Holdings
” means HFF Partnership Holdings LLC, a limited liability
company organized under the laws of the state of Delaware.
“
HFF Securities
” means HFF Securities L.P., a limited partnership organized under the
laws of the state of Delaware.
“
Indebtedness
” means, as to any Person at a particular time, without duplication, all
of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations of such Person for borrowed money and all obligations of such
Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) all direct or contingent obligations of such Person arising under letters of
credit, bankers’ acceptances, bank guaranties, surety bonds and similar instruments;
(c) net payment obligations of such Person under any Swap Contract;
(d) all obligations of such Person to pay the deferred purchase price of property or
services (other than trade accounts payable in the ordinary course of business);
16
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property
owned or being purchased by such Person (including indebtedness arising under conditional
sales or other title retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse;
(f) Capitalized Leases and Off-Balance Sheet Obligations;
(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise
make any payment in respect of any Equity Interest in such Person or any other Person,
valued, in the case of a redeemable preferred interest, at the greater of its voluntary or
involuntary liquidation preference
plus
accrued and unpaid dividends;
(h) all Indebtedness in respect of any of the foregoing of another Person secured by
(or for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on the property, including, without limitation,
accounts and contract rights owned by such Person, even though such Person has not assumed
or become liable for such Indebtedness; and
(i) all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture (other than a joint venture that is itself a corporation or limited
liability company) in which such Person is a general partner or a joint venturer in an amount
proportionate to such Person’s interest therein, unless such Indebtedness is expressly made
non-recourse to such Person or except to the extent such Indebtedness is owed by such partnership
or joint venture to such Person. The amount of any net obligation under any Swap Contract on any
date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of any
Capitalized Lease or Off-Balance Sheet Obligation as of any date shall be deemed to be the amount
of Attributable Indebtedness in respect thereof as of such date.
“
Indemnified Taxes
” means Taxes other than Excluded Taxes.
“
Indemnitees
” has the meaning specified in
Section 10.04(b)
.
“
Indemnity Obligations
” means customary director and officer indemnification
obligations of HFF, GP Corp. and HFF Partnership Holdings to their respective officers and
directors pursuant to its Organization Documents.
“
Information
” has the meaning specified in
Section 10.07
.
“
Intercompany Notes
” has the meaning specified in the Pledge and Security Agreement.
“
Interest Payment Date
” means (a) as to any Eurodollar Rate Loan, the last day of each
Interest Period applicable to such Loan and the Maturity Date for such Loan;
provided
,
however
, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the
respective dates that fall every three months after the beginning of such Interest Period shall
also be Interest
17
Payment Dates, and (b) as to any Base Rate Loan, the last Business Day of each
March, June, September and December and the Maturity Date for such Loan.
“
Interest Period
” means, as to each Eurodollar Rate Loan, the period commencing on the
date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan
and ending on the date one, two, three, six or twelve months thereafter, as selected by the
Borrower in the Loan Notice;
provided
that:
(a) any Interest Period that would otherwise end on a day that is not a Business Day
shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar
Rate Loan, such Business Day falls in another calendar month, in which case such Interest
Period shall end on the immediately preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of the calendar month at the end
of such Interest Period; and
(c) no Interest Period shall extend beyond the Maturity Date for the applicable Loan.
“
Investment
” means, as to any Person, any direct or indirect acquisition or investment
by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other
securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or
assumption of debt of, or purchase or other acquisition of, any other debt or equity participation
or interest in, another Person, including any partnership or joint venture interest in such other
Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other
Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions)
of assets of another Person that constitute a business unit. For purposes of covenant compliance,
the amount of any Investment shall be the amount actually invested, without adjustment for
subsequent increases or decreases in the value of such Investment.
“
IP Rights
” has the meaning specified in
Section 5.11
.
“
IRS
” means the United States Internal Revenue Service.
“
Joinder Agreement
” means a joinder agreement executed and delivered in accordance
with the provisions of
Section 6.11
, substantially in the form of
Exhibit G
hereto.
“
Laws
” means, collectively, all international, foreign, Federal, state and local
statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or
judicial precedents or authorities, including the interpretation or administration thereof by any
Governmental Authority charged with the enforcement, interpretation or administration thereof, and
all applicable administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authority, in each case whether or not having the
force of law.
18
“
Lender
” has the meaning specified in the introductory paragraph hereto and, as the
context requires, includes each Lender with a commitment to make Loans as designated in
Section
2.01
or in an Assignment and Assumption pursuant to which such Lender becomes a party hereto.
“
Lending Office
” means, as to any Lender, the office or offices of such Lender
described as such in such Lender’s Administrative Questionnaire, or such other office or offices as
to which a Lender may from time to time notify the Borrower and the Administrative Agent.
“
Lien
” means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge, or preference, priority or other security interest
or preferential arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement, any easement, right of way or other encumbrance on title to real
property and any financing lease having substantially the same economic effect as any of the
foregoing).
“
Loan
” means an extension of credit by a Lender to the Borrower under
Article
II
. Each Loan may be divided into tranches which are Base Rate Loans or Eurodollar Rate Loans
(each a “
Type
” of Loan).
“
Loan Documents
” means, collectively, (a) for purposes of this Agreement, the Notes
and any amendment, supplement or other modification hereof and thereof, and for all other purposes
other than for purposes of the Guaranty Agreement, any Joinder Agreement, any of the Collateral
Documents and
Section 8.03
of the Agreement, (i) this Agreement, (ii) each Note, (iii) the
Fee Letter, (iv) the Guaranty Agreement, (v) each Joinder Agreement, and (vi) each Collateral
Document and (b) for purposes of the Guaranty Agreement, each Joinder Agreement, each Collateral
Document and
Section 8.03
of this Agreement, (i) each document under
clause (a)
of
this definition, (ii) each Secured Swap Contract and (iii) each Secured Cash Management Services
Agreement.
“
Loan Notice
” means a notice of (a) a Borrowing, (b) a conversion of Loans from one
Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to
Section
2.02(a)
, which, in each case, if in writing, shall be substantially in the form of
Exhibit
A
hereto.
“
Loan Party
” means, HFF Partnership Holdings, GP. Corp., HFF Acquisition, the
Borrower, each Subsidiary Guarantor and each of their respective Subsidiaries, other than Excluded
Subsidiaries (regardless of whether or not consolidated with HFF Partnership Holdings, GP. Corp,
HFF Acquisition or the Borrower for purposes of GAAP), individually, and “
Loan Parties
”
means any combination of the foregoing. For the avoidance of doubt, Loan Party shall not include
any Excluded Subsidiaries.
“
Loan Party Materials
” has the meaning specified in
Section 6.02
.
“
Master Agreement
” has the meaning specified in the definition of “
Swap
Contract
”.
“
Material Adverse Effect
” means (a) a material adverse change in, or a material
adverse effect upon, the operations, business, properties, liabilities (actual or contingent), or
financial
19
condition of the Loan Parties taken as a whole, (b) a material impairment of the ability
of any Loan Party to perform its obligations under any Loan Document to which it is a party, (c) a
material adverse effect upon the legality, validity, binding effect or enforceability against any
Loan Party of any Loan Document to which it is a party, or (d) a material adverse effect upon the
Lien of any Collateral Document or a material impairment of the rights, powers, or remedies of the
Administrative Agent or any Lender under any Loan Document.
“
Material Contract
” means, with respect to the Loan Parties, (a) the contracts set
forth on
Schedule 5.24
, (b) each credit agreement, capital lease or other agreement related
to any Indebtedness of any Loan Party in an amount greater than $250,000 (other than the Loan
Documents), (c) each Swap Contract to which any Loan Party is a party, and (d) any voting or
shareholder’s agreement related to the Equity Interest in any Person to which any Loan Party is a
party.
“
Maturity Date
” means February 5, 2010, subject to the Extension Option.
“
Maximum Rate
” has the meaning specified in
Section 10.09
.
“
Multiemployer Plan
” means any employee benefit plan of the type described in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate makes or is obligated to make
contributions, or during the preceding five plan years, has made or has been obligated to make
contributions.
“
Net Income
” means, for any period, net income of any Person and its Subsidiaries
(excluding extraordinary gains but including extraordinary losses) for that period.
“
Note
” means a promissory note made by Borrower in favor of a Lender evidencing Loans
made by such Lender, substantially in the form of
Exhibit C
.
“
Obligations
” of a Loan Party means (a) in the case of the Borrower, all advances to,
and debts, liabilities, obligations, covenants and duties of the Borrower arising under (i) this
Agreement and any other Loan Document to which the Borrower is a party or otherwise with respect to
any Loan and (ii) solely for purposes of
Section 8.03
, determining the Guaranteed
Obligations of each Guarantor under, and as such term is defined in the Guarantee Agreement
and otherwise thereunder, any Joinder Agreement, and any Collateral Document, also under and with
respect to any Secured Swap Contract and any Secured Cash Management Services Agreement, (b) in the
case of HFF Partnership Holdings, GP Corp. and HFF Acquisition, all liabilities, obligations,
covenants and duties of them arising under the Guaranty Agreement and any other Loan Document to
which they or any of them are a party, and (c) in the case of any Subsidiary Guarantor, all
liabilities, obligations, covenants and duties of such Subsidiary Guarantor under the Guaranty
Agreement and the other Loan Documents to which such Subsidiary Guarantor is a party, in each case
whether direct or indirect (including those acquired by assumption), absolute or contingent, due or
to become due, now existing or hereafter arising and including interest and fees that accrue after
the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any
Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such
interest and fees are allowed claims in such proceeding. Without limiting the generality of the
foregoing, (x) the Obligations of the
20
Borrower under the Loan Documents include (A) the obligation
to pay principal, interest, charges, expenses, fees, attorney fees and disbursements, indemnities
and other amounts payable by any Loan Party under the Loan Document and (B) the obligation to
reimburse any amount in respect of any of the foregoing that any Lender, in its sole discretion,
may elect to pay or advance on behalf of any Loan Party and (y) the Obligations of each Guarantor
including the Guaranteed Obligations of such Guarantor under and as such term is defined in the
Guaranty Agreement.
“
Off-Balance Sheet Obligation
” means the monetary obligation of a Person under (a) a
so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or
possession of property creating obligations that do not appear on the balance sheet of such Person
but which, upon the insolvency or bankruptcy of such Person, would be characterized as the
indebtedness of such Person (without regard to accounting treatment). For the avoidance of doubt,
Off-Balance Sheet Obligations do not include operating leases for office space entered into in the
ordinary course of business.
“
Operating Companies
” means the Borrower and HFF Securities.
“
Operating Lease
” means, as applied to any Person, any lease (including, without
limitation, leases that may be terminated by the lessee at any time) of any Property that is not a
Capitalized Lease other than any such lease in which that Person is the lessor.
“
Organization Documents
” means (a) with respect to any corporation, the certificate or
articles of incorporation and the bylaws, (b) with respect to any limited liability company, the
certificate or articles of formation or organization and operating agreement, and (c) with respect
to any partnership, joint venture, trust or other form of business entity, the partnership, joint
venture or other applicable agreement of formation or organization and any agreement, instrument,
filing or notice with respect thereto filed in connection with its formation or organization with
the applicable Governmental Authority in the jurisdiction of its formation or organization and, if
applicable, any certificate or articles of formation or organization of such entity.
“
Other Taxes
” means all present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies arising from any payment made hereunder or
under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with
respect to, this Agreement or any other Loan Document. For the avoidance of doubt, Other Taxes
shall not include any Excluded Taxes.
“
Other Warehousing Facilities
” means warehousing facilities of the Borrower, upon
substantially the same terms as the Red Capital Warehousing Facility in existence as of the date
hereof or as may be amended, with the Required Lenders’ reasonable consent, so long as the
Indebtedness under such facilities is used to finance Borrower Warehoused Loans made by the
Borrower which are outstanding for not more than one-hundred twenty (120) days.
“
Outstanding Amount
” means with respect to Loans on any date, the aggregate
outstanding principal amount thereof after giving effect to any borrowings and prepayments or
repayments of Loans, as the case may be, occurring on such date.
21
“
Participant
” has the meaning specified in
Section 10.06(d)
.
“
Partnership Agreements
” means, collectively, the Amended and Restated Texas Limited
Partnership Agreement of the Borrower, dated as of the Closing Date by and among GP Corp., HFF
Acquisition and HFF Partnership Holdings and the Amended and Restated Limited Partnership Agreement
of HFF Securities dated as of the Closing Date by and among GP Corp., HFF Acquisition and HFF
Partnership Holdings.
“
PBGC
” means the Pension Benefit Guaranty Corporation.
“
Pension Plan
” means any “employee pension benefit plan” (as such term is defined in
Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and
is sponsored or maintained by any Loan Party or any ERISA Affiliate or to which any Loan Party or
any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple
employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time
during the immediately preceding five plan years.
“
Perfection Certificate
” has the meaning specified in the Pledge and Security
Agreement.
“
Perfection Certificate Supplement
” has the meaning specified in the Pledge and
Security Agreement.
“
Permitted Acquisitions
” means any Acquisition by any Loan Party;
provided
that:
(a) the Property acquired (or the Property of the Person acquired) in such Acquisition shall
be used in the same or similar (or complementary) line of business as the Loan Parties on the
Closing Date and shall be for the purpose of strategic growth and/or competitive positioning;
(b) in the case of an Acquisition of the Equity Interests of another Person, the board of
directors (or other comparable governing body) of such other Person shall have duly approved such
Acquisition;
(c) no Default or Event of Default shall exist immediately after giving effect to such
Acquisition on a Pro Forma Basis;
(d) the Loan Parties shall, and shall cause the party that is the subject of the Acquisition
to, execute and deliver such joinder and pledge agreements, security agreements and intercompany
notes and take such other actions as may be necessary for compliance with the provisions of
Sections 6.11
and
6.12
; and
(e) the Borrower shall have delivered to the Administrative Agent (i) a Compliance Certificate
signed by a Responsible Officer of the Borrower demonstrating compliance with the financial
covenants hereunder after giving effect to the subject Acquisition on a Pro Forma Basis, and
reaffirming that the representations and warranties set forth in this Agreement are true and
correct in all material respects as of such
22
date, except those representations and warranties made
as of a date certain, which shall remain true and correct in all material respects as of such date
and providing supplements to the Schedules as required by the Compliance Certificate, (ii) all
financial statements for the full fiscal year preceding the Acquisition, as well as the most recent
interim statements of the party that is the subject of the Acquisition, and (iii) a certificate of
a Responsible Officer of the Borrower describing the Person to be acquired, including, without
limitation, the location and type of operations and key management.
“
Permitted Borrower Distribution
” means for any fiscal year of the HFF Consolidated
Group, an amount equal to 100% of the Excess Cash Flow for such fiscal year.
“
Permitted Liens
” has the meaning specified in
Section 7.01
.
“
Person
” means any natural person, corporation, limited liability company, trust,
joint venture, association, company, partnership, Governmental Authority or other entity.
“
Plan
” means any “employee benefit plan” (as such term is defined in Section 3(3) of
ERISA) established or sponsored by any Loan Party or, with respect to any such plan that is subject
to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.
“
Platform
” has the meaning specified in
Section 6.02
.
“
Pledge and Security Agreement
” means the Pledge and Security Agreement executed by
HFF Partnership Holdings, GP Corp., HFF Acquisition, the Borrower, the Subsidiary Guarantors and
the Administrative Agent in accordance with the provisions of this Agreement, which Pledge and
Security Agreement shall be substantially in the form of
Exhibit I
hereto.
“
Pledged Equity Interests
” means 100% of the issued and outstanding Equity Interests
in (i) the Operating Companies owned by HFF Acquisition, HFF Partnership Holdings and GP Corp. and
(ii) GP Corp. owned by HFF Partnership Holdings.
“
Profit Participation Bonus Plans
” means, collectively, the Profit Participation Bonus
Plan, dated as of the Closing Date, of the Borrower and the Profit Participation Bonus Plan, dated
as of the Closing Date, of HFF Securities.
“
Profit Participation Payments
” means, for any fiscal year, for each office of the
Borrower, HFF Securities and any other future Subsidiary of the Borrower, pursuant to the Profit
Participation Bonus Plans (a) for each office that elects to have its profit participation
arrangement calculated on the financial results of the entire office, payments made pursuant to the
profit participation arrangement in effect as of the date hereof with the Borrower, HFF Securities
and any other future Subsidiary of the Borrower, such payments not to exceed 15% of that office’s
consolidated net income (which, for purposes of this definition, shall be the net operating income
of such office taking into account allocations of overhead expenses and adjusted for depreciation
and amortization, all as determined in accordance with GAAP) after all interest payments on the
Loans, and (b) for each office that elects to have its profit participation arrangement calculated
on the financial results of each line of business (e.g. investment sales, financing transactions,
broker-dealer transactions, etc.) in such office, such lines of business to consist of separately
identifiable groups of employees primarily located within such office and to be separately
accounted for, payments made pursuant to the profit participation arrangement in
23
effect as of the
date hereof with the Borrower, HFF Securities and any other future Subsidiary of the Borrower, such
payments not to exceed 15% of each such line of business’ consolidated net income, determined and
adjusted as described above with respect to such line of business, after all interest payments on
the Loans.
“
Pro Forma Basis
” has the meaning specified in
Section 1.03(c)
.
“
Pro Forma Financial Statements
” means (i) the unaudited consolidated and
consolidating balance sheets and income statements of the HFF Consolidated Group, as at the end of
the most recent fiscal quarter prior to the Closing Date for which financial information is
available, prepared on a Pro Forma Basis giving effect to the consummation of the transactions
contemplated by the Loan Documents, for the trailing twelve months of operations ending on the most
recently ended fiscal quarter of the HFF Consolidated Group, and (ii) the unaudited consolidated
and consolidating balance sheets, income statements and statements of cash flows of the HFF
Consolidated Group, prepared on a Pro Forma Basis for the next two (2) fiscal years prepared on a
fiscal quarter basis. Delivery of the Pro Forma Financial Statements shall include a corresponding
calculation of Consolidated EBITDA and each of the financial covenants set forth in
Section
7.20
.
“
Property
” means any interest in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible.
“
Public Lender
” has the meaning specified in
Section 6.02
.
“
Quarterly Tax Distributions
” means the quarterly payment of any dividend or
distribution from the HFF Consolidated Group to HFF and HFF Holdings in an amount not to exceed the
highest effective marginal combined U.S. Federal, state and local income tax liabilities with
respect to each fiscal year to which such distribution relates for an individual or corporation
whose residence or commercial domicile is New York, New York (assuming such taxpayer (a) has no
itemized deductions or tax credits, (b) was not subject to the alternative minimum tax, the
self-employment tax or other U.S. Federal (or comparable state or local) income taxes not imposed
under sections 1 or 11 of the Code and (c) was subject to income tax only in the jurisdictions
where the taxpayer resides or is commercial domiciled) arising from income of the HFF Consolidated
Group and attributable to HFF and the members of HFF Holdings. Each tax distribution shall be
calculated and distributed so that HFF and HFF Holdings shall receive a tax distribution sufficient
to pay the income taxes required to be paid (after giving effect to any income tax credits, losses
carried forward, or similar reductions to income taxes due) in respect of the relevant quarterly
period. The parties hereto understand and agree that the tax rate referenced in the first sentence
of this definition applies to all direct and indirect partners of Borrower and HFF Securities and
the Quarterly Tax Distributions may exceed the actual tax obligations of such partners.
“
Red Capital Warehousing Facility
” means that certain revolving mortgage warehousing
line of credit from Red Mortgage Capital, Inc. or one of its Affiliates providing for loans to the
Borrower on the terms set forth on
Schedule 1.01C
, the proceeds of which are used to fund
Borrower Warehoused Loans which are outstanding for not more than one-hundred twenty (120) days.
24
“
Reference Period
” means, (a) for purposes of calculating compliance with any
financial covenant or test on any date on which a Compliance Certificate is required to be
delivered hereunder, the four consecutive fiscal quarters most recently ended prior to such date
and (b) for purposes of determining whether the conditions precedent have been satisfied for a
proposed transaction, the four consecutive fiscal quarters most recently ended prior to date of
such proposed transaction for which annual or quarterly financial statements and a Compliance
Certificate shall have been delivered in accordance with the provisions hereof.
“
Register
” has the meaning specified in
Section 10.06(c)
.
“
Related Parties
” means, with respect to any Person, such Person’s Affiliates and the
partners, directors, officers, employees, agents and advisors of such Person and of such Person’s
Affiliates.
“
Reportable Event
” means any of the events set forth in Section 4043(c) of ERISA,
other than events for which the 30 day notice period has been waived.
“
Request for Credit Extension
” means with respect to a Borrowing, conversion or
continuation of Loans, a Loan Notice.
“
Required Lenders
” means, as of any date of determination, Lenders having more than
50% of the sum of (a) the Total Outstandings and (b) the
aggregate unused Commitments;
provided
if any Lender shall be a Defaulting Lender at such time, there shall be
excluded for purposes of making a determination of Required Lenders at such time the aggregate
principal amount of the unused Commitments of, and the portion of the Total Outstandings held or
deemed to be held by, any Defaulting Lender.
“
Responsible Officer
” means the chief executive officer, president, chief financial
officer, treasurer, assistant treasurer, director, managing director or managing member of any Loan
Party to the extent each such person shall be duly authorized by all necessary corporate,
partnership or other action on the part of such Person to act on behalf of such Person. Any
document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be
conclusively presumed to have been authorized by all necessary corporate, partnership and/or other
action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed
to have acted on behalf of such Loan Party.
“
Restricted Payment
” means any (i) dividend or other distribution (whether in cash,
securities or other property) with respect to any capital stock or other Equity Interest of any
Loan Party (including, without limitation, any payment in connection with any dissolution, merger,
consolidation or disposition involving Subsidiaries), or any payment (whether in cash, securities
or other property), including any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such capital stock or other
Equity Interest or of any option, warrant or other right to acquire any such capital stock or other
Equity Interest or on account of any return of capital to the Loan Party’s stockholders, partners
or members (or the equivalent Persons thereof) or the issuance of any Equity Interest or acceptance
of any capital contributions, or any tax sharing payment or indemnification payment (whether
directly or indirectly) to HFF or HFF Holdings, (ii) profit participation payments
25
(including the
Profit Participation Payments) to members of HFF Holdings or employees of the HFF Consolidated
Group, whether pursuant to employment agreements or otherwise or (iii) payments made in respect of
Indemnity Obligations.
“
Sale and Leaseback Transaction
” means any arrangement pursuant to which any Loan
Party, directly or indirectly, becomes liable as lessee, guarantor or other surety with respect to
any lease, whether an Operating Lease or a Capitalized Lease, of any Property that such Loan Party
(a) has sold or transferred (or is to sell or transfer) to, or arranged the purchase by, a Person
other than a Loan Party or (b) intends to use for substantially the same purpose as any other
Property that has been sold or is transferred (or is to be sold or transferred) by such Loan Party
to a Person other than a Loan Party in connection with such lease.
“
SEC
” means the Securities and Exchange Commission, or any Governmental Authority
succeeding to any of its principal functions.
“
Secured Cash Management Services Agreement
” means any Cash Management Services
Agreement that is entered into by and between any Loan Party and any Cash Management Bank.
“
Secured Party
” means the Administrative Agent, each Lender, each Swap Bank and each
Cash Management Bank.
“
Secured Swap Contract
” means any Swap Contract required or permitted under this
Agreement that is entered into by and between a Borrower and any Swap Bank.
“
Securities Laws
” means the Securities Act of 1933, the Securities Exchange Act of
1934, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and
practices promulgated, approved or incorporated by the SEC or the Public Company Accounting
Oversight Board, as each of the foregoing may be amended and in effect on any applicable date
hereunder.
“
Subsidiary
” of a Person means a corporation, partnership, joint venture, limited
liability company or other business entity of which a majority of the shares of Voting Securities
are at the time beneficially owned, or the management of which is otherwise controlled, directly,
or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise
specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary
or Subsidiaries of the Borrower.
“
Subsidiary Guarantor
” means each Subsidiary of any member of the HFF Consolidated
Group on the Closing Date and each other Subsidiary of the HFF Consolidated Group that joins the
Guaranty Agreement and the Pledge and Security Agreement by executing and delivering a Joinder
Agreement pursuant to
Section 6.11
, together with their successors and permitted assigns.
“
Swap Bank
” means any Lender or an Affiliate of a Lender in its capacity as a party to
a Swap Contract entered into after the date of this Agreement.
26
“
Swap Contract
” means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity options, forward
commodity contracts, equity or equity index swaps or options, bond or bond price or bond index
swaps or options or forward bond or forward bond price or forward bond index transactions, interest
rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions, currency options,
spot contracts, or any other similar transactions or any combination of any of the foregoing
(including any options to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all transactions of any kind, and
the related confirmations, which are subject to the terms and conditions of, or governed by, any
form of master agreement published by the International Swaps and Derivatives Association, Inc.,
any International Foreign Exchange Master Agreement, or any other master agreement (any such master
agreement, together with any related schedules, a “
Master Agreement
”), including any such
obligations or liabilities under any Master Agreement.
“
Swap Termination Value
” means, in respect of any one or more Swap Contracts, after
taking into account the effect of any legally enforceable netting agreement relating to such Swap
Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and
termination value(s) determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-
market value(s) for such Swap Contracts, as determined based upon one or more mid-market or
other readily available quotations provided by any recognized dealer in such Swap Contracts (which
may include a Lender or any Affiliate of a Lender).
“
Taxes
” means all present or future taxes, levies, imposts, duties, deductions,
withholdings, assessments, fees or other charges imposed by any Governmental Authority, including
any interest, additions to tax or penalties applicable thereto.
“
Threshold Amount
” means $5,000,000.
“
Total Outstandings
” means the aggregate Outstanding Amount of all Loans.
“
Type
” has the meaning specified in the definition of “Loan”.
“
UCC
” means the Uniform Commercial Code as from time to time in effect in the State of
New York or, with respect to any Collateral located in any state or jurisdiction other than the
State of New York, the Uniform Commercial Code as from to time in effect in such state or
jurisdiction.
“
Unaudited Financial Statements
” means the unaudited consolidated financial statements
of the Operating Companies dated December 31, 2006, and the related consolidated statements of
income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on that
date, subject to normal year-end adjustments.
“
Unfunded Pension Liability
” means the excess of a Pension Plan’s benefit liabilities
under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets,
27
determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section
412 of the Code for the applicable plan year.
“
United States
” and “
U.S
.” mean the United States of America.
“
Voting Securities
” means, with respect to any Person, securities or other ownership
interests having by the terms thereof ordinary voting power to elect the board of directors or
other persons performing similar functions of such Person (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of such Person shall
have or might have voting power by reason of the happening of any contingency);
provided
,
however
, that “Voting Units” and “Voting Interests” issued to “Voting Right Holders” (each
as defined in the Partnership Agreements) pursuant to and as governed by Section 3.3 of the
Partnership Agreements in effect on the date hereof, and as may be amended with the consent of the
Required Lenders, shall not constitute Voting Securities.
“
Warehousing Collateral
” means the Borrower Warehoused Loans and the mortgages
securing the same which have been pledged or assigned to secure the Warehousing Facilities (or any
one of them).
“
Warehousing Facilities
” means, collectively, (a) the Red Capital Warehousing
Facility, (b) the Other Warehousing Facilities, and (c) any other warehousing facility approved by
Administrative Agent in writing in its sole discretion, and “
Warehousing Facility
” means
either one of the Warehousing Facilities.
“
Wholly Owned Subsidiary
” means a Subsidiary of a Person of which all Voting
Securities of such Subsidiary are at the time beneficially owned directly, or indirectly through
one or more intermediaries, or both, by such Person.
Section 1.02 Other Interpretive Provisions
. With reference to this Agreement and each other
Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) Unless the context otherwise requires, any definition of or references to any agreement,
instrument or other document (including any Organization Document) shall be construed as referring
to such agreement, instrument or other document as from time to time amended, amended and
restated, supplemented or otherwise modified, but in any case, shall be subject to any
restrictions on such amendments, amendments and restatements, supplements or modifications set
forth herein or in any other Loan Document.
(b) The definitions of terms herein shall apply equally to the singular and plural forms of
the terms defined. 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, (i) any reference herein to any Person
shall be construed to include such Person’s successors and assigns, (ii) the words
“
herein
,” “
hereof
” and “
hereunder
,” and words of similar import when used
in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to
any particular provision thereof, (iii)
28
all references in a Loan Document to Articles, Sections,
Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and
Schedules to, the Loan Document in which such references appear, (iv) any reference to any Law
shall include all statutory and regulatory provisions consolidating, amending, replacing or
interpreting such Law and any reference to any Law or regulation shall, unless otherwise
specified, refer to such Law or regulation as amended, modified or supplemented from time to time,
and (v) 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.
(c) In the computation of periods of time from a specified date to a later specified date,
the word “
from
” means “
from and including
;” the words “
to
” and
“
until
” each mean “
to but excluding
;” and the word “
through
” means “
to
and including
.”
(d) Section headings herein and in the other Loan Documents are included for convenience of
reference only and shall not affect the interpretation of this Agreement or any other Loan
Document.
Section 1.03 Accounting Terms
.
(a)
Generally
. All accounting terms not specifically or completely defined herein
shall be construed in conformity with, and all financial data (including financial ratios and
other financial calculations) required to be submitted pursuant to this Agreement shall be
prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time,
applied in a manner consistent with that used in preparing the Audited Financial Statements,
except
as otherwise specifically prescribed herein.
(b)
Changes in GAAP
. If at any time any change in GAAP would affect the computation
of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or
the Required Lenders shall so request, the Administrative Agent, the Lenders, and the Borrower
shall negotiate in good faith to amend such ratio or requirement to preserve the original intent
thereof in light of such change in GAAP (subject to the approval of the Required Lenders);
provided
that, until so amended, (i) such ratio or requirement shall continue to be
computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide
to the Administrative Agent and the Lenders financial statements and other documents required
under this Agreement or as reasonably requested hereunder setting forth a reconciliation between
calculations of such ratio or requirement made before and after giving effect to such change in
GAAP.
(c)
Pro Forma Basis
means, (a) for purposes of the delivery of the Pro Forma
Financial Statements with respect to the Loan Documents, each such statement shall be calculated
on a pro forma basis based on the following assumptions: (i) any Indebtedness to be incurred by
any Person in connection with the Loan Documents will be assumed to have been incurred on the
first day of such Reference Period; (ii) the gross interest expenses, determined in accordance
with GAAP, with respect to such Indebtedness assumed to have been incurred on the first day of
such Reference Period that bears interest at a floating rate shall be calculated at the current
rate (as of the date of such calculation) under the agreement governing such
29
Indebtedness
(including this Agreement if the Indebtedness is incurred hereunder); and (iii) any gross interest
expense, determined in accordance with GAAP, with respect to Indebtedness outstanding during such
Reference Period that was or is to be refinanced with proceeds of a transaction assumed to have
been incurred as of the first day of the Reference Period will be excluded from such calculations,
and (b) for purposes of calculating any financial ratio or financial amount (excluding the Pro
Forma Financial Statements set forth in part (a)), for any transaction consummated in any
Reference Period, such financial ratio or financial amount shall be calculated on a pro forma
basis based on the following assumptions: (i) each such transaction shall be deemed to have
occurred on the first day of such Reference Period; (ii) any funds to be used by any Person in
consummating any such transaction (but not future committed capital) will be assumed to have been
used for that purpose as of the first day of such Reference Period; (iii) any Indebtedness to be
incurred by any Person in connection with the consummation of any such transaction will be assumed
to have been incurred on the first day of such Reference Period; (iv) the gross interest expenses,
determined in accordance with GAAP, with respect to such Indebtedness assumed to have been
incurred on the first day of such Reference Period that bears interest at a floating rate shall be
calculated at the current rate
(as of the date of such calculation) under the agreement governing such Indebtedness
(including this Agreement if the Indebtedness is incurred hereunder); and (v) any gross interest
expense, determined in accordance with GAAP, with respect to Indebtedness outstanding during such
Reference Period that was or is to be refinanced with proceeds of a transaction assumed to have
been incurred as of the first day of the Reference Period will be excluded from such calculations.
Section 1.04 Rounding
. Any financial ratios required to be maintained by the applicable Loan
Parties pursuant to this Agreement shall be calculated by dividing the appropriate component by the
other component, carrying the result to one place more than the number of places by which such
ratio is expressed herein and rounding the result up or down to the nearest number (with a
rounding-up if there is no nearest number).
Section 1.05 Times of Day
. Unless otherwise specified, all references herein to times of day
shall be references to Eastern time (daylight or standard, as applicable).
ARTICLE II
THE LOANS
Section 2.01 The Loans
.
(a) Subject to the terms and conditions set forth herein, each Lender severally agrees to
make loans (each such loan, a “
Loan
”) to the Borrower from time to time, on any Business
Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding
the amount of such Lender’s Commitment, if any;
provided
,
however
, that after
giving effect to any Borrowing, (i) the Total Outstandings shall not exceed the lesser of (A) the
Commitments and (B) current Availability as of the date of Borrowing, and (ii) the aggregate
Outstanding Amount of the Loans of any Lender shall not exceed such Lender’s Commitment. Within
the limits of each Lender’s Commitment, and subject to the other terms
30
and conditions hereof, the
Borrower may borrow under this
Section 2.01(a)
, prepay under
Section 2.03
, and
reborrow under this
Section 2.01(a)
.
(b) Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein.
Section 2.02 Borrowings, Conversions and Continuations of Loans
.
(a) Each Borrowing, each conversion of Loans from one Type to the other, and each
continuation of Eurodollar Rate Loans shall be made upon the Borrower’s irrevocable notice to the
Administrative Agent, which may be given by telephone. Each such notice must be received by the
Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date
of any Borrowing of, conversion to, or continuation of, Eurodollar Rate Loans or of any conversion
of Eurodollar Rate Loans to Base Rate Loans, and (ii) on the requested date of any Borrowing of
Base Rate Loans. Each telephonic notice by the Borrower pursuant to this
Section 2.02(a)
must be confirmed promptly by delivery to the Administrative Agent of a written Loan Notice,
appropriately completed and signed by a Responsible Officer
of the Borrower. Each Borrowing of, conversion to, or continuation of, Eurodollar Rate Loans
shall be in a principal amount of $100,000 or a whole multiple of $100,000 in excess thereof.
Each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $100,000 or a
whole multiple of $100,000 in excess thereof. Each Loan Notice (whether telephonic or written)
shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Loans from one
Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the
Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii)
the principal amount of Loans to be borrowed, converted or continued, (iv) the Type of Loans to be
borrowed or to which existing Loans are to be converted or continued, and (v) if applicable, the
duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of
Loan in a Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or
continuation, then the applicable Loans shall be made as, or converted to, Base Rate Loans. Any
such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest
Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower
requests a Borrowing of, conversion to, or continuation of, Eurodollar Rate Loans in any such Loan
Notice, but fails to specify an Interest Period, the Borrower will be deemed to have specified an
Interest Period of one month.
(b) Following receipt of a Loan Notice, the Administrative Agent shall promptly notify each
Lender of the amount of its Applicable Percentage of the applicable Loans, and if no timely notice
of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify
each Lender of the details of any automatic conversion to Base Rate Loans described in the
preceding subsection (a). In the case of a Borrowing, each Lender shall make the amount of its
Loan available to the Administrative Agent in immediately available funds at the Administrative
Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Loan
Notice. Upon satisfaction of the applicable conditions set forth in
Section 4.02
(and, if
such Borrowing is the initial Credit Extension,
Section 4.01
), the Administrative Agent
shall make all funds so received available to the Borrower in like funds as received by the
Administrative Agent either by (i) crediting an account of the Borrower on
31
the books of Bank of
America with the amount of such funds or (ii) wire transfer of such funds, in each case in
accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent
by the Borrower.
(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted
only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of
a Default, no Loans may be requested as, converted to, or continued as, Eurodollar Rate Loans
without the consent of the Required Lenders.
(d) The Administrative Agent shall promptly notify the Borrower and the applicable Lenders of
the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination
of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent
shall notify the Borrower and the applicable Lenders of any change in Bank of America’s prime rate
used in determining the Base Rate promptly following the public announcement of such change.
(e) After giving effect to all Borrowings, all conversions of Loans from one Type to the
other, and all continuations of Loans as the same Type, there shall not be more than six (6)
Interest Periods in effect with respect to the Loans.
(f) The failure of any Lender to make any Loan to be made by it as part of any Borrowing
shall not relieve any other Lender of its obligation, if any, hereunder to make its Loan on the
date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to
make any Loan to be made by such other Lender on the date of any Borrowing.
Section 2.03 Prepayments
.
(a)
Voluntary Prepayment of Loans
. The Borrower may upon notice to the
Administrative Agent, at any time or from time to time, voluntarily prepay Loans in whole or in
part without premium or penalty;
provided
that (A) such notice must be received by the
Administrative Agent not later than 11:00 a.m. (x) three Business Days prior to any date of
prepayment of Eurodollar Rate Loans and (y) on the date of prepayment of Base Rate Loans, (B) any
prepayment of Eurodollar Rate Loans shall be in a principal amount of $100,000 or a whole multiple
of $100,000 in excess thereof, and (C) any prepayment of Base Rate Loans shall be in a principal
amount of $100,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less,
the entire principal amount thereof then outstanding. Each such notice shall specify the date and
amount of such prepayment and the Type(s) of Loans to be prepaid. The Administrative Agent will
promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s
Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower
shall irrevocably make such prepayment and the payment amount specified in such notice shall be
due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be
accompanied by all accrued interest on the amount prepaid, together with any additional amounts
required pursuant to
Section 3.05
. Each such prepayment shall be applied to the Loans of
the Lenders in accordance with their respective Applicable Percentages;
provided
that if
the Borrower fails to specify the application of a voluntary prepayment then such prepayment shall
be applied first to Base Rate Loans and then to Eurodollar Rate Loans in direct order of Interest
Period maturities.
32
(b)
Mandatory Prepayments
. If for any reason the Total Outstandings at any time
exceed the lesser of (A) the Commitments then in effect and (B) Availability as of such time, the
Borrower shall immediately prepay the Loans in an aggregate amount equal to such excess.
Section 2.04 Termination or Reduction of Commitments
.
The Borrower may, upon notice to the Administrative Agent, terminate the Commitments, or from
time to time permanently reduce the Commitments;
provided
that (i) any such notice shall be
received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date
of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of
$250,000 or any whole multiple of $250,000 in excess thereof and (iii) the Borrower shall not
terminate or reduce the Commitments if, after giving effect thereto and to any concurrent
prepayments hereunder, the Total Outstandings would exceed the Commitments. The
Administrative Agent will promptly notify the Lenders of any such notice of termination or
reduction of the Commitments. Any reduction of the Commitments shall be applied to the Commitment
of each Lender according to its Applicable Percentage. All Commitment Fees accrued until the
effective date of any termination of the Commitments shall be paid on the effective date of such
termination.
Section 2.05 Repayment of Loans
. The Borrower shall repay to the Lenders on the Maturity Date
the Outstanding Amount of its Loans on such date.
Section 2.06 Interest
.
(a) Subject to the provisions of subsection (b) below and without duplication, (i) each
Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each
Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period
plus
the Applicable Rate; and (ii) each Base Rate Loan shall bear interest on the
outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal
to the Base Rate
plus
the Applicable Rate.
(b) (i) If any amount of principal of any Loan is not paid when due (without regard to any
applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount
thereafter shall bear interest at a fluctuating interest rate per annum at all times equal to the
Default Rate to the fullest extent permitted by applicable Laws.
(ii) If any amount (other than principal of any Loan) payable by the Borrower under any
Loan Document is not paid when due (without regard to any applicable grace periods), whether
at stated maturity, by acceleration or otherwise, then upon the request of the Required
Lenders, such amount shall thereafter bear interest at the fluctuating interest rate per
annum equal at all times to the Default Rate to the fullest extent permitted by applicable
Law.
(iii) Upon the request of the Required Lenders, while any Event of Default exists, the
Borrower shall pay interest on the principal amount of all outstanding
33
Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the
fullest extent permitted by applicable Laws.
(iv) Accrued and unpaid interest on past due amounts (including interest on past due
interest) shall be due and payable upon demand.
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date
applicable thereto and at such other times as may be specified herein. Interest hereunder shall
be due and payable in accordance with the terms hereof before and after judgment and before and
after the commencement of any proceeding under any Debtor Relief Law.
Section 2.07 Fees
.
(a)
Commitment Fee
. The Borrower shall pay to the Administrative Agent for the
account of each Lender in accordance with its Applicable Percentage, a commitment fee (the
“
Commitment Fee
”) equal to (i) for each day that the Total Outstandings exceed 50% of the
actual daily amount of the Commitments then in effect, .20%
times
the actual daily amount
by which the Commitments exceed the Outstanding Amount of Loans and (ii) for each day that the
Total Outstandings are less than or equal to 50% of the actual daily amount of the Commitments
then in effect, .30%
times
the actual daily amount by which the Commitments exceed the
Outstanding Amount of Loans. The Commitment Fee shall accrue at all times during the Availability
Period, including at any time during which one or more of the conditions in
Article IV
is
not met, and shall be due and payable quarterly in arrears on the last Business Day of each March,
June, September and December, commencing with the first such date to occur after the Closing Date,
and on the Maturity Date;
provided
,
that
, if any Lender shall be a Defaulting
Lender at any time, there shall be excluded, for purposes of making a quarterly determination of
the Commitment Fee payable to such Lender, the aggregate principal amount of the unused
Commitments of, and the portion of the Total Outstandings held or deemed to be held by, any such
Defaulting Lender but only for the period of time during such quarterly period that such Lender
was a Defaulting Lender. The Commitment Fee shall be calculated in arrears.
(b)
Other Fees
. (i) The Borrower shall pay to the Arranger and the Administrative
Agent for their own respective accounts fees in the amounts and at the times specified in the Fee
Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason
whatsoever.
(ii) The Borrower shall pay to the Lenders any such fees as shall have been separately
agreed upon in writing in the amounts and at the times so specified. Such fees shall be
fully earned when paid and shall not be refundable for any reason whatsoever.
Section 2.08 Computation of Interest and Fees
. All computations of interest for Base Rate
Loans when the Base Rate is determined by Bank of America’s “prime rate” shall be made on the basis
of a year of 365 or 366 days, as the case may be, and actual days
34
elapsed. All other computations
of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which
results in more fees or interest, as applicable, being paid than if computed on the basis of a
365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall
not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is
paid;
provided
that any Loan that is repaid on the same day on which it is made shall,
subject to
Section 2.10(a)
, bear interest for one day. Each determination by the
Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all
purposes, absent manifest error.
Section 2.09 Evidence of Debt
.
(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or
records maintained by such Lender and by the Administrative Agent in the
ordinary course of business. The accounts or records maintained by the Administrative Agent
and each Lender of the amount of the Credit Extensions made by the Lenders to the Borrower and the
interest and payments thereon shall be conclusive absent manifest error. Any failure to so record
or any error in doing so shall not, however, limit or otherwise affect the obligation of the
Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any
conflict between the accounts and records maintained by any Lender and the accounts and records of
the Administrative Agent in respect of such matters, the accounts and records of the
Administrative Agent shall control in the absence of manifest error. Upon the request of any
Lender made through the Administrative Agent, the Borrower shall execute and deliver to such
Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in
addition to such accounts or records. Each Lender may attach schedules to its Note and endorse
thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect
thereto.
(b) Entries made in good faith by the Administrative Agent in the Register pursuant to
subsection (a) above, and by each Lender in its accounts pursuant to subsections (a) above, shall
be prima facie evidence of the amount of principal and interest due and payable or to become due
and payable from the Borrower to, in the case of the Register each Lender and, in the case of such
account or accounts, such Lender, under this Agreement and the other Loan Documents, absent
manifest error;
provided
that the failure of the Administrative Agent or such Lender to
make any entry, or any finding that an entry is incorrect, in the Register or such account or
accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement
and the other Loan Documents.
Section 2.10 Payments Generally; Administrative Agent’s Clawback
.
(a)
General
. All payments to be made by the Borrower shall be made without condition
or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly
provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent,
for the account of the respective Lenders to which such payment is owed, at the Administrative
Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date
specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable
Percentage (or other applicable share as provided herein) of such payment in like funds as
received by wire transfer to such Lender’s Lending
35
Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day
and any applicable interest or fee shall continue to accrue. If any payment to be made by the
Borrower shall come due on a day other than a Business Day, payment shall be made on the next
following Business Day (unless otherwise expressly provided herein), and such extension of time
shall be reflected in computing interest or fees, as the case may be.
(b) (i)
Funding by Lenders; Presumption by Administrative Agent
. Unless the
Administrative Agent shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share
of such Borrowing of Eurodollar Rate Loans (or, in the case of any Borrowing
of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing), the Administrative
Agent may assume that such Lender has made such share available on such date in accordance with
Section 2.02
(or, in the case of a Borrowing of Base Rate Loans, that such Lender has made
such share available in accordance with and at the time required by
Section 2.02
) and may,
in reliance upon such assumption, make available to the Borrower a corresponding amount. In such
event, if a Lender has not in fact made its share of the applicable Borrowing available to the
Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount in immediately available funds
with interest thereon, for each day from and including the date such amount is made available to
the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case
of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate
determined by the Administrative Agent in accordance with banking industry rules on interbank
compensation and (B) in the case of a payment to be made by the Borrower, the interest rate
applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the
Administrative Agent for the same or an overlapping period, the Administrative Agent shall
promptly remit to the Borrower the amount of such interest paid by the Borrower for such period.
If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the
amount so paid shall constitute such Lender’s Loan included in such Borrowing. Any payment by the
Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall
have failed to make such payment to the Administrative Agent.
(ii)
Payments by Borrower; Presumptions by Administrative Agent
. Unless the
Administrative Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Administrative Agent for the account of the Lenders hereunder that
the Borrower will not make such payment, the Administrative Agent may assume that the
Borrower has made such payment on such date in accordance herewith and may, in reliance upon
such assumption, distribute to the Lenders, as the case may be, the amount due. In such
event, if the Borrower has not in fact made such payment, then each of the Lenders, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on demand the
amount so distributed to such Lender, in immediately available funds with interest thereon,
for each day from and including the date such amount is distributed to it to but excluding
the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate
and a rate determined by
36
the Administrative Agent in accordance with banking industry rules on interbank compensation.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount
owing under this subsection (b) shall be conclusive, absent manifest error.
(c)
Failure to Satisfy Conditions Precedent
. If any Lender makes available to the
Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing
provisions of this
Article II
, and such funds are not made available to the Borrower by
the Administrative Agent because the conditions to the applicable Credit Extension set forth in
Article IV
are not satisfied or waived in accordance with the terms hereof, the
Administrative
Agent shall return such funds (in like funds as received from such Lender) to such Lender,
without interest.
(d)
Obligations of Lenders Several
. The obligations of the Lenders hereunder to make
Loans and to make payments pursuant to
Section 10.04(c)
are several and not joint. The
failure of any Lender to make any Loan, to fund any such participation or to make any payment
under
Section 10.04(c)
on any date required hereunder shall not relieve any other Lender
of its corresponding obligation to do so on such date, and no Lender shall be responsible for the
failure of any other Lender to so make its Loan, to purchase its participation or to make its
payment under
Section 10.04(c)
.
(e)
Funding Source
. Nothing herein shall be deemed to obligate any Lender to obtain
the funds for any Loan in any particular place or manner or to constitute a representation by any
Lender that it has obtained or will obtain the funds for any Loan in any particular place or
manner.
Section 2.11 Sharing of Payments by Lenders
. If any Lender shall, by exercising any right of
setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on
any of the Loans made by it, resulting in such Lender’s receiving payment of a proportion of the
aggregate amount of such Loans or participations and accrued interest thereon greater than its
pro
rata
share
thereof as provided herein, then the Lender receiving such
greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for
cash at face value) participations in the Loans of the other Lenders, or make such other
adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on
their respective Loans and other amounts owing them;
provided
that:
(i) if any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest; and
(ii) the provisions of this Section shall not be construed to apply to (x) any payment
made by the Borrower pursuant to and in accordance with the express terms of this Agreement
or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans to any assignee or participant,
37
other than to the Borrower or any Subsidiary thereof (as to which the provisions of
this Section shall apply).
Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so
under applicable Law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against the Borrower’s rights of setoff and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
Section 2.12 Extension Option.
Notwithstanding any provision in this Agreement to the
contrary and provided no Default or Event of Default has occurred and is continuing on (i) the
initial Maturity Date, (ii) on the date notice of extension of such Maturity Date is given as
contemplated hereby, and (iii) after giving effect to any such extension, the Borrower may, by
notice to the Administrative Agent (who shall promptly notify the Lenders) not later than ninety
(90) days prior to the initial Maturity Date hereunder, on a one-time basis, request a twelve (12)
month extension (the “
Extension Option
”) of the Maturity Date;
provided
, that the
Extension Option shall not be effective until payment in full is made to the Administrative Agent,
for the account of the Lenders, of the Extension Option Fee. Promptly upon satisfaction of the
conditions in this
Section 2.12
, the Maturity Date shall be extended for such twelve (12)
month period and the Administrative Agent shall notify the Borrower and each Lender of the revised
Maturity Date.
Section 2.13 Increase in Credit Facility
. (a)
Request for Increase
. Provided there
exists no Default, upon notice to the Administrative Agent (which shall promptly notify the
Lenders) not later than ninety (90) days prior to the initial Maturity Date hereunder, the Borrower
may from time to time, request an increase in the Credit Facility by an amount (for all such
requests) not exceeding $60,000,000 (for a total possible aggregate facility amount up to
$100,000,000);
provided
that (i) any such request for an increase shall be in a minimum
amount of $5,000,000 and (ii) the Borrower may make a maximum of two such requests. At the time of
sending such notice, the Borrower (in consultation with the Administrative Agent) shall specify the
time period within which each Lender is requested to respond (which shall in no event be less than
ten Business Days from the date of delivery of such notice to the Lenders).
(b)
Lender Elections to Increase
. Each Lender shall notify the Administrative Agent
within such time period whether or not it agrees to increase its Commitment and, if so, whether by
an amount equal to, greater than, or less than its Applicable Percentage of such requested
increase. Any Lender not responding within such time period shall be deemed to have declined to
increase its Commitment.
(c)
Notification by Administrative Agent; Additional Lenders
. The Administrative
Agent shall notify the Borrower and each Lender of the Lenders’ responses to each request made
hereunder. To achieve the full amount of a requested increase, and subject to the approval of the
Administrative Agent (which approval shall not be unreasonably withheld), the Borrower may also
invite additional Eligible Assignees to become Lenders pursuant to a joinder agreement in form and
substance satisfactory to the Administrative Agent and its counsel.
38
(d)
Effective Date and Allocations
. If the Credit Facility is increased in
accordance with this Section, the Administrative Agent and the Borrower shall determine the
effective date (the “
Increase Effective Date
”) and the final allocation of such increase.
The Administrative Agent shall promptly notify the Borrower and the Lenders of the final
allocation of such increase and the Increase Effective Date.
(e)
Conditions to Effectiveness of Increase
. As a condition precedent to such
increase, the Borrower shall deliver to the Administrative Agent a certificate of each Loan Party
dated as of the Increase Effective Date (in sufficient copies for each Lender) signed by a
Responsible Officer of such Loan Party (i) certifying and attaching the resolutions adopted by
such Loan Party approving or consenting to such increase, and (ii) in the case of the Borrower,
certifying that, before and after giving effect to such increase, (A) the representations and
warranties contained in
Article V
and the other Loan Documents are true and correct on and
as of the Increase Effective Date, except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they are true and correct as of such earlier
date, and except that for purposes of this
Section 2.13
, the representations and
warranties contained in subsections (a) and (b) of
Section 5.05
shall be deemed to refer
to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of
Section 6.01
, and (B) no Default exists. The Borrower shall prepay any Loans outstanding
on the Increase Effective Date (and pay any additional amounts required pursuant to
Section
3.05
) to the extent necessary to keep the outstanding Loans ratable with any revised
Applicable Percentages arising from any nonratable increase in the Commitments under this Section.
(f)
Conflicting Provisions
. This Section shall supersede any provisions in
Section 2.11
or
10.01
to the contrary.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
Section 3.01 Taxes
.
(a)
Payments Free of Taxes
. Any and all payments by or on account of any obligation
of any Loan Party hereunder or under any other Loan Document shall be made free and clear of and
without reduction or withholding for any Indemnified Taxes or Other Taxes;
provided
that
if any Loan Party shall be required by applicable Law to deduct any Indemnified Taxes (including
any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to additional sums
payable under this Section) the Administrative Agent or Lender, as the case may be, receives an
amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower
or other applicable Loan Party shall make such deductions and (iii) the Borrower or other
applicable Loan Party, jointly and severally, shall timely pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable Law.
(b)
Payment of Other Taxes by the Borrower
. Without limiting the provisions of
subsection (a) above, any Loan Party shall timely pay any Other Taxes to the relevant Governmental
Authority in accordance with applicable Law.
39
(c)
Indemnification by the Borrower
. The Borrower or other applicable Loan Party,
jointly and severally, shall indemnify the Administrative Agent and each Lender, within thirty
(30) days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes
(including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts
payable under this Section) paid by the Administrative Agent, such Lender, as the case may be, and
any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether
or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment or liability
delivered to the Borrower or by a Lender (with a copy to the Administrative Agent), or by the
Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent
manifest error. Nothing contained in this Agreement or in any other Loan Document shall in any
way obligate the Borrower to pay any amounts that constitute Excluded Taxes.
(d)
Evidence of Payments
. Within thirty (30) days after the date of any payment of
Indemnified Taxes or Other Taxes by the Borrower or other applicable Loan Party to a Governmental
Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy
of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory to the
Administrative Agent.
(e)
Status of Lenders
. Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the Law of the jurisdiction in which the Borrower is resident
for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments
hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable Law or reasonably requested
by the Borrower or the Administrative Agent, such properly completed and executed documentation
prescribed by applicable Law as will permit such payments to be made without withholding or at a
reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the
Administrative Agent, shall deliver such other documentation prescribed by applicable Law or
reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or
the Administrative Agent to determine whether or not such Lender is subject to backup withholding
or information reporting requirements.
Without limiting the generality of the foregoing, in the event that the Borrower is a resident
for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the
Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior
to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to
time thereafter upon the request of the Borrower or the Administrative Agent, but only if such
Foreign Lender is legally entitled to do so), whichever of the following is applicable:
(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility
for benefits of an income tax treaty to which the United States is a party,
40
(ii) duly completed copies of Internal Revenue Service Form W-8ECI,
(iii) in the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that
such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the
Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section
881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section
881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form
W-8BEN, or
(iv) any other form prescribed by applicable Law as a basis for claiming exemption from
or a reduction in United States Federal withholding tax duly completed together with such
supplementary documentation as may be prescribed by applicable Law to permit the Borrower to
determine the withholding or deduction required to be made.
(f)
Treatment of Certain Refunds
. If the Administrative Agent or any Lender
determines, in its commercially reasonable discretion, that it has received a refund of any Taxes
or Other Taxes as to which it has been indemnified by the Borrower or any other applicable Loan
Party or with respect to which the Borrower or any other applicable Loan Party has paid additional
amounts pursuant to this Section, it shall pay to the Borrower or such other Loan Party an amount
equal to such refund (but only to the extent of indemnity payments made, or additional amounts
paid, by the Borrower or such Loan Party under this Section with respect to the Taxes or Other
Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent
or such Lender, as the case may be, and without interest (other than any interest paid by the
relevant Governmental Authority with respect to such refund);
provided
that the Borrower
or other applicable Loan Party, jointly and severally, upon the request of the Administrative
Agent or such Lender, agrees to repay the amount paid over to the Borrower or such Loan Party
(plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to
the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is
required to repay such refund to such Governmental Authority. This subsection shall not be
construed to require the Administrative Agent or any Lender to make available its tax returns (or
any other information relating to its taxes that it deems confidential) to the Borrower, any other
applicable Loan Party or any other Person.
Section 3.02 Illegality
. If any Lender in good faith determines that any Law has made it
unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or
its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or
charge rates based upon the Eurodollar Rate or any Governmental Authority has imposed material
restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars
in the London interbank market, or to determine or charge interest rates based upon the Eurodollar
Rate, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any
obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans
to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and
the Borrower that the circumstances giving rise to such determination no longer exist. Upon
receipt of such notice, the Borrower shall, upon
41
demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable,
convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the
Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate
Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such
Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued
interest through the date of prepayment or conversion on the amount so prepaid or converted.
Section 3.03 Inability to Determine Rates
. If the Required Lenders determine that for any
reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation
thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar
market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and
reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period
with respect to a proposed Eurodollar Rate Loan or that (c) the Eurodollar Rate for any requested
Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly
reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so
notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain
Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of
the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke
any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans, or
failing that, will be deemed to have converted such request into a request for a Borrowing of Base
Rate Loans in the amount specified therein.
Section 3.04 Increased Costs; Reserves on Eurodollar Rate Loans
.
(a)
Increased Costs Generally
. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan,
insurance charge or similar requirement against assets of, deposits with or for the account
of, or credit extended or participated in by, any Lender (except any reserve requirement
reflected in the Eurodollar Rate);
(ii) subject any Lender to any tax of any kind whatsoever with respect to this
Agreement or any Eurodollar Rate Loan made by it, or change the basis of taxation of
payments to such Lender in respect thereof (except for Indemnified Taxes or Other Taxes
covered by
Section 3.01
and the imposition of, or any change in the rate of, any
Excluded Tax payable by such Lender); or
(iii) impose on any Lender or the London interbank market any other condition, cost or
expense affecting this Agreement or Eurodollar Rate Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan), or
to increase the cost to such Lender, or to reduce the amount of any sum received or receivable by
such Lender hereunder (whether of principal, interest or any other amount) then, upon request
42
of such Lender, the Borrower will pay to such Lender, as the case may be, such additional amount or
amounts as will compensate such Lender, as the case may be, for such additional costs incurred or
reduction suffered.
(b)
Capital Requirements
. If any Lender determines in good faith that any Change in
Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company,
if any, regarding capital requirements has or would have the effect of reducing the rate of return
on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a
consequence of this Agreement, the Commitments of such Lender or the Loans made by such Lender, to
a level below that which such Lender or such Lender’s holding company could have achieved but for
such Change in Law (taking into consideration such Lender’s policies and the policies of such
Lender’s holding company with respect to capital adequacy), then from time to time the Borrower
will pay to such Lender, as the case may be, such additional amount or amounts as will compensate
such Lender or such Lender’s holding company for any such reduction suffered.
(c)
Certificates for Reimbursement
. A certificate of a Lender setting forth the
amount or amounts necessary to compensate such Lender or its holding company, as the case may be,
as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be
conclusive absent manifest error. The Borrower shall pay such Lender, as the case may be, the
amount shown as due on any such certificate within twenty (20) days after receipt thereof.
(d)
Delay in Requests
. Failure or delay on the part of any Lender to demand
compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of
such Lender’s right to demand such compensation;
provided
that the Borrower shall not be
required to compensate a Lender pursuant to the foregoing provisions of this Section for any
increased costs incurred or reductions suffered more than nine months prior to the date that such
Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender’s intention to claim compensation therefor
(except that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the nine-month period referred to above shall be extended to include the period
of retroactive effect thereof).
(e)
Reserves on Eurodollar Rate Loans
. The Borrower shall pay to each Lender, as
long as such Lender shall be required to maintain reserves with respect to liabilities or assets
consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency
liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan
equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by
such Lender in good faith, which determination shall be conclusive, absent manifest error), which
shall be due and payable on each date on which interest is payable on such Loan;
provided
the Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative
Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days
prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10
days from receipt of such notice.
43
Section 3.05 Compensation for Losses
. Upon demand of any Lender (with a copy to the
Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and
hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate
Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary,
mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a
Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or
in the amount notified by the Borrower; or
(c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest
Period therefor as a result of a request by the Borrower pursuant to
Section 10.13
.
including any loss of anticipated profits and any loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the
deposits from which such funds were obtained. The Borrower shall also pay any customary
administrative fees charged by such Lender in connection with the foregoing. Notwithstanding thee
foregoing, the Borrower shall not be obligated to remit payment of any losses, costs or expenses
described in clauses (a), (b) or (c) above to a Defaulting Lender, but only for so long as such
Lender remains a Defaulting Lender
For purposes of calculating amounts payable by the Borrower to the Lenders under this
Section 3.05
, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by
it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London
interbank eurodollar market for a comparable amount and for a comparable period, whether or not
such Eurodollar Rate Loan was in fact so funded.
Section 3.06 Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under
Section 3.04
, or the Borrower is
required to pay any additional amount to any Lender of any Governmental Authority for the account
of any Lender pursuant to
Section 3.01
, or if any Lender gives a notice pursuant to
Section 3.02
, then such Lender shall use reasonable efforts to designate a different
Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the good faith judgment of
such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant
to
Section 3.01
or
3.04
, as the case may be, in the future, or eliminate the need
for the notice pursuant to
Section 3.02
. as applicable, and (ii) in each case, would not
subject such Lender to any reimbursed cost or expense and would not otherwise be disadvantageous
to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by
any Lender in connection with any such designation or assignment.
44
(b)
Replacement of Lenders
. If any Lender requests compensation under
Section
3.04
, or if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to
Section 3.01
, the
Borrower may replace such Lender in accordance with
Section 10.13
.
Section 3.07 Survival
. All of the Borrower’s obligations under this
Article III
shall
survive termination of the Commitments and repayment of all other Obligations hereunder.
ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
Section 4.01 Conditions of Initial Credit Extension
. The obligation of each Lender to make
its initial Credit Extension hereunder is subject to satisfaction of the following conditions
precedent:
(a)
Documents to be Delivered
. The Administrative Agent’s receipt of the following,
each of which shall be originals or telecopies (followed promptly by originals) unless otherwise
specified, in the case of agreements, instruments and certificates of a Loan Party each properly
executed by a duly authorized officer of such Loan Party, each dated the Closing Date (or, in the
case of certificates of governmental officials, a recent date before the Closing Date) and each in
form and substance satisfactory to the Administrative Agent and each of the Lenders:
(i)
Loan Documents
. Counterparts of this Agreement, each Collateral Document
and the Guaranty Agreement, sufficient in number for distribution to the Administrative
Agent, each Lender and the Borrower;
(ii)
Notes
. An original Note executed by the Borrower in favor of each Lender
requesting such Note;
(iii)
[
Reserved
]
;
(iv)
Secretary’s Certificates
. Such certificates of resolutions or other
action, incumbency certificates and/or other certificates of duly authorized officers of
each Loan Party as the Administrative Agent may require evidencing the identity, authority
and capacity of each duly authorized officer authorized to act on behalf of such Loan Party
in connection with this Agreement and the other Loan Documents to which such Loan Party is a
party;
(v)
Certified Organization Documents; Good Standing Certificates
. Such
documents and certifications as the Administrative Agent may reasonably require to evidence
that each of the Loan Parties is duly organized or formed, validly existing, in good
standing and qualified to engage in business in each jurisdiction where its ownership, lease
or operation of properties or the conduct of its business requires such qualification,
except to the extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect, including, certified copies of the Organization
45
Documents of the Loan Parties, certificates of good standing and/or qualification to
engage in business and tax clearance certificates of the Loan Parties;
(vi)
Opinions
. Favorable opinions of special counsel and local counsel for the
Loan Parties, addressed to the Administrative Agent and each Lender, as to the matters set
forth in
Exhibit H
hereto and such other matters concerning the Loan Parties and the
Loan Documents as the Required Lenders may reasonably request, and including, among other
things, opinions regarding the enforceability of the security interests created thereby;
(vii)
HFF Side Letter
. A side letter between HFF and the Administrative Agent
as to the subordination terms for indebtedness of HFF;
(viii)
Responsible Officer’s Certificate
. A certificate of a duly authorized
Responsible Officer of the Borrower certifying as to the following matters:
(A) either attaching copies of all consents, licenses and approvals of
Governmental Authorities, shareholders and other Persons required in connection with
the execution, delivery and performance by such Loan Party and the validity against
such Loan Party of the Loan Documents to which it is a party and, required in
connection with the Loan Documents, and such consents, licenses and approvals shall
be in full force and effect, or stating that no such consents, licenses or approvals
are so required;
(B) attaching copies of the financial statements referred to in
Section
5.05(a)
through
(c)
;
(C) certifying (1) that the conditions specified in
Sections 4.02(a)
and
(b)
have been satisfied, and (2) that there has been no event or
circumstance since the date of the most recent Audited Financial Statements that has
had or could be reasonably expected to have, either individually or in the
aggregate, a Material Adverse Effect;
(ix)
Insurance
. (A) evidence that all insurance required to be maintained
pursuant to the Loan Documents has been obtained and is in full force, (B) delivery of
endorsements and certificates naming the Administrative Agent as loss payee on all property
insurance and the Administrative Agent and the Lenders as additional insured under all
liability insurance, and (C) copies of all policies of insurance to the extent requested by
the Administrative Agent;
(x)
Perfection of Security Interests
. The Perfection Certificate, duly
executed by the Loan Parties with the schedules thereto completed for all Loan Parties,
together with the following:
(A)
Pledged Equity
. Original certificates evidencing all of the issued
and outstanding shares of capital stock of GP Corp., which certificates
46
shall be accompanied by undated stock powers duly executed in blank by HFF
Partnership Holdings;
(B)
Pledged Debt
. The original Intercompany Notes and other
instruments required to be pledged pursuant to the terms of the Pledge and Security
Agreement, duly endorsed in blank by each relevant Loan Party;
(C)
UCC, Tax Liens, Judgments Search Reports
. Copies of Uniform
Commercial Code Requests for Information or Copies (Form UCC-11) or similar search
reports, dated a date reasonably near (but prior to) the Closing Date, listing all
effective UCC financing statements, tax liens and judgment liens which name any Loan
Party, as the debtor, and which are filed in the jurisdictions in which the Loan
Parties are organized or have any property or assets, and in such other
jurisdictions as the Administrative Agent may reasonably request, together with
copies of such financing statements (none of which (other than financing statements
filed pursuant to the terms hereof in favor of the Administrative Agent, if such
Form UCC-11 or search report, as the case may be, is current enough to list such
financing statements) shall cover any of the Collateral, other than Liens existing
on the date hereof and listed on
Schedule 7.01
);
(D)
Termination Statements
. UCC-3 termination statements or other
releases in respect of Liens reflected in such search reports other than Liens
permitted under
Section 7.01
;
(E)
Financing Statements
. Acknowledgment copies of UCC financing
statements (or delivery of such financing statements in proper form for filing)
naming the Borrower and each other Loan Party as the debtor and the Administrative
Agent as the secured party, which such UCC financing statements have been filed, or
have been delivered for filing, under the UCC of all jurisdictions as specified on
Schedule 1.04 of the Perfection Certificate;
(xi)
Payoff Letters
. Duly executed payoff letters in respect of all
Indebtedness of the Loan Parties, including the Indebtedness under the Existing Credit
Agreement, other than any Indebtedness permitted under
Section 7.03
;
(xii)
Material Contracts
. Copies of all Material Contracts of each Loan Party,
certified as correct and complete by a Responsible Officer of the Borrower;
(xiii)
Compliance Certificate
. A duly completed Compliance Certificate as of
the last day of the fiscal quarter of the Borrower ended September 30, 2006, signed by a
Responsible Officer of the Borrower; and
(xiv)
Other
. Such other assurances, certificates, documents, consents and
waivers, estoppel certificates, or opinions as the Administrative Agent or the Required
Lenders reasonably may require and as shall be customary for similar transactions.
47
(b)
Existing Indebtedness; Liens
. The Administrative Agent shall be satisfied that,
satisfactory arrangements have been made to repay, redeem or defease in full concurrently with the
Closing Date, all existing Indebtedness of the Loan Parties, including the Indebtedness under the
Existing Credit Agreement, except the Indebtedness listed on
Schedule 7.03
hereof, which
Indebtedness shall be on terms and conditions satisfactory to the Lenders and all Liens securing
such obligations have been or concurrently with the Closing Date are being released, other than
Liens listed on
Schedule 7.01
.
(c)
Intercompany Debt
. The Lenders shall be satisfied with the amount, terms and
conditions of all intercompany Indebtedness.
(d)
ERISA Matters
. The Administrative Agent shall be satisfied that (A) the Loan
Parties will be able to meet their obligations under all employee and retiree welfare plans, (B)
the employee benefit plans of the Loan Parties and their ERISA Affiliates are, in all material
respects, funded in accordance with minimum statutory requirements, (C) no Reportable Event, but
excluding events for which reporting has been waived, has occurred as to any such employee benefit
plan and (D) no termination of, or withdrawal from, any such employee benefit plan has occurred or
is contemplated that could reasonably be expected to result in any material liability.
(e)
Judgments; Actions
. There shall exist (i) no order, decree, judgment, ruling,
injunction, writ, temporary restraining order or other order of any nature issued by any court or
Governmental Authority or (ii) no action, suit, proceeding, investigation, litigation, claim,
dispute or proceeding, pending, threatened or contemplated, at law or in equity, in arbitration or
before any Governmental Authority by or against or affecting any Loan Party, HFF, HFF Holdings or
against any of their respective properties or revenues, in each case, that (A) purports to affect,
pertain to or enjoin or restrain the execution, delivery and performance of the Loan Documents or
any transactions contemplated hereby or thereby, (B) either individually or in the aggregate, if
determined adversely, could reasonably be expected to have a Material Adverse Effect or (C)
purports to affect the legality, validity or enforceability of any Loan Document or the
consummation of the transactions contemplated hereby or thereby.
(f)
Corporate Structure; Etc.
(i) the Administrative Agent and the Lenders shall be
reasonably satisfied with, (A) the corporate, capital and ownership structure (including, without
limitation, the Organizational Documents of the Loan Parties and each agreement and instrument
relating thereto, and the amount, terms and holders of Indebtedness (including intercompany
Indebtedness)) of the Loan Parties, and (B) the management and operation of the Loan Parties. The
Lenders and the Administrative Agent shall be reasonably satisfied with the corporate governance
arrangements of each of the Loan Parties.
(ii) The Loan Documents shall be in full force and effect, duly executed by the parties
thereto and in form and substance reasonably satisfactory to the Administrative Agent and
the Lenders, and all conditions precedent thereto shall have been satisfied, or with the
prior written approval of the Administrative Agent and the Lenders, waived.
(g)
[
Reserved
]
48
(h)
[
Reserved
]
(i)
Fee Letter
. The Fee Letter shall be in full force and effect and each of the
Loan Parties shall have complied with all of their respective obligations thereunder.
(j)
Solvency
. The Administrative Agent shall have received certification as to the
financial condition and solvency of the Loan Parties after giving effect to the Credit Extensions
contemplated by the Loan Documents from the chief financial officer of the relevant Loan Parties.
(k)
HFF IPO
. Successful execution of the initial public offering of the Equity
Interests of HFF on substantially the same terms as set forth in the Form S-1/A filed with the SEC
on January 17, 2007.
(l)
Fees and Expenses
. Any fees and expenses required to be paid on or before the
Closing Date shall have been paid, including those fees and expenses set forth in the Fee Letter
or the Administrative Agent shall be satisfied that satisfactory arrangements have been made for
the payment of such amounts on the Closing Date.
(m)
Legal Expenses
. The Borrower shall have paid all fees, charges and disbursements
of counsel to the Administrative Agent to the extent invoiced prior to or on the Closing Date,
plus such additional amounts of fees, charges and disbursements of counsel to the Administrative
Agent as shall constitute its reasonable estimate of fees, charges and disbursements of counsel to
the Administrative Agent incurred or to be incurred by it through the closing proceedings
(
provided
,
that
, such estimate shall not thereafter preclude a final settling of
accounts between the Borrower and the Administrative Agent).
Without limiting the generality of the provisions of the last paragraph of
Section
9.03
, for purposes of determining compliance with the conditions specified in this
Section
4.01
, each Lender that has signed this Agreement shall be deemed to have consented to, approved
or accepted or to be satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative
Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its
objection thereto.
Section 4.02 Conditions to all Credit Extensions
. The obligation of each Lender to honor any
Request for Credit Extension (other than a Loan Notice requesting only a conversion of Loans to the
other Type, or a continuation of Eurodollar Rate Loans) is subject to the following conditions
precedent:
(a) The representations and warranties of the Borrower and each other Loan Party contained in
Article V
or any other Loan Document, or which are contained in any document furnished at
any time under or in connection herewith or therewith, shall be true and correct on and as of the
date of such Credit Extension, (i) except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they shall be true and correct as of such
earlier date, (ii) except that for purposes of this
Section 4.02
, the representations and
warranties contained in subsections (a) and (b) of
Section 5.05
shall be
49
deemed to refer to the most recent statements furnished pursuant to subsections (a) and (b),
respectively, of
Section 6.01
and (iii) together with any additional items that will be
disclosed on updated Schedules delivered on the next scheduled delivery date, as to which the
Borrower has notified the Administrative Agent in writing.
(b) No Default shall exist, or would result from such proposed Credit Extension or from the
application of the proceeds thereof.
(c) The Administrative Agent shall have received a Request for Credit Extension and the
certificate referred to in
Section 2.13(e)
with respect to any increase in Commitments, as
applicable, in accordance with the requirements hereof.
(d) The Administrative Agent shall have received such other approvals, opinions or documents
as any Lender, through the Administrative Agent, may reasonably request.
Each Request for Credit Extension (other than a Loan Notice requesting only a conversion of
Loans to the other Type or a continuation of Eurodollar Rate Loans) submitted by the Borrower shall
be deemed to be a representation and warranty that the conditions specified in
Sections 4.02(a)
and
(b)
have been satisfied on and as of the date of the applicable Credit Extension.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent and the Lenders that:
Section 5.01 Existence, Qualification and Power
. Each Loan Party (a) is duly organized or
formed and validly existing under the Laws of the jurisdiction of its incorporation or
organization, (b) has all requisite power and authority and all requisite governmental licenses,
accreditations, authorizations, consents and approvals to (i) own or lease its assets and carry on
its business as presently conducted and (ii) execute, deliver and perform its obligations under the
Loan Documents to which it is a party, and (c) is duly qualified and in good standing under the
Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of
its business requires such qualification except in such jurisdictions where failure to so qualify
or be in good standing, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect. There is no existing default under any Organization Document
of any Loan Party or any event which, with the giving of notice or passage of time or both, would
constitute a default thereunder.
Section 5.02 Authorization; No Contravention
. The execution, delivery and performance by each
Loan Party of each Loan Document to which such Person is party, have been duly authorized by all
necessary corporate or other organizational action. The execution, delivery and performance by
each Loan Party of each Loan Document to which it is a party, and the consummation of the
transactions contemplated hereby with respect to each Loan Party, do not and will not: (a)
contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in
any breach or contravention of, or (except for the Liens created under
50
the Loan Documents) the creation of any Lien under, or require any payment to be made under
(i) any Contractual Obligation to which such Person or such Person’s Affiliate is a party or
affecting such Person or the properties of such Person or any of its subsidiaries or (ii) any
order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such
Person or its property is subject; or (c) violate any Law. Each Loan Party is in compliance with
all Contractual Obligations referred to in clause (b)(i), except to the extent that failure to do
so could not reasonably be expected to have a Material Adverse Effect. No Loan Party is in
violation of any Law or in breach of any Contractual Obligation, the violation or breach of which
could be reasonably likely to have a Material Adverse Effect.
Section 5.03 Governmental Authorization; Other Consents
. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing, registration or qualification with, any
Governmental Authority or any other Person (including any party to any contract or agreement to
which any Loan Party or any Loan Party’s Affiliate is a party) is necessary or required in
connection with (a) the execution, delivery or performance by, or enforcement against, any Loan
Party of this Agreement or any other Loan Document (other than those that have been obtained), (b)
the validity or enforceability of any Loan Documents against the Loan Parties (except such filings
or notices as are necessary in connection with the perfection of the Liens created by such Loan
Documents), or (c) the consummation of the transactions contemplated hereby, other than the
following approvals, consents, exemptions, authorizations, actions, filings, registrations and
qualifications:
(i) the filing of financing statements in the UCC filing offices as contemplated and/or
required by the Pledge and Security Agreement or the Perfection Certificate, and any local
UCC filings relating to Fixtures, and the UCC termination statements and other Lien releases
in the applicable UCC or other offices; and
(ii) those listed on
Schedule 5.03
hereto, all of which have been obtained.
Section 5.04 Binding Effect
. This Agreement has been, and each other Loan Document when
delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party
thereto. This Agreement constitutes, and each other Loan Document to which any Loan Party is a
party when so delivered will constitute, a legal, valid and binding obligation of such Loan Party,
enforceable against each such Person in accordance with its terms.
Section 5.05 Financial Statements; No Material Adverse Effect
.
(a) The Audited Financial Statements furnished to the Administrative Agent (i) were prepared
in accordance with GAAP consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein, (ii) fairly present the financial condition of the HFF
Consolidated Group as of the date thereof, and their results of operations for the period covered
thereby in accordance with GAAP consistently applied throughout the period covered thereby, except
as otherwise expressly noted therein, and (iii) show all material indebtedness and other material
liabilities, direct or contingent, of the HFF Consolidated Group as of the date thereof, including
liabilities for taxes, material commitments and Indebtedness.
51
(b) The Unaudited Financial Statements furnished to the Administrative Agent and each Lender
(i) were prepared in accordance with GAAP consistently applied throughout the period covered
thereby, except as otherwise expressly noted therein, and (ii) fairly present the financial
condition, when read together with the notes therein, of the HFF Consolidated Group as of the date
thereof, and their results of operations for the period covered thereby, subject, in the case of
clauses (i) and (ii) above, to the absence of footnotes and to normal year-end audit adjustments
and (iii) show all material indebtedness and other material liabilities, direct or contingent, of
the HFF Consolidated Group as of the date of such financial statements, including liabilities for
taxes, material commitments and Indebtedness.
(c) The Pro Forma Financial Statements have been prepared in good faith by the Borrower and
its senior management, based on the assumptions believed by the Borrower and its senior management
on the date hereof and on the Closing Date to be reasonably based on the best information
available to the Borrower and its senior management as of the date of delivery thereof, accurately
reflect all material adjustments required to be made to give effect to the transactions
contemplated by the Loan Documents, and present fairly on a Pro Forma Basis the estimated
consolidated financial position of the HFF Consolidated Group as of the most recent fiscal quarter
prior to the Closing Date assuming that the transactions contemplated by the Loan Documents, had
actually occurred on that date. None of the Loan Parties has any reason to believe that such
pro-forma balance sheets, statements of cash flows or income statements are misleading in any
material respect in light of the circumstances existing at the time of the preparation thereof.
(d) Since September 30, 2006, there has been no event or circumstance, either individually or
in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
(e) The financial statements delivered to the Administrative Agent and each Lender pursuant
to
Sections 6.01(a)
and
(b)
(i) will be prepared in accordance with GAAP, except
as otherwise noted therein, and (ii) will fairly present the financial condition of the HFF
Consolidated Group as of the date thereof and their results of operations for the period covered
thereby in accordance with GAAP.
Section 5.06 Litigation
. Except as set forth on
Schedule 5.06
, there are no actions,
suits, proceedings, investigations, litigations, claims, disputes or proceedings, pending or, to
the knowledge of the Borrower after due and diligent investigation, threatened or contemplated, at
law, in equity, in arbitration or before any Governmental Authority, by or against or affecting any
Loan Party or against any of their respective properties or revenues or orders, decrees, judgments,
rulings, injunctions, writs, temporary restraining orders or other orders of any nature issued by
any court or Governmental Authority that (a) purport to affect, pertain to or enjoin or restrain
the execution, delivery or performance of the Loan Documents, or any of the transactions
contemplated hereby or thereby, (b) either individually or in the aggregate, if determined
adversely, could reasonably be expected to have a Material Adverse Effect, or (c) purport to affect
the legality, validity or enforceability of the Loan Documents or the consummation of the
transactions contemplated hereby and thereby.
52
Section 5.07 No Default
. No Loan Party is in default under or with respect to any Contractual
Obligation that could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. No Default has occurred and is continuing or would result from the
consummation of the transactions contemplated by this Agreement or any other Loan Document.
Section 5.08 Subsidiaries and Equity Investments
. As of the Closing Date and as of the date
of each Perfection Certificate Supplement, the Loan Parties have no Subsidiaries other than those
specifically disclosed in Schedule 1.05 of the Perfection Certificate or Perfection Certificate
Supplement (including the jurisdiction of organization, authorized classes of Equity Interests,
options, warrants, rights of subscription, conversion and exchangeability and other similar rights,
ownership and ownership percentages thereof), and none of the Loan Parties have any equity
investments in any other corporation or entity other than those specifically disclosed in Schedule
1.05 of the Perfection Certificate or Perfection Certificate Supplement.
Section 5.09 Ownership
. (a) As of the Closing Date and as of the date of each Perfection
Certificate Supplement, the authorized Equity Interests of the Loan Parties of all classes, and all
options, rights of subscription, conversion and exchangeability and other similar rights, and the
ownership and ownership percentages of any thereof as are outstanding are as set forth in Schedule
1.05 of the Perfection Certificate or the Perfection Certificate Supplement. The outstanding
shares of common stock of each Loan Party have been duly and validly authorized and issued, are
fully paid and nonassessable and were not issued in violation of the preemptive rights of any
stockholder. Each Loan Party owns and has good, valid and marketable title to all the outstanding
Equity Interests of each of its direct Subsidiaries, free and clear of all Liens of every kind,
whether absolute, matured, contingent or otherwise, other than those arising under the Collateral
Documents. Except as set forth on Schedule 1.05 of the Perfection Certificate, each Loan Party has
no other outstanding Equity Interests, no incentive units, phantom stock or similar arrangements
and no calls, commitments or claims of any character relating to its Equity Interests. Except as
set forth on Schedule 1.05 of the Perfection Certificate, there are no shareholder agreements or
other agreements pertaining to any Loan Party’s beneficial ownership of the Equity Interests of its
Subsidiaries, including any agreement that would restrict such Loan Party’s right to dispose of, or
its right to vote, such Equity Interests.
(b) The ownership structure of HFF Holdings and its Subsidiaries is as set forth on
Schedule 5.09(b)
hereto.
Section 5.10 Ownership of Property; Liens
. Each of the Loan Parties has good title to all of
its respective properties and assets, free and clear of any Liens, except for Permitted Liens.
Each Loan Party has obtained all permits, licenses, franchises or other certifications, consents,
approvals and authorizations, governmental or private, necessary to the ownership of such
properties and assets and the conduct of its business, except where any failure to do so could not
reasonably be expected to have a Material Adverse Effect.
Section 5.11 Intellectual Property; Licenses, Etc
. Each Loan Party owns, or possesses the
right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent
rights, franchises, licenses and other intellectual property rights (collectively, “
IP
Rights
”)
53
that is reasonably necessary for the operation of its businesses as presently conducted,
without conflict with the rights of any other Person. To the best knowledge of the Loan Parties,
no slogan or other advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by any Loan Party infringes upon any rights held
by any other Person. No claim or litigation regarding any of the foregoing is pending or, to the
best knowledge of the Loan Parties, threatened, which, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
Section 5.12 Environmental Matters
. Each Loan Party conducts in the ordinary course of
business a review of the effect of existing Environmental Laws and claims alleging potential
liability or responsibility for violation of any Environmental Law on their respective businesses,
operations and properties, and as a result thereof each Loan Party has reasonably concluded that
such Environmental Laws and claims could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
Section 5.13 Security Documents
.
(a) The Pledge and Security Agreement is effective to create in favor of the Administrative
Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable first
priority security interest in the Collateral identified therein owned by each Loan Party who is a
party thereto, and, when financing statements in appropriate form are filed as provided in
Section 5.03
, the Pledge and Security Agreement shall constitute a fully perfected Lien
on, and security interest in, all right, title and interest of the grantors thereunder in such
Collateral that may be perfected by filing, recording or registering a financing statement under
the UCC, in each case prior and superior in right to any other Lien on any Collateral other than
Permitted Liens.
(b) The Pledge and Security Agreement is effective to create in favor of the Administrative
Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security
interest in the Pledged Equity and Pledged Debt (each as defined in the Pledge and Security
Agreement) identified therein, and, when the Pledged Securities (as defined in the Pledge and
Security Agreement) evidencing any such Pledged Equity which are certificated securities and such
Pledged Debt are delivered to the Administrative Agent (and so long as they continue to be
properly held by the Administrative Agent), the Pledge and Security Agreement shall constitute a
fully perfected first priority Lien on, and security interest in, all right, title and interest of
the pledgors thereunder in such Pledged Equity and Pledged Debt, in each case subject to no other
Lien.
Section 5.14 Insurance
. Each of the Loan Parties maintains, with financially sound and
reputable insurance companies not Affiliates of any Loan Party, insurance (including liability
insurance and casualty insurance), with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same or similar
businesses and owning similar properties in localities where any of the Loan Parties operates, of
such types and in such amounts, with such deductibles and covering such risks, as are customarily
carried under similar circumstances by such other Persons (or otherwise required in the Collateral
Documents).
54
Section 5.15 Transactions with Affiliates
. Except as set forth in
Schedule 5.15
or
permitted by
Section 7.09
, none of the Loan Parties will be a party to or engaged in any
transaction with, and none of the properties and assets of any Loan Party will be subject to or
bound by any agreement or arrangement with HFF Holdings, HFF, any member of the HFF Consolidated
Group, or any of their respective officers, directors, holders of Equity Interests, or Affiliates
or Subsidiaries.
Section 5.16 Taxes
. Each Loan Party has timely filed all Federal, state and other tax returns
and reports required to be filed, and have timely paid all Federal, state and other taxes,
assessments, fees and other governmental charges levied or imposed upon them or their properties,
income or assets otherwise due and payable, whether or not shown on any tax return, except those
which are being contested in good faith by appropriate proceedings diligently conducted and for
which adequate reserves have been provided in accordance with GAAP. There is no proposed tax
assessment against any Loan Party that would, if made, have a Material Adverse Effect.
Section 5.17 ERISA Compliance
.
(a) Each Plan is in compliance in all material respects with the applicable provisions of
ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under
Section 401(a) of the Code has received a favorable determination letter from the IRS or an
application for such a letter is currently being processed by the IRS with respect thereto, and,
to the best knowledge of the Loan Parties, nothing has occurred which would prevent, or cause the
loss of, such qualification. Each Loan Party and each of their respective ERISA Affiliates have
made all required contributions to each Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period pursuant to Section
412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of the Loan Parties, threatened claims,
actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could
be reasonably expected to have a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to any Plan that has
resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan
has any Unfunded Pension Liability; (iii) none of the Loan Parties nor any ERISA Affiliate has
incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to
any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
none of the Loan Parties nor any ERISA Affiliate has incurred, or reasonably expects to incur, any
liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA,
would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) none of the Loan Parties nor any ERISA Affiliate has engaged in a
transaction that could be subject to Sections 4069 or 4212(c) of ERISA.
Section 5.18 Purpose of Loans
. The proceeds of the Loans are to be used as working capital,
for Permitted Acquisitions and for other lawful corporate purposes.
55
Section 5.19 Margin Regulations; Investment Company Act
.
(a) None of the Loan Parties is engaged, principally or as one of its important activities,
in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued
by the FRB), or extending credit for the purpose of purchasing or carrying margin stock. No
proceeds of any Loans will be used by the Loan Parties to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying margin stock.
(b) None of the Loan Parties is or is required to be registered as an “investment company”
under the Investment Company Act of 1940. Neither the making of the Loans or the application of
the proceeds or repayment thereof by the Borrower, nor the consummation of other transactions
contemplated hereunder, will violate any provision of such Act or any rule, regulation or order of
the SEC.
Section 5.20 Disclosure
. Each of the Loan Parties has disclosed to the Administrative Agent
and the Lenders all agreements, instruments and corporate or other restrictions to which it or any
of its Subsidiaries is subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect. No report,
financial statement, certificate or other information furnished (whether in writing or orally) by
or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the
transactions contemplated hereby and the negotiation of this Agreement and the other Loan Documents
or delivered hereunder or thereunder or under any other Loan Document (in each case, as modified or
supplemented by other information so furnished) contains any material misstatement of fact or omits
to state any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
provided
that with respect to
projected financial information, each Loan Party represents only that such information was prepared
in good faith based upon assumptions believed to be reasonable at the time.
Section 5.21 Compliance with Laws
. Each Loan Party is in compliance in all material respects
with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it
or to its properties, except in such instances in which (a) such requirement of Law or order, writ,
injunction or decree is being contested in good faith by appropriate proceedings diligently
conducted or (b) the failure to comply therewith, either individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
Section 5.22 Labor Matters
. There are no strikes or lockouts against any Loan Party pending
or, to the best knowledge of any Loan Party, threatened, which could have a Material Adverse
Effect.
Section 5.23 Solvency
. Immediately after giving effect to the initial Credit Extension made
on the Closing Date, if any, and any other transactions occurring on the Closing Date, (a) the fair
value of the assets of the Loan Parties (inclusive of goodwill) will exceed the debts and
liabilities, subordinated, contingent or otherwise, (b) the present fair saleable value of the
property of the Loan Parties (inclusive of goodwill) will be greater than the amount that will be
required to pay the probable liability of their debts and other liabilities, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and matured and
(c) each Loan
56
Party will not have unreasonably small capital with which to conduct its business in
which it is engaged as such business is now conducted and is proposed to be conducted following the
Closing Date. For purposes of this Section 5.23, the amount of any contingent liabilities of any
Loan Party (including liabilities in respect of litigation, guaranties and pension plans) shall be
calculated as the maximum reasonably anticipated liability in respect thereof as determined by such
Loan Party in good faith, in light of all the facts and circumstances existing at the time.
Section 5.24 Material Contracts
. Set forth on
Schedule 5.24
hereto (as the same may
be supplemented by any Perfection Certificate Supplement), is a complete and accurate list of all
Material Contracts of each of the Loan Parties, showing as of the Closing Date and the date of each
Perfection Certificate Supplement , the name thereof, the parties, the subject matter and the term.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation
hereunder shall remain unpaid or unsatisfied, the Borrower shall, and shall (except in the case of
the covenants set forth in
Sections 6.01
,
6.02
,
6.03,
6.14
and
6.15
) cause each Loan Party to:
Section 6.01 Financial Statements
. Deliver to the Administrative Agent and each Lender, in
form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) as soon as available, but in any event within ninety (90) days after the end of each
fiscal year thereafter of HFF and the Operating Companies, (i) a consolidated and consolidating
balance sheet of HFF as at the end of such fiscal year, and the respective related consolidated
and consolidating statements of income or operations, shareholders’ equity and cash flows for such
fiscal year and (ii) a consolidated balance sheet for each of the Borrower and HFF Securities as
at the end of such fiscal year and the respective related consolidated statements of income or
operations, shareholders’ equity and cash flows for such fiscal year, setting forth in each case,
in comparative form the figures for the previous fiscal year, all in reasonable detail and
prepared in accordance with GAAP, such consolidated balance sheets and statements to be audited
and accompanied by a report and opinion of either Ernst & Young and/or Sisterson & Co. LLP, or an
independent certified public accounting firm of nationally recognized standing or an independent
certified public accounting firm of regional recognized standing reasonably acceptable to the
Required Lenders, which report and opinion shall be prepared in accordance with generally accepted
auditing standards and applicable Securities Laws and shall not be subject to any “going concern”
or like qualification or exception or any qualification or exception as to the scope of such
audit; and
(b) as soon as available, but in any event within forty-five (45) days after the end of each
of the first three fiscal quarters of each fiscal year of HFF and the Operating Companies, (i) a
consolidated and consolidating balance sheet of HFF as at the end of such
fiscal quarter, and the related consolidated and consolidating statements of income or
operations, shareholders’ equity and cash flows for such fiscal quarter and for the portion of
such fiscal year then ended and (ii) a consolidated balance sheet of the Borrower and HFF
57
Securities as at the end of such fiscal quarter, and the related consolidated statements of income
or operations, shareholders’ equity and cash flows for such fiscal quarter and for the portion of
such fiscal year then ended, in each case setting forth in comparative form the figures for the
corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the
previous fiscal year, all in reasonable detail, such consolidated balance sheets and statements to
be certified by Responsible Officer of HFF, the Borrower or HFF Securities, as applicable, as
fairly presenting the financial condition, results of operations, shareholders’ equity and cash
flows of HFF, the Borrower or HFF Securities on a consolidated basis in accordance with GAAP,
subject only to normal year-end audit adjustments and the absence of footnotes.
(c) as soon as available, but in any event at least fifteen (15) days before the end of each
fiscal year of the Borrower, the Loan Parties’ preliminary annual business plan and budgets,
including projected balance sheet, income statement, cash flow statement and financial covenant
calculations for the next two years prepared on a fiscal quarter basis;
provided
,
however
, that the finalized projected financial information shall be delivered promptly
upon completion.
Section 6.02 Certificates; Other Information
. Deliver to the Administrative Agent and each
Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) concurrently with the delivery of the financial statements referred to in
Section
6.01(a)
, a certificate of its independent certified public accountants certifying such
financial statements and stating that in making the examination necessary therefor no knowledge
was obtained of any Default under the financial covenants set forth herein or, if such knowledge
was obtained, stating the nature and status of such Default and the action the Borrower has taken
or propose to take with respect thereto;
(b) concurrently with the delivery of the financial statements referred to in
Sections
6.01(a)
and
(b)
, a duly completed Compliance Certificate signed by a Responsible
Officer of the Borrower (including a certification as to Availability). In connection with the
delivery by the Borrower of each Compliance Certificate pursuant to this
Section 6.02(b)
,
the Borrower shall deliver to the Administrative Agent a Perfection Certificate Supplement,
together with a statement of a Responsible Officer executing the Compliance Certificate,
certifying that, as of the date thereof, after giving effect to the Perfection Certificate
Supplement, the representations and warranties in
Article V
hereof are true and correct in
all material respects, except those representations and warranties made as of a date certain which
remain true and correct in all material respects as of such date;
(c) promptly after receipt thereof, copies of any detailed audit reports, management letters
or recommendations submitted to the board of directors (or the audit committee of the board of
directors) of any Loan Parties by independent accountants in connection with the accounts or books
of any Loan Party, or any audit of any of them;
58
(d) [Reserved];
(e) on the earlier to occur of (x) at least five (5) Business Days prior to making any
Restricted Payment pursuant to
Section 7.06(e)
, and (y) within ninety (90) days after the
end of each fiscal year of the Borrower, a certificate containing information regarding the
calculation of Excess Cash Flow for the HFF Consolidated Group for the prior fiscal year;
(f) promptly, upon receipt thereof, copies of all notices, requests and other documents
received by any Loan Party or any of its Subsidiaries under or pursuant to any Loan Document,
Material Contract or instrument, indenture, loan or credit or similar agreement and, from time to
time upon request by the Administrative Agent, such information and reports regarding the Material
Contracts and such instruments, indentures and loan and credit and similar agreements as the
Administrative Agent may reasonably request; and
(g) promptly, such additional information regarding the business, financial or corporate
affairs of any Loan Party or any Subsidiary, or compliance with the terms of the Loan Documents,
as the Administrative Agent or any Lender may from time to time reasonably request.
Documents required to be delivered pursuant to
Sections 6.01(a)
or
(b)
may be
delivered electronically and if so delivered, shall be deemed to have been delivered on the date
(i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s
website on the Internet at the website address listed on
Schedule 10.02
, or (ii) on which
such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to
which each Lender and the Administrative Agent have access (whether a commercial, third-party
website or whether sponsored by the Administrative Agent);
provided
that, (i) the Borrower
shall deliver paper copies of such documents to the Administrative Agent or any Lender that
requests the Borrower to deliver such paper copies until a written request to cease delivering
paper copies is given by the Administrative Agent or such Lender, and (ii) the Borrower shall
notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting
of any such documents and provide to the Administrative Agent by electronic mail electronic
versions (
i.e.
, soft copies) of such documents. Notwithstanding anything contained herein,
in every instance the Borrower shall be required to provide paper copies of the Compliance
Certificates required by
Section 6.02(b)
to the Administrative Agent. Except for such
Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery
or to maintain copies, of the documents referred to above, and in any event shall have no
responsibility to monitor compliance by the Borrower with any such request for delivery, and each
Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such
documents.
The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arranger will
make available to the Lenders materials and/or information provided by or on behalf of the Borrower
hereunder (collectively, “
Loan Party Materials
”) by posting the Loan Party Materials on
IntraLinks or another similar electronic system (the “
Platform
”) and (b) certain of the
Lenders (each, a “
Public Lender
”) may have personnel who do not wish to receive material
non-public information with respect to the Borrower or its Affiliates, or the respective
securities of any of the foregoing, and who may be engaged in investment and other
market-related activities with respect to such Person’s securities. The Borrower hereby agrees
that so
59
long as the Borrower is an issuer of any outstanding debt or equity securities that are
registered or issued pursuant to a private offering or is actively contemplating issuing any such
securities (i) all Loan Party Materials that are to be made available to Public Lenders shall be
clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC”
shall appear prominently on the first page thereof; (ii) by marking Loan Party Materials “PUBLIC,”
the Borrower shall be deemed to have authorized the Administrative Agent, the Arranger and the
Lenders to treat the Loan Party Materials as not containing any material non-public information
with respect to the Borrower or its securities for purposes of United States Federal and state
securities laws (
provided
,
however
, that to the extent the Loan Party Materials
constitute Information, they shall be treated as set forth in Section
10.07
): (iii) all
Loan Party Materials marked “PUBLIC” are permitted to be made available through a portion of the
Platform designated “Public Investor;” and (iv) the Administrative Agent and the Arranger shall be
entitled to treat any Loan Party Materials that are not marked “PUBLIC” as being suitable only for
posting on a portion of the Platform not designated “Public Investor.”
Section 6.03 Notices
. Promptly notify the Administrative Agent and each Lender:
(a) of the occurrence of any Default or Event of Default;
(b) of any matter that has resulted or could reasonably be expected to result in a Material
Adverse Effect, including (i) breach or non-performance of, or any default under, a Material
Contract of any Loan Party, (ii) any dispute, action, litigation, investigation, proceeding or
suspension between any Loan Party and any Governmental Authority, or (iii) the commencement of, or
any material development in, any action, litigation, investigation or proceeding affecting any
Loan Party, including pursuant to any applicable Environmental Laws;
(c) of the occurrence of any ERISA Event;
(d) of any material change in accounting policies or financial reporting practices by any
Loan Party;
(e) of any failure by Freddie Mac, beyond any applicable cure and grace period, to purchase
any Borrower Warehoused Loan in accordance with its written commitment to purchase such loan; and
(f) of the revocation or removal of a Borrower’s status as an authorized seller and servicer
of mortgages to Freddie Mac.
Each notice pursuant to this
Section 6.03
shall be accompanied by a statement of a
Responsible Officer of the applicable Loan Party setting forth details of the occurrence referred
to therein and stating what action such Loan Party has taken and proposes to take with respect
thereto. Each notice pursuant to
Section 6.03(a)
shall describe with particularity any and
all provisions of this Agreement and any other Loan Document that have been breached.
Section 6.04 Payment of Obligations
. Pay and discharge, on or prior to the date on which the
same shall become delinquent, all its obligations and liabilities, including (a) all tax
60
liabilities, fees, assessments and governmental charges or levies upon it or its properties or
assets, unless the same are being contested in good faith by appropriate proceedings diligently
conducted and adequate reserves in accordance with GAAP are being maintained, (b) all lawful claims
which, if unpaid, would by Law become a Lien upon its property, and (c) all Indebtedness, as and
when due and payable, but subject to any subordination provisions contained in any instrument or
agreement evidencing such Indebtedness.
Section 6.05 Preservation of Existence, Etc
. (a) Preserve, renew and maintain, in full force
and effect its legal existence, legal structure, legal name and good standing under the Laws of the
jurisdiction of its incorporation or organization, except in a transaction permitted by
Sections 7.04
or
7.05
; (b) take all reasonable action to maintain all rights,
privileges, permits, licenses, approvals and franchises in each case which are necessary or
desirable in the normal conduct of its business, except in a transaction permitted by
Sections
7.04
and
7.05
; and (c) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation or non-renewal of which could reasonably be
expected to have a Material Adverse Effect.
Section 6.06 Maintenance of Properties
. (a) Maintain, preserve and protect all of its
material properties and equipment necessary in the operation of its business in good working order
and condition, ordinary wear and tear and Casualty and Condemnation excepted; (b) make all
necessary repairs thereto and renewals and replacements thereof except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of
care typical in the industry in the operation and maintenance of its facilities.
Section 6.07 Maintenance of Insurance.
(a) Maintain with financially sound and reputable
insurance companies not Affiliates of any Loan Party, insurance (including liability insurance and
casualty insurance), with respect to its properties and business against loss or damage of the
kinds customarily insured against by Persons engaged in the same or similar businesses and owning
similar properties in localities where such Loan Party operates, of such types and in such amounts,
with such deductibles and covering such risks, as are customarily carried under similar
circumstances by such other Persons (or otherwise required in the Collateral Documents). The
Administrative Agent shall be named as an additional insured with respect to any general liability
insurance, and each provider of any such insurance shall agree, by endorsement upon the policy or
policies issued by it or by independent instruments furnished to the Administrative Agent, that it
will give the Administrative Agent ten (10) days prior written notice before any such policy or
policies shall be altered or canceled, and that no act or default of any Loan Party or any other
Person shall affect the rights of the Administrative Agent or the Lenders under such policy or
policies.
(b) In case of any Casualty or Condemnation with respect to any Property of any Loan Party or
any part thereof, promptly give written notice thereof to the Administrative Agent generally
describing the nature and extent of such damage, destruction or taking.
(c) In connection with the covenants set forth in this
Section 6.07
, it is understood
and agreed that none of the Administrative Agent, the Lenders or their respective agents or
employees shall be liable for any loss or damage insured by the insurance policies
61
required to be
maintained under this
Section 6.07
, it being understood that (i) the Loan Parties shall
look solely to their insurance companies or any other parties other than the aforesaid parties for
the recovery of such loss or damage and (ii) such insurance companies shall have no rights of
subrogation against the Administrative Agent, the Lenders or their agents or employees. If,
however, the insurance policies do not provide waiver of subrogation rights against such parties,
as required above, then the Borrower shall, and shall cause each Loan Party to, waive its right of
recovery, if any, against the Administrative Agent, the Lenders and their agents and employees, to
the extent permitted by Law.
Section 6.08 Compliance with Laws
. Comply in all material respects with the requirements of
all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or
property, except in such instances in which (a) such requirement of Law or order, writ, injunction
or decree is being contested in good faith by appropriate proceedings diligently conducted, or (b)
the failure to comply therewith could not be reasonably expected to have a Material Adverse Effect.
Section 6.09 Books and Records
. Maintain proper books of record and account, in which full,
true and correct entries in conformity with GAAP consistently applied shall be made of all
financial transactions and matters involving the assets and business of the Loan Parties, as the
case may be.
Section 6.10 Inspection Rights
. Permit representatives and independent contractors of the
Administrative Agent and each Lender to visit and inspect any of its properties, to examine its
corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to
discuss its affairs, finances and accounts with its directors, officers, and independent public
accountants, all at the expense of the Borrower and at such reasonable times during normal business
hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower;
provided
,
however
, that when an Event of Default exists the Administrative Agent or
any Lender (or any of their respective representatives or independent contractors) may do any of
the foregoing at the expense of the Borrower at any time during normal business hours and without
advance notice.
Section 6.11 Further Assurances with Respect to Additional Subsidiary
. Not later than thirty
(30) days following the date on which any Person (other than an Excluded Subsidiary) becomes a
direct Subsidiary of any Loan Party, cause the Borrower and any other applicable Subsidiary or Loan
Party to deliver to the Administrative Agent, the following:
(a) a Perfection Certificate Supplement duly completed for such Subsidiary and supplementing
the information in the Perfection Certificate for the Loan Parties to the date thereof; and
(b) if such new Subsidiary is a Domestic Subsidiary (other than an Excluded Subsidiary),
cause the Borrower, any other applicable Loan Party and such Subsidiary to execute and deliver a
Joinder Agreement to the Administrative Agent, together with documents
of the type referred to in clauses (iv), (v), (vi), (viii), (ix), (x), (xi) and (xii) of
Section 4.01(a)
, as applicable, including, without limitation, if the Equity Interests of
such Subsidiary are certificated, Pledged Securities (as defined in the Pledge and Security
Agreement) representing
62
100% of the outstanding Equity Interests of such Subsidiary owned by the
Loan Parties, together with instruments of assignment duly executed in blank by the Loan Party
owning such Equity Interests.
Section 6.12 Further Assurances with Respect to Additional Collateral
.
(a) Within twenty (20) days of a request therefore, execute, any and all further documents,
financing statements, agreements and instruments, and take all such further actions (including the
filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other
documents), which may be required under any applicable Law, or which the Administrative Agent or
the Required Lenders may reasonably request, to comply with the terms of this Agreement and the
other Loan Documents, including causing, to the fullest extent permitted by Law, (i) the
Collateral to be subject to a first priority security interest in favor of the Administrative
Agent (subject, in the case of non-possessory security interests, to the Permitted Liens) and (ii)
the pledge of the Equity Interests of the Loan Parties and their respective Subsidiaries which is
subject to a pledge pursuant to the Pledge and Security Agreement, in each case to secure all the
Obligations, all at the expense of the Borrower. The Borrower also agrees to provide to the
Administrative Agent, from time to time upon Administrative Agent’s request therefor, evidence
reasonably satisfactory to the Administrative Agent as to the validity, perfection and priority of
the Liens created or intended to be created by the Loan Documents.
(b) If any property or asset is acquired or leased by any Loan Party after the Closing Date
of the types referred to in the Perfection Certificate, notify the Administrative Agent thereof
(except, in the case of personal property, such notice shall not be required if the Administrative
Agent has a valid first priority perfected security interest in such property and assets by virtue
of any actions previously taken by it or on behalf of the Administrative Agent) by delivering a
duly completed Perfection Certificate Supplement to the Administrative Agent at the times required
by
Section 6.02(b)
and
Section 6.11
and cause, to the fullest extent permitted by
Law, such property and assets to be subjected to a first priority security interest in favor of
the Administrative Agent (subject, in the case of non-possessory security interests, to the
Permitted Liens), take, to the fullest extent permitted by Law, such actions as shall be necessary
or reasonably requested by the Administrative Agent or the Required Lenders to grant and perfect
such Liens, including the actions described in Section 4.01 of the Pledge and Security Agreement.
Section 6.13 Performance of Material Contracts, etc
. Do the following: (a) perform and
observe all the terms and provisions of each Material Contract and the Loan Documents to be
performed or observed by it; (b) maintain each such Material Contract or Loan Document in full
force and effect and enforce each such Material Contract or Loan Document or in accordance with its
terms; (c) take all such action to such end as may be from time to time requested by the
Administrative Agent; and (d) upon request of the Administrative Agent, make to each other party to
each such Material Contract or Loan Document such demands and requests
for information and reports or for action as any Loan Party is entitled to make under such
Material Contract or Loan Document except, in any case, where the failure to do so, either
63
individually or in the aggregate, could not be reasonably likely to have a Material Adverse Effect.
Section 6.14 Use of Proceeds
. Use the proceeds of the Loans on the Closing Date solely for
the purposes set forth in
Section 5.18
.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation
hereunder shall remain unpaid or unsatisfied, the Borrower shall not, directly or indirectly, nor
shall it permit any other Loan Party to, directly or indirectly:
Section 7.01 Liens
. Create, incur, assume or suffer to exist any Lien upon any of its
property, assets or revenues, whether now owned or hereafter acquired, other than the following
(with such Liens described below being referred to herein as “
Permitted Liens
”):
(a) Liens pursuant to any Loan Document securing the Obligations;
(b) Liens existing on the date hereof and listed on
Schedule 7.01
and any renewals or
extensions thereof;
provided
that (i) the property covered thereby is not broadened, (ii)
the amount secured or benefited thereby is not increased, (iii) the direct or any contingent
obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations
secured or benefited thereby are not renewed or extended;
(c) Liens for taxes, fees, assessments or other governmental charges, not yet due or which
are not delinquent or remain payable without penalty, or to the extent non-payment thereof is
permitted by
Section 6.04
;
provided
that no notice of lien has been filed or
recorded under the Code or other applicable Law;
(d) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens
arising in the ordinary course of business which are not delinquent or which are being contested
in good faith and by appropriate proceedings which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto and for which adequate reserves with respect
thereto are maintained on the books of the applicable person in accordance with GAAP;
(e) pledges or deposits in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other social security legislation, other than any Lien
imposed by ERISA;
(f) deposits to secure the performance of bids, trade contracts and leases (other than
Indebtedness), statutory obligations, surety bonds (other than surety bonds related to judgments
or litigation, unless such judgment or litigation related surety bonds are otherwise
expressly permitted hereunder) performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
64
(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real
property of the Loan Parties which, in the aggregate, are not substantial in amount, and which do
not in any case materially detract from the value of the property subject thereto or materially
interfere with the ordinary conduct of the business of the applicable Person;
(h) Liens securing judgments for the payment of money not constituting an Event of Default
under
Section 8.01(h)
or securing appeal or other surety bonds in respect thereof;
provided
that enforcement of such Liens is effectively stayed;
(i) Liens securing Indebtedness permitted under
Section 7.03(c)
;
(j) Liens on Warehousing Collateral securing the Warehousing Facilities (or any of them);
(k) Liens and renewals and extensions thereof, securing Indebtedness permitted under
Section 7.03(c)
; provided that (i) such Liens do not at any time encumber property other
than the property financed by such Indebtedness, and (ii) the Indebtedness secured thereby does
not exceed the cost or fair market value, whichever is lower, of the property being acquired on
the date of acquisition; and
(l) Liens on the cash value of insurance policies and renewals and extensions thereof, with
respect to financing arrangements entered into by any of the Loan Parties in the ordinary course
of business in connection with the purchase and maintenance of such insurance policies.
Section 7.02 Investments
. Make or hold any Investments in any Person or any Acquisitions,
except:
(a) Investments by any Loan Party held in the form of Cash Equivalents;
(b) The respective investments of GP Corp, HFF Partnership Holdings and HFF Acquisition in
the Borrower and HFF Securities;
(c) Investments by the Borrower in and to any Subsidiary Guarantor in the form of
contributions to capital or loans or advances;
provided
that (i) each item of intercompany
Indebtedness shall be unsecured and (ii) each item of intercompany Indebtedness shall be evidenced
by an Intercompany Note which shall be pledged as security for the Obligations of the holder
thereof under the Loan Documents and delivered to the Administrative Agent pursuant to the terms
of the Pledge and Security Agreement;
(d) Investments consisting of extensions of credit in the nature of accounts receivable or
notes receivable arising from the grant of trade credit in the ordinary course of
business, and Investments received in satisfaction or partial satisfaction thereof from
financially troubled account debtors to the extent reasonably necessary in order to prevent or
limit loss; and
65
(e) Investments by the Borrower in Swap Contracts permitted under
Section 7.03(e)
;
(f) Investments by the Loan Parties in (i) the Excluded Subsidiaries (other than HFF
Securities) that, when aggregated with all Indebtedness outstanding pursuant to
Section
7.03(f)
and all Investments made pursuant to
Section 7.02(f)(ii)
, does not exceed
$500,000 in the aggregate at any time, and (ii) HFF Securities, in an amount as is required by SEC
Rule 15c 3-1;
provided
,
however
, that Investments in HFF Securities shall only be
permitted at the minimum levels such Investments are required by SEC Rule 15c 3-1;
(g) Borrower Warehoused Loans that meet or satisfy all conditions to purchase (other than the
passage of time) as set forth in the applicable Freddie Mac or Fannie Mae purchase commitment;
(h) Investments that constitute Permitted Acquisitions; and
(i) solely in connection with (and for the sole purpose of effecting) any exercise of an
Exchange Right or any issuance of Equity Interests in HFF to any employee of Borrower or HFF
Securities pursuant to any employee incentive plans approved by the Board of Directors of HFF, an
Investment in HFF in the form of Class A common Equity Interests in HFF.
Section 7.03 Indebtedness
. Create, incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness under the Loan Documents;
(b) Indebtedness outstanding on the date hereof and listed on
Schedule 7.03
, and
accounts payable incurred in the ordinary course of business of any Loan Party not more than sixty
(60) days past due;
(c) purchase money Indebtedness of the Borrower and any Subsidiary Guarantors including
Capitalized Leases or Off-Balance Sheet Obligations;
provided
,
however
, that (i)
the total aggregate amount of all such Indebtedness at any one time outstanding for the Borrower
and any Subsidiary Guarantor taken together shall not exceed $300,000, (ii) such Indebtedness,
when incurred, shall not exceed 100% of the cost or fair market value, whichever is lower, of the
Property being acquired on the date of acquisition, (iii) such Indebtedness is created and any
Lien attaches to such Property concurrently with or within forty-five (45) days of the acquisition
thereof, and (iv) such Lien does not at any time encumber any Property other than the Property
financed by such Indebtedness;
(d) intercompany Indebtedness permitted under
Section 7.02(c)
;
provided
that
such Indebtedness is subordinated to the Obligations and the terms and conditions of such
subordinated Indebtedness are reasonably acceptable to the Lenders;
(e) obligations (contingent or otherwise) of the Borrower existing or arising under any Swap
Contract required to be entered into pursuant to
Section 6.15
; provided that (i)
66
such
obligations are (or were) entered into by such Person in the ordinary course of business for the
purpose of directly mitigating risks associated with liabilities, commitments, investments,
assets, or property held or reasonably anticipated by such Person, or changes in the value of
securities issued by such Person, and not for purposes of speculation or taking a “market view,”
and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party
from its obligation to make payments on outstanding transactions to the defaulting party;
(f) Indebtedness of the Excluded Subsidiaries to the Loan Parties that does not exceed, when
aggregated with all Investments made and outstanding pursuant to Section
7.02(f)
, $500,000
at any time outstanding; and
(g) Indebtedness under the Warehousing Facilities for Borrower Warehoused Loans that are
permitted pursuant to
Section 7.02(g)
.
Section 7.04 Fundamental Changes
.
(a) Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of
(whether in one transaction or in a series of transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to or in favor of any Person, except that, subject to
Section 7.04(e)
and so long as no Default or Event of Default exists or would result
therefrom:
(i) the Borrower may merge with any of its wholly-owned Subsidiaries;
provided
that
(A) Borrower shall be the continuing or surviving Person, (B) the Loan Parties
shall cause to be delivered such documents, instruments and certificates as to cause the
Loan Parties to be in compliance with the terms of
Sections 6.11
and
6.12
,
and (C) no Default shall have occurred and be continuing immediately before or after giving
effect to such transaction;
(ii) any Wholly-Owned Subsidiary of the Borrower may be party to a transaction of
merger or consolidation with a Wholly-Owned Subsidiary of the Borrower;
provided
that
(A) the Loan Parties shall cause to be delivered such documents, instruments
and certificates as to cause the Loan Parties to be in compliance with the terms of
Sections 6.11
and
6.12
, and (B) no Default shall have occurred and be
continuing immediately before and after giving effect to such transaction;
(iii) any Loan Party may merge with any other Loan Party,
provided
that
the Borrower shall be the continuing or surviving Person of any merger involving such Loan
Party;
provided
,
that
, HFF Securities may not merge with any Loan Party and
no merger may occur that would result in a Change of Control;
(iv) any Loan Party may Dispose of all or substantially all of its assets (upon
voluntary liquidation or otherwise) to any other Loan Party;
provided
,
that
,
no Disposition shall occur that would result in a Change of Control; and
(v) any Loan Party may merge with any other Person for the purpose of effecting a
Permitted Acquisition.
67
(b) change its name, identity or corporate structure (or the equivalent) or reincorporate or
reorganize under the laws of another jurisdiction unless it shall have given the Administrative
Agent at least thirty (30) days prior written notice thereof and shall have delivered to the
Administrative Agent all UCC financing statements and amendments thereto as the Administrative
Agent shall request and taken all other actions deemed necessary by the Administrative Agent to
continue Lenders’ perfected status in the Collateral with the same or better priority.
(c) (i) move the principal place of business and the chief executive office of (x) GP Corp.
or HFF Partnership Holdings from 301 Grant Street, Suite 600, Pittsburgh, Pennsylvania 15219 or
(y) any other Loan Party from 2000 Post Oak Boulevard, Suite 2000, Houston, Texas 77056; (ii)
change the jurisdiction of organization from Texas in regard to the Borrower and Delaware in
regard to each other Loan Party; or (iii) change the location where it maintains its records with
respect to the Collateral; unless, in each case, it shall have provided the Administrative Agent
thirty (30) days’ prior written notice of such change and shall have delivered to the
Administrative Agent all UCC financing statements and amendments thereto as the Administrative
Agent shall request and taken all other actions deemed necessary by Lender to continue its
perfected status in the Collateral with the same or better priority.
(d) alter, amend, modify, terminate, or change any provision of its Organization Documents,
in any manner affecting the rights, titles, security interests, liens, powers and privileges of
the Administrative Agent or Lenders, in each case relating to any of the Collateral during the
time that there exists any outstanding Obligation hereunder or that this Agreement remains in
effect (each, a “
Material Amendment
”). For the avoidance of doubt, any alteration,
change, amendment or modification to the Organization Documents of the Borrower or HFF Securities
entered into for the sole purpose of evidencing (i) any split or combination of partnership units
in the Borrower resulting from a split or combination of HFF stock (as described in Section 5.2 of
the Partnership Agreements), (ii) a cancellation of partnership units as a result of a redemption,
repurchase, acquisition, cancellation or termination of HFF stock (as described in Section 5.3 of
the Partnership Agreements), (iii) the issuance of new partnership units in connection with the
issuance of HFF stock (as described in Section 5.4 and/or 5.5 of the Partnership Agreements), (iv)
any forfeiture of partnership units by HFF Acquisition as described in Section 5.6 of the
Partnership Agreements and (v) any exercise of the Exchange Right, in each case, so long as the
Administrative Agent, for the benefit of the Secured Parties, shall following any such transaction
have, directly or indirectly, a valid, first-priority, perfected security interest in 100% of the
outstanding Pledged Equity Interests, shall not be deemed to be a Material Amendment. With
respect to any other proposed amendment, modification or change to any Organizational Document of
any of the Loan Parties, such Loan Party shall notify the Administrative Agent of such proposal.
The Administrative Agent shall determine, in its sole discretion (that is, the determination of
the other Lenders shall not be required) on the Administrative Agent’s good faith belief, whether
such proposed amendment, modification or change to such Organizational Document is a Material
Amendment within three (3) Business Days of the date on which it is deemed to have received such
notification pursuant
to
Section 10.02
hereof, and shall promptly notify such Loan Party of its
determination. If the Administrative Agent determines that the proposed amendment is a Material
Amendment, the approval of the Required Lenders will be required (unless the approval of all
Lenders is
68
required consistent with the terms hereof), and the Administrative Agent shall promptly
notify the Lenders in writing of such request for such approval (and requesting the approval of
the Lenders within fifteen (15) Business Days of such written notice), distributing, as
appropriate, the proposed amendment and any other relevant information provided by such Loan
Party. If the Administrative Agent determines that the proposed amendment is not a Material
Amendment, such Loan Party may make such amendment without the consent of Lenders or the
Administrative Agent;
provided
,
however
, such Loan Party shall promptly deliver to
the Administrative Agent an executed copy of such amendment upon the execution and effectiveness
of such amendment.
Section 7.05 Dispositions
. Make any Disposition (other than any Casualty or Condemnation) or
enter into any agreement to make any Disposition, except:
(a) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired,
in the ordinary course of business;
(b) Dispositions of inventory in the ordinary course of business;
(c) Dispositions of equipment or real property in the ordinary course of business to the
extent that (i) such property is exchanged for credit against the purchase price of similar
replacement property or (ii) the proceeds of such Disposition are reasonably applied to the
purchase price of similar replacement property (or other property necessary for the operations of
any Loan Party or Subsidiary) within 180 days of such Disposition;
(d) Dispositions of property by any Loan Party to another Loan Party to the extent permitted
by
Section 7.04
;
(e) Dispositions that constitute Investments permitted by
Section 7.02
;
(f) Dispositions made in connection with transactions permitted by
Section 7.04
;
(g) Dispositions of the Borrower Warehoused Loans to Freddie Mac or Fannie Mae or in the
event Freddie Mac or Fannie Mae shall fail to purchase any such loan, any sale of such loan to a
third party;
(h) licensing (including sublicensing) of intellectual property in the ordinary course of
business;
(i) the lease or sublease of real property (or interest therein) in the ordinary course of
business;
(j) exchanges of Cash Equivalents for other Cash Equivalents; and
(k) the exercise of the Exchange Right.
provided
,
however
, that any Disposition pursuant to subsections (a) through (j)
shall be for fair market value.
69
Section 7.06 Restricted Payments
. Declare or make directly or indirectly any Restricted
Payment, or incur any obligation (contingent or otherwise) to do so, or issue or sell any Equity
Interests, except that so long as no Default shall have occurred and be continuing at the time of
any action described below or would result therefrom:
(a) the Loan Parties may declare and pay dividends and distributions payable solely in common
stock or other common Equity Interests of such Loan Party;
(b) any Subsidiary of HFF Holdings or the Borrower may make Restricted Payments to another
Loan Party;
(c) the applicable Loan Parties may make Profit Participation Payments;
(d) (i) to the extent that the Borrower has determined that a tax liability exists for HFF
and/or the members of HFF Holdings and (ii) so long as the Borrower is in compliance with
Section 7.18
on a Pro Forma Basis both before and after giving effect to the proposed
Restricted Payment, the HFF Consolidated Group may make Quarterly Tax Distributions;
(e) so long as the Borrower is in compliance with
Section 7.18
on a Pro Forma Basis
both before and after giving effect to the proposed Restricted Payment, the HFF Consolidated Group
may make distributions for Indemnity Obligations actually incurred by HFF;
(f) (i) any split or combination of partnership units in the Borrower resulting from a split
or combination of HFF stock (as described in Section 5.2 of the Partnership Agreements) or (ii)
the issuance of new partnership units in connection with the issuance of HFF stock (as described
in Sections 5.4 or 5.5 of the Partnership Agreements), in each case, so long as the Administrative
Agent, for the benefit of the Secured Parties, shall following any such transaction have, directly
or indirectly, a valid, first-priority, perfected security interest in 100% of the outstanding
Pledged Equity Interests; and
(g) On the earlier of (i) 90 days after the end of each fiscal year of the Borrower
(commencing with the fiscal year beginning January 1, 2007) or (ii) the day on which the financial
statements and Compliance Certificate of the Loan Parties are delivered pursuant to
Sections
6.01(a)
and
6.02(b)
, so long as the Borrower is in compliance with
Section
7.18
on a Pro Forma Basis both before and after giving effect to the proposed Restricted
Payment, the HFF Consolidated Group may make the Permitted Borrower Distribution.
Section 7.07 Amendment, Etc. of Indebtedness, Other Material Contracts and Payments in respect
of Indebtedness
.
(a) Other than the Loan Documents (which can only be amended or modified pursuant to the
terms hereof), amend or modify (or permit the amendment or modification of (including any waivers
of)), after the issuance thereof, the terms of any Indebtedness.
70
(b) Subject to the terms of
Section 7.07(a)
, cancel or terminate any Material
Contract or consent to or accept any cancellation or termination thereof by any Loan Party, amend
or modify (or permit the amendment or modification of (including any waivers of)), any Material
Contract, waive any default under or breach any Material Contract, or take any other action in
connection with any Material Contract, unless, in each case, any such cancellation, termination,
amendment or modification, or consent, waiver or approval thereunder, is not adverse in any
respect to the Borrower and the Subsidiaries or the Lenders.
(c) Make any payment in contravention of the terms of any subordination with respect to any
Indebtedness.
(d) Except in connection with the proceeds of distributions permitted pursuant to
Section
7.06(e)
, make any prepayment, redemption, defeasance or acquisition for value (including,
without limitation, by way of depositing money or securities with the trustee with respect thereto
before due for the purpose of paying when due), or refund, refinance or exchange of any
Indebtedness (other than the Indebtedness under the Loan Documents and intercompany Indebtedness
permitted hereunder), other than regularly scheduled payments of principal and interest on such
Indebtedness (and only to the extent such payment is not in contravention of the terms of any
subordination provision thereof).
Section 7.08 Change in Nature of Business
. No Loan Party shall engage in any material line of
business substantially different from those lines of business conducted by such Loan Party on the
date hereof (or on the date which such Person becomes a Loan Party) or any business in a similar
(or complimentary) line of business.
Section 7.09 Transactions with Affiliates
. No Loan Party shall enter into any transaction of
any kind with any Affiliate of any Loan Party, whether or not in the ordinary course of business,
other than on fair and reasonable terms substantially as favorable to such Loan Party as would be
obtainable by such Loan Party at the time in a comparable arm’s length transaction with a Person
other than an Affiliate.
Section 7.10 Limitations on Restricted Actions
. Enter into or create or otherwise cause to
exist or become effective any agreement or arrangement that: (a) limits the ability (i) of any Loan
Party to make Restricted Payments to any other Loan Party, (ii) of any Loan Party to act as a
guarantor and pledge its assets pursuant to the Loan Documents or (iii) of any Loan Party to
create, incur, assume or suffer to exist Liens on property of such Person;
provided
,
however
, that this clause (iii) shall not prohibit any negative pledge incurred or provided
in favor of any holder of Indebtedness permitted under
Section 7.03(c)
solely to the extent
any such negative pledge relates to the property financed by or the subject of such Indebtedness;
or (b) requires the grant of a Lien to secure an obligation of such Person not permitted under
Section 7.01
if a Lien is granted to secure another obligation of such Person.
Section 7.11 Sale-Leasebacks; Off-Balance Sheet Obligation
. Enter into any Sale and Leaseback
Transaction or Off-Balance Sheet Obligation, unless such Sale and Leaseback Transaction or
Off-Balance Sheet Obligation constitutes Indebtedness permitted by
Section 7.03(c)
.
71
Section 7.12 [Reserved]
.
Section 7.13 Use of Proceeds
. Use the proceeds of any Credit Extension, whether directly or
indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock
(within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of
purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
Section 7.14 Impairment of Security Interests
. Take or omit to take any action which action
or omission might or would materially impair the security interests in favor of the Secured Parties
with respect to the Collateral or (b) grant to any Person (other than the Administrative Agent
pursuant to the Collateral Documents) any interest whatsoever in the Collateral, except for the
non-possessory Liens permitted under
Section 7.01
.
Section 7.15 Ownership of Subsidiaries and Other Restrictions Relating to the Subsidiaries and
the Loan Parties
.
(a) Notwithstanding any other provision of this Agreement, (i) permit any Person (other than
the Borrower or any Wholly-Owned Subsidiary of the Borrower) to own any Equity Interests of any
Subsidiary of the Borrower, (ii) permit any Subsidiary of the Borrower to issue Equity Interests
in such Subsidiary to any Person, except the Borrower or any Wholly-Owned Subsidiary of the
Borrower, (iii) permit any Loan Party or any Subsidiary of any of them to issue any shares of
preferred Equity Interests, (iv) permit, create, incur, assume or suffer to exist any Lien, other
than Liens in favor of the Secured Parties, on any Equity Interests of any Loan Party in such
Subsidiary or Loan Party, (v) permit members of the HFF Consolidated Group (other than the
Borrower and its Subsidiaries) to own any Equity Interests of any Foreign Subsidiary or (vi)
permit HFF Securities to (x) own any Equity Interests in any Person or (y) retain cash or other
assets with a fair market value of more than the minimum amount that is required by SEC Rule 15c
3-1.
(b) In the case of HFF Partnership Holdings, HFF Acquisition and GP Corp., (i) hold any
assets other than the Equity Interests of the other Loan Parties, (ii) have any material
liabilities other than the liabilities under the Loan Documents, or (iii) engage in any business
or activity other than (A) owning all the Equity Interests o the other Loan Parties and activities
incidental or related thereto or activities related to the maintenance of the corporate existence
of HFF Partnership Holdings, HFF Acquisition and GP Corp., or compliance with applicable Law, and
(B) acting as a guarantor pursuant to the Guaranty Agreement and pledging its assets to the
Administrative Agent, for the benefit of the Lenders, pursuant to the Pledge and Security
Agreement.
Section 7.16 Partnerships, etc.
Become a general partner or limited partner or joint
venturer.
Section 7.17 Fiscal Year and Accounting Method
. No Loan Party will change its fiscal year or
method of accounting (unless required to in accordance with GAAP).
Section 7.18 Financial Covenants
.
72
(a)
Consolidated Leverage Ratio
. Permit the Consolidated Leverage Ratio at any time,
tested at the end of each fiscal quarter of the Borrower, to be greater than 3.00 to 1.0.
(b)
Consolidated Fixed Charge Coverage Ratio
. Permit the Consolidated Fixed Charge
Coverage Ratio at any time, tested at the end of each fiscal quarter of the Borrower, to be less
than 1.65 to 1.0.
Section 7.19 Independent of Covenants.
All covenants contained in Article VI and Article VII
of this Agreement shall be given independent effect so that if a particular action or condition is
not permitted by one covenant, the fact that such action or condition would be permitted by another
covenant shall not avoid the occurrence of a Default if such action is taken or condition exists.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.01 Events of Default
. Any of the following shall constitute an Event of Default:
(a)
Non-Payment
. The Borrower fails to pay (or cause to be paid) (i) when and as
required to be paid herein, any amount of principal of any Loan on the Maturity Date, or (ii)
within three days after the same becomes due, any principal (other than the Maturity Date) of or
interest on any Loan, or any commitment or other fee due hereunder, or (iii) within five days
after the same becomes due, any other amount payable hereunder or under any other Loan Document;
or
(b)
Specific Covenants
. The Borrower or any other Loan Party fails to perform or
observe any term, covenant or agreement contained in
Section 6.01
,
6.02
,
6.03(a)-(e)
,
6.05
,
6.07(a)
,
6.10
,
6.11
,
6.12
,
6.14
, or
Article VII
, or any Guarantor fails to perform or observe any term,
covenant or agreement contained in the Guaranty; or
(c)
Other Defaults
. The Borrower or any other Loan Party fails to perform or observe
any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any
Loan Document on its part to be performed or observed and such failure continues for 30 days; or
if any such default pursuant to this subsection (c) reasonably cannot be cured within such 30 day
period and such Loan Party is at all times diligently pursuing the cure thereof, such cure period
shall be extended to 60 days from the date of such default; or
(d)
Representations and Warranties
. Any representation, warranty, certification or
statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party
herein, in any other Loan Document, or in any document delivered in
connection herewith or therewith shall be incorrect or misleading in any material respect
when made or deemed made; or
(e)
Cross-Default
. (i) Any Loan Party (A) fails to make any payment when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in
respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and
73
Indebtedness under
Swap Contracts) having an aggregate principal amount (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any other
agreement or condition relating to any such Indebtedness or Guarantee or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the
effect of which default or other event is to cause, or to permit the holder or holders of such
Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries), to cause, with the giving of
notice if required, such Indebtedness to be demanded or to become due or to be repurchased,
prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay,
defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to
become payable; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined
in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to
which any Loan Party is the Defaulting Party (as defined in such Swap Contract) or (B) any
Termination Event (as defined in such Swap Contract) under such Swap Contract as to which any Loan
Party is an Affected Party (as defined in such Swap Contract) and, in either event, the Swap
Termination Value owed by such Loan Party as a result thereof is greater than the Threshold
Amount; or
(f)
Insolvency Proceedings, Etc
. Any Loan Party (i) institutes or consents to the
institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit
of creditors or (ii) applies for or consents to the appointment of any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any
material part of its property; or any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer is appointed without the application or consent of such Person
and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding
under any Debtor Relief Law relating to any such Person or to all or any material part of its
property is instituted without the consent of such Person and continues undismissed or unstayed
for 60 calendar days, or an order for relief is entered in any such proceeding; or
(g)
Inability to Pay Debts; Attachment
. (i) Any Loan Party becomes unable or admits
in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ
or warrant of attachment or execution or similar process is issued or levied against all or any
material part of the property of any such Person and is not released, vacated or fully bonded
within 30 days after its issue or levy; or
(h)
Judgments
. There is entered against any Loan Party (i) a final judgment or order
for the payment of money in an aggregate amount exceeding the Threshold Amount (to the extent not
covered by independent third-party insurance as to which the insurer does not dispute coverage),
or (ii) any one or more non-monetary final judgments that have, or could
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect
and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment
or order, or (B) there is a period of 10 consecutive days during which a stay of enforcement of
such judgment, by reason of a pending appeal or otherwise, is not in effect; or
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(i)
ERISA
. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer
Plan which has resulted or could reasonably be expected to result in liability of any Loan Party
under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount
in excess of the Threshold Amount, or (ii) any Loan Party or any ERISA Affiliate fails to pay when
due, after the expiration of any applicable grace period, any installment payment with respect to
its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate
amount in excess of the Threshold Amount; or
(j)
Invalidity of Loan Documents
. Any provision of any Loan Document, at any time
after its execution and delivery and for any reason other than as expressly permitted hereunder or
thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect;
or any Loan Party or any other Person contests in any manner the validity or enforceability of any
provision of any Loan Document; or any Loan Party denies that it has any or further liability or
obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind
any provision of any Loan Document, or in the case of any Lien granted pursuant to any Collateral
Document (including any Lien granted after the Closing Date in accordance with
Section
6.11
or
6.12
) in favor of the Administrative Agent, such Lien ceases to have the
priority purported to be granted under such Collateral Document or is declared by a court of
competent jurisdiction to be null and void, invalid or unenforceable in any respect, and to the
extent applicable in any such instance, the applicable Loan Party(ies) fails to deliver such
replacement Loan Documents as may be necessary to cure such event; or
(k)
Guaranty Agreement
. The Guaranty Agreement given by any Guarantor (including any
Person that becomes a Subsidiary Guarantor after the Closing Date in accordance with
Section
6.11
) or any provision thereof shall cease to be in full force and effect, or any Guarantor
(including any Person that becomes a Subsidiary Guarantor after the Closing Date in accordance
with
Section 6.11
) or any Person acting by or on behalf of such Guarantor shall deny or
disaffirm such Guarantor’s obligations under the Guaranty Agreement, or any Guarantor shall
default, beyond any applicable grace periods set forth in the cross-referenced sections of this
Agreement, in the due performance or observance of any term, covenant or agreement on its part to
be performed or observed pursuant to the Guaranty Agreement;
(l)
Change of Control
. There occurs any Change of Control; or
(m)
Freddie Mac/ Fannie Mae
. Freddie Mac or Fannie Mae fails to purchase any
Borrower Warehoused Loans in accordance with its written commitment to purchase such loans, and
such failure continues for five (5) days beyond any applicable cure or grace period and (i) the
applicable Loan Party thereafter fails to sell such Loan to a third party within 60 days of the
date on which Freddie Mac or Fannie Mae originally defaulted on its obligation or (ii) the failure
to sell such Loan could result in a Material Adverse Effect.
Section 8.02 Remedies Upon Event of Default
. If any Event of Default occurs and is
continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the
Required Lenders, take any or all of the following actions:
(a) declare the Commitments of each Lender to make Loans to be terminated, whereupon such
Commitments and obligation shall be terminated;
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(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and
unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document
to be immediately due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the Loan Parties;
(c) exercise on behalf of itself and the Lenders all rights and remedies available to it and
the Lenders under the Loan Documents, including, without limitation, all rights and remedies
existing under the Collateral Documents and all rights and remedies against any Loan Party;
provided
,
however
, that upon the occurrence of an actual or deemed entry of an
order for relief with respect to any Loan Party under the Bankruptcy Code of the United States, the
obligation of each Lender to make Loans shall automatically terminate, the unpaid principal amount
of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Administrative Agent or any Lender.
Section 8.03 Application of Funds
. After the exercise of remedies provided for in
Section
8.02
(or after the Loans have automatically become immediately due and payable as set forth in
the proviso to
Section 8.02
), any amounts received by the Administrative Agent on account
of the Obligations shall be applied by the Administrative Agent in the following order:
First
, to payment of that portion of the Obligations constituting fees, indemnities,
expenses and other amounts (including applicable Attorney Costs and amounts payable under
Article III
hereof and under the Guaranty Agreement) payable to the Administrative Agent in
its capacity as such;
Second
, to payment of that portion of the Obligations constituting fees, indemnities
and other amounts (other than principal, interest, and Commitment Fees) payable to the Lenders
(including fees, charges and disbursements of counsel to the respective Lenders (including
applicable Attorney Costs and amounts payable under
Article III
hereof) and under the
Guaranty Agreement), ratably among them in proportion to the respective amounts described in this
clause Second payable to them;
Third
, to payment of that portion of the Obligations constituting accrued and unpaid
Commitment Fees and interest on the Loans and other Obligations, ratably among the Lenders in
proportion to the respective amounts described in this clause Third payable to them;
Fourth
, ratably (i) to the payment of that portion of the Obligations constituting
unpaid principal of the Loans, ratably among the Lenders in proportion to the respective amounts
described in this subclause (i) to this clause
Fourth
held by them and (ii) to payment
of that portion of the Obligations constituting amounts owing under or in respect of Secured Swap
Contracts and Secured Cash Management Services Agreements, ratably among the Swap Banks and Cash
Management Banks in proportion to the respective amounts described in this subclause (ii) to this
clause
Fourth
held by them.
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Last
, the balance, if any, after all of the Obligations have been indefeasibly paid in
full, to the Borrower or as otherwise required by Law.
ARTICLE IX
ADMINISTRATIVE AGENT
Section 9.01 Appointment and Authority
.
(a) Each of the Lenders hereby irrevocably appoints Bank of America to act on its behalf as
the Administrative Agent hereunder and under the other Loan Documents and authorizes the
Administrative Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof or thereof, together with such actions
and powers as are reasonably incidental thereto. The provisions of this Article are solely for
the benefit of the Administrative Agent and the Lenders, and no Loan Party shall have any rights
as a third party beneficiary of any of such provisions.
Section 9.02 Rights as a Lender
. The Person serving as the Administrative Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders”
shall, unless otherwise expressly indicated or unless the context otherwise requires, include the
Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and
its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any
other advisory capacity for and generally engage in any kind of business with the Borrower or any
Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder
and without any duty to account therefor to the Lenders.
Section 9.03 Exculpatory Provisions
. The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein and in the other Loan Documents. Without
limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan
Documents that the Administrative Agent is required to exercise as directed in writing by the
Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided
for herein or in the other Loan Documents);
provided
that the Administrative Agent shall
not be required to take any action that, in its opinion or the opinion of its counsel, may expose
the Administrative Agent to liability or that is contrary to any Loan Document or applicable Law;
and
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any
duty to disclose, and shall not be liable for the failure to disclose, any information relating to
the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as
the Administrative Agent or any of its Affiliates in any capacity.
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The Administrative Agent shall not be liable for any action taken or not taken by it (i) with
the consent or at the request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be
necessary, under the circumstances as provided in
Sections 10.01
and
8.02
) or (ii)
in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall
be deemed not to have knowledge of any Default unless and until notice describing such Default is
given to the Administrative Agent by the Borrower or a Lender.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire
into (i) any statement, warranty or representation made in or in connection with this Agreement or
any other Loan Document, (ii) the contents of any certificate, report or other document delivered
hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance
of any of the covenants, agreements or other terms or conditions set forth herein or therein or the
occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this
Agreement, any other Loan Document or any other agreement, instrument or document or (v) the
satisfaction of any condition set forth in
Article IV
or elsewhere herein, other than to
confirm receipt of items expressly required to be delivered to the Administrative Agent.
Section 9.04 Reliance by Administrative Agent
. The Administrative Agent shall be entitled to
rely upon, and shall not incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing (including any electronic message,
Internet or intranet website posting or other distribution) believed by it to be genuine and to
have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed by it to have been
made by the proper Person, and shall not incur any liability for relying thereon. In determining
compliance with any condition hereunder to the making of a Loan, that by its terms must be
fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition
is satisfactory to such Lender unless the Administrative Agent shall have received notice to the
contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it in accordance with
the advice of any such counsel, accountants or experts.
Section 9.05 Delegation of Duties
. The Administrative Agent may perform any and all of its
duties and exercise its rights and powers hereunder or under any other Loan Document by or through
any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any
such sub-agent may perform any and all of its duties and exercise its rights and powers by or
through their respective Related Parties. The exculpatory provisions of this Article shall apply
to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their respective activities in
connection with the syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
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Section 9.06 Resignation of Administrative Agent
. The Administrative Agent may at any time
give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such notice of
resignation, the Required Lenders shall have the right, in consultation with the Borrower, to
appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of
any such bank with an office in the United States. If no such successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days
after the retiring Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent meeting
the qualifications set forth above;
provided
that if the Administrative Agent shall notify
the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such
resignation shall nonetheless become effective in accordance with such notice and (a) the retiring
Administrative Agent shall be discharged from its duties and obligations hereunder and under the
other Loan Documents (except that in the case of any collateral security held by the Administrative
Agent on behalf of the Lenders under any of the Loan Documents, the retiring Administrative Agent
shall continue to hold such collateral security until such time as a successor Administrative Agent
is appointed) and (b) all (i) payments shall be made to an account designated by the Required
Lenders, (ii) communications shall be made to each Lender directly and (iii) determinations
required to be made by the Administrative Agent shall instead be made by determination of the
Required Lenders, in all instances until such time as the Required Lenders appoint a successor
Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s
appointment as Administrative Agent hereunder, such successor shall succeed to and become vested
with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative
Agent, and the retiring Administrative Agent shall be discharged from all of its duties and
obligations hereunder or under the other Loan Documents (if not already discharged therefrom as
provided above in this Section). The fees payable by the Borrower to a successor Administrative
Agent shall be the same as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor. After the retiring Administrative Agent’s resignation hereunder and
under the other Loan Documents, the provisions of this Article and
Section 10.04
shall
continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be taken by any of them
while the retiring Administrative Agent was acting as Administrative Agent.
Section 9.07 Non-Reliance on Administrative Agent and Other Lenders
. Each Lender acknowledges
that it has, independently and without reliance upon the Administrative Agent or any other Lender
or any of their Related Parties and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon the Administrative Agent or
any other Lender or any of their Related Parties and based on such documents and information as it
shall from time to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based
upon this Agreement, any other Loan Document or any related agreement or any document
furnished hereunder or thereunder.
Section 9.08 No Other Duties, Etc
. Anything herein to the contrary notwithstanding, none of
the Book Managers or Arrangers listed on the cover page hereof shall have any powers,
79
duties or
responsibilities under this Agreement or any of the other Loan Documents, except in its capacity,
as applicable, as the Administrative Agent or a Lender hereunder.
Section 9.09 Administrative Agent May File Proofs of Claim
. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to any Loan Party, the Administrative Agent
(irrespective of whether the principal of any Loan shall then be due and payable as herein
expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall
have made any demand on the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and
unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file
such other documents as may be necessary or advisable in order to have the claims of the Lenders
and the Administrative Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their respective agents
and counsel and all other amounts due the Lenders and the Administrative Agent under
Section
2.07
and
10.04
) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such
claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Lender to make such payments to the
Administrative Agent and, in the event that the Administrative Agent shall consent to the making of
such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the
reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its
agents and counsel, and any other amounts due the Administrative Agent under
Sections 2.07
and
10.04
.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or
consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement,
adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the
Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
Section 9.10 Collateral and Guaranty Matters
. The Lenders irrevocably authorize the
Administrative Agent, at its option and in its discretion,
(a) to release any Lien on any property granted to or held by the Administrative Agent under
any Loan Document (i) upon termination of the Commitments and
payment in full of all Obligations (other than contingent indemnification obligations), (ii)
that is sold or to be sold as part of or in connection with any sale permitted hereunder or under
any other Loan Document, or (iii) subject to
Section 10.01
, if approved, authorized or
ratified in writing by the Required Lenders;
80
(b) to subordinate any Lien on any property granted to or held by the Administrative Agent
under any Loan Document to the holder of any Lien on such property that is permitted by
Section 7.01(i)
; and
(c) to release any Subsidiary Guarantor from its obligations under the Guaranty Agreement and
release the pledge of its assets, stock and indebtedness if such Person ceases to be a Subsidiary
as a result of a transaction permitted hereunder.
Upon request by the Administrative Agent at any time, the Required Lenders will confirm in
writing the Administrative Agent’s authority to release or subordinate its interest in particular
types or items of property, or to release any Subsidiary Guarantor from its obligations under the
Guaranty Agreement pursuant to this
Section 9.10
.
ARTICLE X
MISCELLANEOUS
Section 10.01 Amendments, Etc
. No amendment or waiver of any provision of this Agreement or
any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party
therefrom, shall in any event be effective unless the same shall be in writing and signed by the
Required Lenders, HFF Holdings and the Borrower and the applicable Loan Parties, as the case may
be, and acknowledged by the Administrative Agent, and then each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given;
provided
,
however
, that no such amendment, waiver or consent shall:
(a) waive any condition set forth in
Section 4.01(a)
without the written consent of
each Lender;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated
pursuant to
Section 8.02
) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment or
mandatory prepayment of principal, interest, fees or other amounts due to the Lenders (or any of
them) or any scheduled or mandatory reduction of the Commitments hereunder or under any other Loan
Document without the written consent of each Lender directly affected thereby;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan, or
(subject to clause (iv) of the second proviso to this
Section 10.01
) any fees or other
amounts payable hereunder or under any other Loan Document without the written consent of each
Lender directly affected thereby;
provided
,
however
, that only the consent of the
Required Lenders shall be necessary (i) to amend the definition of “Default Rate” or to waive any
obligation of the Borrower to pay interest at the Default Rate or (ii) to amend any financial
covenant hereunder (or any defined term used therein) even if the effect of such amendment
would be to reduce the rate of interest on any Loan or to reduce any fee payable hereunder;
(e) change
Section 2.11
or
Section 8.03
in a manner that would alter the pro
rata sharing of payments required thereby without the written consent of each Lender;
81
(f) change any provision of this Section or the definition of “Required Lenders” or any other
provision hereof specifying the number or percentage of Lenders required to amend, waive or
otherwise modify any rights hereunder or make any determination or grant any consent hereunder,
without the written consent of each Lender; or
(g) release any Guarantor without the written consent of each Lender, except to the extent
the release of any Subsidiary from the Guaranty is permitted pursuant to
Section 9.10
(in
which case such release may be made by the Administrative Agent acting alone), or release all or
substantially all of the Collateral in any transaction or series of related transactions except as
specifically permitted by the Loan Documents without the written consent of each Lender; or
provided
further
, that (i) no amendment, waiver or consent shall, unless in writing
and signed by the Administrative Agent in addition to the Lenders required above, affect the rights
or duties of the Administrative Agent under this Agreement or any other Loan Document.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of
such Lender may not be increased or extended without the consent of such Lender. Upon delivery by
the Borrower of each Perfection Certificate Supplement certifying supplements to the Schedules to
the Perfection Certificate, the schedule supplements attached to each such Perfection Certificate
Supplement shall be incorporated into and become a part of and supplement the Schedules to the
Perfection Certificate, and the Administrative Agent may attach such schedule supplements to such
Schedules, and each reference to such Schedules shall mean and be a reference to such Schedules, as
supplemented pursuant thereto.
Section 10.02 Notices; Effectiveness; Electronic Communication
.
(a)
Notices Generally
. Except in the case of notices and other communications
expressly permitted to be given by telephone (and except as provided in subsection (b) below), all
notices and other communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as
follows, and all notices and other communications expressly permitted hereunder to be given by
telephone shall be made to the applicable telephone number, as follows:
(i) if to any of the Loan Parties, the Administrative Agent, to the address, telecopier
number, electronic mail address or telephone number specified for such Person on
Schedule 10.02
; and
(ii) if to any other Lender, to the address, telecopier number, electronic mail address
or telephone number specified in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall
be deemed to have been given when received; notices sent by telecopier shall be deemed to have been
given when sent (except that, if not given during normal business hours for the recipient, shall be
deemed to have been given at the opening of business on the next business day for the
82
recipient). Notices delivered through electronic communications to the extent provided in
subsection (b) below, shall be effective as provided in such subsection (b).
(b)
Electronic Communications
. Notices and other communications to the Lenders
hereunder may be delivered or furnished by electronic communication (including e-mail and Internet
or intranet websites) pursuant to procedures approved by the Administrative Agent,
provided
that the foregoing shall not apply to notices to any Lender pursuant to
Article II
if such Lender has notified the Administrative Agent that it is incapable of
receiving notices under such Article by electronic communication. The Administrative Agent or the
Borrower may, in its discretion, agree to accept notices and other communications to it hereunder
by electronic communications pursuant to procedures approved by it;
provided
that approval
of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications
sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement
from the intended recipient (such as by the “return receipt requested” function, as available,
return e-mail or other written acknowledgement);
provided
that if such notice or other
communication is not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on the next business day
for the recipient, and (ii) notices or communications posted to an Internet or intranet website
shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as
described in the foregoing clause (i) of notification that such notice or communication is
available and identifying the website address therefor.
(c)
The Platform
. THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT
PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE LOAN PARTY MATERIALS
OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM
THE LOAN PARTY MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY
RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION
WITH THE LOAN PARTY MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any
of its Related Parties (collectively, the “
Agent Parties
”) have any liability to the
Borrower, any Lender or any other Person for losses, claims, damages, liabilities or expenses of
any kind (whether in tort, contract or otherwise) arising out of the Borrower’ or the
Administrative Agent’s transmission of Loan Party Materials through the Internet, except to the
extent that such losses, claims, damages, liabilities or expenses are determined by a court of
competent jurisdiction by a final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Agent Party;
provided
,
however
, that in
no event shall any Agent Party have any liability to the Borrower, any Lender or any other Person
for indirect, special, incidental, consequential or punitive damages (as opposed to direct or
actual damages).
(d)
Change of Address, Etc
. Each of the Borrower and the Administrative Agent may
change its address, telecopier or telephone number for notices and other
83
communications hereunder by notice to the other parties hereto. Each other Lender may change
its address, telecopier or telephone number for notices and other communications hereunder by
notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify
the Administrative Agent from time to time to ensure that the Administrative Agent has on record
(i) an effective address, contact name, telephone number, telecopier number and electronic mail
address to which notices and other communications may be sent and (ii) accurate wire instructions
for such Lender. Furthermore, each Public Lender agrees to cause at least one individual at or on
behalf of such Public Lender to at all times have selected the “Private side Information” or
similar designation on the content declaration screen of the Platform in order to enable such
Public Lender or its delegate, in accordance with such Public Lender’s compliance procedures and
applicable Law, including United States Federal and state securities Laws, to make reference to
Borrower Materials that are not made available through the “Public Side Information” portion of
the Platform and that may contain material non-public information with respect to the Borrower or
its securities for purposes of United States Federal or state securities laws.
(e)
Reliance by Administrative Agent and Lenders
. The Administrative Agent and the
Lenders in the exercise of their good faith discretion shall be entitled to rely and act upon any
notices (including telephonic Loan Notices) purportedly given by or on behalf of the Borrower even
if (i) such notices were not made in a manner specified herein, were incomplete or were not
preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as
understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify
the Administrative Agent, each Lender and the Related Parties of each of them from all losses,
costs, expenses and liabilities resulting from the reliance by such Person on each notice
purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic
communications with the Administrative Agent may be recorded by the Administrative Agent, and each
of the parties hereto hereby consents to such recording.
Section 10.03 No Waiver; Cumulative Remedies
. No failure by any Lender or the Administrative
Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by Law.
Section 10.04 Expenses; Indemnity; Damage Waiver
.
(a)
Costs and Expenses
. The Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees,
charges and disbursements of counsel for the Administrative Agent), in connection with the
syndication of the credit facilities provided for herein, the preparation, negotiation, execution,
delivery and administration of this Agreement and the other Loan Documents or any amendments,
modifications or waivers of the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) all out-of-pocket expenses incurred by
the Administrative Agent or any Lender (including the fees,
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charges and disbursements of any counsel for the Administrative Agent or any Lender), in
connection with the enforcement or protection of its rights against any Loan Party and/or the
Collateral (A) in connection with this Agreement and the other Loan Documents, including its
rights under this Section, or (B) in connection with the Loans made hereunder, including all such
out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of
such Loans.
(b)
Indemnification by the Loan Parties
. The Loan Parties shall indemnify the
Administrative Agent (and any sub-agent thereof), each Lender and each Related Party of any of the
foregoing Persons (each such Person being called an “
Indemnitee
”) against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses
(including Attorney Costs of any counsel for any Indemnitee) incurred by any Indemnitee or
asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party
arising out of, in connection with, or as a result of (i) the execution or delivery of this
Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby,
the performance by the parties hereto of their respective obligations hereunder, thereunder or the
consummation of the transactions contemplated hereby or thereby or, in the case of the
Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration
of this Agreement and the other Loan Documents, (ii) any Loan or the use or proposed use of the
proceeds therefrom, or (iv) any actual or prospective claim, litigation, investigation or
proceeding relating to any of the foregoing, whether based on contract, tort or any other theory,
whether brought by a third party or by the Borrower or any other Loan Party, and regardless of
whether any Indemnitee is a party thereto
, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN
WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY OR SOLE NEGLIGENCE OF THE INDEMNITEE;
provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses (x) are determined by a court
of competent jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the
Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such
Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Loan
Party has obtained a final and nonappealable judgment in its favor on such claim as determined by
a court of competent jurisdiction.
(c)
Reimbursement by Lenders
. To the extent that the Borrower for any reason fails
to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by
it to the Administrative Agent (or any sub-agent thereof) or any Related Party of any of the
foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent)
or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of
the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid
amount;
provided
that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted against the
Administrative Agent (or any such sub-agent) in its capacity as such, or against any Related Party
of any of the foregoing acting for the Administrative Agent (or any such sub-agent) in connection
with such capacity. The obligations of the Lenders under this subsection (c) are subject to the
provisions of
Section 2.10(d)
.
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(d)
Waiver of Consequential Damages, Etc.
To the fullest extent permitted by
applicable Law, the Borrower shall not assert, and hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or as a result of,
this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the
transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No
Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the
use by unintended recipients of any information or other materials distributed by it through
telecommunications, electronic or other information transmission systems in connection with this
Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e)
Payments
. All amounts due under this Section shall be payable not later than ten
Business Days after demand therefor.
(f)
Survival
. The agreements in this Section shall survive the resignation of the
Administrative Agent, the replacement of any Lender, the termination of the Commitments and the
repayment, satisfaction or discharge of all the other Obligations.
Section 10.05 Payments Set Aside
. To the extent that any payment by or on behalf of the
Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any
Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or
required (including pursuant to any settlement entered into by the Administrative Agent or such
Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection
with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or such setoff had not
occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its
applicable share (without duplication) of any amount so recovered from or repaid by the
Administrative Agent, plus interest thereon from the date of such demand to the date such payment
is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The
obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in
full of the Obligations and the termination of this Agreement.
Section 10.06 Successors and Assigns.
(a)
Successors and Assigns Generally
. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that neither the Borrower nor any other Loan Party may assign or
otherwise transfer any of its rights or obligations hereunder without the prior written consent of
the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its
rights or obligations hereunder except (i) to an assignee in accordance with the provisions of
subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of
subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest
subject to the restrictions of subsection (f) of this Section (and
86
any other attempted assignment or transfer by any party hereto shall be null and void).
Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns permitted hereby,
Participants to the extent provided in subsection (d) of this Section and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any
legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)
Assignments by Lenders
. Any Lender may at any time assign to one or more
assignees all or a portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans (including for purposes of this subsection (b)) at the
time owing to it);
provided
that any such assignment shall be subject to the following
conditions:
(i)
Minimum Amounts
.
(A) in the case of an assignment of the entire remaining amount of the
assigning Lender’s Commitment and the Loans at the time owing to it or in the case
of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no
minimum amount need be assigned; and
(B) in any case not described in subsection (b)(i)(A) of this Section, the
aggregate amount of the Commitment (which for this purpose includes Loans
outstanding thereunder) or, if the Commitment is not then in effect, the principal
outstanding balance of the Loans of the assigning Lender subject to each such
assignment, determined as of the date the Assignment and Assumption with respect to
such assignment is delivered to the Administrative Agent or, if “Trade Date” is
specified in the Assignment and Assumption, as of the Trade Date, shall not be less
than $5 million unless the Administrative Agent and, so long as no Event of Default
has occurred and is continuing, the Borrower otherwise consents (each such consent
not to be unreasonably withheld or delayed);
provided
,
however
, that
concurrent assignments to members of an Assignee Group will be treated as a single
assignment for purposes of determining whether such minimum amount has been met;
provided
,
however
, that concurrent assignments to members of an
Assignee Group and concurrent assignments from members of an Assignee Group to a
single assignee (or to an assignee and members of its Assignee Group) will be
treated as a single assignment for purposes of determining whether such minimum
amount has been met;
(ii)
Proportionate Amount
. Each partial assignment shall be made as an
assignment of a proportionate part of all the assigning Lender’s rights and obligations
under this Agreement with respect to the Loans or the Commitment assigned;
(iii)
Required Consents
. No consent shall be required for any assignment
except to the extent required by subsection (b)(i)(B) of this Section and, in addition:
87
(A) the consent of the Borrower (such consent not to be unreasonably withheld
or delayed) shall be required unless (1) an Event of Default has occurred and is
continuing at the time of such assignment or (2) such assignment is to a Lender, an
Affiliate of a Lender or an Approved Fund; and
(B) the consent of the Administrative Agent (such consent not to be
unreasonably withheld or delayed) shall be required if such assignment is to a
Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with
respect to such Lender.
(iv)
Assignment and Assumption
. The parties to each assignment shall execute
and deliver to the Administrative Agent an Assignment and Assumption, together with a
processing and recordation fee in the amount of $3,500, if any;
provided
, however
that the Administrative Agent may, in its sole discretion, elect to waive such processing
and recordation fee in the case of any assignment. The assignee, if it is not a Lender,
shall deliver to the Administrative Agent an Administrative Questionnaire.
(v)
No Assignment to Borrower
. No such assignment shall be made to the
Borrower or any of the Borrower’s Affiliates or Subsidiaries.
(vi)
No Assignment to Natural Persons
. No such assignment shall be made to a
natural person.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c)
of this Section, from and after the effective date specified in each Assignment and Assumption, the
assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned
by such Assignment and Assumption, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations
under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be
entitled to the benefits of
Sections 3.01
,
3.04
,
3.05
and
10.04
with respect to facts and circumstances occurring prior to the effective date of such assignment).
Upon request, the Borrower (at its expense) shall execute and deliver Notes to the assignee Lender.
Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not
comply with this subsection shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with subsection (d) of this
Section.
(c)
Register
. The Administrative Agent, acting solely for this purpose as an agent
of the Borrower shall maintain at the Administrative Agent’s Office a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and addresses of the
Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant
to the terms hereof from time to time (the “
Register
”). The entries in the Register shall
be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary.
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The Register shall be available for inspection by the Borrower and any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(d)
Participations
. Any Lender may at any time, without the consent of, or notice
to, the Borrower or the Administrative Agent, sell participations to any Person (other than a
natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a
“
Participant
”) in all or a portion of such Lender’s rights and/or obligations under this
Agreement (including all or a portion of its Commitment and/or the Loans owing to it);
provided
that (i) such Lender’s obligations under this Agreement shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto for the performance
of such obligations and (iii) the Borrower, the Administrative Agent and the Lenders shall
continue to deal solely and directly with such Lender in connection with such Lender’s rights and
obligations under this Agreement.
Any agreement or instrument pursuant to which a Lender sells such a participation shall
provide that such Lender shall retain the sole right to enforce this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement;
provided
that such
agreement or instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, waiver or other modification described in the first proviso to
Section 10.01
that affects such Participant. Subject to subsection (e) of this Section,
the Borrower agrees that each Participant shall be entitled to the benefits of
Sections
3.01
,
3.04
and
3.05
to the same extent as if it were a Lender and had acquired
its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by
Law, each Participant also shall be entitled to the benefits of
Section 10.08
as though it
were a Lender;
provided
such Participant agrees to be subject to
Section 2.11
as
though it were a Lender.
(e)
Limitations On Participant Rights
. A Participant shall not be entitled to
receive any greater payment under
Section 3.01
or
3.04
than the applicable Lender
would have been entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the Borrower’s prior written
consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled
to the benefits of
Section 3.01
unless the Borrower is notified of the participation sold
to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with
Section 3.01(e)
as though it were a Lender.
(f)
Certain Pledges
. Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement (including under its Note, if any) to
secure obligations of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank;
provided
that no such pledge or assignment shall release such Lender
from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
(g)
Electronic Execution of Assignments
. The words “execution,” “signed,”
“signature,” and words of like import in any Assignment and Assumption shall be deemed to include
electronic signatures or the keeping of records in electronic form, each of which shall be of the
same legal effect, validity or enforceability as a manually executed signature or the
89
use of a paper-based recordkeeping system, as the case may be, to the extent and as provided
for in any applicable Law, including the Federal Electronic Signatures in Global and National
Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state
Laws based on the Uniform Electronic Transactions Act.
Section 10.07 Treatment of Certain Information; Confidentiality
. Each of the Administrative
Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’
respective partners, directors, officers, employees, agents, advisors and representatives (it being
understood that the Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information confidential), (b) to the extent
requested by any regulatory authority purporting to have jurisdiction over it (including any
self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the
extent required by applicable Law or regulations or by any subpoena or similar legal process, (d)
to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under
any other Loan Document or any action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to (i) any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its rights or obligations
under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap
or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the
Borrower or (h) to the extent such Information (x) becomes publicly available other than as a
result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender
or any of their respective Affiliates on a nonconfidential basis from a source other than the
Borrower.
For purposes of this Section, “
Information
” means all information received from HFF
Holdings or the Borrower or any Subsidiary relating to HFF Holdings or the Borrower or any
Subsidiary or any of their respective businesses, other than any such information that is available
to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by HFF
Holdings, the Borrower or any Subsidiary,
provided
that, in the case of information
received from HFF Holdings, the Borrower or any Subsidiary after the date hereof, such information
is clearly identified at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own confidential
information.
Each of the Administrative Agent and the Lenders acknowledges that (a) the Information may
include material non-public information concerning HFF Holdings, the Borrower or a Subsidiary, as
the case may be, (b) it has developed compliance procedures regarding the use of material
non-public information and (c) it will handle such material non-public information in accordance
with applicable Law, including United States Federal and state securities Laws.
Section 10.08 Right of Setoff
. If an Event of Default shall have occurred and be continuing,
each Lender, and each of their respective Affiliates is hereby authorized at any time
90
and from time to time, after obtaining the prior written consent of the Administrative Agent,
to the fullest extent permitted by applicable Law, without prior notice to the Borrower or any
other Loan Party, any such notice being waived by each Loan Party (on its behalf and on behalf of
the Borrower) to the fullest extent permitted by applicable law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final, in whatever currency) at any
time held and other obligations (in whatever currency) at any time owing by such Lender or any such
Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any
and all of the Obligations of the Borrower or any other Loan Party now or hereafter existing under
this Agreement or any other Loan Document to such Lender, irrespective of whether or not the
Administrative Agent or such Lender shall have made any demand under this Agreement or any other
Loan Document and although such Obligations of the Borrower or such Loan Party may be contingent or
unmatured or are owed to a branch or office of such Lender different from the branch or office
holding such deposit or obligated on such indebtedness. The rights of each Lender and their
respective Affiliates under this Section are in addition to other rights and remedies (including
other rights of setoff) that such Lender or their respective Affiliates may have. Each Lender
agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and
application;
provided
that the failure to give such notice shall not affect the validity of
such setoff and application. Notwithstanding the foregoing, the Lenders agree that their set-off
rights pursuant to this
Section 10.08
shall not apply to any account or deposit of any Loan
Party that is expressly designated as a fiduciary or escrow account for a third party.
Section 10.09 Interest Rate Limitation
. Notwithstanding anything to the contrary contained in
any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed
the maximum rate of non-usurious interest permitted by applicable Law (the “
Maximum Rate
”).
If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the
Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds
such unpaid principal, refunded to the Borrower. In determining whether the interest contracted
for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such
Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not
principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments
and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts
the total amount of interest throughout the contemplated term of the Obligations hereunder.
Section 10.10 Counterparts; Integration; Effectiveness
. This Agreement may be executed in
counterparts (and by different parties hereto in different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a single contract.
This Agreement and the other Loan Documents constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except as provided in
Section 4.01
, this Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received counterparts hereof
that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an
executed counterpart of a signature page of this Agreement by telecopy shall be effective as
delivery of a manually executed counterpart of this Agreement.
91
Section 10.11 Survival of Representations and Warranties
. All representations and warranties
made hereunder and in any other Loan Document or other document delivered pursuant hereto or
thereto or in connection herewith or therewith shall survive the execution and delivery hereof and
thereof. Such representations and warranties have been or will be relied upon by the
Administrative Agent and each Lender, regardless of any investigation made by the Administrative
Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any
Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and
shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall
remain unpaid or unsatisfied.
Section 10.12 Severability
. If any provision of this Agreement or the other Loan Documents is
held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the
remaining provisions of this Agreement and the other Loan Documents shall not be affected or
impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the
illegal, invalid or unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the illegal, invalid or unenforceable provisions. The
invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.
Section 10.13 Replacement of Lenders.
If any Lender requests compensation under
Section
3.04
, is unable to make Eurodollar Rate Loans under
Section 3.02
or if the Borrower is
required to pay any additional amount to any Lender or any Governmental Authority for the account
of any Lender pursuant to
Section 3.01
, or if any Lender is a Defaulting Lender, then the
Borrower may, at their sole expense and effort, upon notice to such Lender and the Administrative
Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject
to the restrictions contained in, and consents required by,
Section 10.06
), all of its
interests, rights and obligations under this Agreement and the related Loan Documents to an
assignee that shall assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment),
provided
that:
(a) the Borrower shall have paid to the Administrative Agent the processing and recordation
fee specified in
Section 10.06(b)
;
(b) such Lender shall have received payment of an amount equal to the outstanding principal
of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder
and under the other Loan Documents (including any amounts under
Section 3.05
) from the
assignee (to the extent of such outstanding principal and accrued interest and fees) or the
Borrower (in the case of all other amounts);
(c) in the case of any such assignment resulting from a claim for compensation under
Section 3.04
or payments required to be made pursuant to
Section 3.01
, such
assignment will result in a reduction in such compensation or payments thereafter; and
(d) such assignment does not conflict with applicable Laws.
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A Lender shall not be required to make any such assignment or delegation if, prior thereto, as
a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to
require such assignment and delegation cease to apply.
Section 10.14 Governing Law; Jurisdiction; Etc
.
(a)
GOVERNING LAW
. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
(b)
SUBMISSION TO JURISDICTION
. HFF HOLDINGS AND THE BORROWER IRREVOCABLY AND
UNCONDITIONALLY SUBMIT, FOR THEMSELVES AND THEIR PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF
NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT
OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES
HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY
BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE
ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST HFF HOLDINGS, THE BORROWER OR THEIR
PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c)
WAIVER OF VENUE
. HFF HOLDINGS, THE BORROWER AND EACH OTHER LOAN PARTY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO
IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d)
SERVICE OF PROCESS
. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS
IN THE MANNER PROVIDED FOR NOTICES IN
SECTION 10.02
. NOTHING IN THIS AGREEMENT WILL
AFFECT THE RIGHT OF
ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
93
Section 10.15 Waiver of Jury Trial
. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY
OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE
OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 10.16 No Advisory or Fiduciary Responsibility
. In connection with all aspects of each
transaction contemplated hereby (including in connection with any amendment, waiver or other
modification hereof or of any other Loan Document), the Borrower acknowledges and agrees, and
acknowledges its Affiliates’ understanding, that: (i) (A) the arranging and other services
regarding this Agreement provided by the Administrative Agent and the Arranger are arm’s-length
commercial transactions between the Borrower and its Affiliates, on the one hand, and the
Administrative Agent and the Arranger, on the other hand, (B) the Borrower has consulted its own
legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the
Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of
the transactions contemplated hereby and by the other Loan Documents (ii) (A) the Administrative
Agent and the Arranger each is and has been acting solely as a principal and, except as expressly
agreed in writing by the relevant parties, has not been, is not, and will not be acting as an
advisor, agent or fiduciary, for the Borrower or any of its Affiliates or any other Person and (B)
neither the Administrative Agent nor the Arranger has any obligation to the Borrower or any of its
Affiliates with respect to the transactions contemplated hereby except those obligations expressly
set forth herein and in the other Loan Documents; and (iii) the Administrative Agent and the
Arranger and their respective Affiliates may be engaged in a broad range of transactions that
involve interests that differ from those of the Borrower and its Affiliates, and neither the
Administrative Agent nor the Arranger has any obligation to disclose any of such interests to the
Borrower or its Affiliates. To the fullest extent permitted by law, the Borrower hereby waives and
releases any claims that it may have against the Administrative Agent and the Arranger with respect
to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any
transaction contemplated hereby.
Section 10.17 Entire Agreement
. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
94
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
Section 10.18 USA Patriot Act Notice
. Each Lender subject thereto and the Administrative
Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to
the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)), it is required to obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information that will allow
such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with
such Act.
Section 10.19 Time of the Essence. Time is of the essence of the Loan Documents
.
95
IN WITNESS WHEREOF
, the parties hereto have caused this Agreement to be duly executed as of
the date first above written.
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BORROWER
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HOLLIDAY FENOGLIO FOWLER, L.P.,
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By: Holliday GP Corp., its general partner
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By:
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/s/ John H. Pelusi, Jr.
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Name:
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John H. Pelusi, Jr.
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Title:
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President
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BANK OF AMERICA, N.A.
, as
Administrative Agent
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By:
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/s/ Steven P. Renwick
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Name:
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Steven P. Renwick
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Title:
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Senior Vice President
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BANK OF AMERICA, N.A.
, as a Lender
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By:
Name:
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/s/ Steven P. Renwick
Steven P. Renwick
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Title:
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Senior Vice President
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EXHIBIT A
FORM OF LOAN NOTICE
Date:
,
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Credit Agreement, dated as of
[
]
, 2007(as amended, restated, extended, supplemented or otherwise modified in writing
from time to time, the “
Agreement
”; the terms defined therein being used herein as therein
defined), among HOLLIDAY FENOGLIO FOWLER, L.P., a limited partnership organized under the laws of
the State of Texas, (“
Borrower
” or “
HFF
”), Bank of America, N.A., as Administrative
Agent and the Lenders from time to time party thereto.
The undersigned hereby requests (select one):
o
A Borrowing of Loans
o
A conversion or continuation of Loans
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1.
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On
(a Business Day).
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2.
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In the amount of $
.
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3.
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Comprised of
.
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[
Type of Loan requested: Base Rate Loan or Eurodollar Rate Loan
]
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4.
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For Eurodollar Rate Loans: with an Interest Period of
months.
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The Borrowing, if any, requested herein complies with the proviso to the first sentence of
Section 2.01(a)
of the Agreement.
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HOLLIDAY FENOGLIO FOWLER, L.P.
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By:
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Name:
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Title:
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A-1
EXHIBIT C
FORM OF NOTE
,
FOR VALUE RECEIVED, the undersigned (the “
Borrower
”), hereby promises to pay to
or registered assigns (the “
Lender
”), in accordance with the
provisions of the Agreement (as hereinafter defined), the principal amount of each Loan from time
to time made by the Lender to the Borrower under that certain Amended and Restated Credit
Agreement, dated as of [
], 2007 (as amended, restated, extended, supplemented or
otherwise modified in writing from time to time, the “
Agreement
;” the terms defined therein
being used herein as therein defined), among the Borrower, the Lenders from time to time party
thereto, and Bank of America, N.A., as Administrative Agent.
The Borrower promises to pay interest on the unpaid principal amount of each Loan from the
date of such Loan until such principal amount is paid in full, at such interest rates and at such
times as provided in the Agreement. All payments of principal and interest shall be made to the
Administrative Agent for the account of the Lender in Dollars in immediately available funds at the
Administrative Agent’s Office. If any amount is not paid in full when due hereunder, such unpaid
amount shall bear interest, to be paid upon demand, from the due date thereof until the date of
actual payment (and before as well as after judgment) computed at the per annum rate set forth in
the Agreement.
This Note is one of the Notes referred to in the Agreement, is entitled to the benefits
thereof and may be prepaid in whole or in part subject to the terms and conditions provided
therein. This Note is also entitled to the benefits of the Guaranty Agreement. Upon the
occurrence and continuation of one or more of the Events of Default specified in the Agreement, all
amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due
and payable all as provided in the Agreement. Loans made by the Lender shall be evidenced by one
or more loan accounts or records maintained by the Lender in the ordinary course of business. The
Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of
its Loans and payments with respect thereto.
The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment,
protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
C-1
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
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HOLLIDAY FENOGLIO FOWLER, L.P.
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By: Holliday GP Corp., its general partner
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By:
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Name:
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John H. Pelusi, Jr.
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Title:
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President
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C-2
LOANS AND PAYMENTS WITH RESPECT THERETO
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Amount of
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Principal or
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Outstanding
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End of
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Interest
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Principal
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Type of
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Amount of
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Interest
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Paid This
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Balance
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Notation
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Date
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Loan Made
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Loan Made
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Period
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Date
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This Date
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Made By
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C-3
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
D-1
EXHIBIT E
FORM OF
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (this “
Assignment and Assumption
”) is dated as of the
Effective Date set forth below and is entered into by and between
[
the
][
each
]
1
Assignor identified in item 1 below (
[
the
][
each, an
]
“Assignor”) and
[
the
] [
each
]
2
Assignee identified in item 2 below (
[
the
][
each, an
]
“
Assignee
”).
[
It is understood and agreed that the rights and obligations of
[
the
Assignors
][
the
Assignees
]
3
hereunder are several and not joint. Capitalized terms
used but not defined herein shall have the meanings given to them in the Credit Agreement
identified below (the “
Credit Agreement
”), receipt of a copy of which is hereby
acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached
hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment
and Assumption as if set forth herein in full.
For an agreed consideration,
[
the
][
each
]
Assignor hereby irrevocably sells and assigns to
[
the
Assignee
][
the respective Assignees
]
, and
[
the
][
each
]
Assignee hereby irrevocably purchases and
assumes from
[
the Assignor
][
the respective Assignors
]
, subject to and in accordance with the
Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the
Administrative Agent as contemplated below (i) all of
[
the Assignors’
][
the respective Assignor’s
]
rights and obligations in
[
its capacity as a Lender
][
their respective capacities as Lenders
]
under
the Credit Agreement and any other documents or instruments delivered pursuant thereto to the
extent related to the amount and percentage interest identified below of all of such outstanding
rights and obligations of
[
the Assignor
][
the respective Assignors
]
under the respective facilities
identified below (including, without limitation, the Collateral securing such facilities) and (ii)
to the extent permitted to be assigned under applicable Law, all claims, suits, causes of action
and any other right of
[
the Assignor (in its capacity as a Lender)
][
the respective Assignors (in
their respective capacities as Lenders)
]
against any Person, whether known or unknown, arising
under or in connection with the Credit Agreement, any other documents or instruments delivered
pursuant thereto or the loan transactions governed thereby or in any way based on or related to any
of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims,
statutory claims and all other claims at law or in equity related to the rights and obligations
sold and assigned by
[
the
][
any
]
Assignor to
[
the
][
any
]
Assignee pursuant
|
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1
|
|
For bracketed language here and elsewhere in
this form relating to the Assignor(s), if the assignment is from a single
Assignor, choose the first bracketed language. If the assignment is from
multiple Assignors, choose the second bracketed language.
|
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|
2
|
|
For bracketed language here and elsewhere in
this form relating to the Assignee(s), if the assignment is to a single
Assignee, choose the first bracketed language. If the assignment is to
multiple Assignees, choose the second bracketed language.
|
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3
|
|
Select as appropriate.
|
Form of Assignment and Assumption
E-1
to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and
(ii) above being referred to herein collectively as,
[
the
][
an
]
“
Assigned Interest
”). Each
such sale and assignment is without recourse to
[
the
][
any
]
Assignor and, except as expressly
provided in this Assignment and Assumption, without representation or warranty by
[
the
][
any
]
Assignor.
|
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|
1.
|
|
Assignor
[
s
]
:
|
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2.
|
|
Assignee:
[
s
]
[
for each Assignee, indicate
|
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[
Affiliate
]
/
[
Approved Fund
]
of
[
identify Lender
]]
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3.
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Borrower: Holliday Fenoglio Fowler, a Texas limited partnership
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4.
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Administrative Agent:
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Bank of America, N.A., as the administrative agent under the
Credit Agreement
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5.
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Credit Agreement:
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The Amended and Restated Credit Agreement, dated as of February ___,
2007, among HOLLIDAY FENOGLIO FOWLER, L.P., a limited partnership organized under the laws of
the State of Texas, (“
Borrower
” or “
HFF
”), the Lenders from time to time party
thereto, and Bank of America, N.A., as Administrative Agent.
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6.
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Assigned Interests:
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Aggregate
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Amount of
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Amount of
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Commitment/
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Percentage
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Commitment/Loans
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Loans
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Assigned of
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Assignor
[
s
]
4
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Assignee
[
s
]
5
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for all Lenders
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Assigned
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Commitment
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$
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$
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%
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Effective Date:
, 20___
[
TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE
THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.
]
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4
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List each Assignor, as appropriate.
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5
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List each Assignee, as appropriate.
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6
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To be completed if the Assignor and the Assignee
intend that the minimum assignment amount is to be determined as of the Trade
Date.
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Form of Assignment and Assumption
E-2
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The terms set forth in this Assignment and Assumption are hereby agreed to:
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ASSIGNOR
[
NAME OF ASSIGNOR
]
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By:
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Name:
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Title:
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ASSIGNEE
[
NAME OF ASSIGNEE
]
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By:
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Name:
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Title:
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Form of Assignment and Assumption
E-3
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[
Consented to and
]
1
Accepted:
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BANK OF AMERICA, N.A., as
Administrative Agent
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By:
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Name:
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Title:
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[
Consented to:
]
2
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[
BORROWER
]
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By:
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Name:
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Title:
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1
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To be added only if the consent of the
Administrative Agent is required by the terms of the Credit Agreement.
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2
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To be added to the extent the consent of the
Borrower is required by the terms of the Credit Agreement.
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Form of Assignment and Assumption
E-4
ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1.
Representations and Warranties
.
1.1.
Assignor
.
[
The
][
Each
]
Assignor (a) represents and warrants that (i) it is the
legal and beneficial owner of
[
the
][
the relevant
]
Assigned Interest, (ii)
[
the
][
such
]
Assigned
Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full
power and authority, and has taken all action necessary, to execute and deliver this Assignment and
Assumption and to consummate the transactions contemplated hereby, and (b) assumes no
responsibility with respect to (i) any statements, warranties or representations made in or in
connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any Collateral
thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or
any other Person obligated in respect of any Loan Document or (iv) the performance or observance by
the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective
obligations under any Loan Document.
1.2.
Assignee
.
[
The
][
Each
]
Assignee (a) represents and warrants that (i) it has full
power and authority, and has taken all action necessary, to execute and deliver this Assignment and
Assumption and to consummate the transactions contemplated hereby and to become a Lender under the
Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 10.06(b)(iii),
(v) and (vi) of the Credit Agreement (subject to such consents, if any, as may be required under
Section 10.06(b)(iii) of the Credit Agreement), (iii) from and after the Effective Date, it shall
be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of
[
the
][
the relevant
]
Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it
is sophisticated with respect to decisions to acquire assets of the type represented by
[
the
][
such
]
Assigned Interest and either it, or the Person exercising discretion in making its decision to
acquire
[
the
][
such
]
Assigned Interest, is experienced in acquiring assets of such type, (v) it has
received a copy of the Credit Agreement, and has received or has been accorded the opportunity to
receive copies of the most recent financial statements delivered pursuant to Section 6.01 thereof,
as applicable, and such other documents and information as it deems appropriate to make its own
credit analysis and decision to enter into this Assignment and Assumption and to purchase
[
the
][
such
]
Assigned Interest, (vi) it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this Assignment and
Assumption and to purchase
[
the
][
such
]
Assigned Interest, and (vii) if it is a Foreign Lender,
attached hereto is any documentation required to be delivered by it pursuant to the terms of the
Credit Agreement, duly completed and executed by
[
the
][
such
]
Assignee, and (b) agrees that (i) it
will, independently and without reliance upon the Administrative Agent,
[
the
][
any
]
Assignor or any
other Lender, and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not
Form of Assignment and Assumption
E-5
taking action under the Loan Documents, and (ii) it will perform in accordance with their
terms all of the obligations which by the terms of the Loan Documents are required to be performed
by it as a Lender.
2.
Payments
. From and after the Effective Date, the Administrative Agent shall make
all payments in respect of
[
the
][
each
]
Assigned Interest (including payments of principal,
interest, fees and other amounts) to
[
the
][
the relevant
]
Assignor for amounts which have accrued to
but not excluding the Effective Date and to
[
the
][
the relevant
]
Assignee for amounts which have
accrued from and after the Effective Date.
3.
General Provisions
. This Assignment and Assumption shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and assigns. This
Assignment and Assumption may be executed in any number of counterparts, which together shall
constitute one instrument. Delivery of an executed counterpart of a signature page of this
Assignment and Assumption by telecopy shall be effective as delivery of a manually executed
counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed
by, and construed in accordance with, the law of the State of New York.
Form of Assignment and Assumption
E-6
EXHIBIT F
FORM OF GUARANTY AGREEMENT
This GUARANTY AGREEMENT, dated as of February 5, 2007 (this “
Agreement
”), is made by
HFF PARTNERSHIP HOLDINGS LLC, a Delaware limited liability company (the “
HFF Partnership
Holdings
”), HOLLIDAY GP CORP., a Delaware corporation (“
GP Corp
.”), HFF LP ACQUISITION
LLC, a Delaware limited liability company (“
HFF Acquisition
”) and each Subsidiary (such
capitalized term and all other capitalized terms not otherwise defined herein to have the meanings
provided for in the
recitals
or in
Article I
below) of HFF Partnership Holdings, GP
Corp., HFF Acquisition or Borrower (as defined below) listed on the signature pages hereof (HFF
Partnership Holdings, GP Corp., HFF Acquisition and such Subsidiaries, together with any Additional
Guarantors which hereafter become a party to this Agreement pursuant to
Section 5.06
, are
collectively referred to as the “
Guarantors
” and individually as a “
Guarantor
”), in
favor of BANK OF AMERICA, N.A., as administrative and collateral agent (in such capacities, the
“
Administrative Agent
”) for each of the Secured Parties.
RECITALS
WHEREAS
, pursuant to a Amended and Restated Credit Agreement, dated as of the date hereof (as
amended, restated, extended, supplemented or otherwise modified from time to time, the “
Credit
Agreement
”), among HOLLIDAY FENOGLIO FOWLER, L.P., a Texas limited liability company (the
“
Borrower
”), the Lenders party thereto from time to time, Bank of America, N.A., as
Administrative Agent and the other Secured Parties, the Lenders have agreed to make Loans and other
extensions of credit to or for the benefit of the Borrower;
WHEREAS
, the obligations of the Lenders to make Credit Extensions to or for the benefit of the
Borrower under the Credit Agreement are conditioned upon, among other things, the execution and
delivery of this Agreement by each Guarantor;
WHEREAS
, each Guarantor is engaged in a business which is related to the business of the
Borrower and will derive substantial direct and indirect benefits from the Credit Agreement and the
Credit Extensions to be made or issued thereunder by the Lenders to or for the benefit of the
Borrower and the other financial accommodations to the Borrower as may be made available by the
other Secured Parties; and
WHEREAS
, each Guarantor is willing to guarantee the Obligations of the Borrower as hereinafter
provided in order to obtain such benefits;
NOW THEREFORE
, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Lenders to make Credit Extensions (including the
initial Credit Extension) to the Borrower pursuant to the Credit Agreement, each Guarantor agrees,
for the benefit of each Secured Party, as follows:
ARTICLE XI
DEFINITIONS
Guaranty Agreement
Section 11.01
Definitions
.
The following terms (whether or not underscored) when used in this
Agreement, including its preamble and recitals, shall have the following meanings (such definitions
to be equally applicable to the singular and plural forms thereof):
“
Additional Guarantors
” is defined in
Section 5.06(b)
.
“
Administrative Agent
” is defined in the
preamble
.
“
Agreement
” is defined in the
preamble
.
“
Borrower
” is defined in the
first recital
.
“
Credit Agreement
” is defined in the
first
recital
.
“
Guaranteed Obligations
” is defined in
Section 2.01
.
“
Guarantor
” and “
Guarantors
” are defined in the
preamble
.
“
Intercompany Note
” has the meaning provided in the Pledge and Security Agreement.
“
Post Petition Interest
” is defined in
Section 2.04(b)(ii)
.
“
Subordinated Obligations
” is defined in
Section 2.04(b)
.
“
Termination Date
” has the meaning provided in the Pledge and Security Agreement.
Section 11.02
Credit Agreement Definitions
.
Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and recitals, have the
meanings provided in the Credit Agreement.
Section 11.03
Other Interpretive Provisions. The rules of construction in Sections 1.02 to
1.05 of the Credit Agreement shall be equally applicable to this Agreement.
ARTICLE XII
GUARANTEE
Section 12.01
Guarantee; Limitation of Liability. (a) Each Guarantor, jointly and severally,
hereby absolutely, unconditionally and irrevocably guarantees the punctual payment when due,
whether at scheduled maturity or on any date of a required prepayment or by acceleration, demand or
otherwise, of all Obligations of the Borrower and all Obligations of each other Guarantor now or
hereafter existing under or in respect of the Loan Documents (including, without limitation, any
extensions, modifications, substitutions, amendments, amendments and restatements, replacements or
renewals of any or all of the foregoing Obligations), whether direct or indirect, absolute or
contingent, and whether for principal, interest, premiums, fees, indemnities, contract causes of
action, costs, expenses or otherwise (the Obligations of the Borrower and the other Guarantors
guaranteed by each Guarantor being the “
Guaranteed Obligations
” of such Guarantor), and
agrees to pay any and all expenses (including, without limitation, all reasonable fees, charges and
disbursements of counsel) incurred by the Administrative Agent or any other Secured Party in
enforcing any rights under this Agreement or
Guaranty Agreement
-8-
any other Loan Document. Without limiting the generality of the foregoing, each Guarantor’s
Obligations hereunder shall extend to all amounts that constitute part of the Guaranteed
Obligations of such Guarantor and would be owed by any other Loan Party to any Secured Party under
or in respect of the Loan Documents but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding involving such other
Loan Party.
(b) Each Guarantor, and the Administrative Agent, for itself and each other Secured Party,
hereby confirms that it is the intention of all such Persons that this Agreement and the
Obligations of each Guarantor hereunder not constitute a fraudulent transfer or conveyance for
purposes of Debtor Relief Laws, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar Law to the extent applicable to this Agreement and the Obligations of
each Guarantor hereunder. To effectuate the foregoing intention, the Administrative Agent, the
other Secured Parties and the Guarantors hereby irrevocably agree that the Obligations of each
Guarantor under this Agreement at any time shall be limited to the maximum amount as will result in
the Obligations of such Guarantor under this Agreement not constituting a fraudulent transfer or
conveyance.
(c) Each Guarantor hereby unconditionally and irrevocably agrees that in the event any payment
shall be required to be made to any Secured Party under this Agreement, such Guarantor will
contribute, to the maximum extent permitted by Law, such amounts to each other Guarantor so as to
maximize the aggregate amount paid to the Secured Parties under or in respect of the Loan
Documents.
Section 12.02
Guarantee Absolute
.
Each Guarantor guarantees that the Guaranteed Obligations
of such Guarantor will be paid strictly in accordance with the terms of the Loan Documents,
regardless of any Law now or hereafter in effect in any jurisdiction affecting any of such terms or
the rights of any Secured Party with respect thereto. The Obligations of each Guarantor under or
in respect of this Agreement are independent of the Guaranteed Obligations or any other Obligations
of any other Loan Party under or in respect of the Loan Documents, and a separate action or actions
may be brought and prosecuted against each Guarantor to enforce this Agreement, irrespective of
whether any action is brought against the Borrower or any other Loan Party or whether the Borrower
or any other Loan Party is joined in any such action or actions. This Agreement is a present and
continuing, absolute and unconditional guarantee of payment when due, and not of collection, by
each Guarantor jointly and severally with each other Guarantor of the Obligations of the Borrower
or any other Guarantor. The liability of each Guarantor under this Agreement shall be irrevocable,
absolute and unconditional irrespective of, and each Guarantor hereby irrevocably waives any
defenses it may now have or hereafter acquire in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of any Loan Document or any agreement or instrument
relating thereto;
(b) any change in the time, manner or place of payment of, or in any other term of, all or any
of the Obligations of any other Loan Party under or in respect of the Loan Documents, or any other
amendment or waiver of or any consent to departure from any Loan Document, including, without
limitation, any increase in the Guaranteed Obligations resulting
Guaranty Agreement
-9-
from the extension of additional credit to any Loan Party or any of its Subsidiaries or
otherwise in accordance with the Loan Documents;
(c) any taking, exchange, release, subordination or non-perfection of any Collateral or any
other collateral, or any taking, release, subordination or amendment or waiver of, or consent to
departure from, any other guarantee, for all or any of the Guaranteed Obligations;
(d) any manner of application of Collateral or any other collateral, or proceeds thereof, to
all or any of the Obligations of any Loan Party, or any manner of sale or other disposition of any
Collateral or any other collateral for all or any of the Obligations of any Loan Party under the
Loan Documents or any other assets of any Loan Party or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or existence of any
Loan Party or any of its Subsidiaries or any insolvency, bankruptcy, reorganization or other
similar proceeding under Debtor Relief Laws affecting the Borrower or any other Loan Party or its
assets or any resulting release or discharge of any Guaranteed Obligation;
(f) the existence of any claim, setoff or other right which any Guarantor may have at any time
against any Loan Party, the Administrative Agent, any Lender or any other Person, whether in
connection herewith or any unrelated transaction;
(g) any provision of applicable Law purporting to prohibit the payment or performance by any
Loan Party of any of the Obligations of such Loan Party;
(h) any failure of any Secured Party to disclose to any Loan Party any information relating to
the business, condition (financial or otherwise), operations, performance, properties or prospects
of any other Loan Party now or hereafter known to such Secured Party (each Guarantor waiving any
duty on the part of the Secured Parties to disclose such information);
(i) the failure of any other Person to execute or deliver this Agreement or any other
guarantee or agreement or the release or reduction of liability of any Guarantor or other guarantor
or surety with respect to the Guaranteed Obligations; or
(j) any other circumstance (including, without limitation, any statute of limitations) or any
existence of or reliance on any representation by any Secured Party that might otherwise constitute
a defense available to, or a discharge of, any Loan Party or any other guarantor or surety.
Section 12.03
Waivers and Acknowledgments
.
(a) Each Guarantor hereby unconditionally and irrevocably waives, to the extent permitted by
applicable Law, promptness, diligence, notice of acceptance, presentment, demand for performance,
notice of nonperformance, default, acceleration, protest or dishonor and any other notice with
respect to any of the Guaranteed Obligations and this Agreement and any requirement that any
Secured Party protect, secure, perfect or insure any Lien or any
Guaranty Agreement
-10-
property subject thereto or exhaust any right or take any action against any Loan Party or any
other Person or any Collateral.
(b) Each Guarantor hereby unconditionally and irrevocably waives, to the extent permitted by
applicable Law, any right to revoke this Agreement and acknowledges that this Agreement is
continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the
future.
(c) Each Guarantor hereby unconditionally and irrevocably waives, to the extent permitted by
applicable Law, (i) any defense arising by reason of any claim or defense based upon an election of
remedies by any Secured Party that in any manner impairs, reduces, releases or otherwise adversely
affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of such
Guarantor or other rights of such Guarantor to proceed against any of the other Loan Parties, any
other guarantor or any other Person or any Collateral and (ii) any defense based on any right of
setoff or counterclaim against or in respect of the Obligations of such Guarantor hereunder.
(d) Each Guarantor acknowledges that the Administrative Agent may, without notice to or demand
upon such Guarantor and without affecting the liability of such Guarantor under this Agreement,
foreclose under any mortgage by nonjudicial sale, and each Guarantor hereby waives, to the extent
permitted by applicable Law, any defense to the recovery by the Administrative Agent and the other
Secured Parties against such Guarantor of any deficiency after such nonjudicial sale and any
defense or benefits that may be afforded by applicable Law.
(e) Each Guarantor hereby unconditionally and irrevocably waives any duty on the part of any
Secured Party to disclose to such Guarantor any matter, fact or thing relating to the business,
condition (financial or otherwise), operations, performance, properties or prospects of any other
Loan Party or any of its Subsidiaries now or hereafter known by such Secured Party.
(f) Each Guarantor acknowledges that it will receive substantial direct and indirect benefits
from the financing arrangements contemplated by the Loan Documents and that the waivers set forth
in
Section 2.02
and this
Section 2.03
are knowingly made in contemplation of such
benefits.
Section 12.04
Subordination
.
(a) Each Guarantor hereby unconditionally and irrevocably
agrees not to exercise any rights that it may now have or hereafter acquire against the Borrower,
any other Guarantor or any other insider guarantor that arise from the existence, payment,
performance or enforcement of such Guarantor’s Obligations under or in respect of this Agreement or
any other Loan Document, including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution (pursuant to
Section 2.01(c)
or otherwise) or indemnification and
any right to participate in any claim or remedy of any Secured Party against the Borrower, any
other Guarantor or any other insider guarantor or any Collateral, whether or not such claim, remedy
or right arises in equity or under contract, statute or common law, including, without limitation,
the right to take or receive from the Borrower, any other Guarantor or any other insider guarantor,
directly or indirectly, in cash or other property or by setoff or in any other manner, payment or
security on account of such claim, remedy or right without the
Guaranty Agreement
-11-
prior written consent of the Administrative Agent, unless and until the Termination Date has
occurred.
(b) Each Guarantor hereby agrees that any and all debts, liabilities and other obligations
owed to such Guarantor by each other Loan Party, including pursuant to
Section 2.01(c)
(collectively, the “
Subordinated Obligations
”), are hereby subordinated to the prior
payment in full in cash of the Obligations of such other Loan Party under the Loan Documents to the
extent and in the manner hereinafter set forth in this
Section 2.04(b)
:
(A) Except during the continuance of an Event of Default (including the commencement
and continuation of any proceeding under any Debtor Relief Law relating to any other Loan
Party), each Guarantor may receive regularly scheduled payments from any other Loan Party on
account of the Subordinated Obligations. After the occurrence and during the continuance of
any Event of Default (including the commencement and continuation of any proceeding under
any Debtor Relief Law relating to any other Loan Party), however, unless the Administrative
Agent otherwise agrees in writing, no Guarantor shall demand, accept or take any action to
collect any payment on account of the Subordinated Obligations.
(B) In any proceeding under any Debtor Relief Law relating to any other Loan Party,
each Guarantor agrees that unless the Administrative Agent otherwise agrees in writing the
Secured Parties shall be entitled to receive payment in full in cash of all Obligations
(including all interest and expenses accruing after the commencement of a proceeding under
any Debtor Relief Law, whether or not constituting an allowed claim in such proceeding
(“
Post Petition Interest
”)) of each other Loan Party before such Guarantor receives
payment of any Subordinated Obligations of such other Loan Party.
(C) After the occurrence and during the continuance of any Event of Default (including
the commencement and continuation of any proceeding under any Debtor Relief Law relating to
any other Loan Party), each Guarantor shall, if the Administrative Agent so requests,
collect, enforce and receive payments on account of any Subordinated Obligations due to such
Guarantor from any other Loan Party as trustee for the Secured Parties and deliver such
payments to the Administrative Agent for application to the Guaranteed Obligations
(including all Post Petition Interest), together with any necessary endorsements or other
instruments of transfer, but without reducing or affecting in any manner the liability of
such Guarantor under the other provisions of this Agreement.
(D) After the occurrence and during the continuance of any Event of Default (including
the commencement and continuation of any proceeding under any Debtor Relief Law relating to
any other Loan Party), the Administrative Agent is authorized and empowered (but without any
obligation to so do), in its discretion, (A) in the name of any Guarantor, to collect and
enforce, and to submit claims in respect of, Subordinated Obligations due to such Guarantor
and to apply any amounts received thereon to the Guaranteed Obligations (including any and
all Post Petition Interest), and (B) to require any Guarantor (1) to collect and enforce,
and to submit claims in respect of, Subordinated Obligations due to such Guarantor and (2)
to pay any amounts received on
Guaranty Agreement
-12-
such obligations to the Administrative Agent for application to the Guaranteed
Obligations (including any and all Post Petition Interest).
(E) In the event of any conflict between the provisions of this
Section 2.04(b)
and the provisions of Annex A of any Intercompany Note, the provisions of such Annex A shall
govern.
(c) If any amount shall be paid to any Guarantor in violation of this
Section 2.04
at
any time prior to the Termination Date, such amount shall be received and held in trust for the
benefit of the Secured Parties, shall be segregated from other property and funds of such Guarantor
and shall forthwith be paid or delivered to the Administrative Agent in the same form as so
received (with any necessary endorsement or assignment) to be credited and applied to the
Guaranteed Obligations and all other amounts payable under this Agreement, whether matured or
unmatured, in accordance with the terms of the Loan Documents, or to be held as Collateral for any
Guaranteed Obligations or other amounts payable under this Agreement thereafter arising.
(d) If the Termination Date shall have occurred, the Administrative Agent will, at any
Guarantor’s request and expense, execute and deliver to such Guarantor appropriate documents,
without recourse and without representation or warranty, necessary to evidence the transfer by
subrogation to such Guarantor of an interest in the Guaranteed Obligations resulting from any
payment made by such Guarantor pursuant to this Agreement.
Section 12.05
Payments Free and Clear of Taxes, Etc
.
(a) Any and all payments made by any
Guarantor under or in respect of this Agreement or any other Loan Document shall be made, in
accordance with Section 3.01 of the Credit Agreement, free and clear of and without reduction or
withholding for any Indemnified Taxes or Other Taxes; provided that if any Guarantor shall be
required by any Laws to deduct any Indemnified Taxes (including Other Taxes) from such payments,
then (i) the sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under this
Section
2.05
), each of the Administrative Agent or any Lender, as the case may be, receives an amount
equal to the sum it would have received had no such deductions been made, (ii) such Guarantor shall
make such deductions, and (iii) such Guarantor shall timely pay the full amount deducted to the
relevant Governmental Authority in accordance with Law.
(b) Without limiting the provisions of subsection (a) above, each Guarantor shall timely pay
any Other Taxes that arise from any payment made by or on behalf of such Guarantor under or in
respect of this Agreement or any other Loan Document or from the execution, delivery, performance,
enforcement or registration of, or otherwise with respect to, this Agreement and the other Loan
Documents to the relevant Governmental Authority in accordance with Law.
(c) Each Guarantor shall indemnify the Administrative Agent and each Lender within 10 days
after demand therefor, for the full amount of Indemnified Taxes or Other Taxes (including any
Indemnified Taxes or Other Taxes imposed or asserted or attributable to amounts payable under this
Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto, whether or not such
Indemnified Taxes or Other Taxes were correctly or legally
Guaranty Agreement
-13-
imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of
such payment or liability delivered to a Guarantor by a Lender (with a copy to the Administrative
Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any
Guarantor to a Governmental Authority, such Guarantor shall deliver to the Administrative Agent the
original or a certified copy of a receipt issued by such Governmental Authority evidencing such
payment, a copy of the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) No Guarantor shall be responsible for the payment of any Excluded Taxes.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES
Section 13.01
Credit Agreement Representatives and Warranties
.
Each Guarantor hereby makes
each representation and warranty made in the Credit Agreement by the Borrower with respect to such
Guarantor.
Section 13.02
No Conditions Precedent. There are no conditions precedent to the effectiveness
of this Agreement that have not been satisfied or waived.
Section 13.03
Independent Credit Analysis. Each Guarantor has, independently and without
reliance upon any Secured Party and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this Agreement and each other
Loan Document to which it is or is to be a party, and such Guarantor has established adequate means
of obtaining from each other Loan Party on a continuing basis information pertaining to, and is now
and on a continuing basis will be completely familiar with, the business, condition (financial or
otherwise), operations, performance, properties and prospects of such other Loan Party.
ARTICLE XIV
COVENANTS
Section 14.01
Credit Agreement Covenants
.
Each Guarantor covenants and agrees that until the
Termination Date, it will perform and observe, and cause each of its Subsidiaries to perform and
observe, all of the terms, covenants and agreements set forth in the Credit Agreement on its or
their part to be performed or observed.
Section 14.02
Operation Matters. In the conduct of its business and operations, HFF
Acquisition shall:
(a) limit the nature, purpose and conduct of its business solely to the ownership of the
Equity Interests in the Operating Companies;
(b) maintain books and records, separate from those of any other Person;
Guaranty Agreement
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(c) maintain its bank accounts and all its other assets separate from those of any other
Person;
(d) hold regular membership or partnership meetings, as appropriate, to conduct its business,
and observe all other partnership formalities;
(e) hold itself out to creditors and the public as a legal entity separate and distinct from
any other Person;
(f) prepare separate financial statements, or if part of a consolidated or combined group,
then it shall be shown as a separate member of such group, including in a footnote(s) to the
relevant financial statements disclosing its separate existence and identity and the existence of
its own assets;
(g) allocate and charge fairly and reasonably any common employee or overhead shared with
Affiliates except as otherwise permitted under the Loan Documents;
(h) except as otherwise permitted pursuant to the Loan Documents (including, without
limitation, in connection any with the exercise of Exchange Right), transact all business with
Affiliates on an arm’s-length basis and to enter into transactions with Affiliates on an
arm’s-length basis pursuant to written agreements;
(i) hold all of its assets and conduct business in its own name;
(j) maintain a sufficient number of employees, if any, in light of its contemplated business
operations;
(k) correct any misunderstanding regarding its separate identity of which any Guarantor has
actual knowledge;
(l) not identify itself in writing as a division of any other Person;
(m) pay any liabilities out of its own funds, including salaries of any employees; and
(n) maintain adequate capital in light of its contemplated business operations, if any.
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.01
Loan Document
.
This Agreement is a Loan Document executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered
and applied in accordance with the terms and provisions thereof.
Section 15.02
No Waiver; Remedies. No failure on the part of any Secured Party to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further exercise
Guaranty Agreement
-15-
thereof or the exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by the Law.
Section 15.03
Right of Setoff. If an Event of Default shall have occurred and be continuing,
each Secured Party and each of their respective Affiliates is hereby authorized at any time and
from time to time, to the fullest extent permitted by applicable Law, to setoff and apply any and
all deposits (general or special, time or demand, provisional or final in whatever currency) at any
time held and other obligations (in whatever currency) at any time owing by, such Secured Party or
any such Affiliate to or for the credit or the account of any Guarantor against any and all of the
Obligations of such Guarantor now or hereafter existing under this Agreement or any other Loan
Documents to such Secured Party, irrespective of whether or not such Secured Party shall have made
any demand under this Agreement or any other Loan Document and although such Obligations of such
Guarantor may be contingent or unmatured or are owed to a branch or office of such Secured Party
different from the branch or office holding such deposit or obligated on such indebtedness. The
rights of each Secured Party and their respective Affiliates under this Section are in addition to
other rights and remedies (including other rights of setoff) that such Secured Party or their
respective Affiliates may have. Each Secured Party agrees to notify such Guarantor and the
Administrative Agent promptly after any such setoff and application;
provided
, that the
failure to give such notice shall not affect the validity of such setoff and application.
Section 15.04
Indemnification. (a) Without limitation of any Guarantor’s obligation to
guarantee the Borrower’s reimbursement and indemnification Obligations under
Section 10.04
of the Credit Agreement, each Guarantor shall independently indemnify each Indemnitee against, and
hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related
expenses (including Attorney Costs of any counsel for any Indemnitee), incurred by any Indemnitee
or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party as
and to the extent provided in
Section 10.04
of the Credit Agreement.
(b) Each Guarantor hereby also agrees that none of the Indemnitees shall have any liability
(whether direct or indirect, in contract, tort or otherwise) to any of the Guarantors or any of
their respective Affiliates, directors, officers, employees, counsel, agents and attorneys-in-fact,
and each Guarantor hereby agrees not to assert any claim against any Indemnitee on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual
damages) arising out of, in connection with, or as a result of the Loans, the actual or proposed
use of the proceeds of the Credit Extensions, the Loan Documents or any of the transactions by and
between the Lenders and the Loan Parties (or any of them) as contemplated by the Loan Documents.
(c) All amounts due under this
Section 5.04
shall be payable not later than ten
Business Days after demand therefor.
(d) Without prejudice to the survival of any of the other agreements of any Guarantor under
this Agreement or any of the other Loan Documents, the agreements and obligations of each Guarantor
contained in
Section 2.01(a)
(with respect to enforcement expenses), the last sentence of
Section 2.02
,
Section 2.05
and this
Section 5.04
shall survive the
Guaranty Agreement
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payment in full of the Guaranteed Obligations and all of the other amounts payable under this
Agreement.
Section 15.05
Continuing Guarantee; Reinstatement
.
(a) This Agreement is a continuing
agreement and shall (i) remain in full force and effect with respect to each Guarantor until the
Termination Date, (ii) be binding upon each Guarantor, its successors and assigns and (iii) inure
to the benefit of and be enforceable by the Secured Parties and their successors, transferees and
assigns.
(b) This Agreement shall continue to be effective or be reinstated, as the case may be, with
respect to a Guarantor if at any time any payment of any of the Guaranteed Obligations of such
Guarantor is rescinded or must otherwise be returned by any Secured Party or any other Person in
connection with the insolvency, bankruptcy, reorganization or other similar proceedings affecting
the Borrower or any other Loan Party under Debtor Relief Laws or otherwise, all as though such
payment had not been made.
(c) The Obligations of a Guarantor under this Agreement shall terminate on the Termination
Date for such Guarantor.
Section 15.06
Amendments, etc.; Additional Guarantors; Successors and Assigns
.
(a) No
amendment to or waiver of any provision of this Agreement nor consent to any departure by any
Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed
by the Administrative Agent and, with respect to any such amendment, by the Guarantors or the Loan
Party Representative on behalf of the Guarantors, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given.
(b) Upon the execution and delivery by any Person of a Joinder Agreement, such Person shall be
referred to as an “
Additional Guarantor
” and shall be and become a Guarantor, and each
reference in this Agreement to “Guarantor” shall also mean and be a reference to such Additional
Guarantor.
(c) This Agreement shall be binding upon each Guarantor and its successors, transferees and
assigns and shall inure to the benefit of the Administrative Agent and each other Secured Party and
their respective successors, transferees and assigns; provided, however, that no Guarantor may
assign its obligations hereunder without the prior written consent of the Administrative Agent.
Section 15.07
Addresses for Notices; Borrower as Representative. (a) All notices and other
communications provided for hereunder shall be in writing and mailed, delivered or transmitted by
telecopier to each party hereto at the address set forth in Section 10.02 of the Credit Agreement
(as contained on Schedule 10.02 to the Credit Agreement). All such notices and other
communications shall be deemed to be given or made at the times provided in Section 10.02 of the
Credit Agreement.
(b) Each Subsidiary Guarantor hereby appoints the Borrower to act as the representative for
such Subsidiary Guarantor for purposes of delivering and receiving notices on behalf of such
Grantor under, and confirming the consent of such Guarantor and otherwise authorizing and
delivering supplements and amendments to, the Loan Documents to which such
Guaranty Agreement
-17-
Guarantor is a party on behalf of such Guarantor, including, without limitation, pursuant to a
Perfection Certificate Supplement.
Section 15.08
Section Captions
.
Section captions used in this Agreement are for convenience
of reference only, and shall not affect the construction of this Agreement.
Section 15.09
Severability. If any provision of this Agreement is held to be illegal, invalid
or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this
Agreement shall not be affected or impaired thereby and (b) the parties shall endeavor in good
faith negotiations to replace the illegal, invalid or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the illegal, invalid
or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
Section 15.10
Counterparts. This Agreement may be executed in counterparts (and by different
parties hereto in different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract.
Section 15.11
Governing Law, Etc. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) EACH GUARANTOR IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO
THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND
OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES
HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS
AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY
OTHER SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AGAINST ANY GUARANTOR OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.
(c) EACH GUARANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY
COURT REFERRED TO IN
Guaranty
Agreement
-18-
PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE
OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR
NOTICES IN
SECTION 5.07
. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY
HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW
.
Section 15.12
Right to Trial by Jury. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY
OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE
OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 15.13
Entire Agreement. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES OR BY PRIOR OR CONTEMPORANEONS
WRITTEN AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[Signature Page Follows]
Guaranty
Agreement
-19-
IN WITNESS WHEREOF, each Guarantor has caused this Agreement to be duly executed and delivered
by its officer thereunto duly authorized as of the date first above written.
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HFF PARTNERSHIP HOLDINGS LLC
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By:
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Name:
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Title:
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HOLLIDAY GP CORP.
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By:
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Name:
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Title:
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HFF LP ACQUISITION LLC
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By:
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Form of Joinder Agreement
F-1
EXHIBIT G
FORM OF JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this “
Agreement
”), dated as of
,
, is by
and between
, a
(the “
Subsidiary
”), and Bank ofAmerica, N.A., in its capacity as Administrative Agent under that certain Amended and Restated
Credit Agreement, dated as of February
, 2007 (as amended, restated, extended, supplemented or
otherwise modified in writing from time to time, the “
Credit Agreement
”), among HOLLIDAY
FENOGLIO FOWLER, L.P., a limited partnership organized under the laws of the State of Texas,
(“
Borrower
” or “
HFF
”), the Lenders from time to time party thereto, and Bank of
America, N.A., as Administrative Agent. Capitalized terms used but not defined herein shall have
the meanings given to them in the Credit Agreement.
The Borrower is required by Section 6.11 of the Credit Agreement to cause each Person that
becomes a direct or indirect material domestic subsidiary of a Loan Party (other than an Excluded
Subsidiary) to execute and deliver a Joinder Agreement in the form hereof.
Accordingly, the applicable Subsidiary hereby agrees as follows with the Administrative Agent,
for the benefit of the Lenders:
ARTICLE I
JOINDERS
1.1 Guaranty
. The Subsidiary hereby (a) acknowledges, agrees and confirms that, by its
execution of this Agreement, the Subsidiary will be deemed to be a party to the Guaranty Agreement
and a “Guarantor” (as such term is defined in the Guaranty Agreement) for all purposes of the
Credit Agreement and the Guaranty Agreement, and shall have all of the obligations of a Guarantor
thereunder as if it had executed the Guaranty Agreement, (b) jointly and severally together with
the other Guarantors thereunder, guarantees to each Lender and the Administrative Agent, as
provided in the Guaranty Agreement, the prompt payment and performance of the Guaranteed
Obligations (as defined in the Guaranty Agreement) in full when due (whether at stated maturity, as
a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms
thereof, and (c) makes each representation and warranty set forth in Article III of the Guaranty
Agreement as to itself to the same extent as each other Guarantor thereunder and hereby agrees to
be bound as a Guarantor by all of the terms and provisions of the Guaranty Agreement to the same
extent as all other Guarantors thereunder.
1.2. Pledge and Security Agreement
. The Subsidiary hereby (a) acknowledges, agrees and
confirms that, by its execution of this Agreement, the Subsidiary will be deemed to be a party to
the Pledge and Security Agreement, and a “Grantor” (as such term is defined in the Pledge and
Security Agreement) for all purposes of the Credit Agreement and the Pledge and Security Agreement,
and shall have all the obligations of a Grantor thereunder as if it had executed the Pledge and
Security Agreement, (b) assigns and pledges to the Administrative Agent for its benefit and the
ratable benefit of the Secured Parties, and hereby grants to the
Form of Joinder Agreement
G-1
Administrative Agent for its benefit and the ratable benefit of the Secured Parties, as
collateral for the Secured Obligations (as such term is defined in the Pledge and Security
Agreement), a pledge and assignment of, and a security interest in, all of the right, title and
interest of the undersigned in and to its Collateral, whether now owned or hereafter acquired,
subject to all of the terms and provisions of the Pledge and Security Agreement, as if such
Collateral of the undersigned had been subject to the Pledge and Security Agreement on the date of
its original execution, (c) attaches hereto supplements to Schedules
to the Pledge and
Security Agreement, and certifies that such supplements have been prepared by the Subsidiary in
substantially the form of the Schedules to the Pledge and Security Agreement and are accurate and
complete as of the date first above written, and (d) makes each representation and warranty set
forth in
of the Pledge and Security Agreement as to itself and as to its Collateral to
the same extent as each other Grantor and hereby agrees to be bound as a Grantor by all of the
terms and provisions of the Pledge and Security Agreement to the same extent as all other Grantors.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Subsidiary hereby represents and warrants that:
(a) This Agreement has been duly authorized, executed and delivered by the Subsidiary and
constitutes a legal, valid and binding obligation of the Subsidiary, enforceable against the
Subsidiary in accordance with its terms; and
(b) No Default has occurred and is continuing on the date hereof.
ARTICLE III
EFFECTIVENESS
This Agreement shall become effective on the date when the last of the following conditions
shall have been satisfied:
(a) The Administrative Agent shall have received the following (in each case in form and
substance satisfactory to the Administrative Agent, in its reasonable discretion):
(i) duly executed counterparts of this Agreement;
(ii) such certificates of resolutions or other action, incumbency certificates and/or
other certificates of duly authorized officers of the Subsidiary as the Administrative Agent
may reasonably require evidencing the identity, authority and capacity of each duly
authorized officer authorized to act on behalf of the Subsidiary in connection with this
Agreement and the other Loan Documents to which the Subsidiary is a party;
Form of Joinder Agreement
G-2
(iii) such documents and certifications as the Administrative Agent may reasonably
require to evidence that the Subsidiary is duly organized or formed, validly existing, in
good standing and qualified to engage in business in each jurisdiction where its ownership,
lease or operation of properties or the conduct of its business requires such qualification,
except to the extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect, including, certified copies of its Organization Documents,
certificates of good standing and/or qualification to engage in business and tax clearance
certificates;
(iv) favorable opinions of counsel for the Subsidiary, addressed to the Administrative
Agent and each Lender, reasonably acceptable to the Administrative Agent and including,
among other things, opinions regarding the enforceability of the security interests created
thereby;
(v) a certificate of a duly authorized officer of the Subsidiary either (A) attaching
copies of all consents, licenses and approvals of Governmental Authorities, shareholders and
other Persons required in connection with the execution, delivery and performance by the
Subsidiary and the validity against the Subsidiary of the Loan Documents to which it is a
party (including the pledge of the Subsidiary’s Capital Stock and the expiration, without
imposition of conditions, of all applicable waiting periods in connection with the
transaction contemplated by the Loan Documents, and such consents, licenses and approvals
shall be in full force and effect, or (B) stating that no such consents, licenses or
approvals are so required;
(vi) evidence that all insurance required to be maintained pursuant to the Loan
Documents has been obtained and is in full force and effect;
(vii) original certificates evidencing all of the issued and outstanding shares of
Capital Stock or other equity or other ownership interests, if any, required to be pledged
by the Subsidiary pursuant to the terms of the Pledge and Security Agreement, which
certificates shall be accompanied by undated stock powers duly executed in blank by each
relevant pledgor in favor of the Administrative Agent;
(viii) the original Intercompany Notes required to be pledged pursuant to the terms of
the Pledge and Security Agreement duly endorsed in blank by the Subsidiary in favor of the
Administrative Agent;
(ix) (A) certified copies of Uniform Commercial Code Requests for Information or Copies
(Form UCC-11) or similar search reports certified by a party acceptable to the
Administrative Agent, dated a date reasonably near (but prior to) the date hereof, listing
all effective UCC financing statements, tax liens and judgment liens which name the
Subsidiary as the debtor, and which are filed in the jurisdictions in which the Subsidiary
is organized or has any property or assets, together with copies of such financing
statements (none of which (other than financing statements filed pursuant to the terms
hereof in favor of the Administrative Agent, if such Form UCC-11 or search report,
Form of Joinder Agreement
G-3
as the case may be, is current enough to list such financing statements) shall cover
any of the Collateral) except to the extent permitted by Section 7.01 of the Credit
Agreement;
(x) acknowledgment copies of UCC financing statements (or delivery in proper form for
filing) naming the Subsidiary as the debtor and the Administrative Agent as the secured
party, and which such UCC financing statements have been filed, or have been delivered for
filing under the UCC of all jurisdictions as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the first priority security interest (subject to
Liens permitted by Section 7.01 of the Credit Agreement) of the Administrative Agent
pursuant to the Pledge and Security Agreement;
(xi) evidence that all other action that the Administrative Agent may deem necessary or
desirable in order to perfect and protect the first priority liens and security interests
(together with access letters) created under the Collateral Documents (subject to the Liens
permitted by Section 7.01 of the Credit Agreement) has been taken (including, without
limitation, receipt of duly executed payoff letters, UCC-3 termination statements and
landlords’ and bailees’ waiver and consent agreements);
(xii) Certified copies of all Material Contracts of the Subsidiary
(xiii) evidence of appointment of CT Corporation System (or other corporate service
company) as agent for service of process; and
(xiv) such other assurances, certificates, documents, consents and waivers, estoppel
certificates, or opinions as the Administrative Agent or the Required Lenders reasonably may
require.
(b) No Default or Event of Default shall have occurred and be continuing at the time of the
execution and delivery hereof or would occur immediately after giving effect to the execution and
delivery of this Agreement and the performance by the Subsidiary of its obligations hereunder.
ARTICLE IV
MISCELLANEOUS
4.1. Integration; Confirmation.
On and after the date hereof, each of the Guaranty Agreement,
the Pledge and Security Agreement, and the respective Schedules thereto shall be supplemented as
expressly set forth herein; all other terms and provisions of each of the Guaranty Agreement, the
Pledge and Security Agreement, the other Loan Documents and the respective Schedules thereto shall
continue in full force and effect and unchanged and are hereby confirmed in all respects.
4.2. Loan Document.
This Agreement is a Loan Document executed pursuant to the Credit
Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and
applied in accordance with the terms and provisions thereof.
Form of Joinder Agreement
G-4
4.3. Expenses.
The Subsidiary agrees to pay (a) all reasonable out-of-pocket expenses of the
Administrative Agent, including all reasonable fees, charges and disbursements of counsel for the
Administrative Agent, in connection with the preparation, execution and delivery of this Agreement
or any document or agreement contemplated hereby and (b) all taxes which the Administrative Agent
or any Secured Party may be required to pay by reason of the security interests granted in the
Collateral (including any applicable transfer taxes).
4.4. Addresses for Notices.
All notices and other communications provided for hereunder shall
be in writing and mailed, delivered or transmitted by telecopier to each party hereto at the
address set forth in Section 10.02 of the Credit Agreement (with any notice to the Subsidiary being
delivered to the Subsidiary in care of the Borrower). All such notices and other communications
shall be deemed to be given or made at the times provided in Section 10.02 of the Credit Agreement.
4.5. Section Captions.
Section captions used in this Agreement are for convenience of
reference only, and shall not affect the construction of this Agreement.
4.6. Severability.
If any provision of this Agreement is held to be illegal, invalid or
unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this
Agreement shall not be affected or impaired thereby and (b) the parties shall endeavor in good
faith negotiations to replace the illegal, invalid or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the illegal, invalid
or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
4.7. Counterparts.
This Agreement may be executed in counterparts (and by different parties
hereto in different counterparts), each of which shall constitute an original, but all of which
when taken together shall constitute a single contract.
4.8. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
Form of Joinder Agreement
G-5
IN WITNESS WHEREOF, the Subsidiary has caused this Agreement to be duly executed by its
authorized officers, and the Administrative Agent, for the benefit of the Lenders, has caused the
same to be accepted by its authorized officer, as of the day and year first above written.
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[
SUBSIDIARY
]
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By:
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Name:
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Title:
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Form of Joinder Agreement
G-6
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Acknowledged and accepted:
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BANK OF AMERICA, N.A.,
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as Administrative Agent
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By:
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Name:
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Title:
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Form of Joinder Agreement
G-7
[
ATTACH SUPPLEMENTS TO
SCHEDULES
TO
SECURITY AGREEMENT
]
Form of Security Agreement
G-8
EXHIBIT H
OPINION MATTERS
·
Section 5.01
·
Section 5.02
·
Section 5.03
·
Section 5.04
·
Section 5.06
·
Section 5.10
·
Section 5.13
·
Section 5.20
·
Section 5.24
Form of Opinion
H-1
EXHIBIT I
FORM OF
PLEDGE AND SECURITY AGREEMENT
Dated as of February 5, 2007,
among
HFF PARTNERSHIP HOLDINGS LLC,
a Delaware limited liability company,
HOLLIDAY GP CORP.
, a Delaware corporation
HFF LP ACQUISITION LLC
, a Delaware limited liability company
HOLLIDAY FENOGLIO FOWLER, L.P.,
a Texas limited partnership,
CERTAIN OF THEIR SUBSIDIARIES
party hereto from time to time,
as Grantors,
and
BANK OF AMERICA, N.A.,
as Administrative Agent.
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ARTICLE I DEFINITIONS
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1
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1.01 Credit Agreement Definitions and Constructions
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1
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1.02 UCC Definitions
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1
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1.03 Other Defined Terms
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1
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ARTICLE II PLEDGED COLLATERAL
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8
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2.01 Pledged Collateral
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8
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2.02 Delivery of the Pledged Collateral
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8
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2.03 Agreements of Grantors as Issuers of Pledged Equity
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9
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2.04 Representations, Warranties and Covenants with respect to Pledged Collateral
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9
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2.05 Voting Rights; Dividends and Interest, etc
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10
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2.06 Registration in Nominee Name; Denominations
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11
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ARTICLE III SECURITY INTERESTS IN PERSONAL PROPERTY
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12
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3.01 Security Interest
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12
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3.02 Filing Authorization
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13
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3.03 Continuing Security Interest; Transfer of Credit Extensions
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14
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3.04 Grantors Remain Liable
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14
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3.05 Security Interest Absolute
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15
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3.06 Waiver of Subrogation
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15
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3.07 Release; Termination
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15
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ARTICLE IV COVENANTS; REPRESENTATION AND WARRANTIES
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16
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4.01 Perfection of Security Interest
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16
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4.02 Representations and Warranties
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20
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4.03 Covenants
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20
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4.04 Other Actions
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22
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4.05 Covenants regarding Patent, Trademark and Copyright Collateral
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22
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ARTICLE V REMEDIES
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24
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5.01 Remedies upon Default
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24
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5.02 Application of Proceeds
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26
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5.03 Grant of License to Use Intellectual Property
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26
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5.04 Securities Act, etc
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26
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ARTICLE VI MISCELLANEOUS
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27
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6.01 Notices
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27
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6.02 Amendments, etc.; Additional Grantors; Successors and Assigns
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27
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6.03 Survival of Agreement
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28
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6.04 Indemnity and Expenses
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28
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6.05 Administrative Agent Appointed Attorney-in-Fact
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29
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6.06 Waivers
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29
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6.07 Severability
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30
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iii
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6.08 Counterparts, Integration, Effectiveness
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30
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6.09 Headings
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30
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6.10 GOVERNING LAW; JURISDICTION; ETC
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30
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6.11 WAIVER OF JURY TRIAL
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31
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6.12 ENTIRE AGREEMENT
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31
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6.13 Mortgages
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31
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Exhibits
Exhibit A Form of Perfection Certificate
iv
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT dated as of February 5, 2007 (this “
Agreement
”), among
HFF PARTNERSHIP HOLDINGS LLC,
a Delaware limited liability company (“
HFF Partnership
Holdings
”),
HOLLIDAY GP CORP.
, a Delaware corporation (“
GP Corp.
”),
HFF LP ACQUISITION
LLC
, a Delaware limited liability company (“
HFF Acquisition
”),
HOLLIDAY FENOGLIO FOWLER,
L.P.,
a Texas limited partnership (the “
Borrower
”), and each other Subsidiary (such term
and the other capitalized terms used herein shall have the meanings assigned thereto in
Article
I
of this Agreement) of HFF Partnership Holdings, GP Corp., HFF Acquisition and the Borrower
identified on the signature pages hereof and each Subsidiary of HFF Partnership Holdings, GP Corp.,
HFF Acquisition and the Borrower other than any Excluded Subsidiary that hereafter becomes a party
hereto from time to time pursuant to
Section 5.03
(all such Subsidiaries, together with HFF
Partnership Holdings, GP Corp., HFF Acquisition and the Borrower hereinafter collectively referred
to as the “
Grantors
”, and each individually as a “
Grantor
”) and BANK OF AMERICA,
N.A., as administrative agent (in such capacity, the “
Administrative Agent
”) for the
Secured Parties.
RECITALS
WHEREAS, pursuant to the Amended and Restated Credit Agreement, dated as of February 5, 2007
(as amended, restated, extended, supplemented or otherwise modified from time to time, the
“
Credit Agreement
”), among the Borrower, the Lenders from time to time party thereto and
Bank of America, N.A., as Administrative Agent, and the other Loan Documents referred to therein,
the Lenders, and the other Secured Parties have agreed to make Credit Extensions and other
extensions of credit to or for the benefit of the Borrower;
WHEREAS, pursuant to the Guaranty Agreement, dated as of the date hereof (as amended,
restated, extended, supplemented or otherwise modified from time to time, the “
Guaranty
Agreement
”), each Grantor (other than the Borrower) have guarantied the Obligations of the
Borrower under the Credit Agreement and the other Loan Documents;
WHEREAS, the obligations of the Lenders to make such Credit Extensions under the Credit
Agreement are conditioned upon, among other things, the execution and delivery of this Agreement by
each Grantor; and
WHEREAS, to obtain such benefits each Grantor is willing to grant a Lien on the Collateral of
such Grantor in favor of the Administrative Agent for the benefit of the Secured Parties as
collateral security for its Obligations as hereinafter provided;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, each Grantor hereby agrees, for the benefit of each Secured Party, as follows:
ARTICLE I
DEFINITIONS
1.01 Credit Agreement Definitions and Constructions
. (A) Capitalized terms used in this
Agreement and not otherwise defined herein have the meanings specified in Section 1.01 of the
Credit Agreement.
(B) The rules of construction specified in Sections 1.02 through 1.05 of the Credit
Agreement also apply to this Agreement.
1.02 UCC Definitions
. All terms defined in the UCC and not defined in this Agreement
have the meanings specified therein.
1.03 Other Defined Terms.
As used in this Agreement, the following terms have the meanings
specified below:
“
Account
” means a right to payment of a monetary obligation, whether or not
earned by performance (and shall include invoices, contracts, rights, accounts receivable, notes,
refunds, indemnities, interest, late charges, fees, undertakings, and all other obligations and
amounts owing to any Grantor from any Person): (a) for property that has been or is to be sold,
leased, licensed, assigned or otherwise disposed of; (b) for services rendered or to be rendered;
(c) for a policy of insurance issued or to be issued; (d) for a secondary obligation incurred or to
be incurred; or (e) arising out of the use of a credit or charge card or information contained on
or for use with the card.
“
Account Control Agreement
” means an account control agreement in substantially the
form of Exhibit B-1 or B-2 to the Perfection Certificate, as applicable, or otherwise in form and
substance reasonably satisfactory to the Administrative Agent, entered into among a Grantor, the
Administrative Agent and the bank or Securities Intermediary where a Deposit Account or Securities
Account, respectively, of such Grantor is maintained.
“
Account Debtor
” means any Person who is or who may become obligated to any Grantor
under, with respect to or on account of an Account.
“
Administrative Agent
” has the meaning specified in the introductory paragraph hereto
(and shall include any successor acting in the capacity as successor administrative agent and
collateral agent for the Secured Parties pursuant to Article IX of the Credit Agreement).
“
Chattel Paper
” means a record or records that evidence both a monetary obligation and
a security interest in specific goods, a security interest in specific goods and software used in
the goods, a security interest in specific goods and license of software used in the goods, a lease
of specific goods, or a lease of specific goods and license of software used in the goods.
“
Collateral
” has the meaning provided in
Section 3.01
.
“
Commercial Tort Claim
” means a claim arising in tort with respect to which the
claimant is a Grantor.
“
Credit Agreement
” has the meaning specified in the recitals hereto.
“
Deposit Account
” means a demand, time, savings, passbook, or similar account
(including all bank accounts, collection accounts and concentration accounts, together with all
funds held therein and all certificates and instruments, if any, from time to time representing or
evidencing such accounts) maintained with a bank.
“
Designated Event of Default
” means an Event of Default described under Sections
8.01(a), (f) or (g) of the Credit Agreement and following written notice thereof from the
Administrative Agent pursuant to Section 8.02 of the Credit Agreement, any other Event of Default.
“
Documents
” means a document of title or a receipt of the type described in Section
7-201(2) of the UCC.
2
“
Electronic Chattel Paper
” means Chattel Paper evidenced by a record or records
consisting of information stored in an electronic medium.
“
Entitlement Holder
” means a Person identified in the records of a Securities
Intermediary as the Person having a Security Entitlement against the Securities Intermediary. If a
person acquires a Security Entitlement by virtue of Section 8-501(b)(2) or (3) of the UCC, such
person is the Entitlement Holder.
“
Equipment
” means all machinery, equipment in all its forms, wherever located,
including, without limitation, all computers and other electronic data processing hardware,
integrated computer systems, central processing units, memory units, display terminals, printers,
features, computer elements, card readers, tape drives, hard and soft disk drives, cables,
electrical supply hardware, generators, power equalizers, accessories and all peripheral devices
and other related computer hardware, furniture and furnishings, office equipment, all other
property similar to the foregoing (including tools, parts and supplies of every kind and
description), components, parts and accessories installed thereon or affixed thereto and all parts
thereof, and all Fixtures and all accessories, additions, attachments, improvements, substitutions
and replacements thereto and therefor.
“
Federal Securities Laws
” has the meaning specified in Section 5.04.
“
Financial Asset
” means:
(a) a Security;
(b) an obligation of a Person or a share, participation or other interest in a Person or in
property or an enterprise of a Person, which is, or is of a type, dealt with in or traded on
financial markets, or which is recognized in any area in which it is issued or dealt in as a medium
for investment; or
(c) any property that is held by a Securities Intermediary for another person in a Securities
Account if the Securities Intermediary has expressly agreed with the other Person that the property
is to be treated as a Financial Asset under Article 8 of the UCC. As the context requires, the
term Financial Asset shall mean either the interest itself or the means by which a Person’s claim
to it is evidenced, including a certificated or uncertificated Security, a certificate representing
a Security or a Security Entitlement.
“
Fixtures
” means all items of Goods, whether now owned or hereafter acquired, of any
Grantor that become so related to particular real property that an interest in them arises under
any real property law applicable thereto.
“
General Intangibles
” means all “General Intangibles” as defined in the UCC, including
things in action and all other intangible personal property of any Grantor of every kind and nature
now owned or hereafter acquired by such Grantor, including, without limitation, corporate, limited
liability company, limited partnership or other business records, indemnification claims, contract
rights (including rights under leases, whether entered into as lessor or lessee, Swap Contracts and
other agreements), copyrights, copyright licenses, patents, patent licenses, trademarks, trademark
licenses, inventions, designs, trade secrets, domain names, confidential or proprietary technical
and business information, know-how, show-how or other data information, Payment Intangibles,
Software and databases and all embodiments or fixations thereof and related documentation,
goodwill, registrations and franchises and tax refund claims.
“
Goods
” means all things that are movable when a security interest attaches (including
(a) Fixtures and (b) computer programs embedded in goods and any supporting information provided in
3
connection with a transaction relating to the program if (i) the program is associated with
the goods in such a manner that is customarily considered part of the goods, or (ii) by becoming
the owner of the goods, a person acquires a right to use the program in connection with the goods).
“
Grantors
” has the meaning specified in the introductory paragraph hereto.
“
Indemnitee
” has the meaning specified in
Section 6.04
.
“
Instrument
” means a negotiable instrument or any other writing that evidences a right
to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a
type that in ordinary course of business is transferred by delivery with any necessary endorsement
or assignment.
“
Intercompany Note
” means a promissory note substantially in the form of Exhibit A to
the Perfection Certificate evidencing Indebtedness for borrowed money of any Grantor or any of its
direct or indirect Subsidiaries to and in favor of any Grantor.
“
Inventory
” means Goods, other than farm products, which: (a) are leased by a Person
as lessor; (b) are held by a Person for sale or lease or to be furnished under a contract of
service; (c) are furnished by a Person under a contract of service; or (d) consist of raw
materials, work in process, or materials used or consumed in a business, and includes, without
limitation, (i) finished goods, returned goods and materials and supplies of any kind, nature or
description which are or might be used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of any of the foregoing, (ii) all goods in which a Grantor has an
interest in mass or a joint or other interest or right of any kind (including goods in which a
Grantor has an interest or right as consignee), (iii) all goods which are returned to or
repossessed by any Grantor, and (iv) all accessions thereto, products thereof and documents
therefor.
“
Investment Property
” means all Securities (whether certificated or uncertificated),
Security Entitlements, Securities Accounts, Financial Assets, commodity contracts and commodity
accounts of each Grantor;
provided
,
however
, that Investment Property shall not
include any Securities constituting Pledged Collateral and identified on Schedules 3.01 and 3.02 to
the Perfection Certificate as such Schedule may be supplemented from time to time.
“
Letter-of-Credit Right
” means a right to payment or performance under a letter of
credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or
performance, but excludes the right of a beneficiary to demand payment or performance under a
letter of credit.
“
Payment Intangible
” means a general intangible under which the account debtor’s
principal obligation is a monetary obligation.
“
Perfection Certificate
” means a certificate substantially in the form of
Exhibit
A
completed by the Parent and the Borrower on behalf of each Grantor to include the scheduled
information contemplated by
Exhibit A
with respect to such Grantor, as such certificate and
such schedules may be supplemented from time to time by any Perfection Certificate Supplement.
“
Perfection Certificate Supplement
” means a Supplement to the Perfection Certificate
in the form of Exhibit C to the Perfection Certificate executed by the Parent and the Borrower on
behalf of each Grantor and delivered to the Administrative Agent pursuant to
Section
4.01(b)
to supplement the scheduled information contemplated by the Perfection Certificate for
such Grantor, including any additional Grantor who becomes a party to this Agreement by executing a
Joinder Agreement.
“
Pledged Collateral
” has the meaning specified in
Section 2.01
.
4
“
Pledged Debt
” has the meaning specified in
Section 2.01
.
“
Pledged Equity
” has the meaning specified in
Section 2.01
.
“
Pledged Securities
” means any promissory notes (including Intercompany Notes), stock
certificates or instruments, certificates and other documents representing or evidencing any of the
Pledged Debt or Pledged Equity, as the case may be.
“
Proceeds
” means the following property:
(a) whatever is acquired upon the sale, lease, license, exchange, or other disposition of the
Collateral;
(b) whatever is collected on, or distributed on account of, the Collateral;
(c) rights arising out of the Collateral; and
(d) to the extent of the value of the Collateral and to the extent payable to the debtor or
the secured party, insurance payable by reason of the loss or nonconformity of, defects or
infringement of rights in, or damage to, the Collateral.
“
Securities
” means any obligations of an issuer or any shares, participations or other
interests in an issuer or in property or an enterprise of an issuer which
(a) are represented by a certificate representing a security in bearer or registered form, or
the transfer of which may be registered upon books maintained for that purpose by or on behalf of
the issuer;
(b) are one of a class or series or by its terms is divisible into a class or series of
shares, participations, interests or obligations; and
(c) (i) are, or are of a type, dealt with or traded on securities exchanges or securities
markets or (ii) are a medium for investment and by their terms expressly provide that they are a
security governed by Article 8 of the UCC.
“
Securities Account
” shall mean an account to which a Financial Asset is or may be
credited in accordance with an agreement under which the Person maintaining the account undertakes
to treat the Person for whom the account is maintained as entitled to exercise rights that comprise
the Financial Asset.
“
Security Entitlements
” means the rights and property interests of an Entitlement
Holder with respect to a Financial Asset.
“
Security Interest
” has the meaning specified in
Section 3.01
.
“
Security Intermediary
” means:
(a) a clearing corporation; or
(b) a Person, including a bank or broker, that in the ordinary course of its business
maintains Securities Accounts for others and is acting in that capacity.
5
“
Software
” means all software programs (including both source code, object code and
all related applications and data files), whether now owned or hereafter acquired by Grantor,
including all those programs designed for use on the computers and electronic data processing
hardware of such Grantor, all licenses and leases of software programs, all firmware associated
therewith, and all related documentation (including flow charts, logic diagrams, manuals, guides
and specifications), but not including a computer program that is included in the definition of
Goods.
“
Supporting Obligation
” means a Letter-of-Credit Right or secondary obligation that
supports the payment or performance of an Account, Chattel Paper, Document, General Intangible,
Instrument or Investment Property, including, without limitation, all security agreements,
guaranties, leases and other contracts securing or otherwise relating to any such Accounts, Chattel
Paper, Documents, General Intangible, Instruments or Investment Property, including Goods
represented by the sale or lease of delivery which gave rise to any of the foregoing, returned or
repossessed merchandise and rights of stoppage in transit, replevin, reclamation and other rights
and remedies of an unpaid vendor, lienor or secured party.
“
Tangible Chattel Paper
” means Chattel Paper evidenced by a record or records
consisting of information that is inscribed on a tangible medium.
“
Termination Date
” means for all Loan Parties, the date on which the latest of the
following events occurs: (i) the payment in full in cash of the Obligations of all the Loan
Parties; (ii) the termination or expiration of the Availability Period; and (iii) the termination
of all Secured Swap Contracts to which a Swap Bank is a party and all Secured Cash Management
Services Agreements to which a Cash Management Bank is a party.
ARTICLE II
PLEDGED COLLATERAL
2.01 Pledged Collateral
. The Collateral pledged by each Grantor under this Agreement shall
include all of such Grantor’s right, title and interest in, to and under the following Equity
Interests and Indebtedness now owned or hereafter acquired by such Grantor (collectively, the
“
Pledged Collateral
”):
(a) (i) the shares of capital stock, membership interests, general and limited partnership
interests and other Equity Interests in any Person owned by such Grantor on the Closing Date and
listed opposite the name of such Grantor on Schedule 3.01 to the Perfection Certificate, (ii) any
other Equity Interests of any Person obtained in the future by such Grantor and identified on
Schedule 3.01 to any Perfection Certificate Supplement, and (iii) the certificates representing all
such Equity Interests (collectively, the “
Pledged Equity
”);
provided
,
however
, that the Pledged Equity of any Grantor shall not include (A) more than 65% of the
aggregate issued and outstanding voting Equity Interests of any Foreign Subsidiary owned directly
by such Grantor or (B) any Equity Interest in any Person which is evidenced by a Security or a
Security Entitlement which is maintained in a Securities Account which is either (1) maintained
with the Administrative Agent or (2) maintained with any other Securities Intermediary;
provided
that, to the extent required by Section
4.01(h)
, any such other Securities
Intermediary shall have entered into a Control Agreement with the Administrative Agent with respect
to such Securities Account.
6
(b) (i) the promissory notes (including Intercompany Notes) and debt securities of any other
Person owned by such Grantor on the Closing Date and the loans and advances for money borrowed and
made by such Grantor to any other Person which are outstanding on the Closing Date, in each case,
which are listed opposite the name of such Grantor on Schedule 3.02 of the Perfection Certificate,
(ii) any promissory notes (including Intracompany Notes), debt securities, and loans or advances
for money borrowed in the future issued to or owed to such Grantor by any other Person and
identified on Schedule 3.02 to any Perfection Certificate Supplement, and (iii) the promissory
notes (including, Intercompany Notes) and any other instruments as may hereafter be issued to
evidence such loans or advances for money borrowed (collectively, the “
Pledged Debt
”);
provided
,
however
, that Pledged Debt shall not include any loans or advances for
any Warehousing Facilities.
(c) subject to
Section 2.05
, all payments of principal or interest, dividends, cash,
instruments and other property from time to time received, receivable or otherwise distributed in
respect of, in exchange for or upon the conversion of the items referred to in clauses (a) and (b)
above;
(d) subject to
Section 2.05
, all rights and privileges of such Grantor with respect to
the securities, instruments and other property referred to in clauses (a), (b) and (c) above; and
(e) all Proceeds of any of the foregoing.
2.02 Delivery of the Pledged Collateral.
(a) Each Grantor agrees promptly to deliver or cause
to be delivered to the Administrative Agent any and all Pledged Securities representing any Pledged
Equity or Pledged Debt, as the case may be.
(b) Each Grantor will cause any Indebtedness for borrowed money owed to such Grantor by any
other Grantor or by any other member of the HFF Consolidated Group, in each case, to be evidenced
by a duly executed Intercompany Note to be pledged and delivered to the Administrative Agent
pursuant to the terms hereof.
(c) Upon delivery to the Administrative Agent, any Pledged Securities shall be accompanied by
stock powers, bond powers or other instruments of transfer reasonably satisfactory to the
Administrative Agent duly executed in blank by the applicable Grantor and such other instruments
and documents as the Administrative Agent may reasonably request. Unless previously delivered with
the Perfection Certificate or any Perfection Certificate Supplement, as the case may be, each
delivery of Pledged Securities shall be accompanied by a schedule describing the Pledged Collateral
evidenced thereby, which schedule shall be attached as a supplement to the schedules to the
Perfection Certificate and made a part hereof;
provided
,
that
, failure to attach
any such schedule shall not affect the validity of such pledge of such Pledged Securities. Each
schedule so delivered shall be in form and substance reasonably acceptable to the Administrative
Agent and shall supplement any prior schedules so delivered. Nothing contained herein shall
require any Grantor to certificate any of its equity interests in any other party.
(d) With respect to any Pledged Equity owned by any Grantor that constitutes an uncertificated
security of a Subsidiary or Affiliate of such Grantor, such Grantor will cause
7
the issuer thereof (if, either individually or together with its other Affiliates, it controls
such issuer) or will use commercially reasonable efforts to cause such issuer (if it does not so
control such issuer) either (i) to register the Administrative Agent as the registered owner of
such Pledged Equity or (ii) (A) to acknowledge the security interest of the Administrative Agent in
such Pledged Equity granted hereunder, (B) to confirm to the Administrative Agent that it has not
received notice of any other Lien in such Pledged Equity (and has not agreed to accept instructions
from any other Person in respect of such Pledged Equity other than the Administrative Agent) and
(C) to agree in writing with such Grantor and the Administrative Agent that such issuer will comply
with instructions with respect to such Pledged Equity originated by the Administrative Agent
without further consent of such Grantor, such agreement to be in form and substance reasonably
satisfactory to the Administrative Agent.
2.03 Agreements of Issuers.
(a) Each Grantor which is the issuer of any Pledged Equity owned by any other Grantor, hereby
(i) acknowledges the security interest of the Administrative Agent in such Pledged Equity granted
by such other Grantor hereunder, (ii) confirms that it has not received notice of any other Lien as
of the Closing Date in such Pledged Equity (and has not agreed to accept instructions from any
other person in respect of such Pledged Equity other than the Administrative Agent) (iii) agrees
that it will comply with the instructions with respect to such Pledged Equity originated by the
Administrative Agent without further consent of such other Grantor and (iv) otherwise agrees that
it will be bound by the terms of this Agreement relating to the Pledged Collateral issued by it.
(b) In the case of each Grantor which is a partner in a partnership, limited liability company
or other entity, such Grantor hereby consents to the extent required by applicable Organization
Documents to the pledge by each other Grantor, pursuant to the terms hereof, of the Pledged Equity
in such partnership, limited liability company or other entity, and upon the occurrence and during
the continuance of an Event of Default, to the transfer of such Pledged Equity to the
Administrative Agent or its nominee and to the substitution of the Administrative Agent or its
nominee as the substituted partner or member in such limited partnership, limited liability company
or other entity with all rights, powers and duties of a partner or a general partner or a limited
member, as the case may be.
2.04 Representations, Warranties and Covenants with respect to Pledged Collateral
. The
Grantors represent, warrant and covenant to and with the Administrative Agent, for the benefit of
the Secured Parties as of the date hereof and as of the date of each Perfection Certificate
Supplement, that:
(a)
Pledged Collateral
. Schedules 3.01 and 3.02 of the Perfection Certificate (as
supplemented from time to time by any Perfection Certificate Supplement) accurately and completely
sets forth for each Grantor the Pledged Equity and the Pledged Debt of such Grantor.
(b)
Due Authorization and Issuance
. All Pledged Equity and Pledged Debt issued by any
member of the HFF Consolidated Group to any Grantor has been, and to the extent that any Pledged
Equity or Pledged Debt is hereafter issued, such Pledged Equity or Pledged Debt will be, upon such
issuance, duly and validly issued by such issuer. All such Pledged
8
Equity is fully paid and nonassessable. All such Pledged Debt is the legal, valid and binding
obligation of the issuer thereof.
(c)
Title
. Each Grantor (i) is the owner, beneficially and of record, of the Pledged
Collateral listed on Schedules 3.01 and 3.02 of the Perfection Certificate (as supplemented from
time to time by any Perfection Certificate Supplement) opposite the name of such Grantor, (ii)
holds the same free and clear of all Liens, other than Liens created by this Agreement and
Permitted Liens, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or
permit to exist any security interest in or other Lien on, the Pledged Collateral, other than the
Security Interest created by this Agreement and other assignments and transfers permitted pursuant
to the Credit Agreement (including, without limitation, transfers pursuant to an exercise of an
Exchange Right), and (iv) will defend its title or interest hereto or therein against any and all
Liens (other than the Security Interest created by this Agreement and other Permitted Liens),
however arising, of all Persons.
(d)
Transferability of Pledged Collateral
. Except for restrictions and limitations
imposed by the Loan Documents or securities laws generally, the Pledged Collateral is and will
continue to be freely transferable and assignable, and none of the Pledged Collateral is or will be
subject to any option, right of first refusal, shareholders agreement, provision of any
Organization Document or contractual restriction of any nature that might prohibit, impair, delay
or otherwise affect the pledge of such Pledged Collateral hereunder, the sale or disposition
thereof pursuant hereto or the exercise by the Administrative Agent of rights and remedies
hereunder;
(e)
Validity of Security Interest
. By virtue of the execution and delivery by each
Grantor of this Agreement or a Joinder Agreement, as the case may be, when all Pledged Securities
evidencing any Pledged Collateral of such Grantor are delivered to the Administrative Agent in
accordance with this Agreement, the Administrative Agent, for the benefit of itself and the other
Secured Parties, will obtain a valid and perfected first priority lien, subject to Permitted Liens,
upon and security interest in all Pledged Collateral of such Grantor as security for the payment
and performance of the Obligations of such Grantor.
(f)
Defaults
. Such Grantor is not in default in the payment of any portion of any
mandatory capital contribution, if any, required to be made under any agreement to which such
Grantor is a party relating to the Pledged Equity pledged by it, and such Grantor is not in
violation of any other provisions of any such agreement to which such Grantor is a party, or
otherwise in default or violation thereunder. No Pledged Equity pledged by such Grantor is subject
to any defense, offset or counterclaim, nor have any of the foregoing been asserted or alleged
against such Grantor by any Person with respect thereto, and on and as of the Closing Date and as
of the date of each Perfection Certificate Supplement and Joinder Agreement, there are no
certificates, instruments, documents or other writings (other than the Organization Documents and
certificates (if any) delivered to the Administrative Agent) which evidence any Pledged Equity of
such Grantor.
2.05 Voting Rights; Dividends and Interest, etc
. (a) Unless and until an Event of Default
shall have occurred and be continuing, and thereafter:
9
(i) Each Grantor shall be entitled to exercise any and all voting and/or other
consensual rights and powers inuring to an owner of Pledged Collateral or any part thereof
for any purpose consistent with the terms of this Agreement, the Credit Agreement and the
other Loan Documents;
provided
,
that
, such rights and powers shall not be
exercised in any manner that could reasonably be expected to have a Material Adverse Effect.
(ii) The Administrative Agent shall be deemed without further action or formality to
have granted to each Grantor all necessary consents relating to voting rights and shall, if
necessary, upon written request of a Grantor and at the sole cost and expense of the
Grantors, from time to time execute and deliver (or cause to be executed and delivered) to
such Grantor all such instruments as Grantor may reasonably request in order to permit such
Grantor to exercise the voting and other rights which it is entitled to exercise pursuant to
subparagraph (i) above.
(iii) Each Grantor shall be entitled to receive, retain, and to utilize free and clear
of any Lien hereof, any and all dividends, interest, principal and other distributions paid
on or distributed in respect of the Pledged Collateral, but only if and to the extent that
such dividends, interest, principal and other distributions are not otherwise prohibited by
the terms and conditions of the Credit Agreement, the other Loan Documents and applicable
Laws;
provided
that any noncash dividends, interest, principal or other
distributions that would constitute Pledged Equity or Pledged Debt, whether resulting from a
subdivision, combination or reclassification of the outstanding Equity Interests of the
issuer of any Pledged Equity or received in exchange for any Pledged Debt or any part
thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition
or other exchange of assets to which such issuer may be a party or otherwise (other than any
shares of Class A common Equity Interests of HFF that may be (i) held by any Loan Party
solely in connection with (and for the sole purpose of effecting) an exercise of an Exchange
Right or (ii) issued to any employee pursuant to any employee incentive plan of HFF), shall
be and become part of the Pledged Collateral, and, if received by any Grantor, shall not be
commingled by such Grantor with any of its other funds or property but shall be held
separate and apart therefrom, shall be held in trust for the benefit of the Administrative
Agent and shall, subject to the applicable Grantor’s rights hereunder, be forthwith
delivered to the Administrative Agent as Pledged Collateral in the same form as so received
(with any necessary endorsement).
(b) Upon the occurrence and during the continuance of a Designated Event of Default, all
rights of any Grantor to dividends, interest, principal or other distributions that such Grantor is
authorized to receive pursuant to
paragraph (a)(iii)
of this
Section 2.05
shall
cease, and all such rights shall thereupon become vested in the Administrative Agent, which shall
have the sole and exclusive right and authority to receive and retain such dividends, interest,
principal or other distributions. All dividends, interest, principal or other distributions
received by any Grantor contrary to the provisions of this
Section 2.05(b)
shall be held in
trust for the benefit of the Administrative Agent, shall be segregated from other property or funds
of such Grantor and shall be forthwith delivered to the Administrative Agent in the same form as so
received (with any necessary endorsement). Any and all money and other property paid over to or
received by the Administrative Agent pursuant to the provisions of this
Section 2.05(b)
shall be retained by
10
the Administrative Agent in an account to be established by the Administrative Agent upon
receipt of such money or other property and shall be applied in accordance with the provisions of
Section 5.02
.
(c) Upon the occurrence and during the continuance of a Designated Event of Default, all
rights of any Grantor to exercise the voting and consensual rights and powers it is entitled to
exercise pursuant to
paragraph (a)(i)
of this
Section 2.05
, and the obligations of
the Administrative Agent under
paragraph (a)(ii)
of this
Section 2.05
, shall cease,
and all such rights shall thereupon become vested in the Administrative Agent, which shall have the
sole and exclusive right and authority to exercise such voting and consensual rights and powers.
If after the occurrence of a Designated Event of Default, such Event of Default shall have been
waived pursuant to Section 10.01 of the Credit Agreement, each Grantor will again have the right to
exercise the voting and consensual rights and powers that such Grantor would otherwise be entitled
to exercise pursuant to the terms of
paragraph (a)(i)
above.
2.06 Registration in Nominee Name; Denominations
. The Administrative Agent, on behalf of the
Secured Parties, shall have the right (to the extent applicable) to hold as collateral the Pledged
Collateral endorsed or assigned in blank or in favor of the Administrative Agent. After the
occurrence and during the continuance of an Event of Default, the Administrative Agent, on behalf
of the Secured Parties, shall also have the right (in its sole and absolute discretion), to hold
the Pledged Collateral (to the extent applicable) in its own name as pledgee, the name of its
nominee (as pledgee or as sub-agent) or the name of the applicable Grantor. At the request of the
Administrative Agent, each Grantor will promptly give to the Administrative Agent copies of any
notices or other communications received by it with respect to Pledged Securities registered in the
name of such Grantor. The Administrative Agent shall at all times have the right to exchange the
certificates or instruments (to the extent permitted by the terms thereof) representing Pledged
Securities for certificates or instruments of smaller or larger denominations for any purpose
consistent with this Agreement.
ARTICLE III
SECURITY INTERESTS IN PERSONAL PROPERTY
3.01 Security Interest
. Each Grantor hereby collaterally assigns and pledges to the
Administrative Agent, its successors and assigns, for the ratable benefit of the Secured Parties,
and hereby grants to the Administrative Agent, its successors and assigns, for the ratable benefit
of the Secured Parties, as security for the payment or performance in full of the Obligations of
such Grantor, a security interest (the “
Security Interest
”) in all right, title and
interest of such Grantor in, to and under any and all of the following assets and properties now
owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any
time in the future may acquire any right, title or interest (collectively, the
“
Collateral
”):
(a) all Accounts;
(b) all Chattel Paper (including all Electronic Chattel Paper and all Tangible Chattel Paper);
(c) all cash and Deposit Accounts;
11
(d) all Documents;
(e) all Equipment, including all Fixtures;
(f) all General Intangibles;
(g) all Instruments;
(h) all Inventory;
(i) all Investment Property;
(j) all Pledged Collateral;
(k) all Supporting Obligations;
(l) all Commercial Tort Claims of such Grantor described in the schedules to the Perfection
Certificate in respect of such Grantor (as such schedule may be supplemented from time to time
pursuant to any Perfection Certificate Supplement or otherwise);
(m) all other Goods;
(n) all books and records pertaining to the Collateral;
(o) all other assets, properties and rights of every kind and description and interests
therein, including all moneys, securities and other property, now or hereafter held or received by,
or in transit to, any Grantor, the Administrative Agent or any other Secured Party, whether for
safekeeping, pledge, custody, transmission, collection or otherwise; and
(p) all Proceeds of any and all of the foregoing;
provided
,
however
, that notwithstanding anything to the contrary in clauses
(a) through (p) above:
(i) any General Intangible, Chattel Paper, Instrument or Account which by its
terms prohibits the creation of a security interest therein (whether by assignment or
otherwise) shall be excluded from the Lien of the Security Interest granted under this
Section 3.01
, and shall not be included in the Collateral of such Grantor, except to
the extent that Sections 9-406(d), 9-407(a) or 9-408(a) of the UCC are effective to render
any such prohibition ineffective;
provided
,
however
, that if any General
Intangible, Chattel Paper, Instrument or Account included in the Collateral contains any
term, restricting or requiring the consent of any Person (other than a Grantor) obligated
thereon to, any exercise of remedies hereunder in respect of, the Security Interest therein
granted under this
Section 3.01
, then the enforcement of such Security Interest
under this Agreement shall be subject to
Section 5.01(c)
(but such provision shall
not limit the creation, attachment or perfection of the Security Interest hereunder);
(ii) any permit, lease, license or franchise shall be excluded from the Lien of the
Security Interest granted under this
Section 3.01
, and shall not be included in the
Collateral, to the extent any Law applicable thereto is effective to prohibit the creation
of a Security Interest therein;
12
(iii) any Collateral, including goods and software etc. owned by any Grantor on the
date hereof or hereafter acquired that is subject to a Lien securing a purchase money
obligation or Capitalized Lease permitted to be incurred pursuant to the provisions of the
Credit Agreement shall be excluded from the Lien of the Security Interest granted under this
Section 3.01
, and shall not be included in the Collateral, to the extent that the
contract or other agreement in which such Lien is granted (or the documentation providing
for such purchase money obligation or Capitalized Lease) validly prohibits the creation of
any other Lien on such Equipment;
(iv) any cash or escrowed funds of third parties held in accounts of a Grantor shall
not be part of the Collateral;
(v) any notes otherwise pledged to third-parties issued pursuant to the Borrower
Warehoused Loans shall not be part of the Collateral;
(vi) any tax receivables agreement between HFF and HFF Holdings (and any payments made
thereunder) shall not be part of the Collateral; and
(vii) any rights of HFF Holdings and its members to, by and through HFF Acquisition,
exchange direct or indirect interests in the Operating Companies for shares of common stock
of HFF shall not be part of the Collateral.
With respect to property described in clauses (i) through (v) above to the extent not
included in the Collateral of such Grantor (the “
Excluded Property
”), such property
shall constitute Excluded Property only to the extent and for so long as the creation of a
Lien on such property in favor of the Administrative Agent is, and remains, validly
prohibited by law or contract, and upon termination of such prohibition (however occurring),
such property shall cease to constitute Excluded Property. The Grantors may be required
from time to time at the request of the Administrative Agent to give written notice to the
Administrative Agent identifying in reasonable detail the Excluded Property (and stating in
such notice that such property constitutes Excluded Property) and to provide the
Administrative Agent with such other information regarding the Excluded Property as the
Administrative Agent may reasonable request.
3.02 Filing Authorization
. (a) Each Grantor hereby irrevocably authorizes the
Administrative Agent at any time and from time to time to file in any relevant jurisdiction any
initial financing statements (including fixture filings) with respect to the Collateral or any part
thereof and amendments thereto that contain the information required by Article 9 of the UCC of
each applicable jurisdiction for the filing of any financing statement or amendment, including (i)
if such Grantor is an organization, the type of organization and any organizational identification
number issued to such Grantor, (ii) in the case of a financing statement filed as a fixture filing,
a sufficient description of the real property to which such Collateral relates and (iii) a
description of collateral that describes such property in any other manner as the Administrative
Agent may reasonably determine is necessary or advisable to ensure the perfection of the security
interest in the Collateral granted to the Administrative Agent, including (subject to the terms
hereof) describing such property as “all assets” or “all property.” Each Grantor agrees to provide
such information to the Administrative Agent promptly upon request.
13
(b) Each Grantor also ratifies its authorization for the Administrative Agent to file in any
relevant jurisdiction any such initial financing statements or amendments thereto if filed prior to
the date hereof.
3.03 Continuing Security Interest; Transfer of Credit Extensions.
This Agreement shall create
a continuing security interest in the Collateral of each Grantor and shall remain in full force and
effect with respect to each Grantor until the Termination Date for such Grantor, be binding upon
each Grantor, its successors, transferees and assigns, and inure, together with the rights and
remedies of the Administrative Agent hereunder, to the benefit of the Administrative Agent and each
other Secured Party. Without limiting the generality of the foregoing, any Secured Party may
assign or otherwise transfer (in whole or in part) any Commitment or Loan held by it to any other
Person, and such other Person shall thereupon become vested with all the rights and benefits in
respect thereof granted to such Lender under any Loan Document (including this Agreement) or
otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the
provisions of Section 10.07 and Article IX of the Credit Agreement.
3.04 Grantors Remain Liable.
Anything herein to the contrary notwithstanding
(a) each Grantor shall remain liable under the contracts and agreements included in the
Collateral to the extent set forth therein, and shall perform all of its duties and obligations
under such contracts and agreements to the same extent as if this Agreement had not been executed,
(b) each Grantor will comply in all material respects with all Laws relating to the ownership
and operation of the Collateral, including all registration requirements under applicable Laws, and
shall pay when due all taxes, fees and assessments imposed on or with respect to the Collateral,
except to the extent the validity thereof is being contested in good faith by appropriate
proceedings for which adequate reserves in accordance with GAAP have been set aside by such
Grantor,
(c) the exercise by the Administrative Agent of any of its rights hereunder shall not release
any Grantor from any of its duties or obligations under any such contracts or agreements included
in the Collateral, and
(d) neither the Administrative Agent nor any other Secured Party shall have any obligation or
liability under any such contracts or agreements included in the Collateral by reason of this
Agreement, nor shall the Administrative Agent or any other Secured Party be obligated to perform
any of the obligations or duties of any Grantor thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
3.05 Security Interest Absolute.
All rights of the Administrative Agent and the security
interests granted to the Administrative Agent hereunder, and all obligations of each Grantor
hereunder, shall be absolute and unconditional, irrespective of any of the following conditions,
occurrences or events:
(a) any lack of validity or enforceability of any Loan Document;
14
(b) the failure of any Secured Party to assert any claim or demand or to enforce any right or
remedy against the Parent, the Borrower, any other Grantor or any other Person under the provisions
of any Loan Document or otherwise or to exercise any right or remedy against any other guarantor
of, or collateral securing, any Obligation;
(c) any change in the time, manner or place of payment of, or in any other term of, all or any
of the Obligations or any other extension, compromise or renewal of any Obligation, including any
increase in the Obligations resulting from the extension of additional credit to any Grantor or any
other obligor or otherwise;
(d) any reduction, limitation, impairment or termination of any Obligation for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to (and each Grantor hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality,
nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence
affecting, any Obligation or otherwise;
(e) any amendment to, rescission, waiver, or other modification of, or any consent to
departure from, any of the terms of any Loan Document;
(f) any addition, exchange, release, surrender or non-perfection of any collateral (including
the Collateral), or any amendment to or waiver or release of or addition to or consent to departure
from any guaranty, for any of the Obligations; or
(g) any other circumstances which might otherwise constitute a defense available to, or a
legal or equitable discharge of, the Parent, the Borrower, any other Grantor or otherwise.
3.06 Waiver of Subrogation.
Until the Termination Date, no Grantor shall exercise any claim
or other rights which it may now or hereafter acquire against any other Grantor that arises from
the existence, payment, performance or enforcement of such Grantor’s Obligations under this
Agreement, including any right of subrogation, reimbursement, exoneration or indemnification, any
right to participate in any claim or remedy against any other Grantor or any collateral which the
Administrative Agent now has or hereafter acquires, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including the right to take or receive
from any other Grantor, directly or indirectly, in cash or other property or by setoff or in any
manner, payment or security on account of such claim or other rights. If any amount shall be paid
to any Grantor in violation of the preceding sentence, such amount shall be deemed to have been
paid for the benefit of the Secured Parties, and shall forthwith be paid to the Administrative
Agent to be credited and applied upon the Obligations, whether matured or unmatured. Each Grantor
acknowledges that it will receive direct and indirect benefits for the financing arrangements
contemplated by the Loan Documents and that the agreement set forth in this Section is knowingly
made in contemplation of such benefits.
3.07 Release; Termination.
(a) Upon any sale, transfer or other disposition of any item of Collateral of any Grantor in
accordance with Section 7.05 of the Credit Agreement, the Administrative Agent
15
will, at such Grantor’s expense and without any representations, warranties or recourse of any
kind whatsoever, execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence the release of such item of Collateral from the assignment and
security interest granted hereby;
provided, however
, that (i) at the time of such request
and such release no Default shall have occurred and be continuing, and (ii) such Grantor shall have
delivered to the Administrative Agent, at least ten Business Days prior to the date of the proposed
release, a written request for release describing the item of Collateral and the terms of the sale,
lease, transfer or other disposition in reasonable detail, including the price thereof and any
expenses in connection therewith, together with a form of release for execution by the
Administrative Agent (which release shall be in form and substance satisfactory to the
Administrative Agent) and a certificate of such Grantor to the effect that the transaction is in
compliance with the Loan Documents and as to such other matters as the Administrative Agent (or the
Required Lenders through the Administrative Agent) may reasonably request.
(b) On the Termination Date, the pledge, assignment and security interest granted by each
Grantor hereunder shall terminate and all rights to the Collateral of such Grantor shall revert to
such Grantor. Upon any such termination, the Administrative Agent will, at the applicable
Grantor’s expense and without any representations, warranties or recourse of any kind whatsoever,
execute and deliver to such Grantor such documents as such Grantor shall reasonably request to
evidence such termination and deliver to such Grantor all Pledged Securities, Instruments, Tangible
Chattel Paper and negotiable documents representing or evidencing the Collateral of such Grantor
then held by the Administrative Agent.
ARTICLE IV
COVENANTS; REPRESENTATION AND WARRANTIES
Each Grantor represents and warrants to the Administrative Agent and the Secured Parties
as of the date hereof and as of the date of each Perfection Certificate Supplement, and agrees
that:
4.01 Perfection of Security Interest
.
(a)
Perfection Certificate
. The Perfection Certificate (as supplemented from time to
time by Perfection Certificate Supplement delivered pursuant to subsection (b) of this
Section
4.01
) has been duly prepared and completed and the information set forth therein for each
Grantor, including the exact legal name and jurisdiction of organization of such Grantor, is
correct and complete.
(b)
Perfection Certificate Supplement
. At the time of delivery of each Compliance
Certificate pursuant to Section 6.02(b) of the Credit Agreement and at the time any Grantor becomes
a party to this Agreement pursuant to a Joinder Agreement, the Borrower shall deliver to the
Administrative Agent a duly completed Perfection Certificate Supplement dated as of the date of
such Compliance Certificate or such Joinder Agreement on behalf of each Grantor to supplement the
scheduled information about such Grantor contemplated by the Perfection Certificate or to supply
the scheduled information about a Grantor party to a Joinder Agreement as contemplated by the
Perfection Certificate (or such Compliance Certificate shall include a statement confirming that
there has been no material change to the information in the Perfection Certificate, as previously
supplemented by any Perfection Certificate Supplements delivered prior to the date of such
Compliance Certificate).
16
(c)
UCC Filings
. UCC financing statements (including fixture filings, as applicable)
or other appropriate filings, recordings or registrations reasonably requested by the
Administrative Agent containing a description of the Collateral have been prepared by the Grantors
based upon the information provided to the Administrative Agent in the Perfection Certificate (as
supplemented from time to time) and have been delivered to the Administrative Agent for filing in
each governmental office specified in Schedule 1.04 to the Perfection Certificate, and constitute
all the filings, recordings and registrations that are necessary to publish notice of and protect
the validity of and to establish a valid and perfected security interest in favor of the
Administrative Agent (for the ratable benefit of the Secured Parties) in Collateral in which the
Security Interest may be perfected by filing a financing statement under the UCC, recording or
registration in the United States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing is necessary in any such jurisdiction.
(d)
Instruments and Tangible Chattel Paper
. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any promissory note or other
instrument, or if any Grantor shall at any time hold or acquire any Instruments (other than any
Instruments evidencing Indebtedness for money borrowed comprising part of the Pledged Collateral
which has been delivered to the Administrative Agent pursuant to
Section 2.02
) or Tangible
Chattel Paper, at the request of the Administrative Agent, such Grantor shall forthwith endorse,
assign and deliver the same to the Administrative Agent, accompanied by such instruments of
transfer or assignment duly executed in blank as the Administrative Agent may from time to time
reasonably request. At any time that no Event of Default has occurred and is continuing, no such
request shall be made by the Administrative Agent with respect to Instruments (other than any
Pledged Collateral) or any Tangible Chattel Paper.
(e)
Deposit Accounts
. Upon the request by the Administrative Agent after the
occurrence and during the continuance of an Event of Default, each Grantor shall enter into an
Account Control Agreement with each depositary bank with which such Grantor from time to time opens
or maintains a Deposit Account to cause the depositary bank to agree to comply at any time with
instructions from the Administrative Agent to such depositary bank directing the disposition of
funds from time to time credited to such Deposit Account, without further consent of such Grantor
or any other Person, pursuant to such Account Control Agreement. The Administrative Agent agrees
with each Grantor that the Administrative Agent shall not give any such instructions pursuant to
any Account Control Agreement, unless a Designated Event of Default has occurred and is continuing.
No Grantor shall grant control of any Deposit Account to any Person other than the Administrative
Agent.
(f)
Investment Property
. If any Securities, other than (x) any Pledged Equity issued
by a Grantor or any other member of the HFF Consolidated Group and pledged pursuant to
Article
II
or (y) any shares of Class A common Equity Interests of HFF that may be (A) held by any Loan
Party solely in connection with (and for the sole purpose of effecting) an exercise of an Exchange
Right or (B) issued to any employee pursuant to any employee incentive plan of HFF, whether
certificated or uncertificated, or other Investment Property now or hereafter acquired by any
Grantor are held by such Grantor or its nominee through a Securities Intermediary, such Grantor
shall immediately notify the Administrative Agent thereof and, at the Administrative Agent’s
request after the occurrence and during the continuance of an Event of
17
Default, pursuant to an Account Control Agreement, either (i) cause such Securities
Intermediary to agree to comply with entitlement orders or other instructions from the
Administrative Agent to such Securities Intermediary as to such Securities or other Investment
Property, in each case without further consent of any Grantor or such nominee, or (ii) in the case
of Financial Assets or other Investment Property held through a Securities Intermediary, arrange
for the Administrative Agent to become the Entitlement Holder with respect to such Investment
Property, with the Grantor being permitted, only with the consent of the Administrative Agent, to
exercise rights to withdraw or otherwise deal with such Investment Property. The Administrative
Agent agrees with each of the Grantors that the Administrative Agent shall not give any such
entitlement orders or instructions or directions to any such issuer or Securities Intermediary
pursuant to any Account Control Agreement, and shall not withhold its consent to the exercise of
any withdrawal or dealing rights by any Grantor, unless an Event of Default has occurred and is
continuing.
(g)
Electronic Chattel Paper and Transferable Records
. If any Grantor at any time
holds or acquires an interest in any Electronic Chattel Paper or any “transferable record”, as that
term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce
Act or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction, such Grantor shall promptly notify the Administrative Agent thereof and, at the
request of the Administrative Agent, shall take such action as the Administrative Agent may
reasonably request to vest in the Administrative Agent control under UCC Section 9-105 of such
Electronic Chattel Paper or control under Section 201 of the Federal Electronic Signatures in
Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic
Transactions Act, as so in effect in such jurisdiction, of such transferable record. At any time
that no Event of Default has occurred and is continuing the Administrative Agent shall not deliver
any such written request with respect to Electronic Chattel Paper or “transferable” records of a
single obligor and its Affiliates. The Administrative Agent agrees with such Grantor that the
Administrative Agent will arrange, pursuant to procedures reasonably satisfactory to the
Administrative Agent and so long as such procedures will not result in the Administrative Agent’s
loss of control, for the Grantor to make alterations to the Electronic Chattel Paper or
transferable record permitted under UCC Section 9-105 or, as the case may be, Section 201 of the
Federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform
Electronic Transactions Act for a party in control to allow without loss of control, unless an
Event of Default has occurred and is continuing.
(h)
Letter-of-Credit Rights
. If any Grantor is at any time a beneficiary under a
letter of credit now or hereafter issued in favor of such Grantor, such Grantor shall promptly
notify the Administrative Agent thereof and, at the written request and option of the
Administrative Agent, such Grantor shall, pursuant to an agreement in form and substance reasonably
satisfactory to the Administrative Agent, arrange for the issuer and any confirmer of such letter
of credit to consent to an assignment to the Administrative Agent of the proceeds of any drawing
under such letter of credit with the Administrative Agent agreeing that the proceeds of any drawing
under such letter of credit are to be paid to the applicable Grantor unless an Event of Default has
occurred or is continuing. At any time that no Event of Default has occurred and is continuing the
Administrative Agent shall not request that such Grantor enter into such an agreement with respect
to letters of credit issued for a single account party or its Affiliates.
18
(i)
Commercial Tort Claims
. If any Grantor shall at any time hold or acquire a
Commercial Tort Claim that it intends to pursue, the Grantor shall promptly notify the
Administrative Agent thereof by including a summary description of such claim on a schedule
attached to the next Perfection Certificate Supplement delivered to the Administrative Agent
pursuant to
Section 4.01(b)
with such writing to be in form and substance reasonably
satisfactory to the Administrative Agent.
(j)
Chattel Paper
. Each Grantor shall maintain, in form and manner reasonably
satisfactory to the Administrative Agent, its Chattel Paper and its books, records and documents
evidencing or pertaining thereto with an appropriate reference to the fact that such Chattel Paper
has been assigned to the Administrative Agent for the benefit of the Secured Parties and that the
Administrative Agent has a security interest therein.
4.02 Representations and Warranties.
(a)
Validity of Security Interest
. The Security Interest granted by each Grantor
constitutes (i) a legal and valid security interest in the Collateral of such Grantor securing the
payment and performance of the Obligations of such Grantor, and (ii) subject to the filings
described in
Section 4.01(c)
, a perfected security interest in the Collateral (other than
as provided in such Section) in which a security interest may be perfected under Article 9 of the
UCC by filing pursuant to the UCC in such jurisdictions. The Security Interest is and shall be
prior to any other Lien on any of the Collateral, other than Permitted Liens.
(b)
Other Financing Statements
. The Collateral is owned by the Grantors free and
clear of any Lien, other than Permitted Liens. None of the Grantors has filed or consented to the
filing of any financing statement or analogous document under the UCC or any other applicable Laws
covering any Collateral, other than in respect of Permitted Liens.
4.03 Covenants
. (a)
Change of Name, etc
. Each Grantor agrees to provide at least 30
days prior written notice to the Administrative Agent of any change (i) in its legal name, (ii) in
its identity or type of organization or corporate structure, (iii) in its Federal Taxpayer
Identification Number or organizational identification number or (iv) in its jurisdiction of
organization. Each Grantor agrees to promptly provide the Administrative Agent with certified
organizational documents reflecting any of the changes described in the immediately preceding
sentence, to the extent applicable. Each Grantor agrees not to effect or permit any change
referred to in the first sentence of this paragraph (a) unless all filings have been made under the
applicable UCC or otherwise that are required in order for the Administrative Agent to continue at
all times following such change to have a valid, legal and perfected first priority security
interest in all the Collateral subject to Permitted Liens.
(b)
Maintenance of Records
. Each Grantor agrees to maintain, at its own cost and
expense, such complete and accurate records with respect to the Collateral owned by it in
accordance with reasonably prudent and standard practices used in industries that are the same as
or similar to those in which such Grantor is engaged, and, at such time or times as the
Administrative Agent may reasonably request in respect of any material portion of any Collateral,
to prepare and deliver to the Administrative Agent a schedule or schedules in form and detail
reasonably satisfactory to the Administrative Agent showing the identity, amount and location of
any and all Collateral specified in any such request.
19
(c)
Further Assurances
. (i) Each Grantor shall, at its own expense, take any and all
commercially reasonable actions necessary to defend title to all material Collateral against all
Persons and to defend the Security Interest of the Administrative Agent in all material Collateral
and the priority thereof against any Lien not expressly permitted to be prior to the Security
Interest pursuant to Section 7.01 of the Credit Agreement.
(ii) If at any time any Grantor shall take a security interest in any property of an
Account Debtor or any other Person to secure payment and performance of an Account, such
Grantor shall promptly assign such security interest to the Administrative Agent to the
extent permitted by any effective provision of the contracts or arrangements to which such
property is subject. Such assignment need not be filed of public record unless necessary to
continue the perfected status of the security interest against creditors of and transferees
from the Account Debtor or other Person granting the security interest. Each Grantor shall
remain liable to observe and perform all the conditions and obligations to be observed and
performed by it under each contract, agreement or instrument relating to or consisting part
of the Collateral, all in accordance with the terms and conditions thereof, and each Grantor
jointly and severally agrees to indemnify and hold harmless each Secured Party from and
against any and all liability for such performance (except to the extent such liability is
found in a final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Secured Party’s gross negligence or willful misconduct).
(iii) Each Grantor agrees, at its own expense, to execute, acknowledge, deliver and
cause to be duly filed all such further instruments and documents and take all such actions
as the Administrative Agent may from time to time reasonably request to better assure,
preserve, protect and perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in connection with the
execution and delivery of this Agreement, the granting of the Security Interest and the
filing of any financing statements (including fixture filings) or other documents in
connection herewith or therewith.
(d)
Insurance
. The Grantors, at their own expense, shall maintain or cause to be
maintained insurance covering physical loss or damage to the Inventory and Equipment in accordance
with the requirements set forth in Section 6.07 of the Credit Agreement. Each Grantor irrevocably
makes, constitutes and appoints the Administrative Agent (and all officers, employees or agents
designated by the Administrative Agent) as such Grantor’s true and lawful agent (and
attorney-in-fact) for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Collateral under policies of insurance, endorsing the
name of such Grantor on any check, draft, instrument or other item of payment for the proceeds of
such policies of insurance and for making all determinations and decisions with respect thereto.
In the event that any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part relating thereto, the
Administrative Agent may, without waiving or releasing any obligation or liability of the Grantors
hereunder or any Event of Default, in its sole discretion, upon written notice to Grantors, obtain
and maintain such policies of insurance and pay such premium and take any other actions with
respect thereto as the Administrative Agent reasonably deems advisable. All sums disbursed by the
Administrative Agent in connection with this
Subsection 4.03(d)
,
20
including reasonable attorneys’ fees, court costs, expenses and other reasonable charges
relating thereto, shall be payable, upon demand, by the Grantors to the Administrative Agent and
shall be additional Obligations secured hereby.
(e)
Inspection Rights
. Without in any way limiting or expanding the rights of any
Lender or the Administrative Agent pursuant to Section 6.10 of the Credit Agreement, the
Administrative Agent and such Persons as the Administrative Agent may reasonably designate shall
have the right, at the Grantors’ cost and expense, to inspect the Collateral, all records related
thereto (and to make extracts and copies from such records) and the premises upon which any of the
Collateral is located, at reasonable times and intervals during normal business hours upon
reasonable advance notice to the respective Grantor, to discuss the Grantors’ affairs with the
officers of the Grantors and their independent accountants and to verify under reasonable
procedures, the validity, amount, quality, quantity, value, condition and status of, or any other
matter relating to, the Collateral. Subject to Section 10.07 of the Credit Agreement, the
Administrative Agent shall have the right to share any information it gains from such inspection or
verification with any Secured Party.
(f)
Payment of Taxes
. At its option, the Administrative Agent may discharge past due
taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time
levied or placed on the Collateral (other than Permitted Liens), and may pay for the maintenance
and preservation of the Collateral to the extent any Grantor fails to do so as required by the
Credit Agreement or this Agreement, and the Grantors agree to reimburse the Administrative Agent on
demand for any payment made or any reasonable expense incurred by the Administrative Agent pursuant
to the foregoing authorization and shall be additional Obligations secured hereby;
provided
,
however
, that nothing in this
Section 4.03(e)
shall be
interpreted as excusing any Grantor from the performance of, or imposing any obligation on the
Administrative Agent or any Secured Party to cure or perform, any covenants or other promises of
any Grantor with respect to taxes, assessments, charges, fees, Liens, security interests or other
encumbrances and maintenance as set forth herein or in the other Loan Documents.
ARTICLE V
REMEDIES
5.01 Remedies upon Default
. (a) Upon the occurrence and during the continuance of an Event of
Default, each Grantor agrees to deliver all or any item of Collateral to the Administrative Agent
on demand, and it is agreed that the Administrative Agent shall have the right, with or without
legal process and with or without prior notice or demand for performance, to take possession of the
Collateral and without liability for trespass to enter any premises where the Collateral may be
located for the purpose of taking possession of or removing the Collateral and, generally with
respect to all Collateral, to exercise any and all rights afforded to a secured party under the UCC
or other applicable Law. Without limiting the generality of the foregoing, each Grantor agrees
that the Administrative Agent shall have the right to sell or otherwise dispose of all or any part
of the Collateral at a public or private sale or at any broker’s board or on any securities
exchange, for cash, upon credit or for future delivery as the Administrative Agent shall deem
appropriate. The Administrative Agent shall be authorized at any such sale of securities (if it
deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will
represent and agree that they are purchasing the Collateral for their own
21
account for investment and not with a view to the distribution or sale thereof, and upon
consummation of any such sale of Collateral the Administrative Agent shall have the right to
assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each
such purchaser at any such sale shall hold the property sold absolutely, free from any claim or
right on the part of any Grantor, and each Grantor hereby waives and releases (to the extent
permitted by law) all rights of redemption, stay, valuation and appraisal that such Grantor now has
or may at any time in the future have under any rule of Law or statute now existing or hereafter
enacted.
(b) The Administrative Agent shall give the Grantors 10 days’ written notice (which each
Grantor agrees is reasonable notice within the meaning of Section 9-611 of the UCC or its
equivalent in other jurisdictions) of the Administrative Agent’s intention to make any sale of
Collateral. Such notice, in the case of a public sale, shall state the time and place for such
sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the
board or exchange at which such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such public sale shall be
held at such time or times within ordinary business hours and at such place or places as the
Administrative Agent may fix and state in the notice (if any) of such sale. At any such sale, the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Administrative Agent may (in its sole and absolute discretion) determine. The
Administrative Agent shall not be obligated to make any sale of any Collateral if it shall
determine not to do so, regardless of the fact that notice of sale of such Collateral shall have
been given. The Administrative Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement at the time and
place fixed for sale, and such sale may, without further notice, be made at the time and place to
which the same was so adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the Administrative Agent
until the sale price is paid by the purchaser or purchasers thereof, but the Administrative Agent
shall not incur any liability in case any such purchaser or purchasers shall fail to take up and
pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again
upon like notice. At any public (or, to the extent permitted by law, private) sale made pursuant
to this
Section 5.01
, any Secured Party may bid for or purchase for cash, free (to the
extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of
any Grantor (all said rights being also hereby waived and released to the extent permitted by law),
the Collateral or any part thereof offered for sale and such Secured Party may, upon compliance
with the terms of sale, hold, retain and dispose of such property without further accountability to
any Grantor therefor. For purposes hereof, a written agreement to purchase the Collateral or any
portion thereof shall be treated as a sale thereof; the Administrative Agent shall be free to carry
out such sale pursuant to such agreement and no Grantor shall be entitled to the return of the
Collateral or any portion thereof subject thereto, notwithstanding the fact that after the
Administrative Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Obligations paid in full. As an alternative to exercising the power of sale
herein conferred upon it, the Administrative Agent may proceed by a suit or suits at law or in
equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a
judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding
by a court-appointed receiver. Any sale pursuant to the provisions of this
Section
22
5.01
shall be deemed to conform to the commercially reasonable standards as provided
in Section 9-610(b) of the UCC or its equivalent in other jurisdictions.
(c) Notwithstanding anything to the contrary contained in this Agreement, if any enforceable
term of any promissory note, contract, agreement, permit, lease, license or other General
Intangible included as a part of the Collateral requires the consent of the Person obligated on
such promissory note or any Person (other than the applicable Grantor) obligated on such lease,
contract or agreement, or which has issued such permit or license or other General Intangible (i)
for the creation, attachment or perfection of the Lien of this Agreement in such Collateral or (ii)
for the assignment or transfer thereof or the creation, attachment or perfection of such Lien not
to give rise to a default, breach, right of recoupment, claim, defense, termination, right of
termination or other remedy thereunder, then the receipt of any such necessary consent shall be a
condition to any exercise of remedies against such Collateral under this
Section 5.01
(but
not to the creation, attachment or perfection of the Lien of this Agreement as provided herein).
5.02 Application of Proceeds.
All cash proceeds received by the Administrative Agent in
respect of any sale of, collection from, or other realization upon all or any part of the
Collateral of any Grantor may, in the discretion of the Administrative Agent, be held, to the
extent permitted under applicable Law, by the Administrative Agent as additional collateral
security for all or any part of the Obligations of such Grantor, and/or then or at any time
thereafter shall be applied (after payment of any amounts payable to the Administrative Agent
pursuant to Section 10.04 of the Credit Agreement and
Section 5.06
below) in whole or in
part by the Administrative Agent for the ratable benefit of the Secured Parties against all or any
part of the Obligations of such Grantor in accordance with Section 8.03 of the Credit Agreement.
Any surplus of such cash or cash proceeds of any Grantor held by the Administrative Agent and
remaining on the Termination Date for such Grantor shall be paid over to such Grantor or to
whomsoever may be lawfully entitled to receive such surplus.
5.03 Grant of License to Use
. Subject to any agreements with third parties that have been or
may be entered into by any Grantor, for the purpose of enabling the Administrative Agent to
exercise rights and remedies under this Agreement at such time as the Administrative Agent shall be
lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the
Administrative Agent an irrevocable, nonexclusive license for the term of this Agreement
(exercisable without payment of royalty or other compensation to the Grantors) to use, license or
sublicense any of the Collateral consisting of intellectual property now owned or hereafter
acquired by such Grantor, wherever the same may be located, and including in such license
reasonable access to all media in which any of the licensed items may be recorded or stored and to
all computer software and programs used for the compilation or printout thereof. The use of such
license by the Administrative Agent may be exercised, at the option of the Administrative Agent,
only upon the occurrence and during the continuation of an Event of Default;
provided
that
any license, sublicense or other transaction entered into by the Administrative Agent in accordance
herewith shall be binding upon the Grantors notwithstanding any subsequent cure of an Event of
Default.
5.04 Securities Act, etc
. In view of the position of the Grantors in relation to the Pledged
Collateral, or because of other current or future circumstances, a question may arise
23
under the Securities Act of 1933, as now or hereafter in effect, or any similar statute
hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from
time to time in effect being called the “
Federal Securities Laws
”) with respect to any
disposition of the Pledged Collateral or any Investment Property permitted hereunder. Each Grantor
understands that compliance with the Federal Securities Laws might very strictly limit the course
of conduct of the Administrative Agent if the Administrative Agent were to attempt to dispose of
all or any part of the Pledged Collateral or any Investment Property, and might also limit the
extent to which or the manner in which any subsequent transferee of any Pledged Collateral or any
Investment Property could dispose of the same. Similarly, there may be other legal restrictions or
limitations affecting the Administrative Agent in any attempt to dispose of all or part of the
Pledged Collateral or any Investment Property under applicable Blue Sky or other state securities
laws or similar laws analogous in purpose or effect. Each Grantor recognizes that in light of such
restrictions and limitations the Administrative Agent may, with respect to any sale of the Pledged
Collateral or any Investment Property, limit the purchasers to those who will agree, among other
things, to acquire such Pledged Collateral or any such Investment Property for their own account,
for investment, and not with a view to the distribution or resale thereof. Each Grantor
acknowledges and agrees that in light of such restrictions and limitations, the Administrative
Agent, when exercising remedies on behalf of the Secured Parties after an Event of Default has
occurred and is continuing, (a) may proceed to make such a sale whether or not a registration
statement for the purpose of registering such Pledged Collateral or Investment Property or part
thereof shall have been filed under the Federal Securities Laws and (b) may approach and negotiate
with a single potential purchaser to effect such sale. Each Grantor acknowledges and agrees that
any such sale might result in prices and other terms less favorable to the seller than if such sale
were a public sale without such restrictions. In the event of any such sale, the Administrative
Agent shall incur no responsibility or liability for selling all or any part of the Pledged
Collateral or Investment Property at a price that the Administrative Agent, in its sole and
absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might have been realized if the sale were deferred
until after registration as aforesaid or if more than a single purchaser were approached. The
provisions of this
Section 5.04
will apply notwithstanding the existence of a public or
private market upon which the quotations or sales prices may exceed substantially the price at
which the Administrative Agent sells.
ARTICLE VI
MISCELLANEOUS
6.01 Notices.
All notices and other communications provided for hereunder shall be in writing
and mailed, delivered or transmitted by telecopies to each party hereto at the address set forth in
Section 10.02 of the Credit Agreement (with any notice to a Grantor being delivered to the Loan
Party Representative in care of such Grantor). All such notices and other communications shall be
deemed to be given or made at the times provided in Section 10.02 of the Credit Agreement.
6.02 Amendments, etc.; Additional Grantors; Successors and Assigns
.
(a) No amendment to or waiver of any provision of this Agreement nor consent to any departure
by any Grantor herefrom, shall in any event be effective unless the
24
same shall be in writing and signed by the Administrative Agent and, with respect to any such
amendment, by the Grantors and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. This Agreement shall be construed as a
separate agreement with respect to each Grantor and may be amended, modified, supplemented, waived
or released with respect to any Grantor without the approval of any other Grantor and without
affecting the obligations of any other Grantor hereunder.
(b) Upon execution and delivery by the Administrative Agent and any Person of a Joinder
Agreement, such Person shall become a Grantor hereunder with the same force and effect as if
originally named as a Grantor herein. The execution and delivery of any such Joinder Agreement
shall not require the consent of any other Grantor hereunder. The rights and obligations of each
Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new
Grantor as a party to this Agreement.
(c) Upon the delivery by the Borrower of each Perfection Certificate Supplement certifying
supplements to the Schedules to the Perfection Certificate in respect of any Grantor pursuant to
Section 4.01(b)
, such schedule supplements shall be incorporated into and become a part of
and supplement the Schedules to the Perfection Certificate and the Administrative Agent may attach
such schedule supplements to such Schedules, and each reference to the Schedules to the Perfection
Certificate shall mean and be a reference to such Schedules, as supplemented pursuant to any such
Perfection Certificate Supplement. For the avoidance of doubt, the delivery of any Perfection
Certificate Supplement shall not effect any release of the security interest granted by any Grantor
hereunder unless and until such release shall be effective pursuant to
Section 3.07
.
(d) This Agreement shall be binding upon each Grantor and its successors, transferees and
assigns and shall inure to the benefit of the Administrative Agent and each other Secured Party and
their respective successors, transferees and permitted assigns;
provided
,
however
,
that no Grantor may assign its obligations hereunder without the prior written consent of the
Administrative Agent.
6.03 Survival of Agreement
. All covenants, agreements, representations and warranties made by
each Grantor in the Loan Documents and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other Loan Document shall be
considered to have been relied upon by the Lenders and shall survive the execution and delivery of
the Loan Documents and the making of any Loans regardless of any investigation made by any Lender
or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had
notice or knowledge of any Default or incorrect representation or warranty at the time any credit
is extended under the Credit Agreement, and shall continue in full force and effect until the
Termination Date or any earlier release of such Grantor hereunder pursuant to
Section 3.07
.
6.04 Indemnity and Expenses.
(a) Each Grantor shall jointly and severally indemnify the Administrative Agent and the other
Secured Parties and each Related Party of any of the foregoing Persons (each such Person being
called an “
Indemnitee
”) against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses (including the
25
reasonable fees, charges and disbursements of any counsel for any Indemnitee), and shall
indemnify and hold harmless each Indemnitee from all reasonable fees and time charges and
disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or
asserted against any Indemnitee by any third party or by the Grantors or any other Loan Party
arising out of, in connection with, or as a result of any actual or prospective claim, litigation,
investigation or proceeding relating to any of the following (whether based on contract, tort or
any other theory, whether brought by a third party or by any Grantors or any other Loan Party, and
regardless of whether any Indemnitee is a party thereto, in all cases, whether or not caused by or
arising, in whole or in part, out of the negligence of the Indemnitee): the execution or delivery
of this Agreement or any agreement or instrument contemplated hereby, the performance by the
parties hereto of their respective obligations hereunder or thereunder, the consummation of the
transactions contemplated hereby or thereby or the enforcement of this Agreement or any agreement
or instrument contemplated hereby;
provided
that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related
expenses (x) are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y)
result from a claim brought by any Grantor or any other Loan Party against an Indemnitee for breach
in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if such
Grantor or such other Loan Party has obtained a final and nonappealable judgment in its favor on
such claim as determined by a court of competent jurisdiction.
(b) Each Grantor will upon demand pay to the Administrative Agent the amount of any and all
reasonable expenses, including the reasonable fees and disbursements of any experts and agents,
which the Administrative Agent may incur in connection with the following:
(i) the administration of this Agreement and the other Collateral Documents;
(ii) the custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any of the Collateral;
(iii) the exercise or enforcement of any of the rights of the Administrative Agent or
the Secured Parties hereunder or under any other Collateral Document; or
(iv) the failure by any Grantor to perform or observe any of the provisions hereof.
The agreements of each Grantor in this
Section 6.04
shall survive the Termination
Date.
6.05 Administrative Agent Appointed Attorney-in-Fact.
Each Grantor hereby appoints the
Administrative Agent the attorney-in-fact of such Grantor for the purpose, upon the occurrence and
during the continuance of an Event of Default, of carrying out the provisions of this Agreement and
taking any action and executing any instrument that the Administrative Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, the
26
Administrative Agent shall have the right, upon the occurrence and during the continuance of
an Event of Default, with full power of substitution either in the Administrative Agent’s name or
in the name of such Grantor, (a) to receive, endorse, assign and/or deliver any and all notes,
acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral
or any part thereof, (b) to demand, collect, receive payment of, give receipt for and give
discharges and releases of all or any of the Collateral, (c) to ask for, demand, sue for, collect,
receive and give acquittance for any and all moneys due or to become due under and by virtue of any
Collateral, (d) to sign the name of any Grantor on any invoice or bill of lading relating to any of
the Collateral, (e) to send verifications of Accounts to any Account Debtor, (f) to commence and
prosecute any and all suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any
rights in respect of any Collateral, (g) to settle, compromise, compound, adjust or defend any
actions, suits or proceedings relating to all or any of the Collateral, (h) to notify, or to
require any Grantor to notify, Account Debtors to make payment directly to the Administrative
Agent, and (i) to use, sell, assign, transfer, pledge, make any agreement with respect to or
otherwise deal with all or any of the Collateral, and to do all other acts and things necessary to
carry out the purposes of this Agreement, as fully and completely as though the Administrative
Agent were the absolute owner of the Collateral for all purposes;
provided
, that nothing
herein contained shall be construed as requiring or obligating the Administrative Agent to make any
commitment or to make any inquiry as to the nature or sufficiency of any payment received by the
Administrative Agent, or to present or file any claim or notice, or to take any action with respect
to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any
property covered thereby. The Administrative Agent and the other Secured Parties shall be
accountable only for amounts actually received as a result of the exercise of the powers granted to
them herein, and neither they nor their officers, directors, employees or agents shall be
responsible to any Grantor for any act or failure to act hereunder, except for their own gross
negligence or willful misconduct.
6.06 Waivers
. No failure or delay by the Administrative Agent or any other Secured Party in
exercising any right, power or remedy hereunder or under any other Loan Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right, power or remedy, or any
abandonment or discontinuance of steps to enforce such a right, power or remedy, preclude any other
or further exercise thereof or the exercise of any other right, power or remedy. The rights,
powers and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan
Documents are cumulative and are not exclusive of any rights, powers or remedies that they would
otherwise have. Without limiting the generality of the foregoing, the making of a Loan shall not
be construed as a waiver of any Default, regardless of whether the Administrative Agent or any
Lender may have had notice or knowledge of such Default at the time. No notice or demand on any
Loan Party in any case shall entitle any Loan Party to any other or further notice or demand in
similar or other circumstances.
6.07 Severability
. If any provision of this Agreement is held to be illegal, invalid or
unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this
Agreement shall not be affected or impaired thereby and (b) the parties shall endeavor in good
faith negotiations to replace the illegal, invalid or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of the illegal, invalid
or
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unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
6.08 Counterparts, Integration, Effectiveness
. This Agreement may be executed in counterparts
(and by different parties hereto in different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single contract. This Agreement
and the other Loan Documents constitute the entire contract among the parties relating to the
subject matter hereof and supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof. This Agreement shall become effective when it
shall have been executed by the Administrative Agent and when the Administrative Agent shall have
received counterparts hereof that, when taken together, bear the signatures of each of the other
parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by
telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.
6.09 Headings
. Article and Section headings used herein are for the purpose of reference
only, are not part of this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
6.10 GOVERNING LAW; JURISDICTION; ETC.
(a)
GOVERNING LAW
. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
(b)
SUBMISSION TO JURISDICTION
. EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY SUBMITS,
FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF
SUCH STATE, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT
OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES
HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE
ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY LOAN PARTY OR ITS
PROPERITES IN THE COURTS OF ANY JURISDICTION.
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(c)
WAIVER OF VENUE
. EACH GRANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THIS SECTION. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF
AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d)
SERVICE OF PROCESS
. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS
IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.02 OF THE CREDIT AGREEMENT. NOTHING IN THIS
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY APPLICABLE LAW.
6.11 WAIVER OF JURY TRIAL
. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES
HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
6.12 ENTIRE AGREEMENT
. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES OR BY PRIOR OR CONTEMPORANEONS WRITTEN AGREEMENTS. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[Signature Pages Follows.]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and
year first above written.
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Grantors:
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HFF PARTNERSHIP HOLDINGS LLC
, a Delaware limited liability company
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By:
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Name:
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Title:
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HOLLIDAY FENOGLIO FOWLER, L.P.
, a Texas limited partnership
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By: HOLLIDAY GP CORP., a Delaware corporation and its general partner
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By:
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Name:
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Title:
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HOLLIDAY GP CORP.
, a Delaware corporation
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By:
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Name:
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Title:
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HFF LP ACQUISITION LLC
, a Delaware limited liability company
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By:
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Name:
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Title:
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Administrative Agent:
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BANK OF AMERICA, N.A.
, as Administrative Agent
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By:
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Name:
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Title:
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Pledge and Security Agreement
S-1
Signature Page to
Pledge and Security Agreement
S-2
EXHIBIT A
to Pledge and Security Agreement
PERFECTION CERTIFICATE
Form of Pledge and Security Agreement
I-1
